G4S may find it hard to secure new work

LONDON BRIEFING:SOLDIERS ARE still patrolling Greenwich Park in southeast London, venue for the Olympic equestrian events, as its grounds are made ready for the Paralympics at the end of the month.

The presence of the military is an all too visible reminder of the spectacular failure of security firm G4S to fulfil its lucrative contract to guard the Olympic Games, a failure that has dealt a severe, worldwide blow to its reputation.

Shares in the FTSE 100 company plunged almost 20 per cent when G4S chief executive Nick Buckles was forced to reveal, just a fortnight before the opening ceremony, that it had failed to recruit and train the thousands of guards it had been contracted for.

The share-price plunge wiped some £700 million (€891 million) from the value of G4S, formerly known as Group 4 Securicor. It was, the £830,000-a-year Buckles admitted during an excoriating grilling by MPs the following week, “a humiliating shambles”.

As Group 4 Securicor, the company had become a standing joke in Britain in the early 1990s, when a number of prisoners staged escapes from its vans as they were being transported to and from jail. It had largely shaken off that reputation for incompetence by the time it merged with Danish firm Group 4 Falck in 2004, a deal that transformed it into the world’s largest security firm. Today it is also the world’s third-largest private-sector employer, with more than 650,000 employees.

But this was not enough to fulfil its commitment to guard the London 2012 Games. More than 18,000 military personnel were drafted in as a result of the fiasco – the largest peacetime operation performed by Britain’s armed forces.

G4S has made a £2.5 million donation to the military as a goodwill gesture, money that will go towards welfare amenities. Along with the UK treasury, it will also reimburse the military’s expenses for the Olympic operation.

That bill is likely to be hefty, but the biggest cost to G4S is in the loss of its reputation and the impact this will have on future contracts. The group operates in 125 countries around the world and its shortcomings have received global exposure. The chief executive has kept his job, for now at least, but even if Buckles is replaced (a move that would cost about £20 million, including his share options and pension pot), will that be enough to persuade a local authority or foreign government to place its trust in G4S by awarding it new work?

The timing of the debacle could barely have been worse. As it battles to bring down the public deficit, the coalition government is in the process of outsourcing an estimated £4 billion of work, from defence training to support roles in the police and in prisons. G4S is unlikely to be top of anyone’s list now – but there may also be less work for its competitors, amid signs that the Olympics shambles could prompt a shift in government policy on outsourcing.

British defence secretary Philip Hammond has admitted he is rethinking his scepticism towards the public sector in the light of the Olympics, while cabinet colleague Jeremy Hunt, the culture minister, said yesterday he had been made to “think again” about the use of private-sector companies in certain situations.

THE STOCK market is an unforgiving place for fallen stars. Shares in former high-flyer SuperGroup, the company behind the trendy Superdry label, came under pressure again yesterday on news of the departure of its co-founder, Theo Karpathios.

Although SuperGroup is denying reports of a boardroom bust-up, Karpathios is leaving with immediate effect, taking a year’s pay of £300,000 with him. He retains a near-15 per cent stake in the company he set up with chief executive

Julian Dunkerton in 2004 and both insist they remain on good terms.

SuperGroup was one of the most successful flotations of 2010. From a debut price of 500p, the shares soared to almost £19 in early 2011 and the company could do no wrong.

But, amid fears that the fickle fashion world might be falling out of love with the Superdry brand, things began to unravel and the group was forced to issue four profit warnings within the space of 12 months, including one caused by accounting errors and overestimates of demand.

Its shares plunged and remain well below their flotation price.

Karpathios said the reason behind his departure was his wish “to take on new challenges”.

Given all the problems SuperGroup is grappling with, one would have thought that was challenge enough.

Fiona Walsh writes for the Guardian newspaper in London