Pennant International Group PLC
04 April 2008
Pennant International Group plc
Preliminary Results for the year ended 31 December 2007
4 April 2008
Pennant International Group plc ('Pennant' or 'the Company'), the AIM quoted
supplier of integrated logistic support solutions principally to the defence,
rail, aerospace and naval markets, and products and services to a number of
Government Departments, announces preliminary results for the year ended 31
December 2007. It is expected that the annual report and accounts will be posted
to shareholders on 11 April 2008 and will be available from the Company's
registered office and the Company's website at www.pennantplc.com, from this
date.
Turnover, operating profits, earnings per share and dividends all increased
substantially compared to the previous year, while the completion of the sale of
the Group's freehold property in Southampton during the second half contributed
to a much improved cash position at the year-end.
Results highlights
• Third successive year of increased profits, earnings and dividends.
• Group turnover up 9% to £12.35 million (2006: £11.31 million).
• Group operating profit up 67% to £1.23 million (2006: £0.74 million)
including profit on sale of freehold property of £0.38 million (2006: Nil).
• Group trading profit up 16% to £0.86 million (2006: £0.74 million).
• Earnings per share (basic) up 82% to 3.23 pence (2006: 1.77 pence) including
profit on sale of freehold property (2006: Nil).
• Earnings per share (basic) from trading activities up 15% to 2.03 pence
(2006: 1.77 pence).
• Net cash at year-end of £0.80 million (2006: Nil), including net proceeds
from sale of freehold property of £0.75million (2006: Nil).
• Proposed final dividend per share up 10% to 0.44 pence (2006: 0.40 pence),
making a total dividend per share for the year of 0.66 pence
(2006: 0.60 pence).
In his statement to shareholders, Mr Christopher Powell, Chairman, said:
'Your Board has continued its approach to develop further our core strengths by
continually enhancing our products and services in line with advances in
technology and by nurturing long-term customer relationships in existing and new
markets. This has again paid dividends with a third successive year of growth.'
On current trading and prospects, Mr Powell added:
'The Software and Data Services Divisions have good forward visibility while the
Training Systems Division has a number of long-term contracts that run through
2008 and are expected to increase in scope and value. Notwithstanding this, the
Training Systems Division may see a reduction in revenues due to budget cuts and
delays to contract placement by the UK Government.
'Tendering for medium-term opportunities, both in the UK and overseas, remains
at a satisfactory level and the Group is underpinned by a robust balance sheet
and strong cash resources. Your Board remains confident for the future.'
Enquiries:
Pennant International Group plc Tel: 01452 714914
Chris Snook, Chief Executive
John Waller, Finance Director
W.H. Ireland Tel: 0121 265 6330
Katy Birkin
Winningtons Financial Tel: 0117 920 0092
Paul Vann/Tom Cooper
CHAIRMAN'S STATEMENT AND BUSINESS REVIEW
I am pleased to announce the third successive year of increased profits and
dividend and a strong cash position. In addition to a satisfactory trading
performance, the results and cash position have benefited from the successful
completion of the sale of property in Southampton.
Results and dividend
Group turnover rose by 9% to £12,349,683 (2006: £11,311,954).
Operating profits increased by 67% to £1,233,554 (2006: £740,700) and comprise
profits arising from trading of £857,557, a 16% increase over 2006, plus the
profit on sale of property of £375,997 (2006: Nil).
Earnings were £1,013,259 (2006: £558,600) giving basic earnings per share of
3.23p (2006: 1.77p) an increase of 82%. Basic earnings per share excluding the
profit on sale of property were 2.03p (2006: 1.77p) an increase of 15%.
The tax charge at 9.4% (2006: 7.8%) of pre-tax profit reflects the benefit of
significant tax losses. The Group has tax losses in the UK of £1.24 million and
in the USA of £1.5 million (arising from past acquisitions) available for
set-off against future profits.
The cash position strengthened; net funds at the year end were £804,010 (2006:
£1,520). The increase included net proceeds from the sale of property of
£748,519.
Your Board is recommending a final cash dividend of 0.44p per share (2006:
0.40p) which, together with the interim dividend of 0.22p per share gives a
total dividend for the year of 0.66p (2006: 0.60p). The total dividend is 3
times covered by earnings excluding the profit on sale of property. The final
dividend will be paid on 20 June 2008 to shareholders on the register at close
of business on 23 May 2008. The shares are expected to go ex-dividend on 21 May
2008.
Strategy
The Board has continued its approach:
• To develop the Group's core strengths by maintaining domain and platform
expertise to complement customer requirements and continually enhancing
its products and services in line with advances in technology.
• To grow long term customer relationships in existing and new markets. The
Group's sales team has been strengthened during the year to improve coverage
and penetration.
The Group operates principally in the defence, rail, aerospace and naval markets
and also supplies products and services to Government departments. The Group
wins work from customers as they introduce new products and services or as they
secure work on new platforms and as existing platforms are updated. A
significant part of the Group's revenue comes from major capital programmes and
the timing of these contracts is usually beyond the Group's control. A principal
medium-term risk reduction objective is therefore to increase the level of the
Group's recurring revenues from product support contracts and software
consultancy and maintenance contracts.
The Board's approach has produced progress in each of the Group's three
divisions during the year:
Training Systems
The Training Systems division provides and supports specialist training systems
based on software emulation, hardware simulation and computer based training for
engineer training.
The division's sales revenue increased by 13% in 2007 to £6.0 million and
profitability improved significantly; highlights included:
• The addition of further equipment to the service provision contract
awarded by the MOD in 2006. These packages boost the value of the service
provision contract which was originally worth £3.8 million over 5 years until
2011.
• Significant success in establishing a position in the naval market by
winning two major contracts both of which will be in production throughout 2008:
o A contract with BAE Insyte to provide computer based training courseware as
part of the Royal Navy's Maritime Composite Training System which covers
warfare operator training across the surface fleet.
o A contract won in partnership with BAE Insyte under which Pennant is
supplying maintenance training media for the T45 Destroyer Warfare System.
• Scope and value growth in two large contracts with BAE for training
equipment associated with their delivery of aircraft. These contracts now run
well into 2008.
Data Services
The Data Services division supplies electronic documentation, e-learning
products, virtual reality products, electronic data, publicity and newsletters,
parts catalogues and authoring in support of technical products and skills. The
division has maintained its sales revenue at £3.4 million.
