Annual Report and Financial Statements 2005
- Company Overview
- Chairman's Statement
- Chief Executive's Statement
- Directors' Report
- Statement of Directors' Responsibilites
- Independent Auditors' Report
- Consolidated Profit and Loss Account for the Year Ended 31 March 2005
- Statement of Total Recognised Gains and Losses for the Year Ended 31 March 2005
- Consolidated Balance Sheet as at 31 March 2005
- Company Balance Sheet as at 31 March 2005
- Consolidated Cash Flow Statement for the Year Ended 31 March 2005
- Notes to the Financial Statements
- Officers and Advisors
Company Overview
Clarity Commerce Solutions is a leading IT solutions supplier to the global leisure industry. Clarity software and IT services clients span the entertainment, leisure and retail sectors, where our integrated solution approach delivers exceptional business value. Our international client base benefits from operational and management efficiency savings, incremental revenue generation, increased business control and improved customer service levels, all contributing to improved corporate performance.
Clarity is headquartered in the UK, with further offices in the US and Continental Europe, and we have a growing international network of commercial partners. The Company is traded on AIM, a global market operated and regulated by the London Stock Exchange, maximising our financial stability and access to market funds.
Our integrated software solutions and services are used daily by some 1,200 cinemas and leisure attractions, 1,500 pubs, bars, restaurants & hotels, and 450 leisure centres, not to mention our many high profile clients in the manufacturing, transport and retail sectors. Our experience across multiple vertical markets exposes us to a broad range of technology challenges, and has been the trigger for several innovative product developments.
Our clients, currently spread across more than 20 countries, are the beneficiaries of this cross-sector exposure.
Clarity's solutions approach is centred on our renowned Clarity Central software, our 'ERP' system for multi-operational groups. Central, allied with our many well proven market-specific software solutions, allows multi-site businesses to orchestrate their operations with a high level of efficiency, profitability, control and security.
Integral, Cognos-based business Intelligence solutions deliver renowned analysis and reporting power, and our support division adds the back-up resources clients demand, with 24/7 implementation, training and helpdesk services - in 5 languages.
Clarity Clients
Clarity Commerce Solutions' clients include: Greene King, YO! Sushi, Cineworld, National Amusements, EuroPalaces (Pathé and Gaumont), Paramount Parks, Birmingham City Council, Serco Leisure, Gleneagles, Jumeirah International, Raytheon Systems, Wisemans Dairies, Vinci, Wincor Nixdorf, TKMaxx, Mothercare and BT Expedite.
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Chairman's Statement
I am delighted to report on another successful year for Clarity Commerce Solutions. There has been continued improvement in financial performance, with sales having increased by 22% to £16.3m (2004: £13.3m) for the year ended 31 March 2005. Gross profit accelerated by 23% to £10.16m (2004: £8.27m) in the same period. Adjusted basic earnings per ordinary share were 4.03p (2004: 4.1p).
Profit before goodwill impairment and taxation was £763k (2004: £744k), including a total research and development cost of £1.6m (2004: £1m), heavily focused on the replacement of our Ticketing system solution. It is pleasing to note that the year ended 31 March 2005 was the fourth successive year of profitability and growth. During the year there has also been a series of strategic developments, which position the business strongly for ongoing profitable growth.
Revenues from existing customers represented 92% of the Group's total revenue. Recurring revenue was £6.8m representing 42% of the total (2004: £5.6m; 42%). The Group expects these recurring revenues to increase over time and provide enhanced visibility for future revenues.
Acquisitions and integration
In October 2004, Clarity acquired Baron LRMS, a company focused on solutions for leisure resorts. Its software, installed in hotels and resorts, includes specialist functionality for club membership management, golf courses and health spas, adding further depth to our leisure sector offering. Baron was the Group's sixth acquisition since listing on AIM in July 2000.
This last year has culminated in the continuing integration of the acquisitions made to date and the increasing realisation of value as Clarity benefits from significant cross-selling benefits and the ability to more rapidly access new market sectors.
During the last year, we have focused on the integration and enhancement of our software product portfolio. Clarity now provides a fully integrated solution for all the business requirements of our hospitality, ticketing and leisure sector customers. This approach has already delivered sales, such as the installation for Bracknell Forest Borough Council, which incorporates Clarity leisure software and smartcard systems alongside our hospitality and retail software.
Strategy
We are committed to delivering organic growth using the Group's existing software portfolio, based around our flagship software solution, Clarity Central. Future offerings will be based on the Microsoft .NET development platform, helping us to integrate solutions from additional acquisitions and enabling the Group to enter new market sectors and drive future growth. The Group will continue to extend its global footprint via direct and indirect sales channels.
Geographic markets
UK business continues to dominate the Group's revenue, comprising 75% of this (2004: 81%). Notable UK successes include the YO! Sushi restaurant contract, an installation of Clarity Central to support over 400 Greene King pubs, a six-month Foreign Office support services contract, further penetration in the local authority sector, and private sector contracts such as London's Reebok Sports Club.
The acquisition of Baron extends the Group's global reach, with clients such as Jumeirah International in the Middle East. Clarity's international sales have increased both through our local offices and the establishment of reseller partners in local markets, and the Group has customers in over 20 countries. In North America, there has been a concerted effort to penetrate the market for ticketing and entertainment management software, together with progress in the attractions and theme parks sector. Our European office has also been focused on growth in the existing cinema marketplace, announcing a new maintenance and support contract in April 2005 with cinema operator EuroPalaces, worth €2.4m over 3 years.
Dividend policy
No dividend is recommended for this year, as the Board has reaffirmed its dividend policy that capital should be allocated to developing products and driving future growth.
Board changes
I was delighted to accept the Board's invitation to become Chairman with effect from 7 April 2005. I look forward to leveraging my experience in growing a successful listed UK based software business internationally, having been founder, CEO and Chairman of Staffware plc, and to helping the Board achieve the Group's potential as a leader in its chosen markets.
Bob Morton stepped down as Chairman this year, having been a key figure in steering the Company through its early phases of development. The Board, on behalf of its shareholders, is extremely grateful for his invaluable contribution in these formative years.
David Shearmon, one of the founding Directors of Clarity, has indicated his intention to step down from his Board role effective as of the AGM on 25 August 2005. I am very pleased to report that David has expressed his willingness to continue with the Group in a strategic and advisory role, for which we are very appreciative.
Outlook
Clarity now offers world class software, business intelligence solutions and IT support services to the entertainment, leisure and retail sectors.
The Group is strongly positioned to capitalise on the converging market for entertainment software. Prospects in terms of new business opportunities are high, due in part to the fact that we have blue-chip customers in Europe, the Middle East and the US, who can provide reference points for new customers and in so doing, help drive further organic growth in these markets.
The Board will also seek to continue generating growth through acquisition, building on its experience of successful integration of acquisitions over the last four years.
My colleagues and I are confident that the progress reported here for last year in terms of increased revenue and profits can be sustained, based upon our current reading of our markets, competitive position and business environment generally.
