Chairman's Statement

 

Parkwood ended 2009 on a positive note with the sale of subordinated debt and equity in a number of leisure special purpose companies (SPCs) for a net consideration of £4.2 million.  Parkwood Leisure is now the largest division in the Group and performed well. Glendale, the 'green services' division, incurred a loss and the termination of a contract with the MoD for the management of the Defence Animal Centre has led to the Group impairing its investment in Realm.  Despite these difficulties, I am pleased to be able to announce a profit after tax of £2.1 million (2008 restated: £0.4 million).

 

 

Results

 

Group revenue from continuing operations amounted to £118.0 million (2008 restated: £116.6 million) on which a loss from continuing activities before taxation of £0.9 million (2008 profit restated: £1.5 million) was incurred.  The net profit from the sale of the SPCs of £5.6 million was offset by a £2.7 million impairment charge against Realm. Overall, net profit for the year was £2.1 million (2008 restated: £0.4 million).  Basic earnings per share for the year was 11.5p (2008 restated: 2.0p).

 

Revenues in Parkwood Leisure grew by 14% to £61.0 million (2008: £53.5 million) and operating profit increased to £4.3 million (2008: £3.9 million) despite an increase in utility costs.  The fortunes of Glendale were mixed; revenues declined by 8% to £53.5 million (2008: £58.2 million); profits in Glendale's grounds management business were offset by losses in golf, recycling and horticulture producing an overall operating loss before amortisation and impairment charges of £1.3 million (2008: profit of 0.5 million).  The termination of the contract at the Defence Animal Centre has led to the operational element of Glendale's business on this contract being classified as discontinued.  Parkwood Consultancy Services (PCS) did not close the leisure PFI at Bristol before the year end, but the subordinated debt and equity in the leisure SPCs were sold during the year by this division.  Parkwood Healthcare's revenues decreased to £3.8 million (2008: £4.8 million) as a result of the expiration of a major loss-making ambulance contract in the Midlands.  This division generated an operating loss of £0.4 million (2008: £0.4 million loss).

 

Dividends

 

The Board is able to recommend the payment of dividends in line with its dividend policy.  An interim dividend of 1.2p per share will be paid on the 1 April 2010 to all shareholders on the register on 19 March 2010.  It is anticipated that a further dividend will be paid in October 2010.  No dividends were paid or charged in 2009.

 

Strategy and Order Book

 

Parkwood has weathered the recession and the sale of assets has enabled it to clear much of its debt.  Difficulties remain in the smaller subsidiaries within the Group but the strongly cash positive business of Parkwood Leisure underpins the Group. The ten year order book with the public sector stands at £471 million.  The impending election and measures to reduce the UK's burden of debt will have an effect on the public sector, where economies in services are inevitable.  This will present opportunities for Parkwood where local authorities may wish to involve the private sector to a greater extent than

 

previously, particularly in hard pressed metropolitan and unitary authorities where services have largely been maintained in-house.  At the same time pressure on service delivery budgets will result in the loss of some discretionary income.  Parkwood will tread carefully and ensure that it retains the confidence of its existing customers, presenting them with real value for money alternatives that benefit local communities.  Parkwood will continue to predominantly provide services to the public sector.

 

Management and Board

 

I continue to serve as Chairman and Chief Executive, with Richard Tolkien and Sarah Kling seeking re-election as non-executive directors at the AGM on 30 April 2010.  Richard will become the senior independent director whilst Sarah commences her last year as a main board director.  A new non-executive director will be recruited during the year.  Andrew Holt, who is responsible for the Group's leisure business continues as an executive director.  Mike Quayle joined the Group as Finance Director in July 2009, replacing Terry Bowman who resigned on 31 March 2009.  Carolyn Smith was reappointed as Company Secretary on 18 March 2009 after a period of maternity leave.

 

Staff

 

Staff numbers increased to 5,918, equal to a full time equivalent of 3,620, with all of the recruitment taking place in the Leisure division.  Morale remains high and our staff take pride in what they do. I congratulate everyone in Parkwood for the resilience they have shown in a difficult year.

