20th Mar 2007 07:02
ArmorGroup International plc20 March 2007 ArmorGroup International plc Strong revenue growth driven by diversification ArmorGroup International plc, the leading provider of defensive protectivesecurity services, today announces its unaudited preliminary results for thetwelve months ended 31 December 2006. Key points • Revenues up 17% to $273.5 million, with non-Iraq revenue rising 46% to US$140 million • Operating profit of $10.6 million (2005: $12.4 million) • Profit before tax of $9.6 million (2005: $12.1 million) • Basic earnings per share of 13.4 cents (2005: 16.2 cents) • Operating cash flow almost doubled to $30.7 million (2005: $15.8 million) • Net debt significantly reduced to $3.6 million at the year end, compared to $9.4 million at 31 December 2005 • Recommended final dividend of 1.5 pence, giving a total of 2.75 pence for the year (2005: 2.75p) All figures quoted in this statement are in US$, with the exception of thedividend. David Seaton, Chief Executive Officer, commenting on the results announcementsaid: "The Group has achieved good revenue growth with strong underlying operatingprofit growth from the protective security division. This positive performancewas offset by an $8.7 million adverse impact of the under-utilisation of ourIraq training facility resulting from a lack of US and Iraqi funding fortraining. We expect 2007 to show the benefits of the significant management andoperational changes made during 2006 and the medium term strategy outlinedtoday, as we focus on building long term, sustainable revenues with improvingoperating margins. The Board anticipates continuing strong market conditionsover the year and believes that the Group is well positioned to benefit fromthat growth. We have started the current year with a number of encouraging newcontract wins and a strong pipeline of identified opportunities, with new andexisting clients." Enquiries: ArmorGroup International plc David Seaton, Chief Executive Officer Tel: + 44 (0) 20 7808 5800Matthew 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 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 inhazardous environments. ArmorGroup provides protective security services,security consultancy, security training and mine action services. It has 9,000highly trained and experienced employees and operations in 38 countries. Overthe past two years it has supported its clients in over 160 countries across theMiddle East, 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. Strategic review The Board's three year objective is to grow revenues and profits significantlythrough further diversification, outlined below, and to use its operationalgearing to achieve considerably stronger operating profit margins. The Boardbelieves the Group's current operating structure can support this revenue growthand that any increase in revenue will have only a marginal impact on theoverhead base. The Board believes this growth will be achieved by: • further strengthening the Group's global presence; • capitalising on the numerous opportunities which exist for the Group within the oil, gas and extractive sectors as well as from further government outsourcing; and • broadening the Group's offering through additional, complementary security services. A small number of strategic acquisitions may also play a part in achieving theGroup's objectives. The private security industry has matured over the last three years with larger,longer and more complicated contracts, especially in the reconstruction arena.While ArmorGroup's protective security operation in Iraq continues to expand,the market outside Iraq is growing more strongly as major organisationsincreasingly require their security providers to have the ability and theresources to provide the highest international experience and standards. The Board believes the strategy outlined above will give ArmorGroup the bestopportunity to use its competitive advantages to benefit from continued marketgrowth. Operational review 2006 was a year of significant management and operational change for the Groupwith a new Chief Executive Officer, a new Chief Finance Officer, new directorsfor each of the regions, apart from Africa, as well as a number of other seniorappointments. The Board believes these changes have significantly strengthenedthe operational and commercial expertise of the Group's leadership. ArmorGroupnow has the senior management team in place to further develop the Group'sbusiness. Overall revenue grew 17% to $273.5 million with the Group's operations inAfghanistan, Nigeria and Russia contributing to an overall revenue growth of 46%outside Iraq. Our operations in Iraq now represent 49% (2005: 59%) of totalGroup revenues. The Group has successfully replaced the revenue from the protection ofreconstruction activities, which fell progressively throughout the year as anumber of major projects were completed, with additional logistic convoyprotection work. The Weapons Reduction and Mine Clearance division recoveredfrom a weak first half to win major contracts in Lebanon and Sudan in the secondhalf. Training