Final Results
Spice PLC
09 July 2007
9 July 2007
Spice plc
Final results - year ended 29 April 2007
Spice plc ("Spice" or "the Group"), the provider of outsourced infrastructure
support services to the Commercial, Public and Utility Sectors, is pleased to
announce record results for the year ended 29 April 2007.
Financial highlights
• Profit before tax of £10.1 million (2006 restated: £6.8 million) - 48%
increase
• Profit before tax and amortisation of £13.8 million (2006 restated: £8.4
million) - 65% increase
• EBITA* of £16.3 million (2006 restated: £9.2 million) - 77% increase
• Operating profit converted into operating cash flow - 130% (2006 restated:
128%)
• Diluted earnings per share of 15.1 pence (2006 restated: 12.0 pence) - 26%
increase
• Adjusted diluted earnings per share of 22.7 pence (2006 restated: 15.7
pence) - 45% increase
• Total dividend of 4.0 pence per share (2006: 2.6 pence) - 54% increase
* EBITA comprises profit on ordinary activities before interest, tax and
amortisation of intangible fixed assets.
2006 comparative numbers have been restated, where appropriate, to reflect the
adoption of FRS 20 Share based payments.
Operational highlights
• October 2006 - Hutchison Team Telecom agrees five year framework agreement
with Huawei
• November 2006 - Creation of Public Services division
• December 2006 - Freedom renews EDF Energy maintenance contract for a
further five years
• December 2006 - Meter U agrees a new four year partnership agreement with
Siemens
• December 2006 - H20 agrees four year framework agreement with Anglian Water
• March 2007 - Freedom agrees major substation projects and overhead lines
contracts with EDF Energy
• 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
Simon Rigby, Chief Executive Officer, commented:
"We have delivered a strong performance with a 77% increase in profits (20% of
which is pure organic growth) in the year for our shareholders."
"We are pleased with the overall Group performance and trading is in line with
our expectations, with good underlying visibility of earnings. Spice is well
placed to continue to grow organically (including by cross selling across
operating divisions) within its expanding markets, and continues to pursue
complementary acquisition opportunities."
"We have very clear visibility going forward, the right team, group structure
and infrastructure to take Spice through its next phase of growth and
development."
"The Board looks to the future with confidence."
- Ends -
For further information, please contact:
Spice Tel: 0113 384 3838
Simon Rigby, Chief Executive Officer
Oliver Lightowlers, Group Finance Director
Carl Chambers, Corporate Development Director
Financial Dynamics Tel: 020 7831 3113
Billy Clegg
Caroline Stewart
KBC Peel Hunt Tel: 0207 4188900
Julian Blunt
Chairman's statement
Introduction
I am delighted to present our full year results for 2007, which has again proved
to be another record year 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.
Turnover for the year was £228.6 million (2006: £132.9 million) and profit
before interest, tax and the amortisation of intangible fixed assets (EBITA) was
£16.3 million (2006 restated: £9.2 million), increases of 72% and 77%
respectively. At the same time our EBITA operating margins improved to 7.1%
(2006 restated: 6.9%).
Diluted earnings per share, adjusted for the amortisation of intangible fixed
assets, increased by 45% to 22.7 pence per share (2006 restated: 15.7 pence per
share). I am also pleased to report that the Board is recommending a final
dividend of 3.0 pence per share, making a total dividend of 4.0 pence per share
for the year (2006: 2.6 pence), an increase of 54%.
Group Board
In September 2006, Michael Shallow joined the Board as a Non-Executive Director.
Michael has significant public company experience and a wealth of financial and
strategic skills. At that time, Nick Rodgers stepped down from the Board. I'd
like to thank Nick for his hard work and significant contribution to the growth
and success of Spice over the course of the past three years.
More recently in May 2007, Tim Huddart joined the Board as a Non-Executive
Director. Tim has many years' experience, and a distinguished track record, in
the City. Tim has significant experience of advising major FTSE companies and
his expertise and insight, as well as Michael's, will significantly strengthen
the Board as Spice enters its next phase of growth and development.
Our people
The success that we have achieved has been made possible by the hard work of our
staff. 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.
We have a strong team at all levels within the Group and it is pleasing to now
see nearly 1,000 employees of Spice participating in our Sharesave scheme.
Strategy
The year has been notable for a series of contract wins and renewals with
customers including EDF Energy, Yorkshire Water, United Utilities, Siemens and
Anglian Water. These successes extend across each of our three operating
divisions and mean that we have never had, at any point in the Group's history,
better visibility of future revenues.
Group strategy remains unchanged and we continue to be focussed on growing the
business organically. Our like for like organic EBITA growth was 20% for the
year. At the same time, we will continue to pursue complementary acquisition
opportunities. The addition of Inenco has been transforming to our Commercial
Services' business and we have also taken the opportunity to expand our service
offering through the formation of our Public Services division. The overlap
between our three divisions has never been stronger and has created an enviable
platform for cross selling which has begun to make a tangible contribution to
earnings.
