Interim Results

Spice Holdings PLC 17 January 2005 MAIDEN INTERIM RESULTS 2004 Spice Holdings plc ('Spice' or the 'Group'), the provider of outsourced support services primarily to the UK electricity, telecoms and water sectors, is pleased to announce its interim results for the six months to 31 October 2004. Operational highlights June 2004 Launch of Freedom Technical Services July 2004 Acquisition of Ives Contract Services August 2004 Admission to AIM October 2004 Meter U contract extension agreed with Siemens for the East of England November 2004 Acquisition of Atlantic Utility Services Financial Highlights * EBITA was £2.5 million - 50.3% increase * Profit before tax was £1.8 million - 99.6% increase * Basic earnings per share of 4.6 pence - increase of 92% * Interim dividend of 0.5 pence per share Simon Rigby, Chief Executive of Spice, said: 'This has been a strong six months for the Group. Our focus on improving net margins and profitability has continued to reap considerable gains.' For further information, please contact: Spice Holdings plc Today only: 01756 770 376 Simon Rigby, Chief Executive Officer Thereafter: 0113 384 3838 Carl Chambers, Chief Financial Officer Rawlings Financial PR Limited Tel: 01756 770 376 Catriona Valentine CHIEF EXECUTIVE OFFICER'S STATEMENT INTRODUCTION I am delighted to present our first set of interim results following the Group's flotation on the Alternative Investment Market (AIM) on 26 August 2004. Our admission to AIM has closed the first chapter in the development of Spice - a journey started eight years ago by 75 staff with a single contract for £3.0 million and which has seen the business develop and grow such that Spice is now responsible for the employment of approximately 1,750 people, turning over £82.6 million and making operating profits of £3.6 million. This has been achieved by having a focused and dedicated workforce supplemented by talented advisers. I would like to take this opportunity to thank all my colleagues and our advisers for their contribution to our success. This report now marks the start of the second chapter of our journey. TRADING AND PROSPECTS Spice operates via three trading divisions, focused on 'regulated' sectors. Looking at each in turn: Electricity Services Group Spice's strategy within the Electricity Services business is to migrate to the performance of more highly skilled and technical work within the utilities sector. The Regulatory Review of the electricity sector, which takes effect in April 2005, will create significant opportunities on capital works and infrastructure development. The electricity industry expects an increase in expenditure of £1 billion over the next five years in developing the electricity distribution networks and infrastructure. Electricity Services is now well positioned to benefit from these anticipated expenditure programmes. Freedom Technical Services was launched during the period in order to fill a gap in Freedom's service offering and is aimed at infrastructure works where investment is planned over the next five year period. Technical Services provides project management, installation and commissioning services in respect of specialist electrical engineering projects up to and including 132KV. From a standing start in June 2004, Technical Services has achieved sales to utility clients and the order book for the business is already taking shape for the second half of this financial year and, indeed, into the next financial year. At the same time, Electricity Services has continued to pursue traditional maintenance business alongside the new technical projects. Our strategy of organic growth through the development of partnerships with our key utility client base has delivered profits before tax of £1.2 million for the six months ended 31 October 2004, a 13.9% improvement on the comparative six month period. The Electricity Services Group now has a range of products and services which extend from our original maintenance areas to a full turnkey offering on substation design, installation and commissioning. Electricity Services is, therefore, poised to benefit from new investment arising from the Regulatory Review whilst offering a competitive and tested maintenance solution. Furthermore, the Group's innovative and unique franchise solution - The Freedom Model - will have a continuing role to play in assisting the electricity distribution companies in finding low cost labour solutions. Water Services Group I am pleased to report that Water Services has delivered profits before tax of £1.5 million for the six months ended 31 October 2004. This represents a 151% increase against the comparative six month period. This growth in profits has arisen principally in our main business activity - H2O Water Services (H2O) which is a water meter installation and small works operation. During the period to