PHSC Plc
Annual Report 2019

Plain-text annual report

40344 U PHSC Annual Report 2018_Cover.qxp_40344 U PHSC Annual Report 2019 01/08/2019 15:33 Page 1 Annual Report 2019 B2BSG Solutions In House The Hygiene Management Company Inspection Services (U.K.) Ltd RSA Environmental Health CONTENTS OF THE ANNUAL REPORT for the year ended 31 March 2019 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 11 14 15 20 24 25 26 27 28 32 50 51 52 53 62 65 1 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 COMPANY INFORMATION for the year ended 31 March 2019 DIRECTORS: S A King N C Coote G N Webb MBE L E Young SECRETARY: SGH Company Secretaries Limited REGISTERED OFFICE & BUSINESS ADDRESS: The Old Church 31 Rochester Road Aylesford Kent ME20 7PR REGISTERED NUMBER: 4121793 (England and Wales) AUDITOR: SOLICITORS: REGISTRARS: NOMINATED ADVISER: BROKER: Crowe U.K. LLP Chartered Accountants & Registered Auditor 40-46 High Street Maidstone Kent ME14 1JH Gullands 16 Mill Street Maidstone Kent ME15 6XT Neville Registrars Limited Neville House Steelpark Road Halesowen West Midlands B62 8HD Strand Hanson Limited 26 Mount Row London W1K 3SQ Novum Securities Limited 8-10 Grosvenor Gardens London SW1W 0DH 2 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 STRATEGIC REPORT for the year ended 31 March 2019 FINANCIAL HIGHLIGHTS • EBITDA* of £0.116m excluding exceptional gain on property sale of £0.17m, down from £0.14m last year • Profit after tax of £0.001m compared with a loss of £0.16m last year • Group revenue of £5.2m compared with £7.0m last year • Cash reserves of £0.64m at year end compared to £0.24m last year • Write-down of £0.20m due to impaired goodwill, the same as last year • Group net assets at £5.14m after goodwill impairment compared to £5.29m last year • Profit per share of 0.005p compared to a loss per share of 1.095p last year • Final dividend of 0.5p proposed, making a total of 1.0p for the year, matching the 1.0p paid last year Profit/(loss) before tax Less: interest received Add: interest paid Add: depreciation Add: impairment B2BSG Solutions Limited goodwill Less: net gain on sale of property Add: redundancy costs regarding closure of Adamson’s Laboratories Services Limited Underlying EBITDA* 31.3.19 £ 42,494 (303) 1,514 38,179 200,000 (166,270) – 115,614 31.3.18 £ (145,861) (3) 3,778 34,590 200,000 – 47,000 139,504 * Underlying EBITDA is calculated as earnings before interest, tax, depreciation, impairment charges and non-recurring costs. This is used by the board as a measure of underlying trading and has been provided to assist shareholders in understanding the Group’s trading activities. OPERATIONAL HIGHLIGHTS • Completion of the integration process of the two security businesses. • Consolidation of operational sites within the safety division, with Northleach office vacated at end of lease. • Refurbishment of existing Cumbernauld premises and additional lease taken on adjoining office space. • Disposal of freehold property previously used by discontinued asbestos consultancy business. 3 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 STRATEGIC REPORT (continued) for the year ended 31 March 2019 On behalf of the board, I present my review of the Group’s activities and performance during the financial year 2018-19, along with some commentary about the Group’s plans and expectations for 2019–20. GENERAL BUSINESS REVIEW AND OUTLOOK The Group’s revenue profile continues to be dominated by its security business, B2BSG Solutions Limited (B2BSG), which was formed at the start of the year by the amalgamation of two separate subsidiaries operating in this sector. It accounted for approximately 52% of income, with the safety businesses contributing a combined 33% and our quality systems subsidiary, QCS International Limited (QCS), making up the remaining 17%. In the prior year the split was 60%, 23% and 11% respectively, but based on total Group revenues that were around a third higher. This illustrates the effect on the Group of a general downturn in the demand for security-related services in the present retail environment. Despite the recent difficulties at its security business caused by weak demand from retailers, the Group’s decision to diversify away from core health and safety services in 2012 can be shown to have been the right strategy overall. The move into quality systems that took place at the same time has reaped rewards with QCS accounting for circa £0.242m of profit before tax and management charges last year. Management’s task is to improve the bottom line at the security business whilst continuing to develop the full potential of QCS. During 2018, the national retailer who had been the largest client of B2BSG encountered difficulties along with many others with a high street presence, and temporarily suspended further investment. This had a severe impact on our workload and meant that much of the infrastructure in place to serve the client was no longer required, at least until further notice. In response we had no alternative but to scale down the operation and this led to some staff cuts and other actions with adverse financial consequences. Ultimately in Q4 the client was able to secure a company voluntary agreement with its creditors and landlords and a slow improvement to the order book has since been observed. There is no expectation that it will return to previous levels although the board is optimistic that the trend will be upwards. Given the reliance upon retail clients and the well-publicised problems across this sector, the board decided that it was appropriate to make a provision of £200,000 against the carrying value of the security business. Progressively during the year we were transferring the contents of the Amesbury warehouse into the Finchampstead facility as part of the amalgamation of our security businesses that formed B2BSG, and this process identified certain stock totalling £37,100 that was deemed to be slow-moving or for which there was no current client demand. The majority of this stock, whilst written down, remains on shelves and available for sale should the opportunity arise. The subsidiaries that make up the health and safety division were each net contributors to the Group and we continue to have a strong presence in sectors such as leisure, education, healthcare and transport. At the end of calendar year 2018 our Quality Leisure Management Limited subsidiary vacated its office at The Old Police Station in Northleach, Gloucestershire upon expiry of the lease and moved to Northamptonshire where it now shares the office space with RSA Environmental Health Limited. Space had become available there following the closure of our asbestos business which had occupied an area of the premises. In last year’s report we stated that QCS was proposing to take on additional space at the Cumbernauld office park that it occupies. We negotiated a new lease for the existing offices and took on the adjoining offices which had been vacant for some time, doubling the space available for the delivery of public training courses. An investment approaching £50,000 was made to completely refurbish both units and now QCS has a modern and spacious facility from which to continue developing its offering. Our freehold property in Essex was sold following the closure of our asbestos business and this contributed a net gain of circa £166,000. At the time of acquisition in 2005, the Group paid for the property in line with an independent market valuation. However, the book value at that time included an unrealised gain from when the property was originally purchased some years before and on which the former owners had not made a tax provision. The effect is that the Group’s tax liability on disposal was increased to reflect tax on the unrealised gain element as well as the appreciation in value since 2005. 4 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 Net asset value As at 31 March 2019, the Group’s consolidated net assets stood at £5.14m. There were 14,677,257 ordinary shares in issue at that date which equates to a net asset value per share of 35p. We note that the company’s ordinary shares continue to trade at a discount to the net asset value, which we believe to be a response to the high value of goodwill on the balance sheet. The board reviews the carrying value of goodwill each year to ensure that the book value is fairly stated and is within a range commensurate with good accounting practice. As has been noted above, we resolved to reduce the carrying value of our retail-dependent security businesses by £200,000, something that we also did in the previous year, and this represents a reduction of approximately 4% in the consolidated net assets of the Group. The board is satisfied that all other goodwill valuations can presently be justified. Outlook The delay in resolving issues surrounding the UK’s membership of the European Union (EU) continues to create an uncertain environment for many of the Group’s clients. Many of those organisations we work with are cutting back or delaying decisions until the political situation is resolved. In turn, this causes constraints on what those organisations are prepared to invest in the services and products that we provide. Whilst we do not generally sell into the EU ourselves, there is a direct effect in that all the products supplied by B2BSG are sourced abroad. The purchasing power of sterling has deteriorated because of political uncertainty and this negatively impacts our margins. Potentially, there may be additional costs associated with bringing goods into the UK from the EU but these matters are not yet quantifiable. The prospects for B2BSG are therefore hard to predict with any certainty but we are doing all we can to contain costs and maximise income and margins. We expect continued stability across the safety division where we have a particularly loyal client base. We believe the cost base is where it should be, and our focus will be on continuing to drive sales. With refurbished premises and additional training facilities now in place at QCS, we will look to exploit the opportunities that this gives us in terms of higher numbers of paying delegates on public courses and the potential to hold more than one training event at the same time. Trading update Unaudited management accounts for the first quarter of 2019-20 indicate that Group revenues were £1.08m and this generated EBITDA of £84,600. This compares with total revenues of £1.56m for the first quarter of 2018 -19 and EBITDA of £121,800. Cash at bank on 31 July 2019 was £660,700. PRE-TAX PROFIT/(LOSS) PER SUBSIDIARY BEFORE GROUP MANAGEMENT CHARGES Profits before tax and management charges are reviewed by each subsidiary and the board every month to ensure that each subsidiary trades profitably. To 31 March 2019, the Group did not adopt a policy of cross-charging between subsidiaries with only informal account being taken of significant work done by one subsidiary on behalf of another. With consultants increasingly undertaking work across a number of subsidiaries, this policy has been changed from 1 April 2019 to more accurately reflect the profits generated by each subsidiary. A review of the activities of each trading subsidiary is provided below. The profit figures stated are before tax, central management charges and impairment charges. The management charges are the individual subsidiary’s contribution to Group overheads and are not directly attributable costs. 