Avingtrans Regulatory News (AVG)

27 Feb 2008 07:00

Avingtrans PLC26 February 2008 Avingtrans plc ("Avingtrans," the "Group" or the "Company") Interim Results for the Six Months Ended 30 November 2007 Six months to Six months to 30 November 30 November 2007 2006 Turnover £21,137,000 £17,159,000Gross Profit £5,395,000 £4,313,000Operating Profit* £1,355,000 £1,871,000Earnings per share* 4.3p 13.3pDividend 0.5p 0.5p *(before share based payments and amortisation/impairment of intangibles) Highlights •Record half year sales up 23% to £21.1m (2006: £17.2m) •Small gross margin improvement to 25.5% (2006: 25.1%) •Gearing down to 72% (2006: 81%) •Maintaining dividend at 0.5p per share (2006: 0.5p) •Aerospace contract problems now resolved •Sigma receive first significant aerospace orders •Roger McDowell appointed to succeed retiring Ken Baker OBE on 10 March 2008 For further information please contact, Avingtrans plcKen Baker, ChairmanStephen King, Finance DirectorTel. 01159 499 020 KBC Peel Hunt LtdJulian BluntDavid AndersonTel 020 7418 8900 Chairman's Statement I am pleased to announce the results of Avingtrans plc for the six months ended30 November 2007. This statement is the first Avingtrans has had to provide under the new IFRSrules, the most significant difference being the rules around capitalisation andamortisation of goodwill and intangibles. Explanations are fully detailed in theaccounting policies and notes in the interim announcement. The period was one of mixed fortunes for the group, with sales up at a newrecord high of £21,137,000 (2006:£17,159,000) but with operating profit beforeshare based payments and amortisation/impairment of intangibles down at£1,355,000 (2006:£1,871,000) and net cash outflow from operating activities downon expectations at £114,000. The below expected result was directly related toissues arising from the acquisition of B&D Patterns (B&D) in September 2006. Though Avingtrans' turnover rose, largely as a result of the acquisition of B&D,a number of unprofitable contracts with B&D's aerospace customers caused a lowerlevel of operating profit to be experienced in the Aerospace Division throughoutmost of the period. This situation was only corrected by severe cost reductionexercises and price renegotiations with customers and agents which started inMay 2007 and were concluded in December 2007, bringing B&D back into on-goingprofitability. An investigation has been commenced into the possibility of warranty claimsagainst the previous owners of B&D. Progress in the rest of the Group was generally to plan with the first aerospaceorders for Sigma at its new Chinese facility, new products at Crown UK andcontinuing growth in the Medical & Research and Industrial Products Divisions. Finally I am pleased to announce that in September 2007 the Group began theexternal search for my replacement as Chairman and as per the announcement on 22February 2008 we are delighted to welcome Mr Roger McDowell to the Board withimmediate effect pending his appointment as Chairman on 10 March 2008, when Iwill stand down. Mr McDowell is an experienced and successful Chairman anddirector of a number of engineering companies and the Board wishes him well onhis appointment to his new position at Avingtrans. Financial Performance Turnover for the six months ended 30 November 2007 was £21,137,000 (2006:£17,159,000) an increase of 23.2%. Operating profit before share based payments and amortisation/impairment ofintangibles was £1,355,000 (2006: £1,871,000). Profit after tax for the periodincreased to £602,000 (2006: £159,000). Under IFRS the acquisition of B&DPatterns resulted in intangibles of £4,245,000 being recognised, including£4,026,000 for Customer relationships. However, immediately after acquisition itwas apparent that these relationships were significantly impaired resulting in awrite off of £2,654,000 to the Income Statement in the six months to November2006. The Company had a cash outflow from operating activities during the period of£114,000 (2006: £297,000 inflow). During the period, the Company made bank debtrepayments of £629,000 (2006: £360,000) Net debt at 30 November 2007 was£11,180,000 (30 November 2006: £11,185,000), with gearing 72% (30 November 2006:81%). Earnings per Share Earnings per share, for the period ended 30 November 2007, before share basedpayments and amortisation/impairment of intangibles was 4.3p (2006: 13.3p).Basic earnings per share was 3.4p (2006: 4.9p loss) and fully diluted earningsper share was 3.4p (2006: 4.9p loss). Dividend The Board has agreed a dividend of 0.5p for the half year to be paid on 19 May2008 to shareholders on the register at 18 April 2008. Operations Medical & Research Division Order intake remains high with exciting prospects for Rolls Royce repeat work ona range of large scale fuel cell containers, continuing interest in submersiblevessels for the navy's of Korea and Singapore and a strong workload continuingon MRI scanners for various international OEMs. Sales on some non-medicalequipment were slightly down on expectation during the six months under reviewdue to late release on some orders. Sales on medical equipment were toexpectations. At Crown order intake and product interest was strong during the period,following the showing of new support poles for roadside speed cameras at theTraffex 07 Exhibition where Crown poles were shown on every exhibiting camerastand. A significant order for Network Rail signalling equipment was receivedfor delivery in the second half of the period and enquiry