Westminster Group Regulatory News (WSG)

27 September 2013

Westminster Group Plc

Interim Results for the six months ended 30 June 2013

Westminster Group Plc ('Westminster', the 'Company' or 'the Group'), the AIM listed supplier of advanced security and defence equipment, services and solutions worldwide is pleased to announce its Interim Results for the six months ended 30 June 2013. 

Westminster operates globally from its international headquarters in Oxfordshire, UK, through two internationally focussed divisions - Managed Services and Technology. The Group is represented in 48 countries covering all continents bar Antarctica with a strong focus on Africa, the Middle East and Asia.

Highlights:

· Revenue from ongoing operations £4.7m (2012: £4.8m)

· Aviation Division revenues increased by 214% to £1.44m (2012: £458k)

· Gross Margin from ongoing operations increased by 40% to 39.6% (2012: 28.2%)

· Operating EBITDA from ongoing operations increased by 350% to £0.18m (2012: £0.04m)

· Cash balances £0.81m (2012: £0.44m)

· Synergy debt reduced by £0.6m through combination of repayment (£0.3m) and refund of fees (£0.3m) and normalised terms restored going forward on a reduced balance of £0.4m in June 2013

· Business realigned around high growth market opportunities for Managed Services and Technology Solutions and disposal of non-core businesses business reducing cash outflow by £0.6m in March 2013

· High level of market interest in Managed Services offering for airport security - discussions with airports with an aggregate of 10m annual embarking passengers underway. Annual worldwide airport security market expected to grow from $18bn to $45bn by 2018

· Significant progress in signing further long term Managed Services contracts

· Achieved recognition from major aviation organisations and international airlines for delivery of high quality airport security solutions.

Post Period End

· Debt further reduced by £1.32m through conversion of convertible unsecured loan note and accrued interest

· Appointed as a strategic partner for security with International Air Transport Association ( IATA)

· Significant progress on delivery of the $3m screening project announced in January which is expected to be completed in H2 2013

· Acquired business of Aviation Security and Training business GXS Aviation

· Progressing final settlement of the Synergy loan note

Commenting on the results and current trading, Peter Fowler, Chief Executive of Westminster Group, said:

 "Following the reorganisation of the Group into two internationally focussed businesses, Managed Services and Technology, together with the disposal of our non-core operations, I am pleased to report both divisions are making good progress.

"Our Managed Services Division is performing strongly, particularly our aviation security business, which is generating considerable interest from airport operators and governments around the world and we have received numerous acclaims for the quality of our services. I am proud of what we have achieved so far and very encouraged by the progress we are making with discussions and negotiations on other managed services contracts, particularly our negotiations for the airport security project in East Africa. Whilst as always there is no certainty as to outcome or timing of such negotiations we expect to be in a position to update the market on this matter shortly.

"We are already seeing rising revenues from this new division, which is just the start. As we improve the security at the airports we protect we expect to see significant increases in airlines and passenger traffic which will further accelerate our revenues. We are pursuing new long term recurring revenue streams and services within this division and the addition of GXS Aviation and Training Director, Mike Lord, will further expand our opportunities.

"I am also encouraged by the progress and opportunities our Technology Division is achieving and we are currently delivering a number of exciting projects around the world. We are in discussions regarding a number of sizeable projects which could significantly transform this division if secured. To those ends we have appointed a new Sales Director, Laurence Summers, to focus on delivering value from these opportunities.

"We continue to invest in our growth strategy and are delivering on our vision. A key strength of our business is the fact we have, over the past few years, built a substantial international network and a strong brand which is now enabling us to capitalise on opportunities. During the course of the year to date we have travelled extensively, met with numerous government bodies, hosted numerous delegations at our UK headquarters and I personally have met with and discussed our security programmes with several Heads of State and senior governmental figures from around the world, including the Presidents of Tanzania and Burundi and the First President of Zambia, Kenneth Kaunda. I believe the coming months will be a very exciting time for our business."

Enquiries:

Notes:

Westminster Group plc is a leader in the supply of system solutions and products to the security, defence and safety markets worldwide.

Westminster's principal activity is the design, supply and ongoing support of advanced technology security solutions, encompassing a wide range of surveillance, detection, tracking and interception technologies and the provision of long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities together with the provision of manned services, consultancy and training services. The majority of its customer base, by value, comprises governments and government agencies, non-governmental organisations (NGO's) and blue chip commercial organisations. For further information please visit www.wg-plc.com or www.wi-ltd.com

Chief Executive's Statement

Operational Review

In March 2013 we announced that the Group, following the disposal and restructuring of the UK operations, was now focussed on high growth international market opportunities which it would address through two separate but mutually supportive divisions; Managed Services and Technology Solutions.

