Inspace plc
AIM : INSP

Inspace plc

April 04, 2006 02:05 ET

Inspace plc: Final Results

LONODN, UNITED KINGDOM--(CCNMatthews - April 4, 2006) - Inspace plc (AIM:INSP)("Inspace" or "the Group"), the property based support services business that has established itself as one of the UK's leading social housing repair and maintenance providers, announces its Final Results for the year ended 31 December 2005.

Financial Highlights

- Turnover up 45% to Pounds Sterling 147.5m (2004: Pounds Sterling 101.7m)

- Operating profit up 24% to Pounds Sterling 7.9m(i) (2004: Pounds Sterling 6.36m)

- Diluted earnings per share up 16.0% to 8.49p(i) (2004: 7.32p)

- Order book up 61% to Pounds Sterling 450.0m (2004: Pounds Sterling 280m)

- Operating cash conversion up to 85% from 59%

- Net cash of Pounds Sterling 6.1m (2004: Pounds Sterling 0.04m)

- All debt settled on flotation

- Shareholders' funds up from Pounds Sterling 5.5m(ii) to Pounds Sterling 16.0m

(i) After adjustment for exceptional items

(ii) After restatement for dividends

Commenting on the results, Colin Enticknap, Executive Chairman, said: "2005 was a good year for Inspace. The de-merger and flotation brought unique challenges and potential distractions, but our people took them all in their stride, delivering well against both financial and operational targets. Organisationally, we remain very focused upon meeting customer, employee and ultimately shareholder expectation, and armed with a clear strategy, visible order book and enthusiastic team of people, we should be well placed to continue our success into 2006 and beyond."



For further information:
Inspace plc

Colin Enticknap, Executive Chairman Tel: +44 (0) 1462 678 910
colin.enticknap@inspace.co.uk www.inspace.co.uk

Seymour Pierce

Mark Percy, Corporate Finance Tel: +44 (0) 20 7107 8000
markpercy@seymourpierce.com www.seymourpierce.com

Media enquiries:
Abchurch

Henry Harrison-Topham Tel: +44 (0) 20 7398 7700
henry.ht@abchurch-group.com www.abchurch-group.com


Executive Chairman's Statement

Overview

In my half year statement, I reported that we had made good progress during our first six months as a stand alone business. We had successfully completed the de-merger and flotation process and our entry onto AiM had been well received; we had delivered encouraging first half results that promised to provide the platform for continued full year growth; and we had increased the size of our order book by 61% on the position just twelve months earlier. I also highlighted clear challenges for the remainder of 2005. In social housing terms, we needed to mobilise the four new contracts just secured, nurturing in the meantime the tracking list required to feed our new workload demands for 2006 and beyond. In non-housing terms, our challenge was change related, the aim being to complete the development phase of our software system replacement programme, which would provide the catalyst for more fundamental efficiency and service realignment changes scheduled for 2006.

I am now pleased to report that our second half year has been equally successful. Full year results demonstrate significant growth in all key areas; turnover, which grew by 45% when compared to equivalent operations in 2004 to reach Pounds Sterling 147.5 million; operating profit, which grew by 24% in comparable terms to reach Pounds Sterling 7.86 million; and cash conversion, which improved significantly to 85%.

The surge of new social housing contracts has been properly digested, creating the capacity once more for further mobilisations. Equally importantly, we now have agreed plans in place which should see each of the four contracts convert to 'cost plus' invoicing arrangements, the optimum framework to foster long term partnering relationships. Our social housing sales pipeline has grown to exceed Pounds Sterling 2 billion, with a healthy level of opportunities at the tracking, prequalification and tender stages. Notably, we now see a number of significant opportunities with registered social landlords (housing associations) alongside our traditional local authority targets.

The change programme affecting our non-housing operations is well ahead of programme. Whilst the software replacement programme remains on track with rollout scheduled to start in the summer, we have accelerated the more fundamental structural changes to allow expected efficiency improvements to be reflected in 2006 budgets. All non-housing maintenance has now been streamlined within one operating business offering an integrated one-stop-shop property maintenance service, a simpler and more easily understood structure, and a leaner cost base. Customer feedback has been positive.

