RNS Number:6916Q
Hercules Property Services PLC
11 September 2000
HERCULES PROPERTY SERVICES PLC:
UNAUDITED PRELIMINARY RESULTS FOR YEAR
TO 30 JUNE 2000
HIGHLIGHTS
- Turnover for the year more than doubles to #31.5m +102%
- Substantial rise in pre-tax profits to #5.9m* +53%
- EPS advances to 44.0p* +36%
- Final dividend of 7p per share recommended +32%
- Total dividend for the year will be 8.75p per share +35%
- Recurring income from insurance commissions and
management fees accounted for 72% of total Group income
- Deacon Insurance - acquired in November 1999 - already
generating increased level of profits
- Record auction sales of #106m from Harman Healy reflecting
an increase of 31%
- Heritage and Deacon combined now secures insurance for
#9.5bn of property
(*before goodwill amortisation of #688,000)
"The current year has started extremely well and will reflect
the impact of a full 12 months contribution from Deacon
Insurance Services. We also look forward to a further rise in
the level of the Group's recurring income that we believe will
continue to be generated irrespective of market or economic
conditions. With this in mind I have great confidence in our
prospects for the current year."
Larry Lipman, Chairman
Contact:
Hercules Property Services Plc Tel: 020 8203 9099
Larry Lipman, Chairman
Paul Davis, Finance Director
Bankside Consultants Tel: 020 7220 7477
Baron Phillips or Joanna Fifield
CHAIRMAN'S STATEMENT
This has been a record year for Hercules Property Services. Even
with only seven months contribution from our largest
acquisition, Deacon Insurance Services, operating profits,
excluding goodwill amortisation, have advanced by over 50% and
turnover more than doubled. At the same time it is pleasing to
report that the underlying business has performed well and the
Group recorded like-for-like organic growth exceeding 20%.
More important is the fact that the level of recurring income
across the Hercules Group companies now accounts for 72% of our
total income. This income represents insurance commissions
and management fees. We believe that this increased level
of recurring income will do much to underpin the Group's
profitability as well as providing a solid foundation for
continued growth.
The major impact of Deacon is, as I mentioned earlier, to
enhance the level of recurring income from 61% that we reported
a year ago to 72% at the year end. It is worth emphasising that
we only include income that is derived from sources that recur
on an annual basis such as insurance premiums and property
management fees. We believe such income is important to Hercules
as it will continue to flow into the Group through every economic
cycle as buildings have to be insured and managed irrespective of
the business climate.
Against this background it is pleasing to be able to report for
the 12 months to 30th June 2000 a 53% increase in profits before
tax and goodwill amortisation to #5.9m, against #3.8m last year,
and turnover 102% higher at #31.5m. At the earnings per share
level the rise before goodwill amortisation was 36% to 44.0p,
compared with 32.3p a year ago. As a result the Board is
recommending a final dividend of 7p per share, taking the total
for the year to 8.75p, an increase of 35%. The final dividend
will be payable on 4th January 2001 to shareholders on the
register at 8th December 2000.
One of the key aspects of these results is that every company
within Hercules increased both its profitability and its
contribution to Group profits. Nowhere is this more apparent
than with our property consultancy and surveying business Dunlop
Heywood. Taking full advantage of the strength of the regional
property market, particularly in the North West, Dunlop
Heywood's pre tax profit contribution has now doubled to just
over #1m compared to approximately #500,000 prior to its
acquisition by the Group.
However, the year's highlight was our acquisition of
Deacon Insurance Services in November 1999. Deacon has been
successfully integrated into the Group and in February we moved
our original insurance intermediary business, Heritage
Insurance, into Deacon's Bournemouth offices. The full effects
of this rationalisation will be felt in the current year as will
the impact of a full 12 months contribution from Deacon.
One of the obvious effects of the Deacon acquisition was to
increase substantially the value of properties for which the
Group now secures insurance. Prior to the acquisition of Deacon,
Heritage secured insurance cover for approximately #2.5bn of
property. Today that figure for the Group is approaching #9.5bn
and rising in part aided by our ability to cross-sell Deacon's
insurance services, at very competitive prices, across the
entire Group.