5 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 B2BSG Solutions Limited (B2BSG) Note: Figures shown for 2018 are the sum of the former B to B Links Limited and SG Systems (UK Limited). • 2019: revenues of £2,724,000 yielding a loss of £137,400 • 2018: revenues of £4,226,300 yielding a loss of £17,900 It is clear from the performance outcome that there was a material reduction in revenues in the year, and it was not possible to rapidly restructure the business to accommodate this lower revenue. Many cost saving measures have progressively been implemented but will take time to have full effect. As described in the business review section above, income was reduced due to the hiatus in orders from the largest customer, along with depressed sales generally across the retail sector. Cost savings will largely accrue through closure of the Amesbury offices and warehouse at the end of March 2019, and reduced staffing. The profit is shown after a non-cash provision has been made of £37,068 (2018 - £45,000) for slow moving stock. Inspection Services (UK) Limited (ISL) • 2019: revenues of £232,600 yielding a profit of £43,500 • 2018: revenues of £215,500 yielding a profit of £46,300 There was sales growth of around 8% compared with the previous year but there were higher costs and this led to profits dropping overall by 6%. The profile of the business has not changed, with ISL obtaining most work from insurance brokers who place inspection business with the company on behalf of their clients. The work consists of statutory examination and inspection of lifting plant and equipment, and of pressure systems, along with ancillary equipment. Notable contracts during the year included conducting safety reviews of numerous pressure systems that form part of coffee machines leased to offices across London and the south, and the inspection of roof edge protection systems on several buildings for a large housing provider. Personnel Health & Safety Consultants Limited (PHSCL) • 2019: revenues of £657,100 yielding a profit of £278,000 • 2018: revenues of £615,700 yielding a profit of £240,000 An increase in revenue of 6% led to a 15% rise in profitability because the fixed cost base is relatively stable. As has been mentioned in previous reports, this subsidiary is a net provider of consultancy time to others within the safety division and hitherto the effect of that utilisation of labour has not been reflected in results. This will change next year. PHSCL’s clients tend to maintain their relationship with the business over many years, in particular those using the company’s flagship product which is the Appointed Safety Advisor Service. QCS International Limited (QCS) • 2019: revenues of £759,500 yielding a profit of £242,300 • 2018: revenues of £767,600 yielding a profit of £285,200 QCS continued to perform strongly, consolidating gains made in the previous year when there had been significant uplift due to orders relating to changes in ISO standards. Whilst demand for transition to the new quality and environmental standards has ended, the company is now experiencing further enquiries regarding the brand-new ISO 45001 standard for health and safety. Sales in public training and consultancy services for the year remained strong, both ahead of revenues for the previous year; these together normally account for around 80% of total income. In-house training sales weakened, and it is this area of performance that caused total sales for the year to dip very slightly, by around 1% in total. 6 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 In the financial year the company made considerable investment in its training facilities allowing an increase in capacity to accommodate more delegates and to offer more than one size of training room. This has been linked to a medium- term target to grow sales for public training and to also increase profit. Early indications are that sales are higher, and that delegate feedback is positive. New services for information security management and training on the associated ISO 27001 standard were launched in the year. This is linked to the company’s long-term strategy to offer as wide a range of ISO standard support for consultancy and training as practicable. The year also saw QCS deliver work for the first time on the ISO 50001 standard for energy management. The UK’s potential departure from the EU has not yet had an obvious direct effect on sales. A significant proportion of medical device work is associated with an ability to offer services linked to EU regulation. QCS will offer a ‘UK Responsible Person’ service in the event of a no deal departure, which may present some opportunities with the company acting as a UK address for manufacturers of medical devices within the EU. The weakness of sterling has the potential to work in the company’s favour in that scenario. QCS continues to operate on the secure foundation of repeat business with all outsource consultancies renewing contracts during the year and many clients continuing to send delegates to courses based on a positive experience of course delivery. Indications are such that current performance is expected to continue. Quality Leisure Management Limited (QLM) • 2019: revenues of £437,600 yielding a profit of £106,500 • 2018: revenues of £439,400 yielding a profit of £111,900 Revenue was similar to the prior year although this resulted in profit down around 5% but in line with management expectations. QLM continued to operate well in key areas of income generation including audits, training and accident investigation. There was a noticeable trend toward leisure and culture area-specific audits that targeted higher risk or specialist areas rather than facility wide audits. There was however significant development which saw quality systems consultancy and training bring in revenue of £18,000 which was double that expected. QLM’s value to support service clients is not always reflected in the income recorded in this area. Clients generally appear to be placing greater reliance on the QLM team and across a broader range of topics. Mainly, it would appear, as a result of internal efficiency savings and cost cutting exercises. Sub-contractor costs were noticeably down at £27,000; better and more efficient use of contracted staff prior to using sub-contractors led to reduced expenditure in this area. Further time and investment will be put into the development of QLM Leisuresafe™ in 2019-20 as a key income generator as an audit in its own right and as a template for bespoke health and safety reviews. QLM’s focus in the coming year is to ensure that the high levels of client retention are maintained, primarily though the quality and diversity of the support offered, as well as developing in the broader leisure, culture and hospitality industries. RSA Environmental Health Limited (RSA) • 2019: revenues of £404,300 yielding a profit of £66,700 • 2018: revenues of £370,400 yielding a profit of £75,400 Revenue for the year was 9% above that generated the previous year mainly due to the inclusion of income from the Envex brand that moved to the company upon closure of the Group’s asbestos subsidiary. The increase in revenue was outstripped by higher costs and this led to a reduction in profits of about 11%. 7 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 The past year has seen the activity of the company evolve, with income being spread more evenly across the reported revenue streams. Health and safety consultancy was particularly strong for the year whereas the other income streams were down on forecast and on the previous year. With a limited amount of fee earning staff within the company this would be expected as consultancy days spent on one revenue stream reduce the time available to spend on the others. RSA’s core offering remains the SafetyMARK service, with it still being the largest income stream. The year saw a decline in revenue with the market being more competitive, schools in both the state and independent sectors seeing increases in their cost pressures due to government policy. That caused the amount of renewals and new contracts to be down from the previous year. Schools report that they still value our services but they are having to justify all of their expenditure and in some circumstances may not be able to afford them. This area continues to be a focus of activity with more effort being made with multi academy trusts. Management will look to improve service delivery to make the offering compelling to clients and making it more likely they will renew. This sector will continue to be difficult to operate in until there is a change in government policy that will ease the school funding burden. In addition to the above, SafetyMARK operates on a two-year cycle with renewals in 2018-19 corresponding to contracts gained in 2016-17 which was itself a period when fewer new schools were joining. The company did sign up two medium sized multi academy trusts towards the end of the year, which has generated a tranche of work for the next financial year. Therefore, the company is to continue to focus attention on obtaining additional trusts as our marketing strategy for the next financial year. The key will now be to ensure that profitability is maximised by using the economies of scale afforded by a larger client base, as well as ensuring that costs are well controlled and standard fees are reviewed, where appropriate. PHSC plc • 2019: net loss of £523,700 before management charges, exceptional costs and dividends received • 2018: net loss of £521,700 before management charges, exceptional costs and dividends received The parent company incurs costs on behalf of the Group and does not generate any income. The costs incurred by PHSC plc represent the costs of running an AIM quoted Group and are generally consistent with the previous year. PRINCIPAL RISKS AND UNCERTAINITIES 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, through investing in its security businesses and is exploring non-regulatory areas of environmental work to add to the current portfolio of services. In the event of a “no deal” Brexit, the Group’s security division will take appropriate steps to ensure that sufficient supplies are held of relevant products to meet the predicted needs of customers. In doing so, customers can expect more frequent requests to forecast their likely requirements over longer time horizons than usual. The security division is already dealing extensively with a wide range of imported goods, some from within the EU and others from countries beyond the EU. It is therefore well-versed in customs processes and expects to be able to apply the same or similar processes to imports from within the EU (albeit at potentially different tariff rates) should that prove necessary under a “no deal” Brexit. Matters outside the Group’s control would include delays caused at customs if administrative demands on border officials are suddenly increased, resulting in slower clearance times for imported goods. 8 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 There are predictions by economists that the value of sterling may significantly deteriorate if the UK leaves the EU without a deal. Whilst the Group will take reasonable steps to hedge against the effects of a weaker pound, customers are being advised to consider pre-ordering and/or increasing their stock levels of those products supplied by the Group’s security division which they see as critical to their business. Higher stock levels would have the double benefit of reducing the risk of an interruption to supply, and mitigating the impact of price rises that would ultimately work their way through to all imported goods if there is a materially weaker exchange rate. The warehouse at B2BSG has the capacity for storage of additional product and close partnership with logistics providers will allow access to further warehousing space should that prove necessary. The Group’s security division works almost exclusively in the retail sector and this has continued to suffer as a result of weaker consumer demand on the high street and the move towards on-line purchasing. Any further material deterioration in the retail sector and specifically in B2BSG’s client base may have a significant negative effect on the company’s and hence the Group’s prospects. 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. The subject of IT security is regularly reviewed by the board to ensure that appropriate strategies are in place. 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 and internet search engines favour local providers. The 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. 9 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STRATEGIC REPORT (continued) for the year ended 31 March 2019 GOING CONCERN Company law 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 as the Group has adequate resources to continue in operational existence for the foreseeable future based upon the Group’s forecasts and current banking facilities. The cashflow forecasts do not indicate that the facility will need to be increased. Thus the directors continue to adopt the going concern basis of accounting in preparing the annual financial statements. In closing I would like to extend thanks to all our shareholders for their continued support, and to everyone employed across the Group for their hard work and effort. On behalf of the board Stephen King Group Chief Executive 16 August 2019 10 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600REPORT OF THE DIRECTORS for the year ended 31 March 2019 The directors present their report with the audited financial statements of PHSC plc (company and Group) for the year ended 31 March 2019. DIRECTORS The directors who held office during the year under review were: S A King N C Coote G N Webb MBE L E Young DIVIDENDS A total dividend of 1.0p per ordinary share, (£146,772) was paid in respect of the year ended 31 March 2018; half was paid in February 2018 and the balance in October 2018. An interim dividend of 0.5p in respect of the year ended 31 March 2019 was paid in February 2019 and a final dividend of 0.5p is proposed for payment in October 2019, matching the total of 1.0p paid last year. FINANCIAL RISK MANAGEMENT The Group’s operations expose it to a variety of financial risks which are outlined in note 1 to the financial statements on page 32. SHARE CAPITAL The issued share capital of the company throughout the financial year was 14,677,257 ordinary shares of £0.10 each. ENVIRONMENTAL, SOCIAL AND COMMUNITY ISSUES The directors are aware of the impact of the Group’s business on the environment but believe this to be minimal due to the nature of its operations. Details of the Group’s involvement in the community can be found on the company’s website (www.phsc.plc.uk). 