REG-Roxboro Group PLC Interim Results – Part 2
Date/Range: 12-SEP-2005
Short Abstract: REG-Roxboro Group PLC Interim Results – Part 2
RNS Number:1166R
Roxboro Group PLC
Part 2
Operating Results
Group turnover for the six months to 30 June 2005 was relatively flat in
Sterling terms at £58.3 million (2004: £59.2 million), although Dialight’s order
book strengthened by 28% from the start of the year. Group profit before tax was
£5.4 million (2004: £5.7 million).
Group operating cash flows were £4.2 million representing 75% of operating
profit (2004: £9.0 million) and adjusted earnings per share 11.2 pence per share
(2004: 12.0 pence per share). The Group ended the period with net cash of £5.2
million, which was significantly enhanced in July with the receipt of the Mobrey
proceeds of £26.0 million.
The interim dividend will be maintained at 3.4 pence per share and will be paid
on 20 October 2005 to shareholders on the register at 23 September 2005. The
Board intends that the dividend policy adopted by the Company going forward will
be appropriate to reflect the new profile and growth potential of Dialight plc.
BUSINESS REVIEW
Operationally the Solartron division performed marginally ahead of prior year
but with the completion of the Mobrey disposal to Emerson taking place on 15
July and the exchange of contracts for the Ametek transaction on 25 August 2005
it is inevitable that the management team spent a significant proportion of
their time on these transactions for much of the first half.
Order intake was 3% up on the same period in the prior year with sales up 5%,
and at a similar level to the second half of 2004.
A continuing good performance at the Metrology business where sales and
operating profits exceeded the prior year was offset to some extent by a
slightly weaker performance from Mobrey. ISA secured a number of new oil and gas
projects resulting in an overall increase in orders received of 36%.
Mobrey is now part of Emerson Process Management and, subject to a regulatory
clearance and shareholders’ approval, the remainder of Solartron will become
part of Ametek, another US corporation, before the end of September.
Dialight Division
The entire business activity of Roxboro will now consist of the Dialight
Division. To reflect this, once the disposal of Solartron has completed, the
company’s name will be changed to Dialight plc.
Dialight saw a 28% increase in its order book since the start of the year, with
orders received increasing by 11% over the second half of 2004 when the market
was particularly strong.
This healthy situation reflects the improvement in demand for Dialight’s
indicator product line, as the general electronics sector improved, however
volumes remained lower than those achieved in the first half of 2004.
Demand for the indicator product line is driven by electronic component
distributors such as Arrow, Allied and Farnell as well as OEMs such as Cisco,
Lucent, Nokia and Dell. Although the order book at the end of the period was
strong, phasing meant that sales in the first half were marginally lower than
the first half last year when demand was particularly strong.
Exports to Asia remained constant as production at Contract Manufacturers who
produce for the OEMs remained at similar levels but distribution within the USA
improved as the US economy gained strength.
Gross margins increased slightly on the indicator product line despite some
material cost increases resulting from increased fuel costs.
The Signals product line showed an 8% growth in orders received even though the
first half of 2004 benefited from the substantial one-off contract secured from
the FAA. Excluding this contract, underlying growth was therefore around 20%.
Sales were constrained in the first quarter by inclement weather and snow storms
in the northern states, making it impossible to install traffic signals. Second
quarter sales were substantially stronger and sales for the first half were
close to the same level of the prior year which included the FAA contract.
Demand for obstruction lights incorporating solid state lighting technology
continued to increase as the benefits of this new technology became apparent to
users of broadcast towers and other end-user customers. A trading agreement was
signed with Flash Technologies, the US market leader in obstruction lighting,
and sales through Flash grew steadily in the first half.
Strong demand for obstruction lights also drove good growth in Europe for
Signals products. European demand for solid state traffic signals has been slow
to take off but growth through OEMs is expected to increase as the new Eclipse
product range comes into production.
Dialight performed less well in its European operations as a result of delays in
getting the new Eclipse traffic signal fully approved and accepted by regulatory
authorities and OEMs.
Sales of solid state lighting rail signals continues to grow steadily with new
business from New York City Transit for a further consignment of signals and in
Europe with the Danish Rail.
Dialight has introduced a number of high-end illumination products and is
working with Rosco, Hydrel and Polaris. Solid state lighting is likely to be
used initially in low cost feature lighting which will quickly become
commoditised as volumes increase. There are, however, many applications where
the need is for a more sophisticated product and it is in this market Dialight
has introduced its first illumination products.
