Coe Group PLC
25 March 2008
COE Group plc
('COE', the 'Company' or the 'Group')
Announcement of unaudited results for the six months ended 31 December 2007
COE, the AIM-quoted developer and supplier of advanced video surveillance
systems, announces unaudited results for the 6 months ended 31 December 2007
(H1 FY08).
Financial Highlights
• Gross profit on new orders £949k (H1 FY07: £785k, 20.9% increase).
• Gross profit up 3.3% to £1,089k (H1 FY07: £1,054k) on lower turnover of
£2,075k (H1 FY07: £2,477k), due to management focus on contract
profitability.
• Overheads higher at £1,662k (H1 FY07: £1,306k, 27.3% increase) and
operating loss higher at £573k (H1 FY07: £252k) due to previously announced
sales force and management team expansion.
• Net cash at 31 Dec 2007: £495k (31 Dec 2006: net debt £150k).
• Further growth in new order in the current period (H2 FY08): Order
intake in first three months of the current half (H2 FY08) is the highest
the company has experienced in 4 years.
Operational Highlights
• Integrated IP systems increasingly in demand - sales quotes for new
systems formed 31% of quotes in the 90 days to 31 December 2007.
• First competitive wins for new software products:
o X-Net Video Management and Recording System to Martignano Tunnel,
Italy.
o COE Genesys Command and Control System, to Kaohsiung Metro, Taiwan.
• Number of major competitive wins increased including:
o Autoroute Blanche (France).
o Road traffic system for number plate recognition (UK).
o further growth at Strasbourg, a leading all-IP Urban surveillance
system in France.
• Management team completed with hiring of a new Global Sales Director and
Engineering Manager.
About COE:
COE Ltd develops and supplies integrated IP video surveillance (CCTV) systems
for some of the most complex high profile sites worldwide. COE products and
systems allow users to achieve faultless and cost-effective video surveillance
in safety critical operations and rugged environments year after year, by
delivering very high quality video, high reliability and extensive third party
integration. COE provides both IP and hybrid IP/analogue solutions so that
customers have the option of leveraging existing installations.
The Company has over 10,000 installations worldwide across three main sectors -
traffic & transport, heavy industrial and urban surveillance. References
include the London Congestion Charge network, underground and high-speed rail
systems worldwide, including the UK, Singapore, France, Spain, Germany, Hong
Kong and Delhi; airports across Germany, Hong Kong and SE Asia, and road
systems worldwide. City-centre systems include over 35 UK towns and cities,
while industrial complexes include the South Parrs gas field in the Middle
East.
COE works closely with selected systems integrators, helping them to deliver the
most competitive overall solutions for end-users. The Company provides support
through the entire lifecycle including design, supply, on-site test,
commissioning and long-term maintenance.
Please visit www.coe.co.uk
CHAIRMAN'S STATEMENT
Having taken up the reins midway through COE's strategic development, I am
pleased to announce that the Company continues to execute and achieve its growth
plan laid out in March 2007. The results of the sales force expansion are now
starting to show tangible benefits through an increased number of firm orders
being won. Order intake in the current half (H2 FY08) is the highest the company
has experienced in 4 years. This growth is being seen in several geographies and
is both in project-based business and in routine orders
The strengthening and restructuring of the management team is now complete
following the recruitment of the Global Sales Director and the Engineering
Manager. The Company has launched its integrated IP Product portfolio which
builds on COE's 7-year track record in IP systems.
First wins and shipments of several important new products were achieved
including both of the new Command and Control Systems. COE's Video Management
System won a competitive bid to supply a tunnel traffic management customer in
Italy, while COE Genesys was chosen by Singapore Technologies Electronics for
the Kaohsiung Metro in Taiwan. Command and Control Systems are a key element of
integrated IP surveillance systems, which form the fastest growing demand
segment amongst COE's customers.
Looking further ahead, leading indicators are showing positive signs:
1. Firm quotes submitted during the period continued the steep growth
experienced in previous quarters due to improvement in the product
portfolio, sales force expansion and increased management skills and
capacity.
2. Significant volumes of firm quotes were submitted for all the products
launched during the period including the Company's new H-Box (a
miniaturised video encoder which compresses video into lower bandwidth
than its predecessors to allow a reduction in network costs) and its
VMS (a control room management and recording system).
