Interim Results

RNS Number : 0925K

Spice PLC

15 December 2008

 



15 December 2008

Spice plc 

Interim results - period ended 31 October 2008

Spice plc ("Spice" or "the Group"), the provider of Total Utility Support Services, is pleased to announce its interim results for the period ended 31 October 2008.

Financial highlights

Profit before tax of £9.4 million (2007: £8.3 million) - 13% increase

PBTA* of £14.0 million (2007: £9.9 million) - 41% increase

EBITA** of £19.3 million (2007: £12.0 million) - 61% increase

Increase in EBITA operating margins to 10.0% (2007: 8.4%)

EBITA converted into operating cash flow - 100% (2007: 85%) 

Diluted earnings per share of 2.14 pence (2007 restated: 2.14 pence)  

Adjusted diluted earnings per share of 3.19 pence (2007 restated:  2.72 pence) - 17% increase

Interim dividend of 0.36 pence per share (2007 restated:  0.30 pence) - 20% 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.

Operational highlights

July 2008	Inenco independently confirmed as largest third party energy procurement intermediary
September 2008	Completion of placing to raise £50 million at 102 pence per share
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

Simon Rigby, Chief Executive Officer commented:

"We have today reported another set of strong results with PBTA increasing by 41% for the first six months of the financial year. We are also extremely pleased to have converted 100% of EBITA into operating cash flow and the conversion of profits into cash continues to be a feature of our business. 

The Board believes that Spice is well positioned within its utility markets and that these markets continue to offer significant growth opportunities, whilst at the same time having defensive qualities. We expect the Climate Change Act, which was brought into law in November, will create a number of new legislative drivers and opportunities for us. We remain confident about the second half of this financial year and beyond with any short term softness in our facilities market place expected to be offset by ongoing strength in our energy and utility markets."

Ends

Enquiries:

Spice plc Simon Rigby, Chief Executive Officer Oliver Lightowlers, Group Finance Director Andy Catchpole, Group Strategy and Development Director	Tel: [phone]
Financial Dynamics Billy Clegg Caroline Stewart  Alex Beagley	Tel: [phone]
KBC Peel Hunt (Broker) Julian Blunt	Tel: [phone]

Business and financial review

Introduction

Spice has made a strong start to the new financial year, recording record performance for the first six months of the period. 

Revenue for the period grew by 34% to £192.6 million (2007: £143.4 million) and profit before tax, exceptional items and the amortisation of intangible fixed assets (PBTA) grew by 41% to £14.0 million (2007: £9.9 million). Our operating margins have also improved to 10.0% (2007: 8.4%).

Diluted earnings per share, adjusted for exceptional items and the amortisation of intangible fixed assets, increased by 17% to 3.19 pence per share (2007: 2.72 pence per share) and the Board has approved an interim dividend of 0.36 pence per share (2007: 0.3 pence), an increase of 20%.

We are particularly pleased to have converted 100% of EBITA (2007: 85%) into operating cash flow and the conversion of profits into cash continues to be a feature of our business. Net debt at 31 October 2008 was £85.0 million, giving the Group £85.3 million of headroom on its committed banking facilities which remain in place until 2012.

Spice provides Total Utility Support Services across two divisions:

• Supply Division

• Distribution Division

Through organising ourselves in the same way as our utility customers, we believe that we are better placed to serve those customers. Seven businesses sit within our two divisions. Looking at each of these in turn:

Supply Division

Billing Services

Our Billing Services business has contributed EBITA of £4.3 million (2007: £0.3 million) for the period to October 2008. Organic growth from Billing Services, in the like for like period from acquisition, has been strong. 

During the period, we have continued to work with 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. The first half of the year has seen Billing Services continue to secure new clients and new projects from existing clients. A number of our existing clients, including British Gas, EdF Energy and EoN, have renewed and extended their contracts with us in both term and scope. Gas revenues have come from a total of 13 clients including all of the "Big Six" suppliers and newer entrants such as Contract Natural Gas and Regent Gas. Our industry knowledge, combined with strong relationships, has enabled us to react quickly and effectively to recent industry changes, leading to increased project scopes.

Our electricity proposition is now fully-operational and profit-generating, again delivering previously unrecoverable cash to most of the "Big Six" and other suppliers such as British Energy. The approximate value of annual billings in UK energy markets is estimated to be £21 billion, with the electricity market estimated to be around three times the size of the gas market. Whilst there are many similarities between the gas and electricity models, a number of additional layers of complexity exist in the electricity industry which reinforce our position as industry experts. During the period, we secured a pilot contract with EoN who account for 22% of the UK electricity market. This pilot is progressing to plan. 