The third strand of this programme, aimed at reducing dependence upon private sector customers who typically offer lower levels of order book visibility, is similarly ahead of plan. For the first time, the majority of our non-housing sales pipeline, which has grown strongly, now reflects public sector opportunities. Also for the first time, one of those opportunities for the London Borough of Sutton, has been secured on a 'cost plus' invoicing arrangement, mirroring what has proved to be such a successful model for our social housing business.

Financial Highlights

Turnover growth was principally driven by our social housing operations, which provided the largest individual contribution to Group turnover at Pounds Sterling 61.2 million, marginally ahead of non-housing maintenance operations which accounted for Pounds Sterling 60.8 million. Interior design, installation and furnishing operations have now moved beyond the initial 'incubation' stage of their business development. With turnover having reached Pounds Sterling 25.5 million, they now have sufficient critical mass to be seen as a credible contender in their market place and to operate at an efficient level.

Operating profit, which represented a return of 5.3% on turnover, remains at a satisfactory and, we believe, sustainable level. Unsurprisingly, the largest individual contribution came, once again, from social housing operations, where the operating margin reached 7.4%, demonstrating a consistent ability to extract margin from performance based incentive mechanisms. Comparable margin within non-housing maintenance operations fell back to 3.6%, partly due to accelerated investment in the change programme and partly because of tightening margins across corporate accounts during the third and fourth quarters. Interior design, installation and furnishing operations also performed strongly, delivering an operating margin of 4.6%.

Interest payable during the pre-flotation period, when we were reliant upon a fixed interest loan from our previous parent, was essentially balanced by interest received post flotation. As a result, profit on ordinary activities before exceptional items and taxation mirrored operating profit at Pounds Sterling 7.87 million.

The exceptional charges, which amount to Pounds Sterling 0.29 million after tax, relate entirely to the effects of an EMI share incentive scheme introduced in April 2005 in order to compensate participants in an earlier share incentive plan for the withdrawal of that scheme. The earlier plan, previously introduced in 2002, established two classes of shares. As a prerequisite to flotation, the two classes of shares needed to be consolidated into one class of ordinary share, which was achieved with the welcome support of participants who sacrificed existing benefits and accumulated taper relief.

Earnings per share, which we view as our most important measure, increased by 16.0% to 8.49p per share on a fully diluted basis after adjustment for exceptional items.

Effective cash management controls led to both a strong year end cash and bank balance of Pounds Sterling 6.1 million with no borrowings, and to a significant and necessary improvement to our cash conversion rate. Whilst this latter measure now sits at 85%, we are confident that there is still scope for further improvement.

Having ended 2004 with net current assets of Pounds Sterling 0.7 million and a net worth of Pounds Sterling 1.3 million (before accounting rules required restatement for the dividend proposed in 2004 but paid in 2005), a balance sheet transformation was an absolute prerequisite. It is here that we have achieved the most dramatic improvement; with net current assets increased to Pounds Sterling 14.9 million and net worth at a creditable Pounds Sterling 16.0 million, our underlying covenant strength now properly reflects the scale of our business.

Andrew Telfer has naturally expanded upon the financial position within his Chief Financial Officer's Report.

Dividend

The board is recommending the payment of a final dividend of 1.85p per share which, subject to approval at the Annual General Meeting on 18 May 2006, will be paid on 24 May 2006.

People

We have achieved a great deal during the last twelve months, and this has only been possible through the immense effort demonstrated by so many of our people, for which we are extremely grateful. Their energy, enthusiasm and willingness to go that extra mile has become inherent in everything we do, and it is that above all else that makes Inspace what it is.

Mick Williamson, Karim Khan and Gerry Graville, our three business stream managing directors, deserve particular mention. Mick has fostered a unique culture in Inspace Partnerships, characterised by a blend of passion, professionalism, openness and healthy self criticism, attributes regularly cited by customers as our main distinguishing features. Karim has taken a leading role in developing the realignment plan for Inspace Maintain, and has made encouraging progress during the early implementation phase. Gerry has successfully overseen a period of intense growth at Inspace Complete, which has seen the business rapidly develop from concept stage to become widely respected as a leading provider in its market.

Each has, of course, been well supported by his business stream board, and it is therefore very fitting that participation in the next generation of our share option scheme will be widened in 2006 to include both business stream directors and also key functional heads.

