4th May 2005 07:01
Innovation Group PLC04 May 2005 4 May 2005 THE INNOVATION GROUP PLC INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2005 The Innovation Group (TiG), which specialises in providing transformationalbusiness solutions for the global insurance community that incorporatetechnology, outsourcing and supply chain management, today announces itsunaudited interim results for the six months to 31 March 2005. Highlights for the six months ended 31 March 2005: • Total turnover up 5% to £28.8m (H1 2004: £27.4m). • Recurring revenues increased to £19.0m; representing 66% of Group revenue (H1 2004: £14.7m) • Adjusted profit before tax* of £2.0m (H1 2004: £3.0m) • Loss before tax £5.0m (H1 2004: Loss of £3.5m) • Operating cash inflow of £0.8m • Five year agreement announced with IBM • Started new engagements with both existing and new clients *Adjusted profit is the profit before tax after adding back the amortisation charge of £7.0m as analysed on page 6 Commenting on the results, Hassan Sadiq, Chief Executive, said: "We are pleased with the progress made over the last six months. We remainfirmly on course with our plans. Current client commitments and order pipelineactivity are encouraging and we remain on track for a progressively improvingperformance". Enquiries: The Innovation Group plc 01489 898300Hassan Sadiq, Chief Executive Officer Paul Smolinski, Group Finance Director Robert W. Baird Limited 020 7488 1212Shaun Dobson Smithfield 020 7360 4900Sara Musgrave/Sarah Richardson Notes to Editors The Innovation Group plc is a specialist provider of transformational businesssolutions for the global insurance community that incorporate technology,outsourcing and supply chain management. Its solutions enable clients toimplement changes that increase profits and improve their ability to servecustomers. The Group's services are delivered through local operations in thetop four world's insurance markets and leverage a strong talent and effectivecost base through operations in South Africa and the Asian subcontinent. Improvements in capital markets and the recognised need to dramatically improveprofitability of operations have increased interest across all segments.Industry analysts and market leaders recognise the significance that improvingefficiencies and lowering direct expenses have in positioning organisations tocompete in a shrinking global market. A recent Conning Strategic Study on insurance expense ratios cites that expensesavings of 10% could result in a 25% improvement in Return on Equity. Otherstudies by Gartner, Meta Group and Datamonitor cite addressing core processingfunctions, such as Policy and Claims processing, and outsourcing as criticalpaths to achieving direct savings and profitability improvement. Across the markets where the Group maintains clients and operations, itsofferings have proven their value in reducing costs and improving the customerexperience for our long term Tier One, Two and Three clients. These marketsrepresent more than $960 billion in Gross Written Premium and more than $650billion in claims expense that can be directly addressed with the Group'ssolution offerings. Examples of these long-term relationships include: ACSC,Allianz, Aviva, AXA, BMW, Continentale, Direct Line, Elders, Ford Motor Company,Jaguar, JVC, Norwich Union, RAC plc, RSA, Sanyo, Toshiba, Toyota, Sonpo24,Zenith and Zurich. Market Facts: Geographic 1. United States ($574,579); 2. Japan ($97,530); 3. GermanyRevenues ($94,073); 4. United Kingdom ($91,891); 5. France ($58,244); 7.(USD, Canada ($36,303); 11. Australia ($8,360); 28. South Africa ($3,000)Millions) (McKinsey, 2003 figures) Key In the past 20 years, the banking industry has achieved an 80%Ratios improvement in its efficiency ratio, and improved its overall return on assets by 60% and overall return on equity by 25%. (Conning Research, 2004) Based on historical costs for the insurance industry, expense reductions could greatly exceed 10%, a figure that could yield a 25% improvement in the average ROE. (Conning Research, 2004) Market The effect of cyclical pricing trends have had temporary effects onIssues expense ratios, but these effects appear to revert to a constant, or slightly increasing, long-term trend. (Conning Research, 2004) Claims administration and payments cost insurers, on average, 80% of their annual revenue. (Gartner, 2004) Trends More than 70% of insurers will re-examine their existing administration systems during 2004/05, and more than 35% will extend, rebuild, or replace at least some of them by 2005. (Meta Group, 2004) 20% of insurers will seriously consider business process outsourcing as a viable alternative. (Meta Group, 2004) INTERIM RESULTS 2005 Chief Executive's Statement