TIDMINNO
Innovise plc
("Innovise" or "the company"
and collectively with its subsidiary companies "the group")
Preliminary announcement of results
for the year ended 30 September 2010
HIGHLIGHTS
- Turnover: GBP17.1 million (prior year: GBP10.1 million)
- Adjusted* operating profit: GBP1.2 million (prior year: GBP1.4 million)
- Adjusted* basic earnings per share: 2.0 pence (prior year: 2.7 pence)
- All three businesses acquired in prior year now fully integrated within two
realigned operating divisions
- Acquisition of Identifile Systems Ltd in April 2010 and two further
acquisitions completed after year end.
* Adjusted excludes restructuring costs, amortisation of intangibles,
discontinued operations and attributable tax.
CHAIRMAN'S STATEMENT
I am pleased to report that Innovise continued to grow and strengthen its
business, both through acquisitions and organically, during the year ended 30
September 2010. While the general economic environment remained challenging,
the group delivered solid results for the year by leveraging its strategic
assets in its chosen niche markets and through disciplined financial
management.
Our turnover for the year increased sharply, reflecting the three acquisitions
made in the prior year as well as some large software licence re-sales by our
ESM division. Adjusted operating profit before net finance costs, tax and
amortisation of intangibles was lower at GBP1.2 million versus GBP1.4 million in
the prior year. While this is disappointing, the Board considers it to be a
satisfactory performance given the difficult trading conditions, particularly
in the early part of the year. It also reflects increased investment
expenditures on future growth as trading conditions improved during the second
half.
Strong emphasis was maintained throughout the year on further increasing the
efficiency of our operations in order to maximise our near-term cash flow and
profitability, while positioning the company for long-term growth both
organically and by acquisition.
During the year, we acquired Identifile Systems Ltd, a provider of identity
card systems and visitor management software. While this was one of our smaller
acquisitions, it will add further value to our offering within the growing
facilities management sector.
After the end of the financial year, in October and December 2010 respectively,
we completed two larger-scale acquisitions - the software division of Expolink
Europe Ltd, and the intellectual property assets of Pivetal Ltd. Both of these
transactions significantly enhance the range and quality of our IT solutions,
opening the door to additional cross-selling opportunities.
With the company well placed to achieve further profitable growth in the
future, I would like to end by commending my fellow directors and thanking
everyone on the Innovise team. Their collective hard work, talent and
resourcefulness throughout this long period of recession and slow recovery have
enabled Innovise to remain firmly on course towards its mission of becoming a
leading partner of choice in each of its niche markets.
Vin Murria
Chairman
27 January 2011
CHIEF EXECUTIVE'S REVIEW
As trading conditions slowly improved following the global downturn, our focus
throughout the year ended 30 September 2010 was on maintaining profitability
and a strong sales pipeline while ensuring that the group is well placed to
take advantage of additional growth opportunities in the future.
The restructuring of the group following the three acquisitions we made during
2009 was successfully completed in the first half of the reporting period,
paving the way for further organic growth in both operating divisions. The
Innovise ESM division incorporates the former Abilitec, Infrasolve and Harbrook
businesses, while the Innovise Software & Solutions division includes RapidHost
as well as our established software and managed services businesses.
Financial
Total turnover for the year rose by more than two thirds to GBP17.1 million as a
result of some substantial ESM software licence re-sales in the first half, as
well as acquisitive growth. The recurring element of sales also increased
markedly, from GBP3.0 million in 2009 to GBP3.8 million in 2010.
Our operating profitability was lowest during the first quarter of the
financial year, but improved steadily in line with trading conditions
generally. Our operating margins were impacted by the sizeable contribution of
licence re-sale activity within the ESM division, where gross margin is lower
than for consulting and support. Adjusted operating profit (before net finance
costs, tax and amortisation of intangible assets) was GBP1.2 million compared to
GBP1.4 million in the previous year. Profit after interest, tax and amortisation
of intangible assets was GBP457,000 compared to GBP682,000 (excluding discontinued
operations) in 2009.
The reduction in profits was a disappointment, but reflects the headwinds of
recession which affected our ESM division more directly in this financial year,
particularly in the first half. However, conditions improved steadily during
the year and new project activity was evident in the second half. As underlying
profitability improved, the Board decided to make a series of organic
investments to secure longer-term growth, albeit at the expense of short-term
profitability.