This division has also made progress in the naval arena supplying data modules
and maintenance task analysis to BAE Systems in respect of the T45 Destroyer.
This work continues into 2008.
Other contracts in progress during the year have been:
• Projects with Kawasaki for rail projects in Taiwan and the USA.
• Two orders under a framework agreement with Siemens in Germany for
documentation relating to rail projects in the USA.
• Delivery of further e-learning packages to the Department of Work and
Pensions in the UK.
• A virtual reality walkthrough of a submarine in collaboration with
Flagship Training Limited
Profitability in this division has been below expectations arising from major
reorganisations within Government and other customers disrupting the flow of
orders and from start-up costs on a major contract. The management of the
division has been strengthened and the division will benefit from the
improvements to the Group's sales team.
Software Services
The Software Services division provides and supports software tools used to
support complex long-life assets. It owns the rights to the market-leading
OmegaPS suite of software which is sold world-wide and used by many major
defence contractors and by the Defence Authorities in both Canada and Australia.
During the year sales revenue increased by 8% to £2.96 million and the trading
result improved by 35%
The division continues to benefit from the on-going roll-out of the Canadian
Government's Materiel Acquisition and Support Information System (MASIS), of
which Pennant's OmegaPS supportability engineering software is a component. As
the project reaches its fifth phase the implementation support provided by
Pennant is expected to increase. Also the Australian Defence Organisation has
continued to place orders to develop further its use of the OmegaPS software
suite.
In 2007, the division sold and installed Omega software to a number of new
customers including, amongst others, Alenia in Italy, MAN trucks in Germany,
Logica in the UK, Boeing in Australia and the Helicopter Institute in China.
Joint Venture
The joint venture with Sonovision-ITEP, setup to provide technical documentation
and engineering support, principally for Airbus, has continued to suffer from
the ongoing delays and problems at Airbus. Ongoing losses have been reduced by
the closure of the office in Bristol and the redistribution of work to Pennant's
Manchester office.
People
Max Pearce, a non-executive director of the Company, will retire from the Board
at the AGM. He has served as a director since the flotation of the Company in
1998. His valued advice and counsel has made a significant contribution to the
Group's development. A search and selection process to appoint a replacement
non-executive director is underway.
I would like once again to express the Board's very genuine thanks to the
Group's personnel for a year of considerable effort and achievement.
Outlook
The Software and Data Services divisions have good forward visibility. Training
Systems division has a number of long-term contracts that run through 2008 and
are expected to increase in scope and value. Notwithstanding this, the division
may see a reduction in revenues due to budget cuts and delays to contract
placement by the UK Government.
Tendering for medium-term opportunities, in the UK and overseas, remains at a
satisfactory level and the Group is underpinned by a robust balance sheet and
strong cash resources.
Your Board remains confident for the future.
C C Powell
Chairman
3 April 2008
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
Notes 2007 2006
£ £
Revenue 3 12,349,683 11,311,954
Cost of sales (7,936,361) (7,196,241)
Gross profit 4,413,322 4,115,713
Administration expenses (3,555,765) (3,375,013)
Profit on sale of assets held for sale 375,997 -
Operating Profit 1,233,554 740,700
Share of results of joint venture (33,070) (67,119)
1,200,484 673,581
Finance costs 8 (92,292) (75,262)
Finance income 9 9,991 7,368
Profit before taxation 1,118,183 605,687
Taxation 10 (104,924) (47,087)
Profit for the year attributable to equity holders of 6 1,013,259 558,600
parent
Earnings per share 12
Basic 3.23p 1.77p
Diluted 3.02p 1.65p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2006
£ £
Exchange differences on translation of foreign operations 101,860 (63,905)
Net income/(losses) recognised directly in equity 101,860 (63,905)
Profit for the year 1,013,259 558,600
Total recognised income and expenses for the year attributable to 1,115,119 494,695
equity holders of the parent
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007
Notes 2007 2006
£ £
Non-current assets
Goodwill 13 909,697 904,228
Other intangible assets 14 117,731 43,008
Property, plant and equipment 15 2,051,477 2,073,213
Equity accounted interest in joint venture 16 16,956 60,027
Available for sale investments 17 6,135 6,135
Deferred tax assets 26 19,629 16,966
Total non-current assets 3,121,625 3,103,577
Current assets
Inventories 18 27,378 112,939
Trade and other receivables 20 3,161,595 2,794,276
Cash and cash equivalents 21 1,568,620 909,609
Assets held for sale - 372,522
Total current assets 4,757,593 4,189,346
Total assets 7,879,218 7,292,923
Current liabilities
Trade and other payables 23 1,445,520 1,530,004
Current tax liabilities 104,779 52,791
Obligations under finance leases 24 1,089 1,054
Bank loan 22 147,559 141,338
Deferred revenue 25 414,838 370,041
Total current liabilities 2,113,785 2,095,228
Net current assets 2,643,808 2,094,118
Non-current liabilities
Bank loan 22 614,430 763,952
Obligations under finance leases 24 1,532 1,744
Deferred tax liabilities 26 32,000 32,000
Deferred revenue 25 25,781 25,877
Total non-current liabilities 673,743 823,573
Total liabilities 2,787,528 2,918,801
Net assets 5,091,690 4,374,122
Equity
Share capital 27 1,600,000 1,600,000
Share premium account 3,582,329 3,582,329
Retained earnings 28 (128,594) (744,302)
Translation reserve 29 37,955 (63,905)
Total equity 5,091,690 4,374,122
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
Notes 2007 2006
£ £
Net cash from operations 30 563,799 773,120
Investing activities
Interest received 9,991 7,368
Proceeds on disposal of property, plant 748,519 4,507
and equipment
Purchase of intangible assets (107,542) (25,585)
Purchase of property, plant and equipment (154,120) (213,005)
Loan to Joint Venture 10,000 (45,000)
Net cash from/(used in) investing activities 506,848 (271,715)
Financing activities
Dividends paid (194,098) (161,490)
Transactions in own shares (176,225) (4,339)
Repayment of borrowings (143,301) (141,062)
Repayment of obligations under finance leases (177) (10,321)
Net cash used in financing activities (513,801) (317,212)
Net increase in cash and cash equivalents 556,846 184,193
Cash and cash equivalents at beginning of year 909,609 797,676
Effect of foreign exchange rates 102,165 (72,260)
Cash and cash equivalents at end of year 21 1,568,620 909,609
Approved by the Board on 3 April 2008 and signed on its behalf
C Snook J M Waller
Director Director
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
1. General information
Pennant International Group plc is a company incorporated in England and Wales
under the Companies Act 1985. The address of the registered office is:
Pennant Court
Staverton Technology Park
Cheltenham
GL51 6TL
The principal activity of Group companies during the year was the delivery of
integrated logistic support solutions. These comprise Logistic Support Analysis
Report software, technical documentation, simulation and computer based training
systems to customers worldwide; principally those in defence and aerospace, but
also in rail transport, oil & gas, petro-chemical, power, customer goods retail,
information technology and telecommunications industries.
