Interim Results
Spice PLC
13 December 2007
13 December 2007
Spice plc
Interim results - period ended 28 October 2007
Spice plc ("Spice" or "the Group"), the provider of Total Utility Support
Services, is pleased to announce its interim results for the period ended 28
October 2007.
Financial highlights
- Profit before tax of £8.3 million (2006 restated: £5.8 million) -
44% increase
- Profit before tax and amortisation of £9.9 million (2006 restated:
£6.1 million) - 62% increase
- EBITA* of £12.0 million (2006 restated: £7.1 million) - 68% increase
- 100% of operating profit converted into operating cash - £10.3 million
(2006: £5.3 million)
- 30% like for like organic growth from existing operations
- Diluted earnings per share of 10.7 pence (2006 restated: 8.8 pence)
- 22% increase
- Adjusted diluted earnings per share of 13.6 pence (2006 restated:
9.5 pence) - 43% increase
- Interim dividend of 1.5 pence per share (2006: 1.0 pence) - 50% 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 International Financial Reporting Standards (IFRS)
Operational highlights
May 2007 H20 renews Yorkshire Water contract
May 2007 Team Simoco selected to provide replacement PMR to Western
Power Distribution
July 2007 H20 renews United Utilities contract
December 2007 Billing Services agrees two year contract with Corona Energy
Simon Rigby, Chief Executive Officer commented:
"We have delivered a very strong performance in the first half of the financial
year with a 68% increase in EBITA, 30% of which is pure organic growth. We
expect industry drivers, within our core utilities market, to remain strong. We
are keenly focused on organic growth, converting our profits into cash and
delivering shareholder value from our acquisition of RAS and believe that Spice
remains well placed to continue to grow organically (including by cross selling
across operating divisions) whilst at the same time continuing to pursue
complementary acquisition opportunities within our existing operations. We are
confident that we have the right people and structure to make the most of these
growth opportunities over the coming months."
- Ends -
Enquiries:
Spice plc - Tel: 0113 201 2120
Simon Rigby, Chief Executive Officer
Oliver Lightowlers, Group Finance Director
Financial Dynamics - Tel: 020 7831 3113
Billy Clegg
Caroline Stewart
KBC Peel Hunt (Nominated Adviser and Broker) - Tel: 020 7418 8900
Julian Blunt
Business and financial review
Spice now provides Total Utility Support Services across seven businesses.
Looking at each in turn:
Billing Services
Our Billing Services business was created in October 2007 through the
acquisition of Revenue Assurance Services (RAS) which focused on three
activities being billing consultancy, debt resolution and meter point services.
The acquisition of RAS is particularly significant for Spice since billing
consultancy enhances our capability to work on the supply side, thereby
completing the portfolio of skills that enables us to move closer to becoming a
full end to end utility outsourcer. The acquired RAS business has contributed
£0.3 million to the Group result for the two week period since acquisition and
trading since October has been in line with our expectations.
Billing consultancy is the largest of the three acquired activities and this
business has formed our Billing Services business. Post acquisition, debt
resolution and meter point services are being integrated into our Water Services
business. This is explained further within the report on Water Services.
The approximate value of annual billings in UK energy markets is some £21
billion per annum with the electricity market estimated to be around three times
the size of the gas market. The industrial and commercial element of this market
is some £11 billion, generated by over 2.5 million industrial and commercial
customers. The sheer scale and complexity of the energy markets, coupled with
the effects of deregulation and acquisition activity have created a highly
complex billing and management environment for our utility clients. The systems
and processes of utility companies are capable of working to a high level of
efficiency and delivering around 98% accuracy over the billing process.
However, material imbalances and errors do arise throughout the entire
management, billing and metering process. Billing Services helps the in-house
client teams of utilities to identify and correct the errors and imbalances that
arise in the energy billing supply chain and also to generate the appropriate
cash recovery. This service is provided to utilities on a fully contingent fee
basis.
The projects undertaken vary widely from identifying over charges and under
billing to root cause analysis, market data review, ad-hoc projects designed to
audit the efficiency of the client's system and upon request, audit and
consultancy on behalf of the industry's regulatory bodies.
The entire operational management team of RAS has joined Spice and we have been
able to work with the management team during the change of control process which
has allowed us to "hit the floor running". The integration of the RAS business
is progressing smoothly and as planned. Progress is already being made to cross
sell Billing Services into Spice's existing clients in the gas and electricity
sector and we have been able to engage with clients that have historically
eluded RAS including Corona Energy, with whom we have recently agreed a two year
contract.
We also see international growth opportunities in the electricity and gas
markets. The UK is the most deregulated energy market in the world and as most
other major countries move towards deregulation then Billing Services is ideally
placed to be first to market in those territories. This can be achieved without
the need for substantial overseas investment as the fee earning work will be
delivered through our operations at Borehamwood. In the longer term, we also
believe that there are opportunities to develop services that address the errors
and imbalances arising within the Water and Telecoms markets.
