Final Results
Reliance Security Group PLC
29 June 2006
THURSDAY 29 JUNE 2006
PRESS RELEASE
Reliance Security Group plc
Preliminary announcement of results for the
Year ended 28 April 2006
•Turnover up 2.3% to £317.5m (2005: £310.3m)
•Profit before tax and exceptional items: £13.1m (2005: £15.6m)
•Earnings per share before exceptional items: 41.7p (2005: 47.4p)
earnings per share 30.7p (2005: 61.3p)
•Dividend per share up 7.0% to 20.0p (2005: 18.7p)
•Challenging market conditions in Security Services
•Organic growth in FM
•Continuing investment in growth markets
•Forward FM order book £716m (2005: £731m)
Brian Kingham, Chairman, commenting on the results said:
'We have achieved results in line with our expectations despite challenging
conditions in the security services market. Our businesses in facilities
management and business process outsourcing have performed well. We are
utilising our strong financial position to continue to invest in growth
markets.'
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 :
Brian Kingham Chairman 020 7730 9716
Julian Nicholls Group Managing Director 01895 205002
Chairman's Statement
Introduction
The Group's results for the year to 28 April 2006 are in line with expectations.
In the security services market, conditions have remained challenging with
continuing pressure on margins. We have devoted extensive management effort and
incurred considerable expense in complying with government regulation, which
came into effect in March 2006. The diversion of resource has resulted in some
slippage in our security market share. Nonetheless, we expect that regulation
will have a gradual beneficial effect. We have reorganised the security division
and its senior management team to take full advantage of the new dynamics of a
regulated security market.
We are exploiting the extensive growth opportunities in the diverse, £60 billion
per annum facilities management and business process outsourcing market. We have
won a wide range of new contracts and important contracts have been successfully
renewed. This will help to offset the effect of the expiry of our electronic
monitoring contract in March 2006. We continue to invest in developing
complementary new products and services to meet customers' requirements for
organisational change, process improvement and the application of the latest
technologies. We have invested significantly in business development resource
and activity levels are high.
Results
Turnover for the year to 28 April 2006 increased by 2.3% to £317.5 million
(2005: £310.3 million). Pre-exceptional, pre-tax profit for the year was £13.1
million (2005: £15.6 million). Excluding exceptional items, earnings per share
was 41.7p (2005: 47.4p). The net exceptional pre-tax charge of £3.5 million
(2005: net exceptional profit of £3.0 million) is explained fully in the
Financial Review below. Net cash generated from operations was £11.8 million
(2005: £15.7 million) and we ended the year with net cash of £21.1 million
(2005: £27.7 million), notwithstanding the £10.1 million outlay of the cash
return to shareholders in December.
Dividend
A final dividend is proposed of 15.5p making a total for the year of 20.0p, 7.0%
higher than last year (2005: final dividend 14.5p, total 18.7p). The proposed
final dividend is subject to approval at the AGM on 7 September 2006 and payable
on 22 September 2006 to shareholders on the register on 1 September 2006.
Strategy
Recognising the requirement to adapt to changes in markets, technologies and
customer needs, the board regularly reviews the strategy for the group and its
operating businesses. The latest such review confirmed our long-term strategy.
Our strategy continues to be built around differentiating Reliance from other
suppliers - primarily through innovation, service quality, people development
and teamwork - enabling us to outperform our competitors in both growth and
margins, thus generating superior value for our shareholders.
Our security services business is undergoing major changes as a result of
Government regulation. In a market worth £3 billion per annum we are
strengthening our leadership position and responding robustly to consolidation,
offering customers an innovative balance of technology and manpower services.
We will increase our already substantial presence in the larger and faster
growing markets of facilities management and business process outsourcing. We
will continue to grow recurring revenues by expanding the range of complementary
services delivered under long term contracts to both public and private sector
customers. We seek to establish leadership positions in specific niches where we
have specialist knowledge and the necessary core competencies.
We will maintain a strong balance sheet enabling us to consider acquisition
opportunities which can broaden or strengthen our core businesses.
Community
The group has a strong tradition of working with voluntary, charitable and not
for profit organisations with complementary aims and capabilities. We seek to
increase our support and encouragement of those working to promote innovation,
enterprise and the development of young people. We were delighted this year to
help bring Made In Brunel, a breathtaking array of innovation and design from
the students of Brunel University, to the wider international audience in
central London. Our work with Crime Concern, Cumberland Lodge, the Police
Service and numerous community groups serves to enrich our experience and
capacity to serve our customers.
People
I welcome this opportunity to express on behalf of the board our warmest thanks
to our people. Their enthusiasm, dedication and professionalism is the very
heart of our business and is what enables us to offer a Reliance difference.
Nowhere was this better demonstrated than in the care and concern for our
customers and the speed of response shown by our people in London on 7 July
2005.
