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Annual Financial Report

19/08/2019

PHSC Plc - Annual Financial Report

PR Newswire

19 August 2019

PHSC PLC
(the “Company” or the “Group”)

Final Results for the year ended 31 March 2019 and Notice of Annual General Meeting

Financial Highlights

•               EBITDA* of £0.116m excluding exceptional gain on property sale of ££0.17m, down from £0.14m last year

•               Profit after tax of £0.001m compared with a loss of £0.16m last year

•               Group revenue of £5.2m compared with £7.0m last year

•               Cash reserves of £0.64m at year end compared to £0.24m last year

•               Write-down of £0.20m due to impaired goodwill, the same as last year

•               Group net assets at £5.14m after goodwill impairment compared to £5.29m last year

•               Profit per share of 0.005p compared to a loss per share of 1.095p last year

•               Final dividend of 0.5p proposed, making a total of 1.0p for the year, matching the 1.0p paid last year1

31.3.1931.3.18
££
Profit/(loss) before tax42,494(145,861)
Less: interest received(303)(3)
Add: interest paid1,5143,778
Add: depreciation38,17934,590
Add: impairment B2BSG Solutions Limited goodwill200,000200,000
Less: net gain on sale of property(166,270)-
Add: redundancy costs re closure of Adamson’s Laboratory Services Limited47,000
Underlying EBITDA*115,614139,504

*Underlying EBITDA is calculated as earnings before interest, tax, depreciation, impairment charges and non-recurring costs.  This is used by the board as a measure of underlying trading and has been provided to assist shareholders in understanding the Group’s trading activities.

Operational highlights

•               Completion of the integration process of the two security businesses.

•               Consolidation of operational sites within the safety division, with Northleach office vacated at end of lease.

•               Refurbishment of existing Cumbernauld premises and additional lease taken on adjoining office space.

•               Disposal of freehold property previously used by discontinued asbestos consultancy business.

Annual General Meeting

This year’s annual general meeting (“AGM”) will be held at 10.00am on Monday30 September 2019 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR.

The report and accounts and notice of the AGM are expected to be posted to shareholders on or around 22 August 2019 and will shortly be available to view on the Company’s website at www.phsc.plc.uk.

For further information please contact:

PHSC plc

Stephen King                                                                 01622 717 700

Stephen.king@phsc.co.uk

www.phsc.plc.uk

Strand Hanson Limited(Nominated Adviser)               020 7409 3494

Richard Tulloch/James Bellman

Novum Securities Limited (Broker)                              020 7399 9427

Colin Rowbury

About PHSC

PHSC plc, through its trading subsidiaries Personnel Health & Safety Consultants Ltd, RSA Environmental Health Ltd, QCS International Ltd, Inspection Services (UK) Ltd and Quality Leisure Management Ltd, provides a range of health, safety, hygiene, environmental and quality systems consultancy and training services to organisations across the UK.  B2BSG Solutions Limited offers innovative security solutions including electronic tagging, labelling and CCTV.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014

Strategic Report

On behalf of the board, I present my review of the Group’s activities and performance during the financial year 2018-19, along with some commentary about the Group’s plans and expectations for 2019-20.

General business review and outlook

The Group’s revenue profile continues to be dominated by its security business, B2BSG Solutions Limited (B2BSG), which was formed at the start of the year by the amalgamation of two separate subsidiaries operating in this sector. It accounted for approximately 52% of income, with the safety businesses contributing a combined 33% and our quality systems subsidiary, QCS International Limited (QCS), making up the remaining 17%.  In the prior year the split was 60%, 23% and 11% respectively, but based on total Group revenues that were around a third higher. This illustrates the effect on the Group of a general downturn in the demand for security-related services in the present retail environment.

Despite the recent difficulties at its security business caused by weak demand from retailers, the Group’s decision to diversify away from core health and safety services in 2012 can be shown to have been the right strategy overall. The move into quality systems that took place at the same time has reaped rewards with QCS accounting for circa £0.242m of profit before tax and management charges last year. Management’s task is to improve the bottom line at the security business whilst continuing to develop the full potential of QCS.

