RNS Number:3443M
Parkman Group PLC
16 June 2003
For Immediate Release 16 June 2003
PARKMAN GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2003
Parkman Group plc ('Parkman'), the professional support services group, is
pleased to announce its preliminary results for the year ended 31 March 2003.
Financial Highlights
* Turnover up 26% to #57.6 million (2002: #45.8 million);
* Total operating profit before goodwill amortisation ('EBITA') up 53% to
#4.6 million (2002: #3.0 million);
* EBITA margin up to 8.0% (2002: 6.6%);
* Profit before taxation up 104% to #4.4 million (2002: #2.1 million);
* Basic earnings per share up 90% to 8.34 pence (2002: 4.40 pence);
* Final dividend proposed of 1.1 pence per share (2002: 0.9 pence per
share), up 22%, making a total for the year of 1.65 pence per share;
* Since the year end, Parkman have been named preferred bidder on a major
outsourcing partnership contract with Liverpool City Council worth #100
million over an initial ten year period, the largest contract ever won by
the Group.
Chairman, Richard Archer, commenting on the outlook said:
"Our order book at 31 March 2003 was at a record level of #130 million, and this
has since risen to over #240 million today, compared to #102 million at the same
time last year. We see no shortage of opportunities going forward.
"We now have the management team, systems and infrastructure in place to manage
a significantly larger business, and believe that we are poised to make the leap
to the next level.
"We have established a strong platform for the future, and we look forward with
unprecedented confidence to making further significant progress in the current
year and beyond."
For further information:
Richard Archer, Chairman 0121 355 8949
Richard Cuthbert, Chief Executive 020 7874 7717
Richard Darby, Suzanne Dunne
Buchanan Communications 020 7466 5000
Notes to Editors:
Parkman is a professional support services organisation that works extensively
with national, regional and local government, utilities, rail infrastructure
operators, education authorities and in the defence sector to provide wide
ranging technical and managerial expertise.
Outsourcing activities focus on mainly public sector operations predominantly in
highways and transportation, rail, water, property and social housing
management, defence and education. Underpinning this business is Parkman's
consultancy practice, which, in addition, provides expertise in environment
management, land information management and project management.
CHAIRMAN'S STATEMENT
I am delighted to report another record year for Parkman Group, with growth that
has again exceeded our expectations. This growth is enhanced by margin
improvement, leading to sharply increased profitability. Our future order books
are very strong, giving us a high level of confidence in the Group going
forward.
RESULTS AND DIVIDENDS
Our performance in the year ended 31 March 2003 reflects the quality and
strength of Parkman's businesses and our commitment to delivering improving
returns. The profit and loss account shows
that:
* Turnover increased by 26% to #57.6 million;
* Total operating profit before goodwill amortisation ("EBITA") grew by
53% to #4.6 million;
* EBITA margin up from 6.6% to 8.0%;
* Profit before taxation rose by 104% to #4.4 million;
* Basic earnings per share improved by 90% to 8.34p.
The Group's balance sheet has further strengthened, with controls on working
capital levels remaining tight. Cash flow has remained positive, with net cash
balances increasing by #0.4 million in the year. This is a remarkable
achievement given our high growth rate and continued investment in our future
growth.
Whilst conscious of the need to fund further organic and acquisitive expansion,
the Directors are pleased to propose a final dividend of 1.1 pence per share, an
increase of 22%, making a total dividend of 1.65 pence for the full financial
year.
The dividend of 1.1p per share will be paid on 6 August 2003 to shareholders on
the register as at 11 July 2003
PERFORMANCE
Parkman has continued to deliver strong organic growth in each of our areas of
activity.
Outsourcing turnover grew by 33% to #35.5 million whilst EBITA increased from
#2.2 million to #3.4 million, an impressive increase of 58%. EBITA margin
improved from 8.2% to 9.7%.
Consulting activities have grown by 16%, achieving turnover of #22.1 million,
whilst EBITA rose strongly by 39%, from #0.8 million to #1.2 million. EBITA
margin rose from 4.4% to 5.3%.
During the year, we continued to invest in the recruitment of quality people at
all levels, and in the communications and management information systems to
support them in delivering high levels of service more efficiently. In any
business growing at a rapid organic rate, bidding costs continue at a high
level; in the last year we have invested #1.3 million in bidding to secure our
future growth.
BOARD
On 1 July 2003, Graham Kilner will step down from the Board although he will not
be leaving Parkman. Graham has played a significant role in the success of the
Group, and I thank him for his contribution. He will become managing director of
the new Liverpool City Council joint venture company referred to below.
EMPLOYEES
Parkman today employs some 1,500 able and committed people. Investing and
communicating with all staff, including effective training programmes and
sharing of knowledge, is the cornerstone of our future. Our success in this area
has been recognised by our inclusion, at the first attempt, in The Sunday Times
"100 Best Companies to Work For" survey. Allied to our recent Royal Society for
the Prevention of Accidents (RoSPA) Silver award, and our continued status as an
Investor in People, we have the quality platform to further move the Group
forward together.
We have made a number of senior appointments during the year and now have a
talented, younger management team, led by Richard Cuthbert, who have all the
abilities necessary to maximise the considerable opportunities that are
emerging. "Our people are our greatest asset" is often an overused phrase.
However, it is never more appropriate than in Parkman and I thank our
exceptional people for their commitment to client service, team working and
drive to win.
PENSIONS
As previously reported, we have taken steps to limit entry into the Parkman
defined benefit pension schemes. The financial statements will give the
transitional disclosures under FRS 17, which show that at 31 March 2003 the
excess of pension liabilities over assets (net of provisions and taxation)
amounted to #11 million. From 1 April 2003, the Group has increased employer
and employee contributions in order to address the excess identified under the
Minimum Funding Requirement (MFR); this is in addition to the #2.3 million
previously provided. Further details are contained in the Finance Director's
Report.