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. During the year, a review was conducted to identify any gender-related pay anomalies across the Group. As at the date of this report, there are no known anomalies in any subsidiary that would fall into this category. The board would like to formally acknowledge the valuable work carried out by every employee and recognises that it is reliant upon each individual member of staff and management if it is to succeed and prosper. DATA PROTECTION The company has introduced a policy to meet the requirement of the General Data Protection Regulations (GDPR) and this has been issued across the Group. 11 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600REPORT OF THE DIRECTORS (continued) for the year ended 31 March 2019 SUBSTANTIAL SHAREHOLDINGS As at 3 August 2019, the following persons had notified the company of an interest of 3% or more of its issued share capital. Name No. of ordinary shares % of issued share capital S A King N C Coote Unicorn Asset Management Limited and Unicorn AIM VCT II plc Downing LLP held via Downing ONE VCT James Faulkner 3,190,000 3,144,342 1,071,440 510,767 455,000 21.73 21.42 7.30 3.48 3.10 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. ANNUAL GENERAL MEETING This year’s AGM will be held at 10.00 am on Monday 30 September 2019 at The Old Church, 31 Rochester Road, Aylesford, Kent ME20 7PR. The notice of meeting is set out on pages 62 to 63 of this document and a form of proxy is on page 65. 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 (Resolutions 2) As noted above, the directors recommend a final dividend of 0.5p per share. Re-election of directors (Resolutions 3 and 4) Under the company’s articles of association, both Nicola Coote and Lorraine Young retire by rotation and offer themselves for re-election. The board has considered their respective contributions to the board and the company and supports their re-election by shareholders. Appointment of auditor (Resolution 5) During the year the audit was put out to tender. After a thorough process the board (on the recommendation of the audit committee) decided to retain Crowe UK LLP (Crowe) as the company’s auditor. A resolution for the re-appointment of Crowe will be put to the AGM together with the usual practice of authorising the directors to determine 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 2020 to allot securities up to an aggregate nominal amount of £489,242 being equivalent to one third of the companies issued shared capital as at 16 August 2019. 12 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 REPORT OF THE DIRECTORS (continued) for the year ended 31 March 2019 Resolution 7 empowers the directors, until the earlier of next year’s AGM or 30 September 2020 to allot such securities for cash otherwise than on a pro-rata basis to existing shareholders, up to an aggregate nominal amount of £293,545 being equivalent to 20% of the company’s issued share capital as at 16 August 2019. It is intended to renew this authority and power at each annual general meeting. 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. Subsequent events and future developments There have been no significant events affecting the company since the year end. Future developments have been discussed in the strategic report. On behalf of the board SGH Company Secretaries Limited Secretary 16 August 2019 13 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600STATEMENT OF DIRECTORS’ RESPONSIBILITIES for the year ended 31 March 2019 The directors are responsible for preparing the strategic report, the directors’ report and the Group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent company 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 EU 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 Group and parent company 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; and • 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 strategic report, the report of the directors and other information included in the annual report and financial statements is prepared in accordance with applicable law and regulations in the UK. The maintenance and integrity of the PHSC plc website is the responsibility of the directors; the work carried out by the auditors does not involve the consideration of these matters and, accordingly, the auditors 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. 14 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600CORPORATE GOVERNANCE STATEMENT for the year ended 31 March 2019 Dear Shareholder, The board has an obligation to ensure that good standards of corporate governance are embraced throughout the company and its subsidiaries (together, the “Group”). As a board, we set clear expectations concerning the Group’s culture, values and behaviours. Our values are to ensure our customers receive quality service and support, our customers, staff and other stakeholders are treated fairly and equally and that we develop our staff so they can provide the most innovative and effective solutions. We firmly believe that by encouraging the right way of thinking and behaving across all our people, our corporate governance culture is reinforced, enabling us to drive our premium, customer-focussed, people-led strategy and deliver value for our stakeholders. It is the board’s job to ensure that the Group is managed for the long-term benefit of all shareholders, with effective and efficient decision-making. Corporate governance is an important part of that job, reducing risk and adding value to our business. In September 2018 the company adopted the 2018 Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’) in line with the amendments to the AIM Rules which now require all AIM quoted companies to adopt and comply with a recognised corporate governance code. The below statement sets out how the company complies with the 10 principles of the QCA Code. Stephen King Group Chief Executive ESTABLISHING STRATEGY AND BUSINESS MODEL The Group is dedicated to being a leading provider of health, safety, hygiene and environmental consultancy services and security solutions to the public and private sectors. The board sets the company’s strategy and monitors its implementation through management and financial performance reviews. It also seeks to ensure that adequate resources are available to implement the company’s strategy in a timely manner. The company has set out a strategy and business model to promote long-term value creation for shareholders and will update all shareholders on this in the annual report each year. The board meets on a regular basis to discuss the strategic direction of the Group and any significant change will be highlighted promptly. Further information on the Group’s strategy, performance and outlook can be found within the strategic report on pages 3 to 10. UNDERSTANDING AND MEETING SHAREHOLDER NEEDS AND EXPECTATIONS The company remains committed to listening to, and communicating openly with, its shareholders to ensure that its strategy, business model and performance are clearly understood. The AGM is a forum for shareholders to engage in dialogue with the board. The results of the AGM will be published via a regulated information service and on the company’s website. Stephen King is the principal contact between PHSC plc and its shareholders, with whom he maintains a regular dialogue. The views of shareholders are communicated to the whole board. The company’s progress on achieving its key targets is regularly communicated to investors through its announcements to the market. The company also uses other professional advisers such as the company’s nomad, broker, auditor and company secretary who provide advice and recommendations on shareholder communication. 15 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600CORPORATE GOVERNANCE STATEMENT (continued) for the year ended 31 March 2019 CONSIDERING STAKEHOLDER AND SOCIAL RESPONSIBILITIES The board recognises its responsibilities to stakeholders including staff, suppliers, customers and the community within which it operates. The heads of each of its operating subsidiaries provide regular feedback to the executive directors, who then ensure that the board as a whole is informed of any major developments. The Group’s initiatives in relation to its employees are detailed in the directors’ report on page 11. EMBEDDING EFFECTIVE RISK MANAGEMENT The board regularly reviews the risks facing the business and the internal controls which are in place to address these risks. Each operating subsidiary has reviewed its business and identified the key risks which it faces. As a result, plans have been put in place to deal with various contingencies which might arise. 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 for the business. The Group’s operations expose it to a variety of financial risks which are outlined in note 1 to the financial statements on page 32. MAINTAINING A BALANCED AND WELL-FUNCTIONING BOARD It is the role of the board to ensure that the company is managed for the long-term benefit of all shareholders and other stakeholders with effective and efficient decision-making. Good corporate governance is an important contributor, reducing risk and adding value to PHSC plc. The board will continue to monitor the governance framework of the company on an ongoing basis. The board comprises four directors, of which two are executives and two are non-executives, reflecting a blend of different experience and backgrounds. The chair of the board is Stephen King, who is also the group chief executive. He oversees the financial position of the Group on a day to day basis with assistance from the group accountant. Nicola Coote is the deputy group chief executive and she leads on the Group’s marketing initiatives and oversees PHSCL. Graham Webb and Lorraine Young are the non-executive directors, whom the board considers to be independent. The board sets direction for the company and has a formal schedule of matters reserved for its decision, including Group strategy, approval of major capital expenditure, approval of the annual and interim results, annual budgets, dividend policy and board structure. The board monitors the exposure to key business risks and reviews the strategic direction of all trading subsidiaries, their annual budgets, their performance in relation to those budgets and their capital expenditure. The board delegates day-to-day responsibility for managing the business to the executive directors and the operational board. The QCA Code recommends that the chair and chief executive should not be the same person. Currently Stephen King, the group chief executive, is also the company’s chair. As the board is comprised of only four members, two of whom are independent non-executive directors, the directors are of the view that there is no need to split these roles. For the same reason the board has not appointed a senior independent director. Graham Webb has served on the board for 15 years. The board is of the view that he retains his independent judgement and continues to make a valuable contribution to the board. Regular board meetings are held (a minimum of four per year) and other meetings are scheduled as required. Brief biographical details of the directors can be found below: 16 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600CORPORATE GOVERNANCE STATEMENT (continued) for the year ended 31 March 2019 Stephen King Group Chief Executive and Chair Stephen King co-founded PHSCL in 1990 with Nicola Coote. He has over 30 years’ experience in health and safety management, having qualified in 1985. He left a role as personnel manager at Delta Enfield Cables Ltd in 1986, moving to the News International printing facility at Wapping, London. At News International, he was occupational health and safety manager, in charge of a team of practitioners responsible for the well-being of over 4,000 staff. In 1990, he joined Reuters plc as UK health and safety manager. He left employment with Reuters plc in 1992 and continued to service their health and safety requirements through PHSCL. He has acted as secretary of the south east branch of the Institution of Occupational Safety and Health and served a two-year term as chair of the London Occupational Health and Safety Group by whom he was granted honorary life membership. He chaired the annual Tolley Health and Safety Conference for three successive years and has presented papers at several conferences. He chaired the Kent Health and Safety Consultants Forum, a group set up by the Health and Safety Executive with a remit of improving the standard of advice given by all independent safety consultants in the county, for the whole of its six-year existence. Currently he is chair of Kent Executive Club, a long-established group that promotes links between business people across the county. His other activities include serving as a trustee of a local animal sanctuary and chairing a semi-professional women’s football team. Nicola Coote Deputy Group Chief Executive and Deputy Chair Nicola Coote co-founded PHSCL in 1990 with Stephen King, after working with him in occupational safety and health at both News