Politicians in Britain may be battling with the problem of overcrowded jails, but a lack of prisoners in Holland prompted G4S, the security giant that employs guards in the country's jails, to issue a warning over profit margins.
The Netherlands' prison population fell from 14,100 in 2005 to 11,000 in 2009, and is expected to drop below 9000 by 2015. As a result, the country is planning to close 30 jails, one of the reasons that forced G4S to admit its profit margins will be lower than expected this year. A shocked City sent the shares in the world's biggest security firm down nearly 15 per cent.
"The proposed closure of 30 prisons and other cost reductions by the Netherlands Ministry of Justice will have a significant negative impact on the group's Dutch business," G4S said. "Despite ongoing business improvement plans, the first-quarter margin trends are expected to continue for the full year."
The FTSE 100 company, which failed to provide enough security guards for last year's Olympics, said its 0.6 per cent decline in group margin in the first three months of this year could also be blamed on "continued challenging economic and trading conditions in continental Europe".
G4S, whose 620,000 employees worldwide make it the largest employer on the London Stock Exchange, added that it was also suffering from "pricing pressure" in its UK cash solutions business, which moves money between banks and retailers and to and from ATMs. An arm of the company in Africa is to face a £6m charge because some of its clients there have not paid their bills.
Although total revenues in the first quarter rose 7.7 per cent, the City view was gloomy. The decline in margins has worsened from 0.1 per cent in 2012, and the City issued downbeat notes in response.
"Disappointing," said Robert Plant at JPMorgan, "especially as the shares [had] been recovering since the Olympic news."
David Brockton at Espirito Santo added: "We expect margin pressure to be sustained across the remainder of the business, particularly in manned security. In our view, this will continue to weigh on group performance and require further divestments and acquisitions to sustain the trajectory of growth."
G4S is still trying to get over its Olympics fiasco last year when profits collapsed by a third after it had to pay out £88m over its failure to supply enough guards for the London 2012 Games. Soldiers were called back from leave to step in.
The shares fell 45.5p to 260p.Reuse content