28th Mar 2008 07:00
Capcon Holdings PLC28 March 2008 CAPCON HOLDINGS plc Final results for the year ended 30 September 2007 ________________________________________________________________________________ Capcon Holdings plc, the AIM listed investigations and risk management company,announces its audited consolidated results for the year ended 30 September 2007. Main points • Operating profit before exceptional items, amortisation and impairment restored • Overhead costs continue to be reduced • Focus on core business creating stronger base • Prospects continue to improve Ken Dulieu, Chairman, commented: "The financial year ended 30 September 2007 has been a year of transition andre-building for the Group. Having disposed of loss making activities in theprevious financial year, the directors have focused on the core business ofAudit & Stocktaking and Commercial Investigations to restore the Group toprofitability" Enquiries Capcon Holdings plc Paul Jackson, Non executive Director 020 7417 0417 Shore Capital and Corporate Limited Alex Borelli 020 7408 4090 Capcon Holdings plc Chairman's statement ________________________________________________________________________________ Operational review The financial year ended 30 September 2007 has been a year of transition andre-building for the Group. Having disposed of loss making activities in theprevious financial year, the directors have focused on the core business ofAudit & Stocktaking and Commercial Investigations to restore the Group toprofitability. We have successfully improved margin levels and reduced overheadcosts, which has resulted in a turn-round from a significant operating loss lastfinancial year to an operating profit before amortisation, impairment andexceptional items in the year ended 30 September 2007. The directors have apolicy of continual review of central overhead costs which is expected to leadto even lower cost levels being incurred in the current financial year. The legal proceedings involving the vendors of Argen Limited are continuing anda date for trial has been set for July 2008. As stated in the Interim Report,there is a substantial difference between the Company's position and the Argenvendors' demands which is the reason for the directors continuing this action.Furthermore, notwithstanding the outcome of the trial, the directors believethat no further consideration is payable in any event based on the adjustedaccounts which have been prepared in accordance with the acquisition agreementto determine whether any potential further earn out payments arise. Thefinancial statements of the Company have been amended accordingly although thedirectors wish to draw attention to the contingent liability described in thenotes to the accounts. During the financial year, the directors have considered various possibleoptions for developing and restructuring the Group. However, any strategy fordevelopment of the Group must take account of the uncertainty surrounding thelegal proceedings involving the vendors of Argen. Therefore, the directorsbelieve it is unlikely that any significant change to the Group's direction willbe achievable until the proceedings are concluded or the issues are otherwiseresolved. Financial overview Sales for the year to 30 September 2007 were £4.06 million (2006: £5.25 million)representing a 22.8% decrease on last year. £0.76 million, or 14.4%, of thedecrease in turnover was attributable to discontinued operations. The overallgross margin improved from 37.9% to 38.2% notwithstanding an increasingproportion of business comprising the lower margin Audit & Stocktaking servicesdue to improved efficiencies leading to lower costs in that division. The Group achieved an operating profit of £0.7 million (2006: £2.78 millionloss) for the year after exceptional items. The Group generated a profit for theyear, before exceptional items, interest, amortisation and impairment ofgoodwill, of £0.14 million (2006: £1.04 million loss). A profit was generatedbefore tax, amortisation and impairment of £0.59 million (2006: £1.23 millionloss) after crediting exceptional items of £0.67 million and charging interestof £0.22 million. No further impairment of goodwill was considered necessarythis year having disposed of, or discontinued, loss making activities, enablingmanagement to focus on restoring sustainable profit to the Group's corebusiness. The basic profit per share of 4.8p for the year compares with a 29.1p loss pershare for the year ended 30 September 2006 and, excluding exceptional items,amortisation and impairment of goodwill, the loss per share was 0.8p comparedwith a 11.9p loss per share in 2006. The Board has continued to reduce divisional and central overhead costs whereverpossible and these costs are now running at a level that is appropriate for thedown-sized Group. Having restored the Group to an operating profit beforeexceptional items and amortisation, we now have a stronger base upon which toplan for growth. There was a net cash outflow from operations of £0.08 million (2006: £0.11million outflow) which was mainly the result of a reduced level of creditorswhich exceeded the amount by which debtors were