Security giant G4S has expressed disappointment over the problems related to its Olympics contract and said that a restructuring of its overhead structure will lead the loss of 1,100 jobs.
The firm had to advise the London Organising Committee of the Olympic and Paralympic Games (LOCOG) on July 11th that it was not able to assure the delivery of the size of the workforce agreed, meaning that the Home Office had to deploy additional military to shore up the numbers. To date, G4S has delivered 83% of the contracted shifts since the beginning of the year.
"We were deeply disappointed that we had significant issues with the London 2012 Olympics contract and are very grateful to the military and the police for their support in helping us to deliver a safe and secure Games," said Chief Executive Officer Nick Buckles.
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The group will incur a loss of £50m on the contract and said that a review of the work is underway and expected to be completed during the second half of September. However, the £50m contract loss is only an estimated loss and the final amount will be "impacted by the actual cost of the military and police deployment and by the outcome of negotiations in respect of potential penalties and contractual liabilities."
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Meanwhile, the review of the overhead structure - "across all reporting levels and geographies in order to maximise efficiency and eliminate duplication" - will result in an additional exceptional cost of £24m. Most of the 1,100 job cuts (605) will be felt in the developing markets.
The restructuring, which will likely result in a further £10m of exceptional costs incurred in the second half, is expected to make £30m in annualised savings every year.
Nevertheless, group turnover at constant exchange rates (CER) rose by 7.5% from £3,630m to £3,903m year-on-year in the six months to June 30th. On an underlying basis, which excludes the Olympics and Paralympics Games contract, revenues improved by 5.8%.
Developing markets, which accounted for 31% of the group's total revenue, achieved organic growth of 10% in the first half with sales of £1,191m. G4S wants developing markets to contribute 50% of group revenues by 2019.
Profits before interest, tax and amortisation (PBITA) at CER at was flat at £236m which the group reckons was a good performance in spite of "economic challenges, particularly in Europe, and weakness in the US government market". At actual exchange rates, PBITA fell by 1.7%.
The group margin fell from 6.5% last year to 6.0% due to the challenging US government market and UK contract phasing.
The interim dividend per share was maintained at 3.42p but the firm said that expects to continue to increase payouts broadly in line with normalised adjusted earnings.
Net debt at the end of the period was £1,683m, slightly higher than the £1,616m recorded in December 2011.
Buckles said: "We continue to see good opportunities from outsourcing around the world particularly from governments looking to improve quality of services and reduce costs and we believe that, with our long-term track record, we will continue to play a major role in this sector.
"The breadth of our portfolio in 125 countries continues to present many new growth opportunities. Our market leading businesses, broad customer base and £3.8bn per annum contract pipeline give us confidence in the outlook for the group."
