Interim Results
Avingtrans PLC
26 February 2008
Avingtrans plc
('Avingtrans,' the 'Group' or the 'Company')
Interim Results for the Six Months Ended 30 November 2007
Six months to Six months to
30 November 30 November
2007 2006
Turnover £21,137,000 £17,159,000
Gross Profit £5,395,000 £4,313,000
Operating Profit* £1,355,000 £1,871,000
Earnings per share* 4.3p 13.3p
Dividend 0.5p 0.5p
*(before share based payments and amortisation/impairment of intangibles)
Highlights
•Record half year sales up 23% to £21.1m (2006: £17.2m)
•Small gross margin improvement to 25.5% (2006: 25.1%)
•Gearing down to 72% (2006: 81%)
•Maintaining dividend at 0.5p per share (2006: 0.5p)
•Aerospace contract problems now resolved
•Sigma receive first significant aerospace orders
•Roger McDowell appointed to succeed retiring Ken Baker OBE on 10 March
2008
For further information please contact,
Avingtrans plc
Ken Baker, Chairman
Stephen King, Finance Director
Tel. 01159 499 020
KBC Peel Hunt Ltd
Julian Blunt
David Anderson
Tel 020 7418 8900
Chairman's Statement
I am pleased to announce the results of Avingtrans plc for the six months ended
30 November 2007.
This statement is the first Avingtrans has had to provide under the new IFRS
rules, the most significant difference being the rules around capitalisation and
amortisation of goodwill and intangibles. Explanations are fully detailed in the
accounting policies and notes in the interim announcement.
The period was one of mixed fortunes for the group, with sales up at a new
record high of £21,137,000 (2006:£17,159,000) but with operating profit before
share based payments and amortisation/impairment of intangibles down at
£1,355,000 (2006:£1,871,000) and net cash outflow from operating activities down
on expectations at £114,000. The below expected result was directly related to
issues arising from the acquisition of B&D Patterns (B&D) in September 2006.
Though Avingtrans' turnover rose, largely as a result of the acquisition of B&D,
a number of unprofitable contracts with B&D's aerospace customers caused a lower
level of operating profit to be experienced in the Aerospace Division throughout
most of the period. This situation was only corrected by severe cost reduction
exercises and price renegotiations with customers and agents which started in
May 2007 and were concluded in December 2007, bringing B&D back into on-going
profitability.
An investigation has been commenced into the possibility of warranty claims
against the previous owners of B&D.
Progress in the rest of the Group was generally to plan with the first aerospace
orders for Sigma at its new Chinese facility, new products at Crown UK and
continuing growth in the Medical & Research and Industrial Products Divisions.
Finally I am pleased to announce that in September 2007 the Group began the
external search for my replacement as Chairman and as per the announcement on 22
February 2008 we are delighted to welcome Mr Roger McDowell to the Board with
immediate effect pending his appointment as Chairman on 10 March 2008, when I
will stand down. Mr McDowell is an experienced and successful Chairman and
director of a number of engineering companies and the Board wishes him well on
his appointment to his new position at Avingtrans.
Financial Performance
Turnover for the six months ended 30 November 2007 was £21,137,000 (2006:
£17,159,000) an increase of 23.2%.
Operating profit before share based payments and amortisation/impairment of
intangibles was £1,355,000 (2006: £1,871,000). Profit after tax for the period
increased to £602,000 (2006: £159,000). Under IFRS the acquisition of B&D
Patterns resulted in intangibles of £4,245,000 being recognised, including
£4,026,000 for Customer relationships. However, immediately after acquisition it
was apparent that these relationships were significantly impaired resulting in a
write off of £2,654,000 to the Income Statement in the six months to November
2006.
The Company had a cash outflow from operating activities during the period of
£114,000 (2006: £297,000 inflow). During the period, the Company made bank debt
repayments of £629,000 (2006: £360,000) Net debt at 30 November 2007 was
£11,180,000 (30 November 2006: £11,185,000), with gearing 72% (30 November 2006:
81%).
Earnings per Share
Earnings per share, for the period ended 30 November 2007, before share based
payments and amortisation/impairment of intangibles was 4.3p (2006: 13.3p).
Basic earnings per share was 3.4p (2006: 4.9p loss) and fully diluted earnings
per share was 3.4p (2006: 4.9p loss).
Dividend
The Board has agreed a dividend of 0.5p for the half year to be paid on 19 May
2008 to shareholders on the register at 18 April 2008.
Operations
Medical & Research Division
Order intake remains high with exciting prospects for Rolls Royce repeat work on
a range of large scale fuel cell containers, continuing interest in submersible
vessels for the navy's of Korea and Singapore and a strong workload continuing
on MRI scanners for various international OEMs. Sales on some non-medical
equipment were slightly down on expectation during the six months under review
due to late release on some orders. Sales on medical equipment were to
expectations.
At Crown order intake and product interest was strong during the period,
following the showing of new support poles for roadside speed cameras at the
Traffex 07 Exhibition where Crown poles were shown on every exhibiting camera
stand. A significant order for Network Rail signalling equipment was received
for delivery in the second half of the period and enquiry levels on camera poles
for overseas customers remained high.
