28 May 2013

 

Westminster Group Plc

Final Results for the 12 months ended 31 December 2012

 

Westminster Group Plc ('Westminster', the 'Company' or 'the Group'), the AIM listed supplier of managed services, system solutions and products to the security, defence, fire protection and safety markets worldwide, is pleased to announce its audited Final Results for the 12 months ended 31 December 2012.

 

Westminster operates globally from its headquarters in Banbury, Oxfordshire, through two internationally focussed divisions - Managed Services and Technology.  Westminster goes to market through an international network of regionally appointed agents.  These agents commission local workforces for the installation and maintenance of each solution in their respective territories, giving unparalleled in-territory knowledge, maintenance support and after sales service.

 

Key Points:

 

Financial

·      Revenue £9.46m (2011: £10.07m)

·      Order Intake £15.2m (2011: £14.7m)

·      Operating Loss £1.21m (2011: £1.63m)

Operational

·      15 year West African airport security contract potentially worth up to $300m over the full life of the contract

·      10 year franchise agreement signed in Nigeria

·      £1.9m raised from strategic investors

·      New contracts won include: In Africa - Managed Services airport security, complete protection for Cargo Warehouse; Middle East - electronics countermeasures system for Police Force, airport security screening, surveillance equipment, oil and gas installation scanning equipment, specialist K9s explosives detection unit; Asia - State Security covert surveillance equipment, hand held explosives detectors);

·      Managed Services division established

·      Group sales pipeline grew by 123% to £783m, pipeline of Managed Services opportunities growing in size and progressing through sales process

Post Year End

·      Placing of £1.475m new equity to institutional and strategic investors at 30p per share

·      £5m equity finance facility in place and available to use at Westminster's option

·      Group restructured to support international opportunity, UK alarms and monitoring businesses disposed March 2013

 

Commenting on the results and current trading, Peter Fowler, Chief Executive of Westminster Group, said:

 

"I am confident that 2012 will be seen as the pivotal year in the evolution of our Managed Services business.  The real achievement is the success we have achieved in positioning the Group for a step change in scale and size as we now move to the next phase of our growth plans.

 

"The strength of the Westminster brand globally is testament to the successfully executed contracts to date and the quality of the Westminster team and agent network.  The momentum in the business is very exciting and puts Westminster in a very strong position for 2013 and beyond."

 

Enquiries:

 

Westminster Group plc	Tel: 01295 756 300
Peter Fowler (Chief Executive)
Ian Selby (Chief Financial Officer)
S. P. Angel Corporate Finance LLP (Nomad + Broker)	Tel: 020 3463 2260
Stuart Gledhill/Katy Birkin
Winningtons Financial (Financial PR)	Tel: 020 3176 4722
Tom Cooper/Paul Vann	0797 122 1972

 

 

Notes:

 

Westminster Group plc is a leader in the supply of system solutions and products to the security, defence, fire protection and safety markets worldwide.

 

Westminster's principal activity is the design, supply and ongoing support of advanced technology security solutions, encompassing a wide range of surveillance, detection, tracking and interception technologies and the provision of long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities together with the provision of manned services, consultancy and training services. The majority of its customer base, by value, comprises governments and government agencies, non-governmental organisations (NGO's) and blue chip commercial organisations.  For further information please visit www.wg-plc.com or www.wi-ltd.com

 

 

 

 

 

 

Overview

 

I am pleased to present the accounts for Westminster Group plc for the year ended 31 December 2012 which show an improved operating result over 2011. Whilst revenues of £9.5m (2011: £10.1m) were slightly down on the previous year, this is in no way a reflection of the significant achievements made by the Company in the period.  The comparative results have been influenced by timing issues on orders, demonstrated by the fact that we received a multi-million USD order at the end of December which was too late to impact 2012 revenues and will now be delivered in 2013.

We have built a strong brand and international reputation.  We continue to win and deliver new and important business around the world, further enhancing our global reference base. Of particular note was the new multi-million, multi-year airport security contract secured by our aviation security division in 2012. We are currently in the course of negotiating a number of similar long term recurring revenue contracts and in November 2012 we entered into a Memorandum of Understanding and are now in advanced negotiations on another airport security contract. As ever, in any such negotiations, the eventual outcome and timing can be uncertain, but this gives us increasing confidence in our business model and its ability to generate long term consistent profits and thus shareholder value.

 

Strategy

 

The Group can generate attractive returns for investors by focussing on the growing global security market for products and services with its strong social, political and economic drivers. We target regions of high economic growth such as Africa, the Middle East and Asia, and in the difficult economic climate faced by many countries in the western world today, our decision to focus on building a global export led business can be seen to have been a wise strategy. We are not a manufacturer and are product agnostic, being able to promote and deliver the most appropriate solutions for our customers' needs. We are therefore not reliant on any particular region, customer, technology or supplier.

 

We have built an extensive presence around the world with representation in 48 countries and have established strong brand awareness in our key markets. We have one of the largest security websites in the world and have a successful track record of delivering complex security projects for an extensive 'blue chip' client base.  Our reputation grows with every new contract award.

To focus the Group on these international growth markets, and as part of our continuing growth strategy, we announced a restructuring of the Group in March 2013 into two internationally focussed divisions. As part of that restructuring we disposed of our UK centric alarms and monitoring business and are now focussed on the following two core operations:

• Managed Services Division - focusing on long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities and the provision of manned services, consultancy, training and other similar and supporting services. This division has a recurring cash flow model and this offers good visibility over future earnings;

• Technology Division - focusing on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies; principally to governments and governmental agencies, non-governmental organisations (NGO's) and blue chip commercial organisations worldwide. This division has a demonstrable potential to win and successfully deliver large implementations and product supply projects.

 

Corporate Conduct

 

In our industry it is vitally important that we maintain the highest standards of corporate conduct. You will see in the Directors' report on corporate governance all of the detailed measures we take to ensure that our standards, and those of our agents, can stand any scrutiny by Government or other official bodies.

