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Valmont Industries Annual Report For the year ended 31 March 2014 Adamson’s Laboratory Services B to B Links In House The Hygiene Management Company Inspection Services (U.K.) Limited RSA Environmental Health 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 1 P H S C p l c CONTENTS OF THE ANNUAL REPORT for the year ended 31 March 2014 Company Information Strategic Report Report of the Directors Statement of Directors’ Responsibilities Corporate Governance Statement Independent Auditor’s Report Group Statement of Financial Position Group Statement of Comprehensive Income Group Statement of Changes in Equity Group Statement of Cash Flows Accounting Policies Notes to the Financial Statements Company Financial Statements Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Notice of Annual General Meeting Form of Proxy Page 2 3 9 12 13 15 16 17 18 19 20 25 42 43 44 45 55 57 1 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 2 P H S C p l c COMPANY INFORMATION for the year ended 31 March 2014 DIRECTORS: SECRETARY: S A King N C Coote G N Webb MBE M J L Miller L E Young REGISTERED OFFICE & BUSINESS ADDRESS: The Old Church 31 Rochester Road Aylesford Kent ME20 7PR REGISTERED NUMBER: 4121793 (England and Wales) AUDITOR: SOLICITORS: REGISTRARS: NOMINATED ADVISORS AND BROKERS: Crowe Clark Whitehill LLP Chartered Accountants & Registered Auditor 10 Palace Avenue Maidstone Kent ME15 6NF Gullands 16 Mill Street Maidstone Kent ME15 6XT Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA Northland Capital Partners Limited 131 Finsbury Pavement London EC2A 1NT 2 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 3 P H S C p l c STRATEGIC REPORT for the year ended 31 March 2014 HIGHLIGHTS • EBITDA improved by 22% at £0.735m, up from £0.603m • Group revenues increased by 31% to £7.594m compared with £5.791m • Cash reserves rise to £0.712m • Group net assets of £6.4m • Basic earnings per share up 16% to 4.24p from 3.64p • Proposed final dividend held at 1.5p per share KEY DEVELOPMENTS AND OUTLOOK PHSC plc, through its trading subsidiaries is a leading provider of health, safety, hygiene and environmental consultancy services and security solutions to the public and private sectors. The majority of the Group’s revenue continues to arise from the core health and safety businesses, with the major income streams being derived from activities such as asbestos management, health care training, public transport safety consultancy, and supporting the education sector. The Group also serves the leisure industry and carries out statutory examination of plant and machinery via insurance brokers or directly for clients. However, the growth areas are in those markets served by PHSC plc’s most recent acquisitions, QCS International Limited (QCS) and B to B Links Limited (B to B) which made a full-year contribution for the first time in the year ended 31 March 2014. The decision to diversify has enabled the Group to branch out from its core business of health and safety adding quality management systems consultancy and training, and innovative retail security solutions including tagging, labelling and CCTV to the activities of the Group. The legacy businesses generated £4.567m of sales compared with £4.362m in the previous year. Despite the £0.2m increase in sales, profitability declined by a little over £0.1m. This is an indication of ever-reducing margins in a sector that has become very competitive and where the number of providers has risen faster than the requirement for services. Costs tend to increase year-to-year but price sensitivity means that it is progressively more difficult to win new work at previous margins. The Group continues to benefit from a diverse number of clients, including several that have a fairly robust safety culture and who seek continuous improvement. However, a lighter regulatory approach has led to some employers opting to spend less on compliance services, and reduces the incentive to invest in services such as non-mandatory training and other areas of discretionary spend. Net asset value As at 31 March 2014, the company had net assets of £6.440 million. There were 12,686,353 ordinary shares in issue at that date which equates to a net asset value per share of 50.8p. At today’s price of 32p per share, the ordinary shares of the company are currently trading at a discount of 37% to the net asset value. A proportion of the company’s assets consists of goodwill associated with the various acquisitions it has made. Each year the level of goodwill relating to subsidiaries is reviewed to make sure that their values on the balance sheet can still be justified. This year it was felt necessary to write down the carrying value of RSA Environmental Health Limited by £26,648. When acquired in 2004 this subsidiary derived the majority of its revenue and profit from work that had been outsourced by Local Authorities but this income stream has progressively reduced as public sector budgets have been pared back. The board remains comfortable with all other valuations. Share placing On 27 September 2013 the company announced that it had raised £520,000 before expenses through a placing of 2,080,000 new ordinary shares of 10p each. Those shares were priced at 25p each, and the placing was primarily taken up by institutional investors with some director participation. The new shares represent approximately 16% of the enlarged issued share capital. The fundraising was to provide additional working capital. 3 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 4 P H S C p l c STRATEGIC REPORT (continued) for the year ended 31 March 2014 Acquisition payments During the year a total of £441,148 was paid in respect of the acquisition of QCS and B2B acquired in July and October 2012 respectively. In July 2013, a sum of £160,000 fell due in respect of QCS and after a revision to the value of assets on the date of acquisition, a payment of £121,148 was made. The agreement provides for a final payment of £80,000, subject to adjustment up or down according to QCS’s performance against targets, for the two-year period to the end of July 2014. Payment falls due once management accounts are prepared and agreed with the seller, and this is expected to be no later than 1 August 2014. £320,000 was paid in respect of the acquisition of B2B on 30 September 2013 and a final payment of between £120,000 and £800,000 is provided for in the purchase agreement. This is subject to B to B’s performance over the two-year period since the business was acquired. With an anniversary date of 30 September, it is expected that agreement on the earn-out payment will be reached towards the end of October 2014 after management accounts have been prepared. Outlook We are confident that revenues from our retained clients will continue in a similar vein to previous years, and that this can be supplemented by income from the newer subsidiaries. We will seek to win business both in the areas in which we have traditionally operated and those new areas open to us through the diversification strategy that we have successfully adopted. The Group is not considering any further acquisitions in 2014/15. Having grown the Group to one that has £7.59m revenues compared with £4.45m two years ago, it is considered necessary to continue with a period of consolidation and integration with no material changes to overall performance anticipated. With the last of the acquisition payments due to be made by the end of 2014, there is scope to begin to accumulate a more comfortable level of cash reserves. PERFORMANCE The board looks at the following key performance indicators. Total revenues Total revenues are reviewed each month across the Group because this information gives a ready measure of how well the Group is performing relative to historical data. It enables any trend to be detected, understood and acted upon as appropriate. Consolidated Group sales for the period rose to £7,594,300 from £5,791,400. The increase is primarily due to a full year’s contribution from the newest subsidiaries QCS and B to B. Earnings before interest, taxation, depreciation and amortisation (EBITDA) The Group generated a 22% increase to EBITDA. The figure of £732,500 EBITDA compares with £603,100 generated in the previous year. Staff turnover Staff turnover is monitored because the key asset of each subsidiary is its workforce. Recruiting replacement staff is an expensive task and it is not always possible to compensate for the specialised knowledge that may be lost when an employee departs. Based on a payroll head count the number of people employed fell from 90 at the start of the year to 89 as at 31 March 2014, with 13 joiners and 14 leavers across the Group. A number of employees requested a reduction in their working hours for personal reasons. Pre-tax profit per subsidiary before Group management charges Profits before tax and management charges are reviewed by subsidiaries each month because the board is keen to ensure that each subsidiary trades profitably. Although the Group does not adopt a policy of cross-charging between subsidiaries, informal account is taken of significant work done by one subsidiary on behalf of another. A review of the activities of each trading subsidiary is provided below. The profit figures stated are before tax and management charges. 4 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 5 P H S C p l c STRATEGIC REPORT (continued) for the year ended 31 March 2014 Adamson’s Laboratory Services Limited (ALS) • • 2014: sales of £2,660,300 yielding a profit of £312,300. 2013: sales of £2,366,900 yielding a profit of £366,700. ALS’s turnover increased by 12% with the integration of Envex into ALS continuing to work well. The turnover for the health and safety department increased by 20% with its work including occupational hygiene and legionella consultancy. Asbestos awareness training remains popular with clients and the British Occupational Hygiene Society proficiency modules have shown a high success rate. The main activity of asbestos surveying and consultancy has stayed busy though the focus appears to be changing to one of complete project management. ALS secured a term contract with University College London which involves the provision of a full-time appointed person based on site and the provision of all asbestos consultancy services. ALS also has two full-time members of staff based at The University of Cambridge, fulfilling the asbestos manager and assistant roles. Repeat business has been won, with clients including the Royal Household Property Section, Shell Real Estate, Cambridge County Council, London Borough of Lewisham and The University of Cambridge commissioning additional works throughout the year. A large volume of Decent Homes work has been commissioned this year through Breyer and Mitie. ALS has maintained its accreditation with UKAS ISO 17020, 17025 and ISO 9001 and the company is currently working towards ISO 14001. B to B Links Limited (B to B) • • 2014: sales of £2,510,300 yielding a profit of £257,600. 2013: six-month period since acquisition; sales of £1,093,800 yielding a profit of £83,500. In its first full year of trading since being acquired by PHSC plc, B to B generated revenues of £2,510,300, representing significant growth on the previous 12 months of trading (£1,850,500). The majority of revenues during the year were generated from national accounts in the department store, grocery, mixed goods and fashion retail sectors. In addition independent retail customers have been, and continue to be, an important source of revenue. The general outlook for retail has improved over the last 12 months with the economy’s return to growth and increased consumer and business confidence. Demand for retail security products and services remains strong as levels of customer theft have continued to rise. B to B’s CCTV, security tagging and labelling offer remains competitive and the company’s brand presence has developed to the point where the company is regularly gaining new national retail customers. Key priorities for 2015 include maintaining national account activity, growing independent retail sales and making efficiencies in sub-contractor and logistics expenditure. Inspection Services (UK) Limited (ISL) • • 2014: sales of £195,100 yielding a profit of £5,500. 2013: sales of £202,100, yielding a profit of £6,600 ISL carries out statutory examinations and inspections on behalf of a broad range of clients, either directly or via commission-based agreements with insurance brokers. Annual revenues were around 3.5% lower than in the previous period, at £195,100 compared with £202,100. Although lower, this reflects a slowing down in the rate of decline that has occurred over recent years in what is a mature business sector. The traditional client base continues to contract and there is pressure on prices as ISL competes with other independent companies for work. Engineers from the company have carried out work for other subsidiaries within the PHSC plc group. The costs of delivery are borne by the company but the income from that work is retained by the originating business. This is in line with group policy of not cross-charging. It is estimated that, had a cross-charging policy been in place, the revenues for this year would have matched those from 2012-13. 5 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 6 P H S C p l c STRATEGIC REPORT (continued) for the year ended 31 March 2014 Personnel Health & Safety Consultants Limited (PHSCL) • • 2014: sales of £749,500 yielding a profit of £327,500. 2013: sales of £765,500 yielding a profit of £300,000. Despite the slightly lower revenues over the year, EBITDA increased from £137k to around £164k. Profitability was improved by not replacing a member of staff who retired in the first quarter of the year and absorbing the additional workload across existing personnel. During the period, the company continued to be a net provider of consultancy and training services to clients of other members of the PHSC plc group. Group policy dictates that no cross-charges were generated to reflect this contribution. QCS International Limited (QCS) • • 2014: sales of £516,200 yielding a profit of £161,800. 