RNS Number : 7470N
London Security PLC
22 May 2020
 

London Security plc

 

Final Results for the Year Ended 31 December 2019

 

 

Chairman's statement

J.G. Murray, Chairman

 

Financial highlights

Financial highlights of the audited results for the year ended 31 December 2019 compared with the year ended 31 December 2018 are as follows:

•     revenue of £146.9 million (2018: £137.7 million);

•     operating profit of £24.2 million (2018: £23.2 million);

•     profit for the year of £16.8 million (2018: £16.5 million*);

•     earnings per share for the year of £1.36 (2018: £1.34*); and

•     a dividend per share of £0.80 (2018: £0.80).

* restated - see note 2

 

Trading review

The financial highlights illustrate that the Group's revenue increased by £9.2 million (6.7%) to £146.9 million and operating profit increased by £1.0 million (4.3%) to £24.2 million. These results reflect:

·      the positive impact of acquisitions in 2018 and 2019 in the United Kingdom, Austria, Belgium, the Netherlands and Denmark;

·      improved performance from our service business in continental Europe; and

·      continued improvement from newer service offerings (e.g. emergency lights and passive fire protection); offset by

·      the movement in the Euro to Sterling average exchange rate, which had an adverse effect of £1.0 million on reported revenue and £0.2 million on operating profit. A more detailed review of this year's performance is given in the Financial Review and the Strategic Report.

Acquisitions

It remains a principal aim of the Group to grow through acquisition. Acquisitions are being sought throughout Europe and the Group will invest at prices where an adequate return is envisaged by the Board. In the year under review the Group has acquired eight established fire protection businesses and has grown its presence in the Netherlands, Belgium and the UK, with the acquisition of service contracts from smaller well-established businesses for integration into the Group's existing subsidiaries.

Management and staff

2019 was a year in which the staff performed well and, on behalf of the shareholders, I would like to express thanks and appreciation for their contribution. The Group recognises that we can only achieve our aims with talented and dedicated colleagues who provide outstanding customer service in every area of the business.

Dividends

A final dividend in respect of 2018 of £0.40 per ordinary share was paid to shareholders on 5 July 2019. An interim dividend in respect of 2019 of £0.40 per ordinary share was paid to shareholders on 29 November 2019. The Board is recommending the payment of a final dividend in respect of 2019 of £0.20 per ordinary share to be paid on 10 July 2020 to shareholders on the register on 12 June 2020. The shares will be marked ex-dividend on 11 June 2020.

Coronavirus impact assessment

 

It is clear that the coronavirus pandemic will have a significant impact on the business and we have taken a number of actions to weather the storm. When the pandemic first appeared in China, the initial threat was to our supply chain. It is now very clear that the risk to customer demand is by far our greatest challenge and we are prepared for a significant downturn in sales for the duration of the pandemic.

 

Many of the components which we are reliant on are sourced from China and we have therefore suffered some delays in the delivery of such components in the first quarter. The Chinese government's response to the outbreak has meant that capacity returned over the course of February and into March. Our strategic stockholding has meant our production impact has been minimised. We are continuing to monitor the effects on our manufacturing capability.

 

With a return to relative normality on the supply side, we are now focused on customer demand. By the middle of March, the virus had impacted all of our European trading territories. Throughout Europe governments are responding to the pandemic by applying severe restrictions on movement and introducing social distancing measures which have forced many of our customers to temporarily close. We have prepared the business for varying levels of sales declines by temporarily reducing staff levels in some locations.

We have evaluated the remaining demand for our services and sectors where this is deemed essential, for example in some areas including health, communications and utilities. In addition, where customers still want work carrying out and we able to work within government guidelines, we are continuing to provide our usual levels of service. This is varying by country, with the Netherlands operating at over 50% but other countries being affected more. Where we offer call out or support services under contracts, for example for fire alarms, we continue to offer these services and fulfil our contractual obligations.

During this period of uncertainty we have been in constant contact with our staff, customers, banks and advisers to ensure clear and concise communication. Our priority is to do all we can to ensure that our offices, depots and services are kept as safe as possible, in order to protect our employees and business partners at all times. Many of our employees and customers are experiencing very difficult circumstances and we continue to support them in many ways. The health and wellbeing of our people is our highest priority. We are thankful and proud of our team members who continue to respond as essential service providers.

