Final Results

Reliance Security Group PLC 26 June 2003 Reliance Security Group plc Preliminary announcement of results for the year ended 25 April 2003 • Strong organic growth and ongoing investment in new markets and segments • Turnover up 16.0% to £268.1 million (2002 (restated) : £231.1 million) • Pre-exceptional, pre-tax profit up 27.0% to £12.6 million (2002 (restated) : £9.9 million) • Prior year adjustments of £5.3 million to correct previously-announced accounting errors in relation to electronic security subsidiary. Prior year comparatives restated accordingly. • Exceptional £6.6 million write-down of carrying value of quoted investments in Chesterton and Command • Earnings per share, excluding exceptional items 38.4p (2002 (restated) : 28.5p) • Dividend per share up 13.2% to 15.4p (2002 : 13.6p) • Net cash generation from operations of £13.9 million (2002 (restated) : £14.8 million) Brian Kingham, Chairman, commenting on the results said: 'I am pleased to report we have achieved strong organic growth in turnover and underlying profit in what has been a difficult year for most businesses. We have built a strong position in support services where opportunities abound and are likely to grow.' Notes to Editors Reliance is an established market leader in the provision of contract security, facilities management and support services and in 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 Neil French Group Finance Director 01895 205002 Chairman's Statement Introduction I am pleased to report we have achieved strong organic growth in turnover and underlying profit in what has been a difficult year for most businesses. Our markets in security, facilities management, business process outsourcing and support services have continued to grow and we have benefited from our sustained investment in the Group and in new growth markets and segments. Results Turnover for the year to 25 April 2003 increased by 16.0 % to £268.1 million (2002 (restated): £231.1million). In both Security Services and Facilities Management, we have increased turnover, improved operating margins and increased return on operating assets. Pre-exceptional pre-tax profit for the year rose by 27.0 % to £12.6 million (2002 (restated): £9.9 million). Excluding exceptional items, earnings per share rose by 34.7% to 38.4p (2002 (restated): 28.5p). Cash generated from operations was £13.9 million (2002 (restated): £14.8 million) and we ended the year with net cash of £4.8 million (2002: £2.1 million). Last October, we announced the correction of accounting errors in Reliance High-Tech Limited and the write-off of goodwill relating to its acquisition. We have treated the resulting charges of £5.3 million as prior year adjustments. We have also decided to dispose of two non-core investments, in Chesterton International plc and Command Security Corporation, and this has given rise to exceptional non-cash charges of £6.6 million this year. Dividend A final dividend is proposed of 11.95p making a total for the year of 15.4p (2002: final dividend 10.45p, total 13.6p) subject to approval at the AGM on 10 September 2003 and payable on 19 September 2003 to shareholders on the register on 29 August 2003. Strategy Our long-term strategy is to build value for our shareholders by growing recurring revenues from an ever-extending range of products and services delivered to businesses and the public sector. We will strengthen our leadership position in security and continue to increase our share of the £60 billion per annum facilities management and business process outsourcing market. A passion for excellence of service and an unremitting drive to add increasing value for our customers through the quality of our teamwork and the rigour of our business processes are at the heart of our strategy. Growth will be generated organically and through new start-ups and bolt-on acquisitions complementary to our core competencies. Security Services We have grown turnover by 7% year-on-year. The slow down in the world economy has brought difficulty for most businesses and it has been a challenging year for Security Services. Some market segments were notably less buoyant and we have seen a reduction in demand for short-term cover. We have been successful, however, in generating growth from a variety of specialist products, segments and new markets. Conditions remain competitive, demanding new approaches that offer customers economies and/or higher added value. The year has been characterised by sustained effort to streamline business processes and provide higher levels of customer service. As part of our continuing investment in improving efficiency and shifting resources to customer facing roles, new IT systems have been successfully commissioned. We expect this to realise economies of scale and reduced service delivery costs in 2004. In extending our use of technology and offering customers a wider choice of security solutions, we have invested in a new remote surveillance centre, opened at the year-end. This is equipped with the latest IT and communications technology and offers customers a variety of cost-effective alternatives to an on-site human presence or orthodox