FINANCIAL REPORT
Gross profits for the half year rose by 3.3% to £1,089k (2007: £1,054k) on lower
turnover of £2,075k (2007: £2,477k) due to management's higher focus on contract
profitability. The Company announced during March 2007 that the operational
benefits of the expanded sales force were not expected until 2008 and these are
now starting to be seen in current trading (H2 FY08).
The loss for the half year of £573k (H1 FY07: £252k) results largely from
investment in skills, resources and new products to accelerate growth which
increased overheads in the period to £1,662k (H1 FY07: £1,306k, 27.3%). The
benefits of this investment are anticipated by the Directors to be realised in
future periods.
The trend in gross margin improvements was maintained (H1 FY08: 52%, H2 FY07:
44%, H1 FY07: 42%).
These interim financial statements have been prepared using International
Financial Reporting Standards (IFRS) and the comparative figures re-stated
accordingly. The main difference under IFRS is the treatment of research and
development expenditure. Under UK GAAP this was expensed as incurred. IFRS
requires the expenditure which meets certain criteria to be capitalised and
amortised over the period of its economic benefit.
BALANCE SHEET AND FINANCING
Although the Group is consuming cash as it invests in expansion the net cash
position at 31 December 2007 was £495k (31 December 2006: net debt £150K).
As predicted during 2007, after the 80% reduction in stocks over previous years,
period end stocks rose slightly to £233k (30 June 2007: £167k). The Group's new
sourcing arrangements are now established and have allowed continued use of
stocks held by sub-contractors to reduce the Company's lead-times and improve
its working capital.
The loan notes which had been on the balance sheet since 2003 together with the
ring-fenced monies on deposit expired on 31st December 2007. These loan notes
have therefore been repaid and this completes the restructuring of the Group's
balance sheet and, subject to HM Revenue & Customs approval, allows Venture
Capital Trusts to gain income tax relief against purchases of new shares in the
Group from 1 January 2008.
BOARD AND STAFF CHANGES
A Global Sales Director was hired in September 2007. He brings extensive
experience from the IT industry including a lengthy period of growth with Compaq
Computer from start-up to billion dollar turnover. An Engineering Manager also
joined during the period from Pace Micro Technology, bringing over 15 years'
project management experience including over 10 years managing embedded and PC
software development and maintenance.
POST BALANCE SHEET EVENTS
On 11 January 2008, the board announced that Stephen Allott was stepping down as
chairman and resigning from the Board. Stephen has helped COE formally and
informally for over 3 years and we wish him well. Following Stephen's
resignation, I took over as non-executive Chairman.
CONCLUSION AND OUTLOOK
The Company has sharpened its focus on the transport and traffic segment of the
global video surveillance markets. This is the fastest growing segment of the
global video surveillance markets and the Company's references, reputation and
products are well received. The Company has continued to build its IP products
towards the integrated systems now demanded by customers and is experiencing
success with these new products as well as with its established IP and fibre
products.
The growth plan announced in March 2007, which involved significant increases in
the Company's management capability and sales resources, is being executed and
new business wins in the current period (H2 FY08) have resulted in growth as
these new resources start to deliver.
The Board is focussed on continuing to deliver the benefits of this investment
during the current period to establish the Company at a materially higher level,
and form a platform for further growth.
Dr Alison Fielding
Chairman
25 March 2008
COE Group Plc
Andrew Wallace, Chief Executive Officer 0113 230 8862
Ian Jefferson, Finance Director 0113 230 8826
KBC Peel Hunt Ltd 0207 418 8900
Oliver Scott
Nicholas Marren
Consolidated income statement (unaudited)
For the six months ended 31 December 2007
Six months * Six months * Year
ended ended ended
31 December 31 December 30 June
2007 2006 2007
Note £'000 £'000 £'000
------ --------- --------- --------
Revenue 2,075 2,477 3,976
Cost of sales (986) (1,423) (2,263)
------ --------- --------- --------
Gross profit 1,089 1,054 1,713
Net operating expenses (1,662) (1,306) (2,936)
------ --------- --------- --------
Operating loss before exceptional
items (573) (252) (1,223)
Exceptional profit on disposal of
property - 369 368
------ --------- --------- --------
Operating (loss)/profit (573) 117 (855)
Financial income 4 552 421 908
Financial expense 4 (469) (411) (826)
------ --------- --------- --------
(Loss)/profit before tax (490) 127 (773)
Income tax credit - - 23
------ --------- --------- --------
(Loss)/profit for the period (490) 127 (750)
------ --------- --------- --------
Basic (loss)/earnings per share 1 (2.4p) 0.9p (4.8p)
Diluted (loss)/earnings per share 1 (2.4p) 0.8p (4.8p)
* re-stated under IFRS. See note 5.
