Final Results

9th Sep 2008 07:00



Interior Services Group PLC

Preliminary results for the year ended 30 June 2008

Record results, operating in growth markets, strong order book, confident of strategy

Interior Services Group plc is a construction services specialist with a fast growing presence outside of London and also internationally in Europe, Middle East and Far East.

Results 

• Gross Value of work performed ("volumes") up 33% to £1,110m (2007 - £833m)

• Revenue up 42% to £1,091m (2007 - £767m)

• Fee income increased 43% to £150.3m (2007 - £104.8m) 

• Adjusted profit before tax* increased 33% to £14.1m (2007 - £10.6m)

• Profit before tax increased 27% to £12.6m (2007 - £10.0m)

• Basic earnings per share increased by 28% to 36.44p (2007 - 28.46p)

• Adjusted basic earnings per share** increased by 21% to 36.22p (2007 - 29.91p)

• Proposed final dividend increased to 9.2p, bringing the total to 13.2p up 15% (2007 - 11.5p)

• Net cash as at end June £35.3m (2007 - £22.3m)

*  before amortisation of intangible assets and gain on disposal of associates 

**  before amortisation of intangible assets, gain on disposal of associates and adjustment relating to release of prior year UK corporation tax provision 

All business units contributed to the strong set of results 

David Lawther, Chief Executive, said:

"We have had another successful year. We have built our business in the UK and abroad and reduced the group's dependence on the London office market. This strategy will continue to benefit us. We have a strong order book, are well financed and have the visibility to be confident of further progress in the current year." 

9 September 2008 

  Enquiries:

Interior Services Group plc
David Lawther, Chief Executive	020 7392 5307
Jonathan Houlton, Group Finance Director	020 7392 4905
College Hill
Matthew Smallwood, Adam Aljewicz	020 7457 2020
Numis Securities Ltd
Nominated Advisor: Michael Meade/Simon Blank	020 7260 1000
Corporate Broking: Chris Wilkinson/Rupert Krefting

CHAIRMAN'S STATEMENT

The group's diversification strategy over recent years has helped deliver another year of record profits, notwithstanding the current economic uncertainty. Profit before tax and amortisation of intangible assets for the year ended 30 June 2008 increased to £14.1m from £10.6m last year. Adjusted basic earnings per share* rose by 21% from 29.9p to 36.2p. The Board is proposing a final dividend of 9.2p per share resulting in an increase in the total dividend of nearly 15% to 13.2p per share from 11.5p per share.

I stated in the Annual Report for 2006, that we intended to capitalise on our leading position in the London office fit out market by pursuing an acquisition strategy which would diversify the business by activity, sector and by region. These results demonstrate the benefits of this strategy. Over this period, the contribution from our businesses outside London has risen from 11% to 57% of group trading operating profit.

To achieve this, the group has moved in three strategic directions: firstly to provide to our global office fit out customers a wider geographic service through Europe, the Middle East and Asia, secondly to establish a national retail and leisure fit out business and thirdly to widen and deepen our new build and refurbishment construction services to our UK customers outside of London.

During the year we continued to consolidate further our position in a number of key markets. In the UK we acquired the Pearce Group in November 2007, which brought us a South West based regional construction business and a highly regarded national food retail fit out and refurbishment business. Overseas in September 2007, our European associate, Interior Alpha SA (IASA), became a wholly owned subsidiary. Both have made a substantial contribution to the group results in the period of ownership. With these and earlier acquisitions performing at or above our expectations, the delivery of our strategy has cushioned our performance from an over reliance on the London office fit out market.

We continue to seek acquisition and partnering opportunities overseas. Prior to the year end we announced the signing of Heads of Terms to form a 50:50 joint venture with the Al Habtoor Leighton Group, to provide fit out services across the Middle East region. Based in Dubai, they are one of the largest Middle East construction services groups. To support the group in the development of its international operations I was pleased to welcome Greg Aldridge to the Board in January 2008 as Corporate Development Director.  Greg has worked in the City for many years, has extensive corporate finance experience and a long association with the group.

We are a service business and our success depends upon the dedication of our people and their willingness to subscribe to our culture of excellence, customer satisfaction, quality and safety. These results reflect their hard work and commitment at all levels in the group and I thank them.

We have ended the year with a number of major project wins, including the Velodrome for the 2012 Olympics and the fit out of KPMG's new 400,000 sq ft UK headquarters building in Canary Wharf, so that our total order book at 30 June 2008 has risen from £843m at the last year end to £1,051m, 70% of which is due for completion in the current year. Whilst prepared for further turbulence in the world economy, this gives us confidence that next year's results should show further progress. 

ROY DANTZIC

Chairman

9 September 2008 ** before amortisation of intangible assets, gain on disposal of associates and adjustment relating to release of prior year UK corporation tax provision 

CHIEF EXECUTIVE'S STATEMENT

I am pleased to announce a record set of results for the group and our continued success in diversifying the group.

Financial Highlights

For the year ended 30 June 2008, adjusted profit before tax* increased by 33% to £14.1m (2007 - £10.6m). Adjusted basic earnings per share** grew by 21% to 36.22p (2007 - 29.91p). As anticipated, volumes increased by 33% to £1,110m (2007 - £833m), with fee income in the year increasing by 43% to £150.3m (2007 - £104.8m).

