Final Results

RNS Number : 5219V

Spice PLC

13 July 2009

 



13 July 2009

Spice plc

Annual Financial Results - year ended 1 May 2009

Spice plc ("Spice" or "the Group"), the provider of Total Utility Support Services, is pleased to announce record results for the year ended 1 May 2009.

Financial highlights

• PBTA* of £32.3 million (2008: £20.4 million) - 58% increase

• Increase in EBITA** operating margins to 10.3% (2008: 9.0%)

• Like for like EBITA organic growth - 12% (2008: 13%)

• EBITA converted into operating cash flow - 96% (2008: 109%)

• Adjusted diluted earnings per share of 7.11pence (2008: 5.31pence) - 33% increase 

• Total dividend of 1.5 pence per share (2008: 1.2 pence) - 25% 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.

 2008 comparative numbers have been restated, where appropriate, to reflect changes in accounting policy.

Operational highlights

• July 2008 - Completed move to the Official List

• July 2008 - Inenco independently confirmed as largest third party energy procurement intermediary

• September 2008  - Completion of placing to raise £50 million at 102 pence

• October 2008 - AirRadio renews British Airways contract for three years

• October 2008 - Revenue Assurance recovers £50 million for clients during Spice's first year of ownership 

• December 2008 - Establishment of Corby training centre

• February 2009 - Freedom extends contract with AT&T

• May 2009 - H2O extends United Utilities contract

• July 2009 - Freedom awarded contract for the provision of overhead line services by Scottish Power

Simon Rigby, Chief Executive Officer, commented:

"We have today reported another record set of results after a year of significant development for the Group including our move from AIM to the Official List. Despite the wider economic environment and consequent market challenges, PBTA has increased by 58% during the year. We are also extremely pleased to have converted 96% of EBITA into operating cash flow. 

Revenue Assurance has been fully integrated into the Group and has enjoyed significant growth as part of our Supply Division. This has been achieved through the introduction of Revenue Assurance to our existing relationships with supply businesses. The commonality that exists across our businesses has never been stronger, creating an enviable platform for cross selling. 

Spice's exposure to non discretionary spend drives a resilient business. Regulators are mandating increased spend on networks combined with increased regulation and importance of environmental drivers, notably energy. Spice occupies good positions within these regulated markets which continue to offer significant growth opportunities. Whilst the wider economic environment may well remain challenging, the Board remains confident of Spice's future prospects."

- Ends - 

For further information, please contact:
Spice	Tel:	0113 201 2120
Simon Rigby, Chief Executive Officer
Oliver Lightowlers, Group Finance Director
Financial Dynamics	Tel:	0207 831 3113
Billy Clegg  Caroline Stewart Alex Beagley
KBC Peel Hunt	Tel:	0207 418 8900
Julian Blunt (Corporate finance)
Matthew Tyler (Corporate broking)

Chairman's statement

Introduction

I am delighted to present our full year results for 2009, which has proved to be another record year of performance for Spice. The Group has performed strongly and delivered substantial growth in profits, demonstrating the resilience of the Group's businesses and the success of the Group's strategy. The year has been characterised by the Group's strong cash flows.

Revenue for the year increased by 24% to £386.0 million (2008: £309.8 million) and profit before tax, exceptional items and the amortisation of intangible fixed assets (PBTA) increased by 58% to £32.3 million (2008: £20.4 million). We have recorded strong levels of organic growth and the acquisitions that we have made have also contributed significantly to our results. At the same time our EBITA operating margin improved to 10.3% (2008: 9.0%). 

It is particularly pleasing to have converted 96% of EBITA (2008: 109%) into operating cash flow and the conversion of profits into cash continues to be a feature of our business. The Group's balance sheet is significantly stronger when compared to prior year and net debt at 1 May 2009 was lower than expected at £95.8 million, giving the Group £74.2 million of headroom on its committed banking facilities, which remain in place until 2012.

Diluted earnings per share, adjusted for exceptional items and the amortisation of intangible fixed assets, increased by 33% to 7.11 pence per share (2008: 5.31 pence per share).

In view of the Group's strong performance over 2009 and prospects for the years beyond, I am pleased to report that the Board is recommending a final dividend of 1.14 pence per share, making a total dividend of 1.5 pence per share for the year (2008: 1.2 pence), an increase of 25%.

Group Board

During the year, we have welcomed Chris Lee to the Group Board as Director of our Supply Division. Chris joined Spice in 2006 and has made a significant contribution to the growth of our Supply businesses. I anticipate that these businesses will continue to grow as a proportion of Group profits over the coming years under the leadership of Chris.

John Taylor has indicated that he intends to retire from the Board, following the conclusion of the Group's Annual General Meeting in August 2009. John has been a long servant of the Group, initially as Chairman and subsequently as Deputy-Chairman, over which time he has overseen significant growth and development in the Group's operations. John leaves with the best wishes and thanks of everyone at Spice and we wish him well for the future. I would also like to personally thank John for the help he has given me in my first year as Chairman.

Shortly after the year end, the Group also took the opportunity to strengthen the Board with the appointment of Martin Towers and Julie Baddeley as Non-Executive Directors. Both Martin and Julie have extensive experience gained within a number of business sectors. I believe that their independence, expertise and insight will significantly strengthen the Spice Board as the Group moves into the next stage of its development.

Our people

Delivering such strong performance across the year is testimony to the quality of 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 in our Sharesave scheme as our staff share in that success.

