Last checked at 23 Jul 2008 07:00
PRELIMINARY RESULTS 2008
eXpansys plc ("eXpansys" or the "Group"), a leading online retailer of wireless technology, announces its audited preliminary results for the year ended 30 April 2008.
Key points:
* Revenue increased by 29% to £69.7 million (2007: £54.1 million)
* Pre-tax loss widened to £2.5 million (2007: £0.8 million)
* Gross profit margin stable at 22.2%
* US & UK markets challenging but Europe more resilient and Asian markets stronger than
expected
Action taken:
Thorough review of Group's activities underway with clear focus on cash and profit:
* Part of non-core trade distribution business sold
* Group strategy refocused to embrace strengthening global markets
* Broadening of Group's product portfolio
Barry Roberts, Chairman of eXpansys, said: "Overall, the outlook in all our markets remains challenging but, by taking steps to reduce our cost base earlier than many of our competitors, I believe that our position relative to them has been strengthened.
"Whilst our first year as an AIM listed company has been a disappointment to all involved in the business, the Board still believes that eXpansys has a profitable and exciting future and we have ended the year a stronger and leaner Group, which is more focused on and prepared for the challenges and opportunities which lie ahead."
For further information, please contact:
| eXpansys plc | Tel: +44 (0) 161 232 3410 |
| Roger Butterworth, CEO | roger@expansys.com |
| Investor relations website | www.expansys.com/investor.aspx |
| Cenkos Securities plc | Tel: +44 (0) 20 7397 8926 |
| Stephen Keys | skeys@cenkos.com |
| Rawlings Financial PR Limited | Tel: +44 (0) 1653 618 016 |
| Catriona Valentine | catriona@rawlingsfinancial.co.uk |
About eXpansys
The Group specialises in the sale of handheld electronic devices with wireless connectivity and
boasts a wide offering ranging from smartphones and ultra mobile personal computers, to
cameras and GPS equipment. eXpansys operates some 50 websites in 12 different languages,
operating in 16 currencies.
Based in Manchester, eXpansys has grown both organically and through acquisition and has a global infrastructure that allows it to service its international customer base through a network of warehouses in the UK, France, USA, Hong Kong and Australia.
CHAIRMAN'S STATEMENT
Introduction
This has been a tough year for eXpansys with the Group producing outstanding revenue growth alongside significant losses.
To address the Group's disappointing first half and rise to the challenge of the enormous changes taking place in the global economy, the directors have been conducting a thorough review of the Group's activities with a clear aim to enhance the ability of the Company to generate cash and profit.
Strategy
Group strategy, which was previously targeted on the smartphone market in Europe and the US, has been refocused to embrace strengthening global markets (thereby mitigating the effect of the weakening UK and US economies) and to exploit wider e-commerce opportunities by broadening the Group's product portfolio.
As part of this, in July 2007, the Group acquired the UK's leading on-line retailer of GPS equipment, Yoonoo Limited, primarily operating through the website, www.globalpositioningsystems.co.uk.
In addition, when we became aware of O2's decision to exit their business in Asia, the Group took the opportunity to buy significant stock and other assets of O2's business in Asia in October 2007 for £3.1 million and recruited a number of O2 Asia's personnel to create a 90% owned subsidiary called Mobile and Wireless Group PTE Limited (MWg), in Singapore.
In April 2008, the Group also completed the disposal of part of its non-core trade distribution business, generating cash and enabling management to focus fully on the Group's core "e-tail" sales operations.
Financial Results
Group sales in Mainland Europe and Asia were resilient with no noticeable effect of the credit crunch issues affecting retail markets in the UK and US. These markets continue to slow and it is no surprise that many retailers are having to issue trading statements. Although we worked hard to achieve the forecast for the year under review predicted at float, it proved beyond us in such a difficult economic climate.
Despite difficult consumer markets in both the US and the UK, Group revenue was increased to £69.7 million (2007: £54.0 million), a rise of 29%. Loss before taxation for the year, however, amounted to £2,540,000 compared to £785,000 in 2007, with exceptional costs of £1,994,000 (2007: £540,000).
This was disappointing. However, the Board remains optimistic; revenue growth, excluding MWg, in the challenging US & UK markets was re-established in the second half (up 7%) and gross margins improved from 19.6% in the six months to October 2007 to 20.4% for the six months to April 2008. MWg contributed revenue of £2.9 million with £0.3 million gross margin since its incorporation in November 2007. Operating loss was also reduced by 7% across the Group in the second half of the year.
eXpansys is a business of scale and economies will come as scale in individual markets is increased. Global expansion requires tight control of working capital and reporting. We are managing our working capital closely and continue to invest in underlying systems technology to improve all aspects of financial control and reporting on our global business.
eXpansys People
This has been a very demanding year for all our staff and I would like to pass on the Board's thankful appreciation for the effort and commitment which been have shown by our employees globally, across the whole Group, during this difficult period.
Outlook
The outlook for eXpansys in the world market place is mixed. UK and US sales were lower than we had previously expected and the difficult trading conditions we are encountering look likely to persist in the short to mid term. However, sales in our Asian markets were stronger than expected and, using eXpansys' global capability, these markets present significant opportunities. Our Mainland European market appears more resilient than that of the UK, although it is not as strong as Asia.
Overall, the outlook in all our markets remains challenging but, by taking steps to reduce our cost base earlier than many of our competitors, I believe that our position relative to them has been strengthened.
Whilst our first year as an AIM listed Company has been a disappointment to all involved in the business, the Board still believes that eXpansys has a profitable and exciting future and we have ended the year a stronger and leaner Group, which is more focused on and prepared for the challenges and opportunities which lie ahead.
Barry Roberts
Non-executive Chairman
22 July 2008
CHIEF EXECUTIVE'S OPERATING REVIEW
We brought eXpansys to the market little over a year ago to raise money to purchase products
directly from manufacturers, enabling us to increase margins and reduce working capital
constraints and to provide us with a platform from which to grow the business.
