17th Mar 2005 07:01
ArmorGroup International plc17 March 2005 17 March 2005 ArmorGroup International plc Strong maiden preliminary results ArmorGroup International plc, a leading international provider of defensiveprotective security services and security training services, which listed on themain market of the London Stock Exchange in December 2004, today announcesmaiden full year results for the 12 months ended 31 December 2004. Highlights: • Turnover up 92% to US$191.1 million (2003: US$99.3 million)* • Underlying EBITA** increased strongly to US$19.9 million (2003: US$3.8 million)* • Operating profit for the year up to US$17.2 million (2003:US$3.4 million)* • Profit before tax up to US$13.4 million (2003: US$3.3 million)* • Basic earnings per share for the year of 35 cents (2003: loss of 4 cents)* • Net cash of US$13.0 million at 31 December 2004 • Tenders for US$191.5 million of work have been submitted and are currently awaiting adjudication and subsequent award • New contract wins and extensions secured during the first quarter of 2005, include: • Renewal of the US$11.4 million five-year contract for security management at the US Embassy in Uganda • Six month US$8 million extension to the Iraq Police Mentoring contract with the Foreign and Commonwealth Office • US$4.6 million of additional work for the Foreign and Commonwealth Office in Afghanistan Jerry Hoffman, Chief Executive Officer, commenting on the results announcementsaid: "2004 was a watershed year for ArmorGroup and we are pleased to deliver anexcellent set of full year results slightly ahead of our expectations at thetime of the IPO. I am extremely pleased with the overall performance achievedby the Group in 2004 and am particularly excited about the opportunities we arenow pursuing around the world. The IPO has allowed us to recapitalise ourbalance sheet and has put us in prime position to pursue the opportunities thatwe expect to be presented in 2005. The first quarter of 2005 has seen sustained growth in our market sector drivenprimarily by demand in Iraq, Kuwait and, of late, Saudi Arabia, as well as asignificant upturn in Afghanistan as a result of further funding by theinternational community. With currently US$144.5 million of 2005 revenue undercontract and further successes we expect performance to surpass last year'slevel." * All amounts for the year ended 31 December 2003 represent proforma financialinformation as disclosed in the Company's Listing Particulars dated 10 December2004. The Company was incorporated on 14 October 2003 and acquired the defensiveprotective security services and security training services business by way ofan MBO on 26 November 2003. Prior to the MBO the business did not form oneseparate legal entity, nor was it structured with a holding company as aseparate legal entity. Proforma financial information for the year ended 31December 2003 has been prepared, as explained in Note 2 to the financialinformation, by combining the relevant businesses as if they had been owned andcontrolled by the Company for the full year. Enquiries: ArmorGroup International plc Jerry Hoffman, Chief Executive Officer Tel: +44 (0) 20 7638 9571 (until 2pm today) David Seaton, Chief Financial Officer Tel: +44 (0) 20 7808 5800 (thereafter) Nick Melson, Communications Manager Citigate Dewe Rogerson Patrick Toyne Sewell/Sarah Gestetner Tel: +44 (0) 20 7638 9571 This press release and the analyst presentation will be available to downloadfrom the Investor Relations section of the ArmorGroup website atwww.armorgroup.com today at 7.00am and 9.30am, respectively. A presentation toanalysts will take place this morning at 9.30am at Citigate Dewe Rogerson'soffices at 3 London Wall Building, London EC2M. Notes to Editors ArmorGroup International plc. ArmorGroup, which has its headquarters in London, has over 7,700 employees andoperations in over 26 countries. It provides its services principally to firstworld national governments, major international inter-governmental organisationsand multinational corporations. It operates principally in regions of the worldwith diminished law and order or with a high risk of terrorism or which wereformer areas of conflict, including the Middle East, Africa, South America, theCIS and Asia. The Group successfully listed on the main market of the LondonStock Exchange in December 2004. ArmorGroup provides its services through two divisions: Protective SecurityServices and Security Training. The international protective security market inwhich ArmorGroup operates covers a wide range of services and operations.ArmorGroup, however, is focussed solely on the provision of defensive securityservices for people and property which support the work of its clients. Business and Operating Review 2004 was a watershed year for the Group with both service divisions enjoyingconsiderable growth and turnover almost doubling to US$191.1 million. UnderlyingEBITA** grew more than five-fold to US$19.9million. It was also a verysuccessful year in terms of aligning the Group to meet the challenges and growthopportunities that it expects to arise in the market. The transition from aprivately backed MBO to a listing on the main market of the London StockExchange was the cornerstone