I cannot over emphasise the importance we attach to constantly refreshing and
renewing the many initiatives we take to support and enable our people to
perform their work better. Finding new and imaginative ways to help them achieve
high levels of efficiency and customer care is a core strength of the group and
one we work tirelessly to sustain and elevate. The renewal of our Investors In
People accreditation this year serves to emphasise the towering significance of
best practice and the rewards of constantly improving and innovating in the
leadership and management of our people. Investors In People offers a persuasive
set of principles for improving business performance and competitiveness through
a planned approach to setting and communicating business objectives and
developing the training and skills required to achieve them.
Our long term strength, our ability to grow and to offer customers products and
services in which they see significant value, is dependent on constantly
learning, improving and developing skills. In the last year we have taken
further initiatives. Our work with the business school at Brunel University has
enabled us to strengthen the Reliance Academy and increase its contribution in
supporting the extensive efforts of our people to enhance their knowledge and
performance.
Board
During the year we announced the retirements from the group board of Neil
French, as Group Finance Director, and Tony Hales, as a non-executive director,
as well as the appointment of David Walter as a non-executive director. Neil
remains on the board in a non-executive capacity to oversee the transition to
his successor.
At the year end, Mark Radcliffe retired and Roger Wood was appointed as a
non-executive director. Mark has given Reliance unstinting and invaluable
support and advice over a long period and we are deeply grateful. We wish him a
long and happy retirement. We are delighted to welcome Roger to the board. His
extensive experience in technology and service businesses will be invaluable,
especially in the further development of our business process outsourcing
activities.
We continue to strengthen our operating company boards through internal
promotions and attracting accomplished managers who share our passion for the
values that inspire the success of Reliance. Michael Carre was appointed
managing director of Reliance Security Services and Sandra Burrell, Chris
Burnell, Mark Tuckwell and Ian Foster, all established Reliance managers, also
joined its board.
Future
The potential for future organic growth remains highly attractive, particularly
now we have strengthened the senior management teams in all three of our major
businesses.
However, the year ahead will be challenging, with the expiry of a number of
large contracts in 2006 making us dependent on winning further significant new
business. The beneficial effects of security industry regulation will also take
time to materialise.
We enjoy a strong competitive position in large and growing markets. We have
consistently invested in developing our businesses and positioning them for
growth, which is being steadily realised. We expect to see further growth in
demand for our services. The public sector is moving strongly to a mixed economy
model for bringing innovation and change in the delivery of services. We are
well placed to operate in a broader spectrum of public sector markets which we
have yet to access. In the private sector we expect increased demand as
businesses seek to rationalise their supply chain for services and implement
change and improvement in business processes. Our forward order book remains
healthy and we continue to enjoy a strong financial position.
Brian Kingham
Chairman
Operational Review
During my first year with Reliance, I have had the opportunity to witness first
hand the excellent and inspiring work which our colleagues perform for our
customers. I have also been able to observe and learn from our customers the
tangible difference which we make to their businesses and the importance which
they attach to the services we provide.
I am excited by the opportunities which are presented in both our Facilities
Management and Security Services markets and the firm foundation they give us to
build and develop the group.
This year, however, has been a year of mixed performance but, despite the
challenges which we have faced, it has also been marked by successes.
Security Services
Turnover was £187.8 million (2005: £192.7 million) and segment operating profit
before exceptional items and excluding the Group's share of its associate was
£4.9 million (2005: £5.0 million). This reduction in both turnover and profit to
a large extent reflects the impact of a rather turbulent and unpredictable
market in the run up to regulation and licensing in March 2006. Our electronic
security business, Reliance High-Tech, continued to improve and exceeded
expectations, but only has a marginal impact on the overall result at this stage
of its development.
Meeting the requirements of the Private Security Industry Act has been
challenging and has caused some distraction within the business. During the year
we have trained and tested nearly 7,000 people to regulatory standards and we
have done so without disrupting the service to our customers. It is a tribute to
the Reliance project team that we have also achieved Approved Contractor Status
for manpower security, door supervision and CCTV operation.
As the market settles in its new regulated environment, I believe that the
pressure will relax, and that we will start to see a shift towards improved
margins. In order to prepare for the changes in the market we have restructured
the management team and significantly strengthened its sales and marketing
capabilities.
We have made good progress this year in developing our reputation for excellence
in customer service and innovation. As we continue to seek ways to differentiate
and respond to the needs of our customers, we are increasingly aware of their
changing priorities.
During the course of the year our mobile response activity, Patrol Net, has been
established as a separate business unit with a centralised command centre and
enhanced capabilities. This has already led to the development of a number of
new services, including the provision of escorts for lone workers and security
risk assessments for multi-site customers. Among others, we have won significant
new contracts with Boots, Matalan, the Co-op and Phones 4U. The integration of
manpower security and mobile response is an increasingly popular requirement for
retail customers with high street premises and we have recently been awarded a
contract to provide this service to New Look stores.
The trend among our customers to seek improved effectiveness and economy through
the integration of technology, remote monitoring, site based services and mobile
response has continued this year. Remote surveillance and monitoring are
important constituents in the mix of services which are required. Our state of
the art remote surveillance centre is already well established and we continue
to invest in the latest software and systems to extend our leadership in this
area.