Progress has been made in developing propositions appropriate for the water and telecoms sectors, the costs of which have been borne in arriving at the trading result of £4.3 million for the period. Recent months have seen the first revenues delivered from the water sector through using the techniques, skills and proprietary software applications developed in the energy sector to identify unbilled and under-billed properties. Working with our Water business, we believe that we are well positioned to assist the UK's water companies in identifying unbilled revenues. The telecoms sector has many characteristics in common with the energy sector (many transactions, multiple parties and multiple IT systems) as well as the additional challenges of rapidly changing technologies and frequent provider consolidations. Together, these create an environment where revenue leakage and cost overspend are inevitable consequences.  

International opportunities also remain high on our agenda and we continue to be well placed as other countries move towards the deregulation of their energy markets. The pace of progress in this area will be driven by the speed of deregulation in those overseas markets. 

  Energy Services

Our Energy business has contributed EBITA of £2.3 million (2007: £1.5 million) for the period to October 2008. This contribution excludes a one off gain of £0.4 million arising on the disposal of our fuel card operations. This gain has been treated as a non-recurring exceptional item. Our fuel card operations were high volume but low margin and the disposal of this activity means that we are better able to focus on our core services. There was no cross over from the fuel card customer base to that of our core business.

Energy prices have continued to trend upwards for the period to October 2008, and importantly for Spice, with a high degree of volatility evident. Concerns over generation throughout the coming winter months remain and we anticipate that energy markets will remain volatile. Volatility continues to be an important driver for customers to use our services. The first half of the year has seen strong sales of our procurement services to new customers and also high levels of contract renewals amongst existing customers. We expect this to be reflected in our second half performance following the supply renewals on 1 October 2008. Several existing customers have extended the services taken into other areas. Particularly pleasing is the demand expressed by existing customers for our new siteworks service whereby we arrange supply upgrades, supply connections and the installation of smart meters. We continue to expand our European coverage through enquiries made by existing and new customer wins and see this area offering significant further growth potential. 

We continue to seek acquisitions that will reinforce existing skills and services and that will also introduce new skills and services or take us in to new markets or customer sectors. We are keen to strengthen our energy consultancy presence through this route.

The climate change agreement put in place on behalf of the plastics sector remains subject to approval by the EU under state aid rules. However, we anticipate that this arrangement will start generating income in the second half of the year. The government has re-committed to a low carbon economy, by setting tough climate change targets to the year 2050, in full knowledge of the strains on the economy as a whole. In November 2008, the government passed the Climate Change Act 2008 into law which facilitates the mechanism to progress with the Carbon Reduction Commitment (CRC). The CRC will, for the first time, introduce 5,000 organisations (both industrial and commercial, and public sector) to the direct consequences of their carbon emissions and will provide these organisations with financial incentives and penalties according to their published performance. This will act as a massive driver for many of our consultancy services and already we are seeing early adopter behaviour from organisations, such as Punch Taverns, Bhs and Gala, who are pushing ahead with smart metering or carbon management programmes in order to stay ahead of the game. We see this as clear evidence of the government's commitment to reducing carbon emissions despite difficult financial pressures on end users and expect demand for our energy management and consultancy services to remain unaffected by a downturn in the economy as customers continue to seek the cost savings and other benefits that our services deliver. 

Distribution Division

Electricity Services

Our Electricity business has traded very strongly over the first six months of the financial year with EBITA increasing by 70% to £7.1 million (2007: £ 4.2 million). Each of the service islands has contributed to this result, recording pleasing levels of organic growth. We have also seen strong growth in EDF Energy, particularly within our Power Lines service island. At the same time, we have recorded significant growth across relatively new customers like United Utilities, Scottish Power and AT&T.  

Acquisitions such as Optimal, Melton Power and UTEC have been successfully integrated into the business. These bolt on acquisitions have enhanced our UK wide pool of skilled resources, allowing us to strengthen our service offering to our customers. In July 2008, we completed the acquisition of British Power International. BPI provides specialist engineering and consultancy services to network operators, generators, regulators, governments and funding agencies. BPI gives us a significantly enhanced capability in the area of higher value consultancy services adding highly skilled and scarce resource. BPI has recently received tenders from agencies including the United Nations for the training of electrical engineers.

In the second half of the year, we are planning to invest around £6 million in the development of our second UK training centre in Corby, which will complement existing facilities in Rotherham. It is anticipated that this centre will create a strong platform for the training and ongoing development of engineers to support the growth of our own business, whilst also enhancing revenue streams from the provision of external training services. Corby will become the home base for all apprentices and graduates. Many of our apprentices and graduates have now completed their training and these newly skilled engineers are beginning to contribute to our performance and our growth.  

The Distribution Price Review is now being discussed between the Regulator and the Distribution Network Owners. We anticipate that the outcome of these discussions is likely to benefit our "cradle to grave" services which assist our customers in delivering their work programmes. The next six months are likely to be a very busy tendering period for the business with many new opportunities across the UK and also overseas. We believe that we are well positioned to maintain the growth of the business with clear visibility going into the second half and beyond. 

