Final Results

9 July 2013 PHSC PLC (the "Company" or the "Group") Preliminary Announcement of Results for the year ended 31 March 2013 Highlights: * EBITDA improved by 35% at Â£0.603m, up from Â£0.445m * Group revenues increased by 30% to Â£5.791m compared with Â£4.434m * Cash reserves of Â£0.216m * Group net assets rise to Â£5.63m from Â£5.37m * Basic earnings per share up 25% to 3.64p from 2.91p * Proposed final dividend increased by 50% to 1.5p per share I am pleased to present my review of the Group's performance over the year, and to update shareholders on the progress made at PHSC plc. In last year's report I said that our future prospects would depend in part upon our ability to develop new products and a wider range of services. The improvement in revenues and profits that we are able to report has been made possible by our decision to add to our core activities. We made two acquisitions during the year; QCS International Limited (QCS) and B to B Links Limited (B to B), and both have made positive contributions. Revenue and profit Consolidated Group sales for the period rose to Â£5,791,300 from Â£4,434,300. This improvement of more than 30% can be attributed largely to the additional revenues generated by our two new companies, with QCS having been acquired at the end of July 2012 and B to B joining the Group at the start of October 2012. As a consequence of the improved revenues, the Group was able to generate a 35% increase to earnings before interest, taxation, depreciation and amortisation (EBITDA). The figure of Â£603,100 EBITDA compares with Â£445,500 generated in the previous year. Costs Following a pay freeze in the previous year, the remuneration committee approved a 2% general increase that took effect in July 2012. This award did not apply to directors on the main board. At the start of the year, the business and assets of Envex Company Limited (Envex) were transferred to Adamson's Laboratory Services Limited (ALS) and Envex became a trading division of ALS. This led to some economies of scale. In Q4, net proceeds of Â£71,000 were realised from the sale of the vacant property, previously occupied by RSA Environmental Health Limited (RSA), at Raunds. RSA now shares the adjacent ALS satellite offices and this has led to lower overall premises-related costs. With Group revenues rising by over a third, it is unsurprising that overall costs of sales and overheads increased proportionately. In the case of B to B we now have a subsidiary that predominantly derives income from the installation and sale of equipment and consumables. The profiles of all our other businesses are largely of a service nature, whereby they sell only their time and expertise. This different emphasis has an impact on the cost of sales and necessitates the holding of product and equipment in stock. B to B is involved in a large CCTV installation contract and has had to purchase materials and services to enable it to gear up for the ongoing installation works. Recent Acquisitions QCS International Limited (QCS) The entire issued share capital of QCS was purchased at the end of July 2012. QCS is a company incorporated in Scotland, and was established in 1987. The company specialises in quality, environmental, and health and safety management systems and assists organisations by providing practical support and training in systems such as ISO 9001, ISO 14001, OHSAS 18001 and ISO 13485. The terms were for an initial consideration of Â£160,000 in cash and the issue of 79,186 Ordinary Shares in PHSC plc, and net current assets Â£ for Â£. On the first anniversary a further Â£160,000 becomes due under the contract but after adjustments this payment will be Â£121,000. This arises because the cash and cash-equivalent net assets purchased at completion were overvalued. An overpayment of approximately Â£39,000 arose as it was found that QCS had received several advance payments for services. At the time of completion, we and the sellers were fully aware that an adjustment would be required but could not quantify this until completion accounts had been prepared. The reduced sum payable on the first anniversary does not affect the overall consideration, as in effect the payment at completion was Â£199,000. A final payment of Â£80,000 is due two years after completion, subject to adjustment up or down according to performance against targets. The acquisition of QCS enables the Group to offer a number of new services. It will also help to expand the Scottish marketplace for the Group, in that QCS will be able to introduce all of the Group's services to their existing clients. B to B Links Limited (B to B) The Company acquired the entire issued share capital of B to B at the end of September 2012. B to B is a retail security and labeling company that provides a range of security solutions to independent and large, national retailers. Its core business is the prevention of stock loss through the use of electronic article surveillance (EAS) designed specifically for the protection of