Consolidated statement of changes in equity (unaudited)
For the six months ended 31 December 2007
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2007 2006 2007
£'000 £'000 £'000
--------- --------- --------
(Loss)/profit for period (490) 127 (750)
--------- --------- --------
Total recognised income and expense (490) 127 (750)
ESOP loan - (220) (220)
Shares issued - 1,062 2,400
Share based payments 25 - 53
--------- --------- --------
Net (decrease)/increase in total equity (465) 969 1,483
Total equity/(deficit) at start of
period 989 (494) (494)
--------- --------- --------
Total equity at end of period 524 475 989
--------- --------- --------
Consolidated balance sheet (unaudited)
As at 31 December 2007
31 December * 31 December * 30 June
2007 2006 2007
Note £'000 £'000 £'000
------ --------- --------- --------
Non-current assets
Property, plant and equipment 78 51 77
Intangible assets 260 336 245
------ --------- --------- --------
338 387 322
------ --------- --------- --------
Current assets
Inventories 233 330 167
Trade and other receivables 1,290 1,998 1,082
Money market investments and
deposits 3 - 18,424 18,342
Cash and cash equivalents 495 27 854
------ --------- --------- --------
2,018 20,779 20,445
------ --------- --------- --------
Total assets 2,356 21,166 20,767
Current liabilities
Loan notes 3 - (18,424) (18,342)
Trade and other payables (1,722) (2,002) (1,314)
Provisions (110) (88) (122)
Loans and other borrowings - (177) -
------ --------- --------- --------
(1,832) (20,691) (19,778)
------ --------- --------- --------
Total liabilities (1,832) (20,691) (19,778)
------ --------- --------- --------
Net assets 524 475 989
------ --------- --------- --------
Shareholders' equity
Called-up share capital 1,312 1,272 1,312
Share premium account 3,629 2,331 3,629
Retained earnings (4,417) (3,128) (3,952)
------ --------- --------- --------
Total shareholders' equity 524 475 989
------ --------- --------- --------
* re-stated under IFRS. See note 5.
Consolidated cash flow statement (unaudited)
For the six months ended 31 December 2007
6 months * 6 months * 12 months
ended ended ended
31 December 31 December 30 June
2007 2006 2007
Note £'000 £'000 £'000
------ --------- --------- --------
Cash flow from operating
activities
(Loss)/profit for the period (490) 127 (750)
Adjustments for:
Amortisation of development
expenditure 122 215 429
Profit on disposal of property - (369) (368)
Depreciation 23 26 54
Net financial income (83) (10) (82)
Equity share option expense 25 - 53
Income tax income - - (23)
------ --------- --------- --------
Operating cash flow before
changes in (403) (11) (687)
working capital and provisions
(Increase)/decrease in trade and
other receivables (336) (397) 474
(Increase)/decrease in (66) 151 314
inventories
Increase/(decrease) in trade and
other payables 524 (14) (666)
------ --------- --------- --------
Cash used by the operations (281) (271) (565)
Interest paid - (411) (826)
Income tax received - - 66
------ --------- --------- --------
Net cash flows from operating
activities - (682) (1,325)
------ --------- --------- --------
Cash flows from investing
activities
Interest received 83 421 908
Proceeds from disposal of - 1305 1,304
property
Purchase of plant and equipment (24) (3) (57)
Development expenditure (137) (122) (245)
capitalised ------ --------- --------- --------
Net cash flows from investing
activities (78) 1,601 1,910
------ --------- --------- --------
Cash flows from financing
activities
Proceeds from the issue of
ordinary - 842 2,400
shares
Trust loan written off through
reserves - 220 -
Decrease in money market
investments 3 18,342 70 152
and deposits
Repayment of loan notes 3 (18,342) (280) (362)
------ --------- --------- --------
Net cash flows from financing
activities - 852 2,190
------ --------- --------- --------
Net (decrease)/increase in cash
and (359) 1,771 2,775
cash equivalents
Cash and cash equivalents at the
beginning of the period 854 (1,921) (1,921)
------ --------- --------- --------
Cash and cash equivalent at the
end 495 (150) 854
of the period ------ --------- --------- --------
* re-stated under IFRS. See note 5.
