Final Results
Reliance Security Group PLC
28 June 2007
THURSDAY 28 JUNE 2007
PRESS RELEASE
Reliance Security Group plc
Preliminary announcement of results for the
Year ended 27 April 2007
• Turnover up 8.8% to £345.5m (2006: £317.5m)
• Profit before tax and exceptional items: £13.6m (2006: £13.1m)
• Earnings per share before exceptional items: 47.4p (2006: 41.9p),
earnings per share: 46.1p (2006: 30.9p)
• Continuing investment in growth markets
• Forward FM order book £710m (2006: £716m)
Julian Nicholls, Group Managing Director, commenting on the results said:
'In the last year we have made good progress in all our businesses and
strengthened our position in our major markets. It has been an important year
for Reliance in completing and consolidating the changes we have made to our
management team which has brought a renewed focus and energy to the business. We
have also made revenue investments in our sales and marketing capabilities. Some
of the benefits are already reflected in the progress we have made to renew
contracts with existing customers and win significant new business thus
continuing to build a firm foundation for the Group.'
Notes to Editors
Reliance is an established market leader in the provision of contract security,
facilities management, support services, and business process outsourcing.
Reliance employs over 12,000 people from a network of offices throughout the UK.
For further information :
Julian Nicholls Group Managing Director 01895 205002
Mark Harrison Group Finance Director 01895 205002
Chairman's Statement
Introduction
I am pleased to report the results for the year to 27 April 2007.
In security services, our substantial investment in setting up the
infrastructure, administration and validation facilities to meet the new
requirements of government regulation of private security in England and Wales
has been completed and the adjustments to a regulated market are gradually
taking shape. We reversed the trend of the three previous years and enjoyed
strong volume growth. However, the rate of growth in new business slowed
significantly in the second half. The market remains competitive with continuing
pressure on prices and margins.
In our facilities management and business process outsourcing businesses, we
have achieved organic growth with existing customers and have successfully
mobilised a number of new contracts. This has compensated for contracts lost in
the previous year. We are investing for the future in new and complementary
specialisms.
We are working determinedly towards our long term strategic need to
differentiate our products and services by adding more value for our customers
through innovation, process improvement, and the application of new technology.
We are establishing leadership positions in specific niches in our markets where
we have specialist knowledge and the necessary core competencies.
Possible offer
On 17 April 2007, I announced that I was at a very preliminary stage of
considering the possibility of making an offer for the minority shareholding in
the Group. On 14 June 2007, I announced that I had made significant progress in
the preparatory work ahead of a possible offer. I also disclosed that a company
controlled by me had secured an irrevocable commitment from Artemis Investment
Management Limited to accept any possible offer in respect of approximately 4.8%
of Reliance's issued share capital provided that a firm intention to make such
an offer is announced before 31 July 2007 and is for no less than 916p per
share in cash (inclusive of any final dividend for the financial year to 27
April 2007). If any offer were to proceed, apart from adopting a longer term
time frame for investment decisions, I would not envisage any significant
change in the way that we would continue to manage and to operate and conduct
our business and there would be no effective change of control.
Results
Turnover increased by 8.8% to £345.5 million (2006: £317.5 million).
Pre-exceptional, pre-tax profit for the year was £13.6 million (2006: £13.1
million). Excluding exceptional items, earnings per share was 47.4p (2005:
41.9p). Net cash generated from operations was £12.2 million (2006: £11.8
million) and we ended the year with net cash of £25.4 million (2006: £21.1
million).
Dividend
In light of the possible offer referred to above, your board has decided not to
recommend any final dividend at this stage. It intends, however, to reconsider a
recommendation, should any firm intention to make an offer not be announced
before 31 July 2007. Any dividend recommendation would then be put to
shareholders for approval at the AGM, currently proposed to be held on 6
September 2007.
Strategy
Our strategy is built around nourishing long term relationships with our
customers and differentiating Reliance from competitors - primarily through
people development and teamwork, service quality and the application of
appropriate technology - an emphasis designed to help us over time to outperform
our rivals in both growth and margins, thus generating greater opportunity for
our people and superior value for our shareholders.
Our businesses are highly complementary, offering each other important cost
neutral benefits of sharing infrastructure, skills development, management
resources, marketing and brand appeal. The businesses have a high level of
shared customers. We aim to apply the benefits of these assets in adding maximum
value for our customers.
In security services, with a market worth approximately £3 billion per annum, we
will continue to strengthen our leadership position and to respond robustly to
competition, offering customers an innovative blend of technology and manpower
services.
We will continue to build our already substantial presence in the larger and
faster growing markets of facilities management and business process
outsourcing, where we are leaders in some market segments. Our aim is to grow
our revenue streams by expanding the range of complementary services delivered
under longer term contracts to both public and private sector customers. The
intention is to build more market leadership positions in specific niches where
we have specialist knowledge and the necessary core competencies.
Community
Reliance is an enthusiastic supporter of community, voluntary and charitable
endeavour which complement our business aims and those of our customers. We
believe strong communities are good for business. Our work with Crime Concern,
Victim Support, Cumberland Lodge, the Police Service and numerous charitable and
community groups serves to enrich our experience and capacity to serve our
customers. We have been delighted to sponsor The Prince's Trust. The Reliance
Prize for Enterprise and Innovation at Brunel University is now a highlight of
the annual Made In Brunel International design exhibition.