Strategy

The move from AIM to the Official List has been an important milestone in the development of the Group and established a platform for the creation of a larger business. Our primary strategic focus remains on continuing to deliver organic growth over the coming years and the overlap and commonality that exists across our businesses has never been stronger, creating an enviable platform for cross selling. This is best illustrated by the progress that Revenue Assurance Services (RAS), our largest acquisition to date, has made under our ownership. We have been able to introduce RAS to the top table of existing Spice relationships, enabling RAS to develop relationships with electricity supply businesses, leading to the provision of imbalance services, an opportunity which had eluded them for the past twelve years.

Against the backdrop of new five year regulatory periods in water and electricity, we anticipate that electricity spend is likely to be significantly higher and that water spend will be more directed at our core strengths. Therefore, we see the importance of regulatory and environmental drivers on our business increasing. Indeed, the Climate Change Act brought into law in November 2008 has created a whole new non-discretionary driver for our client base and will also act as a further stimulus for cross selling within the business. We are very well placed to benefit from new and existing regulatory and environmental drivers but we are also seeking to further increase our exposure to these drivers and to non-discretionary spend as we seek to achieve critical mass, and a position of leadership, within each of our regulated markets.

Whilst the Board is mindful of current sentiment towards bank debt, driven by the uncertain wider economic environment, we expect to continue to supplement organic growth through selective, targeted complementary bolt-on acquisitions within our core markets, which will support our existing businesses and enhance returns for shareholders. This will be achieved through the re-investment of the Group's free cash flow and also through the utilisation of some of our committed banking facilities whilst still maintaining sensible levels of headroom on those facilities.

We also thank our shareholders for their support of our placing to raise £50 million in September 2008. 

Outlook

Whilst the wider economic environment may well remain challenging, Spice's exposure to non discretionary spend drives a resilient business with good market positions. Many exciting opportunities exist for the new financial year and we have entered it with confidence.

Peter Cawdron

Chairman

13 July 2009

Business and financial review

Introduction

During the year the Group has undergone a reorganisation of its management and reporting structures. Spice now provides Total Utility Support Services across two Divisions:

• Supply Division; and

• Distribution Division.

Our white collar consultancy services, provided to utility supply businesses and to industrial and commercial customers, have been brought together into our Supply Division which is run by Chris Lee.

Our asset maintenance services, providing white and blue collar outsourcing mainly to distribution network operators but also to other commercial customers, have been brought together into our Distribution Division which is run by Andy Catchpole.

Through aligning the business in the same way as our utility customers, we believe that we are better placed to serve those customers. Our activities throughout the Group continue to be linked by the following common themes:

• exposure to non-discretionary and regulatory spend;

• high barriers to entry;

• increasing regulatory and infrastructure drivers;

• increasing environmental drivers;

• experienced and highly motivated management teams;

• technical element to the services provided; and

• strong platforms for cross selling.

The proportion of technical activities provided by the Group has grown considerably in the last twelve months and we see an increasing proportion of revenues being derived from business process outsourcing. Looking at each of our businesses in turn:

Supply Division

The Supply Division, which includes the Group's RAS and Inenco businesses, has reported strong performance for the year with significant growth in revenue and profits. Revenue increased by 53% to £35.1 million (2008: £22.8 million) and EBITA increased by 110% to £17.0 million (2008: £8.1 million). EBITA excludes a one off gain of £0.4 million arising in June 2008 on the disposal of our fuel card operations. These results include the Group's first full year contribution from RAS and also a part year contribution from Nifes.

Nifes, which was acquired in December 2008, is a well established energy consultancy specialising in the areas of efficiency and environmental assessment, with a strong client base in both the public and private sectors. The acquisition of Nifes created a step change in our position within the energy and environmental management sector, where it is increasingly important to cover all aspects of energy services from procurement through to renewable development.

EBITA operating margins increased to 48.2% (2008: 35.3%) through successfully leveraging the cost base within the Division. Margins have also benefited from the disposal of the fuel card operations, which were high volume but low margin. 

Services provided by the Supply Division have proven to be resilient and have provided protection from the effects of the recession. Economic uncertainty has acted as a stimulus for industrial and commercial customers as they seek to improve profits via improved purchasing and the more efficient use of energy. Similarly, energy suppliers have sought to identify under billings. The contingent nature of the way that RAS is remunerated by its customers acts as a strong stimulus for sales as supply businesses can find it hard to justify additional headcount to carry out the work internally. 

During the year, RAS has successfully renewed and extended contracts with existing customers as well as winning new projects. Cross selling, made possible through existing Spice relationships, has played a significant part in these successes. It is particularly pleasing to note the successful development of the provision of electricity imbalance services. The early pilot project with E.ON has now been concluded and is moving to a fuller roll out, which should increase the visibility of future revenues. Similarly, following a successful first year of providing gas imbalance services to EdF Energy, RAS has now contracted to provide electricity imbalance services which, owing to EdF's market share, is expected to contribute substantially to revenues over coming years. The continued penetration of the now proven electricity service into existing customers is a key target for the coming year. 

Delays, due to EU State Aid rules, in implementing a climate change agreement for the plastics sector impacted negatively on Inenco in the second half of the year but this was more than offset by strong performance from other services, particularly procurement, data management and meter operations. There is evidence of strong demand from both new and existing customers, with our sales team delivering new customer relationships in the year equivalent to twice the targeted level. The introduction of an energy online price comparison site for SMEs has also benefited performance.

The Chancellor's budget announcement in April 2009 incorporated a number of initiatives which we believe will act as a positive stimulus to the Supply Division and across Spice as a whole. The UK economy is committed to legally binding targets aimed at reducing carbon emissions. The commitment of the UK government to a low carbon economy was re-affirmed through the budget statement by an increase in applicable targets. The achievement of carbon reduction targets is given further support by additional direct funding which is likely to unlock substantially more commercial investment in renewable generation projects and energy efficiency improvements. During the year, we introduced a new service targeted at small scale and distributed renewable generation schemes. The levels of interest are high with several long term contracts established potentially offering high value over the coming years, subject to the successful development of the generation projects themselves. These projects offer potential opportunities across the whole of Spice for consultancy, design and grid connectivity. 

