Interim Results
Reliance Security Group PLC
05 December 2002
EMBARGOED UNTIL 7.00 AM
THURSDAY 5 DECEMBER 2002
PRESS RELEASE
Reliance Security Group plc
Interim Results for the six months to
25 October 2002
• Turnover up 20.6% to £129.6m (2001: £107.5m)
• Profit before tax and exceptional items £5.2m (2001 (restated): £3.7m)
• Prior year adjustments of £5.3m to correct accounting errors in relation
to electronic security subsidiary, previously announced. Prior year
comparatives restated accordingly.
• Exceptional £3m write-down of carrying value of quoted investment in
Chesterton
• Profit after tax £0.5m (2001(restated): £2.3m)
• Earnings per share, excluding exceptional items, 15.8p (2001 (restated):
10.3p)
• Dividend per share up 9.5% to 3.45p (2001: 3.15p)
• Net cash generated from operations of £5.2m (2001: £6.6m)
• Ongoing investment in new markets and segments
• Strong organic growth, particularly in facilities management and higher
value added services
Brian Kingham, Chairman, commenting on the results said:
'The Group has continued to achieve strong growth and to gain competitive
strength and is benefiting from new sources of income. The write-offs this year
are regrettable but should be seen in the context of a wider investment
programme, which has produced strong and growing new income streams. We expect
to see continued growth in the period ahead.'
Notes to Editors
Reliance is an established market leader in the provision of contract security,
facilities management, and support services. Reliance employs over 12,000 people
from a network of offices throughout the UK.
For further information:
Brian Kingham Chairman 020 7730 9716
Neil French Group Finance Director 01895 205002
Chairman's Interim Statement
In the first half, our markets in security, facilities management and support
services have continued to grow. We have benefited from our long-term investment
and development into new growth markets and segments.
Results
Turnover for the six months to 25 October 2002 increased by 21% to £129.6
million (2001: £107.5m). Pre-exceptional, pre-tax profit was £5.2m (2001
(restated): £3.7m) and profit after tax was £0.5m (2001 (restated): £2.3m).
Excluding exceptional items, earnings per share were 15.8p (2001 (restated):
10.3p). Net cash generated from operations was £5.2m (2001: £6.6m).
We announced, in October, the correction of accounting errors in Reliance
High-Tech Ltd, our electronic systems specialist, and the write-off of goodwill
relating to its acquisition. In accordance with accounting requirements, the
resulting charges of £5.3m have been treated as prior year adjustments and prior
year comparatives have been restated accordingly. There is no impact on the
Group's profits for the first half of this year.
In addition, we also announced our decision to write down our 16.1% investment
in Chesterton International plc to market value. The resulting exceptional
charge is £3.0m. This approach has been adopted as a matter of accounting
prudence. The write-down has no cash effect and does not necessarily reflect the
ultimate realisable value of the investment.
Security Services
Turnover was up 8.7% at £95.4m (2001: £87.7m), reflecting strong organic growth,
partly offset by the effect of weaker demand for electronic security systems and
short-term cover. Segment profit was £3.6m (2001 (restated): £3.0m). A slight
decline in gross margin, which reflects challenging market conditions and some
change in business mix, was largely offset by improved operational efficiency
and an increased contribution from associated companies.
We have continued to improve our competitive position and won notable contracts
with Homebase, Tesco, Royal Bank of Scotland and Bank of America as well as a
seven-year contract with British Airports Authority.
In the USA, Command Security Corporation, in which the Group has a 21.7% stake,
performed well in the period leading up to federalisation of pre-board security
screening at US airports. As expected, federalisation will have an adverse
effect on Command's performance in the second half. However, Command's other
businesses, including the unaffected part of aviation security, are performing
in line with expectations.
Facilities Management
Turnover was up 73% at £34.2m (2001 £19.7m), reflecting the start up of several
significant contracts in the second half of last year and first half of this
year. Segment profit was £1.8m, (2001: £1.1m). We mobilised seven new FM
contracts with a total annual value of £10m, making this one of our busiest
periods ever. We are successfully developing specialisms, which include the use
of technology. For example, over the last two years, we have become the largest
provider of electronic tagging in the UK.
