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Garda Delivers Solid 2012 Results with Strong Momentum in the Second Half of the Year

08:00 EDT Thursday, April 19, 2012

MONTREAL, QUEBEC, CANADA--(Marketwire - April 19, 2012) - 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 fiscal year ended January 31, 2012, executing flawless integration of new business start-ups in US Cash Logistics, integrating Kolossal Security, establishing new markets in Southern Iraq and Afghanistan and completing the relocations of corporate offices in Dubai and Florida.

HIGHLIGHTS FOR THE FISCAL YEAR ENDED JANUARY 31, 2012

  • Strong sales growth of 11.2% and 14.3% in Q4.
    • Cash Logistics organic growth of 7.6% (US at 8.5% in Q4).
    • Canadian Security Solutions growth at 14.3% (17.3% in Q4).
    • Emerging Markets organic growth of 15.9% (39.1% in Q4).
  • Operating profit of 10.5% at $128.4 million, a slight decrease of 0.4% for the year but amounting to $70.5 million for the second half.
    • 15.3% in Cash Logistics (16.1% in 2011) and 15.9% in second half of fiscal 2012.
    • 6.0% in Security Solutions (7.0% in 2011) and 6.5% in the second half of fiscal 2012, despite a one-time charge of $2 million in Canadian Air Transport Security Authority (CATSA) transition costs.
  • Net income adjusted for specific items at $23.0 million or $0.72 per share (net income of $21.6 million or $0.68 per share), affected by increase in depreciation and finance costs attributable to sales growth investments.
  • Cash flow from operations of $127.0 million, comparable to last year but with strong cash generation of $70.1 million in second half contributing to our deleveraging strategy with pro-forma leverage at 4.48 at the beginning of year, with a year-end target at 4.00.
  • Major contract win for security screening services in 14 airports in the Central region of Canada and acquisition of Aeroguard on October 5, 2011 with its contracts for 13 additional airports across the Prairies region bringing the value of the CATSA's contracts to $1.1 billion over five years.
  • Acquisition of Kolossal on February 12, 2011, which has already been accretive in the amount of $2.4 million to the Canadian security solutions' operating profit.
  • Investment of more than $59 million in sales growth to reach additional sales run rate of $141 million in 2012.
  • Concluded the sale of all the assets related to Surveillance Services division located in Ontario for a total net cash consideration of $4.1 million. A loss on disposal (including tax) of $1.4 million was accounted for in the third quarter.
  • Improvement of the Corporation's financial structure to meet future growth requirements: On June 2, 2011 and on January 27, 2012 the Corporation issued two notes of $50 million each of senior unsecured notes at an effective yield rate of 8.11% and 9.05% respectively. In addition, after year-end, the Corporation refinanced its banking debts for three years, increasing available liquidity and reducing interest rates.

"Our operational performance and strong growth of 11.2% in fiscal 2012 demonstrate the ability of our people and platforms to generate solid profitable results while, at the same time, undertaking contract starts-ups and smoothly relocating two corporate offices," said Garda Senior Vice President and Chief Financial Officer Patrick Prince. "As a result, we finished the year with a strong momentum in sales, operating profits and cash flow generation. With the completion of our refinancing we also have the financial structure to support our growth."

"The second half of fiscal 2012 was nothing short of spectacular. Each operating units took off at mid-year and, the aforementioned distractions notwithstanding, knuckled down and delivered," said Garda President and CEO Stephan Cretier. "We've expanded our existing business while winning significant new business and smoothly integrated it into our operations. We also developed new areas where our previous footprint was limited which gives the company new capabilities for future growth. These are clearly positive and exciting signs for the future."

SELECTED FINANCIAL HIGHLIGHTS
(in thousands of dollars, except per share amounts) 2012

$
2011

$
2010

$
Revenues 1,224,887 1,120,521 1,083,087
Gross profit 285,960 268,438 280,086
Operating profit (1) 128,372 128,823 128,234
Net income (loss) for the year 21,596 28,550 (35,292 )
Cash flows from operations before non-cash working capital (1) 127,043 127,750 143,342
Adjusted net income(1) 23,023 28,550 10,002
Basic net income (loss) per share 0.68 0.90 (1.12 )
Basic adjusted net income per share 0.72 0.90 0.32
Basic cash flows from operations per share 3.97 4.03 4.54
(1) Cash flow from operations, adjusted net income (loss) and operating profit are not accepted performance measures as per IFRS.

