Garda World Security Corporation
TSX : GW

Garda World Security Corporation

September 08, 2011 08:00 ET

Garda Reports Second Quarter Results

- Strong Sales Momentum in all Business Units

- 9.2% Organic Growth in US Cash Logistics

- Positive Outlook for Second Half

MONTREAL, QUEBEC, CANADA--(Marketwire - Sept. 8, 2011) - Garda World Security Corporation (Garda)(TSX:GW), one of the leading Security Solutions, Cash Logistics and Global Risk Consulting firms in the world, announced today its financial results for the second quarter ended July 31, 2011.

SELECTED HIGHLIGHTS FOR THE QUARTER ENDED JULY 31, 2011

  • Very strong growth of 9.9%
  • In excess of $30M invested in growth in 2011 for additional sales run rate of $125M
  • Operating profit of 9.6% at $28.4M
  • Net income of $3.8M or $0.12 per share
  • Cash flow from operations of $57M for the first half of 2011
  • New issue of senior unsecured notes to further repay bank debt
  • Cash Logistics
    • Organic growth of 8.1% overall and 9.2% in the US on numerous new contract start-ups
    • Operating profit up 1.7% from last year at 13.7% despite the start-up of several contracts
  • Security solutions
    • Sales growth of 11.5% on successful Kolossal integration
    • Operating profit of 5.8% - down from last year on increased Airport Security costs and redeployment in emerging markets

"Our revenue growth in the second quarter exceeded our most optimistic expectations," said Patrick Prince, Senior Vice President and Chief Financial Officer. "The additional revenue annual run rate is now $125 million which rivals that of our second largest acquisition. As with any major acquisition, we are now making sure we execute properly by integrating that business into our platforms. While these incremental start-up and investment costs to expand our capacity affect our profitability in the short term, we are at the same time building a solid foundation for continued strong growth and earnings momentum."

"In all our areas of operations, we see tremendous new business and we are just beginning to capitalize on those opportunities," said Stephan Cretier, President and CEO. "In Cash Logistics, we are growing our operations from our established footprint into both new geographic regions and with broader services such as secure transaction processing centers and ATM services. In Security Solutions, our special events division from the Kolossal acquisition is providing strong growth and our GardaWorld Global Risk Consulting Group is responding to the security demands of the rapid, sweeping changes throughout the Middle East.

"In response," Mr. Cretier concluded, "we are creating the capacity to drive our future growth. As we integrate this new business and increased revenue run rate, we see strong margin improvement in the second half of the year as we continue to build upon the excellent momentum we have established."

SELECTED FINANCIAL HIGHLIGHTS

(in thousands of Canadian dollars, except per share amounts). Three
months
ended
July 31, 2011
Three
months
ended
July 31, 2010
Six
months
ended
July 31, 2011
Six
months
ended
July 31, 2010
Revenues 296,547 280,004 582,545 552,274
Gross profit(1) 67,032 66,780 131,452 131,477
Operating profit(1) 28,393 31,242 57,890 62,146
Net income for the period 3,813 5,299 8,300 11,644
Basic net income per share 0.12 0.17 0.26 0.37
Total assets 798,765 795,285 798,765 795,285
Long-term debt (including current portion) 593,956 593,738 593,956 593,738
Quarterly US dollar average exchange rate 0.97 1.04 0.97 1.03
(1) Gross profit and operating profit are not accepted performance measures as per IFRS

MANAGEMENT'S DISCUSSION & ANALYSIS - MD&A (EXTRACT)

Our strategy is to establish platforms and continually improve them with a combination of business development, operational excellence, and focused entrepreneurial leadership in order to achieve our goal to be the best operator in our industry.

In fiscal 2011 we focused on this strategy and the fourth quarter resulted in strong revenue growth, particularly in US cash logistics.

The first and second quarter results showed the same momentum with a growth of 6.8% and 8.1% respectively. With many new contract start-ups, the revenue growth in cash logistics is clearly established. With so many new businesses starting up, our focus has been on executing a flawless transition. We have also developed new areas where our previous footprint was small. This allows us to now further develop new markets and gives us new capabilities for growth.

In security solutions, the growth was generated by Kolossal and by many new contracts in the natural resources sector. Fully integrated in the first quarter, Kolossal is now functioning within our structures and we are working at portfolio management of their contracts.

In emerging markets (Middle East and North Africa), we are now preparing and entering new markets and redeploying our resources accordingly.

Overall we were able to generate 22.6% of gross profit compared to 23.9% last year.

As a result, operating profit was 13.7% in cash logistics, slightly below the 14.6% of the second quarter last year and security solutions showed an operating profit of 5.8% compared with 7.8% for the same quarter last year.

Finance costs amounted to $14.9 million, down $0.4 million from last year, due to lower amortization of deferred financing costs.

Net income amounted to $3.8 million or $0.12 per share in the second quarter versus a net income of $5.3 million or $0.17 per share last year.

