21st Sep 2007 07:02
Judges Capital PLC21 September 2007 JUDGES CAPITAL plc INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2007 Highlights • Pre-tax profits increased to £190,000 (first half 2006: £52,000) • Operating profits before amortisation of intangible assets increased by 35% to £369,000 (first half 2006: £273,000) • Sales increased by 18% to £2.8 million (first half 2006: £2.4 million) • Diluted earnings per share 2.87p (first half 2006: 0.92p) • Adjusted diluted earnings per share increased by 36% to 4.05p (first half 2006: 2.98p) • Interim dividend raised 10% to 1.1p • Strong order book • Sale of shareholding in Poole Investments plc will realise £342,000 cash inflow • Company well positioned to pursue further acquisitions • Confidence in full year prospects following favourable start to second half trading For further information please contact: David Cicurel, CEO, Judges Capital: Tel: 01342 323 600 Alex Borrelli, Shore Capital & Corporate: Tel: 020 7408 4090 Melvyn Marckus, Cardew Group: Tel: 020 7930 0777 Alex Hambro, Chairman of Judges Capital, commented: "All operations performed inline with management's expectations and this was reflected in a strongacross-the-board contribution to the Group's results. Order pipelines remainedhealthy and at the conclusion of the six-month trading period our order book wasmore robust than in June 2006. "I am pleased to report that second half trading has started favourably,benefiting from the strong order book referred to above. All businesses continueto enjoy active markets and the Board is confident of the Group's ability tomeet its targets for the full year." CHAIRMAN'S STATEMENT "I am delighted to report that your Company made encouraging progress during thesix months ended 30 June 2007. The accounts for this period are the first tohave been drawn up under IFRS and comparatives in respect of 2006 have beenrestated accordingly. Profit before tax advanced to £190,000 compared with£52,000 for the corresponding period of 2006 on sales that rose from £2.4million to £2.8 million. This translates into diluted earnings per share of2.87p compared with 0.92p in respect of the first half of 2006. Operatingprofit before amortisation of intangible assets, a measure of profit that issimilar under both IFRS and UK GAAP, increased to £369,000 from £273,000.Diluted earnings per share, similarly adjusted for amortisation of intangibleassets, amounted to 4.05p (first half 2006: 2.98p). "These accounts include a full six-months' contribution from UHV Design(compared with only four months in the first half of 2006) and from Aitchee,which was acquired during the second half of 2006. "All operations performed in line with management's expectations and this wasreflected in a strong across-the-board contribution to the Group's results.Order pipelines remained healthy and at the conclusion of the six-month tradingperiod our order book was more robust than in June 2006. "With cash balances of £648,000, our balance sheet leaves the Company wellpositioned to pursue further acquisitions in line with its strategy. "Subsequent to the end of the trading period, Poole Investments plc, in whichthe Company held a significant minority interest, was acquired by Inland plc.The disposal will result in a second half gain of £142,000 and a £342,000 cashinflow available to develop our instrument businesses. This virtually concludesthe realisation of the investment portfolio held under the Company's formerstrategy. "Your Board is of the opinion that the first half trading results and theoutlook for the full year justify a 10% increase in the interim dividend from 1pto 1.1p. This will be paid on Friday 2 November to shareholders on the registeron Friday 5 October. The shares will go ex-dividend on Wednesday 3 October. "I am pleased to report that second half trading has started favourably,benefiting from the strong order book referred to above. All businesses continueto enjoy active markets and the Board is confident in the Group's ability tomeet its targets for the full year." The Hon. Alexander Robert HambroChairman21 September 2007 CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT Unaudited 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 December 2006 Note £ £ £ Continuing operations Revenue 2,836,251 2,406,298 5,195,325 Operating costs (2,539,961) (2,258,083) (4,712,635) Operating profit 296,290 148,215 482,690 Loss on disposal of available-for-sale investments 0 (6,145) (6,145) Interest receivable 15,060 19,376 32,041 Interest payable (121,015) (109,913) (227,418) Profit before tax 190,335 51,533 281,168 Taxation (54,608) (11,019) (84,653) Profit for the period 135,727 40,514 196,515 Attributable to: Equity holders of the parent company 113,334 30,745 190,105 Minority interest 22,393 9,769 6,410 Earnings per share Pence Pence Pence Basic 7 3.18 0.87 5.36 Diluted 7 2.87 0.92 4.85 CONDENSED CONSOLIDATED INTERIM BALANCE SHEET Unaudited 30 June 30 June 31 December 2007 2006 2006 £ £ £ Note ASSETSNon-current assetsProperty, plant and equipment 279,469 231,913 295,468Goodwill 4,389,963 4,241,023 4,389,963Other intangible assets 6 123,547 219,295 195,924Available-for-sale investments 267,950 182,450 210,950 5,060,929 4,874,681 5,092,305 Current assetsInventories 489,134 540,567 402,941Trade and other receivables 1,240,222 737,499 1,249,039Cash and cash equivalents 648,317 1,230,137 824,156 2,377,673 2,508,203 2,476,136 Total assets 7,438,602 7,382,884 7,568,441 LIABILITIESCurrent liabilitiesTrade and other payables (705,453) (646,235) (779,708)Current portion of long-term borrowings (492,721) (330,000) (421,813)Current tax payable (229,548) (237,287) (261,718) (1,427,722) (1,213,522) (1,463,239) Non-current liabilitiesLong-term borrowings (2,568,958) (3,047,330) (2,835,940)Deferred tax liabilities (86,539) (82,601) (89,505) (2,655,497) (3,129,931) (2,925,445) Total liabilities (4,083,219) (4,343,453) (4,388,684) Net assets 3,355,383 3,039,431 3,179,757 EQUITYShare capital 9 178,044 178,044 