small and vulnerable products. B2B is the recognised preferred security partner of a number of trade associations. They are one of the market leaders and specialists in the supply of EAS security tagging systems to protect perfumes, gift items and alcohol in a variety of retail outlets, including shops on board ferries operating in both UK and international waters, duty free shops in international airports and in the high street. A growing part of the company's business is the installation of closed circuit television systems (CCTV), and at the time of acquisition they had secured an agreement with a major department store chain. This CCTV agreement has generated average revenues of Â£75,000 per month. Consideration for the acquisition was satisfied via an initial cash payment of Â£303,444 at completion, and the issue of 150,000 new ordinary shares of PHSC plc. A further cash payment of Â£320,000 falls due on the first anniversary, and a final cash payment on the second anniversary of between Â£120,000 and Â£800,000 subject to performance over the period since completion. Cash and other assets were purchased at fair value based on the completion accounts. The acquisition of B to B has enabled the company to diversify from its core business of health and safety consultancy and training. Other Opportunities The Group is not currently considering any further acquisitions. We believe that calls on our cash to satisfy the two most recent purchases will limit our ability to fund enlargement of the company during the present earn-out periods. We also take the view that after increasing the size of the Group by a third in the course of the year, a period of consolidation is necessary. Corporate Structure There has been no change to the make-up of the board. It consists of myself, Nicola Coote (executive director), and two non-executive directors (Mike Miller, who chairs the audit committee, and Graham Webb MBE who chairs the remuneration committee). The contracts of both non-executives have been extended until 31 March 2014. Our chartered secretary, Lorraine Young, supports the board and its committees. All corporate matters relating to accounting are ably dealt with by our Group Accountant, Candy Wilton. Despite recent upward movements, our shares continue to trade well below asset value. The board regularly reviews each area of corporate expenditure, including that relating to our trading platform, to satisfy itself that maintaining an AIM listing remains appropriate. We do however remain committed to AIM, and the associated costs become easier to justify when we are in a period of corporate growth. Employees I recognise that our success as a group is entirely dependent upon the commitment, skills and input of every employee at every subsidiary company. On behalf of the board, I wish to thank all of the Group's employees for their support and enthusiasm over the past year. We are committed to taking all reasonable steps to safeguard the welfare of, and recognise the contribution made by, each member of staff. Performance by Trading Subsidiaries Profit figures below are stated before tax and Group management charges. Note that revenues for services are credited to the company generating the sale even if the work is delivered by a sister company. For that reason, reference should be made to the Group's overall performance instead of looking at how individual subsidiaries have fared. Personnel Health and Safety Consultants Limited Sales of Â£765,500, yielding a profit of Â£300,000. In the previous year there were sales of Â£770,600 and a profit of Â£313,000. RSA Environmental Health Limited Sales of Â£420,700, yielding a profit of Â£10,900. In the previous year there were sales of Â£474,300 and a loss of Â£3,300. Adamson's Laboratory Services Limited Sales of Â£2,366,900 yielding a profit of Â£366,700. In the previous year there were combined (with Envex Company) sales of Â£2,223,800, yielding a combined profit of Â£300,600. Inspection Services (UK) Limited Sales of Â£202,100, yielding a profit of Â£6,600. In the previous year there were sales of Â£242,100, yielding a profit of Â£13,000. Quality Leisure Management Limited Sales of Â£607,600, yielding a profit of Â£119,300. In the previous year there were sales of Â£723,500, yielding a profit of Â£160,800. B to B Links Limited In the six-month period since acquisition there were sales of Â£1,093,800 yielding a profit of Â£83,500. QCS International Limited In the eight-month period since acquisition there were sales of Â£334,600 yielding a profit of Â£98,000. Net Asset Value As at 31 March 2013, the Company had net assets of Â£5.63 million. There were 10,606,348 Ordinary Shares in issue at that date which equates to a net asset value (NAV) per share of 53p. At today's price of 27.5p per share, the Ordinary Shares of the Company are currently trading at a discount of almost 50% to the net asset value. Each year we evaluate the level of goodwill associated with each historical acquisition, to ensure that the value