16th Mar 2006 07:01
ArmorGroup International plc16 March 2006 ArmorGroup International plc Strong revenue growth in 2005, good pipeline for 2006 ArmorGroup International plc (the "Group" or "ArmorGroup"), a leading providerof protective security services, security training and weapons reduction & mineclearance services today announces its results for the year ended 31 December2005. Key points • Turnover up 23% to US$233.2 million (2004: US$190.2 million) • Operating profit down 27% to US$12.4 million (2004: US$17.0 million) • Profit before tax down 4% to US$12.1 million (2004: US$12.6 million) • Net profit up 1% to US$8.5 million (2004: US$8.4 million) • Basic earnings per share for the year of 16.2 cents (2004: 33.9 cents)* • Net debt of US$9.4 million at 31 December 2005 (2004: Net cash US$13.0 million) • Recommended final dividend of 1.5 pence, giving a total of 2.75 pence for the year • Tenders for US$165.0 million of work have been submitted and are currently awaiting adjudication and award • US$196.7 million of 2006 revenues are already under contract with significant new contract wins and extensions secured including: •US$5.0 million additional work for the FCO in Afghanistan •US$2.8 million contract to provide services to Tetratech in Iraq •US$5.1 million additional convoy protection work for Tomen in Iraq •US$3.3 million new contract for convoy protection work for Marubeni in Iraq •US$1.1 million re-award of the UNHCR contract in Kenya Jerry Hoffman, Chief Executive Officer, commenting on the results announcementsaid: "2005 was a challenging year for the Group with the second half dominated byincreased costs and project delays in Iraq. However, we benefitted from unexpected opportunities in the US as a result of Hurricane Katrina. Our sectorcontinues to grow with further opportunities presenting themselves in West Africa, Afghanistan, the Middle East region and in the domestic US training and security markets. Traditionally, the first quarter has been quiet as a result of lower utilisationof our training facilities and the slow down of mine clearance work during thewinter months. However I'm pleased to report that no such slow down has occurredthis year with the previously delayed projects which impacted our second halfperformance in 2005 now fully operational and performing to our expectations.This year is off to a good start with a number of new contracts and a strongpipeline and we therefore look forward to the year with confidence". * As a result of the shares issued on the IPO and stock exchange listing inDecember 2004, the weighted average number of shares for the Group issignificantly lower in 2004 than in 2005. Enquiries: ArmorGroup International plcJerry Hoffman, Chief Executive Officer tel: + 44 (0) 20 7808 5800Dave Seaton, Chief Financial OfficerNick Melson, Communications Manager Citigate Dewe RogersonPatrick Toyne Sewell / Ged Brumby tel: + 44 (0) 20 7638 9571 This press release and analyst presentation will be available to download fromthe Investor Relations section of the ArmorGroup website at www.armorgroup.comtoday at 7.00 am and 9.30 am respectively. A presentation to analysts will takeplace this morning at 9.30 am at Citigate Dewe Rogerson's offices at 3 LondonWall Building, London EC2M. Notes to Editors ArmorGroup, headquartered in London, has over 9,000 employees and operates inover 45 countries. It provides its services principally to first world nationalgovernments, major international inter-governmental organisations andmultinational corporations. It operates principally in regions of the world withdiminished law and order or with a high risk of terrorism or which were formerareas of conflict including the Middle East, Africa, South America, Russia andthe CIS and Asia. ArmorGroup provides its services through three divisions: Protective SecurityServices, Security Training and Weapons Reduction & Mine Clearance. Theinternational protective security market in which ArmorGroup operates covers awide range of services and operators; however ArmorGroup is focussed solely onthe provision of defensive security services for people and property whichsupport the work of its clients. Business and Operating review Overview Group revenues grew by 22.6% to US$233.2 million in 2005 with the increases fromthe Security Services and Security Training divisions of 26% and 35%respectively partially offset by a 36% reduction from the Weapons Reduction &Mine Clearance division. The reduction was as a result of the exceptionally highrevenues achieved in 2004 from a short term offshore clearance contract for amajor oil company not being replaced in the current year. In line with theGroup's strategy for growth and diversification 2005 has seen the start of thegradual reduction in Iraq's importance to the Group's revenues with the widerMiddle East, excluding Iraq, rising strongly to 10.5% of Group turnover (2004:5.9%). Operating profit for the year declined by 27.2% to US$12.4 million (2004:US$17.0 million) as a result of increased operating costs in Iraq, increasedadministrative expenses and in particular delays in the mobilisation