RNS Number:3915S
Innovation Group PLC
24 November 2003
Embargoed until 0700 24 November 2003
THE INNOVATION GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2003
The Innovation Group (TiG), delivering solutions that improve profitability and
customer service in the insurance and associated industries, today announces
its audited preliminary results for the twelve months ended 30 September 2003.
Highlights for the twelve months ended 30 September 2003:
* Adjusted profit* before tax of #3.3m (2002: #10.0m)
* Loss before tax of #24.1m (2002: loss of #391.1m) after amortisation charge of
#17.2m, exceptional costs of #5.2m, write down of fixed asset investments of
#5.9m, profit on disposal of operations of #1.6m and loss on disposal of
fixed assets of #0.7m
* Total revenue of #58.5m (2002: #100.1m). Specialised Business Process
Outsourcing revenue (SBPO) of #24.4m (2002: #21.2m). Technology Solutions
Division (TSD) revenue of #34.1m (2002: #78.9m)
* Successful completion of rights issue in March raising approximately #9m
(net of expenses)
* Hassan Sadiq commenced as new Chief Executive in March 2003
* Significant cost base reduction (total costs excluding one off items and
amortisation for Q4 2003 were #12.1m compared to #20.6m in Q4 2002)
* Became cash flow positive in Q4 (operating inflow of #2.8m) after three
quarters of continually reduced outflows
* Major contract win secured in Q4 (announced 1 October 2003)
* Adjusted profit is the loss before tax adding back the items in second bullet
point above. It is analysed in financial highlights on page 9.
Commenting on the results, Hassan Sadiq, Chief Executive, said:
"This has been a year of evolution for The Innovation Group. We have reshaped
our Board, bolstered our management team and tailored our products to align
them more closely with the needs of our clients. The outlook for next year is
one of cautious optimism."
The analyst presentation slides will be available on our website: www.tigplc.com
- ends -
Enquiries:
The Innovation Group plc 01489 898300
Hassan Sadiq, Chief Executive Officer
Paul Smolinski, Group Finance Director
KBC Peel Hunt 020 7418 8900
Simon Hayes / Jonathan Marren
Weber Shandwick Square Mile 020 7067 0700
Sara Musgrave / Katie Hunt
Notes to Editors
The Innovation Group delivers innovative technology and process improvement
solutions to insurance and associated industries that enable clients to increase
profit and improve the customer experience. To cater to the needs of each
individual client, and to maximise impact and return on investment, TiG's
solutions comprise of two divisions: Technology Solutions Division (TSD) and
Specialised Business Process Outsourcing (SBPO).
The Group has provided services for leading blue chip companies around the globe
including: ACG, ACSC, Alliance, Aviva, Axa, BMW, Chubb, Direct Line, Ford Motor
Company, Jaguar, RSA, Yasuda, and Zurich.
Market leaders recognise that in order to improve profit margins they must
reduce the total cost of claims. Current industry averages show that average
European non-life expenditures are around 105% of premiums collected (combined
ratio), with nearly 80% of this expense being claims related (totalling more
than #20 billion a year in the UK alone)**. TiG's claims technology enables
insurers to decrease claims cost by around 5 to 20% and improve customer
experience.
** Source: The Economist Intelligence Unit, February 2003.
Chairman's Statement
Introduction
The Innovation Group delivers innovative technology and process improvement
solutions to insurance and associated industries that enable clients to increase
profit and improve the customer experience. To cater to the needs of each
individual client, and to maximise impact and return on investment, TiG's
solutions comprise two divisions: Technology Solutions Division (TSD) and
Specialised Business Process Outsourcing (SBPO).
The Year in Review
This year has seen a period of transition and recovery for the Group.
Faced with a challenging governance, economic and business climate, we reshaped
our Board and management team and repositioned our products and services to
align more closely with the needs of our clients and partners. Production
delivery of our new policy and claims systems, plus a significant policy system
win in North America provide solid evidence of our progress.
Our continued strategy of focusing on core revenue lines whilst maintaining
costs at an appropriate level means that the Group has been able to deliver four
consecutive quarters of adjusted profit*.
Financial Results
Adjusted profit* before tax, was #3.3m for the year ended 30 September 2003
(2002: #10.0m) and revenue for the year to 30 September 2003 was #58.5m (2002:
#100.1m).
Rights Issue
In March 2003, the Group concluded a rights issue which raised approximately #9m
net of expenses. The rights issue strengthened the balance sheet and gave
clients, partners and prospects the confidence they needed to consider TiG as
the solution provider for their mission critical needs.
