REG-PHSC Plc: Final Results <Origin Href="QuoteRef">PHSC.L</Origin>
11/08/2017 07:05
11 August 2017
PHSC PLC
(the “Company” or the “Group”)
Final Results for the year ended 31 March 2017
Financial Highlights
* Underlying EBITDA* loss of £0.1m, down from a profit of £0.368m last year
* Group revenue rose to £7.16m compared with £7.04m last year
* Cash reserves of £0.207m at year end compared to £0.256m last year
* Write-down of £0.625m (compared to £0.609m last year) due to impaired
goodwill
* Group net assets fell to £5.52m from £6.09m after goodwill impairment
* Loss per share of 4.92p compared with last year’s loss per share of 3.23p
* Loss after tax of £0.691m compared with a loss of £0.414m last year
* No final dividend proposed but interim dividend may be considered if
progress continues
*Underlying EBITDA is calculated as earnings before interest, tax,
depreciation, amortisation and acquisition costs and fair value movements on
contingent consideration.
2017 £ 2016 £
Profit before tax (720,693) (377,723)
Less: interest received (471) (1,052)
Add: interest paid 2,117 8
Add: depreciation 44,089 47,712
Add: impaired ALS goodwill 625,191 608,936
Acquisition costs - 50,000
Fair value movement on contingent consideration (50,000) -
Underlying EBITDA (99,767) 367,881
Operational highlights
* 56% of revenues were in security-related technology services compared with
40% last year
* Ongoing rationalisation and cost reduction programme
This announcement contains inside information.
Contact information
For further information please contact:
PHSC plc Stephen King 01622 717700
stephen.king@phsc.co.uk
Northland Capital Partners Limited (Nominated Adviser ) Edward Hutton David Hignell 0203 861 6625
Beaufort Securities Limited (Broker) Elliot Hance 020 7382 8300
Chief Executive’s Review
I present my review of the Group's performance over the year, and provide an
update to shareholders on the improving picture emerging over recent months.
Key developments and outlook
PHSC plc, through its trading subsidiaries, is a leading provider of health,
safety, hygiene and environmental consultancy services and security solutions
to the public and private sectors. From the time of incorporation and up until
the end of the 2015-16 financial year, the majority of the Group’s revenue
had always been generated by its health and safety businesses. In 2016-17, for
the first time in the Group’s history, more revenues arose from the
security-related technology revenues in the form of installations, consumables
and services than from health and safety services.
The legacy health and safety businesses continue to bring valuable income to
the Group. Education, leisure, public transport and the care sector represent
a large proportion of the clients to whom health and safety consultancy and
training is provided. A wide range of general commercial and industrial
organisations complete the client portfolio. In addition, the Group carries
out statutory examination of lifting equipment, pressure systems and other
plant and machinery via insurance brokers or directly for clients.
Our Scottish-based subsidiary specialising in quality systems management goes
from strength to strength and further commentary is given later in this
report. Conversely, our subsidiary engaged in asbestos management solutions
has continued to encounter challenging market conditions and there is ongoing
action to eliminate the losses arising there.
In recognition of the need to reduce reliance on traditional health and safety
businesses, the Group moved into the security technology sector in 2012.
This process continued with two further acquisitions in December 2015. The
larger of those acquisitions, SG Systems (UK) Limited (SG), involved a
two-year earn-out period whereby part of the consideration was based on
performance. Due to this provision, the Company was restricted in the steps
that could be taken in terms of integrating the businesses but agreement has
recently been reached with the sellers that allows this process to commence.
This is expected to result in savings where roles and functions can be
combined, and economies of scale can be better exploited. This will enable us
to bring forward the commitment given in last year’s report where we stated
that, after the earn-out timetable had been completed, we would formally
consolidate B to B Links Limited and SG into a security division.
We also stated that in due course we would look to form a safety division to
run parallel with the security division. This remains our strategy. The
goodwill associated with Adamson’s Laboratory Services Limited (ALS) was
fully impaired during the year as a result of an impairment review.
Acquisition payments
Under the terms of the acquisition of SG, a cash payment of £200,000 fell due
on the first anniversary of the purchase, in December 2016. This amount has
been paid in full. A final payment becomes due in December 2017 and under the
terms of the sale, this could have been an amount from £25,000 to £375,000
as determined by a formula that relates to performance over the period.
