G4S confirms £50m Olympics loss

12 years ago | Posted in: Business | 786 Views

Security contractor G4S is hoping Brazil, China and India will take a more forgiving view of its bungled Olympics contract than British politicians as the group targets developing markets in the wake of a furore that saw it take a hit of £50m in first half profits. Nick Buckles, G4S chief executive, said the business will push on with plans to grow developing country contracts from 31% of revenues to 50% by the end of the decade, with Brazil, China and India the main priorities. Buckles spoke as G4S confirmed it had taken a hit of £50m on the Olympics, at the top end of expectations, alongside a 60% fall in first-half profits. “I am confident that this will not have an impact on developing markets. As long as we continue to do a good job in the Paralympics, over time I think generally it will not have an impact,” he said. G4S said it expected the Paralympics to run smoothly with no staffing shortfalls. “We are confident that we have an assured security workforce for the Paralympic Games and do not anticipate any workforce shortfall issues to arise,” the group said. Buckles said he was “deeply disappointed” with the London 2012 debacle, when the army was called in to shore up security after G4S was able to provide only 7,800 of the required 10,400 guards. The G4S figures for the six months to 30 June confirmed that the impact of the Games contract – which includes paying for the deployment of soldiers – will be at the upper end of an initial £35m-£50m estimate. Extra costs included laundry contracts signed by the Ministry of Defence so that uniforms worn on public duty were cleaned and ironed. G4S reported pre-tax profits of £61m for the first half, down from £151m in the first six months of 2011. The profit drop was largely accounted for by the £50m Olympics loss and £24m in restructuring costs, which includes cutting 1,110 jobs from the group’s 657,000-strong global workforce, with the majority of cuts occurring outside the UK. Buckles said that he hoped to keep his job: “I have been with the company for 28 years, 10 of them as chief executive.” A review of the Olympic contract furore, by PricewaterhouseCoopers, will help determine Buckles’s future and is expected to report to the group board in the second half of September. Buckles said his appearance before the home affairs select committee shortly before the Games, where he was forced to admit that the Olympics process had been a “shambles”, was difficult but necessary. One G4S shareholder has criticised the tone of the hearing, likening it to a medieval persecution, with Buckles scheduled to make another appearance this month. “The home affairs process is a legitimate process. It was a difficult process for me personally,” he said. Buckles denied that the furore had dented G4S’s chances of securing more UK government contracts – thought to be a factor in whether he retains the CEO post – although he admitted that the group had passed on a Department for Work and Pensions contract worth £20m a year while it scrambled to get the Olympics situation under control. “We have got a very strong track record [in the UK] and we believe that will stand the company in good stead for future government outsourcing business,” he said. Three police forces – Bedfordshire, Cambridgeshire and Hertfordshire police – are considering outsourcing more than 1,000 jobs in IT and human resources to G4S. The firm said it had delivered 83% of the security shifts demanded under the Olympics contract and gave reassurances over the Paralympics, which start on Wednesday. More than half the job cuts revealed by G4S on Tuesday had taken place in developing markets, such as India, Thailand and South Korea, with 58 lost in the UK. G4S provides security work in more than 125 countries for a range of sectors, including courts in England and Wales, the European commission building in Brussels and Baghdad International airport. One analyst, however, was sceptical of G4S’s ambitions in emerging markets. “Why would anyone take the risk of awarding a contract to a company known to have failed so spectacularly when there are plenty of other companies offering almost identical services? G4S may either lose revenue as contracts are awarded to competitors or have to take a hit to margins as it has to undercut those competitors to win business,” said Louise Cooper, analyst at brokerage BGC Partners. • The main benefit of prestige contracts such as the Olympics is to enhance the company’s reputation, not to make money, Buckles said. “Even with the Olympics contract here, we were not expecting to make a huge amount of profit from it. It was a flagship business for us internationally.” The uproar over the London 2012 contract has dented G4S’s foreign ambitions, inciting the group to pull out of bidding for work on the 2014 football World Cup in Brazil and the Rio Olympics in 2016 – even though Brazil is one of three emerging markets that it is targeting, followed by China and India, where it employs 150,000 people. G4S admitted that it had also decided against bidding for a Department for Work and Pensions contract, worth about £20m a year, due to the fallout from London 2012 problems. Buckles said the withdrawal from the World Cup and Rio Olympic contests would not cause serious harm to the company’s developing market ambitions because the Brazilian security market is growing at a double-digit rate and throwing up numerous opportunities. “The Olympics and World Cup were additional business that we hoped to get,” he said. With no flagship contracts on the horizon, G4S expects to grow through smaller sized work such as airport security deals.     ref: http://www.guardian.co.uk

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