The Board
In February 2003, John Birkmire, Gordon Crawford and Clive Vlotman left the
Board. In March 2003, Hassan Sadiq stepped up to become Chief Executive of TiG
(previously Chief Operating Officer) and Rob Terry moved from being Chief
Executive to Vice-Chairman. In September 2003 Rob Terry resigned from the Group.
We stated that it was our intention to recruit fully independent, non-executive
directors who would bring additional skills and experience, and in line with
those criteria we were pleased to appoint Chris Banks and David Thorpe to the
Board in the second half of the year - chairing the audit and remuneration
committees respectively. Chris and David bring their considerable knowledge and
expertise from CMG and EDS and we thank them both for their contribution thus
far. Ed Ossie, Steve Scott and Paul Smolinski remain as executive directors of
TiG, and I continue as non-executive chairman of the Board and the nomination
committee.
Employees
I would like to thank everyone for their outstanding contribution to the
business this year and thank them for their dedication to our clients. This has
been a period of challenge and achievement where our teams throughout the world
have demonstrated their experience and professionalism. We continue to attract
and retain some of the best people in the industry and we recognise them as the
foundation of our future success.
Strategy
Insurance companies can no longer rely on investment income to support their
profit margins. This means that they have to improve margins in their core
business. TiG believes that technology has a major role to play in this
improvement, and continues to invest in research and development, implementation
skills and specialised business process outsourcing infrastructure to deliver
these solutions.
Outlook
We expect the market to remain challenging but we are confident that we now have
the right foundation in place. We will build upon our proven solutions, blue
chip client base and key partnerships with leading companies such as IBM. The
Board looks forward to the next financial year with cautious optimism -
anticipating a return to turnover growth and improved profitability in our core
businesses. We would like to thank our shareholders for their invaluable
support.
Geoff Squire, OBE
Chairman
* Defined under financial highlights
Chief Executive's Review
I am pleased to report that TiG delivered an adjusted profit* of #3.3 million
for the financial year, became cash flow positive in the fourth quarter and made
substantial progress in further developing the business for future sustainable
growth.
At an operational level, we structured the business into two main divisions -
Technology Solutions Division (TSD) and Specialised Business Process Outsourcing
(SBPO), realigned the Group to focus on core competencies and strengthened our
quality partnerships with leading companies such as IBM. This, along with better
integration of our acquired businesses, enabled us to substantially reduce our
costs without affecting our ability to service clients.
The Group has provided services for leading blue chip companies around the globe
including: ACG, ACSC, Alliance, Aviva, Axa, BMW, Chubb, Direct Line, Ford Motor
Company, Jaguar, RSA, Yasuda, and Zurich.
During the last two years, the economic downturn has markedly changed the
purchasing dynamics of the insurance industry. Whilst it negatively impacted our
technology business through lower Initial Licence Fee (ILF) and systems
integration revenues, it positively affected our SBPO business as insurers
sought to outsource functions in a bid to improve their bottom line.
Current industry averages show that average European non-life expenditures are
around 105% of premiums collected (the "combined ratio", an industry measure of
underwriting profitability)**, with nearly 80% of this expense being claims
related (totalling more than #20 billion a year in the UK alone). Market leaders
recognise that in order to improve profit margins they must reduce the total
cost of claims. Our claims technology enables insurers to decrease claims cost
by around 5 to 20% and improve customer experience.
* Defined under financial highlights
** Source: The Economist Intelligence Unit, February 2003.
Specialised Business Process Outsourcing (SBPO)
Our SBPO division, branded as TiG eQuals, focuses on managing business functions
for the insurance and associated industries. It provides outsourced services
such as accident management, incident estimating, assessment services and
warranty administration, charged on a transactional basis.
During 2003, the SBPO business grew as insurers sought to obtain solutions with
a fast ROI. This has resulted in nine new clients being signed globally, as well
as an increase in pipelines in all regions.
Geographically, 43% of our SBPO revenue of #24.4m was earned in the UK, 47% in
South Africa, 5% in Germany, 2% in France (sold during the year to Groupama) and
3% in Australia. All geographical regions are expected to grow in 2004.
In South Africa, our business is the market leader for many of the services it
provides. South Africa also affords TiG's global clients an attractive offshore
alternative through its competitive cost structure, modern infrastructure and
English-speaking population base.
Our UK SBPO operation added some new clients in 2003, but we are expecting its
growth to be flat for the first half of 2004 due to one client taking its
business in-house. Conversely, the German and Australian operations are both
experiencing significant growth and both realised profitability for the first
time during the year.