We were delighted to win the award for the 'Best Integrated Security Solution'
at the 2005 Security Excellence Awards. This award was presented to Reliance for
demonstrating the best integration of manpower and electronic security systems
at BMW where we have worked closely with our customer to reshape and improve
their security provision while reducing cost. British Security Industry
Association awards were also won for 'Best Use of Technology' for our work in
integrating manpower and electronic security for Harper Collins and C&J Clark.
In 2006 we also won a major contract with ITV for this integrated service.
We have made good progress in our electronic security business by winning
significant new contracts with Air Products, the National Offender Management
Service (NOMS), Trinity Mirror, and Bank of America. We are continuing to
differentiate our services by staying at the forefront of technology.
The public sector remains an important part of our activity, where 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 the wider policing family where a good example of this is
Project Griffin, an initiative launched by the City of London Police in 2004.
Its purpose is to better equip private security businesses to assist in the
event of a major incident. We have trained over 170 officers in London and are
participating in the extension of the project to Manchester.
Facilities Management
Turnover was £129.7 million (2005: £117.5 million), and segment operating profit
including the Group's share of its joint venture and associate but before
exceptional items was £7.3 million (2005: £8.3 million).
This year we have improved our capability to develop solutions for our customers
by strengthening our business development resource. We have also appointed new
managing directors to our business process outsourcing and facilities management
businesses.
We were obviously disappointed not to renew our electronic monitoring contract
in Scotland but heartened by the fact that this had nothing to do with service
quality, which the Scottish Executive made a point of publicly praising. The
result of our continued attention to delivering the highest standards of service
and of developing our understanding of our customers has been the renewal and
extension of many of our other contracts and the securing of new business. Our
forward order book remains strong at £716 million (2005: £731 million).
Our 100% record of delivery of over 400,000 items, together with service
improvements from the application of new IT systems, was instrumental in the
award of a new five year contract with the Forensic Science Service. We have
been awarded a new four year contract to provide custody services to West Mercia
Police, and our contract with Thames Valley Police has been extended and
broadened in the range of services we provide. Our facilities management
contract with British Telecom has been renewed for a further three years.
Our focus on working closely with our customers has again offered us significant
opportunity for increasing our business with them. Our contracts with Centrex
training colleges and 3M are good examples of where we have added new buildings,
locations and services to existing arrangements.
The market for the provision of business process outsourcing and facilities
management continues to grow. Our position as market leader in the provision of
custody services has recently been enhanced with a new four year contract with
Warwickshire Police. We have also been contracted by Devon & Cornwall Police to
provide a range of facility services across their estate. Other notable contract
wins include the provision of facility services to Durham University and the AA.
During the year we have continued to mobilise our Private Finance Initiative
contracts. The year saw the opening of the latest, purpose built, detainee
handing and investigation centre for Sussex Police in Eastbourne. For Cleveland
Police we commenced early services and construction on the Middlesbrough &
Langbaurgh Divisional Headquarters. The construction and mobilisation of new
headquarters for the Health & Safety Executive in Merseyside was completed, as
was the new headquarters for Gloucestershire Police.
The Gloucestershire building is of remarkable environmentally sensitive design
and among its features is the utilisation of the latest technology in geothermal
heating and cooling. By the end of January 2006, on time and on budget, some 450
police staff had taken occupancy. Reliance is providing full facility services,
including manpower security, electronic security and access control, catering,
cleaning and janitorial services, reception, porterage, registry and estate
management.
Operational Outlook
Overall, I am pleased with the progress that we have made in our businesses over
the financial year and I am looking forward to building on this over the coming
months. All our businesses have exciting potential, which we remain committed to
realising.
Julian Nicholls
Group Managing Director
Financial Review
Overview
In the year to 28 April 2006 the Group turnover increased 2.3% to £317.5 million
(2005: £310.3 million) before exceptional income of £0.8 million (2005: £nil).
Pre-exceptional profit on ordinary activities before taxation was 16.4% lower at
£13.1 million (2005: £15.6 million) largely due to the expiry in 2005 of a
significant contract in the facilities management sector, the absence of a
contribution from our former investment in Safe Estates Services Ltd following
divestment in December 2004 and challenging market conditions in our security
services sector.
Net cash was £21.1 million (2005: £27.7 million) reflecting good levels of
organic cash generation in the year partly offset by the £10.1 million outlay of
the cash return to shareholders (described below) and £3.3 million net cash
outflow largely relating to the regulation of the private security industry.
The return on operating assets (being the ratio of profit on ordinary
activities, before net finance income and exceptional items, to operating assets
was 255.2% (2005: 191.2%) and the return on shareholders' funds (profit after
tax, excluding exceptionals, to net assets) was 35.1% (2005: 31.9%).
On 16 December 2005 1,792,737 shares were acquired by the company for an
aggregate cash consideration of £9.9 million, of which 400,000 shares were
transferred into treasury and the balance were cancelled. As a result the
company now has a total of 21,512,855 shares in issue (excluding treasury
shares). Transaction costs were £0.2 million.
