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G4S Olympic staffing shortfall raises investor concerns
The reputational damage suffered by security firm G4S could jeopardise its chances of winning UK government contracts in the future.
Shares in G4S (GFS.L) are among the biggest fallers on the FTSE 100 today amid concerns of potential long-term reputational damage to the private security contractor after reports that it will not be able to deliver the number of staff it promised for the Olympics.
G4S has confirmed reports doubting its ability to supply 10,000 guards for the Olympics, out of a total of 23,700 staff – the rest were to be a mix of students, military and volunteers – that are thought needed to provide security at the London games.
The military has been asked to provide 3,500 extra troops to cover the shortfall.
G4S, formerly Group 4 Securicor, has admitted in a statement that it has faced ‘delays in progressing applicants’, but added that ‘we are working extremely hard to process these as swiftly as possible’.
‘G4S is committed to ensuring that London 2012 is safe and secure. This is an unprecedented and very complex security recruitment and deployment exercise which is being carried out to a very tight schedule.
‘We have made very significant progress - we already have some four thousand people at work across 100 venues. We currently have over nine thousand additional people going through the final stages of the required extensive training, vetting and accreditation process.
‘We have encountered some delays in progressing applicants through the final stages but we are working extremely hard to process these as swiftly as possible. We understand the Government's decision to bring in additional resources and will work with LOCOG, the military and other agencies to deliver a safe and secure Games.’
UBS analyst Jaime Brandwood warned that whether or not G4S meets its deadline, ‘politicians are seeing this as an area ripe for political “points scoring”’.
G4S's success in winning UK government outsourcing contracts is one reason why it is widely tipped by brokers, the majority of which say the shares are a 'buy'. The company drew the ire of shareholders last year after finally abandoning an unpopular plan to acquire Danish cleaning firm ISS, but shares have moved higher – up 4% so far this year, bettering the wider FTSE 100 – since a strong set of first quarter results published in May.
‘The key now, regardless of risk to sales/profits on Olympics work, has to be to avoid reputational damage that could hurt its chances of securing future events work and a fair share of a burgeoning UK government’, Brandwood added in a research note today, while holding his buy recommendation for the shares.
Caroline de La Soujeole, an analyst for Seymour Pierce, disagreed. She said today's share price fall was 'overblown', noting that the group's sales totalled £7 billion last year, compared with the £200 million plus in sales that G4S expects to bring in from the Olympics.
G4S shares are down 9.1p or 3.1% to 281p.
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