By way of example, working with Hydrel, an installation was completed at the
Wynn Resort in Las Vegas in which Dialight provided underwater lighting with
SpectramixTM colour mixing technology for the “Lake of Dreams”, the key central
entertainment feature. Many other similar colour mixing projects are expected to
be developed by lighting engineers over the next few years and Dialight
anticipates taking a significant share of this emerging market.
Tunnel and bridge lighting applying either colour or white light will also grow
the use of solid state lighting as safety and longevity are imperatives in this,
as in other, applications.
Dialight is launching a range of solid state explosion-proof fixtures in
conjunction with Crouse Hinds, part of Cooper Industries, and the US market
leader for lighting in hazardous environments. These will be used in
environments such as oil refineries and mining.
Strong demand for obstruction lights, particularly in Poland, was encouraging
and projects with Danish railways should bring future benefits.
The overall Dialight results were disadvantaged in the first half by increased
pension contributions at BLP, its UK subsidiary.
Strategy
The disposal of the Solartron businesses marks the end of Roxboro’s involvement
in electronic measurement technology, a strategy, which has led to the
realisation of over £125 million in shareholder value through a series of
disposals over the past two years.
The remaining Group is now highly focussed, based on a single core business,
namely Dialight and to reflect this, the Group’s name will therefore shortly be
changed to Dialight plc, when a corporate strategy, based entirely on the
applied LED technology and in particular solid state lighting, will be pursued.
Dialight plans to expand geographically, strengthening its position in Europe
and most importantly will seek to advance a leadership position in the emerging
solid state lighting market.
The Board believes LED technology will increasingly be seen as a disruptive
technology in the lighting industry and Dialight plans to occupy the space
between the LED producers and the fixture manufacturers who have little or no
knowledge of applied LED technology.
Dialight is already one of the largest users of LEDs in the world and will
continue to develop relationships with lighting companies, adding value to the
LED and supplying solid state lighting modules to the fixture producers.
Board Changes
Following the proposed disposal of Solartron, as announced on 25 August, the
Board will be reorganised and after eight years as Chairman it is appropriate
that I retire at the EGM to be held on 29 September and be succeeded as Chairman
by Harry Tee, who will hand over his duties as Group Chief Executive to Roy
Burton, who has led Dialight for the past three years.
Jeff Hewitt will become Deputy Chairman and Robert Jeens, together with Bill
Whiteley, will remain as non-executive directors.
Alf Vaisey, currently Finance Director, will also retire from the Board, to be
succeeded by Cathy Buckley who has worked with Alf for the past six years and
who also has been the Company Secretary. Cathy is a Chartered Accountant who
qualified with KPMG, spending 12 years with the firm post qualification prior to
joining Roxboro. On behalf of the Board and all shareholders, I would like to
pay tribute to Alf’s work and to thank him for the enormous contribution he has
made to the Group over the past nine years and in seeing through the Board’s
strategy.
Outlook
There has been no significant change in the markets serviced by the Group since
the preliminary results announcement in March 2005.
The electronics sector improved in the first half of the current year when
compared with the second half in the prior year, and the resulting growth in
demand for Dialight’s indicator products experienced in the first half is
expected to continue through the second half. Taken together with encouraging
demand for Dialight’s solid state lighting products, the prospects for Dialight
remain positive.
Overall, the Board views the future of Dialight with confidence as it pursues
its strategy focussed entirely on solid state lighting technology and the high
growth opportunities it brings in order to generate long-term Shareholder value.
SIR ALAN COCKSHAW
INTERNATIONAL FINANCIAL REPORTING STANDARDS
The European Union has approved the application of International Financial
Reporting Standards (IFRS) for listed companies for periods beginning on or
after 1 January 2005. Roxboro has adopted IFRS from 1 January 2005, having
previously reported its financial results under UK GAAP. As permitted under
IFRS1, the Group deferred the adoption of IAS 32, Financial Instruments:
Disclosure and Presentation and IAS 39, Financial Instruments: Recognition and
Measurement, until 1 January 2005.
The comparative information for the year ended 31 December 2004 and the six
months ended 30 June 2004 have been restated to apply IFRS with the exception of
IAS 32 and IAS 39. Schedules are included at Appendix 1.
Set out in Appendix 2 are the Group Profit and Loss Accounts, Balance Sheets and
Cashflow Statements under UK GAAP.
