13th Sep 2005 07:02
Interior Services Group PLC13 September 2005 INTERIOR SERVICES GROUP REPORTS STRONG SECOND HALF AND IMPROVING PROSPECTS Interior Services Group plc ("ISG"), the construction services specialist, hastoday announced its preliminary results for the year ended 30 June 2005. 2005 2004 • Profit before tax £4.25m £2.3m • Second half profits up 158% to £3.1m • Profit before tax - before goodwill and £4.3m £5.2m exceptional costs • Fee income * £40.1m £41.3m • Gross value of work performed * £385m £423m • Earnings per share 10.99p 1.86p • Adjusted earnings per share - before goodwill and exceptional costs 11.18p 13.48p • Total dividend increased by 9% 9.0p 8.25p • Net cash at year end £34.1m £31.3m • Order book at year end at record high £630m £407m * ongoing operations (note 3) David King, Chief Executive of ISG, commented, " We have made excellent progress in the second half and the business is growingon all fronts. As we have predicted, there has been a significant improvement inour core business in the second half as many new large projects have started onsite, and as the demand for larger fit-out projects in London has improved. " The Group's total order book continues to grow. Our 05/06 in year order book has increased to over £500m and therefore we can expect a substantial increase in activity levels this year. With this volume of work already booked and with acontinuing strong demand in both the public and private sectors, the outlook forthe Group is very encouraging." - ends -Date: 13 September 2005For further information please contact: Interior Services Group PLCDavid King, Chief Executive 020 7392 5251David Lawther, Group Financial Director 020 7392 5307Web: www.isgplc.com City ProfileSimon Courtenay 020 7448 3244 Chairman's Statement I am pleased to report that these results mark the end of the recent downturn inour performance. After a challenging start to the year, trading improvedstrongly in the second half and the outlook for the future is now moreencouraging. After making £1.2m profit (before tax and goodwill) for the first half of theyear, we generated £3.1m profit (before tax and goodwill) for the second sixmonths. This was a remarkable achievement helped by the commencement, on site,of a number of major contracts. This improvement, together with the increase inour cash balances has enabled us to increase our annual dividend by 9% to 9p pershare, notwithstanding an overall reduction in profits (before tax, goodwill andexceptional costs) of approximately £0.9m compared to last year. During the year the Board have been focused on ways to counterbalance theGroup's strength in, and reliance on, the London Fit Out and Commercial Officemarkets. The volatility of these markets has been the major cause for the markeddrop in profitability over the last two years. To that end, earlier in the year we reorganised our regional offices which arenow centred in Manchester. We recruited two senior managers with extensiveknowledge of the region and have expanded our service offering there. Inaddition to these plans for organic growth we have continued to search forcomplementary acquisition opportunities in the regions. That search hasidentified a suitable opportunity and we are now in detailed discussions whichmay lead to a positive outcome shortly. Our principal subsidiary ISG InteriorExterior has not been represented on ourBoard since July 2004, and I am today pleased to announce the appointment ofSteve Trotter, ISG InteriorExterior's Managing Director, as a Director of theGroup. It is a remarkable tribute to the culture and resilience of the Company and thequality and loyalty of our staff that, notwithstanding the last two difficulttrading years, we were again voted as one of the Sunday Times 100 Best Companiesto Work for. Once again I thank the staff for their dedication and commitment tothe company's values. At the year end, our total order book was up over £200m to £630m. Accordingly westart the year in an optimistic frame of mind, and expect this year's results tosee the Company returning to our upward trend of profitability. Roy DantzicChairman13 September 2005 CEO's Statement Introduction The anticipated strong improvement in second half trading, especially in LondonFit Out, has enabled much of the ground lost in the first half to be made up.Increased volumes and margins enjoyed in the second half clearly mark thecompany's return to growth in both scale and profitability, with profits of£3.1m earned in the second half up more than 150% over the six months to 31December 2004. Profits (before tax, goodwill and exceptional costs) for the year of £4.3m (2004- £5.2m) were achieved on volumes of £385m (2004 - £423m ongoing operations). Financial Highlights As predicted, volumes improved by 15% in the second half to £206m (first half toDecember 2004 - £179m). Fee income generated in the