Final Results for the Year Ended 31 December 2019

RNS Number : 7470N

London Security PLC

22 May 2020

 

London Security plc

Final Results for the Year Ended 31 December 2019

Chairman's statement

J.G. Murray, Chairman

Financial highlights

Financial highlights of the audited results for the year ended 31 December 2019 compared with the year ended 31 December 2018 are as follows:

• revenue of £146.9 million (2018: £137.7 million);

• operating profit of £24.2 million (2018: £23.2 million);

• profit for the year of £16.8 million (2018: £16.5 million*);

• earnings per share for the year of £1.36 (2018: £1.34*); and

• a dividend per share of £0.80 (2018: £0.80).

* restated - see note 2

Trading review

The financial highlights illustrate that the Group's revenue increased by £9.2 million (6.7%) to £146.9 million and operating profit increased by £1.0 million (4.3%) to £24.2 million. These results reflect:

· the positive impact of acquisitions in 2018 and 2019 in the United Kingdom, Austria, Belgium, the Netherlands and Denmark;

· improved performance from our service business in continental Europe; and

· continued improvement from newer service offerings (e.g. emergency lights and passive fire protection); offset by

· the movement in the Euro to Sterling average exchange rate, which had an adverse effect of £1.0 million on reported revenue and £0.2 million on operating profit. A more detailed review of this year's performance is given in the Financial Review and the Strategic Report.

Acquisitions

It remains a principal aim of the Group to grow through acquisition. Acquisitions are being sought throughout Europe and the Group will invest at prices where an adequate return is envisaged by the Board. In the year under review the Group has acquired eight established fire protection businesses and has grown its presence in the Netherlands, Belgium and the UK, with the acquisition of service contracts from smaller well-established businesses for integration into the Group's existing subsidiaries.

Management and staff

2019 was a year in which the staff performed well and, on behalf of the shareholders, I would like to express thanks and appreciation for their contribution. The Group recognises that we can only achieve our aims with talented and dedicated colleagues who provide outstanding customer service in every area of the business.

Dividends

A final dividend in respect of 2018 of £0.40 per ordinary share was paid to shareholders on 5 July 2019. An interim dividend in respect of 2019 of £0.40 per ordinary share was paid to shareholders on 29 November 2019. The Board is recommending the payment of a final dividend in respect of 2019 of £0.20 per ordinary share to be paid on 10 July 2020 to shareholders on the register on 12 June 2020. The shares will be marked ex-dividend on 11 June 2020.

Coronavirus impact assessment

It is clear that the coronavirus pandemic will have a significant impact on the business and we have taken a number of actions to weather the storm. When the pandemic first appeared in China, the initial threat was to our supply chain. It is now very clear that the risk to customer demand is by far our greatest challenge and we are prepared for a significant downturn in sales for the duration of the pandemic.

Many of the components which we are reliant on are sourced from China and we have therefore suffered some delays in the delivery of such components in the first quarter. The Chinese government's response to the outbreak has meant that capacity returned over the course of February and into March. Our strategic stockholding has meant our production impact has been minimised. We are continuing to monitor the effects on our manufacturing capability.

With a return to relative normality on the supply side, we are now focused on customer demand. By the middle of March, the virus had impacted all of our European trading territories. Throughout Europe governments are responding to the pandemic by applying severe restrictions on movement and introducing social distancing measures which have forced many of our customers to temporarily close. We have prepared the business for varying levels of sales declines by temporarily reducing staff levels in some locations.

We have evaluated the remaining demand for our services and sectors where this is deemed essential, for example in some areas including health, communications and utilities. In addition, where customers still want work carrying out and we able to work within government guidelines, we are continuing to provide our usual levels of service. This is varying by country, with the Netherlands operating at over 50% but other countries being affected more. Where we offer call out or support services under contracts, for example for fire alarms, we continue to offer these services and fulfil our contractual obligations.

