11th Sep 2007 07:01
Interior Services Group PLC11 September 2007 INTERIOR SERVICES GROUP CONTINUES TO GROW WITH PROFITS UP 30% Interior Services Group plc ("ISG"), the construction services specialist, hastoday announced its preliminary results for the year ended 30 June 2007. 2007 2006Profit before tax and goodwill up 30% £10.6m £8.2mProfit before tax up 28% £8.4m £6.5mFee income up by 30% £106.4m £81.7mMargin on fee income excluding exceptionals 10.5% 10.0%Gross value of work performed £833m £746mBasic earnings per share 21.58p 19.33pAdjusted basic earnings per share - before goodwill up 18% 30.11p 25.49pFinal dividend increased by 17% 8.20p 7.00pTotal dividend increased by 15% 11.50p 10.00pNet cash at year end £22.3m £25.8mOrder book at year end £843m £756mIn year order book at record high £696m £604m David Lawther, Chief Executive of ISG, commented, " I am delighted with the group's performance this year. We now have a muchbroader range of businesses, both in the UK and overseas. We have invested in anumber of important acquisitions, including three overseas businesses that willenable us to serve our global clients in a range of locations. We are especiallyexcited about the prospects for our Asian business, where demand is very strong." " We have expanded our retail fit out business in the UK with the acquisition ofCathedral Contracts in April. This excellent quality business has bedded downwell and is performing in line with our expectations. It enjoys a first classreputation with its blue chip client base. We have high hopes for the continuedgrowth of our retail fit out business. " " In our view, the current period of uncertainty in the financial markets willhelp to create a more sustainable development market in London. Undoubtedly,some marginal or highly speculative schemes may not go ahead. This will,however, help to avoid the potential over supply which had been widelyanticipated for 2010-2011. Across the board, activity in our London operationsremains strong and we expect this to continue. " " With a record order book and profits at an all time high, we are wellpositioned to continue our strategy for sustainable long term growth." - ends - Date: 11 September 2007 For further information please contact: Interior Services Group plcDavid Lawther, Chief Executive 020 7392 5307Jonathan Houlton, Group Finance Director 020 7392 4905Web: www.isgplc.com cityPROFILESimon Courtenay 020 7448 3244William Attwell 020 7448 3240 CHAIRMAN'S STATEMENT This last year has been one of significant progress for the group. Profits anddividends are at record levels and we have continued to make progress in ourdiversification strategy by making further acquisitions which broaden ouroperations, both by activity and by region. Against the background of a strong market for our services, adjusted profitbefore tax amounted to £10.6m compared to £8.2m last year, an increase of 30%.This performance, together with our strong cash position, has enabled the Boardto propose an overall increase in the dividend from 10.00p per share to 11.50pper share. As a result of our strategy it is noteworthy that London's contribution to totalfee income fell from 59% in 2006 to 54%. This is notwithstanding the completionof two substantial fit out contracts. With the successful integration of theTotty business, both Regional Construction and Retail Fit out contributed alarger share. Our acquisition policy is designed to reduce further our dependence on London,and within it the office fit out market, by creating a more broadly basedbusiness by region and product and providing greater stability of earnings. Tothis end, in October 2006 we took complete ownership of ISG Asia, a company inwhich we had held 22% for a number of years. ISG Asia principally provides fitout services in the Asia Pacific region. To complement their business, in May2007 ISG Asia acquired Commtech Asia, a technical consultancy firm. We now haveten offices in this strongly growing region, where many of our major clients areexpanding their operations. Building upon the success of our retail fit out business ISG Dean and Bowes,which was acquired in September 2005, we announced in April 2007 the acquisitionof Cathedral Contracts Limited, now rebranded as ISG Cathedral. As well as beinga retail fit out specialist, this acquisition expands our capability to servicehigh street financial institutions, many of whom will already be clients ofoffice fit out. The business has already exceeded our expectation. Since the year end we have announced the potential acquisition of Interior AlphaSA, in which we currently own 20%. A Paris-based business, it provides fit outcapability across Europe. We have also identified a further acquisitionopportunity in the UK, which would further enhance our geographical spread. We have embarked on a number of other initiatives during the year, but perhapsthe most important is our commitment to sustainability. Our strategy encompassesareas where we have direct influence, for example, our office at Aldgate House,which we believe to be the first fully carbon neutral office fit out in London,and our temporary project site establishments. It also addresses ourresponsibilities and capabilities where we have the opportunity to influenceothers, for example in the design and operation of the buildings we deliver.Over 