5th Feb 2008 07:00
Fonebak plc05 February 2008 Released: 5th February 2008 As stated in the Chief Financial Officers review dated 26th September 2007,Fonebak Plc will be reporting future results under International FinancialReporting Standards ("IFRS") as opposed to UK Generally Accepted AccountingPractices ("UK GAAP"). This statement deals with the re-statement under IFRS ofpreviously released information under UK GAAP for the year ended 30 June 2007and the interim accounts for the six months ended 31 December 2006, togetherwith the transition balance sheet at 1 July 2006. The principal effects on Fonebak's reported results as a result of the adoptionof IFRS are: • Recognition of a separable intangible asset relating to customer relationships and contracts following the acquisition of CRC on 24 January 2007; • Cessation of goodwill amortisation; • Revision to goodwill impairment charge due to the reversal of goodwill previously amortised; • Recognition of interest rate swap at fair value; • Recognition of certain deferred tax liabilities; and • Reclassification of purchased software to intangible assets from tangible assets. Key headlines from the restated accounts for the year ended 30 June 2007: Underlying operating losses unchanged at £0.3 million before goodwillimpairment, restructuring costs, share based payments and amortisation ofcustomer contracts and relationships intangible asset. Net assets of £15.1 million increased by £0.6 million from UK GAAP reported£14.5 million. Operating cash flows of £8.3 million unchanged. Enquiries: Fonebak plc David Kelham Chief Financial Officer 01865 471900 KBC Peel Hunt Ltd (Nominated Advisor and Broker)Jonathan Marren 020 7418 8900Oliver Stratton 020 7418 8900 Introduction The Fonebak plc Group ("Group") is required to adopt International FinancialReporting Standards ("IFRS") in the consolidated financial statements for theyear ending 30 June 2008 in place of UK Generally Accepted Accounting Principles("UK GAAP"). Up to and including 30 June 2007, the Group has prepared andpresented its financial statements in accordance with UK GAAP. This document describes the main differences between UK GAAP and IFRS thatimpact the Group and provides IFRS information for the year ended 30 June 2007and 6 months to 31 December 2006, as well as the IFRS opening balance sheet asat 1 July 2006, together with reconciliations to previously reported figuresunder UK GAAP. Basis of preparation The IFRS financial information presented in this document is based on allcurrently endorsed IFRSs and International Accounting Standards ("IAS") andinterpretations by the International Accounting Standards Board ("IASB") and itscommittees. The IFRS financial information in this document has been prepared in accordancewith accounting policies expected to be applied in the Group's first IFRSfinancial statements for the year ending 30 June 2008. IFRS 1 - First time adoption IFRS 1, "First time adoption of International Financial Reporting Standards"prescribes how the Group should apply IFRS for the first time in preparing itsconsolidated financial statements. Under this standard, the Group is requiredto establish the IFRS accounting policies expected to be adopted by the Group at30 June 2008 and apply these retrospectively to determine the IFRS openingbalance sheet as at the date of transition, 1 July 2006. IFRS 1 contains certain exemptions from the requirement to fully adopt IFRS inthe opening balance sheet. The Group has applied the relevant exemptions asfollows: IFRS 3 - Business Combinations The Group has elected not to apply IFRS 3 retrospectively to businesscombinations occurring prior to the transition to IFRS on 1 July 2006. IAS 21 - Cumulative translation differences The Group has elected to set the cumulative translation differences arsing onconsolidation of its foreign operations to zero at 1 July 2006. There were noforeign exchange differences in the year to 30 June 2007. Description of adjustments The following commentary describes the differences between IFRS and UK GAAP thathave a material impact on the income or net assets of the Group. Income Statement - Retained loss Note Year ended 30 Six months June 2007 ended 31 December 2006 £'000 £'000 As reported under UK GAAP (10,418) (1,207)Goodwill amortisation 1 1,581 734Goodwill impairment 2 (1,112) -Customer relationship amortisation 3 (171) -Deferred tax reversed on customer relationship 5 51 -amortisationDeferred tax adjustment due to tax rate change 5 31 -Deferred tax on overseas un-remitted earnings 6 (23) -Restated under IFRS (10,061) (473) Balance Sheet - Equity Note Year ended 30 Six months Year ended 30 June 2007 ended 31 June 2006 December 2006 £'000 £'000 £'000 As reported under UK GAAP 14,532 14,714 16,049Goodwill amortisation 1 1,581 734 -Goodwill impairment 2 (1,112) - -Customer