Last checked at 12 May 2009 07:00
12 May 2009
VOLVERE PLC
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Volvere plc ('Volvere' or 'the Company'), the turnaround investment company, announces its final results for the year ended 31 December 2008.
HIGHLIGHTS
Group net assets: £11.6m (2007: £10.8m) of which cash and government bonds represented £12.5m (2007: £11.7m)
Group net assets and cash (including government bonds) per share of £2.05 and £2.20 respectively (2007: £1.91 and £2.07)
Group revenue from continuing operations: £7.3m (2007: £3.8m)
Group profit for the year from continuing operations: £0.5m (2007: loss £0.4m)
Interactive Prospect Targeting ("IPT") acquisition made in September 2008 performing strongly: revenue and operating profit for the 3 months following acquisition of £2.6m and £0.4m respectively. The Group has consolidated this company as a 50% subsidiary as it has control over it.
Since acquisition IPT has repaid £1.2m to the Group, bringing the net investment to £0.2m
Sira Certification continued to grow strongly with revenue and profit (before interest, tax, and amortisation of goodwill) of £4.3m and £0.87m respectively (2007: £3.6m and £0.56m)
Deal flow for distressed investing remains strong and Group's resources mean it is well positioned to benefit from these opportunities
Basic and diluted earnings per share from continuing operations 5.69p (2007: loss 6.46p); total basic and diluted earnings per share 5.69p (2007: 57.74p, which included the gain on disposal of a discontinued business)
CHAIRMAN'S STATEMENT
I am pleased to report on the results for the year ended 31 December 2008.
Once again, the Group's businesses have delivered strong performances. Particularly encouraging was the contribution from newly-acquired Interactive Prospect Targeting Limited and the growth in our Certification business. Our balance sheet remains strong, with year-end consolidated net assets of £11.6m and cash (including government bond investments) of £12.5m (2007: £10.8m and £11.7m respectively).
OUTLOOK
I believe the uncertain economic environment will continue to present opportunities for the Group's growth.
Lord Kalms
Chairman
12 May 2009
For further information, please contact:
| Jonathan Lander, Chief Executive Officer | |
| Volvere plc | + 44 (0) 20 7979 7596 |
| Nick Tulloch / Ed Gay | |
| Arbuthnot Securities Limited | + 44 (0) 207 012 2000 |
Chief Executive's statement
Introduction
I am pleased to report that all our Group companies performed well in 2008. Our prudent approach to acquiring businesses has meant that we have not suffered because of the economic downturn; in fact, I believe we are well placed to prosper from it. The principal event of 2008 was the acquisition of Interactive Prospect Targeting Limited in late September 2008, which is now our largest business.
Operating review
The Group's trading businesses are organised into three broad segments: certification services, security solutions and online marketing and data services. The safety & risk consulting segment was discontinued following the sale of Vectra in 2007. The financial performance of each segment is summarised in the financial review and detailed in note 5 of the notes to the preliminary announcement.
Certification services
Our certification services businesses, which trade under the Sira Certification brand, principally certify products that are used in potentially explosive atmospheres and environmentally sensitive applications involving air emissions or wastewater discharge. It is very pleasing that revenue and profit continued to grow strongly as the benefits of our development strategy continue to feed through. Overall revenue for the year was £4.3m, an increase of more than 16% over 2007's £3.6m. The pre-amortisation operating result was £0.87m, up 55% on the result for 2007 of £0.56m.
Security solutions
Sira Defence & Security delivered a much improved performance compared to 2007. It is, however, still a relatively early-stage business and we are working closely with its management and staff to ensure it maximises its potential for the longer term.
The development contract won in late 2007 (for £0.25m) has been completed satisfactorily and we have received some follow-on work in a related field. We are hopeful that this will lead to another sizeable project in 2009.
Throughout 2008 we have continued to see increasing acceptance of SiraView, the multi-format digital CCTV viewer targeted at the police and judicial services. There are now several police forces using the software in the UK (and we have also had interest from a number of overseas forces). In 2009 we will be continuing to expand our installed base and build our recurring maintenance revenues.
Online marketing and data services
On 29 September 2008 the Group acquired through a new subsidiary called Interactive Prospect Targeting Limited ("IPT"), certain of the United Kingdom businesses and assets of Interactive Prospect Targeting Holdings PLC and its subsidiaries for a consideration (including costs) of £1.4m.
IPT builds customer prospect databases that are generated through the completion of questionnaires that are distributed principally on prize sites on the internet, such as www.MyOffers.co.uk. IPT has a database of over 5.2m email addresses, 6.8m household postal address and 1.7m telephone and mobile numbers, all of which are opted-in to receive marketing from selected clients. IPT processes over 3m completed prospect questionnaires every month. The company currently employs 57 people and is based in London.
Following the acquisition, together with the management and staff, we undertook a restructuring of the business with a focus on cost control and a return to IPT's core business of building databases of customer leads for blue-chip clients.
Our initial investment in IPT of £1.4m was £0.2m in equity and the balance of £1.2m by way of a loan. On 5 November 2008 we announced that certain of IPT's management and staff, along with other third party investors, had invested £0.8m in IPT, £0.2m by way of equity and the balance by way of a loan. Volvere's equity holding was diluted down to 50% following this and, prior to the end of the year, IPT repaid to Volvere £0.4m of the outstanding loan balance. For the reasons explained in the financial review, we have consolidated IPT as a subsidiary.
I am delighted to report IPT performed very well in the three months to 31 December 2008. Revenue for that period was £2.65m and the company delivered an operating profit of £0.4m. This is particularly pleasing given the disruption that was inevitably caused by a change of ownership and a relocation of people and IT systems to a new office location. This result is testament to the dedication of the management and staff of the company and the commitment of its clients during the transitional period.
Since the year end, IPT has made a further £0.8m of principal loan repayment to Volvere with the result that Volvere plc's net investment in IPT is now £0.2m.
Distressed securities
In accordance with our investment strategy of investing in distressed securities, as well as in distressed companies, post-year end we invested approximately £1m in certain bank securities. These investments were made in March and April 2009 and at that time the average yield at cost on these securities was 20%; as at 30 April 2009 the market value of these securities was £1.26m. The yields achievable reflect the significant risk perceived by investors in bank balance sheets as well as the lack of liquidity in these instruments. The amounts invested in these securities are small relative to our overall capital.
Acquisitions and future strategy
The principal challenge for 2009 and beyond is the timing of investment. Whilst the number of potential opportunities presented to us has increased, the time from purchase to turnaround is much more difficult to predict. We are conscious of the fact that the total investment in any turnaround opportunity is both the price paid and the working capital required as they are turned around. Our balance sheet is, however, both strong and highly liquid and we believe this will enable us to continue to make quality investments despite the increased uncertainties.
Jonathan Lander
Chief Executive
12 May 2009
Financial review
This financial review covers the Group's performance during the year ended 31 December 2008. It should be read in conjunction with the Chairman's and Chief Executive's statements.
Accounting policies and basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Group's accounting policies are set out in note 1 of the notes to the preliminary announcement.
Acquisition
On 29 September 2008 the Group acquired Interactive Prospect Targeting Limited's ("IPT") business and assets for a net cash consideration, including costs, of £1.4m. Shortly thereafter, IPT raised £0.8m of new capital (by way of £0.6m of debt and £0.2m of equity from certain management, staff and third parties), resulting in the Group's shareholding being diluted to 50%. As a result of the Group having control of IPT (by virtue of the terms of a shareholder agreement), it has been consolidated as a subsidiary in the segment called online marketing and data services, with the 50% not owned by the Company included in minority interests. The external investment referred to above constitutes a deemed disposal by the Group of 50% of its interest in IPT. However, the net assets had not changed significantly between the date of original investment and the deemed disposal and IPT has therefore been consolidated from the original investment date as though the Group owned 50% from that time.
