11th Dec 2007 07:01
Brulines (Holdings) PLC11 December 2007 Press Release 11 December 2007 Brulines (Holdings) plc ("Brulines" or "the Group") Interim Results Brulines (Holdings) plc, the UK's market leader in dispense monitoring,announces its Interim Results for the six months ended 30 September 2007. Highlights • Operating profit increased 27.9% to £2.06 million (2006: £1.61 million) • Gross margins improved to 49.8% (2006: 42.8%) • Earnings per share increased by 32.1% to 6.25p (2006: 4.73p) • Net cash position of £5.76 million • Maiden interim dividend since flotation of 1.45p per share (2006: none) • Acquisition of a majority shareholding in Coin Metrics • Proposed purchase of all the issued share capital of Nucleus Data Holdings • Satisfactory progression of new installations, system replacements and upgrades, taking the total installation base to over 19,000 Commenting on the Interim Results, James Newman, Brulines Chairman said: "The Group has made good progress since flotation, not only in its existingbusiness activities, but also in the development and achievement of itsstrategic plans. Gross margin has risen from 42.8% for the first half 2006/7 to 49.8% for thefirst half 2007/8 as a result of increased recurring revenue and not incurringthe high set up costs associated with the Enterprise Inns roll out programme. The high visibility of our earnings, the cash generative nature of our corebusiness and our proposed purchase of Nucleus, combined with the other recentacquisitions in the amusement machines sector and a strong underlying cashposition, all provide a secure foundation for accelerated growth. We willachieve this both organically and by acquisition, as opportunities arise, intonew markets such as vending, temperature and utilities monitoring. The Boardis, therefore, confident that the Group will continue to grow in line withexpectations." Enquiries: Brulines (Holdings) plcJames Dickson, Chief Executive Tel: +44 (0) 1642 358 [email protected] Foster, Finance [email protected] www.brulines.com Grant Thornton UKGerry Beaney Tel: +44 (0) 20 7383 5100 www.gtuk.com Media enquiries:Abchurch CommunicationsSarah Hollins/Justin Heath Tel: +44 (0) 207 398 7700 [email protected] www.abchurch-group.com Chairman's Statement I am pleased to report on another strong set of results and significant progressin the strategic development of the Group during the last six months. Results As expected, turnover for the period at £8.06 million (2006: £9.24 million) hasreduced as a result of a significant change in the revenue mix. This is largelydue to a major installation programme undertaken last year, which was notrepeated on such a scale this year. However, the service income margin associated with these installations startedto come through as anticipated, increasing overall gross margins to 49.8% from42.8% last year. With other costs being well managed, this has resulted in anincrease in operating profit of some 27.9% to £2.06 million. Finance income further increased profit before tax for the period to £2.18million compared to £1.38 million in 2006. Basic earnings per share for the period at 6.25p compared favourably to 4.73plast year and 7.17p for the whole of last year. Dividend The Board have declared an interim dividend of 1.45p per share, which will bepayable on 23 January 2008 to shareholders on the register as at 21 December.No interim dividend was paid last year as the Group did not join AIM untilOctober 2006. A final dividend of 3.00p was paid in respect of the year ended31 March 2007 on 25 July 2007. Acquisitions In May this year, the Group acquired a majority shareholding in Coin MetricsLimited ('Coin Metrics'). Coin Metrics has developed the Site Guardian system,a wireless data product that allows its customers in the amusement and gaming(or 'AWP') industries to monitor constantly the financial performance of theirgaming sites and assets accurately in real time. The acquisition of Coin Metrics is a strong strategic fit with the Group'sexisting Machine Insite business, which already provides gaming machine datamanagement and consultancy services to operators within the pub, club andleisure markets. In early September, the Company announced that it had entered into a conditionalcontract to purchase all the issued share capital of Nucleus Data HoldingsLimited ('Nucleus') for a consideration of £3.8 million. Management's long termbelief has been that the combined Group will be even better placed to compete inthe market place and help our customers in the licensed on-trade to deliverimproved quality, a better customer experience and increased operationalproductivity. As Brulines main competitor Nucleus supplies data capture devices,communication platforms, data management, service and maintenance, and marketintelligence services to the UK licensed on-trade. The acquisition was conditional on the Office of Fair Trading ("OFT") notreferring the proposed merger to the Competition Commission. On 20 November2007, following a review of the facts and consultation with our customers, theOFT decided not to refer our merger with Nucleus to the Competition Commission,validating managements' arguments. Extraordinary General Meeting At an Extraordinary General Meeting of the Company held on 21 November, aresolution was approved by shareholders allowing the Company to buy up to2,411,610 shares representing approximately 10% of the Company's issued sharecapital. This will allow the Company more flexibility in the management of its capitalbase and will be renewed at the next Annual General Meeting in 2008. Outlook The Group has made good progress since flotation, not only in its existingbusiness activities, but also in the development and achievement of itsstrategic plans. The acquisitions of Machine Insite and Coin Metrics willgreatly add to the Group's product