Clarity Investor Information
Annual Report and Financial Statements 2008
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- Highlights from Operations
- Chairman's Statement
- Chief Executive's Review
- Officers and Advisors
- Directors' Report
- Statement of Directors' Responsibilites
- Independent Auditors' Report
- Consolidated Income Statement for the Year Ended 31 March 2008
- Consolidated Statement of Recognised Income and Expense for the Year Ended 31 March 2008
- Consolidated Balance Sheet as at 31 March 2008
- Consolidated Cash Flow Statement for the Year Ended 31 March 2008
- Notes to the Consolidated Financial Statements
- Parent Company Balance Sheet as at 31 March 2008
- Notes to the Parent Company Accounts
- Notice of Annual General Meeting
Highlights from Operations
- Results in line with expectations as new management drives business turnaround
- Operating profit from continuing operations before exceptional items, goodwill impairment and amortisation of acquired intangibles at £413,000 (2007: £276,000 loss)
- Successful Open Offer and Placing completed in February 2008, with strong shareholder support, raising £1.78m before expenses
- Loss for the year of £10.63m (2007: £1.21m loss) inclusive of impairment of goodwill of £8.77m (2007: nil) following a detailed review
- Net debt, excluding deferred consideration reduced to £1.71m (2007: £2.32m) - bank loans reduced further, post year end, by £742,500
- Significant post year end contract wins with Universal Studios and Amsterdam Waterways
- Management optimistic of further progress over the longer term
Chairman's Statement
After a difficult start the past year has been a very positive one for Clarity and despite the challenging economic climate the Company is well placed for the coming year.
The EGM held in May 2007 was a timely wake up call to the Company and led to a number of changes, not least of which has been a continuing effort to improve communications with shareholders and to focus on improving the profitability of businesses within the Group.
In comparison to our half year results our full year results demonstrate the significant progress we have made in the past six months. Despite the substantial loss reported in the first half of the year the Company has recovered, as forecast, in the second half of the year. Revenue, recurring revenue and gross profit have all been either maintained or increased as the year progressed, whilst many costs were significantly reduced.
The Board sees further potential to make continuing improvements to the Group's businesses in the coming year and remains cautiously optimistic. Despite the difficult economic environment, the Group is in a stronger position than it was a year ago and is well placed to take advantage of opportunities in the market as they arise.
In December 2007 our founder Graham York left the Company. Graham grew Clarity through a number of very good acquisitions and the Company is well positioned to reap the benefit of these acquisitions during the coming years.
The Company's previous non-executive Chairman, Tim Bittleston, and long term Executive Director Peter Walker also left the Company during the year. Tim and Peter (along with Sir Colin Chandler) did an outstanding job preserving shareholder value during the difficult EGM process and I would like to extend to them the thanks of the Board.
In June 2007, a new Board was appointed with myself as non-executive Chairman and with Ken Smith as a non-executive Director and also part time CFO, joining Sir Colin Chandler who was appointed non-executive Deputy Chairman. In September 2007, Ken Smith was appointed an Executive Director and CEO, and in January 2008 Steve Bellamy also joined the Board as a non-executive Director. The Board have worked well together throughout the year and the complementary range of business skills available has been invaluable in formulating future strategies.
Software businesses like Clarity with a high proportion of recurring revenue offer greater opportunities to add shareholder value in difficult economic times, than service businesses, which can tend to be more volatile. The Board believes that the current software sector is poised to consolidate in the next few years and Clarity is well positioned to enhance shareholder value throughout this process as further opportunities arise.
The Board has focused primarily on building shareholder value in the software businesses within the Group as these are seen as offering the best opportunities for revenue and profitable growth and cash generation. During the year we decided to sell the two businesses within the Group that were not primarily software based, Cyntergy Services Limited (Cyntergy) and Romulus Enterprises Limited (Romulus) and these divestments were completed for cash after the year end. It was pleasing to see Cyntergy sold to a group led by Peter Walker and Tim Bittleston and we hope this will lead to a continuing association between Cyntergy and Clarity.
Although the sale of these businesses will reduce revenue for the Group, the transactions are unlikely to materially affect Group profit.
The heart of Clarity is the provision of mission critical transaction processing software to a blue chip customer base reliant on the Company to provide essential services to its customers. The Group's products can be found in a wide range of retail, leisure, hospitality and ticketing customers throughout the United Kingdom, Europe, United States and Australasian markets.
These are typically very demanding environments where customers expect a very high level of reliability and availability and Clarity consistently delivers in both respects. Continuing new business wins from well-known companies demonstrate the faith that a wide variety of customers have in the Group's products and services.
The Board is indebted to CEO Ken Smith who originally joined the Company as a non-executive Director and was subsequently appointed CEO. He has stepped up and led the Company through a difficult time, building a solid foundation for future growth.
His previous background as CFO has been perfect for consolidating and carefully managing the companies that Clarity has previously acquired and Ken has kept a keen accountant's eye on operating expenses. With the recent appointment of an interim CFO, Ken is now able to look at new opportunities that the Company's financial situation did not previously allow.
I would also like to express the Board's appreciation to the Group's employees who operate the Group's businesses and have performed so well despite its earlier difficulties. Like all software companies, all of our most valuable assets walk out the door each evening and we are fortunate to have a team of highly professional and competent staff who are well respected by customers in the markets the Company serves. The Board intends to provide management with an incentive programme that aligns their interests to those of shareholders as soon as practicably possible.
The Company successfully completed a fundraising in February 2008 raising £1.78m before expenses. This provided management and employees with the confidence to move forward and focus on meeting customer needs and enhancing shareholder returns.
On behalf of the Board I would like to thank shareholders for their patience and support during the past year. I have had the opportunity of meeting many of you over recent months and look forward to meeting you again at our AGM which we are holding on Thursday 18th September 2008 at our offices in Basingstoke.
J O'Hara
Group Chairman
Date: 13 August 2008
Chief Executive's Review
Overview
Following a very difficult trading period in 2007, and across the first half of 2008, Clarity has recovered strongly, achieving most of its objectives by the year end. Operating profit from continuing operations before exceptional expenses, amortisation, and impairment of goodwill was £413,000 (2007: loss £276,000). The Group saw a return to profitable trading in the second half of 2007/8, and in February 2008 successfully raised £1.78m following the issuance of new equity capital to strengthen the Group's balance sheet and provide additional working capital.
The Group's overall financial performance is in line with management expectations, with revenues ahead of prior year and increased gross profit.
Following the year end, in pursuit of the Board's strategy of focusing on core businesses, two businesses were divested for cash consideration, thus enabling management to concentrate on maximising the Group's expertise in providing mission critical transaction processing solutions to its highly prestigious customer base. A number of recent contract wins further underpin this strategy.
Financial highlights
Revenue from continuing operations increased slightly to £15.4m (2007: £15.3m). The previous year's revenue also included a significant one-off hardware sale, at low margin, which distorted year-on-year comparison. If the effect of this transaction is excluded, the increase in revenue year-on-year would be approximately £600,000, representing a satisfying performance in difficult circumstances, and providing comfort that Clarity can succeed in its chosen markets.