2013: eight-month period since acquisition; sales of £334,600 yielding a profit of £98,000. Turnover for the 12 month period was £516,200 which reflects an increase in revenues of approximately 9% over the same period in the previous year. Continuation of close monitoring to reduce the margin of direct costs and overheads has contributed to a profit of £161,800 which reflects a solid increase of 62%. Most of the growth is within Scotland, but there has been some expansion into England, and cross-selling opportunities mean that QCS has begun to win work for other subsidiaries of the Group. QCS has retained 90% of outsource clients, with a continued steady growth of new clients to the consultancy portfolio. A rise in consultancy services for medical device clients increased the requirement for specialised medical device associates and two associates are now in place to compliment the consultancy team. QCS continues to increase in-house training courses. Strong and focussed marketing utilising the new QCS website, targeted e-shots and bi-annual training course brochures have all contributed to continued growth. A partnership agreement with a Danish course provider for medical device courses has given QCS the opportunity to carry out public courses in Denmark and Sweden, and 2014-2015 will further enhance this income stream through training courses in Norway. In 2015 there will be significant changes to the main quality standards for which the company offers training and consultancy services. This presents a growth opportunity, whereby the company can promote its ability to support those companies who wish to prepare for the revised standards. Combined with an already strong order book of consultancy and public course sales, QCS is confident of additional growth in the year ahead. Quality Leisure Management Limited (QLM) • • 2014: sales of £463,500 resulting in a loss of £4,500. 2013: sales of £607,600, yielding a profit of £119,300. Turnover for the year ended 31 March 2014 fell by some 24% from £607,600 to £463,500. A uniquely quiet second quarter was the visible cause, with a number of contributory factors. The loss of a key client was sustained who previously provided regular audit and training work. After 12 years, the Royal Life Saving Society/Institute of Qualified Lifeguards (IQL) external verification scheme programme was taken in house. QLM still conducts some work for IQL but on a much smaller scale. The amount of consultancy provided to the Chartered Institute for the Management of Sport and Physical Activity fell dramatically, due to the reduction in the Institute’s own activity. 6 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 7 P H S C p l c STRATEGIC REPORT (continued) for the year ended 31 March 2014 The drop in turnover resulted in a loss being made for the first time in the company’s history. In response, QLM is focussing on its core consultancy business which remains robust with its large and loyal client base. Performance in the last quarter was positive, and the company continues to recover. Current business levels are encouraging. QLM will continue to develop its product and service range to both attract new clients and to increase sales to existing customers. In addition, cuts to overheads have been made by reducing administration costs and by making minor changes to contracts. The expenses associated with relocating to new office premises are reflected in the costs for the year ended 31 March 2014, and the relocation will result in reduced running costs. These are anticipated to return the business to profitability in the year ahead. RSA Environmental Health Limited (RSA) • • 2014: sales of £499,400 yielding a profit of £55,900. 2013: sales of £420,000 yielding a profit of £10,900. The year saw an anticipated return to growth, brought about by the repositioning of the business in the previous two financial years. The increase in both revenue and profitability was a direct result of the uptake of the school SafetyMARK service, a support and auditing service, leading to certification, offered to schools and colleges by the In House division of RSA. The number of educational establishments signed up to the programme stands at approximately 100, with new joiners at the rate of a one a week. Contract renewals are presently running at 90%. Extra services are being introduced to enhance the value of contracts and to encourage client retention. In the year ended 31 March 2014, the company benefitted from second year income from the original SafetyMARK contracts as well as adding more clients at an accelerating rate; direct income from SafetyMARK more than doubled from £31,000 in the previous year to £72,000 in 2013/14. A useful, synergistic partnership with an online school safety management system provider also helped boost revenues. Overall, school work increased by around £111,000 in 2013/14, and is rapidly replacing other work that had traditionally been delivered by the company. The uplift in value compares with a contraction of around £82,000 in non-school revenues for the company. The school-specific training courses which the Group designed and had accredited by the Institution of Occupational Safety and Health (IOSH), proved to be popular. When run as public courses, these have the added benefit of being a shop window for the school safety support services (including SafetyMARK) which the company provides. As the brand becomes better known, opportunities arise to present at events as experts in the field of school safety as well as to explore other useful partnerships. These types of innovative conduits have become the focus of the marketing effort, as opposed to the more costly traditional methods. This helped lower the cost base in 2013/14 and assisted with the increase in profitability. Further links are being built with the National Association of School Business Management (NASBM) and with the International Institute of Risk and Safety Management (IIRSM). The latter relationship involves an exciting school safety project named LoCHER, which is also associated with the Health and Safety Executive. PRINCIPAL RISKS AND UNCERTAINTIES Regulatory/Marketplace Much of the Group’s work involves assisting organisations with the implementation of measures to meet regulatory requirements relating to health and safety at work. If the regulatory burden was to be substantially lightened, for example if the government embarked upon a programme of radical deregulation, there could be less demand for the Group’s services. Changes to the operation of the employer’s liability insurance system, as proposed in some quarters, could reduce the incentive for organisations to buy in claims-preventive services such as health and safety advice. In mitigation of these risks, the board has diversified the Group’s range of offerings for example, by acquiring B to B and is exploring non-regulatory areas of environmental work to add to the current portfolio of services. 7 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 8 P H S C p l c STRATEGIC REPORT (continued) for the year ended 31 March 2014 Technological The Group’s website is a primary source of new business. If the website became inaccessible for protracted periods, or was subject to “hacking”, this may prejudice the opportunity to obtain new business. Additionally, the increase in the use of the internet for satisfying business requirements may lead to a reduction in demand for face-to-face consultancy services and the number of training courses commissioned may be affected by moves towards screen-based interactive learning. Personnel Generally there is an excess of demand over supply for health and safety professionals. Those with sufficient qualifications and experience to be suitable for consultancy roles are in the minority. This has the combined effect of making it difficult for the Group to source suitable personnel and having to offer higher remuneration packages to attract them. The Group is dependent upon its current executive management team. Whilst it has entered into contractual arrangements with the aim of securing the services of these personnel, the retention of their services cannot be guaranteed. Accordingly, the loss of any key member of management of the Group may have an adverse effect on the future of the Group’s business. The Group and each subsidiary have contingency plans in place in the event of incapacity of key personnel. Geographical The Group offers a nationwide service but a number of organisations see benefit in using consultancies that are local to them. The recent acquisitions made, particularly QCS with an office in Scotland, have increased the geographical spread of the Group and assist in mitigating this risk. Licences The Group is reliant on licences and accreditations in order to be able to carry on its business. The temporary loss of, or failure to maintain, any single licence or accreditation would be unlikely to be materially detrimental to the Group, as the directors believe that this could be remedied. However, if the Group fails to remedy any loss of, or does not maintain, any licence or accreditation, this would have a material adverse effect on the business of the Group. The Group has internal processes in place to ensure that the licences and accreditations are maintained. GOING CONCERN Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The directors have taken notice of the Financial Reporting Council guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2010’ which requires the reasons for this decision to be explained. The directors regard the going concern basis as remaining appropriate as the Group has adequate resources to continue in operational existence for the foreseeable future based upon the Group’s forecasts. The directors have been informed by their bankers that an overdraft facility of up to £100,000 will be provided at 48 hours notice. This can be extended if required subject to the normal caveats. Thus the directors continue to adopt the going concern basis of accounting in preparing the annual financial statements. I would like to thank all our longstanding shareholders for their continued support, and to welcome those new investors who have joined the share register as a result of our placing last Autumn. On behalf of the board Stephen King, Group Chief Executive 31 July 2014 8 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 9 P H S C p l c REPORT OF THE DIRECTORS for the year ended 31 March 2014 The directors present their report with the audited financial statements of PHSC plc company and Group for the year ended 31 March 2014. DIRECTORS The directors during the year under review were: S A King N C Coote M J L Miller G N Webb MBE DIVIDENDS A dividend of £159,095 was paid during the year ended 31 March 2014 (2013: £104,612 plus an additional dividend of £104,612). The board is proposing a final dividend of 1.5p per ordinary share to be paid on 30 September 2014 to shareholders on the register as at 23 August 2014. STRATEGIC REPORT The strategic report has been prepared to provide additional information to shareholders to assess the Group’s strategy and the potential to succeed. Information contained with the strategic report also forms part of the directors’ report. The strategic report contains certain forward looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties underlying such forward looking statements. PROVISION OF INFORMATION TO AUDITOR So far as each of the directors is aware at the time the report is approved: • • there is no relevant audit information of which the Group’s auditor is unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information. FINANCIAL RISK MANAGEMENT The Group’s operations expose it to a variety of financial risks which are outlined in the strategic report and in Note 1 to the financial statements on page 25. SHARE BUY BACKS There were no share buy backs during the year. ENVIRONMENT AND SOCIAL AND COMMUNITY ISSUES The directors are aware of the impact of the Group’s business on the environment and social and community issues but believe these to be minimal due to the nature of the Group’s operations. EMPLOYEES Each company within the Group has in place the necessary structures to ensure effective communication with its employees. In addition, there are initiatives to ensure that staff are offered continuing professional development opportunities appropriate to their roles. The Group aims to improve the performance of the organisation through the development of its employees. Their involvement is encouraged by means of team meetings and briefings and bonuses are paid on the basis of individual performance and results at subsidiary and group level. The Group is committed to equality of employment and its policies reflect a disregard of factors such as disability in the selection and development of employees. 9 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 10 P H S C p l c REPORT OF THE DIRECTORS (continued) for the year ended 31 March 2014 SUBSTANTIAL SHAREHOLDINGS At 9 July 2014, the following persons had notified the company of an interest of 3% or more of its issued share capital. Number of ordinary shares Percentage of issued share capital Name S A King N C Coote Unicorn Asset Management Limited and Unicorn AIM VCT II plc Downing LLP held via Downing Income VCT 4 Plc and Downing Income VCT Plc James Faulkner ANNUAL GENERAL MEETING 3,203,100 3,144,342 849,057 576,509 455,000 25.25 24.79 6.69 4.54 3.59 This year’s annual general meeting will be held at 10.00am on Monday 8 September 2014 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR. The notice of meeting is set out on pages 55 and 56 of this document and a form of proxy is on page 57. Details of the business to be considered at the meeting are given below. Report and accounts (Resolution 1) It is a requirement of company law that the annual report and accounts is laid before shareholders in general meeting. Dividend (Resolution 2) As noted above, the directors recommend a final dividend of 1.5p per share. Re-election of directors (Resolutions 3 and 4) Under the company’s articles of association, Mike Miller and Graham Webb retire by rotation and offer themselves for re-election. Appointment of auditor (Resolution 5) A resolution for the reappointment of Crowe Clark Whitehill as the company’s auditor will be put to the annual general meeting, together with the usual practice of authorising the directors to set the auditor’s fees. Authority of directors to allot shares (Resolutions 6 and 7) By law, directors are not permitted to allot new shares (or to grant rights over shares) unless they are authorised to do so by shareholders. In addition, directors require specific authority from shareholders before allotting new shares (or granting rights over shares) for cash without first offering them to existing shareholders in proportion to their holdings. Resolution 6 gives the directors the necessary authority until the earlier of next year’s AGM or 30 September 2015 to allot securities up to an aggregate nominal amount of £418,649. Resolution 7 empowers the directors, until the earlier of next year’s AGM or 30 September 2015 to allot such securities for cash otherwise than on a pro-rata basis to existing shareholders, up to a maximum of 2,537,270 ordinary shares of 10p each, equivalent to 20% of the issued share capital as at 9 July 2014. It is intended to renew this authority and power at each annual general meeting. 