CONSOLIDATED INCOME STATEMENT
For the period ended 30 June 2005 (unaudited)
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Revenue – Continuing operations 25,820 28,157 55,268
– Discontinued operations 32,501 31,025 63,584
58,321 59,182 118,852
Cost of sales (39,507) (39,680) (78,418)
Gross Profit 18,814 19,502 40,434
Distribution costs (7,512) (7,891) (15,760)
Administrative expenses (5,739) (5,848) (11,959)
Operating profit – Continuing operations 1,516 1,770 4,455
– Discontinued operations 4,047 3,993 8,260
5,563 5,763 12,715
Net finance costs (213) (109) (189)
Profit before tax – Continuing operations 1,404 1,679 4,299
– Discontinued operations 3,946 3,975 8,227
5,350 5,654 12,526
Taxation (1,972) (2,039) (4,290)
Profit for the year attributable
to shareholders – Continuing operations 608 828 2,249
– Discontinued operations 2,770 2,787 5,987
3,378 3,615 8,236
Earnings per share
Basic 11.2p 12.0p 27.4p
Diluted 11.1p 11.9p 27.1p
The accompanying Notes form an integral part of these Interim Financial
Statements
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the period ended 30 June 2005 (unaudited)
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Exchange difference on 833 (510) (1,077)
translation of foreign
operations
Actuarial losses on defined (612) (596) (1,194)
benefit pension schemes
Tax on items taken directly in 269 170 340
equity
Net expense recognised directly 490 (936) (1,931)
in equity
Profit for the period 3,378 3,615 8,236
Total recognised income and 3,868 2,679 6,305
expense for the period
The accompanying Notes form an integral part of these Interim Financial
Statements
STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY
For the period ended 30 June 2005 (unaudited)
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Shareholders’ equity at start of 50,487 47,553 47,553
period
Impact of adoption of IAS32 and 39 (2,090) – –
At start of period restated 48,397 47,553 47,553
Total recognised income and 3,868 2,679 6,305
expense for the period
Dividends (2,288) (2,112) (3,178)
Issue of ordinary shares – 73 75
B Shares redeemed – (89) (268)
Shareholders’ equity at 30 June 49,977 48,104 50,487
2005
CONSOLIDATED BALANCE SHEET
As at 30 June 2005 (unaudited)
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Non-current assets
Intangible assets 4,096 18,054 19,254
Property, plant & equipment 5,922 12,284 11,463
Deferred tax asset 2,618 3,187 2,619
12,636 33,525 33,336
Current assets
Inventories 8,392 15,026 15,404
Trade and other receivables 12,642 24,741 25,363
Cash and cash equivalents 1,711 5,787 6,819
Assets classified as held 49,054 – –
for resale
71,799 45,554 47,586
Current liabilities
Trade and other payables (7,472) (16,144) (16,644)
Loans and borrowings – (37) (51)
Tax liabilities (767) (1,628) (977)
Liabilities classified as (13,467) – –
held for resale
Net current assets 50,093 27,745 29,914
Total assets less current 62,729 61,270 63,250
liabilities
Non-current liabilities
Trade and other payables (800) (1,912) (1,667)
falling due after more than
one year
Retirement benefit (9,681) (11,190) (11,030)
obligations
Loans and borrowings (2,232) – –
Deferred tax liability (39) (64) (66)
Net assets 49,977 48,104 50,487
Equity
Called-up share capital 569 3,027 2,849
Share premium account 6,049 6,049 6,049
Retained earnings 2,940 (1,165) 1,217
Capital redemption reserve 40,419 40,193 40,372
Equity attributable to the 49,977 48,104 50,487
shareholders of the parent
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 30 June 2005 (unaudited)
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Cash flows from operating
activities
Operating profit 5,563 5,763 12,715
Depreciation and other 846 1,494 2,993
amortisation
(Increase)/Decrease in (116) 894 238
inventories
(Increase)/Decrease in trade (2,923) 379 (1,076)
and other receivables
Increase in trade and other 828 503 654
payables
Cash generated from 4,198 9,033 15,524
operations
Net interest payable (256) (113) (189)
Income tax expense (1,263) (1,375) (3,583)
Operating cash flow 2,679 7,545 11,752
Cash flows from investing
activities
Capital expenditure and (1,429) (665) (1,299)
financial investment
Development costs (1,020) (921) (2,129)
Proceeds from sale of – 5 13
tangible fixed assets
Purchase of intangible – (50) –
assets
Net cash used in investing (2,449) (1,631) (3,415)
activities
Free cash flow 230 5,914 8,337
Cash flow from financing
activities
Proceeds from the issue of – 73 74
share capital
B Shares redeemed (48) (89) (267)
Dividends paid (2,288) (2,112) (3,135)
Net cash used in financing (2,336) (2,128) (3,328)
activities
Net (decrease)increase in (2,106) 3,786 5,009
cash and cash equivalents
Cash and cash equivalents at 6,768 1,968 1,968
the beginning of the period
Effect of exchange rates in 514 (4) (209)
cash
Cash held as asset held for (3,465) – –
sale
Cash and cash equivalents at
the end of the period 1,711 5,750 6,768
Significant Accounting Policies
For the period ended 30 June (unaudited)
Basis of preparation
The Interim Financial Statements the interim consolidated financial statements
of the Group for the six months to 30 June 2005 prepared in accordance with the
accounting policies set out below.
