9th Jul 2007 07:00
Spice PLC09 July 2007 9 July 2007 Spice plc Final results - year ended 29 April 2007 Spice plc ("Spice" or "the Group"), the provider of outsourced infrastructuresupport services to the Commercial, Public and Utility Sectors, is pleased toannounce record results for the year ended 29 April 2007. Financial highlights • Profit before tax of £10.1 million (2006 restated: £6.8 million) - 48% increase • Profit before tax and amortisation of £13.8 million (2006 restated: £8.4 million) - 65% increase • EBITA* of £16.3 million (2006 restated: £9.2 million) - 77% increase • Operating profit converted into operating cash flow - 130% (2006 restated: 128%) • Diluted earnings per share of 15.1 pence (2006 restated: 12.0 pence) - 26% increase • Adjusted diluted earnings per share of 22.7 pence (2006 restated: 15.7 pence) - 45% increase • Total dividend of 4.0 pence per share (2006: 2.6 pence) - 54% increase * EBITA comprises profit on ordinary activities before interest, tax and amortisation of intangible fixed assets. 2006 comparative numbers have been restated, where appropriate, to reflect the adoption of FRS 20 Share based payments. Operational highlights • October 2006 - Hutchison Team Telecom agrees five year framework agreement with Huawei • November 2006 - Creation of Public Services division • December 2006 - Freedom renews EDF Energy maintenance contract for a further five years • December 2006 - Meter U agrees a new four year partnership agreement with Siemens • December 2006 - H20 agrees four year framework agreement with Anglian Water • March 2007 - Freedom agrees major substation projects and overhead lines contracts with EDF Energy • May 2007 - H20 renews Yorkshire Water contract • May 2007 - Team Simoco selected to provide replacement PMR to Western Power Distribution • July 2007 - H20 renews United Utilities contract Simon Rigby, Chief Executive Officer, commented: "We have delivered a strong performance with a 77% increase in profits (20% ofwhich is pure organic growth) in the year for our shareholders." "We are pleased with the overall Group performance and trading is in line withour expectations, with good underlying visibility of earnings. Spice is wellplaced to continue to grow organically (including by cross selling acrossoperating divisions) within its expanding markets, and continues to pursuecomplementary acquisition opportunities." "We have very clear visibility going forward, the right team, group structureand infrastructure to take Spice through its next phase of growth anddevelopment." "The Board looks to the future with confidence." - Ends - For further information, please contact: Spice Tel: 0113 384 3838Simon Rigby, Chief Executive OfficerOliver Lightowlers, Group Finance DirectorCarl Chambers, Corporate Development Director Financial Dynamics Tel: 020 7831 3113Billy Clegg Caroline Stewart KBC Peel Hunt Tel: 0207 4188900Julian Blunt Chairman's statement Introduction I am delighted to present our full year results for 2007, which has again provedto be another record year for Spice. We have recorded strong levels of organicgrowth in each of our operating businesses and the acquisitions that we havemade in the year have also made significant contributions to our results. Turnover for the year was £228.6 million (2006: £132.9 million) and profitbefore interest, tax and the amortisation of intangible fixed assets (EBITA) was£16.3 million (2006 restated: £9.2 million), increases of 72% and 77%respectively. At the same time our EBITA operating margins improved to 7.1%(2006 restated: 6.9%). Diluted earnings per share, adjusted for the amortisation of intangible fixedassets, increased by 45% to 22.7 pence per share (2006 restated: 15.7 pence pershare). I am also pleased to report that the Board is recommending a finaldividend of 3.0 pence per share, making a total dividend of 4.0 pence per sharefor the year (2006: 2.6 pence), an increase of 54%. Group Board In September 2006, Michael Shallow joined the Board as a Non-Executive Director.Michael has significant public company experience and a wealth of financial andstrategic skills. At that time, Nick Rodgers stepped down from the Board. I'dlike to thank Nick for his hard work and significant contribution to the growthand success of Spice over the course of the past three years. More recently in May 2007, Tim Huddart joined the Board as a Non-ExecutiveDirector. Tim has many years' experience, and a distinguished track record, inthe City. Tim has significant experience of advising major FTSE companies andhis expertise and insight, as well as Michael's, will significantly strengthenthe Board as Spice enters its next phase of growth and development. Our people The success that we have achieved has been made possible by the hard work of ourstaff. I would like to extend thanks, on behalf of the Board, to all of ouremployees for their energy, commitment and personal contribution to ourachievements. We have a strong team at all levels within the Group and it is pleasing to nowsee nearly 1,000 employees of Spice participating in our Sharesave scheme. Strategy The year has been notable for a series of contract wins and renewals withcustomers including EDF Energy, Yorkshire Water, United Utilities, Siemens andAnglian Water. These successes extend across each of our three operatingdivisions and mean that we have never had, at any point in the Group's history,better visibility of future revenues. Group strategy remains unchanged and we continue to be focussed on growing thebusiness organically. Our like for like organic EBITA growth was 20% for theyear. At the same time, we will continue to pursue complementary acquisitionopportunities. The addition of Inenco has been transforming to our CommercialServices' business and we have also taken the opportunity to expand our serviceoffering through the formation of our Public Services division. The overlapbetween our three divisions has never been stronger and has created an enviableplatform for cross selling which has begun to make a tangible contribution toearnings. Outlook Many new exciting opportunities exist for the new financial year, which has gotoff to an excellent start. We enter the new financial year with confidence. Finally, I would like to thank our shareholders for their continued support overthe course of the past 12 