100 managers and client facing staff have been to briefing sessions. As werely on the quality of our supply chain our sustainability strategy also extendsto communicating with them, offering training and encouraging sustainablepractices within their organisations. In addition to our commitment to sustainability is our dedication to health andsafety which this year has resulted in ISG landing RoSPA's prestigiousConstruction Industry Sector Award. This award acknowledges the group'sexceptional health and safety performance over many consecutive years and theeffectiveness of ISG's Health and Safety management system. In all our endeavours we rely heavily on the loyalty and dedication of our staffat all levels. For every prestigious project, such as the refurbishment of theRoyal Festival Hall, there are dozens of less high profile projects whichcomplete successfully to our clients' satisfaction. I thank them not only fortheir commitment to the group, but also for their commitment to providing thebest possible service to our clients, the foundation on which our business isbuilt. I would like to welcome Jamie Stevenson as a Non-Executive Director. As aleading City analyst in our sector for ten years before his retirement in 2003,he brings a wealth of knowledge and experience to the business. Finally, with a record in year order book it is unlikely that the currentuncertainties in financial markets will have a significant impact on the currentyear, and hence I am confident that this financial year will see profits reachanother record. Roy DantzicChairman10 September 2007 CHIEF EXECUTIVE'S STATEMENT I am pleased to announce a further record set of results for the group. For theyear ended 30 June 2007, adjusted profit before tax (as set out in Note 3)increased by 30% to £10.6m (2006 - £8.2m). Adjusted basic earnings per sharegrew by 18% to 30.11p (2006 - 25.49p). Included in these results is theexceptional reorganisation cost of integrating ISG Totty of £0.5m. An interim dividend of 3.30p was paid in April 2007. A final dividend of 8.20pis proposed bringing the total to 11.50p (2006 - 10.00p), an increase of 15%.Subject to its approval at the AGM on the 17 December 2007, the final dividendwill be payable on 19 December to shareholders on the register on 23 November2007. Financial Highlights In line with expectations, volumes increased by 12% to £833m (2006 - £746m). Feeincome in the year increased by 30% to £106.4m (2006 - £81.7m), largely due to acombination of increased volumes in London Fit out and National Retail Fit outand a lower level of construction management contracts in the current year. The strong improvement in performance, with adjusted profit before taxincreasing by 30% to £10.6m (2006 - £8.2m), has been driven by a mix of organicand acquisition growth. Our London operations increased adjusted profit beforetax by 17% to £8.4m (2006 - £7.2m). The adjusted profit before tax of ourRegional Construction businesses declined to £1.5m (2006 - £2.0m) as a result ofthe reorganisation cost and trading losses of ISG Totty in the first half of theyear. Excluding ISG Totty, the other business units increased profits by 12%.The adjusted profit before tax from our National Retail Fit out businessesincreased by 181% to £2.2m (2006 - £0.8m). Included in this result was an elevenweek profit contribution before tax of £0.4m from ISG Cathedral. Overseas wegenerated profits of £1.5m, including the adjusted profit before tax of £0.8mfrom ISG Asia, acquired in October 2006. The profit contribution from our 20%interest in Interior Alpha SA ("IASA"), for its activities in Europe, increasedto £0.7m (2006 - £0.3m). Throughout the year operating cash flow has remained strong with net cash inflowfrom operating activities increasing in the year to £12.8m (2006 - £7.8m). Withthe acquisition payments referred to below and the investment in the fit out ofour new offices in London, this resulted in net cash as at 30 June 2007 of£22.3m (2006 - £25.8m). Strategic Developments The group's key strategic priority has been to reduce its dependency on theLondon commercial office sector via organic and acquisitive growth outsideLondon. In achieving this, the group has moved in three strategic directions:firstly to provide to our global commercial office customers a wider geographicoffering through Europe, the Middle East and Far East, secondly to establish aretail fit out offering and thirdly to widen and deepen our new build andrefurbishment construction services to our UK customers outside of London. Growth in our overseas operations During the last twelve months we have extended our geographic capabilities forour clients by fully integrating into the group our existing Asian associate,and more recently, agreeing terms to acquire 100% ownership of our Europeanoperations. We completed in October 2006 the acquisition of 100% of the trading operationsof ISG Asia Limited, an entity in which we had held a 22% minority shareholderstake since July 2003. This acquisition enables the group to offer to its globalclients a range of services that include project management and construction fitout through a network of offices in ten key Asian cities - Singapore, Hong Kong,Tokyo, Kuala Lumpur, Shanghai, Beijing, Tianjin, Macau, Seoul and Dubai. Thebusiness, branded ISG Asia, employs 420 