RNS Number:5904R
Hercules Property Services PLC
18 February 2002
HERCULES PROPERTY SERVICES PLC
Interim Report for the six months ended 31 December 2001
Hercules Property Services Plc, the property management, consultancy and
insurances group, today announces its interim results for the half-year ended 31
December 2001.
Highlights:
• Turnover on continuing operations up 69% to £14.5m (2000:
£8.6m)
• Trading profit before non-recurring item up 60% to £5.7m
(2000: £3.6m)
• Interim dividend increased by 15%
• Adjusted basic eps 22.7p (2000: 20.4p) Basic eps 6.7p
(2000: 14.9p)
• Board appointments include new finance director
• Three strategic acquisitions to expand service capabilities
in residential auction, town planning and residential
property management.
Larry Lipman, Chairman of Hercules commented:
"Despite a challenging insurance market I am pleased to report to shareholders
on another successful period of growth for Hercules Property Services,
delivering a record interim profit for the Group. We continue to make
significant progress towards our goal of being the leading provider of property
services in the United Kingdom."
For further information:
Larry Lipman, Chairman Hercules Property Services Plc T: 020 8202 7276
Rupert Ashe GCI Financial T: 020 7072 4200
Roger Leboff
Caroline Massey
Notes to Editors:
Hercules Property Services PLC (HPS.L) is a leading property insurance,
management and consultancy group. It provides a comprehensive range of
specialised services, including: insurance to the commercial and residential
property sectors; property management; and advice on commercial developments.
More information can be found on the internet at www.hercules-group.co.uk.
Chairman's Statement
I am pleased to report to shareholders on another successful period of growth
for Hercules Property Services, delivering a record interim profit for the
Group. We continue to make significant progress towards our goal of being the
leading provider of property services in the United Kingdom.
RESULTS
The Group has continued to make strong progress during the period with turnover
rising 82.5% to £15.7 million from £8.6 million. Trading profits before a
non-recurring charge of £1.0 million (see below) rose by £2.1 million to £5.7
million, representing a growth rate of nearly 60%, or 51% without the
contribution of acquisitions. (2000: 33%). After the non-recurring charge,
goodwill and LTIP write-off which in total is £2.8 million (2000: £0.6 million)
pre tax earnings remained at £2.5 million.
The adjusted earnings per share before the non-recurring charge, goodwill and
LTIP increased by 11.3 % to 22.7p from 20.4p last year and the basic earnings
per share decreased to 6.7p from 14.9 p. The 2001 earnings per share
calculations have been effected by the increased number of shares in issue
following the Farr acquisition in November 2000. As Farr's income flow is
heavily weighted towards the second half of our financial year, the full effect
of the additional shares in issue throughout the period have had a negative
impact on the first half earnings per share calculation.
The interim dividend is being increased to 2.3p per share (15% higher than the
corresponding period last year), which will be paid on 6 July 2002 to all
shareholders on the register as at 7 June 2002.
OPERATIONS
Over the past six months we have consolidated our position as a substantial and
profitable provider of property services to owners of residential and commercial
buildings in the UK. The mainstay of our growth strategy is to secure high
quality, recurring income generated by property management contracts and the
provision of property insurance. This provides the platform for our other
professional and consultancy services.
While the group's trading as a whole matched our first half targets, which are
set to accommodate the seasonal weighting of our revenues to the second half, we
recorded some significant variances within the subsidiary results. Property
management, consulting and auctions were well ahead of their plans but
turbulence within the property insurance markets negatively impacted Deacon,
whose principal business is in the provision of insurance for blocks of flats.
We have included in cost of sales an exceptional charge of £1.0 million being
the payment made to one of Deacon's former insurance suppliers in settlement of
claims against Deacon connected with business written in previous years that
crystallised in November 2001. Overdue market price increases compounded by
uncertainties in the reinsurance markets following the events of 11 September,
which took some time to come into effect, created significant uncertainties and
challenges for all players in this market. These market changes started to
adversely affect Deacon's gross margins and retention levels in the second
quarter, the full effect of which materialised in 2002. We can report however,
that significant steps have been taken to meet these challenges and these have
already begun to show some success. We expect therefore that margins and
retention levels will improve in the second half of the year. Investment has
been made both in strengthening the Deacon management team, including the
recruitment a new managing director, and in improving our underwriting and
compliance processes to meet the demands of the new market. The costs arising
from these improvements combined with the challenging trading conditions in the
first half are expected to leave Deacon short of its profit target for this
financial year. However, the new management team and competitively priced
insurance facilities already on stream in 2002 give us confidence that Deacon's
future performance will improve substantially.
Our other insurance businesses have performed well against a backdrop of this
hardening market. Cadogan and Farr have exceeded their half-year targets and
have had a good start to the second half of the year.