Facilities Services

Facilities Services reported EBITA of £1.3 million (2007: £2.2 million) for the six months to October 2008. The performance of this business reflects the difficult trading conditions within parts of the business which are exposed to the UK high street. These clients have been quick to adjust their costs to reflect prevailing market conditions and have been deferring property maintenance expenditure wherever possible. As a consequence both our revenues and our margins have reduced.

During this period Facilities Services has sought to better align its services with the needs of its customers, through the establishment of four customer facing service islands:

• Professional Services - encompassing Managed Solutions and a number of related property services including energy efficiency;

• Commercial Property Services - encompassing Commercial Solutions and providing site maintenance services;

• Residential Property Services - encompassing insurance claims, private and social housing repairs and planned works; and 

• Risk Management - encompassing asset management, asbestos surveys, condition surveys, and health and safety compliance.

As well as meeting a fast-developing client need, we anticipate that our energy efficiency services will stimulate energy saving activities to be undertaken by our clients. In conjunction with our Energy business, we have developed these services which include energy management, energy surveys and in-store energy efficiency activities alongside our regularised property maintenance services. This offers significant economies of scale and resultant savings for the client. Early trials suggest the customer base will respond well and that in the difficult months to come, our clients will increasingly turn to this kind of added-value integrated service offering to join up their energy efficiency and property maintenance agendas.

Within the first six months of the financial year, we have noted an increased trend towards cash settlement of insurance claims for less than £1,000 within our Residential Property Services business and have taken steps to revise our operating procedures and reduce our workforce to reflect this change in approach. At the same time, we were awarded additional post codes in the West Midlands worth approximately £2 million per annum. This supports the belief that our service remains both strong and valued by our clients. Once fully mobilised, we expect that these new post codes will offset any continuing trend of cash settlement.

Notwithstanding a difficult period of trading and recognising that our financial performance is not expected to improve in the second half of the year, Facilities Services has gained market share by continuing to grow both its customer base and the number of sites and properties serviced. This augers well for the time when our customers return to a planned service (as opposed to the current reactive forced spend position, which is not sustainable in the longer term) since revenues and margins can be expected to improve.

Gas Services

Our Gas Services business has contributed EBITA of £2.4 million (2007: £1.8 million) to the Group's result for the period. 

In the North West, work for Liverpool Mutual Homes through the Fusion 21 framework has continued and we have also been awarded work for City West Homes in Salford and Arena Homes in Runcorn. Service and maintenance contracts have been awarded for One Vision Housing in Bootle, Cobalt homes in Liverpool and Ribble Valley Homes in Clitheroe. We have also extended our partnership agreement with First Choice Homes in Oldham for a further two years. Towards the end of the period, we completed the acquisition of Mono Services. Mono provides responsive and planned maintenance services to registered social landlords, local housing associations and local authorities in the North West of England. Mono is located close to where Spice's gas maintenance activities are headquartered. Increasingly, local authorities require bundled services including combining gas maintenance services with responsive repairs. As a "complete service solutions" provider we will be in a very strong position to meet the requirements of our clients.

In the South, we have successfully mobilised our gas meter operations' framework contract with Siemens. We remain committed to leveraging our national network of engineers to expand our presence in the market place for national gas meter operations. The Southern gas maintenance market has become increasingly competitive over the past six months. Consequently, we have taken steps to consolidate our Southern operations into a single business unit, which will give us greater scale and scope to win larger contract opportunities going forward. 

November 2008 has seen the introduction of common IT systems across the division. In due course, we expect to realise significant benefits from this common platform. The business now has access to over 500 CORGI registered engineers and maintains in excess of 150,000 properties. 

  Telecoms Services

Our Telecoms infrastructure support services business reported EBITA of £2.1 million (2007: £2.1 million). The prior period results benefited from the one off contribution of the contract with Western Power Distribution which has not been repeated in 2008.

During the period we were pleased to renew our contract with BA (British Airways), in relation to the provision of private mobile radio and other wireless technology support and services for the three years to September 2011, with an option to extend thereafter for one year. The new contract is similar in scope of services provided to the previous contract, which itself had evolved in line with developments in mobile technology and BA's changing operational requirements. The first half of the year has seen less project work awarded by BA, as a result of the focus on contract renewal discussions. The second half may see anticipated projects deferred as a result of the tougher economic environment within which BA is currently operating.

AirRadio has launched its second digital Tetra network service at London Heathrow Airport. The system gives customers enhanced resilience over voice and data applications and is the single largest Tetra network dedicated to commercial use in the UK and replicates the AirRadio system that has been in use at Birmingham International Airport since June 2006. AirRadio has also renewed its commercial agreement and lease with BAA (British Airports Authority) to November 2013. The agreement allows AirRadio to provide approved radio network services to airport tenants at each of BAA's seven UK airports. AirRadio has also signed a five year contract with BAA to provide support and maintenance services for radio infrastructure at Gatwick Airport. 