people. The demand for our services in Asia continues to increase. Activity levels forthe eight months of ownership to 30 June 2007 for ISG Asia are up 81% on thecorresponding prior year period, with turnover for the period of £41m. The groupresults include an eight-month profit contribution before tax of £0.8m. We have continued to increase our exposure to high growth Asian markets. In May2007, ISG Asia acquired Commtech Asia for a consideration of £1.2m, a privatelyowned technical consultancy firm headquartered in Hong Kong, as part of ISGAsia's ongoing strategy to expand the range and depth of services it provides toits customer base. The acquisition was earnings enhancing in the financial year. In July 2007, we announced the signing of Heads of Terms to acquire a 100%interest in IASA, a French company offering commercial office, hotel, leisureand retail fit out services across Western Europe, in which we currently hold20%. For the year ended June 2007, IASA reported an audited profit before tax of£3.5m on turnover of £22.4m. This result included a number of one-off beneficialfinal account settlements. We anticipate completing this acquisition inSeptember 2007, leading to enhanced earnings for the group in this financialyear. With these increased European and Asian commercial office and retail fit outcapabilities, we are seeing an increasing number of cross-selling opportunitieswith our UK businesses, and as a result we have established a central resourceto further develop these opportunities. Growth in our retail operations We initially established a retail fit out offering with the acquisition of ISGDean and Bowes in September 2005. This company has been performing ahead ofexpectations in terms of margin and activity levels, now accounting for 8% ofgroup fee income. Given the nationwide coverage expected by its retailcustomers, the group had been looking for an acquisition to extend geographiccoverage and market sectors. On 13 April 2007, the group acquired CathedralContracts Limited, a privately owned UK retail fit out specialist, operatingfrom offices in Whitstable, Kent, and Chorley, near Manchester, with a strongreputation among both large financial services clients and national retailchains. The business, now branded ISG Cathedral, generated an adjusted operating profitbefore tax of £0.4m for the eleven week period of ownership, on a turnover of£9m. The integration of the two businesses to provide an enhanced service offering toour key retail customers is proceeding well. Reorganisation of Regional Construction The group's Regional Construction business comprises the Manchester andBirmingham offices of ISG InteriorExterior, ISG Totty based in Bradford and ISGJackson based in Ipswich. Our Regional Construction business now accounts for 28% of group fee income. As reported in last year's Report and Accounts, ISG Totty has been undergoing aprocess of reorganisation, refocusing on offering its traditional core businessof new build and refurbishment services to the public and commercial sectors,whilst running down its Accommodation division. The cost of this reorganisation,£0.5m, was incurred in the first half, along with a trading loss of £0.7m whilethe company rebuilt its pipeline. In the second half of the year, the businessmade an operating profit of £0.4m on volumes of £26m. As of July 2007, the group's businesses based in Manchester, Birmingham andBradford have been fully integrated and repositioned, offering new build, fitout and refurbishment services as part of ISG Regions. We anticipate significantorganic growth for this operation in the new financial year. In addition, we have continued to look to expand our regional activities byacquisition. Since the year end we have identified a further opportunity andhave signed Heads of Terms to acquire a company based in Southern England, withdue diligence still ongoing. Trading The following is a summary of the fee income and gross value of work performed("GVWP") and a summary of the forward order book. FEE INCOME GVWP FORWARD ORDER BOOK12 months to 30 June 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mLondon Fit out 35.5 24.7 310 265 208 269 Refurbishment 13.6 13.8 122 159 163 103 New build 8.6 9.6 80 117 155 143Regional Construction 29.9 24.5 210 154 234 199National Retail Fit out 9.8 6.0 56 29 51 42Overseas Asia 7.7 2.1 50 17 32 n/a Europe 1.3 1.0 5 5 n/a n/aTotal 106.4 81.7 833 746 843 756 The strong improvement in trading has continued throughout the year. Fee income,volumes and forward order book increased year on year by 30%, 12% and 12%respectively. In line with the increase in fee income, adjusted profit beforetax increased by 30% to £10.6m (2006 - £8.2m). Group margin on fee income beforeexceptionals increased by 0.5% to 10.5% (2006 - 10.0%). The group continues to focus on being a leader in health and safety excellence.I am pleased to report that the group's Accident Incident Rate has furtherimproved to a ratio of 3.8 from 5.1; this compared to the industry average of9.4. London Our London operations had another strong year. While volumes were lower, feeincome grew by 20% and adjusted profit before tax increased by 17% to £8.4m(2006 - £7.2m), resulting in a margin on fee income of 14.6% (2006 - 15.0%). The continued high level of competition for staff and work in London remains