Last checked at 30 Jun 2008 07:00
For Immediate release 30 JUNE 2008
DAWMED SYSTEMS PLC
UNAUDITED HALF YEAR RESULTS
The Board of Dawmed Systems plc ('Dawmed' or 'the Company'), the AIM listed medical devices company which designs, manufactures, sells and services healthcare decontamination equipment and consumables used by NHS Trust hospitals, private hospitals, clinics and Primary Care practitioners, today announces Unaudited Half Year Results for the six months to 31 March 2008.
KEY POINTS:
- Significant recovery from last year's losses;
- Turnover increased by 67% to £3.82m (2006: £2.29m);
- Sales of the Company's own products significantly increased;
- EBITDA profit of £61,900, before exceptional foreign exchange loss of £187,000 and non-recurring abnormal costs of £135,000 expected to be recoverable in second half, resulting in loss of £260,000;
- Total operating costs decreased by 9%;
- Underlying favourable performance turnaround of £501,000 before exceptional foreign exchange loss and non-recurring abnormal costs;
- Operating loss of £367,700 and pre-tax loss of £398,500 both impacted by exceptional foreign exchange loss and non-recurring abnormal costs, leaving underlying losses of £45,700 and £76,500 respectively;
- Substantial increase in sales of the Company's own manufactured products;
- Recovery of the NHS has allowed sales of the Wassenburg equipment for use in the
Endoscopy Departments to return to a level that represents a fundamental element of the Company's business; and
- The supply agreement entered into in 2007 for an own-label version of the Clinic WDD is performing strongly.
Kevin Gilmore, Executive Chairman of Dawmed, commented: "I am pleased to report a buoyant period of recovery from last year's losses, with a first half underlying performance turnaround of £501,000, excluding the effects of the exceptional foreign exchange loss and the non-recurring abnormal costs expected to be recoverable in the second half, and I look forward to the current profitable trading leading to profitability for the second half of the year."
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Enquiries:
Dawmed Systems PLC Tel: 01608 682244
Kevin M Gilmore, Executive Chairman Mob: 07785 396666
Beaumont Cornish Limited Tel: 020 7628 3396
Roland Cornish
Bishopsgate Communications Limited Tel: 020 7562 3350
Maxine Barnes
Siobhra Murphy
For further information please visit Dawmed's websites at www.dawmedsystems.co.uk
Chairman's Statement
for the six month period ended 31 March 2008
I have pleasure in announcing that the unaudited results produced by your Company for the six months ended 31 March 2008 show a considerable increase in turnover, a vital element of the recovery that was anticipated in the "Outlook and Future Prospects" section of my Statement in the Company's Annual Report & Accounts 2007.
Financials
Turnover for the period of £3.82 million showed a creditable improvement of 67% over the same period last year, resulting in a substantial recovery from last year's losses. The Board anticipates that the current profitable trading will continue and achieve the Board's forecasted return to profitability for the second half of the year.
The significant recovery of the NHS from the well noted period of extensive financial deficit has allowed sales of the Wassenburg equipment for use in hospital Endoscopy Departments to return to the level that your Board expects should be generated from this market leading range of products.
Furthermore, it has been especially encouraging in this first half year to have achieved increases in the sales of the Company's own decontamination equipment, namely the AERclens and Clinic machines, into the high quality sectors of the Ear, Nose & Throat ("ENT") Departments of hospitals and Dentistry markets respectively, where compliance with relevant standards is of growing importance.
Satisfactory growth in the areas of Spares and Chemicals supplies has been in line with the Board's expectations and is anticipated to be sustained as the Company's installed base of capital equipment is enlarged.
The Support Services Department continues to be well utilised, with an expectation of further growth during the balance of the year by it continuing to provide national coverage for the constantly increasing installed base of equipment supplied by the Company.
Although completely beyond the Board's control, the significant and unexpected decline in the value of Sterling compared to the Euro has had a significantly adverse effect on the overall results for the period, with an exceptional foreign exchange loss of £187,000.
Total operating costs before depreciation but excluding finance charges and foreign exchange losses or gains, have decreased by 9% over the same period last year. This reduction in expenditure follows ongoing changes to the infrastructure of the Company, which are continually being made to ensure that the needs of business are met with optimum efficiency.
