Securicor plc - Interim Results to 31 March 2004
Organic turnover growth of 5.0%
Underlying EBITA up 10.5% to £39.0 million
Normalised earnings per share up 48.3% to 4.3p
Interim dividend up 10.3% per share to 0.86p
Very strong cash flow
Proposed merger with security business of Group 4 Falck announced in February
Lord Sharman, Chairman of Securicor, commenting on the results, said:
"We have maintained our good start to the year. We have responded robustly to the challenges which we faced in the second half of 2003 by focusing on customer service, rigorous management of our cost base, and new business development.
These results provide a solid base on which to move forward with the merger of Securicor with the security business of Group 4 Falck, which we expect to see completed later this summer."
For further enquiries please contact:
Nick Buckles, CEO
Trevor Dighton, CFO,
+44(0)20 8770 7000
Citigate Dewe Rogerson
Sarah Gestetner (for media enquiries)
+44 (0)7973 672649
Notes to Editors
Securicor is an international security solutions group, operating in some 50 countries around the world. In total, Securicor employs over 100,000 people worldwide, working with over 130,000 customers requiring both ongoing innovation and absolute integrity. For more information on Securicor, visit www.securicor.com.
Presentation of Results
A presentation to investors and analysts is taking place today at 0900 at Cazenove & Co, 20 Moorgate, London, EC2. A telephone dial-in facility is also available on 0845 245 3471 if dialling from within the UK and +44 (0)1452 542300 if dialling from outside the UK.
Profit before interest, taxation, amortisation, exceptional items and discontinued operations was £39.0 million, compared with £35.3 million for the same period last year. The group's EBITA margin was 5.9% compared with 5.8% for the same period in the previous year.
Turnover for the continuing businesses grew 9.3% to £656.2 million. Organic turnover growth was 5.0%.
The group achieved pre-tax profits of £34.4 million. Normalised earnings per share, being before goodwill, discontinued operations and exceptional items, were 4.3p, compared with 2.9p for the previous year.
Cash generation was very strong, with operating cash flow 99% of operating profit.
The directors have declared an interim dividend of 0.86p per share, payable on 30 June 2004, and which represents an increase of 10.3% over the previous year's interim dividend. Dividend cover is five times.
The proposed merger of Securicor and the security business of Group 4 Falck was announced on 24 February 2004. We expect to send to shareholders formal documentation relating to the merger by the end of this month.
EBITA increased by 8.5% to £26.7 million (2003: £24.6 million) on turnover of £298.5 million (2003: £279.8 million) representing organic growth of 7.8% and an EBITA margin of 8.9% (2003: 8.8%).
Securicor Cash Services had a 6.6% increase in turnover in the period, assisted by the retention of major contracts with a number of key financial institutions and high street retailers and by targeted price increases. ATM-related turnover growth returned to previous levels and showed a 25% year-on-year gain, with increased repair and maintenance activity.
The three major cash processing contracts – with Alliance & Leicester, Clydesdale and Lloyds TSB – produced a 27% increase in turnover over the corresponding period last year. The company has been named as preferred bidder for the Abbey cash centre outsourcing contract, which is due to begin this autumn, with turnover expected to be around £50 million over 10 years.
The effect of a 6% pay award for 2003/04, negotiated last year as part of a two-year deal, was mitigated by cost reduction programmes which targeted both branch and head office overheads. There was, however, an increase in losses from armed robberies during the period.
Securicor Security experienced ongoing market pressures within the manned guarding sector, but increased turnover overall by 5% due to an improved contract retention performance, focus on service delivery and strong development in specific market sectors. A programme of targeted price increases, coupled with rigorous attention to costs at all levels of the business, ensured that the company's gross margin was maintained. The aviation company enjoyed an excellent new business and contract retention performance during 2003, with a 23% year-on-year increase. The trend continued into 2004, with both the States of Jersey Airport and London City Airport contracts being retained.
Securicor Justice Services produced another good result, with a strong performance from the electronic monitoring business where the monitored curfew base increased by 45% compared with last year. The company is benefiting from a number of growth opportunities and has successfully entered new markets in immigrant repatriation and police support services.
Secure escorting services, on both scheduled and charter flights, are now used by the company to return failed asylum applicants to their country of origin, whilst by the middle of this year the company will be managing 11 custody suites for South Wales Police. The business is working with the Home Office on new tracking technology and is well placed for an active role in the development of the new National Offender Management Service, which will bring together the prison and probation services.
These growth initiatives, together with the operational start-up this summer of the 25-year contract for the design, construction, management and financing of an 80-bed secure training centre in Milton Keynes, will help lessen the impact of the loss of the metropolitan court escorting contract, which is expected to take effect in August.
Securicor International Valuables Transport performed well, with good results in particular from Australia and the Far East. Following the successful start-up of offices in Johannesburg and Frankfurt, a new office was opened in Bangkok. A measured move into the global diamonds and jewellery market has met with early success and prospects here are most encouraging.