This year we were pleased to support and help set up the community interest
company, Restorative Solutions. Under the leadership of Sir Charles Pollard they
have achieved notable success in tackling the problem of re-offending through
facilitated conferences between offenders and their victims, often in the
presence of family members. We also set up what we consider to be a unique
partnership: working with Stroud College, Crime Concern and Tomorrow's People we
created 'The Offender Services Partnership' which has been welcomed by NOMS and
the Probation Service. We are actively working to extend our partnerships with
the charitable 'not for profit' sector to provide fully commercial services to
the public sector.
People
I am delighted to have this opportunity to express, on behalf of the board, our
thanks and enormous gratitude to our people. We take great pride in their
achievements, dedication, enthusiasm and sheer professionalism. My board
colleagues and I delight in our constant involvement in celebrating their
achievements at first hand. Our people are the heart of the 'Reliance
Difference'.
People matter most and our long term success in continuing to add value to the
services we provide is sustained by the renewal of inspiration and the sense of
enthusiasm and mission which characterises our culture. Over the last year, we
have continued to work with the business school at Brunel University and the
Leadership Centre at Newcastle University to enhance the contribution of the
Reliance Academy in its work of fostering outstanding management and leadership
skills across the Group.
Reflecting the depth and breadth of our commitment to imaginative interventions
and support in skills and personal development, we were honoured to be
recognised by the Corporate Research Foundation and Guardian Newspapers as one
of Britain's top employers. Reliance people won more regional British Security
Industry Awards for excellence this year than any other competitor. These
recognitions serve to remind us of the endless scope for continuous improvement.
Investors In People is a centrepiece guiding our constant work in involving our
people in setting objectives and improving our competitiveness and business
performance. The regular re-accreditation process for IIP serves as a reminder
of the power of great and comprehensive communications in the sharing of our
business objectives and the development of changing skills to meet them. The
launch of our facilities management skills passport this year has proved a
popular initiative welcomed by our people with its commitment to life-long
learning. Enabling those in the scheme to take ownership in identifying their
training needs, the passport gives valuable impetus to personal development.
Board
During the year we announced the retirement from the Group board as a
non-executive director of Dr. Neil French. We owe Neil a huge debt of thanks for
his contribution and his earlier inspired leadership of the financial management
of the Group over the five years of our most significant growth in diversity and
scale. We wish him every happiness and success for the future. We were delighted
to welcome Mark Harrison as his successor as Group Finance Director. Mark brings
distinctive strengths and achievement in both services and manufacturing
businesses.
We have sought every opportunity to strengthen the operating company boards by
internal promotions and appointing gifted managers from outside who share our
passion for the values that inspire the success of Reliance. Stephen Hollings
joined the restructured board at Reliance Security Services Ltd as Sales &
Marketing Director, and Alison Crossley as Support Services Director. Colin
Porton, an early pioneer in the facilities management market, joined Reliance
Integrated Services Ltd as Operations Director. Gerald Cranley, a specialist in
business process outsourcing joined the board of Reliance Secure Task Management
Ltd.
Future
We believe that the outlook for the current year is encouraging. In security
services, we anticipate some further beneficial effects of regulation and we are
well placed to take advantage of the new regulated market later this year in
Scotland. However, conditions are likely to remain very competitive, demanding
change, new approaches and higher value added. In the large and dynamic
facilities management and business process outsourcing markets we are continuing
to invest in building organisational strength and an increasing number of
complementary activities which offer the prospect of higher value and longer
term contracts.
Brian Kingham
Chairman
Operational Review
In the last year we have made good progress in all our businesses and
strengthened our position in our major markets. It has been an important year
for Reliance in completing and consolidating the changes we have made to our
management team which has brought a renewed focus and energy to the business. We
have also made revenue investments in our sales and marketing capabilities. Some
of the benefits are reflected in the progress we have made to renew contracts
with existing customers and win significant new business thus continuing to
build a firm foundation for the Group.
Security Services
Turnover was £207.5 million (2006: £187.8 million, excluding exceptional
revenue) and segment operating profit before exceptional items was £6.6 million
(2006: £4.9 million). This increase in turnover and profit reflects improvement
in securing new contracts as well as retaining and developing existing
contracts. Although we have, in common with the industry, lost contracts, we
have experienced fewer terminations this year than last. This year we have won
important new contracts with, among others, J Sainsbury, Romec, Pilkington Group
and THE, as well as having extended our existing business with DHL, Arlington,
and New Look. We continue to consolidate our leading position in providing
security services to shopping centres, with 13 new shopping centre customers,
including the provision of a wide range of security related services to
Scotland's largest covered shopping centre at East Kilbride.
Our electronic security business, Reliance High-Tech, continued to improve with
secured new business exceeding expectations.
The Private Security Industry Act came into force in England and Wales at the
end of March 2006. Meeting the requirements of the Act was a major challenge
last year and without doubt caused some distraction within the business. We
successfully achieved Approved Contractor Status for manpower security, key
holding, door supervision and CCTV operation and our preparedness has benefited
us this year in our ability to meet the requirements of new customers.
As the market has settled into its newly regulated environment, we have seen
greater stability in our customer base, and the beginnings of a change in the
pattern of competition with some consolidation among the larger and middle sized
companies. In addition, it is likely that with higher barriers to entry there
will be fewer new entrants. However, pricing remains competitive.
The Act will also come into force in Scotland in November 2007. As a major
supplier of security and related services in Scotland, our project team has been
engaged in preparing us for full compliance. I am delighted to report that we
were the first security services company to achieve Approved Contractor Status
in Scotland for security guarding, door supervision and key holding.