Accounting Policies
Basis of preparation
COE Group Plc is a public limited Company incorporated and domiciled in England
and Wales. The Company's ordinary shares are traded on AIM.
The interim financial statements are prepared under the historical cost
convention and in accordance with the Group's accounting policies set out below
which are based on the recognition and measurement principles of International
Financial Reporting Standards (IFRS) in issue and adopted by the European Union
and effective at 30 June 2008 or as are expected to be adopted and effective at
30 June 2008.
EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated
financial statements of the Group for the 12-month period ending 30 June 2008 be
prepared in accordance with IFRS adopted for use in the EU ('adopted IFRS').
The interim financial statements for the 6 months ended 31 December 2006 and for
the 6 months ended 31 December 2007 contained within the interim report do not
constitute statutory financial statements within the meaning of Section 240 of
the Companies Act 1985 and are unaudited. The figures included for the year
ended 30 June 2007 have been restated to comply with adopted IFRS and are not
the Group's statutory accounts for that financial year. Those accounts, which
are prepared under UK GAAP, have been delivered to the Registrar of Companies.
PricewaterhouseCoopers LLP, the COE Group Plc's auditors, reported on those
accounts under section 235 of the Companies Act 1985. Their report was
unqualified and did not contain a statement under section 237(2) or (3) of that
Act.
Adoption of IFRS
These interim results represent the first financial statements the Group has
prepared in accordance with its accounting policies under IFRS and the
comparatives for the prior year have been restated from UK GAAP to comply with
IFRS. A description of how the Group's reported performance and financial
position were affected by the change, including reconciliations from UK GAAP to
IFRS for prior period results, is provided in note 5. For the purpose of the
accounts, the date of transition to IFRS is 1 July 2006.
The rules for first time adoption of IFRS are set out in IFRS 1 'First time
adoption of International Financial Reporting Standards'. In general, a Company
is required to determine its IFRS accounting policies and apply these
retrospectively to determine its opening balance sheet under IFRS. The standard
allows a number of exceptions to this general principle to assist companies as
they change to reporting under IFRS. The Group has taken advantage of the
following exemptions:
•Business combinations that took place prior to the date of transition
have not been restated and
•All cumulative translation differences that existed at the date of
transition are assumed to be zero.
Changes in accounting policy
For all accounting periods up to and including the year ended 30 June 2007, the
Group has prepared its financial statements under UK GAAP. For accounting
periods from 1 July 2007, the Group is required to prepare its consolidated
financial statements in accordance with IFRS as adopted by the EU.
The Group's first results under this basis are its interim results for the
6-month period ended 31 December 2007. The Group's first annual report under
IFRS will be for the year ending 30 June 2008. As comparative figures are
provided, the effective date for transition to IFRS is 1 July 2006.
Basis of consolidation
The Group's financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. The results of any subsidiaries sold or
acquired are included in the Group income statement up to, or from, the date
control passes. All intra-Group balances and transactions, including unrealised
profits arising from intra-Group transactions, are eliminated fully on
consolidation
Foreign currency translation
The functional and presentation currency of the Group is Sterling.
Transactions denominated in foreign currencies are translated into Sterling at
the rates of exchange ruling on the date of the transaction. Monetary assets and
liabilities are translated into Sterling at the rate of exchange ruling at the
balance sheet dates. Exchange rates used to express the assets, liabilities and
earnings of overseas companies in Sterling are the rates ruling at the balance
sheet dates. Exchange differences arising from the re-translation of the
investments in overseas subsidiaries, net of related foreign currency borrowings
taken out as a hedge against the investment, are recorded as a movement in
reserves. All other exchange differences are dealt with through the income
statement.
Revenue recognition
Revenue represents the total of the amounts invoiced to customers outside the
Group for goods supplied and services rendered, excluding VAT, and after
deducting discounts allowed and credit notes issued. Revenue is recognised at
the point at which goods are supplied or services are rendered to customers.
Segment reporting
A segment is a distinguishable component of the Group that is engaged in
providing products or services within a particular geographical segment.