levels on camera polesfor overseas customers remained high. Vehicle Sensor Technology (VST) which has a five year supply and serviceagreement with Vehicle Occupancy Ltd (VOL) is pleased to report on-goingpositive development of VOL's main product known as Dtect which can be used todetect the number of occupants of a motor car. VOL, in which Avingtrans has a 7%shareholding, carried out proving trials at Mallory Park during the period andthe product was awarded the accolade of the Institute of EngineeringTechnology's "Transport innovation of the year". Industrial Products Division Order intake and sales continued very strong in the period, fuelled by demandfor machine tool and medical equipment needs in Germany, UK and the USA. Orders,sales and margins were above those experienced last year. Actions to develop newsales opportunities and to improve capability and increase capacity wereinstigated during the period including the purchasing of further high technologymachines for Jenaer Gewindetechnik in Germany. Aerospace Division As reported earlier in the report, the Division suffered badly fromunder-performing contracts inherited at its newest acquisition B&D causing alower level of operating profit for the first half of the year. Managementbelieve they now have the situation under control and have improvedrelationships with its major customers by taking on significant new orders andworking to develop long range plans to utilise the divisions' capability tocombine UK based product development skills with subsequent low costmanufacturing at our Sigma Chinese unit in Chengdu, which though suffering aslow start up is now enviably accredited as a supplier to most major aerospacecustomers in Europe and the USA. C&H also with a slow start to the year is now working at normal operating levelsfor turbine blades and continued to strengthen its relationship with MessierDowty for the polishing of landing gear for Airbus. Directors and Senior Management As mentioned earlier in the report the Board have agreed that, with the problemsat B&D now under control, and a number of other opportunities becoming availableto drive the Company forward, it is a good time to exercise my retirement planfirst mentioned over a year ago. Accordingly I am standing down as Chairman on10 March 2008 and Mr Roger McDowell will take over. As Chairman for the pastfive years and as a significant shareholder I welcome Roger to the chair of theCompany and wish him all the success for the future. During the period under review Steven Lawrence, who joined the Company asManaging Director on the day I became Chairman, and with whom I have workedclosely in developing the Company from the original cash shell, to its currentposition as a focused AIM engineering group also indicated his intention tostand down and will be leaving on the 31st of May 2008. I therefore offer mysincere thanks for his successful efforts over the past five years and wish himwell in the future. The decision on Steven's replacement will not be made untilafter the appointment of our new Chairman. I should also like to express my thanks to my fellow directors, divisionalmanagers and co-workers in the UK, Germany, the USA and China for their supportand endeavours during our time together. Current trading After the corrective work carried out at B&D during the first half, it wasencouraging to note that the unit returned to profit in January 2008. Alsoduring January 2008 Sigma was awarded a number of significant aerospace ordersand C&H secured a new long term agreement valued at in excess of £4m revenuefrom Safran Group Company Messier Dowty for aerospace components used on theAirbus. The contract is for an initial three years and will be in addition toits existing turbine blade refinishing programme. Stainless Metalcraft is continuing to serve Siemens and other world class MRIscanner manufacturers with critical components. Sales in MRI products areexpected to reduce slightly in the future as world demand slackens. Effortscontinue to improve margins in this line and seek opportunities in otherproducts and other markets in the Far-East. The Industrial Products division continues to experience strong demand for itsproducts. This is expected to continue beyond the current year end and into FY2009. Notwithstanding the threat of recession in world markets and the restrictions oncredit currently being experienced by industry, the outlook, in the short termat least, for Avingtrans appears positive. K.M.BakerChairman27 February 2008 Condensed Consolidated Income Statement (Unaudited)for the 6 months ended 30 November 2007 6 months 6 months Year to 30 to 30 to 31 November November May 2007 2006 2007 £000 £000 £000 Continuing operationsRevenue 21,137 17,159 40,026Cost of sales (15,742) (12,846) (29,806) Gross profit 5,395 4,313 10,220 Distribution costs (486) (371) (885)Administrative expenses (3,554) (2,071) (5,383) Operating profit before share basedpayments and amortisation/impairmentof intangibles 1,355 1,871 3,952 Share based payments (20) (29) (67)Amortisation of intangibles (128) (245) (337)Impairment of intangibles - (2,654) (2,654) Operating profit/(loss) 1,207 (1,057) 894 Finance income 5 8 16Finance costs (414) (230) (681) Profit/(loss) before taxation 798 (1,279) 229 Taxation (196) 493 (70) Profit/(loss) for the period 602 (786) 159attributable to equity shareholders Earnings/(loss) per share - total andcontinuing operations- Basic 3.4p (4.9)p 0.9p Earnings/(loss) per share - total andcontinuing operations- Diluted 3.4p (4.9)p 0.9p Condensed Consolidated Balance Sheet (Unaudited)at 30 November 2007 30 30 November November 31 May 2007 2006 2007 £000 £000 £000 AssetsNon-current assetsGoodwill 10,226 10,226 10,226Other intangible assets 1,538 1,451 1,584Property, plant and equipment 10,694 10,560 11,106Investments 215 15 12Deferred tax assets - - - 22,673 22,252 22,928Current assetsInventories 6,538 4,972 5,968Trade and other receivables 7,731 8,310 8,695Cash and cash equivalents 1,058 580 1,216 15,327 13,862 15,879 Total assets 38,000 36,114 38,807 LiabilitiesCurrent liabilitiesTrade and other payables (7,747) (8,376) (9,751)Obligations under finance leases (701) (789) (798)Borrowings (4,949) (3,302) (3,750)Current tax liabilities (824) (277) (783) Total current liabilities (14,221) (12,744) (15,082) Non-current liabilitiesBorrowings (4,800) (5,963) (5,321)Obligations under finance leases (1,788) (1,711) (1,853)Deferred tax (945) (1,120) (952)Deferred consideration (750) (750) (750) Total non-current liabilities (8,283) (9,544) (8,876) Total liabilities (22,504) (22,288) (23,958) Net assets 15,496 13,826 14,849 Shareholders' equityShare capital 882 866 879Share premium account 6,271 6,140 6,241Capital redemption reserve 814 813 814Merger reserve 402 402 402Translation reserve 87 (50) (37)Other reserves 180 180 180Retained earnings 6,860 5,475 6,370Total equity attributable to equity holders of the parent 15,496 13,826 14,849 Condensed Consolidated Statement of Recognised Income and Expense (Unaudited)for the 6 months ended 30 November 2007 6 months 6 months to 30 to 30 Year November November to 31 2007 2006 May 2007 £000 £000 £000 Exchange differences on translation of 124 (50) (37)foreign operations Profit/(loss) for the year 602 (786) 159 Total recognised income and expense for the year 726 (836) 122 Condensed Consolidated Cash Flow Statement (Unaudited)for the 6 months ended 30 November 2007 6 months 6 months Year to 30 to 30 to 31 November November May 2007 2006 2007 £000 £000 £000 Net cash from operating activities 538 702 3,528Interest paid (417) (234) (684)Income tax paid (235) (171) (356)Net cash from operating activities (114) 297 2,488 Cash flows from investing activitiesAcquisition of subsidiaries (net of cash) - (8,181) (8,185)Acquisition of investment (215) - -Purchase of intangible assets (87) (86) (279)Purchase of property, plant and equipment (201) (535) (1,298)Proceeds from sale of property, plant and 1 128 128equipmentProceeds from sale of investments 19 - -Interest received 5 8 16Net cash used in investing activities (478) (8,666) (9,618) Cash flows from financing activitiesNet proceeds from issue of ordinary shares 33 1,909 2,023Capital element of finance lease repayments (423) (484) (925)Borrowings raised 239 4,643 4,641Borrowings repaid (629) (360) (964)Dividends paid (131) (77) (164)Net cash used in financing activities (911) 5,631 4,611 Net decrease in cash and cash equivalents (1,503) (2,738) (2,519)Cash and cash equivalents at beginning of (1,302) 1,224 1,224periodExchange gains/(losses) on cash and cash 66 (10) (7)equivalents Cash and cash equivalents at end of period (2,739) (1,524) (1,302) Cash generated from operations 6 months 6 months Year to 30 to 30 to 31 November November May 2007 2006 2007 £000 £000 £000 Continuing operationsProfit/(loss) before income tax 798 (1,279) 229Adjustments for:Depreciation 673 569 1,154Amortisation and impairment of Intangible 128 2,899 2,991assets(Profit) on disposal of property, plant and (7) (121) (121)equipmentImpairment of investment - - 3Finance income (5) (8) (16)Finance expense 414 230 681Share based payment charge 20 29 67 Changes in working capital(Increase) in inventories (519) (662) (1,529)Decrease/(increase) in trade and other 1,188 (1,147) (1,465)receivables(Decrease)/increase in trade and other (2,171) 174 1,500payablesOther non cash charges 19 18 34 Cashflows from operating activities 538 702 3,528 1. Accounting Policies Basis of preparation The next annual financial statements of the Group will be prepared in accordancewith International Financial Reporting Standards (IFRS) as adopted by the EU.Accordingly, this interim financial report has been prepared in accordance withthe recognition and measurement principles of IFRS as adopted by the EU. Thecomparative data for the year to 31 May 2007 and for the six months to 30November 2006 have been restated and reconciliations are included in note 6 toexplain the changes. These interim financial statements have been prepared under the historical costconvention. The measurement bases and principal accounting policies of the groupare set out below. The group has taken advantage of certain exemptions available under IFRS 1First-time adoption of International Financial Reporting Standards. Theexemptions used are explained under the respective accounting policy. The financial information set out in this interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. TheGroup's statutory financial statements for the year ended 31 May 2007, preparedunder UK GAAP, have been filed with the Registrar of Companies. The auditor'sreport on those financial statements was unqualified and did not contain astatement under Section 237(2) or Section 237(3) of the Companies Act 1985. At the date of this interim statement, the following Standards andInterpretations, which have not been applied during the year were in issue butnot yet effective: IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January2009) IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009) Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentationof Financial Statements - Puttable Financial Instruments and Obligations Arisingon Liquidation (effective 1 January 2009) IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective1 July 2009) Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations(effective 1 January 2009) IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009) IFRS 8 Operating Segments (effective 1 January 2009) IFRIC 12 Service Concession Arrangements (effective 1 January 2008) IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008) IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum FundingRequirements and their Interaction (effective 1 January 2008) The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group except for IAS 1 (revised) and IFRS 8. The amendment toIAS 1 affects the presentation of owner changes in equity and introduces astatement of comprehensive income. Preparers will have the option of presentingitems of income and expense and components of other comprehensive income eitherin a single statement of comprehensive income with subtotals, or in two separatestatements (a separate income statement followed by a statement of othercomprehensive income). This amendment does not affect the financial position orresults of the Group but will give rise to additional disclosures. Management iscurrently assessing the detailed impact of this amendment on the Group'sfinancial statements. IFRS 8 will require the preparer to give additionalsegment disclosures when it comes into effect for periods commencing on or after1 January 2009. Basis of consolidation The group financial statements consolidate those of the company and all of itssubsidiary undertakings drawn up to 30 November 2007. Subsidiaries are entitiesover which the group has the power to control the financial and operatingpolicies so as to obtain benefits from its activities. The group obtains andexercises control through voting rights. Unrealised gains on transactions between the group and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiaries have been adjusted where necessary toensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in thecondensed consolidated balance sheet at their fair values, which are also usedas the bases for subsequent measurement in accordance with the group accountingpolicies. Goodwill is stated after separating out identifiable intangibleassets. Goodwill represents the excess of acquisition cost over the fair valueof the group's share of the identifiable net assets of the acquired subsidiaryat the date of acquisition. Business combinations completed prior to date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectivelyto business combinations prior to 1 June 2006. Accordingly the classification of the combination (acquisition, reverseacquisition or merger) remains unchanged from that used under UK GAAP. Assetsand liabilities are recognised at the date of transition if they would berecognised under IFRS, and are measured using their UK GAAP carrying amountimmediately post-acquisition as deemed cost under IFRS, unless IFRS requiresfair value measurement. Deferred tax and minority interests are adjusted for theimpact of any consequential adjustments after taking advantage of thetransitional provisions. Goodwill Goodwill representing the excess of the cost of an acquisition over the fairvalue of the group's share of the identifiable net assets acquired, iscapitalised and reviewed annually for impairment. Goodwill is carried at costless accumulated impairment losses. Goodwill written off to reserves prior to the date of transition to IFRS remainsin reserves. There is no re-instatement of goodwill that was amortised prior totransition to IFRS. Goodwill previously written off to reserves is not writtenback to profit or loss on subsequent disposal. Revenue Revenue is measured by reference to the fair value of consideration received orreceivable by the group for goods supplied and services provided, excluding VATand trade discounts. Revenue is recognised upon the performance of services ortransfer of risk to the customer. Sale of goods Revenue from the sale of goods is recognised when all the following conditionshave been satisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods which is generally when goods are despatched, completion of the product or the product being ready for delivery, based on specific contract terms. • the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold which is generally when goods are despatched, completion of the product or the product being ready for delivery, based on specific contract terms. • the amount of revenue can be measured reliably • it is probable that the economic benefits associated with the transaction will flow to the group, and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services When the outcome of a transaction involving the rendering of services can beestimated reliably, revenue associated with the transaction is recognised byreference to the stage of completion of the transaction at the balance sheetdate. The outcome of the transaction is deemed to be able to be estimatedreliably when all the following conditions are satisfied: • the amount of revenue can be measured reliably • it is probable that the economic benefits associated with the transaction will flow to the entity • the stage of completion of the transaction at the balance sheet date can be measured reliably and is estimated by reference to when completion of the service or the product