As we continue to seek ways to differentiate and respond to the needs of our
customers, we are increasingly aware of their changing priorities. There has
been no slowing in the trend among our customers to explore the options for
improved effectiveness and economy through the integration of technology, remote
monitoring, site based services and mobile response. Remote surveillance and
monitoring are important constituents in the mix of services which our customers
require. Our state of the art remote surveillance centre is now well established
and we have continued to invest in the software and systems required to extend
our leadership. We have further developed our activities in the centre this year
and extended our capabilities to respond to new areas of market growth,
especially in lone worker security.
Last year our mobile response activity, Patrol Net, was established as a
separate business unit with a centralised command centre and enhanced
capabilities. We successfully completed this task, finalised the appointment of
management, and have reviewed and refined all operational processes. Our
comprehensive geographic cover has enabled us to secure new customers with
facilities across the UK, including Northgate Information Solutions, Wyevale
Garden Centres, Cambridge County Council, and mobile telephone retailer 3.
In order to improve operational performance and our service to customers, we
have embarked on the replacement of our vehicle fleet with Ford Transit Connect
vans. The specification of these vehicles provides for increased security for
key storage and facilities for the secure transportation of high value or high
risk items. As part of this exercise, and in recognition of our responsibility
to reduce carbon emissions, we have committed to support a number of emissions
reduction projects.
We have also continued to build on our reputation for excellence in customer
service and innovation. This year we are proud that Reliance Officers have won
more BSIA (British Security Industry Association) regional awards than any other
security provider including Outstanding Act, Service to the Customer, and Best
Use of Technology. We have also been recognised for the integration of manpower
and technology.
In addition we have won a number of other awards which recognise the quality and
excellence of our services. Among these, our landscaping business has won
important awards including the National Landscaping Award from the British
Association of Landscaping Industries and 'Luton in Bloom' for its work on one
of the large scale business park it serves.
The improvement in performance of our electronic security business, which I
reported last year, has continued. In addition to the major contracts which we
have been developing with our existing customers, including the National
Offender Management Service (NOMS), we have won a number of major contracts with
new customers including IBM, Accenture, Hertfordshire County Council and Brunel
University. We are continuing to explore and develop new applications based on
the integration of new technologies, especially in the area of internet based
solutions.
Organisations across the public sector are important customers, and we have
contracts with NHS hospitals, universities and colleges of further education,
local authorities and social housing providers. Our work with the public sector
also extends to community centred activity and this year we were proud to
receive the Safer Business Award for our work with Milton Keynes Partners
Against Crime.
Facilities Management
Turnover was £138.0 million (2006: £129.7 million, excluding exceptional
revenue), and segment operating profit including the Group's share of its joint
venture and associate, but before exceptional items, was £6.3 million (2006:
£7.3 million).
Following last year's success in renewing contracts, we have been active in
extending the range of services which we provide to our existing customers and
winning new contracts. Early in the year we were awarded the facilities
management contract for the AA, which includes the management of five major
buildings and other properties, and a contract to provide services to Indesit at
its four manufacturing sites and headquarters buildings. We also secured
contracts with Infineum and Panasonic to manage their R&D facilities which, for
the former, includes a 35 acre research park.
During the year we have continued to grow our close to core support services to
the Police. We mobilised our custody contract with Warwickshire in June and, in
the same month, were awarded the PFI contract for the construction and
management of the North Kent Police Divisional HQ. The innovative and
environmentally sensitive design of this Thamesway operations centre
incorporates geothermal heating and cooling to minimise energy consumption. We
completed the construction of the Cleveland Police stations on time and to
budget. This is an exciting and developing PFI project and we have recently
reached agreement with Cleveland Police to extend our services into custody and
property management.
We have continued to explore new and innovative approaches to services which
will add value to our customers and we are actively assessing new markets for
forensic medical services and the provision of specialist staff to the Police
and other services. In order to better serve our facilities management customers
we are developing and growing our mechanical and electrical services business.
Our management teams have been active, not only in consolidating our presence in
existing markets, but also in extending our capabilities into new markets. This
year we secured a pathfinder transport contract for Cheshire probation service
providing transportation for probationers to their place of work. We have also
secured our first contract in the health sector with Avon and Wiltshire Mental
Health Partnership NHS Trust to move patients in discreet vehicles between home
and treatment centres. This contract has called for specialist training and
development of the Reliance team in patient care and management. These new
sectors present us with opportunities to build and develop our capabilities.
Julian Nicholls
Group Managing Director
Financial review
Overview
In the year to 27 April 2007 the Group turnover increased 8.8% to £345.5 million
(2006: £317.5 million) before exceptional income of £nil (2006: £0.8 million).
Pre-exceptional profit on ordinary activities before taxation was 3.1% higher at
£13.6 million (2006: £13.1 million). Profit before tax was £13.2m (2006: £9.7m).
Net cash was £25.4 million (2006: £21.1 million) reflecting good levels of
organic cash generation in the year.
Exceptional items
Pre-tax net exceptional costs were £0.4 million (2006: £3.5 million) and relate
to the net costs of compliance with security industry regulation in Scotland
(2006: £3.4 million in England and Wales net of amounts recovered from customers
and £0.1m costs of transferring to AIM). Since 20 March 2006, the date from
which security industry regulation became effective in England and Wales, our
incremental manpower security revenue and costs are recognised within turnover,
cost of sales and overheads in the usual way.