The strong improvement in performance, with adjusted group operating profit* increasing by 56% to £15.1m (2007 - £9.7m), has been driven by a combination of organic and acquisition growth. Our overseas businesses generated operating profits of £4.9m (2007 - £1.5m) and now represent 26% of group trading operating profit, with a full year contribution from ISG Asia of £1.8m (2007 - £0.8m) and a nine month contribution from IASA from its activities in Europe of £3.0m (2007 - £0.7m). Our National Retail and Leisure businesses generated operating profits of £3.9m (2007 - £2.0m) which now represents 21% of group trading operating profit. Included in this result was a full year contribution from ISG Cathedral and a seven and a half month contribution from Pearce Retail.

Our London operations increased operating profit by 22% to £7.9m (2007 - £6.5m), representing 43% of group trading operating profit. The operating profit of our Regional Construction businesses increased to £1.8m (2007 - £1.5m) and included a seven and a half month contribution from Pearce Regional Construction.

Throughout the year operating cash flow has remained strong with net cash inflow from operating activities increasing in the year to £20.4m (2007 - £11.5m). Along with the increase in bank borrowings during the year to fund one of our recent acquisitions, this resulted in net cash as at 30 June 2008 of £35.3m (2007 - £22.3m).

Dividend

An interim dividend of 4.00p was paid in April 2008. A final dividend of 9.20p is proposed bringing the total to 13.20p (2007 - 11.50p), an increase of 15%. Subject to its approval at the AGM on 8 December 2008, the final dividend will be payable on 10 December 2008 to shareholders on the register on 14 November 2008. The ex-dividend date will be 12 November 2008. The closing date for elections for the Dividend Re-Investment Plan is 14 November 2008.

Strategic Developments

Over the past three years the group's key strategic priority has been to reduce its dependency on the London office sector via organic and acquisitive growth outside London, whilst retaining our leading market position in the sector. The result of our efforts over this period has been to increase the group trading operating profit outside London from 11% to 57% of the group, and we are targeting this to increase further in the current year.

• Growth in our overseas operations

During the last twelve months we have extended our geographic capabilities for our clients by fully integrating into the group our existing European associate and, more recently, agreeing terms to create a joint venture in the Middle East.

We completed in September 2007 the acquisition of the remaining 80% shareholding in IASA. The business offers office, hotel, leisure and retail fit out services across mainland Europe, from offices in Paris, Milan and Frankfurt. During the nine months of trading since acquisition, the company has generated an operating profit of £3.0m on £30.1m of work delivered.

The European market place provides considerable opportunity and we will seek to continue to build our presence and brand across the region. We anticipate opening an office in Switzerland in the current year and we have just won our first contract in Poland. We are seeking joint venture opportunities in both Eastern and Western European countries.

In Asia, we have continued to expand organically our activities in China and Hong Kong.

Whilst we have a growing project management presence in North Asia, we presently have limited exposure in South East Asia where we are now pursuing acquisition opportunities to build a wider regional presence.

In April, we announced entering into Heads of Terms with the Al Habtoor Leighton Group, one of the largest construction services groups across the Middle East region, to establish a 50:50 joint venture based in Dubai, to provide fit out services across the Middle East region. We are targeting completion by the end of October 2008 once the relevant government approvals are in place.

We have supported these expansion plans from London by strengthening both our acquisition capability and our group resources for servicing our international clients.

• Growth in our National Retail and Leisure operations

The acquisition of Pearce Retail as part of the Pearce Group in November 2007 has strengthened substantially our retail offering with the addition of a leading national retail fit out business that works on a framework basis with major food and clothing retailers such as Tesco, Sainsbury, Asda, Morrisons and Marks & Spencer. For the seven and a half months of activity the business generated an operating profit of £1.3m on revenue of £49.2m.

From 1 July 2008, the businesses of ISG Dean and Bowes and ISG Cathedral have been combined and re-branded as ISG Retail and Leisure, operating from three locations in Whitstable, Huntingdon and Chorley. The integration of the two businesses will provide an enhanced level of service to our key national banking and high street retail customers. Recently we have secured a five year retail roll out programme for Lloyds TSB extending our decade long relationship, together with a five year framework appointment with RBS, an annual extension to the HSBC framework and a new appointment to a framework with the HBOS group. In addition, we have commenced working with Barclays and have now completed several projects. In the financial year ended 30 June 2008, the business delivered projects with revenue totalling £28m under these appointments and we are targeting a 50% increase in the current year.

• Increasing our UK Regional Construction activities

The acquisition of Pearce Construction as part of the Pearce Group in November 2007 has expanded our coverage into the South West of England and South Wales, delivering build solutions for both public and private sector clients. The business has over four social housing frameworks and a number of other public sector frameworks. In line with our expectations, the business generated an operating profit for the seven and a half month period of £0.2m on revenue of £50.4m.

Our regional construction businesses have been targeting the education sector where the government is currently spending around £7 billion per year. We were pleased to announce recently our appointment as the preferred contractor on a £50m education project for Suffolk County Council to build the South West Ipswich and South Suffolk Sixth Form Centre, currently subject to planning permission. Our appointment came on the back of four significant UK education projects that have been secured by our regional construction businesses in the last six months with a combined contract value of almost £80m; Gateway College in Leicestershire (£20m), St John's School in Marlborough (£18m), St Brendan's College in Bristol (£13m) and Sir John Deane's College in Cheshire (£26m).

