Interim Results
Reliance Security Group PLC
02 December 2004
Reliance Security Group plc
Interim Results for the six months to
29 October 2004
•Strong organic growth in FM
•Challenging market conditions in Security Services, as previously
indicated
•Continuing investment for further growth
•Turnover up 0.4% to £149.5m (2003: £148.9m)
•Profit before tax up 13.0% to £6.8m (2003: £6.0m)
•Earnings per share up 13.1% to 20.7p (2003: 18.3p)
•Dividend per share up 10.5% to 4.2p (2003: 3.8p)
•Net cash up 43.5% to £15.0m (£10.5m at April 2004)
•FM businesses' forward order book maintained at approximately £700m
Brian Kingham, Chairman, commenting on the results said:
'We have achieved good results, despite challenging conditions in the security
services market. Our businesses in facilities management and business process
outsourcing have performed strongly. We are continuing to invest in management
and infrastructure for future growth. We have a healthy forward order book and a
strong financial position.'
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
Neil French Group Finance Director 01895 205 002
Chairman's interim statement
for the six months ended 29 October 2004
In the first half, the Group has achieved good results, providing powerful
endorsement, we believe, of our strategy of focusing on our core activities. As
previously indicated, market conditions in security services have been
challenging and this has adversely impacted the results in this sector. In
facilities management, business process outsourcing and support services we have
continued to perform strongly, achieving significant growth and higher margins.
We have benefited from sustained investment in the Group's businesses and are
well positioned for further growth.
Results
Turnover for the six months to 29 October 2004 increased by 0.4% to £149.5
million (2003: £148.9 million). Pre-tax profit was 13.0% higher at £6.8 million
(2003: £6.0 million) and profit after tax was £4.7 million (2003: £4.1 million).
Earnings per share rose by 13.1% to 20.7p (2003: 18.3p). Cash generation has
been strong and we ended the half-year with net cash of £15.0 million (2003:
£5.4 million).
Security services
Turnover was £97.4 million (2003: £108.4 million) and segment profit was £3.2
million (2003: £4.8 million), reflecting challenging market conditions and an
additional week's trading in the first half of last year. The contribution to
the segment from Safe Estates Services, our void property security associate,
increased sharply to £1.4 million (2003: £0.5 million). Good control over
working capital resulted in a reduction in operating assets of 49.2% to £7.6
million (2003: £14.9 million). Return on operating assets increased to 85.0%
(2003: 64.4%).
As previously indicated, market conditions in security services have remained
difficult, particularly in manpower security, in the period leading up to
regulation of the private security industry in 2006. Nevertheless, we have won
important new contracts with BP, Global Switch, UKAEA, Babcock Rosyth Dockyards
and Centrica, amongst others.
We believe that, when fully implemented, this regulation will benefit the
industry, its customers and the public. It will give rise to changes in the mix
of services provided, which will favour Reliance and those security providers
capable of innovation, change and developing varied and flexible security
solutions. It is estimated that there are now more than 2,100 providers of
manpower security services in the UK market and Reliance is believed to be the
second largest provider. The British Security Industry Association estimates
that this number could fall to 200 following regulation, because many will be
unable or unwilling to comply with the new legislative requirements. We expect
to see shortages in the availability of licensed security personnel, which will
favourably influence employment conditions and moderate downward pressure on
wages, prices and profit margins. Better training will increase skills,
resulting in an improved service to customers. Our regulator, the Security
Industry Authority, has stated that industry-wide margins are too low and they
need to improve to accommodate the higher standards of operational performance
expected by the Government. The past few years have seen a paradigm shift in the
nature and use of private security services, with greater emphasis on
multi-tasking management and larger, more complex contracts involving the use of
technology. Even before regulation, a different demand model is discernible,
calling for consistency of standards across a large number of diverse locations
and delivery mechanisms that integrate services and products, providing
customers with a new dimension in value and utility. Reliance has invested
heavily in this model.
We are redoubling our efforts to differentiate and to add greater value for
customers. In management and manpower services, rapid response, electronic
security and remote surveillance, we are continuing to invest in and are
harnessing new technologies to provide innovative, cost-effective security
solutions.
Facilities management
Turnover was up 28.5% at £52.1 million (2003: £40.6 million), reflecting our
success in winning new business. Segment profit rose by 137% to £3.4 million
(2003: £1.5 million) reflecting additional volume and improved contract
profitability. Operating assets increased by 120% to £4.3 million (2003: £2.0
million), reflecting the capitalisation of start-up costs and less favourable
payment terms on some new contracts. Nevertheless, return on operating assets
increased to 160% (2003: 149%).