From 1 January 2005, the Group is required to prepare consolidated financial
statements in accordance with accounting standards adopted for use in European
Union (“EU”). The Group previously prepared consolidated financial statements in
accordance with UK GAAP until 31 December 2004. Details with respect to the
Group’s transition from UK GAAP to IFRS, including accounting policies used,
reconciliations and descriptions of the effect of the transition on the Group’s
net income, equity, and cash flows are provided in Appendix 1.
The financial information presented in this statement has been prepared by
applying all IFRS that have been published to date that are applicable to the
Group, including International Accounting Standard (IAS) and interpretations
issued by the International Accounting Standards Board (IASB) and its
committees. These are subject to amendment by the IASB and subsequent
endorsement by the European Commission and are therefore subject to possible
change. This could result in the need to change the basis of accounting or
presentation of certain financial information from that presented in this
announcement. It is possible, therefore, that further changes will be required
before final comparative information for the year ending 31 December 2005 is
published. The financial information presented now is unaudited.
The financial statements have been prepared on the historical cost basis, except
for the revaluation of certain financial instruments. The significant accounting
policies are set out below.
These policies have been consistently applied to all the periods presented
except for those relating to the classification and measurement of financial
instruments. The Group has made use of the exemption under IFRS 1 “First Time
Adoption of International Financial Reporting Standards” to only apply IAS 32
“Financial Instruments: Disclosure and Presentation”, and IAS 39 “Financial
Instruments: Recognition and Measurement”, with effect from 1 January 2005. The
policies applied to Financial Statements for 2004 and 2005 are disclosed
separately below. The impact of the implementation of IAS 32 and IAS 39 on
equity as at 1 January 2005 is provided in Note 8.
These Interim Financial Statements do not comprise statutory accounts within the
meaning of Section 240 of the Companies Act 1985.
The comparative figures for the year ended 31 December 2004 are not the
company’s statutory accounts for that financial year. Those accounts, which were
prepared under UK Generally Accepted Accounting Practices, have been reported on
by the company’s auditors.
The statutory accounts for the year ended 31 December 2004 have been delivered
to the Registrar of Companies and include an audit report which was unqualified
and did not contain a statement under either Section 237(2) or 237(3) of the
Companies Act 1985.
Basis of consolidation
Subsidiaries are entities controlled by the Group. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
control commences until the date that control ceases.
Segmental reporting
The Group’s primary reporting format is business segments and its secondary
format is geographical segments. A business segment is a component of the Group
that is engaged in providing a group of related products and is subject to risks
and returns that are different from those other business segments. A
geographical segment is a component of the Group that operates within a
particular economic environment and this is subject to risks and returns that
are different from those of components operating in other economic environments.
Goodwill
Business combinations are accounted for by applying the purchase method. The
excess of the cost of the business combination over the acquirer’s interest in
the net fair value of the identifiable assets, liabilities and contingent
liabilities, recognised in accordance with IFRS 3 constitutes goodwill, and is
recognised as an asset. Where this excess is negative, it is recognised directly
in the income statement.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses, until disposal or termination of the previously acquired
business (including planned disposal or termination where there are indications
that the value of the goodwill has been permanently impaired), when the profit
and loss on disposal or termination will be calculated after charging the gross
amount, at current exchange rates, of any such goodwill through the income
statement. Goodwill is allocated to cash generating units and is no longer
amortised but is tested at least annually for impairment.
Goodwill arising on acquisition before 1 January 2004, the date of transition to
International Financial Reporting Standards, has been retained at the previous
UK GAAP amounts, subject to being tested for impairment at that date. The
Group’s policy up to and including 31 December 1997 was to eliminate goodwill
arising upon acquisitions to reserves. Under IFRS 1 and IFRS 3, such goodwill
will remain eliminated against reserves and is not included in determining any
subsequent profit or loss on disposal.
