RNS Number:8946A
Hercules Property Services PLC
09 September 2002
09 September 2002
HERCULES PROPERTY SERVICES PLC
UNAUDITED PRELIMINARY RESULTS FOR YEAR
TO 30 JUNE 2002
HIGHLIGHTS
Hercules Property Services PLC, the property management, consultancy and
insurances group, today announces its preliminary results for the year ended 30
June 2002.
* Turnover for the year increases to #36.9m +44%
* Substantial rise in profits before tax, non recurring items,
amortisation and Long Term Incentive Plan to #11.5m +20%
* Final dividend of 9.7p per share recommended +8%
* Total dividend for the year will be 12p per share +9%
* Recurring income from insurance commissions and management fees
accounted for 63% of total Group income
Larry Lipman, Chairman of Hercules said:
"Hercules has again produced record profits before tax, non recurring items,
amortisation and the Long Term Investment Plan. This reflects the resilience of
the Group's balanced portfolio of companies."
For further information, please contact:
Hercules Property Services PLC
Robert Plumb, Managing Director 020 8420 7600
GCI Financial
Roger Leboff / Caroline Massey 020 7072 4200
CHAIRMAN'S STATEMENT
Shareholders will be aware that this was a turbulent year for the property
insurance markets in which Hercules operates. In particular, we have seen
significant changes in the pricing and capacity for property insurance. Against
this backdrop, I am pleased to report that profits for the year before tax,
non-recurring items, amortisation and long term incentive plan costs, rose to
#11.5m from #9.6m in 2001, an increase of just under 20%. I can confirm that
all of our operating divisions apart from Insurance reported year on year growth
in profits.
Group turnover grew 43.7%, from #25.7m to #36.9m during the year under review.
Whilst a proportion of this increase can be attributed to acquisitions, the
Group achieved organic growth of approximately 22%.
The most significant acquisition during the year was that of Gross Fine
Management, a premier residential property management business based in the West
End of London. Gross Fine manages approximately 12,000 units and its strong
contacts with major housebuilders provide a steady flow of new instructions. We
have now owned this business for four months and I am happy with the progress to
date and its overall integration into the Hercules Group.
Basic earnings per share for the financial year were 22.1p, compared with 37.3p
for the previous year. The adjusted earnings per share, which excludes
amortisation, non-recurring items and long-term incentive plan costs, is 44.8p
for the current year against 52.5p for 2001.
DIVIDEND
The Board is recommending a final dividend of 9.7p making 12.0p for the year, an
increase of 9% over the previous year. The final dividend will, subject to
shareholder approval, be payable on January 3 2003, to shareholders on the
register at the close of business on December 6 2002.
The directors also wish to make a scrip dividend alternative available to
ordinary shareholders, to enable them to have the opportunity to elect to
receive the final dividend partly or wholly in fully paid new ordinary shares in
the Company in lieu of cash.
Full details of the scrip dividend alternative will be set out in a circular and
sent to shareholders in due course.
BUSINESS DEVELOPMENT
I believe last year was one of the most significant since Hercules floated in
May 1996. Despite the difficult trading conditions across the world economy,
Hercules has again produced record profits before tax, non-recurring items,
amortisation and long term incentive plan costs. This reflects the resilience
of the Group's balanced portfolio of companies. Of particular importance this
year was the exceptional contribution from our auction businesses. Harman Healy
took advantage of an extremely strong secondary commercial property market,
while Winkworths Auctions, acquired in July last year, prospered in the buoyant
residential auction market.
We continue to monitor and set target levels for predictable recurring income,
which are currently above the 63% level. Most of our acquisitions this year have
been in residential property management and these have helped strengthen our
recurring revenues. In the insurance field we added D.O.R. (Northern) to the
Group. This significantly enhanced our position in the Housing Association
market and in conjunction with Farr's positive performance this year, underpins
our confidence in the sustainability of revenues from this particular area of
activity.