In addition, the Carbon Reduction Commitment takes effect from April 2010 and already the 5,000 businesses affected by this new legislation are demonstrating early action in preparation, a factor reflected in our ongoing success in acquiring new customers and extending services with existing customers. The development of international opportunities throughout the Supply Division remains high on our agenda, and we remain well placed as other overseas markets move towards deregulation. The pace of progress will continue to be driven by the speed of deregulation in those markets.  

We believe that the current market dynamics and clear interest from prospective customers in our services will provide the basis for the continued growth of the Supply Division.

Distribution Division

The Distribution Division has reported solid results for the year. The performance of our Electricity and Water businesses, which have the highest exposure to regulated environments, has been particularly strong but offset by reduced performance within our Facilities and Gas businesses, where exposure to the economic cycle is greater. Revenue for the Distribution Division has increased by 22% to £350.9 million (2008: £287.0 million) and EBITA has increased by 13% to £30.9 million (2008: £27.4 million). EBITA operating margins have reduced to 8.8% (2008: 9.5%) but the business is well placed to enhance margins at the point that we see recovery in our softer markets, namely Gas and Facilities.

Electricity, which accounts for almost half of revenues in the Distribution Division, has made significant progress during the year in terms of revenue growth and profitability. Our customer base has widened across the UK and we have strengthened our footholds in the US (via AT&T) and other overseas markets (via BPI, which is an established supplier to the Asian Development Bank and the World Bank). The service islands of Power Lines, Civil Asset Care and Major Projects have performed particularly strongly, reflecting the need to address and remedy the under investment that has occurred over a prolonged period of time in the UK's electricity distribution network. 

Our Water business has again achieved growth across all of its activities and continues to benefit from the ongoing regulatory and environmental drivers for water conservation, metering and improved service level requirements. Morrel (our water imbalance business) has now been fully integrated and has secured contracts with Thames Water, Yorkshire Water and Three Valleys Water. Similar to RAS in our Supply Division, we have been able to introduce Morrel to the "top table" of existing Spice relationships, creating a value added "Connection to Collection" proposition for our water customers. Smart Metering has been granted government support and, subject to resolving ongoing funding issues, we can expect 50 million gas and electricity meters to be replaced and fitted over the next ten years within the domestic environment. The Group is uniquely placed to play a leading role in the deployment of smart meters, thanks to the relationships in our Supply business and skills in our Distribution business.

The 2009 calendar year is a critical time for the electricity and water industries with both sets of asset owners seeking to agree financial settlements for the upcoming 2010 to 2015 regulatory period. In both cases we have seen asset owners seeking double digit percentage increases in their capital investment and maintenance programmes, with common focus on quality of service to customers, network resilience and a low carbon economy. We are seeing a significant number of bid opportunities, within both Electricity and Water, arising on the back of the new regulatory period. 

Ofgem in particular has recognised that the UK power sector is facing a severe skills shortage, with an estimated 9,000 newly trained engineers and technicians required by 2015 at a cost of £150 million. We are seeking to make a significant contribution to reducing this skills shortage and at the same time to create a position of competitive advantage for the business, via the Group's Training School at Corby. 

The Training School, which has recently opened following substantial capital investment, materially enhances our capability to provide graduate, adult trainee and apprentice programmes and will enable us to sustain our highly skilled workforce to meet our current and future growth aspirations. We also expect to be able to assist our customers in addressing their training requirements. We have begun to provide a programme of distribution engineering training for overseas managers and engineers, funded by the United Nations Development Programme and we have also developed a Higher National Certificate Course in Electrical and Electronic Engineering with the Colchester Institute. This is a unique development in which formal education will be supported by our own experienced and highly skilled design team. The fact that the first technical training courses have been for foreign nationals, to facilitate the maintenance of overseas distribution networks by indigenous engineers, confirms the Group's belief that significant opportunities exist globally for the Group.

Our Facilities and Gas businesses have both completed challenging years. Within Facilities, our traditional high street markets have faced significant challenges which have seen customer spending delayed and deferred. At the same time, there has been an increased trend towards cash settlement of insurance claims. We have sought to reduce our cost base accordingly, to stabilise margins, whilst still retaining a platform for future growth. During the year we have better aligned our services with the needs of our customers through a service island structure, reflected in some notable client wins during the year. The business has continued to see high levels of enquiries from prospective clients. Improvement in the performance of this business will be driven by the pace of high street recovery and the speed with which our customers return to a planned service. In the meantime we will continue our rigorous approach to costs and are continuing efforts to reduce our reliance on traditional markets by embracing the opportunities as they arise through our energy efficiency services. Trading over the year with Gas has been challenging. Following the completion and in certain cases early settlement of earn out obligations, we have aligned the business under a single national brand identity of Liberty Gas. This consolidation provides us with greater critical mass in the bid process and creates a stronger trading platform to access bigger opportunities. Our focus will remain on local delivery and exceeding our clients' requirements, but with national recognition. Integral to this is our ongoing investment in work management systems and field based technology, which will enable us to enhance service delivery on the ground.

After adjusting for the one off benefit in 2008 of the Western Power Distribution contract, our Telecoms business has made solid progress over the year. The economic climate creates threats to our business reflected in low work volumes from Huawei and through the need, within aviation for example, to achieve cost savings and operational efficiencies but also creates opportunities through new technology solutions such as "Wireless Headsets" for ground handling operations, vehicle tracking and task management solutions. Our distributor network has grown over the year. Europe is emerging as our fastest growing region, with growth also notable in the Americas. 

