Interim Results
Brulines (Holdings) PLC
11 December 2007
Press Release 11 December 2007
Brulines (Holdings) plc
('Brulines' or 'the Group')
Interim Results
Brulines (Holdings) plc, the UK's market leader in dispense monitoring,
announces its Interim Results for the six months ended 30 September 2007.
Highlights
• Operating profit increased 27.9% to £2.06 million (2006: £1.61 million)
• Gross margins improved to 49.8% (2006: 42.8%)
• Earnings per share increased by 32.1% to 6.25p (2006: 4.73p)
• Net cash position of £5.76 million
• Maiden interim dividend since flotation of 1.45p per share (2006: none)
• Acquisition of a majority shareholding in Coin Metrics
• Proposed purchase of all the issued share capital of Nucleus Data Holdings
• Satisfactory progression of new installations, system replacements and
upgrades, taking the total installation base to over 19,000
Commenting on the Interim Results, James Newman, Brulines Chairman said:
'The Group has made good progress since flotation, not only in its existing
business activities, but also in the development and achievement of its
strategic plans.
Gross margin has risen from 42.8% for the first half 2006/7 to 49.8% for the
first half 2007/8 as a result of increased recurring revenue and not incurring
the high set up costs associated with the Enterprise Inns roll out programme.
The high visibility of our earnings, the cash generative nature of our core
business and our proposed purchase of Nucleus, combined with the other recent
acquisitions in the amusement machines sector and a strong underlying cash
position, all provide a secure foundation for accelerated growth. We will
achieve this both organically and by acquisition, as opportunities arise, into
new markets such as vending, temperature and utilities monitoring. The Board
is, therefore, confident that the Group will continue to grow in line with
expectations.'
Enquiries:
Brulines (Holdings) plc
James Dickson, Chief Executive Tel: +44 (0) 1642 358 800
james.dickson@brulines.com
Mark Foster, Finance Director
mark.foster@brulines.com www.brulines.com
Grant Thornton UK
Gerry Beaney Tel: +44 (0) 20 7383 5100
www.gtuk.com
Media enquiries:
Abchurch Communications
Sarah Hollins/Justin Heath Tel: +44 (0) 207 398 7700
justin.heath@abchurch-group.com www.abchurch-group.com
Chairman's Statement
I am pleased to report on another strong set of results and significant progress
in the strategic development of the Group during the last six months.
Results
As expected, turnover for the period at £8.06 million (2006: £9.24 million) has
reduced as a result of a significant change in the revenue mix. This is largely
due to a major installation programme undertaken last year, which was not
repeated on such a scale this year.
However, the service income margin associated with these installations started
to come through as anticipated, increasing overall gross margins to 49.8% from
42.8% last year. With other costs being well managed, this has resulted in an
increase in operating profit of some 27.9% to £2.06 million.
Finance income further increased profit before tax for the period to £2.18
million compared to £1.38 million in 2006.
Basic earnings per share for the period at 6.25p compared favourably to 4.73p
last year and 7.17p for the whole of last year.
Dividend
The Board have declared an interim dividend of 1.45p per share, which will be
payable on 23 January 2008 to shareholders on the register as at 21 December.
No interim dividend was paid last year as the Group did not join AIM until
October 2006. A final dividend of 3.00p was paid in respect of the year ended
31 March 2007 on 25 July 2007.
Acquisitions
In May this year, the Group acquired a majority shareholding in Coin Metrics
Limited ('Coin Metrics'). Coin Metrics has developed the Site Guardian system,
a wireless data product that allows its customers in the amusement and gaming
(or 'AWP') industries to monitor constantly the financial performance of their
gaming sites and assets accurately in real time.
The acquisition of Coin Metrics is a strong strategic fit with the Group's
existing Machine Insite business, which already provides gaming machine data
management and consultancy services to operators within the pub, club and
leisure markets.
In early September, the Company announced that it had entered into a conditional
contract to purchase all the issued share capital of Nucleus Data Holdings
Limited ('Nucleus') for a consideration of £3.8 million. Management's long term
belief has been that the combined Group will be even better placed to compete in
the market place and help our customers in the licensed on-trade to deliver
improved quality, a better customer experience and increased operational
productivity. As Brulines main competitor Nucleus supplies data capture devices,
communication platforms, data management, service and maintenance, and market
intelligence services to the UK licensed on-trade.
The acquisition was conditional on the Office of Fair Trading ('OFT') not
referring the proposed merger to the Competition Commission. On 20 November
2007, following a review of the facts and consultation with our customers, the
OFT decided not to refer our merger with Nucleus to the Competition Commission,
validating managements' arguments.
Extraordinary General Meeting
At an Extraordinary General Meeting of the Company held on 21 November, a
resolution was approved by shareholders allowing the Company to buy up to
2,411,610 shares representing approximately 10% of the Company's issued share
capital.
This will allow the Company more flexibility in the management of its capital
base and will be renewed at the next Annual General Meeting in 2008.
Outlook
The Group has made good progress since flotation, not only in its existing
business activities, but also in the development and achievement of its
strategic plans. The acquisitions of Machine Insite and Coin Metrics will
greatly add to the Group's product offering and enable new and exciting growth
opportunities to be realised, especially the capture and analysis of critical
operational data.
The high visibility of our earnings and the cash generative nature of our core
business together with our proposed purchase of Nucleus, combined with the other
recent acquisitions in the amusement machines sector and a strong underlying
cash position, all provide a secure foundation for accelerated growth both
organically and by acquisition (as opportunities arise) into new markets, such
as vending, temperature and utilities monitoring. The Board is, therefore,
confident that the Group will continue to grow in line with expectations.
