19th Sep 2006 07:01
ArmorGroup International plc19 September 2006 ArmorGroup International plc Strong revenue growth ArmorGroup International plc (the "Group" or "ArmorGroup"), the leading providerof defensive protective security services, today announces its unaudited interimresults for the six months ended 30 June 2006. Key points • Revenue up 30% to $134.4 million, with non-Iraq revenues rising 57% to US$64.1 million• Operating profit of $4.3 million (2005: $4.7 million)• Profit before tax of $3.7 million (2005: $4.7 million)• Basic earnings per share of 4.9 cents (2005: 6.1 cents)• Strong operating cash flow of $12.4 million (2005: $5.8 million)• Net debt reduced 21% to $7.5 million at the period end, compared to $9.4 million at 31 December 2005• Unchanged interim dividend declared of 1.25 pence• Significant new contract wins and extensions secured including: • Protective security for the World Bank headquarters in Kabul, Afghanistan • Explosive Ordnance Disposal training to NATO and US Department of Defense units • Land mine survey and clearance programme in support of the UN's mission in Southern Sudan All figures in this statement are quoted in US$. Dave Seaton, Chief Executive Officer, commenting on the results announcementsaid: "The Group has achieved strong revenue growth over the first half, and we areencouraged by the significant growth outside Iraq. Weak training revenues andincreased competition in Iraq have hampered margins and have led to operatingprofits falling 9% compared to the same period last year. We continue to pursuean increasing number of diverse opportunities as we continue to develop astrategy which will allow us to build long term, sustainable revenues withimproving operating margins." Enquiries: ArmorGroup International plc Dave Seaton, Chief Executive Officer Tel: + 44 (0) 20 7808 5800Matt Brabin, Chief Financial OfficerPatrick Toyne Sewell, Director of Communications 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 this morning at 9.30 am at Citigate Dewe Rogerson's offices at 3 LondonWall Building, London EC2M. 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 inhazardous environments. It has 9,000 highly trained and experienced employeesand long term operations in 38 countries. Over the past two years it hassupported its clients in over 160 countries across the Middle East, Africa,North and South America, the CIS and central Asia. ArmorGroup International plcis headquartered in London and listed on the London Stock Exchange. ArmorGroup provides its services through three core divisions: ProtectiveSecurity Services, Security Training and Weapons Reduction and Mine ClearanceServices. It complies with the US Foreign and Corrupt Practices Act, 1997 andthe 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 The Group achieved strong revenue growth to $134.4 million, up 30% compared tothe same period last year. This was driven by strong growth outside of Iraqwith those revenues growing 57% to $64.1 million, accounting for almost 48% ofoverall revenues, compared to 40% for the same period last year. Operating profit was down to $4.3 million (2005: $4.7 million) as a result of a3% fall in gross margins, primarily due to the conclusion of a $7.8 millionhigher margin training contract from Iraq at the end of 2005 which was notreplaced and the increasingly competitive private security market in Iraq. Operating profits were also affected by a $4.0m increase in administrativeexpenses largely due to higher legal, consultancy, and insurance costs, theestablishment of a Middle East regional office, an increased cost base inNigeria following the growth in revenues, and the additional overheads atPhoenix CP, which was acquired in November 2005. On a like for like basis theadministrative expenses in the half were marginally lower than for the secondhalf of 2005. The Group expects administrative expenses to be maintained in thesecond half at a similar level to the first half as a result of cost reductionsin Iraq and Asia, which are already underway. Profit before tax fell to $3.7 million (2005: $4.7 million), with net interestcharges being $0.5 million higher than for the same period last year. Basicearnings per share for the period was 4.9 cents (2005: 6.1 cents) The effective taxation rate during the period fell to 30% from 32% as the Groupis able to utilise tax losses in the USA, Nigeria and Kenya. The Group's net debt at 30 June was reduced by 21% to $7.5 million compared to$9.4 million at 31 December 2005, with $8.7 million of cash balances offset bybank borrowings of $16.2 million. The Group also achieved excellent cashconversion with operating cash flow of $12.4 million (2005: $5.8 million). Net assets at 30 June increased to $78 million (2005: $70.3 million). The Group will pay an unchanged interim dividend for the period of 1.25 pence tobe paid on 10 November 2006 to shareholders on the register on 29 September2006. Divisional performance Protective Security Services The Protective Security Services Division had a very good first half as allregions, with the exception of Asia Pacific, grew both revenue and operatingprofit. Turnover increased by 45% to $124 million as a result of particularlystrong growth in Nigeria and Afghanistan and continuing high levels of activityin Iraq. Operating profit, including central costs, increased significantly to$4.9 million (2005: $0.5 million). Revenues in Iraq grew by 33% and gross margins were maintained in spite ofcontinuing