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

PERFORMANCE FOR FISCAL YEAR ENDED JANUARY 31, 2012

Our performance in 2012 was a combination of two very different situations.

The first half was characterized by contract start-ups in the US cash logistics, the integration of Kolossal in Canadian security solutions, the establishment of new markets in Southern Iraq and Afghanistan in emerging markets and the preparation for the relocations of corporate offices in Dubai for Emerging markets and Florida for US cash logistics. All these events put stress on operations and obviously on costs.

Our second half, although we transited to the new CATSA contracts, was less eventful and we enjoyed the benefit of very strong growth while having absorbed the costs of the large contract start-ups of the beginning of the year.

The results of this fiscal year showed a strong growth of 11.2%. This very good result becomes even more interesting when we consider the first half growth of 8.9% and the second half growth of 13.4%. We have established a clear and strong momentum in the second half. With many new contract start-ups, the revenue growth in cash logistics is clearly established with every month resulting in a new record in sales. Our Q4 resulted in a growth of 8.5% in the US cash logistics, helping the total cash logistics division to show a growth for the year of 7.6% 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 limited. This allows us to now further develop new markets and gives us new capabilities for growth. All these start-ups obviously created pressure on costs at the initial phase as evidenced by our operating profit of 14.8% in the first half improving to 15.9% in the second half of fiscal 2012.

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. We also developed many new contracts in the oil & gas sector in Alberta during the second phase of the year. Our growth in that division amounted to 14.3% for the year and to 17.3% for Q4.

In emerging markets (Middle East and North Africa), we have successfully started many new diplomatic contracts and are continuing to develop the Southern Iraq region with oil & gas partners. Our growth in that division was 15.9% for the year, but more importantly 39.1% for Q4 when we reached a run rate of $140 million in yearly revenues.

Overall we were able to generate 23.3% of gross profit compared to 24.0% last year again, because of the effects on costs of starting new business and CATSA contract modifications. One of the strengths of our operations is to recover rapidly from normally intense large start-ups. It is normal to have extra costs in a start-up phase of a contract; the key is being able to switch out of start-up mode rapidly. It is easy to see the bounce back in our operations with gross profit of 22.6% in the first half of 2012 and 24.1% in the second half even with more than $2 million of extra costs on the CATSA contract transition.

The same situation affects operating profit. Operating profit for Cash logistics was 15.3% for the year compared with a strong 16.1% last year. However when we analyse the year, operating profit was 14.8% for the first half of 2012 and 15.9% for the second half.

Operating profit for Security solutions was 6.0% for the year compared with 7.0% last year, but reached 6.5% in the second half of 2012 despite more than $2 million of extra costs on the CATSA contract transition. This is a good recovery considering a year where we acquired Kolossal, transited to new contracts worth more than $1.1 billion with CATSA and moved our corporate office for Emerging markets to Dubai.

Finally, net income amounted to $21.6 million or $0.68 per share in 2012, while the net income for 2011 amounted to $28.6 million or $0.90 per share. The net income adjusted for the disposal of Surveillance Services division amounted to $23.0 million or $0.72 per share. Of this net income, $13.3 million or $0.42 per share was generated in the second half of the year. This decrease in net income is explained by higher depreciation and amortization and higher finance costs related to our growth investments of $59 million of which more than $40 million happened in the first half of 2012.

On the financial situation side, as mentioned, all this growth needed funding. We have invested more than $59 million directly in our growth with acquisition costs, some growth capital and working capital. To be able to fund these amounts and more importantly to be able to fund future growth, we have completely revisited our financial structure. With two issues of senior notes and a bank refinancing in March 2012, we now have capital to grow. But to fund that growth we also have to generate cash from our operations. Our cash flow from operations was $127 million, the same as last year. Of that number more than $70 million was generated in the second half of the year. Again this shows a clear momentum.