Energy Services
Inenco, which provides energy management and environmental consultancy services,
continues to deliver strong results recording EBITA of £1.5 million (2006: £0.6
million) for the period ended 28 October 2007. This significant increase (after
allowing for the part period in 2006) has been achieved through organic growth
including the conversion of cross selling opportunities from our other
divisions. Higher margin procurement services continue to be the dominant
contributor to Inenco's result which is built upon solid long term customer
relationships and increased product penetration. Energy prices continue to be
volatile and the recent upward price movements act as a stark reminder that
energy procurement is a specialist field and energy and related issues remain
high on the boardroom agenda. Recently, Inenco became authorised by the
Financial Services Authority. This authorisation differentiates Inenco from its
competitors, which will help us to win new customers by providing increased
confidence in our services whilst also allowing us to develop new services to
assist clients in the management of the risks associated with energy
procurement.
Within the past six months, we have increased our European customer base. An
increasing number of customers are seeking solutions that extend beyond the UK
into Mainland Europe. Whilst our European expansion is cautious, as we seek to
develop our capabilities in this area, we now have a basis to gain real
experience in other European countries including Holland, Spain, Germany and
others.
The recent energy review and associated White Paper re-affirms the UK
government's desire to achieve a low carbon economy with a number of proposals
put forward which will maintain and increase the demand for our energy and
environmental services. In particular the Carbon Reduction Commitment to be
introduced in 2010 will expose up to 5,000 companies to the impact of their
carbon emissions. We are seeing signs of "early adopters" responding to the
message and engaging Inenco to assist with their action plans. An example is the
installation of smart meter technology which is supported by the provision of
ongoing management reporting, to turn the massive increase in data into useful
information that can be easily understood and acted upon. Clarification
surrounding renewable obligation certificates is expected to give impetus to
distributed forms of renewable generation and we consider that we are in an
excellent position to support our customers' desire to be "green".
Subsequent to the end of the financial period, we completed the acquisition of
Saturn Energy (Saturn) which is a commercial energy broker focused on the small
and medium enterprise ("SME") sector. Saturn acts as agent for SMEs to procure
gas and electricity from suppliers under medium and long term contracts. This
acquisition fits well with Inenco and enables us to extend the range of our
energy brokerage services into the SME sector, which has historically been very
fragmented, and we believe that Saturn's services will be enhanced by its
ability to utilise the wider resources of Inenco.
Facilities Services
Facilities Services, which provides facilities management solutions, reported
EBITA of £2.1 million (2006: £1.9 million) for the period. Our Serviceline
business has seen strong levels of client activity and demand through the
period. This has included Debenhams taking our full integrated service across
its entire retail estate and other contract wins including Smith News and Cancer
Research UK. The number and range of tasks handled by Serviceline continues to
grow to meet client demands and we continue to focus upon innovation around
service delivery for our customers.
Circle Britannia has benefited from the growth in Serviceline and their
associated influence on the selection of supply chain partners that, where
possible, result in the appointment of Circle Britannia to undertake the
delivery of maintenance services. Maintenance contracts have been agreed with
Travelodge and Wolseley during the period and we are hopeful that these
relationships can be grown over coming months. As the geographic coverage of our
Gas Services business has improved, we have also begun to offer commercial gas
maintenance services and have seen good order levels from existing clients as
well as strong enquiry levels from new clients. The integration of Atlanta, the
acquisition of which was completed in March 2007, is ongoing and our focus
continues to be on reducing delivery through Atlanta's sub-contractor network in
favour of self delivery by Circle Britannia.
In the latter part of the financial period, Circle Britannia finalised the
transition from a direct service contract with Norwich Union to an indirect
service contract via Asprea, who have been appointed to deliver repairs to
domestic insurance policy holders on behalf of Norwich Union. Whilst Asprea's
medium to long term forecasts show strong work volumes being maintained, we
expect that these new supply arrangements will take some time to bed down during
the second half of the financial year.
Gas Services
Our Gas Services division, which provides gas maintenance, installation and
repair, meter operations and emergency response services, was created just over
12 months ago and has contributed EBITA of £1.8 million to the result for the
period. The acquisitions of Homerton and GMT strengthen our geographic footprint
in the South of England and extend our operational capability across South
Yorkshire and the North Midlands. Subsequent to the end of the period, we have
also completed the acquisition of Gas Call which extends our footprint into
Scotland. We remain committed to our strategy of achieving national coverage in
the UK market, using established regional businesses and brands, and to use this
network to expand our presence in national gas meter operations and the
commercial gas maintenance sector via our Facilities Services business.
In September 2007, we also acquired MET, which provides training services to
learners in the plumbing, gas and heating sectors. This acquisition will provide
Spice with a ready supply of "best in class" gas, plumbing and heating engineers
whilst offering a sustainable and growing entry into the training market.
The underlying drivers within the gas sector remain strong as we benefit from
increasing regulations and the requirement for gas safety compliance amongst
housing associations, local authorities and private landlords. Apollo and ParGas
have been better able to translate these opportunities into contracts as part of
a larger group through enhanced systems and management infrastructure. We have
secured new term contracts with customers including Wirral Housing Partnership,
Hornby Homes, Stockport Council and Bowlees Park Housing Association. We now
have access to over 440 CORGI registered engineers and maintain in excess of
145,000 properties. Over the next 12 months, we expect to be able to increase
both the number of CORGI engineers in the Group and also the number of
properties maintained.