Thanks also go to my main board colleagues for their invaluable judgement, guidance and support during what has naturally been a critical period in the Group's development. Andrew Telfer took the lead role during the de-merger and flotation process, and warrants considerable credit for its ultimate success. Duncan Forbes took the lion's share of operational responsibility, maintaining focus and delivering against targets despite potential distractions. Christopher Sheridan and David Batchelor undoubtedly brought breadth, balance and objectivity to our discussions, so critical in the context of our evolving roles and responsibilities.

At every level, our people have risen well to the unique challenges of 2005, which gives us real encouragement as we turn our minds to the future.

Future Prospects

As we closed our accounts for 2005, our workload platform for 2006 was almost exactly in line with expectation. In social housing terms, our order book accounted for about 80% of budgeted sales; in non-housing terms, where empirical evidence suggests that we will secure high levels of additional discretionary spend alongside secured routine maintenance orders, and where the incubation period for new project works is measured in weeks not months, our order book accounted for about 50%. Looking further forward, our total order book, assuming projects run for their full terms, was approximately Pounds Sterling 450 million.

When sourcing the balance of our workload needs, we will remain focused upon quality rather than quantity. Our success has been built upon developing long term, sustainable relationships with customers able to offer consistent revenues across a wide property portfolio, and who recognise that greatest value is not always synonymous with lowest tender cost. By prioritising these customers and being able to deliver high levels of service, we have demonstrated a consistent ability to not only achieve realistic levels of performance based profit, but also to grow organically across each account through the expansion of our service offering. We do not expect this strategy to change, and the opportunities that feed into our growing sales pipeline are continually assessed against this customer profile.

Against this backcloth, the workload challenge for our social housing business will be to secure the balance of our 2006 requirement, about half of which is expected to come organically from existing accounts, and to build a robust platform for 2007, when existing Decent Homes contracts at Barnsley and Colchester start to wind down. The operational challenge will be to continue delivering year on year service level improvements, whilst at the same time refining our service offering, particularly in relation to our call centre support and asset management tools.

For our non-housing maintenance business, the workload challenge will be to secure an increasing share of work from the public sector, offering greater order book visibility. Ideally, at least half of our order book will relate to public real estate by the end of 2006, although this realignment will not dilute our commitment towards those corporate customers who also meet our profile. Whitbread is an ideal example, not just because it represents an important and long standing customer, but also because it illustrates one with an appetite for our new one-stop-shop service. At an operational level, rolling out the new software platform will naturally be a critical challenge, and will need careful management to avoid undue disturbance to normal operations.

Having grown so quickly over recent years, our interior design, install and furnish business sees 2006 as a year for consolidation. Further growth, scheduled for 2007 and beyond, is expected to come from public sector framework contracts, where much sales team effort is now being invested.

Summary

Looking back over 2005, I believe the whole Inspace team can be justifiably pleased with what it has achieved. It has been a good year for the Group, not always an easy one, but one in which we have remained focused upon meeting customer, employee and ultimately shareholder expectation. We have delivered well against our own financial and operational targets and, equally importantly, the business is now well placed to meet the challenges of 2006.

Having said that, we fully recognise the dangers of complacency. Our markets remain as competitive as ever, our performance based margins demand continually improving service levels, and high quality recruits essential to resource our growth plans are increasingly difficult to find. But armed with a clear strategy, a strong team of people and a track record of successfully confronting such issues, I am confident that we have a very bright future ahead.

Colin Enticknap

Executive Chairman

3 April 2006

Chief Financial Officer's Report

The Group has met its financial performance targets during 2005. It closes with a strong balance sheet and cash position.

De-merger and Flotation

The Group was de-merged from Willmott Dixon on 1 January 2005, with the exception of a discontinued fitting-out business. Until that time Inspace had relied upon financing of its working capital needs by way of an inter-company arrangement. On de-merger, the amount due to Willmott Dixon of Pounds Sterling 7.4m (including outstanding dividends of Pounds Sterling 4.3m in relation to 2004 earnings), was exchanged for a Pounds Sterling 10.0m loan with interest payable at 0.5% above the Royal Bank of Scotland's base rate. The net Pounds Sterling 2.6m cash introduced to the business provided the headroom necessary to meet ongoing working capital needs.

On 26 May 2005, Inspace plc was admitted to the AiM of the London Stock Exchange. The flotation introduced net proceeds of Pounds Sterling 9.4m, through the issue of 9.3m ordinary 2p shares, enabling full repayment of the Willmott Dixon loan and establishing the Group as an independent entity with a revised dividend policy. Accordingly, the Group balance sheet had no financial gearing and a significantly improved and more appropriate financial covenant.