Revenues

The revenues for 2012 were $1,224.9 million, compared with $1,120.5 million last year, an increase of $104.4 million or 9.3%. The acquisition of Kolossal added $54.3 million and organic growth totalled $72.6 million or 6.5% in 2012. The decline in US dollar has decreased the revenues by $19.1 million year-over-year.

Security solutions' revenues in Canada were $534.3 million, compared with $467.2 million last year. This increase of $67.1 million or 14.3% is mainly attributable to the acquisition of Kolossal and new contracts in western Canada.

The Aeroguard acquisition increased the revenues by $17.9 million while the contract reallocation by CATSA decreased revenues by $21.3 million.

Revenues from emerging markets (Middle East and North Africa) were $106.5 million compared with $94.6 million last year. The decline in US dollar has decreased the revenues by $2.8 million year-over-year. At constant exchange rate the revenues from emerging markets were $107.0 million compared with $92.3 million, an increase of $14.7 million or 15.9%. The growth at constant exchange rate was negative 2.3% for first half and positive 31.9% for second half of fiscal 2012.

Cash logistics' revenues were $584.1 million compared with $558.6 million last year, an increase of $25.5 million or 4.6%. At constant exchange rate the revenues for cash logistics were $588.5 million compared with $546.7 million last year. This increase of $41.8 million or 7.6% is mainly attributable to the start-up of several new large bank contracts in the United States.

Foreign exchange impact

In addition to above, the Corporation's results have been impacted by the US dollar depreciation year-over-year. The following table provides the evolution of the US exchange rate and the impact on the Corporation's results for each of the reported periods.

Foreign exchange rate 2012 2011
Average for year ended January 31 0.9909 1.0260
Average for quarter ended January 31 1.0210 1.0048
Closing as at January 31 1.0052 1.0022
Impact on results 2012 2011
Elements of the financial statements affected by US dollar depreciation -increase (decrease):
Revenues (19,117 ) (51,713 )
Operating costs (14,213 ) (37,093 )
Selling and administrative expenses (3,593 ) (11,396 )
Finance costs (1,039 ) (5,412 )
Recovery of income taxes (135 ) 1,580
Net income (137 ) 608

Operating costs

Operating costs were $979.9 million compared with $890.5 million last year, an increase of $89.4 million or 10.1%.

The Kolossal's acquisition added $50.0 million and the US dollar depreciation reduced the operating cost by $14.2 million. Organic growth added $58.7 million or 6.6% while the net impact of Aeroguard acquisition and the CATSA contract reallocation reduced the operating costs by $5.0 million.

Selling and administrative expenses

Selling and administrative expenses were $168.2 million compared with $152.2 million last year, an increase of $16.0 million or 10.5%.

The Kolossal's acquisition added $1.9 million and the US dollar depreciation reduced the selling and administrative expenses by $3.6 million. Organic growth added $14.2 million or 9.3% while the net impact of Aeroguard acquisition and the CATSA contract reallocation increased the selling and administrative expenses by $3.5 million.

Finance costs

Finance costs for 2012 were $63.3 million, compared with $58.4 million last year. This increase of $4.9 million or 8.3% is mainly attributable to higher interest on long-term debt of $3.0 million due to working capital used in organic growth and business acquired during the year. Amortization of deferred financing costs and bank fees increased by $0.9 million and $1.3 million respectively. Other interest included mostly bank fees.

Recovery of income taxes

Recovery of income taxes for 2012 was $8.8 million compared with $9.1 million last year. The effective income tax rate conforms to the tax policy of the Corporation as well as its many jurisdictions in which it operates and the effect of its financing structure.

SEGMENT RESULTS

Gross profit 1

The gross profit for 2012 was $286.0 million compared with $268.4 million last year, an increase of $17.6 million or 6.5%. The US dollar depreciation reduced the gross profit by $5.9 million.

The gross profit at constant exchange rate was $287.4 million compared with $263.9 million last year, an increase of $23.5 million or 8.9%, mainly due to sales growth in both segments.

Security solutions' gross profit for 2012 was $91.2 million compared with $79.7 million last year, an increase of $11.5 million or 14.4%. At constant exchange rate, the security solutions' gross profit was $91.2 million compared with $79.2 million last year. Excluding the contribution of Kolossal's acquisition of $4.3 million, the gross profit for 2012 increased by $7.7 million or 9.7%.

