RNS Number:9905J
Waterline Group plc
17 December 2007
17 DECEMBER 2007
WATERLINE GROUP PLC
(AIM: WTL)
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
The Board of Waterline Group PLC ('Waterline' or the 'Group'), one of the larger
suppliers to the fitted kitchen industry in the UK, is pleased to announce
interim results for the six months to 30 September 2007.
FINANCIAL HIGHLIGHTS
* Overall Group turnover up 5.2% to �43.5m;
* Gross margin of 24.0% compared with 23.8%;
* Profit before tax of �0.8m (2006: �0.9m) ;
* EPS of 3.58p (2006: 3.81p);
* Net assets per share of 59.0p (2006: 58.8p); and
* Current trading remains in line with expectations.
CORPORATE HIGHLIGHTS
* Integration of BDD Limited, the oldest distributor of Franke sinks and
taps in Scotland, into the Group;
* Consistent and progressive growth in Coolectric;
* "Liebherr" brand fully imbedded within the Group, with increased sales
of Liebherr products; and
* "Bluebook" 14, the industry reference book, launched in July 2007.
Waterline provides a one-stop shop for top high street kitchen brands, supplying
retailers and builders merchants. Additional services that Waterline provides to
its customers - such as training, product advice, stock management and logistics
- differentiate the Group from its competitors.
Peter Dicks, Chairman of Waterline, commented today: "Given challenging market
conditions, we are pleased with our results for the half year and are confident
of meeting market expectations for profits for the full year."
Enquiries:
Waterline Group plc 01908 219777
Michael Lawrence, Chief Executive
www.waterlinegroup.plc.uk
Daniel Stewart & Company Plc 020 7776 6550
Lindsay Mair
Bishopsgate Communications Ltd 020 7562 3350
Dominic Barretto
Sophie Davis
www.bishopsgatecommunications.com
CHIEF EXECUTIVE'S STATEMENT
The Board is pleased to deliver Waterline's interim results for the period to 30
September 2007, which are in line with our profit expectations, and demonstrate
growth in turnover of 5.2% during the period.
Operational Review
Whilst Boston Basins, Coolectric and MWD have demonstrated growth during the six
months, both Waterline and BDD faced challenging market conditions and were
behind our turnover and profit expectations. While the entry point and middle
market product sectors have made disappointing progress, this is compensated by
improving sales in the high quality products in our portfolio. Of particular
interest is the increase in sales of Liebherr refrigeration products through
Coolectric. Within the Waterline portfolio the german kitchens under our "Zimmer
" label and higher quality and higher priced appliances such as Neff, Bosch and
Falcon continue to enjoy significant growth. The Group has also experienced
growth both with MWD and Waterline with our core supplier, Franke, whose sinks
continue to be the most sought after within our sector.
During the past year, we have seen significant price increases due to raw
materials and inflationary pressures. These increases have not added
substantially to our Group trading figures which would indicate that there are
fewer kitchens being sold within our sector.
The Board also continues to look at the Group's cost structure, and will
continue to do this for the second part of the year, mindful of any further
downturn in the sector during the seasonally weak selling months of December and
January.
We have already commented on Coolectric's increased sales performance during the
first half. In addition, we look forward to the introduction of the new 2008
refrigeration, freezer and wine store products which should further increase
sales in 2008. Our cost base with regards to third party delivery of Liebherr
refrigeration has been closely scrutinised and kept within the budgetary
controls discussed in our previous years' accounts.
For 2008 we have decided not to stage our normal road show programme, held in
the spring of each year, but instead to focus on exhibiting both individually
and alongside our suppliers at the forthcoming Kitchen, Bedroom and Bathroom
Exhibition to be held at the NEC in March 2008.
Furthermore, we have established a further incentive holiday promotion for a
wider array of customers to meet increased focused targets for the period from 1
September 2007 to 30 June 2008.
Our market place has continued to be challenging during the six months ending 30
September 2007 and, due to to a combination of factors including a slowdown in
the housing market, interest rate rises and downbeat forecasts, there appears to
be little reason for the outlook to change for the better over the remaining six
months. Despite the uncertain outlook we remain confident of meeting market
expectations for profits for the full year.
