20th Mar 2008 08:05
ArmorGroup International plc20 March 2008 ArmorGroup International plc Preliminary results ArmorGroup International plc, the leading provider of defensive protectivesecurity services, today announces its unaudited preliminary results for thetwelve months ended 31 December 2007. The Group can also announce that theBoard has reached agreement on the terms of a recommended cash offer forArmorGroup by G4S (March 2008) Limited (a wholly-owned subsidiary of G4S plc). Summary of the results • Revenues up 8.0% to $295.3 million, with non-Iraq revenue rising 33% • Operating profit of $9.2 million, before $2.9 million of exceptionalaborted acquisition and severance costs, and $6.3m after exceptional items(2006: $10.6 million). • Profit before tax, before the exceptional costs, of $7.1 million and$4.2million after exceptional items (2006: $9.6 million) • Basic earnings per share of 5.5 cents (2006: 13.4 cents) • Strong operating cash flow of $25.3 million (2005: $30.7 million) • Recommended final dividend of 1.5 pence, giving a total of 2.75pence for the year (2006: 2.75p) • Recommended cash offer by G4S (March 2008) Limited, a wholly-ownedsubsidiary of G4S plc, at a price of 80 pence per share in cash announced thismorning (see separate announcement for full details). The final dividend isincluded in offer price and so will not be paid if offer becomes or is declaredwholly unconditional. All figures quoted in this statement are in US$, with the exception of thedividend and the Offer price. Sir Malcolm Rifkind, Chairman, commenting on the results and the Offer said: "2007 was a challenging year for the Group with continued growth in the marketand in the Group's revenues undermined by lower margins and delays on some ofits largest contracts. The management and organisational changes the Board madetowards the end of the year and at the start of 2008 have given the Group theoperational strength and commercial focus essential for improving itsprofitability. "The offer by G4S announced today gives ArmorGroup shareholders the prospect ofa cash exit at an attractive price when considered against the potential of theArmorGroup as a standalone business. The Board believes that G4S's offer isfull and fair and, accordingly, the Board is pleased to recommend it toshareholders." Enquiries: ArmorGroup International plc David Barrass, Chief Executive Officer Tel: +44 (0) 20 7808 5800Matthew Brabin, Chief Financial OfficerPatrick Toyne Sewell, Director of Communications Mob: +44 (0) 7767 498 195 This press release will be available to download from the ArmorGroup website atwww.armorgroup.com today after 7.00 am. Notes to Editors ArmorGroup International plc For over 25 years ArmorGroup has been recognised as a leading provider ofdefensive and protective security services to national governments,multinational corporations and international peace and security agenciesoperating in hazardous environments. It has approximately 8,500 employees and38 offices in 27 countries. Over the past two years ArmorGroup has supportedits clients in over 50 countries across the Middle East, Africa, North and SouthAmerica, 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. Preliminary results Summary Overall revenue for the twelve months to 31 December grew to $295.3 million(2006: $273.5 million) with the Group's operations in Afghanistan and Nigeriacontributing to growth of 33% outside Iraq. The Group's operations in Iraq nowrepresent 37% (2006: 49%) of total Group revenues. Gross profits increased 9.9% to $65.6 million although operating profitsdeclined to $9.2 million, before $2.9 million of one off costs relating to theaborted acquisition and settlement costs with the previous CEO, and to $6.3mafter the one-off costs (2006: US$10.6 million). The Group achieved good profitgrowth in Iraq and from the Weapons Reduction & Mine Clearance (WR&MC) divisionwhich was offset by widespread margin reduction, particularly in Afghanistan,combined with contract delays. The Group continued to achieve strong cash conversion through good workingcapital management. Net debt was US$9.5 million at the year end (2006: US$3.6million). Basic earnings per share fell to 5.5 cents (2006: 13.4 cents). TheBoard is recommending a final dividend for the year of 1.5 pence to be paid on 4July 2008 to shareholders on the register on 2 June 2008. Moving forward As a result of the Group's underperformance, as reported in the Group's tradingupdate in November, the Board carried out an immediate and full review of theGroup's organisational structure. David Barrass was appointed interim ChiefExecutive Officer in December following the resignation of David Seaton inNovember. The Board's review of the Group was completed in early January and itsrecommendations on the Group's structure were implemented