RNS No 3207n
HERCULES PROPERTY SERVICES PLC
13 September 1999
HERCULES PROPERTY SERVICES PLC:
UNAUDITED PRELIMINARY RESULTS FOR YEAR
TO 30 JUNE 1999
H I G H L I G H T S
* Turnover for the period more than doubles to #15.6m + 120%
* Substantial rise in pre-tax profits to #3.85m** + 45%
* EPS advances to 32.3p ** + 14%
* Final dividend of 5.3p a share recommended + 33%
* Total dividend for the year will be 6.5p a share + 30%
* Recurring quality income from insurance commissions
+ management fees accounted for 61% of total Group income
* Dunlop Heywood - acquired in September 98 - already
generating increased level of profits
* Record auction sales of #81.3m from Harman Healy reflecting
an increase of 23%
* Heritage now secures insurance for #2.5bn of property
* During year Group moved to Official List and re-classified
into "Support Services" sector
**(excludes goodwill write-off)
"The new financial year has got off to a good start and will benefit from
Dunlop Heywood, as well as some of our smaller acquisitions, making a full 12
months' contribution to Group results. With that in mind, together with a
continuing buoyant property market, I view the current year with confidence,"
Larry Lipman, Chairman.
CHAIRMAN'S STATEMENT
Steadily improving property market conditions, particularly in the second half
of the year, together with strong organic growth from each of the Group
companies contributed to Hercules' record performance since it became an
independent company three years ago. Once more I believe these results
reflect the Group's ability to bring complementary businesses under the
Hercules umbrella, enabling individual companies to deliver greater returns as
they are able to cross-sell services into other parts of the Group.
I am pleased to be able to report that the Group was able to build on its
excellent first half performance and has produced pre-tax profits for the 12
months to 30 June 1999 45% higher at #3.85m excluding goodwill written off of
#199,000. Turnover more than doubled to #15.6m from #7.1m, while earnings per
share before goodwill rose by 14% to 32.3p. The Board is recommending a final
dividend, at 33% higher, of 5.3p per ordinary share, making a total for the
year of 6.5p, payable on 4 January 2000 to shareholders on the register at 6
December 1999.
As I said in my interim statement, a sizeable proportion of Hercules' income
is derived from recurring business such as insurance commissions and
management fees. The contribution from this area of Group activity at the
year end accounted for 61% of total income.
A sizeable contributor to profit for the financial year under review has been
Dunlop Heywood, the Manchester and London based property consultants, which
the Group acquired in September 1998 for approximately #5.5m. Since becoming
part of the Hercules Group, I am pleased to report that Dunlop Heywood has
further expanded its activities and generated more profits in the nine months
since acquisition than the #720,000 operating profits it made in its last full
financial year.
Dunlop Heywood represents the Group's only major corporate acquisition during
the year under review although we have made a number of small purchases both
during the year and since the balance sheet date. These acquisitions have
been mainly in the property management sector and make natural additions to
our David Glass Associates and Simmonds & Partners subsidiaries. We also
purchased the remaining 49% of Waterglen Limited, the company that owns the
freeholds of the flats and houses managed by Property Connection Limited, the
Brighton-based property management business we acquired in February 1998.
It is worth reminding shareholders of two other corporate issues which have
taken place over the year. Firstly, Hercules' shares, which have been quoted
on the Alternative Investment Market since flotation in May 1996, moved on to
the Official List in October 1998. Secondly, to coincide with that move,
Hercules was re-classified into the "Support Services" sector which we believe
better reflects the service orientated and earnings based nature of the
business today.
I said at the beginning of this statement that much of this year's profits
rise is attributable to organic growth from each of the Group companies.
Without exception, every company made an increased contribution to Group
earnings and although individual performances are referred to later in the
announcement, I would like to refer to the progress made by one or two of our
businesses here.
Despite a difficult first half of the year, our auctioneering business Harman
Healy, achieved record sales in its seven auctions over the year. In total,
these auctions generated sales of property to the value of #81.3m, a 23%
uplift on the previous year, with the main surge coming through in the second
half as confidence grew in the auction room.
Once more, Heritage, our property insurance intermediary, continued to grow
and today it provides insurance cover for around #2.5bn of commercial and
residential property. The value of property for which Heritage secures cover
typically grows at the rate of #75m a month and since formation more than five
years ago it has expanded from a portfolio valued at only #40m.
Other Group members have all performed well during the year reflecting the
benefits from cross-selling services into the other companies. The benefits
the Group derives from cross-selling can be seen even from our latest
acquisition, Dunlop Heywood, which, I am pleased to report, has bedded down
well and is able to introduce a range of new business to other Hercules
companies, including auctions, property management and insurance.
With the concept of cross-selling services into other Group companies now
firmly established, we have launched Hercules Telecom since the year end.