We have modelled the effects of this sales decline along with all the measures we can take to ensure that the Company remains within its cash and bank facilities, and have prepared cash flow forecasts for a period in excess of 12 months. Based upon this modelling, the Group has sufficient cash beyond June 2021 without renegotiating its bank facilities.

Future prospects

As the situation continues, cash management will be a key consideration; the London Security Group has a healthy balance sheet, strong cash reserves and a track record for good cash generation. Debt recovery remains consistent with previous years and staff costs will be controlled using the furlough process where applicable. The Board therefore considers that its strong balance sheet and material net cash position means that it is well placed to navigate through the impact of the coronavirus outbreak, which will inevitably impact profitability while the various international lockdowns continue..

Annual General Meeting

The Annual General Meeting ("AGM") will be held at 2 Jubilee Way, Elland, West Yorkshire, HX5 9DY, on 30 June 2020 at 11.30 am. Under the UK government's current prohibition on non-essential travel and public gatherings, it will not be possible for shareholders to attend the AGM in person. We therefore strongly encourage shareholders to vote on all resolutions by completing the enclosed form of proxy for use at that Meeting, which you are requested to return in accordance with the instructions on the form.

J.G. Murray

Chairman

21 May 2020



 

Consolidated income statement

for the year ended 31 December 2019

 

 

 

 

2019

2018

Restated - see note 2

 

 

 

Note

£'000

£'000

 


Revenue


146,920

137,711

 


Cost of sales


(36,293)

(31,780)

 


Gross profit


110,627

105,931

 


Distribution costs


(54,140)

(50,593)

 


Administrative expenses


(32,333)

(32,163)

 


Operating profit

 

24,154

23,175

 


EBITDA*


32,503

29,557

 


Depreciation and amortisation


(8,349)

(6,382)

 


Operating profit

 

24,154

23,175

 


Finance income


142

131

 


Finance costs


(254)

(171)

 


Finance costs - net

 

(112)

(40)

 


Profit before income tax

 

24,042

23,135

 


Income tax expense

 

(7,229)

(6,623)

 


Profit for the year


16,813

16,512

 


Profit is attributable to:



 



Equity shareholders of the Company


16,653

16,399

 


Non-controlling interest


160

113

 




16,813

16,512

 


Earnings per share



 



Basic and diluted

1

135.8p

133.7p

 

 

*     Earnings before interest, tax, depreciation and amortisation.

The above results are all as a result of continuing operations.



 

Consolidated statement of comprehensive income

for the year ended 31 December 2019

 



2019

2018

Restated - see note 2


 

£'000

£'000

Profit for the financial year


16,813

16,512

Other comprehensive (expense)/income:



 

Items that may be reclassified subsequently to profit or loss:



 

- currency translation differences on foreign currency net investments


(2,389)

361

Items that will not be reclassified subsequently to profit or loss:



 

- actuarial gain recognised in the Nu-Swift Pension Scheme

 

414

16

- movement on deferred tax relating to the Nu-Swift Pension Scheme surplus

 

(145)

(6)

- actuarial loss recognised in the Ansul Pension Scheme

 

(412)

(145)

- movement on deferred tax relating to the Ansul Pension Scheme deficit

 

103

36

Other comprehensive (expense)/income for the year, net of tax


(2,429)

262

Equity shareholders of the Company


14,224

16,661

Non-controlling interest


160

113

Total comprehensive income for the year


14,384

16,774

 



 

Consolidated statement of changes in equity

for the year ended 31 December 2019

 



Share

Capital







Share

premium

redemption

Merger

Other

Retained

Non-controlling

Total


capital

account

reserve

reserve

reserve

earnings

interest

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 January 2018 (previously reported)

123

344

1

2,033

8,470

92,408

189

103,568

Prior year adjustment (note 2)

-

-

-

-

-

1,179

-

1,179

At 1 January 2018 (as restated)

123

344

1

2,033

8,470

93,587

189

104,747

Total comprehensive income for the year









Profit for the financial year (restated - note 2)

-

-

-

-

-

16,399

113

16,512

Other comprehensive income/(expense):