achallenge, but a healthy demand has resulted in a record order book withsignificant projects under negotiation. Fit out London Fit out had a very strong performance. Whilst volumes increased 17% yearon year to £310m (2006 - £265m), fee income rose 44% year on year to £35.5m(2006 - £24.7m), due largely to the mix of a higher number of lower marginconstruction management contracts in the prior year, and an increasing volume of small to medium size projects in the current year. Notable project deliverysuccesses were the new London offices for Allen & Overy and for Norton Rose, thefirst phase of the refit of Shell House on the South Bank, a further majorproject for Nomura in the City and the new London Head Office for IPC Media. Weare in the process of delivering a fast track fit out of the common areas of thenew St. Pancras Eurostar Terminal in time for the first trains to roll-out inNovember of this year. We have continued to invest in new teams to tackle the small to medium size fitout projects which provide strong growth potential and also improve ourresilience to fluctuations in the large scale fit out market. The teams areexceeding our expectations and now account for 16% of London Fit out fee income.We will continue to develop resources in this sector of the market. Looking forward, whilst demand for most levels of fit out remains strong,opportunities for major projects (>£25m) are low due to the current lack oflarge scale new build office spaces in the City. However, with the start of theconstruction of several new towers, we believe this will change within the next18 months. Hence, London Fit out starts the new financial year with a reduced in year order book of £189m (2006 - £203m) and we are budgeting for a lower shortterm profit contribution from this area in the new financial year. Recent newwins have included the fit out of new London offices for Eversheds, Transportfor London and Standard Chartered Bank. Refurbishment London Refurbishment fee income remained constant at £13.6m (2006 - £13.8m),albeit volumes were down 23% at £122m (2006 - £159m). The reduced volumeprimarily related to a large low fee earning data centre in the prior year.Operationally, a major success in the period for the group was the delivery ofthe refurbishment of the Royal Festival Hall, completed on time for itsreopening in May 2007. During the last twelve months we have experienced asignificant increase in demand for our services as the reputation of thisdivision has increased. Consequently, the forward order book has increased by58% to £163m (2006 - £103m), with a number of recent wins including the StrattonStreet scheme for Grafton Advisors, the Savannah House Scheme for Standard Lifeand Fleetway House for Tishman Speyer. New Build As reported in the first half, London New Build volumes and fee income wereimpacted by the cancellation of two projects in the last quarter of the prioryear. Hence volumes and fee income were down 32% and 10% respectively on prioryear. However, activity levels started to recover in the second half of the yeardue to the impact of new wins for clients such as PPG Metro, TAG, Volkswagen andUK & European Investments. This pick up in activity has led to an increase inmargin and fee income in the second half. Operationally, noticeable successes in the period were the delivery of theKnights Aske Academy and the new Lawn Tennis Association training facilities inRoehampton. As at June 2007, New Build starts the current year with an increasedforward order book of £155m (2006 - £143m). Regional Construction Despite the performance of ISG Totty, the Regional Construction business had astrong year with fee income, volumes and forward order book increasing 22%, 36%and 18% respectively. Adjusted profit before tax declined by 25% to £1.5m (2006- £2.0m). Excluding ISG Totty, the other operations increased their profitcontribution by 12% to £2.3m (2006 - £2.1m), with a margin on fee income in theyear of 12.1%. The InteriorExterior division (Manchester and Birmingham offices) has hadanother excellent year. Year on year fee income increased by 21% to £7.4m (2006- £6.1m), with volumes increasing 25% to £64m (2006 - £51m). The currentworkload is diversified across the educational, commercial office and leisuresectors. The division's largest project has been the re-building of theDoncaster Racecourse, and despite the heavy rain the course will reopen in timefor the St. Ledger. Other notable projects delivered in the period were theBelgrade Theatre for Coventry City Council and an office fit out for Halliwellsin Manchester. In the North East, as previously reported, ISG Totty had a year of two parts,with the business being reorganised and refocused in the first half of the year,and with a re-built order book and increasing activity levels resulting in apositive contribution to group results in the second half of the year. Recent wins have included a new hotel complex for the De Vere Group in AshtonMoss and a number of commercial schemes for regional developers. In the South East, ISG Jackson had another successful year with volumes and feeincome at record levels. Recent wins have included Dunstable Fire Station, thePioneer and Bishop Stopford Schools, a shopping mall in Great Yarmouth and aresidential scheme at Mote Park, Maidstone. Operationally, notable project