6th Sep 2011 07:00
Interior Services Group PLC
("ISG" or "the Group")
Final results for the Year ended 30 June 2011
Strong growth in competitive environment
Interior Services Group plc, the international construction services group, today announces its final results for the year ended 30 June 2011.
2011 | 2010 | |
Revenue1 | £1,196m | £972m |
Adjusted profit before tax2 | £11.5m | £12.0m |
Profit before tax1 | £9.0m | £8.7m |
Net cash | £36.1m | £31.0m |
Adjusted basic earnings per share3 | 27.03p | 29.91p |
Basic earnings per share4 | 22.17p | 18.80p |
Total dividend | 15.06p | 14.34p |
1from continuing operations
2adjusted profit before tax is calculated from profit before tax from continuing operations before exceptional items and amortisation of intangible assets (Note 2)
3adjusted basic earnings per share is calculated from profit after tax from the earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets (Note 10)
4basic earnings per share is calculated from profit after tax from the earnings attributable to owners of the company from continuing and discontinued (Note 10)
Group Highlights
·; Revenue up 23% to £1,196m (2010: £972m)
·; Profits held steady in a highly challenging economic environment
·; Successfully implementing strategy of diversifying business, serving a blue chip client base
·; Signs of recovery in key private sector markets
·; Acquisition of 85% of Shanghai-based Realys Group
·; Completed 2012 Olympic Velodrome; awarded contract for Olympics temporary infrastructure works
·; Improved net cash balance of £36.1m at 30 June 2011 (2010: £31.0m)
·; Order book at 30 June 2011 of £750m (2010: £742m) with private sector bias of 78% (2010: 64%)
·; Total full year dividend up 5% to 15.06p per share (2010: 14.34p)
Divisional Highlights
UK Fit Out
·; Strong revenue performance up 32% to £342m (2010: £260m)
·; Increase in operating profit of 27% to £8.0m (2010: £6.3m)
·; Strong performance in London Office Fit Out market
·; Continued growth from our framework agreements in Retail Banking
·; Order book held in line with last year
Continental Europe Fit Out
·; Revenue increased by 122% to £73m (2010: £33m)
·; Operations expanding, solid demand seen from multinational clients
·; Performance impacted by loss on single large project in Geneva
·; Significant investment made in strengthening management and infrastructure
·; Retail fit out offering started in response to strong demand from international clients
·; Since period end, signed agreement to acquire Alpha International SARL
Middle East Fit Out
·; Revenue of £20m, positive contribution of £0.7m (2010: loss of £0.3m)
·; Joint venture arrangement dissolved, focus now exclusively on fit out
·; Confidence returned in Dubai
·; Secured five of the initial fit out projects for new financial centre in Sowwah Square as we continued to expand into Abu Dhabi
Asia Fit Out
·; Slow start to the year with margins under pressure
·; Activity improved in last quarter, particularly in the retail sector
·; Work carried out for such blue chip customers as Louis Vuitton, Apple, Standard Chartered and Goldman Sachs
·; Strategic acquisition of project management specialist Realys, based in Shanghai, affording access to a wider base of Western European multinational industrial clients
·; Improved order book at £35m (2010: £26m)
Food Retail
·; Revenue increased by 84% to £218m (2010: £119m), reflecting increased allocation of new build projects
·; Operating profit increased to £5.2m (2010: £3.6m) but margin pressure continues
·; Substantial work under frameworks carried out for top four major UK supermarket brands
·; Won a place on Morrison's first ever contractor framework
·; Order book of £140m (2010: £113m)
Construction
·; Stable revenues in challenging conditions of £476m (2010: £474m)
·; 2012 Olympic Velodrome successfully handed over
·; Contract won for temporary facilities and services at the Olympics
·; New office opened in Scotland, having recruited the ex-Rok plc construction team
·; Order book steady and now weighted 55% towards private sector
David Lawther, Chief Executive Officer, said:
"We are very pleased with these results, which have been delivered against a global economic backdrop which continues to be challenging. We are successfully implementing our strategy of broadening and deepening our service offering, which will enable us to win a greater volume of work, especially with repeat customers and overseas. The order book is stable, of a high quality and is increasingly weighted towards the private sector. We believe we will continue to weather the continuing uncertainty in the UK economy, and that we are very well placed to grow as the UK and the global economies start to recover."
6 September 2011
ENQUIRIES:
Interior Services Group plc | |
David Lawther, Chief Executive Officer | Tel: 020 7392 5250 |
Jonathan Houlton, Group Finance Director | |
College Hill | |
Matthew Smallwood | Tel: 020 7457 2020 |
Helen Tarbet | |
Numis Securities Ltd | |
Nominated Advisor: Michael Meade | Tel: 020 7260 1000 |
Corporate Broking: Ben Stoop |
chairman's statement
Although for the third year running I am reporting our results against a backdrop of a challenging economic environment, I am delighted to say that our strategy of diversifying our business has enabled us to deliver a pleasing set of results. Profits of £11.5m before tax from continuing operations but before exceptional items and amortisation of goodwill - broadly in line with those of last year (2010: £12.0m) - have been generated from a significant increase in volume of work performed. Adjusted earnings per share1 stand at 27.03p (2010: 29.91p).
These results demonstrate the resilience of our business model and give the Board the confidence to increase the final dividend in line with our progressive dividend policy. Accordingly, the Board is recommending a final dividend of 10.65p per share, a 5% increase, making dividends for the year total 15.06p per share (2010: 14.34p). I can also report a further improved net cash balance of £36.1m at 30 June 2011 (2010: £31.0m).
We have enjoyed some outstanding successes during the year. In the UK, a particularly noteworthy achievement has been the completion of the Olympic Velodrome. It hit the headlines as the first building completed on the Olympic Park ahead of time and to cost. Since the year end we have been awarded the contract to manage the extensive temporary infrastructure works for the Olympics. It is this type of consistent delivery that has helped us to continue to build upon the excellent relationships we have established with our commercial and retail customers across the banking, food and high street retail sectors.
While the year saw us successfully challenge the Office of Fair Trading, enabling us to write back last year's associated exceptional item of £1.7m, we also faced a number of challenges. In particular, our Construction business covering the South West suffered from the marked downturn in activity in that region, incurring both trading losses and the costs of having to restructure the business.
Outside the UK, we saw a rise in volumes, boosted by first time contributions from our Middle East and Moscow businesses. However, overseas profits are lower due to pressure on margins and losses arising from a particularly complex project in Geneva for one of our major blue chip clients.
In addition to organic growth, we have continued to look for acquisition opportunities to extend our range of activities and geographic reach. In December we established a new office in Scotland, built around the former Rok plc construction team. In April, we acquired 85% of Realys Group Limited (Realys). It specialises in design-led project management, servicing multinational companies from a base in Shanghai. Realys brings with it an impressive and mainly Western European client list - many of whom are new to us. We are currently in discussion with a number of other potential acquisitions.
There are two changes to our Board of directors. At the end of May we announced the appointment of Richard Whittington as a Non-Executive Director. Richard, a chartered accountant, has recently retired as a Senior Partner at KPMG where one of his responsibilities was Global Head of the Building and Construction practice. His experience of our sector and of business in general will be of significant value. John Jeremy, our Senior Independent Director and Chairman of the Remuneration Committee, has decided to retire from the Board at the conclusion of the AGM after 16 years' service. He assisted the founders at the time of the management buy-out and became a Non-Executive Director on flotation in 1998. On behalf of all shareholders I would like to thank him for his wise stewardship and counsel during a period of transition from a £100m revenue company at flotation to one of nearly £1.2 billion. Above all, his good sense and practical approach will be much missed.