Update on Waterline Group Plc
On 8 November 2007, the Independent Directors announced that they had postponed
talks with Woburn Ventures Limited to allow the Company to enter into exclusive
discussions with a third party, with a view to an offer being made for the
entire issued and to be issued share capital of the Company.
The Independent Directors subsequently confirmed on 20 November 2007 that these
discussions with the third party has terminated and that no offer will be made
from that party for the entire issued and to be issued share capital of the
Company.
Following on from the announcement made on 20 November 2007, the Independent
Directors continue to consider what options are available to the Group to
maintain the best interest of shareholders. A further announcement will be made
in due course.
MICHAEL W LAWRENCE 17 DECEMBER 2007
FINANCIAL REVIEW
The overall turnover of the Group in the period has increased by 5.2% to �43.5m.
The turnover for the kitchen and kitchen appliance businesses has grown to
�37.4m (2006: �36.6m) - representing an increase in this business of 2.1%. The
turnover for Coolectric Limited for the six month period amounted to �6.1m
(2006: �4.7m). The gross margin achieved during the six month period is 24.0%
compared with 23.8% for the six month period ending 30 September 2006. Profit
before tax is �0.8m, compared to �0.9m for the same period last year.
Basic earnings per share declined to 3.58p from 3.81p. Diluted earnings per
share were 3.56p compared with 3.75p.
Net assets per share were 59.0p per share (2006: 58.8p). Cash flow generated
�1.4m from operations. Operating profits of the Group fell by �0.1m, with the
combination of currency translation differences and profit/loss on sale of
tangible fixed assets of �0.1m and an increase in working capital requirements
for the Group of �0.2m. Overall the Group has achieved a net increase of cash of
�186,000. Net debt for the Group has decreased to �3.8m (2006: �4.0m).
The Board believes that the second half of the Group's financial year will
remain challenging in light of the level of recent interest rates and confidence
in the economy. Moreover, our business whilst not dependent on new-build does
rely on a reasonably buoyant property market. As with 2006 our growth continues
to come from products with higher price points. The low-end and middle market
products continue to be under price and margin pressure.
Accounting presentation
These accounts are being presented under IFRS for the first time. Information
showing the effect of IFRS on our financial reporting is given in the notes to
this announcement.
STEVEN J STEEL FCCA 17 DECEMBER 2007
Consolidated Income Statement (unaudited)
Six months ended Six months ended Year ended
30 September 2007 30 September 2006 31 March 2007
Unaudited Unaudited Unaudited
Notes
�'000 �'000 �'000
Revenue 43,468 41,338 83,738
Cost of sales (33,046) (31,496) (63,499)
Gross profit 10,422 9,842 20,239
Distribution costs (3,422) (3,262) (6,745)
Administrative expenses (6,370) (5,774) (12,807)
Operating profit 630 806 687
Finance income 608 494 981
Finance costs (419) (392) (762)
Profit before tax 819 908 906
Tax charge for the period (349) (410) (544)
Profit for the financial period 470 498 362
attributable to equity holders of the
parent
Earnings per share
- basic (pence per share) 4 3.58 3.81 2.77
- diluted (pence per share) 4 3.56 3.75 2.73
Consolidated Balance Sheet (unaudited)
Six months ended Six months ended Year ended
30 September 2007 30 September 2006 31 March 2007
Unaudited Unaudited Unaudited
�'000 �'000 �'000
ASSETS
Non-current assets
Property, plant and equipment 6,457 6,888 6,558
Goodwill 1,326 1,104 1,325
Other intangible assets 175 148 240
Financial assets 33 29 39
Deferred tax asset 79 14 79
8,070 8,183 8,241
Current assets
Stocks 12,830 11,425 10,526
Trade and other receivables 13,816 13,122 12,905
Other financial assets 35 - -
Cash and cash equivalents 460 156 369
Assets held for sale 181 - 181
27,322 24,703 23,981
Total assets 35,392 32,886 32,222
LIABILITIES
Current liabilities
Short-term borrowings (10,975) (9,188) (9,546)
Other financial liabilities - (106) (33)
Trade and other payables (14,398) (12,466) (13,057)
Income tax liabilities (280) (347) (195)
(25,653) (22,107) (22,831)
Net current assets 1,669 2,596 1,150
Non-current liabilities
Long-term borrowings (1,527) (2,534) (1,592)
Other payables (173) (214) (207)
Deferred tax liabilities (145) (190) (167)
Provisions (156) (128) (145)
(2,001) (3,066) (2,111)