178,044Share premium account 9 2,501,430 2,501,430 2,501,430Merger reserve 9 475,074 475,074 475,074Retained earnings 9 79,705 (157,364) (33,629)Revaluation reserve 9 34,156 (25,693) (5,743) Equity attributable to equity holders of the parent 3,268,409 2,971,491 3,115,176company Minority interest 9 86,974 67,940 64,581 Total equity 3,355,383 3,039,431 3,179,757 CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY Unaudited Share Share Merger Profit & Revalua-tion Total Minority Total capital premium reserve loss reserve interest equity account £ £ £ £ £ £ £ £ Restated balance at 1 January 2006under IFRS 173,118 2,501,430 380,000 (188,109) (58,510) 2,807,929 58,171 2,866,100 Changes in equityfor first half of2006Gains/(losses) on revaluation ofavailable-for-saleinvestments 0 0 0 0 (8,550) (8,550) 0 (8,550)Tax on revaluation gains/(losses)taken directly toequity 0 0 0 0 2,566 2,566 0 2,566Net income recogniseddirectly in equity (5,984) (5,984) 0 (5,984) Profit for theperiod 0 0 0 30,745 0 30,745 9,769 40,514Transferred to profit or loss ondisposal ofavailable-for-saleinvestments 0 0 0 0 38,801 38,801 0 38,801Total recognised income and expensefor the period 0 0 0 30,745 32,817 63,562 9,769 73,331 Issue of sharecapital 4,926 0 95,074 0 0 100,000 0 100,000Balance at 30 June 2006 178,044 2,501,430 475,074 (157,364) (25,693) 2,971,491 67,940 3,039,431 Restated balance at 1 January 2006under IFRS 173,118 2,501,430 380,000 (188,109) (58,510) 2,807,929 58,171 2,866,100 Changes in equityfor 2006Gains/(losses) on revaluation ofavailable-for-saleinvestments 0 0 0 0 19,950 19,950 0 19,950Tax on revaluation gains/(losses)taken directly toequity 0 0 0 0 (5,985) (5,985) 0 (5,985)Net income recogniseddirectly in equity 0 0 0 0 13,965 13,965 0 13,965 Profit for theperiod 0 0 0 190,105 0 190,105 6,410 196,515Transferred to profit or loss ondisposal ofavailable-for-saleinvestments 0 0 0 0 38,802 38,802 0 38,802Total recognised income and expensefor the period 0 0 0 190,105 52,767 242,872 6,410 249,282 Dividends 11 0 0 0 (35,625) 0 (35,625) 0 (35,625) Issue of sharecapital 4,926 0 95,074 0 0 100,000 0 100,000Balance at 31 December 2006 178,044 2,501,430 475,074 (33,629) (5,743) 3,115,176 64,581 3,179,757 Balance at 1 January 2007 178,044 2,501,430 475,074 (33,629) (5,743) 3,115,176 64,581 3,179,757 Changes in equityfor first half of2007Gains/(losses) on revaluation ofavailable-for-saleinvestments 0 0 0 0 57,000 57,000 0 57,000Tax on revaluation gains/(losses)taken directly toequity 0 0 0 0 (17,101) (17,101) 0 (17,101)Net income recogniseddirectly in equity 39,899 39,899 0 39,899 Profit for theperiod 0 0 0 113,334 0 113,334 22,393 135,727Total recognised income and expensefor the period 0 0 0 113,334 39,899 153,233 22,393 175,626 Balance at 30 June 2007 178,044 2,501,430 475,074 79,705 34,156 3,268,409 86,974 3,355,383 CONDENSED CONSOLIDATED INTERIM CASH FLOW STATEMENT Unaudited 6 months to 6 months to Year to 31 30 June 2007 30 June 2006 December 2006 Note £ £ £Cash flows from operating activitiesProfit after tax 135,727 40,514 196,515Adjustments for: Depreciation 33,517 21,049 53,644 Amortisation of intangible assets 72,377 124,412 228,783 Profit on disposal of property, plant and equipment 0 0 (2,078) Other losses 0 6,145 6,145 Foreign exchange (gains)/losses (3,615) 6,307 (7,335) Interest expense (net) 105,955 90,537 195,377 Tax expense recognised in income statement 54,608 11,019 84,653 (Increase)/decrease in inventories (86,193) (37,851) 104,775 Decrease/(increase) in trade and other receivables 8,817 147,113 (364,429) (Decrease)/increase in trade and other payables (73,683) 15,755 117,933 Cash generated from operations 247,510 425,000 613,983Interest paid (102,694) (93,177) (227,418)Tax paid (106,847) (219,545) (294,693) Net cash from operating activities 37,969 112,278 91,872 Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired 0 (813,723) (1,036,223)Purchase of property, plant and equipment (17,518) (11,024) (31,336)Proceeds from disposal of equipment 0 0 15,655Proceeds from disposal of available-for-sale 0 202,611 202,611 investmentsInterest received 15,060 19,376 32,041 Net cash used in investing activities (2,458) (602,760) (817,252) Cash flows from financing activitiesProceeds from drawdown of long-term borrowings 0 700,000 700,000Repayments of long-term borrowings (211,350) (128,000) (263,454)Dividends paid 11 0 0 (35,629) Net cash (used in)/from financing activities (211,350) 572,000 400,917 Net (decrease)/increase in cash and cash equivalents (175,839) 81,518 (324,463)Cash and cash equivalents at beginning of period 824,156 1,148,619 1,148,619 Cash and cash equivalents at end of period 648,317 1,230,137 824,156 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. General information These condensed consolidated interim financial statements are for the six monthsended 30 June 2007. They have been prepared taking into account the requirementsof IAS 34 "Interim Financial Reporting" and the requirements of IFRS 1 "FirstTime Adoption of International Financial Reporting Standards" relevant tointerim reports because they are part of the period covered by the group's firstIFRS financial statements for the year ending 31 December 2007. They do notinclude all of the information required for full financial statements, andshould be read in conjunction with the consolidated financial statements (underUK GAAP) of the group for the year ended 31 December 2006. These condensedconsolidated interim financial statements are presented in Pounds Sterling,which is also the functional currency of the parent company. They were approvedfor issue by the board of directors on 21 September 2007. 