MANAGEMENT TEAM AND STAFF
As the Group evolves we must develop the management infrastructure needed to
support continued profitable trading. I am, therefore, delighted to have
appointed Nigel Davis as Finance Director. His predecessor, Paul Davis, has
become the Group's Commercial Director. Both Nigel and Paul, under the guidance
of our Managing Director Robert Plumb, will, I am sure, continue to enhance the
day to day running and performance of the Group.
PROSPECTS
Although trading conditions in the insurance market remain difficult, we already
have evidence that Deacon is enjoying better renewal retention rates and
stabilising margins. We remain confident, as this market continues to recover,
that we will be able to negotiate increasingly competitive insurance packages
for our clients. We anticipate that a combination of gradually improving market
conditions and the improvements that we have already made to the quality of our
sales and service to the blocks of flats market will enable Deacon to recover
some of the ground lost during the year to 30 June 2002.
The process of continuous improvement and the establishment of Deacon's
competitive advantages in this very specific area of the property insurance
market should facilitate a fuller recovery over a longer period of time.
Within our chosen niches there are many opportunities for all divisions. Recent
new management contracts, both in the commercial and residential markets, augur
well for management fee growth and the potential to cross sell professional and
insurance services. A more detailed review on a sector-by-sector basis is given
by Robert Plumb in his review of operations.
Finally I would like to thank all our staff and professional advisors as I look
forward with confidence to the forthcoming year.
L LIPMAN
CHAIRMAN
OPERATIONAL REVIEW
Despite the challenges the Group has faced, with the unprecedented turmoil in
our insurance markets, we have made significant progress this year, both in
terms of consolidating our positions within our various market niches and
maximising our inter-company referrals. All divisions within the Group have
registered significant growth in revenues, aided by acquisitions, but also with
the majority of businesses enjoying year-on-year organic growth. It is also a
year in which we have made major strides in terms of establishing more effective
Group support and control. Successful post acquisition management and
integration has been key to the pleasing returns that each of these new
businesses have made.
Residential Property Services
Although the smallest in terms of revenue contribution, residential management
has experienced the highest revenue growth of all our divisions. The
acquisitions of Wood Management and Gross Fine, were two major steps in
achieving our goal of being a leading service provider to the residential flats
market. Our service offerings now range from the administration and management
of ground rents through to the full range of professional services for major
established and newly developed apartment blocks. These two businesses,
together with a number of smaller portfolio acquisitions, have substantially
increased the proportion of "owner-occupied" residential management. This is in
keeping with our aim to follow developments and trends within the market as
legislative changes are implemented. We are pleased that all of these
acquisitions have not only have been integrated well, but have contributed
materially to inter-Group professional and insurance services.
Commercial Property Services
With revenue growth of over 60% our commercial division has performed well in a
challenging market environment. A significant milestone during the course of the
year has been the successful integration of Dunlop Heywood and Baker Lorenz. In
November 2001 we acquired Michael Courcier and Partners, a property planning
consultancy based in Bolton. Strong market demand, particularly for residential
planning, has seen this acquisition contribute handsomely to the division's
results with a strong ongoing opportunity to cross sell within the property
services division.
Although in common with the commercial property services market generally, we
have experienced a drop in transactional activity, our professional and
management departments have enjoyed a number of important successes. Our
ability to focus in our market niches leads us to anticipate revenue growth in
this division despite what could be difficult market conditions in the
foreseeable future.
Our auction businesses had an outstanding year in markets with relatively high
property yields and low interest rates. We are particularly pleased with the
degree of diversification we achieved in both the residential and the secondary
commercial markets.
Early in the new financial year our London based commercial operations will be
relocating to one building where, besides the benefit of cost savings, we are
sure there will be the opportunity for greater business synergies.
Insurance Division
Significant price increases combined with substantially more onerous
underwriting criteria have affected all of our insurance businesses to varying
degrees.
Deacon, our blocks of flats insurance intermediary, has been the most severely
impacted by these changes. This business offers a specialised service to
managers and owners of blocks of flats, and a virtual full outsourcing solution
to insurance companies. The business benefits significantly from process
efficiency and economics of scale in soft insurance markets, but is more
negatively affected in a hardening market. Although poor capacity and rising
prices in the property insurance market will undoubtedly mean that conditions
will remain challenging, the progress Deacon's new management has made both in
terms of re-engineering its underwriting processes and developing increasingly
competitive products will position it well for an improved performance in the
year to come.
