Interim Results

Mavinwood PLC 12 September 2007 Mavinwood Plc ('Mavinwood' or 'the Company') Interim results for the six months ended 30th June 2007 - Another half year of good progress and strong growth. - Profit before tax up 72% to Â£2.54m (2006: Â£1.48m). - Underlying fully diluted earnings per share up 31%. - Integration delivering results. - Successfully completed acquisition of Document Control Services Limited. - Board strengthened. - Clear strategy for growth. Financial highlights 2007 2006 Revenue Â£32.4m Â£16.3m Earnings before interest, tax, amortisation of intangible assets and share based payments charge (EBITA) Â£4.4m Â£2.4m Operating profit Â£3.4m Â£2.0m Profit before tax Â£2.5m Â£1.5m Basic earnings per share 0.39p 0.31p Underlying profit before tax* Â£3.5m Â£1.9m Underlying fully diluted earnings per share* 0.46p 0.35p +31% * before amortisation of intangible assets, share based payments charge and notional interest on contingent consideration Kevin Mahoney, Chief Executive, commented; 'This has been a very good six months with excellent organic growth in our two divisions. Both the Emergency Repair and Document Handling markets continue to provide significant opportunities for future organic growth. The acquisition of Document Control Services in March extends our service offering in Document Handling and they are already trading in line with our expectations. Our net debt of Â£24.6m gives us plenty of capacity to make bolt on acquisitions in our core markets if appropriate opportunities arise. The second half of 2007 has started in line with expectations and we are confident that we can continue to grow organically and with bolt on acquisitions that increase our range of services and geographic spread.' Enquiries: Mavinwood plc Kevin Mahoney, Chief Executive 020 7661 9650 Mike Vincent, Finance Director 020 7661 9651 Collins Stewart Adrian Hadden 020 7523 8353 Threadneedle PR John Coles 020 7936 9604 CHIEF EXECUTIVE'S REVIEW RESULTS Revenue in the six months ended 30 June 2007 was Â£32.4 million (2006: Â£16.3 million), with profit before tax of Â£2.5 million (2006: Â£1.5 million) and basic earnings per ordinary share of 0.39p (2006: 0.31p). We think, however, that it is more relevant to consider Mavinwood's performance before share based payments charge, amortisation of intangible assets and notional interest on contingent consideration. On this basis, EBITA was Â£4.4 million (2006: Â£2.4 million), profit before tax was Â£3.5 million (2006: Â£1.9 million), and earnings per share were 0.46p (2006: 0.35p), an increase of some 31%. Of the increase in EBITA of Â£2.0 million, Â£1.2 million was generated by the acquisitions of Independent Inspections and Mono Services in 2006 and DCS in 2007. The Mavinwood Group comprises two divisions, Emergency Repair and Document Handling. EMERGENCY REPAIR Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Â£'000 Â£'000 Â£'000 Revenue ANSA * 14,579 12,633 25,884 Independent Inspections ** 12,494 - 8,631 and Mono Services --------- --------- --------- Total 27,073 12,633 34,515 ========= ========= ========= EBITA*** ANSA * 2,634 1,750 3,843 Independent Inspections ** 862 - 944 and Mono Services --------- --------- --------- Total 3,496 1,750 4,787 ========= ========= ========= ========= ========= ========= * ANSA throughout 2007 and 2006 ** Independent Inspections and Mono Services 6 months in 2007, 51/2 months and 4 months respectively in 2006 *** Excluding share based payments charges The significant increases in revenue and profits in this division are principally because both Independent Instructions and Mono Services were acquired in the second half of 2006 and also because ANSA lifted its profits significantly. This division includes three businesses that serve principally the insured repair sector. Approximately 90% of sales are to the leading insurance companies and we also service a range of housing associations and commercial companies. All three businesses share a common business process that is: â€¢Take the emergency call from the customer via the insurer â€¢Arrange a survey to validate or repudiate the claim and cost out the repair â€¢Undertake the repair either by directly employed labour or sub contractors ANSA specialises in drainage surveys and repair; Independent Inspections specialises in flooring surveys and restoration and Mono Services in building fabric surveys and repairs both often due to water damage. ANSA and Independent Inspections are national businesses and Mono Services is currently a regional business in the North West. There is some customer overlap between the businesses but one of our opportunities moving forward is to offer all our services to a wider range of customers. All these businesses operate to high service standards. Examples of key performance indicators that are monitored on a continuous basis are: â€¢Response times in terms of contacting a policyholder after they report an insured event â€¢Courtesy of staff and customer satisfaction â€¢Average cost per claim There are integration benefits to flow between the businesses that began in late 2006. A range of integration projects are underway including: â€¢Assessing and optimising IT platforms â€¢Purchasing initiatives â€¢Extending Mono's reach across the country â€¢Optimising back office functions â€¢Reviewing marketing opportunities and widening the service offering As well