Garda World Security Corporation
TSX : GW

Garda World Security Corporation

December 12, 2007 08:01 ET

Garda Earns $4.1 Million in the Third Quarter

Company focus to shift from business integration towards aggressive business development

MONTREAL, QUEBEC--(Marketwire - Dec. 12, 2007) - Garda World Security Corporation (TSX:GW) (Garda), one of the most trusted consulting, investigation and security firms in the world, is pleased to announce today its financial results for the third quarter ended October 31, 2007.

Highlights:

- Sales increased by 75%, to reach $315.3 million.

- EBITDA grew by 86% from the same period last year, an increase of $13.8 million.

- Gross margin surged by 96% to reach $69.8 million and increased as a percentage of sales from 19.8% to a record 22.1%.

- One-time non-recurring gain of $5.2 million realized from the disposal of 2 Keyfacts divisions.

- One-time non-recurring events of $5.7 million charged to earnings.

- Total assets reached $901.6 million.

- The Corporation is on target to attain identified synergies.

The Company achieved record gross margin levels despite one-time events incurred during the quarter as a result of (i) continued U.S. Cash Logistics restructuring initiatives and (ii) the optimization of the Company's book of business in Canada.



Selected Quarterly Financial Information:

------------------------------------------------------------------------
For the third quarter ended October 31 2007 2006 Change
$ 000 $ 000 %
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Sales 315,340 179,950 +75.2
Gross profit 69,842 35,629 +96.0
Net income for the period 4,134 6,375
Basic net income per share 0.13 0.21
EBITDA(1) 29,941 16,120 +85.7
Basic EBITDA(1) per share 0.97 0.53 +83.0
Total assets 901,607 404,550 +122.9
Shareholders' equity 108,611 145,798
------------------------------------------------------------------------

(1) EBITDA (earnings before interest, income taxes, depreciation and
amortization) is not an accepted performance measure as per Canadian GAAP.


"We are pleased with the third quarter results as we continue to make important progress along several strategic fronts. Although several key U.S. integration initiatives remain ongoing, the Company's business risk profile continues to improve as we are realizing robust cash flows from our operations, despite incurring one-time non-recurring events. We are looking towards the coming year with optimism as our focus will soon shift from business integration towards implementing an aggressive business development program," noted Francois Rodrigue, Garda's Senior Vice President and Chief Financial Officer.

Management expects that revenues, EBITDA and free cash flows will each exceed $1.3 billion, $155 million, and $60 million, respectively in calendar 2008 (for the fiscal year ended January 31, 2009).

One-time Non-recurring Events

One-time non-recurring charges incurred include:

- The continued restructuring of the U.S. Cash Logistics operations - The consolidated companies (United Armored Services, Security Armored Express, Security Armored Car, PSI Armored, and American Security) purchased by Garda in the Midwest during 2005 and 2006 were operating under a "pay per stop" system. The Company decided to realign the unit and operate it like its other North American entities to maximize the routes and increase EBITDA margins in that region. The change was put into effect at the beginning of July 2007 and is expected to be completed by year end. Garda also experienced a temporary and unusual dip in terms of total volume of business in the retail sector of its U.S. cash logistics business in the month of August.

- Revision of Garda's book of business in Ontario and realignment of the operations of the former Rentokil Initial Canada - The Company has eliminated $20 million in unprofitable Ontario contracts, which have been replaced to date with $15 million in new premium contracts at significantly higher margins from a number of blue chip customers. Results from this realignment, which will favourably affect earnings, have not yet been reflected in trailing financial results.

In addition, foreign exchange fluctuations adversely impacted earnings. Such fluctuations, combined with the above-mentioned one-time charges, total approximately $5.7 million for the third quarter.

During the quarter, the Company realized a one-time pre-tax non-recurring gain of $5.2 million on the sale of its Canadian Property Inspection (CPI) and Life & Health Underwriting Services (L&H) business units to a group of private investors for a total cash consideration of $10.5 million. The CPI and L&H business units were initially acquired by Garda in March 2005 as part of the Company's acquisition of Keyfacts Canada from CGI Group Inc. for a total purchase price of $3.5 million.

"We have fully integrated Keyfacts' most significant components, its background investigation and employment screening business units, into Garda's Consulting and Investigations division," comments Jean Talbot, Garda's Senior Vice President, Enterprise Intelligence Services. "As planned, we have now divested its non-core CPI and L&H units, creating $5.2 million in value for our shareholders."

Without the gain on the sale of the CPI and L&H units, the Company would have generated EBITDA and a net income per share of $24.8 million and $0.01, respectively for the quarter. Furthermore, the exclusion of the above-mentioned non-recurring charges from these results would have led to a reported EBITDA and net income per share of $30.5 million and $0.13, respectively for the quarter.

On Target to Achieve $30 Million Synergies

As previously disclosed, Garda remains on target to achieve $30 million in synergies by March 2008 from the consolidation of its U.S. cash logistics operations following its acquisition of ATI Systems International ("AT Systems") in April 2007. Although certain savings that were initially earmarked from AT Systems' acquisition of CDC in late 2006 failed to materialize, senior management has taken the necessary steps to meet its financial objectives through other restructuring measures. These measures, and their associated timelines, were proactively discussed with the Company's lenders who remain firmly committed to supporting Garda's continued expansion. The financial flexibility provided to Garda leaves management with a significant operating margin in the coming year as the execution of the Company's current business plan is not expected to require any additional capital beyond the Company's existing resources.

