ArmorGroup protects country’s interest




By Mark Huband

Financial Times, 3 February 2005

Visitors to the British embassy in the Iraqi capital Baghdad will not see well-armed troops from the ranks of distinguished regiments guarding the perimeter of what is a prime terrorist target. What they will see is private enterprise in action.

The invasion of Iraq has been as much a showpiece for the private sector as it has been for US military muscle. What has also emerged more clearly than at any time since the end of the cold war is that conflicts and their aftermath are increasingly dependent on public-private partnership.

The guards at the British embassy are from ArmorGroup International, a leading security company whose listing on the London Stock Exchange last November marked a significant milestone in the emergence of the security industry as a part of the UK economy.

Last week, ArmorGroup, which boasts Malcolm Rifkind, former Conservative defence minister, as chairman, issued its pre-close period statement. It revealed it expected 2004 revenues of $190m (£101m), an increase of 93 per cent on 2003. Earnings before tax and the exceptional costs related to the IPO were put at $19.5m, according to the company.

Companies providing services that range from personal protection to business intelligence, such as Kroll and Control Risks Group, have established roles supplementing the capacity of governments.

But the invasion of Iraq and the scale of construction, reconstruction and repair to infrastructure damaged by the US-led bombing campaign, provided unprecedented opportunities for companies operating in a global security industry that the AMR International research group values at $1.7bn per year.

There are few quoted companies that offer focused exposure to the sector and this has been reflected in the performance of ArmorGroup’s shares. From the listing price of 125p they have leapt to 196p, valuing the company at ¬£102m.

Founded in 1982, ArmorGroup operates in 26 countries and employs 7,600 people. Its principle clients are governments in developed countries, leading multinational corporations and non-governmental organisations. But the long-term relations it has built with clients have been transformed by the growing perception of the threat from international terrorism since September 11, and the role of several important clients in Iraq.

“What we’ve found is that post-9/11 all of the major multinationals have a head of security, but the actual task of providing the security is still being outsourced to companies such as ours,” says David Seaton, ArmorGroup chief financial officer.

Demand for the company’s services has been driven by the terrorist threat. But instability in areas of the world where other clients are operating has remained a key factor. Mr Seaton cites increasing demand for oil and gas from other volatile areas, notably west Africa, as well as regions such as the Sakhalin Islands, as areas that its services are being used.

“But there is also a great increase in outsourcing, as governments push more and more business into the private sector rather than tying up government resources,” says Mr Seaton. In the past two years the company has secured 12 “significant” contracts protecting diplomatic missions with the British government, ranging from Africa to the Middle East and Afghanistan, he says.

British government security contracts are put out to tender, though the number of private companies able to guarantee adequate services is small so the same names tend to crop up.

“Private sector companies come into play in certain countries to meet a duty of care to enable the embassies to function,” said the foreign office.

The British government has put measures in place to regulate the security industry and ArmorGroup has been particularly outspoken about the need to shed the industry’s reputation for employing mercenaries and to put it on a transparent footing. This evolution is seen by some within the industry as possibly leading to private security companies becoming more closely involved in the early planning of military operations.

“Security is being put on the logistics list, but governments are still feeling their way,” says Christopher Beese, ArmorGroup chief administrative officer.

“Governments are taking outsourcing seriously and exploiting it to the best extent. You see it in the contracting out of activities like mine clearance and the provision of security details. The private sector is seen as a less expensive option,” says Mr Beese.


©Copyright The Financial Times Ltd 2008.