Interim Results
Vislink PLC
01 September 2005
Vislink plc
Interim results for the six months ended 30 June 2005
Vislink plc ('The Group'), a leading supplier of microwave radio and satellite
transmission products for the broadcast and security markets and of CCTV systems
for the marine security market has today announced its interim results for the
six months to 30 June 2005.
Financial summary
--------------------------------------------------------------------------------
For the six months ended 30 June 2005 2004
£'000 £'000
--------------------------------------------------------------------------------
Revenue 35,753 30,107
Operating profit 2,527 661
Underlying operating profit 3,046 661
Profit before taxation 2,092 447
Earnings per share -basic 1.07p 0.29p
Earnings per share -basic underlying 1.33p 0.29p
--------------------------------------------------------------------------------
Key points
•The Group has achieved a significant improvement in its trading
performance for the first six months of 2005
•Orders increased by 66% compared with the first six months of 2004
•Link Research Limited ('Link'), acquired on 11 February 2005, has made a
strong contribution to the Group's profitability
•The Group's reported operating profit was £2.53 million (2004 - £0.66
million)
•The Group's underlying operating profit, being operating profit before
the amortisation of acquired intangibles, was £3.05 million (2004 - £0.66
million).
Bob Morton, Chairman of Vislink said:
'All the businesses are trading ahead of last year at the operating profit level
and the synergies and benefits from the acquisition of Link are already showing
through. The Board is encouraged by the current level of trading, the
significant orders won by the broadcast businesses and Hernis and continues to
look forward to the rest of the year with confidence.'
- ends -
For further information on 1 September 2005, please contact:
Ian Scott-Gall, Chief Executive 01488 685500
James Trumper, Group Finance Director 01488 685500
Chairman's Statement
Results for six months to 30 June 2005
The Group has achieved a significant improvement in its trading performance for
the first six months of 2005. Orders and sales are well ahead of the first six
months of 2004. Link Research Limited ('Link'), acquired on 11 February 2005,
has made a strong contribution to the Group's profitability.
The Group's order intake for the period was up 66% to £46.90 million (2004 -
£28.24 million). Group sales from continuing operations were up 19% to £35.75
million (2004 - £30.11 million).
The Group's reported operating profit from continuing operations was £2.53
million (2004 - £0.66 million). The underlying operating profit, being operating
profit from continuing operations before the amortisation of acquired
intangibles, was £3.05 million (2004 - £0.66 million). The UK business is now
showing strong profitability following the acquisition of Link, achieving an
operating profit of £1.46 million (2004 - loss of £1.09 million) before the
amortisation of acquired intangibles. In addition operating profits increased at
MRC to £2.00 million, (2004 - £1.94 million) and at Hernis to £0.54 million
(2004 - £0.44 million).
Net interest costs were £0.44 million (2004 - £0.21 million) including £0.12
million of interest accruing from the discounting of the deferred consideration
associated with the Link acquisition. The Group made a profit on continuing
activities after interest charges but before tax of £2.09 million (2004 - £0.45
million).
At 30 June 2005 the Group had net debt of £3.36 million (31 December 2004 -
£2.35 million). There was a net cash outflow from operating activities of £0.99
million as a result of a reduction in payments received on account across the
Group.
Earnings Per Share
The reported earnings per share for the period were 1.07 pence (2004 - 0.29
pence). The underlying earnings per share were 1.33 pence (2004 - 0.29 pence)
after adjusting for the amortisation of acquired intangibles.
Dividends
As in previous years the Board is not recommending an interim dividend in line
with the Group's stated strategy to only recommend a final dividend.
International Financial Reporting Standards (IFRS)
From 2005 the Group is required to prepare its consolidated financial statements
in accordance with International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) to be adopted by the European Union (EU).
The Group's date of transition to IFRS was 1 January 2004 and comparative
information in the interim financial statements is restated to reflect the
Group's adoption of IFRS except where otherwise required or permitted by IFRS1.
A reconciliation is provided in these interim financial statements of the net
assets and profit as reported under UK GAAP as at 31 December 2004 and 30 June
2004 to the revised net assets and profit under IFRS. In addition there is a
reconciliation of the net assets under UK GAAP to IFRS as at the transition date
for the Group.
Business Review
US Broadcast Business
MRC, the US broadcast business, has seen its order intake increase to £32.45
million (2004 - £14.70 million) as a result of both the 2GHz relocation
programme in the US and a substantial increase in its international order intake
to £4.50 million. External sales for the period increased to £16.64 million
(2004 - £13.55 million) and operating profits increased to £2.00 million (2004 -
£1.94 million).
The underlying domestic broadcast and government sales have remained strong in
the period with the benefit of £5.35 million of sales from the 2GHz relocation
programme. MRC has expanded its production and development facilities in order
to meet the expected increase in production and sales in line with the 2GHz
programme schedule.
UK Broadcast Business
The UK broadcast business now comprises the Advent satellite communications
business, the Link wireless camera business and the Venezuelan TV contract.