International and Reuters plc. She left Reuters plc in 1992 and continued to service their health and safety requirements through PHSCL. Nicola’s role includes heading the marketing function of PHSC plc. Nicola has served as secretary of the south east branch of the Institution of Occupational Safety and Health (IOSH) and has chaired the annual Tolley health and safety conference. She was the first female fellow of IOSH in the south of England and supports the institution by sitting on the panel for applicants applying for chartered membership and chartered fellowship status. She has been a national examiner for the National Examination Board in Occupational Safety and Health (NEBOSH) and continues to work on the editorial board of Lexis Nexus Butterworth Tolley, whilst being a contributor to their publication “Tolley’s Health & Safety at Work Handbook”. Nicola is the vice chair of a board of governors at a secondary school, which is part of a multi-academy trust. Graham Webb MBE Non-Executive Director Graham Webb was appointed a non-executive director of PHSC plc in June 2003. He served as a Kent Ambassador for 12 years, appointed by Kent County Council. Prior to its sale, Graham was chair in the UK for many years of the international hair and beauty group that bears his name. The US company was sold to Wella and subsequently acquired by Procter & Gamble for whom Graham served in North America as their goodwill ambassador for 6 years. He was chair of the Institute of Directors, Kent branch, from 1996 to 1999 and was appointed as a member of the Confederation of British Industry South Eastern Regional Council (1994 to 2000). Graham was chair of the Kent Business Awards for 9 years and chair of the Kent Excellence in Business Awards for 3 years. His charitable activities include being an ambassador for the Kent Association for Spina Bifida and Hydrocephalus. As chair of the Kent and Medway NSPCC Full Stop Appeal, Graham helped raise over £460,000. In the 2005 New Year Honours list, Graham was awarded an MBE for his services to business, and charity in Kent. Graham is chair of the remuneration committee and is a member of the audit committee. Lorraine Young Non-Executive Director Lorraine Young was appointed a non-executive director of PHSC plc with effect from April 2016. Lorraine runs a board advisory practice and is also a non-executive director of City of London Group plc, an AIM listed company in the financial services sector. Lorraine is a past president and Fellow of ICSA, the Governance Institute. She has held senior governance roles at a number of blue-chip companies, including Standard Chartered plc and Brambles Industries plc. She ran her own company secretarial and corporate governance advisory practice for 13 years, which in 2016 she merged with the company secretarial team at Shakespeare Martineau, where she was a partner. She left the firm in February 2019 to pursue her own consultancy interests once more. Lorraine is chair of the audit committee and is a member of the remuneration committee. 17 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600CORPORATE GOVERNANCE STATEMENT (continued) for the year ended 31 March 2019 Independence of directors At present, the company has two Independent non-executive directors, Graham Webb and Lorraine Young. Time commitments The non-executive directors are expected to commit sufficient time to fulfil their duties in that role. All current executive directors work full-time. Attendance at meetings Stephen King* Nicola Coote* Graham Webb Lorraine Young Board Audit Remuneration 5/5 5/5 5/5 5/5 – – 2/2 2/2 – – 1/1 1/1 * Stephen King and Nicola Coote are not members of the audit and remuneration committee, however they are both invited to attend committee meetings as and when required. Board 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 were reviewed during the year and 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. Audit committee During the year the audit was put out to tender. A tender document was circulated to a short-list of three audit firms. Based on responses received, two firms were invited for interview by the board. The decision to retain the services of Crowe as the company’s auditor was a result of their proven track record of good service and competitive fee quote. The audit committee comprises Lorraine Young (chair) and Graham Webb. During the year it has considered internal controls and risk management issues which are relevant to the Group. A risk register has been set up which will be kept under review as the Group’s strategy evolves. 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. The committee also reports to the board any significant estimates and judgements that have been made during the preparation of the Group’s financial statements. There is an annual audit planning meeting between the external auditor and the committee chair 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. Remuneration committee The remuneration committee comprises Graham Webb (chair) and Lorraine Young. The committee has written terms of reference and considers all aspects of the remuneration of the executive directors and other senior executives. The members of the committee maintain knowledge and awareness of the latest regulatory requirements and current market practice. 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. 18 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 CORPORATE GOVERNANCE STATEMENT (continued) for the year ended 31 March 2019 Nominations committee The board has not set up a separate nominations committee. Any matters which would normally be dealt with by such a committee will be considered by the whole board. Directors’ remuneration The remuneration of the executive directors was as follows: Year ended 31.3.19 Short term employee benefits Salary £ 90,000 70,000 Bonus £ 1,013 1,013 Pension salary sacrifice £ Waiver £ (1,380) – (8,600) (5,400) Benefits £ 2,480 4,116 Post employment benefits Pension £ Total £ 12,851 8,630 96,364 78,359 Year ended 31.3.18 Total £ 92,723 82,511 S A King N C Coote Stephen King’s benefits relate to health insurance and Nicola Coote’s to a company car and health insurance. Both directors opted to take their bonus as a pension contribution. The fees of the non-executive directors were as follows: G N Webb L E Young EVALUATING BOARD PERFORMANCE Year ended 31.3.19 £ 15,000 15,000 Year ended 31.3.18 £ 14,000 14,000 Given the company’s current size, the board has not considered it necessary to undertake a formal assessment of the board’s performance and effectiveness. PROMOTING ETHICAL VALUES AND BEHAVIOURS The company has a corporate culture that is based on ethical values and behaviours. It will maintain a quality system appropriate to the standards required for a company of its size. The board communicates regularly with staff through meetings and other forms of internal communication. Information is cascaded to staff at subsidiaries via operational board meetings (which are held at least quarterly). The head of each subsidiary attends these meetings with the executive directors. The non-executive directors attend these meetings from time to time to keep up to date with performance and developments throughout the business. SGH Company Secretaries Limited Secretary 16 August 2019 19 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF PHSC PLC for the year ended 31 March 2019 OPINION We have audited the financial statements of PHSC plc (parent company) and its subsidiaries (Group) for the year ended 31 March 2019, which comprise: • • • • • the Group statement of comprehensive income for the year ended 31 March 2019; the Group and parent company statements of financial position as at 31 March 2019; the Group and parent company statements of cash flows for the year then ended; the Group and parent company statements of changes in equity for the year then ended; and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. 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 2019 and of the Group’s profit for the period then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. CONCLUSIONS RELATING TO GOING CONCERN We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • The directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • The directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. OVERVIEW OF OUR AUDIT APPROACH Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £38,000 (FY18 £50,000), based on a percentage of Group revenue. 20 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF PHSC PLC (continued) for the year ended 31 March 2019 We use a different level of materiality (performance materiality) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. We agreed with the audit committee to report to it all identified errors in excess of £2,500 (2018: £2,500). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Overview of the scope of our audit The audit scope was established during the planning stage and was based around the key matters set out below. All subsidiaries were considered significant components and a full scope audit was undertaken on each of these. The audit approach for each component was consistent with the overall scope of the audit. The parent and subsidiaries were all audited by Crowe and no component auditors were used. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How the scope of our audit addressed the key audit matter Goodwill valuations and impairment reviews are considered to be a significant risk due to the size of the balances and application of judgement by the directors. Stock is a considered a key matter due to significant amount of stock held at any one time. Going concern is considered a key matter due to the current economic climate and due to the fact that one of the group’s subsidiaries has made losses in the current year. Impairment reviews were conducted by management based upon current forecasts. We challenged management on assumptions used, conducted sensitivity analysis on key criteria and checked the calculations. We carried out substantive testing on a sample of stock items to check whether stock was being recorded at the lower of cost and net realisable value. We also reviewed the ageing of stock items and the provisions in place for slow moving stock. We reviewed forecasts prepared by management along with current financing and post year end trading. We also reviewed historic forecasts to actual result's achieved to assess accuracy. Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. 21 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF PHSC PLC (continued) for the year ended 31 March 2019 OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion based on the work undertaken in the course of our audit: • 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; and • the directors’ report and strategic report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION In light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 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. RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS As explained more fully in the directors’ responsibilities statement set out on page [•], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so. 22 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF PHSC PLC (continued) for the year ended 31 March 2019 AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT 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. Mark Anderson (Senior Statutory Auditor) for and on behalf of Crowe U.K. LLP Statutory Auditor Maidstone 16 August 2019 23 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600Registered number: 4121793 GROUP STATEMENT OF FINANCIAL POSITION as at 31 March 2019 Non-Current Assets Property, plant and equipment Goodwill Deferred tax asset Current Assets Stock Trade and other receivables Cash and cash equivalents Total Assets Current Liabilities Trade and other payables Current corporation tax payable Non-Current Liabilities 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 Merger relief reserve Retained earnings Note 31.3.19 £ 31.3.18 £ 5 6 13 488,585 3,478,463 17,627 594,343 3,678,463 21,105 3,984,675 4,293,911 8 7 9 316,556 973,130 642,466 389,034 1,568,625 244,290 1,932,152 2,201,949 5,916,827 6,495,860 11 675,162 54,707 1,137,094 16,230 729,869 1,153,324 13 46,313 46,313 55,818 55,818 776,182 1,209,142 5,140,645 5,286,718 10 10 1,467,726 1,916,017 143,628 133,836 1,479,438 1,467,726 1,916,017 143,628 133,836 1,625,511 5,140,645 5,286,718 The financial statements were approved and authorised for issue by the board of directors on 16 August 2019, and were signed on its behalf by: S A King Director Accounting policies and notes on pages 28 to 48 form part of these financial statements. 