19th Sep 2007 07:01
ArmorGroup International plc19 September 2007 ArmorGroup International plc Good revenue growth outside of Iraq; strong pipeline of opportunities ArmorGroup International plc, the leading provider of defensive protectivesecurity services, today announces its unaudited interim results for the sixmonths ended 30 June 2007. Key points • Revenues up to $137.0 million (2006: $134.4 million), with non-Iraq revenue rising 26% to $80.5 million • Operating profit of $3.5 million (2006: $4.3 million) • Profit before tax of $2.5 million (2006: $3.7 million) • Basic earnings per share of 3.5 cents (2006: 4.9 cents) • Strong cash flow from operations of $8.6 million (2006: $12.4 million) • Net debt of $7.6 million at the period end, compared to $3.6 million at 31 December 2006 • Unchanged interim dividend declared of 1.25 pence All figures quoted in this statement are in US$, with the exception of thedividend. David Seaton, Chief Executive Officer, commenting on the results announcementsaid: "We have achieved modest revenue growth in the first half with the Group'soperations in Afghanistan and Nigeria contributing to an overall revenue growthof 26% outside Iraq. We have also seen revenue growth from both our trainingand mine action divisions, in line with our strategy of diversifying revenuesaway from protective security services. Market consolidation is gathering pace,giving rise to an increasing number of acquisition opportunities on which theGroup is well positioned to capitalise and leverage its operational gearing. Consistent with prior years, the full year outcome will be heavily weightedtowards the second half of the year as significant new contracts won in thefirst half, and those we continue to win in the second, mobilise as expected.The Group continues to have a strong pipeline of identified opportunities goingforward with tenders awaiting award of $227 million (2006: $142 million) and theBoard remains confident in the Group's prospects for the full year." For further enquiries please contact: ArmorGroup International plc David Seaton, Chief Executive Officer Tel: + 44 (0) 20 7808 5800 Matthew Brabin, Chief Financial Officer Patrick Toyne Sewell, Director of Communications Tel: +44 (0) 7767 498 195 Citigate Dewe Rogerson 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 at 9:30am this morning at the offices of Citigate Dewe Rogerson, 3 LondonWall Buildings, London Wall EC2M 5SY. Notes to Editors For over 25 years ArmorGroup has been recognised as a leading provider ofdefensive, protective security services to national governments, multinationalcorporations and international peace and security agencies operating in hostileenvironments. ArmorGroup provides protective security services, securityconsultancy, security training and mine action services. It has 9,500 highlytrained and experienced employees and operations in 38 countries. Over the pasttwo years it has supported its clients in over 100 countries across the MiddleEast, Africa, North and South America, the CIS and central Asia. ArmorGroup International plc is headquartered in London and listed on the LondonStock Exchange. It complies with the US Foreign and Corrupt Practices Act, 1997and the UK's Anti-Terrorism, Crime and Security Act, 2001 and has also beencertified to ISO 9001:2000 and to ISO/IEC 27001:2005. For more informationplease visit www.armorgroup.com. Business and Operating review Overview Overall revenue for the six months to 30 June grew to $137.0 million (2006:$134.4 million) with the Group's operations in Afghanistan and Nigeriacontributing to revenue growth of 26% outside Iraq. The Group's operations inIraq now represent 41% (2006: 52%) of total Group revenues. Gross profitsincreased 7% to $30.5 million. Administrative expenses for the Group increased 11% to $27.1 million (2006:$24.3 million), driven by expansion in Afghanistan and Nigeria. Central costsremained stable at $5.4 million (2006: $5.3 million). Operating profit reduced to $3.5 million (2006: $4.3 million), primarily due tothe effect of the higher costs outlined above combined with a reduction inAfghanistan profits following the re-award of the UK Government contract atsignificantly lower margins. Operating profit was also impacted by: a $0.4million loss caused by the weakness of the US$, the Group's primary operatingcurrency, over the period (2006: loss of $0.2 million); and $0.4 million inredundancy costs following the refocusing of the Group's Ugandan business. Profit before tax was $2.5 million (2006: $3.7 million) as net interest chargesincreased to $0.9 million (2006: $0.6 million) due to the significant increasein working capital required to mobilise the US Embassy contract in Afghanistan,which started operations on July 1, and the effect of higher interest rates.Basic earnings per share for the period was 3.5 cents (2006: 4.9 cents). The Group's effective taxation rate reduced slightly to 27% (2006: 30%) due tofurther utilisation of overseas tax losses. The Group's net debt at 30 June had increased to $7.6 million, compared to $3.6million