Final Results

RNS Number : 8069X
Medsea Estates Group PLC
30 June 2008
 






Medsea Estates Group PLC    


PRELIMINARY RESULTS for the year ended 31st December 2007 



Chairman's Statement


Turnover rose 30% in the year to £10.5 million, but I regret to report that the Group recorded a loss before tax of £1.3 million. Clearly this was a very disappointing performance, but reflects the position we announced in our trading update in February. The Group's revenue in the second half of the year was only £4.6 million on a re-stated basis, a reflection not only of slowing activity, but also of the difficulties we have experienced as a result of our dependence on third parties to complete the sales processes in a timely manner.


The Board has taken the decision to change the Group's revenue recognition policy, so we are no longer taking into account income that is in the pipeline. Additionally, we have decided that the degree of influence Medsea now exercises over its investments is no longer sufficient in all cases to justify their inclusion as associates and accordingly certain investments have been reclassified as available for sale investments and profits will now be recognised when they crystallise rather than on the equity basis.


Basically, 2007 was characterised by two distinct halves: the first half of the year witnessed exceptionally strong sales growth for our Italian business as the attractiveness of properties in Calabria led to record sales of 608 units in the first half year. The unexpected complexity of operating in this market however led to cancellations and, most importantly commission collection delays in the second half of the year.  


In general, our experience to date in the burgeoning Italian market has brought the following issues to light:


•     The process by which reservations are converted to firm, billable and collectable commissions has been generally hampered by regulatory and third party inefficiencies

•     Delays in Medsea receiving such commissions have resulted in a cash flow squeeze for both Medsea and its agents, with the latter resulting in a throttling of the new business pipeline

•     Costs related to the expansion in the Italian market impacted profitability in the second half of the year


The Group has focused heavily on easing the commission backlog and is hopeful that the use of its call centre and other initiatives will enable commissions to flow more readily in the coming months.


Quite clearly, recent events in the credit markets have placed pressure on the markets in which Medsea operates. Cancellations are often linked to financial pressures experienced by buyers. The Spanish market has been experiencing a downturn already for a number of years and market forces have created a buyer's market.  Medsea is not immune to such developments and is continually right sizing the business to reflect these conditions. Nevertheless, the general trend of Northern Europeans seeking either a primary or secondary home in the Mediterranean has not ceased and reduced prices are likely to increase the attractiveness for new buyers.


As an AIM company, we notified in our interim results announcement that the Group is now required to report according to International Financial Reporting Standards. In fact, this change from UK GAAP has no material impact on our numbers, but we have taken the opportunity provided by this change to review the accounting policies that we were advised to implement when the Group was floated on AIM. 


The reality is that whilst the policy in relation to income recognition was absolutely proper, the alternative approach to which we have now changed provides a better measure of performance and where management should focus their attention. This change also has the advantage that our results will no longer be affected by actual cancellations being at different levels to cancellation provisions in our accounts as the latter will no longer be needed. An explanation of the impact of these changes is provided in the financial statements.


January 2008 started better than we had expected, but since then sales have continued to decline which has led the company to implement a series of cost-cutting measures. We believe this will enable us to emerge as a stronger Group once market conditions improve.


Tony Gatehouse

Chairman


  


Finance Review



Income Statement


Year on year increase in turnover to £10,537,000 represents an increase of 30% over the year 2006. Loss before tax has increased to £1,297,000 compared to a loss of £1,048,000 in the previous year.


Gross margins improved from 13.7% in 2006 to 21.5% in 2007, but this was off-set by an increase in administrative costs of £1,400,000.


The results for the year have been drawn up using a different income recognition policy to that hitherto. The basic effect is that only income that has been invoiced or is invoicable by the year end has been taken to the profit and loss account. This means that commissions that would have been receivable and payable under the previous policy have not been included in these accounts.


Due to external changes and the impact of the credit squeeze, the Group has reviewed the degree of influence it currently exercises in relation to its Associates. As a result the directors consider that the Group no longer exercises the appropriate influence in respect of two of the investments, and these have been re-classified as available for sale financial assets.


Earnings per share, basic and diluted, in the year are minus 1.76 pence compared to minus 1.67 pence in 2006.


Balance Sheet


There has been a significant increase in the sums invested in Associates, resulting from the matters referred to in note 26 of the 2006 accounts and in note 25 of these accounts. This has in turn resulted in the decrease in trade receivables as reported at the 2006 year end.


It is now expected that the profits from Associates will start to crystalise in 2009.