of ArmorGroup's strategy as it allowed the Group torecapitalise the business, increase its profile and, most importantly, give itaccess to additional funding in the future should it be required. Operating profit, for the year was US$17.2 million (2003: US$3.4 million*) afterIPO related exceptional costs of US$2.0 million and goodwill amortisation ofUS$0.7 million. Profit before tax for the year was US$13.4 million, up fromUS$3.3 million in 2003*. Interest payable for the year totalled US$4.5 million,primarily in respect of the net debt under the previous MBO capital structureand utilisation of the Barclays bank facility to support the growth of the Groupduring the period. Interest costs in 2005 are expected to be negligible. Theeffective tax rate for the period was 34.8% as a result of the high proportionof profits generated by US subsidiaries. Profit after taxation for the year wasUS$8.7 million. Earnings per share was 35 cents compared with a loss of 4 centsper share in 2003*. The Group raised gross proceeds of £29.0 million as a result of the December2004 Initial Public Offering. Net proceeds after transaction costs were US$45.1million. The Balance Sheet has been restructured and strengthened by settlingall MBO related external debt and at the year end there was a net cash balanceof US$13.0 million and Net Assets of US$66.0 million. Following the listing in December 2004, the Group has made progress in itspreparations for the introduction of IFRS. At this stage, it is anticipatedthat the financial statements of the group will primarily be impacted by IFRS 1(Share Based Payments), IAS 1 (Presentation of Financial Statements) and IAS 14(Segmental Reporting). The 2005 interim financial statements will be preparedunder IFRS and will include a restatement of the 2004 interim results asrequired by the UK Listing Rules. As mentioned in the Listing Particulars for the IPO, the Group will not bepaying a dividend in respect of 2004 but expects to pay dividends for 2005, withthe interim and final dividends being payable in October 2005 and May 2006respectively. Protective Security Services Division The Protective Security division doubled its turnover to US$173.2 million,primarily on the back of strong demand for these services in the Middle East andAfghanistan. The reconstruction effort in Iraq dominated this division'sperformance, accounting for 57% of reported revenues. During the year the primecontractors appointed by the Coalition Provisional Authority dramaticallyexpanded their activity in Iraq, having spent much of 2003 focused on planningthe projects on which they had been contracted to work. The Directors see thisincreased activity continuing into 2005 and beyond, with the prime contractorsincreasingly using sub contractors for specific projects, all of which willrequire protective security services. The year saw ArmorGroup working for threeof the four prime contractors operating in the region, providing services to 21clients under a total of 27 contracts, with 14 of those contracts remainingactive in the first quarter of 2005. In addition to working with the international commercial reconstruction sectorin Iraq ArmorGroup is also engaged in a number of projects to support coalitiongovernment initiatives, most notably the provision of 68 police mentors in Basrafor the UK Foreign and Commonwealth Office (FCO) and the protection of the UKEmbassy in Baghdad. Directly funded Iraqi Government work is likely to becomemore prominent and will, the Group believes, be a fundamental element ofinfrastructure reconstruction and commercial growth in Iraq for many years tocome. ArmorGroup was also engaged in a number of mine and unexploded ordnance removaltasks in Iraq, which generated US$3.4million of revenues. However, the mainfocus on this activity has yet to start and responsibility for it has recentlybeen passed to the Iraqi Ministry of Interior which is currently identifying andprioritising the tasks in hand. As a result, 2005 is likely to see increasedactivity in this area. Outside Iraq the Group saw significant growth in Asia, with revenue up 95% toUS$15.5 million, primarily as a result of strong mine and unexploded ordnanceremoval revenues on Sakhalin Island. Armorgroup successfully completed twomajor offshore contracts in the area, resulting in full year revenues of US$7.6million, up from US$1.5 million in 2003, with the prospect of significantfollow-up work in 2005. Elsewhere in Asia, there was a concerted effort by theinternational community to fund the reconstruction efforts in Afghanistan andattempts are being made to realign its economy away from narcotic production tomore acceptable and sustainable forms of industry. ArmorGroup currentlyprovides services to the British Embassy in Kabul and to several internationalreconstruction companies, and is also seeing an expansion of the servicesprovided to the FCO in support of its growing diplomatic mission in the country. In Africa ArmorGroup's primary focus remains support for the extractiveindustries, particularly oil and gas in West Africa and mineral and preciousmetals in Central and Eastern Africa. The year saw Africa accounting for 12.6%(US$24.1 million) of the Group revenues, with improved performances