Interim Results
Eleco PLC
18 March 2008
For Immediate Release 18 March 2008
ELECO PLC
The Building Systems and Software Group
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
'Continued strong growth by this specialist provider of offsite building systems
and software solutions'
Highlights
- Turnover increased to £39.4m from £28.9m: an increase of 36.2%
- Profit before tax increased to £3.7m from £2.5m: an increase of 47.9%
- Earnings per share increased to 4.5p from 3.7p: an increase of 24.0%
- Interim dividend increased to 1.0 p from 0.7p: an increase of 42.9%
- Precast concrete interests significantly strengthened by the
acquisition in November 2007 of Milbury Systems, a leading provider of
precast concrete infrastructure products to the water, waste and civil
engineering industries and the agricultural sector.
John Ketteley, Executive Chairman of Eleco plc, commented:
'Our strong growth in the year to June 2007 continued in the six months to
December 2007. Increased demand for Bell & Webster's precast concrete products
and significantly higher productivity at its Grantham plant, and improved
performances from our building components operations and software interests,
more than compensated for the lower outturn of our connector plate businesses.
'The current turmoil in financial markets suggests that we might well expect to
encounter more testing market conditions. However, Eleco is in a strong
financial position and we entered the second half with improved order books.
Milbury Systems will also be contributing to our results for the whole of the
second half. I am therefore confident that despite the uncertain financial
environment, Eleco will again acquit itself well.'
For further information please contact:
Eleco plc Tel: 01920 443 830
John Ketteley, Executive Chairman http://www.eleco.com
john.ketteley@eleco.com
David Dannhauser, Finance Director
david.dannhauser@eleco.com
Collins Stewart Europe Limited 020 7523 8350
Nick Ellis / Philip Roe
Buchanan Communications 020 7466 5000
Tim Anderson / Isabel Podda
Chairman's Statement
I am pleased to present my statement for the six months ended 31 December 2007.
The condensed consolidated interim financial statements for the period on which
my statement is based, have been prepared taking into account the requirements
of IFRS 1 'First time Adoption of International Reporting Standards'.
Performance Summary
Our strong growth in the year to 30 June 2007 continued in the period under
review. . Increased demand for Bell & Webster's precast concrete products
together with significantly higher productivity at its Grantham plant, and
improved performances from our building components operations and software
interests, more than compensated for the lower outturn of our connector plate
businesses which were adversely affected by lower activity in the UK, Irish and
South African house building markets.
Our performance as measured by the key performance indicators set out below is
again encouraging.
- Revenue increased 36.2% to £39,351,000 (2006: £28,890,000)
- Profit from operations increased 42.4% to £3,507,000 (2006:
£2,462,000)
- Profit before tax, increased 47.9% to £3,652,000 (2006:£2,469,000),
including finance income of £145,000 (2006: £7,000)
- Profit for the period increased 37.2% to £2,572,000 (2006:
£1,872,000), after higher tax of £1,080,000 (2006: £597,000)
- After taking account of net cash expenditure of £3,942,000 in
connection with the acquisition of Milbury Systems in November 2007,
net cash at 31 December 2007, amounted to £2,789,000 compared with
£5,459,000 at 30 June 2007
Earnings per share and Dividends
Earnings per share increased 24 per cent to 4.5p (2006: 3.7p).
The Board has declared an interim dividend of 1.00p per share (2006: 0.70p per
share), an increase of 42.9 per cent., which will be paid on 11 April 2008 to
shareholders on the Register on 28 March 2008.
The interim dividend is covered 4.5 times by earnings (2006: 4.4 times).
Operational Review
ELECO BUILDING SYSTEMS
Revenue of our Building Systems operations increased by 33% to £33,180,000
(2006: £24,951,000). Profit from operations increased by 22.2% to £3,356,000
(2006: £2,747,000).
Precast Concrete
Continuing demand for Bell & Webster Concrete's FastBuild(R) Room system for
hotels and student accommodation projects again enabled it to achieve higher
revenue and operating profits in the period under review. A strengthened
management team delivered a significant increase in productivity at its Grantham
manufacturing site which was reflected in an outstanding performance.
The major development in the period was the acquisition of Milbury Systems in
November 2007 for a total consideration of £7.06 million, before expenses.
Milbury Systems is a leading provider of precast concrete infrastructure
products for the water, waste and civil engineering industries and for the
agricultural sector. Further information regarding Milbury System's products and
operations can be found on its website at www.milbury.com.
I would like to take this opportunity to welcome all employees of Milbury
Systems to the Eleco Group.
Timber Engineering Systems
Despite the exposure that our nail plate businesses have had to the sharply
lower activity in the housing markets in the UK, Ireland and South Africa they
performed creditably in the period under review. The revenue of these businesses
overall was broadly in line with that for the corresponding period last year in
a difficult trading environment.
Profits of Gang-Nail Systems, our timber engineering systems business in the UK
and Republic of Ireland were somewhat lower in the period due to the slowdown in
both housing markets. International Truss Systems in South Africa also made
lower profits partly as a consequence of less favourable market conditions but
also owing to weakness in the SA Rand. By contrast, Eleco Bauprodukte in
Germany, which is principally involved in commercial projects, made higher
profits. However, the latter's improved performance in the period under review
was not sufficient to prevent overall profits from our connector plate
operations from being some 20% lower than in the corresponding period last year.
