G4S growth slows as transformation continues

Security outsourcing group G4S reported slower growth in the second quarter and held its first-half dividend steady, as management declared their increased confidence in prospects thanks to the "substantial progress" being made with restructuring.

Revenue in the first six months of the year from ongoing business rose 6.2% to £3.7bn as developed markets of Europe and North America and emerging markets of Asia Pacific and Latin America generated the strongest growth.

Middle East & India was the only area of no growth, with sales falling 24% due to the effects of lower oil prices and regulatory changes on the subcontinent.

For the full year, chief executive Ashley Almanza expects full year revenue growth to be broadly in line with the medium term target of 4-6, with continued growth anticipated in 2018.

As Almanza continues his major transformation for the group, which was restored to the FTSE 100 in June after addressing past problems with cost cuts and asset disposals, adjusted profit before tax for ongoing businesses improved 5.9% at constant exchange rates to £235m, with earning per share up 7.8% to 8.3p. Profit growth was slower than the 9.7% growth seen in 2016, when EPS grew 16%.

Some analysts have bemoaned the company moving business lines in and out of its portfolio and discontinued segments, which has made it harder to discern trends in the business.

But statutory PBT for the entire group almost doubled to £218m and EPS was more than doubled to 9.7p.

"We continue to invest in strengthening our sales operations and in new products and services for our customers and these investments have materially improved our sales pipeline which supports our medium term aim of growing revenues by an average of around 4-6% per annum," he said.

He added that the productivity programme "provides increased confidence" that the group can deliver recurring operating and financing efficiencies of £90-100m by 2020.

"We believe that this combination of investment, growth and productivity will deliver strong growth in the group's earnings a and operating cash flow."

The sales pipeline had swelled to £7.0bn from £6.8bn at the end of last year, with Almanza saying the annual contract value scale and quality of the pipeline is "materially improved", which, together with ongoing investment in sales operations and new products and services, "stronger support for our organic growth plans".

Operating cash flow of £192m was generated, down from £277m in the same period last year but with a weighting to the second half having already been guided.

Net debt at the end of June stood at £1.6bn, down from £1.67bn at the end of December and £1.78bn a year ago, with the net debt to EBITDA ratio improved to 2.7x and expected to reach 2.5x or lower by year end.

An interim dividend of 3.59p will be paid, the same as last year's.