During this period of uncertainty we have been in constant contact with our staff, customers, banks and advisers to ensure clear and concise communication. Our priority is to do all we can to ensure that our offices, depots and services are kept as safe as possible, in order to protect our employees and business partners at all times. Many of our employees and customers are experiencing very difficult circumstances and we continue to support them in many ways. The health and wellbeing of our people is our highest priority.   We are thankful and proud of our team members who continue to respond as essential service providers.

We have modelled the effects of this sales decline along with all the measures we can take to ensure that the Company remains within its cash and bank facilities, and have prepared cash flow forecasts for a period in excess of 12 months. Based upon this modelling, the Group has sufficient cash beyond June 2021 without renegotiating its bank facilities.

Future prospects

As the situation continues, cash management will be a key consideration; the London Security Group has a healthy balance sheet, strong cash reserves and a track record for good cash generation. Debt recovery remains consistent with previous years and staff costs will be controlled using the furlough process where applicable. The Board therefore considers that its strong balance sheet and material net cash position means that it is well placed to navigate through the impact of the coronavirus outbreak, which will inevitably impact profitability while the various international lockdowns continue..

Annual General Meeting

The Annual General Meeting ("AGM") will be held at 2 Jubilee Way, Elland, West Yorkshire, HX5 9DY, on 30 June 2020 at 11.30 am. Under the UK government's current prohibition on non-essential travel and public gatherings, it will not be possible for shareholders to attend the AGM in person. We therefore strongly encourage shareholders to vote on all resolutions by completing the enclosed form of proxy for use at that Meeting, which you are requested to return in accordance with the instructions on the form.

J.G. Murray

Chairman

21 May 2020

Consolidated income statement

for the year ended 31 December 2019

			2019	2018 Restated - see note 2
		Note	£'000	£'000
	Revenue		146,920	137,711
	Cost of sales		(36,293)	(31,780)
	Gross profit		110,627	105,931
	Distribution costs		(54,140)	(50,593)
	Administrative expenses		(32,333)	(32,163)
	Operating profit		24,154	23,175
	EBITDA*		32,503	29,557
	Depreciation and amortisation		(8,349)	(6,382)
	Operating profit		24,154	23,175
	Finance income		142	131
	Finance costs		(254)	(171)
	Finance costs - net		(112)	(40)
	Profit before income tax		24,042	23,135
	Income tax expense		(7,229)	(6,623)
	Profit for the year		16,813	16,512
	Profit is attributable to:
	Equity shareholders of the Company		16,653	16,399
	Non-controlling interest		160	113
			16,813	16,512
	Earnings per share
	Basic and diluted	1	135.8p	133.7p

*  Earnings before interest, tax, depreciation and amortisation.

The above results are all as a result of continuing operations.

Consolidated statement of comprehensive income

for the year ended 31 December 2019

		2019	2018 Restated - see note 2
		£'000	£'000
Profit for the financial year		16,813	16,512
Other comprehensive (expense)/income:
Items that may be reclassified subsequently to profit or loss:
- currency translation differences on foreign currency net investments		(2,389)	361
Items that will not be reclassified subsequently to profit or loss:
- actuarial gain recognised in the Nu-Swift Pension Scheme		414	16
- movement on deferred tax relating to the Nu-Swift Pension Scheme surplus		(145)	(6)
- actuarial loss recognised in the Ansul Pension Scheme		(412)	(145)
- movement on deferred tax relating to the Ansul Pension Scheme deficit		103	36
Other comprehensive (expense)/income for the year, net of tax		(2,429)	262
Equity shareholders of the Company		14,224	16,661
Non-controlling interest		160	113
Total comprehensive income for the year		14,384	16,774