intruder alarms. We have won a broad range of new local, regional and national contracts including those with Rolls Royce, The National Trust, Transco, Boots, HBOS, and National Car Parks. We have seen welcome growth in business with existing multi-divisional customers as a result of new customer relationship management arrangements. Our total security solutions contract with BAE SYSTEMS, which we announced in June 2001 as a five-year contract, has now been extended until April 2008. Our electronic surveillance business, with its new managing director, has made good progress, winning important contracts including those with Bank of America, the BBC and the Metropolitan Police where we provided special features, including the capability to import live images from helicopter surveillance. We won a significant contract to design and install a neighbourhood CCTV and access control scheme in which we applied broadband technology and various remote building access control features to maximise remote security and safety surveillance. We have worked closely with the Police Service in the spirit of the Home Secretary's 'wider police family' concept. We have operated highly effective business watch schemes, achieving significant reductions in crime. At Slough Industrial Estate, we won a Police Commendation for reducing car crime by 80%. We have actively supported voluntary, charitable and government sponsored organisations involved in community based crime prevention initiatives. Among others, we worked with the Midlands Regional Crime Initiative, Lancashire Partnership against Crime, Scottish Business Crime Centre, Crime Concern, The Youth Justice Board, the British Retail Consortium and the Police Foundation. We have continued our support for Crime Stoppers and Neighbourhood Watch. Working in partnership with these organisations ensures we keep up to speed with policy developments, good practice and emerging opportunities for developing our business. Regulation of Private Security The regulation of the private security industry in the UK took effect in April 2003 with the creation of the Security Industry Authority (SIA). Regulation will take the form of licensing individuals employed in security work. The SIA roll-out of the licensing will be phased over two years and we expect that this will affect us from 2005. Meanwhile, there is a great deal of detail to be worked through. Regulation will provide numerous benefits and open up new opportunities for growth, especially in the public sector. There will inevitably be an increased cost, which we expect to see reflected in higher average prices in the Industry. This highlights the need for innovation in providing greater value to customers and the extended use of technology. Facilities Management We have once again made excellent progress, growing turnover by 51% year-on-year. Demand for facilities management and business process outsourcing continues to grow and to offer extensive opportunities where Reliance has specialist expertise. We offer customers a ready means of making organisational change, altering business processes and introducing greater focus and specialism in performing non-core activities. We are continuing to expand our long-term contracted revenue. For example, we are currently bidding eight private finance initiative (PFI) contracts, the award of which could generate additional turnover for the Group of approximately £20 million per annum for up to 30 years. These remain at various stages of negotiation. We have been awarded preferred bidder status by the Health and Safety Executive to provide a fully serviced headquarters building under a 30-year PFI contract, which is expected to generate approximately £1.2 million of turnover per annum for the Group. We have established a consortium partnership with a leading construction company, Kajima UK Limited, to enter the education PFI market, which we believe could be an important new market for us. We have increased our business development capacity, which has enabled us to establish a number of important new potential customer relationships that we expect will benefit future growth. We have won a number of new FM contracts, including at London Luton Airport and with Accenture. We now provide facilities management services at over 2,000 locations across the United Kingdom and employ over 2,500 people in delivering these services. Augmenting our capacities to provide engineering expertise for managing the work place environment, we have committed to a cash investment of £0.5 million in the coming year to start a new business, Reliance M&E Services. This will support our FM businesses as well as growing our recurring income from stand-alone engineering services provided under long-term contract. Our dedicated business process outsourcing activity for the Criminal Justice System has made excellent progress. We completed the hand-over, on time and on budget, of four buildings for the Police Service, financed, designed and built under PFI and we are now successfully operating a 30-year contract for facilities management and a broad range of support services. These services include custody provision, forensic