Preliminary Results

RNS Number : 2923A
Ubisense Group PLC
19 March 2013
 



 

 

 

 

 

 

 

 

 


Ubisense Group plc

Audited results for the year ended 31 December 2012





Ubisense Group plc ("Ubisense" or the "Company") (LSE: UBI), a market leader in location based smart technology, has announced its audited results for the year ended 31 December 2012.





Financial   highlights

·      Group revenue increased by 2.1% to £24.3 million (FY 2011: £23.8 million)

·      RTLS revenue in the manufacturing sector grew by 57.0%

·      Overall RTLS revenues grew by 10.3%

·      Geospatial revenues grew 34.7%, made up of 20.4% organic and 14.3% inorganic, excluding the impact of a large European telecom customer which undertook a restructuring. Overall Geospatial revenues reduced by 2.5%

·      Improved gross margin of 39.5% (FY 2011: 35.6%)

·      Managed services (including M&S contracts) increased 22.3% and represents 25.6% of total revenue (FY 2011: 21.4%)

·      Adjusted EBITDA* of £1.2m (FY 2011: £1.4m)

·      Net cash of £2.7m following increased investment in product suite





Operational
highlights

·      Major new strategic RTLS wins with AGCO, Astrium, BAE and Hyundai.  Over a dozen new installations at customers such as Renault, Smart and John Deere

·      Extended installations with our existing RTLS customers including Airbus, Aston Martin, BMW, Continental, Cummins, Daimler and Eurocopter

·      New Geospatial wins with Cogeco, IGC, Sovernet, Cambridge Water, SESW, American Electric Power and DREWAG/ENSO

·      New strategic partnerships with Daifuku and Geoplan

·      Increased R&D spending to develop industry solutions including Ubisense's flagship end-to-end manufacturing solution Smart Factory System

·      Double Queen's Award winner for Innovation and International Trade





Current trading & Outlook

·      Strong start to 2013 with new business momentum continuing

·      Current order book of  approximately £13m





Richard Green, Chief Executive Officer, commented,

"2012 was a year of significant strategic progress for the Group. Despite challenging macroeconomic conditions and the timing of some contracts impacting full year revenues, we continued to build exposure of our location solutions with new tier one automotive manufacturers and further grow our penetration amongst our existing blue chip customer base.

Our investment in developing a product suite that is tailored to address industry challenges and deliver real return on investment for our customers means we are well positioned to capture the many opportunities we see for both our RTLS and Geospatial businesses. 

With a robust pipeline and strong order book, we remain confident in our capacity to deliver continued growth across the Group and achieve an improved financial performance in 2013."

 

* Measured as operating profit excluding depreciation, amortisation, share-based payments charge and non-recurring costs such as reorganisation costs, AIM listing expenses and acquisition costs

 



Contact



Ubisense Group plc

Richard Green

Gordon Campbell

Tel: + 44 (0) 1223 535170





Canaccord Genuity Limited

(NOMAD)

Simon Bridges

Lucy Tilley

Tel: +44 (0) 20 7523 8000





FTI Consulting

Jon Snowball

Tracey Bowditch

Tel: +44 (0) 20 7831 3113





About Ubisense

Ubisense is a market leader of location-based Smart Factory Solutions which enable companies to optimise their manufacturing processes. By keeping track of key assets, Ubisense solutions bring clarity to complex operations in industries while also improving quality and reliability.  Ubisense uses a unique combination of advanced industry knowledge and an experienced team to deliver effective and superior solutions that offer unprecedented visibility, control and accuracy, delivering time and cost savings. Ubisense solutions are easy to implement and flexible to a particular business's needs, no matter which area of the globe they operate in.

Ubisense location solutions are used by a growing number of blue chip customers across the world, such as BMW, Daimler, Aston Martin, BAE, Airbus, Caterpillar, Hyundai, Duke Energy, Cox Communications and Deutsche Telekom. For more information please visit: www.ubisense.net.

 




Chairman's statement





Introduction

I am pleased to report Ubisense's second full year of results as a listed company, for the year ended 31 December 2012. This has been a crucial year for the Group, where we have seen significant developments within both of our operating divisions.

Overview

Group revenue increased by 2.1% to £24.3 million and we achieved an Adjusted EBITDA of £1.2 million. Gross profit increased to £9.6 million, representing an improvement in gross margin to 39.5%. The Group has a robust balance sheet with Shareholder Funds of £18.9 million, including net cash of £2.7 million.

We have continued the strong momentum this year in both our RTLS and Geospatial divisions, through the strengthening of key customer relationships, acquisition of new customers, improved market reach and our approach to product management. We have ensured that our resources are fully focused on delivering products for markets where we add the most value.

Our RTLS division has experienced considerable growth, through major new strategic client wins, as the use of location-based manufacturing solutions is becoming increasingly widespread through many industries. We remain confident that the Company can capitalise on the considerable opportunities we see in the high value manufacturing sector and this will continue to drive our growth.

In our Geospatial division we have also delivered excellent progress and further market traction. Our Geospatial product offering continues to gain acceptance into the telecoms and utilities markets, extending our reputation with customers that value reliability and exceptional service.

Current trading and outlook

In the period since the year end, current trading has been in line with the Board's expectations.  Ubisense enters 2013 with increasing momentum in the business and we intend to capitalise on the opportunities ahead. We will continue to pursue opportunities for growth both organically and through acquisitions that align with our strategic objectives, enhance our offering and deliver value for our shareholders. 

Although the world economic outlook remains uncertain, our ability to provide innovative solutions for major customers in manufacturing markets remains strong and we begin 2013 with a robust order book  and pipeline.

Awards

The Group has again received a number of awards during the year, including two prestigious Queen's Awards for the first time for its outstanding and sustained achievement in developing innovative products and solutions, and applying them to create significant international commercial success.

Conclusion

On behalf of the Board, I would like to thank our customers, partners and employees for their support in making 2012 such a strong year for the Ubisense Group.  I look ahead with confidence for the 2013 financial year.

Andy Hopper
Chairman

 





Chief Executive's review





Overview

Ubisense performed well over the year through challenging economic conditions, delivering growth in revenue and gross margin and increasing investment in our product offerings. This was reflected in the growing awareness and deployment of our leading location solutions to an increasing number of top tier automotive manufacturers providing good momentum on our growth strategy.

Our value proposition is one of our main growth drivers as customers are seeing clear returns on investment from increased operational efficiencies leading to reduced operating costs in their manufacturing operations.

Customer Momentum

The market opportunity for Ubisense is ever present. Within RTLS, we have continued to grow the business by extending the model in our priority G7 markets, with a particular focus on high value manufacturing where we delivered year-on-year growth in revenues of 57.0%. Our strategy in manufacturing has been to enter the customer with a single application and then extend the range of applications as they increasingly look for an end-to-end location solution.

We have now been installed in 8 out of the top 15 auto manufacturers and we continue to penetrate the global automotive market with new pilot installations at more plants in North America, Europe and further adoptions in South Korea.

During the year we saw new RTLS contracts including major strategic wins at AGCO, Astrium, BAE and Hyundai.  In addition we established over a dozen new installations at customers such as Renault, Smart and John Deere and extended our installations at existing customers including Airbus, Aston Martin, BMW, Continental, Cummins, Daimler and Eurocopter.

In the Geospatial division we are pleased to report new customer wins with Cogeco, IGC, Sovernet, Cambridge Water, SESW, American Electric Power and DREWAG/ENSO.

New contract wins and managed services contract renewals with major telecoms and utility companies including Exelon, HLBG and Swisscom have continued to build on the growth of the Geospatial division and are consistent with our plans for organic growth in both established and emerging markets.

Acquisitions

The successful acquisitions of Realworld OO Systems Ltd and Integrated Mapping Solutions Inc in 2011 contributed £2.1 million to revenues in 2012.  These businesses are now fully integrated into our existing business and have consolidated and extended our customer base.  Research and development and marketing activities have been repatriated and consolidated back into the UK, giving rise to a reorganisation cost of £0.4m.

Strategic Partnerships

Substantial progress was achieved with our strategic partner Atlas Copco, now with more than 40 installations deployed. We have also entered into new partnerships with the Daifuku Corporation and Geoplan in Japan that are helping with deployment of our RTLS products into the Asian market.

Our partnership with industrial automation experts, ATS Global, also saw significant progress with a maiden installation with the UK's largest manufacturer. This complementary partnership enables Ubisense to leverage ATS Global's unrivalled expertise in Manufacturing Execution Systems (MES) whilst helping ATS 'location enable' its solutions to afford manufacturing customers a more compelling combined offering.

We remain committed to developing strong partnerships that deliver differentiated value propositions which are beneficial for both our customers and our partners.

 

Products

We have continued to invest in research and development in both divisions resulting in a consolidation of current products into more market focused application suites such as our flagship, end-to-end manufacturing solution, the Smart Factory System and our netSolutions product for the telecommunications market. Feedback has continued to be very positive and we look forward to introducing these new application suites in 2013 and extending our order book.

Conclusion

By working in close co-operation with our customers we have established a strong platform for growth and are in a good position to build on our successes. We look forward to the future with confidence.

 

Richard Green

Chief Executive Officer

 





Financial review





Revenue and Gross Margin

In the year ended 31 December 2012, the Group generated revenue of £24.3 million (2011: £23.8 million). 

Gross Profit increased to £9.6 million (2011: £8.5 million), representing an improvement in Gross Margin to 39.5% (2011: 35.6%).