• Rebalancing of our London activities

Over the last two years we have been reducing the London business exposure to the office market by targeting opportunities in the Olympics, student accommodation, data centres, transport, government and local authority sectors.

Current major projects outside the office market include the St Pancras Eurostar terminal, the Velodrome for the 2012 Olympics and Nido Spitalfields student accommodation.

Trading

The following is a summary of the fee income and gross value of work performed ("volumes") and a summary of the forward order book.

		Fee Income***				Volumes***				Forward Order Book
12 months to 30 June		2008 £m		2007 £m		2008 £m		2007 £m		2008 £m		2007 £m
London
	- Fit out	36.4		34.0		309		310		174		208
	- Build	28.2		22.2		279		202		357		318
Regional Construction		39.7		29.9		302		210		305		234
National Retail and Leisure		24.9		9.8		137		56		173		51
Overseas
	- Asia	14.9		7.7		52		50		34		32
	- Europe	6.2		1.2		31		5		8		n/a
Total		150.3		104.8		1,110		833		1,051		843

The strong improvement in trading has continued throughout the year. Fee income, volumes and forward order book increased year on year by 43%, 33% and 25% respectively. Adjusted group operating margin* on fee income increased to 10.0% (2007 - 9.3%). 

In respect of the order book of £1,051m at the end of June 2008, only 33% of the activity relates to the UK corporate office sector (2007 - 60%), with 35% relating to the education, affordable housing and government sectors (2007 - 15%) and 25% to the retail and leisure sector (2007 -18%).

The group continues to focus on being a leader in health and safety excellence having won 15 Gold Awards and one Gold Medal in May 2008 from The Royal Society for the Prevention of Accidents. The group's Accident Incident Rate during the year was a ratio of 5.38, compared to the industry average of 8.65. We are currently reviewing our practices to continue to improve performance in this key area.

London 

Our London operations had another strong year. Volumes grew by 15% to £588m (2007 - £512m) and fee income grew by 15% to £64.6m (2007 - £56.2m). Operating profit increased by 21% to £7.9m (2007 - £6.5m), resulting in an operating margin on fee income of 12.3% (2007 - 11.6%). With the well publicised slowdown in the office market, we have reduced the volume target for London in the current year by 23% to £450m. As at June 2008, the business has an in year order book coverage of 70% (2007 - 73%).

London Fit out

London Fit out maintained a strong performance. Volumes remained constant at £309m (2007 - £310m), with fee income rising 7% to £36.4m (2007 - £34.0m). Notable project delivery successes were the fit out of the common areas of the new St Pancras Eurostar Terminal, the new London offices for the Financial Services Authority and for Eversheds, the second phase of the refit of Shell House on the South Bank, three projects for RBS in the City and the new London head office for Standard Chartered Bank.

In line with the previously reported reduction in opportunities for major projects (>£25m) resulting from the current lack of large scale new office space in the City, the June 2008 forward order book has declined to £174m (2007 - £208m), with the June 2008 in year order book declining to £103m (2007 - £190m) including the completion of current projects for Transport for London, Mayer Brown International and Unilever. However since the year end, five contracts have been won with an aggregate contract value of £107m (of which £80m is to be delivered by June 2009), including a £75m data centre fit out construction management contract in the North East of England and a £15m office fit out for the legal firm Reid Smith. With the planned start on site of the circa £50m fit out of KPMG's new UK HQ building in Canary Wharf in May 2009 and a number of large potential projects in the pipeline, we remain confident of being able to maintain the current activity levels for 2009/10 with an existing order book of circa £100m.

London Build

London Build division's volume increased by 38% to £279m (2007 - £202m) and fee income increased by 27% to £28.2m (2007 - £22.2m). The increased volume has been driven by our success working for repeat relationships where in the year we worked on ten new build projects and 15 refurbishment projects. Operationally, notable successes in the period were the delivery of the TAG Dakota Hotel in Farnborough, the base build for the Audi show rooms in Brentford, Horseferry House for Derwent London, Howick Place for Fabbriche Ceramiche Investments, One Finsbury Circus for Hermes and 14 Cornhill for IVG Asticus. In addition, we are making good progress on the Nido Spitalfields 32 storey student accommodation tower for Blackstone, the Stratton Street scheme for Grafton Advisors, the Savannah House scheme for Standard Life and Fleetway House for Tishman Speyer.

As at June 2008, London Build starts the current year with an increased forward order book of £357m (2007 - £318m), of which the June 2008 in year order book is £215m (2007 - £237m). Included in the order book is the Velodrome for the London 2012 Olympic Games but with a start on site envisaged in early 2009, there will only be modest activity in the financial year ended 30 June 2009. 