Accounting matters
Accounting policies
There has been no significant change in accounting policies during the year
other than the adoption of FRS 20 in respect of share-based payments as
explained in detail in note 1 to the accounts and the effect of the restatement
on the prior year is set out in note 8.
International Financial Reporting Standards
The adoption of International Financial Reporting Standards has been deferred
until financial year 2007/08 following the Group transfer to AIM and the
adoption of that market's reporting requirements. As previously indicated, the
adoption of IFRS is not expected to have a material impact on reported earnings
per share and the impact on consolidated net assets is expected to be
immaterial. The Group is undertaking further work to prepare for the transition
to IFRS in 2007/08.
Group results
Operating margin
Group gross margin excluding exceptionals has increased to 19.0% (2006: 18.8%)
as a result of effective cost control during the growth in turnover and the
realisation of the anticipated benefits from licensing in security services.
Group administration costs increased to £54.3 million (2006: £48.8 million)
reflecting the investments made to generate longer term growth. As a percentage
of turnover these costs have increased to 15.7% (2006: 15.4%). Our share of the
operating profit from our joint venture and associate grew from £1.4 million to
£1.7 million. Overall, Group operating margin, being the ratio of
pre-exceptional operating profit to turnover, decreased to 3.7% (2006: 3.8%).
Net interest receivable
Net interest receivable decreased to £0.7 million (2006: £0.9 million) due to
lower average cash balances during the year, following the £10.1 million outlay
of the cash return to shareholders in December 2005.
Taxation
The net taxation charge for the year excluding exceptional items was £3.6
million (2006: £3.9 million) which represents an effective tax rate of 26.7%
(2006: 29.4%), reflecting the utilisation of brought forward tax losses in a
subsidiary undertaking. The net exceptional charge of £0.4 million is fully tax
deductible; the net exceptional charge of £3.5 million in the prior year
resulted in a tax credit of £1.0 million.
Earnings per share
Basic earnings per share before exceptional items was 47.4 pence per share
(2006: 41.9 pence per share). At 27 April 2007, there were 21,512,855 (2006:
21,512,855) shares in issue, excluding 400,000 (2006: 400,000) treasury shares
but including 542,599 (2006: 542,599) shares held by the Group employee share
ownership trust.
Dividends
In the light of the possible offer the board has decided not to recommend any
final dividend at this stage. It intends, however, to reconsider a
recommendation, should any firm intention to make an offer not be announced
before 31 July 2007. Any recommendation would then be put to shareholders for
approval at the AGM, currently proposed to be held on 6 September 2007.
The 2007 interim dividend paid was 4.8 pence per share (2006: 4.5 pence per
share). The final dividend for 2006 was 15.5 pence per share.
Cash flow
The Group's underlying cash generation has again been strong. Net cash inflow
from operations improved by 3.4% to £12.2 million (2006: £11.8 million)
reflecting the improved turnover and operating profit. Working capital increased
by £0.6 million while depreciation reduced by £0.4 million.
Dividends received from the associate were £1.1 million (2006: £1.0 million) and
net interest received was £1.0 million (2006: £0.9 million). Corporation tax
paid was £3.4 million (2006: £3.4 million). The net cash outflow from investing
activities was £2.3 million (2006: £2.5 million). In 2007 a long term loan of
£0.5 million was advanced to a PFI special purpose company (2006: £1.1 million),
and net capital expenditure was £1.8 million (2006: £1.4 million), reflecting an
increased spend on IT systems and office refurbishments.
Dividends paid were £4.3 million (2006: £4.2 million), reflecting the higher
dividend per share offset by the reduced number of shares following the cash
return to shareholders.
Cash inflow before financing was £4.4 million (2006: £3.6 million), The net cash
outflow from financing was £3.4 million (2006: £10.2 million), reflecting the
repayment of the ESOP loan of £3.3 million (2006: £nil). The 2006 outflow was
principally due to the £9.9 million cash return to shareholders and associated
costs of £0.2 million. For management purposes, the Group focuses on free cash
flow, being cash flow from operating activities less tax and interest paid plus
dividends received from the associate. Over time, the Group targets free cash
flow of 70% of pre-exceptional, pre-tax profit. In the year, the Group achieved
80.4%, an improvement from 78.9% in 2005/06. The Group will incur an increased
level of capital expenditure in 2007/08, largely IT related. These factors
notwithstanding, the Group expects to be modestly cash generative, overall, in
2007/08. The Group's policy is to maintain committed, medium term borrowing
facilities that are more than sufficient to meet its foreseeable medium term
financing requirements.
Segment Results
The security services and facilities management segments include the results of
those of the Group's businesses, joint venture and associated undertaking that
provide site based security services and facilities management services
respectively to customers. Central administrative costs and operating assets
have been allocated to the two segments. Segment operating profit excludes
exceptional items and comprises profit on ordinary activities after the share of
joint venture and associate's results and before finance charges. A more
detailed analysis is set out in note 2 to the accounts.
Security services
Turnover, excluding exceptionals, increased 10.5% to £207.5 million (2006:
£187.8 million) and operating profit before exceptionals increased 33.8% to £6.6
million (2006: £4.9 million) largely reflecting progress made by the new
management teams, the completion of the SIA compliance regime and the
improvements in our electronic security business. The segment operating margin
before exceptionals increased to 3.2% (2006: 2.6%).