While the business has grown significantly, the direct purchasing arrangements we established
following flotation required us to significantly increase our stockholding. The losses that we
suffered from stock write downs during the year, as products became obsolete, highlighted the
major risk of this strategy, which was exacerbated by a tightening market.
Outside of these significant stock write downs, however, this strategy produced some success;
revenue improved and gross profit margins (excluding provisions for written down stock and loss
making sales) were stable at 22.2% (2007: 22.9%).
Strategy Review
As it became clear that this strategy was only partially successful, we modified it to bolster those
areas which proved to be a success and to seek to eliminate the issues which have caused
significant problems for the business.
Our strategy of seeking close working relationships with the vendors whose products we supply
remains in place but, in future, we will seek to minimise stock risk through closer technical
integration between our systems and those of our suppliers. This will enable 'just in time' stock
delivery and the option to take advantage of falling prices rather than becoming their victim. We are
now using the number of days stock is held in each warehouse as a key performance indicator for
the business.
It is becoming increasingly apparent that, notwithstanding the revenue growth produced by eXpansys last year, the consumer goods market in the UK, the US and mainland Europe is tightening appreciably. We have been preparing the Group for this difficult trading environment for some time; we instituted a series of cost cuts, which reduced our monthly overheads from a high of £850,000 to £715,000 per month between October 2007 and April 2008; we disposed of part of our trade sales business, which significantly improved the working capital position of the business; we removed our lowest margin sales; and, importantly, we reduced our exposure to bad debt risk - all of which are prudent actions at this point in the economic cycle.
I believe that these changes, combined with a further broadening of the Company's product portfolio will enable the business to return to profitability.
Current Structure
eXpansys is now fully focused on online sales. Operating from four main hubs in the UK, France,
USA and Hong Kong with a satellite warehouse in Australia we sold to over 130 tax jurisdictions
from these facilities.
Global Markets
Sales in our largest markets, the UK and US, are now lower than previously expected. However, sales in Asia are stronger than predicted and the market in mainland Europe appears to be more buoyant than that of the UK.
Improving sales in tough markets will be a challenge but we have taken decisive and necessary actions, ahead of our competitors, to strengthen our position globally. It is also worth noting that our efficient supply chains, low fixed costs and generally lower overall cost of doing business, make eXpansys more resilient to economic downturns and price based competition than our high street competitors.
In Conclusion
In our first year since float, we have learned a number of harsh lessons. The business has been
completely overhauled and all our employees are focused on the challenges ahead and are
absolutely determined in their approach. Difficult times also create opportunities. There is still work
to be done but, I believe, eXpansys is better prepared now, than at any time previously, to exploit these opportunities.
Roger Butterworth
Chief Executive Officer
22 July 2008
CHIEF FINANCIAL OFFICER'S REVIEW
Operating Results
Revenue grew strongly by 29% to £69.7 million for the year to April 2008.
Since we have always believed and demonstrated that a significant proportion of our stock can be realised profitably, we have therefore previously avoided aggressive pricing policies. However, during the second half of this year we have focused on realising cash through the sale of older stock in the UK, in order to fund MWg and capitalise on the potential of the Singapore business. This led to significant exceptional costs being incurred of £1.6 million relating to increased stock provisions and loss making sales.
These exceptional costs depressed the gross profit margin for the year to 19.6% from 22.9% during 2007. However, once these exceptional sales and costs have been removed, the gross profit margin returns to a stable 22.2%.
Last year we were pleased to report a reduction in distribution expenses as a percentage of revenue to 5.8%, including the exceptional costs in 2007 of £223,000 and 5.4% pre-exceptional. We have maintained this cost reduction with distribution costs of 5.4% for the year to April 2008, amounting to £3.7 million.
Exceptional administration expenses were also incurred during the year of £418,000 relating to redundancies and bank refinancing costs. Non-exceptional administration costs for the full year were £11.8 million, compared to £9.0 million in 2007.
The disposal of part of the non-core distribution business on the last day of the financial year created a profit on disposal of £187,000, with immediate cash consideration of £760,000 and £400,000 deferred consideration payable, when two trading contracts have been signed by the acquirer. The most significant impact on the Group going forward is expected to be improvements in working capital, since this business was mainly on credit terms, and removal of lower margin sales.
There were also reductions in interest charges on bank loans and overdrafts by £152,000 to £144,000 and on other balances by £180,000 to £265,000, due to the improved working capital position of the business throughout the last twelve months compared to the previous twelve.
Issue of Shares
During March 2008 the Company raised £404,000 for working capital purposes through the placing of 4,483,767 new ordinary shares of 0.25p each at a price of 9.0 pence per share, to a company controlled by Peter Jones.
Improvements in cash flows in the second half of the year
The cash outflow for the year to April 2008 is, without doubt, disappointing with cash outflow from operations of £47,000 with an overall reduction in cash of £426,000 for the full year. However, the second half of the year was extremely positive with cash inflow generated from operations of £1,523,000 and overall increase in cash during this period of £1,766,000. Management of working capital has also been significantly successful in the six months to April 2008, with a reduction in inventory of £3,886,000, receivables of £1,141,000 and an increase in payables of £2,490,000.
It is management's intention to further improve working capital over the next six months by additional reductions in stock levels and significant reductions in trade debtors due to the disposal of part of the distribution business, whilst still making prompt payment to our suppliers.
Financial and Non Financial KPIs
The Board recognises the importance of both financial and non financial key performance indicators. The Board considers that its financial KPIs during the financial year were gross margin, distribution costs as a percentage of turnover and administration costs and the principal non-financial KPI is the number of unique IP addresses visiting the websites.
| 2008 | 2007 | |
| Gross margin | 20.7% | 22.9% |
| Gross margin (excluding exceptionals) | 22.2% | 22.9% |
| Distribution costs as a percentage of revenue | 5.4% | 5.4% |
| Administration costs (£000) | 12,189 | 9,304 |
| Administration costs (excluding exceptionals) (£000) | 11,771 | 8,987 |
| Unique visitors ('000) | 3,686 | 3,372 |
Accounting Standards
The consolidated financial statements of eXpansys plc are now prepared in accordance with International Financial Reporting Standards (IFRS), whereas previously the Group had reported under UK GAAP.
