Inspirit Energy Regulatory News (INSP)

27 Mar 2007 07:01

Inspace Plc27 March 2007 Press Release 27 March 2007 Inspace plc ("Inspace" or "the Group") Results Announcement Inspace plc (AIM:INSP), one of the UK's leading specialist service providers tothe social housing market, announces its audited results for the year ended 31December 2006. Financial Highlights • Turnover up 19% to £175.1 million (2005: £147.5 million)• Operating profit up 42%* to £11.19 million (2005: £7.86 million)• Diluted earnings per share up 21%* to 10.23 pence (2005: 8.49 pence)• Dividend per share up 15%** to 3.25 pence• Secured orders and frameworks up 211% to £1.4 billion (2005: £450 million)• Operating cash conversion up to 100%* from 85%• Net debt of £31.5 million***• Shareholders' funds up from £16.0 million to £32.6 million * Before goodwill amortisation and exceptional items ** Subject to shareholder approval of final dividend of 2.18 pence *** Net debt comprises borrowings and cash at bank and in hand Commenting on the results, Colin Enticknap, Executive Chairman, said: "We are,in overall terms, pleased with what we have achieved during 2006. We havedelivered higher growth than expected, and now have a business that is doubleour size just twelve months ago. We have a better structure and weighting toour business, with a much stronger and broader presence in the robust socialhousing market. And we have improved earnings visibility through a workloadplatform that has trebled in size. "Everyone, throughout the business, has worked immensely hard to make thispossible, and my sincere thanks go to all of them. Through their efforts, wehave assembled all the ingredients we need to deliver continued growth, and wecan look forward with enthusiasm and confidence to 2007." - Ends - For further information:Inspace plcColin Enticknap, Executive Chairman Tel: +44 (0) 1462 678 910colin.enticknap@inspace.co.uk www.inspace.co.uk Inspace plcAndrew Telfer, Chief Financial Officer Tel: +44 (0) 1462 678 910andrew.telfer@inspace.co.uk www.inspace.co.uk Seymour PierceMark Percy, Corporate Finance Tel: +44 (0) 20 7107 8000markpercy@seymourpierce.com www.seymourpierce.com Media enquiries:AbchurchHenry Harrison-Topham Tel: +44 (0) 20 7398 7700henry.ht@abchurch-group.com www.abchurch-group.com Executive Chairman's Statement Overview We shall look back at 2006 as a difficult but strategically important year inwhich the Group confronted a number of challenges, learned some importantlessons and successfully implemented a significant acquisition. As aconsequence, we delivered overall growth slightly ahead of expectation andacross most key areas, leaving the year in a much stronger position than when westarted. The background to the challenges, the need to realign our Social Housingactivity to drive growth, and the fundamental importance of the Widacreacquisition as the catalyst for that realignment, formed the main thrust of myhalf year statement. I mentioned the access Widacre would afford to many of theUK's largest and highest spending registered social landlords ("RSLs") who arebecoming increasingly important customers in the maintenance market. I touchedon Widacre's inherent contracting and supply chain management skills that wouldbe directly transferable to the substantial Decent Homes market. And, perhapsmost importantly, I emphasised how it would align our service offering withunfolding Government policy where focus is clearly moving towards the deliveryof mixed sustainable communities characterised by housing for rent alongsidehousing for sale and the building of new homes alongside the refurbishment ofexisting. I am now pleased to report that the acquisition has gone extremely well. Widacrehas been fully integrated into Group operations with all Social Housing activitynow combined and operating under the name of Inspace Partnerships, andAffordable Housing activity operating as Inspace Homes. Customer support hasbeen excellent, acknowledging the strategic merit in assembling a combinedmaintenance, stock reinvestment and design and build service in response totheir evolving needs. Like us, they see Government favouring holistic,sustainable and more sophisticated solutions to meet the growing demand forsocial housing. The recent announcement by the Rt Hon Ruth Kelly MP, Secretaryof State for Communities and Local Government, that the Housing Corporation andEnglish Partnerships are to be combined under the banner of the new CommunitiesEngland agency is further evidence of a shift in this direction. Widacre's efficient integration and increasing contribution to Group results hasallowed an accelerated and more radical approach towards reshapingpre-acquisition operations and developing the enlarged business. In Social Housing terms, the business has successfully mobilised two new repairand maintenance contracts, for the Borough of Hinckley and Bosworth and forYorkshire Coast Homes. It has secured five further social housing frameworkswith Aldwyck Housing Association, the Connected consortium, Cross Keys Homes,Hyde Housing Group and Thames Valley Housing Association, which are expected tocontribute total combined sales of around £70 million over four years, startingin 2008. This brings the total number of secured frameworks to twenty-four, andthe total value of secured orders and frameworks awarded since the summer is inexcess of £170 million. Affordable Housing contributed towards Group activity for the first time, albeitat a low level due to the bulk of 2006 sales occurring during thepre-acquisition period. This should not disguise the potential for this newdivision, which is already well placed for 2007 with most of the forecast unitsales now reserved and the majority already exchanged. Despite the short term impact on sales, the Corporate Assets division hascontinued to implement a change programme aimed at increasing the quality andvisibility of its workload and the efficiency of its operational delivery. Theprogramme, which includes smaller, shorter term or lower margin accounts beingexited to concentrate efforts upon those offering greater growth potential, isnow entering what is expected to be the last and most radical phase. This willsee operational teams realigned around customer accounts rather than regionalcentres and the roll out of the new service management and financial controlsystems, following the completion of software development. Financial Highlights In headline terms, Group turnover increased by 19% to reach £175.1 million(2005: £147.5 million), operating profit, before exceptional items, grew by 29%to reach £10.16 million (2005: £7.86 million), and cash conversion improvedsignificantly to 100%. Social Housing represented 59.4% of Group turnover, contributing £104.1 million(2005: £61.2 million). The Widacre acquisition featured heavily, not onlyproviding growth but also balancing the reduction in spend by a Decent Homescustomer mentioned at the half year. Affordable Housing contributed £0.9million in this first period, representing 0.5% of Group turnover. CorporateAssets represented the balance of 40.1% or £70.1 million (2005: £86.3 million),the reduction in volume influenced by both the realignment programme alreadymentioned and the expiry, as predicted, of the Job Centre Plus interiorsprogramme at the end of the first quarter. Despite the expected turnover reduction in Corporate Assets and the potentialdistraction of the Widacre acquisition, Group operating margin improved to 5.8%(2005: 5.0%), demonstrating continued success in this area. Indeed, had it notbeen for goodwill