15th Sep 2005 07:01
ArmorGroup International plc15 September 2005 15th Sept 2005 ArmorGroup International plc Interim Results Maiden dividend declared; further major contract wins announced ArmorGroup International plc ("ArmorGroup" or the "Group"), the leadinginternational provider of defensive protective security services and securitytraining services, today issues its unaudited Interim Results for the six monthsended 30 June 2005. Results Highlights • Revenues up 27.9% to US$103.1m • Profit before tax up 20.0% to US$4.7m • Contracted revenue for 2005 stands at US$230.1m, up 21.0% on full year 2004 • Tenders for US$221.7m of work (2004: US$127.4m) have been submitted and are currently awaiting adjudication and subsequent award • Operating cash flow was strong at 123% of operating profit • Maiden interim dividend declared of 1.25 pence • Significant new contracts have been awarded since 30 June including: • US$25.0m convoy protection contract with PWC Logistics. • US$18.4m extensions to FCO funded work in Iraq and Afghanistan. • US$7.0m logistics protection contract with Tomen Corporation. • US$5.8m for police mentoring in Basra. Jerry Hoffman, Chief Executive Officer, commenting on the results said: "We are encouraged by the increasing demand for our services in all markets aswell as Iraq and are confident that the prospects for the Group's continuingsuccess have been improved by the actions taken by management over the lasteight months and will improve further as both reconstruction and oil & gasexploration activities around the world increase." "Our strategy for growth and diversification continues to reap rewards and theinvestments made this year, for growth and enhanced safety of our global clientsand employees, will ensure that we will finish the year in a stronger positionto meet the challenges and opportunities that face us in 2006 and beyond." Enquiries ArmorGroup International plc Jerry Hoffman, Chief Executive Officer Tel: + 44 (0) 207 808 5800Dave Seaton, Chief Financial OfficerNick Melson, Communications Manager Citigate Dewe Rogerson Patrick Toyne Sewell / Sarah Gestetner Tel: + 44 (0) 207 638 9571 Notes to Editors ArmorGroup, which has its headquarters in London and a major office inWashington DC, has over 7,800 employees and operations in over 28 countries. Itprovides its services principally to first world national governments, majorinternational inter-governmental organisations and multinational corporations.It operates principally in regions of the world with diminished law and order orwith a high risk of terrorism or which were former areas of conflict includingthe Middle East, Africa, South America, the CIS and Asia. The Group listed onthe London Stock Exchange in December 2004. For more information please visitwww.armorgroup.com. RESULTS OVERVIEW All 2004 figures have been restated to convert them from UK GAAP to IFRS. ArmorGroup reports revenues of US$103.1m (2004: US$80.6m) and profit after taxfor the period up US$0.7m to US$3.2m. As previously announced in June, theGroup's Protective Security Services division experienced delays in contractawards. The emergence of additional operating costs in Iraq has also held backprofit growth during the first half. Increased insurgent action andcomplexities surrounding the establishment of the interim government in Iraqresulted in fewer than anticipated new projects being awarded in the first halfof the year. The situation also required the Group to enhance its owninfrastructure protection although the costs associated with this enhancedprotection were not passed onto clients due to the maturing competitivelandscape in Iraq pressurising margins. Task orders to the value of US$2m have been bid for and won under the WeaponsReduction and Abatement Services contract (WRAS) which the Group announced inMay 2005. It is a five year contract programme with a budget in the region ofUS$500m to be allocated to the three successful awardees. The Group, therefore,remains confident that this contract will generate significant revenues over itslife. As was anticipated, and consistent with the trend in 2004, the second half ofthe year has already seen a large number of additional contracts commencingthroughout the Middle East and Afghanistan. The main increases in Iraq have beendriven by convoy protection activity and the Group is now seen to be one of theleading providers of this type of work and today announces two major newcontracts: • A US$25.0m contract with Public Warehousing Company KSC(PWC Logistics), the Middle East's leading warehousing and