The integration of Redbridge, which had been acquired in November 2007, has been completed. The business has recorded new wins for Stevenage Borough Council covering the supply, installation, commissioning and maintenance of a large telephone system and a project for Corby Borough Council to design and deploy a new Voice and LAN infrastructure across several sites covering some 450 users. Other significant wins have included the installation, commissioning and maintenance of optical networks for Deutsche Telecom covering most of Western Europe and the provision of first line maintenance services for Ciena in mainland Europe, covering nine countries. Work flow connected to the BT21CN project for Huawei continues to be less than anticipated. Whilst we remain hopeful, it is difficult to predict when volumes may improve.

The first half of the year has continued to see good demand for Xfin and TETRA technologies. The Michigan 3 Alliance project to renew their telecoms infrastructure continues to progress to plan. Contracts have also been renewed with Transport for London and The Greater Manchester Fire Service. We have continued to make progress overseas undertaking small projects for the Venezuelan military, the Panama Canal and also the Chinese emergency services. International expansion is progressing well and further projects are likely to be awarded over the coming years in these territories.

Water Services

Our Water Services business contributed EBITA of £3.8 million (2007: £3.2 million) for the period ended October 2008. 

We are continuing to benefit from ongoing environmental drivers for water conservation and metering. During the period, our contract with Three Valleys Water, under which we have sole provider status for meter installations and replacements in their region, was successfully mobilised and we expect the full benefit of this contract to be realised in the second half of the year. Our work management system has gone live within United Utilities during the period which has also coincided with an increase in meter installations. The service and efficiency benefits from the system are now beginning to be realised. As a consequence, we are seeking to introduce our work management system into clients with whom we have other meter installation contracts. We recently secured a new two year contract, with the option to extend for two years, with South Staffordshire Water for leakage detection. Furthermore, additional works have been secured with Thames Water for the provision of water efficiency audits and commercial and domestic logging works. The preparation by the water companies for the next Regulatory Period (2010 to 2015) is in progress and the total investment by the water companies is expected to be circa £27 billion. Areas of focus include maintenance, refurbishing of assets, promotion of metering, water efficiency and leakage reduction. We expect this to create further additional opportunities for the business and to form the platform for further growth in the future.     

The acquisition of Morrel Consulting was completed in October 2008. Morrel has developed a software application that assists in the identification of unbilled and under-billed commercial and domestic properties and analyses consumption data to identify leakage and under-recording meters. The acquisition significantly enhances our service offering and moves us further up the value chain. Through combining our nationwide network of operatives with Morrel's software application, we are in a strong position to assist our water customers in maximising their revenue streams. Against the current uncertain economic climate, we believe that this is an ideal time to bring this innovative and value added solution to our clients. This service also has strong synergies with the work currently being undertaken by our Billing business. Morrel provides us with the opportunity to provide a "Connection to Collection" service offering to the water companies.

  Metro Rod continues to perform well having secured and extended a number of drainage service contracts within the health care, education and social housing sectors. We continue to increase the number of franchisees in our network through territory splits and sale of vacant territories. The current on-going consultation, which is anticipated to come into effect in 2010, regarding the transfer of private sewers and drains to the water companies will provide further opportunities for the business. Meter U, our meter reading business, has extended its geographical area of operations to include South Wales and the South West of England. Following the integration of debt resolution and meter point services into Meter U, progress has been made in providing these services to the water companies and we expect this activity to increase over the next twelve months. Existing arrangements for debt collection have been extended with Npower and new works have come on stream with EDF Energy.  

Head office

Head office costs are mainly comprised of salaries, including the Group's IT and HR functions, and also professional costs. During the period, we have continued our investment in IT infrastructure and resources to support the enlarged Group. 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 also include the Group's IFRS 2 charge. Head office costs have increased by £0.7 million to £4.0 million for the first six months of the year for the reasons outlined above but are less than the costs incurred for the second half of the year ended April 2008.

Acquisitions

Three acquisitions have been made during the period, 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	0.2	5.0	Contingent cash consideration based on performance to October 2009 and 2010
	8.2	7.8

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 period, approximately £8.0 million of contingent cash consideration has been paid mainly in relation to the acquisitions of Homerton, MET and Saturn. Provisions totalling £3.0 million (mainly in relation to AirRadio) have been released in the period. After also taking account of earn out obligations in relation to acquisitions made over the course of the period, a provision of £26.0 million for contingent cash consideration has been carried forward. It is expected that this provision will be utilised over the three year period ending April 2011, depending on the performance of acquired businesses.

  Financial review

Revenue

During 2008, revenue increased by 34% to £192.6 million (2007: £143.4 million), of which acquisitions contributed £2.4 million. 

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

EBITA increased by 61% to £19.3 million (2007: £12.0 million). The table below identifies the driving factors behind this growth including separately identifying the part year effect of acquisitions made during 2007.

