30 Mar 2009 18:17
30th March 2009
Lonrho Plc
("Lonrho" or the "Company")
Results for the year ended 30 September 2008
Lonrho (AIM: LONR), the conglomerate with a structured portfolio of African investments, is pleased to publish its full results for the year ended 30 September 2008.
Lonrho has continued to develop its investments in infrastructure, transport, agriculture, support services, hotels and natural resources. Having established a solid platform through these investments, Lonrho's primary objective is to create value through expanding these businesses and enhancing their profitability and growth potential.
Financial Review
With the exception of the investment in SAIL's, the financial results remain in line with the Company's expectations. The year has been instrumental in demonstrating the effectiveness of Lonrho's investment strategy, with all of the Companies businesses contributing towards a considerable increase in Lonrho's turnover.
Turnover increased by 284% to £43.0m (up from £11.2m in 2007)
Net assets increased to £69.7m (up from £ 42.7m in 2007)
Loss after tax of £41.0m (2007: £17.4m) largely related to the closure of SAILS (£33.0m)
Attributable loss to Lonrho's equity shareholders of £33.3m (2007: £15.5m)
David Lenigas, Executive Chairman of Lonrho commented:
"It is nearly three years since shareholders took the decision to rebuild Lonrho into an African conglomerate. I am pleased to report that, in that time, your company has made significant progress. In the process, there have been highs and lows, but the overall results for the first three years of implementing the new shareholders mandate are tremendously encouraging.
"Lonrho has set in place strong foundations for the continued growth of the Group and has attracted the essential experienced management teams and executives to ensure that its plans are delivered.
We believe that Africa remains a strong emerging market. By being selective in the sectors that Lonrho enters and the countries in which Lonrho operates it is possible to minimise risk exposure whilst maximising the growth and return opportunities for the Group. Some of Africa's economies, such as Angola, Mozambique and Equatorial Guinea are delivering substantial economic development and growth,
"Lonrho has delivered on a series of businesses that are expanding their core operations as planned to become pan-African. We expect to see continued strong growth across the portfolio during the coming year as each of the businesses expands."
LONRHO ENQUIRIES
| Lonrho Plc | +44 (0)20 7016 5105 |
| David Lenigas, Executive Chairman | +44 (0)7881 825 378 |
| Geoffrey White, Chief Executive Officer | +44 (0)7717 307 308 |
| David Armstrong, Finance Director | +44 (0)7833 054 693 |
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| Pelham PR |
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| Charles Vivian | +44 (0) 20 7337 1538 |
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| +44 (0) 7977 297903 |
| James MacFarlane | +44 (0) 20 7337 1527 |
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Collins Stewart Europe : NOMAD to Lonrho Hugh Field | +44 (0) 7841 672831 +44 (0) 20 7523 8350 |
Statutory accounts
The financial information set out in this announcement does not constitute the company's statutory accounts for the years ended 30 September 2008 or 2007. The financial information for the year ended 30 September 2007 is derived from the statutory accounts for that year. The audit of the statutory accounts for the year ended 30 September 2008 is complete. The auditors reported on those accounts; their report was unqualified and did not include references to any matters to which the auditors drew attention to by way of emphasis without qualifying their report.
The full annual report and financial statements are being posted to shareholders and published on its web site (www.lonrho.com) today.
Chairman's Statement
David Lenigas
Executive Chairman
30 March 2009
It is nearly three years since shareholders took the decision to rebuild Lonrho into an African conglomerate. I am pleased to report that, in that time, your company has made significant progress. In the process, there have been highs and lows, but the overall results for the first three years of implementing the new shareholders' mandate are tremendously encouraging.
Turnover has grown significantly year on year as the Group has invested in a strong profile of business opportunities across the Continent. Although the loss for the year was £41.0 million, this included £34.4 million in respect of discontinued activities, mainly relating to the shipping division (£33.0 million) which was placed into liquidation shortly after the year end. We were generally satisfied with the progress made by our other investments which were in line with expectation. Further details of the financial results are given in the Chief Executive's review.
Lonrho has set in place strong foundations for the continued growth of the Group and has attracted the experienced management teams and executives essential to ensure that its plans are delivered.
The Group has established clearly defined investment parameters, but more importantly, has the experience and knowledge to monitor and support its investments and to aid and facilitate their growth.
A conglomerate is the best way to invest in Africa, and over the past three years the Group has grown from owning a single hotel in Mozambique to operating in seventeen countries across Africa. This geographical diversity not only opens up the pan-African business opportunities that are our objective, but also spreads country and political risk for shareholders.
I believe that Africa remains a strong emerging market. By being selective in the industry sectors Lonrho enters and the countries in which Lonrho operates it is possible to minimise risk exposure whilst maximising the growth and return opportunities for the Group. Some of Africa's economies, such as Angola, Mozambique and Equatorial Guinea, are delivering substantial economic development and growth.
Lonrho has delivered a series of businesses that are expanding their core operations as planned to become pan African. I expect to see continued strong growth across the portfolio during the coming year as each of the businesses expands.
Chief Executive's Review
Geoffrey White
Director & Chief Executive Officer
30 March 2009
During the year, Lonrho has successfully continued to grow its key businesses with turnover in continuing operations year on year increasing by 140%. The Group has made good progress in all sectors with the exception of the cargo and shipping division which closed shortly after the year end following Lonrho's decision not to provide further funding.
The corporate strategy of the Group is to develop companies within the African Continent and to focus on business opportunities that are directly related to the economic growth and development of the Continent.
Lonrho remains one of the strongest commercial brand names in Africa and the Group is proud of its heritage of over one hundred years and reputation for delivering projects that create employment and prosperity for Africans. The Group's philosophy is to continue this tradition, and build real businesses that provide employment opportunities that add to the economic progress being made across the continent.
The Group's operations are now focused on five clearly defined operating sectors which are inextricably linked to the growth of Africa.
Lonrho's main operating segments are: Infrastructure, Transportation, Agriculture (post year end), Hotels, and Support Services
IMF and World Bank economic forecasts indicate that African GDP will continue to grow, and by careful selection of the countries in which we operate, Lonrho can continue to develop each of its business units within an expanding market and commercial environment.
The Group has matured significantly during the year. The requisite resources and corporate structures have been strengthened to ensure that the appropriate management and control systems are in place to support each division and to manage the forecasted expansion of operations. The appointment of a new full time Finance Director, David Armstrong, who has extensive African experience, at the start of December 2008 was a fundamental step in ensuring that the Group's management structures are in place. The previous Financial Director, Jean Ellis, moved to a non-executive role on the Board and we thank her for her advice and assistance whilst an executive Director of the Company. Her knowledge of Lonrho and its history over the years provides strong continuity. During the year the Group has also appointed country managers for South Africa and Angola.
In light of the current World financial markets, and with cogniscence of a global economic slowdown affecting the shipping market, the Board felt it was prudent to review its ongoing support for SA Independent Liner Services Pty Limited (SAILS) and decided to withdraw any further funding and actively market the company for sale. Unfortunately this was unsuccessful and the Group announced the liquidation of SAILS shortly after the year end.
The closure of SAILS and the total loss incurred for the year of £33.0 million was a difficult and substantial event for the Group. The stand-alone divisional corporate structure of Lonrho means that each division is a separate, isolated investment and hence the closure of one division, such as SAILS, has no financial impact on other divisions within the Group.
Operational Review
Infrastructure
Luba Freeport Limited ("Luba") 63% holding
Luba Freeport is an oil services terminal located on Bioko Island in Equatorial Guinea. The port is a venture in conjunction with the Government of Equatorial Guinea where Lonrho owns 63% and the Government owns 37%. The port is managed by Lonrho and operates as a true Freeport.
Equatorial Guinea has a booming oil industry, currently producing some 450,000 bpd. With established reserves of 1.5 billion barrels, it has only released 20% of its identified oil blocks. The outlook for Equatorial Guinea and the wider Gulf of Guinea is strong, driven by the USA openly stating their objective of sourcing 25% of all USA oil from the Gulf of Guinea.