This strong progress underlines our ongoing investment in management and
business development resources and the availability of a large and diverse
market. The first half has seen a major escalation in our business development
efforts, with renewed focus where we can add value and expertise for customers.
Dividend
The directors have decided to pay an interim dividend of 3.45p per share (2001:
3.15p), payable on 24 January 2003 to shareholders on the register on 6 January
2003.
Outlook
The Group is well placed to continue to perform in line with the Board's
expectations, building on recent contract wins and our ongoing investment in
business development capacity and specialist skills. With new business enquiries
running at healthy levels, we expect to see continued growth in the periods
ahead. Whilst there is concern about the wider economy, we remain on course to
achieve further growth.
Brian Kingham, Chairman
December 2002
Independent review report
to Reliance Security Group plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 25 October 2002 which comprises summarised profit and loss
account, statement of total gains and losses, summarised balance sheet
information as at 25 October 2002, summarised cash flow statement and associated
notes. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 25 October 2002. Deloitte & Touche
Chartered Accountants
London
4 December 2002
Reliance Security Group plc
group profit and loss account
for the six months ended 25 October 2002
Restated
Unaudited Audited
Pre - Exceptional Six months to Six months to Year to
Exceptional item 25 October 26 October 26 April
Items 2002 2001 2002
Notes £'000 £'000 £'000 £'000 £'000
Turnover 2 129,628 - 129,628 107,472 231,075
Cost of sales (107,164) - (107,164) (88,729) (189,230)
Gross profit 22,464 - 22,464 18,743 41,845
Administrative expenses (18,664) - (18,664) (15,056) (33,378)
Exceptional goodwill write off 5 - - - - (1,455)
Total administrative costs (18,664) - (18,664) (15,056) (34,833)
Group operating profit 3,800 - 3,800 3,687 7,012
Share of associates' operating profit 1,637 - 1,637 386 2,059
Profit on ordinary activities before 2 5,437 - 5,437 4,073 9,071
finance charges and amounts written
off investments
Amounts written off investments 5 - (3,041) (3,041) - -
Profit on ordinary activities before finance 5,437 (3,041) 2,396 4,073 9,071
charges
Interest receivable
Group 9 - 9 12 17
Associates 11 - 11 - 35
Interest payable
Group (187) - (187) (292) (584)
Associates (62) - (62) (73) (104)
Profit on ordinary activities before 5,208 (3,041) 2,167 3,720 8,435
taxation
Tax on profit on ordinary activities 3 (1,636) - (1,636) (1,404) (3,480)
Profit on ordinary activities after 3,572 (3,041) 531 2,316 4,955
taxation
Dividends (803) - (803) (707) (3,067)
Retained profit for the period 2,769 (3,041) (272) 1,609 1,888
Earnings per share
Basic 6 15.8p (13.4)p 2.4p 10.3p 22.0p
Diluted 6 15.7p (13.4)p 2.3p 10.1p 21.8p
Dividend per share 3.45p 3.45p 3.15p 13.6p
Shares issued and fully paid 23,287,592 23,287,592 23,073,200 23,276,644
Reliance Security Group plc
group statement of total recognised gains and losses
for the six months ended 25 October 2002
Restated
Unaudited Audited
Six months to Six months to Year to
25 October 26 October 26 April
2002 2001 2002
Notes £'000 £'000 £'000
Profit/(loss) for the
period
- Group (617) 2,100 3,424
- Associates 1,148 216 1,531
531 2,316 4,955
Loss on foreign currency translation (40) - -
Total recognised gains relating to the period 491 2,316 4,955
Cumulative effect of prior year adjustments 4 (5,256)
Total gains and losses recognised since last financial (4,765)
statements
Reliance Security Group plc
group balance sheet
as at 25 October 2002
Restated
Unaudited Audited
25 October 26 October 26 April
2002 2001 2002
Notes £'000 £'000 £'000
Fixed assets
Intangible assets - Goodwill 1,402 2,495 1,620
Tangible assets 7,001 7,099 6,407
Investments 11,737 12,747 13,438
20,140 22,341 21,465
Current assets
Stocks and work in progress 2,236 1,740 1,588
Debtors 32,644 31,279 36,040
Cash at bank and in hand 9 5,490 3,804 4,493
40,370 36,823 42,121
Creditors: amounts falling due within one year (38,738) (32,850) (41,073)