 

Staff and Board

 

I would like to take the opportunity to express my appreciation to all our employees, both in the UK and our ever expanding overseas workforce, who have worked extremely hard during the year. I look forward to welcoming more UK and overseas employees on board as we expand in 2013 and beyond. As a service based business, our staff are vital to the continued growth and development of our business and we are fortunate in having a highly committed and dedicated workforce.  Their dedication is crucial to our ability to rapidly grow the Group and develop our worldwide reputation. We continue to strengthen our senior team with key appointments to help take the Company to the next stage of its growth and I warmly thank them for all that they have done for us.

 

I would finally like to thank all our investors for their support and particularly to our strategic investors who are bringing their expertise to help deliver value for all.

 

Lt. Col. Sir Malcolm Ross GCVO, OBE
Chairman
27 May 2013

 

 

 

Business Overview

 

Westminster's principal activity is the design, supply and ongoing support of advanced technology security solutions, encompassing a wide range of surveillance, detection, tracking and interception technologies and the provision of long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities together with the provision of manned services, consultancy and training services. The majority of its customer base, by value, comprises governments and government agencies, non-governmental organisations (NGO's) and blue chip commercial organisations.

In my 2011 report I stated that we believed we had reached an inflection point for the Group and I am happy to report our achievements in 2012 reinforce that belief. We have achieved improved operating results over 2011 with slightly reduced revenues of £9.5m (2011: £10.1m) due to timing issues on orders; $3million of which arrived at the end of December, too late to impact on the 2012 revenues. However the real achievement in the year is the success we have achieved in positioning the Group for a step change in scale and size as we now move to the next phase of our growth plans.

Our vision has been to build a global security business focussed on delivering 'end to end' integrated security solutions to high growth and emerging markets around the world. Over the past few years much of our efforts have been employed in building our international presence and we have invested heavily in developing our agent network and establishing a strong corporate brand which is now well recognised by our target customers.

We are now seeing the benefit of this effort and investment. We have a truly global footprint with representation in 48 countries; we have a track record of successfully delivering complex security solutions around the world, an increasing number of which are multi-million pound in value; an example of which is the 15 year airport security contract we announced in February 2012 with an potential value in excess $150m over the first 8 years of the contract alone As we move forward on our growth strategy, we are now in an excellent position to leverage our extensive international network in order to exploit the significant international opportunities in large scale technology projects and long term, recurring revenue, managed services contracts.

To those ends we have reorganised the Group into two separate divisions, Managed Services and Technology, to focus on international growth markets and have disposed of our UK based alarms and monitoring businesses to a management buy-out; although both businesses will continue to provide services to the Group on a contract basis.

 

Our Markets

 

Whilst having a British base, we are internationally focussed and export led. We operate in a huge and growing market with strong economic, political and social drivers which we believe will continue to present excellent business opportunities for the foreseeable future. To put that in context, the annual market for security equipment and services is expected to be $700bn in 2013, with growth of 7.4% expected in 2014   Furthermore our focus is on high growth market opportunities in Africa, Asia and the Middle East where the IMF expects average annual GDP growth across the period to 2018 of between 5% and 8%. Aviation demand is increasing, particularly in Africa as their economies develop and a middle class emerges.  Against this backdrop Boeing expects African passenger volumes to grow at 5.6% per annum over the next 20 years.  Many airlines are ordering new equipment and are reporting increasing load factors which bodes well for our Managed Services division.

Many of these markets are growing due to the discovery of and demand for minerals and other natural resources.  This creates a burgeoning local economy and the consequent need for effective security for both governmental and commercial facilities. To that end, customers are looking for integrated security solutions and managed services from companies with the international structure and the expertise to implement and support such projects.

To be successful in this market however requires meeting exacting criteria: credibility, professionalism and experience, with a demonstrable track record and, crucially, 'in-country' knowledge and connections. These, together with the political and logistical issues presented in many countries, present a significant barrier to entry for many companies. Whilst there are many companies providing security services in one form or another, there are relatively few doing so on a global basis due the logistical and cultural difficulties in dealing with many diverse countries around the world, and even fewer who can do so providing fully integrated services. Westminster, with its global presence and growing international reputation, is well placed to take advantage of such opportunities and this is evidenced by the record levels of enquiries we are now receiving across our divisions.

We have demonstrated our ability to deliver complex and innovative solutions to an impressive list of clients worldwide and have therefore clearly established credibility and a demonstrable track record with governments and blue chip organisations, which stand us in good stead to secure and deliver increasing business within this target market.

 

Strategy

 

The Group's strategy is to build shareholder value through the generation of long term recurring profitable cash flows.

Having invested heavily in recent years in building up our international presence, we now have strong brand awareness and extensive representation in 48 countries covering all continents with the exception of Antarctica; with a strong focus on our target markets of Africa, the Middle East and Asia. This extensive network provides us with a distinct operational and commercial advantage in our chosen markets and a platform from which we can more easily develop and exploit major technology opportunities and our innovative solutions in managed services.

Our Managed Services Division is focussed on the provision of long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities and the provision of manned services, consultancy, training and other similar and supporting services. This division has a recurring cash flow model and this offers good visibility into future earnings. Our strategy with this division is to use our extensive international network to open negotiations with various governments and organisations who may be interested in such services particularly some of our innovative solutions we are developing, particularly for airports.

Our Technology Division is focussed on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies. We have a track record of delivering a wide range of complex product and technology solutions to governments and governmental agencies, non-governmental organisations (NGO's) and blue chip commercial organisations worldwide and our strong brand, extensive web presence and international reputation means we receive large numbers of enquiries for our services from across the globe. Our strategy with this division is to continue to review and enhance our wide range of products and to continue to expand our web presence for innovative technologies. Our international network is of considerable assistance in helping with local knowledge, logistics and manpower in relation to such enquiries and projects making this a cost effective and scalable business. We also intend to expand on our franchise model such as the Nigerian Franchise we entered into in May 2012 and with whom we are working on some sizeable potential project opportunities.