External sales for the business were £14.41 million (2004 - £12.63 million). The
underlying operating profit was £1.46 million (2004 - loss of £1.09 million)
before the £0.52 million amortisation of acquired intangibles associated with
the acquisition of Link.
The core UK satellite business has now been stabilised following the trading
losses in 2004. The Venezuelan TV contract is progressing well and is on target
to be completed by the end of the year. Link has performed strongly and has
benefited from the 2GHz relocation programme through the internal supply of
product to MRC.
Hernis
Hernis has made a good start to the year. Orders for the period were up 32% to
£5.69 million (2004 - £4.31 million) due to the growth in the offshore oil and
gas markets and the marine LNG tanker market. Sales were up 20% to £4.70 million
(2004 - £3.92 million) and operating profits were up 23% to £0.54 million (2004
- £0.44 million).
Strategy and Prospects
The broadcast businesses of MRC and Link are expected to benefit from the 2GHz
relocation programme in the US over the next three years. In addition both MRC
and Advent are seeing increased demand from international markets. MRC has also
seen an increased level of business in the period from the emerging public
safety market in the US. The Group's longer term strategy for the US market is
to achieve enhanced sales growth from the development of the government,
military and security markets for both microwave and satellite products with a
clear focus on the development of new products for markets outside of the
traditional broadcast markets.
The acquisition of Link has brought to the Group the intellectual property
rights for the application of the technologies, which are used extensively in
the Group's microwave radio links and satellite communication products. The good
margins enjoyed by Link on the sales of these products have significantly
improved the Group's overall margins. Link has enhanced the broadcast businesses
product development capability and a new development plan for both satellite
products and new electronics has been initiated for release next year. The
development of High Definition (HD) wireless camera systems is progressing well
and the new products will be launched at the International Broadcasting
Convention this September.
The offshore market is currently strong for Hernis as high oil prices have
encouraged an increasing number of new projects that are coming to fruition
around the world. In addition the potential in the onshore refinery market is
growing as a result of Hernis' long term strategic work within the onshore oil
and gas industry. The International Ship and Port Safety regulations are now
well established and have resulted in an increased awareness from the ship
owners and port authorities, making it easier for Hernis to gain acceptance for
investments in marine safety and security products.
In summary, all the businesses are trading ahead of last year at the operating
profit level and the synergies and benefits from the acquisition of Link are
already showing through.
The Board is encouraged by the current level of trading, the significant orders
won by the broadcast businesses and Hernis and continues to look forward to the
rest of the year with confidence.
ALR Morton
Chairman
1 September 2005
CONSOLIDATED GROUP INCOME STATEMENT
for the six months ended 30 June 2005
Six months to Six months to Year ended 31
30 June 2005 30 June December
(Unaudited) 2004 2004
(Unaudited (Unaudited
and restated) and restated)
(Note 9) (Note 9)*
Notes £'000 £'000 £'000
Continuing operations
Revenue 2 35,753 30,107 67,831
Cost of sales (24,506) (22,628) (52,145)
---------------------------------------
11,247 7,479 15,686
Sales and
marketing (3,077) (2,901) (5,865)
Research and
development (2,272) (1,660) (3,082)
Administrative
costs (3,286) (2,199) (6,276)
Other expenses (85) (58) (270)
---------------------------------------
Operating
profit from
continuing
operations 2 2,527 661 193
--------------------------------------------------------------------------------
Operating profit is
analysed as:
Underlying
operating
profit 5 3,046 661 2,549
Amortisation
of acquired
intangibles (519) - -
Impairment of
goodwill - - (817)
Rationalisatio
n costs - - (1,539)
--------------------------------------------------------------------------------
Finance costs (475) (250) (591)
Investment
income 40 36 93
--------------------------------------------------------------------------------
Profit/(loss)
on continuing
activities
before
taxation 2,092 447 (305)
Tax on
profit/(loss)
on ordinary
activities 3 (741) (156) (827)
---------------------------------------
Profit/(loss)
for the period
from
continuing
operations
being
profit/(loss)
attributable
to
shareholders 1,351 291 (1,132)
=======================================
Earnings/(loss)
per share
expressed in
pence per
share:
From continuing operations
- basic 5 1.07p 0.29p (1.12)p
From continuing operations
- diluted 5 1.06p 0.29p (1.11)p
========================================
Dividends
No dividends have been declared and approved in respect of the six month periods
ending 30 June 2005 and 30 June 2004 (see note 4).