immediately. Thechanges already made to the cost base since the beginning of 2008 are expectedto result in annual savings of $3.5 million. The focus on cost reduction isexpected to lead to further savings in 2008. The Group's new structure will make it a more commercially-focused organisation,with a level of overhead appropriate for the current level of business. Thedrive for expansion will continue although it will be tempered by greaterprudence in expenditure. Outlook The Board believes the Group's competitive advantages, the continued growth inits markets and the changes it is making will allow the business to continue todevelop in 2008 and beyond. The market The major market driver continues to be the increase in government outsourcingof security services to the private sector. The US Government has used privatecontractors to support its military and diplomatic activities for many years butthere is a growing understanding and acceptance of the benefits that reputablecompanies, such as ArmorGroup, can bring to the over-stretched public sector.This change in attitude has accelerated over the last year, albeit withset-backs resulting from the ill-judged actions of other less reputablecompanies. As a result the Group has been closely involved in briefing a numberof sovereign governments and major international organisations on thedevelopment and management of procedures and controls for wider use of privatesecurity companies to bolster capacity. Market growth, driven by greater use of the private security market bygovernments and international peace and security organisations (NGOs), ismatched by the ongoing dependence of the oil, gas and extractive industries onsecurity services as they develop operations in the world's more hostileenvironments. The Group continues to support its existing clients as theiroperations extend into new hazardous areas while providing services to newclients, as more international organisations accept that their duty of caretowards their employees needs the proactive security services provided by highlyregarded, international providers rather than the commoditised services offeredby local suppliers. The Group's competitive advantages: its proven global capability; the highestquality employees; prestigious client base; unrivalled ethical and regulatorystandards; and access to the resources required to invest in its clients'protection, will continue to position ArmorGroup strongly. Operational review The Group provided its services to over 95 separate government, commercial andNGO clients in over 45 countries during 2007. The Group's Protective Servicesdivision had a mixed year winning and retaining a number of major strategiccontracts, yet being impacted by delays in the mobilisation and execution ofthose contracts and increased margin pressure. The WR&MC division had anexcellent year, carrying out a number of major programmes won in the second halfof 2006, which resulted in a strong growth in revenues and operating profits.The Training division undertook a cost reduction exercise at Pershore in thesecond half of the year and achieved a strong performance at Longworth Hall.However, the division continues to be undermined by the short noticecancellation of courses in the US. The recently formed risk management businessperformed creditably and continues to provide the Group with specialist skillsit could not previously offer its clients. Protective Security Division The Division's revenues increased by 5.6% to $258.3 million, driven by the awardof major new contracts in Afghanistan and Nigeria. Operating profits beforehead office costs fell to $16.8 million (2006: $20.3 million) primarily due tosignificantly lower margins on the new UK Government contract in Afghanistan,the losses on the US Embassy contract in Kabul and weak performances fromseveral of the Group's African and Latin American operations. Middle East The Group's Middle East revenues fell to $119.7 million (2006: $138.9 million)as the Iraq business completed its transition to the lower volume but highermargin convoy escort contracts and away from the high volume, but lower margin,guarding contracts of the previous year. ArmorGroup is the largest commercial provider of convoy escort services in Iraqand conducted a total of 2,387 convoy escort missions in support ofreconstruction efforts throughout Iraq in 2007. The security situation in Iraqhas improved since the US military's "surge" was launched in the spring of 2007with around 150 hostile actions directed at ArmorGroup personnel in the secondhalf of the year, compared to 365 in the first half. The Group has invested afurther $6.5 million in 2007 to provide enhanced protective equipment andvehicles for its employees. The involvement of a number of private security companies (PSCs) in the shootingof Iraqi civilians during