In our existing residential property management businesses we have invested in
both people and systems to ensure that we are geared to cope with continuing
growth. As a result, profits from this division are slightly below our
expectations in the first half, but we anticipate a strong recovery in the
second half of the year.
The contribution from Dunlop Heywood Lorenz, the commercial property
consultancy, was particularly strong during the period under review. This
result was pleasing given that it was delivered during the period in which
Dunlop Heywood and Baker Lorenz were being integrated. In Manchester the
company has moved into new offices and in London a freehold building has been
purchased to consolidate staff previously located in three separate buildings.
In addition to facility cost savings, the increased communication between all
staff should enhance customer service in the coming years.
Harman Healy and Winkworth Auctions (acquired in July 2001), our property
auctioneers, also produced good results and both have held their strongest
auctions since joining the Hercules Group. I am also pleased to report that they
have started the second half well.
In December we announced two further acquisitions that have enhanced our service
offerings. Firstly we acquired Michael Courcier & Partners, a town planning
consultancy based in Bolton, and secondly we acquired Wood Managements Group
Limited a residential property manager specialising in blocks of flats based in
the West End of London. As with previous acquisitions, we aim to integrate
their operations into our existing businesses as soon as possible, maximising
the benefits to our clients. We have relocated the administrative offices of
Wood Managements, into those of our other residential property management
businesses in Stanmore. We plan to complete the integration of both businesses
by the end of the year. In addition, at the beginning of February we completed
the acquisition of D.O.R. (Northern) Limited, a social housing property
insurance broker. The acquisition of D.O.R. will serve to strengthen our
strategy and position in the UK housing association insurance market, of which
we now control nearly half.
MANAGEMENT
Following the appointment of Rob Plumb in October 2000 as Managing Director, I
am now pleased to report that we have again strengthened the Board in the last
six months with the appointment of Nigel Davis as Finance Director. This has
allowed Paul Davis, previously our Finance Director to take on the role of
Commercial Director, where he is concentrating on the negotiation and
integration of acquisitions, as well as new business development
We continue to enjoy the enormous enthusiasm and commitment of our staff
throughout the country, for which we offer thanks and appreciation. Hercules
has built a portfolio of strong businesses that work successfully alongside each
other, as evidenced by the high proportion of cross-referred business.
OUTLOOK
Notwithstanding a lower contribution from Deacon which will, we believe, lead to
group results falling modestly below our original expectations for this
financial year, our other businesses, including those that we have recently
acquired, are performing strongly. We remain confident that our established
business model, enhanced by strengthened management and process improvements
position us well for strong growth in the future.
Larry Lipman
Chairman
18 February 2002
CONSOLIDATED PROFIT AND LOSS ACCOUNT Note 6 months Restated (see note Restated (see note
ended 1) 1)
31 December 6 months 12 months
2001 ended ended
£'000 31 December 30 June
2000 2001
£'000 £'000
TURNOVER: acquisitions 1,189 - 4,431
continuing operations 14,547 8,624 21,279
15,736 8,624 25,710
Cost of sales: before non-recurring item (2,862) (2,444) (5,094)
non-recurring item 2 (1,006) - -
Total cost of sales (3,868) (2,444) (5,094)
GROSS PROFIT 11,868 6,180 20,616
Administrative expenses (7,200) (2,627) (10,046)
TRADING PROFIT 4,668 3,553 10,570
Amortisation (1,548) (569) (1,620)
Long Term Incentive Plan (LTIP) (300) - (354)
OPERATING PROFIT: acquisitions 312 - 2,417
continuing operations 2,508 2,984 6,179
2,820 2,984 8,596
Interest receivable and similar income 733 202 828
Interest payable and similar charges (1,046) (729) (1,794)
Profit on ordinary activities before taxation 2,507 2,457 7,630
Tax on profit on ordinary activities (1,306) (908) (2,985)
Profit on ordinary activities after taxation 1,201 1,549 4,645
Equity dividends (449) (294) (1,900)
Retained profit for the financial period 752 1,255 2,745
Basic earnings per share 6.7p 14.9p 35.8p
Adjustment for amortisation, LTIP and non-recurring 16.0p 5.5p 15.2p
item
Adjusted earnings per share 22.7p 20.4p 51.0p
Diluted earnings per share 6.5p 14.2p 34.2p
Adjusted diluted earnings per share 21.9p 19.5p 48.8p
Taxation has been calculated using an estimated annual effective rate before amortisation of goodwill of 30% (six
months to 31 December 2000 - 30%, year ended 30 June 2001 - 30%).
The interim financial information has neither been audited nor reviewed and does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985.