Consolidated statement of changes in equity

for the year ended 31 December 2019

		Share	Capital
	Share	premium	redemption	Merger	Other	Retained	Non-controlling	Total
	capital	account	reserve	reserve	reserve	earnings	interest	equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2018 (previously reported)	123	344	1	2,033	8,470	92,408	189	103,568
Prior year adjustment (note 2)	-	-	-	-	-	1,179	-	1,179
At 1 January 2018 (as restated)	123	344	1	2,033	8,470	93,587	189	104,747
Total comprehensive income for the year
Profit for the financial year (restated - note 2)	-	-	-	-	-	16,399	113	16,512
Other comprehensive income/(expense):
- exchange adjustments	-	-	-	-	361	-	-	361
- actuarial loss on pension schemes	-	-	-	-	-	(129)	-	(129)
- net movement on deferred tax relating to pension asset	-	-	-	-	-	30	-	30
Total comprehensive income for the year (restated - note 2)	-	-	-	-	361	16,300	113	16,774
Contributions by and distributions to owners of the Company:
- dividends	-	-	-	-	-	(9,809)	-	(9,809)
At 31 December 2018 and 1 January 2019 (restated - note 2)	123	344	1	2,033	8,831	100,078	302	111,712
Total comprehensive income for the year
Profit for the financial year	-	-	-	-	-	16,653	160	16,813
Other comprehensive income/(expense):
- exchange adjustments	-	-	-	-	(2,389)	-	-	(2,389)
- actuarial gain on pension schemes	-	-	-	-	-	2	-	2
- net movement on deferred tax relating to pension asset	-	-	-	-	-	(42)	-	(42)
Total comprehensive (expense)/income for the year	-	-	-	-	(2,389)	16,613	160	14,384
Contributions by and distributions to owners of the Company:
- dividends	-	-	-	-	-	(9,809)	-	(9,809)
Distribution to non-controlling interest	-	-	-	-	-	-	(113)	(113)
At 31 December 2019	123	344	1	2,033	6,442	106,882	349	116,174

The merger reserve is not a distributable reserve. The other reserve relates entirely to the effects of changes in foreign currency exchange rates.

Consolidated statement of financial position

as at 31 December 2019

		2019	2018 Restated - see note 2	2017 Restated - see note 2
		£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment		12,164	12,077	11,589
Right of use assets		2,360	-	-
Intangible assets		67,504	66,077	63,578
Deferred tax asset		683	811	589
Retirement benefit surplus		4,959	4,430	4,397
		87,670	83,395	80,153
Current assets
Inventories		13,434	13,293	11,749
Trade and other receivables		27,822	28,732	26,063
Cash and cash equivalents		27,143	26,110	24,652
		68,399	68,135	62,464
Total assets		156,069	151,530	142,617
Liabilities
Current liabilities
Trade and other payables		(23,158)	(22,713)	(19,576)
Income tax liabilities		(987)	(1,731)	(1,699)
Borrowings		(2,048)	(2,125)	(11,125)
Lease liabilities		(1,134)	-	-
Derivative financial instruments		-	-	(54)
Provision for liabilities and charges		-	(5)	-
		(27,327)	(26,574)	(32,454)
Non-current liabilities
Trade and other payables		(850)	(922)	(1,003)
Borrowings		(5,122)	(7,441)	-
Lease liabilities		(1,256)	-	-
Derivative financial instruments		(47)	(41)	-
Deferred tax liabilities		(2,909)	(2,779)	(2,505)
Retirement benefit obligations		(2,215)	(1,880)	(1,721)
Provision for liabilities and charges		(169)	(181)	(187)
		(12,568)	(13,244))	(5,416)
Total liabilities		(39,895)	(39,818)	(37,870)
Net assets		116,174	111,712	104,747
Shareholders' equity
Ordinary shares		123	123	123
Share premium		344	344	344
Capital redemption reserve		1	1	1
Merger reserve		2,033	2,033	2,033
Other reserves		6,442	8,831	8,470
Retained earnings		106,882	100,078	93,587
Equity attributable to owners of the Parent Company		115,825	111,410	104,558
Non-controlling interest		349	302	189
Total equity		116,174	111,712	104,747