10 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 11 P H S C p l c REPORT OF THE DIRECTORS (continued) for the year ended 31 March 2014 Voting A form of proxy is included at the end of this document for use at the AGM. Please complete, sign and return it as soon as possible in accordance with the instructions on it, whether or not you intend to come to the AGM. Returning a form of proxy will not prevent you from attending the meeting and voting in person if you wish. A form of proxy should be returned so that it is received not less than 48 hours (excluding non-working days) before the time of the AGM. The directors consider that all the resolutions to be put to the meeting are in the best interests of the company and its shareholders as a whole. The directors will be voting in favour of them and unanimously recommend that you do so as well. On behalf of the board L E Young Secretary 31 July 2014 11 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 12 P H S C p l c STATEMENT OF DIRECTORS’ RESPONSIBILITIES for the year ended 31 March 2014 The directors are responsible for preparing the directors' report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the consolidated financial statements and company accounts in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company and Group's transactions and disclose with reasonable accuracy at any time the financial position of the company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the report of the directors and other information included in the annual report and financial statements is prepared in accordance with applicable law in the UK. The maintenance and integrity of the PHSC plc website is the responsibility of the directors; the work carried out by the auditor does not involve the consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website. Legislation in the UK governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. Going concern basis The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report on pages 3 to 8. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described within these financial statements. In addition, note 1 to the financial statements include the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposure to credit risk and liquidity risk. The Group has adequate financial resources together with long-term contracts with its customers and has a diversified income stream. Arrangements are in place with the Group’s bankers to secure an overdraft should the need arise to fund anniversary payments due in respect of the recent acquisitions made. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 12 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 13 P H S C p l c CORPORATE GOVERNANCE STATEMENT for the year ended 31 March 2014 The directors of the company support high standards of corporate governance as set out in the UK corporate governance code. The Group determines its corporate governance systems appropriate to its size and stage of development having due regard to the principles of the Corporate Governance Code. As the company’s shares are traded on AIM, it is not required to comply with all of the provisions of the code. LEADERSHIP The board is made up of four directors, two of whom are executive, S A King (group chief executive) and N C Coote (deputy group chief executive) and two of whom are independent non-executive, M J L Miller and G N Webb MBE. Mr King acts as chairman and chief executive. Since the board is comprised of only four members, the directors are of the view that there is no need to split these roles and for the same reason they have not appointed a senior independent director. Mr Miller has served eight years on the board and Mr Webb has served ten years. The board is of the view that Mr Webb retains his independent judgement and continues to make a valuable contribution to the board even though he has been on the board for more than nine years. Biographical details of the directors can be found on the company’s website (www.phsc.plc.uk). The directors have a duty to promote the success of the company and to this end the board has clearly defined responsibilities set out in a formal schedule of matters reserved to it which includes setting the company’s strategy; approving business plans; approving the annual report and accounts and shareholder communications; ensuring a sound system of internal controls and risk management; approving major contracts; determining the remuneration policy (on the recommendation of the remuneration committee); and making appointments to the board and other offices. Health and safety within the Group is considered at every board meeting. The directors have continued to disclose their other interests (as required by the Companies Act 2006) and to date there have been no actual or potential conflicts of interest between these and the interests of the company. EFFECTIVENESS The board meets at least five times each year and the committees meet twice each year (or more often if required). During the year there was full attendance at all board and committee meetings. Monthly management accounts are circulated to all directors. All directors have access to advice from the company secretary. COMMITTEES The board has delegated certain matters to committees. There is an audit committee and a remuneration committee. The terms of reference of these committees are available on request. There is no separate nominations committee and the board as a whole deals with any matters that would normally be within the remit of such a committee. For example, the board reviews succession planning at senior levels within the Group at least annually. The audit committee comprises Mr Miller (chairman) and Mr Webb. During the year it has considered internal controls and risk management issues which are relevant to the Group. Accepting that no systems of control can provide absolute assurance against material misstatement or loss, the directors believe that the established systems for internal control within the Group are appropriate to the business. There is an annual audit planning meeting between the external auditor and the committee chairman as well as a formal meeting with the auditor and the committee at the time of the final results. The committee considers the continuing independence of the external auditor and notes the level of non-audit fees to ensure they remain at an acceptable level. Where relevant, developments in accounting standards and reporting have been discussed during the year. The audit committee reviews annually whether the Group needs to have an internal audit function and does not consider this to be necessary at present. 13 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 14 P H S C p l c CORPORATE GOVERNANCE STATEMENT (continued) for the year ended 31 March 2014 The remuneration committee comprises Mr Webb (chairman) and Mr Miller. The committee has written terms of reference and considers all aspects of the remuneration of the executive directors and other senior executives. As in prior years, any payments to senior executives under the Group bonus plan are approved by the committee. It also hears representations on any proposed general pay increases across Group subsidiaries, and is responsible for approving those (or otherwise). DIRECTORS’ REMUNERATION The remuneration of the executive directors was as follows: Short-term employee benefits Post-employment Year ended 31.3.14 Year ended 31.3.13 S A King N C Coote Salary £ 65,825 62,050 Bonus £ 4,417 4,417 Benefits £ 1,909 6,552 benefits Pension £ 3,286 3,097 Total £ 75,437 76,116 Total £ 72,383 75,053 Mr King’s benefits pertain to health insurance and Ms Coote’s to a company car and health insurance. The fees of the non-executive directors were as follows: M J L Miller G N Webb CORPORATE RESPONSIBILITY Year ended 31.3.14 £11,500 £12,500 Year ended 31.3.13 £10,000 £12,000 Group companies are involved in the communities in which they operate and also provide sponsorship and donations to good causes. Details of these can be found on the corporate social responsibility section of the Group’s website. RELATIONS WITH SHAREHOLDERS The annual report is sent to all shareholders and, on request, to other parties who have an interest in the group’s performance. The company endeavours to send the notice of AGM and supporting papers to shareholders at least 20 working days before the meeting and responds promptly to any enquiries received from shareholders. The AGM provides the board with the opportunity to meet and engage directly with shareholders and all shareholders have the opportunity to put forward questions on performance and operations as well as other related topics at the AGM. Mr King is the principal contact between PHSC plc and its investors, with whom he maintains a regular dialogue. The views of investors are communicated to the whole board. 14 19246.01 PHSC Annual Report P1-15_19246.01 PHSC Annual Report P1-15 31/07/2014 18:19 Page 15 P H S C p l c INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF PHSC plc for the year ended 31 March 2014 We have audited the financial statements of PHSC plc for the year ended 31 March 2014 which comprise the group statement of financial position, the group statement of comprehensive income, the group cash flow statement, the group statement of changes in equity and related notes numbered 1 to 25. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the strategic report, the directors’ report and the corporate governance statement to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company's affairs as at 31 March 2014 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • • • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Keith Newman (Senior Statutory Auditor) for and on behalf of Crowe Clark Whitehill LLP 10 Palace Avenue, Maidstone, Kent ME15 6NF 31 July 2014 15 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 16 P H S C p l c Registered number: 4121793 GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2014 Non-Current Assets Property, plant and equipment Goodwill Deferred tax asset Current Assets Inventories Trade and other receivables Cash and cash equivalents Total Assets Current Liabilities Trade and other payables Financial liabilities Current corporation tax payable Deferred consideration Non-Current Liabilities Financial liabilities Deferred consideration Deferred tax liabilities Total Liabilities Net Assets Capital and reserves attributable to equity holders of the Group Called up share capital Share premium account Capital redemption reserve Retained earnings Note 31.3.14 £ 31.3.13 £ 5 6 14 8 7 9 11 12 13 12 13 14 10 10 695,662 4,609,206 53 713,262 4,637,077 2,742 5,304,921 5,353,081 154,270 1,935,280 712,397 152,871 2,037,724 216,088 2,801,947 2,406,683 8,106,868 7,759,764 1,134,645 6,498 127,474 330,000 1,098,678 13,198 174,464 441,148 1,598,617 1,727,488 – – 67,817 67,817 6,498 330,000 68,628 405,126 1,666,434 2,132,614 6,440,434 5,627,150 1,268,634 1,831,194 143,628 3,196,978 1,060,634 1,555,529 143,628 2,867,359 6,440,434 5,627,150 The financial statements were approved and authorised for issue by the board of directors on 31 July 2014, and were signed on its behalf by: S A King Director Accounting policies and notes on pages 20 to 40 form part of these financial statements 16 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 17 P H S C p l c GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2014 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Other income Profit from operations Finance income Finance costs Profit before taxation Corporation tax expense Profit for the year after tax attributable to owners of the parent Other comprehensive income Total comprehensive income attributable to owners of the parent Attributable to: Equity holders of the Group Note 31.3.14 £ 31.3.13 £ 16 16 15 19 19 7,594,281 (4,356,092) 5,791,359 (3,010,500) 3,238,189 2,780,859 (2,583,170) 1,096 (2,268,026) 5,682 656,115 518,515 259 (1,524) 2,163 (850) 654,850 519,828 20 (160,771) (137,477) 494,079 382,351 – – 494,079 382,351 494,079 382,351 Basic and Diluted Earnings per Share for profit after tax from continuing operations attributable to the equity holders of the Group during the year 21 4.24p 3.64p Accounting policies and notes on pages 20 to 40 form part of these financial statements 17 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 18 P H S C p l c GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2014 Balance at 1 April 2012 Profit for year attributable to equity holders Issue of shares Stamp duty on issue of shares Deferred tax adjustment to property valuation Dividends Share Capital £ Share Premium £ 1,038,196 – 22,438 – – – 1, 497,409 – 70,300 (12,180) – – Capital Redemption Reserve £ 143,628 – – – – – Retained Earnings £ 2,691,148 382,351 – – 3,083 (209,223) Total £ 5,370,381 382,351 92,738 (12,180) 3,083 (209,223) Balance at 31 March 2013 1,060,634 1,555,529 143,628 2,867,359 5,627,150 Balance at 1 April 2013 Profit for year attributable to equity holders Issue of shares Deferred tax adjustment to property valuation Dividends 1,060,634 – 208,000 – – 1,555,529 – 275,665 – – 143,628 – – – – 2,867,359 494,079 – (5,365) (159,095) 5,627,150 494,079 483,665 (5,365) (159,095) Balance at 31 March 2014 1,268,634 1,831,194 143,628 3,196,978 6,440,434 Accounting policies and notes on pages 20 to 40 form part of these financial statements 18 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 19 P H S C p l c GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2014 Cash flows from operating activities: Cash generated from operations Interest paid Tax paid Net cash generated from operating activities Cash flows used in investing activities Purchase of property, plant and equipment Purchase of subsidiary companies (net of cash acquired) Disposal of fixed assets Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from placement of shares Dividends paid to Group shareholders Net cash used by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note I 31.3.14 £ 31.3.13 £ 856,333 (1,524) (211,248) 427,108 (850) (182,705) 643,561 243,533 (30,933) (441,148) – 259 (471,822) 483,665 (159,095) 324,570 496,309 216,088 712,397 (25,371) (785,866) 88,250 2,163 (720,824) – (209,223) (209,223) (686,494) 902,582 216,088 NOTES TO THE GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2014 31.3.14 £ 31.3.13 £ 656,115 48,533 27,871 – (1,399) 102,444 35,967 (13,198) 856,333 518,515 45,172 39,387 (5,184) (14,884) (335,953) 187,417 (7,362) 427,108 I. CASH GENERATED FROM OPERATIONS Operating profit − continuing operations Depreciation charge Goodwill impairment Profit on sale of fixed assets Increase in inventories Decrease/(increase) in trade and other receivables Increase in trade and other payables Decrease in financial liabilities Cash generated from operations 19 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 20 P H S C p l c ACCOUNTING POLICIES for the year ended 31 March 2014 General information PHSC plc is a company listed on AIM and incorporated in England and Wales under the Companies Act 2006. The address of the registered office is given at the front of this report. The nature of the Group’s operations and its principal activities are set out in the strategic report on page 3. The financial statements are presented in pounds sterling which is the Group’s functional and presentation currency. The figures shown in the financial statements are rounded to the nearest pound. Basis of preparation of financial statements The Group’s financial statements have been prepared in accordance with IFRSs, as adopted by the European Union, International Financial Reporting Intermediate Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The financial statements have been prepared under the historical cost convention except as noted below. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The directors have taken notice of the Financial Reporting Council guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ which requires the reasons for this decision to be explained. The directors regard the going concern basis as remaining appropriate as the Group has adequate resources to continue in operational existence for the foreseeable future based upon forecasts. Further details are provided in the directors’ report. At the date of authorisation of these financial statements, the following standards and interpretations which have not yet been applied in these financial statements were in issue, but not yet effective (and in some cases had not yet been adopted by the EU). IFRS standards and interpretations issued (and EU adopted) but not yet effective Title IAS 27 Separate financial statements IAS 28 Investments in associates and joint ventures IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosure of interests in other entities IFRS 13 Fair value measurement IFRIC 20 Stripping costs in the production phase of a surface mine Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) Investment entities (amendments to IFRS 10, IFRS 12 and IAS 27) IAS 36 Amendments recoverable amount disclosures for non-financial assets IFRIC 21 Levies * these MAY be adopted for 2013 and MUST be for 2014 Effective date, accounting period beginning on or after 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2014 01/01/2014 01/01/2014 01/01/2014 20 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 21 P H S C p l c ACCOUNTING POLICIES (continued) for the year ended 31 March 2014 IFRS standards and interpretations issued by IASB but not yet EU approved Title Effective date, accounting period beginning on or after IFRS 9 Financial instruments IAS 16 & IAS 38 Amendments: clarification of acceptable methods of depreciation and amortisation IAS 19 Amendment − defined benefit plans: employee contributions IAS 16 and IAS 41 Amendments: agriculture: bearer plants IFRS 14 Regulatory deferral accounts IAS 16 and IAS 38 Amendments: clarification of acceptable methods of depreciation and amortisation IFRS 11 Amendments: accounting for acquisitions of interests in joint operations IFRS 15 Revenue from contracts with customers unknown 01/07/2014 01/01/2016 01/01/2016 01/01/2016 01/01/2016 01/01/2017 01/07/2014 The adoption of these standards, amendments and interpretations is not expected to have a material impact on the Group’s profit for the period or equity. The adoptions may affect disclosures in the Group’s financial statements. Basis of consolidation The Group financial statements consolidate the financial statements of PHSC plc and all its subsidiary undertakings made up to 31 March 2014. Subsidiaries are entities over which the Group has control. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. The acquisition of subsidiaries has been accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Goodwill arising on purchases prior to 1 April 2006 was capitalised and amortised over its useful economic life. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Property, plant and equipment Property, plant and equipment are stated at cost or fair value, net of depreciation and any provision for impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income in the period in which they are incurred. All other decreases are charged to the statement of comprehensive income. At the date of transition to IFRSs, the carrying value of land and freehold buildings that had previously been revalued is shown as deemed cost, and not subsequently revalued. Depreciation is provided on all property, plant and equipment, other than freehold land, at rates calculated to write off the cost or valuation, less estimated residual value, of each asset over its expected useful life, as follows: Freehold buildings Improvements to property Fixtures and equipment Motor vehicles – – – – 2 per cent. on cost shorter of the lease term and 10 per cent. on cost 25 per cent. on reducing balance 25 per cent. on reducing balance 21 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 22 P H S C p l c ACCOUNTING POLICIES (continued) for the year ended 31 March 2014 Material residual value estimates are updated as required. An asset is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount, and are recognised in the statement of comprehensive income. Operating lease commitments An operating lease is one in which a significant portion of the risks and rewards of ownership are retained by the lessor. Rentals payable under operating leases are charged to the statement of comprehensive income on a straight-line basis over the term of the lease. Intangible assets Goodwill arises on the acquisition of subsidiary undertakings and interests and represents the excess of the cost of acquisition over the net asset values of the subsidiaries or interests acquired. Such goodwill is capitalised as an intangible asset and is stated at cost less accumulated amortisation and impairment losses. Impairment of intangible assets and Property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from the business combination on which the goodwill arose, and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use, are tested for impairment at least annually. All intangible assets and property, plant and equipment with a finite life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment losses are charged to administrative expenses. Inventories Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow- moving inventory. The value of inventory is calculated on purchase cost on a first-in, first-out basis. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, demand deposits, bank overdrafts, and short-term, highly liquid investments that are readily convertible into known amounts of cash, and are subject to an insignificant risk of changes in value. Financial instruments Provision is made for diminution in value where appropriate. Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable. Trade payables are recognised at initially fair value and subsequently measured at amortised cost. 22 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 23 P H S C p l c ACCOUNTING POLICIES (continued) for the year ended 31 March 2014 Financial liabilities Financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are measured initially at fair value, with all transaction costs being recognised immediately in the statement of comprehensive income. All other financial liabilities are measured initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss are measured after initial recognition at fair value, with changes in fair value being taken to the statement of comprehensive income in the period in which they occur. All other financial liabilities are recorded at amortised cost, using the effective interest method, with interest-related charges being recognised as an expense under finance costs in the statement of comprehensive income. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the statement of comprehensive income on an accruals basis, using the effective interest method, and are added to the carrying amount of the instrument, to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, is cancelled, or expires. Taxation Current tax is the tax currently payable based on the taxable profit for the year. Deferred tax is provided in full, using the liability method, on temporary differences between the carrying amounts of assets and liabilities and their tax bases, except when, at the initial recognition of the asset or liability, there is no effect on accounting or taxable profit or loss. Deferred tax is determined using tax rates and laws that have been substantially enacted by the statement of financial position date, and that are expected to apply when the temporary difference reverses. Tax losses available to be carried forward, and other tax credits to the Group, are recognised as deferred tax assets, to the extent that it is probable that there will be future taxable profits against which the temporary differences can be utilised. Changes in deferred tax assets or liabilities are recognised as a component of the tax expense in the statement of comprehensive income, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land), in which case the related deferred tax is also charged or credited directly to equity. Provisions These are recognised when the Group has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 23 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 24 P H S C p l c ACCOUNTING POLICIES (continued) for the year ended 31 March 2014 The proceeds of share issues, received net of any directly attributable transactions costs are credited to share capital at nominal value and the excess credited to the share premium account. The capital redemption reserve arose when the company repurchased some of its own shares. At that point the nominal value of those shares was transferred to the capital redemption reserve. Employee benefits The Group supports various personal pension arrangements. Payments are made to individual defined contribution pension schemes. Agreed contributions are charged to the statement of comprehensive income as they become payable. Revenue recognition Revenue comprises the fair value of the consideration received or receivable by the Group for services provided in the ordinary course of the Group’s activities, excluding VAT and trade discounts. Revenue is recognised in line with contract activity and reflects the accrual to consideration as the contract activity progresses. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. All foreign exchange gains and losses are presented in the statement of comprehensive income within the administration expense heading. Dividend distribution Dividend distributions payable to equity shareholders are included in “trade and other payables” when the dividends are approved in general meeting. 24 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 25 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2014 1. FINANCIAL RISK MANAGEMENT Financial risk The Group’s activities expose it to a variety of financial risks. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the board who evaluate and manage financial risks in close co-operation with the managing directors of the subsidiary companies. The Group • • • regularly reviews credit extended to customers with appropriate action being taken to minimise the cost of bad debts; balances risk and return when assessing where to place cash surplus to the Group’s immediate requirements; and keeps open options to employ debt finance to ensure that the Group has sufficient funds for continuing operations and planned expansions. Market risk The Group has interest-bearing assets which are subject to a variable rate of interest. Thus the Group is only exposed to fair value interest rate risk, which is not expected to have a significant impact on profit or loss or equity. Credit risk The Group has implemented policies that require appropriate credit checks on potential customers before sales are made. No credit limits were exceeded during the year, and management does not expect any losses from non- performance by these counterparties. Liquidity risk The Group keeps open avenues for securing debt finance to ensure that funds may be called upon if and when needed for operations and payments due in respect of acquisitions. The board monitors the Group’s liquidity position on the basis of expected cash flow on a regular basis. The following table analyses the Group’s financial liabilities, which will be settled on a net basis, into relevant maturity groupings, based on the remaining period to maturity at 31 March. The amounts disclosed are the contractual undiscounted cash flows: At 31 March 2014 Trade and other payables HP liabilities At 31 March 2013 Trade and other payables HP liabilities Capital risk Less than 1 year £ Between 1 & 2 yrs £ Between 2 & 5 yrs £ Over 5 yrs £ 1,134,645 6,498 – – 1,098,678 13,198 – 6,498 – – – – – – – – The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to shareholders. The Group defines capital as share capital plus reserves. The Group is not subject to any externally imposed capital requirements. The board monitors levels of cash and any excess levels have historically been used for acquisitions. Since 2008 the Group has run a share buy-back programme and paid additional exceptional dividends in September 2011 and 2012 to continue providing shareholder returns. 25 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 26 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated. They are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The directors are required to make estimates and judgements concerning the future. These estimates and judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The areas involving a higher degree of judgement or complexity and areas where assumptions are significant to the production of these financial statements are disclosed below. (a) Deferred consideration Note 13 provides details of liabilities of £80,000 and £250,000 included in current deferred consideration as at 31 March 2014 relating to the payments due on the second anniversary of the acquisition of QCS and B to B respectively. The sale and purchase agreements provide for the figure to be adjusted, pound for pound up or down, according to performance against the target. Although deferred consideration is reviewed on a regular basis and adjusted for the director’s best current estimates, the judgemental nature of these items means that future amounts settled may be different from those provided. (b) Impairment of goodwill An impairment of goodwill has the potential to significantly impact upon the Group’s statement of comprehensive income for the year. In order to determine whether impairments are required the directors estimate the recoverable amount of the goodwill. This calculation is based on the Group’s forecasts for the following financial year extrapolated over a six year period assuming a zero growth rate. In accordance with the provisions of IAS 36 the estimated disposal proceeds, should the business be sold at the end of year 6, are included in the recoverable amount. Estimated future results for impairment calculations are based on the directors expectations of future volumes and margins based on the business plan. Full details are disclosed in note 6. Critical judgements in applying the entity’s accounting policies Income as at 31 March 2014 has been valued in accordance with IAS 18 “Revenue” has been recognised in line with contract activity and reflects the accrual to consideration as the contract activity progresses. 