10 Sep 2007 07:00
INTERIM RESULTS For the six months to 30 June 2007 Brady plc (the "Company" or the "Group"), the international supplier of riskmanagement software solutions for commodity trading and supply chainmanagement, announces its interim results for the six months to 30 June 2007.Financial Summary: (Unaudited) (Unaudited) (Unaudited) 6 months to 6 months to Year to 30 June 30 June 31 December 2007 2006 2006 (as restated) (as restated) ‚£'000 ‚£'000 ‚£'000 Sales revenue 2,548 1,719 4,636
Profit / (loss) for the period 144 (277)
638before taxation Cash and cash equivalents 5,636 3,920 4,917
Basic earnings per share (pence) 0.38 (0.95)
1.76
Diluted earnings per share (pence) 0.35 (0.95)
1.76
Highlights:
* Sales revenue at ‚£2,548,000 increased 48% over the 30 June 2006 level of ‚£
1,719,000 * Two new Trinity licence agreements signed in the first half of 2007 and three clients have either reached project acceptance or gone live
* Profit for the period before taxation at ‚£144,000 compared to a restated
loss of ‚£277,000 for the first half of 2006, an increase of ‚£421,000
* Profitability in the second half of 2006 continued into the first half of
2007 * ‚£5.6 million of cash resources at 30 June 2007 and ‚£6.1 million at 31 August 2007
* Board enhanced with new Chairman, Non-Executive Director, Chief Executive
Officer and Finance Director
* Substantial market opportunity although delay in signing new licence deals
in 2007 * Group is re-organising internal resources to ensure sustained revenue growth. 2008 will be a year of building with payback in late 2008 and beyond
For further information please contact:
Brady plc Telephone: +44(0)1223 479479 Gavin Lavelle, Chief Executive Officer Tony Ratcliffe, Finance Director
Oriel Securities Limited Telephone: +44 (0)20 7710 7600 Andrew Edwards CHAIRMAN'S STATEMENTBrady is focused on providing solutions that allow its clients to manage risk,streamline operations and meet regulatory requirements within the commoditiessectors. The Trinity and Opval products are capable of meeting these customerneeds and of providing the Group with significant medium and long-term growthin sales revenues and profitability.
I am pleased to provide a summary of recent Board changes, the financial results for the first half of 2007 and to provide a more detailed outlook for 2007 and 2008:
Board Changes
I am delighted to report that the Company has been able to announce a number of Board changes in recent months:
Gavin Lavelle has just joined as Chief Executive Officer, bringing over 25 years of experience in the international financial software and banking industry, most recently with SunGard.
Tony Ratcliffe joined as Finance Director in May, with a wealth of experiencegained in building and realising value in high growth technology companies insoftware and other sectors.
As Non-Executive Directors, Peter Harverson joined as senior independent Non-Executive Director in January and I joined as Chairman in July. On my appointment, I invested ‚£0.6 million in the Company through the issue of 1,000,000 shares at 60p per share.
The Group's founder, Robert Brady, continues to serve the Group as Chief Technology Officer.
The Board is convinced that the recruitment of this new team brings the skillsthat will be required to take the Group to the next stage, re-aligning it tofulfil its potential and achieve sustained growth in sales revenues andprofits.
Financial Results
The first half of 2007 has seen strong trading. The key performance indicatorsused by the Board to monitor the financial performance of the Group includerevenue, profit and cash generation. I am able to report positive performancein all three of these indicators in the first half of 2007.Group revenues for the six months to 30 June 2007 increased to ‚£2.5 millionfrom ‚£1.7 million for the six months to 30 June 2006, an increase of 48%.Within the total, ‚£0.7 million (28% of total revenue) was recurring supportrevenue, compared to ‚£0.6 million (37% of total revenue) for the same period in2006. ‚£0.8 million (32% of total revenue) was for licence sales, compared to ‚£0.5 million (31% of total revenue) for the same period in 2006. This aroseprimarily from the acceptance of two Trinity projects that were signed in 2006- with Prudential Bache, a global financial organisation based in New York andwith Mitsubishi, a leading trading house in New York, for its precious metalsoptions. In addition, Aleris, a global leader in aluminium products, recyclingand alloy production based in Cleveland, US, went live with Trinity for basemetals during the period.Gross profit for the six months to 30 June 2007 increased to ‚£1.2 million from‚£0.9 million for the six months to 30 June 2006, at a consistent gross marginlevel of 49%.Overall profitability in the second half of 2006 has continued into the firsthalf of 2007, with a profit before taxation of ‚£144,000 compared to a restatedloss before taxation of ‚£277,000 for the same period in 2006. Profit aftertaxation was ‚£101,000, compared to a restated loss after taxation of ‚£246,000for the same period in 2006. Profit before taxation, adjusted for impairment ofgoodwill, was ‚£215,000 compared to a restated loss before taxation of ‚£134,000for the same period in 2006.