 

Outlook

 

Parkwood has restored its profitability through the sale of assets and now has to improve operational profitability in Glendale and Healthcare.  Parkwood Leisure is a considerable success and is a cash generative business.  A year of consolidation lies ahead with the interests of Parkwood's shareholders being the Board's prime concern.

 

 

A W Hewitt

Executive Chairman

22 March 2010

Financial Review

 

Overview

 

The Group's results and balance sheet were both positively impacted by the sale of the leisure related SPC investments in December 2009.  The Group now has a stronger and simpler balance sheet.  The termination of the Realm contract, and Administration of the associated SPC, have led to a restatement of the 2008 results to exclude Realm's trading results which are now classified as a discontinued activity together, with the leisure related SPC investments which had already been classified as discontinued.

 

Revenue from continuing operations increased by 1.2% to £118.0 million (2008 restated: £116.6 million).  The Group suffered a loss from continuing operations before tax of £0.9 million (2008 restated: £1.5 million profit).  The loss from continuing operations includes impairment charges of £0.7 million (2008: £0.2 million) and one off-costs within Glendale totalling £1 million relating to asset write downs and provisions.  After a net profit from discontinued operations of £3.1 million (2008 restated: £0.4 million loss), the Group recorded a retained profit for the year of £2.1 million (2008 restated: £0.4 million).

 

Trading Performance

 

The following summary has been prepared from information contained within the financial statements.

 

	2009		2008 (restated)
	Revenue	Adjusted¹ operating profit/(loss)	Revenue	Adjusted¹ operating profit/(loss)
	£000	£000	£000	£000
Leisure	61,021	4,290	53,530	3,864
Glendale	53,524	(1,339)	58,221	492
Healthcare	3,792	(337)	4,763	(363)
PCS	1,317	(286)	2,108	181
Other	1,760	(2,024)	1,857	(2,251)
Inter segment elimination	(3,451)	-	(3,908)	-
	117,963	304	116,571	1,923

1 Adjusted operating profit/(loss) - profit/(loss) from continuing operations before goodwill amortisation and impairment.

 

Parkwood Leisure continues to perform strongly with an 11% increase in adjusted operating profit from £3.9 million to £4.3 million.  Glendale's results reflect challenging business conditions but also include one off, non-cash charges of £1.0 million.  These principally relate to a reassessment of horticultural inventory following a review of the overhead absorption methodology and net realisable value.

 

Healthcare's revenue reduced by £1.0 million following the end of the onerous patient transport contract in the Midlands in July 2009.  PCS saw revenue and profits decline in 2009 due to the delay in closing the Bristol PFI project.

 

Within the "Other" row in the above table, revenue relates to the Design, Build, Operate and Maintain (DBOM) contracts and costs relate to central group costs which have been reduced by £0.2 million in the year.

 

Impairment charge

 

The Group incurred a £0.7 million impairment charge (2008: £0.2 million), of which £0.5 million relates to goodwill following a review of the Eco Sci and Countryside businesses.  Additionally, a £0.2 million charge was taken against the carrying value of fixed assets within the Golf business.

 

Finance Costs

 

Finance income has reduced to £0.2 million (2008 restated: £0.6 million) as surplus funds have been used to reduce borrowings and income from the SPC investments ceased.

 

Finance costs attributable to continuing operations have reduced to £0.6 million (2008 restated: £0.7 million) due to lower borrowings.  Finance costs have reduced significantly from those previously reported in 2008 since the interest paid on the non-recourse loans used to finance the SPC investments has been reclassified as discontinued.

 

Taxation

 

The Group's tax charge on continuing operations was £0.1 million (2008 restated: £0.8 million).  This is higher than the expected charge based on the loss from continuing operations mainly due to non allowable depreciation and impairment charges. 

 

The taxation charge resulting from discontinued operations is separately disclosed within these activities.  No tax was payable on the disposal profit due to substantial shareholder relief.

 

Discontinued operations

 

The disposal of the SPC investments generated a profit of £5.6 million. This was higher than the net cash proceeds of £4.2 million due to these investments having net liabilities at the date of disposal.

