Final Results

5 August 2015

PHSC PLC

(the “Company” or the “Group”)

Final Results for the year ended 31 March 2015

HIGHLIGHTS

• Underlying EBITDA* improved by 11% at £0.818m, up from £0.735m

• Group revenues increased by 2% to £7.731m compared with £7.594m

• Cash reserves fall to £0.462m due to final acquisition payments

• Group net assets rise to £6.6m

• Earnings per share after exceptional costs fall to 2.75p from 4.24p

• Profit after tax and exceptional costs fell to £349k from £494k

• Proposed final dividend held at 1.5p per share

* Underlying EBITDA is calculated as earnings before interest, tax, depreciation, amortisation and exceptional costs.

I am pleased to present my review of the Group's performance over the year, and to update shareholders on the continuing progress made at PHSC plc.

KEY DEVELOPMENTS AND OUTLOOK

PHSC plc, through its trading subsidiaries is a leading provider of health, safety, hygiene and environmental consultancy services and security solutions to the public and private sectors. The majority of the Group’s revenue continues to arise from the core health and safety businesses with the major income streams being derived from activities such as asbestos management, health care training, public transport safety consultancy, and supporting the education sector. The Group also serves the leisure industry and carries out statutory examination of plant and machinery via insurance brokers or directly for clients.

In order to diversify its offering, the Group took a decision to branch out from its core business of health and safety in 2012. Acquisitions made at that time have enabled us to add quality management systems consultancy and training, and innovative retail security solutions including tagging, labelling and CCTV to the activities of the Group. It is the efforts of these newer subsidiaries, QCS International Limited (QCS) and B to B Links Limited (B to B), that have enabled us to deliver improved revenues and profits. B to B reaped the benefit of a substantial one-off additional programme of work from a key client, and this contributed greatly to Group performance.

The legacy businesses generated £4.599m of sales compared with £4.567m in the previous year. Our ability to retain customers through the quality and effectiveness of the service we provide is a major strength. The Group continues to benefit from a diverse number of clients, including several that have a fairly robust safety culture and who seek continuous improvement. However, a lighter regulatory approach and reduced Government funding of the enforcement authorities has led to some organisations spending less on compliance services and on general discretionary services.

Acquisition payments

Final payments totalling £563,528 were made in cash in respect of the acquisition of QCS and B to B acquired in July and October 2012 respectively. On the second anniversary of the purchase of QCS a final payment of £80,000 was due under the terms of the share purchase agreement, and this was subject to adjustment up or down according to performance against targets. Due to the positive performance of the company in the two years post acquisition an additional amount of £25,283 became due. This resulted in a final payment of £105,283.

Similarly on the second anniversary of the purchase of B to B, a final cash payment of between £120,000 and £800,000 fell due, adjustable up or down according to performance over the two years post completion. At the time of acquisition a provision of £250,000 was made in the accounts, but the actual payment exceeded this by £208,245 due to a very strong trading finish to the two year earn out period. This brought the final payment to £458,245.

The statement of comprehensive income treats the £25,283 and £208,245 additional payments for QCS and B to B respectively as exceptional expenses. This treatment is in line with IFRS requirements but has the unfortunate effect of reducing the final earnings per share. These exceptional expenses are not regarded as allowable when calculating the Company’s corporation tax liability.

Net asset value

As at 31 March 2015, the company had net assets of £6.6 million. There were 12,686,353 ordinary shares in issue at that date which equates to a net asset value per share of 52p. The ordinary shares of the company continue to trade at a discount to the net asset value. A proportion of the company’s assets consists of goodwill associated with the various acquisitions it has made. Each year the level of goodwill relating to subsidiaries is reviewed to make sure that their values on the group statement of financial position can still be justified. This year it was decided to write off £29,230 which related to the carrying value of an unincorporated business, Lindum Consulting. The contracts of Lindum were purchased by the company around ten years ago, when the founder of that business retired. None of the contracts remain current so there is no justification in maintaining a value in respect of them. The board remains comfortable with all other valuations.

Performance by Trading Subsidiaries

A review of the activities of each trading subsidiary is provided below. The profit figures stated are before tax and management charges.

Adamson’s Laboratory Services Limited (ALS)

• 2015: sales of £2,694,500 yielding a profit of £276,300.