Revenue and operating performance
Detailed information about the Group's segments is set out in note 5 to the preliminary announcement.
Revenue
Revenue from continuing operations has grown principally due to the acquisition of IPT in September 2008. In addition, revenue in the certification services segment continued to grow strongly, with an increase of 16% compared to 2007 (2007: 15%, ignoring the effects of acquisitions in that year). The security solutions segment more than doubled its revenues as sales of software and security development work increased.
Operating performance
The acquisition of IPT significantly improved the Group's operating result, with a contribution of £0.4m. In addition, both the certification services and security solutions segments achieved improved performances in 2008 as their businesses continued to grow organically; the segment result for certification services was £0.87m, up 55% on the prior year.
Administrative expenses
The Group continues to minimise central costs where possible. The increase in costs in relation to continuing operations arose principally as a result of the increased activity levels across the Group.
This is summarised below:
| Acquisitions 2008 £'000 | 2008 £'000 | Total 2008 £'000 | 2007 £'000 | Discontinued operations 2007 £'000 | |
| Before goodwill and amortisation | (1,393) | (3,318) | (4,711) | (3,181) | (3,885) |
| Amortisation of intangible assets | - | (240) | (240) | (241) | - |
| Realisation of negative goodwill | - | - | - | 93 | - |
| Total | (1,393) | (3,558) | (4,951) | (3,329) | (3,885) |
Amortisation of intangible assets relates to the acquisition of the business and assets of Sira Test and Certification Limited in 2005, the cost of which is being amortised over 5 years. The negative goodwill realised in 2007 relates to the Group's investment in NMT Group PLC, which was increased in that year.
Risk factors
The Company and Group face a number of specific business risks that could affect the Company's or Group's success. The Company invests in distressed businesses and securities, which by their nature, often carry a higher degree of risk than those that are not distressed. The Group's businesses are principally engaged in the provision of services that are dependent on the continued employment of the Group's employees and availability of suitable profitable workload. In addition, the online marketing and data services segment is particularly heavily dependent on IT systems and infrastructure, the unavailability of which could impact the Group materially.
Key performance indicators
The Group uses key performance indicators suitable for the nature and size of the Group's businesses. This is primarily monthly reports of profitability, levels of working capital and workload. Order intake and chargeable staff utilisation is monitored weekly and reported monthly in respect of the certification and security solutions segments. In the online marketing and data services segment, the Group monitors traffic statistics both in terms of yield and cost as well as overall profitability. The segmental analysis in note 5 to this preliminary announcement summarises the performance of each segment.
Corporate governance
The Board gives careful consideration to the principles of corporate governance as set out in the Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2006 (the "Revised Combined Code"). However, the Company is relatively small and it is the opinion of the Directors that not all the provisions of the Revised Combined Code are relevant or desirable for a company of Volvere's size.
The Company has established an Audit Committee and a Remuneration Committee with formal terms of reference and which comprise the Chairman and Non-Executive Directors. The Board meets regularly and has ultimate responsibility for the management of the Company.
Earnings per share
The basic and diluted earnings per ordinary share were 5.69p (2007: 57.74p). During the year the Group continued the operation of a share option scheme in which certain staff are entitled to participate, subject to the scheme's terms and conditions.
Amortisation of intangibles
An amount of £240,000 was charged to the income statement (31 December 2007: £241,000) in respect of the amortisation of the Group's intangible assets.
Cash management
Cash balances at the period end totalled £3m (31 December 2007: £11.7m). In October 2008 the Group invested £9.4m in UK Government Bonds and these are included at the balance sheet date as assets held for sale, at a valuation of £9.5m. These bonds matured after the year end and proceeds of £9.5m were received. The Group's cash includes (by virtue of its full consolidation) the amount of £1.5m held in its 50% owned subsidiary, Interactive Prospect Targeting Limited.
Hedging
It is not the Group's policy to enter into derivative instruments to hedge interest rate risk.
Dividends
In accordance with the policy set out in the prospectus on admission to AIM, the Board does not currently intend to recommend payment of a dividend and prefers to retain profits as they arise for investment in future opportunities.
Nick Lander
Chief Financial & Operating Officer
12 May 2009
Consolidated income statement for the year ended 31 December 2008
| Note | 2008 | 2007 | ||
| £'000 | £'000 | |||
| Continuing operations | ||||
| Revenue | 5 | 7,258 | 3,795 | |
| Cost of sales | (2,314) | (1,180) | ||
| Gross profit | 4,944 | 2,615 | ||
| Administrative expenses | ||||
| Before goodwill and amortisation | (4,711) | (3,181) | ||
| Amortisation of intangible assets | (240) | (241) | ||
| Realisation of negative goodwill | - | 93 | ||
| Administrative expenses | (4,951) | (3,329) | ||
| Operating loss | 2 | (7) | (714) | |
| Investment revenues | 1 | - | ||
| Other gains and losses | 8 | - | ||
| Finance expense | 7 | (35) | (41) | |
| Finance income | 7 | 475 | 391 | |
| Profit/(loss) before tax | 442 | (364) | ||
| Tax | 8 | 67 | - | |
| Profit/(loss) for the period from continuing operations | 509 | (364) | ||
| Discontinued operations | ||||
| Profit for the year from discontinued operations | 5 | - | 3,620 | |
| Profit for the year | 509 | 3,256 | ||
| Attributable to: | ||||
| - Equity holders of the parent | 25 | 323 | 3,251 | |
| - Minority interests | 32 | 186 | 5 | |
| 509 | 3,256 | |||
| Earnings/(loss) per share | 10 | |||
| Continuing operations | ||||
| - Basic | 5.69p | (6.46p) | ||
| - Diluted | 5.69p | (6.46p) | ||
| Discontinued operations | ||||
| - Basic | - | 64.20p | ||
| - Diluted | - | 64.20p | ||
| Total | ||||
| - Basic | 5.69p | 57.74p | ||
| - Diluted | 5.69p | 57.74p |
Consolidated statement of changes in equity for the year ended 31 December 2008
| Share capital £'000 | Share premium £'000 | Revaluation reserve £'000 | Share option reserve £'000 | Retained earnings £'000 | Minority interest £'000 | Total £'000 | |
| Changes in equity | |||||||
| Profit for the year & total recognised income and expense for the year | - | - | - | - | 3,251 | 5 | 3,256 |
| Balance at 1 January 2007 | 50 | 3,313 | - | 75 | 3,575 | 648 | 7,661 |
| Issue of share capital | - | 273 | - | - | - | - | 273 |
| Equity share options issued/cancelled | - | - | - | (60) | 61 | - | 1 |
| Reduction in minority interest | - | - | - | - | - | (370) | (370) |
| Balance at 31 December 2007 | 50 | 3,586 | - | 15 | 6,887 | 283 | 10,821 |
| Revaluation of assets held for sale and total income recognised directly in equity | - | - | 97 | - | - | - | 97 |
| Profit for the year | - | - | - | - | 323 | 186 | 509 |
| Total income and expense for the year | - | - | 97 | - | 323 | 186 | 606 |
| Balance at 1 January 2008 | 50 | 3,586 | - | 15 | 6,887 | 283 | 10,821 |
| Equity share options issued/cancelled | - | - | - | 1 | 8 | - | 9 |
| Minority interest arising on acquisition | - | - | - | - | - | 201 | 201 |
| Balance at 31 December 2008 | 50 | 3,586 | 97 | 16 | 7,218 | 670 | 11,637 |
Consolidated balance sheet at 31 December 2008
| 2008 | 2007 | |||
| Note | £'000 | £'000 | ||
| Assets | ||||
| Non-current assets | ||||
| Goodwill | 12 | 532 | - | |
| Other intangible assets | 13 | 476 | 716 | |
| Available for sale investments | 15 | - | 48 | |
| Property, plant & equipment | 14 | 495 | 203 | |
| Total non-current assets | 1,503 | 967 | ||
| Current assets | ||||
| Trade and other receivables | 17 | 3,264 | 1,474 | |
| Cash and cash equivalents | 33 | 2,999 | 11,738 | |
| Available for sale investments | 16 | 9,497 | - | |
| Deferred tax asset | 23 | 88 | - | |
| Total current assets | 15,848 | 13,212 | ||
| Total assets | 17,351 | 14,179 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Trade and other payables | 18 | (4,758) | (2,938) | |
| Taxation | (21) | - | ||
| Other financial liabilities | 19 | (720) | (120) | |
| Total current liabilities | (5,499) | (3,058) | ||
| Non-current liabilities | ||||
| Financial liabilities | 20 | (215) | (300) | |
| Total non-current liabilities | (215) | (300) | ||
| Total liabilities | (5,714) | (3,358) | ||
| TOTAL NET ASSETS | 11,637 | 10,821 | ||
| Equity | ||||
| Share capital | 24 | 50 | 50 | |
| Share premium account | 25 | 3,586 | 3,586 | |
| Revaluation reserve | 25 | 97 | - | |
| Share option reserve | 25 | 16 | 15 | |
| Retained earnings | 25 | 7,218 | 6,887 | |
| Capital and reserves attributable to equity holders of the Company | 10,967 | 10,538 | ||
| Minority interests | 32 | 670 | 283 | |
| TOTAL EQUITY | 26 | 11,637 | 10,821 |