delivery success in the period was a largeresidential scheme for Taylor Woodrow in Norwich. We have started to see someopportunities coming from our eight social housing framework agreements; inaddition we delivered in the year social housing schemes for Hanover and Housing21. Overall, Regions start the year with a significantly improved order book, up 18%at £234m (2006 - £199m). National Retail Fit out Our National Retail Fit out operations performed strongly during the year, withfee income and volumes increasing by 63% and 93% respectively. Adjusted profitbefore tax increased by 181% to £2.2m (2006 - £0.8m), resulting in a margin onfee income of 22.4% (2006 - 13.3%). The business has had several significant new wins for clients who have long-termrequirements for our services, such as Barclays, Marks & Spencer, UCL, Nokia andUniqlo. The latter two projects were developed through relationships with thegroup's Asian activities. During the year the business has continued to delivermultiple projects to RBS/NatWest, HSBC, Lloyds TSB, Monsoon, T-Mobile and Argos. Underlying the quality of this business, we were pleased that ISG Cathedral wasrecently awarded the highly prestigious "Customer Excellence" RBS Supplier ofExcellence Award, beating global blue chip giants Vodafone, Cisco, TNT and UKMail to the prize. With a forward order book increasing by 21% to £51m as at the end of June, thebusiness is set to grow further in this financial year. Asia ISG Asia has had a record year contributing £0.8m to group results (2006 -£0.1m). ISG Asia generated fee income for the eight months of ownership of£7.7m, with volumes up 81% on the corresponding prior year period at £41m (2006- £24m). Our business in China produced a positive contribution in the periodfor the first time, where we are now experiencing significant growth with twelvelive projects at the end of June. Operationally, notable successes in the periodincluded the delivery of Deutsche Bank's new regional centre in Singapore andStandard Chartered's new offices in Shanghai. Recent wins include the fit out of new offices for UBS in Singapore, restaurantareas of the Venetian Casino in Macau and new offices for Morgan Stanley in HongKong. As a result, the forward order book has continued to increase from £23m atthe date of acquisition to £32m at the end of June. We anticipate that thebusiness will continue to grow at a similar rate for the foreseeable future. Europe In Europe, working with our partner Alpha, we had another successful year. Feeincome increased by 30%, while profits for our 20% interest increased from £0.3mto £0.7m. In the current year we established a permanent presence in Milan inaddition to our offices in Paris and Frankfurt. During this period in additionto working in Milan, Paris and Frankfurt, we successfully serviced clients inAmsterdam, Zurich, Copenhagen and Geneva. Prospects In the UK, whilst alert to the potential ramifications of a sustained turbulencein the financial markets, we have seen no sign of any impact on our business,and currently are continuing to see robust demand for our services. This will befurther strengthened in the London market by the completion of the building ofseveral of the new towers in the City and the commencement of the Olympicprogramme. In National Retail Fit out, the market currently continues to beunderpinned by the strength of spend by fashion and financial services clients. Overseas we are now well placed to benefit from the strong economic growth inAsia and in Western Europe where we are also seeing our UK and American clientscontinuing to expand their activities. With this overseas platform we are nowlooking to maximise cross selling opportunities. With the benefit of a strong cash position we are continuing to pursueacquisition opportunities in line with our strategy, which will be earningsenhancing. At the year end, our total order book was £843m (2006 - £756m), with our in yearorder book at a record level of £696m (2006 - £604m). We are therefore budgetingfor continued improvement in profitability in this financial year. David LawtherChief Executive10 September 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNTYear Ended 30 June 2007 Notes 2007 2006 £'000 £'000Gross value of work performed 2 833,492 746,224Less: relating to construction management (54,708) (106,921) share of joint ventures' and (11,587) (10,879) associates' turnover TURNOVER Existing operations 717,414 628,424 Acquired operations 49,783 - Group Turnover - continuing operations 2 767,197 628,424 Cost of Sales Existing operations (681,598) (597,523) Acquired operations (44,253) - Group Cost of Sales - continuing operations (725,851) (597,523) Gross profit 41,346 30,901 Amortisation of goodwill (2,357) (1,616) Other administrative expenses (32,521) (24,519) Administrative expenses (34,878) (26,135) OPERATING PROFIT Existing operations 5,798 4,766 Acquired operations 670 - Operating profit - continuing operations 6,468 4,766 Share of operating profit in joint ventures and associates 932 393 Total operating profit 7,400 5,159 Profit on disposal of associates 106 -Loss on disposal of subsidiaries - (2)Net interest receivable and similar income 4 854 1,381 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2 8,360 6,538 Tax on profit on ordinary activities (2,665) (1,460) PROFIT FOR