Outlook
Many new exciting opportunities exist for the new financial year, which has got
off to an excellent start. We enter the new financial year with confidence.
Finally, I would like to thank our shareholders for their continued support over
the course of the past 12 months.
Sir Rodney Walker
Chairman
9 July 2007
Chief Executive Officer's statement
Spice provides outsourced infrastructure support services to three sectors;
Commercial Services, Public Services and Utility Services. Looking at each in
turn:
Commercial Services
Energy
Our Energy Services business was formed in June 2006 through the acquisition of
Inenco, a leading UK energy management business. In the period since
acquisition, I am pleased to report that Energy Services has performed ahead of
plan and made a strong contribution to Group results, recording EBITA of £1.7
million.
During the year we have successfully renewed several key customer relationships
including Crown Plastic, Abbey and Johnsons Cleaners together with the addition
of many new customers, including blue chip household names such as BhS, Kellogg
and Spirit Group. Over the course of the year, Inenco has doubled the number of
customers taking services across both the cost control and consultancy sides of
the business. The results for the year are also enhanced by cross selling the
Inenco service range into other parts of the Group. Our Facilities Services
business introduced TK Maxx to Inenco's energy procurement and invoice
validation services. Similarly other Spice businesses have successfully been
introduced to Inenco's customers resulting in contracts to refurbish heating and
ventilation systems for John Swires and to survey meter installations for Spirit
Group.
We have successfully extended the range of services provided to several of our
large and key customers with a number choosing to outsource the process of
invoice validation and payment to Inenco, from their own back offices (J
Sainsbury and TK Maxx). Our invoice validation services have created significant
savings for customers and in the process have created opportunities for other
Group companies. In the case of J Sainsbury we introduced the Group's Water
Services business which has successfully undertaken a number of conservation and
water usage audits across several stores.
In a year of extreme energy price volatility the provision of procurement
services has undoubtedly been the dominant contributor to Inenco's result.
Prospectively, we anticipate significant growth in consultancy services as more
of our customers begin to understand their impact on the environment and
actively seek to reduce this. We have invested in developing our range of
environmental services including energy and carbon management services and our
carbon management programme is accredited by the Carbon Trust. In addition we
are steadily increasing the number of commercial smart meters installed at
customer sites in order to improve the billing performance of suppliers through
a reduction in estimated readings. Smart meters also provide valuable management
data to assist in reducing energy usage.
Although energy prices have recently fallen, continued volatility is expected to
maintain demand for our procurement services and with environmental concerns
remaining high on boardroom agendas we believe that Inenco is very well
positioned to exploit the market trends and conditions that exist and to grow
the business accordingly. A number of our customers, such as Marks & Spencer,
are publicly interested in acquiring green energy through investment into
renewable generation schemes and we have actively developed our capability and
are already seeing firm orders from customers in this area. We have expectations
of good growth in these services over the coming year.
Facilities
Facilities Services reported EBITA of £4.0 million (2006: £1.5 million) for the
year, an increase of 160%. These results include a contribution for the first
time of £1.0 million from Breval.
During the year, Serviceline won a number of new clients including TK Maxx, The
Body Shop, Swatch, Knight Frank and Nelson Bakewell. We are also doing
significantly more for existing clients such as Waterstone's, which added 130
stores to its estate following its acquisition of Ottakers. The number of tasks
handled by Serviceline on behalf of its clients has nearly doubled over the
course of the year.
In March 2007 we acquired Atlanta, a small facilities management business
located close to our Aylesbury head office. Atlanta provides similar management
services to our existing Serviceline business for customers including Virgin,
Carpetright and Monsoon. These services have historically been delivered through
a sub-contractor network but there are significant opportunities for direct
service delivery via Circle Britannia. This direct service delivery opportunity
is the main focus of our integration activities as we bring Atlanta into our
existing operations. The acquisition of Atlanta also extends the cross selling
opportunities available to the Group, most notably for Inenco.
Circle Britannia's planned and reactive maintenance business, and its small
works operations, benefited considerably from Serviceline's growth during the
year with greater volumes of work bring referred. At the same time, Circle
Britannia has enjoyed a 100% increase in the volume of domestic insurance
reinstatement work undertaken on behalf of Norwich Union. This has included more
work in our existing Norwich Union post codes, the award of additional post code
areas and the award of commercial insurance reinstatement works. In Scotland, we
have begun to develop strong relationships with social housing providers such as
Home Scotland and Fife Housing Association and we are optimistic that these
relationships will further develop over the course of the new financial year.
In June 2006, we acquired Breval which specialises in the design, installation
and maintenance of heating, ventilation and air-conditioning (HVAC) systems and
also provides specialist asbestos removal services. Breval's operations have an
excellent fit with our existing operations and Breval has undertaken a number of
projects for existing customers, on the back of our cross selling initiative,
including Starbucks and Waterstone's. Breval's asbestos removal expertise has
also been utilised within Electricity Services. We are optimistic that other
opportunities will crystallise for Breval as we move forward into the new
financial year.
