Final Results

RNS Number : 2796N
Clarity Commerce Solutions PLC
31 August 2011
 



Clarity Commerce Solutions plc

("Clarity", the "Company", or the "Group")

Final Results for the year ended 31 March 2011

Clarity Commerce Solutions plc (AIM:CCS), a leading supplier of software solutions for the entertainment, retail, hospitality and leisure sectors , announces its Final Results for the year ended 31 March 2011.

KEY POINTS

·     Revenues increased to £19.9m (2010: £19.1m).

·     Gross margin improved from 81.6% to 83.1%.

·     Reduced licence revenue and a significant investment in R&D resulted in an operating loss before amortisation and share based payments for the year of £893,000 (2010: profit of £1,856,000).

·     Loss before taxation of £1,435,000 (2010: profit of £1,439,000).

·     Following completion of major developments to the product suite, R&D costs expected to reduce.

·     Support business Cyntergy Services Ltd acquired in May 2010 - performing ahead of expectations.

·     Successful divestment of UK Hotels and Resorts business for net gain of £0.4m.

·     Net cash balance at year end of £0.2 (2010: £1.1m).

·     Group to refocus business on established strengths in the retail and entertainment sectors in order to better capitalise on opportunities for its market leading product suite.

·     Significant further operational savings identified.

·     Contract wins during the year included The Dune Group, House of Fraser, Iceland Foods, Bakker Bart, Whole Foods, Parques Reunidos, Debenhams plc and Universal Studios.

·     Change of financial year end to 30 September.

 

Ken Smith, CEO of Clarity, commented:

"While the outcome for 2010 was disappointing due to significant order delays, we remain well positioned in our key markets.  We are continuing to win new customers while existing customers place further orders with us.  I am confident that by refocusing the business on the sectors which play to our strengths and the cost reduction plans already in place, we have established a basis on which to restore profitable growth".

Enquiries:

 

Clarity Commerce Solutions plc

 

Ken Smith, CEO / Stephen Sadler, CFO

 

T: 01256 365 150

Arbuthnot Securities

 

Hugh Field

 

T: 020 7012 2000

Biddicks

Sophie McNulty / Zoe Biddick

 

T: 020 3178 6378

 

The Annual Report and Notice of AGM will be sent to shareholders on or around 3 September 2011. The Annual Report will be available from the Company's website at www.claritycommerce.com from that date and additional copies will be made available to the public, free of charge, from the Company's registered office at Paterson House, Hatch Warren Farm, Hatch Warren Lane, Basingstoke RG22 4RA.

Chairman's Statement

 

Introduction

 

The year to 31 March 2011 was a challenging one for the Company as trading conditions, which deteriorated progressively, brought about a disappointing result.  As the year developed, sales cycles lengthened and large licence prospects, whilst remaining in place, were, and indeed continue to be, very slow to convert.

 

In response to the current trading environment, the Board has taken decisive action to re-position the business in order to optimise our position in key markets and realign our cost base accordingly.  Measures implemented since the year end have already brought about improvements including the removal to date of circa £1million from the cost base. Further significant cost reductions are in process, driven by a re-appraisal of the optimum markets for Clarity's products.

 

Review of the Year to 31 March 2011

 

The Company entered the year well positioned to exploit specified opportunities in the Amusement Park and Retail sectors and had consequently committed to an enhanced level of investment, especially in product development.  However, as the year progressed, new contracts took longer to close and although not lost as prospects, the larger expected orders have been very slow to materialise.  The Retail sector was particularly fragile and exemplifying this, one of our customers went into administration.

 

Despite the deteriorating trading environments, it is a source of satisfaction that, as detailed in the Chief Executive's report, existing customers, including Pret A Manger and Merlin Entertainments, continue to place business with us.  Building on our strengths in products and people, the actions we are taking give us cautious optimism that we can restore profitability as the current cost-reduction programme is finalised over the coming weeks.  In adapting to the changed trading conditions, the Company will refocus its activities on those key core products and markets where our established position and strong product suite provide us with a platform on which to grow.

 

Revised Strategy

 

The twin thrusts of the way ahead will be a leaner business concentrating on sectors where we have a product offering second to none.  In the marketplace, we will focus on Amusement Parks and Resorts, building on our existing excellent customer portfolio, and in selective opportunities with Retail customers.

 

While there are obvious difficulties in some parts of the Retail sector, such that large capital expenditure projects are currently likely to be postponed, our investments have resulted in an ability to offer retailers relatively inexpensive, innovative add-ons.  Clarity's products provide competitive advantage, especially in areas such as customer engagement, making use of mobile technology and social media.  They typically bring immediate financial benefit to customers and so have a shorter payback period than the larger capital projects.  This shift should reduce dependency on larger contract wins, de-risking the business considerably and our new agile approach is already yielding results.

 

Reducing costs and focusing on fewer customer sectors will result in a more focused business.  The UK arm of our Hotels division has already been divested and, inter alia, action is in hand to sell the Hotels business in New Zealand. 

 

Acquisition of Cyntergy

 

On 28 May 2010, Clarity announced that it had acquired the business and assets of Cyntergy Services Limited for a maximum cash consideration of £150,000.  Cyntergy, which was previously owned by the Clarity Group until 2008 when it was sold for £500,000, provides IT service desk and training services to the retail, hospitality and leisure markets, principally in the UK, but also internationally.  Its service desk is a 24/7 multi-lingual operation based in Sunbury on Thames, Surrey. 

 

With the Group's keen focus on existing customers, a key part of the relationship rests upon comprehensive support and services expertise.  Continuing to support existing customers is a vital part of Clarity's business and the inclusion of Cyntergy not only enhances our capability considerably but also gives us a competitive advantage.

 

Board Matters

 

We were delighted to be able to welcome Steve Sadler as Chief Financial Officer during the year.  Steve has brought strong skills to the Group and has already made a strong contribution to Clarity.  He is a most welcome addition to the tried and tested executive team of Ken Smith and Tony Houldsworth. 

 

My colleagues and I were sorry to lose the services of Colin Wells who decided to step down as a Non-executive Director during the year.  Colin came to us with a record of achievement in the vital sales function and during his time with us, contributed a number of ideas from which we continue to benefit.  In the present circumstances, there are no plans to replace him.

 

People

 

Clarity is a people business and our people have had to face at first hand the deterioration in the Company's trading conditions.  Despite this, they have continued to contribute unstintingly and my colleagues and I wish to express our thanks and appreciation for their dedication.

 

Summary

 

It has given me no pleasure to present the background to our disappointing results, but I am confident that the actions we have already taken and the plans we have in place will provide Clarity with the basis for recovery and the restoration of value for our investors.  We have the products and the people to bring this about and shareholders can be assured that there is a collective determination to succeed.

 

Sir Colin Chandler

Group Chairman

30 August 2011

 

Chief Executive's Review

Overview

 

The year to 31 March 2011 was a disappointing one for Clarity.  We entered the year on the back of record results and with investment in upgraded products, infrastructure and management, as well as an apparently strong pipeline, and we believed we were well positioned for what seemed to be realistic expectations of further growth and success.  As the year progressed, however, changed market conditions caused significant order delays which, in turn, translated into a poor trading performance.  It has been a feature of the recession in North America and Europe that some prospective customers have been more cautious than anticipated, even where their market sector performance has held up.

 

We are disappointed with this outcome but, nevertheless, encouraged that we remain well-positioned in several key markets with competitive products.  This combination provides the basis for a return to better trading with lower business risk.

 

Financial Highlights

 

Revenues increased from £19.1m to £19.9m including the effect of the acquisition of the business of Cyntergy Services Limited, which contributed £2.9m of revenue in the ten months following its acquisition in late May 2010.  Excluding the effects of this acquisition, Hospitality revenues grew substantially, from £2.8m to £4.3m on the back of contract wins at Pret A Manger and other customers.  Our Leisure business held up well at £1.5m, unchanged from the previous year, but revenue in our Entertainment and Retail divisions fell, reflecting weak markets and order slippage.  It is notable, however, that none of the major prospects was lost and we have secured a number of reasonable orders since the period end.

 

Gross profit rose from £15.6m to £16.5m, again partly as a result of the Cyntergy acquisition.  In percentage terms, the gross margin improved from 81.6% to 83.1%.

 

Administrative expenses rose from £13.7m to £17.3m, including £2.5m from Cyntergy.  Aside from the Cyntergy element, this significant rise reflected the Group's increased investment in R&D, which rose from £4.9m to £5.4m, as part of the accelerated programme to converge and streamline development.  Having increased spend in the financial year, as previously signalled to shareholders, the product improvements are such that the Group is now able to rein this back. Historically, including 2011, despite it being a major investment, Clarity has not capitalised any of its research and development expenditure, although the Group now has the systems in place to analyse this spend in more detail, and therefore will capitalise it where appropriate from 1 April 2011.