Managed Services

This division derives its revenues from the provision of security services under long term contracts to governments to protect key infrastructure sites such as airports. An example of this is the contract we won in February 2012 to provide airport security to a West African state. This contract is progressing well and we are pleased that we have seen an increase in passenger numbers on a year on year basis, which has helped augment our revenues. We have invested in our capability on this project with the provision of further expatriate personnel and have increased the local headcount. This has dramatically improved the security situation at the airport. This improved situation has been recognised by international aviation regulatory bodies as well as by major international carriers, who now believe the security is on par with a European airport. We believe that this improved profile combined with high local economic growth will help drive passenger volumes. Furthermore, we expect our investment in headcount and infrastructure will provide us with the operational leverage to handle significantly higher passenger volumes with a minimal increase in our cost base.

The Managed Services division's services have generated significant interest from airports in many countries as it provides them with a cost neutral way of building their infrastructure to support national development. We have on-going dialogue with airports that in aggregate have approximately 10m embarking passengers per annum. To put that in context, the airport contract announced in February 2012 has a current throughput of 0.12m passengers and the airport in East Africa where we signed the MoU in November 2012, and are in highly advanced negotiations, has approximately 0.4m such passengers. We believe this model presents a significant opportunity as it allows us not only to provide security services but also allows us to expand into other areas of airport operations such as aircraft searches, passenger profiling and border checks.

Technology Division

This business concentrates on the provision of high technology security solutions to international customers. A key focus of the Technology Division has been the contract to supply a high technology vehicle scanning gantry to a Middle Eastern customer for the protection of a gas refinery, announced in January 2013, which was substantially completed in the period. The Technology Division has also actively supported the technological aspects of the rollout of Managed Services contracts. This refocus has allowed the Technology Division to significantly reduce its operating cost base which we expect to be significantly lower than that in 2012 by the end of the year. We have a strong sales pipeline and, whilst as ever, the very nature of our customers and the products and services we supply can mean that the precise timing of sales can be difficult to predict, these reflect real opportunities, many of which we expect to benefit the Company in the near future.

Financial Review

Revenues from our ongoing business were £4.68m (2012: £4.8m). During the period, Managed Services revenues were approximately £1.55m (2012: £0.65m) with the increase arising from a full period of operations of the West African airport contract which went live on 1 May 2012. This Managed Services revenue largely offset a fall in the Technology Division in 2013. Technology Division revenues which are derived from large projects with overseas customers are thus exposed to timing issues, were lower than the equivalent period in 2012 which benefited from significant revenues from a large contract signed in 2011 which had substantial deliveries in H1 2012. However this does not reflect the division's high level of activity undertaken through the period which we believe will benefit future periods. Revenues from the UK business disposed of in March 2013 were £0.21m (2012: £0.94m). Overall revenues for the Group were therefore £4.88m (2012: £5.72m).

The increasing revenue proportion from the Managed Services division increased our gross margin on ongoing operations, which improved from 28.2% to 39.6%.

Our headline administrative expenses increased from £1.81m to £2.65m for the six month period under review. This includes £0.43m of admin costs from disposed operations and £0.2m arising from run off costs from the training premises closed at the end of April 2013, cost reductions in the Technology Division and litigation costs arising from the claim against the vendors of CTAC Limited. Capital investment programs in the Managed Services division have increased the depreciation charge to £0.11m (2012: £0.05m). On this basis our underlying annualised operating cost base from ongoing operations is approximately £3.9m. We continue to carry costs that will allow us to rapidly upscale our Managed Services operations and these run at approximately £20,000 per month.

When adjusted for the above and items included in note 5 to these interim financial statements the Group made positive EBITDA of £0.18m (2012: £0.04m).

Our financing costs were substantially reduced following the renegotiation of the Synergy Capital loan and the reduction in capital outstanding. Management fees of approximately £0.11m were incurred in the six months to 30 June 2012, but following negotiations with Synergy's liquidators these and other previously expensed management fees totalling £0.3m were offset against the £1.0m capital balance outstanding, and this has positively impacted our finance charge. Core interest costs (excluding the impact of IFRS related adjustments) increased to £0.1m (2012: £0.06m) due to the £1.38m 8% Convertible Loan Note issued in July 2012.

Overall Group losses were £0.73m (2012: £0.33m). Loss per share was 2.0p (2012: 1.1p) of which 1.0p (2012: 0.8p) was from ongoing operations.

Cash balances were £0.81m (2012: £0.44m) and the debtor book was £3.51m (2012: £2.05m). A significant part of this increased debtor book arose from a single order invoiced in June 2013 that was paid in early July. Cash receipts from our Managed Services business remain strong with airlines paying in an average of 35 days against 30 day terms. On 19 June 2013 we issued £1.14m of new 10% secured convertible loan notes with a conversion price of 35 pence. £0.5m of this has subsequently been used to refinance the 2009 convertible loan note, where the capital outstanding at the date of this announcement has been reduced to £0.4m (2012: £1.2m), and we are now in the process of obtaining a final settlement with Synergy's liquidators. In February 2013 we issued £1.475m of new ordinary shares at 30 pence to institutional and new strategic shareholders and in April 2013 a holder of the 2012 convertible loan note converted £0.1m of loan stock into ordinary shares at 27.5 pence. The associated embedded derivative of £0.29m at 31 December 2012 has been reclassified as an equity reserve.