reduced. Bank borrowings wereincreased in the year by £0.21 million from £0.74 million to £0.95 million,which was the main reason for the overall increase in net debt by £0.25 million. The present cash position determines that a continuing strict control over alloutgoings must be maintained in order to build on the major progress made in thepast year in restoring profitability and strengthening the balance sheet. Thedirectors will, accordingly, continue the policy of not recommending the paymentof a dividend, as last year, for the time being. Funding As reported in the Interim Report, legal proceedings with the vendors of ArgenLimited are continuing, and there has been no resolution to the issues sincethat report. However, developments in recent months have given the directorsreason to believe it is probable that no further consideration will be payable,irrespective of the conclusion of the legal process. In view of this thedirectors have concluded that the provision for deferred consideration of £0.82mis no longer required and this has been released to profit and loss account inthe year. However, in view of the continuing uncertainty surrounding the finaloutcome, the directors have detailed the associated contingent liability in thenotes to the accounts. Audit & stocktaking Sales of £2.99 million were broadly similar to last year's revenues, althoughthere has been an increase in new clients. The recent trend continues wherebyexisting clients are reducing the frequency of stock takes across their estatesoverall but are focusing on areas of greatest loss and potential risk. Thisresults in lower sales value but improved profitability for the division withvolume being replaced with higher added value services which yield improvedgross margins. The investment reported last year in development of new 'user friendly' ITsoftware has successfully secured existing client relationships and created theopportunity to offer the higher added value services referred to above toexisting and new clients. In addition, having incurred the cost of development,staff training and implementation of the software last year, we are nowbenefiting from the recovery of gross margins to levels enjoyed in previousyears. The positive response from our clients continues to provide confidencethat we are offering a service that is superior to our competitors. Re-structuring of the management of this division has again been undertaken inresponse to the changes that are a feature in the sector within which weoperate. Consolidation and changes in ownership of our clients can bring newchallenges and a requirement to adopt a flexible approach to the provision ofour services. The resultant changes in management in the year under review haveled to further cost reductions and improved efficiency in the field with aconsequent increase in our gross margins which, overall, have improved by some7%. Commercial investigation services Sales for the year for all investigation activities were £1.07 million comparedwith £2.27 million last year, a 52.9% decrease. However, approximately 34% ofthis decrease can be attributed to the decision, made last financial year, towithdraw from the loss making insurance investigation services. As reported inthe Group's Interim Report for the six months ended 31 March 2007, theseservices are now provided by certain ex employees who pay licence fees toCapcon. As previously reported, sales levels in Capcon Argen have been severely reducedas a result of the resignation of the managing director and other managementchanges last year, which had a disruptive effect on the business. However,renewed marketing initiatives have resulted in new clients being secured inCapcon Argen and, in particular, there has been increased demand for servicesprovided by our team that specialises in investigations in the leisure sector.As a consequence, sales for the leisure based services have increased by 16%compared with last year and Capcon Argen has made some progress in replacinglost business. Having disposed of the loss-making activities and considerably reduced costs byre-structuring the division following the resignation of Argen's ManagingDirector, operating margins have been recovering. Furthermore, during the yearthe Capcon Argen business was re-located to alternative, more suitable, officesin the same area of London which has further reduced overhead costs. As aconsequence of the several initiatives taken, overall the division generated anoperating profit representing a major turnaround from the significant loss madelast financial year. The leisure sector based investigation services showed agood increase in both sales revenue and operating profit compared with lastfinancial year. Group costs Over the past three years during this period of rationalisation andrestructuring, the Board has continually reviewed the level of central overheadcosts and taken action wherever possible to reduce them to a level that isconsistent for a smaller Group. This financial year has seen a continuation ofthis trend with accounting and administration costs being further reduced anddirectors remuneration reduced still further to a minimal level