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FOR IMMEDIATE RELEASE
Retail Cash Solutions (“RCS”)
G4S Chief Executive Officer
“In Retail Cash Solutions we have created a market-leading and extremely valuable business which has grown very strongly and profitably since we launched in 2015, producing
Through our patented KOYUSTM software, RCS delivers a unique customer value proposition and we have established high and sustainable barriers to entry. We are highly confident in the ability of RCS to grow revenue at 25% per annum over the medium-term, attaining more than
With its patented technology and strong growth, margins and cash flow conversion, RCS benchmarks favourably with financial technology and software services businesses that command premium ratings of over 20x 2021E EBIT in the market today. We believe that RCS provides G4S shareholders with material value upside.”
- Clear leadership in a large addressable market;
- Unique proposition and recurring revenue model;
- High and sustainable barriers to entry;
- Very attractive financial characteristics; and
- Material value upside
RCS significantly improves the efficiency, control and convenience of cash handling for retailers. Created and organically grown by G4S since 2015, RCS today manages more than
The Board has a number of clear medium-term financial targets for RCS which are set out below:
- Growth – revenue growth of 25% per annum
- Services Gross Margin – 35-40% services gross margin1
- Profitability – PBITA margin of 15-20%1,2
- Free Cash Flow – over 100% FCF conversion per annum1,3
G4S is proud to have created this industry-leading software and service business, which delivers a number of valuable benefits for its customers, including, but not limited to:
- Reducing labour costs by 80%;
- Reducing deposits by 50%;
- Improving working capital with bank-owned cash4 and same day credit;
- Reducing transport costs by 40-60%;
- Freeing up to 80% of idle cash;
- Minimising cash leakage; and
- Maximising cash visibility and security
RCS already has a large number of existing contracts with blue-chip customers including four out of the top 10 US-based retailers, some of the largest in the world. RCS’s technology is integrated within customer cash handling devices, financial institutions and back office reconciliation systems to drive cash automation and optimisation.
Clear leadership in a large addressable market
The economics of cash management create an enormous market for RCS.
G4S believes that the total addressable market (revenue opportunity) for RCS today is approximately
Unique proposition and recurring revenue model
RCS is a proprietary software and service platform which generates a fee per store, per month, with long-term contracts which are typically between 5-7 years in duration. These contracts underpin rapidly growing recurring service revenues for RCS, with recurring revenue of
RCS’s business model provides a highly visible growth profile. Despite a temporary pause in new installations due to the pandemic, RCS won a material new US contract, announced on
High and sustainable barriers to entry
The Board believes that RCS has a significant and sustainable competitive advantage. RCS today has undisputed leadership in the US big box market and our small box proposition is winning significant new customers. Our proprietary software platform (KOYUSTM) and sophisticated banking partnerships are embedded within the RCS solution making it very difficult for another player to replicate G4S’s position. Our software is patented and the type of banking partnerships held by RCS require long and complex diligence processes in order to allow live data to be used in both retailer and banking accounting systems.
Very attractive financial characteristics
RCS has good revenue visibility from its rapidly growing installed base and a large order book provides confidence in our growth target. In addition to the 11,450 order book of installations, RCS has also agreed pilot programmes with new customers covering around 10,850 stores and is in active discussion with customers representing more than 10,000 additional stores. As a result, around 85% of 2021 revenue is already committed5, and G4S has a strategic roadmap for its targeted revenue in excess of
Material value upside
RCS benchmarks favourably with other financial technology and software services companies across key financial and operational metrics:
- growth;
- profitability;
- revenue visibility and sustainability;
- end-market dynamics; and
- barriers to entry
Financial technology and software companies command a premium valuation in the market today of more than 20x 2021E EBIT. The Board therefore firmly believes that RCS provides G4S shareholders with material value upside.
1 Aspirational target which should not be construed as a profit forecast under the Takeover Code or interpreted as such.
2 Margin can vary within this range depending on investment in growth.
3 Free cash flow as a percentage of PBITA.
4 Big box only.
5 Percentage of forecast revenue.
APPENDIX I
DEFINITIONS
big box locations | large format stores |
CAGR | compound annual growth rate |
Circular | G4S’s response circular dated |
EBIT | earnings attributable to equity shareholders before interest and tax |
Group | G4S and its subsidiary undertakings and, where the context permits, each of them |
Free Cash Flow or FCF | movement in net debt before foreign exchange movements excluding the impact of acquisitions and disposals of subsidiaries/businesses and dividends paid to equity holders of the parent |
Latest Practicable Date | |
medium box locations | medium format stores |
PBITA | profit before interest, tax and amortisation as interpreted in accordance with paragraph 4 of Appendix IV |
pilot programmes | paid product trials with new customers |
pipeline | unit installation opportunities from upcoming contract tenders |
RCS or Retail Cash Solutions | the Group’s retail cash solutions business in |
service revenue | revenue from a monthly subscription to cash management software and service platform |
small box locations | small format stores |
APPENDIX II
BASES AND SOURCES
1 Rounding
Values in this announcement have been rounded and accordingly may not add up to 100%. As a result of this rounding, the totals of the data presented in this document may vary slightly from the actual arithmetic totals of such data. Values are given to the stated number of decimal places.