John O'Connell
Group Non-Executive Chairman
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Chief Executive's Statement
2005 has been an exciting year for Clarity, with a series of key developments which position the business as a leading supplier to the global leisure industry, harness value from previous acquisitions and open up exciting sales opportunities. Our financial performance shows a significant increase in revenues through organic growth as well as through the acquisition of Baron LRMS, and we are in an excellent position to increase profitability through further penetration of the growth market sectors on which we are focusing.
Overview
Clarity is well on the way to achieving our goal of being a major supplier to the leisure industry worldwide. Our solutions span the entertainment, leisure and retail sectors, where we are building a reputation for our expertise in software, business intelligence solutions and IT support services.
The Group is continuing to expand its international sales network. Sales are increasing in the US and Europe, as well as in the Middle East and other markets through our growing network of reseller partners. Furthermore, our offices in each country are being equipped and developed as sales outlets for the wider Clarity portfolio, to ensure that international sales opportunities are maximised. The geographical split of revenues in 2005 was as follows:
- 75% to the UK (2004: 81%);
- 13% to the rest of Europe (2004: 13%);
- 11% to the US (2004: 6%); and
- 1% elsewhere (2004: nil).
One of the central drivers of this success has been our commitment to integration, structurally as well as in our approach to product development. We expect this integration to add value through improved processes and reduced costs of delivery.
In terms of our products, we are integrating our existing software portfolio, based around Clarity Central, and adopting Microsoft's .NET software development platform, as the basis for all new offerings. This integration is a palpable source of competitive advantage.
This year has demonstrated clear evidence of the benefits of cross trading across our divisions and market sectors, including:
- Completion of an integrated hospitality and ticketing solution, already attracting significant interest from cinema chains.
- Delivery of innovative solutions to local authorities in Bracknell and Bolton, which combine state-of-the-art smartcard technology with point of sale (POS) and leisure management systems.
- Increasing recognition of the value of our Business Intelligence division's solutions, as witnessed by orders from Serco Leisure and other leisure management customers.
- Integration of hospitality services with our dedicated Services division.
Research and development
Clarity remains committed to product development, which is underlined by our £1.6m investment over the year in software development and quality assurance work. During the period, a dedicated Research and Development department was established which has made substantial progress in integrating the Group's portfolio of solutions around Clarity Central, based on Microsoft's .NET platform. The .NET platform offers major advantages to Clarity and its customers and is contributing to a healthy prospect list for our software products.
Clarity's first .NET solutions are now installed with clients including YO! Sushi restaurants in the UK and Paramount Parks in the US. A few months ago we announced our intention to deliver a .NET-based ticketing solution, and now Cinemagic has become our first Ticketing division client to go live with this software.
Market sectors and operations review
Clarity's sales increasingly combine elements of software systems, business intelligence solutions and IT support services in broad ranging customer solutions.
Software
Clarity's markets can broadly be defined as the hospitality, ticketing and leisure sectors. Regardless of the specific sector where our software is installed, the benefits are constant - savings through operational and management efficiencies, revenue generation through innovative bookings systems, increased control by corporate management and improved customer service levels.
The Group provides hospitality clients, including major UK bar and restaurant groups, with transactional systems covering everything from electronic point of sale (EPOS) and staff and cash management at site level, to head office control systems. Clients include many leading industry names such as Greene King, Hall & Woodhouse Brewery, Strada and YO! Sushi.
In terms of ticketing clients, Clarity has a very strong presence in the UK and Europe, with 4 of the top 5 cinema operators using our software. Ticketing solutions encompass venue management, operation of box offices and driving sales via the internet and other third party channels. Clients include Odeon, Cine UK, UCI and EuroPalaces (Pathe and Gaumont).
Recent sales to theme parks including Paramount Parks in the U.S.A. underline the potential for sales to non-cinema attractions such as stadiums, attractions and performance venues. Cinemagic, a U.S. operator of stadium style theatres, became the first cinema customer for Clarity's .NET ticketing software (together with Clarity POS software) in May 2005.
Leisure software clients include a diverse range of operators seeking membership, bookings and facilities management systems, again with a strong focus on head office control via a central platform. Clarity continues to be a leading provider to the public sector, with Birmingham City Council and Serco Leisure running Clarity software in 60 and 50 sites respectively. Our innovative smartcard and internet bookings solutions put us in a strong position to capitalise on the growth potential of this sector.
Clarity's leisure market presence has been extended with the acquisition of Baron LRMS in October 2004. Baron is an established software supplier to hotels and leisure resorts, with strong membership management features and dedicated applications for golf courses and health spas. This has brought a prestigious private sector client list on-board, with the addition of names such as Gleneagles, St Andrews, the Reebok Sports Club (London) and Jumeirah International, the Middle East's leading hotel company. Clarity is driving software sales through an active reseller partner programme, and is achieving notable sales success in Spain following the development of a Spanish language solution.
Business Intelligence
Clarity's Business Intelligence offering follows the March 2003 acquisition of Romulus Enterprises. Sales continue to increase, with independent revenue streams developing and standardised business intelligence solutions for accounting, ERP (Enterprise Resource Planning) and HR (Human Resource) systems. Customers operate in the Group's core hospitality, ticketing and leisure markets, and increasingly in the wider retail, manufacturing, production and transport sectors.
The integration of business intelligence solutions to Clarity's core product has attracted huge interest and growing sales from existing Clarity clients in all sectors, with several new contracts, including that with Serco Leisure. This integrated offering is proving a major sales feature in all markets.
Clarity Business Intelligence division clients include Robert Wiseman Dairies plc, Raytheon Systems and JD Wetherspoon, and the Group is now accredited to sell and implement the Cognos Enterprise Planning suite. The number and type of training courses run in partnership with Cognos have also been extended, with strong client attendances driving additional revenues.
Services
Clarity acquired our Services division in 2003, offering helpdesk and training services to support clients across the retail and hospitality markets, as well as providing support to Clarity's existing software clients. It operates on a full-time, 24-hour basis and provides support in five languages. New sales during the period include a one year rolling contract to provide first level helpdesk services to Warnaco for their 25 European Calvin Klein and Speedo retail outlets, a contract supporting 600 network connections for TFM's clients including Travelodge, Officers Club, Co-op, Uniqlo and H&M, and supporting 70 major Jarvis Hotels on behalf of ATM, as well as multiple contracts with Wincor Nixdorf.
A six month Foreign Office contract involved implementation and training services to support Visa payment processing software, with on-site training delivered in 140 Visa offices, worldwide. Further training contracts included supporting a hotel software rollout for Travelodge, providing training resources to other major hotel groups including De Vere and Hilton, and introducing new customer booking software to staff from approximately 500 Specsavers stores.
We have recently announced that BT Expedite, the retail software division of BT, has awarded Clarity's Services division a five year contract to the value of £2 million for the provision of helpdesk services to one of its major high street retail clients.
