Interior Services Group plc
Pre-close Trading Statement
Interior Services Group plc ("ISG" or the "Group"), the international construction services group, provides the following pre-close trading statement in advance of the announcement of its preliminary results for the year ended 30 June 2012, on 11 September 2012.
Trading
The Board announces that trading for the year ended 30 June 2012 has remained broadly in line with the revised management expectations announced in January 2012. In the UK, we have maintained revenues but margins have been impacted by the current competitive environment. Outside the UK, increased revenues and improving margins have led to a substantially higher contribution to Group operating profit. The Group's financial position remains robust with net cash balances at 30 June 2012 of circa £25m (June 2011 - £36.1m).
In the UK, our Fit Out business has maintained its position in a highly competitive London corporate office market, where we have seen a reduction in the size of projects. In addition the business has successfully grown its presence in the data centre market having secured a £100+ million project to construct and fit out a new facility in the East Midlands. The second half decline in revenues for our UK Retail businesses has been in line with our expectations. We remain the number one service provider to this sector.
In the UK, our Construction business continues to experience competitive pressure on margins. However, against the market trend, revenues for the year have increased with a strong performance in the South benefiting from the work secured with LOCOG to assist with the preparation of the 2012 Olympics. Our South West construction division has returned to profitability in the last quarter of the year after a restructuring of the business.
Outside the UK, our strategy for increased international growth is proving to be successful. Overall volumes have increased as international customers have continued with their overseas capital investment programmes. Our Continental Europe Fit Out and Retail businesses have both made profitable contributions with the former benefiting from strong performances in each of its key markets of Germany, France and Italy, and the latter from the acquisition of Alpha International in October 2011, which has continued to trade well.
As we predicted, revenues and margins are substantially improved in Asia in comparison to last year. In particular, our North Asia Contracting and Commtech Commissioning Management businesses have performed strongly largely on the back of continued growth in the retail and data centre markets. In the Middle East the outturn was affected by slippage on projects in Dubai and Abu Dhabi. Longer term, the development of our service offering into Qatar offers significant potential.
Dividend
For the last few years the Board has increased the dividend by 5% per annum reflecting the success of its policy of diversifying the business through organic growth and acquisition. The Board was prepared to see dividend cover fall below its long term target of greater than 2 times cover on the basis of an early recovery in key markets. The impact of the reduction in the spending plans of UK supermarkets and banks in the second half is now expected to continue into 2012/13 and given the continuing uncertainty over the Euro, general tightening in credit markets and the significantly reduced pace of recovery in the UK economy, the Board has concluded that a more cautious approach should be taken. The Board believes that in the longer term the Group will benefit from conserving its internal resources to continue to support the growth of its overseas businesses. Consequently the Board now expects, in the absence of unforeseen circumstances, to pay a final dividend of 4.6p (2011: 10.7p) making a total for the year of 9.0p (2011: 15.1p).
Outlook
In summary, in the UK in the short term we anticipate that trading conditions will continue to be difficult. We are looking to target areas where we see growth opportunities, particularly in the data centre, hospitality, high-end residential and international retail markets. Outside the UK, we continue to see robust pipelines and strong demand for our services from our international clients. The current order book stands at circa £760m (June 2011 - £750m), of which £690m (June 2011 - £706m) relates to the financial year ending 30 June 2013. We continue to position the Group to benefit from international growth opportunities, new sectors and also for the eventual recovery in the UK.