Earnings after finance charges, but before interest, taxation, depreciation and amortisation ("EBITDA") were a loss of £260,100. This loss arose primarily from the exceptional foreign exchange loss of £187,000 referred to above and non-recurring abnormal costs that are expected to be recoverable in the second half of the year. Without the impact of such losses and costs your Company would have made a profit in the period of £61,900.
The resulting operating loss of £367,700 and the net loss before and after tax for the half year of £398,500 were both also impacted upon to the same degree, leaving underlying losses of £45,700 and £76,500 respectively.
But for these two events, the pre and post tax loss would have been circa. £76,500, representing an underlying favourable performance turnaround of £501,000, or 87%, in the period.
The balance of shareholders' funds at 31 March 2008 was £127,900 compared with £632,200 at the same date last year, reflecting the losses in the period as described above. Had the expected recoverability of the abnormal costs of £135,000 been recognised in these Half Year Results, then the shareholders' funds at 31 March 2008 would have been £262,900.
Products and Services
In the Annual Report & Accounts for the year ended 30 September 2007, I gave a full description of the main characteristics and applications of the Company's range of washer-disinfectors ("WD") for chemical disinfection and washer-disinfector-dryers ("WDD") for thermal disinfection. All these products continue to enjoy the high and increasing level of post installation quality revenue from the Chemical Sales, the Spares Sales and the Support Services Department's Sales that form an integral and important part of the overall business.
The Clinic WDD, designed for use mainly in the primary care dentistry sector, continues to show good growth in this important market. In particular, sales performance under the supply agreement entered into during 2007 for an own-label version of the Clinic is strong.
The AERclens total system for the decontamination of both small flexible and small rigid nasendoscopes used in ENT Departments of hospitals is gaining ground in the marketplace, with orders increasing and the level of enquiries developing strongly.
Interest in the Opticlens, the WDD system for the decontamination of delicate rigid metal instruments used in ophthalmic and neurological surgery, continues in the UK and Europe as a niche area of the markets.
The traceability system, known as the Dawmed "DCTS", that was launched in 2007 has already achieved a number of sales confirming its position as an important enhancement to the Company's product range.
Business in the secondary care Endoscopy Departments of Hospitals, which use large flexible endoscope WDs, is performing strongly, particularly following the introduction to the market in 2007 of the Wassenburg pass-through WD and the Wassenburg Dry 300 sterile drying/storage cabinet.
Remainder of the Year and Future Prospects
I am pleased to report that, at the time of writing, there are strong indications that the increased level of activity enjoyed in the first half of the current financial year will continue for the foreseeable future.
The level of activity in the large flexible endoscope WD market remains buoyant, with the Company being involved in many opportunities through the tendering process for large contracts, which have become a recent new feature of the market. Having achieved major successes in this area to date, the Company is well placed to anticipate further success in the near future. Interest in, and more importantly orders for the range of Wassenburg washer-disinfectors and the sterile storage/dryer cabinet are expected to maintain the improvement experienced in the first half year through to the year end and beyond.
Ongoing research by the export department, formed in 2007 to exploit the overseas potential for the Company's products, has identified expansion opportunities into a number of European countries. Against this background, your Board is now seeking to identify and appoint distributors in a number of countries which provide the leading opportunities.
I am also pleased to report that the sales momentum achieved in the market place by the Clinic WDD continues to increase. Sales of this product in the domestic market are growing and, as mentioned above, the export potential is being pursued actively.
Sales of the AERclens system in the UK, which had previously suffered from the extensive NHS financial restrictions, are now developing and your Board is confident that significant sales will result from the initial high level of interest. In addition, discussions are ongoing with a number of overseas companies with the intention of pursuing sales of these products in the international markets.
The Board is confident that the range of products and services that is offered by your Company will allow the second half of the year to maintain the level of growth that has been enjoyed in the first half. Although the continued weakness of Sterling will result in margins on the imported products (principally Wassenburg products) being impaired, your Board is hopeful that the underlying significant recovery in the period will be repeated in the second half of the year. Notwithstanding future Sterling/Euro foreign exchange levels, the Board's latest forecasts indicate pre and post tax profitability for the second half of the year.