medicine, identity parades, finger printing, DNA testing and administrative services. In January, we developed and installed in one of our monitoring centres a new IT system to support our warrant enforcement work for the courts. The system provides 24-hour, 7-day access to the Police and has already helped us exceed our best performance expectations. In January, we started the largest custody and administrative services contract for the Police yet awarded. We continued to increase our work for the Forensic Science Service providing a daily service for 35 of the 43 Police Services areas in England and Wales. Disposal of Non-core Investments We have decided to dispose of our 16.1% investment in Chesterton International plc. In October, we announced our decision to write down the carrying value of the investment to market value and we took the resulting exceptional charge of £3.0 million in the first half year. Subsequently, on 17 April 2003, an all-cash offer of 12p per share was announced, which we have accepted in respect of our holding, and we have adjusted the carrying value of the investment accordingly, bringing the total exceptional, non-cash charge to £3.3 million. The board believes that this offer will shortly be completed and, accordingly, the investment has been reclassified as a current asset, held for resale. We have also decided to dispose of our 25.7% investment in Command Security Corporation. In November 2001, following the tragic events of September 11, the US government enacted legislation to federalise pre-board screening at US airports. In the first half of this year, in the period leading up to federalisation, Command performed well. However, in the second half, federalisation has, as expected, had an adverse effect on Command's aviation security business. More importantly, it has recently become clear that, because of its part-foreign ownership, Command will be excluded from certain potentially attractive security contracts with the US government. The board has therefore concluded that disposal of the Group's investment is in the best interest of Command and Reliance. We have instructed advisers to conduct the disposal process and the carrying value of the investment has been written down to estimated net realisable value. The resulting exceptional charge of £3.3 million has no cash effect. The board is convinced that the growth opportunities in the Group's core businesses are such, going forward, that we will be best rewarded by focusing on these businesses. People My annual statement provides an important opportunity to record my warm thanks and that of the directors for the hard work, dedication and skill of our people. This has been a tough and challenging year with the need for change, improvement, and constant renewal. Reliance people have met these challenges superbly well. This is demonstrated in the more than 1,200 unsolicited letters of praise received this year. In today's demanding business climate, with customer pressure on costs and the need for better productivity, our people have responded by adding more knowledge and skill. Within Reliance, there is a strong impulse to go the extra mile for our customers, which is an attitude that sustains the Reliance Difference and marks us out from our competitors. Following re-assessment, our Investors In People (IIP) accreditation was renewed and, once again, affirms our strong belief in enabling our people to improve their knowledge and skills. IIP gives us a persuasive set of principles for improving business performance and competitiveness through a planned approach to setting and communicating business objectives and the training and skills required to achieve them. We announced, in January, the departure of Geoff Haslehurst from the Group board and I would like to take this opportunity to thank him for his important contribution over the last seven years and to wish him well for the future. Reliance now employs over 12,000 people from a network of offices throughout the United Kingdom. The Future We have built a strong competitive position in support services where opportunities abound and are likely to grow. We have structured our businesses and management resource in order to maximise our capabilities to sustain growth across facilities management and a number of complementary specialist markets with a combined value in excess of £60 billion per annum. We continue to invest in new segments and to refine our capacity to offer specialist and higher value added products and services adopting appropriate technologies. Whilst the outlook for the UK economy remains uncertain, we are confident that the Group will continue to grow. Financial review Overview In the year to 25 April 2003, the Group has achieved significant growth in turnover and underlying profit and has generated a substantial cash inflow. As explained below, the correction of accounting errors has given rise to a prior year adjustment and prior year comparative figures have been restated accordingly. Turnover for the year increased by 16.0% to £268.1million (2002 (restated): £231.1 million), reflecting strong organic growth in the Group's operating companies. In the period 