Elecosoft Regulatory News (ELCO)

19 Mar 2008 07:01

Eleco PLC19 March 2008 This release replaces RNS 3076Q issued yesterday at 07:01 Please note the change to Note 2 - Segmental Information. For Immediate Release 19 March 2008 ELECO PLC The Building Systems and Software Group INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007 "Continued strong growth by this specialist provider of offsite building systems and software solutions" Highlights - Turnover increased to £39.4m from £28.9m: an increase of 36.2% - Profit before tax increased to £3.7m from £2.5m: an increase of 47.9% - Earnings per share increased to 4.5p from 3.7p: an increase of 24.0% - Interim dividend increased to 1.0 p from 0.7p: an increase of 42.9% - Precast concrete interests significantly strengthened by theacquisition in November 2007 of Milbury Systems, a leading provider of precastconcrete infrastructure products to the water, waste and civil engineeringindustries and the agricultural sector. John Ketteley, Executive Chairman of Eleco plc, commented: "Our strong growth in the year to June 2007 continued in the six months toDecember 2007. Increased demand for Bell & Webster's precast concrete productsand significantly higher productivity at its Grantham plant, and improvedperformances from our building components operations and software interests,more than compensated for the lower outturn of our connector plate businesses. "The current turmoil in financial markets suggests that we might well expect toencounter more testing market conditions. However, Eleco is in a strongfinancial position and we entered the second half with improved order books.Milbury Systems will also be contributing to our results for the whole of thesecond half. I am therefore confident that, despite the uncertain financialenvironment, Eleco will again acquit itself well." For further information please contact: Eleco plc Tel: 01920 443830John Ketteley, Executive Chairman http://www.eleco.comjohn.ketteley@eleco.comDavid Dannhauser, Finance Directordavid.dannhauser@eleco.com Collins Stewart Europe Limited 020 7523 8350Nick Ellis / Philip Roe Buchanan Communications 020 7466 5000Tim Anderson / Isabel Podda Chairman's Statement I am pleased to present my statement for the six months ended 31 December 2007.The condensed consolidated interim financial statements for the period on whichmy statement is based, have been prepared taking into account the requirementsof IFRS 1 "First time Adoption of International Reporting Standards". Performance Summary Our strong growth in the year to 30 June 2007 continued in the period underreview. Increased demand for Bell & Webster Concrete's precast concrete productstogether with significantly higher productivity at its Grantham plant, andimproved performances from our building components operations and softwareinterests, more than compensated for the lower outturn of our connector platebusinesses which were adversely affected by lower activity in the UK, Irish andSouth African house building markets. Our performance as measured by the key performance indicators set out below isagain encouraging. - Revenue increased 36.2% to £39,351,000 (2006: £28,890,000) - Profit from operations increased 42.4% to £3,507,000 (2006:£2,462,000) - Profit before tax, increased 47.9% to £3,652,000 (2006:£2,469,000),including finance income of £145,000 (2006: £7,000) - Profit for the period increased 37.4% to £2,572,000 (2006:£1,872,000), after higher tax of £1,080,000 (2006: £597,000) - After taking account of net cash expenditure of £3,942,000 inconnection with the acquisition of Milbury Systems in November 2007, net cash at31 December 2007, amounted to £2,789,000 compared with £5,459,000 at 30 June2007 Earnings per share and Dividends Earnings per share increased 24.0% to 4.5p (2006: 3.7p). The Board has declared an interim dividend of 1.00p per share (2006: 0.70p pershare), an increase of 42.9%, which will be paid on 11 April 2008 toshareholders on the Register on 28 March 2008. The interim dividend is covered 4.3 times by earnings (2006: 5.0 times). Operational Review ELECO BUILDING SYSTEMS Revenue of our Building Systems operations increased by 33.0% to £33,180,000(2006: £24,951,000). Profit from operations increased by 22.2% to £3,356,000(2006: £2,747,000). Precast Concrete Continuing demand for Bell & Webster Concrete's FastBuild(R) Room system forhotels and student accommodation projects again enabled it to achieve higherrevenue and operating profits in the period under review. A strengthenedmanagement team delivered a significant increase in productivity at its Granthammanufacturing site which was reflected in an outstanding performance.The major development in the period was the acquisition of Milbury Systems inNovember 2007 for a total consideration of £7.06 million, before expenses.Milbury Systems is a leading provider of precast concrete infrastructureproducts for the water, waste and civil engineering industries and for theagricultural sector. Further information regarding Milbury System's products andoperations can be found on its website at www.milbury.com. I would like to take this opportunity to welcome all employees of Milbury Systems to the Eleco Group. Timber Engineering Systems Despite the exposure that our nail plate businesses have had to the sharplylower activity in the housing markets in the UK, Ireland and South Africa theyperformed creditably in the period under review. The revenue of these businessesoverall was broadly in line with that for the corresponding period last year ina difficult trading environment. Profits of Gang-Nail Systems, our timber engineering systems business in the UKand Republic of Ireland were somewhat lower in the period due to the slowdown inboth housing markets. International Truss Systems in South Africa also madelower profits partly as a consequence of less favourable market conditions butalso owing to weakness in the SA Rand. By contrast, Eleco Bauprodukte inGermany, which is principally involved in commercial projects, made higherprofits. However, the latter's improved performance in the period under reviewwas not sufficient to prevent overall profits from our connector plateoperations from being some 20% lower than in the corresponding period