months. Sir Rodney WalkerChairman9 July 2007 Chief Executive Officer's statement Spice provides outsourced infrastructure support services to three sectors;Commercial Services, Public Services and Utility Services. Looking at each inturn: Commercial Services Energy Our Energy Services business was formed in June 2006 through the acquisition ofInenco, a leading UK energy management business. In the period sinceacquisition, I am pleased to report that Energy Services has performed ahead ofplan and made a strong contribution to Group results, recording EBITA of £1.7million. During the year we have successfully renewed several key customer relationshipsincluding Crown Plastic, Abbey and Johnsons Cleaners together with the additionof many new customers, including blue chip household names such as BhS, Kelloggand Spirit Group. Over the course of the year, Inenco has doubled the number ofcustomers taking services across both the cost control and consultancy sides ofthe business. The results for the year are also enhanced by cross selling theInenco service range into other parts of the Group. Our Facilities Servicesbusiness introduced TK Maxx to Inenco's energy procurement and invoicevalidation services. Similarly other Spice businesses have successfully beenintroduced to Inenco's customers resulting in contracts to refurbish heating andventilation systems for John Swires and to survey meter installations for SpiritGroup. We have successfully extended the range of services provided to several of ourlarge and key customers with a number choosing to outsource the process ofinvoice validation and payment to Inenco, from their own back offices (JSainsbury and TK Maxx). Our invoice validation services have created significantsavings for customers and in the process have created opportunities for otherGroup companies. In the case of J Sainsbury we introduced the Group's WaterServices business which has successfully undertaken a number of conservation andwater usage audits across several stores. In a year of extreme energy price volatility the provision of procurementservices has undoubtedly been the dominant contributor to Inenco's result.Prospectively, we anticipate significant growth in consultancy services as moreof our customers begin to understand their impact on the environment andactively seek to reduce this. We have invested in developing our range ofenvironmental services including energy and carbon management services and ourcarbon management programme is accredited by the Carbon Trust. In addition weare steadily increasing the number of commercial smart meters installed atcustomer sites in order to improve the billing performance of suppliers througha reduction in estimated readings. Smart meters also provide valuable managementdata to assist in reducing energy usage. Although energy prices have recently fallen, continued volatility is expected tomaintain demand for our procurement services and with environmental concernsremaining high on boardroom agendas we believe that Inenco is very wellpositioned to exploit the market trends and conditions that exist and to growthe business accordingly. A number of our customers, such as Marks & Spencer,are publicly interested in acquiring green energy through investment intorenewable generation schemes and we have actively developed our capability andare already seeing firm orders from customers in this area. We have expectationsof good growth in these services over the coming year. Facilities Facilities Services reported EBITA of £4.0 million (2006: £1.5 million) for theyear, an increase of 160%. These results include a contribution for the firsttime of £1.0 million from Breval. During the year, Serviceline won a number of new clients including TK Maxx, TheBody Shop, Swatch, Knight Frank and Nelson Bakewell. We are also doingsignificantly more for existing clients such as Waterstone's, which added 130stores to its estate following its acquisition of Ottakers. The number of taskshandled by Serviceline on behalf of its clients has nearly doubled over thecourse of the year. In March 2007 we acquired Atlanta, a small facilities management businesslocated close to our Aylesbury head office. Atlanta provides similar managementservices to our existing Serviceline business for customers including Virgin,Carpetright and Monsoon. These services have historically been delivered througha sub-contractor network but there are significant opportunities for directservice delivery via Circle Britannia. This direct service delivery opportunityis the main focus of our integration activities as we bring Atlanta into ourexisting operations. The acquisition of Atlanta also extends the cross sellingopportunities available to the Group, most notably for Inenco. Circle Britannia's planned and reactive maintenance business, and its smallworks operations, benefited considerably from Serviceline's growth during theyear with greater volumes of work bring referred. At the same time, CircleBritannia has enjoyed a 100% increase in the volume of domestic insurancereinstatement work undertaken on behalf of Norwich Union. This has included morework in our existing Norwich Union post codes, the award of additional post codeareas and the award of commercial insurance reinstatement works. In Scotland, wehave begun to develop strong relationships with social housing providers such asHome Scotland and Fife Housing Association and we are optimistic that theserelationships will further develop over the course of the new financial year. In June 2006, we acquired Breval which specialises in the design, installationand maintenance of heating, ventilation and air-conditioning (HVAC) systems andalso provides specialist asbestos removal services. Breval's operations have anexcellent fit with our existing operations and Breval has undertaken a number ofprojects for existing customers, on the back of our cross selling initiative,including Starbucks and Waterstone's. Breval's asbestos removal expertise hasalso been utilised within Electricity Services. We are optimistic that otheropportunities will crystallise for Breval as we move forward into the newfinancial year. The facilities outsourcing sector continues to be competitive but we expect thatthe outlook and demand for providers of building fabric maintenance, such asCircle Britannia and Breval, will remain