Cadogan Insurance Brokers, who principally service commercial property portfolio
managers and owners, have had an extremely successful first year with the Group.
A personal, specialised and quality service has kept the business's renewal
retention rates high.
The Housing Associations property insurance market has also had to endure
significant price increases as insurers look to recover underwriting losses of
previous years. Farr, who enjoyed a commanding position in terms of their
knowledge and experience in this very specialised market have continued to
perform well despite the challenges. Given our confidence in our strengths in
this market we were very pleased to bring D.O.R. (Northern) into the Hercules
Group earlier this year. D.O.R. (Northern) like Farr, operates only in the
Housing Association insurance market and similarly enjoys excellent client
retention through focus and specialisation.
As much as we expect that the markets will continue to be unsettled we firmly
believe that businesses within the Hercules Group are well positioned. We see
significant potential for organic growth within our divisions both through
growing share within our market niches and through further maximisation of our
inter-group sales opportunities.
My thanks go out to all the employees of the Group who have demonstrated their
commitment through their contributions this year. Their drive and determination
in the year to come will undoubtedly be key to our future success.
R H C PLUMB
MANAGING DIRECTOR
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 30 June 2002
Note 2002 Restated
(continuing 2002 (see note 2)
operations) (acquisitions) 2002 2001
#'000 #'000 #'000 #'000
Turnover 3 31,370 5,576 36,946 25,710
Cost of sales (6,582) (542) (7,124) (5,094)
Gross profit 24,788 5,034 29,822 20,616
Administrative expenses - Recurring (15,227) (2,212) (17,439) (10,046)
Administrative expenses - Non Recurring 4 (1,215) - (1,215) -
Amortisation (2,967) (498) (3,465) (1,620)
Long Term Incentive Plan (LTIP) (600) - (600) (354)
Total administrative expenses (20,009) (2,710) (22,719) (12,020)
Operating profit 4,779 2,324 7,103 8,596
Profits on sale of assets in continuing 900 -
operations
Profit on ordinary activities before 8,003 8,596
interest
Interest receivable and similar income 1,423 828
Interest payable and similar charges (2,309) (1,794)
Profit on ordinary activities before 7,117 7,630
taxation
Tax on profit on ordinary activities (3,147) (2,787)
Profit on ordinary activities after 3,970 4,843
taxation
Equity dividends 6 (2,167) (1,900)
Retained profit for the financial year 1,803 2,943
Basic earnings per share 7 22.1p 37.3p
Adjustment for goodwill and LTIP 7 22.7p 15.2p
Adjusted earnings per share 44.8p 52.5p
Diluted earnings per share 7 21.6p 35.7p
Adjusted diluted earnings per share 7 43.7p 50.3p
There are no discontinued operations.
UNAUDITED CONSOLIDATED BALANCE SHEET
30 June 2002
Note Restated
(Note 13)
2002 2001
#'000 #'000
FIXED ASSETS
Intangible fixed assets 73,354 55,130
Tangible fixed assets 10,326 4,399
83,680 59,529
CURRENT ASSETS
Stock and work in progress 4,760 4,468
Debtors 20,397 16,658
Investments 7 -
Cash at bank and in hand 37,226 32,558
62,390 53,684
CREDITORS: amounts falling due
within one year (33,031) (27,354)
NET CURRENT ASSETS 29,359 26,330
TOTAL ASSETS LESS CURRENT
LIABILITIES 113,039 85,859
CREDITORS: amounts falling due
after more than one year (55,774) (31,429)
PROVISIONS FOR LIABILITIES
AND CHARGES (606) (700)
NET ASSETS 56,659 53,730
CAPITAL AND RESERVES
Called up equity share capital 903 892
Shares to be issued 954 354
Share premium account 57,971 57,456
Profit and loss account (1,830) (3,633)
Merger reserve (1,339) (1,339)
EQUITY SHAREHOLDERS' FUNDS 8 56,659 53,730
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
Year ended 30 June 2002
2002 2001
Note #'000 #'000
Cash inflow from operating activities 9 14,806 32,771
Returns on investments and servicing of finance 10 (886) (966)
Taxation (4,553) (2,320)
Capital expenditure and financial investment 11 (5,383) (3,574)
Acquisitions and disposals 11 (20,303) (33,414)
Equity dividends paid (1,900) (853)
Cash outflow before financing (18,219) (8,356)
Financing 11 22,923 34,464
Increase in cash in the year 4,704 26,108
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2002
1. BASIS OF PREPARATION
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 June 2002 or 2001. The
financial information for the year ended 30 June 2001 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was
unqualified and did not contain a statement under s237(2) or (3) Companies Act
1985. The statutory accounts for the year ended 30 June 2002 will be finalised
on the basis of the financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of Companies
following the Company's annual general meeting.