last year. Building Components Our roofing and cladding businesses, SpeedDeck(R) Building Systems, DownerCladding and Prompt Profiles, and Eleco Timber Frame, which manufactures ourpatented ElecoFrame(R) system, achieved higher profits in the period despitesignificant pressure on margins in a difficult market environment. Our roofingand cladding businesses were also able to secure significantly higher orders inthe period for delivery in the second half and the order books of our buildingcomponents businesses and Eleco Timber Frame are higher than they have been forsome time. SOFTWARE Revenue of our Software operations, including the full contribution from AstaDevelopment in the current period, increased by 56.7% to £6,171,000 (2006:£3,939,000) and the profit was £151,000 (2006 Loss: £285,000). Construction Software Construction Software produced a profit before tax in the period compared with aloss for the corresponding period last year, mainly due to the contribution ofAsta Development which was acquired in December 2006. The results of Consultecin Sweden and the UK were broadly in line with the corresponding period lastyear. Visualisation Software Visualisation Software again made a much reduced loss in the period. Itsucceeded in signing up a number of international retail distributers for itsmain product, Arcon(R) 3D architectural visualisation software, which shouldenhance revenues in future periods. OUTLOOK The current turmoil in financial markets suggests that we might well expect toencounter more testing market conditions. However, Eleco is in a strongfinancial position and we entered the second half with improved order books.Milbury Systems will also be contributing to our results for the whole of thesecond half. I am therefore confident that despite the uncertain financialenvironment, Eleco will again acquit itself well. John Ketteley EXECUTIVE CHAIRMAN18 March 2008 Condensed Consolidated Income Statement -------- --------- ----- -------- ----- --------- --- --------- --- --------- --- 6 months to 31 December Year to ----------------- 30 June 2007 2006 2007 (unaudited) (unaudited) (unaudited) Note £'000 £'000 £'000 -------- --------- ----- -------- ----- --------- --- --------- --- ---------ContinuingoperationsRevenue 2 39,351 28,890 61,923Cost of sales (22,953) (16,199) (32,142)-------------- ----- -------- ------ --------- --- --------- --- ---------Gross profit 16,398 12,691 29,781 Distributioncosts (1,790) (1,422) (2,818)Administrativeexpenses (11,101) (8,807) (21,142)-------------- ----- -------- ------ --------- --- --------- --- ---------Profit fromoperations 2 3,507 2,462 5,821 Finance income 145 7 59-------------- ----- -------- ------ --------- --- --------- --- ---------Profit beforetax 3,652 2,469 5,880Tax (1,080) (597) (942)-------------- ----- -------- ------ --------- --- --------- --- ---------Profit for theperiod 3 2,572 1,872 4,938-------------- ----- -------- ------ --------- --- --------- --- --------- Attributable to:Equity holdersof the parent 2,572 1,872 4,938 Earnings per share (EPS) - basic 3 4.5p 3.7p 9.3p- 3 4.5p 3.7p 9.3pdiluted -------- -------- ------ -------- ------ --------- --- --------- --- --------- --- Condensed Consolidated Statement of Recognised Income and Expense-------- -------- -------- -------- ----- --------- --- --------- --- --------- --- 6 months to 31 December Year to ----------------- 30 June 2007 2006 2007 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000-------- -------- -------- -------- ----- --------- --- --------- --- ---------Actuarial gainon retirementbenefitobligation - - 1,125Associateddeferred taxon retirementbenefitobligation - - (407)Translationdifferences onforeigncurrency netinvestments 144 (125) (154)-------------------------- --- --------- --- --------- --- ---------Netincome/(expense) recogniseddirectly inequity 144 (125) 564 Profit for theperiod 2,572 1,872 4,938-------------------------- --- --------- --- --------- --- ---------Totalrecognisedincome andexpense forthe period 2,716 1,747 5,502 Attributable to: Equity holdersof the parent 2,716 1,747 5,502-------- -------- -------- --------- --- --------- --- --------- --- --------- --- Condensed Consolidated Balance Sheet -------- -------- -------- -------- ----- --------- --- --------- --- --------- --- 31 December 30 June ---------------- 2007 2006 2007 (unaudited) (unaudited) (unaudited) Note £'000 £'000 £'000 -------- -------- -------- -------- ----- --------- --- --------- --- ---------Non-current assetsGoodwill andintangibleassets 17,790 13,694 13,436Property, plantand equipment 11,193 8,362 8,372Deferred tax 922 1,466 984-------------- ------- -------- ------ --------- --- --------- --- ---------Totalnon-currentassets 29,905 23,522 22,792-------------- ------- -------- ------ --------- --- --------- --- --------- Current assetsInventories 3,804 3,902 3,441Trade and otherreceivables 16,417 13,462 13,151Cash and cashequivalents 6,589 3,089 5,940-------------- -------- -------- ------ --------- --- --------- --- ---------Total currentassets 26,810 20,453 22,532-------------- -------- -------- ------ --------- --- --------- --- ----------------------- -------- -------- ------ --------- --- --------- --- ---------Total assets 56,715 43,975 45,324-------------- -------- -------- ------ --------- --- --------- --- --------- Current liabilitiesBorrowings - (813) (410)Obligationsunder financeleases (286) (385) (313)Trade and otherpayables (15,078) (11,900) (11,103)Current taxliabilities (1,271) (801) (982)Accruals anddeferred income (5,436) (5,619) (6,468)-------------- -------- -------- ------ --------- --- --------- --- ---------Total currentliabilities (22,071) (19,518) (19,276)-------------- -------- -------- ------ --------- --- --------- --- --------- Non-currentliabilitiesBorrowings (3,800) (113) (71)Obligationsunder financeleases (496) (360) (386)Deferred taxliabilities (1,100) (1,363) (1,051)Provisions forliabilities andcharges (60) (85) (85)Retirementbenefitobligation (3,242) (4,888) (3,514)-------------------- -------- ------ --------- --- --------- --- ---------Totalnon-currentliabilities (8,698) (6,809) (5,107)-------------------- -------- ------ --------- --- --------- --- ------------------------ ------- -------- ------ --------- --- --------- --- ---------Totalliabilities (30,769) (26,327) (24,383)--------------- ------- -------- ------ --------- --- --------- --- --------- --------- -------- ------- -------- ------ --------- --- --------- --- ---------Net assets 25,946 17,648 20,941========= ======== ======= ======== ====== ========= === ========= === ========= EquityShare capital 5,994 5,570 5,674Share premiumaccount 6,224 6,224 6,224Merger reserve 7,371 4,453 4,453Translationreserve (10) (125) (154)Other reserve (306) (102) (306)Retainedearnings 6,673 1,628 5,050-------------------- -------- ------- --------- ----- --------- ----- ---------Equityattributable toshareholders 25,946 17,648 20,941==================== ======== ======= ========= ===== ========= ===== ========= --------- -------- -------- -------- ------- --------- ------ --------- ------ --------- --- Condensed Consolidated Cash Flow Statement-------- -------- -------- -------- ----- --------- --- --------- --- --------- --- 6 months to 31 December Year to ----------------- 30 June 2007 2006 2007 (unaudited) (unaudited) (unaudited) Note £'000 £'000 £'000-------- -------- -------- -------- ----- --------- --- --------- --- ---------Cash flows from operatingactivitiesProfit beforeinterest andtax 3,507 2,462 5,821Depreciationcharge 707 712 1,440Amortisationcharge 196 102 386Profit on saleofproperty,plantand equipment (9) (2) (250)Share-basedpayments 91 79 181Retirementbenefitobligation (190) (191) (378)----------------------------- --------- --- --------- --- ---------Cash generatedfromoperationsbefore workingcapital 4,302 3,162 7,200Increase intrade andotherreceivables (1,251) (2,442) (2,335)Decrease/(increase) ininventoriesand work inprogress 696 (960) (628)Increase intrade andother payables 756 1,612 1,931-------------------- -------- ------ --------- --- --------- --- ---------Cash generatedfromoperations 4,503 1,372 6,168Interest paid (50) (73) (250)Interestreceived 208 101 241Income taxpaid (967) (477) (663)------------------------- ------ --------- --- --------- --- ---------Net cashgenerated fromoperatingactivities 3,694 923 5,496------------------------- ------ --------- --- --------- --- --------- Net cash used in investingactivitiesPurchase ofintangibleassets (32) (65) (115)Purchase ofproperty,plant andequipment (2,540) (570) (1,233)Acquisition ofsubsidiaryundertakingsnet of cashacquired 5 (2,912) (2,587) (2,622)Proceeds fromsale ofproperty,plant,equipmentand intangibleassets 71 11 315------------------------- ------ --------- --- --------- --- ---------Net cashoutflow frominvestingactivities (5,413) (3,211) (3,655)------------------------- ------ --------- --- --------- --- --------- Net cash used in financingactivitiesProceeds fromnew bank loan 3,800 - -Repayments ofobligationsunder financeleases (178) (160) (374)Repayment ofbank loans (540) (445) (891)Equitydividends paid (974) (750) (1,122)Own sharespurchased byESOT - - (204)---------------------- ----- ------ --------- --- --------- --- ---------Net cashinflow/(outflow) fromfinancing 2,108 (1,355) (2,591)---------------------- ----- ------ --------- --- --------- --- ---------------------------------- ------ --------- --- --------- --- ---------Netincrease/(decrease) in cashand cashequivalents 389 (3,643) (750)------------------------- ------ --------- --- --------- --- --------- Cash and cashequivalents atbeginning ofperiod 5,940 6,852 6,852Effects ofchanges inforeignexchange rates 260 (120) (162)------------------------- ------ --------- --- --------- --- ---------Cash and cashequivalents atend of period 6,589 3,089 5,940------------------------- ------ --------- --- --------- --- ----------------- -------- -------- -------- ------ --------- --- --------- --- --------- --- Notes to the Condensed Consolidated Financial Statements 1. Basis of preparation These condensed consolidated interim financial statements are for the six monthsended 31 December 2007. They have been prepared taking into account therequirements of IFRS 1 "First Time Adoption of International Financial ReportingStandards". The accounts do not include all the information required for fullannual statements and they should be read in conjunction with the year endfinancial statements to 30 June 2007. Outlined below is the Group's effective position on the transitionalarrangements under IFRS 1: The Group has not elected to apply IFRS 3 Business combinations retrospectivelyto business combinations that took place before 1 July 2006. The Group willaccount for acquisitions prior to 1 July 2006 as follows:- the carrying amount of goodwill recognised under UK GAAP at 1 July2006 will not be adjusted to reflect any separable intangible assets acquiredunless they would be recognised under IFRS in the books of the acquiree.- from 1 July 2006, goodwill will no longer be amortised but will bereviewed annually for impairment; and- goodwill written off directly to reserves prior to 1998 under UK GAAPwill not be included in determining any subsequent profit 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. In determining any subsequent gain or loss ondisposal of these operations, translation differences that arose before the dateof transition to IFRS will not be included. These condensed consolidated interim financial statements have been prepared inaccordance with the accounting policies, which are based on the recognition andmeasurement principles of IFRS in issue and effective at 30 June 2008 or areexpected to be adopted and effective at that date. The financial informationdoes not constitute statutory accounts as defined in section 240 of theCompanies Act 1985. The Group's consolidated financial statements for the yearended 30 June 2007, prepared under UK GAAP, have been filed and the audit reportwas not qualified and did not contain a statement under section 237(2) orsection 237(3) of the Companies Act 1985. The date of transition to IFRS was 1 July 2006 and the comparative figures forperiods commencing 1 July 2006 have been restated to reflect changes inaccounting policies as a result of adoption of IFRS. The disclosures required byIFRS 1, concerning the transition from UK GAAP to IFRS, are given in thereconciliation schedules attached to this report. The significant accounting policies adopted in the preparation of thesecondensed consolidated interim financial statements are set out later in thisreport. 