 

Divisional Review

 

As previously stated, we have reorganised our operating companies into two operating divisions, Managed Services and Technology, both primarily focussed on international business as follows:

 

Managed Services Division

Our Managed Services division is focussed on providing long term recurring revenue, managed services contracts and the provision of manned services, consultancy, training and other similar supporting services. The Division comprises primarily of Westminster Aviation Security Services Ltd (WASS) and Longmoor Security Ltd.

Services include comprehensive protection solutions to key national and critical infrastructure sites (both governmental and commercial) with Westminster providing the investment in equipment and personnel as well as providing the required expertise to operate and run the security operation under long term contracts.  Westminster would typically derive its income from a transaction fee/tax payable by users of the facility; for example in an airport this would based on the volumes of passengers and cargo going through the facility.

We believe this business model has many attractive cash dynamics to it.  Firstly it is transaction driven, which means the service is paid for by users of the facility in question and, as user volumes increase, so do revenues. Revenues are collected regularly and promptly and it has the strong forward visibility associated with known user factors. Furthermore, as it is a transaction based service, bad debt risk is considerably reduced as the service can quickly be withdrawn or denied to potential defaulters.

An example of such a managed services contract was the new West African airport contract which we secured in February 2012. We formally commenced operations at the airport on 1 May 2012 and within a few months had made a dramatic difference to the overall security at the airport. We have taken over the 120+ existing civilian security operatives in the airport, provided everyone with new uniforms and instigated comprehensive and ongoing training courses for all staff to bring them up to internationally recognised standards. We brought in a team of aviation security specialists dedicated to this contract to provide the management and guidance required to operate the airport security to international standards. We have installed new passenger and baggage screening equipment and have installed a comprehensive and advanced CCTV surveillance system throughout the airport including long range thermal surveillance to monitor the airfield even in zero light conditions. We have installed an advanced access control system controlling access throughout the airport and installed a sophisticated control and command centre from which all security functions in the airport are controlled and monitored. We have instigated comprehensive new processes and procedures, new ID badging systems, provided new airport security vehicles for perimeter patrols, set up a new K9 substance dog detection unit and many more other initiatives within the airport. We also completely fitted out the new terminal with security equipment and even assisted the authorities with the construction of a new hold baggage screening centre.

The results of our activities are that criminal activity, including suspected drug trafficking, has been virtually eliminated.  Passengers and their baggage are efficiently screened and overall security at the airport has increased dramatically.

We have also installed state of the art cargo scanning equipment and have carried out training courses for airport staff on cargo screening and security services. We expect to be in a position to commence cargo screening once the final infrastructure and building works are completed which will enable the country to export significant products by air for the first time and will help local economic development. We expect this to go into service in the summer of 2013 and will generate additional margins for WASS. 

Fees are payable directly by airlines who in turn collect the security fee from embarking passengers as part of their ticket price.  We collected our first revenues from operations in June 2012, which reflects the efficiency of the billing model given that our services only went 'live' on 1 May 2012.  Passenger volumes are in line with expectations. We are encouraged that now security has been increased some carriers are increasing their capacity and new airlines opening up routes to this airport. We are pleased to report that we have been given positive feedback regarding our deliveries by airlines, governmental agencies and international regulatory bodies

I am also pleased to report that during 2012 we commenced discussions with a number of additional airports for similar managed services.  In November 2012 we signed a Memorandum of Understanding ("MoU") with an East African country for the provision of complete airport security services at their international airport and I am pleased to confirm that contract discussion are now at an advanced stage. I am also pleased to announce that the Division has now significantly added to its pipeline potential for new sales and our total pipeline of airports in Africa alone, with whom we are at various stages of discussions now stands at an aggregate of 4.3m embarking passengers per annum. In addition we have recently had expressions of interest from airports in Asia and South America.

The Division is also looking at possibilities for expanding the managed services offering to other key infrastructure sites such as ports, railways and border crossings.

Our Longmoor Security training division is now integrated within Managed Services and will no longer report separately.  Following a downturn in recent months in the market for close protection security training, as a result of changes in demand from theatres such as Iraq, Afghanistan and Somalia which have affected the training industry in general, Longmoor has expanded its training services to now include aviation security training as well as expanding into the provision of broader security services in overseas territories.  We are pleased that it has recently signed a multi-year guarding contract in West Africa. Consequently its cost base has been realigned and the lease for the training academy has lapsed at the end of April 2013.

 

Technology Division

Our Technology Division is focussed on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies. The Division comprises primarily of Westminster International Ltd and has a demonstrable potential to win and successfully deliver large implementations and product supply projects

The Division benefits from Westminster's network of over 100 agents in 48 countries. With its international reputation for successfully delivering complex security projects and solutions around the world, and its high profile and extensive website, the Division is generating record levels of enquiries for Westminster's wide range of technology based products and services.

We are not a manufacturer and are product agnostic, able to promote and deliver the best solution for any given application. Indeed a key strength of Westminster's Technology division is its extensive knowledge of the security market place and of manufacturers of effective but often niche security equipment.  In fact, due to Westminster's extensive international network and market reach, niche security manufacturers regularly contact Westminster as a means of promoting their technologies to the market.

This Division secured numerous orders and contracts for a wide and diverse range of products and services during the year, including a contract for advanced surveillance equipment to a Middle Eastern client; the supply of covert surveillance equipment to Asia for use by state security forces; various equipment & services to the British Prison Service; airport security screening equipment to Saudi Arabia; electronic countermeasures system to Gulf State police force; scanning equipment to the British Embassy in Kabul; complete security for  a new build cargo warehouse in Africa; x-ray screening systems to Saint Helena Island; supply of a specialist K9s unit trained to find explosives to protect a Middle East Government Ministry; supply of hand held explosives detectors to an Indonesian based company and various equipment supplied through Westminster's international networks.