Exceptional Items
Pre-tax net exceptional costs were £3.5 million (2005: net income £3.0 million)
and largely relate to the cost of compliance with security industry regulation
in England & Wales of £4.1 million (2000: £0.6 million) net of amounts recovered
from customers of £0.8 million (2005: £nil). After 20 March 2006, the date from
which security industry regulation became effective, our related manpower
security revenue and costs will be recognised within turnover, cost of sales and
overheads in the usual way. £0.1 million of costs relating to the Group's
transfer to the AIM Market in August 2005 have also been treated as exceptional.
The prior year exceptional net income comprised a profit of £4.3 million arising
from the disposal of Safe Estates Services Ltd, a £0.7 million write down of the
goodwill relating to Goldrange Limited, the Group's event security business, and
£0.6 million of regulation related costs.
Accounting Matters
Accounting policies
There has been no significant change in accounting policies during the year
other than the adoption of FRS 21 in respect of dividends which are now
recognised when declared. Accordingly the proposed final dividend has not been
recorded as a liability and prior years have been restated.
International Financial Reporting Standards
The Group is not yet required to adopt International Financial Reporting
Standards, under the AIM Market's reporting regime, until its 2007/08 financial
year. 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.
Group Results
Operating margin
Group gross margin excluding exceptionals has decreased to 18.8% (2005: 19.9%)
partly due to the ending of a higher margin contract in the facilities
management sector.
Effective cost control has resulted in Group administration costs reducing to
£48.9 million (2005: £49.5 million); as a percentage of turnover these costs
have decreased to 15.4% (2005: 16.0%).
Group operating margin, being the ratio of pre-exceptional operating profit to
turnover, has decreased to 3.4% (2005: 3.9%) which reflects decreased gross
margins.
Net interest receivable
Notwithstanding the outlay of the cash return to shareholders of £10.1 million
(2005: £nil) net interest receivable increased to £0.9 million (2005: £0.6
million) reflecting improved returns on deposits and increased net cash balances
up to December 2005.
Taxation
The net taxation charge for the year, excluding exceptional items, was £2.8
million (2005: £4.7 million) which represents an effective tax rate of 29.4%
(2005: 31.1%), reflecting the utilisation of brought forward tax losses in a
subsidiary undertaking. The net exceptional charge of £3.5 million is fully tax
deductible; the net exceptional profit of £3.0 million in the prior year
resulted in a tax credit of £0.2 million.
Earnings per share
Earnings per share, before exceptional items, was 41.7 pence per share (2005:
47.4p). At 28 April 2006, following the earlier tender offer there were
21,512,855 (2005: 23,305,592) shares in issue, excluding 400,000 treasury shares
but including 542,599 (2005: 542,599) shares held by the employee share
ownership trust.
Dividends
The 2006 interim dividend paid was 4.5 pence per share (2005: 4.2 pence per
share). The final proposed dividend is 15.5 pence per share (2005: 14.5 pence
per share) although changes in accounting policy discussed above require this to
be reported in 2006/07. Dividend cover before exceptional items is 2.2 times
(2005: 2.5 times); the Board considers this level of dividend cover entirely
appropriate given the Group's cash balances
Cash flow
The Group's underlying cash generation has again been strong. EBITDA, excluding
exceptional items, declined by 15.7% to £13.0 million (2005: £15.4 million)
principally reflecting a reduction in operating profit. The cash outflow
relating to exceptional items was £3.3 million (2005: £0.6 million). However,
effective cash controls resulted in a reduction in working capital of £2.3
million (2005: £0.9 million). Consequently, net cash inflow from operating
activities was £11.8 million (2005: £15.7 million).
Dividends received from associates were £1.0 million (2005: £1.4 million) and
net interest received was £0.9 million (2005: £0.5 million), the latter
reflecting higher returns on deposits and higher cash balances prior to the cash
return to shareholders in December. Corporation tax paid was £3.4 million (2005:
£3.2 million).
The net cash outflow from capital expenditure and investing activities was £2.5
million (2005: £0.2 million). This comprises of a long term loan of £1.1 million
which was advanced to a PFI special purpose company (2005: £nil) and net capital
expenditure of £1.4 million (2005: £1.2 million), reflecting an increased spend
on IT systems. There were no disposals of current asset investments in the year
(2005: proceeds of £1.0 million).
There were no cash flows associated with acquisitions and disposals (2005:
£7.0 million net cash inflow). The prior year figure reflects the sale of the
Group's interest in its associate, Safe Estates Services Ltd, and a payment
relating to the completion of an earn-out arrangement.
Dividends paid, excluding dividends paid in respect of shares held by the
employee share ownership trust, increased by 7.8% to £4.2 million (2005: £3.9
million).
Cash inflow before financing was £3.6 million (2005: £17.3 million).
The net cash outflow from financing was £10.2 million (2005: £0.3 million),
reflecting the £9.9 million cash return to shareholders and associated costs of
£0.2 million (2005: £nil).