revenues fell compared to 2005 following the completion of amajor training contract in Iraq at the end of 2005 which was not replaced due tocoalition and Iraqi funding limitations. However, the impact of this fall waspartially offset by Phoenix CP Limited's strong performance in its first yearwith the Group. The Group continued to support an array of Government, commercial and NGOclients in over 40 countries in 2006. Divisional overview Protective Security Division The Protective Security Division had a strong year with all regions, exceptNorth America, improving revenues and operating profits. Revenues increased by22% to $244.5 million as a result of particularly strong growth in the secondhalf in Afghanistan, South America, Nigeria and Russia and continuing highlevels of activity in Iraq. Middle East The Group extended its operational footprint in the region, driven by its newlyopened regional office in Dubai. Revenue grew to $139 million (2005: $126million), with Iraq revenues up 10% to $133 million, and margins improveddespite increased vehicle attrition over the year. The security situation in Iraq became increasingly unstable over the year withover 450 hostile actions directed at ArmorGroup personnel. The Group constantlyreviews its operating procedures in Iraq to counter insurgent tactics and hasinvested a further $6.8 million to provide enhanced protective equipment for itsemployees, including the introduction of higher specification armoured vehiclesin Iraq. Over the year the focus of the Group's operation in Iraq has changed with theincrease in logistic convoy security for US and Japanese programmes more thancompensating for the reducing level of reconstruction work as the funding drawsto a close. ArmorGroup is now the largest convoy security provider in Iraq,with the majority of its 1,200 employees assigned to these tasks. In 2006ArmorGroup teams carried out almost 1,200 convoy support missions, representingaround 30% of all registered convoy missions in Iraq. The continued growth in Iraq has been combined with the increasing use of Iraqinationals, such that more than 60% of the Group's workforce in the country isnow local. ArmorGroup has had a local Iraqi partner for over three years andhas close relationships with the Iraqi community across the country, workingwith their leaders to support local national employment and businessrelationships. The Group believes its success in integrating Iraqi involvementinto its operations will bring benefits as Iraq moves towards security autonomy. Elsewhere in the Middle East the Group's Bahrain operation continued to generategood revenues from its US Navy contract while the businesses in Kuwait and theUAE generated revenues for the first time. The Group continued to extend itsoperations in the region with an exclusive agency agreement signed in SaudiArabia, as a first step to providing security consultancy in that country. Asia The division's revenues in Asia grew very strongly during the period to $35.9million (2005: $17.3 million), primarily driven by the significant growth of theGroup's operation in Afghanistan. The Group's investment of $4 million indeveloping its comprehensive and country-wide infrastructure in Afghanistan,including Anjuman Base in Kabul which opened in July, has contributed to theGroup's strong market share in the country. The Group's competitive advantage,with its teams now carrying out over 900 missions a month throughout Afghanistanfor a growing number of government and commercial clients, was underlined by there-award of its contract with the UK Government for the provision of staticguarding to its property in the country as well as mobile protection for itsofficials. In the Far East the appointment of the new Regional Director, based at theGroup's Tokyo office, has lead to increased and better targeted marketingactivity in the region. The team has been particularly successful in thewinning of Japanese Government aid work in the Middle East. The Group also tookthe decision to close its small loss-making operations in Thailand and thePhilippines. Africa African revenues have increased by 29% to $29.6 million with continued stronggrowth in Nigeria, where the security situation has become increasingly unstabledue to the activities of the Movement for the Emancipation of the Niger Delta inthe main oil and gas producing region of the country. The extractive industriescontinue to make up the majority of the Group's clients in Africa, withincreasing revenues in the Democratic Republic of Congo and Tanzania. There wasa poor performance from the manned guarding business in Uganda and the Grouproutinely reviews the contribution of its premium guarding business across thecontinent. The Group has continued to extend its presence in Africa, in supportof clients' requests and for strategic reasons, and has opened new offices inAlgeria, Djibouti, Nigeria (Port Harcourt) and Sudan while establishing apresence in Cote d'Ivoire, following the award of the contract to guard the USEmbassy in Abidjan. North America North American revenues declined to $5.2 