2nd Feb 2005 07:00
Innovation Group PLC02 February 2005 2 February 2005 THE INNOVATION GROUP PLC REPORT FOR THE THREE MONTHS ENDED 31 DECEMBER 2004 Continued progress in line with our strategy and developing business model The Innovation Group (TiG), which specialises in providing technology basedbusiness services to the global insurance community, its customers andsuppliers, today announces its results for the three months ended 31 December2004. Financial highlights: - Adjusted profit before tax* increased by 15% to £1.5m (Q1 2004: £1.3m) - Loss before tax £2.0m (Q1 2004: loss of £1.6m) - Total turnover up 8% to £14.9m (Q1 2004: £13.8m). Specialised Business Process Outsourcing (SBPO) turnover of £8.4m (Q1 2004: £6.0m). Technology Solutions Division (TSD) turnover of £6.5m (Q1 2004: £7.8m) - Recurring revenues increased to £9.6m; representing 65% of Group revenue Operational highlights: - SBPO benefited from focus on core operations; Germany grew 57% to £0.6m revenue compared to Q1 2004 - Joint venture established with Netsol, based in India and Pakistan, to provide additional resource to meet TiG's strengthening pipeline and a lower cost base * Adjusted profit is the loss before tax adding back the amortisation charge of £3.5m as analysed on page 5 Hassan Sadiq, Chief Executive of The Innovation Group said: "We have made good progress during the first quarter in all areas of ourbusiness. As previously indicated, we continue to expect revenues and profitsfor the current financial year to be weighted to the second half, whilst thebenefits of our focus on recurring revenue will be realised incrementally overtime. "Our new business pipelines have greater depth than those at this time last yearin both divisions of the business and our prospects are underpinned by improvedclient service delivery and the development of key partnerships. The Board,therefore, believes that the outlook for The Innovation Group remains positive." Enquiries: The Innovation Group plc 01489 898300Hassan Sadiq, Chief Executive OfficerPaul Smolinski, Group Finance Director RW Baird 020 7488 1212Shaun Dobson Smithfield 020 7360 4900Sara Musgrave 07736 979302 CHIEF EXECUTIVE'S STATEMENT Strategy As outlined in our preliminary results statement in November 2004, our medium tolong term strategic objective is to increase the proportion of Group revenueswhich are predictable and recurring and reduce the Group's dependence onsecuring large, one-off licence sales. This objective will be met by structuringclient agreements to include licence rentals, milestone linked and transactionbased fees. Such agreements allow TiG's customers to spread their investmentcost over the life of a project, giving them additional flexibility. Market Activity levels in the global insurance market for technology, outsourcing andsupply chain solutions remain buoyant as insurers continue to look for solutionswhich are proven to deliver improved return on capital, lower combined ratiosand better customer service. The Group is well positioned to address this market and works with globallyrecognised and respected companies such as IBM and McKinsey, industryinfluencers such as Meta Group and Gartner, and its existing client base tocontinue to evolve its leading edge solutions. Financial and Operating Review Financials Revenue for the three months to 31 December 2004 was up 8% to £14.9m (Q1 2004:£13.8m); recurring revenues increased to £9.6m and now represent 65% of Grouprevenue. Technology Solutions Division (TSD) turnover was £6.5m (Q1 2004:£7.8m). Specialised Business Process Outsourcing (SBPO) turnover was £8.4m (Q12004: £6.0m). Adjusted profit* increased by 15% to £1.5m (Q1 2004: £1.3m) and loss before taxwas £2.0m (Q1 2004: Loss of £1.6m), representing adjusted EPS of 0.3p (Q1 2004:0.2p) and basic loss per share of 0.5p (Q1 2004: loss per share of 0.4p). Cash was £14.9m as at 31 December 2004 and operating cash inflow for the threemonth period, was £0.4m (or £1.0m inflow including the movement in repairer andwarranty funds). On 1 October 2004 the Group settled the final instalment of £1.0m payable on theacquisition of InterX through the issue of approximately 3.7m new ordinaryshares. During December 2004, we concluded our audit and tax tender process whichresulted in Ernst & Young LLP being appointed. Technology Solutions Division (TSD) Total revenue for the three months was £6.5m (Q1 2004: £7.8m) and comprised£1.4m of licence fees, £3.3m solution delivery, £0.5m US public sector and £1.3mmaintenance and recurring. There were a number of highlights