2. Accounting policies
Basis of preparation
The financial statements of Pennant International Group plc have been prepared
for the first time in accordance with International Financial Reporting
Standards (IFRS) as adopted for use in the EU applied in accordance with the
provisions of the Companies Act 1985.
Standards and interpretations issued but not yet effective
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied to these financial
statements were in issue but not yet effective.
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements.
Standards
Effective for
IFRS 2 Share -based payment - Amendment relating to Annual periods beginning on or after 1
vesting conditions and cancellations. January 2009.
Revised 2008
IFRS 3 Business combinations - Comprehensive revision on Annual periods beginning on or after 1
applying acquisition method. July 2009.
Revised 2008
IFRS 8 Operating segments. Annual periods beginning on or after 1
January 2009.
Original issuance 2006
IAS 1 Presentation of Financial Statements - Comprehensive Annual periods beginning on or after 1
revision including requiring of statement of January 2009.
comprehensive income.
2007
IAS 1 Presentation of Financial Statements - Amendments Annual periods beginning on or after 1
relating to disclosure of puttable instruments and July 2009.
obligations arising on liquidation.
2008
IAS 23 Borrowing costs - Comprehensive revision to prohibit Borrowing costs relating to qualifying
immediate expensing 2005. assets for which the commencement date
for capitalisation is on or after 1
2007 January 2009.
IAS 27 Consolidated and Separate Financial Statements - Annual periods beginning on or after 1
Consequential amendments arising from amendments to July 2009
IFRS 3.
2008
IAS 27 Investments in Associates - Consequential amendments Annual periods beginning on or after 1
arising from amendments to IFRS 3. July 2009
2008
IAS 31 Interest in Joint Ventures - Consequential Annual periods beginning on or after 1
amendments arsing from amendments to IFRS 3. July 2009
2008
IAS 32 Financial Instruments: presentation - Amendments Annual periods beginning on or after 1
relating to puttable instruments and obligations January 2009.
arising on liquidation.
2008
Interpretations
IFRIC 11 IFRS 2 group and Treasury Share Transactions Annual periods beginning on or after 1
March 2007
IFRIC 12 Service Concession Arrangements Annual periods beginning on or after 1
January 2008
IFRIC 13 Customer Loyalty Programmes Annual periods beginning on or after 1
July 2008
IFRIC 14 IAS 19 - The Limit of a Defined Benefit Asset, Requirements and their Interaction
Minimum Funding Requirements and their Interaction Annual periods beginning on or after 1
January 2008.
The financial statements have been prepared on the historical cost basis. The
principal accounting policies set out below have been consistently applied to
all periods presented.
IFRS transition
IFRS 1 permits companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. The
financial statements have been prepared on the basis of the following
exemptions:
• Business combinations prior to January 2006 have not been restated to
comply with IFRS 3 'Business Combinations'.
• The Group has elected to deem the cumulative currency translation
differences on its net investments in foreign operations to
be £nil at 1 January 2006.
• The Company has elected to use a previous UK GAAP valuation of an item
of Property, Plant and Equipment, before the date of transition to
IFRS, as deemed cost at the date of that valuation.
• The Group has applied IFRS 2 'Share-based payments' except to those equity
settled awards that were granted on or before 7 November 2002.
The disclosures required by IFRS 1 concerning the transition from UK GAAP to
IFRS are given in note 38.
Basis of consolidation
The financial statements incorporate the results of the Company and entities
controlled by the Company (its subsidiaries). Control is achieved where the
Company has power to govern the financial and operating policies of the investee
entity so as to obtain benefits from its activities.
Where necessary, adjustments are made to the results of subsidiaries to bring
accounting policies used into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Business combinations and goodwill
On acquisition, the assets and liabilities and contingent liabilities of the
subsidiaries are measured at their fair value at the date of acquisition. Any
excess of cost of acquisition over fair values of the identifiable net assets
acquired is recognised as goodwill. Any deficiency of cost of acquisition below
the fair value of the identified net assets acquired (i.e. discount on
acquisition) is credited to profit and loss account in the period of
acquisition. Goodwill arising on consolidation is recognised as an asset and
reviewed for impairment at least annually. Any impairment is recognised
immediately in the profit and loss account and is not subsequently reversed.
Interest in joint venture
The results and assets and liabilities of joint ventures are incorporated using
the equity method of accounting. Investments in joint ventures are carried in
the balance sheet at cost as adjusted by post acquisition changes in the Group's
share of the net assets of the joint venture less any impairment in the value of
the individual investments. Losses of a joint venture in excess of the Group's
interest in that joint venture are not recognised.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Revenues arising from the software maintenance programme provided to customers
are invoiced in advance but recognised as revenue across the period to which the
maintenance agreements relate. Amounts not taken to revenue at a period end are
shown in the balance sheet as deferred revenue.
Revenue from construction contracts is recognised in accordance with the Group's
accounting policy on constructions contracts (see below).
Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue
and costs are recognised by reference to the stage of completion of the contract
activity at the balance sheet date. This is normally measured by the proportion
that contract costs incurred for work performed to date bear to the estimated
total contract costs, except where this would not be representative of the stage
of completion. Variations in contract work, claims and incentive payments are
included to the extent that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably,
contract revenue is recognised to the extent of contract costs incurred where it
is probable they will be recoverable. Contract costs are recognised as expenses
in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
Foreign currency
The individual financial statements of each group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each group company are expressed in pounds
sterling, which is the functional currency of the Company, and the presentation
currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at rates of exchange prevailing on the dates of the transactions.
