Preliminary Results
14 July 2014
PHSC PLC
(the "Company" or the "Group")
Preliminary Announcement of Results for the year ended 31 March 2014
Highlights:
* EBITDA improved by 22% at £0.733m, up from £0.603m
* Group revenues increased by 31% to £7.594m compared with £5.791m
* Cash reserves rise to £0.712m
* Group net assets of £6.4m
* Basic earnings per share up 16% to 4.24p from 3.64p
* Proposed final dividend held at 1.5p per share
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.
A majority of Group revenue continues to arise from our core health and safety
businesses. However, the growth areas are in those markets served by our most
recent acquisitions. Our decision to diversify has enabled the Group to
continue to combine its strong position in the health and safety field with its
growing role as a provider of retail security solutions and quality management
consultancy and training.
Revenue and Profit
Consolidated Group sales for the period rose to £7,594,300 from £5,791,300. The
increase is primarily due to a full year's contribution from both of our newest
subsidiaries, QCS International Limited (QCS) and B to B Links Limited (B to
B). QCS was acquired at the end of July 2012 and B to B joined the Group in
October 2012.
The Group generated a 22% increase to earnings before interest, taxation,
depreciation and amortisation (EBITDA). The figure of £732,600 EBITDA that I am
reporting today compares with £603,100 generated in the previous year.
Fundraising and Share Issue
On 27 September 2013 the Company announced that it had raised £520,000 before
expenses through a placing of 2,080,000 new Ordinary Shares of 10p each. Those
shares were priced at 25p each, and the placing was primarily taken up by
institutional investors with some director participation. The new shares
represent approximately 16% of the enlarged issued share capital. The
fundraising was to provide additional working capital.
Costs
All subsidiaries are focused on controlling costs and ensuring that all
expenditure is necessary and reasonable. There were no costs at any subsidiary
over and above the normal expenditure requirements, except for £12,500 in
connection with one administrative post that was made redundant at Quality
Leisure Management Limited.
New computers and a server with associated software were installed at our
Aylesford offices to replace old IT equipment that had been in use since 2004.
The costs were around £20,000.
Acquisition Stage Payments
QCS International Limited (QCS)
In accordance with the terms of the purchase agreement, a sum of £160,000 fell
due in July 2013, being the first anniversary of completion. After a revision
to the value of assets on the date of acquisition, the payment made on the
anniversary was £121,000.
The agreement provides for a final payment of £80,000, subject to adjustment up
or down according to QCS's performance against targets, for the two-year period
to the end of July 2014. Payment falls due once management accounts are
prepared and agreed with the seller, and this is expected to be no later than 1
August 2014.
B to B Links Limited (B to B)
In accordance with the terms of the purchase agreement, a sum of £320,000 fell
due on 30 September 2013, being the first anniversary of completion. This
amount has been paid.
A final payment of between £120,000 and £800,000 is provided for in the
purchase agreement. This is subject to B to B's performance over the two-year
period since the business was acquired. With an anniversary date of 30
September, it is expected that agreement on the earn-out payment will be
reached towards the end of October 2014 after management accounts have been
prepared.
Other Opportunities
The Group is not considering any further acquisitions in 2014/15. Having grown
the Group to one that has £7.59m revenues compared with £4.45m two years ago,
we consider that it is necessary to continue with a period of consolidation and
integration.
Corporate Structure
There has been no change to the make-up of the board since the Company joined
AIM in June 2005. It consists of myself, Nicola Coote (executive director), and
two non-executive directors (Mike Miller, who chairs the audit committee, and
Graham Webb MBE who chairs the remuneration committee). The contracts of both
non-executives have been extended until 31 March 2015. The board is mindful of
guidance concerning the length of service for non-executive directors and is
satisfied that there are presently overriding business reasons for maintaining
the status quo.
Our chartered secretary, Lorraine Young, supports the board and its committees.
All corporate matters relating to accounting are ably dealt with by our Group
Accountant, Candy Wilton.