by theGroup's operations in Nigeria, Uganda and Tanzania with further improvements andexpansion expected in 2005. The strong oil price and the increased emphasis onprecious metal extraction, particularly in Tanzania, are the key drivers forexpected growth. South America saw revenues fall 19.7% year on year to US$15.9 million followingthe divestment of the aviation security business in June 2004. Eastern Europe saw revenues fall marginally to US$9.0 million, primarily as aresult of a weaker performance in the Balkans, and the non-recurrence of revenuefollowing the completion of a large pipeline construction contract in theCaspian area in 2003. In North America, the Group has set up a Government Contracting department whicheffectively positions ArmorGroup for the pursuit of larger US Governmentcontracts. This supports the Group's established formula of winning contracts,in the US, for work to be fulfilled outside the US by ArmorGroup operations. Torun this new Washington based office, a senior former Raytheon executiveexperienced in government contracting was recruited. The Group has alsorecruited additional business development and contracting experts to staff thedepartment. Security Training Division The Training division saw turnover grow by 19% to US$17.9 million, again due toincreased activity in the Middle East, and took further steps to reinforceArmorGroup's positioning as one of the most capable security training companiesin the world, with unparalleled facilities and expertise. The year saw the establishment of two further training facilities: Pershore inWorcestershire, UK, and, most notably, Camp Ghassan, a training facility at AlHillah, 45 kilometres south of Baghdad. ArmorGroup completed the latterfacility in July 2004, which has the infrastructure to accommodate trainingprograms for approximately 150 people per day and includes twoNATO-specification firing ranges. As anticipated, demand for use of thefacility has been high, with full utilisation since the day it opened. Sincethen, Camp Ghassan has accounted for 48% of the division's revenue and the Groupbelieves that 2005 should see significant growth from the division overall. The Group's Pershore facility currently conducts driver and close protectiontraining, primarily for corporate clients. The current year should see anincrease in the training provided, not least because a number of US governmentclients have expressed an interest in the facility, primarily so that they donot have to send European based staff back to the US for training. ArmorGroup's US facilities at West Point, Virginia and San Antonio, Texas, wereboth extremely active and accounted for the remainder of the division'srevenues. Overall revenues were up 3% at these US facilities. Market trends ArmorGroup is well placed to meet the unprecedented security and training needsof first world governments and multinationals in today's higher risk,security-aware environment. No longer is security a discretionary spend: it isnow almost essential for corporations to ensure that employees and property areproperly protected and that corporations are seen to be taking appropriateprotective precautions. The Directors believe the international commitment toreconstruction in the Middle East will require a private security presence therefor many years to come, while the current and future needs of the oil and gasindustry, as it works to rebuild existing fields and develop additional ones,will also drive growth in the security market. However, reconstruction effortsare not restricted to the Middle East: Afghanistan is already seeing significantinvestment to rebuild the country and its economy; and there are many billionsof dollars pledged via the United Nations to assist Sudan as soon as theinternal situation stabilises sufficiently. ArmorGroup is in a prime positionto assist in all these areas. The Group also sees further growth through increased government outsourcing, asreductions in military capacity and budgets put ever increasing pressure ongovernments to make best use of their limited resources. The Directors believe,and are in fact already seeing, that governments will increasingly outsourcesupport functions, such as embassy guarding, training and other non-offensivemilitary support activities, to private companies. Governments are, and willcontinue to be, discerning as to the credentials of the companies they use forsuch work, which is beneficial for ArmorGroup due to its reputation andlongstanding relationships with both the US and UK Governments. Both government outsourcing and the nature of reconstruction work are resultingin significantly larger contracts being tendered. The logistical and financialdemands of larger contracts create a barrier to entry into this market anddifferentiates the well established and financially robust companies such asArmorGroup from the newer entrants, many of which have entered the market as aresult of opportunities in Iraq. As a listed company, ArmorGroup believes it isuniquely placed to play a dominant role in this sector. Group strategy The Group's strategy has already reaped rewards through 2004 and will becontinued through the current year and beyond. It has built a critical mass ofinfrastructure