At the balance sheet date, monetary assets and liabilities that are denominated
in foreign currencies are retranslated at the rates prevailing on the balance
sheet date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of
historical cost in foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in the profit and loss account for the period except
for differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such monetary
items, any exchange component of the gain or loss is also recognised directly in
equity.
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations are translated at exchange rates
prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the
period, unless exchange rates fluctuate significantly during the period, in
which case the exchange rates at the date of transactions are used. Exchange
differences arising, if any, are classified as equity and transferred to the
Group's translation reserve. Such translation differences are recognised as
income and expense in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rates.
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 the net profits as reported on the income statement because
it excludes items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all temporary differences and
deferred tax assets are recognised to the extent that it is probable that the
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets and
liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for temporary differences arising on
investments in subsidiaries, and interest in joint ventures, except where the
Group is able to control the reversal of the temporary differences and it is
probable that the temporary differences will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or at least realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Share-based payment
The Group issues equity-settled share based payments to certain employees.
Equity-settled share based payments are measured at fair value (excluding the
effect of non market-based vesting conditions) at the date of grant. The fair
value determined at the date of grant is expensed on a straight-line basis over
the vesting period, based on the Group's estimate of shares that will eventually
vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured by use of the binomial model. The expected life used in
the model has been adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions and behavioural
conditions.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is charged to write off the cost of assets over their estimated
useful lives on the following bases:
Freehold land Nil
Freehold buildings Net book value at 1 January 2007 being
Short leasehold buildings written off over 35 years on a straight line basis.
Long leasehold buildings (previously 1% per annum on cost or valuation)
Plant and equipment 10% to 25% of written down value per annum
Computers 33 1/3% of cost per annum
Motor vehicles 25% of cost per annum
Internally-generated intangible assets
An internally generated intangible asset arising from the Company's software
development is recognised only if all of the following conditions are met:
• an asset is created that can be identified:
• it is probable that the asset created will generate future economic
benefits: and
• the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis
over their useful lives, normally three years. Where no internally-generated
intangible asset can be recognised, development expenditure is recognised as an
expense in the period in which it is incurred. Internally-generated assets are
only amortised when complete.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and any
recognised impairment loss. Amortisation is charged to write off intangible
assets over their estimated useful lives on the following basis:
Computer software 33 1/3%
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and
overheads that have been incurred in bringing the inventories to their present
location and condition. Net realisable value represents the estimated selling
price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Financial instruments
Financial assets and liabilities are recognised in the Group's balance sheet
when the Group becomes a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at initial recognition at fair value, and
subsequently measured at amortised cost using the effective interest rate
method. A provision is established when there is objective evidence that the
Group will not be able to collect all amounts due. The amount of any provision
is recognised in the income statement.
Available for sale investments
Available-for-sale investments are initially measured at cost, including
transaction costs. At subsequent reporting dates available-for-sale investments
are measured at fair value or cost where fair value is not readily
ascertainable. Gains and losses arising from changes in fair value are
recognised directly in equity until the investment is disposed of or is
determined to be impaired, at which time the cumulative gain or loss recognised
previously in equity is included in the income statement for the period.
Dividends are recognised in the income statement when the right to receive
payment has been established.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short term bank
deposits with an original maturity date of three months or less.
Trade payables
Trade payables are initially measured at fair value, and subsequently measured
at amortised cost, using the effective interest rate method.
Financial liabilities
Financial liabilities and equity instruments issued by the Group are classified
in accordance with the substance of the contractual arrangements entered into
and the definition of a financial liability and an equity instrument. An equity
instrument is any contract that evidences a residual interest in the assets of
the Group after deducting all of its liabilities. Equity instruments issued by
the Company are recorded at the proceeds received, net of direct issue costs.
Bank borrowings
Interest bearing bank loans, overdrafts and other loans are recorded at the
proceeds received, net of direct issue costs. Finance costs are accounted for on
the accruals basis in the income statement using the effective interest rate.
3. Revenue
An analysis of the Group's revenue is as follows:
2007 2006
£ £
Sale of goods 448,731 333,878
Rendering of service 1,681,995 1,449,962
Revenue from construction contracts 9,391,229 8,682,421
Software maintenance programme 827,728 845,693
12,349,683 11,311,954
Investment income 9,991 7,368
12,359,674 11,319,322
4. Business and geographical segments
For management purposes the Group is currently organised into three operating
divisions - Training Systems, Data Services and Software. These divisions are
the basis on which the Group reports its primary segment information.
Training Systems Data Services Software Eliminations Consolidated
£ £ £ £ £
2007
Revenue
External sales 5,991,396 3,399,833 2,958,454 - 12,349,683
Inter-segment sales - 318,249 82,864 (401,113) -
Total revenue 5,991,396 3,718,082 3,041,318 (401,113) 12,349,683
Result 737,025 13,041 396,850 - 1,146,916
Unallocated corporate (289,359)
expenses
Profit on sale of 375,997
property
Share of results of (33,070)
joint venture
Operating profit 1,200,484
Finance income 9,991
Finance costs (92,292)
Profit before tax 1,118,183
Tax (104,924)
Profit after tax 1,013,259
Training Systems Data Services Software Eliminations Consolidated
£ £ £ £ £
2006
Revenue
External sales 5,287,642 3,294,471 2,729,841 - 11,311,954
Inter-segment sales - 331,795 61,842 (393,637) -
Total revenue 5,287,642 3,626,266 2,791,683 (393,637) 11,311,954
Result 260,245 156,790 294,595 - 711,630
Unallocated corporate 29,070
expenses
Share of results of (67,119)
joint venture
Operating profit 673,581
Finance income 7,368
Finance costs (75,262)
Profit before tax 605,687
Tax (47,087)
Profit after tax 558,600
Training Systems Data Services Software Eliminations Consolidated
£ £ £ £ £
2007
Capital additions 71,482 83,198 106,982 - 261,662
Depreciation and (150,102) (38,908) (21,603) - (210,613)
amortisation
Balance sheet
Assets
Segment assets 5,040,275 2,100,906 3,815,836 (3,520,736) 7,436,281
Interest in joint 16,956
venture
Unallocated corporate 425,980
assets
Consolidated total 7,879,217
assets
Liabilities
Segment liabilities 1,982,398 1,259,472 1,498,444 (2,782,954) 1,957,360
Unallocated corporate 830,168
liabilities
Consolidated total 2,787,528
liabilities
Training Systems Data Services Software Eliminations Consolidated
£ £ £ £ £
2006
Capital additions 156,667 47,125 34,798 - 238,590
Depreciation and (140,601) (24,236) (27,098) - (191,935)
amortisation
Balance sheet
Assets
Segment assets 4,550,303 2,004,576 3,128,281 (2,557,792) 7,125,368
Interest in joint 60,027
venture
Unallocated corporate 107,528
assets
Consolidated total 7,292,923
assets
Liabilities
Segment liabilities 2,216,421 1,117,258 1,190,537 (2,544,385) 1,979,831
Unallocated corporate 938,970
liabilities
Consolidated total 2,918,801
liabilities
Geographical segments
The Group's operations are located in the United Kingdom, USA, Canada and
Australia.