2. Segmental information------------------------ -------- -------- -------- -------- ---6 months to 31 December 2007(unaudited) Building Systems ------------- Precast Other Software Elimination Group ------- -------- -------- -------- -------- £'000 £'000 £'000 £'000 £'000 Revenue 16,493 16,687 6,171 39,351Inter-segment revenue - - 95 (95) ------------------ --- ------- -------- -------- --------- --------Total segment revenue 16,493 16,687 6,266 (95) 39,351 Segment operatingresults 1,965 1,391 151 - 3,507Unallocated results (935)----------------- --- ------- -------- -------- --------- --------Profit after tax 2,572----------------- --- ------- -------- -------- --------- -------- ----------------- --- ------- -------- -------- --------- -------- --------------------------- -------- -------- --------- -------- ---6 months to 31 December 2006(unaudited) Building Systems ------------- Precast Other Software Elimination Group ------- -------- -------- --------- -------- Revenue 9,908 15,043 3,939 28,890Inter-segment revenue - 17 67 (84) ------------------ --- ------- -------- -------- --------- --------Total segment revenue 9,908 15,060 4,006 (84) 28,890 Segment operatingresults 1,241 1,506 (285) 2,462Unallocated results (590)----------------- --- ------- -------- -------- --------- --------Profit after tax 1,872----------------- --- ------- -------- -------- --------- -------- ----------------- --- ------- -------- -------- --------- -------- --------------------------- -------- -------- --------- -------- ---12 months to 30 June 2007(unaudited) Building Systems ------------- Precast Other Software Elimination Group ------- -------- -------- --------- -------- £'000 £'000 £'000 £'000 £'000 Revenue 20,900 30,893 10,130 61,923Inter-segment revenue - 24 140 (164) ------------------ --- ------- -------- -------- --------- --------Total segment revenue 20,900 30,917 10,270 (164) 61,923 Segment operatingresults 2,569 3,549 (297) 5,821Unallocated results (883)----------------- --- ------- -------- -------- --------- --------Profit after tax 4,938----------------- --- ------- -------- -------- --------- -------- ----------------- --- ------- -------- -------- --------- -------- --- 3. Earnings per share The calculations of the earnings per share are based on the total profit aftertax attributable to ordinary equity shareholders of the Company and the weightedaverage number of shares in issue for the reporting period. -------------------------- --------- --------- --- --------- --- 6 months to 31 December Year to ----------------- 30 June 2007 2006 2007 (unaudited) (unaudited) (unaudited) -------------------------- --------- --------- --- --------- Profit after taxation £2,572,000 £1,872,000 £4,938,000 Weighted averagenumber of shares inissue in the period 56,735,930 50,164,945 52,855,635Dilutive effect ofshare options - 1,041,650 --------------------------- --------- --------- --- ---------Number of shares fordiluted earnings pershare 56,735,930 51,206,595 52,855,635-------------------------- --------- --------- --- --------- Basic earnings pershare 4.5p 3.7p 9.3pDiluted earnings pershare 4.5p 3.7p 9.3p -------------------------- --------- --------- --- --------- --- 4. Dividends The Directors declared an interim dividend per share of 1.0p (2007: 0.7p) afterthe interim balance sheet date, which will be payable on 11 April 2008 toshareholders on the register on 28 March 2008. 5. Business combinations On 22 November 2007, the Group acquired the entire issued share capital ofMilbury Systems Limited and the freehold of the property occupied by MilburySystems for a total consideration of £7,065,000, before expenses, including£75,000 deferred consideration and of which £1,030,000 relates to the separatepurchase of the freehold property. At completion, £3,735,000 was settled in cashfrom the Group's existing resources, £3,030,000 was settled by the issue andplacing of shares on behalf of the vendors and £225,000 by the allotment to thevendors of new ordinary shares in the Company. At the date of acquisition, thebook value of Milbury Systems' net assets was £1,876,000. This amount isprovisional and will be finalised in subsequent periods. In its last auditedfinancial statements to 31 December 2006, Milbury Systems reported pre-taxprofits of £682,000. Significant Accounting Policies The significant accounting policies adopted in the preparation of the Group'scondensed consolidated financial statements are prepared using the recognitionand measurement principles of the International Financial Reporting Standards("IFRS"), as adopted by the European Union, are set out below: A. Basis of preparationThe condensed consolidated financial statements have been prepared on thehistorical cost basis. B. Basis of consolidationThe condensed consolidated financial statements include the financial statementsof the Company and its subsidiary undertakings for the six months ended 31December 2007 and the comparative six months ended 31 December 2006 and twelvemonths ended 30 June 2007. Subsidiaries are entities controlled by the Group.Control exists where the Group has the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.The Group obtains and exercises control through voting rights. The financial statements of the Company and each subsidiary are prepared inaccordance with UK Generally Accepted Accounting Principles ("UK GAAP") or,where incorporated outside the UK, GAAP applicable to their local jurisdiction.Adjustments are made in the condensed consolidated financial statements toadjust for any differences in accounting policies that may exist between UK orlocal GAAP and IFRS. The results of subsidiaries acquired or sold in the yearare included in the condensed consolidated income statement from or up to thedate control passes until control ceases. The acquisition of subsidiaries is dealt with using the purchase method. Thepurchase method involves the recognition at fair value of all identifiableassets and liabilities at the acquisition date, including contingent liabilitiesof the subsidiary regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. All intercompanybalances and