12th Sep 2007 07:01
Mavinwood PLC12 September 2007 Mavinwood Plc ("Mavinwood" or "the Company") Interim results for the six months ended 30th June 2007 - Another half year of good progress and strong growth. - Profit before tax up 72% to £2.54m (2006: £1.48m). - Underlying fully diluted earnings per share up 31%. - Integration delivering results. - Successfully completed acquisition of Document Control Services Limited. - Board strengthened. - Clear strategy for growth. Financial highlights 2007 2006 Revenue £32.4m £16.3m Earnings before interest, tax, amortisation of intangible assetsand share based payments charge (EBITA) £4.4m £2.4m Operating profit £3.4m £2.0m Profit before tax £2.5m £1.5m Basic earnings per share 0.39p 0.31p Underlying profit before tax* £3.5m £1.9m Underlying fully diluted earnings per share* 0.46p 0.35p +31% * before amortisation of intangible assets, share based payments charge andnotional interest on contingent consideration Kevin Mahoney, Chief Executive, commented; "This has been a very good six months with excellent organic growth in our twodivisions. Both the Emergency Repair and Document Handling markets continue toprovide significant opportunities for future organic growth.The acquisition of Document Control Services in March extends our serviceoffering in Document Handling and they are already trading in line with ourexpectations. Our net debt of £24.6m gives us plenty of capacity to make bolt onacquisitions in our core markets if appropriate opportunities arise.The second half of 2007 has started in line with expectations and we areconfident that we can continue to grow organically and with bolt on acquisitionsthat increase our range of services and geographic spread." Enquiries: Mavinwood plcKevin Mahoney, Chief Executive 020 7661 9650Mike Vincent, Finance Director 020 7661 9651 Collins StewartAdrian Hadden 020 7523 8353 Threadneedle PRJohn Coles 020 7936 9604 CHIEF EXECUTIVE'S REVIEW RESULTS Revenue in the six months ended 30 June 2007 was £32.4 million (2006: £16.3million), with profit before tax of £2.5 million (2006: £1.5 million) and basicearnings per ordinary share of 0.39p (2006: 0.31p). We think, however, that it is more relevant to consider Mavinwood's performancebefore share based payments charge, amortisation of intangible assets andnotional interest on contingent consideration. On this basis, EBITA was £4.4million (2006: £2.4 million), profit before tax was £3.5 million (2006: £1.9million), and earnings per share were 0.46p (2006: 0.35p), an increase of some31%. Of the increase in EBITA of £2.0 million, £1.2 million was generated by theacquisitions of Independent Inspections and Mono Services in 2006 and DCS in2007. The Mavinwood Group comprises two divisions, Emergency Repair and DocumentHandling. EMERGENCY REPAIR Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Revenue ANSA * 14,579 12,633 25,884 Independent Inspections ** 12,494 - 8,631 and Mono Services --------- --------- --------- Total 27,073 12,633 34,515 ========= ========= ========= EBITA*** ANSA * 2,634 1,750 3,843 Independent Inspections ** 862 - 944 and Mono Services --------- --------- --------- Total 3,496 1,750 4,787 ========= ========= ========= ========= ========= =========* ANSA throughout 2007 and 2006** Independent Inspections and Mono Services 6 months in 2007, 51/2 months and 4months respectively in 2006*** Excluding share based payments charges The significant increases in revenue and profits in this division areprincipally because both Independent Instructions and Mono Services wereacquired in the second half of 2006 and also because ANSA lifted its profitssignificantly. This division includes three businesses that serve principally the insuredrepair sector. Approximately 90% of sales are to the leading insurance companiesand we also service a range of housing associations and commercial companies. All three businesses share a common business process that is: •Take the emergency call from the customer via the insurer •Arrange a survey to validate or repudiate the claim and cost out the repair •Undertake the repair either by directly employed labour or sub contractors ANSA specialises in drainage surveys and repair; Independent Inspectionsspecialises in flooring surveys and restoration and Mono Services in buildingfabric surveys and repairs both often due to water damage. ANSA and Independent Inspections are national businesses and Mono Services iscurrently a regional business in the North West. There is some customer overlap between the businesses but one of ouropportunities moving forward is to offer all our services to a wider range ofcustomers. All these businesses operate to high service standards. Examples of keyperformance indicators that are monitored on a continuous basis are: •Response times in terms of contacting a policyholder after they report an insured event •Courtesy of staff and customer satisfaction •Average cost per claim There are integration benefits to flow between the businesses that began in late2006. A range of integration projects are underway including: •Assessing and optimising IT platforms •Purchasing initiatives •Extending Mono's reach across the country •Optimising back office functions •Reviewing marketing opportunities and widening the service offering As well as good organic growth within the