26 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 27 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 3. SEGMENTAL REPORTING IFRS 8 requires that operating segments be identified on the basis of internal reporting and decision-making. PHSC plc’s operating segments are by subsidiary company as the directors and management team receive and make decisions based on monthly management accounts by subsidiary. A description of each subsidiary’s activities is included in the strategic report on pages 5 to 7. The following table shows the Group’s revenue and results for the year under review analysed by operating segment. Segment operating profit represents the trading profit after depreciation, but before tax and management charge. All revenue arose in the UK and all assets and liabilities are located in the UK. The Group’s key customer profile is given in note 7. PHSC plc PHSCL £’000 £’000 RSA £’000 ALS £’000 ISL £’000 QLM £’000 QCS B to B £’000 £’000 Total £’000 As at 31 March 2014 Total revenue (all external) Depreciation Subsidiary operating profit/(loss) Net interest Taxation Deferred taxation – 8 (431) – (1) (3) 750 11 327 – (36) 4 499 1 2,660 15 195 1 464 6 516 1 2,510 6 7,594 49 56 – (9) – 312 – (36) 2 6 – – – (4) – – (2) 161 – (35) – 257 (1) (63) (1) 684 (1) (180) – Consolidation adjustments: Taxation – group loss relief Taxation – deferred taxation Goodwill impairment Group profit for year As at 31 March 2013 Total revenue (all external) Depreciation – 6 Subsidiary operating profit/(loss) Taxation Deferred taxation (428) (4) – Consolidation adjustments: Goodwill impairment Group profit for year 14 5 (28) 494 765 11 300 (32) – 421 1 2,367 16 202 – 11 – – 367 (46) 1 7 – – 607 5 119 (17) – 335 1 1,094 5 5,791 45 98 (22) – 84 (19) 2 558 (140) 3 (39) 382 27 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 28 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 3. SEGMENTAL REPORTING – continued The table below shows assets and liabilities by subsidiary, exclusive of inter-company balances. PHSC plc PHSCL £’000 £’000 RSA £’000 ALS £’000 ISL £’000 QLM £’000 QCS B to B £’000 £’000 Total £’000 Year ended 31 March 2014 Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net operating assets Consolidation adjustments: Non-current assets Current liabilities Non-current liabilities i ii iii Net assets Year ended 31 March 2013 Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Net operating assets Consolidation adjustments: Non-current assets i Net assets 5,746 *(560) 5,186 *385 4 389 4,797 349 376 725 85 41 126 599 421 171 220 1,199 592 1,419 84 – 84 346 14 360 508 1,059 1 95 96 95 – 95 1 5,845 *(829) 5,016 *486 347 833 4,183 359 353 712 79 44 123 589 423 136 225 1,213 559 1,438 86 – 86 298 5 303 473 1,135 1 109 110 98 – 98 12 17 228 245 156 3 159 86 17 321 338 158 2 160 178 4 268 18 1,025 6,776 2,802 272 1,043 9,578 87 1 88 375 – 1,613 63 375 1,676 184 668 7,902 (1,471) 14 (5) 6,440 4 196 200 83 1 84 25 907 6,899 2,406 932 9,305 439 6 1,727 405 445 2,132 116 487 7,173 (1,546) 5,627 (i) Adjustment of goodwill on consolidation including goodwill amortisation write back under IFRS and goodwill impairment. (ii) Group relief of corporation tax losses. (iii) Deferred tax adjustment to property revaluation * PHSC plc company accounts reflects overdraft in current liabilities. In PHSC plc group accounts and segmental analysis, reflected as part of group facility shown under current assets. 28 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 29 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 4. AUDITOR REMUNERATION Audit Fees payable to the company’s auditor for the audit of the annual parent company and consolidated accounts Under/(over) accrual in previous years Fees payable to the company’s auditor for other services provided to the company and its subsidiaries: The audit of the company’s subsidiaries under legislative requirements Total audit Tax Tax compliance services Tax advisory services Total tax Total 31.3.14 £ 31.3.13 £ 4,100 5,486 21,900 31,486 8,600 4,300 12,900 44,386 3,165 (225) 16,900 19,840 8,790 4,300 13,090 32,930 29 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 30 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 5. PROPERTY, PLANT AND EQUIPMENT COST At 1 April 2012 Additions Disposals Acquisition of subsidiary Freehold Improvements to property property £ £ Fixtures and equipment £ Motor vehicles £ Totals £ 786,500 – (74,500) – 23,717 8,582 – – 304,639 16,789 – 6,035 23,919 – (39,300) 40,511 1,138,775 25,371 (113,800) 46,546 At 31 March 2013 712,000 32,299 327,463 25,130 1,096,892 Additions At 31 March 2014 DEPRECIATION At 1 April 2012 Charge for the year Disposals At 31 March 2013 Charge for year At 31 March 2014 NET BOOK VALUE At 31 March 2014 At 31 March 2013 At 1 April 2012 – – 30,933 – 30,933 712,000 32,299 358,396 25,130 1,127,825 100,212 14,250 (5,960) 16,788 2,398 – 230,074 23,692 – 22,122 4,832 (24,778) 369,196 45,172 (30,738) 108,502 19,186 253,766 2,176 383,630 14,240 2,398 26,157 122,742 21,584 279,923 5,738 7,914 48,533 432,163 589,258 603,498 686,288 10,715 13,113 6,929 78,473 73,697 74,565 17,216 695,662 22,954 713,262 1,797 769,579 Depreciation expenses of £48,533 (2013: £45,172) are included in administrative expenses in the statement of comprehensive income. Motor vehicles with a net book value to £11,856 (2013: £15,809) are subject to a finance lease. Lease rentals amounting to £132,999 (2013: £136,996), relating to the lease of buildings and motor vehicles are included in the statement of comprehensive income. 30 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 31 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 6. GOODWILL COST At 1 April 2012 Additions At 31 March 2013 and 31 March 2014 AMORTISATION At 1 April 2012 Impairment At 31 March 2013 Impairment At 31 March 2014 NET BOOK VALUE At 31 March 2014 At 31 March 2013 At 1 April 2012 Goodwill £ 3,620,731 1,361,202 4,981,933 305,469 39,387 344,856 27,871 372,727 4,609,206 4,637,077 3,315,262 Impairment Tests for Goodwill Goodwill is allocated to the Group’s cash-generating units, identified according to subsidiary. The following table shows a summary of the goodwill allocation by subsidiary: Personnel Health & Safety Consultants Limited and dormant subsidiaries RSA Environmental Health Limited Adamson’s Laboratory Services Limited Inspection Services (UK) Limited Quality Leisure Management Limited QCS International Limited B to B Links Limited At company level Total goodwill for Group 31.3.14 £ 594,952 581,482 1,234,127 205,207 582,844 417,638 943,564 4,559,814 49,392 31.3.13 £ 594,952 608,130 1,234,127 205,207 582,844 417,638 943,564 4,586,462 50,615 4,609,206 4,637,077 When considering impairment, the directors have taken the cash flow forecasts prepared for the year ended 31 March 2014 and have assumed that these will continue unchanged over a six-year horizon. A six year period has been used as the board uses this period to assess potential acquisitions. Adoption of a nil growth rate is deemed prudent in the current economic environment, though every avenue is being explored to develop each area of the Group’s business to achieve growth by organic means as well as through acquisitions. 31 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 32 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 6. GOODWILL – continued The cash flow projections: • • • are based on profits before tax and inter group management charges; allow for estimated disposal proceeds should the business be sold at the end of year six in accordance with the provisions of IAS36 based upon a multiple of EBITDA of 8.4, and; have been discounted using the Group’s weighted average cost of capital (WACC) which has been calculated to be 8.34%. The annual impairment review identified that the goodwill arising on the acquisition of RSA needed to be impaired. An impairment charge of £26,648 was made to the value of goodwill in the group financial statements. At company level, within RSA, a balance relating to goodwill of £1,223, inherited on acquisition of RSA by PHSC plc, was impaired to reduce its net book value to nil. The table below shows the amount by which each subsidiary’s recoverable amount exceeds its carrying value. An illustration is also provided of the extent to which the key assumptions regarding cash flow and WACC need to change before impairment would be necessary. Personnel Health & Safety Consultants Limited and dormant subsidiaries RSA Environmental Health Limited Adamson’s Laboratory Services Limited Inspection Services (UK) Limited Quality Leisure Management Limited QCS International Limited B to B Links Limited 7. TRADE AND OTHER RECEIVABLES Trade receivables Less provision for impairment of trade receivables Trade receivables – net Other debtors, prepayments and accrued income Total Annual cash flow at which impairment required £ Margin in carrying value £ WACC at which impairment required % 2,284,582 – 1,030,349 34,012 81,732 726,751 1,933,021 66,800 65,300 138,550 23,050 65,450 49,150 114,400 79 8 46 14 12 62 65 31.3.14 £ 31.3.13 £ 1,559,116 (24,416) 1,534,700 400,580 1,754,263 (9,641) 1,744,622 293,102 1,935,280 2,037,724 32 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 33 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 7. TRADE AND OTHER RECEIVABLES – continued The following entities within the Group received revenues from transactions with a single external customer which amounted to 10% or more of their turnover for the year ended 31 March 2014. Entity Adamson’s Laboratory Services Limited Adamson’s Laboratory Services Limited B to B Links Limited B to B Links Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited QCS International Limited Percentage of turnover derived from a single customer 19% 12% 57% 11% 13% 17% 11% There are no non-current receivables and no adjustment is required to result in a fair value. At 31 March 2014, there were £24,416 impaired trade receivables (2013: £9,641). The ageing of receivables over the Group’s normal credit terms is: Up to 3 months 3 – 6 months Over 6 months 31.3.14 £ 661,025 70,691 36,087 767,803 31.3.13 £ 422,784 132,620 67,096 622,500 £23,495 of the year end trade receivables over 6 months relates to a single debt against which a full provision has been made. Historically the Group has had a good record of collecting debts with few bad debts. Movements on the Group provision for impairment of trade receivables are as follows: At 1 April Provision for receivables impairment Receivables written off during the year as uncollectible At 31 March 31.3.14 £ 9,641 38,915 (24,140) 24,416 31.3.13 £ 9,128 4,217 (3,704) 9,641 The creation and release of the provision for impaired receivables is included in administrative expenses in the statement of comprehensive income. Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the year-end is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. 33 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 34 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 8. INVENTORIES Stocks 31.3.14 £ 31.3.13 £ 154,270 152,871 A total of £nil inventory was written down in the current year (2013: £nil). The value of inventory consumed and recognised as an expense was £1,176,755 (2013: £956,104). 9. CASH AND CASH EQUIVALENTS The cash balance for the purposes of the cash flow statement were as follows: Cash at bank and in hand 31.3.14 £ 31.3.13 £ 712,397 216,088 On 1 October 2008, PHSC plc entered into an unlimited multilateral guarantee with HSBC plc (see note 12). 10. CALLED UP SHARE CAPITAL Called up, allotted and fully paid At 1 April 2012 Shares issued Less: stamp duty on share issue At 31 March 2013 Shares issued At 31 March 2014 11. TRADE AND OTHER PAYABLES Trade payables Social security and other taxes Other payables Accruals and deferred income Total Number of shares Ordinary shares £ Share premium £ Total £ 10,381,973 224,380 – 10,606,353 2,080,000 1,038,196 22,438 – 1,060,634 208,000 1,497,409 70,300 (12,180) 2,535,605 92,738 (12,180) 1,555,529 275,665 2,616,163 483,665 12,686,353 1,268,634 1,831,194 3,099,828 31.3.14 £ 354,332 349,730 68,533 362,050 31.3.13 £ 364,187 372,343 62,719 299,429 1,134,645 1,098,678 34 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 35 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 12. FINANCIAL LIABILITIES Current Hire purchase agreements Non-current Hire purchase agreements 31.3.14 £ 31.3.13 £ 6,498 13,198 – 6,498 On 1 October 2008, PHSC plc entered into an unlimited multilateral guarantee with HSBC plc. Each company within the Group operates its own current account, the balance on which is allowed to fluctuate according to trading conditions. Interest is only charged on a net overdrawn balance as the Group has the right to offset overdrawn accounts with accounts in credit across the Group. During the year HSBC plc renewed the Group’s extended overdraft facility which is secured by a debenture including a fixed charge over all present freehold and leasehold property; first fixed charge over book and other debts, chattels, goodwill and uncalled capital, both present and future; and first floating charge over all assets and undertakings both present and future. 13. DEFERRED CONSIDERATION At 1 April 2012 New deferred consideration At 31 March 2013 Movement from non-current to current Paid in year At 31 March 2014 Current £ Non-current £ Total £ – 441,148 441,148 330,000 (441,148) 330,000 – 330,000 330,000 (330,000) – – 771,148 771,148 – (441,148) – 330,000 On the first anniversary of the purchase of QCS, £160,000 became due under the sale and purchase agreement. The actual payment reduced to £121,148 due to an adjustment, agreed with the vendor, to the net assets on completion. A final payment of £80,000 is due two years after completion, subject to adjustment up or down according to performance against targets. A payment of £320,000 fell due on the first anniversary of the purchase of B to B. A final cash payment of between £120,000 and £800,000 falls due on the second anniversary, subject to performance over the two years post completion. A provision of £250,000 has been made in the accounts as at 31 March 2014. 35 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 36 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 14. DEFERRED TAX Deferred tax asset At 1 April 2012 (Credited)/debited to income statement At 31 March 2012 Credited to income statement At 31 March 2014 Deferred tax liabilities At 1 April 2012 (Credited)/debited to income statement At 31 March 2013 (Credited)/debited to income statement At 31 March 2014 Provision revalued properties £ Accelerated capital allowances £ Other short term timing differences £ – – – – – – 1,161 1,161 (1,161) – 2,600 (1,019) 1,581 (1,528) 53 Provision revalued properties £ Accelerated capital allowances £ Intangible assets £ 58,025 (3,083) 54,942 (5,365) 10,441 (1,912) 8,529 4,554 49,577 13,083 4,533 624 5,157 – 5,157 Total £ 2,600 142 2,742 (2,689) 53 Total £ 72,999 (4,371) 68,628 (811) 67,817 Deferred tax has been provided on the revalued fixed assets at 21% (2013: 23%). At present it is not envisaged that any tax will become payable in the foreseeable future. 