Bloomberg News

U.K. Lawmakers Say They Lack Confidence in G4S Olympics Security

July 17, 2012

G4S Plc Chief Executive Officer Nick Buckles

A screen grab shows G4S Plc Chief Executive Officer Nick Buckles giving evidence to Parliament's Home Affairs Select Committee in the Houses of Parliament in London. Source: U.K. Parliament via Bloomberg

U.K. lawmakers said they have no confidence in G4S Plc (GFS)’s ability to provide security at the London Olympics that start next week, accusing Chief Executive Officer Nick Buckles of “making it up as you go along.”

Buckles, who heads the world’s largest security company, was facing a House of Commons committee today to explain the staffing shortfall that forced the government to deploy thousands more soldiers and police last week. He said he regretted taking on the contract, apologized for G4S’s performance and agreed it was a “humiliating shambles.”

“Most of us had very little confidence in G4S’s ability to fulfill this contract, and now we don’t have any at all,” Conservative lawmaker Nicola Blackwood said to Buckles at the hearing in London. “You’re making it up as you go along,” a Labour Party colleague, Bridget Phillipson, told the G4S CEO.

G4S’s share price fell for a fourth day on concern about its ability to win more work from the U.K. government. Shares of the Crawley, England-based company dropped as much as 6.4 percent and traded at 238.5 pence as of 2:22 p.m. in London. That’s a decline of 17.8 percent since July 11.

“G4S is likely to be the subject of increased scrutiny on contracts with government customers, which may influence decision-making on forthcoming tenders,” Andrew Ripper, an analyst at Bank of America Merrill Lynch, said in a note. The bank cut its recommendation on the stock to neutral from buy.

Management Fee

Buckles and Ian Horseman-Sewell, the company’s global events specialist, said G4S still expects to keep a management fee “in the order of 57 million pounds” ($89 million) for running security staffing at the games. Lawmakers expressed astonishment.

“We still expect to deliver a significant number of staff,” Buckles told them. The company previously expected a profit of 10 million pounds on the 284 million-pound contract and now foresees a loss of 50 million pounds, he said.

The committee chairman, Labour lawmaker Keith Vaz, told Buckles he had secured the Olympics contract for the sake of “vanity.” Conservative Lorraine Fullbrook, told by the CEO that the military was now in charge of security provision, said “thank God for that.”

Buckles said his company decided last week would not bid for security contracts at the 2014 soccer World Cup in Brazil or the 2016 Olympics in Rio de Janeiro.

He said he informed the Olympics organizing committee, Locog, of the shortfall in staffing on July 3 and that officials at the Home Office were told on July 4 or the following day. Home Secretary Theresa May said yesterday she knew of G4S’s difficulties on July 11.

‘Logistical Challenge’

“It’s not where we’d want to be,” Buckles said. “To get 10,000 people plus on the ground has been a huge logistical challenge. We didn’t know the contract was not going to perform until very late on.”

Asked by Labour lawmaker David Winnick if it was a “humiliating shambles for the company,” Buckles answered, “I can’t disagree with you.”

Buckles said he would consider paying a bonus to the military and police who had to be brought in to cover the staff shortfall.

He said G4S will be able to cover all Olympic venues and expects to supply a minimum of 7,000 staff.

“Our normal no-show rate is normally about 10 percent,” he said. “Our problem at the moment is shortage of staff; purely and simply, we don’t have enough staff to turn up.”

Buckles said his future position in the company is “not my current concern.”

‘First Priority’

“My first priority is to deliver as many people as we can on this contract,” he said. “I feel I am the right person to make sure this happens.”

Separately, G4S won’t be charged over the death of a man restrained by three of its guards at London’s Heathrow airport on an Angola-bound aircraft in 2010.

There isn’t enough evidence for a trial because medical experts gave several potential causes for the death of Jimmy Mubenga, who was being deported from the U.K., and there’s no proof a “sufficiently senior person” at G4S made a criminal failure to act, the Crown Prosecution Service said in a statement today.

Capita Plc (CPI), Serco Group Plc (SRP) and Mitie Group Plc (MTO), which compete with G4S for government contracts, may benefit from their rival’s downfall, Ripper said.

In the next 12 months, there are contracts derived from the U.K. government worth 759 million pounds that are up for bidding, Mike Allen and Paul Jones, analysts at Panmure Gordon, said today in a note. The Olympics “debacle” will lower G4S’s growth rate for U.K. government work, they said, reducing their recommendation to hold from buy.

Buckles escaped pressure from investors to reshuffle the board in the wake of G4S’s failed $8 billion bid last year for cleaning company ISS. Investors balked at the level of planned borrowing and risk attached to diversifying into cleaning. Alf Duch-Pedersen, chairman at the time, quit at the start of the year amid pressure from shareholders including Edoardo Mercadante of Parvus Asset Management LLP.

To contact the reporters on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.net

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net


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