RNS Number:4821P
Hercules Property Services PLC
08 September 2003
8th SEPTEMBER 2003
HERCULES PROPERTY SERVICES PLC
UNAUDITED PRELIMINARY RESULTS FOR YEAR
TO 30 JUNE 2003
HIGHLIGHTS
Hercules Property Services plc ('Hercules', 'the Company' or 'the Group'), the
property management, insurance and services group, announces preliminary
results for the year ended 30 June 2003.
Key points financial:
* Turnover increased 13% to #41.7m (2002: #36.9m)
* Organic revenue growth rate at 11%
* Profit before tax and amortisation was ahead of expectations at
#8.4m(note 4), despite negative market conditions in the first half
* Basic earnings per share 9.7p
* Adjusted Basic earnings per share 32.6p
* Final dividend of 6.5p bringing the total full-year dividend to
8.0p
Key points operational:
* Strong performance by the Commercial Property Services Division, in
spite of difficult market conditions
* Increased operating profit contribution from the insurance division
and a sustainable recovery from Deacon in the second half
* Focus on intra-Group cross-selling with referrals and partnerships
increasing
* Improved reporting and controls procedures implemented to lay the
foundations for future growth
Post period event:
* Jon Gooding appointed to the Board as Director of Group Property
Services, with responsibility for integrating and consolidating
the Residential Property Management Division to accelerate future
growth
Commenting on the results, Larry Lipman, Chairman, said:
"I am confident that we are now well placed to significantly improve the
Group's operating performance. Every one of our operating divisions and
business units has reason to believe that its performance can be improved
in the coming year."
For further information:
Hercules Property Services plc:
Robert Plumb, Managing Director, and Nigel Davis, Finance Director 020 8420 7600
mj2 ltd:
Richard Sunderland, Tim McCall 020 7491 7776
CHAIRMAN'S STATEMENT
As I reported in the Group's interim financial statement for the six-months
ending December 2002, the both challenging and stimulating conditions that were
adversely affecting the property insurance market have taken some time to
improve. We are, therefore, pleased to report that profit before tax for the
full year was #4.3m (2002 #7.1m), despite the negative effect these conditions
had on the first half of our financial year. Profit before tax, amortisation,
non-recurring items and long-term incentive plan was #8.4m (2002 #11.5m). We
believe that this is a good result, given the conditions in which the Group has
been operating. Most promisingly there are marked improvements in the
performance of the business areas, which have experienced difficulties in recent
years.
This has been a year of consolidation for Hercules. Group turnover grew to
#41.7m, a 13% increase over 2002. Turnover from the two small residential
property management businesses acquired during the year amounted to #0.7m.
Group turnover, excluding acquisitions, grew by a creditable 11%.
Basic earnings per share for the financial year were 9.7p compared with 22.1p in
the previous year. The adjusted earnings per share, which excludes
amortisation, non-recurring items and long-term incentive plan costs, is 32.6p
for the current year against 44.8p for 2002.
DIVIDEND
The Board is recommending a final dividend of 6.5p making a total dividend of
8.0p for the year, compared with 12.0p for last. The final dividend will,
subject to shareholder approval, be payable on 5 January 2004 to shareholders on
the Share Register at the close of business on 21 November 2003. The final
dividend will also be subject to the scrip dividend mandate, which was sent out
in December 2002. Shareholders will be advised of their rights and the election
price at the appropriate time.
OPERATIONS
Shareholders will be reassured to learn that, despite the operating challenges
we have experienced within our insurance businesses, we have nevertheless
improved our operating profit contribution from this division. We had notable
improvements from Farr and D.O.R., the social housing insurance intermediaries,
as well as improvements in Cadogan, the commercial insurance brokerage. While
Deacon, the blocks of flats insurance intermediary, reported a reduction in
earnings, its second half result showed a gratifying recovery, which we expect
to continue into the current year.