of severallarge projects in the second half of the year. Net profit for the year wasmarginally higher than the prior year at US$8.5 million (2004: US$8.4 million),benefiting from lower net interest charges of US$0.3 million (2004: US$4.4million) and a 3.5% improvement in the Group's effective taxation rate to 30.0%.Interest charges declined as a result of the lower level of debt carried by theGroup during the year following the IPO in December 2004. The effective taxationrate reflects the mix of jurisdictions where profits have been generated duringthe period. The tax rate is expected to remain at this level for the time being. The Group's net debt position at 31 December 2005 of US$9.4 million comprisedUS$12.3 million of positive cash balances offset by bank borrowings of US$21.7million. Net cash at 31 December 2004 was US$13.0 million. Cash inflow fromoperating activities increased by 172% to US$10.9 million in 2005 withsignificant capital investment being made during 2005 in the business of US$26.1million. Net assets at 31 December 2005 were US$76.5 million (2004: US$66.3 million). The Group has prepared its financial statements under IFRS and has restated 2004results accordingly. As stated in the 2005 Interim report, the main adjustmentsimpacting 2004 results were in relation to holiday pay and the reversal ofgoodwill amortisation. The Group has paid an interim dividend for the period of 1.25 pence and theBoard will be recommending the payment of a final dividend of 1.50 pence on 2June 2006 to shareholders on the register on 26 May 2006. Protective Security Division The Protective Security Division increased turnover by 26% to US$200.5 millionas a result of further growth in Iraq and, in particular, Afghanistan. Operatingprofit, after allocating central costs declined by 52% to US$5.8 million as aresult of the complexities and contract delays surrounding the political processand increased insurgency in Iraq. This necessitated the Group to enhance thesecurity afforded to its support and management personnel and caused delays inmobilising a number of significant contracts until later in the year. The division suffered from delays in the mobilisation of several convoyprotection teams in the second half of the year with an impact on the division'sprofitability of US$3.1 million. There was an additional delay in themobilisation of an uplift of staff to the Group's Police Mentoring programme.However, both delayed mobilisations were fully operational by the start ofDecember with a total of 110 police mentors now deployed and 20 convoyprotection teams now operational. The division's revenues in Asia grew significantly during the period withturnover up 118% to US$17.3 million driven by a three fold increase in revenuesin Afghanistan. This was a result of the scaling up of several contracts forclose protection teams on behalf of officials from the UK FCO and DfID. Lookingforward, western governments have pledged significant funds to assist in thereconstruction of Afghanistan and to realign its economy away from narcoticsproduction in the southern part of the country. To meet these opportunities andthe growing needs of our clients, the Group has invested US$3.0 million in theconstruction of a 300 man camp in Kabul to accommodate staff and clients as wellas provide office and training facilities to meet its growing needs. Thefacility will open in April 2006 and will be fully occupied immediately. North America revenues grew by 128% to US$5.8 million as a result of workconducted for several construction companies in Louisiana and Mississippifollowing Hurricane Katrina. The division now anticipates further revenues fromthis project during the current year. In Africa the division grew revenues by 3% to US$23.0 million as a result offurther expansion of activities in Nigeria with its existing oil and gas clientsalthough this was tempered by weaker performance in several other operations. South American revenues increased by 5% to US$16.2 million with improvedprofitability due to the type of work conducted and the changing client base.These results are encouraging as the majority of South American economies inwhich we operate are still in recession and the division will be well positionedwhen these markets start to improve. Eastern Europe, including the CIS, experienced a marked improvement over theprevious period with revenues up 21% to US$10.8 million with a correspondingincrease in profitability. The CIS benefited in the latter part of the periodfrom restructuring carried out in the second quarter. Security Training Division Revenues grew by 35% to US$24.2 million (2004: US$17.9 million) with strongperformances from all locations. In particular the Group's training facilitiesin the US ran for most of the year at full utilisation while Camp Ghassan, inIraq, ran at full capacity for eleven months. Operating profit, after allocationof central costs, for the year was US$6.1 million, up 45% on the prior year. The two facilities in the USA, San Antonio, Texas and West Point, Virginia, bothenjoyed continuing strong demand for their services with