Interim Results

7th May 2009 07:00



7 May 2009

Innovation Group plc

Interim Results for the six months ended 31 March 2009

Innovation Group plc ("Innovation" or "the Group"), the leading provider of enterprise software, business process outsourcing ("BPO") and repair and service network management solutions to the global Property and Casualty industry today announces its interim results for the six months ended 31 March 2009. The results show continued year-on-year revenue and profit growth and a net cash balance at the period end.

Financial Highlights

	H1 2009	H1 2008
Revenues	£75.5m	£64.2m
Adjusted profit before tax *	£4.9m	£4.0m
Profit / (loss) before tax	£1.4m	(£0.8m)
Adjusted earnings per share	0.46p	0.23p
Basic loss per share	(0.01p)	(0.30p)

* Adjusted profit is profit / (loss) before tax after adding back amortisation on acquired intangible assets of £2.0m (H1 2008:£1.7m), share based payments charge of £1.6m (H1 2008:£1.2m), exceptional costs £nil (H1 2008:£1.5m) and utilisation of pre-acquisition brought forward tax losses £nil (H1 2008:£0.4m) as analysed on the face of the income statement.

Performance Indicators

	H1 2009	H1 2008
Organic revenue growth	14%	26%
Outsourcing revenues	83%	75%
Operating cash outflow	(£3.4m)	(£6.0m)
Net cash at period end	£1.6m	£5.4m

Corporate Highlights

Hassan Sadiq, Chief Executive of Innovation Group commented:

"Our focus as a Board remains on delivering shareholder value through profit growth and cash generation. Today's results show that we are making good progress. This performance is a pleasing reminder of the underlying strength of our business, with our market-leading offering continuing to gain traction in a market where outsourced service such as ours are playing a lead role in helping the insurance sector weather the current economic storm." 

Andy Roberts, Non-Executive Chairman, added:

"My focus is to ensure that the Company generates good returns for shareholders through consistent and predictable financial performance, whilst also exploring the strategic and operational potential in the business that will lead to greater efficiencies, growth and cash generation".

For further information please contact:

Innovation Group Hassan Sadiq / Jane Hall	Tel: +44 (0) 1489 898300
Financial Dynamics Ed Bridges / Juliet Clarke / Matt Dixon / Erwan Gouraud	Tel: +44 (0) 20 7831 3113

Notes to Editors

Innovation Group plc (LSE: TIG.L) is the leading provider of enterprise software, business process outsourcing and repair and service network management solutions to the global Property and Casualty industry. Innovation provides contact centres, repair networks, process management, supply chain and technology operations, and decision support analytics, to support accident management, repair and estimation and claims management services. 

Innovation has over 1,000 global clients including AXA Insurance, RSA, AAA NCNU, LeasePlan, The Ford Motor Company, Aviva, Toyota (South Africa) and Zurich (UK). The Group processes more than 4 million claims per year with 20% direct claims cost saving achieved. Our 2,400 people are located in United Kingdom, Australia, Belgium, Canada, France, Germany, Japan, Netherlands, Pakistan, South Africa, Spain, United States. 

www.innovation-group.com

Chief Executive's Review

Innovation Group provides specialist technology and best practice process outsourcing services for claims and policy administration to the world's insurers and risk carriers. 

The aim throughout the first half of this financial year has been to realise profit and revenue opportunities resulting from our recent investments in acquisitions and technology platforms. We continue to focus on our cash and managing the business during turbulent economic conditions. 

Group Half Year Review

In the six months to 31 March 2009, Group revenue and adjusted profit before tax have increased against the same period last year. Reported revenue for the six months to 31 March 2009 has increased by 18% to £75.5m (14% organic). Revenue and costs have been boosted by the significant strengthening of both the US dollar and Euro; revenue growth at constant currency is 7% (4% organic at constant currency). Adjusted profit before tax has increased to £4.9m (2008: £4.0m, constant currency £4.3m).

