Final Results

RNS Number : 4024Y

Spice PLC

07 July 2008

 



7 July 2008

Spice plc

Final results - year ended 30 April 2008

Spice plc ("Spice" or "the Group"), the provider of Total Utility Support Services, is pleased to announce record results for the year ended 30 April 2008.

Financial highlights

• Profit before tax of £17.1 million (2007: £12.2 million) - 40% increase
• PBTA* of £22.4 million (2007: £13.5 million) - 66% increase

• EBITA** of £29.9 million (2007: £16.2 million) - 84% increase

• Increase in EBITA operating margins to 9.5% (2007: 7.1%)

• Like for like EBITA organic growth - 19% (2007: 20%)

• Operating profit converted into operating cash flow - 124% (2007: 109%)

• Diluted earnings per share of 23.4 pence (2007: 18.1 pence) - 29% increase 

• Adjusted diluted earnings per share of 29.0 pence (2007: 20.6 pence) - 41% increase 

• Total dividend of 6.0 pence per share (2007: 4.0 pence) - 50% increase

*PBTA comprises profit on ordinary activities before tax, exceptional items and amortisation of intangible fixed assets.

**EBITA comprises profit on ordinary activities before interest, tax, exceptional items and amortisation of intangible fixed assets.

 2007 comparative numbers have been restated, where appropriate, to reflect the adoption of International Financial Reporting Standards (IFRS).

Operational highlights

• May 2007 - H20 renews Yorkshire Water contract
• May 2007 - Team Simoco selected to provide replacement PMR to Western Power Distribution

• July 2007 - H20 renews United Utilities contract

• May 2008 - Extension of market shares in gas and electricity within Billing Services

• May 2008 - Expansion in scope of AT&T contract

Simon Rigby, Chief Executive Officer, commented:

"We have today reported another strong set of results after a year of significant development for the Group. PBTA has increased by 66% during the year. We have driven cross selling and increased our exposure to non-discretionary and regulated spend. We expect that Spice will move up to the Official List by the end of July 2008. 

The Board believes that the markets in which we operate continue to offer significant opportunities for further growth. In particular the regulatory drivers within our utility markets remain strong which in turn are giving rise to growth in our outsourced market place. We are well positioned to increase our share of this growing market by capitalising on these trends and to deliver strong shareholder value going forward.   

We are pleased with the start that the Group has made to the new financial year. The Board continues to look to the future with confidence."

- Ends - 

For further information, please contact:
Spice	Tel:	0113 201 2120
Simon Rigby, Chief Executive Officer
Oliver Lightowlers, Group Finance Director
Andy Catchpole, Group Strategy and Development Director
Financial Dynamics	Tel:	020 7831 3113
Billy Clegg  Caroline Stewart
KBC Peel Hunt  Garry Levin David Anderson	Tel:	0207 4188900

  Chairman's statement

Introduction

I am delighted to present our full year results for 2008, which has again proved to be another record year of performance for Spice. We have recorded strong levels of organic growth in each of our operating businesses and the acquisitions that we have made in the year have also made significant contributions to our results.

Revenue for the year was £312.2 million (2007: £228.6 million) and profit before tax, exceptional items and the amortisation of intangible fixed assets (PBTA) was £22.4 million (2007: £13.5 million), increases of 37% and 66% respectively. At the same time our EBITA operating margin improved to 9.5% (2007: 7.1%). 

Diluted earnings per share, adjusted for exceptional items and the amortisation of intangible fixed assets, increased by 41% to 29.0 pence per share (2007: 20.6 pence per share). I am also pleased to report that the Board is recommending a final dividend of 4.5 pence per share, making a total dividend of 6.0 pence per share for the year (2007: 4.0 pence), an increase of 50%.

Group Board

During the year, we have welcomed Tim Huddart to the Group Board as Non-Executive Director and Andy Catchpole as Group Strategy and Development Director, which he is combining with his existing role as Managing Director of our Electricity business. Andy has made a huge contribution to the development of our Electricity Services business and we believe that he can help the wider Group achieve its ambitions to replicate our success in Electricity within our other markets.

At the same time, we have bid farewell to Carl Chambers who stepped down from the Group Board in December 2007. Carl has played a significant role in the growth and the development of Spice and we thank him for his expertise and insight. Shortly after the year end, Sir Rodney Walker retired as Chairman and also stepped down from the Group Board. On behalf of the Board, I would like to thank Sir Rodney for his guidance and leadership. Both Carl and Sir Rodney leave with the best wishes of everyone at Spice and we wish them well for the future.

On a personal note, I was delighted to be approached to become Chairman of Spice and joined the Board in June 2008. I am very excited at the opportunities ahead and look forward to contributing to the Group's future success.

Our people

I would like to extend thanks, on behalf of the Board, to all of our employees for their energy, commitment and personal contribution to our achievements over the past year. Spice's success is made possible by the hard work of our staff and it is pleasing that we continue to see strong levels of participation within our Sharesave scheme as our staff share in that success.

Strategy

We have again achieved very strong levels of organic growth over the course of the year, with like for like EBITA organic growth of 19%. We remain focused on continuing to deliver organic growth in future years. The overlap between our seven divisions has never been stronger and has created an enviable platform for cross selling which has made a tangible contribution to earnings. This growth will continue to be supplemented by complementary acquisitions within the business.

During the year we completed the acquisition of Revenue Assurance Services (RAS) which is our largest acquisition to date. The acquisition of RAS is particularly significant for Spice since our capability to work on the supply side of the utilities is significantly enhanced. We have made excellent progress in RAS since acquisition as we move closer to being a full end to end utility outsourcer. 

The Group has signaled its intention to move from AIM to the Official List which is expected to take place by the end of July 2008. We believe that this move will create additional liquidity in the trade of our shares and will widen the appeal of Spice to potential investors. We also consider that the move to the Official List creates a strong platform for the creation of a much larger business.