Facilities management
Turnover, excluding exceptionals but including share of the joint venture,
increased 6.5% to £138.0 million (2006: £129.7 million) and operating profit
before exceptionals but including share of joint venture and associate decreased
to £6.3 million (2006: £7.3 million) reflecting the ending of a significant
contract and investment for longer term growth. Operating margin before
exceptionals reduced to 4.6% (2006: 5.6%)
Mark Harrison
Group Finance Director
Reliance Security Group plc
Consolidated profit and loss account
for the year ended 27 April 2007
Pre-exceptional Exceptional
item item Restated (*)
2007 2007 2007 2006
Notes £'000 £'000 £'000 £'000
---------------------- ----- ---------- --------- --------- ---------
Turnover: Group and share of joint venture
---------- --------- --------- ---------
- excluding exceptional item 3 345,491 - 345,491 317,483
- exceptional item 4 - - - 758
---------- --------- --------- ---------
345,491 - 345,491 318,241
Less: share of joint venture's
turnover 3 (710) - (710) (259)
---------------------- ----- ---------- --------- --------- ---------
Group turnover 3 344,781 - 344,781 317,982
Cost of sales
---------- --------- --------- ---------
- excluding exceptional item (279,325) - (279,325) (257,598)
- exceptional item 4 - (350) (350) (3,828)
---------- --------- --------- ---------
Total cost of sales (279,325) (350) (279,675) (261,426)
---------------------- ----- ---------- --------- --------- ---------
Gross profit 65,456 (350) 65,106 56,556
Administrative expenses
---------- --------- --------- ---------
- excluding exceptional items (54,283) - (54,283) (48,835)
- exceptional items 4 - (47) (47) (398)
---------- --------- --------- ---------
Total administrative expenses (54,283) (47) (54,330) (49,233)
---------------------- ----- ---------- --------- --------- ---------
Group operating profit
excluding share of joint
venture and associate 11,173 (397) 10,776 7,323
---------- --------- --------- ---------
Share of joint venture's
operating profit 3 142 - 142 154
Share of associate's operating
profit 3 1,568 - 1,568 1,274
---------- --------- --------- ---------
Total share of operating
profits of joint venture and
associate 1,710 - 1,710 1,428
---------------------- ----- ---------- --------- --------- ---------
Total operating profit: Group
and share of joint venture and
associate before finance income
& charges 3 12,883 (397) 12,486 8,751
---------------------- ----- ---------- --------- --------- ---------
Finance income/(charges)
---------- --------- --------- ---------
Group 782 - 782 1,050
Joint venture (128) - (128) (137)
Associate 16 - 16 13
---------- --------- --------- ---------
Net finance income 670 - 670 926
---------------------- ----- ---------- --------- --------- ---------
Profit on ordinary activities
before taxation 13,553 (397) 13,156 9,677
Tax on profit on ordinary
activities 4,5 (3,618) 119 (3,499) (2,830)
---------------------- ----- ---------- --------- --------- ---------
Profit on ordinary activities
after taxation and for the year 9,935 (278) 9,657 6,847
---------------------- ----- ---------- --------- --------- ---------
Earnings Per Share
Basic 6 46.1p 30.9p
Diluted 6 44.9p 30.9p
---------------------- ----- ---------- --------- --------- ---------
All of the activities of the Group are classed as continuing.
There are no material differences between reported and historical cost profits
and losses.
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
Reliance Security Group plc
Consolidated statement of total recognised gains and losses
for the year ended 27 April 2007
Notes 2007 Restated (*)
2006
£'000 £'000
------------------------------ ----- ------- --------- --------
Profit for the year
- Group 8,534 5,943
- Joint venture 14 17
- Associate 1,109 887
------------------------------ ----- ------- --------- --------
Total recognised gains and losses
relating to 9,657 6,847
the year -------- --------
Prior year adjustment in respect of
adoption of FRS 20 7,8 139
------------------------------ ----- ------- ---------
Total recognised gain since last annual
report 9,796
------------------------------ ----- ------- ---------
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
Reliance Security Group plc
Consolidated balance sheet
as at 27 April 2007
Restated (*)
2007 2006
Note £'000 £'000
------------------------------ --------- --------- ---------
Fixed assets
Tangible assets 5,389 5,445
Investments
--------- ---------
Share of gross assets of joint venture 10,526 10,602
Share of gross liabilities of joint venture (10,628) (10,718)
--------- ---------
Share of net liabilities of joint venture (102) (116)
Associated undertaking 141 135
Others 2,060 1,701
--------- ---------
Total investments 2,099 1,720
------------------------------ --------- --------- ---------
7,488 7,165
------------------------------ --------- --------- ---------
Current assets
Stocks 1,576 1,725
Debtors: amounts due within one year 43,342 36,488
Debtors: amounts due after more than one year 3,342 3,493
Cash at bank and in hand 25,547 24,557
------------------------------ --------- --------- ---------
73,807 66,263
------------------------------ --------- --------- ---------
Liabilities: amounts falling due within one year
Borrowings (61) (3,376)
Creditors (46,994) (41,250)
Corporation tax (1,700) (2,069)
------------------------------ --------- --------- ---------
(48,755) (46,695)
------------------------------ --------- --------- ---------
Net current assets 25,052 19,568
------------------------------ --------- --------- ---------
Total assets less current liabilities 32,540 26,733
------------------------------ --------- --------- ---------
Liabilities: amounts falling due after more than one year
Borrowings (63) (124)
Other creditors (134) (44)
------------------------------ --------- --------- ---------
(197) (168)
------------------------------ --------- --------- ---------
------------------------------ --------- --------- ---------
Net assets 32,343 26,565
------------------------------ --------- --------- ---------
Capital and reserves
Called up share capital 1,095 1,095
Capital redemption reserve 70 70