People
Clarity has the benefit of a highly talented and loyal workforce, delivering that rare combination of new sales together with improved customer service levels. The Board would like to thank all members of our team for their magnificent contribution to the continued success of the Group.
The challenges of integration are also generating opportunities to 'grow' people into new roles, and we are helping and training employees to seize these opportunities. The move to integrate our software based on the Microsoft .NET platform demands a sharp learning curve from our development team, to which we have recruited a number of key new members. For other staff there are equally exciting challenges, with the shift from a divisional focus to a much broader and more integrated sales effort to maximise cross-selling opportunities.
Clarity owes Bob Morton, who has relinquished his role as Chairman, an enormous debt of gratitude. He has presided over a pivotal phase of the Group's development, and remains an active shareholder with a strong relationship with the Board.
John O'Connell has been appointed as Clarity's Non-Executive Chairman, and I welcome his arrival. John was founder, Chairman and CEO of Staffware plc. His contacts and knowledge gained from the successful development of Staffware and its partner-based sales strategy will be of great benefit to Clarity.
Finally, David Shearmon, one of the founding Directors of Clarity, has indicated his intention to step down from the Board. He will continue in a strategic and advisory role; functionally he will work with the CTO and CEO on specific aspects of software development and the technical implications of acquisitions.
David has been instrumental in helping the Group achieve its aims, and the Board would like to thank him for his dedication and loyalty over the past 12 years. These changes to his circumstances are made with the Board's support, and are designed to satisfy the Board's continuing need for David's abilities.
Summary
Clarity has achieved continued growth in the past year, but more significantly I believe, has made huge strides forward in integrating and developing our products to capitalise on our strengths and the opportunities a converging market presents. Our acquisitions have been embedded in the business and are performing increasingly well. New sales are being generated on the basis of Clarity's capability to provide broad ranging solutions encompassing software, business intelligence and IT services elements.
We have invested significant effort and resources to migrate our software to the Microsoft .NET platform, and this process continues apace. The move to .NET will stand us in excellent stead in the long term, offering clear advantages to our clients as we deliver next generation solutions that take their business to new levels. Together with this investment, we have a well-established and dedicated team of people that are relishing the prospect of developing, selling and delivering such innovative business solutions.
We continue to pursue our goal of establishing Clarity as a leading IT supplier to the global leisure industry, and look forward to further growth in 2005/2006.
Graham York
Group Chief Executive
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Director's Report
The Directors present their report together with the financial statements for the year ended 31 March 2005.
Principal activities, review of business and future development
The principal activities of the Group are the provision of software solutions for ticketing, leisure, hospitality, business intelligence and support services, with offices in the UK, US, France and Germany.
A review of the business of the Group and its future development is contained in the Group Chairman's Statement and the Group Chief Executive's Statement. On 29 October 2004 the entire share capital of Baron LRMS was acquired. Baron provide IT solutions to the golf and spas marketplace. Details of the acquisition can be found in note 31.
Dividends
No interim dividend was proposed and the Directors do not recommend the payment of a final dividend (2004: nil).
Research and development
At the year end the Group employed the services of 33 full time software developers. In the financial year ended 31 March 2005 the Group incurred approximately £1,600,000 (2004: £1,000,000) in research and development expenditure, which has been written off to the profit and loss account. The Group incurred 12 months expenditure in respect of the US based development team (2004: 8 months).
This development work, using the Microsoft .NET platform, will provide the Group and its clients with significant advantages. This step change in our product, based on the use of Web Services, allows Clarity to offer a single, modular integrated solution that meets the needs of its clients across all its market verticals.
The choice of a Web Services based approach provides the option to easily integrate with external systems and 3rd party products through the use of integration standards such as XML.
In addition to the existing US development team, a new dedicated software development team has been formed at the new Basingstoke office. Combined with the market and product experience of the existing staff and leading edge technical skills of the new staff, Clarity now has the resources it needs to continue with its innovative research and development programme.
Directors and their interests
The Directors of the Company during the year and their interests in the ordinary share capital of the Company, were as follows:
| At 31 March 2005 | At 31 March 2004 | |
|---|---|---|
| ALR Morton | 891,667 | 891,667 |
| G York | 3,527,839 | 3,488,494 |
| DFJ Shearmon | 155,951 | 161,394 |
| PJ Walker | 5,443 | 5,443 |
In addition 1,343,331 shares are held by Groundlinks Limited as detailed below (2004: Southwind Limited 1,343,331). Groundlinks Limited and Southwind Limited are investment companies wholly owned by trusts settled by ALR Morton.
ALR Morton retired as Non-Executive Chairman on 7 April 2005 and JA O'Connell was appointed as Non-Executive Chairman on the same date. JA O'Connell purchased 50,000 shares on 13 April 2005.
At the end of the year PJ Walker and DFJ Shearmon held options over 150,375 ordinary shares and 100,000 ordinary shares respectively at an exercise price of 66.5p per share. The market price of the shares at 31 March 2005 was 66.5p. The maximum share price during the year was 72.5p and the minimum share price was 58.5p.
Notifiable shareholdings
In addition to the interests described above, the Company is aware of the following interests of 3% or more in the issued share capital of the Company notifiable as at 31 March 2005:
| Number of ordinary shares | Percentage of issued share capital | |
|---|---|---|
| Isis Asset Management | 2,540,600 | 15.55 |
| Groundlinks Limited | 1,343,331 | 8.22 |
| Herald Investment Trust plc | 1,165,956 | 7.14 |
| Matrix Eventure Fund VCT plc | 520,000 | 3.18 |
| Michael J Stedman | 516,038 | 3.16 |
| Close Bros Aim VCT plc | 514,522 | 3.15 |
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 prepared by the Committee on Corporate Governance and adopted by the UK Listing Authority (the "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 meets regularly to discuss operational and strategic matters relating to the Group's activities. The Board has established Audit and Remuneration Committees, each having formally delegated duties and responsibilities. Both committees comprise the Group's Non-Executive Chairman and will include any further Non-Executive Directors on appointment and will meet not less than 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. Further improvements in respect of internal controls are constantly being considered and further improvements have been implemented across the Group during the year.
Going concern
After making enquiries, the Directors have formed a judgement at the time of approving the financial statements that there is an expectation that the Group has adequate resources to continue its operations for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Directors' remuneration
The remuneration of the individual Directors was as follows:
| Salary and fees £ |
Benefits in kind £ |
As at 31 March 2005 Total £ |
As at 31 March 2004 Total £ |
|
|---|---|---|---|---|
| Executive Directors: | ||||
| G York | 171,000 | 35,202 | 206,202 | 146,799 |
| DFJ Shearmon | 80,000 | 13,656 | 93,656 | 92,091 |
| PJ Walker | 112,800 | 2,078 | 114,878 | 88,643 |
| Non-Executive Directors: | ||||
| ALR Morton | 20,000 | - | 20,000 | 20,000 |
| 383,800 | 50,936 | 434,736 | 347,533 |
In addition to the above the Group made contributions to personal pension plans for G York of £7,500, PJ Walker of £4,612 and DFJ Shearmon £4,000.