* The 31 December 2004 results have been restated in accordance with IFRS, based
on the audited financial statements for the year ended 31 December 2004, which
contained an unqualified audit report (see note 9).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2005
Six months to Six months to Year ended
30 June 30 June 31 Dec
2005 2004 2004
(Unaudited) (Unaudited (Unaudited
and restated) and restated)
(Note 9) (Note 9)
Notes £'000 £'000 £'000
Opening
shareholders'
equity 9 25,001 27,208 27,208
-------------------------------------------------
Profit/(loss)
for the
financial
period 1,351 291 (1,132)
Share options
- value of
employee
services 42 14 47
Dividends 4 (246) (202) (202)
-------------------------------------------------
Movements in
the profit and
loss account 1,147 103 (1,287)
Translation
difference on
foreign
currency net
investments 1,027 (326) (920)
Shares issued 7,470 - -
Disposal of
investment in
own shares 4 - -
-------------------------------------------------
Total
movements in
shareholders'
equity 9,648 (223) (2,207)
=================================================
Closing
shareholders'
equity 34,649 26,985 25,001
=================================================
CONSOLIDATED GROUP BALANCE SHEET
as at 30 June 2005
30 June 30 June 31 Dec
2005 2004 2004
(Unaudited) (Unaudited (Unaudited
and restated) and restated)
(Note 9) (Note 9)
Notes £'000 £'000 £'000
Assets
Non-current assets
Goodwill 23,181 18,024 16,922
Intangible assets 7,394 1,105 1,062
Property, plant and
equipment 4,785 4,340 4,314
Deferred tax assets 1,602 1,241 1,602
---------------------------------------
36,962 24,710 23,900
---------------------------------------
Current assets
Inventories 11,117 10,682 8,936
Trade and other receivables 15,686 12,469 15,386
Financial assets -
available for sale
investments 259 - -
Net cash and cash
equivalents 8 2,100 5,371 3,219
---------------------------------------
29,162 28,522 27,541
---------------------------------------
Liabilities
Current liabilities
Financial liabilities -
borrowings 8 2,660 35 2,190
Trade and other payables 17,216 18,290 18,363
Current tax liabilities 1,060 - 206
Provisions 620 748 757
---------------------------------------
21,556 19,073 21,516
---------------------------------------
---------------------------------------
Net current assets 7,606 9,449 6,025
---------------------------------------
Non-current liabilities
Financial liabilities -
borrowings 8 2,795 5,552 3,378
Deferred tax liabilities 3,232 954 1,255
Other non-current
liabilities 3,752 - -
Provisions 140 668 291
---------------------------------------
9,919 7,174 4,924
---------------------------------------
---------------------------------------
34,649 26,985 25,001
---------------------------------------
Capital and reserves
Called up share capital 3,392 2,552 2,552
Share premium account 6,835 205 205
Investment in own shares (156) (160) (160)
Merger reserve 27,895 27,895 27,895
Translation reserve (2,026) (2,459) (3,053)
Profit and loss account (1,291) (1,048) (2,438)
---------------------------------------
Total shareholders' equity 34,649 26,985 25,001
---------------------------------------
CONSOLIDATED GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2005
Six months to Six months to Year ended
30 June 30 June 31 Dec
2005 2004 2004
(Unaudited) (Unaudited (Unaudited
and restated) and restated)
(Note 9) (Note 9)
Notes £'000 £'000 £'000
Cash flow from operating
activities
Cash used in
operating
activities 7 (230) (2,383) (2,613)
Investment
income 40 35 93
Finance costs (387) (152) (590)
Taxation paid (413) (403) (737)
---------------------------------------
Net cash used
in operating
activities (990) (2,903) (3,847)
---------------------------------------
Cash flows from investing
activities
Acquisition of
subsidiary 6 (2,445) - -
Proceeds from
sale of
property,
plant and
equipment - 2 2
Purchase of
property,
plant and
equipment (596) (361) (729)
Expenditure on
capitalised
development
costs (467) (618) (1,032)
---------------------------------------
Net cash used
in investing
activities (3,508) (977) (1,759)
---------------------------------------
Cash flows from financing
activities
Net proceeds
from issue of
ordinary share
capital 4,470 - -
Net proceeds
from sale of
own shares
held 4 - -
Repayment of
borrowings 8 (1,307) (260) (275)
Dividend paid
to
shareholders - - (202)
---------------------------------------
3,167 (260) (477)
---------------------------------------
Effect of
foreign
exchange rate
changes 8 212 (29) (238)
---------------------------------------
Net decrease
in cash and
cash
equivalents (1,119) (4,169) (6,321)
Net cash and
cash
equivalents at
beginning of
period 8 3,219 9,540 9,540
---------------------------------------
Net cash and
cash
equivalents at
end of period 8 2,100 5,371 3,219
---------------------------------------
NOTES TO THE INTERIM ACCOUNTS
for the six months ended 30 June 2005
1. BASIS OF PREPARATION
These interim financial statements are the first interim financial statements
following the adoption of International Financial Reporting Standards (IFRS). As
the Group has not previously published a full set of financial statements under
IFRS the content of these statements has been expanded to include summarised
reconciliations to the net assets and profit previously reported under UK GAAP
for the six months ended 30 June 2004 and the year ended 31 December 2004 (note
9). Additional statements regarding the transition, together with the new Group
accounting policies under IFRS can be found on the home page of the Vislink web
site at www.vislink.co.uk under the heading 'Financial News'.