Based on the expected results, for the purposes of the accounts, a fair value
of £75,000 was initially provided for. However, the business has not
performed in line with the targets that would have triggered a payment of that
amount and we are confident that the final payment will be limited to
£25,000. This has enabled us to release £50,000 of the initial estimated
value back to the income statement.
Net asset value
As at 31 March 2017, the Company had consolidated net assets of £5.52m. There
were 14,677,257 ordinary shares in issue at that date which equates to a net
asset value per share of 38p. The ordinary shares of the company continue to
trade at a discount to the net asset value, even after allowing for the
goodwill impairment. Nevertheless, a large proportion of the Company’s
assets relate to goodwill associated with acquisitions and this is reviewed
annually to make sure that values in the group statement of financial position
can be justified. For the second year, we have found it necessary to impair
ALS in accordance with requirements of accounting standards. We are writing
down the carrying value of that business and this represents a reduction of
approximately 11% in the consolidated net assets of the Group. The board is
satisfied that all other goodwill valuations can presently be justified.
Outlook
Ongoing political uncertainty and the weaker sterling exchange rate continue
to adversely affect the Group, and in particular the security-related
subsidiaries that import materials priced in euros or US dollars.
It is encouraging that the Group saw a material improvement in underlying
EBITDA in the second half of 2016-17. Our legacy health and safety businesses
generally continue to enjoy a large amount of repeat business and have a very
loyal client base. Losses at our asbestos-related business have bottomed out
and management are seeing stabilisation of prices after a period of heavy
discounting. There may be further costs associated with restructuring the
business but the board anticipates that the large trading losses are a thing
of the past.
Proposed restructuring of our security-related companies into a single
division will ultimately result in cost savings. In addition, there continue
to be good prospects for increased sales and opportunities for technological
innovation of the products supplied. Significant new contracts can take a
considerable amount of time to materialise and various trials and talks are
underway with a number of existing and prospective clients.
Based on the latest management accounts (unaudited), the Group had total
revenues of £1.82m for the first quarter of 2017-18. This is an increase of
around 5% on the first three months of last year. Based on those revenues,
EBITDA for the first quarter is showing as around £120k. This compares very
favourably to the loss of £40k that was reflected over the corresponding
period last year.
Aside from the final payment expected to be £25,000 under the terms of the
purchase agreement for SG, no other acquisition payments are due and the Group
is presently not considering any further acquisitions.
Performance by trading subsidiary
A review of the activities of each trading subsidiary is provided below. The
profit figures stated are before tax and central management charges.
Adamson’s Laboratory Services Limited (ALS)
* 2017: sales of £823,200 resulting in a loss of £194,600
* 2016: sales of £1,825,600 yielding a profit of £76,800
Competition within the sector continues to adversely affect revenues and has
led to a situation where ALS along with several of its peers is trading at a
loss. A number of loss-making competitors entered administration during the
year.
The business had a very disappointing year with sales materially down and a
resulting loss of £194,600. In response, ALS made significant cost reductions
in both cost of sales and expenditure to compensate for the loss of revenue
and negative margins. As part of the cost reduction, several members of staff
were made redundant and the trading loss includes around £30,000 of severance
pay.
The company has been supported by the Group and has recently seen some areas
for optimism. It continues to win repeat business with blue chip clients and
local government and has seen a growth in the education sector.
The health and safety department’s turnover increased and the volume of
occupational hygiene consultancy showed some growth.
ALS has successfully maintained its accreditation with UKAS ISO 17020, 17025,
ISO 9001 and ISO14001.
B to B Links Limited (B to B)
* 2017: sales of £2,594,900 yielding a profit of £52,500
* 2016: sales of £2,551,800 yielding a profit of £134,200
During 2016-17 B to B generated revenues of £2,594,900 consistent with the
previous three years. The majority of sales in 2016-17 came from national
accounts, primarily in the department store, fashion retail, builders’
merchants and DIY sectors. Independent retail sales were flat during the
year compared with 2015-16. Non-retail CCTV sales activities contributed
£254,400 to company revenues in 2016-17, the first full year of integration
of the business of Camerascan CCTV Limited. Profits for the year fell by
£81,700 due to a combination of trade cost increases caused by the
depreciation of sterling following the June 2016 EU Referendum and a bad debt
of around £40,000 incurred after a client went into administration.