Intangible assets excluding goodwill
Intangible assets are valued at cost less any accumulated amortisation and any
accumulated impairment losses. Costs that are directly associated with
identifiable development projects whereby research findings are applied to a
plan or design for the production of new or substantially improved products and
processes is capitalised if the product or process is technically and
commercially feasible and the Group has sufficient resources to complete the
development. The expenditure capitalised includes the cost of material, direct
labour and an appropriate proportion of overheads. Intangible assets will be
amortised over their useful lives, which for current projects are between five
and ten years.
Expenditure on research activities is recognised in the income statement as an
expense is incurred.
Current assets and liabilities held for sale
Current assets and liabilities are classified as held for sale if their carrying
amount will be recovered through a sale transaction rather than through
continuing use. This condition is met when the sale is highly probable, the
asset is available for immediate sale in its present condition, and management
are committed to the asset disposal. Current assets classified as held for sale,
are measured at the lower of carrying amount and fair value less costs to sell.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost
of inventories comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their location and condition at
the balance sheet date. Items are valued using the first in, first out method.
When inventories are used, the carrying amount of those inventories are
recognised as an expense in the period in which the related revenue is
recognised. Provision for write-downs to net realisable value and losses of
inventories are recognised as an expense in the period in which the write-down
or loss occurs. Reversals are recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs.
Provisions
A provision is recognised when there is a present legal or constructive
obligation 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. If these conditions are
not met, no provision is recognised.
Retirement benefit obligations
The Group has various defined benefit pension and defined contribution pension
plans.
Payment to defined contribution pension plans are charged as an expense as they
fall due.
The Group’s net obligation in respect of defined benefit pension plans is
calculated separately for each plan by estimating the amount of future benefit
that employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value, and the fair
value of any plan assets deducted. The calculation is performed by independent
qualified actuaries.
All actuarial gains and losses as at 1 January 2004, the date of transition to
IFRS’s, were recognised in the balance sheet. In respect of actuarial gains and
losses that arise subsequent to 1 January 2004 in calculating the Group’s
obligation in respect of each plan, they are recognised in full in the period in
which they occur. They are recognised outside the income statement, and are
presented in the statement of recognised income and expense. Past service cost
is recognised immediately to the extent that the benefits have already vested,
and otherwise is amortised on a straight-line basis over the average period
until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation as reduced by the fair value of
scheme assets. Any assets resulting from this calculation is limited to past
service cost, plus the present value of any refunds and reductions in future
contributions to the plan.
Taxation
Current taxes for current and prior methods, to the extent unpaid, are
recognised as a liability. If the amount already paid in respect of current and
prior periods exceeds the amount due for those periods, the excess is recognised
as a current asset.
Deferred taxes are provided in full using the balance sheet liability method, on
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred taxes are not calculated on the following temporary differences: (i)
the initial recognition of goodwill and (ii) the initial recognition of assets
and liabilities that affect neither accounting nor taxable profit. The amount of
deferred tax provided is bases on the expected basis of realisation or
settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantially enacted at the balance sheet date. A deferred tax asset
is recognised only to the extent that it is probable that future taxable profits
will be available against which the unused tax losses and credits can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Foreign currency translation
Income statements of foreign entities are translated into sterling at the
weighted average exchange rates for the period and balance sheets are translated
into sterling at the exchange rate ruling on the balance sheet date.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as local currency assets and liabilities of the foreign
entity and are translated at the closing rate.
Foreign currency transactions are accounted for at the exchange rate prevailing
at the date of the transactions. Gains and losses resulting from the settlement
of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
Exchange movements arising from the re-translation at closing rates of the
opening balance sheets and results of subsidiaries are taken to the translation
reserve. Other exchange movements are taken to the income statement.
Equity
Where the Company (or its subsidiaries) re-acquires its own equity instruments,
those instruments are deducted from equity as treasury shares. Where such equity
instruments are subsequently sold, any consideration received is recognised in
equity.
Financial instruments and hedge accounting
From 1 January 2004 to 31 December 2004, financial instruments used as hedges in
the financing and financial risk management of the Group were accounted for as
follows:
Forward foreign exchange contracts which hedged currency assets and liabilities
were recognised in the financial statements together with the assets and
liabilities they hedged. The contract rate was used for translation. Foreign
exchange contracts which hedged future sales and purchases were not recognised
in the financial statements until the transaction they hedged was itself
recognised. If a foreign exchange ceased to be hedge, then any gain or loss was
taken to the income statement.
From 1 January 2005, in accordance with IAS 39, financial instruments are
recorded initially at fair value. Subsequent measurement depends upon the
designation of the instrument. Foreign exchange contracts are classified as held
for trading.