RTLS

RTLS's revenues increased by 10.3% to £9.5 million (2011: £8.7 million). The gross margins on RTLS revenue improved to 57.3% (2011: 53.6%) as a result of a higher proportion of proprietary hardware and software revenue within the mix.

Adjusted EBITDA was up significantly at £1.5 million (2011: £0.7 million). The RTLS division continued to invest in the Atlas Copco relationship who importantly accelerated the support of their pilot programme, which is now running across many organisations including five of the largest car manufacturers in the world. Headcount increases in our sales and delivery teams, as well as our R&D team to expand our range of RTLS applications, resulted in headcount averaging 70 for the year (2011: 60).

Geospatial

Geospatial revenues reduced by 2.5% to £14.8 million (2011: £15.1 million). However, the underlying business grew by 34.7%, made up of 20.4% organic and 14.3% inorganic. This excludes the impact of a large European telecom customer which undertook a restructuring throughout the year resulting in a drop in revenues of £3.6 million from a peak in 2011 - we believe that business with this customer has returned to more consistent levels now. The 2011 acquisitions in Geospatial performed in line with expectations with revenues of £2.1 million up from £0.7 million in the prior year.

Gross margins improved to 28.0% (2011: 25.4%) as a result of some higher margin product sales and a reduction in the number of contractors being used in the business.

Adjusted EBITDA was stable at £3.0 million (2011: £3.1 million) with the increased gross profit being offset by increased R&D and pre-sales expense. Total Geospatial headcount averaged 94 for the year (2011: 64), 24 of this increase being a result of adding the staff from the two acquisitions.

Central

Central corporate costs were £3.4 million (2011: £2.4 million). The underlying increase in central corporate costs was due to an increase in headcount averaging at 20 for the year (2011: 14), marketing, foreign exchange losses and costs relating to being a listed company for a full year compared to six months only in 2011 following the IPO in June 2011.

Group operating profit and profit after tax

Adjusted EBITDA for the Group was £1.2 million (2011: £1.4m). The operating loss for the year was £0.8 million (2011: profit of £0.3 million) including amortisation and depreciation charges of £1.4 million (2011: £0.8 million) and non-recurring reorganisation costs of £0.4 million (2011: non-recurring listing and acquisition costs of £0.4 million). Amortisation on acquired intangibles of £0.3 million (2011: £0.1 million) increased as a result of there being a full year charge in 2012 on the intangibles from the acquisitions in the second half of 2011. Amortisation of other intangibles of £1.0 million (2011: £0.5 million) was higher as development costs capitalised increased.  Total R&D spend before capitalisation and amortisation was £3.2 million (2011: £2.2 million).





Net interest receivable for the period was £38,000 (2011: £148,000 expense) with interest expense being virtually eliminated following the conversion of the Convertible Loans and repayment of the bank loan at the time of the IPO in June 2011.

Reported loss before tax was £0.7 million (2011: £0.1 million profit).

The Group has a net tax credit of £90,000, almost entirely comprising of a cash R&D tax credit of £203,000 partially offset by non-cash deferred tax on capitalised development costs and acquired intangible assets.

Earnings per share and dividend

Adjusted diluted earnings per share was 0.5 pence (2011: 2.7 pence). Reported basic and diluted loss per share was 2.8 pence (2011: earnings of 0.2 pence).

The Board do not feel it appropriate at this time to pay a dividend. The cash held on the balance sheet will be used to fund growth, R&D and potential acquisitions in line with the strategy set out when listing on AIM in June 2011.

Balance sheet and cash

The Group has a robust balance sheet with Shareholder Funds at 31 December 2012 of £18.9 million (2011: £19.2 million), including net cash of £2.7 million (2011: £6.0 million) and no outstanding debt. In November 2012 the Group negotiated a £2 million bank facility to provide additional future working capital capacity - this facility has yet to be drawn down.

The main components to the cash movements in 2012 include a reduced cash outflow from operating activities of £0.8 million (2011: £2.3 million outflow), capital investment in product development and plant and equipment of £2.3 million (2011: £1.4 million) and consideration paid of £0.4 million (2011: £1.6 million) in respect of the Realworld acquisition made in October 2011.

Capital structure

The issued share capital at 31 December 2012 was 21,919,744 (December 2011: 21,657,698) ordinary shares of £0.02 each. The increase of 262,046 shares related to 154,937 employee share option exercises and 107,109 warrant exercises. The total number of unexercised share options at 31 December 2012 was 2,057,720. There are no unexercised warrants at 31 December 2012. The issued share capital at 18 March 2013 is 21,925,786 shares.

Current trading and outlook

Ubisense enters 2013 with increasing momentum. We are well placed for growth in 2013, with the Geospatial acquisitions now fully integrated into our business and increased penetration of RTLS in the manufacturing sector.

 

Gordon Campbell

Chief Financial Officer

 




Consolidated income statement



 



For the year ended 31 December 2012



 



 

 

 

 

Notes



2012  

£'000  

2011  

£'000  



 



Revenue

5



24,292

23,785



 



Cost of sales




(14,690)

(15,308)



 



Gross profit




9,602

8,477



 



Administrative expenses




(10,368)

(8,188)



 



Operating (loss)/profit

5



(766)

289



 



Analysed as:








 



Gross profit




9,602

8,477



 



Other administrative expenses




(8,445)

(7,029)



 



Adjusted EBITDA

5



1,157

1,448



 



Depreciation




(227)

(140)



 



Amortisation of acquired intangible assets




(257)

(112)



 



Amortisation of other intangible assets




(953)

(512)



 



Share-based payments charge

22.2



(63)

(24)



 



Reorganisation costs

9.2



(423)

-



 



AIM listing expenses




-

(324)



 



Acquisition costs




-

(47)



 



Operating (loss)/profit

5



(766)

289



 



Finance income

8



38

37



 



Finance costs

8



-

(185)



 



(Loss)/profit before tax

9



(728)

141



 



Income tax      

10.1



90

(107)



 



(Loss)/profit for the year attributable to the equity shareholders of the Company




(638)

34



 



Earnings per share (pence)








 



Basic

11



(2.8p)

0.2p



 



Diluted

11



(2.8p)

0.2p



 



The notes 1 to 27 are an integral part of the preliminary financial information.



 

 

Consolidated statement of comprehensive income





For the year ended 31 December 2012





 

 

 

 



Notes

2012  

£'000  

2011  

£'000  





(Loss)/profit for the year




(638)

34





Other comprehensive income:










Exchange difference on retranslation of net assets and results of overseas subsidiaries

23

33

14












Total comprehensive income attributable to equity shareholders of the Company



(605)

48





 

The notes 1 to 27 are an integral part of the preliminary financial information.




Consolidated statement of changes in equity





For the year ended 31 December 2012



 


 

 

Share     

Capital     

£'000     

Share 

Premium 

£'000 

Other 

Reserves 

£'000 

Retained 

Earnings 

£'000 

Total 

£'000 



 



Balance at 1 January 2011

3042

14,550

953

(4,272)

11,535



 



Profit for the year

-

-

-

34

34



 



Exchange difference on retranslation of net assets and results of overseas subsidiaries

-

-

14

-

14



 



Total comprehensive income for the year

-

-

14

34

48



 



Reserve credit for equity-settled share-based payment

-

-

45

-

45



 



Equity component of loans

-

-

(502)

502

-



 



Issue of new share capital

129

-

-

-

129



 



Premium on new share capital

-

7,968

-

-

7,968



 



Share issue costs

-

(487)

-

-

(487)



 



Transactions with owners

129

7,481

(457)

502

7,655



 



Balance at 31 December  2011

433

22,031

510

(3,736)

19,238



 



Loss for the year

-

-

-

(638)

(638)



 



Exchange difference on retranslation of net assets and results of overseas subsidiaries

-

-

33

-

33



 



Total comprehensive income for the year

-

-

33

(638)

(605)



 



Reserve credit for equity-settled share-based payment

-

-

63

-

63



 



Issue of new share capital

5

-

-

-

5



 



Premium on new share capital

-

220

-

-

220



 



Transactions with owners

5

220

63

-

288



 



Balance at 31 December 2012

438

22,251

606

(4,374)

18,921



 



 

The notes 1 to 27 are an integral part of the preliminary financial information.

A reconciliation of the components of Other reserves is given in note 23.



 


Consolidated statement of financial position





At 31 December 2012





 

 

 

 

Notes



2012  

£'000  

2011  

£'000  





Assets










Non-current assets










Goodwill

12



7,418

7,418





Other intangible assets

13

2


2,901

2,258





Property, plant and equipment

14



621

366





Total non-current assets




10,940

10,042





Current assets










Inventories    

15



862

1,667





Trade and other receivables

16



10,302

9,498





Cash and cash equivalents

17



2,716

6,034





Total current assets




13,880

17,199





Total assets    




24,820

27,241





Liabilities        










Current liabilities










Trade and other payables

18



(5,246)

(7,294)





Total current liabilities




(5,246)

(7,294)





Non-current liabilities










Deferred income tax liabilities  

10



(653)

(549)





Other liabilities

20



-

(160)





Total non-current liabilities




(653)

(709)





Total liabilities




(5,899)

(8,003)





Net assets




18,921

19,238





 

 

At 31 December 2012





 

 

 

 

Notes



2012  

£'000  

2011  

£'000  





Equity attributable to owners of the parent company









Share capital

21



438

433





Share premium account

21



22,251

22,031





Other reserves

23



606

510





Retained earnings




(4,374)

(3,736)





Total equity




18,921

19,238





The notes 1 to 27 are an integral part of the preliminary financial information.