The effective tax rate of 30% for the period compared to an effective tax rate of 28% for the full year 2006.
Basic earnings per share have increased to 0.38 pence from a restated loss per share of 0.95 pence in the same period of 2006.
The Group's cash balances at 30 June were ‚£5.6 million compared to ‚£3.9 millionat 30 June 2006 and ‚£4.9 million at 31 December 2006. Cash balances at 31August had increased to ‚£6.1 million, primarily as a result of a Placing ofordinary shares raising ‚£0.6 million in July 2007.Group cash inflows from operating activities increased to ‚£0.9 million comparedto ‚£0.3 million for the first half of 2006 and ‚£1.2 million for the full year2006. The Group is committed to retaining a strong balance sheet and willcontinue to keep a tight control over cash resources.
2007 Outlook
The Group anticipates completing a number of further Trinity implementations in the second half of 2007 and the revenue associated with these and other activities provides confidence in meeting expectations for 2007 revenue.
The Board anticipates achieving a higher gross margin level in the second halfof 2007 compared to the first half of 2007, reflecting a higher proportion offorecasted revenue attributable to licences. The Board anticipates an overallgross margin level for 2007 broadly similar to the level achieved in 2006.Although the Board will continue to tightly manage its expense base, it isaware that the costs associated with recruiting a new Board and additional teammembers were not fully anticipated in external expectations of 2007 expenses.This will therefore adversely impact on profits for the full year. The Companyis also in the process of re-organising its internal resources to aggressivelyfocus its efforts towards sales order and revenue generation whilst maintainingits strong cash position during this period of change. As a result, the Boardanticipates that overall profitability for 2007 will be substantially belowexternal expectations.
2008 Outlook
The metal markets have remained very firm through the first half of 2007.Global growth, driven by expansion in China and India in particular, hasincreased demand for metals and commodities. For the banks, brokers and hedgefunds this is producing record volumes and very profitable trading conditions.Producers are publishing exceptionally strong trading results, whilst strongdemand also benefited the fabricators, although this sector had to cope withhigher raw material costs.
The Board foresees that these positive market conditions will continue and interest remains strong in the Group's product offerings.
The Board is confident that a number of prospects within the Group's pipelinewill move towards close in the coming months. However, following the success insigning seven contracts with Trinity clients in 2006, the Group is disappointedto have signed only two Trinity contracts so far in 2007, which is below theBoard's expectation. This has been caused partly by a delay in recruiting thenew senior team and establishing a full strength commercial team and partly asa result of the Group's heavy focus on delivering the significant levels ofbusiness it secured in 2006, at the expense of seeking new deals. Due to thelong lead times associated with Trinity implementations and Brady'sconservative accounting policy, the impact of this delay is expected to be seenin 2008 revenues rather than those for 2007. The Group sees limited opportunityto recognise significant licence revenues until the second half of 2008, otherthan from smaller value Opval deals or additional Trinity licences sold toexisting customers. The Group plans to mitigate this effect as far as possiblewith a focus on generating greater service revenues, particularly from existingclients.
As a consequence of these factors, the Group anticipates delivering a broadly similar level of revenue for 2008 compared to 2007.
The Group recognises the requirement to continue to build its routes to marketin order to facilitate success in closing licence deals and maximising revenueswithin the key European and US territories. The Board strongly believes thatthis strategic investment is in the best interests of all shareholders andstakeholders. The coming year 2008 is considered to be a year of commercialre-structuring and building, with healthy payback anticipated to commence inlate 2008 and beyond with enhanced levels of deal bookings and ultimatelyrevenue recognition.
