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1st Dental Laboratories plc

('1st Dental' or the 'Company' or 'the Group') 

Unaudited preliminary results for the year ended 30 November 2008

1st Dental Laboratories plc (AIM; FDT) the UK's largest and leading provider of dental laboratory products to the dental profession, announces its preliminary results for the year ended 30 November 2008:

Chairman's Statement 

The year to November 2008 has presented the business with a number of challenges, namely the business disruptions at Blackpool and Stourport that were outside the control of management and, which in the year has equalled a loss of turnover approaching £1m. We also saw a change in senior management with the appointment of Nigel Spring as Managing Director. 

During the year we saw an unsolicited offer being made for the company. This was a distraction for senior management that we could have done without. In addition there was the cost of the process for the company having to employ a rule 3 advisor and legal advice which together came at a cost to the company in excess of £80k (forming part of non-recurring cost of £172k).

Despite the above I am pleased to report that the disruptions and loss of turnover are being mitigated with recovery on course at Blackpool, and Stourport almost fully recovered to previous trading and profit contribution levels.

Other core laboratories continued to perform as generally expected with some very pleasing results being turned in, especially from our Sheffield, Ripley and Bedlington Laboratories, all of whom provided results in both turnover and profit contribution significantly over budget. We are pleased with these efforts especially given the backdrop of the UK's current economic environment.  

In the year we have also seen investment of £0.2m in our Paignton Laboratory with a move to new state of the art laboratory premises. The move was completed with no disruption at all, which is testament to all the effort of the staff and management involved.

With regard to eteeth, since the launch in 2007, we have seen significant growth yet again with sales having increased 647% on the previous year. Since launch we have, and continue to witness, a cumulative average growth rate of 13.2% month on month. This product has enhanced our relationship with current and new dentist clients. We have gained a large amount of confidence from what has been a limited product offering. It is our intention to expand the offering to UK dentists and we are currently considering further overseas opportunities. The market competition to eteeth is regarded by us to be poor, which in turn is creating a level of spin-off business back to eteeth as the UK's market leader.   

As we closed the year and after much market analysis, we have made the decision to invest in all our laboratories with regard to the introduction of new and advanced restoration techniques and equipment, especially with regards to Zirconia production, and to follow this up with extensive investment in technician and technical training programmes. It is our wish to have all of our laboratories becoming regional centres of technical excellence, providing an unprecedented service to our new and established client base. 

We see very real opportunity of moving forward with what we believe to be new and innovative products and services that will be rolled out in 2009. Further, in order to protect our turnover and grow organically, we have put in place a regional sales force of seven staff, the size of which is a first for our industry, and early results are ahead of the Board's expectations.

In summary, 2008 was a troublesome year with the results being below market expectations as well as those of the Directors. The disruptions encountered could not have been anticipated, but the changes made during the year, including the strengthening of management, and the plans for 2009 and beyond are, we believe, based on a strong market analysis and anticipate the requirements of the market place and the environment in which we operate. 

AW Garner

Executive Chairman

11 February 2009  

Overview of results are as follows:

Recurring EBITDA of £420k on turnover of £10,053k (2007: EBITDA £831k on turnover of £10,794k)

Gross margin reduced to 36.4.% (2007: 37.9%)

Administrative expenses controlled with a saving of £30k to £3,236k (2007: £3,266k)

Non-recurring exceptional costs: £172k  

Total operating loss £87k (2007: operating profit of £335k)  

Pre tax loss of £265k (2007:profit £146k)

Net cash generated from operating activities of £311k

Bank debt reduction of £266k to £1,991k (2007: £2,257k) 

For Further Information:

Andrew Garner, 1st Dental Laboratories plc;          andrew@maximcorporate.co.uk

 

Nicola Marrin, Seymour Pierce                             020 7107 8000

Copies of the Report and Accounts will be sent to shareholders in due course and a further announcement will be made at that time.