Lonrho has invested over US$60 million in the development of the port and building the required infrastructure for the port to service the international oil companies that are its clients. The port is operating profitably and has attracted the major oil companies operating in the Gulf of Guinea as clients. ExxonMobil, Amerada Hess; Schlumberger; Baker Hughes,
MI Fluids, CNOOC, Noble and others now have operational bases in Luba port. Lonrho's clients, including the anchor tenant ExxonMobil, are typically on long term contracts up to ten years.
The number of the tenants at the port is increasing year on year and several current tenants are expanding their operations at the port. Lonrho has completed its initial phased development for the port and 300 metres of deepwater quay will be available from March 2009.
Luba port is located on a large natural harbour, and provides some of the best deepwater anchorage positions available in West Africa. Further expansion at the port is being considered to meet demand for services for the oil industry. This includes oil rig repair facilities (currently oil rigs from the Gulf of Guinea are sent to Europe or Cape Town for major repairs),
a container trans-shipment centre (depths at Luba could accept the largest container ships), a drill cutting processing facility and waste management facilities.
KwikBuild Corporation Limited ("KwikBuild") 61.97% holding
KwikBuild, through its associate investment, e-KwikBuild Housing (Pty) Limited ("e-KwikBuild") (49% holding), is a manufacturer and supplier of insulated prefabricated building solutions for permanent and relocatable structures. e-KwikBuild is a leader in fast, innovative and highly efficient construction solutions that can be installed in days with an unskilled workforce. It also requires no civil works and can be free standing thus reducing the cost and time for projects.
e-KwikBuild supplies clinics, workers camps, accommodation, school rooms, meeting rooms and offices and a range of structures to meet client's requirements. Customers include the South African Government, universities, hospitals, schools and large corporates such as Eskom, Chevron and Sonangol.
In November 2008, e-KwikBuild opened a new 2,700 m2 facility in Port Elizabeth, South Africa for the manufacture of its buildings to increase production volumes in order to meet forecast demand. The new factory can produce 240 (35 m2) panels in a six hour shift.
Transportation
Lonrho Aviation (BVI) Limited ("Lonrho Aviation") 100% holding
Through Lonrho Aviation and the Fly540 concept, Lonrho is developing the first international standard airline that plans to connect Africa north to south and east to west and provide quality regional distribution for long haul carriers flying into Africa.
The roll out of the airline made significant progress in 2007/2 008 and the Kenyan operational hub, Five Forty Aviation Limited (49% holding), which started flying in 2006, continues to trade profitably and demonstrates the market opportunity for Fly540. The airline is developing a further two African hubs in Angola and Ghana. Fly540 will service the regional countries surrounding each and, by connecting the three hubs, establish a full pan-African network.
Fly540 senior management are ex British Airways and are operating to international standards with regard to training, operations and maintenance.
The Kenya hub is successfully serving the domestic market in Kenya and has commenced regional expansion with operations now flying in Southern Sudan and Uganda, with Tanzania forecast to commence post September 2009.
The Angolan and Ghanaian hubs will be established in 2009 and will service South West Africa and West Africa accordingly.
The proposed routes which will be operated are:
| Kenya | Angola | Ghana | DRC | Tanzania | Uganda | Sudan |
| Nairobi* | Luanda | Accra | Lubumashi | Dar Es Salaam Entebbe* | Juba | |
| Mombasa* | Cabinda | Kumasi | Kolwezi | Zanzibar | Kigali | Rumbek |
| Kisumu* | Soyo | Tamale | Mbuji-Mayi | Arusha | Burundi | Waw |
| Entebbe* | Benguela | Takoradi | Ndola | Mwanza* | Goma | Khartoum |
| Juba | Huambo | Lome | Lusaka | Mombasa | Juba | |
| Rumbek | Luena | Cotonou | Harare | Nairobi* | Nairobi* | |
| Eldoret* | Malange | Lagos | Lilongwe | |||
| Lamu | Johannesburg | |||||
| Malindi* | Accra | |||||
| Mara* | ||||||
| Harare |
* Existing routes in the year to 30 September 2008.
The Fly 540 business model is based around the deployment of new or recent modern turboprop aircraft. Modern turboprop aircraft provide a highly efficient solution to regional travel. The flight time for routes up to one and a half hours is similar to a regional jet, whilst the fuel costs related to the journey are 70% less. Thus the breakeven operational load factors required for the Fly 540 operations are significantly lower than competitive airlines utilising jets for regional distribution.
Fly 540 current operations achieve a 96% average for departure within ten minutes of schedule, and are attaining high average load factors and sector yields. Operationally, the airline offers a simplified low cost ticket structure, supported by ticketing on the internet, call centres and through direct sales offices.
Passenger numbers rose by 93.0% to 171,160 in the year ended 30 September 2008 (2007: 88,571). Load factors in the financial year were 63.0% (2007: 65.8%).
Agriculture
Lonrho Agribusiness (BVI) Limited ("Lonrho Agriculture") 100% holding
Lonrho Agriculture, which was incorporated in May 2008, plans to deliver vertical integration of the agricultural production and processing chain to provide the ability for African produce to reach consumers either in Africa or internationally. In October 2008 Lonrho acquired 51% of Rollex Pty Limited ("Rollex"), an agri-processing and logistics company that sources produce from Southern Africa, processes it and delivers it to market. The Rollex processing facility is airside at Johannesburg international airport and current customers in South Africa include Woolworth and Spar, and in Europe include Marks & Spencer, Tesco, Carrefour and others.
The development of further cold store and agri-processing facilities across the continent to expand the Rollex model and expertise will be the focus of growth for Lonrho Agriculture. To support this logistics capability, it is planned that 40% of the input requirements will be produced by Lonrho
Agriculture projects and 60% sourced in conjunction with the local market.
Lonrho signed an agreement in June 2008 to develop a cold store and agri-processing facility airside at Lilongwe airport in Malawi. This will be utilised to commence the export of fresh produce from Malawi and neighbouring countries to the Middle East market. To complement the facility, the agreement further included a 100 hectare agriculture site adjacent to the airport. A full feasibility study is being undertaken to identify the intensive farming crops most commercially suitable for the export market.
Post year end, Lonrho also signed an agreement to rehabilitate 25,000 hectares of agricultural land in Angola, to initially service the domestic market.
Hotels
Hotel Cardoso SARL 59.04% holding plus management contract
The Hotel Cardoso is located in the pre-eminent position in Maputo, Mozambique, overlooking the bay. The hotel has undergone a full refurbishment during the year, with the majority of rooms being updated and the grounds
re-landscaped by the year end. Subsequent to the year end, the restaurant and conference facilities are being upgraded and improved and a new panoramic restaurant is being added to the top floor of the hotel.
The small municipal park adjacent to the hotel was put under Lonrho's control and has been cleaned, refurbished, children's rides installed and a coffee shop developed. This development, in conjunction with the improvements to the hotel, have lifted the hotel's location to become one of the most popular and pleasant parts of Maputo.
The hotel currently trades profitably and following the completion of the refurbishment program in early 2009 will be a flagship hotel for Mozambique.
Grand Karavia SARL ("Karavia") 50% holding plus management contract (post year end)
During the year Lonrho won a Democratic Republic of Congo (DRC) Government tender to refurbish and thereafter manage the Karavia hotel in Lubumbashi in the DRC. The hotel closed in 1985 and became very dilapidated. The Karavia will reopen for business in the second half of 2009 as the only international standard hotel in Lubumbashi.
The Development Bank of South Africa (DBSA) has agreed to provide US$10 million as debt funding for the refurbishment project. The hotel will provide 213 rooms to a five star standard and cater for the significant market related to the Katanga Province and the development of the copper and cobalt mining interests in the region.
Support Services
Sociedade Comercial Bytes & Pieces Limitada ("Bytes & Pieces") 65% holding & Complete Enterprise Solutions Limited ("CES") 50% holding
Lonrho's IT company in Mozambique, Bytes and Pieces, continues to lead the market in the turnkey delivery of IT solutions to major corporate clients. Following on from the success of Bytes and Pieces, CES has opened in Johannesburg and has begun to attract clients and build business.
