Associated British Engineering PLC
07 December 2007
ASSOCIATED BRITISH ENGINEERING PLC
INTERIM REPORT
FOR THE SIX MONTHS ENDED
30 SEPTEMBER 2007
ASSOCIATED BRITISH ENGINEERING PLC
INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
CONTENTS Page
Chairman's statement 1
Responsibility statement 2
Consolidated income statement 3
Consolidated interim balance sheet 4
Consolidated interim statement of changes in shareholders' equity 5
Consolidated interim cash flow statement 6
Notes to the interim report 7 - 11
ASSOCIATED BRITISH ENGINEERING PLC
CHAIRMAN'S STATEMENT
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
SUMMARY OF RESULTS
Six months to Six Months to Year to
30 September 2007 30 September 2006 31 March 2007
£'000 £'000 £'000
Revenue 1,446 1,839 3,861
Profit before Tax 107 197 302
Earnings per Share
Basic 8p 15p 23p
Diluted 8p 15p 23p
The six month period to 30th September 2007 shows a slight decline in the
underlying performance of the Group, which is generated from the results at our
only operating subsidiary British Polar Engines Limited ('BPE'). As shareholders
are aware, last year was an exceptional financial result as against previous
years. I indicated at the AGM this year that this year's results were unlikely
to be at these levels.
The profit before tax is £107,000 (2006: £197,000) and the earnings per share 8p
(2006: 15p). This is satisfactory but if we take account of the outstanding
dividends on the two classes of Preference Share in issue, being £26,000 for the
period, this would reduce the earnings per share to 6p; the cumulative
outstanding Preference Share dividends now stand at £386,000 (2006: £334,000).
We have been in continual negotiations with the Trustees of the ABE Pension
Fund, and the satisfactory conclusion of these, which is anticipated by the
Board in the near future, would result in the division of the fund and only the
obligations for the BPE section of the Pension Fund would need to be accounted
for. At this stage, however, the board is not in a position to formally confirm
this until agreements are signed.
BPE has not been able to meet its statutory obligations concerning its
contributions to the Pension Fund as a whole, which is in respect of the whole
deficit of the fund including companies that ceased to be part of ABE as far
back as 1996. This has resulted in the need to conclude a settlement with the
Trustees of the Pension Fund which is likely to require the blessing of the
Pension Regulator and possibly the Pension Protection Fund ('PPF'). The full
financial implications of a settlement cannot be quantified at this stage.
All sections of the Pension Fund show an actuarial deficit of £5,078,000 at 31
March 2007 (£4,395,000 at 31 March 2006), and all sections of the Pension Fund,
with the exception of the BPE section, are in wind up.
The Board has continued to keep the central costs of the Company at as low a
level as is reasonably possible and recognises that its priority will be to find
a suitable corporate transaction to take the Group forward.
The Board and I are very grateful for the patience of the shareholders in what
has been a long and hard road to the resolution of the Pension issues.
D A H Brown
Chairman
Date: 7 December 2007
ASSOCIATED BRITISH ENGINEERING PLC
RESPONSIBILITY STATEMENT
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
The Directors of the Company confirm to the best of our knowledge:
a) the Interim Report has been prepared in accordance with IAS 34;
b) the Interim Report includes a fair view of the information required by
DTR 4.2.7R, being an indication of the important events that have occurred
during the first six months of the financial year and a description of the
principal risks and uncertainties for the remaining six months of the year; and
c) the Interim Report includes a fair review of the information required
by DTR 4.2.8R, being disclosure of related party transactions and changes
therein since the last Annual Report
By order of the Board
D A H Brown
Chairman
Date: 7 December 2007
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Six months to Six months to Year to
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
REVENUE 1,446 1,839 3,861
Cost of sales and overheads (1,386) (1,663) (3,304)
---------- ---------- ---------
OPERATING PROFIT 60 176 557
Finance expense - - (305)
Finance income 47 21 50
---------- ---------- ---------
PROFIT BEFORE TAXATION 107 197 302
Taxation - - -
---------- ---------- ---------
PROFIT FOR PERIOD 107 197 302
========== ========== =========
PROFIT PER SHARE
BASIC AND DILUTED 8p 15p 23p
========== ========== =========