I advised shareholders in my February report of a change to the management team
at Harman Healy, our commercial property auctioneers. I also indicated
significant progress in rebuilding that company's client base. We can now
report that this improvement has continued with a steady growth in auction
sales. Although Winkworth, our residential auction business, has again shown an
improvement, the combined auction division has fallen below our original
expectations.
CHAIRMAN'S STATEMENT (continued)
Dunlop Heywood Lorenz and Michael Courcier & Partners, the commercial property
and planning specialists have produced an excellent performance against the
backdrop of a difficult commercial agency market. Our professional and
management services departments have underpinned this performance.
Undergoing a significant amount of change is our residential management
division, which has experienced a deterioration in net earnings. Despite the
additional costs of consolidation and re-organisation, we remain confident about
the business' ability to grow substantially in the medium-term.
CASH FLOW
Operating cash flow remains strong at #13.7m (2002 #14.8m). There was a
repayment of vendor loan notes during the year of #24.8m arising from prior
years acquisitions. These payments were made from funds retained at the time of
the acquisitions.
MANAGEMENT TEAM AND STAFF
As part of our ongoing strategy to strengthen the Group's management team, I am
delighted to report the appointment of Jon Gooding as Group Property Services
Director. Jon's experience in our industry is of immediate benefit to our
residential management businesses, which have already felt the positive effect
of his influence.
The Group, under Robert Plumb's management and leadership has come together well
in difficult operating circumstances. I believe that we are now well placed to
improve significantly the Group's operating performance. Every one of our
operating divisions and business units has reason to believe that its
performance can be improved in the coming year. With the major turbulence in
the property insurance market largely behind us, a favourable interest rate
environment and the Group's strengths in its chosen market places, we have
grounds to be optimistic about the future. A more detailed report on a
sector-by-sector basis is given by Robert Plumb in the Operational Review which
follows.
Once again my thanks go to the Board and to all the Group's employees for their
contribution, both to this year's performance and for the significant strides we
have taken in building for the future.
Larry Lipman
Chairman
Date: 8 September 2003
OPERATIONAL REVIEW
We started the year with cautious expectations of weak demand in the commercial
property agency markets while anticipating improved support from within the
property insurance markets. We can now report that our commercial property
services division has enjoyed a significant improvement in its earnings this
year and that, although it has taken some time, we are starting to experience
the benefits of a stabilising insurance market.
We set out our joint priorities this year as that of consolidating our
businesses' positions and growing the value of inter-Group referrals. We have
made progress with this aim both in terms of high inter-Group referrals and
inter-company partnerships.
Hercules has also taken steps to put in place the appropriate levels of support
and control for the wide range of business activities that we have within the
Group. This includes improvement and standardisation of management reporting;
the introduction of internal audit and enhanced compliance procedures, as well
as human resource management.
While our earnings have been adversely impacted by the difficulties within some
of our markets, the foundations and infrastructure to support our anticipated
growth have been considerably strengthened.
RESIDENTIAL PROPERTY SERVICES
This division has been impacted by structural changes within the organisation of
our management businesses. Along with Jon Gooding, we have appointed a number
of experienced key new members to the management team who have made significant
progress with client services, systems support, training and human resources
management. We are still in the process of implementing enhancements to our
client accounting systems, which require a major investment in terms of both
infrastructure and management time in the short term. We are, however, well
placed to improve our competitive position with the benefits of these
investments.
Changes in law affecting freehold and commonhold ownership of flats will
undoubtedly encourage the growth of owner occupied residential management
companies. Anticipating these changes our businesses are redirecting their new
business strategies towards residential management companies. We have also
relinquished the management of a number of ground rent portfolios which, while
impacting to a certain extent on current revenues, creates capacity for more
profitable management portfolios in the future.
Our ability to service a full range of requirements across a wide geographical
area, places us in a strong position for growth. Significant milestones this
year have been the establishment of a residential property management business
in Manchester, which now holds a commanding position within that market, as well
as the fee growth of Gross Fine in the expanding quality end of the London
market.