Principal Accounting Policies

The issue of revised accounting standards has given rise to changes in our principal accounting policies. Firstly, the application of FRS 21 requires dividends to now be recognised in the year in which they are paid rather than being accrued as a liability when the directors have resolved to recommend them. Secondly, UITF 40 requires the recognition of turnover and profit attributable to short term contracts whereas in previous years such work was only recognised when the jobs were completed. A further consequence of this change is that amounts previously shown as work in progress or accrued income have now been re-categorised as amounts recoverable on contracts. Where necessary the comparative figures for 2004 have been restated in respect of these changes.

Operational Performance

Group turnover from continuing operations grew by 45% to reach Pounds Sterling 147.5m (2004: Pounds Sterling 101.7m). Whilst all parts of the business contributed, Inspace Partnerships (Partnerships) proved the main growth engine delivering more than half of the overall increase and reaching revenues of Pounds Sterling 61.2m (2004: Pounds Sterling 35.2m). Delayed contract mobilisations prevented growth in the year exceeding the 74% achieved. Partnerships now represents 42% of total turnover (2004: 35%, 2003: 24%, 2002: 17%) and for the first time represents the largest of our business streams. Inspace Maintain (Maintain) experienced more modest growth at 7%, increasing turnover to Pounds Sterling 60.8m (2004: Pounds Sterling 56.9m) and now accounts for 41% of overall turnover (2004: 56%). Inspace Complete (Complete) achieved a more than doubling of its turnover to Pounds Sterling 25.5m (2004: Pounds Sterling 9.7m) representing 17% of Group turnover. I would not expect Complete to repeat this level of growth or indeed exceed 15% of Group turnover now that it has surpassed its critical turnover mass of around Pounds Sterling 20.0m.

Operating profit before exceptional items increased 24% to Pounds Sterling 7.86m (2004: Pounds Sterling 6.36m) from continuing operations. Whilst Group operating profit met our expectations and all parts of the business remained profitable, Group operating margin reduced to 5.3% (2004: 6.3%). The fall was primarily due to Maintain whose profits for the year fell back by 32% to Pounds Sterling 2.17m (2004: Pounds Sterling 3.20m) and margins to 3.6% (2004: 5.6%) due in the main to further investment in the strategic change programme and a worsening of trading conditions led by tightening margins on certain consultant led corporate accounts.

Our Partnerships business model centres on the need to deliver high operational performance year-on-year, ultimately to ensure social housing tenants receive continually improving service levels. Consequently, our Partnerships profits are largely driven through performance related profits derived from delivery against key performance indicators and shared savings on agreed budgeted spends. These factors have enabled us to share in our customers' success and led to a 7.4% operating margin in the year (2004: 7.3%). The business stream's operating profits increased by 77% to reach Pounds Sterling 4.53m (2004: Pounds Sterling 2.55m).

Complete also delivered excellent results achieving 89% growth in operating profits to Pounds Sterling 1.16m (2004: Pounds Sterling 0.62m) representing a 4.6% return (2004: 6.3%). Complete's growth was driven by increased public sector work with the Government's Job Centre refurbishment programme. Whilst public sector work in the design led interiors market typically attracts slightly lower margins, our focus is on the long term and to continue to drive resilience into the business to ensure an appropriate workload balance with the corporate market.

The board and central team was largely in place at the point of the de-merger on 1 January 2005. Accordingly, the 2005 results reflect the first full year of costs as a stand alone business, including all relevant incentive payments for the period. Naturally, incremental ongoing costs were incurred in relation to our plc status.

Exceptional Items

The Executive Chairman's Statement describes the circumstances that gave rise to the exceptional items of Pounds Sterling 0.29m after tax. The exceptional charges arose solely as a result of the flotation due to the replacement of a previous incentive scheme by the EMI scheme.

The first of the exceptional charges comprises a share based payment provision of Pounds Sterling 0.24m, in accordance with UITF 17 'Employee Share Schemes', representing the net deemed value of the unquoted minority holdings. UITF 17 requires the establishment of a share based payment reserve and as such no further adjustment to the provision will arise for this item. The balance of the exceptional charge is a provision to reimburse individuals for the surrender of taxation relief of Pounds Sterling 0.18m.