James H Newman
Chairman 11 December 2007
Executive Review
Group profit
The Group results for the six months to 30 September 2007 are in line with
management expectations.
As anticipated, on a comparable year on year basis, the core business turnover
for the first half decreased by 12.7% to £8.06 million (2006: £9.24 million)
with the decline attributable to the exceptionally high level of installation
activity associated with Enterprise Inns roll out in 2006/7.
The turnover mix in the first half continued to improve, moving towards
recurring revenue as income from support service contracts was generated from
the increasing installation base. Recurring revenue currently accounts for
over 60% of Group turnover and management expects this to continue to rise for
the foreseeable future.
Gross margin has risen from 42.8% for the first half 2006/7 to 49.8% for the
first half 2007/8 as a result of increased recurring revenue and not incurring
the high set up costs associated with the Enterprise Inns roll out programme.
Other direct costs of sale also decreased by 15% as lower direct operating costs
have been achieved from improved efficiency.
After absorbing costs associated with the integration and support of Machine
Insite and Coin Metrics, Group profit before taxation for first half 2007/8 at
£2.2 million is £0.8 million greater than the same period last year delivering a
32.1% increase in earnings per share to 6.25p.
Customers and contracts
New installations, system replacements and upgrades have progressed
satisfactorily in the first half with 1,100 new installations and 580 existing
system upgrade replacements taking our total installation base to over 19,000
sites, providing year-on-year growth in recurring revenue and increased margins
associated with support services.
Negotiations for our core product offering to the tenanted/leased sector have
been successfully completed with several customers including S&N Pub
Enterprises, Charles Wells and a five year contract extension with Punch
Taverns. Discussions are advancing with other national and regional operators,
and this is expected to increase our market share and continue to both broaden
our customer base and gain deeper penetration within existing customers'
estates.
Market drivers
The Group continues to benefit from a number of sector and legislative factors
which have increased both the breadth and depth of our market penetration. The
smoking bans and the increasing requirements on all leisure operators to improve
the quality and efficiency of their offering will continue to increase demand
for the Group's products regardless of any potential consumer slow down.
Brand Quality Monitoring ('BQM') product development
Further strong progress has been made with the BQM product range development as
quality at the point of dispense becomes increasingly important due to pub
owners and brewers competing for market share against a background of falling
on-premises beer consumption.
The Group now has in excess of one hundred BQM systems installed in Punch
Taverns with a five year support service contract. There is increased interest
and demand from a growing number of pub companies for commercial evaluation of
BQM, with activity ongoing in both the national tenanted and managed sectors
with a broad range of operators, which could lead to a significant number of
commercial installations in the next twelve months.
Strategic growth acquisitions
In early 2006 the Group decided to enter the amusement and gaming (or 'AWP')
machine market to provide a monitoring and data management product. We have now
completed two acquisitions which have been successfully integrated and are well
positioned to establish a leading data capture and machine management position
in the leisure sector.
Machine Insite - leading position in gaming machine data management and
consultancy
Machine Insite provides gaming machine data management and consultancy services
to operators within the pub, club and leisure markets and is trading well and
will grow its contribution to Group profit over the coming years. Following our
investment in a new database and data management software with web based
reporting, it has gained new business with SA Brain, MOTO Motorway services,
Spirit, Orchid, and Charles Wells during the past year and we now provide data
management for approximately 25,000 AWP machines across 30 groups and customers
within the pub and leisure markets.
Coin Metrics - remote data capture for gaming and vending machines
In May 2007, as part of our plan to provide enhanced AWP and vending monitoring
products such as remote data capture, the Group acquired a 66 percent holding in
Coin Metrics Limited (CML). The core CML product is Site Guardian, a wireless
data product that allows owners of gaming centres or family entertainment
centres in the AWP industries to constantly monitor the financial performance of
their gaming sites and assets accurately and in real time.
The acquisition of CML is a strong strategic fit with Machine Insite as the real
time data capture capability will allow Machine Insite to provide advanced
machine reporting and M2M services which will enable the Group to accelerate the
growth of the AWP data management business to market leadership, whilst also
opening up new applications and markets for the next generation of wireless data
capture systems into new business sectors, such as vending.
The Group is in discussion with potential customers and partners within the
vending industry for the development and supply of VENDGuardianTM which will
provide real time data capture on vending machine operational information such
as activity, stock level, stock replenishment, chilled environment, revenue etc.
Nucleus Data Holdings Limited ('Nucleus') - data capture and management for the
pub industry
The proposed acquisition of Nucleus is an important strategic development in the
Group's growth plans as it enhances product development, further strengthens the
senior team and provides a solid commercial platform from which to accelerate
our entry into new markets.
In the year ended 31 December 2006, Nucleus made a profit on ordinary activities
before taxation of £0.3 million on a turnover of £3.1 million. At 31 December
2006, the consolidated net assets of Nucleus amounted to £565,000.
Due to the timing of the OFT decision the acquisition is expected to be
completed in early January 2008 and is therefore expected to be only earnings
neutral in the year to 31 March 2008, with synergies from the merged businesses
only being realised in the year to 31 March 2009. The acquisition will be
earnings enhancing in the year to 31 March 2009.
The merged business will be able to pool resources for accelerated technology
development to expand our product portfolio and improve existing product
offering. It will also reduce complexity and administration for customers who
use both suppliers as a result of the significant movement of pubs between pub
companies following their acquisition / disposal process, whilst existing
Nucleus customers will benefit from the scale and reaction times of the Group's
nationwide in-house field service engineering resources.
