RNS Number:4086A
Inspicio plc
27 March 2006
27 March 2006
Inspicio plc
("Inspicio" or "the Company")
Final results for the 38 weeks ended 31 December 2005
(including the Inspectorate Group for the period 14 October to 31 December 2005)
Inspicio plc, which was admitted to AIM on 29 April 2005 with the purpose of
acquiring businesses in the UK and international testing, inspection and
performance conformity businesses today reports results for the 38 weeks ended
31 December 2005.
Operational highlights
* Admitted to AIM in April 2005 as an acquisition vehicle
* Completed the acquisition of Inspectorate for #52.0 million in October
2005, giving a global platform for future complementary acquisitive growth
* Turnaround of Inspectorate Group progressing on plan
* Appointment of Jeff Luesley as Managing Director of Inspectorate
* The first two months of 2006 show a positive contribution (first two
months of 2005 - unaudited loss of #1.2 million)
Financial highlights
Results for the 38 weeks to 31 December 2005
* Turnover #26.2 million
* Loss before exceptional costs, interest, tax and goodwill amortisation
of #0.1 million
* Exceptional reorganisation costs of #3.8 million
* Operating loss after exceptional costs #4.3 million
Proforma results for the 12 months to 31 December 2005 - Inspectorate
Inspectorate is currently Inspicio's sole operating business and became part of
the Group in October 2005. To make comparison more meaningful for shareholders,
we have provided at the end of this report a pro forma statement of operating
results which compares the performance of Inspectorate for the 12 months to 31
December 2005 with the same period to 31 December 2004. The following are
extracted from the unaudited pro forma information:
* Turnover #109.3 million (2004 - #98.4 million)
* Earnings before exceptional items, interest, taxation, depreciation and
goodwill amortisation, "EBITDA" #1.9 million (2004 - #1.0 million)
* Pre exceptional operating loss #(0.6) million (2004 - #(2.0) million)
Commenting on the results Mark Silver, CEO of Inspicio plc, said:
"Following the acquisition of Inspectorate, the business has met our
expectations and the turnaround strategy is on track.
The market continues to grow and we are seeing the benefit of that growth
through a satisfactory start to the current financial year.
We remain confident of delivering the turnaround of the business and our stated
aim remains an operating margin (EBITA) for Inspicio of 4% in 2006 and 8% in the
second half of 2007."
For further information, please contact:
Mark Silver CEO, Inspicio plc 0207 248 0802
Jonathon Brill / Billy Clegg Financial Dynamics 0207 831 3113
Results for the 38 weeks ended 31 December 2005
Chairman's Statement
We have had a rewarding first 38 weeks at Inspicio and are pleased to have
delivered the acquisition of Inspectorate from the British Standards Institution
during October 2005. We know the business well and, in conjunction with the
management team of Inspectorate, have made good progress on making the changes
necessary to ensure the successful development of the company. Inspectorate
offers us a strategic global platform to add further value to shareholders
through earnings enhancing complementary acquisitions.
Inspectorate has been restructured over the past year to ensure it is in the
best shape for future growth. We have made substantial reductions in staff costs
by reducing the number of employees by 324 in underperforming areas. We have
introduced a more decentralised management structure and have closed four loss
making offices.
In spite of the reduction in numbers employed in certain geographic regions, the
business of Inspectorate has grown over the last year, with expansion in India,
Middle East, South America and Eastern Europe, and we have increased our numbers
of inspectors and laboratory staff in such developing areas. Employees now total
4,098.
We are continuing to search for new, complementary acquisitions in the
inspection and testing market and we have recently acquired the remaining shares
in our Hungarian company previously held by our minority partner. Our markets
continue to exhibit strong growth and the underlying dynamics remain favourable.
Trading in both January and February was ahead of our expectations.
It has been a busy period for all our people and I would like to thank everyone
involved in the business for their professionalism and hard work.
Keith Tozzi
Non Executive Chairman
27 March 2006
Chief Executive's Review
Acquisition of Inspectorate
Inspicio was admitted to AIM on 29 April 2005, with a view to acquiring and
managing companies in the UK and international inspection, testing and
performance conformity markets.