Share premium account 2,534 2,534
Own shares held (5,025) (5,025)
Revaluation reserve 230 232
Share option reserve 535 157
Profit and loss account 32,904 27,502
------------------------------ --------- --------- ---------
Equity shareholders' funds 7 32,343 26,565
------------------------------ --------- --------- ---------
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
Reliance Security Group plc
Consolidated cash flow statement
for the year ended 27 April 2007
2007 2006
Notes £'000 £'000
------------------------------ -------- --------- ---------
Net cash inflow from operating activities 9 12,241 11,835
------------------------------ -------- --------- ---------
Dividends from associate 1,103 1,005
------------------------------ -------- --------- ---------
Returns on investment and servicing of finance
Interest received 1,162 1,238
Interest paid (160) (281)
Interest element of finance lease repayments (16) (31)
------------------------------ -------- --------- ---------
Net cash inflow from returns on investment and
servicing of finance 986 926
------------------------------ -------- --------- ---------
Taxation
UK corporation tax paid (3,429) (3,399)
------------------------------ -------- --------- ---------
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,789) (1,389)
Sale of tangible fixed assets 2 18
Loan advanced to joint venture - (1,122)
Purchase of fixed asset investments (491) -
------------------------------ -------- --------- ---------
Net cash outflow from capital expenditure and
financial investment (2,278) (2,493)
------------------------------ -------- --------- ---------
Equity dividends paid (4,257) (4,245)
------------------------------ -------- --------- ---------
Net cash inflow before financing 4,366 3,629
------------------------------ -------- --------- ---------
Financing
Payments to redeem equity shares - (7,660)
Payments to acquire treasury shares - (2,200)
Payments of expenses on redemption of equity
shares and - (236)
acquisition of treasury shares
Repayment of ESOP loan (3,315) -
Capital element of finance lease repayments (61) (83)
------------------------------ -------- --------- ---------
Net cash outflow from financing (3,376) (10,179)
------------------------------ -------- --------- ---------
Increase/(decrease) in cash in the year 990 (6,550)
------------------------------ -------- --------- ---------
Reconciliation of net cash flow to movement in net cash
Increase/(decrease) in cash in the year 990 (6,550)
Repayment of ESOP loan 3,315 -
Cash flow from finance leases 61 (122)
------------------------------ -------- --------- ---------
Movement in net cash in the year 4,366 (6,672)
Net cash at start of year 21,057 27,729
------------------------------ -------- --------- ---------
Net cash at end of year 10 25,423 21,057
------------------------------ -------- --------- ---------
Reliance Security Group plc
Notes to the preliminary statement
for the year ended 27 April 2007
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 27 April 2007 or 28 April 2006, but is
derived from those accounts. Statutory accounts for 28 April 2006 have been
delivered to the Registrar of Companies and those for 27 April 2007 will be
delivered following the Company's annual general meeting. The auditors have
reported on those accounts: their reports were unqualified and did not contain
statements under s.237(2) or (3) Companies Act 1985.
1. Accounting convention
The Group accounts have been prepared in accordance with applicable United
Kingdom accounting standards and under the historical cost convention, as
modified by the revaluation of land and buildings. This preliminary announcement
has been prepared on the basis of the accounting policies laid down in those
accounts. Accounting policies have been consistently applied in dealing with
items which are considered material in relation to the Group's accounts, subject
to the change in the year as set out below. The financial years of all Group
companies are the 52 or 53 weeks up to the Friday before, or falling on, the
accounting reference date of 30 April.
The Group adopted Financial Reporting Standard 20 Share-based Payment (FRS 20)
during the year, to measure the fair value of share options granted.
The Group had previously estimated the value of its share options in accordance
with UITF 17 Employee Share Schemes. The adoption of FRS 20 has resulted in the
Group restating its administrative expenses, tax charge, net assets and reserves
for the prior year to reflect the revised basis of calculating the charges and
liabilities relating to its share options issued since November 2002.
Under FRS 20, equity-settled share-based payments are measured at fair value at
the date of grant and this is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of the shares that will eventually vest.
In addition, the Group has estimated the corresponding charge to class 1A
National Insurance Contributions (NIC) which will arise on its estimate of the
number of shares which will eventually vest. Deferred tax is recognised in
respect of the total charge made, and an additional deferred tax asset is
recognised in respect of the movement in the imputed taxable gain which would be
realised by the option holder if the shares vested at the balance sheet date.
A transfer to a share option reserve is made each period to match the fair value
of the share options which has been charged to the profit and loss account.
Further adjustments to the share option reserve are made in respect of the
deferred tax on the charge to the profit and loss account for the fair value of
the share options, and in respect of the movement in the imputed taxable gain
which would be realised by the option holder if the shares vested at the balance
sheet date. The Group's estimated liability to NIC is held as a creditor on the
balance sheet.
Details of the restatement of comparative figures are set out in note 8.
2. Consolidation
The consolidated profit and loss account and balance sheet incorporate the
accounts of Reliance Security Group plc, its subsidiary undertakings and its
share of the profits/losses and net assets/liabilities of its joint venture and
associate.