I am pleased to report the interim financial results for the Innovation Groupplc for the six months ended 31 March 2005. In line with our stated strategy,the Group has continued to make significant progress in transforming thebusiness from a software company to a specialist service provider to the riskcarrier market. During the last six months we have increased recurring revenues, added new longterm commitments from our existing client base and initiated new clientrelationships. Having brought the customer management elements of our two divisions closertogether, clients can now engage with TiG across a variety of levels. Althoughthe initiative remains in its early stages, examples of clients committing toother TiG products and services are already materialising. We anticipate thatmore of our engagements will take a similar course in the future and coupledwith continued delivery success will be key to us achieving our overallstrategy. In summary, as a Group we are pleased with the progress made over the last sixmonths and we remain firmly on course with our plans. Financial and Operating Review Revenue for the six months to 31 March 2005 was up 5% to £28.8m (H1 2004:£27.4m); recurring revenues increased from £14.7m to £19.0m and now represent66% of Group revenue. Technology Solutions Division (TSD) turnover was £12.4m(H1 2004: £15.3m), comprising £2.4m initial licence fee, £6.6m solutiondelivery, £0.9m US public sector and £2.5m maintenance and other recurring.Specialised Business Process Outsourcing (SBPO) turnover was £16.4m (H1 2004:£12.m). Adjusted profit* was £2.0m (H1 2004: £3.0m) and loss before tax was £5.0m (H12004: Loss of £3.5m), representing adjusted EPS of 0.36p (H1 2004: 0.55p) andbasic loss per share of 1.23p (H1 2004: loss per share of 0.97p). Cash was £13.7m as at 31 March 2005 and operating cash inflow for the six monthperiod was £0.8m. On 1 October 2004, the Group settled the final instalment of £1.0m payable onthe acquisition of InterX through the issue of approximately 3.7m new ordinaryshares. *Adjusted profit is the profit before tax after adding back the amortisationcharge of £7.0m as analysed on page 6. Technology Solutions Division (TSD) Continuing to transform Revenue for the six months ended 31 March 2005 of £12.4m represents a year onyear fall of £2.9m. This decrease is due primarily to lower US Public Sectorbusiness in 2005, the delayed start of new client implementations during Q2 2005(which have subsequently commenced in Q3), and the changing licence model. TSDis by definition a business supplying long term solutions to our clients.Consequently the underlying progress of the division is not reflected by thefirst half year results alone. Overall we are pleased with the progress made inthe first half of the year. Relationship with IBM In March 2005, we were delighted to announce a five-year agreement with IBM tocreate a client-focused global delivery centre specifically targeted around theTiG Policy, Claims and Conversion products. For TiG, it represents an importantstep change in our ability to obtain new commitments via IBM, whilst giving ourcustomers the confidence that we have the capability and capacity to serve andsupport their major transformation programs on a global basis. The relationshipalso enables TiG to focus on continuing to innovate its core products andprovides an economical and higher probability path for being successful in theglobal market. Investing for sustainable growth Whilst the new IBM partnership is a very positive development, it requires aninvestment of time and effort, and consequently we will be putting extensiveresources into training, joint customer planning and product education in orderfor us to realise the maximum potential of this relationship. We have alsoperformed initial set up work for a TiG training university aimed at educatingboth staff within TiG and partners that use and apply the TiG systems. During our first quarter we announced the joint venture with Netsol, based inIndia and Pakistan, to provide additional resource at a lower cost base. Sincethe announcement, we have invested in the training of consultants who will beready to work in the business during our fourth quarter. These initiatives are of particular significance in the provision of highquality delivery and support to our global customer base whilst giving a solidbackbone for sustainable growth in the future. New client commitments We are enjoying success in our objective of gaining new client commitments. InJanuary 2005, a US client extended its licensing deal with TiG and it isexpected that this policy project will contribute to an increase in solutiondelivery revenue in the second half of the year and beyond. During the period wealso