The prior year financial statements have been restated under IFRS.
The loss for the year to 30 April 2007 was reduced from £605,000 under UK GAAP to £507,000 under IFRS with the most significant adjustments relating to the reversal of goodwill amortisation and the difference in treatment of government grant income and minority interests.
Net assets as at 30 April 2007 reduced from £9,416,000 under UK GAAP to £9,341,000 under IFRS with the most significant adjustments relating to changes made under foreign currency retranslation for goodwill, reversal of goodwill amortisation and recognition of deferred income tax on share options.
The introduction of IFRS has no impact upon either the operational capacity of the business or its cash flow.
Cate Hulme
Chief Financial Officer
22 July 2008
GROUP INCOME STATEMENT
For the year ended 30 April 2008
| 2008 | 2007 | ||
| Notes | £000 | £000 | |
| Revenue | 4 | 69,655 | 54,064 |
| Exceptional cost of sales | 5 | (1,756) | - |
| Other cost of sales | (54,418) | (41,692) | |
| Total cost of sales | (55,994) | (41,692) | |
| Gross profit | 13,661 | 12,372 | |
| Exceptional distribution costs | 5 | - | (223) |
| Other distribution costs | (3,753) | (2,928) | |
| Total distribution costs | (3,753) | (3,151) | |
| Exceptional administration expenses | 5 | (418) | (317) |
| Other administrative expenses | (11,771) | (8,987) | |
| Total administrative expenses | (12,189) | (9,304) | |
| Operating loss from continuing operations | 4 | (2,281) | (83) |
| Exceptional operating loss | 5 | (1,994) | (540) |
| Other operating (loss) / profit | (287) | 457 | |
| Finance revenue | 13 | 91 | |
| Finance costs | (459) | (793) | |
| Profit on disposal of distribution business | 187 | - | |
| Loss from continuing operations before taxation | (2,540) | (785) | |
| Tax credit | 366 | 314 | |
| Loss for the year | 4 | (2,174) | (471) |
| Loss for the year attributable to: | |||
| Equity holders of the parent | (2,174) | (507) | |
| Minority interest | - | 36 | |
| Loss for the year | (2,174) | (471) |
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 30 April 2008
| 2008 | 2007 | ||
| £000 | £000 | ||
| Income and expense recognised directly in equity | |||
| Currency translation differences | 43 | (6) | |
| Share based payment | 49 | 5 | |
| Deferred taxation on share based payment | (179) | 180 | |
| Net income recognised directly in equity | (87) | 179 | |
| Loss for the year before taxation | (2,540) | (785) | |
| Tax credit | 366 | 314 | |
| Total recognised income relating to the year | (2,261) | (292) | |
| Attributable to: | |||
| Equity holders of the parent | (2,261) | (328) | |
| Minority interest | - | 36 | |
| (2,261) | (292) |
GROUP BALANCE SHEET
As at 30 April 2008
| 2008 | 2007 | ||
| Notes | £000 | £000 | |
| ASSETS | |||
| Non current assets | |||
| Plant and equipment | 751 | 783 | |
| Intangible assets | 4,812 | 4,939 | |
| Deferred income tax assets | 812 | 552 | |
| 6,375 | 6,274 | ||
| Current assets | |||
| Inventories | 6,912 | 5,736 | |
| Trade and other receivables | 6,459 | 4,882 | |
| Cash and short term deposits | 2,179 | 739 | |
| 15,550 | 11,357 | ||
| Total assets | 4 | 21,925 | 17,631 |
| LIABILITIES | |||
| Current liabilities | |||
| Trade and other payables | (11,250) | (7,424) | |
| Financial liabilities | (2,124) | (345) | |
| Income tax payable | (79) | (33) | |
| Government grants | (44) | (37) | |
| Provisions | (625) | (15) | |
| (14,124) | (7,854) | ||
| Non current liabilities | |||
| Financial liabilities | (263) | (397) | |
| Deferred tax liabilities | (60) | (39) | |
| (323) | (436) | ||
| Total liabilities | 4 | (14,445) | (8,290) |
| Net assets | 7,480 | 9,341 | |
| Capital and reserves | |||
| Equity share capital | 8,10 | 9,165 | 8,765 |
| Merger reserve | 10 | 750 | 750 |
| Currency translation | 10 | 19 | (24) |
| Retained earnings | 10 | (2,454) | (150) |
| eXpansys Group shareholders' equity | 10 | 7,480 | 9,341 |
| Minority interest | - | - | |
| Total equity | 7,480 | 9,341 |
GROUP CASH FLOW STATEMENT
For the year ended 30 April 2008
| 2008 | 2007 | ||
| Notes | £000 | £000 | |
| Operating activities | |||
| Loss for the year | (2,281) | (83) | |
| Adjustments to reconcile profit for the year to net cash flow | |||
| from operating activities | |||
| Loss on sale of plant and equipment | - | 18 | |
| Depreciation of plant and equipment | 590 | 417 | |
| Amortisation of intangible assets | 575 | 409 | |
| Share based payments | 1 | 5 | |
| Currency movements | 4 | 76 | |
| (Increase) / decrease in inventories | (853) | 938 | |
| Increase in trade and other receivables | (1,297) | (1,062) | |
| Decrease / (increase) in trade and other payables | 3,214 | (4,617) | |
| Cash generated from operations | (47) | (3,899) | |
| Income tax paid | (4) | (48) | |
| Interest paid | (446) | (702) | |
| Net cash flow from operating activities | (497) | (4,649) | |
| Investing activities | |||
| Payments to acquire subsidiary undertaking | 7 | (303) | - |
| Cash acquired with subsidiary undertaking | 7 | 271 | - |
| Inflow on disposal of distribution business | 760 | - | |
| Purchase of minority interest | - | (36) | |
| Payments to acquire plant and equipment | (217) | (166) | |
| Payments to acquire intangible assets | (590) | (650) | |
| Net cash flow from investing activities | (79) | (852) | |
| Financing activities | |||
| Proceeds from share issues | 400 | 10,015 | |
| Share issue costs | - | (1,443) | |
| New borrowings | - | 235 | |
| Repayment of borrowings | (28) | (2,289) | |
| Repayments of capital element of finance leases and | |||
| hire purchase contracts | (222) | (135) | |
| Net cash flow from financing activities | 150 | 6,383 | |
| (Decrease) / increase in cash | 11(a) | (426) | 882 |
| Cash and cash equivalents at the beginning of the year | 11(a) | 739 | (143) |
| Cash and cash equivalents at the year end | 11(a) | 313 | 739 |
NOTES
1. Basis of preparation
The preliminary results of eXpansys plc are prepared in accordance with International Financial Reporting Standards (IFRSs) and International Finance Reporting Interpretation Committee (IFRIC) interpretations as adopted by the European Union as they apply to the financial statements of the Group for the year ended 30 April 2008.
