The Innovation Group plc - Interim Management Statement 2010

The Innovation Group plc ("Innovation" or "the Group") (LSE: TIG), a global provider of business process outsourcing and technology solutions to the insurance, fleet and automotive industries today publishes its Interim Management Statement for the period from 1 April 2010 to date, in accordance with DTR 4.3 of the FSA Handbook.
Since February of this year the Executive team has rapidly executed its plan to restructure, delayer and focus the business on achieving the required run-rate profitability and cash conversion from the outsourcing business. The Board is pleased with the progress to date, with results now demonstrating that the desired transition to more predictable, long term revenue and profit is emerging. New business wins, both in H1 and the period under review have increased outsourcing revenue by 4% year-on-year at constant currency, despite economic conditions remaining challenging globally and claims volumes still being below 2008 and 2009 levels.
As previously advised, an overall exceptional charge of circa £9.0m, including £5.2m of provisions relating to property consolidation, will be taken this year. These restructuring charges will generate annualised cost savings in excess of £4.0m in 2011 and, barring any further economic downturn, conclude the Group's restructuring and cost reduction programme.

Towards the end of 2009 a Tier 1 European insurer withdrew funding from one of our software clients in Japan and as a consequence the client has been unable to satisfy an outstanding debt due to the Group. Despite several attempts to raise alternative funding, to date the client has been unable to do so. The Group therefore feels it prudent to take a bad debt provision of circa. £750K relating to this debt which was generated by software revenues recognised in prior years.


Outlook


Customer retention has been good and the Group continues to run several sizeable proofs of concept with key players in the insurance market. The management team is confident that a number of these will convert to full contracts over the coming months and provide additional recurring revenue for the Group in 2011.

 Software revenues remain well below 2009 levels with a large number of potential clients in the insurance market now increasingly considering transactional pricing of software as a service ("SaaS"). Whilst this trend is completely in line with our strategy to drive higher quality recurring revenues and thereby greater long-term shareholder value, the impact will continue to affect one-off licence revenue this year.


Following successful implementation of Enterprise, our outsourcing platform, in France and Spain where operational benefits are clearly demonstrable, we are now fully engaged in rolling out the platform in Germany. Germany has the most sophisticated outsourcing model within our Group and implementation here will ultimately generate the biggest benefit to the Group in 2011 and beyond.


This has been a year of change in which a number of significant improvements have been implemented. The Board believes there has been a steady transition in the second half to more predictable, long-term revenue and profit and remains focussed on achieving a satisfactory outcome in the final quarter of the year.