The accounts for the year to 30 June 2001 set out above are abridged from the Company's statutory accounts. The full
accounts incorporating an unqualified auditors' report and containing no statement under section 237 (2) and (3) of
the Companies Act 1985, have been filed with the Registrar of Companies. The interim dividend will be payable on 6
July 2002 to members on the register on 7 June 2002
Accounting policies are consistent with those applied in the financial statements of 30 June 2001, with the exception
of those set out in note 1.
CONSOLIDATED BALANCE SHEET 31 December 31 December 30 June
2001 2000 2001
£'000 £'000 £'000
FIXED ASSETS
Intangible fixed assets 57,968 39,511 55,130
Tangible fixed assets 5,702 1,232 4,399
63,670 40,743 59,529
CURRENT ASSETS
Stock and work in progress 4,476 3,930 4,468
Debtors 14,418 9,730 16,460
Cash at bank and in hand 29,517 23,176 32,558
48,411 36,836 53,486
CREDITORS: amounts falling due within one year (23,654) (12,547) (27,354)
NET CURRENT ASSETS 24,757 24,289 26,132
TOTAL ASSETS LESS CURRENT 88,427 65,032 85,661
LIABILITIES
CREDITORS: amounts falling due after more than one year (32,866) (28,473) (31,429)
PROVISIONS FOR LIABILITIES AND CHARGES (1,255) (1,185) (1,054)
NET ASSETS 54,306 35,374 53,178
CAPITAL AND RESERVES
Called up equity share capital 898 735 892
Share premium account 57,826 41,237 57,456
Profit and loss account (3,079) (5,259) (3,831)
Merger reserve (1,339) (1,339) (1,339)
EQUITY SHAREHOLDERS' FUNDS 54,306 35,374 53,178
CONSOLIDATED CASH FLOW STATEMENT Note 6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2001 2000 2001
£'000 £'000 £'000
Net cash inflow from operating activities 3 3,637 2,104 32,771
Returns on investments and servicing of finance (313) (527) (966)
Taxation paid (3,049) (751) (2,320)
Capital expenditure and financial investment (1,080) (467) (3,574)
Acquisitions and disposals (3,793) (3,163) (33,414)
Equity dividends paid (294) (170) (853)
Cash outflow before financing (4,892) (2,974) (8,356)
Financing 1,887 19,736 34,464
(Decrease)/Increase in cash in the period (3,005) 16,762 26,108
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Note 6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2001 2000 2001
£'000 £'000 £'000
(Decrease)/Increase in cash in the period (3,005) 16,762 26,108
Cash (outflow)/inflow from decrease/(increase) in (1,511) 1,064 4,712
debt and lease financing
Change in net debt resulting from cash flows (4,516) 17,826 30,820
Loans acquired with subsidiaries - - (2,556)
(4,516) 17,826 28,264
Net funds/(debt) brought forward 16,840 (11,424) (11,424)
Net funds carried forward 4 12,324 6,402 16,840
NOTES TO THE INTERIM REPORT
1. RESTATEMENT OF COMPARATIVE FIGURES
In order to ensure harmonisation of accounting policies across the insurance intermediaries within the group, with
respect to the recognition of turnover and cost of sales, comparative figures have been restated to show as turnover
only the net commission received, not the premium. The impact on the results for the year ended 30 June 2001 is a
reduction in both turnover and cost of sales of £15,493,052, and for the six months ended 31 December 2000, a
reduction in both turnover and cost of sales of £7,099,473. There is no effect upon the profits of either period.
2. NON-RECURRING ITEM
Cost of sales includes a charge 0f £1,006,000 in relation to a the payment made to one of Deacon's former insurance
suppliers in settlement of claims against Deacon connected with business written in previous years that crystallised
in November 2001.
3. RECONCILIATION OF OPERATING PROFIT FOR THE PERIOD TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2001 2000 2001
£'000 £'000 £'000
Operating profit 2,820 2,984 8,596
Depreciation charge 290 110 214
Increase/(decrease) in provision 201 (18) (150)
Amortisation of goodwill 1,548 569 1,620
(Profit)/Loss on sale of tangible fixed assets (22) - 8
(Increase)/decrease in stocks and work in progress (8) 98 (440)
Decrease/(increase) in debtors 2,957 1,435 (1,532)
(Decrease)/increase in creditors (4,149) (3,074) 24,455
Net cash inflow from operating activities 3,637 2,104 32,771
4. ANALYSIS OF NET DEBT
At Cash Acquisition of At
1 July flow Subsidiaries 31 December
2001 £'000 £'000 2001
£'000 £'000
Cash at bank and in hand 32,558 (3,553) 512 29,517
Bank overdraft (36) 36 - -
Debt due within one year (3,745) 527 - (3,218)
Debt due after one year (11,937) (2,038) - (13,975)
16,840 (5,028) 512 12,324
Cash includes £18,890,997 held in an escrow account to settle the loan notes issued as part of the consideration for
businesses acquired in previous periods.
END
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