Innovise places great emphasis on maximising cash conversion and has
historically converted most of its profits into cash. This was not possible in
the year to September 2010, owing to several factors: capital expenditure to
fit out the new Slough office; high levels of growth and investment in the more
capital-intensive ESM division; and a general deterioration in payment terms as
customers responded to the recession and liquidity constraints by insisting on
more time to pay. Cash conversion improved markedly in the second half of the
year with cash conversion of 77% for the full year (2009:94%). We expect cash
conversion to return to more normal levels in 2011.
In order to conserve cash for growth investment, the Board is not recommending
payment of an ordinary dividend.
Growth strategy
Innovise is committed to delivering on its long-term growth ambitions and
continued to grow in scale and capability throughout the recession, via both
acquisitive and organic investments.
We expect our medium-term growth to come from three core areas: cross-selling
our broader technical capability to existing customers; identifying new
solutions within our niche markets; and pursuing international growth,
particularly in fast maturing markets in the developing economies. Over the
next several years, our organic and acquisitive investments will align squarely
with these growth levers.
After making a number of acquisitions between 2007 and 2009, particularly in
our ESM division, organic effort is now focused on cross-selling to maximise
the broader capability we are now able to offer. Several new sales staff were
hired in the second half to enable this growth. Moreover, our ESM sales
structure is being re-modelled to reduce internal silos and increase the scope
for cross-selling. We are confident this approach will bear fruit in 2011 and
beyond.
Adding new solutions within our niche markets is another key element in
expanding our business over the medium term. We have used both organic and
acquisitive means to apply this growth lever over the past year.
Organically, we have invested in expanding our Microsoft Solutions practice in
the Software & Solutions division and will continue to expand this in 2011,
with hires in both sales and technical roles. The launch of Microsoft's
Dynamics CRM 2011 provides an important medium-term opportunity for the
business. In the ESM division, our partnership with Service-now.com, a fast
growing SaaS provider of IT helpdesk software, has been a strong area of
growth. We have won a number of major solutions sales using this technology,
and have invested heavily in building up the technical teams to deliver the
projects. We expect this practice area to continue to grow strongly in 2011 and
beyond.
In addition to organic investment, we have consistently used acquisition to
broaden our solutions within our chosen niche markets. The past year has been
no different, although trading conditions have made us more conservative on the
scale of acquisitions under consideration.
Within the Software & Solutions division, we made two acquisitions to expand
our solution capability: in April 2010, we announced the bolt-on acquisition of
Identifile Systems Ltd; and in October 2010, we bought the software division of
Expolink Europe Ltd. Both acquisitions added new customers and new software
products within our core facilities management market. We are excited by the
opportunities to broaden our offerings with these new products, and to step up
cross-selling efforts into our expanded customer base.
The ESM division has been an area of heavy acquisition investment in recent
years, and is now primarily focused on organic growth. However, we remain alert
to bolt-on investment opportunities and in December 2010 we were delighted to
acquire the intellectual property assets of Pivetal Ltd, which had been placed
into liquidation. With a modest financial investment, we were able to add
Pivetal's intelligent automation solutions to the ESM portfolio. We intend to
continue to develop these solution sets through a dedicated development team,
and to make organic investments in sales and marketing to secure new customers
as well as opportunities to cross-sell the solutions across our existing ESM
customer base.
Expanding our niche businesses overseas is central to our longer-term
ambitions, particularly within developing markets for ESM. We believe our
highly specialised skills will be in strong demand over the next 10 years as
developing markets invest heavily in leading-edge technology, especially in the
finance, telecom and utility/energy sectors that make up the majority of our
ESM activity.
During the second half of 2010, we made a number of sales hires to focus
exclusively on developing markets and to lay the foundations for this long-term
growth strategy. Investment was stepped up again at the end of the financial
year when my Board colleague Andy Onacko assumed responsibility for leading our
ESM international activities. We are confident that our niche businesses can
grow materially over the medium term in international markets, and we will
continue to make additional organic investments to support this strategy.
Outlook
Innovise remains committed to creating sustainable value as a trusted adviser
to a growing number of customers within its niche markets.