Revenues

The revenues for the second quarter were $296.5 million, compared with $280.0 million last year, an increase of $16.5 million or 5.9%. The acquisition of Kolossal added $14.8 million and organic growth totalled $12.2 million or 4.4% in the quarter. The decline in US dollar has decreased the revenues by $10.5 million year-over-year.

A graph of "Revenues (CER)" is available at the following address: http://media3.marketwire.com/docs/RevenueEng.pdf

Security solutions' revenues in Canada were $133.9 million, compared with $116.1 million last year. This increase of $17.8 million or 15.3% is mainly attributable to the acquisition of Kolossal.

Revenues from emerging markets (Middle East and North Africa) were $21.6 million compared with $24.9 million for the corresponding period last year. The decline in US dollar has decreased the revenues by $1.7 million year-over-year. At constant exchange rate the revenues from emerging markets were $22.3 million compared with $24.0 million, a decrease of $1.7 million or 7.0%.

Cash logistics' revenues were $141.1 million compared with $139.0 million last year, an increase of $2.1 million or 1.6%. At constant exchange rate the revenues for cash logistics were $145.3 million compared with $134.4 million last year. This increase of $10.9 million or 8.1% is mainly attributable to the start-up of several new large bank contracts in the United States during the last two quarters of fiscal 2011 and in the second quarter of fiscal 2012.

Gross profit(1)

The gross profit for the second quarter was $67.0 million compared with $66.8 million last year, an increase of $0.2 million or 0.4%. The US dollar depreciation reduced the gross profit by $3.3 million.

The gross profit at constant exchange rate was $68.6 million compared with $65.0 million last year, an increase of $3.6 million or 5.4%, mainly due to cash logistics' organic growth.

For the six-month period ended July 31, 2011 and 2010, the gross profit was $131.5 million. The US dollar depreciation reduced the gross profit by $5.6 million.

The gross profit at constant exchange rate was $134.1 million compared with $128.5 million last year, an increase of $5.6 million or 4.4%, mainly due to cash logistics' organic growth.

Graphs of "Gross profit by sector (CER)" are available at the following address: http://media3.marketwire.com/docs/Gross%20profit%20Eng.pdf

Security solutions' gross profit for the second quarter was $21.6 million compared with $21.8 million last year, a decrease of $0.2 million or 0.9%. At constant exchange rate, the security solutions' gross profit was $21.8 million compared with $21.5 million last year. Excluding the contribution of Kolossal's acquisition of $1.2 million, the gross profit for the quarter decreased by $0.9 million.

Security solutions' gross profit for the six-month period was $39.6 million compared with $40.3 million last year, a decrease of $0.7 million or 1.7%. At constant exchange rate, the security solutions' gross profit was $39.9 million compared with $40.0 million last year. Excluding the contribution of Kolossal's acquisition of $1.9 million, the gross profit for the six-month period decreased by $2.0 million.

Cash logistics' gross profit for the second quarter amounted to $45.4 million compared with $45.0 million last year. At constant exchange rate, cash logistics' gross profit was $46.8 million versus $43.5 million last year, an increase of $3.3 million or 7.6% attributable to several contract start-ups.

Cash logistics' gross profit for the six-month period amounted to $91.8 million compared with $91.2 million last year. At constant exchange rate, cash logistics' gross profit was $94.3 million versus $88.6 million last year, an increase of $5.7 million or 6.4% attributable to several contract start-ups.

The gross profit as percentage of revenues for the second quarter was 32.2% compared with 32.4%, this reduction is mainly attributable to start-up costs of the new contracts.

The gross profit as percentage of revenues for the six-month period was 32.9% compared with 33.3%, this reduction is mainly attributable to start-up costs of the new contracts.

Operating profit(2)

Operating profit for the second quarter was $28.4 million compared with $31.2 million last year, a decrease of $2.8 million or 9.1%, of which $1.5 million is attributable to decline in US dollar. The Kolossal's acquisition had a positive impact of $0.9 million.

At constant exchange rate the operating profit for the second quarter was $29.1 million compared with $30.4 million last year, a decrease of $1.3 million or 4.4%. Of this, $1.6 million is attributable to security solutions' segment, while cash logistics' segment increased their operating profit by $0.3 million.

Graphs of "Operating profit" are available at the following address: http://media3.marketwire.com/docs/operatingprofitE.pdf

Operating profit for the six-month period was $57.9 million compared with $62.1 million last year, a decrease of $4.2 million or 6.8%, of which $2.5 million is attributable to decline in US dollar. The Kolossal acquisition had a positive impact of $1.1 million.

At constant exchange rate the operating profit for the six-month period was $59.1 million compared with $60.8 million last year, a decrease of $1.7 million or 2.8%. Of this, $2.7 million is attributable to security solutions' segment, while cash logistics' segment increased its operating profit by $1.0 million.