amortisation of £1.03 million, which will not be replicatedonce we adopt IFRS rather than UK GAAP from 1 January 2007, operating profitwould have increased to £11.19 million and operating margin to 6.4%. The greatest contributor to operating profit was Social Housing, delivering anoperating margin, excluding goodwill amortisation, of 7.5% (2005: 7.4%). Givenour new broader portfolio of activity, we should now expect to see this trendtowards our target margin of 5% with increasing levels of Decent Homes,regeneration and new build activity. Affordable Housing also achieved anexceptional operating margin, excluding goodwill amortisation, with the lowlevel of turnover and timing distortions associated with joint venture activitycombining to deliver 44.0%. In this case, our sustainable target margin is 20%. With the high volume but lower margin Job Centre Plus programme having expiredearly in the year, operating margin in Corporate Assets improved to 4.1% (2005:3.9%). Interest received predominantly during the pre-acquisition period amounted to£0.11 million (2005: £0.22 million). Of more importance was interest paid postacquisition which was better than expected at £0.79 million (2005: £0.22million). Consequently, profit on ordinary activities before tax increased by27.4% to reach £9.49 million (2005: £7.45 million). Adjusting for goodwillamortisation and exceptional items, this increase would have been 33.7%. Notwithstanding the consideration shares issued at the time of the Widacreacquisition, on a fully adjusted basis, diluted earnings per share still grew by20.5% to 10.23 pence (2005: 8.49 pence), and basic earnings per share by 18.8%to 10.26 pence (2005: 8.64 pence). Group cash flow is now an even higher priority, not only in response to thehigher levels of gearing in our balance sheet, but also as a key enabler for ourfuture growth plans. We are therefore working hard to ensure that the need foreffective cash management becomes even more engrained in our thinking. This wasparticularly evident in our year end balance sheet, with net debt of £31.5million and cash conversion, before goodwill amortisation, improving to 100%. With cash efficiency in mind, the acquisition debt was structured with a £31.3million term facility and a £20.0 million committed overdraft facility whichincludes full offset against cash at bank. Whilst the latter minimises cash atbank and in hand and therefore creates some distortion with net current assets,it does provide increased flexibility and reduced interest charges movingforward. Andrew Telfer has naturally expanded upon the financial position within hisChief Financial Officer's Report. Dividend The board is recommending the payment of a final dividend of 2.18 pence pershare, which, subject to approval at the Annual General Meeting on 17 May 2007,will be paid on 25 May 2007. People I have already mentioned that we confronted a number of challenges during theyear. As always, our people rose well to those challenges, demonstrating thecommitment and enthusiasm that has become so characteristic of Inspace. Theboard is immensely grateful for those efforts and keen to create the opportunityfor all our people to share in the value they help to create. We are thereforehopeful that many will now take up the opportunity to become shareholders underan all staff Share Incentive Plan currently being unveiled. Quality people are a scarce resource, and we are therefore delighted to haveinherited a very strong Widacre team that brings additional quality and breadthto every level of the business. Chris Durkin has brought experienced leadershipto the Social and Affordable Housing divisions and is already making asignificant contribution to wider board discussion; the business stream managingdirectors, John Campion, Tim Carpenter and Fraser Wells, have been influentialin ensuring a smooth and effective integration process; and their supportingteams have remained positive, supportive and very focused whilst continuing todeliver excellent results. Having now fully embraced our new Widacre colleagues into what was already astrong Inspace team, we are very well placed for the future. Future Prospects This time last year, I mentioned that our workload platform for 2006 was in linewith target expectations. With the benefit of hindsight, those targets wereclearly not high enough; had it not been for the acquisition turnover we wouldhave fallen short. This year, I am pleased to say that we start from a much stronger position. Aswe closed our accounts for 2006, secured Social Housing orders stood at 85% offorecast (2005: 80%). More importantly, those schemes for which we have alreadyreceived preconstruction orders (where we are currently going through the costplanning, design development or mobilisation stages) account for the remaining15%. Our short term focus will be upon the early migration of thosepreconstruction orders, turning them into contracts on the ground, upon securingour first 'stand alone' Decent Homes contract, and upon building the remainingworkload platform for 2008. We should have ample opportunity to do so; oursales pipeline remains at a healthy £2.1 billion with opportunities spreadamongst the tracking, prequalification and tender stages. That said, we expecta repeat of the seasonal cycle experienced for the first time last year, when wesaw a lull in social housing tenders during early spring coinciding with the endof the local authority financial calendar, and a surge of activity as we movedinto summer. To us, quality of work is just as important as quantity, and we therefore seekto adopt performance based 'cost plus' invoicing arrangements, which provide theoptimum framework to enhance service levels and foster long term partneringrelationships, across all Social Housing's maintenance activity. We have anexcellent track record in this respect, with most schemes now operating on thisbasis. The exceptions are at Basildon, Hinckley and Bosworth and YorkshireCoast Homes; in relation to both new contracts, relationships have developedwell and plans for conversion are in place. We need to persevere at Basildonwhere, despite lengthy negotiations, final agreement has yet to be reached.This will be an important step, both to improve customer service levels and tocreate the environment where the project margin can be lifted to our targetlevel. In Affordable Housing, where our product is concentrated on first time buyers,reservation levels have remained strong despite the recent upward trend ininterest rates; as a result, we can already view 2007 with a high degree ofconfidence. Longer term growth is dependent upon creating access to land forregeneration, preferably in joint venture with RSLs and with only modest capitaloutlay. Several schemes under discussion are expected to adopt this model butthe London Wide Initiative, a Government sponsored scheme to develop integratedcommunities across London, with social and private housing alongside subsidisedkey-worker accommodation, will be particularly important and is expected tounlock over 300 private sale units during 2008 and 2009. In Corporate Assets, where a material proportion of turnover comes fromdiscretionary spend on maintenance contracts and from projects with shortincubation periods and fast turnaround times, we normally expect to carryforward much lower levels of 'secured' activity. Having said that, securedorders improved to 75% of forecast (2005: 50%), setting a new standard for thefuture. Whilst there is still some work to do to secure the balance, the market appearsto be robust. We