November 2003, we conducted a major rationalisation of H2O's cost base and reassessment of revenue streams and performance measures, following its acquisition in April 2003. This included the introduction of a new performance/productivity scheme across H2O's operations. The benefits of this review have begun to be realised within the current financial period and also in our relationships with our two key UK customers, United Utilities and Yorkshire Water, which grow from strength to strength as illustrated by recent contract extensions. The acquisition of Atlantic Utility Services (renamed Atlantic Water Services) in November 2004 will complement H2O and allow synergy benefits and economy savings to be realised. There has been continued organic growth within Spice's meter reading business, Meter U, which is now carrying out around one million meter readings per month. During October 2004, and following the success of Meter U in reading meters in the East Midlands area, Meter U was appointed to provide meter reading services to Siemens in the East of England. Meter U was also invited to conduct a pilot gas meter reading scheme in North London. This appointment now gives Spice a meter reading presence across all utility sectors - gas, electricity and water. Meter U is continuing to pursue opportunities with its strategic partners on a national and international basis in both electricity and gas meter readings and is seeking to diversify into meter operations. Metro Rod, which provides drain and environmental management services, has continued to develop key accounts and planned maintenance works as we consolidate our position as a major operator within the commercial and industrial dirty water sectors. Telecoms Services Group During the period, the Telecoms Services Group continued to develop its strategy for building its recurring revenue business lines in each of our three trading divisions. This has seen Team Simoco secure several new first line maintenance contracts and AirRadio continues to grow its non British Airways subscriber base. Team Telecom also secured an important renewal of a utilities maintenance contract during this period. Whilst we have seen pressure on turnover during the six month period ended 31 October 2004, I am pleased to report that profit before tax for Telecoms Services was £1.0 million, an increase of 11.3% compared to the comparative six month period. During the next six months, Team Simoco plans to roll out a number of new products to its UK and international distributors and will support this activity with a Partner Programme commencing in January 2005. AirRadio has identified the potential for selling cellular services to its current subscriber base and has already trialled the concept by converting the Spice Group to its services. Team Telecom continues to operate in a difficult climate but is engaged in expanding its utilities customer base. ACQUISITIONS Two small acquisitions have been made, one in Electricity Services and one in Water Services. In July 2004, we acquired the business and assets of Ives Contract Services Limited for cash consideration of £0.6 million. This is a grounds maintenance business which complemented our existing maintenance business and brought with it contracts which expanded our utility client base in this activity. Subsequent to the period under review in November 2004, we acquired the business and assets of Atlantic Utility Services Limited for cash consideration of £0.6 million. This was H2O Water Services' closest competitor in the installation of water meters and its acquisition has significantly strengthened our position in the sector. FINANCIAL REVIEW This has been a strong six months for the Group. Our focus on improving net margins and profitability has continued to reap considerable gains. Turnover Turnover at £41.3 million is up 3% on the comparative six month period (2003: £40.1 million) with growth particularly strong in Water Services. Profit on ordinary activities before interest, tax and amortisation of intangible fixed assets Profit on ordinary activities before interest, tax and amortisation of intangible fixed assets increased by 50.3% to £2.5 million. Overall operating margins before amortisation of intangible fixed assets were 6.0% compared with 4.1% for the comparative six month period. Margins were improved across all divisions within the Group - Electricity Services operating margins were 6.8% against 5.9% last year, Water Services 9.2% against 5.2% and Telecoms Services 18.1% against 11.6%. Interest Interest at £0.4 million was at the same level as last year, the benefits of the flotation proceeds not being felt until the last six weeks of the period under review. However, the strong growth in profitability means that interest cover was 5.8 times compared with 4.0 times last year. Profit on ordinary activities before tax Profit