24 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 P H S C p l c GROUP STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 March 2019 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Goodwill impairment Other income Profit/(loss) from operations Finance income Finance costs Profit/(loss) before taxation Corporation tax expense Profit/(Loss) for the year after tax attributable to owners of the parent Other comprehensive income Total comprehensive income attributable to owners of the parent Note 31.3.19 £ 31.3.18 £ 5,215,341 (2,719,724) 7,012,864 (3,937,451) 14 2,495,617 3,075,413 14 6 17 17 18 (2,418,182) (200,000) 166,270 (3,042,499) (200,000) 25,000 43,705 303 (1,514) 42,494 (41,795) 699 – 699 (142,086) 3 (3,778) (145,861) (14,836) (160,697) – (160,697) Basic and diluted Earnings per Share from continuing operations 19 0.005p (1.095)p Accounting policies and notes on pages 28 to 48 form part of these financial statements. 25 Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 P H S C p l c GROUP STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2019 Balance at 1 April 2017 Loss for year attributable to equity holders Dividends Share Capital £ 1,467,726 – – Share Premium £ 1,916,017 – – Merger Capital Relief Redemption Reserve £ Reserve £ Retained Earnings £ Total £ 133,836 – – 143,628 – – 1,859,594 (160,697) (73,386) 5,520,801 (160,697) (73,386) Balance at 31 March 2018 1,467,726 1,916,017 133,836 143,628 1,625,511 5,286,718 Balance at 1 April 2018 Profit for year attributable to equity holders Dividends 1,467,726 – – 1,916,017 – – 133,836 – – 143,628 – – 1,625,511 699 (146,772) 5,286,718 699 (146,772) Balance at 31 March 2019 1,467,726 1,916,017 133,836 143,628 1,479,438 5,140,645 Accounting policies and notes on pages 28 to 48 form part of these financial statements. 26 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 P H S C p l c GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2019 Cash flows from operating activities: Cash generated from operations Interest paid Tax paid Net cash generated from operating activities Cash flows from/(used in) investing activities Purchase of property, plant and equipment Disposal of fixed assets Interest received Net cash from/(used in) investing activities Cash flows used in financing activities Payment of contingent consideration Dividends paid to shareholders Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year The above statement of cash flows relates to the Group. Note I 31.3.19 £ 31.3.18 £ 325,587 (1,514) (9,345) 143,360 (3,778) – 314,728 139,582 (69,578) 299,495 303 (19,358) 15,730 3 230,220 (3,625) – (146,772) (25,000) (73,386) (146,772) (98,386) 398,176 244,290 37,571 206,719 642,466 244,290 NOTES TO THE GROUP STATEMENT OF CASH FLOWS for the year ended 31 March 2019 I. CASH GENERATED FROM OPERATIONS Operating profit/(loss) – continuing operations Depreciation charge Goodwill impairment (Profit)/loss on sale of fixed assets Decrease in stock Decrease/(increase) in trade and other receivables (Decrease)/increase trade and other payables Cash generated from operations 31.3.19 £ 31.3.18 £ 43,705 38,179 200,000 (162,338) 72,478 595,495 (461,932) (142,086) 34,590 200,000 919 98,333 (121,132) 72,736 325,587 143,360 27 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 ACCOUNTING POLICIES for the year ended 31 March 2019 General information PHSC plc is a company quoted 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 EU, 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 judgement in the process of applying the Group’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 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 as the Group has adequate resources to continue in operational existence for the foreseeable future based upon forecasts. A number of new standards and amendments to standards and interpretations have been issued but are not yet effective and, in some cases, have not been adopted by the EU. The directors have assessed the potential impact of IFRS 16 which may have an impact on the measurement and treatment of operating leases and the related disclosures. As at 31 March 2019 the estimated impact of the transition to IFRS 16 would be to increase tangible fixed assets and liabilities by approximately £74,000. The impact on the statement of comprehensive income is not expected to be material to the 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 2019. 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. Acquisition related costs are expensed as incurred. 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. Inter-company transactions (including unrealised gains/losses) and balances 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. 28 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600Property, plant and equipment Property, plant and equipment are stated at cost, 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 profit and loss in the period in which they are incurred. At the date of transition to IFRS, 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, less estimated residual value, of each asset over the shorter of the expected useful life or lease term, as follows: Freehold buildings Improvements to property Fixtures and equipment Motor vehicles – – – – 2% on a straight line basis on a straight line basis (10% of cost if expected useful life is shorter than the lease term) 25% on reducing balance basis 25% on reducing balance basis 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 profit and loss. 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 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 are tested for impairment at least annually. All 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. 29 PHSC plcACCOUNTING POLICIES (continued)for the year ended 31 March 2019Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600Stock Stock is stated at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving stock. The value of stock 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 During the year the company adopted IFRS 9 ‘Financial Instruments’. The company has assessed the impact of IFRS 9 and does not consider the impact material to the financial statements. As a result, the comparative data has not been restated. Trade receivables and contract assets are initially stated at the transaction price and subsequently measured at amortised cost using the effective interest method. The carrying amounts for accounts receivable are net of allowances for expected credit losses. The company evaluated the expected credit losses on trade receivables by reviewing historical data, adjusted for forward-looking factors to the debtors and the economic environment. Individual receivables are only written off when management deems them not collectible. Taxation Current tax is the tax currently payable based on the taxable profit for the year. Deferred tax is provided in full 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 under a business combination. 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, 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. 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. 30 PHSC plcACCOUNTING POLICIES (continued)for the year ended 31 March 2019Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600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. The merger relief reserve represents the premium of any shares issued in part consideration on acquisitions in accordance with section 612 of The Companies Act 2006. Retained earnings represent the accumulated profits and losses, less dividends since the Group was formed. Employee benefits The Group supports various personal pension arrangements and is auto-enrolment compliant. 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 consists of the consideration to which the Group expects to be entitled for services provided in the ordinary course of the Group’s activities, excluding VAT and trade discounts. Revenue stream Services – one-off consultancy, training, health & safety audits, editorials and safety inspections Services – health and safety support, annual consultancy services, appointed safety advisor services and certification services. Nature, timing of satisfaction of performance obligations and significant payment terms Revenue from services is recognised as the services are provided as this is the point at which the performance obligations are fulfilled. In respect of services invoiced in advance, amounts are deferred until provision of the service. Customer payment terms are generally 30 days from the date of invoice. Revenue is recognised evenly across the length of the contract as this is considered the best estimate of the fulfilment of the performance obligations. Customer payment terms are generally 30 days from the date of invoice. Supply and installation of security equipment and maintenance of equipment. Revenue from installation and maintenance is recognised as these services are provided as this is the point at which the performance obligations are fulfilled. Customer payment terms are between 30 and 60 days from the date of invoice. This is the first year of adoption of IFRS 15 “Revenue from contracts with customers” with an initial date of application of 1 April 2017. The directors have considered the impact and do not believe there to be any changes. 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 date of the Group statement of financial position 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 administrative expense heading. 31 PHSC plcACCOUNTING POLICIES (continued)for the year ended 31 March 2019Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2019 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 which 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 enough 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 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 2019 Trade and other payables At 31 March 2018 Trade and other payables Capital risk Less than 1 year £ Between 1 & 2 yrs £ Between 2 & 5 yrs £ Over 5 yrs £ 675,162 1,137,094 – – – – – – 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. 32 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 1. FINANCIAL RISK MANAGEMENT – continued Foreign exchange risk The Group purchases security-related products in foreign currencies. The Group has a number of methods to in protecting against foreign risk and do not enter into long term contracts that would increase currency exposure. 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. 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. 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 directors’ expectations of future volumes and margins based on the forecast results to 31 March 2020 in perpetuity assuming a zero-growth rate. Full details are disclosed in note 6. Provision for obsolete and slow-moving stock Stock of approximately £37,000 (2018 – £45,000) has been identified as slow moving within the B2BSG business and a non cash provision has been made against this stock to cover potential obsolescence. The stock provision will be monitored and updated regularly. The risks of material adjustment to provision in the next financial year are as follows: i) Changes in technology rendering current stock technologically obsolete ii) Customers changing their existing systems which would mean elements of current maintenance stock are unable to be utilised. 33 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 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 3 to 10. 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 charges. The management charges represent Group overheads and are reflected in the operating loss of the parent company. All revenue arose in the UK and all assets are located in the UK. There is an element of liabilities that derive from foreign currency due to some of the subsidiaries sourcing goods overseas. Profit/ (loss) Profit before tax Taxation taxation sale property impairment after tax £’000 Gain on Goodwill Deferred £’000 £’000 £’000 £’000 £’000 (137) 108 (2) 43 278 107 67 495 242 (523) (5) (29) (14) (6) (54) (80) (22) 77 (48) – – – – – (3) 11 6 – – – – – – – 166 166 – – – – – – – – (200) 1 Profit/ (loss) Loss before tax Taxation taxation sale property impairment after tax £’000 Gain on Goodwill Deferred £’000 £’000 £’000 £’000 £’000 78 (96) (18) 46 240 112 75 473 285 (165) (521) – – – – – – – – – – – – – – – – (16) (1) – – 2 – 1 54 (16) – – – – – – – – – – – – – – – – – – – – – – – (200) (161) Operating Revenue Depreciation profit/(loss) £’000 £’000 £’000 2,724 13 (137) Year ended 31 March 2019 Security division – B2BSG Health and safety division ISL PHSCL QLM RSA 233 657 438 404 1,732 Quality systems division – QCS 759 Holding company – PHSC plc – Total 5,215 1 2 2 1 6 7 12 38 Net interest £’000 – – – – – – – 43 278 107 67 495 242 (522) 78 (1) (1) Operating Revenue Depreciation profit/(loss) £’000 £’000 £’000 Net interest £’000 Year ended 31 March 2018 Security division B to B SG Health and safety division ISL PHSCL QLM RSA Quality systems division – QCS Discontinued operations – ALS Holding company – PHSC plc Total 2,777 1,449 4,226 216 616 439 370 1,641 768 378 – 7,013 7 2 9 1 2 2 1 6 2 5 13 35 78 (96) (18) 46 240 112 75 473 285 (163) (519) 58 – – – – – – – – – (2) (2) (4) 34 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 3. SEGMENTAL REPORTING – continued The table below shows assets and liabilities by subsidiary, exclusive of inter-company balances. Non-current asset Non current assets additions £’000 £’000 Current assets £’000 Total assets £’000 