Security business G4S has lost out on a number of UK prison contracts, following its chaotic performance with the London 2012 Olympics.
The company had hoped a series of recent new deals - including the management of electronic tagging in Scotland and running security checks at Olso airport - would put it in line for further UK government business despite its Olympics embarrassment. Earlier in the week G4S's chief executive Nick Buckles - famously grilled by MPs over the company's failure to provide enough staff for the Games - told Reuters:
We hope this track record this year of starting new business will hold us in good stead for winning further government business, but clearly that remains to be seen.
Buckles can certainly see now. The government had previously indicated it would take a company's performance into account when awarding contracts. Now the ministry of justice has said three prisons would remain under public sector management and HMP Wolds - currently run by G4S - would be removed from the private sector next July. Four other prisons are still in to be transferred to private bidders, with Sodexo, Serco and MIC/Amey in the running.
The news has sent G4S shares tumbling 3.5%, down 9.6p to 258p, making it the biggest faller in the FTSE 100.
David Brockton at Espirito Santo said:
As feared, G4S has failed to secure any new prisons and will not proceed to the next stage of bidding for any of the potential public sector prisons to be outsourced. Furthermore, G4S has also failed to re-secure its existing contract with HMP Wolds, which will now move back into the public sector. Winning new outsourcing contracts is always competitive, but it is disappointing that G4S has failed to secure its renewal as this represents a contract where the business has a track-record and will have had good insight into how to price the bid effectively and deliver return.
To us, it would suggest that the business has incurred some reputational damage with the UK government following the London Olympic contract failure. Our forecasts remain around 6% below consensus for G4S into 2013, having factored this loss and further potential reputational damage.
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