Outlook

Many exciting opportunities exist for the new financial year, which has got off to a pleasing start. We enter 2009 with confidence. 

Peter Cawdron

Chairman

7 July 2008

  Business and financial review

Business review

Spice provides Total Utility Support Services across seven businesses. The common themes underpinning these businesses include:

• our exposure to non-discretionary and regulatory spend;

• our experienced and highly motivated management teams;

• technical element to the services provided; and

• strong platforms for cross selling.

Looking at each of our businesses in turn:  

Billing Services

Our Billing Services Division was created in October 2007 through the acquisition of Revenue Assurance Services (RAS). RAS focused on three activities being billing consultancy, debt resolution and meter point services. The debt resolution and meter point services businesses have now been fully integrated into the Water Services Division. Billing consultancy was the largest of the three acquired activities and this business has formed our Billing Services Division. In the six month period since acquisition, Billing Services has contributed £4.9 million of EBITA to the Group result.

The integration of Billing Services into the Group has gone well and is ahead of plan. We are pleased with the financial contribution that Billing Services has made in the second half of the year, but more importantly we believe that we have created a strong platform for future growth. During the last six months several new clients have been secured and we estimate that our market share (measured by number of client sites), within the industrial and commercial sectors, has risen from 40% to approximately 89% in Gas and from 8% to approximately 35% in Electricity. Whilst this does not immediately translate into earnings, it means that we have made significant progress in developing and securing our acquired markets. Cross selling has played a significant part in this progress as we have introduced Billing Services to the "top table" of existing Spice relationships such as Total and EdF Energy. In addition, we have extended the scope of a number of existing client contracts including Eon and British Gas.

The approximate value of annual billings in UK energy markets is some £21 billion, with the electricity market estimated to be around three times the size of the gas market. The industrial and commercial element of this market is some £11 billion, generated by over 2.5 million industrial and commercial customers. The sheer scale and complexity of the energy markets, coupled with the effects of deregulation and acquisition activity, have created a highly complex billing and management environment for our utility clients. The systems and processes of utility companies are capable of working to a high level of efficiency and delivering around 98% accuracy over the billing process. However, material imbalances and errors do arise throughout the entire management, billing and metering process. Billing Services helps the in-house client teams of utilities to identify and correct the errors and imbalances that arise in the energy billing supply chain and also to generate the appropriate cash recovery. This service is provided to utilities on a fully contingent fee basis and therefore, we believe represents a compelling service proposition.

We continue to see international opportunities for gas and electricity and believe that Billing Services is well placed to be first to market as other countries move towards the deregulation of energy markets. We are developing our international sales and marketing plans and are optimistic of achieving our first international revenues during the financial year ending April 2009. We have also begun to develop services that might address imbalances within the Water and Telecoms markets. Billing Services is in an ideal position to exploit these potential markets with the combination of its own energy experience and Spice's longstanding experience and relationships in these sectors.

Energy Services

Our Energy Services business has reported strong results for the year recording EBITA of £3.2 million (2007: £1.7 million). These results include £0.3 million contribution from acquisitions made in the year. Organic growth, including the conversion of cross selling opportunities, has been exceptional during the year. 

An independent survey by Datamonitor confirmed Inenco as the largest third party energy procurement intermediary in the UK and the acquisitions made during the year will only serve to maintain this position. During the year, Inenco became authorised by the Financial Services Authority. This authorisation differentiates Inenco from its competitors and creates the potential for us to enhance the services we provide to assist clients in the management of the risks associated with energy procurement. During the year, we have continued to provide services to many household names such as J Sainsbury and Marks & Spencer and have successfully increased our sector penetration through new customer wins, for example Matalan. Additionally, we have increased our European customer base through contract wins with Intercontinental Hotels Group and extended our geographical footprint with Footlocker. These contract wins have been supported by the recruitment of staff with appropriate language skills but continue to be serviced from our UK base. 

In December 2007, we completed the acquisition of Saturn Energy which provides energy procurement services to the small and medium enterprise (SME) sector. Saturn acts as agent for SMEs to procure gas and electricity from suppliers under medium and long term contracts. This acquisition fits well with Inenco and enables us to extend the range of our energy brokerage services into the SME sector which has historically been very fragmented. We believe that Saturn's services will be enhanced by its ability to utilise the wider resources of Inenco. Inenco has already been able to pass a large number of accumulated sales leads to Saturn, which had not been pursued by Inenco by virtue of their size. In April 2008, we completed the acquisition of Energy 2000 which continues our expansion in the energy management sector. Energy 2000 provides a similar range of services to Inenco, albeit with smaller customers generally and brings with it additional consultancy skills. 

Procurement and validation services continue to be the main contributor to Inenco's results. Energy prices continue to be volatile and appear to be on a strong upward trend with the wholesale price of the gas and electricity market having doubled in value over the last twelve months. We expect these trends will ensure that energy related issues continue to rank high on the boardroom agenda and that this will maintain the demand for our procurement and energy management services. 

We continue to experience higher service penetration on our larger customers as procurement and invoice validation is often accompanied by consultancy support of carbon management programmes. Towards the end of the year we successfully negotiated a climate change agreement on behalf of the plastics sector. This agreement creates a strong foundation for growth for our consultancy services and we are already beginning to see customer wins arising from this opportunity. With continuing concern surrounding the environmental impact that energy consumption creates we expect the demand for our full range of services to remain strong.

Facilities Services

Our Facilities Services business reported EBITA of £4.6 million (2007: £4.0 million). During the year, the businesses that comprise the Facilities Services Division have been amalgamated under a unified brand (being Facilities Services Group) that represents the full range of services that the Group offers. We have invested in new telephony and IT systems to provide an integrated platform for the unified division.

