Inspirit Energy Regulatory News (INSP)

25 Sep 2007 07:01

Inspace Plc25 September 2007 Press Release 25 September 2007 Inspace plc ("Inspace" or "the Company") Interim Results for the six months ended 30 June 2007 Inspace plc (AIM:INSP), one of the UK's leading specialist service providers tothe social and affordable housing market, announces its Interim Results for thesix months ended 30 June 2007. Highlights Strong financial performance • Group revenue substantially up by 124% at £139.9 million (H1 2006: £62.6 million)• Operating profit up by 83% at £6.6 million (H1 2006: £3.6 million)• Earnings per share increased by 35% to 5.05 pence*• Interim dividend up 15% to 1.23 pence (H1 2006: 1.07 pence)• Cash conversion improved by 37% to 110% (H1 2006: 80%) ** Improved visibility of future earnings • 97% of social housing turnover for 2007 secured***• 85% of social housing turnover for 2008 secured***• 100% of corporate assets turnover for 2007 secured*** Positioned for future growth • Well positioned in maintenance and new build• Government planning 3 million new homes by 2020 * on a diluted and adjusted basis** proportion of operating profit converted into cash from operating activities (before taxation paid)*** based on consensus forecasts at 24 September 2007 Commenting on the Results, Colin Enticknap, Executive Chairman of Inspace plc,said: "We are extremely pleased with the way things have unfolded during thefirst half year. We have outperformed market forecasts, improved visibility offuture revenues, and seen firm evidence that Government's social housing agendais evolving in the way that we predicted. With significant emphasis now beingplaced on building affordable and sustainable new homes, we are well positionedto take full advantage of the next wave of public investment in this robustsector." For further information:Inspace plcColin Enticknap, Executive Chairman Tel: +44 (0) 1462 678 910colin.enticknap@inspace.co.ukAndrew Telfer, Chief Financial Officerandrew.telfer@inspace.co.uk www.inspace.co.uk Dresdner KleinwortChristian Littlewood Tel: +44 (0) 20 7623 8000 Media enquiries:AbchurchHenry Harrison-Topham Tel: +44 (0) 20 7398 7702henry.ht@abchurch-group.com www.abchurch-group.com Executive Chairman's statement Overview The Group performed strongly during the period ending 30 June 2007 with visiblebenefits flowing from the strategic changes introduced last year. Results for the enlarged Group were ahead of consensus forecasts, alreadyupgraded as we entered the close period, and significantly ahead of HY 2006figures. The newly acquired social and affordable housing businesses madeexcellent contributions to both revenue and operating profit, complementingequally robust performances elsewhere. With almost all of our predicted revenue for 2007 now secured, we should be wellplaced for the full year. As regeneration and new build activity for registeredsocial landlords (RSLs) now represents a material proportion of our overallworkload, we are much less affected by the local authority budget cycle and cantherefore expect to see much less seasonal distortion in revenue flows. Profit flows should, on the other hand, continue to be biased towards the secondhalf of the year, influenced by the annual calendar for reconciling and agreeingperformance based variable profit and shared savings. We still have some workto do to fully secure our target margins for 2007, particularly where thatmargin comes from performance based incentives, but our track record in thisarea has been good and we remain confident in our ability to achieve the rightoutcome. Looking further ahead, the social and affordable housing market has continued toevolve in the way we predicted, fully justifying our decision to accelerategrowth in this sector and to expand into the increasingly important regenerationand new build arena. With Government emphasis now shifting away from 'decenthome improvements' and towards building 'more affordable, more sustainable newhomes', we should be well positioned to capitalise on the next generation ofinvestment in public housing, supporting the Prime Minister's stated drive tobuild three million new homes by 2020. Results Revenue for the six months ended 30 June 2007 grew substantially by 124% toreach £139.9 million (2006: £62.6 million), driven by last year's acquisition ofWidacre Limited and by strong underlying organic growth. Social