Strategy for growth
Our core Dispense Monitoring business alone has the potential to maintain
satisfactory Group growth over the next three years. However the Board
anticipate incremental contribution and margin growth from additional
complimentary products and technologies such as BQM, AWP, soft drinks
monitoring, fridge/freezer temperature, wines and spirits, and market insights.
The Group has a strong customer and recurring revenue base and solid foundations
for significant growth as we commercialise development products, extend into new
markets and make selective acquisitions.
Our Coin Metrics and Machine Insite businesses are positioned to achieve
significant growth as we develop our AWP machine monitoring and data management
products to market leadership in their existing and new leisure sectors.
The increasing interest in BQM is expected to increase our coverage of the
tenanted/leased and managed sectors as the product becomes central to industry
quality and efficiency improvements for draught drinks dispense;
• BQM is well positioned to be the market leader in supply of critical
operational data for beer quality to the industry
• Six key players supply, install and maintain drinks dispense systems in over
95% of draught outlets in the UK licensed on trade covering pubs, bars,
hotels, restaurants, casinos, clubs and stadiums.
• These parties employ the equivalent of over 800 technicians who make in
excess of 800,000 maintenance call out visits per year.
• Used in conjunction with desk top diagnostics the data provided by BQM could
reduce the number of call outs by as much as 20% or more, and improve
targeting of resource to dramatically reduce costs, improve product quality,
reduce non availability and improve competitiveness.
The Group is already in discussion with leading players amongst the pub
companies and technical services providers to develop an integrated solution.
Our core beer monitoring products underpin customer investment in our edisBOX
communication platforms which once installed are capable of accepting additional
products and services.
The Group believes that our ability to provide a wider range of effective
operational and market data will increase our value to existing customers within
tenanted/leased and managed sectors, whilst allowing entry to the hotels, clubs,
and independent sectors.
Brulines anticipates very solid core business growth over the next three years
which will be combined with exciting growth potential from our newer products
and markets.
The Group is now well positioned to pursue an acquisitive growth strategy as we
have the resources to identify, acquire and integrate appropriate targets.
Management and employees
Our ongoing commitment to the development of our ambitious management team and
committed workforce will be strengthened by our drive to achieve the new
Investors in People standard during the coming year.
Earnings per Share (EPS)
EPS improved by 32.1% from 4.73p to 6.25p per share this half year, and on a
fully diluted basis, by 29% from 4.64p to 5.99p per share.
The proceeds of the flotation in October 2006 and the cash flow generated over
the last year means that this year, the Group has finance income of £126,000
against last years net finance charge of £233,000.
Cash Generation
The Group generated £3.1 million in the period of which £0.7 million was used
for the acquisition of Coin Metrics and a further £0.7 million for the maiden
dividend paid in July 2007. The Group is using £0.95 million to part fund the
development of new freehold offices which we will take possession of in December
2008. The offices will provide sufficient capacity for 4-5 years further growth
and will enable the merging of Nucleus operations.
With a net cash position of £5.76 million and a highly cash generative core
business, the Group has a strong financial base to raise debt funding should
appropriate acquisition opportunities arise.
Transition to International Financial Reporting Standards (IFRS)
These financial results are reported under IFRS. The principal impact has been
mainly the cessation of the routine amortisation of goodwill, as well as
intangible assets amortisation associated with the acquisition of Coin Metrics.
James Dickson Mark Foster
Chief Executive Group Finance Director
11 December 2007
Unaudited consolidated interim income statement
For the six months ended 30 September 2007
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
30 Sep 30 Sep 31 March
2007 2006* 2007*
Note £'000 £'000 £'000
Continuing operations
Revenue 3 8,059 9,237 16,756
Operating expenses (6,001) (7,430) (13,526)
Listing expenses - (193) (681)
Operating profit 2,058 1,614 2,549
Finance income 126 71 165
Finance costs - (304) (344)
Profit before tax 2,184 1,381 2,370
Tax 4 (678) (554) (913)
Profit attributable to equity shareholders 1,506 827 1,457
Earnings per share 5
Basic 6.25p 4.73p 7.17p
Diluted 5.99p 4.64p 6.99p
* restated under IFRS (see note 7)
Unaudited consolidated interim balance sheet
At 30 September 2007
Unaudited Unaudited
30 Sep 30 Sep Unaudited
2007 2006* 31 March 2007*
£'000 £'000 £'000
Non-current assets
Goodwill 9,907 9,111 9,220
Other intangible assets 27 11 9
Property, plant and equipment 447 261 487
Deferred tax 6 - -
10,387 9,383 9,716
Current assets
Inventories 1,411 1,303 1,288
Trade and other receivables 2,662 2,998 2,892
Cash and cash equivalents 5,765 4,820 4,079
9,838 9,121 8,259
Current liabilities
Trade and other payables (6,923) (5,512) (5,778)
Tax liabilities (704) (548) (486)
Obligations under finance leases and hire purchase - (12) -
contracts
Bank overdraft and loans - (1,200) -
(7,627) (7,272) (6,264)
Net current assets 2,211 1,849 1,995
Non-current liabilities
Bank and other loans - (3,604) -
Deferred tax - (22) -
Loan notes - (4,125) -
- (7,751) -
Net assets 12,598 3,481 11,711
Shareholders' equity
Share capital 2,412 1,750 2,408
Share premium account 7,024 60 6,966
Shares to be issued 68 - 32
Own shares (151) - (151)
Retained profit 3,245 1,671 2,456
Total shareholders' equity 12,598 3,481 11,711
* restated under IFRS (see note 7)
Unaudited interim cash flow statement
For the six months ended 30 September 2007