STRATEGY
To date, our strategy has succeeded in Parkman meeting or exceeding all of our
expectations over the last five years.
Our past decision to exit sectors of business vulnerable to economic cycles has
been vindicated by subsequent events. We have concentrated on building strong
operations in the growth sectors of outsourced asset management and support
services, which exhibit strong organic expansion coupled with long term secure
markets and high visibility. At the same time, we aim to avoid all high risk
areas, including major PFI positions.
We now have the capability to expand the Group even further through selected
acquisitions, which will widen our service offerings, and we are vigorously
pursuing such opportunities.
OUTLOOK
Since the year end, we have been successful in being named preferred bidder on a
major outsourcing partnership contract with Liverpool City Council to provide
property and transport services. We will be forming a new joint venture company
with the Council. The contract, which is due to commence in September 2003, is
worth some #100 million to Parkman over its initial ten year period and can be
extended for a further ten years. This will be the largest contract ever won by
the Group and is the first of what is expected to be a number of such contracts
of "bundled" services released by local authorities. Our order book at 31 March
2003 was at a record level of #130 million, and this has since risen to over
#240 million today, compared to #102 million at the same time last year. We see
no shortage of opportunities going forward.
We now have the management team, systems and infrastructure in place to manage a
significantly larger business, and believe that we are poised to make the leap
to the next level.
We have established a strong platform for the future, and we look forward with
unprecedented confidence to making further significant progress in the current
year and beyond.
RICHARD ARCHER
Chairman
16 June 2003
CHIEF EXECUTIVE'S REPORT
INTRODUCTION
In the year to 31 March 2003, Parkman has benefited from growth across its core
markets in outsourcing and consultancy. We experienced considerable expansion in
our water business, won major new contracts in the rail sector, and enjoyed
another year of strong performance in local authority outsourcing, particularly
highway maintenance, confirming our position as one of the UK's leading
providers in that market.
OUTSOURCING
Parkman's core business is working with the public sector (including recently
privatised and regulated
private sector organisations) to improve public services. This includes a
variety of externalisations, partnerships and framework contracts. The strong
trend by local government and utilities in the UK towards the further
outsourcing of professional services and the formation of strategic alliances or
partnerships with private sector providers continues. The emergence of local
authority "bundled professional services" commissions demonstrates a maturing of
this market and is a development that Parkman is well placed to address.
Our outsourcing order book stood at #110 million at the year end. However, the
effect of our preferred bidder position with Liverpool City Council - on which
we expect to reach contract completion this August - together with a number of
other recent successes has been to increase our outsourcing order book to a
total value of #240 million by June 2003. The order book includes major
commissions with water companies, with rail companies, with local authorities
(in highways and transport and in property and social housing) and with central
government departments and agencies. 100% of the Group's outsourcing sales'
target for 2003/04 is already in the order book and 75% of the 2004/05 target is
booked.
Water
Parkman's water business more than doubled in 2002/03, much of the growth
resulting from the award
or extension of long-term commissions with the UK water companies - we now work
with seven of these as well as with Scottish Water and with the Water Service in
Northern Ireland.
In the UK, the water industry is in the middle of the AMP3 (the third Asset
Management Plan) period and this has led to significant investment in new plant
and in the maintenance and upgrade of existing facilities. In recent years we
have developed a portfolio of commissions with Thames Water, the largest water
company operating in the UK. In 2002/03 this was supplemented by our appointment
to undertake leakage assessments and zonal pressure management studies,
supporting Thames Water in reducing leakage levels across North London.
Severn Trent Water awarded Parkman a three year framework contract for water
network modelling and support services, adding to an existing mains cleaning
commission. This work is assisting Severn Trent to develop their replacement
programme for ageing infrastructure, particularly cast iron pipes. Elsewhere in
the UK we are providing network modelling and serviceability advice to Yorkshire
Water, where we are now in the second year of a three and a half (extendable to
five) year commission. We have continued our relationship with United Utilities,
providing services as designer to the Kier-Murphy-Interserve joint venture and
contributing to the delivery of United Utilities' asset management plan. This
arrangement leads the way in collaboration between water companies and the
construction industry and is supplemented by two further service contracts to
United Utilities for network model maintenance and professional services. These
contracts involve investigations into contaminated surface water sewer outfalls,
building water network models and determining the causes of flooding throughout
the United Utilities area.
In April 2003 Northumbrian Water appointed Parkman under three separate
framework contracts for three years, extendable to five, covering network
modelling and zonal planning, pipeline management, and water quality assessment
and analysis. These activities, which will be undertaken in both the Northern
and Southern operating areas of Northumbrian Water, result from the need to
comply with regulatory demands in AMP3 and contribute to the assessment of
risks, and hence optimisation of investment plans, throughout the AMP4 period.
Rail
Parkman's rail business has consolidated in areas of specialist expertise within
the sector, with a particular focus on long-term inspection contracts for
railway structures. The Group is not involved in the outsourcing of rail track
maintenance and has no ambitions in that market.
In January 2003 Network Rail appointed Parkman, under a ten year commission, for
the inspection of its structural assets in the North West of England, extending
considerably the work we were carrying out in that zone. The contract involves
the examination of structures across the North West, from Crewe to the Scottish
border and as far west as the Cumbrian and North Wales coasts. It includes
several of the UK's largest tunnels, linking Lancashire and Yorkshire, the
MerseyRail underground network, extensive coastal defences, and the historic
Ribble Head Viaduct in Lancashire. We were also appointed by Network Rail early
in 2003, under a structural assessment contract for rail structures in the North
West, again for a ten year period.
