Team Internet Regulatory News (TIG)

3 December 2014

The Innovation Group plc

("Innovation Group" or the "Group")

Preliminary Results for the twelve months ended 30 September 2014

The Innovation Group plc (LSE: TIG), a global provider of business process services and software solutions to the insurance, fleet, automotive and property industries, announces its preliminary results for the twelve months ended 30 September 2014.

Financial Highlights

Highlights

· Fifth consecutive year of cash generative adjusted profit and revenue growth

o 10% revenue increase at constant currency to £209.8m

o Adjusted profit before tax up 38% at constant currency to £27.5m

o Sales of one-off licences increased by £3.0m year on year, (see Asia-Pacific and UK Regional reviews)

o Operating cash conversion rate remains high at 88%

o The Directors propose a final dividend of 0.2p per share making a total dividend for the year of 0.3p (2013: nil). The final dividend, if approved, will be payable on 31 March 2015 to shareholders on the Company's share register as at close of business on 20 February 2015

· Future growth potential secured via complementary acquisitions in key growth areas

o Acquisition today of EMaC Limited, a UK service plan business, provides a strong, profitable, cash generative platform for expansion of this product offering in the UK and across Europe

o Acquisition of LAS Claims Management Limited broadens the Group's outsourced service offering in UK Property

o Acquisition of Crashworth Limited and Driven Solutions Inc enhances the Group's outsourced service offering in both the UK and US Motor divisions

· Group structure and Board roles realigned to ensure long-term success of the Group

o Two distinct business divisions established, aligned to the Group's market opportunities: Business Services (BPS) and Insurer Business (Technology)

o Appointment of Paul Nichols, Chief Executive - Insurer Business, in March 2014 to develop and grow our global software business

o Jane Hall appointed Chief Executive - Business Services from 1 January 2015

o Lewis Miller will succeed Jane Hall as Group Finance Director on 1 March 2015

o Andy Roberts, will continue to lead the Group until 31 December 2015 at which time he will take up a part time role

Andy Roberts, Chief Executive Officer of Innovation Group commented:

"This has been nothing short of a defining year for The Innovation Group. Today we mark the close of a fifth consecutive year of profitable, cash generative growth and look forward to an even stronger future, driven by organic growth and enhanced by the sensible acquisitions we have undertaken. Today's acquisition of EMaC is a case in point: an excellent business, a market leader in its field, and operating to a cash generative, low capex model similar to our own.

As I look around the Group, I see expanded opportunities in Motor, expanded opportunities in Property and a market leading technology platform underpinning all of that potential. With such potential in front of us, it is right that we align our structure and leadership to make sure we are best placed to succeed. I remain focused on continuing Innovation Group's growth story and look forward to the year ahead with confidence."

Commenting on the realignment of management responsibilities, Mr Roberts added:

"I am delighted that Jane Hall, as one of our most capable and committed executives, has elected to take up the role of Chief Executive of our BPS division and that Lewis Miller, currently MD of our North American BPS business and prior to that Finance Director of that business, will succeed Jane. We focus relentlessly on developing management talent within the business and it is hugely gratifying that we are able to promote from within.

For my own part, after six years with Group, the last five as CEO, I have agreed with the Board a long term and orderly succession plan, based on the robust foundations of our good trading performance and strength of our senior management team."

Enquiries:

Chairman's Statement

In our last Annual Report, I said that our strategy was bearing fruit. I am pleased to report that we have continued to perform well and have met our profit expectations. We have now provided our shareholders with five years of revenue and adjusted profit growth - a record I am very proud of. In addition, I am delighted to say that the three acquisitions we made during the year following our successful fund raising in March are integrating well, and last, but not least, we have reintroduced a dividend in order to share our success with our shareholders.

All of this has been achieved in the face of a market environment that has evolved differently to our expectations. We had thought that as the world's economies emerged out of recession, increased economic activity would bring about higher claims volumes but this has not yet materialised to any great extent.

We have been able to generate increased revenue and adjusted profit by delivering more and higher value services and gaining market share based on our service levels, processes and technology together with the impact of the three acquisitions completed in the year. However, there have been few adverse weather events that lead to increased claims in the countries and markets which we served over the last year, and weather in Europe in particular was benign, further depressing claims volumes. We have also faced fiscal headwinds as currencies weakened against the pound. Despite all this our business model continues to prove itself in terms of both profit and cash generation. The Group is net cash positive which allows us to continue to invest in both acquisitions and our own research & development. By doing this we broaden the solutions we are able to offer to our customers.