The Company acquired the Inspectorate Group for #52.0 million in October 2005,
its first transaction. Inspectorate is one of only five global providers in the
inspection, testing and certification industry and the acquisition satisfied the
Company's requirements, Inspectorate having both a substantial geographical
coverage and a large well-established business. It also has a strong
international brand, a truly global network of inspection and testing services
and a long-standing, blue-chip client base generating repeat business.
Inspectorate provides an excellent platform for expansion, both organically and
by further acquisition.
Turnaround
Following the acquisition, our stated target is to turn around the company to
achieve an 8% operating margin (EBITA), similar to that which existed in 1999,
when the current management of Inspicio oversaw the business.
The initial challenge has been to find the right balance between taking out
unnecessary costs whilst remaining sufficiently well invested to improve
operating margins, and hence reach the target 8% operating margin for Inspicio
in the second half of 2007.
Group structure
Critical to our strategy was the necessity to make management changes within
Inspectorate. We moved rapidly to bring back Jeff Luesley as Inspectorate's
Managing Director and complement the otherwise excellent team within the
organisation, a move which has been welcomed by the senior management. Jeff has
extensive experience in the inspection and testing sector and from 1992 until
2000 was CEO of Inspectorate. Initially operating the business under Swiss
control, he oversaw the management buy-out and subsequent sale of the business
to BSI, where he became a Director. During his tenure, Jeff turned around
Inspectorate from a loss, to a business generating #6.6 million of operating
profit.
We have also taken significant steps to decentralise the business, empowering
the operating divisions, whilst ensuring that the right operational controls are
in place. This decentralisation is driving the business back to the
entrepreneurial culture that we saw in the late 1990s, and this is already
having a positive impact on the results.
In addition to the cultural changes set in place, we have commenced the process
of tidying up our ownership structure, and expanding the network of offices and
locations. We have purchased the minority interest in our Hungarian business
and continue discussions to extend the network into territories where we do not
have a presence today.
Business growth
Whilst the initial focus of our reorganisation has been on the cost base,
growing the underlying business is critical to improving the overall operating
margin. Considerable effort has been made since October to both grow the client
base and increase the amount of spend per customer.
Growing customer confidence in the reinvigorated Metals and Minerals team is
resulting in an expanding share of business from key players in the global
market. In this respect, Jeff Luesley has helped to foster better relationships
through his extensive network of industry contacts.
Cash management
Following a period of substantial capital expenditure by the previous owner of
Inspectorate, we have put in place a capital expenditure budget for 2006 which
is anticipated to be close to the depreciation charge, before an additional and
necessary #1 million investment in IT systems. In addition, we are focused on
improving debtor days and working capital flexibility.
Cost base
In 2005 the Inspectorate headcount was reduced by 324, reducing costs by at
least #4 million per year. Within this, we have de-layered management, making
the business structure more efficient and the decision making process quicker.
At the same time, we are investing in our expanding businesses such as Eastern
Europe, India and China, where we have recruited staff to accommodate growth in
these regions. Staffing numbers were 4,098 at the end of the year.
Since October we have closed four loss making offices which had little realistic
prospect of turning around in the medium term.
Tax planning
At the time of the Inspectorate transaction we stated that we would deliver
improved tax planning via a programme that would be completed by the second half
of 2007. In 2005, Inspectorate both made a loss before tax and incurred a tax
charge. Our stated aim at the time of the acquisition was a 35% tax rate during
the second half of 2007.
We have made significant progress towards these goals and have, at the same
time, simplified our corporate structure.
IT
We have commenced the harmonisation of our IT systems across the business and
are now five months into an 18 month plan, with some #1 million of IT spend
expected for 2006. Our new systems will allow us to streamline accounting
processes and will lead to efficiencies within the laboratories, ultimately
delivering even better customer service.
Operational review
Inspectorate operations
Inspectorate is currently managed on a geographic basis and this is reflected in
the commentary below. All revenues are based on the pro forma unaudited
information.
