PHSC Regulatory News (PHSC)

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 £0.603m, up from £0.445m * Group revenues increased by 30% to £5.791m compared with £4.434m * Cash reserves of £0.216m * Group net assets rise to £5.63m from £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, andto update shareholders on the progress made at PHSC plc. In last year's report I said that our future prospects would depend in partupon our ability to develop new products and a wider range of services. Theimprovement in revenues and profits that we are able to report has been madepossible by our decision to add to our core activities. We made twoacquisitions during the year; QCS International Limited (QCS) and B to B LinksLimited (B to B), and both have made positive contributions. Revenue and profit Consolidated Group sales for the period rose to £5,791,300 from £4,434,300.This improvement of more than 30% can be attributed largely to the additionalrevenues generated by our two new companies, with QCS having been acquired atthe 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 £603,100 EBITDA compares with £445,500 generated in theprevious year. Costs Following a pay freeze in the previous year, the remuneration committeeapproved a 2% general increase that took effect in July 2012. This award didnot 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) andEnvex became a trading division of ALS. This led to some economies of scale. In Q4, net proceeds of £71,000 were realised from the sale of the vacantproperty, previously occupied by RSA Environmental Health Limited (RSA), atRaunds. RSA now shares the adjacent ALS satellite offices and this has led tolower overall premises-related costs. With Group revenues rising by over a third, it is unsurprising that overallcosts of sales and overheads increased proportionately. In the case of B to Bwe now have a subsidiary that predominantly derives income from theinstallation and sale of equipment and consumables. The profiles of all ourother businesses are largely of a service nature, whereby they sell only theirtime and expertise. This different emphasis has an impact on the cost of salesand necessitates the holding of product and equipment in stock. B to B isinvolved in a large CCTV installation contract and has had to purchasematerials and services to enable it to gear up for the ongoing installationworks. 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. Thecompany specialises in quality, environmental, and health and safety managementsystems and assists organisations by providing practical support and trainingin systems such as ISO 9001, ISO 14001, OHSAS 18001 and ISO 13485. The terms were for an initial consideration of £160,000 in cash and the issueof 79,186 Ordinary Shares in PHSC plc, and net current assets £ for £. On thefirst anniversary a further £160,000 becomes due under the contract but afteradjustments this payment will be £121,000. This arises because the cash andcash-equivalent net assets purchased at completion were overvalued. Anoverpayment of approximately £39,000 arose as it was found that QCS hadreceived several advance payments for services. At the time of completion, weand the sellers were fully aware that an adjustment would be required but couldnot quantify this until completion accounts had been prepared. The reduced sumpayable on the first anniversary does not affect the overall consideration, asin effect the payment at completion was £199,000. A final payment of £80,000 isdue two years after completion, subject to adjustment up or down according toperformance against targets. The acquisition of QCS enables the Group to offer a number of new services. Itwill also help to expand the Scottish marketplace for the Group, in that QCSwill be able to introduce all of the Group's services to their existingclients. B to B Links Limited (B to B) The Company acquired the entire issued share capital of B to B at the end ofSeptember 2012. B to B is a retail security and labeling company that providesa range of security solutions to independent and large, national retailers. Itscore business is the prevention of stock loss through the use of electronicarticle surveillance (EAS) designed specifically for the protection of smalland vulnerable products. B2B is the recognised preferred security partner of anumber of trade associations. They are one of the market leaders andspecialists in the supply of EAS security tagging systems to protect perfumes,gift items and alcohol in a variety of retail outlets, including shops on boardferries operating in both UK and international waters, duty free shops ininternational airports and in the high street. A growing part of the company's business is the installation of closed circuittelevision systems (CCTV), and at the time of acquisition they had secured anagreement with a major department store chain. This CCTV agreement hasgenerated average revenues of £75,000 per month. Consideration for the acquisition was satisfied via an initial cash payment of£303,444 at completion, and the issue of 150,000 new ordinary shares of PHSCplc. A further cash payment of £320,000 falls due on the first anniversary, anda final cash payment on the second anniversary of between £120,000 and £800,000subject to performance over the period since completion. Cash and other assetswere purchased at fair value based on the completion accounts. The acquisition of B to B has enabled the company to diversify from its corebusiness of health and safety consultancy and training. Other Opportunities The Group is not currently considering any