offering and enable new and exciting growthopportunities to be realised, especially the capture and analysis of criticaloperational data. The high visibility of our earnings and the cash generative nature of our corebusiness together with our proposed purchase of Nucleus, combined with the otherrecent acquisitions in the amusement machines sector and a strong underlyingcash position, all provide a secure foundation for accelerated growth bothorganically and by acquisition (as opportunities arise) into new markets, suchas vending, temperature and utilities monitoring. The Board is, therefore,confident that the Group will continue to grow in line with expectations. James H NewmanChairman 11 December 2007 Executive Review Group profit The Group results for the six months to 30 September 2007 are in line withmanagement expectations. As anticipated, on a comparable year on year basis, the core business turnoverfor the first half decreased by 12.7% to £8.06 million (2006: £9.24 million)with the decline attributable to the exceptionally high level of installationactivity associated with Enterprise Inns roll out in 2006/7. The turnover mix in the first half continued to improve, moving towardsrecurring revenue as income from support service contracts was generated fromthe increasing installation base. Recurring revenue currently accounts forover 60% of Group turnover and management expects this to continue to rise forthe foreseeable future. Gross margin has risen from 42.8% for the first half 2006/7 to 49.8% for thefirst half 2007/8 as a result of increased recurring revenue and not incurringthe high set up costs associated with the Enterprise Inns roll out programme.Other direct costs of sale also decreased by 15% as lower direct operating costshave been achieved from improved efficiency. After absorbing costs associated with the integration and support of MachineInsite and Coin Metrics, Group profit before taxation for first half 2007/8 at£2.2 million is £0.8 million greater than the same period last year delivering a32.1% increase in earnings per share to 6.25p. Customers and contracts New installations, system replacements and upgrades have progressedsatisfactorily in the first half with 1,100 new installations and 580 existingsystem upgrade replacements taking our total installation base to over 19,000sites, providing year-on-year growth in recurring revenue and increased marginsassociated with support services. Negotiations for our core product offering to the tenanted/leased sector havebeen successfully completed with several customers including S&N PubEnterprises, Charles Wells and a five year contract extension with PunchTaverns. Discussions are advancing with other national and regional operators,and this is expected to increase our market share and continue to both broadenour customer base and gain deeper penetration within existing customers'estates. Market drivers The Group continues to benefit from a number of sector and legislative factorswhich have increased both the breadth and depth of our market penetration. Thesmoking bans and the increasing requirements on all leisure operators to improvethe quality and efficiency of their offering will continue to increase demandfor the Group's products regardless of any potential consumer slow down. Brand Quality Monitoring ("BQM") product development Further strong progress has been made with the BQM product range development asquality at the point of dispense becomes increasingly important due to pubowners and brewers competing for market share against a background of fallingon-premises beer consumption. The Group now has in excess of one hundred BQM systems installed in PunchTaverns with a five year support service contract. There is increased interestand demand from a growing number of pub companies for commercial evaluation ofBQM, with activity ongoing in both the national tenanted and managed sectorswith a broad range of operators, which could lead to a significant number ofcommercial installations in the next twelve months. Strategic growth acquisitions In early 2006 the Group decided to enter the amusement and gaming (or 'AWP')machine market to provide a monitoring and data management product. We have nowcompleted two acquisitions which have been successfully integrated and are wellpositioned to establish a leading data capture and machine management positionin the leisure sector. Machine Insite - leading position in gaming machine data management andconsultancy Machine Insite provides gaming machine data management and consultancy servicesto operators within the pub, club and leisure markets and is trading well andwill grow its contribution to Group profit over the coming years. Following ourinvestment in a new database and data management software with web basedreporting, it has gained new business with SA Brain, MOTO Motorway services,Spirit, Orchid, and Charles Wells during the past year and we now provide datamanagement for approximately 25,000 AWP machines across 30 groups and customerswithin the pub and leisure markets. Coin Metrics - remote data capture for gaming and vending machines In May 2007, as part of our plan to provide enhanced AWP and vending monitoringproducts such as remote data capture, the Group acquired a 66 percent holding inCoin Metrics Limited (CML). The core CML product is Site Guardian, a wirelessdata product that allows owners of gaming centres or family entertainmentcentres in the AWP industries to constantly monitor the financial performance oftheir gaming sites and assets accurately and in real time. The acquisition of CML is a strong strategic fit with Machine Insite as the realtime data capture capability will allow Machine Insite to provide advancedmachine reporting and M2M services which will enable the Group to accelerate thegrowth of the AWP data management