19th Aug 2008 07:00
19 August 2008
The Innovation Group plc
Interim Management Statement
The Innovation Group plc ('Innovation' or 'the Group'), the leading technology-led Business Process Outsourcing ('BPO') provider for the insurance sector, today publishes its Interim Management Statement for the period from 1 April 2008 to 31 July 2008 in accordance with DTR 4.3 of the FSA Handbook.
The Group continued to achieve strong organic revenue growth during the period in Europe, North America and Asia Pacific. In South Africa, due to the overall economy, vehicle sales continue to fall and this has had an impact on our car warranty administration volumes. However, demand for our other insurance products in South Africa has continued to grow, partly as a result of our BEE status, and we still expect the region to post a respectable result in terms of revenue, profit and cash.
We are experiencing increased demand from both new and existing customers for technology enabled BPO solutions as clients look for rapid cost reductions. In line with our strategy, new customer relationships are becoming multi-territory, increasing in size and scale, and are often the combination of our BPO and technology offerings. Our relationship with IBM continues to support our business development and provides the scale required to service our larger customers. We are now being recognised as a leading global provider of solutions in technology-enabled BPO, which industry analysts* now acknowledge as a major growth market.
Adjusted pre-tax margins have increased in the period as a result of contract wins in the first half now coming to fruition, the successful integration of the Nobilas business and other initiatives. Regarding Nobilas, the majority of the restructuring actions are approaching completion within the planned budget. However, the split of the integration expenses between trading and exceptional costs will result in approximately £1m reduction in adjusted profit arising as a result of our decision to retain staff and property to support increased anticipated demand. The pre-acquisition receivables balance has now been collected. The integration of National Service Network ('NSN'), the acquisition completed on 10 June 2008, is progressing well with new customer wins exceeding plans.
In common with all businesses, we are operating within the constraints of the inclement global economy. Availability of debt finance has limited our ability to execute efficiently on certain investments and has also caused us to abort a planned acquisition. Together these have had an impact of approximately £1m on planned adjusted profits. However the Group has now refinanced its bank loans and mortgage on more advantageous terms and has secured new facilities for general corporate purposes. Our balance sheet remains strong and cash flow from operating activities has improved since the half year. We expect to be in a positive net cash position at the year end.
In order to meet the Board's expectations for the current financial year, after adjusting for the items above, the Group still needs to conclude a number of commercial arrangements in the remaining period. Going forward we are pleased with the fundamentals of our business in terms of increasing demand and strong revenue growth coupled with normalised monthly profit and cash generation. We continue to look forward to 2009 and beyond with confidence.
Enquiries:
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The Innovation Group Hassan Sadiq, Chief Executive Officer Paul Hemsley, Group Finance Director |
Tel: +44 (0) 1489 898300 |
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Financial Dynamics Ed Bridges/Juliet Clarke |
Tel: +44 (0) 20 7831 3113 |
Notes to Editors
The Innovation Group plc ("Innovation" or "the Group") provides BPO services and software solutions to insurers and other risk carriers. The software solutions are designed for the handling of policy and claims administrative processes within the insurance industry. The solutions can be utilised in connection with the Group's BPO operations or implemented on a stand alone basis. Approximately 77% of the Innovation Group's total revenues are now recurring with the remainder coming from the sale and support of its software solutions. The Group provides software and outsourcing services on a non-branded basis.
The global BPO market is estimated to grow at 14% CAGR from 2007 to 2010 according to IDC (May 2006) and outpace IT services. In North America, BPO is estimated to grow by an 8.8% compound annual growth rate to $100 billion by 2009. (Gartner 2005)
Datamonitor, August 2006, has also said there has been a continued increase in the propensity to outsource business processes in the insurance industry with 47% of insurers using one or more BPO services in 2006 compared to 41% in 2005. Claims and policy administration BPO (Innovation's specialty) are the highest priority business functions for BPO and among the fastest growing BPO areas.
Innovation has over 300 global clients including Allstate, LeasePlan, The Ford Motor Company, Aviva, AXA Insurance, Royal & Sun Alliance, Toyota (South Africa) and Zurich (UK). The Group processes more than 3 million claims per year with 20% direct claims cost saving achieved. The software operates in 8 languages and the Group has approximately 2300 people across offices in United Kingdom, Australia, Belgium, Canada, France, Germany, Japan, Netherlands, Pakistan, Poland, South Africa, Spain, United States.
*Gartner: Insurance BPO: Key Trends by Kimberly Harris Ferrante, June 2008
www.innovation-group.com
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