Resolute Mining Regulatory News (RSG)

30 Jun 2005 07:01

Reliance Security Group PLC30 June 2005 Reliance Security Group plc Preliminary announcement of results for the Year ended 29 April 2005 • Solid organic growth and ongoing investment in new markets and segments • Turnover up 6.1% to £310.3 million (2004: £292.3 million) • Pre-exceptional, pre-tax profit up 18.6% to £15.6 million (2004: £13.2 million). Profit before tax up 56.4% to £18.6 million (2004: £11.9 million) • Exceptional net pre-tax profit of £3.0 million (2004: £1.3 million charge) reflecting profit on disposal of Safe Estates, costs relating to regulation of the security industry and write down in carrying value of goodwill relating to Goldrange Limited • Basic earnings per share, excluding exceptional items, up 17.9% to 47.4p (2004: 40.2p), basic earnings per share up 77.7% to 61.3p (2004: 34.5p) • Dividend per share up 10.7% to 18.7p (2004: 16.9p) • Net cash generation from operations of £15.7 million (2004: £12.5 million) and net cash of £27.7 million at the year-end (2004: £10.5 million) Brian Kingham, Chairman, commenting on the results said: "Market conditions in security have remained challenging in the run up toregulation. We believe they will improve thereafter. Facilities managementoffers significant opportunities and we have continued to invest and grow ourshare of this £60 billion per annum market." 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 9716Neil French Group Finance Director 01895 205002 Chairman's Statement IntroductionI am delighted once again to report increased turnover and profits for the yearto 29 April 2005. The challenging conditions in the security market that I reported at the halfyear have continued, we believe influenced by impending security industryregulation currently due to take effect in March 2006. In the facilitiesmanagement, support services and business process outsourcing markets we areachieving significant growth, particularly in the public sector. We arecontinuing to invest in new and enlarged capacity to drive our growth in marketsfor comprehensive and higher value added products and services. We aresuccessfully growing our private finance initiative business and increasing ourlong term income streams. We are well positioned for future growth. ResultsTurnover for the year to 29 April 2005 increased by 6.1% to £310.3 million(2004: £292.3 million). Pre-exceptional, pre-tax profit for the year rose by18.6% to £15.6 million (2004: £13.2 million). Excluding exceptional items,earnings per share rose by 17.9% to 47.4p (2004: 40.2p). Net cash generated fromoperations was £15.7 million (2004: £12.5 million) and we ended the year withnet cash of £27.7 million (2004: £10.5 million), boosted by the receipt of £8.3million from the disposal of the Group's interests in Command SecurityCorporation and Safe Estates Services Limited. DividendA final dividend is proposed of 14.5p making a total for the year of 18.7p,10.7% higher than last year (2004: final dividend 13.1p, total 16.9p). Theproposed final dividend is subject to approval at the AGM on 7 September 2005and payable on 23 September 2005 to shareholders on the register on 2 September2005. StrategyOur long-term strategy is to add value for our shareholders by growing recurringrevenues from a complementary range of products and support services deliveredto businesses and the public sector. We will strengthen our leadership positionin security and continue to increase our share of the £60 billion per annumfacilities management and business process outsourcing market. A passion forexcellence of service and an unremitting drive to add increasing value for ourcustomers through high quality teamwork, appropriate technology and the use ofinnovative business processes are at the heart of our strategy. Growth will begenerated organically and through bolt-on acquisitions and new start-upscomplementary to our core competencies. AIMThe directors have concluded that it is in the best interests of the Company andits shareholders as a whole to transfer trading in the Company's shares to AIM.AIM is specifically designed for smaller and mid-sized companies and provides asimplified and less costly regulatory environment. Further details are set outin a separate press release, issued today. Security ServicesTurnover was £192.7 million (2004: £209.3 million) and segment operating profitbefore exceptional items was £6.8 million (2004: £9.1 million). The reduction insegment profit reflects challenging market conditions and an additional week'strading in 2003/04, these factors more than offsetting an improvement in theperformance of Reliance High-Tech, the Group's electronic security company.Over the last two years conditions in the private security market have beenchallenging, with sustained competitive pressure on prices and margins anduncertainties about the industry regulation due to take effect in March 2006. Our response has been an escalation of initiatives to differentiate and promotethe attractions of the 'Reliance Difference' and our established ascendancy asproviders of innovation and the highest levels of customer care. We have madeencouraging progress in this regard, although more remains to be done. We havesought out new specialist markets for our products and services and have, again,increased emphasis on the use of technology in achieving greater effectivenessand economy for our customers. The extended use of technology to make savings inmanpower use is a well established trend that will continue. We have grown ourremote surveillance business and are investing more in IT and communicationstechnology as well as software developments to achieve a higher degree of CCTVevent editing and management of images. Our well developed nationwide capacity to monitor and respond speedily totime-critical events has enabled us to create new income streams. There-encryption of ATM cash machines in 2004/05 was a new growth market, perfectlysuited to our established security capabilities, comprising both fixed andhighly mobile resources. We won significant multi-location contracts, including1,400 Lloyds Chemists locations, 