• 2014: sales of £2,660,300 yielding a profit of £312,300.

The turnover of ALS increased over the period, and the gross profit margin was maintained at 39%.

Asbestos-related revenues account for the majority of income. The health and safety department’s turnover decreased slightly but the integration of Envex continues to work well and the volume of occupational hygiene consultancy showed some growth.

Training income was stable, with the British Occupation Hygiene Society proficiency modules and general asbestos awareness training remaining popular.

The main activity of asbestos consultancy remained consistent. The company benefitted from an extension to a contract for a large university, and this included the secondment of a full-time member of staff along with the provision of full UKAS accredited laboratory services onsite. Work under this contract is scheduled to conclude at the end of the first quarter of the 2015/16 financial year.

ALS continued to supply two full-time members of staff to another high-profile university, fulfilling the asbestos manager and assistant roles.

Repeat business was won throughout the year, with several blue chip clients in the private sector, and with local government.

ALS has successfully maintained its accreditation with UKAS ISO 17020, 17025 and ISO 9001.

B to B Links Limited (B to B)

• 2015: sales of £2,604,100 yielding a profit of £357,100.

• 2014: sales of £2,510,300 yielding a profit of £256,200.

In its second full year of trading since being acquired by PHSC plc, B to B generated revenues of £2,604,100, an increase of 4% on the previous 12 months of trading (£2,510,300). The majority of revenues during the year came from national accounts in the department store, fashion retail, grocery, electrical goods and builders’ merchant sectors. In addition independent retail customers have been, and continue to be, an important source of revenue. The company had an exceptionally strong performance during the first half of the year due to a large project for its department store customer as well as a major roll-out for a new national account in the building trade.

The general outlook for retail remains positive and demand for retail security products and services remains strong as levels of customer theft have continued to rise. B to B’s security tagging and labelling offer remains competitive and the company has responded to customer demand by adding a competitive Internet Protocol CCTV product range to its CCTV offer. After a period of rapid change and growth since acquisition, priorities for 2016 are to invest in technical and sales capacity to improve installation and maintenance efficiency and grow independent sales.

Inspection Services (UK) Limited (ISL)

• 2015: sales of £195,900 yielding a profit of £17,100.

• 2014: sales of £195,100 yielding a profit of £5,600.

ISL carries out statutory examinations and inspections on behalf of a broad range of clients, either directly or via commission-based agreements with insurance brokers.

Annual revenues at £195,900 were almost identical to those seen in the previous period, but profitability improved. The main reason for the improvement was a reduction in administrative costs, with a full-time member of staff leaving during the year and being replaced by a part-timer.

The majority of income continues to derive from the insurance sector, where a large amount of repeat business is enjoyed as clients tend to renew policies through their brokers.

The service that ISL provides enables clients to meet obligations under requirements placed upon them by health and safety legislation. As long as ISL delivers a good service with charges maintained at or around the previous year, there is little motivation for clients to seek alternative providers.

Engineers from the company have carried out work for the clients of other subsidiaries within the PHSC plc group. The costs of delivery are borne by the company, and revenues stay with the origination subsidiary, in line with group policy of not cross-charging.

Personnel Health & Safety Consultants Limited (PHSCL)

• 2015: sales of £753,800 yielding a profit of £332,000.

• 2014: sales of £749,500 yielding a profit of £327,500.

Revenues were fractionally higher at £753,800, meaning that turnover increased by just over £4,000 in the year. Much of the income arises from long-term contracts that generate recurring revenues, with this core income supplemented by a number of one-off projects ranging from assignments of one day’s duration through to more complex projects.

A part-time member of the fee-earning staff retired during the year and was not replaced. Another employee reduced his working week in preparation for retirement. Some of the work previously carried out by these two employees was outsourced and some was undertaken by remaining staff. This contributed to higher profits, as did a reduced management charge from parent company PHSC plc. The reduction was a consequence of larger contributions to the parent company from its other subsidiaries.

Parent company PHSC plc has a policy of subsidiaries not cross-charging for work carried out on behalf of sister companies. PHSCL is the largest net provider of consultancy and training services to clients of other members of the PHSC plc group.

The company was assessed for continued accreditation to three schemes; Investors in People, Constructionline, and ISO 9001 Quality Systems. All three assessments led to renewal of the company’s approved status.