September 2007 led to widespread political debate overthe use, coordination and regulation of PSCs in Iraq. This debate led to asignificant slowing in the award and mobilisation of a number of major contractsin the country over the last quarter of the year as clients attempted tomitigate the perceived risk to their operations and reputations. ArmorGroup,although temporarily impacted by this slow down, continues to be a recognisedglobal leader in the regulatory, ethical and reputational advancement of theindustry. Performance was also impacted in the final quarter by a majorcontract which did not achieve the rapid increase in convoy escort teamsoriginally projected by the client. This increase eventually happened inJanuary 2008 and the contract is now running in line with expectations. Elsewhere the Group continued to benefit from its regional network with non-Iraqrevenues rising significantly on the back of successfully winning a number ofcontracts to support US Government programmes in Bahrain, the United ArabEmirates and Jordan. The Group's restructuring of its central overhead in theregion is expected to lead to improvements in the region's profitability in2008. Asia The division's revenues in Asia grew strongly during the period to $59.5 million(2006: $35.9 million), primarily through the securing of two strategicallyimportant and long-term projects in Afghanistan: the US Embassy contract inKabul; and the extension of the Group's contract to protect UK Governmentpersonnel and property across the country. However, operating profits for theregion fell, impacted by lower margins on the extended FCO contract due toincreased competition at the time of the rebid in late 2006 and the extensivemobilisation costs and ongoing operational commitments associated with the USEmbassy project. The Group restructured the project management team in October2007 and has worked closely with the client to overcome many of the outstandingissues to ensure this project achieves profitability in 2008. The Group has continued to win an increasing number of commercial contracts inAfghanistan and believes that the international commitment to the reconstructionof the country will present further opportunities in 2008. The Tokyo sales and marketing office continues to source a good stream ofopportunities from Japanese companies operating across the world and the Groupremains committed to those efforts. Africa African revenues improved 26% to $37.2 million (2006: $29.6 million) with strongperformances from the Group's operations in Algeria, Nigeria and the DemocraticRepublic of Congo. However, the Group's African businesses continue to beimpacted by the increasing commoditisation of its services, driven by localcompetition and the tendency of some clients to award contracts based on pricerather than quality. The Group is in the process of realigning its businesses across the continentthrough the consolidation of living and office accommodation, reductions inlocal head office staff and a focus on operational and accounting procedures.At the same time the Group is implementing a training and quality assuranceprogramme across the region to ensure performance standards and Duty of Careresponsibilities are maintained. The Group expects the benefits of theseprogrammes to become evident over the first half of 2008. The Group continues to pursue additional opportunities across the region,building on its growing consultancy and training track record, and has morerecently supported clients' bids for opportunities in Libya and Sudan as well asproviding a wide range of emergency services for organisations affected by therecent troubles in Kenya. North America ArmorGroup North America's revenues increased to $7.4 million (2006: $6.6million), primarily due to a continuation of its reconstruction supportactivities in Louisiana. The Washington office continues to provide the hub forthe Group's bidding for and management of major US Government contracts overseaswhile coordinating the Group's relationships with the larger US defenceintegrators on potential opportunities. There was some reorganisation of the UScost-base at the beginning of 2008 to reduce its costs in line with its currentrevenue base. South America South American revenues decreased marginally to $20.5 million (2006: $21.0million) with a good performance in Venezuela offset by a very poor one inColombia and a slow decline in Ecuador. A reorganisation of the South Americanbusiness has been undertaken with the region now being managed out of Venezuela,a new commercial manager appointed to run the Colombian business and the closureof the loss-making Brazil office. The Group's businesses in the region will continue to be impacted by growinggovernment intervention and increasing commoditisation of services by localcompetition. However, the