Financial Review
The strong results of our continuing businesses have generated excellent operating profits and cash flows enabling continued investment. Future growth prospects have been further enhanced by the completion of a £10m share issue in September 2003, which has been utilised to decrease existing debt and provide facilities to finance future developments.
Accounting policies
There have been no changes to accounting policies during the year. In accordance with FRS 15, Fixed assets, a full revaluation was undertaken during the year giving rise to a net gain of £2.7m, which is reflected in the revaluation reserve and the statement of total recognised gains and losses for the year.
Turnover
Total turnover (including share of joint ventures) increased by 3.9% to £83.6m (2002: £80.5m).
Turnover from the Schools Division increased by £4m to £29.9m indicating the strong organic growth in International Schools and the opening of the new school in Shanghai.
Turnover from the Nursery Division increased by £1.3m to £8.9m reflecting the progress to maturity of the nursery portfolio, together with the opening of nurseries at Bedford, Cheam, Guiseley and Fulham during the year.
Turnover from the college businesses decreased from £8m to £0.3m as a result of the closure of The School of Finance and Management during the year and the disposal of the accountancy tuition and publishing businesses in May 2002.
Turnover from the Outsourcing Division increased by £5.5m to £44.5m signalling strong performance by the Lifetime Careers Group in expanding its range of services and growth in income of £1m from the EduAction (Waltham Forest) joint venture.
Operating profit
Total operating profit (including share of joint ventures) increased by 4.7% to £5.14m (2002: £4.91m). Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 4.4% to £8.1m (2002: £7.7m).
Operating profit from the Schools Division increased by 4.5% to £3.0m (2002: £2.8m). Fee income growth was partly offset by increased employment costs and the absorption of opening year costs for the new Shanghai school.
Operating profit from the Nursery Division increased by 41.9% to £0.7m (2002: £0.5m) reflecting the progress of the portfolio towards mature operating levels and the absorption of opening year costs in four nurseries.
The closure of the School of Finance and Management incurred final operating losses of £0.4m compared with a net loss in the College division of £0.1m in the prior year.
Operating profit from the Outsourcing Division increased by 16.9% to £2.7m (2002:£2.3m) reflecting strong performance of the division offset by disappointing performance of the Services Direct to Schools business.
Unallocated head office costs and goodwill amortisation increased by £0.3m to £0.9m (2002: £0.6m).
Interest
The Group incurred net interest charges of £0.61m (2002: £0.33m) as a result of net debt incurred to invest in acquisitions and new nursery developments during the last two years. This interest cost was covered nine times by operating profits.
Exceptional loss
The Group completed a strategic review of the business during the year and announced the closure of the Services Direct To Schools business. The School of Finance & Management was also closed in August 2003.
These closures have given rise to an exceptional loss of £1.2m, which includes the write off of investments and specific IT systems of £0.8m and the provision for redundancy and other closure losses of £0.4m. These closures will release surplus properties and these are currently being marketed for sale.
Taxation
The effective rate of taxation has increased to 38.1% (2002: 22.8%). The prior year tax charge reflects the utilisation of significant tax losses. The Group’s tax charge will typically exceed the standard rate of 30% due to the impact of depreciation charges on buildings for which no tax allowances are available.
Earnings per share
The basic earnings per share is 9.23p (2002: loss per share of 79.64p). The earnings per share on profit before exceptional items and goodwill, which signals the underlying performance of the business, is 14.48p
(2002: 17.52p). This decrease reflects the relative low tax charge in 2002 due to the utilisation of tax losses.
Capital expenditure
Capital expenditure during the year was £7.2m, including £1.7m investment in the British International School Warsaw, £0.5m in the British International School Shanghai, £1.25m for the construction of new nurseries and £2m for the purchase and extension of the new Head Office building, which will be occupied from January 2004.
Acquisitions
During the year the Group acquired the trade and assets of Yorkshire Post Training for £0.5m. This business complements the Group’s existing training providers Belle Associates and The Interactive College.
After the year-end in September 2003, the Group acquired Petits Enfants Day Nurseries Limited for £2.7m. This added nine sites in and around London to the Princess Christian Nurseries portfolio.
Cash flow
The Group generated net cash inflow of £2.75m (2002: net cash outflow £4.15m). Advanced fee receipts from our International Schools, contributed to an increase in operating cash flow of £3.7m to £10.2m (2002: £6.5m). Free cash flow (representing operating cash flow less interest, tax and dividend payments) increased by £3.6m to £7.6m (2002: £4m).
Net investment in fixed assets was £7.7m of which £2.8m was financed by net new loans and the balance of £4.9m was financed from free cash flow.
Net assets
Net assets of the Group at 31 August 2003 were £30.1m (2002: £26.3m). This includes retained profit for the year of £1.1m and a property revaluation gain of £2.7m. Net debt at 31 August 2003 was £13.1m, resulting in a gearing ratio of 43.4% (2002: 48.2%).
Following completion of the acquisition of Petits Enfants Day Nurseries Limited and the share issue in September 2003, proforma net assets increased to £39.9m and net debt decreased to £6.5m reducing gearing to 16.2%.
Firm Placing and Open offer
On 29 September 2003 the Company raised, in aggregate, £10m before expenses for the Group through an Open Offer of 1,904,317 new Ordinary shares and a Firm Placing of 3,651,199 new Ordinary shares both at £1.80 per share. Following this transaction, together with 110,126 Ordinary shares issued on 4 September 2003 as part of the acquisition of Petits Enfants Day Nurseries Limited, the total number of Ordinary Shares in issue has increased to 26,613,609.
The new Ordinary shares issued in connection with the Open Offer and Firm Placing rank pari passu in all respects with the existing Ordinary shares and rank in all future dividends declared on the Ordinary shares, except that they will not rank for any final dividend declared for the year ended 31 August 2003.
Dividend
The Board is recommending a final dividend of 2.92p (2002: 2.75p) per share taking the total dividend for the year to 4.25p per share (2002: 4p). This gives a total dividend for the year of £0.89m (2002; £0.84m), an increase of 7.1% and is covered 3.1 times by preexceptional profits (2002: 4 times).
The final dividend will be paid on 9 February 2004 to shareholders on the register on 9 January 2004 with an ex dividend date of 7 January 2004.
Lorene Simpson
Group Finance Director
5 December 2003