Building Components
Our roofing and cladding businesses, SpeedDeck(R) Building Systems, Downer
Cladding and Prompt Profiles, and Eleco Timber Frame, which manufactures our
patented ElecoFrame(R) system, achieved higher profits in the period despite
significant pressure on margins in a difficult market environment. Our roofing
and cladding businesses were also able to secure significantly higher orders in
the period for delivery in the second half and the order books of our building
components businesses and Eleco Timber Frame are higher than they have been for
some time.
SOFTWARE
Revenue of our Software operations, including the contribution from Asta
Development in the current period, increased by 50.3% to £6,389,000 (2006:
£4,250,000) and the profit was £151,000 (2006 Loss: £285,000).
Construction Software
Construction Software produced a profit before tax in the period compared with a
loss for the corresponding period last year, mainly due to the contribution of
Asta Development which was acquired in December 2006. The results of Consultec
in Sweden and the UK were broadly in line with the corresponding period last
year.
Visualisation Software
Visualisation Software again made a much reduced loss in the period. It
succeeded in signing up a number of international retail distributers for its
main product, Arcon(R) 3D architectural visualisation software, which should
enhance revenues in future periods.
OUTLOOK
The current turmoil in financial markets suggests that we might well expect to
encounter more testing market conditions. However, Eleco is in a strong
financial position and we entered the second half with improved order books.
Milbury Systems will also be contributing to our results for the whole of the
second half. I am therefore confident that despite the uncertain financial
environment, Eleco will again acquit itself well.
John Ketteley
EXECUTIVE CHAIRMAN
18 March 2008
Condensed Consolidated Income Statement
6 months to 31 December Year to
----------------- 30 June
2007 2006 2007
(unaudited) (unaudited) (unaudited)
Note £'000 £'000 £'000
Continuing
operations
Revenue 2 39,351 28,890 61,923
Cost of Sales (22,953) (16,199) (32,142)
-------------- ----- -------- ------ --------- --- --------- --- ---------
Gross Profit 16,398 12,691 29,781
Distribution
costs (1,790) (1,422) (2,818)
Administrative
expenses (11,101) (8,807) (21,142)
-------------- ----- -------- ------ --------- --- --------- --- ---------
Profit from
operations 2 3,507 2,462 5,821
Finance income 145 7 59
-------------- ----- -------- ------ --------- --- --------- --- ---------
Profit before
tax 3,652 2,469 5,880
Tax (1,080) (597) (942)
-------------- ----- -------- ------ --------- --- --------- --- ---------
Profit for the
period 2,572 1,872 4,938
-------------- ----- -------- ------ --------- --- --------- --- ---------
Attributable to:
Equity holders
of the parent 2,572 1,872 4,938
Earnings per share (EPS)
- basic 4.5p 3.7p 9.3p
- diluted 4.5p 3.7p 9.3p
Condensed Consolidated Statement of Recognised Income and Expense
6 months to 31 December Year to
----------------- 30 June
2007 2006 2007
(unaudited) (unaudited) (unaudited)
£'000 £'000 £'000
Actuarial gain
on retirement
benefit
obligation - - 1,125
Associated
deferred tax
on retirement
benefit
obligation - - (407)
Translation
differences on
foreign
currency net
investments 144 (125) (154)
-------------------------- --- --------- --- --------- --- ---------
Net
income/(expens
e) recognised
directly in
equity 144 (125) 564
Profit for the
period 2,572 1,872 4,938
-------------------------- --- --------- --- --------- --- ---------
Total
recognised
income and
expense for
the period 2,716 1,747 5,502
Attributable to:
Equity holders
of the parent 2,716 1,747 5,502
-------- -------- -------- --------- --- --------- --- --------- --- --------- ---
Condensed Consolidated Balance Sheet
31 December 30 June
2007 2006 2007
(unaudited) (unaudited) (unaudited)
Note £'000 £'000 £'000
Non current assets
Goodwill and
intangible
assets 17,790 13,694 13,436
Property, plant
& equipment 11,193 8,362 8,372
Deferred tax 922 1,466 984
-------------- ------- -------- ------ --------- --- --------- --- ---------
Total non
current assets 29,905 23,522 22,792
-------------- ------- -------- ------ --------- --- --------- --- ---------
Current assets
Inventories 3,804 3,902 3,441
Trade and other
receivables 17,104 13,462 13,151
Cash and cash
equivalents 6,589 3,089 5,940
-------------- -------- -------- ------ --------- --- --------- --- ---------
Total current
assets 27,497 20,453 22,532
-------------- -------- -------- ------ --------- --- --------- --- ---------
-------------- -------- -------- ------ --------- --- --------- --- ---------
Total assets 57,402 43,975 45,324
-------------- -------- -------- ------ --------- --- --------- --- ---------
Current liabilities
Borrowings - (813) (410)
Obligations
under finance
leases (286) (385) (313)
Trade and other
payables (15,654) (11,900) (11,103)
Current tax
liabilities (1,271) (801) (982)
Accruals and
deferred income (5,547) (5,619) (6,468)
-------------- -------- -------- ------ --------- --- --------- --- ---------
Total current
liabilities (22,758) (19,518) (19,276)
-------------- -------- -------- ------ --------- --- --------- --- ---------
Non current
liabilities
Borrowings (3,800) (113) (71)
Obligations
under finance