  

Consolidated income statement 

for the year ended 30 November 2008

		Unaudited	As restated Unaudited
		30 November 2008	30 November 2007
		£000	£000
Revenue		10,065	11,022
Cost of sales		(6,409)	(6,840)
		-------------	-------------
Gross profit		3,656	4,182
Administrative expenses		(3,743)	(3,847)
		-------------	-------------
Operating profit before amortisation and non-recurring administrative expenses		95	555
Amortisation		(10)	(10)
Non-recurring administrative expenses	3	(172)	(210)
		-------------	-------------
Total operating (loss) / profit		(87)	335
Finance income		37	53
Finance expenses		(215)	(242)
		-------------	-------------
(Loss) / profit before taxation		(265)	146
Taxation		16	-
		-------------	-------------
(Loss) / profit for the year		(249)	146
		-------------	-------------
(Loss) / profit per ordinary share :
- Basic and diluted	4	(0.59p)	0.35p
		-------------	-------------

There were no recognised gains or losses in the year other than the loss for the year and therefore no statement of recognised income and expenses is presented.

All of the results of the Group are derived from continuing operations.

  Consolidated statement of changes in equity 

as at 30 November 2008 

			Unaudited	Unaudited	Unaudited
			Share  capital	Share premium	Retained earnings
			£000	£000	£000
At 1 December 2006 (as restated)			4,202	6,358	(2,491)
Result for the year			-	-	146
Share based payment charges			-	-	15
			-------------	-------------	-------------
At 30 November 2007 (as restated)			4,202	6,358	(2,330)
Result for the year			-	-	(249)
Share based payment charges			-	-	16
			-------------	-------------	-------------
At 30 November 2008			4,202	6,358	(2,563)
			-------------	-------------	-------------

  Consolidated balance sheet 

as at 30 November 2008

		Unaudited	As restated Unaudited
		As at 30  November 2008	As at 30 November 2007
		£000	£000
Non-current assets
Property, plant & equipment		2,069	1,832
Intangible assets		7,067	7,077
		-------------	-------------
		9,136	8,909
		-------------	-------------
Current assets
Inventories		295	296
Trade and other receivables		1,596	1,553
Cash and cash equivalents		563	1,067
		-------------	-------------
		2,454	2,916
		-------------	-------------
Total assets		11,590	11,825
		-------------	-------------
Current liabilities
Interest bearing loans and borrowings		703	632
Trade and other payables		1,602	1,322
Current taxes		-	16
		-------------	-------------
		2,305	1,970
		-------------	-------------
Non-current liabilities
Interest bearing loans and borrowings		1,288	1,625
		-------------	-------------
		1,288	1,625
		-------------	-------------
Total liabilities		3,593	3,595
		-------------	-------------
Net assets		7,997	8,230
		-------------	-------------
Equity attributable to equity holders of the Group
Called up share capital		4,202	4,202
Share premium account		6,358	6,358
Retained earnings		(2,563)	(2,330)
		-------------	-------------
Total equity		7,997	8,230
		-------------	-------------

  Consolidated cash flow statement 

for the year ended 30 November 2008

		Unaudited	Unaudited
		30 November 2008	30 November 2007
		£000	£000
Operating activities
(Loss) / profit for the year		(249)	146
Amortisation		10	10
Depreciation		280	264
Loss on sale of plant and equipment		32	4
Share based payment charges		16	15
Net finance expense		178	189
Income tax credit		(16)	-
		-------------	-------------
Operating cash inflow before changes in working capital		251	628
Movement in inventories		1	15
Movement in trade and other receivables		(43)	384
Movement in trade and other payables		242	76
		-------------	-------------
Operating cash inflow from operations		451	1,103
Interest received		37	53
Interest paid on borrowings		(168)	(217)
Interest element of hire purchase payments		(9)	(10)
Income tax received		-	52
		-------------	-------------
Net cash inflow from operating activities		311	981
		-------------	-------------
Investing activities
Purchase of plant and equipment		(302)	(169)
Sale of plant and equipment		12	22
Acquisition of subsidiaries		-	(75)
		-------------	-------------
Net cash flow from investing activities		(290)	(222)
		-------------	-------------
Financing activities
Capital element of Interest bearing loans and borrowings paid		(525)	(868)
		-------------	-------------
Net cash flow from financing activities		(525)	(868)
		-------------	-------------
Net decrease in cash and cash equivalents		(504)	(109)
Cash and cash equivalents at the beginning of the year		1,067	1,176
		-------------	-------------
Cash and cash equivalents at the end of the year		563	1,067
		-------------	-------------

  Notes to the unaudited preliminary results

• The financial information set out herein does not constitute the Group's statutory accounts for the year ended 30 November 2008 but is derived from those financial statements. The statutory accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Annual General Meeting.  The comparative information in respect of the year ended 30 November 2007 has been derived from the audited statutory accounts for the year ended on that date, as restated for the first time adoption of International Financial Reporting Standards ('IFRS') as referred to below, upon which an unqualified audit opinion was expressed and which did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The audited financial statements will be available by contacting the Company Secretary at the Company's Registered Office.