The preliminary financial information was approved by the Board of Directors on 18 March 2013 and signed on its behalf by:

Richard Green, Chief Executive Officer                Gordon Campbell, Chief Financial Officer

Ubisense Group plc

Registered Number: 05589712

 

               



Consolidated statement of cash flows





For the year ended 31 December 2012





 

 

 

 

Notes



2012  

£'000  

2011  

£'000  





(Loss)/profit before tax




(728)

141





Adjustments for:










Depreciation

9, 14



227

140





Amortisation

9, 13



1,210

624





Loss on the disposal of property, plant and equipment        9



5

-





Share-based payments charge

6.2, 22.2



63

24





Finance income

8



(38)

(37)





Finance costs

8



-

185





Operating cash flows before working capital movements




739

1,077





Change in inventories




805

(1,303)





Change in receivables




(839)

(2,065)





Change in payables




(1,691)

(96)





Cash used in operations before tax




(986)

(2,387)





Net income taxes received




203

102





Net cash flows from operating activities




(783)

(2,285)





Cash flows from investing activities










Acquisition of subsidiaries, net of cash acquired

26



(400)

(1,600)





Purchases of property, plant and equipment




(492)

(256)





Proceeds on disposal of property, plant and equipment



1

-





Expenditure on intangible assets




(1,849)

(1,130)





Interest received




38

33





Net cash flows from investing activities




(2,702)

(2,953)





Cash flows from financing activities










Repayment of borrowings




-

(1,014)





Interest paid




-

(47)





Proceeds from the issue of ordinary share capital




225

5,238





Net cash flows from financing activities




225

4,177





Net decrease in cash and cash equivalents




(3,260)

(1,061)





Cash and cash equivalents at start of period




6,034

7,130





Exchange differences on cash and cash equivalents



(58)

(35)





Cash and cash equivalents at end of period

17



2,716

6,034



The notes 1 to 27 are an integral part of the financial information.


Notes to the Preliminary financial information




1

General information





Ubisense Group plc ("the Company") and its subsidiaries (together, "the Group") deliver mission-critical enterprise asset tracking and geospatial systems.

The Company is a public limited company which is listed on the Alternative Investment Market ("AIM") of the London Stock Exchange (UBI) and is incorporated and domiciled in the United Kingdom. The Company was incorporated as Ubisense Trading Limited on 11 October 2005 and changed its name to Ubisense Group plc on 31 May 2011 ahead of its initial public offering and listing on AIM on 22 June 2011. The address of its registered office is St. Andrew's House, St. Andrew's Road, Chesterton, Cambridge, CB4 1DL.

The Group has its main operations in the UK, US, Canada, France, and Germany and sells mainly in North America, Europe and Asia.

The Group legally consists of seven companies headed by Ubisense Group plc (UK). The subsidiaries are all 100 per cent owned by Ubisense Group plc and are: Ubisense Limited (UK); Ubisense AG (Germany); Ubisense, Inc. (US); Ubisense Solutions, Inc. (Canada); Ubisense SAS (France) and Geospatial Systems Limited (UK).

The Board of Ubisense Group plc approved the release of this audited preliminary announcement on on 18 March 2013.

The preliminary financial information does not constitute statutory financial statements for the years ended 31 December 2012 and 2011 within the meaning of section 435 of the Companies Act 2006, but is extracted from those financial statements. Statutory accounts for Ubisense Group plc for the year ended 31 December 2011 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2012 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.




2

New accounting standards





For the purposes of the preparation of the preliminary financial information, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 January 2012.

No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group's accounting periods beginning on or after 1 January 2013, or later periods, have been adopted early. The Directors do not consider that the adoption of these standards and interpretations would have a material impact on the Group's financial statements.                                                        





The principal accounting policies applied in the preparation of the preliminary financial information are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The preliminary financial information of Ubisense Group plc has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union (IFRSs as adopted by the EU) and the Companies Act 2006 applicable to companies reporting under IFRS. The preliminary financial information has been prepared under the historical cost convention. The preliminary financial information is presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.




3

Summary of significant accounting policies





The preparation of the preliminary financial information in conformity with IFRS requires the Directors to make certain critical accounting estimates and judgements that affect the amounts reported in the financial statements and accompanying notes. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the preliminary financial information, are disclosed in note 4.

Going concern basis

The Group meets its day-to-day working capital requirements through its bank facilities. The Group had cash of £2.7 million at the balance sheet date along with a £2 million undrawn bank facility as well as an order book equivalent to 47% of annual revenue. In this context, the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, support the conclusion that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report. The Group, therefore, continues to adopt the going concern basis in preparing its financial statements.

Consolidation

The Group financial statements include the results, financial position and cash flows of the Company and all of its subsidiary undertakings. Subsidiary undertakings are those entities controlled directly or indirectly by the Company. Control arises when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial statements of the subsidiaries are prepared for the same reporting year as the Company, using consistent accounting policies. Businesses acquired or disposed during the year are accounted for using acquisition method principles from, or up to, the date control passed. Intra-Group transactions and balances are eliminated on consolidation. All subsidiaries use uniform accounting policies for like transactions and other events and similar circumstances.

Foreign currencies  

   (a)   Functional and presentation currency

The functional currency of each Group entity is the currency of the primary economic environment in which each entity operates. The preliminary financial information is presented in Sterling, which is the Company's functional and presentation currency.

(b)  Transactions and balances

Foreign currency transactions are translated into the functional currency of each Group entity using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated at rates ruling at the period end date. Such exchange differences are included in the income statement within "administrative expenses". Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.

 

(c) Consolidation

For the purpose of presenting preliminary financial information, the results and financial position of all the Group entities (none of which have the currency of a hyperinflationary economy) that have a functional currency other than Sterling are translated into Sterling as follows:

·      assets and liabilities for each statement of financial position are translated at the exchange rate at the period end date;

·      income and expenses for each income statement are translated at the exchange rate ruling at the time of each period the transaction occurred; and

·      all resulting exchange differences are recognised in other comprehensive income.

Segment reporting

The Group is organised on a global basis into two operating segments, being the Real-Time Location Systems ("RTLS") and Geospatial divisions. Centrally incurred costs not directly attributable to operating segments are reported under "Central".

This is based upon the Group's internal organisation and management structure and is the primary way in which the Chief Operating Decision Maker (CODM) and the rest of the Board are provided financial information. The Directors believe that the CODM is the Chief Executive Officer of the Group.

Revenue recognition

Revenue represents amounts derived from the provision of goods and services which fall within the Group's ordinary activities, exclusive of value added tax and other similar sales taxes. Revenue is measured by reference to the fair value of consideration received or receivable.

Revenues on product sales are recognised at the time that units are shipped, except for shipments under arrangements involving significant acceptance requirements. Under such arrangements, revenue is recognised when the Group has substantially met all its performance obligations.

Revenue earned from sales under licence agreements is recognised when the software is made available. When the sale includes a period of support and maintenance, a proportion of the revenue is deferred and recognised rateably over the period of support. For licence rental fees, amounts are recognised over the period of the contract, commencing from when the software is available for use.

Services and training revenue from time and materials contracts is recognised in the period that the services and training are provided on the basis of time worked at agreed contractual rates and as direct expenses are incurred.

Revenue from fixed price, long-term customer specific contracts, including customisation and modification, is recognised on the stage of completion of each assignment at the period end date compared to the total estimated service to be provided over the entire contract where the outcome can be estimated reliably. If a contract outcome cannot be estimated reliably, revenues are recognised equal to costs incurred, to the extent that costs are expected to be recovered. An expected loss on a contract is recognised immediately in the income statement.

Where bundled sales including a combination of some or all of the above are made, the revenue attributable to the deal is apportioned across the constituents of the bundle, and then recognised according to the policies stated above.









Employee benefits

   (a)   Retirement benefits

The Group operates various defined contribution pension arrangements for its employees.

For defined contribution pension arrangements, the amount charged to the income statement represents the contributions payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as either accruals or prepayments in the statement of financial position.

   (b)  Share-based payments

The Group issues equity-settled share-based payments to certain employees.  Equity-settled share-based payments are measured at fair value at the date of grant using the Black-Scholes pricing model. The fair value is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based on the Group's estimate of the number of shares that will eventually vest.

   (c)   Termination benefits

Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than twelve months after the reporting date, then they are discounted to their present value.

Operating lease income and expense

(a) Rental expense

Operating lease rentals are charged as other administrative expenses to the income statement in equal annual amounts over the lease term. Assets leased under operating leases are not recorded in the statement of financial position because the lessor retains a significant portion of the risks and rewards of ownership.

(b) Lease incentives

The benefit of lease incentives such as rent-free periods or up-front cash payments are spread equally on a straight-line basis over the lease term.

Exceptional items

Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material non-recurring items of income or expense that have been shown separately due to the significance of their nature or amount.

Interest income and expense

Interest income and expense is included in the income statement on a time basis, using the effective interest method by reference to the principal outstanding.

Tax

The tax charge or credit comprises current tax payable and deferred tax:

(a) Current tax

The current tax charge represents an estimate of the amounts payable to tax authorities in respect of the Group's taxable profits and is based on an interpretation of existing tax laws. Taxable profit differs from profit before tax as reported in the income statement because it excludes certain items of income and expense that are taxable or deductible in other years or are never taxable or deductible.