Unaudited Unaudited Unaudited
6 months 6 months Year
Ended ended ended
30 Sep 30 Sep 31 March
2007 2006 2007
£'000 £'000 £'000
Profit after tax 1,506 827 1,457
Amortisation of intangible assets 20 - 2
Depreciation 112 95 191
Loss on sale of fixed assets - (1) -
Share-based payments 36 - 32
Change in inventories (123) (383) (368)
Change in receivables 230 3,242 3,353
Change in payables 1,129 (829) (565)
Interest receivable 126 71 165
Interest payable - (304) (344)
Taxation expense recognised in income statement 678 554 913
Cash generated from operations 3,714 3,272 4,836
Interest payable - 304 344
Interest receivable (126) (71) (165)
Income taxes paid (484) (193) (640)
Net cash generated from operating activities 3,104 3,312 4,375
Investing activities
Proceeds on disposal of property, plant and equipment - 8 8
Purchases of property, plant and equipment (67) (88) (405)
Purchase of subsidiary undertakings (735) (155) (271)
Cash acquired from subsidiary 39 - -
Net cash used in investing activities (763) (235) (668)
Financing activities
Repayments of borrowings - (970) (5,678)
Dividends Paid (717) - -
Repayment of loan notes - - (4,215)
Repayments of obligations under finance leases - (12) (24)
and hire purchase contracts
Issue of ordinary share capital 62 75 7,639
Net cash from financing activities (655) (907) (2,278)
Net increase in cash and cash equivalents 1,686 2,170 1,429
Cash and cash equivalents at beginning of period 4,079 2,650 2,650
Cash and cash equivalents at end of period 5,765 4,820 4,079
Unaudited consolidated interim statement of changes in shareholders' equity
For the six months ended 30 September 2007
Unaudited Unaudited Unaudited
6 months 6 months Year
ended ended ended
30 Sep 30 Sep 31 March
2007 2006* 2007*
£'000 £'000 £'000
Profit attributable to equity shareholders 1,506 827 1,457
Total recognised income and expenses 1,506 827 1,457
Dividends paid (717) - -
Issue of new shares 62 75 7,640
Purchase of own shares - (155) (151)
Share-based payments 36 - 32
Net addition to shareholders' equity 887 748 8,978
Equity attributable to equity shareholders at beginning of 11,711 2,733 2,733
period
Equity attributable to equity shareholders at end of period 12,598 3,481 11,711
* restated under IFRS (see note 7)
Notes to the unaudited interim results
For the six months ended 30 September 2007
1. Statutory information
The consolidated interim financial statements have been prepared in accordance
with the AIM Rules for Companies and on a basis consistent with the accounting
policies set out in note 2, which will be applied when the Group prepares its
first set of annual financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted by the EU for the financial year
ending 31 March 2008 (Note: this may lead to changes to the information now
being presented).
These are the Group's first interim financial statements prepared under IFRS and
therefore IFRS 1 'First-time Adoption of International Financial Reporting
Standards' has been applied. An explanation of the transition to IFRS is
provided in notes 2.2, 7 and 8.
As permitted, the Group has chosen not to adopt IAS 34 'Interim Financial
Statements' in preparing these interim financial statements and therefore the
interim financial information is not in full compliance with IFRS.
The interim financial statements are unaudited and do not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
auditors' review report on the interim financial information for the six months
ended 30 September 2007 is set out on page •. The auditors have not issued a
review report on the restated financial information for the six months ended 30
September 2006.
The financial information for the year ended 31 March 2007 has been derived from
the published statutory accounts as restated by the IFRS adjustments set out in
notes 7 and 8. A copy of the full accounts for that period, on which the
auditors issued an unqualified report that did not contain statements under
Section 237 (2) or (3) of the Companies Act 1985, has been delivered to the
Registrar of Companies.
These interim financial statements will be posted to all shareholders and are
available from the registered office at EDIS House, Wellington Court, Preston
Farm Business Park, Stockton on Tees, TS18 3TA or from our website at
www.brulines.com.
2. Accounting policies
2.1 Accounting convention
The consolidated interim financial statements have been prepared under the
historical cost convention.
2.2 First time adoption of IFRS
The year ending 31 March 2008 will be the Group's first financial statements
prepared in accordance with IFRS. Accordingly, the measurement and recognition
rules of IFRS 1 'First Time Adoption of International Financial Reporting
Standards' has been applied in the interim consolidated financial statements.
The Group's transition date to IFRS is 1 April 2006, and the Group prepared its
opening balance sheet at that date in accordance with IFRS effective at 31 March
2006 except as specified below. In preparing the interim consolidated financial
statements, the Group has applied certain of the optional exemptions available
in IFRS 1 from the full retrospective application of IFRS:
Optional exemptions to full retrospective restatement elected by the Group
(i) Business combinations
The Group has taken the business combination exemption, which allows IFRS 3
'Business Combinations' not to be applied to business combinations that took
place prior to 1 April 2006, the date of transition to IFRS. The impact of this
is to leave the goodwill resulting from the MBO in May 2005 as a carrying value,
not to be amortised, subject to an annual impairment test.
(ii) Share-based payments
The Group has elected to apply IFRS 2 'Share-based Payments', only to awards of
equity instruments made after 7 November 2002, which had not vested by 1 April
2006.
The impact of this is that for 570,000 options, the fair value at date of grant
has not been charged to the income statement over the vesting period.
Reconciliations and explanations of the effect of the transition from UK GAAP to
IFRS on the Group's equity and its profit or loss are provided in note 7.