Our Managed Solutions business (formerly Serviceline Nationwide and Atlanta) continues to see a strong level of existing client activity and a range of new enquiries. The number and range of tasks handled continues to grow to meet client demands and we have maintained our focus upon innovation around service delivery for the benefit of our customers and the long term relationships that we strive to achieve. At the same time, we have benefited from the growth in the Managed Solutions business and their associated influence on the selection of supply chain partners that, where appropriate, result in the appointment of Commercial Solutions (formerly Circle Britannia) to undertake the delivery of maintenance services. New contract wins in the year have included Gondola Group and Smiths News.

We have seen the Asprea relationship bed down in the second half of the year with a strong level of demand and the development of a good working relationship with opportunities for further development in due course. In Scotland, we have developed strong relationships with social housing providers such as Home Scotland and Fife Housing Association and this looks set to continue into the new financial year.

Gas Services

Gas Services has contributed EBITA of £4.5 million (2007: £1.0 million) for the year ended 30 April 2008. Acquisitions made during 2008 contributed £1.8 million to this result. Significant progress has been made during the year towards our objective of achieving national geographic coverage. In the first half of the year, the acquisitions of Homerton and GMT strengthened our geographic footprint in the South of England and extended our operational capability across South Yorkshire and the North Midlands. This footprint was further extended into Scotland in the second half of the year through the acquisition of Gas Call. The integration of acquired businesses, including the roll out of a common works management system, and IT platform is progressing to plan. We now have access to over 400 CORGI registered engineers and maintain in excess of 150,000 properties. The year has also seen the acquisition of MET, which provides training services to learners in the plumbing, gas and heating sectors. This acquisition has already begun to provide Spice with gas engineers and we are looking to extend MET's training capabilities across other parts of the Group and in particular into Electricity Services.

Significantly in April 2008, we secured our first gas meter operations framework agreement with Siemens which initially comprises the replacement of 50,000 gas meters. This opportunity arose because of the close working relationship that we enjoy with Siemens within our Water Services business and creates a base to exploit the current and future opportunities in this market. This is in line with our stated strategy of leveraging our national network of engineers to expand our presence in the marketplace for national gas meter operations.

We have achieved good organic growth with several new contract wins that have included Wirral Housing Partnership Homes, Bowlees Park Housing Association and Liverpool Mutual Homes. Contracts have also been secured with Knowsley Housing Trust and Regenda Housing. Our contract with Salford City Council (formerly New Prospect Housing) has also been renewed early for a further two years with an option to extend for a further two years. We consider that the underlying business drivers (driven by increased regulations) remain strong and that the national network that we have created positions us well for future growth.

Electricity Services

Our Electricity Services Division has delivered an excellent performance over the year increasing EBITA by 32% to £8.9 million (2007: £6.8 million). Our increased operating margins at 8.4% are particularly pleasing, especially since we are still recruiting and training apprentices, graduates and trainees. This significant investment in our people, by improving and developing their skills, will benefit the business in the longer term. 

Performance has been particularly strong over the year within Freedom Power Lines and Freedom Asset Care. Power Lines has seen significant growth in volumes for EDF Energy and has also developed its footprint through expansion into United Utilities and Scottish Power (Manweb). The recent acquisitions of Utility Technology, Line Design Solutions and GIS Direct significantly strengthen our overhead lines business and market position and enable us to now provide a complete "cradle to grave" service to our customers including planning, DTI Approval, design, new build, maintenance and project closure. 

Freedom Power Projects, our major substation design and build service island has expanded its geographic footprint to include the South East and London. We have recently received our largest ever project order for the refurbishment of major electricity substations in London, which will be delivered over the next four years. This, along with other significant projects in London, gives us a very solid platform for the next five years. We are also benefiting from development work in the South East and the Olympic Park. The level and complexity of these projects has moved us to the top of the value chain for major substation design and build. 

Growth in Freedom Consultancy Services has been driven by AT&T where, in September 2007, we won a contract to provide records and data management services. The scope of our contract has been expanded since then and is now expected to have an estimated sales value of £15 million per annum. We now have 400 employees in the US and are continuing to build this team in support of our contract. We continue to believe that the trend towards deregulation and outsourcing will accelerate in the same way as occurred in the UK market. The AT&T contract creates a platform for long term growth in the US market by allowing the Group to begin to develop its capabilities in the US ahead of expected deregulation and outsourcing trends. Whilst the AT&T contract creates a significant long term opportunity for us, our focus does remain on the UK market which we still see as generating significant opportunities for the Freedom business.

In April 2008, we acquired Melton Power which is being integrated into our Freedom Networks service island. This acquisition widens our customer base and enhances our UK wide pool of skilled resources. Melton brings a blue chip client base which complements our own and strengthens our capabilities in the area of private network maintenance and refurbishment. 

During the year, we received our fourth RoSPA Gold Award for occupational health and safety. Working safely remains an integral and very important part of what we do within Electricity Services and underpins our business values and project performance, as well as creating a very strong platform for future growth. 

Telecoms Services

Our Telecoms infrastructure support services business reported a 43% increase in EBITA to £5.1 million (2007: £3.5 million). During the year we acquired Redbridge Management Services which is being integrated into Hutchison Team Telecom (HTT) and Infomatrix Mobile Data (from Administration) which is being integrated into Team Simoco.

AirRadio has performed well throughout the year with the benefit of a small boost in second half earnings generated by the increase in ad-hoc work associated with BA's move to, and integration of their operations at Heathrow Terminal 5. All projects were delivered on time. During the year, we have opened up new radio networks in Belfast City airport, City of London airport, Isle of Man airport and Cardiff airport, increasing the total number of airports at which we operate to 23. More recently we have opened up our second UK TETRA digital network at Heathrow (following the success of Birmingham, launched in September 2006), which has been made possible after securing highly sought after digital radio spectrum from Ofcom. We expect to be in a position to actively develop sales onto this network during the new financial year.