Vehicle Sensor Technology (VST) which has a five year supply and service
agreement with Vehicle Occupancy Ltd (VOL) is pleased to report on-going
positive development of VOL's main product known as Dtect which can be used to
detect the number of occupants of a motor car. VOL, in which Avingtrans has a 7%
shareholding, carried out proving trials at Mallory Park during the period and
the product was awarded the accolade of the Institute of Engineering
Technology's 'Transport innovation of the year'.
Industrial Products Division
Order intake and sales continued very strong in the period, fuelled by demand
for machine tool and medical equipment needs in Germany, UK and the USA. Orders,
sales and margins were above those experienced last year. Actions to develop new
sales opportunities and to improve capability and increase capacity were
instigated during the period including the purchasing of further high technology
machines for Jenaer Gewindetechnik in Germany.
Aerospace Division
As reported earlier in the report, the Division suffered badly from
under-performing contracts inherited at its newest acquisition B&D causing a
lower level of operating profit for the first half of the year. Management
believe they now have the situation under control and have improved
relationships with its major customers by taking on significant new orders and
working to develop long range plans to utilise the divisions' capability to
combine UK based product development skills with subsequent low cost
manufacturing at our Sigma Chinese unit in Chengdu, which though suffering a
slow start up is now enviably accredited as a supplier to most major aerospace
customers in Europe and the USA.
C&H also with a slow start to the year is now working at normal operating levels
for turbine blades and continued to strengthen its relationship with Messier
Dowty for the polishing of landing gear for Airbus.
Directors and Senior Management
As mentioned earlier in the report the Board have agreed that, with the problems
at B&D now under control, and a number of other opportunities becoming available
to drive the Company forward, it is a good time to exercise my retirement plan
first mentioned over a year ago. Accordingly I am standing down as Chairman on
10 March 2008 and Mr Roger McDowell will take over. As Chairman for the past
five years and as a significant shareholder I welcome Roger to the chair of the
Company and wish him all the success for the future.
During the period under review Steven Lawrence, who joined the Company as
Managing Director on the day I became Chairman, and with whom I have worked
closely in developing the Company from the original cash shell, to its current
position as a focused AIM engineering group also indicated his intention to
stand down and will be leaving on the 31st of May 2008. I therefore offer my
sincere thanks for his successful efforts over the past five years and wish him
well in the future. The decision on Steven's replacement will not be made until
after the appointment of our new Chairman.
I should also like to express my thanks to my fellow directors, divisional
managers and co-workers in the UK, Germany, the USA and China for their support
and endeavours during our time together.
Current trading
After the corrective work carried out at B&D during the first half, it was
encouraging to note that the unit returned to profit in January 2008. Also
during January 2008 Sigma was awarded a number of significant aerospace orders
and C&H secured a new long term agreement valued at in excess of £4m revenue
from Safran Group Company Messier Dowty for aerospace components used on the
Airbus. The contract is for an initial three years and will be in addition to
its existing turbine blade refinishing programme.
Stainless Metalcraft is continuing to serve Siemens and other world class MRI
scanner manufacturers with critical components. Sales in MRI products are
expected to reduce slightly in the future as world demand slackens. Efforts
continue to improve margins in this line and seek opportunities in other
products and other markets in the Far-East.
The Industrial Products division continues to experience strong demand for its
products. This is expected to continue beyond the current year end and into FY
2009.
Notwithstanding the threat of recession in world markets and the restrictions on
credit currently being experienced by industry, the outlook, in the short term
at least, for Avingtrans appears positive.