The market for facilities management and outsourced business processes remains
dynamic, demand being particularly strong in the public sector. As a result of
contract wins and extensions, we have maintained our long-term contracted
revenue stream. Following our unsuccessful bid to renew the £18 million per
annum electronic monitoring contract in the South of England, we are responding
to the challenge of winning replacement business from other sources. We have won
or extended a number of facilities management contracts and are in discussions
concerning the extension of others. We have been awarded a £2 million per annum
contract, initially for 5 years from 1 April 2005, to provide juvenile custodial
escort services throughout the whole of England and Wales for the Youth Justice
Board. We have also been selected, in partnership with HBOS plc and Equion Ltd,
as the preferred bidder for a 25-year, £1.5 million per annum PFI contract for
Cleveland Police Authority to finance, design, build or refurbish and provide
support services to three custody centres, two divisional headquarters and two
town centre police stations. After early teething problems, the mobilisation of
services under the 7-year, £150 million contract to provide infrastructure and
services for prisoner escorting and court custody in Scotland is now
substantially complete and operational performance is good. We have also
successfully mobilised a similar £250 million contract in South Wales, the
Midlands and the West of England, service delivery having begun, on schedule, in
August.
We have developed a bespoke facilities management model for shopping centres and
won and commenced our first such contract with Prudential. We have increased the
scope of our FM services at Luton Airport and won a new contract with easyJet.
We were delighted to win this year's Premises & Facilities Management magazine
award for partnership excellence in multi-service delivery.
Our forward order book (being the sales value of contracts currently in hand
over the remaining life of these contracts) remains strong, at approximately
£700 million.
Board
Ken Allison retired on health grounds in September. Ken, who was the chairman of
Reliance Security Services Limited and its former managing director, made a huge
contribution to the Group over the last eight years and will be much missed. We
wish him the greatest happiness for a long and eventful retirement.
Dividend
The directors have decided to pay an interim dividend of 4.2p per share (2003:
3.8p), payable on 21 January 2005 to shareholders on the register at 4 January
2005.
International financial reporting standards
The Group will prepare its 2005/06 financial statements under International
Financial Reporting Standards ('IFRS') and a project team has been established
to manage preparations for this. All existing IFRS have been reviewed to assess
the impact on the Group's financial statements. Based on the work done to date,
which is unaudited, the impact on reported pre-tax profit and earnings per share
is not expected to be material. However, in order to comply with the new
accounting standards, certain presentational and classificatory changes may be
required to those currently adopted under UK GAAP. In particular, the treatment
of certain leases may result in material increases in the carrying value of
fixed assets and creditors. This will not affect cash flow and the impact on
consolidated net assets is expected to be immaterial.
Outlook
In Security Services, we expect that market conditions will remain challenging
in the period leading up to regulation of the security industry. We believe
that, when fully implemented, regulation will benefit the industry, its
customers and the public, facilitating the fullest participation in the
Government's wider policing family. Accordingly, we believe that market
conditions will improve in the medium term.
The new security industry legislation comes into force on 1 January 2006. In the
preceding twelve-month period, all of our security officers, approximately 8,500
people, will be licensed. Individual licences last for three years and so, in
subsequent years, the numbers to be licensed will be lower. In complying with
the regulatory requirements, we will incur significant additional licensing,
training and initial one-off project costs, all of which we expect to recover,
over time, from our customers.
We believe that demand for facilities management and business process
outsourcing will enjoy sustained growth, particularly in the public sector. We
are continuing to invest in management, infrastructure and higher value added
skills to drive future growth. We have a healthy forward order book and a strong
financial position.
The board's expectations for the Group's trading performance in the full year
remain unchanged.
Brian Kingham
Chairman
December 2004
Independent review report
to Reliance Security Group plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 29 October 2004 which comprises the Group profit and loss
account, the Group statement of total recognised gains and losses, the Group
balance sheet, the Group cash flow statement and related notes 1 to 10. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the Company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 29 October 2004.