The facilities outsourcing sector continues to be competitive but we expect that
the outlook and demand for providers of building fabric maintenance, such as
Circle Britannia and Breval, will remain positive.
Public Services
Gas
Our Public Services division was created in November 2006 following Spice's
acquisition of Apollo, closely followed by the acquisition of ParGas in December
2006. Both businesses provide gas services in the social housing market and are
responsible for the management and delivery of long term gas maintenance
contracts to housing associations, local authorities and private landlords. In
the period since acquisition, the business has performed in line with
expectations and contributed EBITA of £1.0 million to the result for the year.
Prior to the formation of our Public Services division, we spent a considerable
period of time evaluating the public sector market in order to determine our
point of entry. Whilst the social housing market in the UK is large, we believe
that there is a high probability of Government spend being subject to
significant fiscal drag. Our entry point into this market is less prone to such
fluctuations since compliance with gas safety regulations is non discretionary.
At the time of acquisition, Apollo and ParGas had service and maintenance
agreements covering approximately 87,000 properties with such agreement being
typically for periods of between two and five years. Following recent contract
wins including New Prospect Housing Association, we enter the new financial year
with maintenance agreements now covering in excess of 100,000 properties. Other
customers include Circle Anglia Housing Association and Contour Homes. We also
provide gas meter replacement services and emergency first response services to
gas distribution businesses such as National Grid, which involves identifying
and making safe gas leaks. Since formation, Public Services has been able to
grow this activity by offering first response services in North West as well as
the South of England.
The integration of Apollo and ParGas into the Group is progressing to plan and
we would expect to obtain efficiencies on future acquisitions through extending
our existing work planning systems into new acquisitions to reduce delivery
costs, whilst providing our customers with real time feedback on progress. This
has proved to be a considerable success to date. Client satisfaction is
increasing as customers can view, add and monitor jobs in real time at their own
terminals creating real time and efficiency savings.
Subsequent to the end of the financial year, we completed the acquisition of
Homerton which extends our geographic footprint in the South of England. Public
Services now has over 300 CORGI registered gas engineers and the retention of
these engineers plus the recruitment of new engineers is very important to the
continued development and organic growth of the business. Acquisitions made to
date have given the Group geographic coverage of the North West and South East
of England. Having established strong bridgeheads into the public services
sector, our strategy is to continue to grow our network to provide national
coverage using significant established regional businesses and brands. We will
then utilise our national networks to further expand our presence within gas
meter operations and the commercial gas maintenance sector. We believe that we
have a strong platform from which to do this.
Utility Services
Electricity
During the year, we completed the alignment of the business into the Freedom
service island structure. We are now able to tackle any electrical network
issue, project or programme of works with expertise across every element. We are
able to provide our customers with a comprehensive "cradle to grave" service
which is reflected within our rapid growth over this year. Electricity Services
increased EBITA by 54% from £4.4 million to £6.8 million.
Electricity Services has particularly benefited from the consolidation of
several contracts across the UK, particularly in the EDF Energy footprint:
• May 2006 - Freedom Volume Asset Replacement was selected to undertake
11kV/LV work in the South East and East of England.
• December 2006 - Freedom Asset Care was selected to maintain substation
assets across all three of EDF Energy's licence areas. We were previously
incumbent in two out of three areas and therefore this contract represented
a substantial expansion of works.
• December 2006 - Freedom Power Projects was selected as a key service
partner to upgrade EDF Energy's major 132/33KV substations throughout the
South East and East of England.
• March 2007 - Freedom Power Lines was selected by EDF Energy as a key
service partner in relation to all 33kV overhead line projects.
These contracts cover all service activities within Freedom and are generally
for four years with options to extend for further five year periods. This
provides excellent visibility of future revenues for the business. We are now
working alongside EDF Energy in jointly staffed offices in Colchester and
Sevenoaks and began to receive our first design orders under the new workstreams
towards the end of the financial year.
During the course of the year, Electricity Services has also won other
significant work and contracts elsewhere in the UK. The year has seen
significant growth in Freedom Power Lines with new contracts in CE Electric
(Yorkshire Electricity and Northern Electric). Freedom Volume Asset Replacement
now has contracts with CE Electric and Central Networks as well as EDF Energy,
making it the largest switchgear replacement business in the UK. Freedom Power
Projects won a three year framework contract with Scottish Power relating to
major substation design.
Freedom Consultancy Services has grown significantly in the year and contributed
strongly to our results. As most of our traditional customers downsize, we
expect that this downsizing will continue to create significant opportunities
for our Consultancy Services business and that this will be an area of major
focus for us over the new financial year.
Freedom Network Solutions, which was formed from our Maintech, Baineport and
Lamva businesses, now focuses its attention on the UK's private electricity
networks. During the year, we have doubled the number of sites which we maintain
to in excess of 800 private networks. We continue to expect significant growth
from this market and are well positioned to take advantage.
Shortly before the end of the financial year we completed the acquisition of
Optimal, which provides professional services to utility companies, including
Scottish Power and specialises in the provision of training personnel,
electrical design, project management engineers and wayleaving services. Optimal
strengthens our service structure and reinforces Freedom's position as a market
leader within the UK.