K.M.Baker
Chairman
27 February 2008
Condensed Consolidated Income Statement (Unaudited)
for the 6 months ended 30 November 2007
6 months 6 months Year
to 30 to 30 to 31
November November May
2007 2006 2007
£000 £000 £000
Continuing operations
Revenue 21,137 17,159 40,026
Cost of sales (15,742) (12,846) (29,806)
Gross profit 5,395 4,313 10,220
Distribution costs (486) (371) (885)
Administrative expenses (3,554) (2,071) (5,383)
Operating profit before share based
payments and amortisation/impairment
of intangibles 1,355 1,871 3,952
Share based payments (20) (29) (67)
Amortisation of intangibles (128) (245) (337)
Impairment of intangibles - (2,654) (2,654)
Operating profit/(loss) 1,207 (1,057) 894
Finance income 5 8 16
Finance costs (414) (230) (681)
Profit/(loss) before taxation 798 (1,279) 229
Taxation (196) 493 (70)
Profit/(loss) for the period 602 (786) 159
attributable to equity shareholders
Earnings/(loss) per share - total and
continuing operations
- Basic 3.4p (4.9)p 0.9p
Earnings/(loss) per share - total and
continuing operations
- Diluted 3.4p (4.9)p 0.9p
Condensed Consolidated Balance Sheet (Unaudited)
at 30 November 2007
30 30
November November 31 May
2007 2006 2007
£000 £000 £000
Assets
Non-current assets
Goodwill 10,226 10,226 10,226
Other intangible assets 1,538 1,451 1,584
Property, plant and equipment 10,694 10,560 11,106
Investments 215 15 12
Deferred tax assets - - -
22,673 22,252 22,928
Current assets
Inventories 6,538 4,972 5,968
Trade and other receivables 7,731 8,310 8,695
Cash and cash equivalents 1,058 580 1,216
15,327 13,862 15,879
Total assets 38,000 36,114 38,807
Liabilities
Current liabilities
Trade and other payables (7,747) (8,376) (9,751)
Obligations under finance leases (701) (789) (798)
Borrowings (4,949) (3,302) (3,750)
Current tax liabilities (824) (277) (783)
Total current liabilities (14,221) (12,744) (15,082)
Non-current liabilities
Borrowings (4,800) (5,963) (5,321)
Obligations under finance leases (1,788) (1,711) (1,853)
Deferred tax (945) (1,120) (952)
Deferred consideration (750) (750) (750)
Total non-current liabilities (8,283) (9,544) (8,876)
Total liabilities (22,504) (22,288) (23,958)
Net assets 15,496 13,826 14,849
Shareholders' equity
Share capital 882 866 879
Share premium account 6,271 6,140 6,241
Capital redemption reserve 814 813 814
Merger reserve 402 402 402
Translation reserve 87 (50) (37)
Other reserves 180 180 180
Retained earnings 6,860 5,475 6,370
Total equity attributable to equity
holders of the parent 15,496 13,826 14,849
Condensed Consolidated Statement of Recognised Income and Expense (Unaudited)
for the 6 months ended 30 November 2007
6 months 6 months
to 30 to 30 Year
November November to 31
2007 2006 May 2007
£000 £000 £000
Exchange differences on translation of 124 (50) (37)
foreign operations
Profit/(loss) for the year 602 (786) 159
Total recognised income and expense for the
year 726 (836) 122
Condensed Consolidated Cash Flow Statement (Unaudited)
for the 6 months ended 30 November 2007
6 months 6 months Year
to 30 to 30 to 31
November November May
2007 2006 2007
£000 £000 £000
Net cash from operating activities 538 702 3,528
Interest paid (417) (234) (684)
Income tax paid (235) (171) (356)
Net cash from operating activities (114) 297 2,488
Cash flows from investing activities
Acquisition of subsidiaries (net of cash) - (8,181) (8,185)
Acquisition of investment (215) - -
Purchase of intangible assets (87) (86) (279)
Purchase of property, plant and equipment (201) (535) (1,298)
Proceeds from sale of property, plant and 1 128 128
equipment
Proceeds from sale of investments 19 - -
Interest received 5 8 16
Net cash used in investing activities (478) (8,666) (9,618)
Cash flows from financing activities
Net proceeds from issue of ordinary shares 33 1,909 2,023
Capital element of finance lease repayments (423) (484) (925)
Borrowings raised 239 4,643 4,641
Borrowings repaid (629) (360) (964)
Dividends paid (131) (77) (164)
Net cash used in financing activities (911) 5,631 4,611
Net decrease in cash and cash equivalents (1,503) (2,738) (2,519)
Cash and cash equivalents at beginning of (1,302) 1,224 1,224
period
Exchange gains/(losses) on cash and cash 66 (10) (7)
equivalents
Cash and cash equivalents at end of period (2,739) (1,524) (1,302)
Cash generated from operations
6 months 6 months Year
to 30 to 30 to 31
November November May
2007 2006 2007
£000 £000 £000
Continuing operations
Profit/(loss) before income tax 798 (1,279) 229
Adjustments for:
Depreciation 673 569 1,154
Amortisation and impairment of Intangible 128 2,899 2,991
assets
(Profit) on disposal of property, plant and (7) (121) (121)
equipment
Impairment of investment - - 3
Finance income (5) (8) (16)
Finance expense 414 230 681
Share based payment charge 20 29 67
Changes in working capital
(Increase) in inventories (519) (662) (1,529)
Decrease/(increase) in trade and other 1,188 (1,147) (1,465)
receivables
(Decrease)/increase in trade and other (2,171) 174 1,500
payables
Other non cash charges 19 18 34
Cashflows from operating activities 538 702 3,528
1. Accounting Policies
Basis of preparation
The next annual financial statements of the Group will be prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the EU.
Accordingly, this interim financial report has been prepared in accordance with
the recognition and measurement principles of IFRS as adopted by the EU. The
comparative data for the year to 31 May 2007 and for the six months to 30
November 2006 have been restated and reconciliations are included in note 6 to
explain the changes.
These interim financial statements have been prepared under the historical cost
convention. The measurement bases and principal accounting policies of the group
are set out below.
The group has taken advantage of certain exemptions available under IFRS 1
First-time adoption of International Financial Reporting Standards. The
exemptions used are explained under the respective accounting policy.