Gross cash at 31 March 2009 was £25.6m with a net cash balance of £1.6m. This figure is after addressing the opening working capital imbalance disclosed in the 2008 full year results and absorbing the significant capital expenditure on 'Project Enterprise' of £4.2m in the first half.

The current economic environment has brought both challenges and opportunities. The decreased levels of economic activity have led to a substantial reduction in motor claims globally which has adversely impacted revenues, particularly in South Africa. Despite operating in this challenging environment, our market leading offering has enabled us to achieve revenue and profit growth and successfully manage working capital.

Growth has been achieved without compromising our 'Project Enterprise' investment programme which continues to timescale and budget. The first milestone, the successful launch of Innovation Insurer, was announced in March 2009 together with a significant US contract win for the product. The first regional deployment of Enterprise, being the use of Innovation Insurer software within our own outsourcing business, is planned around the end of the financial year. In addition, as recently announced, our partner IBM has validated Innovation Insurer for their new Insurance Process Acceleration Framework which endorses its value and applicability for the global insurance industry. 

Demand for our products and services remains high and we continue to win new contracts from both existing and new clients. The pipeline is strong in all regions.

There is no significant change in the status of the previously reported lawsuit brought by Allstate Insurance Company of Canada. The Group has filed a robust defence and the Board remains of the opinion that the claim is without merit and speculative in the extreme.

Financial Review

As a percentage of total Group revenue, outsourcing revenue of £62.9m (H1 2008: £48.0m) now represents 83%. As anticipated, software related revenue has reduced to £12.6m (H1 2008: £16.2m) due to a significant proportion of otherwise fee earning staff continuing to work on Project Enterprise.

In addition, costs have been tightly controlled and underlying like for like operating expenses are reduced by approximately 15% on the same period last year.

Adjusted profit before tax has increased by 22% to £4.9m (H1 2008: £4.0m). Adjusted profit growth at constant currency was 7%. Included within adjusted profit for the six months to 31 March 2009 is a significant non-trading and non-cash item of a foreign exchange gain of £1.2m (H1 2008: £0.5m gain) arising from translation of group inter-company balances. Adjusted profit in the six months to 31 March 2008 included a one off gain of £2.0m relating to changes in actuarial estimates driven by changes in legislation in South Africa. Allowing for these one-off items, the underlying adjusted profit for H1 09 is £3.7m and for H1 08 is £1.8m.

Reported profit before tax of £1.4m (H1 2008: loss £0.8m) includes share based payment charges of £1.6m (H1 2008: £1.2m) and amortisation of acquired intangible assets of £2.0m (H1 2008: £1.7m). Adjusted EPS was 0.46p (H1 2008: 0.23p) and the basic loss per share was 0.01p (H1 2008: loss 0.30p). The Group full year effective tax rate is expected to be in the range of 22% to 27% depending in which geographic regions second half profits are generated.

The gross cash balance at 31 March 2009 was £25.6m (H1 2008: £25.3m) with net cash of £1.6m (H1 2008: £5.4m). The opening working capital imbalance as previously disclosed has been addressed. Operating cash outflow was £3.4m, slightly better than expectations due to continuing tight working capital management in the period. The overall reduction in cash during the period of £11.6m includes £5.6m capital expenditure (H1 2008: £2.4m), £4.2m of which, as forecast, related to Project Enterprise. This expenditure will be significantly reduced in H2. Overall cash outflow also includes loan repayments of £1.5m (H1 2008: £2.7m) and dividends of £0.6m (H1 2008: £2.3m).

In order to provide more visibility to shareholders and to better reflect the way the business is run, the Board has decided to early adopt IFRS 8 (Operating Segments). The result of this is that the segmental reporting disclosed in this interim statement and in the future will be on a regional basis (see note 2).

The Group's regions and product lines are at different stages of maturity resulting in significant variances in profit margins as shown in note 2. Our mature markets of UK, Germany and Asia Pacific have performed well all achieving double digit profit margins ranging from 12% to 15% at the EBITDA level, after absorbing the allocation of corporate overhead costs. Despite the declining economy in South Africa, in particular the motor industry, an EBITDA margin of 13% has still been achieved. The result for H1 08 benefitted from a one-off gain of £2m relating to changes in actuarial estimates.