revenues increasing by11% over 2004 with further growth only tempered by capacity constraints. Inorder to capitalise on the significant available opportunities, 2006 will seefurther investment in both facilities. The Iraq facility was fully used for most of the year with two extensions to theMinistry of Justice contract awarded in August 2004. This resulted in revenuesbeing up by 58% to US$13.3 million with improved profitability. This projectdid, however, complete in mid November 2005 and although the facility is stillcurrently active it is under utilised. This situation is likely to change oncethe Iraqi government has been established, as the Group anticipates there willbe other significant training opportunities when the Iraqi government forms. In November 2005 the Group acquired Phoenix CP Ltd., the leading provider ofresettlement training to UK military personnel seeking a career in theprotective security sector. Phoenix CP and the Group's existing facilities atPershore are currently being integrated to form a cohesive UK-based trainingcapability and will play a strategic part in the Group's plans to diversify itsrevenues streams. Weapons Reduction & Mine Clearance Division Revenues fell by 36% to US$8.4 million primarily due to the offshore surveyscarried out in the second half of 2004, which generated revenues of US$ 7.6million, not being repeated. The division's performance was also affected by thedisappointing revenue levels generated from the Weapons Reduction and AbatementServices (WRAS) contract with the US Department of State which was awarded tothe Group in May 2005. The WRAS contract, as previously disclosed, is a five year program with anoriginal budget of US$500 million to be shared between three successfulawardees, of which ArmorGroup is one. It is however an indefinite delivery,indefinite quantity (ID/IQ) contract and as such there are limited guarantees asto the amount of work committed overall or what will be allocated to each of thethree awardees. Although it is not our current expectation, there is thepossibility that funds will be diverted to other more politically pressingprojects, such as the response to Hurricane Katrina. The delay in the award of the WRAS contract impacted division profitability as aresult of having to carry the costs of the project management office for fivemonths between the anticipated award date in December 2004 and the eventualaward date without being able to recharge these costs to the client. Revenues from Iraq were consistent with the prior period while revenues doubledin Mozambique to US$2.0 million and a new project was mobilised for the UN inCyprus generating US$1.5 million in revenues during the year. Administration and other costs Group administration costs, including the operating costs of all field locationsand the corporate offices in London and Washington increased by 33% to US$44.6million. The major contributors to this increase were the start up costs for theWRAS project management office, further infrastructure enhancements in Iraq tomeet the operational demands of operating a significant number of convoys, thesignificant revenue growth in Afghanistan and an increase to central overheads. As previously announced, we have re-evaluated the estimated useful life ofArmoured vehicles used in Iraq from one year to three years following thecontinued utilisation of such vehicles on contract in Iraq. This change inaccounting estimate was effective from 1 January 2005 and reduced thedepreciation charge for the year ended 31 December 2005 by US$3.3 millionprimarily as a result of the purchase in excess of 100 vehicles during the year.Had this change in estimate been applied from 1 January 2004, the profit forthe year ended 31 December 2004 would have been increased by US$ 0.8 million. Market trends Despite the slow down of new contract awards in Iraq during the second half of2005, as a result of the political process, the market outlook for the sector isencouraging. The Group believes that the proposed Western troop relocation inIraq will provide additional opportunities to provide services currentlyprovided by the military in the areas of static guarding, convoy protection andtraining. For any troop withdrawal to be effective there is a fundamental needto fill the void with either appropriately trained nationals or privateprotective security operators such as ArmorGroup. The dynamics therefore lendthemselves for sustained, if not increased, activity in Iraq as a result ofreplacing the withdrawing military support functions and the training of theIraqi security infrastructure to replace them. Furthermore, in the fullness oftime, the Iraqi oil sector will require the high level, long term services whichthe Group is well placed to provide. The Group is therefore well positioned, dueto its well established presence in Iraq, for long term sustainable revenuestreams from the country but is cognisant of the challenges which will be facedto realise those revenues. Management believe that the wider Middle East region offers increasingopportunities as the host country governments and multinationals