30th Jun 2006 07:30
Capcon Holdings PLC30 June 2006 Capcon Holdings plcInterim Report 2006 Interim results for the six months ended 31 March 2006 Capcon Holdings plc, the AIM listed investigations and risk management group,announces its unaudited interim results for the six months ended 31 March 2006. Main Points: • Turnover of £2.8m (2005: £3.4m) • Pre-tax loss of £726,700 (2005: Loss £1,026,300) • Loss before tax, interest, amortisation of £554,400 (2005: Profit of £160,800) • Net cash inflow from operations of £140,600 (2005: £125,300) • Action taken to create platform for growth • Signs of increased activity in core businesses Capcon Chairman, Ken Dulieu, said: "The six months to 31 March 2006 has been achallenging period for the Group during which time the Board carried out athorough review of the businesses and took decisive action to safeguard the corebusiness and create a stronger platform for growth. "Both Audit & Stocktaking and Commercial Investigations are showing signs ofincreased activity, and, the reshaping of the Commercial Investigations divisionshould lead to improved focus on building this traditionally very profitablepart of the business in the second half of the financial year. "The Board is committed to restoring profitability to the Group in the shortterm and priority will be given to the growth of the core business for theforeseeable future". For further information, contact: Capcon Holdings plcPaul Jackson 020 7417 0417 Insinger de BeaufortLouis Castro 020 7190 7000Cityroad CommunicationsKeith Lewis, Paul Quade 020 7248 8010 Chairman's Statement The six months to 31 March 2006 has been a challenging period for the Groupduring which time the Board carried out a thorough review of the business andtook decisive action to safeguard the core business and create a strongerplatform for future growth. The Board continues to give a high priority to the appointment of a ChiefExecutive Officer who will bring relevant industry experience and capability todevelop the Group strategy from our recently strengthened core business. I amoptimistic that this appointment will be made in the near future. Results Turnover for the six months to 31 March 2006 was £2,811,200, an 18.1% reductionon the previous year's £3,431,000. The overall gross margin fell from 41.1% to39.1% largely due to the structural changes made to the insurance investigationsbusiness. The Group made a loss before tax of £726,700 which is £299,600 lower than theloss of £1,026,300 for the same period last year. The loss before tax, interest,amortisation and impairment was £554,400 (2005: £160,800 profit). On a like forlike basis this is £457,500 below the same period last year as that periodbenefited from a profit on disposal of Argen GmbH of £224,400 and a pre disposalprofit of £33,300 from that business. Furthermore, £309,700 of the loss thisyear is attributable to discontinued operations and £70,000 is due to theDirectors taking a cautious approach in providing for possible bad debts. Theamortisation charge for the period of £98,600 (2005: £144,300) was £45,700 lessthan last year. In the same period last year a review of the carrying value ofGoodwill led to an impairment charge of £978,000 but no further impairment isconsidered necessary in this year. A recent formal offer received by the Companyfor the Audit and Stocktaking business further supports the carrying value ofGoodwill in the balance sheet for that division. The loss per share before goodwill amortisation of 6.2p compares with 1.3pearnings per share for the same period last year. Despite difficult trading conditions during the period and the cost ofrationalising our insurance investigation business, the Group generated a netcash inflow from operations of £140,600 (2005: £125,300). Net debt at 31 March2006 was £1,114,100 - £62,600 higher than at the same date last year. TheDirectors, therefore, are continuing their policy with regard to dividendpayments and no interim dividend is being declared. Funding At an Extraordinary General Meeting held on 29 March 2006 it was proposed thatConvertible Loan Stock of £800,000, carrying an interest rate of 10%, should becreated and issued to certain Directors and shareholders in order to strengthenthe Company's financial position and provide working capital for the comingyear. The relevant resolutions proposed at the meeting were defeated and inorder to maintain the Group's financial stability, certain Directors and anindependent shareholder of the Company have subscribed at par for £375,000 newlyconstituted, non-convertible, secured loan stock in the Company, carryinginterest at a rate of 10%. Additionally, two of the Directors have, subject tocertain conditions, committed to subscribe for a further £300,000non-convertible, secured loan stock on the same terms, if required. Business Review Sales in the Audit & Stocktaking division were marginally lower than last yearat £1,501,300 (2005: £1,616,200) despite substantial new business being gainedfrom major blue chip clients. However, the