Consolidated statement of cash flows

for the year ended 31 December 2019

		2019	2018
		£'000	£'000
Cash flows from operating activities
Cash generated from operations		32,363	28,385
Interest paid		(160)	(147)
Income tax paid		(7,639)	(7,393)
Net cash generated from operating activities		24,564	20,845
Cash flows from investing activities
Acquisition of subsidiary undertakings (net of cash acquired)		(2,264)	(4,274)
Purchases of property, plant and equipment		(3,974)	(3,551)
Proceeds from the sale of property, plant and equipment		329	398
Purchases of intangible assets		(2,068)	(746)
Interest received		27	12
Net cash used in investing activities		(7,950)	(8,161)
Cash flows from financing activities
Repayments of borrowings		(2,091)	(1,614)
Payment of lease liabilities		(1,750)	-
Dividends paid to the Company's shareholders		(9,809)	(9,809)
Distribution to non-controlling interest		(113)	-
Net cash used in financing activities		(13,763)	(11,423)
Effects of exchange rates on cash and cash equivalents		(1,818)	197
Net increase in cash in the year		1,033	1,458
Cash and cash equivalents at the beginning of the year		26,110	24,652
Cash and cash equivalents at the end of the year		27,143	26,110

Notes to the financial statements

for the year ended 31 December 2019

1 Earnings per share

The calculation of basic earnings per ordinary share ("EPS") is based on the profit on ordinary activities after taxation of £16,653,000 (2018: £16,399,000) and on 12,261,477 (2018: 12,261,477) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. There was no difference in the weighted average number of shares used for the calculation of basic and diluted earnings per share as there are no potentially dilutive shares outstanding.

	2019			2018 Restated - see note 32
	£'000	Pence		£'000	Pence
Profit on ordinary activities after taxation	16,653	135.8		16,399	133.7

2  Prior year adjustment

While preparing the Group's financial statements for the year ended 31 December 2019 the management of London Security plc noticed that they had failed to account for deferred tax liabilities on the acquisition of certain intangible assets arising through business combinations in accordance with paragraph 19 of IAS12 Income Taxes in previous years. Management estimates that a deferred tax liability of £881,000 (2017: £675,000) and goodwill of £2,382,000 (2017: £1,854,000) were not previously recognised at 31 December 2018. Retained earnings at 1 January 2018 have been restated by £1,179,000 from £92,408,000 to £93,587,000. The deferred tax liability at 1 January 2018 has been restated by £675,000 from £1,830,000 to £2,505, 000. Goodwill at 1 January 2018 has been restated by £1,854,000 from £61,724,000 to £63,578,000.    The analysis below shows a reconciliation of the balance sheet at 31 December 2018 and the income statement for the year ended 31 December 2018 as previously reported and as restated.

Balance sheet as at 31 December 2018
		Previously reported	Prior year adjustment	As restated
		£'000	£'000	£'000
Assets
Non Current Assets
Property, plant & equipment		12,077	-	12,077
Intangible assets		63,695	2,382	66,077
Deferred tax asset		811	-	811
Retirement benefit surplus		4,430	-	4,430
		81,013	2,382	83,395
Current Assets
Inventories		13,293	-	13,293
Trade & other receivables		28,732	-	28,732
Cash & cash equivalents		26,110	-	26,110
		68,135	-	68,135
Total Assets		149,148	2,382	151,530
Liabilities
Current Liabilities
Trade & other payables		(22,713)	-	(22,713)
Income tax liabilities		(1,731)	-	(1,731)
Borrowings		(2,125)	-	(2,125)
Provision for liabilities & charges		(5)	-	(5)
		(26,574)	-	(26,574)
Non Current Liabilities
Trade & other payables		(922)	-	(922)
Borrowings		(7,441)	-	(7,441)
Derivative financial instruments		(41)	-	(41)
Deferred tax liabilities		(1,898)	(881)	(2,779)
Retirement benefit obligations		(1,880)	-	(1,880)
Provision for liabilities & charges		(181)	-	(181)
		(12,363)	(881)	(13,244)
Total Liabilities		(38,937)	(881)	(39,818)
Net Assets		110,211	1,501	111,712
Shareholders' Equity
Ordinary shares		123	-	123
Share premium		344	-	344
Capital redemption reserve		1	-	1
Merger reserve		2,033	-	2,033
Other reserve		8,831	-	8,831
Retained earnings		98,577	1,501	100,078
Equity attributable to owners of the Parent Company		109,909	1,501	111,410
Non-controlling interest		302	-	302
Total equity		110,211	1,501	111,712

