INNOVISE PLC - Half-yearly Report.
Innovise plc ("Innovise" or the "Company")
Half yearly report to 31 March 2008
CHAIRMAN'S STATEMENT
Highlights
- Turnover up 350% to A[pounds sterling]3,288,000 versus A[pounds sterling]920,000 in H1 2007
- Operating profit before interest, tax and amortisation of intangible
assets more than quadrupled to A[pounds sterling]652,000 versus A[pounds sterling]151,000 in H1 2007
- Adjusted diluted earnings per share up 60% from 1.0p to 1.6p
- Strong cash generated by operations of A[pounds sterling]654,000, equating to 100%
cash conversion
- Managed services acquisitions fully integrated within the enlarged
group.
I am pleased to report that Innovise made excellent progress during this
interim period in continuing to transform the scale, profitability and breadth
of its business as a provider of managed IT services and workforce management
software.
Both turnover and operating profit rose strongly through a combination of
acquisitive and organic growth.
Data Technology, our sytems integration business, has now been rebranded as
Innovise Managed Services (IMS) following its acquisition in July 2007, and the
IMS division was further expanded in December 2007 with the acquisition of
Abilitec Ltd, a specialist infrastructure services provider.
I am glad to report that the key people responsible for building the Data
Technology and Abilitec businesses prior to acquisition are now making important
contributions to Innovise's performance and helping to shape our future.
The company's operations are expanding rapidly and therefore the Board concluded
that there was a strong case for appointing both Gus Machado and Mike Taylor as
joint CEOs of Innovise covering their respective areas of managed services and
acquisitions.
With strong leadership, a greatly enhanced portfolio, an extended customer
base, and a very successful track record to date of both acquisitive and
organic growth, we are confident that Innovise has the capability to become a
substantially larger and more profitable provider of software and managed IT
services in the future.
Vin Murria
Chairman
3 June 2008
CHIEF EXECUTIVES' REVIEW
During the six-month period ended 31 March 2008, Innovise continued to deliver
on its strategy of rapid and profitable growth through acquisition, integration
and continuous improvement across its expanded range of services.
The acquisition of Abilitec Ltd half way through the period, combined with that
of Data Technology Group Ltd in July 2007, has greatly increased the scale and
scope of our company in both the managed services sector and in workforce
management software.
The business now operates as two distinct divisions: the Innovise Managed
Services division consists of the Data Technology and Abilitec businesses, while
the Innovise Software division has been built through a series of smaller
acquisitions over the past four years - the most recent being the acquisition of
Roster Management Ltd in May 2008.
Financial
Total turnover for the period was A[pounds sterling]3,288,000, more than tripling the A[pounds sterling]920,000
reported for the six months to 31 March 2007. Turnover for the original Innovise
Software business rose to A[pounds sterling]944,000, while the former Data Technology business
contributed A[pounds sterling]1,229,000. Abilitec generated sales of A[pounds sterling]1,115,000 for the three
months following its acquisition.
Innovise remains focused on increasing recurring sales through both organic and
acquisitive growth. Overall recurring sales for the business more than doubled
to around A[pounds sterling]1,200,000 during the period. Estimated recurring sales for the full
year are A[pounds sterling]2,650,000.
Innovise reported an operating profit before interest, tax and amortisation of
intangible assets of A[pounds sterling]652,000 for the half-year period, up from A[pounds sterling]151,000 in the
previous interim period. Profit after tax and amortisation of intangible assets
was A[pounds sterling]318,000 (A[pounds sterling]121,000 in the previous period).
As the company grows rapidly, the Board continues to place great emphasis on
disciplined management of working capital in order to maximise cash generation.
We were again able to convert 100% of operating profit into cash during the
period. Cash in hand at 31 March 2008 was A[pounds sterling]797,000.
The Board is not recommending payment of an interim dividend.
Growing our scale and capabilities
The interim period saw further very encouraging progress being made in our
mission to transform Innovise into a market leader through an aggressive
strategy of acquisition, integration and improvement, spanning both our original
workforce management software business and our more recently created managed
services business.
The managed services business, formed through the acquisition of Data Technology
in July 2007, has been fully integrated into the enlarged group and rebranded as
Innovise Managed Services. Moreover, the offshore technology centre in India is
used throughout the group and we have recently committed to new offices that
will enable us to double our offshore capacity over the next 12-18 months.