see sustained demand for maintenance services from the largerportfolio customers, a trend towards greater bundling of services, and anincreasing preference for a 'planned' rather than 'reactive' approach. A primeexample is Whitbread, a progressive customer with whom we enjoy an excellentrelationship. The demand for our interiors service remains equally buoyant,reflecting continued customer confidence. The recent launching of ourcomplementary furniture supply service now offers those customers a morecomprehensive package and, importantly, creates additional growth potential. Looking further ahead, total secured orders and frameworks across all divisionsnow stand at £1.40 billion (2005: £0.45 billion) stretching as far as 2020. Summary As I said at the outset, we left 2006 much stronger than when we entered theyear. We have grown our business substantially, to more than double its original size;we have created a better structure and weighting to our portfolio; we haveestablished a stronger and broader presence in the robust social housing market,with a comprehensive service more closely aligned with unfolding Governmentpolicy and therefore customer need; we have improved earnings visibility througha workload platform that has trebled in size; and we have built an even strongermanagement team with greater experience, breadth and depth. Everyone, throughout the business, has worked immensely hard to make thispossible, and my sincere thanks go to all of them. Through their efforts, wehave assembled all the ingredients we need to deliver continued growth, and wecan look forward with enthusiasm and confidence to 2007. Colin EnticknapExecutive Chairman26 March 2007 Chief Financial Officer's Report Spearheaded by the Widacre acquisition, the Group achieved record levels ofturnover, profit, EPS and cash generation in 2006. At 31 December 2006, netassets had increased to £32.6 million (2005: £16.0 million). Widacre Acquisition On 31 August 2006, the Group acquired the entire issued share capital of WidacreLimited from Willmott Dixon Limited for a total consideration of £57.8 million,net of free cash, satisfied by cash of £44.5 million and the issue of shares for£13.3 million. The cash element was funded by increased bank facilities andsurplus cash inherent within the acquired businesses. As at 31 December 2006,goodwill arising on the acquisition stood at £60.9 million after amortisation of£1.03 million. The integration of Widacre has progressed ahead of expectation. Principal Accounting Policies Our principal accounting policies now embrace policies adopted following theWidacre acquisition. Firstly, goodwill is recognised as an intangible fixedasset and amortised over 20 years on a straight line basis. Secondly, ourAffordable Housing business typically operates through ring-fenced joint venture("JV") development vehicles that are subject to equity accounting whereby theGroup's share of JV turnover is excluded from Group turnover, the share of JVoperating profit is shown separately and the JV investment is shown as share ofJV assets and liabilities in the Group balance sheet. Thirdly, the profitarising from Affordable Housing activities is recognised following legalcompletion of units sold such that the risks and rewards of ownership havepassed to the purchaser. Lastly, it is our policy to immediately expenseresearch and development costs; our research and development activities aredescribed in the Business Review. The Group also adopted FRS 20 (share based payments) which requires the fairvalue of share options to be measured at the date of grant and then expensed ona straight line basis over the vesting period. Turnover Group turnover grew by 19% in the year to reach £175.1 million (2005: £147.5million) driven, once again, by Social Housing which grew by 70% to represent59% of Group turnover (2005: 42%). Perhaps more importantly, if we includedWidacre's 2006 pre-acquisition turnover, Social Housing represented 72% of theannualised enlarged Group. Whilst Affordable Housing's entire turnover wasgenerated through its JV development vehicles, a proportion was repatriated byway of management charge which, under accounting rules, is not classified as JVturnover. Whilst the acquired activities contributed sales of £45.4 million, turnover fromcontinuing operations reduced by £17.9 million largely owing to short termmeasures taken in Corporate Assets. First, the strong performance of theacquired businesses enabled a more radical approach to Maintain's changeprogramme resulting in the exiting of some smaller, lower margin or shorter termcontracts. Secondly, although Complete has now secured some significantcontracts, these were not sufficient to replenish its major Job Centre Plusprogramme which concluded in the first quarter of 2006. Corporate Assets enters2007 with a more robust platform for future growth. Operating Profit Group operating profit, before goodwill amortisation and exceptional items,increased to £11.19 million (2005: £7.86 million), slightly exceedingexpectations. As well as achieving 42% growth in absolute terms, Groupoperating margins improved to 6.4% (2005: 5.3%). All parts of the Groupremained profitable. The enlarged Social Housing business delivered 70% of total operating profits at£7.86 million (2005: £4.53 million) and an improved margin of 7.5% (2005: 7.4%). Our social housing maintenance contracts are expected to deliver margins of upto 8% in an open book 'cost plus' environment, mostly dependent upon performanceagainst customer targets. Social housing contracting activities also rely on a'cost plus' dedicated customer model with target margins around 4% but with ahigher proportion of fixed profit. The acquired contracting activities,consolidated for only four months, delivered strong profits ahead of normalexpectations due to timing differences. As the Group aims to drive the potentialbenefits of the acquisition, through maintenance and, equally importantly, standalone decent homes contracts, the blended Social Housing margin is expected tobe nearer 5% moving forward. Affordable Housing's development activities delivered overall operating profitsof £0.45 million (2005: nil), equating to an operating margin of 44.1%. Targetmargins for this business are expected to be around 20% and were heavilydistorted in 2006 due to the phasing of legal completions. Despite turnover falling by 19%, Corporate Assets improved operating margins to4.1% (2005: 3.9%). The reduction in operating profits to £2.9 million (2005:£3.3 million) was restricted to 13%, largely due to good margin performance atComplete which offset some of the shortfall attributed to Maintain's changeprogramme. Interest Net interest costs of £0.67 million (2005: income of £0.01 million) reflectedthe interest arising from new bank facilities used to fund the Widacreacquisition. Interest cover stood at 16.6x (2005: not applicable), excludinggoodwill amortisation, albeit the interest cover ratio will inevitably reducegoing forward to properly reflect a full interest charge for the period.Interest received is also expected to be minimal as the Group's committedoverdraft facilities provide for any credit balances to be fully offset againstthe overdraft. Profit Before Tax Profit before tax, excluding goodwill amortisation and exceptional items,increased to £10.52 million (2005: £7.87 million) representing an increase of34%. On the same basis, the overall pre-tax margin rose to 6.0% (2005: 5.3%).The short term timing distortions associated with the acquisition, together withthe blend of margins