It is particularly appropriate to pay tribute to our employees this year. Through their talent and hard work we have won numerous awards. We were named as Fit Out Company of the Year at the Mixology Awards and Contractor of the Year at the Global Retail and Leisure Awards. Our Health and Safety wins included four gold medals from The Royal Society for the Prevention of Accidents. These achievements reflect the outstanding commitment and dedication of our employees to uphold the highest standards of customer service which we demand and our clients expect.
In summary, I am delighted to say we have successfully navigated another testing year. We remain confident in the strength of our business, which is supported by an order book at 30 June of £750m (2010: £742m) with a strong and improving private sector bias of 78% (2010: 64%). We have created a sustainable and resilient business - one which we are determined will continue to grow its market share, both organically and by acquisition.
Roy Dantzic
Chairman
6 September 2011
1from the earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets (Note 10)
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am pleased to report a good set of results. Whilst the global construction market continues to be challenging, there have been signs of recovery in our key sectors and geographies and the company is continuing to perform well.
Our strategy is to broaden and deepen our construction services offering:
·; To our framework clients who require consistent, quality and on-time delivery on a national or international basis
·; To clients who have complex, mission critical projects
·; To repeat clients who value our sector specific knowledge and our collaborative approach
Results
For the year ended 30 June 2011, adjusted profit before tax1 was £11.5m (2010: £12.0m) on a revenue2 of £1,196m (2010: £972m). Adjusted earnings per share3 amounted to 27.03p (2010: 29.91p). Profit before tax2 was £9.0m (2010: £8.7m).
We finished the year with a net cash position of £36.1m (2010: £31.0m). There was a strong net cash inflow from operating activities2 for the period of £13.8m (2010: £6.3m) resulting from the growth in revenue albeit restricted by the current lower level of larger contracts. In the period the Group repaid £5.1m (2010: £6.9m) of borrowings. In addition, we retain an undrawn working capital revolving credit facility of £10.0m.
There were three exceptional items in the year with a net cost of £0.8m:
·; When it was acquired, Pearce Construction (Midlands) Limited, a dormant subsidiary of ISG Pearce Limited, was being investigated by the Office of Fair Trading (OFT). Following a successful appeal, the OFT penalty was reduced from £5.2m to £1.0m - resulting in an exceptional gain of £1.7m during the year.
·; We have made provision for restructuring costs of £2.0m, largely relating to the reorganisation of the South West regional construction business in the UK which had been slow to respond to more difficult market conditions. The business was operating under separate management but has now been fully integrated into our Construction division.
·; In the Middle East we amicably ended a joint venture with Al Habtoor Leighton resulting in an exceptional loss on disposal of £0.6m. ISG in the Middle East now focuses exclusively on fit out services and is trading profitably.
1from continuing operations before exceptional items and amortisation of intangible assets (Note 2)
2from continuing operations
3from earnings attributable to owners of the company from continuing operations before exceptional items and amortisation of intangible assets (Note 10)
Dividends
The Board recommends an increase of 5% in the level of final dividend to 10.65p (2010: 10.14p). In addition to the declared interim dividend of 4.41p paid in April 2011, the final dividend will be payable on 18 November 2011 to shareholders on the register on 21 October 2011. The ex-dividend date will be 19 October 2011. The closing date for elections for the Dividend Re-Investment Plan is 25 October 2011. The final dividend for the previous financial year of 10.14p was paid on 7 December 2010.
Overview
Key features of our business during the year included:
·; We have won work during the year totalling £1,204m (2010: £892m) enabling us to finish the year with our best ever total revenue - up by 23%, in a highly competitive and challenging environment.
·; As we anticipated, we have seen recovery in some of our private sector markets. We continue to deliver projects for an enviable blue chip client base.
·; Our UK Fit Out division grew revenues by 32% to £342m (2010: £260m), and continues to win market share.
·; The London office fit out market improved, albeit with fewer large-scale projects. We expect the trend for smaller projects to continue in the current year with the demand for large-scale works likely to return in 2013.
·; Our retail businesses have performed strongly with revenue from the sector increasing to £345m (2010: £258m). There is increased demand from our retail banking clients and our Food Retail division has seen its revenues nearly double compared to the previous year.
·; Internationally, we have seen volumes increase as international customers recommence their capital programmes. However, the overseas results were impacted by our Continental Europe Fit Out division which would have made a profitable contribution but for a large loss on a challenging project for a key customer.
·; In the Middle East there was a very strong performance with a good second half to the year as international companies returned to Dubai and Abu Dhabi.
·; In Asia, our performance fell short of the prior year, as revenues only started to improve late in the final quarter. In April 2011, we completed the acquisition of Realys Group Limited (Realys), a design-led project management business based in Shanghai.
·; Against the market trend - our Construction division has had a strong year. It has continued to reduce its exposure to the public sector and its performance on high profile projects such as the Olympic Velodrome has strengthened its reputation for excellent delivery. The exception was our South West business which was slow to respond to market conditions.
·; Our commitment as a company is to provide consistency of delivery to all our customers regardless of geography, service line or business sector. To support and drive this, we have simplified our brand identity.
·; As a people business we continue to focus on the development of our employees. During the year we were awarded "Investors in People" status across our UK operations. Our ongoing strategy of strengthening our management internationally will continue.
UK Fit Out
The recovery of the UK fit out market continued, with revenues up by 32% to £342m (2010: £260m). This strong performance has led to an increase in operating profit of 27% to £8.0m (2010: £6.3m), resulting in margins slightly down at 2.3% (2010: 2.4%).
In the year we successfully completed the 320,000 sq ft fit out of Man Group's Riverside House. The £38m project was one of the industry's largest London fit out commissions in the period. We also completed the successful delivery of GE's 70,000 sq ft UK headquarters - the fastest delivery of its type in GE's international property portfolio. This project is a finalist in the 2011 BCO Awards Best Fit Out of Workplace - London & South East Region. Other significant projects include the 160,000 sq ft refit of the London offices for one of the world's largest investment banking and securities organisations.
The professional services sector continues to provide a strong revenue stream, with the delivery of international law firm Pinsent Masons' new 160,000 sq ft headquarters and also K&L Gates European HQ both notable projects.
In the year our UK Fit Out team led us to win the Fit Out Company of the Year at the Mixology Awards and Contractor of the Year at the Global Retail and Leisure Awards. We also topped Building Magazine's league table for Fit Out Contractors, confirming our market leading position.
In the short-term, the pipeline has diminished for major fit out projects in the corporate office sector and our focus continues on medium sized assignments. There is also an increased demand for infrastructure upgrades to improve efficiency and also meet the requirements of the UK Government's CRC Energy Efficiency Scheme. To capitalise on our position as a leader in this niche market we have increased our specialised Engineering service offering in the period and we have already completed a substantial mission critical project for The Royal Bank of Scotland (RBS).
We expect major fit out opportunities in the corporate office sector to increase in the second half of 2012 as the current wave of developments in central London move towards completion.
Our success in the market for the retail banking fit out sector continued with a very strong performance - in particular, our work under framework agreements. We are on the frameworks of Barclays Bank, Lloyds Banking Group (Lloyds), RBS and HSBC and the year has seen us deliver over 300 projects in the banking sector alone. Significant retail banking projects include the delivery of Lloyds' and RBS's flagship outlets in London's Westfield Stratford shopping centre.