division, we continue to look for bolton acquisitions that would further enhance our offering. Turning to the highlights within each operation: ANSA ANSA performed well in claims validation and service delivery, and the volume ofinstructions grew satisfactorily comparing the first six months of 2007 with thefirst half of 2006. Revenue increased by 15% to £14.6 million, with a 51%increase in operating profit to £2.6 million. The associated uplift in operatingmargin reflects the success of a series of initiatives to improve productivity,efficiency and service delivery. The business tends to produce higher volumes in the second half of the year. ANSA has extended its drainage services to a wider range of customers in thecommercial sector and we saw good volumes of new work coming through in 2007. Wealso benefited from increased volumes from one leading insurer that, in Octoberlast year, awarded ANSA 100% of volumes (up from 50%). This arrangement will runfor three years. In February 2007, ANSA acquired ESG Limited, a small drainage contractor for£0.2m. This acquisition has helped to increase the proportion of repair workthat is being carried out by direct labour as opposed to sub contractors. Operating profit at ANSA has increased due to volume growth, cost reductions andproductivity gains. Customers have benefited from strong performance in claimsvalidation, service delivery and cost control. ANSA moved offices in August to modern premises alongside Mono Services thatwill promote closer working between the two businesses. ANSA also owned a small business offering Health and Safety training. Revenue inthe first six months of 2007 was £617,000. The trade and assets of thisoperation were sold to the Training management team on 29 June at net book valueof £550,000. INDEPENDENT INSPECTIONS Independent Inspections' volume of instructions continued at the low levels ofthe last quarter of 2006 and were running approximately 6% below the firstquarter of 2006 in 2007. Action was taken to reduce the cost base during Aprilat a total cost of £140,000. The benefit from this action and the re-engineeringof Independent Inspections' business processes began to come through in June.Also in June, the volumes began to increase again and have remained atrelatively high levels in July and August, reflecting in part the flooding inYorkshire in June and in central England in July. MONO SERVICES Mono Services sales have increased by approximately one third compared to thefirst half of 2006 due to winning new business, helped by the storm damage overthe winter. Some of Mono Services business has been re-directed via a NorwichUnion joint venture partner that has caused some disruption to our operations.This resulted in transition and set up costs that dampened margins in the firsthalf. DOCUMENT HANDLING Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Revenue Restore and Wansdyke * 4,407 3,654 7,938 DCS ** 924 - - --------- --------- --------- Total 5,331 3,654 7,938 ========= ========= ========= EBITA*** Restore and Wansdyke * 1,338 1,072 2,418 DCS ** 292 - - --------- --------- --------- Total 1,630 1,072 2,418 ========= ========= ========= * Wansdyke 6 months in 2007, Wansdyke 11 months in 2006, Restore throughout2007 and 2006** DCS 3 months in 2007*** Excluding share based payments charges Document handling serves a wide range of customers, including law firms,corporates of varying sizes, financial services companies, councils and healthtrusts. Our customers are mostly based in London and the South across to Bristoland South Wales. The majority of sales are the storage and retrieval of archiveboxes but also individual files and other material such as magnetic media andfilm. Scanning of documents on a selective basis is also offered to clients. Shredding/pulping of documents at the end of their useful lives is currently outsourced,although this would form a logical product extension. We continue to integrate Restore and Wansdyke. Approximately £0.1m ofintegration costs have been charged against Wansdyke's profits in 2007. TheRestore operating system of bar coding is being applied at Wansdyke and the backoffice functions are increasingly being integrated. Total employees at Wansdykehave dropped from 75 at February 2006 to 63 at 30 June 2007 by natural wastageas systems have become more automated. We operate a combination of freehold and leasehold sites at Wansdyke and Restorerespectively. Due to the absence of rental charges, the return on sales atWansdyke is higher than that at Restore. The market for the physical storage of archives continues to grow well in excessof GDP, with especially strong growth in sectors such as professional services.Overall volume growth in Restore and Wansdyke compared to the first half of 2006was 11% and the return on sales is 30%. We are filling up our underground storage facilities near Bath and in the firsthalf acquired an adjoining underground space of 16 acres for £0.5m. Once fittedout this space will provide medium term expansion for the business. DOCUMENT CONTROL SERVICES (DCS) We acquired DCS on 26 March 2007. DCS is a quality national operation scanningand indexing documents with high intellectual property content. The business hasa blue chip customer base including Network Rail, Highways Agency, oil and gascompanies, city councils and