further acquisitions. We believethat calls on our cash to satisfy the two most recent purchases will limit ourability 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 inthe 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 (MikeMiller, who chairs the audit committee, and Graham Webb MBE who chairs theremuneration committee). The contracts of both non-executives have beenextended until 31 March 2014. Our chartered secretary, Lorraine Young, supportsthe board and its committees. All corporate matters relating to accounting areably dealt with by our Group Accountant, Candy Wilton. Despite recent upward movements, our shares continue to trade well below assetvalue. The board regularly reviews each area of corporate expenditure,including that relating to our trading platform, to satisfy itself thatmaintaining an AIM listing remains appropriate. We do however remain committedto AIM, and the associated costs become easier to justify when we are in aperiod of corporate growth. Employees I recognise that our success as a group is entirely dependent upon thecommitment, skills and input of every employee at every subsidiary company. Onbehalf of the board, I wish to thank all of the Group's employees for theirsupport and enthusiasm over the past year. We are committed to taking allreasonable steps to safeguard the welfare of, and recognise the contributionmade by, each member of staff. Performance by Trading Subsidiaries Profit figures below are stated before tax and Group management charges. Notethat revenues for services are credited to the company generating the sale evenif the work is delivered by a sister company. For that reason, reference shouldbe made to the Group's overall performance instead of looking at how individualsubsidiaries have fared. Personnel Health and Safety Consultants Limited Sales of £765,500, yielding a profit of £300,000.In the previous year there were sales of £770,600 and a profit of £313,000. RSA Environmental Health Limited Sales of £420,700, yielding a profit of £10,900.In the previous year there were sales of £474,300 and a loss of £3,300. Adamson's Laboratory Services Limited Sales of £2,366,900 yielding a profit of £366,700.In the previous year there were combined (with Envex Company) sales of£2,223,800, yielding a combined profit of £300,600. Inspection Services (UK) Limited Sales of £202,100, yielding a profit of £6,600.In the previous year there were sales of £242,100, yielding a profit of£13,000. Quality Leisure Management Limited Sales of £607,600, yielding a profit of £119,300.In the previous year there were sales of £723,500, yielding a profit of £160,800. B to B Links Limited In the six-month period since acquisition there were sales of £1,093,800yielding a profit of £83,500. QCS International Limited In the eight-month period since acquisition there were sales of £334,600yielding a profit of £98,000. Net Asset Value As at 31 March 2013, the Company had net assets of £5.63 million. There were10,606,348 Ordinary Shares in issue at that date which equates to a net assetvalue (NAV) per share of 53p. At today's price of 27.5p per share, the OrdinaryShares of the Company are currently trading at a discount of almost 50% to thenet asset value. Each year we evaluate the level of goodwill associated with each historicalacquisition, to ensure that the value on the balance sheet can still bejustified. We have written down the carrying value of Inspection Services (UK)Limited by £39,400 this year, in recognition of the reducing contribution thatthe subsidiary is likely to make to Group profits going forward. We remaincomfortable with all other valuations. Dividend The board is proposing a final dividend of 1.5p per ordinary share. This is anincrease from the ordinary dividend of 1.0p last year. However, due to cashcalls in connection with acquisitions previously outlined, we are unable to payan additional dividend (last year: 1.0p per ordinary share). Subject toapproval at the annual general meeting, the dividend of 1.5p per ordinary sharewill be paid on 30 September 2013 to shareholders on the register as at 23August 2013. Prospects Health and safety marketplace We see this as a maturing market and one in which margins are progressivelydiminishing. There remain many pro-active clients who understand the importanceto their business of maintaining good health and safety standards. This islargely where our client base lies. Elsewhere there is often customerreluctance to spend beyond what is seen as absolutely necessary to achievebasic compliance, combined with a reduction in the perceived importance ofhealth and safety in the work environment. There is less focus by regulators onall but the most hazardous of workplaces, leaving many employers to take theview that compliance is not seen as important as it once was. This isexemplified by a reduced number of routine inspections by enforcingauthorities, and a strategy that sees far fewer investigations of workplaceinjuries. Key areas for Group subsidiaries remain those of asbestos management, healthand safety in the leisure, care, transport and education sectors, statutoryexamination of plant and machinery, and the provision of various forms ofworker and management training. Quality systems We expect to see organic incremental growth in our QCS subsidiary across thekey areas of public training, in house training, consultancy, and outsourceservices for management systems. The company is based in Cumbernauld (near toGlasgow) and has a strong presence in the central region of Scotland. It enjoyssignificant revenue from customers both