Inspirit Energy Regulatory News (INSP)

26 Sep 2006 07:01

Inspace Plc26 September 2006 Press Release 26 September 2006 Inspace plc ("Inspace" or "the Company") Interim Results for the six months ended 30 June 2006 Inspace plc (AIM:INSP), one of the UK's leading specialist service providers tothe social housing market, announces its Interim Results for the six monthsended 30 June 2006. Highlights • Turnover in line at £62.6 million*• Operating profit in line at £3.6 million*• Adjusted diluted earnings per share at 3.74 pence**• Interim dividend of 1.07 pence (2005 pro forma: 0.966 pence)***• Order book and frameworks of £1.35 billion (2005: £0.45 billion)• 80% of social housing turnover for 2007 secured*• 64% of social housing turnover for 2008 secured*• Cash of £6.7 million (2005: £3.6 million)• Operating cash conversion of 80% (2005: 61%)****• Shareholders' funds of £17.8 million (2005: £13.6 million) * Based on market forecasts** Year-on-year movement distorted by shares issued on flotation*** Time apportioned dividend to post flotation shareholders**** Proportion of operating profit converted into cash from operating activities Commenting on the Results, Colin Enticknap, Executive Chairman of Inspace plc,said: "We are pleased to report continued progress on a number of fronts.First half results are in line with market forecasts; the recently securedsocial housing maintenance contract for the borough of Hinckley & Bosworth isexpected to contribute sales of some £15 million over 7 years; and with thesuccessful Widacre acquisition, our size has almost doubled and our workloadvisibility trebled." "We now have a broader portfolio of businesses, better cash generation and astronger board. Perhaps most importantly, we are now firmly positioned as oneof the UK's largest specialist service providers to the robust social housingmarket, with a unique ability to provide a comprehensive, integrated solutioncovering maintenance, 'Decent Homes' stock reinvestment, regeneration and newbuild needs. We look forward to the future with renewed enthusiasm." - Ends - For further information: Inspace plc Colin Enticknap, Executive Chairman Tel: +44 (0) 1462 678 910 colin.enticknap@inspace.co.uk Andrew Telfer, Chief Financial Officer andrew.telfer@inspace.co.uk www.inspace.co.uk Seymour Pierce Mark Percy, Corporate Finance Tel: +44 (0) 20 7107 8000 markpercy@seymourpierce.com www.seymourpierce.com Media enquiries: Abchurch Henry Harrison-Topham Tel: +44 (0) 20 7398 7700 henry.ht@abchurch-group.com www.abchurch-group.com Executive Chairman's statement Overview The last six months has been an intensely busy, sometimes challenging, butultimately successful period for the group. Financially, we have delivered first half results in line with marketexpectations. Operationally, we have moved forward the transformation programmeaffecting our non-housing interests and strengthened relationships with keycustomers across all parts of our business. Despite a series of tenderingfrustrations, we have not allowed pricing levels to be compromised by the demandfor short term news flow, and have now been rewarded by a significant increasein the number of tender opportunities flowing through the sales pipeline.Strategically, we successfully completed the acquisition of Widacre Limited on31 August 2006, a business that will significantly strengthen our social housingcapability, the visibility of our forward order book, and ultimately the qualityof our future earnings. The acquisition Shareholders will recognise that the board is pursuing a growth strategy, andthat we expect social housing to be the main driver of that growth. Until now, our social housing activity has centred around local authoritymaintenance contracts, particularly those that have offered spin-off 'DecentHomes' stock reinvestment work. Future growth targets demand that we acceleratethe expansion of this maintenance customer base, and that we now also expandinto stand-alone 'Decent Homes' contracts - those tendered in their own right. In maintenance terms, our challenge will be to find an increasing population ofnew customers as the market matures and competition increases. We seeRegistered Social Landlords - commonly referred to as RSLs - as importanttargets in this respect. They are already becoming much more active in themaintenance market, induced by new measures