 

Following the Administration of the Realm SPC, and subsequent termination of the contract with Glendale Facilities Management by the MoD, both operations have been classified as discontinued.  The assets and liabilities of Realm have been eliminated from the Group balance sheet and the carrying value of the intangible asset relating to this contract has been fully impaired.  The net impact of these adjustments is a £2.7 million charge to the income statement.

 

The profit after tax of the SPC investments and the Realm contract up to the date of disposal or elimination was £0.2 million (2008 restated: £0.4 million loss).  This includes the interest payable on the non-recourse loans used to fund these investments totalling £1.5 million (2008 restated: £1.8 million).

  

Cash flow

 

The net cash inflow generated by operating activities was £8.7 million (2008 restated: £9.7 million) reflecting the Group's strong EBITDA and a net inflow from working capital of £1.8 million (2008 restated: £1.4 million).  Net cash inflow generated from operating activities includes £3.1 million (2008 restated: £3.4 million) from discontinued activities.  The total cash inflow from discontinued activities was £0.4 million (2008: £1.6 million outflow).

 

Within investing activities, the disposal of the leisure SPC investments generated net proceeds of £4.2 million after payment for tax balances previously group relieved and professional fees. The impact of these proceeds in the cash flow statement is diluted by the elimination of cash balances held by the leisure SPCs totalling £2.2 million.  However, these cash balances were not accessible by the Group and therefore the real underlying benefit of the disposal on the Group's liquidity position is £4.2 million.  The deconsolidation of Realm's £0.8 million cash balance is also shown as a cash outflow.  In total, therefore, the cash flow for the year includes a £3.0 million outflow in relation to the disposal of SPC cash balances which were not accessible by the continuing Group.

 

Capital expenditure funded by the Group was limited to replacement rather than new investments and reduced to £2.6 million (2008 restated: £4.9 million) which is significantly lower than the continuing depreciation charge of £4.3 million (2008 restated: £3.8 million).  HP funding reduced the net cash outflow from capital expenditure to £1.3 million (2008 restated: £4.0 million) before repayment of outstanding HP liabilities.

 

The Group acquired the remaining 50% shareholding in Verdia Horticulture Limited from TEG Group plc resulting in a net cash outflow of £0.1 million.  In addition, the Group increased its investment in D4E to 25% resulting in a net cash outflow of £0.4 million including costs.

 

Recourse bank loans and HP obligations of £2.9 million (2008 restated: £2.0 million) were repaid during the year.

 

In total, the Group generated a net cash inflow of £2.7 million (2008: £2.7 million outflow) resulting in a net cash balance of £5.1 million at 31 December 2009.  The net cash inflow of £2.7 million is stated after inflows from discontinued activities of £0.4 million and elimination of disposed cash balances of £3.0 million.   The underlying increase in the cash balances of the continuing Group was therefore £5.3 million.

 

Pensions

 

The triennial valuation of the Citrus defined benefit pension scheme "the Scheme" took place on 31 March 2009 and indicated a funding deficit of £4.4 million.  The trustees have proposed a ten year recovery plan to address the deficit.  The IAS 19 accounting valuation at 31 December 2009 indicated a deficit of £2.4 million (2008: £0.6 million).  Of the increase in the IAS 19 deficit, £2.1 million related to changes in actuarial assumptions and has been charged directly to equity in accordance with IAS 19. 

 

The pension charge for the year in respect of the Scheme amounted to £0.5 million (2008: £0.7 million) and contributions amounted to £0.8 million (2008: £0.9 million).

 

 

In addition to the defined benefit scheme, the Group makes contributions to a defined contribution scheme and an Admitted Body Status scheme.  In both cases, the Group has no further responsibility to fund the scheme beyond the contributions payable each year.  In 2009 these contributions amounted to £1.2 million (2008: £0.8 million).