The financial information has been prepared in accordance with all International
Financial Reporting Standards and IFRIC interpretations that had been published
by 30 June 2005 and apply to accounting periods beginning on or after 1 January
2005. The standards used are those endorsed by the EU together with those
standards and interpretations that have been issued by the IASB but had not been
endorsed by the EU by 30 June 2005. The 2004 comparative information has, as
permitted by the exemption in IFRS 1, not been prepared in accordance with IAS
32 'Financial instruments: Disclosure and presentation' and IAS 39 'Financial
instruments: Recognition and measurement'.
Further standards and interpretations may be issued that will be applicable for
financial years beginning on or after 1 January 2005 or that are applicable to
later accounting periods but may be adopted early. The Group's first full IFRS
financial statements to 31 December 2005 may, therefore, be prepared in
accordance with some different accounting policies from the financial
information presented here.
IFRS is currently being applied in the United Kingdom and in a large number of
other countries simultaneously for the first time. Furthermore, due to a number
of new and revised Standards included within the body of Standards that comprise
IFRS, there is not yet a significant body of established practice on which to
draw in forming opinions regarding interpretation and application. Accordingly,
practice is continuing to evolve. At this preliminary stage therefore, the full
financial effect of reporting under IFRS as it will be applied and reported on
in the Group's first IFRS financial statements cannot be determined with
certainty and may be subject to change.
This interim report is unaudited and does not constitute audited accounts within
the meaning of the Companies Act 1985. The accounts for the year ended 31
December 2004, on which the auditors gave an unqualified audit opinion, were not
prepared in accordance with International Financial Reporting Standards and
IFRIC interpretations but have been filed with the Registrar of Companies.
2. SEGMENTAL ANALYSIS
Revenue Operating Profit / (Loss)
------------------------------------------ -------------------------------------------
Six months to Six months to Year ended Six months to Six months to Year ended
30 June 2005 30 June 2004 31 Dec 2004 30 June 2005 30 June 2004 31 Dec 2004
£'000 £'000 £'000 £'000 £'000 £'000
By geographic
location
UK - broadcast
(note a,b) 17,032 13,265 33,315 942 (1,092) (3,209)
US - broadcast 16,757 14,288 29,395 2,003 1,937 3,871
Norway -
marine CCTV 4,699 3,924 7,960 540 442 714
Inter-segmenta
l transactions (2,735) (1,370) (2,839) (260) - -
Central
costs - - - (698) (626) (1,183)
------------------------------------------ -------------------------------------------
Group total 35,753 30,107 67,831 2,527 661 193
========================================== ===========================================
Notes:
a) For the year ended 31 December 2004 the UK operating profit is after
charging rationalisation costs of £1,539,000 and a goodwill impairment of
£817,000. The underlying operating loss was £853,000 excluding these items.
b) For the six months to 30 June 2005 the UK operating profit is after
charging amortisation in respect of acquired intellectual property and
customer relationships of £519,000 (six months to 30 June 2004 and year to
31 December 2004 - £nil), and the underlying operating profit was
£1,461,000 excluding this item.
The Group's internal organisational and management structure and its system of
internal financial reporting to the Board of Directors is based on the
geographical location of its businesses. These comprise three regions, the UK,
the Unites States of America (US) and Norway. The UK comprises the broadcast
businesses of Advent Communications (satellite products), projects and the
wireless camera systems of Link. The US comprises the microwave radio broadcast
business of MRC. Norway comprises the marine CCTV business of Hernis.
The table below shows the analysis of Group external revenue, by geographic
market.
Revenue analysis
Revenue
-----------------------------------------------------
Six months to Six months to Year ended 31
30 June 2005 30 June 2004 Dec 2004
£'000 £'000 £'000
By geographic market:
UK & Ireland 3,091 2,707 5,517
Rest of Europe 5,403 4,506 8,530
North America 15,349 13,101 24,993
South America 7,904 6,081 19,911
Middle East 520 1,734 2,677
Asia 2,908 1,610 4,539
Africa 170 280 1,039
Other 408 88 625
-----------------------------------------------------
Group Total 35,753 30,107 67,831
-----------------------------------------------------
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
The tax charge for the six months ended 30 June 2005 is based on the effective
tax rate, which it is estimated will apply to earnings for the full year.
4. DIVIDENDS
No interim dividend is proposed for the period. In 2004 there was no interim
dividend and the final dividend of 0.2 pence per share was approved at the
Annual General Meeting on 25 May 2005 and paid on 22 July 2005.
5. EARNINGS PER ORDINARY SHARE
Earnings per share is calculated by reference to a weighted average of
126,812,000 ordinary shares in issue during the period, excluding shares held by
the Employees' Share Ownership Plan (30 June 2004 - 101,123,000 and 31 December
2004 - 101,123,000).