Electricity Services
During the first half of the year, Electricity Services, which provides
specialist utility engineering services to the electricity sector and to
industry, increased EBITA by 41% to £4.2 million (2006: £3.0 million). This
growth is underpinned by our Service Island structure, which allows us to
deliver a comprehensive "cradle to grave" service, and also through last year's
major long term contract wins within the EDF Energy footprint. All of our EDF
Energy contracts have been mobilised successfully with particularly strong
performance to date from Freedom Power Lines which has benefited from a doubling
of volumes. Freedom Asset Care has also performed strongly benefiting from
enhanced contractual terms.
During the period, our Freedom Consultancy Service Island completed the
acquisition of KMN which provides specialist professional civil and structural
engineering design and management services. The acquisition reinforces Freedom's
strength in these areas but also creates a number of cross selling opportunities
for other Service Islands as well as the wider Spice business. The integration
of Optimal, which was acquired towards the end of the last financial year, has
now been successfully completed.
In September 2007, Freedom was selected by AT&T to provide records and data
management services in the USA. The contract is for an initial period of two
years with an estimated turnover value per annum of £5 million. Freedom is
working alongside client staff from AT&T in AT&T's offices across four US states
(Mississippi, Florida, Tennessee and North Carolina), as part of an integrated
project delivery team. Whilst the existing utilities market in the US is
currently structured differently to the UK, we believe that in the longer term,
the trend towards deregulation and outsourcing will accelerate in the same way
as occurred in the UK market. The AT&T contract creates a platform for long term
growth in the US market through allowing the Group to begin to develop its
capabilities in the US ahead of expected deregulation and outsourcing trends.
Whilst the AT&T contract creates a significant long term opportunity for us, our
focus remains on the UK market which we still see as continuing to generate
significant opportunities for the Freedom business.
Telecoms Services
Our Telecoms infrastructure support services business, which designs, installs,
supports, maintains and operates infrastructure assets around the world,
reported a 20% increase in EBITA to £2.1 million in the first half of the year
(2006: £1.8 million). The order book for the business remains in line with our
expectations and positions us well for the full year.
AirRadio continues to win additional new business with British Airways as it
prepares for the opening of Heathrow Terminal 5 in March 2008. This has included
an expansion of the data terminal project (D74) which should help to underpin
our full year performance. Additionally, new networks have been opened up at
both Cardiff and City of London airports and we expect to add at least one other
UK airport during the remainder of this financial year. In order to cope with
the ever growing demands for radio capacity at Heathrow, AirRadio have deployed
Xfin multi-site technology which has created 20% extra capacity from the same
quantity of radio channels.
Hutchison Team Telecom continues to win new first line maintenance support
contracts from companies such as Med Cable, M Link and EU Networks and during
the period we have renewed and extended our existing pan European contracts with
Interoute for a further three years. We have seen slower than anticipated
deployment of our Huawei BT21CN contract due to a number of issues outside of
our control. We are hopeful that momentum can be recovered in the second half as
start up issues are resolved. The business continues to roll out a number of IP
fixed line networks for several of our other manufacturing partners, across both
the UK and Europe. Subsequent to the end of the financial period, we completed
the acquisition of Redbridge Management Services (RMS) which strengthens our
Telecoms Services division and means that our operational capability is now
extended to provide comprehensive, UK wide, first line maintenance services
which compliments our existing UK and European footprint in Hutchison Team
Telecom. The addition of around 58 qualified telecommunications engineers
significantly enhances our capabilities.
Team Simoco continues to see strong growth in all areas and in particular for
sales of Xfin technology. We recently gained another industry innovation award
for our Xfin Mutli-site Softswitch, the second of its type in the last two
years. New orders have been secured for networks in Panama, China and Africa as
well as the UK. During the first half of the year, we have been focused on the
Western Power Distribution network roll out programme, which, at over 100
discrete sites, is the largest system of its type to be deployed in the UK in
the last five years. This project will continue through the majority of this
financial year, providing a significant expected benefit in the results for the
year, and we remain on track for completion as planned. Additionally we were
able to successfully renew significant maintenance contracts with the UK MOD
which will now run until 2010 underpinning our stated aim of increasing
maintenance revenues across the business going forward.
Water Services
Our Water Services business, which provides national clean and dirty water
services and meter operations, has made a successful start to the financial year
contributing EBITA of £3.2 million (2006: £2.8 million) an increase of 12%.
During the period, H20 renewed both of its meter installation contracts with
Yorkshire Water and United Utilities for three years with an option to extend
for two years. We are now working under both of these new contracts. Within
Yorkshire Water, we are working alongside client staff at Yorkshire Water's Head
office. The scope of our work has also been extended to include repair and
maintenance of Yorkshire Water's asset infrastructure. Within United Utilities,
we are now the sole provider of meter installation services across the whole of
United Utilities' network and will shortly be rolling out our bespoke works
management system to replace United Utilities' existing systems so as to provide
a fully mobile working solution.
Elsewhere we have renewed our meter reading contract with Scottish Water as well
as continuing to deliver our commercial meter installation contract. There
continues to be significant environmental pressures on water conservation and
leakage and our water efficiency and leakage management service continues to be
in demand from both utility and commercial clients. We have won a two year
framework contract with Thames Water to survey, provide and install pressure
equipment in tall buildings and also a contract to provide water efficiency
services. The current drivers for outsourcing by the utilities, together with
the focus on water conservation and maintenance of assets, positions us well for
continued growth in the future.