In addition, Westminster continued with the delivery of several large scale projects during the year and is increasingly securing multi-million USD contracts around the world. In December, the Division won a $3.25m contract for scanning equipment to protect a key oil and gas installation in the Middle East which will benefit 2013 revenues and the Division is currently in discussions with various clients regarding similar and larger scale potential projects around the world. Whist the Division's revenues were behind original expectation this was due to timing issues and certain large contracts being received too late in the year to be included in 2012 revenues. During the year the Division signed its first franchise agreement with our Nigerian partner and we are pleased to say that this has generated initial revenues in 2012 as well as increased revenues already in 2013.  Currently we are working with our franchisee on a number of major potential contracts which may come to fruition in 2013. This is in addition to its annual franchise fee and we see this model as having scalability.

 

Disposals of RMS (CTAC) Integrated Solutions and International Monitoring Services (Disposed March 2013)

 

These operations are UK centric and provide UK domestic and corporate customers with low voltage security systems (such as alarms) and the monitoring of such systems.  These markets are highly competitive and price sensitive, and we believed that this business will be better served under dedicated management. In accordance with the Group's strategy of focusing on international growth markets they were disposed of in March 2013 to a management buyout and are shown as discontinued activities. Both companies will however continue to provide services to the Group under contract. The consideration will be £0.2m payable across the first 12 months with an earn-out dependent on a percentage of revenues achieved in excess of certain metrics over the 2 years from disposal.

 

Current Trading and Outlook

 

The revised strategy announced in March 2013 firmly aligns the Group with the growth opportunity in international markets.  We have disposed of our lower margin UK focussed business and have refocused Longmoor. Our Technology division has a strong pipeline of potential new business and has achieved order intake in 2013 to date which is 109% up on the same period for 2012. Given the nature of the governmental clients and the procurement processes associated with large contracts, we can never eliminate the risks of timing issues. We have confidence in this division being able to make a meaningful contribution to the Group.

Our Managed Services business offers substantial growth prospects. With interest in our managed services accelerating, we currently have an impressive pipeline of potential airport security projects at various stages of discussion, some at advanced stages, and whilst there can be no certainty as to the outcome or timing of such discussions, any one of such contracts would significantly add to revenues and several would dramatically transform our business and generate long term profits.

In addition to the above we have a solid order book, growing recurring revenues, improving gross margins, clear strategic goals and objectives and a commitment to the continuing development of our operational infrastructure. We are delivering on our vision. We have built a strong brand and are now seen as a truly global security business. We have a strong management team and an experienced board of Directors. Accordingly the Board and I remain excited about our growth prospects for 2013 and beyond.

 

 

 

P D Fowler

Chief Executive Officer

27 May 2013

 

 

 

 

Consolidated Statement of Comprehensive Income

The Group achieved revenues of £9.46m (2011: £10.07m). Our continuing businesses recorded revenues of £7.91m (2011: £8.75m) with the fall arising from the slippage of certain Technology division revenues into 2013. An example of this is the order for a gantry based scanning system with a sales value of $3.25m received at the end of the December 2012 and which will now benefit 2013. Our order intake for the year was £15.2m (2011: £14.7m), of which £9.2m represents approximately 5% of the potential full value of the 15 year airport contract which was signed in February 2012 and has a potential sales value of $300m across its full 15 year term life.   Revenues from the Managed Services division during the period were in line with our expectation of £1.70m. In line with our strategy, focussing on export growth markets, our overseas revenues rose representing some 77.5 % (2011: 74.5%). The discontinued operations revenues of £1.55m (2011: £1.31m) relate to the revenues of RMS (CTAC) Limited and IMS Limited, both of which were disposed of in March 2013 to a management buyout.

 

Gross profit was £3.54m (2011: £2.46m) and represented 37.4% of revenue (2011: 24.4%).  Underlying gross margins from our on-going business stood at £2.95m (2011: £2.08m) and represented 37.3% of the associated revenues (2011: 23.7%).  This significant margin improvement was largely due to a Managed Services airport contract which went live in May 2012.

 

Administrative costs were £4.75m (2011: £4.09m).  This increase was largely due to investment primarily in the Managed Services Division. Approximately £0.2m of setup costs were expensed during the year in addition to the on-going operating costs and these are set out in note 4 to these accounts. Certain other costs were incurred relating to operations which have subsequently been restructured and these are also set out in note 4. The average number of employees increased to 184 (2011: 64) with the bulk of the increase relating to directly employed local staff within Managed Services whereas previously our local staff had typically been employed by local agents.

 

During the year, or shortly afterwards, certain non-core assets were disposed of or substantially restructured.  The disposal of IMS and RMS in March 2013 has eliminated approximately £0.9m of annual fixed overheads, and the realignment of certain premise costs as well as the restructuring of our distribution arrangements in the Middle East (again detailed in note 4), has resulted in approximately £0.2m of costs being eliminated across the Technology and Managed Services divisions.

 

The Group generated a reduced operating loss in the year of £1.21m (2011: £1.63m). When adjusted for the impact of the disposals in 2013, which made an operating loss of £0.37m (2011: £0.55m), and non-recurring items detailed in note 4, the underlying operating loss was £0.35m (2011: £0.10m) with the loss purely down to slippage in sales in the Technology division. Financing costs were £0.50m (2011: £0.40m) and of this £0.2m (2011: £0.1m) related to the escalating consultancy charge attached to the £1.0m loan note from Synergy Capital which is in addition to its 10% coupon. The situation regarding Synergy Capital is further discussed below. A fair value credit of £0.06m (2011: £0.04m) relates to the valuation of the embedded derivative on the conversion option within the convertible unsecured loan note issued in July 2012.  The "cash cost" of interest payments based on 8% coupon on a principal sum of £1.38m would generate an annualised cash payment of £0.11m.  The credit to taxation expense of £0.05m (2011: charge £0.73m) from write off of previously capitalised deferred tax asset) related to the revaluation of certain deferred tax liabilities. As the Group was loss making during the year no corporation tax is payable and the Group carried forward tax losses (subject to HMRC agreement) of £6.6m (2011: £5.0m). The 2011 charge of £0.7m arose from the reversal of a previously held deferred tax asset.