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised directly
in equity and any ineffective portion is recognised immediately in the income
statement. If the cash flow hedge is a firm commitment or forecasted transaction
results in the recognition of an asset or a liability, then, at the time the
asset or liability is recognised, the associated cumulative gain or loss is
removed from equity and recognised in the income statement in the same period or
periods which the hedged forecast transaction affects profit or loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. At that
time, any cumulative gain or loss recognised in equity is transferred to net
profit or loss for the period.
The fair values of derivative financial instruments are determined based on
market forward interest and exchange rates at the balance sheet date.
The impact of this change in accounting policy is detailed in Note 8.
Share capital
Share capital is classified as a liability if it is redeemable or if dividends
are not discretionary. Dividends thereon are recognised in the income statement
as interest expense.
Dividends
Dividends on preference shares are recognised as a liability and expressed on an
accruals basis. Other dividends are recognised as a liability in the period in
which they are declared.
Net Financing Costs
Net financing costs comprise interest receivable, interest payable on borrowings
interest on pension assets and liabilities, dividends on redeemable preference
shares, foreign exchange gains and losses, and gains and losses on hedging
instruments that are recognised in the income statement.
2. Assets held for sale
On 17 June 2005 and 25 August 2005 the Group announced the sale of the Mobrey
division and Solartron division respectively. The results of the Mobrey and
Solartron divisions are shown as discontinued operations on the Consolidated
Income Statement.
At 30 June 2005 the Mobrey and Solartron divisions comprised assets (including
goodwill) of £49,054,000 and liabilities of £13,467,000. These amounts have been
classified and assets and liabilities held for sale on the balance sheet.
3. Net finance costs
6 months ended 6 months ended 12 months ended
30 June 2005 30 June 2004 31 December 2004
£’000 £’000 £’000
Interest income 24 – 5
Net foreign exchange gain – – –
Expected return on assets in 897 874 1,741
the pension scheme
921 874 1,746
Interest expense (39) (11) –
Net foreign exchange losses (47) – –
Interest charge on pension (1,048) (970) (1,935)
scheme liabilities
Net finance cost (213) (107) (189)
4. Taxation
The tax charge of £1,972,000 for the half year to 30 June 2005 reflects the
anticipated effective tax rate for the year ending 31 December 2005.
5. Dividends
The directors have declared an interim dividend of 3.4p (2004: 3.4p) payable 20
October 2005 to shareholders on the register on 23 September 2005.
6. Earnings per share
2005 2004 2004
6 months ended 6 months ended 12 months ended
30 June 30 June 31 December
£’000 £’000 £’000
Profit on ordinary activities 3,378 3,615 8,236
after taxation
Number Number Number
Weighted average number of shares 30,102,090 30,080,700 30,091,000
Diluted effect of share options 353,800 174,600 248,000
Diluted weighted average number of 30,455,890 30,255,300 30,339,000
shares
Pence Pence Pence
Basic earnings per share 11.2 12.0 27.4
Diluted earnings per share 11.1 11.9 27.1
7. Intangible assets
Concessions, Goodwill Development Total
patents, costs
licences and
trademarks £’000 £’000 £’000
£’000
Costs
Balance at 1 January 2005 573 15,555 3,772 19,900
Other acquisitions – – – 1,020 1,020
internally developed
Transferred to assets held – (12,165) (3,807) (15,972)
for sale
Effects of foreign exchange – (156) – (156)
movement
Balance at 30 June 2005 573 3,234 985 4,792
Amortisation and impairment
losses
Balance at 1 January 2005 (398) – (248) (646)
Amortisation for the period (95) – (123) (218)
Transferred to assets held
for sale – – 168 168
Balance at 30 June 2005 (493) – (203) (696)
Carrying amounts
At 30 June 2005 80 3,234 782 4096
At 31 December 2004 175 15,555 3,524 19,254
8. Reconciliation of movement Share Share Translation Capital Retained Total
in shareholders equity capital premium reserve redemption earnings
reserve
£’000 £’000 £’000 £’000 £’000 £’000
Balance at 1 January 2005 2,849 6,049 (1,077) 40,372 2,294 50,487
Impact of adoption of IAS32 and (2,280) – – – 190 (2,090)
39
At 1 January 2005 as restated 569 6,049 (1,077) 40,372 2,484 48,397
Profit for the period
attributable to equity holders – – – – 3,378 3,378
of the company
Net expense recognised directly
in equity (See Statement of – – 833 – (343) 490
Recognised Income and Expense)
Dividends to shareholders – – – – (2,288) (2,288)
Transfer to capital redemption – – – 47 (47) –
Balance at 30 June 2005 569 6,049 (244) 40,419 3,184 49,977
Balance at 1 January 2004 3,115 5,976 – 40,104 2,473 51,668
Impact of adoption of IFRS – – – – (4,115) (4,115)
At 1 January 2004 as restated 3,115 5,976 – 40,104 (1,642) 47,553
Profit for the period
attributable to equity holders – – – – 8,236 8,236
of the company
Net expense recognised directly
in equity (See Statement of – – (1,077) – (854) (1,931)
Recognised Income and Expense)
New share issue 2 73 – – – 75
Transfer to capital redemption (268) – – 268 (268) (268)
reserve
Dividends to shareholders – – – – (3,178) (3,178)
Balance at 31 December 2004 2,849 6,049 (1,077) 40,372 2,294 50,487
Appendix 1
EXPLANATION OF THE TRANSITION TO IFRS
APPLICATION OF IFRS 1
The Group’s financial statements for the year ended 31 December 2005 will be the
first annual financial statements that comply with International Financial
Reporting Standards “IFRS”. These Financial Statements have been prepared as
described in the Statement of Significant Accounting Policies – Basis of
Preparation, being the policies which the Group expects to adopt in its 2005
Consolidated Financial Statements.