second half also improved18% to £21.7m bringing the yearly total to £40.1m (2004 - £41.3m ongoingoperations). Of the adjudications on the two projects referred to in our June announcement,one has been settled in our favour as we anticipated. Good progress has beenmade on the adjudications relating to the second project and consequently noprovision is considered necessary. Cashflow has remained strong, with net cash at the year end of £34.1m (2004 -£31.3m). Adjusted EPS reduced in line with profits to 11.18p (2004 - 13.48p). Aninterim dividend of 2.75p was paid in April 2005. A final dividend of 6.25p isproposed bringing the total to 9.0p (2004 - 8.25p), an increase of 9%. Subjectto its approval at the AGM on the 7 December 2005, the final dividend will bepayable on 9 December to Shareholders on the register on 11 November 2005. Strategic Developments With the continued strength in the public sector construction marketplace, andthe improving private sector commercial marketplace, we have effected a numberof changes this year to take advantage of these opportunities. •In the regions we have expanded our service offering, adding both Refurbishment and New Build to our previous Fit Out only offer. With geographic focus on the Manchester/Leeds/Birmingham triangle, the new and expanded regional management team - based in Manchester - will not only help reduce our dependency on the London market, but also provide a platform for substantial growth in the medium term. •With the improvement in occupier take up figures in London now well established, and following on from recent sales successes in the larger fit out projects, we have set up new teams to tackle the small to medium size fit out projects. Our strength historically has been in the larger scale fit out projects, and developing a greater presence in the smaller scale fit out market, not only provides growth potential, but also make us less sensitive to future fluctuations in demand for the larger scale projects. •In Europe this has been a year of consolidation following the transfer of majority control of our German business (we retain 36%) to our French partner Alpha. The relationship with Alpha in Paris and Frankfurt is working well and we anticipate this is a good long-term solution to providing a European Fit Out capability for both our UK and local customers. •In Asia we have been working with our partner to expand that business and return it to profitability, which has been successfully achieved in the second half. However, the long-term objectives of our majority partner are no longer aligned with ours and the rationale for our 22% holding in ISG Asia is being reviewed. •For the past 12 months we have been seeking to identify acquisition opportunities that would expand our activities outside of London, enlarge the Group, and expand its sector and client base away from London and the Commercial office sector. Having identified a suitable opportunity we are now in detailed discussionswhich, if successful, will make us less vulnerable to the demand swings of theLondon marketplace. •We have continued to consider opportunities in the PFI marketplace. We have not incurred any bidding expenses this year and consider that we are unlikely to do so in the future unless the current level of bidding cost and risk is mitigated. Trading Our business carries out work for occupiers, fitting out space, and for ownerswho refurbish or build it. Below is a summary of the fee income and gross valueof work performed (GVWP) on a divisional basis: Fee Income £m GVWP £m12 Months to June 2005 2005 2004 2005 2004 Fit Out (London & Regions) 20.3 22.2 180 208Refurbishment 8.9 7.0 92 97New Build 8.2 8.8 88 100Asia 2.0 2.3 16 14Europe 0.7 1.0 9 4 -------------------------------------- 40.1 41.3* 385 423* --------------------------------------* ongoing operations This was a year of contrasting halves. In the first half volumes reached the lowpoint in our business cycle, and whilst order intake had increased, projects hadyet to start on site. In the second half volumes did start to increase with manynewly won projects starting on site, boosting both turnover and profitability.Profit margin on fee income doubled from 6.5% in the first half year to over14.3% in the second half. As a result margins for the year were 10.7% (2004 -12.6%). Fit Out - fitting out of new office space for occupiers With the London Fit Out market now firmly recovering, fee income rose 7% year onyear and, importantly, over 40% in the second half over the first half. LondonFit Out margins improved too, reaching historically high levels in the secondhalf. Demand from the larger Fit Out projects that we specialise in increasedand our market position was upheld with assignments from Allen & Overy, DresdnerKleinwort Wasserstein and UBS totalling over £130m. In the Regions fee income declined 42% year on year as