ISG PLC
ISG PLC
("ISG" or "the Group")
Final results for the year ended 30 June 2014
RECOVERY IN KEY MARKETS AND NEW GROWTH SECTORS DRIVING IMPROVED PERFORMANCE
ISG plc, the international constructions services group, today announces its final results for the year ended 30 June 2014.
2014 | 2013 | Change | |
Revenue1 | £1,483m | £1,245m | +19% |
Underlying profit before tax1,2 | £11.5m | £9.1m | +27% |
Profit before tax1,3 | £6.8m | £3.0m | +125% |
Net cash position | £46.3m | £36.1m | +28% |
Underlying basic earnings per share1,4 | 23.00p | 22.09p | +4% |
Basic earnings per share1,5 | 13.53p | 9.17p | +48% |
Total dividend per share | 9.45p | 9.00p | +5% |
Group Highlights
· Underlying profit improvement driven by recovery in key markets and new growth sectors
· Order book ahead by 18% at £1,011m (2013: £854m) of which £926m (2013: £801m) is for delivery in the current year
· UK Fit Out and Engineering Services operating profit nearly doubled
o Improved London fit out market with a strong order book and pipeline
o Substantial growth in Engineering Services - recently secured fourth circa £100m data center in the Nordics
· UK Retail maintaining its market leading position
· UK Construction seeing an improvement in market conditions albeit trading conditions in the year remained difficult
· Strengthening performance in Asia and Middle East
· Variable performance in Continental Europe, with strong first year contribution from Tecton in Germany
· Net cash balance improved to £46.3m at 30 June 2014 (2013: £36.1m) largely on back of working capital improvements
· Acquisition post year end of a majority stake in Diadec and Emerald extends our geographical coverage into Spain
· Recommended 7% increase in final dividend resulting in a full year dividend of 9.45p per share (2013: 9.00p)
David Lawther, Chief Executive Officer, said:
"I am delighted ISG has delivered an improved performance and increased order book.
Our diversification strategy, combined with the recovery of our traditional UK markets, positions the company for continued growth. Overseas, our businesses are benefiting from a growing reputation.
We anticipate further improvement in our results in the coming year."
9 September 2014
ENQUIRIES:
ISG plc | |
David Lawther, Chief Executive Officer | |
Jonathan Houlton, Group Finance Director | |
Tel: 020 7392 5250 | |
Instinctif | Numis Securities Ltd |
Matthew Smallwood | Nominated Advisor: Michael Mead |
Helen Tarbet | Corporate Broking: Ben Stoop |
Tel: 020 7457 2020 | Tel: 020 7260 1000 |
1 from continuing operations (Note 2)
2 from underlying items (Notes 2 and 3)
3 during the year, a post tax loss of £2.8m (2013: £0.4m) was incurred from the closure of the Tonbridge operations which was treated as a discontinued
operation. This resulted in a profit for the year of £2.4m (2013: £2.4m)
4 from earnings attributable to owners of the company from underlying items (Note 10)
5 from earnings attributable to owners of the company (Note 10). The basic earnings per share from continuing and discontinued operations was 6.19p
(2013: 7.88p)
CHAIRMAN'S STATEMENT
Last year I concluded my statement by saying that we entered the current year with more confidence than we have for some time. I am pleased to say that this has been borne out by our performance. We have seen a significant improvement in the majority of our core markets and have established a firm base for new businesses in higher growth areas. As a result we have once again seen significant increases in our three key indicators: underlying profit1, net cash and forward order book.
Underlying profit before tax1 for the year ended 30 June 2014 amounted to £11.5m (2013: £9.1m), an increase of 27%. Net cash at the year end amounted to £46.3m, an increase of £10.2m, and the forward order book was up £157m to £1,011m. Underlying basic earnings per share2 increased by 4% from 22.09p to 23.00p.
The Board is proposing to increase the final dividend by 7% to 4.91p per share, making a total of 9.45p (2013: 9.00p) for the year.
The company is celebrating 25 years since its formation in 1989. Starting life as a London office fit out business, where we are market leader today, it is quite remarkable how far the company has developed. The range of our activities across market sectors and the 27 countries we operate in bears only a passing resemblance to our origins. Fittingly, this year the company won the prestigious Queen's Award for Enterprise in the International Trade category reflecting our success in diversifying into new markets and geographies.
Our market-leading UK Fit Out and Engineering Services business has had a highly successful year, nearly doubling its operating profit. In the year, we were awarded £410m of new office fit out work which included six projects in excess of £15m. The most significant of these was the largest London fit out contract of the year, the £125m new UK headquarters for UBS at Broadgate, London. With new space in short supply, a noteworthy feature of the current market is the growth in refurbishing existing office space as many leases move towards expiry. We believe that other major UK cities are following suit, so the outlook in this sector remains strong.
Over the past two years, we have created a major presence in the European data center market. In the year we secured £330m of new data center projects and we do not anticipate any let up in the activity for the foreseeable future.
Bearing in mind the pressures on the banking and supermarket sectors our UK Retail business performed well in what remains a competitive market. We partly compensated for this by concentrating on our key high end retail customers. In addition, the business continues to target the hospitality sector and we are currently working on a number of significant hotel projects in London. Building on the success of Realys, our professional services company in Asia, we have launched the brand across Europe.
The market for our UK Construction business has remained highly challenging. We have taken further action to reorganise the division into four regions with the consequent close of our operations in Tonbridge. This completes the restructuring of the division which is now on a firmer footing, achieving higher quality as well as volume of new orders and poised to deliver steadily improving returns.
Overseas, our order book continues to grow based on our work for our growing range of repeat multinational customers and expanded services to those customers. While in Western Europe, the French and Italian economies continue to be slow in their recovery, Germany remains strong and our recent acquisition, Tecton, has delivered a good first year performance. Since the year ended we have strengthened our position in Spain by acquiring a majority stake in two local businesses, specialising in the data center, office and retail fit out markets.
In the Middle East, confidence is returning and the business is growing with significant progress in the hospitality sector. In Asia, while the office fit out market remains challenging, the rapid progress we have made in the retail and hospitality sectors has led to profits increasing significantly.
It gives me great pleasure to be able to report that across all our markets we have achieved an outstanding record in health and safety, with an Accident Incident Rate score of 2.11 against a UK industry average of 5.08. This achievement has been recognised by the industry and we have won an impressive 52 RoSPA awards and medals, including five President's Awards, in the year.
Our impressive performance in the year is down to our talented and dedicated people. Over the year, we have brought a significant number of new employees into the business. At the same time we have increased our focus on learning and development and successfully retained our Investors in People status. ISG's reputation as a high-quality business is created by its people whom we thank for their initiative, commitment and great achievements.
It is our people that drive change and improvement in our business and this year we have launched awards to capture and celebrate their best ideas. These awards take their place alongside our Values Awards, designed to recognise those individuals who have demonstrated ISG's values through their work.
The majority of our markets have now recovered, with many experiencing strong growth, and we enter the current year with high expectations. Our order book at 30 June 2014 has increased 18% to £1,011m (2013: £854m). We anticipate benefiting from the further improvement in certain of our traditional key markets and will continue to target new growth markets and geographies. We expect to show further improvement in our results in the coming year.
Roy Dantzic
Chairman
9 September 2014
1 from underlying items (Notes 2 and 3)
2 from earnings attributable to owners of the company from underlying items (Note 10)
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am delighted to report an improved set of results this year. Both underlying profit before tax1 and margins have improved, with revenue2 also increased in the year. We have further strengthened our clear leadership positions in our core London office fit out and UK retail markets and our engineering services offer is now firmly established, experiencing high demand from the international data center sector.
Our success is underpinned by our strategy, which is to:
· Further improve our market leading positions, particularly in the London office fit out and UK retail markets
· Focus on increasing repeat business from framework and blue-chip multinational customers
· Increase our geographic reach and market penetration where there is demand from our customers
· Expand on our established engineering services offer to deliver data centers for new customers in new geographies and sectors
· Further establish ourselves in new high-growth global sectors such as hospitality
· Grow our specialist services under the Realys and Commtech brands
· Recruit, develop and retain the best people in our industry
· Focus on maximising operating efficiencies and sector focus in our UK Construction business
The successful pursuit of our strategic goals has been fundamental to our improved results. In the downturn, we developed an expanded range of services, sectors and geographies to diversify and increase resilience in business and these are now an established and successful part of our core offering. Our success in the data center sector has been particularly strong, growing from revenue of £30m to £250m in the space of two years. Similarly, our successful entry into the international hospitality sector has seen us deliver major projects in geographies including London, Singapore, Hong Kong and Dubai.
Our commitment to broadening our offer to customers, where we can add value, has led to an expanded range of specialist services. In the year, we have launched a Realys Design & Build offer in Singapore, expanded our Commtech commissioning management services from Asia into Dubai, and launched Realys in Europe.
In line with our strategic goal to maintain focus on our traditional markets, I am pleased to report that ISG has improved its lead as the premier contractor in the London office fit out market4. Similarly, in the UK ISG is the clear leader5 for the fit out of retail environments across all parts of the sector including food, banks and the high street. Our reputation for excellence was behind the award of the 2014 National Association of Shopfitters (NAS) Design Partnership prize for repeat customer Hackett, and also the award of London's largest fit out project, the £125m UBS headquarters.
We have also taken further steps to recruit, develop and retain the most talented people in our industry. In the year we brought a net circa 300 new employees into the company. Additionally we relaunched The Academy, our international learning and development facility to provide all our people with high-quality training opportunities.
