Interim Management Statement
Trends from the first half continued into the third quarter with strong performances in new markets and signs that some of the developed markets have stabilised.
An overview of the financial performance for the nine months to 30 September 2010 is as follows:
In the first nine months of 2010 overall revenues grew by 5.6% at actual exchange rates compared to the same period last year and by 4.2% at constant exchange rates. The group operating margin was in line with the same period in 2009 at both actual and constant exchange rates.
Overall organic growth was 2.1%, with 0.4% in developed markets and 7% in new markets.
- In secure solutions, organic growth was 2.7% helped by a continued strong performance in the government sector and new markets together with a lower decline in revenues in Continental Europe than that experienced in the first six months.
- In cash solutions organic growth was -0.5% with strong growth in new markets offset by the impact of low interest rates in developed markets causing service reductions.
Overall margins were unchanged on the same period last year.
- Secure solutions margins were up slightly helped by new markets with strong performances in Africa and the Middle East.
- Cash solutions margins were slightly down on the same period last year as they were in the first half of 2010.
Comprehensive Spending Review
G4S is pleased to announce today that it has reached agreement with the UK Government on a number of contracts relating to the Cabinet Office Comprehensive Spending Review (CSR) and as a result has signed a Memorandum of Understanding (MoU) with the UK Government detailing the areas of savings to be achieved in partnership with G4S. Savings have been achieved largely through specification amendments on existing contracts.
The group believes that there are a number of areas where the private sector can deliver further cost savings to the government as a result of more extensive outsourcing which will provide medium term growth opportunities in the outsourced government sector and allow G4S to grow its market share in this area.
On 29 October 2010, the UK Home Office announced that G4S had not been successful in winning the re-bid for escorting people detained by the UK Border Agency (UKBA). The current G4S contract is due to end in May 2011.
In September 2010, G4S was successful in winning an extension to a major UK Government contract which will more than compensate for any 2011 revenue reductions resulting from the loss of the UKBA contract.
As previously reported, the US Embassy contract in Kabul, Afghanistan, will come to an end in December this year and we expect the US forces contract in Iraq to scale down over the same period.
In October, G4S was awarded the Brussels Airport contract for three years from February 2011.
Acquisitions & Divestments
During the first nine months of the year, G4S has invested a total of £42m on acquisitions. Of this, £38m was invested in capability building acquisitions such as electronic software and hardware integration businesses in Brazil and £4m was spent purchasing the remaining 40% non-controlling interest in an Argentinean business. Due to phasing it is unlikely that any further material acquisitions will be completed by the end of the year.
Our financial position continues to be strong and we have significant current headroom from committed funds. Cash flow also remains strong and we are on track to hit our cash conversion target of 85% of PBITA for the full year.
Summary & Outlook
The business has continued to perform well despite continued challenging market conditions with positive organic growth and margins maintained.
European markets are still proving to be challenging, especially in Eastern Europe, although the UK and US commercial markets have now stabilised. Our New Markets businesses, which now account for more than a third of group profits, continue to achieve strong results.
These factors combined with our strategy to deliver integrated security solutions give us confidence that we will continue to show good progress for this year and into the next.
Preliminary results for the year to 31 December 2010 will be published on 15 March 2011.