• Basis of preparation

The financial information has been prepared and approved by the directors in accordance with IFRS as adopted by the European Union and IFRIC interpretations issued and effective at the time of preparing these statements. The first time adoption of IFRS has impacted on the year's results. The principal changes relate to the acquisition of subsidiaries (treatment of goodwill and intangible assets).

The rules for first time adoption of IFRS are set out in IFRS1 'First time adoption of international financial reporting standards'. In accordance with IFRS1, the Company has determined its IFRS accounting policies and has applied these retrospectively to determine its opening balance sheet under IFRS. The accounting policies adopted are set out at Note 6.

The Group has taken the business combination exemption, which allows that IFRS3 not be applied to business combinations that took place prior to 1 December 2006, the date of transition to IFRS. Estimates under IFRS at the date of transition are consistent with the estimates made at the same time under UK GAAP.  The Group has also taken the share based payments exemption and, accordingly, IFRS2 has only been applied to awards granted after 7 November 2002.  

Reconciliations and explanations of the effect of the transition from UK GAAP to IFRS on the Group's equity and its profit or loss are set out at Note 5.  As a result of adopting IFRS, there have also been numerous changes to the presentation of the financial statements.

Further, the Group has identified the need to recognise a prior year restatement in respect of two matters.

• A provision of £435,000 has been made at 30 November 2007 for a potential VAT liability relating to income recognised in 2007 and 2006. This includes a charge of £210,000 arising in each of the years ended 30 November 2007 and 2006, plus interest of £15,000 in 2007 relating to accrued interest on overdue amounts. This has reduced opening reserves at 1 December 2006 by £210,000 with a corresponding increase in creditors. The profit for the year ended 30 November 2007 has been reduced by £225,000 relating to accrued VAT of £210,000 and interest of £15,000 and a corresponding increase in creditors by the same amount. The Directors consider that there are potentially mitigating circumstances that may offset this liability in part or in whole, but have prudently not recognised any of this potential mitigation until it is agreed with HMRC.

• £25,000 has been provided against the value of inventories as a result of non-compliance with SSAP9 and IAS2.

The financial impact of these matters along with the financial impact of the translation to IFRS is set out at Note 5.

  

The following Standards and Interpretations have been issued, but are not yet effective and have not been adopted early by the Group : 

	Title	Effective date - reporting periods starting on or later than	Date of EU endorsement
IFRS 3	Business Combinations (Revised 2008)	1 July 2009	-
IAS 27	Consolidated and Separate Financial Statements	1 July 2009	-
IFRS 2	Amendment to IFRS 2 Share Based Payment : Vesting Conditions and Cancellations	1 January 2009	-
IAS 1	Presentation of Financial Statements	1 January 2009	-
IAS 23	Revision to IAS 23 Borrowing costs	1 January 2009	-
IAS 32	Amendment to IAS 32 Financial Instruments : Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations arising on Liquidation	1 January 2009	-
IFRS 8	Operating Segments	1 January 2009	21 November 2007
IFRIC 12	Service Concession Arrangements	1 January 2008	-
IFRIC 13	Customer Loyalty Programmes	1 July 2008	-
IFRIC 14	IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction	1 January 2008	-
IFRIC 15	Agreements for the Construction of Real Estate	1 January 2009	-
IFRIC 16	Hedges of a Net Investment in a Foreign Operation	1 October 2008	-
IFRIC 17	Distributions of Non-cash Assets to Owners	1 July 2009	-

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group when the relevant standards come into effect for periods commencing on or after 1 December 2008.