in both London and Washington sufficient to support its operatinglocations and to focus its business development efforts on the key sources ofgovernment funded work and major multinational business. ArmorGroup hasestablished government contracting departments in both centres and will continueto pursue the larger, more demanding contracts which require the Group'sexpertise and infrastructure. The Group will continue to expand itsgeographical footprint as required by its clients and establish local entitiesin those countries which offer attractive business prospects, whilesupplementing its core disciplines with additional, related services lines asrequired. Outlook The Directors' confidence in the market conditions is supported by the currentyear's revenue under contract which stands at US$144.5 million as at 15 March2005, compared to US$97.2 million as at 31 March 2004. In addition, the annualrevenue value of work competitively tendered for, but yet to be awarded,currently stands at US$191.5 million, compared to approximately US$100 millionat the same time last year. ArmorGroup anticipates being successful in winning aproportion of this work. The first quarter of 2005 has seen sustained growth in ArmorGroup's marketsector driven primarily by demand in Iraq, Kuwait and, of late, Saudi Arabia aswell as a significant upturn in Afghanistan as a result of further funding bythe international community. The Directors therefore expect that the successachieved by ArmorGroup in 2004 will be surpassed this year and that the Groupwill continue to build on its previous achievements. Consolidated profit and loss accountUnaudited Proforma financial information for Year ended 31 Incorporation to the year ended 31 December 2004 31 December 2003 December 2003 Note US$'000 US$'000 US$'000TurnoverContinuing operations 191,114 11,058 98,187Discontinued operations - - 1,108 Group turnover 3 191,114 11,058 99,295 Cost of sales (139,839) (7,950) (69,973) Gross profit 51,275 3,108 29,322 Administrative expenses (34,095) (3,080) (25,926) Operating profit before goodwill amortisation andIPO exceptional costs 19,878 85 3,501 Goodwill amortisation (697) (57) (105)IPO exceptional costs 4 (2,001) - - Operating profit 3 17,180 28 3,396 Continuing operations 17,180 28 3,682Discontinued operations - - (286) Group operating profit 17,180 28 3,396 Net profit on sale of businesses 5 592 - 302Interest receivable and similar income 6 48 4 40Interest payable and similar charges 6 (4,469) (250) (421) Profit/(loss) on ordinary activities beforetaxation 3 13,351 (218) 3,317 Taxation on profit/(loss) on ordinary activities 7 (4,650) (176) (4,331) Profit/(loss) on ordinary activities after 8,701 (394) (1,014)taxation Equity minority interests (44) 15 32 Retained profit/(loss) for the period 8,657 (379) (982) Earnings/(loss) per share (US cents) 8 - basic 35.15 (1.63) (4.23) - diluted 34.95 (1.63) (4.23) Consolidated balance sheetUnaudited 2004 2003 US $'000 US $'000 Fixed assetsIntangible assets 13,250 13,898Tangible assets 12,576 8,923 25,826 22,821Current assetsStock 178 222Debtors 44,929 24,955Cash at bank and in hand 14,699 7,230 59,806 32,407 Creditors - amounts falling due within one year (19,045) (22,425) Net current assets 40,761 9,982 Total assets less current liabilities 66,587 32,803 Creditors - amounts falling due after more than oneyear (407) (30,409)Provisions for liabilities and charges (185) (1) Net assets 65,995 2,393 Capital and reserves Called up share capital 1,027 36Share premium account 56,784 2,450Capital redemption reserve 96 -Profit and loss reserve 8,088 (379)Warrant reserve - 266 Equity shareholders' funds 65,995 2,373Equity minority interests - 20 Capital employed 65,995 2,393 Consolidated cash flow statementUnaudited Proforma financial information for Year ended 31 Incorporation to the year ended 31 December 2004 31 December 2003 December 2003 Note US $'000 US $'000 US $'000 Net cash inflow/(outflow) from operating activities 9 11,900 (2,245) 2,900 Returns on investments and servicing of financeInterest received 48 4 41Interest paid (2,792) (114) (245)Issue costs of new borrowings (320) (1,230) (1,230)Interest element of finance lease payment (10) (2) (21) Net cash outflow from returns on investments andservicing of finance (3,074) (1,342) (1,455) Taxation (5,110) (199) (2,289) Capital expenditure and financial investmentPurchase of tangible fixed assets (13,429) (204) (4,182)Purchase of intangible fixed assets (51) - -Sale of tangible fixed assets 458 - 99 Net cash outflow for capital expenditure andfinancial investment (13,022) (204) (4,083) Acquisitions and disposalsPurchase of businesses (40) (27,524) (27,524)Net cash (disposed)/acquired with businesses (55) 1,670 -Deferred consideration paid in respect ofacquisitions of businesses - - (100)Proceeds from disposals of businesses 696 - 175 Net cash inflow/(outflow) from acquisitions and disposals 601 (25,854) (27,449) Net cash outflow before financing (8,705) (29,844) (32,376)FinancingIssue of ordinary share capital (net of expenses) 45,764 2,486 2,486Capital element of finance lease payments (47) (42) (42)New bank loan 1,760 20,000 20,000New shareholder loan - 14,750 14,750New convertible debt 10,000 - -New