Inspirit Energy Regulatory News (INSP)

26 May 2005 08:00

Inspace Plc26 May 2005 Press Release 26 May 2005 Inspace plc ("Inspace" or "the Company") First day of dealings on the AIM market Inspace plc ("Inspace" or "the Company"), the property based support servicesbusiness that has established itself as one of the UK's leading social housingrepair and maintenance service providers, today announces the commencement ofdealings of its Ordinary Shares on the AIM market (AIM) of the London StockExchange. Seymour Pierce is acting as Nominated Adviser and as Broker to theCompany. The stock market EPIC will be INSP.L Placing Statistics Placing Price 108 pence Number of Existing Ordinary Shares 57,876,783 Number of Ordinary Shares being placed on behalf of: - the Company 9,259,259 - the Vendors 18,518,519 Number of Ordinary Shares in issue immediately following Admission 67,136,042Placing Shares as a percentage of the Enlarged Issued Share Capital 41.4% Market capitalisation on Admission at the Placing Price £72.5 million Estimated net proceeds of the Placing receivable by the Company £9.4 million(exclusive of applicable VAT) Colin Enticknap, Executive Chairman of Inspace plc, said: "We are delighted thatthe AIM flotation of the Company has been completed successfully. This listingmakes both strategic and commercial sense as we take Inspace to the next stageof its development and we now look forward to working with our new institutionalshareholders." For further information:Inspace plcColin Enticknap, Executive Chairman Tel: +44 (0) 1462 678 910colin.enticknap@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 / Ariane Comstive Tel: +44 (0) 20 7398 7700henry.ht@abchurch-group.com www.abchurch-group.com Introduction Inspace is a property based support services business that has establisheditself as one of the UK's leading social housing repair and maintenance serviceproviders. Inspace has assembled a portfolio of cyclical and counter-cyclical businesses.The Group is profitable, is cash generative and has secured a number of longterm partnering arrangements to provide a high degree of recurring revenue andresilience, with around 60 per cent. of overall activity being in the publicsector. A growing proportion of the Group's business is in the social housing marketwhich can be divided broadly into on-going repair and maintenance, and capitalimprovement works under the UK Government's "decent home for all" initiative.Inspace won one of the UK's first long term partnership agreements in this fieldfor the London Borough of Tower Hamlets in 1999, and since then has pursuedcontrolled expansion on a national basis. The Directors believe that the socialhousing repair, maintenance and improvement market will continue to presentsignificant growth opportunities for companies such as Inspace. The Directors believe that Inspace is culturally unique and is characterised bya clear and well communicated strategy, strategically aligned incentivestructures and an open and egalitarian environment developed to encourageenthusiasm alongside dissatisfaction with the status quo. Group structure and background The Group was re-branded in May 2003 when all the support service divisions ofWillmott Dixon, a privately-owned construction and property development companywith a strong presence in the education and social housing sectors, were broughttogether under the "Inspace" brand. Willmott Dixon, which began its repair andmaintenance operations 30 years ago, has been at the forefront of partneringinitiatives in the construction sector and has as its deputy chairman, SirMichael Latham, a leading authority on partnering and local authority 'BestValue' procurement. These principles of partnering and 'Best Value' procurementare at the core of Inspace's social housing service provision. The Group was de-merged from Willmott Dixon on 1st January 2005. Inspace has three complementary areas of activity, delivered through fourbusiness streams: • Repair, maintenance and improvement of social housing stock (Partnerships); • Repair, maintenance and improvement of corporate and public sector non-housing real estate Maintain and Environment); and Interior design, installation and furnishing of corporate and public sector non-housing real estate (Complete). Market dynamics Public Sector Further growth in the outsourcing of long-term maintenance and refurbishmentcontracts is expected to be driven by the Local Government Act 1999 and therealisation by local authorities that outsourcing on a 'Best Value' basis canimprove service levels, and can help a local authority to retain control of itshousing stock and to claim higher funding budgets from the Government. In April 2000 the Government issued the first comprehensive review of UK housingfor 23 years in its Green Paper "Quality and Choice: a decent home for all".This highlighted the previous under-investment in social housing which had lefta £19 billion repair backlog over 2.1 million homes, and set-out theGovernment's proposals to tackle under-investment, raise the quality of housingand housing management, and bring all social housing up to a decent standard by2010. In July of that same year the Government announced a substantial increasein housing investment, from £1.5 billion annually in 1997/98 to £4 billionannually by 2003/04. In order to encourage the adoption of its strategy, particularly the creation ofarms-length management organisations (ALMOs), the Government introducedsubstantial additional funding