2 Currency
Unless otherwise stated USD or $ refers to US Dollars.
3 Presentation of information
Unless otherwise stated consensus revenue and EBIT estimates and foreign exchange rates are sourced from
4 Information relating to G4S
Unless otherwise stated:
(i) adjusted measures of profit and earnings are stated before the effects of separately disclosed and specific items; the related tax effects; and tax-specific charges or credits which have a material impact, such as those arising from changes in tax legislation;
(ii) references to PBITA are to “Adjusted PBITA”, which excludes the effect of separately disclosed items (being restructuring and separation costs, goodwill impairment, amortisation of acquisition-related intangible assets and profits or losses on disposal or closure of businesses) and specific items, which the Group believes should be disclosed separately by virtue of their size, nature or incidence, as explained on page 53 of G4S’s integrated report and accounts, 2019;
(iii) Free Cash Flow or FCF is calculated as movement in net debt before foreign exchange movements excluding the impact of acquisitions and disposals of subsidiaries / businesses and dividends paid to equity holders of the parent. Free Cash Flow or FCF Conversion is calculated as Free Cash Flow as a proportion of PBITA; and
5 Additional Information
5.1 RCS has approximately 150 employees which is based on the employees that are working exclusively for Retail Cash Solutions as at
5.2 RCS has partnerships with 7 banks that are supporting retail customers as part of the RCS programme, and banks are generally reluctant to have multiple partners due to the long and complex diligence processes required as part of onboarding.
5.3 RCS has partnerships with 4 of the 5 largest US banks which is based on 4 of the banks with whom RCS has a partnership ranking among the top 5 largest US banks by consolidated assets, sourced from the list of Insured US Chartered Commercial Banks as of
5.4 Banks represent a new sales channel for RCS.
5.5 RCS has an ongoing pilot in the US Banking sector.
5.6 The Group incurs no loss on initial sale of the cash handling device which is sourced from G4S’s internal reporting.
5.7 The reference to a 70% increase in cash holding for big box cash retailer customers is based on the first five months of 2020 and is sourced from G4S’s internal reporting.
5.8 12 customers make up the committed order book of installations which is sourced from G4S’s internal reporting.
5.9 43 customers make up the pilot programmes and pipeline which is sourced from G4S’s internal reporting.
5.10 RCS’s high margins are driven by:
(i) scale benefits with hardware providers;
(ii) further cost reduction opportunities from large installed base, where the reference to a large installed based is sourced and based in section 6.19;
(iii) pricing opportunities given market leadership, where the reference to market leadership is sourced and based in section 6.1;
(iv) well-invested technology; and
(v) high operating leverage, which is based on revenue growing at c.4x the rate of selling, general and administrative expenses between 2014 and 2019, and is sourced from G4S's internal reporting.
5.11 RCS’s recurring revenues increase as service revenues represent a higher proportion of total revenue.
6 Bases and sources
6.1 The reference to RCS being market-leading refers to RCS’s leadership of the US big box market, based on number of big box installations and is sourced from G4S’s internal reporting.
6.2 The reference to RCS’s strong growth is based on revenue growth of 24% in 2019, which is calculated on the basis of total revenue growth excluding pass-through revenue (rounded to zero decimal places) and which is sourced from G4S’s internal reporting.
6.3 The reference to RCS producing
6.4 The reference to RCS producing
6.5 The reference to RCS’s patented KOYUSTM software refers to RCS’s 9 patents and 19 copyrights / trademarks (which comprises both registered and pending copyrights / trademarks) which is based on RCS having:
(i) 9 pending patent applications for different inventions;
(ii) 4 trademarks (comprising both registrations and pending registrations); and
(iii) 15 copyrights (comprising both registrations and pending registrations),
each of which is sourced from G4S’s internal reporting.
6.6 The reference to RCS delivering a unique customer value proposition is based on RCS management’s internal assessment of the capabilities and offerings of its main competitors in its addressable market. Across its product and service offerings (including end-to-end solutions, breadth of customer offering, proprietary software, and banking partners and integration), this compares Retail Cash Solutions to:
(i) software peers, encompassing businesses whose offering focusses on providing retail cash software services;
(ii) hardware peers, encompassing businesses whose offering focusses on providing retail cash hardware products; and
(iii) traditional CIT peers, encompassing businesses whose offering focusses on the physical transfer of cash and items of value from one location to another.