Post the year end, at the request of Dell Computers, CES opened a company in Zambia to meet growing demand for IT services in that market. CES is further beginning to utilise its Portuguese speaking workforce in Mozambique to address market expansion opportunities in Angola.
Lonrho Springs BVI Limited ("Lonrho Springs") 100% holding
Lonrho Springs is developing strategic water bottling opportunities in clearly defined markets. Lonrho currently has operations in Mozambique (100% holding) and in Kinshasa (21.4% holding) trading under the Swissta brand. Both plants have capacity of around 300,000 litres per month. Swissta Mozambique produced over 3 million litres in the year to
30 September 2008.
A new plant is under development in Angola, to become the largest Lonrho Springs plant to date. Planned to start producing in 2009, the plant will have the ability to deliver 4 million litres of bottled water a month to the Angolan market.
A second new plant is under planning for a proposed development for Lubumbashi which has also been highlighted as a location with a strong market demand for bottled water.
Goodwill arising on the initial acquisition of Swissta Holdings Limited of £0.6 million has been impaired at the year end to reflect the current economic conditions of the markets in which the businesses are operating.
Other
Lonrho Mining Limited ("Lonrho Mining") 25.5 9% holding
Lonrho Mining continues to focus its attention on the highly prospective Lulo diamond concession in Angola. Following the year end, within the 3,000 km2 concession, 217 aeromagnetic anomalies were identified and six initial targets were explored on the ground.
All six sampled targets provided high counts of kimberlitic indicator minerals and following the encouraging sampling program, it is planned to implement a dry season drilling and bulk sampling program at the primary target and eight other targets.
LonZim Plc ("LonZim") 24.53% holding
LonZim is a specific investment vehicle, listed on the London AIM stock exchange, that was established to invest in recovery opportunities in Zimbabwe and the Beira corridor in Mozambique.
Lonrho received a 20% free carry interest of the issued share capital of Lonzim worth £7.3 million, which resulted in a £5.8 million credit to the consolidated income statement. Lonrho has increased its shareholding to 24.53% since the year end.
Lonrho holds a management contract for operating LonZim, and charges the higher of US$500,000 or 2% of funds invested as a management charge.
Norse Air Limited
Lonrho made a full provision against its associate investment, Norse Air Limited, in the 2007 accounts. A legal case against the management and the other shareholders of Norse Air Limited is ongoing.
Financial Highlights
Turnover for continuing operations increased to £24.5 million (2007 £10.2 million), a 140% increase. The largest contributor to the growth in turnover was Fly540, which grew more than threefold to £9.3 million on the back of substantially increased passenger volumes in Kenya. Total turnover for the Group for the year was £43.1 million (2007 £11.2 million).
The loss for the year of £41.0 million (2007 £17.4 million) was impacted by the total trading losses and impairment charges of £33.0 million incurred in SAILS which was put into liquidation shortly after the year end. The loss in respect of continuing operations was £6.6 million (2007 £12.0 million) which was in line with expectations as Lonrho continues to invest in the development of its businesses.
Lonrho received shares in Lonzim Plc with a value of £7.3 million in respect of a non-compete agreement. This resulted in a credit in the consolidated income statement of £5.8 million.
In light of the state of the global financial markets, an impairment provision was made against the Group's investment in Lonrho Mining Limited of £4.0 million to reflect the current market value of the shares on the Australian Securities Exchange. However, the Directors are confident that the long term value of this investment will significantly exceed the current value.
Of the Group's cash balances of £10.2 million (2007: £15.2 million), cash held in the United Kingdom was £8.1 million (2007 £14.0 million).
The Company raised £59.9 million, net of issue costs, through three share issues in the year to 30 September 2008. Total equity attributable to equity holders of the Company was £69.6 million (2007: £41.1 million) at 30 September 2008.
Since the year end, and despite difficult market conditions, the Group has successfully raised £15.4 million, before expenses, through a placement of shares.
At the time of the placing in November 2008, we noted that our strategic planning assumed that the Company would not have to return to shareholders for further funding during 2009. We still believe that this remains the case and progress is also being made in the reduction of central overheads discussed in the same announcement.
These are the first annual reports and accounts prepared in accordance with Adopted International Financial Reporting Standards (IFRS). The comparative figures have been restated accordingly`.
Consolidated income statement
| for the year ended 30 September 2008 | Continuing operations £m | 2008 Discontinued operations £m | Total £m | Continuing operations £m | 2007 Discontinued operations £m | Total £m |
| Revenue | 24.5 | 18.6 | 43.1 | 10.2 | 1.0 | 11.2 |
| Cost of sales | (15.6) | (38.3) | (53.9) | (7.8) | (3.2) | (11.0) |
| GROSS PROFIT/(LOSS) | 8.9 | (19.7) | (10.8) | 2.4 | (2.2) | 0.2 |
| Gain on sale of intangible asset | 5.8 | - | 5.8 | - | - | - |
| Other operating income | 0.3 | - | 0.3 | 0.4 | - | 0.4 |
| Impairment of goodwill | (0.6) | (5.1) | (5.7) | - | - | - |
| Operating costs | (22.6) | (4.8) | (27.4) | (14.6) | (0.1) | (14.7) |
| OPERATING LOSS | (8.2) | (29.6) | (37.8) | (11.8) | (2.3) | (14.1) |
| Finance income | 6.6 | - | 6.6 | 0.5 | - | 0.5 |
| Finance expense | (0.8) | (2.7) | (3.5) | (0.7) | - | (0.7) |
| NET FINANCE INCOME/(EXPENSE) | 5.8 | (2.7) | 3.1 | (0.2) | - | (0.2) |
| Share of results of associates | (4.0) | - | (4.0) | (3.7) | (3.7) | |
| LOSS BEFORE TAX | (6.4) | (32.3) | (38.7) | (12.0) | (6.0) | (18.0) |
| Income tax (charge)/credit | (0.2) | (2.1) | (2.3) | - | 0.6 | 0.6 |
| LOSS FOR THE YEAR | (6.6) | (34.4) | (41.0) | (12.0) | (5.4) | (17.4) |
| ATTRIBUTABLE TO: | ||||||
| Equity holders of the parent | (5.7) | (27.6) | (33.3) | (11.0) | (4.5) | (15.5) |
| Minority interest | (0.9) | (6.8) | (7.7) | (1.0) | (0.9) | (1.9) |
| LOSS FOR THE YEAR | (6.6) | (34.4) | (41.0) | (12.0) | (5.4) | (17.4) |
| EARNINGS PER SHARE | ||||||
| Basic loss per share (pence) | (1.5) | (7.5) | (9.0) | (4.5) | (1.9) | (6.4) |
| Diluted loss per share (pence) | (1.5) | (7.5) | (9.0) | (4.5) | (1.9) | (6.4) |
Consolidated statements of recognised income and expense
for the year ended 30 September 2008
| Group | ||
| 2008 £m | 2007 £m | |
| Foreign exchange translation differences Revaluation of property, plant and equipment Deferred tax on revaluation of property, plant and equipment | 0.4 4.9 (1.0) | 0.1 - - |
| NET INCOME RECOGNISED DIRECTLY IN EQUITY | 4.3 | 0.1 |
| Loss for the year | (41.0) | (17.4) |
| Total recognised expense for the year | (36.7) | (17.3) |
| ATTRIBUTABLE TO: - Equity holders of the parent - Minority interest | (31.4) (5.3) | (15.3) (2.0) |
| Total recognised expense for the year | (36.7) | (17.3) |
Consolidated balance sheets
As at 30 September 2008
| Group | ||
| 2008 £m | 2007 £m | |
| ASSETS | ||
| Goodwill | 5.1 | 6.5 |
| Other intangible assets | 0.8 | 1.2 |
| Property, plant and equipment | 56.8 | 36.9 |
| Investments in subsidiaries | - | - |
| Investments in associates | 8.8 | - |
| Other investments | 0.7 | 5.0 |
| Deferred tax | - | 2.2 |
| TOTAL NON-CURRENT ASSETS | 72.2 | 51.8 |
| Inventories | 2.2 | 1.4 |
| Trade and other receivables | 11.6 | 4.0 |
| Cash and cash equivalents | 10.2 | 15.2 |
| Assets classified as held for sale | 2.6 | - |
| TOTAL CURRENT ASSETS | 26.6 | 20.6 |
| TOTAL ASSETS | 98.8 | 72.4 |
| EQUITY | ||
| Share capital | 4.6 | 2.8 |
| Share premium account | 91.3 | 33.2 |
| Revaluation reserve | 4.5 | 1.6 |
| Share option reserve | 2.2 | 2.2 |
| Foreign currency reserve | - | 0.2 |
| Retained earnings | (33.0) | 1.1 |
| TOTAL EQUITY ATTRIBUTABLE TO EQUITY | ||
| HOLDERS OF THE COMPANY | 69.6 | 41.1 |
| MINORITY INTEREST | 0.1 | 1.6 |
| TOTAL EQUITY | 69.7 | 42.7 |
| LIABILITIES | ||
| Financial liabilities | 0.3 | 1.8 |