Our third major win with Network Rail during the course of the year was our
appointment under a five year commission to inspect and report on the condition
of some 3,500 station and line-side buildings in the North West and Midlands
Regions. Together with our long-term activities supporting the planning and
preparation of new cross-London rail lines, and of light rail systems in other
cities, we are rapidly developing a rising profile in the rail sector.
Highways and transport
Our transport divisions have performed strongly throughout the year. In New
Civil Engineer magazine's annual survey of the UK construction industry, Parkman
was for the first time ranked in the top six out of nearly 300 candidate firms
in this sector in the UK in 2002/03. We are firmly positioned amongst the
leading players in this market overall, and in the specific area of local
authority highways management, Parkman is arguably the number one UK provider.
Highways and transport remains the Group's core activity and contributes the
dominant proportion of Group turnover.
The growth of existing highways and transport outsourcing commissions accounted
for the majority of the Group's increased volume in this sector in the year. Our
principal contract is in Wiltshire, where an innovative three-way relationship -
"Wiltshire Highways Partnership" - has developed from originally separate
contracts for both Parkman and the term contractor with the County Council, and
resulted in more integrated service delivery.
Other partnerships with London Boroughs (especially Westminster and Havering),
with Shropshire County Council, with Wokingham District Council and with a
number of city councils, have also grown in value this year, a reflection of the
increasing maturity of these relationships. In all cases, high quality
performance and a track record of delivery is contributing to increasing
confidence and trust, thereby positioning Parkman well for future negotiated
contract extensions and repeat contract awards.
Towards the end of the last financial year, Parkman won two new "stewardship"
contracts with Transport for London (TfL) in the "South and East" and "South
Central" sectors of the London road network - these contracts commenced on 1st
April 2002. Both contracts will run for at least five years and position Parkman
as one of only two private sector providers in the Capital. We are "the eyes and
ears" of TfL across the network, inspecting and managing maintenance on London's
primary route network. This included, in the early part of the year, a key role
overseeing the design and supervision of remedial measures in the wake of the
major A2 trunk road collapse in Blackheath, East London. An innovative asset
inventory management system has been developed as part of these commissions,
using a GPS-referenced video system to map highway features and record assets
using technology transferred from the rail industry.
We recently started work in Islington following our appointment in January 2003
by the London Borough of Islington under a two to five year contract to provide
traffic and transportation services in the borough. The main focus of the
commission is to design and implement new Controlled Parking Zones across the
borough, including the review of some of the existing areas, and match-day
parking controls around the proposed new Arsenal FC stadium. This contract is
being run as a three-way partnership between Parkman, Islington and Arsenal
Football Club.
Property and housing
This year has seen difficult trading for some of our property and housing
divisions. Nevertheless we believe that there are significant prospects in this
sector - local government outsourcing of the management of property maintenance
is yet to reach the level of maturity of the local authority highways market;
and local authorities continue to be encouraged by central government to
outsource the management of their social housing stock maintenance and renewal.
Parkman is developing a good track record in the sector which we expect will
stand the Group in good stead as an increasing number of opportunities come to
market in the years ahead. Significant property contracts began at the start of
the year in the London Borough of Havering - a "bundled services" commission
also including architectural and transport services - and in Wiltshire, where a
radical approach on a major schools repairs programme ensured delivery ahead of
time and without disruption. These contracts add to an order book that already
included property services for the London Boroughs of Southwark, Bexley,
Lewisham and Croydon and for the Greater Manchester County Fire Service.
In Westminster Parkman's five year social housing management contract
(extendable by ten further years) is now beginning its third year. It has been
broadened through an alliance agreement with maintenance contractors, marking a
step change in commissioning, delivering and managing building and repair works.
In parallel with the Westminster commission, an innovative approach to
regeneration involves the refurbishment of a 1970's tower block in Pimlico,
based on 'intelligent and green' principles in pursuit of the client's strategy
to meet the "Decent Homes" standards.
Central Government
There remains strong, continuing demand for facilities design and project
management services in the defence sector, with the Group's principal focus
being on air force bases across the country. Parkman's extended project
management term contract with Defence Estates (US Forces) has resulted in non -
strategic facilities schemes at RAF Mildenhall, RAF Lakenheath, and RAF St
Mawgan, whilst at RAF Fairford we continue to provide services on a range of
projects extending over a period of three years. We anticipate being invited to
bid for the successor term commission in the near future, with the potential
prize of a longer term and more wide-ranging contract.
In May 2002 we completed the acquisition of Full Circle, a specialist education
consultancy and school improvement services business. As a result, we entered
the school inspections market for the first time, building on our earlier work
with the Department for Education and Skills (DfES) on the City Academies
programme. Our long term contract with Ofsted continues to the end of the 2002/
03 school year and following the tender round for 2003/04 we have now secured
our position as one of Ofsted's quality assured providers, with responsibilities
for primary school inspections in the new academic year. This market is
consolidating and, with Ofsted considering longer-term contracts, we are
optimistic about our future prospects. In March 2003 we also secured a three
year education consultancy services framework agreement with the DfES.
Liverpool City Council
On 30 May 2003 Liverpool City Council selected Parkman as preferred bidder to be
their partner for a major property and professional services contract. The
initial contract period is for ten years and some 250 staff are expected to
transfer to Parkman in the first year of the contract, which begins in September
2003. This contract represents a step change for the Group. It will be a major "
bundled services" contract embracing highway and traffic engineering, property
design and building services, housing repairs consultancy and valuation and
estate management.