competitive pressures. The Group continued to win new andincremental contracts. The security situation in Iraq continues to be very unstable with hostileincidents doubling over the last six months to approximately 200 per day. TheGroup does not anticipate any material reduction in the number of incidentsuntil the Iraqi Government makes progress in reducing the impact of theinsurgent situation. The Group regularly reviews operating procedures in Iraq,the requirements of client contracts and every aspect of the work carried out byArmorGroup employees in the country. Revenues in Afghanistan have grown almost three fold to $15.7 million as aresult of winning additional work for the British Government and a growingnumber of commercial clients. The Group now has 600 employees operatingthroughout Kabul, Kandahar and Helmand province as well as the North East andWestern parts of the country. ArmorGroup's Anjuman base, on the outskirts ofKabul, was opened in late July to support its activities in the country and theinvestment is proving to be a successful one, with 70% occupancy alreadyachieved. African revenues have increased by 19% to $13.4 million, primarily driven byimproving revenues in Nigeria, where the security situation has becomeincreasingly unstable. The Group remains confident of further growth on theWest African coast, albeit tempered by a downturn in certain parts of EastAfrica, where the Group offers mainly premium guarding services. As previously reported, the Group closed its underperforming Asia Pacificoperations in Thailand and the Philippines towards the end of the half year.Following the appointment of a new Regional Director, based in Tokyo, in earlyJune the Group started to develop a number of significant opportunities in theJapanese market, building on its successful support for Japanese Governmentreconstruction projects in Iraq. Latin American revenues were up 38% to $10.1 million compared to the same periodin 2005, although its margins have been affected by additional administrativeburdens and overhead expenses following new labour laws imposed in Venezuela andEcuador. The business continues to grow and there have been some interestingnew client wins, including the US Embassy in Quito, Ecuador. The Eurasian operation achieved significant improvement, increasing revenues 42%to $6.8m. This growth has been driven by improved pricing, increased electronicsecurity and premium manned guarding business in Moscow and oil-relatedcontracts in Siberia. The Group's North American business achieved significant improvements inrevenues and profits over 2005 as a result of its continuing support for clientsworking on post-Hurricane Katrina reconstruction projects. Security Training Services Overall training revenues were down $6.1 million due to the conclusion of theMinistry of Justice contract in Iraq, at the end of 2005, which was notreplaced. The division recorded an operating loss of $0.9 million for the halfafter central costs, primarily due to facilities' costs in Iraq not beingadequately covered by revenues. The Group believes there will be significanttraining opportunities once the Iraqi government starts to release funding forthe ongoing training of its security forces. The US training facilities achieved strong revenues in Q1 although were hamperedby a number of course postponements in Q2, many of which are expected to befulfilled later in the year. Our recent acquisition Phoenix CP continues toperform ahead of expectations. Weapons Reduction and Mine Clearance Services As outlined in the pre-close statement in July, the weapons reduction and mineclearance division had a quiet first half, generating $2.7 million in revenuesand breaking even at operating profit level. The weak performance was primarilythe result of slow revenues from Iraq, where the instability meant that therewere few significant mine clearance projects undertaken anywhere in the country.There were also only modest revenues from the WRAS contract. However, inearly July it was awarded a $7 million, 11 month contract by the United NationsOffice for Project Services to carry out a land mine survey and clearanceprogramme in Southern Sudan, which was fully mobilised by the end of August. Competitive landscape The volume of business in Iraq has created a significant number of directcompetitors who are now trying to expand into new markets. There are currentlyaround 100 internationally owned private security companies registered to dobusiness in Iraq as well as approximately 70 local Iraqi ones. The vastmajority of these competitors are very small but there are now a small number oflarger businesses against whom ArmorGroup regularly competes. ArmorGroup strongly believes that its competitive advantages of an excellent,long term reputation, extensive global footprint, high quality employees,blue-chip client base and strong regulatory standards will continue to positionit strongly in the market. It will continue to grow its business by only takingprestigious clients, at acceptable margins while providing its clients andemployees with the appropriate levels of personal protection. Current trading and prospects The Board believes the prospects for the sector and ArmorGroup in particularremain strong and the Group aims to take best advantage of these opportunities. ArmorGroup's revenues and operating profits continue to be weighted towards thesecond half. As at 1 September 2006 the Group had $242 million of full year2006 