2.3 Basis of consolidation
The consolidated interim financial statements incorporate the results, assets,
liabilities and cash flows of the company and each of its subsidiaries for the
six months ended 30 September 2007.
Subsidiaries are entities controlled by the Group. Control is deemed to exist
when the Group has the power, directly or indirectly to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results, assets, liabilities and cash flows of subsidiaries are included in
the consolidated financial statements from the date control commences until the
date that control ceases.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the Group.
Intra-Group balances and transactions are eliminated on consolidation.
2.4 Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents the amounts receivable for goods provided in the
normal course of business, net of all related discounts and sales tax.
Sale of dispense monitoring equipment and support -service packs
Dispense monitoring equipment sales and support service packs are recognised at
the date of transaction with customers.
The revenue from the sale is recognised at the point of installation and over
the support term of the service contract in accordance with the respective
customer's agreements.
Interest income
Interest income is accrued on a time basis using the effective interest method.
Rental income
Income from equipment leased to customers is accounted for on a straight-line
basis over the period to which it relates. These arrangements are operating
leases, where the risk and reward of the unit, which is capitalised, remains
with the Group.
2.5 Business combinations
The purchase method is used to account for all acquisitions. The cost of an
acquisition is measured at the fair values on the date of exchange of assets
given, liabilities incurred or assumed and equity instruments issued, together
with any costs directly attributable to the acquisition.
At the date of acquisition, the identifiable assets and liabilities and
contingent liabilities of a subsidiary are measured at their fair values. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill.
2.6 Goodwill
Goodwill on acquisition of subsidiaries represents the excess of the cost of an
acquisition over the fair value of the Group's share of the identifiable net
assets of the acquired subsidiary. Goodwill is not amortised, but tested at
least annually for impairment, and carried at cost less accumulated impairment
losses. Impairment losses are immediately recognised in the income statement
and are not subsequently reversed.
Goodwill arising on acquisitions before the date of transition to IFRS has been
retained at the previous UK GAAP amounts subject to being tested for impairment
at that date.
2.7 Other intangible assets
Separately acquired intangible assets
The company does not operate any purchased computer software. All such software
is licensed and expensed.
Website development costs are capitalised to the extent that they deliver
demonstrable benefits to the Group and amortised over three years.
Acquisition as part of a business combination
In accordance with IFRS 3 'Business Combinations', an intangible asset acquired
in a business combination is deemed to have a cost to the Group of its fair
value at acquisition date. Identifiable intangible assets acquired as part of a
business combination are initially recognised separately from goodwill if the
asset's fair value can be measured reliably, irrespective of whether the asset
had been recognised by the acquiree before the business combination. An
intangible asset is considered identifiable only if it is separable or if it
arises from contractual or other legal rights, regardless of whether those
rights are transferable or separable from the entity or from other rights and
obligations.
After initial recognition, intangible assets acquired as part of a business
combination are carried at cost less accumulated amortisation and any impairment
losses.
Intangible assets acquired as part of a business combination and recognised by
the Group include customer orders.
Amortisation
Intangible assets are amortised on a straight-line basis, to reduce their
carrying value to their residual value, over their estimated useful lives. The
following useful lives were applied during the period:
Customer orders 12 months
2.8 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and any impairment losses. Cost comprises the purchase price of property, plant
and equipment together with any directly attributable costs.
Subsequent costs are included in an asset's carrying value or recognised as a
separate asset, when it is probable that future economic benefits associated
with the additional expenditure will flow to the Group and the cost of the item
can be measured reliably. All other costs are charged to the income statement
when incurred.
Depreciation commences when an asset is available for use. Depreciation is
charged so as to write off the depreciable amount of assets other than land to
their residual values over their estimated useful lives using a method that
reflects the pattern in which the assets' future economic benefits are expected
to be consumed by the Group.
Depreciation is charged in equal annual instalments over the following periods:
Freehold and long leasehold premises 50 years
Short leasehold premises Period of lease
Plant and machinery 4 years
Equipment and vehicles 4 years
Motor vehicles 4 years
EDIS rental systems Term of hire
Methods of depreciation, residual values and useful lives are reviewed and
adjusted, if appropriate, at each balance sheet date.
The gain or loss arising from the disposal or retirement of an item of property,
plant and equipment is determined as the difference between the net disposal
proceeds and the carrying amount of the item, and is included in the income
statement.
2.9 Impairment of non-current assets
At each balance sheet date, the Group assesses whether there is any indication
that its assets have been impaired. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of
the impairment, if any. If it is not possible to estimate the recoverable
amount of the individual asset, the recoverable amount of the cash-generating
unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of
its fair value less costs to sell and its value in use. The value in use is the
present value of the future cash flows expected to be derived from an asset or
cash-generating unit. This present value is discounted using a pre-tax rate
that reflects current market assessments of the time value of money and of the
risks specific to the asset for which future cash flow estimates have not been
adjusted. If the recoverable amount of an asset is less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
That reduction is recognised as an impairment loss.
An impairment loss relating to assets carried at cost less any accumulated
depreciation or amortisation is recognised immediately in the income statement.
Goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the cash-generating units or Groups of cash-generating
units that are expected to benefit from the synergies of the combination.
Goodwill is tested for impairment at least annually, and whenever there is an
indication that the asset may be impaired.
An impairment loss is recognised for cash-generating units if the recoverable
amount of the unit is less than the carrying amount of the unit. The impairment
loss is allocated to reduce the carrying amount of the assets of the unit by
first reducing the carrying amount of any goodwill allocated to the
cash-generating unit, and then reducing the other assets of the unit pro rata on
the basis of the carrying amount of each asset in the unit.