During 2018, the national retailer who had been the largest client of B2BSG encountered difficulties along with many others with a high street presence, and temporarily suspended further investment. This had a severe impact on our workload and meant that much of the infrastructure in place to serve the client was no longer required, at least until further notice. In response we had no alternative but to scale down the operation and this led to some staff cuts and other actions with adverse financial consequences. Ultimately in Q4 the client was able to secure a company voluntary agreement with its creditors and landlords and a slow improvement to the order book has since been observed. There is no expectation that it will return to previous levels although the board is optimistic that the trend will be upwards.

Given the reliance upon retail clients and the well-publicised problems across this sector, the board decided that it was appropriate to make a provision of £200,000 against the carrying value of the security business.  Progressively during the year we were transferring the contents of the Amesbury warehouse into the Finchampstead facility as part of the amalgamation of our security businesses that formed B2BSG, and this process identified certain stock totalling £37,100 that was deemed to be slow-moving or for which there was no current client demand. The majority of this stock, whilst written down, remains on shelves and available for sale should the opportunity arise.

The subsidiaries that make up the health and safety division were each net contributors to the Group and we continue to have a strong presence in sectors such as leisure, education, healthcare and transport. At the end of calendar year 2018 our Quality Leisure Management Limited subsidiary vacated its office at The Old Police Station in Northleach, Gloucestershire upon expiry of the lease and moved to Northamptonshire where it now shares the office space with RSA Environmental Health Limited. Space had become available there following the closure of our asbestos business which had occupied an area of the premises.

In last year’s report we stated that QCS was proposing to take on additional space at the Cumbernauld office park that it occupies.  We negotiated a new lease for the existing offices and took on the adjoining offices which had been vacant for some time, doubling the space available for the delivery of public training courses. An investment approaching £50,000 was made to completely refurbish both units and now QCS has a modern and spacious facility from which to continue developing its offering.

Our freehold property in Essex, was sold following the closure of our asbestos business, and this contributed a net gain of circa £166,000.  At the time of acquisition in 2005, the Group paid for the property in line with an independent market valuation. However, the book value at that time included an unrealised gain from when the property was originally purchased some years before and on which the former owners had not made a tax provision. The effect is that the Group’s tax liability on disposal was increased to reflect tax on the unrealised gain element as well as the appreciation in value since 2005.

Net asset value

As at 31 March 2019, the Group’s consolidated net assets stood at £5.14m. There were 14,677,257 ordinary shares in issue at that date which equates to a net asset value per share of 35p.

We note that the company’s ordinary shares continue to trade at a discount to the net asset value, which we believe to be a response to the high value of goodwill on the balance sheet.  The board reviews the carrying value of goodwill each year to ensure that the book value is fairly stated and is within a range commensurate with good accounting practice.  As has been noted above, we resolved to reduce the carrying value of our retail-dependent security businesses by £200,000, something that we also did in the previous year, and this represents a reduction of approximately 4% in the consolidated net assets of the Group.  The board is satisfied that all other goodwill valuations can presently be justified.

Outlook

The delay in resolving issues surrounding the UK’s membership of the European Union (EU) continues to create an uncertain environment for many of the Group’s clients. Many of those organisations we work with are cutting back or delaying decisions until the political situation is resolved. In turn, this causes constraints on what those organisations are prepared to invest in the services and products that we provide.  Whilst we do not generally sell into the EU ourselves, there is a direct effect in that all the products supplied by B2BSG are sourced abroad. The purchasing power of sterling has deteriorated because of political uncertainty and this negatively impacts our margins. Potentially, there may be additional costs associated with bringing goods into the UK from the EU but these matters are not yet quantifiable.  The prospects for B2BSG are therefore hard to predict with any certainty but we are doing all we can to contain costs and maximise income and margins.

We expect continued stability across the safety division where we have a particularly loyal client base. We believe the cost base is where it should be, and our focus will be on continuing to drive sales.

With refurbished premises and additional training facilities now in place at QCS, we will look to exploit the opportunities that this gives us in terms of higher numbers of paying delegates on public courses and the potential to hold more than one training event at the same time.

Trading update

Unaudited management accounts for the first quarter of 2019-20 indicate that Group revenues were £1.08m and this generated EBITDA of £84,600.  This compares with total revenues of £1.56m for the first quarter of 2018-19 and EBITDA of £121,800. Cash at bank on 31 July 2019 was £660,700.