On the high street, our fit out of the world's largest shoe department in London's Selfridges hit the headlines. The vast space - which is bigger than Tate Modern's Turbine Hall - showcases over 5,000 pairs of shoes from 120 brands. We are also delivering our first project for the John Lewis Partnership and subsequent to the year end we have been awarded a further two projects for this client. Since year end the business has been awarded a new framework appointment with the UK's leading mobile telephone operator, Everything Everywhere.
At the year end our UK Fit Out business had an order book of £170m (2010: £172m), all of which is to be delivered in the current financial year (2010: £168m). With the lack of larger projects in the short-term, we anticipate stable revenues in the current financial year, with margins continuing to be under pressure.
Continental Europe Fit Out
In Continental Europe there is solid demand from our multinational client base and revenues have increased significantly over the year by 122% to £73m (2010: £33m). The division would have made a profitable contribution but for an unexpected loss on a large challenging project for a key customer in Geneva, which has resulted in it reporting a loss.
This setback apart, our operations in Continental Europe are expanding well and will benefit from significant investment in strengthening management and infrastructure. We believe that our underlying business here has improved over the past year and has further to go.
In the period, we successfully delivered projects for Pfizer, Rio Tinto, K&L Gates and Barclays Bank in Paris, State Street bank in Milan, Google and Tishman Speyer in Germany, and ExxonMobil and RBS in Brussels.
During the year we started a retail fit out offering in Continental Europe. We see strong demand from our international clients in this area. Project wins included Hollister stores for Abercrombie and Fitch in Italy and Germany; together with a range of stores for Foot Locker across the region.
In Moscow, ISG Olson has completed its first year of operating as part of the Group. We undertook projects for ExxonMobil, Disney Studios and Bank of America.
At year end our order book stood at £20m (2010: £32m), all of which is to be delivered in the current financial year (2010: £32m). Significant new wins subsequent to the year end include an office fit out for Google in Paris and also the fit out of Marks and Spencer's flagship store on the Champs-Élysées. We anticipate the business returning to profitability in the current financial year.
Since the year end we have signed an agreement toacquire Alpha International SARL, a retail-focused shop fitting company with an established reputation and client network in Continental Europe. We anticipate that this will boost both revenues and profitability in the next period.
Middle East Fit Out
After dissolving our joint venture arrangement in the Middle East as of 1 July 2010 we have operated a business that focuses exclusively on fit out. The division is now operating very successfully - in line with the returning confidence we have seen in the Dubai and Abu Dhabi markets. In the period it generated revenue of £20m and made a positive contribution of £0.7m (2010: loss of £0.3m). Projects in the period included work for Siemens, Philips, Pfizer and ExxonMobil, and most significantly we have won five of the initial fit out projects in Sowwah Square, where a new financial centre is being created adjacent to the Abu Dhabi Stock Exchange.
The order book at the end of the period stood at £8m (2010: £9m). We anticipate activity levels will continue to rise in the current financial year.
Asia Fit Out
After a slow start to the year, activity in Asia has picked up in the last quarter, with margins also on an improving trend. As a result, revenue has decreased by 23% to £67m (2010: £86m). Operating profit declined to £1.0m (2010: £1.9m), resulting in an operating margin on revenue of 1.5% (2010: 2.2%).
During the year we have continued to build our reputation, working on some highly prestigious projects for international clients.
In South East Asia, we are undertaking the fit out of a 45,000 sq ft Louis Vuitton flagship store at Marina Bay Sands in Singapore. The business is also delivering the fit out of 100,000 sq ft of offices for Nomura and the 180,000 sq ft of offices for ANZ near Singapore's new Marina Bay Finance District. Subsequent to the year end, the business has also secured a £5m office refurbishment project for Microsoft. In Malaysia we achieved a landmark, completing our 500th assignment. In the period we completed Tesco's Malaysia Corporate Headquarters and are project managing the fit out and relocation of CIMB's new headquarters in Kuala Lumpur.
In North Asia, in line with our continued success with international luxury retailers, we delivered fit out projects for Tod's in China, Miu Miu in Hong Kong and Apple in Beijing and Hong Kong. We have also recently been appointed on a second project for the prestigious Hong Kong Jockey Club. In addition we continue to work in the financial services sector, including a branch refresh roll-out programme for Citibank and multiple projects for Standard Chartered Bank, Goldman Sachs and HSBC.
In the second half of the year, we completed the strategic acquisition of Realys, a design-led project management specialist firm based in Shanghai. Realys brings to ISG a complementary base of predominantly Western European multinational industrial customers, including Porsche, Peugeot, Arkema and Air Liquid. As a design-led service, it will allow us to provide a true design and build turnkey solution for clients in Asia.
Our Asia division is carrying forward an improved order book of £35m as at 30 June 2011 (2010: £26m). With the acquisition of Realys and the improving market conditions, we anticipate a significant increase in activity and profitability in the current financial year.
Food Retail
Our Food Retail division has almost doubled its revenues in the period to £218m (2010: £119m). Operating profit increased to £5.2m (2010: £3.6m), with operating margins declining to 2.4% (2010: 3.1%) reflecting the competitive environment.
During the year we worked with all the top four major UK supermarket brands. The business doubled its work for Tesco, widening our geography and expanding into more new build activity. After completing our first new build store last year, we worked on six new build store projects during the year, with one highlight being a new timber framed Tesco 'Eco' store in Callington.
In the year the number of projects we have worked on for Asda passed the 400 mark and overall volumes of work increased significantly. We were appointed as one of two contractors to undertake the Netto to Asda conversion programme. In addition we worked with Asda on a combined sustainability agenda to achieve a target of zero waste to landfill on the Gorseinon new build project in South Wales.
In the year we were delighted to realise a long-held ambition to deliver our first new build scheme for Sainsbury's, a zero carbon "Eco flagship" at Dawlish. Morrison's has placed ISG on their first ever contractor framework, under which we completed a new build scheme at Handsworth. For Marks and Spencer, we are working on an increased number of refresh schemes including several stores in Scotland.
The business has a strong order book at year end of £140m (2010: £113m). In the current financial year, we anticipate stable revenues but margins will continue to be under pressure.
Construction
Our Construction division has had a highly successful year. Despite the difficult economic environment, revenues have remained stable at £476m (2010: £474m). Operating profit decreased to £2.7m (2010: £5.6m) due to the impact of the South West business being slow to respond to more difficult market conditions as well as the increased competitive environment generally in the UK, resulting in margins declining to 0.6% (2010: 1.2%).
The completion of the Olympic Velodrome - ahead of schedule and on budget - hit the headlines worldwide with Boris Johnson, Lord Coe and Sir Chris Hoy singling out our work for praise. This success has led to a further significant appointment post year end by the London Organising Committee of the Olympic and Paralympic Games (LOCOG) to provide Construction Management services for the temporary facilities and services at Olympic venues. ISG will manage overlay works at the venues during the London 2012 Games, which encompasses temporary spectator seating, tents, cabins and platforms as well as utilities, fire safety, specialist sports lighting and drainage.
Generally we have performed strongly against the back drop of a highly competitive and challenging market. During the year we won a significant project with Voreda and Imperial College, a £37m post-graduate accommodation scheme, which is the first phase of a new West London campus. In addition, we completed Imperial College's £21m mechanical engineering facility in central London. We also continued our long-term relationship with the De Vere Group undertaking refurbishment work in nine hotels across the UK.
