GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT for the six months ended 30 September 2012
- Group turnover (consolidated) for the period was £2.198m compared with £2.135m for the same period last year
- EBITDA of £136k before one-off legal costs of acquisitions, compared with £114k for the same period last year
- Basic earnings per share at the interim stage are 0.69pence compared with 0.64pence achieved in the corresponding period last year
- Net cash generated by operating activities reduced to £76k from £242k
- Overall cash and cash equivalents stood at £391k at the end of the period compared with £903k at the year ended 31 March 2012. Cash of £502k was paid in connection with the goodwill element of two acquisitions.
- Net asset value (unaudited) of £5.326m or 50 pence per Ordinary Share compared to a current share price (mid) of 22 pence • Encouraging progress shown by two new subsidiaries
Revenues from continuing operations were almost identical to those in the same period last year. With a welcome first contribution of over £84,000 from our new QCS International Limited (QCS) subsidiary, we saw an overall increase of around £63,000 in total Group revenue.
Whilst our largest subsidiary, Adamson’s Laboratory Services Limited, was able to improve on its first half performance, other parts of the Group came under pressure and saw a slight deterioration in revenues and margins. Financial statistics are given for each trading subsidiary later in this statement.
Overheads of the parent company rose to £246,158 compared with £200,300 in the same period last year. The extra costs are largely attributable to the acquisitions of QCS and B to B Links Limited (B to B Links) in the period and include one-off legal fees and stamp duty of circa £30,000.
Historically the Group’s financial performance has always been better in the second half of the year. That is expected to be the case this year, and will be significantly supplemented by revenues from our new acquisitions, B to B Links and QCS.
QCS has had an encouraging start and has contributed an average of over £40,000 to revenues per month to the interim figures. We predict similar monthly revenues over the remainder of the year and expect that this will lead to generation of pre-tax profits in excess of £100,000 from this subsidiary.
The integration of B to B Links will be a longer process due to the more complex nature of the company’s business and how different it is to the rest of the Group. Early indications are most encouraging and suggest that this subsidiary will add approximately £800,000 to Group revenues in the second half of the year, and pre-tax profits close to £150,000. The company has recently entered into an agreement with a major department store chain for the installation of closed circuit television systems (CCTV). To date this has led to orders with a likely sales value of around £125,000, a figure set to increase substantially as additional stores are surveyed and new installations commissioned.
The Board believes that the recent diversification away from the core activities of health and safety consultancy services, into quality management and retail security solutions, will have an immediate and positive impact on both revenues and earnings per share. These benefits will be enhanced by a number of cross-selling opportunities that will be better exploited once the new acquisitions have bedded in.
As in previous years, the Board is not recommending payment of an interim dividend, but will consider payment of an appropriate final dividend at the end of the year.
A special dividend of 1.0p, giving a total payment of 2.0p per Ordinary Share, was paid in each of the previous two years and was welcomed by the majority of investors. With £480,000 due in acquisition instalments during the first half of 2012/13 the Board’s ability to declare a special dividend this year may be limited.
Net Asset Value
As at 30 September 2012, the Company had net assets of £5.326m (unaudited) as per these interim accounts. There were 10,606,348 Ordinary Shares in issue at that date which equates to a net asset value (NAV) per share of 50 pence. At 22 pence per share the Ordinary Shares of the Company are currently trading at approximately a 56% discount to the net asset value.
Obligations related to the acquisition of two new businesses in the period had a predictable but major effect on the Group’s cash position.
By 30 September 2012 we had paid £502,300 in connection with the two acquisitions and approximately £30,000 in legal fees and stamp duty. Since that date £160,000 has been paid towards the non-cash assets of B to B Links and a further sum of £163,000 falls due in December 2012 to complete the payment for those assets. The net cash outflow related to these transactions is around £855,000.
In October our B to B Links subsidiary placed substantial orders for consumables to ensure stock in the run-up to Christmas, and to gear up for the large CCTV installation contract mentioned above. The sale of our vacant property at Raunds was expected to be complete by now but has been delayed because the buyer is progressing the transaction via a pension scheme and this has introduced regulatory delays. This has coincided with a tendency for some of our larger clients to settle their accounts a little slower than they previously did.
The combined effect has been to place short-term pressure on our cash position and as a contingency we have agreed a suitable facility with our bankers, HSBC, should this be required.
Performance by Trading Subsidiaries
Profit/loss figures for individual subsidiaries are stated before tax and inter-company charges (including the costs of operating the plc which are recovered through management charges to trading subsidiaries), interest paid and received, depreciation and amortisation.
Adamson’s Laboratory Services Limited
Invoiced sales of £1,124,287 yielding a profit of £102,660 (the equivalent figures for the same period last year were £1,012,407 and £27,690). The comparatives include performance of The Envex Company Limited, which is now a trading division of Adamson’s Laboratory Services Limited.
Inspection Services (UK) Limited
Invoiced sales of £100,646 yielding a profit of £4,913 (the figures for the same period last year were £126,111 and £10,901).
Personnel Health and Safety Consultants Limited
Invoiced sales of £388,931 yielding a profit of £167,791 (the figures for the same period last year were £392,777 and £175,102).
RSA Environmental Health Limited
Invoiced sales of £193,183 resulting in a loss of £6,023 (the figures for the same period last year were £246,057 and a profit of £11,658).
Quality Leisure Management Limited
Invoiced sales of £307,521 yielding a profit of £60,873 (the figures for the same period last year were £357,816 and £83,162).
QCS International Limited
Invoiced sales of £83,704 yielding a profit of £28,798 for the two months since acquisition. There are no equivalent figures available for last year.
B to B Links Limited
This subsidiary was acquired on 28 September 2012 and no trading took place between that date and 30 September 2012, the period to which these interim accounts relate.
Stephen King – Group Chief Executive Officer
For further information please contact:
Stephen King 01622 717700
Northland Capital Partners Limited (Nominated Adviser and Broker) Gavin Burnell / Edward Hutton 020 7796 8800