 

With the effects of reduced licence revenues and our investment in R&D and infrastructure, the Group incurred an operating loss (including finance costs but before amortisation and share based payments) of £893,000.

 

Included in this operating loss were a number of one-off costs, including the write off of £186,000 as a result of the administration of Focus DIY Ltd and redundancy and reorganisation costs of £132,000.  These one off expenses were offset by a £444,000 profit recorded on the disposal of our UK Hotels and Resorts business in March 2011.

 

Although the Group's cash position felt the effects of the operating loss for the year, it remained positive at the year end. Subsequent to the year end, the Group's banking facilities with Lloyds Banking Group were renewed for a further 12 months, including the ongoing £1.0m overdraft facility.

 

Contract wins and prospects

 

Whilst the Group encountered order slippage at several key prospects, there were some very good wins from existing and new customers.

 

Existing customers who placed significant orders included Pret A Manger, Sodexo, London Drug, Cinémas Gaumont et Pathé (EuroPalaces), C1000, Merlin Entertainments, a major theme park operator, Safeway, Harris Teeter and Pricesmart.

 

In addition, a number of exciting new customers were added during the year, including The Dune Group, House of Fraser, Iceland Foods, Bakker Bart, Whole Foods, Parques Reunidos, Debenhams plc and Universal Studios.

 

Despite the difficulties in the Retail and Hospitality markets, prospects remain relatively positive, especially in the US.  The Group's change in focus, reducing its dependency on larger orders where lead times may be extended, means that, with a lower cost base, business risk will be significantly lower and sales cycles smoother.  It is encouraging that this new, agile approach has yielded a satisfying level of wins over recent months.  Although each one is not individually significant, and therefore not specifically newsworthy, the cumulative effect is of relatively sizeable value. 

 

Divisional Performance

 

The Group's operating divisions were each very busy during the period.  In particular: 

 

Retail

The Retail business had a mixed year of results, with both successes and disappointments.  Focus DIY, which had been in financial difficulties for some time, placed little business with Clarity during the year and finally lost its battle for survival in May 2011. 

 

Similarly, but with happier eventual outcomes, HMV and Waterstone's experienced difficult retail markets and capital expenditure was reduced accordingly.  However, each has now been re-established and Clarity is well-placed to be a key part of their future growth plans.

 

In Europe, our ClarityLive for Retail POS was rolled out across the 250 site Bakker Bart bakery chain in Holland.  In the UK, The Dune Group adopted our solution and rolled this out to their 45 fashion shoe stores in only five weeks.

 

In the US roll-outs were concluded for Whole Foods and Pricesmart, and optimism remains high for further retail business in the current financial year.

 

These wins and successful roll-outs are a tribute to the quality of our products and to much improved development performance.  That said, larger orders, both in the US and Europe, were delayed, although they generally remain as good prospects.

 

Having strong skills in its maintenance and enhancement, Clarity has excellent positioning in the important IBM 4690 retail solution which, despite its age, remains in extensive use by many of today's major retailers.  Of greater importance, however, is Clarity's suite of complementary products and services which can extend the 4690 platform to include valuable add-on features, or indeed its total replacement with a state of the art point of sale solution.

 

Leisure

Clarity's Leisure business had a satisfactory year.  The re-write of our ClarityLive for Leisure solution was largely completed in the year, migrating its old, character-based sports facility solution to an exciting leading-edge product, ideal for upgrading the division's Local Authority customers over the coming months and years.  Some have already gone ahead with the new product, including Isle of Wight, Monmouth and Medway, and despite the government cut-backs the prospect list is encouraging.

 

Hospitality

In addition to some good business from our long-standing customer base, which includes Yo! Sushi and Sodexo, a roll-out for Pret A Manger was completed for this significant customer including locations in Hong Kong and the US.  This roll-out was complex and demanding but its success has since led to a steady stream of further site openings and additional features being ordered, including a number of new openings in Paris.

 

The division's UK Hotels and Resorts business struggled in the tough market conditions.  With mounting losses it was decided that the best future for this business would be outside of the Group.   Accordingly, March 2011 saw the divestment of the UK Hotels and Resorts customer base, and its associated staff, to a non-exclusive reseller for a cash consideration of £480,000, with Clarity retaining the intellectual property.

 

In New Zealand the business performed satisfactorily on revenues largely unchanged from the previous year.  This business, which traditionally developed the Group's hotels and resorts products, added a number of product enhancements during the year.

 

Entertainment

After a relatively slow start Entertainment had a good year, with some excellent wins and deliveries.

In France, September 2010 brought a significant order from Cinémas Gaumont et Pathé (formerly EuroPalaces) which saw the Group's new cinema product rolled out to this 75 site chain.  Although the UK cinema business fared less well, as Clarity's solution is less suitable for large operators, the same product has been sold and deployed to many smaller, independent operators in France and prospects are good. 

 

Elsewhere, the Group's ClarityLive for Entertainment solution was deployed to two Parques Reunidos amusement park sites in Europe as well as Alton Towers, owned by Merlin Entertainments, in the UK.  In the US, significant orders were received around the year end from two very large Tier One operators.  Although we may not name these customers for confidentiality reasons, each is a well-known industry leader and represents a pleasing endorsement of our offering.

 

Product development and solutions delivery

 

As described in last year's report, Clarity deliberately accelerated its investment in product integration and enhancement in order to reduce duplication and time to deploy solutions.  The objective of this programme was to seek to streamline Clarity's originally complex range of overlapping solutions, creating an integrated suite, which focuses development on service-based architecture in which modules can be utilised in multiple markets and applications.

 

Coupled with this approach, the range and capability of our value-added products have been enhanced.  As well as creating additional sales opportunities with existing Clarity customers, these have been an excellent stepping stone into new customers who need enhanced functionality without the cost of replacing their entire store system.  This latter point resonates well with today's challenging economic climate and we have seen strong interest in areas such as refund management, digital receipts, loyalty, campaigns and promotions, personal shopping, cashless payments and business intelligence.

 

Other areas of product development included new products for the Amusement Park market.  Clarity has traditionally been very strong in the Tier One environment where many of the world's largest parks and operators depend on Clarity products.  Through a cooperative project with one of our major customers we have significantly strengthened the product set and are now well placed to set the pace for the next generation of park technologies.  Our R&D programme has also focused on tuning the solution for the more general amusement park operators and the smaller 'mid-way' attractions.  This is an exciting opportunity for us and with our successes at the two largest players in this space, Merlin and Parques Reunidos, we are expectant of strong growth into this market.

 

As mentioned above, in addition to developing generic modular solutions, the Group completed the core development of its Cinema and Leisure solutions.  Each of these new solutions has been deployed and well-received in the market.

 

Finally, the creation of the Clarity Mobile group last year has proved to be perfectly timed with the creation of a number of exciting consumer facing solutions that really tap into the rapidly changing world of mobile phones and social networks.  Our strategy of working with partners has kept costs to the minimum whilst being far more fleet of foot than traditional development models allow.  Good examples of this are in the recent launch of 'Buddy-Buy', which we believe is the world's first social network based loyalty solution, and 'PlayPoint' which uses mobile phones to generate a buzz at our client locations and then uses that buzz to drive higher sales.

  

Acquisition of Cyntergy

 

As highlighted elsewhere, the acquisition of Cyntergy was very positive for the Group and the business has performed ahead of our expectations.  Cyntergy provides support and training services, both to Clarity customers and third parties, often in different languages and across various platforms.

 

Current trading and activities

 

Good performance for existing customers is reflected by encouraging additional opportunities for Clarity and these are being assiduously followed up.  The US and France operations continue to do well, as does Cyntergy.  In the UK and EMEA businesses, our focus on sectors where we now have products which give customers a competitive edge is expected to provide a return to growth in the months ahead. 

 

In order for Clarity to return to profitability, our product and sales strategy has to be accompanied by a reduction of the cost base, especially in EMEA. The slimming down of the operation into a much leaner business will place the Group in a far stronger position, with reduced business risk.  While there will be savings sought across the board, a reduction in headcount will generate significant savings.  In addition, we have been able to reduce other costs, such as property rent and travel.

 

In order to provide additional flexibility, future product development, roll-outs and sales will include third party resources, thereby further reducing the Group's cost base. 

 

Outlook

Despite a disappointing year and continuing challenging trading conditions, the actions in hand within the Company are designed to play to our strengths and while it is obviously difficult to be too sanguine about the immediate future, we have set the basis for a return to profitable growth and to getting back to our previous achievement of enhancing shareholder value.