The following table provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods and services
2007 2006
£ £
United Kingdom 9,368,334 8,253,041
Europe 606,222 482,814
USA and Canada 1,854,660 1,597,598
Australasia 378,771 645,063
Africa 4,500 9,600
Far East 137,196 323,838
12,349,683 11,311,954
The following is an analysis of the carrying amount of segment assets, and
additions to property, plant and equipment and intangible assets, analysed by
geographical area in which the assets are located:
Carrying amount of segment assets Additions to property plant and
equipment and intangible assets
2007 2006 2007 2006
£ £ £ £
United Kingdom 5,698,360 5,292,759 240,519 223,583
USA 53,766 52,981 13,703 -
Canada 1,301,945 1,231,983 6,721 12,114
Australia 825,146 715,200 719 2,893
7,879,217 7,292,923 261,662 238,590
5. Staff costs
2007 2006
£ £
Wages and salaries 4,660,340 4,613,060
Social security costs 448,192 445,116
Pension costs 204,264 168,624
5,312,796 5,226,800
The average number of persons, including executive directors, employed by the
Group during the year was:
Number Number
Office and management 21 24
Production 121 130
Selling 8 8
150 162
6. Profit for the year
Profit for the year has been arrived at after £ £
charging:
Net foreign exchange losses/(gains) 56,993 (13,370)
Amortisation of intangible assets 32,832 59,264
Depreciation of property, plant and equipment 177,781 132,671
Staff costs (note 5) 5,312,796 5,226,800
Profit on sale of assets held for sale (375,997) -
Share-based payment (note 32) (27,228) 17,965
7. Auditors' remuneration
The analysis of auditors' remuneration is as follows:
£ £
Fees payable to the Company's auditors for the audit 12,000 13,000
of the Company's annual accounts
Fees payable to the Company's auditors for other
services to the Group:
- The audit of the Company's subsidiaries 24,500 22,625
- Tax services 5,500 300
- Other services 2,980 1,000
44,980 36,925
8. Finance costs
2007 2006
£ £
Interest expense for finance lease arrangements 980 1,077
Interest expense for borrowings at amortised cost 91,312 74,185
92,292 75,262
9. Finance income
2007 2006
£ £
Interest income from deposits 4,966 2,368
Interest on loan to joint venture 4,875 4,875
Dividends receivable 150 125
9,991 7,368
10. Taxation
Recognised in the income statement 2007 2006
£ £
Current tax expense 107,587 80,099
Over provided in prior years - (29,824)
Deferred tax expense relating to origination and (2,663) (3,188)
reversal of temporary differences
Total tax expense in income statement 104,924 47,087
Reconciliation of effective tax rate
Profit before tax 1,118,183 605,687
Tax at the applicable tax rate of 30% (2006: 30%) 335,455 181,706
Tax effect of:
Share of results of joint venture 9,921 20,135
Expenses not deductible for tax 9,214 14,365
Income not taxable (112,940) -
Chargeable gain 83,478 -
Losses (240,456) (182,108)
Different tax rates for overseas subsidiaries 5,306 7,861
Other differences 17,609 38,140
Deferred tax (2,663) (3,188)
Over provided in prior year - (29,824)
Tax expense 104,924 47,087
11. Dividends
2007 2006
£ £
Amounts recognised as distributions to equity
holders in the period:
Final dividend for the year ended 31 December 2006 125,828 97,855
of 0.4p (2006: 0.31p) per share
Interim dividend for the year ended 31 December 2007 68,270 63,635
of 0.22p (2006: 0.2p) per share
194,098 161,490
The proposed final dividend for the year ended 31 December 2007 of 0.44p (2006:
0.40p) per share is subject to approval of shareholders at the Annual General
Meeting and has not been included as a liability in these financial statements.
12. Earnings per share
Earnings per share has been calculated by dividing the net profit attributable
to equity holders by the weighted average number of ordinary shares in issue
during the year as follows:
2007 2006
£ £
Profit after tax attributable to equity holders 1,013,259 558,600
Number Number
Weighted average number of ordinary shares in issue 31,349,821 31,611,500
during the year
Diluting effect of share options 2,230,000 2,207,500
Diluted average number of ordinary shares 33,579,821 33,819,000
13. Goodwill
Carrying amount £
At 1 January 2006 906,066
Exchange translation differences (1,838)
At 1 January 2007 904,228
Exchange translation differences 5,469
At 31 December 2007 909,697
The Group tests goodwill annually for impairment.
14. Other intangible assets
Software Development costs Total
£ £ £
Cost
At 1 January 2007 295,630 - 295,630
Currency translation 8,335 - 8,335
Additions 29,451 78,091 107,542
Disposals (204) - (204)
At 31 December 2007 333,212 78,091 411,303
Amortisation
At 1 January 2007 252,622 - 252,622
Currency translation 8,322 - 8,322
Charge for year 32,832 - 32,832
Disposals (204) - (204)
At 31 December 2007 293,572 - 293,572
Net book value
At 31 December 2007 39,640 78,091 117,731
At 31 December 2006 43,008 - 43,008
The amortisation period for development cost in respect of the Group's software
products is 3 years from the date that the software is available for sale to
customers.