328 Waterstone stores, 146 British Homestoresoutlets and 220 Co-Op branches. Sporting and other entertainment events broughtus new customers including, among others, Royal Ascot, Earls Court Exhibitions,Birmingham Gurunanak Festival and the Disney Channel Conference. There are encouraging signs of increased opportunity in the public sector as aresult of security industry regulation and the Government's desire to promotethe concept of the Wider Policing Family. The increased role of localauthorities in aspects of policing following the 1998 Crime and Disorder Act hascreated new demands for our services. The CCTV Centre we operate for NorthamptonBorough Council is the largest in the UK, offering both local authority andPolice a new dimension in town centre management and public safety. Our work forthe London Borough of Newham won the safer parking "Park Mark" award. We were delighted to win the ''Security Management Today'' magazine award forour work with electronics, including automatic number plate recognition,electronic patrolling and remote video surveillance, providing 'IntegratedSecurity Solutions' for Arlington Property Services. Our long establishedrelationship with Arlington in their "Supplier Partnership" was extended by afurther 55 properties following their acquisition of a leading propertyinvestment company. Regulation of Private SecurityRegulation, in the form of licensing and appropriate training of all securitypersonnel, is due to take effect in March 2006. Although there are dangers andunintended consequences in any government regulation, we expect a long-termfavourable impact for our employees, the public, our customers and our industry.Regulation will cause a significant rise in the cost of security. It willencourage changes in the mix of services provided, favouring the innovative useof technology and flexible security solutions. It is estimated that there arenow more than 2,100 providers of manpower security services in the UK market andReliance is the second largest provider. The British Security IndustryAssociation estimates that this number could fall to 200 following regulation,because many will be unable or unwilling to comply with the new legislativerequirements and this will benefit leading providers, such as Reliance. Facilities ManagementTurnover was £117.5 million (2004: £83.0 million) and segment operating profitbefore exceptional items was £8.3 million (2004: £4.3 million). This is theresult of patient building of infrastructure and customer relationships withinspecialist facilities management markets. Despite the termination of ourelectronic monitoring contract in England, we have continued to grow ourlong-term contracted revenue streams and our forward order book (being the salesvalue of contracts currently in hand over the life of these contracts) is now£731 million (2004: £700 million). We provide a growing range of facilities management services at more than 2,500locations across the UK and employ some 4,000 people in these activities. We addvalue for our customers by enabling organisational change, through re-engineeredbusiness processes, the introduction of new technology and more streamlined workpractices. Demand for facilities management and business process outsourcing continues togrow, particularly in the public sector, offering significant opportunities forReliance. We have won a number of important contracts and organically grownothers. Mobilisation has commenced on our Private Finance Initiative ("PFI")contract for the 500,000 sq.ft headquarters at Bootle for the Health & SafetyExecutive which is due to open in August. Our PFI contract for theGloucestershire Police HQ is on schedule for completion in December 2005. Inpartnership with others, we have won a 25 year PFI contract for Cleveland PoliceAuthority to finance, design, build and provide a range of support services tothree custody centres, two divisional headquarters and two town centre policestations. This year major shopping centres were an expanding part of ourbusiness with the introduction of our bespoke facilities management model. Wewon assignments at six centres including the Arndale at Luton for PrudentialProperty Investment Managers. With our partners Haden Building Management andCarillion we were delighted to have agreed in principle to extend our £100million per annum facilities management contract with British Telecom for afurther three years. At the time of its award in 2000, this complex andground-breaking contract was the largest private sector FM contract thenawarded. We have consistently outperformed our targets and in the last yearsuccessfully completed more than 4,500 extra works projects. The delivery ofoutstandingly high levels of customer service remains our key focus. We weredelighted to win the "Premises and Facilities Management" magazine award for ourachievements in imaginative multi-service delivery for our customer Campbell'sFoods at Kings Lynn. We extended our Campbell's contract to two furtherlocations and now provide a seamless integration of more than 35 differentservices. We continue to invest in management and business development resources inpursuit of further growth. Exceptional ItemsIn total, we have recognised a net exceptional pre-tax profit of £3.0 millionthis year (2004: net exceptional charge of £1.3 million). This is explainedfully in the Financial Review. CommunityFor more than 25 years the Group has been active in support of communityactivities and measures to encourage enterprise and prosperity. We contribute tomore than 20 local crime prevention organisations and charities. Our work withthe leading crime prevention charity, Crime Concern, recognises the importantopportunities that exist for co-operative working with charities andnot-for-profit organisations sharing our aims. We were delighted to sponsor theCumberland Lodge annual conference for Police, local authorities and othercriminal justice agencies on 'Neighbourhoods fit to live in'. For the secondyear we sponsored the Reliance Prize for Innovation and Enterprise at BrunelUniversity where it was presented at their hugely successful annual IndustrialDesign