In April 2013, the Group announced that an Equity Finance Facility was in place. This has been used twice since 1 July 2013, raising gross proceeds of £0.1m at 38p in July 2013 and a further £0.7m at 55p in September 2013. In September 2013, the Group received notices of conversion from the entire balance of the unsecured convertible loan notes issued in 2012, furthermore they elected to receive all accrued interest by way of new shares issued at 50p. In aggregate these issues have improved our equity position by £2.12m.

Outlook

The successful realignment of the Group against these high growth opportunities has provided stronger focus to the business and we are growing our reputation as a provider of high quality security solutions. We have disposed of the non-core and lossmaking UK businesses and resolved legacy issues such as the Synergy loan note. This focus has led to record levels of interest, particularly in our Managed Services division, which is aligned with aviation security. This global market is expected go grow from $19bn per annum now to $45bn per annum by 2018 and this validates our decision to grow the Managed Services division. As ever when dealing with such projects the timing of such contract signings can inevitably be difficult to predict however I am confident that this division is poised to help us deliver very significant shareholder value.

Peter Fowler

Chief Executive

Notes to the condensed consolidated financial statements

for the six month period ended 30 June 2013:

1. General information and nature of operations

Westminster Group Plc (the "Company") and its subsidiaries (together the "Group") design, supply and provide ongoing support for advanced technology security, safety, fire and defence solutions to a variety of government and related agencies, non-governmental organisations and mainly blue chip commercial organisations. The Group currently operates through a network of agents located in 48 countries. Agents typically generate sales leads and work with the Group in preparing tender documentation. The majority of the agents are based in the Middle East, the Far East and Africa. The Company was incorporated on 7 April 2000 and is domiciled and incorporated in the United Kingdom and is quoted on the AIM Market of the London Stock Exchange.

2. Basis of preparation

These unaudited condensed consolidated interim financial statements are for the six months ended 30 June 2013. The Group has not adopted the reporting requirements of International Accounting Standard (IAS) 34 'Interim Financial Reporting'. They have been prepared following the recognition and measurement of principles of IFRS as adopted by the European Union. The statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2012.

The unaudited condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements, which were for the year ended 31 December 2012.

These unaudited condensed consolidated interim financial statements for the six months ended 30 June 2013 have not been audited or reviewed by the Group's auditors. The financial information for the six months ended 30 June 2013 set out in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2012 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

Going concern

These unaudited interim financial statements are prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, management have taken into account all relevant available information about the future. As part of its assessment, management have taken into account the profit and cash forecasts, the continued support of the shareholders and bondholders, as well as Directors and management ability to affect costs and revenues.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 30 June 2013. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their activities. The Group obtains and exercises control through voting rights. Consolidation is conducted by eliminating the investment in the subsidiary together with the parent's share of the net equity of the subsidiary.

3. Functional and presentational currency

The financial information has been presented in pounds sterling, which is the Group's presentational currency. All financial information presented has been rounded to the nearest thousand.

4. Loss per share

Earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. Only those outstanding options that have an exercise price below the average market share price in the year have been included. For each period the issue of additional shares on exercise of outstanding share options would decrease the basic loss per share and therefore there is no dilutive effect.

The weighted average number of ordinary shares is calculated as follows:

5. Non-Recurring Costs and Disposed Businesses

6. Financing Costs

7. Cash flow adjustments and changes in working capital

The following non-cash flow adjustments and adjustments for changes in working capital have been made to loss before tax to arrive at operating cash flow:

8 Material post balance sheet events

In July 2013 the Group paid down £300,000 of the 10% Secured Convertible Loan Stock issued to Synergy Capital Limited (in Liquidation). The outstanding balance of £400,000 on this instrument is due for repayment on 29 June 2014 and has a conversion price of 42.21p.

On 15 July 2013, the Company issued 263,158 new ordinary shares of 10p each to Darwin Strategic Limited at a price of 38p per share. This raised gross proceeds of £100,000. On the same day, the Group's bankers extended its facilities in connection with support for the provision of performance bonds and similar instruments.

On 10 September 2013, the Group issued a further 1,272,727 new ordinary shares of 10p each under the same facility at a price of 55p per share. This raised gross proceeds of £700,000. On the same day the Group was informed by holders of the entire balance of the 2017 8% Convertible Unsecured Loan Stock issued in July 2012 that they wished to convert their aggregate holding of £1,275,540 of this Loan Stock at the conversion price of 27.5p resulting in the issue of 4,655,255 new ordinary shares of 10 pence each. They have further elected to settle all outstanding interest due of £45,523 by the issuance of 91,046 new ordinary shares representing a conversion rate of 50p of Loan Stock for each ordinary 10 pence share.

The aggregate of these share issues has increased equity by £2.12m since the reporting date.

9 Approval of interim financial statements

The interim financial statements were approved by the board of directors on 26 September 2013.

10 Copies of Interim Financial Statements

A copy of the interim financial statement is available on the Company's website, www.wg-plc.com and from the Company's registered office, Westminster House, Blacklocks Hill, Banbury, Oxfordshire, OX17 2BS.