The diluted earnings per share is after taking account of a further 945,000
shares (30 June 2004- 746,000; 31 December 2004 - 460,000) being the dilutive
effect of share options.
Underlying earnings
Vislink believes that underlying operating profit, underlying profit before tax,
underlying earnings and underlying earnings per share provide additional useful
information on underlying trends to shareholders. These measures are used by
Vislink for internal performance analysis and incentive compensation
arrangements. The term underlying is not a defined term under IFRS and may not
therefore be comparable with similarly titled profit measurements reported by
other companies. The principle adjustments are made in respect of
rationalisation costs, the impairment of goodwill and amortisation of acquired
intangibles.
The reconciliation between reported and underlying earnings and basic earnings
per share is shown below:
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 December 2004
Earnings Basic EPS Earnings Basic EPS Earnings Basic EPS
£'000 pence £'000 pence £'000 pence
Reported
earnings 1,351 1.07 291 0.29 (1,132) (1.12)
Rationalisatio
n costs - - - - 1,539 1.52
Impairment of
goodwill - - - - 817 0.81
Amortisation
of acquired
intangibles
after tax 337 0.26 - - - -
------------------------------------------------------------------
Underlying
earnings 1,688 1.33 291 0.29 1,224 1.21
------------------------------------------------------------------
6. ACQUISITIONS
On 14 January 2005 the Group announced to shareholders the proposed acquisition
of Link Research Limited. The maximum consideration, excluding acquisition
costs, is £10.75 million comprising an initial consideration of £5.00 million
(comprising £3.00 million in ordinary shares and £2.00 million in cash and loan
notes), and a further performance related deferred consideration of up to £5.75
million payable in loan notes and shares.
Also on 14 January 2005 the Group proposed the issue of 20,414,569 ordinary
shares at 22.75p raising £4.64 million before expenses.
Both these transactions were approved by the shareholders at an Extraordinary
General Meeting on 9 February 2005, and the acquisition of Link Research Limited
was effective on 11 February 2005.
Below is a summary of the preliminary valuation of the tangible and intangible
net assets acquired and the calculation of goodwill:
Book value Fair value Fair value
adjustment
£'000 £'000 £'000
----------------------------------
Net assets acquired
Acquired intangibles -
intellectual property - 3,720 3,720
Acquired intangibles -
customer relationships - 3,100 3,100
Intangibles - goodwill 1,384 (1,384) -
Property, plant and
equipment 636 (329) 307
Inventories 450 - 450
Trade and other receivables 1,294 - 1,294
Investment assets held for
resale - 259 259
Cash at bank and in hand 140 - 140
Trade and other payables (705) - (705)
Current tax liabilities (357) - (357)
Provisions (65) - (65)
Financial liabilities -
secured bank borrowings (661) - (661)
Financial liabilities -
unsecured borrowings (533) - (533)
Deferred tax liabilities (63) (2,046) (2,109)
----------------------------------
1,520 3,320 4,840
====================
Goodwill on acquisition 5,906
--------
Total consideration 10,746
========
Satisfied by:
Cash consideration
(including acquisition costs
of £659,000) 2,585
Ordinary shares 3,000
Unsecured loan notes 74
Deferred consideration 5,087
--------
10,746
========
Net cash outflow arising on acquisition
Cash consideration
(including acquisition costs
of £659,000) 2,585
Cash and cash equivalents
acquired (140)
--------
2,445
========
The deferred consideration of £5,750,000 payable over the next 2.5 years has
been discounted to its present value at a rate of 5.85% to £5,087,000 at the
date of acquisition. In the period to 30 June 2005 an interest charge of
£126,000 has been made to reflect the increase in the present value of the
deferred consideration at 30 June 2005.
Link Research Limited contributed £1,067,000 to Group operating profit in the
period. If the acquisition of Link Research Limited had been completed on the
first day of the financial year, Group revenues for the year would have
increased by £571,000 and Group profit attributable to equity holders of the
parent company by £97,000.
