G4S Plc (GFS.L,GFSZY.PK), UK's private security firm heavily criticized for its weak handling of London 2012 Olympics security contract, Tuesday reported a sharp decline in its first-half profit, hurt by costs on failed Olympics contract as well as on planned restructuring. The company reduced over 1,100 positions in its restructuring efforts, in order to maximize efficiency and eliminate duplication.
In London, G4S shares lost 6 pence or 2.25 percent, and are currently trading at 260.20 pence.
G4S said the restructuring will result in annualised cost savings of about 30 million pounds, with effect from the second half, and help maintain group margins. The company expects the majority of this benefit to come through in 2013.
Chief Executive Officer Nick Buckles said, "We were deeply disappointed that we had significant issues with the London 2012 Olympics contract... The overall business has performed well in achieving a similar underlying profit as the first half of last year despite economic challenges, particularly in Europe, and weakness in the US government market."
In July this year, the company had to inform the London Organizing Committee of the Olympic and Paralympic Games or LOCOG about its failure to provide enough security for the games, following which, UK Home Office deployed additional military.
The Paralympic Games begin on 29th August and the company said it continues to work with partners to ensure safe and secure Games. The company's review on the contract is underway and is expected to be completed during second half of September
For the first half, pre-tax profit plunged to 61 million pounds from 151 million pounds last year. The latest results included 50 million pounds loss related to Olympic and Paralympic Games contract, as expected, and restructuring costs of 24 million pounds.
Profit before interest and tax was 115 million pounds, while adjusted profit before interest and tax was 236 million pounds.
Turnover increased 5.9 percent to 3.90 billion pounds, with a strong performance in developing markets. At constant exchange rates, turnover grew 7.5 percent, while organic growth was 6.8 percent.
Excluding the Olympic and Paralympic Games contract, underlying sales were up 5.8 percent and organic growth was 5.1 percent.
Secure solutions business' turnover grew, while margins were hit by challenging economic conditions in Continental Europe and a reduction in U.S. government work.
The cash solutions business' organic revenue increased and margins benefited, with improvements in North America and developing markets, while Europe's margin was lower due to anticipated contract phasing in the UK.
Further, the company's board has declared an interim dividend of 3.42 pence per share, consistent with last year.
Looking ahead, G4S said it is confidence in the outlook as the underlying business has performed well and that the positive trading momentum is expected to continue.
The company projects ongoing improvement in organic growth with developing markets and growing outsourcing trends continue to be key business growth drivers.
G4S also projects that organization design and overhead review program will deliver significant costs savings in the next 12 months.
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