global logisticscompany which operates in over 120 countries and has a market capitalisation ofUS$8.0bn. PWC was awarded contracts earlier this year worth US$14bn by the USArmy to provide logistics support throughout the Middle East. ArmorGroup will provide protective security services to PWC's personnel andvehicles as they deliver essential materials to reconstruction projectsthroughout Iraq. The contract will initially be for a 12 month period, withpotential for the contract to be extended at the end of the period. The Groupalso looks forward to the opportunity to work with PWC on other projects. • A US$7m contract with Tomen, a major Japanese tradinghouse, which has been awarded several humanitarian aid contracts by the JapaneseGovernment to supply a range of products and equipment throughout Iraq. Thecontract covers the first four projects assigned to Tomen with others due to betendered before the end of the year. ArmorGroup is also in discussions with two other major corporations requiringsimilar services. The Group continues to support a number of UK Governmentinitiatives in Afghanistan and elsewhere in the Middle East and has seencontract amendments to existing contracts which reflect increased regionalthreat levels. Business development offices are now established in Kuwait, Dubaiand Saudi Arabia. With a strong and increasing order book, and therefore good visibility ofrevenues to be billed by the end of the year, the Board remains confident thatfull year underlying operating profit* will be ahead of the 2004 level and inline with management expectations. The nature and duration of the recentcontract awards mean that the revenue and operating profit run rates going into2006 will be improved over the current period. This is consistent with theGroup's stated objective of diversifying revenues and profits and positioningitself to successfully tender for larger government funded projects. The Boardtherefore remains confident that the Group can further improve its financialperformance in the medium term. * Underlying operating profit is operating profit adjusted to excludeexceptional costs incurred in the year ended 31 December 2004 relating to theIPO. BUSINESS AND FINANCIAL REVIEW Group Turnover Group Turnover Six months ended Six months ended % of total 2005Figures in US$ 000 30 June 2005 30 June 2004 Revenue Protective Security Services 85,568 73,568 83.0%Training 13,361 4,757 13.0%Weapons Reduction & Mine Clearance 4,192 2,281 4.0% Total Group 103,121 80,606 100% % increase 27.9% Protective Security Services division remains the largest segment of thebusiness and has enjoyed further growth in the first half of 2005 as a result ofcontract awards in the second half of 2004 extending into the current period andadditional new business awarded during the first half of the year. The trainingdivision has similarly enjoyed significant growth as a result of the awardedoption periods for the Iraqi Ministry of Justice training project at CampGhassan, the Group's Iraqi training facility. This contract commenced in August2004. In line with IFRS requirements and in recognition of the anticipated proportionof future revenues which will be generated by Weapons Reduction and MineClearance activities, the Group has redefined its reporting segments and willfrom this point be reporting on the three divisions noted above. Group Profit Figures in US$ 000 Six months ended 30 Six months ended 30 June 2005 June 2004 Group operating profit 4,669 5,582Operating Margin 4.5% 6.9% Group profit before tax 4,652 3,877 Margin 4.5% 4.8% Group operating profitability was impacted by increased operating costs in Iraq,the costs of improved resources and capabilities of the Washington office andadditional costs associated with the protection of the Group's core staff inIraq. This was as a result of the heightened threat levels in the run up to andfollowing the Iraqi elections in January this year. In addition, the Group incurred a charge during the period of US$0.8m inrelation to share options and performance shares awarded in September 2004 andMarch 2005, of which US$0.6m relates to pre-IPO options. No similar charge arosein the first half of 2004. Operating profit in the first half of 2004 alsobenefited by US$0.4m from the profit on disposal of the Aviation securitybusiness in South America. The first half of 2004 would have benefited byUS$0.3m had the reassessment in 2005 of estimated useful economic lives ofarmoured vehicles and motor vehicles in Iraq been applied from 1 January 2004. Group profit before tax for the period