	2008	2007
	£’m	£’m
EBITA
Existing operations	13.3	12.7
Disposals and one offs	—	0.3
2008 acquisitions	0.5	—
Part year effect of 2007 acquisitions	6.6	—
IFRS 2 Share based payments charge	(1.1)	(1.0)
	19.3	12.0

The table shows that EBITA from existing operations, excluding the effect of IFRS 2, was £13.3 million (2007: £12.7 million), representing organic growth of 5% for the period. Organic growth has been adversely affected in the period by the performance of the Group's Facilities business. Separately, acquisitions made during 2008 contributed £0.5 million to EBITA. 

Spice made various acquisitions during 2007, which contributed to EBITA for part of that year but which have contributed to EBITA for the whole of the period ended 31 October 2008. For example, Revenue Assurance was acquired on 12 October 2007. Its results for the period between 12 October 2008 and 31 October 2008 are shown within existing operations, as are the comparative numbers for the period from acquisition to 28 October 2007. The results of Revenue Assurance for the period from 1 May 2008 to 11 October 2008 are shown within the part year effect of 2007 acquisitions. Other 2007 acquisitions, part of whose performance contributes to this line, are Homerton, KMN, GMT and MET.

EBITA operating margins for the Group improved to 10.0% (2007: 8.4%). 

Exceptional items

Exceptional items incurred during the period are comprised 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.

Finance expenses

Finance expenses for the period were £5.3 million (2007: £2.1 million). The higher finance expense arises due to interest payable on bank debt used to fund the various acquisitions made. In addition, 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, exceptional items, depreciation, amortisation and share based payments (adjusted EBITDA). Adjusted EBITDA interest cover for the period was four and a half times (2007: seven times) which compares against a covenant of three times. 

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

PBTA increased by 41% to £14.0 million (2007: £9.9 million). 

Profit on ordinary activities before tax

Profit on ordinary activities before tax increased by 13% to £9.4 million (2007: £8.3 million). The Group's amortisation charge has increased from £1.6 million to £4.0 million during the period which is attributable to the amortisation of separately identifiable intangible fixed assets arising on acquisitions made since 1 May 2006.

  Financial review continued 

Tax

The Group's effective rate of tax for the period was 27.5% (2007: 27.5%). 

Earnings per share

Diluted earnings per share was 2.14 pence (2007 restated: 2.14 pence) and adjusted diluted earnings per share (before exceptional items and amortisation of intangible fixed assets) at 3.19 pence (2007 restated: 2.72 pence) increased by 17%. 

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 0.36 pence (2007 restated: 0.30 pence) per share payable on 10 February 2009 to shareholders on the register at 23 January 2009.

Cash flow

Net cash inflows from operations increased by £9.0 million to £19.3 million (2007: £10.3 million). The Group converted 100% of EBITA into operating cash flow (2007: 85%). During the first half of the financial year, net working capital utilised increased by £3.3 million (2007: £4.4 million). This utilisation relates to investment in support of the continuing growth of the business. 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 £181.9 million (2007: £119.4 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 £85.0 million (2007: £114.0 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 31 October 2008, the Group had headroom under the revolving credit facility of £85.3 million. The facility is not due for renewal until March 2012.

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.

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.

Outlook

The Board believes that Spice is well positioned within its utility markets and that these markets continue to offer significant growth opportunities, whilst at the same time having defensive qualities. We expect the Climate Change Act, which was brought into law in November, will create a number of new legislative drivers and opportunities for us. We remain confident about the second half of this financial year and beyond with any short term softness in our facilities market place expected to be offset by ongoing strength in our energy and utility markets.

WS Rigby Chief Executive Officer

OJ Lightowlers Group Finance Director

AP Catchpole Group Strategy & Development Director

15 December 2008

Consolidated income statement 

for the six months ended 31 October 2008

		Unaudited	Unaudited	Audited
		6 months to	6 months to	Year ended
		31 October	28 October	30 April
		2008	2007	2008
	Note	£’m	£’m	£’m
Revenue	6	192.6	143.4	312.2
Operating expenses		(177.9)	(133.0)	(287.5)
EBITA	6	19.3	12.0	29.9
Exceptional items		(0.6)	—	(0.2)
Amortisation of intangible fixed assets		(4.0)	(1.6)	(5.0)
Operating profit		14.7	10.4	24.7
Finance expenses		(5.3)	(2.1)	(7.5)
PBTA		14.0	9.9	22.4
Exceptional items		(0.6)	—	(0.2)
Amortisation of intangible fixed assets		(4.0)	(1.6)	(5.0)
Profit on ordinary activities before tax	6	9.4	8.3	17.2
Tax on profit on ordinary activities	3	(2.6)	(2.3)	(3.5)
Profit for the period attributable to equity shareholders		6.8	6.0	13.7
Earnings per share (pence per share)
Basic	5	2.33	2.40	5.16
Diluted	5	2.14	2.14	4.68
Adjusted earnings per share (pence per share)
Basic	5	3.47	3.04	6.38
Diluted	5	3.19	2.72	5.80

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.

