PHSC plc Final Results

 
TIDMPHSC 
 
5 August 2015 
 
                                   PHSC PLC 
 
                        (the "Company" or the "Group") 
 
                Final Results for the year ended 31 March 2015 
 
HIGHLIGHTS 
 
  * Underlying EBITDA* improved by 11% at GBP0.818m, up from GBP0.735m 
 
  * Group revenues increased by 2% to GBP7.731m compared with GBP7.594m 
 
  * Cash reserves fall to GBP0.462m due to final acquisition payments 
 
  * Group net assets rise to GBP6.6m 
 
  * Earnings per share after exceptional costs fall to 2.75p from 4.24p 
 
  * Profit after tax and exceptional costs fell to GBP349k from GBP494k 
 
  * Proposed final dividend held at 1.5p per share 
 
* Underlying EBITDA is calculated as earnings before interest, tax, 
depreciation, amortisation and exceptional costs. 
 
I am pleased to present my review of the Group's performance over the year, and 
to update shareholders on the continuing progress made at PHSC plc. 
 
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. The majority of the Group's revenue 
continues to arise from the core health and safety businesses with the major 
income streams being derived from activities such as asbestos management, 
health care training, public transport safety consultancy, and supporting the 
education sector. The Group also serves the leisure industry and carries out 
statutory examination of plant and machinery via insurance brokers or directly 
for clients. 
 
In order to diversify its offering, the Group took a decision to branch out 
from its core business of health and safety in 2012. Acquisitions made at that 
time have enabled us to add quality management systems consultancy and 
training, and innovative retail security solutions including tagging, labelling 
and CCTV to the activities of the Group. It is the efforts of these newer 
subsidiaries, QCS International Limited (QCS) and B to B Links Limited (B to 
B), that have enabled us to deliver improved revenues and profits. B to B 
reaped the benefit of a substantial one-off additional programme of work from a 
key client, and this contributed greatly to Group performance. 
 
The legacy businesses generated GBP4.599m of sales compared with GBP4.567m in the 
previous year. Our ability to retain customers through the quality and 
effectiveness of the service we provide is a major strength. The Group 
continues to benefit from a diverse number of clients, including several that 
have a fairly robust safety culture and who seek continuous improvement. 
However, a lighter regulatory approach and reduced Government funding of the 
enforcement authorities has led to some organisations spending less on 
compliance services and on general discretionary services. 
 
Acquisition payments 
 
Final payments totalling GBP563,528 were made in cash in respect of the 
acquisition of QCS and B to B acquired in July and October 2012 respectively. 
On the second anniversary of the purchase of QCS a final payment of GBP80,000 was 
due under the terms of the share purchase agreement, and this was subject to 
adjustment up or down according to performance against targets. Due to the 
positive performance of the company in the two years post acquisition an 
additional amount of GBP25,283 became due. This resulted in a final payment of GBP 
105,283. 
 
Similarly on the second anniversary of the purchase of B to B, a final cash 
payment of between GBP120,000 and GBP800,000 fell due, adjustable up or down 
according to performance over the two years post completion. At the time of 
acquisition a provision of GBP250,000 was made in the accounts, but the actual 
payment exceeded this by GBP208,245 due to a very strong trading finish to the 
two year earn out period. This brought the final payment to GBP458,245. 
 
The statement of comprehensive income treats the GBP25,283 and GBP208,245 
additional payments for QCS and B to B respectively as exceptional expenses. 
This treatment is in line with IFRS requirements but has the unfortunate effect 
of reducing the final earnings per share. These exceptional expenses are not 
regarded as allowable when calculating the Company's corporation tax liability. 
 
Net asset value 
 
As at 31 March 2015, the company had net assets of GBP6.6 million. There were 
12,686,353 ordinary shares in issue at that date which equates to a net asset 
value per share of 52p. The ordinary shares of the company continue to trade at 
a discount to the net asset value. A proportion of the company's assets 
consists of goodwill associated with the various acquisitions it has made. Each 
year the level of goodwill relating to subsidiaries is reviewed to make sure 
that their values on the group statement of financial position can still be 
justified. This year it was decided to write off GBP29,230 which related to the 
carrying value of an unincorporated business, Lindum Consulting. The contracts 
of Lindum were purchased by the company around ten years ago, when the founder 
of that business retired. None of the contracts remain current so there is no 
justification in maintaining a value in respect of them. The board remains 
comfortable with all other valuations. 
 