positive. Public Services Gas Our Public Services division was created in November 2006 following Spice'sacquisition of Apollo, closely followed by the acquisition of ParGas in December2006. Both businesses provide gas services in the social housing market and areresponsible for the management and delivery of long term gas maintenancecontracts to housing associations, local authorities and private landlords. Inthe period since acquisition, the business has performed in line withexpectations and contributed EBITA of £1.0 million to the result for the year. Prior to the formation of our Public Services division, we spent a considerableperiod of time evaluating the public sector market in order to determine ourpoint of entry. Whilst the social housing market in the UK is large, we believethat there is a high probability of Government spend being subject tosignificant fiscal drag. Our entry point into this market is less prone to suchfluctuations since compliance with gas safety regulations is non discretionary. At the time of acquisition, Apollo and ParGas had service and maintenanceagreements covering approximately 87,000 properties with such agreement beingtypically for periods of between two and five years. Following recent contractwins including New Prospect Housing Association, we enter the new financial yearwith maintenance agreements now covering in excess of 100,000 properties. Othercustomers include Circle Anglia Housing Association and Contour Homes. We alsoprovide gas meter replacement services and emergency first response services togas distribution businesses such as National Grid, which involves identifyingand making safe gas leaks. Since formation, Public Services has been able togrow this activity by offering first response services in North West as well asthe South of England. The integration of Apollo and ParGas into the Group is progressing to plan andwe would expect to obtain efficiencies on future acquisitions through extendingour existing work planning systems into new acquisitions to reduce deliverycosts, whilst providing our customers with real time feedback on progress. Thishas proved to be a considerable success to date. Client satisfaction isincreasing as customers can view, add and monitor jobs in real time at their ownterminals creating real time and efficiency savings. Subsequent to the end of the financial year, we completed the acquisition ofHomerton which extends our geographic footprint in the South of England. PublicServices now has over 300 CORGI registered gas engineers and the retention ofthese engineers plus the recruitment of new engineers is very important to thecontinued development and organic growth of the business. Acquisitions made todate have given the Group geographic coverage of the North West and South Eastof England. Having established strong bridgeheads into the public servicessector, our strategy is to continue to grow our network to provide nationalcoverage using significant established regional businesses and brands. We willthen utilise our national networks to further expand our presence within gasmeter operations and the commercial gas maintenance sector. We believe that wehave a strong platform from which to do this. Utility Services Electricity During the year, we completed the alignment of the business into the Freedomservice island structure. We are now able to tackle any electrical networkissue, project or programme of works with expertise across every element. We areable to provide our customers with a comprehensive "cradle to grave" servicewhich is reflected within our rapid growth over this year. Electricity Servicesincreased EBITA by 54% from £4.4 million to £6.8 million. Electricity Services has particularly benefited from the consolidation ofseveral contracts across the UK, particularly in the EDF Energy footprint: • May 2006 - Freedom Volume Asset Replacement was selected to undertake 11kV/LV work in the South East and East of England. • December 2006 - Freedom Asset Care was selected to maintain substation assets across all three of EDF Energy's licence areas. We were previously incumbent in two out of three areas and therefore this contract represented a substantial expansion of works. • December 2006 - Freedom Power Projects was selected as a key service partner to upgrade EDF Energy's major 132/33KV substations throughout the South East and East of England. • March 2007 - Freedom Power Lines was selected by EDF Energy as a key service partner in relation to all 33kV overhead line projects. These contracts cover all service activities within Freedom and are generallyfor four years with options to extend for further five year periods. Thisprovides excellent visibility of future revenues for the business. We are nowworking alongside EDF Energy in jointly staffed offices in Colchester andSevenoaks and began to receive our first design orders under the new workstreamstowards the end of the financial year. During the course of the year, Electricity Services has also won othersignificant work and contracts elsewhere in the UK. The year has seensignificant growth in Freedom Power Lines with new contracts in CE Electric(Yorkshire Electricity and Northern Electric). Freedom Volume Asset Replacementnow has contracts with CE Electric and Central Networks as well as EDF Energy,making it the largest switchgear replacement business in the UK. Freedom PowerProjects won a three year framework contract with Scottish Power relating tomajor substation design. Freedom Consultancy Services has grown significantly in the year and contributedstrongly to our results. As most of our traditional customers downsize, weexpect that this downsizing will continue to create significant opportunitiesfor our Consultancy Services business and that this will be an area of majorfocus for us over the new financial year. Freedom Network Solutions, which was formed from our Maintech, Baineport andLamva businesses, now focuses its attention on the UK's private electricitynetworks. During the year, we have doubled the number of sites which we maintainto in excess of 800 private networks. We continue to expect significant growthfrom this market and are well positioned to take advantage. Shortly before the end of the financial year we completed the acquisition ofOptimal, which provides professional services to utility