30th Mar 2007 07:02
Capcon Holdings PLC30 March 2007 CAPCON HOLDINGS plc Final results for the year ended 30 September 2006 Capcon Holdings plc, the AIM listed investigations and risk management company,announces its audited consolidated results for the year ended 30 September 2006. Main points • Business now stabilised • Loss-making divisions now disposed of • Overhead costs significantly reduced • Group now focused on core strengths • Capcon a smaller, but potentially profitable business • Prospects much improved for the medium term Ken Dulieu, Chairman, commented: "The financial year ended 30 September 2006 has been the most challenging periodin the Group's history and the Board has been required to make several difficultdecisions that were necessary to ensure the survival of the core business. Lossmaking services have been disposed of and overhead costs significantly reducedin response to the down sizing of the business. Additionally, our CommercialInvestigations division has been re-structured following the departure ofcertain senior managers. The outcome of these major changes to the Group hasbeen to create a smaller, but potentially profitable business that is focused oncore strengths." "Having disposed of loss making activities, the Directors believe that, byfocusing on the core business that has a proven record of profitability andcontinuing the program of reducing and controlling central costs, prospects aremuch improved for the Group in the medium term." Enquiries Capcon Holdings plcPaul Jackson, Non executive Director 020 7417 0417 Insinger de BeaufortNandita Sahgal 020 7190 7000 Chairman's statement Operational review The financial year ended 30 September 2006 has been the most challenging periodin the Group's history and the Board has been required to make several difficultdecisions that were necessary to ensure the survival of the core business. Lossmaking services have been disposed of and overhead costs significantly reducedin response to the down sizing of the business. Additionally, our CommercialInvestigations division has been re-structured following the departure ofcertain senior managers. The outcome of these major changes to the Group hasbeen to create a smaller, but potentially profitable business that is focused oncore strengths. This should enable the Directors to build future growth andprofitability on a sound and familiar platform. As reported with the Interim results, the loss making insurance servicesprovided by Capcon Vincent Sherman are now provided by ex employees under alicence from Capcon, so the Group has no future exposure to losses from thisdivision. Furthermore, the activities of Capcon Surveillance Bureau Limitedwhich absorbed the surveillance activities of Capcon Vincent Sherman, has beentransferred to its managing director who has left the Group and also operatesunder a licence from Capcon. This latter decision reflects further action takenby the Board to ensure profitability is restored to the core Group activities inthe short term. Both licencing arrangements require the payment of licence feesto the Group on an ongoing basis. During the year, a considerable amount of time was spent by the Directors in aneffort to recruit a new Chief Executive Officer for the Group. A potentialcandidate for this role eventually emerged who would have and brought with him amanagement and commercial team capable of winning significant new business aswell as attracting substantial funding from his backers. However, negotiationswere terminated after the financial year end, when conditions placed on theappointment and other requirements by the prospective candidate were consideredby the Board to be unacceptable and detrimental to shareholders' interests. Elsewhere, the Board has taken legal advice regarding possible action relatingto the significant loss of business following the resignation of the managingdirector of Capcon Argen and is currently considering its options. Moreencouragingly, however, significant cost savings have been achieved as a resultof the restructuring process and the level of instructions currently beingreceived gives confidence that recovery to more acceptable levels of businessmay be achievable in the medium term. Financial overview Sales for the year to 30 September 2006 were £5.25 million (2005: £6.93 million)representing a 24.2% decrease on last year. In excess of half of the decrease onlast year was attributable to discontinued operations. The Group generated a loss for the year, before interest, amortisation andimpairment of goodwill, of £1.04 million (2005: £0.17 million). The loss beforetax, amortisation and impairment was £1.23 million (2005: £0.30 million). The basic loss per share of 29.1p for the year compares with 21.6p loss pershare last year and, excluding amortisation and impairment of goodwill, the lossper share was 11.9p compared with 2.1p loss per share last year. As a result of the continued underperformance of the Group, and Capcon ArgenLimited in particular, the carrying value of the goodwill arising on theacquisition of Capcon Argen Limited has been reduced to nil value. This hasresulted in an additional charge to the profit and loss account of £1.55 millionin the year above the normal level of amortisation. The Board has maintained a continual review of divisional and central overheadcosts throughout the year to ensure that the changes and, in particular, thedown sizing of the loss making insurance activities, will improve theprofitability of the core business upon which, in the short term, future growthof the Group will be based. There was a net cash outflow from operations of £0.11 million (2005: £0.19million inflow) which was significantly