as good organic growth within the division, we continue to look for bolt on acquisitions that would further enhance our offering. Turning to the highlights within each operation: ANSA ANSA performed well in claims validation and service delivery, and the volume of instructions grew satisfactorily comparing the first six months of 2007 with the first half of 2006. Revenue increased by 15% to Â£14.6 million, with a 51% increase in operating profit to Â£2.6 million. The associated uplift in operating margin reflects the success of a series of initiatives to improve productivity, efficiency and service delivery. The business tends to produce higher volumes in the second half of the year. ANSA has extended its drainage services to a wider range of customers in the commercial sector and we saw good volumes of new work coming through in 2007. We also benefited from increased volumes from one leading insurer that, in October last year, awarded ANSA 100% of volumes (up from 50%). This arrangement will run for three years. In February 2007, ANSA acquired ESG Limited, a small drainage contractor for Â£0.2m. This acquisition has helped to increase the proportion of repair work that is being carried out by direct labour as opposed to sub contractors. Operating profit at ANSA has increased due to volume growth, cost reductions and productivity gains. Customers have benefited from strong performance in claims validation, service delivery and cost control. ANSA moved offices in August to modern premises alongside Mono Services that will promote closer working between the two businesses. ANSA also owned a small business offering Health and Safety training. Revenue in the first six months of 2007 was Â£617,000. The trade and assets of this operation were sold to the Training management team on 29 June at net book value of Â£550,000. INDEPENDENT INSPECTIONS Independent Inspections' volume of instructions continued at the low levels of the last quarter of 2006 and were running approximately 6% below the first quarter of 2006 in 2007. Action was taken to reduce the cost base during April at a total cost of Â£140,000. The benefit from this action and the re-engineering of Independent Inspections' business processes began to come through in June. Also in June, the volumes began to increase again and have remained at relatively high levels in July and August, reflecting in part the flooding in Yorkshire in June and in central England in July. MONO SERVICES Mono Services sales have increased by approximately one third compared to the first half of 2006 due to winning new business, helped by the storm damage over the winter. Some of Mono Services business has been re-directed via a Norwich Union joint venture partner that has caused some disruption to our operations. This resulted in transition and set up costs that dampened margins in the first half. DOCUMENT HANDLING Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Â£'000 Â£'000 Â£'000 Revenue Restore and Wansdyke * 4,407 3,654 7,938 DCS ** 924 - - --------- --------- --------- Total 5,331 3,654 7,938 ========= ========= ========= EBITA*** Restore and Wansdyke * 1,338 1,072 2,418 DCS ** 292 - - --------- --------- --------- Total 1,630 1,072 2,418 ========= ========= ========= * Wansdyke 6 months in 2007, Wansdyke 11 months in 2006, Restore throughout 2007 and 2006 ** DCS 3 months in 2007 *** Excluding share based payments charges Document handling serves a wide range of customers, including law firms, corporates of varying sizes, financial services companies, councils and health trusts. Our customers are mostly based in London and the South across to Bristol and South Wales. The majority of sales are the storage and retrieval of archive boxes but also individual files and other material such as magnetic media and film. Scanning of documents on a selective basis is also offered to clients. Shredding /pulping of documents at the end of their useful lives is currently outsourced, although this would form a logical product extension. We continue to integrate Restore and Wansdyke. Approximately Â£0.1m of integration costs have been charged against Wansdyke's profits in 2007. The Restore operating system of bar coding is being applied at Wansdyke and the back office functions are increasingly being integrated. Total employees at Wansdyke have dropped from 75 at February 2006 to 63 at 30 June 2007 by natural wastage as systems have become more automated. We operate a combination of freehold and leasehold sites at Wansdyke and Restore respectively. Due to the absence of rental charges, the return on sales at Wansdyke is higher than that at Restore. The market for the physical storage of archives continues to grow well in excess of GDP, with especially strong growth in sectors such as professional services. Overall volume growth in Restore and Wansdyke compared to the first half of 2006 was 11% and the return on sales is 30%. We are filling up our underground storage facilities near Bath and in the first half acquired an adjoining underground space of 16 acres for Â£0.5m. Once fitted out this space will provide medium term expansion for the business. DOCUMENT CONTROL SERVICES (DCS) We acquired DCS on 26 March 2007. DCS is a quality national operation scanning and indexing documents with high intellectual property content. The business has a blue chip customer base including Network Rail, Highways