Performance by Trading Subsidiaries 
 
A review of the activities of each trading subsidiary is provided below. The 
profit figures stated are before tax and management charges. 
 
Adamson's Laboratory Services Limited (ALS) 
 
  * 2015: sales of GBP2,694,500 yielding a profit of GBP276,300. 
 
  * 2014: sales of GBP2,660,300 yielding a profit of GBP312,300. 
 
The turnover of ALS increased over the period, and the gross profit margin was 
maintained at 39%. 
 
Asbestos-related revenues account for the majority of income. The health and 
safety department's turnover decreased slightly but the integration of Envex 
continues to work well and the volume of occupational hygiene consultancy 
showed some growth. 
 
Training income was stable, with the British Occupation Hygiene Society 
proficiency modules and general asbestos awareness training remaining popular. 
 
The main activity of asbestos consultancy remained consistent. The company 
benefitted from an extension to a contract for a large university, and this 
included the secondment of a full-time member of staff along with the provision 
of full UKAS accredited laboratory services onsite. Work under this contract is 
scheduled to conclude at the end of the first quarter of the 2015/16 financial 
year. 
 
ALS continued to supply two full-time members of staff to another high-profile 
university, fulfilling the asbestos manager and assistant roles. 
 
Repeat business was won throughout the year, with several blue chip clients in 
the private sector, and with local government. 
 
ALS has successfully maintained its accreditation with UKAS ISO 17020, 17025 
and ISO 9001. 
 
B to B Links Limited (B to B) 
 
  * 2015: sales of GBP2,604,100 yielding a profit of GBP357,100. 
 
  * 2014: sales of GBP2,510,300 yielding a profit of GBP256,200. 
 
In its second full year of trading since being acquired by PHSC plc, B to B 
generated revenues of GBP2,604,100, an increase of 4% on the previous 12 months 
of trading (GBP2,510,300). The majority of revenues during the year came from 
national accounts in the department store, fashion retail, grocery, electrical 
goods and builders' merchant sectors. In addition independent retail customers 
have been, and continue to be, an important source of revenue. The company had 
an exceptionally strong performance during the first half of the year due to a 
large project for its department store customer as well as a major roll-out for 
a new national account in the building trade. 
 
The general outlook for retail remains positive and demand for retail security 
products and services remains strong as levels of customer theft have continued 
to rise. B to B's security tagging and labelling offer remains competitive and 
the company has responded to customer demand by adding a competitive Internet 
Protocol CCTV product range to its CCTV offer. After a period of rapid change 
and growth since acquisition, priorities for 2016 are to invest in technical 
and sales capacity to improve installation and maintenance efficiency and grow 
independent sales. 
 
Inspection Services (UK) Limited (ISL) 
 
  * 2015: sales of GBP195,900 yielding a profit of GBP17,100. 
 
  * 2014: sales of GBP195,100 yielding a profit of GBP5,600. 
 
ISL carries out statutory examinations and inspections on behalf of a broad 
range of clients, either directly or via commission-based agreements with 
insurance brokers. 
 
Annual revenues at GBP195,900 were almost identical to those seen in the previous 
period, but profitability improved. The main reason for the improvement was a 
reduction in administrative costs, with a full-time member of staff leaving 
during the year and being replaced by a part-timer. 
 
The majority of income continues to derive from the insurance sector, where a 
large amount of repeat business is enjoyed as clients tend to renew policies 
through their brokers. 
 
The service that ISL provides enables clients to meet obligations under 
requirements placed upon them by health and safety legislation. As long as ISL 
delivers a good service with charges maintained at or around the previous year, 
there is little motivation for clients to seek alternative providers. 
 
Engineers from the company have carried out work for the clients of other 
subsidiaries within the PHSC plc group. The costs of delivery are borne by the 
company, and revenues stay with the origination subsidiary, in line with group 
policy of not cross-charging. 
 