Deloitte & Touche LLP
Chartered Accountants
London
1 December 2004
Reliance Security Group plc
Group profit and loss account
for the six months ended 29 October 2004
Unaudited Audited
----------------
Six months to Six months to Year to
29 October 31 October 30 April
2004 2003 2004
Notes £'000 £'000 £'000
----------------------- ------- ---------- --------- --------
Turnover 3 149,531 148,905 292,292
Cost of sales (121,079) (122,688) (237,360)
----------------------- ------- ---------- --------- --------
Gross profit 28,452 26,217 54,932
----------------------- ------- ---------- --------- --------
Administrative expenses (23,521) (21,197) (44,262)
Exceptional goodwill
write-off 4 - - (1,000)
----------------------- ------- ---------- --------- --------
Total administrative
expenses (23,521) (21,197) (45,262)
----------------------- ------- ---------- --------- --------
Group operating profit 4,931 5,020 9,670
----------------------- ------- ---------- --------- --------
Share of associates'
and joint
venture's operating
profits 1,736 1,241 2,769
Exceptional goodwill
write-off 4 - - (280)
----------------------- ------- ---------- --------- --------
Total share of
associates' and
joint venture's
operating profits 1,736 1,241 2,489
----------------------- ------- ---------- --------- --------
Profit on ordinary
activities before
finance
charges 3 6,667 6,261 12,159
Net interest receivable
/(payable) 135 (240) (261)
----------------------- ------- ---------- --------- --------
Profit on ordinary
activities
before taxation 6,802 6,021 11,898
Tax on profit on
ordinary
activities 5 (2,094) (1,894) (4,085)
----------------------- ------- ---------- --------- --------
Profit on ordinary
activities
after taxation 4,708 4,127 7,813
Dividends paid and
proposed (956) (865) (3,847)
----------------------- ------- ---------- --------- --------
Retained profit for the
period 3,752 3,262 3,966
----------------------- ------- ---------- --------- --------
Earnings per share
----------------------- ------- ---------- --------- --------
Basic 6 20.7p 18.3p 40.2p
Effect of exceptional
items - - (5.7)p
----------------------- ------- ---------- --------- --------
Restated basic 20.7p 18.3p 34.5p
----------------------- ------- ---------- --------- --------
Diluted 6 20.7p 18.2p 40.0p
Effect of exceptional
items - - (5.6)p
----------------------- ------- ---------- --------- --------
Restated diluted 20.7p 18.2p 34.4p
----------------------- ------- ---------- --------- --------
All material operations in the Group continued throughout all financial periods.
Reliance Security Group plc
Group statement of total recognised gains and losses
for the six months ended 29 October 2004
Unaudited Audited
----------------
Six months to Six months to Year to
29 October 31 October 30 April
2004 2003 2004
£'000 £'000 £'000
--------------------------------- --------- --------- ---------
Profit for the period
- Group 3,581 3,329 6,226
- Associates and joint venture 1,127 798 1,587
--------------------------------- --------- --------- ---------
4,708 4,127 7,813
Loss on foreign currency
translation - (50) (82)
--------------------------------- --------- --------- ---------
Total gains recognised
since last financial
statements 4,708 4,077 7,731
--------------------------------- --------- --------- ---------
Reliance Security Group plc
Group balance sheet
as at 29 October 2004
Unaudited Audited
---------------
Restated (*) Restated (*)
29 October 31 October 30 April
2004 2003 2004
Notes £'000 £'000 £'000
-------------------------- ----- --------- -------- --------
Fixed assets
Intangible assets: goodwill 710 1,779 758
Tangible assets 7,080 9,306 8,027
Investments 3,628 3,543 3,036
-------------------------- ----- --------- -------- --------
11,418 14,628 11,821
Current assets
Stocks and work in progress 2,309 2,901 1,670
Debtors: amounts due
within one year 37,872 33,126 33,822
Debtors: amounts due after more
than one year 1,336 175 1,353
Investments - - 1,036
Cash at bank and in hand 9 18,492 9,213 14,097
-------------------------- ----- --------- -------- --------
60,009 45,415 51,978
Creditors: amounts falling
due within one year
Borrowings (3,493) (3,588) (3,564)
Creditors (40,105) (32,229) (33,963)
Corporation tax (2,299) (2,087) (2,174)
Proposed dividend (956) (859) (2,982)
-------------------------- ----- --------- -------- --------
(46,853) (38,763) (42,683)
-------------------------- ----- --------- -------- --------
Net current assets 13,156 6,652 9,295
-------------------------- ----- --------- -------- --------
Total assets less current
liabilities 24,574 21,280 21,116
Creditors: amounts falling
due after more than one
year
Borrowings (3) (208) (80)
Provisions for liabilities
and charges - (1,155) (217)
-------------------------- ----- --------- -------- --------
Net assets 24,571 19,917 20,819
-------------------------- ----- --------- -------- --------
Capital and reserves
Called up share capital 1,165 1,165 1,165
Share premium account 2,320 2,318 2,320
Own shares 2 (2,831) (3,059) (2,831)
Revaluation reserve 152 152 152
Profit and loss account 23,765 19,341 20,013
-------------------------- ----- --------- -------- --------