new management team, a rebalanced cost base and anincreasing number of multinational clients is expected to deliver better returnsin 2008. Eurasia Revenues in Eurasia fell 7% to $12.3 million (2006: $13.3 million) primarily dueto the loss of the US Embassy Moscow contract in mid-year and a number of majorcommercial contracts coming to an end in the third quarter of the year.However, the business was awarded contracts in the final quarter of the yearwhich will replace a substantial portion of the lost revenue in 2008. Thebusiness has also established partnership arrangements with reputable localsecurity providers in a number of key Siberian cities and former Sovietrepublics, including Kyrgyzia and Azerbaijan. Risk management The risk management business was formed in the autumn and was built around NeilYoung International, the Group's specialist abduction, kidnap for ransom andextortion consultancy which was acquired in January 2007. The business hasmade a satisfactory start with a modest but expanding number of consultingprojects for major international companies in the Middle East and Africa.However, the business is also generating an increasing number of opportunitiesfor other Group services and we expect to benefit further from thiscross-selling programme in 2008. Security Training Division Training revenues grew by 1% to $18.5 million (2006: $18.3 million) and reporteda comparable operating loss, before charging its share of head office costs, of$0.8 million for the year (2006: loss of $0.8 million). The Group's training business in the US continued to be impacted by thecancellation of client courses at short notice with the delays in the Congressapproval for the US Defense budget leading to further cut backs in the fourthquarter as clients were left without sufficient training budgets. The ongoingcommitment to the training of the US Embassy Kabul guard force continues to taxresources and the ability to offer commercial courses at the Group's Texasfacility. Some of this commitment shifted to the Group's Virginia facility, inorder to share the burden of this important effort and resulted in the Texasfacility performing well towards the end of the year. The Defense budget waspassed in January 2008, which has enabled US Government clients to book newcourses and reschedule cancelled ones. In February 2008, the business wasawarded its first long-term contract, worth a maximum of $7.5 million over fiveyears, to provide training for the US Department of Homeland Security. The cost reduction exercise at the Pershore training facility in Julysignificantly reduced its previous losses. Due to the continued lack ofsustained interest by UK companies in providing programmed pre-deploymenttraining to employees, its costs were further reduced in January 2008 and itsinstructors refocused on providing internal training as a Group-wide resource. Our specialist courses continue to develop and the Group anticipates thosecourses will run for an extended period. The Group has now suspended its lowmargin, close protection training courses to ensure management focus on thesecourses. Weapons Reduction & Mine Clearance Division The division had an excellent year, achieving $18.5 million in revenues (2006:$10.6 million) and achieving $3.3 million in operating profit before head officecosts (2006: $0.8 million). The division now accounts for around 6% of Grouprevenues, up from 4% in the same period last year. The majority of this revenuewas generated by two major contracts which mobilised in the second half of 2006:a mine survey and clearance programme in Southern Sudan; and a battle areaclearance programme in South Lebanon. The former contract was substantiallyre-awarded to the Group in September although the latter programme was completedin December, which will impact the division's revenues in the first half of2008. The division continued to win new contracts and contract extensions throughoutthe year, supporting humanitarian programmes in Cyprus, Nepal and Sudan as wellas pursuing further commercial projects in Afghanistan and Mozambique. The teamalso won a number of smaller projects in Albania, Azerbaijan and Montenegro aspart of the US Government's Weapons Reduction and Abatement Services programme. The division has continued to extend its commercial footprint in Afghanistan,which is becoming one of the more important growth markets for mine action, andArmorGroup is one of only five registered mine action companies in the country.The division has now supported both commercial and humanitarian clients acrossAfghanistan and as reconstruction activity continues is well-placed to benefitfrom further growth. Financial Review Overall revenue for the twelve months to 31 December grew to $295.3 million(2006: $273.5 million). Gross margins were maintained at 22% for the year