Consolidated cash flow statement for the year ended 31 December 2008
| 2008 | 2008 | 2007 | 2007 | ||
| Note | £'000 | £'000 | £'000 | £'000 | |
| Profit for the year | 509 | 3,256 | |||
| Adjustments for: | |||||
| Investment revenues | (1) | - | |||
| Other gains and losses | (8) | - | |||
| Finance expense | 35 | 41 | |||
| Finance income | (475) | (391) | |||
| Gain on disposal of discontinued operations | - | (3,270) | |||
| Tax credit | (67) | - | |||
| Depreciation | 137 | 133 | |||
| Realisation of negative goodwill | - | (93) | |||
| Amortisation of intangible assets | 240 | 241 | |||
| Share based payment expenses | 9 | 1 | |||
| (130) | (3,338) | ||||
| Operating cash flows before movements in working capital | 379 | (82) | |||
| Decrease/(increase) in trade and other receivables | 307 | (24) | |||
| Increase in trade and other payables | 343 | 994 | |||
| Cash generated by operations | 1,029 | 888 | |||
| Interest paid | (32) | (51) | |||
| Net cash from operating activities | 997 | 837 | |||
| Investing activities | |||||
| Acquisition of subsidiary undertaking including associated costs, net of cash acquired | 6 | (1,373) | (39) | ||
| Increase in investment in subsidiary undertaking | (2) | - | |||
| Disposal of subsidiary, net of cash disposed | 9 | - | 4,431 | ||
| Purchases of property, plant and equipment | (175) | (228) | |||
| Disposal of available for sale investments | 57 | - | |||
| Shares issued to minority interest | 200 | - | |||
| Interest received | 476 | 396 | |||
| Income from available for sale investments | 1 | - | |||
| Purchase of available for sale investments | (9,400) | (49) | |||
| Net cash (used in)/generated from investing activities | (10,216) | 4,511 | |||
| Financing activities | |||||
| Loan advances | 600 | - | |||
| Repayment of bank borrowings | (120) | (150) | |||
| Net cash generated from/(used in) financing activities | 480 | (150) | |||
| Net (decrease)/increase in cash and cash equivalents | 33 | (8,739) | 5,198 | ||
| Cash and cash equivalents at beginning of year | 33 | 11,738 | 6,540 | ||
| Cash and cash equivalents at end of year | 33 | 2,999 | 11,738 |
Notes forming part of the preliminary announcement for the year ended 31 December 2008
The financial information set out in this announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2007 has been extracted from the consolidated financial statements to that date which received an unmodified auditor's report and have been delivered to the Registrar of Companies. The financial information for the year ended 31 December 2008 has been extracted from the consolidated financial statements to that date which have received an unmodified auditor's report but have not yet been delivered to the Registrar of Companies.
Copies of the annual report and financial statements will be sent to shareholders shortly and will be available from the registered office of the Company and the Company's website www.volvere.co.uk.
1 Accounting policies
Basis of accounting
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as adopted by the European Union ("adopted IFRS") and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under adopted IFRS.
The following principal accounting policies have been applied consistently in the preparation of these financial statements:
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent.
The results of subsidiaries 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.
Goodwill
Goodwill arising on consolidation represents the excess of the costs of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Negative goodwill arising on acquisitions is recognised immediately in the income statement in the period in which it arises.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Revenue earned on time and materials contracts is recognised as costs are incurred. Income from fixed price contracts is recognised in proportion to the stage of completion of the relevant contract.
Leasing
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in net profit or loss for the period.
Retirement benefit costs
The Group's subsidiary undertakings operate defined contribution retirement benefit schemes. Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. The assets of the schemes are held separately from those of the relevant company and Group in independently administered funds.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. 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 tax is the tax expected to be payable or recoverable on temporary 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 investments in subsidiaries and associates, and interests in joint ventures, 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 directly to equity, in which case the deferred tax is also dealt with in equity.
Property, plant and equipmen
Items of plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets, over their estimated useful lives, using the straight line method, on the following bases:
Improvements to short-term leasehold property: - Over the life of the lease
Plant and machinery: - 20%-33%
Investments
Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs. Available for sale current asset investments are subsequently carried at fair value with adjustments recognised in reserves.
Investment income
Income from investments is included in the income statement at the point the Group becomes legally entitled to it.
Impairment of tangible and intangible assets excluding goodwill
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 the impairment loss (if any).
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 of money 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 (cash-generating unit) is reduced to its recoverable amount. An 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 (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 (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 reversal of the impairment loss is treated as a revaluation increase.
Intangible assets - customer relationships
Customer relationship intangible assets acquired in a business combination are initially measured at fair value, based on discounted cash flows and amortised over their estimated useful lives of 5 years on a straight line basis. Amortisation is included in administrative expenses.
Financial assets
The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. The Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.
Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method less any provision for impairment.
Held-to-maturity investments: These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group's management has the positive intention and ability to hold to maturity. These assets are measured at amortised cost, using the effective interest rate method less any impairment, with revenue recognised on an effective yield basis.
Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities and investments in government bonds. They are carried at fair value with changes in fair value recognised directly in equity. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the income statement.
Financial liabilities
The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only out-of-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement.
Other financial liabilities: Other financial liabilities include the following items:
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Bank and other borrowings are initially recognised at the fair value of the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method. "Interest expense" in this context includes initial transaction costs and premia payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liability and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Share-based payments
The Group has applied the requirements of IFRS 2, Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of options that will eventually vest.
Fair value is measured by use of a Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, overnight deposits and treasury deposits. The Group considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The nature of the Group's business is such that there can be unpredictable variation and uncertainty regarding its business. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The critical judgements and key sources of estimation that have a significant impact on the carrying value of assets and liabilities are discussed below:
Deferred tax asset
The Group recognises a deferred tax asset in respect of temporary differences relating to capital allowances, revenue losses and other short term temporary differences when it considers there is sufficient evidence that the asset will be recovered against future taxable profits.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and VAT. Sales of goods are recognised when goods are delivered and title has passed. Revenue is recognised when the significant risks and rewards associated with ownership of the goods have been transferred. Sales of services are recognised with reference to the stage of completion.
Amortisation of intangible assets
The Group has, in determining the value of intangible assets, estimated the cash flows expected to arise from the underlying intangible assets acquired as part of their acquisition and estimated a suitable discount rate in order to calculate the present value thereof. The value of the Group's intangible assets is being amortised over 5 years using the straight line method.
