ArmorGroup yesterday became the first British victim of the bitter row over the conduct of US private security companies in Iraq.
The chief executive, David Seaton, who has been in the post for only 18 months, is stepping down after ArmorGroup admitted profits will be lower than last year's $10.6m (£5.1m) as potentially lucrative contracts in Iraq have dried up following an incident in September involving the American firm Blackwater, in which 17 Iraqi civilians were killed.
ArmorGroup, which has more than 9,000 employees working in 38 countries, has already started reducing its operations in Iraq, but shares in the company lost more than 40% as investors reacted with shock at the scale of the problems. The company added that cancellation of an acquisition it had been planning for months would mean it had to write off about $2m of lawyers' and bankers' fees.
Sir Malcolm Rifkind, company chairman and the former Conservative foreign and defence secretary who opposed the invasion of Iraq, said: "It has been a deeply disappointing and frustrating period for the group with a number of major projects being undermined by significant delays and unexpected contractual issues."
Since the invasion in 2003, the company's turnover has grown from $110m to $273m. But the role and future prospects for security companies in Iraq have been in doubt since September 16, when Blackwater guards opened fire in Baghdad's Nisoor Square. The Iraqi government said the companies would no longer be exempt from Iraqi law. The US state department has promised to impose stricter rules on security companies.
ArmorGroup is particularly exposed as nearly half of its business is in Iraq. "The award and mobilisation of a number of major contracts in Iraq has been severely affected by the Blackwater incident," the company said in a statement yesterday.
A new Iraqi contract, referred to obliquely in ArmorGroup's statement yesterday, has not built up as significantly or as quickly as expected. It is believed to relate to guarding convoys on behalf of another private company.
However, ArmorGroup's problems are compounded by the $189m contract to guard the US embassy in the Afghan capital, Kabul. The contract, trumpeted by the company when it was announced this year, has turned out to be a millstone with problems over administration and vetting staff.
Andy Bearpark, director-general of the British Association of Private Security Companies, said yesterday: "Operating conditions in Iraq and Afghanistan are particularly difficult in part because of Blackwater in September and uncertainty surrounding the regulatory environment".
Last year War on Want estimated that British private security companies had contracts in Iraq and Afghanistan worth £1bn and there were 48,000 employees of private security firms in Iraq - 21,000 of them British. That total has dropped to 10,000, British companies say.