being ready for delivery, based on specific contract terms, and • the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Interest Interest is recognised using the effective interest method which calculates theamortised cost of a financial asset and allocates the interest income over therelevant period. The effective interest rate is the rate that exactly discountsestimated future cash receipts through the expected life of the financial assetto the net carrying amount of the financial asset. Dividends Dividends are recognised when the shareholders right to receive payment isestablished. Construction contracts Contract revenue reflects the contract activity during the year and is measuredat the fair value of consideration received or receivable. When the outcome canbe assessed reliably, contract revenue and associated costs are recognised asrevenue and expenses respectively by reference to the stage of completion of thecontract activity at the balance sheet date. The stage of completion of thecontract at the balance sheet date is assessed by reference to the value of thegoods provided to the balance sheet date as a proportion of the total value ofthe contract. Where the outcome of a long term contract cannot be estimated reliably revenueis recognised only to the extent of contract costs incurred where it is probablethat they will be recoverable, and contract costs are recognised as an expensein the period in which they are incurred. In the case of a fixed price contract, the outcome of a construction contract isdeemed to be estimated reliably when all the following conditions are satisfied: • total contract revenue can be measured reliably • it is probable that economic benefits associated with the contract will flow to the group • both the contract costs to complete the contract and the stage of completion at the balance sheet date can be measured reliably, and • the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. The gross amount due from customers for contract work is presented as an assetfor all contracts in progress for which costs incurred plus recognised profits(less recognised losses) exceeds progress billings. The gross amount due tocustomers for contract work is presented as a liability for all contracts inprogress for which progress billings exceed costs incurred plus recognisedprofits (less losses). Full provision is made for losses on all contracts in the year in which the lossis first foreseen. Intangible assets Intangible assets are amortised over the following periods: • Order Book Period of order cover • Customer relationships 10 years Research and development Expenditure on research (or the research phase of an internal project) isrecognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all thefollowing 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 asincurred. The cost of an internally generated intangible asset comprises all directlyattributable costs necessary to create, produce, and prepare the asset to becapable of operating in the manner intended by management. Amortisation commences upon completion of the asset, and is shown withinadministrative expenses. Careful judgement by the directors is applied when deciding whether therecognition requirements for development costs have been met. This is necessaryas the economic success of any product development is uncertain and may besubject to future technical problems at the time of recognition. Judgements arebased on the information available at each balance sheet date. Assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired ina business combination is deemed to have a cost to the group of its fair valueat the acquisition date. The fair value of the intangible asset reflects marketexpectations about the probability that the future economic benefits embodied inthe asset will flow to the group. Where an intangible asset might be separable,but only together with a related tangible or intangible asset, the group ofassets is recognised as a single asset separately from goodwill where theindividual fair values of the assets in the group are not reliably measurable.Where the individual fair value of the complementary assets are reliablymeasurable, the group recognises them as a single asset provided the individualassets have similar useful lives. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and anyprovision for impairment. Assets held under finance leases are depreciated overtheir expected useful lives on the same basis as owned assets or, where shorter,over the term of the relevant lease. Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. The gain or loss arising from thesale is included in "other income" or "other expense" in the income statement. Depreciation Depreciation is calculated to write down the cost less estimated residual valueof all property, plant and equipment other than freehold land by equal annualinstalments over their estimated useful economic lives. The rates/periodsgenerally applicable are: Freehold properties 2%Leasehold properties Period of leasePlant and machinery 6.7 - 20%Fixtures, fittings and 12.5%toolsMotor vehicles 25%Computer equipment 33% Material residual value estimates are updated as required, but at leastannually. Impairment testing of goodwill, other intangible assets and property, plant andequipment For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). Goodwill is allocated to those cash-generating units that are expectedto benefit from synergies of the related business combination and represent thelowest level