Operating expenses from continuing operations rose to £11.9m from £11.2m, partly as a result of the acquisition of Total Hospitality Solutions in the early part of the year, and a full year of MATRA trading (2007: 11 months), and partly due to the take on of a group of software specialists in Raleigh, North Carolina to complement the Retail Division's operation in Atlanta, Georgia.
Following a first half loss of £1,076,000 before amortisation and tax, the Group returned to profitability in the second half, producing profit before goodwill impairment, amortisation and tax of £1,002,000 such that the overall result for the year on this basis was approximately breakeven. Inclusive of exceptional costs, goodwill impairment, amortisation, taxation and losses of the discontinued operations, the overall reported result is a loss of £10.63m. The table below summarises the position.
| Six months to 30 September 2007 £'000 |
Six months to 31 March 2008 £'000 |
Year ended 31 March 2008 £'000 |
Year ended 31 March 2007 £'000 |
|
| Revenue continuing | 6,776 | 8,588 | 15,364 | 15,316 |
| Revenue discontinuing | 2,949 | 3,353 | 6,302 | 5,487 |
| Revenue total | 9,725 | 11,941 | 21,666 | 20,803 |
| Operating loss continuing | (1,139) | (7,021) | (8,160) | (633) |
| Operating loss discontinuing | (37) | (1,662) | (1,699) | 206 |
| Operating loss total | (1,176) | (8,683) | (9,859) | (427) |
| Finance charges | (179) | (234) | (413) | (448) |
| Add back: | ||||
| Goodwill impairment | - | 8,772 | 8,772 | - |
| Amortisation | 279 | 1,147 | 1,426 | 357 |
| Total | (1,076) | 1,002 | (74) | (518) |
Following a detailed review by the Board, the carrying value of goodwill has been impaired by £8.8m, leaving the remaining goodwill carried in the balance sheet at £9.3m. Although the write down is material, the Board, after careful consideration and appropriate professional advice, believes that the carrying values of goodwill previously recorded in the Group balance sheet can no longer be justified given the current economic climate. The treatment applied has no cash impact.
As a result of the goodwill impairment the basic loss per share for continuing operations was 35.84p per share (2007: 7.09p), and for discontinued operations was a loss of 6.69p per share (2007: earnings 1.05p).
This is the first year the Group's results have been prepared under International Financial Reporting Standards (IFRS), and this gives rise to a considerable amount of analyses and additional information. Further details were included within the Interim Announcement and are included within this Annual Report.
No dividend is proposed at this time (2007: nil).
Board and advisor changes
Since the last year end, there have been a number of changes to both the Board and the Company's advisors.
Tim Bittleston and Peter Walker retired as non-executive Chairman and Executive Director respectively during the first half of the year. Sir Colin Chandler was appointed a non-executive Director on 26 April 2007. Sir Colin's role was changed to non-executive Deputy Chairman on 26 June 2007.
John O'Hara and I were appointed to the Board on 26 June 2007 as non-executive Chairman and part-time CFO respectively. I subsequently became full-time Group Managing Director on 27 September 2007.
At the same time, Company founder Graham York, who had been Chief Executive Officer, changed his role to concentrate on strategic and M&A activities. Subsequently, in November 2007, Graham stepped down from his Executive duties, and on 23 December 2007, was removed as a Director by the remaining members of the Board. I became CEO at this juncture.
Steve Bellamy joined the Board as a non-executive Director on 16 January 2008.
Recently the Board has secured the services of an Interim CFO, a highly experienced Chartered Accountant who brings a wealth of experience to further strengthen the management team.
Complementing the new Board, recent professional appointments have included Arbuthnot Securities Limited as Nominated Advisor and Broker and Biddicks have also been appointed as financial public relations consultants.
Implementation of recovery plan
Following a very difficult period of trading in 2007, and the effects of an EGM in May 2007 which caused several problems for the Group, we set about implementing a recovery strategy designed to restore profitability, growth and cash generation.
Four separate divisions, Ticketing, Retail, Leisure and Hospitality, were established, costs reduced and management focused on key performance criteria. Business planning and monitoring was improved, and management information was produced more accurately and regularly. Software development was brought under clear control and direction, and a great many problems, mainly relating to deliveries failing to meet customer expectations were addressed.
Staff morale, which had suffered during and after the Company's difficulties, improved considerably and continues to do so.
Having increased revenues and introduced cost efficiencies, profitable trading was restored in September 2007 after five months of substantial losses in the first half of 2007/8. With support from most of our key institutional shareholders, an underwritten Placing and Open Offer was concluded in February 2008, raising £1.78m before expenses.
A strategic review was carried out during the latter part of the financial year, and concluded on 7 April 2008. We resolved to retain and enhance our focus on selling software into the leisure, retail, hospitality and ticketing markets and to divest two other non-core businesses within the Group. We decided to focus on maximising cross-selling opportunities, presenting ourselves as a leading provider of mission critical transaction processing solutions. For example, the Ticketing Division supplies ticketing software to cinemas whilst the Retail Division supplies ticketing software to a number of theme parks. Opportunities to coordinate product and commercial opportunities afforded by these similar businesses are being actively pursued.
Clarity also undertook a small restructuring with the creation of a Group-wide Solutions Delivery Group and a plan to enhance its sales and marketing function, and look for further cost efficiencies.
Following the year end, in line with declared strategy, Cyntergy, the Group's services and training subsidiary, and Romulus, a provider of business intelligence solutions, were sold for cash consideration. Details of these transactions are included in note 31 to the Financial Statements. The relationship with Cyntergy, which was sold to a group led by Peter Walker, which continues to provide key support for many of the Group's products, remains excellent, and the two management teams are working together to enhance business opportunities.
The Solutions Delivery Group was established in April 2008 with a brief to seek opportunities for cross-divisional products and services. The group achieved its first success in July 2008 with an order worth approximately €586,000 Euros plus annual maintenance from Dienst Binnenwaterbeheer Amsterdam (BBA), which is responsible for the commercial management of Amsterdam's waterways. A key feature of this order was its utilisation of technology components from both Clarity's Leisure and Retail Divisions.
With profitable trading re-established, and proceeds from the Placing and Open Offer received along with those from recent divestments, the Group's financial position has strengthened with gearing significantly reduced. In the current economic climate the Board is firmly of the view that cash generation and the reduction of net debt are key to the Group's continuing success. Firm actions are under way to deliver this result.
Divisional performance
Of the Group's Divisions, newly formed during the year, strong performances were registered in the Retail, Leisure and Ticketing operations, with Hospitality suffering from a number of historical problems and continuing difficult market conditions.
The Retail Division, comprising MATRA's UK and US operations, had a particularly strong year reflecting the strength of its management and product portfolio. Building on its existing customer portfolio, the Group added several significant clients during and after the year end.
The Division also took the opportunity to add to its capabilities by taking on, from a competitor, a group of retail specialists based in Raleigh, North Carolina. In addition to their experience in sales and technical matters, this group brought a number of customers which ensured its contribution to the Group's results from the outset. This is viewed as a significant opportunity.
Products and services
Historically, Clarity has encountered problems with product development. Although many of the concepts were sound, execution and delivery had often been areas of underperformance.
These historical problems fell to the new Board to address, and over the past year significant progress has been made in developing products which meet market requirements and customer expectations. The development group is now headed up by highly able, experienced professionals who consider issues from the customer's perspective. Although much has been achieved, a number of areas remain to be concluded, particularly in the Leisure and Ticketing Divisions where new product has taken longer to develop than had been expected. Nevertheless, with the patience of customers, Clarity will deliver on its commitments and provide comprehensive solutions to constantly changing market demands.