The company has a strong focus on becoming an even more sustainable business. Benchmarks, against which we will measure our performance, have now been established for every part of our 2020 Sustainability Vision. I look forward to reporting our progress in the 2015 Annual report and accounts.
Results
For the year ended 30 June 2014, underlying profit before tax1 increased to £11.5m (2013: £9.1m) on revenue2 of £1,483m (2013: £1,245m). Underlying basic earnings per share3 increased to 23.00p (2013: 22.09p). Profit before tax2 has increased to £6.8m (2013: £3.0m).
We finished the year with an improved net cash position of £46.3m (2013: £36.1m). There was a net cash inflow from operating activities from continuing operations2 for the year of £35.1m (2013: £9.7m) reflecting improvements in profitability and working capital performance.
Non-underlying items
As set out in Note 3 of the financial statements, the Group has incurred non-underlying costs of £4.8m (2013: £6.1m) including restructuring costs of £2.4m (2013: £3.1m) principally arising from the conclusion of the restructuring of our UK Construction business from seven regions to four. Further costs of £0.4m (2013: £0.6m) relate to acquisition and deferred consideration expenses arising from the recent acquisitions and £2.0m (2013: £2.2m) to amortisation of intangibles.
As set out in Note 8 of the financial statements, in June 2014 the Group's UK Construction business discontinued its operations from its Tonbridge office in line with the restructuring of the business. This has resulted in post tax trading losses and closure costs in the year of £2.8m (2013: £0.4m).
Dividend
The Board is proposing to pay a final dividend of 4.91p (2013: 4.59p) making a total for the year of 9.45p (2013: 9.00p).
The ex-dividend date will be 23 October 2014 and the dividend will be payable on 9 December 2014 to shareholders on the register on 24 October 2014. A scrip alternative is again being offered. The final dividend for the previous financial year of 4.59p was paid on 10 December 2013.
Outlook
Our current order book stands circa 18% higher at £1,011m (2013: £854m) of which £926m (2013: £801m) relates to the financial year ending 30 June 2015.
Our diversification strategy, combined with the recovery of our traditional core markets, positions the company for growth. London is outperforming most of the world's capitals in its recovery. Overseas, the majority of our markets are also performing strongly and at the same time our brand is gaining increased recognition around the world. Both these factors have positioned us to win larger overseas projects in the future. In line with our strategy to increase our geographic reach and market penetration, since year end we have taken a majority interest in two Spanish construction services companies Diseños y Adecuaciones, SL (Diadec) and Emerald Telecom and Data Center, SA (Emerald) . Diadec provides office and retail fit out services while Emerald offers data center and engineering services. This development will enhance our reach across continental Europe in our core sectors, increasing the geographies where we can provide service for core international customers.
The company is benefiting from the recovery of our key markets, while at the same time our successful strategy is driving improved results and developing the business across its sectors, services and geographies. We will continue to target growth both organically and through acquisitions. We expect to show further improvement in our results in the coming year.
David Lawther
Chief Executive Officer
9 September 2014
1 from underlying items (Notes 2 and 3)
2 from continuing operations (Note 2)
3 from earnings attributable to owners of the company from underlying items (Note 10)
4 Metropolis Property Research
5 Retail Week
BUSINESS SEGMENT REVIEWS
UK Fit Out and Engineering Services
The London office fit out market has experienced a strong and sustained recovery over the period. Larger-scale projects are once more a feature though low availability of new space means that there is an increasing bias towards refurbishment and retrofit. ISG is, by a clear distance, the market leader as ranked by Metropolis Property Research in a 2013 report on the Central London Fit Out Market.
Our dedication to excellence received industry recognition during the year when our £4.2m project for insurance company Arthur J. Gallagher & Co was awarded the British Council for Offices (BCO) Best Fit Out of Work Place in London and the South East award.
Over the year the business has continued to advance its strategic aim of developing a wider technical services offering, and has established itself as a leading provider of engineering services in the rapidly growing international data center market. In line with this strong growth, a feature of the year has been investing in new talent and skill sets and we now have over 300 people working on engineering services projects.
The business has delivered a strong performance in the year with all its metrics exceeding expectations. Revenue in the year increased by 81% to £520m (2013: £288m). Operating profit reached £9.9m (2013: £5.0m), resulting in an improved margin of 1.9% (2013: 1.7%).
This year, our fit out team benefited from the return of large-scale fit outs to the market, securing the biggest London office fit out project of recent years, a £125m construction management contract to deliver the new 700,000 sq ft UK headquarters for UBS at 5 Broadgate. ISG is scheduled to commence work on site at the start of 2015, following a twelve-month pre-construction period.
In the year, revenue from our London fit out business increased by 66% to £270m (2013: £163m). We completed a £27m fit out for insurance brokers Jardine Lloyd Thompson and a £12m project for an international fashion house. Substantial projects in progress include a £60m fit out for a leading international media group, the refurbishment of the headquarters for the Arcadia retail group valued at £32m and a £25m project for Macmillan Publishing Group. Since year end we have successfully completed the circa £52m refurbishment project of Bush House, now renamed Aldwych Quarter.
With a strong reputation for first-class customer service and high-quality delivery, the business is also experiencing increasing demand from our repeat blue-chip customer base in the Thames Valley, where during the period we completed a £20m project for repeat client investment company Scottish Widows. The business is also targeting projects in Manchester and other areas of the UK for key customers.
While we are witnessing the return of major projects to the market, our small works team continues to prosper and is growing its reputation for successful delivery of projects under £1m, including a series of projects for an international health club brand.
Our cross-cultural, mobile data center team is well positioned to capitalise on anticipated international growth in this sector and is currently working on data center projects in the UK, Western Europe and the Nordics. Revenue from our engineering services activity increased by 100% to £250m (2013: £125m). Our first £140m Nordic data center project for a global technology company was completed on time and to budget in February 2014, with a second £130m project handed over in August 2014, both cementing our reputation as a leading provider in the sector. This has led to ISG securing two further circa £100m data center projects in the region, which is fast becoming a growth hub for data center investment.
In the UK we have secured a number of data center schemes including a £20m upgrade of two existing facilities for a global banking and financial services company. We have also begun to expand our engineering services offer in the healthcare and research and development (R&D) sectors where we have delivered a number of highly demanding and technically challenging projects for repeat customers including Guy's and St Thomas' NHS Foundation Trust and the Natural History Museum. The recent successful completion of a cutting-edge cell therapy centre of excellence for Cell Therapy Catapult firmly places us at the forefront of delivery in this specialist sector.
Our apprenticeship programme for young people who are Not in Education Employment or Training (NEET) was recognised for a second consecutive year at the Business in the Community (BiTC) Responsible Business Awards. We have been working with charity City Gateway in Tower Hamlets, one of the poorest boroughs in the UK, for several years, providing apprenticeships in business administration and IT roles at our head office in Aldgate House.
The business continues its focus on health and safety. Towards the end of the year we celebrated two million incident and accident-free hours on our data center projects located in the Nordics.
The increased activity in the London office fit out market and our continued success in engineering services has boosted our order book significantly. As at 30 June 2014 it stands at £290m (2013: £210m), £281m (2013: £210m) of which will be delivered in the current financial year. Since year end and as noted above, ISG has been appointed as lead contractor on a fourth Nordic data center project with a value of circa £100m. With the increased order book, we anticipate improved revenue and profit in the current financial year.
UK Retail
Despite a competitive retail marketplace, with fewer new build opportunities and the focus on refurbishment, we have seen some improvement in the performance of our UK Retail business. Revenue for the year was slightly up at £283m (2013: £267m) with a consistent operating margin of 2.1% (2013: 2.1%), leading to a rise in operating profit to £6.1m (2013: £5.5m).
Our market-leading position was confirmed as we topped the Retail Week shopfitting league table for the second consecutive year, maintaining all our framework positions and adding new frameworks during the year. Our reputation for quality and customer service was recognised by our award for collaboration at the National Association of Shopfitters (NAS) 2014 Awards for the Hackett London Regent Street store.
ISG remains on the frameworks for the major supermarkets in the UK, winning and working on 200 projects for the likes of Asda, Morrisons, Sainsbury's, Tesco and Waitrose. The major brands are now looking at new ways of attracting people to their stores, installing bank branches, restaurants and gyms. This is driving a stream of work around innovating and reconfiguring existing space.
We are currently delivering a £19m new-build store in Thanet, Kent for Sainsbury's. The largest of four schemes we currently have underway for the retailer, it is due to be completed in April 2015. For Asda and Morrisons, who continued to concentrate on new stores during the year, we completed over £80m of works. Additionally, ISG has been appointed on a framework for one of the UK's leading convenience stores.
We continue to work on all of the frameworks for the five major banking brands, Barclays, HSBC, Lloyds Banking Group (Lloyds), Nationwide and The Royal Bank of Scotland. ISG was successfully reappointed on the frameworks for Barclays, Lloyds and Nationwide in the year at a time when both customers were reducing their supply chain base. We also commenced working directly with the divested TSB Bank. We have delivered new formats for Barclays across the UK including the introduction of a 24/7 banking service into a major food retailer, demonstrating our proven ability to pioneer new digital and physical technology platforms. Additionally, as banks continue to upgrade their ATMs, we worked on 500 related projects in the period.