business to market leadership, whilst alsoopening up new applications and markets for the next generation of wireless datacapture systems into new business sectors, such as vending. The Group is in discussion with potential customers and partners within thevending industry for the development and supply of VENDGuardianTM which willprovide real time data capture on vending machine operational information suchas activity, stock level, stock replenishment, chilled environment, revenue etc. Nucleus Data Holdings Limited ("Nucleus") - data capture and management for thepub industry The proposed acquisition of Nucleus is an important strategic development in theGroup's growth plans as it enhances product development, further strengthens thesenior team and provides a solid commercial platform from which to accelerateour entry into new markets. In the year ended 31 December 2006, Nucleus made a profit on ordinary activitiesbefore taxation of £0.3 million on a turnover of £3.1 million. At 31 December2006, the consolidated net assets of Nucleus amounted to £565,000. Due to the timing of the OFT decision the acquisition is expected to becompleted in early January 2008 and is therefore expected to be only earningsneutral in the year to 31 March 2008, with synergies from the merged businessesonly being realised in the year to 31 March 2009. The acquisition will beearnings enhancing in the year to 31 March 2009. The merged business will be able to pool resources for accelerated technologydevelopment to expand our product portfolio and improve existing productoffering. It will also reduce complexity and administration for customers whouse both suppliers as a result of the significant movement of pubs between pubcompanies following their acquisition / disposal process, whilst existingNucleus customers will benefit from the scale and reaction times of the Group'snationwide in-house field service engineering resources. Strategy for growth Our core Dispense Monitoring business alone has the potential to maintainsatisfactory Group growth over the next three years. However the Boardanticipate incremental contribution and margin growth from additionalcomplimentary products and technologies such as BQM, AWP, soft drinksmonitoring, fridge/freezer temperature, wines and spirits, and market insights. The Group has a strong customer and recurring revenue base and solid foundationsfor significant growth as we commercialise development products, extend into newmarkets and make selective acquisitions. Our Coin Metrics and Machine Insite businesses are positioned to achievesignificant growth as we develop our AWP machine monitoring and data managementproducts to market leadership in their existing and new leisure sectors. The increasing interest in BQM is expected to increase our coverage of thetenanted/leased and managed sectors as the product becomes central to industryquality and efficiency improvements for draught drinks dispense; • BQM is well positioned to be the market leader in supply of critical operational data for beer quality to the industry • Six key players supply, install and maintain drinks dispense systems in over 95% of draught outlets in the UK licensed on trade covering pubs, bars, hotels, restaurants, casinos, clubs and stadiums. • These parties employ the equivalent of over 800 technicians who make in excess of 800,000 maintenance call out visits per year. • Used in conjunction with desk top diagnostics the data provided by BQM could reduce the number of call outs by as much as 20% or more, and improve targeting of resource to dramatically reduce costs, improve product quality, reduce non availability and improve competitiveness. The Group is already in discussion with leading players amongst the pubcompanies and technical services providers to develop an integrated solution. Our core beer monitoring products underpin customer investment in our edisBOXcommunication platforms which once installed are capable of accepting additionalproducts and services. The Group believes that our ability to provide a wider range of effectiveoperational and market data will increase our value to existing customers withintenanted/leased and managed sectors, whilst allowing entry to the hotels, clubs,and independent sectors. Brulines anticipates very solid core business growth over the next three yearswhich will be combined with exciting growth potential from our newer productsand markets. The Group is now well positioned to pursue an acquisitive growth strategy as wehave the resources to identify, acquire and integrate appropriate targets. Management and employees Our ongoing commitment to the development of our ambitious management team andcommitted workforce will be strengthened by our drive to achieve the newInvestors in People standard during the coming year. Earnings per Share (EPS) EPS improved by 32.1% from 4.73p to 6.25p per share this half year, and on afully diluted basis, by 29% from 4.64p to 5.99p per share. The proceeds of the flotation in October 2006 and the cash flow generated overthe last year means that this year, the Group has finance income of £126,000against last years net finance charge of £233,000. Cash Generation The Group generated £3.1 million in the period of which £0.7 million was usedfor the acquisition of Coin Metrics and a further £0.7 million for the maidendividend paid in July 2007. The Group is using £0.95 million to part fund thedevelopment of new freehold offices which we will take possession of in December2008. The offices will provide sufficient capacity for 4-5 years further growthand will enable the merging of Nucleus operations. With a net cash position of £5.76 million and a highly cash generative corebusiness, the Group has a strong financial base to raise debt funding shouldappropriate acquisition opportunities arise. Transition to