commenced a pilot in the UK with a major existing client, signed heads ofterms with a new client in Japan and started pilot work with a new client inAustralia. All of these relate to the new services based TiG Policy product.Additionally, in Australia we signed a licence extension and a contract forassociated services with an existing client. During February 2005 we began to work with a new US client for TiG Claims whichwe expect to be converted into a full contract in the second half of 2005. Weenvisage that this will comprise an initial licence fee of approximately £0.5mfollowed by licence usage fees covering the next 10 years. The total value ofthe deal to be recognised in the current financial year should be in the regionof £0.5m to £1.0m. In addition, it may provide us with the opportunity toperform SBPO services to the client in their other territories. Supporting our ability to gain new commitments is the successful delivery of ourproducts that are now becoming global industry success stories. For example, inthe US a major client commenced production during April 2005 using TiG Policy ina joint project with IBM. These successes, together with working closely with industry analysts such asGartner and Meta improve awareness of our solutions, and of the Group, and itsreputation. Specialised Business Process Outsourcing Division (SBPO) The SBPO division continues to perform strongly with revenue up 35% (23%organically) to £16.4m in the first half of this year. Our South African business continues to perform well with the recent MaxiCareacquisition contributing £2.2m of turnover during the first half. The SouthAfrican business has secured six new significant clients in the period reported,including new clients for its insurance claims administration, motorCare(accident management), assessIt (accident damage assessment), telesales ofinsurance contracts, and white and brown goods warranty administrationoperations. There have also been nine extensions of existing services withexisting clients. The focus on gaining business from the intermediary market isalso starting to gain momentum. Germany continues to grow with revenue up 44% to £1.3m in the first half of theyear (2004: £0.9m). In line with our recurring revenue strategy, this growth hasbeen achieved through further penetration of our existing client base. Specificinitiatives are being implemented, working together with insurance clients,focused on increasing consumer awareness on the use of insurer repair networks.We also continue to develop our fleet service products in order to grow thisbusiness segment in the future. We are currently investigating opportunities forexpanding the service offering into neighbouring countries. The new client in the UK motorCare business has now started to bring business onstream and we should see increased volumes in the second half of the year.AssetCare in the UK is growing after the launch last year, and InFront, ouroutsourced services business for subsidence management, is also demonstratingparticular success. A restructuring of the UK business into focused productdivisions is in progress and is expected to be completed in the next quarter. In Australia, we continue to focus on the accident management and assessmentbusiness whilst investing in expanding the product range to include warrantyadministration for household products and buildings. During the half year, the Group has concluded a number of tactical M & Aactivities. In December 2004, the Group acquired the remaining 30% minoritystake in Statsure (Proprietary) Limited in South Africa (insurance claimsadministration) for £0.5m. The Group also acquired a further 47% of InFront(buildings subsidence administration) for £0.65m (and in addition payments of upto £1.85m cash based on the future profits of the company). In March 2005, Chartoak (car rental) was closed down. Chartoak made a loss of£0.3m for the six month period, and was our last remaining non-core business inSBPO, representing the completion of our streamlining of the SBPO business. As previously mentioned, the increased revenues in the SBPO division for therest of the financial year will primarily be driven by the increased volume oftransactions undertaken through existing contractual relationships. The newclient wins experienced in the first half of our financial year will primarilydrive business increases in 2006 and beyond. SBPO remains on track and wecontinue to investigate options to increase revenues. Future reporting requirements and communication with shareholders The Prospectus Directive, to be issued by the FSA, is scheduled to come intoforce on 1 July 2005 and will remove the requirement for companies such as TiG,who listed under chapter 25 and now have