Pre-tax profit/(loss) per subsidiary before Group management charges

Profits before tax and management charges are reviewed by each subsidiary and the board every month to ensure that each subsidiary trades profitably.  To 31 March 2019, the Group did not adopt a policy of cross-charging between subsidiaries with only informal account being taken of significant work done by one subsidiary on behalf of another. With consultants increasingly undertaking work across a number of subsidiaries, this policy has been changed from 1 April 2019 to more accurately reflect the profits generated by each subsidiary.

A review of the activities of each trading subsidiary is provided below.  The profit figures stated are before tax, central management charges and impairment charges.  The management charges are the individual subsidiary’s contribution to Group overheads and are not directly attributable costs.

B2BSG Solutions Limited (B2BSG)

Note: Figures shown for 2018 are the sum of the former B to B Links Limited and SG Systems (UK Limited).

·           2019: revenues of £2,724,000 yielding a loss of £137,400

·           2018: revenues of £4,226,300 yielding a loss of £17,900

It is clear from the performance outcome that there was a material reduction in revenues in the year, and it was not possible to rapidly restructure the business to accommodate this lower revenue. Many cost saving measures have progressively been implemented but will take time to have full effect. As described in the business review section above, income was reduced due to the hiatus in orders from the largest customer, along with depressed sales generally across the retail sector. Cost savings will largely accrue through closure of the Amesbury offices and warehouse at the end of March 2019, and reduced staffing.

The profit is shown after a non-cash provision has been made of £37,068 (2018 - £45,000) for slow moving stock.

Inspection Services (UK) Limited (ISL)

·           2019: revenues of £232,600 yielding a profit of £43,500

·           2018: revenues of £215,500 yielding a profit of £46,300

There was sales growth of around 8% compared with the previous year but there were higher costs and this led to profits dropping overall by 6%.  The profile of the business has not changed, with ISL obtaining most work from insurance brokers who place inspection business with the company on behalf of their clients.  The work consists of statutory examination and inspection of lifting plant and equipment, and of pressure systems, along with ancillary equipment.

Notable contracts during the year included conducting safety reviews of numerous pressure systems that form part of coffee machines leased to offices across London and the south, and the inspection of roof edge protection systems on several buildings for a large housing provider.

Personnel Health & Safety Consultants Limited (PHSCL)

·           2019: revenues of £657,100 yielding a profit of £278,000

·           2018: revenues of £615,700 yielding a profit of £240,000

An increase in revenue of 6% led to a 15% rise in profitability because the fixed cost base is relatively stable. As has been mentioned in previous reports, this subsidiary is a net provider of consultancy time to others within the safety division and hitherto the effect of that utilisation of labour has not been reflected in results. This will change next year.

PHSCL’s clients tend to maintain their relationship with the business over many years, in particular those using the company’s flagship product which is the Appointed Safety Advisor Service.

QCS International Limited (QCS)

·           2019: revenues of £759,500 yielding a profit of £242,300

·           2018: revenues of £767,600 yielding a profit of £285,200

QCS continued to perform strongly, consolidating gains made in the previous year when there had been significant uplift due to orders relating to changes in ISO standards.  Whilst demand for transition to the new quality and environmental standards has ended, the company is now experiencing further enquiries regarding the brand-new ISO 45001 standard for health and safety.

Sales in public training and consultancy services for the year remained strong, both ahead of revenues for the previous year; these together normally account for around 80% of total income.   In-house training sales weakened, and it is this area of performance that caused total sales for the year to dip very slightly, by around 1% in total. 

In the financial year the company made considerable investment in its training facilities allowing an increase in capacity to accommodate more delegates and to offer more than one size of training room.  This has been linked to a medium-term target to grow sales for public training and to also increase profit.  Early indications are that sales are higher, and that delegate feedback is positive.

New services for information security management and training on the associated ISO 27001 standard were launched in the year.  This is linked to the company’s long-term strategy to offer as wide a range of ISO standard support for consultancy and training as practicable.  The year also saw QCS deliver work for the first time on the ISO 50001 standard for energy management.