Non-recognition of intangible assets - business combination in 2008
The Group has considered whether it would be appropriate to recognise intangible assets in relation to business combinations. In the Group's opinion, the value in the intangible assets rests not with the intangible assets themselves, but in the ability of the Group's employees to exploit them. Accordingly, no value has been ascribed to them.
Share-based payments
The Group has an equity-settled share-based remuneration scheme for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments (shares) at the date of grant. The fair value of share options is estimated by using the Black-Scholes valuation model on the date of grant based on certain assumptions. Those assumptions include, among others, the dividend growth rate, expected volatility, expected life of the options and number of options expected to vest. More details including carrying values are disclosed in note 28.
New standards and interpretations not yet effective
A number of new standards, amendments to standards and interpretations are not yet effective for the period ended 31 December 2008, and have not been applied in preparing these consolidated statements:
IFRS 8 - Operating segments
IFRS 8 is effective for accounting periods commencing on or after 1 January 2009 and introduces the "management approach" to segment reporting. This standard will require disclosure of segment information based on internal reports regularly reviewed by the group's board in order to assess each segment's performance and to allocate resources to them. This standard is concerned only with disclosure and replaces IAS 14 "Segment reporting".
IAS 1 - Presentation of financial statements (revised 2007)
This revised standard is applicable for accounting periods beginning on or after 1 January 2009. The main changes triggered by this standard result in a separate presentation of changes in equity. The amended version of this standard also changes the terminology and presentation of the primary financial statements.
Other standards, revisions to standards, and interpretations which will become effective in future periods, but which are not expected to materially impact on the Group are:
IAS 23 - Borrowing costs (revised 2007)
IFRS 3 - Business combinations (revised 2008)
IFRIC 11 - IFRS 2 - Group and Treasury Share Transactions
IFRIC 12 - Service Concession Agreements
IFRIC 13 - Customer Loyalty Programmes
IFRIC 14 - IAS 19 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction
IFRIC 15: Agreements for the Construction of Real Estate
IFRIC 16: Hedges of a Net Investment in a Foreign Operation
IFRIC 17: Distributions of Non-cash Assets to Owners
Amendment to IFRS 2 Share-Based Payment Vesting Conditions and Cancellations 2009
2 Operating loss
| 2008 £'000 | 2007 £'000 | ||
| Operating loss has been arrived at after charging/(crediting): | |||
| Staff costs (see note 3) | 3,716 | 3,274 | |
| Depreciation of property, plant and equipment | 137 | 58 | |
| Realisation of negative goodwill | - | (93) | |
| Amortisation of intangible fixed assets | 240 | 241 | |
| Exchange gains | (76) | (16) | |
| Operating lease expense | |||
| - Plant and machinery | - | - | |
| - Other | 149 | 96 | |
| Audit fees | 40 | 37 | |
| Fees paid to the Company's auditor for non-audit services | - | 34 | |
| The analysis of auditor's remuneration is as follows: | |||
| Fees payable to the Company's auditor | |||
| - for the audit of the Company's annual accounts | 14 | 10 | |
| - for the audit of the Company's subsidiaries | 26 | 22 | |
| - for the interim review | - | 5 | |
| Total audit fees | 40 | 37 | |
| Fees payable to the Company's auditor for other services | |||
| - Tax services | - | 34 |
3. Staff costs
| Staff costs in respect of continuing operations (including directors) comprise: | 2008 £'000 | 2007 £'000 | |
| Wages and salaries | 3,268 | 2,826 | |
| Employer's national insurance contributions and similar taxes | 322 | 321 | |
| Defined contribution pension cost | 117 | 126 | |
| Share-based payment expense | 9 | 1 | |
| 3,716 | 3,274 |
The average number of employees (including Directors) in the Group was as follows:
| 2008 Number | 2007 Number | ||
| Engineering and production | 58 | 39 | |
| Sales and marketing | 29 | 6 | |
| Administration and management | 43 | 24 | |
| 130 | 69 |
4 Directors' remuneration
| The remuneration of the directors was as follows: | 2008 £'000 | 2007 £'000 | |
| Lord Kalms of Edgware | 37 | 78 | |
| Neil Ashley | 20 | 86 | |
| David Buchler | 20 | 35 | |
| Richard Kalms | 40 | 70 | |
| Jonathan Lander | 12 | 163 | |
| Nick Lander | 12 | 214 | |
| 141 | 646 |
The services of Jonathan Lander and Nick Lander are provided under the terms of a Service Agreement dated 19 December 2002 with Dawnay, Day Lander Limited. The amount due under this agreement, which is in addition to the amounts disclosed above, for the year amounted to £277,000 (2007: £277,000). In addition, the amount paid to David Buchler in the year was to a third party on an invoice basis. None of the directors were members of the Group's defined contribution pension plan in the year (2007: none).
5 Segment information
All revenue arose through services rendered in the principal activities of online marketing and data services, certification services, security solutions and investing and management services. The safety and risk consulting segment was disposed of in 2007.
The Group's primary reporting format for reporting segment information is business segments.
| Business Segments | ||||||||
| Online Marketing & Data Services 2008 £'000 | Certification Services 2008 £'000 | Security Solutions 2008 £'000 | Investing and management services 2008 £'000 | Eliminations 2008 £'000 | Total 2008 £'000 | |||
| Revenue | ||||||||
| External | 2,658 | 4,213 | 356 | 31 | - | 7,258 | ||
| Inter-segment | - | 41 | - | 713 | (754) | - | ||
| Total | 2,658 | 4,254 | 356 | 744 | (754) | 7,258 | ||
| Segment result (notes (a) & (b)) | 406 | 868 | (13) | (1,028) | - | 233 | ||
| Loss from operations before goodwill and amortisation of intangible assets | 233 | |||||||
| Amortisation of intangible assets | (240) | |||||||
| Investment revenues | 1 | |||||||
| Other gains | 8 | |||||||
| Net finance income (note 7) | 440 | |||||||
| Profit on ordinary activities before tax | 442 | |||||||
| Gain on disposal of discontinued operation | - | |||||||
| Profit for the year before tax | 442 | |||||||
| Business Segments | ||||||||
| Online Marketing & Data Services 2008 £'000 | Certification Services 2008 £'000 | Security Solutions 2008 £'000 | Investing and management services 2008 £'000 | Eliminations 2008 £'000 | Total 2008 £'000 | |||
| Balance sheet (note (c)) | ||||||||
| Assets | 4,117 | 2,293 | 119 | 10,822 | - | 17,351 | ||
| Liabilities | (2,539) | (2,532) | (73) | (570) | - | (5,714) | ||
| Net assets | 1,578 | (239) | 46 | 10,252 | - | 11,637 | ||
| Other | ||||||||
| Capital expenditure | 48 | 92 | 11 | 24 | - | 175 | ||
| Depreciation | 50 | 69 | 7 | 11 | - | 137 | ||
| Amortisation | - | 240 | - | - | - | 240 | ||
| Online Marketing & Data Services 2007 £'000 | Certification Services 2007 £'000 | Security Solutions 2007 £'000 | Investing and management services 2007 £'000 | Eliminations 2007 £'000 | Total 2007 £'000 | Discontinued Activities | ||
| Revenue | ||||||||
| External | - | 3,621 | 174 | - | - | 3,795 | 9,352 | |
| Inter-segment | - | 22 | - | 949 | (971) | - | - | |
| Total | - | 3,643 | 174 | 949 | (971) | 3,795 | 9,352 | |
| Segment result (notes (a) & (b)) | - | 560 | (145) | (981) | - | (566) | 362 | |
| (Loss)/profit from operations before goodwill and amortisation of intangible assets | (566) | 362 | ||||||
| Amortisation of intangible assets | (241) | - | ||||||
| Negative goodwill released to income | 93 | - | ||||||
| Net finance income (note 7) | 350 | (12) | ||||||
| (Loss)/profit on ordinary activities before tax | (364) | 350 | ||||||
| Gain on disposal of discontinued operation (note 9) | - | 3,270 | ||||||
| (Loss)/profit for the year before tax | (364) | 3,620 | ||||||
| Online Marketing & Data Services 2007 £'000 | Certification Services 2007 £'000 | Security Solutions 2007 £'000 | Investing and management services 2007 £'000 | Eliminations 2007 £'000 | Total 2007 £'000 | Discontinued Activities | ||
| Balance sheet (note (c)) | ||||||||
| Assets | - | 2,506 | 78 | 11,595 | - | 14,179 | - | |
| Liabilities | - | (2,249) | (40) | (1,069) | - | (3,358) | - | |
| Net assets | - | 257 | 38 | 10,526 | - | 10,821 | - | |
| Other | ||||||||
| Capital expenditure | - | 101 | 5 | 11 | - | 117 | 111 | |
| Depreciation | - | 50 | 5 | 3 | - | 58 | 75 | |
| Amortisation | - | 241 | - | - | - | 241 | - | |
| Realisation of negative goodwill | - | - | - | (93) | - | (93) | - |
Note (a): The segment result has been stated before tax, interest, amortisation of intangible assets and Group management and similar charges.