- exchange adjustments

-

-

-

-

361

-

-

361

- actuarial loss on pension schemes

-

-

-

-

-

(129)

-

(129)

- net movement on deferred tax relating to pension asset

-

-

-

-

-

30

-

30

Total comprehensive income for the year (restated - note 2)

-

-

-

-

361

16,300

113

16,774

Contributions by and distributions to owners of the Company:









- dividends

-

-

-

-

-

(9,809)

-

(9,809)

At 31 December 2018 and 1 January 2019 (restated - note 2)

123

344

1

2,033

8,831

100,078

302

111,712

Total comprehensive income for the year









Profit for the financial year

-

-

-

-

-

16,653

160

16,813

Other comprehensive income/(expense):









- exchange adjustments

-

-

-

-

(2,389)

-

-

(2,389)

- actuarial gain on pension schemes

-

-

-

-

-

2

-

2

- net movement on deferred tax relating to pension asset

-

-

-

-

-

(42)

-

(42)

Total comprehensive (expense)/income for the year

-

-

-

-

(2,389)

16,613

160

14,384

Contributions by and distributions to owners of the Company:









- dividends

-

-

-

-

-

(9,809)

-

(9,809)

Distribution to non-controlling interest

-

-

-

-

-

-

(113)

(113)

At 31 December 2019

123

344

1

2,033

6,442

106,882

349

116,174

 

The merger reserve is not a distributable reserve. The other reserve relates entirely to the effects of changes in foreign currency exchange rates.



 

Consolidated statement of financial position

as at 31 December 2019

 

 

 

2019

2018

Restated - see note 2

2017

Restated - see note 2

 

 

£'000

£'000

££'000

Assets





Non-current assets





Property, plant and equipment

 

12,164

12,077

11,589

Right of use assets

 

2,360

-

-

Intangible assets

 

67,504

66,077

63,578

Deferred tax asset

 

683

811

589

Retirement benefit surplus

 

4,959

4,430

4,397



87,670

83,395

80,153

Current assets





Inventories

 

13,434

13,293

11,749

Trade and other receivables

 

27,822

28,732

26,063

Cash and cash equivalents

 

27,143

26,110

24,652



68,399

68,135

62,464

Total assets


156,069

151,530

142,617

Liabilities





Current liabilities





Trade and other payables

 

(23,158)

(22,713)

(19,576)

Income tax liabilities


(987)

(1,731)

(1,699)

Borrowings

 

(2,048)

(2,125)

(11,125)

Lease liabilities

 

(1,134)

-

-

Derivative financial instruments

 

-

-

(54)

Provision for liabilities and charges

 

-

(5)

-



(27,327)

(26,574)

(32,454)

Non-current liabilities





Trade and other payables

 

(850)

(922)

(1,003)

Borrowings

 

(5,122)

(7,441)

-

Lease liabilities

 

(1,256)

-

-

Derivative financial instruments

 

(47)

(41)

-

Deferred tax liabilities

 

(2,909)

(2,779)

(2,505)

Retirement benefit obligations

 

(2,215)

(1,880)

(1,721)

Provision for liabilities and charges

 

(169)

(181)

(187)



(12,568)

(13,244))

(5,416)

Total liabilities


(39,895)

(39,818)

(37,870)

Net assets


116,174

111,712

104,747

Shareholders' equity





Ordinary shares

 

123

123

123

Share premium

 

344

344

344

Capital redemption reserve

 

1

1

1

Merger reserve


2,033

2,033

2,033

Other reserves


6,442

8,831

8,470

Retained earnings


106,882

100,078

93,587

Equity attributable to owners of the Parent Company


115,825

111,410

104,558

Non-controlling interest

 

349

302

189

Total equity


116,174

111,712

104,747

 



 

Consolidated statement of cash flows

for the year ended 31 December 2019

 



2019

2018

 


 

£'000

£'000

 

Cash flows from operating activities



 


Cash generated from operations

 

32,363

28,385

 

Interest paid


(160)

(147)

 

Income tax paid


(7,639)

(7,393)

 

Net cash generated from operating activities


24,564

20,845

 

Cash flows from investing activities



 


Acquisition of subsidiary undertakings (net of cash acquired)

 