15. Property, plant and equipment
Land and Fixtures and Motor vehicles Total
buildings equipment
£ £ £ £
Cost
At 1 January 2007 1,816,015 1,426,325 16,869 3,259,209
Currency translation - 16,212 - 16,212
Additions 11,977 142,143 - 154,120
Disposals - (2,270) - (2,270)
At 31 December 2007 1,827,992 1,582,410 16,869 3,427,271
Depreciation
At 1 January 2007 245,937 923,190 16,869 1,185,996
Currency translation - 14,287 - 14,287
Charge for the year 45,669 132,112 - 177,781
Disposals - (2,270) - (2,270)
At 31 December 2007 291,606 1,067,319 16,869 1,375,794
Net book value
At 31 December 2007 1,536,386 515,091 - 2,051,477
At 31 December 2006 1,570,078 503,135 - 2,073,213
16. Equity accounted interest in joint venture
The Group has a 50% interest, consisting of 5,000 ordinary shares in Pennant
Sonovision ITEP Limited, a joint venture with Sonovision SAS of France.
Aggregate amounts relating to the joint venture are: 2007 2006
£ £
Total assets 48,374 248,690
Total liabilities (234,461) (368,636)
Revenues 263,680 376,549
Loss (66,141) (134,239)
17. Available for sale investments
The Group owns a non-controlling interest of less than 1% in Quadnetics Group
plc. The shares are not held for trading and accordingly are classified as
available for sale. The fair value of the investment is based on the quoted
market price.
18. Inventories
Aggregate amounts relating to the joint venture are: 2007 2006
£ £
Raw materials and consumables 25,340 83,915
Work in progress 2,038 29,024
27,378 112,939
19. Construction contracts
Contracts in progress at the balance sheet date: 2007 2006
£ £
Amounts due from contract customers included in trade and 1,164,933 1,015,200
other receivables
Amounts due to contract customers included in trade and (19,520) (56,026)
other payables
1,145,413 959,174
Contract costs incurred plus recognised profits less 8,507,703 8,275,682
recognised losses to date
Less: progress billings (7,362,290) (7,316,508)
1,145,413 959,174
20. Trade and other receivables
2007 2006
£ £
Trade receivables 1,638,824 1,433,164
Amounts due from construction contract customers (note 1,164,933 1,015,200
19)
Other debtors 76,101 8,288
Prepayments and accrued income 281,737 337,624
3,161,595 2,794,276
The directors consider that the carrying amount of trade and other receivables
approximates their fair value.
Some of the unimpaired trade receivables are past due as at the reporting date.
The age of the trade receivables past due but not impaired is as follows:
2007 2006
£ £
Not more than 3 months 129,307 87,283
More than 3 months but not more than 6 months 83,302 36,104
More than 6 months but not more than 1year 31,169 -
243,778 123,387
21. Cash and cash equivalents
2007 2006
£ £
Bank balance 1,566,480 906,776
Cash 2,140 2,833
1,568,620 909,609
Cash and cash equivalents comprise cash held by the Group and short-term bank
deposits with an original maturity of three months or less. The carrying amount
of these assets approximates their fair value.
22. Borrowings
Secured borrowings 2007 2006
£ £
Bank loan 761,989 905,290
Amount due for settlement within 12 months 147,559 141,338
Amount due for settlement after 12 months 614,430 763,952
The Group has available bank overdraft facilities of £750,000. The facility was
not being used at 31 December 2007. Any overdraft arising from the facility is
repayable on demand and carries interest at 1.5% over bank base rate.
The loan is repayable in monthly instalments and carries interest at 2.0% plus
the Bank's base rate.
The borrowings are secured by fixed and floating charges over the assets of
Pennant International Group plc, Pennant Training Systems Limited, Pennant
Software Services Limited and Pennant Information Services Limited
23. Trade and other payables
2007 2006
£ £
Amounts due to construction contract customers (note 19) 19,520 56,026
Trade creditors 661,134 751,849
Taxes and other social security costs 610,150 449,980
Other creditors 14,162 54,831
Accruals and deferred income 140,389 217,153
Unclaimed dividends 165 165
1,445,520 1,530,004
The directors consider that the carrying amount of trade payables approximates
their fair value.
24. Obligations under finance leases
Minimum payments Present value of minimum
payments
2007 2006 2007 2006
£ £ £ £
Amounts payable
Within 1 year 1,486 1,353 1,089 1,054
After 1 year 2,724 3,832 1,532 1,744
4,210 5,185 2,621 2,798
Less: future finance charges (1,589) (2,387)
2,621 2,798
Less: amounts due for settlement within 1 year (shown in (1,089) (1,054)
current liabilities)
Amount due for settlement after 1 year 1,532 1,744
Carrying amount of assets subject to finance lease
Property, plant and equipment 2,004 2,469
The fair value of the Group's lease obligations approximates the carrying value.
The Group's obligations under finance leases are secured by the lessor's rights
over the leased assets.
25. Deferred revenue
2007 2006
£ £
Revenue deferred in respect of prepaid software 440,619 395,918
maintenance contracts
Less: amount due for release to revenue within 1 year (414,838) (370,041)
(shown in current liabilities)
Amount due for release after 1 year 25,781 25,877
26. Deferred tax
The following are the deferred tax (liabilities) and assets recognised by the
Group and movements thereon during the current and prior reporting period:
Accelerated tax Other timing Property Tax losses Total
depreciation differences revaluation
£ £ £ £ £
At 1 January 2006 (103,449) 5,233 (32,000) 110,414 (19,802)
Exchange translation 1,580 - - - 1,580
Charge to income 10,057 (11,115) - 4,246 3,188
At 31 December 2006 (91,812) (5,882) (32,000) 114,660 (15,034)
Charge (1,358) 13,359 - (9,338) 2,663
At 31 December 2007 (93,170) 7,477 (32,000) 105,322 (12,371)
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances for financial reporting purposes.
2007 2006
£ £
Deferred tax liabilities (32,000) (32,000)
Deferred tax assets 19,629 16,966
(12,371) (15,034)
At the balance sheet date the Group had unused tax losses of £2,754,283(2006:
£3,551,022) available for set off against future profits. A deferred tax asset
has been recognised in respect of £351,073 (2006: £382,200) of such losses. No
deferred tax asset has been recognised in respect of the remaining £2,403,210
(2006: £3,168,822) due to the unpredictability of future profit streams.
27. Share capital
2007 2006
£ £
Authorised
51,092,000 ordinary shares of 5p each 2,554,600 2,554,600
Issued and fully paid
32,000,000 ordinary shares of 5p each 1,600,000 1,600,000
The Company has one class of ordinary shares which carry no right to fixed
income.