leases (496) (360) (386)
Deferred tax
liabilities (1,100) (1,363) (1,051)
Provisions for
liabilities and
charges (60) (85) (85)
Retirement
benefit
obligation (3,242) (4,888) (3,514)
-------------------- -------- ------ --------- --- --------- --- ---------
Total non
current
liabilities (8,698) (6,809) (5,107)
-------------------- -------- ------ --------- --- --------- --- ---------
--------------- ------- -------- ------ --------- --- --------- --- ---------
Total
liabilities (31,456) (26,327) (24,383)
--------------- ------- -------- ------ --------- --- --------- --- ---------
--------- -------- ------- -------- ------ --------- --- --------- --- ---------
Net assets 25,946 17,648 20,941
========= ======== ======= ======== ====== ========= === ========= === =========
Equity
Share capital 5,994 5,570 5,674
Share premium
account 6,224 6,224 6,224
Merger reserve 7,371 4,453 4,453
Translation
reserve (10) (125) (154)
Other reserve (306) (102) (306)
Retained
earnings 6,673 1,628 5,050
-------------------- -------- ------- --------- ----- --------- ----- ---------
Equity
attributable to
shareholders 25,946 17,648 20,941
==================== ======== ======= ========= ===== ========= ===== =========
Condensed Consolidated Cash Flow Statement
6 months to 31 December Year to
----------------- 30 June
2007 2006 2007
(unaudited) (unaudited) (unaudited)
Note £'000 £'000 £'000
Cash flows from operating
activities
Profit before
interest and
tax 3,507 2,462 5,821
Depreciation
charge 707 712 1,440
Amortisation
charge 196 102 386
Profit on sale
of
property,plant
and equipment (9) (2) (250)
Share-based
payments 91 79 181
Retirement
benefit
obligation (190) (191) (378)
----------------------------- --------- --- --------- --- ---------
Cash generated
from
operations
before working
capital 4,302 3,162 7,200
Increase in
trade and
other
receivables (1,938) (2,442) (2,335)
Decrease/(incr
ease) in
inventories
and work in
progress 568 (960) (628)
Increase in
trade and
other payables 1,571 1,612 1,931
-------------------- -------- ------ --------- --- --------- --- ---------
Cash generated
from
operations 4,503 1,372 6,168
Interest paid (50) (73) (250)
Interest
received 208 101 241
Income tax
paid (967) (477) (663)
------------------------- ------ --------- --- --------- --- ---------
Net cash
generated from
operating
activities 3,694 923 5,496
------------------------- ------ --------- --- --------- --- ---------
Net cash used in investing
activities
Purchase of
intangible
assets (32) (65) (115)
Purchase of
property,
plant and
equipment (2,540) (570) (1,233)
Acquisition of
subsidiary
undertakings
net of cash
acquired 5 (2,912) (2,587) (2,622)
Proceeds from
sale of
property,
plant,
equipment
and intangible
assets 71 11 315
------------------------- ------ --------- --- --------- --- ---------
Net cash
outflow from
investing
activities (5,413) (3,211) (3,655)
------------------------- ------ --------- --- --------- --- ---------
Net cash used in financing
activities
Proceeds from
new loan 3,800 - -
Repayments of
obligations
under finance
leases (178) (160) (374)
Repayment of
bank loans (540) (445) (891)
Equity
dividends paid (974) (750) (1,122)
Own shares
purchased by
ESOT - - (204)
-------------------- -------- ------ --------- --- --------- --- ---------
Net cash
outflow from
financing 2,108 (1,355) (2,591)
-------------------- -------- ------ --------- --- --------- --- ---------
Net
increase/(decr
ease) in cash
and cash
equivalents 389 (3,643) (750)
------------------------- ------ --------- --- --------- --- ---------
Cash and cash
equivalents at
beginning of
period 5,940 6,852 6,852
Effects of
changes in
foreign
exchange rates 260 (120) (162)
------------------------- ------ --------- --- --------- --- ---------
Cash and cash
equivalents at
end of period 6,589 3,089 5,940
------------------------- ------ --------- --- --------- --- ---------
Notes to the Condensed Consolidated Financial Statements
1. Basis of preparation
These condensed consolidated interim financial statements are for the six months
ended 31 December 2007. They have been prepared taking into account the
requirements of IFRS 1 'First Time Adoption of International Financial Reporting
Standards'. The accounts do not include all the information required for full
annual statements and they should be read in conjunction with the year end
financial statements to 30 June 2007.
Outlined below is the Group's effective position on the transitional
arrangements under IFRS 1:
The Group has not elected to apply IFRS 3 Business combinations retrospectively
to business combinations that took place before 1 July 2006. The Group will
account for acquisitions prior to 1 July 2006 as follows:
- the carrying amount of goodwill recognised under UK GAAP at 1 July 2006 will
not be adjusted to reflect any separable intangible assets acquired unless
they would be recognised under IFRS in the books of the acquiree.
- from 1 July 2006, goodwill will no longer be amortised but will be reviewed
annually for impairment; and
- goodwill written off directly to reserves prior to 1998 under UK GAAP will
not be included in determining any subsequent profit 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. In determining any subsequent gain or loss on
disposal of these operations, translation differences that arose before the date
of transition to IFRS will not be included.
