G4S Shares Drop in Anticipated £50 M Loss in Olympics’ Security Shortfall

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International private security group Group 4 Securicor (G4S) (LSE:GFS) said it will not be able to deliver the agreed number of guards for the 2012 London Olympic and Paralympic Games and anticipates a loss “in the range of £35 – £50 million” for the current fiscal year.

The news was released late Friday, a day after the UK Government admitted about 3,500 extra troops will be placed on standby in lieu of the troubles the group is experiencing with the recruitment of security personnel.

Shares of the FTSE 100 company dipped 8.9% to £2.53 per share at 1:30 PM GMT on the London Stock Exchange today, in reaction to the disappointing news that analysts say may hurt the group’s ability to win contracts in the future.

Extremely Complex

In a statement, G4S said the company has encountered “significant difficulties in processing applicants in sufficient numbers through the necessary training, vetting and accreditation procedures”, in what it referred as an “extremely complex workforce supply contract” of an “unprecedented scale”.

The £284 million security contract, awarded last March 2011 by the London Organising Committee of the Olympic Games and Paralympic Games (LOCOG), required G4S to recruit, train, and manage about 10,000 security workforce across the competition and non-competition venues.

However, with only about 4,000 recruited 11 days before the Games open on 27th July, G4S stated, “we will be unable to deliver all of the necessary workforce numbers”.

“G4S is fully aware of the importance and significance of its role in ensuring that the 2012 Games are secure and successful.  The Company deeply regrets that, despite the relentless efforts of so many of its people, it is unlikely to deliver in full its obligations to LOCOG, to the Government and to everyone with an interest in these Games.”

Significant Disappointment

Nick Buckles, the group’s Chief Executive, is to appear before the Parliament on Tuesday to explain the failure of securing the required number of guards, after British Prime Minister David Cameron warned G4S would face consequences for the shortfall.

“It is a significant disappointment to everyone at the Company that we have fallen short of our obligations,” said John Connolly, who assumed Chairman of G4S more than a month ago.

G4S said it accepts the responsibility for the additional cost of the increased military deployment resulting from the shortfall of the workforce delivery.

The latest headcount reported is at 17,000 troops, making the event much more crucial than the situation in Afghanistan where the UK Government deployed only about 9,500 troops.

No Threat in Security

Despite the situation, Defence Secretary Phillip Hammond assured “the security required to make the Olympics safe and secure will be in place”.

“The army, the air force and the navy are working alongside G4S and we will ensure that the games are secure. There was always going to be a very significant armed forces component, it will now be a bit larger than we originally envisaged it being,” Mr. Hammond said, speaking with Sky News.

G4S, on the other hand, said their priority for now will be to work with LOCOG and the military to ensure the necessary workforce deliver.

“When the Games are finished, the Board will conduct a full review of our performance on delivering this contract,” G4S said.

Company Spotlight

Group 4 Securicor plc, or G4S, is the world’s largest private security firm, employing more than 657,000 staff in 125 countries.

Founded in Denmark, where it also has a secondary listing, G4S is part of the FTSE 100 Index of the London Stock Exchange.

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