Consolidated balance sheet

at 31 October 2008

		Unaudited	Unaudited	Audited
		31 October	28 October	30 April
		2008	2007	2008
	Note	£’m	£’m	£’m
Assets
Non-current assets
Purchased goodwill		222.7	179.4	211.8
Intangible fixed assets		45.1	59.5	46.3
Property, plant and equipment		19.5	17.9	19.4
Investment in associates		0.2	0.2	0.2
Trade and other receivables		0.3	0.3	0.3
		287.8	257.3	278.0
Current assets
Inventories		16.9	11.8	13.8
Trade receivables and other receivables		75.1	62.2	66.8
Cash – client monies		0.8	—	1.3
		92.8	74.0	81.9
Liabilities
Current liabilities
Trade and other payables		(71.0)	(63.1)	(63.5)
Current tax payable		(8.1)	(6.5)	(6.0)
Financial liabilities		(3.8)	(0.2)	(8.8)
		(82.9)	(69.8)	(78.3)
Non-current liabilities
Financial liabilities		(81.2)	(113.8)	(117.1)
Deferred tax liabilities		(8.6)	(11.5)	(6.8)
Provisions for other liabilities and charges		(26.0)	(16.8)	(29.9)
		(115.8)	(142.1)	(153.8)
Net assets		181.9	119.4	127.8
Shareholders’ equity
Called up share capital		7.0	6.0	6.0
Share premium account		94.6	46.5	46.5
Capital redemption reserve		0.1	0.1	0.1
Merger reserve		37.9	37.9	37.9
Retained earnings		42.3	28.9	37.3
Equity shareholders’ funds	7	181.9	119.4	127.8

Consolidated cash flow statement 

for the six months ended 31 October 2008

		Unaudited	Unaudited	Audited
		6 months to	6 months to	Year ended
		31 October	28 October	30 April
		2008	2007	2008
	Note	£’m	£’m	£’m
Operating activities
Net cash generated from operations	8a)	19.3	10.3	30.6
Interest paid		(5.0)	(1.9)	(6.9)
Tax paid		(3.3)	(1.7)	(4.6)
Net cash generated from operating activities		11.0	6.7	19.1
Investing activities
Purchase of property, plant and equipment		(2.2)	(2.0)	(5.4)
Proceeds from sale of property, plant and equipment		0.1	0.7	1.1
Purchase of intangible fixed assets		—	—	(0.2)
Acquisition of subsidiary undertakings		(17.0)	(74.7)	(94.4)
Cash/(debt) acquired with subsidiary undertakings		2.2	(10.6)	(11.7)
Net cash used in investing activities		(16.9)	(86.6)	(110.6)
Financing activities
Dividends paid		(2.6)	(1.5)	(2.3)
Repayment of obligations under finance leases		(0.1)	(0.1)	(0.2)
Proceeds from exercise of share options		0.5	0.3	1.0
Payment to acquire own shares (ESOP)		—	(1.4)	(1.4)
Proceeds from issue of ordinary shares		49.0	—	—
Repayment of borrowings		(49.0)	(37.7)	(37.7)
Proceeds from borrowings		13.0	122.2	125.5
Net cash generated from financing activities		10.8	81.8	84.9
Net increase/(decrease) in cash and cash equivalents	8c)	4.9	1.9	(6.6)
Cash and cash equivalents at 30 April 2008		(8.6)	(2.0)	(2.0)
Cash and cash equivalents at 31 October 2008		(3.7)	(0.1)	(8.6)

Notes to the Interim Report 

for the six months ended 31 October 2008

1 Basis of accounting

The interim financial statements have been prepared under the historical cost convention and in accordance with  International Financial Reporting Standards (IFRS)  as adopted by the European Union, IFRIC interpretations and the Companies Act 1985. The comparative numbers for the year ended April 2008 and for the period ended October 2007 have been restated to reflect the sub division of its ordinary share capital on the basis of five new shares for every existing share held.

The accounting policies used in the interim financial statements are consistent with those that have been used in the annual financial statements for the year ended April 2008. The impact of new accounting standards have been disclosed in the 2008 financial statements. Further IFRS standards or interpretations may be issued that could apply to the Group's financial statements for the year ending April 2009. 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 31 October 2008 and for the six months ended 28 October 2007 contained within the interim report do not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006 and are unaudited. The comparative figures for the year ended 30 April 2008 have been extracted from the financial statements for 2008. The financial statements for the year ended 30 April 2008 received an unqualified auditors' report and have been delivered to the Registrar of Companies.

2 Directors' responsibility statement

The Directors confirm, to the best of their knowledge, that the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim business review includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

• An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

• Material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

3 Taxation

The taxation charge on the profit on ordinary activities has been based upon the estimated effective tax rate of 27.5% (2007: 27.5%) for the current year. 