Net assets 7,738 7,713 7,280
EQUITY
Share capital 66 66 66
Share premium 1,796 1,796 1,796
Foreign currency reserve (174) (84) (141)
Share based payment reserve 260 184 260
Other reserves 537 547 537
Retained earnings 5,253 5,204 4,762
Total equity attributable to equity 7,738 7,713 7,280
holders of the parent
Consolidated Statement of Changes in Equity (unaudited)
Share Share Foreign Merger Revaluation Share based Retained Total
capital premium currency reserve reserve payment earnings
reserve reserve
�000 �000 �000 �000 �000 �000 �000 �000
Opening equity at 66 1,796 - 56 491 184 4,676 7,269
1 April 2006
Exchange - - (84) - - - - (84)
differences on
overseas
operations
Tax on items - - - - - - 26 26
taken directly to
equity
Valuation gain to - - - - - - 4 4
equity
Net income/(loss) - - (84) - - - 30 (54)
recognised
directly in equity
Profit for the - - - - - - 498 498
period
Total recognised - - (84) - - - 528 444
income and expense
for the period
Share- based - - - - - - - -
payment charge
Issue of shares - - - - - - - -
Dividends - - - - - - - -
Equity at 30 66 1,796 (84) 56 491 184 5,204 7,713
September 2006
Consolidated Statement of Changes in Equity (unaudited) (Continued)
Share Share Foreign Merger Revaluation Share based Retained Total
capital premium currency reserve reserve payment earnings
reserve reserve
�000 �000 �000 �000 �000 �000 �000 �000
Opening equity 66 1,796 (84) 56 491 184 5,204 7,713
at 1 October
2006
Transfer of - - - - (10) - 10 -
historic
depreciation
Exchange - - (57) - - - - (57)
differences on
overseas
operations
Tax on items - - - - - - 25 25
taken directly
to equity
Valuation gain - - - - - - 20 20
to equity
Net income/ - - (57) - (10) - 55 (12)
(loss)
recognised
directly in
equity
Loss for the - - - - - - (136) (136)
period
Total recognised - - (57) - (10) - (81) (148)
income and
expense for the
period
Share- based - - - - - 76 - 76
payment charge
Issue of shares - - - - - - - -
Dividends - - - - - - (361) (361)
Equity at 31 66 1,796 (141) 56 481 260 4,762 7,280
March 2007
Consolidated Statement of Changes in Equity (unaudited) (Continued)
Share Share Foreign Merger Revaluation Share based Retained Total
capital premium currency reserve reserve payment earnings
reserve reserve
�000 �000 �000 �000 �000 �000 �000 �000
Opening equity 66 1,796 (141) 56 481 260 4,762 7,280
at 1 April 2007
Valuation loss - - - - - - (4) (4)
to equity
Exchange - - (33) - - - - (33)
differences on
overseas
operations
Tax on items - - - - - - 25 25
taken directly
to equity
Net income/ - - (33) - - - 21 (12)
(loss)
recognised
directly in
equity
Profit for the - - - - - - 470 470
period
Total recognised - - (33) - - - 491 468
income and
expense for the
period
Share- based - - - - - - - -
payment charge
Issue of shares - - - - - - - -
Dividends - - - - - - - -
Equity at 30 66 1,796 (174) 56 481 260 5,253 7,738
September 2007
Consolidated Cash Flow Statement (unaudited)
Six months ended Six months ended Year ended
30 September 2007 30 September 2006 31 March 2007
Unaudited Unaudited Unaudited
�'000 �'000 �'000
Cash flow from operating activities
Cash generated from operations 1,403 1,564 3,159
Interest received 2 6 11
Interest paid (418) (350) (762)
Taxation paid (262) (604) (902)
Net cash inflow from operating activities 725 616 1,506
Cash flow from investing activities
Proceeds from sale of property, plant and 53 126 166
equipment
Purchase of property, plant and equipment (217) (319) (515)
Purchase of subsidiary - - (221)
Net cash acquired - - (51)
Net cash outflow from investing (164) (193) (621)
activities
Cash flows from financing activities
Dividends paid - - (361)
Repayment of borrowings (103) (120) (226)
Finance lease principal repayments (272) (289) (580)
Net cash outflow from financing (375) (409) (1,167)
activities
Net increase/(decrease) in cash and cash 186 14 (282)
equivalents
Cash and cash equivalents at beginning of (1,348) (1,066) (1,066)
period
Cash and cash equivalents at end of (1,162) (1,052) (1,348)
period
Notes
1. Basis of preparation
This interim statement is unaudited and does not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985. Statutory accounts
for the year ended 31 March 2007, which were prepared on a UK Generally Accepted
Accounting Practice (UK GAAP) basis, have been filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified, did not
include references to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and did not contain a statement under
section 237(2) or (3) of the Companies Act 1985.
