David Seaton: Into the terror zones

Meet the security boss who's striving to protect both his clients and his profits in Iraq and Afghanistan

David Seaton's travel itinerary wouldn't be the first choice of most chief executives: he was in Afghanistan in July and next month he is off to Iraq.

For the head of ArmorGroup, the listed security services group, it is all part of the job. Indeed, if there are bombs exploding or people being kidnapped, it's a good bet the company, and its burly Glaswegian leader, won't be too far away.

"I try to get out to one place every four to six weeks. I try to hit all the major operations in all of the regions every year," he says. "I was in Iraq just over a year ago, and I'm due to go out anytime." So has he had any close calls? "Not personally. We're a security company, so we know the risks and we look after staff and clients as best as we possibly can."

ArmorGroup's business is protecting people and assets around the world. It's a fairly broad remit that takes in everything from clearing sea mines on Russia's Sakhalin 2 oil and gas project, to protecting diamond mines in the Congo, to training security forces in Iraq.

The company has a roster of blue-chip clients that includes the likes of BP, BAT and Bechtel, as well as the Ministry of Defence and the US Department of Defense.

Yet like most of his clients, Seaton finds himself in a difficult situation. ArmorGroup listed on the London Stock Exchange in 2004, and although it has beaten revenue expectations over the ensuing two years, its shares have fallen drastically - off nearly 50 per cent since the float. It now trades at around 10 times earnings, well off the 15 to 20 times average among support services companies. And that is despite increasing revenue from $190m (£98m) in 2004 to an expected $266m for the 2006 fiscal year.

Image is part of the problem. Many of its employees are ex-special forces and military, working in some of the most dangerous places in the world. As one industry source explains: "It still has a slightly tarnished reputation. It is hard for people to distinguish between what is private military and what are protective services."

Yet the primary conundrum for Seaton is Iraq. It is both the bane of the group's stock performance and the indisputable bedrock of its business. ArmorGroup derives more than half of its turnover from the country, and while that may seem no bad thing for a security company, paradoxically it is.

As the violence has increased, fewer people are travelling to Iraq. That means demand for many of ArmorGroup's services, such as convoy protection, are lower and the company gets paid less money. At the same time, legions of security firms have been drawn to the country, increasing competition for training and protection services, and again driving down rates.

The US government also requires that the companies it hires in Iraq and Afghanistan take out comprehensive insurance policies, which has eaten into profits. And the end of a highly lucrative training contract in Iraq has also hurt ArmorGroup's performance.

The upshot is that margins went from 9 per cent in 2004 to an expected 4 per cent for this fiscal year. As the source says: "4 per cent margins on $260m in annual turnover for such highly specialised services just doesn't feel right."

So job one for Seaton, who only took over the executive suite six months ago, is to get profits back on track and to increase the cash coming in from operations other than those in Iraq. "We have to diversify our revenue streams, and we are doing that," he says, pointing to increased revenues from Latin America, Russia and Afghanistan.

Indeed, last month the company won a $30m UK government contract to protect the British Embassy and the British Council Compound in Kabul, for which it has hired former Gurkha soldiers and Afghan guards. The contract also includes escort services to government personnel as they move around the country.

Seaton has had little time to get comfortable in his new post, overseeing more than 4,000 employees in 160 countries. And after working as an accountant for most of his career, he may seem an unlikely leader for a legion of ex-military types operating in theatres throughout the world. "I would never have guessed that I would have been in this industry," he says matter of factly.

It was a job in the finance department of Schlumberger Dowell, a subsidiary of the oil services giant, that whetted his appetite for this type of work. Several international postings at Schlumberger took him from Scotland to places as diverse as Russia, France and Nigeria, and he got used to operating in less than ideal conditions. In his three years in Nigeria, for example, he lived through an attempted coup and saw the Nigerian currency, the naira, spiral from four to the dollar to 44. As the top accountant for the region at the time, it made his job difficult. "It was quite a challenge to keep the value that you generated from the business," he says. "Let's just say that Schlumberger now has some rather nice offices in Port Harcourt [Nigeria].

"All of the experiences in developing that I got in Schlumberger are serving we well."

After 12 years there, he took an entreprenurial turn when he joined The Stuffed Shirt Company as a director. Working for that company - which made shirts for travellers that were designed to come out of the suitcase looking as if they had just been pressed - was a quite different from working inside a big multinational, but after five years, he was pulled back in - this time at ArmorGroup.

He will need to draw on all that experience as he tries to get the company on a more solid footing. That could mean some small tactical acquisitions, Seaton says. It will also mean a greater push into the US, where the multi-billion-dollar market in homeland security represents a massive opportunity.

The proportion of the business that comes from Iraq has begun to drop. Yet for the foreseeable future, the country will remain the company's bread and butter. "The Iraq story is far from finished. With the ongoing military action, convoys will continue to need support and protection. In time, the Iraqi oil fields will be developed, and will also need protecting," he explains. "We see ourselves in Iraq for at least the next decade."

BIOGRAPHY

Born 22 November 1960.

Education Dundee College of Technology - business studies; Chartered Institute of Management Accountants.

Career

1983-94: Schlumberger Dowell, oilfield services subsidiary of the Schlumberger Group. Roles included: regional financial controller for Europe & CIS; assistant group controller; divisional controller, Dowell Nigeria; chief accountant and then divisional controller, Dowell UK (Aberdeen).

1994-98: director, The Stuffed Shirt Company.

1998-99: finance director, ArmorGroup.

1999-2006: chief financial officer, ArmorGroup.

June 2006 to present: chief executive, ArmorGroup.