The post tax effect of the exceptional items is Pounds Sterling 0.29m; the pre-tax exceptional item of Pounds Sterling 0.42m is offset by corporation tax relief of Pounds Sterling 0.13m. Further relief, in respect of options exercised in 2006, is expected to benefit the 2006 tax charge.

Taxation

Tax on profit on ordinary activities increased to Pounds Sterling 2.30m (2004: Pounds Sterling 1.97m). The effective tax rate improved to 31.0% (2004: 31.4%) primarily due to the tax effect of disallowed items.

Earnings Per Share

Earnings per share figures have been appropriately adjusted to remove the impact of the exceptional items. Basic earnings per share decreased to 8.64p (2004: 8.82p) due to the shares issued on flotation. More importantly, diluted earnings per share, which better reflect the underlying performance of the business, increased by 16.0% to 8.49p (2004: 7.32p).

Dividends

The board has recommended a final dividend of 1.85p per share to the shareholders on the register at 18 April 2006. Subject to approval at the AGM on 18 May 2006 this will be paid to shareholders on 24 May 2006.

During the year, the board recommended two interim dividends based on the policy set out in the AiM admission document. The first of 0.933p per ordinary share was paid to the shareholders on the register at 24 May 2005, representing 5/6ths of the total interim dividend, and a second interim dividend of 0.161p per ordinary share was paid to the shareholders on the register at 16 September 2005, representing 1/6th of the total interim dividend. Both interim dividends were paid on 14 October 2005.

The total dividend for the year of Pounds Sterling 1.90m (2004: Pounds Sterling 4.28m) equates to a pro forma 2.82p per share based on annualised dividends paid to post flotation shareholders. Dividend cover is 2.7x on a post tax profit basis and 2.2x based on cash generated in the year ignoring dividend payments.

The Directors' intention is that the Company will pay dividends whilst continuing to retain a significant proportion of the Group's earnings.

Cash Flow

The enforcement of strict cash management controls is firmly embedded and remains a priority for all parts of the business. These principles helped the Group to generate cash from operating activities of Pounds Sterling 6.7m (2004: Pounds Sterling 3.7m) representing an improved conversion rate of operating profit excluding exceptional items of 85.3% (2004: 58.5%). The conversion of operating cash is a key measure and enables the business to continue its technology investment programme. It is worth noting that trade debtor days fell to 33 days (2004: 36 days) whilst creditor days fell to 40 days (2004: 53 days) reflecting, in part, the increasing proportion of social housing business. The closing net cash position was Pounds Sterling 6.1m at 31 December 2005 (2004: Pounds Sterling 0.04m).

Treasury functions are administered centrally through a cash pooling arrangement, to enable appropriate control and ensure the best short term deposit rates are achieved. Interest generated from deposits of Pounds Sterling 0.2m (2004: nil) was offset by the interest due on the Willmott Dixon loan of Pounds Sterling 0.2m (2004: nil) during the first part of the year.

Whilst the Group generates cash overall and during the year the Group remained cash positive, it is subject to short term volatility. A Royal Bank of Scotland overdraft facility of Pounds Sterling 5.0m was arranged to provide additional headroom.

Pensions

For the duration of its contractual relationships with various local authorities the Group contributes to a number of local authority pension schemes in respect of those employees working for the Group under Transfer of Undertakings Protection of Employment (TUPE) arrangements. The relevant accounting standard FRS 17 'Retirement Benefits' requires, if necessary, the Group's share of any deficit to be recognised as a liability on the balance sheet but offset by a corresponding goodwill asset. As this liability was immaterial, no such recognition was required and the scheme contributions have been duly expensed as they fall due.

International Financial Reporting Standards (IFRS)

As a company listed on AiM, Inspace will be required to adopt IFRS from 1 January 2007. The board's decision not to adopt these standards earlier than 2007 is based upon the continuing uncertainty surrounding certain IFRS. The Group is exploring the effects of the transition to IFRS in conjunction with its financial advisers. Initial indications are that there is unlikely to be a material impact on the Group of adopting IFRS.