Income statement for the year ended 31 December 2018
		Previously reported	Prior year adjustment	As restated
		£'000	£'000	£'000
Revenue		137,711	-	137,711
Cost of sales		(31,780)	-	(31,780)
Gross profit		105,931	-	105,931
Distribution costs		(50,593)	-	(50,593)
Administrative expenses		(32,163)	-	(32,163)
Operating profit		23,175	-	23,175
Finance income		131	-	131
Finance costs		(171)	-	(171)
Finance costs - net		(40)	-	(40)
Profit before income tax		23,135	-	23,135
Income tax expense		(6,945)	322	(6,623)
Profit for the year		16,190	322	16,512

Basic and diluted earnings per share for the prior year have also been restated. The amount of the correction for the basic and diluted earnings per share was an increase of 2.6p per share.

3   This preliminary announcement does not constitute the Company's statutory accounts within the meaning of Section 434 of the Companies Act 2006. The results for the year ended 31 December 2019 have been extracted from the full accounts of the Group for that year which received an unqualified auditor's report and which have not yet been delivered to the Registrar of Companies.  The financial information for the year ended 31 December 2018 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The report of the auditor on those filed accounts was unqualified.  The accounts for the year ended 31 December 2019 and 31 December 2018 did not contain a statement under s498 (1) to (4) of the Companies Act 2006.

This preliminary announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS"). The financial information included in this preliminary announcement does not include all of the disclosures required in accounts prepared in accordance with IFRS and accordingly it does not itself comply with IFRS.  With the exception of the adoption of IFRS16, the accounting policies used in the preparation of this preliminary announcement have remained unchanged from those set out in the statutory accounts for the year ended 31 December 2018. They are also consistent with those in the full accounts for the year ended 31 December 2019, which have yet to be published.

The Group will post its annual report and accounts to shareholders on 4 June 2020. A copy of the annual report and accounts can be found on the company's webpage ( www.londonsecurity.org ).

The Directors have prepared this financial information on the fundamental assumption that the Group is a going concern and will continue to trade for at least 12 months following the date of approval of the financial information. In determining whether the Group's accounts should be prepared on a going concern basis the Directors have considered the factors likely to affect future performance. At 31 December 2019 the Group held cash and cash equivalents of £27 million. Total debt at 31 December 2019 was £7 million, of which £2 million is due for repayment in the year to 31 December 2020.

The Chairman's Statement contains a Covid-19 impact assessment detailing the effect it is having on our business. The group has seen a severe decline in turnover as social distancing and travel policies are implemented. Further to the approval of the 2020 budget in December 2019, the Directors have considered the potential impact of the Covid-19 outbreak on the Group's results and have modelled a base case reforecast. The base case reforecast, is based on the directors' current knowledge and expectation and includes a level of restrictions that would remain in force into June 2021. The base case reforecast includes significant cash headroom. In preparing the base case reforecast, there are key judgements in relation to the timing of when the engineers will be able to return to customer sites and provide fire protection services and the level of support from the Government's in which the Group operates in relation to employment costs. The Directors have concluded that while the assumptions in the base case reforecast include significant judgement, they are appropriate and as at the date of approving the preliminary announcement, our engineers are returning to work in some of the Countries that the Group operates. In addition, the directors are satisfied that further action could be taken, if necessary, including suspending dividend payments. Whilst the directors expect the group's bankers to be supportive should the group request loan repayment deferrals or forgiveness of any covenant breaches should the actual impact of Covid-19 be worse than reforecast, the Directors consider that the group could repay its external loans should that support not be available. The directors have also modelled sensitivities to the base case reforecast, which demonstrates that the group is forecast to have significant cash headroom after applying these sensitivities.

Accordingly, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and are satisfied that it is appropriate to adopt the going concern basis in preparing this financial information.

Enquiries

London Security plc
Richard Pollard Company Secretary	Tel: [phone]
WH Ireland Limited
Chris Fielding	Tel: [phone]

 

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