property companies. The market is growing at around7% per annum. DCS made its maiden contribution in the second quarter in linewith expectations. CENTRAL COSTS Central costs have increased from £439,000 to £724,000 as we now operate twomuch larger divisions compared to the first half of 2006. INTEREST Net interest payable amounted to £884,000 (2006: £525,000) as we borrowed tofund the acquisitions of Mono Services and DCS. Included within the net interestcharge is a net credit of £58,000 representing the notional interest oncontingent consideration due on the acquisitions of Independent Inspections,Mono Services and DCS. The adjustment to the contingent consideration of £4m inrespect of Independent Inspections, following the slow start to 2007 and thereversal of the interest charged in 2006, gives rise to the net credit. Thediscount rate applied in this calculation was 7.9%. PROFIT BEFORE TAX The profit before tax for the period ended 30 June 2007 was £2,545,000 (2006:£1,482,000). However, the Directors believe that an adjusted measure of profitbefore tax and earnings per share provides shareholders with a more appropriaterepresentation of the underlying earnings derived from the Group's business. Theitems adjusted for in arriving at that underlying level are as follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Profit before tax 2,545 1,482 3,751Share based paymentscharge 911 376 1,039Amortisation ofintangible assets 62 - 10Notional interest oncontingent consideration (58) - 158 --------- --------- ---------Adjusted profit beforetax 3,460 1,858 4,958 ========= ========= ========= TAX Due to the distortions caused by the non-deductibility of the notional intereston the contingent consideration and amortisation of intangible assets, thereported tax charge is 30.6% (2006: 30.0%). However, the underlying tax rateduring 2007 was 30.4%, as a percentage of adjusted profit before taxation (2006:30.4%). EARNINGS PER SHARE (EPS) Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Earnings per share (pence)Basic 0.39p 0.31p 0.66pDiluted 0.33p 0.28p 0.59p Adjusted earnings per share (pence)Basic 0.53p 0.39p 0.89pDiluted 0.46p 0.35p 0.80p Basic EPS is 0.39p, which compares with 0.31p in 2006. Basic EPS adjusted asabove was 0.53p (2006: 0.39p). Assuming the exercise of all options and awardsunder the LTIP plus the conversion of the convertible A shares at an averageprice in 2007 of 17.61p (2006: 13.63p), the fully diluted adjusted EPS becomes0.46p (2006: 0.35p) an increase of 31%. DIVIDENDS Mavinwood intends to re-invest profits in the business and the Board do notrecommend declaring an interim dividend (2006: Nil). SHARE ISSUES New equity was issued on just one occasion in the first six months of 2007. 5.4million shares were allotted at 18.5p per share on 26 March 2007 as partconsideration for the acquisition of DCS. ACQUISITIONS DCS was acquired for an initial sum of £1.3 million, including £1 million inMavinwood shares. In addition, debt of £4.8 million was repaid. Contingentconsideration of up to £2 million is also payable in cash linked to the growthin EBITA above £0.93 million for the year ending 30 June 2008. The full £2m ispayable assuming EBITA reaches £1.23 million. External Services Group Limited (ESG), a drainage sub contractor to ANSA, wasacquired on 2 February 2007 for cash of £206,000 and assumed debt of £63,000.BALANCE SHEET Net assets increased to £47,904,000 in the half year reflecting the profit forthe period of £1,767,000 plus the share issues to part fund the acquisition ofDCS. Goodwill and intangibles on the six acquisitions, at 30 June 2007 was£64,192,000 (2006: £37,100,000). Due to Independent Inspections' slow start in the first half of 2007, theDirectors consider it unlikely that the business will make the hurdles totrigger earn out payments to the vendor in respect of 2007 and 2008 so theseamounts of £4m have been written back to opening goodwill. Tangible fixed assets totalled £11,303,000 (2006: £10,211,000) principallycomprising the freehold underground storage facilities at Wansdyke, but alsocomputer systems, storage racking and vehicles. Operating working capital (excluding cash) amounted to a net £6,735,000 at 30June 2007. Net debt at 30 June 2007 totalled £24,570,000 (2006: £15,140,000)after deferred financing costs of £332,000 (2006: £243,000). Interest cover inthe half year was 4.7 times. CASH FLOW The net cash inflow from operating activities before capital expenditure was£1,111,000 (2006: £2,264,000). This inflow is after taking account of an outflowof £3,758,000 on working capital. We expect an outflow as the business expandsbut the excess outflow was due to a build up of work in progress in June as weworked on flood damage exacerbated by slow payments from the insurers as theydiverted resources into dealing with the floods. Working capital also increasedby approximately £1m due to the redirection of the Norwich Union work via ajoint venture management company. Capital expenditure totalled £1,135,000 (2006: £346,000) compared todepreciation of £467,000 (2006: £416,000). Other than the capital investment infurther underground storage at Wansdyke, mentioned earlier, other capitalexpenditure is broadly in line with depreciation. Significant other expenditurescomprised the fitting out of empty space in the underground storage areas atWansdyke and installing new racking at both Restore and Wansdyke. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) We have adopted IFRS with effect from 1 January 2006. Comparative figures forthe six months ended 30 June 2006 and for the year ended 31 December 2006 havebeen restated. The principal differences related to the write back of goodwillamortisation in 2006 and providing full deferred taxation on the property atWansdyke and other intangibles. BOARD On 13 June 2007, Bob Guthrie was appointed to the Board as a non-executivedirector and Steve Watkins, a non-executive director, became an executivedirector in charge of the Emergency Repair business. OUTLOOK The Group ended the half year with two well-established divisions and a marketcapitalisation currently in excess of £90 million. Integration benefits arecoming through in the two divisions as well as good underlying organic growth.The emergency repair and document handling industries continue to grow stronglyand our businesses are trading in line with expectations. We still plan to addfurther complementary businesses to these operations on a selective basis andgiven the cash generative qualities of the business, there is scope to acquirefurther businesses for cash. Kevin MahoneyChief Executive Officer 12 September 2007 Condensed Consolidated Interim Income Statementfor the six months ended 30 June 2007 Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 £'000 £'000 £'000 Continuing operations Revenue 32,404 16,287 42,453 Cost of sales (20,412) (10,432) (26,200) ----------- ----------- ------------Gross profit 11,992 5,855 16,253 Administrativeexpenses (8,563) (3,848) (11,066) ----------- ----------- ------------Operating profit 3,429 2,007 5,187 Investmentincome 40 9 82Finance costs (924) (534) (1,518) ----------- ----------- ------------Profit beforetax 2,545 1,482 3,751 Income taxexpense (778) (444) (1,195) ----------- ----------- ------------Profit for theperiod 1,767 1,038 2,556 =========== =========== ============ Attributable to:Equityshareholders 1,767 1,038 2,556 Earnings per share (pence) Basic 0.39p 0.31p 0.66p Diluted 0.33p 0.28p 0.59p Consolidated Statement of Changes in Shareholders' Equityfor the six months ended 30 June 2007 Share capital Share premium Share based Retained Restated payments earnings total reserve £'000 £'000 £'000 £'000 £'000 Balance at 1January 2007(as restated) 503 40,060 1,102 2,572 44,237 Acquisition ofDCS (note 6) 4 996 - - 1,000Current periodcharge - - 900 - 900Profit for theperiod - - - 1,767 1,767 ------- -------- -------- -------- --------Balance at 30June 2007 507 41,056 2,002 4,339 47,904 ======= ======== ======== ======== ======== Condensed Consolidated Interim Balance Sheetat 30 June 2007 Restated Unaudited Unaudited Restated 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 AssetsNon-current assetsGoodwill 52,232 34,017 49,753Intangible assets 11,960 3,083 9,070Property, plant andequipment 11,303 10,211 10,826Investments 550 - - ----------- ----------- ----------- 76,045 47,311 69,649 ----------- ----------- -----------Current assetsInventories 323 170 311Trade and otherreceivables 18,499 6,894 13,369Cash and cashequivalents 908 1,695 1,850 ----------- ----------- ----------- 19,730 8,759 15,530 ----------- ----------- ----------- ----------- ----------- -----------Total assets 95,775 56,070 85,179 =========== =========== =========== LiabilitiesCurrent liabilitiesTrade and otherpayables (12,087) (5,018) (11,114)Current taxliabilities (3,025) (2,248) (1,969)Obligations underfinance leases (116) (178) (109)Bank overdrafts andloans (3,444) (3,000) (3,600) ----------- ----------- ----------- (18,672) (10,444) (16,792) ----------- ----------- ----------- Net currentassets/(liabilities) 1,058 (1,685) (1,262) ----------- ----------- ----------- Non-current liabilitiesBank loans (21,918) (13,657) (15,790)Deferred tax (4,478) (2,537) (3,977)Provisions (2,803) - (4,383) ----------- ----------- ----------- (29,199) (16,194) (24,150) ----------- ----------- ----------- ----------- ----------- -----------Net assets 47,904 29,432 44,237 =========== =========== =========== Shareholders equityCalled up sharecapital 507 393 503Share premiumaccount 41,056 27,524 40,060Share based paymentsreserve 2,002 461 1,102Retained earnings 4,339 1,054 2,572 ----------- ----------- -----------Total shareholdersequity 47,904 29,432 44,237 =========== =========== =========== Condensed Consolidated Interim Statement of Cash Flowsfor the six months ended 30 June 2007 Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000Reconciliation of operatingprofit to net cash inflow fromoperating activitiesContinuing operations Profit for the period 1,767 1,038 2,556 Depreciation 467 416 919 Amortisation of intangible 62 - 10 assets Share based payments 911 376 1,039 Gain on disposal of fixed - - (54) assets Change in inventories (12) 94 59 Change in trade and other (5,130) (833) (2,570) receivables Change in trade and other 1,384 204 142 payables Interest paid 884 525 1,436 Income tax expense 778 444 1,195 ----------- ----------- ----------- ----------- ----------- -----------Net cashgenerated fromoperations 1,111 2,264 4,732 Net interest paid (996) (473) (955) Tax paid (189) - (984) ----------- ----------- ----------- ----------- ----------- -----------Net cash (usedby)/generated (74) 1,791 2,793from operating activities Cash flows from investingactivities Proceeds on disposal of - 13 842 property, plant and equipment Purchases of property, plant (1,135) (346) (1,168) and equipment Acquisition of subsidiary, net (5,581) (11,242) (25,507) of cash acquired ----------- ----------- ----------- ----------- ----------- -----------Cash flowsused ininvestingactivities (6,716) (11,575) (25,833) Cash flows from financingactivities Repayment of borrowings (1,000) (1,138) (4,381) New bank loans raised 6,550 12,000 18,043 Deferred financing costs (70) (136) (268) Increase in bank overdrafts 444 - - Net proceeds from issue of - - 11,346 shares Finance leases (76) (84) (687) ----------- ----------- -----------Net cashgenerated infinancingactivities 5,848 10,642 24,053 ----------- ----------- ----------- Net (decrease)/ increase incash and cashequivalents (942) 858 1,013 Cash and cash equivalents at 1,850 837 837 start of period ----------- ----------- -----------Cash and cashequivalents atthe end ofperiod 908 1,695 1,850 =========== =========== =========== Notes to the Consolidated Interim reportfor the six months ended 30 June 2007 1 Basis of preparationPrior to this accounting period, the Group prepared its audited annual financialstatements under UK Generally Accepted Accounting Principles (UK GAAP). Forperiods commencing 1 January 2007, the Group is required to prepare its annualconsolidated financial statements in accordance with International FinancialReporting Standards (IFRS) including International Accounting Standards (IAS)and interpretations issued by the International Accounting Standards Board(IASB) and its committees, and as endorsed by the European Commission. As thefinancial statements for the year to 31 December 2007 will include comparativesfor the year ended 31 December 2006, the Group's date of transition to IFRSunder IFRS 1 'First-time Adoption of International Financial ReportingStandards' is 1 January 2006 and the comparatives will be restated under theprovisions of IFRS. Accordingly, the financial information for the six months to30 June 2006 and for the year ended 31 December 2006 has been restated topresent the comparative information in accordance with IFRS. Note 7 of thisinterim financial information sets out how the Group's previously reportedperformance and financial position are affected by the change to IFRS. The unaudited interim financial information for the half year ended 30 June2007, which has been approved by the Board of Directors on 12 September 2007,has been prepared based on the following accounting policies. Accounting policies The accounting policies used in the preparation of the interim financialinformation have been consistently applied to all periods presented. The Grouphas not adopted all of the provisions of IAS 34 'Interim Financial Reporting' inthis interim financial information. IFRS 1 sets out the procedures that the Group must follow when it adopts IFRSfor the first time as the basis for preparing its consolidated financialstatements. Under IFRS 1 the Group will be required to establish its IFRSaccounting policies as at 31 December 2007 and, in general, apply theseretrospectively to determine the IFRS opening balance sheet at its date oftransition, 1 January 2006. IFRS 1 provides a number of optional exceptions tothis general principle. The most significant of these are set out below,together with a description in each case of whether an exception has beenadopted by the Group. Business combinationsThe Group has elected not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that took place before 1 January 2006. Share-based paymentsThe Group has elected to apply IFRS 2 'Share-based Payment' to all relevantshare based payment transactions. The interim report for the six months ended 30 June 2007 does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985.The results for the year ended 31 December 2006 have been filed with theRegistrar of Companies. The auditors' report contained therein, was unqualifiedand did not contain a statement under section 237 (2) or (3) of the CompaniesAct 1985. 2 Segmental information Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 The revenue was derived from theGroup's principal activities in theUK as follows:Document Handling 5,331 3,654 7,938Emergency Repair 27,073 12,633 34,515 ----------- ----------- ----------- 32,404 16,287 42,453 =========== =========== =========== The profit before tax was derivedfrom the Group's principal activitiesin the UK as follows:Document Handling 1,630 1,072 2,418Emergency Repair 3,496 1,750 4,787Central costs (724) (439) (969)Share based payments charge (911) (376) (1,039)Amortisation of intangibleassets (62) - (10)Notional interest oncontingent consideration 58 - (158)Net interest payable (942) (525) (1,278) ----------- ----------- ----------- 2,545 1,482 3,751 =========== =========== =========== Segmental assets:Document Handling 36,341 25,399 25,620Emergency Repair 59,171 30,543 59,326Central 263 128 233 ----------- ----------- ----------- Total 95,775 56,070 85,179 Segmental liabilities:Document Handling (6,150) (4,906) (5,071)Emergency Repair (13,764) (5,105) (13,422)Central (27,957) (16,627) (22,449) ----------- ----------- ----------- Total (47,871) (26,638) (40,942) Segmental net assets:Document Handling 