If an impairment loss subsequently reverses, the carrying amount of the asset is
increased to the revised estimate of its recoverable amount but limited to the
carrying amount that would have been determined had no impairment loss been
recognised in prior years. A reversal of an impairment loss is recognised in
the income statement. Impairment losses on goodwill are not subsequently
reversed.
2.10 Borrowing costs
All borrowing costs are recognised in the income statement in the period in
which they are incurred.
2.11 Operating leases
The costs of all operating leases are charged against operating profit on a
straight-line basis at existing rental levels. Incentives to sign operating
leases are recognised in the income statement in equal instalments over the term
of the lease.
2.12 Equity
Equity comprises the following:
• 'Share capital' represents the nominal value of equity shares.
• 'Share premium' represents the excess over nominal value of the fair
value of consideration received for equity shares, net of expenses of
the share issue.
• 'Shares to be issued' represents equity-settled share-based employee
remuneration until such share options are exercised.
• 'Own shares' represents the shares held in the company.
• 'Profit and loss reserve' represents retained profits.
2.13 Inventories
Inventories are stated at the lower of cost and net realisable value on a FIFO
basis. Cost of finished goods and work in progress includes materials and direct
labour.
Net realisable value is the estimated selling price, which would be realised
after deducting all estimated costs of completion, and costs incurred in
marketing, selling and distributing such inventory.
2.14 Taxation
The tax expense represents the sum of current tax and deferred tax.
Current tax
Current tax is based on taxable profit for the year and is calculated using tax
rates enacted or substantively enacted at the balance sheet date. Taxable
profit differs from accounting profit either because items are taxable or
deductible in periods different to those in which they are recognised in the
financial statements or because they are never taxable or deductible.
Deferred tax
Deferred tax on temporary differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes is accounted for using the balance sheet liability method.
Using the balance sheet liability method, deferred tax liabilities are
recognised in full for all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised.
However, if the deferred tax asset or liability arises from the initial
recognition of goodwill or the initial recognition of an asset or liability in a
transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit, it is not recognised.
Deferred taxation is measured at the tax rates that are expected to apply when
the asset is realised or the liability settled based on tax rates and laws
enacted or substantively enacted at the balance sheet date.
Deferred tax assets and liabilities are offset only when there is a legally
enforceable right to set off current tax amounts and when they relate to the
same tax authority and the Group intends to settle its current tax amounts on a
net basis.
Current and deferred tax are recognised in the income statement except when they
relate to items recognised directly in equity, when they are similarly taken to
equity.
2.15 Provisions
A provision is recognised when, as a result of a past event, the Group has a
legal or constructive obligation, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a
reliable estimate of the amount of such an obligation can be made.
Provisions are measured as the best estimate of the expenditure required to
settle the obligation at the balance sheet date.
2.16 Dividends
Final dividends are recognised as a liability in the period in which they are
approved by the company's shareholders. Interim dividends are recognised when
they are paid.
2.17 Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term
deposits with a maturity of three months or less. Bank overdrafts are shown
within current liabilities. For the purposes of the cash flow statement, cash
and cash equivalents consist of cash and cash equivalents as defined above, net
of outstanding bank overdrafts.
2.18 Employee share option schemes
All share-based payment arrangements granted after 7 November 2002 that had not
vested prior to 1 April 2006 are recognised in the financial statements.
All goods and services received in exchange for the grant of any share-based
payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted to the
employee. This fair value is appraised at the grant date and excludes the impact
of non-market vesting conditions (for example, profitability and sales growth
targets).
All equity-settled share-based payments are ultimately recognised as an expense
in the income statement with a corresponding credit to 'shares to be issued'
reserve.
If vesting periods or other non-market vesting conditions applies, the expense
is allocated over the vesting period, based on the best available estimate of
the number of share options expected to vest. Estimates are subsequently
revised if there is any indication that the number of share options expected to
vest differs from previous estimates. Any cumulative adjustment prior to
vesting is recognised in the current period. No adjustment is made to any
expense recognised in prior periods if share options ultimately exercised are
different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate share
premium.
2.19 Financial instruments
The Group classifies financial instruments, or their component parts, on initial
recognition as a financial asset, a financial liability or an equity instrument
in accordance with the substance of the contractual arrangement.
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes party to the contractual provisions of the
instrument.
The particular recognition and measurement methods adopted for the Group's
financial instruments are disclosed below:
Trade and other receivables
Trade and other receivables are initially recognised at fair value. Due to their
short term nature they do not carry interest and are stated at their nominal
value, as reduced by appropriate allowances for estimated irrecoverable amounts.
A provision for impairment of trade receivables is established when there is
evidence that the Group will not be able to collect all amounts due according to
the original terms of these receivables. The amount of the provision is the
difference between the carrying value and the present value of estimated future
cash flows, discounted at the effective interest rate. Impairment losses are
recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits on call with banks and
bank overdrafts. Bank overdrafts are disclosed as current borrowings on the
balance sheet.
Trade and other payables
Trade and other payables are not interest bearing and are stated at their
settlement amount.
Borrowings
Borrowings are recognised initially at fair value. Subsequent measurement is at
amortised cost. Finance charges, including any premiums payable or discounts,
and direct issue costs are recognised in the income statement over the period of
the borrowings using the effective interest rate method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
3. Segmental information
For management purposes the Group is currently organised into two operating
divisions. These business segments are the basis on which the Group reports its
primary segmental information. As the Group's business is entirely conducted
within the United Kingdom, there are no geographical business segments and as a
result no secondary reporting segmental information is presented.