Regional Construction 

The Regional Construction businesses had a strong year with volumes increasing 44% to £302m (2007 - £210m) and fee income increasing 33% to £39.7m (2007 - £29.9m). Excluding the acquisition of Pearce Construction, organic growth was 22% in volume and 10% in fee income. Operating profit increased by 20% to £1.8m (2007 - £1.5m). The result has been impacted by a £0.5m provision against an insurance recovery that is currently under dispute and a £0.5m provision against the carrying value of one of the two remaining properties held for development. As anticipated at acquisition, Pearce Construction contributed an operating profit of £0.2m as the business was completing a number of challenging projects with low inherent margins. With the recruitment of a new divisional director now in place, we are anticipating a substantial improvement in the current year.

Operationally, notable successes in the period were the delivery of the fit out of new offices for the lawyers Halliwells in Manchester, a hotel for Holiday Inn in Burnley, the fit out of new offices for Cadbury Trebor Basset in Edgbaston, two Village Hotels in Ashton Moss and Leeds, an industrial building in Royston, an affordable housing scheme for Sanctuary in Barnet and an Extra Care housing scheme for Moorland. In addition we are making good progress on the Nelson and Colne College in Lancashire, the fit out of retail areas at Manchester Airport, the redevelopment of the Civic Building in Barnsley, the refurbishment of Her Majesty's Prison Hindley and Lancaster Castle and offices in Rotherham.

Across our Regional Construction businesses we now have the benefit of 18 public sector frameworks covering affordable housing, local authorities and prisons. We anticipate that these will contribute £63m of revenue in the next financial year (2008 - £31m), of which £41m is already secured.

Our Regional Construction businesses start the year with an increased order book, up 30% at £305m (2007 - £234m) and an increase of 17% excluding the impact of acquisitions. 51% of the June 2008 order book relates to public sector spend and with further wins anticipated in the education and social housing sectors, we would expect the proportion of public sector work to continue to increase.

National Retail and Leisure

Overall our National Retail and Leisure operations performed well during the year, with volumes increasing by 145% to £137m (2007 - £56m) and fee income increasing by 154% to £24.9m (2007 - £9.8m). The results include full year contributions from ISG Cathedral (2007 - eleven weeks) and an eight and a half month contribution from Pearce Retail.

Operating profit increased by 99% to £3.9m (2007 - £2.0m), resulting in an operating margin on fee income of 15.8% (2007 - 20.2%). The results benefited from the inclusion of ISG Cathedral and Pearce Retail but the operating margins have been impacted by an underperformance in ISG Dean and Bowes in the second half of the year due to the well publicised lower high street fashion retail spend and a challenging project for one of our retail clients. With the addition of Pearce Retail, the businesses are now operating across four key sectors; financial, food, high street fashion and leisure. In the financial and food sectors, both operate largely under framework arrangements. Work is generally allocated six months in advance and we are pleased with the current allocations for 2008/09 which we believe should result in activity levels above those of the prior year. In the high street fashion and leisure sectors, work is allocated more on a relationship driven, contract by contract basis. Whilst we have seen a slowdown in the high street fashion sector, we have compensated for this by moving some of our resources into a number of hotel refurbishment projects.

As a result of the above, our order book of secured and allocated projects as at June 2008 is £173m (2007 - £51m), up 37% excluding the impact of acquisitions.

Asia

ISG Asia has had a record year contributing an operating profit of £1.8m (2007 - £0.8m). ISG Asia volumes increased by 4% to £52m (2007 - £50m), whilst fee income increased by 94% to £14.9m (2007 - £7.7m) due to a full year contribution from ISG Asia (2007 - eight months) and from Commtech (2007 - one month), our commissioning and testing business, and an increase in the proportion of project management activity in North Asia. As a result operating margin on fee income has increased to 11.9% (2007 - 10.2%). The business continues to benefit from significant projects for our international banking clients, including projects undertaken in the year for Standard Chartered Bank, Morgan Stanley, JP Morgan, Merrill Lynch and UBS. In China, from our three offices in Beijing, Tianjin and Shanghai, activity levels increased by 79% to £5.3m, with projects undertaken for Apple, Nokia, Armani and Bohai Bank. In Hong Kong, activity levels increased 12% to £13.3m with the level of project management fee work increasing 76% to £8.5m. As at 30 June 2008, the forward order book is £34m (2007 - £32m), with 24% being fee based project management work (2007 - 14%). Whilst the Asian economies are not immune to global economic trends, the most recent IMF and Data Monitor forecasts continue to project high single figure percentage GDP growth in our key markets of China, Hong Kong, Singapore and the Middle East.

Our existing Dubai operations made a small contribution of £0.1m in the year to June 2008. With the imminent completion of our fit out joint venture with the Al Habtoor Leighton Group, we would anticipate this to grow substantially in the next 18 months.

Europe 

With our acquisition of the remaining 80% of IASA in September 2007, the contribution from our European activities increased substantially, with volumes increasing to £31m (2007 - £5m) and fee income to £6.2m (2007 - £1.2m). On a like for like basis the business showed a growth in volumes in the year of 43%. The business contributed an operating profit of £3.1m (2007 - £0.7m) resulting in an operating margin on fee income of 49.8% (2007 - 56.2%). The business delivered projects for ExxonMobil, Iron Mountain, RBS and Signature in Paris, Vodafone and Fidelity in Luxembourg, Cardinal Health in Geneva and several projects for Google, Adobe and Right Management across a number of European cities, with an average contract value of £0.9m.