under its Decent Homes initiative. On a threestar rating system, this additional Decent Homes funding is only available forthose local authorities adopting an ALMO and achieving at least a two starrating, as determined by the Audit Commission. Alternatively, if theypersistently achieve a zero star rating, their housing stock and the income fromit may be transferred to a not-for-profit registered social landlord (RSL).Obtaining a three star rating not only gives potential access to additionalDecent Homes funding, but also leads to less frequent reassessment of the localauthority by the Audit Commission. In January 2005, the Office of the Deputy Prime Minister (ODPM) set out its fiveyear strategy for housing in England - "Sustainable Communities: Homes for All". It outlined that, although the number of substandard social rented homes hadbeen reduced by 1 million since 1997, a substantial number of social tenantsstill lived in homes that did not meet decency standards. To address thisissue, the ODPM reiterated its commitment to increase investment, predictingthat by 2010 local authorities and housing associations will together have spent£42 billion, including £10 billion from the private sector, to improve socialhousing in England. There are around 4 million social housing homes in England, of which 1 millionhomes still fell below decency standards in May 2004. Industry forecasts show arelatively steady social housing repair and maintenance market over the next 15years, running at around £4 billion per annum. The Decent Homes initiative isexpected to provide a boost to social housing annual capital expenditureprogrammes, with Decent Homes spend estimated to average £3.5 billion per annumbetween 2006 and 2010. These forecasts illustrate the constant need forrepairing and improving housing stock. Furthermore, it is widely felt in theindustry, due to the rate of refurbishment and capacity constraints, that the2010 target is unlikely to be achieved and that additional spend will beextended over a further two to three years; a House of Commons Select Committeehas predicted expenditure continuing to 2013. Adding both maintenance andcapital funding together (including Decent Homes but excluding new build), FocalResearch forecasts suggest a combined market size of just over £10 billion in2005, rising steadily through until 2011. Partnering and best value Underlying the Government's housing strategy is their desire to introduce theprinciple of 'Best Value' into local authority procurement. The Government commissioned report "Constructing the Team" authored by SirMichael Latham in 1994 ("the Latham Report") had initially promoted the conceptof partnering to UK construction; Sir Michael's ideas were subsequentlydeveloped in the Egan Report, published in 1998 which also concluded thatpartnering was one of the key methods for achieving 'Best Value' through theintroduction of performance measurement and competition against clear targetsfor improvement. The National Procurement Strategy for Local Government,published in October 2003, supported the adoption of these principles in thepublic sector, stating "the strategic objective of partnering is the delivery ofbetter services to citizens through the creation of sustainable partnershipsbetween councils and suppliers in the public, private, social enterprise andvoluntary sectors for the delivery of services and the carrying out of majorprojects". These initiatives create substantial opportunities for the involvement of theprivate sector, including companies such as Inspace, to secure long termarrangements with both local authorities and housing associations. Private sector In MBD's "UK Construction Market Development" report, published in 2005, theprivate non-residential repair and maintenance market was indicated to be worthapproximately £14 billion in 2004, representing approximately 32.1 per cent. ofthe total UK repair and maintenance market. Out-sourcing of non-core tasks, such as repair and maintenance, is a wellestablished practice in the private sector. The Directors believe that largecorporate customers, particularly those with geographically widespread propertyportfolios, are increasingly seeking to outsource such works to organisationsthat can provide a uniform service which can be administered centrally ratherthan at the local level, and provide increased efficiencies and levels ofservice. There are early signs that some of these corporate customers are nowalso considering aspects of a partnering model, creating the opportunity forcloser customer/supplier working relationships, with the common objective ofimproving service levels and improving efficiency levels to the benefit of bothparties. Additionally, the Directors believe that the integrity of a company's brand nowtypically encompasses its property portfolio, particularly in the retail andfinancial services sectors. This places greater focus on the standard anduniformity of appearance across the property portfolio and the requirement forrapid response in the general upkeep of that portfolio. Business Operations Partnerships Partnerships has established itself in the evolving 'premier league' of top tensocial housing repair, maintenance and improvement providers in the UK. Itdelivers responsive maintenance, planned maintenance, re-instatement of voidhomes and minor capital projects, and also Decent Homes improvement works underregeneration schemes. These services are provided exclusively to localauthorities, RSLs