The decrease in cash in the year was £6.6 million (2005: increase £17.0
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 associates. Over time, the Group expects to achieve free cash flow of
approximately 70% of pre-exceptional, pre-tax profit. In aggregate, over the
years 2002 to 2006 the Group's free cash flow has been 91.7% of pre-exceptional,
pre-tax profit.
The Group will incur an increased level of capital expenditure in 2006/07,
largely IT related, and expects to make further but less substantial investments
in PFI special purpose companies. These factors notwithstanding, the Group
expects to be modestly cash generative, overall, in 2006/07. 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 ventures and associated undertakings 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. A more detailed analysis is set out in
note 3 to the accounts below.
Security Services
Turnover decreased 2.5% to £187.8 million (2005: £192.7 million) and
operating profit before exceptionals and the Group's share of its associate
decreased 2.0% to £4.9 million (2005: £5.0 million) largely reflecting
tougher market conditions in security services. The prior year associate's
profit of Safe Estates Services Ltd was £1.8 million. Segment operating
margin excluding the Group's share of its associate remains unchanged at
2.6% (2005: 2.6%).
Facilities Management
Turnover increased 10.3% to £129.7 million (2005: £117.5 million) and
operating profit excluding exceptionals but including the Group's share of
the profit from its joint venture and associate decreased 12.0% to £7.3
million (2005: £8.3 million) largely reflecting the ending of a significant
contract. Operating margin excluding exceptionals and the Group's share of
profit from its associate but including the Group's share of profit from its
joint venture was 4.6% (2005: 6.0%). The Group's share of the profit from
its joint venture and associate is £1.4 million (2005: £1.1 million).
Reliance Security Group plc
Consolidated profit and loss account
for the year ended 28 April 2006
Pre-exceptional Exceptional
items items
2006 2006 2006 2005
Notes £'000 £'000 £'000 £'000
--------------------- ------ ---------- --------- --------- ---------
Turnover: Group and share of joint venture 3, 4 317,483 758 318,241 310,257
Less: share of joint venture's turnover 3 (259) - (259) -
--------------------- ------ ---------- --------- --------- ---------
Group turnover - continuing operations 3 317,224 758 317,982 310,257
---------- --------- --------- ---------
Cost of sales - excluding exceptional item (257,598) - (257,598) (248,568)
- exceptional item 4 - (3,828) (3,828) (386)
---------- --------- --------- ---------
Total cost of sales (257,598) (3,828) (261,426) (248,954)
--------------------- ------ ---------- --------- --------- ---------
Gross profit 59,626 (3,070) 56,556 61,303
Administrative expenses
---------- --------- --------- ---------
- excluding exceptional items (48,905) - (48,905) (49,493)
- exceptional items 4 - (398) (398) (888)
---------- --------- --------- ---------
Total administrative expenses (48,905) (398) (49,303) (50,381)
--------------------- ------ ---------- --------- --------- ---------
Group operating profit excluding share of joint
venture and associates - continuing operations 10,721 (3,468) 7,253 10,922
---------- --------- --------- ---------
Share of joint venture's operating profit/(loss) 3 154 - 154 (138)
- continuing operations
Share of associate's operating profits 3 1,274 - 1,274 1,181
- continuing operations
Share of associate's operating profits 3 - - - 1,818
- discontinued operations
---------- --------- --------- ---------
Total share of operating profits of joint
venture and associates 1,428 - 1,428 2,861
--------------------- ------ ---------- --------- --------- ---------
Operating profit: Group and share of joint
venture and associates 3 12,149 (3,468) 8,681 13,783
--------------------- ------ ---------- --------- --------- ---------
Non-operating exceptional gain on disposal of
investment in associate 4 - - - 4,256
--------------------- ------ ---------- --------- --------- ---------
Profit on ordinary activities before finance
income/(charges) 12,149 (3,468) 8,681 18,039
Finance income/(charges)
---------- --------- --------- ---------
Group 1,050 - 1,050 555
Joint venture (137) - (137) -
Associates 13 - 13 20
---------- --------- --------- ---------
Net finance income 926 - 926 575
--------------------- ------ ---------- --------- --------- ---------
Profit on ordinary activities before taxation 13,075 (3,468) 9,607 18,614
Tax on profit on ordinary activities 4, 5 (3,849) 1,040 (2,809) (4,673)
--------------------- ------ ---------- --------- --------- ---------
Profit on ordinary activities after taxation
and for the year 7 9,226 (2,428) 6,798 13,941
--------------------- ------ ---------- --------- --------- ---------
2006 2005
Notes £'000 £'000
---------------------- ------ --------- ---------
Earnings per ordinary share
Basic
Continuing operations 30.7p 37.1p
Discontinued operations - 24.2p
---------------------- ------ --------- ---------
6 30.7p 61.3p
---------------------- ------ --------- ---------
Diluted
Continuing operations 30.7p 36.8p
Discontinued operations - 24.1p
---------------------- ------ --------- ---------
6 30.7p 60.9p
---------------------- ------ --------- ---------
Dividend per ordinary share for the year 20.0p 18.7p
---------------------- ------ --------- ---------
There are no material differences between reported and historical cost profits
and losses.