In December 2007, we further extended the capabilities of the Innovise Managed
Services division with the acquisition of Abilitec Ltd for an initial cash
payment of A[pounds sterling]3 million plus up to A[pounds sterling]1 million in shares based on its performance
over the next two years. Abilitec is Europe's leading provider of IBM Tivoli
Netcool services, consultancy, licence sales, support and training. Like Data
Technology, Abilitec was already profitable and growing within its specialist
niche markets.
As a result of these two major acquisitions, we believe Innovise has laid the
foundations on which to build a very substantial and profitable managed services
enterprise working with medium and medium-large organisations.
In addition to our strategy of seeking rapid and profitable growth through
selective acquisitions, we have embarked on a systematic programme to maximise
synergies throughout the enlarged group in order to increase recurring revenues
and cross-selling opportunities, to expand our customer base, and to enhance the
value and range of our offering.
In May Innovise Software acquired of Roster Management Ltd. While this is much
smaller than the Data Technology and Abilitec transactions, Roster Management
brings with it around 40 new customers in the manned guarding sector and an
impressive track record in innovation.
Review of business
Innovise Software division
The order flow remained buoyant throughout the interim period. Our focus on
leveraging enterprise level relationships in the facilities management vertical
is bearing fruit and we believe we are taking share from our smaller
competitors. Operational capacity is being increased to meet the growth in
demand, with the addition of new staff across most departments and further
expansion planned in the second half of 2008 and in 2009.
Our overseas sales channel, launched in early 2008, has taken longer to develop
than planned but our first sale has been achieved and our partners are gaining
traction. We have reduced our channel costs to improve profitability and will
continue to manage investment carefully.
Innovise Managed Services division
Both the Data Technology and the Abilitec acquisitions have performed well since
becoming part of Innovise, with combined sales volumes and profitability for the
period in line with expectations.
Several strategic initiatives have been launched to identify and take advantage
of cross-selling opportunities between the established client bases of the
acquired businesses. New lead generation is also a key priority for Innovise
Managed Services.
Current trading and outlook
Operating profit for the first half of the financial year was in line with our
expectations, and the sales outlook is currently solid across both divisions.
Our consolidated cash position improved throughout the interim period and we
expect this to continue during the second half of the year, enabling any smaller
acquisitions we identify to be financed directly from cash flow.
While there are uncertainties regarding the general economic climate, we are
very encouraged by the performance since acquisition of both Data Technology and
Abilitec, with focus turned now to driving synergies during 2008 and beyond.
Notwithstanding economic uncertainty, we are cautiously confident that our sales
and profit levels for the full year will be in line with our targets.
Innovise will remain focused on achieving long-term, sustainable value creation
for its shareholders through both organic and acquisitive growth across our
portfolio. We intend to be equally vigilant in ensuring we are well positioned
to take advantage of any opportunities arising from challenging market
conditions to acquire additional businesses or to secure new contracts for
services that have previously been sourced in-house within our target customer
base.
Gus Machado and Mike Taylor
Joint Chief Executive Officers
3 June 2008
Unaudited Consolidated Income Statement
For the six months ended 31 March 2008
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
31 March 31 March 30 September
2008 2007 2007
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Notes
REVENUE 3,288,440 919,666 2,253,768
Cost of sales (1,207,119) (82,038) (414,330)
GROSS PROFIT 2,081,321 837,628 1,839,438
Administrative (1,429,497) (686,534) (1,433,896)
expenses
OPERATING PROFIT
BEFORE AMORTISATION OF
INTANGIBLE ASSETS 651,824 151,094 405,542
Amortisation of
intangible assets (152,748) (10,248) (64,246)
OPERATING PROFIT 499,076 140,846 341,296
Finance income 14,116 740 17,128
Finance costs (85,336) (21,038) (44,284)
PROFIT BEFORE TAX 427,856 120,548 314,140
Tax (110,000) - (22,858)
PROFIT FOR THE PERIOD
ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT 317,856 120,548 291,282
EARNINGS PER SHARE
Basic earnings per
share 4 1.2p 0.9p 2.0p
Diluted earnings per
share 4 1.2p 0.9p 1.9p
There are no items of recognised income and expense other than those reflected
in the consolidated income statement.