Our auction business Harman Healy has witnessed one of its most
successful years ever with total sales reaching #106m from over
600 lots, reflecting an overall success rate of 87%. The
increased business, 31% up on last year, was driven by the
introduction of a number of major new clients.
The drive for new business also helped Harman Healy's commercial
property management activities where the fee income was
substantially over budget due to new clients and higher rent
review activity reflecting a more buoyant commercial property
market.
Our surveying practice, Simmonds & Partners, also enjoyed a
strong year with profits before tax rising some 22% to circa
#200,000. Simmonds now undertakes all the professional surveying
work for our residential property management business, David
Glass Associates, reflecting our philosophy of cross-selling
across the Group.
David Glass Associates further expanded its management
activities during the year, partly through two small
acquisitions, the Docklands-based Serv-Estate Ltd and Arden
House Estates & Management Ltd which operates almost exclusively
within Central London. These acquisitions, together with
increased instructions from both corporate and private clients,
has led to a rise in the number of units now under management to
approximately 23,500.
I would like to take this opportunity of thanking all the staff
within the Hercules Group, without whom these results would not
have been possible, and our team of professional advisers who
have assisted us over the past year.
The current year has started extremely well and will reflect the
impact of a full 12 months contribution from Deacon Insurance
Services. We also look forward to a further rise in the level of
the Group's recurring income that we believe will continue to be
generated irrespective of market or economic conditions. With
this in mind I have great confidence in our prospects for the
current year.
Larry Lipman
Chairman
11th September 2000
OPERATIONAL REVIEW
DEACON INSURANCE SERVICES (including Heritage Insurance Services)
Our insurance activities received a substantial boost with the
acquisition of Deacon Insurance Services last November.
As a result of this acquisition the value of both commercial and
residential investments for which the Group now secures
insurance cover has grown almost fourfold from around #2.5bn at
the time of the Deacon acquisition to approximately #9.5bn today.
This has meant a rapid rise in total insurance commissions
earned by the Group from #6.3m in the year to end June 1999 to
#19.1m for the period under review. At the same time
Deacon contributed operating profits of #4.4m compared to
#2.1m last year and is having a major impact on underpinning the
level of Hercules' secure recurring income.
The acquisition of Deacon was the Group's largest to date but it
is pleasing to report that this substantial insurance business
is already fully integrated into Hercules, so much so that
original Heritage Insurance Services business now operates from
Deacon's premises in Bournemouth.
In addition to the impact of Deacon's ongoing business to Group
activities our greatly enlarged insurance services enables us to
negotiate better rates for our clients and makes the products we
offer even more competitive in an extremely crowded marketplace.
The effect of this has been an even greater ability to grow the
existing Deacon business both organically, through direct
marketing, and by cross selling opportunities within the
Hercules Group.
Today our insurance services are able to offer clients of other
Hercules companies a better range of products at extremely
competitive rates. As a result all Group businesses can provide
clients with one of the best insurance services available on the
market and further enhance the quality and quantity of recurring
Group income.
At the same time Deacon has been developing new products of its
own allowing it to market its services to a new and growing
range of clients. These products include the creation of
Deacon's web-site enabling on-line insurance quotations and
provision of instant cover for domestic clients. We have
also developed two new products: an insurance product aimed at
owners of let property which provides cover for all classes of
residential tenants; and 24 hour emergency assistance service
which, for an annual premium, gives help for building repairs,
especially plumbing problems.
It is worth pointing out that Group results only include a seven
months contribution from Deacon. The full benefit of
both the new products and the greater cross-selling
opportunities will be felt during the current year. Therefore we
anticipate significant growth from our insurance services in the
12 months to the end of June 2001.
HARMAN HEALY
Our commercial property auction and management division has
built on its solid performance last year to produce both record
turnover and operating profits during the year.
The auction business topped the #100m level of sales at almost
#106m with 699 lots being offered and 609 actually sold -
reflecting an 87% success rate. This enhanced level of sales,
around 30% higher than the previous year, reflected a stronger
property market and Harman Healy's success in attracting major
new clients, including one private family trust for whom the
firm offered 162 lots during the year.
While there was a steady increase in volume at each auction
throughout the period the total was boosted by the April auction
which, at over #25m, was one of our highest sales for more than
10 years. As a result auction fee income rose substantially
during the year and was around #250,000 over budget, an
encouraging and satisfactory result.