We were pleased to renew our contract with British Airways for the three years to September 2011, with an option to extend thereafter for one year. We have seen less project work awarded by BA as a result of the economic difficulties faced by the airline industry. Continued progress has been seen in our relationship with BAA where our contract has been extended for a further five years to 2013 at all seven of BAA's UK airports. We are also providing maintenance services for radio infrastructure at Gatwick over the same period. 

Within the wider Distribution business, the Group has extended or secured new contracts as follows:

• CE Electric - new contract for the provision of jointing services;

• Scottish Power - new contract for the provision of overhead line services; 

• United Utilities - extension of meter installation contract until 2011;

• Scottish Water - new contract for the provision of perimeter security upgrades to critical infrastructure;

• EdF Energy - new contract for the provision of perimeter security upgrades to critical infrastructure;

• Central Networks - new contract for the provision of wayleaving and property services; 

• E.ON - new contract for the provision of gas safety inspection and maintenance services; 

• Anglian Water - extension of leakage detection contract to 2012; and

• Scottish Water - new contract for the provision of leakage detection services to 2012 and extension of meter installations contract to 2010.

During 2010, we expect continued strong performance from our utility businesses which operate in regulated environments and improved performance from our other, more cyclical businesses.

Head office

During the period, we have continued our investment in IT infrastructure and resources to support the enlarged Group. Over the course of 2010, the Group expects that the remaining businesses that have not yet migrated to the common accounting platform will be migrated across. Five of our businesses (Billing, Electricity, Facilities, Gas and Water) are now live on the Group's common accounting 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. Head office costs comprise mainly salaries, including the Group's IT and HR functions, and also professional costs. Head office costs also include the Group's share based payment (IFRS 2) charge. 

Acquisitions

Five acquisitions have been made during the year, which are summarised as below:

	Initial net  cash consideration	Maximum additional contingent cash consideration
	£'m	£'m
British Power International	7.5	2.8	Contingent cash consideration based on acquired working capital and performance to June 2009
Mono Services	0.5	-
Morrel Consulting	0.1	5.0	Contingent cash consideration based on performance to October 2009 and 2010
Nifes	5.1	1.9	Contingent cash consideration based on performance to October 2010 and forward order book
Treewise and Stowland	1.1	0.4	Contingent cash consideration based on performance to January 2010
	14.3	10.1

At the start of the financial year the Group had a provision for contingent cash consideration payable on acquisitions made in previous years totalling £29.9 million. During the year, approximately £17 million of contingent cash consideration has been paid mainly in relation to the acquisitions of Homerton, MET, Gas Call and Saturn. Provisions totalling £2 million (mainly in relation to AirRadio) have been released in the year. After also taking account of earn out obligations in relation to acquisitions made over the course of the year, a provision of £17.8 million for contingent cash consideration has been carried forward. It is expected that this provision will be utilised over the two year period ending April 2011, depending on the performance of acquired businesses.

Financial review

Revenue

During 2009, revenue increased by 24% to £386.0 million (2008: £309.8 million), of which acquisitions contributed £12.2 million. 

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

EBITA increased by 42% to £39.8 million (2008: £27.9 million). The table below identifies the driving factors behind this growth including separately identifying the part year effect of acquisitions made during 2008.

	2009	2008
	£'m	£'m
EBITA
Existing operations	32.6	29.0
Disposals and one offs	-	0.9
2009 acquisitions	2.0	-
Part year effect of 2008 acquisitions	7.3	-
IFRS 2 Share based payments charge	(2.1)	(2.0)
	39.8	27.9

The table shows that EBITA from existing operations, excluding the effect of IFRS 2, was £32.6 million (2008: £29.0 million), representing organic growth of 12% for the year. Separately, acquisitions made during 2009 contributed £2.0 million to EBITA. Spice made various acquisitions during 2008, which contributed to EBITA for part of that year but which have contributed to EBITA for the whole of the year ended 1 May 2009. For example, RAS was acquired on 12 October 2007. Its results for the period between 12 October 2008 and 1 May 2009 are shown within existing operations, as are the comparative numbers for the period from acquisition to 30 April 2008. The results of RAS for the period from 1 May 2008 to 11 October 2008 are shown within the part year effect of 2008 acquisitions. Other 2008 acquisitions, part of whose performance contributes to this line, are Homerton, KMN, GMT, MET, Redbridge, Gas Call, Saturn, Energy 2000 and Melton.

Disposals and one offs eliminates the effect of the disposal of the Group's fuel card operations and also the one off benefits created by the Western Power Distribution contract.

EBITA operating margins for the Group improved to 10.3% (2008: 9.0%). 

Exceptional items

Exceptional items incurred during the year consist of costs in connection with the Group's move from AIM to the Official List which was completed in July 2008. These costs total £1.0 million but are stated net of exceptional income totalling £0.4 million arising from the disposal of the Group's fuel card business. In the second half of the year, the Group has also incurred costs totalling £0.1 million in relation to acquisitions which were subsequently aborted. These costs have been treated as exceptional items.

Finance expenses

Finance expenses for the year were £7.5 million (2008: £7.5 million). During the year, the Group has benefited from reductions in its cost of borrowing through reductions in the rate of LIBOR. Finance expenses include a non cash interest charge on the Group's 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 main banking covenants are based around earnings before interest, tax, exceptional items, depreciation, amortisation and share based payments (Adjusted EBITDA). Adjusted EBITDA interest cover for the year was 6.9 times (2008: 5.1 times) which compares against a covenant of three times. 

The Group is also covenanted in relation to its ratio of net debt to Adjusted EBITDA such that net debt should not exceed four times Adjusted EBITDA. At 1 May 2009, this ratio was 2.1 times (2008: 2.9 times).