Conclusion
The new team, in conjunction with the full Board, has undertaken a thoroughreview of the market opportunity and the Group's strategic and operationalplans. I can confirm that, whilst the shorter-term outlook may appeardisappointing, the Board continues to see a substantial and attractive marketopportunity, with the Company being well positioned to capitalise on itsleading position within the metals and mining sector. It has a strong productoffering, a solid balance sheet and has built a quality customer base andexcellent reputation over the years. The new team is excited by the challengeof aggressively seeking and securing new customer opportunities to add to theexisting client base, and in delivering attractive organic revenue growthrates. In addition, the Group expects, over time, to become an initiator in thetrend to consolidate that is currently being witnessed in the sector.Complementary acquisitions will be identified that further enhance the Group'sposition in the marketplace and build its critical mass by strengthening itsportfolio of offerings and target customers within a number of vertical marketsand sectors.
The Board does not recommend the payment of an interim dividend.
Paul FullagarChairman
Consolidated interim income statement
For the six months ended 30 June 2007 Six months Six months Year ended 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (unaudited) (as restated)(as restated) Notes ‚£'000 ‚£'000 ‚£'000 Sales revenue 4 2,548 1,719 4,636 Cost of sales (1,300) (865) (1,894) Gross profit 1,248 854 2,742 Selling and administrative (1,245) (1,202) (2,273)expenses Operating result 3 (348) 469 Finance income 141 71 169 Result for the period before 144 (277) 638taxation Tax expense, net (43) 31 (180) Net result for the period 101 (246) 458
Attributable to shareholders of 101 (246)
458Brady plc Earnings per share (pence) 6 Basic 0.38 (0.95) 1.76 Diluted 0.35 (0.95) 1.76
Consolidated interim balance sheet
30 June 2007 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (unaudited) (as restated)(as restated) ‚£'000 ‚£'000 ‚£'000 Assets Non-current assets Goodwill 243 458 314 Other intangible assets 15 15 15
Plant, property and equipment 154 112
139 412 585 468 Current assets Trade and other receivables 1,358 1,719 2,401 Cash and cash equivalents 5,636 3,920 4,917 Total 6,994 5,639 7,318 Total assets 7,406 6,224 7,786 Equity Share capital 263 261 262 Share premium account 3,154 3,086 3,121 Merger Reserve 680 680 680 Equity reserve 183 94 161 Capital reserve 1 1 1 Retained earnings 1,062 519 1,223 Total Equity 5,343 4,641 5,448 Liabilities Non-current Provision for liabilities - 3 - Current Trade and other payables 1,600 1,460 2,031 Current tax payable 463 120 307 2,063 1,580 2,338 Total liabilities 2,063 1,583 2,338 Total equity and liabilities 7,406 6,224 7,786
Consolidated interim statement of changes in equity
30 June 2007
Equity attributable to equity holders of Brady plc:
Share Share Merger Equity Capital Retained Total capital premium reserve reserve reserve earnings equity account ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Balance at 1 January 2006 260 3,062 680 70 1 765 4,838
Increase in equity reserve in - - - 24 -
- 24relation to options issued
Allotment of shares following 1 24 - - -
- 25exercise of share options Loss for the six month period - - - - - (246) (246) Balance at 30 June 2006 261 3,086 680 94 1 519 4,641
Increase in equity reserve in - - - 67 -
- 67relation to options issued
Allotment of shares following 1 35 - - -
- 36exercise of share options Profit for the six month - - - - - 704 704period Balance at 31 December 2006 262 3,121 680 161 1 1,223 5,448
Increase in equity reserve in - - - 22 -
- 22relation to options issued
Allotment of shares following 1 33 - - -
- 34exercise of share options Profit for the six month - - - - - 101 101period Dividends - - - - - (262) (262) Balance at 30 June 2007 263 3,154 680 183 1 1,062 5,343
Consolidated interim cash flow statement
For the six months ended 30 June 2007 Six months Six months Year ended 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (unaudited) (as restated)(as restated) ‚£'000 ‚£'000 ‚£'000 Operating activities
Results for the period after tax 101 (246)
458
Depreciation of plant, property 46 40
80and equipment
Impairment charges of intangible 71 144
287assets Interest receivable (141) (71) (169) Employee equity settled share 22 24 91options Changes in trade and other 929 (746) (1,132)receivables Change in trade and other payables (275) 800 1,251 Taxes refunded 115 317 327 868 262 1,193 Investing activities Additions to property, plant and (62) (43) (110)equipment Interest received 141 71 169 79 28 59 Financing activities Proceeds from share issues 34 25 60 Dividends paid (262) - - Net changes in cash and cash 719 315 1,312equivalents Cash and cash equivalents, 4,917 3,605 3,605beginning of period Cash and cash equivalents, end of 5,636 3,920 4,917period Selected explanatory notes
1. Nature of operations and general information
Brady plc and its subsidiaries' principal activity is the provision of IT services and solutions including software, consultancy, support and supply of operational and risk management software.