operating inthe region become more concerned at the heightened terrorist threat to theirfacilities and personnel. The Group, with its many registered offices in theGulf is well placed to address these concerns and in doing so diversify itsrevenues away from the current emphasis on Iraq. In Africa, the recent increased civil unrest in Nigeria has provided a number ofopportunities and should be a strong market for the Group for the foreseeablefuture, supported by the increased demands for oil and the development of LNG inthe region. The reconstruction and development of Southern Sudan may also be anopportunity for growth of the Group's African operation, although the UN-ledinitiatives will take some considerable time to build momentum. There is strong growth in the demand for Security Training throughout the world,particularly in the Middle East and North America. Demand for training in the UKwill be driven by new legislation due to come into force which will require allsecurity operatives to be licensed by an accredited training provider from March2007. There are, however, an increasing number of direct competitors enteringthe market. The demand for Weapons Reduction & Mine Clearance services are less certain topredict as they are driven by donor funding or commercial necessity, the latternot always being apparent until the client commences a project. Group strategy The Group's strategy is to focus its business development efforts in Washingtonon long term, multi-year US government contracts as well as work required bymultinationals. A further element of the strategy is to diversify revenues andprofits away from Iraq by further geographic and service line expansion. To thatend the Group opened offices in Japan, Saudi Arabia, Dubai, Jordan, and Kuwaitduring 2005 and will complete the registration process for opening an office inSudan later this year. The Group has also taken steps to broaden its range ofservices including the acquisition of Phoenix CP which brings new areas oftraining to the Group. Further diversification is possible during 2006. Management changes Jerry Hoffman has decided to retire this summer on his 65th birthday followingthe issuance of the pre-close statement for H1 2006 results. During four verysuccessful and challenging years as CEO, Jerry, working very closely with DavidSeaton, CFO, was responsible for the Group's successful Management Buy Out fromArmor Holdings Inc. in 2003 and its subsequent IPO in 2004. Following a comprehensive selection process, the Nominations Committee has decided that David Seaton will replace Jerry after a suitable handover. Matthew Brabin, former CFO of Tenon Group PLC and previously with LogicaCMG PLC in a number of financial roles, will join the Group shortly to succeed David. The Group believes that these management changes will further broaden the commercial experience available to it and position it better to meet the needs and challenges in the short and medium term. Outlook The medium term prospects for the sector and ArmorGroup in particular remainstrong. As at 15 of March 2006 the Group has already been awarded US$19.0million of new work since the start of the year and stands with US$196.7 millionof 2006 revenues under contract (84% of 2005 revenues), US$52.2 million ahead ofthe same point the previous year. In addition, tenders awaiting award totalUS$165.0 million (2004: US$191.5 million) of which 54% relates to work to beperformed in Iraq. The Group anticipates being successful in winning aproportion of this work. This year is off to a good start with a number of new contracts and a strongpipeline, despite the hiatus caused by the protracted political process to appoint the new Cabinet in Iraq. The Directors are optimistic regarding the outlook for 2006 and expect to see a more evenly spread distribution of revenues and profits throughout the Group, albeit that Iraq will probably remain a significant element of the Group's operations for many years to come. ArmorGroup International plcConsolidated income statement for the year ended 31 December 2005Unaudited Year ended Year ended 31 December 31 December 2005 2004 (restated)* US$'000 US$'000 Turnover 3 233,150 190,190Cost of sales (176,158) (140,464)--------------------------- ----- ---------- ---------- Gross profit 56,992 49,726 Administrative expenses (44,587) (33,270)Net profit on sale of businesses 6 - 592--------------------------- ----- ---------- ---------- Operating profit 12,405 17,048 Interest receivable and similar income 5 168 48Interest payable and similar charges 5 (451) (4,470)--------------------------- ----- ---------- ---------- Profit before income tax 12,122 12,626 Income tax expense 7 (3,632) (4,229)--------------------------- ----- ---------- ---------- Profit for the year 8,490 8,397--------------------------- ----- ---------- ---------- Profit attributable to:Equity holders of the Company 8,490 8,353Minority interest - 44--------------------------- ----- ---------- ---------- 8,490 8,397--------------------------- ----- ---------- ---------- Earnings per share for profit attributable to theequity