OPERATIONAL REVIEW (continued)
The residential property division remains our most successful cross-selling
opportunity within the Group. We have taken on a number of new insurance
brokerage appointments through the teams' efficient management of the insurance
process, particularly in Gross Fine and Dunlop Heywood Lorenz Residential.
COMMERCIAL PROPERTY SERVICES
This division experienced revenue growth of 14%, a creditable performance given
the difficulties of the market. Within the professional services division,
notable performers were our rent review and valuations teams, which have both
achieved significant revenues and earnings growth. Equally, commercial
management, particularly within the Public Services sector, has had a stable and
successful year.
Our commercial auction business Harman Healy, which experienced a significant
change in management early in this financial year, has achieved an extremely
good turnaround. The new management team has been successful, not only in
rebuilding the client base, but in improving the business' gross and net
margins.
Our residential auction business performed consistently well throughout the year
despite a perceived reduction in demand in the residential market. The business
is well positioned to succeed in the coming years, given the potential growth in
the use of auctions in the residential property market.
INSURANCE DIVISION
For different reasons we are satisfied with the performance of all of our three
insurance intermediary businesses.
Farr has had an outstanding year, despite the ongoing difficulties in the Social
Housing insurance market. The business' service focus and professional
competence within its market sector continues to provide improved competitive
advantages and increased market share. We have commenced the back office
integration of D.O.R. and Farr, which will yield considerable service
improvements in the years to come.
Deacon, which over the last few years has suffered most from the dramatic rise
in insurance prices, not only succeeded in stabilising its position earlier this
year but is also now showing a marked improvement in market penetration. While
margins remain competitive, they have stabilised; renewal retention rates are
now improving continuously.
Cadogan has enjoyed another improvement to its earnings contribution. As a
specialist manager of commercial property company insurance portfolios, as well
as quality blocks of flats, it has succeeded in accommodating client growth both
externally and from within the Group. The partnership Cadogan has developed
with Deacon is working well, enabling the optimum service offerings to all our
clients.
OPERATIONAL REVIEW (continued)
After a period of turmoil we have growing confidence in the stability of our
markets in the coming years. This will, I am sure, facilitate additional
enhancements to our organisation structure as well as adding further growth to
our earnings.
Our investment in our Human Resources is as important as ever. We have
identified real opportunities to improve our training standards, foster
management/staff communications and further enhance the committed participation
of our employees.
It has been a challenging year for all of us and my sincere thanks go out to all
employees who have worked so energetically and enthusiastically for the Group.
R H C Plumb
Managing Director
Date: 8 September 2003
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year Ended 30 June 2003
2003 Restated
(continuing 2003 2003 (see note2)
operations) (acquisitions) Total 2002
Note #'000 #'000 #'000 #'000
Turnover 3 41,022 658 41,680 36,946
Cost of sales (707) - (707) (337)
Gross profit 40,315 658 40,973 36,609
Administrative expenses (30,186) (661) (30,847) (24,226)
- Recurring
Administrative expenses - - - (1,215)
- Non Recurring
Amortisation (4,118) (34) (4,152) (3,465)
Long Term Incentive Plan - - - (600)
(LTIP)
Administrative expenses (34,304) (695) (34,999) (29,506)
- Total
Operating profit/(loss) 6,011 (37) 5,974 7,103
Profit on sale of fixed
assets in continuing
operations - 900
Profit on ordinary 5,974 8,003
activities before
interest
Interest receivable and 1,164 1,423
similar income
Interest payable and (2,858) (2,309)
similar charges
Profit on ordinary 3, 4 4,280 7,117
activities before
taxation
Tax on profit on (2,529) (3,147)
ordinary activities
Profit on ordinary 7 1,751 3,970
activities after
taxation
Equity dividends 5 (1,450) (2,167)
Retained profit for the 301 1,803
financial year
Basic earnings per 9.7p 22.1p
share
Adjustment for goodwill 22.9p 22.7p
and LTIP
Adjusted earnings per 32.6p 44.8p
share
Diluted earnings per 6 9.6p 21.6p
share
Adjusted diluted 32.5p 43.7p
earnings per share
There are no discontinued operations.