Net current assets 1,632 3,973 1,048
Total assets less current liabilities 21,772 26,314 22,513
Creditors: amounts falling due after
more than one year (492) (5,824) (637)
Provisions for liabilities and charges (420) - (720)
Net assets 20,860 20,490 21,156
Capital and reserves
Called up share capital 1,164 1,154 1,164
Share premium account 2,280 1,887 2,264
Revaluation reserve 152 152 152
Profit and loss account 17,264 17,297 17,576
Equity shareholders' funds 7 20,860 20,490 21,156
Reliance Security Group plc
group cash flow statement
for the six months ended 25 October 2002
Unaudited Audited
Six months to Six months to Year to
25 October 26 October 26 April
2002 2001 2002
Notes £'000 £'000 £'000
Net cash inflow from operating activities 8 5,226 6,642 14,823
Returns on investment and servicing of
finance
Interest received 9 12 17
Interest paid (119) (218) (528)
Interest element of finance lease (24) (31) (65)
repayments
Dividends received from associates 480 - 1,364
Net cash inflow/(outflow) from returns on investment 346 (237) 788
and servicing of finance
Taxation
UK corporation tax paid (1,281) (1,020) (2,950)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (1,518) (1,042) (1,334)
Purchase of ESOP shares (296) (663) (1,533)
Sale of shares by ESOP - - 23
Purchase of fixed asset investments (266) - -
Sale of tangible fixed assets 14 9 85
Net cash outflow from capital expenditure and financial (2,066) (1,696) (2,759)
investment
Acquisitions
Deferred consideration paid (251) - -
Purchase of a business - (305) (305)
Net cash outflow from acquisitions (251) (305) (305)
Equity dividends paid (2,354) (2,019) (2,729)
Net cash (outflow) / inflow before (380) 1,365 6,868
financing
Financing
Issue of ordinary share capital 14 35 422
Increase in short term borrowings 1,529 - -
Capital element of finance lease repayments (166) (155) (356)
Net cash inflow / (outflow) from financing 1,377 (120) 66
Increase in cash in the period 997 1,245 6,934
Reconciliation of net cash flow to movement in net cash
/(debt)
Increase in cash in the period 997 1,245 6,934
Cash (inflow)/outflow from (increase)/decrease in debt (1,363) 155 356
and lease financing
Change in net cash/(debt) resulting from (366) 1,400 7,290
cash flows
New finance leases - (65) (100)
Movement in net debt in the period (366) 1,335 7,190
Opening net cash / (debt) 2,093 (5,097) (5,097)
Closing net cash / (debt) 9 1,727 (3,762) 2,093
Reliance Security Group plc
notes
1 Preparation of interim report
The financial information for the period ended 25 October 2002 and 26 October 2001 is unaudited and does not
constitute full accounts within the meaning of the Companies Act 1985. The financial information for the year
ended 26 April 2002 has been extracted from the full accounts for that year which has been delivered to the
Registrar of Companies. The auditors report was unqualified and did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985.
2 Segmental information
Turnover Segment profit Operating assets
Restated Restated Restated
25 October 26 October 25 October 26 October 25 October 26 October
2002 2001 2002 2001 2002 2001
£'000 £'000 £'000 £'000 £'000 £'000
By activity
Security 95,400 87,729 3,642 2,994 14,249 16,513
services
Facilities 34,228 19,743 1,795 1,079 1,619 2,764
management
129,628 107,472 5,437 4,073 15,868 19,277
Segment profit is profit on ordinary activities, including share of associates' operating profits, before
amounts written off investments and finance charges, excluding exceptional goodwill write-off.
Operating assets reconcile with net assets as follows:-
Restated
25 October 26 October
2002 2001
£'000 £'000
Operating 15,868 19,277
assets
Items
excluded:-
Net cash 1,727 (3,762)
Listed and unlisted 2,176 5,373
investments and loans
Investment in 3,244 2,091
own shares
Taxation (1,830) (2,087)
payable
Deferred 560 385
taxation
Dividends (803) (707)
payable
Interest (82) (80)
payable
Net assets 20,860 20,490
3 Taxation
Corporation tax for the six months to 25 October 2002 has been calculated at the rate of 30% (six months to 26
October 2001: 30%, year ended 26 April 2002: 30%).