million (2005: $5.8 million), primarilydue to the reduced support for reconstruction projects in Louisiana andMississippi following the hurricanes of 2005. The Group established ArmorGroupGulf Coast Inc. to service ongoing reconstruction work in the region and tofocus on future disaster recovery activities. It has already forged strongrelationships with Government agencies and commercial organisations in the area.The Washington office continues to provide core management support for majorUS Government initiatives. Through these activities, it is now well positionedto develop an ongoing revenue stream on the US mainland. South America South American revenues increased by 29% to $21.0 million with good revenuegrowth from new contract awards from its extensive oil and gas client base.However, the region's margins were impacted due to government mandating ofsalaries and terms and conditions in Venezuela and labour issues in Ecuador,which were resolved towards the end of the year. The Group has continued toextend its presence and its service offering in Latin America, opening its firstoffice in Brazil and winning the contract to guard the US Embassy in Quito,Ecuador. Eurasia Eurasia, including the CIS, achieved strong growth with revenues up 26% to $13.3million. The majority of the growth across the region was driven by integratedsecurity systems and due diligence consultancy services for internationalcorporations entering the Russian market and preferring ArmorGroup'sinternational solutions rather than those offered by local providers. Thebusiness has also extended its geographic spread and client base, working with anumber of major international oil and gas companies in areas such as Khabarovsk,in the Russian Far East, and Kazakhstan. Security Training Division Training revenues were down 24% to $18.3 million with the division recording anoperating loss, after charging its share of head office costs, of $1.5 millionfor the year (2005: profit of $6.1 million). The external utilisation of the Group's facility at Al Hillah in Iraq continuesto be severely reduced as a result of the slow down in coalition-funded trainingof Iraqi security forces and the continued lack of funds for training fromIraq's ministries. Nevertheless, the facility continues to provide significantbenefits to the Group's Iraq operation which uses it for the continuationtraining of its convoy security teams as well as for pre-deployment training fornew employees. The Group's training facilities in the US achieved strong utilisation over theyear, particularly West Point, Virginia benefiting from the Group's investmentin facilities and their primarily US Government client base. The Group hascontinued to make further investment at both locations over the year, upgradingtheir driving tracks and extending the training, maintenance and administrativefacilities at San Antonio, Texas. There was a continued weak performance from the UK facility at Pershore as aresult of slow demand for specialist training from government and commercialclients. However, a number of initiatives were introduced over the second halfto generate greater utilisation, including the development of a course to targetthe Ministry of Defence's Contractors on Deployed Operations (CONDO) concept aswell as specialist driver training courses. Phoenix CP Limited had an excellent first year within the Group. Its closeworking relationship with Hazard Management Solutions, with which the Groupsigned a teaming agreement in September, has lead to a number of contracts toprovide innovative training courses to specialist units of the US Department ofDefense and NATO. Weapons Reduction & Mine Clearance Division The Weapons Reduction & Mine Clearance division had a good year overall,recovering from a weak first half to generate increased revenues of $10.6million (2005: $8.4 million) and operating profits, after head office costs, up101% to $0.5 million. The division won two major contracts which mobilised inthe second half: a $7 million mine survey and clearance programme in SouthernSudan; and a $5.6 million battle area clearance programme in South Lebanon; aswell as a number of smaller projects in Albania, Azerbaijan and Laos as part ofthe Weapons Reduction and Abatement Services contract. The division continuedto increase its reach and is now operating in Afghanistan following licensingchanges earlier in the year. The changing market The private security market continues to grow. Research company AMRInternational estimates that ArmorGroup's addressable market grew 8% to $2.6billion in 2006, with the majority of that growth coming from outside Iraq.There has also been a noticeable change in the competitive landscape over theyear with a gravitation of the bigger contracts towards the larger internationalsecurity companies which have sufficient resources in management, finance andinfrastructure to be able to operate in the more hostile environments. Thechanging environment in Iraq has led to some consolidation of the market as anumber of the Group's smaller competitors have now withdrawn from the