2. Basis of preparation These condensed consolidated interim financial statements have been preparedunder the historical cost convention except for certain financial instrumentswhich are carried at fair value. The group's financial statements up to and including those for the year ended 31December 2006 were prepared in accordance with United Kingdom AccountingStandards (United Kingdom Generally Accepted Accounting Practice). With effectfrom 1 January 2007, the company, being listed on the Alternative InvestmentMarket of the London Stock Exchange, is required to present its consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) as adopted by the European Union. Accordingly, these condensedconsolidated interim financial statements (the interim financial statements)have been prepared in accordance with the accounting policies set out belowwhich are based on the recognition and measurement principles of IFRS in issueas adopted by the European Union (EU) and are effective at 31 December 2007 orare expected to be adopted and effective at 31 December 2007, the first annualreporting date at which the group is required to use IFRS accounting standardsadopted by the EU. The accounting policies have been applied consistently throughout the group forthe purposes of preparation of these condensed consolidated interim financialstatements. 3. Transition to IFRS In accordance with the provisions of IFRS 1, "First time adoption ofInternational Financial Reporting Standards", the group's transition date foradoption of IFRS was 1 January 2006. Comparative figures in respect of 2006have been restated in these financial statements to reflect changes inaccounting policies as a result of the adoption of IFRS. The disclosuresrequired by IFRS 1 concerning the transition from UK GAAP to IFRS are given inthe reconciliation schedules presented in note 9. The group has taken advantageof certain exemptions available under IFRS 1. The exemptions used are explainedunder the respective accounting policy. 4. Summary of significant accounting policies 4.1 Basis of consolidation The group financial statements include those of the company and all itssubsidiaries. Subsidiaries are entities over which the group has the powerthrough voting rights to control the financial and operating policies so as toobtain benefits from its activities. Unrealised gains on transactions betweenthe group and its subsidiaries are eliminated. Unrealised losses are alsoeliminated unless the transaction provides evidence of an impairment of theasset transferred. Amounts reported in the financial statements of subsidiarieshave been adjusted where necessary to ensure consistency with the accountingpolicies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their fair values, which are also used as thebases for subsequent measurement in accordance with the group accountingpolicies. In the case of acquisitions after 31 December 2005, goodwill isstated after separating out identifiable intangible assets. Goodwill representsthe excess of acquisition cost over the fair value of the group's share of theidentifiable net assets of the acquired subsidiary at the date of acquisition. 4.2 Business combinations completed prior to the date of transition toIFRS The group has elected not to apply IFRS 3 Business Combinations retrospectivelyto business combinations prior to the date of transition. Accordingly theclassification of the combination (acquisition, reverse acquisition or merger)remains unchanged from that used under UK GAAP. Assets and liabilities arerecognised at the date of transition if they would be recognised under IFRS, andare measured using their UK GAAP carrying amounts immediately post-acquisitionas deemed cost, unless IFRS requires fair value measurement. Amounts recordedas goodwill under UK GAAP have not been re-assessed to identify intangibleassets. Deferred tax and minority interest are adjusted for the impact of anyconsequential adjustments after taking advantage of the transitional provisions. 4.3 Goodwill Goodwill, representing the excess of the cost of acquisition over the fair valueof the group's share of the identifiable net assets acquired, is capitalised andreviewed annually for impairment. Goodwill is carried at cost less accumulatedimpairment losses. Negative goodwill is recognised immediately afteracquisition in the income statement. The carrying value of negative goodwill at the date of transition has beencredited to reserves. There is no re-instatement of goodwill or negativegoodwill that was amortised prior to transition to IFRS. 4.4 Revenue Revenue from the sale of goods is measured by reference to the fair value ofconsideration received or receivable by the group for goods supplied, excludingValue Added Tax, and is recognised when all the following conditions have beensatisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods, which is generally at the point of despatch from the factory; • the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably; and • it is probable that the economic benefits associated with the transaction will flow to the group. Dividend income is recognised when the shareholder's right to receive payment isestablished. 4.5 Intangible assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired ina business combination is deemed to have a cost to the group of its fair valueat the acquisition date. The fair value of the intangible asset reflects marketexpectations about the probability that the future economic benefits embodied inthe asset will flow to the group. Amortisation begins when the intangible assetis first available for use and is calculated on a discounted straight-line basisto allocate the deemed cost over its estimated useful life. 4.6 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and anyprovision for impairment. Disposal of assets: the gain or loss arising on the disposal of an asset isdetermined as the difference between the disposal proceeds and the carryingamount of the asset and is recognised in the income statement. Any revaluationsurplus remaining in equity on disposal of the asset is transferred to theprofit and loss reserve. Depreciation: Depreciation is provided at annual rates calculated to write offthe cost less residual value of each asset over its expected useful life, withinthe following ranges: • Plant and machinery: 15% on written down value to 20% on cost • Fixtures, fittings and equipment: 15% on written down value to 33% on cost • Motor vehicles: 25% on written down value to 25% on cost • Building improvements: 20% on cost Material residual value estimates are updated as required but at least annually,whether or not the asset is revalued. 