aswhole, despite a number of major contracts which were re-awarded atsignificantly lower margins. Gross profits increased 9.9% to $65.6 million. Administrative expenses,excluding exceptional items, increased 14.9% year on year to $56.4 million(2006: $49.1 million), evenly split over the two halves of the year, with theincrease primarily due to: $2.4 million in legal, consultancy and insurancecosts; $0.9 million of Mine Action establishment costs in relation to newcontracts in Afghanistan, Sudan and Nepal; and $1.9 million increased cost basein Nigeria, partially related to the introduction of a consultancy and trainingcapability in that country. Profits were expected to be adversely affected by the weakness over the year ofthe US$, the Group's primary operating currency, which had an impact of $0.4million in the first half. However, due to the strengthening of the US$ in thelast two months of the year the impact was reduced to $0.1 million over the yearas a whole (2006: loss of $0.6 million). The Group continues to review how bestto reduce this exposure going forward, although the strengthening of the US$since the beginning of 2008 has reduced the effects of this issue. The Group incurred two one-off costs during the year: • the Board reported in December that the Group had been unable toprogress a strategic acquisition that had been the subject of extensivediscussions for some months, primarily due to the reduced availability ofacquisition finance following the collapse of global credit markets in thesecond half of the year. Consequently the Group wrote off $2.1 million ofprofessional fees incurred on the due diligence and contract negotiations in2007. • the Group also charged $0.7 million of severance costs related toformer CEO David Seaton, following his departure from the Group in November2007. A review of the Group's overhead structure was undertaken over the year end witha significant reorganisation of the Group's operations in January 2008. Thereorganisation is expected to cost $0.9 million in 2008 and will produce annualsavings of $3.5 million. The focus on cost reduction is expected to lead tofurther savings in the near future. Operating profit, before the $2.9 million of exceptional costs, was down to $9.2million (2006: $10.6 million) with good growth in Iraq and from the WR&MCdivision offset by widespread margin reduction, particularly in Afghanistan inthe first half of the year, combined with contract delays. Net interest charges increased to $2.1 million, compared to $1.1million in 2006.The charge reflects the interest costs associated with the $23.7 million (2006:$18.7 million) capital investment in the business over the year including: $10.8million on the acquisition of over 175 vehicles; $3.6 million on a Group-wide ITsystem, which is now substantially complete and already bringing significantbenefits; and $3.4 million on equipment for a major contract in Colombia.Capital expenditure will continue to be aligned to the operational equipmentrequired for new contract awards. Profit before tax, taking into account the$2.9 million of exceptional charges, was reduced to $4.2 million (2006: $9.6million). The Group's effective tax rate during the period increased to 30% (2006: 26%)which reflects the mix of jurisdictions where profits have been generated, therelease of provisions and the Group's ability to utilise tax losses in the US,Nigeria and Kenya. Profit after tax fell by 58.4 % to $3.0 million (2006: $7.1million) and basic earnings per share to 5.5 cents (2006: 13.4 cents). The Group achieved a good cash conversion rate of 275% (2006: 289%), beforeexceptional items, with cash inflow from operations of $25.3million (2006: $30.7million) as a result of a strong management focus on improving working capital.Net debt at 31 December 2007 had increased to $9.5 million at the year end(2006: $3.6 million). The Group still has a strong balance sheet comprisingUS$18.2 million (2006: $14.6 million) of positive cash balances offset by bankborrowings of US$27.7 million (2006: $18.2 million). Net assets at 31 December2007 were $84.1 million (2006: $82.9 million). The Board will be recommending the payment of a final dividend of 1.5 pence on 4July 2008 to shareholders on the register on 2 June 2008. Combined with theinterim dividend of 1.25 pence, which was paid in November 2007, this willresult in a dividend for the year of 2.75 pence (2006: 2.75 pence). ArmorGroup International plcConsolidated income statement for the year ended 31 December 2007Unaudited Year ended Year ended 31 December 31 December Note 2007 2006 US$'000 US$'000 Revenue 3 295,275 273,453Cost of sales (229,695) (213,784) Gross profit 65,580 59,669 Administrative expenses before exceptional items (56,387) (49,062)Exceptional administrative expenses 4 (2,856) - Operating profit before exceptional