Our fast expanding commercial property management department
also performed strongly during the year with fee income 60%
above budget reflecting an increase in the level of new
instructions, as a result of a drive to generate additional fees
from our existing property management clients, and a higher
revenue from rent reviews as a result of stronger market
conditions.
Since the year end we have continued to market Harman Healy's
services vigorously and further growth is anticipated in
our property management activities as well as the auction
business which is seeing strong demand for the product that we
are offering.
Overall the current year looks extremely promising as we step up
our marketing drive to both attract new business and reinforce
our relationship with existing clients.
DUNLOP HEYWOOD
This is the first year our commercial property consultancy has
made a full 12 months contribution to the Group since its
acquisition in September 1998. It is pleasing to report that
Dunlop Heywood, which was established around 170 years ago,
produced a profits contribution more than doubled to circa #1m
from the level it generated in the period prior to the acquisition.
Operating from five offices - Manchester, Leeds, Bradford, and
two in London - the firm has taken full advantage of the growth
in regional property activity. In particular in its home base of
Manchester, Dunlop Heywood has been appointed as consultants and
letting agents to a number of high profile and prestigious
developments such as the Printworks, the city's largest retail
and leisure destination centre which is due to open later this
year.
The firm has also been retained on other major Manchester
developments including a key #75m mixed use scheme adjacent to
the new Commonwealth Games stadium and the North West
Development Agency's 14 hectare North Manchester Business Park
at Monsal. Market conditions, especially in the greater
Manchester area, highlight the need for the creation of Grade A
office space in the city centre and the demand for better
quality business space to the south of the city. We believe this
will generate opportunities for both our development and agency
departments over the next few years.
Investment and fund management activities have also enjoyed an
excellent year both nationally as well as regionally. Our
national investment team was particularly active and completed
over #100m of sales and acquisitions for clients during the year
while our fund management division embarked on a #30m mixed use
development programme on behalf of the Greater Manchester
Property Venture Fund.
Our highly professional valuation and rating division was
also able to take full advantage of the buoyant market
conditions. The firm's speciality in the area of football
stadia was a great boost to the level of professional work
during the year underpinned by greater bank lending to the
property sector generally.
Over the current and subsequent years we see ample opportunities
to grow Dunlop Heywood across all our business disciplines both
at a regional and a national level. While we are clearly very
strong in our regional base the firm has been establishing an
increasing national reputation particularly in commercial
property investment advice where we are able to compete with the
larger London-based firms. Against this background we view the
future with confidence.
DAVID GLASS ASSOCIATES
The growth that we highlighted last year in our ground rent and
residential property management division has, we are pleased to
report, continued over the 12 months to end of June 2000. There
has been a considerable rise in the number of residential units
now managed by David Glass Associates and at the year end this
stood at approximately 23,500 reflecting the division's success
at attracting new corporate and private clients.
While David Glass has been traditionally strong in the South-
East it has consolidated its geographical spread through the
acquisition of two niche residential management companies: Serv-
Estate Ltd, which operates almost exclusively in London's
Docklands, and Arden House Estates & Management Ltd, a
specialist Central London property management company. The
impact of both these additions to David Glass will be felt in
full in the current year during which we expect continued growth.
SIMMONDS & PARTNERS
Our surveying and professional services practice has also
continued to grow as the firm's level of activity reflected the
increasingly buoyant residential property market. There was
increased demand for the full range of Simmonds & Partners
services and it was able to take full advantage of the cross-
selling opportunities to generate business to other parts of the
Hercules Group, especially to the insurance division. At the
same time the firm has become more efficient and cost effective
as its accounting activities has now been fully integrated into
another Group company's accounts department.
Over the year there has been an increased level in the amount of
buildings insurance valuation, mortgage valuation and other
forms of professional surveying activity as demand in the
residential market has expanded. As part of the Hercules Group
Simmonds & Partners is able to offer a one-stop shop service to
both its corporate and private clients, incorporating
professional services, property management and other allied
activities.
The firm has established a strong reputation for its highly
professional service for resident management companies who have
now acquired the freeholds of their buildings and during the
last 12 months it has increased the number of blocks it now
manages for residents. With the changes in legislation this is a
growing and important part of the firm's business.