Cash logistics' gross profit for 2012 amounted to $194.8 million compared with $188.7 million last year. At constant exchange rate, cash logistics' gross profit was $196.2 million versus $184.7 million last year, an increase of $11.5 million or 6.2% attributable to several contract start-ups.

Cash logistics' gross profit as percentage of revenues for 2012 was 33.3% compared with 33.8% last year; this reduction is mainly attributable to the start-up of new businesses.

Operating profit 1

Operating profit for 2012 was $128.4 million compared with $128.8 million last year, a slight decrease of $0.4 million or 0.4%. The US dollar depreciation reduced the operating profit by $2.6 million. The Kolossal's acquisition had a positive impact of $2.4 million.

At constant exchange rate the operating profit for 2012 was $129.0 million compared with $126.8 million last year, an increase of $2.2 million or 1.7%. Of this, $2.3 million is attributable to cash logistics' segment, while security solutions' segment decreased their operating profit by $0.1 million. The reallocation of CATSA's contract had a $2.0 million negative impact in the last quarter of this year.

During 2012, security solutions' operating profit reached 6.0% of revenues compared with 7.0% last year. Operating profit for the cash logistics segment reached 15.3% of revenues in 2012, compared with 16.1% last year, decrease due to the effects of start-up of contracts in the US.

1 Please refer to section "Reconciliation of non-IFRS financial measures"

LIQUIDITY

Cash flows

Cash position as at January 31, 2012 amounted to $10,594, a decrease of $4,384 versus January 31, 2011. This decrease 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 $127,043, a decrease of $707 or 0.6% over the cash flow generated by the operations last year.

Net change in non-cash working capital balances items used cash of $36,937 compared with cash used in the amount of $41,534 last year. This is mostly attributable to an increase in accounts receivable generated by new businesses and an increase in accounts payable in 2012.

Financing activities

Cash used for financing activities amounted to $51,206 compared with cash used of $63,287 last year. The revolving facilities and the long-term debt variation generated $20,447 during 2012 compared with $46,066 last year. In fiscal 2011, the Corporation used $47,441 related to the SWAP termination payment and $21,609 in borrowings costs related to the refinancing of its long term debt.

The interest paid on debt increased by $15.0 million, due to the semi-annual payment of interests on the US and Canadian notes.

Investing activities

Cash used in investing activities amounted to $43,220 compared with cash used of $19,242 last year. This increase is mainly attributable to payments made for the Kolossal and Aeroguard's acquisitions of $17,068 (including bank indebtedness).

Additions to property, plant and equipment were $28,311 versus $21,637 last year. Intangible assets additions totalled $5,883 versus $5,101 last year.

CAUTIONARY NOTE REGARDING 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 revenues and benefits 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 according to the current circumstances. 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 economic conditions make forward-looking information and the underlying assumptions used by Garda subject to uncertainty and that, consequently, they may not materialize, or the results may differ from the company's expectations. Forward-looking information is also subject to certain factors, 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. The reader should also take knowledge of the Garda's Management's Discussion and Analysis for the fiscal year ended January 31, 2012. 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 annual financial statements, and the notes thereto, prepared in accordance with IFRS and the MD&A of the fiscal year ended January 31, 2012.

Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.

CONFERENCE CALL

Stephan Cretier, President & CEO, and Patrick Prince, Senior Vice President & CFO, will discuss the fiscal 2012 results today, April 19, 2012 at 10:00 AM EDT during a conference call with financial analysts and institutional investors. Listeners may access the call by dialing +1 800 741.3792 or +1.416.981.9000.

MD&A FILING

Garda's Management's Discussion and Analysis for the fiscal year ended January 31, 2012 was filed with SEDAR on April 19, 2012 and is available on the website www.garda.com in the investors' section as of April 19, 2012.

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, 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 company 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.garda.com.

FOR FURTHER INFORMATION PLEASE CONTACT:

Nathalie de Champlain
Garda
Vice President Communications
+1561 939 2330
nathalie.dechamplain@garda.com
OR
Director, Corporate Communications
Joe Gavaghan
+1302 294 2162
joe.gavaghan@garda.com
www.garda.com




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