A key strength of the development team is its ability to provide agility and flexibility, as demonstrated in the recent order from Universal Studios (announced on 4 July 2008) where the Group, despite stiff competition, secured this important business, which leaves Clarity as the market leader in US theme parks solutions provision.
Acquisition of Total Hospitality Solutions (THS)
THS was acquired on 22 May 2007 for an initial consideration of £2.2m, satisfied by the issue of Clarity shares. Since acquisition, this unit has not performed in line with expectations and has had a relatively difficult period of trading. The distractions of the acquisition process itself and the wider Group issues resulted in a climate of uncertainty which served to slow the signing of new orders. These problems were further compounded by the requirement to integrate the company's products and services with those already existing in Clarity.
With a highly regarded product THS has recently added sales resource and is in discussions with a number of interesting prospects. THS management is working hard to obtain benefits from the obvious synergies between itself and other product offerings throughout the Group. A number of key orders have been secured over recent weeks despite a slowdown in the market.
Current trading and activities
Recent divisional performance has been reasonably good for the time of year and given the economic conditions. Traditionally, Clarity sales are slower in the first half of the year than the second. With current market uncertainty, some volatility has occurred but management initiatives are currently under way to monitor and control costs with uncertain activity levels, in order to ensure continuing profitability.
Sales resources have been added to take advantage of identified opportunities in the market and we will maintain a close watch on progress.
Marketing has historically been an area of weakness in the Group. This is currently being addressed and a strategy formulated.
As alluded to earlier, although costs were addressed during the past year, the Board is conducting an exercise to identify further areas where the Group could be more efficient.
Recent contract wins
During the year Clarity announced that it had won new contracts, including:
- Schuitema - Supply of a complete point of sale (POS) solution for one of the largest grocery chains in Holland. The FREEDOM solution will be deployed to over 3,000 lanes in all 400 supermarkets during 2008 and 2009 in a deal worth over €1m Euros. The solution will leverage FREEDOM's strong multi-channel capability to support the front lane POS, mobile and self checkout sales channels.
- Co-op Denmark - Successful deployment of the FREEDOM solution to 800 grocery stores. FREEDOM is operating their many different formats, ranging from small convenience stores through to their very large supermarkets and runs complex promotion schemes for their customer groups. MATRA and Co-op Denmark are now working together on a major new initiative due for deployment early next year.
- Flytoget - Flytoget operates the express rail service from Oslo airport to the city centre and for a number of years has used the FREEDOM solution to handle ticket sales from counters and kiosks and to operate their innovative ticketless travel concept. In a deal worth over £600,000, Clarity is delivering a complete refresh to that system using the latest version of FREEDOM and providing new innovations to Flytoget's business processes.
- Warren Theatres - Contract win for Clarity's ticketing and reservations software suites in a 20-screen cinema complex.
- Europalaces - Signing of $1m contract to supply automatic ticketing machines (ATMs) across the estate.
Following the year end, Clarity announced significant further business wins:
- Universal Studios - Contract provides for Clarity to service over 200 locations and 700 terminals across the Universal Orlando Resort, including Universal Studios theme park, the Islands of Adventure theme park, and the 30-acre CityWalk entertainment complex. The initial value of this contract is approximately £420,000 plus annual maintenance. The roll out is scheduled between September and November this year.
- BBA - Significant contract with Dienst Binnenwaterbeheer Amsterdam (BBA), which is responsible for the commercial management of Amsterdam's waterways. Clarity will supply all of BBA's sites with a central administration and point of sale (POS) solution, which will underpin the business processes associated with administering Amsterdam's waterways and the collection of associated revenues from both commercial and leisure craft. The initial value of this contract is approximately €586,000 Euros plus annual maintenance with the roll out scheduled for the second quarter of 2009.
Outlook
Despite the current uncertainty in the UK and abroad, caused by the Global economic downturn, Clarity is well placed to continue with its recent progress. The Group enjoys a high level of recurrent revenue, and a blue-chip, loyal customer base. The Board will continue to monitor market conditions very closely over the coming months but remains confident that the Group can succeed in these conditions. Clarity has already demonstrated its ability to adapt to changing conditions and has the experience to compete with less agile competitors.
The Board has placed a high degree of focus on investor relations and shareholder communication over the past year and would like to thank Clarity's owners for their patience and support during a difficult period. The Board firmly believes that the Group has delivered on its promises, and that this progress can be maintained in 2009.
KR Smith
Chief Executive Officer
Date: 13 August 2008
Officers and Advisors
Officers
John O'Hara
Chairman
Sir Colin Chandler
Deputy Chairman
Stephen Bellamy
Non-Executive Director
Ken Smith
Chief Executive Officer
Richard Arnold
Financial Controller and Company Secretary
Registered office:
Hooper House
Hatch Warren Farm
Hatch Warren Lane
Hatch Warren
Basingstoke
RG22 4RA
Registered number: 3914814
Advisors
Nominated Advisor and Broker
Arbuthnot Securities Limited
Arbuthnot House
20 Ropemaker Street
London
EC2Y 9AR
Auditors
Baker Tilly UK Audit LLP
The Clock House
140 London Road
Guildford
Surrey
GU1 1UW
Registrars
Capita Registrars Limited
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Bankers
Bank of Scotland
55 Temple Row
Birmingham
B2 5LS
Directors' Report
The Directors present their report together with the audited financial statements
for the year ended 31 March 2008
Principal activities, review of business and future development
The principal activities of the Group during the year were the provision of mission critical transaction processing and control solutions for the retail, ticketing, hospitality, leisure, business intelligence and support services sectors. The Group has offices in the UK, US, France and New Zealand.
Following the year end the Group completed the sale of two subsidiaries in line with a strategy announcement released on 7 April 2008. On 2 May 2008 the Group concluded the sale of Cyntergy Services Limited, its services division, for maximum consideration comprising £400,000 cash on completion, £100,000 cash 12 months from completion and up to £500,000 in respect of business referred to Cyntergy by the Group. As part of the sale process a service level agreement was negotiated to ensure the continuing provision of high quality support services to Clarity clients, which represents a key commercial issue moving forwards. On 1 July 2008 the Board completed a trade and asset sale of Romulus Enterprises Limited, the business intelligence software division, for £497,000 cash on completion.
Following these two divestments, the business now comprises several core software divisions, servicing the retail, ticketing, hospitality and leisure markets.
A review of the business of the Group and its future development is contained in the Group Chairman's Statement and the Chief Executive Officer's Review on pages 2 to 8 (the Board Statement).
In the early part of the financial year, on 22 May 2007 the entire share capital of Total Hospitality Solutions Limited and Total Hospitality (NZ) Limited was acquired. Both of these companies provide Property Management Systems (PMS) to the hotel sector. This acquisition further complements the Clarity product offering and also expands the Group's global presence to include Australasia.
Key performance indicators
Financial
In its day to day management of the business the Board monitors key financial performance indicators, such as; sales mix, turnover, gross profit margin, operating costs and profitability through the provision of regular monthly management information and analysis thereof.