countryaltogether, giving rise to more opportunities. The larger Iraq-born companiesare seeking to expand into new geographic markets or develop new service lines,with varying degrees of success. Iraq is likely to remain a significant driver of growth for ArmorGroup for theforeseeable future and the Group expects a number of different business streamsto develop over the short to medium term, including the following: • Back-loading of coalition military equipment out of Iraq;• Iraqi-funded reconstruction and development;• Training of Iraqi security forces; and• Development and modernisation of the Iraqi oil infrastructure. The major drivers outside Iraq continue to be: • Growth of government outsourcing, from training to more complex security services;• Spread of the oil and gas industry into the world's more hostile areas in the search for more reserves; and• Growing awareness of companies' duty of care towards their employees. The Group's unrivalled competitive advantages of an extensive global footprint,high quality employees, blue-chip client base, strong regulatory standards andaccess to significant resources will continue to position it strongly in themarket. Financial Review Group revenues grew 17% to $273.5 million. Gross margins fell to 22% (2005:24%) for the year as whole, largely as a result of the externalunder-utilisation of the Camp Ghassan training facility in Iraq. Administrative expenses increased 10% year on year to $49.1 million, evenlysplit over the two halves of the year, with the increase primarily due to $0.8million in legal, consultancy and insurance costs, $1 million on theestablishment of a Middle East management infrastructure, $1.2 million increasedcost base in Nigeria following the strong growth in revenues and $1.7 million ofadditional overheads associated with Phoenix CP Limited, which was acquired inNovember 2005. As reported in the interim results, a review of the Group'soverhead structure was undertaken which resulted in the closure of the Group'sloss-making offices in Thailand, Hong Kong, the Philippines and South Africa aswell as a reduction in central overheads in Iraq. Operating profit was down to $10.6 million (2005: $12.4 million), as a result ofthe $8.7 million adverse impact of the conclusion of the 2005 Iraqi trainingcontract partly offset by growth elsewhere, particularly from protectivesecurity in the Middle East and Asia. Interest charges increased to $1.1 million, compared to $0.3 million in 2005.The charge also reflects the interest costs associated with the $18.1 million(2005: $26.1 million) capital investment in the business over the yearincluding: the acquisition of over 200 vehicles, of which 57 were for Iraq,primarily for convoy protection; the completion of Anjuman Base in Afghanistan;and the improvement in the US training facilities. Capital expenditure willcontinue to be aligned to the operational equipment required for new contractawards. The Group's profit before tax was reduced to $9.6 million (2005: $12.1million). The Group's effective taxation rate during the period fell to 26% (2005: 30%)which reflects the mix of jurisdictions where profits have been generated andthe Group's ability to utilise tax losses in the US, Nigeria and Kenya and therelease of provisions elsewhere. The tax rate in 2007 is not expected to exceedthis level. The Group's profit after tax fell by 16.4% to $7.1 million andbasic earnings per share to 13.4 cents (2005: 16.2 cents). The Group achieved an excellent cash conversion rate of 289% with cash inflowfrom operations rising to $30.7 million in 2006 (2005: $15.8 million) as aresult of a strong management focus on improving working capital. The Group'snet debt at 31 December 2006 was reduced to $3.6 million at the year end (2005:$9.4 million). The Group now has a stronger balance sheet comprising US$14.6million (2005: $12.3 million) of positive cash balances offset by bankborrowings of US$18.2 million (2005: $21.7 million). Net assets at 31 December2006 were US$82.9 million (2005: US$76.5million). The Board will be recommending the payment of a final dividend of 1.5 pence on 2July 2007 to shareholders on the register on 1 June 2007. Combined with theinterim dividend of 1.25 pence, which was paid in November 2006, this results ina dividend for the year of 2.75 pence (2005: 2.75p), which is covered 2.5 times. Outlook The Group expects to see continuing growth in revenues from logistics support inIraq, driven by the factors noted above, as well as increasing reconstructionactivities stemming from Japan's soft loans to Iraq, much of which is expectedto be fully allocated by the end of 2007. There may also be increased businessopportunities in Iraq as the ministries prioritise tasks and release funding forfurther reconstruction and training, although the timing and quantity of suchwork remains unclear. The market in Afghanistan is also expected to continue to grow in line with therenewed Western commitment to the reconstruction and development of the country.The Group's strong market share and comprehensive infrastructure should allowit to benefit