Our Metro Rod and Meter U businesses continue to perform in line with
expectations. Metro Rod has secured a number of new clients in the period
including Nationwide, Budgens and Elyo. We have recently begun to develop our
franchise brand in Northern Ireland and are looking to extend this into The
Republic of Ireland.
Following the acquisition of RAS, two of the acquired businesses (debt
resolution and meter point services) are being operationally managed and
integrated into our Meter U business. This broadens and extends our field
service offering, whilst adding a skilled office based operation. Approximately
230 field agents provide nationwide coverage on utility-based debt collection
including pre-disconnection visits, warrant applications, token meter
installations and warrant visits. This work is controlled by a team of
approximately 40 people based in Warrington. Debt resolution services are
controlled from Borehamwood and Solihull. This team undertakes complex debt
resolution services for utility clients including both live and final debt.
Cross selling
Cross selling continues to form an important part of our future growth strategy,
particularly following the acquisition of RAS, where an important part of our
strategy is to take the Billing Services offering into the electricity sector.
We have also begun to leverage the enhanced geographic coverage of our Gas
Services business in the development of our commercial gas maintenance services.
The successes that we have enjoyed over the past twelve months are being turned
into earnings as is demonstrated by the strong like for like organic growth that
has been achieved in this period compared to last. We continue to believe that
Spice enjoys an exceptionally strong platform from which to convert cross
selling opportunities into earnings. Cross selling remains a priority for the
management team.
Head office
Head office costs are mainly comprised of salaries, including the Group's IT and
HR functions, and also professional costs. Costs have increased over the period
as a result of our continued investment in IT infrastructure and resource. This
investment has been made to support the migration to a common accounting
platform for four of our businesses (Electricity, Facilities, Water and Billing
Services). Connected to this, we have also invested in the further development
of our in-house work management system (job track). The "next generation" of job
track is expected to be live, initially within our Electricity business, by the
end of the year.
Acquisitions
Five acquisitions have been made during the period, which are summarised below:
Initial net Maximum additional
consideration contingent consideration
£'m £'m
Homerton 1.5 2.5 Contingent consideration based on
acquired working capital and
performance to April 2008
KMN 0.8 0.1 Contingent consideration based on net
assets in completion accounts
GMT and MET 6.5 14.1 Contingent consideration based on
acquired working capital and
performance during 2008, 2009 and 2010
RAS 101.2 -
110.0 16.7
Initial net consideration in respect of these acquisitions totals £110.0
million. This includes the issue of 6.5 million new shares to shareholders of
RAS. The Group expects to incur exceptional costs of up to £0.3 million in the
second half of the financial year connected to the reorganisation and
integration of RAS.
At the start of the financial year, the Group had a provision totaling £5.2
million in relation to deferred contingent cash consideration payable on
acquisitions made in previous years. This provision relates principally to the
acquisitions of Air Radio, Hutchison and Kemac. During the period, a total of
£2.6 million contingent consideration has been paid mainly in relation to
Hutchison and Kemac. After taking account of earn out obligations made in the
period ended October 2007, a provision of £16.8 million for deferred contingent
cash consideration has been carried forward. It is expected that this provision
will be utilised over the three year period ending April 2010, depending on the
performance of acquired businesses.
In November 2007, the Group completed the acquisition of RMS for initial net
cash consideration of £3.1 million. In December 2007, the Group completed the
acquisition of Saturn for initial net cash consideration of £3.5 million and
also Gas Call for initial net cash consideration of £2.25 million.
Group Board
The Group announced in July 2007 that Sir Rodney Walker intended to stand down
as Chairman within twelve months. We have started the search for a new Chairman
and believe that it is important to take our time, in order to identify and
appoint the best candidate as Chairman.
Separately the Group announced today that Carl Chambers will leave the Group
around the middle of next year. It is intended in due course, that Peter
Burridge, who is currently Managing Director of our Telecoms business will be
appointed as Group Corporate Finance Director. This position will cease to be as
a Main Board Director of Spice although Peter will continue to be a member of
the Group's Operating Board. Peter has extensive acquisitions and corporate
finance experience and has worked for the Group for nearly six years. Mike
Norfield, who has been Managing Director of Team Simoco for three years, will
become Managing Director of our Telecoms business.
The Group also announced today that Andy Catchpole has been appointed to the
Main Board of Spice as Group Strategy and Development Director. Andy will
combine this role with his existing role as Managing Director of our Electricity
business. Prior to joining Spice in 2005, Andy held senior positions with 24/7,
TXU Europe, Hanson and Eastern Electricity. Andy has made a huge contribution to
the development of our Electricity Services business and we believe that Andy
can help the wider Group achieve its ambitions to replicate our success in
Electricity within our other markets.
Financial review
The Group has made a strong start to the new financial period. Organic growth
and cash conversion continue to be main features of the Spice business. We have
recorded 30% like for like organic EBITA growth in the business and have
converted 100% of operating profits into operating cashflow.
