Interim Results
Associated British Engineering PLC
22 December 2006
ASSOCIATED BRITISH ENGINEERING PLC
INTERIM REPORT
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2006
ASSOCIATED BRITISH ENGINEERING PLC
INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
CONTENTS Page
Chairman's statement 1
Consolidated income statement 2
Consolidated interim balance sheet 3
Consolidated interim statement of changes in shareholders' equity 4
Consolidated interim cash flow statement 5
Notes to the interim report 6 - 10
ASSOCIATED BRITISH ENGINEERING PLC
CHAIRMAN'S STATEMENT
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
SUMMARY OF RESULTS
Six months to Six Months to Year to
30 September 2006 30 September 2005 31 March 2006
£'000 £'000 £'000
(restated)
Revenue 1,839 1,345 3,278
Profit/(Loss) before
Tax 197 (36) (78)
Earnings per Share
Basic 15p (3)p (6)p
Diluted 15p (3)p (6)p
The six month period to 30th September 2006 shows an improvement in the
underlying performance of the Company generated from the results at our
subsidiary British Polar Engineering Limited. The profit before tax is £197,000
(2005: (£36,000)) and the earnings per share 15p (2005: 3p loss per share). This
is satisfactory but if we take account of the outstanding dividends on the two
classes of Preference Share in issue, being £26,000 for the period, this would
reduce the earnings per share to 13p; the cumulative outstanding Preference
Share dividends now stand at £332,000.
The Company is now reaching the final stages of negotiation with the Pensions
Protection Fund and with the Pensions Regulator, with a view to finally
resolving the outstanding Group pension issues. I am confident that in my next
Chairman's Statement I will be in a position to report upon the conclusion of
these negotiations following which the Board will be able to more actively
consider the Company's next steps.
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
REVENUE 1,839 1,345 3,278
Cost of sales and overheads (1,663) (1,401) (3,050)
------------- ------------- -------------
OPERATING PROFIT/(LOSS) 176 (56) 228
Finance expense - - (340)
Finance income 21 20 34
------------- ------------- -------------
PROFIT/(LOSS) BEFORE TAXATION 197 (36) (78)
Taxation - - -
------------- ------------- -------------
PROFIT/(LOSS) FOR PERIOD 197 (36) (78)
============= ============= =============
PROFIT/(LOSS) PER SHARE
BASIC AND DILUTED 15p (3)p (6)p
==== ====== ======
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Actuarial losses on retirement
benefit obligation - - (933)
Profit/(loss) for the period 197 (36) (78)
------------ ------------ ----------
TOTAL RECOGNISED INCOME AND EXPENSE
FOR THE YEAR 197 (36) (1,011)
============ ============ ==========
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM BALANCE SHEET
30 SEPTEMBER 2006
At 30 September At 30 September At 31 March
2006 2005 2006
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 282 299 299
------------- ------------- -------------
Current assets
Inventories 1,160 1,386 1,328
Trade and other receivables 586 497 670
Held for trading investments 65 52 60
Cash and cash equivalents 1,588 986 1,205
------------- ------------- -------------
3,399 2,921 3,263
------------- ------------- -------------
Total assets 3,681 3,220 3,562
============= ============= =============
EQUITY AND LIABILITIES
Called up share capital 2,627 2,627 2,627
Share premium account 5,038 5,038 5,038
Other reserve 11 11 11
Retained earnings (9,042) (9,214) (9,239)
------------- ------------- -------------
Equity attributable to the
Company's Equity shareholders (1,366) (1,538) (1,563)
------------- ------------- -------------
LIABILITIES
Non-current liabilities
Retirement benefit obligation 4,395 4,113 4,395
Obligations under finance
leases - - 1
------------- ------------- -------------
4,395 4,113 4,396
------------- ------------- -------------
Current liabilities
Trade and other payables 646 641 728
Obligations under finance
leases 6 4 1
------------- ------------- -------------
652 645 729
------------- ------------- -------------
Total liabilities 5,047 4,758 5,125
------------- ------------- -------------
Total equity and liabilities 3,681 3,220 3,562
============= ============= =============
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Other Retained Total
Capital Premium reserve Earnings
£'000 £'000 £'000 £'000 £'000
Balance at 1 April 2005 2,627 5,038 11 (9,178) (1,502)
Loss for the period - - - (36) (36)
--------- --------- --------- --------- ---------
Balance at 30 September 2005 2,627 5,038 11 (9,214) (1,538)
Loss for the period - - - (42) (42)
Actuarial losses in defined
benefit plan - - - (933) (933)
Defined benefit plan
adjustment - - - 950 950
--------- --------- --------- --------- ---------
Balance at 1 April 2006 2,627 5,038 11 (9,239) (1,563)
Profit for the period - - - 197 217
--------- --------- --------- --------- ---------
Balance at 30 September
2006 2,627 5,038 11 (9,042) (1,346)
========= ========= ========= ========= =========
