Garda World Security Corporation
TSX : GW

Garda World Security Corporation

December 15, 2008 08:01 ET

Garda Reports Strong Operational Results for the Third Quarter

MONTREAL, QUEBEC, CANADA--(Marketwire - Dec. 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 third quarter ended October 31, 2008.

Highlights of the Quarter

- Third quarter revenues increased to $318.2 million.

- Gross profit up 7.9% at $75.4 million and gross margin as a percentage of revenues increased from 22.1% to 23.7%.

- Cash flows from operations increased 31% to $16.2 million.

- Quarterly EBITDA of $28.2 million, an increase of 13.6%, or $0.89 per share.

- Total assets up 21.6% at $1.1 billion.

- Shareholders' equity increased 52.1% to $165.2 million.

- When excluding the non-recurring financial charges of $4 million, the net income amounted to $429,000 ($0.01 per share) for the quarter and $3.8 million ($0.12 per share) for the nine month period.



Selected Quarterly Financial Information

Table 1
--------------------------------------------------------------------
(In thousands of dollars, Three months Three months
except per share amounts) ended ended
Oct 31, 2008 Oct 31, 2007
--------------------------------------------------------------------
Revenues 318,211 315,340
Gross profit 75,368 69,842
Gross margin 23.7% 22.1%
EBITDA (1) 28,167 24,786 (2)
Basic EBITDA(1) per share 0.89 0.80 (2)
Net income (loss) for the period (3) (2,156) 4,134
Basic net income (loss) per share (0.07) 0.13
Cash flows from operations (1) 16,195 12,409
Total assets 1,096,653 901,607
Shareholders' equity 165,164 108,611

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--------------------------------------------------------------------
(In thousands of dollars, Nine months Nine months
except per share amounts) ended ended
Oct 31, 2008 Oct 31, 2007
--------------------------------------------------------------------
Revenues 915,270 871,914
Gross profit 215,527 187,359
Gross margin 23.6% 21.5%
EBITDA (1) 80,883 67,467 (2)
Basic EBITDA(1) per share 2.56 2.18 (2)
Net income (loss) for the period (3) 1,206 8,450
Basic net income (loss) per share 0.04 0.27
Cash flows from operations (1) 43,284 38,594
Total assets
Shareholders' equity

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(1) EBITDA (earnings before interest, income taxes, depreciation and
amortization) and cash flows from operations are not accepted
performance measure as per Canadian GAAP.
(2) Excluding the non recurring gain of $5.2 million on the sale of
the assets of Keyfacts for the third quarter ended October 31,
2007.
(3) Net income for the third quarter ended October 31, 2008 of $429
when excluding non-recurring financial charges of $4 million.


Overall performance

Garda achieved excellent results during the third quarter with all business lines contributing to that effort. "The solid operational performance of the business units for the third quarter reinforces our conviction that the cash logistics and physical security sectors are not significantly affected by the economic downturn," said Stephan Cretier, Garda President and CEO. "We are looking forward to strong year end results as this challenging economic environment is creating numerous opportunities for the Corporation, such as the increased demand for outsourcing of cash management solutions and the need for additional security services due to heightened security concerns. After a softer second quarter, we have really bounced back in the third quarter and our outlook for the fourth quarter is very positive," Mr. Cretier observed.

Cash Logistics Services

In the US cash logistics market, the Corporation successfully maintained its level of activity during the quarter and consistently improved performance since the acquisition of ATI International in April 2007. In addition, a strong US dollar in the last few months has translated into increased revenues for the third quarter of fiscal 2009. In both the banking and the retail sector, although customers are looking to reduce the level of service in an effort to control cost, the Corporation has observed increases in cash circulation as a result of less consumer use of credit cards. This increase in cash circulation has sustained the levels of activity for Garda's operations.

In the Canadian cash logistics market, the banking industry is not experiencing the same economic turmoil as in the United States. Garda had a solid performance in Q3 2009 with a 2% organic growth when compared to Q3 2008. The Corporation anticipates that it will continue its market penetration in Ontario and maintain its strong performance in Quebec.

Physical Security Services

In the US physical security market, Garda's customer base has a high level of awareness for premium security services and therefore the current market conditions have had a minimal impact on the demand for its services. Additionally, the Corporation experienced a strong demand for its consulting and investigations services. In Q3 2009, Garda also gained more stability in revenues with the long-awaited start of new contracts in emerging markets. In the Canadian physical security market, the Corporation has not noticed any reduction in the level of activity for its services. Garda experienced organic growth of 3.4% in Quebec offset by a decrease of 3.7% in the level of activity in the rest of Canada due to the pruning of the book of business that was completed earlier this year. A slight upward pressure in prices and a reduction in labor costs created by increased resource availability in the market contributed in maintaining the Corporation's performance in this segment during Q3 2009.

In the international market, large infrastructure projects are being initiated in emerging markets resulting in a strong demand for Garda's consulting and investigation services. Following a disappointing second quarter caused by the delay in the start of new projects, the Corporation delivered a solid performance in the third quarter of fiscal 2009.