within the group at which management monitors the related cashflows. Goodwill, other individual assets or cash-generating units that includegoodwill, other intangible assets with an indefinite useful life, and thoseintangible assets not yet available for use are tested for impairment at leastannually. All other individual assets or cash-generating units are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Leased assets In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of thecapital balance outstanding and is charged to the income statement over theperiod of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over the leaseterm. Lease incentives are spread over the term of the lease. Inventories Inventories are stated at the lower of cost and net realisable value. Costs ofordinarily interchangeable items are assigned using the first in, first out costformula. Cost includes materials, direct labour and an attributable proportionof manufacturing overheads based on normal levels of activity. 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 temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries is not provided ifreversal of these temporary differences can be controlled by the group and it isprobable that reversal will not occur in the foreseeable future. In addition,tax losses available to be carried forward as well as other income tax creditsto the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity in which case the related deferred tax isalso charged or credited directly to equity. Financial assets Financial assets include cash and trade and other receivables. All financial assets are recognised when the group becomes a party to thecontractual provisions of the instrument. Financial assets are recognised atfair value plus transaction costs Provision against trade receivables is made when there is objective evidencethat the group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets andare recognised when the group becomes a party to the contractual provisions ofthe instrument. Financial liabilities are recorded initially at fair value, netof direct issue costs. Financial liabilities are subsequently recorded at amortised cost using theeffective interest method, with interest-related charges recognised as anexpense in finance cost in the income statement. Finance charges, includingpremiums payable on settlement or redemption and direct issue costs, are chargedto the income statement on an accruals basis using the effective interest methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits held at call withbanks and bank overdrafts. Bank overdrafts are shown within borrowings incurrent liabilities on the balance sheet. Dividends Dividend distributions payable to equity shareholders are included in "othershort term financial liabilities" when the dividends are approved in generalmeeting prior to the balance sheet date. Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Non-monetary items that are measured at historical cost in a foreigncurrency are translated at the exchange rate at the date of the transaction.Non-monetary items that are measured at fair value in a foreign currency aretranslated using the exchange rates at the date when the fair value wasdetermined. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the income statement in the period in whichthey arise. Exchange differences on non-monetary items are recognised in thestatement of recognised income and expenses to the extent that they relate to again or loss on that non-monetary item taken to the statement of recognisedincome and expenses, otherwise such gains and losses are recognised in theincome statement. The assets and liabilities in the financial statements of foreign subsidiariesand related goodwill are translated at the rate of exchange ruling at thebalance sheet date. Income and expenses are translated at the average rate. Theexchange differences arising from the retranslation of the opening netinvestment in subsidiaries are taken directly to the "Translation reserve" inequity. On disposal of a foreign operation the cumulative translationdifferences (including, if applicable, gains and losses on related hedges) aretransferred to the income statement as part of the gain or loss on disposal. The group has taken advantage of the exemption in IFRS 1 and has deemedcumulative translation differences for all foreign operations to be nil at thedate of transition to IFRS. The gain or loss on disposal of these operationsexcludes translation differences that arose before the date of transition toIFRS and includes later translation differences. Employee benefits Defined Contribution Pension Scheme The pension costs charged against profits are the contributions payable to thescheme in respect of the accounting period. Share-based payment Equity settled share-based payment All share-based payment arrangements granted after 7 November 2002 arerecognised in the financial statements. All goods and services received inexchange for the grant of any share-based payment are measured at their fairvalues. Where employees are rewarded using share-based payments, the fair valuesof employees' services are determined indirectly by reference to the fair valueof the instrument granted to the employee. This fair value is appraised at thegrant date and excludes the impact of non-market vesting conditions (forexample, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expensein the income statement with a corresponding credit to "retained earnings". If vesting periods or other non-market vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate of thenumber of share options expected to vest. Estimates are subsequently revised ifthere is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options ultimately exercised are differentto that estimated on vesting. Upon exercise of share options the proceeds received net of attributabletransaction costs are credited to share capital, and where appropriate sharepremium. Government grants Government grants in respect of capital expenditure are credited to a deferredincome account and are released to the income statement by equal annualinstalments over the expected useful lives of the relevant assets. Government grants in respect of assistance of a revenue nature are credited tothe income statement in the same period as the related expenditure. 