G4S Botswana blames CEE for its revenue decline

17 Jun 2019

BY PORTIA NKANI

Numbers don’t lie and new numbers from the capital markets shows that the year 2018 has been a tough one for the multinational security giant - G4S Botswana.

The company’s annual report shows that had its fair share of a knock down in some of its business lines due to the competition faced from the governments’ citizen economic empowerment policy reservation.

G4S Botswana, which also trades its stock at the Botswana Stock Exchange Limited – BSEL recorded a marginal decline of P0.77million (one percent) in the uptake of its Manned Security Services (MSS) as a result of over-trading in that space as well as citizen reservation for government and parastatals business which the company is excluded from.

MSS is an over traded market with over 800 registered companies resulting in an influx of trading entities within this space. This is primarily due to the 100 percent citizen reservation for government tenders as well as most parastatals. G4S Security Company is therefore faced with steep competition even in areas that it naturally would not expect it. This has led to pressure on the margins and consequently had to let go of some contracts that the company thought would have a negative impact on its margins. According to the company management, customers have also sought to re-negotiate their contracts to lower fees. It is due to this hostile trading environment that the security giants realized a decline of just less than 1.1 percent in its revenue within this business line.

According to the company’s Managing Director, Mokgethi Magapa, “we continue to engage the government on the exclusions from its business. The Private Security Act, since promulgation, has not given rise to industry regulation and it is our firm belief is that bringing regulations into effect would level the playing field as all players would then have minimum standards to adhere to.”

Due to the very tough trading conditions in the manned security business and closure of some businesses, the company has seen its administrative expenses increased by over P5.2 million in 2018. This therefore had a huge impact on its Profit before tax (PBT) which closed the year at P1.0 million, a 79 percent decline on prior year for MSS business.

On the positive is that the company managed to increase its gross profit in MSS by over P1.2m, showing the efficiency impacts of some of its initiatives.

The cleaning business showed very strong fundamentals by only recording a 3.3 percent (P0.1m) in PBT decline in 2018 despite a fall in revenue of 24 percent (P4.8m). This PBT performance was driven mainly by a great cost run rate that was built in 2017 and whose fruits were realised in 2018.

The cost of sales reduced by 34 percent in 2018 to P 9.4million as well as a reduction in the administrative expenses by 7.3 percent in 2018 and thus cushioning the impact of the revenue decline.

Magapa indicated in his statement that, the fall in revenue has been mainly due to the loss of two major contracts on the backdrop of citizen empowerment.

Again, he said “part of the decline in revenue has been due to the shedding off of non-profitable segments of our business with a view of positioning this business for future growth which we expect in 2019. Our expectation is that we will be maintaining the same cost structure if not better and therefore, any revenue growth would give us positive movement on our PBT.”

Moreover to the frustrations faced by G4S, closure of some of its major clients in BCL and Tati Nickel also had a negative impact in this business line. As a result, the company has had to be prudent with regard to the customer base that it had.

The company has however recorded a 40 percent growth in its cash 360 or Deposits which continues to do well in the retail market. The company’s revenue over and above being impacted negatively by closure of business, exclusion from government business, G4S had to shed of no-profitable contracts, particularly in the facilities management business. This saw a revenue declining by six percent in 2018 to P206 million.

The company aims to continue to grow its cash processing service and ATM management which is also realising some form of growth as the company managed to get into its fold two additional major customers.

year for the multinational security giants G4S both locally and internationally with sluggish growth and in Botswana with major shutdowns of enterprises.