(2,264)

(4,274)

 

Purchases of property, plant and equipment


(3,974)

(3,551)

 

Proceeds from the sale of property, plant and equipment


329

398

 

Purchases of intangible assets

 

(2,068)

(746)

 

Interest received


27

12

 

Net cash used in investing activities


(7,950)

(8,161)

 

Cash flows from financing activities



 


Repayments of borrowings


(2,091)

(1,614)

 

Payment of lease liabilities


(1,750)

-

 

Dividends paid to the Company's shareholders


(9,809)

(9,809)

 

Distribution to non-controlling interest


(113)

-

 

Net cash used in financing activities


(13,763)

(11,423)

 

Effects of exchange rates on cash and cash equivalents


(1,818)

197

 

Net increase in cash in the year


1,033

1,458

 

Cash and cash equivalents at the beginning of the year


26,110

24,652

 

Cash and cash equivalents at the end of the year

 

27,143

26,110

 

 

 

 



 

Notes to the financial statements

for the year ended 31 December 2019

 

1 Earnings per share

The calculation of basic earnings per ordinary share ("EPS") is based on the profit on ordinary activities after taxation of £16,653,000 (2018: £16,399,000) and on 12,261,477 (2018: 12,261,477) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

For diluted EPS, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. There was no difference in the weighted average number of shares used for the calculation of basic and diluted earnings per share as there are no potentially dilutive shares outstanding.

 

2019

 

2018

Restated - see note 32

 

£'000

Pence

 

£'000

Pence

Profit on ordinary activities after taxation

16,653

135.8

 

16,399

133.7

 

2    Prior year adjustment

 

While preparing the Group's financial statements for the year ended 31 December 2019 the management of London Security plc noticed that they had failed to account for deferred tax liabilities on the acquisition of certain intangible assets arising through business combinations in accordance with paragraph 19 of IAS12 Income Taxes in previous years. Management estimates that a deferred tax liability of £881,000 (2017: £675,000) and goodwill of £2,382,000 (2017: £1,854,000) were not previously recognised at 31 December 2018. Retained earnings at 1 January 2018 have been restated by £1,179,000 from £92,408,000 to £93,587,000. The deferred tax liability at 1 January 2018 has been restated by £675,000 from £1,830,000 to £2,505,000. Goodwill at 1 January 2018 has been restated by £1,854,000 from £61,724,000 to £63,578,000.  The analysis below shows a reconciliation of the balance sheet at 31 December 2018 and the income statement for the year ended 31 December 2018 as previously reported and as restated.

 

 

Balance sheet as at 31 December 2018



Previously reported

Prior year adjustment

As restated



£'000

£'000

£'000

Assets





Non Current Assets





  Property, plant & equipment


12,077

-

12,077

  Intangible assets


63,695

2,382

66,077

  Deferred tax asset


811

-

811

Retirement benefit surplus


4,430

-

4,430



81,013

2,382

83,395

Current Assets





  Inventories


13,293

-

13,293

  Trade & other receivables


28,732

-

28,732

  Cash & cash equivalents


26,110

-

26,110



68,135

-

68,135

Total Assets


149,148

2,382

151,530

Liabilities





Current Liabilities





  Trade & other payables


(22,713)

-

(22,713)

  Income tax liabilities


(1,731)

-

(1,731)

  Borrowings


(2,125)

-

(2,125)

  Provision for liabilities & charges


(5)

-

(5)



(26,574)

-

(26,574)

Non Current Liabilities





  Trade & other payables


(922)

-

(922)

  Borrowings


(7,441)

-

(7,441)

  Derivative financial instruments


(41)

-

(41)

  Deferred tax liabilities


(1,898)

(881)

(2,779)

  Retirement benefit obligations


(1,880)

-

(1,880)

  Provision for liabilities & charges


(181)

-

(181)



(12,363)

(881)

(13,244)

Total Liabilities


(38,937)

(881)

(39,818)

Net Assets


110,211

1,501

111,712

Shareholders' Equity





  Ordinary shares


123

-

123

Share premium


344

-

344

Capital redemption reserve


1

-

1

  Merger reserve


2,033

-

2,033

  Other reserve


8,831

-

8,831

  Retained earnings


98,577

1,501

100,078

Equity attributable to owners of the Parent Company


109,909

1,501

111,410

Non-controlling interest


302

-

302

Total equity


110,211

1,501

111,712



 