Here we are able to offer clients advantageous telephone call charges and have
signed a number of users to this service.
There have been some changes to Group management over the course of the year
reflecting the changing nature and size of the business. Firstly, Jonathan
Radgick has retired as managing director of Harman Healy and, as a result,
stepped down as an executive director of Hercules although he remains on the
Board as a non-executive director. He replaces William Procter who resigned
from the Board. Jonathan Ross has been appointed managing director of Harman
Healy and John Mills, the Dunlop Heywood finance director, has been appointed
Group Financial Controller.
The new financial year has got off to a good start and will benefit from
Dunlop Heywood, as well as some of our smaller acquisitions, making a full 12
months' contributions to Group results. With that in mind, together with a
continuing buoyant property market, I view the current year with confidence.
Larry Lipman 13 September 1999
Chairman
REVIEW OF OPERATIONS
The policy of acquiring existing mature businesses and maximising their profit
stream by experienced management input and by cross-selling between the
various Group companies has been highly successful.
The growth of Hercules since its formation in May 1996 has been impressive,
and each of its five main subsidiaries have continued their organic growth on
a year-on-year basis.
Hercules' profits growth has been outstanding since its flotation in May 1996,
and shareholders have, therefore, enjoyed above-average returns.
DAVID GLASS ASSOCIATES
David Glass Associates, which was established more than 25 years ago, has a
reputation for being one of the foremost ground rent managers in the country.
Over the past few years, David Glass Associates has expanded its activities to
include residential property management and has been highly successful in
obtaining instructions throughout the South East.
This has resulted in there being a significant increase in the number of units
managed by the company, which now stand at over 19,000 compared with 13,000
when the company was acquired in September 1997. This is even after allowing
for the fact that part of the increase was due to the purchase of Property
Connection, a Brighton-based property manager, which has been fully integrated
into David Glass Associates with the resultant overhead savings.
The company's continued growth is evidenced by the 50% increase in its
turnover derived from property management to #1,077,000 from #714,000. Due to
a turnover reclassification within the year profit comparisons are misleading.
DUNLOP HEYWOOD
Established almost 170 years ago, Dunlop Heywood provides a fully
representative professional advisory consultancy and commercial estate agency
service to the property industry, from its six offices: Manchester, Leeds,
Bradford and three in London - City, West End and Wandsworth.
Dunlop Heywood was acquired by Hercules in September 1998, and already the
Group's influence has been brought to bear with pre-tax profits for the nine
months to June 1999 of #954,000 being 33% higher than that reported by Dunlop
Heywood in its last full financial year to 28 February 1998.
Notwithstanding that a sizeable proportion of the income is transactional, the
company added two very important features to the organisation - a regional
presence and a balance of the Group's interest in commercial property.
Dunlop Heywood also has a significant property management department, based
both in Manchester and London, and during the year was successful in retaining
the contract with Westminster City Council.
Other new instructions include consultancy work for Manchester Millennium
Limited, the task force managing the #500 million rebuilding of Manchester
City Centre, and the development and letting consultancy for one of the UK's
largest urban leisure projects, the 300,000 square foot print works scheme in
Manchester.
The rest of the Group is beginning to reap the benefit of Dunlop Heywood's
presence as it successfully introduces businesses to other Group companies,
such as the insurance and auction subsidiaries.
HARMAN HEALY
Harman Healy was formed over 68 years ago, and was one of the original Group
companies that formed part of the Hercules demerger and flotation in May 1996.
Harman Healy is the fourth largest commercial auctioneer in the country,
specialising mainly in secondary commercial property, and whose auctions
attract a wide range of potential buyers.
Since coming under the Hercules umbrella, Harman Healy has not only increased
the number of lots offered year on year, but also the total value of the
auctions, culminating in the current year, where there were almost 850 lots in
its seven auctions, of which 82% were sold, and generating sales of property
of #81.3 million, representing an increase of 23% over the previous financial
year.
Although mainly known for its auction house, Harman Healy does have other
facets to its business, such as the commercial management department, private
treaty and a professional arm, all of which continue to grow steadily.
Pre-tax profit for the year under review has grown from #445,000 to #489,000
and prospects for the current year are extremely encouraging, as low interest
rates should maintain a high level of demand in the secondary property market.
SIMMONDS & PARTNERS
Over the past year, the specialist residential property management business,
Simmonds & Partners, has expanded solidly as demand for the firm's
professional services has grown, both as a result of acquisitions and from
third-party sources. Turnover during the year grew by 6% to #602,000, and
pre-tax profit by 200% from #54,000 to #162,000.
This London based business has demonstrated strong growth since Hercules
acquired it in June 1997. Today, the firm now manages over 100 blocks of
flats in and around the Greater London area compared to only 90 at 1 July
1998. This growth is expected to continue over the foreseeable future as
Simmonds & Partners is tendering for or being considered for a number of new
instructions which will further expand its management portfolio.