and affordablehousing represented 72% of overall activity, significantly enhancing ourposition as one of the UK's principal specialists in this high growth sector. Operating profit increased 83% to £6.6 million (2006: £3.6 million). Growth waslower compared to revenue, mainly reflecting the modified target margin for ournew mix of business but also the accounting treatment of joint venture activitywhere operating profits are included on a post tax basis. Nevertheless,operating margin still sat at a healthy 4.7% (2006: 5.7%). After interest charges on the debt put in place to part finance the acquisition,pre-tax profit was 47% ahead at £5.4 million (2006: £3.7 million). Continuedemphasis on effective cash management helped improve cash conversion once againto 110%, (2006: 80%) which, in turn, reduced bank borrowings at 30 June 2007 to£29.4 million (31 December 2006: £31.6 million). As a result, interest chargeswere slightly lower than expected at £1.2 million. The tax charge of £1.3 million (2006: £0.8 million) reflects an effective rateof 25% (2006: 23%). Adjusted diluted earnings per share, perhaps our most important performancemeasure, increased by 35% to 5.05 pence per share (2006: 3.73 pence) aftertaking into account the consideration shares also issued at the time of theacquisition. Interim Dividend The encouraging first half performance has allowed the Board to declare aninterim dividend of 1.23 pence per share (2006: 1.07 pence) which will be paidon 2nd November 2007 to those Shareholders on the Register on 5th October 2007.This represents an increase of 15% over last year, and is consistent withcurrent policy. Social and Affordable Housing Our social and affordable housing businesses, which trade as InspacePartnerships and Inspace Homes, specialise in building, improving andmaintaining rented housing for social landlords and also developing affordablehousing for sale, often in joint venture with social landlords, to createsustainable, socially integrated communities precisely in line with currentGovernment policy. These businesses collectively contributed £100.9 million (2006: £30.2 million)to first half Group revenues and £5.2 million (2006: £2.4 million) to first halfoperating profit. Having increased in scale so dramatically, they now form thebackbone of our business and will remain our main growth driver moving forward. Our overall operating margin for social housing was 4.1% (2006: 8.0%), dilutedas expected by the lower target margin on regeneration and new build activitywhich now accounts for about two thirds of revenue in this sector. There wasalso some margin pressure on maintenance and stock reinvestment activity wherecompetition is growing and key performance indicator targets, which influenceincentive payments, are becoming more stretching. Our aim for the full yearwill be to lift the level closer to our new blended target for operating marginof 4.5%. The operating margin for affordable housing was 19.5% (2006: nil). With allfirst half operating profit having been derived through our joint venturedevelopment model working alongside RSLs, this was subject to a joint venturetax charge of £0.4 million (2006: nil). As well as delivering good first half results, we have also made good progressin workload terms. As we closed our half year accounts, our social housingbusinesses had booked 97% of consensus 2007 revenues and already secured firmorders and preconstruction commissions for 85% of consensus 2008 revenues. Ourregeneration and new build procurement team has continued to enjoy anexceptional track record securing term appointments under framework agreementswith 6 further successes out of 6 submissions this year. They are equally adeptat winning stand alone regeneration tenders, the most recent example being ourselection as one of seven contractor partners by Clapham Park Homes for the £350million regeneration of the Clapham Park Estate in London. With pricingbecoming more competitive in their sub-sector, our maintenance and stockreinvestment team has been more selective in its tendering, prioritising likeminded customers with schemes that offer scale. We see Birmingham City Councilas a good example and were pleased to be short-listed amongst the fourbusinesses from whom two will be selected later this year to maintain themajority of their housing stock. Considerable energy is being committed intothe second