We will work in joint venture with the City Council to undertake the duties of
the partnership in Liverpool. The Council has expressed its interest in
extending the services in the partnership and, subsequently, in offering similar
services in other boroughs and cities. Over the summer we will be mobilising for
this contract, which involves the deployment of senior management and others to
join transferring staff in new premises in the centre of Liverpool.
CONSULTANCY
Transport and water projects continue to dominate the Group's #20 million
consultancy order book, reflecting the distribution of our outsourcing workload.
However, investment in other sectors is increasing our penetration of a wider
and more mixed range of opportunities.
Water
Parkman has developed a diverse portfolio of consultancy contracts with UK water
companies, infrastructure developers, ports and harbour authorities and Regional
Development Agencies.
The UK water companies continue to be under pressure from the regulator to
increase efficiency and reduce costs to the customer, whilst enhancing water
quality and increasing customer satisfaction. For Thames Water, Parkman is
undertaking water supply pressure management studies as a result of progress on
leakage reductions; and for Severn Trent Water we are carrying out performance
assessments of water distribution systems in order to support capital
expenditure strategies for mains rehabilitation.
In the marine sector, Parkman has provided marine engineering services to
English Partnerships at Liverpool South Docks under a contract awarded in April
2002, to the Highlands Council, Isle of Anglesey District Council and North
Devon on coastal protection schemes and flood defence schemes, and to
Denbighshire County Council in support of marina and infrastructure development
proposals in North Wales.
In Ireland, Parkman, in partnership with Severn Trent Water International, was
awarded a water mains leakage management framework contract in April 2002 and we
are working with the Department for Regional Development Water Service, to
deliver its strategy to meet leakage reduction targets.
Internationally the Group continued to undertake aid agency supported water
projects in Africa, including the EU funded Lesotho Lowlands Water Supply
Feasibility Study and water supply projects in Nigeria, the latter in
partnership with Severn Trent and funded by the World Bank.
Rail
Parkman LandAspects, the Group's specialist land information management
division, has completed statutory documents for the first Scottish Parliamentary
private Bill dealing with railway infrastructure for the
Stirling-Alloa-Kincardine Railway. LandAspects maintains market leadership in
the specialist area of statutory processes for rail and light rail projects,
utilising innovative technology to maximise the efficiencies in this type of
work.
In other areas of rail consultancy, we took steps to exit the rail signalling
sector, as we had found breaking into, and establishing critical mass in this
sector, challenging. Since the end of the year we have successfully transferred
our small team to a specialist rail signalling consultancy where we have an
existing working relationship, and with whom we will continue to collaborate on
multi-discipline projects.
Highways and Transport
The government's #180bn national roads programme has resulted in a major upturn
in the sector within the last 12 months, supplemented by a corresponding growth
in local authority expenditure on roads and road maintenance. To strengthen our
service capabilities, we have appointed specialists to the new post of Chief
Engineer in each of Highways, Highway Maintenance and Transport Planning.
Our existing design framework commissions (CFADS) with the Highways Agency (HA)
have ensured a continued flow of opportunities for participation in this
programme. Parkman is pre-eminent in Early Contractor Involvement (ECI) forms of
contract, developed on the A500 Stoke ECI "Pathfinder" and the A30 Bodmin to
Indian Queens projects. This now forms the contractual basis for most future
trunk road procurement contracts and positions Parkman as a leader in this
field. As a result Parkman has been appointed to carry out professional
services for the Highways Agency on schemes such as the M56 Deeside Junction in
Chester, the M60 Junctions 5-8 in Manchester, the A483 Pant to Llanymynech
bypass in Shropshire, the A1 Peterborough to Blyth junctions improvement scheme,
the A5/A49 Bayleys Roundabout Improvement scheme in Shropshire and part of the
M1 Widening through the East Midlands.
The growing workload through CFADS is compensating for the disappointment of
narrowly missing out in the latest round of HA Managing Agent Contracts (MACs)
which were bid in the year. At the same time, we are re-positioning to maximise
opportunities arising through design-and-build in the roads sector, both with
central government agencies and with local authorities. We have appointed a
full-time design-and-build manager to co-ordinate and support growth and
alliances have been formed or strengthened with a number of major national
contractors. In May 2003, Norfolk County Council appointed a Birse/Parkman
design-and-build team for the Nar Ouse Regeneration scheme. Parkman's role
includes remediation of a contaminated former industrial complex and the design
of an associated road scheme to open up a development site straddling the rivers
Nar and Ouse in King's Lynn.
In Ireland, our work on the N17 Galway to Tuam, the N6 Kinnegad to
Rochfordbridge, and the N8 Watergrasshill to Kilbehenny projects provide a
three-year forward order book, despite a national scaling-down of the country's
roads programme. The high profile A1/N1 Newry to Dundalk cross border road
project, for which Parkman is project manager and designer, has successfully
been steered through concurrent public consultations in Northern Ireland and the
Irish Republic and we will continue to provide services through public inquiry
and construction, which commences in 2004.
Overseas, major highway projects in Abu Dhabi have been unaffected by Middle
East conflicts and in India Parkman is working with local consultants to deliver
road management information technology for the National Highways Authority of
India (NHAI) on a project funded by World Bank. In Poland, Parkman is providing
the National Roads Administration with strategic and contractual advice on the
development of the country's first two privately financed road schemes.