There were no changes to directors at subsidiary level during the year. The
Managing Director of QCS International Limited, Rosalynne Shields, intends to
relinquish her position for personal reasons on 31 December 2014. It is
proposed that this role is filled internally through the promotion of Ian
Phillips. Mrs Shields has agreed to remain in a part-time non-executive
capacity for an initial period of twelve months thereafter, to support her
successor and to assist the board of PHSC plc with the transitional process. Mr
Phillips will be appointed as QCS's Deputy Managing Director on 1 August 2014
and Audrey Smith will become the company's Training Sales Director on the same
date.
Employees
The Group is grateful for the continued commitment and support from all levels
of employee at each subsidiary, and of those working directly for PHSC plc.
Every individual is valued, and each person is contributing to the success of
their individual company and the group as a whole.
Performance by Trading Subsidiaries
Profit figures below are stated before tax and Group management charges. Note
that revenues for services are credited to the company generating the sale even
if the work is delivered by a sister company. For that reason, reference should
be made to the Group's overall performance instead of looking at how individual
subsidiaries have fared.
Personnel Health and Safety Consultants Limited
Sales of £749,500 yielding a profit of £327,600.
In the previous year there were sales of £765,500 and a profit of £300,000.
RSA Environmental Health Limited
Sales of £499,400 yielding a profit of £55,900.
In the previous year there were sales of £420,000 and a profit of £10,900.
Adamson's Laboratory Services Limited
Sales of £2,660,300 yielding a profit of £312,300.
In the previous year there were sales of £2,366,900, yielding a combined profit
of £366,700.
Inspection Services (UK) Limited
Sales of £195,100 yielding a profit of £5,600.
In the previous year there were sales of £202,100, yielding a profit of £6,600.
Quality Leisure Management Limited
Sales of £463,500 resulting in a loss of £4,500.
In the previous year there were sales of £607,600, yielding a profit of £
119,300.
B to B Links Limited
Sales of £2,510,300 yielding a profit of £257,600.
The previous year covered only the six-month period since acquisition, in which
there were sales of £1,093,800 yielding a profit of £83,500.
QCS International Limited
Sales of £516,200 yielding a profit of £161,800.
The previous year covered the eight-month period since acquisition, in which
there were sales of £334,600 yielding a profit of £98,000.
Net Asset Value
As at 31 March 2014, the Company had net assets of £6.44 million. There were
12,686,348 Ordinary Shares in issue at that date which equates to a net asset
value (NAV) per share of 50.7p. At today's price of 30.5p per share, the
Ordinary Shares of the Company are currently trading at a discount of almost
40% 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 we review the level of goodwill
relating to subsidiaries to make sure that their values on the balance sheet
can still be justified. This year we have felt it necessary to write down the
carrying value of RSA Environmental Health Limited by £26,648. When acquired in
2004 this subsidiary derived the majority of its revenue and profit from work
that had been outsourced by Local Authorities but this income stream has
progressively reduced as public sector budgets have been pared back. We remain
comfortable with all other valuations.
Dividend
The board is proposing a final dividend of 1.5p per ordinary share. This is in
line with the dividend paid last year. Subject to approval at the annual
general meeting, the dividend of 1.5p per ordinary share will be paid on 30
September 2014 to shareholders on the register as at 22 August 2014.
Prospects
Health and Safety
The legacy businesses continue to be responsible for the larger share of
revenue, generating £4.567m of sales compared with £4.362m in the previous
year. Despite the £0.2m increase in sales, profitability declined by a little
over £0.1m. This is an indication of ever-reducing margins in a sector that has
become very competitive and where the number of providers has risen faster than
the requirement for services. Costs tend to increase year-to-year but price
sensitivity means that it is progressively more difficult to win new work at
previous margins.
We continue to benefit from a diverse number of clients within our portfolio,
including several that have a fairly robust safety culture and who seek
continuous improvement. However, a lighter regulatory approach has led to some
employers opting to spend less on compliance services, and reduces the
incentive to invest in services such as non-mandatory training and other areas
of discretionary spend.
Our major income streams continue to be derived from activities such as
asbestos management, health care training, public transport safety consultancy,
and supporting the education sector. We continue to serve the leisure industry,
and we carry out statutory examination of plant and machinery via insurance
brokers or directly for clients.