Despite the headwinds faced in 2016-17 the outlook for B to B remains strong.
B to B’s retail customer base has performed well in the new financial year
and existing key accounts all have clear plans to invest in property projects
and associated CCTV and security tagging hardware during 2017-18. Global
restructuring of key competitors in both radio frequency and acousto-magnetic
security tagging technologies may also provide opportunities to grow market
share.
Closer operational links have developed with SG during the year and these will
deepen further during the 2017-18 financial year. Key priorities for 2017-18
are to grow B to B sales by further developing existing accounts, achieving
stronger growth in independent sales, both retail and non-retail and to
improve efficiency in technical delivery and stock management.
Inspection Services (UK) Limited (ISL)
* 2017: sales of £227,600 yielding a profit of £44,200
* 2016: sales of £219,600 yielding a profit of £40,300
Health and safety legislation requires employers to ensure that relevant
equipment is examined at an appropriate frequency by a competent person to
ensure it remains safe to use. Many organisations rely upon external agencies
to assist them to comply with their duties in this regard.
The main business of ISL is to carry out statutory examinations and
inspections of lifting plant and equipment, and of pressure systems, through
contracts placed by insurance brokers. Commissions are paid to brokers for
placing this work with ISL. Approximately 75% of revenue is derived through
the insurance sector, with the remaining 25% from business placed directly by
clients.
ISL’s revenues rose by 3.5%, or £7k, from around £220k to £228k over the
period. The increase was because the volume of new business outweighed the
number of clients who did not renew the service with ISL. Costs rose as a
consequence of the delivery of a greater number of services, and because
sub-contractor fees rose in the second half of the year due to a need to cover
for the medical-related absence of a member of staff. Despite the higher costs
incurred, pre-tax and management charge profit rose to a little over £44k, an
improvement of around £3.9k or 10%.
Personnel Health & Safety Consultants Limited (PHSCL)
* 2017: sales of £666,900 yielding a profit of £218,900
* 2016: sales of £703,300 yielding a profit of £276,100
The principal activity of PHSCL in the year under review continues to be that
of providing general health and safety consultancy and training services to
public and private sector clients. In addition, consultants provide expert
witness reports in connection with criminal and legal cases, and some
editorial content for safety publications.
Turnover decreased by around 5% with gross margins down to 59%. Higher staff
salaries and the effects of pension auto-enrolment, combined with an inability
to pass on our extra costs to clients were responsible for lower profits.
Most of PHSCL’s revenue is obtained under a retainer service, with these
clients’ often purchasing additional consultancy or training days.
During the year an agreement was made with PHSCL’s largest client to
transfer a consultant from the payroll onto the client’s headcount. Although
a compensatory payment was received, this has led to a net loss of recurring
revenues.
The company continues to be a net provider of resources to other members of
the Group, with policy dictating that no cross-charges are applied to reflect
this contribution.
QCS International Limited (QCS)
* 2017: sales of £624,000 yielding a profit of £210,800
* 2016: sales of £528,000 yielding a profit of £122,700
QCS’s turnover and operational profit both exceeded management
expectations. It was hoped that the company would benefit from changes to
ISO standards, which experience has shown leads to greater demand for both
training and consultancy services. This proved to be the case and the
company increased sales significantly in the year, while keeping a close
control on costs.
Sales increased by £96k (18%) compared to 2015-16 and the corresponding
profit increased by £88k (72%) to £211k. This considerable increase in
profit reflects the improved utilisation of assets/resources.
QCS continues to be a leader in the design, marketing and delivery of training
courses and consultancy in respect of the ISO standards, which can be seen in
the high number of training courses (public and in-house) and new
consultancies delivered. QCS is highly regarded within its locale and has a
considerable share of the ISO training market for southern and central
Scotland.
The changes in 2015 to the standards ISO 9001 and ISO 14001 continue to
underpin new sales. This is likely to continue until autumn 2018, by which
point transition must be complete. QCS has presented plans to find new
markets for 2018 onwards should the demand for services linked to the new
standards decline.