These condensed consolidated interim financial statements have been prepared in
accordance with the accounting policies, which are based on the recognition and
measurement principles of IFRS in issue and effective at 30 June 2008 or are
expected to be adopted and effective at that date. The financial information
does not constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The Group's consolidated financial statements for the year
ended 30 June 2007, prepared under UK GAAP, have been filed and the audit report
was not qualified and did not contain a statement under S237(2) or S237(3) of
the Companies Act 1985.
The date of transition to IFRS was 1 July 2006 and the comparative figures for
periods commencing 1 July 2006 have been restated to reflect changes in
accounting policies as a result of adoption of IFRS. The disclosures required by
IFRS 1, concerning the transition from UK GAAP to IFRS, are given in the
reconciliation schedules attached to this report.
The significant accounting policies adopted in the preparation of these
condensed consolidated interim financial statements are set out later in this
report.
2. Segmental information
6 months to 31 December 2007 (unaudited)
Pre cast Building Timber Construction Visualisation Elimination Group
Concrete Components Engineering Software Software ------- -------
------ -------- ------- -------- --------
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 16,493 8,851 7,836 5,199 972 39,351
Inter-segment
revenue - 1,182 1,093 218 - (2,493) -
------------ --- ------- -------- -------- -------- -------- ------- -------
Total segment
revenue 16,493 10,033 8,929 5,417 972 (2,493) 39,351
Segment
operating
results 1,965 177 1,214 245 (94) 3,507
Unallocated
results (935)
------------ --- ------- -------- -------- -------- -------- ------- -------
Profit after
tax 2,572
------------ --- ------- -------- -------- -------- -------- ------- -------
6 months to 31 December 2006 (unaudited)
Pre cast Building Timber Construction Visualisation Elimination Group
Concrete Components Engineering Software Software ------- -------
------ -------- ------- -------- --------
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 9,908 7,131 7,912 3,186 753 28,890
Inter-segment
revenue - 760 1,438 299 12 (2,509) -
------------ --- ------- -------- -------- -------- -------- ------- -------
Total segment
revenue 9,908 7,891 9,350 3,485 765 (2,509) 28,890
Segment
operating
results 1,241 (28) 1,534 (33) (252) 2,462
Unallocated
results (590)
------------ --- ------- -------- -------- -------- -------- ------- -------
Profit after
tax 1,872
------------ --- ------- -------- -------- -------- -------- ------- -------
12 months to 30 June 2007 (unaudited)
Pre cast Building Timber Construction Visualisation Elimination Group
Concrete Components Engineering Software Software ------- -------
------ -------- ------- -------- --------
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 20,900 15,186 15,707 8,393 1,737 61,923
Inter-segment
revenue - 1,945 2,699 223 200 (5,067) -
------------ --- ------- -------- -------- -------- -------- ------- -------
Total segment
revenue 20,900 17,131 18,406 8,616 1,937 (5,067) 61,923
Segment
operating
results 2,569 488 3,061 239 (536) 5,821
Unallocated
results (883)
------------ --- ------- -------- -------- -------- -------- ------- -------
Profit after
tax 4,938
------------ --- ------- -------- -------- -------- -------- ------- -------
3. Earnings per share
The calculations of the earnings per share are based on the total profit after
tax attributable to ordinary equity shareholders of the Company and the weighted
average number of shares in issue for the reporting period.
6 months to 31 December Year to
----------------- 30 June
2007 2006 2007
(unaudited) (unaudited) (unaudited)
Profit after
taxation £2,572,000 £1,872,000 £4,938,000
Weighted average
number of shares in
issue in the period 56,735,930 50,164,945 52,855,635
Dilutive effect of
share options - 1,041,650 -
-------------------------- --------- ---- --------- ---- ---------
Number of shares
for diluted
earnings per share 56,735,930 51,206,595 52,855,635
-------------------------- --------- ---- --------- ---- ---------
Basic earnings per
share 4.5 p 3.7 p 9.3 p
Diluted earnings
per share 4.5 p 3.7 p 9.3 p
-------------------------- --------- ---- --------- ---- --------- ----
4. Dividends
The Directors declared an interim dividend per share of x.xp (2007: 0.7p) after
the interim balance sheet date, which will be payable on 11 April 2008 to
shareholders on the register on 23 March 2008.
5. Business combinations
On 22 November 2007, the Group acquired the entire issued share capital of
Milbury Systems Limited for a total consideration of £7,065,000, before
expenses, of which £1,030,000 relates to the separate purchase of freehold
property and £75,000 of deferred consideration. At completion, £3,735,000 was
settled in cash from the Group's existing resources, £3,030,000 was settled by
the issue and placing of shares on behalf of the vendors and £225,000 by the
allotment to the vendors of new ordinary shares in the Company. At the date of
acquisition, the book value of Milbury Systems' net assets was £1,876,000. This
amount is provisional and will be finalised in subsequent periods. In its last
audited financial statements to 31 December 2006, Milbury Systems reported
pre-tax profits of £682,000.
Significant Accounting Policies
The significant accounting policies adopted in the preparation of the Group's
condensed consolidated financial statements are prepared using the recognition
and measurement principles of the International Financial Reporting Standards
('IFRS'), as adopted by the European Union, are set out below:
A. Basis of preparation
The condensed consolidated financial statements have been prepared on the
historical cost basis.
B. Basis of consolidation
The condensed consolidated financial statements include the financial statements
of the Company and its subsidiary undertakings for the six months ended 31
December 2007 and the comparative six months ended 31 December 2006 and twelve
months ended 30 June 2007. Subsidiaries are entities controlled by the Group.