Telecoms
Our Telecoms infrastructure support services business recorded EBITA for the
year of £3.5 million (2006: £2.4 million). This represents an improvement over
the previous year's performance of some 46%. Each of our businesses has enjoyed
strong trading conditions in their respective markets. Orders booked are some
40% ahead of last year with many more of our long term framework agreements
(including Huawei and Transport for London) now starting to deliver revenue and
profits. We believe that our Telecoms business is well positioned for the new
financial year.
Air Radio continues to perform well with the mobile data contract for BA
(British Airways) won in the first half now adding to revenues as planned.
Revenues have been further boosted by an increased workload generated from
Terminal 5 work as BA prepares for its operational "ready for service date". I
am also pleased to report that the business has continued to grow its non BA
business and has won several long term (five year) contracts with ground
handling companies (such as Aviance) for UK wide radio services. The digital
radio system (AR-en) launched in September 2006 at Birmingham was not only the
first of its kind in the UK but has been received with universal support from
our clients as it has proved to be a highly reliable system giving superior
voice quality and enhanced data capabilities. Meanwhile at Heathrow the business
has also upgraded its main radio network to Team Simoco's new Xfin technology,
producing additional customer capacity in the process. The development of
further UK airports remains firmly on our agenda and we are confident that
several will be introduced within the first half of our new financial year.
The integration of Team Telecom and Hutchison is fully completed and we are now
seeing the benefits of the merger that we anticipated. During the year we have
secured long term framework agreements for the build and support of landline
network role outs with Huawei for their BT21CN (British Telecom's 21st century
network) contract and non BT work as well as similar agreements with Alcatel and
Infinera. We have also renewed and expanded our first line maintenance and
support contract with our long standing client, Interoute, for a further three
years. The business now provides these services in 12 European countries for
several fixed line network operators and our aim is to steadily expand the
customer base, product range and geographic footprint as the market itself
grows.
Team Simoco has benefited from the introduction of its new Xfin and TETRA G
product ranges, sales of both exceeding expectations, resulting in a much
improved trading performance compared to the previous 12 month period. During
the year, we designed and installed the new private mobile radio (PMR)
communications system at Wembley Stadium. We also secured a five year framework
agreement with London Underground for the redevelopment and replacement of radio
network infrastructure at their stations. The business was also able to open
three new sales offices based in China, America and South Africa in order to
capitalise on the opportunities for our products in these significant markets
and we achieved our first significant TETRA G system sale into China which we
believe will be an excellent reference point for future sales in the region.
Over 75 new distributors were added to our world-wide sales distribution network
in the period, already building orders and prospects for the new financial year.
Shortly after the start of the new financial year, we were also pleased to
announce the signing of a contract with Western Power Distribution to design,
supply and install a new PMR communications system across over 100 radio site
locations in the South West of England and South Wales. This is a major upgrade
of Western Power Distribution's existing system and utilises Team Simoco's
advanced Xfin trunked radio technology. The contract represents a major
undertaking and will provide a significant benefit to the Group's results during
2008. The contract also includes a nine year maintenance agreement and we
anticipate having the opportunity to bid for other similar opportunities in due
course, as the UK's telecoms infrastructure is updated.
Water
Water Services enjoyed another successful year reporting EBITA of £5.2 million
(2006: £4.5 million) an increase of 15%. Strong levels of organic growth have
been recorded within all of our businesses.
H20, which provides clean water services to both utility companies and
commercial customers, made another significant contribution to the division. H20
continues to differentiate itself from competitors, through customer focused
processes, innovation, system capabilities and a flexible approach to meeting
client targets and objectives. This has resulted in the renewal of our Yorkshire
Water contract to provide meter installation services for three years (with an
option to extend for a further two years) and an anticipated increased service
provision to include repair and maintenance of Yorkshire Water's asset
infrastructure. We have also renewed our contract to provide meter installation
services to United Utilities for three years (with an option to extend for two
years) and we continue to be the sole provider of meter installation services to
United Utilities across the whole of their network. The renewal of our contracts
with United Utilities and Yorkshire Water provides excellent future visibility
of revenues for Water Services.
Elsewhere in the year, we have also secured contracts with new customers
including Anglian Water where we are undertaking water meter installations and
replacements as well as leakage detection. In addition, following the successful
completion of a meter installation pilot for Scottish Water we have signed a
contract to install meters to March 2009. At least two significant tender
opportunities to provide meter installation services to existing customers are
expected to be issued during the new financial year. On the back of our proven
expertise in this area we would be optimistic of winning some of this work.
The integration, last year, of Kemac into our business has created significant
opportunities for us to sell technical services to water companies in the North
and meter operations to water companies in the South. The benefits of this
acquisition have begun to be realised via new customers such as Anglian Water
and securing additional work with Northumbrian Water and Thames Water.