we reorganised thebusiness in Manchester, closed the Reading office, and installed a newmanagement team in the first half of the year. Whilst regional volumes did increase in the second half the recovery wasinsufficient to offset the first half's performance. Consequently overall feeincome from Fit Out in London and the Regions was down 9% year on year. Fit Out starts the year with an 05/06 in-year order book up over 130% at £231m(2004 - £97m). New Build - new buildings for owners and developers Volumes in New Build also increased sharply in the second half, up 32% over thefirst half. However fee income, year on year dropped 7% to £8.2m due to the weakfirst half.Workload is diversified across the education, residential and commercial officesectors. Recent successes in the education sector include two new CityAcademies, and in the residential sector, schemes for Berkeley Homes andFairbriar.Continued strong sales performance has improved the in-year 05/06 order book upto £134m from £84m in 04/05. Refurbishment - the regeneration of buildings for owners and developers Fee income grew strongly year on year, up 27% at £8.9m as margins returned tohistorical levels and no further delays on project start ups were experienced.With the improvement in the commercial office market the workload is now morebroadly balanced across retail, leisure, residential and commercial offices.The refurbishment business is also well positioned for 05/06 with its in-yearorder book up over 100% to £142m from £68m. Europe & Asia Working from offices in Paris and Frankfurt our partnership with Alphacontributed £331k profit (2004 - £322k) on fee income of £0.7m. In Asia, where we have 22% of ISG Asia, the business returned to profitabilityin the second half on the back of lower costs and increased volumes. The yearend resulted in a loss of £33k (2004 - loss of £129k) on volumes up 14%. Management & Staff Development In recognition of the contribution that our principal subsidiary ISGInteriorExterior makes to the Group, we are pleased today to announce that SteveTrotter has joined the Board. Steve Trotter, ISG InteriorExterior's Managing Director, was founder of theGroup's New Build Service in 1997 and has been on the ISG InteriorExterior Boardsince 2000. For the fourth year running ISG InteriorExterior was voted as one of the SundayTimes 100 Best Companies to work for, as well as one of the Financial Times' Top50 Workplace Companies. After the difficult trading conditions of the last twoyears this is a remarkable achievement and a testament to the effort to maintainand promote the Company's values driven culture. The Board wishes to thank allthe staff for their continued commitment and enthusiasm. Prospects We anticipated that the second half would demonstrate a turnaround in theGroup's results and so it has. That turnaround has been driven by asubstantially increased order book over the last 12 months which is now feedingthrough into increasing volumes. At the year end our total order book stood at£630m (2004 - £407m). With our in-year order book for 05/06 of £509m (2004 - £253m), we can expect asubstantial increase in activity this year. Due to the timing of projectcompletions profitability will be biased to the second half. With this level of work already booked in 05/06 and with continued strong demandin both the public and private sectors, we view the future with considerableoptimism. David KingChief Executive13 September 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTYear ended 30 June 2005 UNAUDITED Note 2005 2004 £'000 £'000 Gross value of work performed 2 385,372 445,779Less: relating to construction (28,157) (76,913)managementshare of joint ventures' and (8,237) (7,507) ------- ------- associates' turnover TURNOVERGroup turnover - continuing 2, 3 348,978 361,359operations Cost of sales 3 (334,742) (343,696) --------- --------- Gross profit 3 14,236 17,663 Amortisation of goodwill (60) (630)Exceptional disposal costs - (460)Other administrative expenses (11,494) (13,567) Administrative expenses 3 (11,554) (14,657) --------- -------- OPERATING PROFIT Operating profit - continuing operations 3 2,682 3,006Share of operating profit in joint ventures and associates 184 95 --------- -------- Total operating profit 4 2,866 3,101 Profit / (loss) on disposal of 12 (1,829) subsidiariesNet interest receivable and 5 1,374 1,030 --------- --------similar income PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2, 4 4,252 2,302Tax on profit on ordinary (1,468) (1,835) activities --------- --------PROFIT FOR THE FINANCIAL YEAR 2,784 467 Equity dividends paid and 6 (2,360) (2,070) proposedRetained profit / (loss) for 424 (1,603) the financial year ========= ========Basic earnings per ordinary 7 10.99p 1.86p share ========= ========Diluted earnings per ordinary 7 10.93p 1.84p share ========= ========Adjusted basic earnings per