 

	Unaudited	As restated Unaudited
	30 November 2008	30 November 2007
Aborted takeover costs	80	-
Professional advisers fees in relation to the potential VAT liability	20	-
Professional advisers fees in relation to Staff issues -Stourport and Blackpool	30	-
Re-organisation redundancy costs	42	-
VAT liability (see Note 2)	-	210
	-------------	-------------
Non-recurring administrative expenses	172	210
	-------------	-------------

  

 

	Unaudited	As restated Unaudited
	30 November 2008	30 November 2007
Retained (loss) / profit for the year (£000)	(249)	146
Weighted average number of shares ('000)	42,017	42,017
Basic and diluted loss / (profit) per ordinary share (pence per share)	(0.59p)	0.35p
	-------------	-------------

 

Reconciliation of profit - year ended 30 November 2007

	Audited UK GAAP	Unaudited Prior year adjustment		Unaudited UK GAAP (after restatement)	Unaudited IFRS adjustments		Unaudited IFRS
Note		a	b		c	d
	£000	£000	£000	£000	£000	£000	£000
Revenue	11,022	-	-	11,022	-	-	11,022
Cost of sales	(6,840)	-	-	(6,840)	-	-	(6,840)
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Gross profit	4,182	-	-	4,182	-	-	4,182
Administrative costs	(4,052)	(210)	-	(4,262)	415	-	(3,847)
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Operating profit before amortisation and non-recurring administrative expenses	555	-	-	555	-	-	555
Amortisation	(425)	-	-	(425)	415	-	(10)
Non-recurring administrative expenses	-	(210)	-	(210)	-	-	(210)
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Operating profit	130	(210)	-	(80)	415	-	335
Finance income	53	-	-	53	-	-	53
Finance expenses	(227)	(15)	-	(242)	-	-	(242)
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Profit before taxation	(44)	(225)	-	(269)	415	-	146
Taxation	-	-	-	-	-	-	-
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Loss for the year	(44)	(225)	-	(269)	415	-	146
	-------------	-------------	-------------	-------------	-------------	-------------	-------------

  Reconciliation of equity at 30 November 2007

	Audited  UK GAAP	Unaudited Prior year adjustment		Unaudited UK GAAP (after restatement)	Unaudited IFRS adjustments		Unaudited IFRS
Note		a	b		c	d
	£000	£000	£000	£000	£000	£000	£000
Non-current assets
Property, plant & equipment	1,832	-	-	1,832	-	-	1,832
Goodwill	6,662	-	-	6,662	415	-	7,077
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
	8,494	-	-	8,494	415		8,909
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Current assets
Inventories	321	-	(25)	296	-	-	296
Trade and other receivables	1,553	-	-	1,553	-	-	1,553
Cash and cash equivalents	1,067	-	-	1,067	-	-	1,067
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
	2,941	-	(25)	2,916	-	-	2,916
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Total assets	11,435	-	(25)	11,410	415	-	11,825
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Current liabilities
Interest bearing loans and borrowings	632	-	-	632	-	-	632
Trade and other payables	862	435	-	1,297	-	25	1,322
Current taxes	16	-	-	16	-	-	16
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
	1,510	435	-	1,945	-	25	1,970
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Non-current liabilities
Interest bearing loans and borrowings	1,625	-	-	1,625	-	-	1,625
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
	1,625	-	-	1,625	-	-	1,625
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Total liabilities	3,135	435	-	3,570	-	25	3,595
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Net assets	8,300	(435)	(25)	7,840	415	(25)	8,230
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Equity attributable to equity holders of the Group
Called up share capital	4,202	-	-	4,202	-	-	4,202
Share premium account	6,358	-	-	6,358	-	-	6,358
Retained earnings	(2,260)	(435)	(25)	(2,720)	415	(25)	(2,330)
	-------------	-------------	-------------	-------------	-------------	-------------	-------------
Total equity	8,300	(435)	(25)	7,840	415	(25)	8,230
	-------------	-------------	-------------	-------------	-------------	-------------	-------------

  