The Group has historically prepared its audited annual financial statements under UK GAAP and this is the first year that the Group is required to prepare financial statements that comply with IFRS. As such, the accounting policies and basis of preparation differ from those set out in the Report and Financial Statements for the year ended 30 April 2007.
The disclosure required by IFRS 1 First-time Adoption of International Financial Reporting
Standards for the transition from UK GAAP to IFRS and the details of the elections made on
conversion to IFRS were set out in the IFRS Restatement Report, available
on www.eXpansys.com.
A summary of the restatement of the UK GAAP financial statements to IFRS is included in note 3.
This preliminary statement was approved by the directors on 22 July 2008.
The financial information set out above does not constitute the Group's statutory financial statements for the year ended 30 April 2008 but is derived from those financial statements. The comparative figures are those of the financial statements for the year ended 30 April 2007. The report of the auditors was unqualified and did not contain a statement under s.237 (2) or (3) Companies Act 1985. The statutory financial statements for the year ended 30 April 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The financial information contained in this Preliminary Statement does not constitute statutory accounts as defined by Section 240 of the Companies Act.
The annual report is available to shareholders and members of the public on the Company's website at www.expansys.com.
2. Accounting policies
The accounting policies adopted are in accordance with International Financial Reporting
Standards and are consistent with those in the IFRS Restatement Report available on
www.eXpansys.com.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates. Estimates and assumptions used in the preparation of the financial statements are continually reviewed and revised as necessary. Whilst every effort is made to ensure that such estimates and assumptions are reasonable, by their nature they are uncertain, and, as such, changes in estimates and assumptions may have a material impact in the financial statements.
The key sources of estimation uncertainty that have significant risk of causing material adjustment to carrying amounts of assets and liabilities within the next financial year are the measurement of:
* indefinite life intangible assets (including goodwill);
* warranty provisions;
* inventories;
* trade receivables; and
* the estimation of share-based payment costs.
The measurement of intangible assets other than goodwill on a business combination involves estimation of future cash flows and the selection of a suitable discount rate. The Group determines whether indefinite life intangible assets are impaired on an annual basis and this requires an estimation of the value in use of the cash generating units to which the intangible assets are allocated. This involves estimation of future cash flows and choosing a suitable discount rate. Any estimates of future economic benefits made in relation to these assets may differ from the benefits that ultimately arise, and materially affect the recoverable value of the asset.
On 31 October 2007, the Company entered into an agreement with O2 Asia to purchase its stock and other assets, and assumed responsibility for all historical warranty obligations. Provision was made at that time of entering the agreement for the estimated cost of product warranties on product out in the market still under warranty historically sold by O2 Asia, and further provisions are made relating to the expected costs for new warranties at the time revenue is recognised.
The warranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. The measurement of warranty provision involves estimation of the level of repairs and returns expected on certain products sold within the last twelve months, based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. Factors that could impact the estimated claim information include parts and labour costs. A review is performed quarterly of the adequacy of this provision. However there remains a risk that the provision does not match the level of actual failures and costs incurred to repair those faults.
The measurement of warranty provisions involves estimation of the level of repairs and returns expected on certain products sold within the last twelve months, based on historical warranty claim information, as well as recent trends that might suggest that past cost information may differ from future claims. Factors that could impact the estimated claim information include parts and labour costs.
Calculation of inventory provisions requires judgements to be made which include forecast consumer demand and inventory loss trends.
Provisions for irrecoverable receivables are based on extensive historical evidence, and the best available information in relation to specific issues, but are nevertheless inherently uncertain.
The estimation of share-based payment costs requires the selection of an appropriate valuation method, consideration as to the inputs necessary for the valuation model chosen and the estimation of the number of awards that will ultimately vest, inputs for which arise from judgements relating to the future volatility of the Company's share price, expected dividend yields, risk free interest rates and expected lives of the options. The directors draw upon a variety of external sources to aid in the determination of the appropriate data to use in such calculations.
3. Transition to IFRS
For all periods up to and including the year ended 30 April 2007, eXpansys plc and its subsidiaries (the Group) prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP).
The financial statements for the year ended 30 April 2008 will be the first the Group is required to prepare in accordance with IFRS as adopted by the European Union, in accordance with the regulations of the Alternative Investment Market. The Group publishes comparative information for one year in its Annual Report and Financial Statements, therefore the date of transition to IFRS is 1 May 2006, this being the start of the earliest period of comparative information.
The Group has started from an opening balance sheet as at 1 May 2006 and made those changes in accounting policies and other restatements required by IFRS 1 for the first time adoption of IFRSs.
A detailed IFRS Restatement Report with reconciliations and explaining the adjustments made by the Group in restating its UK GAAP balance sheet as at 1 May 2006 and its previously published UK GAAP financial statements for the year ended 30 April 2007, was approved by the directors on 28 December 2007 and is available from the company's website www.eXpansys.com.
The preliminary IFRS financial statements for the year ended 30 April 2007 which comprise the consolidated IFRS balance sheet as at 1 May 2006 and the 30 April 2007 and the consolidated IFRS income statement for the year ended 30 April 2007 together with the accounting policies note, have been audited by Ernst & Young LLP.
The audit report from Ernst & Young LLP is unqualified.
