TIDMCPC
RNS Number : 5821P
Capcon Holdings PLC
27 March 2009
Capcon Holdings plc ("Capcon" or the "Company")
Final results for the year ended 30 September 2008
Main points:
* Increased profit from operations before exceptional items
* Litigation successfully resolved
* Central overhead costs, before exceptional items, further reduced.
* Focus on core business creating stronger base
* Prospects continue to remain strong.
Capcon Holdings plc, the AIM listed investigations and risk management company,
announces its audited consolidated results for the year ended 30 September 2008.
Ken Dulieu, Chairman, commented:
'The year to 30 September 2008 has seen further progress made in strengthening
the Group. Profitability of our leisure sector based services continued to
improve and, following the successful resolution of the litigation proceedings,
Argen has been re-building its specialised services business. We remain
optimistic that, despite the present harsh market conditions, there will be a
strong demand for our services as clients focus even more on processes that will
maximize their profit margins through reduced wastage and better cost control.'
Enquiries:
Capcon Holdings plc
Paul Jackson, Non executive Director 020 74170417
Shore Capital and Corporate Limited
Pascal Keane 020
7408 4090
Chairman's statement
Operational review
During the year ended 30 September 2008 the Group achieved further progress
towards sustainable operating profit growth despite seriously adverse market
conditions affecting clients in our main target sector, leisure, in the period.
Traditionally, many of our clients have turned to Capcon during difficult
trading conditions in order to make full use of our services to assist in the
preservation or increase in their gross margins. This reaction has been evident
in Capcon's results for the year ended 30 September 2008 and has offset the
effect of reduced volumes from some existing clients as a result of their
contracting hotel, pub and restaurant estates.
The board has continued a disciplined approach to cost control throughout the
year which combined with the successful implementation of a strategy of
introducing higher skilled services to our audit and stocktaking clients has led
to an improvement in the overall profit margin achieved on leisure sector
business.
Other investigation services, principally in Argen, have been profitable, and
several new clients have been gained during the year. Considerable commitment to
marketing these services will continue to be necessary as part of our strategy
to rebuild this business following the loss of clients suffered during the
protracted litigation proceedings.
Having achieved a satisfactory conclusion to the long running litigation
proceedings with the Argen vendors, the Directors have remained focused on
continuing to strengthen the core business whilst considering alternative
strategies for Group development and expansion.
Financial overview
Sales for the year to 30 September 2008 were GBP3.83 million (2007: GBP4.06
million) representing a 5.7% decrease on last year which was entirely
attributable to reduced activity in Argen. The overall gross margin of 37.8%,
although lower than last year's level of 38.2%, was entirely attributable to the
lower sales of the traditionally higher margin Argen services and masks an
improvement in the overall level achieved for other core services.
The Group achieved an operating profit of GBP0.09 million (2007: GBP0.81
million) for the year after exceptional items. The Group generated a profit from
operations before exceptional items for the year of GBP0.19 million (2007:
GBP0.14 million). A loss was generated before tax of GBP0.11 million (2007:
GBP0.59 million profit) after charging exceptional items of GBP0.10 million
(2007:(GBP0.67million)) and interest of GBP0.20 million (2007:GBP0.22 million).
This year is the first in which the Group has adopted International Financial
Reporting Standards and the previous year's figures have been re-stated where
appropriate. The Directors considered that no further impairment of goodwill was
necessary for the year.
The basic loss per share of 0.1p for the year compares with a re-stated 5.8p
profit per share for the year ended 30 September 2007 and, excluding exceptional
items, the loss per share was reduced to 0p compared with a 0.8p loss per share
in 2007.
The Board has continued to scrutinise every aspect of the central administration
of the Group in order to maintain the recent trend of reducing overheads before
exceptional items and has successfully reduced these costs by 17% compared with
last year. The exceptional cost of GBP0.10 million relates principally to the
legal costs incurred by the Group in connection with the recently settled
litigation proceedings involving the Argen vendors.