   (b)  Deferred tax

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the preliminary financial information with their respective tax bases. 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. 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 always provided in full. 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. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date. Deferred tax is recognised as a component of tax expense in the income statement, except where it relates to items charged or credited directly to other comprehensive income or equity when it is recognised in other comprehensive income or equity.

Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Goodwill

Goodwill arising on an acquisition of a business is the difference between the fair value of the consideration paid and the net fair value of the assets and liabilities acquired. Goodwill is carried at cost less accumulated impairment losses.

Research and development

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

Development activities involve a plan or design for the production on new or substantially improved products and processes. Development expenditure is only capitalised if all of the following conditions are met:

·      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.

Internally-generated intangible assets, consisting mainly of direct labour costs, are amortised on a straight-line basis over their useful economic lives. Amortisation is shown within administrative expenses in the income statement. The estimated useful lives of current development projects are three years. Upon completion the assets are subject to impairment testing.

Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.













Other intangible assets

Intangible assets purchased separately, such as software licences that do not form an integral part of related hardware, are capitalised at cost and amortised on a straight-line basis over their useful economic life which is typically 3 to 5 years. Intangible assets acquired through a business combination are initially measured at fair value and amortised on a straight-line basis over their useful economic lives. Amortisation is shown within administrative expenses in the income statement.

The useful economic lives of the other intangible assets are as follows:

 

·      Software products recognised on acquisition: 3 years

·      Customer relationships recognised on acquisition: 5 years

·      Order backlog: based on contract life, typically less than 1 year

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged to the income statement so as to write off the cost or valuation less estimated residual values over their expected useful lives on a straight-line basis over the following periods:

·      Fixtures and fittings: 5 to 8 years, or period of the lease if shorter

·      Computer equipment: 3 years

·      Demonstration equipment: 1 year

Residual values and useful economic lives are assessed annually. The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in administrative expenses.

Impairment of non-financial assets

Assets that have an indefinite useful life - for example, goodwill or intangible assets not ready to use - are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed 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 carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the cost of purchase on a first in, first out basis. Net realisable value is based on estimated selling price less additional cost to completion and disposal. Provision is made for obsolete, slow moving or defective items where appropriate and are recognised as an expense in the period in which the write-down or loss occurs.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Trade receivables

Trade receivables are amounts due from customers for products sold or services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Fees paid on the establishment of debt facilities are recognised as transaction costs of the debt to the extent that it is probable that some or all of the facility will be drawn-down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

Share capital and share premium                      

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. The nominal value of shares issued is classified as share capital and the amounts paid over the nominal value in respect of share issues, net of related costs, is classified as share premium.




4

Critical accounting estimates and judgements





The Group makes estimates and assumptions concerning the future. Actual results may differ from these estimates.   The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

Impairment of goodwill and other intangible assets

The Group tests goodwill for impairment annually. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The Group uses pre-tax discount rates of between 9.7% and 12.5% for this purpose. The carrying amount of goodwill at 31 December 2012 is £7,418,000. Further consideration of the impairment of goodwill is included in note 12.

Capitalisation of  development costs

The point at which development costs meet the criteria for capitalisation is critically dependent on management's judgement of the point at which technical and commercial feasibility is demonstrable. The carrying amount of capitalised development costs at 31 December 2012 is £2,110,000.

Revenue recognition

Significant management judgement is applied in determining the allocation and timing of the recognition of revenue on contracts. In this process management takes into account milestones, hardware supplied, actual work performed and further obligations and costs expected to complete the work. The carrying amount of amounts recoverable on contracts at 31 December 2012 is £2,439,000.

Provision for impairment of trade receivables

The Group assesses trade receivables for impairment which requires the directors to estimate the likelihood of payment forfeiture by customers.

Inventories

The provision for obsolete, slow-moving or defective inventory is based on management's estimation of the commercial life of inventory lines and is applied on a prudent basis. In assessing this, management takes into consideration the sales history or products and the length of time that they have been available for resale.

Deferred tax

A deferred tax asset is recognised where the Group considers it probable that future tax profits will be available against which the tax credit will be utilised in the future. This specifically applies to tax losses and to outstanding vested share options at the statement of financial position date. In estimating the amount of the deferred tax asset that should be recognised, the Directors make judgements based on current budgets and forecasts about the amount of future taxable profits and the timings of when these will be realised. No deferred tax asset is currently recognised.

Valuation of separately identifiable intangible assets

As detailed in note 3, separately identifiable intangible assets are identified and amortised over defined periods. The Directors use an acknowledged valuation approach but this is reliant upon certain judgements which they determine are reasonable by reference to companies in similar industries.

The Directors do not consider that there are any other critical accounting judgements or key sources of estimation uncertainty.

 








5

Segment information





5.1 Operating segments

Management has determined the operating segments to be the Group's two divisions based on the reports reviewed by the Chief Executive Officer, who is the Chief Operating Decision Maker.

The Real-Time Location Systems division ("RTLS") delivers mission-critical enterprise asset tracking solutions utilising ultra-wideband ("UWB") technology to locate people and assets in 3D, bringing visibility and control to industrial business processes. The Geospatial division delivers core location-based solutions, typically to blue chip utility and communications companies, to allow them to better plan and maintain their dispersed network of assets. Centrally incurred costs not directly attributable to operating segments are reported under "Central".

Each of these operating segments is managed separately as each deal with different technologies and predominantly different customer bases. The performance of the operating segments is assessed on a measurement of Adjusted EBITDA. The measurement basis excludes depreciation, amortisation, share-based payments charge, non-recurring expenditure such as reorganisation costs, acquisition costs and AIM listing expenses, finance income and expense and income taxes. This is the measure reported to the Chief Operating Decision Maker for the purposes of resource allocation and assessment of segment performance.

Segment revenue represents revenue generated from external customers, there is no inter-segment revenue. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.





 

 

Year ended 31 December 2012

RTLS 

£'000 

Geospatial 

£'000 

Central 

£'000 

Total 

£'000 



 



Revenue

9,540

14,752

-

24,292



 



Cost of sales

(4,072)

(10,618)

-

(14,690)



 



Gross profit

5,468

4,134

-

9,602



 



Other administrative expenses

(3,946)

(1,101)

(3,398)

(8,445)



 



Adjusted EBITDA

1,522

3,033

(3,398)

1,157



 



Depreciation 

-

-

(227)

(227)



 



Amortisation of acquired intangible assets  

-

(257)

-

(257)



 



Amortisation of other intangible assets

(640)

(222)

(91)

(953)



 



Share-based payments charge                                         

-

-

(63)

(63)



 



Reorganisation costs

(157)

(209)

(57)

(423)



 



Operating profit/(loss) 

725

2,345

(3,836)

(766)



 



Finance income

-

-

38

38



 



Profit/(loss) before tax

725

2,345

(3,798)

(728)



 



Income tax

-

-

90

90



 



Profit/(loss) after tax

725

2,345

(3,708)

(638)



 



 

 

Year ended 31 December 2011

 

RTLS 

£'000 

Geospatial 

£'000 

Central 

£'000 

Total 

£'000 



 



Revenue

8,650

15,135

-

23,785



 



Cost of sales

(4,012)

(11,296)

-

(15,308)



 



Gross profit

4,638

3,839

-

8,477



 



Other administrative expenses

(3,936)

(738)

(2,355)

(7,029)



 



Adjusted EBITDA

702

3,101

(2,355)

1,448



 



Depreciation 

-

-

(140)

(140)



 



Amortisation of acquired intangible assets  

-

(112)

-

(112)



 



Amortisation of other intangible assets

(437)

(57)

(18)

(512)



 



Share-based payments charge                                         

-

-

(24)

(24)



 



AIM listing expenses

-

-

(324)

(324)



 



Acquisition costs

-

-

(47)

(47)



 



Operating profit/(loss) 

265

2,932

(2,908)

289



 



Finance income

-

-

37

37



 



Finance costs

-

-

(185)

(185)



 



Profit/(loss) before tax

265

2,932

(3,056)

141



 



Income tax

-

-

(107)

(107)



 



Profit/(loss) after tax

265

2,932

(3,163)

34



 



 

5.2 Geographical areas

The Group's operating segments operate in four main geographical areas, even though they are managed on a global basis. Revenue and non-current assets (excluding goodwill) by geographical area are as follows:



 




       Revenue

    Non-current assets



 



 

 

 

2012 

£'000 

2011 

£'000 

2012 

£'000 

2011 

£'000 



 



UK

1,441

1,471

2,216

1,760



 



Germany

8,328

11,469

176

224



 



US

8,141

8,853

1,035

635



 



Asia Pacific

2,733

406

-

-



 



Other

3,649

1,586

63

5



 



Total

24,292

23,785

3,490

2,624



 



Revenues from external customers in the Group's domicile, the UK, as well as its major markets, Germany, US and Asia Pacific, have been identified on the basis of the customer's geographical location. Non-current assets are allocated based on their physical location.

5.3 Information about major customers

During 2012, revenues of £2.9 million (2011: £1.3 million) derived from one Geospatial customer in the US, revenues of £2.6 million (2011: £2.1 million) and £1.7 million (2011: £5.3 million) derived from two Geospatial customers based in Germany and revenues of £1.0 million (2011: £2.6 million) from one RTLS customer based in both Germany and the US.



