G4S Sinks on Losses Tied to End-of-Year Asylum Seeker Surgeby
Security-services firm adds four businesses to disposal list
Contract extension in U.K. would lead to further provision
G4S Plc shares plunged the most in three years after a wave of migrants to the U.K. late last year led to increased losses on the company’s contract with the government to house asylum seekers.
G4S dropped as much as 16 percent, the steepest intraday decline since May 2013, after it said it would take an additional 20-million-pound ($28.4 million) provision on the contract, bringing the total charge to 31 million pounds. The security-services company will put more businesses up for sale as it seeks to reduce debt, it said in a statement Wednesday.
Chief Executive Officer Ashley Almanza, who replaced Nick Buckles in mid-2013, has been repairing relations with G4S’s biggest customer, the U.K. government, in part by honoring unprofitable contracts. G4S would have to set aside another 57 million pounds for losses should the U.K. government extend the contract to temporarily house asylum seekers by two years, to 2019, the company said.
“We have no intention of getting out of the contract,” Almanza said on a call with reporters adding that the company now has 18,000 asylum seekers in housing, up about 10 percent from last year. “It’s a contract that we are working extremely hard to fulfill to the best of our ability.”
G4S is now planning to sell four more businesses -- three managing child and juvenile services as well as its Israel-based operations. Asset sales have raised 281 million pounds so far, with another 250 million pounds to 350 million pounds of proceeds expected over the next one to two years, Crawley, England-based G4S said.
Profit from continuing operations and before interest, tax and amortization rose 5.7 percent last year to 427 million pounds ($608 million), coming slightly under a company-compiled average estimate of 431 million pounds. The stock sank 13 percent to 184.60 pence at 2 p.m. in London, giving the company a market value of 2.8 billion pounds.
Earnings were “again messy as there are more disposals, onerous contract provisions and exceptionals,” Andrew Brooke, an analyst at RBC Europe, said in a report. “Organic growth picked up” in the second half, “but not as much as expected.”
Sales in the U.K. fell last year as the company worked off other unprofitable orders committed to by Almanza’s predecessor. The drop in the U.K. was partly offset by growth in its Asia, Mideast, Africa and Americas divisions.
“We are confident that operating under today’s controls, we would not have signed any of these contracts that are now onerous,” Almanza said. The operating margin, which widened to 6.6 percent of revenue from 6.5 percent a year earlier, is up from 3.6 percent in 2013, he said.