There was a net cash inflow from operations of GBP0.14 million (2007: GBP0.08
million outflow) reflecting the higher profit from operations before exceptional
items achieved whilst maintaining good control over working capital. Bank
borrowings were marginally reduced in the year by GBP0.01 million from GBP0.94
million to GBP0.93 million with total borrowings being maintained at the same
level as last year.
The significant legal fees incurred this year leading up to the resolution of
the litigation proceedings with the Argen vendors have mainly neutralised the
gains made from further profit growth in the year. This, in turn, has limited
the Directors' opportunity to reduce the level of Group borrowings.
Additionally, the Directors do not consider that a reduction in the Group's
borrowings through an equity issue is feasible at this time. Accordingly, the
Directors will continue the policy of not recommending the payment of a
dividend, as last year, for the time being.
Litigation resolved
As announced on 10 December 2008, the litigation proceedings brought against the
Company by the Argen vendors were dismissed following a protracted period of
mediation. The outcome, as expected by the Directors in the Interim Report for
the six months ended 31 March 2008, has resulted in no further payments being
made to the Argen vendors and a contribution of GBP36,000 being made by the
vendors towards the Group's legal costs. Additionally, the Group will benefit
from the proceeds of sale of the Argen vendors' shares in the Company equivalent
to approximately GBP26,000 at the current share price. The provision previously
made in respect of the Group's potential liability of GBP0.82 million in respect
of these proceedings was released in the year to 30 September 2007 in
expectation of this outcome.
Audit, stocktaking and investigations - Leisure
The segmental analysis of the business, now reported in the accounts in detail
under note 4, distinguishes between those services provided to the leisure
sector and 'other investigation services'. Capcon's core business was founded on
the provision of a range of services aimed at improving the profit margins of
our clients' businesses in the leisure sector. The Directors consider that, as
these services are marketed specifically to the leisure sector and represent a
significant part of the overall business, they should be distinguished from our
other, more specialised, investigation services which are not sector based.
Sales of GBP3.46 million were 1.6% higher than last year due to increased
revenues from audit and stocktaking services. Profit from operations was GBP0.51
million compared with GBP0.48 million last year, a 4.7% improvement. The trend
commented on in the Group's Interim Report for the six months ended 31 March
2008 whereby gross margins have increased as a result of our clients' demands
for services which offer them higher added value, continued into the second half
of the year. In addition, operating costs continue to be closely reviewed on an
on going basis which has further improved the margin achieved this year.
We have gained several new stocktaking clients in the year and, in particular,
we have been successful in attracting small pub groups, many having developed
from the disposal of non core units from the larger national pub chains. In
addition, some existing and new clients have requested consultancy work and
audit work which is more complex than our traditional services which, in turn,
has justified a higher fee rate being charged, leading to an improved margin
level. This consultancy work requires our field managers to work closely with
our clients' operational managers in the formulation of joint action plans to
resolve stock and cash control issues. Inevitably, these assignments lead to
further integration with the client and security for our services in the future.
During the year, the Group developed new relationships with several hotel chains
which has led to a recurring business stream for audit and stocktaking work but,
more particularly, for investigation services. The investigations division has
been successful in the marketing of its traditional higher margin services and
the growth of business in the hotel sector has become an important niche for
future development.
Our ongoing attention to minimising costs and maximising operational
efficiencies has been critical in maintaining our unit costs at a level that
ensures our clients receive best value during a period of change that is
unprecedented in our target market.
The tough market conditions facing the leisure sector during the year led to
many clients increasing their attention to controls over cost and wastage to
maximise profit margins on their lower volume of business. This trend was
evident during the recession of the early 1990's and created growth
opportunities for our services at that time. Consequently, we anticipate that
the continuing harsh economic conditions may similarly increase demand for our
audit, stocktaking and investigation services in the current year.
Other investigation services
Sales for other investigation services for the year were GBP0.38 million
compared with GBP0.67 million last year, a 44% decrease. As reported in the
Group's Interim Report for the six months ended 31 March 2008, the traditional
services provided by Capcon Argen have suffered from the effects of the Argen
litigation. Consequently, significant time and effort has been expended on
marketing activities aimed at re-building this division. The decline in demand
for Argen's services has been arrested and we are seeing evidence of growth in
certain areas in which Argen specialises.