Unaudited Consolidated Balance Sheet
Unaudited Unaudited Unaudited
As at As at As at
31 March 31 March 30 September
2008 2007 2007
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Notes
NON-CURRENT ASSETS
Goodwill 7,615,276 1,769,019 5,029,694
Other intangible assets 1,670,503 77,249 1,073,251
Plant and equipment 140,445 14,624 99,620
Investments in subsidiaries 10,286 50 10,286
9,436,510 1,860,942 6,212,851
CURRENT ASSETS
Inventories 6,000 13,000 6,000
Trade and other receivables 2,526,201 776,124 843,504
Cash and cash equivalents 797,167 209,910 799,049
3,329,368 999,034 1,648,553
TOTAL ASSETS 12,765,878 2,859,976 7,861,404
CURRENT LIABILITIES
Trade and other payables 2,793,908 810,324 1,214,158
Current tax liabilities 275,417 - 156,778
Bank loan 479,504 - -
Obligations under finance leases 12,500 - 12,500
3,561,329 810,324 1,383,436
NON-CURRENT LIABILITIES
Convertible loan stock 188,079 185,979 186,579
Bank and other loans 2,464,560 392,668 500,000
Obligations under finance leases 20,417 - 26,667
Deferred tax liabilities 452,600 - 282,800
Provisions 20,000 - 15,000
3,145,656 578,647 1,011,046
TOTAL LIABILITIES 6,706,985 1,388,971 2,394,482
NET ASSETS 6,058,893 1,471,005 5,466,922
EQUITY
Called up share capital 2,069,473 1,992,140 2,069,473
Shares to be issued 5 1,769,312 - 1,500,000
Equity reserves 19,421 19,421 19,421
Share premium account 937,667 261,000 937,667
Merger reserve 1,566,000 - 1,566,000
Other reserves (918,040) (918,040) (918,040)
Retained earnings 5 615,060 116,484 292,401
TOTAL EQUITY 6,058,893 1,471,005 5,466,922
Unaudited Consolidated Cash Flow Statement
For the six months period to 31 March 2008
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
31 March 31 March 30 September
2008 2007 2007
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Notes
Net cash flow from
operating activities 6 507,159 122,873 596,418
Investing activities
Interest received 14,116 740 17,128
Purchases of plant and
equipment (14,364) - (15,910)
Acquisition of subsidiary
(net of cash acquired) (2,940,768) - (686,393)
Net cash used in investing
activities (2,941,016) 740 (685,175)
Financing activities
Repayment of borrowings (6,250) (71,551) (468,982)
Proceeds on issue of - - 700,000
shares
Net proceeds from loans
advanced 2,438,225 57,135 556,075
Net cash from/(used in)
financing activities 2,431,975 (14,416) 787,093
Net increase/(decrease) in
cash and cash equivalents (1,882) 109,197 698,336
Cash and cash equivalents
at beginning of period 799,049 100,713 100,713
Cash and cash equivalents
at end of period 797,167 209,910 799,049
Notes to the Unaudited Half Yearly Report
1. GENERAL INFORMATION
INNOVISE PLC ("the Company") is a company domiciled in England whose
registered office address is Hellier House, Wychbury Court, Two Woods Lane,
Brierley Hill, DY5 1TA. The condensed consolidated interim financial
statements of the Company for the six months ended 31 March 2008 comprise the
Company and its subsidiaries (together referred to as "the Group").
The condensed consolidated interim financial statements do not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
The financial information for the year ended 30 September 2007 has been
extracted from the statutory accounts (which were prepared under UK GAAP) for
that period and adjusted as shown in note 8 below to restate in accordance
with International Financial Reporting Standards ("IFRS"). This note includes
reconciliations of equity and the profit for comparative periods reported
under UK GAAP to those reported for those periods under IFRS. The auditors'
report on the statutory accounts was unqualified and did not contain a
statement under Section 237 of the Companies Act 1985. A copy of those
financial statements has been filed with the Registrar of Companies.
The Group's date of transition to IFRS was 1 October 2006 and condensed
consolidated interim financial statements have been prepared in accordance
with the first time adoption provisions set out in IFRS 1 First-time Adoption
of International Financial Reporting Standards. The condensed consolidated
interim financial statements do not include all of the information required
for full annual financial statements.
The condensed consolidated interim financial statements were authorised for
issue on 3 June 2008.
Copies of the Interim Report for the period ended 31 March 2008 are being sent
to all shareholders. Further copies can be obtained from the Registered Office
during normal business hours.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The condensed consolidated financial statements are unaudited and have been
prepared in accordance with IFRS adopted by the EU.
The condensed consolidated financial statements have been prepared on the
historical cost basis. The principal accounting policies adopted are set out
below.