less than the Group loss before tax,amortisation and impairment, due mainly to a reduction in debtors as a result ofdiscontinuing unprofitable operations. Bank borrowings were reduced in the yearby £0.35 million from £1.09 million to £0.74 million, although net debtincreased overall by £0.33 million. This was due, principally, to the issue of£675,000 unsecured loan stock, as reported below, exceeding the reduction inbank borrowings. Maintaining controls and strengthening the cash position during this period ofmajor rationalisation and re-structuring is an ongoing priority. The Directorswill, accordingly, continue the policy of not recommending the payment of adividend, as last year, for the time being. Funding As referred to in the Interim Report, an Extraordinary General Meeting was heldon 29 March 2006 when it was proposed that Convertible Loan Stock of £800,000,carrying an interest rate of 10%, should be created and issued to certainDirectors and shareholders in order to strengthen the Group's financialposition. As the relevant resolutions proposed at the meeting were defeated, inorder to maintain the Group's financial stability, certain Directors and anindependent shareholder subsequently subscribed at par for £675,000 newlyconstituted, non-convertible, secured loan stock carrying interest at a rate of10%. The potential liability in respect of earn out payments due to the vendors ofArgen Limited remains in dispute. There is a significant difference between theamount considered payable by the vendors and the amount that the Directors nowbelieve is due when taking full account of all aspects of Argen's performance.On going legal advice is being taken in order to resolve this dispute but thereremains an uncertainty with regard to the amount of the final settlement. Audit & stocktaking Sales of £2.98 million were £0.32 million, or 9.8%, lower than last year'srevenues mainly due to the loss of business from one client whose acquisitionresulted in our services being absorbed by the acquirer's existing in houseresource. Several new clients have been gained in the second half of thefinancial year and, in particular, following a successful trial period, a majornational pub chain committed to a contract which, alone, is expected to replacemuch of the lost business. During the year, our IT department completed a major update to the software usedby our clients to support their financial and operational controls. This wasfollowed by a major re-launch of this more 'user friendly' product, which alsoinvolved extensive re-training of our own field staff as well as our clients'staff. We have received a considerable amount of positive feed back from ourclients which has endorsed our commitment to invest internal IT resources inareas that will secure existing relationships and provide sales opportunities inthe future by offering a service that is superior to that of our competitors. The development, implementation and training in respect of the new software wasexpensive and had a temporary, but significant, negative impact on direct labourcosts especially in the second half of the financial year during theimplementation and training phase. In addition, the regional management of thisdivision has been re-structured to provide a more responsive service for ourclients, whilst focusing internally on future improved controls over unit labourcosts. These changes and their implied increase in costs temporarily reducedgross margins in the financial year under review by approximately 5%. However,since the financial year end the benefits outlined above have already beenreflected in increased business and gross margins have now been restored tohistoric levels. Commercial investigation services Sales for the year for all investigation activities were £2.27 million comparedwith £3.62 million last year, a 37.3% decrease. However, approximately 24% ofthis decrease can be attributed to the decision, made early in the financialyear, to withdraw from the loss making insurance investigation services providedby Capcon Vincent Sherman. As reported in the Group's Interim Report, theseservices are now provided by a company incorporated by certain ex employees whopay licence fees to Capcon. Gross margins achieved by Capcon Argen and the leisure-based CapconInvestigations division have been improved by comparison with last year. Capcon Surveillance Bureau, which specialises in personal injury investigationsfor the insurance sector, absorbed the surveillance business of Capcon VincentSherman in March 2006. Since then, the division actively marketed its servicesunder the new branding and with a focus on building a reputation for the highestquality service in this niche industry. Towards the end of the financial year,the Board reviewed this operation and concluded that, despite its optimism forthe growth of the business in the long term, it was unlikely to be profitable inthe short term. Consequently, it was decided that the most appropriate plan fordeveloping this growing business would be through a licensing arrangement withthe divisional managing director and the business was transferred to him inSeptember 2006 on terms requiring the payment of licencing fees to Capcon. Commercial investigation services (continued) There have been a number of major changes to the management structure of CapconArgen in the second half of the financial year. The divisional managingdirector, who joined the Company with Argen when it was acquired, resigned andleft the Company in August 2006. Further, his deputy, who was expected to takeover the management of this division, resigned shortly after for family reasons.During this period the negotiations with the potential