Quality systems
It is encouraging to report that our QCS subsidiary has exceeded management
expectations, both in terms of revenue and profitability. Most of the growth is
within Scotland, but there has been some expansion into England, and
cross-selling opportunities mean that QCS has begun to win work for other
subsidiaries of the Group. In 2015 there will be significant changes to the
main quality standards for which the company offers training and consultancy
services. This presents a growth opportunity, whereby the company can promote
its ability to support those companies who wish to prepare for the revised
standards.
SafetyMARK
This is a support and auditing service, leading to certification, offered to
schools and colleges by the In House division of RSA Environmental Health
Limited. As predicted in last year's report, direct annual income from
subscriptions to the service have more than doubled, standing at £72,000
compared with £31,000 last year. On top of annual subscriptions, training and
consultancy services are purchased by many of these clients. School work
increased by around £111,000 in 2013-14, and is rapidly replacing other work
that had traditionally been delivered by the company. The uplift in value
compares with a contraction of around £82,000 in non-school revenues for the
company.
The number of educational establishments signed up to the programme stands at
approximately 100, with new joiners at the rate of a one a week. Contract
renewals are presently running at 90%. Extra services are being introduced to
enhance the value of contracts and to encourage client retention.
Retail security
Our most recent acquisition, B to B, has enjoyed a year of increasing revenues.
The majority of sales were generated from national accounts in the department
store, grocery, mixed goods and fashion retail sectors. In addition independent
retail customers have been, and continue to be, an important source of
revenue. Total sales of £2.6m compare with £1.6m in the year prior to
acquisition.
The general outlook for retail has improved over the last 12 months with the
economy's return to growth and increased consumer and business confidence.
Demand for retail security products and services remains strong as levels of
customer theft have continued to rise. The company's CCTV, security tagging
and labelling offer remains competitive and the brand presence has developed to
the point where the company is regularly gaining new national retail customers.
Key priorities for 2015 include maintaining national account activity, growing
independent retail sales and making efficiencies in sub-contractor and
logistics expenditure.
Outlook
Much of the headline growth in revenue and profit in the last two years has
been a result of the contributions made by the two most recent acquisitions. In
2013-14, both of these new companies made a full-year contribution for the
first time.
The board sees 2014-15 as a year of consolidation, with no material changes to
overall performance anticipated. With the last of the acquisition payments due
to be made by the end of 2014, there is scope to begin to accumulate a more
comfortable level of cash reserves.
We are confident that revenues from our retained clients will continue in
similar vein to previous years, and that this can be supplemented by income
from the newer subsidiaries. We will seek to win business both in the areas
that we have traditionally operated in, and those new areas open to us through
the diversification strategy that we have successfully adopted.
On behalf of the Board I would like to thank all our longstanding shareholders
for their continued support, and to welcome those new investors who have joined
the share register as a result of our placing last Autumn.
Stephen King
Group Chief Executive
GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2014
31.3.14 31.3.13
£ £
Non-current assets
Property, plant and equipment 695,660 713,262
Goodwill 4,609,206 4,637,077
Deferred tax 55 2,742
5,304,921 5,353,081
Current assets
Inventories 154,270 152,871
Trade and other receivables 1,935,280 2,037,724
Cash and cash equivalents 712,397 216,088
2,801,947 2,406,683
Total assets 8,106,868 7,759,764
Current liabilities
Trade and other payables 1,134,645 1,098,678
Financial liabilities 6,498 13,198
Current corporation tax payable 127,474 174,464
Deferred consideration 330,000 441,148
1,598,617 1,727,488
Non-current liabilities
Financial liabilities - 6,498
Deferred consideration - 330,000
Deferred tax liabilities 67,817 68,628
67,817 405,126
Total liabilities 1,666,434 2,132,614
Net assets 6,440,434 5,627,150
Capital and reserves attributable to equity
holders of the Group
Called up share capital 1,268,634 1,060,634
Share premium account 1,831,194 1,555,529
Capital redemption reserve 143,628 143,628
Retained earnings 3,196,978 2,867,359
6,440,434 5,627,150
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2014
31.3.14 31.3.13
£ £
Continuing operations:
Revenue 7,594,281 5,791,359
Cost of sales (4,356,092) (3,010,500)
Gross profit 3,238,189 2,780,859
Administrative expenses (2,583,170) (2,268,026)
Other income 1,096 5,682
Profit from operations 656,115 518,515
Finance income 259 2,163
Finance costs (1,524) (850)
Profit before taxation 654,850 519,828
Corporation tax expense (160,771) (137,477)
Profit for the year after tax attributable to 494,079 382,351
owners of the parent
Other comprehensive income - -
Total comprehensive income attributable to owners 494,079 382,351
of the parent
Attributable to:
Equity holders of the Group 494,079 382,351
Basic Earnings per Share for profit after tax and 4.24p 3.64p
total comprehensive income from continuing
operations attributable to the equity holders of
the Group during the year
The company has elected to take the exemption under section 408 of the
Companies Act 2006 to not present the parent company profit and loss account.