Americas
The Americas generated #53.8 million (49.2%) of Inspectorate's revenues in the
2005 calendar year. The business performed well with the Oil and Petroleum
business producing a particularly satisfactory result.
There was some disruption as a result of Hurricanes Katrina and Rita. In
particular, the Fort Lauderdale and New Orleans operations are not expected to
be fully operational until the second quarter of 2006.
Elsewhere, a new Metals and Minerals laboratory has opened in Reno, which will
double our capacity. Our Food and Agro-commodities business in South America is
progressing well and we are aiming for it to be profitable, for the first time,
in 2006.
Asia
Our Asian business generated #7.5 million of Inspectorate's revenues in 2005.
It has been an encouraging period for the region, particularly in Singapore and
China. Approval has just been given to the Singapore operation to undertake a
major upgrade in its laboratory to cope with increased demand. This will double
the capacity of the business.
Our Chinese business, co-owned with our supportive partner, CIQ, has had a
strong year of growth, expanding by 15.1% in 2005, and is expected to have
another good year in 2006, driven by growth in the Chinese economy.
UK Metals and Minerals
The UK Metals and Minerals business generated #7.0 million revenues in calendar
year 2005. This business, based at Witham, UK, has been subject to substantial
change since Inspicio's ownership, as new management within this division has
tackled with renewed focus under-performance within the business. 2006 has
started encouragingly and we anticipate a much improved result as we take steps
to return it to its former strength.
Eastern Europe
In Eastern Europe, including Russia and the Ukraine, performance has been
encouraging during 2005, driven in part by the expansion of the Russian oil
majors outside their domestic markets and in part by our ability to gain market
share from competitors. The Eastern European businesses generated 18.7 per cent
of Inspectorate's global revenues.
In the Caspian region, we performed poorly in 2005 as a result of the high fixed
cost base we inherited at the time of the acquisition. We have now cut costs
significantly without impacting upon the services we can provide, and have put
in place new managers to turnaround the business.
EMEA (including India)
EMEA generated revenues of #23.9 million in 2005, representing some 21.8% of
group turnover. Within the region, performance was mixed. The Middle East and
Indian businesses performed well, driven by expansion of the Indian economy and
the investment in refinery infrastructure in the Middle East. We are currently
building a further laboratory in Saudi Arabia to meet existing demand.
Western Europe is a mature market, particularly in Rotterdam where we are still
facing small losses, (albeit less than 12 months ago). However, we believe that
the management team we have in place is best placed to take the business
forward. Nonetheless, other areas which are performing well include Spain,
Greece and Sweden.
Financial results
Overview
Turnover for the period 29 April to 31 December 2005 (incorporating Inspectorate
from 14 October) was #26.2 million. Earnings before exceptional items,
interest, tax, depreciation and amortisation (EBITDA) were #0.9 million and the
pre-exceptional, pre-goodwill operating loss was #(0.1) million. We incurred
reorganisation costs of #3.8 million.
During the period 55.0 million shares were issued at a price of 100p per share.
As a result, the weighted average loss per share for the period was (25.4)p.
Adjusted loss per share (based on profit after taxation excluding goodwill
amortisation) was (23.3)p.
Goodwill on the acquisition of Inspectorate amounted to #34.9 million. Net
assets at 31 December 2005 were #50.5 million.
Pro forma unaudited information for Inspectorate for the year to 31 December
2005
Pro forma revenues improved by 11.1% from #98.4 million to #109.3 million
between calendar year 2004 and 2005. The pro forma operating loss, before fair
value adjustments and exceptionals, reduced from #2.0 to #0.6. The improvement
in revenues arose in the North American and Russian businesses. Losses continued
to be incurred in the Caspian region, Holland, Brazil and the Food Safety
business in South America.
Traditionally the second half of Inspectorate's calendar year is more
significant in terms of operating profit as a result of the stockpiling of oil
during the autumn months for the following winter. 2005 saw this trend continue,
although partly disrupted by the hurricanes, and we expect this to further
continue into 2006 and beyond.
We have estimated the impact of the hurricanes on the business in 2005 to be a
loss of some #0.4 million in operating profit.