new business has been offset by twoexisting clients reviewing their auditing and stocktaking needs which haveresulted in less frequent but more focused audit work. However, the Directorsare confident that this reduction in sales will be reversed in the medium termand will be boosted by the introduction of new, updated software and reportingsystems to our client base during the second half of the financial year. Theeffect of lower sales, together with the internal cost of developing theenhanced systems referred to above, reduced operating profit compared with lastyear. Trading performance in the Commercial Investigations division has beensignificantly affected by the Board's strategic decision to withdraw fromcertain loss making insurance investigation services provided by Capcon VincentSherman (CVS). These services are now provided by a company incorporated bycertain ex employees and supplied to clients under a fee paying licence fromCapcon without any cost to the Company. Additionally, all surveillanceactivities previously provided by CVS to blue chip insurance clients have beentransferred to the specialist Capcon Surveillance Bureau, the new subsidiaryestablished last year. The cost of these changes, which were necessary to cutlosses and re-establish our insurance activities on a profitable basis for thefuture, were approximately £185,000 and this is included in the operating lossof discontinued operations of £309,700. Capcon Argen continues to win significant new business from blue chip clientsthat have not been previously engaged by the Company. The overall level ofproject activity has been lower than last year but with an expanding client baseand continuation of recent marketing initiatives, the Board is expecting anupturn in sales in the medium term. Sales for the Commercial Investigations division overall were £1,310,000 (2005:£1,815,000) and the shortfall compared with last year is mainly attributable tothe withdrawal from direct involvement in loss making insurance based work.Gross margin levels have been increased compared with last year. Following a review of the Capcon Argen debtors, the Directors have decided totake a more cautious view of the risk associated with the recovery of certainoverseas debts and have increased the provision for bad debts accordingly by£70,000. The recruitment last year of new senior project managers and their subsequentdevelopment in the Company has created the opportunity to restructure themanagement of Capcon Argen and strengthen our position both internally and whenpresenting our services to potential clients. Also, we are in the process ofrecruiting additional project managers who have existing experience and clientrelationships to ensure accelerated growth in the short term. A review of central overhead costs at the end of last financial year hasresulted in a significant reduction in these costs and this should be maintainedthroughout the second half of the year. Current Trading and Prospects Both Audit & Stocktaking and Commercial Investigations are showing signs ofincreased activity, and the re-shaping of the Commercial Investigations divisionshould lead to improved focus on building this traditionally very profitablepart of the business in the second half of the financial year. The Board is committed to restoring profitability to the Group in the short termand priority will be given to the growth of the core business for theforeseeable future. Alternative strategies for developing the Group are reviewedregularly by the Board but our overriding commitment is to maximise shareholdervalue through retaining our position as an independent public company and totake full advantage of this status at the appropriate time in the future whenour profit track record has been restored. K P DulieuChairman 30 June 2006 Consolidated Profit and Loss AccountFor the six months ended 31 March 2006 Continuing Discontinued operations operations Total Total Total Six months Six months Six months Six months Year ended ended ended ended ended 31 March 31 March 31 March 31 March 30 September 2006 2006 2006 2005 2005 unaudited unaudited unaudited unaudited audited £'000 £'000 £'000 £'000 £'000 Turnover 2,604.7 206.5 2,811.2 3,431.1 6,930.6 Cost of sales (1,497.1) (214.9) (1,712.0) (2,020.0) (4,031.1) _______ _______ _______ _______ _______ Gross profit/(loss) 1,107.6 (8.4) 1,099.2 1,411.1 2,899.5 Administrative expenses (1,450.9) (301.3) (1,752.2) (2,630.3) (5,326.9) _______ _______ _______ _______ _______ Group operating loss (343.3) (309.7) (653.0) (1,219.2) (2,427.4) Share of operating profit in associates - - - 33.3 33.3 Total operating loss before goodwill (244.7) (309.7) (554.4) (63.6) (414.0)amortisation and impairmentAmortisation of goodwill and impairment (98.6) - (98.6) (1,122.3) (1,980.1) Total operating loss (343.3) (309.7) (653.0) (1,185.9) (2,394.1) Profit on sale of associate - - - 224.4 248.0 _______ _______ _______ _______ _______ Loss before interest and taxation (343.3) (309.7) (653.0) (961.5) (2,146.1) _______ _______ Interest receivable 0.2 0.2 0.3Interest payable (73.9) (65.0) (131.9) _______ _______ _______ Loss on ordinary activities before (726.7) (1,026.3) (2,277.7)taxation Taxation - 38.5 81.1 _______ _______ _______ Loss on ordinary activities after (726.7) (987.8) (2,196.6)taxation for the period/year _______ _______ _______ Loss per share- Basic and diluted (7.2p) (9.7p) (21.6p) _______ _______ _______ (Loss)/earnings per share beforeamortisation andimpairment of goodwill- Basic and diluted (6.2p) 1.3p (2.1p) _______ _______ _______ Consolidated Balance SheetAs at 31 March 2006 As at As at As at 31 March 2006 31 March 2005 30 September 2005 unaudited unaudited audited £'000 £'000 £'000 Fixed assetsIntangible fixed assets 3,070.6 3,923.1 3,169.2Tangible fixed assets 217.6 326.7 269.0Investments - 0.1 - _______ _______ _______ 3,288.2 4,249.9 3,438.2 Current assetsDebtors 1,480.3 1,801.9 1,696.1Cash at bank and in hand 1.9 13.8 13.9 _______ _______ _______ 1,482.2 1,815.7 1,710.0 CreditorsAmounts falling due within one year (3,395.4) (2,627.1) (3,071.5) _______ _______ _______ Net current liabilities (1,913.2) (811.4) (1,361.5) _______ _______ _______Total assets less current liabilities 1,375.0 3,438.5 2,076.7 CreditorsAmounts falling due after more than one year (108.1) (242.6) (83.1) Provisions for liabilities and charges (21.4) (21.4) (21.4) _______ _______ _______Net assets 1,245.5 3,174.5 1,972.2 _______ _______ _______ Capital and reservesCalled up share capital 101.6 101.6 101.6Share premium account 2,774.1 2,774.1 2,774.1Other reserves 950.0 950.0 950.0Profit and loss account (2,876.4) (940.9) (2,149.7)Shares to be issued 296.2 289.7 296.2 _______ _______ _______ 1,245.5 3,174.5 1,972.2 _______ _______ _______ Consolidated Cash Flow StatementFor the six months ended 31 March 2006 Six months Six months Year ended ended ended 31 March 2006 31 March 2005 30 September unaudited unaudited 2005 audited £'000 £'000 £'000 Net cash inflow from operatingactivities 140.6 125.3 193.2 Dividend received from associate - 118.2 118.2 Returns on investments and servicingof financeInterest received 0.2 0.2 0.3Interest paid (55.0) (62.1) (124.8) _______ _______ _______ (54.8) (61.9) (124.5) TaxationTax paid (4.0) (23.7) (23.7) Capital expenditure and financialinvestmentPayments to acquire tangible fixed assets (17.3) (70.9) (86.0)Sale of tangible fixed assets 0.8 - 8.9 _______ _______ _______ (16.5) (70.9) (77.1) Acquisitions and disposalsAcquisition of subsidiary undertakings - (89.5) (193.6)Disposal of investment in associates - 332.9 328.5 _______ _______ _______ - 243.4 134.9 _______ _______ _______Net cash outflow before financing 65.3 330.4 221.0 FinancingRepayment of loans (103.3) (100.1) (205.6)New loans issued - 150.0 170.0Invoice discounting facilities (7.7) (189.9) 3.0Principal payment under finance leases (8.3) (8.3) (14.9)Other loans 75.0 20.0 -Other loan repayments - (2.4) - _______ _______ _______ (44.3) (130.7) (47.5) _______ _______ _______Increase in cash 21.0 199.7 173.5 _______ _______ _______ Notes to the Interim AccountsFor the six months ended 31 March 2006 1. Basis of preparation The interim results for the six months ended 31 March 2006 and 31 March 2005 donot constitute statutory accounts within the meaning of section 240 of theCompanies Act 1985 and have been neither audited nor reviewed by the Group'sauditors . The financial information for the year ended 30 September 2005 hasbeen extracted from the statutory accounts for the year which have been filedwith the Registrar of Companies and which contain an unqualified audit reportand did not contain a statement under section 237(2) of the Companies Act 1985. The interim accounts have been prepared on the basis of the accounting policiesset out in the statutory accounts for the year ended 30 September 2005. The Group had no recognised gains or losses other than the results shown in theConsolidated Profit and Loss Account. Copies of this statement are being sent to shareholders and are available fromthe registered office of the Company. 2. Going Concern Issue of Redeemable Loan Stock At a meeting of the directors held on 29 March 2006, K P Dulieu, P F Jackson andR G Boyle together with a shareholder of the Company agreed to subscribe for atotal £675,000 (nominal) 10% Redeemable Guaranteed Secured Loan Stock 2006 (the"Loan Stock"). Of this amount, £375,000 was subscribed for immediately and thebalance of £300,000 is to be subscribed for as to £150,000 each by K P Dulieuand P F Jackson upon demand being made by the Company at any time on or before31 May 2008 save that if there exists an event of default at that time then suchsubscriptions will not be made. For this purpose an event of default includesinter alia a change of control of the Company such that a third party acquiresan interest of 30 per cent. or more in the Company. The Loan Stock was put inplace to ensure, on the continuing assumption that the directors will be able tofocus their attention on the running of the business without externalinterference, the financial viability of the Group going forward. 