Our relationships with our existing high street customers, built on our collaborative reputation with both consultants and customers, remain strong and we have continued to work with John Lewis Partnership, Marks & Spencer, Primark, Monsoon, Accessorize, and Everything Everywhere over the past year.
ISG has completed a £27m refurbishment in Manchester for Primark and has since been awarded the fit out and extension of their store in Cardiff alongside three refresh projects, as well as a scheme in Dijon, France.
Our strong relationship with John Lewis Partnership, which is based on our added value offer and collaborative working style, has continued to strengthen. Following the successful fit out of a department store in Kingston, we have been awarded a refurbishment of their store in West Quay shopping centre in Southampton.
London is a key target destination for the luxury retail brands to expand their store portfolios. The focus is on flagship and destination stores, with the demand for larger spaces leading to higher project complexity. Our reputation with luxury retail brands such as Gieves & Hawkes, Hackett London and Tiffany & Co. In the year, we have secured Hugo Boss as a new customer.
The award-winning fit out of Hackett London's largest flagship store in Regent Street was a highlight of the last year. The store covers three floors and is ISG's 50th project for the brand, winning two awards at the 2014 National Association of Shopfitters (NAS) Design Partnership.
Other luxury retail wins include further projects for the department stores, Selfridges and Harrods. This demand is driven by our ability to deliver complex projects while working collaboratively with consultants and the customer often in a live environment. We are delivering three projects for Selfridges across their Birmingham and London stores. We have also been awarded two further projects for Harrods with works now ranging from the refurbishment of the staff restaurant to the fit out of the perfume department and private suites.
The business has made further progress in the hospitality sector, with a range of projects in Heathrow's Terminal 2. In the year, we delivered the United Club and United Global First Lounge which were opened by Her Majesty the Queen. Other airport lounge works at Heathrow include projects for Air Canada, Thai Airways and Turkish Airlines. The business also has a growing reputation in the hotel sector that will provide a strong pipeline of work with its high demand for large-scale refurbishment. It is currently working on three refurbishment projects in London, the iconic Grosvenor House and the renovation of the Sanderson and St Martin's hotel in London.
The business recently expanded its sustainability offering to include the carrying out of Ska assessments. Operated by the Royal Institution of Chartered Surveyors (RICS) in the UK, Ska Rating is an environmental assessment tool for sustainable fit outs. In the year our in-house assessors awarded 50 Ska Rating certificates, and as such, we are at the forefront of delivering Ska retail assessments.
Our consultancy brand Realys was launched in Europe as part of our specialist services offer. Based in London, Realys is currently delivering professional services to one of the UK's leading banks in the UK, France and Italy, providing support for the implementation of new formats and technology.
With the recently renewed positions on the Barclays and Nationwide frameworks, and increased activity for Asda, Sainsbury's and Tesco, the order book as at 30 June 2014 has improved at £173m (2013: £142m), all of which will be delivered in the current financial year. We expect stable results in the current financial year.
UK Construction
As previously reported we have restructured and reduced our UK Construction business to four regions focusing on repeat customers and frameworks in selected core sectors. To complete this restructuring, during the second half we took the decision to discontinue operations from our office in Tonbridge which resulted in recognising a post tax loss from discontinued operations of £2.8m (2013: £0.4m).
The UK Construction market is now showing signs of improvement, both in the pipeline of opportunities and contract terms. We have recruited new people into the leadership team and in our regions to grow and improve our skillsets with a focus on improvement in key areas including procurement processes, bid and risk management and winning-work strategy.
As a result of the challenging market in the year, revenue from continuing operations for the year declined to £463m (2013: £499m). With margins continuing to be commercially challenging on projects entered into more than a year ago, the business generated an operating loss1 of £1.2m (2013: operating profit1 £1.6m). We anticipate seeing an upturn in margins and a return to profit from 2015.
With a focus on our key sectors, we continue to concentrate on repeat customers and frameworks, reducing our open market tendering activity. Encouragingly 78% of our current order book (2013: 72%) was secured from these relationships.
During the period we continued to strengthen our ten-year relationship with global investment firm Blackstone by securing a major refurbishment of the iconic Adelphi Building in London, as well as two office fit out projects in London and Germany. In addition, we have undertaken projects for repeat customers Great Portland Estates, Standard Life Investments, Amsprop Estates, Scottish Widows, Quantum Care and a global petrochemical company.
In line with our strategy to secure a greater volume of work via frameworks, we have been reappointed to the influential £1bn Construction Framework South West and in this financial year have undertaken eight projects. We continue to be active on the North West Construction Hub framework, working on 38 projects in the year. During the year we were awarded a place on each of the North East Procurement Organisation (NEPO) Construction Framework's four categories. We have also been appointed to the new Stockton-on-Tees Borough Council Construction Framework and have been confirmed as the sole appointee to a four-year capital build framework with Cleveland Fire Authority. We also successfully handed over one of the UK's largest courtroom facilities, procured via the Ministry of Justice's Strategic Alliance Construction Framework. Since year end we have been appointed to four of the six regions on the £5bn Education Funding Agency (EFA) Regional Framework for school-building across England.
We are now focusing on our strategy to target core sectors where we bring expertise and have established relationships. For example, the education sector makes up 24% of our UK Construction order book at 30 June 2014, and in the year we were awarded schemes with City University, London Borough of Brent and Mid-Kent College.
Similarly, higher levels of confidence in the office sector, which made up 19% of our total order book at year end, have led to us securing significant wins including a new UK Headquarters in Leeds for leading healthcare IT business, The Phoenix Partnership (TPP) and a £14m project to build new offices in Chelmsford for international insurer Amlin. Testament to our ongoing success within the office sector, our project for Siemens, The Crystal, won the British Council for Offices National Innovation Award.
We continued to service the hospitality and leisure sector, recently completing two key projects, the South Park Hub for the London Legacy Development Corporation and the multimillion accommodation element of the new Center Parcs Development in Bedfordshire. We are also underway with the high-profile £58m Exhibition Centre Liverpool development, which builds on our growing profile within Merseyside.
The UK Construction business reached a milestone with the Considerate Constructors Scheme (CCS) this year when we were presented with a longevity award in recognition of ten years as an Associate Member. In addition, our Northern region has been awarded National Skills Academy for Construction status by the Construction Industry Training Board (CITB).
The business enters the year with an order book as at 30 June 2014 of £444m (2013: £391m) of which £368m (2013: £338m) is for delivery in the current financial year. With the improving market and our focus on core sectors and repeat customers we expect that the business will return to profitability in the current financial year.
Continental Europe
While parts of our continental Europe market are experiencing economic recovery, others are slower to respond. In line with this while our German business has benefitted from the strength of its markets, slower recovery has affected France and Italy, where there is a continued lack of confidence particularly in the office fit out market. This has put pressure on margins, so while revenue increased to £103m (2013: £92m), operating profit1 of £1.3m (2013: £1.6m) was slightly below the prior year.
In Central Europe our focus is to provide our international customers with a consistent service across the key markets, to focus on 'DACH' (Germany, Austria and Switzerland) regional customers and to leverage opportunities with local building owners and landlords, especially in Germany, via our recent acquisition Tecton which made a significant first-year contribution.
In line with this, we have secured opportunities with German property investors and landlords, providing greater scale within what is the largest single European market. In recognition of the scope for continued growth, we have expanded our operations across Germany to include new offices in Hamburg and Munich. We anticipate that both will prove to be new growth markets for the business and in Munich we have already secured schemes with Azimut Hotels, GE Healthcare and Gilead Sciences.
In Russia, we have strengthened the management of the business with the appointment of a new General Director. We are currently working with retail clients Dior, Louis Vuitton and Piaget in Moscow, as well as undertaking office fit outs for a global petrochemical company and Google. The Google project achieved a coveted 'Best Office Award' and is on target to achieve LEED Gold, a first for our Russian operations.
In France, the office fit out market has been affected by low economic confidence and a slow recovery. However, our reputation for consistent delivery and brand stewardship continues to attract multinational retail brands and this has led to some 60% of our work coming from repeat customers, including Marks & Spencer, Paul Smith and Primark.
Additionally, we have acquired new customers in the year including Agent Provocateur, Barclays, Nespresso, Nike and Qela. The business has continued to grow its reputation in the luxury retail sector, delivering complex refurbishment projects for Louis Vuitton and Tiffany & Co in Paris.
In Italy we have continued to service the Milan and Rome office fit out markets, including a major project for Alcatel-Lucent. We have also recently established a retail team that has completed a new Barclays flagship in Rome. In the year we completed a 161,500 sq ft residential refurbishment for the Carlyle Group in Milan.
Since the year end we have invested in two Spanish companies: Diadec, which provides office and retail fit out services and Emerald, which offers data center and engineering services. With the Spanish economy recovering, and the natural alignment of both Diadec and Emerald with our core skill sets and existing key clients, we are confident that this new investment will help us make significant progress in the growing Spanish market.
Across Continental Europe we have invested in strengthening the management of our businesses and are focusing on high-quality delivery through our Absolute Completion methodology.
The order book at 30 June 2014 stands at £28m (2013: £54m). Since year end we have secured a £10m office fit out project for Google in Munich. While the recovery in France and Italy is slower than other parts of continental Europe, we expect our businesses in Germany and Spain, with their stronger economic outlook, to improve results in the year ahead.