in the first quarter across our territories.Our Australian operation signed a licence extension for AUD$2.0m (approximately£0.8m) and a contract for additional services with an existing customer. InNorth America, we completed another significant milestone in one of our majorpolicy implementations, which led to £0.5m in licence revenue being recognisedduring the period. We are well placed to deliver on outstanding implementationmilestones during the remainder of the year. In the UK, work was completed ontwo major projects and we anticipate that solution delivery revenues willincrease over the next few months as these resources are redeployed. American Modern Insurance Group licenced the new TiG Conversion product toconvert data from legacy systems onto the new TiG Policy System when it goeslive for use in their business transformation initiatives. The contract involveda small upfront licence fee with an increase to maintenance payments over thenext ten years. In December 2004, TiG signed an agreement with NetSol Technologies, Inc.(Nasdaq: NTWK) to form a new jointly owned company, TIG-NetSol (Pvt) Ltd. Basedin India and Pakistan, this will provide TiG with additional resource, includingsupport services, enabling TiG to meet increasing demand for its solutiondelivery operations. It allows TiG to create an extended enterprise to supportour technology business with its growing community of customers and takeadvantage of a significantly lower offshore cost base. We anticipate thisrelationship will increase the availability of TiG trained resources as well asthe quality of our delivery to our customers. Good progress has been made in the first quarter with sales campaigns for newlicence sales. We are working more closely with IBM and the joint pipeline withIBM is growing in the US, Japan and Australia. Specialised Business Process Outsourcing (SBPO) During the first quarter the SBPO business increased revenues by 39% to £8.4m(Q1 2004: £6.0m). Our South African operation continued to perform well, havingsuccessfully integrated the recent acquisition of Maxicare into its operations.Maxicare contributed £1.2m of turnover during the three month period.Australia's results for the quarter were as anticipated and Germany continuedits growth (57% increase in turnover to £0.6m since Q1 2004). The UK operation'sresults are improving slower than planned due to the delayed implementation ofthe new customer win announced in August 2004. This should be fully deployed byFebruary 2005 and improved results will be reflected fully in the third quarterof the current financial year. During the quarter, the Group has completed a number of tactical activities.Actions were taken during December 2004 to commence the wind down of the Group'slast remaining non core SBPO operation (Chartoak, our car rental business),which was loss making, and this should cease trading during the second quarterof the current financial year. In October 2004, the Group acquired a further 27%holding in Infront Solutions Limited, which provides insurers with outsourcedservices for subsidence management, for £0.25m (and in addition a payment of upto a maximum of £1m cash based on the future profits of the company), taking itstotal holding to 62%. In December 2004, the Group also acquired the remaining30% minority stake in Statsure (Proprietary) Limited in South Africa for £0.5m. After the quarter end the Group acquired a further 20% holding in InfrontSolutions Limited for £0.4m (and in addition a payment of up to a maximum of£1.25m cash based on the future profits of the company). We anticipate that increased revenues in the SBPO division for the rest of thefinancial year will be primarily driven by the increased volume of transactionsundertaken through existing contractual relationships. This trend will continueas those relationships become increasingly established and as our clients growtheir businesses. Therefore, SBPO remains on plan and we are continuing toexplore options available to further leverage the Group's volumes to optimiserevenues per transaction or claim event for the Group. Outlook As stated in our 2004 year end results announcement we plan to continue toevolve the Group's revenue model by increasing the recurring and predictablerevenue element of our business. As previously indicated, with the scheduled implementation milestones and thecontinued transformation of our business model, we continue to expect revenuesand profits for the current financial year to be weighted to the second half,whilst the benefits of our focus