Note (b): The Group operates a central services function to provide financial, IT and HR services to certain Group companies. In order to present segmental and continuing/discontinued information more meaningfully in 2007, the Group allocated certain 2007 central service costs to the discontinued safety and risk consulting segment.
Note (c): Segment assets and liabilities have been stated excluding inter-segment balances.
The Group's secondary reporting format for reporting segment information is geographic segments.
| External revenue by location of customers | Total assets by location of assets | Capital expenditure by location of assets | |||||
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| UK | 5,499 | 2,770 | 17,351 | 14,179 | 175 | 228 | |
| Rest of Europe | 521 | 555 | - | - | - | - | |
| USA | 722 | 248 | - | - | - | - | |
| Other | 516 | 222 | - | - | - | - | |
| 7,258 | 3,795 | 17,351 | 14,179 | 175 | 228 | ||
The discontinued operations in 2007 relates to the Company's then subsidiary, Vectra Group Limited, which was sold in November 2007. Further information is given in note 9.
6 Business combination
On 29 September 2008 the Group acquired certain businesses and assets and a subsidiary undertaking from Interactive Prospect Targeting Holdings PLC through a newly formed subsidiary undertaking, Interactive Prospect Targeting Limited ("IPT"). The net cash consideration, including costs, was £1,373,000. The investment was by way of £200,000 in equity, with the balance funded by way of loans. Shortly after the acquisition, IPT issued new shares to and received loans from certain IPT management and staff and other third parties, on terms similar to those at which the Company had subscribed, for a total consideration of £800,000. This diluted the Company's shareholding to 50%. The external investment referred to above constitutes a deemed disposal by the Group of 50% of its interest in IPT. However, the net assets had not changed significantly between the date of original investment and the deemed disposal and IPT has therefore been consolidated from the original investment date as though the Group had owned 50% from that time.
The following table sets out the book values of the identifiable assets and liabilities acquired and their fair values:
| Book value at acquisition 2008 £'000 | Provisional fair value adjustments 2008 £'000 | Fair value at acquisition 2008 £'000 | |||
| Non- current assets | |||||
| Property, plant & equipment | 254 | - | 254 | ||
| Current assets | |||||
| Trade receivables | 1,110 | 1 | 1,111 | ||
| Prepayments and amounts recoverable under contracts | 883 | 103 | 986 | ||
| Cash and cash equivalents | 8 | - | 8 | ||
| Total assets | 2,255 | 104 | 2,359 | ||
| Liabilities | |||||
| Trade and other payables | (474) | - | (474) | ||
| Accruals and deferred revenue | (930) | (44) | (974) | ||
| Obligations under finance leases | (61) | (1) | (62) | ||
| Total liabilities | (1,465) | (45) | (1,510) | ||
| Net assets acquired | 790 | 59 | 849 | ||
| Goodwill recognised | 532 | ||||
| Purchase consideration (including costs), satisfied by cash | 1,381 |
Details of the fair value adjustments are as follows:
Property, plant and equipment
The Directors performed a review for impairment of property, plant and equipment. This review did not result in a change to the book value of the assets acquired.
Trade receivables, prepayments and amounts recoverable under contracts
The Directors performed a review of the recoverability of trade receivables, prepayments and amounts recoverable under contracts and this resulted in an adjustment to the book value of the assets acquired.
Trade and other payables
The Directors performed a review for impairment of trade and other payables. This review did not result in a change to the book value of the assets acquired.
Accruals and deferred income
The Directors performed a review of the valuation of accruals and deferred income which resulted in certain balances being restated.
Goodwill
A significant amount of the value of the acquired business is attributable to its management and workforce and their operational and sales knowhow. As no assets can be recognised in respect of these factors, they represent the goodwill recognised on acquisition.
The goodwill has been reviewed for impairment at 31 December 2008 and the directors are satisfied that no impairment has taken place. The impairment review was performed by reference to the net present value of expected future cash flows, treating the acquired business as a single cash generating unit. In performing the review, the directors took a conservative view in assuming zero growth in cash generation and using a discount rate of 20% per annum.
Financial information
The Group's profit for the year includes £406,000 which is attributable to the acquired business. IFRS 3 'Business Combinations' requires disclosure of what the group's revenue and profits would have been, had the acquisition taken place on 1 January 2008. This disclosure has not been made because it is not practicable to reliably determine the results of the acquired business in the period from 1 January 2008 to the acquisition date because a significant part of the acquired business was not a separate legal entity and hence its results were not separately maintained.
7 Finance income and expense
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Finance income | |||
| Bank interest receivable | 475 | 391 | |
| Finance expense | |||
| Bank interest payable | (25) | (41) | |
| Shareholder loan interest in subsidiary | (10) | - | |
| 440 | 350 |
8 Tax credit
| 2008 | 2007 | ||||
| £'000 | £'000 | ||||
| Current tax expense | 21 | - | |||
| Deferred tax credit | (88) | - | |||
| Total tax credit | (67) | - |
The reasons for the difference between the actual tax expense for the year and the standard rate of corporation tax in the UK applied to profits for the year are as follows:
| 2008 £'000 | 2007 £'000 | ||
| Profit before tax | 442 | 3,256 | |
| Expected tax charge based on the standard rate of corporation tax in the UK of 28.5% (2007 - 30%) | 126 | 977 | |
| Expenses not deductible for tax purposes | 10 | 14 | |
| Income not subject to tax | - | (1,063) | |
| Utilisation of accumulated tax losses | (142) | (155) | |
| Net movement in unrecognised deferred tax asset | (61) | 227 | |
| Tax credit | (67) | - |
In 2007, no tax charge or credit arose on the profits arising in Vectra Group Limited and its subsidiaries in the year (these subsidiaries being disposed of in the year), or on the disposal of Vectra Group Limited itself.
Discontinued operations - 2007
In November 2007, the Group sold Vectra Group Limited and its subsidiary undertakings.