Our credentials as experts in sustainable construction have helped us to secure the £27m contract for Siemens' Urban Sustainability Centre in London. The project is the first building to be constructed within the new Green Enterprise District. Similarly, we are delivering the Sivell Place Apartments in Exeter - the first social housing units in the UK to achieve the energy efficient Passivhaus rating.
In December 2010 we opened an office in Glasgow, having successfully recruited the ex-Rok plc construction team. The Scottish team has made an impressive start having secured contracts worth in excess of £60m with prestigious clients such as Diageo, Tesco Bank and Golf International, the leisure arm of the global Kohler Group.
While the public sector continues to be reduced, we are still winning significant work despite increased competition. In part this is as a result of working with our private sector partners to provide alternative property solutions but also the continuing success of our numerous public sector frameworks including the Ministry of Justice's Custodial Property framework, Aspire Defence's PFI framework, YORbuild and the North West Construction Hub.
As at 30 June 2011, the order book for Construction stood at £377m (2010: £390m). Of this, £333m will be delivered in the current financial year (2010: £356m). The balance of our Construction order book is now weighted 55% towards the private sector (2010: 32%). Subsequent to the year end, we won the LOCOG overlay works contract referred to above, and were also awarded the pre-construction phase of a £60m mixed use regeneration scheme in Ipswich for Tesco's development arm. In the current financial year, with a full year contribution from our Glasgow office, we anticipate stable revenues with margins continuing to be under pressure.
Outlook
Our strong relationships with our major blue chip clients continue to provide a rich vein of work. Our order book at year end was stable at £750m (2010: £742m) with the private:public sector balance weighted 78% towards the private sector (2010: 64%).
With our formal and informal frameworks we are well placed to continue to weather the ongoing uncertainty in the UK economy. We do however anticipate continuing pressure on margins in the UK in the year ahead.
In the UK, whilst the private sector is improving in the South East led by the retailers and property developers, it is not recovering fast enough to compensate for the falling public sector market elsewhere. However, we expect a strong recovery of the corporate office sector in London in 2013.
Overseas, we anticipate increased volumes and margins with the benefit of a full year's contribution from Realys, an improved performance in Continental Europe from its strengthened management team and its increasing retail activity, and improving margins in Asia as their economies continue to grow.
The Group is well placed to grow as the UK and global economies recover. We are confident of our strategy and will continue to target growth both organically and via acquisition.
David Lawther
Chief Executive Officer
6 September 2011
CONSOLIDATED INCOME STATEMENT
Year ended 30 June 2011
AUDITED
2011 | 2010 | |||
Notes | £'000 | £'000 | ||
Continuing operations | ||||
Revenue | 2 | 1,195,597 | 972,191 | |
Cost of sales | (1,129,962) | (910,430) | ||
Gross profit | 65,635 | 61,761 | ||
Share of profits of associates and joint ventures | 16 | (203) | ||
Amortisation of intangibles | 12 | (1,592) | (1,424) | |
Administrative expenses | (53,896) | (49,058) | ||
Operating profit before exceptional items | 2 | 10,163 | 11,076 | |
Administrative expenses - exceptional items | 3 | (842) | (1,871) | |
Operating profit after exceptional items | 2 | 9,321 | 9,205 | |
Finance income | 5 | 181 | 99 | |
Finance costs | 6 | (459) | (559) | |
Profit before tax | 2 | 9,043 | 8,745 | |
Taxation | 7 | (2,004) | (2,144) | |
Profit for the period from continuing operations | 7,039 | 6,601 | ||
Discontinued operations | ||||
Loss for the period from discontinued operations | 8 | - | (768) | |
Profit for the period | 7,039 | 5,833 | ||
Attributable to: | ||||
Owners of the company | 7,027 | 5,833 | ||
Non-controlling interests | 17 | 12 | - | |
7,039 | 5,833 | |||
Earnings per share* | ||||
From continuing and discontinued operations: | ||||
Basic earnings per share | 10 | 22.17p | 18.80p | |
Diluted earnings per share | 10 | 21.78p | 18.58p | |
From continuing operations: | ||||
Basic earnings per share | 10 | 22.17p | 21.27p | |
Diluted earnings per share | 10 | 21.78p | 21.03p | |
*calculated using earnings after exceptional items |
CONSOLIDATED STATEMENT OF comprehensive INCOME
Year ended 30 June 2011
AUDITED
2011 | 2010 | |||
Notes | £'000 | £'000 | ||
Profit for the period | 7,039 | 5,833 | ||
Other comprehensive income for the period | ||||
Exchange differences on translation of foreign operations | 2,162 | 425 | ||
Total comprehensive income for the period | 9,201 | 6,258 | ||
Attributable to: | ||||
Owners of the company | 9,183 | 6,258 | ||
Non-controlling interests | 17 | 18 | - | |
9,201 | 6,258 |
Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in Note 7.
CONSOLIDATED balance sheet
At 30 June 2011
AUDITED
2011 | 2010 | |||
Notes | £'000 | £'000 | ||
Non-current assets | ||||
Goodwill | 11 | 84,720 | 79,890 | |
Other intangible assets | 12 | 7,616 | 6,498 | |
Property, plant and equipment | 6,322 | 6,010 | ||
Investment in associates and joint ventures | 56 | 467 | ||
Deferred tax assets | 1,731 | 1,492 | ||
Trade and other receivables | 917 | 1,718 | ||
101,362 | 96,075 | |||
Current assets | ||||
Inventories | 1,318 | 3,560 | ||
Trade and other receivables | 170,795 | 135,902 | ||
Due from customers for contract work | 90,390 | 100,147 | ||
Cash and cash equivalents | 13 | 44,619 | 43,676 | |
307,122 | 283,285 | |||
Total assets | 408,484 | 379,360 | ||
Current liabilities | ||||
Borrowings | 14 | (4,589) | (4,776) | |
Trade and other payables | (323,221) | (299,540) | ||
Due to customers for contract work | (14,125) | (11,256) | ||
Provisions | (88) | (645) | ||
Current tax liabilities | (1,342) | (1,045) | ||
(343,365) | (317,262) | |||
Non-current liabilities | ||||
Borrowings | 14 | (3,909) | (7,851) | |
Deferred tax liabilities | (1,976) | (1,735) | ||
Trade and other payables | (2,209) | (1,267) | ||
Provisions | (82) | (749) | ||
(8,176) | (11,602) | |||
Total liabilities | (351,541) | (328,864) | ||
Total net assets | 56,943 | 50,496 | ||
Equity | ||||
Called up share capital | 334 | 332 | ||
Share premium account | 22,841 | 22,355 | ||
Foreign currency translation reserve | 4,546 | 2,877 | ||
Investment in own shares | (3,658) | (3,770) | ||
Retained earnings | 32,537 | 28,702 | ||
Equity attributable to owners of the company | 56,600 | 50,496 | ||
Non-controlling interests | 17 | 343 | - | |
Total Equity | 56,943 | 50,496 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 30 June 2011
AUDITED
Foreign | ||||||||
currency | Investment | Non- | ||||||
Share | Share | translation | in own | Retained | controlling | Total | ||
capital | premium | reserve | shares | earnings | Total | interests | equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 July 2009 | 311 | 19,876 | 3,041 | (3,854) | 25,898 | 45,272 | - | 45,272 |
Profit for the period | - | - | - | - | 5,833 | 5,833 | - | 5,833 |
Exchange differences arising on translation of foreign operations | - | - | (164) | - | 589 | 425 | - | 425 |
Total comprehensive income | - | - | (164) | - | 6,422 | 6,258 | - | 6,258 |
Payment of dividends | - | - | - | - | (4,378) | (4,378) | - | (4,378) |
Issue of shares | 21 | 2,479 | - | - | - | 2,500 | - | 2,500 |
Recognition of investment in own shares | - | - | - | 84 | - | 84 | - | 84 |
Deferred tax on share-based payments | - | - | - | - | 38 | 38 | - | 38 |
Recognition of share-based payments | - | - | - | - | 722 | 722 | - | 722 |
Balance at 30 June 2010 | 332 | 22,355 | 2,877 | (3,770) | 28,702 | 50,496 | - | 50,496 |
Profit for the period | - | - | - | - | 7,027 | 7,027 | 12 | 7,039 |
Exchange differences arising on translation of foreign operations | - | - | 1,669 | - | 487 | 2,156 | 6 | 2,162 |
Total comprehensive income | - | - | 1,669 | - | 7,514 | 9,183 | 18 | 9,201 |
Payment of dividends | - | - | - | - | (4,605) | (4,605) | - | (4,605) |
Issue of shares | 2 | 486 | - | - | - | 488 | - | 488 |
Added on acquisition of subsidiary | - | - | - | - | - | - | 325 | 325 |
Recognition of investment in own shares | - | - | - | 112 | - | 112 | - | 112 |
Deferred tax on share-based payments | - | - | - | - | 112 | 112 | - | 112 |
Recognition of share-based payments | - | - | - | - | 814 | 814 | - | 814 |
Balance at 30 June 2011 | 334 | 22,841 | 4,546 | (3,658) | 32,537 | 56,600 | 343 | 56,943 |
The foreign currency translation reserve is used to record cumulative translation differences on the goodwill and other intangibles of foreign operations (Notes 11 and 12). The cumulative translation differences are recycled to the income statement on disposal of the foreign operation.
