Garda World Security Corporation
TSX : GW

Garda World Security Corporation

September 15, 2008 22:28 ET

Garda Reports Second Quarter Financial Results

Company Impacted by Economic Downturn in the US - Planning Strategic Review

MONTREAL, QUEBEC--(Marketwire - Sept. 15, 2008) - Garda World Security Corporation (TSX:GW) (Garda), one of the most trusted consulting, investigation and security firms in the world, announced today its financial results for the second quarter ended July 31, 2008 and the implementation of a corporate strategic review.

Highlights

- Revenues increased by 7.3% for the first six months compared with the same period last year from $556.6 million to $597.1 million and quarterly revenues decreased to $301.1 million from $318.6 million for the same quarter last year.

- EBITDA increased by 23.5% for the first six months compared with the same period last year and decreased by 2.7% this second quarter compared with the same quarter last year.

- Gross margins for the quarter as a percentage of revenues increased from 21.9% to 22.6% due to operational efficiencies in the U.S. cash logistics segment.

- Shareholders' equity at the end of the quarter was $136.9 million.

- Results for the quarter were strongly impacted by the strengthening of the Canadian dollar, from the U.S. economic downturn and high energy costs.

Selected Quarterly Financial Information



---------------------------------------------------------------------------
(In thousands of
dollars, except Three months Three months Six months Six months
per share ended ended ended ended
amounts) July 31, 2008 July 31, 2007 July 31, 2008 July 31, 2007
---------------------------------------------------------------------------
Revenues 301,082 318,557 597,058 556,573
Gross profit 68,134 69,959 140,159 117,517
Cash flow from
operations 8,888 12,513 27,088 26,185
Net income (loss)
for the period (1,008) (1,480) 3,362 4,316
Basic net income
(loss) per share (0.03) (0.05) 0.11 0.14
EBITDA(1) 22,684 23,321 52,715 42,682
Basic EBITDA(1)
per share 0.72 0.75 1.67 1.38
Total assets 957,591 957,203 957,591 957,203
Shareholders' equity 136,928 135,321 136,928 135,321

---------------------------------------------------------------------------

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


Recent Developments (all amounts are in thousands of dollars)

Despite the success of Garda's integration initiatives, the company's performance for the second quarter was lower than anticipated mainly due to the general economic slowdown and non-renewal of military contracts in the U.S. Additional factors include the strengthening of the Canadian dollar and continued high energy costs in Canada. However, due to Garda's efficient cost structure and ongoing cost control efforts, the company is well positioned and is taking the necessary actions for a strong second half of the year.

As a result of the lower EBITDA in Q2 2009, Garda was concerned with its ability to meet the covenants prescribed in its credit facilities as at July 31, 2008. Accordingly, the company initiated discussions with its lenders in order to readdress its financial covenants for the current and subsequent quarters. On September 15, 2008, Garda executed an amended agreement to its Credit Facilities Agreement providing more flexibility to achieve its business plan and complete its strategic review. The amended agreement replaces the existing financial covenants with a minimum EBITDA requirement to be satisfied at the end of each quarter until October 31, 2009, at which point the financial covenants revert back to the covenants previously in place under the credit facilities. Garda expects to meet the new EBITDA covenant for the next year.

As part of those amendments the annual interest rate margins on the revolving facilities and senior term loans were increased by 1.5% and the annual interest rate margins on the subordinated term loan were increased by 3.25%. Other than the covenants required by its credit facilities, Garda is not subject to any externally imposed capital requirements.

Strategic Review

Over the last few months, Garda has reviewed a number of strategic initiatives to enhance its profitability and financial flexibility. During this process, the company received an unsolicited indication of interest to buy an important part of its business if certain conditions were met. Such a transaction or any other transaction of this type could allow the company to book a profit, repay most, if not all, of its bank debt and return some capital to its shareholders. While the company is working diligently on a number of initiatives, there is no assurance that a transaction will occur over the next few months.

"Despite two excellent quarters demonstrating the quality of our integration initiatives, we are announcing disappointing results as a consequence of the economic slowdown in the U.S., a weak U.S. dollar versus the Canadian dollar and higher energy costs in Canada. We believe this to be just a weak summer and anticipate a stronger second half of the year, at the level that our shareholders are used to seeing from Garda," said Stephan Cretier, President and CEO. "Our fundamental operations throughout the company are doing well in spite of the financial pressure related to our high leverage. Garda has the resiliency and management acumen to withstand the current situation and emerge quickly as a stronger company".