As at June 2008, the business has an order book of £8m, a level consistent with June 2007, which is a typical level given the desire of European clients to complete projects before the summer period and initiate new projects after the summer period. The pipeline is strong and since year end secured work has increased to £17m.

Prospects

At the year end, our total order book was £1,051m (2007 - £843m), with our in year order book at a record level of £739m (2007 - £696m). The recent large project wins of the Velodrome for the 2012 London Olympics, the new UK headquarters for KPMG, the large data centre in the North East of England and the five education projects totalling £130m have increased our confidence levels for the current and subsequent financial years.

We expect that continued growth in Asia, our new joint venture in the Middle East and our expanding European operations will all enable the group to lessen its dependence on the UK market.

In the UK the greatest impact so far from the deteriorating economic climate has been in the private residential market where we have little exposure. In anticipation of tightening commercial demand, we have reduced our dependence in London on the office market whilst increasing our regional involvement in education and affordable housing. Our banking and food retail framework relationships are also expected to deliver more activity in the current year.

Our strategy is to continue to spread our risk by identifying joint venture opportunities or bolt-on acquisitions overseas in growing markets across different geographies. Whilst we are not immune to macro economic pressures, our expansion over the last three years into the regions, retail and overseas has made us more robust and resilient, particularly to the downturn in the office market in the City of London.

DAVID LAWTHER

Chief Executive

9 September 2008

* before amortisation of intangible assets and gain on disposal of associates

 

** before amortisation of intangible assets, gain on disposal of associates and adjustment relating to release of prior year UK corporation tax provision 

*** definitions for fee income and gross value of work performed are given in note 2 

CONSOLIDATED INCOME STATEMENT

Year ended 30 June 2008

UnAudited

	Notes	2008 £'000		2007 £'000
Gross value of work performed	2	1,110,333		833,492
Less: relating to construction management		(18,356)		(54,708)
Less: share of associates' and joint ventures' revenue		(1,901)		(11,587)
Revenue		1,090,076		767,197
Cost of sales		(1,025,692)		(725,851)
Gross Profit		64,384		41,346
Share of profits of associates and joint ventures		227		932
Amortisation of intangibles		(1,448)		(699)
Gain on disposal of associates		-		106
Administrative expenses		(49,479)		(32,570)
Operating Profit	2	13,684		9,115
Finance income	3	1,346		1,838
Finance costs	4	(2,405)		(984)
Profit before tax	2	12,625		9,969
Taxation		(2,641)		(2,459)
Profit for the period		9,984		7,510
Basic earnings per ordinary share	6	36.44p		28.46p
Diluted earnings per ordinary share	6	36.06p		28.12p

Consolidated balance sheet

30 June 2008

unAudited

	Notes	2008 £'000		2007 £'000
Non-current assets
Goodwill		77,982		48,895
Other intangible assets		9,402		2,944
Property, plant and equipment		8,014		5,585
Investment in associates and joint ventures		121		933
Deferred tax assets		782		717
Trade and other receivables		4,412		2,941
		100,713		62,015
Current Assets
Inventories		4,240		2,346
Trade and other receivables		237,407		155,057
Cash and cash equivalents	7	60,259		40,290
		301,906		197,693
Total assets		402,619		259,708
Non-current liabilities
Borrowings	8	(19,086)		(15,044)
Deferred tax liabilities		(2,544)		(830)
Trade and other payables		(7,112)		(727)
		(28,742)		(16,601)
Current liabilities
Borrowings	8	(5,909)		(2,933)
Trade and other payables		(329,161)		(214,485)
Provision		(383)		(235)
Current tax liabilities		(1,382)		(1,782)
		(336,835)		(219,435)
Total liabilities		(365,577)		(236,036)
Total Net Assets	2	37,042		23,672
Equity
Called up share capital	9	295		277
Share premium account	9	17,481		12,513
Reserves	9	1,755		(290)
Investment in own shares	9	(3,634)		(2,630)
Retained earnings	9	21,145		13,802
Total Equity		37,042		23,672

CONSOLIDATED STATEMENT of total recognised Income and expense

Year ended 30 June 2008

unAudited

	Notes	2008 £'000		2007 £'000
Exchange differences arising on translation of foreign operations		2,752		21
Net income recognised directly in equity		2,752		21
Profit for the year		9,984		7,510
Total recognised income and expense		12,736		7,531