across our business, is expected to translate intosustainable pre-tax margins closer to 4% moving forward. Taxation Tax on profit on ordinary activities increased to £2.92 million (2005: £2.31million). The effective tax rate improved slightly to 30.8% (2005: 31.0%). Earnings Per Share Diluted earnings per share increased by 20.5% to 10.23 pence (2005: 8.49 pence)after adjustment for goodwill amortisation, tax relief on share based paymentsand exceptional items. This performance is particularly pleasing given theweighted average number of shares increased to 71.9 million (2005: 64.0 million)as a result of the issue of consideration shares on the Widacre acquisitionexcluding certain employee benefit trust shares. Adjusted basic earnings pershare reached 10.26 pence (2005: 8.64 pence). Dividends The board has recommended a final dividend for the year of 2.18 pence to theshareholders on the register as at 10 April 2007. Subject to approval at the AGMon 17 May 2007, the final dividend will be paid to shareholders on 25 May 2007.This brings the total dividend for the year to 3.25 pence (2005: pro-forma of2.82 pence based on annualised dividends paid to post-flotation shareholders),an increase of 15%. If approved, the total dividend payment arising for 2006will be £2.46 million (2005: £1.90 million) giving rise to dividend cover of2.7x (2005: 2.7x) on post-tax profits. The 2006 interim dividend of 1.07 pencewas paid only to the pre-acquisition shareholders. The Directors expect to maintain the dividend policy of year-on-year dividendpayments whilst retaining a significant proportion of Group earnings. Cash Flow The cash flow characteristics of our Group portfolio means that the strong cashflow associated with the contracting businesses is required to fund the growthpotential offered by our Affordable Housing business; whilst typicallygenerating relatively strong operating profit margins, our Affordable Housing JVoperations typically repatriate cash towards the end of the project. Cash flowmust also fund capital investments such as those required to continually improveour leading technology solutions. Equally, as our maintenance businessestypically absorb working capital, our focus is on improving the efficiency ofcash cycles, process management and IT systems investment. Assisted by the acquired businesses, these principles helped the Group todeliver cash from operating activities of £11.0 million (2005: £6.7 million)representing an improved conversion rate of operating profit excluding goodwilland exceptional items of 100% (2005: 85%). As we expand our Affordable Housingoperations it is likely that the conversion rate will reduce. Net Debt and Treasury The structure of acquisition finance was carefully considered to ensure theGroup was exposed to sensible and appropriate levels of gearing. Our bankingfacilities comprise a £31.3 million senior term facility and a £20.0 millioncommitted overdraft facility, both repayable by 30 September 2011. The firstrepayment of £2.3 million is due on 30 September 2007 and semi-annual repaymentsthereafter. In addition, a further annually renewable overdraft facility of£5.0 million means that our overall bank facilities total £56.3 million, allprovided by the Royal Bank of Scotland. Strong cash collections around the year end, together with favourable timing ofsub-contractor payments, gave rise to a net debt position as at 31 December 2006of £31.5 million (2005: net cash of £6.1 million). The underlying average netdebt position since the acquisition was £36.6 million. The Group entered intoan interest rate cap of 6% in respect of £15.0 million of the senior facilityfor the full five year term. Adoption of International Financial Reporting Standards For all periods up to 31 December 2006, the Group prepared its financialstatements in accordance with the UK's Generally Accepted Accounting Practice(GAAP). The Group adopted International Financial Reporting Standards (IFRS)with effect from 1 January 2007 for the consolidated Group financial statements. All other unlisted entities in the Group continue to be reported under UKGAAP. IFRS adoption is not material to the Group; the un-audited UK GAAP toIFRS reconciliations, together with our IFRS accounting policies, are includedfrom page 61 of the report and accounts for the year ended 31 December 2006 tobe sent to shareholders shortly. The principal reconciling items include thetreatment of goodwill amortisation, which will no longer be written down on anannual basis unless impaired, and the requirement to assess the fair value ofthe interest rate hedge instrument. It is worth noting that IFRS requires thedisclosure of the profit contribution from JV activities to be shown net oftaxation. Andrew Telfer Chief Financial Officer 26 March 2007 Group Profit and Loss AccountYear ended 31 December 2006 Year Ended 31 December 2006 2005 £000 £000 £000 Notes TurnoverGroup and share of joint ventures 1 175,222 147,527Less share of joint ventures' turnover (170) - Continuing operations 2 129,610 147,527 Acquired operations 2 45,442 - Group turnover 175,052 175,052 147,527Cost of sales (133,413) (113,802) Gross profit 41,639 33,725Administrative expenses Excluding exceptional items (31,587) (25,865) Exceptional items 3 - (418) Operating profitContinuing operations excludingexceptional items 2 7,204 7,860 Exceptional items 3 - (418) 7,204 7,442Acquired operations 2 2,848 - Group operating profit 4 10,052 7,442 Share of operating profit of joint 107 -ventures Group operating profit and share of jointventures 10,159 7,442 Interest receivable 5 112 223Interest payable and similar charges 6 (785) (218) Profit on ordinary activities before taxation 9,486 7,447 Tax on profit on ordinary activities 7 (2,924) (2,310)Profit for the financial year 6,562 5,137 Unadjusted earnings per ordinary share:(pence)Basic 10 9.15 8.17Diluted 10 9.12 8.03 Adjusted earnings per ordinary share:(pence)Basic 10 10.26 8.64Diluted 10 10.23 8.49 There were no recognised gains or losses other than the above profit for eitherfinancial year. Group Balance SheetAs at 31 December 2006 As at As at 31 December 2006 31 December 2005 Notes £000 £000 Fixed assetsGoodwill 12 60,917 -Tangible assets 13 1,760 1,058Investments in joint ventures Share of gross assets 14 6,071 - Share of gross liabilities 14 (5,853) - 62,895 1,058Current assetsStocks 15 1,680 335Debtors 16 53,163 30,350Cash at bank and in hand 51 6,084 54,894 36,769 Creditors: amounts falling due within one year 17 (55,933) (21,873) Net current (liabilities)/assets (1,039) 14,896Creditors: amounts falling due after more than oneyear 18 (29,274) - 32,582 15,954 Capital and reservesCalled up share capital 20 1,620 1,343Share premium 21 23,390 10,107Other reserves 21 (1,511) 3Profit and loss account 21 9,083 4,501 32,582 15,954 These financial statements were approved and authorised for issue by the Boardon 26 March 2007 and were signed on its behalf by: Colin Enticknap Andrew TelferDirector Director Group Cash Flow StatementYear ended 31 December 2006 Year ended Year ended 31 December 2006 31 December 2005 £000 £000 Notes Cash flow from operating activities 22 11,033 6,707Returns on investments and servicing of finance 22 (673) 5Taxation paid 22 (2,655) (1,706)Capital expenditure and financial investment 22 (805) (861)Acquisitions 22 (42,820) -Equity dividends paid 9 (1,980) (4,923) Cash flow before use of liquid resources andfinancing (37,900) (778)Financing 22 31,867 6,825 (Decrease)/increase in cash (6,033) 6,047 The only significant non-cash transaction during the year