The post-tax gain on discontinued operations was determined as follows:
| £'000 | £'000 | ||
| Consideration received: | |||
| Cash | 6,000 | ||
| Less: disposal costs | (1,356) | ||
| 4,644 | |||
| Net assets disposed of: | |||
| Property, plant and equipment | 186 | ||
| Trade and other receivables | 1,855 | ||
| Other financial assets | 1,149 | ||
| Trade and other payables | (1,816) | ||
| (1,374) | |||
| Pre-tax gain on disposal of discontinued operation | 3,270 | ||
| Related tax expense | - | ||
| Post tax gain on disposal of discontinued operation | 3,270 | ||
| The net cash inflow comprises: | |||
| Cash received | 6,000 | ||
| Cash disposed of | (213) | ||
| Disposal costs | (1,356) | ||
| 4,431 |
The cash flow statement includes the following amounts relating to discontinued operations:
| 2008 £'000 | 2007 £'000 | ||
| Operating activities | - | 415 | |
| Investing activities | - | (111) | |
| Financing activities | - | - | |
| - | 304 |
10 Earnings per share
| 2008 £'000 | 2007 £'000 | ||
| Numerator | |||
| Profit for the year attributable to equity holders | 323 | 3,251 | |
| Earnings used in basic EPS and diluted EPS | 323 | 3,251 | |
| Denominator | No. | No. | |
| Weighted average number of shares used in basic EPS | 5,675,232 | 5,631,925 | |
| Effects of: | |||
| - employee share incentive schemes | - | 68,165 | |
| - employee share options | - | - | |
| Weighted average number of shares used in diluted EPS | 5,675,232 | 5,700,090 |
Certain employee share options have been excluded from the calculation above as their exercise price is greater than the weighted average share price during the year and therefore it would not be advantageous for the holders to exercise them.
The following options have been excluded:
| 2008 No. | 2007 No. | ||
| Employee share options | 99,920 | 36,720 |
The Company's share price during the year ranged from a low of 91.5p to a high of 157.5p, with an average of 128p. At the year end it was 115p.
11 Subsidiaries
The principal subsidiaries of Volvere plc, all of which have been included in these consolidated financial statements, are as follows:
| Name | Country of incorporation | Proportion of ownership interest | |
| Sira Test and Certification Limited | England and Wales | 100% | |
| Sira Environmental Limited | England and Wales | 100% | |
| Sira Defence & Security Limited | England and Wales | 100% | |
| Sira Certification Service Limited | England and Wales | 100% (Note i) | |
| Volvere Central Services Limited | England and Wales | 100% | |
| NMT Group PLC | Scotland | 95% | |
| Interactive Prospect Targeting Limited | England and Wales | 50% | |
| Postal Preference Service Limited | England and Wales | 50% (Note ii) |
Note (i): Sira Certification Service Limited is a company limited by guarantee.
Note (ii): Postal Preference Service Limited is 100% owned by Interactive Prospect Targeting Limited.
The Company has the power to control Interactive Prospect Targeting Limited (and hence Postal Preference Service Limited) by virtue of the terms of a shareholder agreement.
12 Goodwill
| 2008 £'000 | ||
| Cost | ||
| At 1 January 2008 | - | |
| Business combination (note 6) | 532 | |
| At 31 December 2008 | 532 | |
| Accumulated impairment losses | ||
| At 1 January 2008 | - | |
| Impairment losses for year | - | |
| At 31 December 2008 | - | |
| Carrying Amount | ||
| At 31 December 2008 | 532 | |
| At 31 December 2007 | - | |
Goodwill represents that arising from the acquisition of Interactive Prospect Targeting Limited, being the difference between the fair value of the consideration paid and the fair value of the net assets acquired. More information is set out in note 6.
13 Other intangible assets
| Contractual and non-contractual customer relationships £'000 | ||
| At 31 December 2008 | ||
| Cost | 1,197 | |
| Accumulated amortisation | (721) | |
| Net book value | 476 | |
| At 31 December 2007 | ||
| Cost | 1,197 | |
| Accumulated amortisation | (481) | |
| Net book value | 716 | |
| Year ended 31 December 2008 | ||
| Opening net book value | 716 | |
| Amortisation | (240) | |
| Closing net book value | 476 | |
| Year ended 31 December 2007 | ||
| Opening net book value | 957 | |
| Amortisation | (241) | |
| Closing net book value | 716 |
14 Property, plant and equipment
| Short Leasehold Property £'000 | Plant & Machinery £'000 | Total £'000 | ||
| At 31 December 2008 | ||||
| Cost | 43 | 1,236 | 1,279 | |
| Accumulated depreciation | (14) | (770) | (784) | |
| Net book value | 29 | 466 | 495 | |
| At 31 December 2007 | ||||
| Cost | 42 | 808 | 850 | |
| Accumulated depreciation | (7) | (640) | (647) | |
| Net book value | 35 | 168 | 203 | |
| Year ended 31 December 2008 | ||||
| Opening net book value | 35 | 168 | 203 | |
| Acquisition of subsidiary undertaking | - | 254 | 254 | |
| Additions | 1 | 174 | 175 | |
| Depreciation | (7) | (130) | (137) | |
| Closing net book value | 29 | 466 | 495 | |
| Year ended 31 December 2007 | ||||
| Opening net book value | 101 | 192 | 293 | |
| Additions | 54 | 174 | 228 | |
| Disposals | (86) | (99) | (185) | |
| Depreciation | (34) | (99) | (133) | |
| Closing net book value | 35 | 168 | 203 |
The net book value in respect of property, plant and equipment held on finance leases was £25,000 (2007: £nil).
15 Financial assets (non-current)
| 2008 £'000 | 2007 £'000 | ||
| Available-for-sale equity investments (quoted) | - | 48 |
At the end of 2007 the Group had an investment in Imprint Plc. This company was not accounted for on an equity basis as the Group did not have the power to participate in the company's operating and financial policies, evidenced by the lack of any direct or indirect involvement at board level. The fair value of quoted securities was based on published prices and was not materially different to the carrying value. This shareholding was disposed of during 2008 at a gain of £8,000.
16 Financial assets (current)
| 2008 £'000 | 2007 £'000 | ||
| Available-for-sale investments | |||
| - UK Government Bonds | 9,497 | - |
During the year the Group responded to the uncertainty in the banking sector by transferring £9,400,000 of the Group's cash reserves into UK Government Bonds. The Group's intention at the time of purchase was to revert to holding cash deposits at banks once their liquidity and solvency positions had become more certain, thereby maximising the Group's interest income. Accordingly, they have been classified as available-for-sale rather than held-to-maturity. Due to the continuing uncertainty in relation to banks and the fall in bank interest rates, however, the Group held the above investments until maturity in March 2009, at which time the cash was once again deposited with UK clearing banks. The value received at maturity was £9,508,000.
17 Trade and other receivables
| 2008 £'000 | 2007 £'000 | ||
| Trade receivables | 4,083 | 1,286 | |
| Less: provision for impairment of trade receivables | (1,192) | - | |
| Net trade receivables | 2,891 | 1,286 | |
| Other receivables | 56 | 114 | |
| Accrued income | 143 | 44 | |
| Prepayments | 174 | 30 | |
| 3,264 | 1,474 |
The fair value of trade receivables approximates to book value at 31 December 2008 and 2007.
The Group is exposed to credit risk with respect to trade receivables due from its customers. The Group has a large number of customers who are spread across a variety of industries and geographic locations, and hence the concentration of credit risk is limited due to the large and diverse customer base. In addition, a substantial proportion of the Group's continuing sales derive from, or are related to, customers' needs to comply with statutory safety requirements, and the directors feel that this mitigates the risk of non-payment further. Provisions for bad and doubtful debts are made based on management's assessment of the risk taking into account the ageing profile, experience and circumstances. There were no significant amounts due from individual customers where the credit risk was considered by the directors to be significantly higher than the total population.
The provision for impaired trade receivables at the year end relates principally to trade receivables acquired as part of the acquisition of Interactive Prospect Targeting explained in note 6. These receivables arose from trading prior to its acquisition by the Group.