holders of the Company during the year per1 pence share (US cents)- basic 9 16.24 33.91- diluted 9 15.76 33.73 --------------------------- ----- ---------- ---------- All amounts included above are derived from continuing operations. Results are restated for the impact of the transition to International FinancialReporting Standards ("IFRS") ArmorGroup International plcConsolidated balance sheet as at 31 December 2005Unaudited 31 December 31 December 2005 2004 (restated)* US$'000 US$'000Non-current assetsGoodwill 20,355 13,898Intangible assets 726 380Property, plant and equipment 28,784 12,245Deferred tax assets 2,938 1,753--------------------------- ---------- --------- 52,803 28,276Current assetsInventories 1,170 178Trade and other receivables 53,114 43,802Cash and cash equivalents 12,304 14,699--------------------------- ---------- --------- 66,588 58,679--------------------------- ---------- ---------Total assets 119,391 86,955 Current liabilitiesBorrowings (14,953) (1,257)Trade and other payables (17,412) (15,623)Current income tax liabilities (2,489) (3,168)Provisions and other liabilities (124) (167)--------------------------- ---------- --------- (34,977) (20,215) Net current assets 31,611 38,464--------------------------- ---------- ---------Total assets less current liabilities 84,414 66,740 Non-current liabilitiesBorrowings (6,783) (407)Provisions and other liabilities (89) (18)Deferred tax liabilities (1,058) ---------------------------- ---------- --------- (7,931) (425)--------------------------- ---------- ---------Net assets 76,483 66,315--------------------------- ---------- --------- Capital and reservesCalled up share capital 1,046 1,027Share premium account 56,912 56,784Capital redemption reserve 96 96Merger reserve 1,273 -Cumulative translation reserve (178) (49)Retained earnings 17,334 8,457--------------------------- ---------- ---------Total equity shareholders' funds 76,483 66,315--------------------------- ---------- --------- * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS") As approved by the Board on 15 March 2006. ArmorGroup International plcConsolidated cash flow statement for the year ended 31 December 2005Unaudited Note Year ended Year ended 31 December 31 December 2005 2004 (restated)* US$'000 US$'000Cash flows from operating activitiesCash inflow from operations 10 15,811 11,880Interest received 168 48Interest paid (378) (2,802)Income tax paid (4,693) (5,110)--------------------------- ------ ---------- ----------Net cash inflow from operating activities 10,908 4,016 Cash flows from investing activitiesPurchase of businesses (net of cash acquired) (5,890) (40)Disposal of businesses (net of cash disposed) - 641Deferred consideration received on disposal ofbusiness 160 -Purchase of property, plant and equipment (26,123) (13,271)Purchase of intangible assets (533) (209)Proceeds from sale of property, plant andequipment 115 458--------------------------- ------ ---------- ----------Net cash from investing activities (32,271) (12,421) Cash flows from financing activitiesNet proceeds from issue of ordinary sharecapital 132 45,764Equity dividends paid to shareholders (1,150) -New bank loans 22,677 1,760Issue of new convertible debt - 10,000Issue costs of new borrowings - (320)Finance lease principle payments (4) (47)Repayment of borrowings (2,585) (37,154)--------------------------- ------ ---------- ----------Net cash from financing activities 19,070 20,003--------------------------- ------ ---------- ----------Net (decrease)/increase in cash and cashequivalents (2,293) 11,598Cash and cash equivalents at beginning of year 14,566 2,877Exchange gains on cash and bank overdrafts 6 91--------------------------- ------ ---------- ----------Cash and cash equivalents at end of year 10 12,279 14,566--------------------------- ------ ---------- ---------- * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS") ArmorGroup International plcConsolidated statement of changes in shareholders' equity for the year ended 31 December 2005Unaudited Capital Cumulative Share Share Merger redemption translation Retained Warrant Total capital premium reserve reserve reserve earnings reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2004 (restated)* 36 2,450 - - - (884) 266 1,868--------------- ------ ------ ------ ------- -------- ------- ------ ------ Ordinary shares issued on IPO 433 44,626 - - - - - 45,059Bonus issue of shares 451 (451) - - - - - -Conversion of unsecuredconvertible debt 89 9,911 - - - - - 10,000Cost of share options - - - - - 1,084 - 1,084Currency translation adjustments - - - - (49) - - (49)Preference shares issued 96 - - - - - - 96Redemption of preference shares (96) - - 96 - (96) - (96)Exercise of warrants 18 248 - - - (266) -Profit for the year - - - - - 8,353 - 8,353--------------- ------ ------ ------ ------- -------- ------- ------ ------ At 31 December 2004 (restated)* 1,027 56,784 - 96 (49) 8,457 - 66,315 New shares issued on acquisition 15 - 1,273 - - - - 1,288Share options- Proceeds from shares issued 4 128 - - - - - 132- Cost - - - - - 1,537 - 1,537Currency translation adjustments - - - - (129) - - (129)Profit for the year - - - - - 8,490 - 8,490Dividends paid to equityshareholders - - - - - (1,150) - (1,150)--------------- ------ ------ ------ ------- -------- ------- ------ ------ At 31 December 2005 1,046 56,912 1,273 96 (178) 17,334 - 76,483--------------- ------ ------ ------ ------- -------- ------- ------ ------ * Results are restated for the impact of the transition to InternationalFinancial Reporting Standards ("IFRS") ArmorGroup International plcNotes to financial information 1. Preliminary announcement The preliminary financial information in this statement is not audited and doesnot constitute statutory accounts for the years ended 31 December 2005 or 31December 2004 within the meaning of Section 240 of the Companies Act 1985 (asamended). Financial statements for ArmorGroup International plc for the yearended 31 December 2004 presented under UK GAAP have been delivered to theRegistrar of Companies. The auditors gave an unqualified report of thoseaccounts which did not contain a statement under either Section 237 (2) orSection 237 (3) of the Companies Act 1985. As at the date of this announcement the auditors have not reported on theGroup's financial statements for the year ended 31 December 2005, nor have suchfinancial statements been delivered to the Registrar of Companies. The financialstatements for the year ended 31 December 2005 will be distributed toshareholders prior to, and filed with the Registrar of Companies following, theAnnual General Meeting. 2. Basis of preparation The preliminary results for the year ended 31 December 2005 and the results forthe year ended 31 December 2004 are prepared under International FinancialReporting Standards as adopted for use in the EU ("IFRS"). The accountingpolicies applied in preparing the 2005 preliminary results are in accordancewith IFRS and are therefore different to those applied in preparing the auditedfinancial statements for the year ended 31 December 2004. The Group's currentaccounting policies were included in the IFRS announcement entitled "Restatementof financial information under International Financial Reporting Standards"dated 15 September 2005. The directors consider United States Dollars (US$) to be the Group's functionalcurrency. Accordingly, this financial information is presented in US$. At 31December 2005, the exchange rate to Sterling was £1/ US$1.7203 (2004: £1/US$1.926). The preparation of financial information in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. Change in accounting estimate Effective 1 January 2005 the cost of armoured vehicles and motor vehicles heldin Iraq less the estimated residual value are depreciated on a non-linear basisover the estimated useful economic life of three years, on the basis of theestimated recoverable value at the end of each of the three years. Prior to thisdate, the estimated useful economic life of armoured vehicles and motor vehiclesheld in Iraq was one year. The effect of the change in estimates was to reducethe depreciation charge for the year ended 31 December 2005 by $3,300,000 and toincrease profit for the year by the same amount. 3. Segmental reporting a. Primary reporting format - business segment analysis 2005 2004 (restated)*Turnover US$'000 US$'000 Protective security services 200,484 159,143Security training 24,221 17,940Weapons reduction and mine clearance 8,445 13,107----------------------------- ---------- ---------- Turnover 233,150 190,190----------------------------- ---------- ---------- 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$8,317,000 for the year ended 31 December 2005 (2004: $13,330,000) 2004 2005 (restated)*Segment result US$'000 US$'000 Protective security services before head officecosts 13,467 16,217Security training before head office costs 6,967 4,706Weapons reduction and mine clearance before headoffice costs 536 1,524Head office costs (8,565) (5,399)----------------------------- ---------- ----------Protective security services including headoffice costs 6,102 11,699Security training including head office costs 6,077 4,197Weapons reduction and mine clearance includinghead office costs 226 1,152----------------------------- ---------- ---------- Operating profit 12,405 17,048----------------------------- ---------- ---------- Net interest payable (283) (4,422)----------------------------- ---------- ---------- Profit before tax 12,122 12,626 Taxation (3,632) (4,229)----------------------------- ---------- ---------- Profit after tax 8,490 8,397----------------------------- ---------- ---------- b. Secondary format - geographical segment analysis The group manages its business segments on a global basis. Revenue 2004 2005 (restated)* US$'000 US$'000 Western Europe 3,100 1,756Eastern Europe 10,805 9,002South America 16,247 15,425North America 16,062 11,811Asia 18,904 15,540Africa 25,552 23,636Middle East 142,480 113,020---------------------------- ----------- ---------- 233,150 190,190---------------------------- ----------- ---------- Geographical analysis is based on the country in which the services areperformed. 