 

KR Smith BA CA

Chief Executive Officer

30 August 2011

 

Financial Review

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

Year on Year change

 

 




Revenue

19,859

19,081

4.0%

Gross profit

16,497

15,561

6.0%

Operating expenses

(17,331)

(13,652)

26.9%

Operating (loss)/profit (before amortisation and share based payments)

(834)

1,909


Net finance costs

(59)

(54)


(Loss)/profit before tax and amortisation and share based payments

(893)

1,855


(Loss)/profit for the year from continuing operations

(1,601)

1,995


(Loss)/earnings per share from continuing operations

(4.12p)

5.68p


Net (decrease)/increase in cash for the year

(1,236)

337


Net cash at 31 March

168

1,114






 

Revenue

Group revenues in the year increased 4% to £19.9m (2010: £19.1m). Included within these revenues are amounts from the acquired Cyntergy support business of £2.9m (2010:£nil). The Hospitality division showed strong growth, increasing 79% to £5.0m (2010:£2.8m) reflecting revenues from the Pret a Manger contract and Cyntergy Hospitality revenue of £0.7m (2010:nil). Entertainment revenues were £5.0m (2010:£5.5m) reflecting continued strong performance in our theme parks business and the successful roll out at Cinema Gaumont Pathe (formerly Europalaces) in France. Leisure revenues of £1.5m were at a similar level to the prior year (2010:£1.5m). Retail revenues declined 17% to £8.4m and include revenues from Cyntergy of £2.2m.

Gross profits increased in line with revenue and gross profit margin was slightly improved at 83% (2010: 82%) for the Group.

Administrative expenses

Administrative expenses increased by 27% to £17.3m (2010:£13.7m) and include Cyntergy costs of £2.8m. This increase reflects product development costs and investment in an enhanced sales and operational management structure. Included in administrative expenses is a profit on disposal of business assets from the UK Hotels unit of £444,000.

Net finance costs

Net finance costs for the year were £59,000 (2010: £54,000) reflecting reduced loan balances more than offset by reduced interest income.

Profit before tax, amortisation and share based payments

Lower than anticipated revenues, particularly in the Retail division, coupled with increased operating expenses have led to a loss before tax, amortisation and share based payments of £0.9m (2010: profit of £1.9m).

Amortisation

Amortisation of intangible assets represents the write off of software rights acquired. These assets have been amortised over 5 years and the 2011 financial year was the final year of amortisation.

Share based payments

Following the grant of options to directors and staff during the year the Group has recognised share based payments costs of £126,000 (2010: nil).

Taxation

Tax on profits in France led to a tax charge for the year of £0.2m (2010: tax credit of £0.6m).

Earnings per share

Basic and diluted loss per share was 4.12p (2010: profit per share of 5.68p).

Statement of financial position

Non current assets at 31 March 2011 were £9.9m (2010: £10.3m) including goodwill of £8.8m (2010: £8.6m).

Trade and other receivables were £5.4m (2010: £5.2m) of which trade receivables were £3.7m (2010: £3.6m).

Trade payables were £1.3m (2010: £1.5m).

Net cash

Cash and cash equivalents at 31 March 2011 were £0.9m (2010: £2.2m). The balance on our bank loan at 31 March 2011 was £0.7m (2010: £1.1m) giving a net cash balance at 31 March of £0.2m (2010: £1.1m).

Cyntergy acquisition

On 28 May 2010 the Company acquired 80% of the business and assets of Cyntergy Support Services Limited (in administration), a software support and training business. The cash consideration was £150,000 and the acquired assets and liabilities are set out in note 24.

Hotels group disposal

On 31 March 2011 the Company transferred certain customers and staff from its Hotels group within the Hospitality division to Paragon POS Limited (Paragon). The cash consideration was £470,000 of which £140,000 was received in the year. This transaction resulted in a profit on disposal of £444,000 which is included within operating expenses.

Change of financial year end

In recent years Clarity has seen strong seasonality in its revenues. Many of its retail customers do not implement new software products during the peak trading period from October to January. Consequently Clarity's financial results can be skewed as new contracts and implementations fall either side of the current March year end. In order to allow investors to see a more consistent year on year comparison of trading the Company's financial year end will change to 30 September. The Company will report unaudited interim results for the 6 months to 30 September 2011 and the 12 months to 31 March 2012 and audited results for the 18 month period to 30 September 2012.  The audited accounts for the 18 month period will be published and sent to shareholders before 31 December 2012.

Stephen Sadler

Chief Financial Officer

30 August 2011

 

 Consolidated Income Statement

for the year ended 31 March 2011

 

 

Notes

 

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 




Continuing operations:




Revenue

6

19,859

19,081

Cost of sales


(3,362)

(3,520)

Gross profit


16,497

15,561





Operating expenses:




Administrative expenses


(17,331)

(13,652)

Operating (loss)/profit pre amortisation and share based payments


(834)

1,909

Amortisation of acquired intangible assets


(416)

(416)

Share based payments


(126)

-

Total operating expenses


(17,873)

(14,068)





Operating (loss)/profit

7

(1,376)

1,493





Finance income

9

-

49

Finance costs

9

(59)

(103)

(Loss)/profit before taxation


(1,435)

1,439





Income tax (expense)/income

10

(166)

556

(Loss)/profit for the year


(1,601)

1,995





(Loss)/profit for the year attributable to the owners of the parent company


(1,601)

1,995





(Loss)/earnings per share:

11



Basic and diluted - continuing operations


(4.12)p

5.68p

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2011

 

 

Notes

 

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 




(Loss)/profit for the year attributable to the owners of the parent company

 


(1,601)

 

1,995

 

Other comprehensive income:




Currency translation differences


(131)

(66)

Total comprehensive (loss)/income for the year attributable to the owners of the parent company


 

(1,732)

 

1,929





Consolidated Statement of Financial Position

as at 31 March 2011                                                                                                                                  Company Number 3914814

Notes

As at

31/03/11 £'000

As at

31/03/10

                     £'000

 




Assets:




Non current assets:




Property, plant and equipment

13

306

262

Deferred tax asset

21

721

721

Goodwill

12

8,770

8,627

Other intangible assets

12

-

406

Trade and other receivables

15

62

282

Total non current assets

 


9,859

 

10,298

 





Current assets:




Inventories

14

87

155

Trade and other receivables

15

5,432

5,157

Cash and cash equivalents


861

2,227

Restricted access Escrow account

18

40

120

Total current assets

 


6,420

 

7,659

 





Total assets


16,279

17,957





Liabilities:




Non current liabilities:




Bank loans

17

-

689

Deferred consideration

18

-

713

Total non current liabilities

 


-

 

1,402

 





Current liabilities:




Trade and other payables

16

5,306

4,243

Income tax payable


400

633

Bank loan

17

693

400

Loan notes

18

40

102

Obligations under finance leases

19

-

14

Deferred consideration

18

1,047

690

Total current liabilities


7,486

6,082

Total liabilities


7,486

7,484

Net assets


8,793

10,473





Total equity:




Shareholders' equity:




Ordinary shares

22

10,357

9,710

Share premium account


8,761

8,473

Accumulated losses


(10,645)

(9,044)

Share based payments reserve


126

-

Own shares held in trust


(1,009)

-

Translation reserve


(493)

(362)

Other reserve


1,696

1,696

Total equity attributable to the owners of the parent company


8,793

10,473

 

The financial statements were approved and authorised by the Directors on 30 August 2011 and were signed on behalf of the Board by: Ken Smith, Chief Executive Officer

Consolidated Statement of Cash Flows

for the year ended 31 March 2011

 

 

Notes

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 




Cash flows from operating activities:




(Loss)/profit before tax and finance costs


(1,376)

1,493

Profit on disposal of business assets

26

(444)

-

Depreciation

13

91

95

Amortisation:




Software rights

12

416

416

Share based payments


126

-

Operating cash flows before movements in working capital:


(1,187)

2,004





Decrease in inventories

14

68

105

Decrease/(increase) in trade and other receivables


571

(1,075)

Increase/(decrease) in trade and other payables


888

(923)

Cash generated from operations


340

111

Interest paid


(151)

(290)

Taxation


(445)

389

Interest element of finance leases


(1)

(2)

Net cash (used in)/generated from operating activities


(257)

208

 




Investing activities:




Purchase of property, plant and equipment


(136)

(114)

Interest received


-

238

Purchase of subsidiary undertakings net of cash acquired

24

(150)

-

Disposal of business assets

26

140

-

Net cash (used in)/generated from investing activities


(146)

124





Financing activities:




Proceeds from the issue of share capital


-

2,600

Share scheme expenses


(74)

-

Payments into restricted access loan note account


(356)

(2,187)

Repayment of bank loans


(400)

(400)

Capital element of finance leases


(3)

(8)

Cash(used in)/ generated from financing activities


(833)

5





Net (decrease)/increase in cash and cash equivalents


(1,236)

337





Cash and cash equivalents at the beginning of the year


2,227

1,951

Foreign exchange rate adjustments


(130)

(61)

Cash and cash equivalents at the end of the year


861

2,227





 