Support and maintenance annuity revenues continue to contribute significantly to the Group and are closely monitored and controlled. Cash resources are closely managed and cash flows are frequently reviewed, both in the short and medium term.
Share price monitoring and management via effective investor relations work continues to be an important focus for the Board. Further emphasis has been placed on the importance of this work following the appointment of Arbuthnot as the Group's Nominated Advisor and Broker on 14 May 2008. The Board would like to thank previous advisors, namely, Grant Thornton UK LLP and SVS Securities plc respectively, for all their contribution to the Group's recovery.
Non-financial
The Board also continues to consider certain non-financial key performance indicators to be important in the day to day management of the Group. The quality of the Group's software products is of paramount importance and the Group runs dedicated Software Development and Quality Assurance teams to closely monitor and control the production and releases of product into the marketplace.
During the year Clarity's support services requirements were largely met by Cyntergy Services Limited, the Group's support services division. On 2 May 2008 this business was sold. The buyer's immediate intention is to continue to trade as before, at the same time bringing their expertise to bear with the aim of improving the Company's offering and generating profitable growth.
The ongoing provision of high quality and responsive after care to the Group's client base post disposal was a high priority throughout the sale negotiations. To this end, the Board, in parallel with the Sale and Purchase Agreement, entered into a Service Level Agreement to ensure that support services were maintained and that the changeover was seamless, as far as Clarity's clients were concerned. The Board is confident that a good working and commercial relationship will be maintained with the new owners of the company. In practice, Cyntergy closely monitor call volumes and clear-up rates and are continually striving to improve still further in these areas.
The Group's principal asset and resource is its wide range of talented and capable personnel. The Board is currently considering the implementation of various initiatives to appropriately reward good performance and encourage the retention of key personnel.
Certain key performance indicator analysis is commented on in the Board Statement.
Principal risks and uncertainties
The Board identifies the principal risks and uncertainties faced by the business as being:
The constant changing landscape within the markets in which Clarity operate in, in terms of consolidation of competitors and customers alike are outside the Group's control and therefore create an element of uncertainty. The Board is constantly monitoring the situation to optimise on given situations as they arise in order to minimise the Group's exposure and take advantage of opportunities. Consolidation continues to provide both upside and downside; upside in respect of new unexpected business arising and downside in terms of contracts lost as an acquiring company chooses its current incumbent in place of the Clarity solution.
The previous financial year and the first half of the current year reported on herein generated losses, which also created cash constraints and the associated pressures and difficulties. The Board addressed these difficulties in a number of ways. The Group was restructured into divisions with heightened accountability and a fundraising was successfully completed, raising the full amount of £1.78m (before expenses) in February 2008. Operating costs are also being carefully reviewed and further efficiencies are anticipated in the near future.
It is important that the Company continually respond and react to the changing needs of customers and develop market relevant products in order to remain competitive in the markets we serve.
These actions have greatly reduced and have gone a long way towards eliminating the associated business risks. Nevertheless, the overall economic climate also presents some uncertainty and there is a risk that some businesses will defer capital expenditure projects.
Dividends
No interim dividend was proposed and the Directors do not recommend the payment of a final dividend (2007: nil).
Share issues
Details of shares issued in the period are detailed in note 25 to the financial statements.
Research and development
At the year end the Group employed 65 (2007: 48) full time software developers.
In the financial year ended 31 March 2008 the Group incurred approximately £1.56m (2007: £1.20m) in research and development expenditure, which has been written off to the income statement. The Group is still operating its dedicated product centre in the Basingstoke location, incorporating product development and quality assurance functions.
The approach towards product development is changing, and in line with recent market announcements the Group is striving to closely link future development expenditure to identified customer needs. To this end, each division is required to present its business case for central development resource. This results in much more focus within the department, with development work and the associated quality assurance work having clear and identifiable relevance to customer needs. It also enables projects to be closely monitored and measured moving forwards, resulting in a devolved department whose activities are determined by divisional customer facing management.
Research and development of an innovative nature continues in order to ensure that the Group remains in line with, and where possible ahead of, its direct competitors in terms of functionality and ability to satisfy the constantly changing arena of customer requirements.
Notifiable shareholdings - compliant with AIM Rule 26
In addition to the Directors' interests described in this report, the Company is aware of the following interests of 3% or more in the issued ordinary share capital notifiable as at 11 August 2008:
| Number of ordinary shares | Percentage of issued share capital | |
| Southwind Limited | 5,177,241 | 16.07 |
| Groundlinks Limited | 2,309,667 | 7.21 |
| Prism Nominees Limited | 1,986,923 | 6.20 |
| Chase Nominees Limited | 1,737,914 | 5.43 |
| Octopus Investments Limited | 1,602,433 | 5.00 |
| BNY (OCS) Nominees Limited | 1,165,956 | 3.64 |
| Pershing Keen Nominees Limited | 1,076,927 | 3.36 |
| Mrs Christine Reeve | 997,691 | 3.11 |
In accordance with AIM Rule 26, in so far as the Company is aware, the percentage of the Company's issued share capital that is not in public hands is 17.2%.
Directors' remuneration - audited
The remuneration of the individual Directors was as follows:
| Salaries and fees | 31 March 2008 £'000 |
31 March 2007 £'000 |
|---|---|---|
| Executive Directors: | ||
| KR Smith (appointed 26 June 2007) | 99,168 | - |
| G York (retired 23 December 2007) | 238,921 | 189,280 |
| PJ Walker (retired 30 June 2007) | 89,679 | 117,465 |
| Non-executive Directors: | ||
| J O'Hara (appointed 26 June 2007) | 48,332 | - |
| Sir C Chandler (appointed 26 April 2007) | 25,532 | - |
| S Bellamy (appointed 16 January 2008) | 6,250 | - |
| T Bittleston (retired 26 June 2007) | 6,000 | 8,000 |
| JA O'Connell (retired 30 November 2006) | - | 16,000 |
| 513,882 | 330,745 |
Salary and fees are inclusive of car allowances, additional fees and bonuses attributable to the year.
In addition to the salary and fees above travel and other expenses were paid to the Director's as follows: J O'Hara £35,889; KR Smith £7,034; T Bittleston £639; Sir C Chandler £262 and S Bellamy £89.
G York and PJ Walker's salary and fees include settlement arrangements of £100,000 and £30,000 respectively in relation to termination of their employment with the Group.
The Group also made contributions in the year to personal pension plans for G York and PJ Walker in the sums of £6,875 and £8,282 respectively.
Directors and their interests
The Directors of the Company during the year, and their interests in the ordinary share capital of the Company as at 11 August 2008, were as follows:
| At 31 March 2008 | At 31 March 2007 | |
| J O'Hara (appointed 26 June 2007) | 685,775 | - |
| Sir C Chandler (appointed 26 April 2007) | 244,240 | - |
| S Bellamy (appointed 16 January 2008) | 750,000 | 46,000 |
| KR Smith (appointed 26 June 2007) | 150,000 | - |
| T Bittleston (retired 26 June 2007) | - | 42,000 |
| G York (retired 23 December 2007) | - | 3,623,343 |
| PJ Walker (retired 30 June 2007) | - | 15,443 |
Changes in the Board composition during the year were as follows:
- Sir Colin Chandler was appointed as non-executive Director on 26 April 2007.
