Investors braced for announcement that failure to provide enough security guards will cost company up to £50m
The performance of the private security contractor G4S and its chief executive, Nick Buckles, will come under investor scrutiny again this as the group prepares to take a hit of up to £50m in first-half profits after its embarrassing failure to provide enough guards for the London Olympics.
Buckles, who admitted the staffing crisis had been a “humiliating shambles”, is expected to confirm that the loss on the £284m Olympic contract will be at the top end of previous guidance of £35m-£50m.
Analysts are expecting G4S to post first-half pre-tax profits of about £96m, down from £154m last year. However, the chief executive has been backed by some shareholders in the wake of the Games debacle, which saw the army called in to extend emergency cover after G4S provided only 7,000 of a promised 10,400 guards.
Analysts at the investment bank UBS, who are predicting profits of £96.4m, have warned investors that the Olympic disaster has already had an impact on other deals. “We understand G4S dropped out of its bids for the UK DWP [Department for Work and Pensions] PIP contracts [personal independence payment, which are due to replace disability living allowance next year] owing to management attention being diverted to the Olympics contract, and we wonder if there has been any further fallout in terms of bidding activity.”
The company has already decided not to bid for sporting contracts including the Fifa World Cup in Brazil in 2014.
G4S is expected to meet its contract to supply 4,500 to 5,000 security personnel for the Paralympic Games, which begin on Wednesday. “They are fully ready to deliver that,” Chris Allison, the Metropolitan police assistant commissioner and national Olympic security co-ordinator, told the website Inside The Games.
The number of police officers deployed nationally for the Paralympics will also be reduced – 7,000 compared with 14,000 for the Olympics. Allison said the reduced security presence reflected the smaller crowds expected for the Paralympics.
More than 9 million people attended the Olympics; just over 2 million are expected for the Paralympics. “We will also have around 3,000 military personnel in place so it will once again be a co-ordinated security operation between the military, G4S and ourselves,” he said.
Buckles, who was hauled before parliament to explain the company’s failings before the Olympics, will give further evidence to the home affairs select committee in September. One of the company’s largest shareholders has warned that Buckles’s humiliation at the hands of MPs could discourage international businesses from investing in the UK.
Neil Woodford, an investment manager at Invesco Perpetual, said the hearing, which was shown live on TV, was like watching “a medieval persecution”.
“If this is the way parliament wants to treat business, please parliament, don’t be surprised when businesses decide this isn’t the country for them,” he told the Sunday Telegraph.
Some investors are calling for Buckles’s resignation to help draw a line under the company’s unfortunate month in the headlines. But most are privately supporting the 52-year-old. “We support Buckles and the new chairman,” one top 20 shareholder told the Financial Times. “The Olympics was a wake-up call, but we have seen good returns and good performance from this company.”
Buckles is expected to stay in place until at least the publication of a PricewaterhouseCoopers investigation of what went wrong with the Olympic contract. The report, which will only be made available to G4S’s board, is expected to be completed at the end of next month.
Three police forces are still considering outsourcing more than 1,000 police jobs to G4S despite the furore. Bedfordshire, Cambridgeshire and Hertfordshire police said last week that they were pressing ahead with plans to outsource IT and human resources roles to the private security firm.
The forces had postponed the plans, which could be worth up to £70m for G4S, in the wake of the company’s Olympic difficulties. G4S already has a £200m 10-year contract to build and run a police station for Lincolnshire as well as provide services such as IT, fleet management, firearms licensing and training to the force.
A spokesman for the three forces said: “The work to develop the full business case will continue to scrutinise the Lincolnshire police/G4S contract and assess the ability of the contract to meet the specific requirements of Bedfordshire, Cambridgeshire and Hertfordshire.”