Economic and regulatory environment pressures surrounding meters remain
favourable and we anticipate that this trend will continue. These pressures have
also created other opportunities for the business which we have exploited
through the development and establishment of our leakage detection and repair
service and also our water efficiency service which is now being provided to
both water utility companies as well as commercial clients including Formica, De
Gussa Chemicals and J Sainsbury.
Metro Rod has enjoyed another successful year with double digit growth in
profits. A number of new clients were secured during the year including BUPA and
Wetherspoons. The introduction of a new integrated job management system during
2008 will allow us to improve efficiency, and service to our customers.
Furthermore we expect that through leveraging off H20's client base, further
opportunities will be created to provide services to water utility companies in
the future.
Meter U has continued its strong organic growth. Our franchised workforce of
over 600 meter readers is now undertaking 19 million reads per year. During the
year we extended our partnership agreement with Siemens to 2010. This gives us a
firm foundation for the future. We are also continuing to explore further
opportunities with Siemens.
Cross selling
The Group has made significant progress with its cross selling initiatives over
the past 12 months and certain of our successes have been documented within this
report. We are continuing to seek to make cross selling endemic in what we do.
Cross selling is going to continue to form an important part of our future
growth strategy and we remain convinced that the complementary skills that exist
within our three divisions, and the degree to which these businesses overlap
each other, creates an exceptionally strong platform from which to convert
opportunities into earnings.
We remain focussed on converting these existing opportunities over the new
financial year but also developing new opportunities as well.
Head office
Head office costs are mainly comprised of salaries, including the Group's HR and
IT functions, and also professional costs. Costs have increased over the course
of the year mainly as a result of the adoption of FRS 20 but also as a result of
our investment in IT to support the enlarged Group.
Acquisitions
Six acquisitions have been made during the year, which are summarised below.
Maximum
potential
Initial net contingent
consideration consideration
£'m £'m
Breval 8.3 -
Inenco 9.0 2.8 Contingent consideration
based on performance to
March 2008
Apollo 9.7 -
ParGas 9.5 -
Optimal 0.3 -
Atlanta 0.8 0.2 Contingent consideration
based on performance to
April 2008
37.6 3.0
Initial net consideration in respect of these acquisitions totals £37.6 million.
At the start of the financial year, the Group had a provision totalling £7.0
million in relation to deferred contingent consideration payable on acquisitions
made in previous years. This provision relates to the acquisitions of Air Radio,
Hutchison, Kemac, Baineport and Maintech. During the year a total of £1.6
million has been paid in relation to Kemac, Baineport and Maintech. A provision
of £5.2 million has been carried forward in relation to prior year acquisitions
(principally Hutchison, Kemac and Air Radio). The Group expects to make earn out
payments for Hutchison, Kemac and Maintech in the first half of the new
financial year. The Air Radio payment is not expected to fall due until the year
ending 2009.
Outlook
We are pleased with the overall Group performance and trading is in line with
our expectations, with good underlying visibility of earnings. Spice is well
placed to continue to grow organically (including by cross selling across
operating divisions) within its expanding markets and continues to pursue
complementary acquisition opportunities. We have very clear visibility going
forward, the right team, group structure and infrastructure to take Spice
through its next phase of growth and development. The Board looks to the future
with confidence.
W S Rigby
Chief Executive Officer
9 July 2007
Financial review
The financial performance of the Group continues to be strong. We have recorded
20% like for like organic EBITA growth in the business. Acquisitions made during
the year have also contributed to the results. Operating margins have improved
during the year. Our rate of cash conversion and also generation continues to be
particularly pleasing and remains a main feature of the business.
Turnover
During 2007, turnover increased by 72% to £228.6 million (2006: £132.9 million),
of which acquisitions contributed £28.7 million.
Profit on ordinary activities before interest, tax and amortisation of
intangible fixed assets (EBITA)
EBITA increased by 77% to £16.3 million (2006 restated: £9.2 million). The table
below identifies the driving factors behind this growth including separately
identifying the part year effect of acquisitions made during 2006.
2007 2006
£'m £'m
as restated
EBITA
Existing operations 11.8 9.8
2007 acquisitions 3.7 -
Part year effect of 2006 acquisitions 2.8 -
FRS 20 Share based payment charge (2.0) (0.6)
16.3 9.2
The table shows that EBITA from existing operations, excluding the effect of
adoption of FRS 20, was £11.8 million (2006: £9.8 million), representing organic
growth of 20% for the year. Separately, acquisitions made during 2007
contributed £3.7 million to EBITA.
Spice made various acquisitions during 2006, which contributed to EBITA for part
of that year but which have contributed to EBITA for the whole of the year ended
April 2007. For example, Circle Britannia was acquired in September 2005. Its
results for the period between September 2006 and April 2007 are shown within
existing operations, as are the comparative numbers for the period from
acquisition to April 2006. The results of Circle Britannia for the period
between May and August 2006 are shown within the part year effect of 2006
acquisitions. Other 2006 acquisitions, part of whose performance contributes to
this line, are Kemac, Hutchison, Lamva, Baineport and Maintech.