increased by 20% to US$4.7m benefitingfrom reduced interest charges following the December 2004 Initial PublicOffering and repayment of all MBO related debt. IFRS Transition The impact on the Group's results arising from the transition to IFRS is assummarised in the table below with full details outlined in the separate IFRSrestatement announcement issued today. All figures in US$ 000 Year ended Six months ended 31 December 2004 30 June 2004Profit before tax under UK GAAP 13,351 4,438Reversal of goodwill amortisation 697 349Holiday pay accrual (1,366) (930)Foreign exchange translation (56) 20Profit before tax under IFRS 12,626 3,877 Under IAS 19 Employee Benefits, the expected cost of compensating short termabsences should be recognised at the time the related service is provided. As aresult, on translation to IFRS, a charge of US$1.4m has been recognised in theyear ended 31 December 2004 with a further US$0.5m charged during the first halfof 2005 resulting in the current holiday pay accrual being US$2.6m, including aUS$0.7m transitional balance sheet adjustment for 2003. This impact on the Groupis principally derived from the 9 week on, 3 week off rotation for staff workingin Iraq and Afghanistan. Cashflow There was strong operating cash flow in the period amounting to 123% ofoperating profit. This was achieved primarily by working capital improvements.In particular, the prompt collection of trade receivables though tempered byincreased investment in plant and equipment, up US$3.9m on the first half lastyear. The Group ended the period with positive net cash of US$4.7m. Divisional Analysis Protective Security Division Six months ended Six months ended All figures in US$ 000 30 June 2005 30 June 2004 Turnover 85,568 73,568 Profit before tax (before central costs) 6,859 11,301 Net Margin 8.0% 15.4% Revenues increased by 16.3% primarily driven by growth in Iraq and Afghanistan.New work awarded in the latter part of 2004 and contract amendments received inthe first half of 2005 accounted for an 82% increase in the revenues beinggenerated from Afghanistan. Further growth is anticipated in the second half ofthe year as a result of the run rates currently being achieved. Iraq similarly benefited from the continuance of the strong revenues achieved inthe second half of 2004 and accounted for 60% of the division's revenues for theperiod. However, revenues in Iraq increased somewhat more slowly thananticipated due to a number of new reconstruction contractors in the marketdelaying the start of their projects as a result of the increased insurgentaction combining with uncertainty that prevailed during the Iraqi electionprocess. In the early part of the second half the Group has seen a significantincrease in the number of new projects being tendered for and awarded and isconfident that the delays experienced in the first half will not be carried oninto the second half. All other regions were in line with prior period revenues with the principalexception being South America which has recorded a 17.3% drop in revenues as aresult of the sale of the Aviation security business in Q2 2004. On a like forlike basis revenues were up 9%. We are pleased with the progress being made inLatin America and are confident that much of this shortfall will be recovered inthe second half. Operating margins weakened during the period due to competitive pressures andincreased internal security costs in Iraq while the incremental work inAfghanistan has been awarded at slightly lower margins. The investment made inthe second half of 2004 in the Group's infrastructure in Iraq also increasedcosts over the prior period. The Group anticipates continued margin pressure inboth of these countries particularly relating to smaller, technically lesschallenging tasks as the number of competitors entering the market increases. Weremain confident that the larger, more capital intensive, and therefore longerterm projects, will remain less price sensitive and will continue to be awardedon the basis of prior experience, expertise, capacity and deliverability. Training Division All figures in US$ 000 Six months ended 30 Six months ended June 2005 30 June 2004 Turnover 13,361 4,757 Profit before tax (before central costs) 4,996 (22) Net Margin 37.4% (0.5)% Revenues increased by 181% over the previous period due to the ongoing contractat our training facility, Camp Ghassan, to train personnel for the IraqiMinistry of Justice. This contract commenced in August 2004 and is now in itssecond option period. In addition, the Group's facilities in the USA have