Stronger Sequential Operational Performance

The Corporation's strong performance demonstrates its resiliency in this difficult economic environment. Garda is confident that the future cash flows from operations, which are sustained by the solid performance of its operating business units, will support its planned internal growth. This is demonstrated by the operational progress from the second to the third quarter (see table 2 below).



Table 2
---------------------------------------------------------------------
(In millions of dollars, Q3 Q2 Growth
except % amounts) 2009 2009 %
---------------------------------------------------------------------
Revenues 318.2 301.1 5.7
Gross profit 75.4 68.1 10.7
Gross margin (%) 23.7 22.6 4.9
EBITDA (1) 28.2 22.7 24.8
Cash flows from operations (1) 16.2 8.9 82
---------------------------------------------------------------------

(1) EBITDA (earnings before interest, income taxes, depreciation and
amortization) and cash flows from operations are not accepted
performance measure as per Canadian GAAP.


- Cash flows from operations increased by 31% for the third quarter compared with the same period last year, and by 82% compared with the second quarter this fiscal year, due to tight monitoring and management of working capital by the business units.

- Gross margin as a percentage of revenues increased from 22.1% to 23.7% compared with the same period last year, and from 22.6% to 23.7% compared with the second quarter this fiscal year, mainly due to the improved performance of the US cash logistics operation.

- The working capital ratio was 1.4, a comfortable level to achieve the internal growth that the Corporation expects in the future.

On September 15, 2008, the Corporation executed an Amending Agreement to its Credit Facilities Agreement providing for certain changes to conditions of its revolving facilities, senior term loans and subordinated term loan. The Amending Agreement replaces, effective on October 31, 2008, the existing financial covenant with new minimum EBITDA requirement to be satisfied at the end of each quarter up to October 31, 2009, at which point the financial covenants revert back to the covenants previously in place under the credit facilities. In accordance with such, and taking into account the projected cash flows for the next fiscal year, the Corporation would need to achieve a reduction of at least approximately $30 million of its long-term debt before October 31, 2009.

Based on its plan to reduce its long-term debt and the strong performance of its operational business segments during the third quarter of fiscal 2009, the Corporation expects to meet all the covenants under the credit agreement for the next year and is not subject to any additional externally imposed capital requirements.

"After the second quarter, we implemented a number of initiatives to reduce our costs, increase our margins and more closely monitor our working capital. These excellent third quarter results demonstrate the awareness and the focus our senior management team has placed on operational performance throughout the Corporation," said Francois Rodrigue, Garda Senior Vice President and CFO. "While we are being prudent in the context of this challenging environment, we remain confident in the future of our Corporation and the development of our operations in the US. The efficiency measures and consistently improved performance of our cash logistics operation in the past months will enable us to successfully weather market challenges."

"Thanks to our optimal cost structure and the gains resulting from efficiency measures we implemented during recent months, we consider Garda to be an operationally stronger, better positioned company to face the competition in these markets. Historically, Garda has always achieved solid organic growth in challenging market conditions. We have grown to become a highly competitive industry leader," concluded Stephan Cretier.

Strategic Review

During the third quarter of fiscal 2009, the Corporation carried on the review of a number of initiatives to enhance its profitability and financial flexibility. The unsolicited indication of interest to buy an important part of its business, received in early summer 2008, did not ultimately materialize due essentially to the deterioration of the credit environment and general market conditions. Nevertheless, the Corporation has identified a number of other scenarios for the monetization of certain of its assets and the identification of other sources of financing.

Accordingly, the Corporation is diligently pursuing a number of opportunities to achieve a reduction of its long-term debt. Supported by the strong performance of each of its operational business segments during the third quarter of fiscal 2009 and the favorable outlook of each of its operational business segments for the coming fiscal year, the Corporation is confident that, in spite of the current difficult credit environment, it will succeed in realizing the full value potential for the identified scenarios and in achieving the planned reduction in its long-term debt within the next twelve months.

Third Quarter 2009

Revenues

Revenues amounted to $318,211 for the quarter ended October 31, 2008 compared to $315,340 for the corresponding quarter last year, an increase of $2,871 or 0.91%. The increase in revenues results mainly from the net impact of the significant strengthening of the US dollar in Q3 2009 compared to Q3 2008 offset by a reduction of 2.5% in internal growth. The reduction of 2.5% in internal growth is attributable to the reduction in the US physical security segment due to the non-renewal of security contracts on military bases in the fall 2007, the decrease in revenues in the Canadian physical security segment due to the sale of Keyfacts in October 2007, and the slight reduction of 2.0% in the level of activity in the US cash logistics segment due to the general economic slowdown.

For the nine (9) month period ended October 31, 2008, sales increased to $915,270 from $871,914 for the same period last year, representing an increase of $43,356 or 5.0%. This increase in revenues results mainly from the additional revenues related to the business acquisitions of ATI international and GSS Global during the first quarter last year, offset by a reduction in the level of activity in the consulting and investigation services of the US physical security segment during the first half of the fiscal year.