EBITA operating margins for the Group improved to 7.1% (2006 restated: 6.9%).
Underlying operating margins, excluding the effect of the adoption of FRS 20
were 8.0% (2006: 7.4%).
Interest
Interest payable for the year was £2.4 million (2006: £0.8 million). The higher
interest charge is caused by bank debt used to fund the various acquisitions
made during the course of the year and also in 2006.
In March 2007, we again took the opportunity to re-negotiate our banking
facilities with HSBC Bank. These discussions also coincided with the syndication
of our revolving credit facility, to include Barclays Bank, KBC Bank and Lloyds
Bank and have resulted in the Group's banking facilities being on significantly
better terms.
The Group's banking covenants are based around earnings before interest, tax,
depreciation and amortisation (EBITDA). EBITDA interest cover for the year was 8
times (2006 restated: 14 times).
Profit on ordinary activities before tax and amortisation of intangible fixed
assets (PBTA)
PBTA increased by 65% to £13.8 million (2006 restated: £8.4 million).
Profit on ordinary activities before tax
Profit on ordinary activities before tax increased by 48% to £10.1 million (2006
restated: £6.8 million). The Group's amortisation charge has increased
significantly from £1.6 million to £3.8 million during the year which is
attributable to amortisation on intangible fixed assets arising on acquisitions
made in 2007 and 2006.
Tax
The Group's effective rate of tax for the year was 25.4% (2006 restated: 23.0%)
which is lower than the standard rate of tax principally as a result of tax
relief arising on the exercise of share options and the utilisation of prior
year tax losses. In addition, tax issues relating to prior years which had been
assumed not to be allowable for tax purposes have subsequently been agreed with
HMRC as being allowable.
Earnings per share
Diluted earnings per share at 15.1 pence (2006 restated: 12.0 pence) increased
by 26% and adjusted diluted earnings per share (before amortisation of
intangible fixed assets) at 22.7 pence (2006 restated: 15.7 pence) increased by
45%.
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 3.0 pence (2006: 1.9 pence) per
share payable on 18 September 2007 to shareholders on the register at 7
September 2007. An interim dividend of 1.0 pence per share (2006: 0.7 pence) was
paid on 13 February 2007, making a total dividend of 4.0 pence per share (2006:
2.6 pence per share) for the year. The dividend is covered 3.2 times by earnings
(2006 restated: 4.5 times).
Cash flow
Net cash inflows from operating activities increased by £6.5 million to £16.3
million (2006: £9.8 million). The Group converted 130% of operating profit into
operating cash flow (2006 restated: 128%). During the year working capital
utilised increased by circa. £5.0 million (2006: £2.0 million) connected
principally with investment within our Facilities and Electricity businesses.
Capital expenditure increased due to expenditure related to our BA contract
within Air Radio and also due to the purchase of Wellfield House after
shareholder approval was obtained at our Annual General Meeting in September
2006.
In March 2007, the Group placed 4,000,000 new shares at a price of 500 pence
with institutional and other investors to raise net proceeds of approximately
£19.4 million.
Balance sheet
Net assets have increased to £67.3 million (2006 restated: £39.8 million),
reflecting the net placing proceeds together with retained profits and cash
generated from the exercise of employee share options. The net placing proceeds
were used to repay bank debt.
Net debt is £34.3 million (2006: £13.6 million). The increase is attributable to
consideration paid in respect of acquisitions and the settlement of certain earn
outs connected with acquisitions
Changes in UK accounting standards
On 1 May 2006, the Group adopted FRS 20 Share based payments. FRS 20 seeks to
reflect the cost of share based remuneration, including option schemes, within
the profit and loss account. Comparative numbers have been restated to reflect
the impact of the adoption of FRS 20 where appropriate.
International Financial Reporting Standards (IFRS)
The Group's interim results for the period ending October 2007 will be prepared
under IFRS. We expect to issue our transition statement at the time of the
announcement of those results or shortly before that announcement.
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.
O J Lightowlers
Group Finance Director
9 July 2007
Consolidated profit and loss account for the year ended 29 April 2007
Note 2007 2006
£'000 £'000
as restated
Turnover:
- continuing operations 199,879 132,930
- acquisitions 28,681 -
Turnover 2 228,560 132,930
Cost of sales (163,420) (93,360)
Gross profit 65,140 39,570
Administrative expenses (52,610) (31,951)
EBITA 16,296 9,215
Amortisation of intangible fixed assets (3,766) (1,596)
Operating profit:
- continuing operations 10,041 7,619
- acquisitions 2,489 -
Operating profit 12,530 7,619
Net interest payable (2,444) (797)
Profit on ordinary activities before tax 10,086 6,822
Tax on profit on ordinary activities (2,561) (1,566)
Profit on ordinary activities after tax 7,525 5,256
Dividends 3 (1,306) (943)
Retained profit for the year 6 6,219 4,313
Earnings per share (pence per share)
Basic 4 16.5 12.6
Diluted 4 15.1 12.0
EBITA comprises profit on ordinary activities before interest, tax and
amortisation of intangible fixed assets.