The professional and valuation departments likewise continue to grow,
particularly the professional side where the company has been able to take
full advantage of the large amount of the building surveying work that has
been generated in the other Group companies.
This is a prime example of the Hercules policy of cross-selling working to the
fullest effect to maximise Group profitability.
HERITAGE INSURANCE SERVICES
Heritage was formed in March 1993 and has grown into a substantial property
insurance intermediary. Its rate of progress is highlighted by simple
statistics. In March 1994, Heritage initially provided insurance cover for
#40 million worth of property but by the time of the Hercules demerger, it had
grown to #400 million, and at the end of the 1999 financial year the total
value of properties for which Heritage now secures insurance had reached a
creditable #2.5 billion, an approximate 25% increase over the previous year.
Heritage's strength lies in the fact that it is focused, securing competitive
insurance for both commercial and residential properties, and providing its
clients with a high quality service. As Heritage's portfolio has grown, it
has increased the company's buying power, which enables it to secure
competitive quotations for its varied clientele.
All policies secured by Heritage are backed by a Class A insurer, and the
company employs a small full-time staff that ensures claims are dealt with
efficiently and quickly.
Insurance made an important contribution to Group pre-tax profits which this
year amounted to #2.1 million for the year under review, a 21% increase over
the previous year.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 30 June 1999
Note 1999
(continuing 1999
operations) (acquisitions) 1999 1999
#'000 #'000 #'000 #'000
Unaudited Unaudited Unaudited Audited
Turnover 2 11,047 4,514 15,561 7,095
Cost of sales (4,867) (2,255) (7,122) (2,011)
_______ _______ _______ _______
Gross profit 6,180 2,259 8,439 5,084
Administrative expenses (3,144) (1,322) (4,466) (2,368)
_______ _______ _______ _______
Operating profit 3,036 937 3,973 2,716
Interest receivable and
similar income 156 153
Interest payable and similar
charges (475) (219)
_______ _______
Profit on ordinary activities
before taxation 2 3,654 2,650
Tax on profit on ordinary
activities (1,125) (886)
_______ _______
Profit on ordinary activities
after taxation 2,529 1,764
_______ _______
Equity minority interest - (19)
_______ _______
Profit for the financial year 2,529 1,745
Equity dividends 3 (576) (338)
_______ _______
Retained profit for the
financial year 1,953 1,407
======= =======
Basic earnings per share
(prior year as restated) 4 30.0p 28.2p
Adjustment for goodwill 2.3p -
_______ _______
Adjusted earnings per share
(prior year as restated) 4 32.3p 28.2p
======= =======
Diluted earnings per share
(prior year as restated) 4 29.7p 27.8p
======= =======
Adjusted diluted earnings per
share ( prior year as restated) 32.1p 27.8p
======= =======
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
as at 30 June 1999
Note 1999 1998
#'000 #'000
Unaudited Audited
FIXED ASSETS
Intangible fixed assets 5,105 -
Tangible fixed assets 828 2,754
_______ _______
5,933 2,754
_______ _______
CURRENT ASSETS
Stock and work in progress 2,462 -
Debtors 4,398 2,524
Cash at bank and in hand 2,916 1,741
_______ _______
9,776 4,265
CREDITORS: amounts falling due within one year (4,600) (3,702)
_______ _______
NET CURRENT ASSETS 5,176 563
_______ _______
TOTAL ASSETS LESS CURRENT LIABILITIES 11,109 3,317
CREDITORS: amounts falling due after more than one year (3,964) (4,915)
PROVISIONS FOR LIABILITIES AND CHARGES (600) (310)
Equity minority interest - (186)
_______ _______
NET ASSETS/(LIABILITIES) 6,545 (2,094)
======= =======
CAPITAL AND RESERVES
Called up equity share capital 445 339
Share premium account 16,489 10,244
Profit and loss account (9,050) (11,338)
Merger reserve (1,339) (1,339)
_______ _______
EQUITY SHAREHOLDERS' FUNDS/(DEFICIT) 5 6,545 (2,094)
======= =======
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 30 June 1999
1999 1998
Note #'000 #'000
Unaudited Audited
Cash inflow from operating activities 6 3,173 2,292
Returns on investments and servicing of finance (319) (66)
Taxation paid (938) (245)
Capital expenditure and financial investment (124) (165)
Acquisitions and disposals (5,837) (4,166)
Equity dividends paid (272) (165)
_______ _______
Cash outflow before financing (4,317) (2,515)
Financing 5,405 3,760
_______ _______
Increase in cash in the year 1,088 1,245
======= =======
NOTES TO THE STATEMENT
Year ended 30 June 1999
1. BASIS OF PREPARATION
The above results for the year ended 30 June 1999 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). Except for the adoption of Financial
Reporting Standard 10, "Goodwill and Intangible Assets," in the current year,
these statements have been prepared on the basis of the accounting policies as
stated in the previous year's financial statements. Purchased goodwill is now
capitalised and amortised over its useful economic life. Prior to the current
financial year the Group's accounting policy was to write off goodwill against
reserves.