Pensions and post-retirement health benefits
The Group makes payments into a defined contribution pension scheme on behalf of
certain directors and employees. These costs are recognised immediately in the
income statement as incurred. The Group provides no other post-retirement
benefits to its employees.
Goodwill
Goodwill arising on consolidation represents the excess of the fair value of the
consideration given over the fair value of the separable identifiable net assets
acquired. Goodwill arising on acquisition of subsidiaries and businesses is
capitalised as an asset.
In accordance with IFRS 3 'Business combinations', goodwill has been frozen at
its net book value as at 1 July 2006 and will not be amortised. Instead it will
be subject to an annual impairment review with any impairment losses being
recognised immediately in the income statement.
Research and development
Research and development expenditure undertaken with the prospect of gaining new
scientific or technical knowledge and understanding is recognised in the income
statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to
a plan or design for the production of new or substantially improved products
and processes, is capitalised if the product or process is technically and
commercially feasible and the Group has sufficient resources to complete
development. The expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads. Amortisation is charged to
the income statement on a straight line basis over the useful economic life of
the activity unless such lives are considered indefinite in which case annual
testing for impairment is carried out.
Property, plant and equipment
Property, plant and equipment is held at cost.
Depreciation is calculated to write off the cost (or amount of the valuation) of
property, plant and equipment less the estimated residual value on a
straight-line basis over the expected useful economic life of the assets
concerned. The annual rates used are:
- freehold buildings 50 years
- fixtures, fitting tools and equipment 4 years
- plant and machinery 4 years
Inventories
Inventories are valued at the lower of cost and net realisable value after
making due allowance for obsolete and slow moving items. Cost is determined on a
first in, first out basis. Net realisable value is the estimated selling price
in the ordinary course of business, less estimated cost of completion and the
estimated costs necessary to make the sale.
Trade and other receivables
Trade receivables are recognised and carried at original invoice amount less
allowance for any un-collectable amounts. An estimate for doubtful debts is made
when collection of the full amount is no longer probable.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand
and short-term deposits.
For the purpose of the consolidated cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as described above, net of
outstanding bank overdrafts.
Taxation
Income tax on the profit or loss for the year comprises current and deferred
tax. Income tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is
recognised in equity.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. A
deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which an asset can be utilised.
Leases
Assets financed by leasing arrangements, which give rights approximating to
ownership, are treated as if they had been purchased outright and are
capitalised and depreciated over the shorter of the estimated useful life of the
assets and the period of the leases. The capital element of future rentals is
treated as a liability and the interest element is charged against profits in
proportion to the balances outstanding. The rental costs of all other leased
assets are charged against profits on a straight-line basis.
Share-based payments
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
conditions are fulfilled, ending on the date on which the relevant employees
become fully entitled to the award ('vesting date'). The cumulative expense
recognised for the equity-settled transactions at each reporting date until the
vesting date reflects the extent to which the vesting period has expired and the
number of awards that, in the opinion of the directors of the Group and based on
the best available estimates at that date, will ultimately vest. The income
statement charge or credit for a period represents the movement in cumulative
expenses recognised as at the beginning and end of that period.
Charges for employee services received in exchange for share-based payment have
been made for all options granted after 7 November 2002 in accordance with IFRS
2 'Share based payments'. The fair value of such options has been calculated
using a binomial option-pricing model, based upon publicly available market data
at the point of grant.
Financial instruments
The Group uses derivative financial instruments to hedge its exposure to foreign
exchange and interest rate risks arising from operational, financing and
investing activities. In accordance with its treasury policy, the Group does not
hold or issue derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted for as
trading instruments.
Derivative financial instruments are recognised initially at cost. Subsequent to
initial recognition, derivative financial instruments are stated at fair value.
The gain or loss on re-measurement to fair value is recognised immediately in
the income statement.
The fair value of forward exchange contracts is their quoted market price at the
balance sheet date, being the present vale of the quoted forward price.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefit will be required to settle the obligation,
although there remains uncertainty over timing or the amount of the obligation,
and a reliable estimate can be made of the amount of the obligation.
Impairment
The carrying amount of the Group's assets, other than inventories and deferred
tax assets (see accounting policies above), are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets
that are not yet available for use, the recoverable amount is estimated at each
balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset of its
cash generating unit exceeds its recoverable amount. Impairment losses are
recognised in the consolidated income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash-generating
units (Groups of units) and then, to reduce the carrying amount of the other
assets of the unit (Group of units) on a pro rata basis.