Second Quarter 2008 Results

Revenues

Revenues amounted to $301,082 for the quarter ended July 31, 2008 compared to $318,557 for the corresponding quarter last year, a decrease of $17,475 or 5.5%. The decrease in revenues results mainly from the impact of the strengthening of the Canadian dollar in Q2 2009 compared to Q2 2008, the reduction in revenues in the US physical security segment non renewal of security contracts on military bases in the fall 2007, and the general economic slow-down in the US during the last year.

For the six (6) month period ended July 31, 2008, sales increased to $597,058 from $556,573 for the same period last year, representing growth of $40,485 or 7.3%. This increase in revenues is mainly generated from the business acquisitions of ATI international and GSS Global during the first quarter last year.

Revenues in the physical security segment amounted to $152,633 for the quarter ended July 31, 2008 compared to $162,632 for the corresponding quarter last year, a decrease of $9,999 or 6.1%. This decrease in revenues in the physical security segment is mainly due to the combined impact of the reduction in revenues in the Canadian physical security segment following the sale of the Keyfacts division in October 2007, a decrease in revenues in the US physical security segment due to non renewal of security contracts on military bases in the fall 2007 and the strengthening of the Canadian dollar in relation to the US dollar between Q2 2009 and Q2 2008. Revenues in the cash logistics segment amounted to $148,449 for the quarter ended July 31, 2008 compared to $155,925 for the corresponding quarter last year, a decrease of $7,476 or 4.8% This decrease in revenues is attributable to the strengthening of the Canadian dollar in relation to the US dollar between Q2 2009 and Q2 2008 and the general economic slow-down in the US during the last year.

Revenues in Canada amounted to $120,127 for the quarter ended July 31, 2008 compared to $121,205 for the corresponding quarter last year, while revenues in the United States and other amounted to $180,955 for the quarter ended July 31, 2008 compared to $197,353 for the corresponding quarter last year.

Gross Profit

Gross profit decreased by 2.6% or $1,825 from $69,959 for the quarter ended July 31, 2007 to $68,134 for the quarter ended July 31, 2008. This decrease in gross profit is mainly attributable to the net impact of the strengthening of the Canadian dollar, the decrease tied to the decrease in revenues in the US physical security segment, a slight reduction in performance in the consulting and investigation/global risks services, and an off-setting increase in performance in the Canadian physical security services.

Gross margin as a percentage of revenues increased from 22.0% to 22.6% mainly due to net impact of operational efficiencies in the cash logistics segment, a lower gross margin due to the rising fuel costs in the Canadian cash logistics segment and a lower margin resulting from a slight reduction in performance in the consulting and investigation/global risks services.

For the six (6) month period ended July 31, 2008, the gross profit rose to $140,159 from $117,517 for the same period last year, an increase of $22,642 or 19.3%. Gross margin as a percentage of revenues increased from 21.1% to 23.5%. The increase results essentially from operational efficiencies in the US cash logistics segment.

Net income (loss) for the period

The net loss amounted to $1,008 (representing -$0.03 basic per share and -$0.03 diluted per share) for the quarter ended July 31, 2008, compared with a net loss of $1,480 (representing -$0.05 basic per share and -$0.05 diluted per share) for the corresponding quarter last year, a decrease of loss of $472.

For the six (6) month period ended July 31, 2008, the net income totalled $3,362 (representing $0.11 basic and $0.11 diluted per share) compared to $4,316 (representing $0.14 basic and $0.13 diluted per share) for the same period last year, a decrease of $954.

Cash flows

Operating activities

Cash flows from operations decreased to $8,888 for the quarter ended July 31, 2008, compared with $12,513 for the corresponding quarter last year. This decrease of $3,625 or 29% is mainly attributable to the fact that recovery on income taxes will materialize in future periods.

Changes in non-cash working capital items used cash of $1,894 during the quarter ended July 31, 2008, compared to cash used in the amount of $2,977 in the corresponding quarter last year.

Operating activities generated cash of $6,994 during the quarter ended July 31, 2008, compared to cash generated in the amount of $9,536 in the corresponding quarter last year.

For the six (6) month period ended July 31, 2008, the cash flows from operations totalled $27,088 compared to $26,185 for the same period last year, an increase of $903.

MD&A Filing

Garda's Management's Discussion and Analysis for the second quarter ended July 31, 2008 was filed with SEDAR on September 15, 2008 and available on the web site http://www.gardaglobal.com in the investor's section as of 10:00 PM September 15, 2008.

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.

Contact Information

  • Garda World Security Corporation
    Joe Gavaghan
    Director, Corporate Communications
    617-848-5484
    617-283-4936 (Cell)
    joe.gavaghan@gardaglobal.com
    or
    Garda World Security Corporation
    Nathalie de Champlain
    Vice President, Communications
    514-281-2811 x 2800
    800-859-1599 x 2800
    ndechamplain@gardaglobal.com