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

PBTA increased by 58% to £32.3 million (2008: £20.4 million). 

Profit on ordinary activities before tax

Profit on ordinary activities before tax increased by 53% to £23.3 million (2008: £15.2 million). The Group's amortisation charge has increased from £5.0 million to £8.3 million during the year which is attributable to the amortisation of separately identifiable intangible fixed assets arising on acquisitions made since May 2006.

Tax

The Group's effective rate of tax for the year was 26.1% (2008: 19.0%). 

Earnings per share

Diluted earnings per share was 5.17 pence (2008: 4.19 pence) and adjusted diluted earnings per share (before exceptional items and amortisation of intangible fixed assets) at 7.11 pence (2008: 5.31 pence) increased by 33%. 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 is pleased to have recommended a final dividend of 1.14 pence (2008: 0.9 pence) per share payable on 15 September 2009 to shareholders on the register at 28 August 2009. An interim dividend of 0.36 pence per share (2008: 0.3 pence) was paid on 10 February 2009, making a total dividend for the year of 1.5 pence per share (2008: 1.2 pence).

Dividend cover in relation to the total dividend was 3.3 times (2008: 3.7 times).

Cash flow

Net cash inflows from operations increased by £7.8 million to £38.4 million (2008: £30.6 million). The Group converted 96% of EBITA into operating cash flow (2008: 109%). The ongoing strength of the Group's conversion of profits into cash reflects the Group's rigorous process of cash management. During the year, net working capital utilised increased by £7.3 million (2008: £3.2 million). This utilisation relates to investment in support of the continuing growth of the business and in particular growth in the Group's white collar operations, which are self delivered. As the Group grows in size and scale of operations, it has been pleasing to note the increase in free cash flow generated from the business.

Balance sheet

Net assets have increased to £187.5 million (2008: £126.4 million), reflecting retained profits, cash generated from the exercise of employee share options, and the share placing undertaken in September 2008 under which the Group placed 49 million new shares at a price of 102 pence with institutional investors to raise net proceeds of approximately £49.0 million.

Net debt is £95.8 million (2008: £125.9 million). The reduction is mainly attributable to the share placing and cash generation offset by consideration paid in respect of acquisitions and also payments made to settle contingent cash consideration connected with acquisitions. The Group continues to have in place a committed syndicated revolving credit facility totalling £170 million. At 1 May 2009, the Group had headroom under the revolving credit facility of £74.2 million. The facility is not due for renewal until March 2012. 

Around the time of the end of the financial year, the Group entered into a series of interest rate swaps, for a period of three years, which fix the LIBOR rate payable on around 80% of the Group's year end net debt. The fixed rate of LIBOR payable is approximately 2.03%.

In September 2008, the Group received approval at its Annual General Meeting to subdivide its ordinary share capital on the basis of five new shares for every existing share held.

Accounting policies

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. The Group's significant accounting policies have been applied consistently through out the year other than as explained below.

During the year and following the reorganisation described at the outset of this report, the Group has early adopted IFRS 8 Operating Segments. Prior year numbers have also been restated to reflect the impact of a change in accounting policy within the Group's Distribution Division and specifically within its Apollo Heating subsidiary undertaking. Previously revenue was recognised as work was undertaken, on an accrued income basis. Following the change in accounting policy, which has been applied retrospectively, revenue is now being recognised at the point that work is completed and either invoiced or approved by the customer.

Principal risks and uncertainties

The Group's businesses 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 injuries and 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.

• Economic and financial (financial risks) - recent turmoil in the financial, debt and commodities markets has had a significant adverse impact on certain sections of the economy. The wider effect of such events is unknown but may include difficulty of access to, or higher costs of debt or equity financing, general economic weakness, restricted fiscal expenditure or higher taxes. This may adversely impact the Group's revenues, margins and profits.

• Key personnel (people risks) - Spice has in place an experienced and motivated senior management team and considers that its management team has strength in depth. However, the loss of one or more key personnel could have an adverse impact on the Group's operations, reputation, customer relationships and future prospects.

• Acquisitions (financial risks) - Spice has made a number of acquisitions over the course of its history and expects to continue to make acquisitions. Acquisitions always carry an element of risk, may perform otherwise than expected, and the process of integrating acquisitions may be prolonged due to unforeseen difficulties. Any of these events may harm the Group's business, financial condition or operating results.

Cautionary statement
The Business and financial review has been prepared for the shareholders of the Group, as a body, and no other persons. Its purpose is to assist shareholders of the Company to assess the strategies adopted by the Group and the potential for those strategies to succeed and for no other purpose. This Business and financial review contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in this Business and financial review will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation.

Outlook

Spice's exposure to non discretionary spend drives a resilient business. Regulators are mandating increased spend on networks combined with increased regulation and importance of environmental drivers notably energy. Spice occupies good positions within these regulated markets which continue to offer significant growth opportunities. Whilst the wider economic environment may well remain challenging, the Board remains confident of Spice's future prospects.