It is important to note that the Group remains committed to sustainability. At the recent UN Climate Talks, we were a signatory to a declaration that committed us to report on climate change information on a regular common basis.

We continue to invest in our people and of special note this year was our Centurion training programme that gave one hundred colleagues intensive exposure to our improved and updated methodologies and frameworks. Already we are seeing significantly better delivery capability from this.

The Board has also been considering how to structure the leadership of the business and to deal with succession planning. We believe the following changes will significantly aid our growth plans in the years ahead and enable us to further drive shareholder value.

Effective from 1 January, Jane Hall will assume the commercially and operationally focused role of Chief Executive - Business Services. In this role Jane will be responsible for the performance of all of our international services businesses. I am delighted that Jane, as one of our most capable and committed executives, has elected to take up this position. Lewis Miller, currently MD of our North American BPS business and prior to that Finance Director of that business, will succeed Jane on 1 March 2015. Jane will perform both roles until that time and will then step down from the Board.

Jane will work alongside Paul Nichols, who is already Chief Executive - Insurer Business, and has made good progress in developing and growing our global software business since his appointment in March. In the role of Group Chief Executive, Andy Roberts, will continue to lead the Group until 31 December 2015 at which time he will take up a part time role.  Both Jane and Paul will report to Andy Roberts.

These are exciting times for our Group. At the close of a fifth successive year of revenue and adjusted profit growth, I would like to extend my personal thanks - and those of the Board and wider team - to Andy and Jane for their exemplary efforts in bringing us to this point so that we can embark on the next exciting chapter for the company and our shareholders.

Finally, as previously reported, I have indicated that I will be stepping down as Chairman. The search for my successor is now well underway and with these changes agreed I intend to hand over to my successor at the Company's AGM.

I would like to thank my fellow Board members, our management team, our advisors and our staff, who have worked hard to transform Innovation Group into a success story.

CEO Statement

Innovation Group is clearly on a growth path under a stable and strong management team. Our task now is to build on these foundations and achieve our top three market share ambition in each operating region and grow our newly separated software business.

The results in this report come from very good operational and sales momentum. This is in turn based on the stability and quality of our regional management. I believe that we now have the best team of senior management we have had in the business since I first became involved, all aligned towards achieving our strategic goals. This clarity of purpose is already resulting in a consistency of results and a depth of engagement with the market that is building a strong pipeline of new and extended business.

This engagement is vital as the market is changing rapidly with more use of mobile technologies, data analysis and customer self-service. We are at the forefront of these changes, both through our own R&D with our Insurer software business, and also by working with partners such as Wunelli and Symbility. As well as technology leadership, we also aim to lead the market through innovative business models such as fixed price claims, backed up by partnerships with major reinsurers.

This year also saw us add the ability to manage both wet and dry perils in our property claims business in the UK. We will expand this capability into our other operating regions over the coming year, giving insurers access to a complete range of motor and property policy and claims services.

We are now well placed to grow strongly and consistently in all areas of our business. With clear opportunities in both divisions of our business and with a strong pipeline in all regions, I look forward to the year ahead with confidence.

Group Operational & Financial Review

Key Performance Indicators ("KPIs")

Management has determined a number of KPIs, which are used to track progress throughout the year against our strategy. Prior period financial information is presented both at previously reported values and on a constant currency ("CC") basis, using 2014 exchange rates to retranslate these reported numbers. We have done this so we may present the underlying performance of the business without the effect of translation.

The Group's Financial KPIs are:

· Revenue;

· Adjusted EBITDA;

· Adjusted Profit;

· Adjusted earnings per share; and

· Cash conversion as a percentage of adjusted EBITDA.

These measures have been selected as they are deemed to be most appropriate in measuring what is required to generate an increase in shareholder value and are consistent with previous years. Certain of these KPIs also form the basis of senior management reward, therefore ensuring that this is aligned with shareholder value creation. The Group's performance against these KPIs is referred to as part of the following financial review.

The Group also has a number of operational KPIs that are used to manage the business on a day by day basis, many of which are woven into service level agreements within our customer contracts. Examples of these include:

· Number of claims notified within a time period (daily / weekly / monthly) - BPS;

· Number of claims closed within a time period - BPS;

· Average settlement value per claim - BPS;

· Size of sales pipeline - BPS and Software;

· Customer satisfaction - BPS and Software; and

· Utilisation of staff - Software.