International Financial Reporting Standards (IFRS) These financial results are reported under IFRS. The principal impact has beenmainly the cessation of the routine amortisation of goodwill, as well asintangible assets amortisation associated with the acquisition of Coin Metrics. James Dickson Mark FosterChief Executive Group Finance Director 11 December 2007 Unaudited consolidated interim income statementFor the six months ended 30 September 2007 Unaudited Unaudited Unaudited 6 months 6 months Year ended ended ended 30 Sep 30 Sep 31 March 2007 2006* 2007* Note £'000 £'000 £'000 Continuing operationsRevenue 3 8,059 9,237 16,756Operating expenses (6,001) (7,430) (13,526)Listing expenses - (193) (681)Operating profit 2,058 1,614 2,549 Finance income 126 71 165Finance costs - (304) (344)Profit before tax 2,184 1,381 2,370 Tax 4 (678) (554) (913)Profit attributable to equity shareholders 1,506 827 1,457 Earnings per share 5Basic 6.25p 4.73p 7.17pDiluted 5.99p 4.64p 6.99p * restated under IFRS (see note 7) Unaudited consolidated interim balance sheetAt 30 September 2007 Unaudited Unaudited 30 Sep 30 Sep Unaudited 2007 2006* 31 March 2007* £'000 £'000 £'000 Non-current assetsGoodwill 9,907 9,111 9,220Other intangible assets 27 11 9Property, plant and equipment 447 261 487Deferred tax 6 - - 10,387 9,383 9,716 Current assetsInventories 1,411 1,303 1,288Trade and other receivables 2,662 2,998 2,892Cash and cash equivalents 5,765 4,820 4,079 9,838 9,121 8,259Current liabilitiesTrade and other payables (6,923) (5,512) (5,778)Tax liabilities (704) (548) (486)Obligations under finance leases and hire purchase - (12) -contractsBank overdraft and loans - (1,200) - (7,627) (7,272) (6,264) Net current assets 2,211 1,849 1,995 Non-current liabilitiesBank and other loans - (3,604) -Deferred tax - (22) -Loan notes - (4,125) - - (7,751) - Net assets 12,598 3,481 11,711 Shareholders' equityShare capital 2,412 1,750 2,408Share premium account 7,024 60 6,966Shares to be issued 68 - 32Own shares (151) - (151)Retained profit 3,245 1,671 2,456 Total shareholders' equity 12,598 3,481 11,711 * restated under IFRS (see note 7) Unaudited interim cash flow statementFor the six months ended 30 September 2007 Unaudited Unaudited Unaudited 6 months 6 months Year Ended ended ended 30 Sep 30 Sep 31 March 2007 2006 2007 £'000 £'000 £'000 Profit after tax 1,506 827 1,457Amortisation of intangible assets 20 - 2Depreciation 112 95 191Loss on sale of fixed assets - (1) -Share-based payments 36 - 32Change in inventories (123) (383) (368)Change in receivables 230 3,242 3,353Change in payables 1,129 (829) (565)Interest receivable 126 71 165Interest payable - (304) (344)Taxation expense recognised in income statement 678 554 913 Cash generated from operations 3,714 3,272 4,836 Interest payable - 304 344Interest receivable (126) (71) (165)Income taxes paid (484) (193) (640) Net cash generated from operating activities 3,104 3,312 4,375 Investing activities Proceeds on disposal of property, plant and equipment - 8 8Purchases of property, plant and equipment (67) (88) (405)Purchase of subsidiary undertakings (735) (155) (271)Cash acquired from subsidiary 39 - - Net cash used in investing activities (763) (235) (668) Financing activities Repayments of borrowings - (970) (5,678)Dividends Paid (717) - -Repayment of loan notes - - (4,215)Repayments of obligations under finance leases - (12) (24)and hire purchase contractsIssue of ordinary share capital 62 75 7,639 Net cash from financing activities (655) (907) (2,278) Net increase in cash and cash equivalents 1,686 2,170 1,429 Cash and cash equivalents at beginning of period 4,079 2,650 2,650 Cash and cash equivalents at end of period 5,765 4,820 4,079 Unaudited consolidated interim statement of changes in shareholders' equityFor the six months ended 30 September 2007 Unaudited Unaudited Unaudited 6 months 6 months Year ended ended ended 30 Sep 30 Sep 31 March 2007 2006* 2007* £'000 £'000 £'000 Profit attributable to equity shareholders 1,506 827 1,457 Total recognised income and expenses 1,506 827 1,457 Dividends paid (717) - -Issue of new shares 62 75 7,640Purchase of own shares - (155) (151)Share-based payments 36 - 32 Net addition to shareholders' equity 887 748 8,978 Equity attributable to equity shareholders at beginning of 11,711 2,733 2,733period Equity attributable to equity shareholders at end of period 12,598 3,481 11,711 * restated under IFRS (see note 7) Notes to the unaudited interim resultsFor the six months ended 30 September 2007 1. Statutory information The consolidated interim financial statements have been prepared in accordancewith the AIM Rules for Companies and on a basis consistent with the accountingpolicies set out in note 2, which will be applied when the Group prepares itsfirst set of annual financial statements in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the EU for the financial yearending 31 March 2008 (Note: this may lead to changes to the information nowbeing presented). These are the Group's first interim financial statements prepared under IFRS andtherefore IFRS 1 'First-time Adoption of International Financial ReportingStandards' has been applied. An explanation of the transition to IFRS isprovided in notes 2.2, 7 and 8. As permitted, the Group has chosen not to adopt IAS 34 'Interim FinancialStatements' in preparing these interim financial statements and therefore theinterim financial information is not in full compliance with IFRS. The interim financial statements are unaudited and do not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Theauditors' review report on the interim financial information for the six monthsended 30 September 2007 is set out on page •. The auditors have not issued areview report on the restated financial information for the six months ended 30September 2006. The financial information for the year ended 31 March 2007 has been derived fromthe published statutory accounts as restated by the IFRS adjustments set out innotes 7 and 8. A copy of the full accounts for that period, on which theauditors issued an unqualified report that did not contain statements underSection 237 (2) or (3) of the Companies Act 1985, has been delivered to theRegistrar of Companies. These interim financial statements will be posted to all shareholders and areavailable from the registered office at EDIS House, Wellington Court, PrestonFarm Business Park, Stockton on Tees, TS18 3TA or from our website atwww.brulines.com. 2. Accounting policies 2.1 Accounting convention The consolidated interim financial statements have been prepared under thehistorical cost convention. 