was the issue ofshares with a value of £13,267,327 in part consideration for the acquisitionmade in the year. In 2005 there were no significant non-cash transactions. Reconciliation of net cash flow to movement in net (debt)/funds (Decrease)/increase in cash in the year (6,033) 6,047New loans (31,574) - Consolidation of balances due to Willmott DixonLimited - 3,143 Change in net (debt)/ funds resulting from cash flows (37,607) 9,190 Repayment of Willmott Dixon Limited loan - (3,143)Movement in net (debt)/funds (37,607) 6,047Net funds as at 1 January 2006 6,084 37Net debt as at 31 December 2006 (31,523) 6,084 Reconciliation of Movement in Shareholders' FundsYear ended 31 December 2006 Year ended Year ended 31 December 2006 31 December 2005 Notes £000 £000 Profit for the financial year 6,562 5,137Dividends paid 9 (1,980) (4,923) 4,582 214 Call on share capital - 530Purchase of own shares - (3)Share options exercised 20 293 244Issue of shares 20 13,267 10,054Shares held in Employee Benefit Trust 21 (1,555) -Share based payments charge in the year 21 41 -Costs associated with issue of shares - (613) 12,046 10,212 Movement in shareholders' funds 16,628 10,426Opening shareholders' funds 15,954 5,528 Closing shareholders' funds 32,582 15,954 Principal Accounting PoliciesYear Ended 31 December 2006 The following accounting policies have been consistently applied in dealing withitems that are considered material in relation to the Group's financialstatements, with the exception of the application of FRS 20 to share basedpayments. The application of FRS 20 has resulted in an additional charge to the profit andloss account for share based payments of £40,544 (2005: nil) but has had noimpact on the net assets as at the balance sheet date (2005: nil). Basis of accounting The financial information has been prepared under the historical cost conventionas modified by the revaluation of Parent Company investments in subsidiaryundertakings and in accordance with applicable accounting standards in theUnited Kingdom. The Group will be reporting under International Financial Reporting Standardsfor accounting periods commencing on and after 1st January 2007. Basis of consolidation The consolidated financial information incorporates the financial informationrelating to the Company and its subsidiary undertakings, including the employeebenefit trust. Inspace plc has taken advantage of the legal dispensationallowing it not to publish a separate profit and loss account. The Widacre group came under the control of the Company from legal completion on31 August 2006 and the principles of acquisition accounting have been appliedfrom that date. Tangible fixed assets Tangible fixed assets are stated at historical cost less depreciation. Depreciation is provided on all tangible fixed assets at the following rates,calculated to write each asset down to its estimated residual value evenly overits expected useful life: Short leasehold buildings - The earlier of 5 years or until the next break pointin the lease Computer equipment - 20% to 50% per annum Plant and equipment - 25% per annum Furniture and fittings - 10% per annum Where fixed assets are impaired in value or use they are written down to theireconomic value. Goodwill Goodwill arising on acquisition is recognised as an intangible fixed asset andrepresents the excess of the consideration given and costs of acquisition overthe fair value of the net assets acquired. Goodwill is amortised though the profit and loss account on a straight linebasis over its useful economic life which the Directors have assessed to be aminimum of 20 years. Joint ventures The Group's financial statements incorporate joint ventures under the equitymethod of accounting. In the Group balance sheet the investments in jointventures are stated as the Group's share of net assets and net liabilities. Stocks and work in progress Stocks and work in progress are valued at the lower of cost and net realisablevalue. In respect of work in progress, cost includes direct interest and isstated after deduction of amounts received and applications for paymentreceivable. On affordable housing developments costs are transferred from work in progressto the profit and loss account in line with turnover and the projected totalcost of the development. Amounts recoverable on contracts Amounts recoverable on contracts are valued at cost with an appropriate additionor provision for estimated profits or losses and after deduction of amountsreceived and applications for payments receivable. All foreseeable losses areprovided for in full. Turnover and profit is ascertained in a manner appropriate to the stage ofcompletion of the contract, and credit taken for profit earned when the outcomeof work under the contract can be assessed with reasonable certainty. Turnover Turnover is the aggregate of all invoiced external sales adjusted for amountsrecoverable on contracts at the beginning and end of the year, stated net ofvalue added tax. Turnover from the sale of affordable housing is recognised onlegal completion or shortly thereafter and other turnover is recognised asdescribed under amounts recoverable on contracts. Group turnover excludes the group share of sales to joint ventures in respect ofthe construction of affordable housing developments. Operating leases The total payments made under operating leases are charged to the profit andloss account on a straight line basis over the term of the lease. Research and development Research and development expenditure is expensed to the profit and loss accountas it is incurred. Deferred taxation Full provision is made for deferred taxation arising from the difference betweenthe treatment of items in the financial information and their treatment fortaxation purposes. Deferred taxation is measured on a non-discounted basis. Dividends Dividends are recognised in the accounting period in which they are declared andapproved in accordance with FRS 21. Share based payments (employee share options) The Group has applied the requirements of FRS 20 (share based payments). TheGroup issues equity-settled share based payments to certain employees. Sharebased payments are measured at fair value at the date of grant, using aBlack-Scholes model. The fair value determined at the grant date is expensed ona straight line basis over the vesting period, based on the Group's estimate ofshares that will eventually be issued. This estimate is subject to revision ateach reporting period end to reflect changes in the expected behaviour ofemployees and the impact of exercise restrictions. Retirement benefits For the duration of its contractual relationships with various local authoritiesthe Group contributes to the appropriate local authority pension schemes inrespect of employees working for the Group under TUPE arrangements. Annualassessments are required to be made of the proportion of the surpluses ordeficits applicable to the Group in respect of these schemes and to compare thevariance in the net surplus or deficit as measured under the detailed provisionsof FRS 17 with the contributions payable. Where there is no material surplus ordeficit or where there are no material differences between the contributionspayable and the net charges under FRS 17, the schemes are accounted for asdefined contribution schemes and the contributions are expensed as they falldue. Based on the assessment for the year, contributions have been expensed asthey fall due and no other liability is required to be recognised. Financial instruments (held as hedges) Where financial instruments