Preliminary Results
13/06/2011 07:00
13 June 2011 PHSC PLC
Preliminary Announcement of Results
for the year ended 31 March 2011
Highlights:
* EBITDA of 0.378m, down from 0.583m
* Group revenues at 4.874m compared with 4.922m last year
* Cash reserves rise to 0.749m
* Group net assets rise to 5.27m from 5.13m
* Basic earnings per share of 2.33p down from 3.21p
* Proposed final dividend of 2.00p comprising of ordinary dividend of 1.00p
and a special dividend of 1.00p per share (2010: 0.90p)
Group Chief Executive's Review
At the conclusion of what has been a difficult year for the Group, I am pleased
to present my review of our financial performance and what we are doing to
preserve shareholder value. The contribution of each subsidiary is outlined,
along with details of the more significant activities that we have been
involved in. The final part of this review is concerned with our future
expectations and the difficulty of forecasting revenues in the current economic
environment.
General Overview
Revenue and profit
Overall Group revenues saw a reduction of around 48,000 over the period,
generating EBITDA of 378,400. With that figure standing at 106,300 at the
time of the interims, a strong second half performance saw annual earnings of
more than three times that amount. This improvement in fortunes is partly
caused by a high volume of invoices traditionally being raised in February and
March each year, curbing work in progress and meeting customers' budgetary
needs.
Costs
Management at all subsidiaries continues to look at all opportunities to reduce
costs, where this can be accomplished without detriment to quality or
performance. After offsetting savings made across the Group, costs for the year
rose by a net 130,000. This reflects a full year's ownership of Quality
Leisure Management Limited (QLM), purchased on 31 December 2009.
Having frozen staff salaries across the Group in 2009/10, a decision was taken
to award a general 2% cost-of-living increase in July 2010 to all employees
below director level at each subsidiary.
Mindful of the overhead associated with running the parent company, my fellow
board directors and I elected to freeze our own pay. Further, we have all
agreed to reduce our remuneration in 2011/12 such that there will be an overall
saving of 12,000 from main board salaries. In particular I must thank our
non-executive directors for their understanding and wholehearted co-operation
with this initiative.
Recent and Proposed Acquisitions
In accordance with our obligation under the share purchase agreement, a stage
payment of 250,000 was made to the former owners of QLM on 31 December 2010,
being the first anniversary of the acquisition. This was funded from our
existing cash resources. The agreement provides for a final payment of 100,000
to be made on 31 December 2011. The final payment will be adjusted, for up
or down according to a performance formula, and we expect the eventual figure
to be lower than that provided for.
Following a dispute about asset values with the former owner of Inspection
Services (UK) Limited, purchased in October 2008, we commenced legal
proceedings. This led to an out-of-court settlement whereby the board accepted
31,000 including a cash sum of 20,000 and forfeiture of 11,000 held to the
seller's account. After legal costs the net benefit was 17,000. We have also
released the provision for a profit-related payment of 25,000 to the seller as
targets were not met, and each party has agreed that the matter is now
concluded.
The Group is not actively seeking further acquisitions, but responds to
opportunities as they arise. Two potential targets have been evaluated to date
in 2011 but no formal offers were made due to unrealistic vendor expectations
in one case and an insufficiently robust order book in the other.
Corporate Structure
There has been no change to the structure. In addition to myself, Nicola Coote
is an executive director. Our two non-executive directors are Mike Miller, who
chairs the audit committee, and Graham Webb MBE who chairs the remuneration
committee. The contracts of both non-executives have been extended until 31
March 2012. Our chartered secretary, Lorraine Young, supports the board and its
committees. The corporate resource is strengthened by the presence of our group
accountant, Candy Wilton.
In my Interim Statement, I explained that the corporate overhead had increased
and the board was looking to see where savings could be made. I stated that
certain costs are an inevitable result of our AIM listing and of the
infrastructure necessary to meet our compliance obligations. Some shareholders
subsequently questioned whether this statement was a precursor to leaving AIM,
with mixed opinions as to how they would regard such a move.
For the avoidance of doubt, the board is presently comfortable with the
existing trading platform. Whilst we note that our shares trade well below what
we deem to be a more appropriate value, we do not anticipate any changes in the
short term and remain committed to our AIM listing. We continue to look at
measures to reduce costs, as evidenced by the cut to directors' pay mentioned
earlier, and will continue to review each area of expense including registrar
services.
Employees
The board is grateful for the support of workers at all subsidiaries,
especially those directly affected by cost-saving measures. A small number of
employees have seen reductions in their working week, or workloads rising as a
result of non-replacement of leavers. The board is committed to do whatever it
reasonably can to preserve and protect the livelihoods of those it employs,
recognising that they are the lifeblood of the company.