4.7 Impairment testing of goodwill, other intangible assets andproperty, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment andsome are tested at cash-generating unit level. Goodwill is allocated to thosecash-generating units that are expected to benefit from synergies of the relatedbusiness combination and represent the lowest level within the group at whichmanagement monitors the related cash flows. Goodwill, other individual assets or cash-generating units that includegoodwill, other intangible assets with an indefinite useful life and thoseintangible assets not yet available for use are tested for impairment at leastannually. All other individual assets or cash-generating units are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash-generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. 4.8 Leases In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. Assets held under finance leases and hire purchase contracts are capitalised inthe balance sheet and depreciated over their expected useful lives. Theinterest element of leasing payments represents a constant proportion of thecapital balance outstanding and is charged to the income statement over theperiod of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over theperiod of the lease term. Lease incentives are spread over the term of thelease. 4.9 Inventories and work in progress Inventories and work in progress are stated at the lower of cost and netrealisable value. Costs of ordinarily interchangeable items are assigned usingthe first-in, first-out cost formula. Cost includes materials, direct labourand an attributable proportion of manufacturing overheads based on normal levelsof activity. 4.10 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 temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries is not provided ifreversal of those temporary differences can be controlled by the group and it isprobable that reversal will not occur in the foreseeable future. In addition,tax losses available to be carried forward as well as other income tax creditsto the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferredtax assets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective periods ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense on the income statement, except where they relate to items that arecharged or credited directly to equity in which case the related deferred tax isalso charged or credited directly to equity. The interim tax charge on underlying business performance is calculated byreference to the estimated effective tax rate for the full year. Tax ondisposals and other exceptional items is based on the expected tax impact ofeach item. 4.11 Share-based payments For equity-settled share options, the services received from employees aremeasured by reference to the fair value of the share options. The fair value iscalculated at grant date and recognised in the income statement, together with acorresponding credit to "other reserves", on a straight-line basis over thevesting period, based on the best available estimate of the number of optionsthat are expected eventually to vest. Estimates are subsequently revised ifthere is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options ultimately exercised are differentto that estimated on vesting. Vesting conditions, other than market conditions,are not taken into account when estimating the fair value. IFRS 2 has been applied, in accordance with IFRS 1, to equity-settled shareoptions granted on or after 7 November 2002 and not vested at 1 January 2006. Upon exercise of share options the proceeds received net of attributabletransaction costs are credited to share capital, and where appropriate sharepremium. 4.12 Financial assets Financial assets are divided into the following categories: loans andreceivables and available-for-sale financial assets. Financial assets areassigned to the different categories by management on initial recognition,depending on the purpose for which they were acquired. The designation offinancial assets is re-evaluated at every reporting date at which a choice ofclassification or accounting treatment is available. All financial assets are recognised when the group becomes a party to thecontractual provisions of the instrument. Financial assets are recognised atfair value plus transaction costs. Loans and receivables comprise trade receivables and are non-derivativefinancial assets with fixed or determinable payments that are not quoted in anactive market. They are measured subsequent to initial recognition at amortisedcost using the effective interest method, less provision for impairment. Anychange in their value through impairment or reversal of impairment is recognisedin the income statement. Provision against trade receivables is made when thereis objective evidence that the group will not be able to collect all amounts dueto it in accordance with the original terms of those receivables. The amount ofthe write-down is determined as the difference between the asset's carryingamount and the present value of estimated future cash flows. Available-for-sale financial assets include non-derivative financial assets thatare either designated as such or do not qualify for inclusion in any of theother categories of financial assets. All financial assets within this categoryare measured subsequently at fair value, with changes in value recognised inequity, through the statement of changes in equity. Gains and losses arisingfrom investments classified as available-for-sale are recognised in the incomestatement when they are sold or when the investment is impaired, with acorresponding adjustment within the statement of changes