QCS International Limited (QCS)

• 2015: sales of £526,800 yielding a profit of £148,100.

• 2014: sales of £516,200 yielding a profit of £161,800.

Turnover for the year increased by 2% to £526,800 reflecting a consolidation of the considerable increase achieved the previous year. Profit before taxation decreased by 8% to £148,100 resulting from the additional costs relating to subcontractors, services of another group consultant and higher printing costs to cover the demand for training.

QCS has retained 80% of its outsource clients and continues to see a steady growth of new clients to the consultancy portfolio. The latter has grown 6% in the period but there has been a reduction in the proportion relating to medical device manufacture consultancy which enjoys higher margins, hence the disproportionate impact on gross profit. Progress is being made on securing further work in this sector. The financial year ended with the introduction of new health and safety services aimed primarily at offering long-term embedded services to a new client base. Marketing of this new service began at the start of the new financial year.

QCS continues to increase income from publicly available training courses. In-house training revenues exceeded budget expectations and marketing initiatives have been put in place to ensure that growth accelerates in this part of the business in the coming year.

In 2015/16 there will be significant changes to the main quality and environmental standards for which QCS offers training and consultancy services. This presents a growth opportunity, whereby QCS can promote its ability to support those companies who wish to prepare for the revised standards. In addition, greater demand is expected for health and safety services with the introduction of the new international standard ISO45001. QCS remains well placed within the market place to take advantage of these changes with both existing and new clients seeking assistance to ensure compliance.

After a six month transition period, on 1 January 2015 Rosalynne Shields retired as Managing Director and was replaced by Ian Phillips, a former QCS consultant. Rosalynne Shields is now retained on a part time basis to provide advice to companies within the PHSC plc group and thus remains available to QCS in an advisory capacity.

Quality Leisure Management Limited (QLM)

• 2015: sales of £533,900 resulting in a profit of £123,800.

• 2014: sales of £463,500 resulting in a loss of £4,500.

The year ended 31 March 2015 saw QLM turn a loss of £4,500 into a profit of £123,800. This was the result of a focus on developing the company’s core consultancy business and the introduction of new product lines. The cost cutting measures implemented during 2013/14, including relocation of the office premises also had a beneficial effect on the profitability of the business.

Turnover for the year ended 31 March 2015 increased by 15% to £533,900. Health and safety income exceeded expectation predominantly due to strong retained client renewals and a steady growth in audits. Income from quality management was better than anticipated due to the winning of new integrated management system (IMS) projects. The new QLM IMS encapsulates all of the organisation’s business processes under one umbrella and documents them using the ‘process approach’. This new approach shows how processes and procedures link together and details the inter-relationship between them, removing duplication of work activities across the various functions of the business. The documented system is bespoke to the organisation. Sport Aberdeen and Brio Leisure are two such organisations that have structured their IMS in line with the new approach and have already started to see tangible benefits.

The LeisureShield system, developed by Real Time Leisure has been designed and tested specifically in leisure to digitise the normally paper based health and safety inspections of areas and equipment. It records the location of the equipment being inspected, identifies staff, schedules inspections, tracks faults through to completion and reports the findings. In addition, QLM Leisuresafe is integrated into the system, allowing users to ‘self-assess’ health and safety systems and procedures against the QLM Leisuresafe assessment model. This self-assessment can then be externally validated. Sales from the new Leisureshield product have grown more slowly than anticipated but new marketing initiatives to boost this income stream are planned in 2015/16.

A number of new publications are due to be launched by the end of 2015 through CIMSPA. The publications will include a review, refresh and update of existing publications and three new industry specific guides available to members throughout the Institute.

A new business relationship with Poseidon Technologies, further work with Leisureshield and development of core business products and services will form a key part of the 2015/16 business strategy. Poseidon is a computer vision surveillance system that recognises texture, volume and movement within a pool. Comprised of an advanced overhead and/or underwater camera network that continually surveys the pool and a specialised software system that analyses in real-time, the trajectories of swimmers, the system can alert lifeguards in the first seconds of a potential accident to the exact location of the swimmer in danger.

Originating in France, the Poseidon system has been installed in over 250 pools across the world. So far the registered activations have led directly to 30 lives being saved. Two of these were in the UK. The Poseidon system is an excellent product and QLM are acting as their UK agents to assist with its development.