from any growth in the market. The security issues that continue to affect the oil and gas industry in Nigeriawill drive that market and the Group has already extended its training andconsultancy offering in the country to pursue additional opportunities in therun up to the April election. Elsewhere in Africa the Group will continue topursue opportunities offered by the extractive and construction industries. Further opportunities are expected in South America and Eurasia, although theGroup expects the businesses in South America to continue to be hampered bypolitical uncertainties and will adjust its strategy accordingly. The Group has sought to expand its consultancy services over the year and wasawarded consultancy contracts in Kuwait and Nigeria, both of which led tofurther protective security work. The Group's consultancy offering was strengthened in January 2007 by theacquisition of Neil Young Associates (NYA), one of the world's leadingspecialist kidnap and extortion consultancies, for a cash consideration of£250,000 and deferred consideration of £750,000 should specific profit targetsbe achieved. With kidnapping, detention and extortion now amongst the fastestgrowing crimes in the developing world and with few credible internationalcompetitors the Board believes NYA will bring significant benefits to the Groupand its clients. There will continue to be an emphasis on the development and rolling out offurther specialist training courses to the Group's extensive client list as wellas a focus on building regional training opportunities in the UK and overseas. Revenues from the contract won by Weapons Reduction & Mine Clearance division in2006 will feed through into 2007 and the team have recently won an extension ofits mine clearance contract in Cyprus. The Board anticipates continuing strong market conditions over the year andbelieves that the Group is well positioned to benefit from any market growth.We have started the current year with a number of encouraging new contract winsand a strong pipeline of identified opportunities, with new and existingclients. As at 19 March 2007 the Group had $198.8 million of the year'srevenues already under contract (2006: $197 million). ArmorGroup International plcConsolidated income statement for the year ended 31 December 2006Unaudited Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000 Turnover 3 273,453 233,150Cost of sales (213,784) (176,158) Gross profit 59,669 56,992 Administrative expenses (49,062) (44,587) Operating profit 3 10,607 12,405 Interest receivable and similar income 4 157 168Interest payable and similar charges 4 (1,209) (451) Profit before tax 9,555 12,122 Income tax expense 6 (2,460) (3,632) Profit for the year 7,095 8,490 Profit attributable to:Equity shareholders 7,095 8,490 Earnings per share expressed in US cents per 1 pence share - basic 8 13.35 16.24 - diluted 8 13.05 15.76 All amounts included above are derived from continuing operations. ArmorGroup International plcConsolidated balance sheet as at 31 December 2006Unaudited 31 December 31 December 2006 2005 US$'000 US$'000Non-current assetsGoodwill 21,317 20,355Other intangible assets 810 726Property, plant and equipment 30,870 28,784Deferred tax assets 3,845 2,938 56,842 52,803Current assetsInventories 1,530 1,170Trade and other receivables 54,033 53,114Cash and cash equivalents 14,646 12,304 70,209 66,588 Total assets 127,051 119,391 Current liabilitiesBorrowings (14,614) (14,953)Trade and other payables (21,157) (17,412)Current income tax liabilities (2,102) (2,489)Provisions and other liabilities (134) (124) (38,007) (34,978) Net current assets 32,202 31,610 Total assets less current liabilities 89,044 84,413 Non-current liabilitiesBorrowings (3,592) (6,783)Provisions and other liabilities (131) (89)Deferred tax liabilities (2,434) (1,058) (6,157) (7,930) Net assets 82,887 76,483 Shareholders' equityCalled up share capital 1,049 1,046Share premium account 56,952 56,912Capital redemption reserve 96 96Merger reserve 1,273 1,273Cumulative translation reserve 961 (178)Retained earnings 22,556 17,334 Shareholders' equity 82,887 76,483 ArmorGroup International plcConsolidated cash flow statement for the year ended 31 December 2006Unaudited Year ended Year ended 31 December 31 December Note 2006 2005 US$'000 US$'000Cash flows from operating activitiesCash inflow from operations 9 30,650 15,811Interest received 157 168Interest paid (1,271) (378)Income tax paid (2,418) (4,693) Net cash inflow from operating activities 27,118 10,908 Cash flows from investing activitiesPurchase of businesses (net of cash acquired) (52) (5,890)Deferred consideration received for disposal of business - 160Purchase of property, plant and equipment (18,105) (26,123)Purchase of intangible assets (524) (533)Proceeds from sale of property, plant and equipment 122 115 Net cash outflow from investing activities (18,559) (32,271) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 43 132Equity dividends paid to shareholders (2,754) (1,150)New bank borrowings 3,460 22,677Finance lease principle payments (43) (4)Repayment of