CONSOLIDATED cash flow STATEMENT 

Year ended 30 June 2008

UNAUDITED

	Notes	2008 £'000		2007 £'000
Cash flows from operating activities
Operating profit		13,684		9,115
Share of profits of associates and joint ventures		(227)		(932)
Amortisation of intangibles		1,448		699
Gain on disposal of associates		-		(106)
Depreciation on property, plant and equipment		2,076		1,310
Loss / gain on disposal of property, plant and equipment		(32)		(11)
Adjustment to share-based payment expense		86		52
Movements in working capital:
(Increase) / decrease in inventories		(1,830)		3,845
Decrease in trade and other receivables		(21,026)		(22,555)
Increase in trade and other payables		27,448		21,655
Cash generated from operations		21,627		13,072
Taxation		(1,183)		(1,558)
Net cash inflow from operating activities		20,444		11,514
Cash flows from investing activities
Interest received		1,346		1,838
Interest paid		(2,405)		(984)
Dividends received from associates and joint ventures		209		128
Payments for property, plant and equipment		(2,926)		(3,813)
Proceeds from disposal of property, plant and equipment		79		45
Acquisition of subsidiaries		(19,629)		(16,062)
Net cash acquired with subsidiaries		20,139		6,360
Proceeds from disposal of subsidiaries		-		2,200
Proceeds from disposal of associates		-		1,227
Net cash outflow from investing activities		(3,187)		(9,061)
Cash flows from financing activities
Payments for own shares		(1,004)		(1,173)
Dividends paid		(3,434)		(2,721)
Issue of shares (net)		-		420
Payments for hire purchase contracts principals		(138)		(57)
Proceeds from borrowings		9,960		11,732
Repayment of borrowings		(3,387)		(7,022)
Net cash inflow from financing activities		1,997		1,179
Net increase in cash and cash equivalents		19,254		3,632
Cash and cash equivalents at the beginning of the period		40,290		36,935
Effects of exchange rate changes on the balance of cash held in foreign currencies		715		(277)
Cash and cash equivalents at the end of the period	7	60,259		40,290

NOTES - UNAUDITED

1. BASIS OF ACCOUNTING

The financial information presented in this report does not constitute the group's statutory accounts for the years ended 30 June 2008 and 2007. The information presented has been prepared for the first time in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS). However the announcement does not contain sufficient information to comply with all of the disclosure requirements of IFRS.

IFRS 1 "First-time Adoption of International Financial Reporting Standards" has been applied. The group's transition date for the adoption of IFRS 1 is 1 July 2006. The group was required to establish its IFRS Accounting Policies for the year ended 30 June 2008 and apply these retrospectively to determine its IFRS balance sheet at the transition date of 1 July 2006 and the comparative information for the year ended 30 June 2007. Hence the financial statements have been prepared using accounting policies which have been applied consistently throughout the year and preceding year.

2. SEGMENTAL INFORMATION

a. Business segments 

			2008				2007
	GVWP		Revenue		GVWP		Revenue
	£'000		£'000		£'000		£'000
London	587,895		569,539		511,804		469,122
Regional construction	301,653		301,653		209,642		200,782
National retail and leisure	137,103		137,103		56,421		56,421
Asia	52,271		51,722		50,599		40,872
Europe	31,411		30,059		5,026		-
Consolidated	1,110,333		1,090,076		833,492		767,197

Gross value of work performed includes revenue of the group plus volumes undertaken on construction management contracts and the group's share of associates' and joint ventures' revenue

			2008				2007
	Operating profit		Profit before tax		Operating profit		Profit before tax
	£'000		£'000		£'000		£'000
London	7,926		9,329		6,538		8,358
Regional construction	1,836		2,428		1,524		1,534
National retail and leisure	3,936		4,350		1,979		2,182
Asia	1,773		1,835		787		769
Europe	3,086		3,218		674		704
Group trading	18,557		21,160		11,502		13,547
Group activities	(3,425)		(4,885)		(1,794)		(2,349)
Cost of acquisition finance	-		(2,202)		-		(636)
Adjusted *	15,132		14,073		9,708		10,562
Amortisation of intangibles	(1,448)		(1,448)		(699)		(699)
Gain on disposal of associates	-		-		106		106
Consolidated	13,684		12,625		9,115		9,969

* before amortisation of intangible assets and gain on disposal of associates 

NOTES - UNAUDITED (continued)

2. SEGMENTal INFORMATION (continued)

a. Business segments (continued)

Balance sheet analysis by business segment:

					2008						2007
	Assets		Liabilities		Net assets		Assets		Liabilities		Net assets
	£'000		£'000		£'000		£'000		£'000		£'000
London	139,001		(131,256)		7,745		133,323		(128,720)		4,603
Regional construction	75,154		(75,046)		108		33,526		(30,427)		3,099
National retail and leisure	58,866		(52,197)		6,669		15,098		(14,432)		666
Asia	25,086		(19,453)		5,633		19,883		(16,711)		3,172
Europe	20,750		(15,603)		5,147		2,415		(538)		1,877
Group activities	83,762		(72,022)		11,740		55,463		(45,208)		10,255
Consolidated	402,619		(365,577)		37,042		259,708		(236,036)		23,672

b. Geographical segments

			2008				2007
	GVWP		Revenue		GVWP		Revenue
	£'000		£'000		£'000		£'000
United Kingdom	1,026,651		1,008,295		777,867		726,325
Asia	52,271		51,722		50,599		40,872
Europe	31,411		30,059		5,026		-
Total of all segments	1,110,333		1,090,076		833,492		767,197

			2008				2007
	Operating profit		Profit before tax		Operating profit		Profit before tax
	£'000		£'000		£'000		£'000
United Kingdom	10,273		9,020		8,247		9,089
Asia	1,773		1,835		787		769
Europe	3,086		3,218		674		704
Adjusted	15,132		14,073		9,708		10,562
Amortisation of intangibles	(1,448)		(1,448)		(699)		(699)
Gain on disposal of associates	-		-		106		106
Consolidated	13,684		12,625		9,115		9,969

NOTES - UNAUDITED (continued)