The Rest of Europe remains sub-scale achieving an EBITDA margin of 4%, comprising profits in France offset by losses in Spain and Benelux. During the period the North American region reported a 5% loss at the EBITDA level but recently won contracts in the US outsourcing business are continuing to ramp to scale. New customers have been added in both of these regions during the first half of the year and we are making good progress towards run rate profitability in the second half of the year. 

Risks and uncertainties

The Board monitors the risk factors faced by the business and takes appropriate action to mitigate them where possible. As with any company, risk may affect the Group, its results and the Board's ability to deliver strategy. The Group needs to remain competitive on a global basis; is dependent upon the maintenance of service level agreements with insurance industry clients; relies on its relationships with its supply chain and must be cognisant of regulatory changes within the industry. Software solutions must remain technologically competitive and the associated intellectual property must be properly protected. The Group is exposed to external risks including economic factors, exchange translation risks and the financial failure of a major customer.

Dividend 

Recognising the economic environment and given the on-going investment in the business, the directors do not consider it prudent to declare an interim dividend. The decision to pay dividends will be reviewed by the Board at the full year. 

Board Change

On 5 January 2009, Geoff Squire stepped down as Non-Executive Chairman of the Board. Geoff Squire has had a long association with the Group and has played a valuable role in its transformation over the last five years to one of the leading technology led BPO specialists for the global insurance market. The Board wishes him well and thanks him for his significant contribution to the work of the Board throughout his term as Chairman. On the same day, David Thorpe assumed the role of interim Non-Executive Chairman and then on 9 March 2009, Andy Roberts was appointed as Non-Executive Chairman. 

Outlook

While the current economic uncertainty makes the future difficult to predict, our recent strategic investments have provided the Group with a market leading offering which is both multi-product and multi-territory to enable future growth. 

Our sales conversion is strong, evidenced by the recent contract win announcements and our pipeline is robust, all assisted by the recent launch of Innovation Insurer.

The Group expects these trends to continue into the second half and is making excellent progress towards meeting full year market consensus expectations.

Hassan Sadiq

Chief Executive Officer

Innovation Group plc

Unaudited Income Statement

For the six months ended 31 March 2009

		Unaudited		Unaudited		Audited
		6 months to		6 months to		Year to
		31 March		31 March		30 September
		2009		2008		2008
	Note	£'000		£'000		£'000
Revenue	2	75,450		64,218		139,859
Cost of sales		(47,587)		(37,594)		(81,356)
Gross profit		27,863		26,624		58,503
Operating expenses		(26,201)		(28,020)		(62,751)
Operating profit/(loss)		1,662		(1,396)		4,248
Finance income		683		1,214		2,166
Finance costs		(1,137)		(852)		(2,271)
Share of profit of associate		151		283		570
Profit/(loss) before tax		1,359		(751)		(3,783)
UK taxation		(185)		-		2,174
Overseas taxation		(648)		(421)		(3,462)
Taxation	4	(833)		(421)		(1,288)
Profit/(Loss) for the period after tax		526		(1,172)		(5,071)
Attributable to:
Equity holders of the parent		(51)		(1,941)		(6,831)
Minority interests		577		769		1,760
		526		(1,172)		(5,071)
Adjusted profit:
Profit/(loss) before tax		1,359		(751)		(3,783)
Amortisation of acquired intangibles		1,988		1,672		3,403
Exceptional costs	3	-		1,526		6,246
Impairment of Investments		-		-		1,228
Share based payments		1,579		1,189		2,520
Utilisation of pre-acquisition brought forward tax losses		-		408		451
Adjusted profit for the period	2	4,926		4,044		10,065
(Loss)/earnings per share (pence)
Basic	5	(0.01)		(0.30)		(1.06)
Diluted	5	(0.01)		(0.30)		(1.06)
Adjusted	5	0.46		0.23		0.52
Adjusted diluted	5	0.45		0.22		0.51
All amounts relate to continuing operations.