Basis of consolidation
The condensed consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 March 2008. Control is achieved where the Company
has the power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the period are included in the
consolidated income statement from the effective date of acquisition.
Where necessary, adjustments are made to the financial information of
subsidiaries to bring the accounting policies used into line with those used
by the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method.
The cost of the acquisition is measured at the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of the
acquiree, plus any costs directly attributable to the business combination.
The acquiree's identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their
fair value at the acquisition date.
On 6 February 2006, the company became the legal parent company of TimeGate
Group Limited in a share-for-share transaction. The substance of the
combination was, however, that TimeGate Group Limited acquired Innovise plc in
a reverse acquisition. This business combination was accounted for using the
reverse acquisition method of accounting as required by IFRS 3.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the cost of the business combination
over the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment, the
Group's interest in the net fair value of the acquiree's identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in profit or loss.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary, at the date of acquisition. Goodwill
is initially recognised as an asset at cost and is subsequently measured at
cost less any accumulated impairment losses. Goodwill which is recognised as
an asset is reviewed for impairment at least annually. Any impairment is
recognised immediately in profit or loss.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash generating units expected to benefit from the synergies of the
combination. Cash generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash
generating unit is less than the carrying amount of the unit, the impairment
loss is allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit pro rata on the
basis of the carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
Goodwill arising on acquisitions before 1 October 2006 has been retained at
the previous UK GAAP amounts subject to being tested for impairment at that
date.
Intellectual property
Intellectual property rights acquired are initially recorded at cost and are
written off over five years, being their estimated useful life.
Separable intangibles
When an acquisition is made, a review is undertaken to identify separately
identifiable non-monetary assets that meet the definition under IAS 38
`Intangible assets'. In respect of acquisitions made in the period since
transition to IFRS, customer relationships were recognised as being separately
identifiable. The fair value was determined on a basis that reflects the
amounts the acquirer would have paid for the assets in arms length
transactions between knowledgeable willing parties. Contractual customer
relationships are amortised over their useful economic life of 5 years.
Plant and equipment
Depreciation is provided on all plant and equipment at rates calculated to
write off the cost less estimated residual value of plant and equipment over
their expected useful lives at the following rates:
Plant and equipment Over three to four years
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (cash
generating unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (cash generating unit) in prior years. A
reversal of an impairment loss is recognised as income immediately, unless the
relevant asset is carried at a revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
Income recognition
Turnover represents the fair value of services provided during the period.
Turnover is recognised as contract activity progresses and the right to
consideration is earned. Fair value reflects the amounts expected to be
recoverable from customers and is based on time spent and costs incurred to
date as a percentage of total anticipated production costs. Unbilled turnover
is included within receivables.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset's net carrying amount.
Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group company are
expressed in pounds sterling, which is the functional currency of the Company,
and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the
rates prevailing on the balance sheet date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit and loss for the
period.
Deferred taxation
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, the
deferred tax is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business combination that at
the time of the transaction affects neither accounting nor taxable profit or
loss. Deferred tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the balance sheet date and are expected to
apply when the related deferred tax asset is realised or the deferred tax
liability is settled.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary
differences can be utilised.
Deferred tax is provided on temporary differences arising on investments in
subsidiaries, except where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
Leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of
the Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the lease. The
corresponding liability to the lessor is included in the balance sheet as a
finance lease obligation. Lease payments are apportioned between finance
charges and reduction of the lease obligation so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are
charged directly against income, unless they are directly attributable to
qualifying assets, in which case they are capitalised in accordance with the
Group's general policy on borrowing costs (see below).
Rentals payable under operating leases are charged to income
on a straight line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter
into an operating lease are also spread on a straight line basis over the
lease term.
Retirement benefit costs
The Group operates a defined contribution scheme for the benefit of its
employees. Contributions payable are charged as an expense as they fall due.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their
present location and condition. Cost is calculated using the first in first
out (FIFO) method. Net realisable value represents the estimated selling price
less all estimated costs of completion and costs to be incurred in marketing,
selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value.
Appropriate allowances for estimated irrecoverable amounts are recognised in
profit or loss when there is objective evidence that the asset is impaired.