The integration of HTT and Redbridge is now well advanced and we are beginning to see the expected benefits from merging these two complementary businesses. Redbridge provides UK wide engineering infrastructure support services such as 24/7 first line maintenance, network management, installation and commissioning and project management to telecommunications equipment manufacturers, telecommunications network operators and large corporate clients.The acquisition of Redbridge has allowed us to add new field maintenance clients in the UK and Europe, increasing revenues from this area and also increasing the resilience of our workforce over a larger geographic footprint. Unfortunately, our long term contract with Huawei for the BT21 CN continues to experience a slower than anticipated roll out. However, we continue to remain hopeful that activity will improve on Huawei. This has been offset by the development of new relationships and strong order flow from other existing clients. 

Team Simoco continues to benefit from increasing sales of its Xfin and TETRA technologies with a number of mid sized system contracts being won in many different parts of the world. During the year we have continued to expand our sales distribution capabilities, adding sales people in Europe and Asia, which have already added business from each of these regions. It is also pleasing to report that our large infrastructure renewal project for Western Power Distribution, won at the beginning of the financial year, has run to plan with the customer now operational on all 103 sites of the network. In May 2008, we announced that we had been selected by Michigan 3 Alliance to renew their telecoms infrastructure using multi-site Xfin technology. We expect Western Power and Michigan 3 to be flagships for further utility infrastructure renewal wins both within the UK and overseas.

In February 2008, we purchased the assets and intellectual property of a specialist software company called Infomatrix from out of Administration for around £0.1 million. Infomatrix provides software that accelerates data throughput over TETRA networks. We believe that data services will be a significant part of the long term future of TETRA technology so this will serve not only to differentiate our overall TETRA offering in the world-wide market but will also be a significant growth area in the coming years. Already, Infomatrix has a long term contract with Airwave (the world's largest TETRA network operator) to supply its software for all of their data applications.

Water Services

Water Services contributed EBITA of £6.3 million (2007: £5.2 million) to the Group result. This includes the part year contribution of the debt resolution and meter point services businesses that were acquired as part of RAS in October 2007.

The main events for Water Services during the year have been the renewal of our meter installation contracts, with United Utilities and Yorkshire Water, for three years with the option of a two year extension. This has enabled us to extend our service offering in the year to include repair and maintenance of water asset infrastructure and water efficiency management to complement our leakage detection services. In May 2008, we announced that we had signed a three year contract with an option to extend for two years with Three Valleys Water, giving us sole provider status for meter installations and replacements in their region. We have also agreed an extension to our meter installation contracts with Northumbrian Water and Essex and Suffolk Water and are now providing water regulation and rectification services for Welsh Water, which we are hopeful will be turned into a longer term contract. We are in the process of introducing our bespoke works management system on a number of our contracts to replace our clients' in house system and this will allow us to further establish ourselves as key service partners. Innovation continues to be a main feature of our activities and this has led to the development of the "stop tap adaptor" which allows us to install water meters externally without the need for excavation. This innovation was recognised by the Utility Pipeline Technology Award made by The Pipeline Industries Guild. Ongoing environmental and water conservation pressures, together with the continued development of our service offerings, positions us well for future growth.  

Metro Rod continues to perform well and has secured a number of new clients together with extending existing contractual arrangements. We now have a presence in Northern and Southern Ireland which forms the platform for another income stream and future growth. During the year, we have sought to develop H2O's services, including water regulation, leakage detection, water efficiency and plumbing, amongst Metro Rod's commercial client base. Again, we see this as another future growth area for the business with the drive for water conservation and efficiency. 

Meter U, our meter reading business has experienced continued growth and we now undertake over 25 million meter reading visits per year. Following the acquisition of RAS the debt resolution and meter point services businesses are being operationally managed by Meter U. The integration of these businesses into Meter U has been completed and we are now able to provide our clients with an end to end billing solution which we are developing across all clients within the Division. The acquired businesses broaden and extend our field service offering, whilst adding a skilled office based operation. Approximately 230 field agents provide nationwide coverage on utility-based debt collection including pre-disconnection visits, warrant applications, token meter installations and warrant visits. This work is controlled by a team of approximately 40 people based in Warrington. Debt resolution services are controlled from Borehamwood and Solihull. This team undertakes complex debt resolution services for utility clients, including both live and final debt.

Cross selling

Cross selling has been an important contributor to the Group's results over the past year and is reflected in the strong like for like organic growth that the Group has achieved. Successes have included our contract wins in gas meter operations and the development of our market shares acquired with RAS. Cross selling will also continue to form an important part of our future growth strategy, as we seek to further develop RAS' markets within electricity. Spice continues to enjoy an exceptionally strong and enviable platform from which to convert cross selling opportunities into earnings. Cross selling remains a priority for the management team.

Head office

Head office costs are mainly comprised of salaries, including the Group's IT and HR functions, and also professional costs. During the year, we have made significant investments in IT infrastructure and resources to support the enlarged Group. We have maintained momentum on our Group wide project which will see the migration to a common accounting platform. Four of our businesses (Electricity, Facilities, Water and Billing Services) are now live on that platform. Connected to this, we have also continued to invest in the further development of our in-house work management system (Job Track). These investments will support the future growth of the Group.

Acquisitions

Twelve acquisitions have been made during the period, which are summarised as follows:

	Initial net  consideration	Maximum additional contingent consideration
	£'m	£'m
Homerton	1.5	2.5	Contingent cash consideration based on acquired working capital and performance to April 2008
KMN	0.8	0.1	Contingent cash consideration based on net assets in completion accounts
GMT and MET	6.5	14.1	Contingent cash consideration based on acquired working capital and performance during 2008, 2009 and 2010
RAS	101.2	-
Redbridge	3.1	1.0	Contingent cash consideration based on performance to November 2008
Gas Call	2.3	4.2	Contingent cash consideration based on acquired working capital and performance to October 2008
Saturn	3.5	5.1	Contingent cash consideration based on acquired working capital and performance to April 2008 and 2009
Melton	2.5	2.0	Contingent cash consideration based on acquired working capital and performance to April 2009 and 2010
Energy 2000	2.3	3.5	Contingent cash consideration based on acquired working capital and performance to April 2009
UTEC	0.1	0.1	Contingent cash consideration based on acquired working capital and performance to March 2008
GIS and LDS	0.1	-
Infomatrix	0.1	-
	124.0	32.6

Initial net consideration in respect of these acquisitions totals £124.0 million. This includes the issue of 6.5 million new shares to shareholders of RAS. The Group has incurred non-recurring costs of £0.2 million in the second half of the financial year connected to the reorganisation and integration of RAS.

