G4S Botswana – HY22 revenue increased by 10.7% yoy, spurred by growth in MSS service line

G4S Botswana Limited (G4S.bw) HY2022 Interim Report

The Consolidated Summarised financial Statements were prepared under the historical cost convention using accounting policies that comply with International Financial Reporting Standards (“IFRS”), with no significant changes in recognition of measurement rules applied compared to the previous financial year.

Subsequent Events

The Board and Management are not aware of any material events that have occurred subsequent to the end of the reporting period that require adjustment or disclosure in the financial statements.

Financial Performance

Group revenue increased by 10.7% year on year, driven mainly by increased revenue in the MSS service line (+20.4%) attributable to large contract wins and strong customer retention during H2 2021. An 8.5% increase in Gross Profit for the period is a result of additional revenue growth, offset by increases in the price of fuel, the implementation of a national minimum wage increase in January and the impact of inflation on cost of goods sold. The AMR business included as part of the ESS service line continued to see erosion in the customer base resulting in a net reduction of portfolio revenue recorded, directly impacting margin. Technology innovation in H2 2022 is expected to address the continued decline of the service line. Administrative expenses increased by 55% (P21.4m 2021 vs P13.8m 2021) for the reporting period, a result of the P7.2m year on year variance in the movement of credit loss allowances for the period driven by comparatively weaker collections in H1 2022 compared to the same period in 2021. The business has firmed up its dunning process in order to address the increase in outstanding debt. These drivers have led to a reduction in profit before taxation for the period of P8.2m (P3.1m 2022 vs P11.3m 2021).

Prospects

The Group is looking forward to the following prospects in H2 2022:

• Launch of security product distribution subsidiary.
• Revision of AMR service offering in order to directly compete with new entrants into the market.
• Continued integration of our Deposita devices with our various banking partners, allowing the provision of immediate value to customer bank accounts once funds are deposited into the Deposita device.

Dividend Proposal

The Board has assessed the solvency and liquidity of the Group, in conjunction with short term working capital and capital investment requirements and has taken the decision not to declare an interim dividend. The Board notes that despite an increase in revenue year on year, profitability and operating cash flow has declined. The dividend proposal will be revisited based on full year results

Key Highlights and Financial Performance

• Revenue increase of 10.7% year on year.
• MSS revenue increased by 20.4% year on year.
• Gross profit increase of 8.5% year on year.
• Administrative expenses increased by 55.2% year on year.
• Profit before tax reduction of 71.8%.
• Other Income increased by 673.1% year on year.

Outlook

Challenging trading conditions are expected to remain prevalent across all service lines for the remainder of the year, with increases in the price of fuel and high inflation rates hampering growth opportunities and pressuring margins. The business will also come under pressure with the potential loss of MSS contracts that are up for rebid in H2 2022 in light of 100% citizen ownership requirements. In order to mitigate the above risks, management has adopted an alternative growth strategy focusing on the incorporation of integrated technology solutions in our service offerings.

This approach is currently, and is expected to continue to bear fruit, with additional innovation expected in our AMR service offering towards the end of the year. Revenue in the Cash service line has remained flat year on year with limited growth opportunities during the reporting period.

To address the ESS business decline and lower levels of pure technology projects undertaken, the business will set up a technology-focused distribution subsidiary in order to bring quality, affordable security products directly to our customers, specifically the SME and residential markets.

A major focus on cost containment for the remainder of the year has been put in place without compromising on quality service delivery.

Related party transactions

There has been no significant change in the nature of related party transactions from those reported in the half year financial statements as at 30 June 2021.

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