stage negotiations, which offer the potential of a £100 millioncontract over eight years. In our affordable housing business, we have exchanged contracts on all unitsales required for 2007, and our sights have therefore turned to 2008 andbeyond. Reservations on entry level homes for sale have remained strong despitethe background of rising UK interest rates, suggesting that demand from firsttime buyers in London remains resilient. On our latest release, Scott House inIslington, 14 reservations were achieved in the first two weeks. Of moreconcern is the time taken to bring sites to market, with site acquisition andplanning negotiations becoming increasingly protracted. New Government plans toaccelerate the planning process and to free up land owned by various Ministriesare welcome and not before time. Against this backcloth, we were pleased to secure planning permission for theLondon Wide Initiative site at West Middlesex Hospital during the period, wherewe are working with English Partnerships and Notting Hill Housing Group.Consistent with Government policy, the development will create an integrated,mixed tenure community with 280 open market homes for sale alongside homes forrent and subsidised homes for sale to eligible key workers. We are aiming tosubmit the planning application for the second London Wide Initiative site,which is expected to include 200 open market homes for sale, early next year. We were equally pleased to be recommended by Reading Borough Council as apreferred development partner for the £140 million regeneration of the Dee ParkEstate. Once formally ratified, we shall be working in joint venture withCatalyst Housing Group, a leading London based RSL, to reach financial close ona major scheme that will see 480 new open market homes for sale, 280 new homesfor rent and a community school to be finally completed by 2017. We see this asan important opportunity to establish our credentials in this growth market. Corporate Assets Our corporate assets businesses, trading as Inspace Maintain and InspaceComplete, provide a maintenance and interiors service to the workplace for bothprivate and public sector customers. In first half revenue terms, they collectively contributed the balance of £39.0million (2006: £32.5 million). Whilst, with our accelerated growth in socialand affordable housing, this now represents only 28% of the enlarged business,it reflects an underlying annual growth rate for the division of 20%, a veryencouraging sign for the future. The contribution to operating profit was £1.4million (2006: £1.2 million). Margin was exactly in line with last year at 3.6%(2006: 3.6%), a strong performance from the interiors business balancing theeffects of the change programme under way in the maintenance business. That programme, which involves the realignment of operating structures andintroduction of new technology across the maintenance activity, is progressingsatisfactorily. Whilst caution with the IT roll out is likely to extend theprogramme into Q1 2008, the early signs of potential efficiency improvements areencouraging. Demand for the interiors service remains particularly strong andthe new furniture service has been well received. We have always emphasised that these businesses offer less workload visibilitythan in social housing. Maintenance contracts are usually shorter in durationand there is a greater dependence upon discretionary 'project' expenditure tosupplement the core maintenance budgets; interiors work demands a constantthroughput of intense, short term projects. Our declared aim has therefore beento progressively increase visibility through securing larger, longer termcontracts. At this stage last year we still needed to secure 19% of consensus2006 revenues. This year we have secured 100% of consensus 2007 revenue andwith 37% of consensus 2008 revenue already booked, we are on track to lift thatfigure to our target of 75% by the time we close this year's accounts. Outlook "Homes are the building blocks of our communities. They affect our health, ourwealth, and our opportunities for happiness. For a generation, the supply ofnew homes has not kept up with rising demand. The past decade has seen houseprices double in real terms and if we ignore the rising pressure for more homes,we will see widening wealth inequality, frustrated aspirations and damage to oureconomy. We need a new national drive