Agency, oil and gas companies, city councils and property companies. The market is growing at around 7% per annum. DCS made its maiden contribution in the second quarter in line with expectations. CENTRAL COSTS Central costs have increased from Â£439,000 to Â£724,000 as we now operate two much larger divisions compared to the first half of 2006. INTEREST Net interest payable amounted to Â£884,000 (2006: Â£525,000) as we borrowed to fund the acquisitions of Mono Services and DCS. Included within the net interest charge is a net credit of Â£58,000 representing the notional interest on contingent consideration due on the acquisitions of Independent Inspections, Mono Services and DCS. The adjustment to the contingent consideration of Â£4m in respect of Independent Inspections, following the slow start to 2007 and the reversal of the interest charged in 2006, gives rise to the net credit. The discount rate applied in this calculation was 7.9%. PROFIT BEFORE TAX The profit before tax for the period ended 30 June 2007 was Â£2,545,000 (2006: Â£1,482,000). However, the Directors believe that an adjusted measure of profit before tax and earnings per share provides shareholders with a more appropriate representation of the underlying earnings derived from the Group's business. The items adjusted for in arriving at that underlying level are as follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Â£'000 Â£'000 Â£'000 Profit before tax 2,545 1,482 3,751 Share based payments charge 911 376 1,039 Amortisation of intangible assets 62 - 10 Notional interest on contingent consideration (58) - 158 --------- --------- --------- Adjusted profit before tax 3,460 1,858 4,958 ========= ========= ========= TAX Due to the distortions caused by the non-deductibility of the notional interest on the contingent consideration and amortisation of intangible assets, the reported tax charge is 30.6% (2006: 30.0%). However, the underlying tax rate during 2007 was 30.4%, as a percentage of adjusted profit before taxation (2006: 30.4%). EARNINGS PER SHARE (EPS) Six months Six months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Earnings per share (pence) Basic 0.39p 0.31p 0.66p Diluted 0.33p 0.28p 0.59p Adjusted earnings per share (pence) Basic 0.53p 0.39p 0.89p Diluted 0.46p 0.35p 0.80p Basic EPS is 0.39p, which compares with 0.31p in 2006. Basic EPS adjusted as above was 0.53p (2006: 0.39p). Assuming the exercise of all options and awards under the LTIP plus the conversion of the convertible A shares at an average price in 2007 of 17.61p (2006: 13.63p), the fully diluted adjusted EPS becomes 0.46p (2006: 0.35p) an increase of 31%. DIVIDENDS Mavinwood intends to re-invest profits in the business and the Board do not recommend declaring an interim dividend (2006: Nil). SHARE ISSUES New equity was issued on just one occasion in the first six months of 2007. 5.4 million shares were allotted at 18.5p per share on 26 March 2007 as part consideration for the acquisition of DCS. ACQUISITIONS DCS was acquired for an initial sum of Â£1.3 million, including Â£1 million in Mavinwood shares. In addition, debt of Â£4.8 million was repaid. Contingent consideration of up to Â£2 million is also payable in cash linked to the growth in EBITA above Â£0.93 million for the year ending 30 June 2008. The full Â£2m is payable assuming EBITA reaches Â£1.23 million. External Services Group Limited (ESG), a drainage sub contractor to ANSA, was acquired on 2 February 2007 for cash of Â£206,000 and assumed debt of Â£63,000. BALANCE SHEET Net assets increased to Â£47,904,000 in the half year reflecting the profit for the period of Â£1,767,000 plus the share issues to part fund the acquisition of DCS. Goodwill and intangibles on the six acquisitions, at 30 June 2007 was Â£64,192,000 (2006: Â£37,100,000). Due to Independent Inspections' slow start in the first half of 2007, the Directors consider it unlikely that the business will make the hurdles to trigger earn out payments to the vendor in respect of 2007 and 2008 so these amounts of Â£4m have been written back to opening goodwill. Tangible fixed assets totalled Â£11,303,000 (2006: Â£10,211,000) principally comprising the freehold underground storage facilities at Wansdyke, but also computer systems, storage racking and vehicles. Operating working capital (excluding cash) amounted to a net Â£6,735,000 at 30 June 2007. Net debt at 30 June 2007 totalled Â£24,570,000 (2006: Â£15,140,000) after deferred financing costs of Â£332,000 (2006: Â£243,000). Interest cover in the half year was 4.7 times. CASH FLOW The net cash inflow from operating activities before capital expenditure was Â£1,111,000 (2006: Â£2,264,000). This inflow is after taking account of an outflow of Â£3,758,000 on working capital. We expect an outflow as the business expands but the excess outflow was due to a build up of work in progress in June as we worked on flood damage exacerbated by slow payments from the insurers as they diverted resources into dealing with the floods. Working capital also increased by approximately Â£1m due to the redirection of the Norwich Union work via a joint venture management company. Capital expenditure totalled Â£1,135,000 (2006: Â£346,000) compared to depreciation of Â£467,000 (2006: Â£416,000). Other than the capital investment in further underground storage at Wansdyke, mentioned earlier, other capital expenditure is broadly in line with depreciation. Significant other expenditures comprised the fitting out of empty space in the underground storage areas at Wansdyke and installing new racking at both Restore and Wansdyke. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) We have adopted IFRS with effect from 1 January 2006. Comparative figures for the six months ended 30 June 2006 and for the year ended 31 December 2006 have been restated. The principal differences related to the write back of goodwill amortisation in 2006 and providing full deferred taxation on the property at Wansdyke and other intangibles. BOARD On 13 June 2007, Bob Guthrie was appointed to the Board as a non-executive director and Steve Watkins, a non-executive director, became an executive director in charge of the Emergency Repair business. OUTLOOK The Group ended the half year with two well-established divisions and a market capitalisation currently in excess of Â£90 million. Integration benefits are coming through in the two divisions as well as good underlying organic growth. The emergency repair and document handling industries continue to grow strongly and our businesses are trading in line with expectations. We still plan to add further complementary businesses to these operations on a selective basis and given the cash generative qualities of the business, there is scope to acquire further businesses for cash. Kevin Mahoney Chief Executive Officer 12 September 2007 Condensed Consolidated Interim Income Statement for the six months ended 30 June 2007 Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 Â£'000 Â£'000 Â£'000 Continuing operations Revenue 32,404 16,287 42,453 Cost of sales (20,412) (10,432) (26,200) ----------- ----------- ------------ Gross profit 11,992 5,855 16,253 Administrative expenses (8,563) (3,848) (11,066) ----------- ----------- ------------ Operating profit 3,429 2,007 5,187 Investment income 40 9 82 Finance costs (924) (534) (1,518) ----------- ----------- ------------ Profit before tax 2,545 1,482 3,751 Income tax expense (778) (444) (1,195) ----------- ----------- ------------ Profit for the period 1,767 1,038 2,556 =========== =========== ============ Attributable to: Equity shareholders 1,767 1,038 2,556 Earnings per share (pence) Basic 0.39p 0.31p 0.66p Diluted 0.33p 0.28p 0.59p Consolidated Statement of Changes in Shareholders' Equity for the six months ended 30 June 2007 Share capital Share premium Share based Retained Restated payments earnings total reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 January 2007 (as restated) 503 40,060 1,102 2,572 44,237 Acquisition of DCS (note 6) 4 996 - - 1,000 Current period charge - - 900 - 900 Profit for the period - - - 1,767 1,767 ------- -------- -------- -------- -------- Balance at 30 June 2007 507 41,056 2,002 4,339 47,904 ======= ======== ======== ======== ======== Condensed Consolidated Interim Balance Sheet at 30 June 2007 Restated Unaudited Unaudited Restated 30 June 2007 30 June 2006 31 December 2006 Â£'000 Â£'000 Â£'000 Assets Non-current assets Goodwill 52,232 34,017 49,753 Intangible assets 11,960 3,083 9,070 Property, plant and equipment 11,303 10,211 10,826 Investments 550 - - ----------- ----------- ----------- 76,045 47,311 69,649 ----------- ----------- ----------- Current assets Inventories 323 170 311 Trade and other receivables 18,499 6,894 13,369 Cash and cash equivalents 908 1,695 1,850 ----------- ----------- ----------- 19,730 8,759 15,530 ----------- ----------- ----------- ----------- ----------- ----------- Total assets 95,775 56,070 85,179 =========== =========== =========== Liabilities Current liabilities Trade and other payables (12,087) (5,018) (11,114) Current tax liabilities (3,025) (2,248) (1,969) Obligations under finance leases (116) (178) (109) Bank overdrafts and loans (3,444) (3,000) (3,600) ----------- ----------- ----------- (18,672) (10,444) (16,792) ----------- ----------- ----------- Net current assets/(liabilities) 1,058 (1,685) (1,262) ----------- ----------- ----------- Non-current liabilities Bank loans (21,918) (13,657) (15,790) Deferred tax (4,478) (2,537) (3,977) Provisions (2,803) - (4,383) ----------- ----------- ----------- (29,199) (16,194) (24,150) ----------- ----------- ----------- ----------- ----------- ----------- Net assets 47,904 29,432 44,237 =========== =========== =========== Shareholders equity Called up share capital 507 393 503 Share premium account 41,056 27,524 40,060 Share based payments reserve 2,002 461 1,102 Retained earnings 4,339 1,054 2,572 ----------- ----------- ----------- Total shareholders equity 47,904 29,432 44,237 =========== =========== =========== Condensed Consolidated Interim Statement of Cash Flows for the six months ended 30 June 2007 Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 Â£'000 Â£'000 Â£'000 Reconciliation of operating profit to net cash inflow from operating activities Continuing operations Profit for the period 1,767 1,038 2,556 Depreciation 467 416 919 Amortisation of intangible 62 - 10 assets Share based payments 911 376 1,039 Gain on disposal of fixed - - (54) assets Change in inventories (12) 94 59 Change in trade and other (5,130) (833) (2,570) receivables Change in trade and other 1,384 204 142 payables Interest paid 884 525 1,436 Income tax expense 778 444 1,195 ----------- ----------- ----------- ----------- ----------- ----------- Net cash generated from