Westminster Group Regulatory News (WSG)

30 September 2014

Westminster Group Plc

Interim Results for the six months ended 30 June 2014

Westminster Group Plc ('Westminster', the 'Company' or 'the Group'), the AIM listed supplier of managed services, system solutions and products to the security, defence, fire protection and safety markets worldwide, is pleased to announce its Interim Results for the 6 months ended 30 June 2014.

Westminster is a specialist security group operating worldwide via an extensive international network of agents and offices in over 50 countries.

The Group's principle activity is the design, supply and ongoing support of advanced technology security solutions and the provision of long term managed services, consultancy and training services to governments and government agencies, non-governmental organisations and blue chip commercial organisations worldwide.

Key Points:

Financial

· Gross Margin from on-going operations 58.4% (2013: 39.6%)

· Operating EBITDA from airport contract improving to 28% (2013: 24%)

· Shareholders' funds £1.77 m (2013: £0.48m)

· Convertible loan note debt reduced by 85% to £0.575m (2013: £3.59m) with corresponding reduction in annual interest costs

· Cash balance currently £1.0m

Operational

· Further good deliveries in the Managed Services business with increasing customer reputation

· Growing passenger numbers in the West African airport until outbreak of Ebola crisis

· Pipeline of potential airport contracts now 35m pax per annum (May 2014: 30m pax per annum)

· Sales prospects progressing well with a total of 3.8m pax per annum now at advanced stages

· $2.6m Scanner contract won in Asia

· Affected by Ebola crisis but organisation doing well and we are building a good reputation in the region

Post Balance Sheet Events

· East Africa prospect advancing with meetings scheduled in October 2014

· Large managed services project in the Americas has passed an important milestone in the governmental procurement process

· Placing for £1.25m as a contingency against Ebola's impact on financial performance

· First move into adjacent sectors using the managed services model with the Ferry Memorandum of Understanding

· Ebola crisis response - maintaining operational deliveries and helping to keep the airport open and building a reputation as a reliable and professional organisation and a long term partner to that country

· Signed a £1.9m 10 year franchise agreement in Mexico with considerable potential for incremental business (with minimum requirement of £1.5m per annum revenue from year 2)

· Received a Letter of Intent for systems to help secure an iconic bridge in the United States

· Received a Letter of Intent for the supply of an advanced analytics solution for 352 sites in Saudi Arabia, with trials underway

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

"Not-with-standing the effects of the Ebola crisis, these results for the first six months of the year do not reflect the significant advances and activity being undertaken by the Group. The lumpy nature of the Technology Division's revenues, which have impacted this set of results, will be more than offset as new managed services contracts come into force.

"We continue to pursue and build on our strategic goals and vision, and believe we are making good progress in many areas. We recently announced the signing of a memorandum of understanding for the Ferry Project in Africa, which is progressing through licencing, and which would represent another very attractive potential long term managed services project. We have also made significant progress with other managed services projects including the East African project which remains very much alive and also a major opportunity in the Americas which has made significant advances through the governmental procurement process. We have signed an important new franchise agreement for Mexico expanding our business model to that region and we have received letters of intent on two important new projects which underpin the reputation and capability of our business.

"Our pipeline is growing and opportunities continue to progress and, whilst dealing with governmental processes can be time consuming and frustrating at times, I am confident that the opportunities these potential contacts offer, being long term with excellent financial dynamics, will deliver value for our shareholders."

Enquiries:

Notes:

Westminster Group plc is a leader in the supply of system solutions and products to the security, defence, fire protection 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

CEO Review

In our full year review, released in May 2014, I stated that the Group was making good progress in developing the business with a particular focus on growing the Managed Services division, and I am pleased to say this continues to be the case. Our strategy has been to target specific countries and regions of the World where we believe our services would be of benefit and where we can make a difference. To those ends we have identified, and are advancing discussions with, a number of airports in East, West and Southern Africa, the Middle East, Asia, the Americas, Europe and Australasia. Our aim is to develop a broad geographical spread of long term managed services and high profile projects in target areas of the World which will not only elevate and enhance our reputation but also limit risk of disruption from regional issues such as the current Ebola situation in West Africa (which represents only a small part of our overall prospect pipeline).