During the second quarter, security solutions' operating profit reached 5.8% of revenues, compared with 7.7% last year. Operating profit for the cash logistics segment reached 13.7% of revenues in the quarter, compared with 14.6% last year, decrease due to the effects of start-up of contracts in the US.

During the six-month period, security solutions' operating profit reached 5.5% of revenues, compared with 7.1% last year. Operating profit for the cash logistics segment reached 14.8% of revenues compared with 15.5% last year, decrease due to the effects of contract start-ups in the US.

Cash flows

Cash position as at July 31, 2011 amounted to $16,191, an increase of $1,213 versus January 31, 2011. This increase is explained by the following:

Operating activities

Cash flow from operations, which is in direct relation to the income before taxes generated by the business segments of the Corporation, amounted to $57,042, a decrease of $4,886 or 7.9% over the cash flow generated by the operations last year.

Net change in non-cash working capital balances items used cash of $24,122 compared with cash used in the amount of $26,824 last year. This is mostly attributable to an increase in accounts receivable generated by new businesses and a reduction in accounts payable in 2010.

Financing activities

Cash used for financing activities amounted to $13,709 compared with cash used of $18,851 last year. The revolving facilities and the long-term debt variation generated $24,578 during the six-month period compared with $67,061 last year. In 2010, the Corporation used $47,441 related to the SWAP termination payment and $21,001 in borrowings costs related to the refinancing of its long term debt.

The interest paid on debt increased by $13.9 million, due to the semi-annual payment of interests on the US and Canadian notes.

Investing activities

Cash used in investing activities amounted to $17,182 compared with cash used of $14,765 last year. This increase is mainly attributable to payments made for Kolossal's acquisition of $4,580 (including bank indebtedness).

Additions to property, plant and equipment were $10,737 versus $13,201 last year. Intangible assets additions totalled $1,925 versus $1,997 last year.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to Garda's future outlook and anticipated events, business, operations, financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding the company's future operating results and economic performance and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions including expected growth, results of operations, performance and business prospects and opportunities, which Garda believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to the company, they may prove to be incorrect. The company cautions the reader that the current adverse economic conditions make forward-looking information and the underlying assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the company's expectations. It is impossible for Garda to predict with certainty the impact that the current economic downturn may have on future results. Forward-looking information is also subject to certain factors (described at Section "Risks and Uncertainties" of the Garda's Management's Discussion and Analysis for the second quarter ended July 31, 2011), including risks and uncertainties that could cause actual results to differ materially from what Garda currently expects. These factors include growth management, market competition, cost of financing, government regulations, collective bargaining, currency fluctuations, credit risk, reputational risk and financial covenants risk, many of which are beyond the company's control. Therefore, future events and results may vary significantly from what management currently foresees. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date.

This analysis should be read in conjunction with the company's consolidated interim financial statements, and the notes thereto, prepared in accordance with IFRS and the MD&A of the second quarter ended July 31, 2011. Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.

CONFERENCE CALL

Stephan Cretier, President & CEO, and Patrick Prince, Senior Vice President and Chief Financial Officer, will discuss the second quarter results today, September 8, 2011 at 10:00 AM ET during a conference call with financial analysts and institutional investors. Listeners may access the call by dialing 1.416.641-6654 or 1.800.666-9864 for international calls.

MD&A FILING

Garda's Management's Discussion and Analysis and Financial Statements for the second quarter ended July 31, 2011 was filed with SEDAR on September 8, 2011 and is available on the web site http://www.gardaglobal.com in the investors' section as of September 8, 2011.

ABOUT GARDA

Garda (TSX:GW) is a global provider of security solutions, cash logistics and global risk consulting. With headquarters in Montreal, Canada, the firm's 45,000 dedicated professionals, among the most highly qualified and best-trained in the industry, serve clients in countries throughout North America, Europe, Latin America, Africa, Asia, and the Middle East. Garda works with clients in a broad range of sectors and industries including financial institutions, retailers, manufacturers, insurance companies, governments, humanitarian relief organizations and the natural resources, construction and telecommunications. The company's decentralized management philosophy and structure encourages employees to be entrepreneurial and performance-driven in their approach to client service and the pursuit of excellence in all they do. Garda's global experts take the time to fully understand their clients' business goals and objectives in order to customize solutions with strong local engagement that meet their needs. As a result, clients can improve operational performance, meet their business obligations, and achieve their corporate objectives. With proven experience and a commitment to ensuring the highest ethical standards in everything the Corporation does, Garda has earned a reputation for integrity, leadership and uncompromising safety standards. Most importantly, businesses, governments, and individual clients place their trust in Garda. For more information, visit: www.gardaglobal.com.

(1) Please refer to section "Reconciliation of non-IFRS financial measures" in the MD&A.

(2) Please refer to section "Reconciliation of non-IFRS financial measures" in the MD&A.

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