9th Mar 2016 11:24
LONDON (Alliance News) - Security services provider G4S PLC booked more provisions on troublesome legacy contracts in the UK on Wednesday, hit by the sharp rise in the number of asylum seekers it has to house, as pretax profit dipped in 2015 and it outlined plans to offload more businesses.
Shares in the company sunk on Wednesday, down 11% to 189.00 pence and one of the worst performers in the FTSE 250 late morning.
The group, the world's largest security company by revenue and one of the biggest private sector employers globally, said its pretax profit fell to GBP78.0 million from GBP128.0 million in 2014, hit by a GBP66.0 million goodwill charge it booked on businesses it has sold and on one of its operations in Estonia.
G4S also increased the provision it will take on its loss-making contract running centres housing asylum seekers for the Home Office.
Between November 2015 and January this year, a sharp rise in the number of asylum seekers to the UK was seen, driven by an influx of refugees fleeing the civil war in Syria. As G4S loses money on every asylum seeker it houses - prompting its push to renegotiate the terms of the contract - it has been forced to hike its overall provision against losses on this contract to GBP31.0 million from GBP20.0 million previously.
That provision covers expected losses through to August 2017, but if the contract is extended to August 2019, G4S said it would have to book another provision of GBP57.0 million.
Revenue fell to GBP6.86 billion in 2015 from GBP6.89 billion in 2014, as constant currency growth in emerging markets and Europe was hit by weak currencies in those regions, when translated in sterling. UK revenue also fell 3.0%. North America revenue rose 5.8%.
UK & Ireland revenue dropped due to the loss of its electronic monitoring contract with the UK government and the loss of a cash-in-transit contract with supermarket Tesco. North American revenue, meanwhile, rose thanks to good growth in commercial security, security systems and cash management technology sales, which offset a general slowdown in Canadian operations.
Europe returned to underlying growth in the year, helped by a good performance in its Netherlands cash business, though profitability in the region took a hit from changes to its sales mix in the Netherlands and Hungary. G4S didn't provide any detail on the charge against goodwill that it took in Estonia.
Asia and Middle East revenue increased in constant currencies, with an improved performance in the second half, driven by good growth in India, Saudi Arabia, Hong Kong and the United Arab Emirates, among others countries. Underlying revenue also grew in Latin America, with strong trading in Argentina, Mexico and Colombia, though the recession in Brazil and sharp downturn in the mining industry in Chile moderated growth in those two countries.
G4S said it has continued to make progress on its portfolio management process and has identified more businesses to be sold in the next 12 to 24 months. It expects to raise between GBP250.0 million and GBP350.0 million from its divestment programme, which will include the new businesses identified and the 38 G4S had already marked for sale.
This will include selling its business in Israel, its UK utility services and US youth justice businesses, plus its UK children's services arm, the sale of which kicked off in late February. The UK children's services unit has faced significant controversy recently, following a BBC documentary which showed staff using excessive force on children detained at the Medway Secure Training Centre in Kent.
G4S will pay a flat final dividend of 5.82 pence per share, meaning its total payout will rise 1.9% year-on-year to 9.41p.
"During 2015 we made substantial progress with the strategic and operational transformation of G4S. We continue to actively manage our onerous legacy contracts in the UK which were entered into prior to 2013. We have had to increase the provisions in relation to these contracts. We have also established robust controls governing new major contracts," said Chief Executive Ashley Almanza.
"Against a background of global economic uncertainty, demand for our services has remained resilient and growth accelerated in the second half of 2015, providing good support for further operating and financial progress in 2016," Almanza added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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