G4S takes $80 million hit from Olympics contract fiasco

LONDON Tue Aug 28, 2012 5:28am EDT

A visitor to the Olympic Park reads a 4GS notice stuck to a window at the Aquatics centre, in the Olympic Park, in Stratford, east London, July 17, 2012. REUTERS/Andrew Winning

A visitor to the Olympic Park reads a 4GS notice stuck to a window at the Aquatics centre, in the Olympic Park, in Stratford, east London, July 17, 2012.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - Security firm G4S, at the center of a political and media storm over its failure to provide enough guards for the London Olympics, said the fiasco would cost it 50 million pounds ($79 million) and it was fighting to rebuild its reputation.

Under-fire boss Nick Buckles, hauled before British lawmakers last month to explain why troops had to be drafted in to fill the shortfall, pledged on Tuesday there would be no repeat problems at the Paralympic Games, starting on Wednesday.

He also said there were no signs the company was losing contracts or not winning new ones and that, with 3.8 billion pounds of work per year in its pipeline, it should bounce back.

However, not all analysts were convinced, pointing to the company's decision to freeze its interim dividend, and G4S shares were down over 2 percent in morning trade.

"The unchanged interim dividend suggests some caution from management, especially with a number of key government contract decisions coming up during H2 2012," said Panmure's Mike Allen.

Over half of G4S's British revenue comes from government contracts, with more than 20 percent of its pipeline also stemming from that market, including deals to run prisons and some police services due later this year.

Seymour Pierce analyst Caroline de La Soujeole said Buckles' appearance before parliament's Home Affairs Committee on September 11 could be crucial, ahead of the first wave of prison outsourcing contracts in the autumn.

FIGHTING TO STAY

G4S, with 657,000 staff in over 125 countries, said the findings of a board review into the Olympic contract failure would be available in late September. British lawmakers are also holding an inquiry into the debacle.

The firm said 50 million pounds was its estimate for the cost of paying military and police personnel drafted in to cover the shortfall in guards, as well as potential penalties and liabilities.

G4S managed to provide 7,800 staff for the Olympic Games at peak times, compared with a promised 10,400.

Buckles kept his job last year despite caving in to investor pressure to scrap a 5.2 billion pounds acquisition of Danish cleaning firm ISS at a cost of around 50 million pounds, and has so far been largely backed by shareholders to survive again.

"I hope I keep my job, I've been with the company now 28 years, 10 years as CEO and I think we have delivered good returns for investors, but clearly that decision is going to be down to the board," he said.

G4S posted a profit before interest, tax and amortization for the six months to June 30 of 236 million pounds, flat on last year, with revenue up 5.8 percent to 3.9 billion pounds.

Emerging markets, where G4S is aiming to grow revenue from 30 to 50 percent by 2019, performed strongly in the period, winning financial services and government work in Latin America.

G4S has trimmed its portfolio with business disposals in Sweden and the United States in the first half of the year and said it had also shed 1,100 jobs in the period as part of a restructuring drive to cut annual costs by 30 million pounds.

The group, which this month donated 2.5 million pounds to British military sports and welfare organizations to thank troops who guarded Olympic venues in its absence, kept its interim dividend at 3.42 pence per share.

($1 = 0.6330 British pounds)

(Editing by Rhys Jones and Mark Potter)

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