It is considered impractical to separately report on these operational KPIs within the Group's Annual Report and Accounts because although the KPI measurement may be the same, the targets will vary by region, driven predominantly by individual contractual service level requirements.

The financial KPIs noted above are linked to the operational KPIs in a manner which mean that tracking the financial KPIs is considered to be a reasonable proxy for some of these operational KPIs. For instance, transactional revenue is driven by the number of claims handled in a period.

These KPIs are considered to be relevant to the strategic goals as stated on the following bases:

Overall Group performance

Achievement against approved budget

The Board approved a budget for the Group in October 2013. On an overall basis, the Group achieved its adjusted profit and cash conversion targets set under this budget, but missed the revenue target due predominantly to the performance of our North American region and currency depreciation across all overseas territories and most particularly in South Africa.

Revenue (KPI)

Overall the Group achieved 3% growth in revenues to £209.8m (2013: £204.4m).

The Group aimed to achieve 21% year on year growth in overall group revenue at constant currency through a mixture of organic and in-organic (acquired) growth in all of its territories. Revenue growth at constant currency was 10%, comprising an increase in BPS revenues of 7% to £179.0m (2013: £167.5) and an increase in software revenues of 31% to £30.8m (2013: £23.6m). The Group's underperformance against the constant currency target was primarily the result of lower than originally anticipated claims volumes in some regions linked to benign weather and lower than expected implementation revenues in the software business.

Excluding revenue from the acquisitions made in the year, which amounted to £7.6m, organic growth at constant currency was 6%.

The Group operates internationally and results for the year are subject to movements in currency exchange rates. Approximately 74% (2013: 77%) of the Group's revenues are generated in currencies other than Sterling. The Group has a policy of not hedging translation movements that arise, although material transactions are hedged at the point they become more likely than not to occur. During the 2014 financial year the value of the Group's overseas earnings has been impacted by the strengthening of Sterling against each of the Group's main foreign currencies.

Adjusted EBITDA, Adjusted Profit and Adjusted Earnings Per Share ("AEPS") (KPI)

The Group aimed to achieve 37% year on year growth in adjusted profit at constant currency. Over performance of this KPI when compared to revenue growth indicates strong operational leverage in the BPS business and an increase in high margin software licence revenue. Growth in reported adjusted profit, adjusted EBITDA and AEPS were 38%, 33% and 41% respectively against revenue growth of 10%.

Adjusted EBITDA and adjusted profit before tax for the year ended 30 September 2014 is calculated as follows:

The improvement in the Group's adjusted profit before tax is principally the result of the following significant items:

· Increased profits from the revenue sharing arrangements in the UK subsidence business;

· Increased volumes through the Group's partnership with AXA in France;

· Sales of one-off licences increased by £3.0m year on year, mainly in Asia Pacific and the UK;

· Increased implementation revenues from software sales across the Group;

· Increased margins in a number of divisions from improved operational leverage; and

· Contributions from acquisitions made in the current year of £3.0m; offset by

· Increased amortisation of non-acquired intangibles of £1.1m.

The regional improvements noted above are further expanded upon as part of the Regional review.

Amortisation of acquired intangible assets recognised under business combinations increased from £3.9m in 2013 to £5.1m in 2014. This increase is due to the full year impact of the 2013 acquisitions as well as the additional acquisitions made during the current year - being Crashworth (February 2014), LAS (March 2014) and Driven Solutions (September 2014). No impairment charge (2013: £0.8m) has been recognised against acquired intangible assets.

The cost of share-based payments was £2.1 (2013: £3.2m). The main driver of the reduced charge was the lower share price towards the end of the year, which reduced both the number of shares expected to vest and the absolute value of the awards, particularly in respect of the 2011 Plan. The associated employer's national insurance charge was at a similar level to the prior year. The Group made three further awards under the PSP scheme during the year and issued discounted share options to staff under the Group's Sharesave scheme.

During the year, the Group incurred net exceptional costs of £5.7m (2013: £0.4m), this was the principal reason for the reduction in the Group's profit before tax year on year. The exceptional costs comprised:

· A charge of £1.3m for deal costs relating to acquisition activity in the year.