and ALMOs, typically on term contracts of between five and 10years. The Partnerships business model is based on providing a bespoke, dedicatedservice to each customer and can operate anywhere in Great Britain. It has beenawarded long-term contracts with Barnsley Metropolitan Borough Council(maintenance and Decent Homes), Colchester Borough Council (maintenance andDecent Homes), Trent & Dove Housing (maintenance), and is in the process ofestablishing a new branch for the Richmond upon Thames Churches Housing Trust(maintenance). Partnerships' income is derived from two main areas: • Responsive maintenance, planned maintenance, re-instatement of void homes and minor capital projects - these operations are funded directly from the local authority's internal budgets and are not dependent on such factors as central government spending policies or star ratings. This spend has increased year on year over the past three years and industry analysts expect this trend to continue beyond 2010; and • Decent Homes improvement works - this is subject to central government spending trends as discussed previously under "Market Dynamics". Partnerships is highly selective when assessing contract opportunities,prioritising potential projects where the local authority is perceived toembrace a genuine intention to move towards the partnering model, or is alreadyapplying long term partnering arrangements. In addition, target opportunitieswould preferably be cost plus, open book (or if they commence on a schedule ofrates, be capable of moving to cost plus) and also be suitable for a dedicatedteam approach. The Directors believe that in these circumstances, the localauthority's supplier selection criteria are more often weighted towards a 'greatest quality' rather than just a 'lowest price' basis. Under the partnering arrangements entered into, and as advocated by the Lathamand Egan Reports, the majority of the profit on cost plus, open book contractsis predicated on the performance of the contractor and the level of sharedsavings generated. Performance is measured by certain predetermined keyperformance indicators ("KPIs") which typically cover delivery times, cost,targets and client and tenant satisfaction. Published data demonstratesPartnerships' ability to improve KPI trends on cost plus arrangements. Thisability to demonstrate tangible performance improvement is one of the factorscontributing to its ability to generate higher margins. The Directors believe that reputation, covenant, scale and experience arebecoming increasingly important factors in customer selection which, if provedcorrect, will benefit those companies like Inspace perceived to be amongst the 'premier league', and potentially lead to consolidation in the sector. Theability to demonstrate a sound understanding of 'Best Value' procurement, andalso a politically sensitive and flexible approach towards the transfer oflabour (TUPE), are considered by the Directors to be important success factorsin this sector, and strengths of Partnerships. Furthermore, the Directors believe that the reputation of Partnerships has beenenhanced by its relationship with the Willmott Dixon group, which has beeninvolved in new social housing build for 30 years, and the close associationwith Sir Michael Latham, author of the Government commissioned report, "Constructing the Team" in 1994 on partnering and 'Best Value' procurement in theconstruction and service sectors. Sir Michael Latham acts as a consultant toInspace. The housing stock maintenance programme undertaken on a partnering basis forBarnsley Metropolitan Borough Council, was not only awarded 'Pathfinder Status'by the Department for Transport, Local Government and the Regions but alsorecognised by the Institute of Maintenance and Building Management (IMBM), whichawarded the scheme first prize in their 2003 awards. Partnerships has approximately 250 employees, a substantial number of whom havebeen transferred under TUPE regulations. Maintain / Environment Maintain is one of the UK's largest fabric maintenance businesses with its ownuniformed and branded labour force and, in the Directors' opinion, one of only alimited number of such businesses capable of providing a national service acrossEngland, Scotland and Wales. It offers an integrated, 24 hours, 7 days a weekmaintenance support service, with its own call centre, to the corporate andpublic non-housing sectors. Fabric maintenance support carried out by Maintain falls into the followingbroad categories: • Reactive maintenance - responding within a prescribed period according to the nature of the call-out and by appointment for non-urgent items; • Planned preventative maintenance ("PPM") - according to PPM schedules as devised via asset surveys or in consultation with the customer; and • Minor capital works. The national service is delivered across its seven regional branches inBirmingham, Leeds, London, Manchester, Newcastle, Norwich and Southampton, withthose branch teams coordinating a predominantly home-based workforce. Maintain has a broad spread of customers in both the public and private sectors,who typically offer longterm contracts with a duration of three years or more.Workload comes predominantly from major private customers (many of whom are inthe FTSE 350) or from customers in the public sector. Those in the formercategory include Barclays, Sainsbury's, HBOS and Whitbread; those in the publicsector include Royal Mail, Leeds City Council and Suffolk County