(GOI) GoIndustry-DoveBid

Interim Management Report

We are pleased to report on the Group's progress during the period under review, as we gain traction as the global market leader in the provision of industrial asset management, auction and valuation services. 

As a company we have asset, industry and market-leading expertise, coupled with powerful eCommerce tools, to deliver innovative solutions to help companies around the world optimise asset utilisation, reduce CAPEX, and dispose of surplus assets and value assets transparently and accurately.  We have thirty-sixoffices across twenty countries servicing the needs of our multi-national blue-chip client base, which include manufacturing corporations, financial institutions, insolvency practitioners and asset based lenders.

For the six months to 30 June 2011 the Group delivered a Gross Revenue of £16.2m (2010:£20m).  As a result, Direct Profit, our key measure of revenue, was £11.9m (2010: £13.8m), albeit at an improved margin of 73.2% (2010: 69.2%) as the business continues its transition to a better quality business model of higher margin, multinational corporate accounts and away from the traditional "one-off" auction business. Tight cost control remains a key focus for the Group and resulted in administrative expenses of £13.1m, being 3% below 2010.

The Group reported an Adjusted Operating Loss* of £1.3m (2010: profit £0.3m) after the deduction of the net finance costs of £0.1m (2010: £0.1m) and an Adjusted Loss before Tax* of £1.4m (2010: profit £151k).  For the six months ended 30 June 2011, the Adjusted basic earnings per share was a loss of 15.6p per share (2010: Adjusted earnings of 0.5p per share).

Trading review

As outlined in the AGM Statement published on 23 June 2011, trading for the first half of 2011 was soft in North America.  This was primarily due to a reduced number of one-off plant closures, as well as general economic uncertainty which caused many companies to postpone major capital expenditure decisions and focus on maximising productivity from their existing capital assets. The current economic situation remains a significant factor behind this conservative approach, making companies reluctant to buy new assets or dispose of unused ones until they develop greater clarity regarding future needs and trends. However, we do expect gradual improvement in our North American performance over the remainder of 2011.

The trends experienced in North America underline the important rationale behind our strategic shift of increasing the number of corporate 'forward flow' agreementswith large companies for the provision of industrial asset management, auction and valuation services.  These agreements, which typically are multi-year service agreements with large global corporations, deliver significant recurring revenues and give the Group greater visibility and scalability over the medium term.

Indeed, the Group continues to make solid progress delivering on this key strategic aim.  It has signed 11 new global corporate forward flow accounts in 2011 to date, taking our total number of active forward flow accounts to 50.  We are also in advanced contract negotiations with 16 other multinational companies and look forward to updating the market on these developments in due course.  These agreements should provide significant additional revenues to the Group in the second half of 2011 and in subsequent years.  For example, the top 15 forward flow accounts averaged over £500k each of fees during 2010.  In addition, 90% of key account contracts have been renewed; further evidence of the customer satisfaction our service delivers.  The Group continued its investment in growing its sales and marketing capabilities, such as the Go-Optimize^® services suite, which helps large corporations pro-actively manage their surplus assets.  We believe it will be an important contributor to future growth and it continues to be well received in the market.

In the six months ended 30 June 2011, Direct Profit was generated as follows:

* Adjusted (loss)/profit before tax and adjusted (loss)/earnings per share, is before amortisation of acquired intangible assets and share based payment charges (note 8).

The Direct Profit from Commission Sales from auction transactions accounted for 76% of total Direct Profit, compared to 74% in 2010.  The proportion of sales conducted online increased to 86% compared to 76% in 2010.  This is in part due to the growing popularity of the Group's Industry Exchanges, which are becoming a recurring destination site for buyers and sellers of used equipment.  This is a strong endorsement which shows that corporations are embracing the transparent and efficient online method for obtaining the best value for resale equipment.  Professional services, comprised primarily of valuation fees, accounted for 20% of total Direct Profit up from 14% in 2010, based mostly on increased business with large global financial services clients. Other Direct Profit, comprised primarily of principal deals which are no longer regarded as a core activity as they increase the Group's exposure to financing commitments and fluctuations in asset values, declined from 11% to 3%.

As explained above, North America had a disappointing first half with Direct Profit down £2.6m on 2010 to £5.1m.  A key factor was the reduction of Direct Profit from Principal deals, down £1.2m to £0.3m.  Commission Sales in North America experienced weakness and were down £1.4m to £3.9m as large corporations had fewer plant closures than in the prior period and they deferred major capital expenditure decisions.  Professional Services, however, grew by 3% to £0.9m.  As a consequence, North America accounted for 43% of the Group Direct Profit, down from 56% in 2010.

Europe delivered a solid performance in the first six months.  Direct Profit was £4.7m, in line with 2010.  In particular, Professional Services grew by 22.3%, mostly due to greater demand in the UK. Commission Sales were £3.5m, down 4.6% on 2010, following the delay of two major auctions.  However, improvements in the overall mix of business led to a significant increase in the European margin up from 59.9% in 2010 to 74.8% in 2011.

Asia had an excellent start to the year with a Direct Profit of £2.0m, up 48.1% on last year.  In particular, Korea won a substantial contract to close 3 factories which helped increase the Direct Profit on Commission Sales from £1.2m to £1.7m, delivering a 43.0% increase over the prior period.  In addition, Professional Services grew by 139.9% from £0.1m to £0.3m principally driven by companies requiring asset valuations due to restructuring, liquidations and mergers.

The Group derives more than half of its revenues in US dollars, so movements in the Sterling-US Dollar rate affect our reported revenues. Given that the US dollar has weakened by 6% in the last year against Sterling, the impact of exchange rates in the first half of 2011, although not significant, has tended to understate the reported revenues.

The Group continues to monitor its cash flow requirements and at 30 June 2011 the Group's net debt position was £4.2m (2010: £0.9m). The main increase in net debt since the year end is due in part to funding the trading activity of the first half, an increase in net working capital of £4.2m (of which the reduction in amounts due to clients were £3.5m), payments to the defined benefit pension scheme of £0.4m and software development capital expenditure of £0.4m.

In April 2011, the Group renewed and increased its main banking facilities. The term loan of £1.1m was increased to £2.4m with a maturity date of July 2014. Each of the Working Capital and the Principal Deal facilities were increased from £2.2m to £3.4m until April 2012. At June 2011 the combined headroom on the above facilities was £4.9m.

Outlook

We continue to implement our strategy to position the business for growth by providing global companies with the best surplus asset management solutions available.  Our success at signing additional global corporations to our multiyear forward flow contracts demonstrates that we are on target with this goal.  These new contracts, along with our existing base of global clients, will increasingly bring greater revenues, improved visibility to our revenue, and increase our cash flow.  It will also enhance our Industry Exchanges so that they become the trading platform of choice.  In addition, we expect to benefit from improved performance from our existing products and services as momentum within our markets gathers pace.

The company expects a strong second half, given a number of large asset disposal programmes scheduled before year end. Despite disappointing first half results, the final performance for the year will depend upon the outcome of these programmes. The pace at which new forward flow accounts are being signed gives the Board confidence as to the opportunity for the Group's global online business services and its prospects as a whole.

Jack G Reinelt

Chief Executive Officer

13 September 2011