companies, includingScottish Power and specialises in the provision of training personnel,electrical design, project management engineers and wayleaving services. Optimalstrengthens our service structure and reinforces Freedom's position as a marketleader within the UK. Telecoms Our Telecoms infrastructure support services business recorded EBITA for theyear of £3.5 million (2006: £2.4 million). This represents an improvement overthe previous year's performance of some 46%. Each of our businesses has enjoyedstrong trading conditions in their respective markets. Orders booked are some40% ahead of last year with many more of our long term framework agreements(including Huawei and Transport for London) now starting to deliver revenue andprofits. We believe that our Telecoms business is well positioned for the newfinancial year. Air Radio continues to perform well with the mobile data contract for BA(British Airways) won in the first half now adding to revenues as planned.Revenues have been further boosted by an increased workload generated fromTerminal 5 work as BA prepares for its operational "ready for service date". Iam also pleased to report that the business has continued to grow its non BAbusiness and has won several long term (five year) contracts with groundhandling companies (such as Aviance) for UK wide radio services. The digitalradio system (AR-en) launched in September 2006 at Birmingham was not only thefirst of its kind in the UK but has been received with universal support fromour clients as it has proved to be a highly reliable system giving superiorvoice quality and enhanced data capabilities. Meanwhile at Heathrow the businesshas also upgraded its main radio network to Team Simoco's new Xfin technology,producing additional customer capacity in the process. The development offurther UK airports remains firmly on our agenda and we are confident thatseveral will be introduced within the first half of our new financial year. The integration of Team Telecom and Hutchison is fully completed and we are nowseeing the benefits of the merger that we anticipated. During the year we havesecured long term framework agreements for the build and support of landlinenetwork role outs with Huawei for their BT21CN (British Telecom's 21st centurynetwork) contract and non BT work as well as similar agreements with Alcatel andInfinera. We have also renewed and expanded our first line maintenance andsupport contract with our long standing client, Interoute, for a further threeyears. The business now provides these services in 12 European countries forseveral fixed line network operators and our aim is to steadily expand thecustomer base, product range and geographic footprint as the market itselfgrows. Team Simoco has benefited from the introduction of its new Xfin and TETRA Gproduct ranges, sales of both exceeding expectations, resulting in a muchimproved trading performance compared to the previous 12 month period. Duringthe year, we designed and installed the new private mobile radio (PMR)communications system at Wembley Stadium. We also secured a five year frameworkagreement with London Underground for the redevelopment and replacement of radionetwork infrastructure at their stations. The business was also able to openthree new sales offices based in China, America and South Africa in order tocapitalise on the opportunities for our products in these significant marketsand we achieved our first significant TETRA G system sale into China which webelieve will be an excellent reference point for future sales in the region.Over 75 new distributors were added to our world-wide sales distribution networkin the period, already building orders and prospects for the new financial year. Shortly after the start of the new financial year, we were also pleased toannounce the signing of a contract with Western Power Distribution to design,supply and install a new PMR communications system across over 100 radio sitelocations in the South West of England and South Wales. This is a major upgradeof Western Power Distribution's existing system and utilises Team Simoco'sadvanced Xfin trunked radio technology. The contract represents a majorundertaking and will provide a significant benefit to the Group's results during2008. The contract also includes a nine year maintenance agreement and weanticipate having the opportunity to bid for other similar opportunities in duecourse, as the UK's telecoms infrastructure is updated. Water Water Services enjoyed another successful year reporting EBITA of £5.2 million(2006: £4.5 million) an increase of 15%. Strong levels of organic growth havebeen recorded within all of our businesses. H20, which provides clean water services to both utility companies andcommercial customers, made another significant contribution to the division. H20continues to differentiate itself from competitors, through customer focusedprocesses, innovation, system capabilities and a flexible approach to meetingclient targets and objectives. This has resulted in the renewal of our YorkshireWater contract to provide meter installation services for three years (with anoption to extend for a further two years) and an anticipated increased serviceprovision to include repair and maintenance of Yorkshire Water's assetinfrastructure. We have also renewed our contract to provide meter installationservices to United Utilities for three years (with an option to extend for twoyears) and we continue to be the sole provider of meter installation services toUnited Utilities across the whole of their network. The renewal of our contractswith United Utilities and Yorkshire Water provides excellent future visibilityof revenues for Water Services. Elsewhere in the year, we have also secured contracts with new customersincluding Anglian Water where we are undertaking water meter installations andreplacements as well as leakage detection. In addition, following the successfulcompletion of a meter installation pilot for Scottish Water we have signed acontract to install meters to March 2009. At least two significant tenderopportunities to provide meter installation services to existing customers areexpected to be issued during the new financial year. On the back of our provenexpertise in this area we would be optimistic of winning some of this work. The integration, last year, of Kemac