promissory note - 2,300 2,300Settlement of borrowings acquired with - (6,648) (6,648)subsidiariesRepayment of borrowings (37,154) (125) (125)Cash movements in AHI's net investment in the Group - - 740 Net cash inflow from financing 20,323 32,721 33,461 Increase in net cash 10 11,618 2,877 1,085 Statement of Group total recognised gains and lossesUnaudited Proforma financial information for Year ended 31 Incorporation to the year ended 31 December 2004 31 December 2003 December 2003 US$'000 US$'000 US$'000 Profit/(loss) for the period 8,657 (379) (982)Currency translation on foreign currency netinvestments (94) - (29) Total recognised gains/(losses) for the period 8,563 (379) (1,011) Consolidated reconciliation of movements in equity shareholders' fundsUnaudited Year ended 31 Incorporation to December 2004 31 December 2003 US$'000 US$'000 Profit/(loss) for the period 8,657 (379)Shares issued in the period - Ordinary shares issued on IPO (2003: MBO) 45,059 2,486 - Ordinary shares issued on conversion of unsecured loan notes 10,000 - - Ordinary shares issued on exercise of warrants 266 - - Preference shares 96 -Redemption of preference shares (96) -Warrants exercised in the period (266) 266Currency translation on foreign currency net investments (94) - Net addition to shareholders' funds 63,622 2,373 Opening shareholders' funds 2,373 - Closing shareholders' funds 65,995 2,373 1. Preliminary announcement The preliminary results for the year ended 31 December 2004 are unaudited. Thefinancial information contained in this announcement does not constitute theGroup's audited statutory financial statements for the year ended 31 December2004 within the meaning of Section 240 of the Companies Act 1985. The financial information for the period from incorporation to 31 December 2003has been extracted from the Group's statutory financial statements for thatperiod which have been delivered to the Registrar of Companies. The report ofthe auditors on those financial statements was unqualified and did not containany statements under either Section 237(2) (accounting records or returnsinadequate or accounts not agreeing with records and returns) or 237(3) (failureto obtain necessary information and explanations) of the Companies' Act 1985.The financial information contained in this announcement has been prepared underaccounting policies set out in Group financial statements for the period ended31 December 2003. As at the date of this announcement, the auditors have not reported on theGroup's financial statements for the year ended 31 December 2004 nor have suchfinancial statements been delivered to the Registrar of Companies. Thefinancial statements for the year ended 31 December 2004 will be distributed toshareholders prior to, and filed with the Registrar of Companies following, theAnnual General Meeting. 2. Basis of preparation The financial information has been prepared under the historical cost conventionand in accordance with the Companies Act 1985 and applicable accountingstandards in the United Kingdom. The Company was incorporated as Notsallow 199 Limited on 14 October 2003,changed its name to ArmorGroup Holdings Limited on 28 October 2003, then toArmorGroup International Limited on 3 November 2003 and was re-registered as apublic limited company on 22 November 2004. On 26 November 2003, the Company acquired from Armor Holdings Inc. ("AHI", ortogether with its subsidiaries "the AHI Group"), a company registered with theSecurities and Exchange Commission of the United States, businesses thatrepresented the majority of the worldwide activities of AHI's security servicesdivision ("the MBO"). Prior to 26 November 2003 the Group comprised the majority of a business unit ofAHI and did not form one separate legal entity, nor was it structured with aholding company as a separate legal entity. In order to provide a better understanding of the Group's trading results,proforma financial information of the Group has been presented for the yearended 31 December 2003 which has been derived from audited information includedin the Prospectus of the Company prepared for the application to the LondonStock Exchange for its Ordinary Share capital to be admitted to the OfficialList of the UK Listing Authority. The presentation of the proforma financialinformation for the year ended 31 December 2003 is in addition to the statutorycomparative information for the period from incorporation on 14 October 2003 to31 December 2003. The following summarises the accounting and other principles which have beenapplied in preparing the proforma financial information for the year ended 31December 2003. • For the period from 1 January 2003 to 26 November 2003 the proforma financial information has been prepared by combining the relevant businesses as if they had been owned and controlled by the Group for all periods presented, or in the case of subsidiary undertakings acquired or disposed of by AHI during the period presented, from or up to the date control passed. In addition, the proforma financial information includes the results of contracts held by the AHI Group which were novated to the Group at the date of the MBO; 2. Basis of preparation (continued) • For the period from 26 November 2003 to 31 