relationship amortisation 3 (171) - -Recognition of interest rate swap at fair value 4 281 33 33Deferred tax reversed on customer relationship 5 51 - -amortisationDeferred tax adjustment due to tax rate change 5 31 - -Deferred tax liability on recognition of 5 (84) (10) (10)interest rate swapDeferred tax on overseas un-remitted earnings 6 (23) - -Restated under IFRS 15,086 15,471 16,072 Adjustment 1 - Goodwill amortisation IFRS 3 " Business Combinations" prohibits the annual amortisation of goodwilland instead goodwill is tested for impairment on transition to IFRS and annuallythereafter. The carrying value of goodwill at the date of transition to IFRS was£19,120,000 and the amortisation ceases from that date. The impact on the incomestatement is to write back goodwill amortisation of £1,581,000 for the yearended 30 June 2007 and £734,000 for the six months ended 31 December 2006. Therewas no goodwill impairment on transition to IFRS. Adjustment 2 - Goodwill impairment Under IAS 36 "Impairment of assets" goodwill must be tested annually forimpairment. In the UK GAAP consolidated financial statements for the year ended30 June 2007, an exceptional goodwill impairment of £5,469,000 was recognised.As a result of the write back of goodwill amortisation (adjustment 1), there isan additional goodwill impairment on the original Fonebak business, Stoke,Barnet and Romania of £1,112,000 to be recognised in the financial statementsfor the year ended 30 June 2007. There is no impairment to be recognised in the6 months ended 31 December 2006. Adjustment 3 - Customer contract and relationship intangible asset It is mandatory to account for all material acquisitions in accordance with IFRS3 "Business Combinations" from the date of transition, which includes theacquisition of CRC Group, acquired on 24 January 2007. Under IFRS goodwill is required to be allocated amongst the separatelyidentifiable assets of the business to the extent that they satisfy the criteriafor the recognition of an intangible asset. The value attributed to eachintangible asset should be fair value, defined as "the amount for which an assetcould be exchanged, or a liability settled, between knowledgeable willingparties in an arms length transaction." The only separately identifiable intangible asset arising on the acquisition ofCRC by Fonebak relates to customer contracts and relationships. The fair valueof this intangible asset has been calculated by assessing the residual incomegenerated by this intangible asset alone. An intangible asset of £2,050,000 hasbeen recognised out of the total goodwill in the CRC business of £13,200,000which includes the goodwill arising on consolidation and the goodwill in thebusiness from previous acquisitions. The customer contracts and relationships intangible asset will be written offover 5 years on a straight line basis which is the estimated useful economiclife. An amortisation charge of £171,000 has been recognised for the period from24 January 2007 (the date of acquisition) to 30 June 2007. Adjustment 4 - Interest rate swap IAS 39 "Financial Instruments: Recognition and Measurement" requires allderivative financial instruments to be included on the balance sheet at fairvalue. Between 1 July 2006 and the current date the Group has only held oneinterest rate swap, which is used to fix the interest rate on its borrowings.This derivative qualifies as a cash flow hedge and since the date of transitionthe hedge has been effective and therefore movements are recognised in equity ina "hedging reserve". The fair value of the interest rate swap at each of the balance sheet dates wasas follows: As at 30 June 2007 - £281,000 assetAs at 31 December 2006 - £33,000 assetAs at 30 June 2006 - £33,000 asset Adjustment 5 - Deferred tax on IFRS adjustments The IFRS adjustments relating to the recognition of customer contracts andrelationships (adjustment 3) and the interest rate swap (adjustment 4) give riseto a deferred tax liability. Deferred tax is measured at the tax rates that areexpected to apply to the period when the asset is realised or the liabilitysettled based on tax rates (and tax laws) that have been enacted orsubstantively enacted by the balance sheet date. Customer contracts and relationships intangible asset The deferred tax movements relating to the recognition of the customer contractsand relationships intangible asset in the year ended 30 June 2007 are asfollows: 30 June 2007 Balance sheet Income Deferred tax statement asset/ deferred tax (liability) credit £'000 £'000 Deferred tax liability recognised at acquisition (615) -dateMovement on initial recognition of deferred tax 31 31due to tax rate changeDeferred tax released as intangible asset 51 51amortised in yearImpact on the IFRS financial information (533) 82 Interest rate swap A deferred tax liability