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30 June 2011
AUDITED
2011 | 2010 | |||
Notes | £'000 | £'000 | ||
Cash flows from operating activities | ||||
Operating profit from continued operations | 2 | 9,321 | 9,205 | |
Share of (profit)/loss of associates and joint ventures | (16) | 203 | ||
Loss on sale of joint ventures | 3 | 553 | - | |
Amortisation of intangibles | 12 | 1,592 | 1,424 | |
Depreciation on property, plant and equipment | 2,511 | 2,443 | ||
(Gain)/loss on disposal of property, plant and equipment | (10) | 28 | ||
Share based payment expense adjustment for share schemes | 814 | 722 | ||
Movements in working capital: | ||||
Decrease/(increase) in inventories | 2,242 | (265) | ||
Increase in trade and other receivables | (24,066) | (22,567) | ||
Increase in trade and other payables | 23,177 | 18,052 | ||
Cash generated from operations | 16,118 | 9,245 | ||
Taxation | (2,285) | (2,911) | ||
Net cash inflow from operating activities from continuing operations | 13,833 | 6,334 | ||
Net cash outflow from operating activities from discontinued operations | 8 | - | (349) | |
Net cash inflow from operating activities | 13,833 | 5,985 | ||
Cash flows from investing activities | ||||
Interest received | 5 | 181 | 99 | |
Interest paid | 6 | (272) | (454) | |
Investment in joint ventures | - | (6) | ||
Payments for property, plant and equipment | (2,813) | (1,299) | ||
Proceeds from disposal of property, plant and equipment | 46 | - | ||
Acquisition of subsidiaries | 18 | (1,892) | (1,512) | |
Net cash acquired with subsidiary | 18 | 166 | 336 | |
Net cash outflow from investing activities from continuing operations | (4,584) | (2,836) | ||
Net cash outflow from investing activities from discontinued operations | 8 | - | - | |
Net cash outflow from investing activities | (4,584) | (2,836) | ||
Cash flows from financing activities | ||||
Dividends paid | 9 | (4,605) | (4,378) | |
Issue of shares (net) | 15 | 1 | ||
Payments for hire purchase contracts principals | 13 | (9) | (4) | |
Proceeds from borrowings | 13 | 959 | 352 | |
Repayment of borrowings | 13 | (5,148) | (6,890) | |
Net cash outflow from financing activities from continuing operations | (8,788) | (10,919) | ||
Net cash outflow from financing activities from discontinued operations | 8 | - | - | |
Net cash outflow from financing activities | (8,788) | (10,919) | ||
Net increase/(decrease) in cash and cash equivalents | 461 | (7,770) | ||
Cash and cash equivalents at the beginning of the period | 43,676 | 51,190 | ||
Effects of exchange rate changes on balances of cash held in foreign currencies | 482 | 256 | ||
Cash and cash equivalents of continuing operations at the end of the period | 13 | 44,619 | 43,476 | |
Cash and cash equivalents of discontinued operations at the end of the period | 8 | - | 200 | |
Cash and cash equivalents at the end of the period | 13 | 44,619 | 43,676 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At 30 June 2011
AUDITED
1. GENERAL INFORMATION
The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2011 or 2010, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
The information has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS). This announcement does not contain sufficient information to comply with all the disclosure requirements of IFRS.
The preliminary announcement for the year ended 30 June 2011 has been prepared in accordance with the accounting policies as disclosed in the 2010 Annual Report, as updated to take effect of any new accounting standards applicable for 2011 as set out in the 2010 Interim Report.
The directors have prepared cash flow forecasts for the Group for a period in excess of twelve months from the date of approval of these consolidated financial statements. These forecasts are based on the Group's existing order book and reflect an assessment of current and future market conditions and risks and uncertainties in the businesses, their impact on the Group's trading performance and the actions taken by management in response to the challenging market conditions. The forecasts completed on this basis demonstrate that the Group will be able to operate within the current committed debt facilities and show continued compliance with the financial covenants. In addition, management has considered various mitigating actions that could be taken in the event that future market conditions deteriorate beyond their current assessment. Such measures include further improvements in working capital within management's control, further reductions in costs and capital expenditure and use of the Group's undrawn credit facilities.
On the basis of the exercise described above, the directors have a reasonable expectation that the Group and company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group and the company.
2. SEGMENTAL INFORMATION
For management purposes, the Group is organised into operating segments on both a product and geographic perspective. The performances of these segments are considered by the Board when making strategic decisions. These segments include Fit Out, Food Retail and Construction, whilst Fit Out is further segregated by geography into the UK, Continental Europe, Middle East and Asia. This segmentation is revised from prior years, as previously announced in the Annual Report and Accounts 2010. The prior period comparatives have been restated to reflect this new segmentation.
Although the Continental Europe, Middle East and Asia geographical segments do not meet the quantitative thresholds required by IFRS 8 'Operating Segments', management has concluded that these segments should be reported. All are closely monitored by the Board as potential growth regions and are expected to materially contribute to Group revenue in the future.