borrowings (6,986) (2,585) Net cash (outflow)/inflow from financing activities (6,280) 19,070 Net increase/(decrease) in cash and cash equivalents 2,279 (2,293) Cash and cash equivalents at beginning of year 12,279 14,566Exchange gains on cash and bank overdrafts 36 6 Cash and cash equivalents at end of year 9 14,594 12,279 ArmorGroup International plcConsolidated statement of changes in shareholders' equity for the year ended31 December 2006Unaudited Cumulative Share Capital trans- Note Share premium redemption Merger lation Retained capital account reserve reserve reserve earnings Total US$'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 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 equity shareholders 7 - - - - - (1,150) (1,150) At 31 December 2005 1,046 56,912 96 1,273 (178) 17,334 76,483 Share options- Proceeds from shares issued 3 40 - - - - 43- Cost - - - - - 881 881Currency translation adjustments - - - - 1,139 - 1,139Profit for the year - - - - - 7,095 7,095Dividends paid to equity shareholders 7 - - - - - (2,754) (2,754) At 31 December 2006 1,049 56,952 96 1,273 961 22,556 82,887 ArmorGroup International plcNotes to financial information 1. Preliminary announcement The preliminary financial information in this statement, which was approved bythe Board on 19 March 2007, is not audited and does not constitute statutoryaccounts for the years ended 31 December 2006 or 31 December 2005 within themeaning of Section 240 of the Companies Act 1985 (as amended). Financialstatements for ArmorGroup International plc for the year ended 31 December 2005presented under IFRS have been delivered to the Registrar of Companies. Theauditors reported on those accounts: their report was unqualified and did notcontain a statement under either Section 237 (2) or Section 237 (3) of theCompanies 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 2006, nor have suchfinancial statements been delivered to the Registrar of Companies. Thefinancial statements for the year ended 31 December 2006 will be distributed toshareholders prior to, and filed with the Registrar of Companies following, theAnnual General Meeting. 2. Basis of preparation The directors consider United States Dollars (US$) to be the Group's functionalcurrency. Accordingly, this financial information is presented in US$. At 31December 2006 the closing exchange rate to sterling was £1/$1.958 (31 December2005: £1/$1.720) and the average exchange rate to sterling for the year ended 31December 2006 was £1/$1.8398 (31 December 2005: £1/$1.818). The preparation of financial information in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. 3. Segmental reporting a. Primary reporting format - business segment analysis 2006 2005Turnover US$'000 US$'000 Protective security services 244,510 200,484Security training 18,329 24,221Weapons reduction and mine clearance 10,614 8,445 Turnover 273,453 233,150 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 ofUS$3,476,000 for the year ended 31 December 2006 (2005: $8,317,000) 2006 2005Segment result US$'000 US$'000 Protective security services before head office costs 20,345 13,467Security training before head office costs (803) 6,967Weapons reduction and mine clearance before head office costs 835 536Head office costs (9,770) (8,565) Protective security services including head office costs 11,610 6,102Security training including head office costs (1,458) 6,077Weapons reduction and mine clearance including head office costs 455 226 Operating profit 10,607 12,405 Net interest payable (1,052) (283) Profit before tax 9,555 12,122 Income tax expense (2,460) (3,632) Profit after tax 7,095 8,490 b. Secondary format - geographical segment analysis The group manages its business segments on a global basis. Revenue 2006 2005 US$'000 US$'000 Western Europe 10,174 3,100Eastern Europe 13,939 10,805South America 20,959 16,247North America 14,914 16,062Asia 36,636 18,471Africa 35,413 25,552Middle East 141,418 142,913 273,453 233,150 Geographical analysis is based on the region in which the services areperformed. 4. Net interest payable and similar charges 2006 2005 US$'000 US$'000 Interest payable on bank overdrafts and loans 1,201 450Interest payable on finance leases 8 1 Total interest and similar charges payable 1,209 451Interest receivable and other income (157) (168) Net interest payable and similar charges 1,052 283 5. Acquisitions and Disposals There were no acquisitions or disposals during the year ended 31 December 2006. On 17 November 2005 the Group purchased 100% of the share capital of Phoenix CPLtd together with the property used by the business for a total consideration ofUS$7,634,000. Phoenix CP Ltd provides resettlement training to UK militarypersonnel seeking a career in the private security sector, and providesspecialist training to the US Department of Defense and NATO personnel. Theacquisition was satisfied by US$6,346,000 in cash (inclusive of US$334,000 ofacquisition costs) and US$1,288,000 in shares resulting in provisional goodwillof US$6,457,000 which is denominated in sterling. From the date of acquisition to 31 December 2005 Phoenix CP Ltd contributedUS$222,000 to turnover, decreased profit before interest by US$49,000 anddecreased profit before taxation by US$55,000. Phoenix CP Ltd contributedUS$358,000 to the Group's net operating cash inflows, paid US$6,000 in respectof interest, US$ nil in respect of taxation and utilised US$7,000 for capitalexpenditure. 