1 from underlying items (Notes 2 and 3)
Middle East
In the Middle East, where we focus on office fit out and the hospitality sectors, we have seen strong growth in revenue and profit. This has been underpinned by securing and delivering a number of larger office fit out projects in Abu Dhabi and market confidence returning to Dubai, particularly in the hotel and hospitality sector. Revenue for the year increased by 33% to £35m (2013: £26m) and an improved operating margin of 1.5% (2013: 0.3%), led to a rise in operating profit to £0.5m (2013: £0.1m).
Growth in Dubai is partially driven by the emirate successfully securing World Expo 2020. This has created a demand for large-scale hotel refurbishment in Dubai and we have strategically positioned our hotel sector business to meet this demand. In line with our strategy to target the global hospitality market, we secured a £21m project at the Kempinski Mall of the Emirates Grand Hotel, refurbishing all 393 guest rooms, suites, ski chalets (next to Ski Dubai), meeting rooms, alongside the gym and spa.
While confidence in the overall UAE economy is strong, political conditions in the wider Middle East region have resulted in the activity levels of most multinational companies being relatively low, particularly in office fit out. In line with this we have focused on servicing local customers. During the year we have successfully worked on four new facilities for high-profile customers with a total value of £35m including a new Abu Dhabi head office for Dolphin Energy and new offices for Cleveland Clinic, as well as delivering a new 'future bank' branch for Al Hilal at Masdar City.
From Asia, we have expanded our commissioning management consultancy business Commtech into the Middle East. In the year the business was chosen to commission Al Jalila Children's Specialty Hospital in Dubai. We were also appointed directly by Jumeirah to commission the Jumeirah Creekside Hotel in Dubai to ensure it opened on time for the Dubai Tennis Tournament.
The business is committed to attracting and developing the best young talent. Working with international design association Tasmena, we sponsored and facilitated the Middle East Student Interior Design Challenge at INDEX for the fourth year running. This event helps students get recognition and to break into the Design and Construction sectors. We engage with universities in the Middle East to support the competition among design students that is then judged by leading professionals from within the regional design community.
The Middle East forward order book has increased as at 30 June 2014 to £34m (2013: £15m), having recently secured and commenced work on some key target projects including the Kempinski Hotel Dubai, the Abu Dhabi Tourism & Culture Authority and the National Health Insurance Company Daman headquarters in Abu Dhabi. With the market set to further improve and a strong forward order book, we anticipate further improvement in performance in the current year.
Asia
In Asia our businesses have seen a significant increase in revenue and profits. Our success is based on our established reputation for excellence in the retail and hospitality sectors which is driving repeat business and increased project sizes from international blue-chip customers. Revenue for the year was up at £79m (2013: £74m) with an improved operating margin of 3.4% (2013: 3.0%), leading to increased operating profit of £2.7m (2013: £2.2m).
In Hong Kong, highlights included the completion of the refurbishment of the members' bar at the prestigious Hong Kong Club totalling 18,000 sq ft as well as repeat commissions for Dior and the Kering Group jewellery retailer Qeelin. We have also secured refurbishment and upgrade works for the exclusive European jeweller Wellendorff. In addition we are currently working on a £20m complex retail project for an international technology company.
Relationships with local developers remain strong following our success in securing work for a new restaurant comprising 11,000 sq ft on two levels for Swire Hotels, as well as a refurbishment for the Hong Kong Jockey Club and a variety of facade works for Main Street in Disneyland Hong Kong. Our work in China included projects for long-standing customers including Abercrombie & Fitch, Dior, Frey Wille and UGG.
In Singapore, our strategy to further establish ISG in the hospitality sector saw success in the year with the completion of a major hospitality project for Fairmont, encompassing the refurbishment of 365 rooms and additional commissions for Royal Plaza and Swisshotel. The retail market in Singapore also remains strong and we have completed projects for retail brands including Becasse, Bluebell and Hackett.
In Malaysia, Louis Vuitton selected ISG to increase the footprint of their flagship store within Kuala Lumpur's Starhill Gallery from 6,000 sq ft to 15,000 sq ft. At Kuala Lumpur International Airport 2 we delivered the Flying Emporium, two Victoria's Secret stores for local franchise holder The Valiram Group and a store for Michael Kors.
Our consultancy businesses Realys and Commtech have continued their growth in the year. In particular Realys launched a design and build offer into the Singapore market during the year and successfully delivered offices for petroleum exploration and production company Woodside, oilfield communications organisation Rignet and stage one of 38,000 sq ft of office space for Westpac.
Realys delivered project management services in China, Hong Kong, Korea, Malaysia, Thailand and Singapore. Projects included a new 450,000 sq ft headquarters for CIMB in Kuala Lumpur, the Australian Embassy in Bangkok and a fully integrated solution on the construction of ArcelorMittal's new steel plant in Shanghai.
Commtech expanded its range of clients in the year. In addition to work in the data center sector for world-leading financial organisations, internet service providers and online retailers, projects in other sectors included the commissioning of the Wynn Palace in Macau, a new 1700-room hotel and casino for Wynn Design and Development that comprises 15m sq ft and The King Abdullah Sports City Stadium in Jeddah.
The order book as at 30 June 2014 stood at £42m (2013: £42m). With the continued strength of the Asian markets in which we operate, our successful strategy to target the retail and hospitality sectors and growth in our reputation and the scale of projects, we anticipate that we will see further growth in the current financial year.
CONSOLIDATED INCOME STATEMENT │ Year ended 30 June 2014 AUDITED | |||||||
2014 | 2013* | ||||||
Underlying items | Non-underlying items | Total | Underlying items | Non-underlying items | Total | ||
Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Continuing operations | |||||||
Revenue | 2 | 1,482,889 | - | 1,482,889 | 1,244,807 | - | 1,244,807 |
Cost of sales | (1,409,300) | - | (1,409,300) | (1,177,732) | - | (1,177,732) | |
Gross profit | 73,589 | - | 73,589 | 67,075 | - | 67,075 | |
Share of profits of associates and joint ventures | 59 | - | 59 | 11 | - | 11 | |
Amortisation of intangible assets | 12 | - | (1,988) | (1,988) | - | (2,179) | (2,179) |
Administrative expenses | (61,425) | (2,787) | (64,212) | (57,247) | (3,909) | (61,156) | |
Operating profit | 2 | 12,223 | (4,775) | 7,448 | 9,839 | (6,088) | 3,751 |
Finance income | 5 | 122 | - | 122 | 71 | - | 71 |
Finance costs | 6 | (816) | - | (816) | (820) | - | (820) |
Profit before tax | 2 | 11,529 | (4,775) | 6,754 | 9,090 | (6,088) | 3,002 |
Taxation | 7 | (2,695) | 1,129 | (1,566) | (1,954) | 1,749 | (205) |
Profit for the year | 8,834 | (3,646) | 5,188 | 7,136 | (4,339) | 2,797 | |
Discontinued operations | |||||||
Loss for the year from discontinued operations | 8 | - | (2,803) | (2,803) | - | (416) | (416) |
Profit for the year | 8,834 | (6,449) | 2,385 | 7,136 | (4,755) | 2,381 | |
Attributable to: | |||||||
Owners of the company | 8,786 | (6,420) | 2,366 | 7,121 | (4,583) | 2,538 | |
Non-controlling interests | 18 | 48 | (29) | 19 | 15 | (172) | (157) |
8,834 | (6,449) | 2,385 | 7,136 | (4,755) | 2,381 | ||
Basic earnings per share | |||||||
Continuing operations | 10 | 23.00p | (9.47p) | 13.53p | 22.09p | (12.92p) | 9.17p |
Discontinued operations | 10 | - | (7.34p) | (7.34p) | - | (1.29p) | (1.29p) |
10 | 23.00p | (16.81p) | 6.19p | 22.09p | (14.21p) | 7.88p | |
Diluted earnings per share | |||||||
Continuing operations | 10 | 22.23p | (9.15p) | 13.08p | 21.76p | (12.73p) | 9.03p |
Discontinued operations | 10 | - | (7.09p) | (7.09p) | - | (1.27p) | (1.27p) |
10 | 22.23p | (16.24p) | 5.99p | 21.76p | (14.00p) | 7.76p | |
* Restated for classification of the Tonbridge operations as discontinued operations (Note 8)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME │ Year ended 30 June 2014 AUDITED | ||||
2014 | 2013 | |||
Notes | £'000 | £'000 | ||
Profit for the year | 2,385 | 2,381 | ||
Items that may be reclassified subsequently to profit or loss: | ||||
Exchange differences on translation of foreign operations | (4,103) | 784 | ||
Total comprehensive (loss)/income for the year | (1,718) | 3,165 | ||
Attributable to: | ||||
Owners of the company | (1,747) | 3,307 | ||
Non-controlling interests | 18 | 29 | (142) | |
(1,718) | 3,165 | |||
Items in the statement above are disclosed net of tax. The tax relating to each component of other comprehensive income is disclosed in Note 7.