Several new clients have been gained in the year and marketing activity has led
to some significant tenders being submitted to blue chip clients seeking an
on going contractual service. Although Argen has not benefited in the period
under review from such contracts, we remain optimistic that a number of current
outstanding tenders may be concluded in our favour in the medium term. The
traditional Argen business is assignment based and, in contrast to contractual
work, is too unpredictable to be forecast with any certainty. We, therefore,
remain cautious with regard to the current year's trading performance.
As previously reported, a significant and progressive rationalisation of the
operating cost base has been undertaken over the past two years including a
relocation of the office from London to Surrey. These cost savings have
contributed to an improved operating margin percentage in the year to 30
September 2008 despite the lower level of activity. The Directors believe that
overhead costs can be contained if activity increases in the current year and
this will have a further beneficial effect on the operating margin level.
Group costs
I am pleased to report that our continuous attention to the reduction of central
overhead costs as the Group re-focuses on core activities has resulted in
further savings of 17% in the year to 30 September 2008 compared with the
previous year.
Legal fees of GBP101,377, mainly associated with the proceedings related to the
Argen vendors' pursuit of further earn out payments, have been treated as
exceptional items. Legal fees of GBP155,535 in respect of these proceedings
were incurred in the previous year. Due to the successful conclusion of these
proceedings in December 2008, no related fees will be incurred after the current
year.
Current trading and prospects
The new financial year has started well with sales levels for audit and
stocktaking services being maintained despite the prevailing difficult economic
climate. The demand from pub companies and hotels for higher skilled consultancy
services continues in the current year with a consequent benefit to operating
margin levels. There has been little adverse effect from the deteriorating
leisure sector so far but the Directors are wary of the potential for a down
turn should the current economic situation worsen and contingency plans are
already in place to soften the impact on Capcon of any consequent reduction in
business.
Instructions for Argen's specialised investigation services are slowly
increasing from the lower activity base that was established last year and the
Directors remain optimistic that, based on the quality of feedback from an
increasing client base, this part of the Capcon business will continue to grow
in the medium term. However, Argen is an assignment based business which makes
any short term forecasting difficult.
Having successfully resolved the long running legal dispute with the Argen
vendors, whilst simultaneously restoring profit in the core Capcon business, the
Group has been, once again, growing in strength. Nevertheless, at present, the
Directors are limited in the options open for future development until the
current difficulties of funding growth are resolved. The Directors are
considering various alternative strategies for Group development which take
account of the Group's high level of gearing and limited scope for a new equity
issue.
K P Dulieu
Chairman
27 March 2009
+-------------------------------------------------------------------------------------------------------------------------------------+
| Capcon Holdings plc |
| Consolidated income statement for the year ended 30 September 2008 |
| |
| 2008 2007 |
| GBP GBP |
| Revenue 3,829,100 4,055,593 |
| |
| Cost of sales (2,382,182) (2,505,749) |
| ____________ ____________ |
| Gross profit 1,446,918 1,549,844 |
| |
| Administrative expenses (1,353,430) (744,146) |
| |
| Profit from operations before 194,865 140,582 |
| exceptional items (101,377) 665,116 |
| Exceptional items |
| |
| Profit from operations 93,488 805,698 |
| Finance income - 41 |
| Finance expense (199,100) (218,810) |
| ____________ ____________ |