15. OTHER INCOME Rent received Miscellaneous income 16. EXPENSES BY NATURE Cost of sales Staff related costs Premises costs Professional fees Other expenses Total cost of sales and administrative expenses 31.3.14 £ 1,050 46 1,096 31.3.13 £ 5,550 132 5,682 31.3.14 £ 2,581,000 3,035,758 94,958 231,931 995,615 31.3.13 £ 1,359,189 2,736,440 86,655 189,800 906,442 6,939,262 5,278,526 36 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 37 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 17. EMPLOYEES Staff costs (including executive directors) Wages and salaries Social security costs Other pension costs The average monthly number of employees during the year was as follows: Directors Consultants Administrative Total 18. DIRECTORS’ REMUNERATION Directors of PHSC plc only Emoluments Pension contributions to money purchase schemes 31.3.14 £ 2,685,678 266,268 37,654 31.3.13 £ 2,418,753 241,976 34,717 2,989,600 2,695,446 31.3.14 31.3.13 10 45 29 84 10 46 29 85 31.3.14 £ 169,170 6,383 175,553 31.3.13 £ 162,959 6,477 169,436 The remuneration of the executive directors from all group companies was as follows: Year ended 31.3.14 Short term employee benefits Salary £ 65,825 62,050 Bonus £ 4,417 4,417 Benefits £ 1,909 6,552 Post employment benefits Pension £ 3,286 3,097 Total £ 75,437 76,116 Year ended 31.3.13 Total £ 72,383 75,053 S A King N C Coote Mr King’s benefits pertain to health insurance and Ms Coote’s to a company car and health insurance. The fees of the non-executive directors were as follows: M J L Miller G N Webb Year ended 31.3.14 £ 11,500 12,500 Year ended 31.3.13 £ 10,000 12,000 The executive directors are the key management personnel. During the year retirement benefits were accruing to 2 directors (2013: 2) in respect of defined contribution pension schemes. 37 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 38 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 19. FINANCE INCOME AND COSTS Finance income Interest received Interest expense Bank interest HP interest Net finance income 20. TAXATION Analysis of tax charge in year Current tax: UK corporation tax on profits in the year Adjustments in respect of previous year Total current tax Deferred tax on origination and reversal of timing differences (provided at 23 per cent.) Taxation Factors affecting tax charge for year 31.3.14 £ 31.3.13 £ 259 2,163 – 1,524 1,524 1,265 87 763 850 1,313 31.3.14 £ 31.3.13 £ 157,469 6,791 164,260 139,666 466 140,132 (3,489) (2,655) 160,771 137,477 The tax assessed for the year is higher (2013: higher) than the standard rate of corporation tax in the UK of 20% (2013: 20%). The differences are explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 20/23% (2013: 20/24%) Effects of: Expenses not deductible for tax purposes Other permanent differences Group relief claimed before payment Marginal relief Adjustments in respect of prior periods Effect of tax rate change on opening balance Effect property revaluation Deferred tax movement re tangible assets not recognised Effect of change in deferred tax rate Current tax charge 31.3.14 £ 31.3.13 £ 654,850 519,828 152,119 124,759 8,816 3,497 (1,877) (1,836) 11,593 (1,016) (5,160) (5,365) – 14,888 – – (2,107) 466 – – 258 (787) 160,771 137,477 38 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 39 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 21. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the year. Profit attributable to equity holders of the Group (£) Weighted average number of ordinary shares in issue Basic earnings per share (pence per share) There are no dilutive shares, options or warrants in issue. 22. DIVIDENDS 31.3.14 31.3.13 494,079 11,643,504 382,351 10,508,681 4.24p 3.64p The dividends paid in respect of the years ended 31 March 2013 and 2012 were £209,223 and £159,095 respectively. For the year ended 31 March 2012 the dividend was 1.0p per ordinary share plus an additional dividend of 1.0p per share and for the year ended 31 March 2013, the dividend was 1.5p per ordinary share. A dividend in respect of the year ended 31 March 2014 of 1.5p per ordinary share amounting to a total dividend of £190,295 is to be proposed at the annual general meeting on 9 September 2013. These financial statements do not reflect this dividend payable. 23. COMMITMENTS Operating lease commitments The Group leases various offices under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The Group also leases various motor vehicles under cancellable operating lease agreements. The lease expenditure is charged to the statement of comprehensive income during the year. The minimum lease payments to which the Group is committed under non-cancellable operating leases are: 31.3.14 31.3.13 Land and buildings £ 17,492 30,663 Motor vehicles £ 76,362 60,055 Land and buildings £ 25,492 11,988 Motor vehicles £ 69,499 77,565 48,155 136,417 37,480 147,064 Within one year Between two and five years Total The Group had no capital commitments at the year end. 24. RELATED PARTY DISCLOSURES A management charge is levied by PHSC plc to its subsidiary companies to reflect the central services it provides. The charges were as follows Adamson’s Laboratory Services Limited B to B Links Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited QCS International Limited Quality Leisure Management Limited RSA Environmental Health Limited Total 39 31.3.14 £ 164,640 12,000 6,000 180,000 10,800 48,000 12,000 433,440 31.3.13 £ 186,000 6,000 6,000 174,000 7,200 48,000 12,000 439,200 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 40 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 24. RELATED PARTY DISCLOSURES – continued The inter-company balances between PHSC plc and its subsidiary companies at the year end are summarised below: Amounts owed by group undertakings: Adamson’s Laboratory Services Limited B to B Links Limited In House the Hygiene Company Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited Amounts owed to group undertakings: Personnel Health & Safety Consultants Limited QCS International Limited RSA Environmental Health Limited PHSC plc dividends were paid to directors as follows: S A King N C Coote G N Webb MBE Total 25. ULTIMATE CONTROLLING PARTY 31.3.14 £ 31.3.13 £ 50,289 3,698 469,304 209 1,066 524,566 – – 414 414 46,546 46,265 300 93,111 33,500 3,600 469,304 – – 506,404 544 1,025 – 1,569 57,932 57,759 374 116,065 PHSC plc, incorporated in England and Wales, is the ultimate parent company of the Group. There is no ultimate controlling party, but Mr S A King, Group Chief Executive, holds 25.25% (2013: 29.26%) of the issued share capital of PHSC plc. 40 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 41 Company number: 4121793 PHSC plc COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 41 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 42 P H S C p l c Registered number: 4121793 STATEMENT OF FINANCIAL POSITION as at 31 March 2014 Non-Current Assets Goodwill Property, plant and equipment Investments Current Assets Trade and other receivables Cash and cash equivalents Total Assets Current Liabilities Trade and other payables Financial liabilities Current corporation tax Deferred consideration Non-Current Liabilities Deferred consideration Deferred taxation Total Liabilities Net Assets Capital and reserves attributable to equity holders of the Group Called up share capital Share premium account Capital redemption reserve Retained earnings Note 31.3.14 £ 31.3.13 As restated £ 9 10 11 12 13 14 15 15 16 17 29,230 123,572 5,593,394 29,230 121,868 5,593,394 5,746,196 5,744,492 546,997 – 546,997 521,294 – 521,294 6,293,193 6,265,786 54,823 583,299 588 330,000 968,710 – 3,711 3,711 48,479 844,484 3,936 441,148 1,338,047 330,000 – 330,000 972,421 1,668,047 5,320,772 4,597,739 1,268,634 1,831,194 143,628 2,077,316 1,060,634 1,555,529 143,628 1,837,948 5,320,772 4,597,739 Approved and authorised for issue by the Board on 31 July 2014 and signed on its behalf by: S A King Director 42 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 43 P H S C p l c STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2014 Share Capital £ Share Premium £ Capital Redemption Reserve £ Retained Earnings £ Total £ Balance at 1 April 2012 1,038,196 1,497,409 143,628 2,141,801 4,821,034 Loss for year attributable to equity holders Issue of shares Stamp duty on issue of shares Dividends – 22,438 – – – 70,300 (12,180) – – – – – (94,630) – – (209,223) (94,630) 92,738 (12,180) (209,223) Balance at 31 March 2013 1,060,634 1,555,529 143,628 1,837,948 4,597,739 Balance at 1 April 2013 1,060,634 1,555,529 143,628 1,837,948 4,597,739 Loss for year attributable to equity holders Issue of shares Dividend paid Dividends received – 208,000 – – – 275,665 – – – – – – (1,537) – (159,095) 400,000 (1,537) 483,665 (159,095) 400,000 Balance at 31 March 2014 1,268,634 1,831,194 143,628 2,077,316 5,320,772 43 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 44 P H S C p l c COMPANY STATEMENT OF CASH FLOWS for the year ended 31 March 2014 Cash flows (used by)/from operating activities: Cash generated (used by)/from operations Tax paid Net cash (used by)/generated from operating activities Cash flows used in investing activities Purchase of subsidiary companies (net of cash acquired) Purchase of property, plant and equipment Proceeds from sale of property Net cash used in investing activities Cash flows from/(used in) financing activities Interest received Interest paid Proceeds from placement of shares Dividends from subsidiary companies Dividends paid to Group shareholders Net cash from/(used in) financing activities Net increase/(decrease) in financial liabilities Cash and cash equivalents at beginning of year Financial liabilities at end of year Note I 31.3.14 £ 31.3.13 £ (8,766) (3,988) (12,754) 117,686 (2,235) 115,451 (441,148) (9,599) – (450,747) (982,620) (12,086) 74,000 (920,706) 150 (34) 483,665 400,000 (159,095) 724,686 2,009 (87) – – (209,223) (207,301) 261,185 (844,484) (1,012,556) 168,072 (583,299) (844,484) NOTES TO THE COMPANY STATEMENT OF CASH FLOWS for the year ended 31 March 2014 I. CASH (USED BY)/GENERATED FROM OPERATIONS Profit before taxation and interest Depreciation charge Impairment of investment Profit on sale of fixed asset (Increase)/decrease in trade and other receivables Increase in trade and other payables Cash (used by)/generated from operations 44 31.3.14 £ 31.3.13 £ 2,698 7,895 – – (25,703) 6,344 (8,766) (92,161) 5,724 102,431 (5,460) 103,143 4,009 117,686 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 45 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2014 1. BASIS OF PREPARATION The company’s financial statements have been prepared in accordance with IFRSs, as adopted by the European Union, International Financial Reporting Intermediate Committee (IFRIC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The financial statements have been prepared under the historical cost convention except as noted below. The accounting basis has changed from the previous year when the financial statements were prepared under applicable United Kingdom Generally Accepted Accounting Principles (UK GAAP). The comparative information has been restated in accordance with IFRS and the changes to accounting policies are explained in note 22 together with the reconciliation of opening balances. The date of transition to IFRS is 1 April 2012. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 20. The company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent company profit and loss account. The loss for the year before dividends received from subsidiaries (2014: £400,000: (2013: £nil)) was £1,537 (2013: £96,917). There were no recognised gains and losses for 2014 or 2013 other than those included in the company profit and loss account. The financial statements have been prepared on a going concern basis. The company made a loss of £1,537 (2013: loss £94,630) for the year ended 31 March 2014 and had net current assets of £5,320,772 at the balance sheet date (2013: £4,597,739). Accounting standards require the directors to consider the appropriateness of the going concern basis when preparing the financial statements. The directors confirm that they consider that the going concern basis remains appropriate. The directors have taken notice of the Financial Reporting Council guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ which requires the reasons for this decision to be explained. The directors regard the going concern basis as remaining appropriate as the company has adequate resources to continue in operational existence for the foreseeable future based upon forecasts. Further details are provided in the directors’ report. At the date of authorisation of these financial statements, the following standards and interpretations which have not yet been applied in these financial statements were in issue, but not yet effective (and in some cases had not yet been adopted by the EU). IFRS standards and interpretations issued (and EU adopted) but not yet effective Title IAS 27 Separate financial statements IAS 28 Investments in associates and joint ventures IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosure of interests in other entities IFRS 13 Fair value measurement IFRIC 20 Stripping costs in the production phase of a surface mine Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) Investment entities (amendments to IFRS 10, IFRS 12 and IAS 27) IAS 36 Amendments recoverable amount disclosures for non-financial assets IFRIC 21 Levies * these MAY be adopted for 2013 and MUST be for 2014 45 Effective date, accounting period beginning on or after 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2013* 01/01/2014 01/01/2014 01/01/2014 01/01/2014 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 46 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 1. BASIS OF PREPARATION – continued IFRS standards and interpretations issued by IASB but not yet EU approved Title Effective date, accounting period beginning on or after IFRS 9 Financial instruments IAS 16 & IAS38 Amendments: clarification of acceptable methods of depreciation and amortisation IAS 19 Amendment – defined benefit plans: employee contributions IAS 16 and IAS 41 Amendments: agriculture: bearer plants IFRS 14 Regulatory deferral accounts IAS 16 and IAS 38 Amendments: clarification of acceptable methods of depreciation and amortisation IFRS 11 Amendments: accounting for acquisitions of interests in joint operations IFRS 15 Revenue from contracts with customers unknown 01/07/2014 01/01/2016 01/01/2016 01/01/2016 01/01/2016 01/01/2017 01/07/2014 The adoption of these standards, amendments and interpretations is not expected to have a material impact on the company’s profit for the period or equity. The adoptions may affect disclosures in the company’s financial statements. 2. ACCOUNTING POLICIES Revenue Management charge income is recognised when the service the company has provided is fulfilled. Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The directors regard the operations of the company as being one business segment. Further analysis of revenue is disclosed in note 3. Pensions The company operates a defined contribution pension scheme. Contributions payable for the year are charged to the income statement. Property, plant and equipment Property, plant and equipment are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of non-current assets, less their estimated residual value, over their expected useful lives on the following bases: Freehold buildings Improvements to property Fixtures and equipment – – – 2% straight line on cost shorter of the lease term and 10% straight line on cost 25% reducing balance 46 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 47 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 2. ACCOUNTING POLICIES – continued Intangible assets Goodwill represents the amount paid in connection with the acquisition of a business and represents the excess of the cost of acquisition over the net asset values of the interests acquired. Such goodwill is capitalised as an intangible asset and is stated at cost less accumulated amortisation and impairment losses. Investments Investments in subsidiary undertakings are stated at cost less amounts provided for any impairment in value. An impairment review is carried out at the end of each year. Where the consideration for the acquisition of shares in a subsidiary undertaking is satisfied by the issue of equity shares and the provisions of Section 612 of the Companies Act 2006 apply, cost is taken as the nominal value of the shares issued together with the fair value of any other consideration given. Impairment of tangible and intangible assets For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from the business combination on which the goodwill arose, and represent the lowest level within the Group at which management monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwill, other intangible assets with an indefinite useful life, and those intangible assets not yet available for use, are tested for impairment at least annually. All intangible assets and property, plant and equipment with a finite life are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment losses are charged to administrative expenses. Taxation Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. Provisions These are recognised when the company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. The proceeds of share issues, received net of any directly attributable transactions costs are credited to share capital at nominal value and the excess credited to the share premium account. 47 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 48 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 2. ACCOUNTING POLICIES – continued Share capital – continued The capital redemption reserve arose when the company repurchased some of its own shares. At that point the nominal value of those shares was transferred to the capital redemption reserve. Dividends Dividends received from subsidiary companies are recognised at the point that the right to receive the dividend has been established. 3. REVENUE The revenue of the company during the year was generated in the United Kingdom and derives from the management charge levied to the subsidiary companies. 4. PROFIT BEFORE TAXATION The profit before taxation is stated after charging: Depreciation – owned assets 5. DIRECTORS’ REMUNERATION Full details are given on page 37 of the group accounts. 6. STAFF COSTS The average monthly number of employees during the year was as follows: Directors Administration The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs The directors are considered to be key management personnel of the company. 7. AUDITOR’S REMUNERATION Full details are given on page 29 of the group accounts. 31.3.14 £ 7,895 31.3.13 £ 5,724 31.3.14 £ 31.3.13 £ 4 3 7 4 3 7 243,230 24,534 8,141 275,905 232,748 23,853 8,046 264,647 48 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 49 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 8. FINANCE INCOME AND COSTS Finance income Interest received Interest expense Bank interest Net finance income 9. GOODWILL COST At 1 April 2013 and 31 March 2014 AMORTISATION At 1 April 2013 and 31 March 2014 NET BOOK VALUE At 31 March 2014 and 31 March 2013 31.3.14 £ 31.3.13 £ 150 2,009 (34) 116 (87) 1,922 Goodwill As restated £ 45,739 16,509 29,230 When considering impairment, the directors have taken the cash flow forecasts prepared for the year ended 31 March 2014 and have assumed that these will continue unchanged over a six-year horizon. A six year period has been used as the board of the holding company, PHSC plc uses this period to assess potential acquisitions. Adoption of a nil growth rate is deemed prudent in the current economic environment, though every avenue is being explored to develop each area of the company’s business to achieve growth. Goodwill 10. TANGIBLE FIXED ASSETS COST OR VALUATION At 1 April 2013 Additions At 31 March 2014 DEPRECIATION At 1 April 2013 Charge for the year At 31 March 2014 NET BOOK VALUE At 31 March 2014 At 31 March 2013 Annual cash flow at which impairment is required £ Margin in carrying value £ WACC at which impairment is required % – 3,300 8.35 Freehold improvements £ Plant and equipment £ Totals £ 23,978 – 23,978 10,868 2,398 13,266 10,712 13,110 3,504 9,599 149,482 9,599 13,103 159,081 876 3,057 3,933 9,170 2,628 27,614 7,895 35,509 123,572 121,868 Freehold land and buildings £ 122,000 – 122,000 15,870 2,440 18,310 103,690 106,130 49 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 50 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 11. INVESTMENT IN SUBSIDIARY UNDERTAKINGS Investment in shares of subsidiary undertakings At 1 April Additions Write down of investment At 31 March 31.3.14 £ 5,593,394 – – 31.3.13 £ 3,861,500 1,834,325 (102,431) 5,593,394 5,593,394 Investments in subsidiary undertakings are stated at cost and include the following: Name of Company Personnel Health & Safety Consultants Limited Safetymark Certification Services Limited RSA Environmental Health Limited Adamson’s Laboratory Services Limited Envex Company Limited In House The Hygiene Management Company Limited Inspection Services (UK) Limited Quality Leisure Management Limited QCS International Limited (*) QCS Holdings Limited B to B Links Limited (*) Held indirectly 12. TRADE AND OTHER RECEIVABLES Amount owed by subsidiary undertakings Other receivables, prepayments and accrued income 13. TRADE AND OTHER PAYABLES Trade payables Amount owed to subsidiary undertakings Social security and other taxes Other payables Accruals and deferred income Country of registration Proportion of voting rights held Nature of business England England England England England England England England Scotland England England 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Health and safety Dormant Health and safety Health and safety Dormant Dormant Health and safety Health and safety Health and safety Dormant Retail security 31.3.14 £ 524,566 22,431 546,997 31.3.14 £ 500 414 24,724 7,505 21,680 54,823 31.3.13 £ 506,404 14,890 521,294 31.3.13 £ 84 1,569 23,908 3,680 19,238 48,479 50 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 51 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 14. FINANCIAL LIABILITIES Current Bank overdraft 31.3.14 £ 31.3.13 £ 583,299 844,484 On 1 October 2008, PHSC plc entered into an unlimited multilateral guarantee with HSBC plc. Each company within the Group operates its own current account, the balance on which is allowed to fluctuate according to trading conditions. Interest is only charged on a net overdrawn balance as the Group has the right to offset overdrawn accounts with accounts in credit across the Group. During the year HSBC plc renewed the Group’s extended overdraft facility which is secured by a debenture including a fixed charge over all present freehold and leasehold property; first fixed charge over book and other debts, chattels, goodwill and uncalled capital, both present and future; and first floating charge over all assets and undertakings both present and future. On 31 March 2014, PHSC plc’s company balance was £583,299 overdrawn (2013: £844,484) within the Group’s cash at bank and in hand figure of £712,397 (2013: £216,088). The overdraft facility is reviewed subject to requirement. 15. DEFERRED CONSIDERATION At 1 April 2012 New deferred consideration At 31 March 2013 Movement from non-current to current Paid in year At 31 March 2014 Current £ Non-current £ Total £ – 441,148 441,148 330,000 (441,148) 330,000 – 330,000 330,000 (330,000) – – 771,148 771,148 – (441,148) – 330,000 On the first anniversary of the purchase of QCS, £160,000 became due under the sale and purchase agreement. The actual payment was reduced to £121,148 due to an adjustment, agreed with the vendor, to the net assets on completion. A final payment of £80,000 is due two years after completion, subject to adjustment up or down according to performance against targets. A payment of £320,000 fell due on the first anniversary of the purchase of B to B. A final cash payment of between £120,000 and £800,000 falls due on the second anniversary, subject to performance over the two years post completion. A provision of £250,000 (estimate as at 31 March 2013: £250,000) has been made in the accounts based on performance to date. 16. DEFERRED TAXATION Deferred taxation At 1 April 2013 Deferred tax credit in year At 31 March 2014 31.3.14 £ 3,711 31.3.13 £ – Deferred tax £ Deferred tax £ – 3,711 3,711 – – – 51 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 52 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 17. SHARE CAPITAL Called up, allotted and fully paid At 1 April 2012 Shares issued Less: stamp duty on share issue At 31 March 2013 Shares issued At 31 March 2014 Number of shares Ordinary shares £ Share premium £ Total £ 10,381,973 224,380 – 10,606,353 2,080,000 1,038,196 22,438 – 1,060,634 208,000 1,497,409 70,300 (12,180) 2,535,605 92,738 (12,180) 1,555,529 275,665 2,616,163 483,665 12,686,353 1,268,634 1,831,194 3,099,828 During the year 2,080,000 shares with a nominal value of 10p per share were issued for an average consideration of 25p per share. 18. RELATED PARTY DISCLOSURES A management charge is levied by PHSC plc to its subsidiary companies to reflect the central services it provides. Management charge from PHSC plc to subsidiary companies 31.3.14 £ 31.3.13 £ 433,440 439,200 The inter-company balances between PHSC plc and the other companies within the PHSC plc group are summarised below. 31.3.14 £ 31.3.13 £ Amounts owed by group undertakings Adamson’s Laboratory Services Limited B to B Links Limited In House the Hygiene Company Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited Amounts owed to group undertakings Personnel Health & Safety Consultants Limited QCS International Limited RSA Environmental Health PHSC plc dividends received from subsidiaries as follows: Adamson’s Laboratory Services Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited QCS International Limited Quality Leisure Management Limited PHSC plc dividends were paid to directors as follows: S A King N C Coote G N Webb MBE 52 50,289 3,698 469,304 209 1,066 524,566 – – 414 414 200,000 10,000 100,000 50,000 40,000 400,000 46,546 46,265 300 93,111 33,500 3,600 469,304 – – 506,404 544 1,025 – 1,569 – – – – – – 57,932 57,759 374 116,065 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 53 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 19. FINANCIAL INSTRUMENTS The company’s principal financial instruments comprise cash, short terms borrowings and items such as trade payables that arise directly from operations. The main purpose of these financial instruments is the funding of the company’s trading activities. The main risk arising from the company’s financial instruments is liquidity risk. The company seeks to manage this risk by ensuring sufficient liquidity is available from current banking facilities to meet foreseeable needs and to invest cash assets safely and profitably. This policy has remained unchanged from previous periods. The source currency of the assets and liabilities of the company are held in sterling and all transactions are in sterling. The company is not therefore exposed to currency risk. The fair values of the company’s financial instruments are considered not to be materially different to their book value. 20. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The company may be required to make estimates and assumptions concerning the future. These estimates and judgements are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The principal areas where judgement was exercised are as follows: Property, plant and equipment The directors annually assess both the residual value of these assets and the expected useful life of such assets which is currently judged to be up to 4 years, based on experience. Deferred consideration Note 15 provides details of deferred consideration of £80,000 and £250,000 as at 31 March 2014 relating to the payments due on the second anniversary of the acquisition of QCS and B to B respectively. The sale and purchase agreements provide for the figure to be adjusted, pound for pound up or down, according to performance against the target. Although deferred consideration is reviewed on a regular basis and adjusted for the director’s best current estimates, the judgemental nature of these items means that future amounts settled may be different from those provided. Impairment of investments An impairment of investments has the potential to significantly impact upon the company’s profit for the year. In order to determine whether impairments are required the directors estimate the recoverable amount of the investment. This calculation is based on cash flow forecasts for the following financial year extrapolated over a six year period assuming a zero growth rate. In accordance with the provisions of IAS 36 the estimated disposal proceeds, should the business be sold at the end of year 6, are included in the recoverable amount. Estimated future results for impairment calculations are based on the directors expectations of future volumes and margins based on the business plan. When considering impairment, the directors have taken the cash flow forecasts prepared for the year ended 31 March 2014 and have assumed that these will continue unchanged over a six-year horizon. A six year period has been used as the board uses this period to assess potential acquisitions. Adoption of a nil growth rate is deemed prudent in the current economic environment, though every avenue is being explored to develop each area of the Group’s business to achieve growth by organic means as well as through acquisitions. The cash flow projections: • • • are based on profits before tax and inter group management charges; allow for estimated disposal proceeds should the business be sold at the end of year six in accordance with the provisions of IAS 36 based upon a multiple of EBITDA of 8.4; and have been discounted using the Group’s weighted average cost of capital (WACC) which has been calculated to be 8.34%. 