Control exists where the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The Group obtains and exercises control through voting rights.
The financial statements of the Company and each subsidiary are prepared in
accordance with UK Generally Accepted Accounting Principles ('UK GAAP') or,
where incorporated outside the UK, GAAP applicable to their local jurisdiction.
Adjustments are made in the condensed consolidated financial statements to
adjust for any differences in accounting policies that may exist between UK or
local GAAP and IFRS. The results of subsidiaries acquired or sold in the year
are included in the condensed consolidated income statement from or up to the
date control passes until control ceases.
The acquisition of subsidiaries is dealt with using the purchase method. The
purchase method involves the recognition at fair value of all identifiable
assets and liabilities at the acquisition date, including contingent liabilities
of the subsidiary regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. All intercompany
balances and transactions, including unrealised profits and losses arising from
intra-Group transactions, are eliminated in full.
C. Revenue
Revenue from the sale of goods and services represents the fair value of
consideration received or receivable in respect of goods and services supplied
to third parties in the period, excluding value added tax and trade discounts.
Long term contract revenue is stated at an amount appropriate to their stage of
completion as measured by work performed. Revenue from software maintenance and
support contracts is treated as deferred income and taken to revenue in the
income statement on a straight line basis over the term of the contract.
D. Intangible assets
Goodwill arising on consolidation represents the excess of the cost of the
acquisition, including expenses, over the Group's interest in the fair value of
the identifiable net assets acquired. The carrying value of goodwill is
recognised as an asset and reviewed for impairment at least annually and any
impairment is recognised immediately in the income statement.
On disposal, the attributable amount of goodwill is included in the
determination of profit or loss on disposal. Goodwill arising on acquisitions
before the date of transition to IFRS has been retained at the previous UK GAAP
amounts subject to being tested for impairment at that date. Goodwill written
off to reserves under UK GAAP prior to 1998 has not been reinstated and is not
included in determining any subsequent profit or loss on disposal.
Other intangible assets acquired separately are capitalised at cost and on a
business combination are capitalised at fair value as at the date of
acquisition. Following initial recognition, an intangible asset is held at cost
less accumulated amortisation and any accumulated impairment losses.
Amortisation expense is charged to administration expenses on a straight line
basis over its useful economic life.
The Group owns intellectual property both in its software tools and software
products. Intellectual property purchased is capitalised at cost and is
amortised on a straight line basis over its expected useful life.
Research expenditure is written off as incurred. Development expenditure on a
project is written off as incurred unless and until the following principal
criteria are all satisfied:
- the project is for a new / substantially new product or process
- comprehensive testing has been performed and has established the technical
feasibility of the project is without doubt.
- the commercial viability of the project has been measured by detailed market
analysis and associated earnings projections.
When a project meets all these criteria, subsequent development costs are
capitalised and are amortised from the date the product or process is available
for use, on a straight line basis over its estimated useful life.
The carrying amounts of intangible assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable and in the case of capitalised development expenditure reviewed for
impairment annually while the asset is not yet in use.
E. Property, plant and equipment
Property, plant and equipment is stated at purchase cost, together with any
directly attributable costs of acquisition. The carrying amount and useful lives
of property, plant and equipment with material residual values are reviewed at
each balance sheet date.
Depreciation is provided on all property, plant and equipment, except freehold
land and assets in the course of construction, on a straight line basis to write
down the assets to their estimated residual value over the useful economic life
of the asset as follows:
Freehold buildings - 50 years
Short leasehold property - over the term of the lease
Plant, equipment and vehicles - 2 to 10 years
F. Impairment of assets
The carrying amount of the Group's goodwill is assessed annually as to whether
an impairment adjustment may be required. When annual impairment testing for an
asset is required, the Group makes an estimate of the asset's recoverable
amount, based on the higher of the asset's value in use and fair value less
costs to sell. 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. Any impairment loss is charged to the income statement under the
relevant expense heading.
A previously recognised impairment loss, other than goodwill, is reversed only
if there has been a change in the previous indicator used to determine the
assets recoverable amount since the last impairment loss was recognised. The
reinstated carrying amount cannot exceed the carrying amount that would have
been determined, net of amortisation, had no impairment loss been recognised for
the asset in prior years.
G. Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is based on the weighted average method and includes expenditure incurred
in acquiring the inventories and bringing them to their existing location and
condition. The cost of manufactured inventories and work in progress includes
related production overheads based on normal operating activity. Net realisable
value is based on estimated selling price less further costs expected to be
incurred to completion and disposal.
On long-term contract work in progress, the amount of profit attributable to the
stage of completion of a contract is recognised when the outcome of the contract
can be estimated reliably. Contract work in progress is stated at costs
incurred, less those transferred to the income statement, after deducting
foreseeable losses and payments on account not matched with revenue. Amounts due
from customers for long term contract work are included in trade and other
receivables and represent revenue recognised in excess of payments on account.
H. Leases
Finance leases, which transfer to the Group substantially all of the benefits
and risks of ownership of an asset, are capitalised at the inception of the
lease at the fair value of the leased asset or, if lower, at the present value
of the minimum lease payments. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance charges are
charged directly against income.
Capitalised leased assets are depreciated over the shorter of the estimated life
of the asset or the lease term. Leases where the lessor retains substantially
all the risks and benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in the income
statement on a straight line basis over the term of the lease.