The Group’s transition date is 1 January 2004. The Group prepared its opening
IFRS balance sheet as at the date. The reporting date of these Interim Financial
Statements is 30 June 2005. The Group’s IFRS adoption date is 1 January 2005.
In preparing these Interim Financial Statements, the Group has applied the
mandatory exemptions and certain of the optional exemptions from full
retrospective application of IFRS.
BASIS OF ACCOUNTING – TRANSITION TO IFRS
First time adoption of IFRS (IFRS 1)
This Standard has been issued to assist the first time adoption of IFRS. The
Standard allows alternative treatments for certain areas of the financial
statements during the initial transition period:
Business combinations
The Group has made the elective exemption that allows goodwill in respect of
acquisitions made prior to 1 January 2004 to remain as stated under UK GAAP.
IAS 38, Intangible Assets
IAS 38 requires the costs incurred on development projects that meet certain
criteria to be recognised as intangible assets in the balance sheet. The Group’s
policy under UK GAAP is to expense all such costs as they are incurred. The
application of the IAS 38 criteria results in the costs of a number of current
and recent development projects being recognised as intangible assets in the
balance sheet under IFRS. However, it has not been possible in all cases to
assess accurately whether costs expensed under UK GAAP prior to the IFRS
transition date met the IAS 38 criteria for recognition at the time they were
incurred. IFRS does not permit such assessments to be performed retrospectively
and with the benefit of hindsight, so where contemporary records were
insufficiently detailed or unavailable it has not been possible to recognise the
asset under IAS 38. Procedures are now in place to monitor research and
development projects against the IAS 38 criteria and recognise their costs as
intangible assets when they meet those criteria.
Under IAS 38, intangible assets will be amortised over their useful lives, which
for current development projects are between five and ten years. The Group does
not expect any of its intangible assets to have indefinite useful lives.
Employee benefits
IFRS requires that a balance sheet asset or liability must be shown in respect
of defined benefit pension schemes. Actuarial gains and losses arise when the
actual returns on scheme assets differ from those initially expected by the
actuary. The Group will adopt the exemption in IFRS 1 allowing all actuarial
gains and losses arising before 1 January 2004 to be shown in the opening
balance sheet at 1 January 2004. In the future, actuarial gains and losses will
be included in the Statement of Recognised Income and Expense.
Cumulative translation differences
In the Group financial statements the results of overseas subsidiaries are
translated into Sterling at the average exchange rate. The balance sheet is
translated at the closing rate. This leads to exchange gains and losses being
generated on consolidation. IFRS requires translation differences on the
revaluation of the assets and liabilities of overseas subsidiaries to be taken
directly to reserves.
On the disposal of an overseas entity, exchange differences previously taken to
reserves will be transferred to the income statement as part of the profit/loss
on disposal of that entity.
The elective exemption in IFRS 1 means that any translation differences prior to
the date of transition (1 January 2004) do not need to be analysed
retrospectively and so the deemed cumulative translation differences at this
date can be set to £nil. Thus, any cumulative translation differences arising
prior to the date of transition are excluded from any future profit/loss on
disposal of any entities. The Group will adopt this exemption.
Share-based payment (IFRS 2)
The Group has chosen to adopt the exemption whereby IFRS 2, Share-Based Payment,
is applied only to awards made after 7 November 2002.