has been recognised at each of the balance sheet datesbased on the fair value on the interest rate swap as follows: As at 30 June 2007 - £84,000 liabilityAs at 31 December 2006 - £10,000 liabilityAs at 30 June 2006 - £10,000 liability Adjustment 6 - Deferred tax on previous UK GAAP balances IAS 12 "Income Taxes" requires that deferred tax is provided in full ontemporary differences arising between the tax base of assets and liabilities andtheir carrying amounts in the consolidated financial statements rather than justtaxable timing difference under UK GAAP. As a result an additional deferred taxliability of £23,000 has been recognised in relation to un-remitted earningsfrom overseas CRC subsidiaries. Adjustment 7 - Purchased software Certain software, classified as tangible fixed assets under UK GAAP, has beenassessed in accordance with IAS 38 and reclassified to intangible assets underIFRS. The net book value of assets reclassified to intangible assets is £124,000at 30 June 2006, £112,000 at 31 December 2006 and £242,000 at 30 June 2007. There is no impact to the overall net assets or retained profit of the Group. Exceptional items (IAS 1) IAS 1 "Presentation of financial statements" does not recognise the termnon-operating exceptional items and there are no prescribed exceptional itemsrecognised below operating profit. The Group will continue to disclose on theface of the income statement additional headings and subtotals for exceptionalitems which are significant by virtue of their size or incidence. This is toallow a full understanding of the underlying performance of the Group. Consolidated Income Statement - IFRS format Year ended 30 June 2007 UK GAAP (audited) IFRS adjustments IFRS (unaudited) (unaudited) £'000 £'000 £'000 Revenue 96,130 - 96,130Cost of sales (89,859) - (89,859)Gross profit 6,271 - 6,271 Administrative expenses (16,654) 298 (16,356) Operating loss before goodwill (324) - (324)amortisation, exceptional items and share basedpayments Amortisation of goodwill (1,581) 1,581 -Exceptional goodwill impairment (5,469) (1,112) (6,581)Intangible asset amortisation - (171) (171)Exceptional restructuring costs (3,133) - (3,133)Share based payments 124 - 124 Operating loss (10,383) 298 (10,085)Net financing costs (646) - (646)Profit before tax (11,029) 298 (10,731)Taxation 611 59 670Retained profit for the year (10,418) 357 (10,061) Loss per share - basic (47.32)p (45.70)pLoss per share - diluted (47.32)p (45.70)p Underlying loss per share - basic (5.90)p (5.63)pUnderlying loss per share - diluted (5.90)p (5.63)p The audited UK GAAP figures above were previously presented on a UK GAAP formatand are represented above to conform with the IFRS format.Consolidated statement of recognised income and expense - IFRS format Year ended 30 June 2007 UK GAAP (audited) IFRS adjustments IFRS (unaudited) (unaudited) £'000 £'000 £'000 Cash flow hedge - 248 248Tax on items taken directly to equity - (74) (74)Net income recognised directly to equity - 174 174Loss for the financial year (10,418) 357 (10,061)Total recognised income and expenses relating to (10,418) 531 (9,887)the year Consolidated Balance Sheet - IFRS format As at 30 June 2007 UK GAAP (audited) IFRS adjustments IFRS (unaudited) (unaudited) £'000 £'000 £'000AssetsNon-current assetsGoodwill 25,350 (966) 24,384Other intangible assets - 2,121 2,121Property, plant and equipment 2,667 (242) 2,425Deferred tax 1,240 (640) 600 29,257 273 29,530Current assetsInventory 6,079 - 6,079Trade and other receivables 16,411 - 16,411Current tax asset 1,287 - 1,287Derivative and financial instruments - 281 281Cash and cash equivalents 9,072 - 9,072 32,849 281 33,130Current liabilitiesBorrowings (5,942) - (5,942)Trade and other payables (27,632) - (27,632) (33,574) - (33,574)Net current (liabilities)/assets (725) 281 (444)Total assets less current liabilities 28,532 554 29,086Non-current liabilitiesBorrowings (14,000) - (14,000) (14,000) - (14,000)Net assets 14,532 554 15,086 EquityOrdinary share capital 566 - 566Share premium 25,304 - 25,304Hedging reserve - 197 197Translation reserve - - -Retained earnings (11,338) 357 (10,981)Total equity 14,532 554 15,086 Consolidated Cash Flow Statement - IFRS format Year ended 30 June 2007 UK GAAP IFRS adjustments IFRS (unaudited) (audited) (unaudited) £'000 £'000 £'000 Cash flows from operating activitiesCash generated from operations 8,296 - 8,296Tax paid (600) - (600)Net cash from operating activities 7,696 - 7,696 Cash flows from investing activitiesPurchase of property, plant and equipment (654) - (654)Purchase of intangible assets - - -Proceeds from disposal of property, plant & 7 - 7equipmentInterest received 175 - 175Acquisition of subsidiary (14,044) - (14,044)Cash acquired with subsidiary (1,302) - (1,302)Deferred consideration in respect of previous (2,682) - (2,682)acquisitionNet