beenworking at full capacity for most of the period, avoiding the traditional slowstart in the first quarter. The Pershore training facility in the UK continuesto build its revenues following a slow start. The division accounted for 13% ofGroup revenues up from 5.9% in the prior period. Net margins were very strong at 37%, assisted by the proportion of thedivision's revenue coming out of Iraq and the very high utilisation of the USfacilities. Weapons Reduction and Mine Clearance Division All figures in US$ 000 Six months ended 30 Six months ended June 2005 30 June 2004 Turnover 4,192 2,281 Profit before tax (before central costs) 756 141 Net Margin 18.0% 6.2% Revenues improved by 84% over the prior period as a result of increased work inIraq and new contracts in Ethiopia and Cyprus for the United Nations. The WRAScontract, announced on 10 May 2005, did not bill any revenue during the period. Net margin improved to 18.0% for the period as a result of better recovery offixed costs, although this was tempered by the lower margin work being performedin Africa. Operating costs were consistent with the prior period. Central Costs Central costs were US$7.9m, up from US$5.8m, reflecting the scaling up of theGroup's Washington DC office in readiness for the WRAS contract and theincreases made in the support services functions necessary to effectively staffthe operation of a public company. In addition, further staff increases havebeen made in the US to position the Group better to successfully tender for thelarger government funded projects which are now becoming available. Such costsincluded the recent hiring of two further senior executives, Stephen Kappes andStephen Anderton, whom the Board believe will further strengthen the managementteam and assist the Group to meet its growth objectives in the coming years. Central costs also increased as a result of a charge of US$0.8m relating toshare options and performance shares which were awarded in September 2004 andMarch 2005, of which US$0.6m relates to pre-IPO options. No similar charge arosein the first half of 2004. The Board believes that the Group's overhead structure is now stable and that nofurther material increases are envisaged in the foreseeable future. Taxation The Group's taxation initiatives and evolving Group structure have resulted inthe overall effective tax rate improving by three percentage points to 32%.These improvements are despite a significant proportion of the Group's earningsderiving from the USA where tax rates are higher than the UK standard rate. Dividend The Board has approved an interim dividend of 1.25 pence per ordinary share,which will be paid on 4 November 2005 to ordinary share holders on the registeras at 23 September 2005. This will be the maiden dividend for the Group. Noscrip alternative will be offered. The Board anticipate having a progressivedividend policy with roughly a 40:60 split between interim and final. OUTLOOK Recent contract awards, and extensions continue to underline the Group'ssignificant position within its market and provide confidence that furthergrowth is achievable and sustainable. The nature of the recent contract awardsand the manner in which the market is evolving, particularly in the Middle Eastand Afghanistan, bode well for the Group since, as predicted, contract size andduration continue to increase. Recent contract awards and extensions includesignificant increases to FCO contracts in both Iraq and Afghanistan, additionalmanpower deployed to several commercial clients in Iraq and a significant upliftin the services provided for the US Navy throughout the Middle East. In the United States several clients have contracted the Group to deploysecurity personnel to Louisiana and Mississippi in support of theirreconstruction efforts following Hurricane Katrina. A further strong indication of the momentum achieved by the Group is that thetenders waiting award currently stand at US$221.7m, up US$94.3m from this pointlast year. Moreover, the average annual fee value of the Group's mostsignificant contracts has increased by US$3.5m to US$6.6m since 2003. The Group is also pleased to announce that it has continued to diversify itsrevenue streams and business development efforts by opening offices in Kuwait,Dubai and Melbourne during the last few months and has active business partnersor agency agreements in several additional territories. The Group's strategy for growth and diversification continues to reap rewardsand investments made this year will ensure that ArmorGroup will finish the yearin a stronger