The Group has no recognised gains or losses other than the results as set out
above and, therefore, no statement of total recognised gains and losses has been
prepared.
Reliance Security Group plc
Consolidated balance sheet
as at 28 April 2006
Restated (*)
2006 2005
Notes £'000 £'000
-------------------------- ----- --------- --------
Fixed assets
Tangible assets 5,445 6,138
--------- --------
Investments
Share of gross assets of joint venture 10,602 7,675
Share of gross liabilities of joint venture (10,718) (7,808)
--------- --------
Share of net liabilities of joint venture (116) (133)
Associated undertaking 135 253
Others 1,701 467
--------- --------
Total investments 1,720 587
-------------------------- ----- --------- --------
7,165 6,725
-------------------------- ----- --------- --------
Current assets
Stocks 1,725 1,465
Debtors: amounts due within one year 36,488 37,767
Debtors: amounts due after more than one year 3,553 4,253
Cash at bank and in hand 24,557 31,107
-------------------------- ----- --------- --------
66,323 74,592
-------------------------- ----- --------- --------
Liabilities: amounts falling due within one year
Borrowings (3,376) (3,378)
Creditors (41,250) (41,177)
Corporation tax (2,069) (2,750)
-------------------------- ----- --------- --------
(46,695) (47,305)
-------------------------- ----- --------- --------
Net current assets 19,628 27,287
-------------------------- ----- --------- --------
Total assets less current liabilities 26,793 34,012
-------------------------- ----- --------- --------
Liabilities: amounts falling due after more
than one year
Borrowings (124) -
Other creditors (400) (200)
-------------------------- ----- --------- --------
(524) (200)
-------------------------- ----- --------- --------
-------------------------- ----- --------- --------
Net assets 26,269 33,812
-------------------------- ----- --------- --------
Capital and reserves
Called up share capital 1,095 1,165
Capital redemption reserve 70 -
Share premium account 2,534 2,534
Own shares held (5,025) (2,825)
Revaluation reserve 232 152
Profit and loss account 27,363 32,786
-------------------------- ----- --------- --------
Equity shareholders' funds 7 26,269 33,812
-------------------------- ----- --------- --------
(*) See note 1
Reliance Security Group plc
Consolidated cash flow statement
for the year ended 28 April 2006
2006 2005
Notes £'000 £'000
--------------------------- ------ -------- --------
Net cash inflow from operating activities 8 11,835 15,726
--------------------------- ------ -------- --------
Dividends from associate 1,005 1,421
--------------------------- ------ -------- --------
Returns on investment and servicing of finance
Interest received 1,238 809
Interest paid (281) (293)
Interest element of finance lease repayments (31) (30)
--------------------------- ------ -------- --------
Net cash inflow from returns on investment
and servicing of finance 926 486
--------------------------- ------ -------- --------
Taxation
UK corporation tax paid (3,399) (3,199)
--------------------------- ------ -------- --------
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,389) (1,252)
Sale of tangible fixed assets 18 11
Loan advanced to joint venture (1,122) -
Purchase of fixed asset investment - (32)
Repayment of fixed asset investment - 20
Sale of current asset investment - 1,036
--------------------------- ------ -------- --------
Net cash outflow from capital expenditure
and financial investment (2,493) (217)
--------------------------- ------ -------- --------
Acquisitions and disposals
Purchase of subsidiary undertaking
- deferred consideration paid - (266)
Purchase of interest in joint venture - (5)
Sale of interest in associate - 7,260
--------------------------- ------ -------- --------
Net cash inflow from acquisitions and - 6,989
disposals
--------------------------- ------ -------- --------
Equity dividends paid (4,245) (3,938)
--------------------------- ------ -------- --------
Net cash inflow before financing 3,629 17,268
--------------------------- ------ -------- --------
Financing
Payments to redeem equity shares (7,660) -
Payments to acquire treasury shares (2,200) -
Payments of expenses on redemption of equity
shares, and acquisition of treasury shares (236) -
Proceeds from exercise of options in shares held
through the ESOP trust - 8
Capital element of finance lease repayments (83) (266)
--------------------------- ------ -------- --------
Net cash outflow from financing (10,179) (258)
--------------------------- ------ -------- --------
(Decrease)/increase in cash in the year (6,550) 17,010
--------------------------- ------ -------- --------
Reconciliation of net cash flow to movement in net cash
(Decrease)/increase in cash in the year (6,550) 17,010
Cash flow from finance leases (122) 266
--------------------------- ------ -------- --------
Movement in net cash in the year (6,672) 17,276
Net cash at start of year 27,729 10,453
--------------------------- ------ -------- --------
Net cash at end of year 9 21,057 27,729
--------------------------- ------ -------- --------
Reliance Security Group plc
Notes to the preliminary statement
for the year ended 28 April 2006
The financial information set out above does not constitute the Group's
statutory accounts for the years ended 28 April 2006 or 29 April 2005, but is
derived from those accounts. Statutory accounts for 29 April 2005 have been
delivered to the Registrar of Companies and those for 28 April 2006 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 two changes 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 21 Events After the Balance Sheet
Date (FRS 21) and Financial Reporting Standard 22 Earnings per Share (FRS 22)
during the year.