Reconciliation of equity at 1 December 2006

		Audited  UK GAAP	Unaudited Prior year adjustment		Unaudited UK GAAP (after restatement)	Unaudited IFRS adjustments	Unaudited IFRS
			a	b		c
		£000	£000	£000	£000	£000	£000
Non-current assets
Property, plant & equipment		1,953	-	-	1,953	-	1,953
Intangible assets		7,087	-	-	7,087	-	7,087
		-------------	-------------	-------------	-------------	-------------	-------------
		9,040	-	-	9,040	-	9,040
		-------------	-------------	-------------	-------------	-------------	-------------
Current assets
Inventories		336	-	(25)	311	-	311
Trade and other receivables		1,973	-	-	1,973	-	1,973
Cash and cash equivalents		1,176	-	-	1,176	-	1,176
		-------------	-------------	-------------	-------------	-------------	-------------
		3,485	-	(25)	3,460	-	3,460
		-------------	-------------	-------------	-------------	-------------	-------------
Total assets		12,525	-	(25)	12,500	-	12,500
		-------------	-------------	-------------	-------------	-------------	-------------
Current liabilities
Trade and other payables		1,071	210	-	1,281	25	1,306
Interest bearing loans and borrowings		996	-	-	996	-	996
		-------------	-------------	-------------	-------------	-------------	-------------
		2,067	210	-	2,277	25	2,302
		-------------	-------------	-------------	-------------	-------------	-------------
Non-current liabilities
Interest bearing loans and borrowings		2,129	-	-	2,129	-	2,129
		-------------	-------------	-------------	-------------	-------------	-------------
		2,129	-	-	2,129	-	2,129
		-------------	-------------	-------------	-------------	-------------	-------------
Total liabilities		4,196	210	-	4,406	25	4,431
		-------------	-------------	-------------	-------------	-------------	-------------
Net assets		8,329	(210)	(25)	8,094	(25)	8,069
		-------------	-------------	-------------	-------------	-------------	-------------
Equity attributable to equity holders of the Group
Called up share capital		4,202	-	-	4,202	-	4,202
Share premium account		6,358	-	-	6,358	-	6,358
Retained earnings		(2,231)	(210)	(25)	(2,466)	(25)	(2,491)
		-------------	-------------	-------------	-------------	-------------	-------------
Total equity		8,329	(210)	(25)	8,094	(25)	8,069
		-------------	-------------	-------------	-------------	-------------	-------------

  

• A provision of £435,000 has been made at 30 November 2007 for a potential VAT liability relating to income recognised in 2007 and 2006. This includes a charge of £210,000 arising in each of the years ended 30 November 2007 and 2006, plus interest of £15,000 in 2007 relating to accrued interest on overdue amounts. This has reduced opening reserves at 1 December 2006 by £210,000 with a corresponding increase in creditors. The profit for the year ended 30 November 2007 has been reduced by £225,000 relating to accrued VAT of £210,000 and interest of £15,000 and a corresponding increase in creditors by the same amount. The Directors consider that there are potentially mitigating circumstances that may offset this liability in part or in whole, but have prudently not recognised any of this potential mitigation until it is agreed with HMRC.

• The Group's inventory valuation policy did not comply with SSAP9 and IAS2.  The adjustment above of £25,000 reflects compliance with SSAP9 as at 30 November 2006 and as at 30 November 2007, hence there is no impact on the consolidated income statement for the year ended 30 November 2007.

• Under IFRS, the Group is required not to amortise goodwill but to capitalise it as at 1 December 2006 and to annually test it for permanent impairment. Accordingly, the adjustment above reflects the write back of amortisation of goodwill charged to the consolidated income statement under UK GAAP of £415,000 for the year ended 30 November 2007.

• Under IFRS, the Group is required to recognise all employment related liabilities. Accordingly, the Group has accrued for holiday pay earned but not paid. This amount of the accrual required is £25,000 as at 30 November 2006 and as at 30 November 2007, hence there is no impact on the consolidated income statement for the year ended 30 November 2007. 

.

6.    Significant accounting policies

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated fully on consolidation.

Changes in accounting policies

The Group has adopted the following standards in the year:

IFRS 7, 'Financial Instruments Disclosures' which introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuation of the Group or Company's financial instruments, of the disclosures relating to taxation and trade and other payables. 

Significant accounting judgements, estimates and assumptions

The key assumptions concerning the future, and other sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment of goodwill - The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the 'value in use' of the cash generating units to which the goodwill is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. 

Deferred tax assets - Deferred tax assets are recognised for all unused tax losses to the extent that it is more likely than not that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits. 

Share based payment - The estimation of the fair value of share options and other equity instruments at their date of grant requires management to make estimates concerning the expected volatility of the underlying shares, the dividends payable on the shares and the time at which employees are likely to exercise vested options. 