During the year, we have continued to invest in implementing our own technology
within our SBPO business offerings. The use of our own technology within our
SBPO offering gives us a distinct competitive advantage by further helping them
to reduce the cost of claims. This procedure is being led from the UK and will
roll out to all other regions in due course.
Technology Solutions Division (TSD)
TSD provides software and services to develop, install, integrate and maintain
insurance systems for policy and claims related functions.
After a difficult first half, we began to see signs of recovery in the second
half as our sales pipeline began to grow. Recently, we gained two commitments
from leading US insurers for evaluation licences for our new policy offering.
The first converted into a full licence in Q4 and will be implemented in
conjunction with IBM (announced 1 October 2003). The second was still under
evaluation at the close of the year. Beyond this we have seen an increase in
enquiry levels from insurers and have been responding to a higher level of
RFP's. We are also continuing to work on further opportunities with IBM.
Geographically, 53% of our technology revenue of #34.1m was earned in North
America, 37% in the UK and Europe, and 10% in Asia Pacific. We expect North
America and the UK to be the prime growth areas in 2004.
Our total recurring revenue in technology solutions for the year was #22.6m.
This included revenue of #2.4m from a US government contract that was not
renewed. Its effect on Group profitability will be minimal, as costs have
already been reduced accordingly.
Our implementation teams successfully delivered major projects globally,
including our claims product to two blue chip insurance companies. We expect
implementation revenue to increase in Q1 2004 as we re-deploy our people from
completed fixed price projects to new projects.
Investing for the Future (R & D)
Our claims technology and SBPO offerings enable insurers to decrease claims
costs and improve customer experience. Our policy platform enables insurers to
further reduce costs and time to market, while improving their ability to sell
through multiple channels. The collective result of our offering is a lower
combined ratio.
TiG believes that technology has a major role to play in the future
profitability of the insurance industry and continues to make substantial
investment into R&D in the technology business as well as process solutions for
our SBPO business.
To support our core offering we also launched the "TIG Conversion Toolkit" which
rapidly enables data conversion from old systems to new. This led to a new
contract in Q4 and interest levels were increasing as we closed the year.
Strategic Update
Our focus in 2004 is to increase our profitability, generate cash from our
existing operations, and to bring further focus to our core businesses. This
strategy will pave the way for sustainable organic growth on a medium term
basis.
We retain our focus on insurance and associated industries. The synergies
between the two divisions provide TiG with a strong competitive advantage as
customers benefit from flexible offerings that adapt to changing markets. We
remain committed to extending our capabilities throughout the world.
Outlook
As pipelines in both our technology and SBPO businesses have grown and general
trading conditions continue to improve, we are cautiously optimistic about 2004.
Whilst the market remains difficult, recent months have shown positive
indications of future improvements. Our technology business successes in the
final quarter give credence to insurance market analyst predictions of 'an
increasing demand for modern policy and claims solutions'. Insurance industry
analysts also predict a continuing increase in the use of business process
outsourcing.
We believe that technology has a major role to play in the future profitability
of the insurance industry and, to that end, continue to focus on providing
leading edge solutions that enable insurers to reduce their costs and improve
customer relations.
Overall, there is significant scope for our business to grow further in the
years to come.
In closing, I want to thank our shareholders for supporting us during the year
and our employees in progressing the Group in the right direction.
Hassan Sadiq
Chief Executive Officer
Finance Director's Review
Results
Revenue for the year to 30 September 2003 was #58.5m (2002: #100.1m); SPBO
revenue for year to 30 September 2003 was #24.4m (2002: #21.2m); Technology
Solutions revenue for year to 30 September 2003 was #34.1m (2002: #78.9m).
Revenue in the first half of the year was #31.2m and was #27.3m in the second
half of the year. Within this, SBPO turnover grew from #11.5m (including #0.5m
from a business subsequently sold) in the first half to #12.9m in the second
half of the year and TSD reduced accordingly as long-term implementations were
successfully completed.
EBITDA for the year was #6.5m (2002: #15.1m). FRS3 loss before tax was #24.1m
(2002: FRS3 loss of #391.1m). On an adjusted basis profit was #3.3m (2002:
#10.0m) after excluding an amortisation charge of #17.2m, exceptional costs of
#5.2m, amounts written off investments of #5.9m, profit on disposal of
operations of #1.6m and loss on disposal of fixed assets of #0.7m.