at 31 December 2006, with $8.7 million of cash balances offset by bankborrowings of $16.4 million. The Group continues to achieve strong cashconversion with cash flows from operations of $8.6 million (2006: $12.4million). Net assets at 30 June were $84.3 million (2006: $78.0 million). The Group will pay an unchanged interim dividend for the period of 1.25 pence tobe paid on 9 November 2007 to shareholders on the register on 28 September 2007. Divisional overview Protective Security Division The Protective Security Division generated revenue of $118.6 million (2006:$124.4 million), marginally lower than the same period last year which includeda number of major guarding contracts in Iraq that wound down as expected duringthe second half of 2006. The division now accounts for 87% of Group revenues,down from 93% for the same period last year. Operating profits before head office costs fell to $8.5 million (2006: $9.8million). However, the Group expects a significantly stronger performance fromthis division in the second half as contracts signed later in the first half andearly in the second continue to mobilise. In Iraq the Group carried out over 2,250 convoy escort missions over the period,representing around 35% of all registered convoy missions in Iraq, with itsvehicles driving almost 900,000 kilometres. The security situation in thecountry continues to be unstable with the rate of hostile incidents similar tothe second half of 2006. In order to protect its employees as highly aspossible, the Group invested a further $1.8 million on higher specificationarmoured vehicles over the period. To improve its access to the growing convoy escort market, created by theincreasing trend for the US Government to outsource its logistics in Iraq, theGroup signed a teaming agreement with American United Logistics ("AUL") in Julyand became its exclusive protective security provider in Iraq. At that time,ArmorGroup stated that it believed AUL was in an excellent position to be amajor supplier of logistic services to the US Government, which would lead to anincrease in convoy activity. This confidence has proven to be well founded withthe Group now providing AUL with a growing number of convoy escort teams.ArmorGroup is working closely with AUL and other logistics companies to ensureit is strongly positioned to capitalise on a number of major identifiedopportunities in this market. Elsewhere in the Middle East, Bahrain performed well while the US Embassycontract in Jordan, which was awarded in January, mobilised as expected. Revenues in Afghanistan rose strongly to $19.5 million (2006: $15.7 million)although at lower margins due to competitive pressures during the rebiddingprocess for the Group's strategically important and prestigious contract in thecountry, with the UK's Foreign and Commonwealth Office. The US Embassy contractmobilised more slowly than expected as the administrative and human resourcessupport requirement has proved particularly onerous. The contract is nowrunning as expected but is unlikely to achieved planned profitability in thecurrent financial year. The Group has continued to win other contracts inAfghanistan and expects the benefits of these to strengthen its second halfperformance. African revenues improved over 30% to $17.7 million (2006: $13.4 million)reflecting the increasing threat levels in the Niger Delta region of Nigeria andthe Democratic Republic of Congo. The US embassy contract in Nigeria, announcedin May, has not yet mobilised due to a number of administrative and contractualissues on which we are working closely with US Government representatives toresolve. The Board is reviewing the Group's operations in certain Africancountries, particularly where its services have become commoditised as result ofsaturation by local competitors. As part of this review the Group has refocusedits manned guarding business in Uganda on significantly fewer, albeit highermargin contracts, resulting in $0.4 million of redundancy costs during the half. South American revenues improved to $10.3 million (2006: $10.1 million) althoughprofitability in the first half was affected by the nationalisation of a majorclient's operations in Venezuela and the loss of a long term contract inColombia due to the Group's decision not to re-bid it at unacceptably lowmargins. However, the Group continues to win business across the region and wasrecently awarded a major technical security contract in Colombia, in partnershipwith Siemens, which will mobilise towards the end of the year. Eurasian revenues fell 17% to $5.6 million (2006: $6.8 million) as a number oflarger contracts completed at the end of 2006. The market has become moredifficult as international clients are now taking a more conservative approachto making new investments in the region. Despite this ArmorGroup was recentlyawarded a significant new contract on Sakhalin Island which will contribute inthe second half. The Group's North American revenues fell to $3.8 million (2006: $4.5 million)and the Washington office continues to provide key administrative