recently introduced by Governmentunder its audit and inspection regime which mean that RSLs who fail to properlymaintain their stock risk losing grant funding. We face a different challenge in expanding into stand-alone 'Decent Homes'contracts. Experience has taught us that our core skills, managing a directlyemployed 'blue collar' workforce, are insufficient in this market. They needsupplementing with contracting skills, the ability to procure, manage andcontrol a subcontract workforce. It is no coincidence that many of thesecontracts have been won by contractors rather than maintenance specialists. The acquisition significantly addresses both these issues. Firstly, Widacre'ssocial housing business has strong relationships with many of the UK's largestand highest spending RSLs; its RSL customer base accounts for more than half ofthe UK's RSL managed housing supply. Secondly, it naturally has very strongcontracting and supply chain management skills that are directly transferable tothe 'Decent Homes' market. Furthermore, as we first mentioned in our AGM statement back in May, Governmentpolicy is changing in relation to 'Decent Homes' expenditure. As has now beenmade clear from the recent discussion paper entitled From Decent Homes toSustainable Communities, future 'Decent Homes' funding will be allocated toschemes capable of delivering mixed sustainable communities through majortransformation of estates. Transformation, in this context, will becharacterised by housing for rent alongside housing for sale and the building ofnew homes alongside the refurbishment of existing. Widacre's social andaffordable housing businesses are ideally positioned to support us in thisunfolding market, and Inspace will now be uniquely positioned to provide acomprehensive, integrated service to all types of social housing landlord. An additional strategic benefit is, of course, the strong order book andsignificant earnings visibility gained from Widacre's secured social housingorders and frameworks, which total over £900 million. This reflects specialistnew build social housing work to be undertaken under long term open-bookpartnering frameworks, similar in concept to 'Decent Homes' contracts. Widacre brings with it an excellent, well motivated workforce, a culture closelyaligned and easily integrated with ours through its shared Willmott Dixonheritage, and strong leadership from Chris Durkin, who now joins our main boardas chief operating officer of our wider social and affordable housing interests. The board believes that the acquisition undoubtedly broadens and strengthens ourunderlying business, and will enable us to build upon the results alreadyachieved during the first half year. Financial highlights Turnover was in line with expectation at £62.6 million (2005:£70.8m), reflectingthe reduction in Inspace Maintain during its carefully planned transformationprogramme, the winding down of Inspace Complete's Job Centre Plus refurbishmentcontract, and our increased sensitivity to seasonality in public sector spendingpatterns as we continue to grow Inspace Partnerships. An improved operating margin of 5.7% (2005:5.0%) meant that operating profitremained at £3.6 million despite the reduced turnover. With no bank borrowings,and interest on deposit of £0.1 million, pre-tax profit grew by 6.8% to reach£3.7 million (2005:£3.4m). Tax relief on options exercised led to a greaterincrease in post-tax profit, which improved by 20.0% to £2.8 million. Dilutedearnings per share were 3.74 pence on an adjusted basis (2005:3.94p), reflectingthe shares issued on flotation. Our balance sheet continued to strengthen, with net current assets of £16.7million (2005:£12.7m) and shareholders' funds of £17.8 million (2005:£13.6m).Cash conversion also improved to 80% (2005:61%), with a half year cash balanceof £6.7 million (2005:£3.6m). Importantly, the most significant improvement relates to the quality and scaleof our forward order book. With the Widacre acquisition now complete and theintegration process under way, secured orders and frameworks have increasedthree-fold from £450 million to £1.35 billion. Dividend An interim dividend of 1.07p per share will be paid on 2 November 2006 to thoseshareholders on the register on 6 October 2006. The pro forma 2005 interimdividend, paid to post flotation shareholders, stood at 0.966p on a timeapportioned