- John O'Hara was appointed as non-executive Chairman on 26 June 2007; Tim Bittleston resigned from the role on the same date. Sir Colin Chandler assumed the role of non-executive Deputy Chairman.
- Ken Smith was also appointed on 26 June 2007 in the role of Chief Financial Officer.
- On 30 June 2007 Peter Walker resigned from the Board.
- On 27 September 2007, it was announced that Ken Smith's role had changed to Group Managing Director with Graham York changing focus towards Group strategy.
- On 29 November 2007 it was announced that Graham York had stepped down as Chief Executive Officer but remained on the Board as a non-executive Director.
- On 23 December 2007 Graham York was removed from the Board and Ken Smith assumed the role of Chief Executive Officer.
- The final change in the year saw the appointment of Stephen Bellamy, on 16 January 2008, as a non-executive Director.
The maximum share price during the year was 74p and the minimum share price was 20p.
Corporate governance
The Board recognises the importance of sound corporate governance and endorses, has adopted, and intends to comply with the main provisions of the principles of good corporate governance and code of best practice in the 2006 Combined Code issued by the Financial Reporting Council (Combined Code) to the extent that the Directors consider practical and appropriate for an AIM listed company of the size and nature of Clarity.
The Board holds regular face to face and telephone Board meetings as appropriate to discuss a range of strategic, operational and financial matters relating to the Group's corporate activities.
The already established Audit and Remuneration Committees each has formally and appropriately delegated duties and comprise the non-executive members of the Board, inclusive of the non-executive Chairman and non-executive Deputy Chairman. The Remuneration Committee is also responsible for reviewing and agreeing share options scheme rules and/or other similar schemes that are considered for implementation from time to time. Both committees meet at least twice a year.
Internal control
The Directors acknowledge their responsibilities for the Group's system of internal control. The Board considers major business and financial risks. Accepting that no system of control can provide absolute assurance against material misstatement or loss, the Directors believe that the established systems of internal control within the business are appropriate to the business. However, further improvements in respect of internal controls are required and are constantly being considered and further improvements have been implemented across the Group during the year.
The Board also pay close attention to external advisors in respect of any suggested changes in process to facilitate an improvement to internal control systems and practices.
Net debt position
The Group's net debt position at the end of the year was reduced to £1.71m (2007: £2.32m).
Following the year end bank loans were further reduced by £742,500 representing £500,000 from disposal proceeds and £242,500 from quarterly instalments.
Going concern
The Directors acknowledge that the financial year ended 31 March 2007 and the Interim Results covering the six month period to 30 September 2007 were both loss making, with a resultant net current liabilities position in the balance sheet at both points in time.
Following the strengthening of the Board across the year a key consideration has been the Group's difficult financial position that had resulted from the period of losses. As a result of the introduction of a divisional focus combined with other initiatives, the Group returned to profitable trading across the second half of the year. This profitable and cash generative trading across the second half released elements of the cash constraints the Company had faced. In addition to this, in February 2008, the Board successfully completed a Placing and Open Offer of 7,117,623 ordinary shares at 25p raising £1.78m before expenses. This event significantly improved the Group's working capital position.
Following the year end and in line with announced strategy the Board disposed of two of its non-core divisions for cash.
The entire share capital of Cyntergy Services Limited was sold on 2 May 2008 for a maximum total consideration of £1,000,000, comprising initial cash consideration of £400,000, deferred consideration of £100,000 payable after 12 months and a further maximum deferred consideration of £500,000 directly related to the value of business referrals.
On 1 July 2008 the Board completed the trade and asset sale of Romulus Enterprises Limited, with an effective date of economic transfer of 31 May 2008. The total consideration paid in cash upon completion was £497,000.
The initial proceeds from these two transactions were utilised to reduce the Group's bank term loan by £500,000 and to further improve the working capital position.
Irrespective of these fundraising initiatives, the Board continues to closely consider the issues surrounding going concern, and remains confident that sufficient steps have already been taken which, in conjunction with further planned improvements, will continue to see improvements in the short and medium term cash position.
After making enquiries and having due regard to the above, the Directors are confident that the Group has sufficient working capital for the foreseeable future and therefore remains a going concern. The financial statements have been prepared on this basis.
Service contracts
Ken Smith initially entered into a fee based contract on a time applied basis with the Company and then following full time appointment entered into an employment contract that commenced with an effective date of 1 April 2008. The salary is £150,000 per annum plus car allowance and Company pension contributions at 7.5% of salary. Bonuses are paid at the discretion of the Remuneration Committee.
The non-executive Directors have entered into letters of appointment with the Company as follows:
- John O'Hara £45,000 per annum, plus expenses and any additional fees as agreed by the Board.
- Sir Colin Chandler £25,000 per annum plus reasonable expenses.
- Stephen Bellamy £25,000 per annum plus reasonable expenses.
Creditor payment policy
The Group seeks to maintain good relations with all of its trading partners. It is the Group's policy to comply with the terms of trade agreed with each of its suppliers. As at 31 March 2008, the Group's outstanding trade payables represented 57 days purchases (2007: 59 days).
Post balance sheet events
The Group has disposed of two businesses since the year end, as described in detail above and within note 31 of the consolidated financial statements.
Annual General Meeting
At the forthcoming Annual General Meeting shareholders will be presented with a number of resolutions as laid out in the Notice of Annual General Meeting on page 54.
In Resolution 7 sub paragraph (c) shareholders are being requested to cast votes in respect of a resolution authorising the Directors to allot unissued ordinary shares up to an aggregate nominal amount of £1,783,000 of £0.25 each and such authority will expire on the period set out in that resolution.
Pursuant to the terms of an agreement entered into on 28 March 2006 between A Houldsworth, A Jacobs and others (the Sellers) (1) and the Company (2) (relating to the acquisition of the entire share capital of MATRA Systems (Holdings) Limited) the Company agreed to pay further consideration to the Sellers upon the achievement of certain performance related milestones (Further Consideration). Those milestones have substantially been met and it is anticipated that they may be exceeded by the end of the Company's current financial year. The Company and the Sellers have reached agreement as to the amount of the payment of the Further Consideration in advance of its due date, pursuant to an agreement entered into between certain of the Sellers (1) and the Company (2) in August 2008 (the Agreement), and that the Further Consideration (as defined in the Agreement) shall be satisfied by a combination of the payment of cash, the issue of Loan notes (as defined in the Agreement) and the issue and allotment of ordinary shares in the Company. Further details relating to this transaction are contained in the recent announcement. In part settlement of the Further Consideration the Company has agreed to issue to the Sellers up to 7,132,000 ordinary shares of £0.25 each credited as fully paid (the Additional Consideration Shares). The Agreement is conditional upon the Shareholders passing the resolutions contained in this notice.
The Company may in its absolute discretion reduce the number of earn out shares to be issued and settle the agreement in cash if it has the ability to do so and if the Board consider this to be in the best interests of both the Company and its Shareholders.
The Directors require authority to allot the Additional Consideration Shares in order to implement the terms of the Agreement. The Directors acknowledge that the authority to allot specified in Resolution 7(c) is approximately 9.34% of the Company's issued share capital as at the date of this notice. The Directors have considered market practice in respect of such authority and are of the opinion that the issue and allotment of the Additional Consideration Shares is in the best interests of the Company and its Shareholders. The Directors therefore seek Shareholder approval in respect of all the resolutions tabled at the meeting.