53 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 54 P H S C p l c NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2014 21. PARENT UNDERTAKING PHSC plc, incorporated in the UK, is the ultimate parent company of the group. There is no ultimate controlling party but Mr S A King, Group Chief Executive, owns 25.25% (2013: 29.26%) of the issued share capital of PHSC plc. The parent company operates within the UK and its accounts may be obtained from the same registered office address as noted on page 1 of the group accounts. 22. EXPLANATION OF THE TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS As stated in the accounting policies, these are the first annual financial statements prepared in accordance with IFRS. The following differences were noted between the treatment under UK GAAP and IFRS: Non-Current Assets Goodwill Property, plant and equipment Investments Current Assets Trade and other receivables Cash and cash equivalents On transition to IFRS 1.4.12 £ Under UK GAAP 31.3.13 £ IFRS adjustments £ As restated under IFRS 31.3.13 £ 29,230 184,047 3,861,500 26,943 121,868 5,593,394 2,287 – – 29,230 121,868 5,593,394 4,074,777 5,742,205 2,287 5,744,492 624,436 168,072 521,294 – 792,508 521,294 – – – 521,294 – 521,294 Total Assets 4,867,285 6,263,499 2,287 6,265,786 Current Liabilities Trade and other payables Financial liabilities Current corporation tax Deferred consideration Non-Current Liabilities Deferred consideration Deferred taxation Total Liabilities Net Assets 46,251 – – – 48,479 844,484 3,936 441,148 46,251 1,338,047 – – – 330,000 – 330,000 46,251 1,668,047 – – – – – – – – – 48,479 844,484 3,936 441,148 1,338,047 330,000 – 330,000 1,668,047 4,821,034 4,595,452 2,287 4,597,739 Under UK GAAP amortisation of 5% (£2,287) per annum was applied to goodwill at cost. Under IFRS, the directors review goodwill for impairment on an annual basis and a charge is only raised if the directors deem that the recoverable amount of the goodwill is lower than its net book value. The impact was to increase reported profit in 2013 by £2,287. 54 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 55 P H S C p l c NOTICE OF ANNUAL GENERAL MEETING Notice is given that the Annual General Meeting of PHSC plc will be held at 10.00am on Monday 8 September 2014 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR to consider the following resolutions of which resolutions 1 to 6 will be proposed as ordinary resolutions and resolution 7 will be proposed as a special resolution. 1. To receive the annual report and audited accounts for the year ended 31 March 2014. 2 3 4 5. 6. 7. To declare a final dividend of 1.5p per ordinary share. To re-elect Mr Michael J L Miller as a director. To re-elect Mr Graham N Webb MBE as a director. To reappoint Crowe Clark Whitehill LLP as auditor to the company to hold office until the conclusion of the next general meeting at which accounts are laid before the members and to authorise the directors to determine their remuneration. THAT, in substitution for any existing such authority, the directors be generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the company to allot relevant securities (within the meaning of the said section 551) up to a total nominal amount of £418,649 during the period commencing on the date of the passing of this resolution and expiring at the conclusion of the annual general meeting in 2015 or on 30 September 2015, whichever is earlier, but so that the authority shall allow the company to make before the expiry of this authority offers or agreements which would or might require relevant securities to be allotted after such expiry and notwithstanding such expiry the directors may allot relevant securities under such offers or agreements THAT, subject to and conditional upon the passing as an ordinary resolution of resolution number 6 set out in the notice of this meeting the directors be empowered under section 570 of the Companies Act 2006 (the “Act”) to allot equity securities (as defined in section 560 of the Act) for cash; under the authority conferred by resolution 6 above as if section 561(1) of the Act did not apply to any such allotment, provided that this power shall be limited to: (a) the allotment of equity securities in connection with a rights issue, open offer or other offer of securities in favour of the holders of ordinary shares on the register of members at such record date(s) as the directors may determine where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them on any such record date(s), subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements or legal or practical problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatever; and (b) the allotment (otherwise than under sub-paragraph (a) above) to any person or persons of equity securities up to an aggregate nominal amount of £253,726 such power to expire at the conclusion of the annual general meeting of the company in 2015 or, if earlier, on 30 September 2015, unless such power is varied, revoked or renewed prior to such time by the company in general meeting by special resolution; except that the company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and notwithstanding such expiry the directors may allot equity securities under such offers or agreements. By order of the board L E Young Secretary 5 August 2014 Registered Office: The Old Church 31 Rochester Road Aylesford Kent ME20 7PR 55 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:20 Page 56 P H S C p l c NOTICE OF ANNUAL GENERAL MEETING (continued) Right to attend, speak and vote Notes 1. If you want to attend, speak and vote at the AGM you must be on the company’s register of members at 6.00pm on 4 September 2014. This will allow us to confirm how many votes you have on a poll. Changes to the entries in the register of members after that time, or, if the AGM is adjourned, 48 hours before the time of any adjourned meeting, shall be disregarded in determining the rights of any person to attend, speak or vote at the AGM. 2. If you are a member of the company you may appoint one or more proxies to exercise all or any of your rights to attend, speak and vote at the meeting. You may only appoint a proxy using the procedures set out in these notes and in the notes on the proxy form, which you should have received with this notice of meeting. Appointment of proxies A proxy does not need to be a member of the company but must attend the meeting to represent you. Details of how to appoint the Chairman of the meeting or another person as your proxy using the proxy form are set out in the notes on the form. If you wish your proxy to speak on your behalf at the meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. Appointment of proxy using hard copy proxy form You may appoint more than one proxy in relation to the AGM provided that each proxy is appointed to exercise the rights attached to a different share or shares which you hold. If you wish to appoint more than one proxy you may photocopy the proxy form or alternatively you may contact the company secretary. 3. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If you do not indicate on the proxy form how your proxy should vote, they will vote or abstain from voting at their discretion. They will also vote (or abstain from voting) at they think fit in relation to any other matter which is put before the meeting. To appoint a proxy using the proxy form, the form must be completed and signed and received by the company secretary at Freepost, RTCU-SSLT-AXUX, 190 High Street, Tonbridge, Kent TN9 1BE no later than 48 hours (excluding non-working days) before the meeting. Any proxy forms (including any amended proxy appointments) received after the deadline will be disregarded. The completed form may be returned by any of the following methods: • • • Sending or delivering it to Freepost, RTCU-SSLT-AXUX, 190 High Street, Tonbridge, Kent TN9 1BER Sending it by fax to 01732 353056 Scanning it and sending it by email to proxies@lorraineyoung.co.uk Changing your instructions Appointment of proxy by joint members If the shareholder is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer or attorney. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. 4. In the case of joint holders, where more than one joint holder purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the company’s register of members in respect of the joint holding (the first-named being the most senior). 5. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. The amended instructions must be received by the registrars by the same cut-off time noted above. Where you have appointed a proxy using a hard copy proxy form and would like to change the instructions using another hard copy proxy form, please contact the company secretary on 01732 366561. If you submit more than one valid proxy form, the one received last before the latest time for the receipt of proxies will take precedence. 6. In order to revoke a proxy instruction you will need to inform the company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to the Company, Freepost RTCU-SSLT-AXUX, 190 High Street, Tonbridge, Kent TN9 1BE. Alternatively you may send the notice by fax to 01732 353056. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer or attorney. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice. Termination of proxy appointments Communications with the Company In either case, your revocation notice must be received by the company no later than 48 hours (excluding non-working days) before the meeting. If your revocation is received after the deadline, your proxy appointment will remain valid. However, the appointment of a proxy does not prevent you from attending the meeting and voting in person. If you have appointed a proxy and attend the meeting in person, your proxy appointment will automatically be terminated. 7. Except as provided above, members who have general queries about the meeting should telephone the company secretary on 01732 366561 (no other methods of communication will be accepted). You may not use any electronic address provided either in this notice of general meeting; or any related documents (including the Chairman's letter and proxy form), to communicate with the company for any purposes other than those expressly stated. 8. As at 5.00pm on the day immediately prior to the date of posting of this notice of meeting, the company’s issued share capital comprised 12,686,348 ordinary shares of 10p each. Each ordinary share carries the right to one vote at a general meeting of the company and, therefore, the total number of voting rights in the company at that time was 12,686,348. Issued shares and total voting rights 56 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:21 Page 57 P H S C p l c P H S C p l c Proxy form for use by holders of ordinary shares in PHSC plc at the Annual General Meeting (AGM) to be held on Monday 8 September 2014 Please read carefully the notice of meeting, the accompanying notes and the explanation of the business to be transacted at the AGM (contained in the directors’ report) before completing this form. As a member of PHSC plc you have the right to attend, speak at and vote at the AGM. If you cannot or do not wish to attend the AGM but still want to vote you can appoint someone to attend the AGM and vote on your behalf. That person is known as a “proxy”. You can use the proxy form to appoint the Chairman of the meeting or someone else, as your proxy. Your proxy does not have to be a member of the company. I/We .......................................................................................................... (FULL NAME IN BLOCK CAPITALS) being a member(s) of PHSC plc, appoint the Chairman of the meeting or .................................................................... (see note 1) as my/our proxy to attend and, on a poll, to vote for me/us and on my/our behalf as indicated below at the AGM and at any adjournment (see notes 2, 3 and 4). Please clearly mark the boxes below to instruct your proxy how to vote. RESOLUTIONS FOR AGAINST VOTE WITHHELD AT DISCRETION 1. To receive the report and accounts 2. To declare a final dividend 3. To re-elect M J Miller as a director 4. To re-elect G N Webb MBE as a director 5. To reappoint the auditors and authorise the directors to set their fees 6. To authorise the directors to allot shares 7. To disapply pre-emption rights Signature(s) ............................................................................ (see note 5) Date ......................................... Notes 1. If you wish to appoint as a proxy someone other than the Chairman of the meeting, please delete the words “The Chairman of the meeting” and insert the name of the other person (who need not be a member of the company). All alterations made to the proxy form must be initialled by the signatory. 2. The completion and return of the proxy form will not prevent you from attending the AGM and voting in person should you subsequently decide to do so. (cid:0) 3. If you wish your proxy to cast all of your votes for or against a resolution you should insert an “X” in the appropriate box. If you wish your proxy to cast only some votes for and some against insert the relevant number of shares in the appropriate box. In the absence of instructions your proxy may vote or abstain from voting as they think fit on the specified resolutions, and, unless instructed otherwise, may also vote or abstain from voting as they think fit on any other business (including on a resolution to amend a resolution, to propose a new resolution or to adjourn the meeting) which may properly come before the meeting. 4. The “Vote Withheld” option is provided so that you can instruct your proxy to abstain from voting on a particular resolution. A “Vote Withheld” is not a vote in law and will not be counted in the calculation of the proportion of the votes “for” or “against” a resolution. The “At Discretion” option is provided so that you can give discretion to your proxy to vote or abstain from voting on a particular resolution as they think fit. 5. The proxy form must be signed by the shareholder or their attorney. Where the shareholder is a corporation the signature must be under seal or that of a duly authorised representative. In the case of joint holders, any one may sign the form. The vote of the senior joint holder (whether in person or by proxy) will be taken to the exclusion of all others, seniority being determined by the order in which the names appear in the register of members for the joint shareholding. 6. To be valid, this proxy form and any power of attorney or other authority under which it is signed or a certified copy of such authority, must be deposited with the Company Secretary, Freepost RTCU-SSLT-AXUX, 190 High Street, Tonbridge, Kent, TN9 1BE, no later than 48 hours (excluding non-working days) before the time of the AGM or any adjournment. 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:21 Page 58 P H S C p l c 58 58 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:21 Page 59 P H S C p l c 59 19246.01 PHSC Annual Report P16-60_19246.01 PHSC Annual Report 16-60 31/07/2014 18:21 Page 60 P H S C p l c 60
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