items 9,193 10,607Exceptional administrative expenses 4 (2,856) -Operating profit 6,337 10,607 Finance income 5 136 157Finance costs 5 (2,246) (1,209) Profit before tax 4,227 9,555 Income tax expense 7 (1,275) (2,460) Profit for the year 2,952 7,095 Profit attributable to:Equity shareholders 2,952 7,095 Earnings per share expressed in US cents per 1 pence share - basic 9 5.53 13.35 - diluted 9 5.35 13.05 ArmorGroup International plcConsolidated balance sheet as at 31 December 2007Unaudited 31 December 31 December 2007 2006 US$'000 US$'000Non-current assetsGoodwill 22,850 21,317Other intangible assets 4,268 810Property, plant and equipment 33,697 30,870Deferred tax assets 5,858 3,845 66,673 56,842Current assetsInventories 1,874 1,530Trade and other receivables 58,060 54,033Cash and cash equivalents 18,158 14,646 78,092 70,209 Total assets 144,765 127,051 Current liabilitiesBorrowings (21,474) (14,614)Trade and other payables (28,919) (21,157)Current income tax liabilities (1,723) (2,102)Provisions and other liabilities (33) (134) (52,149) (38,007) Non-current liabilitiesBorrowings (6,185) (3,592)Provisions and other liabilities (37) (131)Deferred tax liabilities (2,327) (2,434) (8,549) (6,157) Total liabilities (60,698) (44,164) Net assets 84,067 82,887 Capital and reserves attributable to equity holders of theCompanyCalled up share capital 1,052 1,049Share premium account 56,993 56,952Capital redemption reserve 96 96Merger reserve 1,273 1,273Cumulative translation reserve 1,403 961Retained earnings 23,250 22,556 Total equity 84,067 82,887 ArmorGroup International plcConsolidated cash flow statement for the year ended 31 December 2007Unaudited Year ended Year ended 31 December 31 December Note 2007 2006 US$'000 US$'000Cash flows from operating activitiesCash generated from operations 10 25,274 30,650Interest received 136 157Interest paid (1,546) (1,271)Income tax paid (3,774) (2,418)Net cash generated from operating activities 20,090 27,118 Cash flows from investing activitiesPurchase of businesses (net of cash acquired) (884) (52)Purchase of property, plant and equipment (19,231) (18,105)Purchase of intangible assets (3,567) (524)Proceeds from sale of property, plant and equipment 1,035 122Net cash used in investing activities (22,647) (18,559) Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 44 43Equity dividends paid to shareholders (2,976) (2,754)New bank borrowings 14,189 3,460Finance lease principal payments (53) (43)Repayment of borrowings (5,226) (6,986)Net cash generated from / (used in) financing activities 5,978 (6,280) Net increase in cash and cash equivalents 3,421 2,279 Cash and cash equivalents at beginning of year 14,594 12,279Exchange gains on cash and bank overdrafts 143 36Cash and cash equivalents at end of year 18,158 14,594 10 ArmorGroup International plcConsolidated statement of changes in shareholders' equity for the year ended31 December 2007Unaudited Share Share Capital Merger Cumulative Retained capital premium redemption translation earnings Share reserve reserve reserve Note account Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2006 1,046 56,912 96 1,273 (178) 17,334 76,483 Share options- Proceeds from shares issued 3 40 - - - - 43- Cost - - - - - 881 881Currency translation - - - - 1,139 - 1,139adjustmentsProfit for the year - - - - - 7,095 7,095Dividends paid to equity 8 - - - - - (2,754) (2,754)shareholders At 31 December 2006 1,049 56,952 96 1,273 961 22,556 82,887 Share options- Proceeds from shares issued 3 41 - - - - 44- Cost - - - - - 718 718Currency translation - - - - 442 - 442adjustmentsProfit for the year - - - - - 2,952 2,952Dividends paid to equity 8 - - - - - (2,976) (2,976)shareholders At 31 December 2007 1,052 56,993 96 1,273 1,403 23,250 84,067 ArmorGroup International plcNotes to financial information 1. Preliminary announcement The preliminary financial information in this statement, which was approved bythe Board on 19 March 2008, is not audited and does not constitute statutoryaccounts for the years ended 31 December 2007 or 31 December 2006 within themeaning of Section 240 of the Companies Act 1985 (as amended). Financialstatements for ArmorGroup International plc for the year ended 31 December 2006presented 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 2007, nor have suchfinancial statements been delivered to the Registrar of Companies. Thefinancial statements for the year ended 31 December 2007 will be distributed toshareholders prior to, and filed with the Registrar of Companies following, theAnnual General Meeting. 