cash used in investing activities (18,500) - (18,500) Cash flows from financing activitiesDividends paid (192) - (192)Interest paid (785) - (785)Proceeds from issue of share capital 10,004 - 10,004Costs associated with issue of shares (787) - (787)New borrowings 19,500 - 19,500Repayment of borrowings (9,365) - (9,365)Repayment of finance leases (70) - (70)Net cash used in financing activities 18,305 - 18,305 Net increase in cash and cash equivalents 7,501 - 7,501Cash and cash equivalents at the beginning of year 1,137 - 1,137Cash and cash equivalents at end of year 8,638 - 8,638 Represented by:Cash and cash equivalents 9,072 - 9,072Overdrafts (434) - (434) 8,638 - 8,638 Consolidated Income Statement - IFRS format Six months ended 31 December 2006 UK GAAP IFRS adjustments IFRS (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Revenue 38,678 - 38,678 Operating loss before goodwill amortisation, (413) - (413)exceptional items and share based payments Amortisation of goodwill (734) 734 -Share based payments (65) - (65)Acquired activities 102 - 102 Operating loss (1,110) 734 (376)Net financing costs (156) - (156)Profit before tax (1,266) 734 (532)Taxation 59 - 59Retained profit for the year (1,207) 734 (473) Loss per share - basic (6.29)p (2.46)pLoss per share - diluted (6.29)p (2.46)p Underlying loss per share - basic (6.29)p (2.66)pUnderlying loss per share - diluted (6.29)p (2.66)p Consolidated statement of recognised income and expense - IFRS format Six months ended 31 December 2006 UK GAAP IFRS adjustments IFRS (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Exchange adjustment (1) - (1)Net income recognised directly to equity (1) - (1)Loss for the financial year (1,207) 734 (473)Total recognised income and expenses relating to (1,208) 734 (474)the year Consolidated Balance Sheet - IFRS format As at 31 December 2006 UK GAAP IFRS adjustments IFRS (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 AssetsNon-current assetsGoodwill 18,480 734 19,214Other intangible assets - 112 112Property, plant and equipment 740 (112) 628Deferred tax 42 (10) 32 19,262 724 19,986Current assetsInventory 5,290 - 5,290Trade and other receivables 6,759 - 6,759Current tax asset 5 - 5Derivative and financial instruments - 33 33Cash and cash equivalents 643 - 643 12,697 33 12,730Current liabilitiesBorrowings (1,623) - (1,623)Trade and other payables (12,673) - (12,673) (14,296) - (14,296)Net current assets (1,599) 33 (1,566)Total assets less current liabilities 17,663 757 18,420Non-current liabilitiesBorrowings (2,949) - (2,949) (2,949) - (2,949)Net assets 14,714 757 15,471 EquityOrdinary share capital 384 - 384Share premium 15,076 - 15,076Hedging reserve - 23 23Translation reserve - (1) (1)Retained earnings (746) 735 (11)Total equity 14,714 757 15,471 Consolidated Cash Flow Statement - IFRS format Six months ended 31 December 2006 UK GAAP IFRS adjustments IFRS (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Cash flows from operating activitiesCash generated from operations 3,878 - 3,878Tax paid (468) - (468)Net cash from operating activities 3,410 - 3,410 Cash flows from investing activitiesPurchase of property, plant and equipment (131) - (131)Purchase of intangible assets - - -Interest received 58 - 58Acquisition of Stoke assets (406) - (406)Deferred consideration in respect of previous (2,442) - (2,442)acquisitionNet cash used in investing activities (2,921) - (2,921) Cash flows from financing activitiesInterest paid (178) - (178)Dividend paid (192) (192)Repayment of borrowings (600) - (600)Repayment of finance leases (13) - (13)Net cash used in financing activities (983) - (983) Net decrease in cash and cash equivalents (494) - (494)Cash and cash equivalents at the beginning of year 1,137 - 1,137Cash and cash equivalents at end of year 643 - 643 Consolidated Balance Sheet - IFRS format As at 1 July 2006 UK GAAP (audited) IFRS adjustments IFRS (unaudited) (unaudited) £'000 £'000 £'000 AssetsNon-current assetsGoodwill 19,120 - 19,120Other intangible assets - 124 124Property, plant and equipment 728 (124) 604Deferred tax 42 (10) 32 19,890 (10) 19,880Current assetsInventory 7,879 - 7,879Trade and other receivables 6,528 - 6,528Derivative and financial instruments - 33 33Cash and cash equivalents 1,137 - 1,137 15,544 33 15,577Current liabilitiesBorrowings (1,400) - (1,400)Trade and other payables (13,704) - (13,704)Current tax liability (527) - (527) (15,631) - (15,631)Net current liabilities (87) 33 (54)Total assets less current liabilities 19,803 23 19,826Non-current liabilitiesBorrowings (3,754) - (3,754) (3,754) - (3,754)Net assets 16,049 23 16,072 EquityOrdinary share capital 384 - 384Share premium 15,076 - 15,076Hedging reserve - 23 23Retained earnings 589 - 589Total equity 16,049 23 16,072 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BLTG.L