a three year trading record, to reportto shareholders on a quarterly basis. It is our intention, providing theProspective Directive comes into force, that with effect from our next financialyear commencing 1 October 2005, reporting to shareholders will be for the halfyear and full year, as is the case with most UK Listed companies. The Remuneration Committee and the Board have been considering theimplementation of a long term incentive plan for the Group's executive directorsand key management in line with current best practice. This has includedconsultation with external remuneration advisors and a selection of our largestshareholders. It is proposed that these plans will be put to shareholder vote atan EGM, together with a proposal to perform a capital reduction to restructurethe balance sheet which will restore the Group's distributable reserves and thusposition the Group to be able to pay dividends at some future date. Outlook The global insurance community is increasing its investment in technology,outsourcing and supply chain management. Meanwhile, our business is exhibitingsound fundamentals and an increase in the number of new commitments both fromexisting clients and newly established relationships. The SBPO business continues to grow strongly and the new client wins achieved inthe first half of our financial year are expected to drive business increases in2006 and beyond. Within the TSD business, our agreement with IBM strengthens ourcapability to service our clients globally. The Group continues to progress wellin building its reputation whilst solid financial and corporate governancecontinue to remain paramount to the business. As previously stated, we continue to expect revenue and profits to be weightedto the second half of the year. Overall, we are optimistic that the improvedprofitability seen in the last twelve months should continue. Client commitmentsand order pipeline activity in the first six months are also encouraging and,accordingly, we remain on track for a progressively improving performance. Hassan SadiqChief Executive3 May 2005 The Innovation Group plcFinancial HighlightsFor the six months ended 31 March 2005 Unaudited Audited Note Year to 6 months ended 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Turnover 28,772 27,355 58,051 Adjusted profit before tax a 1,955 3,008 7,525 Loss before tax (5,029) (3,451) (7,349) Adjusted earnings per share(pence) 6 0.36 0.55 1.49Basic and diluted loss per share(pence) 6 (1.23) (0.97) (1.98)Adjusted diluted earnings pershare (pence) 6 0.35 0.54 1.46 Note: a Adjusted profit before tax is calculated as: Year to 6 months ended 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Loss before tax (5,029) (3,451) (7,349)Add back/(exclude):Amortisation 6,984 7,372 14,621Exceptional items - - 868Profit on disposal of operations - (1,013) (1,340)Amounts written off investments - 100 725 ---------- ---------- ---------Adjusted profit before tax 1,955 3,008 7,525 ========== ========== ========= References to adjusted profit and earnings per share reflect the Directors' viewthat this is an important measure for their own, and shareholders', assessmentof the Group's underlying performance. The Innovation Group plcUnaudited Profit and Loss AccountFor the six months ended 31 March 2005 Unaudited Unaudited Audited ----------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 Note £'000 £'000 £'000 TURNOVER 2 28,772 27,355 58,051Cost of sales (15,218) (12,009) (25,520) ----------- ---------- ----------Gross profit 13,554 15,346 32,531Administrative expenses- amortisation (6,984) (7,372) (14,621)- exceptional items 3 - - (868)- other (11,676) (12,276) (24,825) ----------- ---------- ---------- (18,660) (19,648) (40,314) ----------- ---------- ---------- OPERATING LOSS (5,106) (4,302) (7,783) Share of operating profit/(loss)of associate undertaking 9 (15) (54)Profit on disposal of 4 - 1,013 1,340operationsAmounts written off 3 - (100) (725)investments Net interest 68 (47) (127) ----------- ---------- ----------LOSS ON ORDINARY ACTIVITIESBEFORE TAXATION (5,029) (3,451) (7,349)------------------------ ----- ----------- ---------- ---------- Loss on ordinary activitiesbefore taxation (5,029) (3,451) (7,349)Amortisation 6,984 7,372 14,621Exceptional items 3 - - 868Profit on disposal of - (1,013) (1,340)operationsAmounts written off - 100 725investments ----------- ---------- ----------Adjusted profit 1,955 3,008 7,525 =========== ========== ==========------------------------ ----------- ---------- ----------Tax on loss on ordinaryactivities 5 (293) (605) (1,129) ----------- ---------- ----------LOSS ON ORDINARY ACTIVITIESAFTER TAXATION (5,322) (4,056) (8,478)Equity minority interests (85) (56) (14) ----------- ---------- ----------RETAINED