Innovation Group plc

Unaudited Balance Sheet

As at 31 March 2009

		Unaudited		Unaudited		Audited
		31 March		31 March		30 September
		2009		2008		2008
	Note	£'000		£'000		£'000
ASSETS
Non current assets
Property, plant and equipment		14,712		13,924		14,069
Intangible assets	7	132,280		85,009		97,404
Investments accounted for using the equity method		1,951		1,845		1,641
Financial assets		517		530		530
Deferred tax assets		2,237		372		2,316
		151,697		101,680		115,960
Current assets
Trade and other receivables	8	47,408		38,787		44,072
Prepayments		3,954		3,068		3,292
Other financial assets		177		245		262
Cash and cash equivalents		25,578		25,301		34,749
		77,117		67,401		82,375
TOTAL ASSETS		228,814		169,081		198,335
EQUITY AND LIABILITIES
Attributable to equity holders of the parent
Equity share capital		13,000		12,881		13,000
Share premium		37,717		36,054		37,717
Merger reserve		2,121		2,121		2,121
Foreign currency translation		31,833		(4,313)		447
Shares to be issued		-		1,769		-
Put option reserve		(2,225)		(2,225)		(2,225)
Retained earnings		38,503		42,368		37,834
		120,949		88,655		88,894
Minority interests		3,122		1,753		2,422
TOTAL EQUITY		124,071		90,408		91,316
Non current liabilities
Trade and other payables	9	368		256		266
Deferred income		1,423		2,946		1,320
Interest bearing loans and borrowings	10	15,940		14,339		16,127
Other financial liabilities		534		-		-
Deferred tax liabilities		4,148		4,528		4,223
Provisions		183		813		1,033
		22,596		22,882		22,969
Current liabilities
Trade and other payables	9	60,725		34,265		58,680
Deferred income		9,162		12,299		9,849
Interest bearing loans and borrowings	10	8,083		5,566		7,925
Income tax payable		-		1,466		2,881
Provisions		4,177		2,195		4,715
		82,147		55,791		84,050
TOTAL LIABILITIES		104,743		78,673		107,019
TOTAL EQUITY AND LIABILITIES		228,814		169,081		198,335

Innovation Group plc

Unaudited consolidated statement of changes in shareholders equity

As at 31 March 2009

Attributable to equity holders of the parent
	Issued capital	Share premium	Merger reserve	Retained earnings	Translation reserves	Shares to be issued	Put option reserve	Total	Minority interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 October 2007	12,877	36,034	2,121	45,052	(290)	-	(2,225)	93,569	1,527	95,096
Profit for the period	-	-	-	(1,941)	-	-	-	(1,941)	769	(1,172)
Currency translation differences	-	-	-	-	(4,023)	-	-	(4,023)	(135)	(4,158)
Dividends (note 6)	-	-	-	(1,932)	-	-	-	(1,932)	(408)	(2,340)
Issue of share capital	4	20	-	-	-	-	-	24	-	24
Shares to be issued	-	-	-	-	-	1,769	-	1,769	-	1,769
Share based payments	-	-	-	1,189	-	-	-	1,189	-	1,189
At 31 March 2008	12,881	36,054	2,121	42,368	(4,313)	1,769	(2,225)	88,655	1,753	90,408
Profit for the period	-	-	-	(4,890)	-	-	-	(4,890)	991	(3,899)
Currency translation differences	-	-	-	-	4,760	-	-	4,760	(45)	4,715
Dividends (note 6)	-	-	-	(975)	-	-	-	(975)	(277)	(1,252)
Issue of share capital	119	1,663	-	-	-	-	-	1,782	-	1,782
Shares to be issued	-	-	-	-	-	(1,769)	-	(1,769)	-	(1,769)
Share based payments	-	-	-	1,331	-	-	-	1,331	-	1,331
At 30 September 2008	13,000	37,717	2,121	37,834	447	-	(2,225)	88,894	2,422	91,316
Profit for the period	-	-	-	(51)	-	-	-	(51)	577	526
Currency translation differences	-	-	-	-	31,386	-	-	31,386	408	31,794
Dividends (note 6)	-	-	-	(325)	-	-	-	(325)	(285)	(610)
Share based payments	-	-	-	1,579	-	-	-	1,579	-	1,579
Hedging derivatives	-	-	-	(534)	-	-	-	(534)	-	(534)
At 31 March 2009	13,000	37,717	2,121	38,503	31,833	-	(2,225)	120,949	3,122	124,071

