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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Innovise | LSE:INNO | London | Ordinary Share | GB0030284854 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 11.50 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
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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