Disclosure to auditors
In the case of each person who is a Director at the time when the report is approved, the following applies:
So far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
Financial risk management
The Group's financial instruments comprise cash at bank, overdraft and bank loans. The main purpose of these financial instruments is to raise adequate finance for the Group's operations.
The main risks arising from the Group's financial instruments are interest rate fluctuations and liquidity risk. It is the Company's policy to finance its operations through a mixture of cash and borrowings and to periodically review the mix of these instruments with regard to the projected cash flow requirements of the Company and an acceptable level of risk exposure.
The Group has overseas subsidiaries where transactions, assets and liabilities are denominated in foreign currencies. At present the Group is therefore exposed to currency fluctuations arising from these sources. Details on the exposure to risks are referred to in note 30.
Auditors
Following the year end Baker Tilly UK Audit LLP were appointed as the Group's auditors. A resolution to appoint Baker Tilly UK Audit LLP as auditors will be put to the Annual General Meeting on 18 September 2008.
On behalf of the Board
KR Smith
Chief Executive Officer
Date: 13 August 2008
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
UK Company law requires the Directors to prepare group and company financial statements for each financial year. Under that law the Directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and have elected to prepare the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).
The Group financial statements are required by law and IFRS adopted by the EU to present fairly the financial position and performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.
The Company financial statements are required by law to give a true and fair view of the state of affairs of the Company.
In preparing each of the Group and Company financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- for the Group financial statements, state whether they have been prepared in accordance with IFRS adopted by the EU; and for the Company financial statements state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the Company financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the requirements of the Companies Act 1985. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Independent Auditor's Report
Independent auditor's report to the shareholders of Clarity Commerce Solutions plc
We have audited the Group and Parent Company financial statements on pages 17 to 53.
This report is made solely to the Company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and for preparing the Parent Company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.
The information in the Directors' Report includes that specific information presented in the Chairman's and Chief Executive's Statements that is cross referenced from the business review section of the Directors' Report.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Chairman's Statement, Chief Executive's Review and Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's and Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
- the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the Group's affairs as at 31 March 2008 and of its loss for the year then ended;
- the Parent Company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Parent Company's affairs as at 31 March 2008;
- the financial statements have been properly prepared in accordance with the Companies Act 1985; and
- the information given in the Directors' Report is consistent with the financial statements.
Baker Tilly UK Audit LLP
Registered Auditor
Chartered Accountants
The Clock House, 140 London Road
Guildford, Surrey GU1 1UW
Date: 13 August 2008
Consolidated Income Statement for the Year Ended 31 March 2008
| Notes | Year ended 31 March 2008 £'000 |
Year ended 31 March 2007 £'000 |
|
| Continuing operations: | |||
| Revenue | 15,364 | 15,316 | |
| Cost of sales | (3,041) | (4,358) | |
| Gross profit | 12,323 | 10,958 | |
| Operating costs: | |||
| Operating expenses | (11,910) | (11,234) | |
| Exceptional expenses | 11 | (252) | - |
| Amortisation and impairment of acquired intangible assets | (1,426) | (357) | |
| Impairment of goodwill | (6,895) | - | |
| Total operating costs | (20,483) | (11,591) | |
| Operating loss from continuing operations | (8,160) | (633) | |
| Operating loss from continuing operations is analysed between: | |||
| Operating profit/(loss) from continuing operations | 413 | (276) | |
| Exceptional expenses | 11 | (252) | - |
| Amortisation of acquired intangible assets | (1,426) | (357) | |
| Impairment of goodwill | (6,895) | - | |
| (8,160) | (633) | ||
| Finance income | 10 | 721 | 419 |
| Finance costs | 10 | (1,134) | (866) |
| Loss before taxation from continuing operations | (8,573) | (1,080) | |
| Taxation expense | 12 | (385) | (337) |
| Loss for the year from continuing operations | (8,958) | (1,417) | |
| (Loss)/profit for the year from discontinued operations | 32 | (1,671) | 210 |
| Loss for the year attributable to the equity shareholders of the parent company | 8 | (10,629) | (1,207) |
| (Loss)/earnings per share: | 13 | ||
| Basic and diluted - continuing operations | (35.84)p | (7.09)p | |
| Basic and diluted - discontinued operations | (6.69)p | 1.05p | |
| (42.53)p | (6.04)p | ||
Consolidated Statement of Recognised Income and Expense for the Year Ended 31 March 2008
| Year ended 31 March 2008 £'000 |
Year ended 31 March 2007 £'000 |
|
| Loss for the year | (10,629) | (1,207) |
| Exchange differences on translation of foreign operations | 290 | (230) |
| Total recognised expense for the year attributable to the equity shareholders of the parent company | (10,339) | (1,437) |
Consolidated Balance Sheet as at 31 March 2008
| Notes | As at 31 March 2008 £'000 |
As at 31 March 2007 £'000 |
|
| Assets: | |||
| Non current assets: | |||
| Property, plant and equipment | 15 | 351 | 556 |
| Goodwill | 14 | 8,806 | 14,506 |
| Other intangible assets | 14 | 1,458 | 1,660 |
| Trade and other receivables | - | 24 | |
| Total non current assets | 10,615 | 16,746 | |
| Current assets: | |||
| Inventories | 16 | 626 | 711 |
| Trade and other receivables | 17 | 4,969 | 5,707 |
| Cash and cash equivalents | - | 416 | |
| Blocked cash collateral account | 18 | 93 | 716 |
| Assets held for resale | 33 | 1,440 | - |
| Total current assets | 7,128 | 7,550 | |
| Total assets | 17,743 | 24,296 | |
| Liabilities: | |||
| Non current liabilities: | |||
| Bank loans | 20 | 1,048 | 1,519 |
| Loan notes | 21 | - | 326 |
| Deferred consideration | 4,066 | 1,800 | |
| Obligations under finance leases | 22 | 50 | 29 |
| Provisions | - | 41 | |
| Total non current liabilities | 5,164 | 3,715 | |
| Current liabilities: | |||
| Trade payables | 1,497 | 2,238 | |
| Other payables | 19 | 3,146 | 3,938 |
| Income tax | 426 | 484 | |
| Bank loans and overdrafts | 20 | 574 | 1,266 |
| Loan notes | 21 | 90 | 300 |
| Obligations under finance leases | 22 | 25 | 14 |
| Deferred consideration | - | 503 | |
| Liabilities linked to current assets held for resale | 33 | 1,056 | - |
| Total current liabilities | 6,814 | 8,743 | |
| Total liabilities | 11,978 | 12,458 | |
| Net assets | 5,765 | 11,838 | |
| Equity: | |||
| Shareholders' equity: | |||
| Share capital | 25 | 8,007 | 5,271 |
| Share premium | 7,576 | 7,742 | |
| Retained earnings | (11,257) | (628) | |
| Translation reserve | (257) | (547) | |
| Other reserve | 1,696 | - | |
| Total equity attributable to the equity shareholders of the parent company | 27 | 5,765 | 11,838 |
The financial statements on pages 17 to 53 were approved and authorised by the Directors on 13 August 2008 and were signed on 13 August 2008 on behalf of the Board by: KR Smith, Chief Executive Officer, Date: 13 August 2008
Consolidated Cash Flow Statement for the Year Ended 31 March 2008
| Year ended 31 March 2008 £'000 |
Year ended 31 March 2007 £'000 |
|
| Operating activities: | ||
| Operating loss | (9,832) | (565) |
| Depreciation | 174 | 194 |
| Amortisation: | ||
| Intellectual property rights | 1,399 | 357 |
| Software | 34 | 43 |
| Goodwill | 8,772 | - |
| Interest paid | (1,036) | (772) |
| Taxation | (175) | (51) |
| Operating cash flows before movements in working capital | (664) | (794) |