2. SEGMENTal INFORMATION (continued)

b. Geographical segments (continued)

Balance sheet analysis by geographical segment:

					2008						2007
	Assets		Liabilities		Net assets		Assets		Liabilities		Net assets
	£'000		£'000		£'000		£'000		£'000		£'000
United Kingdom	356,783		(330,521)		26,262		237,410		(218,787)		18,623
Asia	25,086		(19,453)		5,633		19,883		(16,711)		3,172
Europe	20,750		(15,603)		5,147		2,415		(538)		1,877
Consolidated	402,619		(365,577)		37,042		259,708		(236,036)		23,672

c. Fee income 

Fee income, which is considered to be a key performance indicator, is derived as follows:

	2008		2007 (restated)
	£'000		£'000
Revenue	1,090,076		767,197
Trade contractor and supplier costs	(939,810)		(662,354)
Fee income	150,266		104,843

Fee income represents monies that are received from clients for the construction and project management services that the group provides and excludes amounts that are paid to trade contractors and suppliers. Interest received has been excluded from the calculation of fee income and prior period fee income has been restated accordingly.

3. FINANCE INCOME 

	2008 £'000		2007 £'000
Interest revenue:
Bank deposits	1,346		1,838
	1,346		1,838

4. FINANCE COSTS 

	2008 £000		2007 £000
Interest on bank overdrafts and loans	1,776		760
Unwinding of discount on deferred consideration	447		28
Interest on obligation under finance leases	11		5
Loan arrangement fee	67		103
Amortisation of fees	104		88
Total interest expense	2,405		984

NOTES - UNAUDITED (continued)

5. DIVIDENDS 

	2008  £'000		2007 £'000
2008 Interim paid - 4.00p per ordinary share (2007 - 3.30p)	1,181		874
2007 Final paid - 8.20p per ordinary share (2006 - 7.00p)	2,253		1,847
Ordinary dividends on equity shares	3,434		2,721
2008 Proposed final dividend per ordinary share - 9.20p (2007 - 8.20p)	2,700		2,201

In accordance with IAS 10, dividends are accounted for in the period in which they are paid and approved by the shareholders. Accordingly the final dividend proposed in respect of the year ended 30 June 2008 has not been included as a liability as at 30 June 2008.

6. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the year, determined in accordance with the provisions of IAS 33 Earnings per share.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares.  The group has only one category of dilutive potential ordinary shares, being share options granted where the exercise price is less than the average price of the company's ordinary shares during the year.

Adjusted basic earnings per share is calculated by dividing the earnings attributed to ordinary shareholders, pre-amortisation of intangible assets and before profit/loss on disposal of associates and subsidiaries, by the weighted average number of ordinary shares during the year.

	2008  £'000		2007 £'000
Profit for the financial year	9,984		7,510
Basic and diluted earnings attributable to ordinary shareholders	9,984		7,510
Profit on disposal of associates	-		(106)
Post tax amortisation of intangible assets	1,021		489
Adjustment relating to release of prior year UK corporation tax provision	(1,082)		-
Adjusted earnings attributable to ordinary shareholders	9,923		7,893
	Number		Number
Weighted average number of ordinary shares	27,398,773		26,386,424
Dilutive share options	287,496		321,090
Diluted weighted average number of ordinary shares	27,686,269		26,707,514
Basic earnings per ordinary share	36.44p		28.46p
Diluted earnings per ordinary share	36.06p		28.12p
Adjusted basic earnings per ordinary share	36.22p		29.91p
Adjusted diluted earnings per ordinary share	35.84p		29.56p

NOTES - UNAUDITED (continued)

7. ANALYSIS OF NET CASH POSITION

					Other non-cash
	2007		Cash flow		charges		2008
	£'000		£'000		£'000		£'000
Cash at bank and in hand	40,290		19,969		-		60,259
	40,290		19,969		-		60,259
Loans due after one year	(13,983)		(3,843)		(282)		(18,108)
Loans due within one year	(1,836)		(3,884)		(107)		(5,827)
Loan notes	(1,928)		960		-		(968)
Hire purchase contracts	(230)		138		-		(92)
	22,313		13,340		(389)		35,264

8. BORROWINGS

	2008		2007
	£'000		£'000
Non-current
Bank loans	18,213		14,067
Loan notes	968		964
Unamortised cost of debt	(105)		(84)
Obligations under hire purchase contracts	10		97
	19,086		15,044
Current
Bank loans	6,111		2,142
Loan notes	-		964
Unamortised cost of debt	(284)		(306)
Obligations under hire purchase contracts	82		133
	5,909		2,933
Total	24,995		17,977

The group has two principal bank loans:

(a) a loan of £4.4m (2007 - £6.3m). The loan was taken out on 28 September 2005. Repayments are made on a quarterly basis commencing 28 December 2005 and will continue until 28 September 2010.

(b) a loan of £20.0m (2007 - £10.0m), of which £10.0m was drawn down on 24 May 2007, £9.1m on 24 September 2007 and £0.9m on 19 May 2008. Repayments will be made on a quarterly basis commencing 24 November 2008 and will continue until 24 May 2013.

There have been no breaches of bank covenants during the year.