support formajor US Government contracts overseas and coordinate initiatives on the USmainland. The Group's abduction, kidnap for ransom and extortion (K&R/E) consultancy, NeilYoung International, which was acquired in January, has been integratedsuccessfully and has made an excellent contribution. Neil Young, its ManagingDirector, has now been tasked to drive forward the Group's new specialist RiskManagement Division. The Division will incorporate K&R/E capabilities as wellas a new consulting business, which will focus on helping organisations' seniordecision makers plan for and deliver effective risk management solutionsthroughout the life cycles of major projects. Security Training Division Overall training revenues rose to $9.4 million (2006: $7.2 million) whileoperating losses before head office costs increased to $0.8 million (2006: $0.6million). Despite more efficient management of the Group's Ghassan trainingfacility in Iraq there was a weaker performance at the US facilities as a resultof course postponements due to clients' operational commitments. The divisionnow accounts for around 7% of Group revenues, up from 5% for the same periodlast year. A reorganisation of the Pershore facility in the UK at the beginningof the second half will improve its profitability going forward. Weapons Reduction and Mine Clearance Division The Weapons Reduction and Mine Clearance division had an excellent first half,generating $9.0 million in revenues (2006: $2.7 million) and achieving $1.2million in operating profit before head office costs (2006: $0.3 million). Thedivision now accounts for around 7% of Group revenues, up from 2% in the sameperiod last year. This strong performance was driven by the major contracts inLebanon and Sudan which the division won in the second half of 2006. The MineAction (MA) team have continued this momentum into the current year with newcontracts or contract extensions won with humanitarian agencies in Cyprus, Nepaland Sudan. It is also one of only five registered MA teams in Afghanistan and,as such, is starting to secure an increasing number of contracts. The MA marketcontinues to grow with the increasing realisation by the major humanitarianorganisations and international donors of the operational and financial benefitsderived from using commercial MA organisations, combined with the continuedgrowth in government outsourcing of this type of technical service. Competitive landscape The competitive landscape continues to polarise as the larger and more complexgovernment contracts, particularly in Afghanistan and Iraq, are won by the majorinternational security companies which have proven resources and reputations.Although some of ArmorGroup's larger competitors have been prepared to work onmajor contracts at extremely low margins, the Group is committed to improvingits operating margins and so will continue to decline to bid on those contractswhere the margins required to win the work are not acceptable. The consolidation of the market is gathering pace giving rise to a number ofinteresting acquisition opportunities. Combined with the inability of thelarger Iraq-born companies to diversify successfully, this means that ArmorGroupis increasingly well positioned for future growth. The Board believes theGroup's prospects are strong due to its competitive advantages of: anunrivalled, long term reputation; a comprehensive global infrastructure; anincreasingly diversified service line; high quality employees; and a broadeningblue-chip client base. Current trading and prospects Consistent with prior years, the full year outcome will be heavily weightedtowards the second half of the year as significant new contracts won in thefirst half, and those it continues to win in the second, mobilise as expected.As at 19 September 2007, the Group had $280 million of full year 2007 revenuesalready under contract (102% of total 2006 revenues), some $38 million ahead ofthe same point the previous year. The Group continues to have a strong pipelineof identified opportunities going forward with tenders awaiting award of $227million (2006: $142 million) and the Board remains confident in the Group'sprospects for the full year." ArmorGroup International plc Consolidated income statement (unaudited) For the six months ended 30 June 2007 Six months Six months ended ended Year ended 30 June 30 June 31 December Note 2007 2006 2006 US$'000 US$'000 US$'000 Revenue 2 137,021 134,374 273,453Cost of sales (106,491) (105,799) (213,784)Gross profit 30,530 28,575 59,669Administrative expenses (27,072) (24,310) (49,062)Operating profit 3,458 4,265 10,607Interest receivable and similar 100 101 157incomeInterest payable and similar (1,045) (666) (1,209)chargesProfit before income tax 2,513 3,700 9,555Income tax expense (666) (1,101) (2,460)Profit for the period 1,847 2,599 7,095 Profit attributable to:Equity holders of the Company 1,847 2,599 7,095 1,847 2,599 7,095 Earnings per share expressed per 1pence share (US cents) - basic 6 3.47 4.90 13.35 - diluted 6 3.36 4.79 13.05 All amounts included above are