Exceptional items
Exceptional items are non-recurring material items which are outside the normal
scope of the Group's ordinary activities such as profits from the disposal of
property. Such items are disclosed separately within the financial statements.
Notes to the unaudited interim financial statements
1 Earnings per share
Basic earnings per share is calculated as the loss for the period divided by the
weighted average number of shares outstanding. For diluted earnings per share,
the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all potentially dilutive ordinary shares. Under IAS 33 'Earnings
per share' any potentially dilutive ordinary shares are deemed anti-dilutive in
the event that a loss has been incurred. Consequently the basic and adjusted
loss per ordinary share for the 6-month period ended 31 December 2007 and the
12-month period ended 30 June 2007 are unaffected by dilution.
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2007 2006 2007
--------- --------- --------
Basic (loss)/profit attributable to
shareholders (£490,000) £127,000 (£750,000)
Weighted average number of shares 20,378,640 13,440,004 15,748,275
--------- --------- --------
Basic (loss)/earnings per share (2.4p) 0.9p (4.8p)
--------- --------- --------
Adjusted (loss)/profit attributable to
shareholders (£490,000) £127,000 (£750,000)
Weighted average number of shares 20,378,640 15,854,003 15,748,275
--------- --------- --------
Diluted (loss)/profit per share (2.4p) 0.8p (4.8p)
--------- --------- --------
2 Reconciliation of net cash flow to net funds
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2007 2006 2007
£'000 £'000 £'000
--------- --------- --------
(Decrease)/increase in cash and cash
equivalents in the period (359) 1,771 2,775
Decrease in money market investment and
deposits (18,342) (70) (152)
Decrease in debt and finance leases 18,342 280 362
--------- --------- --------
Movement in net funds during the period (359) 1,981 2,985
Net funds/(debt) at the beginning of the
period 854 (2,131) (2,131)
--------- --------- --------
Net funds/(net debt) at the end of the
period 495 (150) 854
--------- --------- --------
3 Loan notes
The Loot loan notes were redeemed in full on 31 December 2007. Interest was
based on six monthly LIBOR less 1.25% payable half-yearly in arrears on 30 June
and 31 December. They were secured by an equivalent in value blocked money
market deposit account.
4 Financial income and expense
6 months 6 months 12 months
ended ended ended
31 December 31 December 30 June
2007 2006 2007
£'000 £'000 £'000
--------- --------- --------
Interest payable on loan notes (467) (349) (754)
Interest payable on bank loans and
overdrafts (2) (62) (72)
--------- --------- --------
Total interest payable (469) (411) (826)
Interest receivable on pledged deposit
account 545 421 897
Interest receivable on cash at bank 7 - 11
--------- --------- --------
Total interest receivable 552 421 908
5 Explanation of transition to IFRS
As stated in the accounting policies, these are the Group's first consolidated
interim financial statements for the part of the period covered by the first
annual consolidated financial statements prepared in accordance with IFRS.
In preparing its opening IFRS balance sheet, comparative information for the
6-month period ended 31 December 2006 and financial statements for the 12-month
period ended 30 June 2007, the Group has adjusted amounts reported previously in
financial statements prepared in accordance with UK GAAP.
The details of how the transition from UK GAAP to IFRS has affected the Group's
financial position, financial performance and cash flows are set out in the
tables below. An explanation of the adjustment is as follows: IAS 38,
'Intangible assets' requires development expenditure which meets certain
criteria to be capitalised and amortised over the period of its economic
benefit. Under UK GAAP the Group expensed these costs as they were incurred.