WS Rigby	OJ Lightowlers
Chief Executive Officer	Group Finance Director
13 July 2009

Consolidated income statement for the year ended 1 May 2009

		2009	2008
	Note	£'m	£'m
			as restated
Revenue	5	386.0	309.8
Operating expenses		(355.2)	(287.1)
EBITA	5	39.8	27.9
Exceptional operating expenses		(0.7)	(0.2)
Amortisation of intangible fixed assets		(8.3)	(5.0)
Operating profit		30.8	22.7
Finance expenses		(7.5)	(7.5)
PBTA	5	32.3	20.4
Exceptional operating expenses		(0.7)	(0.2)
Amortisation of intangible fixed assets		(8.3)	(5.0)
Profit on ordinary activities before tax		23.3	15.2
Tax on profit on ordinary activities		(6.1)	(2.9)
Profit for the year attributable to equity shareholders	6	17.2	12.3
Earnings per share (pence per share)
Basic	4	5.48	4.61
Diluted	4	5.17	4.19
Adjusted earnings per share (pence per share)
Basic	4	7.54	5.84
Diluted	4	7.11	5.31

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 1 May 2009

		2009	2008
	Note	£'m	£'m
			as restated
Assets
Non-current assets
Purchased goodwill		228.6	211.8
Intangible fixed assets		45.9	46.3
Property, plant and equipment		23.9	19.4
Investment in associates		0.2	0.2
Trade and other receivables		0.3	0.3
		298.9	278.0
Current assets
Inventories		12.6	15.1
Trade and other receivables		70.0	63.5
Derivative financial instruments		0.2	-
Cash - client monies		0.2	1.3
		83.0	79.9
Liabilities
Current liabilities
Trade and other payables		(60.4)	(63.3)
Current tax payable		(9.0)	(5.4)
Derivative financial instruments		(0.8)	(0.2)
Financial liabilities		(4.6)	(8.8)
		(74.8)	(77.7)
Non-current liabilities
Financial liabilities		(91.2)	(117.1)
Provisions for other liabilities and charges		(17.8)	(29.9)
Deferred tax liabilities		(10.6)	(6.8)
		(119.6)	(153.8)
Net assets		187.5	126.4
Shareholders' equity
Called up share capital		7.0	6.0
Share premium account		94.5	46.5
Capital redemption reserve		0.1	0.1
Merger reserve		37.9	37.9
Retained earnings		48.0	35.9
Equity shareholders' funds	6	187.5	126.4

Consolidated cash flow statement for the year ended 1 May 2009

		2009	2008
	Note	£'m	£'m
Operating activities
Net cash generated from operations	7a)	38.4	30.6
Interest paid		(6.9)	(6.9)
Tax paid		(7.5)	(4.6)
Net cash generated from operating activities		24.0	19.1
Investing activities
Purchase of property, plant and equipment		(8.4)	(5.4)
Proceeds from sale of property, plant and equipment		0.2	1.1
Purchase of intangible fixed assets		(2.0)	(0.2)
Acquisition of subsidiary undertakings		(33.1)	(94.4)
Cash/(debt) acquired with subsidiary undertakings		3.4	(11.7)
Net cash used in investing activities		(39.9)	(110.6)
Financing activities
Repayments of obligations under finance leases		(0.2)	(0.2)
Dividends paid		(3.8)	(2.3)
Proceeds from exercise of share options		1.8	1.0
Payment to acquire own shares (ESOP)		(1.1)	(1.4)
Net proceeds from issue of ordinary shares		49.0	-
Net (repayment)/ proceeds from borrowings		(26.0)	87.8
Net cash generated from financing activities		19.7	84.9
Net increase/(decrease) in net cash, cash equivalents and bank overdrafts		3.8	(6.6)
Cash, cash equivalents and bank overdrafts at 30 April 2008		(8.6)	(2.0)
Exchange gains on cash, cash equivalents and bank overdrafts		0.4	-
Cash, cash equivalents and bank overdrafts at 1 May 2009	7b)	(4.4)	(8.6)

Notes to the annual financial results for the year ended 1 May 2009

1 Basis of accounting

The audited consolidated financial information for the year ended 1 May 2009 has been prepared in accordance with the historical cost convention, as modified by financial assets and liabilities at fair value through the income statement and share based payments at fair value, in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, IFRIC interpretations and the Companies Act 2006. 

The Group has early adopted IFRS 8 Operating Segments. Prior year numbers have been restated to reflect the impact of a change in accounting policy within the Group's Distribution Division and specifically within its Apollo Heating subsidiary undertaking. Previously revenue was recognised as work was undertaken, on an accrued income basis. Following the change in accounting policy, which has been applied retrospectively, revenue is now being recognised at the point that work is completed and either invoiced or accepted by the customer. This new policy is considered to be more reliable and relevant and the impact of this change in accounting policy to comparative numbers has been disclosed within the consolidated financial information wherever appropriate.

The financial information included in this announcement has been extracted from the audited financial statements for the year ended 1 May 2009. The content of this announcement has been agreed with the Company's auditors. This announcement of financial results does not constitute the Group's financial statements. The Group's 2009 Annual report and financial statements, on which the Company's auditors, PricewaterhouseCoopers LLP, have given an unqualified opinion in accordance with the Companies Act 2006, 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 13 July 2009.

2 Directors' responsibility statement

The Directors confirm that, to the best of their knowledge:

• the Group financial information in this report, which has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU), International Financial Reporting Interpretations Committee interpretations and those parts of the Companies Act 2006 applicable to companies under IFRS, give a true and fair view of the assets, liabilities, financial position and profit of the Group taken as a whole; and

• the management report contained in this report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as whole, together with a description of the principal risks and uncertainties that they face.

3 Dividends

	2009	2008
	£'m	£m
Amounts recognised as a distribution from shareholders' funds during the year
Final dividend paid of 0.9 pence per share for the year ended 30 April 2008 (2007: 0.6 pence)	2.6	1.5
Interim dividend paid of 0.36 pence per share for the year ended 1 May 2009 (2008: 0.3 pence)	1.2	0.8
	3.8	2.3
Proposed final dividend of 1.14 pence per share for the year ended 1 May 2009 (2008: 0.9 pence)	3.8	2.6

Dividends amounting to £0.2 million (2008: £0.1 million) 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 £3.8 million (2008: £2.6 million) will be paid on 15 September 2009 to those shareholders on the register at 28 August 2009.

