G4S in fightback flop: Revamp fails to impress the City
The fiasco of the Olympics, the death of a deportee and now a fraud inquiry into tagging non-existent prisoners... Lucy Tobin wonders what’s next for a troubled company
It was billed as a strategy update. But the news from G4S on Bonfire Night turned out to be less a whizz-bang-pop announcement that would propel the scandal-struck security giant back towards being outsourcing’s biggest star, but more of a damp squib.
The spotlight fell on new boss Ashley Almanza, the former finance boss of BG Group, who took over in July after his predecessor Nick Buckles was torched by shareholders. Investors had pushed for the new boss to announce sweeping changes, such as the sale of a significant part of the business, or plans to shrink the world’s largest security group, which has 620,000 staff.
Some in the City were calling G4S’s capital markets day for investors the “biggest day” of Mr Almanza’s career.
But if that’s the case, he’s got an extremely boring working life ahead of him.
Mr Almanza was willing to concede to shareholders that G4S had suffered “damage to our reputation”, but then went on to unveil a strategy update… with no new strategy. In fact, the South Africa-educated chartered accountant turned the phrase “the core strategy remains the same” into something of a refrain.
It wasn’t that Mr Almanza’s inbox was exactly empty. His grand strategy unveiling came just one day after the Serious Fraud Office launched a criminal investigation into G4S, over allegations it overcharged the taxpayer tens of millions of pounds by claiming to tag offenders who were dead or back in prison. That news itself came about almost exactly a year after G4S’s name was besmirched by its London Olympic fiasco, where the security giant paid out £88m over its failure to supply enough guards for the Games – forcing the Army to be drafted in instead.
Yet Mr Almanza told investors that “G4S’s core strategy remains valid, robust, and healthy,” and added: “It’s my view that the vast majority of our employees understand our values and are committed to them.”
His grand plan for the business is to axe up to 400 British jobs, and either sell, close or restructure 35 under-performing divisions – ones that bought in just £400m in revenues last year, of G4S’s total pot of £7.3bn. Mr Almanza also said that the outsourcer will invest up to £20m next year to hit growth targets.
Where will the growth come from? Long-term, G4S is thinking beyond our little island. Following a profit warning in May, G4S said that growth in emerging markets helped organic revenues rise 4.8 per cent in the nine months to October. The company wants its organic growth to hit 5 per cent to 8 per cent a year – up from 4.8 per cent for the first nine months of this year. Emerging markets are, according to Mr Almanza, where he sees “strong and growing demand for our core products and services” – so much so that he predicts these will represent around 40 per cent of G4S’s sales in 2016.
But while G4S might already have operations in more than 120 countries, it’s not just in Britain that its reputation is suffering. Elsewhere, the security firm claims it’s facing “unsubstantiated allegations” over inmates at the Mangaung prison it runs in South Africa being subjected to electric shocks or forcibly injected with sedative drugs. Other big G4S stories have refused to go away too: the group’s reputation was battered by G4S guards’ unlawful killing of Angolan deportee Jimmy Mubenga three years ago. And last week a G4S security guard was sentenced to life in prison at Glasgow High Court for bludgeoning a conference delegate to death with a fire extinguisher.
Ministers could blacklist disgraced contractors from future government contracts – and G4S’s state contracts run from prisons, schools and welfare to work programmes, to immigration and border controls.
Its debacle over tags and prison transfer contracts has already prompted the departures of Richard Morris, the head of UK operations for G4S, as well as Chris Hyman, the chief executive of Serco, which was also involved in the scandal.
Alongside Mr Hyman’s departure last month, Serco also set out plans to split its government work into a separate business that could be more closely monitored. Mr Almanza isn’t following suit, simply saying: “The UK Government is clearly a very important customer and we’ve been working very hard to maintain that important relationship – we continue to deliver a lot of services, we remain focused on delivering those well, and, on the monitoring contract, we’ve provided close support to [auditors] PWC and the Ministry of Justice.
“We have to recognise there’s been very significant reputation damage on the back of the Olympics, and more recently the electronic monitoring contract,” he added. “We have to do the right things, we have to live by our corporate values and I’m confident if we stick with those we’ll restore [our reputation].”
The City, however, wasn’t so sure. The shares initially fell 3 per cent, then settled down 4.3p at 249.7p. That’s down from the 290p mark before the Army was drafted in last year when G4S admitted it couldn’t provide staff it promised for London 2012. Mr Almanza counters that since the Olympic failures, G4S has had six new directors on its board, plus five changes to its executive team, “all designed to provide greater confidence to our shareholders and our customers”.
Whether that works remains to be seen.
* Serious Fraud Office this week launches investigation into reports that security giants G4S and Serco overcharged on private contracts to provide electronic tagging of criminals.
* Whistleblower Nigel Mills claims G4S’s tagging equipment didn’t even work.
* Accused of providing “squalid” and “rundown” housing for asylum seekers.
* Failed to deliver adequate security for the Olympics.
* Condemned for management of Oakwood prison, Wolverhampton.
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