Consolidated Statement of Changes in Equity

as at 31 March 2011



Attributable to the owners of the parent company


Ordinary Shares

£'000

Share

 Premium Account

£'000

Accumulated losses

£'000

Share based payment reserve

£'000

Own shares held in trust

£'000

Other Reserve

£'000

Translation Reserve

£'000

 

 

Total

 £'000

 









At 1 April 2009

 

8,007

 

7,576

 

(11,039)

 

-

 

-

 

1,696

 

(296)

 

5,944

 

Profit for the year

 

-

 

-

 

1,995

 

-

 

-

 

-

 

-

 

1,995

 

Currency translation differences

 

-

 

-

 

-

 

-

 

-

 

-

 

(66)

 

(66)

 

Total comprehensive income

 

8,007

 

7,576

 

(9,044)

 

-

 

-

 

1,696

 

(362)

 

7,873

 

Transactions with owners:

 









Proceeds from shares issued (note 22)

 

1,703

 

897

 

-

 

-

 

-

 

-

 

-

 

2,600

 

Transaction with owners

1,703

897

-

-

-

-

-

2,600

At 31 March 2010

 

9,710

 

8,473

 

(9,044)

 

-

 

-

 

1,696

 

(362)

 

10,473

 

Loss for the year

 

-

 

-

 

(1,601)

 

-

 

-

 

-

 

-

 

(1,601)

 

Currency translation differences

 

-

 

-

 

-

 

-

 

-

 

-

 

(131)

 

(131)

 

Total comprehensive income

 

-

 

-

 

(1,601)

 

-

 

-

 

-

 

(131)

 

(1,732)

 

Transactions with owners:

 









Movement in relation to share options

 

 

647

 

 

362

 

 

-

 

 

-

 

 

(1,009)

 

 

-

 

 

-

 

 

-

 

Costs incurred re share issue

 

-

 

(74)

 

-

 

-

 

-

 

-

 

-

 

(74)

 

Share based payments

 

-

 

-

 

-

 

126

 

-

 

-

 

-

 

126

 

Transactions with owners

647

288

-

126

(1,009)

-

-

52

At 31 March 2011

10,357

8,761

(10,645)

126

(1,009)

1,696

(493)

8,793

 

Share Premium account represents the premium on issue of shares less any applicable costs. 

Other Reserve results from the application of merger relief in the Company's own accounts.

Translation Reserve arises from the retranslation of the net investments in foreign operations.

Own shares held in trust represents the value of shares owned by the SIP in respect of participating individuals granted share options.

Notes to the consolidated financial statements

1  Reporting entity

Clarity Commerce Solutions plc is a public limited company incorporated and domiciled in England and Wales (registration number 3914814). The Company's registered address is Paterson House, Hatch Warren Farm, Hatch Warren Lane, Hatch Warren, Basingstoke, Hampshire RG22 4RA.

The Company's ordinary shares are traded on the AIM market of the London Stock Exchange . The consolidated financial statements of the Group for the year ended 31 March 2011 comprise the Company and its subsidiaries.

Across the year the Group was primarily involved in the provision of software solutions for the entertainment, leisure, hospitality and retail sectors with offices in the United Kingdom, United States, France, Holland and New Zealand.

2  Compliance with accounting standards

The following standards, amendments to standards or interpretations were effective during the year ended 31 March 2011 but had no material impact on the Group:

IFRS 1(revised)                        First-time Adoption of IFRS - effective 1 July 2009

IFRS 1 (amendment)              First time adoption of IFRS - effective 1 January 2010

IFRS 2 (amendment)              Share based payments group cash-settled transactions - effective 1 January 2010

IFRS 3(revised)                        Business Combinations and consequential amendments to IAS 27, 'Consolidated and separate financial statements' - effective 1 July 2009

IFRS 5(amendment)               Non current assets held for sale and discontinued operations - effective 1 January 2010

IFRS 8(amendment)               Operating segments - effective 1 January 2010

IAS 1 (amendment)                Presentation of financial statements - effective 1 January 2010

IAS 7 (amendment)                Statement of cash flows - effective 1 January 2010

IAS 17(amendment)               Leases - effective 1 January 2010

IAS 18 (amendment)              Revenue - effective 1 January 2010

IAS 32 (amendment)              Financial instruments: Presentation on classification of a rights issue - effective 1 February 2010

IAS 36 (amendment)              Impairment of assets - effective 1 January 2010

IAS 39 (amendment)              Financial instruments; recognition and measurement - effective 1 January 2010

IFRIC 9 (amendment)             Reassessment of embedded derivatives - effective 1 January 2010

IFRIC 15                                   Agreements for construction of real estates - effective 1 July 2009

IFRIC 16 (amendment)           Hedges of a net investment in foreign operation - effective 1 January 2010

IFRIC 17                                   Distribution of non-cash assets to owners - effective 1 July 2009

IFRIC 18                                   Transfers of assets from customers - effective 1 july 2009

The following standards, amendments to standards or interpretations are not yet effective and have not been adopted early by the Group:

IFRS 1(revised)                        First-time Adoption of IFRS - effective 1 July 2010

IFRS 1 (amendment)              First-time adoption of IFRS - effective 1 July 2011

IFRS 7 (amendment)              Financial instruments: Disclosures on derecognition - effective 1 July 2011

IFRS 9                                      Financial instruments - effective 1 January 2013

IAS 12 (amendment)              Income taxes - effective 1 January 2012

IAS 24(amendment)               Related party disclosures - effective 1 January 2011

IFRIC 14 (amendment)           Prepayments of a minimum funding request - effective 1 January 2011

IFRIC 19                                   Extinguishing financial liabilities with equity instruments - effective 1 July 2010

3  Going concern

The group finished the year holding cash and cash equivalents of £0.9m (31 March 2010: £2.2m). A term loan is in place which expires in December 2012, which had a balance at year end of £0.7m (31 March: 2010 £1.1m), giving net cash at 31 March 2011 of £0.2m (31 March 2011: £1.1m). In addition, the group has an overdraft facility of £1.0m which was renewed in July 2011 for the period to end of July 2012. In common with normal overdraft facilities, this is repayable on demand, but the group expects it to be available for the entire period and renewed in July 2012 for another year.

Although the group's trading in the year to 31 March 2011 showed a loss, which continued into the early part of this financial year,  the company's forecasts show a return to profitability and operating cash generation following the cost reduction activities outlined earlier in this report. Based on these forecasts the group expects to utilise its £1.0m overdraft facility throughout the next year as it has done in previous years.. The directors believe that the forecasts are reasonable and the facilities available to the group are sufficient and so the group is expected to continue as a going concern and accordingly the financial statements have been prepared on this basis.

4  Accounting policies

The following accounting policies have been consistently applied in arriving at the consolidated financial information set out in this report.

Basis of accounting

The consolidated financial statements of Clarity Commerce Solutions plc have been prepared, under the historical cost convention, in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

The preparation of the financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgement in the process of applying the group's accounting policies.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The trading results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All intra-group transactions, balances, income and expenditure are eliminated on consolidation.  Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Revenues and revenue recognition

Revenue, which excludes value added tax and sales between Group companies, represents amounts derived from the provision of goods and services which fall within the Group's ordinary activities.

The Group recognises revenue from sales of software licences to end-users upon persuasive evidence of an arrangement, delivery of the software and determination that collection of a fixed or determinable fee is reasonably assured.  Where the fees for maintenance, development or services are bundled with the licence fee, they are unbundled using the Group's objective evidence of the fair value of the elements represented by the Group's customary pricing for each element in separate transactions.  If evidence of the fair value exists for all of the undelivered elements and there is no such evidence of fair value established for delivered elements, revenue is first allocated to the elements where fair value has been established and the residual amount is allocated to the delivered elements.  If evidence of fair value for any undelivered element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value exists or undelivered elements of the arrangement are delivered.  If the arrangement includes acceptance criteria, revenue is not recognised until the Group can objectively demonstrate that the software or service can meet the acceptance criteria, or the acceptance period lapses, whichever is earlier. Maintenance revenue is derived from providing technical support and software updates to customers.  Maintenance revenue is recognised on a straight-line basis over the term of the contract, which in most cases is one year.  Amounts collected prior to satisfying the above revenue recognition criteria are included in the deferred income.

The Group derives its income from the following revenue streams: the sale of software licences, bespoke development projects for clients and fees derived from support services, installation and training. Each sales stream is treated in the following manner:

Software licences

Licence fees are recognised following delivery of software to the client.

Services

Revenue streams from installation, consultancy and training are recognised at the point at which the service or product is delivered.

Software development

Revenue is recognised upon staged completion of the software project.  The Percentage completion of the project is arrived at by a considered objective review as to the work that has been carried out, against that which is yet to be completed, to allow the project to be delivered to the customer.  These reviews are carried out throughout the project.