 


6

Employee information







 



6.1  Employee numbers

The average monthly number of people, including Executive Directors, employed by the Group during the year was:



 



 

 

 

   2012 

Number 

2011 

Number 



 



By activity







 



Technical consultants



96

75



 



Sales and Marketing



37

28



 



Research and Development



31

21



 



Administration



20

14



 



Total average number of employees



184

138



 










 



By segment







 



Geospatial    



94

64



 



RTLS             



70

60



 



Central          



20

14



 



Total average number of employees



184

138



 



The total number of employees at 31 December 2012 was 175 (2011: 172)



 



6.2  Employee benefits



 



 

 

 



Notes

2012 

£'000 

2011 

£'000 



 



Wages and salaries




12,286

10,236



 



Social security costs




1,265

979



 



Contributions to defined contribution pension arrangements



562

419



 



Share-based payments



22.2

63

24



 



Total aggregate employee benefits




14,176

11,658



 



Included in the above are termination benefits of £404,000 (2011: £nil) which are presented as reorganisation costs in the income statement - see note 9.2.



 





 



6.3 Key management compensation

Key management includes Directors (Executive and non-executive) and members of the Global Management Team. During the year, there were 13 key management personnel (2011: 14). The compensation paid or payable to key management for employee services is shown below:



 



 

 

 




2012

£'000

2011

£'000



 



Short-term employee benefits








 



Wages and salaries

 




879

925



 



Social security costs




84

59



 



Other benefits




21

29



 







984

1,013



 



Post-employment benefits








 



Contributions to defined contribution pension arrangements

52

74



 



Share-based payments








 



Equity-settled share-based payments




24

11



 



Total key management compensation




1,060

1,098



 


7

Directors' remuneration and interests



 


7.1  Directors' remuneration



 

Director

Basic salary
£'000

Performance payments
£'000

Benefits in kind
£'000

Subtotal  £'000

 Employer's contributions to defined contribution pension arrangements
£'000

Total
2012
£'000

Total
2011
£'000

Gordon Campbell*

96

12

1

109

15

124

106

Richard Green*

135

50

3

188

13

201

137

Peter Harverson

15

-

-

15

-

15

16

Andrew Hopper

25

-

-

25

-

25

15

J Keith Lomas

15

-

-

15

-

15

6

Richard Newell

15

-

-

15

-

15

-

Robert Sansom**

-

-

-

-

-

-

-

Paul Taylor

15

-

-

15

-

15

13

 Total

316

62

4

382

28

410

293

 


* The directors are remunerated through the Company's flexible benefits scheme under which they can elect to switch basic salary into pension contributions and other benefits. The basic salary entitlement in the year was: Richard Green £140,000; Gordon Campbell £105,000.

** Robert Sansom has waived his entitlement  to annual remuneration in the year of £15,000

 

7.2 Directors' interests - share options



 

 

Director

Award date
Years

Vests
Years

Expires
Year

Exercise price
£

Awards outstanding at
1 January 2011 number

Granted during the year
number

Exercised during the year
number

Lapsed during the year
number

Awards outstanding at
31 December 2012
number

Awards exercisable at
31 December 2011
number

Gordon Campbell

2010

2011-13

2020

0.140

120,500

-

-

-

120,500

80,335


2011

2012-14

2021

1.050

32,500

-

-

-

32,500

10,834


2012

2013-15

2022

2.125

-

40,000

-

-

40,000

-






153,000

40,000

-

-

193,000

91,169

Richard Green

2010

2011-13

2020

0.140

76,278

-

-

-

76,278

50,853


2011

2012-14

2021

1.050

100,000

-

-

-

100,000

33,334


2012

2013-15

2022

2.125

-

60,000

-

-

60,000

-






176,278

60,000

-

-

236,278

84,187

Peter Harverson

2010

2011-13

2020

0.140

91,333

-

-

-

91,333

60,889

Andrew Hopper

2010

2011-13

2020

0.140

20,278

-

-

-

20,278

13,519

Richard Newell

2010

2011-13

2020

0.140

1,056

-

-

-

1,056

704

Total





441,945

100,000

-

-

541,945

250,468

 


 

The 2012 grants vest subject to meeting performance criteria set out in the long-term incentive plan ("LTIP"). No other Directors have been granted share options in the Company or other Group entities. None of the terms and conditions of the share options were varied during the year. All options were granted in respect of qualifying services. There have been no options granted to or exercised by Directors between 31 December 2012 and 18 March 2013.

The market price of the Company's shares at the end of the financial year was £2.315. The range of market prices during the year was between £1.825 and £2.325.

               



 


7.3 Directors' interests - shares

Directors' interests in the ordinary shares of Ubisense Group plc, at 31 December 2012 and 31 December 2011, were as follows:





 

 

 

 




2012 

Number 

2011 

Number 





Gordon Campbell




87,987

87,987





Richard Green




1,543,011

1,543,011





Peter Harverson




65,161

65,161





Andrew Hopper




225,000

225,000





J Keith Lomas




47,712

47,712





Richard Newell




643,354

643,354





Robert Sansom




2,493,676

2,493,676





Total




5,105,901

5,105,901





There has been no change in the interests set out above between 31 December 2012 and 18 March 2013.




8

Finance income and costs





 

 

 

 




2012 

£'000 

2011 

£'000 





Interest income from cash and cash equivalents




38

37





Finance income




38

37



 


Interest payable - bank




-

(26)





Interest payable - other loans




-

(159)





Finance costs




-

(185)





Net finance income/(costs)




38

(148)



 

9

Profit before tax: analysis of expenses by nature





9.1  Expenses by nature

The following items have been charged/(credited) to the income statement in arriving at profit before tax:





 

 

 



Notes

2012 

£'000 

2011 

£'000 





Amortisation of acquired intangible assets



13

257

112





Amortisation of other intangible assets

13

953

512





Depreciation of owned property, plant and equipment

14

227

140





Loss on disposal of property, plant and equipment




5

-





Operating lease rental charges - land and buildings




355

320





Operating lease rental charges - other




124

134





Research and development costs expensed




1,312

1,109





Net foreign currency losses




153

12





Reorganisation costs



9.2

423

-





AIM listing expenses




-

324





Acquisition costs




-

47





Auditors' remuneration



9.3

81

165















   9.2 Reorganisation costs

During the year, the Group incurred reorganisation costs totalling £423,000 comprising mainly redundancy costs in order to integrate the Geospatial acquisitions made in 2011 and to centralise the Research and Development and Sales and Marketing functions of both divisions.

 







 


9.3  Auditors' remuneration

During the year the Group (including its overseas subsidiaries) obtained the following services from the Company's auditor and its associates:





 

 



Notes

2012 

£'000 

2011 

£'000 





Fees payable to the Group's auditor for the audit of:










Parent Company and consolidated financial statements



14

13





Financial statements of subsidiaries, pursuant to legislation


43

27







57

40





Fees payable to the Group's auditor for other services:








Tax services




15

5





Other services




9

120









24

125





Auditors' remuneration



9.1

81

165





The auditor of Ubisense Group plc is Grant Thornton UK LLP.




10

Income tax





10.1 Income tax recognised in the income statement

 







 

 

 

 




2012 

£'000 

2011 

£'000 





Current tax










UK Corporation Tax




-

-





Foreign tax



9

(9)





Research and development tax credits - prior years



(203)

(124)





Total current tax credit




(194)

(133)





Deferred tax










Origination and reversal of temporary differences    




104

240





Total deferred tax expense




104

240





Total income tax (credit)/expense



(90)

107





The tax credit (2011: expense) differs from the standard rate of corporation tax in the UK for the year of 24% (2011: 26%) for the following reasons:





 

 

 

 




2012 

£'000 

2011 

£'000 





(Loss)/profit before tax




(728)

141





(Loss)/profit before tax multiplied by the standard rate of corporation tax in the UK of 24% (2011: 26%)

(175)

37





Tax effects of:









Expenses not deductible for tax purposes




21

113





Accrued contingent consideration released not subject to tax

(38)

-





Utilisation of previously unrecognised tax losses




(259)

-





Tax losses for which no deferred tax asset was recognised

832

14





Tax unprovided in prior years




9

-





Research and development tax credits - prior years




(203)

(124)





Differential on overseas tax rates




(233)

(8)





Remeasurement of deferred tax - change of rate




(58)

(5)





Other temporary  differences




14

80





Total income tax (credit)/expense




(90)

107





10.2 Factors that may affect future tax charges

The Group has tax losses of £4.4 million (2011: £2.9 million) that are available for offset against future taxable profits of those subsidiary companies in which the tax losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group, and they have arisen in subsidiaries whose future taxable profits are uncertain. No deferred tax has been recognised on the unremitted earnings of overseas subsidiaries, because the earnings are continually reinvested by the Group and no tax is expected to be payable on them in the foreseeable future.

As a result of the reduction in the UK corporation tax rate to 23%  that was substantively enacted on 3 July 2012 and effective from 1 April 2013, the deferred tax balances have been remeasured. The proposed reduction of the main rate of corporation tax to 22% from1 April 2014 is expected to be enacted separately later in 2013. This change has not been substantively enacted at the balance sheet date and, therefore, is not recognised in the financial statements.