position to meet the challenges and opportunities which face it in2006 and beyond. With a strong and increasing order book, and therefore goodvisibility of revenues to be billed by the end of the year, the Board remainsconfident that current full year underlying operating profit will be ahead ofthe 2004 level and in line with management expectations. ArmorGroup International plcConsolidated income statement (unaudited)For the six months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 (restated) (restated) US$'000 US$'000 US$'000 Turnover 103,121 80,606 190,190Cost of sales (78,112) (60,869) (140,464)Gross profit 25,009 19,737 49,726Administrative expenses (20,340) (14,527) (33,270)Net profit on sale of businesses - 372 592Operating profit 4,669 5,582 17,048Interest receivable and similar income 60 21 48Interest payable and similar charges (77) (1,726) (4,470)Profit before income tax 4,652 3,877 12,626Income tax expense (1,483) (1,360) (4,229)Profit for the period 3,169 2,517 8,397 Profit attributable to:Equity holders of the Company 3,169 2,497 8,353Minority Interest - 20 44 3,169 2,517 8,397 Earnings per share for profitattributable to the equity holders ofthe Company during the period per 1pence share (US cents) - basic 6.08 10.76 33.91 - diluted 5.90 10.33 33.73 All amounts included above are derived from continuing operations. ArmorGroup International plcConsolidated balance sheet (unaudited)As at 30 June 2005 30 June 30 June 31 December 2005 2004 2004 (restated) (restated) US$'000 US$'000 US$'000Non-current assetsGoodwill 13,898 13,898 13,898Intangible assets 540 333 380Property, plant and equipment 19,894 12,743 12,245Deferred tax assets 1,675 771 1,753 36,007 27,745 28,276Current assetsInventories 527 249 178Trade and other receivables 46,359 41,236 43,802Cash and cash equivalents 8,562 3,971 14,699 55,448 45,456 58,679 Total assets 91,455 73,201 86,955 Current liabilitiesBorrowings (1,784) (16,180) (1,257)Trade and other payables (14,783) (18,105) (15,623)Current income tax liabilities (2,235) (3,029) (3,168)Provisions and other liabilities (223) - (167) (19,025) (37,314) (20,215) Net current assets 36,423 8,142 38,464Total assets less current liabilities 72,430 35,887 66,740 Non-current liabilitiesBorrowings (2,034) (31,651) (407)Provisions and other liabilities (50) (1) (18) (2,084) (31,652) (425)Net assets 70,346 4,235 66,315 Capital and reservesCalled up share capital 1,030 36 1,027Share premium account 56,900 2,450 56,784Capital redemption reserve 96 - 96Warrant reserve - 266 -Cumulative translation adjustment (32) (130) (49)Retained earnings 12,352 1,613 8,457Total equity shareholders' funds 70,346 4,235 66,315 ArmorGroup International plcConsolidated cash flow statement (unaudited)For the six months ended 30 June 2005 Six months Six months Year ended ended ended 31 December 30 June 30 June 2004 2005 2004 (restated) (restated) US$'000 US$'000 US$'000Cash flows from operating activitiesCash inflow/(outflow) from operations 5,757 (1,533) 11,880Interest received 60 21 48Interest paid (77) (225) (2,802)Income tax paid (2,338) (1,384) (5,110)Net cash inflow/(outflow) from operatingactivities 3,402 (3,121) 4,016 Cash flows from investing activitiesPurchase of businesses - (40) (40)Disposal of businesses (net of cashdisposed) - 646 641Deferred consideration received fordisposal of business 160 - -Purchase of property, plant andequipment (11,671) (7,803) (13,271)Purchase of intangible assets (302) (138) (209)Proceeds from sale of property, plantand equipment 93 144 458Net cash from investing activities (11,720) (7,191) (12,421) Cash flows from financing activitiesNet proceeds from issue of ordinaryshare capital 39 - 45,764Net proceeds from issue of new bankloans 2,933 866 1,760Issue of new convertible debt - - 10,000Issue costs of new borrowings - - (320)Finance lease principle payments - (31) (47)Repayment of borrowings (853) (500) (37,154)Net cash from financing activities 2,119 335 20,003Net (decrease)/increase in cash and cashequivalents (6,199) (9,977) 11,598Cash and cash equivalents at beginningof period 14,566 2,877 2,877Exchange (losses)/gains on cash and bankoverdrafts (12) 2 91Cash and cash equivalents at end ofperiod 8,355 (7,098) 14,566 Consolidated statement of changes in shareholders' equity (unaudited)For the six months ended 30 June 2005 Capital Cumulative Profit and redemption translation loss Share Share reserve reserve account Total capital premium 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 shareoptions - - - - 726 726Currency translationadjustments - - - 17 - 