The results for the year ended 30 June 1998 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:
As restated
1999 1998
#'000 #'000
Unaudited Audited
Turnover
Management services 3,197 2,232
Insurance 6,332 3,683
Auctions 1,507 1,074
Surveying 4,114 -
Other 411 106
_______ _______
15,561 7,095
======= =======
Profit on ordinary activities before taxation
Management services 924 728
Insurance 2,119 1,745
Auctions 489 445
Surveying 874 -
Other (752) (268)
_______ _______
3,654 2,650
======= =======
Net assets/(liabilities)
Management services 1,751 (2,210)
Insurance 1,364 943
Auctions 913 584
Surveying 784 -
Other 1,733 (1,411)
_______ _______
6,545 (2,094)
======= =======
The prior year analysis has been restated to ensure consistency with the
reclassification of activities in the current year.
3. EQUITY DIVIDENDS
1999 1998
#'000 #'000
Unaudited Audited
Interim equity dividend paid of 1.2p per share
(1998 - 1p) 104 66
Final equity dividend proposed of 5.3p per share
(1998 - 4p) 472 272
_______ _______
576 338
======= =======
4. EARNINGS PER SHARE
The calculation of basic earnings per share is based on profits after tax of
#2,529,000 (1998 - #1,745,000) and on a weighted average number of ordinary
shares of 8,437,223 (1998 - 6,182,184 - as restated as a result of the Placing
and Open Offer in September 1998)) in issue during the year.
The calculation of diluted earnings per share is based on basic earnings as
defined above and on 8,508,794 ordinary shares (1998: 6,287,540) calculated as
follows:
As restated
1999 1998
Shares Shares
Unaudited Audited
Basic weighted average number of shares 8,437,223 6,182,184
Weighted average number of dilutive shares
under option 212,355 156,279
Number of shares that would have been issued
at fair value (140,784) (50,923)
_________ _________
Diluted weighted average number of shares 8,508,794 6,287,540
========= =========
Diluted earnings per share 29.7p 27.8p
========= =========
5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Group Group
1999 1998
#'000 #'000
Unaudited Audited
Profit for the financial year 2,529 1,745
Dividends (576) (338)
_______ _______
1,953 1,407
Issue of shares 6,524 9,014
Acquisition/demerger expenses written off (173) (217)
Goodwill written back/(off) 335 (12,800)
_______ _______
Net addition/(reduction in) to shareholders' funds 8,639 (2,596)
Opening shareholders' (deficit)/funds (2,094) 502
_______ _______
Closing shareholders' funds/(deficit) 6,545 (2,094)
======= =======
6. RECONCILIATION OF OPERATING PROFIT FOR THE YEAR TO
NET CASH INFLOW FROM OPERATING ACTIVITIES
1999 1998
#'000 #'000
Unaudited Audited
Operating profit 3,973 2,716
Depreciation 157 104
Amortisation of goodwill 199 -
Loss/(profit) on sale of tangible fixed assets 31 (3)
(Increase)/decrease in stocks and work in progress (343) 34
Increase in debtors (369) (1,391)
(Decrease)/increase in creditors (475) 753
Increase in minority interest - 79
_______ _______
Net cash inflow from operating activities 3,173 2,292
======= =======
7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
1999 1998
#'000 #'000
Unaudited Audited
Increase in cash in the year 1,088 1,245
Cash outflow/(inflow) from decrease/(increase) in
debt and lease financing 946 (3,760)
_______ _______
Change in net debt resulting from cash flows 2,034 (2,515)
Loans acquired with subsidiary - (1,700)
_______ _______
2,034 (4,215)
Net (debt)/funds at 1 July (3,986) 229
_______ _______
Net debt at 30 June (1,952) (3,986)
======= =======
8. ANALYSIS OF NET FUNDS
At At
1 July Cash Other 30 June
1998 flow movements 1999
#'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited
Cash at bank and in hand 1,741 1,175 - 2,916
Overdraft - (87) - (87)
_______ _______ _______ _______
Debt due after one year (4,915) - 951 (3,964)
Debt due within one year (812) 946 (951) (817)
_______ _______ _______ _______
Total (3,986) 2,034 - (1,952)
======= ======= ======= =======
Contact: Hercules Property Services PLC Tel: 0181-203 9099
Larry Lipman, Chairman
Paul Davis, Finance Director
Baron Phillips Associates Tel: 0171-224 1302
Baron Phillips
END
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