to support more affordable housing and weneed to act now. That's why the Prime Minister recently announced plans forthree million new homes by 2020. Homes that reflect the diverse needs of allour communities." Those are not my words; they are from Yvette Cooper, Minister for Housing, inthe Housing Green Paper Homes for the future: more affordable, more sustainablepublished last month. With the number of households projected to grow at223,000 a year and the housing stock presently growing by just 185,000 a year,there can be little doubt that 'new housing' will be at the centre of thepolitical agenda for the foreseeable future, irrespective of whether we have aLabour or a Conservative Government. Current plans are to invest £8 billion in social and affordable housing over thenext three years, a 60% increase over the previous period, delivering 180,000new homes. By 2010/11, the annual build rate is expected to reach 75,000 with afurther increase predicted in the next spending review. Of the three millionnew homes planned for 2020, two million are planned for 2016. That investmentwill be through integrated, mixed tenure communities, with increasing emphasison sustainability, environmental efficiency and value for money - all areaswhere we are strong. Just as importantly, we do not expect this focus on new build to be at theexpense of maintaining existing stock where the trend towards outsourcingcontinues apace, nor on stock reinvestment where natural deterioration, risingstandards of living and evolving priorities will create continual demand. We are determined to play a leading part in this next wave of investment inpublic sector housing and confident that we are well placed to do so, alongsidedelivering renewed growth across our corporate assets businesses. Following last year's changes, we now have the structure, the relationships andthe resources we need. Above all else, we have a fantastic team of people;enthusiastic, hardworking and totally committed to delivering great service andhigh quality product. It is them who make our Group what it is today; theirvotes and comments led to Inspace Partnerships being selected by ContractsJournal for its Best Place to Work in Construction award, and they willultimately determine our success over the months and years ahead. My personal thanks and those of my Board colleagues go to all of them. We haveenjoyed a good start to 2007. With their continued support, we have a verybright future ahead. Colin EnticknapExecutive Chairman24 September 2007 Consolidated Income StatementFor the half year 30 June 2007 Unaudited Unaudited Unaudited half year half year full year 30 June 2007 30 June 2006 31 Dec 2006 Notes £000 £000 £000 RevenueGroup and share of joint ventures 147,537 62,642 175,222 Less share of joint ventures (7,614) - (170) Group revenue 2 139,923 62,642 175,052 Cost of sales (114,805) (45,430) (133,413) Gross profit 25,118 17,212 41,639 Administrative expenses (19,618) (13,625) (30,555)Share of post tax profits of joint ventures 1,074 - 75 Operating profit 2 6,574 3,587 11,159 Finance income 32 91 112Finance costs (1,199) - (835) Profit before tax 5,407 3,678 10,436 Tax expense 3 (1,344) (848) (2,889) Profit for the half year 4,063 2,830 7,547 Earnings per ordinary share: (pence) Basic 5 5.11 4.18 10.53Diluted 5 5.05 4.17 10.49 Adjusted earnings per ordinary share: (pence) Basic 5 5.11 3.74 10.20Diluted 5 5.05 3.73 10.16 Consolidated Balance SheetAs at 30 June 2007 Unaudited Unaudited Unaudited half year half year full year 30 June 2007 30 June 2006 31 Dec 2006 £000 £000 £000Non-current assets Goodwill 61,949 - 61,949Intangible assets 140 79 160Property, plant and equipment 1,362 1,071 1,600Financial assets 243 - 83Investments in joint ventures 47 - 218Deferred taxation 99 - 98 63,840 1,150 64,108Current assets Inventories 2,056 464 1,680Trade and other receivables 52,879 32,040 52,929Cash and cash equivalents 75 6,728 51 55,010 39,232 54,660 Total assets 118,850 40,382 118,768 Current liabilitiesTrade and other payables 51,688 21,692 51,701Current tax liabilities 1,688 850 1,932Bank overdrafts and loans 4,800 - 2,300 58,176 22,542 55,933 Non-current liabilitiesBank loans 24,601 - 29,274Deferred taxation - 17 - Total liabilities 82,777 22,559 85,207 Net assets 36,073 17,823 33,561 Equity Share capital 1,620 1,356 1,620Share premium account 23,390 10,387 23,390Other reserves (1,330) 3 (1,511)Retained earnings 12,393 6,077 10,062 Total equity 36,073 17,823 33,561 Consolidated Cash Flow StatementFor the half year ended 30 June 2007 Unaudited Unaudited Unaudited half year half year full year 30 June 2007 30 June 2006 31 Dec 2006 Notes £000 £000 £000 Net cash from operating activities 6 5,268 1,811 8,378 Investing activities Additions to property, plant and equipment (140) (287) (818)Proceeds from disposals of property, plant and equipment - - 13Acquisition of subsidiary undertaking, net of cash - - (42,820) (140) (287) (43,625)Financing activities Proceeds from share issue - 284 293Dividends paid to shareholders (1,732) (1,254) (1,980)Repayment of term loans and borrowings (2,173) - -Interest (1,199) 90 (673)Proceeds from term loans and borrowings - - 31,574 (5,104) (880) 29,214 Cash and cash equivalents, beginning of year 51 6,084 6,084Net increase/(decrease) in cash and cash 24 644 (6,033)equivalents Cash and cash equivalents 75 6,728 51 Notes to the Interim Results For the half year ended 30 June 2007 1 Basis of preparation These financial statements do not comprise full UK statutory accounts and theyhave not been audited. These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ('IFRS') adopted for use in the European Union andtherefore comply with Article 4 of the EU IAS Regulation. The interim financial statements for the six months to 30 June 2007 have beenprepared on the basis of the IFRS accounting policies included with the Group'sfinancial statements for the year to 31 December 2006 which the Directors expectto apply for the year to 31 December 2007. These policies were reflected in theIFRS equity and profit reconciliations disclosed with the 2006 financialstatements. Reconciliations of Group profit and Group equity prepared under IFRSwith those previously disclosed under UK GAAP in the 2006 Interim Report arepresented in these financial statements. At the date of authorisation of the financial statements IFRS 8 and IFRICs11-14, which have not been applied in these financial statements, were in issuebut not yet effective. The directors anticipate that the adoption of thesestandards and interpretations in future years will have no material impact onthe financial statements of the Group. The adoption of IFRS has no impact on the underlying performance of the businessand there is no impact on the underlying Group's cash flow. The audit report on the Group's 2006 financial statements was unqualified anddid not contain any statements under section 237(2) or (3) of the Companies Act1985. The accounts have been filed at Companies House. 2 Segmental analysis For management purposes the Group is organised into three operating divisions,and it is this basis on which the Group reports its primary segmental analysis.A description of each operating segment can be found within the ExecutiveChairman's Statement. Half year ended 30 June 2007 2006 Unaudited Unaudited Revenue Operating profit Revenue Operating profit £000 £000 £000 £000 Social Housing 100,917 4,091 30,171 2,416Affordable Housing 7,614 1,484 - -Share of joint ventures' tax charge - (410) - -Share of joint ventures (7,614) - - -Social and Affordable Housing 100,917 5,165 30,171 2,416Corporate Assets 39,006 1,409 32,471 1,171 139,923 6,574 62,642 3,587Finance costs net (1,167) 91Tax expense (1,344) (848)Profit for the period 4,063 2,830 Investments in joint ventures are all within the Affordable Housing businesssegment. Inter-segment revenue is not material and all inter-segment transfers are pricedon an arm's length basis. The Group's activities are all within the United Kingdom, thus no geographicalsegmental analysis is required. 3 Tax expense The tax expense for the period has been applied at the current rate ofcorporation tax and includes appropriate allowance for items not deductible forcorporation tax purposes and deferred taxation. 4 Dividends A final dividend of 2.18p per ordinary share was paid in respect of 2006earnings on 25 May 2007 totalling £1.73 million. An interim dividend of 1.23pper ordinary share is proposed for payment on 2 November 2007 totalling £0.98million. 