UNAUDITED CONSOLIDATED BALANCE SHEET
30 June 2003
2003 2002
#'000 #'000
FIXED ASSETS
Intangible fixed assets 70,586 73,354
Tangible fixed assets 10,757 10,326
81,343 83,680
CURRENT ASSETS
Stock 4,183 4,760
Debtors 26,028 20,397
Investments 5 7
Cash at bank and in hand 15,630 37,226
45,846 62,390
CREDITORS: amounts falling due within one year (38,379) (33,031)
NET CURRENT ASSETS 7,467 29,359
TOTAL ASSETS LESS CURRENT LIABILITIES 88,810 113,039
CREDITORS: amounts falling due after more than one year (31,185) (55,774)
PROVISIONS FOR LIABILITIES AND CHARGES (575) (606)
NET ASSETS 57,050 56,659
CAPITAL AND RESERVES
Called up equity share capital 906 903
Shares to be issued 954 954
Share premium account 58,058 57,971
Profit and loss account (1,529) (1,830)
Merger reserve (1,339) (1,339)
EQUITY SHAREHOLDERS' FUNDS 57,050 56,659
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
Year Ended 30 June 2003
2003 2002
Note #'000 #'000
Cash inflow from operating activities 8 13,709 14,806
Returns on investments and servicing of finance 10 (1,694) (886)
Taxation (2,887) (4,553)
Capital expenditure and financial investment 10 (1,378) (5,383)
Acquisitions and disposals 10 (25,930) (20,303)
Equity dividends paid (2,167) (1,900)
Cash outflow before financing (20,347) (18,219)
Financing 10 (1,249) 22,923
(Decrease)/Increase in cash in the year (21,596) 4,704
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2003
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 2003 or 2002. The
financial information for the year ended 30 June 2002 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 2003 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. The preliminary announcement
has been prepared on the basis of the accounting policies set out in the Group's
statutory financial statements for the year ended 30 June 2002.
2. RESTATEMENT OF COMPARATIVE FIGURES
In order to disclose as cost of sales only the actual cost of ground rent stocks
sold, the comparative figures for cost of sales and administrative expenses have
been restated to reclassify other costs, such as professional staff costs, to
administrative expenses. This restatement has no impact on the result for the
year, or upon the results of the comparative period. The restatement is as
follows:
Year
ended
30 June
2002
#'000
Cost of sales as previously reported (7,124)
Restatement of non-stock costs 6,787
Cost of sales as restated (337)
Total administrative expenses as previously reported (22,719)
Restatement of non-stock costs (6,787)
Administrative expenses as restated (29,506)
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2003
3. SEGMENTAL INFORMATION
The analysis of turnover and profit on ordinary activities before taxation
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:
2003 2002
#'000 #'000
Turnover
Management services 6,610 7,546
Insurance 17,052 16,522
Auctions 2,961 3,506
Surveying 13,721 8,504
Other 1,336 868
41,680 36,946
Profit on ordinary activities before taxation
Management services 398 1,968
Insurance 7,777 7,238
Auctions 848 1,212
Surveying 2,406 1,134
Other (7,149) (4,435)
4,280 7,117
4. RECONCILIATION OF PROFIT BEFORE TAX, AMORTISATION, NON RECURRING ITEMS AND
LONG TERM INCENTIVE PLAN COSTS
2003 2002
#'000 #'000
Profit on ordinary activities before taxation 4,280 7,117
Profit on sale of assets in continuing operations - (900)
Administrative expenses - Non Recurring - 1,215
Amortisation 4,152 3,465
Long Term Incentive Plan - 600
Profit reported in chairman's statement 8,432 11,497
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2003
5. EQUITY DIVIDENDS
2003 2002
#'000 #'000
Interim equity dividend paid of 1.5p per share (2002 - 2.3p) 272 415
Final equity dividend proposed of 6.5p per share (2002 - 9.7p) 1,178 1,752
1,450 2,167
6. EARNINGS PER SHARE
The calculation of basic earnings per share is based on profit after tax of
#1,751,627 (2002 - #3,970,009) and on a weighted average number of ordinary
shares of 18,098,066 (2002 - 17,942,906) in issue during the year.