Project Management
Parkman is not an investor in either Private Finance Initiative (PFI) or Public
Private Partnership (PPP)
construction projects in any sector. The Group has, however, continued to
provide professional advice and project management support to clients in their
development of PFI projects - a specialist service area to which we bring high
level consultancy skills. Parkman has supported Tyne and Wear Fire Brigade in
implementing a #30 million contract to rationalise its strategic operational
property, including a new brigade headquarters, six fire stations, and a
technical services centre. We have also worked with Doncaster Council to secure
over #40 million of PFI Credit approval for two new secondary schools, and with
the London Borough of Ealing in the development of a street lighting PFI
project.
The Greater Manchester Police Authority appointed Parkman to manage construction
works carried out under their capital and revenue programmes in a three year
contract starting in March 2003. We have also been responsible for the design
and construction project management of Greater Manchester Fire Brigade's #2.7
million technical services centre and the development of an asset management
plan for Merseyside Fire and Civil Defence Authority. Alder Hey Hospital
Oncology Unit - for which Parkman provided project management - was completed at
the end of the year.
In the field of social housing, the market is being driven by the Government's
requirement for local authorities to achieve the 'Decent Homes' standard by 2010
and this is presenting opportunities for our specialist housing consultancy. We
are already advising the London Boroughs of Havering and Barking, as well as
authorities outside London, on housing management issues. This niche consultancy
activity's principal contribution to the Group is in providing front-end
knowledge and relationships to potential outsourcing opportunities. During 2002/
03 few, if any, local authorities made progress down this route, slowing our
progress in this market. However, the new Liverpool City Council contract,
secured since the year end, is likely to include the transfer of the Council's
housing repairs consultancy and represents a further step forward for our
involvement in this sector.
Environment
Our environment teams have had another good year with growth in most offices.
The Division was restructured into four disciplines with the establishment of a
new Environmental Impact Assessment section. There was a significant
geotechnical input to the A2 Blackheath collapse for TfL and we have extended
our portfolio of gasworks remediation projects with new commissions,
predominantly in Ireland. The remediation of Sir John Rogerson's Quay in Dublin
was completed with the successful surrender of two Waste Management Licenses
(the first ever in Ireland) and work also commenced in Limerick and Waterford
for Bord Gais. Several term commissions have been secured, including a three
year contract with the Coal Authority to June 2005, and a three year engineering
services commission with English Partnerships to 2004.
SUPPORT FUNCTIONS
The operating divisions work closely with teams across the range of normal
support functions - finance, IT, marketing and communications, HR, health and
safety, quality and environmental systems, legal, property and company
secretarial. During the year we took steps to ensure that support staff were
fully integrated with our operating divisions, particularly in marketing,
finance and HR. Our business unit directors now have finance and HR "business
partners" and the marketing support team has been extended to include staff in
each of our principal offices. We are already seeing the benefit of these
changes in areas such as project control, recruitment and bidding.
We successfully installed our new corporate management information system
(CMIS), using proprietary software and support, which went live on 1 April 2002.
This brought many challenges to staff and also significant training time and
costs in the year. We are very pleased with the way the system and procedures
have bedded in and we are now embarking on the next phase of its development.
CMIS is already bringing great benefits to the Group in terms of improved
project management, business review and reporting.
CMIS required a significant investment in IT equipment. Alongside this we were
also able to continue the regular upgrade and replacement of our IT facilities
and provide computers for all new starters in a timely fashion.
In the course of the year we set up, under the direction of a member of the
Group Executive, a Performance and Innovation team to lead and co-ordinate
Parkman's work on safety, health, environment and quality (SHEQ) and to drive
continuous improvement across the Group. Performance management systems are
being adopted across the Group to ensure that performance levels are known and
monitored (through Key Performance Indicators) and that all innovations are
captured and converted to improvements in working practice.
The Group retains its quality registration under ISO 9001:2000. Our
environmental policy and environmental management system (EMS) was upgraded in
2002 to more effectively monitor environmental performance across the Group. All
offices are registered under ISO 14001:1996 and each office has environmental
objectives and targets. Ongoing improvement against targets is managed using a
process of environmental risk assessment and success has been demonstrated
against a wide variety of measures.
Many of our commissions are with local government and central government
departments, whose actions are required to reflect development sustainability in
line with Local Agenda 21. We too are mindful of our responsibilities for
sustainability and bring support through our knowledge of urban transportation
initiatives, education in sustainability, bio-diversity issues, and quality of
life improvements.
People
The Group employed just over 1,500 staff at 31 March 2003, the vast majority of
whom are educated to
degree level and who are technically and professionally qualified, an increase
on the previous period of some 20%. The calibre and commitment of Parkman's
people is one of the most significant factors in the Group's continuing success.
The growing strength of Parkman's reputation as a good employer was underlined
by our inclusion for the first time in the Sunday Times "100 Best Companies to
Work For" survey for 2003.
A key factor in attracting and retaining quality people lies in the commitment
of the Group to training and personal development. The Parkman Academy provides
the umbrella organisation for all staff development programmes, which in
addition to technical and managerial training includes a Management Development
Scheme (MDS) that underpins succession planning strategy in the business. Three
staff from the first MDS intake have now graduated to become business unit
directors.
Effective succession planning has also been in evidence through the appointment
to the Group Executive this year of directors to lead each of the Group's three
principal operating divisions.
SUMMARY
Our performance in 2002/03 has enabled us to produce an excellent set of
results, as highlighted in the Chairman's Statement, and which are once again in
line with the plans which we set out on flotation in July 2001. That we have
been able to deliver such a strong performance, whilst introducing new
management and systems, is especially pleasing and is a tribute to the Group's
executive team and to all of our people.
The start that we have made to 2003/04 is extremely encouraging. Our profile
continues to rise as a result of the progress made and in turn this is
increasing our ability to attract and retain the very best staff. We remain
excited about the Group's prospects for the current financial year and beyond.