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
Group's statutory financial statements for the year ended 31 May 2007, prepared
under UK GAAP, have been filed with the Registrar of Companies. The auditor's
report on those financial statements was unqualified and did not contain a
statement under Section 237(2) or Section 237(3) of the Companies Act 1985.
At the date of this interim statement, the following Standards and
Interpretations, which have not been applied during the year were in issue but
not yet effective:
IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January
2009)
IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009)
Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation
of Financial Statements - Puttable Financial Instruments and Obligations Arising
on Liquidation (effective 1 January 2009)
IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective
1 July 2009)
Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations
(effective 1 January 2009)
IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009)
IFRS 8 Operating Segments (effective 1 January 2009)
IFRIC 12 Service Concession Arrangements (effective 1 January 2008)
IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008)
IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective 1 January 2008)
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group except for IAS 1 (revised) and IFRS 8. The amendment to
IAS 1 affects the presentation of owner changes in equity and introduces a
statement of comprehensive income. Preparers will have the option of presenting
items of income and expense and components of other comprehensive income either
in a single statement of comprehensive income with subtotals, or in two separate
statements (a separate income statement followed by a statement of other
comprehensive income). This amendment does not affect the financial position or
results of the Group but will give rise to additional disclosures. Management is
currently assessing the detailed impact of this amendment on the Group's
financial statements. IFRS 8 will require the preparer to give additional
segment disclosures when it comes into effect for periods commencing on or after
1 January 2009.
Basis of consolidation
The group financial statements consolidate those of the company and all of its
subsidiary undertakings drawn up to 30 November 2007. Subsidiaries are entities
over which the group has the power to control the financial and operating
policies so as to obtain benefits from its activities. The group obtains and
exercises control through voting rights.
Unrealised gains on transactions between the group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported in
the financial statements of subsidiaries have been adjusted where necessary to
ensure consistency with the accounting policies adopted by the group.
Acquisitions of subsidiaries are dealt with by the purchase method. The purchase
method involves the recognition at fair value of all identifiable assets and
liabilities, including contingent liabilities of the subsidiary, at the
acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
condensed consolidated balance sheet at their fair values, which are also used
as the bases for subsequent measurement in accordance with the group accounting
policies. Goodwill is stated after separating out identifiable intangible
assets. Goodwill represents the excess of acquisition cost over the fair value
of the group's share of the identifiable net assets of the acquired subsidiary
at the date of acquisition.
Business combinations completed prior to date of transition to IFRS
The group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations prior to 1 June 2006.
Accordingly the classification of the combination (acquisition, reverse
acquisition or merger) remains unchanged from that used under UK GAAP. Assets
and liabilities are recognised at the date of transition if they would be
recognised under IFRS, and are measured using their UK GAAP carrying amount
immediately post-acquisition as deemed cost under IFRS, unless IFRS requires
fair value measurement. Deferred tax and minority interests are adjusted for the
impact of any consequential adjustments after taking advantage of the
transitional provisions.
Goodwill
Goodwill representing the excess of the cost of an acquisition over the fair
value of the group's share of the identifiable net assets acquired, is
capitalised and reviewed annually for impairment. Goodwill is carried at cost
less accumulated impairment losses.
Goodwill written off to reserves prior to the date of transition to IFRS remains
in reserves. There is no re-instatement of goodwill that was amortised prior to
transition to IFRS. Goodwill previously written off to reserves is not written
back to profit or loss on subsequent disposal.
Revenue
Revenue is measured by reference to the fair value of consideration received or
receivable by the group for goods supplied and services provided, excluding VAT
and trade discounts. Revenue is recognised upon the performance of services or
transfer of risk to the customer.
Sale of goods
Revenue from the sale of goods is recognised when all the following conditions
have been satisfied:
• the group has transferred to the buyer the significant risks and rewards
of ownership of the goods which is generally when goods are despatched,
completion of the product or the product being ready for delivery, based on
specific contract terms.
• the group retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the
goods sold which is generally when goods are despatched, completion of the
product or the product being ready for delivery, based on specific contract
terms.
• the amount of revenue can be measured reliably
• it is probable that the economic benefits associated with the
transaction will flow to the group, and
• the costs incurred or to be incurred in respect of the transaction can
be measured reliably.
Rendering of services
When the outcome of a transaction involving the rendering of services can be
estimated reliably, revenue associated with the transaction is recognised by
reference to the stage of completion of the transaction at the balance sheet
date. The outcome of the transaction is deemed to be able to be estimated
reliably when all the following conditions are satisfied:
• the amount of revenue can be measured reliably
• it is probable that the economic benefits associated with the
transaction will flow to the entity
• the stage of completion of the transaction at the balance sheet date can
be measured reliably and is estimated by reference to when completion of the
service or the product being ready for delivery, based on specific contract
terms, and
• the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
Interest
Interest is recognised using the effective interest method which calculates the
amortised cost of a financial asset and allocates the interest income over the
relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
Dividends
Dividends are recognised when the shareholders right to receive payment is
established.