The proposed final dividend for the year ended 1 May 2009 will be accounted for, following approval of that dividend, in the first half of the year to April 2010.

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:

	2009	2008
	'm	'm
Weighted average shares for basic earnings per share	314.3	265.7

  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:

	2009	2008
	'm	'm
Weighted average shares for diluted earnings per share	333.4	292.2

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. Adjusted earnings used in the calculation of basic and diluted earnings per share reconciles to basic earnings as follows:

	2009	2008
	£'m	£'m
Basic earnings	17.2	12.3
Adjustments for taxation	(2.5)	(2.0)
Exceptional items	0.7	0.2
Amortisation of intangible fixed assets	8.3	5.0
Adjusted earnings	23.7	15.5
	2009	2008
Earnings per share (pence per share)
Basic	5.48	4.61
Diluted	5.17	4.19
Adjusted earnings per share (pence per share)
Basic	7.54	5.84
Diluted	7.11	5.31

Basic and diluted earnings per share for the year ended 30 April 2008 have been restated from 5.16 pence and 4.68 pence per share respectively, and adjusted basic and diluted earnings per share have been restated from 6.38 pence and 5.80 pence per share respectively, to reflect the change in accounting policy described in note 1.

5 Segmental Information

The Group's two operating Divisions operate in four main geographical areas. The Group's revenue is generated mainly within the UK.

	2009	2008
Revenue	£'m	£'m
United Kingdom	362.9	300.1
USA	15.7	3.9
Continental Europe	4.7	3.6
Rest of the World	2.7	2.2
	386.0	309.8

The Group has early adopted IFRS 8 Operating Segments and has two principal operating and reportable segments, which are its Supply Division and its Distribution Division. These operating segments were determined based on the nature of the services provided by the Group and manner in which the Group is organised and managed. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources and in assessing performance. The Group's Chief Executive Officer has been identified as the CODM. The Head office category includes the Group's IT and HR functions and other professional costs. Finance expenses have been borne centrally in Head office and are not allocated into the Group's two Divisions.

The segment results for the year ended 1 May 2009 are as follows: 

			Head	2009			Head	2008
	Supply	Distribution	office	Total	Supply	Distribution	office	Total
	£'m	£'m	£'m	£'m	£'m	£'m	£'m	£'m
Total revenue	35.2	354.3	0.4	389.9	22.9	290.3	0.4	313.6
Inter divisional revenue	(0.1)	(3.4)	(0.4)	(3.9)	(0.1)	(3.3)	(0.4)	(3.8)
Revenue	35.1	350.9	-	386.0	22.8	287.0	-	309.8
EBITA	17.0	30.9	(8.1)	39.8	8.1	27.4	(7.6)	27.9
Exceptional operating income/(expenses)	0.4	(0.1)	(1.0)	(0.7)	(0.1)	(0.1)	-	(0.2)
Amortisation of intangible fixed assets	(3.5)	(4.8)	-	(8.3)	(2.4)	(2.7)	0.1	(5.0)
Finance expenses - net	-	-	(7.5)	(7.5)	-	-	(7.5)	(7.5)
Profit before tax	13.9	26.0	(16.6)	23.3	5.6	24.6	(15.0)	15.2
Tax	-	-	(6.1)	(6.1)	-	-	(2.9)	(2.9)
Profit for the year	13.9	26.0	(22.7)	17.2	5.6	24.6	(17.9)	12.3

6 Consolidated statement of changes in shareholders' equity

	2009	2008
	£'m	£'m
		as restated
Total recognised income attributable to equity shareholders	17.2	12.3
Dividends paid in the year	(3.8)	(2.3)
IFRS 2 share based payments charge	2.1	2.0
Decrease in IFRS deferred tax asset	(4.9)	(0.1)
S23 tax relief on the exercise of share options	1.3	1.2
Payment to acquire own shares (ESOP)	(1.1)	(1.4)
Proceeds from exercise of share options	1.8	1.0
Utilisation of ESOP shares	(0.7)	-
Interest rate hedge	0.2	-
Issue of shares	50.0	38.5
Costs of share issue	(1.0)	-
Net addition to equity shareholders' funds	61.1	51.2
Opening equity shareholders' funds	126.4	75.2
Closing equity shareholders' funds	187.5	126.4

Opening equity shareholders' funds at 30 April 2008, and the net addition to equity shareholders' funds, have been restated from £127.8 million and £52.5 million respectively to reflect the change in accounting policy described in note 1.

  7 Notes to the cash flow statement

7a) Net cash generated from operations

	2009	2008
	£'m	£'m
Operating profit	30.8	22.7
Depreciation of property, plant and equipment	4.3	4.0
Amortisation of intangible fixed assets	8.3	5.0
Non operating exceptional items	0.7	-
IFRS 2 share based payments charge	2.1	2.0
Loss on sale of property, plant and equipment	0.2	0.1
Foreign exchange gains on operating activities	(0.7)	-
Decrease/(increase) in inventories	2.9	(7.0)
(Increase)/decrease in receivables	(0.5)	2.0
(Decrease)/increase in payables	(9.7)	1.8
Net cash generated from operations	38.4	30.6

The net cash generated from operations attributable to acquisitions made during the year was £1.9 million (2008: £2.8 million). Acquisitions did not have a material impact on any other items within the consolidated cash flow statement.

7b) Analysis of net debt

	At				At
	30 April	Cash	Non cash		1 May
	2008	flows	movements	Acquisitions	2009
	£m	£m	£m	£m	£m
Bank overdraft	(8.6)	3.8	0.4	-	(4.4)
Bank loans due after one year	(117.0)	26.0	-	-	(91.0)
Finance leases due within one year	(0.2)	0.2	(0.2)	-	(0.2)
Finance leases due after one year	(0.1)	-	0.2	(0.3)	(0.2)
Net debt	(125.9)	30.0	0.4	(0.3)	(95.8)

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.