Europe, Middle East and Africa
EBITA increased by 24% to £8.9 million (2003: £7.2 million) on turnover of £236.2 million (2003: £196.5 million) with organic growth of 2.2% and an EBITA margin of 3.8% (2003: 3.7%).
A good overall performance in Continental Europe was tempered by disappointing results from Germany cash services where improvement is slow to materialise. Within that business, a strengthened management team under a new managing director is implementing a turnaround strategy. The German aviation subsidiary had a difficult trading period, following termination of one of its major contracts last December. The German guarding business made satisfactory progress and achieved significant contract wins, including a £2 million a year contract with Deutsche Bank which will begin in the third quarter.
The purchase of the remaining 75% of Geldnet, the Netherlands cash services business, was completed in May 2003 and, with a strong trading performance, this company made a good profit contribution in the period. The Netherlands guarding business delivered good results in a tight market. An investment in an IT programme designed to improve service levels, customer information flows and operational efficiency is due to be completed within the next twelve months.
The Middle East, Luxembourg, Jersey, Guernsey and Isle of Man all produced good results, up on the prior year. Ireland and Hungary both made modest losses in the period but, with the implementation of turnaround plans, should show improved results in the second half.
The Africa region had a strong first-half, implementing the strategy of customer and quality focus in selected target markets. The new management team improved organic growth to 11% and commenced a pan-African cash management contract for Barclays Bank.
EBITA decreased to £0.1 million (2003: £0.9 million) on turnover of £83.0 million (2003: £88.8 million). EBITA margin decreased from 1.0% to 0.1%.
In Canada, the company retained all the outsourced business of its largest customer, Toronto Dominion Bank, following a re-tendering exercise at the start of the period. However, some of the work of RBC Financial Group, another important customer, was lost on retender, although Securicor remains their largest cash services provider. Aggressive cost reductions have mitigated the financial impact of this lost work. Good use is being made of improved security technology to reduce vehicle crew sizes, thereby contributing to the company's ability to control costs in the business.
Trading conditions for Cognisa, the USA guarding business, continue to prove challenging, with margin erosion throughout the market, reduced volumes of variable work, and some higher than anticipated costs of exiting certain contracts.
Despite significant overhead reductions, the business is taking longer than expected to sustain a breakeven trading position, mainly due to increased employee-related costs since January. Continued focus on niche guarding markets and investment in improved operational and administrative systems will play important roles in the return to profitability. The company is in the final stages of forming a joint venture with a market leader in maritime security consultancy which should enable it to play a full part in the fast-developing US port security market.
The US justice services businesses, Securicor EMS and Securicor New Century, both had good performances, with turnover in New Century growing by 35% following the increase in 2003 in the number of youth custody and treatment facilities which it operates in Florida.
The Central America and Caribbean region continues to perform well, with results overall in line with expectations. There are exciting opportunities for a partnership with two regional banks to provide a pan-Caribbean cash processing service.
EBITA increased by 27% to £3.3 million (2003: £2.6 million) on turnover of £42.0 million (2003: £39.1 million) representing organic growth of 14.1% and an EBITA margin of 7.9% (2003: 6.6%).
The region had a strong performance overall, although Hong Kong, Taiwan, Macau and Brunei are still operating in a deflationary environment. The electronic security systems business is being developed around the region, with contracts in Macau and Indonesia and the acquisition of a new central alarm monitoring business in Thailand. The risk management solutions business is growing, with a number of high-profile international ship and port security contracts.
Hong Kong's newly renovated cash centre is now fully operational and is able to provide full, outsourced treasury solutions to financial institutions. The company has joined with Standard Chartered Bank to win a Government Treasury bid providing bank and collection services for Government outlets.
In Malaysia, integration with Safeguards following the merger at the end of 2002 is progressing well, with the Malaysian Peninsula phase now completed. The business in Indonesia has grown, particularly in the electronic security systems sector where there have been several contract wins. In Macau, the rapid development of US-style casinos, coupled with general growth and investment, will create further opportunities for the company in guarding, cash and electronic security. In China,Securicor Donar, the country's largest independent ATM maintenance service provider, is proving to be a good acquisition.
Cash flow and financing
Operating cash flow was £35.3 million, 99% of operating profit. This was generated from tight working capital control and capital expenditure below depreciation.
Net borrowings at the end of the period amounted to £90.5 million, a reduction of £24 million Interest cover is 8.5 times and gearing 33%.
We have maintained our good start to the year. We have responded robustly to the challenges which we faced in the second half of 2003 by focusing on customer service, rigorous management of our cost base, and new business development.
These results provide a solid base on which to move forward with the merger of Securicor with the security business of Group 4 Falck, which we expect to see completed later this summer.
10 May 2004
Click here to download the Interim Results Presentation to 31 March 2004