Personnel Health & Safety Consultants Limited (PHSCL) 
 
  * 2015: sales of GBP753,800 yielding a profit of GBP332,000. 
 
  * 2014: sales of GBP749,500 yielding a profit of GBP327,500. 
 
Revenues were fractionally higher at GBP753,800, meaning that turnover increased 
by just over GBP4,000 in the year. Much of the income arises from long-term 
contracts that generate recurring revenues, with this core income supplemented 
by a number of one-off projects ranging from assignments of one day's duration 
through to more complex projects. 
 
A part-time member of the fee-earning staff retired during the year and was not 
replaced. Another employee reduced his working week in preparation for 
retirement. Some of the work previously carried out by these two employees was 
outsourced and some was undertaken by remaining staff. This contributed to 
higher profits, as did a reduced management charge from parent company PHSC 
plc. The reduction was a consequence of larger contributions to the parent 
company from its other subsidiaries. 
 
Parent company PHSC plc has a policy of subsidiaries not cross-charging for 
work carried out on behalf of sister companies. PHSCL is the largest net 
provider of consultancy and training services to clients of other members of 
the PHSC plc group. 
 
The company was assessed for continued accreditation to three schemes; 
Investors in People, Constructionline, and ISO 9001 Quality Systems. All three 
assessments led to renewal of the company's approved status. 
 
QCS International Limited (QCS) 
 
  * 2015: sales of GBP526,800 yielding a profit of GBP148,100. 
 
  * 2014: sales of GBP516,200 yielding a profit of GBP161,800. 
 
Turnover for the year increased by 2% to GBP526,800 reflecting a consolidation of 
the considerable increase achieved the previous year. Profit before taxation 
decreased by 8% to GBP148,100 resulting from the additional costs relating to 
subcontractors, services of another group consultant and higher printing costs 
to cover the demand for training. 
 
QCS has retained 80% of its outsource clients and continues to see a steady 
growth of new clients to the consultancy portfolio. The latter has grown 6% in 
the period but there has been a reduction in the proportion relating to medical 
device manufacture consultancy which enjoys higher margins, hence the 
disproportionate impact on gross profit. Progress is being made on securing 
further work in this sector. The financial year ended with the introduction of 
new health and safety services aimed primarily at offering long-term embedded 
services to a new client base. Marketing of this new service began at the start 
of the new financial year. 
 
QCS continues to increase income from publicly available training courses. 
In-house training revenues exceeded budget expectations and marketing 
initiatives have been put in place to ensure that growth accelerates in this 
part of the business in the coming year. 
 
In 2015/16 there will be significant changes to the main quality and 
environmental standards for which QCS offers training and consultancy services. 
This presents a growth opportunity, whereby QCS can promote its ability to 
support those companies who wish to prepare for the revised standards. In 
addition, greater demand is expected for health and safety services with the 
introduction of the new international standard ISO45001. QCS remains well 
placed within the market place to take advantage of these changes with both 
existing and new clients seeking assistance to ensure compliance. 
 
After a six month transition period, on 1 January 2015 Rosalynne Shields 
retired as Managing Director and was replaced by Ian Phillips, a former QCS 
consultant. Rosalynne Shields is now retained on a part time basis to provide 
advice to companies within the PHSC plc group and thus remains available to QCS 
in an advisory capacity. 
 
Quality Leisure Management Limited (QLM) 
 
  * 2015: sales of GBP533,900 resulting in a profit of GBP123,800. 
 
  * 2014: sales of GBP463,500 resulting in a loss of GBP4,500. 
 
The year ended 31 March 2015 saw QLM turn a loss of GBP4,500 into a profit of GBP 
123,800. This was the result of a focus on developing the company's core 
consultancy business and the introduction of new product lines. The cost 
cutting measures implemented during 2013/14, including relocation of the office 
premises also had a beneficial effect on the profitability of the business. 
 