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six months to Six months to Year to
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Actuarial losses on retirement
benefit obligation - - (410)
Profit for the period 107 197 302
---------- ---------- ---------
TOTAL RECOGNISED INCOME AND
EXPENSE FOR THE YEAR 107 197 (108)
========== ========== =========
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM BALANCE SHEET
30 SEPTEMBER 2007
At 30 September At 30 September At 31 March
2007 2006 2007
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 279 282 274
---------- ---------- ---------
Current assets
Inventories 1,337 1,160 1,266
Trade and other receivables 608 586 1,179
Held for trading investments 63 65 74
Cash and cash equivalents 1,880 1,588 1,642
---------- ---------- ---------
3,888 3,399 4,161
---------- ---------- ---------
Total assets 4,167 3,681 4,435
========== ========== =========
EQUITY AND LIABILITIES
Called up share capital 2,627 2,627 2,627
Share premium account 5,038 5,038 5,038
Other reserve 11 11 11
Retained earnings (9,240) (9,042) (9,347)
---------- ---------- ---------
Equity attributable to the
Company's Equity shareholders (1,564) (1,366) (1,671)
---------- ---------- ---------
LIABILITIES
Non-current liabilities
Retirement benefit obligation 5,078 4,395 5,078
Obligations under finance
leases 2 - 4
---------- ---------- ---------
5,080 4,395 5,082
---------- ---------- ---------
Current liabilities
Trade and other payables 650 646 1,023
Obligations under finance
leases 1 6 1
---------- ---------- ---------
651 652 1,024
---------- ---------- ---------
Total liabilities 5,731 5,047 6,106
---------- ---------- ---------
Total equity and liabilities 4,167 3,681 4,435
========== ========== =========
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Other Retained
Capital Premium Reserve Earnings Total
£'000 £'000 £'000 £'000 £'000
Balance at 1 April 2006 2,627 5,038 11 (9,239) (1,563)
Profit for the period - - - 197 197
-------- -------- -------- -------- --------
Balance at 30 September 2006 2,627 5,038 11 (9,042) (1,366)
Profit for the period - - - 105 105
Actuarial losses in defined
benefit plan - - - (410) (410)
-------- -------- -------- -------- --------
Balance at 1 April 2007 2,627 5,038 11 (9,347) (1,671)
Profit for the period - - - 107 107
-------- -------- -------- -------- --------
Balance at 30 September 2007 2,627 5,038 11 (9,240) (1,564)
======== ======== ======== ======== ========
ASSOCIATED BRITISH ENGINEERING PLC
CONSOLIDATED INTERIM CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Six months to Six months to Year to
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Cash flows from operating
activities
Cash generated from operations 216 383 446
Interest received 47 21 50
Interest paid - - (3)
---------- ---------- ---------
Net cash from operating
activities 263 404 493
---------- ---------- ---------
Cash flows from investing
activities
Proceeds from sale of - - -
property, plant and equipment
Purchase of property,
plant and equipment (43) (25) (38)
Proceeds from sale/(purchase)
of held for trading investments 20 (5) (14)
---------- ---------- ---------
Net cash used in investing
activities (23) (30) (52)
---------- ---------- ---------
Cash flows from financing
activities
Net change in obligations
under finance leases (2) 4 (4)
---------- ---------- ---------
Net cash generated from/
(used in) financing activities (2) 4 (4)
---------- ---------- ---------
Net increase in cash and
cash equivalents 238 378 437
Cash and cash equivalents
at beginning of year 1,642 1,205 1,205
---------- ---------- ---------
Cash and cash equivalents
at end of year 1,880 1,583 1,642
========== ========== =========
CASH FLOW FROM OPERATING Six months to Six months to Year to
ACTIVITIES 30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
Net profit 107 197 302
Adjustments for:
Depreciation 37 42 67
Loss on disposal of property,
plant and equipment - - 3
Profit on disposal of held for
trading investments (8) - -
Interest income (47) (21) (50)
Interest expense - - 3
Pension scheme interest expense - - 302
Current service cost - - (29)
Changes in working capital:
(Increase)/decrease in
inventories (71) 168 62
Decrease/(increase) in trade
and other receivables 571 84 (509)
(Decrease)/increase in payables (373) (87) 295
---------- ---------- ---------
Cash generated from operations 216 383 446
========== ========== =========
ASSOCIATED BRITISH ENGINEERING PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
This Group interim report has been prepared in accordance with IAS 34 Interim
Financial Reporting and the disclosure requirements of the Listing Rules.