After a six month transition period, on 1 June 2015 Peter Mills retired as Managing Director and was replaced by Leigh Simmonds, a former QLM Principal Consultant. Peter Mills will remain available to QLM in an advisory capacity at least until the end of 2015.

RSA Environmental Health Limited (RSA)

• 2015: sales of £421,900 yielding a profit of £34,900.

• 2014: sales of £499,400 yielding a profit of £55,900.

Revenue and profit fell year on year, as the company continues its transition away from the provision of low-margin services to the public sector.

The business continues to focus on supporting schools, both in the state and independent sectors, with the management of health and safety. The SafetyMARK service remains the core offering and the number of educational establishments signed up to the programme now stands at approximately 160. The halo effect of SafetyMARK means that general safety consultancy and training services are regularly upsold and, as the number of contracted schools increases, the captive market broadens and presents more opportunities. Moving forward, much focus has been placed upon promoting services that can be delivered during the school holidays, as these tend to be quiet for a business that is so focussed on school support. In 2015/16, particular emphasis has been placed upon undertaking fire risk assessments and this has proved to be a successful strategy. The intention is to continue this focus through the academic summer holidays to help avoid a traditional dip in revenue during this period.

Developments within the London Borough of Redbridge led to SafetyMARK being offered as an alternative safety support service to the one that had previously been provided by the local authority. This has led to 15 schools in the Borough joining the scheme, with many more in the pipeline. This provides a regional cluster which allows public training courses to be offered to all schools in the area. Such courses run at good profit margins if they prove popular, as they have done so far. In the same vein, the school-specific training courses designed by RSA and accredited by the Institution of Occupational Safety and Health (IOSH), continued to be popular across the country and particularly when run on behalf of the National Association of School Business Management.

The success of SafetyMARK means that new enquiries from prospective clients are strong and new business is gained without the need for an aggressive marketing strategy. The key will now be to ensure that probability is maximised by using the economies of scale afforded by a larger client base, as well as ensuring that costs are well controlled and standard fees are reviewed, where appropriate.

Outlook

Whilst we remain confident that core revenues from our regular and retained clients will underpin the coming year’s performance, we recognise that it is unlikely that we shall be able to replicate the exceptionally favourable circumstances that occurred last year. We will work hard to find similar opportunities to replace revenues that ended on completion of the large one-off additional assignment fulfilled by B to B. Another high-value contract that ends in 2015-16 relates to asbestos consultancy services provided by Adamson’s Laboratory Services Limited (ALS) and we do not expect that this subsidiary will be able to win sufficient new work in the short term to fully compensate for this gap in the forward order book.

Now that we have fulfilled all our obligations in respect of acquisition payments, we are in a position to begin to accumulate more comfortable cash reserves as the year progresses. At this time the Group has not committed to further acquisitions, but is prepared to pursue opportunities if the right proposition presents itself at the right price and where this is clearly seen as being in shareholders’ best interests.

On behalf of the board

Stephen King

Group Chief Executive

31 July 2015

GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2015

	31.3.15	31.3.14
	£	£
Non-Current Assets
Property, plant and equipment	689,595	695,662
Goodwill	4,579,976	4,609,206
Deferred tax asset	-	53
	5,269,571	5,304,921
Current Assets
Inventories	215,591	154,270
Trade and other receivables	1,979,918	1,935,280
Cash and cash equivalents	462,392	712,397
	2,657,901	2,801,947
Total Assets	7,927,472	8,106,868
Current Liabilities
Trade and other payables	1,155,824	1,134,645
Financial liabilities	–	6,498
Current corporation tax payable	105,245	127,474
Contingent consideration	–	330,000
	1,261,069	1,598,617
Non-Current Liabilities
Deferred tax liabilities	67,537	67,817
	67,537	67,817
Total Liabilities	1,328,606	1,666,434
Net Assets	6,598,866	6,440,434
Capital and reserves attributable to equity holders of the Group
Called up share capital	1,268,634	1,268,634
Share premium account	1,831,194	1,831,194
Capital redemption reserve	143,628	143,628
Retained earnings	3,355,410	3,196,978
	6,598,866	6,440,434

GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2015

	31.3.15	31.3.14
	£	£
Continuing operations:
Revenue	7,730,900	7,594,281
Cost of sales	(4,226,206)	(4,356,092)
Gross profit	3,504,694	3,238,189
Administrative expenses	(2,738,562)	(2,583,170)
Administrative expenses – exceptional	(262,758)	–
Other income	–	1,096
Profit from operations	503,374	656,115
Finance income	750	259
Finance costs	(796)	(1,524)
Profit before taxation	503,328	654,850
Corporation tax expense	(154,601)	(160,771)
Profit for the year after tax attributable to owners of the parent	348,727	494,079
Other comprehensive income	–	–
Total comprehensive income attributable to owners of the parent	348,727	494,079
Basic and Diluted Earnings per Share from continuing operations	2.75p	4.24p

GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2015

						Capital
	Share		Share			Redemption		Retained
	Capital		Premium			Reserve		Earnings		Total
	£			£		£		£		£
Balance at 1 April 2013	1,060,634			1,555,529			143,628	2,867,359		5,627,150
Profit for year attributable to equity holders	–		–			–		494,079		494,079
Issue of shares	208,000			275,665			–	–		483,665
Deferred tax adjustment to property valuation	–		–			–		(5,365)		(5,365)
Dividends	–		–			–		(159,095)		(159,095)
Balance at 31 March 2014	1,268,634			1,831,194		143,628		3,196,978		6,440,434
Balance at 1 April 2014	1,268,634			1,831,194		143,628		3,196,978		6,440,434
Profit for year attributable to equity holders	–		–			–		348,727		348,727
Dividends	–		–			–		(190,295)		(190,295)
Balance at 31 March 2015	1,268,634			1,831,194		143,628		3,355,410		6,598,866

GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2015

	31.3.15			31.3.14
	£			£
Cash flows from operating activities:
Cash generated from operations	739,423			856,333
Interest paid	(796)			(1,524)
Tax paid	(177,057)			(211,248)
Net cash generated from operating activities	561,570			643,561
Cash flows used in investing activities
Purchase of property, plant and equipment	(58,952)			(30,933)
Payment of contingent consideration on acquisitions	(563,528)			(441,148)
Disposal of fixed assets	450			–
Interest received	750			259
Net cash used in investing activities	(621,280)			(471,822)
Cash flows (used by)/from financing activities
Proceeds from placement of shares	–			483,665
Dividends paid to Group shareholders	(190,295)			(159,095)
Net cash (used by)/from financing activities	(190,295)			324,570
Net (decrease)/increase in cash and cash equivalents	(250,005)			496,309
Cash and cash equivalents at beginning of year	712,397			216,088
Cash and cash equivalents at end of year	462,392			712,397

NOTES TO THE GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2015

	31.3.15	31.3.14
	£	£
I. CASH GENERATED FROM OPERATIONS
Operating profit – continuing operations	503,374	656,115
Depreciation charge	52,249	48,533
Goodwill impairment	29,230	27,871
Fair value movement in contingent consideration	233,528	–
Loss on sale of fixed assets	12,320	–
Increase in inventories	(61,321)	(1,399)
Decrease/(increase) in trade and other receivables	(44,638)	102,444
Increase in trade and other payables	21,179	35,967
Decrease in financial liabilities	(6,498)	(13,198)
Cash generated from operations	739,423	856,333

NOTE TO THE RESULTS ANNOUNCEMENT OF PHSC PLC FOR THE YEAR ENDED 31 MARCH 2015

The financial information set out above does not constitute the Group's financial statements for the years ended 31 March 2015 or 2014, but is derived from those financial statements. Statutory financial statements for 2014 have been delivered to the Registrar of Companies and those for 2014 will be delivered following their approval by the board and dispatch to shareholders. The auditors have not yet reported on the 2015 financial statements.

Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not in itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this announcement are consistent with those in the full financial statements that have yet to be published.

ANNUAL GENERAL MEETING

This year’s annual general meeting (“AGM”) will be held at 10.00am on Monday 7 September 2015 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR.

Copies of the full report and accounts and notice of the AGM have been posted to shareholders and are available to view on the Company’s website at www.phsc.plc.uk

For further information please contact:

PHSC plc	01622 717700
Stephen King [e-mail] www.phsc.plc.uk
Sanlam Securities UK Limited (Nominated adviser and broker)	020 7628 2200
Lindsay Mair/James Thomas