Revenues in the physical security segment amounted to $160,011 for the quarter ended October 31, 2008 compared to $166,647 for the corresponding quarter last year, a decrease of $6,636 or 3.98%. 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 the non-renewal of security contracts on military bases in the fall 2007 and the off-setting impact of the strengthening of the US dollar in relation to the Canadian dollar between Q3 2009 and Q3 2008. Revenues in the cash logistics segment amounted to $158,200 for the quarter ended October 31, 2008 compared to $148,693 for the corresponding quarter last year, an increase of $9,507 or 6.4%. This increase in revenues is attributable to the strengthening of the US dollar in relation to the Canadian dollar between Q3 2009 and Q3 2008 and the off-setting impact from the reduction of 2.0% in the level of activity in the US cash logistics segment due to the general economic slowdown.

Revenues in Canada amounted to $122,976 for the quarter ended October 31, 2008 compared to $128,060 for the corresponding quarter last year, while revenues in the United States and other amounted to $195,235 for the quarter ended October 31, 2008 compared to $187,280 for the corresponding quarter last year.

Gross Profit

Gross profit increased by 7.9% or $5,526 from $69,842 for the quarter ended October 31, 2007 to $75,368 for the quarter ended October 31, 2008. This increase in gross profit is mainly attributable to the net impact of the increase in performance in the cash logistics segment, the strengthening of the US dollar, and an off-setting decrease in revenues in the US physical security segment due to the non-renewal of security contracts on military bases in the fall 2007.

Gross margin as a percentage of revenues increased from 22.1% to 23.7% mainly due to an increase in performance in the cash logistics segment resulting from operational efficiencies and the completion of the integration activities since the acquisition of ATI International in April 2007.

For the nine (9) month period ended October 31, 2008, gross profit rose to $215,527 from $187,359 for the same period last year, an increase of $28,168 or 15.0%. Gross margin as a percentage of revenues increased from 21.5% to 23.6%. The increase results essentially from operational efficiencies and the completion of the integration activities in the US cash logistics segment.

Net loss for the period

The net loss amounted to $2,156 (representing -$0.07 basic per share and $-0.07 diluted per share) for the quarter ended October 31, 2008, compared with a net income of $4,134 (representing $0.13 basic per share and $0.13 diluted per share) for the corresponding quarter last year.

For the nine (9) month period ended October 31, 2008, the net income totalled $1,206 (representing $0.04 basic and $0.04 diluted per share) compared to $8,450 (representing $0.27 basic and $0.26 diluted per share) for the same period last year, a decrease of $7,244.

When excluding the non-recurring financial charges (additional financial and professional fees of $3,977 paid during the quarter to our lenders under the Amending Agreement in Q3 2009), the net income amounted to $429 (representing $0.01 basic per share and $0.01 diluted per share) for the quarter ended October 31, 2008, and $3,791 (representing $0.12 basic and $0.12 diluted per share) for the nine (9) month period ended October 31, 2008.

Cash flows

The cash position of the Corporation increased by $7,089 during the third quarter of fiscal 2009 resulting from the net impact of 1) the cash flows from operations of $16,195 consistent with the EBITDA level of the business units, net of the financing expenses and the recovery of income taxes, 2) the positive variance of $18,059 in non-cash working capital items driven by the tight monitoring and management of the working capital, 3) the repayment of $24,765 in revolving facilities and senior term loan, 4) the additions of $5,291 to property, plant and equipment (net of the proceeds from disposals), and 5) the positive impact of $2,891 on cash of the variation in conversion rate between the US and Canadian dollar.

For the period of 9 months ended October 31, 2009, the cash position of the Corporation decreased by $1,411 resulting from the net impact of 1) the cash flows from operations of $43,284 which is consistent with the EBITDA level of the business units, net of the financing expenses and the recovery of income taxes, 2) the positive variance of $9,666 in non-cash working capital items driven by the tight monitoring and management of the working capital, 3) the repayment of $41,373 in revolving facilities and senior term loan, 4) the additions of $16,764 to property, plant and equipment (net of the proceeds from disposals), and 5) the positive impact of $3,776 on cash of the variation in conversion rate between the US and Canadian dollar.

Operating activities

Cash flows from operations increased to $16,195 for the quarter ended October 31, 2008, compared with $12,409 for the corresponding quarter last year. This increase of $3,786 or 31% is mainly attributable to the close monitoring of the working capital of the Corporation.

Changes in non-cash working capital items generated cash of $18,059 during the quarter ended October 31, 2008, compared to cash generated in the amount of $8,074 in the corresponding quarter last year.

Operating activities generated cash of $34,254 during the quarter ended October 31, 2008, compared to cash generated in the amount of $20,483 in the corresponding quarter last year.

For the nine (9) month period ended October 31, 2008, the cash flows from operations totalled $43,284 compared to $38,594 for the same period last year, an increase of $4,690.

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 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, http://www.gardacashlogistics.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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