2.2 First time adoption of IFRS The year ending 31 March 2008 will be the Group's first financial statementsprepared in accordance with IFRS. Accordingly, the measurement and recognitionrules of IFRS 1 'First Time Adoption of International Financial ReportingStandards' has been applied in the interim consolidated financial statements.The Group's transition date to IFRS is 1 April 2006, and the Group prepared itsopening balance sheet at that date in accordance with IFRS effective at 31 March2006 except as specified below. In preparing the interim consolidated financialstatements, the Group has applied certain of the optional exemptions availablein IFRS 1 from the full retrospective application of IFRS: Optional exemptions to full retrospective restatement elected by the Group (i) Business combinations The Group has taken the business combination exemption, which allows IFRS 3 'Business Combinations' not to be applied to business combinations that tookplace prior to 1 April 2006, the date of transition to IFRS. The impact of thisis to leave the goodwill resulting from the MBO in May 2005 as a carrying value,not to be amortised, subject to an annual impairment test. (ii) Share-based payments The Group has elected to apply IFRS 2 'Share-based Payments', only to awards ofequity instruments made after 7 November 2002, which had not vested by 1 April2006. The impact of this is that for 570,000 options, the fair value at date of granthas not been charged to the income statement over the vesting period. Reconciliations and explanations of the effect of the transition from UK GAAP toIFRS on the Group's equity and its profit or loss are provided in note 7. 2.3 Basis of consolidation The consolidated interim financial statements incorporate the results, assets,liabilities and cash flows of the company and each of its subsidiaries for thesix months ended 30 September 2007. Subsidiaries are entities controlled by the Group. Control is deemed to existwhen the Group has the power, directly or indirectly to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.The results, assets, liabilities and cash flows of subsidiaries are included inthe consolidated financial statements from the date control commences until thedate that control ceases. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. Intra-Group balances and transactions are eliminated on consolidation. 2.4 Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents the amounts receivable for goods provided in thenormal course of business, net of all related discounts and sales tax. Sale of dispense monitoring equipment and support -service packs Dispense monitoring equipment sales and support service packs are recognised atthe date of transaction with customers. The revenue from the sale is recognised at the point of installation and overthe support term of the service contract in accordance with the respectivecustomer's agreements. Interest incomeInterest income is accrued on a time basis using the effective interest method. Rental income Income from equipment leased to customers is accounted for on a straight-linebasis over the period to which it relates. These arrangements are operatingleases, where the risk and reward of the unit, which is capitalised, remainswith the Group. 2.5 Business combinations The purchase method is used to account for all acquisitions. The cost of anacquisition is measured at the fair values on the date of exchange of assetsgiven, liabilities incurred or assumed and equity instruments issued, togetherwith any costs directly attributable to the acquisition. At the date of acquisition, the identifiable assets and liabilities andcontingent liabilities of a subsidiary are measured at their fair values. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. 2.6 Goodwill Goodwill on acquisition of subsidiaries represents the excess of the cost of anacquisition over the fair value of the Group's share of the identifiable netassets of the acquired subsidiary. Goodwill is not amortised, but tested atleast annually for impairment, and carried at cost less accumulated impairmentlosses. Impairment losses are immediately recognised in the income statementand are not subsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. 