Construction contracts
Contract revenue reflects the contract activity during the year and is measured
at the fair value of consideration received or receivable. When the outcome can
be assessed reliably, contract revenue and associated costs are recognised as
revenue and expenses respectively by reference to the stage of completion of the
contract activity at the balance sheet date. The stage of completion of the
contract at the balance sheet date is assessed by reference to the value of the
goods provided to the balance sheet date as a proportion of the total value of
the contract.
Where the outcome of a long term contract cannot be estimated reliably revenue
is recognised only to the extent of contract costs incurred where it is probable
that they will be recoverable, and contract costs are recognised as an expense
in the period in which they are incurred.
In the case of a fixed price contract, the outcome of a construction contract is
deemed to be estimated reliably when all the following conditions are satisfied:
• total contract revenue can be measured reliably
• it is probable that economic benefits associated with the contract will
flow to the group
• both the contract costs to complete the contract and the stage of
completion at the balance sheet date can be measured reliably, and
• the contract costs attributable to the contract can be clearly
identified and measured reliably so that actual contract costs incurred can
be compared with prior estimates.
The gross amount due from customers for contract work is presented as an asset
for all contracts in progress for which costs incurred plus recognised profits
(less recognised losses) exceeds progress billings. The gross amount due to
customers for contract work is presented as a liability for all contracts in
progress for which progress billings exceed costs incurred plus recognised
profits (less losses).
Full provision is made for losses on all contracts in the year in which the loss
is first foreseen.
Intangible assets
Intangible assets are amortised over the following periods:
• Order Book Period of order cover
• Customer relationships 10 years
Research and development
Expenditure on research (or the research phase of an internal project) is
recognised as an expense in the period in which it is incurred.
Development costs incurred on specific projects are capitalised when all the
following conditions are satisfied:
• completion of the intangible asset is technically feasible so that it
will be available for use or sale
• the group intends to complete the intangible asset and use or sell it
• the group has the ability to use or sell the intangible asset
• the intangible asset will generate probable future economic benefits.
Among other things, this requires that there is a market for the output from
the intangible asset or for the intangible asset itself, or, if it is to be
used internally, the asset will be used in generating such benefits
• there are adequate technical, financial and other resources to complete
the development and to use or sell the intangible asset, and
• the expenditure attributable to the intangible asset during its
development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed as
incurred.
The cost of an internally generated intangible asset comprises all directly
attributable costs necessary to create, produce, and prepare the asset to be
capable of operating in the manner intended by management.
Amortisation commences upon completion of the asset, and is shown within
administrative expenses.
Careful judgement by the directors is applied when deciding whether the
recognition requirements for development costs have been met. This is necessary
as the economic success of any product development is uncertain and may be
subject to future technical problems at the time of recognition. Judgements are
based on the information available at each balance sheet date.
Assets acquired as part of a business combination
In accordance with IFRS 3 Business Combinations, an intangible asset acquired in
a business combination is deemed to have a cost to the group of its fair value
at the acquisition date. The fair value of the intangible asset reflects market
expectations about the probability that the future economic benefits embodied in
the asset will flow to the group. Where an intangible asset might be separable,
but only together with a related tangible or intangible asset, the group of
assets is recognised as a single asset separately from goodwill where the
individual fair values of the assets in the group are not reliably measurable.
Where the individual fair value of the complementary assets are reliably
measurable, the group recognises them as a single asset provided the individual
assets have similar useful lives.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of depreciation and any
provision for impairment. 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.
Disposal of assets
The gain or loss arising on the disposal of an asset is determined as the
difference between the disposal proceeds and the carrying amount of the asset
and is recognised in the income statement. The gain or loss arising from the
sale is included in 'other income' or 'other expense' in the income statement.
Depreciation
Depreciation is calculated to write down the cost less estimated residual value
of all property, plant and equipment other than freehold land by equal annual
instalments over their estimated useful economic lives. The rates/periods
generally applicable are:
Freehold properties 2%
Leasehold properties Period of lease
Plant and machinery 6.7 - 20%
Fixtures, fittings and 12.5%
tools
Motor vehicles 25%
Computer equipment 33%
Material residual value estimates are updated as required, but at least
annually.
Impairment testing of goodwill, other intangible assets and property, plant and
equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). Goodwill is allocated to those cash-generating units that are expected
to benefit from synergies of the related business combination and represent the
lowest level within the group at which management monitors the related cash
flows.
Goodwill, other individual assets or cash-generating units that include
goodwill, other intangible assets with an indefinite useful life, and those
intangible assets not yet available for use are tested for impairment at least
annually. All other individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Leased assets
In accordance with IAS 17, the economic ownership of a leased asset is
transferred to the lessee if the lessee bears substantially all the risks and
rewards related to the ownership of the leased asset. The related asset is
recognised at the time of inception of the lease at the fair value of the leased
asset or, if lower, the present value of the minimum lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount
is recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the income statement over the
period of the lease.