 

10.3 Deferred tax

The movement in deferred tax in the Consolidated statement of financial position during the year is as follows:










Deferred income tax assets

 Deferred income tax liabilities





 

 

 

   2012 

£'000 

2011 

£'000 

   2012 

£'000 

2011 

£'000 





At 1 January

-

-

(549)

(140)





Arising on acquisition of subsidiaries

-

119

-

(288)





Deferred tax credited to the income statement

-

-

88

32





Deferred tax charged to the income statement

-

(119)

(192)

(153)





At 31 December

-

-

(653)

(549)





The components of deferred tax included in the Consolidated statement of financial position are as follows:





 

 

 

 




2012 

£'000 

2011 

£'000 





Development costs capitalised




(485)

(293)





Intangible assets recognised on acquisition of subsidiaries



(168)

(256)





Total deferred income tax liabilities




(653)

(549)





Deferred tax assets have not been recognised in respect of the following items because it is not probable that future taxable profits will be available against which the Group can utilise the benefits:





 

 

 

 




2012 

£'000 

2011 

£'000 





Tax losses carried forward




1,343

851





Equity-settled share options temporary differences



289

168





Total unrecognised deferred tax assets




1,632

1,019




11

Earnings per share





 

 

 

Basic and diluted earnings per share

 




2012  

2011  





Earnings










(Loss)/profit for the period (£'000)




(638)

34





Earnings for the purposes of diluted earnings per share (£'000)


(638)

34




Number of shares










Basic weighted average number of shares ('000)




21,764

18,897





Effect of dilutive potential ordinary shares:










Share options ('000)




1,383

1,423





Warrants ('000)




-

57





Diluted weighted average number of shares ('000)




23,147

20,377





Basic earnings per share (pence)




(2.8p)

0.2p





Diluted earnings per share (pence)




(2.8p)

0.2p















Basic earnings per share is calculated by dividing profit for the period attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the effects of all dilutive share options and warrants outstanding at the end of the year. Options have no dilutive effect in loss-making years, and hence the diluted loss per share for the year is the same as the basic loss per share.

The Group also presents an adjusted diluted earnings per share figure which excludes amortisation on acquired intangible assets, share-based payments charge and non-recurring expenditure such as reorganisation costs, AIM listing expenses and acquisition costs from the measurement of profit for the period.



 


 

 

 

Adjusted diluted earnings per share

 



Notes

2012 

2011 





Earnings for the purposes of diluted earnings per share (£'000)


(638)

34





Adjustments:  










Reversal of amortisation on acquired intangible assets (£'000)   

9, 13

257

112





Reversal of share-based payments charge (£'000)

               9

63

24





Reversal of reorganisation costs

9

423

-





Reversal of AIM listing expenses (£'000)

9

-

324





Reversal of acquisition costs (£'000)

9

-

47





Net adjustments (£'000)


743

507





Adjusted earnings (£'000)


105

541





Adjusted diluted earnings per share (pence)



0.5p

2.7p



 

 

12

Goodwill



 

 

 


 

 

 




Goodwill   £'000 





Balance at 1 January and 31 December 2012




7,418












Impairment testing for cash-generating units containing goodwill

Goodwill acquired through business combinations is allocated to groups of cash generating units ('CGU's) for impairment testing as follows:



 

 


 

 

 



2012 

 £'000 

2011 

£'000 



 



RTLS


3,256

3,256



 



Geospatial



4,162

4,162



 



Total



7,418

7,418



 



The recoverable amounts of all CGUs have been determined from value-in-use calculations based on 5 year forecasts projected from the 2013 annual operating plan approved by the Board for each CGU with an assumed terminal growth rate of nil and no improvement in relative operating margin during or after the forecast period. This is considered prudent when compared to recent experience and current expectations of the long-term industry growth rate for both CGUs.

A discount rate of 12.5% for RTLS and 9.7% for Geospatial has been estimated using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to each CGU.

Revenue growth assumptions are based on the annual operating plan taking into account industry growth rates and Ubisense's historical experience in the context of the wider industry and economic conditions. The underlying organic revenue growth rate for RTLS is assumed to be 20% with the division expected to continue at above-average rates for the foreseeable future as a result of significant investment in research and development and a growing opportunity customer base and sector presence. The underlying organic growth rate for Geospatial is assumed to be 10% reflecting steady growth in a more mature market where the division is increasing its presence in key sectors where it has acknowledged expertise.

The Board has considered reasonable possible sensitivities in key assumptions on which the value-in-use calculations are based. For RLTS, sensitivity analysis shows that if the underlying organic revenue growth rate was below 6%, or if the discount rate is increased in isolation above 21%, the estimated recoverable amount is equal to carrying value. For Geospatial, if the underlying organic revenue growth rate reduced to 0%, or if the discount factor increased to 20%, this would not cause the carrying value to exceed estimated recoverable amount.

There was no impairment of goodwill as the estimated recoverable amount exceeded the carrying value for all CGUs.



 


13

Other intangible assets



 


 

 

Capitalised    
Development   
Costs    

£'000    

Software 

£'000 

Acquired

Software

Products

£'000

Acquired

customer relationships

and order

backlog

£'000

Total 

£'000 



 



Cost







 



At 1 January 2011

1,476

11

-

-

1,487



 



Reclassifications

-

56

-

-

56



 



Additions

1,103

225

-

-

1,328



 



Acquisition of subsidiaries

-

3

529

449

981



 



At 31 December 2011

2,579

295

529

449

3,852



 



Effects of movement in exchange rates

-

(12)

-

-

(12)



 



Additions

1,845

16

-

-

1,861



 



At 31 December 2012

4,424

299

529

449

5,701



 



Accumulated amortisation








 



At 1 January 2011

958

4

-

-

962



 



Reclassification

-

8

-

-

8



 



Charge  for the year

494

18

44

68

624



 



At 31 December 2011

1,452

30

44

68

1,594



 



Effects of movement in exchange rates

-

(4)

-

-

(4)



 



Charge  for the year

862

91

177

80

1,210



 



At 31 December 2012

2,314

117

221

148

2,800



 



Net book amount








 



At 31 December 2012

2,110

182

308

301

2,901



 



At 31 December 2011

1,127

265

485

381

2,258



 



Capitalised development assets relate to expenditure that can be applied to a plan or design for the production of new or substantially improved products and processes.

The software assets represent assets purchased from third parties.

The acquired software products, customer relationships and order backlog assets arose on the acquisitions in 2011 of Integrated Mapping Solutions, Inc. (now merged into Ubisense Inc) and Realworld OO Systems Limited (now re-named Geospatial Systems Limited).




14

Property, plant and equipment



 

 

 

 


 

 



Fixtures and 

Fittings 

£'000 

Computer 

Equipment 

£'000 

Total 

£'000 



 



Cost

2







 



At 1 January 2011



174

440

614



 



Effect of movements in exchange rates



(3)

(5)

(8)



 



Reclassification



-

(56)

(56)



 



Additions



47

213

260



 



Acquisition of subsidiaries



3

14

17



 



Disposals



-

(1)

(1)



 



At 31 December 2011



221

605

826



 



Effect of movements in exchange rates



(7)

(13)

(20)



 



Reclassification



31

(31)

-



 



Additions



321

174

495



 



Disposals



(23)

(218)

(241)



 



At 31 December 2012



543

517

1,060



 



Accumulated depreciation








 



At 1 January 2011



95

240

335



 



Effect of movements in exchange rates



(1)

(5)

(6)



 



Charge  for the year



34

106

140



 



Reclassification



-

(8)

(8)



 



Disposals



-

(1)

(1)



 



At 31 December 2011



128

332

460



 



Effect of movements in exchange rates



(6)

(7)

(13)



 



Charge  for the year



77

150

227



 



Reclassification



20

(20)

-



 



Disposals



(20)

(215)

(235)



 



At 31 December 2012



199

240

439



 



Net book amount








 



At 31 December 2012



344

277

621



 



At 31 December 2011



93

273

366



 


15

Inventories





 

 

 

 

 




2012 

£'000 

2011 

£'000 





Raw materials




182

-





Finished goods




680

1,667





Total inventories




862

1,667





Included in the analysis above are impairment provisions against inventory amounting to £44,000 (2011: £56,000). The Group's inventories are comprised of products which are not generally subject to rapid obsolescence on account of deterioration in condition, market trends or technological reasons.

The cost of inventories recognised as an expense and included in "cost of sales" amounted to £1,571,000 (2011: £1,426,000).




16

Trade and other receivables





 

 

 

 

 



Notes

2012 

£'000 

2011 

£'000 





Trade receivables, gross




7,390

7,541





Allowances for doubtful debts



16.1

(80)

(7)





Trade receivables, net



16.2

7,310

7,534





Amounts recoverable on contracts




2,439

1,588





Other receivables




40

21





Prepayments and accrued income




502

314





VAT and taxation receivable




11

41





Total trade and other receivables




10,302

9,498





All amounts disclosed are short term. The carrying value of trade receivables is considered a reasonable approximation of fair value.

Due to having a blue-chip customer base and effective credit control procedures, the Group is not significantly exposed to the risk of bad debt. The following disclosures are in respect of trade receivables that are either impaired or past due. The individually impaired receivables mainly relate to customers who are in unexpectedly difficult economic situations. Any impairment is assessed on a customer-by-customer basis following a detailed review of the particular circumstances. To the extent they have not been specifically provided against, the trade receivables are considered to be of sound credit rating.