2.7 Other intangible assets Separately acquired intangible assets The company does not operate any purchased computer software. All such softwareis licensed and expensed. Website development costs are capitalised to the extent that they deliverdemonstrable benefits to the Group and amortised over three years. Acquisition as part of a business combination In accordance with IFRS 3 "Business Combinations", an intangible asset acquiredin a business combination is deemed to have a cost to the Group of its fairvalue at acquisition date. Identifiable intangible assets acquired as part of abusiness combination are initially recognised separately from goodwill if theasset's fair value can be measured reliably, irrespective of whether the assethad been recognised by the acquiree before the business combination. Anintangible asset is considered identifiable only if it is separable or if itarises from contractual or other legal rights, regardless of whether thoserights are transferable or separable from the entity or from other rights andobligations. After initial recognition, intangible assets acquired as part of a businesscombination are carried at cost less accumulated amortisation and any impairmentlosses. Intangible assets acquired as part of a business combination and recognised bythe Group include customer orders. Amortisation Intangible assets are amortised on a straight-line basis, to reduce theircarrying value to their residual value, over their estimated useful lives. Thefollowing useful lives were applied during the period: Customer orders 12 months 2.8 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment losses. Cost comprises the purchase price of property, plantand equipment together with any directly attributable costs. Subsequent costs are included in an asset's carrying value or recognised as aseparate asset, when it is probable that future economic benefits associatedwith the additional expenditure will flow to the Group and the cost of the itemcan be measured reliably. All other costs are charged to the income statementwhen incurred. Depreciation commences when an asset is available for use. Depreciation ischarged so as to write off the depreciable amount of assets other than land totheir residual values over their estimated useful lives using a method thatreflects the pattern in which the assets' future economic benefits are expectedto be consumed by the Group. Depreciation is charged in equal annual instalments over the following periods: Freehold and long leasehold premises 50 yearsShort leasehold premises Period of leasePlant and machinery 4 yearsEquipment and vehicles 4 yearsMotor vehicles 4 yearsEDIS rental systems Term of hire Methods of depreciation, residual values and useful lives are reviewed andadjusted, if appropriate, at each balance sheet date. The gain or loss arising from the disposal or retirement of an item of property,plant and equipment is determined as the difference between the net disposalproceeds and the carrying amount of the item, and is included in the incomestatement. 2.9 Impairment of non-current assets At each balance sheet date, the Group assesses whether there is any indicationthat its assets have been impaired. If any such indication exists, therecoverable amount of the asset is estimated in order to determine the extent ofthe impairment, if any. If it is not possible to estimate the recoverableamount of the individual asset, the recoverable amount of the cash-generatingunit to which the asset belongs is determined. The recoverable amount of an asset or a cash-generating unit is the higher ofits fair value less costs to sell and its value in use. The value in use is thepresent value of the future cash flows expected to be derived from an asset orcash-generating unit. This present value is discounted using a pre-tax ratethat reflects current market assessments of the time value of money and of therisks specific to the asset for which future cash flow estimates have not beenadjusted. If the recoverable amount of an asset is less than its carryingamount, the carrying amount of the asset is reduced to its recoverable amount.That reduction is recognised as an impairment loss. An impairment loss relating to assets carried at cost less any accumulateddepreciation or amortisation is recognised immediately in the income statement. Goodwill acquired in a business combination is, from the acquisition date,allocated to each of the cash-generating units or Groups of cash-generatingunits that are expected to benefit from the synergies of the combination. Goodwill is tested for impairment at least annually, and whenever there is anindication that the asset may be impaired. An impairment loss is recognised for cash-generating units if the recoverableamount of the unit is less than the carrying amount of the unit. The impairmentloss is allocated to reduce the carrying amount of the assets of the unit byfirst reducing the carrying amount of any goodwill allocated to thecash-generating unit, and then reducing the other assets of the unit pro rata onthe basis of the carrying amount of each asset in the unit. If an impairment loss subsequently reverses, the carrying amount of the asset isincreased to the revised estimate of its recoverable amount but limited to thecarrying amount that would have been determined had no impairment loss beenrecognised in prior years. A reversal of an impairment loss is recognised inthe income statement. Impairment losses on goodwill are not subsequentlyreversed. 2.10 Borrowing costs All borrowing costs are recognised in the income statement in the period inwhich they are incurred. 2.11 Operating leases The costs of all operating leases are charged against operating profit on astraight-line basis at existing rental levels. Incentives to sign operatingleases are recognised in the income statement in equal instalments over the termof the lease. 2.12 Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • "Shares to be issued" represents equity-settled share-based employee remuneration until such share options are exercised. • "Own shares" represents the shares held in the company. • "Profit and loss reserve" represents retained profits. 2.13 Inventories Inventories are stated at the lower of cost and net realisable value on a FIFObasis. Cost of finished goods and work in progress includes materials and directlabour. Net realisable value is the estimated selling price, which would be realisedafter deducting all estimated costs of completion, and costs incurred inmarketing, selling and distributing such inventory. 