 

The overall loss after tax was therefore reduced by 40.8% to £1.60m (2011:£2.71m).

 

Consolidated Statement of Financial Position

 

The Group's tangible fixed assets increased to £1.49m (2011: £1.03m) with the increase arising from investment within the Managed Services Division.  A principal asset is the freehold on the Group's 4.5 acre site near Banbury which was recorded at £0.9m in both years. Cash balances were £0.22m (2011: £0.41m) and the debtor book net of provisions stood at £1.42m (2011: £1.22m).  Closing debtors represented an average of 54 days of sales (2011: 49). Debtor days within Managed Services were approximately 35 days compared to invoicing terms of 30 days, reflecting the nature of the effectiveness of our credit sanction for non-payment.

 

Trade payables were £2.23m (2011: £2.07m) as the Group took advantage of certain extended payment terms with suppliers. At the end of the year performance bonds were in place of £0.17m (2011: £0.17m).

 

During the year the Group issued £1.38m of new 8% convertible unsecured loan stock to a group of strategic investors which were drawn down in 2 tranches in July and September.  This instrument has a maturity date of 2017 and has an equity conversion price of 27.5p.  In April 2012, 2,941,176 ordinary 10p shares were issued to a strategic investor at a subscription price of 17p raising approximately £0.5m.

 

In February 2013, the Group issued 4,916,667 new ordinary 10p shares at a placing price of 30p to strategic and institutional investors raising gross proceeds of £1.475m. In April 2013, the Group entered into an Equity Finance Facility whereby the Company could draw down equity finance based on historic daily volumes.  This is purely at the Group's discretion and the Group remains in total control over the price at which shares are issued. No drawdowns under this facility have been made to date.

 

The Loan with Synergy Capital ("Synergy") continued to incur an escalating consultancy fee during the year following on from its variation in 2010. This generated an additional cost of £0.2m (2011: £0.1m) which is in addition to the coupon interest rate of 10%.  Since the year end Synergy Capital Limited entered into liquidation by order of the Guernsey Courts. The Company is taking legal advice regarding the nature of the consultancy fees and is in dialogue with the Synergy's liquidator. The Group continues to pursue the vendors of CTAC Limited (acquired in April 2010) for damages relating to breaches of warranties and will update in due course.

 

Cash Flow Statement

 

Cash outflow during the period increased as the Group invested in a new airport contract in Africa.  Certain parts of the organisation were loss making and thus increased the cash outflow.  However since the year end there has been substantial restructuring and disposal of non-core assets.

 

Loss per Share

 

The Group recorded a much reduced loss per share of 5.1p (2011: 10.2p).  As the Group was loss making no adjustment is made for the impact of options and warrants. Of this loss 1.1p arose from discontinued items (2011:2.1p).

 

Key Performance Indicators

 

 

	2012	2011
Order Intake	£15.2m	£14.7m
Quote Bank*	£783m	£350m
Average number of sales enquires per month	355	345

*Includes potential 10 year revenue value of Managed Services sales pipeline (subject to certain assumptions regarding contract life, fees payable and average growth rates)

Our order intake increased by £0.5m compared to 2012.  During the year we announced a new airport long term contract with a potential sales value of up to $300m over its full 15 term (as ever, subject to a break clause at 8 years).  For purposes of this metric we are including it at notional 5% of the potential value of the contract.

Our quote bank has increased by 123% to £783m which demonstrates the substantial interest now being shown in our services and particularly our Managed Services division.

The nature of the Group's business has always meant that the precise timing of orders can be very difficult to forecast and we thus set a strategy of moving to a recurring cash flow model. We are pleased that this is now in place and are encouraged by further customer interest in our Managed Services offering which we believe can dramatically change the financial dynamics of the Group.

Ian Selby

Chief Financial Officer

 

	Note	2012 £'000	2011 £'000
Revenue - Continuing operations Revenue  -  Discontinued operations		7,910 1,552	8,753 1,312
REVENUE	3	9,462	10,065
Cost of sales		(5,925)	(7,606)
Gross profit - Continuing operations Gross profit  -  Discontinued operations		2,949 588	2,076 383
GROSS PROFIT		3,537	2,459
Administrative expenses		(4,748)	(4,087)
LOSS FROM OPERATIONS		(1,211)	(1,628)
Operating loss before exceptional items from continuing operations   Operating loss from discontinued operations		(350)   (365)	(94)   (546)
Operating exceptional items	4	(496)	(988)
LOSS FROM OPERATIONS		(1,211)	(1,628)
Finance costs	5	(497)	(400)
Fair value movement	5	58	44
LOSS BEFORE TAXATION		(1,650)	(1,984)
Taxation	6	46	727
LOSS FOR THE YEAR FROM CONTINUING OPERATIONS		(1,239)	(2,165)
LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS	8	(365)	(546)
LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS		(1,604)	(2,711)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ATTRIBUTABLE TO EQUITY SHAREHOLDERS		(1,604)	(2,711)
LOSS PER SHARE CONTINUNING	9	4.0	8.1
LOSS PER SHARE DISCONTINUED	9	1.1	2.1
LOSS PER SHARE	9	5.1p	10.2p