The principal activities of each of these divisions are as follows:
UK Fit Out | - | provision of specialist fit out services in the UK. |
Continental Europe Fit Out | - | provision of fit out services in Continental Europe. |
Middle East Fit Out | - | provision of fit out, refurbishment and project management services in the Middle East. |
Asia Fit Out | - | provision of fit out, refurbishment, design, project management and commissioning management services in Asia. |
Food Retail | - | provision of fit out, new build and refurbishment services to national food retail customers in the UK. |
Construction | - | provision of new build, refurbishment and ancillary fit out services in the UK. |
The segmental information provided to the Board for the reportable segments for the year to 30 June 2011 is as follows:
Revenue and profit analysis
Operating | Finance | Profit | |||
Operating | profit | income / | before | ||
Revenue | profit | margin | (costs) | tax | |
2011 | £'000 | £'000 | % | £'000 | £'000 |
UK Fit Out | 342,290 | 7,997 | 2.3 | 31 | 8,028 |
Continental Europe Fit Out | 72,746 | (782) | - | 2 | (780) |
Middle East Fit Out | 19,505 | 702 | 3.6 | (19) | 683 |
Asia Fit Out | 66,547 | 1,022 | 1.5 | (7) | 1,015 |
Food Retail | 218,035 | 5,150 | 2.4 | 154 | 5,304 |
Construction | 476,474 | 2,669 | 0.6 | 520 | 3,189 |
Segment total "Group Trading" | 1,195,597 | 16,758 | 1.4 | 681 | 17,439 |
Unallocated: | |||||
Group activities | - | (5,003) | - | (520) | (5,523) |
Cost of acquisition finance | - | - | - | (439) | (439) |
Adjusted | 1,195,597 | 11,755 | 1.0 | (278) | 11,477 |
Amortisation of intangibles | - | (1,592) | - | - | (1,592) |
Before exceptional items | 1,195,597 | 10,163 | 0.9 | (278) | 9,885 |
Exceptional items | - | (842) | - | - | (842) |
Consolidated continuing operations | 1,195,597 | 9,321 | 0.8 | (278) | 9,043 |
Discontinued operations | - | - | - | - | - |
Consolidated | 1,195,597 | 9,321 | 0.8 | (278) | 9,043 |
Operating | Finance | Profit | |||
Operating | profit | income / | before | ||
Revenue | profit | margin | (costs) | tax | |
2010 | £'000 | £'000 | % | £'000 | £'000 |
UK Fit Out | 260,179 | 6,311 | 2.4 | 17 | 6,328 |
Continental Europe Fit Out | 32,833 | (220) | - | (48) | (268) |
Middle East Fit Out | - | (276) | - | - | (276) |
Asia Fit Out | 86,176 | 1,881 | 2.2 | 1 | 1,882 |
Food Retail | 118,778 | 3,639 | 3.1 | 46 | 3,685 |
Construction | 474,225 | 5,550 | 1.2 | 329 | 5,879 |
Segment total "Group Trading" | 972,191 | 16,885 | 1.7 | 345 | 17,230 |
Unallocated: | |||||
Group activities | - | (4,385) | - | (255) | (4,640) |
Cost of acquisition finance | - | - | - | (550) | (550) |
Adjusted | 972,191 | 12,500 | 1.3 | (460) | 12,040 |
Amortisation of intangibles | - | (1,424) | - | - | (1,424) |
Before exceptional items | 972,191 | 11,076 | 1.1 | (460) | 10,616 |
Exceptional items | - | (1,871) | - | - | (1,871) |
Consolidated continuing operations | 972,191 | 9,205 | 0.9 | (460) | 8,745 |
Discontinued operations | 1,372 | (768) | - | - | (768) |
Consolidated | 973,563 | 8,437 | 0.9 | (460) | 7,977 |
3. Exceptional items
2011 | 2010 | ||
£'000 | £'000 | ||
OFT related costs and provisions | (1,725) | 1,871 | |
Restructuring costs | 2,014 | - | |
Loss on disposal of joint venture | 553 | - | |
Total exceptional items | 842 | 1,871 |
As reported in last year's financial statements, Pearce Construction (Midlands) Limited (Pearce Midlands), a dormant subsidiary of ISG Pearce Limited, was investigated by the Office of Fair Trading (OFT) for technical breaches of competition law in earlier years prior to ISG's ownership.
Pearce Midlands was issued with a Statement of Objections which it has been defending. ISG has a £2.0m cash backed indemnity from the vendors of ISG Pearce Holdings Limited, being cash of £1.0m held in an escrow bank account and the remainder being the outstanding deferred consideration from the original acquisition of ISG Pearce Holdings Limited.
On 20 September 2009, the OFT published a list of fines for 103 UK construction companies, including Pearce Midlands. The OFT subsequently announced the findings of its investigation on 20 November 2009 and fined Pearce Midlands £5.2m of which £4.4m is on a joint and several basis with the company's former owner, Crest Nicholson plc. Appeals were submitted by both parties to the Competition Appeal Tribunal (CAT) on 24 November 2009.
On 15 April 2011, the CAT announced their findings in respect of the appeal and reduced the fine against Pearce Midlands to £950k. The CAT has indicated that 20% of this fine will be Pearce Midland's sole responsibility and the remaining 80% will be settled on a joint and several basis with the company's former owner.
The fine and associated interest were paid in July 2011 and as such have been classified as current liabilities.
A restructuring provision of £1.7m has been accrued in respect of the South West Construction business which has been slow to respond to more difficult market conditions, and has resulted in the business being re-organised and fully integrated with the rest of our Construction operations in the UK. A further £0.3m provision has been incurred in respect of further restructuring costs incurred in other parts of the UK business. Of the total provision of £2.0m, £0.6m has been spent as at 30 June 2011.
With effect from 1 July 2010, the Al Habtoor ISG International LLC joint venture agreement in the Middle East was terminated with the Group retaining the fit out business and our former joint venture partner retaining the joinery business. The Group has incurred costs during the course of the joint venture separation which have been treated as a loss on disposal of joint venture.
Given the nature of these items, the Board has considered that they should be treated as exceptional items in accordance with the Group's accounting policies.
4. STAFF COSTS INCLUDING DIRECTORS' REMUNERATION
2011 | 2010 | ||
£'000 | £'000 | ||
Salaries and wages | 99,537 | 85,701 | |
Social security costs | 10,752 | 8,787 | |
Pension costs | 3,551 | 3,075 | |
Fair value adjustment to stock options | 70 | 120 | |
113,910 | 97,683 |
Included in salaries above is a bonus accrual payable in respect of the financial year ended 30 June 2011.
Directors' remuneration included in the aggregate remuneration above comprised:
2011 | 2010 | ||
£'000 | £'000 | ||
Emoluments for qualifying services from this company | 1,653 | 1,540 |
Directors emoluments (excluding social security costs) disclosed above include £673,292 paid to the highest paid director (2010: £635,878).
Certain subsidiary undertakings of the Group had operated defined contribution pension schemes. The assets of the schemes were held separately from those of the Group by an independently administered fund. The only other pension contributions made by the Group are to employees' personal pension schemes under a salary waiver arrangement.
2011 | 2010 | |||
Employees | Number | Number | ||
Average number of persons (including directors) employed by the Group in the year: | ||||
UK Fit Out | 537 | 462 | ||
Continental Europe Fit Out | 196 | 43 | ||
Middle East Fit Out | 69 | - | ||
Asia Fit Out | 358 | 384 | ||
Food Retail | 292 | 197 | ||
Construction | 1,051 | 922 | ||
Corporate | 24 | 20 | ||
2,527 | 2,028 | |||
The Corporate segment in the table above includes three directors (2010: three).