on recurring revenue will be realisedincrementally over time. Underpinned by improved client service delivery, our new business pipelines havegreater depth than those at this time last year in both businesses and the Boardbelieves that the outlook for The Innovation Group remains positive. Hassan SadiqChief Executive2 February 2005 * Defined under financial highlights on page 5 The Innovation Group plc Financial HighlightsFor the three months ended 31 December 2004 Unaudited Audited Note 3 months ended 31 Year to December 30 September 2004 2003 2004 £'000 £'000 £'000 Turnover 14,854 13,819 58,051 Adjusted profit before tax a 1,457 1,308 7,525 Loss before tax (1,984) (1,602) (7,349) Adjusted earnings per share(pence) 6 0.26 0.24 1.49Basic loss per share (pence) 6 (0.52) (0.44) (1.98)Diluted loss per share (pence) 6 (0.52) (0.44) (1.98)Adjusted diluted earnings pershare (pence) 6 0.26 0.24 1.46 Note: a Adjusted profit before tax is calculated as: Year to 3 months ended 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 FRS 3 loss before tax (1,984) (1,602) (7,349)Add back/(exclude):Amortisation 3,441 3,545 14,621Exceptional items - - 868Profit on disposal of operations - (635) (1,340)Amounts written off investments - - 725 ---------- ---------- --------- Adjusted profit before tax 1,457 1,308 7,525 ========== ========== ========= References to adjusted profit and earnings per share reflect the Directors' viewthat this is an important measure for their own, and shareholders', assessmentof the Group's underlying performance. The Innovation Group plcUnaudited Profit and Loss AccountFor the three months ended 31 December 2004 Unaudited Unaudited Audited ----------- ---------- ---------- 3 months 3 months Year to to to 31 31 30 December December September 2004 2003 2004 Note £'000 £'000 £'000 TURNOVER - continuing 2 14,854 13,819 58,051Cost of sales (7,724) (6,259) (25,520) ----------- ---------- ---------- Gross profit 7,130 7,560 32,531Administrative expenses- amortisation (3,441) (3,545) (14,621)- exceptional items 3 - - (868)- other (5,707) (6,224) (24,825) ----------- ---------- ---------- (9,328) (9,769) (40,314) ----------- ---------- ---------- OPERATING LOSS -continuing (2,018) (2,209) (7,783) Share of operating loss ofassociate undertaking - - (54)Profit on disposal ofoperations 4 - 635 1,340Amounts written offinvestments 3 - - (725) Net interest 34 (28) (127) ----------- ---------- ---------- LOSS ON ORDINARYACTIVITIES BEFORE TAXATION (1,984) (1,602) (7,349) ------------------------ ----- ----------- --- ---------- --- ---------- Loss on ordinaryactivities before taxation (1,984) (1,602) (7,349)Amortisation 3,441 3,545 14,621Exceptional items 3 - - 868Profit on disposal ofoperations - (635) (1,340)Amounts written offinvestments - - 725 ----------- ---------- ---------- Adjusted profit 1,457 1,308 7,525 =========== ========== ========== ------------------------ ----- ----------- --- ---------- --- ---------- Tax on loss on ordinaryactivities 5 (218) (262) (1,129) ----------- ---------- ---------- LOSS ON ORDINARYACTIVITIES AFTER TAXATION (2,202) (1,864) (8,478)Equity minority interests (79) (21) (14) ----------- ---------- ---------- RETAINED LOSS FOR THEPERIOD (2,281) (1,885) (8,492) =========== ========== ========== Basic loss per ordinaryshare (pence) 6 (0.52) (0.44) (1.98)Adjusted earnings perordinary share (pence) 6 0.26 0.24 1.49Diluted loss per ordinaryshare (pence) 6 (0.52) (0.44) (1.98)Adjusted diluted earningsper ordinary share (pence) 6 0.26 0.24 1.46 All amounts relate to continuing operations. The Innovation Group plcUnaudited Balance SheetAs at 31 December 2004 Unaudited Unaudited Audited ----------- ---------- ---------- 31 31 30 December December September 2004 2003 2004 Note £'000 £'000 £'000 FIXED ASSETSIntangible assets 20,453 31,079 23,521Tangible assets 11,353 12,245 11,656Investments 94 1,210 91 ----------- ---------- ---------- 31,900 44,534 35,268 CURRENT ASSETSStocks 210 213 172Debtors 7 10,636 10,765 10,563Investments 500 455 -Cash at bank and in hand 14,879 11,691 15,789 ----------- ---------- ---------- 26,225 23,124 26,524 CREDITORS: amounts falling due withinone yearOther creditors 8 (8,161) (12,200) (8,566) ----------- ---------- ---------- NET CURRENT ASSETS 18,064 10,924 17,958 ----------- ---------- ---------- ----------- ---------- ---------- TOTAL ASSETS LESS CURRENTLIABILITIES 49,964 55,458 53,226 CREDITORS: amounts falling dueafter more than one yearConvertible loan notes (1,060) (2,045) (1,101)Other creditors (4,021) (5,028) (4,244) ----------- ---------- ---------- (5,081) (7,073) (5,345) PROVISIONS FOR LIABILITIESAND CHARGES (1,016) (1,656) (1,058) ACCRUALS AND DEFERREDINCOME 9 (10,548) (9,309) (10,520) EQUITY MINORITY INTERESTS 23 (82) (74) ----------- ---------- ---------- NET ASSETS 33,342 37,338 36,229 =========== ========== ========== CAPITAL AND RESERVESCalled up share capital 10 8,771 8,410 8,697Shares to be issued - - 1,000Share premium account 482,923 477,516 481,997Profit and loss account (458,352) (448,588) (455,465) ----------- ---------- ---------- EQUITY SHAREHOLDERS' FUNDS 33,342 37,338 36,229 =========== ========== ========== The interim results were approved by the Board of Directors on 2 February 2005. The Innovation Group plcStatement of total recognised gains and lossesAs at 31 December 2004 Unaudited Unaudited Audited ----------- ---------- ---------- 3 months to 3 months to Year to 31 31 30 December December September 2004 2003 2004 £'000 £'000 £'000 Loss for the financialperiod (2,281) (1,885) (8,492)Currency translationdifferences (606) 1,684 1,414 ----------- ---------- ---------- Total recognised gains andlosses relating to theperiod (2,887) (201) (7,078) =========== ========== ========== Reconciliation of movement in shareholders' funds Unaudited Unaudited Audited ----------- ---------- ---------- 3 months to 3 months to Year to 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Loss for the financialperiod (2,281) (1,885) (8,492)Currency translationdifferences (606) 1,684 1,414Issue of shares 1,000 2,752 7,520Shares to be issued (1,000) (1,736) (736) ----------- ---------- ---------- Net (reduction)/additionto shareholders' funds (2,887) 815 (294) Opening shareholders'funds as previouslyreported 36,229 36,523 36,523 ----------- ---------- ---------- Closing shareholders'funds 33,342 37,338 36,229 =========== ========== ========== The Innovation Group plc Unaudited Cash Flow StatementFor the three months ended 31 December 2004 Unaudited Unaudited Audited ----------- ---------- ---------- 3 months 3 months Year to to to 31 31 30 December December September 2004 2003 2004 Note £'000 £'000 £'000 Net cash inflow fromoperating 11 983 291 6,611activities Returns on investments and servicing offinanceInterest received 175 144 653Interest paid (54) (87) (753)Interest element offinance lease rentalpayments (38) (40) (165) ----------- ---------- ---------- Net cash inflow/(outflow)from returns oninvestments and servicingof finance 83 17 (265) TaxationTax paid (263) (79) (2,067) Capital expenditure and financialinvestmentPurchase of tangible fixedassets (177) (193) (847)Sale of tangible fixedassets 54 11 97Purchase of fixed assetinvestments - (250) (503)Loans - 92 92 ----------- ---------- ---------- (123) (340) (1,161) Acquisition and disposalsPayments to acquiresubsidiary undertakings (742) (270) (4,652)Cash acquired withsubsidiary undertakings - - 195Sale of subsidiaryundertakings - - 1,059Sale of associatedundertakings - 1,143 1,143Purchase of associateundertakings (25) -Net cash disposed of withsubsidiary - - (25) ----------- ---------- ---------- (767) 873 (2,280)Management of liquid resourcesNet (purchase)/sale ofcurrent asset investments (500) 1,288 1,700 ----------- ---------- ---------- Net cash (outflow)/inflowbefore financing (587) 2,050 2,538 FinancingIssue of share capital - - 4,768Repayment of borrowings (170) (1,448) (2,353)Capital element of financelease rentals (153) (72) (323) ----------- ---------- ---------- Net cash (outflow)/inflowfrom financing (323) (1,520) 2,092 ----------- ---------- ---------- (Decrease)/Increase incash less bank 12 (910) 530 4,630overdraft =========== ========== ========== The Innovation Group plc Notes to the Unaudited ResultsFor the three months ended 31 December 2004 1. BASIS OF PREPARATION The interim financial information of The Innovation Group Plc is for the threemonth period to 31 December 2004 and has been prepared in accordance with theaccounting policies set out in the audited financial statements for the yearended 30 September 2004. The results for the year ended 30 September 2004 havebeen extracted from the audited financial statements for that year. The auditedfinancial statements have not yet been filed with the Registrar of Companies butthe auditors' report on those accounts was unqualified. The unaudited profit andloss account for the three month period to, and the unaudited balance sheet asat 31 December 2004 and its comparative period to 31 December 2003, do notamount to full accounts within the meaning of section 240 of the Companies Act1985 and have not been delivered to the Registrar of Companies. 