7c) Reconciliation of net cash inflow to movement in net debt

	2009	2008
	£'m	£'m
Increase/(decrease) in cash in the year	3.8	(6.6)
Dividends paid	(3.8)	(2.3)
Net proceeds received from share issue	49.0	-
Proceeds from exercise of share options	1.8	1.0
Payment to acquire own shares (ESOP)	(1.1)	(1.4)
Loan notes redeemed	-	2.8
Cash inflow from financing	(19.7)	(84.9)
Change in net debt resulting from cash flows	30.0	(91.4)
Exchange gains	0.4	-
New and acquired finance leases	(0.3)	(0.2)
Net debt at 30 April 2008	(125.9)	(34.3)
Net debt at 1 May 2009	(95.8)	(125.9)

8    Related party transactions

Transactions between the Spice and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of key management personnel

The remuneration of the Directors and members of the operational board, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:

	2009	2008
	£'m	£'m
Short term employee benefits (excluding bonuses)	1.7	1.7
Post-employment benefits	-	-
Termination benefits	-	-
IFRS 2 share based payments	0.4	0.5
	2.1	2.2

Other transactions

During the year the Group's subsidiary undertaking Team Simoco made purchases of £0.8 million (2008: £1.3 million) from TMC Pty Limited, the Group's associated undertaking, in connection with the provision of radio handsets.  At 1 May 2009, £0.1 million (2008: £0.2 million) was owed by Team Simoco to TMC Pty. 

9 Business combinations

a) Acquisition of British Power International Limited

On 18 July 2008, Spice's subsidiary undertaking The Freedom Group Of Companies Limited acquired the entire issued share capital of BPI for initial cash consideration of £7.5 million. The provisional fair values attributed by the Directors to the net assets acquired are as follows:

									IFRS book		Provisional
									value	Adjustments	fair value
									£'m	£'m	£'m
Property, plant and equipment									0.1	-	0.1
Trade and other receivables									2.7	(0.6)	2.1
Cash and cash equivalents									1.3	-	1.3
Trade and other payables									(0.8)	(0.3)	(1.1)
Current tax payable									(0.6)	-	(0.6)
									2.7	(0.9)	1.8
Net assets recognised on acquisition
Intangible assets											2.5
Deferred taxation on intangible assets											(0.7)
Purchased goodwill											6.5
Fair value of assets acquired											10.1
Cash consideration paid											7.5
Contingent consideration (discounted)											2.4
Costs of acquisition											0.2
Total cost of acquisition											10.1

b) Acquisition of National Industry Fuel Efficiency Services Limited

On 22 December 2008, Spice's subsidiary undertaking Inenco Group Limited acquired the entire issued share capital of Nifes for initial cash consideration of £5.1 million. The provisional fair values attributed by the Directors to the net assets acquired are as follows:

	IFRS book		Provisional
	value	Adjustments	fair value
	£'m	£'m	£'m
Property, plant and equipment	0.2	(0.1)	0.1
Trade and other receivables	2.8	-	2.8
Cash and cash equivalents	0.8	-	0.8
Trade and other payables	(1.9)	(0.1)	(2.0)
Current tax payable	(0.3)	-	(0.3)
	1.6	(0.2)	1.4
Net assets recognised on acquisition
Intangible assets			1.7
Deferred taxation on intangible assets			(0.5)
Purchased goodwill			4.5
Fair value of assets acquired			7.1
Cash consideration paid			5.1
Contingent consideration (discounted)			1.9
Costs of acquisition			0.1
Total cost of acquisition			7.1

c) Acquisition of Morrel Consulting Limited 

On 12 October 2008, Spice's subsidiary undertaking West Park Trading Co. 214 Limited acquired the entire issued share capital of Morrel Consulting Limited for initial cash consideration of £0.1 million. The provisional fair values attributed by the Directors to the net assets acquired are as follows:

	IFRS book		Provisional
	value	Adjustments	fair value
	£'m	£'m	£'m
Property, plant and equipment	-	-	-
Trade and other receivables	-	-	-
Cash and cash equivalents	-	-	-
Trade and other payables	-	(0.2)	(0.2)
Current tax payable	-	-	-
	-	(0.2)	(0.2)
Net assets recognised on acquisition
Intangible assets			1.0
Deferred taxation on intangible assets			(0.3)
Purchased goodwill			2.1
Fair value of assets acquired			2.6
Cash consideration paid			0.1
Contingent consideration			2.4
Costs of acquisition			0.1
Total cost of acquisition			2.6

d) Other acquisitions

During the year, the Group also acquired the entire issued share capital of Mono Services Limited, Treewise Limited and subsidiaries and Stow Land Control Limited. The initial cash consideration paid was £1.1 million, giving rise to intangible fixed assets of £0.7 million, deferred tax liabilities of £0.2 million and goodwill of £2.3 million. None of these acquisitions is considered material to the financial statements.

Had each of the Group's acquisitions occurred on 30 April 2008, Group revenue would have been £395.8 million and EBITA would have been £40.3 million. 

10 Post balance sheet events

On 12 July 2009, the Group completed the acquisition of the entire issued share capital of ComGroup Australia Pty Limited for initial net cash consideration of approximately £6.9 million. The approximate net book value of net assets acquired was £6.1 million. ComGroup is a designer and distributor of Simoco branded professional mobile radio terminals.

11 Availability of annual report

The Annual report will be sent to all shareholders on 29 July 2009. 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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