Simmonds is now able to offer an insurance-backed emergency
service to a large number of residential blocks managed
across the Group, reflecting once more the integrated nature
of Hercules and the ability of each company to cross-sell
services and retain the fees generated within the overall business.
Further growth across the full range of Simmonds' services is
anticipated during the current year and we view prospects
favourably.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 30 June 2000
Note 2000
(continu
ing 2000
operatio (acquisi
ns) tions) 2000 1999
#'000 #'000 #'000 #'000
Unaudited Unaudited Unaudited Audited
Turnover 2 23,473 8,039 31,512 15,561
Cost of sales (13,294) (5,545) (18,839) (7,122)
Gross profit 10,179 2,494 12,673 8,439
Administrative expenses (5,822) (753) (6,575) (4,466)
Operating profit 4,357 1,741 6,098 3,973
Interest receivable and
similar income 262 156
Interest payable and
similar charges (1,159) (475)
Profit on ordinary
activities before taxation 5,201 3,654
Tax on profit on ordinary
activities (1,775) (1,125)
Profit on ordinary
activities after taxation 3,426 2,529
Equity dividends 3 (853) (576)
Retained profit for the
financial year 2,573 1,953
Basic earnings per share 4 36.6p 30.0p
Adjustment for goodwill
amortisation 7.4p 2.3p
Adjusted earnings per share 44.0p 32.3p
Diluted earnings per share 4 35.3p 29.7p
Adjusted diluted earnings 42.4p 32.1p
per share
There have been no recognised gains or losses attributable to
shareholders other than the profit for the current year and
preceding financial year and, accordingly no statement of total
recognised gains and losses is shown.
CONSOLIDATED BALANCE SHEET
30 June 2000
Note 2000 1999
#'000 #'000
Unaudited Audited
FIXED ASSETS
Intangible fixed assets 20,861 5,105
Tangible fixed assets 875 828
21,736 5,933
CURRENT ASSETS
Stock and work in progress 4,028 2,462
Debtors 9,705 4,398
Cash at bank and in hand 6,414 2,916
20,147 9,776
CREDITORS: amounts falling
due within one year (15,089) (4,600)
NET CURRENT ASSETS 5,058 5,176
TOTAL ASSETS LESS CURRENT
LIABILITIES 26,794 11,109
CREDITORS: amounts falling
due after more than one year (14,271) (3,964)
PROVISIONS FOR LIABILITIES
AND CHARGES (1,204) (600)
NET ASSETS 11,319 6,545
CAPITAL AND RESERVES
Called up equity share
capital 488 445
Share premium account 18,684 16,489
Profit and loss account (6,514) (9,050)
Merger reserve (1,339) (1,339)
EQUITY SHAREHOLDERS' FUNDS 5 11,319 6,545
NOTES TO THE CONSOLIDATED
CASH FLOW STATEMENT
Year ended 30 June 2000
2000 1999
Note #'000 #'000
Unaudited Audited
Cash inflow from operating 7
activities 4,924 3,173
Returns on investments and
servicing of finance (897) (319)
Taxation paid (1,126) (938)
Capital expenditure and
financial investment (142) (124)
Acquisitions and disposals (9,097) (5,837)
Equity dividends paid (576) (272)
Cash outflow before
financing (6,914) (4,317)
Financing 10,499 5,405
Increase in cash in the
year 3,585 1,088
NOTES TO THE STATEMENT
Year ended 30 June 2000
1. BASIS OF PREPARATION
The above results for the year ended 30 June 2000 are an abridged version
of the Group's statutory financial statements which have not been filed
with the Registrar of Companies and which have not yet been reported on by
the auditors. The balance sheet and profit and loss account do not
constitute statutory financial statements within the meaning of Section
240 of the Companies Act 1985 (as amended). These statements have been
prepared on the basis of the accounting policies as stated in the previous
year's financial statements.
The results for the year ended 30 June 1999 have been extracted from the
financial statements of the Group on which an unqualified report from the
auditors has been issued and which have been filed with the Registrar of
Companies.
Copies of this announcement are available from the Company's registered
office at 340 Gray's Inn Road, London WC1X 8BJ. The Annual Report and
Accounts will be sent to shareholders shortly.