· A charge of £0.2m relating to additional payments of contingent consideration due on acquisitions of previous subsidiaries;

· A charge of £2.6m relating to restructuring the BPS business in Europe predominantly relating to the integration of the LAS and Crashworth acquisitions into the UK business;

· A charge of £0.6m relating to restructuring the Technology business in North America and the UK following the appointment of Paul Nichols in March 2014;

· A charge of £0.9m relating to restructuring the BPS business in North America, Asia Pacific and South Africa;

During the year the Group paid £1.2m (2013: £nil) in post-acquisition compensation which is recorded as an expense in the income statement rather than in goodwill as it is dependent on the continued employment of the vendor in the UK Motor business.

During the year the Group incurred a debit to revenue of £0.2m (2013: £nil) in connection with the warrants relating to the disposal of 30% of our French subsidiary to AXA in April 2013.

The decrease in profit before tax together with the share placement in the year has resulted in a 1% decrease in basic earnings per share ("EPS") to 0.77p (2013: 0.78p). The significant increase in adjusted profit offset by the dilutive effect of the share placement in the year has resulted in a 30% improvement in adjusted earnings per share ("AEPS") to 1.87p (2013: 1.44p).

Adjusted earnings per share is calculated as follows:

The reduction in basic EPS is the result of significant costs of acquisitions and restructuring activity performed to position the Group's UK and US BPS operations and the software business so as to maximise future shareholder return. The increase in adjusted EPS demonstrates the continued growth in underlying profitability of the Group. Commentary on the adjusting items is as described above as part of the reconciliation from profit before tax to adjusted profit before tax.

Group - Cash and Cash Conversion (KPI)

The Group ended the year with net cash of £56.9m (2013: £26.9m) comprising gross cash of £79.3m (2013: £50.7m) and debt of £22.4m (2013: £23.8m). On 22 September 2014, the Group entered into a new £50.0m, multi-currency revolving credit facility expiring in September 2019 with Barclays Bank plc. At the year end £26.7m of the facility was undrawn. Included within gross cash is £16.2m (2013: £16.7m) of cash available for use within our South African business; this continues to be subject to the normal government imposed exchange controls for that country.

Operating cash inflow, adjusted for exceptional and taxation payments represents a conversion of cash relative to adjusted EBITDA of 88% (2013: 90%). Cash Conversion is a Group KPI and demonstrates the Group's ability to convert profits into cash either for reinvestment into the business or for dividend distribution. This target is set at 85% to allow for the funding of growth in the business.

Operating cash inflow was £22.9m (2013: £19.1m) after the payment of exceptional cash costs of £4.1m (2013: £1.4m) relating to exceptional charges in the current year and those accrued from previous years.

The net cash outflow from investing activities was £51.2m (2013: £13.5m). This includes interest received of £0.9m (2013: £0.9m), payments for business combinations net of cash received of £40.8m (2013: £6.8m), cash received on sale of a non-controlling interest in a subsidiary of £nil (2013: £3.0m) and fixed asset additions of £11.1m (2013: £10.8m) of which £5.0m (2013: £3.7m) is the capitalisation of costs relating to the ongoing development and regionalisation of the Group's core Innovation Insurer product and Innovation Enterprise.

Financing cash inflow of £61.0m (2013: inflow £3.3m) includes interest paid of £1.1m (2013: £0.8m), repayment of borrowings of £0.4m (2013: £1.7m), new bank loans of £1.0m (2013: £5.6m), dividends paid to minorities of £3.2m (2013: £2.3m), receipts from sale of shareholding in subsidiary undertakings where control has been retained of £nil (2013: £2.9m) and net proceeds from issue of shares of £64.7m (2013: £0.4m).

Group - Tax

The Group's tax charge was £2.2m (2013: £4.3m). The Group's adjusted tax charge of £4.1m (2013: £5.9m) is calculated by adding back the deferred tax credit recognised against acquired intangible asset amortisation of £0.9m (2013: £1.0m), the tax effect of exceptional costs of £0.9m (2013: £0.1m), the tax effect of post-acquisition compensation of £0.2m (2013: £nil), the tax effect of the gain on disposal of £0.1m (2013: reduction of £0.2m) and deducting the movement in deferred tax on share based payments of £0.2m (2013: add back of £0.2m).

When expressed as a percentage of adjusted profit, this represents an adjusted effective tax rate of 15% (2013: 27%). This is much lower than the guidance given at the half year due to the recognition of £2.1m of previously unrecognised deferred tax assets in the UK and USA which have been crystallised by the creation of deferred tax liabilities on acquired intangibles. No other significant deferred tax assets have been recognised in the year.