Adjusted EPS was 0.79p (2002: 2.46p), basic loss per share was 7.67p (2002: loss
per share of 173.78p). As at 30 September 2003 there were approximately 414
million shares in issue.
The Group tax charge was #0.7m. The principal reason for there being a tax
charge despite the FRS3 loss is due to profits earned in certain countries which
cannot be set off against losses arising in other countries. The effective tax
rate is lower than the expected rate of 30% due mainly to the utilisation of tax
losses brought forward for which no deferred tax asset had previously been
recognised.
One-off items
Exceptional charges of #5.2m (2002: #374.5m) were incurred in the fourth quarter
of 2003. #0.4m relates to office closure costs in North America; #3.1m relates
to fixed asset write-downs; #0.5m relates to contractual settlements and #1.2m
relates to people costs (including the #0.5m balance of the contractual
entitlement due to R Terry following his resignation as a director). Fixed asset
investments were written down by #5.9m after a review of "value in use" and
market conditions. Additionally there was a #0.7m loss on disposal of fixed
assets and a #1.6m profit on the sale of our SBPO operation in France.
Costs
The cost base has decreased significantly in 2003 through a combination of
focusing on our core business and reducing staff costs and other administrative
expenses. The average headcount for the Group has fallen by 13%, although within
this there has been an increase in our SBPO operation in South Africa offset by
a reduction primarily in our technology solutions business. Total costs
excluding one off items and amortisation for Q4 2003 were #12.1m compared to
#20.6m in Q4 2002. Additionally, during the year several offices were closed
including the former Huon headquarters in London, our Leatherhead office in the
UK, and an office in Hartford, US. In addition, we moved to more cost effective
offices in Danbury and Kansas in the US.
Cash flow and financing
Over the year our net cash position has improved by #2.1m. The Group undertook a
rights issue in March that generated approximately #9.0m net of expenses. This
strengthened our balance sheet and has given our stakeholders increased
confidence in the Group. We also achieved a cash inflow of #2.2m through the
disposal of our SBPO operation in France and realised #3.3m through the sale of
one of our Whiteley offices. We repaid #6.2m of loan notes during the year and
repaid #6m of mortgage and other borrowings.
At the operating level, TiG had a net cash outflow of #5.2m in the year of which
#3.7m arose from exceptional costs, compared to an outflow of #8.1m in the
previous year (where there was a outflow of #15.9m relating to exceptional
items). Putting the Group in a position where it generates cash on a quarterly
basis has been a priority, with tightly controlled costs and optimum payment
terms from clients being areas of particular attention. This focus has resulted
in a continual quarter on quarter improvement during the year, with a Q4 inflow
of #2.8m following three quarters of reducing outflows.
Our year end cash and short term investment position is #12.9m and cash
management remains a key focus. Some #2.7m of the cash is restricted by exchange
controls in South Africa, #0.5m is held in an escrow account as a warranty, and
there is #1.3m held in respect of loan notes repayable within 12 months. The
balance sheet also includes #3.3m of deferred consideration in respect of
acquisitions that is to be settled by October 2004, including the #1m settled by
issue of shares in October 2003, with #2m of the remaining balance capable, at
TiG's option, of also being settled in shares.
Foreign exchange
Approximately #34m (almost 60%) of the Group's turnover is generated outside the
UK and denominated in foreign currencies. The Group, therefore, has an exposure
to translation risk when the accounts of overseas subsidiaries are converted
into sterling.
The Group does not hedge this translation risk. During the year the most
important currencies for the Group were the US$ and the South African Rand and
the average exchange rates used to convert results into sterling were US$ 1.61:
#1 (2002: US$1.46:#1) and SA Rand 12.96: #1 (2002: SA Rand 15.49:#1).
Summary
Following a challenging year, the priorities of the coming year will be to focus
on the growth and profitability of our core business. Higher core revenues,
optimised costs and generation of cash from operations will be our goal. We have
already made significant improvements in terms of the Group's governance and
internal controls and will continue to improve in line with the guidance of the
revised Combined Code.
