G4S today warned that it had racked up an extra £38 million in costs over the Olympic fiasco — but the City said the damage could have been even worse.
The security firm — which failed to provide more than 10,000 staff last summer so that the British military had to be called in to make good the shortfall — has raised its estimates of losses on the £284 million contract from its original £50 million to £70 million after negotiations with organising committee Locog. The company has also paid out an extra £18 million on charitable donations, sponsorships and marketing, including £2.5 million donated to the armed forces as a “goodwill gesture”.
The hit will be taken in last year’s accounts as an exceptional charge, denting profits for the second year in a row after G4S was also forced to abandon a £5.2 billion merger with Danish outsourcing and cleaning giant ISS in 2011.
Chief executive Nick Buckles said that although he was “extremely disappointed” to be in this position, he was pleased “to have concluded these negotiations with Locog”.
But shares rose 1% or 3.1p to 283.4p today as analysts breathed a sigh of relief. Numis analyst Steve Woolf said: “The public disclosure of this amount was always likely to result in a final settlement above the £50 million. It is still below the market’s touted worst-case scenario of around £100 million to £150 million.” Broker Panmure Gordon also said the Olympic nightmare was unlikely to do serious harm to the company’s ability to win work from the Government, adding: “The Ministry of Justice has made it clear that the Olympic contract will not play a role in future decisions, with the quality and price of bids the key driver.
“There is no doubt that the Government has become a tougher customer for all outsourcing companies both in terms of margin and cash payment terms, but the volume of work is likely to increase ahead of the next general election in 2015.”
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