derived from continuing operations. Dividends A dividend of 1.25 pence per share (2006: 1.25 pence per share) amounting to$1,337,000 (2006: $1,263,000) has been proposed for the interim period ending 30June 2007. ArmorGroup International plcConsolidated balance sheet (unaudited)As at 30 June 2007 30 June 30 June 31 December Note 2007 2006 2006 US$'000 US$'000 US$'000Non-current assetsGoodwill 22,844 20,775 21,317Other intangible assets 2,761 812 810Property, plant and equipment 30,251 27,153 30,870Deferred tax assets 3,682 3,498 3,845 59,538 52,238 56,842Current assetsInventories 2,351 1,508 1,530Trade and other receivables 62,661 56,397 54,033Cash and cash equivalents 5 8,718 8,708 14,646 73,730 66,613 70,209 Total assets 133,268 118,851 127,051 Current liabilitiesBorrowings (14,848) (9,366) (14,614)Trade and other payables (28,391) (20,316) (21,157)Current income tax liabilities (2,213) (2,482) (2,102)Provisions and other liabilities (201) (120) (134) (45,653) (32,284) (38,007) Net current assets 28,077 34,329 32,202Total assets less current 87,615 86,567 89,044liabilities Non-current liabilitiesBorrowings (1,517) (6,810) (3,592)Provisions and other liabilities (132) (117) (131)Deferred tax liabilities (1,638) (1,594) (2,434) (3,287) (8,521) (6,157)Net assets 84,328 78,046 82,887 Capital and reservesCalled up share capital 1,049 1,047 1,049Share premium account 56,990 56,920 56,952Capital redemption reserve 96 96 96Merger reserve 1,273 1,273 1,273Cumulative translation reserve 1,626 (55) 961Retained earnings 23,294 18,765 22,556Total equity shareholders' funds 84,328 78,046 82,887 ArmorGroup International plc Consolidated cash flow statement (unaudited) For the six months ended 30 June 2007 Six months Six months Year ended ended ended 31 December 30 June 30 June 2006 Note 2007 2006 US$'000 US$'000 US$'000 Cash flows from operating activitiesCash inflow from operations 4 8,603 12,393 30,650Interest received 100 101 157Interest paid (992) (719) (1,271)Income tax paid (1,188) (1,068) (2,418)Net cash inflow from operating activities 6,523 10,707 27,118 Cash flows from investing activitiesPurchase of businesses (net of cash (1,353)acquired) (52) (52)Purchase of property, plant and equipment (7,331) (6,914) (18,105)Purchase of other intangible assets (1,914) (294) (524)Proceeds from sale of property, plant and 255equipment 7 122Net cash outflow from investing activities (10,343) (7,253) (18,559) Cash flows from financing activitiesNet proceeds from issue of Ordinary Share 38capital 9 43Equity dividends paid to shareholders (360) (1,491) (2,754)New bank borrowings 329 3,460 3,460Finance lease principle payments (42) (13) (43)Repayment of borrowings (2,156) (9,175) (6,986)Net cash outflow from financing activities (2,191) (7,210) (6,280)Net (decrease)/ increase in cash and cash (6,011)equivalents (3,756) 2,279Cash and cash equivalents at beginning of 14,594period 12,279 12,279Exchange gains/ (losses) on cash and bank 63overdrafts (10) 36Cash and cash equivalents at end of period 8,646 5 8,513 14,594 ArmorGroup International plc Consolidated statement of changes in shareholders' equity (unaudited) For the six months ended 30 June 2007 Capital Cumulative Retained redemption translation earnings Share Share reserve Merger reserve capital premium reserve Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2007 1,049 56,952 96 1,273 961 22,556 82,887 Shares issued - 38 - - - - 38Cost of share - - - - - 490 490optionsCurrency - - - - 665 - 665translationadjustmentsProfit for the - - - - - 1,847 1,847periodDividends paid to - - - - - (1,599) (1,599)equity shareholders At 30 June 2007 1,049 56,990 96 1,273 1,626 23,294 84,328 Capital Cumulative redemption translation Share Share reserve Merger reserve Retained capital premium earnings reserve Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2006 1,046 56,912 96 1,273 (178) 17,334 76,483 Shares issued 1 8 - - - - 9Cost of share - - - - -options 323 323Currency - - - -translationadjustments 123 - 123Profit for the - - - - - 2,599 2,599periodDividends paid toequity shareholders - - - - - (1,491) (1,491)At 30 June 2006 1,047 56,920 96 1,273 (55) 18,765 78,046 Shares issued 2 32 - - - - 34Cost of shareoptions - - - - - 558 558Currencytranslationadjustments - - - - 1,016 - 1,016Profit for the - - - - - 4,496 4,496periodDividends paid toequity shareholders - - - - - (1,263) (1,263)At 31 December 2006 1,049 56,952 96 1,273 961 22,556 82,887 Notes to the interim statement 1 Basis of preparation The unaudited interim financial information of ArmorGroup International plc isfor the six months ended 30 June 2007 and has been prepared on the basis of theaccounting policies set out in the Annual report and accounts for the year ended31 December 2006. The Group's accounts for the year ended 31 December 2006 wereprepared in accordance with International Financial Reporting Standards (IFRS),International Accounting Standards (IAS) and related interpretations, as adoptedfor use in the European Union and were prepared under the historical costconvention. The unaudited interim financial information contained within this reportcomplies with the disclosures required by the Listing Rules of the FinancialServices Authority but does not comply with all the disclosures required by IAS34 "Interim Financial Reporting" which is non-mandatory and is therefore not infull compliance with IFRS as adopted by the European Union. The information contained within this interim report does not constitutestatutory accounts for the purposes of section 240 of the Companies Act 1985.The comparative financial information for the year ended 31 December 2006 hasbeen extracted from the Group's statutory accounts for the year ended 31December 2006 which contained an unqualified auditors' report and have beendelivered to the Registrar of Companies. 