into our business has created significantopportunities for us to sell technical services to water companies in the Northand meter operations to water companies in the South. The benefits of thisacquisition have begun to be realised via new customers such as Anglian Waterand securing additional work with Northumbrian Water and Thames Water. Economic and regulatory environment pressures surrounding meters remainfavourable and we anticipate that this trend will continue. These pressures havealso created other opportunities for the business which we have exploitedthrough the development and establishment of our leakage detection and repairservice and also our water efficiency service which is now being provided toboth water utility companies as well as commercial clients including Formica, DeGussa Chemicals and J Sainsbury. Metro Rod has enjoyed another successful year with double digit growth inprofits. A number of new clients were secured during the year including BUPA andWetherspoons. The introduction of a new integrated job management system during2008 will allow us to improve efficiency, and service to our customers.Furthermore we expect that through leveraging off H20's client base, furtheropportunities will be created to provide services to water utility companies inthe future. Meter U has continued its strong organic growth. Our franchised workforce ofover 600 meter readers is now undertaking 19 million reads per year. During theyear we extended our partnership agreement with Siemens to 2010. This gives us afirm foundation for the future. We are also continuing to explore furtheropportunities with Siemens. Cross selling The Group has made significant progress with its cross selling initiatives overthe past 12 months and certain of our successes have been documented within thisreport. We are continuing to seek to make cross selling endemic in what we do. Cross selling is going to continue to form an important part of our futuregrowth strategy and we remain convinced that the complementary skills that existwithin our three divisions, and the degree to which these businesses overlapeach other, creates an exceptionally strong platform from which to convertopportunities into earnings. We remain focussed on converting these existing opportunities over the newfinancial year but also developing new opportunities as well. Head office Head office costs are mainly comprised of salaries, including the Group's HR andIT functions, and also professional costs. Costs have increased over the courseof the year mainly as a result of the adoption of FRS 20 but also as a result ofour investment in IT to support the enlarged Group. Acquisitions Six acquisitions have been made during the year, which are summarised below. Maximum potential Initial net contingent consideration consideration £'m £'m Breval 8.3 - Inenco 9.0 2.8 Contingent consideration based on performance to March 2008 Apollo 9.7 - ParGas 9.5 - Optimal 0.3 - Atlanta 0.8 0.2 Contingent consideration based on performance to April 2008 37.6 3.0 Initial net consideration in respect of these acquisitions totals £37.6 million. At the start of the financial year, the Group had a provision totalling £7.0million in relation to deferred contingent consideration payable on acquisitionsmade in previous years. This provision relates to the acquisitions of Air Radio,Hutchison, Kemac, Baineport and Maintech. During the year a total of £1.6million has been paid in relation to Kemac, Baineport and Maintech. A provisionof £5.2 million has been carried forward in relation to prior year acquisitions(principally Hutchison, Kemac and Air Radio). The Group expects to make earn outpayments for Hutchison, Kemac and Maintech in the first half of the newfinancial year. The Air Radio payment is not expected to fall due until the yearending 2009. Outlook We are pleased with the overall Group performance and trading is in line withour expectations, with good underlying visibility of earnings. Spice is wellplaced to continue to grow organically (including by cross selling acrossoperating divisions) within its expanding markets and continues to pursuecomplementary acquisition opportunities. We have very clear visibility goingforward, the right team, group structure and infrastructure to take Spicethrough its next phase of growth and development. The Board looks to the futurewith confidence. W S RigbyChief Executive Officer9 July 2007 Financial review The financial performance of the Group continues to be strong. We have recorded20% like for like organic EBITA growth in the business. Acquisitions made duringthe year have also contributed to the results. Operating margins have improvedduring the year. Our rate of cash conversion and also generation continues to beparticularly pleasing and remains a main feature of the business. Turnover During 2007, turnover increased by 72% to £228.6 million (2006: £132.9 million),of which acquisitions contributed £28.7 million. Profit on ordinary activities before interest, tax and amortisation ofintangible fixed assets (EBITA) EBITA increased by 77% to £16.3 million (2006 restated: £9.2 million). The tablebelow identifies the driving factors behind this growth including separatelyidentifying the part year effect of acquisitions made during 2006. 2007 2006 £'m £'m as restatedEBITAExisting operations 11.8 9.82007 acquisitions 3.7 -Part year effect of 2006 acquisitions 2.8 -FRS 20 Share based payment charge (2.0) (0.6) 16.3 9.2 The table shows that EBITA from existing operations, excluding the effect ofadoption of FRS 20, was £11.8 million (2006: £9.8 million), representing organicgrowth of 20% for the year. Separately, acquisitions made during 2007contributed £3.7 million to EBITA. Spice made various acquisitions during 2006, which contributed to EBITA for partof that year but which have contributed to EBITA for the whole of the year endedApril 2007. For example, Circle Britannia was acquired in September 2005. Itsresults for the period between September 2006 and April 2007 are shown withinexisting operations, as are the comparative numbers for the period fromacquisition to April 2006. The results of Circle Britannia for the periodbetween May and August 2006 are shown within the part year effect of 2006acquisitions. Other 2006 acquisitions, part of whose performance contributes tothis line, are