Innovation Group plc

Unaudited Cash Flow Statement

For the six months ended 31 March 2009

		Unaudited		Unaudited		Audited
		6 months to		6 months to		Year to
		31 March		31 March		30 September
		2009		2008		2008
		£'000		£'000		£'000
Cash flows from operating activities
Operating profit/(loss)		1,662		(1,396)		(4,248)
Adjustments to reconcile group operating profit/(loss) to net cash inflows from operating activities
Depreciation of property, plant and equipment		1,725		1,411		2,979
Loss on disposal of property, plant and equipment		-		(24)		28
Amortisation of intangible assets		2,106		1,764		3,602
Impairment of goodwill and financial assets		-		-		1,228
Share based payments		1,579		1,189		2,520
Share of profit from associate		151		283		570
Utilisation of pre-acquisition brought forward tax losses		-		408		451
(Increase) in receivables		(5,808)		(456)		(2,854)
(Decrease)/increase in payables		(1,435)		(6,612)		12,245
Income taxes paid		(3,447)		(2,554)		(4,397)
Net cash flows from operating activities		(3,467)		(5,987)		12,124
Cash flows from investing activities
Sale of property, plant and equipment		-		-		72
Purchases of tangible and intangible fixed assets		(5,622)		(2,408)		(7,562)
Purchase of subsidiary undertakings		-		(5,853)		(7,642)
Cash acquired with subsidiaries		-		5,168		5,168
Purchase of fixed asset investments		-		(254)		(240)
Interest received		683		1,214		2,024
Net cash flows used in investing activities		(4,939)		(2,133)		(8,180)
Cash flows from financing activities
Interest paid		(1,137)		(852)		(2,098)
Dividend paid to minorities		(285)		(408)		(283)
Dividend paid to shareholders		(325)		(1,932)		(2,907)
Repayment of borrowings		(1,086)		(2,278)		(17,416)
New bank loans		-		-		14,000
Repayment of capital element of finance leases		(373)		(401)		(568)
Proceeds from issue of shares		-		24		37
Net cash flows from financing activities		(3,206)		(5,847)		(9,235)
Net (decrease) in cash and cash equivalents		(11,612)		(13,967)		(5,291)
Cash and cash equivalents at beginning of period		34,749		39,826		39,826
Effect of exchange rates on cash and cash equivalents		2,441		(558)		214
Cash and cash equivalents at the period end		25,578		25,301		34,749

Innovation Group plc

Notes to the Unaudited Results

For the six months ended 31 March 2009

1. BASIS OF PREPARATION

The interim statement has been prepared on the basis of the accounting policies and estimates set out in the annual report and the financial statements for the year ended 31 September 2008.  This condensed consolidated interim financial information for the six months ended 31 March 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim Financial Reporting" as adopted by the European Union.

The financial information contained in this interim statement does not amount to statutory financial statements within the meaning of section 240 Companies Act 1985. The financial information contained in this report is unaudited but has been reviewed by Ernst & Young LLP. The financial statements for the year ended 30 September 2008, from which information has been extracted, were prepared under IFRS and have been delivered to the Registrar of Companies. The report of the auditors was unqualified in accordance with section 235 Companies Act 1985 and did not contain a statement under section 237 (2) or (30) Companies Act 1985. The interim financial statements were approved by the Board of Directors on 5 May 2009. 

Critical accounting estimates and judgements

In preparing the consolidated interim financial statements, management has had to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The critical judgements and key sources of estimation uncertainty that have been made in preparing the consolidated financial statements are detailed below. These judgements involve assumptions or estimates in respect of future events which can vary from what is anticipated. 

