PHSC Regulatory News (PHSC)

14 July 2014 PHSC PLC (the "Company" or the "Group") Preliminary Announcement of Results for the year ended 31 March 2014 Highlights: * EBITDA improved by 22% at £0.733m, up from £0.603m * Group revenues increased by 31% to £7.594m compared with £5.791m * Cash reserves rise to £0.712m * Group net assets of £6.4m * Basic earnings per share up 16% to 4.24p from 3.64p * Proposed final dividend held at 1.5p per share I am pleased to present my review of the Group's performance over the year, andto update shareholders on the continuing progress made at PHSC plc. A majority of Group revenue continues to arise from our core health and safetybusinesses. However, the growth areas are in those markets served by our mostrecent acquisitions. Our decision to diversify has enabled the Group tocontinue to combine its strong position in the health and safety field with itsgrowing role as a provider of retail security solutions and quality managementconsultancy and training. Revenue and Profit Consolidated Group sales for the period rose to £7,594,300 from £5,791,300. Theincrease is primarily due to a full year's contribution from both of our newestsubsidiaries, QCS International Limited (QCS) and B to B Links Limited (B toB). QCS was acquired at the end of July 2012 and B to B joined the Group inOctober 2012. The Group generated a 22% increase to earnings before interest, taxation,depreciation and amortisation (EBITDA). The figure of £732,600 EBITDA that I amreporting today compares with £603,100 generated in the previous year. Fundraising and Share Issue On 27 September 2013 the Company announced that it had raised £520,000 beforeexpenses through a placing of 2,080,000 new Ordinary Shares of 10p each. Thoseshares were priced at 25p each, and the placing was primarily taken up byinstitutional investors with some director participation. The new sharesrepresent approximately 16% of the enlarged issued share capital. Thefundraising was to provide additional working capital. Costs All subsidiaries are focused on controlling costs and ensuring that allexpenditure is necessary and reasonable. There were no costs at any subsidiaryover and above the normal expenditure requirements, except for £12,500 inconnection with one administrative post that was made redundant at QualityLeisure Management Limited. New computers and a server with associated software were installed at ourAylesford offices to replace old IT equipment that had been in use since 2004.The costs were around £20,000. Acquisition Stage Payments QCS International Limited (QCS) In accordance with the terms of the purchase agreement, a sum of £160,000 felldue in July 2013, being the first anniversary of completion. After a revisionto the value of assets on the date of acquisition, the payment made on theanniversary was £121,000. The agreement provides for a final payment of £80,000, subject to adjustment upor down according to QCS's performance against targets, for the two-year periodto the end of July 2014. Payment falls due once management accounts areprepared and agreed with the seller, and this is expected to be no later than 1August 2014. B to B Links Limited (B to B) In accordance with the terms of the purchase agreement, a sum of £320,000 felldue on 30 September 2013, being the first anniversary of completion. Thisamount has been paid. A final payment of between £120,000 and £800,000 is provided for in thepurchase agreement. This is subject to B to B's performance over the two-yearperiod since the business was acquired. With an anniversary date of 30September, it is expected that agreement on the earn-out payment will bereached towards the end of October 2014 after management accounts have beenprepared. Other Opportunities The Group is not considering any further acquisitions in 2014/15. Having grownthe Group to one that has £7.59m revenues compared with £4.45m two years ago,we consider that it is necessary to continue with a period of consolidation andintegration. Corporate Structure There has been no change to the make-up of the board since the Company joinedAIM in June 2005. It consists of myself, Nicola Coote (executive director), andtwo non-executive directors (Mike Miller, who chairs the audit committee, andGraham Webb MBE who chairs the remuneration committee). The contracts of bothnon-executives have been extended until 31 March 2015. The board is mindful ofguidance concerning the length of service for non-executive directors and issatisfied that there are presently overriding business reasons for maintainingthe status quo. Our chartered secretary, Lorraine Young, supports