G4S Shares Slump on Olympic Security Debacle

on Jul 16, 2012

Shares in the UK-based security and support services giant, G4S (GFS.L), slumped by nine per cent on Monday (July 16). In early morning deals, investors in G4S saw the stock shedding 25 pence to 253.65 pence, reaching its lowest level in more than six months after the company admitted that it cannot provide enough security guards for the London Olympics.

On Thursday G4S said it had deployed only 4,000 guards, failing to fulfil the £284 million contract that saw the security group agree to provide 10,400 security guards to a planned force of 23,700. This forced the British government to step in and cover the shortfall at the last minute by providing the minimum of 3,500 extra soldiers from the British army to guard the Olympics. On Saturday G4S chief executive, Nick

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Buckles, made his first public statement and apologised for the recruitment blunders.
“We accept that we underestimated the task of supplying staff for the Olympics. We deeply regret that,” Buckles told BBC radio on Saturday. In his first public comment on the Olympics fiasco, Buckles also said that the company now faces losses of between £35 million and £50 million as a result of the blunder.

!m[](/uploads/story/130/thumbs/pic1_inline.png)In reaction to the stream of negative news, London’s FTSE 100 index of top companies, on which G4S is listed, was 0.27 per cent lower at 5,650.72 points in late morning deals on Monday. Investors fear the group’s reputation has been tarnished by its failure to provide enough staff for the Games, and it faces a period of uncertainty if Buckles loses his job due to the fiasco. Investment bank UBS gave a further indication of investor sentiment by downgrading its rating on G4S from a “buy” to “neutral.” Stockbroker Seymour Pierce also removed its “buy” rating on the company and reduced its profits forecast by £60 million. Other brokers have also downgraded the company.

The recent Olympics debacle added to a troubled 12 months for G4S. Last year the security group had to abandon a £5.2 billion takeover of Danish rival ISS (ISS) in the wake of a shareholder revolt, which caused a drastic slump in the company’s shares that fell to 232 pence. Analysts already predict a similar outcome to the latest G4S issue.
“We believe the shares could test the low of 232 pence reached following the ISS rights issue failure in 2011 – that too resulted in a 50 million pounds shortfall in profits,” said Seymour Pierce analyst Kevin Lapwood.
In an interview with the Daily Telegraph on Monday morning Buckles, said he expected the company’s share price to suffer, while admitting doubts over his own future: “The share price is going to move on Monday, it just depends how much. I have been here 27 years. I am very committed to staying. It just depends, doesn’t it?”


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