The Group provides the leading trading and risk management software for globalcommodity markets. On a single platform, Trinity provides a complete integratedsolution supporting entire commodities trading operations.Brady plc, a limited liability company, is the Group's ultimate parent company.It is registered in England and Wales. The address of Brady plc's registeredoffice, which is also its principal place of business, is 281 Cambridge SciencePark, Milton Road, Cambridge, CB4 0WE. Brady plc's shares are listed on theLondon Stock Exchange's Alternative Investment Market (AIM).These condensed consolidated interim financial statements have been preparedusing the recognition and measurement principles of International FinancialReporting Standards ("IFRS") as adopted by the European Union and as issued bythe International Accounting Standards Board, and in accordance with IAS34Interim Financial Reporting and the requirements of IFRS1 First-time Adoptionof International Financial Reporting Standards applicable to Interim FinancialStatements. They do not include all of the information required for full annualfinancial statements and should be read in conjunction with the consolidatedfinancial statements of the Group as at and for the year ended 31 December2006.
Brady plc's consolidated interim financial statements are presented in British pounds (‚£), which is also the functional currency of the ultimate parent company.
2. Accounting policies and changes thereto
Basis of preparation
The financial statements have been prepared under the historical costconvention except where they have been modified to include the revaluation ofcertain assets and liabilities. The measurement bases and principal accountingpolicies for the Group are set out below:
Basis of consolidation
The Group financial statements consolidate those of the Company and of its subsidiary undertakings at the balance sheet date. Subsidiary undertakings are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from the activities. The Group obtains and exercises control through voting rights.
Profits or losses on intra-Group transactions are eliminated in full.Acquisitions of subsidiaries are dealt with by the purchase method. Onacquisition of a subsidiary, all of the subsidiary's assets and liabilitieswhich exist at the date of acquisition are recorded at their fair valuesreflecting their condition at that date. Goodwill is stated after separatingout identifiable intangible assets. Goodwill represents the excess ofacquisition cost over the fair value of the group's share of the identifiablenet assets of the acquired subsidiary at the date of acquisition.
Business combinations completed prior to date of transition to IFRS
The Group has elected not to apply IFRS3 Business Combinations retrospectivelyto business combinations prior to the date of transition, 1 January 2006.Accordingly the classification of the combination remains unchanged from thatused under UK GAAP. Assets and liabilities are recognised at the date oftransition as they would be recognised under IFRS, and are measured using theirUK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS,unless IFRS requires fair value measurement.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the identifiable net assets acquired and is capitalised.
Goodwill is subject to annual impairment testing. The recoverable amount istested annually or when events or changes in circumstances indicate that it maybe impaired. The recoverable amount is the higher of the fair value less costsand the value in use in the Group. An impairment loss is recognised to theextent that the carrying value exceeds the recoverable amount. In determining avalue in use, estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the goodwill that have notalready been included in the estimate of future cash flows.Goodwill previously written-off under UK GAAP prior to the adoption of IFRS forthe restated balance sheet of 1 January 2006 has not been reinstated. Goodwillpreviously written off to reserves is not written back to profit or loss onsubsequent disposal.
Revenue
Revenue comprises the value of sales (excluding trade discounts and VAT) of goods and services in the normal course of business. The Company has four sources of revenue and the policy on revenue recognition of each is as follows:
* Licence fee revenues are recognised on practical acceptance of the
software, when all obligations have been substantially completed;
* Consulting and professional service fee revenues are recognised as the work
is performed;
* Maintenance and rental income are recognised over the period to which it
relates; and
* Where revenue arises from customer-specific software development, or where
specific customisation or modification of the software is required, then
revenue is recognised as the contract progresses in accordance with
satisfying the remaining obligations on the project for the specific
customer.
If applicable, full provision is made for losses on all contracts in the year in which the loss is first foreseen.
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 value of the financial asset.