"Core operations in our various business units are all performing at or above expectations, despite a shortfall in the realization of synergies from AT Systems' CDC acquisition, which are being compensated through alternative efforts that would have propelled our performance well above plan," said Stephan Cretier, President and CEO. "Within the last year alone, Garda has become the 5th largest integrated physical security worldwide and 2nd largest North American cash logistics firm on an annualized revenue basis - a move which has required significant managerial effort and investment. These efforts, which are just beginning to bear fruit, allow us to gradually shift our focus towards business development initiatives, a key one being the re-branding of our various units under the Garda umbrella. This initiative marks a critical step in reaching our long term goal of building Garda into a global leader in the private security business," concluded Stephan Cretier.

Management's Discussion and Analysis of Financial Position and Results of Operations

Sales

Sales for the quarter ended October 31, 2007 rose to $315,339,969 from $179,950,443 for the corresponding quarter last year, an increase of $135,389,526 or 75%. For the quarter ended October 31, 2007, the increase in sales generated from internal growth represents $1,386,557 or 1%, while the increase in sales added from business acquisitions represents $134,002,969 or 99%. For the nine (9) month period ended October 31, 2007, sales increased to $871,913,435 from $482,576,785 in the same period last year, representing growth of $389,336,650 or 81%.

Sales in the physical security segment rose to $166,646,670 for the quarter ended October 31, 2007 from $141,305,297 in the corresponding quarter last year, an increase of $25,341,373 or 18%. This sales increase in the physical security segment is directly attributable to the business acquisitions completed during the last fifteen (15) months and new contracts obtained. Sales in the cash logistics segment rose to $148,693,299 from $38,645,146 in the corresponding quarter last year, an increase of $110,048,153 or 285%. This sales increase is attributable to the acquisition of ATI International in April 2007, PSI Armored in September 2006 and American Security in October 2006.

Sales in Canada rose to $128,060,293 from $110,199,011 in the corresponding quarter last year, while sales in United States and other rose to $187,279,676 from $69,751,432 in the corresponding quarter last year.

Gross Profit

Gross profit rose $34,212,689 or 96% from $35,629,033 for the quarter ended October 31, 2006 to $69,841,722 for the quarter ended October 31, 2007. This increase in gross profit is attributable to the business acquisitions completed during the last fifteen (15) months and to the increase in sales generated by the cash logistics and physical security segments. The gross margin as a percentage of sales increased from 19.8% to 22.1% mainly due to higher gross margins on the business acquisitions in the cash logistics segment completed during the last fifteen (15) months.

For the nine (9) month period ended October 31, 2007, the gross profit rose to $187,358,835 from $95,728,448 for the same period last year, an increase of $91,630,387 or 96%. The gross margin as a percentage of sales increased from 19.8% to 21.5%.

Net income for the period

Net income for the quarter ended October 31, 2007 was $4,133,955 ($0.13 basic and diluted per share), compared to a net income of $6,375,119 ($0.21 basic per share and $0.20 diluted per share) for the corresponding quarter last year, a decrease of $2,241,164 ($0.08 basic per share).

For the nine (9) month period ended October 31, 2007, the net income totaled $8,450,235 ($0.27 basic and $0.26 diluted per share) compared to $15,922,291 ($0.56 basic per share and $0.54 diluted per share) for the same period last year, a decrease of $7,472,056 ($0.29 basic per share).

Cash flows from operations

Cash flows from operations rose to $12,408,626 for the quarter ended October 31, 2007, compared with $11,464,420 for the corresponding quarter last year. This increase of $944,206 or 8% is mainly attributable to the decrease in net income, the increase in amortization and the gain on disposal of assets.

For the nine (9) month period ended October 31, 2007, the cash flows from operations totaled $38,594,027 compared to $28,519,913 for the same period last year, an increase of $10,074,114.

Changes in non-cash working capital items generated cash of $8,073,871 during the quarter ended October 31, 2007, compared to cash used in the amount of $2,139,317 for the corresponding quarter last year. This increase is mainly due to the outstanding balance on the disposal of a selection of assets of the Garda Holding (formerly Keyfacts Enterprises Canada).

Operating activities generated cash of $20,482,497 during the quarter ended October 31, 2007, compared to $9,325,103 for the corresponding quarter last year.

Outlook

To grow and achieve its goals moving forward, Garda will continue to unify its employees under one vision and serve its clients as one company. Garda will keep on leveraging its organization-wide capabilities across businesses and geographies, integrate its services toward a common goal to serve its clients better, strengthen its market position, and grow in a balanced way. The firm is moving ahead with one vision, one commitment, and one unified company and has embarked on an era of exciting and sustainable growth in shareholder value.

About Garda

Garda, the fifth largest integrated physical security and cash logistics firm worldwide on an annualized revenue basis, is well known for addressing complex security and investigations issues. As a leading provider in consulting, investigation and security services, Garda is recognized as one of the fastest growing companies with operations across Canada and the United States, Latin America, Europe, the Middle East, Africa, and Asia. With approximately 50,000 dedicated professionals, Garda offers integrated solutions in cash logistics, physical security, consulting and investigations, and enterprise intelligence services. Its team includes specialists and some of the most highly qualified and best-trained experts in the industry. For more information, visit: http://www.gardaglobal.com and http://www.garda-world.com.

FORWARD-LOOKING INFORMATION -- This press release contains forward-looking statements reflecting Garda objectives, estimates, expectations and the impact of acquisitions on Garda's financial performance. These statements are identified by the use of verbs such as "believe", "anticipate", "estimate", and "expect" as well as by the use of future or conditional tenses. By their very nature, these types of statements involve risks and uncertainty. Consequently, reality may differ materially from Garda's projections or expectations.

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