5. FINANCE INCOME
2011 | 2010 | ||
£'000 | £'000 | ||
Interest on bank deposits | 181 | 99 | |
Total finance income | 181 | 99 |
6. Finance costs
2011 | 2010 | ||
£'000 | £'000 | ||
Interest on bank overdrafts and loans | 272 | 294 | |
Unwinding of discount on deferred consideration | 44 | 74 | |
Loan arrangement fee | 74 | 86 | |
Amortisation of fees | 69 | 105 | |
Total finance costs | 459 | 559 |
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
a. Taxation charge
2011 £'000 | 2010 £'000 | ||
UK current tax | |||
United Kingdom corporation tax | 2,353 | 2,706 | |
Adjustment in respect of prior years | (209) | (393) | |
2,144 | 2,313 | ||
Foreign current tax | |||
Overseas taxation - current year | 524 | 493 | |
Double tax relief | (108) | - | |
Adjustment in respect of prior years | (17) | (167) | |
Total current tax expense | 2,543 | 2,639 | |
Deferred tax | |||
Deferred tax expense relating to the origination and reversal of temporary differences |
(508) |
(495) | |
Effect of change in tax rates | (31) | - | |
Total tax expense (continuing) | 2,004 | 2,144 |
b. Taxation reconciliation
The charge for the year can be reconciled to the profit per the income statement as follows:
2011 £'000 | 2011 % | 2010 £'000 | 2010 % | ||||
Profit from operations | 9,043 | 7,977 | |||||
Income tax expense calculated at the standard rate | 2,487 | 27.5 | 2,234 | 28.0 | |||
Adjustment relating to prior year UK corporation tax provision |
(209) |
(2.3) |
(393) |
(4.9) | |||
Tax effect of utilisation of tax losses not previously recognised |
(317) |
(3.5) |
(668) |
(8.4) | |||
Effect of different tax rates of subsidiaries operating in other jurisdictions |
296 |
3.3 |
352 |
4.4 | |||
Effect of expenses that are not deductible in determining taxable profit |
432 |
4.8 |
665 |
8.3 | |||
Income not taxable for tax purposes | (273) | (3.0) | - | - | |||
Effect of recognising deferred tax assets on brought forward losses | (550) | (6.1) | - | - | |||
Other | 138 | 1.5 | (46) | (0.6) | |||
Income tax expense recognised in profit or loss | 2,004 | 22.2 | 2,144 | 26.9 |
8. discontinued operations
In April 2010, the Group decided to close its Japanese operation and it was classified as a discontinued operation for the year ended 30 June 2010.
2011 | 2010 | ||
£'000 | £'000 | ||
Loss for the year from discontinued operations | |||
Revenue | - | 1,372 | |
Expenses | - | (1,781) | |
Profit before taxation and costs of closure | - | (409) | |
Costs of closure | - | (359) | |
Loss after tax for the year from discontinued operations | - | (768) | |
Cash flows from discontinued operations | |||
Net cash outflows from operating activities | - | (349) | |
Net cash outflows from investing activities | - | - | |
Net cash outflows | - | (349) |
9. DIVIDENDS
2011 | 2010 | ||
£'000 | £'000 | ||
Interim dividend paid for the period to 31 December 2010 of 4.41p per ordinary share (2010: 4.20p) | 1,396 | 1,327 | |
Final dividend paid for the period to 30 June 2010 of 10.14p per ordinary share (2009: 9.66p) | 3,209 | 3,051 | |
Ordinary dividends on equity shares | 4,605 | 4,378 | |
Proposed final dividend for the period to 30 June 2011of 10.65p per ordinary share (2010: 10.14p) | 3,558 | 3,204 |
In accordance with IAS 10 'Events after the Reporting Period', 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 2011 has not been included as a liability as at 30 June 2011.
10. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to owners of the company by the weighted average number of ordinary shares during the period, 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 two categories 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 period, and conditional shares not vested where contingent consideration conditions are yet to be met.
Adjusted basic earnings per share is calculated by dividing the earnings attributed from continuing operations to owners of the company, before exceptional items and amortisation of intangible assets, by the weighted average number of ordinary shares during the period. The Group believes that this measure of earnings from continuing operations before exceptional items is more reflective of the ongoing trading of the Group.
A total of 3,044,164 share options that could potentially dilute earnings per share in the future were excluded from the below calculations because they were anti-dilutive at 30 June 2011 (2010: 3,033,458).
2011 £'000 | 2010 £'000 | ||
Profit for the period attributable to owners of the company | 7,027 | 5,833 | |
Post tax discontinued operations | - | 768 | |
| |||
Basic and diluted earnings from continuing operations attributable to owners of the company | 7,027 | 6,601 | |
Post tax exceptional items | 363 | 1,655 | |
Basic and diluted earnings before exceptional items attributable to owners of the company | 7,390 | 8,256 | |
Post tax amortisation of intangible assets | 1,178 | 1,025 | |
Adjusted earnings attributable to owners of the company | 8,568 | 9,281 |
2011Number | 2010Number | ||
Weighted average number of ordinary shares for the purpose of basic earnings per share | 31,701,680 | 31,028,881 | |
Effect of dilutive potential ordinary shares: | |||
Share options | 510,977 | 365,054 | |
Conditional shares not vested | 50,793 | - | |
Diluted weighted average number of ordinary shares for the purpose of diluted earnings per share | 32,263,450 | 31,393,935 |
2011 | 2010 | ||
From continuing and discontinued operations | |||
Basic earnings per ordinary share | 22.17p | 18.80p | |
Diluted earnings per ordinary share | 21.78p | 18.58p | |
From continuing operations | |||
Basic earnings per ordinary share | 22.17p | 21.27p | |
| |||
Diluted earnings per ordinary share | 21.78p | 21.03p | |
Basic earnings per ordinary share before exceptional items | 23.31p | 26.61p | |
Diluted earnings per ordinary share before exceptional items | 22.91p | 26.30p | |
Adjusted basic earnings per ordinary share | 27.03p | 29.91p | |
Adjusted diluted earnings per ordinary share | 26.56p | 29.56p | |
From discontinued operations | |||
Basic earnings per ordinary share | - | (2.47p) | |
| |||
Diluted earnings per ordinary share | - | (2.45p) | |
11. GOODWILL
£'000 | |
Cost | |
Balance at 1 July 2009 | 79,925 |
Net foreign currency exchange differences | (35) |
Balance at 30 June 2010 | 79,890 |
Transfer from investment in joint venture | 643 |
Recognised on acquisition of subsidiary | 2,601 |
Net foreign currency exchange differences | 1,586 |
Balance at 30 June 2011 | 84,720 |
Carrying amount | |
As at 30 June 2011 | 84,720 |
As at 30 June 2010 | 79,890 |
Goodwill has been allocated for impairment testing purposes to six groups of cash-generating units (CGUs) identified according to operating segments, being UK Fit Out, Continental Europe Fit Out, Middle East Fit Out, Asia Fit Out, Food Retail and Construction as disclosed in Note 2. The CGUs are revised from prior year in line with the revised segmentation as described in Note 2. The allocation of goodwill is dependent on the CGU that is expected to benefit from the business combination.
The Group tests goodwill bi-annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for the period. The Board estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the business, giving a pre-tax discount rate of 11.4% (2010: 11.1%). The Group discount rate is applied to all CGUs, on a pre-tax basis. The long-term growth rate of 2.25% is based on the estimated industry growth forecasts and long-term growth in gross domestic product.
The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by the Board for the next two years and extrapolates cash flows for the following three years based on the estimated growth rate of 2.25% and thereafter applied into perpetuity.
At 30 June 2011 and 30 June 2010, the carrying amounts of goodwill for CGUs were tested for impairment and deemed not to be impaired.
The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the growth rate, the discount rate and the forecast year two cash flows. A reasonably possible change in a single assumption will not cause impairment in any of the Group's CGUs.