THE FINANCIAL YEAR 5,695 5,078 Basic earnings per ordinary share 6 21.58p 19.33p Diluted earnings per ordinary share 6 21.32p 19.12p CONSOLIDATED BALANCE SHEET30June 2007 Notes 2007 2006 £'000 £'000FIXED ASSETSIntangible assets 49,265 38,157Tangible fixed assets 5,585 2,322Investment in associates 716 1,492Investment in joint ventureShare of gross assets 925 72Share of gross liabilities (708) (72) 217 - TOTAL FIXED ASSETS 55,783 41,971 CURRENT ASSETSStocks and work-in-progress 2,346 3,346Debtors: amounts falling due within one year 155,708 113,461 Debtors: amounts falling due after more than one year 2,941 5,726 Cash at bank and in hand 9 40,290 38,215 201,285 160,748CREDITORS: amounts falling due within one year (219,200) (174,383) NET CURRENT LIABILITIES (17,915) (13,635) TOTAL ASSETS LESS CURRENT LIABILITIES 37,868 28,336 CREDITORS: amounts falling due after one year (15,771) (8,235) TOTAL NET ASSETS 2 22,097 20,101 CAPITAL AND RESERVESCalled up share capital 277 274Share premium account 12,513 12,096Other reserves (290) 436Own shares (2,630) (1,457)Profit and loss account 12,227 8,752 TOTAL SHAREHOLDERS' FUNDS 22,097 20,101 CONSOLIDATED CASH FLOW STATEMENTYear ended 30 June 2007 Note 2007 2006 £'000 £'000 £'000 £'000 Net cash inflow from operating 12,795 7,802 activitiesAssociates and joint ventures 128 162Returns on investments and 854 1,373 servicing of finance Taxation (1,558) (1,294)Capital expenditure and financial (4,941) (628) investmentAcquisitions and disposals (6,275) (13,050)Dividends paid (2,721) (2,480) Cash outflow before financing (1,718) (8,115) Financing:Issue of shares (net) 420 756Capital element of payments under (57) (14) hire purchase contractsBank loans 11,732 11,614Repayment of long term debt (7,022) (1,455) Net cash inflow from financing 5,073 10,901 Increase in cash in the year 9 3,355 2,786 Reconciliation of net cash flow to movement in net funds 2007 2006 £'000 £'000 £'000 £'000Increase in cash in the year 3,355 2,786Cash inflow from debt financing (4,600) (10,109) Change in net debt resulting from cash (1,245) (7,323) flowsLoans & hire purchase contracts acquired (239) (1,012) with subsidiaryChange in net debt resulting from (1,981) (36) non-cash changes (3,465) (8,371)Net funds brought forward 25,778 34,149 Net funds carried forward 22,313 25,778 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESYear ended 30 June 2007 AUDITED 2007 2006 £'000 £'000Profit for the financial year: Group 4,981 4,795 Joint ventures and associates 714 283 5,695 5,078Currency translation differences arising: 33 15SubsidiariesCurrency translation differences arising: (20) 17Joint ventures and associates Total recognised gains and losses 5,708 5,110 relating to the year 1. ACCOUNTING POLICIES This preliminary announcement, which has been audited, has been prepared on thebasis of the accounting policies set out in the 2007 group accounts. 2. SEGMENTAL INFORMATION a. Analysis by business segment For management purposes, the group organises itself into five businesssegments, and these are the basis on which the group reports its primary segment information. 2007 2006 GVWP Turnover PBT GVWP Turnover PBT £'000 £'000 £'000 £'000 £'000 £'000London 511,804 469,122 8,392 541,378 456,044 7,166Regional construction 209,642 200,782 1,542 153,916 141,236 2,047National retail fit out 56,421 56,421 2,189 29,004 29,004 778Asia 50,599 40,872 769 16,866 - 108Europe 5,026 - 704 5,060 2,140 698Group activities - - (2,349) - - (2,233)Cost of acquisition finance - - (636) - - (408) Adjusted profit before tax 833,492 767,197 10,611 746,224 628,424 8,156 Amortisation of goodwill (2,357) (1,616)Profit on disposal of associates 106 -Loss on disposal of subsidiaries - (2) Profit before tax 8,360 6,538 Balance sheet analysis by business segment. 2007 2006 Assets Liabilities Net Assets Assets Liabilities Net Assets £'000 £'000 £'000 £'000 £'000 £'000London 133,282 (128,574) 4,708 111,676 (108,765) 2,911Regional construction 33,515 (30,387) 3,128 34,772 (32,848) 1,924National retail fit out 15,090 (14,402) 688 7,153 (7,881) (728)Asia 19,883 (16,711) 3,172 1,112 - 1,112Europe 2,415 (538) 1,877 2,010 (412) 1,598Group activities 52,883 (44,359) 8,524 45,996 (32,712) 13,284 257,068 (234,971) 22,097 202,719 (182,618) 20,101 2. SEGMENTAL INFORMATION (continued) b. Analysis by geographical market Gross value of work performed, turnover and profit before taxation may beanalysed as follows: 2007 2006 GVWP Turnover PBT GVWP Turnover PBT £'000 £'000 £'000 £'000 £'000 £'000United Kingdom 777,867 726,325 9,138 724,298 626,284 7,350Asia 50,599 40,872 769 16,866 - 108Europe 5,026 - 704 5,060 2,140 698 833,492 767,197 10,611 746,224 628,424 8,156 Amortisation of goodwill (2,357) (1,616)Profit on disposal of associates 106 - Loss on disposal of subsidiaries - (2) 8,360 6,538 Balance sheet analysis by geographical market. 