Summary of differences between UK GAAP and IFRS on loss for the period attributable to equity shareholders
| Year ended | |
| 30 April 2007 | |
| Audited | |
| £000 | |
| Loss for the year ended in accordance with UK GAAP | (605) |
| IAS 18 Returns provision adjustment | (5) |
| IAS 19 Holiday pay provision adjustment | (6) |
| IAS 20 Government grants adjustment | (56) |
| IFRS 3 Reversal of goodwill amortisation | 209 |
| IAS 12 Income taxes adjustment | 4 |
| Restatement of minority interests | (48) |
| Loss for the year attributable to equity shareholders of the parent company accordance with IFRS | (507) |
Summary of differences between UK GAAP and IFRS on net assets
| 30 April 2007 | 1 May 2006 | |
| Audited | Audited | |
| £000 | £000 | |
| Net assets in accordance with UK GAAP | 9,416 | 1,141 |
| IAS 18 Returns provision adjustment | (15) | (10) |
| IAS 19 Holiday pay provision adjustment | (19) | (12) |
| IAS 20 Government grants adjustment | (55) | - |
| IAS 21 Foreign currency adjustment for goodwill | (308) | - |
| IFRS 3 Reversal of goodwill amortisation | 209 | - |
| IAS 12 Income taxes adjustment | 186 | 4 |
| Restatement of minority interests | (73) | - |
| Net assets in accordance with IFRS | 9,341 | 1,123 |
Significant changes in accounting policies
Significant changes in accounting policies, which have arisen from eXpansys' transition to IFRS, are noted below.
Presentation of financial statement
The primary financial statements are presented in accordance with IAS 1 Presentation of Financial Statements. Although similar, such a presentation differs from the UK GAAP equivalent.
Under UK GAAP, 'exceptional item' was a defined term. Under IAS 1, there is no definition of 'exceptional item'; however the standard provides examples of circumstances where, if such items of income and expense are material, the nature and amount should be disclosed separately. Included in these examples are many one off items which the Group has previously described as 'exceptional'.
Accordingly the Group will continue to identify such items separately.
There are a number of reclassifications between balance sheet captions that arise from the application of various IFRS.
The most significant reclassifications are:
* website development costs (£1,087,000 as at 30 April 2007), which, under UK GAAP, are
classified as a tangible fixed asset, whereas under IAS 38 Intangible assets are capitalised as an
intangible asset, as only computer software that is integral to a related item of hardware is
included in plant and equipment;
* deferred tax assets and current tax liabilities are disclosed as separate items on the face of the
balance sheet; and
* minority interests were disclosed separately from equity in the UK GAAP balance sheet. Under
IAS 27 minority interests have been presented as part of equity and have therefore been
reclassified. In addition the change in net assets from remeasurement that is attributable to
the minority interest is an increase of £25,000 at 1 May 2006 and decrease of £73,000 at 30 April
2007.
IFRS 3 Business combinations
Under UK GAAP, goodwill on acquisitions was capitalised and amortised, on a straight line basis, over its estimated useful economic life of between 5 and 20 years.
Under IFRS 3, positive goodwill arising on a business combination is considered to have an indefinite life and consequently is not amortised, but instead is subject to impairment testing both annually and when there are indications that the carrying value may not be recoverable in full.
Amortisation of goodwill arising on the purchase of businesses ceased at 1 May 2006 resulting in an increase in profit for the year ended 30 April 2007 of £209,000. As of both 1 May 2006 and 30 April 2007, an impairment review was carried out as required by IAS 38. The Board believes that there has been no impairment of goodwill.
As permitted by IFRS 1, eXpansys has applied IFRS 3 prospectively from the transition date, rather than restating all previous business combinations.
IAS 12 Income tax
Under IAS 12, deferred tax must be recognised on the difference between the carrying value of the shares, being the charges to the income statement under IFRS2 and any future tax deductions under Schedule 23, in relation to each option grant.
This resulted in a deferred tax asset of £181,000 as at 30 April 2007, thus increasing net assets by the same amount. The deferred tax credit in the income statement was only increased by £4,000, since the estimated future tax deductions exceeded the IFRS2 expense charged to the income statement for the scheme, and the excess is therefore taken to equity.
There is a further £5,000 deferred tax asset recognised as at 30 April 2007 relating to the IFRS adjustment for holiday pay.
IAS 18 Revenue
Under IAS 18, revenue is recognised on despatch when the significant risks and rewards are deemed to have passed to the customer and a returns provision is recognised in accordance with IAS 37 Provisions.
This resulted in a reduction in net assets at 1 May 2006 and 30 April 2007 of £10,000 and £15,000 respectively and an increase in loss for the year ended 30 April 2007 of £5,000.
IAS 19 Employee benefits
Under UK GAAP, no provision is required to be made for annual leave accrued.
Under IAS 19, eXpansys' policy is now to recognise the expected cost of compensated short term absences at the time the related service is provided.
The impact of this change in policy is to reduce profit for the year ended 30 April 2007 by £6,000 and net assets as at 30 April 2007 by £19,000.
IAS 20 Government grants
Under IAS 20, eXpansys must now recognise government grant income received when it is reasonable to expect that the grants will be received and that all related conditions will be met. Since the current grants receivable relate to costs, the revenue is deferred and recognised in the income statement in order to match to the employee expenditure that it is intended to compensate.
The impact of this change in policy is to reduce profit for the year ended 30 April 2007 and net assets as at 30 April 2007 by £56,000.
IAS 21 The effects of changes in foreign exchange rates
IAS 21 requires that any goodwill and fair value adjustments to the carrying amount of assets and liabilities arising on acquiring a foreign operation should be treated as the foreign operation's assets and liabilities and translated at the closing rate in accordance with the method noted above.
Under UK GAAP, goodwill was treated as denominated in Sterling, being the functional currency of eXpansys plc, and was therefore not retranslated at each balance sheet date.
The impact of retranslation of the goodwill relating to Mobile Planet Inc (based in USA with a functional currency of US Dollars) and eXpansys Nomatica SAS (based in France with a functional currency of Euros) on equity at 30 April 2007 are reductions of £298,000 and £10,000 respectively and with no impact on the loss for the year ended 30 April 2007.