Kemac, Hutchison, Lamva, Baineport and Maintech. EBITA operating margins for the Group improved to 7.1% (2006 restated: 6.9%).Underlying operating margins, excluding the effect of the adoption of FRS 20were 8.0% (2006: 7.4%). Interest Interest payable for the year was £2.4 million (2006: £0.8 million). The higherinterest charge is caused by bank debt used to fund the various acquisitionsmade during the course of the year and also in 2006. In March 2007, we again took the opportunity to re-negotiate our bankingfacilities with HSBC Bank. These discussions also coincided with the syndicationof our revolving credit facility, to include Barclays Bank, KBC Bank and LloydsBank and have resulted in the Group's banking facilities being on significantlybetter terms. The Group's banking covenants are based around earnings before interest, tax,depreciation and amortisation (EBITDA). EBITDA interest cover for the year was 8times (2006 restated: 14 times). Profit on ordinary activities before tax and amortisation of intangible fixedassets (PBTA) PBTA increased by 65% to £13.8 million (2006 restated: £8.4 million). Profit on ordinary activities before tax Profit on ordinary activities before tax increased by 48% to £10.1 million (2006restated: £6.8 million). The Group's amortisation charge has increasedsignificantly from £1.6 million to £3.8 million during the year which isattributable to amortisation on intangible fixed assets arising on acquisitionsmade in 2007 and 2006. Tax The Group's effective rate of tax for the year was 25.4% (2006 restated: 23.0%)which is lower than the standard rate of tax principally as a result of taxrelief arising on the exercise of share options and the utilisation of prioryear tax losses. In addition, tax issues relating to prior years which had beenassumed not to be allowable for tax purposes have subsequently been agreed withHMRC as being allowable. Earnings per share Diluted earnings per share at 15.1 pence (2006 restated: 12.0 pence) increasedby 26% and adjusted diluted earnings per share (before amortisation ofintangible fixed assets) at 22.7 pence (2006 restated: 15.7 pence) increased by45%. In prior years, the Group's ESOP has had adequate shares to satisfy all optionsvested and also options granted but not yet vested. As highlighted in 2006, thisis no longer the case and new shares will either be issued or bought on themarket to make up this difference. This has been taken account of in thecalculation of diluted earnings per share. Dividend The Board has recommended a final dividend of 3.0 pence (2006: 1.9 pence) pershare payable on 18 September 2007 to shareholders on the register at 7September 2007. An interim dividend of 1.0 pence per share (2006: 0.7 pence) waspaid on 13 February 2007, making a total dividend of 4.0 pence per share (2006:2.6 pence per share) for the year. The dividend is covered 3.2 times by earnings(2006 restated: 4.5 times). Cash flow Net cash inflows from operating activities increased by £6.5 million to £16.3million (2006: £9.8 million). The Group converted 130% of operating profit intooperating cash flow (2006 restated: 128%). During the year working capitalutilised increased by circa. £5.0 million (2006: £2.0 million) connectedprincipally with investment within our Facilities and Electricity businesses. Capital expenditure increased due to expenditure related to our BA contractwithin Air Radio and also due to the purchase of Wellfield House aftershareholder approval was obtained at our Annual General Meeting in September2006. In March 2007, the Group placed 4,000,000 new shares at a price of 500 pencewith institutional and other investors to raise net proceeds of approximately£19.4 million. Balance sheet Net assets have increased to £67.3 million (2006 restated: £39.8 million),reflecting the net placing proceeds together with retained profits and cashgenerated from the exercise of employee share options. The net placing proceedswere used to repay bank debt. Net debt is £34.3 million (2006: £13.6 million). The increase is attributable toconsideration paid in respect of acquisitions and the settlement of certain earnouts connected with acquisitions Changes in UK accounting standards On 1 May 2006, the Group adopted FRS 20 Share based payments. FRS 20 seeks toreflect the cost of share based remuneration, including option schemes, withinthe profit and loss account. Comparative numbers have been restated to reflectthe impact of the adoption of FRS 20 where appropriate. International Financial Reporting Standards (IFRS) The Group's interim results for the period ending October 2007 will be preparedunder IFRS. We expect to issue our transition statement at the time of theannouncement of those results or shortly before that announcement. Principal risks and uncertainties The Group's operating divisions maintain detailed risk registers which areregularly updated and include strategies to mitigate identified risks. Theseregisters are compiled using a common model but with enough built in flexibilityto take account of specific business risk. Broadly risks are categorised intosix types being strategic and planning, financial, operational and quality,people, reputation, and regulatory risks. For each risk identified, theprocesses and procedures in place to mitigate and manage that risk are alsorecorded. Significant risks facing the Group include: • Regulatory (regulatory risks) - the Group operates within markets which are subject to extensive laws and regulations. These laws and regulations continue to change and evolve, as must Spice's processes, procedures and systems. • Health and safety (operational and quality risks) - Many of our markets are extensively regulated due to the dangerous nature of activities undertaken by the Group. The Group may suffer fatalities even if all processes, procedures and regulations are complied with. • People (people risks) - Spice provides support services to its customers. These services are principally delivered by employees but also using subcontractors. In some of Spice's markets, severe skill shortages exist. In order to continue to grow and prosper, the Group needs to be able to retain existing employees whilst also continuing to access new pools of talented and skilled resources. • Competitive (operational and quality risks) - Spice seeks to maintain long term relationships