Dividends
Dividends are recognised when the shareholders' right to receive payment is established.
Research and Development
Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period to which it is incurred.
Development costs incurred are capitalised only when all the following conditions are satisfied:
* Completion of the intangible asset is technically feasible; * The Group intends to complete the intangible asset and use or sell it;
* 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 as incurred. To date, no development expenditure has been capitalised.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of depreciation and anyprovision for impairment, if applicable. Depreciation is calculated to writeoff the cost of all property, plant and equipment by equal instalments overtheir expected useful economic lives. The rates generally applicable are:Improvements to property 25% on cost Computer equipment 33% on cost Computer software 33% on cost Fixtures and fittings 25% on cost
Material residual value estimates are updated as required, but at least annually, whether or not the asset is revalued.
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 isa business combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries and joint venturesis not provided if reversal of these temporary differences can be controlled bythe Group and it is probable that reversal will not occur in the foreseeablefuture. In addition, tax losses available to be carried forward as well asother income tax credits to the Group are assessed for recognition as deferredtax assets.Deferred tax liabilities are provided in full, with no discounting. Deferredtax assets 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 (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity.
Financial Assets
Financial assets are divided into the following categories: loans and receivables; financial assets at fair value through profit or loss; available-for-sale financial assets; and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.
All financial assets are recognised when the Group becomes a party to thecontractual provisions of the instrument. Financial assets other than thosecategorised as at fair value through profit or loss are recognised at fairvalue plus transaction costs. Financial assets are categorised as at fair valuethrough profit or loss are recognised initially at fair value with transactioncosts expensed through the income statement.Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. Tradereceivables are classified as loans and receivables. Loans and receivables aremeasured subsequent to initial recognition at amortised cost using theeffective interest method, less provision for impairment. Any change in theirvalue through impairment or reversal of impairment is recognised in the incomestatement.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 thepresent value of estimated future cash flows.
An assessment for impairment is undertaken at least at each balance sheet date.
A financial asset is de-recognised only when the contractual rights to the cashflows from the asset expire or the financial asset is transferred and thattransfer qualifies for de-recognition. A financial asset is transferred if thecontractual rights to receive the cash flows of the asset have been transferredor the Group retains the contractual rights to receive the cash flows of theasset but assumes a contractual obligation to pay the cash flows to one or morerecipients. A financial asset that is transferred qualifies for de-recognitionif the Group transfers substantially all the risks and rewards of ownership ofthe asset, or if the Group neither retains nor transfers substantially all therisks and rewards of ownership but does transfer control of that asset.
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 categorised as at fair value throughprofit or loss are recorded initially at fair value, all transaction costs arerecognised immediately in the income statement. All other financial liabilitiesare recorded initially at fair value, net of direct issue costs.Financial liabilities categorised as at fair value through profit or loss aremeasured at each reporting date at fair value, with changes in fair value beingrecognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to thecarrying amount of the instrument to the extent that they are not settled inthe period in which they arise.
A financial liability is de-recognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires.
Foreign Currencies
Transactions in foreign currencies are translated at the exchange rate rulingat the date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. All exchange differences are dealt with through the income statement.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.
Employee Benefits
Defined contribution pension scheme: The pension cost charged against operatingprofits is the contributions payable to the scheme in respect of the accountingperiod.
Short-term employee benefits, including holiday entitlement are included in current pension and other employee obligations at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.
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 Group has no suchleases. All other leases are regarded as operating leases and the payments madeunder them are charged to the income statement on a straight-line basis overthe lease term. Lease incentives are spread over the term of the lease.
Share options
The Company operates a number of employee share schemes under which it makesequity-settled share-based payments to certain employees. For share-basedpayments to employees of the Company, the fair value is determined at the grantdate using the binomial method, and is expensed on a straight-line basistogether with a corresponding increase in equity over the vesting period, basedon the Group's estimate of the number of shares that will vest.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value.Financial instrumentsFinancial assets are recognised in the balance sheet at the lower of cost andnet realisable value. Income and expenditure arising on financial instrumentsis recognised on an accruals basis and credited or charged to the profit andloss account in the financial period to which it relates.