12. OTHER INTANGIBLE ASSETS
Customer relationships | Customer contracts | Total | |||
£'000 | £'000 | £'000 | |||
Cost | |||||
Balance at 1 July 2009 | 10,988 | 956 | 11,944 | ||
Net foreign currency exchange differences | 21 | - | 21 | ||
Balance at 1 July 2010 | 11,009 | 956 | 11,965 | ||
Recognised on acquisition of subsidiary | 2,253 | 374 | 2,627 | ||
Net foreign currency exchange differences | 448 | - | 448 | ||
Balance at 30 June 2011 | 13,710 | 1,330 | 15,040 | ||
Accumulated amortisation | |||||
Balance at 1 July 2009 | 2,937 | 956 | 3,893 | ||
Charge for the year | 1,424 | - | 1,424 | ||
Net foreign currency exchange differences | 150 | - | 150 | ||
Balance at 1 July 2010 | 4,511 | 956 | 5,467 | ||
Charge for the year | 1,518 | 74 | 1,592 | ||
Net foreign currency exchange differences | 365 | - | 365 | ||
Balance at 30 June 2011 | 6,394 | 1,030 | 7,424 | ||
Carrying amount | |||||
As at 30 June 2011 | 7,316 | 300 | 7,616 | ||
As at 30 June 2010 | 6,498 | - | 6,498 |
13. ANALYSIS OF NET CASH POSITION
2010 £'000 |
Cash flow £'000 | Other non-cash charges £'000 |
2011 £'000 | ||||
Cash and cash equivalents | 43,676 | 943 | - | 44,619 | |||
43,676 | 943 | - | 44,619 | ||||
Loans due after one year | (7,851) | 3,999 | (57) | (3,909) | |||
Loans due within one year | (4,415) | (162) | (12) | (4,589) | |||
Letters of credit | (352) | 352 | - | - | |||
Hire purchase contracts | (9) | 9 | - | - | |||
Net cash | 31,049 | 5,141 | (69) | 36,121 |
14. BORROWINGS
2011 £'000 | 2010 £'000 | ||
Non-current | |||
Bank loans1 | 3,962 | 7,961 | |
Unamortised cost of debt | (53) | (110) | |
Total non-current | 3,909 | 7,851 | |
Current | |||
Bank loans1 | 4,646 | 4,484 | |
Unamortised cost of debt | (57) | (69) | |
Letters of credit2 | - | 352 | |
Obligations under hire purchase contracts | - | 9 | |
Total current | 4,589 | 4,776 | |
Total | 8,498 | 12,627 |
1 The Group historically had two principal bank loans:
(a) a loan of £nil (2010: £0.5m). The loan was taken out on 28 September 2005. Repayments commenced on 28 December 2005 and were completed during the period;
(b) a loan of £8.0m (2010: £11.9m), which was drawn down between May 2007 and May 2008. Repayments commenced on 22 February 2010 and are scheduled to continue until 24 May 2013. The loan carries a variable interest rate of 2.08% as at 30 June 2011.
In addition, during the year a loan of £0.6m (2010: £nil), was drawn down in Asia for working capital purposes between August 2010 and September 2010. Repayments commenced on 29 October 2010 and are scheduled to continue until 29 August 2015. The loan carries a variable interest rate of 2.03% as at 30 June 2011.
Bank covenants include total interest cover, net debt to earnings before interest, tax, depreciation and amortisation and total debtors to total utilisation. There have been no breaches of bank covenants during all periods. The bank loans are guaranteed by material subsidiaries of the Group by way of a debenture. The Group does not have any of its property and equipment pledged as security over bank loans.
2 During the prior period, letters of credit with a limit of £6.5m were made available to our Asian business by their banks. At the period end, no letters of credit of were open (2010: £1.0m) and no drawdowns were made in favour of the beneficiaries (2010: £0.4m).
The Group had the following committed undrawn borrowing facilities at 30 June 2011:
2011 £'000 | 2010 £'000 | ||
Expiry date | |||
In more than one year | 10,000 | 10,000 | |
10,000 | 10,000 |
Undrawn facilities comprise a joint revolving credit facility of £10.0m with Bank of Scotland plc and The Royal Bank of Scotland plc (2010: £10.0m). The facility bears a floating interest rate (with reference to LIBOR) and remained undrawn throughout the current period and the prior year. This facility expires on 24 May 2013.
15. contingent liabilities
There are Group cross guarantees from the company for all monies due to certain of the Group's banks and surety lenders. No monies were outstanding as at 30 June 2011 (2010: £nil). In the normal course of business there are contingent liabilities including the provision of bonds in respect of completed and uncompleted contracts.
16. RELATED PARTY TRANSACTIONS
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no material transactions between the Group and its associates or joint ventures during the year.
17. Non-controlling interest
£'000 | ||
Balance at 1 July 2009 | - | |
Share of profit for the year | - | |
Balance at 1 July 2010 | - | |
Recognised on acquisition | 325 | |
Share of profit for the year | 12 | |
Exchange differences arising on translation of foreign operations | 6 | |
Balance at 30 June 2011 | 343 |
Non-controlling interest relates to the acquisition of Realys. Details of this acquisition are provided in Note 18.
18. ACQUISITION OF SUBSIDIARIES
On 8 April 2011 the Group acquired 85% of the issued share capital and obtained control of Realys, a design-led project management specialist based in Shanghai servicing multinational companies - primarily from Western Europe. The acquisition is expected to widen the Group's international client base and provide a broader service offering to the Group's clients in China and Hong Kong.
Book Value | Fair Value | |||
£'000 | £'000 | |||
Recognised amounts of identifiable assets acquired and liabilities assumed: | ||||
Financial assets | 472 | 436 | ||
Property, plant and equipment | 36 | 36 | ||
Identifiable intangible assets | - | 2,627 | ||
Financial liabilities | (284) | (931) | ||
Total identifiable net assets | 224 | 2,168 | ||
Non-controlling interest | (325) | |||
Goodwill | 2,601 | |||
4,444 | ||||
Satisfied by: | ||||
Cash | 1,892 | |||
Equity instruments (237,586 ordinary shares of parent company) | 472 | |||
Contingent consideration | 2,080 | |||
Total consideration transferred | 4,444 | |||
Net cash outflow arising on acquisition: | ||||
Cash consideration | 1,892 | |||
Less: cash and cash equivalent balances acquired | (166) | |||
1,726 |
The fair value of the financial assets includes trade receivables with a fair value and gross contractual value of £0.2m. These are expected to be fully collectible. The goodwill of £2.6m arising from the acquisition is attributable to the expansion of the Group's client base and geographical spread. None of the goodwill is expected to be deductible for income tax purposes.
The fair value of the 237,586 ordinary shares issued as part of the consideration paid for Realys, £0.5m, was based on the share price on 8 April 2011.
The non-controlling interest has been measured as the proportionate share of the fair value of identifiable net assets.
The contingent consideration arrangements require the achievement of certain profit targets. The potential undiscounted amount of all future payments that the Group could be required to make under the contingent consideration arrangement is between £0.5m and £3.2m. The fair value of the contingent consideration arrangement of £2.1m was estimated by applying the likelihood of meeting the profit targets as assessed by current management.
The vendors and the Group have entered into a put and call option arrangement for the remaining 15% of the shares of Realys, with the earliest exercise date being 2015.
Acquisition-related costs (included in administrative expenses) amount to £0.2m.
Realys contributed £0.4m revenue and £0.1m to the Group's profit for the period between the date of the acquisition and the balance sheet date. If the acquisition of Realys had been completed on the first day of the financial year, Group revenues for the period would have been £1,198m and the Group's profit for the period would have been £7.4m.
19. APPROVAL OF ACCOUNTS
The annual accounts were approved by the Board of directors on 6 September 2011.
Related Shares:
ISG.L