6.7 The reference to RCS targeting revenue growth of 25% per annum over the medium-term, and revenue in excess of
(i) Grow big box by (a) increasing market penetration in US /
(ii) Grow small and medium box by expanding to medium and large retailers with small box format;
(iii) Expand product and services by (a) commercialising new banking sector hardware and software solution; and (b) continuing to scale banking relationships, enhancing value proposition to retailers; and
(iv) Expand internationally by (a) expanding outside of the US with existing and new customers; and (b) taking advantage of significant whitespace opportunity with c.70% of worldwide transactions settled in cash, which is sourced and based in section 6.33.
6.8 The reference to a huge addressable market of
(v)
(vi)
(vii)
6.9 The reference to patented technology is sourced and based in section 6.5.
6.10 The reference to RCS’s strong growth rates is sourced and based in section 6.2.
6.11 The reference to RCS having strong margins is based on a 2019 PBITA margin of 18% (rounded to zero decimal places) which is based on:
(i) 2019 revenue of
(ii) 2019 PBITA of
6.12 The reference to strong cash flow conversion is based on 113% Free Cash Flow conversion (which is rounded to zero decimal places) in 2019 which is based on:
(i) 2019 Free Cash Flow of
(ii) 2019 PBITA of
in each case sourced from G4S’s internal reporting.
6.13 The reference to financial technology and software services companies commanding a premium rating of over 20x 2021E EBIT is sourced and based as follows (rounded to one decimal place):
(i) FIS’s EV / 21E EBIT of 20.5x, which is based on: (a) an EV of
(ii) Fiserv’s EV / 21E EBIT of 17.5x, which is based on: (a) an EV of
(iii) Temenos’ EV / 21E EBIT of 29.7x, which is based on: (a) an EV of
(iv) ACI Universal Payments’ EV / 21E EBIT of 26.3x, which is based on: (a) an EV of
(v) Bottomline Technologies’ EV / 21E EBIT of 24.3x, which is based on: (a) an EV of
(vi) an average EV / 21E EBIT of 23.6x (rounded to one decimal place) based on paragraphs (i) – (v) above.
6.14 The reference to RCS’s clear leadership is sourced and based in section 6.1.
6.15 The reference to a large addressable market is sourced and based in section 6.8.
6.16 The reference to RCS having a recurring revenue model is based on c.75% average service revenue (expressed as a percentage of total revenue, excluding pass-through revenue) in 2018, 2019 and 2020 (projected) and is sourced from G4S’s internal reporting. Service revenues, because they are subscription-based, are recurring in nature.
6.17 The reference to very attractive financial characteristics refers to RCS’s 2019 PBITA margin of 18% and cash conversion of 113%, sourced and based in sections 6.11 and 6.12.
6.18 The reference to more than
6.19 The reference to c.10,000 installed locations is based on the total number of big box locations and small box locations in
6.20 The reference to patented KOYUSTM software is sourced and based in section 6.5.
6.21 The reference to service gross margins of 34% (rounded to zero decimal places) in 2019 is calculated on the basis of:
(i) 2019 gross profit for services of
(ii) 2019 services revenue of
in each case sourced from G4S’s internal reporting.
6.22 The reference to RCS generating PBITA of
6.23 The reference to total global opportunity exceeding
6.24 The reference to RCS being industry-leading is sourced and based in section 6.1.
6.25 The reference to “Reducing labour costs by 80%” is sourced and based in paragraph 6.52(i) of Appendix II of the Circular;
6.26 The reference to “Reducing deposits by 50%” is sourced and based in paragraph 6.52(ii) of Appendix II of the Circular;
6.27 The reference to “Improving working capital with same day credit” is sourced and based in paragraph 6.52(v) of Appendix II of the Circular;
6.28 The reference to “Reducing transport costs by 40-60%” is sourced and based in paragraph 6.52(iii) of Appendix II of the Circular; and
6.29 The reference to “Freeing up to 80% of idle cash” is sourced and based in paragraph 6.52(iv) of Appendix II of the Circular.
6.30 The reference to RCS having four out of the top ten US-based retailers as customers is based on the relevant RCS customers’ rankings among the top ten largest US retailers by 2019 revenue, sourced from the Top 100 Retailers 2020 List published by the
6.31 The reference to the largest retailers in the world is based on RCS having customers ranking in the top 15 global retailers, based on the top global retailers by 2019 revenue, sourced from the Top 50 Global Retailers 2020 List published by the
6.32 The reference to
6.33 The reference to approximately 70% (rounded to one significant figure) of all payments globally being made in cash is based on the 2019 share of global payment transactions executed in cash and is sourced from page 6 of The 2020 McKinsey Global Payments Report, available at https://www.mckinsey.com/~/media/mckinsey/industries/financial%20services/our%20insights/accelerating%20winds%20of%20change%20in%20global%20payments/2020-mckinsey-global-payments-report-vf.pdf.