Service contracts
G York, DFJ Shearmon and PJ Walker have service agreements with the Company which they entered into on 18 July 2000.
A salary review, effective from 1 April 2004, resulted in revised salary levels of £165,000 and £107,800 for G York and PJ Walker respectively. DFJ Shearmon's remuneration for the year was £80,000.
DFJ Shearmon will be retiring from the Board of Directors at the conclusion of the AGM and has accordingly given notice to the Company that he will not be offering himself up for re-election.
ALR Morton retired from his position as Non-Executive Chariman on 7 April 2005 and JA O'Connell was appointed on the same date. JA O'Connell has entered into a service agreement with the Company for an initial term of two years, with a notice period for both parties of three months. The remuneration in respect of JA O'Connell's services is £24,000 per annum plus disbursements.
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 2005, the Group's outstanding trade creditors represented 45 days purchase (2004: 46 days).
European monetary union
The introduction of the Euro has had minimal impact on the Group and has been handled adequately by its systems.
Auditors
A resolution to re-appoint Solomon Hare Audit LLP as the Company's auditor will be put to the Annual General Meeting. On 27 May 2005 Solomon Hare LLP changed its name to Solomon Hare Audit LLP.
On behalf of the Board
G York: Group Chief Executive
JA O'Connell: Group Non-Executive Chairman
Date: 22 July 2005
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Statement of Directors' Responsibilites
The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that period. The financial statements have been prepared on a going concern basis.
Following discussions with the auditors the Directors consider that in preparing the financial statements the Company and the Group have used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all accounting standards, which they consider to be applicable, have been followed.
The Directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and which enable them to ensure that the financial statements comply with the Companies Act 1985. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and the Group and to prevent and detect fraud and other irregularities.
G York
Group Chief Executive
Date: 22 July 2005
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Independent Auditors' Report
Independent Auditors' Report to the Shareholders of Clarity Commerce Solutions plc
We have audited the financial statements of Clarity Commerce Solutions plc for the year ended 31 March 2005 which comprise the Profit and Loss Account, the Balance Sheets, the Statement of Total Recognised Gains and Losses, the Cash Flow Statement and the related notes. These financial statements have been prepared under the historical cost convention and the accounting policies set out therein.
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
As set out in the Statement of Directors' Responsibilities, the Company's Directors are responsible for the preparation of the financial statements in accordance with applicable law and United Kingdom Accounting Standards. It is our responsibility to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if 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 transactions with the Company and Group is not disclosed.
We read other information contained within the Annual Report, and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors' Report, the Chairman's Statement and the Group Chief Executive's Review. 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. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group's corporate governance procedures or the risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards 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 judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's and Group'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 financial statements give a true and fair view of the state of the Company's and Group's affairs as at 31 March 2005 and of the Group's profit for the year then ended, and have been properly prepared in accordance with the Companies Act 1985.
Solomon Hare Audit LLP
Registered Auditors, Chartered Accountants, Oakfield House, Oakfield Grove,
Clifton, Bristol BS8 2BN
Date: 22 July 2005
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Consolidated Profit and Loss Account for the Year Ended 31 March 2005
| Notes | Year ended 31 March 2005 £'000 |
Year ended 31 March 2004 £'000 |
|
|---|---|---|---|
| Turnover | 2 | ||
| - continuing operations | 15,851 | 13,325 | |
| - acquisitions | 459 | - | |
| 16,310 | 13,325 | ||
| Cost of sales | (6,155) | (5,052) | |
| Gross profit | 10,155 | 8,273 | |
| Operating costs | (9,486) | (7,680) | |
| Operating profit | 3 | 669 | 593 |
| Operating profit/(loss) split between: | |||
| - continuing operations | 648 | 593 | |
| - acquisitions | 21 | - | |
| 669 | 593 | ||
| Operating profit from continuing operations before impairment of goodwill | 898 | 826 | |
| Continuing operations - impairment of goodwill | 8 | (250) | (233) |
| Operating profit from acquired operations | 21 | - | |
| Operating profit after impairment of goodwill | 669 | 593 | |
| Interest receivable | 596 | 322 | |
| Interest payable | 5 | (752) | (404) |
| (156) | (82) | ||
| Profit on ordinary activities before taxation | 513 | 511 | |
| Taxation on profit on ordinary activities | 6 | (120) | (131) |
| Retained profit for the year | 24 | 393 | 380 |
| Profit on ordinary activities before impairment of goodwill and taxation | 763 | 744 | |
| Impairment of goodwill | (250) | (233) | |
| Profit on ordinary activities before taxation | 513 | 511 | |
| Profit per ordinary share | 7 | ||
| - basic | 2.46p | 2.54p | |
| - diluted | 2.36p | 2.49p | |
| - adjusted basic | 4.03p | 4.10p | |
| Dividends per share | - | - |
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Statement of Total Recognised Gains and Losses for the Year Ended 31 March 2005
| Year ended 31 March 2005 £'000 |
Year ended 31 March 2004 £'000 |
|
|---|---|---|
| Profit for the financial year | 393 | 380 |
| Foreign exchange adjustment | (42) | (158) |
| Total gains and losses recognised since the last annual report | 351 | 222 |
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Consolidated Balance Sheet as at 31 March 2005
| Notes | As at 31 March 2005 £'000 |
As at 31 March 2004 £'000 |
|||
|---|---|---|---|---|---|
| Fixed assets | |||||
| Intangible assets | 8 | 11,163 | 10,322 | ||
| Tangible assets | 9 | 530 | 518 | ||
| 11,693 | 10,840 | ||||
| Current assets | |||||
| Stocks | 11 | 628 | 501 | ||
| Debtors | 12 | 4,767 | 4,023 | ||
| Cash at bank and in hand | 13 | 1,334 | 2,122 | ||
| 6,729 | 6,646 | ||||
| Creditors: amounts falling due within one year | 14 | (6,745) | (5,973) | ||
| Net current (liabilities) / assets | (16) | 673 | |||
| Total assets less current liabilities | 11,677 | 11,513 | |||
| Creditors: amounts falling due after more than one year | 15 | (2,332) | (2,492) | ||
| Net assets | 9,345 | 9,021 | |||
| Capital and reserves | |||||
| Called up share capital | 21 | 4,084 | 3,985 | ||
| Share premium account | 23 | 5,832 | 5,833 | ||
| Shares to be issued | 25 | - | 125 | ||
| Profit and loss account | 24 | (571) | (922) | ||
| Equity shareholders' funds | 24 | 9,345 | 9,021 | ||
Approved by the Board of Directors on 22 July 2005
G York
Group Chief Executive
PJ Walker
Director
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Company Balance Sheet as at 31 March 2005
| Notes | As at 31 March 2005 £'000 |
As at 31 March 2004 £'000 |
|||
|---|---|---|---|---|---|
| Fixed assets | |||||
| Investment in subsidiary undertakings | 10 | 12,373 | 11,973 | ||
| Current assets | |||||
| Debtors | 12 | 190 | 1,855 | ||
| Cash at bank and in hand | 13 | - | - | ||
| 190 | 1,855 | ||||
| Creditors: amounts falling due within one year | 14 | (4,298) | (3,064) | ||