The emphasis for the future continues to be the further implementation of the Company's now established strategy for sales growth and profitability from all of the underlying higher margin business elements in the UK, the pursuit of export business to increase turnover and to reduce the dependence upon the NHS, the control of the Company infrastructure to minimise overheads and the continuous utilisation of the skills base and experience of our loyal and contributory staff.
Kevin M Gilmore
Executive Chairman
30 June 2008
Consolidated Income Statement
for the half year ended 31 March 2008
| Unaudited 6 months to 31 March 2008 £'000 | Restated Unaudited 6 months to 31 March 2007 £'000 | Restated Unaudited year to 30 September 2007 £'000 | |
| REVENUE | 3,818.7 | 2,288.7 | 4,976.1 |
| Cost of sales | (2,689.7) | (1,304.9) | (3,086.0) |
| Gross profit | 1,129.0 | 983.8 | 1,890.1 |
| Administrative expenses | (1, 496.7) | (1,395.1) | (2,390.5) |
| LOSS FROM OPERATIONS | (367.7) | (411.3) | (500.4) |
| Finance income | - | 4.3 | - |
| Finance costs | (30.8) | (33.0) | (77.1) |
| LOSS BEFORE TAXATION | (398.5) | (440.0) | (577.5) |
| Tax expense | - | - | - |
| LOSS FOR THE FINANCIAL PERIOD | (398.5) | (440.0) | (577.5) |
| BASIC LOSS PER SHARE (Note 3) | (1.93p) | (2.15p) | (2.82p) |
| DILUTED LOSS PER SHARE (Note 3) | (1.93p) | (2.15p) | (2.82p) |
Group Balance Sheet
as at 31 March 2008
|
Unaudited 31 March 2008 £'000 | Restated Unaudited 31 March 2007 £'000 | Restated Unaudited 30 September 2007 £'000 | |
| NON-CURRENT ASSETS | |||
| Property, plant and equipment | 116.9 | 98.1 | 103.4 |
| Intangible assets | 52.0 | 249.1 | 165.6 |
| 168.9 | 347.2 | 269.0 | |
| CURRENT ASSETS | |||
| Inventories | 869.7 | 661.4 | 1,062.0 |
| Trade and other receivables | 3,026.7 | 1,112.6 | 1,249.8 |
| Cash and cash equivalents | - | 64.7 | 5.2 |
| TOTAL ASSETS | 4,065.3 | 2,185.9 | 2,586.0 |
| CURENT LIABILITIES | |||
| Financial liabilities | (1,027.3) | (479.4) | (1,020.2) |
| Trade and other payables | (2,910.1) | (1,064.9) | (1,052.2) |
| (3,937.4) | (1,544.3) | (2,072.4) | |
| NON-CURRENT LIABILITIES | |||
| Trade and other payables | - | (9.4) | - |
| TOTAL LIABILITIES | (3,937.4) | (1,553.7) | (2,072.4) |
| NET ASSETS | 127.9 | 632.2 | 513.6 |
| Called up share capital | 1,030.7 | 1,023.2 | 1,030.7 |
| Share premium account | 1,878.2 | 1,872.2 | 1,878.2 |
| Other reserve | (350.5) | (350.5) | (350.5) |
| Profit and loss account | (2,430.5) | (1,912.7) | (2,044.8) |
| SHAREHOLDERS' EQUITY | 127.9 | 632.2 | 513.6 |
Consolidated Cashflow Statement
for the half year ended 31 March 2008
| Unaudited 6 months to 31 March 2008 £'000 | Restated Unaudited 6 months to 31 March 2007 £'000 | Restated Unaudited year to 30 September 2007 £'000 | |
| Cash flows from operating activities | |||
| Loss from operations | (367.7) | (411.3) | (500.4) |
| Adjustments for: | |||
| Depreciation and amortisation charges | 107.6 | 109.4 | 223.8 |
| Share based payment expense | 12.8 | 9.0 | 27.9 |
| Changes in working capital: | |||
| Decrease in inventories | 192.3 | 58.4 | (342.2) |
| Increase in trade and other receivables | (1,776.8) | (243.2) | (380.4) |
| Increase in creditors | 2,313.1 | 27.1 | 69.5 |
| Cash generated from/(absorbed by) operating activities | 481.3 | (450.6) | (901.8) |
| Cash flows from investing activities | |||
| Finance income received | - | 4.3 | - |
| Finance expenses | (30.8) | (33.0) | (77.1) |
| Purchase of non-current assets | (7.5) | (35.3) | (71.5) |
| Net cash used in investing activities | (38.3) | (64.0) | (148.6) |
| Cash flows from financing activities | |||
| Overdraft | 7.3 | - | 86.8 |
| Factoring and stock advances | (252.7) | (83.0) | 269.2 |