Turnover
During 2007, turnover increased by 40% to £143.4 million (2006: £102.6 million),
of which acquisitions contributed £2.5 million.
Profit on ordinary activities before interest, tax and amortisation of
intangible fixed assets (EBITA)
EBITA increased by 68% to £12.0 million (2006 restated: £7.1 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 10.4 8.0
2007 acquisitions 0.7 -
Part year effect of 2006 acquisitions 1.9 -
IFRS 2 Share based payment charge (1.0) (0.9)
12.0 7.1
The table shows that EBITA from existing operations, excluding the effect of
IFRS 2, was £10.4 million (2006 restated: £8.0 million), representing organic
growth of 30% for the period. Separately, acquisitions made during 2007
contributed £0.7 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 period
ended October 2007. For example, Inenco was acquired on 16 June 2006. Its
results for the period between 16 June 2007 and October 2007 are shown within
existing operations, as are the comparative numbers for the period from
acquisition to October 2006. The results of Inenco for the period from 1 May
2007 to 16 June 2007 are shown within the part year effect of 2006 acquisitions.
Other 2006 acquisitions, part of whose performance contributes to this line, are
Breval, Apollo, Pargas, Atlanta and Optimal.
EBITA operating margins for the Group improved to 8.4% (2006 restated: 6.9%).
Underlying operating margins, excluding the effect of IFRS 2, were 9.0% (2006
restated: 7.8%).
Finance expenses
Finance expenses for the period were £2.1 million (2006 restated: £1.0 million).
The higher finance expense arises due to interest payable on bank debt used to
fund the various acquisitions made.
In addition, following the adoption of IAS 37, the Group has incurred a non-cash
interest charge on its outstanding liability for contingent consideration. This
non-cash charge is excluded from the calculation for the purposes of determining
compliance with the Group's banking covenants.
The Group's banking covenants are based around earnings before interest, tax,
depreciation, amortisation and share based payments (Adjusted EBITDA). Adjusted
EBITDA interest cover for the period was 7 times (2006 restated: 11 times) which
compares against a covenant of 3 times.
Profit on ordinary activities before tax and amortisation of intangible fixed
assets (PBTA)
PBTA increased by 62% to £9.9 million (2006 restated: £6.1 million).
Profit on ordinary activities before tax
Profit on ordinary activities before tax increased by 44% to £8.3 million (2006
restated: £5.8 million). The Group's amortisation charge has increased from £0.4
million to £1.6 million during the period which is attributable to the
amortisation of separately identifiable intangible fixed assets arising on
acquisitions made in 2007 and 2006.
Tax
The Group's effective rate of tax for the period was 27.5% (2006 restated:
23.2%). Under IFRS, the benefit of tax relief on the exercise of share options
is recognised entirely on the Group's balance sheet rather than the income
statement, although the Group continues to receive the cash benefit of this tax
relief under IFRS in the same way that it did under UK GAAP. The Group's
effective rate of tax continues to be lower than the standard rate of tax
principally as the result of the recognition and utilisation of prior year tax
losses.
Earnings per share
Diluted earnings per share at 10.7 pence (2006 restated: 8.8 pence) increased by
22% and adjusted diluted earnings per share (before amortisation of intangible
fixed assets) at 13.6 pence (2006 restated: 9.5 pence) increased by 43%.
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 an interim dividend of 1.5 pence (2006:
1.0 pence) per share payable on 12 February 2008 to shareholders on the register
at 25 January 2008.
Cash flow
Net cash inflows from operations increased by £5.0 million to £10.3 million
(2006 restated: £5.3 million). The Group converted 100% of operating profit into
operating cash flow (2006 restated: 79%).
During the first half of the financial year, net working capital utilised
increased by £4.4 million (2006 restated: £4.0 million). This utilisation
principally arises due to investment in inventories in the period of which the
largest movement is connected with ongoing contracts within our Telecoms
business.
Balance sheet
Net assets have increased to £119.4 million (2006 restated: £47.3 million),
reflecting retained profits, cash generated from the exercise of employee share
options, the share placing undertaken in March 2007 and in relation to the
acquisition of RAS and the adoption of IFRS.
Net debt is £113.9 million (2006: £31.6 million). The increase is mainly
attributable to consideration paid in respect of acquisitions and also payments
made to settle contingent cash consideration connected with acquisitions. The
Group's net debt number excludes certain costs of acquisition connected to RAS
which totaled approximately £1.6 million and which have been settled in the
second half of the financial year. In addition, approximately £5.0 million was
owed to HMRC in connection with tax liabilities arising from the exercise of
share options by option holders of RAS. Again these monies have been paid over
to HMRC, subsequent to the end of the financial period.
International Financial Reporting Standards (IFRS)
The Group has adopted IFRS during the period with an effective date of
transition of 1 May 2006 and these results are the first to be presented under
IFRS. The tables below reconcile the principal changes to comparative numbers
for EBITA, retained profit and net assets for the period ended October 2006 and
the year ended April 2007.
The adoption of IFRS does not materially affect the Group's turnover, EBITA or
profits before tax and amortisation for either the year ended April 2007 or
period ended October 2006. IFRS has no effect on the Group's strategy, cash
flows or net debt position.