As from 1 April 2007, the Group is required under European Union regulation to
prepare its annual financial statements in accordance with International
Financial Reporting Standards (IFRSs) as endorsed by the European Union and
implemented in the UK. Accordingly, this is the first year when the financial
statements will be prepared under IFRS and the comparatives for 2007 are
restated from UK GAAP to comply with IFRS.
The interim financial statements have been prepared in accordance with the
accounting policies and presentation required by International Financial
Reporting Standards, incorporating International Accounting Standards ("IASs")
and Interpretations (collectively "IFRS"), which are expected to be endorsed by
the EU and applicable for use in the Company's annual financial statements for
the year ended 31 March 2008.
As IFRS is in the course of being implemented widely across the EU, practice and
interpretation in applying standards is continually evolving. The endorsed IFRS
that will be effective (or available for early adoption) in the annual financial
statements for the year ended 31 March 2008 are therefore still subject to
change and to additional interpretations, so cannot be determined with
certainty.
The interim financial statements do not include all of the information required
for full annual financial statements and do not comply with all the disclosures
in IAS 34 'Interim Financial Reporting'. Accordingly, whilst the interim
statements have been prepared in accordance with the transitional rules
governing the move from UK GAAP to IFRS they cannot be construed as being in
full compliance with IFRS.
The comparatives for the full year ended 31 March 2007 are not the Company's
full statutory accounts for that year. Comparative information for the six
months ended 30 September 2006 and for the year ended 31 March 2007 has been
restated on an IFRS basis.
2. Transition to IFRS
The date of transition to IFRS is 1 April 2006.
The adoption of IFRS has no underlying effect on the operating basis of the
Group, its strategy or management, the cash flows derived from the business or
the timing or amount of the Group's tax liabilities. Further details on the
impact of the transition are given in notes 5 and 6 and appendix A1.
3. Accounting policies
This interim statement has been prepared in accordance with the Group's IFRS
accounting policies expected to apply for the financial year to 31 March 2008,
shown in appendix A.
Prior to the adoption of IFRS the financial statements of the Group had been
prepared in accordance with United Kingdom Accounting Standards ("UK GAAP"). UK
GAAP differs in certain respects from IFRS and certain accounting, valuation and
consolidation methods have been amended, when preparing these financial
statements, to comply with IFRS. The comparative figures in respect of September
2006 and March 2007 have been restated to reflect these changes.
4. Earnings per share
Six months ended Six months ended Year ended
30 September 2007 30 September 2006 31 March 2007
Unaudited Unaudited Unaudited
As restated As restated
�'000 �'000 �'000
Numerator
Earnings used for the calculation of basic and 470 498 362
diluted EPS
Denominator
Weighted average number of shares used in the 13,113,752 13,113,752 13,113,752
basic EPS
Weighted average number of share options 123,732 185,792 181,094
Weighted average number of shares used in the 13,237,484 13,299,544 13,294,846
diluted EPS
The weighted average number of shares used in the diluted earnings per share
calculation assumes the conversion of all dilutive potential ordinary shares,
being certain outstanding share options.