The economic environment and a balance sheet that is appropriately geared have
led us to focus recently on smaller-scale, incremental acquisitions rather than
transformational deals. We expect this to continue during 2011, and will remain
alert to opportunities arising from the tough competitive climate.
The Board is targeting the consistent growth of both sales and profits, and
will continue to balance short-term profit against the long term when making
organic investment decisions. Our forward sales pipeline is encouraging and
provided the steady improvement in trading conditions continues, we are
cautiously optimistic of resuming profit growth in this financial year.
Mike Taylor
Chief Executive Officer
27 January 2011
Consolidated income statement
for the year ended 30 September 2010
2010 2009
CONTINUING OPERATIONS GBP GBP
Notes
REVENUE 17,059,212 10,139,959
Cost of sales (10,198,241) (5,227,931)
GROSS PROFIT 6,860,971 4,912,028
Administrative expenses (6,085,945) (3,975,032)
OPERATING PROFIT before restructuring 1,209,522 1,373,519
costs and amortisation of intangible
assets
Restructuring costs - (100,000)
Amortisation of intangible assets (434,496) (336,523)
OPERATING PROFIT 775,026 936,996
Finance income 1,481 12,577
Finance costs (193,013) (194,146)
PROFIT BEFORE TAX 583,494 755,427
Tax (126,090) (73,057)
PROFIT FOR THE YEAR FROM CONTINUING 457,404 682,370
OPERATIONS
DISCONTINUED OPERATIONS
(LOSS) FOR THE YEAR FROM DISCONTINUED - (2,101,455)
OPERATIONS
PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT 457,404 (1,419,085)
EARNINGS/(LOSS) PER SHARE
Basic earnings per share 3 1.2p (3.9)p
Diluted earnings per share 3 1.1p (3.9)p
Continuing operations only
Basic earnings per share 3 1.2p 1.9p
Diluted earnings per share 3 1.1p 1.8p
Consolidated statement of comprehensive income
for the year ended 30 September 2010
2010 2009
GBP GBP
Profit/(loss) for the year 457,404 (1,419,085)
Net income/(expense) recognised directly
in equity:
Increase/(reduction) in value of 38,000 (27,000)
derivative financial instrument taken to
hedging reserve
Total comprehensive income for the year
attributable to equity holders of the 495,404 (1,446,085)
parent
Consolidated balance sheet
30 September 2010
30 September 30 September
2010 2009
GBP GBP
ASSETS
NON-CURRENT ASSETS
Goodwill 12,452,114 12,347,305
Other intangible assets 1,232,986 1,667,482
Property, plant and equipment 451,883 332,923
Investment in subsidiaries 51 51
Deferred tax asset 47,278 7,864
14,184,312 14,355,625
CURRENT ASSETS
Inventories 35,756 31,609
Trade and other receivables 4,292,697 2,975,008
Current tax assets - 2,500
Cash and cash equivalents 118,723 680,459
4,447,176 3,689,576
TOTAL ASSETS 18,631,488 18,045,201
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (4,507,731) (3,500,499)
Current tax liabilities (210,314) (570,591)
Convertible loan stock (198,200) -
Loans (500,000) (500,000)
(5,416,245) (4,571,090)
NET CURRENT LIABILITIES (969,069) (881,514)
NON-CURRENT LIABILITIES
Convertible loan stock (935,457) (1,048,037)
Other loans (612,571) (1,099,371)
Deferred tax liability (372,680) (462,521)
Provisions (44,417) (102,968)
Derivative financial instrument (9,000) (47,000)
(1,974,125) (2,759,897)
TOTAL LIABILITIES (7,390,370) (7,330,987)
NET ASSETS 11,241,118 10,714,214
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF
THE PARENT
Called up share capital 2,253,507 2,241,007
Shares to be issued 500,000 1,000,000
Equity reserve 19,421 19,421
Share premium account 1,083,917 1,083,917
Capital redemption reserve 29,054 29,054
Merger reserve 5,924,640 5,437,140
Reverse acquisition reserve (918,040) (918,040)
Retained earnings 2,357,619 1,868,715
Hedging reserve (9,000) (47,000)
TOTAL EQUITY 11,241,118 10,714,214
Consolidated statement of changes in equity
for the year ended 30 September 2010
Share Shares to Share Capital Merger Other Retained Hedging Total
capital be issued premium redemption reserve reserves earnings reserve equity
reserve
GBP GBP GBP GBP GBP GBP GBP GBP GBP
At 1 October 2,129,032 500,000 937,667 - 3,300,754 (898,619) 1,061,943 (20,000) 7,010,777