basis. Operational Performance With operating activity about to increase significantly, our portfolio ofbusiness streams has been aligned into three divisions - Social Housing,Affordable Housing and Corporate Assets. Social Housing accounted for 48% (2005:42%) of group turnover in the first halfyear, continuing the growth pattern established over recent years. This wasdespite a significant reduction against forecast spend by one customer, a factorexpected to also impact upon the second half year. The recently secured repairand maintenance contract for the borough of Hinckley and Bosworth, expected tocontribute sales of more than £15 million over seven years, was a welcomesuccess for the sales team, coming at the end of an unusually quiet tenderingperiod. Post incentive operating margins improved to 8.0% (2005:6.4%),influenced by the timing of performance based incentive payments and theexpected migration of 'schedule of rates' contracts towards full partneringarrangements. With Widacre's Social Housing interests now expanding thisdivision, its proportional weighting will undoubtedly continue to grow, probablyapproaching 60% in full year terms. Affordable Housing, which comes entirely with the Widacre acquisition, will onlyfeature in full year figures. Corporate Assets, which brings together our non-housing maintenance andinteriors activities, accounted for the remaining 52% (2005:58%) of groupturnover. This part of our business has been going through the early stages ofa comprehensive change programme, aimed at realigning its customer base aroundthose offering greater visibility and resilience, and upon improving efficiencylevels. Whilst this undoubtedly affected turnover in the short term, operatingmargins held up reasonably well at 3.6% (2005:4.1%). Future Priorities With the acquisition just behind us, our attention has already turned towardsintegration and the embedding of our new structure, a process expected toculminate with the new businesses adopting the Inspace brand early in 2007. Inthe meantime, we cannot afford to be distracted from the need to secure ahealthy stream of new orders - the lifeblood of a growth business such as ours. In Social Housing terms, secured orders and frameworks accounted for 94% of2006, 80% of 2007 and 64% of 2008 consensus forecasts. With organic growth fromexisting accounts expected to fuel the outstanding balance for this year, ourmain priority will be to secure the shortfall for next year and build a morerobust platform for future years. We will look first to our excellent pipelineof core repair and maintenance contracts, where tender throughput is once againat a very healthy level. Alongside this, the inherited pipeline of 'regeneration and new build' partnering frameworks is equally strong and tenderactivity equally intense. Having been appointed on fourteen of the sixteenframeworks previously tendered, our optimism for future success in this area ishigh. With Affordable Housing, the longer 'incubation period' for new projects demandsthat we plan even further ahead. Activity levels for 2006 have been secure forsome time, and 2007 activity will predominantly revolve around the Eastsidejoint venture developments in East London where the relationship with CircleAnglia, one of the UK's largest RSLs, is proving particularly successful. Focushas therefore moved to 2008, with the priority being to bring the London WideInitiative developments, which offer enormous potential, to early fruition, andto nurture the next generation of joint venture relationships with new RSLpartners. By contrast, Corporate Assets inherently offers less workload visibility.Maintenance contracts are usually shorter in duration than in social housing andthere is a greater dependence upon discretionary 'project' expenditure tosupplement the core maintenance budgets. Interiors work demands a constantthroughput of intense, short term projects, although these do invariablygenerate higher margins and surplus working capital. Our challenge here will beto secure the remaining 19% of workload required for 2006, and to continue toimprove visibility for future years through an increased proportion of moresubstantial, longer term contracts. Encouraging progress has already been madein shifting the sales pipeline towards the substantial £7 billion per annumpublic non-housing maintenance