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Cash flows from operating
activities
Cash generated from/ (used
in) operations 383 (181) 69
Interest received 21 20 34
Interest paid - - (4)
------------ ------------ ----------
Net cash from/(used in)
operating activities 404 (161) 99
------------ ------------ ----------
Cash flows from investing
activities
Proceeds from sale of property,
plant and equipment - 6 5
Purchase of property,
plant and equipment (25) (9) (39)
Purchase of held for
trading investments (5) (22) (30)
------------ ------------ ----------
Net cash used in investing
activities (30) (25) (64)
------------ ------------ ----------
Cash flows from financing
activities
Net change in obligations
under finance leases 4 (1) (3)
------------ ------------ ----------
Net cash generated from/(used
in) financing activities 4 (1) (3)
------------ ------------ ----------
Net increase/(decrease) in cash
and cash equivalents 378 (187) 32
Cash and cash equivalents at
beginning of year 1,205 1,173 1,173
------------ ------------ ----------
Cash and cash equivalents at
end of year 1,583 986 1,205
============ ============ ==========
CASH FLOW FROM OPERATING Six months to Six months to Year to
ACTIVITIES 30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
Net profit/(loss) 197 (36) (78)
Adjustments for:
Depreciation 42 41 72
Interest income (21) (20) (34)
Interest expense - - 4
Pension scheme interest
expense - - 336
Current service cost - - (37)
Changes in working capital:
Decrease/(increase) in
inventories 168 (113) (55)
Decrease/(increase) in
trade and other
receivables 84 (90) (263)
(Decrease)/increase in
payables (87) 48 135
Decrease in provisions - (11) (11)
------------- ------------- ------------
Cash generated from/
(used in) operations 383 (181) 69
============= ============= ============
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
This Group interim report has been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the EU.
The policies set out below have been consistently applied to all periods
presented.
GOING CONCERN
BPE has not been able to meet its statutory obligations concerning the
Pension Fund, which has resulted in the need to conclude a settlement
with the Pension Regulator and the PPF. All sections of the ABE Pension
Fund show an actuarial deficit of £4,395,000 at 31 March 2006
(£4,124,000 at 31 March 2005), but all sections of the Pension Fund,
with the exception of the BPE section, are in wind up. The interim
report has been prepared on the going concern basis as the Board expect
a successful outcome to negotiations with the Pension Regulator and the
PPF, as explained in the Chairman's Statement. It therefore considers
that the Group has sufficient resources to continue in operational
existence for the foreseeable future.
BASIS OF CONSOLIDATION
The Group interim report incorporates the financial statements of
Associated British Engineering plc and its subsidiary undertakings to 30
September each year. All inter-company balances and transactions have
been eliminated in full. The Group interim report includes the results
of subsidiaries acquired or disposed of during the year from or to the
effective date of acquisition or disposal.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration receivable by
the Group for goods supplied and services provided, excluding value
added tax and trade discounts.
Revenue from the sale of spare parts is recognised when the goods are
dispatched or, if under a bill and hold arrangement, when they are
available for dispatch to a specific customer.
Revenue from the sale of engines is recognised in accordance with the
performance of contractual terms and specifically when the engines have
been satisfactorily tested in accordance with contractual terms.
INVENTORIES AND IMPAIRMENT OF INVENTORIES
Inventories of raw materials, work in progress and finished goods are
valued at the lower of cost and net realisable value. Work in progress
and finished goods include an appropriate allocation of overheads.
Cost is on a first in, first out basis. Net realisable value is the
estimated selling price in the normal course of business, less estimated
costs of completion and provision is made for obsolete, slow moving and
defective inventories.
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASED ASSETS
Leases of property, plant and equipment, where the Group has substantially all
the risks and rewards of ownership, are classified as finance leases. Assets
held under finance leases are capitalised at lease inception at the lower of the
asset's fair value and the present value of the minimum lease payments.
Obligations related to finance leases, net of finance charges in respect of
future periods, are included as appropriate within borrowings. The interest
element of the finance cost is charged to the income statement over the life of
the lease so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The property, plant or equipment is
depreciated on the same basis as owned plant and equipment or over the life of
the lease, if shorter.