| Deferred tax | 1.7 | 0.7 |
| Obligations under finance leases | 1.1 | 1.1 |
| TOTAL NON-CURRENT LIABILITIES | 3.1 | 3.6 |
| Bank overdraft | 0.4 | 0.7 |
| Interest-bearing loans and borrowings | 3.3 | 3.6 |
| Obligations under finance leases | 0.2 | 0.2 |
| Trade and other payables | 13.8 | 21.6 |
| Liabilities classified as held for sale | 8.3 | - |
| TOTAL CURRENT LIABILITIES | 26.0 | 26.1 |
| TOTAL LIABILITIES | 29.1 | 29.7 |
| TOTAL EQUITY AND LIABILITIES | 98.8 | 72.4 |
Consolidated cash flow statements
For the year ended 30 September 2008
| Group | ||
| 2008 £m | 2007 £m | |
| CASH FLOWS FROM OPERATING ACTIVITIES Loss for the year Adjustments | (41.0) 6.6 | (17.4) 7.9 |
| CASH FLOWS FROM OPERATING ACTIVITIES BEFORE | ||
| MOVEMENTS IN WORKING CAPITAL | (34.4) | (9.5) |
| Change in inventories | (0.5) | (0.6) |
| Change in trade and other receivables | (5.4) | (1.3) |
| Change in trade and other payables | 0.4 | 4.2 |
| CASH GENERATED FROM OPERATIONS | (39.9) | (7.2) |
| Interest received | 7.1 | 0.5 |
| Interest paid | (2.7) | (1.9) |
| Income tax paid | (0.2) | - |
| NET CASH FROM OPERATING ACTIVITIES | (35.7) | (8.6) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Proceeds from the sale of property, plant and equipment | - | 0.1 |
| Proceeds from the sale of investments | - | 1.8 |
| Receipt of deferred consideration in respect of sale of subsidiary | - | 1.0 |
| Acquisition of subsidiary, net of cash acquired | (2.1) | (2.2) |
| Deposits paid in respect of property, plant and equipment | (4.4) | - |
| Acquisition of property, plant and equipment | (12.5) | (18.6) |
| Acquisition of associates | (1.3) | (4.4) |
| NET CASH FROM INVESTING ACTIVITIES | (20.3) | (22.3) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from the issue of share capital | 51.9 | 15.8 |
| Proceeds received in advance of future share issue | - | 8.0 |
| Loan advance | 0.1 | - |
| Repayment of borrowings | (1.1) | (0.3) |
| Payment of finance lease liabilities | (0.2) | 1.3 |
| NET CASH FROM FINANCING ACTIVITIES | 50.7 | 24.8 |
| Net decrease in cash and cash equivalents | (5.3) | (6.1) |
| Cash and cash equivalents at 1 October | 14.5 | 20.6 |
| Foreign exchange movements | 0.2 | - |
| CASH AND CASH EQUIVALENTS AT 30 SEPTEMBER | 9.4 | 14.5 |
Notes to the financial statements
Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing an opening Adopted IFRS balance sheet at 1 October 2006 for the purposes of the transition to Adopted IFRS. The accounting policies have been applied consistently by Group entities.
a. Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of Lonrho Plc and entities controlled by Lonrho Plc (its subsidiaries). Control is achieved where Lonrho Plc (the Company) has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently, losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
The results of entities acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Associates
An associate is an entity in which the Group has the ability to exercise significant influence but not control over the financial and operating policies. Associates are accounted for using the equity method and are initially measured at cost as adjusted by post- acquisition changes in the Group's share of the net assets of the associate, less any impairment of the individual investments, from the date that significant influence commences until the date it ceases.
Losses of the associates in excess of the Group's interest in those associates are not recognised except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of its investee. The Group's investment includes goodwill identified on acquisition, net of any impairment losses. Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Any deficiency of the cost of acquisition below the Group's share of the fair values of the identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
Business combinations
The acquisition of subsidiaries and businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are
recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with IFRS 5, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.
If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. The interest of minority shareholders in the acquirer is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
b. Intangible assets
Goodwill
Goodwill arising on consolidation is recognised as an asset.
Following initial recognition, goodwill is subject to impairment reviews, at least annually, and measured at cost less accumulated impairment losses. The recoverable amount is estimated at each balance sheet date. Any impairment loss is recognised immediately in the income statement and is not subsequently reversed when the carrying amount of the asset exceeds its recoverable amount.
Any impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (groups of units) and then, to reduce the carrying amount of other assets in the unit (groups of units) on a pro rata basis.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gain or loss on disposal.
Goodwill arising on acquisitions before the date of transition to Adopted IFRS has been retained at the previous UK GAAP amounts, after being tested for impairment at that date.
Other intangible assets
Other intangible assets are measured initially at cost and are amortised on a straight-line basis over their estimated useful lives. The carrying amount is reduced by any provision for impairment where necessary.
On a business combination, as well as recording separable intangible assets already recognised in the balance sheet of the acquired entity at their fair value, identifiable intangible assets that are separable or arise from contractual or other legal rights are also included in the acquisition balance sheet at fair value.
Amortisation on intangible assets is charged over their useful economic life, on the following basis:
Brands 5 years
Intellectual property 5 years
Licences 5 years
Contracts 3 years
c. Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentational currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions denominated in foreign currencies are translated into the respective functional currency of the Group entities using the exchange rates prevailing at the dates of transactions. Non-monetary assets and liabilities are translated at the historic rate. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rates of exchange ruling at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items earned at fair value are included within the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing at the balance sheet date. Income and expense are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified in equity and are transferred to the Group's foreign currency translation reserve within equity. Such translation is recognised as income or as expense in the period in which the operation is disposed of.
All foreign exchange gains or losses that are reflected in the income statement are presented within financing income or expense.
d. Hyperinflation
The Group acquired an associate, LonZim Plc, during the year whose main operations are in Zimbabwe. The policy adopted by LonZim Plc for hyperinflation is stated below.
The Company will apply International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies ("IAS 29"). IAS 29 requires the Adopted IFRS financial statements of any entity operating in a hyperinflationary economy to take full account of the effect of inflation using a "current purchasing power" approach, which is implemented using a complex set of procedures and reconciliations.
Under IAS 29, when an entity has foreign operations (for instance, a subsidiary) whose financial currency is hyperinflationary, the subsidiary's financial statements must be adjusted before being translated and included in the parent consolidated financial statements. It is a matter of judgement as to when restatement for hyperinflation becomes necessary, according to the characteristics of the economy in which the subsidiary conducts its operations and maintains its functional currency.
Under IAS 29, Zimbabwe is considered a hyperinflationary economy and therefore LonZim Plc's consolidated financial statements, to the extent its portfolio companies use the Zimbabwean Dollar as a functional currency, will need to be reinstated by LonZim Plc, to account for changes in the general purchasing power of the Zimbabwean Dollar measured against the consumer price index published by the Central Statistical Office of Zimbabwe.