2008
Comprehensive - - - - - - (1,419,085) (27,000) (1,446,085)
income
Issue of shares 3,750 - 146,250 - - - - - 150,000
for cash
In respect of 137,279 500,000 - - 5,412,721 - - - 6,050,000
acquisition of
subsidiaries
Demerger of (29,054) - - 29,054 (3,276,335) - 2,215,757 - (1,060,578)
Data Technology
Limited
Share-based - - - - - - 10,100 - 10,100
payments
At 30 September 2,241,007 1,000,000 1,083,917 29,054 5,437,140 (898,619) 1,868,715 (47,000) 10,714,214
2009
Comprehensive - - - - - - 457,404 38,000 495,404
income
In respect of 12,500 (500,000) - - 487,500 - - - -
acquisition of
subsidiaries
Share-based - - - - - - 31,500 - 31,500
payments
At 30 September 2,253,507 500,000 1,083,917 29,054 5,924,640 (898,619) 2,357,619 (9,000) 11,241,118
2010
Consolidated cash flow statement
for the year ended 30 September 2010
Year ended Year ended
30 September 30 September
2010 2009
GBP GBP
Operating profit - continuing 775,026 936,996
Operating (loss)/profit - discontinued - (221,825)
Total operating profit 775,026 715,171
Adjustments for:
Depreciation of property, plant & 180,594 114,488
equipment
Profit on disposal of property, plant & - (1,993)
equipment
Amortisation of intangible assets 434,496 534,408
Share-based payment expense 31,500 10,100
Operating cash flows before movement in
working capital 1,421,616 1,372,174
(Increase) in inventories (4,147) (31,609)
(Increase)/decrease in receivables (1,224,793) 703,495
Increase/(decrease) in payables 1,098,072 (726,443)
(Increase)/decrease in provisions (58,551) 6,160
Cash generated by operations 1,232,197 1,323,777
Tax paid net of refunds (637,574) (209,327)
Net cash flow from operating activities 594,623 1,114,450
Investing activities
Interest received 1,481 16,693
Purchases of plant and equipment (299,554) (146,095)
Disposals of plant and equipment - 26,500
Costs of disposal of subsidiary - (106,289)
Acquisition of subsidiaries (285,881) (1,982,313)
Cash balances of acquired subsidiaries 21,788 1,141,910
Cash balances of subsidiary disposed of - (104,592)
Net cash used in investing activities (562,166) (1,154,186)
Financing activities
Repayment of borrowings (500,000) (1,042,829)
Interest paid (94,193) (117,105)
Proceeds from issue of shares - 150,000
New loans advanced - 800,000
Net cash used in financing activities (594,193) (209,934)
Net (decrease) in cash and cash (561,736) (249,670)
equivalents
Cash and cash equivalents at beginning 680,459 930,129
of year
Cash and cash equivalents at end of year 118,723 680,459
Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank.
1. GENERAL INFORMATION
Innovise plc is a company incorporated in the United Kingdom under the
Companies Act 1985.
Basis of accounting
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) adopted by the European
Union and therefore the group financial statements comply with Article 4 of the
EU IAS Regulation and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
These financial statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the group operates.
Foreign operations are included in accordance with the policies set out in note
2.
The principal accounting policies adopted are set out in note 2 below.
At the date of approval of these financial statements, no Standards and
Interpretations which have not been applied in these financial statements were
in issue but not yet effective are expected to have a material impact on
financial statements in the future.
In the year ended 30 September 2010 the group has adopted the following
standards for the first time:
IAS 1: Revised - Presentation of financial statements prescribes the content
and structure of the financial statements, The income statement has been
replaced by a statement of comprehensive income, items of income and
expenditure not recognised in the income statement are now disclosed as
components of `other comprehensive income', The standard included changes in
the titles of the primary statement to reflect their function more clearly.
These new titles are not mandatory and have not been adopted by the group.