17Profit for the - - - - 3,169 3,169period At 30 June 2005 1,030 56,900 96 (32) 12,352 70,346 Six months ended Year ended 30 June 31 December 2004 2004 Total Total (restated) (restated) US$'000 US$'000 At beginning of period 1,868 1,868Shares issued - 45,059Conversion of unsecured convertible debt - 10,000Cost of share options - 1,084Currency translation adjustments (130) (49)Profit for the period 2,497 8,353 At end of period 4,235 66,315 ArmorGroup International plc 1 Basis of preparation The unaudited interim financial information of ArmorGroup International plc isfor the six months ended 30 June 2005 and has been prepared in accordance withthe accounting policies set out in the document entitled "Restatement offinancial information under International Financial Reporting Standards" (the "IFRS release") dated 15 September 2005 which is available on the Company'swebsite (www.armorgroup.com). The Company expects to apply these accountingpolicies for the year ending 31 December 2005. These accounting policies arebased on the Financial Reporting Standards ("IFRS"), International AccountingStandards ("IAS") and International Financial Reporting InterpretationsCommittee ("IFRIC") and Standard Interpretations Committee ("SIC")interpretations that are expected to be applicable to 31 December 2005 financialreporting. Until the year ended 31 December 2004, ArmorGroup International plc'sconsolidated financial statements were prepared in accordance with UnitedKingdom Generally Accepted Accounting Principles (UK GAAP). UK GAAP differs insome areas from IFRS. In preparing the interim financial information for the sixmonths ended 30 June 2005 certain accounting, classification, valuation andconsolidation methods applied in the UK GAAP financial statements have beenamended to comply with IFRS. The comparative figures in respect of 2004 havebeen restated to reflect these adjustments, except as noted below. A description of the effect of the transition from UK GAAP to IFRS is detailedin the IFRS release dated 15 September 2005, as referred to above, together withreconciliations between the financial information previously prepared under UKGAAP and the IFRS equivalents for profit for the year ended 31 December 2004 andthe six months ended 30 June 2004 and net assets as at 31 December 2004, 30 June2004 and 1 January 2004. Note 2 to this interim financial information providesan overview of the impact on the Group's profit before tax of the transition toIFRS. The IFRSs and IFRIC interpretations that will be applicable at 31 December 2005are not known with certainty at the time of preparing the interim financialinformation included in this report. As a consequence, further refinements tothe accounting policies may need to be made in the first annual IFRS financialstatements for the year ending 31 December 2005. Furthermore, the financialinformation for 2004 presented as comparative figures with the consolidatedfinancial statements for the year ending 31 December 2005 may be different tothat presented with this interim financial information. IFRS 1 "First time adoption of International Financial Reporting Standards" setsout the requirements for companies preparing financial statements under IFRS forthe first time and requires the accounting policies to be appliedretrospectively. IFRS 1 contains the option to take advantage of certainexemptions to the retrospective application. The Group has applied optionalexemptions as follows: Business combinations. IFRS 3 "Business Combinations" has been appliedprospectively from 1 January 2004, the Group's date of transition to IFRS. Cumulative translation differences. The Group has elected to reset allcumulative translation gains and losses to zero at 1 January 2004. Share based payments. The Group has applied IFRS 2 "Share-based payments" from 1January 2004 only to those options granted after 7 November 2002 and that hadnot vested on or before 31 December 2004. IAS 32 and IAS 39. Comparative information for IAS 32 "Financial instruments -Disclosure and Presentation" and IAS 39 "Financial Instruments - Recognition andMeasurement" is not restated for 2004. The provisions of the two standards havebeen adopted from 1 January 2005 and comparative information for 2004 has beenpresented on the existing UK GAAP basis. The interim financial information has been prepared under the historical costconvention. The interim financial information does not comply with all thedisclosures required by IAS 34 "Interim Financial Reporting" which isnon-mandatory. The comparative figures for the year ended 31 December 2004 do not constitutestatutory accounts for the purposes of s240 of the Companies Act 1985. A copy ofthe statutory accounts for the year ended 31 December 2004, prepared under UKGAAP, has been delivered to the Registrar of Companies and contained an unqualified auditors' report inaccordance with s235 of the Companies Act 1985. 