Maintenance income

Income is recognised evenly across the duration of the contractual period.

Hardware sales

Income is recognised at the point at which the risk and reward of the ownership of the hardware passes to the customer.

Any differential between recognised revenue and billed revenue is accounted for as either deferred revenue or accrued revenue, and is disclosed in the notes to these accounts.

Cost of sales

Costs incurred in the direct purchase of goods for resale, or in the procurement of external labour costs to deliver services are classified as direct cost of sales.  All internal costs in respect to employee remuneration are treated as administrative expenses.

Property, plant and equipment

All property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenditures are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated to write off the cost of each asset to its residual value over its estimated useful life as follows: 

Motor vehicles       

25% on reducing balance

Office equipment  

20 - 25% on reducing balance

Leasehold properties

Over the term of the lease

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the income statement.

Intangible software rights

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.  These costs are amortised over their estimated useful lives, which are typically five years.

Business combinations

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.  The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.  Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any minority interest.

The excess of the cost of an acquisition over the fair values of the Group's share of identifiable assets and liabilities acquired is recognised as goodwill.  If the fair value of identifiable assets and liabilities acquired (i.e. discount on acquisition) exceeds the cost of the business combination, the difference is recognised directly in profit or loss. 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.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Separately identified goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill.

Goodwill is allocated to cash-generating units for the purposes of impairment testing. The allocation is made to those cash-generating units, or groups of cash-generating units, that are expected to benefit from the business combination in which the goodwill arose.Goodwill arising on the acquisition of overseas subsidiaries is recorded in the functional currency of the acquired subsidiary and translated into the presentation currency at the prevailing closing rate at each date of the statement of financial position in accordance with the Group accounting policy for foreign currency.

When an impairment is deemed to have occurred, the resultant write down in goodwill is charged to the income statement immediately.

Leased assets

Assets held under hire purchase agreements are capitalised and disclosed under property, plant and equipment at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the income statement in equal proportions over the period of the lease.

Where the Group enters into a finance lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a finance lease. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease.The asset is recorded in the statement of financial position as a property, plant and equipment and is depreciated in accordance with the stated depreciation policies. Future instalments under such leases, net of finance charges, are included with liabilities. Rentals payable are apportioned between the finance element, which is charged to the income statement in equal proportions over the period of the lease, and the capital element which reduces the outstanding obligation for future instalments.

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against the income statement on a straight line basis over the period of the lease.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment.  A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. The cost of unrecoverable trade receivables is recognised in the income statement immediately.  Subsequent recoveries of amounts previously written off are credited in the income statement.

Trade payables

Trade payables are recognised at fair value then subsequently at amortised cost using the effective interest rate.  Trade payables do not carry any interest.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and on demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. For the purpose of the statement of cash flow, cash and cash equivalents includes bank overdrafts.

Bank accounts held which are subject to significant restrictions over access, are not presented as cash and cash equivalents.  Such amounts are shown separately as short term investments or other financial assets with appropriate disclosure of the related items.

Bank borrowings

Interest bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in profit or loss over the term of the instrument using an effective rate of interest.  Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Inventories

Inventories are valued at the lower of cost and net realisable value, after due allowances for obsolete and slow moving items.

Taxation

Current tax is the tax currently payable based on taxable profit for the year.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.

Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the date of the statement of financial position.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity, in which case the related deferred tax is also charged or credited directly to equity.

The tax expense/credit in the income statement is the sum of the current and deferred tax.

Capital instruments

Capital instruments are recorded at the fair value of the consideration received less issue costs in accordance with IAS 39 'Financial Instruments: Recognition and Measurement'.

Segmental reporting

A segment is a component of the Group that engages in business activities from which it earns revenue and incurs expenses for which discrete financial information is available which is regularly received by the Groups chief operating decision maker, and used to make decisions about the allocation of resources and assessing the groups performance.  The chief operating decision maker has been identified as the Chief Executive Officer.

Research and development

All research costs are written off to the Income Statement as incurred.

Development costs incurred are capitalised when an asset is created that can be identified and all the following conditions are satisfied:

·      completion of the intangible asset is technically feasible so that it will be available for use or sale;

·      the Group intends to complete the intangible asset and use or sell it;

·      the Group has the ability to use or sell the intangible asset;

·      the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;

·      there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

·      the expenditure attributable to the intangible asset during its development can be measured reliably.

Development costs not meeting the criteria for capitalisation are expensed to the income statement as incurred.

The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by the Group. Where development projects are fully customer funded, then no amount is capitalised as the cost to the Group is nil.

Directly attributable costs include employee costs incurred on software development, together with associated overheads.

Amortisation commences in the month that assets are ready for use in the manner intended by management, and the amortisation period is five years (being the estimated useful life of the assets). Amortisation of development costs is included within operating costs in the income statement.

Foreign exchange

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the date of the statement of financial position. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

For the purposes of the consolidation, assets and liabilities of overseas subsidiary undertakings are translated at exchange rates ruling at the date of the statement of financial position. Trading results are translated at the rates of exchange ruling at the end of each month. Differences arising on the retranslation of opening net assets are dealt with through equity.

Share based payments

Equity-settled share based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of an appropriate binomial valuation method.

Ordinary shares

Ordinary shares are classified as equity.  Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Pensions

The Group companies operates a defined contribution pension scheme, for which the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

5  Critical judgements and estimation uncertainty

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which circumstances change. Where necessary, the comparatives have been reclassified or extended from the previously reported results to take into account presentational changes. Unless otherwise indicated, the Group does not believe that it is likely that materially different amounts would be reported related to the accounting estimates and assumptions described below. 

Revenue recognition

Where a project extends over a time period, management make a judgement on the fair value of the work completed in order to be able to recognise revenue in relation to the project in the correct periods.  An objective review of each project is undertaken on an individual basis and management's best judgement is used as the basis of completion of the project, thereby defining levels of revenue recognised.

Allocation of fair value

When a bundled service is sold the Group uses critical judgement to unbundle the service and recognise elements of revenue separately as shown in the revenue recognition policy in note 4.

Long-term debtors

Where contracts are undertaken with payment terms that mean licences are paid for over a period in excess of one year, the customer is reviewed from a position of security, credit worthiness and previous trading history, to establish whether the full value of the licence should be recognised as revenue, or instead recognising only the amount of which the Group can be more certain of collection.

Impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment.  The recoverable amounts of cash-generating units have been determined based on value-in-use calculations.  These calculations require the use of estimates.

The Board has reviewed the carrying value of goodwill, and has determined no impairment is required in the current year (2010: £nil impairment). In reaching this conclusion the Board has considered the Group's forward forecasts which show a return to profitability as detailed in note 3 Going Concern. Details of the Group's impairment review are disclosed in note 12.

Deferred tax asset

As the Group is forecast to return to profitability and the Directors believes that the recovery of the tax losses is likely over the coming periods, a deferred tax asset of £0.7m (2010: £0.7m), representing the tax value of the losses carried forward has been recognised in the Consolidated Financial Statements.

6  Operating segments

For management reporting purposes, the Group is organised into four separate divisions, each with income streams that can carry different risks and rewards, based on external industry factors. The products and services provided are consistent across the divisions, in line with the principal activities detailed in the director's report.  The four income streams are:

·      revenue from Retail operations;

·      revenue from Entertainment operations;

·      revenue from Leisure operations; and

·      revenue from Hospitality operations.

Segmental information for continuing operations with regard to these four income streams is presented herewith.  The Group column relates to head office operations that cannot be allocated to the operating segments.

Following the restructure of the UK trading companies, into a single entity (Clarity Retail Systems Limited) all UK operating costs were apportioned to cost centres.  These costs were then allocated to the divisions via the Group cost allocation.  It is no longer possible to split the restructured UK statement of financial position between the separate divisions and as the management reporting only details gross profit levels of the divisions, no statement of financial position segment information or operating profit for the year ended 31 March 2011 is reported here. 

for the year ended 31 March 2011

 

Retail

£'000

Entertainment

£'000

Leisure

 £'000

Hospitality

£'000

Group

 £'000

Consolidated  £'000

 







Revenue

8,412

5,030

1,466

4,951

-

19,859








Gross profit

7,940

4,060

1,164

3,333

-

16,497

Depreciation

(19)

(11)

-

(3)

(58)

(91)

Amortisation of software rights

 

(406)

 

-

 

-

 

-

 

(10)

 

(416)

 








Finance costs

-

-

-

-

(59)

(59)

Taxation charge

-

-

-

-

(166)

(166)








 for the year ended 31 March 2010

 

Retail

£'000

Entertainment

£'000

Leisure

£'000

Hospitality

 £'000

Group

£'000

Consolidated  £'000

 







Revenue

9,288

5,524

1,477

2,792

-

19,081








Gross profit

8,157

3,970

1,251

2,183

-

15,561








Depreciation

(43)

(17)