operations 1,111 2,264 4,732 Net interest paid (996) (473) (955) Tax paid (189) - (984) ----------- ----------- ----------- ----------- ----------- ----------- Net cash (used by)/generated (74) 1,791 2,793 from operating activities Cash flows from investing activities Proceeds on disposal of - 13 842 property, plant and equipment Purchases of property, plant (1,135) (346) (1,168) and equipment Acquisition of subsidiary, net (5,581) (11,242) (25,507) of cash acquired ----------- ----------- ----------- ----------- ----------- ----------- Cash flows used in investing activities (6,716) (11,575) (25,833) Cash flows from financing activities Repayment of borrowings (1,000) (1,138) (4,381) New bank loans raised 6,550 12,000 18,043 Deferred financing costs (70) (136) (268) Increase in bank overdrafts 444 - - Net proceeds from issue of - - 11,346 shares Finance leases (76) (84) (687) ----------- ----------- ----------- Net cash generated in financing activities 5,848 10,642 24,053 ----------- ----------- ----------- Net (decrease) / increase in cash and cash equivalents (942) 858 1,013 Cash and cash equivalents at 1,850 837 837 start of period ----------- ----------- ----------- Cash and cash equivalents at the end of period 908 1,695 1,850 =========== =========== =========== Notes to the Consolidated Interim report for the six months ended 30 June 2007 1 Basis of preparation Prior to this accounting period, the Group prepared its audited annual financial statements under UK Generally Accepted Accounting Principles (UK GAAP). For periods commencing 1 January 2007, the Group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) including International Accounting Standards (IAS) and interpretations issued by the International Accounting Standards Board (IASB) and its committees, and as endorsed by the European Commission. As the financial statements for the year to 31 December 2007 will include comparatives for the year ended 31 December 2006, the Group's date of transition to IFRS under IFRS 1 'First-time Adoption of International Financial Reporting Standards' is 1 January 2006 and the comparatives will be restated under the provisions of IFRS. Accordingly, the financial information for the six months to 30 June 2006 and for the year ended 31 December 2006 has been restated to present the comparative information in accordance with IFRS. Note 7 of this interim financial information sets out how the Group's previously reported performance and financial position are affected by the change to IFRS. The unaudited interim financial information for the half year ended 30 June 2007, which has been approved by the Board of Directors on 12 September 2007, has been prepared based on the following accounting policies. Accounting policies The accounting policies used in the preparation of the interim financial information have been consistently applied to all periods presented. The Group has not adopted all of the provisions of IAS 34 'Interim Financial Reporting' in this interim financial information. IFRS 1 sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. Under IFRS 1 the Group will be required to establish its IFRS accounting policies as at 31 December 2007 and, in general, apply these retrospectively to determine the IFRS opening balance sheet at its date of transition, 1 January 2006. IFRS 1 provides a number of optional exceptions to this general principle. The most significant of these are set out below, together with a description in each case of whether an exception has been adopted by the Group. Business combinations The Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that took place before 1 January 2006. Share-based payments The Group has elected to apply IFRS 2 'Share-based Payment' to all relevant share based payment transactions. The interim report for the six months ended 30 June 2007 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The results for the year ended 31 December 2006 have been filed with the Registrar of Companies. The auditors' report contained therein, was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 2 Segmental information Restated Unaudited Unaudited Restated Six months Six months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 Â£'000 Â£'000 Â£'000 The revenue was derived from the Group's principal activities in the UK as follows: Document Handling 5,331 3,654 7,938 Emergency Repair 27,073 12,633 34,515 ----------- ----------- ----------- 32,404 16,287 42,453 =========== =========== =========== The profit before tax was derived from the Group's principal activities in the UK as follows: Document Handling 1,630 1,072 2,418 Emergency Repair 3,496 1,750 4,787 Central costs (724) (439) (969) Share based payments charge (911) (376) (1,039) Amortisation of intangible assets (62) - (10) Notional interest on contingent consideration 58 - (158) Net interest payable (942) (525) (1,278) ----------- ----------- ----------- 2,545 1,482 3,751 =========== =========== =========== Segmental assets: Document Handling 36,341 25,399 25,620 Emergency Repair 59,171 30,543 59,326 Central 263 128 233 ----------- ----------- ----------- Total 95,775 56,070 85,179 Segmental liabilities: Document Handling (6,150) (4,906) (5,071) Emergency Repair (13,764) (5,105) (13,422) Central (27,957) (16,627) (22,449) ----------- ----------- ----------- Total (47,871) (26,638) (40,942) Segmental net assets: Document