In dealing with governments around the World, their internal processes, pressures and bureaucracy can create timing uncertainty, however the potential managed services opportunities we are looking at are both large scale and long term and, as such, negotiating time is not the primary driver. It is important to report that all of the opportunities under discussion are advancing and none have either ceased or been lost to competitors; indeed I am pleased to report that the number of airports that are interested in our services continues to grow.

Regarding the Ebola outbreak in West Africa, which is of course tragic for all those affected and our thoughts and prayers go out to the victims and their families, I am proud of how our team has prepared for and coped with this matter, including the timely mitigation measures we introduced which I think pays testament to our professionalism and bodes well for our future business.

In June 2014 we announced that a settlement of the dispute with the vendors of CTAC Limited (which was acquired in April 2010) was imminent and I am pleased to say that the matter has progressed and we will update the market on the final settlement figure in due course.

In the 2013 Annual Report we stated that we were in the process of setting up the Westminster Group Foundation as a charitable organisation to act as an umbrella for the many community support activities, such as healthcare and education support, as well as the support we provide to other charities, undertaken in the regions in which we operate. I am pleased to now announce that the Westminster Group Foundation has now been registered by the Charities Commission and we look forward to a formal launch in the coming months.

Managed Services Division

I am pleased to report that the prospect list for the Managed Services Division continues to grow as our reputation grows and governments further understand the attractions of our solution. We work very closely with the UK Government and they are becoming keen proponents of the model and its potential for improving security for flights coming into the UK. Consequently, the overall prospect pipeline has grown to circa 35m pax (May 2014: 30m pax) of which 3.8m pax relate to airports in East and Southern Africa and the Americas where we are in regular and advanced high level discussions at Director, National Security, Ministerial and Presidential levels. In addition, we have advancing prospects at various stages of discussion in all the regions and continents detailed above. The East African airport opportunity remains very much alive with delays being due to local political issues wholly unrelated to our involvement and I am pleased to report we have been invited for meetings in early October to further progress this matter. I am further pleased to report that a major opportunity in the Americas is progressing well and has made significant advances through the governmental procurement processes.

I am pleased to report that, to assist in pursuing and closing these growing opportunities, we have recently expanded our business development team, including a new Business Development Director with excellent industry credentials and experience in the provision of long term managed services projects under Build Operate Transfer ("BOT") /Public Private Partnership ("PPP") arrangements.

 This division continues to show strong operational and financial dynamics. Before the Ebola outbreak, passenger numbers, revenue and operating margin performance had improved significantly and despite the reduction in passenger traffic during the Ebola crisis, due to strong growth momentum in prior months, our year to date passenger volumes as at the end of August were still 1.6% ahead of the same period in 2013. Whilst the reduction in passenger volumes, currently running at around 40% of those in the same period in 2013, are affecting revenues in the short term, the underlying financial dynamics remain unchanged with potential for strong margin performance, short term payback of investment and excellent cash collection. 

The Ebola outbreak in West Africa has been a major issue for the Company in recent weeks and months. Our team in country continues to provide full security at the airport and it is a tribute to them as they work with the local community and airport users during this difficult time. Indeed the professionalism and dedication shown by Westminster during this crisis and the assistance we have provided to minimise disruption at the airport has not gone unnoticed by the authorities or international bodies and I believe both our reputation and prospects will be enhanced by the way we have handled this crisis. The situation will eventually normalise, we have a long term contract in place and the potential for strong value creation remains.

Longmoor Security, whilst being less focussed on its original UK training business, has delivered specialist training to an essential government department in East Africa. This has been very well received and consequently there is potential for further governmental work. In addition, the company is currently in discussions regarding a major long term training programme in Qatar.

The long term joint venture ferry project, Sovereign Ferries, the memorandum of understanding for which we announced in August 2014, is progressing and we are currently discussing licences and operational planning matters. A website is currently under development and the current expectation is that operations will commence in Q1 2015. This is a long term opportunity with a potential 25 year operating life. Based on conservative forecasts on passenger demand and economic growth, the venture's revenues could to be in the region of $300m over the period, with there being significant incremental revenue potential from further routes and services which we have identified. We expect this service to share many of the strong financial dynamics which are already being delivered by our existing Managed Services business. We are currently moving through the relevant licencing, contractual and implementation phases, and we look forward to updating the market with further progress.