2 Overview of IFRS impact in 2004 The following table summarises the effect of the adoption of IFRS on the Group'sprofit before taxation for the year ended 31 December 2004 and the six monthsended 30 June 2004. Year ended Six months ended 31 December 2004 30 June 2004 US$'000 US$'000 Profit before taxation under UK GAAP 13,351 4,438 Reversal of goodwill amortisation 697 349 Holiday pay accrual (1,366) (930) Foreign exchange translation (56) 20 Profit before taxation under IFRS 12,626 3,877 2 Overview of IFRS impact in 2004 (continued) (i) Goodwill Under UK GAAP, goodwill was capitalised and amortised over its useful economiclife of 20 years. The Group has taken the exemption allowed by IFRS 1 for business combinations.As a result of this exemption the net book value of goodwill under UK GAAP at 31December 2003 of $13,898,000 became the deemed cost of goodwill under IFRS atthe date of transition. Under IFRS 3 "Business Combinations" goodwill is nolonger amortised, but is subject to an annual impairment review. The effect of adopting IFRS 3 is to reverse the goodwill amortisation chargedunder UK GAAP from the date of transition. As a result the carrying value ofgoodwill has increased at 30 June 2004 and 31 December 2004 by $349,000 and$697,000 respectively. (ii) Employee benefits Under UK GAAP no accrual was made by the Group for holiday pay. IAS 19 "Employee Benefits" requires the expected cost of compensated short-termabsences (eg. holidays) to be recognised when the employee rendered the servicethat increases their entitlement. As a result, an accrual should be made forholidays earned but not taken. The effect of adopting IAS 19 is to reduce profit before taxation for the sixmonths ended 30 June 2004 and the year ended 31 December 2004 by $930,000 and$1,366,000 respectively, and reduce profit after tax for the six months ended 30June 2004 and the year ended 31 December 2004 by $651,000 and $956,000respectively. (iii) Foreign exchange Translation of results of overseas subsidiaries Under UK GAAP the Group's accounting policy was to translate the results ofoverseas subsidiary undertakings, whose functional currency was denominated in acurrency other than US dollars, into US dollars using the closing rate. IAS 21 "The effects of Changes in Foreign Exchange Rates" does not permit thisand requires the results of overseas subsidiaries to be translated at theaverage exchange rate for the period. This change in accounting policy has been applied from the transition date of 1January 2004. The effect of adopting IAS 21 is to increase profit beforetaxation for the six months ended 30 June 2004 by $20,000 and decrease profitbefore taxation for the year ended 31 December 2004 by $56,000, and increaseprofit after tax for the six months ended 30 June 2004 by $17,000 and decreaseprofit after tax for the year ended 31 December 2004 by $45,000. 3 Changes in estimates Effective 1 January 2005, the Group has revised its estimate of the usefuleconomic life of armoured vehicles and motor vehicles in Iraq to three years.In prior periods, the Group estimated that the useful economic life of armouredvehicles and motor vehicles in Iraq to be one year. Effective 1 January 2005,the cost of armoured vehicles and motor vehicles in Iraq less the estimatedresidual value are depreciated on a non-linear basis over the estimated usefuleconomic life of three years on the basis of the estimated recoverable value atthe end of each of the three years. Depreciation charge for the six months ended 30 June 2004 would have beenreduced by $333,000 had the revised useful economic life of armoured vehiclesand motor vehicles in Iraq been applied from 1 January 2004. For the six monthsended 30 June 2005 the effect of this change has been to reduce the depreciationcharge by $1,118,000. 