I. Pensions
The Group operates a defined benefit pension scheme, which provides benefits
based on final pensionable pay. The defined benefit scheme is valued every three
years by a professionally qualified independent actuary, the rates of
contribution payable being determined by the actuary.
The service cost of providing retirement benefits to employees during the year
is charged to the income statement in the year. The full cost of providing
amendments to benefits in respect of past service, where amendments to benefits
vest immediately, is also charged to the income statement in the year. The
expected return on the assets of the scheme during the year, based on the market
value of scheme assets at the start of the financial year, is included within
finance income/charge. This also includes a charge representing the expected
increase in liabilities of the scheme during the year, arising from the
liabilities of the scheme being one year closer to payment. The resulting net
finance amount is reported in the income statement.
Differences between actual and expected returns on assets during the year are
recognised in the statement of recognised income and expenses in the year,
together with differences from actual experience and from changes in actuarial
assumptions. The net deficit on the defined benefit pension scheme, representing
the difference between the present value of the defined benefit obligation and
the fair value of scheme assets (based upon market price information and in the
case of quoted securities the published bid price) is reported on the balance
sheet.
Contributions to defined contribution pension schemes are charged to the income
statement as they become payable.
J. Share based payments
The cost of equity-settled transactions with employees is measured by reference
to the fair value at that date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date on which the relevant
employees is unconditionally entitled to the award. The fair value of the
employees services is determined by reference to the fair value of instruments
granted using an appropriate pricing model. In valuing equity-settled
transactions, account is taken of the probabilities of performance achievement
and other conditions linked to the price of the shares of the Company (market
conditions).
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and management's
best estimate of the achievement or otherwise of non-market conditions. The
movement in cumulative expense since the previous balance sheet date is
recognised in the income statement, with a corresponding entry in equity.
K. Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of transaction. Assets and liabilities in foreign currencies and assets
and liabilities in the financial statements of foreign subsidiaries are
translated into sterling at the rate of exchange ruling at the balance sheet
date and results are translated at the average rate of exchange for the year.
Differences on exchange, arising from the retranslation of the opening net
investment in subsidiary companies and from the translation of the results of
those companies at an average rate, are taken to reserves and reported in the
statement of recognised income and expense.
All other foreign 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 for the
period in which they arise.
L. Financial assets and liabilities
Financial assets are recognised when the group becomes a party to the
contractual provisions of the instrument and arise principally through the
provision of goods and services to customers (trade and other receivables) but
also include other types of contractual monetary assets. Trade and other
receivables are measured subsequent to initial recognition at amortised cost
using the effective interest method, less provision for impairment. A financial
asset is derecognised only where the contractual rights to the cash flows from
the asset expire or the financial asset is transferred and that transfer
qualifies for derecognition.
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. Trade payables and other short term monetary liabilities are
recorded at fair value and subsequently carried at amortised cost with any
changes in fair value being recognised in the income statement. Bank borrowings
are initially recognised at the amount advanced, exclusive of any transaction
costs directly attributable to the issue of the instrument and subsequently
carried at amortised cost. A financial liability is derecognised when the
obligation is discharged, cancelled or expires.
M. Taxation
Current tax is the tax payable based on taxable profit for the year.
Deferred tax is calculated using the liability method on temporary differences
and 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 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 the expected tax rates are enacted or substantively
enacted at the balance sheet date.
Notes explaining transition to IFRS
These are the Group's first condensed consolidated interim financial statements
prepared using the recognition and measurement principles of the International
Financial Reporting Standards ('IFRS'). The IFRS accounting policies of the
Group are detailed earlier in this document. An explanation of how the
transition from UK Generally Accepted Accounting Principles ('UK GAAP') to IFRS
has affected the Group is set out below.
Note
1. Goodwill
Under UK GAAP, goodwill was capitalised and amortised on a straight line basis
over its useful economic life, which ranges between five to twenty years. Under
IFRS this goodwill balance is no longer amortised but instead subject to an
annual impairment review.
The carrying amount of the assets of each cash generating unit inclusive of
attributable goodwill is compared to the present value of forecast net cash
flows before interest and tax that are expected to flow from these units. An
impairment adjustment is required where the carrying amount of the assets
exceeds the value in use measured as the present value of the future cash flows.
A benefit of £596,000 is recognised in the prior year condensed consolidated
income statement relating to amortised goodwill with a corresponding increase in
the balance sheet value at 30 June 07.
Business Combinations
The excess of the cost of an acquisition, including attributable expenses, above
the fair value of the net assets acquired was deemed to be goodwill under UK
GAAP. IFRS 3 requires that a value is attributed to any identifiable intangible
assets, such as patents and copyrights, customer lists and relationships, brands
and in progress research and development together with the related deferred tax
liability. Hence, acquired goodwill is the difference between the cost of the
investment and the fair value of the net assets including intangible assets and
the related deferred tax liability and represents such items as the assembled
workforce that do not qualify for separate recognition.
The acquisition of Asta Development plc in December 2006 has been reviewed and a
value of £3,227,000 has been attributed as at that date to the intangible asset
comprising customer contracts and customer relationships with a related deferred
tax liability of £904,000. The deferred income creditor has been reduced by
£189,000 with a related deferred tax liability adjustment of £53,000.