7. NOTES TO THE CASH FLOW STATEMENT
Net cash flow from operating activities comprises:
Six months to Six months to Year ended 31
30 June 2005 30 June 2004 Dec 2004
£'000 £'000 £'000
Profit/(loss)
attributable
to
shareholders 1,351 291 (1,132)
Taxation 741 156 827
Depreciation 476 406 849
Loss/(profit)
on disposal of
property,
plant and
equipment 16 (2) (2)
Impairment of
goodwill - - 817
Amortisation
of development
costs 477 360 756
Amortisation
of acquired
intangibles 519 - -
Share options
- value of
employee
services 42 14 47
Investment
income (40) (36) (93)
Finance costs 475 250 591
(Increase) in
inventories (1,419) (1,745) (68)
Decrease/(incr
ease) in trade
and other
receivables 1,430 (976) (3,999)
(Decrease)/inc
rease in
payables (3,925) (214) 33
(Decrease) in
provisions (373) (887) (1,239)
----------------------------------------------------
Net cash
outflow from
operating
activities (230) (2,383) (2,613)
====================================================
8. NET BORROWINGS
The movements in cash and cash equivalents and borrowings in the period are as
follows:
Net cash and Short term Other Total net
cash borrowings borrowings borrowings
equivalents
£'000 £'000 £'000 £'000
At 1 January
2005 3,219 (2,190) (3,378) (2,349)
Cash flow for
the period (1,471) 1,307 - (164)
Assumed on
acquisition 140 (706) (488) (1,054)
Exchange rate
adjustments 212 - - 212
Reclassificati
on - (1,071) 1,071 -
------------------------------------------------------------
At 30 June
2005 2,100 (2,660) (2,795) (3,355)
============================================================
9. RECONCILIATION OF NET ASSETS AND PROFIT UNDER UK GAAP TO IFRS
The Group reported under UK GAAP in its previously published financial
statements for both the year ended 31 December 2004 (on which the auditors gave
an unqualified audit opinion) and the six months ended 30 June 2004 (on which
the auditors provided an unqualified review report). From 2005 the Group is
required to prepare its consolidated financial statements in accordance with
International Accounting Standards (IAS) and International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU).
The Group has applied IFRS1 'First Time Adoption of International Financial
Reporting Standards' as a starting point for reporting under IFRS. The Group's
date of transition to IFRS is 1 January 2004 and comparative information in the
financial statements is restated to reflect the Group's adoption of IFRS except
where otherwise required or permitted by IFRS1.
IFRS1 requires an entity to comply with each IFRS effective at the reporting
date for its first financial statements prepared under IFRS. As a general rule,
IFRS1 requires such standards to be applied retrospectively. However, the
standard allows several optional exemptions from full retrospective application.
The Group has elected to take advantage of certain exemptions as explained in
the following paragraphs.
The Group will adopt IFRS3 'Business Combinations' to the extent that it applies
to acquisitions post 1 January 2004. Acquisitions before that date will be
recorded as under previous accounting rules as the Group intends to take
advantage of the exemption allowed in IFRS1 regarding business combinations
recognised before the date of transition to IFRS. All goodwill and intangibles
will be tested for impairment, as required by IAS36 'Impairment of Assets',
goodwill on an annual basis and all intangibles, including goodwill, when there
is an indication of impairment.
The Group will elect to apply the exemptions in IAS32 'Financial Instruments:
Disclosure and Presentation' and IAS39 'Financial Instruments: Recognition and
Measurement'. The Group will apply these standards from 1 January 2005.
The Group will elect to take advantage of the exemptions allowed in IFRS1
regarding IFRS2 'Share-based payments'. The Group will apply the exemptions for
share-based payments granted on or before 7 November 2002. This means that only
equity instruments granted after 7 November 2002 that vest after the effective
date of IFRS2 on 1 January 2005 need to be valued and accounted for under IFRS2.
The analysis below shows a reconciliation of net assets and profit as reported
under UK GAAP as at 31 December 2004 and 30 June 2004 to the revised net assets
and profit under IFRS as reported in these financial statements. In addition
there is a reconciliation of net assets under UK GAAP to IFRS as at the
transition date for the Group, being 1 January 2004.
Notes Six months to Year ended
30 June 2004 31 Dec 2004
£'000 £'000
Reconciliation of profit before interest
Loss before interest as
reported under UK GAAP (109) (311)
Share based payments a (14) (47)
Goodwill amortisation b 566 1,132
Goodwill impairment b - (817)
Development costs
capitalised f 578 992
Development costs -
amortisation f (360) (756)
-----------------------
Profit before interest
reported under IFRS 661 193
=======================
Reconciliation of profit/(loss)
attributable to shareholders
Loss as reported under UK
GAAP (408) (1,820)
Share based payments a (14) (47)
Goodwill amortisation b 566 1,132
Goodwill impairment b - (817)
Dividends c - 246
Taxation d 3 7
Development costs
capitalised f 375 694
Development costs -
amortisation f (231) (527)
-----------------------
Profit/(loss) attributable
to shareholders under IFRS 291 (1,132)
=======================
Six months to Year ended
30 June 2004 31 Dec 2004
pence pence
Reconciliation of basic (loss)/earnings per
share
Basic (loss) per share under
UK GAAP (0.40) (1.56)
IFRS adjustments 0.69 0.44
-----------------------
Basic earnings/(loss) per
share under IFRS 0.29 (1.12)
=======================
Reconciliation of equity at 1 January 2004
Notes UK GAAP IFRS IFRS IFRS
As reported Reclassifications Adjustments Restated
£'000 £'000 £'000 £'000
Assets
Non-current
assets
Goodwill b 18,091 - - 18,091
Intangible
assets f - 101 838 939
Property,
plant and
equipment 4,464 (101) - 4,363
Deferred tax
assets - 1,241 - 1,241
-------------------------------------------------
22,555 1,241 838 24,634