Paul Smolinski
Group Finance Director
The Innovation Group plc
Financial Highlights
Note 2003 2002
#'000 #'000
TURNOVER 58,514 100,071
ADJUSTED PROFIT BEFORE TAX a 3,331 10,028
LOSS BEFORE TAX (24,088) (391,114)
ADJUSTED EARNINGS PER SHARE (pence) 6 0.79 2.46
BASIC LOSS PER SHARE (pence) 6 (7.67) (173.78)
DIVIDEND PER SHARE (pence) - 0.6
Note:
a Adjusted profit before tax is calculated as:
2003 2002
#'000 #'000
FRS 3 loss before tax (24,088) (391,114)
Add back:
Amortisation 17,181 26,644
Exceptional items 3 5,247 24,498
Goodwill impairment - 350,000
Profit on disposal of continuing operations 4 (1,638) -
Loss on sale of fixed assets in continuing
operations 3 747 -
Amounts written off investments 3 5,882 -
---------------------
3,331 10,028
=====================
References to adjusted profit and earnings per share reflect the Directors' view
that these are important measures for their own, and shareholders', assessment
of the Group's underlying performance.
The Innovation Group plc
Consolidated Profit and Loss Account
Year ended 30 September 2003
2003 2002
Note #'000 #'000
TURNOVER - continuing 2 58,514 100,071
Cost of sales (10,597) (14,687)
---------- ----------
Gross profit 47,917 85,384
Administrative expenses
- amortisation (17,181) (26,644)
- exceptional items 3 (5,247) (374,498)
- other (44,375) (75,767)
---------- ----------
(66,803) (476,909)
---------- ----------
OPERATING LOSS - continuing (18,886) (391,525)
Share of operating profit of associate
undertaking 71 -
Profit on disposal of continuing
operations 4 1,638 -
Loss on sale of fixed assets in
continuing operations 3 (747) -
Amounts written off investments 3 (5,882) -
Net interest (282) 411
---------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION (24,088) (391,114)
LOSS ON ORDINARY ACTIVITIES BEFORE
TAXATION (24,088) (391,114)
Amortisation 17,181 26,644
Exceptional items 3 5,247 374,498
Profit on disposal of continuing
operations 4 (1,638) -
Loss on sale of fixed assets in
continuing operations 3 747 -
Amounts written off investments 3 5,882 -
---------- ----------
ADJUSTED PROFIT 3,331 10,028
========== ==========
Tax on loss on ordinary
activities 5 (687) -
---------- ----------
LOSS ON ORDINARY ACTIVITIES AFTER
TAXATION (24,775) (391,114)
Equity minority interests (76) (85)
---------- ----------
LOSS FOR THE YEAR (24,851) (391,199)
Dividends - (1,255)
---------- ----------
RETAINED LOSS FOR THE YEAR (24,851) (392,454)
========== ==========
Adjusted earnings per ordinary
share (pence) 6 0.79 2.46
Basic loss per ordinary share
(pence) 6 (7.67) (173.78)
Diluted loss per ordinary share
(pence) 6 (7.67) (173.78)
The Innovation Group plc
Consolidated statement of total recognised gains and losses
Year ended 30 September 2003
2003 2002
#'000 #'000
Loss for the financial year (24,851) (391,199)
Currency translation differences (4,010) (2,580)
---------- ----------
Total recognised gains and losses relating
to the year (28,861) (393,779)
========== ==========
Reconciliation of Movement in Shareholders' Funds
Year ended 30 September 2003
2003 2002
#'000 #'000
Loss for the financial year (24,851) (391,199)
Dividends - (1,255)
---------- ----------
(24,851) (392,454)
Currency translation differences (4,010) (2,580)
Issue of shares 20,249 44,381
Shares to be issued (12,264) 2,000
---------- ----------
Net reduction to shareholders' funds (20,876) (348,653)
Opening shareholders' funds as previously reported 57,399 406,052
---------- ----------
Closing shareholders' funds 36,523 57,399
========== ==========
The Innovation Group plc
Consolidated balance sheet
As at 30 September 2003
2003 2002
Note #'000 #'000
FIXED ASSETS
Intangible assets 35,357 53,987
Tangible assets 12,627 22,441
Investments 1,809 5,034
---------- ----------
49,793 81,462
CURRENT ASSETS
Stocks 235 131
Debtors 7 11,038 15,492
Investments 1,743 11,060
Cash at bank and in hand 11,161 9,149
---------- ----------
24,177 35,832
CREDITORS: amounts falling due within one year (17,701) (25,823)
---------- ----------
NET CURRENT ASSETS 6,476 10,009
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 56,269 91,471
CREDITORS: amounts falling due after more than one year
Convertible loan notes (2,147) (2,040)
Other creditors (5,677) (13,021)
---------- ----------
(7,824) (15,061)
PROVISIONS FOR LIABILITIES AND CHARGES (1,786) (3,673)
ACCRUALS AND DEFERRED INCOME (10,073) (15,132)
EQUITY MINORITY INTERESTS (63) (206)
---------- ----------
NET ASSETS 36,523 57,399
========== ==========
CAPITAL AND RESERVES
Called up share capital 8,281 3,952
Shares to be issued 1,736 14,000