Deferred income in the outsourcing division

Within the outsourcing division the Group collects certain premiums and fees from clients for the processing and settlement of future claims. The Group assesses the extent to which future claims will be received and defers income accordingly. In some cases independently reviewed actuarial curves are used to facilitate the release of income.

Profit recognition in Group cell captives

Management recognise profit in the cell captive based on an excess of funds held compared to future costs to settle claims. Management have sufficient history on the profile of these claims to predict future costs with a high degree of accuracy.

Intangible assets

In accordance with IFRS 3 "Business Combinations" goodwill arising on the acquisition of subsidiaries is capitalised and included within intangible assets. IFRS 3 also requires the identification of other intangible assets acquired. Although the techniques used to value these assets are in line with internationally used models, they do require the use of estimates which may differ from actual outcomes. Models used are the Multi Period Excess Earnings for customer relationships and lists and the Relief from Royalty method for valuing trade names and software.

Income taxes

In recognising income taxes and liabilities, management makes estimates of the likely outcome of decisions by tax authorities on transactions and events whose treatment for tax purposes is uncertain. Where the final outcome of such matters is different, or expected to be different, from previous assessments made by management, a change in the carrying value of income tax assets and liabilities will be recorded in the period in which such determination is made.

2. SEGMENT INFORMATION

The Group is organised into regional business units and a central cost centre. The Group has seven reportable operating segments. Operating segments have been aggregated where the aggregation criteria has been met. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted profit which is the Group's internal principal measure of profit.

The Group's revenues are derived from the following products and services:

- Motor BPO and networks

-  Property BPO and networks 

- Other BPO and networks

- Software

A reconciliation of the total adjusted profit for reportable segments to the Group's profit before tax is shown in the Income Statement. 

Six months ended 31 March 2009

	UK	Germany	Rest of Europe	South Africa	North America	Asia Pacific	Central Costs**	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Motor BPO & Networks	6,821	16,559	3,632	12,287	5,465	2,861	-	47,625
Property BPO & Networks	5,764	3,448	-	-	557	-	-	9,769
Other BPO & Networks	1,001	-	-	1,873	2,652	-	-	5,526
Software	4,850	-	-	727	5,258	1,695	-	12,530
Total external revenue	18,436	20,007	3,632	14,887	13,932	4,556	-	75,450
EBITDA *	2,241	2,949	154	1,946	(695)	691	(212)	7,074
Depreciation	(589)	(56)	(70)	(292)	(411)	(59)	(248)	(1,725)
Net finance income / (costs)	40	19	14	(111)	(15)	14	(415)	(454)
Share of profit of associate	-	-	-	151	-	-	-	151
Amortisation non-acquired intangibles	(24)	(84)	-	-	-	(12)	-	(120)
Adjusted profit	1,668	2,828	98	1,694	(1,121)	634	(875)	4,926
EBITDA %	12%	15%	4%	13%	(5%)	15%	-	9%

*  Note that EBITDA above is shown before both share based payments costs and exceptional items.

** Note that central costs include unallocated corporate costs, expense development costs and transfer pricing royalties.

Six months ended 31 March 2008

	UK	Germany	Rest of Europe	South Africa	North America	Asia Pacific	Central Costs**	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Motor BPO & Networks	3,409	9,617	1,630	14,788	3,282	2,594	-	35,320
Property BPO & Networks	5,661	2,055	-	-	403	-	-	8,119
Other BPO & Networks	622	-	-	1,820	2,136	-	-	4,578
Software	5,797	-	-	639	8,367	1,398	-	16,201
Total external revenue	15,489	11,672	1,630	17,247	14,188	3,992	-	64,218
EBITDA *	952	1,423	(1,100)	2,894	1,147	574	(988)	4,902
Depreciation	(529)	(37)	(48)	(236)	(308)	(51)	(202)	(1,411)
Net finance income / (costs)	52	(119)	4	319	62	64	(20)	362
Share of profit of associate	-	-	-	283	-	-	-	283
Amortisation non-acquired intangibles	(28)	(56)	-	-	-	-	(8)	(92)
Adjusted profit	447	1,211	(1,144)	3,260	901	587	(1,218)	4,044
EBITDA %	6%	12%	(67)%	17%	8%	14%	-	8%

*  Note that EBITDA above is shown before both share based payments costs and exceptional items.