The Group's detailed IFRS transition statement is set out on its website at
www.spiceplc.com.
Period ended Period ended Year ended
28 October 29 October 29 April
2007 2006 2007
£'m £'m £'m
EBITA under UK GAAP 7.2 16.3
Holiday pay IAS 19 (0.1) (0.1)
EBITA under IFRS 12.0 7.1 16.2
Period ended Period ended Year ended
28 October 29 October 29 April
2007 2006 2007
£'m £'m £'m
Retained profit under UK GAAP 3.3 7.5
Non cash interest charge IAS 37 (0.1) (0.3)
Amortisation of intangible fixed assets IAS 38 & IFRS 3 1.3 2.8
Holiday pay IAS 19 (0.1) (0.1)
Deferred tax on share options IAS 12 - (0.9)
Retained profit under IFRS 6.0 4.4 9.0
28 October 29 October 29 April
2007 2006 2007
£'m £'m £'m
Net assets under UK GAAP 43.6 67.3
Non cash interest charge IAS 37 (0.1) (0.3)
Amortisation of intangible fixed assets IAS 38 & IFRS 3 1.4 2.8
Holiday pay IAS 19 (0.4) (0.4)
Deferred tax on share options IAS 12 2.8 5.8
Net assets under IFRS 119.4 47.3 75.2
Move to the Official List
In July 2007, Spice announced its intention to move its quotation from AIM to
the Official List over the 18 month period from July 2007. Over the course of
the six months since that announcement, the Group has begun the various work
processes connected with this move and expects to move to the Official List
during 2008 (subject to market conditions).
Outlook
We are pleased with both the operating and financial performance for the first
half of the financial year. We expect the industry drivers, within our core
utilities market, to remain strong. We are keenly focused on strong organic
growth and converting our profits in to cash and delivering shareholder value
from our acquisition of RAS and believe that Spice remains well placed to
continue to grow organically (including by cross selling across operating
divisions) whilst at the same time continuing to pursue complementary
acquisition opportunities within our existing operations. We are confident that
we have the right people and structure to make the most of these growth
opportunities over the coming months.
WS Rigby
Chief Executive Officer
13 December 2007
Consolidated income statement for the six months ended 28 October 2007
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
Note £'000 £'000 £'000
as restated as restated
Revenue 5 143,437 102,633 228,560
Operating expenses (133,090) (95,888) (213,589)
EBITA 5 11,977 7,109 16,196
Amortisation of intangible fixed assets (1,630) (364) (1,225)
Operating profit 10,347 6,745 14,971
Finance expenses (2,051) (995) (2,727)
Profit before tax and amortisation of 9,926 6,114 13,469
intangible fixed assets
Amortisation of intangible fixed assets (1,630) (364) (1,225)
Profit on ordinary activities before tax 5 8,296 5,750 12,244
Tax on profit on ordinary activities 2 (2,282) (1,333) (3,247)
Profit for the period attributable to 6,014 4,417 8,997
equity shareholders
Earnings per share (pence per share)
Basic 4 12.0 9.8 19.7
Diluted 4 10.7 8.8 18.1
Consolidated balance sheet at 28 October 2007
Unaudited Unaudited Unaudited
28 October 29 October 29 April
2007 2006 2007
Note £'000 £'000 £'000
as restated as restated
Assets
Non-current assets
Purchased goodwill 179,353 57,156 72,159
Intangible fixed assets 59,474 5,739 11,566
Property, plant and equipment 17,919 13,865 17,406
Investment in associates 212 212 212
Trade and other receivables 336 339 335
Deferred tax assets - 1,405 3,480
257,294 78,716 105,158
Current assets
Inventories 11,740 6,649 6,688
Trade receivables and other receivables 62,227 43,229 55,323
Non current assets held for resale - 595 589
73,967 50,473 62,600
Liabilities
Current liabilities
Trade and other payables (63,065) (48,054) (48,184)
Current tax payable (6,524) (4,677) (4,889)
Financial liabilities (162) (3,327) (5,023)
(69,751) (56,058) (58,096)
Non-current liabilities
Financial liabilities (113,783) (17,576) (29,238)
Deferred tax laibilities (11,464) - -
Provisions for other liabilities and charges (16,820) (8,280) (5,220)
(142,067) (25,856) (34,458)
Net assets 119,443 47,275 75,204
Shareholders equity
Called up share capital 6,001 4,947 5,347
Share premium account 84,398 27,462 46,523
Other reserves 100 100 100
Retained earnings 28,944 14,766 23,234
Equity shareholders' funds 6 119,443 47,275 75,204
Consolidated cashflow statement for the six months ended 28 October 2007
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
Note £'000 £'000 £'000
Operating activities
Net cash generated from operations 7a) 10,317 5,335 16,335
Interest paid (1,932) (874) (2,489)
Tax paid (1,702) (1,235) (3,318)
Net cash generated from operating activities 6,683 3,226 10,528
Investing activities
Purchase of property, plant and equipment (1,960) (1,536) (6,030)
Proceeds from sale of property, plant and 737 149 269
equipment
Purchase of intangible fixed assets (12) (86) (246)
Acquisition of subsidiary undertakings (74,720) (12,511) (46,112)
(Debt)/cash acquired with subsidiary (10,749) 3,860 6,076
undertakings
Interest receivable 38 27 45
Net cash used in investing activities (86,666) (10,097) (45,998)
Financing activities
Dividends paid (1,482) (854) (1,306)
Repayment of obligations under finance leases (121) (52) (170)
Sale of investments - own shares 325 438 1,087
Purchase of investments - own shares (1,368) - (1,305)
Proceeds from issue of ordinary shares - - 19,461
Repayment of borrowings (37,676) (634) (73,601)
Proceeds from borrowings 122,238 5,962 89,368
Net cash generated from financing activities 81,916 4,860 33,534
Net increase/(decrease) in cash and cash 7c) 1,933 (2,011) (1,936)
equivalents
Cash and cash equivalents at 30 April 2007 (1,950) (14) (14)
Cash and cash equivalents at 28 October 2007 (17) (2,025) (1,950)
Notes to the Interim Report for the six months ended 28 October 2007
1 Basis of accounting
The interim financial statements have been prepared under the historical cost
convention and in accordance with the accounting policies used in the Group's
International Financial Reporting Standards (IFRS) transition statement. The
comparative numbers for the year ended April 2007 and for the period ended
October 2006 have been restated to reflect the adoption of IFRS where
appropriate. Details of how the Group's financial results and financial position
are impacted by the adoption of IFRS are set out in detail in the Group's IFRS
transition statement which was issued on 15 October 2007 and is available on the
Group's website at www.spiceplc.com.