Current Non-current liabilities liabilities Total liabilities Net operating assets £’000 £’000 £’000 £’000 As at 31 March 2019 Security division – B2BSG Health and safety division ISL PHSCL QLM RSA Quality systems division – QCS Holding company – PHSC plc Total 8 – 2 3 1 6 51 5 70 267 286 553 194 2 7 5 461 475 192 943 321 176 194 950 326 637 1,632 2,107 51 4,519 616 (602) 667 3,917 5,312 1,932 7,244 118 92 124 57 391 100 45 730 Adjustment of goodwill on consolidation including goodwill impairment Deferred tax adjustment to property revaluation Net assets – – 1 1 – 2 4 33 39 194 359 118 93 125 57 393 104 78 769 76 857 201 580 1,714 563 3,839 6,475 (1,327) (8) 5,140 35 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 3. SEGMENTAL REPORTING – continued Non-current asset Non-current assets additions £’000 £’000 Current assets £’000 Total assets £’000 Current Non-current liabilities liabilities Total liabilities Net operating assets £’000 £’000 £’000 £’000 As at 31 March 2018 Security division B to B SG Health and safety division ISL PHSCL QLM RSA Quality systems division – QCS Discontinued operations – ALS Holding company – PHSC plc 4 1 5 2 4 1 1 8 7 – – 268 7 275 1 7 6 461 475 965 148 1,233 155 1,113 1,388 176 773 303 202 177 780 309 663 462 188 650 97 45 90 49 1,454 1,929 281 8 – 4,660 669 85 (1,074) 677 85 3,586 129 8 85 Total 20 5,418 2,247 7,665 1,153 Adjustment of goodwill on consolidation including goodwill amortisation Deferred tax adjustment to property revaluation Net assets – – – – 1 1 – 2 462 188 650 97 46 91 49 771 (33) 738 80 734 218 614 283 1,646 1 – 44 47 130 8 129 547 77 3,457 1,200 6,465 (1,170) (8) 5,287 PHSC plc company accounts reflect the overdraft in current liabilities. In the Group’s consolidated accounts and segmental analysis, the overdraft is reflected as part of the Group facility shown under current assets. Revenues from one customer within the B2BSG business segment totalled £922,216 (2018 – £1,518,490), representing more than 10% of its total revenue. 4. AUDITOR’S REMUNERATION Audit Fees payable to the company’s auditor for the audit of the annual parent company and consolidated accounts 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 31.3.19 £ 31.3.18 £ 6,140 6,910 22,000 28,140 7,000 2,000 9,000 37,140 25,500 32,410 10,560 2,700 13,260 45,670 36 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 5. PROPERTY, PLANT AND EQUIPMENT COST At 1 April 2017 Additions Disposals At 31 March 2018 Additions Disposals At 31 March 2019 DEPRECIATION At 1 April 2017 Charge for year Disposals At 31 March 2018 Charge for year Disposals At 31 March 2019 NET BOOK VALUE At 31 March 2019 At 31 March 2018 At 31 March 2017 Freehold property £ Improvements to property £ Fixtures and equipment £ Motor vehicles £ Totals £ 712,000 – – 712,000 – (140,730) 32,299 2,010 – 34,309 46,987 – 290,348 17,348 (145,944) 161,752 22,591 (28,246) 30,910 – (4,665) 26,245 – (12,467) 1,065,557 19,358 (150,609) 934,306 69,578 (181,443) 571,270 81,296 156,097 13,778 822,441 164,674 11,653 – 176,327 10,245 (7,506) 28,779 285 – 29,064 5,707 – 231,114 18,750 (130,398) 119,466 19,442 (24,437) 14,766 3,902 (3,562) 15,106 2,785 (12,343) 439,333 34,590 (133,960) 339,963 38,179 (44,286) 179,066 34,771 114,471 5,548 333,856 392,204 46,525 41,626 8,230 488,585 535,673 547,326 5,245 3,520 42,286 59,234 11,139 594,343 16,144 626,224 Depreciation expenses of £38,179 (2018 – £34,590) are included in administrative expenses in the statement of comprehensive income. Lease rentals amounting to £77,879 (2018 – £106,168), relating to the lease of buildings and motor vehicles are included in the statement of comprehensive income. 37 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 6. GOODWILL COST At 1 April 2017 and 2018 Additions At 31 March 2019 IMPAIRMENT At 1 April 2017 Impairment At 31 March 2018 Impairment At 31 March 2019 NET BOOK VALUE At 31 March 2019 At 31 March 2018 At 31 March 2017 Goodwill £ 5,514,547 – 5,514,547 1,636,084 200,000 1,836,084 200,000 2,036,084 3,478,463 3,678,463 3,878,463 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 Inspection Services (UK) Limited Quality Leisure Management Limited QCS International Limited B to B Links Limited SG Systems (UK) Limited 31.3.19 £ 594,952 601,644 205,207 582,844 417,638 739,066 337,112 31.3.18 £ 594,952 601,644 205,207 582,844 417,638 939,066 337,112 Total goodwill for Group 3,478,463 3,678,463 When considering impairment, the directors have taken the cash flow forecast prepared to 31 March 2020 and used the expected cash flows for that year in perpetuity as the cash flows generated are expected to continue for the foreseeable future. The 2020 forecasts have been prepared using a range of growth assumptions compared to the results for 2019. Revenue growth ranges from 0%-8% and gross margin growth of between 0 to 7 percentage points for the cash generating units. Zero growth rates, and zero margin improvement have been adopted in the perpetuity calculations for all cash generating units. 38 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 6. GOODWILL – continued The cash flow projections: • • are based on profits before tax and inter group management charges; and have been discounted using a discount rate of 11% (2018 – 11%). The rate has been determined by calculating the Group’s weighted average cost of capital (WACC) of 4% using the capital asset pricing model with a 7% risk factor added. The table below shows the amount by which each subsidiary’s recoverable amount exceeds its carrying value. An illustration is also provided to show at what point the key assumptions regarding cash flow and WACC need to change to before impairment would be necessary. Personnel Health & Safety Consultants Limited and dormant subsidiaries RSA Environmental Health Limited Inspection Services (UK) Limited Quality Leisure Management Limited QCS International Limited B to B Links Limited* SG Systems (UK) Limited Margin in carrying value £ 1,148,003 15,763 183,657 575,201 1,739,226 (197,680) 63,547 Annual cash flow at which impairment required £ Discount at which impairment required % 65,445 63,963 22,573 64,113 45,954 103,297 37,082 32 11.3 21 22 57 9 13 The impairment review undertaken by the directors identified that the value-in-use of the B to B cash generating unit was less than its carrying value and thus impairment was required. An impairment charge of £200,000 has been provided on the basis that the remaining goodwill could be supported by the value-in-use calculation. * Figures stated prior to the impairment charge of £200,000 Sensitivity analysis The calculations are sensitive to movements in the discount rate and revenue and may therefore result in an impairment charge to the income statement. An increase of 1% to the discount rate and 3% reduction in revenue would result in the additional impairment charges as follows: B to B Links Limited RSA Environmental Health Limited Reduction in revenue of % £ 109,870 37,618 Increase in discount rate £ 26,129 34,007 39 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 7. TRADE AND OTHER RECEIVABLES Trade receivables Less provision for impairment of trade receivables Trade receivables – net Other debtors and prepayments Contract assets Total At 31 March 2019 there were £1,000 impaired trade receivables (2018 – £1,000). The ageing of receivables which are past due and not impaired are as follows: Up to 3 months 3 – 6 months Over 6 months Movements on the Group provision for impairment of trade receivables are as follows: At 1 April Provision for receivables impairment Release of provision At 31 March 31.3.19 £ 31.3.18 £ 880,955 (1,000) 1,456,141 (1,000) 879,955 83,988 9,187 1,455,141 97,315 16,169 973,130 1,568,625 31.3.19 £ 324,024 89,480 30,407 31.3.18 £ 558,290 84,496 58,855 443,911 701,641 31.3.19 £ 1,000 – – 1,000 31.3.18 £ 21,982 – (20,982) 1,000 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. All debts which are older than 90 days relate to long standing repeat customers and are considered to be fully recoverable based on the history of payments from these customers taking into consideration future factors. The Group has one type of financial assets that are subject to IFRS 9’s new expected credit loss model: • Trade receivables The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets as there is always considered some form of risk of default. The impact of the change in impairment methodology was not considered material to the financial statements. As a result, the comparative data has not been restated. Trade receivables and contract assets The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. This did not lead to a material change in the impairment of trade receivables so no adjustment was made. 40 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 8. STOCK Stocks 31.3.19 £ 31.3.18 £ 316,556 389,034 £37,064 of stock was written down in the current year (2018: £45,000). The value of stock consumed and recognised as an expense was £1,118,577 (2018 – £1,973,806). 9. CASH AND CASH EQUIVALENTS The cash balances for the purposes of the cash flow statement were as follows: Cash at bank and in hand 31.3.19 £ 31.3.18 £ 642,466 244,290 On 1 October 2008, PHSC plc entered into an unlimited multilateral guarantee with HSBC plc (see note 12). 10. CALLED UP SHARE CAPITAL Number of shares (Nominal value of 10p) Ordinary shares £ Share premium £ Total £ Called up, allotted and fully paid At 31 March 2018 and 2019 14,677,257 1,467,726 1,916,017 3,383,743 11. TRADE AND OTHER PAYABLES Trade payables Social security and other taxes Other payables Accruals Contract liabilities Total 12. FINANCIAL LIABILITIES 31.3.19 £ 130,726 223,678 9,763 71,590 239,405 31.3.18 £ 515,004 270,197 11,655 99,178 241,060 675,162 1,137,094 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 the Group reduced its overdraft facility from £300,000 to £150,000 which is secured by a debenture including a fixed charge over certain 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. The overdraft is next reviewed in October 2019. 41 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 13. DEFERRED TAX Deferred tax asset At 1 April 2017 Credited to income statement At 31 March 2018 Credited to income statement At 31 March 2019 Deferred tax liabilities At 1 April 2017 Credited to income statement At 31 March 2018 Credited/(debited) to income statement At 31 March 2019 Tax losses carried forward £ Accelerated capital allowances £ Other short-term temporary differences £ 21,617 (613) 21,004 (3,443) 17,561 – – – – – Provision revalued properties £ Accelerated capital allowances £ 43,188 – 43,188 (11,919) 31,269 9,455 (1,982) 7,473 2,414 9,887 76 25 101 (35) 66 Intangible assets £ 5,157 – 5,157 – Total £ 21,693 (588) 21,105 (3,478) 17,627 Total £ 57,800 (1,982) 55,818 (9,505) 5,157 46,313 Deferred tax has been provided on the revalued fixed assets at 17% (2018 – 19%). At present it is not envisaged that any tax will become payable in the foreseeable future. 14. EXPENSES BY NATURE Cost of sales Staff related costs Premises costs Professional fees Operating lease expenses Other expenses Goodwill impairment Total cost of sales and administrative expenses 31.3.19 £ 31.3.18 £ 1,929,541 2,128,386 122,738 312,954 79,879 564,408 200,000 3,034,011 2,533,300 125,181 375,697 106,168 760,593 200,000 5,337,906 7,134,950 42 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 15. 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 31.3.19 £ 31.3.18 £ 1,844,924 184,456 65,958 2,214,768 218,135 62,266 2,095,338 2,495,169 31.3.19 31.3.18 7 22 29 58 9 27 36 72 The aggregate compensation for key management, being the members of the board of PHSC plc and the directors of the subsidiary companies (including de facto directors), was as follows: Short-term employee benefits Post-employment benefits Total 31.3.19 £ 403,796 38,656 31.3.18 £ 507,069 47,046 442,452 554,115 43 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 16. DIRECTORS’ REMUNERATION Directors of PHSC plc only Emoluments Pension contributions to money purchase schemes 31.3.19 £ 151,216 23,507 31.3.18 £ 183,970 19,264 204,723 203,234 The remuneration of the executive directors of PHSC plc, from all Group companies was as follows: S A King N C Coote Salary £ 90,000 70,000 Bonus £ 1,013 1,013 Year ended 31.3.19 Short-term employee benefits Pension salary sacrifice £ Waiver £ Post employment benefits Pension £ Benefits £ Year ended 31.3.18 Total £ Total £ (1,380) – (8,600) (5,400) 2,480 4,116 12,851 8,630 96,364 78,359 92,723 82,511 Stephen King’s benefits relate to health insurance and Nicola Coote’s to a company car and health insurance. Both directors opted to take their bonus as a pension contribution. The fees of the non-executive directors were as follows: Year ended 31.3.19 £ Year ended 31.3.18 £ 15,000 15,000 14,000 14,000 31.3.19 £ 31.3.18 £ 303 3 – – 1,514 1,514 1,211 66 608 3,104 3,778 3,775 G N Webb L C Young 17. FINANCE INCOME AND COSTS Finance income Interest received Interest expense Bank interest Loan interest Other interest Net finance charge 44 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 18. 