Exchange rates
It is the view of the Directors that the translation of the foreign balances and operations to local currency should be based on an exchange rate that is aligned to the market forces and fairly presents the true value of foreign balances and operations when translated to local currency. It should be emphasised that the policy is for fair presentation purposes only and does not indicate an intention of the Group to transact at these rates in a local Zimbabwe market.
In applying this policy, all foreign balances at period end are translated at the Old Mutual implied rate (OMIR) and operational activities for foreign operations are translated at the OMIR at the time of activity during the period. The application of this policy will be reviewed when appropriate.
Inflation adjustment
One characteristic that leads to the classification of an economy as hyperinflationary, necessitating the application of IAS 29 restatement, is a cumulative three-year inflation rate approaching or exceeding 100%. The restatement has been calculated by means of conversion factors derived from the Consumer Price Index (CPI).
The main procedures applied for the above restatement are as follows:
Financial statements prepared in the currency of a hyperinflationary economy are stated in terms of a measuring unit current at the balance sheet date, and corresponding figures for the previous period are stated in the same terms.
Monetary assets and liabilities that are carried at amounts current at the balance sheet date are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date. Monetary items comprise cash held and items to be recovered or paid in cash.
Non-monetary assets and liabilities that are not carried at amounts current at the balance sheet date and components of shareholders' equity are restated by applying the relevant conversion factors.
Comparative financial statements are restated by using inflation indices in terms of a measuring unit current at the latest balance sheet date.
All items in the income statement are restated by applying the relevant monthly, yearly average or year end conversion factors with the exception of depreciation expense, impairments of investments, profit or loss on disposal of property, plant and equipment, net exchange gains or losses and increase or decrease in the value of quoted investments.
Depreciation expense, profit or loss on disposal of property, plant and equipment are based on the restated carrying amount of property, plant and equipment and restated disposal proceeds while impairment of investments is based on the restated carrying amount of the investments.
Net exchange gains or losses are based on the restated opening carrying amount of the foreign cash balances against the closing balances at the closing exchange rate.
Increase or decrease in the value of quoted investments is based on the fair market values of the quoted investments.
The effect on the net monetary position of the Group is included in the income statement as a monetary adjustment.
The monetary adjustment reflects the net loss or gain in purchasing power that arises as a relationship of net monetary assets and monetary liabilities.
The application of the IAS 29 restatement procedures has the effect of amending certain of the accounting policies, which are used in the preparation of the financial statements under the historical cost convention. The amended policies include:
Property, plant and equipment
Inventories
Prepayments
Deferred tax
The indices and conversion factors used were:
Index Conversion Factor
30 June 2008 1,227,614,935,650 1
30 June 2007 11,666,826 105,223
30 June 2006 158,709 7,735,005
e. Taxation
The tax expense represents the sum of current tax and deferred tax.
Current taxation
Current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on the investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
f. Available for sale financial assets
The Group's investments in equity securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see below), are recognised directly in equity. When an investment is de-recognised, the cumulative gain or loss in equity is transferred to the income statement.
Impairment
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired.
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.
All impairment losses are recognised in the income statement. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to the income statement.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the income statement. For available-forsale financial assets that are equity securities, the reversal is recognised directly in equity.
g. Property, plant and equipment
Long leasehold land and buildings are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.
Any revaluation increase arising on the revaluation of such land and buildings is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and building is charged as an expense to the extent that it exceeds the balance if any, held in the revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to the income statement. On subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining is transferred directly to retained earnings.
All other assets are stated at historical cost less accumulated depreciation and accumulated impairment losses.
Depreciation is charged so as to write off the cost or valuation of assets, other than long leasehold land, over their estimated useful lives, on the following basis:
Long leasehold buildings 2% of cost
Short leasehold land and buildings Over the term of the lease
Plant and machinery 10% of cost
Aircraft 5%-6.67% of cost
Motor cars 15%-25% of cost
Fixtures and fittings 15%-25 % of cost
The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement for the period.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, over the relevant lease term.
In respect of aircraft, subsequent costs incurred which lend enhancement to future periods such as long term scheduled maintenance and major overhaul of aircraft and engines are capitalised and amortised over the length of the period benefiting from those enhancements. All other costs relating to maintenance are charged to the income statement as incurred.
h. Impairment of assets excluding goodwill, inventories and deferred tax assets
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount.
Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation increase.
i. Financial instruments
Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Trade receivables
Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated recoverable amounts are recognised in the income statement when there is objective evidence the asset is impaired.
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.
Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an amortised cost basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Capital management
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as net operating income divided by total shareholders' equity, excluding minority interests.
j. Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and where applicable direct expenditure and attributable overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
k. Share based payments
The Group provides benefits to certain employees, including senior executives, in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes model. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.
l. Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.
m. Dividends
Dividends are recognised as a liability in the period in which they are declared.
n. 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. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
o. Revenue recognition
Revenue, for the other major segments not detailed below, is derived from the sale of goods and services and is measured at the fair value of consideration received or receivable, after deducting discounts, volume rebates, value-added tax and other sales taxes. A sale of goods and services is recognised when recovery of the consideration is probable, there is no continuing management involvement with the goods and services and the amount of revenue can be measured reliably.
A sale of goods is recognised when the significant risks and rewards of ownership have passed to the buyer, the associated costs and possible return of goods can be estimated reliably. This is when title and insurance risk have passed to the customer and the goods have been delivered to a contractually agreed location.
A sale of services is recognised when the service has been rendered.
Aircraft division
Revenue for the aircraft division comprises the invoiced value of airline services, net of passenger taxes, discounts, plus ancillary revenue. Revenue from the sale of flight seats (passenger revenue) is recognised in the period in which the service is provided. Unearned revenue represents flight seats sold but not yet flown and is included within deferred income.
Shipping division (discontinued operation)
Revenue for the shipping division comprises the invoiced value of shipping services, net of taxes and duties.
Revenue is generated from the transport of containerised goods. The transport of these goods is referred to as a voyage, and a completed voyage comprises both a North bound and South bound leg.
Revenue is recognised on a completed voyage basis.
p. Leases
Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases.
Finance leases
Finance leases are capitalised in the balance sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability is shown as a finance lease obligation to the lessor. Leasing repayments comprise both a capital and a finance element. The finance element is written off to the income statement so as to produce an approximately constant periodic rate of charge on the outstanding obligation.
Operating leases
Operating lease rentals are charged to the income statement on a straight line basis over the period of the lease.
q. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
r. Loss per share
Basic loss per share is calculated based on the weighted average number of ordinary shares outstanding during the period. Diluted loss per share is based upon the weighted average number of shares in issue throughout the year, adjusted for the dilutive effect of potential ordinary shares. The only potential ordinary shares in issue are employee share options.
s. Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.
t. Assets and liabilities classified as held for sale
Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group's accounting policies. Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on apro rata basis, except that no loss is allocated to inventories, financial assets and deferred tax assets, which continue to be measured in accordance with the Group's accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognised in the income statement. Gains are not recognised in excess of any cumulative impairment loss.
2. Segment Reporting
Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the Group's management and internal reporting structure.
There is no inter-segment revenue.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Business segments
For management purposes, the Group is currently organised into six operating divisions.
Infrastructure
Transportation
Support services
Hotels
Cargo and shipping (discontinued)
Other
Geographical segments
All of the segments operate in various parts of Africa.