** Note that central costs include unallocated corporate costs, expense development costs and transfer pricing royalties.

Year ended 30 September 2008

	UK	Germany	Rest of Europe	South Africa	North America	Asia Pacific	Central Costs**	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Motor BPO & Networks	8,728	24,036	4,069	29,095	7,109	5,722	-	78,759
Property BPO & Networks	13,508	4,923	-	-	1,005	-	-	19,436
Other BPO & Networks	1,365	-	-	3,845	4,028	-	-	9,238
Software	13,774	-	-	1,299	14,302	3,051	-	32,426
Total external revenue	37,375	28,959	4,069	34,239	26,444	8,773	-	139,859
EBITDA*	3,929	5,179	(2,338)	4,855	(1,526)	1,315	1,364	12,778
Depreciation	(1,060)	(99)	(122)	(510)	(633)	(109)	(446)	(2,979)
Net finance income / (costs)	7	(149)	60	(78)	57	100	(102)	(105)
Share of profit of associate	-	-	-	570	-	-	-	570
Amortisation non-acquired intangibles	(58)	(124)	(1)	-	-	-	(16)	(199)
Adjusted profit	2,818	4,807	(2,401)	4,837	(2,102)	1,306	800	10,065
EBITDA %	11%	18%	(57)%	14%	(6)%	15%	-	9%

*  Note that EBITDA above is shown before both share based payments costs and exceptional items.

** Note that central costs include unallocated corporate costs, expense development costs and transfer pricing royalties.

3. EXCEPTIONAL COSTS

	Unaudited		Unaudited		Audited
	6 months to		6 months to		12 months to
	31 March 2009		31 March 2008		30 September 2008
	£'000		£'000		£'000
Restructuring costs
Nobilas restructuring costs	-		1,526		2,572
Other restructuring costs	-		-		3,028
Poland closure costs	-		-		646
	-		1,526		6,246

4. TAXATION

The effective tax rate for the six months ended 31 March 2009 has been calculated to be 23%. The anticipated effective tax rate for the group for the year ending 30 September 2009 is expected to be in the range of 22% to 27% (six months ended 31 March 2008 22%, year to 30 September 2008: 22%) but will be dependent on the location of trading profits in the remainder of this year.

	Unaudited		Unaudited		Audited
	6 months to		6 months to		Year to
	31 March		31 March		30 September
	2009		2008		2008
	£'000		£'000		£'000
Current taxation
UK taxation	55		-		(19)
Overseas taxation	648		308		3,938
Adjustments in respect of prior periods	-		-		(232)
Total current tax	703		308		3,687
Deferred taxation Origination and reversal of timing differences	130		113		(2,399)
Total tax charge	833		421		1,288

5. EARNINGS PER SHARE

	Unaudited		Unaudited		Audited
	6 months to		6 months to		Year to
	31 March		31 March		30 September
	2009		2008		2008
	pence		pence		pence
Basic (loss)/earnings per share	(0.01)		(0.30)		(1.06)
Adjustment for dilutive potential ordinary shares
- add share options	-		-		-
Diluted earnings per share	(0.01)		(0.30)		(1.06)
Basic earnings per share	(0.01)		(0.30)		(1.06)
Adjustments
- amortisation	0.31		0.26		0.53
- exceptional costs	-		0.24		-
- impairment of assets	-		-		0.19
- share based payments	0.25		0.18		0.39
- exceptional costs	-		-		0.96
- utilisation of pre-acquisition brought forward tax losses	-		0.06		0.07
- tax effect of the above	(0.09)		(0.21)		(0.56)
Adjusted basic earnings per share	0.46		0.23		0.52
Adjustment for dilutive potential ordinary shares	(0.01)		(0.01)		(0.01)
Adjusted diluted earnings per share	0.45		0.22		0.51