| Net current liabilities | (4,108) | (1,209) | |||
| Total assets less current liabilities | 8,265 | 10,764 | |||
| Creditors: amounts falling due after more than one year | 15 | (2,281) | (2,439) | ||
| Net assets | 5,984 | 8,325 | |||
| Capital and reserves | |||||
| Called up share capital | 21 | 4,084 | 3,985 | ||
| Share premium account | 23 | 5,974 | 5,833 | ||
| Shares to be issued | 25 | - | 125 | ||
| Profit and loss account | 24 | (4,074) | (1,618) | ||
| Equity shareholders' funds | 24 | 5,984 | 8,325 | ||
Approved by the Board of Directors on 22 July 2005
G York
Group Chief Executive
PJ Walker
Director
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Consolidated Cash Flow Statement for the Year Ended 31 March 2005
| Notes | Year ended 31 March 2005 £'000 |
Year ended 31 March 2004 £'000 |
|
|---|---|---|---|
| Net cash inflow from operating activities | 28 | 490 | 2,290 |
| Returns on investments and servicing of finance | |||
| Interest received | 596 | 322 | |
| Interest paid | (683) | (396) | |
| Interest element of hire purchase and finance leases | (5) | (8) | |
| Net cash outflow from returns on investments and servicing of finance | (92) | (82) | |
| Taxation | 0 | (161) | |
| Capital expenditure and financial investment | |||
| Purchase of tangible fixed assets | (105) | (151) | |
| Sale of tangible fixed assets | 12 | 41 | |
| Net cash (outflow) from capital expenditure and financial investment | (93) | (110) | |
| Acquisitions | |||
| Purchase of subsidiary undertakings | (112) | (2,989) | |
| Cash at bank acquired with subsidiaries | (24) | 767 | |
| Net cash outflow from acquisitions | (136) | (2,222) | |
| Net cash inflow / (outflow) before management of liquid resources and financing | 169 | (285) | |
| Management of liquid resources | |||
| Movement in blocked cash collateral account | 248 | (118) | |
| Financing | |||
| Issue of share capital (net of costs) | 750 | ||
| New secured loan | 1,540 | ||
| Repayment of loan notes | (622) | (110) | |
| Capital element of finance leases | (32) | (32) | |
| Bank loan repayments | (303) | (194) | |
| Net cash (outflow) / inflow from financing | (957) | 1,954 | |
| (Decrease) / increase in cash | 29 | (540) | 1,551 |
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Notes to 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 applicable accounting standards.
-
Basis of consolidation
The Group financial statements consolidate the audited financial statements of the Company and all its subsidiaries made up to 31 March 2005. The acquisition method of accounting is used and the results of subsidiary undertakings are included from the date of acquisition.
-
Turnover and revenue recognition
Turnover, 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 completion of the software project.
Maintenance income
Income is recognised evenly across the duration of the contractual period.
-
Tangible fixed assets and depreciation
The cost of tangible fixed assets less estimated residual value is written off using the reducing balance method at the following annual rates:
Motor vehicles - 25% on reducing balance
Office equipment - 20 - 25% on reducing balance
Freehold property is depreciated on a straight line basis over 50 years.
-
Software rights
Costs incurred in respect of software rights are capitalised and amortised over the estimated useful life of the software, which is considered to be five years.
-
Goodwill
Goodwill represents the difference between the fair value of the net assets of subsidiary undertakings at the date of acquisition and their purchase price.
Goodwill is assumed to have an indefinite life and the financial statements therefore depart from the specific requirements of the Companies Act 1985 schedule 4: 21 to amortise goodwill over a finite life in order to give a true and fair value. The departure is in compliance with FRS10 - Goodwill and Intangible Assets.
In arriving at this policy the Directors consider a number of areas inclusive of the nature of the business, the durability of the product range and the continued expansive nature of the Group. Each acquisition is assessed with reference to the quality and sustainability of the product range, the quality of the customer base and the potential for development and continuation of long-term relationships and the ability to develop value for the Group across the product portfolio and network of offices.
Goodwill is subject to an annual impairment review and whenever events or changes in circumstances indicate that the carrying value may not be recoverable an impairment charge is reflected in the profit and loss account.
Impairment of goodwill is evaluated by comparing the present value of the expected future cash flows, excluding finance and tax (the "value in use"), to the carrying value of the underlying net assets and goodwill. If the net assets and goodwill were to exceed the value in use, an impairment would have deemed to have occurred and the resultant write down in the goodwill would be charged to the profit and loss account immediately.
The Directors have undertaken a detailed review of each area of the business and have as a result of this review concluded that an impairment of goodwill has taken place. The resultant charge to the profit and loss account for the year ended 31 March 2005 is £250,000 (2004: £233,000). This relates to the goodwill arising from the acquisition of Microtrain, the training and implementation arm of the Group, which has seen operations combined with the other service providers within the Group and has not traded in the year.
-
Investments
Investments held as fixed assets are carried at cost less any provision required for impairment.
-
Stocks
Stocks are valued at lower of cost and net realisable value, after due allowances for obsolete and slow moving items.
-
Deferred taxation
Full provision is made, under the liability method, to take account of timing differences between the treatment of certain items for financial statements purposes and their treatment for tax purposes. Deferred tax assets are recognised to the extent that it is more likely than not that they will be recovered. The deferred tax balance is not discounted.
-
Hire purchase agreements
Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the profit and loss account in equal proportions over the period of the lease.
-
Finance lease agreements
Where the Group enters into a 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 tangible fixed asset and is depreciated in accordance with the above depreciation policies. Future instalments under such leases, net of finance charges, are included with creditors. Rentals payable are apportioned between the finance element, which is charged to the profit and loss account in equal proportions over the period of the lease, and the capital element which reduces the outstanding obligation for future instalments.
-
Operating lease agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against the profit and loss account as incurred.
-
Capital instruments
Capital instruments are recorded at the fair value of the consideration received less issue costs in accordance Financial Reporting Standard 4 - Capital Instruments. The difference between the net proceeds of the issue and the total amount of payments that the issuer may be required to make is recorded as a finance cost of the instrument. Finance costs are written off to the profit and loss account over the period of the relevant instrument in proportion to the remaining debt outstanding.
-
Research and development
Research and development costs are written off as incurred.
-
Liquid resources
Liquid resources are current asset investments held as readily disposable stores of value which are readily convertible into known amounts of cash at or close to their carrying amounts.
-
Foreign currencies
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 reserves.