LOSS FOR THE PERIOD (5,407) (4,112) (8,492) =========== ========== ========== Adjusted earnings perordinary 6 0.36 0.55 1.49share (pence)Basic and diluted loss perordinary share (pence) 6 (1.23) (0.97) (1.98)Adjusted diluted earnings perordinary share (pence) 6 0.35 0.54 1.46 All amounts relate tocontinuing operations. The Innovation Group plcUnaudited Balance SheetAs at 31 March 2005 Unaudited Unaudited Audited ----------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 Note £'000 £'000 £'000 FIXED ASSETSIntangible assets 18,152 26,876 23,521Tangible assets 11,192 11,844 11,656Investments 192 1,095 91 ----------- ---------- ---------- 29,536 39,815 35,268 CURRENT ASSETSStocks 186 131 172Debtors 7 11,199 10,679 10,563Investments - 440 -Cash at bank and in hand 13,724 15,963 15,789 ----------- ---------- ---------- 25,109 27,213 26,524 CREDITORS: amounts falling due withinone yearConvertible loan notes - (1,000) -Other creditors 8 (16,248) (17,595) (17,334) ----------- ---------- ---------- (16,248) (18,595) (17,334) NET CURRENT ASSETS 8,861 8,618 9,190 ----------- ---------- ---------- ----------- ---------- ---------- TOTAL ASSETS LESS CURRENTLIABILITIES 38,397 48,433 44,458 CREDITORS: amounts falling dueafter more than one yearConvertible loan notes (1,114) (1,046) (1,101)Other creditors 9 (5,839) (6,294) (5,996) ----------- ---------- ---------- (6,953) (7,340) (7,097) PROVISIONS FOR LIABILITIES ANDCHARGES (1,235) (1,348) (1,058) EQUITY MINORITY INTERESTS (122) (119) (74) ----------- ---------- ----------NET ASSETS 30,087 39,626 36,229 =========== ========== ========== CAPITAL AND RESERVESCalled up share capital 10 8,771 8,697 8,697Shares to be issued - - 1,000Share premium account 482,923 482,053 481,997Profit and loss account (461,607) (451,124) (455,465) ----------- ---------- ----------EQUITY SHAREHOLDERS' FUNDS 30,087 39,626 36,229 =========== ========== ========== The interim results were approved by the Board of Directors on 3 May 2005. The Innovation Group plcStatement of total recognised gains and lossesAs at 31 March 2005 Unaudited Unaudited Audited ----------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Loss for the financial period (5,407) (4,112) (8,492)Currency translation differences (735) 1,375 1,414 ----------- ---------- ----------Total recognised gains andlosses relating to the period (6,142) (2,737) (7,078) =========== ========== ========== Reconciliation of movement in shareholders' funds Unaudited Unaudited Audited ----------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Loss for the financial period (5,407) (4,112) (8,492)Currency translation (735) 1,375 1,414differencesIssue of shares 1,000 7,576 7,520Shares to be issued (1,000) (1,736) (736) ----------- ---------- ----------Net (reduction)/addition toshareholders' funds (6,142) 3,103 (294) Opening shareholders' funds aspreviously reported 36,229 36,523 36,523 ----------- ---------- ----------Closing shareholders' funds 30,087 39,626 36,229 =========== ========== ========== The Innovation Group plc Unaudited Cash Flow StatementFor the six months ended 31 March 2005 Unaudited Unaudited Audited ----------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 Note £'000 £'000 £'000 Net cash inflow from operating 11 816 155 6,611activities Returns on investments and servicing offinanceInterest received 343 302 653Interest paid (140) (185) (753)Interest element of financelease rental payments (83) (65) (165) ----------- ---------- ----------Net cash inflow/(outflow) fromreturns on investments andservicing of finance 120 52 (265) TaxationTax paid (971) (721) (2,067) Capital expenditure and financialinvestmentPurchase of tangible fixedassets (459) (312) (847)Sale of tangible fixed assets 56 - 97Purchase of fixed assetinvestments - (500) (503)Loans - 91 92 ----------- ---------- ---------- (403) (721) (1,161)Acquisition and disposalsPayments to acquire subsidiaryundertakings (1,173) (269) (4,652)Cash acquired with subsidiaryundertakings 132 - 195Sale of subsidiary undertakings - 750 1,059Sale of associated undertakings - 1,143 1,143Purchase of associateundertakings (25) - -Net cash disposed of withsubsidiary - (25) (25) ----------- ---------- ---------- (1,066) 1,599 (2,280)Management of liquid resourcesNet sale of current assetinvestments - 1,288 1,700 ----------- ---------- ----------Net cash inflow before financing (1,504) 1,652 2,538 FinancingIssue of share capital - 4,824 4,768Repayment of borrowings (314) (1,472) (2,353)Capital element of finance leaserentals (247) (139) (323) ----------- ---------- ----------Net cash (outflow)/inflow fromfinancing (561) 3,213 2,092 ----------- ---------- ----------(Decrease)/Increase in cash lessbank overdraft 12 (2,065) 4,865 