the board and its committees.All corporate matters relating to accounting are ably dealt with by our GroupAccountant, Candy Wilton. There were no changes to directors at subsidiary level during the year. TheManaging Director of QCS International Limited, Rosalynne Shields, intends torelinquish her position for personal reasons on 31 December 2014. It isproposed that this role is filled internally through the promotion of IanPhillips. Mrs Shields has agreed to remain in a part-time non-executivecapacity for an initial period of twelve months thereafter, to support hersuccessor and to assist the board of PHSC plc with the transitional process. MrPhillips will be appointed as QCS's Deputy Managing Director on 1 August 2014and Audrey Smith will become the company's Training Sales Director on the samedate. Employees The Group is grateful for the continued commitment and support from all levelsof employee at each subsidiary, and of those working directly for PHSC plc.Every individual is valued, and each person is contributing to the success oftheir individual company and the group as a whole. 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 £749,500 yielding a profit of £327,600.In the previous year there were sales of £765,500 and a profit of £300,000. RSA Environmental Health Limited Sales of £499,400 yielding a profit of £55,900.In the previous year there were sales of £420,000 and a profit of £10,900. Adamson's Laboratory Services Limited Sales of £2,660,300 yielding a profit of £312,300.In the previous year there were sales of £2,366,900, yielding a combined profitof £366,700. Inspection Services (UK) Limited Sales of £195,100 yielding a profit of £5,600.In the previous year there were sales of £202,100, yielding a profit of £6,600. Quality Leisure Management Limited Sales of £463,500 resulting in a loss of £4,500.In the previous year there were sales of £607,600, yielding a profit of £119,300. B to B Links Limited Sales of £2,510,300 yielding a profit of £257,600.The previous year covered only the six-month period since acquisition, in whichthere were sales of £1,093,800 yielding a profit of £83,500. QCS International Limited Sales of £516,200 yielding a profit of £161,800. The previous year covered the eight-month period since acquisition, in whichthere were sales of £334,600 yielding a profit of £98,000. Net Asset Value As at 31 March 2014, the Company had net assets of £6.44 million. There were12,686,348 Ordinary Shares in issue at that date which equates to a net assetvalue (NAV) per share of 50.7p. At today's price of 30.5p per share, theOrdinary Shares of the Company are currently trading at a discount of almost40% to the net asset value. A proportion of the Company's assets consists of goodwill associated with thevarious acquisitions it has made. Each year we review the level of goodwillrelating to subsidiaries to make sure that their values on the balance sheetcan still be justified. This year we have felt it necessary to write down thecarrying value of RSA Environmental Health Limited by £26,648. When acquired in2004 this subsidiary derived the majority of its revenue and profit from workthat had been outsourced by Local Authorities but this income stream hasprogressively reduced as public sector budgets have been pared back. We remaincomfortable with all other valuations. Dividend The board is proposing a final dividend of 1.5p per ordinary share. This is inline with the dividend paid last year. Subject to approval at the annualgeneral meeting, the dividend of 1.5p per ordinary share will be paid on 30September 2014 to shareholders on the register as at 22 August 2014. Prospects Health and Safety The legacy businesses continue to be responsible for the larger share ofrevenue, generating £4.567m of sales compared with £4.362m in the previousyear. Despite the £0.2m increase in sales, profitability declined by a littleover £0.1m. This is an indication of ever-reducing margins in a sector that hasbecome very competitive and where the number of providers has risen faster thanthe requirement for services. Costs tend to increase year-to-year but pricesensitivity means that it is progressively more difficult to win new work atprevious margins. We continue to benefit from a diverse number of clients within our portfolio,including several that have a fairly robust safety culture and who seekcontinuous improvement. However, a lighter regulatory approach has led to someemployers opting to spend less on compliance services, and reduces theincentive to invest in services such as non-mandatory training and other areasof discretionary spend. Our