Share premium account 474,893 458,973
Profit and loss account (448,387) (419,526)
---------- ----------
EQUITY SHAREHOLDERS' FUNDS 36,523 57,399
========== ==========
The Innovation Group plc
Consolidated cash flow statement
Year ended 30 September 2003
2003 2002
Note #'000 #'000
Net cash outflow from operating activities A (5,230) (8,086)
Returns on investments and servicing of finance
Interest received 900 2,130
Interest paid (780) (1,210)
Interest element of finance lease rental payments (223) (223)
---------- ----------
Net cash (outflow)/inflow from returns on
investments and servicing of finance (103) 697
Taxation
Tax paid (641) (2,014)
Capital expenditure and financial investment
Purchase of tangible fixed assets (916) (4,251)
Purchase of intangible fixed assets - (1,714)
Sale of tangible fixed assets 3,536 558
Purchase of fixed asset investments (1,658) (1,921)
Loans (400) -
---------- ----------
562 (7,328)
Acquisitions and disposals
Payments to acquire subsidiary undertakings (190) (16,014)
Cash acquired with subsidiaries - 1,056
Sale of subsidiary undertakings 2,207 -
Net cash disposed of with subsidiary (88) -
Net cash transferred from subsidiary to associate (304) -
---------- ----------
1,625 (14,958)
Equity dividends paid - (5,625)
Management of liquid resources
Net sale of current asset investments 9,317 51,960
---------- ----------
Cash inflow before financing 5,530 14,646
Financing
Issue of shares 8,970 -
Repayment of borrowings (12,149) (20,052)
New borrowings - 500
Capital element of finance lease rentals (246) (259)
---------- ----------
Net cash flow from financing (3,425) (19,811)
---------- ----------
Increase/(decrease) in cash less bank
overdraft B,C 2,105 (5,165)
========== ==========
A. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING
ACTIVITIES
2003 2002
#'000 #'000
Operating loss (18,886) (391,525)
Exceptional items 5,247 374,498
---------- ----------
Operating loss before exceptional items (13,639) (17,027)
Depreciation 2,991 5,477
Amortisation of intangible fixed assets 17,181 26,644
Profit on disposal of fixed assets (147) (131)
(Increase)/decrease in stocks (113) 55
Decrease in debtors 4,158 15,935
Decrease in creditors (11,926) (23,138)
---------- ----------
(1,495) 7,815
Cash outflow arising from exceptional costs (3,735) (13,140)
Acquisition related outflows* - (2,761)
---------- ----------
Net cash outflow from operating activities (5,230) (8,086)
========== ==========
* Acquisition related outflows during the year ended 30 September 2002 related
to payments made by the Company in respect of liabilities which crystallised
as a consequence of the acquisitions of MTW and Huon and creditor payments
associated with the pre-acquisition activities of the Cosy Group.
B. ANALYSIS OF CHANGES IN NET FUNDS
At Other At
1 October non-cash 30 September
2002 Cash flow changes 2003
#'000 #'000 #'000 #'000
Cash at bank and in hand 9,149 2,012 - 11,161
Bank overdraft (95) 93 - (2)
----------------------------------------------------
9,054 2,105 - 11,159
Debt due beyond a year (12,242) - 5,824 (6,418)
Debt due within a year (8,166) 12,149 (5,931) (1,948)
Finance leases and hire
purchase contracts (961) 246 - (715)
Current asset investments 11,060 (9,317) - 1,743
----------------------------------------------------
Total net (deficit)/funds (1,255) 5,183 (107) 3,821
====================================================
C. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2003 2002
#'000 #'000
Increase/(decrease) in cash in the period 2,105 (5,165)
Cash outflow from decrease in debt and lease
financing 12,395 19,811
Cash inflow from decrease in liquid resources (9,317) (51,960)
---------- ----------
Change in net funds resulting from cash flows 5,183 (37,314)
Loans, loan notes and finance leases acquired with
subsidiaries - (1,508)
Foreign exchange (107) (484)
---------- ----------
Movement in net funds/(deficit) in the year 5,076 (39,306)
Net (deficit)/funds at start of the year (1,255) 38,051
---------- ----------
Net funds/(deficit) at end of the year 3,821 (1,255)
========== ==========
The Innovation Group plc
Notes to the preliminary statements
Year ended 30 September 2003
1. BASIS OF PREPARATION
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2003 or 2002, but is derived
from those accounts. Statutory accounts for 2002 have been delivered to the
Registrar of Companies, and those for 2003 will be delivered following the
Company's annual general meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s237(2) or
(3) of the Companies Act 1985.