4. Items relating to the IPO During the year ended 31 December 2004, administrative expenses included bonuspayments of $722,000 (including related national insurance costs) which were paid in cash, following Admission to the Official List of the United Kingdom Listing Authority. Prior to the IPO share options were issued to certain Directors and members ofmanagement. There are no performance conditions and the options vest annually inequal tranches over a three year period beginning on 31 December 2004 or 31 March 2005. The charge for these pre-IPO options, which is recognised over the vestingperiod and included in administrative expenses, was $953,000 for the year ended31 December 2005 (2004: $1,279,000), including related national insurance costs. Interest expense for the year ended 31 December 2004 includes acceleratedamortisation of bank loan and shareholder loan stock issue costs of $887,000following the repayment of the debt as a result of the IPO. Interest expense forthe year ended 31 December 2004 also includes accelerated amortisation ofwarrants of $196,000, as the warrants were exercised in full as a result of theIPO. There were no such exceptional charges during the year ended 31 December2005. 5. Net interest payable and similar charges 2004 2005 ( restated)* US$'000 US$'000 Interest payable on bank overdrafts and loans 450 1,365Interest payable on shareholder loan stock - 834Interest payable and similar charges relating toconvertible unsecured loan notes - 900Interest payable on finance leases 1 10Amortisation of bank loan and shareholder loanstock issue costs - 1,118Amortisation of warrants - 243---------------------------- ---------- ----------- Total interest and similar charges payable 451 4,470Interest receivable and other income (168) (48)---------------------------- ---------- ----------- Net interest payable and similar charges 283 4,422---------------------------- ---------- ----------- 6. Acquisitions and Disposals Acquisitions On 17 November 2005 the Group purchased 100% of the shares in Phoenix CP Ltdtogether with the property used by the business for a consideration of$7,634,000. Phoenix CP Ltd provides resettlement training to UK militarypersonnel seeking a career in the private security sector. The acquisition wassatisfied by $6,346,000 in cash (inclusive of $334,000 of acquisition costs) and$1,288,000 in shares resulting in provisional goodwill of $6,457,000. The acquired business contributed $222,000 to turnover and a net loss of $45,000 for the period from acquisition to 31 December 2005. Disposals There were no disposals of businesses in the year ended 31 December 2005. On 31 October 2004, the Group disposed of ArmorGroup Africa (Proprietary)Limited, a wholly owned subsidiary, for a cash consideration of $160,000. Theconsideration was received in February 2005 and the disposal gave rise to aprofit on disposal of $220,000 for the year ended 31 December 2004. There was nocorporation tax charge arising as a result of this disposal In June 2004, the Group disposed of its interests in the aviation securitybusiness in Latin America. This comprised the disposal of the entire sharecapital of ArmorGroup Peru SA along with the aviation security contracts and theassociated assets and liabilities of Defence Systems Colombia SA and DefenseSystems Ecuador Limited. The cash consideration received was $696,000, net oftransaction costs, and the net profit on the sale of the business was $372,000.A corporation tax charge of $13,000 arose on the disposal of the aviationsecurity business in Latin America. 7. Income tax expense 2004Analysis of expense for the period 2005 (restated)* US$'000 US$'000UK current taxCorporation tax charge at 30% (2004:30%) - 142Adjustment in respect of prior periods 105 80---------------------------- ----------- ----------- 105 222Foreign current taxCorporation tax charge 3,824 4,756Adjustment in respect of prior periods (127) 662---------------------------- ----------- ----------- 3,697 5,418Total current tax 3,802 5,640 UK deferred taxDeferred tax charge/(credit) 1,307 (1,466)Adjustment in respect of prior period (487) ----------------------------- ----------- ----------- 820 (1,466)Foreign deferred taxDeferred tax credit (399) (71)Adjustment in respect of prior period (591) 126---------------------------- ----------- ----------- (990) 55Total deferred tax (170) (1,411) Income tax expense 3,632 4,229---------------------------- ----------- ----------- The total income tax expense for each period is lower (2004: higher) than thestandard rate of corporation tax in the UK (30 per cent). The differences areexplained below: 2004 2005 (restated)* US$'000 US$'000 Profit before income tax 12,122 12,626---------------------------- ----------- -----------Profit multiplied by standard rate ofcorporation tax in the UK of 30% (2004:30%) 3,636 3,788Effects of:Adjustments to tax in respect of prior periods (1,100) 868Adjustments in respect of foreign tax rates (989) (182)Expenses not deductible for tax purposes 247 381Depreciation in excess of capital allowances 7 296Other timing differences 133 56Utilisation of losses (47) (1,587)Unrelieved foreign tax credits 237 166Unrelieved losses carried forward 524 443Deferred tax on undistributed earnings 984 ----------------------------- ----------- ----------- Income tax expense 3,632 4,229---------------------------- ----------- ----------- 8. Dividends An interim dividend of 1.25p per share, amounting to $1,150,000 was paid on 4November 2005 to shareholders on the register on 23 September 2005. A final dividend of 1.5 pence per share was declared after the balance sheetdate and will be paid on 2 June 2006 to shareholders on the register on 26 May2006. No dividends were declared or paid during the year ended 31 December 2004. 9. Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the year. 2004 2005 (restated)* Profit attributable to equity holders of theCompany (US$'000) 8,490 8,353----------------------------- ---------- ----------Weighted average number of ordinary shares 52,278,472 24,629,840----------------------------- ---------- ----------Basic earnings per share (US cents) 16.24 33.91----------------------------- ---------- ---------- The weighted average number of ordinary shares for the year ended 31 December2004 includes the shares issued on 14 December 2004 on Admission to the LondonStock Exchange. The weighted average has been adjusted for the bonus issue ofordinary shares on Admission, such that the bonus shares are treated as beingoutstanding as if the bonus issue had occurred on 1 January 2004. Diluted Diluted earnings per share is calculated adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potentialordinary shares. The Group has one class of dilutive potential ordinary shares:those share options granted to employees where the exercise price is less thanthe average market price of the Company's ordinary shares during the year. 2005 2004 (restated)* Profit attributable to equity holders of the Company(US$'000) 8,490 8,353----------------------------- ---------- ----------Weighted average number of ordinary shares 52,278,472 24,629,840Adjustment for dilutive potential of ordinary shares 1,582,655 136,922----------------------------- ---------- ----------Weighted average number of ordinary shares fordiluted earnings per share 53,861,127 24,766,762----------------------------- ---------- ----------Diluted earnings per share (US cents) 15.76 33.73----------------------------- ---------- ---------- 10. Reconciliation of profit after tax to net cash inflow from operating activities 2005 2004 (restated)* US$'000 US$'000 Profit after tax 8,490 8,397Adjustments for:Net profit on sale of businesses - (592)Interest receivable (168) (48)Interest payable 451 4,470Taxation 3,632 4,229Depreciation 10,654 8,936Loss on disposal of property, plant and equipment 455 169Amortisation of intangible assets 264 84Compensation charge in respect of share based payments 1,537 1,084---------------------------- ----------- ---------- 25,315 26,729Changes in working capital (excluding effects ofacquisition and disposal of subsidiaries)(Increase)/decrease in inventories (991) 17Increase in trade and other receivables (9,386) (18,955)Increase/ (decrease) in payables 845 3,904Increase in provisions 28 185---------------------------- ----------- ----------Cash inflow from operations 15,811 11,880---------------------------- ----------- ---------- Cash and bank overdrafts include the following for the purposes of the cash flowstatement: 2005 2004 US$'000 (restated) US$'000Cash and cash equivalents 12,304 14,699Bank overdrafts (25) (133)---------------------------- ----------- ---------- 12,279 14,566---------------------------- ----------- ---------- 11. Reconciliation of net cash flow to movement in net debt 2004 2005 (restated)* US$'000 US$'000 (Decrease)/ increase in cash in the year (2,293) 11,598Borrowings (acquired// disposed with subsidiaries (93) 13(Increase)/ decrease in other borrowings (20,087) 25,443---------------------------- ----------- ---------- Changes in net debt resulting from cash flows (22,473) 37,054Foreign exchange translation adjustments 6 91Other non-cash movements - 8,639---------------------------- ----------- ---------- Movement in net debt in the year (22,467) 45,784Net debt at the beginning of the year 13,035 (32,749)---------------------------- ----------- ---------- Net debt at the end of the year (9,432) 13,035---------------------------- ----------- ---------- 12. Reconciliation of movements in net debt At 1 Acquisitions January (excluding At 31 2005 cash and Exchange December (restated)* Cash flow overdrafts) movement 2005 US$'000 US$'000 US$'000 US$'000 US$'000 Cash at bank and in hand 14,699 (2,400) 5 12,304Overdrafts (133) 107 1 (25)----------------- -------- -------- --------- -------- -------- 14,566 (2,293) 6 12,279 Bank and otherborrowings duewithin oneyear (1,124) (13,766) - - (14,890) Bank and otherborrowings duein more thanone year (407) (6,326) - - (6,733) Finance leases - 5 (93) - (88)----------------- -------- -------- --------- -------- -------- 13,035 (22,380) (93) 6 (9,432)----------------- -------- -------- --------- -------- -------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ARG.L