-------------------------------------------------
Current assets
Inventories 9,099 - - 9,099
Trade and
other
receivables 12,857 (1,716) - 11,141
Financial
assets -
available for
sale
investments - 475 - 475
Cash at bank
and in hand 9,540 - - 9,540
-------------------------------------------------
31,496 (1,241) - 30,255
-------------------------------------------------
Liabilities
Current
liabilities
Financial
liabilities -
borrowings - 276 - 276
Trade and
other payables c 19,121 (405) (202) 18,514
Current tax
liabilities - 129 - 129
Provisions - 1,431 - 1,431
-------------------------------------------------
19,121 1,431 (202) 20,350
-------------------------------------------------
-------------------------------------------------
Net current
assets 12,375 (2,672) 202 9,905
-------------------------------------------------
Non-current
liabilities
Financial
liabilities -
borrowings 5,567 - - 5,567
Deferred tax
liabilities d - 237 652 889
Provisions 2,543 (1,668) - 875
-------------------------------------------------
8,110 (1,431) 652 7,331
-------------------------------------------------
-------------------------------------------------
26,820 - 388 27,208
=================================================
Capital and
reserves
Called up
share capital 2,552 - - 2,552
Share premium
account 205 - - 205
Investment in
own shares (160) - - (160)
Merger reserve 27,895 - - 27,895
Translation
reserve e - - (2,133) (2,133)
Profit and
loss account (3,672) - 2,521 (1,151)
-------------------------------------------------
Total
shareholders'
equity 26,820 - 388 27,208
=================================================
The reclassifications represent the reclassification of certain assets and
liabilities in the balance sheet into the format required under IFRS.
Reconciliation of equity at 31 December 2004
Notes UK GAAP IFRS IFRS IFRS
As reported Reclassifications Adjustments Restated
£'000 £'000 £'000 £'000
Assets
Non-current
assets
Goodwill b 16,622 - 300 16,922
Intangible
assets f - 29 1,033 1,062
Property,
plant and
equipment 4,343 (29) - 4,314
Deferred tax
assets - 1,602 - 1,602
----------------------------------------------------
20,965 1,602 1,333 23,900
----------------------------------------------------
Current assets
Inventories 8,936 - - 8,936
Trade and
other
receivables 16,988 (1,602) - 15,386
Cash at bank
and in hand 3,219 - - 3,219
----------------------------------------------------
29,143 (1,602) - 27,541
----------------------------------------------------
Liabilities
Current
liabilities
Financial
liabilities -
borrowings - 2,190 - 2,190
Trade and
other payables c 21,005 (2,396) (246) 18,363
Current tax
liabilities - 206 - 206
Provisions - 757 - 757
----------------------------------------------------
21,005 757 (246) 21,516
----------------------------------------------------
----------------------------------------------------
Net current
assets 8,138 (2,359) 246 6,025
----------------------------------------------------
Non-current
liabilities
Financial
liabilities -
borrowings 3,378 - - 3,378
Deferred tax
liabilities d - 541 714 1,255
Provisions 1,589 (1,298) - 291
----------------------------------------------------
4,967 (757) 714 4,924
----------------------------------------------------
----------------------------------------------------
24,136 - 865 25,001
====================================================
Capital and
reserves
Called up
share capital 2,552 - - 2,552
Share premium
account 205 - - 205
Investment in
own shares (160) - - (160)
Merger reserve 27,895 - - 27,895
Translation
reserve e - - (3,053) (3,053)
Profit and
loss account (6,356) - 3,918 (2,438)
----------------------------------------------------
Total
shareholders'
equity 24,136 - 865 25,001
====================================================
The reclassifications represent the reclassification of certain assets and
liabilities in the balance sheet into the format required under IFRS.
Reconciliation of equity at 30 June 2004
Notes UK GAAP IFRS IFRS IFRS
As reported Reclassifications Adjustments Restated
£'000 £'000 £'000 £'000
Assets
Non-current
assets
Goodwill b 17,458 - 566 18,024
Intangible
assets f - 58 1,047 1,105
Property,
plant and
equipment 4,398 (58) - 4,340
Deferred tax
assets - 1,241 - 1,241
-----------------------------------------------------
21,856 1,241 1,613 24,710
-----------------------------------------------------
Current assets
Inventories 10,682 - - 10,682
Trade and
other
receivables 13,710 (1,241) - 12,469
Cash at bank
and in hand 5,371 - - 5,371
-----------------------------------------------------
29,763 (1,241) - 28,522
-----------------------------------------------------
Liabilities
Current
liabilities
Financial
liabilities -
borrowings 35 - - 35
Trade and
other payables 18,290 - - 18,290
Current tax - - - -
liabilities
Provisions - 748 - 748
-----------------------------------------------------
18,325 748 - 19,073
-----------------------------------------------------
-----------------------------------------------------
Net current
assets 11,438 (1,989) - 9,449
-----------------------------------------------------
Non-current
liabilities
Financial
liabilities -
borrowings 5,552 - - 5,552
Deferred tax
liabilities d - 231 723 954
Provisions 1,647 (979) - 668
-----------------------------------------------------
7,199 (748) 723 7,174
-----------------------------------------------------
-----------------------------------------------------
26,095 - 890 26,985
=====================================================
Capital and
reserves
Called up
share capital 2,552 - - 2,552
Share premium
account 205 - - 205
Investment in
own shares (160) - - (160)
Merger reserve 27,895 - - 27,895
Translation
reserve e - - (2,459) (2,459)
Profit and
loss account (4,397) - 3,349 (1,048)
-----------------------------------------------------
Total
shareholders'
equity 26,095 - 890 26,985
=====================================================
The reclassifications represent the reclassification of certain assets and
liabilities in the balance sheet into the format required under IFRS.