Cash and financing
Net borrowings at 31 December 2005 were #5.4 million, consisting of bank loans
and amounts due for the purchase of the Inspectorate group of #9.2 million, less
cash within the Group (net of overdrafts) of #3.8 million.
55.0 million shares were issued during the year, 3.0 million for the initial
fundraising of Inspicio plc and 52.0 million for the acquisition of
Inspectorate. In addition, 1.0 million warrants were granted at 100p and
approximately 4.9 million options were granted, 3.5 million at 100p and 1.4
million at 111.5p.
Inspectorate is a largely US$ denominated business. As a result we have hedging
in place covering the translation of our anticipated US$ profitability for 2006.
In addition, the Group has an interest rate cap on its debt, a facility which
runs through to October 2008.
IFRS
As Inspicio plc is quoted on AIM, it is not required to adopt International
Financial Reporting Standards ("IFRS") until its 2007 year end. The attached
financial statements have therefore been prepared under UK GAAP. The Group has,
however, adopted early certain recent UK accounting standards which form part of
the ongoing process of convergence between UK
GAAP and IFRS (see note 2 to the attached financial information). This means
that, under FRS 20, the financial statements do include a share-based payment
charge on a basis consistent with IFRS 2 and, under FRS 26, derivative financial
instruments have been measured at fair value. Other aspects of these new UK
accounting standards will be disclosed in the Group's Annual Report.
The share based payment charge against operating profit included in the 2005
accounts was #0.2 million. The charge will increase to #0.4 million in each of
2006 and 2007.
Dividend
As outlined in the Admission Document for the acquisition of Inspectorate, the
Board will not be recommending the payment of a dividend for the period ended 31
December 2005.
Strategy and acquisitions
At the time of Inspicio's admission to AIM on 29 April 2005, we set out a
strategy of acquiring and managing companies and businesses in the UK and
international inspection, testing and performance conformity markets. We have
delivered upon that strategy through the acquisition of Inspectorate, a global
platform for future organic and acquisitive growth.
The Board continues to look for EPS enhancing acquisitions, taking advantage of
the long term consolidation opportunities in this fragmented yet fast growing
market.
Outlook
Following the acquisition of Inspectorate, the business has yielded no surprises
and the turnaround is on track. The sector continues to grow and we are feeling
the benefit of that market growth through a very satisfactory start to the
current financial year. For the first two months of 2006 the Inspicio Group is
profitable and above budget (EBITA), compared to a #1.2 million operating loss
(EBITA) in the first two months of 2005 for the Inspectorate Group alone.
Mark Silver
Chief Executive Officer
27 March 2006
Consolidated Profit and Loss account for the 38 weeks Ended 31 December 2005
Pre exceptionals Exceptional items Total
38 weeks ended 38 weeks ended 38 weeks ended
1 December 31 December 31 December
2005 2005 2005
(unaudited) (unaudited) (unaudited)
Note #' 000 #' 000 #' 000
Turnover
Continuing operations - - -
Acquisitions 26,236 - 26,236
26,236 - 26,236
Cost of sales (18,297) - (18,297)
Gross profit 7,939 - 7,939
Administrative expenses
Continuing operations (680) (991) (1,671)
Acquisitions (7,731) (2,825) (10,556)
(8,411) (3,816) (12,227)
Operating profit / (loss)
Continuing operations (680) (991) (1,671)
Acquisitions 208 (2,825) (2,617)
Operating loss (472) (3,816) (4,288)
Net interest payable (209) - (209)
Loss on ordinary activities before taxation 8 (681) (3,816) (4,497)
Taxation 8 - 8
Loss on ordinary activities after taxation (673) (3,816) (4,489)
Equity minority interests (60) - (60)
Loss for the period (733) (3,816) (4,549)
Basic and diluted loss per ordinary share 3 (25.4)p
Statement of total recognised gains and losses for the 38 weeks ended 31
December 2005
38 weeks ended 31
December
2005
(unaudited)
#'000
Loss for the period (4,549)
Foreign currency exchange gain 781
Total recognised gains and losses (3,768)
Consolidated Balance Sheet as at 31 December 2005