Reconciliation of reported profits (unaudited)
For the year ended 30 June 2007
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Revenue 3,976 3,976
Cost of sales (2,263) (2,263)
------- -------- -------- --------
Gross profit 1,713 1,713
Net operating expenses (2,752) 245 (429) (2,936)
------- -------- -------- --------
Operating loss before
exceptional (1,039) 245 (429) (1223)
items
Exceptional profit on disposal
of 368 368
property ------- -------- -------- --------
Operating loss (671) 245 (429) (855)
Financial income 908 908
Financial expense (826) (826)
------- -------- -------- --------
Loss before tax (589) 245 (429) (773)
Income tax charge 23 23
------- -------- -------- --------
Loss for the period (566) 245 (429) (750)
------- -------- -------- --------
Basic loss per share (3.6p) 1.6p (2.8p) (4.8p)
Diluted loss per share (3.6p) 1.6p (2.8p) (4.8p)
Reconciliation of reported profits (unaudited)
For the 6-month period to 31 December 2006
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Revenue 2,477 2,477
Cost of sales (1,423) (1,423)
------- -------- -------- --------
Gross profit 1,054 1,054
Net operating expenses (1,213) 122 (215) (1,306)
------- -------- -------- --------
Operating loss before
exceptional (159) 122 (215) (252)
items
Exceptional profit on disposal
of 369 369
property ------- -------- -------- --------
Operating profit 210 122 (215) 117
Financial income 421 421
Financial expense (11) (11)
------- -------- -------- --------
Profit before tax 220 122 (215) 127
Income tax charge - -
------- -------- -------- --------
Profit for the period 220 122 (215) 127
------- -------- -------- --------
Basic earnings per share 1.6p 0.9p (1.6p) 0.9p
Diluted earnings per share 1.4p 0.8p (1.4p) 0.8p
Reconciliation of reported cash flows (unaudited)
For the year ended to 30 June 2007
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Cash flow from operating
activities
(Loss)/profit for the period (566) 245 (429) (750)
Adjustments for:
Amortisation of development
expenditure - 429 429
Profit on disposal of property (368) (368)
Depreciation 54 54
Net financial income (82) (82)
Equity share option expense 53 53
Income tax income (23) (23)
------- -------- -------- --------
Operating cash flow before
changes (932) 245 - (687)
in working capital and
provisions
Decrease/(increase) in trade
and 474 474
other receivables
Decrease in inventories 314 314
(Decrease)/increase in trade
and (666) (666)
other payables ------- -------- -------- --------
Cash used by the operations (810) 245 - (565)
Interest paid (826) (826)
Income tax received 66 66
------- -------- -------- --------
Net cash flows from operating
activities (1,570) 245 - (1,325)
------- -------- -------- --------
Cash flows from investing
activities
Interest received 908 908
Proceeds from disposal of 1,304 1,304
property
Purchase of plant and (57) (57)
equipment
Development expenditure - (245) (245)
capitalised ------- -------- -------- --------
Net cash flows from investing
activities 2,155 (245) - 1,910
------- -------- -------- --------
Cash flows from financing
activities
Proceeds from the issue of
ordinary 2,400 2,400
shares
Trust loan written off through - -
reserves
Decrease in money market
investments and deposits 152 152
Repayment of loan notes (362) (362)
------- -------- -------- --------
Net cash flows from financing
activities 2,190 - - 2,190
------- -------- -------- --------
Net increase in cash and cash
equivalents 2,775 - - 2,775
Cash and cash equivalents at
the (1,921) (1,921)
beginning of the period ------- -------- -------- --------
Cash and cash equivalent at
the end 854 - - 854
of the period ------- -------- -------- --------
Reconciliation of reported cash flows (unaudited)
For the 6 month period to 31 December 2006
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Cash flow from operating
activities
(Loss)/profit for the period 220 122 (215) 127
Adjustments for:
Amortisation of development
expenditure - 215 215
Profit on disposal of property (369) (369)
Depreciation 26 26
Net financial income (10) (10)
Equity share option expense - -
Income tax income - -
------- -------- -------- --------
Operating cash flow before
changes (133) 122 - (11)
in working capital and
provisions
Decrease/(increase) in trade
and (397) (397)
other receivables
Decrease in inventories 151 151
(Decrease)/increase in trade
and (14) (14)
other payables ------- -------- -------- --------
Cash used by the operations (393) 122 - (271)
Interest paid (411) (411)
Income tax received - -
------- -------- -------- --------
Net cash flows from operating
activities (804) 122 - (682)
------- -------- -------- --------
Cash flows from investing