transactions, including unrealised profits and losses arising fromintra-Group transactions, are eliminated in full. C. RevenueRevenue from the sale of goods and services represents the fair value ofconsideration received or receivable in respect of goods and services suppliedto third parties in the period, excluding value added tax and trade discounts.Long term contract revenue is stated at an amount appropriate to their stage ofcompletion as measured by work performed. Revenue from software maintenance andsupport contracts is treated as deferred income and taken to revenue in theincome statement on a straight line basis over the term of the contract. D. Intangible assetsGoodwill arising on consolidation represents the excess of the cost of theacquisition, including expenses, over the Group's interest in the fair value ofthe identifiable net assets acquired. The carrying value of goodwill isrecognised as an asset and reviewed for impairment at least annually and anyimpairment is recognised immediately in the income statement. On disposal, the attributable amount of goodwill is included in thedetermination of profit or loss on disposal. Goodwill arising on acquisitionsbefore the date of transition to IFRS has been retained at the previous UK GAAPamounts subject to being tested for impairment at that date. Goodwill writtenoff to reserves under UK GAAP prior to 1998 has not been reinstated and is notincluded in determining any subsequent profit or loss on disposal. Other intangible assets acquired separately are capitalised at cost and on abusiness combination are capitalised at fair value as at the date ofacquisition. Following initial recognition, an intangible asset is held at costless accumulated amortisation and any accumulated impairment losses.Amortisation expense is charged to administration expenses on a straight linebasis over its useful economic life. The Group owns intellectual property both in its software tools and softwareproducts. Intellectual property purchased is capitalised at cost and isamortised on a straight line basis over its expected useful life. Research expenditure is written off as incurred. Development expenditure on aproject is written off as incurred unless and until the following principalcriteria are all satisfied:- the project is for a new / substantially new product or process- comprehensive testing has been performed and has established the technicalfeasibility of the project is without doubt.- the commercial viability of the project has been measured by detailed marketanalysis and associated earnings projections.When a project meets all these criteria, subsequent development costs arecapitalised and are amortised from the date the product or process is availablefor use, on a straight line basis over its estimated useful life. The carrying amounts of intangible assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable and in the case of capitalised development expenditure reviewed forimpairment annually while the asset is not yet in use. E. Property, plant and equipmentProperty, plant and equipment is stated at purchase cost, together with anydirectly attributable costs of acquisition. The carrying amount and useful livesof property, plant and equipment with material residual values are reviewed ateach balance sheet date. Depreciation is provided on all property, plant and equipment, except freeholdland and assets in the course of construction, on a straight line basis to writedown the assets to their estimated residual value over the useful economic lifeof the asset as follows:Freehold buildings - 50 yearsShort leasehold property - over the term of the leasePlant, equipment and vehicles - 2 to 10 years F. Impairment of assetsThe carrying amount of the Group's goodwill is assessed annually as to whetheran impairment adjustment may be required. When annual impairment testing for anasset is required, the Group makes an estimate of the asset's recoverableamount, based on the higher of the asset's value in use and fair value lesscosts to sell. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset. Any impairment loss is charged to the income statement under therelevant expense heading. A previously recognised impairment loss, other than goodwill, is reversed onlyif there has been a change in the previous indicator used to determine theassets recoverable amount since the last impairment loss was recognised. Thereinstated carrying amount cannot exceed the carrying amount that would havebeen determined, net of amortisation, had no impairment loss been recognised forthe asset in prior years. G. InventoriesInventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average method and includes expenditure incurredin acquiring the inventories and bringing them to their existing location andcondition. The cost of manufactured inventories and work in progress includesrelated production overheads based on normal operating activity. Net realisablevalue is based on estimated selling price less further costs expected to beincurred to completion and disposal. On long-term contract work in progress, the amount of profit attributable to thestage of completion of a contract is recognised when the outcome of the contractcan be estimated reliably. Contract work in progress is stated at costsincurred, less those transferred to the income statement, after deductingforeseeable losses and payments on account not matched with revenue. Amounts duefrom customers for long term contract work are included in trade and otherreceivables and represent revenue recognised in excess of payments on account. H. LeasesFinance leases, which transfer to the Group substantially all of the benefitsand risks of ownership of an asset, are capitalised at the inception of thelease at the fair value of the leased asset or, if lower, at the present valueof the minimum lease payments. Lease payments are apportioned between thefinance charges and reduction of the lease liability so as to achieve a constantrate of interest on the remaining balance of the liability. Finance charges arecharged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated lifeof the asset or the lease term. Leases where the lessor retains substantiallyall the risks and benefits of ownership of the asset are