Handling 30,191 20,493 20,549 Emergency Repair 45,407 25,438 45,904 Central (27,694) (16,499) (22,216) ----------- ----------- ----------- Total 47,904 29,432 44,237 =========== =========== =========== Capital expenditure 1,135 346 1,168 Depreciation and amortisation of intangible assets 529 416 929 3 Tax The underlying tax charge is based on the expected effective tax rate for the full year to 31 December 2007 and is calculated as 30.4% on profit before tax. 4 Earnings per share Basic earnings per share have been calculated on the profit after tax for the period and the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share that are before share based payments charge, amortisation of intangible assets and notional interest on contingent consideration have been presented in addition to the basic earnings per share since, in the opinion of the Directors, this provides shareholders with a more appropriate representation of the underlying earnings derived from the Group's businesses. Restated Restated Unaudited Unaudited Year Six months Six months ended ended ended 31 December 30 June 2007 30 June 2006 2006 No. of shares No. of shares No. of shares Weighted average number of shares in issue 455,409,225 334,570,268 388,920,578 ============ ============ ============ Â£'000 Â£'000 Â£'000 Profit after tax on ordinary activities 1,767 1,038 2,556 === === === Adjustments: Share based payments charge (net of tax) 641 263 727 Amortisation of intangible assets 62 - 10 Notional interest on contingent consideration (58) - 158 ------------ ------------ ------------ Adjusted earnings 2,412 1,301 3,451 ============ ============ ============ Basic earnings per ordinary share 0.39p 0.31 p 0.66 p ============ ============ ============ Adjusted basic earnings per ordinary share (before share based payments charge, amortisation of intangible assets and notional interest on contingent consideration) 0.53 p 0.39 p 0.89 p ============ ============ ============ No. of shares No. of shares No. of shares Weighted average number of shares in issue 455,409,225 334,570,268 388,920,578 Convertible 'A' Shares, Share Options and awards under the LTIP 73,414,400 37,459,054 44,082,349 ------------ ------------ ------------ Weighted average fully diluted number of shares in issue 528,823,625 372,029,322 433,002,927 ============ ============ ============ Fully diluted earnings per ordinary share 0.33 p 0.28 p 0.59 p ============ ============ ============ Adjusted fully diluted earnings per ordinary share (before share based payments charge, amortisation of intangible assets and notional interest on contingent consideration) 0.46 p 0.35 p 0.80 p ============ ============ ============ The diluted earnings per share are the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the outstanding share options and awards under the LTIP. They are also adjusted for the conversion of the A shares into ordinary shares at a price of 17.61p, being the average price per ordinary share in the period ended 30 June 2007 (30 June 2006: 13.63p; 31 December 2006: 13.93p). 5 Analysis of changes in net debt Restated Unaudited At Non cash At 1 January Six months movement 30 June 2007 Cash flow Acquisitions 2006 2007 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash and cash equivalents 1,850 (942) - - 908 Current financial liabilities Bank loans repayable within one year (3,600) (5,922) (36) 6,114 (3,444) Finance leases repayable within one year (109) 76 (83) - (116) Non-current financial liabilities Bank loans repayable in more than one year (16,100) - - (6,150) (22,250) Deferred financing costs 310 93 - (71) 332 -------- -------- --------- -------- -------- Net debt (17,649) (6,695) (119) (107) (24,570) ======== ======== ========= ======== ======== 6 Acquisitions On 2 February 2007, External Services Group Limited (ESG), a drainage sub contractor to ANSA, was acquired for cash of Â£206,000 and assumed debt of Â£63,000. On 26 March 2007, the Company acquired Document Control Services Limited (DCS) for an initial sum of Â£1.3 million. Contingent consideration of up to Â£2 million is also payable in cash linked to the growth in EBITA for the year ending 30 June 2008. The full Â£2 million is payable assuming EBITA reaches Â£1.23 million. Book value at Fair value Fair value at acquisition adjustment acquisition Â£'000 Â£'000 Â£'000 Document Control Services Limited (DCS) Intangible assets - 2,901 2,901 Fixed assets 103 - 103 Working capital 575 - 575 Taxation (147) (812) (959) Cash 6 - 6 Finance leases (56) - (56) ----------- ----------- ----------- Net assets acquired 481 2,089 2,570 =========== =========== Goodwill capitalised 5,588 ----------- Consideration 8,158 =========== Satisfied by: Cash to vendors 291 Loans repaid 4,794 Share issues 1,000 Discounted contingent consideration 1,777 Related costs of acquisition 296 ----------- 8,158 =========== The intangible asset fair value adjustment has been made to recognise the value attributable to existing customer relationships, the trade name, technology and software. The goodwill of Â£5.6 million represents the value attributable to new business and the assembled and trained workforce. Deferred tax at 28% has been provided on the value of the intangible assets. Goodwill Â£'000 Balance at 1 January 2007 (as restated) 49,753 Addition - Document Control Services 5,588 Addition - External Services Group 183 Contingent consideration adjustment - Independent Inspections (3,353) Contingent consideration adjustment - Mono Services 46 Other 15 ----------- Balance at 30 June 2007 52,232 =========== The amount of contingent consideration expected to be payable in respect of the acquisition of Independent Inspections was reduced to zero due to the profit levels attained. 