Equity
Equity comprises the following:
* "Share capital" represents the nominal value of equity shares;
* "Share premium account" represents the excess over nominal value of the
fair value of consideration received for equity shares, net of expenses of
the share issue;
* "Merger reserve" represents the merger reserve set up in relation to the
accounting for the aquisition of Colpan Systems Limited in 2004 that was
present under UK GAAP and frozen on transition to IFRS;
* "Capital reserve" represents the capital reserve set up to account for
shares redeemed or purchased wholly out of distributable profits that was
present under UK GAAP and frozen on transition to IFRS;
* "Equity reserve" represents the reserve in relation to share options issued
but not yet exercised; and
* "Retained earnings" represents retained profits.
Changes in accounting policies:
IFRS1 First-time Adoption of International Financial Reporting Standards setsout the procedures that the Group must follow when it adopts IFRS for the firsttime as the basis for preparing its financial statements. The Group is requiredto establish its IFRS accounting policies as at 31 December 2007 and, ingeneral, apply these retrospectively to determine the IFRS opening balancesheet at its date of transition, 1 January 2006. The principal changes inaccounting policies are:
IFRS3 Business Combinations requires that goodwill is subject to annual impairment reviews rather than amortisation.
IAS19 Employee benefits requires the recording of holiday pay accruals.
The net effect in the income statements for the period under review may besummarised as follows: Six months Year ended 30 June 2006 31 Dec 2006 (unaudited) (unaudited) ‚£'000 ‚£'000 Selling and administrative expenses: Under UK GAAP 1,119 2,106 Elimination of amortisation of (64) (127)goodwill IAS36 Impairment of assets 143 286 IAS19 Employee benefits 4 8 Restated under IFRS 1,202 2,273 Six months Year ended 30 June 2006 31 Dec 2006 (unaudited) (unaudited) ‚£'000 ‚£'000 Net result for the period: Under UK GAAP (163) 625 Elimination of amortisation of 64 127goodwill IAS36 Impairment of assets (143) (286) IAS19 Employee benefits (4) (8) Restated under IFRS (246) 458The net effect on the opening balance sheet as at 1 January 2006 may besummarised as follows: Under UK IAS36 IAS19 Restated GAAP Impairment Employee under IFRS (audited) of assets benefits (unaudited) ‚£'000 ‚£'000 ‚£'000 ‚£'000 Assets Non-current Goodwill 939 (338) - 601 Other intangible assets 15 - - 15
Plant, property and equipment 109 - -
109 1,063 (338) - 725 Current Trade and other receivables 1,290 - - 1,290 Cash and cash equivalents 3,605 - - 3,605 4,895 - - 4,895 Total assets 5,958 (338) - 5,620 Equity Share capital 260 - - 260 Share premium account 3,062 - - 3,062 Merger Reserve 680 - - 680 Equity reserve 70 - - 70 Capital reserve 1 - - 1 Retained earnings 1,135 (338) (32) 765 Total Equity 5,208 (338) (32) 4,838 Liabilities Non-current Provision for liabilities 3 - - 3 Current Trade and other payables 747 - 32 779 Total liabilities 750 - 32 782 Total equity and liabilities 5,958 (338) -
5,620
The net effect on the balance sheet as at 30 June 2006 may be summarised asfollows: Under UK IAS36 IAS19 Restated GAAP Impairment Employee under IFRS (unaudited) of assets benefits (unaudited) ‚£'000 ‚£'000 ‚£'000 ‚£'000 Assets Non-current Goodwill 875 (417) - 458 Other intangible assets 15 - - 15
Plant, property and equipment 112 - -
112 1,002 (417) 585 Current Trade and other receivables 1,719 - - 1,719 Cash and cash equivalents 3,920 - - 3,920 5,639 - - 5,639 Total assets 6,641 (417) - 6,224 Equity Share capital 261 - - 261 Share premium account 3,086 - - 3,086 Merger Reserve 680 - - 680 Equity reserve 94 - - 94 Capital reserve 1 - - 1 Retained earnings 972 (417) (36) 519 Total Equity 5,094 (417) (36) 4,641 Liabilities Non-current Provision for liabilities 3 - - 3 Current Trade and other payables 1,424 - 36 1,460 Current tax payable 120 - - 120 Total liabilities 1,544 - 36 1,580 Total equity and liabilities 6,641 (417) -
6,224
The net effect on the balance sheet as at 31 December 2006 may be summarised asfollows: Under UK IAS36 IAS19 Restated GAAP Impairment Employee under IFRS (audited) of assets benefits (unaudited) ‚£'000 ‚£'000 ‚£'000 ‚£'000 Assets Non-current Goodwill 811 (497) - 314 Other intangible assets 15 - - 15
