Cash Solutions slows G4S's progress

There was plenty for both bulls and bears to seize on in the results of global security titan G4S as, depending on your definition, profits both rose and fell in 2011.

Profit from operations before amortisation and impairment of acquisition-related intangible assets and exceptional items (PBITA) rose 2.1% in 2011 to £531m from £520m in 2010, although the 2010 figure has been restated at constant exchange rates and adjusted for discontinued operations.

Set aside the amortisation, the exchange rate modifications and other adjustments, and you get a slightly different story. PBIT slipped to £375m in 2011 from £438m the year before, while good old easy to understand profit before tax tumbled to £279m from £335m.

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Earnings per share (EPS) fell to 14.7p from 16.9p, but factor in all those adjustments again and you get a 6% increase in EPS to 22.8p from 21.6p in 2010. The market had pencilled in a figure of 22.82p for adjusted EPS.

Turnover rose 4.7% on an underlying basis to £7,522m from an adjusted £7,181m the year before, well below the market consensus forecast of £7,807m. On the plus side, organic top line growth quickened to 4.5% in 2011 from 2.1% in 2010.

The group is seeking to earn half of its revenues from developing markets by 2019 and made progress towards this aim, with turnover of £2.2bn representing 30% of the group total. Turnover from developing markets grew 9% on a like-for-like basis.

Secure Solutions

The group's Secure Solutions business put the Cash Solutions unit in the shade. Secure Solutions saw organic revenue growth of 5%, with Europe up 4% year-on-year and North America up 3%. Developing Markets' organic revenue growth was 9%.

The group said the pipeline of UK government outsourcing opportunities for its Secure Solutions remains particularly strong in areas such as prisons, police, health and the Department for Work and Pensions. Trading conditions in Ireland, however, remained tough in 2011.

In Continental Europe the Secure Solutions division performed well against an uncertain economic backdrop and has continued to gain market share with its solutions strategy outperforming single service providers, the company statement said.

In North America, the division's margins were slightly lower as the US government put the brakes on spending.

In Developing Markets, Latin America and the Caribbean was the star region, with organic turnover growth of 20%, double that seen in Asia, and outstripping Africa's 8% growth, while the Middle East saw negative growth of 1%.

Cash Solutions

The Cash Solutions division saw organic turnover growth of 2%, with Developing Markets again seeing 9% growth, while both Europe and North America saw like-for-like turnover ease 1% from a year earlier. Europe's reverse had much to do with sluggish markets in the UK & Ireland, while in North America the group received a knock-back in Canada as it lost some of its business with the Bank of Montreal.

Group as a whole

The operating margin eased to 7.1% from 7.2% in 2011 while the group achieved its cash conversion target of 85%.

One thing that does not need any adjustment is the dividend pay-out; this has been increased by 8% for 2011 to 8.53p from the 7.90p paid out in respect of 2010, and was bang in line with market expectations.

Chief Executive Officer Nick Buckles said the hefty increase in the dividend was a sign of the board's confidence in the future.

"We won and mobilised a number of significant contracts in 2011 and expect outsourcing trends to continue. Overall, we are confident about the outlook for 2012 when we expect to deliver organic revenue growth higher than 2011 together with the additional contribution from the London 2012 Olympic and Paralympic Games contract," Buckles said.

"Looking forward, we are encouraged by the performance and outlook for our US commercial and the UK government and commercial businesses. However, the outlook for our developed markets cash solutions and Continental European secure solutions businesses remains muted and we continue to focus on cost base control," Buckles added.

The share price fell to 284p in the first half of trading on the day of the results announcement, down 6p on the day, having dipped as low as 277.4p at one point.

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