RICHARD CUTHBERT
Chief Executive
16th June 2003
FINANCE DIRECTOR'S REPORT
INTRODUCTION
I am pleased to report another successful year for the Parkman Group with strong
growth in turnover and operating profit. The Group's balance sheet remains
ungeared with significant cash balances at the year end.
Parkman continues with the policy of acquiring businesses providing synergy for
the Group and the acquisition of the Full Circle educational business was
successfully completed in May 2002.
We are now into the second year with our new integrated management information
system, which has been implemented successfully. This has been achieved with a
great deal of effort from our staff and I would like to thank them all for their
hard work in this regard.
OPERATING PROFIT
Total operating profit before amortisation of goodwill and exceptional finance
charges ("EBITA") has increased year on year by 53% from #3.0 million to #4.6
million. This has been achieved through a combination of growth in turnover of
26% and improving trading margins. Firm control continues to be exercised over
the cost base of the business, whilst incurring the increased bidding costs and
recruitment cost of additional staff, necessary to deliver the strong turnover
growth. All such costs have been fully expensed in the year. This continued
improvement in operational gearing has increased profitability, such that EBITA
to turnover has increased from 6.6% to 8.0%.
EBITA of #3.0 million in the second half, compared to #1.6 million in the first
six months, reflected the usual trend in volume and profitability, as well as
the continued improvement in the Group's core water and transport businesses.
Outsourcing activities continue to grow impressively, expanding by 33% on the
previous year, and now account for 62% of total turnover. The EBITA margin on
outsourcing has further improved year on year from 8.2% to 9.7%. Progress
continues to be made in the Group's Consulting activities. There was strong
turnover growth of 16% on the year whilst EBITA grew more sharply by 39% with a
resulting improvement in the EBITA margin from 4.4% to 5.3%.
INTEREST AND FINANCE CHARGES
In the previous year, the Group repaid bank loans and borrowings arising from
the MBO, giving rise to an exceptional finance charge of #0.6 million. Following
that repayment, interest and finance charges continued to be low and in the year
ended 31 March 2003 the only servicing of debt was for finance leases, with
interest being #25,000.
TAXATION
The underlying tax charge on profit, excluding amortisation of goodwill, was
30.8% (2002: 29.9%). This is due to the reduced impact of lower taxed overseas'
profits on the whole, combined with a marginally higher level of disallowable
items in the current year.
EARNINGS PER SHARE AND DIVIDENDS
Adjusted earnings per share, which excludes goodwill amortisation and last
year's exceptional item, increased by 48% from 6.20 pence for the previous year
to 9.16 pence for the year ended 31 March 2003.
An interim dividend of 0.55 pence per share was paid in January 2003 and the
directors propose a final dividend of 1.1 pence per share payable in August
2003. This represents an increase on the final dividend of 22% on the previous
year and brings the total for the year to 1.65 pence per share (2002: 0.9 pence
per share). The total dividend for the year is covered 5.0 times by profit
(2002: 4.6 times).
NET ASSETS
Net assets increased over the year from #10.7 million at 31 March 2002 to #13.4
million at 31 March 2003. This change is reflected primarily in the goodwill
arising from the acquisition of the Full Circle business (#1.2 million pre
amortisation) and an increase of #1.7 million in net current assets.
SHAREHOLDERS' FUNDS
Shareholders' funds increased by #2.7 million over the year, of which #2.3
million was retained profit. The only movement within share capital and share
premium was the issue of 2,301 shares, on the
exercise of share options.
The 'Shares to be issued' within shareholders' funds amount to #0.4 million,
representing the contingent shares to be issued on the acquisition of the Full
Circle business. Subsequent to the year end 109,936 1 pence shares were issued
as part of the total consideration for that acquisition.
PROVISIONS AND PENSIONS
A pension provision of #2.3 million was made on the acquisition of Parkman
Limited by Parkman Group plc in May 2000 and remains in place at 31 March 2003.
This was based on a re-assessment of the past service liabilities of the Defined
Benefit Pension Scheme assuming a reduction in the rates of long-term investment
returns.
Following the latest actuarial review at 5 April 2002, the Group is making
increased contributions to the Defined Benefit Pension Scheme at the level
recommended by the scheme's actuary in order to meet the regulations of the
Minimum Funding Requirement.
The Group has adopted the transitional disclosure requirements of FRS17. In
common with many other companies, the Group would report a significant deficit
in its reserves if it were to adopt the full requirements of FRS17 at this
stage. However, the Directors believe that the FRS17 valuation basis merely
shows a snapshot in time at this point, when market values are depressed, and
does not reflect the long-term pension funding position.
Nevertheless, the Directors have taken steps to protect the reserves of the
Group including closing the Defined Benefit Scheme to most new employees and
providing a Defined Contribution Scheme in its place (as previously reported)
and increasing contribution rates as above. The Directors will continue to
closely monitor this pension position.
ACQUISITION
On 24 May 2002, the Group acquired the net business assets of Full Circle LLP
together with the issued share capital of Full Circle Educational Services
Limited, for a maximum consideration of #1.4 million, contingent on future
profit performance. The present fair value of the consideration is #1.3 million,
with the contingent share element shown in 'Shares to be issued' (within
shareholders' funds) and the remaining cash element provided within creditors as
deferred consideration. Full Circle, a major provider of primary school
inspection services to Ofsted, has been a successful addition to the Group's
business and has been earnings enhancing during the year.
CAPITAL EXPENDITURE
Capital expenditure amounted to #1.4 million during the year, of which #0.07
million was funded on finance leases. The expenditure was primarily on IT and
office infrastructure to support the expansion in the business and included #0.2
million of ongoing investment in our new management information
system.