QCS decided to retain full approved training partner status with our main
professional body, IRCA. During the year IRCA adjusted their relationship
with their training partners, causing some of QCS’s competitors to decide to
leave the group.
QCS continues to demonstrate high levels of customer retention; 70% of
consultancy clients were retained while achieving a steady growth of 15% in
new clients to the consultancy portfolio.
QCS’s medical device consultancy service has been in place for over a
year. Medical device consultancy sales were not as high as hoped in the
first half of the financial year but new clients have been secured in early
2017. QCS are using their new website and marketing initiatives to focus on
generating further work in this area which can be charged at a premium.
Concerns are being raised amongst clients about the potential impact of Brexit
in this sector which relies heavily upon EU cooperation in respect of
regulations. This uncertainty may generate opportunities as clients seek
reassurance and guidance once the new regulatory framework is established.
It was hoped that the British standard OHSAS 18001 for health and safety would
have been replaced by a new international standard ISO 45001 in 2016-17.
This did not happen and the latest indications are that this may not occur
until late 2017. This will provide us with an opportunity to assist clients
with the transition process, albeit at a lower rate than for work associated
with ISO 9001 and ISO 14001.
Quality Leisure Management Limited (QLM)
* 2017: sales of £437,100 yielding a profit of £74,300
* 2016: sales of £506,290 yielding a profit of £95,900
The business continued to develop and diversify in 2016-17 but the company’s
core business functions will be the focus as QLM continues to adapt to the
changing business environment and client base.
QLM saw a 14% fall in turnover from £506,290 in 2015-16 to £437,100 in
2016-17. This was largely due to staffing issues; a significant period of
sickness absence in the second quarter and the loss of the equivalent of one
full time member of staff in December 2016.
Auditing income declined by 22% from £108,900 in 2015/16 to £84,300 in
2016-17. The number of audits undertaken has decreased and lighter, more
general topics or activity specific reviews have taken precedence over QLM
Leisuresafe™ audits.
Staffing and subcontractor’s costs varied significantly in the latter part
of 2016-17 with two part-time consultants retiring and another member of staff
leaving the payroll and moving to a sub-contractor role to provide both
parties with more flexible working arrangements. Savings and efficiencies
should continue to be seen as sub-contractors are increasingly used in
2017-18.
Accident investigation income, although slightly down year on year plays a
significant role in publicly demonstrating QLM’s competence and level of
expertise. QLM continues to provide expert witness testimony for civil and
criminal cases and has been engaged by the Health and Safety Executive,
environmental health departments, solicitors and insurance companies in
support of swimming, leisure and service industry cases.
Publications generated £6,200 of income in the year ended 31 March 2017.
The CIMSPA publications, Risk Assessment Manual and Best Practice Health &
Safety Operating Procedures were published later than expected by the
Institute and sales suffered accordingly.
QLM continues to update its technology, including website development, server
replacement and the utilisation of cloud based systems. This expenditure is
essential for the development of the business and to gain efficiencies within
it. Investment in this area will continue to be a priority in 2017-18.
RSA Environmental Health Limited (RSA)
* 2017: sales of £374,100 yielding a profit of £65,100
* 2016: sales of £413,100 yielding a profit of £72,900
The principal activities of the company in the year under review were the
provision of health and safety consultancy services and training, together
with the sale of associated health and safety products.
Income has fallen year on year, as RSA continues its transition away from the
provision of low-margin services to the public sector to higher margin private
sector services. The benefit of this strategy is seen in the higher gross
profit margins despite lower revenues.
Over the past year RSA has focused on adapting the company to one that no
longer relies upon the previous strategy that was geared towards Local
Authority contracts. This has allowed the business to concentrate its effort
on supporting schools with their management of health and safety via the
SafetyMARK service core offering. This area has seen an increase in growth
from 2015-16 with the highest turnover achieved since the company moved into
the schools market.
Indications show that there is a continuing demand despite cost pressures
being placed on the mainstream schools sector. The SafetyMARK service is
proving cost effective and is finding favour within its target market. The
company seeks further growth through provision of services to multi academy
trusts to build on revenues and increase the client base. Several multi-school
partnerships have increased the number of schools under contract and this has
brought in additional revenues.