2. Intangible assets
Under UK GAAP, certain computer software was capitalised within tangible fixed
assets. Under IFRS, only computer software that is integral to a related item of
hardware should be included as property, plant and equipment. All other computer
software should be recorded as an intangible asset. £94,000 has been restated as
an intangible asset.
3. Holiday pay accruals
An adjustment is required to record holiday pay liabilities in respect of all
employees. IAS 19 requires that a liability is recorded for all accrued
entitlements for holiday at each balance sheet date. The impact on the Group is
an adjustment to employee benefits expense and accruals together with a related
deferred tax liability adjustment.
4. Deferred Tax
Deferred tax under UK GAAP was provided on all timing differences that had
originated but not reversed at the balance sheet date.
The principal impact of adopting IAS 12 has been to recognise separately, under
non-current assets, the deferred tax asset on the retirement benefit obligation
and to recognise the deferred tax liability on intangible assets recognised in
accordance with IFRS 3 in relation to the acquisition of Asta Development plc.
Reconciliation of profit for the 6 months ended 31 December 2006
UK GAAP IFRS
-------- --------------
(unaudited) Effect of (unaudited)
transition to
IFRS
Note £'000 £'000 £'000
--------- --------- ------- --------- -------- ---------
Continuing operations
Revenue 1 28,926 (36) 28,890
Cost of 3 (16,238) 39 (16,199)
Sales -------- ------- --------- --- -------- ---------
----------
Gross Profit 12,688 3 12,691
Distribution
costs (1,422) - (1,422)
Administrative
expenses 1,3 (9,023) 216 (8,807)
--------------- ------- --------- --- -------- ---------
Profit from
operations 2,243 219 2,462
Finance income 7 - 7
--------------- ------- --------- --- -------- ---------
Profit before
tax 2,250 219 2,469
Tax 1,3,4 (597) - (597)
--------------- ------- --------- --- -------- ---------
Profit for the
period 1,653 219 1,872
--------------- ------- --------- --- -------- ---------
--------- --------- ------- --------- --- -------- --------- ---
Reconciliation of profit for the year ended 30 June 2007
UK GAAP IFRS
-------- --------------
(audited) Effect of (unaudited)
transition to
IFRS
Note £'000 £'000 £'000
Continuing operations
Revenue 1 62,078 (155) 61,923
Cost of 3 (32,142) - (32,142)
Sales -------- ------- -------- --- -------- ---------
----------
Gross Profit 29,936 (155) 29,781
Distribution
costs (2,818) - (2,818)
Administrative
expenses 1,3 (21,527) 385 (21,142)
--------------- ------- -------- --- -------- ---------
Profit from
operations 5,591 230 5,821
Finance income 59 - 59
--------------- ------- -------- --- -------- ---------
Profit before
tax 5,650 230 5,880
Tax 1,3,4 (1,044) 102 (942)
--------------- ------- -------- --- -------- ---------
Profit for the
period 4,606 332 4,938
--------------- ------- -------- --- -------- ---------
Reconciliation of equity at 1 July 2006
UK GAAP IFRS
-------- --------------
(audited) Effect of (unaudited)
transition to
IFRS
Note £'000 £'000 £'000
Non current
assets
Goodwill and
intangible
assets 5,625 94 5,719
Property,
plant &
equipment 2 8,310 (94) 8,216
Deferred tax 3,4 - 1,517 1,517
----------------- ------ ------- -------- -------- ---------
Total
non-current
assets 13,935 1,517 15,452
----------------- ------ ------- -------- -------- ---------
Current assets
Inventories 2,821 - 2,821
Trade and
other
receivables 9,891 - 9,891
Cash and cash
equivalents 6,852 - 6,852
------------ ------ ------ ------- -------- -------- ---------
Total current
assets 19,564 - 19,564
------------ ------ ------ ------- -------- -------- ---------
------------ ------ ------ ------- -------- -------- ---------
Total assets 33,499 1,517 35,016
------------ ------ ------ ------- -------- -------- ---------
Current
liabilities
Borrowings (891) - (891)
Obligations
under finance
leases (325) - (325)
Trade and
other payables (9,798) - (9,798)
Current tax
liabilities (364) - (364)
Accruals and
deferred
income 3 (5,016) (59) (5,075)
------------------ ----- ------- -------- -------- ---------
Total current
liabilities (16,394) (59) (16,453)
------------------ ----- ------- -------- -------- ---------
Non current liabilities
Borrowings (481) - (481)
Obligation
under finance
leases (473) - (473)
Deferred tax
liabilities (340) 18 (322)
Provisions for
liabilities
and charges (85) - (85)
Retirement
benefit
obligation 4 (3,541) (1,517) (5,058)
---------------- ------- ------- -------- -------- ---------
Total
non-current
liabilities (4,920) (1,499) (6,419)
---------------- ------- ------- -------- -------- ---------
------------ ------- ------- ------- -------- -------- ---------
Total
liabilities (21,314) (1,558) (22,872)
------------ ------- ------- ------- -------- -------- ---------
------------ ------- ------- ------- -------- -------- ---------
Net assets 12,185 (41) 12,144
============ ======= ======= ======= ======== ======== =========
Equity
Share capital 5,033 - 5,033
Share premium
account 6,224 - 6,224
Merger reserve 367 - 367
Translation - - -
reserve
Other reserve (127) - (127)
Retained