6. Income tax expense Analysis of expense for the year 2006 2005 US$'000 US$'000UK current taxCorporation tax charge at 30% (2005: 30%) 1,792 -Adjustment in respect of prior periods (16) 105 1,776 105Foreign current taxCorporation tax charge 670 3,824Adjustment in respect of prior periods (455) (127) 215 3,697Total current tax 1,991 3,802 UK deferred taxDeferred tax charge 597 1,307Adjustment in respect of prior periods 62 (487) 659 820Foreign deferred taxDeferred tax credit (115) (399)Adjustments in respect of prior periods (75) (591) (190) (990)Total deferred tax 469 (170) Income tax expense 2,460 3,632 The total income tax expense for the year is lower (2005: lower) than thestandard rate of corporation tax in the UK (30%). The differences are explainedbelow: 2006 2005 US$'000 US$'000 Profit before income tax 9,555 12,122 Profit multiplied by standard rate of corporation tax in the 2,867UK of 30% (2005:30%) 3,637Effects of:Adjustments to tax in respect of prior periods (484) (1,100)Adjustments in respect of foreign tax rates (1,946) (989)Expenses not deductible for tax purposes 266 247Depreciation in excess of capital allowances 13 7Other timing differences (27) 132Utilisation of losses (257) (47)Unrelieved foreign tax credits 343 237Unrelieved losses carried forward 262 524Deferred tax on undistributed earnings 1,423 984 Income tax expense 2,460 3,632 7. Dividends A final dividend of 1.50 pence per share will be recommended by the Board afterthe balance sheet date and will be paid on 2 July 2007 to shareholders on theregister on 1 June 2007. An interim dividend for 2006 of 1.25p per share, amounting to US$1,263,000, waspaid on 10 November 2006 to shareholders on the register on 29 September 2006. A second interim dividend for 2005 of 1.5 pence per share, amounting toUS$1,491,000 was paid on 30 June 2006 to shareholders on the register on 2 June2006. An interim dividend for 2005 of 1.25 pence per share, amounting to US$1,150,000was paid on 4 November 2005 to shareholders on the register on 23 September2005. 8. Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the year. 2006 2005 Profit attributable to equity holders of the Company (US$'000) 7,095 8,490Weighted average number of ordinary shares 53,145,172 52,278,472Basic earnings per share (US cents) 13.35 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. 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. 2006 2005 Profit attributable to equity holders of the Company (US$'000) 7,095 8,490Weighted average number of ordinary shares 53,145,172 52,278,472Adjustment for dilutive potential of ordinary shares 1,202,826 1,582,655Weighted average number of ordinary shares for diluted earnings per share 54,347,998 53,861,127Diluted earnings per share (US cents) 13.05 15.76 9. Reconciliation of profit after tax to net cash inflow from operating activities 2006 2005 US$'000 US$'000 Profit after tax 7,095 8,490Adjustments for:Interest receivable (157) (168)Interest payable 1,209 451Taxation 2,460 3,632Depreciation 14,871 10,654Loss on disposal of property, plant and equipment 1,141 455Amortisation of intangible assets 440 264Compensation charge in respect of share based payments 881 1,537 27,940 25,315Changes in working capital (excluding effects of acquisitionand disposal of subsidiaries)Increase in inventories (360) (991)Increase in trade and other receivables (768) (9,386)Increase/ (decrease) in payables 3,786 845Increase in provisions 52 28 Cash inflow from operations 30,650 15,811 Cash and bank overdrafts include the following for the purposes of the cash flowstatement: 2006 2005 US$'000 US$'000 Cash and cash equivalents 14,646 12,304Bank overdrafts (52) (25) 14,594 12,279 10. Reconciliation of net cash flow to movement in net debt 2006 2005 US$'000 US$'000 Increase/(decrease) in cash in the year 2,279 (2,293)Borrowings acquired with subsidiaries - (93)Increase/(decrease) in other borrowings 3,569 (20,087) Changes in net debt resulting from cash flows 5,848 (22,473)Foreign exchange translation adjustments 24 6 Movement in net debt in the year 5,872 (22,467)Net (debt)/cash at the beginning of the year (9,432) 13,035 Net debt at the end of the year (3,560) (9,432) 11. Reconciliation of movements in net debt Group At 1 At 31 January Cash Non-cash Exchange December 2006 flow movements movement 2006 US$'000 US$'000 US$'000 US$'000 US$'000 Cash at bank and in hand 12,304 2,305 - 37 14,646Overdrafts (25) (26) - (1) (52) 12,279 2,279 - 36 14,594 Bank and other borrowings due within one year (14,890) 4,384 (4,003) - (14,509)Bank and other borrowings due in more than one year (6,733) (858) 4,003 - (3,588)Finance leases (88) 43 - (12) (57) (9,432) 5,848 - 24 (3,560) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ARG.L