4 Segmental reporting Six months Six months ended Year ended ended 30 June 31 December 30 June 2004 2004 2005 (restated) (restated)Turnover US$'000 US$'000 US$'000 Protective security services 85,568 73,568 159,143Security training 13,361 4,757 17,940Weapons reduction and mineclearance 4,192 2,281 13,107 Turnover 103,121 80,606 190,190 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$3,539,000 for the six months ended 30 June 2005 (six months ended 30 June 2004:$8,809,000; year ended 31 December 2004: $13,330,000) 4 Segmental reporting (continued) Six months Six months ended Year ended ended 30 June 31 December 30 June 2004 2004 2005 (restated) (restated)Profit before tax US$'000 US$'000 US$'000 Protective security servicesbefore head office costs 6,859 11,301 22,501Security training before headoffice costs 4,996 (22) 5,394Weapons reduction and mineclearance before head officecosts 756 141 1,801Head office costs (7,942) (5,838) (12,648) Protective security servicesincluding head office costs 450 6,011 12,041Security training including headoffice costs 4,068 (146) 4,197Weapons reduction and mineclearance including head officecosts 151 (283) 810 Operating profit 4,669 5,582 17,048 Net interest payable (17) (1,705) (4,422) Profit before tax 4,652 3,877 12,626 5 Exceptional items relating to the IPO Operating items 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 $637,000 for the six monthsended 30 June 2005 (year ended 31 December 2004: $1,279,000; six months to 30June 2004: $nil), including related national insurance costs. Additionally, during the year ended 31 December 2004, bonus payments of $722,000(including related national insurance costs) were made in cash, conditional uponAdmission to the Official List of the United Kingdom Listing Authority. Non-operating items Interest expense for the year ended 31 December 2004 includes exceptionalaccelerated amortisation of bank loan and shareholder loan stock issue costs of$887,000 (six months ended 30 June 2004: $548,000) following the repayment ofthe debt as a result of the IPO. Interest expense for the year ended 31December 2004 also includes exceptional accelerated amortisation of warrants of$196,000 (six months ended 30 June 2004: $118,000), as the warrants wereexercised in full as a result of the IPO. There were no such exceptionalcharges during the six months ended 30 June 2005. 6 Cash inflow(outflow) from operations Six months Six months ended Year ended ended 30 June 31 December 30 June 2004 2004 2005 (restated) (restated) US$'000 US$'000 US$'000 Profit after tax 3,169 2,517 8,397Adjustments for:Net profit on sale of businesses - (372) (592)Interest receivable (60) (21) (48)Interest payable 77 1,726 4,470Taxation 1,483 1,360 4,229Depreciation 3,977 3,230 8,936(Profit)/loss on disposal of property,plant and equipment (27) 56 169Amortisation of intangible assets 124 67 84Compensation charge in respect of sharebased payments 726 - 1,084 9,469 8,563 26,729Changes in working capital (excludingeffects of acquisition and disposal ofsubsidiaries)(Increase)/decrease in inventories (349) (27) 17Increase in trade and other receivables (2,673) (16,852) (18,955)(Decrease)/increase in payables (778) 6,783 3,904Increase in provisions 88 - 185Cash inflow/(outflow) from operations 5,757 (1,533) 11,880 7 Analysis of cash and cash equivalents 30 June 30 June 31 December 2005 2004 2004 US$'000 US$'000 US$'000 Cash at bank and in hand 8,562 3,971 14,699Bank overdrafts (207) (11,069) (133) Cash and cash equivalents 8,355 (7,098) 14,566 8 Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the period. The weighted average number of ordinary shares forthe year ended 31 December 2004 and six months ended 30 June 2004 has beenadjusted for the bonus issue of ordinary shares on 14 December 2004, such thatthe bonus shares are treated as being outstanding as if the bonus issue hadoccurred on 1 January 2004. Six months Six months ended Year ended ended 30 June 31 December 30 June 2004 2004 2005 (restated) (restated) Profit attributable to equity holders of 3,169 2,497 8,353the Company (US$'000)Weighted average number of ordinary 52,111,477 23,211,209 24,629,840sharesBasic earnings per share (US cents) 6.08 10.76 33.91 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 Year ended ended 30 June 31 December 30 June 2004 2004 2005 (restated) (restated) Profit attributable to equity holders of 3,169 2,497 8,353the Company (US$'000)Weighted average number of ordinary 52,111,477 23,211,209 24,629,840sharesAdjustment for dilutive potential of 1,592,303 967,134 136,922ordinary sharesWeighted average number of ordinary 53,703,780 24,178,343 24,766,762shares for diluted earnings per shareDiluted earnings per share (US cents) 5.90 10.33 33.73 9 Material post balance sheet events An interim dividend of 1.25p per share was declared after the balance sheet dateand will be paid on 4 November 2005 to shareholders on the register on 23September 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ARG.L