31 December
2005
(unaudited)
Note #'000
Fixed assets
Intangible assets 35,023
Tangible assets 21,000
56,023
Current assets
Financial asset - Derivative financial instruments 108
Debtors 25,535
Cash in bank and in hand 4,140
29,783
Creditors: amounts falling due within one year (22,673)
Financial liability - Derivative financial instruments (110)
Net current assets 7,000
Total assets less current liabilities 63,023
Creditors: amounts falling due after more than one year (7,164)
Provisions for liabilities and charges (5,346)
Net assets 50,513
Capital and reserves
Called up share capital 5,500
Share premium account 46,321
Profit and loss account (4,159)
Other reserves 781
Equity shareholders' funds 4 48,443
Minority interests 2,070
Capital employed 50,513
Consolidated Cash Flow Statement for the 38 weeks Ended 31 December 2005
2005
(unaudited)
Note #'000
Net cash outflow from operating activities 5 (5,711)
Returns on investments and servicing of finance
Interest received 149
Interest paid (348)
Issue costs of bank loans (173)
Net cash outflow from returns on investments and servicing of (372)
finance
Taxation 290
Capital expenditure
Purchase of tangible fixed assets (1,561)
Net cash outflow for capital expenditure (1,561)
Acquisitions
Purchase of subsidiary undertakings (52,000)
Acquisition costs (1,518)
Cash acquired with subisidiary undertakings 5,722
Net cash outflow for acquisitions (47,796)
Net cash outflow before financing (55,150)
Financing
Issue of ordinary share capital 55,000
Expenses of share issue (3,019)
Issue of preference share capital 13
Redemption of preference shares (13)
Capital element of finance lease repayments 6 (10)
Increase in borrowings 6,957
Net cash inflow from financing 58,928
Increase in cash 3,778
Reconciliation of net cash flow to movement in net debt
2005
unaudited
Note #'000
Increase in cash in the period 3,778
Borrowings acquired with subsidiary (376)
Movement in borrowings (6,774)
Change in funds resulting from cash flow (3,372)
Non-cash items (54)
Exchange adjustments 51
Movement in net debt in the period (3,375)
Net funds at the beginning of the period 6 -
Net debt at the end of the period 6 (3,375)
Notes to the Financial Information for the 38 weeks Ended 31 December 2005
1. Basis of preparation
With effect from 13 October 2005, BSI Investments BV, the holding company of
Inspectorate, became a wholly owned subsidiary of Inspicio plc (the "Company")
which was incorporated on 5 April 2005 and has an accounting reference date of
31 December. The financial information contained herein for the 38 week period
ended 31 December 2005 consolidates that of the Company and its acquisition of
Inspectorate. Therefore the results of Inspectorate are included only for the
10 weeks from 14 October to 31 December 2005.
The unaudited results for the 38 weeks ended 31 December 2005 have been prepared
in accordance with UK generally accepted accounting principles.
The accounting policies applied are set out below and will be used in the
Group's Annual Report and Accounts for the 38 weeks ended 31 December 2005.
The financial information for the 38 weeks ended 31 December 2005 is unaudited
and does not constitute statutory accounts within the meaning of the Companies
Act 1985.
2. Accounting policies
These financial statements have been prepared under the historical cost
convention, as modified by the revaluation of certain financial instruments in
accordance with the Companies Act 1985 and applicable accounting standards. The
Group has chosen to adopt FRS 20, 'Share-based payments', FRS 23, 'The effects
of changes in foreign exchange rates', FRS 24, 'Financial reporting in
hyperinflationary economies'. FRS 25 'Financial instruments: Disclosure and
presentation', and FRS 26, 'Financial instruments: Measurement' in these
financial statements.
A summary of the more important group accounting policies is set out below.
Consolidation
The group financial statements consolidate the financial statements of the
parent company and all its subsidiary undertakings for the 38 weeks ended 31
December 2005. The acquisition method of accounting has been adopted for the
acquisition of the Inspectorate group. All subsidiaries have been included in
the Group financial statements using uniform accounting policies.