Council. Wherevolume justifies such a move, Maintain will, like Partnerships, establish abespoke team built around the needs and workload of a single customer. Anexample is with Premier Travel Inn, where the dedicated service team now managesa rolling programme of refurbishment for approximately 21,000 hotel bedrooms. Environment is a specialist building services maintenance provider, capable ofservicing multi-tenanted offices and technically sophisticated buildings,primarily in London. It performs mechanical and electrical maintenanceincluding to lighting controls and to air conditioning and refrigerationsystems, through a planned preventative maintenance service. It willoccasionally also provide installation project works on a selective basis. The key maintenance contracts for Environment are Tower 42, the Trocadero Centreand America Square. Contracts are typically 3 years in length are for theprovision of either static or mobile planned maintenance. Currently, most ofthe existing business arises from static service provision with operatives basedon site. The opportunity exists to enhance margins for this service throughtaking on additional replacement and renewal work for customers. The mobileservice provision generates higher gross margins than static services. TheDirectors plan to improve profitability for the business stream throughincreasing the proportion of mobile services provided. Environment is presently the smallest of the Group's business streams. Whilstits operation is predominantly based in London, the Directors aim to expandEnvironment's service offering organically by using the branch infrastructureand customer base within Maintain. Consequently, for segmental reportingpurposes, it is combined with Maintain. The two combined business streams employ approximately 650 people. Complete Complete, which provides turnkey interior design, installation and furnishingservices for the corporate and public sector non-housing markets, has achievedsubstantial growth rates since its launch in 2002. It offers a comprehensivedesign led service covering each aspect from space analysis through to interiordesign, from project management of installation works through to furnishing. Customers are typically property end users and have until recently beenpredominantly in the private sector. However, with effect from July 2004,Complete secured the benefit of a contract to deliver the Jobcentre Plusroll-out programme (part of the Department of Work and Pensions) for therefurbishment of certain job centre branches, and is actively seeking toincrease its earnings resilience through securing further contracts in thepublic non-housing sector. Complete has approximately 40 employees. Strategy The Group has a clearly defined strategy to deliver controlled growth,sustainable profits and positive cash flows through predominantly organic growthacross its complementary business streams. This strategy is predicated ondelivering high customer satisfaction levels to promote customer loyalty, aswell as ensuring a strong internal culture, encouraging and rewardingperformance through incentivisation for achievement of stretching objectives.The Group invests in IT systems to improve productivity and customer interface. The Group's focus will be on securing and retaining long-term contracts acrossthe business, and on the geographic expansion of both Environment and Completefrom the south east, exploiting available synergies with Maintain.Opportunities also exist for Partnerships to exploit the Group's historicrelationship with Willmott Dixon as Willmott Dixon is one of the UK's leadingsocial housing builders. Once each business stream has established critical mass, the Company will seekto secure a substantial share of the niche markets in which it operates. Although the Directors are not actively considering any acquisitions,opportunities to accelerate growth through selective regional or technicalacquisitions may be considered, particularly in the Maintain and Environmentbusiness streams. Financial Record Set out below is a summary of the financial record of the Group for the threeyears ended 31 December 2004 which has been extracted without materialadjustment from the Accountants' Report in the prospectus: 2002 2003 2004 £'000 £'000 £'000TurnoverContinuing operations 41,391 79,468 101,731Discontinued operations 20,597 8,927 5,541 -------- -------- -------- 61,988 88,395 107,272Operating profitContinuing operations 2,013 4,088 6,362Discontinued operations (749) (694) (112) -------- -------- -------- 1,264 3,394 6,250Profit before tax 774 2,758 6,250 -------- -------- -------- In order to make a proper assessment of the financial position of the Company,prospective investors should not just rely solely on the summary information setout above but should read the whole of the admission document, including theAccountants' Report. Current Trading The Group has traded in line with management expectations in the first quarterof 2005. Recent contract wins include Partnerships' agreement with the Richmondupon Thames Churches Housing Trust to maintain its social housing stock for aperiod of five to seven years, and with a potential contract value of £28million. The Group's current order book is in excess of £300 million with an encouragingpipeline of potential new work. Directors The Directors of the Company are: Colin Enticknap FCIOB, MRICS - Executive Chairman, aged 46 Colin has over 28 years experience in the construction and support servicesmarket, the