2. RESTATEMENT OF COMPARATIVE PROFIT AND LOSS 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. There is no effect upon the profits for the year ended 30 June
2001.
The restatement in the prior year balance sheet for the impact of FRS19 and the
change in the shares to be issued is set out in note 13.
3. 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:
Restated
2002 2001
#'000 #'000
Turnover
Management services 7,546 4,090
Insurance 16,522 12,729
Auctions 3,506 1,540
Surveying 8,504 6,372
Other 868 979
36,946 25,710
Profit on ordinary activities before taxation
Management services 1,968 794
Insurance 7,238 8,964
Auctions 1,212 415
Surveying 1,134 956
Other (4,435) (3,499)
7,117 7,630
4. NON RECURRING ITEM
Administrative expenses include a charge of #1,215,000 in relation to a payment
made to one of Deacon's former insurance suppliers in settlement of claims
against Deacon connected with business written in previous years.
5. RECONCILIATION OF PROFIT BEFORE TAX, AMORTISATION, NON
RECURRING ITEMS AND LONG TERM INCENTIVE PLAN COSTS
2002 2001
#'000 #'000
Profit on ordinary activities before taxation 7,117 7,630
Profit on sale of assets in continuing operations (900) -
Administrative expenses - Non Recurring 1,215 -
Amortisation 3,465 1,620
Long Term Incentive Plan 600 354
Profit reported in chairman's statement 11,497 9,604
6. EQUITY DIVIDENDS
2002 2001
#'000 #'000
Interim equity dividend paid of 2.3p per share (2001 - 2p) 415 294
Final equity dividend proposed of 9.7p per share (2001 - 9p) 1,752 1,606
2,167 1,900
7. EARNINGS PER SHARE
The calculation of basic earnings per share is based on profits after tax of
#3,970,009 (2001 - #4,843,743) and on a weighted average number of ordinary
shares of 17,942,906 (2001 - 12,979,592) in issue during the year.
The calculation of diluted earnings per share is based on basic earnings as
defined above and on 18,401,043 ordinary shares (2001 - 13,563,763) calculated
as follows:
Restated
2002 2001
No. No.
Basic weighted average number of shares 17,942,906 12,979,592
Weighted average number of dilutive shares under option 1,562,186 1,222,262
Number of shares that would have been issued at fair value (1,104,049) (638,091)
Diluted weighted average number of shares 18,401,043 13,563,763
Diluted earnings per share 21.6p 35.7p
The Directors consider the earnings per share excluding goodwill amortisation
and the charge for the LTIP better reflects the commercial operations of the
Group and have therefore disclosed an additional earnings per share figure for
this.
The calculation of the adjusted diluted earnings per share is therefore based on
profits after tax, excluding goodwill amortisation and LTIP charge, of
#8,035,000 (2001 - #6,817,000) and on the diluted weighted average number of
shares of 18,401,043 (2001 - 13,563,763).
8. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Restated
2002 2001
#'000 #'000
Profit for the financial year 3,970 4,843
Dividends (2,167) (1,900)
1,803 2,943
Issue of shares 526 40,399
Shares to be issued 600 354
Acquisition expenses written off - (1,223)
Goodwill written off - (62)
Net addition to shareholders' funds 2,929 42,411
Opening shareholders' funds 53,730 11,319
Closing shareholders' funds 56,659 53,730
9. RECONCILIATION OF OPERATING PROFIT FOR THE YEAR TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
2002 2001
#'000 #'000
Operating profit 7,103 8,596
Shares to be issued 600 354
Depreciation 654 252
Decrease in provision (94) (150)
Amortisation of goodwill 3,465 1,620
Loss on sale of tangible fixed assets - 8
Increase in stocks and work in progress (74) (440)
Increase in debtors (1,452) (1,532)
Increase in creditors 4,604 24,063
Net cash inflow from operating activities 14,806 32,771
10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2002 2001
#'000 #'000
Increase in cash in the year 4,704 26,108
Cash (inflow)/outflow from (increase)/decrease in
debt and lease financing (22,397) 4,712
Change in net debt resulting from cash flows (17,693) 30,820
Loans and finance leases acquired with subsidiaries (15) (2,556)
(17,708) 28,264
Net funds/(debt) at 1 July 2001 16,840 (11,424)
Net (debt)/funds at 30 June 2002 (868) 16,840
11. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW
STATEMENT
2002 2001
#'000 #'000
Returns on investments and servicing of finance
Interest received 1,423 828
Interest paid (2,309) (1,794)
Net cash outflow from returns on investments and
servicing of finance
(886) (966)
Capital expenditure and financial investment
Purchase of tangible fixed assets (7,613) (3,593)
Receipts from sale of tangible fixed assets 2,230 19
Net cash outflow from capital expenditure and
financial investment
(5,383) (3,574)
Acquisitions and disposals
Purchase of subsidiary undertaking (21,874) (35,810)
Net cash acquired with subsidiary 1,571 2,396
Net cash outflow from acquisitions and disposals (20,303) (33,414)
Financing
Issue of ordinary share capital 526 39,176
New borrowings 41,092 -
Repayment of loans (18,691) (2,156)
Repayment of acquired subsidiary loan - (2,556)
Capital element of finance lease rental payments (4) -
Net cash inflow from financing 22,923 34,464
12. ANALYSIS OF NET Debt
At Acquisition At
1 July Cash of 30 June
2001 flow subsidiary 2002
#'000 #'000 #'000 #'000
Cash at bank and in hand 32,558 3,097 1,571 37,226
Overdraft (36) 36 - -
32,522 3,133 1,571 37,226
Debt due within one year (3,745) (3,770) - (7,515)
Debt due after one year (11,937) (18,631) - (30,568)
Finance leases - 4 (15) (11)
Total 16,840 (19,264) 1,556 (868)
Cash includes #24,817,730 held in escrow accounts to settle the loan notes
issued as part of the consideration for Farr (#15,390,997) and Gross Fine
(#9,426,733).
13. RESTATEMENT OF COMPARATIVE BALANCE SHEET FIGURES
SHARES TO BE ISSUED
Provisions for Shares to be
Liabilities and Issued
Charges
#'000 #'000
2001 as previously reported (1,054) -
Restatement of Long Term Incentive Plan 354 (354)
2001 Restated (700) (354)
13. CONTINUED
DEFERRED TAXATION
Prior year adjustment. The adoption of FRS19 "Deferred Taxation" has
necessitated changes in the method of accounting for deferred tax assets and
liabilities. As a result of these changes in accounting policy, the comparatives
have been restated as follows:
Deferred tax Profit & Loss Shareholders
asset Account funds
#'000 #'000 #'000
2001 as previously reported - 9,182 53,178
Adoption of FRS19 at 1 July 2000 98 98 98
During the year ended 30 June 2001 100 100 100
Adoption of FRS19 at 30 June 2001 198 198 198
198 9,380 53,376
Shares to be issued - - 354
2001 Restated 198 9,380 53,730
This information is provided by RNS
The company news service from the London Stock Exchange
END
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