G4S looks to tech channels

The group had warned in November that revenue growth would come up short of previous expectations, but in the event it appears investors were primarily spooked by concerns over group cash flow. Operating cash flow ended the year down 16.7 per cent on an adjusted basis, although a spokesperson for G4S highlighted a cash conversion rate of 106 per cent, which along with an 18 per cent fall in trade and receivables, points to improved capital discipline. A reduction in loan notes and an enhanced cash position brought the net debt to cash profit ratio to 2.4 times, within the 2.5 times target set by management.

Following recent events, the group is keen to separate itself from the wider outsourcing sector, although this seems a bit rich given the self-inflicted reputational damage. Nevertheless, only about 7 per cent of revenue comes from outsourcing work for the UK government, primarily in security and correctional facilities. The main focus for growth, however, is through the cash solutions business and technology-related security revenue. Deployment of the group’s 'smart safe' technology was up 30 per cent in the year, reaching a total of 19,500 locations. The safe technology automatically counts money deposited, linking with the treasury department of the company using it, as well as the related bank, or third-party financial organisation. It's telling that the  'integrated' security offering within the secure solutions division now accounts for about a third of group revenue – and is growing. 

Analysts at Stifel are forecasting adjusted EPS of 19.9p in 2018 (from 18.1p in 2017), noting some reductions may be needed in the future to account for foreign exchange.