The Group's adjusted effective tax rate is driven by a number of factors, such as:

· Split of profitability between the Group's operating regions with differing tax charges;

· Ability to efficiently group relieve tax losses; and

· Recognition of deferred tax assets where it is anticipated that these will be utilised in the future particularly in the UK and North America.

The Group continues to carry forward significant unrecognised tax losses in certain UK and US entities.

Group - Trade and other Debtors

Trade debtors have increased by £8.8m from £28.8m to £37.6m. The year end balance includes £2.5m of trade debtors acquired with Driven and approximately £4.0m in respect of a licence sale in the Australian software business. The underlying level of trade debtors is in line with the improved levels of revenues seen across the Group in the year.

Total accrued income has increased by £2.1m from £25.1m to £27.2m. This is primarily due to the acquired accrued income in the LAS and Driven businesses. During the year the Group crystallised £8.0m in relation to the revenue sharing arrangements in the UK Property business.

Group - Trade and other creditors

Trade creditors have increased by £5.8m from £35.2m to £41.0m. This is primarily due to the acquired trade creditors within the LAS and Driven businesses.

Total deferred income has increased by £2.5m from £16.7m to £19.2m. This is primarily due to an increase in deferred income in South Africa from higher activity and the acquired deferred income within the Driven business.

Group - Acquisition activity

During the year the Group completed three acquisitions for a maximum total cost of £51.3m, all of which will be payable in cash, £4.8m of this balance was deferred at the year end.

The revenue and adjusted profit before tax contributions from these acquisitions in the year to 30 September 2014 were £7.6m and £3.0m respectively.

Regional review

United Kingdom

Our UK business generates revenue across all of our product offerings - Motor BPS, Property BPS and Software. It has grown significantly in profitability over recent years driven by the exceptional performance of the UK subsidence business and through the impact of acquisitions.

Revenue

The UK reported revenue growth of 17%. Overall organic growth was 2% with the non-organic growth due to the in-year acquisition of Crashworth and LAS and the impact of a full year's revenue from GVS acquired in 2013.

Our Property business had year on year revenue growth of 28%. Organic revenue improved by 7% due to the impact of the contract win with a Tier 1 insurer in October 2013. Although the subsidence business experienced a lower than normal year for new claims notifications; strong progression of existing open claims once again enabled us to generate high margin revenue due to the revenue sharing arrangements. We continue to focus on minimising indemnity and other costs incurred within the settlement of these claims, whilst ensuring we continue to meet the requisite standards of excellent customer service.

The acquisition of LAS in March 2014 was a strategically important step for the Group. LAS provides its customers with a full suite of outsourced services that handle claims across a range of property-related perils including storm, burst pipes, flood, fire, theft and accidental damage. The vast majority of LAS's revenue comes from water-related claims: also known in the insurance industry as wet perils. The addition of wet perils skills and capabilities increases the addressable market claims spend of the UK Property business from £100m, (our existing subsidence or dry perils market), to £1.3bn. The combination of the two businesses is expected to generate significant revenue opportunities and the restructuring performed since acquisition has delivered significant operational synergies for the UK Property business as a whole.

Our UK Motor business grew by 2% on a year on year basis, reflecting a contraction in the existing business of 16% offset by the impact of acquisitions with a full year's results from GVS, acquired in April 2013, and eight months results of Crashworth, acquired at the end of January 2014. The main reason for the lack of organic growth was the loss of certain customer contracts. However, the acquisition of Crashworth has transformed the UK Motor business into the second largest manager of vehicle repair claims in the UK, allowing clients to benefit from increased efficiencies. The combination of the two businesses under the leadership of Chris Ashworth, the founder of Crashworth and a leading figure in the UK motor claims industry for the last 20 years, is expected to deliver significant growth in the future.

The UK Software business grew by 10% on a year on year basis, largely as the business benefitted from two one-off licence sales that generated £1.0m of revenue in the year. Both of these one-off licence sales converted annual licence rental into a perpetual licence for the Group's historic Huon product. The combined annual licence rental income stream from these two customers was £0.6m and these revenue streams had been expected to be terminated by the customers in the near future.

The first UK sale of Insurer Claims in the year followed the first UK sale of Insurer Policy at the end of 2013. These two implementations are important to the UK Software business as they will both offer solid reference sites to support the strong pipeline.

Adjusted Profit

Adjusted profit for the year increased slightly at £9.4m compared to £9.1m in the previous year.