3. Segmental information
Security Facilities Total Security Facilities Restated (*)
Services Management Services Management Total
2007 2007 2007 2006 2006 2006
£'000 £'000 £'000 £'000 £'000 £'000
------------------ ------- --------- ------ ------- --------- --------
Total turnover 211,347 137,771 349,118 188,987 129,551 318,538
Less:
inter-segment
turnover (3,897) (440) (4,337) (1,169) (145) (1,314)
Group turnover
- excluding
exceptional
revenue 207,450 137,331 344,781 187,818 129,406 317,224
Exceptional
revenue - - - 673 85 758
------------------ ------- --------- ------ ------- --------- --------
Group turnover 207,450 137,331 344,781 188,491 129,491 317,982
Share of joint
venture's
turnover - 710 710 - 259 259
------------------ ------- --------- ------ ------- --------- --------
Turnover:
Group and
share of joint
venture 207,450 138,041 345,491 188,491 129,750 318,241
------------------ ------- --------- ------ ------- --------- --------
Group operating
profit before
exceptional
items
excluding
share of joint
venture and
associate 6,594 4,579 11,173 4,927 5,864 10,791
------- --------- ------ ------- --------- --------
Share of joint
venture's
operating
profits - 142 142 - 154 154
Share of
associate's
operating
profits - 1,568 1,568 - 1,274 1,274
------- --------- ------ ------- --------- --------
Total share of
operating
profits of
joint venture
and associate
before
exceptional
items - 1,710 1,710 - 1,428 1,428
------- --------- ------ ------- --------- --------
Operating
profit before
exceptional
items: Group
and share of
joint venture
and associate 6,594 6,289 12,883 4,927 7,292 12,219
------- --------- ------ ------- --------- --------
Group operating
exceptional
items (397) - (397) (3,295) (173) (3,468)
------- --------- ------ ------- --------- --------
Total operating
profit: Group
and share of
joint venture
and associate
before finance
income &
charges 6,197 6,289 12,486 1,632 7,119 8,751
------- --------- ------ ------- --------- --------
In accordance with the equity method adopted for accounting for associates,
Group turnover excludes its share of turnover of associated undertaking of
£31,899,000 (2006: £30,050,000).
(*) Group operating profit before exceptional items excluding share of joint
venture and associate for 2006 has been restated to reflect the adoption of FRS
20 as set out in note 1.
Security Facilities Total Security Facilities Restated(*)
Services Management Services Management Total
2007 2007 2007 2006 2006 2006
£'000 £'000 £'000 £'000 £'000 £'000
------------------- ------- --------- ------ ------- -------- --------
Group operating assets/(liabilities) 1,924 3,673 5,597 (643) 5,740 5,097
Share of joint venture's net (liabilities) - (102) (102) - (116) (116)
Share of associate's net assets - 141 141 - 135 135
------------------- ------- --------- ------ ------- -------- --------
Total operating assets/(liabilities) 1,924 3,712 5,636 (643) 5,759 5,116
------------------- ------- --------- ------ ------- -------- --------
Reconciliation of total operating assets to total
net assets:
Total operating assets 5,636 5,116
Items excluded:
Net cash 25,423 21,057
Investments in other participating interests 938 579
Loan to joint venture 1,122 1,122
Taxation payable (1,700) (2,069)
Deferred taxation 945 709
Net interest (payable)/receivable (21) 51
------------------- ------- --------- ------ ------- -------- --------
Total net assets (*) 32,343 26,565
------------------- ------- --------- ------ ------- -------- --------
Operating assets are those net assets controlled by Reliance's operating
divisions.
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
4. Exceptional items
2007 2006
£'000 £'000
-------------------------------- --------- ---------
Operating exceptional items
-------------------------------- --------- ---------
Turnover
Revenue received towards cost of implementation of Private
Security Industry Act - 758
Cost of sales
Cost of implementation of Private Security Industry Act (350) (3,828)
Administrative expenses
--------- ---------
Cost of implementation of Private Security Industry Act (47) (312)
Legal and professional costs of re-listing on AIM - (86)
--------- ---------
(47) (398)
-------------------------------- --------- ---------
Total exceptional charge (397) (3,468)
Tax credit on exceptional charge 119 1,040
-------------------------------- --------- ---------
(278) (2,428)
-------------------------------- --------- ---------
The cash outflow in respect of the operating exceptional items charged in the
year was £397,000 (2006: £3,310,000), before taking into account the cash
benefits of tax relief. In 2006-07, there was a cash outflow of £158,000 in
respect of operating exceptional items charged in 2005-06.
5. Taxation
Corporation tax, excluding tax credits on exceptional charges, for the year
ended 27 April 2007 has been calculated at an effective rate of 26.7% (2006:
29.4%).
6. Earnings per share
2007 2006 Restated (*)
Basic Diluted Basic Diluted
pence per pence pence pence
per per per
£'000 share share £'000 share share
---------------------- ------ ------ ------- ------- ------- -------
Profit for the period
attributable to equity
shareholders 9,657 46.1p 44.9p 6,847 30.9p 30.9p
Add back:
---------------------- ------ ------ ------- ------- ------- -------
Exceptional items
- net of tax credit (see note 4) 278 1.3p 1.3p 2,428 11.0p 11.0p
---------------------- ------ ------ ------- ------- ------- -------
Earnings excluding exceptional
items 9,935 47.4p 46.2p 9,275 41.9p 41.9p
---------------------- ------ ------ ------- ------- ------- -------
2007 2006
Number Number
------------------------------- ---------- ---------
Weighted average number of shares 21,912,855 22,808,186
Weighted average number of shares held in treasury (400,000) (142,857)
Weighted average number of shares held in ESOP trust (542,599) (542,599)
------------------------------- ---------- ---------
Shares used to calculate basic earnings per share 20,970,256 22,122,730
Dilutive potential shares 535,870 -
------------------------------- ---------- ---------
Shares used to calculate diluted earnings per share 21,506,126 22,122,730
------------------------------- ---------- ---------
The basic and diluted earnings per share have been calculated in accordance with
FRS 22, based on profit after tax and the weighted average number of ordinary
shares in issue during the year, less shares held in treasury and by the ESOP
trust.