The calculation of diluted earnings per share is based on basic earnings as
defined above and on 18,188,568 ordinary shares (2002 - 18,401,043) calculated
as follows:
2003 2002
No. No.
Basic weighted average number of shares 18,098,066 17,942,906
Weighted average number of dilutive shares under 1,274,188 1,562,186
option
Number of shares that would have been issued at fair (1,183,686) (1,104,049)
value
Diluted weighted average number of shares 18,188,568 18,401,043
Diluted earnings per share 9.6p 21.6p
The directors consider the earnings per share excluding goodwill amortisation
better reflects the commercial operating profit of the Group (note 4) and have
therefore disclosed an additional earnings per share figure for this.
7. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS
Group Group
2003 2002
#'000 #'000
Profit for the financial year 1,751 3,970
Dividends (1,450) (2,167)
301 1,803
Issue of shares 90 526
Shares to be Issued - 600
Net addition to shareholders' funds 391 2,929
Opening shareholders' funds 56,659 53,730
Closing shareholders' funds 57,050 56,659
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2003
8. RECONCILIATION OF OPERATING PROFIT FOR THE YEAR TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
2003 2002
#'000 #'000
Operating profit 5,974 7,103
Shares to be issued - 600
Depreciation 658 654
Decrease in provision (31) (94)
Amortisation of goodwill 4,152 3,465
Decrease/(Increase) in stocks and work in progress 577 (74)
Increase in debtors (5,491) (1,452)
Increase in creditors 7,716 4,604
Amortisation of loan issue costs 154 -
Net cash inflow from operating activities 13,709 14,806
9. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2003 2002
#'000 #'000
(Decrease)/Increase in cash in the year (21,596) 4,704
Cashflow from decrease/(increase) in
debt and lease financing 2,939 (22,397)
Change in net debt resulting from cash flows (18,657) (17,693)
Loans and finance leases acquired with subsidiaries - (15)
Amortisation of loan issue costs (154) -
(18,811) (17,708)
Net (debt)/ funds at 1 July 2002 (868) 16,840
Net debt at 30 June 2003 (19,679) (868)
NOTES (FORMING PART OF THE PRELIMINARY RESULTS)
Year ended 30 June 2003
10. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
2003 2002
#'000 #'000
Returns on investments and servicing of
finance
Interest received 1,164 1,423
Interest paid (2,858) (2,309)
Net cash outflow from returns on investments
and servicing of finance (1,694) (886)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,567) (7,613)
Receipts from sale of tangible fixed assets 187 2,230
Receipts from sale of Fixed Assets Investments 2 0
Net cash outflow from capital expenditure and
financial investment (1,378) (5,383)
Acquisitions and disposals
Purchase of subsidiary undertaking (1,208) (21,874)
Deferred consideration paid on prior (24,818) -
acquisitions
Net cash acquired with subsidiary 96 1,571
Net cash outflow from acquisitions and (25,930) (20,303)
disposals
Financing
Issue of ordinary share capital 90 526
New borrowings 3,157 41,092
Repayment of loans (4,485) (18,691)
Capital element of finance lease rental payments (11) (4)
Net cash (outflow)/inflow from financing (1,249) 22,923
11. ANALYSIS OF NET DEBT
Amortis-
At Acquisition ation of At
1 July Cash of loan issue 30 June
2002 flow subsidiary costs 2003
#'000 #'000 #'000 #'000 #'000
Cash at bank 37,226 (21,692) 96 - 15,630
and in hand
37,226 (21,692) 96 - 15,630
Debt due (7,515) 3,145 - (154) (4,524)
within one
year
Debt due after (30,568) (217) - - (30,785)
one year
Finance (11) 11 - - -
leases
Total (868) (18,753) 96 (154) (19,679)
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