All other leases are regarded as operating leases and the payments made under
them are charged to the income statement on a straight line basis over the lease
term. Lease incentives are spread over the term of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of
ordinarily interchangeable items are assigned using the first in, first out cost
formula. Cost includes materials, direct labour and an attributable proportion
of manufacturing overheads based on normal levels of activity.
Taxation
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit. Deferred tax on
temporary differences associated with shares in subsidiaries is not provided if
reversal of these temporary differences can be controlled by the group and it is
probable that reversal will not occur in the foreseeable future. In addition,
tax losses available to be carried forward as well as other income tax credits
to the group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax
assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Current and deferred tax assets and liabilities are calculated
at tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at the balance
sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that are
charged or credited directly to equity in which case the related deferred tax is
also charged or credited directly to equity.
Financial assets
Financial assets include cash and trade and other receivables.
All financial assets are recognised when the group becomes a party to the
contractual provisions of the instrument. Financial assets are recognised at
fair value plus transaction costs
Provision against trade receivables is made when there is objective evidence
that the group will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the present
value of estimated future cash flows.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and
are recognised when the group becomes a party to the contractual provisions of
the instrument. Financial liabilities are recorded initially at fair value, net
of direct issue costs.
Financial liabilities are subsequently recorded at amortised cost using the
effective interest method, with interest-related charges recognised as an
expense in finance cost in the income statement. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are charged
to the income statement on an accruals basis using the effective interest method
and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks and bank overdrafts. Bank overdrafts are shown within borrowings in
current liabilities on the balance sheet.
Dividends
Dividend distributions payable to equity shareholders are included in 'other
short term financial liabilities' when the dividends are approved in general
meeting prior to the balance sheet date.
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 rates of exchange ruling at the balance sheet
date. Non-monetary items that are measured at historical cost in a foreign
currency are translated at the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was
determined.
Any exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they were
initially recorded are recognised in the income statement in the period in which
they arise. Exchange differences on non-monetary items are recognised in the
statement of recognised income and expenses to the extent that they relate to a
gain or loss on that non-monetary item taken to the statement of recognised
income and expenses, otherwise such gains and losses are recognised in the
income statement.
The assets and liabilities in the financial statements of foreign subsidiaries
and related goodwill are translated at the rate of exchange ruling at the
balance sheet date. Income and expenses are translated at the average rate. The
exchange differences arising from the retranslation of the opening net
investment in subsidiaries are taken directly to the 'Translation reserve' in
equity. On disposal of a foreign operation the cumulative translation
differences (including, if applicable, gains and losses on related hedges) are
transferred to the income statement as part of the gain or loss on disposal.
The group has taken advantage of the exemption in IFRS 1 and has deemed
cumulative translation differences for all foreign operations to be nil at the
date of transition to IFRS. The gain or loss on disposal of these operations
excludes translation differences that arose before the date of transition to
IFRS and includes later translation differences.
Employee benefits
Defined Contribution Pension Scheme
The pension costs charged against profits are the contributions payable to the
scheme in respect of the accounting period.
Share-based payment
Equity settled share-based payment
All share-based payment arrangements granted after 7 November 2002 are
recognised in the financial statements. All goods and services received in
exchange for the grant of any share-based payment are measured at their fair
values. Where employees are rewarded using share-based payments, the fair values
of employees' services are determined indirectly by reference to the fair value
of the instrument granted to the employee. This fair value is appraised at the
grant date and excludes the impact of non-market vesting conditions (for
example, profitability and sales growth targets).
All equity-settled share-based payments are ultimately recognised as an expense
in the income statement with a corresponding credit to 'retained earnings'.
If vesting periods or other non-market vesting conditions apply, the expense is
allocated over the vesting period, based on the best available estimate of the
number of share options expected to vest. Estimates are subsequently revised if
there is any indication that the number of share options expected to vest
differs from previous estimates. Any cumulative adjustment prior to vesting is
recognised in the current period. No adjustment is made to any expense
recognised in prior periods if share options ultimately exercised are different
to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate share
premium.
Government grants
Government grants in respect of capital expenditure are credited to a deferred
income account and are released to the income statement by equal annual
instalments over the expected useful lives of the relevant assets.
Government grants in respect of assistance of a revenue nature are credited to
the income statement in the same period as the related expenditure.
2. Segment reporting
Avingtrans plc operates three main business segments:
•Aerospace - manufacture of rigid pipe assemblies and prismatic components
for aero engines and precision polishing of aircraft components
•Medical and Research - Manufacture of machined and fabricated vacuum
components for diagnostic imagery, science and research communities. Design
and manufacture fabricated poles and cabinets for roadside safety cameras
and rail track signalling.