30,191 20,493 20,549Emergency Repair 45,407 25,438 45,904Central (27,694) (16,499) (22,216) ----------- ----------- ----------- Total 47,904 29,432 44,237 =========== =========== =========== Capital expenditure 1,135 346 1,168Depreciation and amortisation of intangible assets 529 416 929 3 Tax The underlying tax charge is based on the expected effective tax rate for thefull year to 31 December 2007 and is calculated as 30.4% on profit before tax. 4 Earnings per shareBasic earnings per share have been calculated on the profit after tax for theperiod and the weighted average number of ordinary shares in issue during theperiod. Adjusted earnings per share that are before share based payments charge,amortisation of intangible assets and notional interest on contingentconsideration have been presented in addition to the basic earnings per sharesince, in the opinion of the Directors, this provides shareholders with a moreappropriate representation of the underlying earnings derived from the Group'sbusinesses. Restated Restated Unaudited Unaudited Year Six months Six months ended ended ended 31 December 30 June 2007 30 June 2006 2006 No. of shares No. of shares No. of sharesWeighted average number ofshares in issue 455,409,225 334,570,268 388,920,578 ============ ============ ============ £'000 £'000 £'000Profit after tax onordinary activities 1,767 1,038 2,556 === === ===Adjustments:Share based payments charge(net of tax) 641 263 727Amortisation of intangibleassets 62 - 10Notional interest oncontingent consideration (58) - 158 ------------ ------------ ------------Adjusted earnings 2,412 1,301 3,451 ============ ============ ============ Basic earnings per ordinaryshare 0.39p 0.31 p 0.66 p ============ ============ ============ Adjusted basic earnings perordinary share (beforeshare based paymentscharge, amortisation ofintangible assets andnotional interest oncontingent consideration) 0.53 p 0.39 p 0.89 p ============ ============ ============ No. of shares No. of shares No. of sharesWeighted average number ofshares in issue 455,409,225 334,570,268 388,920,578 Convertible 'A' Shares,Share Options and awardsunder the LTIP 73,414,400 37,459,054 44,082,349 ------------ ------------ ------------Weighted average fullydiluted number of shares inissue 528,823,625 372,029,322 433,002,927 ============ ============ ============ Fully diluted earnings perordinary share 0.33 p 0.28 p 0.59 p ============ ============ ============ Adjusted fully dilutedearnings per ordinary share(before share basedpayments charge,amortisation of intangibleassets and notionalinterest on contingentconsideration) 0.46 p 0.35 p 0.80 p ============ ============ ============ The diluted earnings per share are the basic earnings per share adjusted for thedilutive effect of the conversion into fully paid shares of the outstandingshare options and awards under the LTIP. They are also adjusted for theconversion of the A shares into ordinary shares at a price of 17.61p, being theaverage price per ordinary share in the period ended 30 June 2007 (30 June 2006:13.63p; 31 December 2006: 13.93p). 5 Analysis of changes in net debt Restated Unaudited At Non cash At 1 January Six months movement 30 June 2007 Cash flow Acquisitions 2006 2007 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents 1,850 (942) - - 908 Current financialliabilitiesBank loans repayablewithin one year (3,600) (5,922) (36) 6,114 (3,444)Finance leases repayablewithin one year (109) 76 (83) - (116) Non-current financialliabilitiesBank loans repayable inmore than one year (16,100) - - (6,150) (22,250)Deferred financing costs 310 93 - (71) 332 -------- -------- --------- -------- --------Net debt (17,649) (6,695) (119) (107) (24,570) ======== ======== ========= ======== ======== 6 Acquisitions On 2 February 2007, External Services Group Limited (ESG), a drainage subcontractor to ANSA, was acquired for cash of £206,000 and assumed debt of£63,000. On 26 March 2007, the Company acquired Document Control Services Limited (DCS)for an initial sum of £1.3 million. Contingent consideration of up to £2 millionis also payable in cash linked to the growth in EBITA for the year ending 30June 2008. The full £2 million is payable assuming EBITA reaches £1.23 million. Book value at Fair value Fair value at acquisition adjustment acquisition £'000 £'000 £'000Document Control Services Limited(DCS)Intangible assets - 2,901 2,901Fixed assets 103 - 103Working capital 575 - 575Taxation (147) (812) (959)Cash 6 - 6Finance leases (56) - (56) ----------- ----------- -----------Net assets acquired 481 2,089 2,570 =========== ===========Goodwill capitalised 5,588 -----------Consideration 8,158 =========== Satisfied by:Cash to vendors 291Loans repaid 4,794Share issues 1,000Discounted contingentconsideration 1,777Related costs of acquisition 296 ----------- 8,158 =========== The intangible asset fair value adjustment has been made to recognise the valueattributable to existing customer relationships, the trade name, technology andsoftware. The goodwill of £5.6 million represents the value attributable to newbusiness and the assembled and trained workforce. Deferred tax at 28% has beenprovided on the value of the intangible assets. Goodwill £'000 Balance at 1 January 2007 (as restated) 49,753Addition - Document Control Services 5,588Addition - External Services Group 183Contingent consideration adjustment - Independent Inspections (3,353)Contingent consideration adjustment - Mono Services 46Other 15 -----------Balance at 30 June 2007 52,232 =========== The amount of contingent consideration expected to be payable in respect of theacquisition of Independent Inspections was reduced to zero due to the profitlevels attained. 