2.14 Taxation The tax expense represents the sum of current tax and deferred tax. Current tax Current tax is based on taxable profit for the year and is calculated using taxrates enacted or substantively enacted at the balance sheet date. Taxableprofit differs from accounting profit either because items are taxable ordeductible in periods different to those in which they are recognised in thefinancial statements or because they are never taxable or deductible. Deferred tax Deferred tax on temporary differences at the balance sheet date between the taxbases of assets and liabilities and their carrying amounts for financialreporting purposes is accounted for using the balance sheet liability method. Using the balance sheet liability method, deferred tax liabilities arerecognised in full for all taxable temporary differences and deferred tax assetsare recognised to the extent that it is probable that taxable profits will beavailable against which deductible temporary differences can be utilised.However, if the deferred tax asset or liability arises from the initialrecognition of goodwill or the initial recognition of an asset or liability in atransaction, other than a business combination, that at the time of thetransaction affects neither accounting nor taxable profit, it is not recognised. Deferred taxation is measured at the tax rates that are expected to apply whenthe asset is realised or the liability settled based on tax rates and lawsenacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are offset only when there is a legallyenforceable right to set off current tax amounts and when they relate to thesame tax authority and the Group intends to settle its current tax amounts on anet basis. Current and deferred tax are recognised in the income statement except when theyrelate to items recognised directly in equity, when they are similarly taken toequity. 2.15 Provisions A provision is recognised when, as a result of a past event, the Group has alegal or constructive obligation, it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation, and areliable estimate of the amount of such an obligation can be made. Provisions are measured as the best estimate of the expenditure required tosettle the obligation at the balance sheet date. 2.16 Dividends Final dividends are recognised as a liability in the period in which they areapproved by the company's shareholders. Interim dividends are recognised whenthey are paid. 2.17 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short-termdeposits with a maturity of three months or less. Bank overdrafts are shownwithin current liabilities. For the purposes of the cash flow statement, cashand cash equivalents consist of cash and cash equivalents as defined above, netof outstanding bank overdrafts. 2.18 Employee share option schemes All share-based payment arrangements granted after 7 November 2002 that had notvested prior to 1 April 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-basedpayment are measured at their fair values. Where employees are rewarded usingshare-based payments, the fair values of employees' services are determinedindirectly by reference to the fair value of the instrument granted to theemployee. This fair value is appraised at the grant date and excludes the impactof non-market vesting conditions (for example, profitability and sales growthtargets). All equity-settled share-based payments are ultimately recognised as an expensein the income statement with a corresponding credit to "shares to be issued"reserve. If vesting periods or other non-market vesting conditions applies, the expenseis allocated over the vesting period, based on the best available estimate ofthe number of share options expected to vest. Estimates are subsequentlyrevised if there is any indication that the number of share options expected tovest differs from previous estimates. Any cumulative adjustment prior tovesting is recognised in the current period. No adjustment is made to anyexpense recognised in prior periods if share options ultimately exercised aredifferent to that estimated on vesting. Upon exercise of share options the proceeds received net of attributabletransaction costs are credited to share capital, and where appropriate sharepremium. 2.19 Financial instruments The Group classifies financial instruments, or their component parts, on initialrecognition as a financial asset, a financial liability or an equity instrumentin accordance with the substance of the contractual arrangement. Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes party to the contractual provisions of theinstrument. The particular recognition and measurement methods adopted for the Group'sfinancial instruments are disclosed below: Trade and other receivables Trade and other receivables are initially recognised at fair value. Due to theirshort term nature they do not carry interest and are stated at their nominalvalue, as reduced by appropriate allowances for estimated irrecoverable amounts.A provision for impairment of trade receivables is established when there isevidence that the Group will not be able to collect all amounts due according tothe original terms of these receivables. The amount of the provision is thedifference between the carrying value and the present value of estimated futurecash flows, discounted at the effective interest rate. Impairment losses arerecognised in the income statement. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits on call with banks andbank overdrafts. Bank overdrafts are disclosed as current borrowings on thebalance sheet. Trade and other payables Trade and other payables are not interest bearing and are stated at theirsettlement amount. Borrowings Borrowings are recognised initially at fair value. Subsequent measurement is atamortised cost. Finance charges, including any premiums payable or discounts,and direct issue costs are recognised in the income statement over the period ofthe borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. 