The loss for the year before dividends received from subsidiaries (2014 - £
400,000, 2013 - £nil) was £1,536 (2013 - loss £96,917). There were no
recognised gains and losses for 2014 or 2013 other than those included in the
company profit and loss account.
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2014
Share Share Capital Retained Total
Capital Premium Redemption Earnings £
£ £ Reserve £
£
Balance at 1 April 2012 1,038,196 1,497,409 143,628 2,691,148 5,370,381
Profit for year attributable - - - 382,351 382,351
to equity holders
Issue of shares 22,438 70,300 - - 92,738
Stamp duty on issue of shares (12,180) - - (12,180)
Deferred tax adjustment to - - - 3,083 3,083
property valuation
Dividends - - - (209,223) (209,223)
Balance at 31 March 2013 1,060,634 1,555,529 143,628 2,867,359 5,627,150
Balance at 1 April 2013 1,060,634 1,555,529 143,628 2,867,359 5,627,150
Profit for year attributable - - - 494,079 494,079
to equity holders
Issue of shares 208,000 275,665 - - 483,665
Deferred tax adjustment to - - - (5,365) (5,365)
property valuation
Dividends - - - (159,095) (159,095)
1,268,634 1,831,194 143,628 3,196,978 6,440,434
GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2014
31.3.14 31.3.13
£ £
Cash flows from operating activities:
Cash generated from operations 856,360 427,108
Interest paid (1,524) (850)
Tax paid (211,275) (182,705)
Net cash generated from operating activities 643,561 243,553
Cash flows used in investing activities
Purchase of property, plant and equipment (30,933) (25,371)
Purchase of subsidiary companies (net of cash (441,148) (785,866)
acquired)
Disposal of fixed assets - 88,250
Interest received 259 2,163
Net cash used in investing activities (471,822) (720,824)
Cash flows from/(used by) financing activities
Proceeds from placement of shares 483,665 -
Dividends paid to Group shareholders (159,095) (209,223)
Net cash from/(used by) financing activities 324,570 (209,223)
Net increase/(decrease) in cash and cash 496,309 (686,494)
equivalents
Cash and cash equivalents at beginning of year 216,088 902,582
Cash and cash equivalents at end of year 712,397 216,088
NOTES TO THE GROUP STATEMENT OF CASH FLOW for the year ended 31 March 2014
31.3.14 31.3.13
£ £
CASH GENERATED FROM OPERATIONS
Operating profit - continuing operations 656,115 518,515
Depreciation charge 48,533 45,172
Goodwill impairment 27,898 39,387
Profit on sale of fixed assets - (5,184)
Increase in inventories (1,399) (14,884)
(Increase)/decrease in trade and other 102,444 (335,953)
receivables
Increase/(decrease) in trade and other payables 35,967 187,417
Decrease in financial liabilities (13,198) (7,362)
Cash generated from operations 856,360 427,108
NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF PHSC PLC FOR THE YEAR ENDED 31
MARCH 2014
The financial information set out above does not constitute the Group's
financial statements for the years ended 31 March 2014 or 2013, but is derived
from those financial statements. Statutory financial statements for 2013 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 2014 financial statements.
Whilst the financial information included in this preliminary 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
preliminary announcement are consistent with those in the full financial
statements that have yet to be published.
For further information please contact:
PHSC plc
Stephen King 01622 717700
www.phsc.plc.uk
Northland Capital Partners Limited
Gavin Burnell / Edward Hutton / Lauren Kettle020 7382 1100
John Howes / Alice Lane(Broking)
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