Regulatory review
A Government-commissioned report produced by Lord Young in October 2010 was
entitled "Common sense - Common safety". It was intended to reduce the burdens
associated with safety compliance on business, and to address the compensation
culture. One recommendation led to the setting up of the Occupational Safety
and Health Consultants Register. This is designed to make it easier for clients
to source competent advisors, and to give more status to qualified
practitioners such as those employed by Group subsidiaries. The majority of
relevant personnel within the Group are now registered.
Performance by Trading Subsidiaries
Profit figures below are stated before tax and Group management charges. Note
that revenues for safety training courses and general consultancy assignments
are usually credited to the company generating the sale. It is sometimes the
case that the consultant delivering the work is not from the same subsidiary
and Group policy is not to cross-charge for such services. For example, a
22,000 sale by Envex was delivered by Adamson's Laboratory Services at a cost
of around 17,000. For that reason, reference should be made to the Group's
overall performance rather than attempting to make direct comparisons at
subsidiary level.
Personnel Health and Safety Consultants Limited
Sales of 927,500, yielding a profit of 379,000.
In the previous year there were sales of 978,500 and a profit of 418,000.
RSA Environmental Health Limited
Sales of 661,500, yielding a profit of 16,500.
In the previous year there were combined sales of 840,000 for RSA and In-House
The Hygiene Management Company (now a division of RSA), and a combined profit
of 51,500.
Adamson's Laboratory Services Limited
Sales of 2.09 million yielding a profit of 160,000.
In the previous year there were sales of 2.45 million, yielding a profit of
340,500.
Envex Company Limited
Sales of 177,000, yielding a profit of 53,500.
In the previous year there were sales of 190,000 and a profit of 28,500.
Inspection Services (UK) Limited
Sales of 246,500, yielding a profit of 18,500.
In the previous year there were sales of 272,000, yielding a profit of
20,000.
Quality Leisure Management Limited
Sales of 766,000, yielding a profit of 109,000
In the previous year, the company had sales of 203,000, yielding a profit of
40,000. This represented a three-month period following acquisition.
Net Asset Value
As at 31 March 2011, the Company had net assets of 5.273m. There were
10,381,973 Ordinary Shares in issue at that date which equates to a net asset
value (NAV) per share of 50.78p. At 17.5 pence per share, the Ordinary Shares
of the Company are currently trading at a discount of approximately 65% to the
net asset value.
Dividend
The board is proposing a final dividend of 1.00p per ordinary share.
The Group has a strong and increasing cash balance. This stood at around
749,000 at year-end. In the absence of any immediate call upon the majority of
these reserves, the board also proposes a special additional dividend of 1.00p
per ordinary share.
Subject to approval at the Annual General Meeting, the above total dividend of
2.00p per ordinary share will be paid on 23 September 2011 to shareholders on
the register as at 26 August 2011.
Prospects
Increasingly we are finding that some competitors are grossly underpricing
work, sometimes to the extent that the quality of their service will inevitably
be compromised. The current policy for buyers, particularly in the public
sector, to award contracts to the lowest price bidder without considering how
the provider can possibly deliver the service effectively is shortsighted and
will ultimately prove counterproductive. PHSC plc has always prided itself on
the amount of repeat business and new work arising from recommendation. We
continue to believe that the best long-term strategy is to deliver a good
quality service at a fair price. Our subsidiaries are each exploring ways of
adding value to what they provide, and the development of new services.
At a time when we have limited opportunity to increase revenue from traditional
sources, we must focus on controlling and eliminating costs to the best of our
ability. Much has been achieved in this respect but there are further steps
that we will be exploring. Our subsidiaries are finding it extremely difficult
to forecast future demand for their services, and this uncertainty makes it
hard to plan with any degree of confidence. However, much of our business is
compliance-based and to that extent there will always be a demand.
The board expects that revenues for 2011/12 will be broadly similar to those
for the previous year, but that concerted efforts to cut costs will bear fruit.
Based on current expectations we anticipate an increase of up to 10% in annual
profits. Nevertheless, we are mindful that unexpected fluctuations in demand
will impact upon this projection.
Our very strong cash balance, even after allowing for the enhanced dividend
payment the board is recommending, gives us a substantial advantage over the
majority of our competitors. This can only be a very positive factor in the
long-term outlook for our company.