classified as operatingleases. Operating lease payments are recognised as an expense in the incomestatement on a straight line basis over the term of the lease. I. PensionsThe Group operates a defined benefit pension scheme, which provides benefitsbased on final pensionable pay. The defined benefit scheme is valued every threeyears by a professionally qualified independent actuary, the rates ofcontribution payable being determined by the actuary. The service cost of providing retirement benefits to employees during the yearis charged to the income statement in the year. The full cost of providingamendments to benefits in respect of past service, where amendments to benefitsvest immediately, is also charged to the income statement in the year. Theexpected return on the assets of the scheme during the year, based on the marketvalue of scheme assets at the start of the financial year, is included withinfinance income/charge. This also includes a charge representing the expectedincreasein liabilities of the scheme during the year, arising from the liabilities ofthe scheme being one year closer to payment. The resulting net finance amount isreported in the income statement. Differences between actual and expected returns on assets during the year arerecognised in the statement of recognised income and expenses in the year,together with differences from actual experience and from changes in actuarialassumptions. The net deficit on the defined benefit pension scheme, representingthe difference between the present value of the defined benefit obligation andthe fair value of scheme assets (based upon market price information and in thecase of quoted securities the published bid price) is reported on the balancesheet.Contributions to defined contribution pension schemes are charged to the incomestatement as they become payable. J. Share based paymentsThe cost of equity-settled transactions with employees is measured by referenceto the fair value at that date at which they are granted and is recognised as anexpense over the vesting period, which ends on the date on which the relevantemployees is unconditionally entitled to the award. The fair value of theemployees services is determined by reference to the fair value of instrumentsgranted using an appropriate pricing model. In valuing equity-settledtransactions, account is taken of the probabilities of performance achievementand other conditions linked to the price of the shares of the Company (marketconditions). No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non-market conditions. Themovement in cumulative expense since the previous balance sheet date isrecognised in the income statement, with a corresponding entry in equity. K. Foreign currenciesTransactions in foreign currencies are translated at the exchange rate ruling atthe date of transaction. Assets and liabilities in foreign currencies and assetsand liabilities in the financial statements of foreign subsidiaries aretranslated into sterling at the rate of exchange ruling at the balance sheetdate and results are translated at the average rate of exchange for the year.Differences on exchange, arising from the retranslation of the opening netinvestment in subsidiary companies and from the translation of the results ofthose companies at an average rate, are taken to reserves and reported in thestatement of recognised income and expense. All other foreign exchange differences arising on the settlement of monetaryitems or on translating monetary items at rates different from those at whichthey were initially recorded are recognised in the income statement for theperiod in which they arise. L. Financial assets and liabilitiesFinancial assets are recognised when the group becomes a party to thecontractual provisions of the instrument and arise principally through theprovision of goods and services to customers (trade and other receivables) butalso include other types of contractual monetary assets. Trade and otherreceivables are measured subsequent to initial recognition at amortised costusing the effective interest method, less provision for impairment. A financialasset is derecognised only where the contractual rights to the cash flows fromthe asset expire or the financial asset is transferred and that transferqualifies for derecognition. 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. Trade payables and other short term monetary liabilities arerecorded at fair value and subsequently carried at amortised cost with anychanges in fair value being recognised in the income statement. Bank borrowingsare initially recognised at the amount advanced, exclusive of any transactioncosts directly attributable to the issue of the instrument and subsequentlycarried at amortised cost. A financial liability is derecognised when theobligation is discharged, cancelled or expires. M. TaxationCurrent tax is the tax payable based on taxable profit for the year. Deferred tax is calculated using the liability method on temporary differencesand provided on the difference between the carrying amounts of assets andliabilities and their tax bases. However, deferred tax is not provided on theinitial recognition of goodwill nor on the initial recognition of an asset orliability, unless the related transaction is a business combination or affectstax or accounting profit. 