-
-
Segmental information
The turnover and profit before tax are attributable to the principal activities of the Group. £12,233,000 (2004: £10,744,000) of turnover is attributable to customers within the UK and approximately £2,120,000 (2004: £1,717,000) is attributable to customers in Europe, with £1,794,000 (2004: £864,000) attributable to the United States and £163,000 (2004: nil) attributable to other countries. Turnover by destination and origin are not materially different. Profit arises in the UK of £711,000 (2004: £617,000), Europe £559,000 (2004: £302,000) and the US loss of £757,000 (2004: £408,000). As at 31 March 2005 the net assets attributable to the UK, Europe and US were £9,778,000 (2004: £9,196,000), £770,000 (2004: £273,000), net liabilities £1,061,000 (2004: £448,000) respectively.
-
Operating profit
This is stated after charging: Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000Depreciation of tangible fixed assets - owned assets 130 80 Depreciation of tangible fixed assets - leased assets 14 10 Impairment of goodwill 250 233 Amortisation of software rights 57 39 Auditors' remuneration 61 44 Auditors' non audit remuneration 2 51 Secondary auditors' remuneration for audit of subsidiary undertaking 45 18 Directors' remuneration 435 348 Rentals payable under operating leases - property 159 83 Rentals payable under operating leases - other 177 241 Profit on sale of fixed assets (4) - Non-audit services provided by the auditors are reviewed by the Board of Directors to ensure that the independence of the auditors is not compromised.
Remuneration of the highest paid Director for the year ended 31 March 2005 was £206,202 (2004: £146,799).
Research and development expenditure incurred during the year was approximately £1,600,000 (2004; £1,000,000).
Included within the following categories are amounts relating to acquired operations:
Year ended 31 March 2005
£'000Cost of sales 113 Operating costs 325 -
Employment costs
Employment costs (including Executive Directors) were as follows:
Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000Wages and salaries 5,501 5,234 Social security costs 833 664 6,334 5,898 The average number of persons employed (including Executive Directors) was: Number Number Production 32 29 Sales 14 11 Administration 27 28 Installation and support 118 110 191 178 Details of Directors' remuneration are given in note 3.
-
Interest payable and similar charges
Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000Bank loans and overdrafts wholly repayable within five years 671 357 Finance leases and hire purchase interest 5 23 Loan note interest 76 24 752 404 -
Taxation on profit on ordinary activities
-
UK Corporation tax on profit for the year
Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000Current tax UK corporation tax on profit in year 55 78 Overseas taxation 65 58 Adjustments in respect of previous periods - (12) Tax on profit on ordinary activities 120 124 Deferred tax charge - 7 Total tax charge for the year 120 131 -
Factors affecting tax charge for the year
The tax rate for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below:
Year ended 31 March 2005
%Year ended 31 March 2004
%Standard rate of corporation tax in the UK 30 30 Effects of: Difference between depreciation and capital allowances (3) (6) Expenditure not deductible (8) 7 Short term timing differences 8 - Reduction to small companies rate (1) (1) Adjustments in respect of previous periods - (2) Utilisation of losses (2) (3) Current tax rate for the year 24 25 -
Factors that may affect future tax charges
The Group has unused tax losses carried forward of £1,643,000 (2004: £1,025,000) available to be set off against future taxable profits.
-
-
Earnings per ordinary share
Basic earnings per share for the year ended 31 March 2005 is calculated by dividing the profit for the year of £393,000 (2004: £380,000) by 15,956,500 (2004: 14,957,917) being the weighted average number of shares in issue during the year.
The weighted average number of ordinary shares in issue have been adjusted to assume conversion of all dilutive potential ordinary shares. Diluted earnings per share is calculated by dividing the profit for the year of £393,000 (2004: £380,000) by the weighted diluted average number of shares being 16,666,937 (2004: 15,246,514).
In view of the significant impact of the impairment of goodwill on earnings per share calculated in accordance with FRS14 - Earning per Share, an adjusted earnings per share figure has been provided.
The adjusted basic earnings per share for the year ended 31 March 2005 is calculated by dividing the profit for the year before impairment of goodwill of £643,000 (2004: £613,000) by 15,956,500 (2004: 14,957,917) being the weighted average number of shares in issue during the year. The profit for the year before impairment and amortisation is calculated by adding back £250,000 (2004: £233,000) to the retained profit for the year of £393,000 (2004: £380,000).
-
Intangible assets
Group Software rights
£'000Goodwill
£'000Total
£'000Cost: At 1 April 2004 328 11,200 11,528 Additions during the year (note 31) 36 1,254 1,290 At 31 March 2005 364 12,454 12,818 Amortisation: At 1 April 2004 159 1,047 1,206 Charge for the year 57 250 307 At 31 March 2005 216 1,297 1,513 Net book value: At 31 March 2005 148 11,157 11,305 At 31 March 2004 169 10,153 10,322 Details of goodwill and software rights acquired during the year are given in note 31.
Following the successful performance since acquisition of Romulus Enterprises Limited the deferred element of the consideration paid has been revised causing an increase to goodwill of £315,000.
-
Tangible assets
Group Freehold property
£'000Leasehold property
£'000Office equipment
£'000Motor vehicles
£'000Total
£'000Cost: At 1 April 2004 165 5 690 91 951 On acquisition of subsidiary - - 10 10 Additions 12 - 89 33 134 Disposals - - - (29) (29) Exchange movement - - 23 - 23 At 31 March 2005 177 5 812 95 1,089 Depreciation: At 1 April 2004 8 - 412 13 433 Charge for year 3 - 127 14 144 Disposals - - - (18) (18) At 31 March 2005 11 - 539 9 559 Net book value: At 31 March 2005 166 5 273 86 530 At 31 March 2004 157 5 278 78 518 Included within the net book value of £530,000 is £86,000 (2004: £78,000) relating to assets held under hire purchase and finance lease agreements, relating to motor vehicles. Depreciation charged in the period in respect of these assets amounted to £14,000 (2004: £10,000).
-
Investment in subsidiary undertakings
Company As at 31 March 2005
£'000As at 31 March 2004
£'000Beginning of year 11,973 9,492 Additions in the year (note 31) 1,027 3,049 Provision in the year (627) (568) At end of year 12,373 11,973 The subsidiaries included in the consolidated financial statements for the whole year are:
- Clarity Retail Systems plc
- Microtrain Limited
- Flex Systems Limited
- Formative Systems Limited
- Vision Solutions Limited
- Romulus Enterprises Limited (Scotland)
- Pacer Cats (UK) Limited
- Pacer Cats Inc. (US)
- CCS SARL (Pacer Cats - France)
- CCS GmbH & Co OHG (Pacer Cats - Germany)
- Cyntergy Services Limited
The additions relate to:
- Baron LRMS Limited
All subsidiary companies are wholly owned and registered in England unless otherwise stated.