totalling£69,000. A rationalisation of the Group legal structure is currently beingundertaken which should reduce future audit and professional fees. Legal fees of £155,535, associated with the proceedings related to the Argenvendors' pursuit of further earn out payments, have been treated as exceptionalitems. Current trading and prospects Audit & Stocktaking has started the new financial year well with sales levels inline with internal forecasts and operating margins slightly ahead of the sameperiod last year. Growth prospects for this division are expected to remainlimited but the predictability of income and cash flow continue to provide astrong base upon which to build other services in the future which, in turn,will create greater opportunities for growth than the traditional services. The Commercial Investigations division has had a slow start to the financialyear with sales less than forecast although margins have been somewhat betterthan those achieved in the same period last year. This project based business istraditionally difficult to predict and sustained marketing activity is necessaryto generate new clients and new business in the longer term. Central administrative costs are running at a lower level than the same periodlast year and are forecast to remain at this lower level. The ongoing legal proceedings with the Argen vendors have limited thedevelopment plans for the Group for the time being until the issues areresolved. However, with Group expansion temporarily stalled, the directors havetaken this opportunity to focus on the traditional core business, restoringdivisional profitability and cash flow to strengthen the Group for the future. K P DulieuChairman 28 March 2008 Consolidated profit and loss account for the year ended 30 September 2007 Note 2007 2006 £ £TurnoverContinuing operations 4,055,593 4,493,804Discontinued operations - 757,818 Group turnover 4,055,593 5,251,622Cost of sales (2,505,749) (3,261,929) _______ _______ Gross profit 1,549,844 1,989,693 Administrative expenses (845,954) (4,773,202) Operating profit/(loss) before exceptional items,amortisation and impairment of goodwill 140,582 (1,039,558) Exceptional items 665,116 -Amortisation and impairment of goodwill (101,808) (1,743,951) Group operating profit/(loss) 703,890 (2,783,509) Interest receivable 41 487Interest payable and similar charges (218,810) (191,218) _______ _______ Profit/(loss) on ordinary activities before taxation 485,121 (2,974,240) Taxation on profit from ordinary activities - 21,472 _______ _______ Profit/(loss) on ordinary activitiesafter taxation 485,121 (2,952,768) _______ _______ Profit/(loss) per share 3 Basic 4.8p (29.1p)Diluted 4.8p (29.1p) Consolidated balance sheet at 30 September 2007 Note 2007 2007 2006 2006 £ £ £ £ Fixed assets Intangible assets 1,323,456 1,425,264 Tangible assets 65,819 119,053 _______ _______ 1,389,275 1,544,317 Current assets Debtors 900,585 1,065,600 Cash at bank and in hand 35 1,716 _______ _______ 900,620 1,067,316Creditors:Amounts falling due within one year (2,415,236) (3,246,010) _______ _______ Net current liabilities (1,514,616) (2,178,694) _______ _______ Total assets less current liabilities (125,341) (634,377) CreditorsAmounts falling due after more than one year (666,317) (642,402) _______ _______ (791,658) (1,276,779) _______ _______ Capital and reserves Called up share capital 101,568 101,568 Share premium account 2,774,094 2,774,094 Merger reserve 950,000 950,000 Profit and loss account (4,617,320) (5,102,441) _______ _______ Shareholders' deficit (791,658) (1,276,779) _______ _______ Consolidated cash flow statement for the year ended 30 September 2007 Note 2007 2007 2006 2006 £ £ £ £ Net cash outflow from operating 4 (82,550) (107,468)activities Returns on investments andservicing of finance Interest received 41 487 Interest paid (117,053) (122,262) _______ _______Net cash outflow from returns oninvestment and servicing of finance (117,012) (121,775) Taxation Tax paid - (3,964) Capital expenditure and financialinvestment Purchase of tangible fixed assets (12,888) (47,294) Sale of tangible fixed assets - 18,001 _______ _______Net cash outflow from capitalexpenditure and financial investment (12,888) (29,293) _______ _______ Cash outflow before financing (212,450) (262,500) FinancingIssue of loans - 675,000Costs incurred on issue of loan stock - (63,463)Repayment of loan (57,335) (206,581)Movement in invoice discounting 43,314 (122,623)facilitiesCapital element of finance lease (16,265) (5,461)payments _______ _______ Cash (outflow)/inflow from financing (30,286) 276,872 _______ _______ (Decrease)/increase in cash in the year (242,736) 14,372 _______ _______ Notes to the preliminary announcement for the year ended 30 September 2007 1 Going concern The financial statements have been prepared on the going concern basis as, inthe opinion of the directors, at the time of approving the financial statements,there is a reasonable expectation that the group will continue in operationalexistence for the foreseeable future. In forming this opinion, the directorshave taken account of the following facts and assumptions: • The consolidated balance sheet at 