CASH FLOW
Cash flow from operations generated #3.3 million, continuing the strong
performance in profit to cash conversion. The high growth in turnover required
significant additional working capital investment. However, this was limited to
#2.4 million, by the increased efficiency of working capital management with a
reduction of five days in working capital lock up over the year.
Interest, dividends and taxation consumed cash of #1.4 million.
Net cash inflows, amounted to #0.4 million for the year, giving a closing cash
balance of #4.8 million at the year end.
FINANCIAL RESOURCES AND OUTLOOK
Our well-defined strategy of organic growth by the development of existing
activities will continue to be financed by retained profits. We remain confident
that for significant acquisitions and major strategic contracts our ungeared
balance sheet and strong cash flow will ensure that appropriate financing
remains available to the Group.
IAN HOWITT
Finance Director
16 June 2003
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2003
2003 2002
Notes #'000 #'000
TURNOVER 3 57,644 45,792
Other external charges (8,052) (6,826)
49,592 38,966
OPERATING EXPENSES
Staff costs (36,105) (29,341)
Depreciation and amortisation (1,434) (968)
Other operating charges (8,242) (6,323)
Other operating income 477 441
GROUP OPERATING PROFIT 4,288 2,775
Share of operating profit from associate 36 79
TOTAL OPERATING PROFIT 3 4,324 2,854
Total operating profit before goodwill amortisation 4,610 3,018
Goodwill amortisation (286) (164)
Total operating profit 4,324 2,854
Interest receivable and similar income 55 78
Interest payable and similar charges (25) (796)
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 4,354 2,136
Profit on ordinary activities before taxation and
exceptional finance charges 4,354 2,769
Exceptional finance charges 4 - (633)
Profit on ordinary activities before taxation 4,354 2,136
Tax on profit on ordinary activities 5 (1,431) (688)
PROFIT FOR THE FINANCIAL YEAR 2,923 1,448
Equity dividends 6 (580) (316)
RETAINED PROFIT FOR THE FINANCIAL YEAR 2,343 1,132
Pence Pence
Basic earnings per share 7 8.34 4.40
Adjusted basic earnings per share 7 9.16 6.20
Diluted earnings per share 7 8.25 4.38
There is no difference between the above results and those reported on a
historical cost basis. The results for the current and preceding years are
wholly derived from continuing operations
GROUP BALANCE SHEET
at 31 March 2003
2003 2002
#'000 #'000
FIXED ASSETS
Intangible assets 3,997 3,029
Tangible assets 2,831 2,559
Investments 173 155
7,001 5,743
CURRENT ASSETS
Debtors: amounts falling due within one year 18,406 14,863
Debtors: amounts falling due after more than one year 698 645
19,104 15,508
Cash at bank and in hand 4,821 4,454
Current assets 23,925 19,962
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (14,755) (12,473)
NET CURRENT ASSETS 9,170 7,489
TOTAL ASSETS LESS CURRENT LIABILITIES 16,171 13,232
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR (419) (205)
PROVISIONS FOR LIABILITIES AND CHARGES (2,300) (2,300)
NET ASSETS 13,452 10,727
SHARE CAPITAL AND RESERVES
Called up share capital 351 351
Share premium 8,560 8,557
Shares to be issued 397 -
Merger reserve 94 94
Profit and loss account 4,050 1,725
EQUITY SHAREHOLDERS' FUNDS 13,452 10,727
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the year ended 31 March 2003
2003 2002
#'000 #'000
Profit for the financial year before dividends 2,923 1,448
Exchange movements (18) (26)
Total recognised gains and losses since last Annual Report 2,905 1,422
RECONCILIATION OF GROUP SHAREHOLDERS' FUNDS
for the year ended 31 March 2003
2003 2002
#'000 #'000
Profit attributable to ordinary shareholders 2,923 1,448
Interim dividends (193) -
Final dividends (387) (316)
2,343 1,132
Redemption of shares - (430)
New share capital issued - 8,927
Share options exercised 3 -
Shares to be issued 397 -
Exchange movements (18) (26)
Net increase in shareholders' funds 2,725 9,603
Opening shareholders' funds 10,727 1,124
Closing shareholders' funds 13,452 10,727
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 March 2003
2003 2002
#'000 #'000 #'000 #'000
Net cash inflow from operating activities 3,349 3,221
Returns on investments and servicing of finance 21 (149)
Taxation paid (912) (599)
Capital expenditure (1,319) (1,243)
Acquisitions (48) 35
Equity dividends paid (509) (62)
Net cash inflow before financing 582 1,203
Financing:
Issues of ordinary share capital 3 8,833
Redemption of shares - (430)
Capital payments under finance leases (218) (269)
Repayments of borrowings - (5,785)
(215) 2,349
Increase in cash in the year 367 3,552
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Parkman Group's financial
statements.
2. BASIS OF PREPARATION
The financial information has been prepared under the historical cost convention
and in accordance with applicable UK Accounting Standards.
The financial information contained in this preliminary announcement does not
constitute the Company's statutory accounts for the years ended 31 March 2002
and 2003 for the purposes of section 240 of the Companies Act 1985. The auditors
have reported on these accounts; their reports were unqualified and did not
contain the statements under section 237 (2) or (3) of the Companies Act 1985.