Notes
a) IFRS 2 - Share-based payments
Provision for share-based payments not previously recognised under UK GAAP.
Under IFRS 2, charges are required in respect of all employee share based
remuneration schemes. These charges are designed to reflect the fair value of
the awards made under the Group's share option schemes and the Group's Sharesave
scheme at the time of the grant. Transitional arrangements for this standard
require its application to all awards granted after 7 November 2002. The Group
has adopted the Black-Scholes model to value the options.
b) IFRS3 - Business Combinations (goodwill amortisation)
Under UK GAAP, goodwill recognised on acquisitions made after 31 December 1997
was capitalised and amortised over its estimated useful life, which in the
Group's case was 20 years. Under IFRS 3, goodwill, including residual goodwill
from pre-transition acquisitions, is no longer amortised, but is required to be
reviewed for impairment at least annually.
At the transition date the Group had goodwill assets of £18.10 million, which
under the transitional arrangements laid out in IFRS 1 was deemed to be the fair
value of these assets.
During the year ended 31 December 2004, under UK GAAP, a goodwill amortisation
charge of £1.13 million was made, which is added back under IFRS. The charge of
£0.57 million in respect of the first six months to 30 June 2004 is also added
back.
At 31 December 2004 an impairment review was undertaken in respect of the
goodwill associated with the UK broadcast business. The goodwill at 31 December
2004 was deemed to be fairly valued after the goodwill amortisation charge in
2004 of £0.82million. Therefore this charge has been reclassified as an
impairment of goodwill under IFRS.
c) Dividends IAS 10 - Events after the balance sheet date
(dividends proposed)
Under IAS10, there is a requirement not to recognise a dividend creditor until
the dividend is fully authorised. Therefore proposed dividends at 1 January 2004
(£202,000) and 31 December 2004 (£246,000) have been written back pending their
approval at subsequent Annual General Meetings.
d) IAS 12 - Taxation
IAS 12 requires entities to provide for deferred taxation based on temporary
differences between the carrying amount of assets/liabilities and their tax
base. Consequently, the Group has made additional provision for deferred tax on
separately identified intangibles (development costs) together with deferred tax
adjustments in respect of certain non-qualifying properties.
e) IAS 21 - Effects of changes in foreign exchange rates
Under IAS21 the cumulative translation differences for all foreign operations
must be separately tracked and the cumulative amounts disclosed. As a result at
1 January 2004 the cumulative foreign exchange loss on all foreign operations of
£2.13million has been reclassified from the profit and loss account to a foreign
exchange reserve. Subsequent translation differences at 30 June and 31 December
have also been reclassified.
f) IAS 38 - Research and development costs
IAS 38 requires that all development costs meeting specified criteria must be
capitalised as intangible assets. As part of the IFRS transition preparation
Vislink has reviewed all its development projects, whether the costs were
previously recognised under UK GAAP or not, to determine whether the criteria in
IAS 38 were met or not. The key eligibility criteria for capitalisation relate
to:
• The identification of development costs. In general the Group's research
and development activities are closely interrelated and it is not until the
technical feasibility of a project can be determined with reasonable
certainty that development costs are separately identifiable; and
• The generation of future economic benefit. Intangible assets are not
recognised unless the resultant product is expected to generate future
economic benefit in excess of the amount capitalised.
As a result of the review the development costs associated with certain products
met the criteria of IAS 38 and have therefore been capitalised, and subsequently
amortised over their estimated useful lives (generally three years). The net
book value capitalised as at 1 January 2004 was £838,000. Subsequent
capitalisation and amortisation is shown in the reconciliation of operating
profits above.
10. APPROVAL
This report was approved by a committee of the Board of Directors on 1 September
2005.
Independent review report to Vislink Plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises the consolidated interim
balance sheet as at 30 June 2005 and the related consolidated interim statements
of income, cash flows and changes in shareholders' equity for the six months
then ended, comparative figures and the related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in Note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 December 2005 are not known with certainty
at the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Bristol
1 September 2005
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