| Finance leases | (3.1) | (7.4) | (14.9) |
| Other loans | (199.6) | 154.9 | 199.6 |
| Net cash (used)/generated in financing activities | (448.1) | 64.5 | 540.7 |
| Net decrease in cash and cash equivalents | (5.1) | (450.1) | (509.7) |
| Cash and cash equivalents at beginning of period | 5.1 | 514.8 | 514.8 |
| Cash and cash equivalents at end of period | - | 64.7 | 5.1 |
CHANGES IN SHAREHOLDERS' EQUITY
| Share capital £'000 | Share premium £'000 | Other reserve £'000 | Retained earnings £'000 | Total £'000 | |
| At 1 October 2006 | 1,023.2 | 1,872.2 | (350.5) | (1,481.7) | 1,063.2 |
| Total recognised income and expense | - | - | - | (440.0) | (440.0) |
| Reserve movement arising from share based payment reserve | - | - | - | 9.0 | 9.0 |
| At 31 March 2007 | 1,023.2 | 1,872.2 | (350.5) | (1,912.7) | 632.2 |
| Total recognised income and expense | - | - | - | (137.5) | (137.5) |
| Reserve movement arising from share based payment reserve | - | - | - | 5.4 | 5.4 |
| Issue of shares in the period | 7.5 | 6.0 | - | - | 13.5 |
| At 30 September 2007 | 1,030.7 | 1,878.2 | (350.5) | (2,044.8) | 513.6 |
| Total recognised income and expense | - | - | - | (398.5) | (398.5) |
| Reserve movement arising from share based payment reserve | - | - | - | 12.8 | 12.8 |
| At 31 March 2008 | 1,030.7 | 1,878.2 | (350.5) | (2,430.5) | 127.9 |
Notes to the unaudited Half Year Results
1 GENERAL INFORMATION
Dawmed Systems plc is a public limited company ('Company') incorporated in the United Kingdom, whose shares are publicly traded on the Alternative Investment Market (AIM). The Company is domiciled in the United Kingdom and its registered address is Eden Close, Hellaby, Rotherham, South Yorkshire S66 8RW, United Kingdom.
The Group's principal activities are the design, development, manufacture, sale, distribution, testing and servicing of washer disinfectors and washer disinfector dryers for the primary and secondary healthcare sectors.
2 BASIS OF ACCOUNTING
The financial information has been prepared on the historical cost basis. The accounting policies set out below have been applied consistently to all periods presented in this consolidated half yearly report and in preparing an opening IFRS balance sheet at 1 October 2006 for the purposes of the transition to IFRS.
BASIS OF PREPARATION
For all periods to 30 September 2007, the Group prepared its audited financial statements under UK Generally Accepted Accounting Principles (UK GAAP). For the period ending 30 September 2008 the Group is required to prepare its annual consolidated financial statements in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards (IFRS)).
This half yearly report has been prepared in accordance with the accounting policies set out below (which are expected to be applied in preparing the annual financial statements), taking into account the requirements and options in IFRS 1 'First-time adoption of International Financial Reporting Standards'. The Group has not adopted the reporting requirements of IAS 34 'Interim Financial Reporting'. The transition date for the Group's application of IFRS is 1 October 2006 and the comparative figures for the six month period ended 31 March 2007 and the annual period ended 30 September 2007 have been restated accordingly. A reconciliations of the income statement (previously profit and loss account) and balance sheet from previously reported UK GAAP to IFRS is not required as the transition to IFRS has not resulted in any changes being required to the amounts already disclosed.
The information relating to the six months ended 31 March 2008 and 31 March 2007 is unaudited, has not been reviewed by the Group's auditors and does not constitute statutory accounts.