2. Basis of preparation The preliminary financial information has been prepared in accordance with theListing Rules of the Financial Services Authority and uses EU adoptedInternational Financial Reporting Standards (IFRS) accounting policiesconsistent with those described in the Annual Report and Financial Statements2006. During the year ended 31 December 2007, the Company has defined itsaccounting policy for exceptional items. Exceptional items are materialnon-recurring items of income and expense separately disclosed by virtue oftheir size or significance to enable a full understanding of the group'sfinancial performance. The directors consider United States Dollars (US$) to be the Group's functionalcurrency. Accordingly, this financial information is presented in US$. At 31December 2007 the closing exchange rate to sterling was £1/US$1.997 (31 December2006: £1/US$1.958) and the average exchange rate to sterling for the year ended31 December 2007 was £1/US$2.001 (31 December 2006: £1/US$1.8398). The preparation of financial information in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. 3. Segmental reporting a. Primary reporting format - business segment analysis 2007 2006Revenue US$'000 US$'000 Protective security services 258,282 244,510Security training 18,490 18,329Weapons reduction and mine clearance 18,503 10,614 Revenue 295,275 273,453 Revenue in respect of protective security services includes recharges to thirdparty customers at cost or cost plus a handling fee of certain contractexpenses, including insurance, equipment, travel and out of pocket expenses ofUS$1,848,000 for the year ended 31 December 2007 (2006: US$3,476,000). 2007 2006Profit for the year from continuing operations US$'000 US$'000 Protective security services before head office costs 16,847 20,345Security training before head office costs (826) (803)Weapons reduction and mine clearance before head office costs 3,348 835Head office costs (10,176) (9,770) Segment resultProtective security services including head office costs 7,946 11,610Security training including head office costs (1,463) (1,458)Weapons reduction and mine clearance including head office costs 2,710 455 Operating profit before exceptional items 9,193 10,607 Exceptional items (2,856) - Operating profit 6,337 10,607 b. Secondary format - geographical segment analysis The group manages its business segments on a global basis. Revenue 2007 2006 US$'000 US$'000 Western Europe 10,496 10,174Eastern Europe 13,876 13,939South America 20,522 20,959North America 16,844 14,914Asia 62,888 36,636Africa 45,617 35,413Middle East 125,032 141,418 295,275 273,453 Geographical analysis is based on the region in which the services areperformed. 3. Exceptional items Exceptional items include $2,124,000 of costs incurred as a result of thedecision taken not to progress with a strategic acquisition. The costs relateto professional fees incurred on the due diligence and contract negotiations. In addition, $732,000 included in exceptional items relates to the redundancypackage for the former CEO Dave Seaton. 4. Net finance costs 2007 2006 US$'000 US$'000 Finance costs on bank overdrafts and loans 2,244 1,201Finance costs on finance leases 2 8 Total finance costs 2,246 1,209Finance income (136) (157) Net finance costs 2,110 1,052 5. Acquisitions and Disposals Acquisitions On 10 January 2007 the Group purchased 100% of the ordinary share capital ofNeil Young Associates for a consideration of £250,000 in cash and a further£375,000 of deferred consideration to be paid in three annual tranches,dependent on the annual profits of Neil Young Associates. Neil Young Associatesprovides kidnap and extortion prevention, training and response services. Theacquisition was satisfied by £321,500 in cash (inclusive of £71,500 acquisitioncosts) and £375,000 cash in deferred consideration, resulting in provisionalgoodwill of £696,500. Goodwill arising on the acquisition was US$1,385,000 andwas attributed to the anticipated profitability of the acquired business and thesynergies expected to arise. The fair value of the net assets acquired on theacquisition of Neil Young Associates was £100, being the nominal value of theshare capital. From the date of acquisition to 31 December 2007 Neil Young Associatescontributed US$1,798,000 to revenue, increased profit before interest byUS$593,000 and increased profit before taxation by US$592,000. Neil YoungAssociates contributed US$4,000 to the Group's net operating cash inflows, paidUS$ nil in respect of interest, US$ nil in respect of taxation and utilisedUS$2,000 for capital expenditure. There were no acquisitions or disposals during the year ended 31 December 2006. 