The UK’s potential departure from the EU has not yet had an obvious direct effect on sales.  A significant proportion of medical device work is associated with an ability to offer services linked to EU regulation.  QCS will offer a ‘UK Responsible Person’ service in the event of a no deal departure, which may present some opportunities with the company acting as a UK address for manufacturers of medical devices within the EU.  The weakness of sterling has the potential to work in the company’s favour in that scenario.

QCS continues to operate on the secure foundation of repeat business with all outsource consultancies renewing contracts during the year and many clients continuing to send delegates to courses based on a positive experience of course delivery.  Indications are such that current performance is expected to continue.

Quality Leisure Management Limited (QLM)

·           2019: revenues of £437,600 yielding a profit of £106,500

·           2018: revenues of £439,400 yielding a profit of £111,900

Revenue was similar to the prior year although profits were down around 5% in line with management expectations.  QLM continued to operate well in key areas of income generation including audits, training and accident investigation.  There was a noticeable trend toward leisure and culture area-specific audits that targeted higher risk or specialist areas rather than facility wide audits.  There was however significant development which saw quality systems consultancy and training bring in revenue of £18,000 which was double that expected.

QLM’s value to support service clients is not always reflected in the income recorded in this area.  Clients generally appear to be placing greater reliance on the QLM team and across a broader range of topics.  Mainly, it would appear, as a result of internal efficiency savings and cost cutting exercises.

Sub-contractor costs were noticeably down at £27,000 against budget; better and more efficient use of contracted staff prior to using sub-contractors led to reduced expenditure in this area.

Further time and investment will be put into the development of QLM Leisuresafe™ in 2019-20 as a key income generator as an audit in its own right and as a template for bespoke health and safety reviews.

QLM’s focus in the coming year is to ensure that the high levels of client retention are maintained, primarily though the quality and diversity of the support offered, as well as developing in the broader leisure, culture and hospitality industries.

RSA Environmental Health Limited (RSA)

·           2019: revenues of £404,300 yielding a profit of £66,700

·           2018: revenues of £370,400 yielding a profit of £75,400

.

Revenue for the year was 9% above that generated the previous year mainly due to the inclusion of income from the Envex brand that moved to the company upon closure of the Group’s asbestos subsidiary.  The increase in revenue was outstripped by higher costs and this led to a reduction in profits of about 11%.

The past year has seen the activity of the company evolve, with income being spread more evenly across the reported revenue streams. Health and safety consultancy was particularly strong for the year whereas the other income streams were down on forecast and on the previous year. With a limited amount of fee earning staff within the company this would be expected as consultancy days spent on one revenue stream reduce the time available to spend on the others.

RSA’s core offering remains the SafetyMARK service, with it still being the largest income stream. The year saw a decline in revenue with the market being more competitive, schools in both the state and independent sectors seeing increases in their cost pressures due to government policy. That caused the amount of renewals and new contracts to be down from the previous year.  Schools report that they still value our services but they are having to justify all of their expenditure and in some circumstances may not be able to afford them. This area continues to be a focus of activity with more effort being made with multi academy trusts. Management will look to improve service delivery to make the offering compelling to clients and making it more likely they will renew.

This sector will continue to be difficult to operate in until there is a change in government policy that will ease the school funding burden. In addition to the above, SafetyMARK operates on a two-year cycle with renewals in 2018-19 corresponding to contracts gained in 2016-17 which was itself a period when fewer new schools were joining.

The company did sign up two medium sized multi academy trusts towards the end of the year, which has generated a tranche of work for the next financial year.  Therefore, the company is to continue to focus attention on obtaining additional trusts as our marketing strategy for the next financial year.

The key will now be to ensure that profitability 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.

PHSC plc

·           2019: net loss of £523,700 before management charges, exceptional costs and dividends received

·           2018: net loss of £521,700 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 quoted Group and are generally consistent with the previous year.

