G4S Drops on `Challenging' Business Prospects in Europe

G4S Plc fell the most in two months after the world’s biggest security-services provider said nine-month revenue failed to rise in developed markets because of sluggish European economies and lower U.S. government spending.

G4S dropped as much as 3.5 percent, the steepest intraday slide since Aug. 28, and was trading down 3 percent at 246.5 pence as of 10:13 a.m. in London. The decline was the sixth biggest on the FTSE 100 index of the U.K.’s biggest companies.

Group organic revenue, which excludes acquisitions or disposals, rose 4.8 percent as sales in emerging markets jumped 14 percent, more than making up for lack of growth in developed economies, Crawley, England-based G4S said in a statement. Business will remain “challenging” in Europe and the U.S. in the fourth quarter, it said. G4S separately outlined plans to reorganize as many as 35 underperforming divisions.

“The company has to make steady progress on trading and demonstrate that it is making the right moves” in business strategy “to make strong progress with the share price,” analysts at Whitman Howard Ltd. said today in an e-mail.

The 17 nations sharing the euro emerged as a group from an 18-month recession in the second quarter, though the economies of some countries, including Italy and Greece, have continued to shrink. A partial U.S. government shutdown last month amid a budget dispute has prompted economists to scale back fourth-quarter growth forecasts for the country.

Business Strategy

G4S has focused on adding business in emerging markets, which now account for more than 40 percent of group earnings.

The company has a target of increasing organic sales by 5 percent to 8 percent a year, and it’s studying operations to make sure they’re achieving goals, G4S said.

“We’ve identified 35 businesses which today are underperforming or lack materiality, not only today, but when we look forward to 2016 as well,” Chief Executive Officer Ashley Almanza said today on a conference call. “Our goal is to perform a closer, more detailed review of those businesses to determine whether or not we can grow them to a material scale, we can restructure them, or alternatively, recycle the capital to other parts of the business” with better earnings prospects.

The company has suffered a series of blows to its reputation in the U.K. over the past year. Almanza replaced Nick Buckles as CEO in June after the security services provider failed to provide enough guards for last year’s London Olympics. The U.K. Serious Fraud Office has opened a criminal investigation into G4S over allegations the security services provider overcharged for electronic monitoring services, including billing for dead people. Almanza reiterated today that G4S is cooperating with the probe.

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