2 Segmental reporting Six months Six months ended ended Year ended 30 June 30 June 31 December 2007 2006 2006 Revenue US$'000 US$'000 US$'000 Protective security services 118,620 124,415 244,510Security training 9,436 7,228 18,329Weapons reduction and mine clearance 8,965 2,731 10,614 Revenue 137,021 134,374 273,453 Revenue 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$148,000 for the six months ended 30 June 2007 (six months ended 30 June 2006:$2,404,000; year ended 31 December 2006: $3,476,000). Six months Six months ended ended Year ended 30 June 30 June 31 December 2007 2006 2006 Profit before tax US$'000 US$'000 US$'000 Protective security services before head 8,467 20,345office costs 9,830Security training before head office costs (773) (569) (803)Weapons reduction and mine clearance 1,205 835before head office costs 276Head office costs (5,441) (5,272) (9,770) Protective security services including 3,761 11,610head office costs 4,949Security training including head office (1,152) (1,458)costs (852)Weapons reduction and mine clearance 849 455including head office costs 168 Operating profit 3,458 4,265 10,607 Interest receivable and similar income 100 101 157Interest payable and similar charges (1,045) (666) (1,209) Profit before tax 2,513 3,700 9,555 Income tax expense (666) (1,101) (2,460) Profit after tax 1,847 2,599 7,095 3 Items relating to the IPO Prior to the IPO share options were issued to certain Directors and members ofmanagement. There are no performance conditions and the options vest annuallyin equal tranches over a 3 year period beginning on 31 December 2004 or 31 March2005. The charge for these pre-IPO options, which is recognised over the vestingperiod and included in administrative expenses, was $10,000 for the six monthsended 30 June 2007 (six months ended 30 June 2006: $192,000; year ended 31December 2006: $976,000, including related national insurance costs. 4 Cash inflow from operations Six months Six months ended ended Year ended 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Profit after tax 1,847 2,599 7,095Adjustments for:Interest receivable (100) (101) (157)Interest payable 1,045 666 1,209Taxation 666 1,101 2,460Depreciation 8,030 7,815 14,871(Profit)/ loss on disposal of property, (160)plant and equipment 620 1,141Amortisation of other intangible assets 254 212 440Compensation charge in respect of share 490based payments 323 881 12,072 13,235 27,940Changes in working capital (excludingeffects of acquisition and disposal ofsubsidiaries)Increase in inventories (821) (338) (360)Increase in trade and other receivables (8,277) (3,480) (768)Increase in payables 5,563 2,952 3,786Increase in provisions 66 24 52Cash inflow from operations 8,603 12,393 30,650 5 Analysis of cash and cash equivalents Cash and cash equivalents for the purposes of the cash flow statement areanalysed as follows: 30 June 30 June 31 December 2007 2006 2006 US$'000 US$'000 US$'000 Cash at bank and in hand 8,718 8,708 14,646Bank overdrafts (72) (195) (52) Cash and cash equivalents 8,646 8,513 14,594 6 Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period. Six months Six months ended ended Year ended 30 June 30 June 31 December 2007 2006 2006 Profit attributable to equity holders of 1,847 2,599 7,095the Company (US$'000)Weighted average number of ordinary shares 53,280,961 53,087,392 53,145,172Basic earnings per share (US cents) 3.47 4.90 13.35 Diluted Diluted earnings per share is calculated adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potentialordinary shares. Six months Six months ended ended Year ended 30 June 30 June 31 December 2007 2006 2006 Profit attributable to equity holders of 1,847 2,599 7,095the Company (US$'000)Weighted average number of ordinary shares 53,280,961 53,087,392 53,145,172Adjustment for dilutive potential of 1,609,430 1,156,485 1,202,826ordinary sharesWeighted average number of ordinary shares 54,890,391 54,243,877 54,347,998for diluted earnings per shareDiluted earnings per share (US cents) 3.36 4.79 13.05 7 Post balance sheet events An interim dividend of 1.25 pence per share was declared after the balance sheetdate and will be paid on 9 November 2007 to shareholders on the register on 28September 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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