2007 2006 Assets Liabilities Net Assets Assets Liabilities Net Assets £'000 £'000 £'000 £'000 £'000 £'000United Kingdom 234,770 (217,722) 17,048 199,597 (182,206) 17,391Asia 19,883 (16,711) 3,172 1,112 - 1,112Europe 2,415 (538) 1,877 2,010 (412) 1,598 257,068 (234,971) 22,097 202,719 (182,618) 20,101 2007 2006 £'000 £'000Fee income, which is considered to be a key indicator, is derived as follows: Turnover 767,197 628,424Trade contractor costs recharged (662,354) (548,254) 104,843 80,170Interest receivable 1,509 1,512 Total fee income 106,352 81,682 Fee income represents fees received directly from clients for constructionservices provided by the company's employees. In accordance with industry practice, gross value of work performed includes£54,708,000 (2006 - £106,921,000) in respect of the construction costs ofprojects on which the company acts as construction manager. These constructioncosts are billed directly to the client and are not invoiced via the group. 3. RECONCILIATION OF ADJUSTED OPERATING PROFIT AND ADJUSTED PROFIT BEFORE TAX Adjusted operating profit and adjusted profit before tax are derived as follows: 2007 2006 £'000 £'000Group operating profit 7,400 5,159Amortisation of goodwill 2,357 1,616 Adjusted operating profit 9,757 6,775 Profit before tax 8,360 6,538Amortisation of goodwill 2,357 1,616Profit on disposal of associates (106) -Loss on disposal of subsidiaries - 2 Adjusted profit before tax 10,611 8,156 The group uses adjusted operating profit and adjusted profit before tax as ameasure to facilitate comparisons between years. 4. NET INTEREST RECEIVABLE AND SIMILAR INCOME 2007 2006 £'000 £'000Group: Bank interest receivable 1,724 1,606 Bank loans and overdrafts (848) (478) Finance charges payable on hire purchase contracts (5) (2) Discount on deferred consideration 90 185 Capitalised interest (103) (36) Other interest (payable) / receivable (28) 98Joint ventures and associates: Group share of interest receivable 24 8 854 1,381 5. DIVIDENDS PAID AND PROPOSED 2007 2006 £'000 £'000 2007 Interim paid - 3.30p per ordinary share (2006 -3.00p) 874 820 2006 Final paid - 7.00p per ordinary share (2005 - 6.25p) 1,847 1,660 Ordinary dividends on equity shares 2,721 2,480 2007 Proposed final dividend per ordinary share - 8.20p 2,201 1,920 (2006 - 7.00p) In accordance with FRS21, dividends are accounted for in the period in whichthey are paid and approved by the shareholders. Accordingly the final dividendproposed in respect of the year ended 30 June 2007 has not been included as aliability as at 30 June 2007. 6. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares duringthe year, determined in accordance with the provisions of FRS 22 Earnings pershare. Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of alldilutive potential ordinary shares. The group has only one category of dilutivepotential ordinary shares, being share options granted where the exercise priceis less than the average price of the company's ordinary shares during the year. Adjusted basic earnings per share is calculated by dividing the earningsattributed to ordinary shareholders, pre-amortisation of goodwill and beforeprofit/loss on disposal of associates and subsidiaries, by the weighted averagenumber of ordinary shares during the year. We use adjusted earnings per share asa measure to facilitate comparisons between years. 2007 2006 £'000 £'000Profit for the financial year 5,695 5,078 Basic and diluted earnings attributable to 5,695 5,078 ordinary shareholdersAmortisation of goodwill 2,357 1,616Profit on disposal of associates (106) -Loss on disposal of subsidiaries - 2 Adjusted earnings attributable to ordinary 7,946 6,696shareholders Number NumberWeighted average number of ordinary shares 26,386,424 26,271,160Dilutive share options 321,090 285,170 Diluted weighted average number of ordinary shares 26,707,514 26,556,330 Basic earnings per ordinary share 21.58p 19.33p Diluted earnings per ordinary share 21.32p 19.12p Adjusted basic earnings per ordinary share 30.11p 25.49p Adjusted diluted earnings per ordinary share 29.75p 25.21p 7. BORROWINGS Group Group Company Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000Loan notes 1,928 - - -Bank overdrafts - 1,280 - -Bank loans 15,819 11,109 15,819 8,042Obligations under hire purchase 230 48 - - contracts 17,977 12,437 15,819 8,042 Analysis of repaymentsLoan notes within one year on demand 964 - - - between two and five years 964 - - - Bank loans and overdrafts within one year on demand 1,940 4,993 1,940 1,940 between one and two years 3,940 1,940 3,940 1,940 between two and five years 8,425 5,659 8,425 4,365 more than five years 2,000 - 2,000 - Obligations under hire purchase contracts within one year on demand 133 19 - - between one and two years 87 15 - - between two and five years 10 14 - - Less: Unamortised finance costs of debt within one year on demand (104) (48) (104) (48) between one and two years (104) (48) (104) (48) between two and five years (227) (107) (227) (107) more than five years (51) - (51) - 17,977 12,437 15,819 8,042Less: amounts due for settlement within 12 monthsLoan notes (964) - - -Bank loans and overdrafts (1,836) (4,945) (1,836) (1,892)Obligations under hire purchase contracts (133) (19) - - Amounts due for settlement after 12 months 15,044 7,473 13,983 6,150 8. RECONCILIATION OF MOVEMENTS IN consolidated SHAREHOLDERS' FUNDS 2007 2006 £'000 £'000Profit for the financial year 5,695 5,078Dividends paid (Note 5) (2,721) (2,480)Exchange differences (277) 32Movement in own shares (1,173) 112Proceeds from share issue 420 2,534Credit to equity for share based payments 52 66 Net addition to shareholders' funds 1,996 5,342Opening shareholders' funds 20,101 14,759 Closing shareholders' funds 22,097 20,101 9. ANALYSIS OF NET FUNDS Acquisition excluding Other cash