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
7. Combined statement of movement in shareholders' funds and movement on reserves
Called Capital Share Own Revaluation Share Profit 2007 Restated(*)
up premium shares option
share redemption account held reserve reserve and loss 2006
capital reserve account
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
-------------------- ------- ------- ------- ------- -------- ------ ------ ------- ---------
Group
At start of the year
as previously stated 1,095 70 2,534 (5,025) 232 - 27,363 26,269 38,812
Prior year adjustment
in respect of the
fair value of
share options
granted (*) - - - - - 157 139 296 147
-------------------- ------- ------- ------- ------- -------- ------ ------ ------- ---------
At start of year as
restated 1,095 70 2,534 (5,025) 232 157 27,502 26,565 33,959
Share-based payments - - - - - 378 - 378 100
Transfer of depreciation
on revalued assets - - - - (2) - 2 - -
Purchase of own shares - - - - - - - - (10,096)
Profit on ordinary
activities after
taxation - - - - - - 9,657 9,657 6,847
Dividends paid - - - - - - (4,257) (4,257) (4,245)
-------------------- ------- ------- ------- ------- -------- ------ ------ ------- ---------
At end of the year
as restated (*) 1,095 70 2,534 (5,025) 230 535 32,904 32,343 26,565
-------------------- ------- ------- ------- ------- -------- ------ ------ ------- ---------
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
8. Prior year adjustment
As explained in Note 1, the Group has adopted FRS 20 during the year, to measure
the fair value of share options granted.
The Group had previously estimated the value of its share options in accordance
with UITF 17 Employee Share Schemes. The adoption of FRS 20 has resulted in the
Group restating its administrative expenses, tax charge, net assets and reserves
for the prior year to reflect the revised basis of calculating the charges and
liabilities relating to its share options issued since November 2002.
The effect of adopting FRS 20 on the financial statements for the year ended 28
April 2006 is to increase net assets by £296,000. The share option expense under
UITF 17 for the year ended 28 April 2006 was £140,000 (after taxation). The
expense under FRS 20 for the year ended 28 April 2006 was £91,000 (after
taxation), increasing profit on ordinary activities after taxation by £49,000.
Further details of the effect of the change in policy are set out below:
Financial Adoption of FRS Restated
statements 20
for year ended financial
statements
28 April 2006 for year ended
28 April 2006
------------------------ ------------- -------- -------------
£'000 £'000 £'000
------------------------ ------------- -------- -------------
Profit and loss account
------------------------ ------------- -------- -------------
Administrative expenses (48,905) 70 (48,835)
------------------------ ------------- -------- -------------
Taxation (2,809) (21) (2,830)
------------------------ ------------- -------- -------------
Profit on ordinary
activities after
taxation 6,798 49 6,847
------------------------ ============= ======== =============
Balance sheet
------------------------ ------------- -------- -------------
Debtors due after more
than one year -
deferred tax 769 (60) 709
------------------------ ------------- -------- -------------
Other creditors falling
due after more than one
year (400) 356 (44)
------------------------ ------------- -------- -------------
Net assets 26,269 296 26,565
------------------------ ============= ======== =============
Share option reserve:
------------------------ ------------- -------- -------------
At the start of the
year - 57 57
------------------------ ------------- -------- -------------
Share-based payments - 100 100
------------------------ ------------- -------- -------------
At the end of the year - 157 157
------------------------ ============= ======== =============
Profit and loss account
------------------------ ------------- -------- -------------
At the start of the
year 32,786 90 32,876
------------------------ ------------- -------- -------------
Movement in the year (5,423) 49 (5,374)
------------------------ ------------- -------- -------------
At the end of the year 27,363 139 27,502
------------------------ ============= ======== =============
Equity shareholders'
funds 26,269 296 26,565
------------------------ ============= ======== =============
9. Reconciliation of operating profit to net cash inflow from operating
activities
Restated (*)
2007 2006
£'000 £'000
-------------------- ----- --------------------- -------- --------
Operating profit 10,776 7,323
Depreciation charges 1,829 2,272
Loss/(profit) on the sale of
fixed assets 14 (3)
Fair value share option expense 178 100
Decrease/(increase) in stocks 149 (260)
(Increase)/decrease in debtors (6,408) 2,317
Increase in creditors 5,703 86
----------------------- --------------------- -------- --------
Net cash inflow from operating 12,241 11,835
activities
----------------------- --------------------- -------- --------
(*) The restatement relates to the adoption of FRS 20 as set out in note 1.
10. Analysis and reconciliation of net cash
28 April 27 April
2006 Cash flow 2007
£'000 £'000 £'000
----- --------- ---------- -------- ---------
Cash at bank and in hand 24,557 990 25,547
----------------------- ----- --------- ---------- -------- ---------
Loan due within one year (3,315) 3,315 -
Finance leases and hire purchase contracts (185) 61 (124)
--------------------------------- ---------- -------- ---------
Total borrowings (3,500) 3,376 (124)
----------------------- ----- --------- ---------- -------- ---------
Net cash 21,057 4,366 25,423
----------------------- ----- --------- ---------- -------- ---------
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