-
Stocks
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Goods for resale 628 501 - - -
Debtors
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Trade debtors 3,870 3,221 - - Amounts owed by subsidiary undertakings - - 67 1,662 Other debtors 369 340 95 81 Prepayments and accrued income 528 462 28 112 4,767 4,023 190 1,855 -
Cash and Bank
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Cash at bank and in hand 3,946 5,609 - - Overdraft (3,985) (5,108) (2,367) (2,306) Blocked cash collateral account 1,373 1,621 1,223 1,621 1,334 2,122 (1,144) (685) -
Creditors: amounts falling due within one year
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Bank loans and overdrafts (note 16) 1,033 1,053 2,176 1,738 Loan notes (note 17) 606 538 606 538 Trade creditors 972 1,123 174 136 Amounts due to subsidiary undertakings - - 945 521 Other creditors 153 40 - - Other taxes and social security 1,085 909 68 - Corporation tax 249 123 - - Obligations under finance leases and hire purchase contracts (note 18) 25 25 - - Accruals and deferred income 2,622 2,162 329 131 6,745 5,973 4,298 3,064 -
Creditors: amounts falling due after more than one year
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Bank loans and overdrafts (note 16) 166 434 166 434 Loan notes (note 17) 1,365 1,505 1,365 1,505 Obligations under finance leases and hire purchase contracts (note 18) 51 53 - - Deferred consideration 750 500 750 500 2,332 2,492 2,281 2,439 -
Bank loans and overdrafts
Group Company The borrowings are repayable as follows: As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000In one year or less 1,054 1,053 2,197 1,738 Between one and two years 186 303 186 303 Between two and five years - 187 - 187 Associated finance costs (41) (56) (41) (56) 1,199 1,487 2,342 2,172 Bank borrowings are secured by charges over the assets and by cross guarantees.
-
Creditors: capital instruments
Creditors include finance capital which is due for repayment as follows:
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000In one year or less, or on demand 606 538 606 538 Between one and two years 1,365 1,505 1,365 1,505 1,971 2,043 1,971 2,043 As at 31 March 2005 loan notes still to be redeemed in respect of the consideration payable to the vendors of Flex Systems Limited amounted to £1,421,000 (2004: £2,043,000). In the year ended 31 March 2005, £622,000 of loan notes were redeemed.
Under the terms of the Baron LRMS acquisition agreement dated 29 October 2004 loan notes were issued in the sum of £250,000 and £300,000, redeemable in full in 12 months and 18 months respectively after the date of the acquisition agreement.
The Company has adopted a prudent policy by recognising that loan notes issued could be redeemed early and have therefore disclosed £606,000 (2004: £538,000) as due within one year and £1,365,000 (2004: £1,505,000) as being due for repayment between one and two years.
The loan notes in respect of the acquisition of Flex Systems Limited bear interest at base rate. The loan notes in respect of the acquisition of Baron LRMS Limited do not bear interest.
-
Finance lease and hire purchase contracts
Future commitments under hire purchase and finance lease agreements are as follows:
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Due within one year 25 25 - - Due between one and two years 51 53 - - 76 78 - - The hire purchase and finance lease liabilities are secured over the assets to which they relate.
-
Commitments under operating leases
At 31 March 2005, the Group had annual commitments under non-cancellable operating leases as set out below:
Group Company As at 31 March 2005
£'000As at 31 March 2004
£'000As at 31 March 2005
£'000As at 31 March 2004
£'000Expiring within one year: other 41 60 - - Expiring between two and five years: other 68 109 15 15 Expiring after five years: other - - - - Expiring within one year: land and buildings - - - - Expiring between two and five years: land and buildings 159 160 - - Expiring after five years: land and buildings - - - - 268 329 15 15 -
Deferred taxation
No provision has been made in the financial statements for a deferred tax asset and the amounts unprovided at the end of the year are as follows:
As at 31 March 2005
Unprovided
£'000As at 31 March 2004
Unprovided
£'000Accelerated capital allowances 8 (16) Short term timing differences (5) - Tax losses available (513) (307) (510) (323) -
Share capital
As at 31 March 2005
£'000As at 31 March 2004
£'000Authorised share capital: 20,000,000 ordinary shares of £0.25 each 5,000 5,000 Allotted, called up and fully paid: At beginning of year 3,985 3,481 Issue of ordinary shares 99 504 4,084 3,985 On 20 March 2005 393,443 new ordinary shares were issued for cash at 61p each in relation to deferred consideration relating to the acquisition of Romulus Enterprises Limited.
-
Share option scheme
On 5 May 2004 an Approved EMI Share Option Scheme was established. 537,500 options were issued on 24 May 2004 to Directors and senior managers within the Group. All option holders under the original unapproved share option scheme waived their rights over the original options held, which were transferred into the new scheme. All the options are exercisable between 24 May 2007 and 24 May 2014 and have an exercise price of 66.5p.
-
Share premium account
As at 31 March 2005
£'000As at 31 March 2004
£'000At beginning of year 5,833 5,287 Premium on issue of ordinary shares 141 546 5,974 5,833 -
Reconciliation of movements in shareholders' funds
Group Share capital
£'000Share capital to issue
£'000Share premium
£'000Profit and loss account
£'0002005 Total
£'0002004 Total
£'000Balance at 1 April 2004 3,985 125 5,833 (922) 9,021 7,749 Shares issued 99 (125) 141 - 115 1,050 Profit for the year - - - 393 393 380 Foreign exchange movement - - - (42) (42) (158) Balance at 31 March 2005 4,084 - 5,974 (571) 9,487 9,021 Company Share capital
£'000Share capital to issue
£'000Share premium
£'000Profit and loss account
£'0002005 Total
£'0002004 Total
£'000Balance at 1 April 2004 3,985 125 5,833 (1,618) 8,325 8,485 Shares issued 99 (125) 141 - 115 1,050 Loss for the year - - - (2,456) (2,456) (1,210) Balance at 31 March 2005 4,084 - 5,974 (571) 5,984 8,325 -
Share capital to be issued
As at 31 March 2005
£'000As at 31 March 2004
£'000At beginning of year 125 125 Issued in year (125) - At end of year - 125 The share capital issued in the year is in respect of additional consideration payable on the acquisition of Romulus Enterprises Limited. It was dependent on the profitability of the Company for the year ended 31 March 2004 in accordance with the Sales and Purchase Agreement in respect of the transaction. Deferred consideration of £240,000 was satisfied by the issuing of 393,443 shares at 61p. This resulted in a £115,000 adjustment to the goodwill created upon the acquisition of Romulus.
-
Related party transactions
During the year the Group purchased air charter services to the value of £51,000 (2004: £52,000) from Direct Air Limited, a company of which G York is a Director and principal shareholder.
These items have been charged to the profit and loss account. In addition an amount of £11,000 has been included as part of the cost of acquisition of the equity interests in Baron LRMS Limited in relation to air charter services provided (2004: £32,000 in respect of the acquisition of Pacer/Cats/CCS).
At 31 March 2005 no balances were due to the Company (2004: £nil).