revenues under contract (104% of 2005 revenues), $12 million ahead of thesame point the previous year. The Board remains confident that trading for theyear will be in line with its expectations. ArmorGroup believes the market in Iraq is developing into one which will bedominated by locally funded reconstruction, the back-loading of US and UKmilitary equipment and, in the fullness of time, oil exploration anddevelopment. The Group believes it is well-positioned in each of these growthareas but continues to be realistic in its expectations of the challenges whichneed to be overcome to realise that potential. Outside Iraq the strong growth of the first half has continued. The Group isextending its client base in Afghanistan, including protective securitycontracts with the World Bank and a major engineering services company. TheGroup has also recently started to provide training to international and localorganisations at its Anjuman base. Elsewhere, Nigeria has generated more revenue in the year to date than it did inthe whole of 2005, due to the increasing levels of threat across the country.The Group also continues to develop its relationships with Japanese corporationsand government departments across a wide range of services. The appointment ofa country manager in Brazil further extends ArmorGroup's Latin Americafootprint. The recent start of the NATO and Department of Defense training programme offseta slow start to the second half for the rest of the training division. Theweapons reduction and mine clearance division continues to pursue a growingnumber of opportunities from Sudan to the Lebanon. ArmorGroup believes its significant competitive advantages give it the bestopportunity to benefit from the market's continued growth. The Group continuesto pursue an increasing number of diverse opportunities as it looks to combinemedium term, sustainable revenues with improving operating margins. ArmorGroup International plcConsolidated income statement (unaudited)For the six months ended 30 June 2006 Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 Turnover 134,374 103,121 233,150Cost of sales (105,799) (78,112) (176,158)Gross profit 28,575 25,009 56,992Administrative expenses (24,310) (20,340) (44,587)Operating profit 4,265 4,669 12,405Interest receivable and similar income 101 60 168Interest payable and similar charges (666) (77) (451)Profit before income tax 3,700 4,652 12,122Income tax expense (1,101) (1,483) (3,632)Profit for the period 2,599 3,169 8,490 Profit attributable to:Equity holders of the Company 2,599 3,169 8,490 2,599 3,169 8,490 Earnings per share expressed per 1 penceshare (US cents) - basic 4.90 6.08 16.24 - diluted 4.79 5.90 15.76 All amounts included above are derived from continuing operations. ArmorGroup International plcConsolidated balance sheet (unaudited)As at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000Non-current assetsGoodwill 20,775 13,898 20,355Other intangible assets 812 540 726Property, plant and equipment 27,153 19,894 28,784Deferred tax assets 3,498 1,675 2,938 52,238 36,007 52,803Current assetsInventories 1,508 527 1,170Trade and other receivables 56,397 46,359 53,114Cash and cash equivalents 8,708 8,562 12,304 66,613 55,448 66,588 Total assets 118,851 91,455 119,391 Current liabilitiesBorrowings (9,366) (1,784) (14,953)Trade and other payables (20,316) (14,783) (17,412)Current income tax liabilities (2,482) (2,235) (2,489)Provisions and other liabilities (120) (223) (124) (32,284) (19,025) (34,978) Net current assets 34,329 36,423 31,610Total assets less current liabilities 86,567 72,430 84,413 Non-current liabilitiesBorrowings (6,810) (2,034) (6,783)Provisions and other liabilities (117) (50) (89)Deferred tax liabilities (1,594) - (1,058) (8,521) (2,084) (7,930)Net assets 78,046 70,346 76,483 Capital and reservesCalled up share capital 1,047 1,030 1,046Share premium account 56,920 56,900 56,912Capital redemption reserve 96 96 96Merger reserve 1,273 - 1,273Cumulative translation reserve (55) (32) (178)Retained earnings 18,765 12,352 17,334Total equity shareholders' funds 78,046 70,346 76,483 ArmorGroup International plcConsolidated cash flow statement (unaudited)For the six months ended 30 June 2006 Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000Cash flows from operating activitiesCash inflow from operations 12,393 5,757 15,811Interest received 101 60 168Interest paid (719) (77) (378)Income tax paid (1,068) (2,338) (4,693)Net cash inflow from operating activities 10,707 3,402 10,908 Cash flows from investing activitiesPurchase of businesses (net of cashacquired) (52) - (5,890)Deferred consideration received fordisposal of business - 160 160Purchase of property, plant and equipment (6,914) (11,671) (26,123)Purchase of other intangible assets (294) (302) (533)Proceeds from sale of property, plant andequipment 7 93 115Net cash outflow from investing activities (7,253) (11,720) (32,271) Cash flows from financing activitiesNet proceeds from issue of Ordinary Sharecapital 9 39 132Equity dividends paid to shareholders (1,491) - (1,150)New bank borrowings 3,460 2,933 22,677Finance lease principle payments (13) - (4)Repayment of borrowings (9,175) (853) (2,585)Net cash (outflow)/inflow from financingactivities (7,210) 2,119 19,070Exchange (losses)/gains on cash and bankoverdrafts (10) (12) 6Net decrease in cash and cash equivalents (3,766) (6,211) (2,287)Cash and cash equivalents at beginning ofperiod 12,279 14,566 14,566Cash and cash equivalents