Equity shareholders' funds 7 24,571 19,917 20,819
-------------------------- ----- --------- -------- --------
(*) See note 2
Reliance Security Group plc
Group cash flow statement
for the six months ended 29 October 2004
---------------
Unaudited Audited
Year to
---------------
Six months to Six months to
29 October 31 October 30 April
2004 2003 2004
Notes £'000 £'000 £'000
-------------------------- ----- --------- -------- --------
Net cash inflow from
operating activities 8 7,656 3,945 12,462
-------------------------- ----- --------- -------- --------
Returns on investment and
servicing of finance
Interest received 259 35 142
Interest paid (164) (125) (267)
Interest element of
finance lease (2) (20) (30)
repayments
Dividends received from 564 490 977
associates
-------------------------- ----- --------- -------- --------
Net cash inflow from
returns on investment
and servicing
of finance 657 380 822
-------------------------- ----- --------- -------- --------
Taxation
UK corporation tax paid (1,363) (1,547) (3,272)
-------------------------- ----- --------- -------- --------
Capital expenditure and
financial investment
Purchase of tangible fixed
assets (675) (1,305) (1,756)
Investment in special - - (188)
purpose vehicles
Sale of investment - 1,637 1,637
Sale of shares by ESOP - 120 450
Sale of tangible fixed
assets 10 30 42
-------------------------- ----- --------- -------- --------
Net cash (outflow)/inflow
from capital expenditure
and financial investment (665) 482 185
-------------------------- ----- --------- -------- --------
Acquisitions
Purchase of subsidiary
undertakings (223) - (1,000)
Sale of associate 1,463 - -
Investment in associates - - (44)
-------------------------- ----- --------- -------- --------
Net cash inflow/(outflow)
from acquisitions 1,240 - (1,044)
-------------------------- ----- --------- -------- --------
Equity dividends paid (2,982) (2,700) (3,559)
-------------------------- ----- --------- -------- --------
Net cash inflow before
financing 4,543 560 5,594
Financing
Issue of ordinary share
capital - 34 36
Capital element of finance
lease repayments (148) (230) (382)
-------------------------- ----- --------- -------- --------
Net cash outflow from
financing (148) (196) (346)
-------------------------- ----- --------- -------- --------
Increase in cash in the 4,395 364 5,248
period
-------------------------- ----- --------- -------- --------
Reconciliation of net cash
flow to movement in net
cash
Increase in cash in the
period 4,395 364 5,248
Cash outflow from decrease
in debt and
lease financing 148 230 382
-------------------------- ----- --------- -------- --------
Change in net cash
resulting from cash
flows 4,543 594 5,630
New finance leases - - -
-------------------------- ----- --------- -------- --------
Movement in net cash in
the period 4,543 594 5,630
Opening net cash 10,453 4,823 4,823
-------------------------- ----- --------- -------- --------
Closing net cash 9 14,996 5,417 10,453
-------------------------- ----- --------- -------- --------
Reliance Security Group plc
Notes
1 Preparation of interim report
The financial information for the 26 weeks ended 29 October 2004 and the 27
weeks ended 31 October 2003 is unaudited and does not constitute full
accounts within the meaning of the Companies Act 1985. The financial
information for the 53 weeks ended 30 April 2004 has been extracted from the
full accounts for that year which have been delivered to the Registrar of
Companies. The auditors' report was unqualified and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
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 Principal accounting policies
The results for the 26 weeks ended 29 October 2004 have been prepared using
the same accounting policies set out in the Annual Report and Accounts 2003/
04 with the exception of the adoption of UITF 38, Accounting for Employee
Share Ownership Plan (ESOP) trusts. UITF 38 requires that an entity which
acquires its own shares should present them as a deduction in arriving at
shareholders' funds rather than as an asset.
The reclassification of shares acquired by the ESOP from fixed assets to
equity has reduced net assets by £2,831,000 at 29 October 2004 and 30 April
2004 (31 October 2003: £3,059,000), with no impact on retained earnings.
3 Segmental information
Turnover Segment profit Operating assets
--------------- --------------- -------------
Restated
-------
Six Six Six Six
months months months months
to to to to As at As at
29 31 29 31 29 31
October October October October October October
2004 2003 2004 2003 2004 2003
£'000 £'000 £'000 £'000 £'000 £'000
------------ -------- -------- -------- -------- -------- ---------
By
activity
Security 97,440 108,352 3,222 4,809 7,580 14,930
services
Facilities 52,091 40,553 3,445 1,452 4,299 1,954
management
------------ -------- -------- -------- -------- -------- ---------
149,531 148,905 6,667 6,261 11,879 16,884
------------ -------- -------- -------- -------- -------- ---------
Segment profit is profit on ordinary activities, including share of
associates' operating profits, before amounts written off investments and
finance charges.