3. TURNOVER AND SEGMENTAL ANALYSIS
Analysis of turnover and operating profit by activity is as follows:
Turnover Operating profit
2003 2002 2003 2002
#'000 #'000 #'000 #'000
Outsourcing 35,494 26,656 3,435 2,173
Consulting 22,150 19,136 1,139 766
57,644 45,792 4,574 2,939
Add: Share of profits from associates - Consulting 36 79
Less: Amortisation of goodwill (286) (164)
Total operating profit 4,324 2,854
4. EXCEPTIONAL ITEM - YEAR ENDED 31 MARCH 2002
Early repayment of deferred arrangement costs
Following the listing on 5 July 2001 bank borrowings and loan notes were repaid
from the proceeds of the new shares issued. As a result, the balance of
deferred finance costs of #565,000 incurred in raising the borrowings, which was
being amortised over the original term of the borrowings, were written off as an
exceptional item in the year ended 31 March 2002. Additionally a payment of
#68,000 was made in July 2001 to terminate the interest swap agreement in
relation to these bank borrowings.
5. TAX ON PROFIT ON ORDINARY ACTIVITIES
(a) Analysis of charge in year
2003 2002
#'000 #'000 #'000 #'000
Current tax:
Corporation tax on profits for the year before
exceptional item and overseas tax 1,433 815
Overseas tax 51 31
Tax effect of exceptional item - (204)
Adjustments in respect of previous periods - 1
Total current tax 1,484 643
Deferred tax:
Origination and reversal of timing differences (53) 45
Total deferred tax: (53) 45
Tax on profit on ordinary activities 1,431 688
(b) Factors affecting tax charge in year
The tax charged for the year is marginally higher than the standard rate of
corporation tax in the UK (30 per cent). The differences are explained below:
2003 2002
#'000 #'000
Profit on ordinary activities before tax 4,354 2,136
UK corporation tax at 30% 1,306 641
Effects of:
Expenses not deductible for tax purposes 58 41
Amortisation of goodwill 86 50
Depreciation in excess of capital allowances for the current year 65 (33)
Lower rates on overseas earnings (38) (27)
Other differences 7 (29)
Current tax charge for the year 1,484 643
6. DIVIDENDS
2003 2002
#'000 #'000
Equity dividends on ordinary shares:
Interim dividend of 0.55p per share paid on 17 January 2003 193 -
Proposed final dividend of 1.1p per share (2002: 0.9p per share) 387 316
580 316
The final dividend proposed for the year ended 31 March 2003 is calculated based
on 35,170,441 ordinary 1 pence shares.
7. EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing profit after tax of
#2,923,000 (2002: #1,448,000) by the weighted average number of shares in issue
during the year of 35,059,863 (2002: 32,914,229).
Fully diluted earnings per share is the basic earnings per share after allowing
for the dilutive effect of theconversion into ordinary shares of the number of
options outstanding during the year together with the effects of the Full Circle
contingent consideration. The number of shares used for the fully diluted
calculation is 35,441,261 (2002: 33,062,017).
The adjusted earnings per ordinary share information has been calculated before
amortisation of goodwill and exceptional items. The Board believes that this
additional measure provides a better indicator of the underlying trends in the
business.
The calculations of the earnings per ordinary share and adjusted earnings per
share are based on the following:
2003 2002
Pence Pence
EARNINGS PER ORDINARY SHARE
Basic earnings per share 8.34 4.40
Effect of exceptional item - 1.92
Effect of tax on exceptional item - (0.62)
Effect of goodwill amortisation 0.82 0.50
Adjusted basic earnings per share before exceptional items and
goodwill amortisation 9.16 6.20
2003 2002
#'000 #'000
EARNINGS
Earnings for basic earnings per share calculation 2,923 1,448
Exceptional items - 633
Tax on exceptional items - (204)
Goodwill amortisation 286 164
Earnings for adjusted basic earnings per share calculation 3,209 2,041
2003 2002
Million Million
NUMBER OF SHARES
Weighted average number of ordinary shares used in
basic earnings per share calculation 35.06 32.91
Dilutive effect of options and contingent consideration 0.38 0.15
Weighted average number of ordinary shares used in diluted
earnings per share calculation 35.44 33.06
8. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
2003 2002
#'000 #'000
Group operating profit 4,288 2,775
Amortisation of goodwill 286 164
Depreciation of tangible fixed assets 1,146 804
(Profit)/loss on disposal of fixed assets (3) 10
Increase in debtors (3,461) (2,754)
Increase in creditors 1,093 2,222
Net cash inflow from operating activities 3,349 3,221
9. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2003 2002
#'000 #'000
Increase in cash in the year 367 3,552
Cash outflow from long term loans - 5,785
Cash outflow from repayment of finance leases 218 269
Change in net funds resulting from cash flows 585 9,606
Inception of finance leases (65) (268)
Issue of loan notes on the acquisition of a company - (93)
Movement in funds in the year 520 9,245
Net funds/(debt) at beginning of year 4,003 (5,242)
Net funds at end of year 4,523 4,003
10. ANALYSIS OF NET FUNDS
At Other At
1 April Cash non-cash 31 March
2002 flow movements 2003
#'000 #'000 #'000 #'000
Cash at bank and in hand 4,454 367 - 4,821
4,454 367 - 4,821
Finance leases (358) 218 (65) (205)
Loan note issued (93) - - (93)
4,003 585 (65) 4,523
11. NOTICE OF REPORT AND ACCOUNTS
Copies of this preliminary statement may be obtained from the Company Secretary,
Parkman Group plc, Knights House, 2 Parade, Sutton Coldfield, West Midlands B72
IPH or via the Parkman website www.parkman.co.uk.
The full audited accounts for the year ended 31 March 2003 will be circulated to
shareholders for approval at the Annual General Meeting on 1 August 2003.
Copies of the report and accounts will be available shortly from the address or
website above.
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