2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS
Turnover can be analysed into the following categories:
2003 2002
#'000 #'000
Technology Solutions Division
Initial licence fees 4,916 17,520
Implementation 6,620 29,408
Recurring 22,582 31,901
---------- ----------
34,118 78,829
Specialised Business Process Outsourcing ("SBPO")
Recurring 24,396 21,242
---------- ----------
58,514 100,071
========== ==========
Recurring revenue represents income from contracts that do not relate to
discrete projects such as the implementation of a new system. It includes
maintenance, source code rental, and in/outsourcing work with customers.
Following the restructuring of the group at the end of 2002, the Directors now
consider that the Group has two principal activities. These are technology
solutions and specialised business process outsourcing. The results for the year
ended 30 September 2003 can be analysed as follows. In practice it is not
feasible to provide comparative data with sufficient accuracy and so, as
permitted by SSAP 25, no comparative information is provided.
Technology
Solutions SBPO Total
#'000 #'000 #'000
Turnover - by origin and destination 34,118 24,396 58,514
---------- ---------- ----------
EBITDA before R&D, central and
exceptional costs 12,249 2,954 15,203
Amortisation and depreciation (11,802) (8,130) (19,932)*
Exceptional items (3,120) (2,127) (5,247)
---------- ---------- ----------
(2,673) (7,303) (9,976)
========== ==========
R&D (6,512)*
Central costs (2,398)
----------
(18,886)
Share of operating profit of associate undertaking 71
Profit on disposal of continuing operations - SBPO 1,638
Loss on sale of fixed assets in continuing operations (747)
Amounts written off investments (5,882)
Net interest (797) 515 (282)
----------
Loss before tax (24,088)
==========
* Research and development costs include approximately #240,000 of depreciation.
2. ANALYSIS OF TURNOVER, LOSS BEFORE TAX AND NET ASSETS (continued)
The analysis of net assets at 30 September 2003 by division was as follows:
#'000
Technology 17,785
SBPO (15,357)
Goodwill 34,095
----------
36,523
==========
The geographical analysis by location is as set out below:
Turnover Loss before taxation Net assets
2003 2002 2003 2002 2003 2002
#'000 #'000 #'000 #'000 #'000 #'000
Europe, Middle
East and Africa 36,722 59,227 9,259 (261,970) (55,967) 18,156
Americas 17,420 35,143 3,230 (66,340) 59,473 (21,191)
Asia Pacific 4,372 5,701 (238) (1,412) (7,485) (7,792)
Goodwill and
amortisation - - (17,181) (26,644) 34,095 50,851
Central and R&D - - (8,910) (10,250) 6,407 17,375
Exceptional charge - - (5,247) (24,498) - -
Profit on disposal - - 1,628 - - -
Loss on sale of
fixed assets - - (747) - - -
Amounts written
off investments - - (5,882) - - -
-------- -------- -------- -------- -------- --------
58,514 100,071 (24,088) (391,114) 36,523 57,399
======== ======== ======== ======== ======== ========
Due to the geographical spread of certain acquisitions and the centralisation of
certain functions, it is not possible to allocate the related central costs over
the geographical areas for the above years. Central net assets include other
investments and net funds.
3. EXCEPTIONAL ITEMS
2003 2002
#'000 #'000
Office closure costs 408 3,050
Tangible fixed assets impairment 3,065 4,616
Termination payments 1,274 5,804
Redundancy period costs - 9,255
Contractual settlements 500 1,773
---------- ----------
5,247 24,498
Goodwill impairment - 350,000
---------- ----------
5,247 374,498
========== ==========
Other exceptional items
Loss on sale of fixed assets 747 -
Amounts written off investments 5,882 -
========== ==========
2003
In the fourth quarter, the Directors reassessed the Group's infrastructure of
offices and systems in the light of current market conditions and future
prospects. As a consequence, further impairment charges have been made to
leasehold improvements and computer systems within tangible fixed assets.
Termination payments include #494,000, being the balance of the contractual
entitlement due to R Terry following his resignation as a director and amounts
paid to individuals who were made redundant in the fourth quarter of the year as
part of the reassessment noted above.
Contractual settlements represent the balance of funds committed to investments
whose carrying value has now been deemed to be impaired.
