GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT for the six months ended 30 September 2010
- Group turnover (consolidated) for the period at £2.386m up 8% compared with £2.208m for the same period last year.
- EBITDA of £106,300, compared with £210,900 for the same period last year.
- Basic earnings per share at the interim stage are 0.61p compared with 1.08p achieved in the corresponding period last year.
- Net cash used by operating activities was £26,000 (£297,000 generated in the same period last year).
- Overall cash and cash equivalents stood at £587,000 at the end of the period compared with £710,000 at the year ended 31 March 2010. £93,400 is accounted for by dividend payments.
- Significant recent contract wins, notably for asbestos management services.
- Net asset value (unaudited) of £5.097m or 49 pence per Ordinary Share compared to a current share price (mid) of 17 pence
The financial statistics above provide an ample illustration of the very difficult trading conditions that have been encountered by Group subsidiaries in the period. Turnover and profit figures for each company are given later in this statement, but it is necessary to put those into some sort of context. In addition, investors should take encouragement from a number of recent contract awards. This indicates that the second half of the year should see an improvement in Company fortunes.
Adamson’s Laboratory Services Limited (ALS), which accounts for around half of Group revenues, recorded a loss of £25,000 in the first quarter of 2010. This was, in part, a result of exceptional efforts to complete a series of contracts during the previous quarter to fit in with clients’ budgetary requirements. Whilst the effect was to achieve a good end to the last financial year, it left a shortfall of work-in-progress with which to start the current year. In addition, some work relating to social housing contracts undertaken in the period incurred unexpected costs associated with obtaining access to numerous residential premises. That situation has now been largely resolved, and the performance figures below show that April’s loss was eliminated and ALS were back into positive territory at the interim stage. Local management are acutely aware of the need to perform, and of the significance of their contribution towards Group results.
In November 2010, ALS received confirmation from London Borough of Lewisham that it had won new business valued at a minimum of £400,000 over three years, including an order worth £62,500 for asbestos surveys in low-rise blocks. The remainder of the work involves asbestos risk assessments, annual monitoring inspections and management support. There is an option for the client to extend the term by a further two years, which would result in additional revenues of £200k over the period.
Two large contracts have been won by our Personnel Health & Safety Consultants Limited subsidiary. One involves the company being appointed as advisors to a medical services consortium and the other will see it delivering a range of around 40 different training courses to a housing provider. The total value of these two-year contracts is estimated as being £175,000 over the term.
Quality Leisure Management Limited, acquired in December 2009 and contributing for the first time in an interim period, accounted for £62,000 of profit. Most of the company’s contracts come up for renewal at the end of the calendar year and early indications suggest that there will be a very high renewal rate. The company’s contract with the Institute of Qualified Lifeguards generates a six-figure income each year and has been extended until the end of 2011.
Costs of running the parent company increased by around £7,400 to £223,200. The Board is looking to see where savings can be made, but recognises many of the costs relate to the AIM listing and necessary associated disciplines.
Resolution of dispute relating to Inspection Services (UK) Limited
We previously stated our belief that the net assets of Inspection Services (UK) Limited, purchased in October 2008, were overvalued by the seller. Following the commencement of legal proceedings, an out-of-court settlement was reached. The Company accepted £31,000 including a cash sum of £20,000 and forfeiture of £11,000 held to the seller’s account. After legal costs the net benefit was £17,000. We have also released the provision for a profit-related payment of £25,000 to the seller as targets were not met, and each party has agreed that the matter is now concluded.
In October 2010, Lord Young delivered a report entitled “Common sense – Common safety” in which he considered measures to counter the “compensation culture” and reduce the burdens associated with safety compliance on business. One recommendation amongst many was that safety consultants should be accredited, and we welcome that suggestion. Indeed, the profession has been working towards a formal scheme for some time and expects one to be in place early in 2011. This should give more status to qualified practitioners such as those employed by Group subsidiaries.
The effect of the Public Spending Review on PHSC plc’s fortunes will inevitably be a negative one in direct financial terms. There will be reductions in work that we do directly for public sector organisations, but less easy to evaluate is how our private sector clients who themselves rely upon public funding may be impacted.
Of necessity, compliance-related business must continue to be placed to a large extent. Clients will however be working to tighter budgets and will seek to squeeze suppliers’ profits. In this competitive marketplace, the ability to perform effectively and efficiently is paramount.
The Board is not recommending payment of an interim dividend (same as last year), but expects to propose an appropriate final dividend at the end of the year.
A major strength is our substantial cash reserve. Despite our relatively weak start to the current year, we expect the improvements we have recently seen to carry over to the second half. Our aim is to complete the year with as strong a performance as we can. We look to our investors to continue to support us in the knowledge that we are committed to a progressive dividend policy, and in the belief that our shares are generally undervalued in the marketplace.
Net Asset Value
As at 30 September 2010, the Company had net assets of £5.097m (unaudited) as per these interim accounts. There were 10,381,973 Ordinary Shares in issue at that date which equates to a net asset value (NAV) per share of 49.09p. At 17 pence per share the Ordinary Shares of the Company are currently trading at approximately a 65% discount to the net asset value.
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, interest received, depreciation and amortisation.
Adamson’s Laboratory Services Limited
Invoiced sales of £978,607 yielding a profit of £7,206 (the figures for the same period last year were £1,081,905 and £164,798).
Envex Company Limited
Invoiced sales of £85,336 yielding a profit of £27,420 for the period (the figures for the same period last year were £102,599 and £13,007).
Inspection Services (UK) Limited
Invoiced sales of £123,272 yielding a profit of £12,359 (the figures for the same period last year were £139,014 and £11,905).
Personnel Health and Safety Consultants Limited
Invoiced sales of £462,650 yielding a profit of £202,706 (the figures for the same period last year were £492,226 and £220,795).
RSA Environmental Health Limited
Invoiced sales of £367,847 yielding a profit of £16,306. This is the first period following the merger of the business activities of RSA and In-House The Hygiene Management Company Limited. In the same period last year, their combined sales of £392,887 resulted in a consolidated profit of £15,250.
Quality Leisure Management Limited
Invoiced sales of £369,239 yielding a profit of £62,104. There are no comparable figures for last year
as the company was not part of the Group at that time.
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/Rod Venables 020 7492 4750