5. Reconciliation of closing equity under UK GAAP to closing equity under IFRS
1 April 2006 30 September 2006 31 March 2007
Unaudited Unaudited Unaudited
�'000 �'000 �'000
Closing equity as reported under UK GAAP 7,414 7,827 7,344
IFRS adjustments:
Deferred taxation - revaluation (76) (50) (25)
Deferred taxation - share based payments (24) (45) (35)
Amortised goodwill reversed - 33 76
Financial instrument fair value adjustments (45) (71) (23)
Employee benefits - 19 -
Business combinations - - (57)
Closing equity reported under IFRS 7,269 7,713 7,280
6. Reconciliation of profit reported under UK GAAP to profit under IFRS
Six months ended Year ended
30 September 2006 31 March 2007
Unaudited Unaudited
�'000 �'000
Profit as reported under UK GAAP 497 333
IFRS Adjustments:
Deferred taxation - share based payments (21) (11)
Amortised goodwill reversed 33 76
Financial instrument fair value adjustments (30) 21
Employee benefits 19 -
Business combinations - (57)
Profit as reported under IFRS 498 362
7. Dividend
No interim dividend has been proposed for the period to 30 September 2007.
8. Distribution of interim report
This interim report is available to all shareholders on application to the
Company's registered office or from the Company's website
(www.waterlinegroup.plc.uk).
Appendix A
Principal accounting policies for the consolidated accounts
1 Accounting policies
Basis of preparation
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to
all the years presented, unless otherwise stated.
These financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs and IFRIC interpretations), as adopted by
the EU, issued by the International Accounting Standards Board (IASB) and with
those parts of the Companies Act 1985 applicable to companies preparing their
accounts under IFRS. This is the first time the company has prepared its
financial statements in accordance with IFRSs, having previously prepared its
financial statements in accordance with UK accounting standards. Details of how
the transition from UK accounting standards to IFRSs has affected the group's
reported financial position, financial performance and cash flows are given in
notes 5 and 6.
First-time adoption
In preparing these financial statements, the group has elected to apply the
following transitional arrangements permitted by IFRS 1 'First-time Adoption of
International Financial Reporting Standards':
* Business combinations effected before 1 April 2006, including those
that were accounted for using the merger method of accounting under UK
accounting standards have not been restated.
* The carrying amount of capitalised goodwill at 31 March 2006 that
arose on business combinations accounted for using the acquisition method under
UK GAAP was frozen at this amount and tested for impairment at 1 April 2006.
The carrying amount was adjusted for intangible assets that would have been
required to be recognised in the acquiree's separate financial statements in
accordance with IAS 38 'Intangible Assets', such as development costs.
* Only those exchange differences arising on the retranslation of
foreign operations since 1 April 2006 have been recognised as a separate
component of equity.
Except as noted above, the following principal accounting policies have been
applied consistently in the preparation of these financial statements:
Revenue
Revenue is the amount receivable for the provision of goods and/or services from
the ordinary activities of the Group. The Group excludes intra Group sales,
trade and early settlement discounts, value added tax and other similar sales
taxes.
Revenue from the provision of goods and/or services is recognised when the risks
and rewards of ownership of goods have been transferred to the customer. The
risks and rewards of ownership of goods are deemed to have been transferred on
receipt of a signed delivery note.
Basis of consolidation
Where the company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The
consolidated financial statements present the results of the company and its
subsidiaries ("the group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
Business combinations
The consolidated financial statements incorporate the results of business
combinations using the purchase method other than disclosed above (see
'first-time adoption'). In the consolidated balance sheet, the acquiree's
identifiable assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The results of
acquired operations are included in the consolidated income statement from the
date on which control is obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given,
liabilities assumed and equity instruments issued, plus any direct costs of
acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the income statement.