December 2003 the proforma financial information has been based on the consolidated statutory financial statements of the Group for that period ; • Until 26 November 2003 substantially all funding of the Group's business was financed by AHI. Amounts owed to the AHI Group that were subsequently waived as part of the transaction on 26 November 2003 and promissory loan notes owed to AHI prior to 26 November 2003 have been reflected as a component of equity; • Transactions and balances between subsidiary undertakings included within the proforma financial information have been eliminated; and • Taxation charges, liabilities and assets of the Group for the period from 1 January 2003 to 26 November 2003 are based on amounts recorded in the historic financial statements of its constituent entities. Historic tax charges presented for this period may not be representative of tax charges that would have been incurred had the Group not formed part of the AHI Group or of tax charges that will be incurred in the future. Actual payments by constituent companies of the Group have been included in the proforma cash flow statement for the year ended 31 December 2003. Goodwill amortisation charges, certain administrative expenses and the interestand tax charges of the Group for the period from 1 January 2003 to the MBO on 26November 2003 reflect the goodwill, capital structure, financing and otherarrangements of the security services division within the AHI Group. These aresignificantly different from those that have existed since the MBO. All references to amounts for the twelve month period to 31 December 2003represent proforma financial information. 3. Segmental reporting (a) Business segment analysis Year ended 31 Year ended 31 Incorporation to December 2003 December 2004 31 December 2003 (proforma)Turnover US$'000 US$'000 US$'000 Protective Security Services 173,174 10,600 84,214Security Training 17,940 458 15,081 Turnover 191,114 11,058 99,295 Turnover in respect of protective security services includes recharges to thirdparty customers at cost or cost plus a handling fee of certain contractexpenses, including insurance, equipment, travel and out of pocket expenses of$13,330,000 for the year ended 31 December 2004 (Incorporation to 31 December2003: $686,000; Year ended 31 December 2003 (proforma): $1,614,000). 3. Segmental reporting (continued) (a) Business segment analysis (continued) Year ended 31 Year ended 31 Incorporation to December 2003 December 2004 31 December 2003 (proforma) Profit/(loss) on ordinary activities before taxation US$'000 US$'000 US$'000 Protective Security Services 12,983 262 (925)Security Training 4,197 (234) 4,321 Operating profit 17,180 28 3,396 Net profit on sale of businesses 592 - 302Net Interest payable (4,421) (246) (381) Profit/(loss) on ordinary activities before taxation 13,351 (218) 3,317 31 December 2004 31 December 2003Net assets US$'000 US$'000 Protective Security Services 54,123 (8,792)Security Training 11,872 11,185 Net assets 65,995 2,393 (b) Geographical analysis Year ended 31 Incorporation to Year ended 31 December 2004 31 December 2003 December 2003 (proforma)Turnover US$'000 US$'000 US$'000 Western Europe 1,760 231 6,251Eastern Europe 9,002 897 10,086South America 15,851 1,561 19,756North America 11,811 544 10,083Asia 15,543 943 7,957Africa 24,127 1,968 26,537Middle East 113,020 4,914 18,625 Turnover 191,114 11,058 99,295 3. Segmental reporting (continued) (b) Geographical analysis (continued) Year ended 31 Year ended 31 Incorporation to December 2003 December 2004 31 December 2003 (proforma)Profit/(loss) on ordinary activities before taxation US$'000 US$'000 US$'000 Western Europe (7,700) (1,576) (4,793)Eastern Europe (725) (94) 453South America 870 109 636North America (1,046) 23 1,811Asia 2,070 2 1,317Africa 1,300 180 (137)Middle East 22,411 1,384 4,109 Operating profit 17,180 28 3,396 Net profit on sale of businesses 592 - 302Net interest payable (4,421) (246) (381) Profit/(loss) on ordinary activities before taxation 13,351 (218) 3,317 Geographical analysis is based on the country in which the services areperformed. It would not be materially different if based on the country inwhich the customer is located. 31 December 31 December 2004 2003Net assets/(liabilities) US$'000 US$'000 Western Europe 37,953 (17,466)Eastern Europe (511) 110South America 4,773 3,676North America 1,781 8,359Asia 5,381 1,079Africa (1,090) (1,965)Middle East 17,708 8,600 Net assets 65,995 2,393 There were no discontinued activities in the year ended 31 December 2004 or theperiod from incorporation to 31 December 2003 that met the definition of adiscontinued operation under FRS3 "Reporting Financial Performance". Turnover, cost of sales, gross profit, administrative expenses and operatingloss for the year ended 31 December 2003 (proforma) includes $1,108,000,$257,000, $851,000, $1,137,000 and $286,000 respectively in respect ofprotective security services operations discontinued in 2003. Discontinued operations contributed turnover for the year ended 31 December 2003(proforma) in respect of Western Europe and North America geographical segmentsof $906,000 and $202,000 respectively. Discontinued operations contributed operating losses for the year ended 31December 2003 (proforma) in respect of Western Europe and North Americageographical segments of $105,000 and $181,000 respectively. 