Cash Flow


The Group raised £735,000 through a share placing in June 2007.


The net cash outflow during the year in respect of operating activities reflects the impact of the loss recorded.


  

MEDSEA GROUP ESTATES PLC AND SUBSIDIARY UNDERTAKINGS
















CONSOLIDATED INCOME STATEMENT





















FOR THE YEAR ENDED 31 DECEMBER 2007







 

 

 

 

 

 

 

 

 

 

 

 

 





























































2007


2006













As restated











£'000


£'000














Revenue










  10,537 


  8,066 














Cost of sales









(8,274)


(6,963)














Administrative expenses









(3,556)


(2,121)














Finance income









24 


  1 














Finance expense









(28)


(31)











 


 

Loss before taxation









(1,297)


(1,048)














Tax (charge)/credit on loss








      (14) 


(129)











 


 

Loss for the year









(1,311)


(1,177)














Attributable to:













Equity holders of the parent

Minority interests









       (1,307) 

(4) 


(1,172)   (5) 











 


 









(1,311)


(1,177)














Loss per share (pence)











Basic and diluted









(1.76)


(1.67)



























None of the group´s activities was acquired or discontinued during the above periods.




  

CONSOLIDATED BALANCE SHEET







AS AT 31 DECEMBER 2007

























2007


2006










As re-stated








£'000


£'000

ASSETS










Non-current assets








Other intangible assets





  4 


  6 

Property, plant and equipment





  1,057 


  871 

Investments in associates





  646 


  - 

Other financial assets





   100 


  92 








  1,807 


  969 

Current assets









Inventories







  165 


  301 

Trade and other receivables 





  1,788 


  2,319 

Current tax recoverable





  15 


  -  

Cash and cash equivalents





  317 


  944 








  2,285 


  3,564 











Total assets






  4,092 


  4,533 











EQUITY AND LIABILITIES








Shareholders' equity








Share capital






  7,798 


  7,063 

Share premium






  22 


  22 

Other reserve






  128 


  117 

Revaluation reserve





  51 


  46 

Merger reserve






(7,058)


(7,058)

Foreign currency translation reserve



(170)


(109)

Retained earnings






(475)


  778 

Minority interests






  -


  4 








  296 


  863 











Non-current liabilities








Long-term borrowings





  209 


  300 

Deferred tax






  -  


   91 








  209 


  391 











Current liabilities








Trade and other payables





  3,065 


  3,031 

Short-term borrowings





  522 


  248 








  3,587 


  3,279 











Total equity and liabilities





  4,092 


  4,533












  


CONSOLIDATED STATEMENT OF CASH FLOWS





















FOR THE YEAR ENDED 31 DECEMBER 2007




















2007


2006

re-stated











£'000


£'000














Cash flows from operating activities























Profit/(loss) before tax









(1,297)


(1,048)

Adjustments for:













Depreciation








  127 


  121 


Foreign exchange 








(63)


(90)


Finance income








(24)


(1)


Finance expense








  28 


  31 


Amortisation of other intangible assets






  2 


  3 


Loss / (profit) on sale of property, plant and equipment




  15 


(52)


Decrease / (increase) in trade and other receivables




  548 


(477)


Decrease / (increase) in inventories








  136 


(119)


Increase in trade and other payables




  47 


  2,246 











 


 

Cash (absorbed by) / generated from operations







(481)


  614 

Tax on profits paid








   (137) 


(164)

Interest paid









(28)


(31)











 



Net cash (absorbed by) / generated from operating activities


(647)

 

  419 












Cash from investing activities











Interest received









24


  1 

Purchase of property, plant and equipment







(256)


(107)

Proceeds from the sale of property, plant and equipment








  -  


  276 

Payments to acquire shares in associates







(654)


  -  

Payments to acquire other intangible assets








(1)


(7)











 


 

Net cash (used) / generated in investing activities






(887)


  163 














Cash from financing activities











Receipt of borrowings








  123 


  352 

Share issues









735 


  -  

Other loans










(13)


(118)

Capital element of finance lease (payments)/receipts






(27)


  55 











 


 

Net cash generated from financing activites






  818 


  289 














Net (decrease)/ increase in cash and cash equivalents




(715)


  871 














Cash and cash equivalents at the beginning of the period




  944 


  73 














Cash and cash equivalents at the end of the period




  229 


  944 














Cash and cash equivalents consists of:





















Cash and cash equivalents included in current assets



317


944


Bank overdraft included in current liabilities







(88)


-









229


944


  


1.  Basis of preparation


The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain non-current assets and in accordance with applicable International Financial Reporting Standards (IFRS) as adopted for use by the European Union.