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. Operating lease rentals (net of
any related lease incentives) are charged against profit on a straight line
basis over the period of the lease.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and any
impairment in value. Freehold land is not depreciated. Depreciation is
calculated to write down the cost of all property, plant and equipment less its
residual value by annual instalments over their expected useful lives on the
following bases:
Freehold buildings 5 per cent
Plant and machinery 7 1/2- 33 1/3 per cent
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 as income.
The carrying values of plant and machinery are reviewed for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable. If any such indication exists, and where the carrying values exceed
the estimated recoverable amount, the assets or cash generating units are
written down to their recoverable amounts.
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 provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. The deferred tax is
not accounted for if it arises from initial recognition of an asset or liability
in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred tax
is determined using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the exchange rates ruling at the balance sheet
date. All exchange differences are dealt with through the income statement.
RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution schemes where the
Group's obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses are
recognised in full in the period in which they occur. They are recognised
outside profit or loss and presented in the statement of recognised income and
expense.
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation as adjusted for unrecognised
past service cost, and as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus the
present value of available refunds and reductions in future contributions to the
plan.
The Group has recognised the actuarial losses and gains immediately within the
Statement of Recognised Income and Expenditure in accordance with the provisions
stated within IAS 19 'Employee benefits'.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand
and short term deposits with a maturity of three months or less which are
subject to an insignificant risk of changes in value.
FINANCIAL INSTRUMENTS
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into.
Where the contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those financial
instruments are classed as financial liabilities. Financial liabilities are
presented as such in the balance sheet. Finance costs and gains or losses
relating to financial liabilities are included in the profit and loss account.
Finance costs are calculated so as to produce a constant rate of charge on the
outstanding liability.
Where none of the contractual terms of share capital meet the definition of a
financial liability then this is classed as an equity instrument. Dividends and
distributions relating to equity instruments are debited direct to equity.
Trade receivables
Trade receivables are originally recognised at fair value less any allowance for
any uncollectible amounts. An estimate for doubtful debts is made when the
collection of the full amount is no longer probable. Bad debts are written off
when identified.
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
Trade payables
Trade payables are originally recognised at fair value less any adjustment for
any unpayable amounts.
Investments in securities
Investments are recognised and derecognised on a trade date where a purchase or
sale of an investment is under a contract whose terms require delivery of the
investment within the timeframe established by the market concerned, and are
initially measured at fair value, with all transaction costs being written off
to the income statement as incurred.
Investments are classified as either held for trading or available-for-sale, and
are measured at subsequent reporting dates at fair value. Gains and losses
arising from changes in fair value of held for trading financial assets are
included in the net profit or loss for the period. For available-for-sale
investments, gains and losses arising from changes in fair value are recognised
directly in equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised in
equity is included in the net profit or loss for the period.
SHARE BASED PAYMENTS AND SHARE OPTIONS
Former employees of the Group have received remuneration in the form of share
based payment transactions, whereby employees render services in exchange for
rights over shares ('equity settled transactions'). The cost of these
transactions is measured by reference to their fair value at the date at which
the options are granted. The fair value is determined by using the Black-Scholes
Option pricing model. In preparing this interim report in accordance with IFRS
1, the Group has elected to apply the share-based payment exemption. It applied
IFRS 2 'Share Based Payment' from 1 April 2004 to those options which were
issued after 7 November 2002 but had not vested by 1 April 2005.
IMPAIRMENT OF TANGIBLE ASSETS
At each balance sheet date, the Group reviews the carrying amounts of its
tangible 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 to
use. In assessing value in use the estimated future cash flows are discounted to
their present value using a pre-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
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(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 (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.
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2006
2. GEOGRAPHICAL SEGMENT ANALYSIS
Based on risks and returns the directors consider the primary reporting
format is by business segment. The directors consider that there is only one
business segment being diesel and related engineering activities. Therefore
the disclosures for the primary segment have been given in the consolidated
income statement and consolidated interim balance sheet.
The secondary reporting format is by geographical analysis by destination as
shown below.
The following table shows an analysis of the Group's sales by geographical
market:
Six months to Six months to Year to
30 September 30 September 31 March
2006 2005 2006
£'000 £'000 £'000
United Kingdom 1,054 713 1,347
Europe 483 199 769
Middle East 6 4 256
Far East and Australasia 196 217 312
Africa 21 12 57
North and South America 79 185 522
Russia - 15 15
---------- ---------- ----------
Total 1,839 1,345 3,278
========== ========== ==========
All of the above turnover arises from diesel and related engineering
activities and originates in the United Kingdom.
All of the assets held by the Group were located in the United Kingdom and
all capital expenditure was incurred within the United Kingdom.
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