Debtors - Debtors are recognised to the extent that they are judged recoverable. Management reviews are performed to estimate the level of reserves required for irrecoverable debt. Provisions are made specifically against invoices where recoverability is uncertain. 

Segmental reporting

The directors consider that the Group operates only one class of business, being the manufacture of dental appliances. All turnover and operating losses originate in the UK therefore geographical analysis has not been presented.

Property, plant and equipment

Property, plant and equipment are held at cost less accumulated depreciation and impairment charges.  The cost of property, plant and equipment is the purchase price, together with any directly attributable costs of acquisition.

Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value, which is based on up to date prices, of property, plant and equipment over their estimated useful lives as follows:

Freehold land	-  Nil
Leasehold improvements	-  shorter of remaining life or 50 years
Plant and machinery	-  10 years
Fixtures and fittings	-  4 years
Computer equipment	-  4 years

Intangible assets - Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition.  The cost of acquisition represents the fair value of all consideration given in return for the assets acquired.  Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.

Intangible assets - Licences

Software licences are capitalised and amortised over their useful economic life of five years. The cost of the licence is the purchase price plus any incidental costs of acquisition.

Impairment

The carrying amount of the Group's non-financial assets 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 or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement.

An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows.

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 (group of units) and then, to reduce the carrying amount of the other assets of the unit (group of units) on a pro-rata basis.

Trade and other receivables

Trade receivables are recognised and carried at original invoice amount less allowance for any uncollectible amounts. Where receivables are considered to be irrecoverable an impairment charge is included in the income statement.

Classification of financial instruments issued by the Group

Following the adoption of IAS32 'Financial instruments: presentation', financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

-    they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the group; and

 

-    where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.  

Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial instruments that are classified in equity are treated as distributions and are recorded directly in equity.

Financial assets

The Group classifies its financial assets depending on the purpose for which the asset was acquired. The Group has the following financial assets:

Loans and receivables: These assets are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (trade receivables). They are carried at fair value on initial recognition less provision for impairment. Cash and cash equivalents comprise cash in hand, deposits held at call with banks and bank overdrafts.

Financial liabilities

Financial liabilities are comprised of termed loan facilities and trade payables, which are recognised at amortised cost.

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 profit or loss over the period of the borrowings on an effective interest basis. 

Cash and cash equivalents

Cash and cash equivalents comprise cash balances.

  

Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts and rebates.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on despatch of the goods.

Leases

Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. Rentals payable under operating lease rentals are charged to the income statement on a straight line basis over the term of the lease.

Leases where the Group acts as lessee and obtains substantially all of the risks and rewards of ownership are classified as finance leases or hire purchase agreements. Assets held under finance leases or hire purchase agreements are capitalised and depreciated over their useful economic lives. The capital element of the future obligations under finance leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged to the income statement over the periods of the finance leases and hire purchase agreements and represent a constant proportion of the balance of capital outstanding. 

Inventories

Inventories are stated at the lower of cost and net realiseable value. Cost includes all costs incurred in bringing each product to its present location and condition. Raw materials are stated at purchase cost. Work in progress includes the cost of materials and labour plus attributable overheads based on a normal activity level. Net realiseable value is based upon estimated selling price less any further costs expected to be incurred to completion and disposal.  

Non-recurring items

Non-recurring items are material items in the Income Statement which derive from events or transactions which fall within the ordinary activities of the Group and which individually or, if of a similar type, in aggregate the Group has highlighted as needing to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.  Such items are non-recurring, as by their nature they do not occur on a frequent basis.

Post retirement benefits

The Group operates a defined contribution pension scheme.  The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged to the income statement represents the contributions payable to the scheme in respect of the accounting period.

Share based payments and employee benefits

The fair value of awards to employees that take the form of shares or rights to shares is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.

Short term employee benefits are recognised when an employee has rendered service to the Group during an accounting period. The amount recognised is the undiscounted amount of short term employee benefits expected to be paid in exchange for that service.

Foreign currencies

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains and losses on translation are recognised in the income statement.

  

Taxation

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.

Current tax is the tax currently payable based on taxable profit for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years.

Deferred income taxes are calculated using the liability method on temporary differences.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. 

Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future.  In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. 

Deferred tax liabilities are provided in full, with no discounting.  Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.  Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. 

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

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 economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any expected reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

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