Exhibition, which featured more than 200 innovative design concepts. PeopleI particularly welcome the opportunity to pay tribute to the greatprofessionalism and achievements of Reliance people. I thank everyone inReliance most warmly on behalf of the board and the shareholders for our successthis year. In my travels around our businesses throughout the UK, I never failto be inspired by the commitment, enthusiasm and care shown by our people. Thesequalities are at the heart of the 'Reliance Difference' and our appeal tocustomers. More than 90% of our people are constantly in the public eye,sometimes in dangerous and difficult situations which demand skills of a highorder. I want to pay special tribute this year to our people in Scotland whohave worked with such professionalism and dedication in starting up our new fiveyear court and custody services contract for the Scottish Executive. Our Investors in People accreditation emphasises the importance we attach tocommunication and involving our people in the key issues of the business. IIPoffers a persuasive set of principles for improving business performance andcompetitiveness through a planned approach to setting and communicating businessobjectives and developing the training and skills required to achieve them. InFebruary, our 'People First' initiative brought together and gave new focus tothe extensive range of established Reliance policies to nurture and support ourpeople in achieving the highest levels of job performance. Ken Allison, who as Managing Director of our core security business was thearchitect of our industry leadership, retired in September and we wish him everyhappiness in his retirement. Julian Nicholls was appointed Group ManagingDirector in June 2005. He has extensive experience of managing substantialcompanies in business-to-business services and brings a record of success as astrategist and business developer. The Group's scale and diversity in growingmarkets offer unique opportunity to create higher added value products andservices where Julian has special skills. We are delighted to have him on board.In May, we welcomed Peter Watson as Chairman of Reliance in Scotland. He is theSenior Partner of leading Glasgow based international lawyers, Levy & McRae, aPast President of the Society of Solicitor Advocates, President of the Societyof Media Lawyers, and a member of the Criminal Rules Council. Peter brings tothe leadership of our businesses in Scotland a wide experience of the issues andopportunities. The FutureAs previously indicated, the termination of our electronic monitoring contractin England in April 2005 and the disposal of the Group's interest in SafeEstates last December will impact on the Group's trading results next year.However, we continue to make solid progress in securing new businessopportunities and our forward order book remains healthy. Over the past two years, renewed focus on core competencies resulted in thedisposal of non-core interests including, most recently, Safe Estates Services,realising approximately £10 million in cash. The Group's ongoing significantunderlying cash generation and substantial committed borrowing facilities aremore than adequate to sustain the Group's continuing growth, both organicallyand through bolt-on acquisitions. It is therefore our intention to returnapproximately £10 million in cash to shareholders within the next few months.Further details will be announced in due course. The board believes that market conditions in security services are likely toremain challenging in the period leading up to industry regulation, due to takeeffect in March 2006. We anticipate regulation will benefit the industry and itscustomers and, accordingly, we believe that market conditions will improve inthe long term. The Group's capabilities in mobile response security, electronicsurveillance and remote monitoring complement its manpower security capabilitiesand leave it well placed to benefit from the expected structural changes in thenature of security provision in the UK, following regulation. We expect that demand for facilities management and business process outsourcingwill continue to grow, particularly in the public sector. This dynamic, £60billion per annum market offers significant opportunities for Reliance tosustain growth and pursue its strategy through the development of longer term,higher value added contracts. We are continuing to invest to drive futuregrowth. Brian KinghamChairman Financial review OverviewIn the year to 29 April 2005, the Group has achieved solid growth in turnoverand underlying profit and has generated a substantial cash inflow. Turnover for the year increased by 6.1% to £310.3 million (2004: £292.3million), strong organic growth in the Facilities Management segment offsettinga reduction in turnover in the Security Services segment. In the period2000-2005, the Group has grown its turnover at a compound annual rate of 15.2%. Pre-exceptional, pre-tax profit for the year rose by 18.6% to £15.6 million(2004: £13.2 million). The Facilities Management segment experienced strongorganic growth and improved margins, more than offsetting a volume relatedreduction in profit in the Security Services segment, and the Group's increasingcash balances generated net interest income of £0.6 million (2004: £0.3 millionnet interest expense). In the period 2000-2005, the Group's pre-exceptional,pre-tax profits have increased at a compound annual rate of 17.3%. Net cash inflow from operating activities, notwithstanding significant organicgrowth in the year, was £15.7 million (2004: £12.5 million) and the Group endedthe year with net cash of £27.7 million (2004: £10.5 million), boosted by thereceipt of £8.3 million from the disposal of the Group's interests in CommandSecurity Corporation and Safe Estates Services Limited. The Group continues to achieve high rates of return on capital employed. Thereturn on operating assets (being the ratio of profit on ordinary activities,before finance charges and exceptional items to operating assets) was 191.2%(2004: 91.6%) and the return on shareholders' funds (being the ratio of profitafter taxation, excluding