1998-2003, the Group has grown its turnover at a compound annual rate of 17.8%. Pre-exceptional, pre-tax profit for the year rose by 27.0% to £12.6 million (2002 (restated): £9.9 million), reflecting healthy profit growth in both Security Services and Facilities Management. Based on 2002 profits as reported last year, the increase in pre-exceptional, pre-tax profit was 9.0%. In the period 1998-2003, the Group's pre-exceptional, pre-tax profits have increased at a compound annual rate of 18.7%. Net cash inflow from operating activities, after funding significant organic growth in the year, was £13.9 million (2002 (restated): £14.8 million) and the Group ended the year with net cash of £4.8 million (2002: £2.1 million). Prior year adjustments and exceptional items In October last year, we announced the correction of accounting errors in Reliance High-Tech Limited, our electronic systems specialist, and the write-off of goodwill relating to its acquisition. In accordance with accounting requirements, the resulting charges of £5.3 million have been treated as prior year adjustments and prior year comparatives have been restated accordingly. There is no impact on the Group's profits for the year ended 25 April 2003. The £6.6 million write-down in the carrying value of the Group's investments in Chesterton International plc and Command Security Corporation is explained fully in the Chairman's Statement. Accounting standards The Group does not currently operate a defined benefit pension scheme, so the requirements of FRS17, 'Retirement Benefits' do not currently apply. Group results Operating margin Improved control over contract costs and margins in our electronic security systems business resulted in an increase in gross margins in the Security Services segment and a favourable change in the mix of contracts resulted in higher gross margins in the Facilities Management segment. As a result, Group gross margin increased by 0.9% to 19.0% (2002 (restated): 18.1%). The ratio of administrative expenses to turnover was 15.0% (2002 (restated): 14.4%), reflecting continued investment in management, systems and training to support the Group's continuing growth. Consequently, the Group's operating margin, the ratio of pre-exceptional operating profit to turnover was 4.0% compared with 3.7% (restated) in the previous year. Goodwill amortisation The charge for goodwill amortisation in the year was £0.5 million (2002: £0.4 million excluding the exceptional goodwill write-off relating to Reliance High-Tech), of which £0.2 million (2001: £0.2million) was included in share of associates' operating profit. Net interest payable Net interest payable, including the Group's share of interest payable by associated undertakings, was £0.5 million (2002 (restated): £0.6 million). Interest cover remained healthy at 27 times (2002 (restated): 17 times), excluding exceptional items. Taxation The net taxation charge for the year was £3.9 million (2001: £3.5 million) which, excluding exceptional items, represents an effective rate of 31.1% (2002 (restated): 35.2%). The reduction in effective rate principally reflects a reduction in unrelieved losses in Reliance High-Tech in respect of which no deferred tax asset has been recognised. No tax relief has been recognised in respect of the exceptional charges. Earnings per share Basic earnings per share, excluding exceptional items, increased by 34.7% to 38.4p (2002(restated): 28.5p). In the period 1998-2003, the Group's underlying basic earnings per share, excluding exceptional items, have increased at a compound annual rate of 19.7%. Dividends Dividends paid or proposed were 15.4p per share, 13.2% higher than in the previous year. Dividend cover, excluding exceptional items, was 2.5 times (2002 (restated): 2.1 times), reflecting the Group's policy of retaining sufficient profit to facilitate its continuing growth. Over the past five years, the Group's return on shareholders' funds (the ratio of pre-exceptional, post-tax profit to shareholders' funds) has consistently exceeded 25%. Cash flow EBITDA increased by 26.1% to £13.2 million (2002(restated): £10.4 million) reflecting a similar increase in pre-exceptional operating profit. The working capital reduction was £0.7 million compared with £4.4 million last year, reflecting the one-off impact last year of both favourable timing differences and an improvement in control over working capital. Consequently, net cash inflow from operating activities was £13.9 million (2002 (restated): £14.8 million). Group pre-tax profit, excluding exceptional items and associates, has increased by 31.3% to £10.4 million (2002(restated): £7.9 million). However, after taking account of unrelieved losses in Reliance High-Tech and other timing differences, taxable profits were broadly the same as last year. As a result, UK corporation tax paid, at £2.9 million, was essentially unchanged (2002: £3.0 million). Capital expenditure and financial investment resulted in a cash outflow of £5.3 million (2002: £2.8 million). The current year figure principally comprised significant capital expenditure relating to the successful implementation of major IT systems developments and the