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 charge/(credit) Deferred tax: Origination and reversal of temporary differences Adjustment in respect of prior period Effect of tax rate change on opening balance Taxation (credit)/charge Tax on profit on ordinary activities Reconciliation of tax on ordinary activities 31.3.19 £ 31.3.18 £ 54,707 (6,885) 47,822 16,230 – 16,230 (4,496) 1,377 (2,908) (2,189) 795 – (6,027) (1,394) 41,795 14,836 The relationship between expected tax expense based on the effective tax rate of PHSC plc at 19% (2018 – 19%) and the tax expense actually recognised in the income statement can be reconciled as follows: Loss on ordinary activities before tax Tax on loss on ordinary activities at standard rate of corporation tax of 19% (2018: 19%) Effects of: Expenses not deductible for tax purposes Depreciation on ineligible assets Movement in revalued property deferred tax less capital gain on disposal Differences due to deferred tax rate being lower than standard corporation tax rate Adjustments in respect of prior periods Total tax charge 31.3.19 £ 31.3.18 £ 42,494 (145,861) 8,075 (27,714) 41,655 2,128 (2,139) (2,416) (5,508) 41,795 39,487 2,268 – 795 – 14,836 The UK government has legislated to maintain the main rate of corporation tax at 19% for the years commencing 1 April 2018 and 2019 and then to reduce it to 17% from 1 April 2020. This will affect future tax charges. 19. 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/(loss) 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. 45 31.3.19 31.3.18 699 14,677,257 0.005p (160,697) 14,677,257 (1.095)p PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 20. DIVIDENDS A final dividend of £73,386 was paid in October 2018 in respect of the year ended 31st March 2018 and an interim dividend of £73,386 representing 0.5p per ordinary share was paid in February 2019 in respect of the year ended 31 March 2019. A final dividend of £73,386 is proposed, to be paid in October 2019, making a total dividend for the year of 1.0p. 21. 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 operating leases are: Within one year Between two and five years Total The Group had no capital commitments at the year end. 22. RELATED PARTY DISCLOSURES PHSC plc dividends were paid to directors as follows: S A King N C Coote G N Webb MBE 31.03.19 31.03.18 Land and building £ 8,236 45,100 Motor vehicles £ 11,104 9,946 53,336 21,050 Land and buildings £ 27,267 – 27,267 Motor vehicles £ 17,231 8,171 25,402 31.3.19 £ 31.3.18 £ 31,894 31,439 194 63,527 15,950 15,722 97 31,769 23. ULTIMATE CONTROLLING PARTY There is no ultimate controlling party, but the largest shareholder, Mr S A King, holds 21.73% (2018 – Mr S A King 21.73%) of the issued share capital of PHSC plc. 46 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 24. FINANCIAL INSTRUMENTS Set out below are the Group’s financial instruments: Financial assets at amortised cost Trade and other receivables Cash and cash equivalents Financial liabilities at amortised cost Trade and other payables Due within 1 year Due in over 1 year 25. REVENUE Set out below is a breakdown of revenue: Revenue from health and safety services provided Revenue from quality systems services provided Revenue from security related products 31.3.19 £ 31.3.18 £ 973,130 642,466 1,491,433 244,290 1,615,596 1,735,723 675,162 625,837 675,162 625,837 675,162 – 625,837 – 675,162 625,837 31.3.19 £ 31.3.18 £ 1,731,712 759,500 2,724,129 2,018,877 767,646 4,226,341 5,215,341 7,012,864 The split of revenue is in line with the segmental analysis in note 3. The following table provides information about receivables, contract assets and contract liabilities with customers: Receivables which are included in ‘trade and other receivables’ Contract assets Contract liabilities 31.3.19 £ 879,955 9,187 239,405 31.3.18 £ 1,455,141 16,169 241,060 Contract assets relate to uninvoiced work carried out at the reporting date where performance obligations had been met. The contract liabilities relate to the deferred revenue in respect of ongoing services and the revenue is being recognised across the term of the customer contract. 47 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 25. REVENUE – continued Significant changes in the contract assets and contract liabilities balances during the period are as follows: Revenue deferred into future periods Revenue accrued in current period Deferred revenue recognised in the period 31.3.19 £ 31.3.18 £ (239,405) 9,187 241,060 (241,060) 16,169 225,507 The performance obligations for all revenues that have been deferred into future periods have been satisfied by the following year end as the performance obligations on the contracts are no longer than one year in length. There are no impairment losses in relation to the contract assets recognised under IFRS 15. 48 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 Company number: 4121793 P H S C p l c COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2019 49 Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600Registered number: 4121793 COMPANY STATEMENT OF FINANCIAL POSITION as at 31 March 2019 Non-Current Assets Property, plant and equipment Investments Current Assets Trade and other receivables Total Assets Current Liabilities Trade and other payables Overdraft Current corporation tax Non-Current Liabilities 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 Merger relief reserve Revaluation reserve Retained earnings Note 31.3.19 £ 31.3.18 £ 9 10 400,310 3,568,206 542,008 4,118,206 3,968,516 4,660,214 11 755,400 808,356 755,400 808,356 4,723,916 5,468,570 12 13 49,046 620,631 566 273,918 1,105,005 – 670,243 1,378,923 14 32,647 32,647 44,286 44,286 702,890 1,423,209 4,021,026 4,045,361 15 15 1,467,726 1,916,017 143,628 133,836 – 359,819 1,467,726 1,916,017 143,628 133,836 43,373 340,781 4,021,026 4,045,361 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 was £502,143 (2018 – loss £463,257). Approved and authorised for issue by the board on 16 August 2019 and signed on its behalf by; S A King Director 50 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2019 Share Capital £ Share Premium £ Merger Capital Relief Redemption Reserve £ Reserve £ Revaluation Rreserve £ Retained Earnings £ Total £ Balance at 1 April 2017 Loss for year attributable to equity holders Dividends paid 1,467,726 1,916,017 133,836 143,628 43,373 877,424 4,582,004 – – – – – – – – – – (463,257) (73,386) (463,257) (73,386) Balance at 31 March 2018 1,467,726 1,916,017 133,836 143,628 43,373 340,781 4,045,361 Balance at 1 April 2018 Loss for year attributable to equity holders Transfer of reserve on property sale Dividends received Dividends paid 1,467,726 1,916,017 133,836 143,628 43,373 340,781 4,045,361 – – – – – – – – – – – – – – – – – (43,373) – – (502,143) 43,373) 624,580 (146,772) (502,143) – 624,580 (146,772) Balance at 31 March 2019 1,467,726 1,916,017 133,836 143,628 – 359,819 4,021,026 51 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 COMPANY STATEMENT OF CASH FLOWS for the year ended 31 March 2019 Cash flows (used by)/generated from operating activities: Cash (used by)/ from operations Tax paid Interest paid Net cash generated (used by)/from operating activities Cash flows from investing activities Purchase of property, plant and equipment Disposal proceeds sale of property, plant and equipment Dividends from subsidiary companies Interest received Net cash from investing activities Cash flows used by financing activities PPayment of contingent consideration Dividends paid to Group shareholders Net cash used by financing activities Net decrease in overdraft Cash and cash equivalents at beginning of year Overdraft at end of year Note I 31.3.19 £ 31.3.18 £ (265,800) (21,056) (1,514) 193,550 – (2,411) (288,370) 191,139 (4,862) 299,495 624,580 303 919,516 – – – – – – (146,772) (25,000) (73,386) (146,772) (98,386) 484,374 (1,105,005) 92,753 (1,197,758) (620,631) (1,105,005) NOTES TO THE COMPANY STATEMENT OF CASH FLOWS for the year ended 31 March 2019 I. CASH (USED BY)/FROM OPERATIONS Loss before taxation and interest Depreciation charge Impairment of investment Profit on sale of fixed assets Decrease in trade and other receivables Decrease in trade and other payables Cash generated (used by)/from operations 31.3.19 £ 31.3.18 £ (490,949) 12,906 550,000 (165,841) 52,956 (224,872) (461,013) 12,704 451,725 – 206,226 (16,092) (265,800) 193,550 52 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2019 1. BASIS OF PREPARATION The company’s financial statements have been prepared in accordance with IFRSs, as adopted by the EU, 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 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 19. 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 (2019 – £624,580; 2018 – nil) was £502,143 (2018 – loss £463,257). There were no recognised gains and losses for 2019 or 2018 other than those included in the company statement of comprehensive income. As at 31 March 2019 the company had net assets of £4,021,026 (2018 – £4,045,361). The financial statements have been prepared on a going concern basis. 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 as the company has adequate resources to continue in operational existence for the foreseeable future based upon forecasts. A number of new standards and amendments to standards and interpretations have been issued but are not yet effective and, in some cases, have not been adopted by the EU. The directors have assessed the potential impact of IFRS 16 (measurement and treatment of operating leases) but consider that the impact will not be material on the company’s financial statements in future periods. The company does not have any operating leases and income only relates to management charges and dividends received. 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 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. 53 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 2. ACCOUNTING POLICIES – continued 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 the shorter of the expected useful life or lease term, on the following bases: Freehold buildings Improvements to property Fixtures and equipment – – – 2% of cost on a straight-line basis on a straight-line basis (10% of cost if expected useful life is shorter than the lease term) 25% reducing balance basis Investments Investments in subsidiary undertakings are stated at cost less amounts provided for any impairment in value. An impairment review is carried out each year. Impairment of tangible and intangible assets An impairment loss is recognised for the amount by which the investments 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. Impairment losses are charged to administrative expenses. Taxation Current income tax assets/liabilities comprise those claims from or 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. Financial Instruments During the year the company adopted IFRS 9 ‘Financial Instruments’. The company has assessed the impact of IFRS 9 and does not consider the impact material to the financial statements. As a result, the comparative data has not been restated. Trade receivables and contract assets are initially stated at the transaction price and subsequently measured at amortised cost using the effective interest method. The carrying amounts for accounts receivable are net of allowances for expected credit losses. The company evaluated the expected credit losses on trade receivables by reviewing historical data, adjusted for forward-looking factors to the debtors and the economic environment. Individual receivables are only written off when management deems them not collectible. 54 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 2. ACCOUNTING POLICIES – continued 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. 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. The merger relief reserve represents the premium of any shares issued in part consideration on acquisitions in accordance with section 612 of The Companies Act 2006. 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 UK and derives from the management charge levied to the subsidiary companies and is recognised when the service is delivered. 4. LOSS BEFORE TAXATION The profit before taxation is stated after charging: Depreciation – owned assets 5. DIRECTORS’ REMUNERATION Full details are given on page 44 of the Group accounts. 6. STAFF COSTS The average number of employees during the year was as follows: Directors Consultants 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. 55 31.3.19 £ 31.3.18 £ 12,906 12,704 31.3.19 31.3.18 4 2 3 9 £ 4 2 3 9 £ 263,178 23,595 25,129 278,888 25,082 19,104 311,902 323,074 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 7. AUDITOR’S REMUNERATION Full details are given on page 36 of the Group accounts. 