Operating assets reconcile with net assets as follows:-
Restated
------
As at As at
29 October 31
October
2004 2003
£'000 £'000
-------------------------- ----------- ------
Operating assets 11,879 16,884
Items excluded:-
Net cash 14,996 5,417
Listed and unlisted
investments and loans 485 267
Taxation payable (2,299) (2,087)
Deferred taxation 435 362
Dividends payable (956) (859)
Interest receivable/
payable 31 (67)
-------------------------- ----------- ------
Net assets 24,571 19,917
-------------------------- ----------- ------
4 Exceptional Items
The exceptional item of £1,000,000 for the year ended 30 April 2004, shown
within administrative expenses relates to the impairment of goodwill
associated with Goldrange Limited, on the basis of a directors' valuation.
The exceptional item of £280,000 for the year ended 30 April 2004, shown
within share associates' operating profit relates to the impairment of
goodwill in the Group's associated undertaking, Command Security Corporation,
on the basis of a directors' valuation. This investment was sold at its
adjusted carrying value in the period ended 29 October 2004.
5 Taxation
Corporation tax for the six months to 29 October 2004 has been calculated
using the rate of 30% (six months ended 31 October 2003: 30%, year ended 30
April 2004: 30%).
6 Earnings per share
The basic and diluted earnings per share for the six months to 29 October
2004 have been calculated in accordance with FRS 14, based on profit after
tax and the weighted average number of ordinary shares in issue during the
period, less shares held by the ESOP trust. The number of shares used to
calculate basic earnings per share is 22,760,193 (six months to 31 October
2003: 22,574,407, year ended 30 April 2004: 22,635,170). The number of shares
used to calculate diluted earnings per share is 22,762,597 (six months to 31
October 2003: 22,711,996, year ended 30 April 2004: 22,717,347).
7 Reconciliation of movement in equity shareholders' funds
Restated
--------------
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
29 October 31 October 30 April
2004 2003 2004
£'000 £'000 £'000
---------------------------------- ---------- --------- ----------
Profit on ordinary activities 4,708 4,127 7,813
after tax
Dividends (956) (865) (3,847)
New share capital subscribed - 34 36
Foreign exchange differences - (50) (82)
Consideration received in respect
of sale of own shares - 120 450
Gain on sale of own shares - - (102)
---------------------------------- ---------- --------- ----------
Net movement in equity
shareholders' funds 3,752 3,366 4,268
Opening equity shareholders'
funds 20,819 16,551 16,551
---------------------------------- ---------- --------- ----------
Closing equity shareholders'
funds 24,571 19,917 20,819
---------------------------------- ---------- --------- ----------
8 Reconciliation of operating profit to net cash inflow from
operating activities
Restated
--------------
Unaudited Unaudited Audited
Six months Six months
ended ended Year ended
29 October 31 October 30 April
2004 2003 2004
£'000 £'000 £'000
---------------------------------- ---------- --------- ----------
Operating profit 4,931 5,020 9,670
Depreciation charges 1,605 1,216 2,894
Loss/(profit) on the sale
of fixed assets 7 (2) 38
Exceptional goodwill impairment - - 1,000
Gain on sale of own shares - - (102)
Amortisation of goodwill 48 190 323
(Increase)/decrease in stocks (639) (340) 891
(Increase)/decrease in debtors (4,003) 4,106 2,282
Increase/ (decrease) in creditors 5,707 (6,245) (4,534)
---------------------------------- ---------- --------- ----------
Net cash inflow from
operating activities 7,656 3,945 12,462
---------------------------------- ---------- --------- ----------
9 Analysis and reconciliation
of net cash
Audited Unaudited
30 April 29 October
2004 Cash flow 2004
£'000 £'000 £'000
---------------------------------- ---------- --------- ----------
Cash at bank and in hand 14,097 4,395 18,492
---------------------------------- ---------- --------- ----------
Loan due within one year (3,315) - (3,315)
Finance leases and hire purchase
contracts (329) 148 (181)
---------------------------------- ---------- --------- ----------
Total borrowings (3,644) 148 (3,496)
---------------------------------- ---------- --------- ----------
Net cash 10,453 4,543 14,996
---------------------------------- ---------- --------- ----------
10 Distribution
A copy of the financial information will be sent to all shareholders. Copies
are available to the public from the Company's registered office at Boundary
House, Cricketfield Road, Uxbridge, Middlesex, UB8 1QG.
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