IFRS 3: Revised - Business combinations and IAS 27 - Amendment - Consolidated
and separate financial statements. The principal change affecting the group is
that costs relating to acquisitions have been taken to the income statement
IFRS 8: Operating Segments requires a `management approach' under which segment
information is presented on the same basis as that used for internal reporting
purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the company and entities controlled by the company (its subsidiaries) made up
to 30 September each year. Control is achieved where the company has the power
to govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the
consolidated income statement from the effective date of acquisition. Where
necessary, adjustments are made to the financial information of subsidiaries to
bring the accounting policies used into line with those used by the group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
The group disposed of a subsidiary, Data Technology Limited, on 7 September
2009. The group classified all activities relating to the disposal as
discontinued operations in the comparatives accordingly.
Business combinations
On 6 February 2006, the company became the legal parent company of TimeGate
Group Limited in a share for share transaction. The substance of the
combination was, however, that TimeGate Group Limited acquired Innovise plc in
a reverse acquisition. This business combination was accounted for using the
reverse acquisition method as required by IFRS 3, so that the consolidated
financial statements are prepared on the basis of a continuation of the legal
subsidiary at the date of acquisition.
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the group in exchange for control of the acquiree. The
acquiree's identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 are recognised at their fair
value at the acquisition date.
Goodwill
Goodwill on acquisitions comprises the excess of the aggregate of the fair
values of the consideration transferred, the fair value of any previously held
interests, and the recognised value of the non-controlling interest in the
acquiree over the net of the acquisition date amounts of the identifiable
assets acquired and liabilities assumed. Goodwill is initially recognised as an
asset at cost and is subsequently measured at cost less any accumulated
impairment losses. Goodwill which is recognised as an asset is reviewed for
impairment annually. Any impairment is recognised immediately in the income
statement and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the
group's cash generating units expected to benefit from the synergies of the
combination. Cash generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash generating
unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro rata on the basis of the
carrying amount of each asset in the unit. Any impairment loss recognised for
goodwill is not reversed in a subsequent period.
Revenue recognition
The group derives revenue from the sale of software licences, hardware, support
and installation, project management and other services. These revenue
components are often entered into as part of a single transaction, however,
each element of the contract is separable and the fair value associated with
each element can be reliably measured.
Revenue is recognised as follows:
* licence revenue is recognised on invoicing, which is when the software and
licence key have been delivered;
* hardware revenue is invoiced and recognised on delivery to the customer;
* services and training are invoiced and recognised as and when performed;
* project revenue is recognised based on the proportion of the total contract
completed, if the final outcome can be assessed with reasonable certainty.
The proportion is calculated as costs incurred over total expected costs,
applied to total contract value; and
* support and maintenance are recognised straight-line over the period of
cover to which they relate.
Amounts billed in excess of revenue recognised are recorded as deferred revenue
and are included within current liabilities. Unbilled revenue is included
within receivables and accrued income.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial assets to that asset's net carrying amount.
Leasing
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against the
income statement, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the group's general
policy on borrowing costs (see below).
Rentals payable under operating leases are charged to the income statement on a
straight line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
Foreign currencies
The individual financial statements of each group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each group company are expressed in
pounds sterling, which is the functional currency of the company and the
presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary items carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in the income statement for the
period.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of goodwill or
from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the tax profit nor
the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets are offset when there is a legally enforceable right to set
off current tax assets against current tax liabilities and when they relate to
income taxes levied by the same taxation authority and the group intends to
settle its current tax assets and liabilities on a net basis.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any
recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over
their estimated useful lives, using the straight line method, on the following
bases:
Land and buildings short leasehold over the period of the lease
Office equipment 20%
Fixtures and fittings 10%
Computer equipment 20-33%
Motor vehicles 25%
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in the income statement.
Intangibles
Intellectual property rights acquired are initially recorded at cost and are
written off over five years, being their estimated useful life.
When an acquisition of a business is made, a review is undertaken to identify
non-monetary assets that meet the definition under IAS 38: Intangible assets.
In respect of acquisitions made in the period since transition to IFRS,
customer relationships were recognised as being separately identifiable. The
fair value was determined on a basis that reflects the amounts the acquirer
would have paid for the assets in arm's length transactions between
knowledgeable willing parties.