30 September 2007 shows that the group had net current liabilities of £1,514,616 (2006: £2,178,694); • The group currently has available no committed undrawn borrowing facilities. The group finances part of its working capital needs through a group overdraft facility which is due for renewal in July 2008. The Group's bankers have indicated that there are currently no reasons to believe that this facility will not be renewed on similar terms; • Legal proceedings with the vendors of Argen Limited are continuing as there has been no resolution to the dispute. Although a possibility of further consideration becoming payable exists, developments in recent months have given the directors reason to believe that it is probable that no further consideration will be payable, irrespective of the conclusion of the legal process; • Margin levels have improved and, combined with reduced overhead costs, have resulted in a turnaround from a significant operating loss last financial year to an operating profit before exceptional items and amortisation of goodwill; • The directors continually review the level of central overhead costs and have taken more action, with further reduction in accounting and administration costs secured since the year end; • The repayment date for the 10% Redeemable Guaranteed Loan Stock has been extended to 1 April 2010; and • The directors current plans include an additional share placing to supplement cash flow; In view of the matters noted above, the directors believe that it remainsappropriate to prepare the financial statements on a going concern basis.However, these conditions indicate the existence of material uncertainties whichmay cast significant doubt over the group's ability to continue as a goingconcern and therefore it may be unable to realise its assets and discharge itsliabilities in the normal course of business. The financial statements do notinclude any adjustments that would result from the going concern basis ofpreparation being inappropriate. 2 Earnings per share Earnings per ordinary share have been calculated using the weighted averagenumber of shares in issue during the relevant financial periods. The weightedaverage number of equity shares in issue is 10,156,776 (2006 - 10,156,776) andthe earnings, being profit after tax, are £485,121 (2006 - Loss £2,952,768). The directors have also presented adjusted earnings per share, as they believethis gives a better indicator of underlying business performance. 2007 2006 £ £ Reconciliation of earningsProfit/(loss) used for calculation of basic and diluted EPS 485,121 (2,952,768)Exceptional items (665,116) -Amortisation and impairment of goodwill 101,808 1,743,951 _______ _______ Loss used for calculation of adjusted basic and diluted EPS (78,187) (1,208,817) _______ _______ Reconciliation of denominatorShares used for calculation of basic and adjusted basic EPS 10,156,776 10,156,776Exercise of options - -Shares to be issued - - _______ _______ Shares used in calculation of diluted and adjusted diluted EPS 10,156,776 10,156,776 _______ _______ Profit/(loss) per share Basic 4.8p (29.1p)Diluted 4.8p (29.1p) Loss per share before exceptional items, amortisation and impairment ofgoodwill Basic (0.8p) (11.9p)Diluted (0.8p) (11.9p) _______ _______ 3 Reconciliation of operating profit to net cash inflow from operating activities 2007 2006 £ £ Operating profit/(loss) 703,890 (2,783,509)Amortisation and impairment of goodwill 101,808 1,743,951Depreciation 66,122 124,005Loss on disposal of fixed assets - 55,205Decrease in debtors 165,015 630,488(Decrease)/increase in creditors (1,119,385) 122,392 _______ _______ Net cash outflow from operating activities (82,550) (107,468) _______ _______ 4 Reconciliation of net cash inflow to movement in net debt 2007 2006 £ £ (Decrease)/increase in cash in the year (242,736) 14,372 Cash flow from change in debt and lease finance 30,286 (276,872) _______ _______ Change in net debt resulting from cash flows (212,450) (262,500)Other non-cash movements (41,757) (22,464) _______ _______ Movement in net debt in the year (254,207) (284,964)Net debt at start of year (1,449,979) (1,165,015) _______ _______ Net debt at end of year (note 28) (1,704,186) (1,449,979) _______ _______ 5 The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 30 September 2007 or 2006, but is derived from those accounts. Statutory accounts for 2006 have been delivered to the Registrar of Companies and those for 2007 will be delivered in advance of the statutory filing deadline. The auditors have reported on those accounts; their reports' were unqualified but did contain an emphasis of matter concerning the uncertainty as to the ability of the group to continue as a going concern. The auditors reports did not contain statements under s237(2) or (3) Companies Act 1985. 6 Printed copies of the Annual Report and Accounts for the year ended 30 September 2007 are being distributed to shareholders and the AIM team together with the Notice of Annual General Meeting and will also be available on the company's website capconplc.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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