Andrew Telfer
Chief Financial Officer
3 April 2006


Group Profit and Loss Account
Year ended 31 December 2005

Year ended Year ended
31 December 2005 31 December 2004
Re-stated
Pounds Pounds
Sterling Sterling

Notes 000 000

Turnover
Continuing operations 1 147,527 101,731
Discontinued operations 1 - 5,541
----------------------------------
147,527 107,272
Cost of sales (113,802) (79,615)
----------------------------------
Gross profit 33,725 27,657
Administrative expenses
Excluding exceptional items (25,865) (21,407)
Exceptional items 2 (418) -
(26,283) (21,407)
----------------------------------

Operating profit
Continuing operations
Excluding exceptional items 1 7,860 6,362
Exceptional items 2 (418) -
7,442 6,362
Discontinued operations 1 - (112)
----------------------------------
7,442 6,250
Interest receivable 3 223 -
Interest payable and similar
charges 4 (218) -
----------------------------------
-

Profit on ordinary activities
before taxation 7,447 6,250
Tax on profit on ordinary
activities 5 (2,310) (1,965)
----------------------------------
Profit for the financial year 5,137 4,285
----------------------------------
Unadjusted earnings per
ordinary share: (pence)
Basic 7 8.17 8.82
Diluted 7 8.03 7.32

Adjusted earnings per ordinary
share: (pence)

Basic 7 8.64 8.82
Diluted 7 8.49 7.32
----------------------------------

There were no recognised gains or losses other than the above profit
for either financial year.

The discontinued operations for 2004 have no material impact on the
earnings per share.


Group Balance Sheet
As at 31 December 2005

Year ended Year ended
31 December 2005 31 December 2004
Re-stated
Pounds Pounds
Sterling Sterling
000 000

Fixed assets
Tangible assets 1,058 579
----------------------------------

Current assets
Stocks 335 265
Debtors 30,350 24,770
Cash at bank and in hand 6,084 37
----------------------------------
36,769 25,072

Creditors: amounts falling due
within one year (21,873) (20,123)
----------------------------------
Net current assets 14,896 4,949
----------------------------------
15,954 5,528
----------------------------------

Capital and reserves
Called up share capital 1,343 1,125
Share premium 10,107 113
Capital redemption reserve 3 -
Profit and loss account 4,501 4,290
----------------------------------
15,954 5,528
----------------------------------


Group Cash Flow Statement
Year ended 31 December 2005

Year ended Year ended
31 December 2005 31 December 2004
Re-stated
Pounds Pounds
Sterling Sterling

Notes 000 000

Cash flow from operating
activities 8 6,707 3,657
Returns on investments
and servicing of finance 5 -
Taxation paid (1,706) (1,742)
Capital expenditure and
financial investment 8 (861) (312)
Equity dividends paid 6 (4,923) (1,900)
----------------------------------

Cash flow before use of
liquid resources and financing (778) (297)
Financing 8 6,825 311
----------------------------------
Increase in cash 6,047 14
----------------------------------

Reconciliation of net cash
flow to movement in net funds
Increase in cash in the year 6,047 14
Consolidation of balances due
to Willmott Dixon Limited 3,143 -
----------------------------------

Change in net funds resulting
from cash flows 9,190 14
Repayment of Willmott Dixon
Limited loan (3,143) -
----------------------------------
Movement in net funds 6,047 14
Net funds as at 1 January 2005 37 23
----------------------------------
Net funds as at 31 December 2005 6,084 37
----------------------------------

The amounts due to Willmott Dixon Limited were consolidated into a
loan facility on 1 January 2005 which was subsequently repaid on
flotation.


Reconciliation of Movement in Shareholders' Funds
Year ended 31 December 2005

Year ended Year ended
31 December 2005 31 December 2004
Re-stated
Pounds Pounds
Sterling Sterling

Notes 000 000

Profit for the year 5,137 4,285
Dividends paid 6 (4,923) (1,900)
----------------------------------
214 2,385
Call on share capital 530 311
Purchase of own shares (3) -
Issue of shares under option 244 -
Issue of shares 10,054 -
Costs associated with issue
of shares (613) -
----------------------------------
Net proceeds from issue of
shares 10,212 311
----------------------------------
Movement in shareholders'
funds 10,426 2,696
Opening shareholders' funds
- as restated 5,528 2,832
----------------------------------
Closing shareholders' funds 15,954 5,528
----------------------------------


Restatement of opening position

As detailed in the Chief Financial Officer's Report, the Company has adopted the requirements of FRS 21 and has restated the opening shareholders funds as a consequence. The proposed dividend as at 31 December 2004 of Pounds Sterling 4.28 million (2003: Pounds Sterling 1.90m) has been derecognised increasing the shareholders funds by that amount. The dividend was paid in 2005 and there is no impact on shareholders funds as at 31 December 2005 as a result of this change.