Turnover for the year ended 31 March 2015 increased by 15% to GBP533,900. Health 
and safety income exceeded expectation predominantly due to strong retained 
client renewals and a steady growth in audits. Income from quality management 
was better than anticipated due to the winning of new integrated management 
system (IMS) projects. The new QLM IMS encapsulates all of the organisation's 
business processes under one umbrella and documents them using the 'process 
approach'. This new approach shows how processes and procedures link together 
and details the inter-relationship between them, removing duplication of work 
activities across the various functions of the business. The documented system 
is bespoke to the organisation. Sport Aberdeen and Brio Leisure are two such 
organisations that have structured their IMS in line with the new approach and 
have already started to see tangible benefits. 
 
The LeisureShield system, developed by Real Time Leisure has been designed and 
tested specifically in leisure to digitise the normally paper based health and 
safety inspections of areas and equipment. It records the location of the 
equipment being inspected, identifies staff, schedules inspections, tracks 
faults through to completion and reports the findings. In addition, QLM 
Leisuresafe is integrated into the system, allowing users to 'self-assess' 
health and safety systems and procedures against the QLM Leisuresafe assessment 
model. This self-assessment can then be externally validated. Sales from the 
new Leisureshield product have grown more slowly than anticipated but new 
marketing initiatives to boost this income stream are planned in 2015/16. 
 
A number of new publications are due to be launched by the end of 2015 through 
CIMSPA. The publications will include a review, refresh and update of existing 
publications and three new industry specific guides available to members 
throughout the Institute. 
 
A new business relationship with Poseidon Technologies, further work with 
Leisureshield and development of core business products and services will form 
a key part of the 2015/16 business strategy. Poseidon is a computer vision 
surveillance system that recognises texture, volume and movement within a pool. 
Comprised of an advanced overhead and/or underwater camera network that 
continually surveys the pool and a specialised software system that analyses in 
real-time, the trajectories of swimmers, the system can alert lifeguards in the 
first seconds of a potential accident to the exact location of the swimmer in 
danger. 
 
Originating in France, the Poseidon system has been installed in over 250 pools 
across the world. So far the registered activations have led directly to 30 
lives being saved. Two of these were in the UK. The Poseidon system is an 
excellent product and QLM are acting as their UK agents to assist with its 
development. 
 
After a six month transition period, on 1 June 2015 Peter Mills retired as 
Managing Director and was replaced by Leigh Simmonds, a former QLM Principal 
Consultant. Peter Mills will remain available to QLM in an advisory capacity at 
least until the end of 2015. 
 
RSA Environmental Health Limited (RSA) 
 
  * 2015: sales of GBP421,900 yielding a profit of GBP34,900. 
 
  * 2014: sales of GBP499,400 yielding a profit of GBP55,900. 
 
Revenue and profit fell year on year, as the company continues its transition 
away from the provision of low-margin services to the public sector. 
 
The business continues to focus on supporting schools, both in the state and 
independent sectors, with the management of health and safety. The SafetyMARK 
service remains the core offering and the number of educational establishments 
signed up to the programme now stands at approximately 160. The halo effect of 
SafetyMARK means that general safety consultancy and training services are 
regularly upsold and, as the number of contracted schools increases, the 
captive market broadens and presents more opportunities. Moving forward, much 
focus has been placed upon promoting services that can be delivered during the 
school holidays, as these tend to be quiet for a business that is so focussed 
on school support. In 2015/16, particular emphasis has been placed upon 
undertaking fire risk assessments and this has proved to be a successful 
strategy. The intention is to continue this focus through the academic summer 
holidays to help avoid a traditional dip in revenue during this period. 
 
Developments within the London Borough of Redbridge led to SafetyMARK being 
offered as an alternative safety support service to the one that had previously 
been provided by the local authority. This has led to 15 schools in the Borough 
joining the scheme, with many more in the pipeline. This provides a regional 
cluster which allows public training courses to be offered to all schools in 
the area. Such courses run at good profit margins if they prove popular, as 
they have done so far. In the same vein, the school-specific training courses 
designed by RSA and accredited by the Institution of Occupational Safety and 
Health (IOSH), continued to be popular across the country and particularly when 
run on behalf of the National Association of School Business Management. 
 