The allowance recognised is measured as the difference between the asset's
carrying amount and the present value of estimated future cash flows
discounted at the effective interest rate computed at initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other
short-term, highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Convertible loan stock
Convertible loan stock is regarded as a compound instrument, consisting of a
liability component and an equity component. At the date of issue, the fair
value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible debt. The difference between the
proceeds of issue of the convertible loan stocks and the fair value assigned
to the liability component, representing the embedded option to cover the
liability into equity of the Group, is included in equity.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate for similar non-convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid is added to the carrying amount of the convertible loan
stock.
Share-based awards
The Group has applied the requirements of IFRS 2 Share-based Payment. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested at 1
January 2005.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the
effect of non-market-based vesting conditions) at the date of grant. The fair
value determined at the grant date of the equity-settled share-based payments
is expensed on a straight line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest and adjusted for the
effect of non-market-based vesting conditions.
Upon exercise of share options, the proceeds received net of attributable
transaction costs are credited to share capital and, where appropriate, share
premium. No adjustment is made to any expense recognised in prior periods if
share options that have vested are not exercised.
Fair value is measured by use of the Black-Scholes model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.
A liability equal to the portion of the goods or services received is
recognised at the current fair value determined at each balance sheet date for
cash-settled, share-based payments.
3. Segmental Analysis
Segment information is presented in respect of the Group's business segments.
The primary format, business segments, is based on the Group's management and
internal reporting structures. Segment results and assets and liabilities
include items directly attributable to a segment. Unallocated items comprise
mainly of tax, corporate overheads and financing related items.
Six months ended 31 March 2008
Innovise
Innovise Managed
Software Services Total
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Revenue 943,959 2,344,481 3,288,440
Operating profit before amortisation 225,506 589,318 814,824
Amortisation (10,248) (142,500) (152,748)
Operating profit after amortisation 215,258 446,818 662,076
Corporate overheads (163,000)
Finance income 14,116
Finance costs (85,336)
Profit before taxation 427,856
Taxation (110,000)
Profit for the period 317,856
Balance sheet
Segment assets 2,644,447 9,324,264 11,968,711
Unallocated assets 797,167
Consolidated total assets 12,765,878
Liabilities
Segment liabilities 1,113,344 1,733,482 2,846,826
Unallocated liabilities 3,860,159
Consolidated total liabilities 6,706,985
Innovise
Innovise Managed
Software Services Total
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Revenue 919,666 - 919,666
Operating profit before amortisation 201,094 - 201,094
Amortisation (10,248) - (10,248)
Operating profit after amortisation 190,846 - 190,846
Corporate overheads (50,000)
Finance income 740
Finance costs (21,038)
Profit before taxation 120,548
Taxation -
Profit for the period 120,548
Balance sheet
Segment assets 2,650,066 - 2,650,066
Unallocated assets 209,910
Consolidated total assets 2,859,976
Liabilities
Segment liabilities 810,324 - 810,324
Unallocated liabilities 578,647
Consolidated total liabilities 1,388,971
Innovise
Innovise Managed
Software Services Total
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Revenue 1,807,536 446,232 2,253,768
Operating profit before amortisation 418,385 100,157 518,542
Amortisation (20,496) (43,750) (64,246)
Operating profit after amortisation 397,889 56,407 454,296
Corporate overheads (113,000)
Finance income 17,128
Finance costs (44,284)
Profit before taxation 314,140
Taxation (22,858)
Profit for the period 291,282
Balance sheet
Segment assets 2,246,592 4,815,763 7,062,355
Unallocated assets 799,049
Consolidated total assets 7,861,404
Liabilities
Segment liabilities 716,549 551,776 1,268,325
Unallocated liabilities 1,126,157
Consolidated total liabilities 2,394,482
4. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
31 March 31 March 30 September
2008 2007 2007
Earnings A[pounds sterling] A[pounds sterling] A[pounds sterling]
Earnings for the purposes of
basic earnings per share being
net profit attributable to equity
holders of the parent 317,856 120,548 291,282
Effect of dilutive potential ordinary shares:
Interest on convertible loan notes (net of tax) 4,284 - -
Earnings for the purposes of
diluted earnings per share 322,140 120,548 291,282
Number of shares
Weighted average number of
ordinary shares for the purposes
of basic earnings per share 26,645,040 13,014,000 14,581,854
Effect of dilutive potential ordinary shares:
Convertible loan notes 500,000 - -
Share options 280,538 14,799 119,710
Contingently issuable shares on
acquisition of Data Technology
Group Limited - - 910,000
Weighted average number of
ordinary shares
for the purposes of diluted
earnings per share 27,425,578 13,028,799 15,611,564
Basic earnings per share 1.2p 0.9p 2.0p
Diluted earnings per share 1.2p 0.9p 1.9p
Shares included in the basic earnings per share calculation for the 6 months
ended 31 March 2008 include 5,897,706 contingently issuable shares which
became issuable on 31 December 2007 when the earn-out conditions in respect of
the acquisition of Data Technology Group Limited were fulfilled.