7 Explanation of transition to IFRSThe Group's financial statements for the year ended 31 December 2007 will be thefirst financial statements that comply with International Financial ReportingStandards (IFRS). The Group's financial statements prior to and including 31December 2006 had been prepared in accordance with Generally Accepted AccountingPrinciples in the United Kingdom (UK GAAP). The following disclosures are required in the year of transition under theprovisions of IFRS 1 and show the effects of the transition to IFRS on theGroup's reported performance and financial position for the comparative periodsand on the date of transition. The last financial statements prepared under UKGAAP were for the year ended 31 December 2006 and the date of transition to IFRSis therefore 1 January 2006. Reconciliation of shareholders equity at 1 January 2006 UK GAAP Effects of IFRS transition to IFRS Notes £'000 £'000 £'000Non-current assetsGoodwill 31,224 - 31,224Intangible assets 2 - 219 219Property, plant and equipment 2 1,996 (219) 1,777 --------- --------- -------- 33,220 - 33,220 --------- --------- --------Current assetsInventories 250 - 250Trade and other receivables 5,509 - 5,509Cash and cash equivalents 837 - 837 --------- --------- -------- 6,596 - 6,596 --------- --------- --------Total assets 39,816 - 39,816 ========= ========= ======== Current liabilitiesTrade and other payables (4,511) - (4,511)Current tax liabilities (474) - (474)Obligations under financeleases (175) - (175)Bank overdrafts and loans (1,433) - (1,433) --------- --------- -------- (6,593) - (6,593) --------- --------- --------Net current assets 3 - 3 --------- --------- -------- Non-current liabilitiesBank loans (3,389) - (3,389)Deferred tax (142) - (142)Provisions (2,574) - (2,574)Obligations under financeleases (175) - (175) --------- --------- -------- (6,280) - (6,280) --------- --------- --------Net assets 26,943 - 26,943 ========= ========= ======== Shareholders equityCalled up share capital 383 - 383Share premium account 26,459 - 26,459Share based payments reserve 85 - 85Retained earnings 16 - 16 --------- --------- --------Total shareholders equity 26,943 - 26,943 ========= ========= ======== Reconciliation of shareholders equity at 30 June 2006 UK GAAP Effects of IFRS transition to IFRS Notes £'000 £'000 £'000Non-current assetsGoodwill 1 33,696 321 34,017Intangible assets 1,2 - 3,083 3,083Property, plant and equipment 2 10,429 (218) 10,211 --------- --------- --------- 44,125 3,186 47,311 --------- --------- ---------Current assetsInventories 170 - 170Trade and other receivables 6,894 - 6,894Cash and cash equivalents 1,695 - 1,695 --------- --------- --------- 8,759 - 8,759 --------- --------- --------- --------- --------- ---------Total assets 52,884 3,186 56,070 ========= ========= ========= Current liabilitiesTrade and other payables (5,018) - (5,018)Current tax liabilities (2,248) - (2,248)Obligations under financeleases (178) - (178)Bank overdrafts and loans (3,000) - (3,000) --------- --------- --------- (10,444) - (10,444) --------- --------- --------- Net current liabilities (1,685) - (1,685) --------- --------- --------- Non-current liabilitiesBank loans (13,657) - (13,657)Deferred tax 3 (220) (2,317) (2,537) --------- --------- --------- (13,877) (2,317) (16,194) --------- --------- --------- --------- --------- ---------Net assets 28,563 869 29,432 ========= ========= ========= Shareholders equityCalled up share capital 393 - 393Share premium account 27,524 - 27,524Share based payments reserve 461 - 461Retained earnings 4 185 869 1,054 --------- --------- ---------Total shareholders equity 28,563 869 29,432 ========= ========= ========= Reconciliation of shareholders equity at 31 December 2006 UK GAAP Effects of IFRS transition to IFRS Notes £'000 £'000 £'000Non-current assetsGoodwill 1 52,418 (2,665) 49,753Intangible assets 1,2 - 9,070 9,070Property, plant andequipment 2 11,084 (258) 10,826 --------- --------- -------- 63,502 6,147 69,649 --------- --------- --------Current assets Inventories 311 - 311Trade and otherreceivables 13,369 - 13,369Cash and cashequivalents 1,850 - 1,850 --------- --------- -------- 15,530 - 15,530 --------- --------- -------- --------- --------- --------Total assets 79,032 6,147 85,179 ========= ========= ======== Current liabilitiesTrade and otherpayables (11,114) - (11,114)Current taxliabilities (1,969) - (1,969)Obligations underfinance leases (109) - (109)Bank overdrafts andloans (3,600) - (3,600) --------- --------- -------- (16,792) - (16,792) --------- --------- -------- Net currentliabilities (1,262) - (1,262) --------- --------- -------- Non-current liabilitiesBank loans (15,790) - (15,790)Deferred tax 3 8 (3,985) (3,977)Provisions (4,383) (4,383) --------- --------- -------- (20,165) (3,985) (24,150) --------- --------- -------- --------- --------- --------Net assets 42,075 2,162 44,237 ========= ========= ======== Shareholders equityCalled up sharecapital 503 - 