8. FINANCE INCOME AND COSTS Finance income Interest received Interest expense Bank interest Other interest Net finance cost 9. TANGIBLE FIXED ASSETS COST OR VALUATION At 1 April 2017 Transfer from subsidiary At 31 March 2018 Additions Disposals At 31 March 2019 DEPRECIATION At 1 April 2017 Charge for the year At 31 March 2018 Charge for year Disposals At 31 March 2019 NET BOOK VALUE At 31 March 2019 At 31 March 2018 At 31 March 2017 31.3.19 £ 31.3.18 £ 303 – – (1,514) (66) (2,345) (1,211) (2,411) Freehold land and buildings £ 582,638 – 582,638 – (140,730) Freehold improvements £ Plant and equipment £ 23,978 – 23,978 – – 13,103 – 13,103 4,862 (2,417) Totals £ 619,719 – 619,719 4,862 (143,147) 441,908 23,978 15,548 481,434 35,312 11,653 46,965 10,245 (7,506) 20,461 84 20,545 828 – 9,234 967 10,201 1,833 (1,987) 65,007 12,704 77,711 12,906 (9,493) 49,704 21,373 10,047 81,124 392,204 2,605 5,501 400,310 535,673 547,326 3,433 3,517 2,902 542,008 3,869 554,712 56 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 10. INVESTMENT IN SUBSIDIARY UNDERTAKINGS Investment in shares of subsidiary undertakings At 1 April Impairment of investment in B to B Impairment of investment in SG Impairment of investment in ALS At 31 March 31.3.19 £ 31.3.18 £ 4,118,206 (550,000) – – 4,569,931 (220,000) (120,000) (111,725) 3,568,206 4,118,206 As stated in the strategic report, the continued decline of the high street and the general uncertainty over Brexit has led to reduced opportunities and general pressure on gross margins in the security sector. The impairment review undertaken by the directors identified that the value-in-use of the B to B investment was compromised and thus impairment of the investment was required. The investment value has been reduced by £550,000 to a new carrying value of £600,724. Investments in subsidiary undertakings are stated at cost and include the following: Name of Company Proportion of voting Class of shares held rights held Registered office Adamson’s Laboratory Services Limited Ordinary 100% B2BSG Solutions Limited Ordinary 100% Camerascan CCTV Limited Ordinary 100% Envex Company Limited Ordinary 100% In House The Hygiene Management Company Limited Ordinary 100% Inspection Services (UK) Limited Ordinary 100% Personnel Health & Safety Consultants Limited Ordinary 100% Quality Leisure Management Limited Ordinary 100% QCS International Limited Ordinary 100% RSA Environmental Health Limited Ordinary 100% Safetymark Certification Services Limited Ordinary 100% SG Systems (UK) Limited Ordinary 100% The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR 9 Cumbernauld Business Park, Cumbernauld, North Lanarkshire, Scotland G6 3JZ The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR The Old Church, 31 Rochester Road, Aylesford, Kent, ME20 7PR 57 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 11. TRADE AND OTHER RECEIVABLES Amount owed by subsidiary undertakings Prepayments 31.3.19 £ 736,876 18,524 31.3.18 £ 778,373 29,983 755,400 808,356 The company has one type of financial asset which is subject to IFRS 9’s new expected credit loss model: • Amounts owed by subsidiary undertakings The company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all balances owed from subsidiary undertakings. This did not lead to a material change in the assessment of the potential impairment of amounts owed from subsidiary undertakings so no adjustment was made. 12. TRADE AND OTHER PAYABLES Trade payables Amount owed to subsidiary undertakings Social security and other taxes Other payables Accruals 13. OVERDRAFT Bank overdraft 31.3.19 £ 2,348 5,000 20,747 1,158 19,793 31.3.18 £ 27,340 189,050 36,036 1,098 20,394 49,046 273,918 31.3.19 £ 31.3.18 £ 620,631 1,105,005 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, the Group’s overdraft facility was reduced to £150,000 which is secured by a debenture including a fixed charge over certain 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 2019, PHSC plc’s company balance was £620,631 overdrawn (2018 – £1,105,005 overdrawn) within the Group’s cash at bank and in hand figure of £642,466 (2018 – £244,280). The overdraft facility is reviewed subject to requirement. 58 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 14. DEFERRED TAXATION Deferred taxation – accelerated capital allowances At 1 April 2018 Deferred tax credit in year At 31 March 2019 15. SHARE CAPITAL Called up, allotted and fully paid 31.3.19 £ 31.3.18 £ 32,647 44,286 Deferred tax £ Deferred tax £ 44,286 (11,819) 44,453 (167) 32,647 44,286 Number of shares (Nominal value 10p per share) Ordinary shares £ Share premium £ Total £ At 31 March 2018 and 2019 14,677,257 1,467,726 1,916,017 3,383,743 16. 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 31.3.19 £ 31.3.18 £ 415,000 510,000 The inter-company balances between PHSC plc and the other companies within the PHSC plc group are summarised below. Amounts owed by group undertakings B2BSG Solutions Limited In House the Hygiene Company Limited Inspection Services (UK) Limited Personnel Health & Safety Consultants Limited QCS International Limited Quality Leisure Management Limited RSA Environmental Health Limited SG Systems (UK) Limited Camerascan CCTV Limited Amounts owed to group undertakings Adamson’s Laboratory Services Limited Personnel Health & Safety Consultants Limited 59 31.3.19 £ 31.3.18 £ 22,435 469,304 1,449 1,929 5,823 4,386 1,849 – 229,701 54,492 469,304 435 – 2,649 6,712 410 14,670 229,701 736,876 778,373 5,000 – 454 188,596 5,000 189,050 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 16. RELATED PARTY DISCLOSURES – continued PHSC plc received dividends 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 RSA Environmental Health Limited PHSC plc dividends were paid to directors as follows: S A King N C Coote G N Webb MBE 17. FINANCIAL INSTRUMENTS Set out below are the company’s financial instruments: Financial assets at amortised cost Trade and other receivables Financial liabilities at amortised cost Overdraft Trade and other payables Due within 1 year Due in over 1 year 31.3.19 £ 31.3.18 £ 99,580 25,000 200,000 200,000 70,000 30,000 624,580 31,894 31,439 194 63,527 – – – – – – – 15,950 15,722 97 31,769 31.3.19 £ 31.3.18 £ 755,241 778,373 755,241 778,373 620,631 46,664 1,105,005 237,882 667,295 1,342,887 667,295 – 1,342,887 – 667,295 1,342,887 Full details of the overdraft facility can be found in note 13. 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 fair values of the company’s financial instruments are considered not to be materially different to their book value. 60 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTES TO THE FINANCIAL STATEMENTS (continued) for the year ended 31 March 2019 18. 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. Impairment of investments An impairment of investments has the potential to significantly impact upon the company’s statement of comprehensive income 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 the director’s expectations of future volumes and margins based on forecast results to 31 March 2020 in perpetuity assuming a zero-growth rate. The cash flow projections: • • are based on profits before tax and inter group management charges; and have been discounted using a discount rate of 11%. The rate has been determined by calculating the Group’s weighted average cost of capital (WACC) of 4% using the capital asset pricing model with a 7% risk factor added. 19. PARENT UNDERTAKING There is no ultimate controlling party but the largest shareholder, Mr S A King owns 21.73% (2018 – Mr S A King 21.73%) 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 2 of the Group accounts. 61 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTICE OF ANNUAL GENERAL MEETING Notice is given that the annual general meeting of PHSC plc will be held at 10.00 am on Monday 30 September 2019 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 2. 3. 4. 5. 6. To receive the annual report and audited accounts for the year ended 31 March 2019. To declare a final dividend of 0.5p per ordinary share. To re-elect Nicola Coote as a director. To re-elect Lorraine Young as a director. To reappoint Crowe UK 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 shares in the company or to grant rights to subscribe for, or to convert any security into, shares in the company up to a total nominal amount of £489,242 during the period commencing on the date of the passing of this resolution and expiring at the conclusion of the annual general meeting in 2020 or on 30 September 2020, 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 shares to be allotted, rights to be granted or securities to be converted after such expiry and notwithstanding such expiry the directors may allot shares, grant rights or convert securities under such offers or agreements. Special resolutions 7. 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) of equity securities and/or the sale and transfer of shares held by the company in treasury (as the directors shall deem appropriate) to any person or persons up to an aggregate nominal amount of £293,545, such power to expire at the conclusion of the annual general meeting of the company in 2020 or, if earlier, on 30 September 2020, 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 SGH Company Secretaries Limited Secretary 22 August 2019 Registered Office: The Old Church 31 Rochester Road Aylesford Kent ME20 7PR 62 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 NOTICE OF ANNUAL GENERAL MEETING (continued) Notes Right to attend, speak and vote 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 26 September 2019. 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. Appointment of proxies 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. 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 chair 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 chair) and give your instructions directly to them. 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. Appointment of proxy using hard copy proxy form 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) as 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 Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London EC3V 0HR 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 the company secretary, Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London EC3V 0HR Scanning it and sending it by email to shaun.zulafqar@shma.co.uk 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. Appointment of proxy by joint members 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). Changing your instructions 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 company secretary 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 020 7264 4546. 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. Termination of proxy appointments 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 Secretary, Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London EC3V 0HR. Alternatively you may send the notice by email to shaun.zulafqar@shma.co.uk. 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. 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. Communications with the company 7. Except as provided above, members who have general queries about the meeting should telephone the company secretary on 020 7264 4546 (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, to communicate with the company for any purposes other than those expressly stated. Issued shares and total voting rights 8. As at 5.00 pm on the day immediately prior to the date of posting of this notice of meeting, the company’s issued share capital comprised 14,677,257 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 14,677,257. 63 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600P H S C p l c THIS PAGE HAS BEEN DELIBERATELY LEFT BLANK 64 Job No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600Proxy form for use by holders of ordinary shares in PHSC plc at the Annual General Meeting (AGM) to be held on Monday 30 September 2019 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 chair 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 chair 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. FOR AT AGAINST WITHHELD DISCRETION VOTE RESOLUTIONS 1. To receive the report and accounts 2. To declare a final dividend 3. To re-elect Nicola Coote as a director 4. To re-elect Lorraine Young 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) 2) 3) 4) 5) 6) If you wish to appoint as a proxy someone other than the chair of the meeting, please delete the words “The chair 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. 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. 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. 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. 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, anyone 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. 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, Shakespeare Martineau, 6th Floor, 60 Gracechurch Street, London EC3V 0HR no later than 48 hours (excluding non-working days) before the time of the AGM or any adjournment. 65 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600 66 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 660067 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 660068 PHSC plcJob No: 40344Proof Event: 4Black Line Level: 0Park Communications Ltd Alpine Way London E6 6LACustomer: PHSC plcProject Title: Annual Report & Accounts 2019T: 0207 055 6500 F: 020 7055 6600

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