2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS Turnover can be analysed into the following categories: Unaudited Unaudited Audited ---------- ---------- ---------- 3 months 3 months Year to to to 31 31 30 December December September 2004 2003 2004 £'000 £'000 £'000Technology Solutions DivisionLicence fees 1,421 1,891 8,979Solution delivery 3,307 3,702 15,242Maintenance and other recurring 1,242 1,604 5,760US public sector 547 642 2,938 ---------- ---------- ---------- 6,517 7,839 32,919 Specialised Business ProcessOutsourcingBusinesses held at 31 December 2004 8,337 5,664 24,531Businesses disposed of during 2004 - 316 601 ---------- ---------- ---------- 8,337 5,980 25,132 14,854 13,819 58,051 ========== ========== ========== The results for the three months ended 31 December 2004 with comparatives can beanalysed as follows. Unaudited Technology SBPO Total Solutions --------------- --------------- --------------- 3 months 3 months 3 months 3 months 3 months 3 months to to to to to to 31 31 31 31 31 31 December December December December December December 2004 2003 2004 2003 2003 £'000 £'000 £'000 £'000 2004 £'000 £'000Turnover 6,517 7,839 8,337 5,980 14,854 13,819 -------- -------- -------- -------- -------- -------- EBITDA beforeR&D andcentral costs 2,268 3,791 912 506 3,180 4,297Depreciation (294) (321) (148) (214) (442) (535)Amortisation (1,806) (2,008) (1,635) (1,537) (3,441) (3,545)R&D (705) (1,119) - (54) (705) (1,173)Central (487) (1,002) (123) (251) (610) (1,253)costs -------- -------- -------- -------- -------- --------Operating loss (1,024) (659) (994) (1,550) (2,018) (2,209) Profit ondisposal ofcontinuingoperations - - - 635 - 635Net interest (57) (133) 91 105 34 (28) -------- -------- -------- -------- -------- -------- Loss onordinaryactivitiesbeforetaxation (1,081) (792) (903) (810) (1,984) (1,602) ======== ======== ======== ======== ======== ======== The reference to EBITDA before R&D and central costs in the table above reflectthe Directors' view that this is an important measure for their own and shareholders' assessment of the Group's underlying performance by division. Reconciling items between this figure and loss on ordinary activities beforetaxation are shown in the table above. The analysis of net assets/(liabilities) by division was as follows: Net assets Unaudited Unaudited Audited ---------- ---------- ---------- 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Technology Solutions Division 35,180 35,229 39,061SBPO (1,838) 2,109 (2,832) ---------- ---------- ---------- 33,342 37,338 36,229 ========== ========== ========== The geographical analysis by location is as set out below: Turnover Loss before taxation Unaudited Unaudited Audited Unaudited Unaudited Audited -------- -------- -------- -------- -------- -------- 3 months 3 months Year 3 months 3 months Year to to to to to to 31 December 31 December 30 Sept 31 December 31 December 30 Sept 2004 2003 2004 2004 2003 2004 £'000 £'000 £'000 £'000 £'000 £'000 -------- -------- -------- -------- -------- -------- Europe, MiddleEast andAfrica 9,557 9,586 41,185 (2,615) (1,544) (5,046)Americas 3,628 3,036 12,700 181 124 (1,258)Asia Pacific 1,669 1,197 4,166 450 (182) (1,045) -------- -------- -------- -------- -------- -------- 14,854 13,819 58,051 (1,984) (1,602) (7,349) ======== ======== ======== ======== ======== ======== Net assets Unaudited Unaudited Audited ---------- ---------- ---------- 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Europe, Middle East andAfrica (23,029) (23,843) (23,384)Americas 62,442 65,941 65,472Asia Pacific (6,071) (4,760) (5,859) ---------- ---------- ---------- 33,342 37,338 36,229 ========== ========== ========== During the period the most significant currencies, other than sterling, were theUS $ and South African Rand. The average exchange rates used to convert resultsin to sterling were US$1.88:£1 (three months ended 31 December 2003: US$1.73:£1)and SA Rand 11.01:£1 (three months ended 31 December 2003: SA Rand 11.56:£1). 3. EXCEPTIONAL ITEMS Year to 30 September 2004 Administrative expenses Exceptional administrative expenses incurred in the year to 30 September 2004totalled £0.87m and relate to the settlement of a legal action and associatedcosts. The Group is fully indemnified for these expenses but in view of theuncertainty as to their recovery, full provision has been made against thisdebtor. Amounts written off investments Amounts written off investments in the year to 30 September 2004 totalled£0.725m and relate to the impairment of an investment in an associatedundertaking and other fixed asset investments. 