The segmental results for the 6 months ended 30 September 2007 are as follows:
Dispense Machine Group
Monitoring Monitoring
£'000 £'000 £'000
Revenue
Total revenue 7,588 471 8,059
Result
Operating profit 1,956 102 2,058
Finance costs 123 3 126
Profit before tax 2,079 105 2,184
Tax (645) (33) (678)
Profit attributable to equity shareholders 1,434 72 1,506
The segmental results for the 6 months ended 30 September 2006 are as follows:
Dispense Machine Group
Monitoring Monitoring
£'000 £'000 £'000
Revenue
Total revenue 9,237 - 9,237
Result
Operating profit 1,614 - 1,614
Finance costs (233) - (233)
Profit before tax 1,381 - 1,381
Tax (554) - (554)
Profit attributable to equity shareholders 827 - 827
4. Tax
The charge for tax is based on the profit for the period and comprises:
6 months 6 months Year
ended ended ended
30 Sep 30 Sep 31 March
2007 2006 2007
£'000 £'000 £'000
United Kingdom corporation tax 678 547 934
Deferred tax: net of originating timing differences - 7 (21)
678 554 913
5. Earnings per share
Earnings per share is calculated on the profit after tax of £1.506m (2006
£0.827m) and the average number of shares in issue during the period of
24,108,327 (2006: 17,472,920).
Diluted earnings per share are calculated by taking the earnings as disclosed
above and the average number of shares that would be issued on the full exercise
of outstanding share options of 25,137,016 (2006: 17,812,290).
6. Business combination
On 10 May 2007 Brulines (Holdings) plc acquired 100% of the issued share capital
of Coin Metrics Limited, a company based in the UK. The total cost of
acquisition of the 66% of the issued share capital includes the components
stated below. The purchase price was settled for £622,750 in cash and £62,250
in shares.
£'000
Purchase price 685
Due diligence fees 14
Other professional fees 34
----------
733
=======
The allocation of the purchase price to the assets and liabilities of Coin
Metrics Limited was completed at 30 September 2007. The amounts recognised for
each class of the acquiree's assets, liabilities and contingent liabilities
recognised at the acquisition date are as follows:
Carrying
Amount
Under Provisional
IFRS Adjustments fair value
£'000 £'000 £'000
Intangible assets - 39 39
Property, plant and equipment 4 - 4
Inventories 8 - 8
Trade and other receivables 68 - 68
Cash and cash equivalents 39 - 39
--------- ------- -------
Total assets 119 39 158
Trade payables 87 - 87
Current tax liability 23 - 23
-------- --------- --------
Total liabilities 110 - 110
------- -------- -------
Net assets 9 39 48
=======
Fair value of purchase consideration 733
--------
Goodwill 685
The goodwill that arose on the combination can be attributed to the synergies
expected to be derived from the combination and the value of the workforce of
Coin Metrics Limited which cannot be recognised as an intangible asset under IAS
38 'Intangible Assets'.
Brulines (Holdings) plc have entered into a put and call option to purchase the
remaining 34% of the issued share capital. Under IFRS 3 'Business Combinations'
this has been treated as contingent consideration. The directors are currently
unable to put a reliable estimate on the fair value of the deferred
consideration and as such no value has been included. This will be continually
monitored and a fair value calculated if appropriate going forward.
7. Explanation of the transition to IFRS
The Group's financial statements for the year ending 31 March 2008 will be the
first annual financial statements prepared under IFRS. The following disclosures
are required in the year of transition. The last financial statements under UK
GAAP were for the year ended 31 March 2007 and the date of transition to IFRS
was therefore 1 April 2006.
7.1 Reconciliation of equity and net assets as at 1 April 2006
As
reported
under Goodwill As restated
UK GAAP amortisation Other under IFRS
£'000 £'000 £'000 £'000
(note 8a) (notes 8b &c)
Non-current assets
Goodwill 9,372 - - 9,372
Other intangible assets 10 - 2 12
Property, plant and equipment 281 - (2) 279
9,663 - - 9,663
Current assets
Inventories 920 - - 920
Trade and other receivables 6,239 - - 6,239
Cash and cash equivalents 2,650 - - 2,650
9,809 - - 9,809
Current liabilities
Trade and other payables (6,344) - - (6,344)
Tax liabilities (462) - - (462)
Obligations under finance
leases and hire purchase contracts (14) - - (14)
Bank overdraft and loans (878) - - (878)
(7,698) - - (7,698)
Net current assets 2,111 - - 2,111
Non-current liabilities
Bank and other loans (4,800) - - (4,800)
Loan notes (4,216) - - (4,216)
Deferred tax (15) - - (15)
Obligations under finance
leases and hire purchase
contracts (9) - - (9)
(9,040) - - (9,040)
Net assets 2,734 - - 2,734
Shareholders' equity
Share capital 1,735 - - 1,735
Retained profits 999 - - 999
Total shareholders' equity 2,734 - - 2,734
7.2 Reconciliation of equity and net assets as at 31 March 2007
As
reported
under Goodwill As
restated
UK GAAP amortisation Other under IFRS
£'000 £'000 £'000 £'000
(note 8a) (notes 8b & c)
Non-current assets
Goodwill 8,758 462 - 9,220
Other intangible assets 9 - - 9
Property, plant and equipment 487 - - 487
9,254 462 - 9,716
Current assets
Inventories 1,288 - - 1,288
Trade and other receivables 2,892 - - 2,892
Cash and cash equivalents 4,079 - - 4,079
8,259 - - 8,259
Current liabilities
Trade and other payables (5,778) - - (5,778)
Tax liabilities (486) - - (486)
(6,264) - - (6,264)
Net current assets 1,995 - - 1,995
Net assets 11,249 462 - 11,711
Share capital 2,408 - - 2,408
Share premium account 6,966 - - 6,966
Shares to be issued 32 - - 32
Own shares (151) - - (151)
Retained profits 1,994 462 - 2,456