4. Segment information
The Group is managed and reported, on a worldwide basis, according to operating divisions aligned to the main trading subsidiaries:
* eXpansys UK Limited, incorporated in United Kingdom, shipping to United Kingdom and the rest
of the world from warehouses in Manchester, United Kingdom and Melbourne, Australia;
* eXpansys Nomatica SAS, incorporated in France, shipping to Continental Europe from its
warehouse in Montpelier, France;
* eXpansys Inc (formerly Mobile Planet Inc), incorporated in United States of America, shipping to
United States and Canada, from its warehouse in Bloomington, Chicago, United States of
America;
* eXpansys Hong Kong Limited, incorporated in Hong Kong, shipping to the Far East from its
warehouse in Hong Kong; and
Therefore the primary segment reporting format is determined to be geographical segments by origin as the Group's risks and rates of return are affected predominantly by differences in geographic location.
| UK & | ||||||
| rest of | Continental | USA & | Far | |||
| world | Europe | Canada | East | Singapore | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Year ended 30 April 2008 | ||||||
| Revenue | ||||||
| Sales to external customers | 32,738 | 17,422 | 12,968 | 3,661 | 2,866 | 69,655 |
| Inter-segment sales | 13,778 | 3,921 | 4,376 | 2,803 | - | 24,878 |
| Segment revenue | 46,516 | 21,343 | 17,344 | 6,464 | 2,866 | 94,533 |
| Results | ||||||
| Segment result | (1,080) | 390 | (469) | (13) | (1,109) | (2,281) |
| Group operating loss | (2,281) | |||||
| Profit on disposal of division | 187 | |||||
| Net finance costs | (446) | |||||
| Loss before taxation | (2,540) | |||||
| Tax credit | 366 | |||||
| Loss for the year | (2,174) | |||||
| Assets and liabilities | ||||||
| Segment assets | 11,354 | 3,373 | 1,714 | 788 | 1,219 | 18,448 |
| Unallocated assets | 3,477 | |||||
| Total assets | 21,925 | |||||
| Segment liabilities | (9,624) | (2,363) | (1,330) | (368) | (2,281) | (15,966) |
| Unallocated liabilities | 1,521 | |||||
| Total liabilities | (14,445) | |||||
| Other segment information | ||||||
| Plant and equipment | ||||||
| capital expenditure | 257 | 23 | 16 | 96 | 183 | 575 |
| Intangible assets | ||||||
| capital expenditure | 810 | - | - | - | - | 810 |
| Impairment of trade | 103 | - | - | - | - | 103 |
| receivables (note 6) | ||||||
| Depreciation | 474 | 44 | 24 | 18 | 30 | 590 |
| Amortisation | 575 | - | - | - | - | 575 |
| UK & | |||||
| rest of | Continental | USA & | Far | ||
| world | Europe | Canada | East | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Year ended 30 April 2007 | |||||
| Revenue | |||||
| Sales to external customers | 24,251 | 12,100 | 13,899 | 3,814 | 54,064 |
| Inter-segment sales | 19,310 | 2,400 | 8,177 | 2,318 | 32,205 |
| Segment revenue | 43,561 | 14,500 | 22,076 | 6,132 | 86,269 |
| Results | |||||
| Segment result | 675 | 151 | (1,048) | (298) | (520) |
| Unallocated expenses | 437 | ||||
| Group operating loss | (83) | ||||
| Net finance costs | (702) | ||||
| Loss before taxation | (785) | ||||
| Tax expense | 314 | ||||
| Loss for the year | (471) | ||||
| Assets and liabilities | |||||
| Segment assets | 8,129 | 2,293 | 1,972 | 607 | 13,001 |
| Unallocated assets | 4,630 | ||||
| Total assets | 17,631 | ||||
| Segment liabilities | (5,497) | (1,644) | (4,903) | (1,233) | (13,277) |
| Unallocated liabilities | 4,987 | ||||
| Total liabilities | (8,290) | ||||
| Other segment information | |||||
| Plant and equipment capital expenditure | 276 | 29 | 23 | 6 | 334 |
| Intangible assets capital expenditure | 650 | - | - | - | 650 |
| Impairment of trade receivables (note 6) | 85 | - | - | - | 85 |
| Depreciation | 335 | 41 | 33 | 8 | 417 |
| Amortisation | 409 | - | - | - | 409 |
5. Exceptional items
| 2008 | 2007 | |
| £000 | £000 | |
| Cost of sales | ||
| Exceptional stock provision and loss making sales in order to generate cash | 1,576 | - |
| Selling and distribution costs | ||
| Non recoverable distribution expenses | - | 223 |
| Administrative expenses | ||
| Costs relating to renegotiation of covenants | - | 31 |
| Costs relating to restructuring of Group financing arrangements | 29 | - |
| Costs in relation to redundancies in eXpansys Nomatica SAS | - | 286 |
| Costs in relation to redundancies in eXpansys UK and eXpansys Inc | 389 | - |
| 418 | 317 | |
| Total exceptional costs | 1,994 | 540 |
All of the exceptional items in the table above are deemed allowable for corporation tax purposes.
6. Earnings per ordinary share
Basic earning per share amounts are calculated by dividing profit / (loss) for the year attributable to
ordinary equity holders of the parent by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the profit / (loss) attributable to
ordinary equity holders of the parent by the weighted average number of ordinary shares
outstanding during the year plus the weighted average number of ordinary shares that would be
issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share
computations:
| 2008 | 2007 | |
| £000 | £000 | |
| Loss for the year from continuing operations | (2,174) | (471) |
| Less minority interests | - | (36) |
| Loss attributable to equity holders of the parent | (2,174) | (507) |
| 2008 | 2007 | |
| thousands | thousands | |
| Basic weighted average number of shares | 40,914 | 22,646 |
| Dilutive potential ordinary shares: | ||
| Employee and consultant options | 1,231 | 52 |
| Warrants over options | 904 | 16 |
| Diluted weighted average number of shares | 43,049 | 22,714 |
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.