Turnover
Turnover, which excludes value added tax, represents the value of services
supplied. Revenue arising from inspections is recognised when the inspection is
complete.
Cost of sales
Cost of sales represents amounts paid for salaries, direct costs of running the
laboratories around the group, and amounts due to external third parties for
inspection services directly related to revenue.
Foreign currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the "functional currency").
Transactions denominated in currencies other than an entity's functional
currency are translated into the functional currency at spot rates. Foreign
exchange gains and losses arising from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies, which are held at the year-end,
are taken to the profit and loss account.
The consolidated financial statements are presented in pounds sterling, which is
the Group's presentation currency. Profits and losses of subsidiary
undertakings are expressed in sterling at average exchange rates for the year.
The balance sheets of overseas subsidiary undertakings are expressed in sterling
at year end exchange rates. Exchange differences arising on the translation of
overseas subsidiary undertakings are recorded as a movement in reserves, and are
reported in the statement of total recognised gains and losses.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Financial instruments - derivatives
The Group does not hold or issue derivative financial instruments for trading
purposes. Derivatives used include forward currency contracts, currency options
and barriers and interest rate caps.
Derivatives are initially accounted and measured at fair value on the date a
derivative contract is entered into and subsequently measured at fair value. The
gain or loss on re-measurement is taken to the profit and loss account under
administrative expenses unless the derivative is associated with debt, in which
case the gain or loss on re-measurement is taken to interest receivable or
payable.
Debt instruments
Debt instruments are recorded at the proceeds received, net of direct issue
costs. Issue costs are amortised over the period of the debt instrument.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs.
Bad debt allowance
Trade debtors are first assessed individually for impairment, or collectively
where the debtors are not individually significant. Where there is no objective
evidence of impairment for an individual debtor, it is included in a group of
debtors with similar credit risk characteristics and these are collectively
assessed for impairment. Movements in the allowance for bad debts are recorded
in the profit and loss account.
Finance and operating leases
Costs in respect of operating leases are charged on a straight line basis over
the lease term. Leasing agreements that transfer to the Group substantially all
the benefits and risks of ownership of an asset are treated as if the asset had
been purchased outright. The assets are included in fixed assets and the capital
element of the leasing commitments is shown as obligations under finance leases.
The lease rentals are treated as consisting of capital and interest elements.
The capital element is applied to reduce the outstanding obligations and the
interest element is charged against profit so as to give a constant periodic
rate of charge on the remaining balance outstanding at each accounting period.
Assets held under finance leases are depreciated over the shorter of the lease
terms and the useful lives of equivalent owned assets.
Tangible fixed assets
The cost of tangible fixed assets is the purchase cost, together with any
incidental costs of acquisition. The Group does not capitalise finance costs.
Depreciation is calculated on a straight line basis so as to write off the cost
of tangible fixed assets less their estimated residual values, over the expected
useful economic lives of the assets concerned. The principal annual rates used
for this purpose are:
Freehold buildings 2%
Laboratory equipment 10-33%
Computer equipment 33%
Freehold and leasehold improvements are depreciated over periods of 5 to 50
years. Freehold land is not depreciated. Short leasehold assets are depreciated
over the period of the lease.
The Group selects these depreciation rates carefully and reviews them regularly,
to take account of any changes in circumstances. The principal factors that the
Group takes into account are the expected rate of technological developments and
the intensity at which the assets are expected to be used.
Goodwill
Goodwill arising on acquisitions is capitalised and amortised over the period
which the Directors estimate that the values of the underlying businesses
acquired are expected to exceed the value of the underlying assets, with a
maximum period of 20 years. The Directors take into account the nature, age and
stability of the industry in which the business operates.
Impairment of fixed assets
Fixed assets, including goodwill, are tested for impairment when a triggering
event occurs by comparing the post-tax realisable value of the asset being
tested with the value in use. Value in use is calculated on the basis of future
cash flows, using a discount rate appropriate to the Group.