The increase in adjusted profit as compared to the previous year is the result of the following:

· Profits relating to the in-year and prior year acquisitions;

· Profits in UK property generated through high margin revenue shares;

· Profit of £1.0m from one-off licence sales offset by £0.9m loss from software implementation projects.

Germany

Germany's main revenue stream is the provision of BPS solutions to the Motor industry across both insurance and fleet, this is augmented by a smaller property business.

Revenue

The Motor division in Germany grew revenue by 2% year on year, or 5% at constant currency to £52.1m. The repair management business experienced volumes of claims below prior year levels due to the benign weather conditions experienced throughout the year. Overall revenue was flat in this business but is expected to grow significantly from the contract win with Zurich announced in October 2014.

The Fleet business had several new client wins and has rebuilt revenue to prior year levels despite having lost a significant fleet customer at the end of 2013.

Revenue in the motor division also includes £29.2m (2012: £27.3m) from the sale of parts which attracts very low EBITDA margins but grew quite strongly in the year with higher conversion rates from the Group's own network.

The Property division saw revenue growth of 3% year on year, or 7% at constant currency to £5.8m. Volumes of claims were relatively flat as there were no significant weather events.

Adjusted Profit

Adjusted profit for the year improved by 3%, or 7% at constant currency to £9.2m. This was achieved through the revenue growth noted above, from continued cost efficiencies and from efforts to reduce cancellation rates.

Rest of Europe

The Rest of Europe operation solely provides Motor BPS solutions to insurers and fleets. We use our own software, Enterprise, to manage repairs on behalf of both insurers and fleets across all regions, France, Belgium and Spain and we believe that the benefits of this are clear within the profits and profit margins generated by this part of the Group.

Revenue

Revenue grew by 12% or 16% at constant currency to £17.0m, all of which was organic.

Last year the Group announced a strategic partnership with AXA France ("AXA") which saw a subsidiary of AXA acquire a 30% shareholding in Nobilas France in return for AXA significantly increasing the volume of claims channelled through Nobilas France into the future. This partnership has proved very successful and has driven an increase in revenue in Nobilas France of 13% at constant currency.

The significant revenue growth in Belgium since the acquisitions in 2012 has continued in the year with revenue up 15% at constant currency. We continue to penetrate the broker and insurer market and we continue to see this as an area of exciting potential.

Revenue in our Spanish business has increased by 29% year on year at constant currency with the Group's proposition being attractive to insurers and fleets seeking to reduce operating and indemnity costs.

Adjusted Profit

Adjusted profit increased year on year by 42% or 46% at constant currency to £3.2m in 2014. This organic profit growth has been generated through the continued revenue growth as described above and the ability of these businesses to generate economies of scale, partly through the use of Enterprise.

South Africa

South Africa's main revenue stream is the provision of BPS solutions to the Motor industry. The largest contributor of revenue is the administration of warranty and service & maintenance products from a strong customer base of both motor manufacturers and finance houses.

Revenue

On a constant currency basis, the business has again performed strongly, with revenue increasing by 7% (2013: 10%). Reported revenues in our South African business decreased from £39.1m in 2013 to £34.5m in 2014. This was caused by the significant weakening of the South African Rand on a year on year basis.

The increase in revenues on a constant currency basis has been driven by new contract wins both in the service plan and warranty businesses and also in the smaller insurance division. Revenues were also impacted in the year by £0.5m through the agreement of price increases with a customer. The contract win with Fonesure announced in October 2013 did not perform as expected and the group exited this arrangement during the year.

It should be noted that the 2013 reported revenue for South Africa included £2.2m relating to the Travel Insurance business disposed of in June 2013. Therefore organic growth on a like for like constant currency basis was 14%.

Adjusted Profit

Adjusted profit fell from £8.3m in 2013 to £7.5m in 2014, a fall of 10%. On a constant currency basis the region improved adjusted profit by £0.6m, an increase of 9%. The increase in profitability was the result of increased revenues in the motor division as detailed above.

As in the previous financial year, we have recognised a profit share in regards to our Associate - Guardrisk. In total this has contributed £0.1m in the current year (2013: £0.8m). Of this figure, £nil (2013: £0.6m) was generated from a revision of the expected reserves required to settle out all claims within the cell.

North America

Our North American region generates revenue across all product lines, being Motor BPS, Property BPS and Software. The largest contributor is Motor. The North American market remains our largest opportunity in regards to improvement in market share across the Group.