CONSOLIDATED BALANCE SHEET │ At 30 June 2014 AUDITED | ||||
2014 | 2013 | |||
Notes | £'000 | £'000 | ||
Non-current assets | ||||
Goodwill | 11 | 82,797 | 83,232 | |
Other intangible assets | 12 | 3,755 | 4,952 | |
Property, plant and equipment | 7,248 | 5,573 | ||
Investment in associates and joint ventures | 1,884 | 104 | ||
Deferred tax assets | 4,577 | 2,828 | ||
Trade and other receivables | - | 127 | ||
100,261 | 96,816 | |||
Current assets | ||||
Inventories | 1,010 | 1,133 | ||
Trade and other receivables | 179,889 | 181,563 | ||
Due from customers for contract work | 170,914 | 137,998 | ||
Cash and cash equivalents | 13 | 49,841 | 42,214 | |
401,654 | 362,908 | |||
Total assets | 501,915 | 459,724 | ||
Current liabilities | ||||
Borrowings | 14 | (2,315) | (2,587) | |
Trade and other payables | (407,715) | (359,845) | ||
Due to customers for contract work | (30,775) | (31,467) | ||
Provisions | (202) | (227) | ||
Current tax liabilities | (1,818) | (2,090) | ||
(442,825) | (396,216) | |||
Non-current liabilities | ||||
Borrowings | 14 | (1,191) | (3,523) | |
Deferred tax liabilities | (741) | (902) | ||
Trade and other payables | (65) | - | ||
Provisions | (183) | (206) | ||
(2,180) | (4,631) | |||
Total liabilities | (445,005) | (400,847) | ||
TOTAL NET ASSETS | 56,910 | 58,877 | ||
Equity | ||||
Called up share capital | 15 | 391 | 385 | |
Share premium account | 24,001 | 22,939 | ||
Foreign currency translation reserve | 2,210 | 3,926 | ||
Investment in own shares | (1,453) | (2,488) | ||
Other reserves | 15 | 7,347 | 7,369 | |
Retained earnings | 24,311 | 26,807 | ||
Equity attributable to owners of the company | 56,807 | 58,938 | ||
Non-controlling interests | 18 | 103 | (61) | |
TOTAL EQUITY | 56,910 | 58,877 | ||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY │ Year ended 30 June 2014 AUDITED | |||||||||
Foreign | |||||||||
currency | Investment | Non- | |||||||
Share | Share | translation | in own | Other | Retained | controlling | Total | ||
capital | premium | reserve | shares | reserves | earnings | Total | interests | equity | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 July 2012 | 334 | 22,855 | 2,883 | (4,379) | - | 27,602 | 49,295 | 358 | 49,653 |
Profit for the year | - | - | - | - | - | 2,538 | 2,538 | (157) | 2,381 |
Exchange differences arising on translation of foreign operations | - | - | 1,043 | - | - | (274) | 769 | 15 | 784 |
Total comprehensive income | - | - | 1,043 | - | - | 2,264 | 3,307 | (142) | 3,165 |
Payment of dividends | 1 | 84 | - | - | - | (2,879) | (2,794) | - | (2,794) |
Issue of shares | 50 | - | - | - | 7,700 | - | 7,750 | - | 7,750 |
Costs incurred from issue of shares | - | - | - | - | (331) | - | (331) | - | (331) |
Acquisition of non-controlling interests | - | - | - | - | - | (11) | (11) | (277) | (288) |
Tax credit on share-based payments | - | - | - | - | - | 75 | 75 | - | 75 |
Recognition of share-based payments | - | - | - | 1,891 | - | (244) | 1,647 | - | 1,647 |
Balance at 30 June 2013 | 385 | 22,939 | 3,926 | (2,488) | 7,369 | 26,807 | 58,938 | (61) | 58,877 |
Profit for the year | - | - | - | - | - | 2,366 | 2,366 | 19 | 2,385 |
Exchange differences arising on translation of foreign operations | - | - | (1,716) | - | - | (2,397) | (4,113) | 10 | (4,103) |
Total comprehensive income | - | - | (1,716) | - | - | (31) | (1,747) | 29 | (1,718) |
Payment of dividends | - | 119 | - | - | - | (3,498) | (3,379) | - | (3,379) |
Issue of shares | 1 | 133 | - | - | - | - | 134 | - | 134 |
Costs incurred from issue of shares | - | - | - | - | (22) | - | (22) | - | (22) |
Acquisition of subsidiary | 4 | 630 | - | - | - | - | 634 | 135 | 769 |
Investment in associates and joint ventures | 1 | 180 | - | - | - | - | 181 | - | 181 |
Recognition of investment in own shares | - | - | - | (395) | - | - | (395) | - | (395) |
Tax credit on share-based payments | - | - | - | - | - | 877 | 877 | - | 877 |
Recognition of share-based payments | - | - | - | 1,430 | - | 156 | 1,586 | - | 1,586 |
Balance at 30 June 2014 | 391 | 24,001 | 2,210 | (1,453) | 7,347 | 24,311 | 56,807 | 103 | 56,910 |
The foreign currency translation reserve is used to record cumulative translation differences on the goodwill and other intangible assets of foreign operations (Notes 11 and 12). The cumulative translation differences are recycled to the income statement on disposal of the foreign operation.
CONSOLIDATED CASH FLOW STATEMENT │ Year ended 30 June 2014 AUDITED | ||||
2014 | 2013 | |||
Notes | £'000 | £'000 | ||
Cash flows from operating activities | ||||
Underlying operating profit for the year | 2 | 12,223 | 9,839 | |
Non-underlying operating profit for the year | 2 | (4,775) | (6,088) | |
Share of profit of associates and joint ventures | (59) | (11) | ||
Amortisation of intangible assets | 12 | 1,988 | 2,179 | |
Depreciation on property, plant and equipment | 2,634 | 2,625 | ||
Loss/(gain) on disposal of property, plant and equipment | 93 | (2) | ||
Share-based payment expense adjustment for share schemes | 550 | (244) | ||
Movements in working capital: | ||||
Decrease/(increase) in inventories | 106 | (230) | ||
Increase in trade and other receivables | (36,231) | (41,637) | ||
Increase in trade and other payables | 61,085 | 42,852 | ||
Cash generated from operations | 37,614 | 9,283 | ||
Taxation | (2,517) | 383 | ||
Net cash inflow from operating activities from continuing operations | 35,097 | 9,666 | ||
Net cash outflow from operating activities from discontinued operations | 8 | (9,235) | (1,206) | |
Net cash inflow from operating activities | 25,862 | 8,460 | ||
Cash flows from investing activities | ||||
Interest received | 5 | 122 | 71 | |
Interest paid | 6 | (336) | (407) | |
Dividends received from associates and joint ventures | 85 | - | ||
Investment in associates and joint ventures | (1,627) | (1) | ||
Payments for other intangibles | (3) | - | ||
Payments for property, plant and equipment | (4,459) | (1,796) | ||
Proceeds from disposal of property, plant and equipment | 29 | 15 | ||
Acquisition of subsidiaries | 3,19 | (3,200) | (150) | |
Net cash acquired with subsidiaries | 19 | 428 | - | |
Net cash outflow from operating activities from continuing operations | (8,961) | (2,268) | ||
Net cash outflow from investing activities from discontinued operations | - | - | ||
Net cash outflow from investing activities | (8,961) | (2,268) | ||
Cash flows from financing activities | ||||
Dividends paid | 9 | (3,379) | (2,794) | |
Cash receipts from issuing shares | 134 | 7,750 | ||
Costs incurred from issuing shares | (22) | (331) | ||
Purchase of own shares | (395) | - | ||
Proceeds from borrowings | 10,000 | 9,301 | ||
Repayment of borrowings | (12,746) | (7,618) | ||
Net cash (outflow)/inflow from financing activities from continuing operations | (6,408) | 6,308 | ||
Net cash outflow from financing activities from discontinued operations | - | - | ||
Net cash (outflow)/inflow from financing activities | (6,408) | 6,308 | ||
Net increase in cash and cash equivalents | 10,493 | 12,500 | ||
Cash and cash equivalents at the beginning of the year | 42,214 | 30,140 | ||
Effects of exchange rate changes on balances of cash held in foreign currencies | (2,866) | (426) | ||
Cash and cash equivalents of continuing operations at the end of the year | 60,282 | 43,420 | ||
Cash and cash equivalents of discontinued operations at the end of the year | (10,441) | (1,206) | ||
Cash and cash equivalents at the end of the year | 13 | 49,841 | 42,214 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS │ At 30 June 2014
AUDITED
1. GENERAL INFORMATION
The financial information set out above does not constitute the Group's statutory accounts for the years ended 30 June 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the company's annual general meeting. The auditor has reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
The information has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS). This announcement does not contain sufficient information to comply with all the disclosure requirements of IFRS.
The preliminary announcement for the year ended 30 June 2014 has been prepared in accordance with the accounting policies as disclosed in the 2013 Annual report and accounts, as updated to take effect of any new accounting standards applicable for 2014 as set out in the Interim report and accounts for the six months to 31 December 2013.
The directors have prepared cash flow forecasts for the Group for a period in excess of twelve months from the date of approval of the 2014 consolidated financial statements. These forecasts are based on the Group's existing order book together with assumptions in respect of new business and reflect an assessment of current and future market conditions and risks and uncertainties in the businesses, their impact on the Group's trading performance and the actions taken by management in response to the challenging market conditions. The forecasts completed on this basis demonstrate that the Group will be able to operate within the current committed debt facilities and show continued compliance with the financial covenants. In addition, management has considered various mitigating actions that could be taken in the event that future market conditions deteriorate beyond their current assessment. Such measures include further improvements in working capital within management's control, further reductions in costs and capital expenditure and use of the Group's undrawn credit facilities.
On the basis of the exercise described above, the directors have a reasonable expectation that the Group and company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group and the company.