Consolidated balance sheet as at 29 April 2007
Note 2007 2006
£'000 £'000
as restated
Fixed assets
Development expenditure 832 825
Goodwill 77,272 41,458
Intangible fixed assets 78,104 42,283
Tangible fixed assets 18,330 13,623
Investments 212 212
96,646 56,118
Current assets
Stock 6,688 4,264
Debtors 56,284 32,672
Cash at bank and in hand - -
62,972 36,936
Creditors - amounts falling due within one (57,696) (33,294)
year
Net current assets 5,276 3,642
Total assets less current liabilities 101,922 59,760
Creditors - amounts falling due after more (29,238) (12,237)
than one year
Provisions for liabilities and charges (5,376) (7,677)
Net assets 67,308 39,846
Capital and reserves
Called up equity share capital 5,347 4,947
Share premium account 46,523 27,462
Revaluation reserve 2,103 2,103
Capital redemption reserve 100 100
Profit and loss account 13,235 5,234
Equity shareholders' funds 6 67,308 39,846
Consolidated cash flow statement for the year ended 29 April 2007
Note 2007 2006
£'000 £'000
Net cash inflow from operating activities 7a) 16,335 9,780
Returns on investments and servicing of
finance
Net interest paid (2,424) (789)
Interest element of finance lease payments (20) (8)
Net cash outflow from returns on (2,444) (797)
investments and servicing of finance
Tax paid (3,318) (785)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (6,030) (2,286)
Development expenditure (246) (335)
Sale of tangible fixed assets 269 481
Net cash outflow from capital expenditure (6,007) (2,140)
and financial investment
Acquisitions
Purchase of subsidiary undertakings (46,112) (33,028)
Net cash acquired with subsidiary 6,076 3,301
undertakings
Net cash outflow from acquisitions (40,036) (29,727)
Equity dividends paid (1,306) (943)
Net cash outflow before financing (36,776) (24,612)
Financing
Principal repayment due under finance (170) (79)
leases
Sale of investments - own shares 1,087 1,102
Purchase of investments - own shares (1,305) -
Net proceeds from issue of shares 19,461 14,527
Bank loan repayments (73,601) (16,516)
Bank loan advances 89,368 28,277
Net cash inflow from financing 34,840 27,311
(Decrease) / increase in net cash 7c) (1,936) 2,699
Notes to the preliminary announcement for the year ended 29 April 2007
1 Basis of accounting
The audited consolidated financial information for the year ended 29 April 2007
has been prepared in accordance with applicable UK accounting standards and is
consistent with accounting policies applied in the financial statements for the
year ended 30 April 2006, with the exception of the adoption of FRS 20 Share
based payments which was adopted on 1 May 2006. Comparative numbers have been
restated to reflect the impact of the adoption of FRS 20. The financial
information included in this announcement has been extracted from the audited
financial statements for the years ended 29 April 2007 and 30 April 2006. 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 2007 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 Group's 2006 accounts, which contain an unqualified audit report,
have been filed with the Registrar of Companies.
2 Turnover
Turnover, which excludes value added tax, arises from several activities.
Turnover is recognised in the profit and loss account at the point that a
service is provided or products are supplied for each of the following
activities:
• facilities management and maintenance services;
• consultancy, infrastructure design and asset maintenance services;
• private mobile radio products;
• drain care, maintenance, repair and cleaning services;
• water meter installation and meter reading;
• services for the development and support of telecommunications networks;
• gas maintenance and safety inspections;
• energy, water and telecommunications cost control; and
• information technology installation, commissioning and maintenance
activities.
Where the Group operates as principal to the transaction, turnover is recognised
at gross values. Where the Group acts as agent in the transaction, with the
franchisee being the principal, the Group recognises within turnover the net
commission earned on the transaction.
3 Dividends
2007 2006
£'000 £'000
Amounts recognised as a distribution from shareholders' funds during the
year
Final dividend paid of 1.9 pence per share for the year ended 30 April 854 633
2006
(2005: 1.7 pence)
Interim dividend paid of 1.0 pence per share for the year ended 29 April 452 310
2007
(2006: 0.7 pence) 1,306 943
Proposed final dividend paid of 3.0 pence for the year ended 29 April 2007 1,482 854
(2006: 1.9 pence)
Dividends amounting to £122,000 (2006: £93,000) 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 £1,482,000 (2006: £854,000) will
be paid on 18 September 2007 to those shareholders on the register at 7
September 2007.
In accordance with FRS 21, the final dividend for the year ended 29 April 2007
will be accounted for, following approval of that dividend, in the first half of
the year April 2008.