7 Explanation of transition to IFRS The Group's financial statements for the year ended 31 December 2007 will be the first financial statements that comply with International Financial Reporting Standards (IFRS). The Group's financial statements prior to and including 31 December 2006 had been prepared in accordance with Generally Accepted Accounting Principles in the United Kingdom (UK GAAP). The following disclosures are required in the year of transition under the provisions of IFRS 1 and show the effects of the transition to IFRS on the Group's reported performance and financial position for the comparative periods and on the date of transition. The last financial statements prepared under UK GAAP were for the year ended 31 December 2006 and the date of transition to IFRS is therefore 1 January 2006. Reconciliation of shareholders equity at 1 January 2006 UK GAAP Effects of IFRS transition to IFRS Notes Â£'000 Â£'000 Â£'000 Non-current assets Goodwill 31,224 - 31,224 Intangible assets 2 - 219 219 Property, plant and equipment 2 1,996 (219) 1,777 --------- --------- -------- 33,220 - 33,220 --------- --------- -------- Current assets Inventories 250 - 250 Trade and other receivables 5,509 - 5,509 Cash and cash equivalents 837 - 837 --------- --------- -------- 6,596 - 6,596 --------- --------- -------- Total assets 39,816 - 39,816 ========= ========= ======== Current liabilities Trade and other payables (4,511) - (4,511) Current tax liabilities (474) - (474) Obligations under finance leases (175) - (175) Bank overdrafts and loans (1,433) - (1,433) --------- --------- -------- (6,593) - (6,593) --------- --------- -------- Net current assets 3 - 3 --------- --------- -------- Non-current liabilities Bank loans (3,389) - (3,389) Deferred tax (142) - (142) Provisions (2,574) - (2,574) Obligations under finance leases (175) - (175) --------- --------- -------- (6,280) - (6,280) --------- --------- -------- Net assets 26,943 - 26,943 ========= ========= ======== Shareholders equity Called up share capital 383 - 383 Share premium account 26,459 - 26,459 Share based payments reserve 85 - 85 Retained earnings 16 - 16 --------- --------- -------- Total shareholders equity 26,943 - 26,943 ========= ========= ======== Reconciliation of shareholders equity at 30 June 2006 UK GAAP Effects of IFRS transition to IFRS Notes Â£'000 Â£'000 Â£'000 Non-current assets Goodwill 1 33,696 321 34,017 Intangible assets 1,2 - 3,083 3,083 Property, plant and equipment 2 10,429 (218) 10,211 --------- --------- --------- 44,125 3,186 47,311 --------- --------- --------- Current assets Inventories 170 - 170 Trade and other receivables 6,894 - 6,894 Cash and cash equivalents 1,695 - 1,695 --------- --------- --------- 8,759 - 8,759 --------- --------- --------- --------- --------- --------- Total assets 52,884 3,186 56,070 ========= ========= ========= Current liabilities Trade and other payables (5,018) - (5,018) Current tax liabilities (2,248) - (2,248) Obligations under finance leases (178) - (178) Bank overdrafts and loans (3,000) - (3,000) --------- --------- --------- (10,444) - (10,444) --------- --------- --------- Net current liabilities (1,685) - (1,685) --------- --------- --------- Non-current liabilities Bank loans (13,657) - (13,657) Deferred tax 3 (220) (2,317) (2,537) --------- --------- --------- (13,877) (2,317) (16,194) --------- --------- --------- --------- --------- --------- Net assets 28,563 869 29,432 ========= ========= ========= Shareholders equity Called up share capital 393 - 393 Share premium account 27,524 - 27,524 Share based payments reserve 461 - 461 Retained earnings 4 185 869 1,054 --------- --------- --------- Total shareholders equity 28,563 869 29,432 ========= ========= ========= Reconciliation of shareholders equity at 31 December 2006 UK GAAP Effects of IFRS transition to IFRS Notes Â£'000 Â£'000 Â£'000 Non-current assets Goodwill 1 52,418 (2,665) 49,753 Intangible assets 1,2 - 9,070 9,070 Property, plant and equipment 2 11,084 (258) 10,826 --------- --------- -------- 63,502 6,147 69,649 --------- --------- -------- Current assets Inventories 311 - 311 Trade and other receivables 13,369 - 13,369 Cash and cash equivalents 1,850 - 1,850 --------- --------- -------- 15,530 - 15,530 --------- --------- -------- --------- --------- -------- Total assets 79,032 6,147 85,179 ========= ========= ======== Current liabilities Trade and other payables (11,114) - (11,114) Current tax liabilities (1,969) - (1,969) Obligations under finance leases (109) - (109) Bank overdrafts and loans (3,600) - (3,600) --------- --------- -------- (16,792) - (16,792) --------- --------- -------- Net current liabilities (1,262) - (1,262) --------- --------- -------- Non-current liabilities Bank loans (15,790) - (15,790) Deferred tax 3 8 (3,985) (3,977) Provisions (4,383) (4,383) --------- --------- -------- (20,165) (3,985) (24,150) --------- --------- -------- --------- --------- -------- Net assets 42,075 2,162 44,237 ========= ========= ======== Shareholders equity Called up share capital 503 - 503 