At the start of the financial year the Group had a provision totalling £5.2 million in relation to contingent cash consideration payable on acquisitions made in previous years. This provision related principally to the acquisitions of Air Radio, Hutchison and Kemac. During the period, a total of £2.9 million contingent consideration has been paid mainly in relation to Hutchison and Kemac. After taking account of earn out obligations in relation to acquisitions made over the course of the year, a provision of £29.9 million for contingent cash consideration has been carried forward. It is expected that this provision will be utilised over the three year period ending April 2011, depending on the performance of acquired businesses.

Financial review

The financial performance of the Group during the year ended April 2008 has been strong. Organic growth and cash conversion continue to be main features of the Spice business. We have recorded 19% like for like organic EBITA growth in the business and have converted 124% of operating profits into operating cash flow. We have also seen a significant increase in free cash generated by the Group over the year reflecting the increase in size and scope of our operations.

EBITA is considered to be the principal measure of performance in relation to the Group's operating divisions. PBTA, cash conversion and organic growth are considered to be the principal measures of performance in relation to the Group.

Revenue

During 2008 revenue increased by 37% to £312.2 million (2007: £226.8 million), of which acquisitions contributed £24.6 million. 

Profit on ordinary activities before interest, tax, exceptional items and amortisation of intangible fixed assets (EBITA)

EBITA increased by 84% to £29.9 million (2007: £16.2 million). The table below identifies the driving factors behind this growth including separately identifying the part year effect of acquisitions made during 2007.

	2008 £'m	2007 £'m
EBITA
Existing operations	21.7	18.2
2008 acquisitions	8.1	-
Part year effect of 2007 acquisitions	2.1	-
IFRS 2 Share based payment charge	(2.0)	(2.0)
	29.9	16.2

The table shows that EBITA from existing operations, excluding the effect of IFRS 2, was £21.7 million (2007: £18.2 million), representing organic growth of 19% for the year. Separately, acquisitions made during 2008 contributed £8.1 million to EBITA. 

Spice made various acquisitions during 2007, which contributed to EBITA for part of that year but which have contributed to EBITA for the whole of the year ended April 2008. For example, Apollo was acquired on 17 November 2006. Its results for the period between 17 November 2007 and 30 April 2008 are shown within existing operations, as are the comparative numbers for the period from acquisition to 29 April 2007. The results of Apollo for the period from 1 May 2007 to 17 November 2007 are shown within the part year effect of 2007 acquisitions. Other 2007 acquisitions, part of whose performance contributes to this line, are Inenco, Breval, Atlanta, Pargas and Optimal.

EBITA operating margins for the Group improved to 9.5% (2007: 7.1%). 

Finance expenses

Finance expenses for the period were £7.5 million (2007: £2.7 million). The higher finance expense arises due to interest payable on bank debt used to fund the various acquisitions made. In addition, in line with IAS 37, the Group has incurred a non-cash interest charge on its outstanding liability for contingent consideration. This non-cash charge is excluded from the calculation for the purposes of determining compliance with the Group's banking covenants.

The Group's banking covenants are based around earnings before interest, tax, depreciation, amortisation and share based payments (Adjusted EBITDA). Adjusted EBITDA interest cover for the period was 5.1 times (2007: 8.7 times) which compares to a covenant of three times. 

Profit on ordinary activities before tax, exceptional items and amortisation of intangible fixed assets (PBTA)

PBTA increased by 66% to £22.4 million (2007: £13.5 million). 

Profit on ordinary activities before tax

Profit on ordinary activities before tax increased by 40% to £17.1 million (2007: £12.2 million). The Group's amortisation charge has increased from £1.2 million to £5.0 million during the period which is attributable to the amortisation of separately identifiable intangible fixed assets arising on acquisitions.

Tax

The Group's effective rate of tax for the period was 20.0% (2007: 26.5%). The Group has benefited during the year from a one off benefit of £0.5 million arising from the revaluation of its deferred tax liabilities following a change in the standard rate of tax from 30% to 28%. The Group's effective rate of tax also continues to be lower than the standard rate of tax as a result of the recognition and utilisation of prior year tax losses.

Under IFRS, the benefit of tax relief on the exercise of share options is recognised substantially on the Group's balance sheet rather than the income statement, although the Group continues to receive the cash benefit of this tax relief under IFRS in the same way that it did under UK GAAP.

Earnings per share

Diluted earnings per share at 23.4 pence (2007: 18.1 pence) increased by 29% and adjusted diluted earnings per share (before exceptional items and amortisation of intangible fixed assets) at 29.0 pence (2007: 20.6 pence) increased by 41%. 

In prior years, the Group's ESOP has had adequate shares to satisfy all options vested and also options granted but not yet vested. As highlighted in 2006, this is no longer the case and new shares will either be issued or bought on the market to make up this difference. This has been taken account of in the calculation of diluted earnings per share.

Dividend

The Board has recommended a final dividend of 4.5 pence (2007: 3.0 pence) per share payable on 16 September 2008 to shareholders on the register at 29 August 2008. An interim dividend of 1.5 pence per share (2007: 1.0 pence) was paid on 12 February 2008, making a total dividend of 6.0 pence per share (2007: 4.0 pence per share) for the year. The total dividend is covered 4.0 times by earnings (2007: 4.7 times).  

Cash flow

Net cash inflows from operations increased by £14.3 million to £30.6 million (2007: £16.3 million). The Group converted 124% of operating profit into operating cash flow (2007: 109%). We have also seen a significant increase in free cash generated by the Group over the year reflecting the increase in size and scope of our operations.