Income statement for the year ended 31 December 2018








Previously reported

Prior year adjustment

As restated



£'000

£'000

£'000

Revenue


137,711

-

137,711

Cost of sales


(31,780)

-

(31,780)






Gross profit


105,931

-

105,931






Distribution costs


(50,593)

-

(50,593)

Administrative expenses


(32,163)

-

(32,163)






Operating profit


23,175

-

23,175






Finance income


131

-

131

Finance costs


(171)

-

(171)

Finance costs - net


(40)

-

(40)






Profit before income tax


23,135

-

23,135






Income tax expense


(6,945)

322

(6,623)






Profit for the year


16,190

322

16,512






 

Basic and diluted earnings per share for the prior year have also been restated. The amount of the correction for the basic and diluted earnings per share was an increase of 2.6p per share.

 

3 This preliminary announcement does not constitute the Company's statutory accounts within the meaning of Section 434 of the Companies Act 2006. The results for the year ended 31 December 2019 have been extracted from the full accounts of the Group for that year which received an unqualified auditor's report and which have not yet been delivered to the Registrar of Companies.  The financial information for the year ended 31 December 2018 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The report of the auditor on those filed accounts was unqualified.  The accounts for the year ended 31 December 2019 and 31 December 2018 did not contain a statement under s498 (1) to (4) of the Companies Act 2006.

 

This preliminary announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS"). The financial information included in this preliminary announcement does not include all of the disclosures required in accounts prepared in accordance with IFRS and accordingly it does not itself comply with IFRS.  With the exception of the adoption of IFRS16, the accounting policies used in the preparation of this preliminary announcement have remained unchanged from those set out in the statutory accounts for the year ended 31 December 2018. They are also consistent with those in the full accounts for the year ended 31 December 2019, which have yet to be published.

 

The Group will post its annual report and accounts to shareholders on 4 June 2020. A copy of the annual report and accounts can be found on the company's webpage (www.londonsecurity.org).

 

The Directors have prepared this financial information on the fundamental assumption that the Group is a going concern and will continue to trade for at least 12 months following the date of approval of the financial information. In determining whether the Group's accounts should be prepared on a going concern basis the Directors have considered the factors likely to affect future performance. At 31 December 2019 the Group held cash and cash equivalents of £27 million. Total debt at 31 December 2019 was £7 million, of which £2 million is due for repayment in the year to 31 December 2020.

The Chairman's Statement contains a Covid-19 impact assessment detailing the effect it is having on our business. The group has seen a severe decline in turnover as social distancing and travel policies are implemented. Further to the approval of the 2020 budget in December 2019, the Directors have considered the potential impact of the Covid-19 outbreak on the Group's results and have modelled a base case reforecast. The base case reforecast, is based on the directors' current knowledge and expectation and includes a level of restrictions that would remain in force into June 2021. The base case reforecast includes significant cash headroom. In preparing the base case reforecast, there are key judgements in relation to the timing of when the engineers will be able to return to customer sites and provide fire protection services and the level of support from the Government's in which the Group operates in relation to employment costs. The Directors have concluded that while the assumptions in the base case reforecast include significant judgement, they are appropriate and as at the date of approving the preliminary announcement, our engineers are returning to work in some of the Countries that the Group operates. In addition, the directors are satisfied that further action could be taken, if necessary, including suspending dividend payments. Whilst the directors expect the group's bankers to be supportive should the group request loan repayment deferrals or forgiveness of any covenant breaches should the actual impact of Covid-19 be worse than reforecast, the Directors consider that the group could repay its external loans should that support not be available. The directors have also modelled sensitivities to the base case reforecast, which demonstrates that the group is forecast to have significant cash headroom after applying these sensitivities.

Accordingly, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future and are satisfied that it is appropriate to adopt the going concern basis in preparing this financial information.

 

 

 

Enquiries

London Security plc


Richard Pollard

Company Secretary

Tel: 01422 372 852



WH Ireland Limited


Chris Fielding

Tel: 0207 220 1666





 

 

 



 

 

 


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