2. Segment reporting Avingtrans plc operates three main business segments: •Aerospace - manufacture of rigid pipe assemblies and prismatic components for aero engines and precision polishing of aircraft components •Medical and Research - Manufacture of machined and fabricated vacuum components for diagnostic imagery, science and research communities. Design and manufacture fabricated poles and cabinets for roadside safety cameras and rail track signalling. •Industrial Products - Design, manufacture, distribution and service of precision ballscrews, spindles and related linear and rotary products servicing the original equipment and after markets in global industry The revenues and net result generated by each of Avingtrans plc's businesssegments are summarised as follows: 6 months to 30 November 2007 Medical and Industrial Aerospace Research Products Consolidation Group £'000 £'000 £'000 £'000 £'000 Revenue 6,005 11,365 3,767 21,137 Operating 162 806 402 (163) 1,207profitFinance income 5Finance costs (414) Profit before 798taxTax (196) Profit after 602tax 6 months to 30 November 2006 Medical and Industrial Aerospace Research Products Consolidation Group £'000 £'000 £'000 £'000 £'000 Revenue 3,911 9,865 3,383 17,159 Operating(loss)/ profit (2,037) 708 351 (79) (1,057)Finance income 8Finance costs (230) Loss before tax (1,279)Tax 493 Loss after tax (786) Year to 31 May 2007 Medical and Industrial Aerospace Research Products Consolidation Group £'000 £'000 £'000 £'000 £'000 Revenue 10,305 22,985 6,736 40,026 Operating(loss)/ profit (1,705) 2,261 570 (232) 894Finance income 16Finance costs (681) Profit before 229taxTax (70) Profit after 159tax 3.Earnings per share Basic earnings per share is based on the earnings attributable to ordinaryshareholders and the weighted average number of ordinary shares in issue duringthe year. For diluted earnings per share the weighted average number of ordinary shares isadjusted to assume conversion of all dilutive potential ordinary shares, beingthe warrants and EMI share options. 6 months 6 months to 30 to 30 November 2007 November 2006 Year to No No 31 May 2007 No Weighted average number of shares - 17,579,184 16,154,181 16,805,321basicWarrant/ Share Option adjustment 249,435 470,544 545,151 Weighted average number of shares - 17,828,619 16,624,725 17,350,472diluted £'000 £'000 £'000 Earnings/(loss) attributable to 602 (786) 159shareholdersShare based payments 20 29 67Amortisation of intangibles 128 245 337Impairment of intangibles - 2,654 2,654 Adjusted earnings attributable to 750 2,142 3,217shareholders Basic earnings/(loss) per share 3.4p (4.9)p 0.9pAdjusted basic earnings per share 4.3p 13.3p 19.1pDiluted earnings/(loss) per share 3.4p (4.9)p 0.9pAdjusted diluted earnings per share 4.2p 12.9p 18.5p The Directors believe that the above adjusted earnings per share calculation isa more appropriate reflection of the Group performance. Owing to loss reportedin the 6 months ended 30 November 2006 and the year ended 31 May 2007 the shareoptions and warrants are not dilutive. 4. Business Combinations Fair value adjustments of £370,000 primarily relating to contractual lossesarising on onerous contracts committed prior to acquisition have been made inthe period, resulting in a increase in Goodwill of £370,000. 5. Analysis of Net Debt Other non-cash 30 1 June changes Exchange November 2007 Cash flow movements 2007 £'000 £'000 £'000 £'000 £'000 Cash at bank andin hand 1,216 (233) - 75 1,058Bank overdrafts (2,518) (1,270) - (9) (3,797) (1,302) (1,503) - 66 (2,739) Bank loans (6,553) 629 (28) - (5,952)Hire purchaseand financeleases (2,651) 423 (239) (22) (2,489) (9,204) 1,052 (267) (22) (8,441) Net debt (10,506) (451) (267) 44 (11,180) 6. Reconciliation of equity and profit under UK GAAP to IFRS Avingtrans PLC reported under UK GAAP in its previously published financialstatements for the year ended 31 May 2007. The analysis below shows areconciliation of equity and profit as reported under UK GAAP as at 31 May 2007to the revised equity and profit under IFRS as reported in these financialstatements. In addition, there is a reconciliation of equity under UK GAAP toIFRS at the transition date for the Group, being 1 June 2006. Reconciliation of consolidated equity at 1 June 2006 (date of transition toIFRS) (a) (b) (c) IAS 21 IFRS 3 IAS 12 Foreign UK Business Income Exchange Reclass- GAAP combinations taxes Rates ifications IFRS £000 £000 £000 £000 £000 £000 Non-current assets Goodwill 6,768 6,768Other 9 9intangible assets Property, 6,203 6,203plant and equipment Investments 15 15 12,995 12,995Current assets Inventories 3,190 3,190Trade and 4,931 4,931other receivables Cash and cash 1,398 1,398equivalents 9,519 9,519Current