Stephen King
Group Chief Executive
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 31.3.11 31.3.10
AS AT 31 MARCH 2011 '000 '000
Non-Current Assets
Property, plant and equipment 817 839
Goodwill 3,315 3,257
Deferred tax asset 1 5
4,133 4,101
Current Assets
Inventories 2 2
Trade and other receivables 2,320 1,781
Cash and cash equivalents 749 710
3,071 2,493
Total Assets 7,204 6,594
Current Liabilities
Trade and other payables 1,694 863
Current tax liabilities 56 174
Short term provisions 100 250
1,850 1,287
Non-Current Liabilities
Long term provisions - 100
Deferred tax liabilities 81 80
81 180
Total Liabilities 1,931 1,467
Net Assets 5,273 5,127
Equity
Called up share capital 1,038 1,038
Share premium account 1,497 1,497
Revaluation reserve 191 194
Capital redemption reserve 144 144
Retained earnings 2,403 2,254
5,273 5,127
STATEMENT OF COMPREHENSIVE INCOME 31.3.11 31.3.10
FOR THE YEAR ENDED 31 MARCH 2011 '000 '000
Revenue 4,874 4,922
Cost of sales 2,636 2,583
Gross profit 2,238 2,339
Administrative expenses 1,917 1,840
Other income 6 2
Operating profit 327 501
Interest receivable and similar income 1 -
Interest payable and similar charge - 1
Profit for the year before taxation 328 500
Corporation tax expense 89 158
Profit for the financial year on 239 342
continuing operations
Profit attributable to:
Owners of parent 239 342
Earnings per share for profit on
continuing operations attributable to the
owners of the Group during the year
Basic 2.33p 3.21p
Diluted 2.32p 3.16p
GROUP STATEMENT OF Share Share Capital Revaluation Retained Total
CHANGES IN EQUITY Capital Premium Redemption Reserve Earnings Equity
FOR THE YEAR ENDED Reserve
31 MARCH 2011
Balance at 1 April 2009 1,107 1,488 64 197 2,139 4,995
Total comprehensive income - - - - 342 342
for the year
Dividends - - - - (90) (90)
Issue of shares 11 9 - - - 20
Purchase of own shares (80) - 80 - (140) (140)
Depreciation on revalued - - - (3) 3 -
assets
Balance at 31 March 2010 1,038 1,497 144 194 2,254 5,127
Balance at 1 April 2010 1,038 1,497 144 194 2,254 5,127
Total comprehensive income - - - - 239 239
for the year
Dividends - - - - (93) (93)
Depreciation on revalued - - - (3) 3 -
assets
Balance at 31 March 2011 1,038 1,497 144 191 2,403 5,273
GROUP CASH FLOW STATEMENT Note 31.3.11 31.3.10
FOR THE YEAR ENDED 31 MARCH 2011 '000 '000
Cash flows from operating activities:
Cash generated from operations I 616 554
Interest paid - (1)
Tax paid (203) (61)
Net cash generated from operating 413 492
activities
Cash flows from investing activities
Purchase of property, plant and equipment (33) (11)
Purchase of subsidiary companies (net of (250) (320)
cash acquired)
Disposal proceeds 1 -
Interest received 1 -
Net cash used in investing activities (281) (331)
Cash flows from financing activities
Repayment of borrowings - (84)
Dividends paid to group shareholders (93) (90)
Shares issued for cash - 20
Purchase of own shares - (140)
Net cash used by financing activities (93) (294)
Net decrease in cash and cash equivalents 39 (133)
Cash and cash equivalents at beginning of 710 843
year
Cash and cash equivalents at end of year 749 710
NOTE TO THE GROUP CASH FLOW STATEMENT 31.3.11 31.3.10
FOR THE YEAR ENDED 31 MARCH 2011 '000 '000
I. CASH GENERATED FROM OPERATIONS
Operating profit - continuing operations 327 501
Depreciation and amortisation charges 52 82
Loss on sale of fixed assets 10 1
(Increase)/decrease in stock and work in - (2)
progress
(Increase)/decrease in debtors 334 (38)
Increase/(decrease) in creditors (107) 10
Cash generated from operations 616 554
NOTE TO THE PRELIMINARY RESULTS ANNOUNCEMENT OF PHSC PLC
FOR THE YEAR ENDED 31 MARCH 2011
The financial information set out above does not constitute the Group's
financial statements for the years ended 31 March 2011 or 2010, but is derived
from those financial statements. Statutory financial statements for 2010 have
been delivered to the Registrar of Companies and those for 2011 will be
delivered following their approval by the board and despatch to shareholders.
The auditors have not yet reported on the 2011 financial statements.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRS), this announcement does not in itself contain sufficient information to
comply with IFRS. The accounting policies used in preparation of this
preliminary announcement are consistent with those in the full financial
statements that have yet to be published.
For further information please contact:
PHSC plc
Stephen King 01622 717700
www.phsc.plc.co.uk
Northland Capital Partners Limited
Gavin Burnell / Rod Venables 020 7796 8800
Katie Shelton (Broking)
END