4 Prior year adjustments
The profit and loss accounts and balance sheets for the periods to and as at 26th April 2002 and 26th October
2001 have been restated following the discovery and correction of material errors in the accounting for costs
and revenues associated with installation contracts in one of the Group's subsidiaries, Reliance High Tech
Limited.
The impact of these adjustments is as follows:-
Year to Six months to
26 April 26 October
2002 2001
£'000 £'000
Turnover (554) (139)
Cost of sales (1,065) (662)
Gross profit (1,619) (801)
Administrative expenses (1,468) (8)
Group operating profit (3,087) (809)
Goodwill (1,455) -
Stocks and work in progress 564 255
Debtors (998) (343)
Creditors: amounts falling (3,367) (2,890)
due within one year
(5,256) (2,978)
Current period profit and (3,087) (809)
loss account
Opening profit and loss (2,169) (2,169)
account
(5,256) (2,978)
The amount shown above as an adjustment to the opening profit and loss account represents the total adjustments
that originate in the year to 27th April 2001 and prior years.
5 Exceptional Items
The exceptional item shown in the six months to 25th October 2002 relates to a
reduction in the carrying value of the Group's investment in Chesterton International plc to
reflect the open market price of the shares held at 3 December 2002.
The exceptional item in the year to 26th April 2002 represents the writing down to nil
value of all capitalised goodwill associated with Reliance High Tech Limited following the
discovery of the incorrect accounting for contract costs discussed in note 4 above.
6 Earnings per share
The basic and diluted earnings per share for the six months to 25 October 2002 have been
calculated in accordance with FRS 14, based on profit after tax and the weighted average
number of ordinary shares in issue during the period, less shares held by the ESOP trust.
The number of shares used to calculate basic earnings per share is 22,538,414
(six months to 26 October 2001: 22,509,757, year ended 26 April 2002: 22,488,702).
The number of shares used to calculate diluted earnings per share is 22,706,429 (six
months to 26 October 2001: 22,818,235, year ended 26 April 2002: 22,721,093).
7 Reconciliation of movement in equity shareholders' funds
Restated
25 October 26 October 26 April
2002 2001 2002
£'000 £'000 £'000
Profit on ordinary 531 2,316 4,955
activities after tax
Dividends (803) (707) (3,067)
(272) 1,609 1,888
New share capital 16 35 422
subscribed
Foreign exchange (40) - -
differences
Net movement in equity shareholders' funds (296) 1,644 2,310
Opening equity shareholders' funds as 26,412 21,015 21,015
previously stated
Prior year adjustment (5,256) (2,169) (2,169)
Opening equity 21,156 18,846 18,846
shareholders' funds as
restated
Closing equity 20,860 20,490 21,156
shareholders' funds
8 Reconciliation of operating profit to net cash inflow from operating activities
25 October 26 October 26 April
2002 2001 2002
£'000 £'000 £'000
Operating profit 3,800 3,687 7,012
Depreciation charges 907 801 1,753
Loss / (profit) on the sale 8 (1) 1
of fixed assets
Amortisation of goodwill 168 74 214
Impairment of goodwill - - 1,455
Increase in stocks (648) (435) (283)
Decrease / (increase) in 3,260 (2,998) (7,428)
debtors
(Decrease) / increase in (2,269) 5,514 12,099
creditors
Net cash inflow from 5,226 6,642 14,823
operating activities
9 Analysis and reconciliation of net cash
26 April Cash flow 25 October
2002 2002
£'000 £'000 £'000
Cash at bank and in hand 4,493 997 5,490
Debt due within one year (1,471) (1,529) (3,000)
Finance Leases (929) 166 (763)
(2,400) (1,363) (3,763)
Net cash 2,093 (366) 1,727
10 Distribution
A copy of the financial information will be sent to all shareholders. Copies are
Available to the public from the Company's registered office at Boundary House,
Cricketfield Road, Uxbridge, Middlesex, UB8 1QG.
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