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 the expected tax rates are enacted or substantivelyenacted at the balance sheet date. Notes explaining transition to IFRS These are the Group's first condensed consolidated interim financial statementsprepared using the recognition and measurement principles of the InternationalFinancial Reporting Standards ("IFRS"). The IFRS accounting policies of theGroup are detailed earlier in this document. An explanation of how thetransition from UK Generally Accepted Accounting Principles ("UK GAAP") to IFRShas affected the Group is set out below. Note 1. Goodwill Under UK GAAP, goodwill was capitalised and amortised on a straight line basisover its useful economic life, which ranges between five to twenty years. UnderIFRS this goodwill balance is no longer amortised but instead subject to anannual impairment review. The carrying amount of the assets of each cash generating unit inclusive ofattributable goodwill is compared to the present value of forecast net cashflows before interest and tax that are expected to flow from these units. Animpairment adjustment is required where the carrying amount of the assetsexceeds the value in use measured as the present value of the future cash flows. A benefit of £596,000 is recognised in the prior year condensed consolidatedincome statement relating to amortised goodwill with a corresponding increase inthe balance sheet value at 30 June 2007. Business CombinationsThe excess of the cost of an acquisition, including attributable expenses, abovethe fair value of the net assets acquired was deemed to be goodwill under UKGAAP. IFRS 3 requires that a value is attributed to any identifiable intangibleassets, such as patents and copyrights, customer lists and relationships, brandsand in progress research and development together with the related deferred taxliability. Hence, acquired goodwill is the difference between the cost of theinvestment and the fair value of the net assets including intangible assets andthe related deferred tax liability and represents such items as the assembledworkforce that do not qualify for separate recognition. The acquisition of Asta Development plc in December 2006 has been reviewed and avalue of £3,227,000 has been attributed as at that date to the intangible assetcomprising customer contracts and customer relationships with a related deferredtax liability of £904,000. The deferred income creditor has been reduced by£189,000 with a related deferred tax liability adjustment of £53,000. 2. Intangible assets Under UK GAAP, certain computer software was capitalised within tangible fixedassets. Under IFRS, only computer software that is integral to a related item ofhardware should be included as property, plant and equipment. All other computersoftware should be recorded as an intangible asset. £94,000 has been restated asan intangible asset. 3. Holiday pay accruals An adjustment is required to record holiday pay liabilities in respect of allemployees. IAS 19 requires that a liability is recorded for all accruedentitlements for holiday at each balance sheet date. The impact on the Group isan adjustment to employee benefits expense and accruals together with a relateddeferred tax liability adjustment. 4. Deferred Tax Deferred tax under UK GAAP was provided on all timing differences that hadoriginated but not reversed at the balance sheet date. The principal impact of adopting IAS 12 has been to recognise separately, undernon-current assets, the deferred tax asset on the retirement benefit obligationand to recognise the deferred tax liability on intangible assets recognised inaccordance with IFRS 3 in relation to the acquisition of Asta Development plc. Reconciliation of profit for the 6 months ended 31 December 2006 --------- --------- ------- -------- --- -------- -------- --- UK GAAP IFRS -------- -------------- (unaudited) Effect of (unaudited) transition to IFRS Note £'000 £'000 £'000 --------- --------- ------- --------- -------- ---------Continuing operationsRevenue 1 28,926 (36) 28,890Cost of 3 (16,238) 39 (16,199)sales -------- ------- --------- --- -------- -------------------Gross profit 12,688 3 12,691 Distributioncosts (1,422) - (1,422)Administrativeexpenses 1,3 (9,023) 216 (8,807)--------------- ------- --------- --- -------- ---------Profit fromoperations 2,243 219 2,462 Finance income 7 - 7--------------- ------- --------- --- -------- ---------Profit beforetax 2,250 219 2,469Tax 1,3,4 (597) - (597)--------------- ------- --------- --- -------- ---------Profit for theperiod 1,653 219 1,872--------------- ------- --------- --- -------- --------- --------- --------- ------- --------- --- -------- --------- --- Reconciliation of profit for the year ended 30 June 2007 --------- --------- ------- -------- --- -------- -------- --- UK GAAP IFRS -------- -------------- (audited) Effect of (unaudited) transition to IFRS Note £'000 £'000 £'000 --------- --------- ------- -------- -------- ---------Continuing operationsRevenue 1 62,078 (155) 61,923Cost of 3 (32,142) - (32,142)sales -------- ------- -------- --- -------- -------------------Gross profit 29,936 (155) 29,781 Distributioncosts (2,818) - (2,818)Administrativeexpenses 1,3 (21,527) 385 (21,142)--------------- ------- -------- --- -------- ---------Profit fromoperations 5,591 230 5,821 Finance income 59 - 59--------------- ------- -------- --- -------- ---------Profit beforetax 5,650 230 5,880Tax 1,3,4 (1,044) 102 (942)--------------- ------- -------- --- -------- ---------Profit for theperiod 4,606 332 4,938--------------- ------- -------- --- -------- --------- --------- --------- ------- -------- --- -------- --------- --- Reconciliation of equity at 1 July 2006 ------- -------- ------ ------ ------- -------- --- -------- -------- --- UK GAAP IFRS -------- -------------- (audited) Effect of (unaudited) transition to IFRS Note £'000 £'000 £'000 ------- -------- ------ ------ ------- -------- -------- ---------Non-currentassetsGoodwill andintangibleassets 2 5,625 94 5,719Property,plant andequipment 2 8,310 (94) 8,216Deferred tax 3,4 - 1,517 1,517----------------- ------ ------- -------- -------- ---------Totalnon-currentassets 13,935 1,517 15,452----------------- ------ ------- -------- -------- --------- Current assetsInventories 2,821 - 2,821Trade andotherreceivables 9,891 - 9,891Cash and cashequivalents 6,852 - 6,852------------ ------ ------ ------- -------- -------- ---------Total currentassets 19,564 - 19,564------------ ------ ------ ------- -------- -------- --------------------- ------ ------ ------- -------- -------- ---------Total assets 33,499 1,517 35,016------------ ------ ------ ------- -------- -------- --------- CurrentliabilitiesBorrowings (891) - (891)Obligationsunder financeleases (325) - (325)Trade andother payables (9,798) - (9,798)Current taxliabilities (364) - (364)Accruals anddeferredincome 3 (5,016) (59) (5,075)------------------ ----- ------- -------- -------- ---------Total currentliabilities (16,394) (59) (16,453)------------------ ----- ------- -------- -------- --------- Non-current liabilitiesBorrowings (481) - (481)Obligationunder financeleases (473) - (473)Deferred taxliabilities (340) 18 (322)Provisions forliabilitiesand charges (85) - (85)Retirementbenefitobligation 4 (3,541) (1,517) (5,058)---------------- ------- ------- -------- -------- ---------Totalnon-currentliabilities (4,920) (1,499) (6,419)---------------- ------- ------- -------- -------- --------------------- ------- ------- ------- -------- -------- ---------Totalliabilities (21,314) (1,558) (22,872)------------ ------- ------- ------- -------- -------- --------------------- ------- ------- ------- -------- -------- ---------Net assets 12,185 (41) 12,144============ ======= ======= ======= ======== ======== ========= EquityShare capital 5,033 - 5,033Share premiumaccount 6,224 - 6,224Merger reserve 367 - 367Other reserve (127) - (127)Retainedearnings 688 (41) 647---------------------- ------- -------- -------- ---------Equityattributabletoshareholders 12,185 (41) 12,144====================== ======= ======== ======== ========= ------- ------- ------- ------- ------- -------- --- -------- --------- --- Reconciliation of equity at 31 December 2006 ------- -------- ------- ----- ------- -------- --- -------- -------- --- UK GAAP IFRS -------- -------------- (unaudited) Effect of (unaudited) transition to IFRS Note £'000 £'000 £'000 ------- -------- ------- ----- ------- --------- -------- ---------Non-currentassetsGoodwill andintangibleassets 1,2 12,658 1,036 13,694Property,plant andequipment 2 8,431 (69) 8,362Deferred tax 4 - 1,466 1,466------------------ ----- ------- --------- --- -------- ---------Totalnon-currentassets 21,089 2,433 23,522------------------ ----- ------- --------- --- -------- --------- Current assetsInventories 3,902 - 3,902Trade andotherreceivables 13,462 - 13,462Cash and cashequivalents 3,089 - 3,089------------ ------- ----- ------- --------- -------- ---------Total currentassets 20,453 - 20,453------------ ------- ----- ------- --------- -------- --------------------- ------- ----- ------- --------- -------- ---------Total assets 41,542 2,433 43,975------------ ------- ----- ------- --------- -------- --------- CurrentliabilitiesBorrowings (813) - (813)Obligationsunder financeleases (385) - (385)Trade andother payables (11,900) - (11,900)Current taxliabilities (801) - (801)Accruals anddeferredincome 3 (5,769) 150 (5,619)------------------ ----- ------- --------- -------- ---------Total currentliabilities (19,668) 150 (19,518)------------------ ----- ------- --------- -------- --------- Non-current liabilitiesBorrowings (113) - (113)Obligationunder financeleases (360) - (360)Deferred taxliabilities 1 (424) (939) (1,363)Provisions forliabilitiesand charges (85) - (85)Retirementbenefitobligation 4 (3,422) (1,466) (4,888)---------------- ------- ------- --------- -------- ---------Totalnon-currentliabilities (4,404) (2,405) (6,809)---------------- ------- ------- --------- -------- --------------------- ------- ------- ------- --------- -------- ---------Totalliabilities (24,072) (2,255) (26,327)------------ ------- ------- ------- --------- -------- --------------------- ------- ------- ------- --------- -------- ---------Net assets 17,470 178 17,648============ ======= ======= ======= ========= ======== ========= EquityShare capital 5,570 - 5,570Share premiumaccount 6,224 - 6,224Merger reserve 4,453 - 4,453Translationreserve (125) - (125)Other reserve (102) - (102)Retainedearnings 1,450 178 1,628---------------------- ------- --------- -------- ---------Equityattributabletoshareholders 17,470 178 17,648====================== ======= ========= ======== ========= ------- ------- ------- ------- ------- --------- --- -------- --------- --- Reconciliation of equity at 30 June 2007 ------- -------- ------- ----- ------- -------- --- -------- -------- --- UK GAAP IFRS -------- -------------- (audited) Effect of (unaudited) transition to IFRS Note £'000 £'000 £'000 ------- -------- ------- ----- ------- -------- -------- ---------Non-currentassetsGoodwill andintangibleassets 1,2 12,184 1,252 13,436Property,plant andequipment 2 8,417 (45) 8,372Deferred tax 4 - 984 984------------------ ----- ------- -------- -------- ---------Totalnon-currentassets 20,601 2,191 22,792------------------ ----- ------- -------- -------- --------- Current assetsInventories 3,441 - 3,441Trade andotherreceivables 13,151 - 13,151Cash and cashequivalents 5,940 - 5,940------------- ------ ----- ------- -------- -------- ---------Total currentassets 22,532 - 22,532------------- ------ ----- ------- -------- -------- ---------------------- ------ ----- ------- -------- -------- ---------Total assets 43,133 2,191 45,324------------- ------ ----- ------- -------- -------- --------- CurrentliabilitiesBank overdraft (410) - (410)Obligationsunder financeleases (313) - (313)Trade andother payables (11,103) - (11,103)Current taxliabilities (982) - (982)Accruals anddeferredincome 3 (6,389) (79) (6,468)------------------ ----- ------- -------- -------- ---------Total currentliabilities (19,197) (79) (19,276)------------------ ----- ------- -------- -------- --------- Non-current liabilitiesBorrowings (71) - (71)Obligationunder financeleases (386) - (386)Deferred taxliabilities 1 (214) (837) (1,051)Provisions forliabilitiesand charges (85) - (85)Retirementbenefitobligation 4 (2,530) (984) (3,514)---------------- ------- ------- -------- -------- ---------Totalnon-currentliabilities (3,286) (1,821) (5,107)---------------- ------- ------- -------- -------- --------------------- ------- ------- ------- -------- -------- ---------Totalliabilities (22,483) (1,900) (24,383)------------ ------- ------- ------- -------- -------- --------------------- ------- ------- ------- -------- -------- ---------Net assets 20,650 291 20,941============ ======= ======= ======= ======== ======== ========= EquityShare capital 5,674 - 5,674Share premiumaccount 6,224 - 6,224Merger reserve 4,453 - 4,453Translationreserve (154) - (154)Other reserve (306) - (306)Retainedearnings 4,759 291 5,050---------------------- ------- -------- -------- ---------Equityattributabletoshareholders 20,650 291 20,941====================== ======= ======== ======== ========= ------- ------- ------- ------- ------- -------- --- -------- --------- --- This information is provided by RNS The company news service from the London Stock Exchange