Adjusted earnings per share
Adjusted earnings per share calculated before deducting amortisation of
intangible assets and the tax attributable thereto are presented below in
order to assist in an understanding of the underlying performance of the
business.
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
31 March 31 March 30 September
2008 2007 2007
Adjusted earnings A[pounds sterling] A[pounds sterling] A[pounds sterling]
Earnings for the purposes of
basic earnings per share
being net profit attributable
to equity holders of the parent 317,856 120,548 291,282
Amortisation of intangible assets 152,748 10,248 64,246
Tax credit attributable to amortisation (44,297) (3,074) (19,274)
Earnings for the purposes of
adjusted basic
earnings per share calculation 426,307 127,722 336,254
Interest on convertible loan notes (net of tax) 4,284 - -
Earnings for the purposes of
adjusted diluted
earnings per share 430,591 127,722 336,254
Adjusted basic earnings per share 1.6p 1.0p 2.3p
Adjusted diluted earnings per share 1.6p 1.0p 2.2p
The number of shares for the purposes of calculating the adjusted earnings per
share figure are as set out above.
5. Changes in equity and debt
Changes in equity
The movements in equity during the period related to movements in retained
earnings as set out below and an adjustment made to the estimate of the number
of shares contingently issuable in respect of the acquisition of Data
Technology plc in the previous financial year.
Retained earnings A[pounds sterling]
Balance at 1 October 2006 (8,451)
Net profit for the year 291,282
Credit to equity for equity-settled share-based payments 9,570
Balance at 30 September 2007 292,401
Net profit for the 6 months ended 31 March 2008 317,856
Credit to equity for equity-settled share-based payments 4,803
Balance at 31 March 2008 615,060
At 30 September 2007 it was estimated that shares with a fair value of
A[pounds sterling]1,500,000 would have to be issued to settle the contingent earn-out
consideration payable on the acquisition of Data Technology Group Limited. It
has been agreed that 5,897,706 shares will be issued with a fair value at the
date of the original transaction of A[pounds sterling]1,769,312. These shares will be issued in
June 2008. An additional amount of A[pounds sterling]269,312 has therefore been credited to
equity in respect of shares to be issued and the carrying value of goodwill
increased by the same amount.
Changes in debt
During the year a term loan of A[pounds sterling]2,500,000 was advanced to the Company to fund
the acquisition of Abilitec Holdings Limited. Loan arrangement fees of A[pounds sterling]61,775
were incurred and are deducted from the initial fair value of the loan in the
balance sheet. The loan is payable in equal quarterly instalments over five
years. Interest is payable at a variable rate of 2.25% over base rate; the
Company has however taken out an interest rate swap over 70% of the
outstanding loan amount such that the effective maximum and minimum rates of
interest will be 8.75% and 7% respectively.
6. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Unaudited
6 months ended 6 months ended Year
31 March 2008 31 March 2007 ended
30 September 2007
A[pounds sterling] A[pounds sterling] A[pounds sterling]
Operating profit 499,076 140,846 341,296
Depreciation of plant and equipment 30,433 4,349 10,132
Amortisation of intangible assets 152,748 10,248 64,246
Share-based payment 4,803 4,388 9,570
Operating cash flows before movements
in working capital 687,060 159,831 425,244
Decrease in inventories - - 7,000
(Increase)/decrease in receivables (824,057) (209,064) 329,638
Increase/(decrease) in payables 790,793 188,642 (130,022)
Cash generated by operations 653,796 139,409 631,860
Interest paid (77,997) (16,536) (35,442)
Tax paid (68,640) - -
Net cash flow from operating activities 507,159 122,873 596,418
7. ACQUISITIONS
On 28 December 2007, the Group acquired 100% of the issued ordinary share
capital of Abilitec Holdings Limited. Goodwill arising on the acquisition of
Abilitec Holdings Limited has been capitalised. The purchase of Abilitec
Holdings Limited has been accounted for by the purchase method of accounting.