| Decrease/(increase) in inventories | 85 | (75) |
| Decrease in trade and other receivables | 42 | 1,984 |
| Decrease in trade and other payables | (1,162) | (1,200) |
| Cash used in operating activities | (1,699) | (85) |
| Investing activities: | ||
| Proceeds on disposal of property, plant and equipment | 298 | 8 |
| Purchase of software | - | (27) |
| Purchase of property, plant and equipment | (113) | (111) |
| Interest received | 722 | 528 |
| Payment of deferred consideration | (10) | - |
| Purchase of subsidiary undertakings net of cash acquired | (321) | (2,777) |
| Cash from/(used in) investing activities | 576 | (2,379) |
| Financing activities: | ||
| Proceeds from the issue of share capital | 1,613 | 1,817 |
| Repayment of loan notes | - | (117) |
| New bank loans | - | 2,425 |
| Repayment of bank loans | (485) | (1,339) |
| Capital element of finance leases | (15) | (7) |
| Interest element of finance leases | (4) | (4) |
| Cash generated from financing activities | 1,109 | 2,775 |
| Net (decrease)/increase in cash and cash equivalents | (14) | 311 |
| Cash and cash equivalents at the beginning of the year | (365) | (446) |
| Foreign exchange rate adjustments | 290 | (230) |
| Cash and cash equivalents at the end of the year | (89) | (365) |
Notes to the Consolidated Financial Statements
-
Reporting entity
Clarity Commerce Solutions plc is a public limited company incorporated and domiciled in England and Wales (registration number 3914814). The Company's registered address is Hooper House, Hatch Warren Farm, Hatch Warren Lane, Hatch Warren, Basingstoke, Hampshire RG22 4RA.
The Company's ordinary shares are traded on the AIM market of the London Stock Exchange plc. The consolidated financial statements of the Group for the year ended 31 March 2008 comprise the Company and its subsidiaries.
Across the year the Group was primarily involved in the provision of software solutions for ticketing, leisure, hospitality, retail, business intelligence and support services with offices in the United Kingdom, United States, France and, as a result of an acquisition in the year, New Zealand.
-
Compliance with accounting standards
At the date of authorisation of the consolidated financial statements following Standards and Interpretations which have not been applied in these consolidated financial statements were in issue but not yet effective:
- IFRS 3: Business Combinations (revised)
- IFRS 8: Operating Segments
- IFRIC 12: Service Concession Arrangements
- IFRIC 13: Customer Loyalty Programmes
- IFRIC 14: IAS 19 The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction
- IFRIC 15: Agreements for the Construction of Real Estate
- IFRIC 16: Hedges of a Net Investment in a Foreign Operation
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 and Interpretations come into effect.
-
Going concern
Having increased revenues and introduced cost efficiencies, profitable trading was restored across the second half of the year after substantial losses in the first half of 2007/8. With support from most of our large institutional shareholders, an underwritten Placing and Open Offer was concluded in February 2008, raising £1.78m before expenses.
The Directors have reviewed the projections for the forthcoming 12 month period from the date of approval of the financial information and based on the level of existing cash, projected income and expenditure, the Directors are satisfied that the Company and Group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the Financial Statements. The Directors' Report covers the subject of going concern in more detail (page 13).
-
Basis of preparation
The consolidated financial statements have, for the first time, been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together IFRS) as endorsed by the European Union.
These financial statements are presented in Sterling as that is the currency of the primary economic environment in which the Group operates.
The transitional disclosures required by IFRS 1 concerning the transition from UK Generally Accepted Accounting Principles (UK GAAP) to IFRS are set out in note 34. The date of transition to IFRS for the Group was 1 April 2006.
The Group has taken advantage of an exemption available under IFRS 1 First-time Adoption of International Financial Reporting Standards, and has elected not to apply IFRS 3 Business Combinations to the business combinations that took place before the date of transition. As a result, the carrying value of goodwill at 31 March 2006 is frozen, subject to impairment reviews thereafter in accordance with IFRS 3.
IFRS 1 First-time adoption of International Financial Reporting Standards sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The Group is required to establish its IFRS accounting policies as at 31 March 2008 and, in general, apply those retrospectively to determine the IFRS opening balance sheet at its date of transition, 1 April 2006.
Certain optional exemptions to this general principle are available under IFRS 1 and the significant first time adoption choices made by the Group are as follows:
Business combinations completed prior to 1 April 2006 have not been restated under IFRS 3 Business Combinations.
The opening fair values of property, plant and equipment have been considered to be their deemed costs as at 1 April 2006, after reviewing for impairment as appropriate.
Cumulative translation differences for all foreign operations have been set to zero as at 1 April 2006 (rather than calculate the cumulative translation differences for each foreign operation as if IAS 21 The Effects of Changes in Foreign Exchange Rates had always applied).
Intangible assets
On transition the Group has reclassified separately identifiable computer software assets from tangible to intangible assets following the provisions of IAS 38 Intangible Assets.
Expenditure on development activities resulting in new or substantially improved products which will generate future economic benefit is now capitalised and amortised over the products' useful life. Previously under UK GAAP all such development costs were expensed.
Holiday pay accruals and provisions
Under UK GAAP the Group did not recognise any accruals or provisions made for holiday pay owed to its employees in overseas subsidiaries which are required to make such accruals and provisions under local/national GAAP.
In the transition from UK GAAP to IFRS the Group has recognised these accruals and provisions in the financial statements and the adjustments are set out under the relevant income statement reconciliations.
The Group has never recognised the need to make provisions for holiday pay owed to its UK employees. From time to time, holiday pay is paid to employees when they leave a subsidiary company. The amounts are small and are not considered materially sufficient to require a provision during or at the end of an accounting period, therefore no provision has been made in the financial statements.
-
Accounting policies
The following accounting policies have been consistently applied in arriving at the consolidated financial information set out in this report.
Basis of accounting
The consolidated financial information has been prepared under the historical cost convention, in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
The trading results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balances, income and expenditure are eliminated on consolidation.
Revenues and revenue recognition
Revenue, which excludes value added tax and sales between Group companies, represents amounts derived from the provision of goods and services which fall within the Group's ordinary activities.
The Group derives its income from the following revenue streams; the sale of software licences, bespoke development projects for clients and fees derived from support services, installation and training. Each sales stream is separately identifiable and treated in the following manner:
- Software Licences: Licence fees are recognised following delivery of software to the client.
- Services: Revenue streams from installation, consultancy and training are recognised at the point at which the service or product is delivered.
- Software development: Revenue is recognised upon staged completion of the software project.
- Maintenance income: Income is recognised evenly across the duration of the contractual period.
