UK: G4S feels heat from Europe’s woes

G4S woes continue

G4S woes continue - Credit: PA

Security group G4S dashed hopes for a speedy recovery from its Olympics woes today by warning that this year will be just as challenging.

The continued strain from weak European markets and pricing pressure on its cash transportation arm in the UK and Ireland have squeezed margins.

The warning, which caused G4S shares to slump by 13% today, comes as another blow to the outsourcing company after it was left nursing losses of £88million on the bungled contract relating to last year’s London Olympics.

It will also increase the pressure on chief executive Nick Buckles, who survived the Games fiasco in a year when he was paid £1.2 million.

In today’s update, G4S said revenues were 7.7% higher than a year ago in the first three months of 2013 but that its operating margin was around 0.6% lower.

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While the group’s developing markets business, which accounts for more than a third of profits, is expected to continue growing the company painted a more uncertain picture in established markets.

It said: “The macro-economic environment has affected developed markets margins and, despite active business improvement plans which are being implemented, group margins are expected to continue to be impacted adversely in the short term.”

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Start-up costs associated with new UK government contracts and slower growth in North America have also impacted the company.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: “Hopes of a return to business as normal following its Olympics fiasco today look premature.

“G4S appears to be suffering a dose of its own medicine, with both government and corporate desire to save costs now impacting at the group itself.

G4S is the largest employer on the London Stock Exchange with more than 620,000 staff worldwide.

Its reputation took a hammering after the botched London Olympics contract, when the group only fulfilled 83% of contracted shifts. The fiasco led to the resignation of two senior directors and fuelled fears that G4S may miss out on future Government contracts.

However recent contract deals have included facilities management for the Ministry of Justice at more than 340 court buildings in the Midlands, Wales and the North of England and outsourcing services for Lincolnshire Police in the first contract of its kind to be awarded by a British police authority.

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