in equity in respect ofpreviously recognised changes in fair value. In the case of impairment of available-for-sale assets, any loss previouslyrecognised in equity is transferred to the income statement. An assessment forimpairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cashflows from the asset expire or the financial asset is transferred and thattransfer qualifies for derecognition. A financial asset is transferred if thecontractual rights to receive the cash flows of the asset have been transferredor the group retains the contractual rights to receive the cash flows of theasset but assumes a contractual obligation to pay the cash flows to one or morerecipients. A financial asset that is transferred qualifies for derecognitionif the group transfers substantially all the risks and rewards of ownership ofthe asset, or if the group neither retains nor transfers substantially all therisks and rewards of ownership but does transfer control of that asset. 4.13 Financial liabilities Financial liabilities are obligations to pay cash or other financial assets andare recognised when the group becomes a party to the contractual provisions ofthe instrument. Financial liabilities are recorded initially at fair value, netof direct issue costs, and are recorded at amortised cost using the effectiveinterest method, with interest-related charges recognised as an expense infinance cost in the income statement. Finance charges, including premiumspayable on settlement or redemption and direct issue costs, are charged to theincome statement on an accruals basis using the effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished,that is, when the obligation is discharged or cancelled or expires. 4.14 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. 4.15 Pensions Companies in the group operate defined contribution pension schemes foremployees and directors. The assets of the schemes are held by investmentmanagers separately from those of the company and group. The pension costscharged against operating profits represent the amount of the contributionspayable to the schemes in respect of the accounting period. 4.16 Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Non-monetary items that are measured at fairvalue in a foreign currency are translated using the exchange rate at the datewhen the fair value was determined. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. All foreign exchange differences are dealt with through the incomestatement. 4.17 Dividends Dividend distributions payable to equity shareholders are included in "trade andother payables" when the dividends are approved in general meeting prior to thebalance sheet date. 4.18 Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fairvalue of consideration received for equity shares, net of expenses of the shareissue. • "Merger reserve" represents the fair value of the considerationreceived in excess of the nominal value of equity shares issued in connectionwith acquisitions where the company has exercised entitlement to the mergerrelief offered by section 131 of the Companies Act 1985. • "Other reserves" represents provision for equity-settled share-basedemployee remuneration until such share options are exercised. • "Profit and loss reserve" represents retained profits. • "Revaluation reserve" represents gains and losses due to therevaluation of certain financial assets. 5. Segmental reporting The group's primary reporting format is business segment and its secondaryformat is geographical segment by origin of revenue. Segment analysis: all of the group's operations are in the field of design andmanufacture of scientific instruments. The revenues and net results generatedby each of the business segments are as follows: 6 months to 6 months to Year to 30 June 2007 30 June 2006 31 December 2006 £ £ £Fire testing equipmentRevenues 1,703,280 1,527,534 3,247,979Operating profit 199,286 186,035 495,499 Fibre optic test equipmentRevenues 457,281 419,020 787,817Operating profit 69,824 82,207 95,763 Ultra high vacuum manipulation equipmentRevenues 675,690 459,744 1,159,529Operating profit 140,956 129,168 282,839 Central costs and consolidationRevenues 0 0 0Operating profit (113,776) (249,195) (391,411) Group consolidatedRevenues 2,836,251 2,406,298 5,195,325Operating profit 296,290 148,215 482,690 All revenue originates from the United Kingdom. 6. Additions to and amortisation of intangible assets The following tables show the significant additions to and amortisation ofintangible assets: Carrying Additions Amortisation Carrying amount at 1 amount at 30 January 2007 June 2007 £ £ £ £ Advertising contracts 2,488 0 1,867 621Distribution agreements 16,333 0 16,333 0Customer relationships 158,348 0 51,927 106,421Non-competition agreements 18,755 0 2,250 16,505 Total 195,924 0 72,377 123,547 Carrying Additions Amortisation Carrying amount at 1 amount at 30 January 2006 June 2006 £ £ £ £ Advertising contracts 0 5,600 1,245 4,355Distribution agreements 0 98,000 32,667 65,333Sales order backlog 0 89,000 89,000 0Customer relationships 0 128,602 0 128,602Non-competition agreements 0 22,505 1,500 21,005 Total 0 343,707 124,412 219,295 Carrying Additions Amortisation Carrying amount at 1 amount at 31 January 2006 December 2006 £ £ £ £ Advertising contracts 0 5,600 3,112 2,488Distribution agreements 0 98,000 81,667 16,333Sales order backlog 0 91,000 91,000 0Customer relationships 0 207,602 49,254 158,348Non-competition agreements 0 22,505 3,750 18,755 Total 0 424,707 228,783 195,924 7. Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the period. The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares and the post-tax effect ofinterest, on the assumed conversion of all dilutive options and other dilutivepotential ordinary shares. Reconciliations of the earnings and the weighted average number of shares usedin the calculations are set out below: 6 months to 30 June 2007 Earnings Weighted Earnings attributable to average per equity holders number of share of the parent shares company £ no. Pence Profit after tax for calculation of basic earnings per share 113,334Notional taxed interest income accruing on dilution 10,374Profit after tax for calculation of diluted earnings per share 123,708Add-back amortisation of intangible assets, net of tax 50,664Adjusted diluted profit before amortisation of intangible assets 174,372 Number of shares for calculation of basic earnings per share 3,560,878Dilutive effect of potential shares 748,218Number of shares for calculation of diluted earnings per share 4,309,096 Basic earnings per share 3.18Diluted earnings per share 2.87Adjusted diluted earnings per share 4.05 6 months to 30 June 2006 Earnings Weighted Earnings attributable to average per equity holders number of share of the parent shares company £ no. Pence Profit after tax for calculation of basic earnings per share 30,745Notional taxed interest income accruing on dilution 8,171Profit after tax for calculation of diluted earnings per share 38,916Add-back amortisation of intangible assets, net of tax 87,088Adjusted diluted profit before amortisation of intangible assets 126,004 Number of shares for calculation of basic earnings per share 3,528,763Dilutive effect of potential shares 704,681Number of shares for calculation of diluted earnings per share 4,233,444 Basic earnings per share 0.87Diluted earnings per share 0.92Adjusted diluted earnings per share 2.98 Year to 31 December 2006 Earnings Weighted Earnings attributable to average per share equity holders number of of the parent shares company £ no. pence Profit after tax for calculation of basic earnings per share 190,105Notional taxed interest income accruing on dilution 16,685Profit after tax for calculation of diluted earnings per share 206,790Add-back amortisation of intangible assets, net of tax 160,148Adjusted diluted profit before amortisation of intangible assets 366,938 Number of shares for calculation of basic earnings per share 3,544,953Dilutive effect of potential shares 718,852Number of shares for calculation of diluted earnings per share 4,263,805 Basic earnings per share 5.36Diluted earnings per share 4.85Adjusted diluted earnings per share 8.60 8. Events after the balance sheet date On 9 August 2007, a recommended cash offer of 6p per share was made for thewhole of the issued share capital of Poole Investments plc, in which the groupowned 3.08% and which formed the last significant holding under its previousinvestment strategy. The offer was declared unconditional in all respects on 6September 2007. The cash proceeds of this disposal of £342,000 are expected tobe received by the end of September 2007 and the gain to be realised through theincome statement will amount to £142,217 before tax. 9. Explanation of transition to IFRS As stated in the Basis of Preparation, these are the group's first condensedconsolidated interim financial statements for part of the period covered by thefirst IFRS annual consolidated financial statements prepared in accordance withIFRS. An explanation of how the transition from UK GAAP to IFRS has affectedthe group's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theseinterim financial statements have been prepared on the basis of taking thefollowing exemptions: • business combinations prior to 1 January 2006, the group's date of transition to IFRS, have not been restated to comply with IFRS 3 Business Combinations. Goodwill arising from these business combinations of £3,762,324 (net of amortisation to 31 December 2005) has not been restated other than as set out in note d below. • negative goodwill arising on business combinations prior to 1 January 2006 of £124,265 (net of amortisation to 31 December 2005) has been transferred to reserves as at the date of transition. Reconciliation of equity at 1 January 2006 UK IFRS adjustments - 1 January 2006 IFRS GAAP Eliminate State equity Deferred tax negative investments on FTT goodwill at market value fair value adjustmentNote 9a 9e 9f £ £ £ £ £Non-current assetsPP&E 114,336 114,336Goodwill 3,762,324 (27,789) 3,734,535Negative goodwill (124,265) 124,265 0Available-for-sale investments 427,911 (83,586) 344,325 Current assetsInventories 413,130 413,130Trade and other receivables 692,350 692,350Cash and cash equivalents 1,148,619 1,148,619 Current liabilitiesTrade and other payables (472,466) (472,466)Current portion of long-term borrowings (256,000) (256,000)Current tax payable (315,798) (315,798) Non-current liabilitiesLong-term borrowings (2,528,959) (2,528,959)Deferred tax (23,557) (37,280) 25,076 27,789 (7,972) Net assets 2,837,625 86,985 (58,510) 0 2,866,100 Reconciliation of equity at 1 January 2006 (continued) UK IFRS adjustments - 1 January 2006 IFRS GAAP Eliminate State equity Deferred tax negative investments on FTT goodwill at market value fair value adjustmentNote 9a 9e 9f £ £ £ £ £ EquityShare capital (173,118) (173,118)Share premium (2,501,430) (2,501,430)Merger reserve (380,000) (380,000)Profit and loss account 232,471 (44,362) 188,109Revaluation reserve 0 58,510 58,510Minority interests (15,548) (42,623) (58,171) Total equity (2,837,625) (86,985) 58,510 0 (2,866,100) Reconciliation of equity at 30 June 2006 UK IFRS adjustments - 30 June 2006 IFRS GAAP Eliminate Eliminate Business Amortisation State Deferred negative goodwill combinations of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj Note 9a 9d (iii) 9d (i) 9d (iii) 9e 9f £ £ £ £ £ £ £ £ Non-current assetsPP&E 231,913 231,913Goodwill 4,400,299 109,108 (240,595) (27,789) 4,241,023Negative goodwill (69,666) 69,666 0Other intangible assets 0 343,707 (124,412) 219,295 Available-for-sale investments 219,155 (36,705) 182,450 Current assetsInventories 540,567 540,567Trade and other receivables 737,499 737,499Cash and cash equivalents 1,230,137 1,230,137 Current liabilitiesTrade and other payables (646,235) (646,235)Current portion of long-term borrowings (330,000) (330,000)Current tax payable (237,287) (237,287) Non-current liabilitiesLong-term borrowings (3,047,330) (3,047,330)Deferred