exceptional items, to net assets) was 35.3% (2004:43.7%). Over the past five years, the return on operating assets and the returnon shareholders' funds have consistently exceeded 40% and 30% respectively. Exceptional itemsIn total, we have recognised a net exceptional pre-tax profit of £3.0 millionthis year (2004: net exceptional charge of £1.3 million). We have incurred exceptional costs of £0.6 million (2004: £nil) in complyingwith the requirements of the Private Security Industry Act 2001. An explanationof the Group's approach to accounting for the implications of security industryregulation is set out below. We have reviewed the goodwill relating to Goldrange Limited, the Group's eventsecurity business, acquired in March 2001, for impairment and, in light of thecurrent prospects for the business, have concluded that it would be prudent towrite down its carrying value by £0.7 million to nil. In December 2004, we completed the disposal of our interest in Safe EstatesServices Limited, for a cash consideration, net of expenses, of £7.3 million.The transaction crystallised a pre-tax non-operating profit of £4.3 million andno tax was payable on the disposal. Prior to disposal, we continued to accountfor Safe Estates as an associated undertaking and consolidated pre-tax profitsof £1.8 million in respect of the Group's share of its results in the year to 29April 2005 (2004: £1.5 million). Accounting mattersAccounting policiesThe results for the year to 29 April 2005 have been prepared using the sameaccounting policies as in the prior year, with two exceptions. We have adopted Urgent Issues Task Force Abstract 38 ("UITF 38"), Accounting forEmployee Share Ownership Plan (ESOP) Trusts. UITF 38 requires that an entitywhich holds its own shares should present them as a deduction in arriving atshareholders' funds rather than as an investment within fixed assets. Thereclassification of shares held by the ESOP from fixed assets to equity hasreduced consolidated net assets by £2.8 million at 29 April 2005 (2004: £2.8million), with no impact on retained earnings. Where appropriate, prior yearcomparative figures have been restated accordingly. We have also adopted a new policy relating to accounting for the implications ofsecurity industry regulation. In the period leading up to the date on which thePrivate Security Industry Act 2001 (the "Act") comes into force (the"implementation period"), costs incurred by the Group in complying with therequirements of the Act will be expensed as exceptional charges. As noted in theChairman's statement, the amount so expensed in the year to 29 April 2005 was£0.6 million. In order to recover the additional, ongoing costs of complyingwith the Act, we intend to introduce a special price increase, to apply tomanpower security customers, with effect from late summer 2005. In theimplementation period, all additional revenue secured through this special priceincrease will be recognised as exceptional turnover. Following theimplementation period, all manpower security revenue and costs will berecognised within turnover, cost of sales and overheads in the usual way. Pre-contract and start-up costsThe Group expenses all pre-contract costs except for certain directlyattributable costs which, when it is virtually certain that a contract will beawarded, are capitalised and written off over the life of the contract. Theelement of bid costs so capitalised this year was £nil (2004: £0.2 million) andthe total carrying value of such costs in the Group's balance sheet at theyear-end was £0.1 million (2004: £0.2 million). The Group expenses all otherbusiness development costs, amounting to several million pounds per annum, whenincurred. In connection with certain large contracts for services, extending over severalyears, the Group incurs start-up costs in the period between contract award andthe commencement of service delivery. Where such costs are not reimbursed at theoutset, but are contractually recoverable, they are held on the Group's balancesheet and amortised over the life of the underlying contract. The element ofstart-up costs so capitalised this year was approximately £3.7 million (2004:£1.6 million) and the total carrying value of such costs in the Group's balancesheet at the year-end was £4.4 million (2004: £1.7 million). Investments in PFI special purpose companiesThe Group's policy is to minimise its investment in special purpose companiesestablished in connection with PFI contracts, subject to commercialconsiderations, and a rigorous risk assessment is undertaken in respect of allsuch investments. Currently, with one exception, the nature of the Group'sparticipation in such entities does not require it to consolidate any share oftheir results, but simply to record the value of the investment at cost. Thetotal carrying value of such investments held by the Group is £0.5 million(2004: £0.5 million). The exception relates to the PFI contract for GloucesterPolice where, as a result of certain specific circumstances relating to thatcontract, the Group has taken a 50% stake in the relevant special purposecompany. Consequently, we account for that investment as a joint venture. Theamounts included in Group turnover and pre-tax profit relating to the jointventure are £nil (2004: £nil) and a loss of £0.1 million (2004: £nil)respectively and the Group's share of the joint venture's net liabilities is£0.1 million (2004: £nil). In due course, we intend to reduce our participationto a level which conforms to our general policy in respect of investments in PFIspecial purpose companies. International Financial Reporting Standards ("IFRS")Following the decision to transfer to AIM, and in accordance with the reportingrequirements of that market, the Group currently intends to defer full adoptionof IFRS until 2007/08. As previously indicated, the adoption of IFRS is notexpected to have a material impact on reported earnings per share and the impacton consolidated net assets is expected to be immaterial. Group resultsOperating marginWe have achieved increases in gross margins in the Security Services segment,despite challenging market conditions, and in