(12)

(23)

-

(95)

Amortisation of software rights

 

(406)

 

-

 

-

 

-

 

(10)

 

(416)

 








Finance income

-

-

-

-

49

49

Finance costs

-

-

-

-

(103)

(103)

Taxation credit

-

-

-

-

556

556








Geographic segments

Below is an analysis by geographic destination.

for the year ended 31 March 

 





2011

Revenue

 £'000

2010

Revenue

 £'000

 

 







United Kingdom





9,916

9,373

Europe
(excluding United Kingdom)





4,231

3,340

United States of America





5,188

6,087

Rest of World





524

281

 





19,859

19,081








7  Operating (loss)/profit from continuing operations

This is stated after charging/(crediting):

for the year ended 31 March 2011

 

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



Depreciation of property, plant and equipment

91

95

Amortisation

416

416




Auditors' remuneration



Fees payable to the Company's auditor for the audit of the parent Company and consolidated accounts

20

17

Fees payable to the Company's auditor and its associates for other services:



Audit of the Company's subsidiaries, pursuant to legislation

52

48

Tax services

25

21

All other services

29

31




Rentals payable under operating leases

616

467

Profit/(loss) on sale of property, plant and equipment

-

-

Profit/(loss) on disposal of business assets

444

-




Non-audit services provided by the auditors are reviewed by the Board of Directors to ensure that the independence of the auditors is not compromised.

Research and development expenditure incurred during the year was approximately £5,361,000 (2010: £4,906,000).

8  Employees and directors

Employment costs (including Executive Directors) were as follows:

for the year ended 31 March 2011

 

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



Wages and salaries

11,651

8,204

Social security costs

1,189

911

Pension costs

294

222

Cost of employee share schemes

126

-

 

13,260

9,337




 

Year ended

31/03/11

Number

Year ended

31/03/10

Number

 



Average monthly number of persons employed (including Executive Directors):



Production

123

108

Sales

13

21

Administration

33

20

Installation and support

127

20

 

296

169




All employee costs were charged to operating costs.

Key management are considered to only be the Executive Directors, therefore no further disclosure is provided.

The remuneration of the individual Directors was as follows:

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



Salaries and fees



Executive Directors:



Ken Smith

242

273

Anthony Houldsworth

220

218

Stephen Sadler (appointed 10 May 2010)

142

-

Christopher Ford (resigned 26 January 2010)

-

105




Non-executive Directors:



Sir Colin Chandler

50

37

Colin Wells (appointed 1 April 2010)

32

-

David Bennett (appointed 1 April 2010)

32

-

Stephen Bellamy (retired 18 March 2010)

-

26

John O'Hara (retired 31 August 2009)

-

45

 

718

704




Salary and fees are inclusive of car allowances, benefits and bonuses attributable to the year. No bonuses were paid for the year to 31 March 2011.

Included in the remuneration above, the Group made contributions in the year to personal pension plans for Ken Smith of £14,000 (2010: £61,219), Anthony Houldsworth of £14,612 (2010: £3,000), Stephen Sadler £10,935 (2010: £nil) and Christopher Ford of £nil (2010: £5,906).

Included in the remuneration of Christopher Ford detailed above for the year ended 31 March 2010 is a payment of £20,000 made under a compromise agreement for loss of office, which was implemented on resignation.

During the year share options were issued to the following directors, Kenneth Smith (1,165,254 share options), Anthony Houldsworth (1,165,254 share options) and Stephen Sadler (404,999 share options). 

The Options granted to Ken Smith and Tony Houldsworth are exercisable at any time between 27 April 2013 and 27 April 2020, being a period of between three and ten years from the date of grant. The options granted to Stephen Sadler are exercisable at any time between 5 August 2013 and 5 August 2020.

Under the terms of the Scheme, which was approved at the Company's AGM on 24 July 2009, participants are not required to make payment for the relevant number of shares on the grant or vesting of the options or joint ownership awards. The Options and Joint Ownership Awards ("JOAs") granted under the Scheme are subject to performance criteria and in particular the Company's total shareholder return performance against the FTSE AIM technology sector index. The JOAs will vest after three years from the date of the original award subject to the Company achieving the performance criteria.

The interests in the JOAs have been acquired under a joint ownership arrangement. Each of the Directors and the trustee of the EBT have acquired the joint beneficial ownership of the JOAs. The Directors have acquired the right to most of the growth in value of the JOAs above the value of the shares at the date they were acquired. The Directors have also been granted a nil cost option over the trustee's interest in the JOAs so that they will acquire sole title to the JOAs if the performance criterion is satisfied and they remain in office for the period. Voting rights and dividend rights are waived in relation to the JOAs for as long as the joint ownership is retained.

The Remuneration Committee has determined that in the event of a takeover options granted to Ken Smith will vest in full without regard to either the Company's performance against the performance condition or length of the relevant holding period expired.

9  Finance income and costs

for the year ended 31 March 2011

 

Year ended

31/03/11

£'000

 

Year ended

31/03/10

£'000

 



Finance income:



Bank interest receivable and similar income on cash and cash equivalents

-

49




Finance costs:



Interest on bank loans and overdrafts repayable within five years

59

99

Finance leases and hire purchase interest

-

2

Other interest

-

2

 

59

103




 

10  Taxation

Current tax expense for the year ended 31 March 2011

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



UK taxation - current year

-

-

UK adjustments in respect of previous years

-

36

Overseas taxation - current year

166

383

Overseas adjustments in respect of prior years

-

(254)

Total current tax

166

165




Deferred tax benefit from previously unrecognised tax losses

-

(721)

Impact of change in tax rate

-

-

Total deferred tax

-

(721)

Income tax expense/(income)

166

(556)




 

The tax on the Group's (loss)/profit before tax differs from the theoretical amount that would arrive using the weighted average tax rate applicable to the group as follows:

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



(Loss)/profit before taxation

(1,435)

1,439




(Loss)/profit on ordinary activities before taxation multiplied by the standard rate of corporation tax in the UK of 28% (2010: 28%)

 

(402)

 

403




Effects of:



Difference between depreciation and capital allowances

-

11

Non deductible items

-

62

Utilisation of tax losses not previously recognised

-

(152)

Foreign tax rates

166

80

Enhanced relief for research and development

-

(147)

Losses carried forward

402

126

Adjustments to prior year

-

(218)

Total tax charge

166

165




Effective tax rate

(11.6%)

(38.6%)




Domestic income tax is calculated at 28% (2010: 28%) of the estimated assessable profit for the year.

The effective tax rate is (11.6%) (2010: (39%)).

Factors that may affect future tax charges:

As a result of the change in the UK main rate of corporation tax from 28% to 26% that was substantively enacted on 29 March 2011 and was effective from 1 April 2011, the relevant deferred tax balances have been re-measured in these financial statements.

11  Earnings per share

The calculations of earnings per share are based on the (loss)/profit after tax for the financial year and the following numbers of shares:

for the year ended 31 March 2011

 

Year ended

31/03/11

Number

Year ended

31/03/10 Number

 



Weighted average number of shares:



For basic profit per share

38,841,805

35,127,593

For diluted profit per share

38,841,805

35,127,593




 

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



(Loss)/earnings for the year from continuing operations

(1,601)

1,995

(Loss)earnings for the year attributable to the owners of the parent company

(1,601)

1,995




(Loss)/earnings per share:



Basic and diluted - continuing operations

(4.12p)

5.68p




The employee share options are considered non dilutive due to the exercise price being significantly higher than the current share price.

12  Intangible assets

as at 31 March 2011

 

Software rights
£'000

Goodwill
£'000

Total
£'000

 




Cost:




At 1 April 2009

3,564

17,331

20,895

Adjustment to cost during the year

-

(263)

(263)

At 31 March 2010

3,564

17,068

20,632





Acquisition (note 24)

-

143

143

At 31 March 2011

3,564

17,211

20,775





Accumulated amortisation:




At 1 April 2009

2,752

8,441

11,193

Amortisation for the year

406

-

406

At 31 March 2010

3,158

8,441

11,599





Amortisation for the year

406

-

406

At 31 March 2011

3,564

8,441

12,005





Net book value:




At 31 March 2011

-

8,770

8,770





At 31 March 2010

406

8,627

9,033





The goodwill is attributable to the Retail operating segment, considered to be the only Cash Generating Unit (CGU).

The recoverable amount of the CGU has been determined based on value-in-use calculations, which use pre-tax cash flow projections approved by management covering a five-year period.  Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 2% (2010: 2%).  The growth rate does not exceed the long-term average growth rate for the retail business in which the CGU operates.

The key assumptions around changes in selling prices and costs used to prepare the financial budgets are based on historical experience, which includes the Group's achievement against budget.

The rate used to discount the forecast pre-tax cash flows is 10% (2010: 10%) and represents the directors' current best estimate of the weighted average cost of capital ("WACC"), reflecting the specific risks relating to the operating segment.

