G4S shares plunge after profit warning

Shares in G4S have tumbled after the security firm revealed lower-than-expected revenues and warned that earnings are not expected to grow in 2018.

The stock dropped 12% after the company said revenues were being hit by a tight jobs market in Benelux and that full-year underlying earnings are now expected to remain flat.

Analysts had been expecting earnings to rise to £480 million from £464 million in 2017.

G4S reported organic revenue growth of 2.5% for the third quarter, which was far below the 4.5% pencilled in by analysts.

It said this left revenue growth for the first nine months at 1.1%.

The group said a competitive and tight labour market in Benelux was weighing on revenue growth in particular.

FTSE 100 photos
FTSE 100 photos

Chief executive Ashley Almanza said: “We continue to exercise commercial discipline in markets where labour supply is tight and, whilst this is expected to constrain revenue growth in 2018, our new contract wins and substantial, high-quality pipeline provide good momentum into 2019.”

The shares fall comes as the latest blow to G4S after the Government was forced to step in and take control of a jail run by the firm.

HMP Birmingham was found to have “slipped into crisis” after an inspection uncovered “appalling” squalor and violence, the prisons watchdog said in August.

The Ministry of Justice has now taken control of the establishment from G4S for at least six months.

The prisons contracts fall under G4S’s care and justice services division, which saw lower revenues in the third quarter, although the group said this was due to contract phasing.

Its secure solutions arm overall saw revenues rise 2.5% in the quarter.

Revenues rose 2.9% across its cash solution business.

G4S had cheered momentum in revenue growth at the half-year stage, despite seeing statutory pre-tax profits fall 36% to £139 million over the six months to June 30 due to a raft of disposals.

On an underlying basis, pre-tax profits fell 8% from £173 million to £158 million over the period.

The company is undergoing an efficiency plan meant to deliver up to £100 million in recurring cost savings by 2020, which will be reinvested in the business and expected to boost the bottom line.

Around £20 million in savings has been reached through refinancing completed this year, which G4S has previously said will start to “flow through to profits in 2019”.