earnings 688 (41) 647
---------------------- ------- -------- -------- ---------
Equity
attributable
to
shareholders 12,185 (41) 12,144
====================== ======= ======== ======== =========
Reconciliation of equity at 31 December 2006
UK GAAP IFRS
-------- --------------
(unaudited) Effect of (unaudited)
transition to
IFRS
Note £'000 £'000 £'000
Non current
assets
Goodwill and
intangible
assets 12,658 1,036 13,694
Property,
plant &
equipment 2 8,431 (69) 8,362
Deferred tax 4 - 1,466 1,466
------------------ ----- ------- --------- --- -------- ---------
Total
non-current
assets 21,089 2,433 23,522
------------------ ----- ------- --------- --- -------- ---------
Current assets
Inventories 3,902 - 3,902
Trade and
other
receivables 13,462 - 13,462
Cash and cash
equivalents 3,089 - 3,089
------------ ------- ----- ------- --------- -------- ---------
Total current
assets 20,453 - 20,453
------------ ------- ----- ------- --------- -------- ---------
------------ ------- ----- ------- --------- -------- ---------
Total assets 41,542 2,433 43,975
------------ ------- ----- ------- --------- -------- ---------
Current
liabilities
Borrowings (813) - (813)
Obligations
under finance
leases (385) - (385)
Trade and
other payables (11,900) - (11,900)
Current tax
liabilities (801) - (801)
Accruals and
deferred
income 3 (5,769) 150 (5,619)
------------------ ----- ------- --------- -------- ---------
Total current
liabilities (19,668) 150 (19,518)
------------------ ----- ------- --------- -------- ---------
Non current liabilities
Borrowings (113) - (113)
Obligation
under finance
leases (360) - (360)
Deferred tax
liabilities 1 (424) (939) (1,363)
Provisions for
liabilities
and charges (85) - (85)
Retirement
benefit
obligation 4 (3,422) (1,466) (4,888)
---------------- ------- ------- --------- -------- ---------
Total
non-current
liabilities (4,404) (2,405) (6,809)
---------------- ------- ------- --------- -------- ---------
------------ ------- ------- ------- --------- -------- ---------
Total
liabilities (24,072) (2,255) (26,327)
------------ ------- ------- ------- --------- -------- ---------
------------ ------- ------- ------- --------- -------- ---------
Net assets 17,470 178 17,648
============ ======= ======= ======= ========= ======== =========
Equity
Share capital 5,570 - 5,570
Share premium
account 6,224 - 6,224
Merger reserve 4,453 - 4,453
Translation
reserve (125) - (125)
Other reserve (102) - (102)
Retained
earnings 1,450 178 1,628
---------------------- ------- --------- -------- ---------
Equity
attributable
to
shareholders 17,470 178 17,648
====================== ======= ========= ======== =========
Reconciliation of equity at 30 June 2007
UK GAAP IFRS
-------- --------------
(audited) Effect of (unaudited)
transition to
IFRS
Note £'000 £'000 £'000
Non current
assets
Goodwill and
intangible
assets 12,184 1,252 13,436
Property,
plant &
equipment 2 8,417 (45) 8,372
Deferred tax 4 - 984 984
----------------- ------ ------- -------- -------- ---------
Total
non-current
assets 20,601 2,191 22,792
----------------- ------ ------- -------- -------- ---------
Current assets
Inventories 3,441 - 3,441
Trade and
other
receivables 13,151 - 13,151
Cash and cash
equivalents 5,940 - 5,940
------------ ------ ------ ------- -------- -------- ---------
Total current
assets 22,532 - 22,532
------------ ------ ------ ------- -------- -------- ---------
------------ ------ ------ ------- -------- -------- ---------
Total assets 43,133 2,191 45,324
------------ ------ ------ ------- -------- -------- ---------
Current
liabilities
Bank overdraft (410) - (410)
Obligations
under finance
leases (313) - (313)
Trade and
other payables (11,103) - (11,103)
Current tax
liabilities (982) - (982)
Accruals and
deferred
income 3 (6,389) (79) (6,468)
------------------ ----- ------- -------- -------- ---------
Total current
liabilities (19,197) (79) (19,276)
------------------ ----- ------- -------- -------- ---------
Non current liabilities
Borrowings (71) - (71)
Obligation
under finance
leases (386) - (386)
Deferred tax
liabilities 1 (214) (837) (1,051)
Long-term
provisions (85) - (85)
Retirement
benefit
obligation 4 (2,530) (984) (3,514)
------------------ ----- ------- -------- -------- ---------
Total
non-current
liabilities (3,286) (1,821) (5,107)
------------------ ----- ------- -------- -------- ---------
------------ -------- ----- ------- -------- -------- ---------
Total
liabilities (22,483) (1,900) (24,383)
------------ -------- ----- ------- -------- -------- ---------
------------ -------- ----- ------- -------- -------- ---------
Net assets 20,650 291 20,941
============ ======== ===== ======= ======== ======== =========
Equity
Share capital 5,674 - 5,674
Share premium
account 6,224 - 6,224
Merger reserve 4,453 - 4,453
Translation
reserve (154) - (154)
Other reserve (306) - (306)
Retained
earnings 4,759 291 5,050
---------------------- ------- -------- -------- ---------
Equity
attributable
to
shareholders 20,650 291 20,941
====================== ======= ======== ======== =========
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Friday, 3rd January 2025
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