These are the Group's first IFRS consolidated financial statements. IFRS 1 'First-time adoption of International Financial Reporting Standards' has been applied. An explanation as to how the transition in respect of IFRS has affected the reported financial position, financial performance and cash flow of the group is provided below in the reconciliations of equity and profit or loss for the comparative periods reported under UK GAAP to those reported for those periods under IFRSs; the impact of the change in the accounting policy for income recognition is also explained.


The group financial statements consolidate Medsea Estates Group PLC and all its subsidiary undertakings drawn up to 31 December each year. Medsea Estates Group PLC acquired shares in Medsea UK Limited and its subsidiaries on 16 July 2004. The financial statements have been prepared using merger accounting so that all the combining entities' results are shown from 1 January 2004.


As this business combination occurred before the transition date to IFRS of 1 January 2006, the exemption from retrospective application of IFRS3 Business Combinations has been taken.



2. Operating loss























The operating loss is arrived at after charging:




2007


2006










 £'000 


 £'000 













Depreciation of owned assets



  109 


  111 

Depreciation of leased assets



  18 


  10 

Amortisation of intangible assets




  2 


  3 

Loss/(Profit) on disposal of property, plant and equipment



  15 


(52)

Hire of equipment - operating leases - motor vehicles




  655 


  373 

Hire of equipment - operating leases - land and buildings




  143 


  174 

Auditors' remuneration - other services



  27 


  2 

Auditors' remuneration - audit services




  40 


  31 


 
 
Share capital
 
Share premium
 
Other reserves *
 
Revaluation reserve
 
Merger reserve
 
Foreign Currency Translation Reserve
 
Retained earnings
 
Minority interests
 
Total Equity
 
 
£'000
 
£'000
 
£'000
 
£'000
 
£'000
 
£'000
 
£'000
 
£'000
 
£'000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at 1 January 2006
7,063
 
22
 
117
 
96
 
(7,058)
 
                       -  
 
1,944
 
9
 
2,193
Loss for the year
-
 
-
 
-
 
-
 
-
 
                       -  
 
(1,172)
 
-
 
(1,172)
Exchange differences arising on translation of foreign operations
-
 
-
 
-
 
(1)
 
-
 
(109)
 
(43)
 
-
 
(153)
Minority interest
-
 
-
 
-
 
-
 
-
 
                       -  
 
-
 
(5)
 
(5)
Sales of revalued properties
-
 
-
 
-
 
(49)
 
-
 
                       -  
 
49
 
-
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total recognised income and expense for the period
7,063
 
22
 
117
 
46
 
(7,058)
 
(109)
 
778
 
4
 
863
Payment of dividends
-
 
-
 
-
 
-
 
-
 
                       -  
 
-
 
-
 
-
Balance at 31 December 2006 carried forward
7,063
 
22
 
117
 
46
 
(7,058)
 
(109)
 
778
 
4
 
863
Balance at 1 January 2007 brought forward
7,063
 
22
 
117
 
46
 
(7,058)
 
(109)
 
778
 
4
 
863
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss for the period
-
 
-
 
-
 
-
 
-
 
                       -  
 
(1,307)
 
-
 
(1,307)
Exchange differences arising on translation of foreign operations
-
 
-
 
11
 
5
 
-
 
(61)
 
                54
 
-
 
9
Minority interest
 
 
 
 
-
 
-
 
-
 
                       -  
 
            -  
 
(4)
 
(4)
Sales of revalued properties
-
 
-
 
-
 
-
 
-
 
                       -  
 
-
 
-
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total recognised income and expense for the year
7,063
 
22
 
128
 
51
 
(7,058)
 
(170)
 
(475)
 
-
 
(439)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issue of shares
735
 
-
 
-
 
-
 
-
 
-
 
-
 
-
 
735
Payment of dividends
-
 
-
 
-
 
-
 
-
 
                       -  
 
-
 
-
 
-
Balance at 31 December 2007 carried forward
7,798
 
22
 
128
 
51
 
(7,058)
 
(170)
 
(475)
 
-
 
296



* Each company in the Group registered in Spain is required to transfer 10% of its profit each year to a non-distributable reserve until the balance on that reserve reaches 20% of that company's paid up share capital. This balance is reflected under other reserves and the reserve was fully funded at 31 December 2007

 

 

4. Explanation of transition to IFRS and change in Revenue Recognition Policy


The Group has applied IFRS1, First Time Adoption of International Financial Reporting Standards in preparing these consolidated financial statements. The Group's transition date is 1st January 2006 and as such an opening IFRS balance sheet has been prepared at that date. Consequently, 2006 comparative information has been restated under these new accounting standards.