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITON

		2012 £'000	2011 £'000
Goodwill		397	397
Other intangible assets		28	245
Property, plant and equipment		1,487	1,028
Investment in subsidiaries		-	-
TOTAL NON-CURRENT ASSETS		1,912	1,670
Inventories		77	112
Corporation tax recoverable Trade and other receivables		- 1,421	50 1,222
Cash and cash equivalents		221	414
TOTAL CURRENT ASSETS		1,719	1,798
Assets held for sale  -  Discontinued operations		172	-
TOTAL ASSETS		3,803	3,468
Share capital		3,257	2,963
Share premium		3,654	3,449
Merger relief reserve		299	299
Share based payment reserve		56	33
Revaluation reserve		134	134
Retained earnings		(8,325)	(6,721)
TOTAL SHAREHOLDERS' EQUITY		(925)	157
Trade and other payables		50	99
Borrowings		2,147	963
Embedded derivative		295	4
Deferred tax liabilities		53	99
TOTAL NON-CURRENT LIABILITIES		2,545	1,165
Borrowings		-	81
Trade and other payables		2,183	2,065
TOTAL CURRENT LIABILITIES		2,183	2,146
TOTAL LIABILITIES		4,728	3,411
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		3,803	3,468

 

 

	Share capital £'000	Share premium £'000	Merger relief reserve £'000	Share based payment reserve £'000	Revaluation reserve £'000	Retained earnings £'000	Total £'000
AS OF 1 JANUARY 2012	2,963	3,449	299	33	134	(6,721)	157
Share based payments	-	-	-	23	-	-	23
Issue of shares	294	205	-	-	-	-	499
Total comprehensive income for the year	-	-	-	-	-	(1,604)	(1,604)
AS AT 31 DECEMBER 2012	3,257	3,654	299	56	134	(8,325)	(925)
As of 1 January 2011	2,425	3,369	299	27	134	(4,010)	2,244
Share based payments	-	-	-	8	-	-	8
Deferred tax adjustments	-	-	-	(2)	-	-	(2)
Issue of shares	538	108	-	-	-	-	646
Cost of other share issues	-	(28)	-	-	-	-	(28)
Transactions with Owners	538	80	-	6	-	-	624
Total comprehensive income for the year	-	-	-	-	-	(2,711)	(2,711)
AS AT 31 DECEMBER 2011	2,963	3,449	299	33	134	(6,721)	157

 

 

 

 

 

 

		2012	2011
	Note	£'000	£'000
LOSS BEFORE TAXATION		(1,650)	(1,984)
Adjustments	10	706	606
Net changes in working capital		4	1,184
NET CASH (IN)/FROM OPERATING ACTIVITIES		(940)	(194)
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(633)	(28)
Purchase of intangible assets		(12)	-
Advances to subsidiaries		-	-
NET CASH USED IN INVESTING ACTIVITIES		(645)	(28)
FINANCING ACTIVITIES
Gross proceeds from the issue of ordinary shares		499	646
Costs of share issues		-	(28)
Proceeds on issue of convertible loan notes   Repayments of short term borrowings		1,380   (150)	150   (110)
Interest paid		(337)	(283)
NET CASH FROM FINANCING ACTIVITIES		1,392	375
Net change in cash and cash equivalents		(193)	153
CASH AND EQUIVALENTS AT BEGINNING OF YEAR		414	261
CASH AND EQUIVALENTS AT END OF YEAR		221	414

 

 

 

 

 

 

1.            General information and nature of operations

 

                Westminster Group plc ("the Company") was incorporated on 7 April 2000 and is domiciled and incorporated in the United Kingdom and quoted on AIM.  The Group's financial statements for the year ended 31 December 2012 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as "the Group"). Westminster Group plc and its subsidiaries design, supply and provide on-going advanced technology solutions and services to governmental and non-governmental organisations on a global basis.

 

 

2.             Summary of significant accounting policies

 

                Basis of preparation

 

                The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.  The Company has elected to prepare its parent company financial statements in accordance with IFRS as adopted by the European Union.

 

                The financial information is presented in the Company's functional currency, which is Great British Pounds ('GBP') since that is the currency in which the majority of the Group's transactions are denominated.

 

Going Concern

 

The accounts are prepared on a going concern basis. In assessing whether the going concern assumption is appropriate, management have taken into account all relevant available information about the future. As part of its assessment, management have taken into account the profit and cash forecasts, the continued support of the shareholders and Directors and management ability to affect costs and revenues.

 

Management regularly forecast profit, financial position and cash flows for the Group. A worst-case scenario (which represents a significant downgrade compared to internal budgets and targets) for 2013 and 2014 has been prepared. Revenues are forecast from major contracts that have already been secured by the end of May 2013, from the predictable regular flow of smaller contracts and revenues from new major contracts based on reduced probabilities compared to management expectation of the contracts being won. The contract for the African airport signed in February 2012 is generating of cash on a recurring monthly basis and therefore the business going forward is a fundamentally different business model compared to the Technology sales business and reduces the liquidity risk of the Group. Furthermore lossmaking divisions have been disposed of since the balance sheet date and other operations have been restructured.  These measures serve to reduce the Group's break-even point. Based upon these projections the Group has adequate working capital for the 12 months following the date of signing these accounts.

 

In the event that the Directors are of the opinion that the cash flow forecasts might not be achieved then further measures will be taken. These could include cost reductions, disposal or closure of loss making subsidiaries, delaying capital expenditure, and the raising of equity or debt from existing or new investors

 

 

3.             Segment reporting

 

                Operating segments

 

                The Board considers the Group on a Business Unit basis.  Reports by Business Unit are used by the chief decision-maker in the Group.  The Business Units operating during the year are the four operating companies Westminster Aviation, Westminster International, RMS Integrated Solutions (including CTAC) and Longmoor Security. This split of business segments is based on the products and services each offer. In 2013 Longmoor and Westminster Aviation were amalgamated and Westminster International is now referenced as the Technology division.  The alarm monitoring subsidiary IMS Limited is included in the results for RMS (CTAC) with both businesses being disposed of in 2013

 

                Westminster Aviation Security Services offers end to end security services to airports and other key national infrastructure locations and operates under a per usage model under long term recurring contracts. Westminster International provides advanced technological products, systems and solutions, RMS Integrated Solutions provides low voltage systems for high-rise buildings, Longmoor Security provides close protection training, consultancy and services and CTAC provides high end security solutions and operates an alarm receiving centre. CTAC was hived up into RMS Integrated Solutions in 2011.  Note the segmental results for RMS Integrated Solutions / CTAC are discontinuing operations.