During the year, net working capital utilised increased by £5.1 million (2007: £4.9 million). This utilisation principally arises due to investment within our Gas, Facilities and Electricity businesses.

Balance sheet

Net assets have increased to £127.8 million (2007: £75.2 million), reflecting retained profits, cash generated from the exercise of employee share options, the issue of shares connected to the acquisition of RAS and the adoption of IFRS. 

Net debt is £125.9 million (2007: £34.3 million). The increase is mainly attributable to consideration paid in respect of acquisitions made in the year and also payments made to settle contingent cash consideration connected with acquisitions made in earlier years. 

In March 2007, the Group put in place a committed revolving credit facility totalling £170 million. This facility is not due for renewal until March 2012.

International Financial Reporting Standards (IFRS)

The Group has adopted IFRS during the year with an effective date of transition of 1 May 2006. The tables below reconcile the principal changes to comparative numbers for EBITA, retained profit and net assets for the year ended April 2007. 

The adoption of IFRS does not materially affect the Group's revenue, EBITA or profits before tax and amortisation for the year ended April 2007. IFRS has no effect on the Group's strategy, cash flows or net debt position.

The Group's detailed IFRS transition statement is set out on its website at www.spiceplc.com. 

		Year ended 30 April 2008 £'m	Year ended 29 April 2007 £'m
EBITA under UK GAAP			16.3
Holiday pay	IAS 19		(0.1)
EBITA under IFRS		29.9	16.2

		Year ended 30 April 2008 £'m	Year ended 29 April 2007 £'m
Retained profit under UK GAAP			7.5
Non cash interest charge	IAS 37		(0.3)
Amortisation of intangible fixed assets	IAS 38 & IFRS 3		2.8
Holiday pay	IAS 19		(0.1)
Deferred tax on share options	IAS 12		(0.9)
Retained profit under IFRS		13.7	9.0

		30 April 2008 £'m	29 April 2007 £'m
Net assets under UK GAAP			67.3
Non cash interest charge	IAS 37		(0.3)
Amortisation of intangible fixed assets	IAS 38 & IFRS 3		2.8
Holiday pay	IAS 19		(0.4)
Deferred tax on share options	IAS 12		5.8
Net assets under IFRS		127.8	75.2

Move to the Official List

In July 2007, Spice announced its intention to move its quotation from AIM to the Official List. This move is expected to take place by the end of July 2008. The expected costs of moving are not expected to exceed £1 million. These costs will be borne during the year ending April 2009 and will be treated as non-recurring exceptional items since they are one off in nature.

Principal risks and uncertainties

The Group's operating divisions maintain detailed risk registers which are regularly updated and include strategies to mitigate identified risks. These registers are compiled using a common model but with enough built in flexibility to take account of specific business risk. Broadly risks are categorised into six types being: strategic and planning; financial; operational and quality; people; reputation; and regulatory risks. For each risk identified, the processes and procedures in place to mitigate and manage that risk are also recorded. Significant risks facing the Group include:

• Regulatory (regulatory risks) - the Group operates within markets which are subject to extensive laws and regulations. These laws and regulations continue to change and evolve, as must Spice's processes, procedures and systems.

• Health and safety (operational and quality risks) - many of our markets are extensively regulated due to the dangerous nature of activities undertaken by the Group. The Group may suffer fatalities even if all processes, procedures and regulations are complied with.

• People (people risks) - Spice provides support services to its customers. These services are principally delivered by employees but also using subcontractors. In some of Spice's markets, severe skill shortages exist. In order to continue to grow and prosper, the Group needs to be able to retain existing employees whilst also continuing to access new pools of talented and skilled resources.

• Competitive (operational and quality risks) - Spice seeks to maintain long term relationships with its customers and typically operates via contracts whose duration is for between two and five year periods. At any point in time, some of the Group's contracts will be in the process of retender and renewal. The Group has a good track record of renewing key customer contracts, however, the markets within which Spice operates are competitive. 

• Innovation (operational and quality risks) - on a number of contracts, Spice has been incumbent for very many years. Over this time, the Group has been able to successfully innovate in order to improve the effectiveness and efficiency of our service delivery. Our customers continue to demand innovative solutions and therefore we must continue to innovate to maintain our position.

• Financial, operational and management information systems (financial risks and operational risks) - the efficient operation and management of the Group depends on the proper operation and performance of financial, operational and management information systems. Any failure in such systems may result in a loss of control and adversely impact Spice's ability to operate effectively and to fulfil its contractual obligations.

Outlook

The Board believes that that the markets in which we operate continue to offer significant opportunities for further growth. In particular the regulatory drivers within our utility markets remain strong which in turn are giving rise to growth in our outsourced market place. We are well positioned to increase our share of this growing market by capitalising on these trends and to deliver strong shareholder value going forward. The Board continues to look to the future with confidence. 

W S Rigby  Chief Executive Officer

O J Lightowlers  Group Finance Director

A P Catchpole  Group Strategy and Development Director

7 July 2008

  Consolidated Income Statement for the year ended 30 April 2008

						2008	2007
					Note	£'000	£'000
Revenue					4	312,183	228,560
Operating expenses						(287,548)	(213,589)
EBITA						29,864	16,196
Exceptional operating expenses						(222)	-
Amortisation of intangible fixed assets						(5,007)	(1,225)
Operating profit						24,635	14,971
Finance expenses					4	(7,501)	(2,727)
PBTA						22,363	13,469
Exceptional operating expenses						(222)	-
Amortisation of intangible fixed assets						(5,007)	(1,225)
Profit on ordinary activities before tax					4	17,134	12,244
Tax on profit on ordinary activities						(3,447)	(3,247)
Profit for the year attributable to equity shareholders					5	13,687	8,997
Earnings per share (pence per share)
Basic					3	25.8	19.7
Diluted					3	23.4	18.1

EBITA comprises profit on ordinary activities before interest, tax, exceptional items and amortisation of intangible fixed assets.

