March 10, 2015 / 7:34 AM / 4 years ago

G4S turnaround strategy delivers higher profits

LONDON (Reuters) - A management overhaul and restructuring helped G4S (GFS.L) to beat profit forecasts in 2014, marking progress for the world’s largest security group after a series of setbacks.

The British firm, trying to recover from contract problems including a high profile failure at the London Olympics in 2012, said on Tuesday underlying operating profit rose 7.9 percent to 424 million pounds ($637 million) last year, ahead of a consensus forecast of 414 million.

Under CEO Ashley Almanza, who took charge in 2013, G4S has shaken up its management and begun cutting costs in areas like IT and procurement.

It has also axed weak businesses to help feed growth in more profitable emerging markets, where 2014 revenue rose 8.9 percent and helped offset weaker trade in continental Europe and Britain.

Almanza maintained a cautious tone on the outlook for a company which runs services from transporting cash to protecting ships from pirates.

“There remains much to be done to realize the full potential of our strategy,” he said.

The profit rise was helped by 3.9 percent revenue growth and cost savings that pushed margins up slightly.

Shares rose 3.1 percent to 300.1 pence by 6.15 a.m. EDT, also boosted by a five percent rise in the final dividend to 5.82p per share — the first increase in 18 months.

“The group’s turnaround continues to progress,” Hargreaves Lansdown analyst Keith Bowman said.

“Underperforming businesses are being sold or discontinued, contract retention rates have stayed strong, whilst exposure to both expanding emerging markets and the recovering North American economy is proving beneficial.”

G4S hit the headlines in 2012 when it failed to provide enough security guards for the London Olympics. It had to repay over 110 million pounds last year to the British government after it was found to have charged for electronically monitoring criminals who were dead, in prison or had not been tagged at all.

The tagging errors led to a ban on new British government work, which has since ended, and also sparked an investigation by the Serious Fraud Office, which remains ongoing.

Almanza told reporters that Britain remained an important market for the firm despite a number of headache contracts. On Tuesday it said it had increased its provision for problematic British government deals by 45 million pounds.

The provision, over half of which was for a British contract to house asylum seekers that has seen costs spiral, comes after a 136 million pound provision taken in 2013.

British rival Serco (SRP.L) was forced to make a similar move on such contracts in November.

G4S said its sales pipeline stood at 5.5 billion pounds.

Editing by Keith Weir

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