4,630 =========== ========== ========== The Innovation Group plcNotes to the Unaudited ResultsFor the six months ended 31 March 2005 1. BASIS OF PREPARATION The interim financial information of The Innovation Group Plc is for the sixmonth period to 31 March 2005 and has been prepared in accordance with theaccounting policies set out in the audited financial statements for the yearended 30 September 2004. The results for the year ended 30 September 2004 havebeen extracted from the audited financial statements for that year. The auditedfinancial statements have been filed with the Registrar of Companies and theauditors' report on those accounts was unqualified. The unaudited profit andloss account for the six month period to, and the unaudited balance sheet as at31 March 2005 and its comparative period to 31 March 2004, do not amount to fullaccounts within the meaning of section 240 of the Companies Act 1985 and havenot been delivered to the Registrar of Companies. 2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS Turnover can be analysed into the following categories: Unaudited Unaudited Audited ---------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000Technology Solutions DivisionLicence fees 2,352 3,427 8,979Solution delivery 6,598 7,229 15,242Maintenance and other recurring 2,517 3,147 5,760US public sector 946 1,448 2,938 ---------- ---------- ---------- 12,413 15,251 32,919 Specialised Business Process 16,359 12,104 25,132Outsourcing ---------- ---------- ----------Total turnover 28,772 27,355 58,051 ========== ========== ========== The results for the six months ended 31 March 2005 with comparatives can beanalysed as follows. Unaudited Technology SBPO Total Solutions --------------- --------------- --------------- 6 months 6 months 6 months 6 months 6 months 6 months to to to to to to 31 March 31 March 31 March 31 March 31 March 31 March 2005 2004 2005 2004 2005 2004 £'000 £'000 £'000 £'000 £'000 £'000 Turnover 12,413 15,251 16,359 12,104 28,772 27,355 -------- -------- -------- -------- -------- -------- EBITDA beforeR&D andcentral costs 3,487 7,531 1,865 555 5,352 8,086Depreciation (593) (645) (300) (407) (893) (1,052)Amortisation (3,314) (4,254) (3,670) (3,118) (6,984) (7,372)R&D (1,430) (2,018) - (124) (1,430) (2,142)Central (921) (1,458) (230) (364) (1,151) (1,822)costs -------- -------- -------- -------- -------- --------Operating loss (2,771) (844) (2,335) (3,458) (5,106) (4,302) Share ofoperatingprofit/(loss)of associate - - 9 (15) 9 (15)Profit ondisposal ofcontinuingoperations - - - 1,013 - 1,013Amountswritten offinvestments - (100) - - - (100)Net interest (130) (256) 198 209 68 (47) -------- -------- -------- -------- -------- --------Loss onordinaryactivitiesbeforetaxation (2,901) (1,200) (2,128) (2,251) (5,029) (3,451) ======== ======== ======== ======== ======== ======== The reference to EBITDA before R&D and central costs in the table above reflectthe Directors' view that this is an important measure for their own and shareholders' assessment of the Group's underlying performance by division. Reconciling items between this figure and loss on ordinary activities beforetaxation are shown in the table above. The analysis of net assets/(liabilities) by division was as follows: Net assets Unaudited Unaudited Audited ---------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Technology Solutions Division 33,006 42,297 39,061SBPO (2,919) (2,671) (2,832) ---------- ---------- ---------- 30,087 39,626 36,229 ========== ========== ========== The geographical analysis by location is as set out below: Turnover Profit/(Loss) before taxation Unaudited Unaudited Audited Unaudited Unaudited Audited -------- -------- -------- -------- -------- -------- 6 months 6 months Year to 6 months 6 months Year to to to to to 31 March 31 March 30 Sept 31 March 31 March 30 Sept 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 -------- -------- -------- -------- -------- --------Europe, MiddleEast andAfrica 18,749 19,447 41,185 (5,490) (2,779) (5,046)Americas 7,508 5,793 12,700 421 (547) (1,258)Asia Pacific 2,515 2,115 4,166 40 (125) (1,045) -------- -------- -------- -------- -------- -------- 28,772 27,355 58,051 (5,029) (3,451) (7,349) ======== ======== ======== ======== ======== ======== Net assets Unaudited Unaudited Audited ---------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Europe, Middle East and Africa (27,720) (20,168) (23,384)Americas 63,917 64,670 65,472Asia Pacific (6,110) (4,876) (5,859) ---------- ---------- ---------- 30,087 39,626 36,229 ========== ========== ========== During the period the most significant currencies, other than sterling, were theUS $ and South African Rand. The average exchange rates used to convert resultsin to sterling were US$1.89:£1 (six months ended 31 March 2004: US$1.78:£1) andSA Rand 11.23:£1 (six months ended 31 March 2004: SA Rand 11.92:£1). 