at end of period 8,513 8,355 12,279 Consolidated statement of changes in shareholders' equity (unaudited)For the six months ended 30 June 2006 Capital Cumulative Share Share Merger redemption translation Retained capital premium reserve reserve reserve Earnings Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2006 1,046 56,912 1,273 96 (178) 17,334 76,483 Shares issued 1 8 - - - - 9Cost of share options - - - - - 323 323Currency translationadjustments - - - - 123 - 123Profit for the period - - - - - 2,599 2,599Dividends paid toequity shareholders - - - - - (1,491) (1,491) At 30 June 2006 1,047 56,920 1,273 96 (55) 18,765 78,046 Capital Cumulative Share Share Merger redemption translation Retained capital premium reserve reserve reserve Earnings Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2005 1,027 56,784 - 96 (49) 8,457 66,315 Shares issued 3 116 - - - - 119Cost of share options - - - - - 726 726Currency translationadjustments - - - - 17 - 17Profit for the period - - - - - 3,169 3,169 At 30 June 2005 1,030 56,900 - 96 (32) 12,352 70,346 Shares issued 16 12 1,273 - - - 1,301Cost of share options - - - - - 811 811Currency translationadjustments - - - - (146) - (146)Profit for the period - - - - - 5,321 5,321Dividends paid toequity shareholders - - - - - (1,150) (1,150) At 31 December 2005 1,046 56,912 1,273 96 (178) 17,334 76,483 1. Basis of preparation The unaudited interim financial information of ArmorGroup International plc isfor the six months ended 30 June 2006 and has been prepared on the basis of theaccounting policies set out in the Annual report and accounts for the year ended31 December 2005. The Group's accounts for the year ended 31 December 2005 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. 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 2005 hasbeen extracted from the Group's statutory accounts for the year ended 31December 2005 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 2006 2005 2005Turnover US$'000 US$'000 US$'000 Protective security services 124,415 85,568 200,484Security training 7,228 13,361 24,221Weapons reduction and mine clearance 2,731 4,192 8,445 Turnover 134,374 103,121 233,150 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$2,404,000 for the six months ended 30 June 2006 (six months ended 30 June 2005:$3,539,000; year ended 31 December 2005: $8,317,000). Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005Profit before tax US$'000 US$'000 US$'000 Protective security services before headoffice costs 9,830 4,094 13,467Security training before head office costs (569) 4,637 6,967Weapons reduction and mine clearancebefore head office costs 276 330 536Head office costs (5,272) (4,392) (8,565) Protective security services includinghead office costs 4,949 450 6,102Security training including head officecosts (852) 4,068 6,077Weapons reduction and mine clearanceincluding head office costs 168 151 226 Operating profit 4,265 4,669 12,405 Interest receivable and similar income 101 60 168Interest payable and similar charges (666) (77) (451) Profit before tax 3,700 4,652 12,122 Income tax expense (1,101) (1,483) (3,632) Profit after tax 2,599 3,169 8,490 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 $192,000 for the six monthsended 30 June 2006 (year ended 31 December 2005: $953,000): six months ended 30June 2005: $637,000), including related national insurance costs. 4. Cash inflow from operations Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 US$'000 US$'000 US$'000 Profit after tax 2,599 3,169 8,490Adjustments for:Interest receivable (101) (60) (168)Interest payable 666 77 451Taxation 1,101 1,483 3,632Depreciation 7,815 3,977 10,654Loss/(profit) on disposal of property,plant and equipment 620 (27) 455Amortisation of other intangible assets 212 124 264Compensation charge in respect of sharebased payments 323 726 1,537 13,235 9,469 25,315Changes in working capital (excludingeffects of acquisition and disposal ofsubsidiaries)Increase in inventories (338) (349) (991)Increase in trade and other receivables (3,480) (2,673) (9,386)Increase/(decrease) in payables 2,952 (778) 845Increase in provisions 24 88 28Cash inflow from operations 12,393 5,757 15,811 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 2006 2005 2005 US$'000 US$'000 US$'000 Cash at bank and in hand 8,708 8,562 12,304Bank overdrafts (195) (207) (25) Cash and cash equivalents 8,513 8,355 12,279 6. Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period. Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 Profit attributable to equity holders of 2,599 3,169 8,490the Company (US$'000)Weighted average number of ordinary shares 53,087,392 52,111,477 52,278,472Basic earnings per share (US cents) 4.90 6.08 16.24 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 2006 2005 2005 Profit attributable to equity holders of 2,599 3,169 8,490the Company (US$'000)Weighted average number of ordinary shares 53,087,392 52,111,477 52,278,472Adjustment for dilutive potential of 1,156,485 1,592,303 1,582,655ordinary sharesWeighted average number of ordinary shares 54,243,877 53,703,780 53,861,127for diluted earnings per shareDiluted earnings per share (US cents) 4.79 5.90 15.76 7. Post balance sheet events An interim dividend of 1.25p per share was declared after the balance sheet dateand will be paid on 10 November 2006 to shareholders on the register on 29September 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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