the Facilities Management segment.As a result, Group gross margin increased to 19.9% (2004: 18.8%). The ratio of administrative expenses (excluding exceptional items) to turnoverwas 16.0% (2004:15.1%), reflecting continued investment in management, systemsand training to support the Group's continuing growth. Consequently, the Group's operating margin, the ratio of pre-exceptionaloperating profit to turnover, increased slightly to 3.9% (2004: 3.7%). Goodwill amortisation and impairmentThe charge for goodwill amortisation in the year was £0.1 million (2004: £0.3million), In addition, as noted above, an impairment write-down of £0.7 millionhas been recognised as an exceptional item. Net interest receivableNet interest receivable, including the Group's share of net interest receivableby associated undertakings, was £0.6 million (2004: £0.3 million payable)reflecting the Group's strong cash flow, increasing net cash balances andimproved returns on deposits. TaxationThe net taxation charge for the year, excluding exceptional items, was £4.9million (2004: £4.1 million) which represents an effective rate of 31.0% (2004:31.0%). Earnings per shareBasic earnings per share, excluding exceptional items, increased by 17.9% to47.4p (2004: 40.2p). In the period 2000-2005, the Group's underlying basicearnings per share, excluding exceptional items, have increased at a compoundannual rate of 18.5%. The Group manages the performance of its business primarily on measures ofearnings and cash flow before the impact of exceptional items. The statutoryfigure for earnings per share is therefore adjusted to exclude exceptionalitems, in order to give a more appropriate indication of underlying performance.Similarly, dividend cover is also calculated using this measure of earnings. DividendsDividends paid or proposed were 18.7p per share, 10.7% higher than in theprevious year and dividend cover, excluding exceptional items, was 2.5 times(2004: 2.4 times). In view of the Group's significant net cash balance, theboard considers that this level of dividend cover is entirely appropriate. Cash flowEBITDA, excluding exceptional items, increased by 11.5% to £15.4 million (2004:£13.8 million) principally reflecting higher operating profit, driven by thestrong performance of the Facilities Management segment. Effective cash controlsresulted in a reduction in working capital of £0.9 million (2004: £1.4 millionincrease). Consequently, net cash inflow from operating activities was £15.7million (2004: £12.5 million). Dividends received from associates were £1.4 million (2004: £1.0 million) andnet interest received was £0.5 million (2004: £0.2 million paid), the latterreflecting the Group's growing net cash balances. Corporation tax paid wasbroadly unchanged at £3.2 million, despite an 21.4% increase in Group pre-taxprofit, excluding exceptional items and associates, principally due to therefund of tax paid in prior years. The net cash outflow from investing activities was £0.2 million (2004: £0.3million inflow). Compared with the prior year, a decrease in the proceeds fromthe sale of investments was largely offset by lower levels of capitalexpenditure and financial investment. Acquisitions gave rise to a net cash outflow of £0.3 million (2003: £1.0million), the payments in both years relating principally to the completion ofearn-out arrangements relating to Goldrange. The proceeds from the sale of theGroup's interest in its associate, Safe Estates Services, were £7.3 million(2004: £nil). Dividends paid, excluding dividends paid in respect of shares held by the ESOPtrust, increased by 10.6% to £3.9 million (2004: £3.6 million). Cash inflow before financing was £17.3 million (2004: £5.1 million). For management purposes, the Group focuses on free cash flow, being cash flowfrom operating activities less tax and interest paid plus dividends receivedfrom associates. Over time, the Group expects to achieve free cash flow ofapproximately 70% of pre-exceptional, pre-tax profit. In the period 2001 to2005, in aggregate, the Group's free cash flow has been 87% of pre-exceptional,pre-tax profit. The Group will incur an increased level of capital expenditure in 2005/06,principally IT related, will make further investments in PFI special purposecompanies and expects to suffer a further net cash outflow, larger than the 2004/05 such outflow, in complying with the requirements of the Private SecurityIndustry Act 2001. Furthermore, no disposal of investments is expected in 2005/06, such transactions having generated net cash proceeds of £8.3 million in 2004/05. These factors notwithstanding, the Group expects to be modestly cashgenerative, overall, in 2005/06. The Group's policy is to maintain committed,medium term borrowing facilities that are more than sufficient to meet itsforeseeable medium term financing requirements. Segment resultsThe "Security Services" and "Facilities Management" segments include the resultsof those of the Group's businesses, joint ventures and associated undertakingsthat provide site-based security services and facilities management servicesrespectively to their customers. Central administrative costs and operatingassets have been allocated to the two segments. Segment operating profit, for each segment, excludes exceptional items andcomprises profit on ordinary activities after share of associates' results andbefore finance charges. Note 2 to the attached financial statements includes amore detailed analysis of each segment's results than we have provided hitherto. Security ServicesTurnover was £192.7 million (2004: £209.3 million) reflecting challenging marketconditions and an additional week's trading in 2003/04. Segment operating profit was £6.8 million (2004: £9.1 million); the reduction inturnover and generally high operational gearing more than offset an improvementin the performance of Reliance High -Tech. As a result, operating margin, theratio of segment profit to turnover, fell to 3.5% (2004: 4.4%), despite a slightyear-on-year increase in gross margins. Excellent control over working capital and the divestment of the Group'sinterest in Safe Estates Services resulted in a further 