Servoca plc Remains Profitable Despite Challenges
Servoca plc Remains Profitable Despite Challenges
Preliminary audited results for the year ended 30 September 2012
· Revenue £42.5 million (2011: £47.9 million)
· Gross profit £12.0 million (2011: £13.4 million)
· Administrative expenses £11.7 million (2011: £11.5 million)
· Profit before taxation (excluding amortisation and share based payments) £0.2 million (2011: £1.8 million)
· Basic EPS of 0.09p before amortisation and share based payments (2011: 1.41p)
Chairman / Chief Executive Officer Report
The year ended 30 September 2012 has been another challenging period for the Group and we are pleased to report that we have remained profitable before tax in line with the guidance issued at the half year.
Trading conditions have been most challenging in our Healthcare related activities which saw revenues fall by over £6 million due to a severe cut back in NHS spending.
As indicated in our statement for the first half of the year the trading environment and performance in the first six months led to a commensurate reduction in overheads in our Healthcare related activities as a priority and we enter the new financial year with a substantially lower cost base.
The full year performance of our Security business was positive, building on a good first half. This area continues to grow its revenues and delivered a much improved level of profitability for the Group following investment in the prior year.
Our Interim Statement referred to some early indicators that there may be an improvement in our Education recruitment markets. We also highlighted the importance of the September period and its impact on both the financial year under report and the next. We are pleased to confirm that trading conditions in the second half continued to improve and that performance met internal expectations in September.
We continue to invest in our Security and Education businesses which are showing positive momentum.
For the year ended 30 September 2012, Group revenue was £42.5 million compared with £47.9 million (2011), a reduction of 11.3%. Gross profit for the year was £12.0 million against £13.4 million (2011), a reduction of 10.4%.
Operating profit for the year was £0.3 million (before share based payment charges and amortisation of intangibles of £0.2 million) compared with an operating profit in the prior year of £1.9 million (before share based payment charges and amortisation of intangibles of £0.4 million).
Profit before taxation (excluding share based payment charges and amortisation of intangibles) was £0.2 million (2011: £1.8 million).
Profit after taxation (excluding share based payment charges and amortisation of intangibles) was £0.1 million (2011: £1.7 million).
The basic loss per share for the year was 0.04p compared with earnings per share of 1.05p (2011) based on profit after taxation, share based payment charges and amortisation of intangibles.
Net debt increased from £2.8 million at September 2011 to £3.3 million at September 2012.
Cash generated from operations in the year was £0.1 million (2011: £0.8 million).
Strategy and delivery
The focus in the period has been on developing the Group's capabilities in those areas which the Board believes will afford growth opportunities. Where businesses are faced with challenging trading conditions the Group will continue to manage overheads tightly whilst maintaining a credible capability.
Our outsourcing activities are primarily based in two areas Domiciliary Care and Security.
Following some strong growth from our Domiciliary Care activities during 2011 we noted in our Interim Statement that this area was not immune from the spending pressures affecting the Public Sector. We reported that NHS funded care was starting to come under the same pressures we had already witnessed in Local Authority funded care. This pressure continued in the second half and there was a noticeable reduction in spend from April onwards, in line with the new budget year in the NHS and Public Sector. The NHS have continued to fund considerably fewer hours of care for the same conditions that previously attracted much greater support. As a result of this, revenues in the second half were 11% lower than in the first half, which contributed towards an overall reduction in revenues for the year.
Efforts during the year ended September 2012 were focused on trying to ensure each branch was able to supply into a variety of funding sources. We also opened two new branches in areas where we were able to secure committed demand. Despite the reduction in revenues as a result of spending pressures, margins have stabilized since the new Public Sector budget year and have been aided by several new contract wins and progress in the new branches. We have restructured overheads in the second half to meet the challenges posed by the spending pressures now evident.
Our Security business made solid progress on the back of the investment made during the year ended 30 September 2011. Revenues for the year were up 19% and gross profits by 32%, this turned a net loss in the prior year into a healthy profit for the current year.
The business benefitted from increased demand for guarding services during the Olympics and enjoyed a particularly strong contribution from the corporate investigations business. The continued development of a broader service offering also saw increased sales from specialist security products to the retail industry and our event security offering.
Our recruitment businesses supply into the Healthcare, Education and Police markets.
As indicated in our Interim Statement, the Healthcare businesses continued to face a difficult trading environment. Revenues were down by 26% over the prior year and gross profits by 31%. The Doctors supply business was most affected with its revenues down by almost 50%, this represented over 85% of the total revenue decline across the Healthcare area. The business was restructured at the half year to reflect lower demand and the move towards more procurement through the formal NHS buying framework at reduced margins. The cost base was therefore substantially lower in the second half and helped effect a significant turnaround in its profitability.
The Nursing businesses again proved more resilient but were still subject to the same challenges. Our supply into the NHS in this area is all through formal procurement channels and this helped maintain revenues in the general nursing and care supply business. Revenues in this area were broadly the same as year ended 30 September 2011 but the budget pressures evident across the sector pushed gross profits down by over 14%. The specialist Nursing brand (Firstpoint) continued to be affected by the abolition of waiting list targets and the decision by many NHS Trusts to close Operating Theatres for elective surgery at weekends. This business specialises in the supply of theatre staff and the impact of these initiatives is that less surgery is taking place with less urgency over when it is performed, reducing demand for temporary staff in this area. Across our Nursing operations we have again taken action to reduce overheads in the face of these challenges.
In our Education operations we reported a reduction in revenues for the first half of 16% compared to the prior year but indicated that we were seeing some improvement as a result of management impact and signs of demand returning. We are pleased to report that the second half of the year cemented this view and the decline in revenues for the full year was reduced to only 7% with gross profits down by less than 4%.
Over the course of the last thirteen months we have opened three new branches and all are progressing in line with internal expectations. The September period, as discussed in the Interim Statement, was critical to the full year profits for the year ended September 2012 and in establishing a platform for the next financial year. We are pleased to report that trading in this period was positive.
Our Police business enjoyed a 13% increase in revenues, buoyed by improved demand as a consequence of the Olympics. As previously reported trading conditions continue to constrain growth but the business continues to deliver a solid performance.
Summary and prospects
The Group has taken strong action to reduce overheads in its Healthcare related activities and this has helped position the business for improved profitability.
Elsewhere we have a much better picture emerging with real progress in our Security operation and most notably our Education recruitment business.
The platform established in September 2012 positions our Education recruitment business for a substantive improvement in profitability for the forthcoming financial year. Under unified management we are seeing a positive impact on our internal capabilities and anticipate further branch openings to expand our geographic coverage and fuel revenue growth.