2. SEGMENTAL INFORMATION
For management purposes, the Group is organised into operating segments on both a geographic and product perspective. The performances of these segments are considered by the Board when making strategic decisions. These segments include the UK, Continental Europe, Middle East and Asia, whilst the UK is further segregated by product into UK Fit Out and Engineering Services, UK Retail and UK Construction.
Although the Middle East geographical segment does not meet the quantitative thresholds required by IFRS 8 'Operating Segments' , management has concluded that this segment should be reported. This segment is closely monitored by the Board as a potential growth region and is expected to materially contribute to Group revenue in the future.
The principal activities of each of these divisions are as follows:
UK Fit Out and Engineering Services | provision of office fit out and refurbishment services in the UK and engineering services including data centers in the UK and Continental Europe |
UK Retail | provision of fit out, refurbishment and ancillary new build services to retail and hospitality customers in the UK |
UK Construction | provision of new build, refurbishment and ancillary fit out services in the UK |
Continental Europe | provision of office and retail fit out and refurbishment services in continental Europe |
Middle East | provision of fit out, refurbishment and project management services in the Middle East and Africa |
Asia | provision of fit out, refurbishment, design, project management and commissioning management services in Asia |
Group activities | central overheads and provisions |
The segmental information provided to the Board for the reportable segments for the year ended 30 June 2014 is as follows:
Revenue and profit analysis
Included in revenue from UK Fit Out and Engineering Services, UK Construction, Continental Europe and Asia is revenue of £228.6m (2013: £105.1m) which arose from sales to the Group's largest customer. No other single customer contributed 10% or more to the Group's income in either 2013 or 2014.
The revenue disclosed is from external customers and is reported to the Board in a manner consistent with that in the income statement.
Operating | Finance | Profit | |||
Operating | profit | income/ | before | ||
Revenue | profit | margin | (costs) | tax | |
2014 | £'000 | £'000 | % | £'000 | £'000 |
UK Fit Out and Engineering Services | 519,509 | 9,882 | 1.9 | 141 | 10,023 |
UK Retail | 283,157 | 6,060 | 2.1 | (39) | 6,021 |
UK Construction | 463,384 | (1,235) | - | (9) | (1,244) |
Continental Europe | 102,832 | 1,264 | 1.2 | (33) | 1,231 |
Middle East | 34,606 | 508 | 1.5 | (60) | 448 |
Asia | 79,401 | 2,722 | 3.4 | 11 | 2,733 |
Underlying Group trading | 1,482,889 | 19,201 | 1.3 | 11 | 19,212 |
Unallocated: | |||||
Group activities | - | (6,978) | - | (102) | (7,080) |
Cost of acquisition finance | - | - | - | (603) | (603) |
Underlying items from continuing operations | 1,482,889 | 12,223 | 0.8 | (694) | 11,529 |
Non-underlying items from continuing operations | - | (4,775) | - | - | (4,775) |
Consolidated continuing operations | 1,482,889 | 7,448 | 0.5 | (694) | 6,754 |
Operating | Finance | Profit | |||
Operating | profit | income/ | before | ||
Revenue | profit | margin | (costs) | tax | |
2013 | £'000 | £'000 | % | £'000 | £'000 |
UK Fit Out and Engineering Services | 287,531 | 5,000 | 1.7 | 198 | 5,198 |
UK Retail | 267,277 | 5,531 | 2.1 | 267 | 5,798 |
UK Construction* | 498,847 | 1,619 | 0.3 | 436 | 2,055 |
Continental Europe | 91,559 | 1,561 | 1.7 | (4) | 1,557 |
Middle East | 26,081 | 74 | 0.3 | (58) | 16 |
Asia | 73,512 | 2,199 | 3.0 | (5) | 2,194 |
Underlying Group trading | 1,244,807 | 15,984 | 1.3 | 834 | 16,818 |
Unallocated: | |||||
Group activities | - | (6,145) | - | (853) | (6,998) |
Cost of acquisition finance | - | - | - | (730) | (730) |
Underlying items from continuing operations | 1,244,807 | 9,839 | 0.8 | (749) | 9,090 |
Non-underlying items from continuing operations | - | (6,088) | - | - | (6,088) |
Consolidated continuing operations | 1,244,807 | 3,751 | 0.3 | (749) | 3,002 |
* Restated for classification of the Tonbridge operations as discontinued operations (Note 8)
3. NON-UNDERLYING ITEMS
2014 | 2013 | ||
£'000 | £'000 | ||
Amortisation of intangible assets (Note 12) | 1,988 | 2,179 | |
Administrative expenses: | |||
Restructuring costs | 2,379 | 3,143 | |
Acquisition related expenses | 408 | 583 | |
Post acquisition remuneration arising from the acquisition of Realys | - | 183 | |
Total non-underlying operating loss from continuing operations | 4,775 | 6,088 |
The Group has incurred restructuring costs of £1.7m (2013: £3.1m) following the completion of the exercise in respect of the UK Construction operations with the reorganisation of the business from seven regions to four. In addition, costs of £0.7m (2013: £nil) were incurred in relation to the restructure of the Group's Continental Europe operations and related management structure.
The acquisition of the trade and business assets of the French branch of Alpha was completed on 28 October 2011, with an accrual for a deferred contingent consideration element that was dependent on that business achieving certain performance targets. This amount was recognised as contingent consideration in the Group's consolidated financial statements. Based on the performance of the business, a final amount of contingent consideration of £1.7m was paid in January 2014 and resulted in a charge of £0.2m in the year, which was treated as an acquisition related expense in the income statement.
On 8 July 2013 and 24 July 2013, the Group completed the acquisition of a minority stake in ACE in Brazil and the acquisition of a majority stake in Tecton in Germany respectively. No additional acquisition related expenses were incurred during the year (2013: £0.6m).
On 16 July 2014, the Group completed the acquisition of 50.1% in Interior ISG Espana SA (Interior Espana), a newly formed company that owns 100% of each of Diadec and Emerald. £0.2m of associated acquisition expenses were incurred during the year ended 30 June 2014.
The acquisition of 85% of the issued share capital of Realys was completed on 8 April 2011, with a deferred contingent element payable (in cash and shares) over the following three years depending on achieving certain performance targets in each of those years and the vendors' continuing employment. As at 30 June 2013, the value of the contingent consideration for the second and third years was calculated to be £0.2m and nil respectively. This amount was recognised as a liability in the Group's consolidated financial statements at that time and was subsequently paid in July 2013.
4. STAFF COSTS INCLUDING DIRECTORS' REMUNERATION
2014 | 2013 | ||
£'000 | £'000 | ||
Salaries and wages | 106,923 | 102,694 | |
Social security costs | 14,972 | 13,101 | |
Pension costs | 3,046 | 3,705 | |
Fair value adjustment to stock options | 227 | - | |
125,168 | 119,500 |
Included in salaries above is a bonus accrual payable in respect of the financial year ended 30 June 2014.
Directors' remuneration included in the aggregate remuneration above comprised:
2014 | 2013 | ||
£'000 | £'000 | ||
Emoluments for qualifying services from this company | 2,084 | 1,802 |
Directors' emoluments (excluding social security costs) disclosed above include £0.8m paid to the highest paid director (2013: £0.7m).
Certain subsidiary undertakings of the Group operated defined contribution pension schemes. The assets of the schemes were held separately from those of the Group by an independently administered fund. The only other pension contributions made by the Group are to employees' personal pension schemes under a salary waiver arrangement.
2014 | 2013 | ||
Employees | Number | Number | |
Average number of persons (including directors) employed by Group in the year: | |||
UK Fit Out and Engineering Services | 449 | 357 | |
UK Retail | 396 | 434 | |
UK Construction | 838 | 929 | |
Continental Europe | 207 | 220 | |
Middle East | 107 | 76 | |
Asia | 376 | 369 | |
Corporate | 86 | 64 | |
2,459 | 2,449 |
The Corporate segment in the table above includes three directors (2013: three).
5. FINANCE INCOME
2014 | 2013 | ||
£'000 | £'000 | ||
Interest on bank deposits | 122 | 71 | |
Total finance income | 122 | 71 |
6. FINANCE COSTS
2014 | 2013 | ||
£'000 | £'000 | ||
Interest on bank overdrafts and loans | 336 | 407 | |
Unwinding of discount on deferred consideration | 82 | 141 | |
Loan arrangement fee | 103 | 72 | |
Amortisation of fees | 295 | 200 | |
Total finance costs | 816 | 820 |
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
a. Taxation charge
2014 | 2013 | ||
£'000 | £'000 | ||
UK current tax | |||
United Kingdom | 1,060 | 1,093 | |
Double tax relief | - | (396) | |
Adjustment in respect of prior years | (365) | (221) | |
695 | 476 | ||
Foreign current tax | |||
Overseas taxation - current year | 2,409 | 1,807 | |
Adjustment in respect of prior years | (166) | (18) | |
Total current tax | 2,938 | 2,265 | |
Deferred tax | |||
Origination and reversal of temporary differences | (2,009) | (1,756) | |
Adjustment in respect of prior years | 371 | (179) | |
Effect of change in tax rates | 266 | (125) | |
Total deferred tax | (1,372) | (2,060) | |
Total tax expense from continuing operations | 1,566 | 205 | |
Total tax credit from discontinued operations (Note 8) | (814) | (129) | |
Total tax expense | 752 | 76 |
UK Corporation tax is calculated at 22.50% (2013: 23.75%) of the estimated taxable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
b. Taxation reconciliation for continuing operations
The charge for the year can be reconciled to the profit per the income statement as follows:
2014 | 2014 | 2013 | 2013 | ||||
£'000 | % | £'000 | % | ||||
Profit before tax from operations | 6,754 | 3,002 | |||||
Tax at the UK corporation tax rate | 1,520 | 22.5 | 712 | 23.7 | |||
Adjustment relating to release of prior year corporation tax provisions | (531) | (7.9) | (239) | (8.0) | |||
Tax effect of utilisation of tax losses not previously recognised | (505) | (7.5) | (1,083) | (36.1) | |||
Effect of different tax rates of operations in other jurisdictions | 1,122 | 16.6 | 781 | 26.0 | |||
Tax effect of expenses that are not deductible in determining taxable profit | 223 | 3.3 | 545 | 18.2 | |||
Effect of movements in deferred tax assets | (33) | (0.5) | (10) | (0.3) | |||
Effect of deduction in relation to research and development expenditure | (788) | (11.7) | (503) | (16.8) | |||
Other short-term timing differences | 558 | 8.4 | 2 | 0.1 | |||
Income tax expense recognised in the income statement | 1,566 | 23.2 | 205 | 6.8 |
8. DISCONTINUED OPERATIONS
In June 2014, the Group's UK Construction business discontinued its operations from its Tonbridge office in line with the restructuring of our UK Construction business to four regions. The office has been formally closed and we have ceased operations in this regional market. It has been classified as a discontinued operation for the year ended 30 June 2014, and the results for the year ended 30 June 2013 restated for the presentation of the activity in Tonbridge as a discontinued operation.