Revenue

Reported revenue in North America grew by 4% on a year on year basis, or 11% at constant currency to £27.0m. Overall organic growth was 1% or 8% at constant currency.

Performance from our Motor BPS division saw reported revenue decrease by 1% year on year, or increase by 5% at constant currency to £10.7m. However, reported revenue included £0.8m from acquisitions, organic revenue decreased by 9% year on year, or 3% at constant currency to £9.9m. The fall in organic revenues resulted from a number of loss making contracts being terminated as part of the business restructure in 2013. By the end of 2014 the Motor business had rebuilt revenues to prior year levels through winning new business.

Driven Solutions Inc. ("Driven") was acquired in August 2014. Driven provides customers with access to a national towing and roadside assistance network and the acquisition broadens the Group's product set in the region. The acquisition of Driven is expected to enhance the results of the Motor business as a whole in the region by increasing margins from the supply chain.

The Property business contracted by 24% on a year on year basis, or 19% at constant currency to £2.5m. This was as a result of a number of loss making contracts being terminated as part of the business restructure in 2013 and a customer taking business back in house.

The Software business grew by 26% on a year on year basis, or 34% at constant currency to £11.2m (2013: £9.0m). This growth was generated from continuing implementation revenue associated with sales of Insurer in the current and prior years. Licence revenues were flat at £1.4m (2013: £1.4m).

Adjusted Profit

The region recorded an adjusted loss of £0.3m which was an improvement of £0.9m from 2013 as a result of the following:

· Impact in the prior year of the termination of a number of loss making contracts;

· Improved margins on software implementation revenue; and

· Adjusted profit from acquisitions of £0.1m.

Asia Pacific

The Asia Pacific region generates revenue across all product lines being Motor BPS, Property BPS and Software, the largest contributor being Motor.

Revenue

Revenue in our Asia Pacific business fell by 10% on a year on year basis from £21.4m to £19.2m. However, on a constant currency basis there was growth of 3%.

The business had a difficult start to the year following the last minute withdrawal by a prospective customer of a significant new contract which would have underpinned both software and BPS revenues for a number of years.

Motor BPS revenue contracted by 25% year on year, or 14% at constant currency to £10.1m as a result of a number of customers taking claims management back in-house. There was no significant weather event for the third year running which prevented any significant growth from existing business. Property BPS revenue contracted by 39% year on year, or 30% at constant currency to £2.6m as a result of a key client moving their business offshore. However, the pipeline has been re-built and two significant new deals have been concluded that are expected to drive double-digit revenue and profit growth in the Motor division over the next few years.

The Software division benefitted from a one-off licence sale of £3.9m. This was the conversion of an annual licence rental into a perpetual licence for the Group's historic Huon product. This annual licence rental was worth approximately £1.0m per annum and as the contract was expected to be terminated before 2020, the Group settled for the equivalent of four years rental. Underlying performance from this division was below target for the year due to the lack of any new sales of the Insurer product.

Adjusted Profit

Adjusted profit was up £1.0m on a year on year basis, or £1.2m at constant currency. This is due to the one-off licence sale in the year noted above which contributed incremental revenues of £3.9m, resulting in adjusted profit of £1.5m after the relevant software royalty back to the Centre.

Key Risks and Uncertainties

In common with all businesses we face a number of risks and uncertainties in relation to the achievement of our stated strategic objectives. It is imperative that we understand and mitigate these risks and uncertainties in order to achieve our defined strategy to maximise value for and protect the interests of all of our stakeholders.

We operate a risk identification framework at a regional level, which assesses risks and categorises them as strategic, financial, operational and environmental risks. The risks are ranked to identify those risks that require assessment by the Board based on the potential exposure and likelihood of occurrence. All of these risks have controls and actions identified to mitigate them and these are reported on every month as part of the executive review process.

Below is a summary of the key risks we have identified based upon the current market context and trends that we see developing, the linkage and potential impact on our strategic objectives as well as a commentary as to how we manage these as a Group.

This is not an exhaustive list and other factors may impact the Group.

Approved by the Board of Directors and signed on behalf of the Board

The Innovation Group plc

Consolidated Income Statement

For the year ended 30 September 2014

Dividends paid or authorised are shown in the consolidated statement of changes in equity.

The Innovation Group plc

Consolidated Statement of Comprehensive Income

For the year ended 30 September 2014

Other than the deferred tax credit in respect of share based payments, none of the adjustments through other comprehensive income have had any tax impact in either the current or preceding financial year.