are acquired for the purposes of entering intohedging arrangements the cost of the instrument is expensed to the profit andloss account on a straight line basis over the term of the instrument. Receiptsand payments from the instruments are included in the profit and loss account atthe same time and in the same place as is the matched underlying income or cost.For interest rate instruments this will be within interest payable orreceivable. The profit and loss on an instrument and any change in its fairvalue is deferred if the hedged transaction is expected to take place or wouldnormally be accounted for in a future period. The group does not use derivative financial instruments for speculativepurposes. Employee benefit trust The cost of own shares held by the employee benefit trust is shown as adeduction from shareholders' funds. Earnings per share are calculated on the netshares in issue. Notes to the Financial Information The figures for the year ended 31 December 2005 do not constitute the Company'sstatutory accounts for that period but have been extracted from the statutoryaccounts. The auditors' report on those accounts, which have been filed with theRegistrar of Companies, was unqualified and did not contain any statement undersection 237 (2) or (3) of the Companies Act 1985. The financial information in this announcement does not constitute the Group'sstatutory financial statements for the year ended 31 December 2006 but has beenextracted from the Group's 31 December 2006 audited financial statements.Statutory financial statements for this year will be filed following the AnnualGeneral Meeting. The auditors have reported on these financial statements; theirreport was unqualified and did not contain a statement under section 237 (2) or(3) of the Companies Act 1985. The full statutory accounts for the year ended 31 December 2006 will be postedto shareholders shortly. This announcement was approved by the board of directors on 26 March 2007. 1. Segmental analysis Year ended 31 December 2006 2005 £000 £000TurnoverSocial Housing 104,099 61,201Affordable Housing Group 852 - Share of joint ventures' turnover 170 -Corporate Assets 70,101 86,326 175,222 147,527 Operating profitSocial Housing 7,859 4,529Affordable Housing Group 343 - Share of operating profit of joint ventures 107 -Corporate Assets 2,882 3,331 11,191 7,860Amortisation of goodwill (1,032) -Exceptional items - (418) 10,159 7,442Net assetsSocial Housing 11,021 2,329Affordable Housing 2,676 -Corporate Assets 5,621 2,336 Parent Company less items eliminated on consolidation 13,264 11,289 32,582 15,954 The Social Housing and Affordable Housing segmental analysis includes acquiredand continuing operations. The effect of the acquired operations is shown innote 2. The Corporate Assets segmental analysis combines the corporate andpublic sector maintenance and interior design, installation and furnishingactivities reported in the 2005 Report and Accounts. The Group's turnover, profit on ordinary activities and net assets are allderived in the United Kingdom. 2. Continuing and acquired operations Continuing activities Acquired Total £000 £000 £000 Operating profit on continuing and acquired operations comprises: Turnover 129,610 45,442 175,052Cost of sales (95,215) (38,198) (133,413) Gross profit 34,395 7,244 41,639Administrative expenses (27,191) (4,396) (31,587) Operating profit 7,204 2,848 10,052Share of operating profit of joint ventures - 107 107 7,204 2,955 10,159 3. Exceptional items The exceptional items comprise: Year ended 31 December 2006 2005 £000 £000 Share based payments - 244Compensation payments - 174 - 418Corporation tax relief - (125) - 293 4. Operating profit Year ended 31 December 2006 2005 £000 £000Operating profit is stated after charging:Amortisation of goodwill 1,032 -Depreciation on owned fixed assets 583 383Operating lease rentals - plant and machinery 3,998 3,564Operating lease rentals - other 1,203 831Research and development costs 153 - Auditors' remuneration Statutory audit 118 65 Further assurance services 5 2 Tax compliance services 25 12 Tax advisory services 17 2 Corporate finance services 173 95 338 176 The auditors' remuneration for corporate finance services were in relation tothe acquisition of Widacre Limited (2005: as reporting accountants for theCompany's flotation on the London Stock Exchange AiM market). This amount formspart of the cost of the investment in the subsidiaries acquired (2005: chargedagainst the share premium account). 5. Interest receivable Year ended 31 December 2006 2005 £000 £000 Income from short term deposits 112 223 6. Interest payable and similar charges Year ended 31 December 2006 2005 £000 £000 Interest payable on bank loans and overdrafts 783 -Interest payable on loan from Willmott Dixon Limited - 218Costs of interest rate hedging arrangements 2 - 785 218 7. Taxation Year ended 31 December 2006 2005 £000 £000a) Analysis of chargeCurrent taxUK Corporation tax on Group profit for the year before exceptional items 3,054 2,411UK Corporation tax attributable to joint venture profits 32 -UK Corporation tax relief on exceptional items - (125)Adjustment in respect of previous years (72) - 3,014 2,286Deferred taxOrigination and reversal of timing differences (28) 24Adjustment in respect of previous years (62) - (90) 24 2,924 2,310b) Factors affecting tax charge for the yearThe tax assessed for the year is higher than thestandard rate of corporation tax in the UK (30%). Thedifferences are explained below:Profit on ordinary activities before tax 9,486 7,447 Profit on ordinary activities multiplied by standardrate of corporation tax in the UK (30%) 2,846 2,235 Effects of:Expenses not deductible for tax purposes 140 75Amortisation of goodwill 310 -Tax relief on share options (237) -Capital allowances in excess of depreciation (4) (24)Other timing differences 31 -Adjustment in respect of previous years (72) - 3,014 2,286 c) Factors that may affect future tax charges The Company expects to gain future tax relief in respect of shares to be issuedunder employee share incentive schemes on the difference between the marketvalue of shares on exercise and the option price. In comparison, the charge tothe profit and loss account is based on the fair value of the options granted toemployees. The Group is not aware of any other significant factors that may affect futuretax charges. 8. Employees Year ended 31 December 2006 2005 No. No.The average number of employees during the year wasmade up as follows:Office and contract support staff 473 411Operational field staff 737 636 1,210 1,047 2006 2005Staff costs during the year amounted to: £000 £000 Wages and salaries 38,197 29,322Incentive payments 2,264 2,292Social security costs 4,227 3,431 44,688 35,045 The total Directors' remuneration was £937,000 (2005: £1,114,000) and that ofthe highest paid Director was £266,000 (2005: £420,000). Full details of theremuneration of the Directors is disclosed in the Directors' Remuneration Reportincluded in the annual report for the year ended 31 December 2006. 9. Dividends Year ended 31 December 2006 2005On ordinary shares of 2p each: £000 £000Interim 2004 paid of 7.634p per share - 4,275Interim 2005 paid of 0.933p - 540Interim 2005 paid of 0.161p - 108Final 2005 paid of 1.85p 1,254 -Interim 2006 paid of 1.07p 726 - 1,980 4,923 An interim dividend of 1.07p per ordinary share was paid to the pre-acquisitionshareholders on the register at 6 October 2006 on 2 November 2006. A proposed final dividend of 2.18p per ordinary share is proposed for payment on25 May 2007 to the shareholders on the register at 10 April 2007. The EmployeeBenefit Trust has waived its right to receive dividends. In accordance with FRS21 the proposed final dividend is not accrued in the financial statements. 