The book and fair value of net assets and liabilities acquired are set out
below:
Book value Fair value
A[pounds sterling] A[pounds sterling]
Intangible assets - 750,000
Plant and equipment 56,893 56,893
Trade and other receivables 885,806 885,806
Cash and cash equivalents 361,071 361,071
Trade and other payables (790,515) (790,515)
Current tax liabilities (39,394) (39,394)
Deferred tax - (211,125)
Net assets acquired 473,861 1,012,736
Goodwill 2,316,270
3,329,006
Total consideration payable satisfied by:
Cash 3,199,775
Settlement of trade and other receivables of
Abilitec 27,167
on behalf of vendor
Directly attributable costs 102,064
3,329,006
Under the terms of the agreement for the acquisition of Abilitec Holdings
Limited, the Company has agreed to issue up to 2,352,941 ordinary shares at a
price of 42.5p per share in deferred consideration. The deferred consideration
is to be based on the amount by which the profit before taxation of Abilitec
Holdings Limited exceeds A[pounds sterling]750,000 for the two years ending 30 September 2009.
Abilitec Holdings Limited contributed A[pounds sterling]1,115,196 revenue and A[pounds sterling]205,095 to the
Group's profit before tax for the period between the date of acquisition and
the balance sheet date.
Goodwill not separately recognised as an intangible asset comprises the
skilled workforce and management, synergies anticipated with existing group
operations and the potential to expand the supply of the Company's services to
new customers.
8. EXPLANATION OF TRANSITION TO IFRS
As stated in note 1, these are the Group's first condensed consolidated
interim financial statements for part of the period covered by the first IFRS
annual consolidated financial statements prepared in accordance with IFRS.
The accounting policies in note 2 have been applied in preparing the
consolidated condensed interim financial statements for the six months ended
31 March 2008, the financial information for the period ended 31 March 2007
and the year ended 30 September 2007.
In preparing its opening IFRS balance sheet, comparative information for the
six months ended 31 March 2007 and financial statements for the year ended 30
September 2007, the Group has adjusted amounts reported previously in
financial statements prepared in accordance with UK GAAP.
An explanation of how the transition from UK GAAP to IFRS has affected the
Group's financial position, financial performance and cash flows is set out in
the following tables.
No adjustment was necessary in respect of the opening balance sheet at 1
October 2006 (the date of transition to IFRS).
Reconciliation of income statements
6 months ended 31 March 2007 Year ended 30 September 2007
Previous Transition IFRS Previous Transition IFRS
GAAP to IFRS GAAP to IFRS
unaudited unaudited audited unaudited
A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling]
Notes
Revenue 919,666 919,666 2,253,768 2,253,768
Cost of sales (82,038) (82,038) (414,330) (414,330)
Gross profit 837,628 837,628 1,839,438 1,839,438
Administrative expenses (686,534) (686,534) (1,433,896) (1,433,896)
Operating profit 151,094 151,094 405,542 405,542
1, 2
Amortisation 2 (55,884) 45,636 (10,248) (152,466) 88,220 (64,246)
Investment revenues 740 740 17,128 17,128,
Finance income (21,038) (21,038) (44,284) (44,284)
Profit before tax 74,912 45,636 120,548 225,920 88,220 314,140
Tax expense 3 - - (35,983) 13,125 (22,858)
Profit for the period 74,912 45,636 120,548 189,937 101,345 291,282
Earnings per share
Basic 0.6p 0.9p 1.3p 2.0p
Diluted 0.6p 0.9p 1.2p 1.9p
Notes
1. Goodwill has been adjusted to remove amortisation previously provided under
UK GAAP from 1 October 2006. In accordance with IFRS 3 no amortisation is
charged in respect of goodwill, which is instead subject to an annual review
for impairment in value.
2. Those separately identifiable intangible assets capable of reliable
measurement and arising from business combinations since 1 October 2006 that
were not previously recognised under UK GAAP have now been included in the
consolidated balance sheet following the application of IFRS 3. These assets
were recognised at a fair value of A[pounds sterling]1,050,000 at date of acquisition.
Amortisation of A[pounds sterling]43,750 was charged in the year ended 30 September 2007.
3. In accordance with IAS 12 and IFRS 3, provision has been made for deferred
tax in respect of temporary differences arising from the recognition of
intangible assets on the acquisition of a subsidiary company in July 2007. To
the extent that the difference reversed during the year ended 30 September
2007 as a result of provision for amortisation, this has been taken to profit.