503Share premium account 40,060 - 40,060Share based paymentsreserve 1,102 - 1,102Retained earnings 4 410 2,162 2,572 --------- --------- --------Total shareholdersequity 42,075 2,162 44,237 ========= ========= ======== Notes to the reconciliation of shareholders equity 1. Goodwill and intangible assets The Group has elected not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that took place before 1 January 2006.The Group has adopted IFRS 3 'Business combinations' in full for allacquisitions that have occurred after this date. This has resulted in therecognition of net additional intangible fixed assets of £2,865,000 at 30 June2006 and £8,812,000 (after amortisation of intangible assets of £10,000) at 31December 2006. The adjustment in goodwill and intangible assets at 30 June 2006 comprises: Goodwill Intangible assets £'000 £'000Goodwill written back 869 -Wansdyke deferred tax on property revaluation 1,515 -Wansdyke existing customer relationships (2,865) 2,865Deferred tax on existing customer relationships 802 -Application software transfer - 218 -------- -------- 321 3,083 ======== ======== The adjustment in goodwill and intangible assets at 31 December 2006 comprises: Goodwill Intangible assets £'000 £'000Goodwill written back 2,172 -Wansdyke deferred tax on property revaluation 1,515 -Wansdyke existing customer relationships (2,865) 2,865Independent existing customer relationships (2,700) 2,700Independent applications software and website (61) 61Mono Services existing customer relationships (3,097) 3,097Mono Services applications software and website (99) 99Deferred tax on existing customer relationships,applications software and website 2,470 -Application software transfer - 258Amortisation of intangible assets - (10) -------- -------- (2,665) 9,070 ======== ========Under UK GAAP the intangible fixed assets would have been recognised ingoodwill, the amortisation would have been £869,000 in the period ended 30 June2006, and £2,172,000 in the year ended 31 December 2006. 2. Software classification Application software, which can be run independently from any specific hardwareconfiguration, is included within intangibles under IFRS rather than tangibleassets as is the norm under UK GAAP. The effect of this is to reclassifysoftware of £219,000 at January 2006, £218,000 at June 2006 and £258,000 atDecember 2006 from tangible assets to intangible assets. Total net assets remainunchanged by this adjustment. 3. Deferred tax A tax timing difference of £1,515,000 has been recognised in respect ofrevaluation of properties acquired in February 2006 via the acquisition ofWansdyke Securities Limited. A deferred tax liability on the intangible assets adjustments has beenrecognised of £802,000 at 30 June 2006 and £2,470,000 at 31 December 2006. 4. Retained earnings The Group has elected not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that took place before 1 January 2006.The retained earnings have been restated due to the removal of goodwill of£869,000 at 30 June 2006 and £2,172,000 at 31 December 2006 and amortisation ofintangible assets of £10,000 at 31 December 2006. Reconciliation of Consolidated Income Statement for the six months ended 30 June2006 Effects of transition UK GAAP to IFRS IFRS Note £'000 £'000 £'000 Continuing operationsRevenue 16,287 - 16,287 Cost of sales (10,432) - (10,432) -------- -------- ---------Gross profit 5,855 - 5,855 Administrative expenses 1 (4,717) 869 (3,848) -------- -------- ---------Operating Profit 1,138 869 2,007 Finance costs 9 - 9Investment Income (534) - (534) -------- -------- ---------Profit before tax 613 869 1,482 Tax (444) - (444) -------- -------- ---------Profit for the period 169 869 1,038 ======== ======== ========= Reconciliation of Consolidated Income Statement for the year ended 31 December2006 Effects of transition UK GAAP to IFRS IFRS Note £'000 £'000 £'000Continuing operationsRevenue 42,453 - 42,453 Cost of sales (26,200) - (26,200) -------- -------- ---------Gross profit 16,253 - 16,253 Administrative expenses 1 (13,228) 2,162 (11,066) -------- -------- ---------Operating Profit 3,025 2,162 5,187 Finance costs 82 - 82Investment Income (1,518) - (1,518) -------- -------- ---------Profit before tax 1,589 2,162 3,751 Tax (1,195) - (1,195) -------- -------- ---------Profit for the period 394 2,162 2,556 ======== ======== ========= Notes to the reconciliation of the Consolidated Income Statement 1. Acquisitions The Group has elected not to apply IFRS 3 'Business Combinations'retrospectively to business combinations that took place before 1 January 2006.The Group has adopted IFRS 3 'Business combinations' in full for allacquisitions that have occurred after this date. Under UK GAAP the intangiblefixed assets would have been recognised in goodwill, the amortisation was£869,000 in the period ended 30 June 2006, and £2,172,000 in the year ended 31December 2006. As a result of reclassifying intangible assets from goodwill,amortisation of intangible assets of £10,000 has been charged in the year ended31 December 2006. Explanation of material adjustments to the Statement of Cash Flows. There are no significant adjustments between the cash flow statements producedunder IFRS as against UK GAAP. ENDS This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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