28. Retained earnings
£
Balance at 1 January 2007 (744,302)
Retained profit for the year 1,013,259
Dividends (194,098)
Transactions in treasury shares (176,225)
Share-based payment (27,228)
Balance at 31 December 2007 (128,594)
29. Translation reserve
£
Balance at 1 January 2007 (63,905)
Currency translation differences on foreign currency 101,860
net investments
Balance at 31 December 2007 37,955
30. Note to the cash flow statement
Cash generated from/(used in) operations 2007 2006
£ £
Profit for the year 1,013,259 558,600
Share of results of joint venture 33,070 67,119
Finance income (9,991) (7,368)
Finance costs 92,292 75,262
Income tax expense 104,924 47,087
Depreciation charge 210,613 191,935
Profit/(loss) on sale of property plant and equipment (375,997) 2,092
Share based payment (27,228) 17,965
Operating cash flows before movement in working capital 1,040,942 952,692
(Increase)/decrease in receivables (367,319) 112,435
Decrease in inventories 85,561 87,893
(Decrease) in payables (84,484) (215,956)
Increase/(decrease) in deferred revenue 44,701 (66,431)
Cash generated from operations 719,401 870,633
Tax paid (63,310) (22,251)
Interest paid (92,292) (75,262)
Net cash generated from operations 563,799 773,120
31. Operating lease arrangements
Minimum lease payments under operating leases recognised 227,371 179,125
as an expense in the year
At 31 December 2007 the Company had commitments under non-cancellable operating
leases as follows:
Land and buildings Other
2007 2006 2007 2006
£ £ £ £
Within one year 129,893 135,651 100,793 84,896
In the second to fifth years 255,950 352,160 94,956 89,125
In the sixth to tenth years 134,833 169,833 - -
After ten years 278,588 285,138 - -
799,264 942,782 195,749 174,021
Commitments after 10 years relate to ground rents on long leasehold properties
that run until 2098.
32. Share based payments
The Group operates a Share Option Scheme under which share options have been
granted to employees as described below:
Date granted Options outstanding Expired Options Exercisable Exercise price
at 1 January 2007 outstanding at 31
December 2006
31 October 2000 17,500 (17,500) - 2003-2007 122.5p
15 October 2002 420,000 - 420,000 2005-2012 11.5p
27 March 2003 1,000,000 - 1,000,000 2006-2013 10p
3 May 2005 500,000 - 500,000 2008-2015 13p
12 October 2006 270,000 - 270,000 2009-2016 17.5p
The options outstanding at 31 December 2007 had a weighted average remaining
contractual life of 6 years.
The exercise of the options granted on 15 October 2002 and 12 October 2006 is
conditional upon the percentage growth in the Group's annualised earnings per
share over a prescribed period being 2% over the movement in the Retail Price
Index.
The options granted on 27 March 2003 and 3 May 2005 may be exercised in the
event that the Company is taken over. The directors consider that it is unlikely
that these options will vest and, accordingly, the charges made against income
in prior years in connection with these options have been reversed in 2007.
Fair value of options
The fair values of awards granted after 7 November 2002 under the Share Option
Scheme and expected to vest have been calculated using a variation of the
binomial option pricing model that takes into account the specific features of
the scheme. The following principal assumptions were used in the valuation.
Granted 12/10/2006
Share price at date of grant 17.5p
Expected dividend yield 2.0%
Expected volatility 64%
Risk-free interest rate 4.61%
Employee turnover None
Volatility has been based on share prices from flotation in 1998 to date of
grant.
Using the above assumptions the fair value of the options granted on 12 October
2006 is estimated as 9.67p.
Based on the above, the credit to income, arising from share options granted to
employees is analysed follows:
2007 2006
£ £
(Credit)/charge in respect of options granted on 27 March (35,145) 16,059
2003 and 3 May 2005
Charge in respect of options granted 12 October 2006 7,917 1,906
(27,228) 17,965
33. Employee benefits
Defined contribution
The Group runs defined contribution pension schemes. The assets of the schemes
are held separately from those of the Group in an independently administered
funds. The pension cost charge represents contributions payable by the Group to
the funds.
2007 2006
£ £
Contributions payable by the Group for the year 204,264 168,624
34. Financial assets and liabilities
Financial assets by category
The IAS 39 categories of financial asset included in the balance sheet and the
headings in which they are included are as follows:
2007 2006
£ £
Non current assets
Available for sale financial assets 6,135 6,135
Current assets
Trade and other receivables
- Loans and receivables 3,161,595 2,794,276
Cash and cash equivalents 1,568,620 909,609
4,736,350 3,710,020
Financial liabilities by category
The IAS 39 categories of financial liability included in the balance sheet and
the headings in which they are included are as follows:
2007 2006
£ £
Current liabilities
Borrowings
- Financial liabilities measured at amortised cost 147,559 141,338
Trade payables
- Financial liabilities measured at amortised cost 1,445,520 1,530,004
Non current liabilities
Borrowings
- Financial liabilities measured at amortised cost 614,430 763,952
2,207,509 2,435,294
The directors consider that the carrying amounts of financial assets and
liabilities approximate their fair values.
35. Risk management
The Group's approach to credit and liquidity risk is set out in the directors'
report.
In the opinion of the directors the business has no significant exposure to
market risk arising from interest rate, currency exchange or other price
fluctuations and it has therefore not been deemed necessary to include a
sensitivity analysis.
36. Capital commitments
At 31 December 2007 and 31 December 2006 the Group had no capital commitments.
37. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and the joint venture are disclosed below.
During the year the following transactions took place with related parties who
are not members of the Group:
Sales of goods and services 2007 2006
£ £
Joint venture 57,639 39,758
There were no amounts outstanding in respect of the above services at 31
December 2007 or 31 December 2006.
Sales and purchases of goods and services to related parties were made following
the Group's usual policies.
Loans made/(repayments received)
Joint venture (10,000) 45,000
Year end loan balances
Joint venture 115,000 125,000
The loan is unsecured and carries interest at 2% over Bank base rate.
Remuneration of key management personnel
Amounts paid to Group directors who are the key management personnel of the
Group are set out in the Directors' Report.