The Innovation Group plc

Consolidated Balance Sheet

At 30 September 2014

The results were approved by the Board of Directors on 3 December 2014.

The Innovation Group plc

Consolidated statement of changes in equity

At 30 September 2014

Attributable to equity holders of the parent

The Innovation Group plc

Consolidated statement of changes in equity

At 30 September 2013

Attributable to equity holders of the parent

The Innovation Group plc

Consolidated Cash Flow Statement

For the year ended 30 September 2014

Cash held and available for use within the business in our South African operation of £16,240,000 (2013: £16,691,000) continues to be subject to the normal government imposed exchange controls for that country.

In addition, £185,000 (2013: £nil) of cash and cash equivalents within Driven Solutions Inc. relates to a collateral deposit for a letter of credit and is therefore restricted.

The Innovation Group plc

Notes to the Results

For the year ended 30 September 2014

1. BASIS OF PREPARATION

The Annual Financial Report announcement was approved by the Board of Directors on 2 December 2014.

The financial information set out in this Annual Financial Report announcement for the year ended 30 September 2014 does not constitute the Group's statutory accounts as defined by s435 of the Companies Act but has been extracted from the 2014 statutory accounts on which an unqualified audit report has been made by the auditors, and which did not contain an emphasis of matter paragraph nor a statement under section 498(2) or (3) of CA 2006. The financial information included in the annual report announcement for the prior year ended 30 September 2013 has been extracted from the 2013 statutory accounts on which an unqualified audit report has been made by the auditors, and which did not contain an emphasis of matter paragraph nor a statement under section 237(2) or (3) of CA 1985.

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The accounting policies have been consistently applied to all periods presented and are consistent with those presented in the 2014 statutory accounts.

The audited financial statements for the year ended 30 September 2013 have been delivered to the Registrar of Companies. The Annual Report for the year ended 30 September 2014 will be mailed to shareholders at the end of January 2015 and will be delivered to the Registrar of Companies following the Annual General Meeting which will be held in March 2014 at the Company's office at Yarmouth House, 1300 Parkway, Solent Business Park, Whiteley, Hampshire, PO15 7AE.

Restatement of Comparatives

At 30 September 2013, the Group incorrectly presented deferred tax assets and liabilities between both current and non-current assets and liabilities. This has been corrected as part of the presentation of the 30 September 2013 balance sheet within these statements. This has had the effect of increasing the non-current deferred tax asset by £1,583,000 and the non-current deferred tax liability by £1,755,000 and reducing the current deferred tax asset by £1,583,000 and the current deferred tax liability by £1,755,000. There has been no impact of this change to total assets or the income statement. In accordance with IAS1, a restated third balance sheet has also been presented as at 1 October 2012 with the impact of increasing the non-current deferred tax asset by £2,014,000 and the non-current deferred tax liability by £1,019,000 and reducing the current deferred tax asset by £2,014,000 and the current deferred tax liability by £1,019,000.

2. SEGMENT INFORMATION

The Group is organised into regional business units and a central cost centre. The Group has six reportable operating segments which are separately disclosed together with a central cost centre which includes unallocated corporate costs, expensed development costs and transfer pricing royalties. Operating segments have been aggregated where the aggregation criteria have been met. More specifically, Asia Pacific includes Australia, India, Pakistan and Japan, the Rest of Europe includes France, Spain and Benelux and North America includes the US and Canada.

Management monitors the operating results of its business units separately for the purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on adjusted profit which is the Group's internal principal measure of profit. Segment revenue excludes transactions between business segments. Segment adjusted profit as reflected in the tables within this note, includes both royalty charges and transfer pricing adjustments for reallocating corporate costs to the regional business units. Management does not monitor the balance sheets of its business units separately for the purposes of making decisions and therefore segmental assets, additions to non-current assets and segmental liabilities have not been disclosed. Non-current assets in the segmental disclosure comprise investments, intangible assets and property, plant and equipment.

The Group's revenues are derived from the following products and services:

- Motor Business Process Services (BPS) and networks;

- Property Business Process Services (BPS) and networks;

- Other Business Process Services (BPS) and networks; and

- Software.

Information regarding the Group's six operating segments and its central cost centre is reported below.

The Group's revenues are attributed to business units based on customer location. The total external revenue attributable to all countries other than the UK was £155.7m (2013: £158.4m). The total non-current assets attributable to all countries other than the UK was £68.9m (2012: £67.2m).

Year ended 30 September 2014