•Industrial Products - Design, manufacture, distribution and service of
precision ballscrews, spindles and related linear and rotary products
servicing the original equipment and after markets in global industry
The revenues and net result generated by each of Avingtrans plc's business
segments are summarised as follows:
6 months to 30 November 2007
Medical and Industrial
Aerospace Research Products Consolidation Group
£'000 £'000 £'000 £'000 £'000
Revenue 6,005 11,365 3,767 21,137
Operating 162 806 402 (163) 1,207
profit
Finance income 5
Finance costs (414)
Profit before 798
tax
Tax (196)
Profit after 602
tax
6 months to 30 November 2006
Medical and Industrial
Aerospace Research Products Consolidation Group
£'000 £'000 £'000 £'000 £'000
Revenue 3,911 9,865 3,383 17,159
Operating
(loss)/ profit (2,037) 708 351 (79) (1,057)
Finance income 8
Finance costs (230)
Loss before tax (1,279)
Tax 493
Loss after tax (786)
Year to 31 May 2007
Medical and Industrial
Aerospace Research Products Consolidation Group
£'000 £'000 £'000 £'000 £'000
Revenue 10,305 22,985 6,736 40,026
Operating
(loss)/ profit (1,705) 2,261 570 (232) 894
Finance income 16
Finance costs (681)
Profit before 229
tax
Tax (70)
Profit after 159
tax
3.Earnings per share
Basic earnings per share is based on the earnings attributable to ordinary
shareholders and the weighted average number of ordinary shares in issue during
the year.
For diluted earnings per share the weighted average number of ordinary shares is
adjusted to assume conversion of all dilutive potential ordinary shares, being
the warrants and EMI share options.
6 months 6 months
to 30 to 30
November 2007 November 2006 Year to
No No 31 May 2007
No
Weighted average number of shares - 17,579,184 16,154,181 16,805,321
basic
Warrant/ Share Option adjustment 249,435 470,544 545,151
Weighted average number of shares - 17,828,619 16,624,725 17,350,472
diluted
£'000 £'000 £'000
Earnings/(loss) attributable to 602 (786) 159
shareholders
Share based payments 20 29 67
Amortisation of intangibles 128 245 337
Impairment of intangibles - 2,654 2,654
Adjusted earnings attributable to 750 2,142 3,217
shareholders
Basic earnings/(loss) per share 3.4p (4.9)p 0.9p
Adjusted basic earnings per share 4.3p 13.3p 19.1p
Diluted earnings/(loss) per share 3.4p (4.9)p 0.9p
Adjusted diluted earnings per share 4.2p 12.9p 18.5p
The Directors believe that the above adjusted earnings per share calculation is
a more appropriate reflection of the Group performance. Owing to loss reported
in the 6 months ended 30 November 2006 and the year ended 31 May 2007 the share
options and warrants are not dilutive.
4. Business Combinations
Fair value adjustments of £370,000 primarily relating to contractual losses
arising on onerous contracts committed prior to acquisition have been made in
the period, resulting in a increase in Goodwill of £370,000.
5. Analysis of Net Debt
Other non-cash 30
1 June changes Exchange November
2007 Cash flow movements 2007
£'000 £'000 £'000 £'000 £'000
Cash at bank and
in hand 1,216 (233) - 75 1,058
Bank overdrafts (2,518) (1,270) - (9) (3,797)
(1,302) (1,503) - 66 (2,739)
Bank loans (6,553) 629 (28) - (5,952)
Hire purchase
and finance
leases (2,651) 423 (239) (22) (2,489)
(9,204) 1,052 (267) (22) (8,441)
Net debt (10,506) (451) (267) 44 (11,180)
6. Reconciliation of equity and profit under UK GAAP to IFRS
Avingtrans PLC reported under UK GAAP in its previously published financial
statements for the year ended 31 May 2007. The analysis below shows a
reconciliation of equity and profit as reported under UK GAAP as at 31 May 2007
to the revised equity and profit under IFRS as reported in these financial
statements. In addition, there is a reconciliation of equity under UK GAAP to
IFRS at the transition date for the Group, being 1 June 2006.