tax (31,568) (20,900) (103,112) 37,324 11,012 24,643 (82,601) Net assets 2,997,484 48,766 109,108 0 (87,088) (25,693) (3,146) 3,039,431 Reconciliation of equity at 30 June 2006 (continued) UK IFRS adjustments - 30 June 2006 IFRS GAAP Eliminate Eliminate Business Amortisation State Deferred negative goodwill combinations of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj 9a 9d (iii) 9d (i) 9d (iii) 9e 9f £ £ £ £ £ £ £ £ EquityShare capital (178,044) (178,044)Share premium (2,501,430) (2,501,430)Merger reserve (475,074) (475,074)Profit and loss account 201,109 (24,871) (109,108) 87,088 3,146 157,364Revaluation reserve 0 25,693 25,693Minority interests (44,045) (23,895) (67,940) Total equity (2,997,484) (48,766) (109,108) 0 87,088 25,693 3,146 (3,039,431) Reconciliation of equity at 1 January 2007 UK IFRS adjustments - 1 January 2007 IFRS GAAP Eliminate Eliminate Business Amortisation State Deferred negative goodwill combinations of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj Note 9a 9d (iii) 9d (i) 9d (iii) 9e 9f £ £ £ £ £ £ £ £ Non-current assetsPP&E 295,468 295,468Goodwill 4,467,528 247,519 (297,295) (27,789) 4,389,963Negative goodwill (36,702) 36,702 0Other intangible assets 0 424,707 (228,783) 195,924Available-for-sale investments 219,155 (8,205) 210,950 Current assetsInventories 402,941 402,941Trade and other receivables 1,249,039 1,249,039Cash and cash equivalents 824,156 824,156 Current liabilitiesTrade and other payables (779,708) (779,708)Current portion of long-term (421,813) (421,813)borrowingsCurrent tax payable (261,718) (261,718) Non-current liabilitiesLong-term borrowings (2,835,940) (2,835,940)Deferred tax (43,676) (11,011) (127,412) 68,635 2,462 21,497 (89,505) Net assets 3,078,730 25,691 247,519 0 (160,148) (5,743) (6,292) 3,179,757 Reconciliation of equity at 1 January 2007 (continued) UK IFRS adjustments - 1 January 2007 IFRS GAAP Eliminate Eliminate Business Amortisation State Deferred negative goodwill combinations of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj 9a 9d (iii) 9d (i) 9d (iii) 9e 9f £ £ £ £ £ £ £ £ EquityShare capital (178,044) (178,044)Share premium (2,501,430) (2,501,430)Merger reserve (475,074) (475,074)Profit and loss account 127,810 (13,102) (247,519) 160,148 6,292 33,629Revaluation reserve 0 5,743 5,743Minority interests (51,992) (12,589) (64,581) Total equity (3,078,730) (25,691) (247,519) 0 160,148 5,743 6,292 (3,179,757) Reconciliation of profit for the 6 months ended 30 June 2006 UK IFRS adjustments - 30 June 2006 IFRS GAAP Eliminate Eliminate Amortisation State Deferred negative goodwill of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj 9b 9d (iii) 9d (iii) 9e 9f Note £ £ £ £ £ £ £ Turnover (continuing and acquisitions) 2,406,298 2,406,298 Operating costs (2,133,671) (2,133,671)Goodwill amortisation - positive (109,108) 109,108 0Goodwill amortisation - negative 54,599 (54,599) 0Amortisation of intangibles 0 (124,412) (124,412) Total operating costs (2,188,180) (54,599) 109,108 (124,412) 0 0 (2,258,083) Operating profit/(loss) 218,118 (54,599) 109,108 (124,412) 0 0 148,215 Profit/(loss) on disposal and changes in market values of investments (6,145) (6,145)Interest receivable 19,376 19,376Interest (payable) (109,913) (109,913) Profit on ordinary activities before taxation 121,436 (54,599) 109,108 (124,412) 0 0 51,533 Tax on profit on ordinary activities (61,577) 16,380 37,324 (3,146) (11,019) Profit on ordinary activities after taxation 59,859 (38,219) 109,108 (87,088) 0 (3,146) 40,514 Minority interests (28,497) 18,728 (9,769) Profit for the financial period retained 31,362 (19,491) 109,108 (87,088) 0 (3,146) 30,745 Reconciliation of profit for the year ended 31 December 2006 UK IFRS adjustments - 31 December 2006 IFRS GAAP Eliminate Eliminate Amortisation State Deferred negative goodwill of equity tax on goodwill amortisation intangibles investments FTT fair at market value values adj 9b 9d (iii) 9d (iii) 9e 9f Note £ £ £ £ £ £ £ Turnover (continuing and acquisitions) 5,195,325 5,195,325 Operating costs (4,483,852) (4,483,852)Goodwill amortisation - positive (247,519) 247,519 0Goodwill amortisation - negative 87,563 (87,563) 0Amortisation of intangibles 0 (228,783) (228,783) Total operating costs (4,643,808) (87,563) 247,519 (228,783) 0 0 (4,712,635) Operating profit/(loss) 551,517 (87,563) 247,519 (228,783) 0 0 482,690 Profit/(loss) on disposal and changes in market values of investments (6,145) (6,145) Interest receivable 32,041 32,041Interest (payable) (227,418) (227,418) Profit on ordinary activities before taxation 349,995 (87,563) 247,519 (228,783) 0 0 281,168 Tax on profit on ordinary activities (173,265) 26,269 68,635 (6,292) (84,653) Profit on ordinary activities after taxation 176,730 (61,294) 247,519 (160,148) 0 (6,292) 196,515 Minority interests (36,440) 30,030 (6,410) Profit for the financial period retained 140,290 (31,264) 247,519 (160,148) 0 (6,292) 190,105 Notes to the reconciliations a) The group acquired 51% of the issued share capital ofPE.fiberoptics Limited on 2 September 2005. Under UK GAAP, negative goodwillarising in connection with this acquisition was capitalised. Under IFRS, theamount of negative goodwill as at the date of transition was transferred toreserves. The result of this adjustment is to decrease negative goodwill by£124,265 as at the date of transition to IFRS and to increase deferred tax,minority interest and reserves by the same amount in aggregate. At 30 June 2006and 31 December 2006 the value of the reduction in negative goodwill was £69,666and £36,702 respectively. b) Negative goodwill recognised by the group on the above acquisitionunder UK GAAP was written back to profit and loss to match the consumption ofthe non-monetary assets acquired. Under IFRS, with the balance of negativegoodwill as at the date of transition having been transferred to reserves, noamortisation or write-back is required. The result of these adjustments is toeliminate the amortisation credit of £54,599 in