4. PROFIT ON DISPOSAL OF OPERATIONS Year to 30 September 2004 The disposal of the Group's subsidiary, Intelligent Business Solutions Limited("IBS") for £788,000 in cash, net of costs, was completed on 31 March 2004. TheGroup's share of net assets on disposal was £209,000. The profit on disposal,which was determined including attributable goodwill of £124,000, was £455,000. The disposal of the Group's 50 per cent. share in its associate Mead &McGrouther (Proprietary) Limited for £1,143,000 in cash was completed on 21November 2003. The Group's share of net liabilities on disposal was £160,000.The profit on disposal, which was determined including attributable goodwill of£689,000, was £614,000. In August 2004 the Group received deferred consideration totalling £271,000 inrespect of the sale of its French SBPO business disposed of in 2003 that had notpreviously been recognised due to uncertainty about its recoverability prior toreceipt. 5. TAXATION The effective tax rate for the group based on the results before amortisationfor the three months ended 31 December 2004 is 15% (December 2003: 20%;September 2004: 20%). 6. EARNINGS PER SHARE Unaudited Unaudited Audited ---------- ---------- ---------- 3 months 3 months Year to to to 31 31 30 December December September 2004 2003 2004 Pence pence pence Diluted loss per share (0.52) (0.44) (1.98)Adjustments for share options and shares to - - -be issued ---------- ---------- ---------- Basic loss per share (0.52) (0.44) (1.98)Adjustments- amortisation 0.78 0.84 3.40- exceptional items - - 0.21- profit on disposal of continuingoperations - (0.16) (0.31)- amounts written off investments - - 0.17 ---------- ---------- ---------- Adjusted earnings per share 0.26 0.24 1.49Adjustment for dilutive potentialordinary shares - - (0.03) ---------- ---------- ---------- Adjusted diluted earnings per share 0.26 0.24 1.46 ========== ========== ========== Earnings per share is calculated as follows: Number of shares (thousand)Average number of shares in issue used tocalculate basic and diluted loss and adjustedearnings per share 438,560 420,427 429,587Dilutive potential ordinary shares- add share options 9,616 4,640 8,298 ---------- ---------- ---------- Shares used to calculate adjusted dilutedearnings per share 448,176 425,067 437,885 ========== ========== ========== Basic and diluted earnings (£'000)Basic and diluted loss for the period (2,281) (1,885) (8,492)- add amortisation 3,441 3,545 14,621- add exceptional items - - 868- less profit on disposal of operations - (635) (1,340)- add amounts written off investments - - 725 ---------- ---------- ---------- Adjusted and adjusted diluted earnings for theperiod 1,160 1,025 6,382 ========== ========== ========== References to adjusted profit, earnings per share and diluted adjusted earningsper share reflect the Directors' view that these are important measures fortheir own, and shareholders', assessment of the Group's underlying performance.FRS 14 requires presentation of diluted EPS when a company could be called uponto issue shares that would decrease net profit or increase net loss per share.For a loss making company with outstanding share options, net loss per sharewould only be increased by the exercise of out-of-the-money options. Since itseems inappropriate to assume that option holders would act irrationally, noadjustment has been made to diluted EPS for out-of-the-money share options. 7. DEBTORS Unaudited Unaudited Audited ---------- ---------- ---------- 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Trade debtors 7,726 7,591 8,242Deferred taxation 221 - 247Other debtors 718 1,444 616Prepayments 942 1,140 709Accrued income 1,029 590 749 ---------- ---------- ---------- 10,636 10,765 10,563 ========== ========== ========== All amounts are due within one year. 8. CREDITORS: amounts falling due within one year Unaudited Unaudited Audited ---------- ---------- ---------- 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Bank loans and overdrafts 10 - -Other loans 800 118 800Obligations under finance leasesand hire purchase agreements 261 271 362Trade creditors 2,243 2,799 2,471Taxation and social security 1,475 1,573 1,559Corporation tax 1,796 2,812 1,889Other creditors 1,576 4,627 1,485 ---------- ---------- ---------- 8,161 12,200 8,566 ========== ========== ========== 9. ACCRUALS AND DEFERRED INCOME Unaudited Unaudited Audited ---------- ---------- ---------- 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 Accruals - due within one year 2,990 3,196 4,170Deferred income - due within oneyear 5,676 4,977 4,598Deferred income - due outside oneyear 1,882 1,136 1,752 ---------- ---------- ---------- 10,548 9,309 10,520 ========== ========== ========== 10. SHARE CAPITAL The number of allotted, called up and fully paid ordinary shares of 2 pence eachas at 31 December 2004 was 438,559,862 (31 December 2003: 420,497,780; 30September 2004: 434,859,585). 11. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW/(OUTFLOW) FROMOPERATING ACTIVITIES Unaudited Unaudited Audited ----------- ---------- ---------- 3 months to 3 months to Year to 31 31 30 December December September 2004 2003 2004 £'000 £'000 £'000 Operating loss (2,018) (2,209) (7,783)Exceptional items - - 868 ----------- ---------- ---------- Operating loss beforeexceptional items (2,018) (2,209) (6,915)Depreciation andamortisation charges 3,883 4,080 16,698Profit on disposal offixed assets (2) (5) (18)(Increase)/decrease instocks (35) 22 7(Increase)/decrease indebtors (101) 274 642Decrease in creditors (744) (1,147) (2,077) ----------- ---------- ---------- 983 1,015 8,337Cash outflow arising fromexceptional costs - (724) (1,726) ----------- ---------- ---------- Net cash inflow fromoperating activities 983 291 6,611 =========== ========== ========== 12. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Unaudited Unaudited Audited ----------- ---------- ---------- 3 months to 3 months to Year to 31 December 31 December 30 September 2004 2003 2004 £'000 £'000 £'000 (Decrease)/increase incash in the period (910) 530 4,630Cash outflow from decreasein debt and leasefinancing 323 1,520 2,989Cash outflow/(inflow) frommovement in 500 (1,288) (1,700)liquid resources ----------- ---------- ---------- Change in net fundsresulting from cash flows (87) 762 5,919Foreign exchange 68 147 154Loans, loan notes, andfinance leases (27) (45) (465)Transfer to fixed assetinvestments - - (21) ----------- ---------- ---------- Movement in net funds inthe period (46) 864 5,587Net funds at start ofperiod 9,408 3,821 3,821 ----------- ---------- ---------- Net funds at end of period 9,362 4,685 9,408 =========== ========== ========== Cash at bank and in hand includes £4,267,000 (30 September 2004: £3,659,000)representing amounts due to repairers and funds held to settle futuremaintenance claims as part of the normal administration of the SBPO businesses.An amount representing the liability to the third parties involved is includedas part of the Group's current and long term liabilities. 13. LITIGATION In common with other businesses operating in the IT sector, particularly thosethat have acquired a significant number of companies on a global basis, theGroup is subject to, or instigates, complaints which may or may not lead tolitigation. One case in particular relates to a former officer of a companyacquired by the Group in 2001, who has lodged a claim against the former legalowner and TiG for loss of profit on options over consideration shares, resultingfrom these shares being subject to customary transfer restrictions. The value ofthe claim is substantial. The company has received legal advice in respect ofthe claim to the effect that it has a good defence and remains confident of asuccessful outcome for TiG. TiG continues to defend the claim vigorously. Whilstthe possibility of significant damages may be remote, there will be an elementof legal costs associated with this defence that may be unrecoverable and these,to the extent that they can be estimated, have been provided for in the Q1results. 14. ADDITIONAL COPIES OF THE STATEMENT Copies of this statement are available from The Innovation Group plc, YarmouthHouse, 1300 Parkway, Solent Business Park, Whiteley, PO15 7AE. INDEPENDENT REVIEW REPORT TO THE INNOVATION GROUP PLC Introduction We have been instructed by the company to review the financial information forthe three months ended 31 December 2004, which comprises the profit and lossaccount, the balance sheet, the statement of total recognised gains and losses,the reconciliation of movement in shareholders' funds, the cash flow statementand related notes 1 to 14. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolices and presentation applied to the interim report figures are consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsended 31 December 2004. Ernst & Young LLPApex PlazaReadingRG1 1YE2 February 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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