Where the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid, the excess is credited
in full to the income statement.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite useful
economic lives are undertaken annually on 31 March. Other non-financial assets
are subject to impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where the carrying
value of an asset exceeds its recoverable amount (ie the higher of value in use
and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash-generating unit
(ie the lowest group of assets in which the asset belongs for which there are
separately identifiable cash flows). Goodwill is allocated on initial
recognition to each of the group's cash-generating units that are expected to
benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in the
income statement, except to the extent they reverse gains previously recognised
in the statement of recognised income and expense.
Foreign currency
Transactions entered into by group entities in a currency other than the
currency of the primary economic environment in which it operates (the
"functional currency") are recorded at the rates ruling when the transactions
occur. Foreign currency monetary assets and liabilities are translated at the
rates ruling at the balance sheet date. Exchange differences arising on the
retranslation of unsettled monetary assets and liabilities are similarly
recognised immediately in the income statement, except for foreign currency
borrowings qualifying as a hedge of a net investment in a foreign operation.
On consolidation, the results of overseas operations are translated into
sterling at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations, including goodwill
arising on the acquisition of those operations, are translated at the rate
ruling at the balance sheet date. Exchange differences arising on translating
the opening net assets at opening rate and the results of overseas operations at
actual rate are recognised directly in equity (the "foreign exchange reserve").
On disposal of a foreign operation, the cumulative exchange differences
recognised in the foreign exchange reserve relating to that operation up to the
date of disposal are transferred to the income statement as part of the profit
or loss on disposal.
Financial assets
The group classifies its financial assets into one of the following categories,
depending on the purpose for which the asset was acquired. The group's
accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only in-the-money
derivatives. They are carried in the balance sheet at fair value with changes
in fair value recognised in the income statement. The group does not have any
assets held for trading nor does it voluntarily classify any financial assets as
being at fair value through profit or loss.
Loans and receivables: These assets are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. They
arise principally through the provision of goods and services to customers
(trade debtors), but also incorporate other types of contractual monetary asset.
They are carried at cost less any provision for impairment.
Available-for-sale: Non-derivative financial assets not included in the above
categories are classified as available-for-sale and comprise the group's
strategic investments in entities not qualifying as subsidiaries, associates or
jointly controlled entities. They are carried at fair value with changes in
fair value recognised directly in equity. Where a decline in the fair value of
an available-for-sale financial asset constitutes objective evidence of
impairment, the amount of the loss is removed from equity and recognised in the
income statement.
Financial liabilities
The group classifies its financial liabilities into one of two categories,
depending on the purpose for which the asset was acquired. The group's
accounting policy for each category is as follows:
Fair value through profit or loss: This category comprises only
out-of-the-money derivatives. They are carried in the balance sheet at fair
value with changes in fair value recognised in the income statement.
Other financial liabilities: Other financial liabilities include the following
items:
* Trade payables and other short-term monetary liabilities, which are
recognised at amortised cost.
* Bank borrowings are initially recognised at the amount advanced net of
any transaction costs directly attributable to the issue of the instrument.
Such interest bearing liabilities are subsequently measured at amortised cost
using the effective interest rate method, which ensures that any interest
expense over the period to repayment is at a constant rate on the balance of
the liability carried in the balance sheet. "Interest expense" in this
context includes initial transaction costs and premia payable on redemption,
as well as any interest or coupon payable while the liability is outstanding.
Borrowing costs
The group does not incur any interest costs that qualify for capitalisation
under IAS 23 'Borrowing Costs'.
Retirement benefits: Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the income
statement in the year to which they relate.
Share-based payments
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the income statement over the vesting period.
Non-market vesting conditions are taken into account by adjusting the number of
equity instruments expected to vest at each balance sheet date so that,
ultimately, the cumulative amount recognised over the vesting period is based on
the number of options that eventually vest. Market vesting conditions are
factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether the
market vesting conditions are satisfied. The cumulative expense is not adjusted
for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and after
the modification, is also charged to the income statement over the remaining
vesting period.