4 Dividends

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Amounts recognised as a distribution from shareholders’ funds during the period:
Final dividend paid of 0.9 pence per share for the year ended 30 April 2008 (2007 restated: 0.6 pence)	2.6	1.5	1.5
Interim dividend paid of 0.3 pence per share for the year ended 30 April 2008 (2007 restated: 0.2 pence)	—	—	0.8
	2.6	1.5	2.3
Proposed interim dividend of 0.36 pence for the period ended 31 October 2008 (2007 restated: 0.3 pence)	1.2	0.8	2.6

The interim dividend for the period ended 31 October 2008 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 £1.2 million (2007: £0.8 million) will be paid on 10 February 2009 to those shareholders on the register at 23 January 2009.

  5 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	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	’m	’m	’m
Weighted average number of shares for basic earnings per share	292.8	251.5	265.7

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	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	’m	’m	’m
Weighted average number of shares for diluted earnings per share	318.8	280.8	292.2

Adjusted earnings per share has 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: 

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Basic earnings	6.8	6.0	13.7
Adjustments for taxation	(1.3)	—	(2.0)
Exceptional items	0.6	—	0.2
Amortisation of intangible fixed assets	4.0	1.6	5.0
Adjusted earnings	10.1	7.6	16.9
Earnings per share (pence per share)
Basic	2.33	2.40	5.16
Diluted	2.14	2.14	4.68
Adjusted earnings per share (pence per share)
Basic	3.47	3.04	6.38
Diluted	3.19	2.72	5.80

The comparative numbers for the year ended April 2008 and for the period ended October 2007 have been restated to reflect the sub division of Spice's ordinary share capital on the basis of five new shares for every existing share held.

  6 Segmental analysis

Revenue for the period was derived from the Group's principal activities and is attributable to the following markets:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
By destination
UK	182.0	140.6	302.5
USA	7.1	—	3.9
Continental Europe	2.1	1.7	3.6
Rest of the World	1.4	1.1	2.2
	192.6	143.4	312.2

Revenue for the period is derived from the Group's principal activities as follows:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Supply
Billing	6.5	0.5	7.2
Energy	8.2	7.4	15.6
Distribution
Electricity	74.8	50.3	106.3
Facilities	24.2	24.8	48.9
Gas	23.9	14.9	36.2
Telecoms	13.5	10.8	26.1
Water	41.5	34.7	71.9
	192.6	143.4	312.2

Profit before tax is derived from the Group's principal activities as follows:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Supply
Billing	4.3	0.3	4.9
Energy	2.3	1.5	3.2
Distribution
Electricity	7.1	4.2	8.9
Facilities	1.3	2.2	4.6
Gas	2.4	1.8	4.5
Telecoms	2.1	2.1	5.1
Water	3.8	3.2	6.3
Head office (including IFRS 2)	(4.0)	(3.3)	(7.6)
EBITA	19.3	12.0	29.9
Exceptional items	(0.6)	—	(0.2)
Amortisation of intangible fixed assets	(4.0)	(1.6)	(5.0)
Finance expenses	(5.3)	(2.1)	(7.5)
Profit before tax	9.4	8.3	17.2

  7 Statement of changes in equity shareholders' funds

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Total recognised income attributable to equity shareholders	6.8	6.0	13.7
Dividends paid in the period	(2.6)	(1.5)	(2.3)
IFRS 2 Share based payments charge	1.1	1.0	2.0
(Decrease)/increase in IFRS deferred tax asset	(1.2)	0.8	(0.1)
S23 tax relief on the exercise of share options	0.5	0.5	1.2
Proceeds from exercise of share options	0.5	0.3	1.0
Payments to acquire own shares (ESOP)	—	(1.4)	(1.4)
Issue of shares	50.0	38.5	38.5
Costs of share issue	(1.0)	—	—
Net addition to equity shareholders’ funds	54.1	44.2	52.6
Opening equity shareholders’ funds	127.8	75.2	75.2
Closing equity shareholders’ funds	181.9	119.4	127.8

8 Notes to the cash flow statement

8a) Cash generated from operations

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’m	£’m
Operating profit	14.7	10.4	24.7
Depreciation of tangible fixed assets	2.1	1.7	4.0
Amortisation of intangible fixed assets	4.0	1.6	5.0
Non-operating exceptional items	0.6	—	—
IFRS 2 Share based payments charge	1.1	1.0	2.0
Loss on sale of fixed assets	0.1	—	—
Increase in inventories	(3.0)	(5.0)	(6.6)
Increase in receivables	(6.0)	(2.1)	(0.3)
Increase in payables	5.7	2.7	1.8
Net cash generated from operations	19.3	10.3	30.6

  8 Notes to the cash flow statement continued

8b) Analysis of net debt

	At 30 April	Cash		At 31 October
	2008	flows	Acquisition	2008
	£’m	£’m	£’m	£’m
Bank overdraft	(8.6)	4.9	—	(3.7)
Bank loans due after one year	(117.0)	36.0	—	(81.0)
Finance leases due within one year	(0.2)	0.1	—	(0.1)
Finance leases due after one year	(0.1)	—	(0.1)	(0.2)
Net debt	(125.9)	41.0	(0.1)	(85.0)

