Security companies sealing deals with governments is usually a lucrative way for the groups to boost their profits but in the case of London-listed G4S, it’s hurting business.
G4S, the world’s largest security companies, just warned in its 2015 results statement that it could haemorrhage another £57 million if Britain’s government decides to extend the UK Compass asylum seeker contract with G4S.
G4S has already clocked a £25 million writedown directly from this asylum seeker contract.
Currently, the Home Office, using taxpayer money, employs G4S to house refugees which are seeking asylum in the UK. However, G4S makes a loss every single time it rehouses an asylum seeker.
G4S provides accommodation, including that in hotels not just temporary residential flats, transportation and subsistence services (food) for asylum seekers whilst their claims are being processed.
G4S signed this contract way before Britain and the European Union were hit by the worst refugee crisis since World War II with even 1 million asylum seekers docking in Europe by boat alone.
This contract started in 2012 and runs to September 1, 2017 — so G4S is locked into this contract for at least another 18 months. It has tried to negotiate the terms of the contract in the past but it has proved unsuccessful.
However it warned that there is “a potential extension of a further two years” and this could have an adverse effect on its earnings.
This is what G4S said in a statement (emphasis ours):
“We continued to effectively manage onerous legacy contracts in the UK. As a result of a material increase in the number of asylum seekers we received between November 2015 and January 2016, we have increased the Compass onerous contract provision by £20 million to £31 million.
“In 2014, an onerous contract provision was recognised in relation to the then-current assumptions regarding asylum seeker numbers, the duration and cost of accommodation and support services.
“We experienced a significant increase in the number of new asylum seekers between November 2015 and January 2016 and as a result the number of asylum seekers in our care increased by 9.6% year-on-year.
“We have updated the Compass provision based upon our best estimate of the increase in asylum seekers assigned to G4S, the availability of suitable accommodation approved by local authorities and the speed of processing of applications by the immigration authority.
“To date, the Compass contract has not been extended and the onerous contract provision has been increased by £20 million to £31 million covering the period to August 2017.
“Should the contract be extended for the period to August 2019 then, based on the same assumptions as the current provision, a further provision for £57 million would be required.
Meanwhile, G4S clocked a total charge of £65 million in its results to reflect the losses it expects to make on contracts with the British government.
However, the group is making headway in the US where it is raking in bumper sales with the government at better margins.
Here are the more positive highlights directly from the statement:
- New contract sales with total value of £2.4 billion (annual value £1.3 billion) and contract retention rates of around 90%.
- Revenue increased by 4.0% to £6.4 billion. Emerging markets revenues up 8.6%; North America up 5.8%; UK down 3.0%; Europe up 2.6%.
- PBITA (Profit Before Interest, Tax and Amortisation) increased by 5.7% to £427 million (2014: £404 million).
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