Technology Division

Revenues in this period reflect the lumpy nature of this division. We have been extremely busy with sales activity and a large order has been received whilst certain orders are yet to be reflected in the financial statements. We have secured a number of contracts for products and services around the World and continue to build on our reputation. However, we have not yet felt the benefit of all these sales, including the $2.6m vehicle screening project to protect a border crossing in a large Asian country which has been delayed by certain governmental processes and discussions regarding a potential extension of scope; delivery is now expected in 2015.

I am pleased to report that the pipeline security pilot project for one of the World's largest government owned petrochemical companies within the Americas is now scheduled for October/November 2014 and is expected to last a few weeks and so will be completed by the end of 2014. Following a successful trial there is potential for a significant contract award. We are also in discussions regarding several other similar pipeline protection projects around the World and have recently entered into a memorandum of understanding with an operator in West Africa to provide an advanced solution for two important oil/gas pipelines.

Following over twelve months of discussions and negotiations, the Technology Division has received a letter of intent regarding a major security project to protect an iconic bridge in America. This is a significant and high profile project and the fact that Westminster was approached to design and provide the specialist solution, which is part of a larger project to protect against terrorist attack, bears testament to the reputation and reach of our business. The Company looks forward to updating the market on this project at the appropriate time.

In addition, we have received a letter of intent for the supply of an advanced analytics solution to monitor access activity at 352 locations in Saudi Arabia which can all be remotely monitored from a central command location.

I am also pleased to report that Westminster has signed a new 10 year franchise agreement for Mexico worth £1.9m over the period in franchise fees alone. This agreement requires that the franchisee generates a minimum revenue of £1.5m per annum from year 2.  This latest example of our expansion into growing economies in different parts of the world underpins our strategy of diversification and will not only enhance our international presence and strong corporate brand, but with the potential that Mexico offers, could lead to substantial business far in excess of the franchise fee.

I am pleased to report that we are in discussions regarding a further franchise operation in the Middle East with a large potential training element.

The Technology Division also works closely with the Managed Services Division and joint proposals have been made for solutions to governments in the Americas which include the provision of significant consultancy services and equipment sales as a precursor to potential large managed services projects in ports and airports.

Financial Results

Revenues from our ongoing business were £2.24m (2013: £4.68m). During the period Managed Services revenues were approximately £1.50m (2013: £1.55m). The decrease was principally due to exchange rate movements and the Longmoor business. At constant exchange rates the airport Managed Services division grew from US$2.2m to US$2.4m based on increasing passenger volumes. Technology Division revenues in 2013 included a significant amount from the sale of a scanner system for US$3.2m which was received in January 2013. An order for a similar system worth US$2.6m was received in April 2014, and due to the client delays referred to above, is now expected to show as revenue in 2015. Gross margins improved to 58% (2013: 39%) due to the greater mix of high margin Managed Services revenues. 

Our headline administrative expenses reduced to £2.3m (2013: £2.6m), and this expense level was consistent with the statement in our 2013 Annual Report. Our depreciation charges were broadly similar to last year, and we continued with our expansion capacity in Managed Services. This cost is not directly related to an individual managed services contract but reflects a capability to scale up for expansion. Underlying EBITDA from the airport Managed Services Division continued to improve and for the six month period to 30 June 2014 recorded a margin of 28% (2013: 24%). This was due to increased passenger volumes, inherent operational leverage and general operational efficiencies. The Group recorded a non-operating charge of £0.17m (2013: £0.46m) of which £0.12m is the expansion cost referred to above with the remainder arising largely from share option charges and costs of the legal action related to the acquisition of CTAC Limited. This action has significantly progressed in the period with certain delays being due to certain multi-jurisdictional complexities. We will update the market with the details of the monies we expect to receive in due course.

Our underlying interest charges on convertible loan notes were £0.03m (2013: £0.08m) due to the lower level of outstanding debt. 2013 benefitted from a refund of £0.3m from Synergy Capital, and when adjusted for non-cash financing adjustments, required under IFRS, overall financing costs showed a credit of £0.05m (2013: £0.02m). Our underlying financing cash charges are currently £0.06m per annum (30 June 2013: £0.36m) which represents a very considerable reduction.

Overall, our loss was £0.94m (2013: £0.73m). Loss per share was 1.95p (2013: 2.0p) of which 1.95p (2013: 1.0p) was from ongoing operations.