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. The extent towhich these targets were exceeded is disputed. The earn-out period has now expired. Under the terms of the agreement, thecontingent consideration was due to be paid by April 2005 and £500,000 has beenpaid to date. The Directors are actively engaged in ongoing discussions withthe vendors of Argen with a view to reaching a final settlement as to the amountdue and a number of letters have been exchanged in this regard. The latestindicates a willingness on the part of the vendors to accept a legally bindingdeferred payment schedule comprising the issue of 2,200,000 Ordinary Shares andthe payment in cash of the sum of £524,485 plus accrued interest over a threeyear period. The Company has proposed a four year schedule to resolve thedispute but agreement to this has yet to be received. The balance sheet at 31March 2006 includes an appropriate provision for contingent consideration.However, the amount of any liability due remains a matter of dispute and has notbeen agreed or determined. In the absence of a legally binding deferred payment schedule, any contingentconsideration that might be due could be payable on demand. The directors willnot agree to any settlement without first endeavouring to ensure that theCompany has the funds available to meet its obligations as they fall due. Thecash flow forecasts prepared by the directors assume a deferred payment schedulein line with that proposed above but make no allowance for immediate repayment.Additionally, in view of the uncertainty surrounding any amounts that might bepayable and, in turn, the timing of such payments, the directors have notentered into any negotiations to secure the additional financing that would berequired to fund immediate repayment. As a consequence of the matters set out above, the Group may be unable to meetits financial obligations as they fall due and may thus be unable to continue asa going concern as a result of either or both of the following circumstances: • with regard to the issue of Loan Stock, an event of default occurring such that the subscriptions for the balance of £300,000 are not made, or the continuing assumption noted above not being met. • with regard to the timing of deferred consideration payments, the amount of deferred consideration due being determined to be at the level currently provided in the financial statements, with a demand for the immediate payment of this sum being enforced. The financial statements do not include any adjustments that would result fromthe going concern basis of preparation being inappropriate. 3. Earnings per share Six months Six months Year ended ended ended 31 March 2006 31 March 30 September unaudited 2005 2005 unaudited audited £'000 £'000 £'000 Losses attributable to ordinary shareholders (726.7) (987.8) (2,196.6)Amortisation of goodwill and impairment 98.6 1,122.3 1,980.1 _______ _______ _______ Adjusted (losses)/earnings (628.1) 134.5 (216.5) _______ _______ _______ Basic and diluted weighted average number of 10,156,776 10,156,776 10,156,776shares issued ________ _______ _______ 4. Reconciliation of operating loss to net cash inflow from operating activities Six months Six months Year ended ended ended 31 March 31 March 30 September 2006 2005 2005 unaudited unaudited audited £'000 £'000 £'000 Group operating loss (653.0) (1,219.2) (2,427.4)Depreciation 48.8 56.4 119.0Loss on disposal of fixed assets 29.4 - 1.2Amortisation of goodwill and impairment 98.6 1,122.3 1,980.1Decrease in debtors 215.8 89.6 195.4Increase in creditors 401.0 76.2 324.9 _______ _______ _______Net cash inflow 140.6 125.3 193.2 _______ _______ _______ 5. Reconciliation of net cash flow to movement in net debt Six months Six months Year ended ended ended 31 March 31 March 30 September 2006 2005 2005 unaudited unaudited audited £k £k £k Increase in cash in period 21.0 199.7 173.5Cash flow from change in debt financing 44.3 130.7 47.5 _______ _______ _______Change in net debt resulting from cash flows 65.3 330.4 221.0 New finance leases (10.4) (46.1) (45.9)Other non-cash movements (4.0) (2.9) (7.2)Net debt brought forward (1,165.0) (1,332.9) (1,332.9) _______ _______ _______Net debt carried forward (1,114.1) (1,051.5) (1,165.0) _______ _______ _______ 6. Reconciliation of net cash flow to movement in net debt Analysis of net debt As at Cash Non cash As at 30 September 2005 flow movements 31 March 2006 audited unaudited £'000 £'000 £'000 £'000 Cash at bank and in hand 13.9 (12.0) - 1.9Overdraft (311.2) 33.0 - (278.2) Cash (297.3) 21.0 - (276.3) Debt due within one year (206.6) 103.3 (53.6) (156.9)Debt due after one year (58.0) - 53.6 (4.4)Invoice discounting facilities (487.2) 7.7 - (479.5)Finance leases (37.3) 8.3 (10.4) (39.4)Other loans (78.6) (75.0) (4.0) (157.6) Financing (867.7) 44.3 (14.4) (837.8) Total (1,165.0) 65.3 (14.4) (1,114.1) _______ _______ _______ _______ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
MTR.L