The success of SafetyMARK means that new enquiries from prospective clients are 
strong and new business is gained without the need for an aggressive marketing 
strategy. The key will now be to ensure that probability is maximised by using 
the economies of scale afforded by a larger client base, as well as ensuring 
that costs are well controlled and standard fees are reviewed, where 
appropriate. 
 
Outlook 
 
Whilst we remain confident that core revenues from our regular and retained 
clients will underpin the coming year's performance, we recognise that it is 
unlikely that we shall be able to replicate the exceptionally favourable 
circumstances that occurred last year. We will work hard to find similar 
opportunities to replace revenues that ended on completion of the large one-off 
additional assignment fulfilled by B to B. Another high-value contract that 
ends in 2015-16 relates to asbestos consultancy services provided by Adamson's 
Laboratory Services Limited (ALS) and we do not expect that this subsidiary 
will be able to win sufficient new work in the short term to fully compensate 
for this gap in the forward order book. 
 
Now that we have fulfilled all our obligations in respect of acquisition 
payments, we are in a position to begin to accumulate more comfortable cash 
reserves as the year progresses. At this time the Group has not committed to 
further acquisitions, but is prepared to pursue opportunities if the right 
proposition presents itself at the right price and where this is clearly seen 
as being in shareholders' best interests. 
 
On behalf of the board 
 
Stephen King 
 
Group Chief Executive 
 
31 July 2015 
 
GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2015 
 
                                                           31.3.15   31.3.14 
 
                                                                 GBP         GBP 
 
Non-Current Assets 
 
Property, plant and equipment                              689,595   695,662 
 
Goodwill                                                 4,579,976 4,609,206 
 
Deferred tax asset                                               -        53 
 
                                                         5,269,571 5,304,921 
 
Current Assets 
 
Inventories                                                215,591   154,270 
 
Trade and other receivables                              1,979,918 1,935,280 
 
Cash and cash equivalents                                  462,392   712,397 
 
                                                         2,657,901 2,801,947 
 
Total Assets                                             7,927,472 8,106,868 
 
 
Current Liabilities 
 
Trade and other payables                                 1,155,824 1,134,645 
 
Financial liabilities                                            -     6,498 
 
Current corporation tax payable                            105,245   127,474 
 
Contingent consideration                                         -   330,000 
 
                                                         1,261,069 1,598,617 
 
Non-Current Liabilities 
 
Deferred tax liabilities                                    67,537    67,817 
 
                                                            67,537    67,817 
 
Total Liabilities                                        1,328,606 1,666,434 
 
Net Assets                                               6,598,866 6,440,434 
 
Capital and reserves attributable to equity holders of 
the Group 
 
 
Called up share capital                                  1,268,634 1,268,634 
 
Share premium account                                    1,831,194 1,831,194 
 
Capital redemption reserve                                 143,628   143,628 
 
Retained earnings                                        3,355,410 3,196,978 
 
                                                         6,598,866 6,440,434 
 
GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2015 
 
                                                          31.3.15   31.3.14 
 
                                                                GBP         GBP 
 
Continuing operations: 
 
Revenue                                                 7,730,900 7,594,281 
 
Cost of sales                                         (4,226,206)  (4,356,092) 
 
Gross profit                                            3,504,694 3,238,189 
 
Administrative expenses                               (2,738,562)  (2,583,170) 
 
Administrative expenses - exceptional                   (262,758)            - 
 
Other income                                                    -     1,096 
 
Profit from operations                                    503,374   656,115 
 
Finance income                                                750       259 
 
Finance costs                                               (796)      (1,524) 
 
Profit before taxation                                    503,328   654,850 
 
Corporation tax expense                                 (154,601)    (160,771) 
 
Profit for the year after tax attributable to owners      348,727   494,079 
of the parent 
 
Other comprehensive income                                      -            - 
 
Total comprehensive income attributable to owners of      348,727   494,079 
the parent 
 
Basic and Diluted Earnings per Share from continuing        2.75p        4.24p 
operations 
 
GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2015 
 
                                                         Capital 
 
                                  Share        Share  Redemption    Retained 
 
                                Capital      Premium     Reserve    Earnings     Total 
 
                                      GBP            GBP           GBP           GBP        GBP 
 
Balance at 1 April 2013       1,060,634    1,555,529     143,628   2,867,359 5,627,150 
 
Profit for year                       -            -           -     494,079   494,079 
attributable to equity 
holders 
 
Issue of shares                 208,000      275,665           -           -   483,665 
 
Deferred tax adjustment to            -            -           -     (5,365)   (5,365) 
property valuation 
 
Dividends                             -            -           -   (159,095) (159,095) 
 
Balance at 31 March 2014      1,268,634    1,831,194     143,628   3,196,978 6,440,434 
 
Balance at 1 April 2014       1,268,634    1,831,194     143,628   3,196,978 6,440,434 
 
Profit for year                       -            -           -     348,727   348,727 
attributable to equity 
holders 
 
Dividends                             -            -           -   (190,295) (190,295) 
 
Balance at 31 March 2015      1,268,634    1,831,194     143,628 3,355,410   6,598,866 
 
 
GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2015 
 
                                                            31.3.15    31.3.14 
 
                                                                  GBP          GBP 
 
Cash flows from operating activities: 
 
Cash generated from operations                              739,423    856,333 
 
Interest paid                                                 (796)    (1,524) 
 
Tax paid                                                  (177,057)  (211,248) 
 
Net cash generated from operating activities              561,570      643,561 
 
Cash flows used in investing activities 
 
Purchase of property, plant and equipment                  (58,952)   (30,933) 
 
Payment of contingent consideration on acquisitions       (563,528)  (441,148) 
 
Disposal of fixed assets                                      450            - 
 
Interest received                                             750          259 
 
Net cash used in investing activities                     (621,280)  (471,822) 
 
Cash flows (used by)/from financing activities 
 
Proceeds from placement of shares                                 -    483,665 
 
Dividends paid to Group shareholders                      (190,295)  (159,095) 
 
Net cash (used by)/from financing activities              (190,295)    324,570 
 
Net (decrease)/increase in cash and cash equivalents      (250,005)    496,309 
 
Cash and cash equivalents at beginning of year            712,397      216,088 
 
Cash and cash equivalents at end of year                  462,392      712,397 
 
 
NOTES TO THE GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2015 
 
                                                             31.3.15  31.3.14 
 
                                                                   GBP        GBP 
 
I. CASH GENERATED FROM OPERATIONS 
 
Operating profit - continuing operations                     503,374  656,115 
 
Depreciation charge                                           52,249   48,533 
 
Goodwill impairment                                           29,230   27,871 
 
Fair value movement in contingent consideration              233,528        - 
 
Loss on sale of fixed assets                                  12,320        - 
 
Increase in inventories                                     (61,321)  (1,399) 
 
Decrease/(increase) in trade and other receivables          (44,638)  102,444 
 
Increase in trade and other payables                          21,179   35,967 
 
Decrease in financial liabilities                            (6,498) (13,198) 
 
Cash generated from operations                               739,423  856,333 
 
NOTE TO THE RESULTS ANNOUNCEMENT OF PHSC PLC FOR THE YEAR ENDED 31 MARCH 2015 
 
The financial information set out above does not constitute the Group's 
financial statements for the years ended 31 March 2015 or 2014, but is derived 
from those financial statements. Statutory financial statements for 2014 have 
been delivered to the Registrar of Companies and those for 2014 will be 
delivered following their approval by the board and dispatch to shareholders. 
The auditors have not yet reported on the 2015 financial statements. 
 
Whilst 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 7 
September 2015 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR. 
 
Copies of the full report and accounts and notice of the AGM have been posted 
to shareholders and are available to view on the Company's website at 
www.phsc.plc.uk 
 
For further information please contact: 
 
PHSC plc                        01622 717700 
 
Stephen King 
[e-mail] 
www.phsc.plc.uk 
 
Sanlam Securities UK Limited    020 7628 2200 
(Nominated adviser and broker) 
 
Lindsay Mair/James Thomas 
 
 
 
 
END