| (Loss)/ profit before taxation (105,612) 586,929 |
| |
| Tax expense - - |
| ____________ ____________ |
| (Loss)/ profit for the year attributable (105,612) 586,929 |
| to equity shareholders ____________ ____________ |
| |
| (Loss) / earnings per share for |
| (loss)/profit |
| attributable to the equity holders of |
| the |
| parent during the year (0.1p) 5.8p |
| |
| Basic |
| Diluted |
| |
| Share premium |
| Group account Merger Retained |
| Share Capital reserve earnings Total equity |
| GBP GBP GBP GBP GBP |
| At 1 October 2006 101,568 2,774,094 950,000 (5,102,441) (1,276,779) |
| |
| Profit for the year - - - 586,929 586,929 |
| ____________ ____________ ____________ ____________ ____________ |
| At 1 October 2007 and 101,568 2,774,094 950,000 (4,515,512) (689,850) |
| 30 September 2007 |
| |
| Loss for the year - - - (105,612) (105,612) |
| ____________ ____________ ____________ ____________ ____________ |
| Total recognised income 101,568 2,774,094 950,000 (4,621,124) (795,462) |
| and expense |
| |
| Issue of Share Capital 15,235 43,801 - - 59,036 |
| ____________ ____________ ____________ ____________ ____________ |
| At 30 September 2008 116,803 2,817,895 950,000 (4,621,124) (736,426) |
| ____________ ____________ ____________ ____________ ____________ |
| |
| 2008 2007 |
| Assets GBP GBP |
| Non current assets |
| Intangible assets 1,425,264 1,425,264 |
| Property plant and equipment 56,420 65,819 |
| ____________ ____________ |
| Total non current assets 1,481,684 1,491,083 |
| |
| Current assets |
| Trade and other receivables 856,503 900,585 |
| Cash and cash equivalents 657 35 |
| ____________ ____________ |
| Total current assets 857,160 900,620 |
| ____________ ____________ |
| Total assets 2,338,844 2,391,709 |
| |
| Liabilities |
| Non current liabilities |
| Loans and borrowings 675,000 666,317 |
| |
| Current liabilities |
| Trade and other payables 1,251,852 1,269,065 |
| Loans and borrowing 1,031,368 1,037,867 |
| Provision 117,050 108,304 |
| ____________ ____________ |
| Total current liabilities 2,400,270 2,415,236 |
| ____________ ____________ |
| |
| Total liabilities 3,075,270 3,081,553 |
| ____________ ____________ |
| Net liabilities (736,426) (689,850) |
| ____________ ____________ |
| |
| Capital and reserves |
| Called up share capital 116,803 101,568 |
| Share premium account 2,817,895 2,774,094 |
| Merger reserve 950,000 950,000 |
| Retained earnings (4,621,124) (4,515,512) |
| ____________ ____________ |
| |
| Shareholders' deficit (736,426) (689,850) |
| ____________ ____________ |
| |
| |
| 2008 2007 |
| GBP GBP |
| Cash flows from operating activities |
| |
| Profit/(loss) for the period (105,612) 586,929 |
| Depreciation 29,340 66,122 |
| Finance expense 199,100 218,769 |
| |
| Cash flows from operating activities before 122,792 871,820 |
| changes in working capital |
| |
| Decrease in debtors 44,082 165,015 |
| (Decrease)/increase in creditors (25,724) (1,119,385) |
| ____________ ____________ |
| Net cash generated/ (outflow) from operating 141,150 82,550 |
| activities |
| |
| Investing Activities |
| |
| Purchase of property, plant and equipment (19,905) (12,888) |
| ____________ ____________ |
| Net cash used in Investing Activities (19,905) (12,888) |
| |
| Financing activities |
| |
| Issue of ordinary shares 59,036 - |
| Interest paid (156,332) (117,012) |
| Repayment of loans (648) (57,335) |
| Invoice discounting facilities (33,197) 43,314 |
| Principal payment under finance leases (8,534) (16,265) |
| |
| Net cash used in Financing Activities (139,675) (147,298) |
| ____________ ____________ |
| (Decrease) in cash in the year (18,430) (242,736) |
| |
| Cash and cash equivalents at the beginning (525,610) (282,874) |
| of year ____________ ____________ |
| |
| Cash and cash equivalents at the end of year (544,040) (525,610) |
| ____________ ____________ |
| |
| |
+-------------------------------------------------------------------------------------------------------------------------------------+
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The company news service from the London Stock Exchange
END
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