The accounting policies used in the in the interim financial statements are
consistent with those that it is intended will be used in the annual financial
statements for the year ending April 2008. Further IFRS standards or
interpretations may be issued that could apply to the Group's financial
statements for the year ending April 2008. If any such amendments, new standards
or interpretations are issued then these may require the financial information
provided in this report to be changed. The Group will continue to review its
accounting policies in the light of emerging industry consensus on the practical
application of IFRS.
The interim financial statements for the six months ended 28 October 2007 and
for the six months ended 29 October 2006 contained within the interim report do
not constitute statutory financial statements within the meaning of Section 240
of the Companies Act 1985 and are unaudited. The comparative figures for the
year ended 29 April 2007 have been extracted from the financial statements for
2007 (except for adjustments made for the adoption of IFRS described above).
Those financial statements for the year ended 29 April 2007 were prepared under
UK GAAP and received an unqualified auditors' report and have been delivered to
the Registrar of Companies.
2 Taxation
The taxation charge on the profit on ordinary activities has been based upon the
estimated effective tax rate of 27.5% (2006 restated: 23.2%) for the current
year.
3 Dividends
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
Amounts recognised as a distribution from
shareholders' funds during the period
Final dividend paid of 3.0 pence per share for the 1,482 854 854
year ended 29 April 2007 (2006: 1.9 pence)
Interim dividend paid of 1.0 pence per share for the - - 452
year ended 29 April 2007 (2006: 0.7 pence)
1,482 854 1,306
Proposed interim dividend of 1.5 pence for the period 840 452 452
ended 28 October 2007 (2006: 1.0 pence)
The interim dividend for the period ended 28 October 2007 will be accounted for,
following payment of that dividend, in the second half of the financial year. It
is proposed that the interim dividend amounting to £840,000 (2006: £452,000)
will be paid on 12 February 2008 to those shareholders on the register at 25
January 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 period used in the calculation of basic
earnings per share was as follows:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
'000 '000 '000
Weighted average number of shares for basic earnings 50,304 44,871 45,566
per share
Diluted earnings per share is the basic earnings per share adjusted for the
effect of the conversion into fully paid shares of the weighted average number
of share options outstanding during the year. The weighted average number of
shares in issue during the period used in the calculation of diluted earnings
per share was as follows:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
'000 '000 '000
Weighted average number of shares for diluted earnings 56,159 50,202 49,799
per share
Adjusted earnings per share has been calculated so as to exclude the effect of
the amortisation of all intangible fixed assets. Adjusted earnings per share has
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:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
as restated as restated
Basic earnings 6,014 4,417 8,997
Amortisation of intangible fixed assets 1,630 364 1,225
Adjusted earnings 7,644 4,781 10,222
Earnings per share (pence per share)
Basic 12.0 9.8 19.7
Diluted 10.7 8.8 18.1
Adjusted earnings per share (pence per share)
Basic 15.2 10.6 22.4
Diluted 13.6 9.5 20.6
5 Segmental analysis
The turnover for the period was derived from the Group's principal activities
and is attributable to the following markets:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
By destination
UK 140,608 100,776 224,661
Continental Europe 1,749 1,501 3,165
Rest of the World 1,080 356 734
143,437 102,633 228,560
Turnover for the period is derived from the Group's principal activities as
follows:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
Billing 917 - -
Energy 7,356 5,057 12,161
Facilities 24,821 18,824 43,499
Gas 14,927 - 10,491
Electricity 50,319 43,088 89,839
Telecoms 10,789 8,524 18,357
Water 34,300 27,135 54,192
Head office 8 5 21
143,437 102,633 228,560
Profit before tax is derived from the Group's principal activities as follows:
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
as restated as restated
Billing 317 - -
Energy 1,525 621 1,711
Facilities 2,161 1,943 4,028
Gas 1,825 - 992
Electricity 4,214 2,990 6,761
Telecoms 2,115 1,757 3,541
Water 3,155 2,805 5,221
Head office (3,335) (3,007) (6,058)
EBITA 11,977 7,109 16,196
Amortisation of intangible fixed assets (1,630) (364) (1,225)
Finance costs (2,051) (995) (2,727)
Profit before tax 8,296 5,750 12,244
The Group's IFRS 2 charge has been recorded within Head office for the purposes
of this segmental analysis.