major income streams continue to be derived from activities such asasbestos management, health care training, public transport safety consultancy,and supporting the education sector. We continue to serve the leisure industry,and we carry out statutory examination of plant and machinery via insurancebrokers or directly for clients. Quality systems It is encouraging to report that our QCS subsidiary has exceeded managementexpectations, both in terms of revenue and profitability. Most of the growth iswithin Scotland, but there has been some expansion into England, andcross-selling opportunities mean that QCS has begun to win work for othersubsidiaries of the Group. In 2015 there will be significant changes to themain quality standards for which the company offers training and consultancyservices. This presents a growth opportunity, whereby the company can promoteits ability to support those companies who wish to prepare for the revisedstandards. SafetyMARK This is a support and auditing service, leading to certification, offered toschools and colleges by the In House division of RSA Environmental HealthLimited. As predicted in last year's report, direct annual income fromsubscriptions to the service have more than doubled, standing at £72,000compared with £31,000 last year. On top of annual subscriptions, training andconsultancy services are purchased by many of these clients. School workincreased by around £111,000 in 2013-14, and is rapidly replacing other workthat had traditionally been delivered by the company. The uplift in valuecompares with a contraction of around £82,000 in non-school revenues for thecompany. The number of educational establishments signed up to the programme stands atapproximately 100, with new joiners at the rate of a one a week. Contractrenewals are presently running at 90%. Extra services are being introduced toenhance the value of contracts and to encourage client retention. Retail security Our most recent acquisition, B to B, has enjoyed a year of increasing revenues.The majority of sales were generated from national accounts in the departmentstore, grocery, mixed goods and fashion retail sectors. In addition independentretail customers have been, and continue to be, an important source ofrevenue. Total sales of £2.6m compare with £1.6m in the year prior toacquisition. The general outlook for retail has improved over the last 12 months with theeconomy's return to growth and increased consumer and business confidence.Demand for retail security products and services remains strong as levels ofcustomer theft have continued to rise. The company's CCTV, security taggingand labelling offer remains competitive and the brand presence has developed tothe point where the company is regularly gaining new national retail customers.Key priorities for 2015 include maintaining national account activity, growingindependent retail sales and making efficiencies in sub-contractor andlogistics expenditure. Outlook Much of the headline growth in revenue and profit in the last two years hasbeen a result of the contributions made by the two most recent acquisitions. In2013-14, both of these new companies made a full-year contribution for thefirst time. The board sees 2014-15 as a year of consolidation, with no material changes tooverall performance anticipated. With the last of the acquisition payments dueto be made by the end of 2014, there is scope to begin to accumulate a morecomfortable level of cash reserves. We are confident that revenues from our retained clients will continue insimilar vein to previous years, and that this can be supplemented by incomefrom the newer subsidiaries. We will seek to win business both in the areasthat we have traditionally operated in, and those new areas open to us throughthe diversification strategy that we have successfully adopted. On behalf of the Board I would like to thank all our longstanding shareholdersfor their continued support, and to welcome those new investors who have joinedthe share register as a result of our placing last Autumn. Stephen KingGroup Chief Executive GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2014 31.3.14 31.3.13 £ £ Non-current assets Property, plant and equipment 695,660 713,262 Goodwill 4,609,206 4,637,077 Deferred tax 55 2,742 5,304,921 5,353,081 Current assets Inventories 154,270 152,871 Trade and other receivables 1,935,280 2,037,724 Cash and cash equivalents 712,397 216,088 2,801,947 2,406,683 Total assets 8,106,868 7,759,764 Current liabilities Trade and other payables 1,134,645 1,098,678 Financial liabilities 6,498 13,198 Current corporation tax payable 127,474 