with its customers and typically operates via contracts whose duration is for between two and five year periods. At any point in time, some of the Group's contracts will be in the process of retender and renewal. The Group has a good track record of renewing key customer contracts, however, the markets within which Spice operates are competitive. • Innovation (operational and quality risks) - On a number of contracts, Spice has been incumbent for very many years. Over this time, the Group has been able to successfully innovate in order to improve the effectiveness and efficiency of our service delivery. Our customers continue to demand innovative solutions and therefore we must continue to innovate to maintain our position. O J LightowlersGroup Finance Director9 July 2007 Consolidated profit and loss account for the year ended 29 April 2007 Note 2007 2006 £'000 £'000 as restatedTurnover:- continuing operations 199,879 132,930- acquisitions 28,681 -Turnover 2 228,560 132,930Cost of sales (163,420) (93,360)Gross profit 65,140 39,570Administrative expenses (52,610) (31,951) EBITA 16,296 9,215Amortisation of intangible fixed assets (3,766) (1,596) Operating profit:- continuing operations 10,041 7,619- acquisitions 2,489 -Operating profit 12,530 7,619Net interest payable (2,444) (797)Profit on ordinary activities before tax 10,086 6,822Tax on profit on ordinary activities (2,561) (1,566)Profit on ordinary activities after tax 7,525 5,256Dividends 3 (1,306) (943)Retained profit for the year 6 6,219 4,313Earnings per share (pence per share)Basic 4 16.5 12.6Diluted 4 15.1 12.0 EBITA comprises profit on ordinary activities before interest, tax andamortisation of intangible fixed assets. Consolidated balance sheet as at 29 April 2007 Note 2007 2006 £'000 £'000 as restatedFixed assetsDevelopment expenditure 832 825Goodwill 77,272 41,458Intangible fixed assets 78,104 42,283Tangible fixed assets 18,330 13,623Investments 212 212 96,646 56,118Current assetsStock 6,688 4,264Debtors 56,284 32,672Cash at bank and in hand - - 62,972 36,936Creditors - amounts falling due within one (57,696) (33,294)yearNet current assets 5,276 3,642Total assets less current liabilities 101,922 59,760Creditors - amounts falling due after more (29,238) (12,237)than one yearProvisions for liabilities and charges (5,376) (7,677)Net assets 67,308 39,846 Capital and reservesCalled up equity share capital 5,347 4,947Share premium account 46,523 27,462Revaluation reserve 2,103 2,103Capital redemption reserve 100 100Profit and loss account 13,235 5,234Equity shareholders' funds 6 67,308 39,846 Consolidated cash flow statement for the year ended 29 April 2007 Note 2007 2006 £'000 £'000Net cash inflow from operating activities 7a) 16,335 9,780Returns on investments and servicing offinanceNet interest paid (2,424) (789)Interest element of finance lease payments (20) (8)Net cash outflow from returns on (2,444) (797)investments and servicing of financeTax paid (3,318) (785)Capital expenditure and financialinvestmentPurchase of tangible fixed assets (6,030) (2,286)Development expenditure (246) (335)Sale of tangible fixed assets 269 481Net cash outflow from capital expenditure (6,007) (2,140)and financial investmentAcquisitionsPurchase of subsidiary undertakings (46,112) (33,028)Net cash acquired with subsidiary 6,076 3,301undertakingsNet cash outflow from acquisitions (40,036) (29,727)Equity dividends paid (1,306) (943)Net cash outflow before financing (36,776) (24,612)FinancingPrincipal repayment due under finance (170) (79)leasesSale of investments - own shares 1,087 1,102Purchase of investments - own shares (1,305) -Net proceeds from issue of shares 19,461 14,527Bank loan repayments (73,601) (16,516)Bank loan advances 89,368 28,277Net cash inflow from financing 34,840 27,311(Decrease) / increase in net cash 7c) (1,936) 2,699 Notes to the preliminary announcement for the year ended 29 April 2007 1 Basis of accounting The audited consolidated financial information for the year ended 29 April 2007has been prepared in accordance with applicable UK accounting standards and isconsistent with accounting policies applied in the financial statements for theyear ended 30 April 2006, with the exception of the adoption of FRS 20 Sharebased payments which was adopted on 1 May 2006. Comparative numbers have beenrestated to reflect the impact of the adoption of FRS 20. The financialinformation included in this announcement has been extracted from the auditedfinancial statements for the years ended 29 April 2007 and 30 April 2006. Thecontent of this announcement has been agreed with the Company's auditors. This preliminary announcement does not constitute the Group's financialstatements. The Group's 2007 Annual report and financial statements, on whichthe Company's auditors, PricewaterhouseCoopers LLP, have given an unqualifiedopinion in accordance with Section 235 of the Companies Act 1985, are to bedelivered to the Registrar of Companies following the Company's Annual GeneralMeeting. The Group's 2006 accounts, which contain an unqualified audit report,have been filed with the Registrar of Companies. 2 Turnover Turnover, which excludes value added tax, arises from several activities.Turnover is recognised in the profit and loss account at the point that aservice is provided or products are supplied for each of the followingactivities: • facilities management and maintenance services;• consultancy, infrastructure design and asset maintenance services;• private mobile radio products;• drain care, maintenance, repair and cleaning services;• water meter installation and meter reading;• services for the development and support of telecommunications networks;• gas maintenance and safety inspections;• energy, water and telecommunications cost control; and• information technology installation, commissioning and maintenance activities. Where the Group operates as principal to the transaction, turnover is recognisedat gross values. Where the Group acts as agent in the transaction, with thefranchisee being the principal, the Group recognises within turnover the netcommission earned on the transaction. 