10. Earnings per share Earnings per share are based upon the weighted average number of ordinary sharesin issue during the year of 71,698,101 (2005: 62,872,928). The diluted earningsper share are based upon the weighted average number of 71,942,771 (2005:63,975,884) ordinary shares having taken into account the dilutive effect ofshares which have been made available to employees under existing incentiveschemes. The earnings for the periods are set out in the table below. An adjustedearnings measure has been included to highlight the impact of goodwill,exceptional items and tax relief on share based payments. Earnings Earnings per share 2006 2005 2006 2005 £000 £000 pence pence Unadjusted earnings 6,562 5,137 - -Basic earnings per share - - 9.15 8.17Diluted earnings per share - - 9.12 8.03 Goodwill 1,032 - - -Exceptional items - 418 - -Tax relief on exceptional items - (125) - -Tax relief on share based payments (237) - - - Adjusted earnings 7,357 5,430 - -Basic earnings per share - - 10.26 8.64Diluted earnings per share - - 10.23 8.49 11. Purchase of a subsidiary undertaking As outlined in the Chairman's Statement, Chief Financial Officer's Report andBusiness Review (included in the annual report for the year ended 31 December2006), on 31 August 2006 the company acquired the entire issued share capital ofWidacre Limited, the owner of two complementary businesses: Willmott DixonHousing, one of the largest new build social housing providers in the UK, andWidacre Homes, an affordable housing developer. The impact of the acquisition on the profit and loss account of the Group isshown in note 2 and on the cash flow statement in note 22. The fair value of the net assets and liabilities acquired were as follows: Net assets Fair value Fair value of net acquired adjustments assets acquired £000 £000 £000 Tangible fixed assets 670 (180) 490Goodwill 13,195 (13,195) -Investments - 1,555 1,555Share of assets in joint ventures 3,216 - 3,216Share of liabilities in joint ventures (3,075) - (3,075) 14,006 (11,820) 2,186 Work in progress 362 - 362Debtors 14,486 - 14,486Cash at bank and in hand 10,382 - 10,382 25,230 - 25,230 Trade and other creditors 22,358 - 22,358Corporation tax 576 (38) 538Preference shares 15,000 (15,000) - 37,934 (15,038) 22,896 1,302 3,218 4,520Goodwill arising on acquisition 61,949 66,469 Discharged by:Shares allotted 13,267Cash consideration - shares 52,035Cash consideration - costs 1,167 66,469 The average consideration paid for each ordinary share represented £5.09 in cashand 0.32 shares in Inspace plc. The fair value adjustments relate to the de-recognition of goodwill, eliminationof preference share liabilities in respect of shares acquired by Inspace, thewrite off of certain improvements to leasehold premises and the addition ofinvestments held in the employee benefit trust. The pre-acquisition results of the Widacre Group are outlined below: 1 January to 2005 31 August 2006 £000 £000Turnover 86,656 128,967 Less share of joint ventures' turnover (7,154) - 79,502 128,967 Cost of sales (69,156) (117,050) Gross profit 10,346 11,917 Administrative expenses (7,230) (8,562) Operating profit 3,116 3,355 Share of operating profit of joint ventures 204 - 3,320 3,355 Interest receivable 113 213 Profit before tax 3,433 3,568 Taxation (1,062) (956) Profit for the period 2,371 2,612 The 2006 results are presented excluding goodwill amortisation. At the date of acquisition Colin Enticknap held 800,000 shares and Chris Durkinheld 300,000 shares in the Widacre group. 12. Goodwill £000CostGoodwill arising on acquisition (note 11) and as at 31 December 61,9492006 Accumulated amortisationCharge for the year and as at 31 December 2006 1,032 Net valueAs at 31 December 2005 - As at 31 December 2006 60,917 13. Tangible fixed assets Short leasehold Computer Plant and Furniture and Total land & buildings equipment equipment fittings £000 £000 £000 £000 £000CostAs at 31 December 2005 559 1,074 181 591 2,405On acquisition 288 460 256 180 1,184Additions 118 418 44 238 818Disposals - (119) (24) (50) (193) As at 31 December 2006 965 1,833 457 959 4,214 DepreciationAs at 31 December 2005 250 726 117 254 1,347On acquisition 117 362 135 80 694Charge in year 137 279 60 107 583Disposals - (119) (23) (28) (170) As at 31 December 2006 504 1,248 289 413 2,454 Net book valueAs at 31 December 2005 309 348 64 337 1,058 As at 31 December 2006 461 585 168 546 1,760 14. Investments £000Share of joint venture net assetsShare of current assets 6,071 Share of liabilities due in under one year (4,404)Share of liabilities due after more than one year (1,449) (5,853) 218 The Group investment in the share capital of joint ventures was £4 as at 31December 2006 (2005: nil). The joint ventures had no goodwill, contingent assets or liabilities and nocapital commitments. 15. Stocks Stocks As at 31 December 2006 2005 £000 £000 Work in progress 561 -Stock of raw materials 1,119 335 1,680 335 16. Debtors As at 31 December 2006 2005 £000 £000Trade debtors 13,114 13,445Amounts recoverable on contracts 35,262 15,980Prepayments 3,047 925Deferred tax 95 -Other taxes 1,645 - 53,163 30,350 17. Creditors (amounts falling due within one year) As at 31 December 2006 2005 £000 £000Bank loan (secured) 2,300 -Trade creditors 38,731 11,522Payments on account 5,109 1,656Corporation tax 1,932 1,064Other taxes and social security 1,890 1,908Accruals 5,971 5,712Deferred tax - 11 55,933 21,873 18. Creditors (amounts falling due after more than one year) As at 31 DecemberBank loans (secured): 2006 2005 £000 £000Payable between one and two years 5,000 -Payable between two and five years 24,274 - 29,274 - The balance due on bank loans comprise a senior debt facility of £31,000,000repayable in semi-annual instalments and £274,000 drawn against a committedfloating facility of £20,000,000 repayable by 30 September 2011. In addition theCompany has an annually renewable overdraft facility of £5,000,000. Details of the security and interest rates are given in note 24. 19. Deferred tax As at 31 December 2006 2005 £000 £000 Deferred tax (liability)/asset at 1 January 2006 (11) 13Asset acquired in the year 16 -Transfer from/(to) profit and loss account 90 (24)Deferred tax asset/(liability) at 31 December 2006 95 (11) The deferred tax asset comprises wholly of accelerated capital allowances. 20. Share Capital As at 31 December 2006 2005Authorised: £000 £000100,000,000 (2005: 100,000,000) ordinary shares of 2p each 2,000 2,000 Allotted and called up:81,001,690 (2005: 67,136,042) fully paid ordinary shares of 2p each 1,620 1,343 On 31 August 2006 an additional 13,201,321 shares were issued at 100.5p pershare totalling £13,267,327 in partial consideration of the acquisition of theWidacre group. On acquisition 420,000 shares were held by the Widacre Limitedemployee benefit trust and were exchanged for 1,547,131 ordinary shares ofInspace plc. As shown in note 21 these shares have been deducted fromshareholders' funds at the consideration value of £1,554,867. Further details ofthe employee benefit trust are included in the Directors' Remuneration Report. During the year 664,327 additional shares were exercised under Director andemployee incentive schemes at 44.0p per share for total consideration of£292,303. The weighted average share price at the date of exercise of theoptions was 163.1p. The following options were in place at 31 December 2006 and yet to be exercised: Date granted Number of shares Strike price Date from which Expiry date exercisable 7 April 2005 87,775 44.0p 31 December 2005 6 April 2015 5 April 2006 693,062 169.0p 5 April 2009 5 April 2016 16 May 2006 18,665 170.0p 16 May 2009 16 May 2016 The FRS 20 charge in respect of share options of £40,544 (2005: nil) has beenderived from the Black-Scholes model assuming a risk free rate of 4.5%. Avolatility factor of 0.16 was used, based on comparable company share price datafor three years and a vesting period of three years. Details of the share option schemes are outlined in the Directors' RemunerationReport included in the annual report for the year ended 31 December 2006. 