The independent schools sector is another area where RSA has seen an uplift in
clients using the SafetyMARK scheme. Cost pressures are less evident in this
sector and the more complex nature of the schools concerned means that
generally a higher premium can be commanded. Further marketing and attendance
at the Independent Schools Bursars Association conference in May 2017 will aim
to increase revenues from this part of the market.
One London borough council has continued to promote SafetyMARK as an
alternative safety support service to that previously provided by the local
authority. The business has seen modest growth in this area in the past year
with the continued provision of audits and support as well as providing health
and safety training within the borough. Currently there are 17 schools within
the borough signed up to the scheme. Some schools are currently operating
with no support and free training seminars were provided to increase awareness
of the SafetyMARK brand. This resulted in new enquiries and an additional
school signing up.
SG Systems (UK) Limited (SG)
* 2017: sales of £1,414,500 yielding a loss of £113,500
* 2016: sales of £256,700 yielding a loss of £68,900 (3.5 months)
In its first full year since joining the Group, SG generated sales of
£1,414,500. Sales were lower than forecast due to a hiatus in store
openings and refits from a major grocery customer following its acquisition of
another retailer. This, combined with pressure on gross margins caused by
the depreciation of sterling following the June 2016 EU referendum, has meant
that the company made a loss for the year.
SG’s traditional core customer base of national retail chains in the
department store, fashion, grocery, stationery and electronics sectors has
generally continued to trade well during 2016-17. The significant efforts
made by the SG sales team during 2016-17 have seen a number of new retail
accounts and a number of new product lines being launched in response to
customer demand which will provide a strong platform for growth in 2017-18 and
beyond. Sectorally the customer base has also diversified with a series of
projects implemented in a range of non-retail sectors, including construction,
school libraries, prisons/secure units, tourist attractions and hotels.
During the year closer operational links have developed with B to B and these
will deepen further during the 2017-18 financial year. SG’s key priorities
for 2017-18 are to grow sales through the introduction of new products in
existing accounts and new accounts and to improve efficiency of stock
management and technical delivery.
PHSC plc
* 2017: net loss of £501,100 before management charges, exceptional costs and
dividends received
* 2016: net loss of £479,600 before management charges, exceptional costs and
dividends received
The parent company incurs costs on behalf of the group and does not generate
any income. The costs incurred by PHSC plc represent the costs of running an
AIM listed group and are consistent with the previous year.
On behalf of the board
Stephen King
Group Chief Executive
11 August 2017
Group Statement of Financial Position
As at 31 March 2017
2017 £ 2016 £
Non-Current Assets
Property, plant and equipment 626,224 675,345
Goodwill 3,878,463 4,503,654
Deferred tax asset 21,693 497
4,526,380 5,179,496
Current Assets
Inventories 487,367 416,371
Trade and other receivables 1,447,493 1,894,875
Cash and cash equivalents 206,719 256,558
2,141,579 2,567,804
Total Assets 6,667,959 7,747,300
Current Liabilities
Trade and other payables 1,064,358 1,221,599
Current corporation tax payable - 103,403
Deferred consideration - 200,000
Contingent consideration 25,000 -
1,089,358 1,525,002
Non-Current Liabilities
Deferred tax liabilities 57,800 62,755
Deferred consideration - 75,000
-
57,800 137,755
Total Liabilities 1,147,158 1,662,757
Net Assets 5,520,801 6,084,543
Capital and reserves attributable to equity holders of the Company
Called up share capital 1,467,726 1,308,634
Share premium account 1,916,017 1,751,358
Capital redemption reserve 143,628 143,628
Merger relief reserve 133,836 133,836
Retained earnings 1,859,594 2,747,087
5,520,801 6,084,543
Group Statement of Comprehensive Income
For the year ended 31 March 2017
2017 £ 2016 £
Continuing operations:
Revenue 7,162,299 7,004,340
Cost of sales (3,988,623) (3,803,240)
Gross profit 3,173,676 3,201,100