Included within the total amortisation charge in the Consolidated Income Statement is £10,000 (2010: £10,000) in relation to the amortisation of an asset held within other current assets.

13  Property, plant and equipment

as at 31 March 2011

 


Leasehold properties

£'000

Office equipment

£'000

Motor vehicles

£'000

Total
£'000

 






Cost:






At 1 April 2009


44

474

39

557

Additions


-

103

11

114

Exchange movement


-

(5)

-

(5)

At 31 March 2010


44

572

50

666







Additions


-

130

5

135

Acquisition (note 24)


-

5

-

5

Disposals


(44)

-

(50)

(94)

Exchange movement


-

(5)

-

(5)

At 31 March 2011


-

702

5

707







Accumulated depreciation:






At 1 April 2009


26

255

28

309

Charge for year


10

71

14

95







At 31 March 2010


36

326

42

404







Charge for year


8

75

8

91

Disposals


(44)

-

(50)

(94)

At 31 March 2011


-

401

-

401







Net book value:






At 31 March 2011


-

301

5

306







At 31 March 2010


8

246

8

262







Depreciation is included in operating expenses.

Included within the net book value of £5,000 is £nil (2010: £3,000) relating to assets held under hire purchase and finance lease agreements, relating to motor vehicles. Depreciation charged in the year in respect of these assets amounted to £nil (2010: £8,000).

Agreements in respect of leasehold properties are short leaseholds.

14  Inventories

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



 Goods for resale

87

155

 

87

155

Included within the cost of sales figure in the Consolidated Income Statement is £1,482,359 (2010: £2,002,525) relating to inventories expensed in the year.

15  Trade and other receivables

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



Trade receivables

3,697

3,630

Less: provision for impairment of trade receivables

(54)

(60)

 Trade receivables net

3,643

3,570

Other receivables

690

512

Prepayments and accrued income

1,099

1,075

 

5,432

5,157

Amounts due in more than 1 year



 Prepayments and accrued income

62

282




Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated. In determining the recoverability of a trade receivable, the Group considers the ageing of each debtor and any change in the circumstances of the individual debtor. Due to this, management believes there is no further credit risk provision required in excess of the normal provision for doubtful receivables. At 30 April 2011, the carrying amount of financial assets within trade and other receivables approximated their fair value.

As of 31 March 2011, trade receivables of £2,829,000 (2010: £2,887,000) were fully performing.

At 31 March 2011 trade receivables of £814,000 (2010: £683,000) were past due but not impaired.  These relate to a large number of independent companies for whom there is no recent history of default.  The aging analysis of these trade receivables is as follows:

As at

31/03/11

£'000

As at

31/03/10

£'000

 



1 month

427

330

2 months

165

148

3 months

60

42

4 months +

162

163

 

814

683




As at 31 March 2011, trade receivables of £54,000 (2010: £60,000) were impaired and provided for.  The amount of the provision was £54,000 as of 31 March 2011 (2010: £60,000).  These receivables were all aged over 4 months.

The carrying amount of the Group's net trade and other receivables are denominated in the following currencies:

As at

31/03/11

£'000

As at

31/03/10

£'000

 



GB Sterling

2,468

2,031

US Dollar

898

1,375

Euro

251

136

NZ Dollar

26

28

 

3,643

3,570




Movements in the Group provision for impairment of trade receivables were as follows:

As at

31/03/11 £'000

As at

31/03/10 £'000

 



At 1 April

60

173

Provision for receivables impairment

-

-

Unused amounts reversed

(6)

(113)

Exchange adjustments

-

-

 

54

60




The creation and release of provision for impaired receivables have been included in administrative expenses in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.  The Group does not hold any collateral as security.

16  Trade and other payables

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



Trade payables

1,321

1,496

Other payables

182

104

Other taxes and social security

988

549

Accruals and deferred income

2,815

2,094

 

5,306

4,243




17  Bank loans

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 






Due between one and two years

700

400

Due between two and five years

-

300

Associated finance costs

(7)

(11)

 

693

689




Due within one year or less

-

400

 

693

1,089




Bank borrowings are secured by charges over the assets of the Parent Company and its subsidiaries and by UK cross guarantees.

Interest is paid on the fixed term loan at 3% above LIBOR and interest on the overdraft is paid at 3.5% above Bank of Scotland base rate. The next facilities review is scheduled for the end of July 2012.  At the date of the statement of financial position the Group's overdraft facility was £1,000,000 and was unused.

18  Capital instruments

Liabilities include finance capital which is due for repayment as follows:

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



 Due within one year or less, or on demand - loan notes

40

102

 

40

102




During the year ended 31 March 2008, the deferred Earn Out element of the MATRA Systems (Holdings) Limited ("MATRA") acquisition was agreed at £4,566,000, satisfied by the allotment and issue to the Vendors of ordinary shares of 25p as were valued at £500,000 at the time of the acquisition.  The allotment and issue to the Vendors at any time prior to 30 September 2009 of such number of ordinary shares of 25p each as are valued at £1,783,000 at the relevant time and by making monthly cash payments totalling £2,283,000 into an escrow cash account. The last of these monthly cash payments is scheduled for February 2012. At the same time as cash deposits are made, Loan Notes (the "MATRA Loan notes") are issued to the Vendors who may redeem them from proceeds in the escrow cash account at a time of their choosing.  At 31 March 2011 MATRA Loan notes matched by escrow cash totalling £40,000 (2009: £102,000) were outstanding.  The company has the ability to suspend the issue of the Loan Notes if, in the reasonable opinion of the Board, the company does not have sufficient working capital to do so. 

At the year end a balance of £1,047,000 (2010: £1,403,000) (split £1,047,000 (2010: £690,000) due in less than one year and £nil (2010: £713,000) due in more than one year) was outstanding on the cash element of the deferred Earn Out, shown as deferred consideration in the consolidated statement of financial position.

The balance of the non cash deferred Earn Out was satisfied on 16 October 2009 using part of the proceeds of the share placing that occurred on that day.

19  Obligations under finance leases

Future commitments under finance lease agreements are as follows:

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



Due within one year or less

-

15

Due between one and two years

-

-

 

-

15

Less future finance charges

-

(1)

Present value of lease obligations

-

14

Less amount due for settlement within 12 months

-

(14)

Amount due for settlement after 12 months

-

-




The hire purchase and finance lease liabilities are disclosed gross and are secured over the assets to which they relate.

The fair value of the Group's hire purchase and lease obligations approximates to their carrying amount.

20  Commitments under operating leases

Operating lease arrangements where the Group is the lessee relate to property, vehicles and equipment.

At the date of the statement of financial position the Group had outstanding commitments for future minimum lease payments under non‑cancellable operating leases which fall due as follows: 

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



Due within one year

274

374

Due after one year but no more than five years

651

238

More than five years

41

-

 

966

612




21  Deferred taxation

The movement in the deferred income tax asset during the year is as follows:


Tax losses

£'000

Total
£'000

 




At 1 April 2009


-

-

Credited to the income statement


721

721

At 31 March 2010


721

721

Credited to the income statement


-

-

At 31 March 2011


721

721





Deferred income tax assets are recognised for tax loss carry forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.  The Group did not recognise deferred income tax assets of £837,000 (2010: £315,000) in respect of losses amounting to £3,300,000 (2010: £1,125,000) that can be carried forward against future taxable income.

22  Ordinary shares

as at 31 March 2011

 

As at

31/03/11

£'000

As at

31/03/10

£'000

 



Authorised share capital:



44,000,000 (2010: 44,000,000) ordinary shares of £0.25 each

11,000

11,000




Allotted, called up and fully paid:



At 1 April (38,841,805 (2009: 32,029,305) ordinary shares of £0.25 each)

9,710

8,007

Issue of ordinary shares (note 23)

647

1,703

At 31 March (41,427,314 (2010: 38,841,805) ordinary shares of £0.25 each)

10,357

9,710




23  Employee benefit schemes

EMI option scheme

On 5 May 2004 an Approved EMI Share Option Scheme was established.  On 24 May 2004 537,375 options were issued to Directors and senior managers within the Group. All option holders under the original unapproved share option scheme waived their rights over the original options held, which were transferred into the EMI Share Option scheme. All the options are exercisable between 24 May 2007 and 24 May 2014 and have an exercise price of 66.5p. No further options were issued in the year.

At the date of the statement of financial position none of the option holders were Directors.

Following a review of this share option scheme it has been determined that the valuation is not material for the purposes of these accounts.

Senior executive option scheme 2010

The scheme was approved at the Company's AGM on 24 July 2009.  An Employee Benefit Trust ("EBT") was established on 23 March 2010 as part of this scheme.