PBTA comprises profit on ordinary activities before tax, exceptional items and amortisation of intangible fixed assets. 

All results arise from continuing operations.

  Consolidated Balance Sheet as at 30 April 2008

						2008	2007
					Note	£’000	£’000
Assets Non-current assets
Purchased goodwill						211,795	72,159
Intangible fixed assets						46,262	11,566
Property, plant and equipment						19,385	17,406
Investment in associates Trade and other receivables Deferred tax assets						212 330 —	212 335 3,480
						277,984	105,158
Current assets
Inventories						13,798	6,688
Trade and other receivables						66,794	55,323
Cash – client monies						1,300	—
Non current assets held for resale						—	589
Liabilities Current liabilities						81,892	62,600
Trade and otherpayables Current tax payable Financial liabilities						(63,472) (6,024) (8,783)	(48,184) (4,889) (5,023)
Non-current liabilities Financial liabilities Provisions for other liabilities and charges Deferred tax liabilities						(78,279)   (117,072) (29,906) (6,826)	(58,096)   (29,238) (5,220) —
						(153,804)	(34,458)
Net assets						127,793	75,204
Shareholders’ equity
Called up share capital						6,001	5,347
Share premium account						46,523	46,523
Capital redemption reserve						100	100
Merger reserve						37,875	—
Retained earnings						37,294	23,234
Equity shareholders’ funds					5	127,793	75,204

  Consolidated Cash Flow Statement for the year ended 30 April 2008

			2008	2007
		Note	£'000	£'000
Operating activities
Net cash generated from operations		6a)	30,619	16,335
Interest paid			(6,873)	(2,489)
Tax paid			(4,651)	(3,318)
Net cash generated from operating activities Investing activities			19,095	10,528
Purchase of property, plant and equipment			(5,382)	(6,030)
Proceeds from sale of property, plant and equipment			1,063	269
Purchase of intangible fixed assets Acquisition of subsidiary undertakings			(175) (94,376)	(246) (46,112)
(Debt)/ cash acquired with subsidiary undertakings			(11,749)	6,076
Interest received			39	45
Net cash used in investing activities			(110,580)	(45,998)
Financing activities
Repayments of obligations under finance leases			(180)	(170)
Dividends paid			(2,325)	(1,306)
Proceeds from exercise of share options			971	1,087
Payment to acquire own shares (ESOP)			(1,368)	(1,305)
Proceeds from issue of ordinary shares			-	19,461
Repayment of borrowings			(37,676)	(73,601)
Proceeds from borrowings			125,476	89,368
Net cash generated from financing activities			84,898	33,534
Net decrease in net cash, cash equivalents and bank overdrafts			(6,587)	(1,936)
Cash, cash equivalents and bank overdrafts at 30 April 2007			(1,950)	(14)
Cash, cash equivalents and bank overdrafts at 30 April 2008		6b)	(8,537)	(1,950)

  Notes to the preliminary announcement for the year ended 30 April 2008

1.  Basis of accounting

The audited consolidated financial information for the year ended 30 April 2008 has been prepared in accordance with the historical cost convention in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and the Companies Act 1985 applicable to companies reporting under IFRS for the first time. The comparative numbers for the year ended April 2007 have been restated to reflect the adoption of IFRS where appropriate. The Group's IFRS transition statement was issued on 15 October 2007 and is available on the Group's website at www.spiceplc.com.

The financial information included in this announcement has been extracted from the audited financial statements for the year ended 30 April 2008. The content of this announcement has been agreed with the Company's auditors. This preliminary announcement does not constitute the Group's financial statements. The Group's 2008 Annual report and financial statements, on which the Company's auditors, PricewaterhouseCoopers LLP, have given an unqualified opinion in accordance with Section 235 of the Companies Act 1985, are to be delivered to the Registrar of Companies following the Company's Annual General Meeting. 

The consolidated financial information was approved by the Board of Directors on 7 July 2008.

2.   Dividends

									2008	2007
									£'000	£'000
Amounts recognised as a distribution from shareholders' funds during the year
Final dividend paid of 3.0 pence per share for the year ended 29 April 2007 (2006: 1.9 pence)									1,482	854
Interim dividend paid of 1.5 pence per share for the year ended 30 April 2008 (2007: 1.0 pence)									843	452
									2,325	1,306
Proposed final dividend of 4.5 pence per share for the year ended 30 April 2008 (2007: 3.0 pence)									2,551	1,482

Dividends amounting to £149,000 (2007: £122,000) have been waived by the ESOP and therefore deducted in arriving at the aggregate of dividends proposed. It is proposed that the final dividend amounting to £2,551,000 (2007: £1,482,000) will be paid on 16 September 2008 to those shareholders on the register at 29 August 2008.

The proposed final dividend for the year ended 30 April 2008 will be accounted for, following approval of that dividend, in the first half of the year to April 2009.

3.  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 year used in the calculation of basic earnings per share was as follows:

									2008	2007
									'000	'000
Weighted average shares for basic earnings per share									53,132	45,566

Diluted earnings per share is the basic earnings per share adjusted for the dilutive 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:

									2008	2007
									'000	'000
Weighted average shares for diluted earnings per share									58,443	49,799

Adjusted earnings per share have been calculated so as to exclude the effect of the amortisation of all intangible fixed assets and exceptional items including related tax charges and credits. The Group has also excluded the one off benefit arising from the remeasurement of deferred tax liabilities. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

									2008	2007
									£'000	£'000
Basic earnings									13,687	8,997
Adjustments for taxation									(1,974)	-
Exceptional items									222	-
Amortisation of intangible fixed assets									5,007	1,225
Adjusted earnings									16,942	10,222

									2008	2007
Earnings per share (pence per share)
Basic									25.8	19.7
Diluted									23.4	18.1
Adjusted earnings per share (pence per share)
Basic									31.9	22.4
Diluted									29.0	20.6

4.  Segmental Information

The turnover for the year was derived from the Group's principal activities and is attributable to the following markets. The Group's revenue is generated mainly within the UK.