liabilities Trade and (4,800) (4,800)other payables Obligations (553) (553)under finance leases Borrowings (802) (802)Current tax (129) (129)liabilities (6,284) (6,284)Non-current liabilities Borrowings (2,222) (2,222)Obligations (1,112) (1,112)under finance leases Deferred tax (240) (272) (512)Other - -non-current liabilities (3,574) (272) (3,846)Net assets 12,656 (272) 12,384 Shareholders' equity Share capital 771 771Share premium 4310 4,310account Capital 813 813redemption reserve Merger - -reserve Translation 2 (2) -reserve Other 180 180reserves Retained 6,580 (272) 2 6,310earnings Reconciliation of consolidated profit for six months ended 30 November 2006 (a) (b) (c) IAS 21 IFRS 3 IAS 12 Foreign UK Business Income Exchange Reclass- GAAP combinations taxes Rates ifications IFRS £000 £000 £000 £000 £000 £000 Revenue 17,159 17,159Cost of sales (12,846) (12,846)Gross profit 4,313 4,313Distribution costs (371) (371)Administrative (2,437) 324 13 29 (2,071)expenses Share based - (29) (29)remuneration Amortisation of - (245) (245)intangibles Impairment of - (2,654) (2,654)Intangible Operating profit 1,505 (2,575) 13 - (1,057)Finance income 8 8Finance costs (230) (230)Profit before 1,283 (2,575) 13 - (1,279)taxation Taxation (382) 875 493Profit/(loss) 901 (2,575) 875 13 - (786) attributable to equity shareholders Reconciliation of consolidated equity at 30 November 2006 (a) (b) (c) IAS 21 IFRS 3 IAS 12 Foreign UK Business Income Exchange Reclass- GAAP combinations taxes Rates ifications IFRS £000 £000 £000 £000 £000 £000 Non-current assets Goodwill 12,697 (3,922) 1,451 10,226Other 96 1,347 8 1,451intangible assets Property, 10,568 (8) 10,560plant and equipment Investments 15 15 23,376 (2,575) 1,451 - 22,252Current assets Inventories 4,972 4,972Trade and 8,310 8,310other receivables Cash and cash 580 580equivalents 13,862 13,862Current liabilities Trade and (8,376) (8,376)other payables Obligations (789) (789)under finance leases Borrowings (3,302) (3,302)Current tax (277) (277)liabilities (12,744) (12,744)Non-current liabilities Borrowings (5,963) (5,963)Obligations (1,711) (1,711)under finance leases Deferred tax (272) (848) (1,120)Other (750) (750)non-current liabilities (8,696) (848) (9,544)Net assets 15,798 (2,575) 603 13,826 Shareholders' equity Share capital 866 866Share premium 6,140 6,140account Capital 813 813redemption reserve Merger 402 402reserve Translation (35) (13) (2) (50)reserve Other 180 180reserves Retained 7,432 (2,575) 603 13 2 5,475earnings UK GAAP Non- current assets and current liabilities in respect of the balancesheet at 31 May 2007 have been adjusted by £0.4 million to reflect adjustmentsfurther fair value adjustments made at 30 November 2007. Explanation of reconciling items between UK GAAP and IFRS The standards and interpretations giving rise to the most significant changes tothe previously reported profit of the Group and equity of the Group and companyare: (a) IFRS 3 - Business combinations IFRS 3 requires goodwill to be capitalised and subjected to an annual impairmenttest rather than amortised by way of equal annual charges as required by UKGAAP. The standard also requires separable, identifiable, intangible assetsarising on acquisition to be capitalised at fair value and amortised over theirestimated useful economic lives. The Group acquired B&D Patterns on 21 September 2006. Under IFRS intangibles of£4,245,000 were recognised, including £4,026,000 for customer relationships.Immediately after acquisition it became apparent that these relationships andcontracts were significantly impaired resulting in a write off of £2,654,000 tothe Income Statement. The balance of the customer relationship intangible iswritten off over a 10 year period. Goodwill of £558,000 in the year to 31 May 07 (6 months £324,000) was amortisedunder UK GAAP. Under IFRS goodwill is not amortised but is tested annually forimpairment and hence the goodwill recognised under UK GAAP has been written backto the Income Statement (b) IAS 12 Income Taxes IAS 12 takes a balance sheet approach to deferred tax whereby deferred tax isrecognised by applying the appropriate tax rate to the temporary differencesarising between the carrying values of assets and liabilities and their taxbase. This contrasts with UK GAAP, which considers timing differences arising inthe income statement. (c) IAS 21 The Effects of Changes in Foreign Exchange Rates The Group has taken advantage of the exemption available in IFRS 1 and set tozero the cumulative translation differences arising on the translation of allforeign operations at 1 June 2006. Subsequent translation differences have beenclassified as a separate component of equity in accordance with IAS 21. Foreign exchange differences on an Intercompany loan which offset the movementon translation of foreign operations previously treated as hedging have beencredited/expensed to the Income Statement. Reclassifications Computer software costs previously capitalised as tangible fixed assets havebeen reclassified as intangible assets. The computer software costs primarilyrelate to purchased software packages. Cash flows Income taxes presented as a separate category of cash flows under UK GAAP havebeen included in operating cash flows under IFRS. Dividends presented as aseparate category under UK GAAP have been including in financing cash flowsunder IFRS. There are no other significant adjustments to the cash flowspresented under IFRS. This information is provided by RNS The company news service from the London Stock Exchange