 

 


16.1 Movement in allowance for doubtful debts

 





 

 

 




2012 

£'000 

2011 

£'000 





At 1 January




(7)

(83)





Exchange differences




-

1





Amounts recovered in the year



7

82





Allowance made



(80)

(7)





At 31 December




(80)

(7)



 

 

 


16.2 Ageing of past due but not impaired receivables

 





 

 

 




2012 

£'000 

2011 

£'000 





Neither past due nor impaired




5,360

6,120





Past due but not impaired:










0 to 90 days overdue



1,360

881





More than 90 days overdue



590

533





Total




7,310

7,534



 

 

17

Cash and cash equivalents



 



 

 

 

 

 




2012 

£'000 

2011 

£'000 



 



Cash at bank and in hand




2,716

3,367



 



Short-term bank deposits




-

2,667



 



Cash and cash equivalents




2,716

6,034



 



The carrying amount approximates to fair value because of the short-term maturity of these instruments, being no greater than three months.

Cash at bank earns interest at floating rates based on daily bank overnight deposit rates. Short-term cash deposits earn interest at fixed rates for the term of the deposit.

The composition of cash and cash equivalents by currency is as follows:



 



 

 

 

By currency

 




2012 

£'000 

2011 

£'000 



 



British Pound  (GBP)




723

3,939



 



Euro (EUR)




1,101

1,619



 



US Dollar (USD)




847

414



 



Canadian Dollar (CAD)




45

62



 



Cash and cash equivalents




2,716

6,034



 


18

Trade and other payables



 



 

 

 

 

 



Notes

2012 

£'000 

2011 

£'000 



 



Payments received on account




1,002

1,995



 



Trade payables




1,936

2,110



 



Trade accruals




1,404

1,633



 



Other taxation and social security




612

817



 



Other payables




292

339



 



Other liabilities - contingent consideration



26

-

400



 



Total trade and other payables




5,246

7,294



 











 



All amounts disclosed are short-term. The carrying value of trade payables is considered a reasonable approximation of fair value.

 



 


19

Loans and borrowings



 



In November 2012, the Group agreed a new annual bank facility of up to £2.0 million to provide additional future working capital capacity. Interest is payable at LIBOR plus 3.00% and the facility is secured on the fixed and floating assets of the Group. The facility is subject to certain operating performance and net worth covenants of the business. As at 31 December 2012, and as at 18 March 2013, the facility is undrawn.



 


20

Other liabilities



 



 

 

 

 

 



Notes

2012 

£'000 

2011 

£'000 



 



Other liabilities - contingent  consideration



26

-

160



 


21

Share capital and premium



 


 

 

 

Number of

ordinary shares

of £0.02 each

Share 

Capital 

£'000 

Share 

Premium 

£'000 

Total 

£'000 



 



Balance at 1 January 2011

15,211,490

304

14,550

14,854



 



Share issue

2,777,778

56

4,944

5,000



 



Share issue costs

-

-

(486)

(486)



 



Issued under share-based payment plans

376,308

8

125

133



 



Issued on conversion of Convertible Loan

3,176,772

63

2,796

2,859



 



Issued on exercise of warrants

115,350

2

102

104



 



Change in year

6,446,208

129

7,481

7,610



 



Balance at 31 December 2011

21,657,698

433

22,031

22,464



 



Issued under share-based payment plans

154,937

3

29

32



 



Issued on conversion of warrants

107,109

2

191

193



 



Change in year

262,046

5

220

225



 



Balance at 31 December 2012

21,919,744

438

22,251

22,689



 



The Company has one class of ordinary shares which carry no right to fixed income.

During the period, the Company issued 262,046 shares, increasing the total number of shares in issue from 21,657,698 to 21,919,744  as follows:

·      154,937 shares as a result of options exercised with a weighted average exercise price of £0.21 per share for total cash consideration of £32,461;

107,109 shares as a result of exercise of warrants at £1.80 per share for cash consideration of £192,796.



 


22

Share-based payments: options and warrants





22.1 Equity-settled share-based payment arrangements

a)  Share option plans

The Group operates a number of plans to award options over shares in the Company to the best-performing employees of the Group around the world.

Options are generally granted at an exercise price equal to the market price of the shares under option at the date of the grant. The options generally vest evenly over three years on the anniversary from the date of the grant or entirely on the third anniversary from the date of grant, depending on continuing service during the vesting period. The contractual life of the options is ten years from the date of grant after which they expire if unexercised.

b)  Warrants

During 2011 at the time of the initial public offering on AIM, the Group granted warrants to a professional adviser in lieu of fees. The warrants were granted at a subscription price equal to the market price of the shares under warrant at the date of the grant. The warrants were exercisable immediately and had a contractual life of eighteen months from the date of grant after which they expire if unexercised. The warrants were exercised in their entirety during 2012 and no further warrants have been granted.





22.2 Analysis of amounts recognised in the financial statements



 



a) Analysis of amounts recognised in the Consolidated income statement




 



 

 

 

 

2012 

£'000 

2011 

£'000 



 



Total share-based payments charge recognised in operating profit

63

24



 



b) Analysis of amounts recognised in the Consolidated statement of changes in equity in the year



 



 

 

 

 

2012 

£'000 

2011 

£'000 



 



Net credit to the share-based payments reserve

63

46



 



Charge to the share premium account

-

(22)



 



Net share-based payments credit recognised in Equity

63

24



 



c) Cumulative amounts included within Equity in the Consolidated statement of financial position



 



 

 

 

 

2012 

£'000 

2011 

£'000 



 



Cumulative reserve credit for share-based payments

654

591



 



22.3 Reconciliation of movements in equity-settled share-based payment arrangements in the year



 

 

 

Arrangement

Award date
Year

Vests
Years

Expires
Year

Exercise price
£

Awards outstanding at
1 January 2012 number

Granted during the year
number

Exercised during the year
number

Forfeited during the year
number

Awards outstanding at
31 December 2012
number

Awards exercisable at
31 December 2012
number

Options

2006

2007-09

2016

0.900

2,500

-

-

-

2,500

2,500


2007

2008-10

2017

0.900

300

-

-

-

300

300


2008

2009-11

2018

0.900

650

-

-

-

650

650


2009

2009

2019

0.900

4,457

-

-

-

4,457

4,457


2010

2011-13

2020

0.140

1,404,647

-

(143,102)

(17,730)

1,243,815

726,658


2011

2012-14

2021

1.050

488,800

-

(11,835)

(49,499)

427,466

141,630


2011

2012-14

2021

1.980

32,532

-

-

-

32,532

10,845


2012

2013-15

2022

2.125

-

347,000

-

(1,000)

346,000

-

Options





1,933,886

347,000

(154,937)

(68,229)

2,057,720

887,040

Warrants

2011

2011

2012

1.800

107,109

-

(107,109)

-

-

-

Total





2,040,995

347,000

(262,046)

(68,229)

2,057,720

887,040

Weighted average exercise price (pence)

0.477

2.125

0.860

0.829

0.695

0.315

 

 


The weighted average share price at the date of exercise for options exercised during the year was £2.126 (2011: £1.950)



 



22.4 Principal assumptions                                                            

The fair value of share-based payments grants has been valued using the Black-Scholes option-pricing model. Expected volatility was determined based on the historic volatility of comparable companies. The expected life is the expected period from grant to exercise based on management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations. The risk-free rate of return is an average yield on the zero-coupon UK Government Bond in issue at the date of grant with a similar life to the option or warrant.

The following assumptions were used in the model for options and warrants granted during the years ended 31 December 2012 and 31 December 2011:                                                                      



 

 


Instrument


Option

Option

Warrant

Option





Number granted


347,000

 32,532

107,109

491,300





Grant date


29

June

2012

26

September

2011

22

June

2011

16

May

2011





Share price at grant date (£)


2.125

1.980

1.800

1.050





Exercise price (£)


2.125

1.980

1.800

1.050





Fair value per option (£)


0.6

0.31

0.20

0.18





Expected life (years)


3.0

3.0

1.5

3.0





Expected volatility (%)


20.00%

20.00%

20.00%

20.00%





Risk-free interest rate (%)


0.87%

1.40%

2.03%

2.30%





Expected dividends expressed as a dividend yield%


0.00%

0.00%

0.00%

0.00%




23

Other reserves



 

 


 

 

 

Equity

component of

convertible

loans and

warrants

£'000

Share-based 

Payment 

Reserve 

£'000 

Translation 

reserve 

£'000 

Total 

£'000 





Balance at 1 January 2011

502

546

(95)

953





Exchange difference on retranslation of net assets and results of overseas subsidiaries

-

-

14

14





Reserve credit for equity-settled share-based payment

-

45

-

45





Equity component of loans

(502)

-

-

(502)





Balance at 31 December 2011

-

591

(81)

510





Exchange difference on retranslation of net assets and results of overseas subsidiaries

-

-

33

33





Reserve credit for equity-settled share-based payment

-

63

-

63





-

654

(48)

606





Share-based payment reserve

The share-based payment reserve relates to cumulative charge made in respect of share options granted by the Company to the Group's employees under its employee share option plans.

Translation reserve

Exchange differences relating to the translation of the results and net assets of the Group's foreign operations from their functional currencies to the Group's presentation currency of Sterling are recognised directly in other comprehensive income and accumulated in the translation reserve.




24

Operating lease commitments





Leases as lessee

At 31 December 2012, the Group has lease agreements in respect of property and equipment for which payments extend over a number of years. The Group enters into these arrangements as these are a cost-efficient way of obtaining the short-term benefits of these assets. The Group lease rental charge is disclosed in note 9. There are no other material off-balance sheet arrangements.