3 Dividends 2007 2006 £'000 £'000Amounts recognised as a distribution from shareholders' funds during theyearFinal dividend paid of 1.9 pence per share for the year ended 30 April 854 6332006(2005: 1.7 pence)Interim dividend paid of 1.0 pence per share for the year ended 29 April 452 3102007(2006: 0.7 pence) 1,306 943 Proposed final dividend paid of 3.0 pence for the year ended 29 April 2007 1,482 854(2006: 1.9 pence) Dividends amounting to £122,000 (2006: £93,000) have been waived by the ESOP andtherefore deducted in arriving at the aggregate of dividends proposed. It isproposed that the final dividend amounting to £1,482,000 (2006: £854,000) willbe paid on 18 September 2007 to those shareholders on the register at 7September 2007. In accordance with FRS 21, the final dividend for the year ended 29 April 2007will be accounted for, following approval of that dividend, in the first half ofthe year April 2008. 4 Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of shares in issue duringeach period. The weighted average number of shares, after adjusting for sharesheld by the ESOP, in issue during the year used in the calculation of basicearnings per share was as follows: 2007 2006 '000 '000Weighted average shares for basic earnings per share 45,566 41,667 Diluted earnings per share is the basic earnings per share adjusted for thedilutive effect of the conversion into fully paid shares of the weighted averagenumber of share options outstanding during the year. The weighted average numberof shares in issue during the period used in the calculation of diluted earningsper share was as follows: 2007 2006 '000 '000 as restated Weighted average shares for diluted earnings per share 49,799 43,646 Adjusted earnings per share have been calculated so as to exclude the effect ofthe amortisation of all intangible fixed assets. Adjusted earnings per sharehave been presented in order that the effects on reported earnings of theamortisation of intangible fixed assets can be fully appreciated. Adjustedearnings used in the calculation of basic and diluted earnings per sharereconciles to basic earnings as follows: 2007 2006 £'000 £'000 as restated Basic earnings 7,525 5,256Amortisation of intangible fixed assets 3,766 1,596Adjusted earnings 11,291 6,852 Earnings per share (pence per share)Basic 16.5 12.6Diluted 15.1 12.0Adjusted earnings per share (pence per share)Basic 24.8 16.4Diluted 22.7 15.7 No adjustment has been made for tax since the amortisation of intangible fixedassets is not expected to be allowable for tax purposes. 5 Segmental analysis The turnover for the year was derived from the Group's principal activities andis attributable to the following markets:By destination 2007 2006 £'000 £'000UK 224,661 130,439Continental Europe 3,165 2,126Rest of the World 734 365 228,560 132,930 All turnover originates in the United Kingdom. The Group's profit before tax andnet assets all substantially arise from UK operations and consequently thefollowing analyses are presented by business segment only. Turnover for the year is derived from the Group's principal activities asfollows: 2007 2006 £'000 £'000Commercial ServicesEnergy 12,161 -Facilities 43,499 17,332Public ServicesGas 10,491 -Utility ServicesElectricity 89,839 58,875Telecoms 18,357 13,954Water 54,192 42,237Head office 21 532 228,560 132,930 5 Segmental analysis (continued) The Group's profit before tax was derived from its principal activities asfollows: 2007 2006 £'000 £'000 as restatedCommercial ServicesEnergy 1,711 -Facilities 4,028 1,547PublicGas 992 -Utility ServicesElectricity 6,761 4,380Telecoms 3,541 2,424Water 5,221 4,522Head office (5,958) (3,658)EBITA 16,296 9,215Amortisation of intangible fixed assets (3,766) (1,596)Net interest payable (2,444) (797) 10,086 6,822 The Group's FRS 20 charge has been recorded within Head office for the purposesof this segmental analysis. 6 Reconciliation of movement in equity shareholders' funds 2007 2006 £'000 £'000 as restated Profit for the year 7,525 5,256Dividends (1,306) (943)Retained profit for the year 6,219 4,313Unrealised surplus on revaluation of freehold land and buildings - 587FRS 20 Share based payments charge 2,000 575Payment to acquire own shares (1,305) -Proceeds from sale of own shares 1,087 1,102Issue of shares 20,000 15,565Costs of share issue (539) (473)Net addition to equity shareholders' funds 27,462 21,669Opening equity shareholders' funds 39,846 18,177Closing equity shareholders' funds 67,308 39,846 Opening equity shareholders' funds were originally stated as £18,142,000 at 1May 2006 prior to the adoption of FRS 20. 7 Notes to the cash flow statement 7a) Reconciliation of operating profit to net cash inflow 2007 2006 £'000 £'000 as restated Operating profit 12,530 7,619Depreciation of tangible fixed assets 2,994 2,072Amortisation of negative goodwill - (174)Amortisation of intangible fixed assets 3,766 1,770FRS 20 share based payments charge 2,000 575Loss/(profit) on sale of fixed assets 11 (41)Increase/(decrease) in stock 70 (1,367)Increase in debtors (15,943) (5,637)Increase in creditors and provisions 10,907 4,963Net cash inflow from operating activities 16,335 9,780 7b) Analysis of net debt At At 1 May Cash Non cash 29 April 2006 flows movements Acquisitions 2007 £'000 £'000 £'000 £'000 £'000 Bank overdraft (14) (1,936) - - (1,950)Decrease in cash during the year (14) (1,936) - - (1,950)Bank loans due within one year (1,267) 11,916 - (13,473) (2,824)Bank loans due after one year (12,166) (17,034) - - (29,200)Finance leases due within one (59) 126 (316) - (249)yearFinance leases due after one year (71) 44 (11) - (38)Net debt (13,577) (6,884) (327) (13,473) (34,261) 7c) Reconciliation of net cash inflow to movement in net debt 2007 2006 £'000 £'000(Decrease)/increase in cash in the year (1,936) 2,699Net proceeds received from share issue 19,461 14,527Sale of investments - own shares 1,087 1,102Payment to acquire own shares (1,305) -Loan notes redeemed 10,649 -Cash inflow from financing (34,840) (27,311)Change in net debt resulting from cash flows (6,884) (8,983)Loan notes issued (13,473) -New and acquired finance leases (327) (146)Net debt at 1 May (13,577) (4,448)Net debt at 29 April (34,261) (13,577) 8 Availability of annual report The annual report will be sent to all shareholders on 1 August 2007. Copies maybe obtained from the Company Secretary at the Registered Office of the Companyat Wellfield House, Victoria Road, Morley, Leeds, LS27 7PA. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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