-
Profit of parent company
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the parent company is not presented as part of these financial statements. The parent company's retained loss for the year amounted to £2,456,000 (2004: £1,210,000).
-
Reconciliation of operating profit to net cash inflow from operating activities
Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000Operating profit 669 593 Depreciation of fixed assets 144 90 Impairment of goodwill 250 233 Amortisation of intangible fixed assets 57 39 Profit on sale of fixed assets 4 - (Increase) / decrease in stocks (90) 79 (Increase) / decrease in debtors (543) 370 (Decrease) / increase in creditors (43) 844 Loss on exchange in respect of overseas subsidiaries 42 42 Net cash inflow from operating activities 490 2,290 -
Reconciliation of net cash flow to movement in debt
Year ended 31 March 2005
£'000Year ended 31 March 2004
£'000(Decrease) / increase in cash in the year (540) 1,551 Cash outflow / (inflow) from debt and lease financing 957 (1,204) Cash (inflow) / outflow from increase in liquid resources (248) 118 Changes in net funds resulting from cash flows 169 465 Hire purchase agreements acquired with subsidiaries (30) (57) Non cash movements (565) 296 Movement in net debt in the year (426) 704 Net debt at 1 April 2004 (1,486) (2,190) Net debt at 31 March 2005 (1,912) (1,486) The cash flow movements of the acquired subsidiaries are as follows:
2005
£'0002004
£'000Net cash outflow from operating activites 105 1,212 Increase in cash in period 105 1,181 -
Analysis of net debt
As at 1 April 2004
£'000Cash flows
£'000Acquistion
£'000Non-cash movements
£'000As at 31 March 2005
£'000Net cash: Cash at bank and in hand 5,609 (1,663) - - 3,946 Overdraft (5,108) 1,123 - - (3,985) 501 (540) - - (39) Liquid resources: Blocked cash collateral account 1,621 (248) - - 1,373 2,122 (788) - - 1,334 Debt due within one year: Loan notes (538) 538 - (606) (606) Bank loans (1,053) 303 - (283) (1,033) Hire purchase (25) 18 (18) - (25) (1,616) 859 (18) (889) (1,664) Debt due after one year: Loan notes (1,505) 84 - 56 (1,365) Bank loans (434) - - 268 (166) Hire purchase (53) 14 (12) - (51) (1,992) 98 (12) 324 (1,582) Balance at 31 March 2005 (1,486) 169 (30) (565) (1,912) Non cash movements
During the year £550,000 of loan notes relating to the acquisition of Baron LRMS Limited were issued in connection with the deferred consideration in accordance with the acquisition agreement.
As detailed in notes 8 and 25 additional shares and deferred consideration were issued in the year relating to the acquisition of Romulus.
-
Acquisitions
On 29 October 2004 the Group completed the acquisition of the entire share capital of Baron LRMS Limited.
Details are as follows:
Book value
£'000Fair value adjustment
£'000Fair value
£'000Assets acquired: Fixed assets 9 - 9 Software rights 84 (48) 36 Stock 37 - 37 Debtors 201 - 201 Cash at bank (24) - (24) Creditors due in less than one year (486) - (486) Net assets acquired (179) (48) (227) Consideration: Loan notes 550 Deferred consideration 50 Capitalised costs associated with acquisition 112 Fair value of consideration paid 712 Goodwill 939 The fair value adjustment arises from the alignment of the Company's accounting policy for the amortisation of software rights with the Group's accounting policy.
These adjustments are provisional and under FRS7 - Fair Values and Acquisition Accounting, they will be finally determined by the date the financial statements for the year ending 31 March 2006 are approved. Any such adjustments to the fair values in this period will result in a corresponding adjustment to goodwill.
The turnover and operating loss for Baron LRMS for the year ended 31 August 2004 were £893,000 and £159,000 respectively. The turnover and operating loss for Baron LRMS for September 2004 and October 2004, representing the pre-acquisition period, were £206,000 and £73,000 respectively.
In addition to the table above there were further adjustments in the year relating to deferred elements of the consideration payable in respect of the Romulus acquisition representing revisions to both the deferred earnout and shares issued in respect of the satisfaction of deferred consideration. Goodwill has increased by £315,000.
Final adjustments were made to these figures after the release of the preliminary announcement.
-
Derivatives and other financial instruments
The Group's financial instruments comprise investments, cash at bank, borrowings, and various items, such as trade debtors, trade creditors etc that arise directly from its operations. The main purpose of these financial instruments is to raise 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 Group's policy to finance its operations through a mixture of cash, bank overdraft and loans and to periodically review the mix of these instruments with regard to the projected cash flow requirements of the Group and an acceptable level of risk exposure.
There is no material difference between the book value and the fair value of the Group's financial instruments.
The Group does not currently have any hedge contracts or deal in financial instruments.
Short term debtors and creditors have been excluded from all of the following disclosures.
The Group has overseas subsidiaries where transactions, assets and liabilities are denominated in foreign currencies. At present the Group is exposed to currency fluctuations arising from these sources.
Interest rate risk of financial assets and liabilities
As at 31 March 2005
£'000As at 31 March 2004
£'000Assets: Floating rate 1,334 2,122 Liabilities: Floating rate 1,199 1,487 Fixed rate 76 78 1,275 1,565 Floating rate borrowings consist of bank overdrafts bearing interest at 2% above bank base rate.
£1,421,000 of loan notes as detailed in note 17 bear interest at base rate and are not included in the above table.
£550,000 of loan notes as detailed in note 17 do not bear interest and are not included in the above table.
Fixed rate financial instruments comprise finance leases with interest rates ranging from 5% to 8%.
The Group's financial assets at 31 March 2005 comprise a blocked account and net current bank account balances (2004: blocked account and net current bank account balances). The Group has a right of set off in respect of cash and overdrawn balances.
Foreign currency risk
Foreign currency exposure arise on both trading balances and periodic net assets valuations.
Borrowing facilities
The Group has an undrawn committed borrowing facility available at 31 March 2005 as follows:
As at 31 March 2005
£'000As at 31 March 2004
£'000Expiring in one year or less 356 713
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Officers and Advisors
John O'Connell: Group Non-Executive Chairman
Graham York: Group Chief Executive
David Shearmon: Technical Director
Peter Walker: Director
Richard Arnold: Company Secretary
All of:
Number One, Netherhampton Business Centre, Netherhampton, Salisbury,
Wiltshire SP2 8PU
Registered number: 3914814
Nominated adviser and nominated broker: Bridgewell Limited, Old Change House, 128 Queen Victoria Street, London EC4V 4BJ
Auditors: Solomon Hare Audit LLP, Oakfield House, Oakfield Grove, Clifton, Bristol BS8 2BN
Registrars: Capita IRG plc, Balfour House, 390/398 High Road, Ilford, Essex IG1 1NQ
Solicitors: Hammonds, Rutland House, 148 Edmund Street, Birmingham B3 2JR
Bankers: Bank of Scotland, 55 Temple Row, Birmingham B2 5LS
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