38. Transition to IFRS
Pennant International Group plc reported under UK GAAP in its previously
published financial statements for the year ended 31 December 2006. The analysis
below shows a reconciliation of equity and profits as reported under UK GAAP as
at 31 December 2006 to the revised equity and profits under IFRS as reported in
these financial statements. In addition, there is a reconciliation of equity
under UKGAAP to IFRS at the transition date for this Company, being 1 January
2006.
Reconciliation of equity Notes As at 31 December 2006 As at 1 January 2006
£ £
Equity shareholders' funds under UK GAAP 4,335,421 4,010,829
Adjustments:
Goodwill (a) 66,975 -
Negative goodwill (b) - 48,462
Assets held for sale (c) 3,726 -
Deferred tax (d) (32,000) (32,000)
Equity shareholders' funds under IFRS 4,374,122 4,027,291
Explanation of adjustments to equity
(a) Goodwill
Under UK GAAP, capitalised goodwill was amortised over its useful economic life.
Under IFRS, this goodwill is no longer amortised but is tested at least annually
for impairment. The impairment tests carried out by the Group have identified no
impairment loss.
The adjustments to the carrying amount of goodwill are as follows:
31 December 2006
£
Reversal of amortisation 68,696
Currency translation differences (1,721)
66,975
(b) Negative goodwill
The Group carried negative goodwill of £48,462 in its balance sheet prepared
under UK GAAP at 1 January 2006. This balance was credited to profit and loss
account under UK GAAP in 2006.
Under IFRS negative goodwill is written off immediately to profit and loss
account. The balance carried at 1 January 2006 (the date of transition) has
therefore been derecognised at that date and credited to retained earnings.
The £48,462 credit to profit and loss account in 2006 under UK GAAP has been
reversed in the income statement prepared under IFRS.
(c) Assets held for sale
IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' requires
that any asset held for sale that is expected to be sold within 1 year is
recognised as a current asset in the balance sheet. This has resulted in a
reclassification between non-current assets and current assets of £372,522 at
the date of transition being the carrying amount at 1 January 2006 of property
in Southampton that is subject to a conditional contract for sale.
IFRS 5 also requires that assets held for sale are not depreciated. Accordingly
depreciation previously charged under UK GAAP has been reversed.
(d) Deferred Tax
Under UK GAAP deferred tax was provided on timing differences between the
accounting and taxable profit (and income statement approach). Under IFRS,
deferred tax is provided on temporary differences between the book carrying
value and tax base of assets and liabilities (a balance sheet approach).
Under UK GAAP the Group did not provide for deferred tax on the amount of the
revaluation of certain property on the basis that there was no binding agreement
to sell the property. Under IFRS the difference between the carrying amount of a
re-valued asset and its tax base is deemed to be a temporary difference and
gives rise to a deferred tax liability. Accordingly at the transition date a
deferred tax provision of £32,000 has been established and equity reduced by a
corresponding amount.
Reconciliation of profit for the year ended 31 December 2006
UK GAAP IAS 21 IAS11 IFRS3 IFRS 5 Restated
presented in under IFRS
IFRS format Foreign exchange Construction Goodwill Assets held
contracts for resale
Note (a) Note (b) Notes (c) & Note (e)
(d)
£ £ £ £ £ £
Revenue 11,262,322 152,319 (102,687) - - 11,311,954
Cost of sales (7,204,381) (94,547) 102,687 - - (7,196,241)
Gross profit 4,057,941 57,772 - - - 4,115,713
Administration expenses (3,368,818) (30,155) - 20,234 3,726 (3,375,013)
Operating profit 689,123 27,617 - 20,234 3,726 740,700
Share of results of (67,119) - - - - (67,119)
joint venture
622,004 27,617 - 20,234 3,726 673,581
Finance costs (75,237) (25) - - - (75,262)
Finance income 7,258 110 - - - 7,368
Profit before tax 554,025 27,702 - 20,234 3,726 605,687
Taxation (44,334) (2,753) - - - (47,087)
Profit for the year 509,691 24,949 - 20,234 3,726 558,600
Explanation of adjustments to profit
(a) Foreign currencies
Under UK GAAP the profit and loss accounts of foreign subsidiaries were
converted to pounds sterling for consolidation purposes at the year end rate.
Under IFRS income and expenses have been translated at the average rate for the
period. This change has resulted in an increase in Group profits for the year to
31 December 2006 of £24,949.
(b) Construction contracts
Under UK GAAP the Group valued construction contracts by reference to the stage
of contract activity at the balance sheet date as required by IFRS. However, for
certain small contracts the Group adjusted the movement of amounts due from
contract customers against cost of sales rather than revenue. In the IFRS income
statement this movement has been transferred and accounted for as revenue in
accordance with IAS11. This adjustment has no affect on profits.
(c) Goodwill
Under UK GAAP, capitalised goodwill was amortised over its useful economic life.
Under IFRS, this goodwill is no longer amortised but is tested at least annually
for impairment. The impairment tests carried out by the Group have identified no
impairment loss and the amortisation provided under UK GAAP has been reversed.
The adjustments to profits are as follows:
31 December 2006
£
Reversal of amortisation 68,696
Reversal re negative goodwill (see (d) below) (48,462)
20,234
(d) Negative goodwill
The Group carried negative goodwill of £48,462 in its balance sheet prepared
under UK GAAP at 1 January 2006. This balance was credited to profit and loss
account under UK GAAP in 2006.
Under IFRS negative goodwill is written off immediately to profit and loss
account. The balance carried at 1 January 2006 (the date of transition) has
therefore been derecognised at that date and credited to retained earnings.
The £48,462 credit to profit and loss account in 2006 under UK GAAP has been
reversed in the income statement prepared under IFRS.
(e) Assets held for sale
IFRS 5 requires that assets held for sale are not depreciated. Accordingly
depreciation previously charged under UK GAAP has been reversed.
Explanation of adjustments to Cash flow statement
The Group's cash flow statements are presented in accordance with IAS7. The
statements present substantially the same information as that required under UK
GAAP, with the following principal exceptions:
- Under UK GAAP, cash flows are presented under nine standard headings,
whereas IFRS requires the classification of cash flows resulting from
operating, investing and financing activities.
- The cash flows reported under IAS 7 relate to movements in cash and cash
equivalents, which include short term liquid investments. Under
UK GAAP, cash comprises cash in hand and deposits repayable on demand.
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