Business segments
| Infrastructure £m | Transport £m | Support services £m |
2008 Hotels £m | Other £m | Consolidated continuingoperations £m | Cargo and shippingdiscontinued operations £m | |
| EXTERNAL REVENUE | 7.3 | 9.3 | 6.1 | 1.8 | - | 24.5 | 18.6 |
| Segment result | (0.6) | (4.5) | (0.6) | 0.1 | - | (5.6) | (24.5) |
| Unallocated expenses | (7.8) | - | |||||
| Impairment of goodwill | (0.6) | (0.6) | (5.1) | ||||
| Gain on sale of intangible asset | 5.8 | - | |||||
| OPERATING LOSS | (8.2) | (29.6) | |||||
| Net finance income/(expense) | 5.8 | (2.7) | |||||
| Share of results of associate | (4.0) | - | |||||
| Income tax expense | (0.2) | (2.1) | |||||
| LOSS FOR THE YEAR | (6.6) | (34.4) |
| Infrastructure £m | Transport £m | Support services £m |
2007 Hotels £m |
Other £m | Consolidated continuing operations £m |
Cargo and shippingdiscontinuedoperations £m | |
| EXTERNAL REVENUE | 5.4 | 3.0 | 0.4 | 1.4 | - | 10.2 | 1.0 |
| Segment result Unallocated expenses | (0.7) | (1.4) | (0.1) | 0.1 | - | (2.1) (9.7) | (2.3) - |
| OPERATING LOSS | (11.8) | (2.3) | |||||
| Net finance expense Share of results of associate Income tax credit | (0.2)
- - | -
(3.7) 0.6 | |||||
| LOSS FOR THE YEAR | (12.0) | (5.4) |
| Infrastructure £m | Transport £m | Support services £m |
2008 Hotels £m | Other £m | Consolidated continuing operations £m | Cargo and shippingdiscontinued operations £m | |
| Segment operating assets | 44.2 | 14.6 | 4.3 | 11.7 | - | 74.8 | 2.5 |
| Investment in associates | 2.2 | - | - | - | 6.6 | 8.8 | - |
| Unallocated assets / interest bearing assets | - | - | - | - | - | 12.6 | 0.1 |
| TOTAL ASSETS | 96.2 | 2.6 | |||||
| Segment operating liabilities | 9.3 | 2.5 | 0.8 | 1.7 | - | 14.3 | 7.8 |
| Unallocated liabilities / interest bearing liabilities |
6.5 |
0.5 | |||||
| TOTAL LIABILITIES | 20.8 | 8.3 | |||||
| Depreciation of segment assets | 2.1 | 0.7 | 0.1 | 0.2 | - | 3.1 | - |
| Amortisation of segment assets | 0.1 | 0.2 | - | - | 0.3 | - | |
| Capital expenditure | 8.5 | 2.1 | 0.1 | 1.8 | - | 12.5 | - |
| Impairment of intangible assets | - | - | 0.7 | - | - | 0.7 | 5.1 |
| 2007 | ||||||||
| Infrastructure £m | Transport £m | Support services £m | Hotels £m | Other £m |
Consolidated continuingoperations
£m |
Cargo and shippingdiscontinuedoperations £m | ||
| Segment operating assets | 31.7 | 5.9 | 3.1 | 3.9 |
- | 44.6 | 6.2 | |
| Unallocated assets / interest bearing assets | 21.6 | - | ||||||
| TOTAL ASSETS | 66.2 | 6.2 | ||||||
| Segment operating liabilities | 9.1 | 0.9 | 0.4 | 0.1 | - | 10.5 | 3.4 | |
| Unallocated liabilities / interest bearing liabilities | 15.3 | 0.5 | ||||||
| TOTAL LIABILITIES | 25.8 | 3.9 | ||||||
| Depreciation of segment assets | 1.0 | 0.2 | - | 0.1 | - | 1.3 | - | |
| Amortisation of segment assets | 0.1 | - | - | - | - | 0.1 | - | |
| Capital expenditure | 14.0 | 4.7 | - | 0.3 | - | 19.0 | - | |
| Impairment of intangible assets | - | - | - | - | - | - | - | |
Geographical segments
| 2008 | ||||||
| Southern Africa | East Africa | West Africa | Europe | Consolidated Continuing operations | Southern Africa Discontinued operations | |
| £m | £m | £m | £m | £m | £m | |
| Revenue by location of external customers | 7.7 | 9.3 | 7.3 | 0.2 | 24.5 | 18.6 |
| Revenue by location of assets | 7.9 | 9.3 | 7.3 | - | 24.5 | 18.6 |
| Segment net assets/(liabilities) | 17.5 | 11.6 | 33.7 | 12.6 | 75.4 | (5.7) |
| Capital expenditure | 2.0 | 1.8 | 8.4 | 0.3 | 12.5 | - |
| 2007 | |||||||
| Southern Africa | East Africa | West Africa | Europe | Consolidated Continuing operations | Southern Africa Discontinued operations | ||
| £m | £m | £m | £m | £m | £m | ||
| Revenue by location of external customers | 1.6 | 3.1 | 5.4 | 0.1 | 10.2 | 1.0 | |
| Revenue by location of assets | 1.7 | 3.1 | 5.4 | - | 10.2 | 1.0 | |
| Segment net assets | 6.5 | 5.0 | 22.6 | 6.3 | 40.4 | 2.3 | |
| Capital expenditure | 0.3 | 4.7 | 14.0 | - | 19.0 | - | |
3. Revenue
| Continuing operations | Discontinued operations | Total | |||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||
| £m | £m | £m | £m | £m | £m | ||||
| Sale of goods | 6.1 | 0.4 | - | - | 6.1 | 0.4 | |||
| Services | 18.4 | 9.8 | 18.6 | 1.0 | 37.0 | 10.8 | |||
| 24.5 | 10.2 | 18.6 | 1.0 | 43.1 | 11.2 | ||||
4. Group net operating costs
| 2008 £m | 2007 £m | |
| Cost of sales Administrative expenses Other operating income | 53.9 27.4 (0.3) | 11.0 14.7 (0.4) |
| NET OPERATING COSTS (BEFORE IMPAIRMENT OF GOODWILL | ||
| AND THE GAIN ON SALE OF INTANGIBLE ASSETS ) | 81.0 | 25.3 |
| Administrative expenses include management related overheads for operations and head office. | ||
| INCLUDED IN NET OPERATING COSTS ABOVE ARE: | ||
| Depreciation of property plant and equipment | 3.1 | 1.3 |
| Profit on the sale of property plant and equipment | - | (0.1) |
| Impairment of intangible assets (other than goodwill) | 0.1 | - |
| Amortisation of intangible assets (other than goodwill) | 0.3 | 0.1 |
| Share based payments | - | 2.6 |
| Operating lease rentals: | ||
| - Land and buildings | 0.3 | 0.2 |
| - Plant and machinery | 0.1 | 0.7 |
| - Other | 13.6 | 1.7 |
| Release of negative goodwill to income | - | (0.7) |
| Staff costs | 9.9 | 5.0 |
| Impairment of trade receivables | 0.7 | - |
| Legal fees relating to discontinued operations | 1.4 | - |
| Write off of loan due from associate | - | 1.0 |
| The costs above include the following relating to discontinued operations: |
| 2007 (From 2008 acquisition) | ||
| £m | £m | |
| Other operating lease rentals | 13.6 | 1.6 |
| Staff costs | 0.3 | - |
| Impairment of trade receivables | 0.6 | - |
| Legal fees | 1.4 | - |
Auditors remuneration
| 2008 | 2007 | |
| £m | £m | |
| Fees payable to the Company's auditors for the audit of the Company's annual accounts | 0.2 | 0.1 |
| For the audit of the Company's subsidiaries pursuant to legislation | 0.1 | 0.1 |
| TOTAL AUDIT FEES | 0.3 | 0.2 |
5. Earnings Per Share
The calculation of the basic and diluted loss per share is based on the following data:-
| 2008 | 2007 | |
| £m | £m | |
| Loss for the purposes of basic earnings per share being net loss attributable to equity holders of the parent | (33.3) | (15.5) |
| Loss for the purposes of diluted earnings per share | (33.3) | (15.5) |
| Number of shares (millions) | 2008 No. | 2007 No. |
| Weighted average number of ordinary shares for the purposes basic earnings per share |
371.2 |
242.6 |
| Effect of dilute potential ordinary shares: | ||
| - Share options | 7.2 | 7.2 |
| Weighted average number of ordinary shares for the purposes of diluted earnings per share |
378.4 |
249.8 |
The calculation of diluted loss per share is based on the weighted average number of shares outstanding adjusted by the dilutive share options. There is no dilution per share in respect of both the current and prior year as the Group has made a loss and hence the effect of share options is considered to be anti-dilutive.