Reconciliation of balance sheets
As at 31 March 2007 As at 30 September 2007
Previous Transition IFRS Previous Transition IFRS
GAAP to IFRS GAAP to IFRS
unaudited unaudited audited unaudited
Notes A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling] A[pounds sterling]
Non-current assets
Goodwill 1 1,723,383 45,636 1,769,019 5,651,799 (622,105) 5,029,694
Other intangible assets 2 77,249 - 77,249 67,001 1,006,250 1,073,251
Plant and equipment 14,624 - 14,624 99,620 - 99,620
Investments in subsidiaries 50 - 50 10,286 - 10,286
1,815,306 45,636 1,860,942 5,828,706 384,145 6,212,851
Current assets
Inventories 13,000 - 13,000 6,000 - 6,000
Trade and other receivables 776,124 - 776,124 843,504 - 843,504
Cash and cash equivalents 209,910 - 209,910 799,049 - 799,049
999,034 - 999,034 1,648,553 - 1,648,553
Total assets 2,814,340 45,636 2,859,976 7,477,259 384,145 7,861,404
Current liabilities
Trade and other payables 810,324 - 810,324 1,214,158 - 1,214,158
Current tax liabilities - - - 156,778 - 156,778
Obligations under finance leases - - - 12,500 - 12,500
810,324 - 810,324 1,383,436 - 1,383,436
Non-current liabilities
Convertible loan stock 185,979 - 185,979 186,579 - 186,579
Other loans 392,668 - 392,668 500,000 - 500,000
Obligations under finance leases - - - 26,667 - 26,667
Deferred tax liabilities 3 - - 282,800 282,800
Provisions - - - 15,000 - 15,000
578,647 - 578,647 728,246 282,800 1,011,046
Total liabilities 1,388,971 - 1,388,971 2,111,682 282,800 2,394,482
Net assets 1,425,369 45,636 1,471,005 5,365,577 101,345 5,466,922
Equity
Issued share capital 1,992,140 - 1,992,140 2,069,473 - 2,069,473
Shares to be issued - - - 1,500,000 - 1,500,000
Equity reserves 19,421 - 19,421 19,421 - 19,421
Share premium 261,000 - 261,000 937,667 - 937,667
Merger reserve - - - 1,566,000 - 1,566,000
Other reserves (918,040) - (918,040) (918,040) - (918,040)
Retained earnings 70,848 45,636 116,484 191,056 101,345 292,401
Total equity 1,425,369 45,636 1,471,005 5,365,577 101,345 5,466,922
Notes
1. Goodwill has been adjusted to remove amortisation previously provided under
UK GAAP from 1 October 2006. In accordance with IFRS 3 no amortisation is
charged in respect of goodwill, which is instead subject to an annual review
for impairment in value.
2. Those separately identifiable intangible assets capable of reliable
measurement and arising from business combinations since 1 October 2006 that
were not previously recognised under UK GAAP have now been included in the
consolidated balance sheet following the application of IFRS 3. These assets
were recognised at a fair value of A[pounds sterling]1,050,000 at date of acquisition.
Amortisation of A[pounds sterling]43,750 was charged in the year ended 30 September 2007.
3. A deferred tax liability has been recognised in respect of the intangible
assets recognised for the reasons explained in 2 above in accordance with IAS
12 as this represents a temporary difference as defined by IAS 12.
4. A summary of adjustments made to the carrying value of goodwill at 30
September 2007 is as follows:
A[pounds sterling]
As originally stated in accordance with UK GAAP 5,651,799
Fair value of separately identifiable intangible assets (1,050,000)
Deferred tax liability attributable to intangible 295,925
assets recognised
Reverse amortisation charge made under UK GAAP 131,970
for the year
As restated in accordance with IFRS 5,029,694
9. POST BALANCE SHEET EVENTS
On 1 May 2008 the Company acquired the whole of the issued share capital of
Roster Management Limited, a specialist provider of workforce management
software to the manned guarding sector, for A[pounds sterling]125,000 settled by the issue of
58,140 ordinary shares in the Company at 43p each and A[pounds sterling]100,000 in cash.
For further information contact:
Mike Taylor, Joint CEO Innovise 0870 626 0400
Tony Edwards, Finance Director Innovise 0870 626 0400
Liam Murray, Nominated Adviser Dowgate Capital Advisers 0207 492 4777
Ruari McGirr or Mark Anwyl, St Helen's Capital 0207 628 5582
Broker
Ian Foster, Shareholder Wordsworth Communication 07739 185 050
Relations
END
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