Prison closures pile pressure on G4S margins

 
Michael Bow
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THE WORLD’S biggest security contractor G4S tumbled in trading yesterday after it said the closure of 30 Dutch prisons it staffs would eat into operating profit margins for the rest of the financial year.

Shares fell about 15 per cent after the group shocked investors with a warning that margins would be 0.6 per cent lower for the next six months, equivalent to about £48m cut from operating earnings.

“Despite ongoing business improvement plans, the first quarter margin trends are expected to continue for the full year,” G4S said.

The problems relate to last minute proposals from the Dutch Ministry of Justice to dump 700 G4S staff employed at 30 prisons across Holland. A fall in UK prisoner levels and less electronic tagging for offenders is also piling pressure on revenues from the UK government, which accounts for about eight per cent of total revenues.

G4S was already on the rack after last summer’s botched handling of the Olympics security contract.

Shares closed at 260p last night, down 14.89 per cent.

The group, led by Nick Buckles, has also been hampered by a £6m hit on bad debts from its work in Djibouti in Africa.

A resurgence of smaller independent firms offering security services to banking ATMs has also been a headwind. The group’s cash management business accounts for about seven per cent of revenues.