6. Capital and Reserves
Group reconciliation of movement in capital and reserves
| Attributable to equity holders of the parentShare | |||||||||
| Share capital £m | Share premium £m | Translation reserve £m | option reserve £m | Revaluation reserve £m | Retained earnings £m | Total £m | Minority interest £m | Total equity £m | |
| At 1 October 2006 | 2.2 | 17.4 | - | 0.1 | 1.6 | 16.6 | 37.9 | 1.6 | 39.5 |
| Share capital issued | 0.6 | 15.8 | - | - | - | - | 16.4 | - | 16.4 |
| Subsidiaries acquired | - | - | - | - | - | - | - | 2.0 | 2.0 |
| Loss for the period | - | - | - | - | - | (15.5) | (15.5) | (1.9) | (17.4) |
| Equity-settled transactions |
- |
- |
- |
2.1 |
- |
- |
2.1 |
- |
2.1 |
| Foreign exchange translation |
- |
- |
0.2 |
- |
- |
- |
0.2 |
(0.1) |
0.1 |
| AT 30 SEPTEMBER 2007 | 2.8 | 33.2 | 0.2 | 2.2 | 1.6 | 1.1 | 41.1 | 1.6 | 42.7 |
| At 1 October 2007 | 2.8 | 33.2 | 0.2 | 2.2 | 1.6 | 1.1 | 41.1 | 1.6 | 42.7 |
| Share capital issued | 1.8 | 58.1 | - | - | - | - | 59.9 | - | 59.9 |
| Subsidiaries acquired | - | - | - | - | - | - | - | 3.8 | 3.8 |
| Revaluation | - | - | - | - | 2.9 | - | 2.9 | 2.0 | 4.9 |
| Loss for the period | - | - | - | - | - | (33.3) | (33.3) | (7.7) | (41.0) |
| Deferred tax | - | - | - | - | - | (0.8) | (0.8) | (0.2) | (1.0) |
| Foreign exchange translation |
- |
- |
(0.2) |
- |
- |
- |
(0.2) |
0.6 |
0.4 |
| AT 30 SEPTEMBER 2008 | 4.6 | 91.3 | - | 2.2 | 4.5 | (33.0) | 69.6 | 0.1 | 69.7 |
Share capital and share premium
| Ordinary shares | ||
| In millions of 1p shares | 2008 | 2007 |
| On issue at 1 October | 277.1 | 224.2 |
| Issued for cash | 177.8 | 51.4 |
| Bonus issue | - | 1.5 |
| ON ISSUE AT 30 SEPTEMBER - FULLY PAID | 454.9 | 277.1 |
At 30 September 2008, the authorised share capital comprised 550,000,000 ordinary shares (2007: 400,000,000) of 1p each. The increase of 150,000,000 took place on 6 December 2007.
During 2008, the Company issued 44.7 million, 56.9 million and 76.2 million shares at prices of 38p, 43p and 26p respectively (2007 51.4 million at 34.5p). The costs of the share issues of £1.4 million (2007 £0.7 million) have been deducted from the share premium created on issue. During 2007, the Company also issued and allotted 1. 5m shares at a price of 34. 5p per share which resulted in a charge to the income statement of £0.5 million as a bonus award to Gerard Holden.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.
The Group also issued share options in 2007.
7. Notes to the Cash Flow Statement
| Group
2008 £m | 2007 £m | |
| Depreciation of property, plant and equipment Amortisation of intangible assets Impairment of goodwill and other intangible assets Negative goodwill | 3.1 0.3 5.8 - | 1.3 0.1 - (0.7) |
| Share based payment expense | - | 2.6 |
| Finance (income)/expense | (3.9) | 0.2 |
| Share of profit of associates | - | 0.3 |
| Impairment/write off of goodwill and investment in associate | 4.0 | 3.4 |
| Write off of loan due from associate | - | 1.0 |
| Impairment/loss on disposal of investments | 0.8 | 0.3 |
| Gain on sale of intangible fixed asset | (5.8) | - |
| Income tax expense | 2.3 | (0.6) |
| ADJUSTMENTS TO LOSS FOR THE YEAR | 6.6 | 7.9 |
8. Events After the Balance Sheet Date
In October 2008, the Group:
Liquidated SA Independent Liner Services Pty Limited (SAILS). Losses totalling £0.9 million for the period from 1 October 2008 to 15 October 2008 will be reflected in the income statement for the year to 30 September 2009. At the date of liquidation, the impact on the Group's financial position will be as follows:
| Recognised values £m | |
| Property, plant and equipment | 0.1 |
| Trade and other receivables | 2.8 |
| Cash and cash equivalents | 0.1 |
| Non interest bearing financial liabilities | (2.0) |
| Bank overdraft | (0.5) |
| Trade and other payables | (6.6) |
| Net identifiable assets and liabilities | (6.1) |
| Minority interest | 3.8 |
| Gain on disposal | (2.3) |
In November 2008, the Group:
Announced that e-KwikBuild, Lonrho's 30.37% owned associate, had completed and commenced production from a new prefabricated production plant in Port Elizabeth, South Africa.
In December 2008, the Group:
Completed the acquisition of 51% of the Rollex Group, an agri-processing and logistics company for £5.5 million. The Group subscribed for £1.1 million of ordinary share capital with further deferred consideration of £4.4 million based on the achievement of financial targets. The acquisition, which has an effective date of 1 October 2008, had the following effect on the Group's assets and liabilities at the acquisition date:
| | Pre acquisition Subscription of carrying value £m | Shares £m | Fair value Adjustment £m | Provisional values recognised on acquisition £m |
| Property, plant and equipment Intangible assets Inventory Trade and other receivables | | – – – – | 0.1 – – – | 3.1 3.0 0.1 3.5 |
| Cash and cash equivalents | 0.8 | 1.1 | – | 1.9 |
| Interest-bearing loans and borrowings | (2.6) | – | – | (2.6) |
| Trade and other payables | (7.7) | – | – | (7.7) |
| NET IDENTIFIABLE ASSETS AND LIABILITIES | 0.1 | 1.1 | 0.1 | 1.3 |
| Minority interest | | | | (0.7) |
| Consideration paid* | | | | (1.3) |
| Deferred consideration | | | | (4.4) |
| GOODWILL ON ACQUISITION | | | | (5.1) |
| NET CASH INFLOW ARISING ON | | | | |
| ACQUISITION BEFORE DEFERRED CONSIDERATION | | | | 0.6 |
| * The consideration includes £0.2 million for acquisition costs. | | | | |
The intangible assets in the fair value of the assets acquired represent customer relationships and contracts.
The goodwill arising on the acquisition of Rollex is attributable to the investment in management and anticipated additional future profitability of the business.
In January 2009, the Group:
Signed a development agreement with the Angolan Government to develop 25,000 hectares of agricultural projects in Angola.
Signed an agreement to become the John Deere tractor and agricultural equipment distributor for Angola.
Acquired 1,550,000 shares in LonZim Plc taking its total interest to a 24.25% holding.
In February 2009, the Group:
Announced the liquidation of Lonrho Mining SA (Pty) Ltd, a wholly owned South African subsidiary of Lonrho Mining Ltd.
Acquired a further 100,000 shares in LonZim Plc taking its total interest to a 24.53% holding.
Announced that LonZim Plc had a 7.81% holding in the Company. This investment had been built up in the period since the year end.
9. Explanation of transition to Adopted IFRS
These are the Group's first consolidated financial statements prepared in accordance with Adopted IFRS.
The accounting policies set out have been applied in preparing the financial statements for the year ended 30 September 2008, the comparative information presented in these financial statements for the year ended 30 September 2007 and in the preparation of an opening Adopted IFRS balance sheet at 1 October 2006 (the Group's date of transition).
In preparing its opening Adopted IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with its old basis of accounting UK GAAP. An explanation of how the transition from previous GAAP to Adopted IFRS has affected the Group's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
The Group has taken advantage of the relief in IFRS 1 to deem the cumulative translation difference for all foreign operations to be zero at the date of transition to Adopted IFRS.