last 18 of which have been in general management. A graduate ofHarvard Business Schools' Advanced Management Programme, he was appointed groupchief executive of Willmott Dixon in May 1993 and steered that business throughnine consecutive years of profit growth. He relinquished that role to becomeExecutive Chairman of Inspace in January 2005 but remains as (part-time) groupchairman of Willmott Dixon. Christopher Sheridan, FCIB, MSI - Non-executive Deputy Chairman, aged 62 Christopher was appointed non-executive Deputy Chairman of Inspace in January2005, becoming the Company's senior non-executive director. He has beenchairman of the Yorkshire Building Society since 2001 having joined the board in1995. Christopher's background is in banking and the international moneymarkets having been head of merchant banking for Midland Bank and chiefexecutive of the merchant bank Samuel Montagu & Co Ltd until 1994. He is also anon-executive director of a number of companies in the financial services andproperty sectors. David Batchelor, ACA - Non-Executive Director, aged 55 A qualified chartered accountant, David is a former PricewaterhouseCooperspartner with extensive commercial and professional experience in a wide range ofbusiness sectors. He is currently non-executive director of Easter HoldingsLimited where he chairs the audit committee. Duncan Forbes, MCIOB - Chief Operating Officer, aged 54 Duncan is a chartered builder with over 15 years general management experiencerunning construction and support services businesses within Willmott Dixon. Hebecame Chief Operating Officer of the property maintenance division of WillmottDixon in 2000 and has taken the operational lead during its growth and evolutioninto the present Inspace business. Andrew Telfer, ACA - Chief Financial Officer, aged 37 Andrew is a chartered accountant and Imperial College graduate (civilengineering). He has held senior level corporate finance and businessdevelopment roles with Ernst & Young (London) and Spirent plc (FTSE 100 at thetime). He has also been an independent business adviser to the Government'sCompetition Commission and DTI's Industrial Development Unit. He joinedWillmott Dixon's support service division in 2002 as Corporate DevelopmentDirector and became Chief Financial Officer of Inspace in January 2005. Consultant to Inpace Sir Michael Latham, DL, MA, Dip ED, FCIPS, FICE, FCIOB, FLI, FREng, FRIBA,FCIBSE, FRIAS Sir Michael Latham was appointed as a consultant adviser to Inspace,specialising in partnering and 'Best Value' matters, on 1 January 2005. Heholds a number of non-executive posts including Deputy Chairman of WillmottDixon and Chairman of the EC Harris Public Sector Executive and CollaborativeWorking Centre. He is the author of 'Constructing the Team' (1994) and chairmanof the Construction Industry Training Board and Construction Skills Council. Hewas a Member of Parliament from 1974 to 1992. Key Management The key members of senior management include: Gerry Graville, MRICS - Managing Director, Inspace Complete, aged 36 Gerry joined the Inspace team in May 2002 and has over 10 years experience inthe design, install and furnish market. He was previously on the main board ofdirectors of interior fit out specialist Maris Interiors and was a managingdirector of one of its regional companies. Karim Khan, MRICS - Managing Director, Inspace Maintain, aged 46 Karim has over 25 years experience in the construction and support servicessector. He joined Willmott Dixon in 1988 and has held a number of differentsenior management roles in the contracting and fit-out businesses. He wasappointed Managing Director of Inspace Maintain in July 2004. Mick Williamson, BSc - Managing Director, Inspace Partnerships, aged 38 Mick joined Willmott Dixon to head the social housing repair and maintenancebusiness stream in 2003 and was made Managing Director of Inspace Partnershipsin July 2004. He had previously been managing director of one of Jarvis'maintenance companies and has spent 14 years in the maintenance, civil andstructural engineering sectors. Dividend Policy The Directors' intention is that the Company will pay dividends whilstcontinuing to retain a significant proportion of the Group's earnings tofacilitate the Board's plans for the continued growth of the Group. It isintended that the first dividend to be paid by the Company following Admissionwill be the interim dividend in respect of the six months ended 30 June 2005.After Admission, the Board intends to declare two interim dividends in respectof the six months ended 30 June 2005. The first, amounting to 5/6th of theaggregate amount of both dividends, shall be paid to shareholders shown on theregister of members on 24 May 2005 and the second, amounting to 1/6th of theaggregate amount of both dividends, shall be paid to shareholders shown on theregister of members on 1 July 2005. On Admission, the Existing Ordinary Shareswill be ex-dividend for the first interim dividend (5/6th) payable toshareholders on the register of members on 24 May 2005. Therefore the NewOrdinary Shares issued pursuant to the Placing will rank pari passu in allrespects, including the right to receive the second interim dividend (1/6th)payable to shareholders on the register of members on 1 July 2005, with theExisting Ordinary Shares. The Board will continue to review its dividend policy as the Company develops. - Ends - This information is provided by RNS The company news service from the London Stock Exchange