Group's investment in a PFI special purpose vehicle. We aim to minimise investment in such vehicles, subject to commercial considerations, and a rigorous risk assessment is undertaken in respect of all such investments. Acquisitions gave rise to a net cash outflow of £0.3 million (2002: £0.3 million), being the cost of acquiring the shares in Reliance High-Tech not previously owned by the Group. The prior year figure represented costs incurred in the year in connection with the acquisition of the electronic monitoring services business in the South of England. Dividends paid, excluding dividends paid in respect of shares held by the ESOP trust, increased by 14.7% to £3.1 million (2002: £2.7 million). Cash inflow before financing was £2.8 million (2002: £6.9 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. Over the period of five years, up to and including the current year, in aggregate, the Group's free cash flow has been 85.9% of pre-exceptional, pre-tax profit. The year to April 2004 will be a 53-week year. As a result, there will be thirteen salary payments and thirteen VAT payments, in each case one more than this year. In addition, the Group is starting up a mechanical and electrical engineering services business and will incur a cash outflow relating to the expected start-up losses of and working capital investment in that business. Finally, depending on its success in winning substantial new contracts, the Group may incur significant contract start-up costs and make significant investments in special purpose vehicles relating to PFI contracts. Whilst the Group expects to generate significant free cash flow again next year, it also expects that, as a result of these factors, it will incur a modest cash outflow before financing. The Group has more than sufficient existing borrowing facilities to finance this. Segment results Segment profit, for each segment, comprises profit on ordinary activities after share of associates' results and before finance charges. The 'Security Services' and 'Facilities Management' segments include the results of those of the Group's businesses and associated undertakings that provide to their customers site-based security services and facilities management services respectively. Central administrative costs and operating assets have been allocated to the two segments. Security Services Turnover increased by 7.0% to £196.1 million (2002 (restated): £183.3 million), reflecting solid organic growth, including the award of several large, multi-year contracts, notwithstanding some reduction in demand for short-term cover. Segment profit increased by 13.4% to £8.8 million (2002 (restated): £7.7 million), principally reflecting a significant improvement in the performance of the Group's electronic security systems business and a first-time contribution from associates. As a result, operating margin, the ratio of segment profit to turnover, increased from 4.2% to 4.5%. Effective control over working capital and a reduction in investment in associates resulted in a 0.5% decrease in operating assets to £12.6 million (2002 (restated): £12.6 million). Consequently, the return on operating assets, the ratio of segment profit to operating assets, increased to 69.7% (2002 (restated): 61.2%). Facilities Management Turnover increased by 50.8% to £72.1 million (2002: £47.8 million), reflecting the start-up of several significant contracts in the second half of last year and the first half of this year. Segment profit increased by 53.2% to £4.3 million (2002: £2.8 million). Segment operating margin was virtually unchanged at 6.0% (2002: 5.9%) notwithstanding the further significant strengthening and enlargement of management and business development teams to provide for continuing growth. Good control over working capital, together with the receipt of a dividend from an associated undertaking, resulted in a 7.2% reduction in operating assets to £1.7 million (2002: £1.8 million), notwithstanding the increase in turnover. The return on operating assets therefore increased sharply to 251% (2002: 152%). Group profit and loss account for the year ended 25 April 2003 Pre- exceptional Exceptional Restated Items Items 2003 2002 Notes £'000 £'000 £'000 £'000 Group turnover 3 268,142 - 268,142 231,075 Cost of sales (217,063) - (217,063) (189,230) Gross profit 51,079 - 51,079 41,845 Administrative expenses (40,327) - (40,327) (33,378) Exceptional goodwill write off 5 - - - (1,455) Total administrative expenses (40,327) - (40,327) (34,833) Operating profit 10,752 - 10,752 7,012 Share of associates' operating profits 5 2,299 (3,250) (951) 2,059 Profit on ordinary activities 3 before finance charges and amounts written off investments 13,051 (3,250) 9,801 9,071 Amounts written off investments 5 - (3,314) (3,314) - Profit on ordinary activities before finance charges 13,051 (6,564) 6,487 9,071 Net interest payable Group (379) - (379) (567) Associates (109) - (109) (69) Profit on ordinary activities before taxation 12,563 (6,564) 5,999 8,435 Tax on profit on ordinary activities (3,903) - (3,903) (3,480) Profit on ordinary activities after taxation 8,660 (6,564) 2,096 4,955 Dividends paid and proposed 4 (3,469) - (3,469) (3,067) Retained (loss)/profit for the year transferred (from)/to reserves 5,191 (6,564) (1,373) 1,888 Earnings per ordinary share Basic 38.4p - 38.4p 28.5p Effect of exceptional items - (29.1)p (29.1)p (6.5)p Restated basic 38.4p (29.1)p 9.3p 22.0p Diluted 38.2p - 38.2p 28.2p Effect of exceptional items - (29.0)p (29.0)p (6.4)p Restated diluted 38.2p (29.0)p 9.2p 21.8p All material operations in the Group continued throughout both financial years. Group statement of total recognised gains and losses for the year ended 25 April 2003 Restated 2003 2002 Note £'000 £'000 Profit for the financial year Group 3,742 3,424 Associates (1,646) 1,531 2,096 4,955 Loss on foreign currency translation (74) - Total recognised gains relating to the year 2,022 4,955 Cumulative effect of prior year adjustments 6 (5,256) Total gains and losses recognised since last financial statements (3,234) Group balance sheet as at 25 April 2003 Restated 2003 2002 Notes £'000 £'000 Fixed Assets Intangible assets : goodwill 1,969 1,620 Tangible assets 9,245 6,407 Investments 6,464 13,438 17,678 21,465 Current assets Stocks 2,561 1,588 Debtors 37,408 36,040 Investments 5 1,637 - Cash at bank and in hand 8,849 4,493 50,455 42,121 Creditors: amounts falling due within one year Borrowings (3,614) (1,763) Creditors (38,430) (35,040) Corporation tax (2,098) (1,913) Proposed dividend (2,694) (2,357) (46,836) (41,073) Net current assets 3,619 1,048 Total assets less current liabilities 21,297 22,513 Creditors: amounts falling due after more than one year Borrowings (412) (637) Provisions for liabilities and charges (1,155) (720) Net assets 19,730 21,156 Capital and reserves Called up share capital 1,164 1,164 Share premium account 2,285 2,264 Revaluation reserve 152 152 Profit and loss account 16,129 17,576 Equity shareholders' funds 19,730 21,156 Group cash flow statement for the year ended 25 April 2003 Restated 2003 2002 Notes £'000 £'000 Net cash inflow from operating activities 8 13,906 14,823 Returns on investments and servicing of finance Interest received 27 17 Interest paid (363) (528) Interest element of finance lease repayments (45) (65) Dividends received from associates 923 1,364 Net cash inflow from returns on investments and servicing of finance 542 788 Taxation UK corporation tax paid (2,932) (2,950) Capital expenditure and financial investment Purchase of tangible fixed assets (4,842) (1,334) Investment in special purpose vehicles (267) - Purchase of own shares by ESOP (296) (1,533) Sale of own shares by ESOP 66 23 Sale of tangible fixed assets 23 85 Net cash outflow from investing activities (5,316) (2,759) Acquisitions Purchase of subsidiary undertakings (251) - Purchase of a business - (305) Investment in associates (13) - Net cash outflow from acquisitions (264) (305) Equity dividends paid (3,131) (2,729) Net cash inflow before financing 2,805 6,868 Financing Issue of ordinary share capital 21 422 Increase in short term borrowings 1,844 - Capital element of finance lease repayments (314) (356) Net cash inflow from financing 1,551 66 Increase in cash in the year 9 4,356 6,934 Reconciliation of net cash flow to movement in net cash Increase in cash in the year 4,356 6,934 Net cash (inflow)/outflow from borrowings and finance lease repayments (1,530) 356 Change in net cash resulting from cash flows 2,826 7,290 New finance leases (96) (100) Movement in net cash in the year 2,730 7,190 Opening net cash/(debt) at start of year 2,093 (5,097) Closing net cash at end of year 9 4,823 2,093 Notes to the accounts for the year ended 25 April 2003 The financial information set out above does not constitute the Company's statutory accounts for the years ended 25 April 2003 or 26 April 2002, but is derived from those accounts. Statutory accounts for 26 April 2002 have been delivered to the Registrar of Companies and those for 25 April 2003 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 s237(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. Accounting policies have been consistently applied in dealing with items which are considered material in relation to the Group's accounts. 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. 2 Consolidation The consolidated profit and loss account and balance sheet incorporate the accounts of Reliance Security Group plc and its subsidiary undertakings. The results of subsidiary undertakings acquired or sold during the year are consolidated for the periods from or to the date on which control passed. As permitted by section 230 of the Companies Act 1985, a profit and loss account is not presented for Reliance Security Group plc. 3 Segmental information Turnover Segment profit Operating assets Restated Restated Restated 2003 2002 2003 2002 2003 2002 £'000 £'000 £'000 £'000 £'000 £'000 By activity Security services 196,076 183,273 8,763 7,727 12,569 12,635 Facilities management 72,066 47,802 4,288 2,799 1,707 1,840 268,142 231,075 13,051 10,526 14,276 14,475 Segment profit is profit on ordinary activities, including share of associates' operating profits, before finance charges and exceptional items. Operating assets are those net assets controlled by Reliance's operating divisions