G4S hurdles Games security disaster

Profit to pass £500m despite £88m cost of bungled Olympics contract

The security giant G4S will face criticism this week when it is expected to report a £520m-plus pre-tax profit for a year when it faced anger over its Olympic contract shambles.

The world's third-biggest private employer last month admitted that the total cost of its bungled 2012 Games deal – when soldiers were called away from leave after G4S failed to hire enough security guards – will cost £38m more than the £50m hit it expected. Negotiations with the Olympic organiser, Locog, saw G4S agree to waive more of its initial management fee, taking the total loss from its high-profile Olympic failures to £88m. But that is only a little more than 1 per cent of the £8bn revenue that G4S is expected to post at its preliminary results on Wednesday.

Many doubted that Nick Buckles, G4S's chief executive, would still be at the helm to announce the results. Although two G4S directors, chief operating officer David Taylor-Smith and head of global events Ian Horseman Sewell, resigned, Mr Buckles was backed by shareholders and kept his post.

However, the financial impact of the Olympic fiasco means the chief executive, who earns a base salary of £830,000 a year, will not get a bonus this year. "I wouldn't get one anyway because it will hit the profit line," Mr Buckles has said.

These are the second annual results in succession in which he has not received a bonus. Last year he was forced to waive a payout worth some £750,000 after G4S spent more than £55m in fees on a failed £5.2bn attempt to take over the Danish cleaner ISS in 2010.

City analysts expect the security behemoth's annual pre-tax profit this year to be £8m lower than otherwise as a result of the "for sale" sign hoisted above its US Government Solutions business last week. The division, which organises fire protection and mine clearance for state departments including Homeland Security and Defence, as well as Nato and the United Nations, had revenues of about £400m in 2012.

"It makes sense for G4S to get out of it," said the Panmure Gordon support services analyst Mike Allen. "The business has margins of 2-3 per cent, where G4S's group average is about 7 per cent. As a non-US company it was kept at arm's length, so there wasn't a lot of ways to drive up margins."

City analysts expect Mr Buckles to focus on sentiment in the 2012 results statement. "The key point in the UK is whether they can grow the business after the Olympics [shambles]," Mr Allen added.

Major government contracts constitute about half of G4S's annual £700m UK revenues. Last week G4S secured a three-year deal to provide security for British Airways at Heathrow and Gatwick airports. "It was a small deal but at least shows that the company is winning business, and the market wanted to see that," Mr Allen said.

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