On 27 April 2010 the EBT subscribed for 1,730,510 new ordinary shares of 25p each ("Shares") in relation to option awards to Ken Smith (865,255 shares) and Anthony Houldsworth (865,255 shares), at 39p per share, which was the mid-market price at close of business on 26 April 2010.

On 5 August 2010 the EBT subscribed for 854,999 new ordinary shares of 25p each ("Shares") in relation to option awards to various staff members at 39p per share. Included in this amount were option awards to Stephen Sadler over 404,999 shares.

The Options granted to Ken Smith and Tony Houldsworth are exercisable at any time between 27 April 2013 and 27 April 2020, being a period of between three and ten years from the date of grant. The options granted to Stephen Sadler are exercisable at any time between 5 August 2013 and 5 August 2020.

Clarity Commerce Solutions plc share incentive plan

The above plan was established on 9 February 2010 and subsequently approved by HM Revenue & Customs on 3 March 2010.  As part of this scheme The Clarity Commerce SIP Trust was established ("SIP Trust")

The scheme was established to facilitate the acquisition and holding of shares by and for the benefit of employees pursuant to the plan rules.  At the date of the statement of financial position, no shares were acquired by the SIP Trust.

As at 30 March 2011 and 30 March 2010, all the above options were outstanding.  In the year to 30 March 2011 no options were forfeited or exercised (year to 30 March 2010: none).

24  Acquisitions

On 28 May 2010 the Group acquired 80% of the business and assets of Cyntergy Support Services Limited (in administration). Cyntergy Support Services Limited provide software support and training services. As part of the acquisition Clarity has taken on a number of customer contracts and approximately 80 employees. The principle reason for the acquisition was to provide first and second line support capability for the wider group operations.

The goodwill of £143,000 arising from the acquisition is attributable to the future synergies of combining the business into the group.

None of the goodwill recognised is expected to be deductible for income tax purposes.  The following table summarises the consideration paid and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date.

Carrying value as at 28/05/10 £'000

 

Fair Value adjustment

£'000

 

Provisional Fair Value to the Group

£'000

 




Financial assets:




Property, plant and equipment

24

(19)

5

Trade receivables

276

-

276

 

300

(19)

281





Financial liabilities:




Deferred income

(93)

37

(56)

Other payables

(218)

-

(218)

 

(311)

37

(274)





 Net (liabilities)/assets

 

(11)

18

7

Goodwill



143

Cash consideration



150





The revenue included in the consolidated income statement since 28 May 2010 contributed by Cyntergy was £2,887,987.  Cyntergy also contributed profit of £42,328 over the same period.

As Cyntergy Support Services Limited was in administration at the time of acquisition, no management accounts had been prepared and therefore it is not practicable to ascertain the revenue and profits that the business would have contributed had it been acquired since the start of the period.

During the year to 31 March 2011, adjustments were made in respect of goodwill on the acquisition, as reported in the prior year annual report, of £37,000 due to an increase in net assets following finalisation of the fair value of the assets and liabilities.

Under the provisions of the purchase agreement the Group's ownership of the business and assets increased to 85% on 1 June 2011.

25  Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowings, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and accumulated losses.

Gearing ratio

The Group regularly reviews its gearing ratio. The Group's net debt position has increased in the year.

Externally imposed capital requirement

The Group is not subject to externally imposed capital requirements.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 4 to the financial statements.

Categories of financial instruments

Carrying value as at

31/03/11

£'000

Carrying value as at

31/03/10

£'000

 



Financial assets:



Loans and receivables:



Trade receivables

3,643

3,570

Other receivables

690

512

Cash and cash equivalents

861

2,347

 

5,194

6,429




Financial liabilities:



Financial liabilities at amortised cost:



Trade payables

1,321

1,496

Other payables, taxes and social security

1,170

653

Borrowings due within one year

1,740

1,192

Borrowings due after one year

-

1,413

 

4,231

4,754




Fair value of financial assets and liabilities

The Directors believe that the fair value and the book value of financial assets and financial liabilities is not materially different. Trade payables and receivables have a remaining life of less than one year so their value on the statement of financial position is considered to be a fair approximation to fair value.

Financial risk management objectives

The Group monitors and manages the financial risks relating to the financial instruments held. The principal risks include market risk, foreign currency risk (on financial assets and trade payables), interest rate risk (on financial assets and borrowings), liquidity risk and credit risk (on financial assets). These risks are discussed in further detail below.

It is not Group policy to trade in derivative instruments.

Market risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

The Group does not prepare a value-at-risk (VaR) analysis of the market risk exposures faced by the Group. Therefore, in accordance with IFRS 7 'Financial Instruments: Disclosures', sensitivity analysis of each type of market risk is presented below.

Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.

The carrying amounts of the Group's material foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Liabilities as at

31/03/11

£'000

Liabilities as at

31/03/10

£'000

Assets as at

31/03/11

£'000

Assets as at

31/03/10

 £'000

 





Euro

(12)

(58)

203

1,004

US dollar

(92)

(532)

1,105

1,969

NZ Dollar

(7)

(13)

50

66






During the year, the Group used forward contracts in both Euro's and US Dollar, to protect against exchange rate risk.  These contracts were put in place to protect the budgeted profit levels, of the US and European operations, against fluctuations in the exchange rates.  All forward contracts were settled before the year end.

Foreign currency sensitivity analysis

The following table details the Group's sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. A positive number below indicates an increase in profit and other equity where sterling strengthens 10% against the relevant currency. For a 10% weakening of sterling against the relevant currency, there would be an equal and opposite impact on profit and other equity, and the balances below would be negative. The sensitivities below are based on the exchange rates at the date of the statement of financial position used to convert the asset or liability to sterling. Therefore, the rate of exchange at the date of the statement of financial position represents the best method of evaluating foreign currency exchange rates and losses arising on the Group's financial assets and liabilities.

Year ended

31/03/11

£'000

Year ended

31/03/10

£'000

 



Profit/(loss) impact:



10% increase in US dollar exchange rate against pound sterling

(92)

(131)

10% decrease in US dollar exchange rate against pound sterling

84

160

 



10% increase in Euro exchange rate against pound sterling

(19)

(86)

10% decrease in Euro exchange rate against pound sterling

17

105

 



10% increase in NZ dollar exchange rate against pound sterling

(4)

(5)

10% decrease in NZ dollar exchange rate against pound sterling

4

6




There are no material foreign exchange differences arising on the retranslation of financial costs and liabilities. Accordingly, no analysis of the sensitivities is presented.

In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure is higher than in the year. This is due to the high sales volume that takes place in the months leading up to the year end and as a result the year end receivables held in foreign currency are higher than during the year.

Interest rate risk management

The Group is exposed to interest rate risk as the Group has a loan linked to LIBOR rate, and earns and pays interest on cash balances linked to base rate interest. The Group consider that we are not as significant risk to interest rate fluctuation to deem any interest swap initiatives necessary.

No sensitivity analyses have been presented on the basis that modest changes in interest rates (deemed to be a 0.5% increase or decrease) do not have a material impact on the Group.

Liquidity risk management

The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. As part of this monitoring the Group ensures that the financial liabilities due to be paid can be met by existing cash and cash equivalents.

The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due.

The Board receives regular debt management forecasts which estimate the cash inflows and outflows over the next twelve months, so that management can ensure that sufficient funding is in place as it is required.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group faces exposure to credit risk on its trade receivables and cash equivalents.

Please refer to note 15 for further details on trade receivables.

In terms of trade receivables, the Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are connected entities. Concentration of credit did not exceed 5% of gross monetary assets at any time during the year.  No credit limits were exceeded during the reporting year, and management does not expect any material losses from non-performance of any counterparties.

26 Disposal of business assets

 On 31 March 2011 the Company transferred certain customers and staff from its Hotels group within the Hospitality division to Paragon POS Limited (Paragon). The cash consideration was £470,000 of which £140,000 was received in the year. This transaction resulted in a profit on disposal of £444,000 which is included within operating expenses.

27 Post balance sheet events

In addition to the changes in rates of Corporation tax disclosed within note 10, a number of further changes to the UK Corporation tax system were announced in the March 2011 UK Budget Statement. Legislation to reduce the main rate of corporation tax from 26% to 25% from 1 April 2012 is expected to be included in the Finance Act 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. These further changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements.

The effect of the changes expected to be enacted in the Finance Act 2011 would be to reduce the deferred tax asset provided at the balance sheet date by £28k. This £28k decrease in the deferred tax asset would decrease profit by £28k and decrease other comprehensive income by £28k. This decrease in the deferred tax asset is due to the reduction in the corporation tax rate from 26 per cent to 25 per cent with effect from 1 April 2012.

The proposed reductions of the main rate of corporation tax by 1% per year to 23% by 1 April 2014 are expected to be enacted separately each year. The overall effect of the further changes from 25% to 23%, if these applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by £55k (being £28k recognised in 2013 and £27k recognised in 2014).


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