Provisions
Provisions are made when an obligation exists for a future liability in respect
of a past event and where the amount of the obligation can be reliably
estimated. Where liabilities are expected to be discharged over a number of
years, the provisions are discounted using an appropriate risk free rate.
In the case of claims against the group, provisions are made on a case by case
basis, with an additional amount allocated for claims incurred but not reported.
Pension costs
Pension costs for the Group's money purchase pension schemes are charged to the
profit and loss account when the contributions become payable to the scheme.
Consumables
Consumables are written off to cost of sales in the period in which they are
purchased.
Deferred taxation
Deferred tax is fully provided in respect of timing differences that have
originated but not reversed by the balance sheet date. These are based on
average tax rates that are expected to apply at the time of the reversal, which
will be the rates that have either been enacted, or substantially enacted, by
the balance sheet date. No deferred tax is provided on permanent timing
differences. Deferred tax assets are recognised to the extent that they are
regarded as more likely than not to be recoverable. Deferred tax on unremitted
earnings of foreign subsidiaries is only provided if dividends have been accrued
as receivable or there is a binding agreement to distribute past earnings in the
future. Deferred tax balances are not discounted.
Share-based payments
The Group issues equity-settled share-based payments to certain employees and
advisers. In accordance with FRS 20, "Share-based payments", equity-settled
share-based payments are measured at fair value at the date of grant. Fair value
is normally measured by use of a binomial pricing model. The fair value
determined at the grant date of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based on the Group's
estimate of the number of shares that will eventually vest.
The share-based payments charge is included within administrative expenses as
this is the category which includes the payroll costs of the relevant employees.
Employer's taxes on share options
Employer's National Insurance in the UK and equivalent taxes in other
jurisdictions are payable on the exercise of certain share options. In
accordance with the provisions of Urgent Issues Task Force Abstract 25 'National
Insurance Contributions on Share options', a provision is made based on the
current employer's National Insurance rate applied to the difference between the
market value of the shares under option and the option exercise price at the
balance sheet date where such liability has not been transferred to the
employees. The provision is charged to the profit and loss account over the
period in which the share options vest.
Employee share ownership plan
The Company's Employee Benefits Trust (EBT) is a separately administered trust
which will be funded by loans from the Company, the assets of which will
comprise shares in the Company. The Company will recognise the assets and
liabilities of the EBT in its own accounts and shares held by the trusts will be
recorded at cost as a deduction in arriving at shareholders' funds until such
time as the shares vest conditionally to employees.
Related party transactions
FRS 8, 'Related party disclosures' permits groups to be exempt from disclosing
transactions or balances with entities which form part of the Group, where these
transactions and balances have been eliminated on consolidation. The Group has
taken advantage of this exemption.
3. Earnings per share
The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year.
There are no dilutive potential ordinary shares.
Details of the earnings and weighted average number of shares used in the
calculations are set out below:
2005
Unaudited
Note #'000
Loss for the period after taxation (#'000) (4,549)
Weighted average number of shares 17,930,498
Basic and diluted loss per share (pence) (25.4)p
4. Reconciliation of movements in shareholders' funds
2005
Unaudited
Note #'000
Loss for the financial period (4,549)
Issue of ordinary share capital 55,000
Share issue costs (3,179)
Foreign exchange gains 781
Options and warrants compensation charge 390
Movement in equity shareholders' funds in period 48,443
Equity shareholders' funds at beginning of period -
Equity shareholders' funds at 31 December 2005 48,443
5. Reconciliation of operating profit to net cash outflow from operating
activities
2005
Unaudited
Note #'000
Group operating loss (4,288)
Goodwill amortisation 367
Depreciation on tangible fixed assets 1,001
Loss on disposal of fixed assets 83
Impairment of fixed assets 1,092