Revenue									2008 £'000	2007 £'000
United Kingdom									302,481	224,661
USA									3,895	-
Continental Europe									3,645	3,165
Rest of the World									2,162	734
									312,183	228,560

The Company is organised into seven operating businesses. The segment results for the year ended 30 April 2008 are as follows:

	Billing £'000	Energy £'000	Facilities £'000	Gas £'000	Electricity £'000	Telecoms £'000	Water £'000	Head office £'000	Total £'000
Total revenue	7,249	15,687	49,849	36,427	106,525	27,230	72,771	377	316,115
Inter divisional revenue	-	(56)	(919)	(237)	(220)	(1,116)	(1,007)	(377)	(3,932)
Revenue	7,249	15,631	48,930	36,190	106,305	26,114	71,764	-	312,183
EBITA	4,876	3,154	4,601	4,462	8,939	5,078	6,327	(7,573)	29,864
Exceptional operating expenses	(103)	-	-	-	-	-	(79)	(40)	(222)
Amortisation of intangible fixed assets	(1,781)	(558)	(257)	(1,758)	(30)	(278)	(345)	-	(5,007)
Finance expenses - net	-	-	-	-	-	-	-	(7,501)	(7,501)
Profit before tax	2,992	2,596	4,344	2,704	8,909	4,800	5,903	(15,114)	17,134
Tax	-	-	-	-	-	-	-	(3,447)	(3,447)
Profit for the year	2,992	2,596	4,344	2,704	8,909	4,800	5,903	(18,561)	13,687

The segment results for the year ended 29 April 2007 are as follows: 

	Billing £'000	Energy £'000	Facilities £'000	Gas £'000	Electricity £'000	Telecoms £'000	Water £'000	Head office £'000	Total £'000
Total revenue	-	12,179	43,618	10,491	90,065	19,618	54,487	361	230,819
Inter divisional revenue	-	(18)	(119)	-	(226)	(1,261)	(295)	(340)	(2,259)
Revenue	-	12,161	43,499	10,491	89,839	18,357	54,192	21	228,560
EBITA	-	1,711	4,028	992	6,761	3,541	5,221	(6,058)	16,196
Amortisation of intangible fixed assets	-	(356)	(191)	(437)	(2)	(239)	-	-	(1,225)
Finance expenses - net	-	-	-	-	-	-	-	(2,727)	(2,727)
Profit before tax	-	1,355	3,837	555	6,759	3,302	5,221	(8,785)	12,244
Tax	-	-	-	-	-	-	-	(3,247)	(3,247)
Profit for the year	-	1,355	3,837	555	6,759	3,302	5,221	(12,032)	8,997

5.  Consolidated statement of changes in shareholders' equity

								2008	2007
								£'000	£'000
Total recognised income attributable to equity shareholders								13,687	8,997
Dividends paid in the year								(2,325)	(1,306)
IFRS 2 Share based payments charge								2,004	2,000
(Decrease)/ increase in IFRS 2 deferred tax asset								(151)	4,063
S23 tax relief on the exercise of share options								1,242	982
Payment to acquire own shares (ESOP)								(1,368)	(1,305)
Proceeds from exercise of share options								971	1,087
Issue of shares								38,529	20,000
Costs of share issue								-	(539)
Net addition to equity shareholders' funds								52,589	33,979
Opening equity shareholders' funds								75,204	41,225
Closing equity shareholders' funds								127,793	75,204

6 Notes to the cash flow statement

6a) Cash generated from operations

							2008	2007
							£'000	£'000
Operating profit							24,635	14,971
Depreciation of property, plant and equipment							3,971	2,994
Amortisation of intangible fixed assets							5,007	1,225
IFRS 2 Share based payments charge							2,004	2,000
Loss on sale of property, plant and equipment							62	11
(Increase)/decrease in inventories							(6,581)	70
Increase in receivables							(328)	(15,943)
Increase in payables							1,849	11,007
Net cash generated from operations							30,619	16,335

6b) Analysis of net debt

						At				At
						30 April	Cash	Non cash		30 April
						2007	flows	movements	Acquisitions	2008
						£'000	£'000	£'000	£'000	£'000
Bank overdraft						(1,950)	(6,587)	-	-	(8,537)
Decrease in cash during the year						(1,950)	(6,587)	-	-	(8,537)
Bank loans due within one year						(2,824)	2,824	-	-	-
Bank loans due after one year						(29,200)	(87,800)	-	-	(117,000)
Finance leases due within one year						(249)	180	(91)	(86)	(246)
Finance leases due after one year						(38)	-	91	(125)	(72)
Net debt						(34,261)	(91,383)	-	(211)	(125,855)

Net debt excludes any monies which are held on behalf of the Group's customers. Such monies are disclosed separately on the face of the balance sheet.

6c) Reconciliation of net cash inflow to movement in net debt

									2008	2007
									£'000	£'000
Decrease in cash in the year									(6,587)	(1,936)
Dividends paid									(2,325)	(1,306)
Net proceeds received from share issue									-	19,461
Proceeds from exercise of share options									971	1,087
Payment to acquire own shares (ESOP)									(1,368)	(1,305)
Loan notes redeemed									2,824	10,649
Cash inflow from financing									(84,898)	(33,534)
Change in net debt resulting from cash flows									(91,383)	(6,884)
Loan notes issued									-	(13,473)
New and acquired finance leases									(211)	(327)
Net debt at 30 April 2007									(34,261)	(13,577)
Net debt at 30 April 2008									(125,855)	(34,261)

7.  Availability of annual report

The Annual report will be sent to all shareholders on 31 July 2008. Copies may be obtained from the Company Secretary at the Registered Office of the Company at Wellfield House, Victoria Road, Morley, Leeds LS27 7PA. 

 

END

 

 

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