Group balance sheets
| UK GAAP |
Effect of Transition to Adopted IFRS | Adopted IFRS |
UK GAAP |
Effect of Transition to Adopted IFRS | Adopted IFRS | |||||||
| 1 October 2006 | 30 September 2007 | |||||||||||
| Note | £m | £m | £m | £m | £m | £m | ||||||
| ASSETS | ||||||||||||
| Goodwill | (a), (d) | 3.3 | - | 3.3 | 6.7 | (0.2) | 6.5 | |||||
| Other intangible assets | (a), (d) | - | - | - | - | 1.2 | 1.2 | |||||
| Property, plant and equipment | 19.8 | - | 19.8 | 36.9 | 36.9 | |||||||
| Other investments | - | - | - | 5.0 | - | 5.0 | ||||||
| Deferred tax assets | - | - | - | 2.2 | - | 2.2 | ||||||
| TOTAL NON-CURRENT ASSETS | 23.1 | - | 23.1 | 50.8 | 1.0 | 51.8 | ||||||
| Inventories | 0.2 | - | 0.2 | 1.4 | - | 1.4 | ||||||
| Investments | 7.1 | - | 7.1 | - | - | - | ||||||
| Prepayments | 0.2 | - | 0.2 | 0.8 | - | 0.8 | ||||||
| Trade and other receivables | 2.1 | - | 2.1 | 3.2 | - | 3.2 | ||||||
| Cash and cash equivalents | 20.7 | - | 20.7 | 15.2 | - | 15.2 | ||||||
| TOTAL CURRENT ASSETS | 30.3 | - | 30.3 | 20.6 | 20.6 | |||||||
| TOTAL ASSETS | 53.4 | - | 53.4 | 71.4 | 1.0 | 72.4 | ||||||
| EQUITY | ||||||||||||
| Issued share capital | 2.2 | - | 2.2 | 2.8 | - | 2.8 | ||||||
| Share premium account | 17.4 | - | 17.4 | 33.2 | - | 33.2 | ||||||
| Revaluation reserves | (d) | 1.6 | - | 1.6 | 1.5 | 0.1 | 1.6 | |||||
| Share option reserve | 0.1 | - | 0.1 | 2.2 | - | 2.2 | ||||||
| Foreign currency reserve | (d) | - | - | - | - | 0.2 | 0.2 | |||||
| Retained earnings | (c) | 18.2 | (1.6) | 16.6 | 2.9 | (1.8) | 1.1 | |||||
| TOTAL EQUITY ATTRIBUTABLE TO | ||||||||||||
| EQUITY HOLDERS OF THE PARENT | 39.5 | (1.6) | 37.9 | 42.6 | (1.5) | 41.1 | ||||||
| MINORITY INTEREST | (c) | 0.5 | 1.1 | 1.6 | (0.2) | 1.8 | 1.6 | |||||
| TOTAL EQUITY | 40.0 | (0.5) | 39.5 | 42.4 | 0.3 | 42.7 | ||||||
| LIABILITIES | ||||||||||||
| Other financial liabilities | - | - | - | 1.8 | - | 1.8 | ||||||
| Obligations under finance leases | - | - | 1.1 | - | 1.1 | |||||||
| Deferred tax liabilities | (a),(b) | - | 0.5 | 0.5 | - | 0.7 | 0.7 | |||||
| TOTAL NON-CURRENT LIABILITIES | - | 0.5 | 0.5 | 2.9 | 0.7 | 3.6 | ||||||
| Interest-bearing loans and borrowings | 4.3 | - | 4.3 | 4.3 | - | 4.3 | ||||||
| Other financial liabilities | - | - | - | - | - | - | ||||||
| Current tax liabilities | - | - | - | - | - | - | ||||||
| Trade and other payables | 9.1 | - | 9.1 | 21.6 | - | 21.6 | ||||||
| Obligation under finance leases | - | - | - | 0.2 | - | 0.2 | ||||||
| TOTAL CURRENT LIABILITIES | 13.4 | - | 13.4 | 26.1 | - | 26.1 | ||||||
| TOTAL LIABILITIES | 13.4 | 0.5 | 13.9 | 29.0 | 0.7 | 29.7 | ||||||
| TOTAL EQUITY AND LIABILITIES | 53.4 | - | 53.4 | 71.4 | 1.0 | 72.4 | ||||||
Reconciliation of Group loss for the year ended 30 September 2007
| Note | UK GAAP £m | Effect oftransition toAdopted IFRS £m | Adopted IFRS £m | |
| Revenue Cost of sales | 11.2 (11.0) | - - | 11.2 (11.0) | |
| GROSS PROFIT Other operating income | 0.2 0.4 | - - | 0.2 0.4 | |
| Operating costs | (a),(d) | (15.6) | 0.9 | (14.7) |
| OPERATING LOSS BEFORE FINANCE EXPENSE | (15.0) | 0.9 | (14.1) | |
| Finance income | 0.5 | - | 0.5 | |
| Finance expense | (d) | (0.9) | 0.2 | (0.7) |
| NET FINANCE EXPENSE | (0.4) | 0.2 | (0.2) | |
| Impairment of associates | (3.4) | - | (3.4) | |
| Profit on sale of fixed asset | (d) | 0.1 | (0.1) | - |
| Share of loss of associates | (d) | (0.1) | (0.2) | (0.3) |
| LOSS BEFORE TAX | (18.8) | 0.8 | (18.0) | |
| Income tax credit | 0.6 | - | 0.6 | |
| LOSS FOR THE PERIOD | (18.2) | 0.8 | (17.4) | |
| ATTRIBUTABLE TO: | ||||
| Equity holders of the parent | (15.5) | - | (15.5) | |
| Minority interest | (c) | (2.7) | 0.8 | (1.9) |
| LOSS FOR THE PERIOD | (18.2) | 0.8 | (17.4) | |
| BASIC EARNINGS PER SHARE (PENCE) | (6.4) | - | (6.4) | |
| DILUTED EARNINGS PER SHARE (PENCE) | (6.4) | - | (6.4) |
a. IFRS 3 - Business combinations
Under IFRS 3, goodwill is not amortised but is measured at cost less impairment losses. Under UK GAAP, goodwill was amortised on a straight line basis over the period of its expected useful life. This adjustment increases profit before tax and goodwill for the year to 30 September 2007 by £0.2 million.
IFRS 3 requires that intangible assets arising on acquisition, that are separable or arise from contractual or other legal rights, be recognised as intangible assets separately from goodwill. This adjustment results in additional intangible assets of £1.3 million at 30 September 2007 with a corresponding reduction in goodwill of £0.6 million and the creation of negative goodwill of
£0.7 million which has been written off immediately in the income statement. These adjustments give rise to a deferred tax liability and a corresponding increase in goodwill of £0.2 million at 30 September 2007.
The intangible assets will be amortised on a straight line basis over their expected useful economic life. This increases the loss before tax and decreases intangible assets for the year to 30 September 2007 by £0.1 million.
b. IAS 12 - Deferred taxation
Under UK GAAP deferred tax was provided on timing differences that had originated, but had not reversed, before the balance sheet date. IAS 12 requires that deferred tax is provided on temporary differences based upon the recovery of settlement of assets and liabilities recognised in the balance sheet.
As a result, an additional tax liability of £0.5 million has been provided on translation. This change is as a result of property, plant and equipment being revalued with no equivalent adjustment made for tax purposes.
c. Minority interest
Under UK GAAP the losses of a subsidiary undertaking are allocated against the majority and minority in accordance with their respective shareholdings. IAS 27 requires losses of a subsidiary undertaking to be allocated against the majority except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary undertaking subsequently reports profits, such profits are allocated to the majority interest until the minority's share of the losses previously absorbed by the majority, have been recovered. Losses of £1.1 million have been allocated against retained earnings in respect of this adjustment due to a binding obligation not being in existence in respect of certain subsidiary undertakings as at 1 October 2006 and an additional £0.7 million in respect of the year to 30 September 2007.
d. Presentational adjustments
The financial information is in Adopted IFRS format and reflects a number of differences in presentation between UK GAAP and Adopted IFRS as follows:
(iv) the format of the income statement will be substantially similar to that of the profit and loss account in the Group’s previous UK GAAP financial statements. The Companies Act schedule 4 format of the profit and loss account is no longer used under Adopted IFRS.