The results for the year ended 31 March 2007 have been extracted from the
statutory consolidated financial statements of Associated British Engineering
Plc ('ABE'), which are prepared in accordance with IFRS, as adopted by the EU.
The policies set out below have been consistently applied to all periods
presented.
GOING CONCERN
BPE has not been able to meet its statutory obligations concerning the Pension
Fund, which has resulted in the need to conclude a settlement with the Trustees
of the ABE Pension Fund, the Pension Regulator and the PPF. All sections of the
ABE Pension Fund show an actuarial deficit of £5,078,000 at 31 March 2007
(£4,395,000 at 31 March 2006), and all sections of the Pension Fund, with the
exception of the BPE section, are in wind up.
The financial statements have been prepared on the going concern basis as the
Board expects a successful outcome to negotiations with the Trustees of the ABE
Pension Fund, the Pension Regulator and the PPF, as explained in the Chairman's
Statement. It therefore considers that the Group has sufficient resources to
continue in operational existence for the foreseeable future.
BASIS OF CONSOLIDATION
The Group interim report incorporates the financial statements of Associated
British Engineering plc and its subsidiary undertakings to 30 September each
year. All inter-company balances and transactions have been eliminated in full.
The Group interim report includes the results of subsidiaries acquired or
disposed of during the year from or to the effective date of acquisition or
disposal.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration receivable by the
Group for goods supplied and services provided, excluding value added tax and
trade discounts.
Revenue from the sale of spare parts is recognised when the goods are dispatched
or, if under a bill and hold arrangement, when they are available for dispatch
to a specific customer.
Revenue from the sale of engines is recognised in accordance with the
performance of contractual terms and specifically when the engines have been
satisfactorily tested in accordance with contractual terms.
INVENTORIES AND IMPAIRMENT OF INVENTORIES
Inventories of raw materials, work in progress and finished goods are valued at
the lower of cost and net realisable value. Work in progress and finished
goods include an appropriate allocation of overheads.
Cost is on a first in, first out basis. Net realisable value is the estimated
selling price in the normal course of business, less estimated costs of
completion and provision is made for obsolete, slow moving and defective
inventories.
LEASED ASSETS
Leases of property, plant and equipment, where the Group has substantially all
the risks and rewards of ownership, are classified as finance leases. Assets
held under finance leases are capitalised at lease inception at the lower of the
asset's fair value and the present value of the minimum lease payments.
Obligations related to finance leases, net of finance charges in respect of
future periods, are included as appropriate within borrowings. The interest
element of the finance cost is charged to the income statement over the life of
the lease so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The property, plant or equipment is
depreciated on the same basis as owned plant and equipment or over the life of
the lease, if shorter.
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. Operating lease rentals (net of
any related lease incentives) are charged against profit on a straight line
basis over the period of the lease.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and any
impairment in value. Freehold land is not depreciated. Depreciation is
calculated to write down the cost of all property, plant and equipment less its
residual value by annual instalments over their expected useful lives on the
following bases:
Freehold buildings 5 per cent
Plant and machinery 7 1/2- 33 1/3 per cent
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or where shorter, over the term of the
relevant lease. The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised as income.
The carrying values of plant and machinery are reviewed for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable. If any such indication exists, and where the carrying values exceed
the estimated recoverable amount, the assets or cash generating units are
written down to their recoverable amounts.
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 provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. The deferred tax is
not accounted for if it arises from initial recognition of an asset or liability
in a transaction, other than a business combination, that at the time of the
transaction affects neither accounting nor taxable profit nor loss. Deferred tax
is determined using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the exchange rates ruling at the balance sheet
date. All exchange differences are dealt with through the income statement.
RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution schemes where the
Group's obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses are
recognised in full in the period in which they occur. They are recognised
outside profit or loss and presented in the statement of recognised income and
expense.
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation as adjusted for unrecognised
past service cost, and as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus the
present value of available refunds and reductions in future contributions to the
plan.