Leased assets
Where substantially all of the risks and rewards incidental to ownership of a
leased asset have been transferred to the group (a "finance lease"), the asset
is treated as if it had been purchased outright. The amount initially
recognised as an asset is the present value of the minimum lease payments
payable over the term of the lease. The corresponding lease commitment is shown
as a liability. Lease payments are analysed between capital and interest. The
interest element is charged to the income statement over the period of the lease
and is calculated so that it represents a constant proportion of the lease
liability. The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to ownership are
retained by the lessor (an "operating lease"), the total rentals payable under
the lease are charged to the income statement on a straight-line basis over the
lease term.
The land and buildings elements of property leases are considered separately for
the purposes of lease classification.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and
subsequently amortised on a straight-line basis over their useful economic
lives. The amortisation expense is included within the administrative expenses
line in the income statement.
Intangible assets are recognised on business combinations if they are separable
from the acquired entity or give rise to other contractual/legal rights. The
amounts ascribed to such intangibles are arrived at by using appropriate
valuation techniques.
The significant intangibles recognised by the group, their useful economic lives
and the methods used to determine the cost of intangibles acquired in a business
combination are as follows:
Intangible asset Useful economic life Valuation method
Non-contractual supplier 10 years Estimated discounted
relationship cash flow
Order book 1 year Multiple of estimated
Contractual relationships Term of contract revenues and profits
Estimated discounted
cash flow
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of
an asset or liability in the balance sheet differs to its tax base, except for
differences arising on:
* the initial recognition of goodwill;
* goodwill for which amortisation is not tax deductible; and
* the initial recognition of an asset or liability in a transaction
which is not a business combination and at the time of the transaction
affects neither accounting or taxable profit.
Recognition of deferred tax assets is restricted to those instances where it is
probable that taxable profit will be available against which the difference can
be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantially enacted by the balance sheet date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the group has a legally
enforceable right to offset current tax assets and liabilities and the deferred
tax assets and liabilities relate to taxes levied by the same tax authority on
either:
* the same taxable group company; or
* different group entities which intend either to settle current tax
assets and liabilities on a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future period in which significant
amounts of deferred tax assets or liabilities are expected to be settled or
recovered.
Dividends
Equity dividends are recognised when they become legally payable. In the case
of interim dividends to equity shareholders, this is when they are paid. In the
case of final dividends, this is when approved by the shareholders at the AGM.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, cost includes directly attributable costs and the
estimated present value of any future costs of dismantling and removing items.
The corresponding liability is recognised within provisions.
Previously revalued freehold land and buildings are carried at deemed cost. An
appropriate transfer is made from the revaluation reserve to the profit and loss
reserve when freehold land and buildings are expensed through the income
statement (eg through depreciation, impairment or sale). All other items of
property, plant and equipment are carried at depreciated cost.
Freehold land is not depreciated. Depreciation is provided on all other items
of property, plant and equipment to write off the carrying value of items over
their expected useful economic lives. It is applied at the following rates:
Freehold buildings - 2% per annum straight line
Leasehold land - evenly over the length of lease
Leasehold buildings - evenly over the length of the lease
Plant and machinery - 15%-25% per annum straight line
Fixtures and fittings - 20% per annum straight line
Computer equipment - 33% per annum straight line
Vehicles - 25% per annum reducing balance or
33% per annum straight line
Stocks
Stocks are initially recognised at cost, and subsequently at the lower of cost
and net realisable value. Cost comprises all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.
Weighted average cost is used to determine the cost of ordinarily
interchangeable items.
Non-current assets held for sale
Non-current assets are classified as held for sale when:
* they are available for immediate sale;
* management is committed to a plan to sell;
* it is unlikely that significant changes to the plan will be made or
that the plan will be withdrawn;
* an active programme to locate a buyer has been initiated;
* the asset is being marketed at a reasonable price in relation to its
fair value; and
* a sale is expected to complete within 12 months from the date of
classification.
Non-current assets classified as held for sale are measured at the lower of:
* their carrying amount immediately prior to being classified as held
for sale in accordance with the group's accounting policy; and
* fair value less costs to sell.
Following their classification as held for sale, non-current assets are not
depreciated.
Provisions
Provisions are recognised for liabilities of uncertain timing or amount that
have arisen as a result of past transactions and are discounted at a pre-tax
rate reflecting current market assessments of the time value of money and the
risks specific to the liability.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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