and reconcile with net assets as follows: - Restated 2003 2002 £'000 £'000 Operating assets 14,276 14,475 Items excluded:- Net cash 4,823 2,093 Listed and unlisted investments and loans 1,904 5,373 Investment in own shares 3,179 2,949 Taxation payable (2,098) (1,913) Deferred taxation 362 560 Dividends payable (2,694) (2,357) Interest payable (22) (24) Total net assets 19,730 21,156 In accordance with the equity method adopted for accounting for associates, Group turnover excludes turnover of Command Security Corporation. All Group turnover is therefore derived from within the United Kingdom and represents the amount receivable for services supplied net of VAT. 4 Dividends paid and proposed In addition to the interim dividend of 3.45p (2002: 3.15p), the directors recommend a final dividend of 11.95p (2002: 10.45p) which, subject to approval at the Annual General Meeting on 10 September 2003, will be payable on 19 September 2003 to those shareholders on the register of members on 29 August 2003. 5 Exceptional items The exceptional item of £3,250,000 shown within share of associates' operating profit in the year to 25 April 2003 relates to the impairment of goodwill in the Group's associated undertaking, Command Security Corporation, on the basis of a directors' valuation. The exceptional item of £3,314,000 shown as amounts written off investments in the year to 25 April 2003 relates to a reduction in the carrying value of the Group's investment in Chesterton International plc reflecting its expected net realisable value. The realisation of the investment is expected shortly and, accordingly, it has been reclassified as a current asset, held for resale. The exceptional item in the year to 26 April 2002 represents the writing down to nil value of all capitalised goodwill associated with Reliance High-Tech Limited following the discovery of the incorrect accounting for contract costs discussed in note 6 below. 6 Prior year adjustments The consolidated profit and loss account and balance sheet for the period to 26 April 2002 have been restated following the discovery and correction of material errors in the accounting for costs and revenues associated with installation contracts in one of the Group's subsidiaries, Reliance High-Tech Limited. The impact of these adjustments in the year to 26 April 2002 is as follows:- Year to Year to 26 April 2002 Prior Year 26 April 2002 As reported adjustments Restated £'000 £'000 £'000 Turnover 231,629 (554) 231,075 Cost of sales (188,165) (1,065) (189,230) Gross profit 43,464 (1,619) 41,845 Administrative expenses (33,365) (1,468) (34,833) Group operating profit 10,099 (3,087) 7,012 Intangible assets: goodwill 3,075 (1,455) 1,620 Tangible assets 6,407 - 6,407 Investments 13,438 - 13,438 Stocks and work in progress 1,024 564 1,588 Debtors 37,038 (998) 36,040 Cash at bank and in hand 4,493 - 4,493 Creditors: amounts falling due within one year (37,706) (3,367) (41,073) Creditors: amounts falling due after one year (637) - (637) Provisions for liabilities and charges (720) - (720) Net assets 26,412 (5,256) 21,156 Called up share capital 1,164 - 1,164 Share premium account 2,264 - 2,264 Revaluation reserve 152 - 152 Current period profit and loss account 4,975 (3,087) 1,888 Opening profit and loss account 17,857 (2,169) 15,688 Equity shareholders' funds 26,412 (5,256) 21,156 The amount shown above as an adjustment to the opening profit and loss account represents the total adjustments that originate in the year to 27 April 2001 and prior years. 7 Earnings per share Restated 2003 2002 Note £'000 £'000 Earnings (previously reported) 2,096 8,042 Prior year adjustment 6 - (3,087) Earnings (restated) 2,096 4,955 Number Number Weighted average number of shares 23,284,514 23,118,270 Weighted average number of shares held in ESOP trust (745,940) (629,568) Shares used to calculate basic earnings per share 22,538,574 22,488,702 Dilutive potential shares 145,458 232,391 Shares used to calculate diluted earnings per share 22,684,032 22,721,093 The basic and diluted earnings per share have been calculated in accordance with FRS14, based on profit after tax and the weighted average number of ordinary shares in issue during the year, less shares held by the ESOP trust. 8 Reconciliation of operating profit to net cash inflow from operating activities Restated 2002 2002 £'000 £'000 Operating profit 10,752 7,012 Depreciation charges 2,070 1,753 Amortisation of goodwill 337 214 Exceptional goodwill write-off - 1,455 Loss on disposal of fixed assets 7 1 Increase in stocks (973) (283) Increase in debtors (1,677) (7,428) Increase in creditors 3,390 12,099 Net cash inflow from operating activities 13,906 14,823 9 Analysis and reconciliation of net cash New 27 April finance 25 April 2002 Cashflow leases 2003 £'000 £'000 £'000 £'000 Cash at bank and in hand 4,493 4,356 - 8,849 Loan due within one year (1,471) (1,844) - (3,315) Finance leases and hire purchase contracts (929) 314 (96) (711) Total borrowings (2,400) (1,530) (96) (4,026) Net cash 2,093 2,826 (96) 4,823 This information is provided by RNS The company news service from the London Stock Exchange

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