the income statement for the sixmonths ended 30 June 2006 and of £87,563 for the year ended 31 December 2006.After 30% Corporation Tax and 49% minority interest, the net profit reduction is£19,492 and £31,260 respectively. c) The group acquired UHV Design Limited on 21 February 2006 and thegoodwill and certain trading assets of Aitchee Engineering Associates on 4September 2006. Goodwill recognised by the group on these acquisitions under UK GAAP was amortised over a period of 20 years in the case of UHV Design Limitedand 3 years in the case of the Aitchee business. Under IFRS goodwill is notamortised, but tested annually for impairment and therefore the amortisationcharge recognised in accordance with UK GAAP in 2006 has been written back.However, intangible assets identified on business combinations in accordancewith IFRS as described above are amortised in accordance with the accountingpolicy explained above. Application of IFRS 3 to these business combinationsresulted in identification of a number of intangible assets, including customerrelationships, distribution agreements and sales order backlogs. Under IFRSthese have been recognised separately in the balance sheet at their fair valuesat the dates of the combinations, along with the associated deferred tax. UnderUK GAAP these intangible assets were subsumed within goodwill and amortised inaccordance with the group's accounting policy above. d) The result of these changes is: (i) To decrease goodwill by £240,595 and increase intangible assetsby £343,707 (with deferred tax of £103,112) as at the date of the combination inthe case of UHV Design Limited and to decrease goodwill by £56,700 and increaseintangible assets by £81,000 (with deferred tax of £24,300) in the case ofAitchee Engineering Associates. (ii) At 30 June 2006 and 31 December 2006 the value of theseintangible assets, net of amortisation, was £219,215 and £195,924 respectively. (iii) The goodwill amortisation charge in respect of these acquisitionsand that of Fire Testing Technology Limited ("FTT" - acquired prior to the dateof transition to IFRS) in the 6 months ended 30 June 2006 and the year ended 31December 2006 was reduced in aggregate by £109,108 and £247,519 respectively.The equivalent intangible assets amortisation charge was increased by £124,412and £228,783 respectively, each stated prior to a 30% reduction to reflect therelease of deferred taxation. e) Under UK GAAP, available-for-sale investments were stated at thelower of cost and the directors' estimates of near-term net realisable value.Under IFRS, such investments are stated at open market values, with changes invalue being transferred directly into equity, net of applicable taxation.Amounts accumulated in equity are transferred to the income statement when anavailable-for-sale investment is sold. This has had the effect of reducing thecarrying value of such investments by £83,586 to £344,325 at 31 December 2005,by £36,705 to £182,450 at 30 June 2006 and by £8,205 to £210,950 at 31 December2006, with consequential changes to deferred tax and in equity. f) Under UK GAAP, no deferred tax was recognised in respect of fairvalue adjustments arising on the acquisition of FTT. Notwithstanding that thedate of the FTT acquisition was prior to the group's IFRS transition date, IFRSrequires that deferred tax be recognised in respect of such fair valueadjustments. Accordingly a deferred tax liability of £27,789 has beenrecognised at the transition date, with reversals of the provision of £3,146 and£6,292 in the six months ended 30 June 2006 and year ended 31 December 2006respectively. 10. Explanation of material adjustments to the cash flow statement Application of IFRS has resulted in the reclassification of certain items in thecash flow statement as follows: (i) Under UK GAAP, payments to acquire property, plant andequipment were classified as part of 'Capital expenditure and financialinvestment'. Under IFRS, payments to acquire property, plant and equipment havebeen classified as part of 'Investing activities'. (ii) Income taxes are classified as operating cash flows underIFRS, but were included in a separate category of tax cash flows under UK GAAP. (iii) Interest paid and interest received are classified as cashflows from investing activities under IFRS, but were included in the 'Returns oninvestments and servicing of finance' category in cash flows under UK GAAP. (iv) Equity dividends paid are classified as financing cash flowsunder IFRS, but were included in a separate category of dividend cash flowsunder UK GAAP. There are no other material differences between the cash flow statementpresented under IFRS and that presented under UK GAAP. Changes in net debt in the 6 months ended 30 June 2007 were as follows: I January 2007 Cash flow Non-cash items 30 June 2007 Revaluation Other reserve £ £ £ £ £ Cash at bank and in hand 824,156 (175,839) 0 0 648,317Available-for-sale investments 210,950 0 57,000 0 267,950Debt (bank and subordinated loans) (3,257,753) 210,763 0 (14,689) (3,061,679) Net debt (2,222,647) 34,924 57,000 (14,689) (2,145,412) 11. Dividends The company paid a maiden dividend of 1p per share (£35,629) on 3 November 2006and a final dividend of 2p per share (£71,258) on 6 July 2007, both relating tothe financial year ended 31 December 2006. 12. Status of interim report The financial information set out in this interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thegroup's statutory financial statements for the year ended 31 December 2006,prepared under UK GAAP, have been filed with the Registrar of Companies. Theauditor's report on those financial statements was unqualified and did notcontain a statement under Section 237(2) of the Companies Act 1985. 13. Distribution of document Copies of these condensed consolidated interim financial statements will be sentto shareholders and the AIM team shortly and will be available on the company'swebsite www.judges.uk.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Judges Scientific