5 Earnings per share Earnings per share are based upon the weighted average number of ordinary sharesin issue during the period of 79,454,559 (2006: 67,737,067). The dilutedearnings per share are based upon the weighted average number of 80,510,790(2006: 67,848,547) ordinary shares. The earnings for the periods are set out in the table below. An adjustedearnings measure has been included to highlight the impact of tax relief onshare based payments in respect of 2006. Half year ended 30 June Earnings Earnings per share Unaudited Unaudited 2007 2006 2007 2006 £000 £000 pence pence Earnings 4,063 2,830 Basic earnings per share 5.11 4.18 Diluted earnings per share 5.05 4.17 Tax relief on share based payments - (237) Adjusted earnings 4,063 2,593 Basic earnings per share 5.11 3.74 Diluted earnings per share 5.05 3.73 6 Cash flows Half year ended 30 June Unaudited 2007 2006 Operating activities £000 £000 Operating profit before interest and taxation 6,574 3,587 Share of tax attributable to joint ventures 351 - Depreciation 398 197 Non-cash cost of share based payments 51 9 Change in investment in joint ventures 171 - Change in payments on account 1,451 923 Change in inventories (376) (2,734) Change in operating receivables 51 917 Change in operating payables (1,463) (29) Cash inflow from operating activities before taxes paid 7,208 2,870 Tax paid (1,940) (1,059) Net cash from operating activities 5,268 1,811 7 Total recognised income and expenses Half year ended 30 June Unaudited 2007 2006 £000 £000 Increase in intrinsic value of interest rate hedge 130 - Share based payments charged in the half year 51 - Income and expense recognised directly in equity 181 - Profit for the half year 4,063 2,830 Total recognised income and expense for the half year attributable 4,244 2,830 to equity shareholders First time adoption of IFRS The Group adopted International Financial Reporting Standards (IFRS) in itsGroup financial statements with effect from 1 January 2007. For all previousperiods, including the 2006 interim report, the Group prepared its financialstatements in accordance with UK GAAP. The Group has applied IFRS1 in establishing the transitional requirements forthe first time adoption of IFRS. IFRS1 requires that all changes applied at thefirst reporting date under IFRS are applied retrospectively to the openingbalance sheet and to the comparative period. The first full year reporting datewill be 31 December 2007 and the date of transition to IFRS adopted by the Groupis therefore 1 January 2006. The full effect on the Group profit and Group equity as a result of the adoptionof IFRS is shown on pages 14 and 15 in the Interim Report. Profit Reconciliation The effect of the changes in the Group's accounting policies on adoption of IFRSon profit for the half year ended 30 June 2006 were as follows: Unaudited Effect of UK GAAP IFRS adoption IFRS £000 £000 £000 Revenue 62,642 - 62,642 Cost of sales (45,430) - (45,430) Gross profit 17,212 - 17,212 Administrative expenses (13,625) - (13,625) Operating profit 3,587 - 3,587 Finance income 91 - 91 Profit before tax 3,678 - 3,678 Tax expense 1 (842) (6) (848) Profit for the half year 2,836 (6) 2,830 Earnings per ordinary share: (pence)Basic 4.19 4.18Diluted 4.18 4.17 Adjusted earnings per ordinary share: (pence)Basic 3.75 3.74Diluted 3.74 3.73 1 Under IFRS no deferred tax asset is recognised in respect of share based payments granted during the year and not yet exercised. Equity Reconciliation The effect of the changes in the Group's accounting policies on adoption of IFRSon total equity at 30 June 2006 were as follows: Unaudited Effect of UK GAAP IFRS adoption IFRS £000 £000 £000Non-current assetsIntangible assets 1 - 79 79Property, plant and equipment 1 1,150 (79) 1,071 1,150 - 1,150Current assetsInventories 464 - 464Trade and other receivables 32,040 - 32,040Cash and cash equivalents 6,728 - 6,728 39,232 - 39,232 Total assets 40,382 - 40,382 Current liabilitiesTrade and other payables 21,692 - 21,692Current tax liabilities 850 - 850 22,542 22,542Non-current liabilitiesDeferred tax 2 11 6 17 Total liabilities 22,553 6 22,559 Net assets 17,829 (6) 17,823 EquityShare capital 1,356 - 1,356Share premium account 10,387 - 10,387Other reserves 3 - 3Retained earnings 2 6,083 (6) 6,077 Total equity 17,829 (6) 17,823 1 Under UK GAAP computer software was classified as a tangible fixed asset. Under IFRS it is classified as an intangible non-current asset. 2 Under IFRS no deferred tax asset is recognised in respect of share based payments granted during the year and not yet exercised. - Ends - This information is provided by RNS The company news service from the London Stock Exchange