 

 

 

2012	Westminster Aviation £'000	Westminster International £'000	RMS ( CTAC) £'000	Longmoor Security £'000	Central/ Group plc  £'000	Total Group £'000
Supply of products	-	1,362	10	-	-	1,372
Supply and installation contracts	-	5,326	791	-	-	6,117
Maintenance and service	1,699	105	820	-	-	2,624
Close protection services	2	-	-	16	-	18
Training courses Intercompany sales	- -	- (1,005)	- (69)	405 -	-	405 (1,074)
Revenue	1,701	5,788	1,552	421	-	9,462
Segment result before central overheads excluding operating exceptionals	310	1,303	(365)	(54)	(1,909)	(715)
Operating exceptionals	(194)	(121)	-	(76)	(105)	(496)
Segment result after operating exceptionals before central overheads	116	1,182	(365)	(130)	(2,014)	(1,211)
Apportionment of central overheads	(382)	(859)	-	(177)	1,418	-
Segment result	(266)	(323)	(365)	(307)	(596)	(1,211)
Finance cost	-	-	-	-	(497)	(497)
Fair value movement	-	-	-	-	58	58
Taxation	-	-	-	-	46	46
Loss for the financial year	(266)	(323)	(365)	(307)	(989)	(1,604)
Segment assets	1,089	1,247	333	90	1,044	3,803
Segment liabilities	423	627	250	106	3,322	4,728
Capital expenditure	545	29	21	15	23	633
Depreciation and amortisation	83	20	47	3	32	185

 

 

2011	Westminster International £'000	RMS Integrated Solutions/ CTAC £'000	Longmoor Security £'000	Central Group / plc  £'000	Group £'000
Supply of products	1,584	16	1,496	-	3,096
Supply and installation contracts	5,082	1,146	61	-	6,289
Maintenance and service	54	150	-	-	204
Close protection services	-	-	31	-	31
Training courses	-	-	445	-	445
Revenue	6,720	1,312	2,033	-	10,065
Segment result before central overheads and operating exceptionals	1,189	(444)	136	(1,539)	(640)
Operating exceptionals	(776)	(102)	(145)	35	(988)
Segment result after operating exceptionals before central overheads	413	(546)	9	(1504)	(1628)
Apportionment of central overheads	(811)	(732)	(244)	1,787	-
Segment result	(398)	(1,278)	(235)	283	(1,628)
Finance cost	-	(20)	-	(380)	(400)
Finance income	-	-	-	44	44
Taxation	(541)	-	(185)	(1)	(727)
Loss for the financial year	(939)	(1,298)	(420)	(54)	(2,711)
Segment assets	865	429	66	2,108		3,468
Segment liabilities	1,382	405	76	1,548		3,411
Capital expenditure	12	-	-	16		28
Depreciation and amortisation	47	23	1	99		170

 

 

Geographical areas

 

The Group's international business is conducted on a global scale, with agents present in all major continents.  The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services.

 

	2012	2011
	£'000	£'000
United Kingdom & Europe	2,124	2,559
Africa	3,196	2,316
Middle East	3,966	4,493
Rest of World	176	697
	9,462	10,065

 

Some of the Group's assets are located outside the United Kingdom where they are being put to operational use on specific contracts.  At 31 December 2012 fixed assets with a net book value of £729,000 were located in Africa and the Middle East (2011: £4,000).

 

 

4.             Operating exceptional items

 

	2012 £'000	2011 £'000
Exchange losses/(gains)	84	(43)
Amortisation of CTAC intangibles	-	59
Stock Provision	-	40
Provision against consumer debt in Longmoor	-	145
Impairment of African receivables and accrued income	-	616
(Profit)/loss on disposal of property, plant and equipment	(2)	66
Legal and professional costs arising from CTAC litigation Share based payments Restructure costs  - Longmoor Restructure and closure costs (Middle East) West Africa airport contract set up costs	- 23 76 121 194	97 8 - - -
	496	988

 

 

 

5              Finance cost

               

			2012		2011
			£'000		£'000
Finance costs
Interest payable on bank borrowings	(30)			(33)
Interest payable on Convertible Loan Notes	(120)			(120)
Other interest inc management fees on Convertible Loan Notes	(193)			(181)
Amortised finance cost on Convertible Loan Notes	(154)			(66)
	(497)			(400)
Fair value movement of embedded derivative	58			44
Finance Costs	(439)			(356)

 

 

6.             Taxation

 

                Analysis of (credit)/charge in year

 

	2012	2011
	£'000	£'000
Movement in deferred tax	(46)	727
Tax charge	(46)	727
Reconciliation of tax expense
Loss on ordinary activities before taxation	(1,650)	(1,984)
Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 24.5% (2011: 26.5%)	(404)	(526)
Effects of
(Income)/expenses not deductible for tax purposes	70	61
Capital allowances less than depreciation	40	25
Other short term timing differences	9	15
Deferred tax asset no longer provided	-	727
Unrecognised losses carried forward	239	425
Total tax (credit) / charge	(46)	727

 

                Tax losses available for carry forward (subject to HMRC agreement) were £6.6m (2011: £4.9m).

               

 

7.             Loss per share

 

                Earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

                For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all diluted potential ordinary shares.  Only those outstanding options that have an exercise price below the average market share price in the year have been included.