on the balance sheet can still be justified. We have written down the carrying value of Inspection Services (UK) Limited by Â£39,400 this year, in recognition of the reducing contribution that the subsidiary is likely to make to Group profits going forward. We remain comfortable with all other valuations. Dividend The board is proposing a final dividend of 1.5p per ordinary share. This is an increase from the ordinary dividend of 1.0p last year. However, due to cash calls in connection with acquisitions previously outlined, we are unable to pay an additional dividend (last year: 1.0p per ordinary share). Subject to approval at the annual general meeting, the dividend of 1.5p per ordinary share will be paid on 30 September 2013 to shareholders on the register as at 23 August 2013. Prospects Health and safety marketplace We see this as a maturing market and one in which margins are progressively diminishing. There remain many pro-active clients who understand the importance to their business of maintaining good health and safety standards. This is largely where our client base lies. Elsewhere there is often customer reluctance to spend beyond what is seen as absolutely necessary to achieve basic compliance, combined with a reduction in the perceived importance of health and safety in the work environment. There is less focus by regulators on all but the most hazardous of workplaces, leaving many employers to take the view that compliance is not seen as important as it once was. This is exemplified by a reduced number of routine inspections by enforcing authorities, and a strategy that sees far fewer investigations of workplace injuries. Key areas for Group subsidiaries remain those of asbestos management, health and safety in the leisure, care, transport and education sectors, statutory examination of plant and machinery, and the provision of various forms of worker and management training. Quality systems We expect to see organic incremental growth in our QCS subsidiary across the key areas of public training, in house training, consultancy, and outsource services for management systems. The company is based in Cumbernauld (near to Glasgow) and has a strong presence in the central region of Scotland. It enjoys significant revenue from customers both nationally and internationally, but we see potential to expand the client base geographically particularly into England. SafetyMARK As anticipated, 2012/13 was a formative year for our new SafetyMARK audit and certification service that has been launched initially in the education sector. This service is delivered by the In House division of RSA Environmental Health Limited. In the year, revenues of around Â£31,000 were generated but there were one-off set-up costs in the order of Â£20,000. We expect to more than double this source of income in 2013/14 and to achieve higher margins now that the launch costs are behind us. There are also opportunities for partnerships with other providers of services to schools and colleges. Retail security Through our most recent acquisition, B to B, we expect to increase our presence in this marketplace. As well as launching new products to the sector, we propose to capitalise on B to B's good reputation and high profile to increase revenues from our current range. We are presently working to build a more robust infrastructure, necessary to adequately service the rapid expansion of the CCTV side of the business. Once this new structure is in place, we will be well-positioned to target a wider variety of sales opportunities. We also recognise that potentially there is an overlap between security and safety, meaning that there will be scope for cross-selling other Group services to the client base. Expectations Thanks in no small measure to our decision to diversify into new areas of business, the future of the Company looks more positive than it has done for some time. With a far smaller reliance on income derived from the public sector, we have probably seen the end of the direct effects of Government spending cuts. Confidence in the private sector, however, remains low in comparison to pre-recession sentiment. It will take some time for organisations to reinstate their budgets for many of the services we provide, and these are unlikely to return to previous levels. Our core of retained clients will continue to provide a revenue stream and this will underpin the business as it adapts to different ways of working. The demand for asbestos management services will remain a major contributor to revenues as this area is highly regulated for good reason. In 2013/14 we predict another positive year where revenue and profit from our new subsidiaries will more than make up for any shortfall from the rest of the Group.. Unusually for PHSC plc, and directly because of acquisition payments falling due in the year, we will not have the security of a strong cash balance. Nevertheless, we have an agreement with our bankers that any facilities we require will be forthcoming, subject to