The comparative figures for the year ended 30 September 2007 have been restated for the adoption of IFRS. The comparative figures for the year ended 30 September 2007 are not the Company's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain statements under section 237(2) or (3) of the Companies Act. The financial information in this document does not constitute statutory financial statements within the meaning of the Act.
GOING CONCERN
The Group primarily meets its day to day working capital requirements through an invoice factoring and stock financing facility which is secured on trade debtors and stocks of finished goods. The nature of the Group's business is such that the timing of cash inflows can be unpredictable. The availability of the invoice factoring facility provides an appropriate method of managing this level of unpredictability. In addition, the Group's principal supplier of goods is providing extended credit facilities to assist in accommodating the substantial increase in activity.
The directors have prepared cash flow projections covering the next twelve months which anticipate a significant increase in the level of business. These forecasts are supported by the current level of activity, a substantial order book and identified future projects. Additionally, the continuing enhancement of existing machines and the growth in demand for the AERclens and Clinic machines are providing prospects for growth. The directors consider that, with the continuation of the increased level of business that is being experienced, these projections should be achievable. However, there can be no certainty in relation to these matters.
These forecasts indicate that with the support and cooperation provided by the Group's principal supplier and the utilisation of the invoice factoring and stock financing facility, the Group has adequate resources to meet its ongoing requirements. On this basis, the directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result if the increase in the levels of business was not achieved.
BASIS OF CONSOLIDATION
The consolidated financial information incorporates those of Dawmed Systems plc and its subsidiary undertaking for each reporting period.
In preparing this half yearly report, any intra-group balances, unrealised gains and losses or income and expenses arising from intra-group trading are eliminated.
Subsidiaries are entities over which the Group has the power to govern the financial and operating policies to obtain economic benefit to the Group. Subsidiary companies acquired during the year are consolidated using the purchase method. The results of subsidiary companies acquired are included in the consolidated income statement from the effective date of acquisition.
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, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date.
The excess of cost of acquisition over the fair values of the Group's share of identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair value of identifiable net assets acquired (i.e. discount on acquisition) is recognised directly in the income statement.
TRANSITION TO IFRS
IFRS 1 grants certain exemptions from the full requirements of IFRSs in the transition period. The following exemptions have been taken in these consolidated financial statements:
i) IFRS 3 - Business combinations
The Group has elected not to apply IFRS 3 'Business Combinations' retrospectively to acquisitions that took place prior to 1 April 2006. As a result, the carrying amount of goodwill in the UK GAAP balance sheet at 31 March 2006 is brought forward to the IFRS opening balance sheet without adjustment.
ii) IFRS 2 - Share-based payment
IFRS 2 has not been applied to share-based payments granted before 7 November 2002 nor those granted after 7 November 2002 that had vested prior to 1 October 2006. The Group has adopted IFRS 2 'Share Based Payment' for share options granted after 7 November 2002 which had not vested at 1 October 2006. The adoption of IFRS 2 has not required numerical adjustments to be made to the balance sheet at 1 October 2006 or to the income statement for the year ended 30 September 2007.
REVENUE RECOGNITION
Group revenue is the fair value of the consideration received or receivable by the Group for goods supplied and services provided, excluding VAT and trade discounts.
Where services are provided on annual contracts, revenue is spread evenly over the duration of the contract. Where annual contracts do not apply then revenue is recognised at fair value by reference to the stage of completion of the provision of services.
Sales of goods are recognised when goods are delivered and title has passed.
Interest income is accrued on a time-apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
RESEARCH AND DEVELOPMENT
Where the future recoverability of development expenditure on a particular project can be foreseen with reasonable certainty such expenditure is capitalised at cost under intangible assets in the balance sheet.
These development costs are then amortised, commencing from the date that revenues begin to be earned from the project, over the expected useful economic life. The useful economic life is determined such that the expenditure is then matched with the revenues then earned.
All other research and development expenditure is recognised as an expense as incurred.
PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment assets are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost of assets, over their estimated useful economic lives. The rates used for each major asset category, which are reviewed annually, are:
Leasehold improvements - 25%
Plant and machinery - 25%
Fixtures, fittings and computer equipment - 25%
Motor vehicles - 25%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
IMPAIRMENT OF ASSETS
At each balance sheet date the Group reviews the carrying value of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
An impairment loss is only reversed if there is a subsequent increase in the recoverable amount that can be related objectively to an event occurring after the impairment loss was recognised.
LEASING
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases.
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 corresponding liability is to be included in the balance sheet as a finance lease obligation. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
BORROWING COSTS
Borrowing costs are recognised as an expense when incurred.
TAXATION
The tax expense represents the sum of the current tax expense and deferred tax expense.
The current tax payable is based on an estimation of the amount due on the taxable profit for the year. Taxable profit is different from net profit as reported in the income statement because it excludes items of income or expenditure which are not taxable or deductible in the year as a result of either the nature of the item or the fact that it is taxable or deductible in another period. The Group's liability for current tax is calculated by using tax rates that have been enacted or substantially enacted by the balance sheet date.
Deferred tax is accounted for on the basis of temporary differences arising from the differences between the tax base and accounting base of assets and liabilities.
Deferred tax is recognised for all taxable temporary differences, except to the extent where it arises from the initial recognition of an asset or liability in a transaction that is not a business combination. Deferred tax is not provided for on the initial recognition of goodwill. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised.
Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case it is dealt with within equity. It is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.
FINANCIAL INSTRUMENTS
Financial assets or liabilities are recognised when, and only when the company becomes a party to the contractual provisions of the instrument.
Classification of financial instruments
Financial instruments are classified as financial assets, financial liabilities or equity instruments.
Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
They include no contractual obligations upon the Group to deliver cash or other financial assets that are potentially unfavourable to the Group; and
Where the instrument will or may be settled in the Group's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group's own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
Recognition and valuation of financial assets
Trade Receivables
Trade receivables do not carry interest and are reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank. Cash and cash equivalents excludes overdrafts.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at their fair value. Finance charges are allocated to the income statement using an effective interest rate, on the outstanding carrying value of the instrument.
Trade payables
Trade payables are not interest bearing and are stated at their amortised cost.
Foreign exchange
Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to the income statement.
Warranty costs
Provision is not made for the warranty costs on goods bought for re-sale as the liability for those warranty costs lies with the manufacturer. Provision is not made for warranty costs on manufactured equipment as such costs are considered to be insignificant.
Equity instruments
Equity instruments are initially measured at fair value.
GOVERNMENT GRANTS
Grants received towards the purchase of property, plant and equipment are carried in the balance sheet as deferred income and credited to the income statement over the expected useful lives of the assets acquired. Grants receivable for revenue expenditure are credited to revenue when received.
RETIREMENT BENEFITS
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Any contributions unpaid at the balance sheet date are included as an accrual as at that date. The Group has no further payment obligations once the contributions have been paid.
SHARE BASED PAYMENT
The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the IFRS1 exemption, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that had not been vested prior to 1 October 2006.
The Group issues equity-settled share-based payments to certain employees, whereby employees render services in exchange for share options.
Where employees are rewarded using share based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date using an option-pricing model (Black-Scholes) and excludes the impact of non-market vesting conditions.
Equity-settled share based payments are expensed in the income statement. Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.
3 EARNINGS PER SHARE
The calculation of basic loss per share is based upon the loss of £398,570 (2007: loss £440,030) and on 20,613,292 shares (2007: 20,463,292 shares), being the weighted average number of shares in issue during the period.
Since the exercise price of the 2,846,676 share options is above the average fair price for the six months ended 31 March 2008 (2007: 2,396,676 share options), the diluted loss per share is equivalent to the basic loss per share.
4 EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTISATION ("EBITDA")
Earnings before interest, tax, depreciation and amortisation ("EBITDA") amount to a loss of £260,100 and consist of the Loss from Operations of £367,700 (2007: £411,300) less depreciation and amortisation charges of £107,600 (2007: £109,400).
5 APPROVAL OF THE HALF YEAR REPORT
The half year report for the six months ended 31 March 2008 was approved by the board of directors on 30 June 2008.
6 WEBSITE
The half year report and accounts are being posted to shareholders and will be available on the website: www.dawmedsystems.co.uk