2. SEGMENTAL INFORMATION
The analysis of turnover, profit on ordinary activities before taxation
and net assets attributable to the different classes of the Group's
business all of which were carried out in the United Kingdom, after
consolidation adjustments were as follows:
2000 1999
#'000 #'000
Unaudited Audited
Turnover
Management services 3,754 3,197
Insurance 19,077 6,332
Auctions 1,675 1,507
Surveying 6,007 4,114
Other 999 411
31,512 15,561
Profit on ordinary activities before taxation
Management services 1,092 924
Insurance 4,352 2,119
Auctions 554 489
Surveying 934 874
Other (1,731) (752)
5,201 3,654
Net assets
Management services 2,514 1,751
Insurance 4,293 1,364
Auctions 1,301 913
Surveying 1,438 784
Other 1,773 1,733
11,319 6,545
3. EQUITY DIVIDENDS
2000 1999
#'000 #'000
Unaudited Audited
Interim equity dividend paid of 1.75p per share
(1999 - 1.2p) 169 104
Final equity dividend proposed of 7p per share
(1999 - 5.3p) 684 472
853 576
4. EARNINGS PER SHARE
The calculation of basic earnings per share is based on profits after tax
of #3,426,000 (1999: #2,529,000) and on a weighted average number of
ordinary shares of 9,346,945 (1999: 8,437,223) in issue during the year.
The calculation of diluted earnings per share is based on basic earnings
as defined above and on 9,695,802 ordinary shares (1999: 8,508,794)
calculated as follows:
2000 1999
Shares Shares
Unaudited Audited
Basic weighted average number of shares 9,346,945 8,437,223
Weighted average number of dilutive shares
under option 853,626 212,356
Number of shares that would have been
issued at fair value (504,769) (140,785)
Diluted weighted average number of shares 9,695,802 8,508,794
Diluted earnings per share 35.3p 29.7p
The directors consider that earnings per share excluding goodwill
amortisation better reflects the commercial operating of the Group and
have therefore disclosed an additional earnings per share figure for this.
5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Group Group Company Company
2000 1999 2000 1999
#'000 #'000 #'000 #'000
Unaudited Audited Unaudited Audited
Profit for the financial year 3,426 2,529 832 607
Dividends (853) (576) (853) (576)
2,573 1,953 (21) 31
Issue of shares 2,238 6,524 2,238 6,524
Acquisition expenses written off - (173) - (173)
Goodwill written (off)/back (37) 335 64 -
Net addition to shareholders' funds 4,774 8,639 2,281 6,382
Opening shareholders'
funds/(deficit) 6,545 (2,094) 17,078 10,696
Closing shareholders' funds 11,319 6,545 19,359 17,078
6. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2000 1999
#'000 #'000
Unaudited Audited
Increase in cash in the year 3,585 1,088
Cash (inflow)/outflow from (increase)/decrease in
debt and lease financing (10,457) 946
Change in net debt resulting from cash flows (6,872) 2,034
Loans acquired with subsidiary (2,600) -
(9,472) 2,034
Net debt at 1 July (1,952) (3,986)
Net debt at 30 June (11,424) (1,952)
7. RECONCILIATION OF OPERATING PROFIT FOR THE YEAR TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
2000 1999
#'000 #'000
Unaudited Audited
Operating profit 6,098 3,973
Depreciation 223 157
Decrease in provision (86) -
Amortisation of goodwill 688 199
Loss on sale of tangible fixed assets - 31
Increase in stocks and work in progress (1,566) (343)
Increase in debtors (4,546) (369)
Increase/(decrease) in creditors 4,113 (475)
Net cash inflow from operating activities 4,924 3,173
8. ANALYSIS OF NET DEBT
At Acquisi At
1 July Cash tion 30 June
1999 Flow of 2000
#'000 #'000 subsidi #'000
Audited Unaudited ary Unaudited
#'000
Unaudited
Cash at bank and in hand 2,916 3,498 - 6,414
Overdraft (87) 87 - -
2,829 3,585 - 6,414
Debt due after one year (3,964) (10,307) - (14,271)
Debt due within one year (817) (150) ( 2,600) (3,567)
Total (1,952) (6,872) (2,600) (11,424)
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