Earnings per share from continuing operations before exceptional items
The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to facilitate better assessment of trends in financial performance.
To this end, basic and diluted earnings from continuing operations per share is also presented on this basis and using the weighted average number of ordinary shares for both basic and diluted amounts as per the table above.
The amounts for earnings per share from continuing operations after exceptional items are as follows:
| 2008 | 2007 | |
| Basic loss per share from continuing operations | (5.3)p | (2.2)p |
| Diluted loss per share from continuing operations | (5.0)p | (2.2)p |
Net loss from continuing operations before exceptional items and attributable to equity holders of the parent is derived as follows:
| 2008 | 2007 | |
| £000 | £000 | |
| Loss for the year from continuing operations | (2,174) | (471) |
| Less minority interests | - | (36) |
| Loss attributable to equity holders of the parent | (2,174) | (507) |
| Profit on disposal of distribution business | (187) | - |
| Exceptional items after tax attributable to equity holders | 1,994 | 540 |
| (Loss) / profit from continuing operations before exceptional items attributable | (367) | 33 |
| to equity holders of the parent | ||
| Loss attributable to MWg group | 1,125 | - |
| Profit from continuing operations before exceptional items and losses | 758 | 33 |
| attributable to MWg group |
The amounts for earnings per share from continuing operations before exceptional items are as follows:
| 2008 | 2007 | |
| Basic loss per share before exceptional items | (0.9)p | 0.1p |
| Diluted loss per share before exceptional items | (0.8)p | 0.1p |
The amounts for earnings per share from continuing operations before exceptional items and loss attributable to MWg are as follows:
| 2008 | 2007 | |
| Basic earnings per share before exceptional items and losses attributable to MWg | 1.9p | 0.1p |
| Diluted loss per share before exceptional items and losses attributable to MWg | 1.8p | 0.1p |
7. Business combinations
On 27 July 2007, the Group acquired 100% of the shares in Yoonoo Limited, a private company incorporated in England and Wales. The company is involved in the retail of global positioning systems within the UK.
Total consideration comprises cash consideration of £258,000 and fees of £45,000.
Book and fair values of the net assets at date of acquisition were as follows:
| Fair | Fair | ||
| Book | value | value to | |
| value | adjustments | Group | |
| £000 | £000 | £000 | |
| Plant and equipment | 58 | - | 58 |
| Cash | 272 | - | 272 |
| Trade receivables | 42 | (22) | 20 |
| Other receivables | 57 | - | 57 |
| Inventories | 339 | (16) | 323 |
| Trade payables | (514) | - | (514) |
| Other payables | (129) | (3) | (132) |
| Net assets | 125 | (41) | 84 |
| Goodwill arising on acquisition | 219 | ||
| Consideration | 303 |
Fair value adjustments relate principally to provisions against doubtful debts and inventory.
Included in the £219,000 of goodwill recognised above are certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature, and the directors believe is attributable to Yoonoo's strong position within the UK GPS market and the synergies expected to arise after its acquisition by the Group.
Discharged by:
| £000 | |
| Cash | 258 |
| Costs associated with the acquisition, settled in cash | 45 |
| Total consideration | 303 |
Immediately after acquisition the trade and assets of Yoonoo Limited were transferred into the Group's UK trading subsidiary, eXpansys UK Limited. The directors do not manage this part of the business separately from the rest of the UK trade and therefore it is impracticable to disclose the results post acquisition relating to this part of the business.
8. Authorised and issued share capital
| 2008 | 2007 | |
| £000 | £000 | |
| Authorised: | ||
| 80,000,000 Ordinary shares of 0.25p each | 200 | 200 |
| 2008 | 2007 | |
| £000 | £000 | |
| Allotted and called up | ||
| 44,837,674 (2007: 40,353,907) fully paid Ordinary shares of 0.25p each | 112 | 101 |
During March 2008 the Company raised £404,000 for working capital purposes through the placing of 4,483,767 new ordinary shares of 0.25p each at a price of 9.0 pence per share.
Equity share capital on the balance sheet includes the allotted share capital as above and share premium of £9,083,000.
9. Share-based payments
Share options
On 6 March 2007, the Group adopted the eXpansys plc Enterprise Management Incentives and Unapproved Share Scheme and the following equity settled share options were granted:
| Number of shares under option | Exercise price (pence) | |
| Cate Hulme (director) | 425,320 | 10.25 |
| Three employees | 595,320 | 29.00 |
| Thirteen employees | 260,000 | 46.40 |
| Consultant | 40,000 | 29.00 |
The share options were conditional upon the Company's shares being floated on AIM by 31 May 2007 and are exercisable, at the discretion of the option holder, for up to ten years from issue date. The options vested on 11 April 2007, when the Company floated on AIM.
During the year ended 30 April 2008, 40,000 of these share options expired when the employees left the Company.
On 30 April 2008, further equity settled share options were granted, exercisable at the discretion of the option holder, for up to ten years from issue date:
| Number of shares under option | Exercise price (pence) | |
| Roger Butterworth (director) | 1,892,551 | 20.0 |
| Cate Hulme (director) | 500,000 | 20.0 |
| Steve Muttram (director) | 354,879 | 20.0 |
| Frederic Pont (director) | 354,879 | 20.0 |
| Thirteen employees | 2,292,550 | 20.0 |
In addition, 320,000 of the share options issued in March 2007 were cancelled and reissued with an exercise price of 20 pence.
| Exercise | Outstanding | Outstanding | |||
| price | as at | Cancelled/ | as at | ||
| (pence) | 30 April 2007 | Granted | expired | 30 April 2008 | |
| Issued 6 March 2007 | |||||
| Cate Hulme (director) | 10.25 | 425,320 | - | - | 425,320 |
| Employees | 29.00 | 595,320 | - | (595,320) | - |
| Employees | 46.40 | 260,000 | - | (260,000) | - |
| Consultant | 29.00 | 40,000 | - | (40,000) | - |
| Issued 30 April 2008 | |||||
| Roger Butterworth (director) | 20.00 | - | 1,892,551 | - | 1,892,551 |
| Cate Hulme (director) | 20.00 | - | 500,000 | - | 500,000 |
| Steve Muttram (director) | 20.00 | - | 354,879 | - | 354,879 |
| Frederic Pont (director) | 20.00 | - | 354,879 | - | 354,879 |
| Employees | 20.00 | - | 2,292,550 | - | 2,292,550 |
The weighted average exercise price is 20.03 pence (2007: 26.39 pence) for the 1,320,640 shares (2007: 1,320,640) under option at 30 April 2008.