candidate for the role ofGroup Chief Executive referred to above were taking place and it was the Board'sintention that the new general and project management team, expected to join theGroup with him, would fill the void left within Capcon Argen as a result ofthese departures. Whilst these management changes did not ultimately take place,the opportunity was taken to change the management model for this division and,at the same time, eliminate the disproportionate cost base that was a feature ofthe previous management structure. As reported at the half year, a review of Capcon Argen debtors has prompted anincrease in the bad debt provision and this has been increased further at theend of the financial year to make a total increase in the year of £123,000,creating a small operating loss for the year in this division. However, thesignificant cost reductions and a new initiative to market the services to abroader client base has resulted in an improved start to the new financial year. Current trading and prospects The new financial year has started well for the Audit & Stocktaking divisionwhich is achieving sales at the forecast level. Operating margins have recoveredto the levels achieved consistently prior to 2005/06, which is the result ofimproved direct cost control and full roll out and implementation of the newsoftware referred to earlier. New business gains have been achieved and theBoard is confident that internal forecasts for this division will be achievedthis year. With major structural changes to the Commercial Investigations division havingbeen completed during 2005/06, this division has started the new financial yearwell, albeit at a lower sales activity level. The lower operating cost baseshould enable this division to return to profit in the short term and furtherreductions in overhead costs will be achievable later in the new financial year. Having disposed of loss making activities, the Directors believe that, byfocusing on the core business that has a proven record of profitability andcontinuing the program of reducing and controlling central costs, prospects aremuch improved for the Group in the medium term. K P Dulieu Chairman 30 March 2007 Capcon Holdings plc Consolidated profit and loss account for the year ended 30 September 2006 Total Total Note 2006 2005 £ £TurnoverContinued operations 4,493,804 5,304,888Discontinued operations 757,818 1,625,759 Group turnover 5,251,622 6,930,647Cost of sales (3,261,929) (4,031,136) _______ _______ Gross profit 1,989,693 2,899,511 Administrative expenses (4,773,202) (5,326,940) Operating loss Continued operations (2,221,971) (1,180,099)Discontinued operations (561,538) (1,247,330) Group operating loss (2,783,509) (2,427,429) Share of operating profit in associates - 33,332 Total operating loss before amortisation and (1,039,558) (414,009)impairment of goodwillAmortisation of goodwill and impairment (1,743,951) (1,980,088) Total operating loss (2,783,509) (2,394,097) Profit on sale of associate - 248,012 _______ _______ Loss on ordinary activitiesbefore interest and other income (2,783,509) (2,146,085) Interest receivable 487 301Interest payable and similar charges (191,218) (131,936) _______ _______Loss on ordinary activitiesbefore taxation (2,974,240) (2,277,720) Taxation on loss from ordinary activities 21,472 81,164 _______ _______Loss on ordinary activitiesafter taxation (2,952,768) (2,196,556) _______ _______ Loss per share 2Basic (29.1p) (21.6p)Diluted (29.1p) (21.6p) Capcon Holdings plc Consolidated balance sheet at 30 September 2006 2006 2006 2005 2005 £ £ £ £Fixed assetsIntangible assets 1,425,264 3,169,215Tangible assets 119,053 268,970 _______ _______ 1,544,317 3,438,185Current assetsDebtors 1,065,600 1,696,088Cash at bank and in hand 1,716 13,908 _______ _______ 1,067,316 1,709,996Creditors:Amounts falling due within one year (3,246,010) (3,071,498) _______ _______ Net current liabilities (2,178,694) (1,361,502) _______ _______ Total assets less current liabilities (634,377) 2,076,683 CreditorsAmounts falling due after more (642,402) (83,056)than one year Provision for liabilities and charges - (21,472) _______ _______ (1,276,779) 1,972,155 _______ _______ Capital and reservesCalled up share capital 101,568 101,568Share premium account 2,774,094 2,774,094Merger reserve 950,000 950,000Profit and loss account (5,102,441) (2,149,673)Shares to be issued - 296,166 _______ _______ Shareholders' funds/(deficit) (1,276,779) 1,972,155 _______ _______ Capcon Holdings plc Consolidated cash flow statement for the year ended 30 September 2006 Note 2006 2006 2005 2005 £ £ £ £ Net cash (outflow)/inflow from 3 (107,468) 193,243operating activities Dividend received from associate - 118,223 Returns on investments andservicing of financeInterest received 487 301Interest paid (122,262) (124,787) _______ _______Net cash outflow from returns oninvestment and servicing of finance (121,775) (124,486) TaxationTax paid (3,964) (23,711) Capital expenditure and financialinvestmentPurchase of tangible fixed assets (47,294) (86,022)Sale of tangible fixed assets 18,001 8,860 _______ _______Net cash outflow from capitalexpenditureand financial investment (29,293) (77,162) Acquisitions and disposalsPurchase of subsidiary undertakings - (193,599)Disposal of investment in associate - 328,470 _______ _______Net cash inflow from acquisitionsand disposals - 134,871 Equity dividends paid - - _______ _______ Cash (outflow)/inflow before financing (262,500) 220,978 FinancingIssue of loans 675,000 170,000Costs incurred on issue of loan stock (63,463) -Repayment of loan (206,581) (205,625)Movement in invoice discounting (122,623) 3,062facilitiesCapital element of finance lease (5,461) (14,894)payments _______ _______ Cash inflow/(outflow) from financing 276,872 (47,457) _______ _______ Increase in cash in the year 14,372 173,521 _______ _______ Capcon Holdings plc Notes to the preliminary announcement for the year ended 30 September 2006 1 Going concern Timing of deferred consideration payments The Group acquired Argen Limited ("Argen") in February 2003. In addition toinitial consideration of £1.35million, the purchase agreement provided for amaximum contingent consideration of £1.92million - £1.57million by way of cashand £0.35million by way of shares. This contingent consideration was payabledependent upon the profit of Argen for the years ended 31 December 2003 and 31December 2004 ("the earn-out period") exceeding specified targets. Under the terms of the agreement, the contingent consideration was due to bepaid by April 2005 and £500,000 has been paid to date. The amount of anyfurther liability to pay contingent consideration has been a matter of disputebetween the Company and the vendors for some time. The Directors had beenengaged in discussions and negotiations with the vendors of Argen with a view toreaching a final settlement as to the amount (if any) due but proceedings havenow been issued by the vendors seeking to enforce the Company's obligationsunder the agreement that the vendors allege have not been performed by theCompany. Such proceedings are being vigorously defended by the Company andnotice has been served by the Company upon the vendors rescinding the agreementand claiming the repayment of all amounts paid by the Company to the vendors todate. Whilst settlement of the claims made by the vendors is not in contemplation atthis time, any settlement of the claims made by the vendors that the directorsmay be advised to agree, will not be agreed without first endeavouring to ensurethat the Company has the funds available to meet its obligations as they falldue. The cash flow forecasts prepared by the directors make no allowance for anysuch payment. Additionally, in view of the uncertainty surrounding any amountsthat might be payable and, in turn, the timing of any such payments, thedirectors have not entered into any negotiations to secure the additionalfinancing that would be required to fund any immediate payment requirement. As a consequence of the matter set out above, the Company may be unable to meetits financial obligations as they fall due and may thus be unable to continue asa going concern if the amount of deferred consideration found to be due (if any)is determined to be at the level currently provided in the financial statementsand a demand for the immediate payment of this sum is enforced. The financial statements do not include any adjustments that would result if theCompany was unable to continue as a going concern. 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 (2005 - 10,156,776) andthe earnings, being loss after tax, are £2,952,768 (2005 - £2,196,556). The directors have also presented adjusted earnings per share, as they believethis gives a better indicator of underlying business performance. 2006 2005 £ £Reconciliation of earningsLoss used for calculation of basic and (2,952,768) (2,196,556)diluted EPSAmortisation and impairment of goodwill 1,743,951 1,980,088 _______ _______ Loss used for calculation of adjusted (1,208,817) (216,468)basic and diluted EPS _______ _______ Reconciliation of denominator Shares used for calculation of basic and 10,156,776 10,156,776adjusted basic EPSExercise of options - -Shares to be issued - - _______ _______ Shares used in calculation of diluted 10,156,776 10,156,776and adjusted diluted EPS _______ _______ Loss per shareBasic (29.1p) (21.6p)Diluted (29.1p) (21.6p) Loss per share before amortisation andimpairment of goodwill Basic (11.9p) (2.1p)Diluted (11.9p) (2.1p) _______ _______ 3 Reconciliation of operating profit to net cash inflow from operatingactivities 2006 2005 £ £ Operating loss (2,783,509) (2,427,429)Amortisation and impairment of goodwill 1,743,951 1,980,088Depreciation 124,005 119,038Loss on disposal of fixed assets 55,205 1,161Decrease in debtors 630,488 195,409Increase in creditors 122,392 324,976 _______ _______ Net cash inflow from operating activities (107,468) 193,243 _______ _______ 4 Reconciliation of net cash inflow to movement in net debt 2006 2005 £ £Increase in cash in the year 14,372 173,521 Cash flow from change in debt and lease finance (276,872) 47,457 _______ _______ Change in net debt resulting from cash flows (262,500) 220,978New finance leases - (45,932)Other non-cash movements (22,464) (7,149) _______ _______ Movement in net debt in the year (284,964) 167,897Net debt at start of year (1,165,015) (1,332,912) _______ _______ Net debt at end of year (1,449,979) (1,165,015) _______ _______ 5 The financial information set out in the announcement does notconstitute the company's statutory accounts for the years ended 30 September2006 or 2005, but is derived from those accounts. Statutory accounts for 2005have been delivered to the Registrar of Companies and those for 2006 will bedelivered in advance of the statutory filing deadline. The auditors havereported on those accounts; their reports' were unqualified but did contain anemphasis of matter concerning the uncertainty as to the ability of the group tocontinue as a going concern. The auditors reports did not contain statementsunder s237(2) or (3) Companies Act 1985. 6 Printed copies of the Annual Report and Accounts for the year ended30 September 2006 have been distributed to shareholders together with the Noticeof Annual General Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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