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G4S Drops as Profit Slips Amid Reviews and Restructuring Costs

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March 12 (Bloomberg) -- G4S Plc, which agreed a financial settlement with the U.K. government after overcharging for tagging criminals last year, fell after reporting a loss on one-time costs to clean up its act and strengthen operations.

Shares in the Crawley, England-based company dropped as much as 7.8 percent, the steepest intraday decline since May 7 2013, and traded down 7.1 percent at 228 pence at 12.41 p.m. in London.

Earnings for the year were hit by a 386 million-pound ($641 million) charge that includes the costs of restructuring its European businesses and reviewing 163 contracts, including electronic monitoring, G4S said in a statement today.

“Discussions between the Cabinet Office and G4S on corporate renewal continue,” U.K. Justice Secretary Chris Grayling said in a separate statement today. “This process is not complete.” G4S will pay the U.K. government 108.9 million pounds ($181 million), according to the statement.

“We have taken clear action to address longstanding issues,” Chief Executive Officer Ashley Almanza said in the company’s statement. “We can now look to the future with increasing confidence, focusing on the growing demand for G4S services that underpins our plan to deliver sustainable, profitable growth.”

The world’s biggest security services provider faces an investigation in Australia following violent incidents last month at a detention center on Manus Island, Papua New Guinea, adding to a series of blows to its reputation in Britain. Almanza replaced Nick Buckles as CEO in June after G4S failed to provide enough guards for the 2012 London Olympics.

Incurs Loss

The company, which provides security services for Bank of America Merrill Lynch in Britain, incurred a loss after tax, interest, amortization and specific items of 342 million pounds in 2013, compared with a 62 million-pound profit the previous year, according to the statement.

“Foreign exchange remains a headwind, while the U.K. is likely to remain difficult until a settlement with the U.K. Government is confirmed,” analysts at Panmure Gordon & Co. led by Mike Allen said in a note. “Anticipated larger settlement costs could also put further pressure on cash flow and implied finance charges for next year,” the analysts said.

G4S could incur charges of about 100 million pounds, Sky News reported yesterday, citing three unidentified people close to the talks. This is about four times the services provider’s initial offer made in November, which was rejected, and compares with the 68.5 million-pound settlement Serco reached with the U.K. government at the end of last year.

Divestments of unprofitable businesses last year including a data solutions business in Colombia and a cash business in Slovakia, earned G4S 124 million pounds to date.

Revenue rose 5.6 percent at constant exchange rates to 7.43 billion pounds, beating the analyst estimates of 7.35 billion pounds compiled by Bloomberg. Strong demand from emerging markets, led by an 18 percent increase in revenue in Asia and the Middle East, helped compensate for “challenging” market conditions in the Netherlands and Eastern Europe.

The company, which employs more than 620,000 people worldwide, recently lost an Australian government contract for an asylum seekers detention center after an investigation found deficient safety arrangements.

To contact the reporter on this story: Morgane Lapeyre in London at mlapeyre@bloomberg.net

To contact the editors responsible for this story: David Risser at drisser@bloomberg.net Tuhin Kar, Robert Valpuesta

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