activities
Interest received 421 421
Proceeds from disposal of 1,305 1,305
property
Purchase of plant and (3) (3)
equipment
Development expenditure - (122) (122)
capitalised ------- -------- -------- --------
Net cash flows from investing
activities 1,723 (122) - 1,601
------- -------- -------- --------
Cash flows from financing
activities
Proceeds from the issue of
ordinary 842 842
shares
Trust loan written off through
reserves 220 220
Decrease in money market
investments and deposits 70 70
Repayment of loan notes (280) (280)
------- -------- -------- --------
Net cash flows from financing
activities 852 - - 852
------- -------- -------- --------
Net increase in cash and cash
equivalents 1,771 - - 1,771
Cash and cash equivalents at
the (1,921) (1,921)
beginning of the period ------- -------- -------- --------
Cash and cash equivalent at
the end (150) - - (150)
of the period ------- -------- -------- --------
Reconciliation of reported equity and net assets (unaudited)
As at 30 June 2007
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Non-current assets
Property, plant, equipment 77 77
Intangible assets - 674 (429) 245
Investments - -
------- -------- -------- --------
77 674 (429) 322
------- -------- -------- --------
Current assets
Inventories 167 167
Trade and other receivables 1,082 1,082
Money market investments and
deposits 18,342 18,342
Cash and cash equivalent 854 854
------- -------- -------- --------
20,445 20,445
------- -------- -------- --------
Total assets 20,522 674 (429) 20,767
Current liabilities
Loan notes (18,342) (18,342)
Trade and other payables (1,314) (1,314)
Provisions (122) (122)
Loans and other borrowings - -
------- -------- -------- --------
(19,778) (19,778)
------- -------- -------- --------
Total liabilities (19,778) (19,778)
------- -------- -------- --------
Net assets 744 674 (429) 989
------- -------- -------- --------
Shareholders' equity
Called-up share capital 1,312 1,312
Share premium account 3,629 3,629
Retained earnings (4,197) 674 (429) (3,952)
------- -------- -------- --------
Total equity 744 674 (429) 989
------- -------- -------- --------
Reconciliation of reported equity and net assets (unaudited)
As at 31 December 2006
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Non-current assets
Property, plant, equipment 51 51
Intangible assets - 551 (215) 336
Investments - -
------- -------- -------- --------
51 551 (215) 387
------- -------- -------- --------
Current assets
Inventories 330 330
Trade and other receivables 1,998 1,998
Money market investments and
deposits 18,424 18,424
Cash and cash equivalent 27 27
------- -------- -------- --------
20,779 20,779
------- -------- -------- --------
Total assets 20,830 551 (215) 21,166
Current liabilities
Loan notes (18,424) (18,424)
Trade and other payables (2,002) (2,002)
Provisions (88) (88)
Loans and other borrowings (177) (177)
------- -------- -------- --------
(20,691) (20,691)
------- -------- -------- --------
Total liabilities (20,691) (20,691)
------- -------- -------- --------
Net assets 139 551 (215) 475
------- -------- -------- --------
Shareholders' equity
Called-up share capital 1,272 1,272
Share premium account 2,331 2,331
Retained earnings (3,464) 551 (215) (3,128)
------- -------- -------- --------
Total equity 139 551 (215) 475
------- -------- -------- --------
Reconciliation of reported equity and net assets (unaudited)
As at 30 June 2006
As reported R&D R&D As restated
UK GAAP Capitalised Amortised IFRS
£'000 £'000 £'000 £'000
------- -------- -------- --------
Non-current assets
Property, plant, equipment 1,010 1,010
Intangible assets - 429 429
Investments - -
------- -------- -------- --------
1,010 429 1,439
------- -------- -------- --------
Current assets
Inventories 481 481
Trade and other receivables 1,821 1,821
Money market investments and
deposits 18,494 18,494
Cash and cash equivalent 42 42
------- -------- -------- --------
20,838 20,838
------- -------- -------- --------
Total assets 21,848 429 22,277
Current liabilities
Loan notes (18,494) (18,494)
Trade and other payables (2,020) (2,020)
Provisions (84) (84)
Loans and other borrowings (2,173) (2,173)
------- -------- -------- --------
(22,771) (22,771)
------- -------- -------- --------
Total liabilities (22,771) (22,771)
------- -------- -------- --------
Net assets (923) 429 (494)
------- -------- -------- --------
Shareholders' equity
Called-up share capital 1,133 1,133
Share premium account 1,408 1,408
Retained earnings (3,464) 429 (3,035)
------- -------- -------- --------
Total equity (923) 429 (494)
------- -------- -------- --------
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