IFRS 1 allows certain exemptions from full retrospective application of certain standards. In preparing these consolidated financial statements, the group has elected to apply the business combinations exemption in IFRS 1. Therefore, it has not restated the business combinations that took place prior to the 1 January 2006 transition date, which resulted in the creation of the merger reserve.


As part of adopting IFRS, the Directors have also decided to alter the accounting policy in respect of revenue recognition.


Hitherto commission income and the consequent commission payable have been accrued in full at the time that clients made payment of a non-refundable reservation deposit to the developer. To allow for subsequent cancellations, a cancellation provision was then made against these accruals in order to reduce the accrued income and expenditure in the accounts to levels that would be comparable with what was actually invoiced. Because of the sometimes protracted period between reservation and completion, establishing the correct level of cancellation provision has become increasingly difficult. Accordingly, the consolidated accounts will now report on commission receivable on the basis of whether it was invoiced or invoicable by the end of the accounting period concerned. This means that commission (both receivable and payable) is only being recognised if the client purchasers have paid the first full instalment on their property purchase (often 50% of the selling price) which then triggers the contractual arrangement whereby commission can be claimed from the developer


Due to external changes and the impact of the credit squeeze, the Group has reviewed the degree of influence it currently exercises in relation to its Associates. As a result the directors consider that the Group no longer exercises the appropriate influence in respect of two of the investments, and these have been re-classified as available for sale financial assets


  


5. Reconciliation of the consolidated income statement for the year ended 31 December 2006












Effect of 

Effect of 







change to

change to

Restated

Effect of

Restated



2006

status of

income 

2006

transition 

2006



UK GAAP

associates

recognition

UK GAAP

to IFRS

IFRS



£'000

£'000

£'000

£'000

£'000

£'000









Revenue


13,300

  -  

(5,234)

8,066

  -  

8,066









Cost of sales


(8,849)

  -  

1,886

(6,963)

  -  

(6,963)









Administrative expenses


(2,229)

  -  

108

(2,121)

  -  

(2,121)









Share of operating profit in associates


702

(702)

  -  

  -  

  -  

  -  









Finance income


1

  -  

  -  

1

  -  

1









Finance expense


(31)

  -  

  -  

(31)

  -  

(31)

Profit/(loss) before taxation


2,894

(702)

(3,240)

(1,048)

  -  

(1,048)









Tax (charge)/credit on loss


(1,019)


890

(129)

  -  

(129)

Profit/(loss) for the year


1,875

(702)

(2,350)

(1,177)

  -  

(1,177)









Attributable to:








Equity holders of the parent


1,880

(702)

(2,350)

(1,172)

  -  

(1,172)

Minority interests


(5)

  -  

  -  

  (5)   

  -  

(5)

Retained profit/(loss) for the year


1,875

(702)

(2,350)

(1,177)

  -  

(1,177)









Earnings/(loss) per share (pence)








Basic and diluted


  2.66 



(1.67)


(1.67)






6. Reconciliation of consolidated equity at 31 December 2006 (last date of UK GAAP statements)





















Effect of 

Effect of 







change to

change to

Restated

Effect of

Restated



2006

status of

income 

2006

transition 

2006



UK GAAP

associates

recognition

UK GAAP

to IFRS

IFRS



£'000

£'000

£'000

£'000

£'000

£'000

ASSETS








Non-current assets








Other intangible assets


6

  -  

  -  

6

  -  

6

Property, plant and equipment


871

  -  

  -  

871

  -  

871

Investments in associates


687

(687)

  -  

  -  

  -  

  -  

Other financial assets


-   

92

  -  

92

-   

92



1,564

(595)

  -  

969

  -  

969

Current assets








Inventories


301

  -  

  -  

301

  -  

301

Trade and other receivables 


12,245

  -  

(9,926)

2,319

  -  

2,319

Cash and cash equivalents


944

  -  

  -  

944

  -  

944



13,490

  -  

(9,926)

3,564

  -  

3,564









Total assets


15,054

(595)

(9,926)

4,533

  -  

4,533









EQUITY AND LIABILITIES








Shareholders' equity








Share capital


7,063

  -  

  -  

7,063

  -  

7,063

Share premium


22

  -  

  -  

22

  -  

22

Other reserve


117

  -  

  -  

117

  -  

117

Revaluation reserve


46

  -  

  -  

46

  -  

46

Merger reserve


(7,058)