8c) Reconciliation of net cash inflow to movement in net debt

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’nm	£’m
Increase/(decrease) in cash in the period	4.9	1.9	(6.6)
Dividends paid	(2.6)	(1.5)	(2.3)
Net proceeds received from share issue	49.0	—	—
Proceeds from exercise of share options	0.5	0.3	1.0
Payments to acquire own shares (ESOP)	—	(1.4)	(1.4)
Loan notes redeemed	—	2.8	2.8
Cash inflow from financing	(10.8)	(81.8)	(84.9)
Change in net debt resulting from cash flows	41.0	(79.7)	(91.4)
New and acquired finance leases	(0.1)	—	(0.2)
Net debt at 1 May 2008	(125.9)	(34.3)	(34.3)
Net debt at 31 October 2008	(85.0)	(114.0)	(125.9)

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.

9 Related party transactions

Transactions between Spice plc 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:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’nm	£’m
Short term employee benefits (excluding bonuses)	1.4	1.2	2.5
Post-employment benefits	—	—	0.1
IFRS 2 Share based payments	0.4	0.4	0.7
	1.8	1.6	3.3

10 Operating profit

The following items have been charged to operating profit during the period:

	Unaudited	Unaudited	Audited
	6 months to	6 months to	Year ended
	31 October	28 October	30 April
	2008	2007	2008
	£’m	£’nm	£’m
Impairment change relating to property, plant and equipment and intangible fixed assets	—	—	—
Inventory write down	0.1	—	—
Restructuring provision: - provision provided	—	—	—
- provision reversed	—	—	—

11 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	(0.4)	2.3
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	(0.7)	2.0
Net assets recognised on acquisition
Intangible assets											2.6
Deferred taxation on intangible assets											(0.7)
Purchased goodwill											6.6
Fair value of assets acquired											10.5
Cash consideration paid											7.5
Contingent consideration (discounted)											2.8
Costs of acquisition											0.2
Total cost of acquisition											10.5

The book values of assets and liabilities were extracted from the underlying accounting records of BPI at the date of acquisition. The provisional fair value adjustments made to trade and other receivables were to restate the carrying values of assets acquired to estimated realisable value. Provisional fair value adjustments to trade and other payables principally relate to the recognition of liabilities not recorded in the underlying records at the date of acquisition.  Fair values are provisional, based upon management's initial assessment of the acquired entity, and are subject to reassessment during the initial twelve months following acquisition. 

  b) Other acquisitions

During the period, the Group also acquired the entire issued share capital of Mono Services Limited and Morrel Consulting Limited. Neither of these acquisitions is considered material to the interim financial statements.

Had each of the Group's acquisitions occurred on 30 April 2008, Group revenue would have been £195.8 million and EBITA would have been £19.8 million. 

In the six months to October 2008, goodwill has been increased by £10.9 million as a result of acquisitions made during the period, to reflect adjustments made to the initial assessment of the fair value of net assets acquired in prior years and also to reflect revisions to the amount of contingent consideration paid or payable in relation to the acquisitions of AirRadio, Atlanta, GMT, MET and Redbridge.

12 Seasonality

Whilst certain of the Group's businesses experience a moderate amount of seasonal variation in their trading, when taken as a whole, it is considered that the Group experiences no material variations in performance arising due to seasonality.

13 Availability of Interim Report

The Interim Report will be sent to all shareholders on 31 December 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.

Directors		Independent auditors
Peter Cawdron		PricewaterhouseCoopers LLP
Non-Executive Chairman		Benson House
		33 Wellington Street
William Simon Rigby		Leeds LS1 4JP
Chief Executive Officer
Andrew Philip Catchpole		Solicitors
Group Strategy and Development Director		Eversheds LLP
		Bridgewater Place
Oliver James Lightowlers		Water Lane
Group Finance Director		Leeds LS11 5DR
John Mitchell Taylor
Non-Executive Deputy Chairman		Bankers
		HSBC Bank plc
Michael St. John Shallow		4th Floor
Non-Executive Director		City Point
		29 King Street
Tim Huddart		Leeds LS1 2HL
Non-Executive Director
		Barclays Bank plc
		PO Box 190
Company Secretary		2nd Floor
Lee Johnstone		1 Park Row
		Leeds LS1 5WU
Company number		KBC Bank NV
3250709		111 Old Broad Street
		London EC2N 1BR
Registered office		Lloyds TSB Bank plc
Wellfield House		31–32 Park Row
Victoria Road		Leeds LS1 5JD
Morley
Leeds LS27 7PA
Tel:           [phone]		Stockbroker
Fax:         [phone]		KBC Peel Hunt Limited
www.spiceplc.com		111 Old Broad Street
		London EC2N 1PH
		Registrar
		Equiniti Limited
		Aspect House
		Spencer Road
		Lancing BN99 6DA

 

END

 

 

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