 

The Group's future aggregate minimum lease payments under non-cancellable operating leases are as follows:






Land and buildings

Other





 

 

 

2012 

£'000 

2011 

£'000 

2012 

£'000 

2011 

£'000 





No later than one year

360

326

111

125





Later than one year and no later than five years

1,512

635

91

95





Later than five years

853

535

-

-





2,725

1,496

202

220





The above table reflects the committed cash payments under operating leases, rather than the expected charge to the income statement in the relevant periods. The effect on the income statement will differ to the above figures due to the amortisation of rent-free and discounted rent periods included in a new property lease signed in 2012. The expected charge in 2013 for operating leases is expected to be £103,000 higher than the committed cash payments shown above.

The Group has guaranteed rent bonds issued by its banks on its behalf totalling £125,000 as at 31 December 2012 (2011: £ nil). These are not expected to result in any material financial loss.

 




25

Principal subsidiaries





The Company's subsidiary undertakings at 31 December 2012 are shown below. All are included in the Group financial statements and wholly owned directly by the Company. All subsidiaries prepare accounts up to 31 December each year except for Geospatial Systems Limited (formerly Realworld OO Systems Limited) which prepares accounts up to 31 March.





Subsidiary

Country of incorporation

Principal activity





Ubisense Limited

UK

Location solutions





Ubisense AG

Germany

Location solutions





Ubisense SAS

France

Location solutions





Ubisense Inc.

US

Location solutions





Ubisense Solutions Inc

Canada

Location solutions





Geospatial Systems Limited

UK

Location solutions




26

Contingent consideration



 


Under the contingent cash consideration arrangement, the Group is required to pay additional amounts to the vendors of Realworld OO Systems Limited (now Geospatial Systems Limited) based on the achievement of two separate performance milestones that may have arisen between 2011 and 2013 with a combined undiscounted range of outcomes between nil and £1,150,000. A liability of £560,000 was recognised at the acquisition date, based on management's best estimate of the probability-adjusted expected cash outflow from the arrangement. £400,000 was paid in the year relating to the first milestone and the amount recognised for the second milestone has been reduced to nil based on most recent management estimates.



 



The maturity of contingent consideration is as follows:




 




Notes



2012 

£'000 

2011 

£'000 



 



Current

18



-

400



 



Non-current

20



-

160



 



Total




-

560



 


27

Financial risk management





27.1 Risk management objectives and policies

The Group is exposed to various risks in relation to financial instruments. The Group's financial assets and liabilities by category are summarised below. The main types of risks are market risk, credit risk and liquidity risk. The Group is exposed to market risk through its use of financial instruments and specifically to currency risk and interest rate risk, which result from its operating activities.

The Group's risk management is coordinated at its headquarters, in close cooperation with the Board of Directors, and focuses on actively securing the Group's short to medium-term cash flows.  The Group does not actively engage in the trading of financial assets for speculative purposes. The most significant financial risks to which the Group is exposed are described below.

27.2 Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. The Group's policy is to maintain natural hedges where possible, by matching foreign currency revenue and expenditure. The Group does not enter into forward exchange contracts to mitigate the exposure to foreign currency risk as the Group's currency transactions are not considered significant enough to warrant this.

The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date, not denominated in the local functional currency, are as follows:






US Dollars

Euros



 



 

 

 

2012 

£'000 

2011 

£'000 

2012 

£'000 

2011 

£'000 



 



Assets

752

539

817

485



 



Liabilities

(16)

(7)

(3)

-



 



27.3 Foreign currency sensitivity analysis

The Group is mainly exposed to US Dollars and Euros. The Group seeks to manage cash inflows and outflows in each currency to mitigate currency exposure and exchange risk. The following table details the Group's sensitivity to a 5% increase and decrease in the Sterling exchange rate against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. A positive number indicates an increase in profit or equity.



 

 



US Dollars

Euro



 



 

 

 

2012 

£'000 

2011 

£'000 

2012 

£'000 

2011 

£'000 



 



Effect of a 5% strengthening in relevant exchange  rate on:






 



Income statement

37

25

39

23



 



Equity

37

25

39

23



 



Effect of a 5% weakening in relevant exchange  rate on:






 



Income statement

(40)

(28)

(43)

(26)



 



Equity

(40)

(28)

(43)

(26)



 



27.4 Interest rate sensitivity

During 2012, the Group had no outstanding debt facilities and so the Group's exposure to interest rates is minimal.

The Group's exposure to market risk for the changes in interest rates relates primarily to the Group's bank deposits. The Group's policy is to maintain flexibility and preserve capital rather than to optimise interest rates on bank deposits held, but the exposure to interest rate fluctuations on its deposits is reduced by placing these at fixed rates of interest with varying maturity dates.

The aggregate amount of the Group's cash deposits on fixed interest terms as at 31 December 2012 was £nil (2011: £2.7 million). The weighted average fixed interest rate on the cash balances during the year was 1.28% (2011: 1.21%) and the weighted average period for which the rate is fixed was 31 days (2011: 40 days). The aggregate amount of cash deposits on variable interest terms held with clearing bankers as at 31 December 2012 was £2.7 million (2011: £3.3 million).

The following table illustrates the sensitivity of the net profit of the Group for the year and equity to a possible change in interest rates of +0.5% and -0.5%, with effect from the beginning of the year. A positive number indicates an increase in profit or equity.



 


 

 

 



2012 

£'000 

2011 

£'000 



 



Effect of a 0.5% strengthening in interest rate on:






 



Income statement



17

32



 



Equity



17

32



 



Effect of a 0.5% weakening in interest rate on:






 



Income statement



16

(20)



 



Equity



16

(20)



 



27.5 Credit risk analysis

The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, as summarised in note 27.8, which are principally cash and cash equivalents and trade receivables.

Cash and cash equivalents are held at banks with good independent credit ratings in accordance with the Group Treasury policy. The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used.

The Group's policy is to deal only with creditworthy counterparties. The Group's management considers that its financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality. All receivables are subject to regular review to ensure that they are recoverable and any issues identified as early as possible. In order to manage credit risk the Directors set limits for customers based on a combination of payment history and third party credit references.  Credit limits are reviewed by the credit controller on a regular basis in conjunction with debt ageing and collection history.  In addition, many of the Group's customers, and approximately 80% by balance at any given time, are large utility companies and other blue-chip companies that would be considered a low credit risk.

None of the Group's financial assets are secured by collateral or other credit enhancements.

 

27.6 Liquidity risk analysis

Liquidity risk is the risk arising from the Group not being able to meet its obligations as they fall due. The Group seeks to manage this risk by ensuring sufficient liquidity is available to meet the foreseeable needs and to invest cash assets safely and profitably. The Group policy throughout the year has been to place surplus funds on short-term treasury deposit or interest bearing reserve accounts based on its cash flow forecasting. The Group manages its liquidity needs by carefully monitoring forecast cash inflows and outflows due in day-to-day business. Net cash requirements are compared to balances in order to determine headroom or any shortfalls. As disclosed in note 19, the Group entered into a bank facility of up to £2 million in November 2012 which had not been drawn down as at 31 December 2012.

The Group's financial liabilities have contractual maturities as summarised below:







 




Current

Non-current



 



 

 

 

Within 6 

months 

£'000 

Between 6 

and 12 

months 

 £'000 

Between 1 

and 5 years 

£'000 

Later than 5 

years 

£'000 



 



As at 31 December 2012







 



Trade and other payables

3,632

-

-

-



 



As at 31 December 2011







 



Trade and other payables

4,482

-

160

-



 



Financial assets used for managing liquidity risk

Cash flows from trade and other receivables are contractually due within six months. Cash is generally held in accounts with immediate notice. Where surplus cash deposits are identified these are placed in accounts with access terms of no more than three months.



 

 


27.7 Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concern whilst maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and capital and reserves attributable to the owners of the Company, as disclosed in the consolidated statement of financial position, with no outstanding debt as at 31 December 2012 or 31 December 2011.

In order to maintain or adjust the capital structure, the Group may issue shares, take on debt, sell assets to raise cash, adjust the amount of dividends payable to shareholders or return capital to shareholders. The Group is not subject to externally imposed capital requirements. The capital structure is continually monitored by the Group. As disclosed in note 19, the Group entered into a bank facility of up to £2 million in November 2012 which had not been drawn down as at 31 December 2012.





27.8 Categories of financial instruments

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument, are disclosed in the accounting policies in note 3. The carrying amounts presented in the Consolidated Statement of Financial Position relate to the following categories of financial instrument:



 



 

 

 

 

Notes



2012 

£'000 

2011 

£'000 



 



Financial assets








 



Loans and receivables:








 



-       Trade receivables

16



7,310

7,534



 



-       Amounts recoverable on contracts

16



2,439

1,588



 



-       Other receivables

16



40

21



 



-       Cash and cash equivalents

17



2,716

6,034



 



Total financial assets




12,505

15,177



 











 



Financial liabilities








 



Amortised cost:








 



-       Trade payables

18



1,936

2,110



 



-       Trade accruals

18



1,404

1,633



 



-       Other payables

18



292

339



 



-       Contingent consideration

26



-

560



 



Total financial liabilities




3,632

4,642



 











 

 

 


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

Companies

IQGEO Group (IQG)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today