nationally and internationally, but wesee potential to expand the client base geographically particularly intoEngland. SafetyMARK As anticipated, 2012/13 was a formative year for our new SafetyMARK audit andcertification service that has been launched initially in the education sector.This service is delivered by the In House division of RSA Environmental HealthLimited. In the year, revenues of around £31,000 were generated but there wereone-off set-up costs in the order of £20,000. We expect to more than doublethis source of income in 2013/14 and to achieve higher margins now that thelaunch costs are behind us. There are also opportunities for partnerships withother providers of services to schools and colleges. Retail security Through our most recent acquisition, B to B, we expect to increase our presencein this marketplace. As well as launching new products to the sector, wepropose to capitalise on B to B's good reputation and high profile to increaserevenues from our current range. We are presently working to build a morerobust infrastructure, necessary to adequately service the rapid expansion ofthe CCTV side of the business. Once this new structure is in place, we will bewell-positioned to target a wider variety of sales opportunities. We alsorecognise that potentially there is an overlap between security and safety,meaning that there will be scope for cross-selling other Group services to theclient base. Expectations Thanks in no small measure to our decision to diversify into new areas ofbusiness, the future of the Company looks more positive than it has done forsome time. With a far smaller reliance on income derived from the public sector, we haveprobably seen the end of the direct effects of Government spending cuts.Confidence in the private sector, however, remains low in comparison topre-recession sentiment. It will take some time for organisations to reinstatetheir budgets for many of the services we provide, and these are unlikely toreturn to previous levels. Our core of retained clients will continue to provide a revenue stream and thiswill underpin the business as it adapts to different ways of working. Thedemand for asbestos management services will remain a major contributor torevenues as this area is highly regulated for good reason. In 2013/14 we predict another positive year where revenue and profit from ournew subsidiaries will more than make up for any shortfall from the rest of theGroup.. Unusually for PHSC plc, and directly because of acquisition payments fallingdue 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 werequire will be forthcoming, subject to the normal caveats. In summary, I am confident that the Company has made satisfactory progress andis going in the right direction. On behalf of the Board I would like to thankall shareholders for their continued support. Stephen KingGroup Chief Executive GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2013 31.3.13 31.3.12 £ £ 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 382,351 299,079owners of the parent Other comprehensive income - - Total comprehensive income attributable to 382,351 299,079owners of the parent Attributable to: Equity holders of the Group 382,351 299,079 Basic Earnings per Share for profit after tax 3.64p 2.91pand total comprehensive income from continuingoperations attributable to the equity holdersof the Group during the year The company has elected to take the exemption under section 408 of theCompanies Act 2006 to not present the parent company profit and loss account.The loss for the year before dividends received from subsidiaries (2013 - £nil, 2012 - £586,555) was £96,917 (2012 - loss £42,093). The loss is after animpairment charge in respect of the investment value of Inspection Services UKLimited following an impairment review of the goodwill which has beenreflected in the consolidated accounts. There were no recognised gains andlosses for 2012 or 2011 other than those included in the company profit andloss account. GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2013 Capital Share Share Redemption Retained Capital Premium Reserve Earnings Total £ £ £ £ £ Balance at 1 April 2011 1,038,196 1,497,409 143,628 2,594,120 5,273,353 Profit for year - - - 299,079 299,079attributable to equityholders Deferred tax adjustment to - - - 5,588 5,588property 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 - - - 382,351 382,351attributable to equityholders 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 3,083property 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 £ £ 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 £ £ 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 31MARCH 2013 The financial information set out above does not constitute the Group'sfinancial statements for the years ended 31 March 2013 or 2012, but is derivedfrom those financial statements. Statutory financial statements for 2012 havebeen delivered to the Registrar of Companies and those for 2013 will bedelivered 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 hasbeen computed in accordance with International Financial Reporting Standards(IFRS), this announcement does not in itself contain sufficient information tocomply with IFRS. The accounting policies used in preparation of thispreliminary announcement are consistent with those in the full financialstatements that have yet to be published. For further information please contact: PHSC plcStephen King 01622 717700www.phsc.plc.co.uk Northland Capital Partners LimitedGavin Burnell / Edward Hutton020 7796 8800John Howes / Alice Lane(Broking)