Reconciliation of consolidated equity at 1 June 2006 (date of transition to
IFRS)
(a) (b) (c)
IAS 21
IFRS 3 IAS 12 Foreign
UK Business Income Exchange Reclass-
GAAP combinations taxes Rates ifications IFRS
£000 £000 £000 £000 £000 £000
Non-current
assets
Goodwill 6,768 6,768
Other 9 9
intangible
assets
Property, 6,203 6,203
plant and
equipment
Investments 15 15
12,995 12,995
Current
assets
Inventories 3,190 3,190
Trade and 4,931 4,931
other
receivables
Cash and cash 1,398 1,398
equivalents
9,519 9,519
Current
liabilities
Trade and (4,800) (4,800)
other
payables
Obligations (553) (553)
under finance
leases
Borrowings (802) (802)
Current tax (129) (129)
liabilities
(6,284) (6,284)
Non-current
liabilities
Borrowings (2,222) (2,222)
Obligations (1,112) (1,112)
under finance
leases
Deferred tax (240) (272) (512)
Other - -
non-current
liabilities
(3,574) (272) (3,846)
Net assets 12,656 (272) 12,384
Shareholders'
equity
Share capital 771 771
Share premium 4310 4,310
account
Capital 813 813
redemption
reserve
Merger - -
reserve
Translation 2 (2) -
reserve
Other 180 180
reserves
Retained 6,580 (272) 2 6,310
earnings
Reconciliation of consolidated profit for six months ended 30 November 2006
(a) (b) (c)
IAS 21
IFRS 3 IAS 12 Foreign
UK Business Income Exchange Reclass-
GAAP combinations taxes Rates ifications IFRS
£000 £000 £000 £000 £000 £000
Revenue 17,159 17,159
Cost of sales (12,846) (12,846)
Gross profit 4,313 4,313
Distribution costs (371) (371)
Administrative (2,437) 324 13 29 (2,071)
expenses
Share based - (29) (29)
remuneration
Amortisation of - (245) (245)
intangibles
Impairment of - (2,654) (2,654)
Intangible
Operating profit 1,505 (2,575) 13 - (1,057)
Finance income 8 8
Finance costs (230) (230)
Profit before 1,283 (2,575) 13 - (1,279)
taxation
Taxation (382) 875 493
Profit/(loss) 901 (2,575) 875 13 - (786)
attributable to
equity shareholders
Reconciliation of consolidated equity at 30 November 2006
(a) (b) (c)
IAS 21
IFRS 3 IAS 12 Foreign
UK Business Income Exchange Reclass-
GAAP combinations taxes Rates ifications IFRS
£000 £000 £000 £000 £000 £000
Non-current
assets
Goodwill 12,697 (3,922) 1,451 10,226
Other 96 1,347 8 1,451
intangible
assets
Property, 10,568 (8) 10,560
plant and
equipment
Investments 15 15
23,376 (2,575) 1,451 - 22,252
Current
assets
Inventories 4,972 4,972
Trade and 8,310 8,310
other
receivables
Cash and cash 580 580
equivalents
13,862 13,862
Current
liabilities
Trade and (8,376) (8,376)
other
payables
Obligations (789) (789)
under finance
leases
Borrowings (3,302) (3,302)
Current tax (277) (277)
liabilities
(12,744) (12,744)
Non-current
liabilities
Borrowings (5,963) (5,963)
Obligations (1,711) (1,711)
under finance
leases
Deferred tax (272) (848) (1,120)
Other (750) (750)
non-current
liabilities
(8,696) (848) (9,544)
Net assets 15,798 (2,575) 603 13,826
Shareholders'
equity
Share capital 866 866
Share premium 6,140 6,140
account
Capital 813 813
redemption
reserve
Merger 402 402
reserve
Translation (35) (13) (2) (50)
reserve
Other 180 180
reserves
Retained 7,432 (2,575) 603 13 2 5,475
earnings
UK GAAP Non- current assets and current liabilities in respect of the balance
sheet at 31 May 2007 have been adjusted by £0.4 million to reflect adjustments
further fair value adjustments made at 30 November 2007.
Explanation of reconciling items between UK GAAP and IFRS
The standards and interpretations giving rise to the most significant changes to
the previously reported profit of the Group and equity of the Group and company
are:
(a) IFRS 3 - Business combinations
IFRS 3 requires goodwill to be capitalised and subjected to an annual impairment
test rather than amortised by way of equal annual charges as required by UK
GAAP. The standard also requires separable, identifiable, intangible assets
arising on acquisition to be capitalised at fair value and amortised over their
estimated useful economic lives.
The Group acquired B&D Patterns on 21 September 2006. Under IFRS intangibles of
£4,245,000 were recognised, including £4,026,000 for customer relationships.
Immediately after acquisition it became apparent that these relationships and
contracts were significantly impaired resulting in a write off of £2,654,000 to
the Income Statement. The balance of the customer relationship intangible is
written off over a 10 year period.
Goodwill of £558,000 in the year to 31 May 07 (6 months £324,000) was amortised
under UK GAAP. Under IFRS goodwill is not amortised but is tested annually for
impairment and hence the goodwill recognised under UK GAAP has been written back
to the Income Statement
(b) IAS 12 Income Taxes
IAS 12 takes a balance sheet approach to deferred tax whereby deferred tax is
recognised by applying the appropriate tax rate to the temporary differences
arising between the carrying values of assets and liabilities and their tax
base. This contrasts with UK GAAP, which considers timing differences arising in
the income statement.
(c) IAS 21 The Effects of Changes in Foreign Exchange Rates
The Group has taken advantage of the exemption available in IFRS 1 and set to
zero the cumulative translation differences arising on the translation of all
foreign operations at 1 June 2006. Subsequent translation differences have been
classified as a separate component of equity in accordance with IAS 21.
Foreign exchange differences on an Intercompany loan which offset the movement
on translation of foreign operations previously treated as hedging have been
credited/expensed to the Income Statement.
Reclassifications
Computer software costs previously capitalised as tangible fixed assets have
been reclassified as intangible assets. The computer software costs primarily
relate to purchased software packages.
Cash flows
Income taxes presented as a separate category of cash flows under UK GAAP have
been included in operating cash flows under IFRS. Dividends presented as a
separate category under UK GAAP have been including in financing cash flows
under IFRS. There are no other significant adjustments to the cash flows
presented under IFRS.
This information is provided by RNS
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