G4S aims to raise £600m in bid to avoid downgrade in ratings

PRIVATE security firm G4S plans to raise up to £600m by selling shares and businesses in a bid to cut its debt and stave off a ratings downgrade.

A G4S guard
A G4S guard

The company, which is still reeling from its Olympics security failure and an overcharging scandal for tagging offenders, is selling new shares worth around £350m, plus offloading businesses for a total £250m.

G4S, which has 620,000 staff around the world, said it will also carry out a restructuring exercise as part of plans to reduce a debt mountain worth almost £2bn at the end of June.

The biggest employer on the FTSE 100 Index slumped to half-year pre-tax losses of £87m for the first six months, after profits of £48m a year earlier were wiped out by a £180m writedown of assets and liabilities.

New boss Ashley Almanza said G4S must strengthen its balance sheet, as he revealed the sale of about 141m new shares, which is equivalent to 10 per cent of its existing equity base.

Mr Almanza replaced Nick Buckles in June, after the former chief executive came under fire for its botched handling of its Olympic Games contract.

Its Olympics failure saw Mr Buckles hauled before MPs, during which he admitted it was a “humiliating shambles for the company”.

Extra military personnel had to be called in to fill the gap left by G4S’s failure to supply enough staff for the £284m contract.

G4S, together with rival Serco, was also mired in further controversy around an overcharging scandal which, among other errors, saw the Government billed for tagging offenders who were back in prison, had had their tags removed, or in some cases, were dead.

Yesterday’s cash call marks a steep fall from almost two years ago, when G4S announced a £5.2bn takeover of Danish facilities management firm ISS.

The deal, which was later scuppered by shareholders, had aimed to create a company with around 1.2m staff and revenues of £16bn.

G4S yesterday warned that a ratings downgrade could add up to £30m a year to its debt costs.

It is selling a Canadian cash “solutions” business and a US data storage company for a total £100m, which combined with other announced US sales, and imminent deals will recoup a total £250m.

Mr Almanza said: “We need to strengthen our balance sheet to be able to realise the group’s opportunity for substantial value creation.

“2013 will be a year of consolidation for the group with the actions we are now taking starting to deliver tangible benefits during 2014.”

The company also announced the appointment of Himanshu Raja, current chief financial officer at software group Misys, as its new finance chief.

He will start in October.

Half-year revenues grew seven per cent to £3.65bn year-on-year, including 5.4 per cent organic growth.

The company said it has a “strong and growing” pipeline of contracts worth £4bn a year.

Panmure Gordon analyst Mike Allen welcomed Mr Almanza’s debut announcement as chief executive.

“We applaud the quick work undertaken by management to re-structure the group and shore up the balance sheet,” he said.

G4S, which manages prisons and guards the Wimbledon tennis championships, aims to benefit from a trend among cash-strapped governments and businesses to outsource security work.

However, it has come under pressure as governments in developed markets have cut back services. The company said its first-half operating profit margin slipped to 5.5 per cent from 5.9 per cent in the same period last year, reflecting a lost prison contract in the Netherlands and squeezed pricing in Britain and elsewhere in Europe.

Net debt rose to £1.95bn as of June 30. However the group, which wants to grow revenue in developing markets in Asia, Africa and Latin America from a third to half of its total, said it had a global sales pipeline of £4bn.

It did not provide details, but noted strong demand from financial services, mining and government sectors in Africa.

“G4S has excellent market positions, particularly in developing markets and as a result of which we have very material growth opportunities,” Mr Almanza said.

The company said its largest shareholder, Invesco, supported the placing and intended to participate in it.