Financial instruments (IAS 32 and 39)
The Group has chosen to adopt the exemption delaying the implementation of IAS
32, Financial Instruments: Disclosure and Presentation, and IAS 39, Financial
Instruments: Recognition and Measurement. These will be first applied in the
year ending 31 December 2005.
Presentation of financial information
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1, Presentation of Financial
Statements.
Segmentation
Under IAS 14, Segment Reporting, the Group’s existing geographical segments
reported under UK GAAP will remain the primary reported segments.
EXPLANATION OF IFRS ADJUSTMENTS
The following paragraphs explain the key adjustments made to the financial
results for the year ended 31 December 2004, in order to reflect IFRS.
Employee benefits (IAS 19)
Long term
The primary long term employee benefits are pensions, which were accounted for
under SSAP 24 with accompanying disclosures prepared using FRS 17. Under SSAP
24, the costs of providing benefits was charged against the operating profit
over the period during which the Group expected to benefit from the employees
services. The application of SSAP 24 resulted in a prepayment of £0.6m as at 31
December 2004, and this asset is eliminated as a result of the adoption of IAS
19.
The IAS 19 approach is similar to FRS 17. In summary, IAS 19 requires that the
Group’s pension deficits be recorded as balance sheet liabilities. The Group has
elected to adopt the amendment to IAS 19, which allows the impact of changes in
the actuarial value of the deficits to be recorded in the Statement of
Recognised Income and Expenses rather than the income statement. Annual charges
to the income statement will comprise service costs and a finance cost. The
following is a table summarising the main impacts of IAS 19, FRS 17 and SSAP 24
with regard to the pension schemes.
Profit and loss Profit and loss account
account 6 months ended
Year ended 31 30 June 2004
December 2004
IAS 19 SSAP24 IAS 19 SSAP 24
£’000 £’000 £’000 £’000
Defined benefit schemes
UK 992 916 497 434
US (193) 438 (184) 334
Pre-tax cost 799 1354 313 768
Balance sheet Balance sheet
31 December 2004 30 June 2004
IAS 19 FRS17 IAS 19 FRS17
£’000 £’000 £’000 £’000
Defined benefit schemes
UK (8,548) (8,548) (7,836) (7,836)
US (2,482) (2,482) (3,354) (3,354)
Deficit in the scheme (11,030) (11,030) (11,190) (11,190)
Deferred tax asset 3,507 3,507 3,626 3,626
Net pension liability (7,523) (7,523) (7,564) (7,564)
Business combinations and goodwill (IFRS 3)
A business combination occurs when one entity gains control of another. The
acquired assets and liabilities should be stated at fair value in the books of
the acquirer (if appropriate) or in the Group accounts. The excess of the
purchase price over the cost is classified as goodwill on the face of the
balance sheet in the Group accounts. Goodwill should not be amortised but should
be reviewed, at least annually, for impairment and carried in the balance sheet
at cost less any accumulated impairment losses. For goodwill already in
existence at the transition date to IFRS the goodwill amortisation already
recognised will not be adjusted. The impact on the income statement for the year
ended 31 December 2004 is that goodwill amortisation of £0.9m that was
previously charged during 2004 is now removed.
Events after the balance sheet date (IAS 10)
Under IAS 10, dividends on ordinary shares declared after the balance sheet date
should not be accrued. This is a change from the current treatment under UK
GAAP. This means that each dividend will be charged in the period in which it is
approved rather than in the period to which it relates.
Income taxes (IAS 12)
Under UK GAAP deferred tax was provided on the basis of timing differences
between accounting profit and taxable profit. IAS 12 requires that deferred
taxation is based on temporary differences between the carrying value of an
asset or liability and its tax base.
The impact of IFRS on the total tax charge to the Group’s Income Statement for
the year ended 31 December 2004 is an increase of £828,000 to £4.3m. The
effective tax rate for the Group is unchanged at 34.0%.
31.12.04 30.06.04
Tax charge Tax charge
£’000 £’000
Total tax charge under UK GAAP 3,462 1,598
Total tax charge under IFRS
Increase in deferred tax on employee 217 178
benefits
Increase in deferred tax on 611 263
capitalised development costs
Total tax charge under IFRS 4,290 2,039
The impact of IFRS on deferred tax in the balance sheet is as follows:
2004 2004
At 31 December At 30 June
£’000 £’000
Net deferred tax asset – UK GAAP 316 426
IFRS adjustments:
Deferred tax on pension deficit 3,508 3,625
Deferred tax on development costs (1,046) (711)
Rollover Gain (159) (153)
Net deferred tax asset – IFRS 2,619 3,187