 

 

                The weighted average number of ordinary shares in calculated as follows:

 

	2012	2011
	£'000	£'000
Issued ordinary shares
Start of period	29,630	24,256
Effect of shares issued during the period	1,996	2,341
Weighted average basic number of shares for period	31,626	26,597
Dilutive effect of options	-	-
Weighted average diluted number of shares for period	31,626	26,597

 

Basic and diluted earnings per share is calculated as follows

 

Loss for the year attributable to equity shareholders of the Company (£'000)	(1,604)		(2,711)
Basic and diluted loss per share (pence)	(5.07)		(10.19)

 

                For the year ended 31 December 2012 and 2011 the issue of additional shares on exercise of outstanding share options would decrease the basic loss per share and there is therefore no dilutive effect. Loss per share excluding discontinued items was 5.0p (2011: 8.1p)

 

 

8.             Discontinued operations

 

On 26 March 2013, the Group entered into a sale agreement with a management buy-out team to dispose of RMS (CTAC) Integrated Solutions and International Monitoring Services which carried out all of the Groups UK alarm installation and monitoring operations. The disposal was for £200,000 to generate working cash flows for the expansion of the Groups other businesses. Consideration is paid over 12 months and if the disposed companies exceed certain revenue threshold then incremental consideration becomes payable.

 

The results of the discontinued operations which have been included in the consolidated income statement were as follows:

 

	2012 £'000	2011 £'000
Revenue Cost of sales	1,552 (964)	1,312 (929)
Gross profit Administration expenses	588 (953)	383 (929)
Operating Loss from  discontinued operations	(365)	(546)

 

There is expected to a £0.03m profit on disposal in the annual report for the year ending 31 December 2013.

 

The major classes of assets and liabilities comprising the operations classified as assets held for sale are as follows:

 

	2012 £'000
Property, plant and equipment Intangibles Trade and other receivables	39 176 195
Total assets classified as held for sale	410
Trade and other payables   Total liabilities classified as held for sale	(238)   (238)
Net assets held for sale	172

 

 

9.             Convertible Loan Notes

 

The Group has two convertible loan notes the key details of which are set out below:

 

	FY2014 Secured	FY2017 Unsecured
Amount	£1.2m	£1.38m
Conversion Price	42.21p	27.5p
Security	Secured fixed and floating subordinate to HSBC	Unsecured
Redemption Date	29 June 2014	June 2017
Management Fee	£25k pa monitoring plus increasing consultancy fee on £1.0m due to Synergy Capital Ltd of 22.5% pa at the end of December 2012 increasing by 2.5% per quarter thereafter	none
Coupon	10%	8%
Company can force conversion	No	At 50p for > 15 working days

 

 

                                                                               

10.          Cash flow adjustments and changes in working capital

 

                The following non-cash flow adjustments and adjustments for changes in working capital have been made to (loss)/profit before tax to arrive at operating cash flow

 

		2012 £'000		2011 £'000
Depreciation, amortisation and impairment of non-financial assets		185		170
Financing costs		497		400
Fair value movement of embedded derivative in Convertible Loan Notes		(58)		(44)
Impairment of other intangibles/ investments		62		-
(Profit)/loss on disposal of non-financial assets		(3)		72
Share-based payment expenses		23		8
Total adjustments		706		606
Net changes in working capital
Decrease in inventories			35	117
Decrease/(Increase) in trade and other receivables			(199)	525
Decrease/ (Increase) in trade and other payables			168	542
Net changes in working capital			4	1,184

 

 

 

11.          Post balance sheet events

Placing

On 26 February 2013 Westminster Group plc issued and allotted 4,916,667 new ordinary shares of 10p each in the Company at a price of 30p per share, to strategic and institutional investors raising gross proceeds of £1.475m.  On 19 April 2013 £100,000 of the 2017 unsecured convertible loan stock was converted into equity by the holder of that loan stock for technical and custodial reasons relating to the underlying holder. This resulted in the issue of 363,666 new ordinary shares of 10p each.

Equity Financing Facility

On 18 April 2013 the Group entered into a £5 million, three-year Equity Financing Facility ("EFF") with Darwin Strategic

Limited ("Darwin"), a majority owned subsidiary of Henderson Global Investors' Volantis Capital ("Henderson Volantis"). The use of this facility is purely at the Group's discretion as is the associated minimum subscription price.

 

Restructuring

 

At the end of March 2013 the Group restructured its subsidiary operations to now operate in two key internationally focussed divisions as follows:

 

Managed Services Division- focusing on long term managed services contracts such as the management and running of complete security services and solutions in airports, ports and other such facilities and the provision of manned services, consultancy and training etc.

 

Technology Division - focusing on providing advanced technology led security solutions encompassing a wide range of surveillance, detection, tracking and interception technologies; principally to governments and governmental agencies, non-governmental organisations (NGO's) and blue chip commercial organisations worldwide

 

Disposals

 

As detailed in note 10 to the accounts the Group's two UK focussed subsidiaries RMS (CTAC) Integrated Systems Limited ("RMS") and International Monitoring Services Limited ("IMS"), were suppliers to UK domestic and commercial customers of alarm installation and alarm monitoring services respectively.  As such they were considered not synergistic given the increasing international focus of the Group. .Furthermore they operate in commoditised markets and are subject to pricing pressures.  They were disposed of to a management buyout led by Mr Shires Crichton, Managing Director of both RMS and IMS. The disposal took place on a cash and debt free basis for an initial consideration of £200,000 with the initial consideration being payable by in instalments over the year following the disposal. The proceeds of the disposal will be used for general working capital.  

 

In addition, the Company is entitled to further earn out payments based on the IMS and RMS achieving certain turnover milestones in each of the two years following the disposal.  

 

During the year to 31 December 2012, the Targets, in aggregate, contributed turnover of £1.552m and net losses of £0.37m to Group. 

 

 

12.          Publication of Non Statutory Accounts

 The financial information set out above does not constitute the Company's Annual Report and Financial Statements for the years ended 31 December 2012 or 2011.  The Annual Report and Financial Statements for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's annual general meeting.  The auditor's reports on both the 2012 and 2011 accounts were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.  Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) this announcement does not itself contain sufficient information to comply with IFRSs.  Copies of the Annual Report and Financial Statements for the year to 31 December 2012 will be posted to shareholders today and will be obtainable from the Company's registered offices or www.wg-plc.com when published. The information in this preliminary announcement was approved by the board on 27 May 2013.