6. Income tax expense Analysis of expense for the year 2007 2006 US$'000 US$'000UK current taxCorporation tax charge at 30% (2006: 30%) 2,105 1,792Adjustment in respect of prior periods 1,032 (16) 3,137 1,776Foreign current taxCorporation tax charge 1,325 670Adjustment in respect of prior periods (1,094) (455) 231 215Total current tax expense 3,368 1,991 UK deferred taxDeferred tax charge 695 597Adjustment in respect of prior periods (662) 62Impact of change in UK tax rate 55 - 88 659Foreign deferred taxDeferred tax credit (2,084) (115)Adjustments in respect of prior periods (97) (75) (2,181) (190)Total deferred tax (credit) / expense (2,093) 469 Income tax expense 1,275 2,460 The total income tax expense for the year is higher (2006: lower) than thestandard rate of corporation tax in the UK (30%). The differences are explainedbelow: 2007 2006 US$'000 US$'000 Profit before income tax 4,227 9,555 Profit multiplied by standard rate of corporation tax in the 1,268 2,867UK of 30% (2006:30%)Effects of:Adjustments to tax in respect of prior periods (821) (484)Adjustments in respect of foreign tax rates (1,530) (1,946)Expenses not deductible for tax purposes 537 266Depreciation in excess of capital allowances 49 13Other timing differences 72 (27)Utilisation of losses (74) (257)Unrelieved foreign tax credits 441 343Unrelieved losses carried forward 356 262Deferred tax on undistributed earnings 922 1,423Remeasurement of deferred tax - change in UK tax rate 55 - Income tax expense 1,275 2,460 7. Dividends A dividend of 1.5 pence per share will be recommended by the Board after the balance sheet date and will be paid on 4 July 2008 to shareholders on the register on 2 June 2008. An interim dividend for 2007 of 1.25p per share, amounting to US$1,377,000, waspaid on 9 November 2007 to shareholders on the register on 28 September 2007. A second interim dividend for 2006 of 1.50 pence per share, amounting to US$1,599,000, was paid on 2 July 2007 to shareholders on the register on 1 July 2007. An interim dividend for 2006 of 1.25 pence a share, amounting to US$1,263,000,was paid on 10 November 2006 to shareholders on the register at 29 September2006. 8. Earnings per share Basic Basic earnings per share is calculated by dividing the earnings attributable toequity holders of the Company by the weighted average number of ordinary sharesin issue during the year. 2007 2006 Profit attributable to equity holders of the Company (US$'000) 2,952 7,095Weighted average number of ordinary shares 53,355,360 53,145,172Basic earnings per share (US cents) 5.53 13.35 Diluted Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume allotment of all dilutivepotential ordinary shares. The Group has one class of dilutive potentialordinary shares: those share options granted to employees where the exerciseprice is less than the average market price of the Company's ordinary sharesduring the year. 2007 2006 Profit attributable to equity holders of the Company (US$'000) 2,952 7,095Weighted average number of ordinary shares 53,355,360 53,145,172Adjustment for dilutive potential of ordinary shares 1,832,582 1,202,826Weighted average number of ordinary shares for diluted 55,187,942 54,347,998earnings per shareDiluted earnings per share (US cents) 5.35 13.05 9. Reconciliation of profit after tax to net cash generated from operatingactivities 2007 2006 US$'000 US$'000 Profit after tax 2,952 7,095Adjustments for:Finance income (136) (157)Finance costs 2,246 1,209Taxation 1,275 2,460Depreciation 14,610 14,871Loss on disposal of property, plant and equipment 953 1,141Amortisation of intangible assets 818 440Compensation charge in respect of share based payments 718 881 23,436 27,940Changes in working capital (excluding effects of acquisitionof subsidiaries)Increase in inventories (344) (360)Increase in trade and other receivables (4,035) (768)Increase in payables 6,412 3,786(Decrease)/increase in provisions (195) 52Cash generated from operations 25,274 30,650 Cash and cash equivalents include the following for the purposes of the cashflow statement: 2007 2006 US$'000 US$'000 Cash and cash equivalents 18,158 14,646Bank overdrafts - (52) 18,158 14,594 10. Reconciliation of net cash flow to movement in net debt 2007 2006 US$'000 US$'000 Increase in cash in the year 3,421 2,279(Increase)/decrease in other borrowings (8,910) 3,569 Changes in net debt resulting from cash flows (5,489) 5,848Other non-cash movements (595) -Foreign exchange translation adjustments 143 24 Movement in net debt in the year (5,941) 5,872Net debt at the beginning of the year (3,560) (9,432) Net debt at the end of the year (9,501) (3,560) 11. Reconciliation of movements in net debt Group At 1 Cash flow At 31 January Non-cash Exchange December 2007 movements movement 2007 US$'000 US$'000 US$'000 US$'000 US$'000 Cash at bank and in hand 14,646 3,369 - 143 18,158Overdrafts (52) 52 - - - 14,594 3,421 - 143 18,158 Bank and other borrowings due (14,509) (3,056) (3,887) - (21,452)within one yearBank and other borrowings due in (3,588) (5,907) 3,358 - (6,137)more than one yearFinance leases (57) 53 (66) - (70) (3,560) (5,489) (595) 143 (9,501) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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