6.34 The reference to more than
6.35 The reference to 9% of retail cash receipts spent on cash handling (rounded to one significant figure) is based on the percentage in 2017 and is sourced from page 10 of the “Cash Multipliers: How reducing the costs of cash handling can enable retail sales and profit growth” report published by
6.36 The reference to 5-10% of bank operating costs relating to cash handling is based on the percentage in 2018 and sourced from the article “Attacking the cost of cash” published by McKinsey on
6.37 The reference to the total addressable market (revenue opportunity) for RCS being approximately
6.38 The reference to RCS having a unique and highly differentiated offering which is unmatched by competitors is sourced and based in section 6.6.
6.39 The reference to long-term contracts which are typically between 5-7 years in duration is based on the typical contract length of all RCS customer contracts and is sourced from G4S’s internal reporting.
6.40 The reference to rapidly growing service revenues is based on RCS having generated service revenue of
6.41 The reference to recurring service revenue of
6.42 The reference to RCS’s unique patented technology is sourced and based in section 6.5.
6.43 The reference to a contract retention rate in excess of 99% having been achieved on existing contracts is based on only one retailer’s contract having been terminated prior to the expiry date of the contract and is sourced from G4S’s internal reporting.
6.44 The reference to RCS’s industry-leading software-and-service solution is based on technology that comprises:
(i) proprietary cloud-based cash management software, which automates the compilation of cash till floats and processing;
(ii) in-store accounting and banking systems, which are deeply embedded in customers’ systems;
(iii) automatic bank account crediting, where the retailer obtains same day credit for cash; and
(iv) end-of-day reporting and prediction tools, that use sophisticated AI and machine learning to drive efficiency.
6.45 The reference to an order book of 11,450 new locations comprises:
(i) the order book of c.10,500 which is sourced and based in paragraph 6.51 of Appendix II of the Circular; and.
(ii) a further order book as at the Last Practicable Date of c.950 which is sourced from G4S’s internal reporting.
6.46 The reference to RCS’s significant and sustainable competitive advantage is sourced and based in section 6.6.
6.47 The reference to undisputed leadership in the US big box market is sourced and based in section 6.1.
6.48 The references to KOYUSTM and to patented software is sourced and based in section 6.5.
6.49 The reference to RCS’s rapidly growing installed base is sourced from G4S’s internal reporting and based as follows (numbers are rounded to the nearest 50 units):
(iii) 2016 installed base of 3,900 units;
(iv) 2017 installed base of 6,050 units;
(v) 2018 installed base of 6,900 units;
(vi) 2019 installed base of 8,300 units;
(vii) 2020 installed base of 10,000 units; and
(viii) 2021-2023 projected installed base of c.42,450, based on: (a) the 2020 installed base of 10,000 units; (b) a committed order book of c.11,450 units; (c) pilots with new customers of c.10,850 units, of which c.4,800 are currently running and c.6,050 are committed but not yet started; and (d) a pipeline of opportunities of c.10,150 units.
6.50 The references to a large order book and to an order book of c.11,450 installations are sourced and based in section 6.45.
6.51 The reference to pilot programmes with new customers covering around 10,850 stores is based on:
(i) c.4,800 pilot programmes that are currently running; and
(ii) c.6,050 pilot programmes that are committed but have not yet started,
in each case sourced from G4S’s internal reporting.
6.52 The reference to active discussions with customers representing more than 10,000 additional stores is based on c.10,150 stores and sourced from G4S’s internal reporting.
6.53 The reference to c.85% of 2021 revenue already committed is based on the percentage of forecast 2021 revenue that is already committed (which comprises service revenue from existing contracts, and equipment and service revenue from the order book) and is sourced from G4S’s internal reporting.
6.54 The reference to financial technology and software services companies commanding a premium valuation of more than 20x 2021E EBIT is sourced and based in section 6.13.
FURTHER INFORMATION
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G4S Joint Lead Financial Advisers
J.P. Morgan Cazenove
G4S Financial Advisers
Goldman Sachs International
G4S Legal Advisers
Media Advisers
Brunswick
Notes to Editors:
G4S is the leading global security company, specialising in the provision of security services and solutions to customers. Our mission is to create material, sustainable value for our customers and shareholders by being the supply partner of choice in all our markets.
G4S is quoted on the
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