Trade receivables denominated in foreign currencies do not represent a material element of the year end balance and as such the directors do not hedge the currency risk that arises. The Group's approach to managing currency risk is detailed in note 21, financial instruments. The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
| 2008 £'000 | 2007 £'000 | ||
| Pound Sterling | 3,001 | 1,283 | |
| Euro | 3 | 2 | |
| US Dollar | 230 | 189 | |
| Canadian Dollar | 30 | - | |
| 3,264 | 1,474 |
The value of trade receivables due and not impaired at 31 December 2008 was £2,891,000 (2007: £1,286,000). The ageing analysis of these receivables is disclosed below:
| 2008 £'000 | 2007 £'000 | ||
| Up to 3 months | 2,740 | 1,119 | |
| 3 to 6 months | 59 | 63 | |
| 6 to 12 months | 77 | 79 | |
| Over 12 months | 15 | 25 | |
| 2,891 | 1,286 |
18 Trade and other payables - current
| 2008 £'000 | 2007 £'000 | ||
| Trade payables | 770 | 595 | |
| Other tax and social security | 578 | 415 | |
| Obligations due under finance leases | 27 | - | |
| Other payables | 313 | 312 | |
| Accruals | 1,262 | 322 | |
| Total financial liabilities excluding loans and borrowings carried at amortised cost | 2,950 | 1,644 | |
| Deferred income | 1,808 | 1,294 | |
| 4,758 | 2,938 |
The fair value of trade and other payables approximates to book value at 31 December 2008 and 2007.
19 Other financial liabilities - current
| 2008 £'000 | 2007 £'000 | ||
| Bank loans | |||
| - secured | 120 | 120 | |
| Shareholder loans in subsidiary undertaking (Interactive Prospect Targeting Limited) | |||
| - secured | 600 | - | |
| 720 | 120 |
An analysis of the interest rates payable on financial liabilities and information about fair values is given in note 22.
20 Non-current financial liabilities
| 2008 £'000 | 2007 £'000 | ||
| Bank loans | 180 | 300 | |
| Obligations due under finance leases | 35 | - | |
| 215 | 300 |
The bank loan relates to a term loan drawn down by Sira Test and Certification Limited in 2006. The total balance at 31 December 2008 of £300,000 includes an amount of £120,000 classified as current. The borrowing is secured by a debenture granting the bank a fixed and floating charge over all the Group's assets. The interest rate payable is shown in note 22.
21 Financial instruments - risk management
The Group is exposed through its operations to one or more of the following financial risks:
Cash flow interest rate risk
Foreign currency risk
Liquidity risk
Credit risk
Market price risk
Policy for managing these risks is set by the Board following recommendations from the Chief Financial & Operating Officer. Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre.
The policy for each of the above risks is described in more detail below.
The Group's principal financial instruments are:
Trade receivables
Cash at bank
Investments in government bonds
Trade and other payables
Variable rate bank loans and in the case of Interactive Prospect Targeting Limited, shareholder loans
Cash flow interest rate risk
Due to the relatively low level of borrowings within the Group, the Directors do not have an explicit policy for managing cash flow interest rate risk. All current borrowing is on variable terms. Although the Board accepts that this policy neither protects the Group entirely from paying rates in excess of current market rates nor eliminates fully cash flow risk associated with interest payments, the Directors feel that given circumstances where interest rates were to increase significantly the Group has cash reserves significantly in excess of its borrowings, to an extent that they could be repaid immediately thus mitigating the impact of such risk. In addition all cash is managed centrally and subsidiary operations are not permitted to arrange borrowing independently.
Foreign currency risk
Foreign exchange risk arises when individual Group operations enter into transactions denominated in a currency other than their functional currency (sterling). The Directors monitor and review their foreign currency exposure on a regular basis; they are of the opinion that as the Group's exposure is limited to transactions with a small number of customers and suppliers it is not appropriate to actively hedge its foreign currency exposure.
Liquidity risk
The liquidity risk of each Group entity is managed centrally by Volvere plc. Each operation has a facility with Volvere plc to cover shortfalls should they arise. Where facilities of Group entities need to be increased, approval must be sought from the Chief Financial & Operating Officer. All surplus cash is managed centrally to maximise the returns on deposits. The Group maintains significant cash reserves and therefore does not require facilities with financial institutions to provide working capital.
Credit risk
The Group is mainly exposed to credit risk from credit sales. The Group's policy for managing and exposure to credit risk is disclosed in note 17.
Other market price risk
Where the Group has generated a significant amount of cash this has been invested in fixed term deposits, and government bonds, having regard to the Company's need to access capital. The directors believe that the exposure to market price risk from this activity is acceptable in the Group's circumstances.
22 Financial assets and liabilities - numerical information
Maturity of financial assets
All financial assets at the year end, other than loans and receivables (note 17 above) are denominated in sterling and highly liquid with maturity dates within 90 days.
Maturity of financial liabilities
The carrying amounts of all financial liabilities, excluding loans and borrowings, being carried at amortised cost is as follows:
| 2008 £'000 | 2007 £'000 | ||
| In less than six months | 4,758 | 2,938 |
There are no financial liabilities being carried at amortised cost with a maturity date in excess of five years.
| Loans and borrowing facilities | 2008 £'000 | 2007 £'000 | |
| Current | |||
| Bank loans (secured) | 120 | 120 | |
| Shareholder loans in Interactive Prospect Targeting Limited (secured) | 600 | - | |
| 720 | 120 | ||
| Non-current | |||
| Bank loans (secured) | 180 | 300 | |
| Total borrowings | 900 | 420 |
The principal terms and the debt repayment schedule of the Group's loans and borrowings are as follows:
| Currency | Nominal rate % | Year of maturity | Security | ||
| Secured bank loan | GBP | 2.0-2.25% over Bank of Scotland base rate | 2011 | See note 20 | |
| Unsecured shareholder loan in Interactive Prospect Targeting Limited | GBP | 3.0% over Bank of Scotland base rate | Note (i) | Note (i) |
Note (i): The shareholder loans in Interactive Prospect Targeting Limited ("IPT") are subject to a loan agreement, the terms of which specify that these lenders are only entitled to repayment once the loans made by Volvere plc equal the shareholder loans. Thereafter, repayment is on a pro rata basis with Volvere plc. All IPT shareholder loans are secured by way of a debenture over IPT's assets.
The maturity analysis for all loans and borrowings is analysed below:
| 2008 £'000 | 2007 £'000 | ||
| In less than one year | 720 | 120 | |
| In more than one year but not more than two years | 120 | 120 | |
| In more than two years but not more than five years | 60 | 180 | |
| 900 | 420 |
All loans and borrowings are denominated in sterling (2007: sterling). There were no undrawn committed borrowing facilities that had been agreed at 31 December 2008 (2007: nil).
23 Deferred tax
A deferred tax asset of £88,000 (2007: nil) has been recognised in the year in respect of accumulated income losses. In addition, there are unrecognised deferred tax assets in respect of the following:
| 2008 £'000 | 2007 £'000 | ||
| Income losses carried forward | 1,756 | 174 | |
| Accelerated capital allowances | 16 | 21 | |
| Short term temporary differences | 2 | 4 | |
| Goodwill | (7) | - | |
| 1,767 | 199 |
The unrecognised deferred tax asset is not recognised because there is insufficient evidence that the asset will be recovered against future taxable profits. The amount of the asset not recognised is £1,767,000 (2007: £199,000). Of this amount £1,675,000 was acquired with the business combination outlined in note 6.
Deferred tax assets and liabilities have been calculated using the rate of corporation tax expected to apply when the relevant temporary differences reverse.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
24 Share capital
| Authorised | |||||
| 2008 Number | 2008 £'000 | 2007 Number | 2007 £'000 | ||
| Ordinary shares of £0.0000001 each | 100,100,000 | - | 100,100,000 | - | |
| A shares of £0.49999995 each | 50,000 | 25 | 50,000 | 25 | |
| B shares of £0.49999995 each | 50,000 | 25 | 50,000 | 25 | |
| Deferred shares of £0.00000001 each | 4,999,999,500,000 | 50 | 4,999,999,500,000 | 50 | |
| 100 | 100 | ||||
| Issued and fully paid | |||||
| 2008 Number | 2008 £'000 | 2007 Number | 2007 £'000 | ||
| Ordinary shares of £0.0000001 each | 5,675,232 | - | 5,675,232 | - | |
| A shares of £0.49999995 each | 49,735 | 25 | 49,735 | 25 | |
| B shares of £0.49999995 each | 49,735 | 25 | 49,735 | 25 | |
| Deferred shares of £0.00000001 each | 26,499,985,533 | - | 26,499,985,533 | - | |
| 50 | 50 | ||||
| Movements in share capital | Issued and fully paid | ||||
| 2008 Number | 2008 £'000 | 2007 Number | 2007 £'000 | ||
| Ordinary shares of £0.0000001 each | |||||
| At beginning of the year | 5,675,232 | - | 5,488,679 | - | |
| Other issues during the year | - | - | 186,553 | - | |
| At end of the year | 5,675,232 | - | 5,675,232 | - | |
There were no movements in any class of share capital during the year.