The fair value of equity settled share options granted is estimated as at the date of the grant using the Black-Scholes-Merton model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model for the year ended 30 April 2008.
| 2008 | 2007 | |
| Dividend yield (%) | 0 | 0 |
| Expected share price volatility (%) | 15.3 | 13.2 |
| Risk free interest rate (%) | 4.4 | 5.2 |
| Expected life of option (years) | 2 | 2 |
The expected volatility reflects the assumption that the AIM index is indicative of future trends, which may also not necessarily be the actual outcome.
The expected life of options reflects the assumption that the option holders will hold the options for two years, which may also not necessarily be the actual outcome.
The expense to the profit and loss account during the year ended 30 April 2008 was £1,000 (2007: £5,000).
There were no cash settled share options and no share options were exercised during the year.
Warrants
On 4 April 2007 a warrant to subscribe for 403,539 0.25p ordinary shares at 58p each was issued to Cenkos Securities plc, the company's Nominated Advisor and Broker. The transaction has been measured at the fair value of the equity instruments (as set out above) as there was no additional service performed in exchange for these options. The fair value of this award was not material.
On 30 October 2007 a warrant to subscribe for 1,000,000 0.25p ordinary shares at par was issued to O2, in the event that any of the stage payments under the Asset Agreement signed the same day, were late. The earliest available date for exercise is 5 February 2008 and latest is 15 August 2008. The transaction has been measured at the fair value of the service received in the form of a loan at £62,000.
10. Reconciliation of movements in equity
| Currency | ||||
| Equity share | Merger | translation | Retained | |
| capital | reserve | reserve | earnings | |
| £000 | £000 | £000 | £000 | |
| At 1 May 2006 | 198 | 750 | (18) | 172 |
| Issue of shares | 8,567 | - | - | - |
| Share based payment | - | - | - | 5 |
| Deferred tax movement on share based | - | - | - | 180 |
| payments | ||||
| Loss for the year | - | - | - | (507) |
| Minority interest | - | - | - | - |
| Exchange differences on retranslation of | - | - | (6) | - |
| net assets of subsidiary undertakings | ||||
| At 30 April 2007 | 8,765 | 750 | (24) | (150) |
| Issue of shares | 400 | - | - | - |
| Share based payment | - | - | - | 49 |
| Deferred tax movement on share based | - | - | - | (179) |
| payments | ||||
| Loss for the year | - | - | - | (2,174) |
| Exchange differences on retranslation of | - | - | 43 | - |
| net assets of subsidiary undertakings | ||||
| At 30 April 2008 | 9,165 | 750 | 19 | (2,454) |
| Shareholder | Minority | Total | |
| equity | interests | equity | |
| £000 | £000 | £000 | |
| At 1 May 2006 | 1,102 | 20 | 1,122 |
| Issue of shares | 8,567 | - | 8,567 |
| Share based payment | 5 | - | 5 |
| Deferred tax movement on share based payments | 180 | - | 180 |
| Loss for the year | (507) | - | (507) |
| Minority interest | - | (20) | (20) |
| Exchange differences on retranslation of net assets of | (6) | - | (6) |
| subsidiary undertakings | |||
| At 30 April 2007 | 9,341 | - | 9,341 |
| Issue of shares | 400 | - | 400 |
| Share based payment | 49 | - | 49 |
| Deferred tax movement on share based payments | (179) | - | (179) |
| Loss for the year | (2,174) | - | (2,174) |
| Exchange differences on retranslation of net assets of | 43 | - | 43 |
| subsidiary undertakings | |||
| At 30 April 2008 | 7,480 | - | 7,480 |
Equity share capital
The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium) on issue of the Company's equity share capital, comprising 0.25p ordinary shares.
Merger reserve
As a result of the acquisition of eXpansys Nomatica SAS in a share for share exchange, merger relief was taken and no share premium was recognised, rather the premium arising was credited to merger reserve.
Currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
11. Additional cash flow information
(a) Analysis of Group net debt
| At | New finance | At | ||
| 1 May 2006 | Cash flow | lease | 30 April 2007 | |
| £000 | £000 | £000 | £000 | |
| Cash at bank and in hand | 896 | (157) | - | 739 |
| Bank overdrafts | (1,039) | 1,039 | - | - |
| (143) | 882 | - | 739 | |
| Finance leases | (459) | 135 | (168) | (492) |
| Bank loans | (2,304) | 2,054 | - | (250) |
| (2,906) | 3,071 | (168) | (3) | |
| At | New finance | At | ||
| 1 May 2007 | Cash flow | lease | 30 April 2008 | |
| £000 | £000 | £000 | £000 | |
| Cash at bank and in hand | 739 | 1,440 | - | 2,179 |
| Bank overdrafts | - | (1,866) | - | (1,866) |
| 739 | (426) | - | 313 | |
| Finance leases | (492) | 222 | (29) | (299) |
| Bank loans | (250) | 28 | - | (222) |
| (3) | (176) | (29) | (208) |
(b) Cash flows relating to operating exceptional items
Net cashflow from operating activities includes the following exceptional cash flows:
| 2008 | 2007 | |
| £000 | £000 | |
| Costs relating to renegotiation of covenants | - | 31 |
| Costs relating to redundancies in eXpansys Nomatica SAS | - | 286 |
| Non recoverable distribution expenses | 223 | - |
| Costs relating to restructuring of Group financing arrangements | 29 | - |
| Costs in relation to redundancies in eXpansys UK and eXpansys Inc | 172 | - |
| 424 | 317 |