Total shareholders' equity 11,249 462 - 11,711
7.3 Reconciliation of equity and net assets as at 30 September 2006
As
reported
under Goodwill As
restated
UK GAAP amortisation Other under IFRS
£'000 £'000 £'000 £'000
(note 8a) (notes 8b & c)
Non-current assets
Goodwill 8,887 224 9,111
Other intangible assets 9 - 2 11
Property, plant and equipment 263 - (2) 261
9,159 224 - 9,383
Current assets
Inventories 1,303 - - 1,303
Trade and other receivables 2,998 - - 2,998
Cash and cash equivalents 4,820 - - 4,820
9,121 - - 9,121
Current liabilities
Trade and other payables (5,486) - (26) (5,512)
Tax liabilities (548) - - (548)
Obligations under finance
leases and hire purchase contracts (12) - - (12)
Bank overdraft and loans (1,200) - - (1,200)
(7,246) - (26) (7,272)
Net current liabilities 1,875 - (26) 1,849
Non-current liabilities
Bank and other loans (3,604) - - (3,604)
Deferred tax (22) - - (22)
Loan notes (4,125) - - (4,125)
(7,751) - - (7,751)
Net assets 3,283 224 (26) 3,481
Shareholders' equity
Share capital 1,750 - - 1,750
Share premium account 60 - - 60
Retained profits 1,473 224 (26) 1,671
Total shareholders' equity 3,283 224 (26) 3,481
7.4 Reconciliation of reported profits for the six months ended 30
September 2006
As reported under Goodwill As restated
UK GAAP amortisation Other under IFRS
£'000 £'000 £'000 £'000
(note 8a) (note 8b)
Continuing operations
Revenue 9,237 - - 9,237
Operating expenses (7,821) 224 (26) (7,623)
Operating profit 1,416 224 (26) 1,614
Finance income 71 - - 71
Finance costs (304) - - (304)
Profit before tax 1,183 224 (26) 1,381
Tax (554) - - (554)
Profit for the period 629 224 (26) 827
Earnings per share
Basic 3.60p 1.28p (0.15p) 4.73p
Diluted 3.53p 1.26p (0.15p) 4.64p
7.5 Reconciliation of reported profits for the year ended 31 March 2007
As reported
under Goodwill As restated
UK GAAP amortisation Other under IFRS
£'000 £'000 £'000 £'000
(note 8a) (note 8b)
Continuing operations
Revenue 16,756 - - 16,756
Operating expenses (14,669) 462 - (14,207)
Operating profit 2,087 462 - 2,549
Finance income 165 - - 165
Finance costs (344) - - (344)
Profit before tax 1,908 462 - 2,370
Tax (913) - - (913)
Profit for the year 995 462 - 1,457
Earnings per share
Basic 4.90p 2.27p - 7.17p
Diluted 4.78p 2.21p - 6.99p
8. Explanation of the reconciling items between UK GAAP and IFRS
(a) Under IFRS 3 'Business combinations' annual amortisation of goodwill is
no longer permitted. Instead goodwill must be allocated to each income
generating unit acquired and an annual impairment review must be
performed for each discrete unit in accordance with IAS 36 'Impairment
of assets'. The Group has elected not to apply IFRS 3 'business
combinations' retrospectively and restate business combinations completed
prior to the date of transition. As a result, in the opening balance
sheet, goodwill arising from past business combinations of
£9.372 million remains as stated under UK GAAP at 1 April 2006.
(b) IAS 19 'Employee benefits' requires employers to recognise the total cost
of all short term employee benefits expected to be paid in exchange for
employees' services in the accounting period. This includes holiday pay
(the Brulines holiday year runs from 1 April to 31 March and therefore
coincides with the 31 March statutory financial year end but not with the
half year) which has previously been accounted for as incurred. This
results in a charge of £0.026m for the six months ended 30 September 2006
but has no effect on the year ended 31 March 2007.
(c) Under UK GAAP, website development is included within tangible fixed
assets as plant and equipment. Under IFRS, website development should be
recorded as an intangible asset. Accordingly a reclassification of the
total net book value of website development has been made between
property, plant and equipment and intangible assets. There is no effect
on net assets.
INDEPENDENT REVIEW REPORT TO BRULINES (HOLDINGS) PLC
Introduction
We have been engaged by the company to review the financial information in the
half-yearly financial report for the six months ended 30 September 2007 which
comprises the consolidated income statement, the consolidated balance sheet, the
cash flow statement and the statement of changes in shareholders' equity and the
notes to the interim results. We have read the other information contained in
the half yearly financial report which comprises only the Chairman's Report, the
Chief Executive's Report and Finance Director's Report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the financial information.
This report is made solely to the company in accordance with guidance contained
in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information
performed by the Independent Auditor of the Entity'. Our review work has been
undertaken so that we might state to the company those matters we are required
to state to them in a review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusion we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The AIM rules of the London Stock Exchange require that the
accounting polices and presentation applied to the interim figures are
consistent with those which will be adopted in the annual accounts having regard
to the accounting standards applicable for such accounts.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the financial
information in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that any material modifications should be made to the financial information in
the half-yearly financial report for the six months ended 30 September 2007.
GRANT THORNTON UK LLP
Chartered Accountants
Leeds
11 December 2007
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