ordinary share before goodwill amortisation, exceptional 7 11.18p 13.48p administrative costs and profit / loss on disposal of subsidiaries ========= ======== Dividend per ordinary share 6 9.00p 8.25p ========= ======== CONSOLIDATED BALANCE SHEET30 June 2005 UNAUDITED Note 2005 2004 £'000 £'000 FIXED ASSETSIntangible assets 901 961Tangible fixed assets 573 686Investment in associates 1,251 1,208 ------ ------ TOTAL FIXED ASSETS 2,725 2,855 ------ ------ CURRENT ASSETSStocks 122 121Debtors: amounts falling due within one year 64,007 59,636Debtors: amounts falling due after more than one year 6,098 5,622 Cash at bank and in hand 34,149 31,387 ------ ------ 104,376 96,766 CREDITORS: amounts falling due within one year (94,002) (87,243) ------ ------ NET CURRENT ASSETS 10,374 9,523 ------ ------ TOTAL ASSETS LESS CURRENT LIABILITIES 13,099 12,378 ------ ------ TOTAL NET ASSETS 13,099 12,378 ======= ====== CAPITAL AND RESERVES Called up share capital 262 260Share premium account 9,574 9,281Other reserves 436 436Own shares (1,569) (1,573)Profit and loss account 4,396 3,974 ------ ------ TOTAL EQUITY SHAREHOLDERS' FUNDS 8 13,099 12,378 ====== ====== CONSOLIDATED CASH FLOW STATEMENTYear ended 30 June 2005 UNAUDITED 2005 2004 £'000 £'000 £'000 £'000 Net cash inflow / (outflow) from 455 (810) operating activitiesAssociates and joint ventures 121 -Returns on investments and 1,079 1,022 servicing of financeTaxation (413) (1,549)Capital expenditure and (232) (325) financial investmentAcquisitions and disposals 3,537 979Equity dividends paid (2,080) (1,900) --------- --------Cash inflow / (outflow) before 2,467 (2,583) financing Financing:Issue of shares (net) 295 96Repayment of long term debt - (4,313) --------- -------- Net cash inflow / (outflow) 295 (4,217) from financing -------- --------Increase / (decrease) in cash 2,762 (6,800) in the year ======== ======== Reconciliation of net cash flow to movement in net funds 2005 2004 £'000 £'000 £'000 £'000 Increase / (decrease) in cash 2,762 (6,800)in the year Cash inflow from debt financing - 4,337 -------- -------- Change in net debt resulting 2,762 (2,463) from cash flowsChange in net debt resulting from 72 349 non-cash changes -------- -------- 2,834 (2,114)Net funds brought forward 31,315 33,429 -------- --------Net funds carried forward 34,149 31,315 ======== ======== CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESYear ended 30 June 2005 UNAUDITED 2005 2004 £'000 £'000Profit for the financial year:Group 2,682 445Joint ventures and associates 102 22 ----- ----- 2,784 467Unrealised gain arising on investments - 436Currency translation differences arising: Subsidiaries (8) (24)Currency translation differences arising: Joint ventures and 6 (128) associates ----- -----Total recognised gains and losses relating to the year 2,782 751 ======= ====== NOTES UNAUDITED 1. ACCOUNTING POLICIES This preliminary announcement has been prepared on the basis of the accountingpolicies set out in the 2004 group accounts. 2. SEGMENTAL INFORMATION Gross value of work performed, turnover and profit before taxation may beanalysed as follows: Year Year ended ended 30 June 30 June 2005 2004 £'000 £'000Gross value of work performed by origin and destination: - United Kingdom 360,230 427,999- Europe 8,604 3,912- Asia 16,538 13,868 ------- ------ 385,372 445,779 ======== ======= Turnover by origin and destination: - United Kingdom 342,690 359,099- Europe 8,604 3,912- Asia 5,921 5,855 ------- ------ 357,215 368,866Less: Share of joint ventures' and associates' turnover (8,237) (7,507) -------- ------- 348,978 361,359 ======== ======= Profit / (loss) on ordinary activities before taxation: - United Kingdom 3,954 2,169- Europe 331 322- Asia (33) (189) -------- ------- 4,252 2,302 ======== ======= Fee income, which is considered to be a key indicator, is derived as follows: Turnover 348,978 361,359Trade contractor costs recharged (309,945) (313,571) -------- ------- 39,033 47,788Interest receivable 1,079 1,114 -------- -------Total fee income 40,112 48,902 ======== ======= The majority of net assets are held in the United Kingdom. The group has one class of business, which is to provide construction servicesto its customers in the UK and internationally. In accordance with industry practice, gross value of work performed includes£28,157,000 (2004 - £76,913,000) 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. ANALYSIS OF ONGOING OPERATIONS On 30 April 2004, the group disposed of its interest in the ordinary sharecapital of ISG Occupancy Limited and all of its subsidiaries. The results ofthose companies up to the date of disposal in the comparatives for the yearended 30 June 2004 are shown under disposed operations. Year Year ended ended 30 June 30 June 2005 2004 £'000 £'000Turnover:- ongoing operations 348,978 339,033- disposed operations - 22,326 -------- ------- 348,978 361,359 -------- -------Cost of sales:- ongoing operations 334,742 323,820- disposed operations - 19,876 -------- ------- 334,742 343,696 -------- -------Gross profit:- ongoing operations 14,236 15,213- disposed operations - 2,450 -------- ------- 14,236 17,663 -------- ------- Administrative expenses (see below):- ongoing operations 11,554 11,445- disposed operations - 3,212 -------- ------- 11,554 14,657 -------- -------Operating profit / (loss):- ongoing operations 2,682 3,768- disposed operations - (762) -------- ------- 2,682 3,006 ======== ======= Included within Administrative expenses are the following amounts: Goodwill amortisation:- ongoing operations 60 121- disposed operations - 509 -------- ------- 60 630 ======== ======= 4. RECONCILIATION OF ADJUSTED OPERATING PROFITAND ADJUSTED PROFIT BEFORE TAXATION Adjusted operating profit and adjusted profit before taxation are derived asfollows: Year Year ended ended 30 June 30 June 2005 2004 £'000 £'000 Group operating profit 2,866 3,101 Amortisation of goodwill 60 630Exceptional costs - 460 -------- -------Adjusted operating profit 2,926 4,191 ======== ======= Profit before taxation 4,252 2,302 Amortisation of goodwill 60 630Exceptional costs - 460(Profit) / loss on disposal of subsidiaries (12) 1,829 -------- -------Adjusted profit before taxation 4,300 5,221 ======== ======= We use adjusted operating profit and adjusted profit before tax as a measure tofacilitate comparisons between years. 5. NET INTEREST RECEIVABLE AND SIMILAR INCOME Year Year ended ended 30 June 30 June 2005 2004 £'000 £'000Group:Bank interest receivable 1,118 1,047Bank loans and overdrafts (1) (92)Discount on deferred consideration 289 51Other interest (payable) / receivable (38) 16Joint ventures and associates:Group share of interest receivable 6 8 -------- ------- 1,374 1,030 ======== ======= 6. EQUITY DIVIDENDS PAID AND PROPOSED Year Year ended ended 30 June 30 June 2005 2004 £'000 £'000 Interim paid - 2.75p per ordinary share (2004 - 2.75p) 695 690Final proposed - 6.25p per ordinary share (2004 - 5.50p) 1,665 1,380 -------- -------Ordinary dividends on equity shares 2,360 2,070 ======== ======= 7. 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 14 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 beforepost-tax exceptional costs and profit / loss on disposal of subsidiaries, by theweighted average number of ordinary shares during the year. We use adjustedearnings per share as a measure to facilitate comparisons between years. Year ended Year ended 30 June 30 June 2005 2004 £'000 £'000 Profit for the financial year 2,784 467 -------- -------Basic and diluted earnings attributable to 2,784 467 ordinary shareholdersAmortisation of goodwill 60 630Post-tax exceptional costs - 460(Profit) / loss on disposal of subsidiaries (12) 1,829 -------- ------- Adjusted earnings attributable to ordinary 2,832 3,386 shareholders ======== ======= Number Number Weighted average number of ordinary 25,338,317 25,124,166sharesDilutive share options 123,329 216,296 ------- ------- Diluted weighted average number of ordinary shares 25,461,646 25,340,462 ========== ========== Basic earnings per ordinary share 10.99p 1.86p ====== =====Diluted earnings per ordinary share 10.93p 1.84p ====== =====Adjusted basic earnings per ordinary share 11.18p 13.48p ====== ===== 8. RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUNDS 2005 2004 '000 £'000 Profit for the financial year 2,784 467Equity dividends (2,360) (2,070)Exchange differences (2) (152)Unrealised gain arising on investments - 436Movement in own shares 4 284Proceeds from share issue 295 167 ------- ------ Net addition to / (deduction from) shareholders' funds 721 (868)Shareholders' funds at 1 July 12,378 13,246 ------- ------Shareholders' funds at 30 June 13,099 12,378 ====== ====== On 13 August 2003, ISG City Axis Limited, one of the company's joint ventureinvestments, was disposed of for consideration of a 22.2% shareholding in anenlarged company listed on the Singapore Stock Exchange as ISG Asia Limited.This resulted in the unrealised gain of £436,000 in the prior year. The holdingin ISG Asia Limited has been included as an associate in the balance sheet. 9. 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 2005 or 2004. Thefinancial information for the year ended 30 June 2004 is derived from thestatutory accounts for that year which have been delivered to the Registrar ofCompanies. The auditors reported on those accounts. Their report was unqualifiedand did not contain a statement under section 237 (2) or (3) of the CompaniesAct 1985. The statutory accounts for the year ended 30 June 2005 will befinalised on the basis of the financial information presented by the directorsin this preliminary announcement and will be delivered to the Registrar ofCompanies following the company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ISG.L