Customer relationships are amortised over their useful economic life of five
years.
Research and development
Research expenditure is written off in the year in which it is incurred.
Development expenditure is written off in the same way unless the directors are
satisfied as to the technical, commercial and financial viability of individual
projects. In this situation, the expenditure is deferred and amortised over the
period during which the group is expected to benefit from the project. The
group has not identified any projects that meet the criteria for recognition.
Impairment of property, plant and equipment and intangible assets excluding
goodwill
At each balance sheet date, the group reviews the carrying amounts of its
property, plant and equipment and intangible assets to determine whether there
is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the group
estimates the recoverable amount of the cash generating unit to which the asset
belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a post-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset (or cash
generating unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (or cash generating unit) in prior years. A reversal
of an impairment loss is recognised as income immediately, unless the relevant
asset is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
Financial instruments
Financial assets and financial liabilities are recognised in the group's
balance sheet when the group becomes a party to the contractual provisions in
the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value which is
the original invoiced amount less provision for impairment. Appropriate
allowances for estimated irrecoverable amounts are recognised in profit or loss
when there is objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term, highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the group
after deducting all of its liabilities.
Derivative financial instruments and hedge accounting
It is the group's policy not to trade in derivative financial instruments. The
group has taken out an interest rate swap as a cash flow hedge to mitigate its
exposure to interest rate changes on its bank loan, which is subject to a
variable rate of interest.
All derivatives are recognised at their fair value. The method of recognising
movements in the fair value of derivatives depends on whether they are
designated as hedging instruments and, if so, the nature of the item being
hedged. Derivatives are only designated as hedges provided certain strict
criteria are met. At the inception of a hedge, its terms must be clearly
documented and there must be an expectation that the derivative will be highly
effective in offsetting changes in the cash flow of the hedged risk. The
effectiveness of the hedging relationship is tested throughout its life and if
at any point it is concluded that it is no longer highly effective in achieving
the hedge relationship, it is terminated.
The effective portion of changes in the fair value of derivatives that are
designated as cash flow hedges (being the interest rate swap) is recognised in
equity. The gain or loss relating to the ineffective portion is recognised
immediately in the income statement.
Convertible loan stock
Convertible loan stock 2011 is regarded as a compound instrument, consisting of
a liability component and an equity component. At the date of issue, the fair
value of the liability component is estimated using the prevailing market
interest rate for similar non-convertible debt. The difference between the
proceeds of issue of the convertible loan stocks and the fair value assigned to
the liability component, representing the embedded option to convert the
liability into equity of the group, is included in equity.
The interest expense on the liability component is calculated using the
effective interest rate for the particular instrument. The difference between
this amount and the interest paid is added to the carrying amount of the
convertible loan stock.
Convertible loan stock 2012 is not considered to be a compound instrument
because the equity component is not material.
Trade payables
Trade payables are initially measured at fair value, and are subsequently
measured at amortised costs, using the effective interest rate method.
Provisions
Provisions are recognised when the group has a present obligation as a result
of a past event, and it is probable that the group will be required to settle
that obligation. Provisions are measured at the directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date.
Share-based awards
The group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the
effect of non-market-based vesting conditions) at the date of grant. 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 shares that will eventually vest and adjusted for the
effect of non-market-based vesting conditions. No adjustment is made to any
expense recognised in prior periods if share options that have vested are not
exercised.
Upon exercise of share options, the proceeds received net of attributable
transaction costs are credited to share capital and, where appropriate, share
premium.
Fair value is measured by use of the Black Scholes model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.
3. EARNINGS/(LOSS) PER SHARE
The calculation of the basic and diluted earnings/(loss) per share is based on
the following data:
Earnings/(loss) for the year attributable to equity holders of the parent
Year ended Year ended
30 September 30 September
2010 2009
GBP GBP
Earnings/(loss) for the purpose of basic 457,404 (1,419,085)
earnings per share being net profit/(loss)
attributable to equity holders of the parent
Interest on convertible loan stock (net of tax) - -
Earnings/(loss) for the purposes of diluted 457,404 (1,419,085)
earnings per share
Basic earnings/(loss) per share 1.2p (3.9)p
Diluted earnings/(loss) per share 1.1p *(3.9)p
* Under IAS 33: Earnings per share, the shares cannot be dilutive if they
decrease a loss per share, and therefore the dilution impact of share options
and convertible loan notes has been ignored for the purposes of calculating the
loss per share for the year ended 30 September 2009.