Cash balances as at 30 June 2014 were £0.16m (2013: £0.81m) and the debtor book was £1.1m (2013: £3.5m). As of the date of this report cash balances were £1.0m. Our Managed Services Division continued its strong cash performance and recorded average debtor days at the end of the period of 47 (2013: 35 days), with the increase being as a result of short term timing issues which were resolved shortly after the balance sheet date. During the period, £220,000 of 10% 2016 Loan Stock converted into equity resulting in the issuance of 628,571 new ordinary shares of 10p each ('Ordinary Shares'). In addition 584,610 Ordinary Shares were issued for cash at a price of 77p each raising a further £450,150 gross.

Shareholders' funds at 30 June 2014 stood at £1.77m (2013: £0.48m) as a result of a lower debt position and issuance of equity.

Since the balance sheet date, in August 2014, the Company raised gross proceeds of £1.25m by the issuance of 3,125,000 new Ordinary Shares at a price of 40p per share. This was a precautionary measure taken against the backdrop of the Ebola crisis in West Africa and its potential adverse impact on the Group. As a further cash management measure, the Group has effected certain cost reductions which will begin to reduce operating costs by approximately 15% over the next few months.

Outlook

We continue to pursue and build on our strategic goals and vision and believe we are making good progress in many areas. The pursuit of further large scale managed services contracts is our overriding priority and we have the international reach and reputation to exploit such project opportunities. Our pipeline is growing and opportunities continue to progress and, whilst dealing with governmental processes can be time consuming and frustrating at times, I am confident the opportunities these potential contacts offer, being long term with excellent financial dynamics, are more than worth the effort.

Peter Fowler

Chief Executive Officer

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2014

Condensed consolidated statement of financial position

at 30 June 2014

Condensed consolidated statement of cash flows

for the six months ended 30 June 2014

Condensed consolidated statement of changes in equity

for the 6 months ended 30 June 2014

Notes to the condensed consolidated financial statements

for the 6 month period ended 30 June 2014

1. General information and nature of operations

Westminster Group Plc (the "Company") and its subsidiaries (together the "Group") design, supply and provide on-going 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 listed 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 2013.

The 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 2013.

This condensed consolidated interim financial statement for the six months ended 30 June 2013 has neither been audited nor reviewed by the Group's auditors. The financial information for the year ended 31 December 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.

3. Going concern

Although the Group incurred trading losses in the 6 month period to 30 June 2014 and the previous year the interim financial statements have been prepared on a going concern basis. Significant Technology Division orders received have not yet been recorded in the accounts, and the directors believe that these when combined with further significant sales prospects can improve the cash performance. Whilst the Managed Services division is currently experiencing reduced sales as a result of the Ebola crisis in West Africa, this region represents only a very small part of the Group's sales prospects, and none of its shorter term prospects are in the affected region. The £1,250,000 (before expenses) that the Company raised in August through the issue of new shares, combined with a current view of our sales pipeline and cost reduction measures being implemented means that the Group expects to be a going concern for a period of12 months from the date of approval of these interim financial statements. This has been supported by detailed profit, cash flow and financial position forecasts prepared by the directors. In the event that the Directors are of the opinion that the cash flow forecasts might not be achieved then further measures will be taken. These could include further cost reductions and the raising of equity or debt from existing or new shareholders or loan note holders.

Basis of consolidation

The Group financial statements consolidate those of the Group and its subsidiary undertakings drawn up to 30 June 2014. 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.

4. 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.

5. 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:

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

Since the balance sheet date the Group's managed services operations in West Africa have been affected by the regional Ebola outbreak. This has reduced passenger volumes in the short term and the situation remains dynamic

On 4 August 2014 the Group announced the issue of 3,125,000 new ordinary shares of 10p each (the "Placing Shares"), at a price of 40p per share to raise gross proceeds of £1.25m. This will be used primarily for the ongoing expansion of its Managed Services division and as a precautionary measure to mitigate any potential disruption to the Company's cash flows in the unlikely event the current Ebola outbreak in West Africa adversely impacts air traffic to the region.

9. Approval of interim financial statements

The interim financial statements were approved by the board of directors on 29 September 2014.

10. Copies of Interim Financial Statements

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