Fair value of financials instruments 35
Fair value charge for options and warrants 150
Foreign exchange movement on inter-company (349)
Increase in debtors (1,622)
Decrease in creditors (2,274)
Increase in provisions 94
Net cash outflow from operating activities (5,711)
6. Analysis of changes in net debt
Loans Cash at bank Overdrafts Finance leases Total
and in hand
#'000 #'000 #'000 #'000 #'000
At incorporation - - - - -
Cash flow (6.784) (1,633) (311) 10 (8,718)
Acquired with subsidiary (331) 5,722 - (45) 5,346
Non-cash movements 17 - - (71) (54)
Exchange differences 1 51 - (1) 51
Net debt at 31 December 2005 (7,097) 4,140 (311) (107) (3,375)
7. Acquisition
BSI Investments BV Book value Revaluation Consistency Other Provisional
Unaudited #'000 #'000 of accounting #'000 fair value
policy #'000
#'000
Tangible fixed assets 21,872 (911) 20,961
Stock 431 (431) -
Debtors 23,566 (626) 718 23,658
Creditors (18,768) (388) (1,274) (20,430)
Financial liability (718) (718)
Finance leases (45) (45)
Provisions (3,860) (848) (4,708)
Taxation
- Current (1,054) (1,054)
- Deferred 171 49 220
Cash 5,722 5,722
Overdrafts - -
Long term loans (331) (331)
Minority interests (2,006) (2,006)
Net assets acquired 24,980 (911) (2,293) (507) 21,269
Cost of acquisition
Consideration 54,155
Acquisition expenses 1,978
Goodwill 34,864
The book value of the assets and liabilities has been taken from the management
accounts of BSI Investments BV at 13 October 2005 (the date of acquisition) at
actual exchange rates on that date. The fair value adjustments contain some
provisional amounts, as indicated below, which will be finalised in the 2006
financial statements when the detailed acquisition process has been completed.
Revaluation adjustments in respect of tangible fixed assets comprise the
valuations of certain freehold properties together with the impairment of
certain fixed assets.
The fair value adjustments for alignment of accounting policies reflect the
restatement of assets and liabilities in accordance with the group's policies
including: the removal of consumable stocks held on the balance sheet;
establishing a creditor for outstanding holiday pay entitlement of employees;
the alignment of the general bad debt provisioning policy and the policy
relating to onerous lease and dilapidation provisions, and the establishment of
an incurred but not reported element in respect of certain claims against the
group.
No deferred tax has been recognised on the revaluation of fixed assets as there
is no intention to sell the assets concerned. However, deferred tax of #49,000
has been recognised in respect of some of the impairments of fixed assets in
accordance with FRS 19.
Other adjustments relate to commitments at acquisition to employees of the
acquired business, and other commitments of that business, some of which were
recoverable from the former parent.
Goodwill has been revalued at the balance sheet date, in accordance with FRS 23,
giving rise to an exchange gain of #526,000.
8. Loss on ordinary activities before taxation
Loss on ordinary activities before taxation is stated after charging:
2005
unaudited
#'000
Depreciation 1,001
Amortisation of goodwill 367
Options and warrants compensation charge 151
Pro forma financial information
Presented below is a pro forma statement of operating results which compares the
performance of Inspectorate for the 12 months to 31 December 2005 with the same
period to 31 December 2004. This pro forma statement of operating results is
unaudited and for illustrative purposes only.
The pro forma statement of operating results has been prepared, using Inspicio
plc's accounting policies, on the following basis:
Businesses that were part of the Inspectorate group but which were retained by
the former owner have been excluded from the results in both years.
The results have been prepared from the consolidated management accounts of the
Inspectorate group adjusted on the following basis:
(i) amortisation of goodwill that had been pushed down from the former owner has
been excluded.
(ii) items identified in 2005 that originate prior to 2005 have been allocated
to the year to which they relate.
2005 2004
unaudited unaudited
#'000 #'000
Turnover 109,340 98,440
Cost of sales (73,639) (63,709)
Gross profit 35,701 34,731
Administrative expenses
Pre-exceptional items (36,303) (36,711)
Fair value adjustments and transitional items (1,911) (391)
Exceptional items (6,282) (1,037)
(44,496) (38,139)
Operating loss (8,795) (3,408)
The operating loss is stated after charging:
2005 2004
Unaudited Unaudited
#'000 #'000
Depreciation 4,390 3,480
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR XQLLLQXBXBBE
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