6 Statement of changes in equity shareholders' funds
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
as restated as restated
Total recognised income attributable to 6,014 4,417 8,997
equity shareholders
Dividends paid in the period (1,482) (854) (1,306)
IFRS 2 Share based payments charge 1,002 900 2,000
Increase in IFRS Deferred tax asset 787 1,149 4,063
S23 tax relief on the exercise of share 472 - 982
options
Net proceeds from sale of own shares 285 438 1,087
Payments to acquire own shares (1,368) - (1,305)
Issue of shares 38,529 - 20,000
Costs of share issue - - (539)
Net addition to equity shareholders' funds 44,239 6,050 33,979
Opening equity shareholders' funds 75,204 41,225 41,225
Closing equity shareholders' funds 119,443 47,275 75,204
Opening shareholders' funds at 1 May 2007 have been restated from £39,846,000 to
£41,225,000 to reflect the adoption of IFRS.
7 Notes to the cash flow statement
7a) Cash generated from operations
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
as restated as restated
Operating profit 10,347 6,745 14,971
Depreciation of tangible fixed assets 1,732 1,312 2,994
Amortisation of intangible fixed assets 1,630 364 1,225
IFRS 2 Share based payments charge 1,002 900 2,000
Loss on sale of fixed assets 35 - 11
(Increase)/decrease in inventories (4,960) (1,112) 70
Increase in receivables (2,144) (8,793) (15,943)
Increase in payables 2,675 5,919 11,007
Net cash generated from operations 10,317 5,335 16,335
7b) Analysis of net debt
At At
29 April Cash Non cash 28 October
2007 flows movements 2007
£'000 £'000 £'000 £'000
Bank overdraft (1,950) 1,933 - (17)
Increase in cash during the period (1,950) 1,933 - (17)
Bank loans due within one year (2,824) 2,824 - -
Bank loans due after one year (29,200) (84,562) - (113,762)
Finance leases due within one year (249) 121 (17) (145)
Finance leases due after one year (38) - 17 (21)
Net debt (34,261) (79,684) - (113,945)
7c) Reconciliation of net cash inflow to movement in net debt
Unaudited Unaudited Unaudited
6 months to 6 months to Year ended
28 October 29 October 29 April
2007 2006 2007
£'000 £'000 £'000
Increase/(decrease) in cash in the period 1,933 (2,011) (1,936)
Dividends paid (1,482) (854) (1,306)
Net proceeds received from share issue - - 19,461
Sale of investments - own shares 325 438 1,087
Payments to acquire own shares (1,368) - (1,305)
Loan notes redeemed 2,824 - 10,649
Cash inflow from financing (81,916) (4,860) (33,534)
Change in net debt resulting from cash (79,684) (7,287) (6,884)
flows
Loan notes issued - (10,704) (13,473)
New and acquired finance leases - (39) (327)
Net debt at 30 April 2007 (34,261) (13,577) (13,577)
Net debt at 28 October 2007 (113,945) (31,607) (34,261)
8 Availability of interim report
The interim report will be sent to all shareholders on 4 January 2008. Copies
may be obtained from the Company Secretary at Wellfield House, Victoria Road,
Morley, Leeds, LS27 7PA or on Spice's website at www.spiceplc.com
Corporate information
Directors
Sir Rodney Myerscough Walker
Non-Executive Chairman
William Simon Rigby
Chief Executive Officer
Carl James Chambers
Corporate Development Director
Oliver James Lightowlers
Group Finance Director
John Mitchell Taylor
Non-Executive Deputy Chairman
Michael St. John Shallow
Non-Executive Director
Tim Huddart
Non-Executive Director
Company secretary
Lee Johnstone
Company number
3250709
Registered office
Wellfield House
Victoria Road
Morley
Leeds LS27 7PA
Tel: 0113 201 2120
Fax: 0113 201 2121
www.spiceplc.com
Independent auditors
PricewaterhouseCoopers LLP
Benson House
33 Wellington Street
Leeds LS1 4JP
Solicitors
Eversheds LLP
Bridgewater Place
Water Lane
Leeds LS11 5DR
Bankers
HSBC Bank plc
Yorkshire Corporate Bank Centre
4th Floor
City Point
29 King Street
Leeds LS1 2HL
Barclays Bank plc
PO Box 190
2nd Floor
1 Park Row
Leeds LS1 5WU
KBC Bank NV
111 Old Broad Street
London EC2N 1BR
Lloyds TSB Bank plc
31-32 Park Row
Leeds LS1 5JD
Nominated adviser
and stockbroker
KBC Peel Hunt Limited
111 Old Broad Street
London EC2N 1PH
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing BN99 6DA
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