market; the next and most important stage will beto convert that pipeline into live contracts. With social housing revenues now increasing towards our 70% target, ourdependence upon Corporate Assets is expected to be sustained at around 30% as wemove into 2007. Summary Our people have continued to invest enormous energy and commitment into thisbusiness over the last six months, often more so than could reasonably beexpected. I thank them all for their considerable efforts, and for theirimportant achievements. It may not be immediately apparent from the headline results, but this periodwill mark an important stage in the group's unfolding success story. With theacquisition, our size has almost doubled and workload visibility has trebled.We have a broader portfolio of businesses, better cash generation and a strongerboard. Perhaps most importantly, we are now firmly positioned as one of theUK's largest specialist service providers to the robust social housing market,with a unique ability to provide a comprehensive, integrated solution coveringmaintenance, 'Decent Homes' stock reinvestment, regeneration and new buildneeds. Colin EnticknapExecutive Chairman26 September 2006 Group Profit and Loss Account Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 Notes £'000 £'000 £'000 Turnover 2 62,642 70,815 147,527Cost of sales (45,430) (54,341) (113,802) Gross profit 17,212 16,474 33,725Administrative expenses Excluding exceptional items (13,625) (12,903) (25,865) Exceptional items - - (418) (13,625) (12,903) (26,283) Operating profit 2 Excluding exceptional items 3,587 3,571 7,860 Exceptional items - - (418) 3,587 3,571 7,442Interest receivable 91 92 223Interest payable and similar charges - (218) (218) Profit on ordinary activities before 3,678 3,445 7,447taxation Tax on profit on ordinary activities 3 (842) (1,082) (2,310) Profit for the financial period 2,836 2,363 5,137 Unadjusted earnings per ordinary share:(pence)Basic 5 4.19 4.04 8.17Diluted 5 4.18 3.94 8.03 Adjusted earnings per ordinary share:(pence)Basic 5 3.75 4.04 8.64Diluted 5 3.74 3.94 8.49 All activities are continuing Group Balance Sheet Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 (Re-stated) Notes £'000 £'000 £'000 Fixed assetsTangible assets 1,150 899 1,058 Current assetsStocks 6 464 277 335Debtors 7 32,040 33,230 30,350Cash at bank and in hand 6,728 3,648 6,084 39,232 37,155 36,769 Creditors: amounts falling due withinone year 8 (22,553) (24,469) (21,873) Net current assets 16,679 12,686 14,896 17,829 13,585 15,954 Capital and reservesCalled up share capital 1,356 1,343 1,343Share premium 10,387 9,864 10,107Capital redemption reserve 3 3 3Profit and loss account 6,083 2,375 4,501 9 17,829 13,585 15,954 Group Cash Flow Statement Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 Notes £'000 £'000 £'000 Cash flow from operating activities 10 2,870 2,168 6,707 Returns on investments and servicing offinance 90 (126) 5 Taxation paid (1,059) (484) (1,706) Capital expenditure and financialinvestment (287) (498) (861) Equity dividends paid 4 (1,254) (4,274) (4,923) Cash flow before use of liquidresources and financing 360 (3,214) (778)Financing 284 6,825 6,825 Increase in cash 644 3,611 6,047 Reconciliation of net cash flow tomovement in net funds Increase in cash 644 3,611 6,047 Opening net funds 6,084 37 37 Closing net funds 6,728 3,648 6,084 Notes to the Interim Results 1. Basis of preparation The interim financial information for the six months to 30 June 2006 has beenprepared on the basis of the accounting policies applied in the Group'sstatutory accounts for the year to 31 December 2005 with the exception of theapplication of FRS 20 (share based payments) in replacement of UITF 17. Theadoption of FRS 20 has not required any adjustment in respect of prior periods. As a result of the adoption of FRS 21 and UITF 40 in the statutory accounts forthe year to 31 December 2005 the balance sheet and the cash flow statement forthe half year ended 30 June 2005 have been re-stated. The audit report on the 2005 annual report and accounts was unqualified and didnot contain statements under section 237(2) or (3) of the Companies Act 1985.The accounts have been filed at Companies House. The Directors expect current accounting policies to apply to the accounts forthe year to 31 December 2006. The half year information has not been auditedand does not represent statutory accounts. 