In addition to the above, other exceptional items are noted in the current year
as explained below:
Loss on sale of fixed assets - on 1 August 2003 the Group disposed of one of its
properties, which included an element of fixtures and fittings, at Whiteley for
consideration of #3.3m, giving rise to a loss on disposal of #747,000. The
proceeds were used to reduce the related mortgage loan.
Amounts written off investments - as part of their year end procedures, the
directors have reviewed the carrying value of the Group's investments and in
particular 'other investments'. Whilst they remain positive towards the long
term prospects of these, an impairment charge has been recorded to reflect their
concern as to their immediate prospects.
2002
As a response to market conditions, the Group reorganised itself extensively
during the year resulting in exceptional costs which included provisions for the
closure of a number of satellite UK and US offices and the write down of related
fixed assets and severance costs for employees. Redundancy period costs related
primarily to salary costs of those individuals made redundant for the
consultation period prior to their redundancy where, as a consequence, the Group
received no benefit in respect of the individuals' employment during that
period.
At 30 June 2002, the Group undertook a full impairment review of its
acquisitions since flotation in accordance with FRS 11, and their carrying
values were written down by #350 million.
4. PROFIT ON DISPOSAL OF CONTINUING OPERATIONS
2003
#'000
Net assets disposed of:
Tangible fixed assets 655
Debtors 194
Cash at bank and in hand 88
Creditors (368)
----------
569
Profit on disposal of continuing operations 1,638
----------
2,207
==========
Satisfied by:
Cash 2,207
==========
The disposal of the Group's French SBPO business was completed on 29 January
2003. The profit on disposal of #1,638,000 was determined including #nil
attributable goodwill. In addition to the above, an amount of Euro400,000 is
payable by the purchaser in July 2004 as deferred consideration. This amount has
been retained by the purchaser in respect of potential warranty claims and has
not been recognised as consideration by the Group.
5. TAX ON LOSS ON ORDINARY ACTIVITIES
There is a tax charge for the period of #687,000 (2002: #nil). This charge
primarily arises due to profits in overseas jurisdictions, most notably South
Africa, which cannot be offset by losses in other jurisdictions.
6. LOSS PER SHARE
2003 2002
p p
Diluted loss per share (7.67) (173.78)
Adjustments for share options and shares to be issued - -
----------------------
Basic loss per share (7.67) (173.78)
Adjustments for exceptional items and amortisation 8.46 176.24
----------------------
Adjusted earnings per share 0.79 2.46
======================
6. LOSS PER SHARE (continued)
Earnings per share is calculated as follows:
2003 2002
Adjusted*
Basic EPS
Average number of shares 323,760,481 225,104,606
Loss for the financial year (#'s) (24,851,000) (391,199,000)
==============================
Diluted EPS
Average number of shares 323,760,481 225,104,606
Loss for the financial year (#'s) (24,851,000) (391,199,000)
===============================
Adjusted earnings per share
Average number of shares 323,760,481 225,104,606
Loss for the financial year (#'s) (24,851,000) (391,199,000)
Add amortisation (#'s) 17,181,000 26,644,000
Add exceptional items (#'s) 5,247,000 374,498,000
Less profit on disposal of operations (1,638,000) -
Add loss on sale of fixed assets 747,000 -
Add amounts written off investments 5,882,000 -
Less tax credit arising on exceptional items (#'s) - (4,400,000)
-----------------------------
Adjusted earnings (#'s) 2,568,000 5,543,000
============================
* The 2002 average number of shares has been adjusted to reflect the shares
issued during the rights issue in March 2003.
References to adjusted profit and earnings per share reflect the Directors' view
that these are important measures for their own, and shareholders', assessment
of the Group's underlying performance. FRS 14 requires presentation of diluted
EPS when a company could be called upon to issue shares that would decrease net
profit or increase net loss per share. For a loss making company with
outstanding share options, net loss per share would only be increased by the
exercise of out-of-the-money options. Since it seems inappropriate to assume
that option holders would act irrationally, no adjustment has been made to
diluted EPS for out-of-the-money share options.
7. WORKING CAPITAL
Debtors as at 30 September 2003 comprise trade debtors of #8.5m (30 September
2002: #11.4m), accrued income of #0.5m (30 September 2002: #0.6m), prepayments,
deposits and other debtors of #2.0m (30 September 2002: #3.5m).
8. ADDITIONAL COPIES OF THE STATEMENT
Copies of this statement are available from The Innovation Group plc, Yarmouth
House, 1300 Parkway, Solent Business Park, Whiteley PO15 7AE.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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