Administrative expenses (3,319,092) (2,930,931)
Administrative expenses - exceptional (625,191) (608,936)
Other income 1,560 -
Other income - exceptional 50,000 -
Loss from operations (719,047) (338,767)
Finance income 471 1,052
Finance costs (2,117) (8)
Loss before taxation (720,693) (337,723)
Corporation tax credit 29,495 (75,920)
Loss for the year after tax attributable to owners
of the parent (691,198) (413,643)
Other comprehensive income - -
Total comprehensive income attributable to owners of
the parent (691,198) (413,643)
Basic and diluted Earnings per Share from continuing operations (4.92)p (3.23)p
Group Statement of Changes in Equity
For the year ended 31 March 2017
Share Capital £ Share Premium £ Merger relief reserve £ Capital Redemption Reserve £ Retained Earnings £ Total £
Balance at 1 April 2015 1,268,634 1,751,358 79,836 143,628 3,355,410 6,598,866
Loss for year attributable to equity holders - - - - (413,643) (413,643)
Issue of shares on acquisition 40,000 - 54,000 - (4,385) 89,615
Dividends - - - - (190,295) (190,295)
Balance at 31 March 2016 1,308,634 1,751,358 133,836 143,628 2,747,087 6,084,543
Balance at 1 April 2016 1,308,634 1,751,358 133,836 143,628 2,747,087 6,084,543
Loss for year attributable to equity holders - - - - (691,198) (691,198)
Issue of shares on acquisition 159,092 164,659 - - - 323,751
Dividends - - - - (196,295) (196,295)
Balance at 31 March 2017 1,467,726 1,916,017 133,836 143,628 1,859,594 5,520,801
Group Statement of Cash Flows
For the year ended 31 March 2017
Note 2017 £ 2016 £
Cash flows from operating activities:
Cash generated from operations I 124,925 414,062
Interest paid (2,117) (8)
Tax paid (100,061) (83,041)
Net cash generated from operating activities 22,747 331,013
Cash flows used in investing activities
Purchase of property, plant and equipment (2,087) (35,654)
Payments in relation to acquisitions (net of cash acquired) - (262,674)
Disposal of fixed assets 1,574 724
Interest received 471 1,052
Net cash used in investing activities (42) (296,552)
Cash flows used by financing activities
Payment of deferred consideration (200,000) (50,000)
Proceeds from placement of shares 323,751 -
Dividends paid to Group shareholders (196,295) (190,295)
Net cash used by financing activities (72,544) (240,295)
Net decrease in cash and cash equivalents (49,839) (205,834)
Cash and cash equivalents at beginning of year 256,558 462,392
Cash and cash equivalents at end of year 206,719 256,558
Notes to the Group Statement of Cash Flows
2017 £ 2016 £
I. CASH GENERATED FROM OPERATIONS
Operating loss – continuing operations (719,047) (338,767)
Depreciation charge 44,089 46,882
Goodwill impairment 625,191 608,936
Fair value movement in contingent consideration (50,000) -
Loss on sale of fixed assets 5,545 2,298
Increase in inventories (70,996) (28,179)
Decrease/(increase) in trade and other receivables 447,384 381,937
(Decrease)/increase in trade and other payables (157,241) (259,045)
Cash generated from operations 124,925 414,062
Notes to the results announcement of PHSC plc
The financial information set out above does not constitute the Group's
financial statements for the years ended 31 March 2017 or 31 March 2016, but
is derived from those financial statements. Statutory financial statements for
2016 have been delivered to the Registrar of Companies and those for 2017 have
been approved by the board and will be delivered after dispatch to
shareholders. The auditors have reported on the 2016 and 2017 financial
statements which carried an unqualified audit report, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis and did not contain a statement under section 498(2) or 498(3) of the
Companies Act 2006.
While the financial information included in this 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
announcement are consistent with those in the full financial statements that
have yet to be published.
Annual General Meeting
This year’s annual general meeting (“AGM”) will be held at 10.00am on
Monday 11 September 2017 at The Old Church, 31 Rochester Road, Aylesford, Kent
ME20 7PR.
The report and accounts and notice of the AGM will be posted to shareholders
on or around 15 August 2017 and will be available to view on the Company’s
website at www.phsc.plc.uk
Dividend
No final dividend is proposed but an interim dividend may be considered if
progress continues
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