on ordinary activities before tax has nearly doubled to £1.8 million (2003: £0.9 million). Earnings per share Basic earnings per share at 4.6 pence (2003: 2.4 pence) increased by 92% and adjusted basic earnings per share at 5.5 pence (2003: 3.7 pence) by 48% Dividend The Board has approved an interim dividend of 0.5 pence per share payable on 15 February 2005. The dividend is covered nine times by earnings. Balance Sheet Net assets have increased to £15.1 million (2003: 2.0 million), reflecting the impact of the proceeds of flotation (£11.3 million). Net current assets are £1.4 million against net current liabilities as at 1 November 2003 of £5.1 million. Net debt is £7.0 million (2003: £17.4 million). We are delighted with our performance to date and trading continues to be in line with our expectations. W S Rigby Chief Executive Officer 17 January 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the six months ended 31 October 2004 Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- Turnover (Notes 2, 6) Continuing operations 41,318 38,265 80,466 Discontinued operations - 1,869 2,153 --------- --------- -------- 41,318 40,134 82,619 Cost of sales (29,113) (28,063) (57,350) --------- --------- -------- Gross profit 12,205 12,071 25,269 Administrative expenses (9,975) (10,401) (21,708) --------- --------- -------- Operating profit Continuing operations 2,230 1,372 3,263 Discontinued operations - 298 298 --------- --------- -------- Operating profit 2,230 1,670 3,561 Loss arising on disposal of subsidiary undertakings - (260) (290) Loss arising on disposal of associated undertaking - (68) (68) Loss arising on disposal of land and buildings - - (20) Net interest payable (384) (417) (784) --------- --------- -------- Profit on ordinary activities before tax 1,846 925 2,399 Tax on profit on ordinary activities (Note 3) (554) (333) (875) --------- --------- -------- Profit on ordinary activities after tax 1,292 592 1,524 Equity minority interests (5) - (19) --------- --------- -------- Profit for the period 1,287 592 1,505 Dividends (Note 4) (177) - - --------- --------- -------- Retained profit for the period 1,110 592 1,505 --------- --------- -------- Earnings per share (pence per share) (Note 5) Basic 4.6 2.4 6.2 Diluted 4.4 2.4 6.1 Adjusted earnings per share (pence per share) (Note 5) Basic 5.5 3.7 8.1 Diluted 5.3 3.7 7.9 CONSOLIDATED BALANCE SHEET as at 31 October 2004 Unaudited Unaudited Audited 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 as restated --------- --------- -------- Fixed assets Development expenditure 576 483 561 Purchased goodwill 6,329 6,400 6,059 Negative goodwill (394) (516) (394) --------- --------- -------- Intangible fixed assets 6,511 6,367 6,226 Tangible fixed assets 12,013 12,531 12,505 Investments 212 212 212 --------- --------- -------- 18,736 19,110 18,943 --------- --------- -------- Current assets Stock 2,131 3,011 2,364 Debtors 15,043 14,541 14,338 Cash at bank and in hand - - 127 --------- --------- -------- 17,174 17,552 16,829 Creditors: Amounts falling due within one year (15,803) (22,678) (22,568) --------- --------- -------- Net current assets/(liabilities) 1,371 (5,126) (5,739) --------- --------- -------- Total assets less current liabilities 20,107 13,984 13,204 Creditors: Amounts falling due after more than one year (3,154) (9,282) (8,519) Provisions for liabilities and charges (1,882) (2,717) (2,403) --------- --------- -------- Net assets 15,071 1,985 2,282 --------- --------- -------- Capital and reserves Called up share capital 4,213 3,100 3,100 Share premium account 13,116 2,950 2,950 Revaluation reserve 1,724 1,791 1,724 Capital redemption reserve 100 100 100 Profit and loss account (4,082) (5,956) (5,651) --------- --------- -------- Equity shareholders' funds (Note 7) 15,071 1,985 2,223 Equity minority interest - - 59 --------- --------- -------- Capital employed 15,071 1,985 2,282 --------- --------- -------- CONSOLIDATED CASH FLOW STATEMENT for the six months ended 31 October 2004 Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- Net cash (outflow)/inflow from operating activities(Note 8a) (214) (2,012) 1,114 Returns on investments and servicing of finance Net interest paid (378) (405) (761) Interest element of finance lease payments (6) (11) (23) --------- --------- -------- (384) (416) (784) --------- --------- -------- Taxation (880) - (535) Capital expenditure Purchase of tangible owned fixed assets (572) (1,084) (1,946) Development expenditure (103) (192) (314) Sale of tangible fixed assets 373 250 397 --------- --------- -------- (302) (1,026) (1,863) --------- --------- -------- Acquisitions and disposals Purchase of trade and assets - net consideration paid (566) (5,009) (5,009) Disposal of subsidiary undertakings - (2,161) (1,892) Net cash disposed of with subsidiary undertakings - 515 515 --------- --------- -------- (566) (6,655) (6,386) --------- --------- -------- Equity dividends paid - (142) (142) --------- --------- -------- Net cash outflow before financing (2,346) (10,251) (8,596) --------- --------- -------- Financing Principal repayment due under finance leases (65) (18) (38) Purchase of investments - own shares - (11) (759) Sale of investments - own shares 459 184 257 Net proceeds from issue of shares 11,279 - - Bank loan repayments (9,820) (618) (1,640) Bank loan advances 1,750 6,595 6,595 --------- --------- -------- 3,603 6,132 4,415 --------- --------- -------- Increase/(decrease) in cash (Note 8c) 1,257 (4,119) (4,181) --------- --------- -------- NOTES TO THE INTERIM REPORT for the six months ended 31 October 2004 1. Basis of accounting The interim financial statements have been prepared using the same accounting policies as were used in the Group's statutory financial statements for the year ended 30 April 2004 except for the adoption of UITF 38, Accounting for ESOP Trusts, on 1 May 2004. Comparative numbers have been restated to reflect the impact of the adoption of UITF 38 where appropriate. The adoption of UITF 38 has had no effect on the consolidated profit and loss account for any of the periods reported but has resulted in a reduction in shareholders' funds of £6,685,000 at 31 October 2004, £7,144,000 at 30 April 2004 and £6,469,000 at 2 November 2003. The interim financial statements are unaudited. The interim financial statements for the six months ended 31 October 2004 and for the six months ended 2 November 2003 contained within the interim report do not constitute statutory financial statements. The figures for the year ended 30 April 2004 have been extracted from the financial statements for 2004. These financial statements received an unqualified auditors' report and have been delivered to the Registrar of Companies. 2. Turnover Turnover, which excludes value added tax, arises from several activities. Turnover is recognised in the profit and loss account at the point that a service is provided or products supplied for each of the following activities: * facilities management and maintenance services; * private mobile radio products; * drain care, maintenance, repair and cleaning services; * services for the development and support of telecommunications networks; * employment agency services; * property maintenance; and * information technology installation, commissioning and maintenance activities. 3. Taxation The taxation charge on the profit on ordinary activities has been based upon the estimated effective tax rate of 30% for the current year. 4. Dividends It is proposed that an interim dividend for the period ended 31 October 2004 of 0.5 pence per share (2003: nil) amounting to £177,000 (2003: nil) will be paid on 15 February 2005 to those shareholders on the register at 28 January 2005. Dividends amounting to £34,000 (2003: nil) have been waived by the ESOP trust and deducted in arriving at the aggregate dividend to be paid. 5. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during each period. The weighted average number of shares, after adjusting for shares held by the ESOP, in issue during the period used in the calculation of basic earnings per share was as follows: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 '000 '000 '000 --------- --------- -------- Weighted average shares for basic earnings per share 28,253 24,432 24,365 --------- --------- -------- Diluted earnings per share is the basic earnings per share adjusted for the effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the year. The weighted average number of shares in issue during the period used in the calculation of diluted earnings per share was as follows: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 '000 '000 '000 --------- --------- -------- Weighted average shares for diluted earnings per share 29,554 24,766 24,869 --------- --------- -------- Adjusted earnings per share have been calculated so as to exclude the effect of the amortisation of all intangible fixed assets and non operating exceptional costs. Adjusted earnings per shares have been presented in order that the effects on reported earnings of the amortisation of intangible fixed assets and non operating exceptional costs can be fully appreciated. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- Basic earnings 1,287 592 1,505 Non operating exceptional costs - 328 378 Amortisation of intangible fixed assets 265 (10) 86 --------- --------- -------- Adjusted earnings 1,552 910 1,969 --------- --------- -------- 6. Segmental analysis The turnover for the period was derived from the Group's principal activities and is attributable to the following markets: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- By destination UK 40,037 36,443 76,680 Continental Europe 700 883 1,627 Rest of the World 581 2,808 4,312 --------- --------- -------- 41,318 40,134 82,619 --------- --------- -------- Turnover for the period is derived from the Group's principal activities as follows: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- Electricity Services 17,860 17,712 36,851 Telecoms Services 6,855 7,551 16,264 Water Services 16,500 12,303 26,580 Head Office 103 699 771 Discontinued operations - 1,869 2,153 --------- --------- -------- 41,318 40,134 82,619 --------- --------- -------- The Group's profit before tax was derived from the Group's principal activities as follows: Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 as restated --------- --------- -------- Electricity Services 1,161 1,019 2,499 Telecoms Services 1,043 937 2,791 Water Services 1,496 595 1,257 Head office (1,470) (1,179) (3,284) Discontinued operations - 298 298 --------- --------- -------- 2,230 1,670 3,561 Non operating exceptional costs - (328) (378) Net interest payable (384) (417) (784) --------- --------- -------- 1,846 925 2,399 --------- --------- -------- The Group's profit before tax by principal activity for the year ended 30 April 2004 has been restated such that the basis of presentation is consistent with that presented for the periods ended 31 October 2004 and 2 November 2003. Certain central costs that were previously allocated, during the year ended 30 April 2004, to Electricity Services, Telecoms Services and Water Services are now recorded within Head office costs. 7. Reconciliation of movement in equity shareholders' funds Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 as restated --------- --------- -------- Profit for the period 1,287 592 1,505 Dividends (177) - - --------- --------- -------- Retained profit for the period 1,110 592 1,505 Proceeds from sale of own shares 458 184 257 Payments to acquire own shares - (11) (759) Issue of shares 12,636 - - Cost of share issue (1,356) - - --------- --------- -------- Net addition to equity shareholders' funds 12,848 765 1,003 Opening equity shareholders' funds 2,223 1,220 1,220 --------- --------- -------- Closing equity shareholders' funds 15,071 1,985 2,223 --------- --------- -------- Opening equity shareholders' funds were originally stated as £9,367,000 at 1 May 2004 prior to the adoption of UITF 38, as described in Note 1. 8. Notes to the cash flow statement 8a. Reconciliation of operating profit to net cash (outflow)/inflow Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 --------- --------- -------- Operating profit 2,230 1,670 3,561 Depreciation of tangible fixed assets 865 641 1,369 Amortisation of negative goodwill - (168) (290) Amortisation of intangible fixed assets 265 158 376 Decrease in stocks 233 408 1,042 (Increase)/decrease in debtors (705) 331 266 Decrease in creditors (3,102) (5,052) (5,210) --------- --------- -------- Net cash (outflow)/inflow from operating activities (214) (2,012) 1,114 --------- --------- -------- 8b. Analysis of net debt Audited Unaudited at Unaudited at 1 May Unaudited non cash 31 October 2004 cash flows movements 2004 £'000 £'000 £'000 £'000 --------- --------- --------- --------- Cash at bank and in hand 127 (127) - - Bank overdraft (4,637) 1,384 - (3,253) --------- --------- --------- --------- Increase/(decrease) in cash during the period (4,510) 1,257 - (3,253) Bank loans due within one year (3,263) 2,735 - (528) Bank loans due after one year (8,471) 5,335 - (3,136) Finance leases due within one year (112) 30 (31) (113) Finance leases due after one (48) 35 (5) (18) year --------- --------- --------- --------- Net debt (16,404) 9,393 (36) (7,048) --------- --------- --------- --------- 8c. Reconciliation of net cash (outflow)/inflow to movement in net debt Unaudited Unaudited Audited 6 months to 6 months to Year ended 31 October 2 November 30 April 2004 2003 2004 £'000 £'000 £'000 as restated --------- --------- -------- Increase/(decrease) in cash in the year 1,257 (4,119) (4,181) Net cash disposed of with subsidiary undertakings - (515) (515) Cash inflow from increase in debt and lease financing (3,603) (6,132) (4,415) --------- --------- -------- Change in net debt resulting from cash flows (2,346) (10,766) (9,111) Net proceeds received from share issue 11,279 - - Sale/(purchase) of investments - own shares 459 173 (502) New and acquired finance leases (36) - - Net debt at 1 May (16,404) (6,791) (6,791) --------- --------- -------- Net debt at 30 April (7,048) (17,384) (16,404) --------- --------- -------- 9. Availability of Interim Report The Interim Report will be sent to all shareholders on 17 January 2005. Copies may be obtained from the Company Secretary at the Registered Office of the Company at PO Box 111, Bradford Road, Morley, Leeds, LS27 0YE for a period of one month from today's date. This information is provided by RNS The company news service from the London Stock Exchange

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