174,464 Deferred consideration 330,000 441,148 1,598,617 1,727,488 Non-current liabilities Financial liabilities - 6,498 Deferred consideration - 330,000 Deferred tax liabilities 67,817 68,628 67,817 405,126 Total liabilities 1,666,434 2,132,614 Net assets 6,440,434 5,627,150 Capital and reserves attributable to equityholders of the Group Called up share capital 1,268,634 1,060,634 Share premium account 1,831,194 1,555,529 Capital redemption reserve 143,628 143,628 Retained earnings 3,196,978 2,867,359 6,440,434 5,627,150 GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2014 31.3.14 31.3.13 £ £ Continuing operations: Revenue 7,594,281 5,791,359 Cost of sales (4,356,092) (3,010,500) Gross profit 3,238,189 2,780,859 Administrative expenses (2,583,170) (2,268,026) Other income 1,096 5,682 Profit from operations 656,115 518,515 Finance income 259 2,163 Finance costs (1,524) (850) Profit before taxation 654,850 519,828 Corporation tax expense (160,771) (137,477) Profit for the year after tax attributable to 494,079 382,351owners of the parent Other comprehensive income - - Total comprehensive income attributable to owners 494,079 382,351of the parent Attributable to: Equity holders of the Group 494,079 382,351 Basic Earnings per Share for profit after tax and 4.24p 3.64ptotal comprehensive income from continuingoperations attributable to the equity holders ofthe 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 (2014 - £400,000, 2013 - £nil) was £1,536 (2013 - loss £96,917). There were norecognised gains and losses for 2014 or 2013 other than those included in thecompany profit and loss account. GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2014 Share Share Capital Retained Total Capital Premium Redemption Earnings £ £ £ Reserve £ £ Balance at 1 April 2012 1,038,196 1,497,409 143,628 2,691,148 5,370,381 Profit for year attributable - - - 382,351 382,351to equity holders Issue of shares 22,438 70,300 - - 92,738 Stamp duty on issue of shares (12,180) - - (12,180) 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 Balance at 1 April 2013 1,060,634 1,555,529 143,628 2,867,359 5,627,150 Profit for year attributable - - - 494,079 494,079to equity holders Issue of shares 208,000 275,665 - - 483,665 Deferred tax adjustment to - - - (5,365) (5,365)property valuation Dividends - - - (159,095) (159,095) 1,268,634 1,831,194 143,628 3,196,978 6,440,434 GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2014 31.3.14 31.3.13 £ £ Cash flows from operating activities: Cash generated from operations 856,360 427,108 Interest paid (1,524) (850) Tax paid (211,275) (182,705) Net cash generated from operating activities 643,561 243,553 Cash flows used in investing activities Purchase of property, plant and equipment (30,933) (25,371) Purchase of subsidiary companies (net of cash (441,148) (785,866)acquired) Disposal of fixed assets - 88,250 Interest received 259 2,163 Net cash used in investing activities (471,822) (720,824) Cash flows from/(used by) financing activities Proceeds from placement of shares 483,665 - Dividends paid to Group shareholders (159,095) (209,223) Net cash from/(used by) financing activities 324,570 (209,223) Net increase/(decrease) in cash and cash 496,309 (686,494)equivalents Cash and cash equivalents at beginning of year 216,088 902,582 Cash and cash equivalents at end of year 712,397 216,088 NOTES TO THE GROUP STATEMENT OF CASH FLOW for the year ended 31 March 2014 31.3.14 31.3.13 £ £ CASH GENERATED FROM OPERATIONS Operating profit - continuing operations 656,115 518,515 Depreciation charge 48,533 45,172 Goodwill impairment 27,898 39,387 Profit on sale of fixed assets - (5,184) Increase in inventories (1,399) (14,884) (Increase)/decrease in trade and other 102,444 (335,953)receivables Increase/(decrease) in trade and other payables 35,967 187,417 Decrease in financial liabilities (13,198) (7,362) Cash generated from operations 856,360 427,108 NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF PHSC PLC FOR THE YEAR ENDED 31MARCH 2014 The financial information set out above does not constitute the Group'sfinancial statements for the years ended 31 March 2014 or 2013, but is derivedfrom those financial statements. Statutory financial statements for 2013 havebeen delivered to the Registrar of Companies and those for 2014 will bedelivered following their approval by the board and dispatch to shareholders.The auditors have not yet reported on the 2014 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.uk Northland Capital Partners LimitedGavin Burnell / Edward Hutton / Lauren Kettle020 7382 1100John Howes / Alice Lane(Broking)