2. Segmental analysis Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 £'000 £'000 £'000 TurnoverSocial Housing 30,171 29,482 61,201Affordable Housing - - -Corporate Assets Maintenance 25,462 31,105 60,821 Interiors 7,009 10,228 25,505 62,642 70,815 147,527 Operating profitSocial Housing 2,416 1,873 4,529Affordable Housing - - -Corporate Assets Maintenance 961 1,334 2,167 Interiors 210 364 1,164 3,587 3,571 7,860 3. Taxation The taxation charge for the period has been applied at the current rate ofcorporation tax and includes appropriate allowance for items not deductable forcorporation tax purposes and deferred taxation. Taxation relief of £0.30million has also been accrued for in respect of shares issued under employeeincentive schemes. 4. Dividends A final dividend of 1.85p per ordinary share was paid in respect of 2005earnings on 24 May 2006 totalling £1.25 million. An interim dividend of 1.07pper ordinary share is proposed for payment on 2 November 2006 totalling £0.73million. 5. Earnings per share Earnings per share are based upon the average number of ordinary shares in issueduring the period of 67,737,067 (June 2005: 58,532,666; December 2005:62,872,928). The diluted earnings per share are based upon the weighted averagenumber of 67,848,547 (June 2005: 59,952,559; December 2005: 63,975,884) ordinaryshares having taken into account the dilutive effect of shares which have beenmade available to employees under existing incentive schemes. The unadjusted earnings per share for the period are based upon the profit aftertax of £2.84 million (June 2005: £2.36 million; December 2005: £5.14 million).The adjusted earnings per share highlight the impact of the exceptional itemsduring 2005 of £0.42 million and the impact of tax relief in respect of sharesissued under share incentive schemes of £0.30 million (June 2005: nil; December2005: £0.13 million). Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 (Re-stated) £'000 £'000 £'000 6. StocksStock of raw materials 464 277 335 7. DebtorsTrade debtors 11,095 16,849 13,445Prepayments 2,360 1,568 925Deferred tax - 13 -Amounts recoverable on contracts 18,585 14,800 15,980 32,040 33,230 30,350 8. Creditors amounts falling due within one yearTrade creditors 12,383 12,292 11,522Payments on account 2,579 1,727 1,656Corporation tax 850 1,082 1,064Other taxes and social security 3,389 4,127 1,908Accruals 3,341 5,241 5,712Deferred tax 11 - 11 22,553 24,469 21,873 9. Reconciliation of movements in equity Unaudited Unaudited Auditedshareholders' funds half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 (Re-stated) £'000 £'000 £'000 Profit for the financial period 2,836 2,363 5,137Dividends (1,254) (4,274) (4,923) 1,582 (1,911) 214Call on share capital - 530 530Purchase of own shares - (3) (3)Issue of shares under option 293 - 244Issue of shares - 10,054 10,054Costs associated with issue of shares - (613) (613) Net proceeds from issue of shares 293 9,968 10,212 Movement in equity shareholders' funds 1,875 8,057 10,426Opening shareholders' funds 15,954 5,528 5,528 Closing shareholders' funds 17,829 13,585 15,954 During the period options in respect of 664,327 shares were exercised underDirector and employee incentive schemes. An additional 779,502 share options inplace at 30 June 2006 are yet to be exercised. 10. Cash flows Unaudited Unaudited Audited half year half year year ended 30 Jun 2006 30 Jun 2005 31 Dec 2005 (Re-stated) £'000 £'000 £'000 Reconciliation of operating profit to net cash inflowfrom operating activitiesOperating profit on ordinary activities 3,587 3,571 7,442Depreciation 197 180 383Increase in stock and amounts recoverable on (2,734) (436) (1,674)contractsDecrease/(increase) in debtors 917 (8,033) (3,988)Increase in payments on account 923 394 323(Decrease)/increase in trade and other creditors (29) 6,492 3,977Non-cash cost of share based payments 9 - 244 Net cash inflow from operating activities 2,870 2,168 6,707 Analysis of change in net funds in yearOpening cash at bank and in hand 6,084 37 37Increase in cash in year 644 3,611 6,047 Closing net funds 6,728 3,648 6,084 11. Interim Report Further copies of the interim report are available from the registered office ofInspace plc or www.inspace.co.uk - Ends - This information is provided by RNS The company news service from the London Stock Exchange