No Group companies held shares in the Company at any time during the year.
The A and B shares rank pari passu with the ordinary shares on a return of capital but do not have voting rights. The A and B shares became capable of being converted into ordinary shares at the option of the holder on or after 24 December 2003 and 24 December 2004 respectively, on a predetermined conversion formula based upon share price performance and the weighted average issue price of ordinary share capital, whereby approximately 15% of the growth in market capitalisation of the Group over the weighted average issue price of ordinary shares issued is attributable to the holders of A and B shares.
Based on the closing share price of £1.15 at 31 December 2008, none of the A and B class shares would be capable of converting into ordinary shares (2007: 68,165).
The deferred shares carry no rights to participate in the profits or assets of the Company and carry no voting rights.
25 Reserves
| Share capital £'000 | Share premium account £'000 | Revaluation reserve £'000 | Share option reserve £'000 | Retained earnings £'000 | ||
| At 1 January 2007 | 50 | 3,313 | - | 75 | 3,575 | |
| Premium on shares issued | - | 273 | - | - | - | |
| Share-based payments | - | - | - | (60) | 61 | |
| Profit for the year attributable to the equity holders of the parent | - | - | - | - | 3,251 | |
| At 31 December 2007 | 50 | 3,586 | - | 15 | 6,887 | |
| At 1 January 2008 | 50 | 3,586 | - | 15 | 6,887 | |
| Revaluation of assets held for sale | - | - | 97 | - | - | |
| Share-based payments | - | - | - | 1 | 8 | |
| Profit for the year attributable to the equity holders of the parent | - | - | - | - | 323 | |
| At 31 December 2008 | 50 | 3,586 | 97 | 16 | 7,218 |
The following describes the nature and purpose of each reserve within owners' equity
| Reserve | Nature and purpose | |
| Share premium | Amount subscribed for share capital in excess of nominal value | |
| Revaluation reserve | Cumulative net unrealised gains and losses arising on the revaluation of the Group's available for sale investments | |
| Share option reserve | Aggregate charge in respect of employee share option charges net of lapsed option cost releases | |
| Retained earnings | Cumulative net gains and losses recognised in the consolidated income statement |
26. Changes in shareholders' equity
| 2008 £'000 | 2007 £'000 | ||
| Total recognised income and expense | 323 | 3,251 | |
| Ordinary shares issued as consideration shares | - | 273 | |
| Ordinary shares purchased for cancellation | - | - | |
| Share-based payment expenses | 9 | 1 | |
| Revaluation of available for sale investments | 97 | - | |
| 429 | 3,525 | ||
| Capital and reserves attributable to equity holders of the parent at the beginning of the period | 10,538 | 7,013 | |
| Capital and reserves attributable to equity holders of the parent at the end of the period | 10,967 | 10,538 | |
| Minority interests | 670 | 283 | |
| Total equity | 11,637 | 10,821 |
27 Leases
Operating leases - lessee
The Group leases all of its properties. The terms of property leases vary, although they all tend to be tenant repairing with rent reviews every 2 to 5 years; some have break clauses. The total future value of minimum lease payments are due as follows:
| Land and Buildings 2008 £'000 | Other plant and machinery 2008 £'000 | Land and buildings 2007 £'000 | Other plant and machinery 2007 £'000 | ||
| Not later than one year | 62 | 14 | 82 | 10 | |
| Later than one year and not later than five years | 134 | 21 | 212 | 20 | |
| 196 | 35 | 294 | 30 |
28 Share-based payment
The Company operates two share based payment schemes, an approved EMI equity-settled share-based remuneration scheme for certain employees and an unapproved equity-settled share scheme for certain management. Under the EMI scheme, the options vest on achievement of employee-specific targets subject to a compulsory 2.5 or 3 year vesting period and can be exercised for a further 7.5 or 7 years after vesting.
The unapproved options granted to management on 13 April 2004 vested during the prior year and can be exercised at any time until 12 April 2014.
Options in issue are summarised below:
| 2008 Weighted average exercise price | 2008 Number | 2007 Weighted average exercise price | 2007 Number | ||
| Outstanding at beginning of the year | 188.7p | 36,720 | 179.0p | 268,553 | |
| Granted during the year | 137.5p | 63,200 | - | - | |
| Lapsed during the year | - | - | 177.0p | (231,833) | |
| Outstanding at the end of the year | 156.3p | 99,920 | 188.7p | 36,720 |
During the year 63,200 options were granted at a price of 137.5p and none were exercised (2007: no options were granted or exercised).
The exercise price of options outstanding at the end of the year ranged between 137.5p and 197.5p (2007: 187.5p and 197.5p) and their weighted average remaining contractual life was 8 years (2007 - 6.5 years).
Of the total number of options outstanding at the end of the year 36,720 (2007: 32,498) had vested and were exercisable at the end of the year. These options had a weighted average exercise price of 188.7p (2007: 188.7p)
| 2008 £'000 | 2007 £'000 | ||
| The share-based remuneration expense (note 3) comprises: | |||
| Equity-settled schemes | 9 | 1 | |
| 9 | 1 |
The Group did not enter into any share-based payment transactions with parties other than employees during the current or previous period.
29 Related party transactions
Details of amounts payable to Directors are disclosed in note 4. Other than their remuneration and participation in the Group's share option schemes (note 28), there are no transactions with key members of management.
The Group receives support and administrative services from Dawnay, Day Lander Limited (of which Jonathan Lander and Nick Lander are Directors) in accordance with the Facilities Agreement signed 19 December 2002. The amount payable under this agreement for the year to 31 December 2008 was £35,000 (2007: £35,000), in addition to the amounts paid for Directors' services disclosed in note 4.
30 Events after the balance sheet date
In March 2009 the Group realised its investments in UK Government Bonds for a total consideration of £9,508,000 and following this, invested £1,003,000 in certain UK bank securities. The balance of the Group's cash was deposited with UK clearing banks.
31 Contingent liabilities
The Group had no material contingent liabilities as at the date of these financial statements (2007: none).
32 Minority interests
The minority interests of £670,000 relates to the net assets attributable to the shares not held by the Group at 31 December 2008 in the following subsidiary undertakings:
| Name of subsidiary undertaking | 2008 £'000 | 2007 £'000 | |||
| NMT Group PLC | 284 | 283 | |||
| Interactive Prospect Targeting Limited | 386 | - | |||
| 670 | 283 |
33 Notes supporting cash flow statement
| 2008 £'000 | 2007 £'000 | ||
| Cash and cash equivalents comprise: | |||
| Cash available on demand | 2,999 | 5,885 | |
| Short-term deposits | - | 5,853 | |
| 2,999 | 11,738 | ||
| Net cash (decrease)/increase in cash and cash equivalents | (8,739) | 5,198 | |
| Cash and cash equivalents at beginning of year | 11,738 | 6,540 | |
| Cash and cash equivalents at end of year | 2,999 | 11,738 |
Included within cash and cash equivalents is £514,000 (2007 - £501,000) held in escrow to meet potential warranty claims arising as a result of the Vectra disposal during 2007. At the date of signing no warranty claims had been made.