4. Exceptional items related to the IPO Operating items Administrative expenses for the year ended 31 December 2004 include exceptionalcosts of $2,001,000 relating to the IPO. This includes bonus payments made to the executive directors and certain membersof management of $722,000 (including related national insurance costs) whichwere conditional upon Admission to the Official List of the United KingdomListings Authority. Furthermore, share options were also issued to certain directors and members ofmanagement prior to the IPO. There are no performance criteria attached to theexercise of the pre-IPO options and the options vest annually in equal tranchesof one third beginning either on 31 December 2004 or 31 March 2005. Inaccordance with its accounting policy, the Group recognises as a share optioncharge the amount by which the fair market value of any share options issuedexceeds their respective exercise prices at the date of grant. These costs arerecognised over the vesting period. As a result a share option charge of$1,279,000 including related national insurance costs has been made for the yearended 31 December 2004. Non-operating items Interest expense for the year ended 31 December 2004, as detailed in note 6,includes exceptional accelerated amortisation of bank loan and shareholder loanstock issue costs of $887,000 (Incorporation to 31 December 2004: $89,000; Yearended 31 December 2003 (proforma): $89,000) following the repayment of the debtas a result of the IPO. Interest expense for the year ended 31 December 2004also includes exceptional accelerated amortisation of warrants of $196,000(Incorporation to 31 December 2003: $20,000; Year ended 31 December 2003(proforma): $20,000) as the warrants were exercised in full as a result of theIPO. 5. Profit on sale of businesses On 31 October 2004 the Group disposed of ArmorGroup Africa, a wholly ownedsubsidiary, for a cash consideration of $160,000. The consideration was receivedin February 2005 and the disposal gave rise to a profit on disposal of $220,000.There was no goodwill previously eliminated against the reserves in respect ofthe subsidiary. There was no corporation tax charge as a result of thisdisposal. In June 2004, the Group disposed of its interests in the aviation securitybusiness in Latin America. This involved the disposal of ArmorGroup Peru SAalong with the aviation security contracts and the associated assets andliabilities of Defence Systems Colombia SA and Defense Systems Ecuador Limited.The cash consideration received was $696,000 net of transaction costs, and thenet profit on the sale of the business was $372,000. A corporation tax charge of$13,000 arose on the disposal of the aviation security business in LatinAmerica. During the year ended 31 December 2003, Defence Systems Africa (Congo) Sprl anda number of dormant subsidiaries were sold by the Group. The cash considerationreceived was $175,000, which resulted in a net profit on sale of subsidiaryundertakings of $302,000. There was no goodwill previously eliminated againstreserves in respect of any of the subsidiaries. There was no corporation taxcharge as a result of these disposals. 6. Net interest payable and similar charges Year ended 31 Incorporation to Year ended 31 December 31 December December 2003 2004 2003 (proforma) US$'000 US$'000 US$'000 Interest payable on bank overdrafts and loans 1,364 38 171Interest payable on shareholder loan stock 834 74 74Interest payable and similar charges relating toconvertible unsecured loan notes 900 - -Interest payable on finance leases 10 2 20Amortisation of bank loan and shareholder loan stockissue costs 1,118 112 112Amortisation of warrants 243 24 24Unwinding of discount - - 20 Total interest and similar charges payable 4,469 250 421Interest receivable and other income (48) (4) (40) 4,421 246 381 The amortisation of bank loan and shareholder loan stock issue costs includeexceptional accelerated charges of $887,000 (Incorporation to 31 December 2003:$89,000; Year ended 31 December 2003 (proforma): $89,000) since the borrowingswere fully repaid on Admission to the Official List of the United KingdomListing Authority ("Admission"). The issue costs were originally capitalisedand offset against the related borrowings. The amortisation of warrants also includes exceptional accelerated charges of$196,000 during the year ended 31 December 2004 (Incorporation to 31 December2003: $20,000; Year ended 31 December 2003 (proforma): $20,000) as the warrantswere exercised in full on Admission. 