This has resulted in trading losses and closure costs in the year and consequently, the 2014 results include a post tax charge to the income statement in respect of the discontinued operations of £2.8m (2013: £0.4m). The directors consider that this restatement has no impact on the Group's reported balance sheet at 30 June 2013 and consequently no comparative balance sheet for the year ended 30 June 2012 has been presented in these statements.
The results of the Group's discontinued operations in 2014 are presented below together with the comparative information for 2013 and arise solely from the Tonbridge operations.
2014 | 2013 | ||
£'000 | £'000 | ||
Loss for the year from discontinued operations: | |||
Revenue | 27,928 | 39,086 | |
Expenses | (31,545) | (39,631) | |
Loss before taxation and costs of closure | (3,617) | (545) | |
Tax credit | 814 | 129 | |
Loss after tax for the year from discontinued operations | (2,803) | (416) | |
Cash flows from discontinued operations: | |||
Net cash outflow from operating activities | (9,235) | (1,206) | |
Net cash outflow | (9,235) | (1,206) |
9. DIVIDENDS
2014 | 2013 | ||
£'000 | £'000 | ||
Interim dividend paid for the period to 31 December 2013 of 4.54p per ordinary share (2012: 4.41p) | 1,739 | 1,420 | |
Final dividend paid for the period to 30 June 2013 of 4.59p per ordinary share (2012: 4.59p) | 1,759 | 1,459 | |
Ordinary dividends on equity shares | 3,498 | 2,879 | |
Proposed final dividend for the period to 30 June 2014 of 4.91p per ordinary share (2013: 4.59p) | 1,883 | 1,708 |
In the year to 30 June 2014 £3.5m (2013: £2.9m) of dividends were paid. Of these, £0.1m (2013: £0.1m) were taken as scrip dividends.
In accordance with IAS 10 'Events after the Reporting Date' , dividends are accounted for in the period in which they are paid. Accordingly, the final dividend proposed in respect of the year ended 30 June 2014 has not been included as a liability as at 30 June 2014.
There are no tax consequences attaching to the payment of dividends by the Group to its shareholders.
10. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to owners of the company by the weighted average number of ordinary shares during the year, determined in accordance with the provisions of IAS 33 'Earnings per Share' .
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has two categories of dilutive potential ordinary shares, being share options granted where the exercise price is less than the average price of the company's ordinary shares during the year and conditional shares not vested where contingent consideration conditions are yet to be met.
Underlying basic earnings per share is calculated by dividing the earnings from underlying items attributed to owners of the company by the weighted average number of ordinary shares during the year. The Group believes that this measure of earnings from underlying items is more reflective of the ongoing trading of the Group.
A total of 5,168 share options that could potentially dilute earnings per share in the future were excluded from the calculations below because they were not dilutive as at 30 June 2014 (2013: 844,128).
2014 | 2013 | ||
£'000 | £'000 | ||
Basic and diluted earnings being profit for the year attributable to owners of the company | 2,366 | 2,538 | |
Post tax loss from discontinued operations | 2,803 | 416 | |
Basic and diluted earnings from continuing operations attributable to owners of the company | 5,169 | 2,954 | |
Post tax loss from non-underlying items: | |||
Amortisation of intangible assets | 1,458 | 1,198 | |
Administrative expenses | 2,159 | 2,969 | |
Basic and diluted earnings attributable to owners of the company from underlying items | 8,786 | 7,121 |
2014 | 2013 | ||
Number | Number | ||
Weighted average number of ordinary shares for the purpose of basic earnings per share | 38,199,749 | 32,235,057 | |
Effect of dilutive potential ordinary shares: | |||
Share options | 1,240,437 | 205,038 | |
Conditional shares not vested | 84,246 | 274,860 | |
Diluted weighted average number of ordinary shares for the purpose of diluted earnings per share | 39,524,432 | 32,714,955 |
2014 | 2013 | ||
From continuing and discontinued operations | |||
Basic earnings per ordinary share | 6.19p | 7.88p | |
Diluted earnings per ordinary share | 5.99p | 7.76p | |
From continuing operations | |||
Basic earnings per ordinary share | 13.53p | 9.17p | |
Diluted earnings per ordinary share | 13.08p | 9.03p | |
Underlying basic earnings per ordinary share | 23.00p | 22.09p | |
Underlying diluted earnings per ordinary share | 22.23p | 21.76p | |
From discontinued operations | |||
Basic earnings per ordinary share | (7.34p) | (1.29p) | |
Diluted earnings per ordinary share | (7.09p) | (1.27p) | |
11. GOODWILL
£'000 | |
Cost | |
Balance at 1 July 2012 | 82,274 |
Net foreign currency exchange differences | 958 |
Balance at 30 June 2013 | 83,232 |
Recognised on acquisition of subsidiary | 1,063 |
Net foreign currency exchange differences | (1,498) |
Balance at 30 June 2014 | 82,797 |
Carrying amount | |
As at 30 June 2014 | 82,797 |
As at 30 June 2013 | 83,232 |
Goodwill has been allocated for impairment testing purposes to six groups of cash-generating units (CGUs) identified according to operating segments, being UK Fit Out and Engineering Services, UK Retail, UK Construction, Continental Europe, Middle East and Asia. The allocation of goodwill is dependent on the CGU that is expected to benefit from the business combination.
The additional goodwill in the current year relates to the acquisition of 90% of the issued share capital in Tecton as described in Note 19.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and margins. The Board estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money, giving a pre-tax discount rate of 11.2% (2013: 11.3%). The Group discount rate is applied to all CGUs, on a pre-tax basis with the individual CGU cash flow forecasts risk adjusted. The long-term growth rate of 2.25% is based on the estimated industry growth forecasts and long-term growth in gross domestic product.
The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by the Board for the next two years and extrapolates cash flows for the following three years based on the estimated growth rate of 2.25% and thereafter applied into perpetuity.
At 30 June 2014 and 30 June 2013, the carrying amounts of goodwill for CGUs were tested for impairment and deemed not to be impaired.
The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in significant sensitivities are the growth rate, the discount rate and the forecast year two cash flows. Except as noted below, a reasonably possible change in a single assumption will not give rise to impairment in any of the Group's CGUs. The UK Construction goodwill is £24m and the key assumption is the forecast year two cash flow which assumes a recovery in performance compared to current levels. At the Group's pre-tax discount rate of 11.2%, the value in use of the CGU exceeds the carrying value by £26m or 108%. The value in use is equal to the carrying value if the forecast year two cash flow is reduced by 49%.
12. OTHER INTANGIBLE ASSETS
Trademark | Customer relationships | Customer contracts | Total | ||||
£'000 | £'000 | £'000 | £'000 | ||||
Cost | |||||||
Balance at 1 July 2012 | - | 15,589 | 1,704 | 17,293 | |||
Net foreign currency exchange differences | - | 494 | - | 494 | |||
Balance at 30 June 2013 | - | 16,083 | 1,704 | 17,787 | |||
Additions | 3 | - | - | 3 | |||
Recognised on acquisition of subsidiary | - | 786 | 220 | 1,006 | |||
Net foreign currency exchange differences | - | (822) | (19) | (841) | |||
Balance at 30 June 2014 | 3 | 16,047 | 1,905 | 17,955 | |||
Accumulated amortisation | |||||||
Balance at 1 July 2012 | - | 8,568 | 1,679 | 10,247 | |||
Charge for the year | - | 2,154 | 25 | 2,179 | |||
Net foreign currency exchange differences | - | 409 | - | 409 | |||
Balance at 30 June 2013 | - | 11,131 | 1,704 | 12,835 | |||
Charge for the year | - | 1,797 | 191 | 1,988 | |||
Net foreign currency exchange differences | - | (612) | (11) | (623) | |||
Balance at 30 June 2014 | - | 12,316 | 1,884 | 14,200 | |||
Carrying amount | |||||||
As at 30 June 2014 | 3 | 3,731 | 21 | 3,755 | |||
As at 30 June 2013 | - | 4,952 | - | 4,952 |
13. ANALYSIS OF NET CASH POSITION
2013 | Cash flow | Other non-cash charges | 2014 | ||||
£'000 | £'000 | £'000 | £'000 | ||||
Cash and cash equivalents | 42,214 | 10,493 | (2,866) | 49,841 | |||
42,214 | 10,493 | (2,866) | 49,841 | ||||
Loans due after one year | (3,523) | 2,509 | (177) | (1,191) | |||
Loans due within one year | (2,587) | 272 | - | (2,315) | |||
Net cash | 36,104 | 13,274 | (3,043) | 46,335 |
14. BORROWINGS
2014 | 2013 | ||
£'000 | £'000 | ||
Non-current | |||
Bank loans | 1,220 | 3,729 | |
Unamortised cost of debt | (29) | (206) | |
Total non-current | 1,191 | 3,523 | |
Current | |||
Bank loans | 2,491 | 2,763 | |
Unamortised cost of debt | (176) | (176) | |
Total current | 2,315 | 2,587 | |
Total | 3,506 | 6,110 |
The Group has a loan of £3.6m (2013: £6.0m). Repayments commenced in July 2013 and are scheduled to continue until September 2015. The loan carries a variable interest rate of 3.53% as at 30 June 2014.