Earnings for the year attributable to continuing operations
Year ended Year ended
30 September 30 September
2010 2009
GBP GBP
Earnings for the purpose of basic earnings per 457,404 682,370
share being net profit for the year from
continuing operations
Effect of dilutive potential ordinary shares:
Interest on convertible loan stock (net of tax) - -
Earnings for the purposes of diluted earnings 457,404 682,370
per share
Basic earnings per share 1.2p 1.9p
Diluted earnings per share 1.1p 1.8p
Loss for the year attributable to discontinued operations
Year ended Year ended
30 September 30 September
2010 2009
GBP GBP
Loss for the purposes of basic and diluted - (2,101,455)
earnings per share
Basic earnings per share - (5.8)p
Diluted earnings per share - (5.8)p
Number of shares
Year ended Year ended
30 September 30 September
2010 2009
Weighted average number of ordinary shares for 38,767,140
the purpose of basic earnings per share 36,354,888
Effect of dilutive potential ordinary shares:
Share options and warrants - 146,269
Convertible loan notes - -
Contingently issued shares on acquisition of 1,633,562 1,732,877
subsidiary
Weighted average number of ordinary shares for 40,400,702
the purpose of diluted earnings per share 38,234,034
Adjusted earnings per share - continuing business only
Adjusted earnings per share calculated before deducting restructuring costs and
amortisation/impairment of intangible assets and goodwill and the tax
attributable thereto are presented below in order to assist in an understanding
of the underlying performance of the business.
Year ended Year ended
30 September 30 September
2010 2009
Adjusted earnings GBP GBP
Earnings for the purposes of basic earnings per 457,404 682,370
share being
net profit for continuing operations
Amortisation of intangible assets 434,496 336,523
Tax credit attributable to amortisation (115,920) (94,226)
Restructuring costs - 100,000
Tax attributable to restructuring costs - (28,000)
Earnings for the purposes of adjusted basic 775,980 996,667
earnings per share calculation
Interest on convertible loan stock (net of tax) - -
Earnings for the purposes of adjusted diluted 775,980 996,667
earnings per share
Adjusted basic earnings per share 2.0p 2.7p
Adjusted diluted earnings per share 1.9p 2.6p
The number of shares for the purpose of calculating the adjusted earnings per
share figures is as set out above.
4. ADDITIONAL INFORMATION
The financial information in this preliminary announcement for the years to 30
September 2010 and 2009 does not comprise statutory accounts for the purpose of
Section 434 of the Companies Act 2006.
The statutory accounts for the year ended 30 September 2010, which have been
audited by PKF (UK) LLP, incorporate an unqualified audit report and do not
contain an emphasis of matter paragraph or any statement under Section 498 of
the Companies Act 2006.
This preliminary announcement of the results for the year ended 30 September
2010 was approved by the Board of directors on 27 January 2011.
Whilst the information included in this preliminary announcement has been
prepared in accordance with the recognition and measurement criteria of IFRSs,
this announcement does not itself contain sufficient information to comply with
IFRSs.
The statutory accounts for the year ended 30 September 2009, which were
unqualified, have been delivered to the Registrar of Companies and the
statutory accounts for the year ended 30 September 2010 will be delivered to
the Registrar of Companies following the company's Annual General Meeting.
The statutory accounts will be sent to all shareholders shortly. Further copies
will be available to the public from the company's registered office, Hellier
House, Wychbury Court, Two Woods Lane, Brierley Hill DY5 1TA. The statutory
accounts will also be available at the company's website, www.innovise.com.
The AGM will be held at 2:30 pm on Wednesday 2 March 2011 at Keypoint, 17-23
High Street, Slough SL1 1DY.
For further information contact:
Mike Taylor, Chief Executive Officer, Innovise plc 0870 626 0400
Tony Edwards, Finance Director, Innovise plc 0870 626 0400
Edward Hutton, Northland Capital Partners Limited 020 7492 4750
(nominated adviser)
Ian Foster, Wordsworth Communication Limited 07739 185 050
END
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