7. Taxation on profit/(loss) on ordinary activities Year ended 31 Incorporation to Year ended 31 December 31 December December 2003 2004 2003 (proforma) US$'000 US$'000 US$'000Analysis of charge for the periodUnited KingdomCorporation tax charge at 30% 142 24 289Adjustment in respect of prior periods 80 - 444 222 24 733Foreign taxCorporation taxes 4,767 278 4,242Adjustment in respect of prior periods 662 - (518) 5,429 278 3,724 Total current tax 5,651 302 4,457 UK deferred tax (1,127) - -Foreign deferred tax 126 (126) (126) Total deferred tax (1,001) (126) (126) Taxation on profit/(loss) on ordinary activities 4,650 176 4,331 The Group has recognised a deferred tax asset as follows: 31 December 31 December 2004 2003 US$'000 US$'000 Taxation losses carried forward - 126Accelerated capital allowances 701 -Other timing differences 426 - Total deferred tax asset 1,127 126 The deferred tax asset of $1,127,000 at 31 December 2004 (31 December 2003:$126,000) has been recognised as the Directors regard it as more likely than notthat there will be suitable taxable profits in the relevant jurisdictions fromwhich the future reversal of the underlying timing differences can be deducted. 7. Taxation on profit/(loss) on ordinary activities (continued) The unprovided deferred tax asset for all timing differences of the Group is asfollows: 31 December 31 December 2004 2003 US$'000 US$'000 Accelerated capital allowances 515 78Other timing differences 657 400Taxation losses carried forward 1,672 2,787 Unprovided deferred tax asset 2,844 3,265 The deferred tax asset of $2,844,000 at 31 December 2004 (31 December 2003:$3,265,000) above has not been recognised as the Directors did not regard it asmore likely than not that there would be suitable taxable profits in therelevant jurisdictions from which the future reversal of the underlying timingdifferences can be deducted. 8. Earnings/(loss) per share Basic earnings per share for the year ended 31 December 2004 and the period fromincorporation to 31 December 2003 respectively have been calculated by dividingthe earnings attributable to ordinary shareholders for the period by theweighted average number of ordinary shares in issue during the period. Theweighted average number of ordinary shares has been adjusted for the bonus issueof ordinary shares of 1 penny each on 14 December 2004 such that the bonusshares are treated as being outstanding as if the bonus issue had occurred onincorporation. Until 26 November 2003 the businesses of the Group were a business unit withinArmor Holdings Inc and were not held under a single holding company. On 26November 2003 ArmorGroup International plc acquired the businesses of the Groupfrom Armor Holdings Inc. For the periods from 1 January 2003 to 26 November 2003proforma financial information has been prepared by combining the financialresults of the relevant businesses. No share capital amount is separatelyidentified as there was no holding company with shares in existence during thattime. For the purposes of calculating basic earnings per share for the yearended 31 December 2003 (proforma), for the period from 1 January 2003 to 26November 2003, where there was no share capital structure, the number of sharesof the Company in existence at 26 November 2003 has been used after adjustingfor the bonus issue of shares described above. For diluted earnings per share for the year ended 31 December 2004, the weightedaverage number of ordinary shares in issue is adjusted to assume conversion ofall dilutive potential ordinary shares. The Group has one class of dilutivepotential ordinary shares: those share options granted to employees where theexercise price is less than the average market price of the Company's ordinaryshares during the period. Diluted loss per share for the period fromincorporation to 31 December 2003 and for the year ended 31 December 2003(proforma) respectively is the same as the basic loss per share as the Groupincurred a loss attributable to shareholders in these periods. Supplementary basic and diluted EPS have been calculated to exclude the effectof goodwill amortisation and exceptional items related to the IPO, adjusted forany tax effect. The adjusted EPS numbers have been provided as the Directorsbelieve that this additional measure provides a better indicator of theunderlying performance of the business. 8. Earnings/(loss) per share (continued) Earnings and weighted average number of shares used in the earnings per sharecalculations are set out below: Year ended 31 December 2004 Earnings Weighted average Per share amount US$000 number of shares US centsBasic earnings per shareProfit attributable to ordinary shareholders 8,657 24,629,840 35.15 Adjustments:Goodwill amortisation 697 24,629,840 2.83Exceptional items related to the IPO 2,001 24,629,840 8.12Taxation related to these items (844) 24,629,840 (3.42)Adjusted profit attributable to ordinary shareholders 10,511 24,629,840 42.68 Diluted earnings per shareProfit attributable to ordinary shareholders 8,657 24,766,762 34.95Adjusted profit attributable to ordinary shareholders 10,511 24,766,762 42.44 Incorporation to 31 December 2003 Earnings Weighted average Per share amount US$000 number of shares US centsBasic loss per shareLoss attributable to ordinary shareholders (379) 23,211,209 (1.63) Adjustments:Goodwill amortisation 57 23,211,209 0.25Taxation related to this item (20) 23,211,209 (0.09)Adjusted loss attributable to ordinary shareholders (342) 23,211,209 (1.47) Year ended 31 December 2003 (proforma) Earnings Weighted average Per share amount US$000 number of shares US centsBasic loss per shareLoss attributable to ordinary shareholders (982) 23,211,209 (4.23) Adjustments:Goodwill amortisation 105 23,211,209 0.45Related Shares:
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