4 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:
2007 2006
'000 '000
Weighted average shares for basic earnings per share 45,566 41,667
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:
2007 2006
'000 '000
as restated
Weighted average shares for diluted earnings per share 49,799 43,646
Adjusted earnings per share have been calculated so as to exclude the effect of
the amortisation of all intangible fixed assets. Adjusted earnings per share
have been presented in order that the effects on reported earnings of the
amortisation of intangible fixed assets can be fully appreciated. Adjusted
earnings used in the calculation of basic and diluted earnings per share
reconciles to basic earnings as follows:
2007 2006
£'000 £'000
as restated
Basic earnings 7,525 5,256
Amortisation of intangible fixed assets 3,766 1,596
Adjusted earnings 11,291 6,852
Earnings per share (pence per share)
Basic 16.5 12.6
Diluted 15.1 12.0
Adjusted earnings per share (pence per share)
Basic 24.8 16.4
Diluted 22.7 15.7
No adjustment has been made for tax since the amortisation of intangible fixed
assets is not expected to be allowable for tax purposes.
5 Segmental analysis
The turnover for the year was derived from the Group's principal activities and
is attributable to the following markets:
By destination 2007 2006
£'000 £'000
UK 224,661 130,439
Continental Europe 3,165 2,126
Rest of the World 734 365
228,560 132,930
All turnover originates in the United Kingdom. The Group's profit before tax and
net assets all substantially arise from UK operations and consequently the
following analyses are presented by business segment only.
Turnover for the year is derived from the Group's principal activities as
follows:
2007 2006
£'000 £'000
Commercial Services
Energy 12,161 -
Facilities 43,499 17,332
Public Services
Gas 10,491 -
Utility Services
Electricity 89,839 58,875
Telecoms 18,357 13,954
Water 54,192 42,237
Head office 21 532
228,560 132,930
5 Segmental analysis (continued)
The Group's profit before tax was derived from its principal activities as
follows:
2007 2006
£'000 £'000
as restated
Commercial Services
Energy 1,711 -
Facilities 4,028 1,547
Public
Gas 992 -
Utility Services
Electricity 6,761 4,380
Telecoms 3,541 2,424
Water 5,221 4,522
Head office (5,958) (3,658)
EBITA 16,296 9,215
Amortisation of intangible fixed assets (3,766) (1,596)
Net interest payable (2,444) (797)
10,086 6,822
The Group's FRS 20 charge has been recorded within Head office for the purposes
of this segmental analysis.
6 Reconciliation of movement in equity shareholders' funds
2007 2006
£'000 £'000
as restated
Profit for the year 7,525 5,256
Dividends (1,306) (943)
Retained profit for the year 6,219 4,313
Unrealised surplus on revaluation of freehold land and buildings - 587
FRS 20 Share based payments charge 2,000 575
Payment to acquire own shares (1,305) -
Proceeds from sale of own shares 1,087 1,102
Issue of shares 20,000 15,565
Costs of share issue (539) (473)
Net addition to equity shareholders' funds 27,462 21,669
Opening equity shareholders' funds 39,846 18,177
Closing equity shareholders' funds 67,308 39,846
Opening equity shareholders' funds were originally stated as £18,142,000 at 1
May 2006 prior to the adoption of FRS 20.
7 Notes to the cash flow statement
7a) Reconciliation of operating profit to net cash inflow
2007 2006
£'000 £'000
as restated
Operating profit 12,530 7,619
Depreciation of tangible fixed assets 2,994 2,072
Amortisation of negative goodwill - (174)
Amortisation of intangible fixed assets 3,766 1,770
FRS 20 share based payments charge 2,000 575
Loss/(profit) on sale of fixed assets 11 (41)
Increase/(decrease) in stock 70 (1,367)
Increase in debtors (15,943) (5,637)
Increase in creditors and provisions 10,907 4,963
Net cash inflow from operating activities 16,335 9,780
7b) Analysis of net debt
At At
1 May Cash Non cash 29 April
2006 flows movements Acquisitions 2007
£'000 £'000 £'000 £'000 £'000
Bank overdraft (14) (1,936) - - (1,950)
Decrease in cash during the year (14) (1,936) - - (1,950)
Bank loans due within one year (1,267) 11,916 - (13,473) (2,824)
Bank loans due after one year (12,166) (17,034) - - (29,200)
Finance leases due within one (59) 126 (316) - (249)
year
Finance leases due after one year (71) 44 (11) - (38)
Net debt (13,577) (6,884) (327) (13,473) (34,261)
7c) Reconciliation of net cash inflow to movement in net debt
2007 2006
£'000 £'000
(Decrease)/increase in cash in the year (1,936) 2,699
Net proceeds received from share issue 19,461 14,527
Sale of investments - own shares 1,087 1,102
Payment to acquire own shares (1,305) -
Loan notes redeemed 10,649 -
Cash inflow from financing (34,840) (27,311)
Change in net debt resulting from cash flows (6,884) (8,983)
Loan notes issued (13,473) -
New and acquired finance leases (327) (146)
Net debt at 1 May (13,577) (4,448)
Net debt at 29 April (34,261) (13,577)
8 Availability of annual report
The annual report will be sent to all shareholders on 1 August 2007. Copies may
be obtained from the Company Secretary at the Registered Office of the Company
at Wellfield House, Victoria Road, Morley, Leeds, LS27 7PA.
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