 

Balance sheet

 

Following the SPC disposal and Realm deconsolidation, the Group no longer has any non-recourse borrowings.  Total borrowings at 31 December 2009 were £7.6 million (2008: £16.0 million) comprising HP liabilities of £4.3 million (2008: £3.3 million) and bank loans of £3.3 million (2008: £12.6 million).  Against these borrowings the Group held cash balances of £5.1 million at the year end (2008: £1.1 million) which reduced the net level of indebtedness to £2.5 million (2008: £14.8 million).

 

As disclosed in the 2009 Interim Report, the net assets previously reported at 31 December 2008 were restated to amend the values of certain derivative contracts within the non-recourse SPCs.  The amendment was required principally due to an error in the valuation provided by the bank which issued the derivatives.  The net impact has been to reduce the net asset value at 31 December 2008 from £6.0 million to £1.6 million.  This restatement has no effect on the profits in the current or prior period since the derivatives concerned were effective hedges and therefore changes in value were recognised directly in equity.  All of the hedges concerned have been eliminated from the balance sheet at 31 December 2009 since they formed part of the discontinued activities.

 

Net assets at 31 December 2009 stood at £5.9 million (2008 restated: £1.6 million).  The Group's net assets do not include any values for the intangible assets associated with the Group's £471 million ten year order book.

 

Going concern

 

The directors acknowledge the guidance on going concern and financial reporting published by the Financial Reporting Council in October 2009. Given the broad base of our contract portfolio with the public sector and high earnings visibility, the Group is well placed to manage its business risks and has adequate resources to continue in operational existence for the foreseeable future.

 

In December 2009 the Group renewed its 12 month overdraft facility at £2.5 million and its forecasts and budgets for the next 12 months indicate that, if Bristol closes as anticipated, there will be minimal utilisation of this facility given the cash balance available to the Group.

 

During 2010, £2.6 million of the Group's term loans with Bank of Scotland fall due for repayment.  These repayments will be made from available cash resources.

 

Based on the information set out above, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis. 

 

 

 

CONSOLIDATED INCOME STATEMENT

Year Ended 31 December 2009

 

	Note	2009 Total £000	Restated 2008 Total £000
Revenue		117,963	116,571
Cost of sales		(79,942)	(78,124)
Gross profit		38,021	38,447
Administrative expenses		(38,430)	(36,793)
Operating (loss)/profit		(409)	1,654
EBITDA		4,561	5,730
Depreciation		(4,257)	(3,807)
Operating profit before amortisation and impairment		304	1,923
Amortisation		(62)	(85)
Impairment charges		(651)	(184)
Operating (loss)/profit		(409)	1,654
Finance income		193	571
Finance costs		(622)	(680)
Share of results of joint venture		(94)	-
(Loss)/profit before taxation from continuing operations		(932)	1,545
Income tax expense	6	(85)	(768)
(Loss)/profit for the year from continuing operations		(1,017)	777
Discontinued operations
Gain on disposal of SPCs	4	5,620	-
Loss on impairment of Realm	4	(2,700)	-
Profit/(loss) for the year from discontinued operations	4	176	(408)
Total profit/(loss) from discontinued operations		3,096	(408)
Profit for the year attributable to equity shareholders		2,079	369
Basic and diluted (loss)/ earnings per share
From continuing operations		(5.6p)	4.2p
From discontinued operations		17.1p	(2.2p)
Total	7	11.5p	2.0p

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year Ended 31 December 2009

 

	2009 Total £000	Restated 2008 Total £000
Profit for the year	2,079	369
Other comprehensive income/(losses)
Continuing operations:
Actuarial loss on defined benefit pension scheme	(1,933)	(100)
Change in derivative valuations - cash flow hedges	62	(1,081)
Income tax relating to components of other comprehensive income	524	303
Discontinued operations:
Actuarial (loss)/gain on defined benefit pension scheme	(200)	9
Change in derivative valuations - cash flow hedges	441	(1,409)
Reclassification adjustment - disposal of cash flow hedges (note 4)	3,442	-
Income tax relating to components of other comprehensive income	(67)	420
Other comprehensive income/(losses) for the year, net of tax	2,269	(1,858)
Total comprehensive income/(losses) for the year	4,348	(1,489)