and non-cash 2006 Cash flow overdrafts changes 2007 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 38,215 2,075 - - 40,290Overdraft (1,280) 1,280 - - - 36,935 3,355 - - 40,290 Debt due after one year (7,444) (6,534) - (5) (13,983)Debt due within one year (3,665) 1,877 - (48) (1,836)Loan notes - - - (1,928) (1,928)Hire purchase contracts (48) 57 (239) - (230) 25,778 (1,245) (239) (1,981) 22,313 10. ACQUISITION OF SUBSIDIARIES Cathedral Commtech ISG Asia 1 Contracts2 Asia3 Total Book Fair value Fair Book & fair Book & fair Book Fair value adjustment value value value value value £'000 £'000 £'000 £'000 £'000 £'000 £'000 Tangible fixed 227 - 227 555 12 794 794assetsStocks 502 (51) 451 2,395 - 2,897 2,846Debtors and other 13,410 (258) 13,152 5,440 524 19,374 19,116receivablesCash at bank and 3,250 - 3,250 2,672 438 6,360 6,360in handCreditors and (15,099) (168) (15,267) (8,711) (304) (24,114) (24,282)other payables Net assets 2,290 (477) 1,813 2,351 670 5,311 4,834acquired Goodwill 2,983 9,906 576 13,465 Total 4,796 12,257 1,246 18,299consideration Satisfied by:Cash 4,626 9,908 882 15,416Deferred - 1,900 337 2,237considerationOther 170 449 27 646 4,796 12,257 1,246 18,299 1 On 30 October 2006 the group acquired the operating businesses of ISG AsiaLimited, in which it formerly had a 22.2% shareholding. The transaction waseffected through the acquisition of 100% of the issued capital of ISG AsiaLimited's subsidiary ISA Asia Investment (Hong Kong) Limited for a fair valuecash consideration before expenses of £4,626,000, of which £1,227,000 was fundedthrough the proceeds of the group's disposal of its 22.2% shareholding in ISGAsia Investment (HK) Limited. This business combination has been accounted foras an acquisition. The aggregate net liabilities acquired and their provisionalfair values, based on the directors' initial assessment of net realisable value,are detailed above. ISG Asia Investment (HK) Limited, including Commtech Asia Limited3, contributed£40,872,000 turnover and £755,000 to the group's profit before tax for theperiod between the date of acquisition and the balance sheet date. If the acquisition of ISG Asia Investment (HK) Limited had been completed on thefirst day of the financial year, turnover for the period would have been£62,903,000 and profit attributable to the equity holders of the parent wouldhave been £1,051,000. In the period from acquisition ISG Asia Investment (HK) Limited had an operatingcash inflow of £151,000, return on investments of £88,000, tax paid of £109,000,capital expenditure of £62,000 and payment under hire purchase contracts of£12,000. 10. Acquisition of subsidiaries (continued) 2 On 13 April 2007 the group acquired 100% of the issued share capital ofCathedral Contracts Limited, a leading UK based retail fit-out business, for afair value consideration before expenses of £11,808,000 satisfied by cash of£9,908,000 and deferred loan notes of £1,900,000. This business combination hasbeen accounted for as an acquisition. The aggregate net liabilities acquired andtheir provisional fair values, based on the directors' initial assessment of netrealisable value, are detailed above. Cathedral Contracts Limited contributed £8,911,000 turnover and £419,000 to thegroup's profit before tax for the period between the date of acquisition and thebalance sheet date. If the acquisition of Cathedral Contracts Limited had been completed on thefirst day of the financial year, revenue for the period would have been£39,103,000 and profit attributable to the equity holders of the parent wouldhave been £126,000. Cathedral Contracts Limited had a profit after tax of £208,000 in the year ended30 June 2006. In the period from acquisition Cathedral Contracts Limited had an operating cashoutflow of £686,000, tax paid of £366,000, payment under hire purchase contractsof £25,000 and financial investments of £173,000. 3 On 30 May 2007 the group acquired 100% of the issued share capital of CommtechAsia Limited, a privately owned technical consultancy firm with headquarters inHong Kong, for a fair value consideration before expenses of £1,219,000(HK$17,000,000) satisfied by cash of £882,000 (HK$13,600,000) and a deferredconsideration of £337,000 (HK$5,161,000). This business combination has beenaccounted for as an acquisition. The aggregate net liabilities acquired andtheir provisional fair values, based on the directors' initial assessment of netrealisable value, are detailed above. Commtech Asia Limited contributed £126,000 turnover and £52,000 to the group'sprofit before tax for the period between the date of acquisition and the balancesheet date. In the period from acquisition Commtech Asia Limited had an operating cashinflow of £80,000. 11. STATUS OF FINANCIAL INFORMATION IN THIS ANNOUNCEMENT The financial information set out in the announcement does not constitute thecompany's statutory accounts for the years ended 30 June 2007 or 2006 but isderived from those accounts. Statutory accounts for the year ended 30 June 2006have been delivered to the Registrar of Companies and those for year ended 30June 2007 will be delivered following the company's Annual General Meeting. Theauditors reported on those accounts. Their reports were unqualified and did notcontain a statement under section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ISG.L