Plant, property and equipment 139 - -
139 965 (497) - 468 Current Trade and other receivables 2,401 - - 2,401 Cash and cash equivalents 4,917 - - 4,917 7,318 - - 7,318 Total assets 8,283 (497) - 7,786 Equity Share capital 262 - - 262 Share premium account 3,121 - - 3,121 Merger Reserve 680 - - 680 Equity reserve 161 - - 161 Capital reserve 1 - - 1 Retained earnings 1,760 (497) (40) 1,223 Total Equity 5,985 (497) (40) 5,448 Liabilities Current Trade and other payables 1,991 - 40 2,031 Current tax payable 307 - - 307 Total liabilities 2,298 - 40 2,338 Total equity and liabilities 8,283 (497) -
7,786
For further information, please refer to Brady plc's Consolidated FinancialStatements 2006, which have been filed with the Registrar of Companies and areavailable on the Companies website, www.bradyplc.com. The auditors' report onthose financial statements was unqualified and did not contain a statementunder Section 240 of the Companies Act 1985. The financial statements for thesix months ended 30 June 2007 and 30 June 2006 are unaudited.
3. Sales revenue fluctuations
The ability to predict the timing of large contract closures is inherentlydifficult. Trinity is an important software application and new customers needto carefully evaluate the software before placing an order. This, together withthe Group's revenue recognition policy, creates long lead times and thepotential for unpredictable fluctuations in sales revenue.
4. Segment analysis
The Group has one principal activity and makes sales to a variety of globaldestinations. An analysis of sales revenue by geographical market is givenbelow: Six months Six months Year ended 30 June 2007 30 June 2006 31 Dec 2006 (unaudited) (unaudited) (unaudited) ‚£'000 ‚£'000 ‚£'000 United Kingdom 902 1,155 2,259 Rest of Europe 52 16 487 North America 1,357 471 1,763 Rest of World 237 77 127 2,548 1,719 4,6365. Share issuesDuring the period under review, share options under Brady plc's share optionschemes have been exercised. This increased Brady plc's ordinary shares issuedand fully paid at the end of the period under review by 57,149 (year ended 31December 2006: 239,800)
6. Earnings per share and dividends
The calculation of the basic earnings per share is based on the profits / (losses) attributable to the shareholders of Brady plc divided by the weighted average number of shares in issue during the period. All earnings per share calculations relate to continuing operations of the Company.
Profits/(losses) Weighted Basic loss attributable to average number per share shareholders of shares amount in pence
Six months ended 30 June 2007 101,000 26,370,165
0.38
Six months ended 30 June 2006 (246,000) 25,973,383 (0.95)(Restated) Year ended 31 December 2006 458,000 26,054,202 1.76(Restated)
The calculation of the diluted earnings per share is based on the profits /(losses) attributable to the shareholders of Brady plc divided by the weightedaverage number of shares in issue during the period, as adjusted for dilutiveshare options. All earnings per share calculations relate to continuingoperations of the Company Dilutive options Anti-dilutive Diluted loss options per share amount in pence Six months ended 30 June 2007 2,744,648 - 0.35 Six months ended 30 June 2006 - 1,983,055 (0.95)(Restated) Year ended 31 December 2006 - 2,378,140 1.76(Restated)
During the period ended 30 June 2007, Brady plc paid its first dividends of ‚£ 262,000 to its equity shareholders.
7. Post Balance Sheet Events
On 2 July 2007, Paul Fullagar joined the Company as Non-Executive Chairman and on 3 September 2007, Gavin Lavelle joined the Company as Chief Executive Officer.
Following the passing of all resolutions at the Company's Extraordinary GeneralMeeting on 17 July 2007, the Company completed a Placing of 1,000,000 ordinaryshares at a price of 60 pence per share to Paul Fullagar on 23 July 2007.
8. Financial Statements
The financial information included in this report does not constitute statutoryaccounts for the purposes of section 240 of the Companies Act 1985. Thisstatement can be obtained from the Company's registered office at 281 CambridgeScience Park, Milton Road, Cambridge, CB4 0WE and will be available on theCompany's website www.bradyplc.com.
BRADY PLC