There is no variance between the carrying amount and the fair value of the borrowings.
The Group also has borrowings of £0.1m (2013: £0.5m) in Asia for working capital purposes. Repayments on the facility commenced in October 2010 and are scheduled to continue until August 2015. The loan carries a variable interest rate of 1.88% as at 30 June 2014.
Bank covenants include total interest cover, net debt to earnings before interest, tax, depreciation and amortisation, cash flow cover and earnings before interest, tax, depreciation and amortisation variance. There have been no breaches of bank covenants during all periods. The bank loans are guaranteed by material subsidiaries of the Group by way of a debenture. The Group does not have any of its property and equipment pledged as security over bank loans.
The Group had the following committed undrawn borrowing facilities at 30 June 2014:
2014 | 2013 | ||
£'000 | £'000 | ||
Expiry date | |||
In more than one year | 10,000 | 10,000 | |
10,000 | 10,000 |
These facilities comprise a joint revolving credit facility of £10.0m with Lloyds Bank plc and the Royal Bank of Scotland plc (2013: £10.0m) and were drawn and repaid during the year. The facility bears a floating interest rate (with reference to LIBOR). This facility expires in September 2015.
15. SHARE CAPITAL
Group and Company | 2014 Group and Company | Group and Company | 2013 Group and Company | ||||
Number | £'000 | Number | £'000 | ||||
Authorised: | |||||||
Ordinary shares of 1p each (2013: 1p each) | 100,000,000 | 1,000 | 100,000,000 | 1,000 | |||
Allotted, called up and fully paid: | |||||||
Ordinary shares of 1p each (2013: 1p each) | 39,122,139 | 391 | 38,470,687 | 385 |
Nominal value £ | Number of shares | Consideration £ | |||
Ordinary shares of 1p each allotted as at 1 July 2013 | 384,707 | 38,470,687 | |||
Ordinary shares issued during the year ended 30 June 2014 fully paid: | |||||
Payment of dividends | 425 | 42,465 | - | ||
Crystallisation of options | 6,090 | 608,987 | 134,000 | ||
Total ordinary shares of 1p each allotted and fully paid during the year ended 30 June 2014 | 6,515 | 651,452 | 134,000 | ||
Ordinary shares of 1p each allotted as at 30 June 2014 | 391,222 | 39,122,139 |
The total authorised number of ordinary shares is 100m shares (2013: 100m) with a par value of 1p per share (2013: 1p per share). All issued shares are fully paid. The company has one class of ordinary shares which carry no right to fixed income.
On 26 June 2013 five million ordinary shares were issued and the proceeds will be used to fund subsequent acquisitions. Total net consideration of £7.3m was received after deducting transaction costs of £0.4m. Of the net consideration received, £7.3m comprising the premium on the share placing, was recorded within other reserves. No share premium was recorded due to the operation of the merger relief provisions of the Companies Act 2006.
As at 30 June 2014, the Interior Services Group Employee Share Trust held 766,000 (2013: 1,253,036) ordinary 1p shares in the company at a cost of £1.5m (2013: £2.5m) and a market value of £2.3m (2013: £2.1m). These shares have not yet been allocated to individuals and accordingly, dividends on these shares have been waived.
At 30 June 2014, the Group owns 1.96% (2013: 3.26%) of its own called up share capital within the investment in own shares reserve.
16. CONTINGENT LIABILITIES
There are Group cross guarantees from the company with certain subsidiaries for all monies due to certain of the Group's banks and surety lenders. No monies were outstanding as at 30 June 2014 (2013: £nil). In the normal course of business there are contingent liabilities including the provision of bonds in respect of completed and uncompleted contracts. Bonds are treated as contingent liabilities until such time as it becomes probable payment will be required under the terms of the bond agreement.
17. RELATED PARTY TRANSACTIONS
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There have been no related party transactions between the Group and its associates or joint ventures during the year.
18. NON-CONTROLLING INTERESTS
£'000 | |
Balance at 1 July 2012 | 358 |
Share of loss for the year | (157) |
Exchange differences arising on translation of foreign operations | 15 |
Adjustment arising from change in non-controlling interests | (277) |
Balance at 30 June 2013 | (61) |
Recognised on acquisition (Note 19) | 135 |
Share of profit for the year | 19 |
Exchange differences arising on translation of foreign operations | 10 |
Balance at 30 June 2014 | 103 |
Adjustment arising from change in non-controlling interests in the prior year represents the acquisition of the remaining 15% shareholding in Realys.
19. ACQUISITION OF SUBSIDIARY
On 24 July 2013 the Group acquired 90% of the issued share capital in Tecton Engineering GmbH (Tecton), a German office fit out and facilities management company for an initial consideration of £1.8m. The acquisition is expected to give the Group access to a largely German customer base, complementing the Group's existing German office fit out business, provide the Group with greater scale in the largest European market, provide an opportunity to introduce the Group's network of international offices to Tecton's German customer base and strengthen the Group's German management team.
Book value | Fair value | |
£ ' 000 | £'000 | |
Recognised amounts of identifiable assets acquired and liabilities assumed: | ||
Financial assets | 2,920 | 2,244 |
Property, plant and equipment | 70 | 70 |
Identifiable intangible assets | - | 1,006 |
Financial liabilities | (1,669) | (1,971) |
Total identifiable net assets | 1,321 | 1,349 |
Non-controlling interests | (135) | |
Goodwill | 1,063 | |
2,277 | ||
Satisfied by: | ||
Cash | 1,392 | |
Equity instruments (265,909 ordinary shares of parent company) | 453 | |
Accrued consideration | 61 | |
Deferred contingent consideration | 371 | |
Total consideration | 2,277 | |
Net cash outflow arising on acquisition: | ||
Cash consideration | 1,392 | |
Less: cash and cash equivalent balances acquired | (428) | |
964 |
The fair value of the financial assets includes pre-acquisition dividends payable to the vendors of £0.7m which were settled in July 2014, after the acquisition date. The goodwill of £1.1m arising from the acquisition is attributable to theexpansion of the Group's client base and geographical spread. None of the goodwill is expected to be deductible for income tax purposes.
The deferred contingent consideration arrangements require the achievement of certain revenue targets. The potential undiscounted amount of all future payments that the Group could be required to make under the deferred contingent consideration arrangement is up to £0.4m. The fair value of the deferred contingent consideration arrangement of £0.4m was estimated by applying the likelihood of meeting the revenue targets as assessed by current management.
On 28 March 2014, deferred contingent consideration of £0.1m was paid to the vendors. This was satisfied by £0.1m in cash and £41k in shares in ISG plc.
Tecton contributed £12m revenue and £0.9m to the Group's profit for the period between the date the Group had effective control of the business and the balance sheet date. If the acquisition of Tecton had been completed on the first day of the financial year, Group revenue for the year would have been £1,483m and the Group's profit for the year would have been £5.2m.
20. EVENTS AFTER BALANCE SHEET DATE
Subsequent to the year end, on 16 July 2014 the Group acquired 50.1% of the shares in Interior ISG Espana SA (Interior Espana), a newly formed company that owns 100% of each of Diadec, a Spanish based office and retail fit out company and Emerald, a Spanish based data center and engineering services company, for an initial consideration of £1.8m satisfied by £1.2m in cash, £0.4m in ISG plc ordinary shares and £0.2m to be invested as new capital into Interior Espana. A maximum deferred consideration of £2.0m is payable in three potential instalments over three calendar years ending 31 December 2017 conditional on the business meeting certain profit before tax targets. The first £0.4m of deferred contingent consideration will be settled 75% in cash and the balance in ISG plc ordinary shares and the remaining consideration will be settled 50% in cash and the balance in ISG plc ordinary shares. All shares issued to the vendors will be subject to phased lock-in periods over two years from the date of issue and orderly market undertakings. In the twelve months to 31 December 2013, Diadec and Emerald combined generated revenue of £6.2m and profit before tax of £0.5m. The Group will include the full acquisition accounting details in the Interim report and accounts for the six months ending 31 December 2014.
There have been no other significant events since the balance sheet date.
21. APPROVAL OF ACCOUNTS
The annual accounts were approved by the Board of Directors on 9 September 2014.
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