3. EXCEPTIONAL ITEMS Year to 30 September 2004 Administrative expenses Exceptional administrative expenses incurred in the year to 30 September 2004totalled £868,000 and relate to the settlement of a legal action and associatedcosts. The Group is seeking to recover these costs from third parties. Amounts written off investments Amounts written off investments in the year to 30 September 2004 totalled£725,000 and relate to the impairment of an investment in an associatedundertaking and other fixed asset investments. 4. PROFIT ON DISPOSAL OF OPERATIONS Year to 30 September 2004 The disposal of the Group's subsidiary, Intelligent Business Solutions Limited("IBS") for £788,000 in cash, net of costs, was completed on 31 March 2004. TheGroup's share of net assets on disposal was £209,000. The profit on disposal,which was determined including attributable goodwill of £124,000, was £455,000. The disposal of the Group's 50 per cent. share in its associate Mead &McGrouther (Proprietary) Limited for £1,143,000 in cash was completed on 21November 2003. The Group's share of net liabilities on disposal was £160,000.The profit on disposal, which was determined including attributable goodwill of£689,000, was £614,000. In August 2004 the Group received deferred consideration totalling £271,000 inrespect of the sale of its French SBPO business disposed of in 2003 that had notpreviously been recognised due to uncertainty about its recoverability prior toreceipt. 5. TAXATION The effective tax rate for the group based on the results before amortisationfor the six months ended 31 March 2005 is 15% (March 2004: 20%; September 2004:20%). 6. EARNINGS PER SHARE Unaudited Unaudited Audited ---------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 pence pence pence Basic and diluted loss per share (1.23) (0.97) (1.98)Adjustments- amortisation 1.59 1.74 3.40- exceptional items - - 0.21- profit on disposal of continuingoperations - (0.24) (0.31)- amounts written off investments - 0.02 0.17 ---------- ---------- ----------Adjusted earnings per share 0.36 0.55 1.49Adjustment for dilutive potentialordinary shares (0.01) (0.01) (0.03) ---------- ---------- ----------Adjusted diluted earnings per share 0.35 0.54 1.46 ========== ========== ========== Earnings per share is calculated as follows: Number of shares (thousand)Average number of shares in issue used tocalculate basic and diluted loss and adjusted earnings per share 438,560 424,319 429,587Dilutive potential ordinary shares- add share options 10,477 8,095 8,298 ---------- ---------- ----------Shares used to calculate adjusted diluted earnings per share 449,037 432,414 437,885 ========== ========== ========== Basic and diluted earnings (£'000)Basic and diluted loss for the period (5,407) (4,112) (8,492)- add amortisation 6,984 7,372 14,621- add exceptional items - - 868- less profit on disposal of operations - (1,013) (1,340)- add amounts written off investments - 100 725 ---------- ---------- ----------Adjusted and adjusted diluted earnings for the period 1,577 2,347 6,382 ========== ========== ========== References to adjusted profit and earnings per share and diluted adjustedearnings per share reflect the Directors' view that these are important measuresfor their own, and shareholders', assessment of the Group's underlyingperformance. FRS 14 requires presentation of diluted EPS when a company could becalled upon to issue shares that would decrease net profit or increase net lossper share. For a loss making company with outstanding share options, net lossper share would only be increased by the exercise of out-of-the-money options. 7. DEBTORS Unaudited Unaudited Audited ---------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Trade debtors 8,340 7,546 8,242Deferred taxation 242 - 247Other debtors 962 1,286 616Prepayments 660 1,105 709Accrued income 995 742 749 ---------- ---------- ---------- 11,199 10,679 10,563 ========== ========== ========== All amounts are due within one year. 8. CREDITORS: amounts falling due within one year Unaudited Unaudited Audited ---------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Bank loans and overdrafts 27 - -Other loans 800 118 800Obligations under finance leases andhire 242 245 362purchase agreementsTrade creditors 2,102 2,192 2,471Taxation and social security 1,019 1,437 1,559Corporation tax 1,189 2,470 1,889Accruals and deferred income 8,347 6,969 8,768Other creditors 2,522 4,164 1,485 ---------- ---------- ---------- 16,248 17,595 17,334 ========== ========== ========== 9. CREDITORS: amounts falling due after more than one year Unaudited Unaudited Audited ---------- ---------- ---------- 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Bank loans and overdrafts 59 - -Other loans 3,400 4,631 3,800Obligations under finance leases andhire 240 399 318purchase agreementsAccruals and deferred income 1,732 1,264 1,752Other creditors 408 - 126 ---------- ---------- ---------- 5,839 6,294 5,996 ========== ========== ========== 10. SHARE CAPITAL The number of allotted, called up and fully paid ordinary shares of 2 pence eachas at 31 March 2005 was 438,559,862 (31 March 2004: 434,853,288; 30 September2004: 434,859,585). 11. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATINGACTIVITIES Unaudited Unaudited Audited ---------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 Operating loss (5,106) (4,302) (7,783)Exceptional items - - 868 ----------- ---------- ----------Operating loss beforeexceptional items (5,106) (4,302) (6,915)Depreciation and amortisationcharges 7,877 8,424 16,698Profit on disposal of fixedassets (2) (2) (18)(Increase)/decrease in stocks (13) 43 7(Increase)/decrease in debtors (262) 327 642Decrease in creditors (1,678) (3,347) (2,077) ----------- ---------- ---------- 816 1,143 8,337Cash outflow arising fromexceptional costs - (988) (1,726) ----------- ---------- ----------Net cash inflow from operatingactivities 816 155 6,611 =========== ========== ========== 12. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Unaudited Unaudited Audited ---------- ---------- ---------- 6 months to 6 months to Year to 31 March 31 March 30 September 2005 2004 2004 £'000 £'000 £'000 (Decrease)/increase in cash inthe period (2,065) 4,865 4,630Cash outflow from decrease indebt and lease financing 561 1,611 2,989Cash inflow from movement inliquid resources - (1,288) (1,700) ----------- ---------- ----------Change in net funds resultingfrom cash flows (1,504) 5,188 5,919Foreign exchange 41 121 154Loans, loan notes, and financeleases (103) (166) (465)Transfer to fixed assetinvestments - - (21) ----------- ---------- ----------Movement in net funds in theperiod (1,566) 5,143 5,587Net funds at start of period 9,408 3,821 3,821 ----------- ---------- ----------Net funds at end of period 7,842 8,964 9,408 =========== ========== ========== Cash at bank and in hand includes £3,189,000 (30 September 2004: £3,659,000)representing amounts due to repairers and funds held to settle futuremaintenance claims as part of the normal administration of the SBPO businesses.An amount representing the liability to the third parties involved is includedas part of the Group's current and long term liabilities. 13. LITIGATION In common with other businesses operating in the IT sector, particularly thosethat have acquired a significant number of companies on a global basis, theGroup is subject to, or instigates, complaints which may or may not lead tolitigation. Our quarterly results to 31 December 2004 referred to one case inparticular relating to a former officer of a company acquired by the Group in2001, who had lodged a substantial claim against the former legal owner and TiGfor loss of profit on options over consideration shares, resulting from theseshares being subject to customary transfer restrictions. The claim was concludedat trial during the quarter ended 31 March 2005 with the outcome that the Groupwas successful in its defence on all counts. An appeals process is in progress,however the Group has been advised that this too should be concludedsuccessfully in TiG's favour. Legal costs associated with the claim have beenprovided for in full. 14. ADDITIONAL COPIES OF THE STATEMENT Copies of this statement are available from The Innovation Group plc, YarmouthHouse, 1300 Parkway, Solent Business Park, Whiteley, PO15 7AE. INDEPENDENT REVIEW REPORT TO THE INNOVATION GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2005, which comprises the Profit and Loss Account,Balance Sheet, Cash Flow Statement, Statement of Total Recognised Gains andLosses, Reconciliation of Shareholders' Funds and the related notes 1 to 14. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept 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 interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data, and based thereon, assessing whether theaccounting policies and presentation have been consistently applied, unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with UnitedKingdom Auditing Standards and therefore provides a lower level of assurancethan an audit. Accordingly we do not express an audit opinion on the financialinformation. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2005. Ernst & Young LLPApex PlazaReadingRG1 1YE 3 May 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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