  NOTES - UNAUDITED (continued)

9. RECONCILIATION OF MOVEMENT IN EQUITY

			Foreign		Investment
	Share	Share	currency	General	in own	Retained
	capital	premium	reserve	reserve	shares	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 July 2006	274	12,096	-	436	(1,457)	8,622	19,971
Profit for the period	-	-	-	-	-	7,510	7,510
Payment of dividends	-	-	-	-	-	(2,721)	(2,721)
Issue of shares	3	417	-	-	-	-	420
Recognition of investment in own shares	-	-	-	-	(1,173)	-	(1,173)
Recognition of share-based payments	-	-	-	-	-	52	52
Realisation of ISG Asia profit	-	-	-	(436)	-	436	-
Exchange differences arising on translation of foreign operations	-	-	(400)	-	-	13	(387)
At 1 July 2007	277	12,513	(400)	-	(2,630)	13,912	23,672
Profit for the period	-	-	-	-	-	9,984	9,984
Payment of dividends	-	-	-	-	-	(3,434)	(3,434)
Issue of shares	18	4,968	-	-	-	-	4,986
Recognition of investment in own shares	-	-	-	-	(1,004)	-	(1,004)
Recognition of share-based payments	-	-	-	-	-	86	86
Exchange differences arising on translation of foreign operations	-	-	2,155	-	-	597	2,752
Balance as at  30 June 2008	295	17,481	1,755	-	(3,634)	21,145	37,042

NOTES - UNAUDITED (continued)

10. ACQUISITION OF SUBSIDIARIES

	IASA (1)			Pearce (2)			Total
	Book value	Fair value adjustment	Fair value	Book value	Fair value adjustment	Fair value	Book value	Fair value
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Goodwill	137	(137)	-	524	(524)	-	661	-
Intangible assets	9	2,214	2,223	-	5,379	5,379	9	7,602
Property, plant and equipment	60	-	60	1,824	(374)	1,450	1,884	1,510
Inventories	-	-	-	155	(100)	55	155	55
Trade and  other receivables	7,080	-	7,080	43,978	(534)	43,444	51,058	50,524
Cash and cash equivalents	5,791	-	5,791	14,348	-	14,348	20,139	20,139
Trade and  other payables	(10,034)	(250)	(10,284)	(59,040)	(54)	(59,094)	(69,074)	(69,378)
Provisions - deferred tax	-	(623)	(623)	-	(2,095)	(2,095)	-	(2,718)
Net assets	3,043	1,204	4,247	1,789	1,698	3,487	4,832	7,734
Net assets acquired	2,434	1,204	3,638	1,789	1,698	3,487	4,223	7,125
Goodwill			10,094			17,323		27,417
Total consideration			13,732			20,810		34,542
Satisfied by:
Cash			9,591			8,985		18,576
Shares			1,636			3,255		4,891
Loan notes			-			514		514
Deferred cash			1,521			3,646		5,167
Deferred shares			694			3,647		4,341
Directly attributable costs			290			763		1,053
			13,732			20,810		34,542

(1) On 28 September 2007 the group acquired the remaining 80% of the issued share capital of Interior Alpha SA and its subsidiaries (IASA), in which it formerly had a 20% shareholding, for a fair value consideration before expenses of £13,732,000 satisfied by cash of £9,591,000, the issue of 563,456 shares and deferred consideration of £2,215,000 (subject to the business achieving certain profit targets).  This business combination has been accounted for as an acquisition. The aggregate net assets acquired and their provisional fair values, based on the Board's initial assessment of net realisable value, are detailed above.

(2)  On 13 November 2007 the group acquired 100% of the issued share capital of Pearce Group Limited, for a fair value consideration before expenses of £20,810,000 satisfied by cash of £8,985,000, the issue of 1,154,324 shares, loan notes of £514,000 (of which £497,000 were redeemed for cash on 1 May 2008) and deferred consideration of £7,293,000 (subject to the business achieving certain profit targets). This business combination has been accounted for as an acquisition. The aggregate net assets acquired and their provisional fair values, based on the Board's initial assessment of net realisable value, are detailed above.

  NOTES - UNAUDITED (continued)

11. CONTINGENT LIABILITIES

As reported in last year's financial statements, in March 2006 the Office of Fair Trading ("OFT") visited the offices of Totty Construction Limited, a subsidiary of the Propencity Group, along with many other construction companies, in relation to potential breaches of competition law in earlier years prior to ISG's ownership. During the year the Propencity Group entered into a leniency agreement with the OFT in respect of the alleged infringements and has submitted a response to the OFT's Statement of Objections. The group remains unable to estimate the size of any potential liability and as a result no provision has been made in these accounts.

Similarly Pearce Construction (Midlands) Limited, a subsidiary of the Pearce Group, has been issued with a Statement of Objections by the OFT. The business is defending its position and the group has received an indemnity from the vendors of the Pearce Group, which will serve to mitigate risk in this matter.

12. STATUS OF FINANCIAL INFORMATION IN THIS ANNOUNCEMENT

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 30 June 2008 or 2007. The financial information for the year ended 30 June 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under s237(2) or (3) of Companies Act 1985. The audit of the statutory accounts for the year ended 30 June 2008 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's Annual General Meeting.

ENDFR FKFKPKBKBACK

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ISG.L