21. Reserves Share premium £0001 January 2006 10,107Issue of shares 12,990Share options exercised 293 31 December 2006 23,390 Other reserves Shares held in Capital Share options Total employee benefit redemption trust reserve £000 £000 £000 £0001 January 2006 - 3 - 3Share based payments charge in the year - - 41 41Arising on acquisition (1,555) - - (1,555) 31 December 2006 (1,555) 3 41 (1,511) Profit and loss account £000 1 January 2006 4,501Profit for the financial period 6,562Dividends (1,980)31 December 2006 9,083 22. Cash flows Year ended 31 DecemberReconciliation of operating profit to net cash 2006 2005inflow from operating activities £000 £000 Group operating profit on ordinary activitiesbefore interest and taxation 10,052 7,442Depreciation 583 383Amortisation of goodwill 1,032 -Increase in stocks (983) (1,674)Increase in debtors (6,592) (3,988)Increase in payments on account 551 323Increase in trade and other creditors 6,349 3,977Non-cash cost of share based payments 41 244 Net cash inflow from operating activities 11,033 6,707 Analysis of change in net (debt)/funds As at As at 1 January Cash flows 31 December 2006 in the year 2006 £000 £000 £000 Cash at bank and in hand 6,084 (6,033) 51 Bank loans due within one year - (2,300) (2,300)Bank loans due after more than one year - (29,274) (29,274) 6,084 (37,607) (31,523) 2006 2005 £000 £000Returns on investments and servicing of financeInterest receivable 112 223Interest payable and similar charges (785) (218) (673) 5 Taxation paid (2,655) (1,706) Capital expenditure and financial investmentPurchase of tangible fixed assets (818) (868)Sale of tangible fixed assets 13 7 (805) (861) AcquisitionsCash consideration (52,035) -Costs of acquisition (1,167) -Cash at bank and in hand acquired 10,382 - (42,820) - FinancingBank loan 31,574 -Call on share capital - 530Issue of shares 293 10,054Repayment of Willmott Dixon loan - (3,143)Costs associated with issue of shares - (613)Purchase of own shares - (3) 31,867 6,825 The subsidiary undertakings acquired during the year contributed £5,443,031 tothe Group's net cash inflow from operating activities, paid £545,940 of taxationand utilised £186,388 of capital expenditure. 23. Leasing commitments Obligations under operating leases at 31 December 2006 were as follows: As at 31 December 2006 2006 £000 £000Land buildingsCommitments payable within one yearunder leases expiring:Within one year 122 31Within two to five years 766 473 888 504 Other leasesCommitments payable within one yearunder leases expiring:Within one year 434 200Within two to five years 1,131 407 1,565 607 No future commitments exist under the terms of leases of vans used byoperational field staff. 24. Financial instruments The Group's financial instruments principally comprise of long term borrowings,hedging instruments, cash at bank and various items such as trade debtors andcreditors that arise directly from operations. The long term bank loans are provided by the Royal Bank of Scotland and compriseof senior debt facility of £31,300,000 and a committed floating facility of£20,000,000. These facilities expire on 30 September 2011. At 31 December 2006£19,726,000 of the floating facility remained undrawn. In addition the Companyhas an annually renewable overdraft facility of £5,000,000. The secured loansare secured on a floating charge over the Company's assets. The Group has entered into a hedging arrangement in respect of interest ratesfor the life of its long term borrowings in order to provide protection fromfluctuations in interest rates. The hedge provides an interest rate base ratecap at 6.0% on £15,000,000 of the senior debt facility until 30 June 2010 afterwhich the amount hedged reduces to equate to the outstanding value of the loan.The balance of the loans are at floating interest rates at 1.1% above LIBOR. As at 31 December 2006 the fair value of the hedging instrument was £83,000 and£2,300 was expensed to the profit and loss account in the year. The cumulativedeferred loss on the instrument was £49,700. All of the activities of the Group take place in the United Kingdom andconsequently there is no exchange risk. It is the Group's policy not to enterinto any foreign currency contracts. The Group has taken advantage of the exemption in respect of the disclosure ofshort-term debtors and creditors. The fair value of the Group's financial assets and liabilities are notconsidered to be materially different from their book values. Further details of the strategy, objectives and policies in respect of thefinancial instruments entered into during the year are outlined in the ChiefFinancial Officer's Report. 25. Contingent liabilities Inspace plc has guaranteed the performance bonds of its subsidiary companies of£935,802 (2005: £585,200). The Group and the Parent Company has given certain guarantees to customers,bankers, landlords and finance companies in respect of agreements entered intoby companies within the Group in the normal course of business. 26. Principal subsidiary companies Name of subsidiary Nature of business Social Housing Creating and maintaining social housingInspace Partnerships - Maintenance & Stock Maintenance and stock reinvestmentReinvestment Limited (formerly InspacePartnerships Limited)Inspace Partnerships - Regeneration & New Homes Regeneration and new homesLimited (formerly Willmott Dixon Housing Limited) Affordable Housing Developing integrated communitiesInspace Homes Limited (formerly Widacre Homes New homes for saleLimited) Corporate Assets Improving and maintaining corporate real estateInspace Maintain Limited Repairs and maintenanceInspace Complete Limited Interiors and furnishing All of the above subsidiaries are incorporated in England and Wales and areclassed as ordinary holdings, 100% owned by the Company. The above information relates to those subsidiary companies which principallyaffect the profit or assets of the Group. Joint Ventures Name Nature of business Holding Year endTredegar Development New homes for sale 50% 31 DecemberCompany LimitedT3B Development Company New homes for sale 50% 31 DecemberLimitedWidacre Lifespace New homes for sale 50% 31 MarchLimitedOwn Space Homes New homes for sale 50% 31 March Of the joint ventures listed above only Tredegar Development Company Limited andT3B Development Company Limited traded during the financial year. Details of theresults are given in the Group profit and loss account. All of the above companies are incorporated in England and Wales. In the period from acquisition, the turnover with joint venture companiesamounted to £5,487,835 (2005: nil) in respect of affordable housingdevelopments. Of this amount, £2,211,331 had been invoiced and paid and£3,276,504 is included in amounts recoverable on contracts. - Ends - This information is provided by RNS The company news service from the London Stock Exchange