65.0% decrease inoperating assets to £3.9 million (2004: £11.0 million). Consequently, the returnon operating assets, the ratio of segment profit to operating assets, increasedto 175.9% (2004: 82.9%). Facilities ManagementTurnover increased by 41.6% to £117.5 million (2004: £83.0 million), reflectinga number of new contract starts and organic growth in existing contracts. Segment operating profit increased by 92.1% to £8.3 million (2004: £4.3 million)and segment operating margin increased to 7.0% (2004: 5.2%). Productivityimprovements more than offset adverse mix changes, resulting in an increase ingross margins, and overheads increased broadly in line with turnover, reflectingfurther significant strengthening and enlargement of management and businessdevelopment teams to provide for continuing growth. Control over working capital remained tight but a significant investment incontract start-up costs and less favourable payment terms on some new contracts,resulted in a modest increase in operating assets to £4.0 million (2004: £3.6million). The return on operating assets increased to 206.3% (2004: 118.1%). Neil FrenchGroup Finance Director Consolidated profit and loss accountfor the year ended 29 April 2005-------------------------- ------ --------- --------- ------- ------- Notes Pre-exceptional Exceptional Total 2004 Items Items 2005 £'000 2005 2005 £'000 £'000 £'000--------------------- ------- --------- --------- -------- -------- Group turnover -continuing operations 3 310,257 - 310,257 292,292 Cost of sales 4 (248,568) (386) (248,954) (237,360)--------------------- ------- --------- --------- -------- --------Gross profit 61,689 (386) 61,303 54,932 -------- --------- -------- --------Administrative expenses 4 (49,493) (218) (49,711) (44,262)Exceptional goodwillwrite-off 4 - (670) (670) (1,000) -------- --------- -------- --------Total administrativeexpenses (49,493) (888) (50,381) (45,262)--------------------- ------- --------- --------- -------- --------Group operating profitexcluding share ofjoint venture andassociates - continuingoperations 3 12,196 (1,274) 10,922 9,670 -------- --------- -------- --------Share of jointventure's operatingloss - continuingoperations 3 (138) - (138) -Share of associate'soperating profits -continuing operations 3 1,181 - 1,181 1,237Share of associates'operating profits -discontinued operations 3 1,818 - 1,818 1,532Exceptional goodwillwrite-off relating toassociate 3 - - - (280) -------- --------- -------- --------Total share ofoperating profits ofjoint venture andassociates 2,861 - 2,861 2,489--------------------- ------- --------- --------- -------- --------Operating profit: Groupand share of jointventure and associates 3 15,057 (1,274) 13,783 12,159--------------------- ------- --------- --------- -------- --------Non-operatingexceptional gain ondisposal of investmentin associate 4 - 4,256 4,256 ---------------------- ------- --------- --------- -------- --------Profit on ordinaryactivities beforefinanceincome/(charges) 15,057 2,982 18,039 12,159--------------------- ------- --------- --------- -------- --------Financeincome/(charges) 555 - 555 (170)Group 20 - 20 (91)Associates--------------------- ------- --------- --------- -------- --------Profit on ordinaryactivities beforetaxation 15,632 2,982 18,614 11,898 Tax on profit onordinary activities (4,854) 181 (4,673) (4,085)--------------------- ------- --------- --------- -------- --------Profit on ordinaryactivities aftertaxation and for thefinancial year 10,778 3,163 13,941 7,813 Dividends paid andproposed 5 (4,257) - (4,257) (3,847)--------------------- ------- --------- --------- -------- --------Retained profit for theyear transferred toreserves 6,521 3,163 9,684 3,966--------------------- ------- --------- --------- -------- -------- Earnings per ordinaryshareBasic, excludingexceptional items 6 47.4p 40.2pEffect of exceptionalitems 13.9p (5.7)p--------------------- ------- --------- --------- -------- --------Basic 6 61.3p 34.5p--------------------- ------- --------- --------- -------- -------- Diluted, excludingexceptional items 6 47.1p 40.0pEffect of exceptionalitems 13.8p (5.6)p--------------------- ------- --------- --------- -------- --------Diluted 6 60.9p 34.4p--------------------- ------- --------- --------- -------- -------- There are no material differences between reported and historical cost profitsand losses. Consolidated statement of total recognised gains and lossesfor the year ended 29 April 2005------------------------------- ------------ -------- 2005 2004 £'000 £'000------------------------------- ------------ -------- Profit/(loss) for the financial yearGroup 11,982 6,226Joint venture (138) -Associates 2,097 1,587------------------------------- ------------ -------- 13,941 7,813Loss on foreign currency translation - (82)------------------------------- ------------ --------Total recognised gains and losses for the year 13,941 7,731------------------------------- ------------ -------- Consolidated balance sheetas at 29 April 2005------------------------------ ---------- ------------ 2005 Restated(*) £'000 2004 £'000------------------------------ ---------- ------------Fixed assetsIntangible assets: goodwill - 758Tangible assets 6,138 8,027 Investments ---------- ------------Share of gross assets of joint venture 7,675 -Share of gross liabilities of joint venture (7,808) - ---------- -----------Share of net liabilities of joint venture (133) -Associates 253 2,581Others 467 455 ---------- ----------- 587 3,036------------------------------ ---------- ----------- 6,725 11,821------------------------------ ---------- -----------Current assetsStocks 1,465 1,670Debtors: amounts due within one year 37,767 33,822Debtors: amounts due after more than one year 4,253 1,353Investments - 1,036Cash at bank and in hand 31,107 14,097------------------------------ ---------- ----------- 74,592 51,978------------------------------ ---------- -----------Liabilities: amounts falling due within one yearBorrowings (3,378) (3,564)Creditors (41,177) (33,963)Corporation tax (2,750) (2,174)Proposed dividend (3,301) (2,982)------------------------------ ---------- ----------- (50,606) (42,683)------------------------------ ---------- -----------Net current assets 23,986 9,295------------------------------ ---------- -----------Total assets less current liabilities 30,711 21,116------------------------------ ---------- -----------Liabilities: amounts falling due after more than oneyearBorrowings - (80)Other Creditors (200) ------------------------------- ---------- ----------- (200) (80)------------------------------ ---------- -----------Provisions for liabilities and charges - (217)------------------------------ ---------- -----------Net assets 30,511 20,819------------------------------ ---------- -----------Capital and reservesCalled up share capital 1,165 1,165Share premium account 2,534 2,320Own shares held (2,825) (2,831)Revaluation reserve 152 152Profit and loss account 29,485 20,013------------------------------ ---------- -----------Equity shareholders' funds 30,511 20,819------------------------------ ---------- ----------- The preliminary announcement was approved by the Board on 29 June 2005 (*) See note 1 Consolidated cash flow statementfor the year ended 29 April 2005-------------------------------- ------ -------- -------- Notes 2005 Restated(*) £'000 2004 £'000-------------------------------- ------ -------- -------- Net cash inflow from operating activities 7 15,726 12,462-------------------------------- ------ -------- -------- Dividends from associates 1,421 977-------------------------------- ------ -------- --------Returns on investments and servicing of financeInterest received 809 142Interest paid (293) (267)Interest element of finance lease repayments (30) (30)-------------------------------- ------ -------- --------Net cash inflow/(outflow) from returns oninvestments and servicing of finance 486 (155)-------------------------------- ------ -------- -------- TaxationUK corporation tax paid (3,199) (3,272)-------------------------------- ------ -------- -------- Capital expenditure and financial investmentPurchase of tangible fixed assets (1,252) (1,756)Sale of tangible fixed assets 11 42Purchase of fixed asset investments (32) (188)Repayment of fixed asset investment 20 -Sale of current asset investment 1,036 1,637-------------------------------- ------ -------- --------Net cash outflow from investing activities (217) (265)-------------------------------- ------ -------- -------- Acquisitions and disposalsPurchase of subsidiary undertaking - deferredconsideration paid (266) (1,000)Purchase of interest in joint venture (5) -Investment in associate - (44)Sale of interest in associate 7,260 --------------------------------- ------ -------- --------Net cash inflow/(outflow) from acquisitions anddisposals 6,989 (1,044)-------------------------------- ------ -------- -------- Equity dividends paid (3,938) (3,559)-------------------------------- ------ -------- -------- Net cash inflow before financing 17,268 5,144-------------------------------- ------ -------- -------- FinancingIssue of ordinary share capital - 36Proceeds from exercise of options in shares heldthrough the ESOP trust 8 450Capital element of finance lease repayments (266) (382)-------------------------------- ------ -------- --------Net cash (outflow)/inflow from financing (258) 104-------------------------------- ------ -------- --------Increase in cash in the year 17,010 5,248-------------------------------- ------ -------- -------- Reconciliation of net cash flow to movement in netcashIncrease in cash in the year 17,010 5,248Cash flow from finance lease repayments 266 382-------------------------------- ------ -------- --------Movement in net cash in the year 17,276 5,630 Net cash at start of year 10,453 4,823-------------------------------- ------ -------- --------Net cash at end of year 10 8 27,729 10,453-------------------------------- ------ -------- -------- (*) See note 1 Notes to the preliminary statementfor the year ended 29 April 2005 The financial information set out above does not constitute the Group'sstatutory accounts for the years ended 29 April 2005 or 30 April 2004, but isderived from those accounts. Statutory accounts for 30 April 2004 have beendelivered to the Registrar of Companies and those for 29 April 2005 will bedelivered following the Company's annual general meeting. The auditors havereported on those accounts: their reports were unqualified and did not containstatements under s237(2) or (3) Companies Act 1985. 1. Accounting conventionThe Group accounts have been prepared in accordance with applicable UnitedKingdom accounting standards and under the historical cost convention, asmodified by the revaluation of land and buildings. This preliminary announcementhas been prepared on the basis of the accounting policies laid down in thoseaccounts. Accounting policies have been consistently applied in dealing withitems which are considered material in relation to the Group's accounts, subjectto the two changes in the year as set out below. The financial years of allGroup companies are the 52 or 53 weeks up to the Friday before, or falling on,the accounting reference date of 30 April. The Group adopted Urgent Issues Task Force Abstract 38 (UITF 38) 'Accounting forESOP trusts' during the year. This has resulted in the reclassification of ownshares held in the ESOP trust, previously accounted for as a fixed assetinvestment, as a deduction from shareholders funds and accordingly the value offixed asset investments, within net assets, and shareholders funds has beenreduced at 29 April 2005 by £2,825,000 (2004: £2,831,000; 2003: £3,179,000). The Group has adopted a new accounting policy in the year to deal with theimplications of the implementation of the Private Security Industry Act 2001,which is scheduled to come in to force for manpower security in March 2006.Costs incurred by the Group in preparing for compliance with the Act, up untilthe date it comes in to force (the implementation period), are treated asexceptional costs within operating profit and are classified as cost of sales oradministrative expenses in line with the classification of similarnon-exceptional expenditure. Additional revenue, resulting from special price increases negotiated withcustomers and intended to recover the additional costs incurred by the Group,will be recognised as exceptional turnover within operating profit during theimplementation period. Once the Act has come in to force, all revenue and expenditure resulting fromcompliance with the regulations, will be treated as regular, non-exceptional,items within turnover, cost of sales and administrative expenses as appropriate. 