On behalf of the board

Stephen King,

Group Chief Executive

16 August 2019

Group statement of financial position as at 31 March 2019

31.3.19
£
31.3.18
£
Non-Current Assets
Property, plant and equipment488,585594,343
Goodwill3,478,4633,678,463
Deferred tax asset17,62721,105
3,984,6754,293,911

   

Current Assets
Stock316,556389,034
Trade and other receivables973,1301,568,625
Cash and cash equivalents642,466244,290
1,932,1522,201,949

   

Total Assets5,916,8276,495,860

   

Current Liabilities
Trade and other payables675,1621,137,094
Current corporation tax payable54,70716,230
729,8691,153,324

   

Non-Current Liabilities
Deferred tax liabilities46,31355,818
46,31355,818

   

Total Liabilities776,1821,209,142

   

Net Assets5,140,6455,286,718

   

Capital and reserves attributable to equity holders of the Group
Called up share capital1,467,7261,467,726
Share premium account1,916,0171,916,017
Capital redemption reserve143,628143,628
Merger relief reserve133,836133,836
Retained earnings1,479,4381,625,511
5,140,6455,286,718

Group statement of comprehensive income for the year ended 31 March 2019

31.3.19
£
31.3.18
£
Continuing operations:
Revenue5,215,3417,012,864
Cost of sales(2,719,724)(3,937,451)
Gross profit2,495,6173,075,413
Administrative expenses(2,418,182)(3,042,499)
Goodwill impairment(200,000)(200,000)
Other income166,27025,000
Profit/(loss) from operations43,705(142,086)
Finance income3033
Finance costs(1,514)(3,778)
Profit/(loss) before taxation42,494(145,861)
Corporation tax expense(41,795)(14,836)
Profit/(Loss) for the year after tax attributable to owners
of the parent699(160,697)
Other comprehensive income--
Total comprehensive income attributable to owners of
the parent699(160,697)
Basic and diluted Earnings per Share from continuing operations
0.005p

(1.095)p

Group statement of changes in equity for the year ended 31 March 2019


Share
Capital

Share
Premium
£

Merger Relief
Reserve
£
Capital
Redemption
Reserve
£

Retained
Earnings
£


Total
£

   

Balance at 1 April 20171,467,7261,916,017133,836143,6281,859,5945,520,801
Loss for year attributable to equity holders
-

-

-

-

(160,697)

(160,697)
Dividends----(73,386)(73,386)
Balance at 31 March 20181,467,7261,916,017133,836143,6281,625,5115,286,718

   

Balance at 1 April 20181,467,7261,916,017133,836143,6281,625,5115,286,718
Profit for year attributable to equity holders
-

-

-

-

699

699
Dividends----(146,772)(146,772)
Balance at 31 March 20191,467,7261,916,017133,836143,6281,479,4385,140,645

Group statement of cash flows for the year ended 31 March 2019



Note

31.3.19
£

31.3.18
£
Cash flows from operating activities:
Cash generated from operationsI325,587143,360
Interest paid(1,514)(3,778)
Tax paid(9,345)-
Net cash generated from operating activities314,728139,582
Cash flows from/(used in) investing activities
Purchase of property, plant and equipment(69,578)(19,358)
Disposal of fixed assets299,49515,730
Interest received3033
Net cash from/(used in) investing activities230,220(3,625)
Cash flows used in financing activities
Payment of contingent consideration-(25,000)
Dividends paid to shareholders(146,772)(73,386)
Net cash used in financing activities(146,772)(98,386)
Net increase in cash and cash equivalents398,17637,571
Cash and cash equivalents at beginning of year244,290206,719
Cash and cash equivalents at end of year642,466244,290

I. Cash generated from operations

31.3.19
£
31.3.18
£
Operating profit/(loss) – continuing operations43,705(142,086)
Depreciation charge38,17934,590
Goodwill impairment200,000200,000
(Profit)/loss on sale of fixed assets(162,338)919
Decrease in stock72,47898,333
Decrease/(increase) in trade and other receivables595,495(121,132)
(Decrease)/increase trade and other payables(461,932)72,736
Cash generated from operations325,587143,360

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 2019 or 31 March 2018, but is derived from those financial statements.  Statutory financial statements for 2018 have been delivered to the Registrar of Companies and those for 2019 have been approved by the board and will be delivered after dispatch to shareholders.  The auditors have reported on the 2018 and 2019 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.

Dividend

An interim dividend of £73,386 representing 0.5p per ordinary share was paid in February 2019 in respect of the year ended 31 March 2019. The Board is proposing a final dividend of £73,386, to be paid in October 2019, making a total dividend for the year of 1.0p.

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