  -  

  -  

(7,058)

  -  

(7,058)

Foreign currency translation reserve


  -  

  -  

  -  

0

(109)

(109)

Retained earnings


5,446

(595)

(4,182)

669

  109 

778

Minority interests


4

  -  

  -  

4

  -  

4



5,640

(595)

(4,182)

863

  -  

863









Non-current liabilities








Long-term borrowings


300

  -  

  -  

300

  -  

300

Deferred tax


1,535

  -  

(1,444)

91

  -  

91



1,835

  -  

(1,444)

391

  -  

391









Current liabilities








Trade and other payables


7,331

  -  

(4,300)

3,031

  -  

3,031

Short-term borrowings


248

  -  

  -  

248

  -  

248

Current tax payable


  -  

  -  

  -  

  -  

  -  

  -  



7,579

  -  

(4,300)

3,279

  -  

3,279









Total equity and liabilities


15,054

(595)

(9,962)

4,533

  -  

4,533


  


Re-statement of Interim results as at 30 June 2007


These numbers are unaudited and do not form part of the financial statements for the year 2007. They are furnished for information purposes.




UNAUDITED CONSOLIDATED INCOME STATEMENT 

AS AT 30 JUNE 2007

Group reconciliation of profit for the 6 months to 30 June 2007










Unaudited


Unaudited


Unaudited


Unaudited



Original


Effect of


Effect of 


Restated



30 June


change to 


change to


30 June



2007


status of


Income 


2007





associates


Recognition





£'000


£'000


£'000


£'000










Revenue


5,515


-


406


5,921










Cost of sales


(4,278)


-


(116)


(4,394)










Administrative expenses


(1,395)


-


(11)


(1,406)










Share of operating profit in associates


226


(226)


(226)


  -  










Finance income


4


-


0


4










Finance expense


(14)


-


  -  


(14)










Profit/(loss) before taxation


58


(226)


53


111










Tax on profit/(loss) 


   (35) 


-


(50)


(15)










Profit/(loss) after taxation


  93 


(226)


  3 


  96 



  


UNAUDITED CONSOLIDATED BALANCE SHEET 


Group reconciliation of equity at 30 June 2007















Unaudited


Unaudited


Unaudited

Unaudited













Original


Effect of 


Effect of 

Restated




30 June


change to


change to

30 June




2007


status of


Income 

2007






associates


Recognition





£'000


£'000


£'000

£'000

Non-current assets









Other intangible assets



6


-


  -  

6

Property, plant and equipment



962


-


  -  

962

Investments in associates



1,064


(839)


(747)

317

Other financial assets



0


92


-

92




2,032


(747)


(747)

1,285

Current assets









Inventories



192


-


  -  

192

Trade and other receivables 



11,691




(9,553)

2,138

Cash and cash equivalents



1,672


-


  -  

1,672




13,555


-


(9,553)

4,002










Total assets



15,587


(747)


(10,300)

5,287










Shareholders' equity









Share capital



7,798


-


  -  

7,798

Share premium



22


-


  -  

22

Other reserve



117


-


  -  

117

Revaluation reserve



46


-


  -  

46

Merger reserve



(7,058)


-


  -  

(7,058)

Retained earnings



5,489


(747)


(4,658)

831

Minority interests



(1)


-


  -  

(1)




6,413


(747)


(4,658)

1,755










Non-current liabilities









Long-term borrowings



249


-


  -  

249

Deferred tax



1,328




(1,325)

  3 




1,577


-


(1,325)

252










Current liabilities









Trade and other payables



7,460




(4,317)

3,143

Short-term borrowings



137


-


  -  

137




7,597


-


(4,317)

3,280










Total equity and liabilities



15,587


(747)


(10,300)

5,287




  

Publication of non-statutory accounts 


The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. Statutory accounts for 2007 will be delivered to the Registrar following the Company's Annual General Meeting. 


The Independent Auditors have reported on these accounts. Their report was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 


Other information 


The report and accounts for the year ended 31 December 2007 will be posted to shareholders shortly and laid before the Group's Annual General Meeting.


Copies will also be available via the website (www. www.medseaestates-ir.com) in accordance with AIM Rule 26 and at the Company's registered office, Medsea Estates Group PLC, 85 Elsenham StreetLondonSW18 5NX.




This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR SEDEFUSASEDM
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