Property, plant and equipment
The cost of property, plant and equipment less estimated residual value is written off at the following annual rates:
- Motor vehicles: 25% on reducing balance
- Office equipment: 20 - 25% on reducing balance
- Leasehold properties: 25% on reducing balance
- Freehold property: Depreciated on a straight line basis over 50 years
Intangible software rights
In accordance with IFRS 3, value has been attributed to software rights acquired since 1 April 2006, which incorporate the acquisitions of MATRA Systems (Holdings) Limited, and both Total Hospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited.
A value has been identified and attributed to software rights; no value has been attributed to other intangible assets such as customer lists or contracts.
The value of the software rights is then amortised over the estimated useful life of the software, which is considered to be five years, and the amortisation is charged separately in operating costs.
Business combinations
Under the purchase method of accounting treatment, upon initial recognition the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group's accounting policies. Goodwill is stated after separating out identifiable intangible assets.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the company's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Separately identified goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill.
Goodwill is allocated to cash-generating units for the purposes of impairment testing. The allocation is made to those cash-generating units, or groups of cash-generating units, that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in each country in which it operates.
Goodwill arising on the acquisition of overseas subsidiaries is recorded in the functional currency of the acquired subsidiary and translated into the presentation currency at the prevailing closing rate at each balance sheet date in accordance with the Group accounting policy for foreign currency.
Impairment of assets
Other intangible assets and property, plant and equipment with an indefinite useful life, and those intangible assets not yet available for use, are tested for impairment at least annually. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment of goodwill
Where the net assets exceed the value in use, an impairment is deemed to have occurred and the resultant write down in the goodwill is charged to the income statement immediately.
Leased assets
Assets held under hire purchase agreements are capitalised and disclosed under property, plant and equipment at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the income statement in equal proportions over the period of the lease.
Where the Group enters into a finance lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a finance lease. The asset is recorded in the balance sheet as a property, plant and equipment and is depreciated in accordance with the stated depreciation policies. Future instalments under such leases, net of finance charges, are included with liabilities. Rentals payable are apportioned between the finance element, which is charged to the income statement in equal proportions over the period of the lease, and the capital element which reduces the outstanding obligation for future instalments.
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against the income statement as incurred.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Trade and other receivables
Trade receivables are recognised and carried at original invoice amount less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement. The cost of unrecoverable trade receivables is recognised in the income statement immediately.
Trade payables
Trade payables are stated at fair value.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and on demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. For the purpose of the cash flow statement, cash and cash equivalents includes bank overdrafts.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Bank borrowings
Interest bearing bank loans and overdrafts are recorded as the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Non current assets held for sale
Non current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less cost to sell. They are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing usage. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a complete sale within one year from the date of classification.
Inventory
Inventory is valued at the lower of cost and net realisable value, after due allowances for obsolete and slow moving items.
Taxation
Current tax is the tax currently payable based on taxable profit for the year.
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 and joint ventures 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. 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.
The tax expense in the income statement is the sum of the current and deferred tax.
Capital instruments
Capital instruments are recorded at the fair value of the consideration received less issue costs in accordance with IAS 39.
Segmental reporting
A segment is a distinguishable component of the Group that is engaged in providing products and services. As the risks and rates of return are predominantly affected by differences in these products and services, the primary format for reporting segmental information is based on business segments.
Research and development
Development costs incurred are capitalised when all the following conditions are satisfied:
- completion of the intangible asset is technically feasible so that it will be available for use or sale;
- the Group intends to complete the intangible asset and use or sell it;
- the Group has the ability to use or sell the intangible asset;
- the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits;
- there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
- the expenditure attributable to the intangible asset during its development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed to the income statement as incurred.
The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by the Group.
Directly attributable costs include employee (except Directors) costs incurred on software development, together with associated overheads.
Amortisation commences in the month that costs are incurred, and the amortisation period is five years (being the estimated useful life of the assets). Amortisation of development costs is included within operating costs in the income statement.
Blocked cash collateral accounts
The Group has blocked cash collateral accounts which are sums of money that are specifically set aside to meet known future liabilities in respect of acquisition consideration and earn out arrangements entered into.
These sums are available to the Company exclusively for this purpose.
Foreign exchange
Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.
For the purposes of the consolidation, assets and liabilities of overseas subsidiary undertakings are translated at exchange rates ruling at the balance sheet date. Trading results are translated at the rates of exchange ruling at the end of each month. Differences arising on the retranslation of opening assets are dealt with through equity.
Share based payments
Equity-settled share based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value is expressed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of an appropriate binomial valuation method.
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Critical judgements and estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the date of the financial statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which circumstances change. Where necessary, the comparatives have been reclassified or extended from the previously reported results to take into account presentational changes.
Impairment of goodwill, intangible assets and investments
Where there is an indication that the carrying value of items in goodwill, intangible assets and investments may have been impaired through events or changes in circumstances a review will be undertaken of the recoverable amount of those assets based on a value in use calculation which will involve estimates and assumptions to be made by management (see note 14).
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Business segments
For management reporting purposes, the Group is organised into four separate divisions, each with income streams that can carry different risks and rewards. This is the basis on which the Group reports its primary segment information.
The four income streams are:
- revenue from Retail operations;
- revenue from Ticketing operations;
- revenue from Leisure operations; and
- revenue from Hospitality operations.
Segmental information for continuing operations with regard to these four income streams is presented herewith.
Year ended 31 March 2008 Retail
£'000Ticketing
£'000Leisure
£'000Hospitality
£'000Group
£'000Consolidated
£'000Revenue 5,546 5,657 1,478 2,683 15,364 Operating profit/(loss) before exceptional items (81) 1,012 775 (2,972) (6,642) (7,908) Exceptional items (252) (252) Operating loss (8,160) Net financial expense (413) Taxation expense (385) Loss for the year from continuing operations (8,958) Segment assets 5,097 11,452 2,130 2,226 (4,602) 16,303 Segment liabilities (1,931) (11,193) (699) (9,683) 17,748 (5,758) Other segment items: Capital expenditure 42 9 2 68 121 Depreciation (18) (13) (3) (58) (92) Year ended 31 March 2007 Retail
£'000Ticketing
£'000Leisure
£'000Hospitality
£'000Group
£'000Consolidated
£'000Revenue 4,403 6,342 1,351 3,220 15,316 Operating profit/(loss) before exceptional items (726) 267 339 (513) (633) Exceptional items - Operating loss (633) Net financial expense (447) Taxation expense (337) Loss for the year from continuing operations (1,417) Segment assets 3,272 7,630 1,212 5,035 7,147 24,296 Segment liabilities (1,076) (6,807) (5,978) (10,398) 15,516 (8,743) Other segment items: Capital expenditure 16 6 - 51 73 Depreciation (41) (23) (4) (47) (115) Geographic segments
Below is an analysis by geographic location.
Revenue 2008
£'000Revenue 2007
£'000Segment assets 2008
£'000Segment assets 2007
£'000Capital expenditure 2008
£'000Capital expenditure 2007
£'000United Kingdom 8,830 8,460 6,750 16,960 81 58 Europe (excluding United Kingdom ) 2,359 3,898 7,987 6,353 9 4 United States of America 3,943 2,620 1,478 983 31 11 Rest of World