Notes to the Financial Statements
Year Ended 31 December 2005


BASIS OF PREPARATION AND ACCOUNTING POLICIES

The above results for the year ended 31 December 2005 are an abridged version of the Company's audited statutory financial statements for the year ended 31 December 2005; both the financial statements and the above results were approved by the Board on 3 April 2006. The financial statements will be delivered to the Registrar of Companies shortly; the auditor's report thereon was unqualified, and nor did it include an "emphasis of matter" paragraph.

The profit and loss account and balance sheet do not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985.

These accounts have been prepared on the basis of the same accounting policies as set out in the statutory accounts for the year ended 31 December 2004, except as follows:

a. The Company has adopted FRS 21 which requires that dividends are recognised in the year in which they are paid rather than accrued as a liability when the Directors have resolved to recommend them. The impact of this is disclosed in the Reconciliation of Movement in Shareholders' Funds.

b. The Company has adopted UITF 40 which has resulted in the recognition of turnover and profit attributable to work in progress under short term contracts together with the re-categorisation of work in progress and accrued income as amounts recoverable on contracts in the balance sheet. This change has no material effect on the results for the year.

Various presentational changes have also been adopted, consequent on the de-merger of the Company from Willmott Dixon.



1. Segmental analysis

Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

Turnover
Social housing maintenance 61,201 35,154
Corporate and public sector
maintenance 60,821 56,885
Interior design, installation
and furnishing 25,505 9,692
Discontinued activities - 5,541
-----------------------------------
147,527 107,272
-----------------------------------

Operating profit
Social housing maintenance 4,529 2,552
Corporate and public sector
maintenance 2,167 3,195
Interior design, installation
and furnishing 1,164 615
Discontinued activities - (112)
-----------------------------------
7,860 6,250
-----------------------------------

Net assets
Social housing maintenance 2,329 2,638
Corporate and public sector
maintenance 1,267 3,165
Interior design, installation
and furnishing 1,069 931
Parent Company less items
eliminated on consolidation 11,289 (1,206)
-----------------------------------
15,954 5,528
-----------------------------------


The segmental analysis excludes the exceptional items outlined in note 2.

The Group was de-merged from Willmott Dixon Limited on 1 January 2005, with the exception of a discontinued fitting-out business. Accordingly, the results of this business have been re-classified as discontinued in 2004.

The Group's turnover, profit on ordinary activities and net assets are all derived in the United Kingdom.



2. Exceptional items

The exceptional items comprise:

Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

Share based payments 244 -
Compensation payments 174 -
-----------------------------------
418 -
Corporation tax relief (125) -
-----------------------------------
293 -
-----------------------------------


3. Interest receivable


Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

Income from short term deposits 223 -
-----------------------------------


4. Interest payable and similar charges


Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

Interest on loan from Willmott
Dixon Limited 218 -
-----------------------------------


On 1 January 2005, the amounts due to Willmott Dixon Limited were consolidated into a Pounds Sterling 10.0 million loan from Willmott Dixon. The loan was repaid on the flotation of Inspace plc on 26 May 2005 with interest at 0.5% above the Royal Bank of Scotland's base rate.



5. Taxation

Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

a) Analysis of charge
Current tax
UK Corporation tax on profit for
the year before exceptional items 2,411 1,935
UK Corporation tax relief on
exceptional items (125) -
Adjustment in respect of previous
years - 26
-----------------------------------
2,286 1,961

Deferred tax
Origination and reversal of
timing differences 24 4
-----------------------------------
2,310 1,965
-----------------------------------


b) Factors affecting tax charge
for the year

The tax assessed for the year is
higher than the standard rate of
corporation tax in the UK (30%).
The differences are explained below:
Profit on ordinary activities before tax 7,447 6,250
Profit on ordinary activities multiplied
by standard rate of corporation tax in
the UK (30%) 2,235 1,875
Effects of:
Expenses not deductible for tax
purposes 75 66
Capital allowances in excess of
depreciation (24) (4)
Lower rates on earnings - (2)
Adjustment in respect of previous
years - 26
-----------------------------------
2,286 1,961
-----------------------------------


c) Factors that may affect future tax charges

The Company expects to gain future tax relief in respect of shares to be issued under employee share incentive schemes on the difference between the market value of shares on exercise and the option price. In January 2006 653,282 share options were exercised which will result in tax relief during 2006 of Pounds Sterling 226,459. An additional outstanding 98,820 share options have yet to be exercised.