The Group has recognised the actuarial losses and gains immediately within the
Statement of Recognised Income and Expenditure in accordance with the provisions
stated within IAS 19 'Employee benefits'.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand
and short term deposits with a maturity of three months or less which are
subject to an insignificant risk of changes in value.
FINANCIAL INSTRUMENTS
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. Where the contractual
obligations of financial instruments (including share capital) are equivalent to
a similar debt instrument, those financial instruments are classed as financial
liabilities and are presented as such in the balance sheet.
Finance costs and gains or losses relating to financial liabilities are included
in the profit and loss account. Finance costs are calculated so as to produce a
constant rate of charge on the outstanding liability. Where none of the
contractual terms of share capital meet the definition of a financial liability
then this is classed as an equity instrument. Dividends and distributions
relating to equity instruments are debited direct to equity.
Trade receivables
Trade receivables are originally recognised at fair value less any allowance for
any uncollectible amounts. An estimate for doubtful debts is made when the
collection of the full amount is no longer probable. Bad debts are written off
when identified.
Trade payables
Trade payables are originally recognised at fair value less any adjustment for
any unpayable amounts.
Investments in securities
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 fair value, with all transaction costs being written off
to the income statement.
Investments are classified as either held for trading or available-for-sale and
are measured at subsequent reporting dates at fair value. Gains and losses
arising from changes in fair value of held for trading financial assets are
included in the net profit or loss for the period. For available-for-sale
investments, gains and losses arising from changes in fair value are recognised
directly in equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised is
included in the income statement.
CUMULATIVE PREFERENCE SHARES
Cumulative preference shares are measured subsequent to initial recognition at
amortised cost using the effective interest rate method. Where the group revises
its estimates of cash payments, the carrying amount of the financial liability
is adjusted to reflect actual and revised estimated cash flows. The group
recalculates the carrying amount by computing the present value of the estimated
future cash flows at the financial instruments' original effective interest
rate. The adjustment is recognised as income or expense in the income statement.
SHARE BASED PAYMENTS AND SHARE OPTIONS
Former employees of the Group have received remuneration in the form of share
based payment transactions, whereby employees render services in exchange for
rights over shares ('equity settled transactions'). The cost of these
transactions is measured by reference to their fair value at the date at which
the options are granted. The fair value is determined by using the Black-Scholes
Option pricing model. In preparing this interim report in accordance with IFRS
1, the Group has elected to apply the share-based payment exemption. It applied
IFRS 2 'Share Based Payment' from 1 April 2004 to those options which were
issued after 7 November 2002 but had not vested by 1 April 2006.
IMPAIRMENT OF TANGIBLE ASSETS
At each balance sheet date, the Group reviews the carrying amounts of its
tangible 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). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value to
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.
2. GEOGRAPHICAL SEGMENT ANALYSIS
Based on risks and returns the directors consider the primary reporting
format is by business segment. The directors consider that there is only
one business segment being diesel and related engineering activities.
Therefore the disclosures for the primary segment have been given in the
consolidated income statement and consolidated interim balance sheet.
The secondary reporting format is by geographical analysis by destination
as shown below.
The following table shows an analysis of the Group's sales by geographical
market:
Six months to Six months to Year to
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
United Kingdom 888 1,054 1,974
Europe 211 483 798
Middle East 14 6 110
Far East and Australasia 256 196 684
Africa 23 21 31
North and South America 54 79 264
---------- ---------- -----------
Total 1,446 1,839 3,861
========== ========== ===========
All of the above turnover arises from diesel and related engineering
activities and originates in the United Kingdom.
All of the assets held by the Group were located in the United Kingdom and
all capital expenditure was incurred within the United Kingdom.
3. PRINCIPAL RISKS AND UNCERTAINTIES
In light of the industry that BPE, our only trading subsidiary, operates
in there are a number of risks and uncertainties which could have an
impact on the performance of the Group for the remaining six months of
the year. These risk and uncertainties include:
• Dependency on key markets;
• Timing and renewal of key contracts;
• Foreign exchange risk;
• Recruitment and retention of key employees;
• Identification of acquisitions that fit the Group's strategy;
• Compliance with laws and regulations
The Directors meet on a regular basis to discuss these risks and
uncertainties and appropriate actions are taken to mitigate these risks
and to develop suitable strategies to protect the long term performance
of the Group.
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