2. ConsolidationThe consolidated profit and loss account and balance sheet incorporate theaccounts of Reliance Security Group plc, its subsidiary undertakings and itsshare of the profits/losses and net assets/liabilities of its joint ventures andassociates. The results of subsidiary undertakings, joint ventures or associatesacquired or sold during the year are consolidated for the periods from or to thedate on which control passed. 3. Segmental information Security Facilities Total Security Facilities Total Services Management Services Management 2005 2005 2005 2004 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 -------- --------- ------- ------- -------- ------- Turnover 192,730 117,527 310,257 209,264 83,028 292,292 -------- --------- ------- ------- -------- ------- Groupoperatingprofit beforeexceptionalitems,excludingshare ofjointventure andassociates -continuing 4,979 7,217 12,196 7,608 3,062 10,670operations ------- --------- ------- ------- -------- ------- Share ofjointventure'soperatingloss - (138) (138) - - -- continuingoperationsShare ofassociate'soperatingprofits -continuingoperations - 1,181 1,181 - 1,237 1,237Share ofassociates'operatingprofits -discontinuedoperations 1,818 - 1,818 1,532 - 1,532 ------- --------- ------- ------- -------- -------Total shareofoperatingprofits ofjoint ventureandassociatesbefore 1,818 1,043 2,861 1,532 1,237 2,769exceptional ------- --------- ------- ------- -------- -------items Operatingprofit beforeexceptionalitems: Groupand share ofjoint ventureand 6,797 8,260 15,057 9,140 4,299 13,439associates ------- --------- ------- ------- -------- ------- Groupoperatingexceptionalitems (1,274) - (1,274) (1,000) - (1,000)Group shareofoperatingexceptionalitem of - - - (280) - (280)associate ------- --------- ------- ------- -------- -------Operatingexceptionalitems: Groupand share ofassociates (1,274) - (1,274) (1,280) - (1,280) ------- --------- ------- ------- -------- ------- Operatingprofit: Groupand share ofjoint ventureand 5,523 8,260 13,783 7,860 4,299 12,159associates ------- --------- ------- ------- -------- -------Non-operatingexceptionalgain ondisposal ofinvestment inassociate 4,256 - 4,256 - - - ------- --------- ------- ------- -------- -------Profit onordinaryactivitiesbeforefinanceincome/ 9,779 8,260 18,039 7,860 4,299 12,159(charges) ------- --------- ------- ------- -------- ------- 3. Segmental information (continued) Security Facilities Total Security Facilities Total Services Management Services Management 2005 2005 2005 2004 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 ------- --------- ------- ------- -------- ------ Groupoperatingassets 3,870 3,884 7,754 8,243 2,808 11,051Share of jointventure's netliabilities - (133) (133) - - -Share ofassociate'snet assets - 253 253 2,784 833 3,617------------------- ------- --------- ------- ------- -------- ------Totaloperatingassets 3,870 4,004 7,874 11,027 3,641 14,668------------------- ------- --------- ------- ------- -------- ------ Reconciliation oftotal operatingassets to total netassets: Operatingassets 7,874 14,668 Items excluded:Net cash 27,729 10,453Investments inotherparticipatinginterests 467 455Taxationpayable (2,750) (2,174)Deferredtaxation 460 436Dividendspayable (3,301) (2,982)Interestreceivable/(payable) 32 (37) ------- ------Total netassets (*) 30,511 20,819 ------- ------ All Group turnover is derived from within the United Kingdom. No turnover was reported in the year for the Group's joint venture, GloucesterFM Services Limited. In accordance with the equity method adopted for accounting for associates,Group turnover excludes its share of turnover of associated undertakings of£31,564,000 (2004: £44,542,000). Operating assets are those net assets controlled by Reliance's operatingdivisions. (*) The figure for total net assets reported for 2004 has been restated toreflect the reclassification of own shares held from a fixed asset investment toa deduction from shareholders' funds - see note 1. 4. Exceptional items2005During the year the Group incurred total expenditure of £604,000 (before a taxcredit of £181,000) in respect of its preparation for the implementation of thePrivate Security Industry Act. In accordance with the Group's accounting policyfor such expenses, they have been classified as operating exceptional itemswithin cost of sales and administrative expenses as appropriate. The cashoutflow in the year relating to this exceptional item was £604,000 (beforetaking into account the cash benefits of tax relief). The further operating exceptional item in the year of £670,000 shown withinadministrative expenses relates to the impairment of goodwill associated withthe Group's interest in Goldrange Limited. In the opinion of the directors, thebalance of goodwill held has no net realisable value and, accordingly, they haveconsidered it to be most appropriate to write-off in full the remaining value ofthe goodwill. The non-operating exceptional gain in the year on disposal of the Group'sinterest in an associate of £4,256,000 arose on the sale of the Group'sinterests in Safe Estates Services Limited. The disposal was completed on 20December 2004 for cash consideration, net of costs, of £7,260,000. There was notax charge arising on the capital gain realised on disposal. 2004The exceptional item of £1,000,000 shown within administrative expenses relatedto the impairment of goodwill associated with Goldrange Limited. The exceptional item of £280,000 shown within the Group's share of the operatingprofits of its joint venture and associates related to the impairment of goodwillin the Group's associated undertaking, Command Security Corporation. 5. Dividends paid and proposed 2005 2004 £'000 £'000