The adoption of FRS 21 has resulted in the Group restating its closing net
assets for the prior year to exclude dividends proposed but not yet declared at
the balance sheet date. This exclusion of proposed dividends previously reported
within current liabilities has increased closing net assets at 29 April 2005 by
£3,301,000. In addition the figure for opening net assets for the year ended 29
April 2005 has similarly been increased by £2,982,000.
The adoption of FRS 22 has not led to any adjustment to the previously reported
figures for basic and diluted earnings per share. Additional analysis of the
earnings between those attributable to continuing and discontinued operations,
including comparative figures, has been reported in note 6 as required by the
standard.
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 ventures and
associates. The results of subsidiary undertakings, joint ventures or associates
acquired or sold during the year are included in the consolidated profit and
loss account from or to the date on which control passed.
3 Segmental information
Security Facilities Security Facilities
Services Management Total Services Management Total
2006 2006 2006 2005 2005 2005
£'000 £'000 £'000 £'000 £'000 £'000
------------------ -------- --------- ------- -------- -------- -------
Group turnover - excluding exceptional
revenue 187,818 129,406 317,224 192,730 117,527 310,257
Exceptional revenue 673 85 758 - - -
------------------ -------- --------- ------- -------- -------- -------
Group turnover 188,491 129,491 317,982 192,730 117,527 310,257
Share of joint venture's turnover - 259 259 - - -
------------------ -------- --------- ------- -------- -------- -------
Turnover: Group and share of joint venture 188,491 129,750 318,241 192,730 117,527 310,257
------------------ -------- --------- ------- -------- -------- -------
Group operating profit before exceptional
items, excluding share of joint venture and
associate
- continuing operations 4,880 5,841 10,721 4,979 7,217 12,196
-------- --------- ------- -------- -------- -------
Share of joint venture's operating
profit/(loss) - continuing operations - 154 154 - (138) (138)
Share of associate's operating profits -
continuing operations - 1,274 1,274 - 1,181 1,181
Share of associate's operating profits -
discontinued operations - - - 1,818 - 1,818
-------- --------- ------- -------- -------- -------
Total share of operating profits of joint
venture and associates before exceptional
items - 1,428 1,428 1,818 1,043 2,861
-------- --------- ------- -------- -------- -------
Operating profit before exceptional items:
Group and share of joint venture and
associates 4,880 7,269 12,149 6,797 8,260 15,057
-------- --------- ------- -------- -------- -------
Group operating exceptional items (3,295) (173) (3,468) (1,274) - (1,274)
-------- --------- ------- -------- -------- -------
Operating profit: Group and share of joint
venture and associates 1,585 7,096 8,681 5,523 8,260 13,783
-------- --------- ------- -------- -------- -------
Non-operating exceptional gain on disposal of
investment in associate - - - 4,256 - 4,256
-------- --------- ------- -------- -------- -------
Profit on ordinary activities before finance
income/(charges) 1,585 7,096 8,681 9,779 8,260 18,039
-------- --------- ------- -------- -------- -------
In accordance with the equity method adopted for accounting for associates,
Group turnover excludes its share of turnover of associated undertakings of
£30,050,000 (2005: £31,564,000).
Security Facilities Security Facilities Restated(*)
Services Management Total Services Management Total
2006 2006 2006 2005 2005 2005
£'000 £'000 £'000 £'000 £'000 £'000
------------------- ------- --------- ------ ------- -------- --------
Group operating
assets/(liabilities) (880) 5,621 4,741 3,870 3,884 7,754
Share of joint
venture's net
liabilities - (116) (116) - (133) (133)
Share of associate's
net assets - 135 135 - 253 253
------------------- ------- --------- ------ ------- -------- --------
Total operating
assets/(liabilities) (880) 5,640 4,760 3,870 4,004 7,874
------------------- ------- --------- ------ ------- -------- --------
Reconciliation of
total operating
assets to total net
assets:
Total operating
assets 4,760 7,874
Items excluded:
Net cash 21,057 27,729
Investments in other
participating
interests 579 467
Loan to joint
venture 1,122 -
Taxation payable (2,069) (2,750)
Deferred taxation 769 460
Net interest
receivable 51 32
---------------- ---------- --------- ------ ------- -------- --------
Total net
assets (*) 26,269 33,812
---------------- ---------- --------- ------ ------- -------- --------
Operating assets are those net assets controlled by Reliance's operating
divisions.
(*) See note 1
4 Exceptional items
2006 2005
£'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 (3,828) (386)
Industry Act
Administrative expenses
---------- ---------
Cost of implementation of Private Security
Industry Act (312) (218)
Impairment of goodwill held in respect of
Goldrange Limited - (670)
Legal and professional costs of re-listing on AIM (86) -
---------- ---------
(398) (888)
-------------------------- ---------- ---------
Total operating exceptional charge (3,468) (1,274)
Non-operating exceptional item
Gain on disposal of investment in
associate - Safe Estates Services Limited - 4,256
-------------------------- ---------- ---------
Total exceptional (charge)/gain (3,468) 2,982
Tax credit on exceptional (charge)/gain 1,040 181
-------------------------- ---------- ---------
(2,428) 3,163
-------------------------- ---------- ---------
The net cash outflow in the year in respect of the operating exceptional
items was £3,310,000 (2005: £604,000).