Share premium account 40,060 - 40,060 Share based payments reserve 1,102 - 1,102 Retained earnings 4 410 2,162 2,572 --------- --------- -------- Total shareholders equity 42,075 2,162 44,237 ========= ========= ======== Notes to the reconciliation of shareholders equity 1. Goodwill and intangible assets The Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that took place before 1 January 2006. The Group has adopted IFRS 3 'Business combinations' in full for all acquisitions that have occurred after this date. This has resulted in the recognition of net additional intangible fixed assets of Â£2,865,000 at 30 June 2006 and Â£8,812,000 (after amortisation of intangible assets of Â£10,000) at 31 December 2006. The adjustment in goodwill and intangible assets at 30 June 2006 comprises: Goodwill Intangible assets Â£'000 Â£'000 Goodwill written back 869 - Wansdyke deferred tax on property revaluation 1,515 - Wansdyke existing customer relationships (2,865) 2,865 Deferred tax on existing customer relationships 802 - Application software transfer - 218 -------- -------- 321 3,083 ======== ======== The adjustment in goodwill and intangible assets at 31 December 2006 comprises: Goodwill Intangible assets Â£'000 Â£'000 Goodwill written back 2,172 - Wansdyke deferred tax on property revaluation 1,515 - Wansdyke existing customer relationships (2,865) 2,865 Independent existing customer relationships (2,700) 2,700 Independent applications software and website (61) 61 Mono Services existing customer relationships (3,097) 3,097 Mono Services applications software and website (99) 99 Deferred tax on existing customer relationships, applications software and website 2,470 - Application software transfer - 258 Amortisation of intangible assets - (10) -------- -------- (2,665) 9,070 ======== ======== Under UK GAAP the intangible fixed assets would have been recognised in goodwill, the amortisation would have been Â£869,000 in the period ended 30 June 2006, and Â£2,172,000 in the year ended 31 December 2006. 2. Software classification Application software, which can be run independently from any specific hardware configuration, is included within intangibles under IFRS rather than tangible assets as is the norm under UK GAAP. The effect of this is to reclassify software of Â£219,000 at January 2006, Â£218,000 at June 2006 and Â£258,000 at December 2006 from tangible assets to intangible assets. Total net assets remain unchanged by this adjustment. 3. Deferred tax A tax timing difference of Â£1,515,000 has been recognised in respect of revaluation of properties acquired in February 2006 via the acquisition of Wansdyke Securities Limited. A deferred tax liability on the intangible assets adjustments has been recognised of Â£802,000 at 30 June 2006 and Â£2,470,000 at 31 December 2006. 4. Retained earnings The Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that took place before 1 January 2006. The retained earnings have been restated due to the removal of goodwill of Â£869,000 at 30 June 2006 and Â£2,172,000 at 31 December 2006 and amortisation of intangible assets of Â£10,000 at 31 December 2006. Reconciliation of Consolidated Income Statement for the six months ended 30 June 2006 Effects of transition UK GAAP to IFRS IFRS Note Â£'000 Â£'000 Â£'000 Continuing operations Revenue 16,287 - 16,287 Cost of sales (10,432) - (10,432) -------- -------- --------- Gross profit 5,855 - 5,855 Administrative expenses 1 (4,717) 869 (3,848) -------- -------- --------- Operating Profit 1,138 869 2,007 Finance costs 9 - 9 Investment Income (534) - (534) -------- -------- --------- Profit before tax 613 869 1,482 Tax (444) - (444) -------- -------- --------- Profit for the period 169 869 1,038 ======== ======== ========= Reconciliation of Consolidated Income Statement for the year ended 31 December 2006 Effects of transition UK GAAP to IFRS IFRS Note Â£'000 Â£'000 Â£'000 Continuing operations Revenue 42,453 - 42,453 Cost of sales (26,200) - (26,200) -------- -------- --------- Gross profit 16,253 - 16,253 Administrative expenses 1 (13,228) 2,162 (11,066) -------- -------- --------- Operating Profit 3,025 2,162 5,187 Finance costs 82 - 82 Investment Income (1,518) - (1,518) -------- -------- --------- Profit before tax 1,589 2,162 3,751 Tax (1,195) - (1,195) -------- -------- --------- Profit for the period 394 2,162 2,556 ======== ======== ========= Notes to the reconciliation of the Consolidated Income Statement 1. Acquisitions The Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to business combinations that took place before 1 January 2006. The Group has adopted IFRS 3 'Business combinations' in full for all acquisitions that have occurred after this date. Under UK GAAP the intangible fixed assets would have been recognised in goodwill, the amortisation was Â£869,000 in the period ended 30 June 2006, and Â£2,172,000 in the year ended 31 December 2006. As a result of reclassifying intangible assets from goodwill, amortisation of intangible assets of Â£10,000 has been charged in the year ended 31 December 2006. Explanation of material adjustments to the Statement of Cash Flows. There are no significant adjustments between the cash flow statements produced under IFRS as against UK GAAP. ENDS This information is provided by RNS The company news service from the London Stock Exchange GUUBWBUPMGMG

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