The recovery at security solutions provider Westminster Group PLC (LON:WSG) gained momentum in the first half of the year.
The group has had to deal with the effects of the Ebola crisis at its African operations, while dealing with the decline in activity in some of its markets that was sparked by the oil price collapse, but the performance this year suggests the company has put the dark days behind it.
Passenger volumes at the African airports that use Westminster’s services have still not recovered to pre-Ebola crisis levels, but the airport security business has now been profitable since the start of March 2015 and was a key factor in the headline operating loss diminishing dramatically to £0.18mln from £1.10mln in the first half of last year.
When adjusted for the impact of Ebola, the group recorded positive underlying earnings (EBITDA) of £0.18mln (2015: £0.02mln).
Group revenues rose by 5% to £2.03mln from £1.93mln the year before, on the back of a strong recovery in revenues for the managed services division, which includes Westminster’s airport security business.
The group responded swiftly at the onset of the tougher trading environment by cutting costs, and highlighted that operating costs were reduced by a further 16% in the first half of the year, which means they are now 27% lower than they were before the Ebola virus outbreak.
Meanwhile, an increased focus on the higher margin managed services activities meant that the average gross margin in the first half of the year was 74%, up from 51% in the same period of 2015. The group's operating cash outflow was reduced by 95% to £0.06mlm from £1.13mln the previous year.
Peter Fowler, chief executive of the group, said the decision to focus on the development of long-term airport security programmes in recent years had “been both strategic and potentially transformational” for the business.
The group has signed three memoranda of understanding (MoU) agreements in various geographical regions relating to its airport security programme this year, bringing the total up to seven.
Westminster provided an update on each of these in its annual report issued at the end of June 2016 and today Westminster announced that progress has been made on a number of fronts relating to these signed MoU's, including the Asia airport security project signed in February 2015, which the company say is now at contract negotiation stage with high level follow up meetings organised for early October 2016. The most interesting update, however, was on what looks to be a potential blockbuster deal within the Middle East.
At the end of July Westminster announced that contract discussions on this deal had been largely completed, since when the multi-million pound incremental scope of works also under discussion has expanded to such an extent, both in terms of scope and value, that it has been decided that these will be dealt with under a separate contract agreement.
This single opportunity alone, excluding the incremental scope of works, has the potential to transform the group's airport security business annual revenues to more than £35mln, Fowler declared, with significant future growth potential both from this and the other opportunities the group is pursuing.
In addition the group announced that its long awaited ferry services are now due to start in the fourth quarter, adding that despite the delays, which have been both a frustration and a cost to the group, this remains a long-term value generating opportunity.
Meanwhile, the group confirmed it has now agreed overall terms with a European security group and is in the process of setting up a joint venture company in Europe, opening up new project opportunities in different parts the world.
As for the Technology Division, it made a positive contribution in the first half of the year, despite previously announced project delays, which continue.
The division has been affected by the slump in oil prices, but managed to secure orders for a wide range of products and services around the world.
The division has a number of other advanced solution sales prospects underway, Westminster revealed, adding the caveat that predicting when – or if – these deals will close is always difficult to accurately predict, particularly when dealing with government bodies.
"Following two difficult and challenging years dealing with the effects of the Ebola Crisis, the oil price collapse and other issues I am pleased to report the first half of 2016 has shown a strong recovery both in terms of financial performance and in business development,” said Peter Fowler.
“Added impetus has come in September 2016 from the United Nations Security Council following a British Government initiative. With this, and the progress the business is making on numerous fronts, it gives the board and me confidence in our transformational growth prospects,” Fowler added.
Shares in Westminster rose 11% to 27.75p on the results.