Earnings per share is calculated as follows:

Number of shares (thousand)
Average number of shares in issue used to calculate basic and adjusted basic earnings per share	650,018		643,925		646,847
Dilutive potential ordinary shares
- add share options	8,655		17,184		18,339
Shares used to calculate diluted and adjusted diluted earnings per share	658,673		661,109		665,186
Basic and diluted earnings (£'000)
Basic and diluted (loss)/ earnings for the period	(51)		(1,941)		(6,831)
- add amortisation	1,988		1,672		3,403
- exceptional items	-		1,526		6,246
- add impairment of assets	-		-		1,228
- add share based payments	1,579		1,189		2,520
- add utilisation of pre-acquisition brought forward tax losses	-		408		451
- less tax effect of the above	(557)		(1,367)		(3,605)
Adjusted and diluted earnings for the period	2,959		1,487		3,412

6. DIVIDENDS

	Unaudited		Unaudited			Audited
	6 months to		6 months to			Year to
	31 March		31 March			30 September
	2009		2008			2008
	£'000		£'000				£'000
Declared and paid during the period:
Equity dividend on ordinary shares to shareholders
- Final dividend of 0.05 pence per share for 2008 (2007: 0.30 pence per share)	325		1,932			1,932
- Interim dividend of nil pence per share for 2009 (2008: 0.15 pence per share)	-		-			975
Interim and final equity dividends on ordinary shares paid to minority shareholders:	285		408			685
	610		2,340			3,592

The dividend above of 0.05 pence per share was a final dividend for the 2008 financial year, approved at the AGM on 16 March 2009 and paid to shareholders on 31 March 2009.

7. INTANGIBLE ASSETS

Included within the value of intangible assets are gains arising from the retranslation of investments held in US dollar and Euro amounts of £19.4m and £10.6m respectively. The remainder of the increase relates primarily to capitalised costs for Proiect Enterprise.

8. TRADE AND OTHER RECEIVABLES

	Unaudited		Unaudited			Audited
	31 March		31 March			30 September
	2009		2008			2008
	£'000		£'000				£'000
Trade receivables	29,856		24,195			30,309
Other debtors	3,845		3,907			2,821
Accrued income	13,707		10,685			10,942
	47,408		38,787			44,072

9. TRADE AND OTHER PAYABLES

	Unaudited		Unaudited		Audited
	31 March		31 March		30 September
	2009		2008		2008
	£'000		£'000		£'000
Current
Trade payables	32,896		18,986		27,982
Other payables	15,133		6,540		17,418
Accruals	8,899		7,347		9,512
Proposed dividend	-		-		397
Social security and other taxes	3,797		1,392		3,371
	60,725		34,265		58,680
Non current
Other payables	368		256		266

10. INTEREST BEARING LOANS AND BORROWINGS

	Unaudited		Unaudited		Audited
	31 March		31 March		30 September
	2009		2008		2008
	£'000		£'000		£'000
Current
Bank loans and overdrafts	7,064		3,528		7,011
Other loans	-		1,148		-
Obligations under finance leases and hire purchase agreements	1,019		890		914
	8,083		5,566		7,925
Non current
Bank loans and overdrafts	14,930		12,024		15,394
Other loans	-		1,430		-
Obligations under finance leases and hire purchase agreements	1,010		885		733
	15,940		14,339		16,127

Responsibility Statement by the Management Board 

To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group, and the interim management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities, risks and uncertainties associated with the expected development of the Group for the remaining months of the financial year.

For and on behalf of the Board 

Jane Hall

Acting Group Finance Director

Independent Review Report to Innovation Group plc 

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2009 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement in Changes in Equity, and the related notes 1 to 10. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union. 

Our Responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

Ernst & Young LLP

Reading

7 May 2009

ENDIR FQLLBKEBBBBD

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