the normal caveats. In summary, I am confident that the Company has made satisfactory progress and is going in the right direction. On behalf of the Board I would like to thank all shareholders for their continued support. Stephen King Group Chief Executive GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2013 31.3.13 31.3.12 Â£ Â£ Continuing operations: Revenue 5,791,359 4,434,307 Cost of sales (3,023,484) (2,256,418) Gross profit 2,767,875 2,177,889 Administrative expenses (2,255,042) (1,786,139) Other income 5,682 6,737 Profit from operations 518,515 398,487 Finance income 2,163 8,906 Finance costs (850) (242) Profit before taxation 519,828 407,151 Corporation tax expense (137,477) (108,072) Profit for the year after tax attributable to 382,351 299,079 owners of the parent Other comprehensive income - - Total comprehensive income attributable to 382,351 299,079 owners of the parent Attributable to: Equity holders of the Group 382,351 299,079 Basic Earnings per Share for profit after tax 3.64p 2.91p and total comprehensive income from continuing operations attributable to the equity holders of the Group during the year The company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent company profit and loss account. The loss for the year before dividends received from subsidiaries (2013 - Â£ nil, 2012 - Â£586,555) was Â£96,917 (2012 - loss Â£42,093). The loss is after an impairment charge in respect of the investment value of Inspection Services UK Limited following an impairment review of the goodwill which has been reflected in the consolidated accounts. There were no recognised gains and losses for 2012 or 2011 other than those included in the company profit and loss account. GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2013 Capital Share Share Redemption Retained Capital Premium Reserve Earnings Total Â£ Â£ Â£ Â£ Â£ Balance at 1 April 2011 1,038,196 1,497,409 143,628 2,594,120 5,273,353 Profit for year - - - 299,079 299,079 attributable to equity holders Deferred tax adjustment to - - - 5,588 5,588 property valuation Dividends - - - (207,639) (207,639) Balance at 31 March 2012 1,038,196 1,497,409 143,628 2,691,148 5,370,381 Balance at 1 April 2012 1,038,196 1,497,409 143,628 2,691,148 5,370,381 Profit for year - - - 382,351 382,351 attributable to equity holders Issue of shares 22,438 70,300 - - 92,738 Stamp duty on issue of (12,180) - - (12,180) shares Deferred tax adjustment to - - - 3,083 3,083 property valuation Dividends - - - (209,223) (209,223) Balance at 31 March 2013 1,060,634 1,555,529 143,628 2,867,359 5,627,150 GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2013 31.3.13 31.3.12 Â£ Â£ Cash flows from operating activities: Cash generated from operations 427,108 514,030 Interest paid (850) (242) Tax paid (182,705) (55,840) Net cash generated from operating activities 243,553 457,948 Cash flows from investing activities Purchase of property, plant and equipment (25,371) (6,009) Purchase of subsidiary companies (net of cash (785,866) (107,097) acquired) Disposal of fixed assets 88,250 7,414 Interest received 2,163 8,906 Net cash used in investing activities (720,824) (96,786) Cash flows from financing activities Dividends paid to Group shareholders (209,223) (207,639) Net cash used by financing activities (209,223) (207,639) Net increase in cash and cash equivalents (686,494) 153,523 Cash and cash equivalents at beginning of year 902,582 749,059 Cash and cash equivalents at end of year 216,088 902,582 NOTES TO THE GROUP STATEMENT OF CASH FLOW for the year ended 31 March 2013 31.3.13 31.3.12 Â£ Â£ CASH GENERATED FROM OPERATIONS Operating profit - continuing operations 518,515 398,487 Depreciation charge 45,172 46,962 Goodwill impairment 39,387 - Acquisition cost - 7,097 Profit on sale of fixed assets (5,184) (1,328) Increase in stock (14,884) (3,775) (Increase)/decrease in debtors (335,953) 155,573 Increase/(decrease) in creditors 187,417 (88,986) Decrease in financial liabilities (7,362) - Cash generated from operations 427,108 514,030 NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF PHSC PLC FOR THE YEAR ENDED 31 MARCH 2013 The financial information set out above does not constitute the Group's financial statements for the years ended 31 March 2013 or 2012, but is derived from those financial statements. Statutory financial statements for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following their approval by the board and dispatch to shareholders. The auditors have not yet reported on the 2013 financial statements. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not in itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this preliminary announcement are consistent with those in the full financial statements that have yet to be published. For further information please contact: PHSC plc Stephen King 01622 717700 www.phsc.plc.co.uk Northland Capital Partners Limited Gavin Burnell / Edward Hutton020 7796 8800 John Howes / Alice Lane(Broking)

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