There were no tax credits or charges relating to the exceptional goodwill write-
off or gain on disposal of the investment in associate in the year ended 29
April 2005.
5 Taxation
Corporation tax, excluding tax credits on exceptional charges, for the year
ended 28 April 2006 has been calculated at an effective rate of 29.4% (2005:
31.1%).
6 Earnings per share
2006 2005
--------------- ----------------
Basic Diluted Basic Diluted
pence pence pence pence
per per per per
£'000 share share £'000 share share
-------------------- ----- ------- ------- ------ ------- -------
Profit for the period
attributable to equity
shareholders
Continuing
operations 6,798 30.7p 30.7p 8,429 37.1p 36.8p
Discontinued
operations - - - 5,512 24.2p 24.1p
-------------------- ----- ------- ------- ------ ------- -------
6,798 30.7p 30.7p 13,941 61.3p 60.9p
Add back/(deduct):
Exceptional items
(see note 4) 2,428 11.0p 11.0p (3,163) (13.9p) (13.8p)
-------------------- ----- ------- ------- ------ ------- -------
Earnings excluding
exceptional items 9,226 41.7p 41.7p 10,778 47.4p 47.1p
-------------------- ----- ------- ------- ------ ------- -------
Represented by
Continuing
operations 9,226 41.7p 41.7p 9,522 41.9p 41.6p
Discontinued
operations - - - 1,256 5.5p 5.5p
-------------------- ----- ------- ------- ------ ------- -------
9,226 41.7p 41.7p 10,778 47.4p 47.1p
-------------------- ----- ------- ------- ------ ------- -------
2006 2005
Number Number
---------------------------- -------- --------
Weighted average number of shares 22,808,186 23,305,592
Weighted average number of shares held in
treasury (142,857) -
Weighted average number of shares held in
ESOP trust (542,599) ( 544,907)
---------------------------- -------- --------
Shares used to calculate basic earnings per
share 22,122,730 22,760,685
Dilutive potential shares - 138,557
---------------------------- -------- --------
Shares used to calculate diluted earnings
per share 22,122,730 22,899,242
---------------------------- -------- --------
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 own shares held in treasury
and by the ESOP trust.
7 Reconciliation of movement in equity shareholders' funds
Called up Capital Share Own Profit
share redemption account shares Revaluation and loss Restated(*)
capital reserve premium held reserve account 2006 2005
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
----------------- -------- -------- -------- -------- -------- -------- -------- --------
Group
At start of the year as
previously stated 1,165 - 2,534 (2,825) 152 29,485 30,511 20,819
Prior period adjustment
for proposed dividends (*) - - - - - 3,301 3,301 2,982
----------------- -------- -------- -------- -------- -------- -------- -------- --------
At start of year as
restated 1,165 - 2,534 (2,825) 152 32,786 33,812 23,801
Share based payments - - - - - - - 8
Reclassification - - - - 80 (80) - -
Purchase of own shares (70) 70 - (2,200) - (7,896) (10,096) -
Profit on ordinary
activities after taxation - - - - - 6,798 6,798 13,941
Dividends paid - - - - - (4,245) (4,245) (3,938)
----------------- -------- -------- -------- -------- -------- -------- -------- --------
At end of the year as
restated (*) 1,095 70 2,534 (5,025) 232 27,363 26,269 33,812
----------------- -------- -------- -------- -------- -------- -------- -------- --------
In accordance with s.264 Companies Act 1985 the value of own shares held must be
deducted from the profit and loss account of the Company in calculating its
distributable reserves.
(*) See note 1
8 Reconciliation of operating profit to net cash inflow from operating activities
2006 2005
£'000 £'000
-------------------- ------- -------
Operating profit 7,253 10,922
Depreciation charges 2,272 3,045
Amortisation of goodwill - 88
Exceptional goodwill impairment - 670
(Profit)/loss on the sale of fixed assets (3) 85
(Increase)/decrease in stocks (260) 205
Decrease/(increase) in debtors 2,317 (6,756)
Increase in creditors 256 7,467
-------------------- ------- -------
Net cash inflow from operating activities 11,835 15,726
-------------------- ------- -------
9 Analysis and reconciliation of net cash
2005 Cash flow 2006
£'000 £'000 £'000
--------------------------- -------- -------- -------
Cash at bank and in hand 31,107 (6,550) 24,557
--------------------------- -------- -------- -------
Loan due within one year (3,315) - (3,315)
Finance leases and hire purchase contracts (63) (122) (185)
--------------------------- -------- -------- -------
Total borrowings (3,378) (122) (3,500)
--------------------------- -------- -------- -------
Net cash 27,729 (6,672) 21,057
--------------------------- -------- -------- -------
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