The Group is not aware of any other significant factors that may affect future tax charges.



6. Dividends

On ordinary shares of 2p each:

Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000

Final 2003 paid of 4.22p
per share - 1,900
Interim 2004 paid of 7.634p
per share 4,275 -
Interim 2005 paid of 0.933p
(2004: nil) 540 -
Interim 2005 paid of 0.161p
(2004: nil) 108 -
-----------------------------------
4,923 1,900
-----------------------------------


The dividend per share in respect of the final 2003 dividend has been adjusted to take account of the division of ordinary shares of 10p into ordinary shares of 2p on 16 November 2004.

An interim dividend of 0.933p per ordinary share was paid to the shareholders on the register at 24 May 2005, representing 5/6ths of the total interim dividend, and an interim dividend of 0.161p per ordinary share was paid to the shareholders on the register at 16 September 2005, representing 1/6th of the total interim dividend. Both payments were made on 14 October 2005.

A proposed final dividend of 1.85p per ordinary share is proposed for payment on 24 May 2006.

7. Earnings per share

Earnings per share are based upon the average number of ordinary shares in issue during the year of 62,872,928 (2004: 48,584,462). The diluted earnings per share are based upon the weighted average number of 63,975,884 (2004: 58,549,950) ordinary shares having taken into account the dilutive effect of shares which have been made available to employees under existing incentive schemes.

The weighted average number of shares for 2004 has been adjusted to take account of the division of ordinary shares of 10p into ordinary shares of 2p on 16 November 2004.

The earnings for the periods are set out in the table below. An adjusted earnings measure has been included to highlight the impact of the exceptional items during 2005.



Earnings Earnings
per share

2005 2004 2005 2004
Pounds Pounds pence pence
Sterling Sterling
000 000

Unadjusted earnings 5,137 4,285
Basic earnings per share 8.17 8.82
Diluted earnings per share 8.03 7.32
-------------------------------------------

Exceptional items 418 -
Tax relief on exceptional
items (125) -

Adjusted earnings 5,430 4,285
Basic earnings per share 8.64 8.82
Diluted earnings per share 8.49 7.32
-------------------------------------------


8. Cash flows

Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 000


Reconciliation of operating
profit to net cash inflow
from operating activities
Operating profit on ordinary
activities before interest
and taxation 7,442 6,250
Depreciation 383 305
Loss on sale of fixed assets - 34
Increase in stock and amounts
recoverable on contracts (1,674) (5,379)
(Increase)/decrease in debtors (3,988) 376
Increase in payments on account 323 502
Increase in trade and other
creditors 3,977 1,569
Non-cash cost of share
based payments 244 -
-------------------------------------------
Net cash inflow from
operating activities 6,707 3,657
-------------------------------------------

Analysis of As at As at
change in 1 January Cash flows Non-cash 31 December
net funds 2005 in the year movements 2005
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
000 000 000 000

Cash at bank
and in hand 37 6,047 - 6,084

Loans - (3,143) 3,143 -
-------------------------------------------------------
37 2,904 3,143 6,084
-------------------------------------------------------


The non-cash movement shown above represents the consolidation of amounts due to Willmott Dixon Limited into a loan facility on 1 January 2005 which was subsequently repaid on flotation.



Year ended Year ended
31 December 2005 31 December 2004
Pounds Pounds
Sterling Sterling
000 Re-stated
000

Returns on investments and
servicing of finance
Interest receivable 223 -
Interest payable (218) -
-------------------------------------------
5 -
-------------------------------------------

Taxation paid (1,706) (1,742)

Capital expenditure and
financial investment
Purchase of tangible
fixed assets (868) (411)
Sale of tangible fixed
assets 7 99
-------------------------------------------
(861) (312)
-------------------------------------------

Financing
Call on share capital 530 311
Issue of shares 10,054 -
Repayment of Willmott
Dixon loan (3,143) -
Costs associated with
issue of shares (613) -
Purchase of own shares (3) -
-------------------------------------------
6,825 311
-------------------------------------------


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