3. Segmental information For management purposes the Group is currently organised into two operatingdivisions. These business segments are the basis on which the Group reports itsprimary segmental information. As the Group's business is entirely conductedwithin the United Kingdom, there are no geographical business segments and as aresult no secondary reporting segmental information is presented. The segmental results for the 6 months ended 30 September 2007 are as follows: Dispense Machine Group Monitoring Monitoring £'000 £'000 £'000 RevenueTotal revenue 7,588 471 8,059 ResultOperating profit 1,956 102 2,058 Finance costs 123 3 126 Profit before tax 2,079 105 2,184Tax (645) (33) (678) Profit attributable to equity shareholders 1,434 72 1,506 The segmental results for the 6 months ended 30 September 2006 are as follows: Dispense Machine Group Monitoring Monitoring £'000 £'000 £'000Revenue Total revenue 9,237 - 9,237 Result Operating profit 1,614 - 1,614Finance costs (233) - (233) Profit before tax 1,381 - 1,381Tax (554) - (554) Profit attributable to equity shareholders 827 - 827 4. Tax The charge for tax is based on the profit for the period and comprises: 6 months 6 months Year ended ended ended 30 Sep 30 Sep 31 March 2007 2006 2007 £'000 £'000 £'000 United Kingdom corporation tax 678 547 934Deferred tax: net of originating timing differences - 7 (21) 678 554 913 5. Earnings per share Earnings per share is calculated on the profit after tax of £1.506m (2006£0.827m) and the average number of shares in issue during the period of24,108,327 (2006: 17,472,920). Diluted earnings per share are calculated by taking the earnings as disclosedabove and the average number of shares that would be issued on the full exerciseof outstanding share options of 25,137,016 (2006: 17,812,290). 6. Business combination On 10 May 2007 Brulines (Holdings) plc acquired 100% of the issued share capitalof Coin Metrics Limited, a company based in the UK. The total cost ofacquisition of the 66% of the issued share capital includes the componentsstated below. The purchase price was settled for £622,750 in cash and £62,250in shares. £'000 Purchase price 685Due diligence fees 14Other professional fees 34 ---------- 733 ======= The allocation of the purchase price to the assets and liabilities of CoinMetrics Limited was completed at 30 September 2007. The amounts recognised foreach class of the acquiree's assets, liabilities and contingent liabilitiesrecognised at the acquisition date are as follows: Carrying Amount Under Provisional IFRS Adjustments fair value £'000 £'000 £'000 Intangible assets - 39 39Property, plant and equipment 4 - 4Inventories 8 - 8Trade and other receivables 68 - 68Cash and cash equivalents 39 - 39 --------- ------- -------Total assets 119 39 158 Trade payables 87 - 87Current tax liability 23 - 23 -------- --------- --------Total liabilities 110 - 110 ------- -------- -------Net assets 9 39 48 =======Fair value of purchase consideration 733 --------Goodwill 685 The goodwill that arose on the combination can be attributed to the synergiesexpected to be derived from the combination and the value of the workforce ofCoin Metrics Limited which cannot be recognised as an intangible asset under IAS38 "Intangible Assets". Brulines (Holdings) plc have entered into a put and call option to purchase theremaining 34% of the issued share capital. Under IFRS 3 "Business Combinations"this has been treated as contingent consideration. The directors are currentlyunable to put a reliable estimate on the fair value of the deferredconsideration and as such no value has been included. This will be continuallymonitored and a fair value calculated if appropriate going forward. 7. Explanation of the transition to IFRS The Group's financial statements for the year ending 31 March 2008 will be thefirst annual financial statements prepared under IFRS. The following disclosuresare required in the year of transition. The last financial statements under UKGAAP were for the year ended 31 March 2007 and the date of transition to IFRSwas therefore 1 April 2006. 7.1 Reconciliation of equity and net assets as at 1 April 2006 As reported under Goodwill As restated UK GAAP amortisation Other under IFRS £'000 £'000 £'000 £'000 (note 8a) (notes 8b &c) Non-current assetsGoodwill 9,372 - - 9,372Other intangible assets 10 - 2 12Property, plant and equipment 281 - (2) 279 9,663 - - 9,663 Current assetsInventories 920 - - 920Trade and other receivables 6,239 - - 6,239Cash and cash equivalents 2,650 - - 2,650 9,809 - - 9,809 Current liabilitiesTrade and other payables (6,344) - - (6,344)Tax liabilities (462) - - (462)Obligations under finance leases and hire purchase contracts (14) - - (14)Bank overdraft and loans (878) - - (878) (7,698) - - (7,698) Net current assets 2,111 - - 2,111 Non-current liabilitiesBank and other loans (4,800) - - (4,800)Loan notes (4,216) - - (4,216)Deferred tax (15) - - (15)Obligations under finance leases and hire purchasecontracts (9) - - (9) (9,040) - - (9,040) Net assets 2,734 - - 2,734 Shareholders' equityShare capital 1,735 - - 1,735Retained profits 999 - - 999 Total shareholders' equity 2,734 - - 2,734 7.2 Reconciliation of equity and net assets as at 31 March 2007 As reported under Goodwill As restated UK GAAP amortisation Other under IFRS £'000 £'000 £'000 £'000 (note 8a) (notes 8b & c) Non-current assetsGoodwill 8,758 462 - 9,220Other intangible assets 9 - - 9Property, plant and equipment 487 - - 487 9,254 462 - 9,716 Current assetsInventories 1,288 - - 1,288Trade and other receivables 2,892 - - 2,892Cash and cash equivalents 4,079 - - 4,079 8,259 - - 8,259Current liabilitiesTrade and other payables (5,778) - - (5,778)Tax liabilities (486) - - (486) (6,264) - - (6,264) Net current assets 1,995 - - 1,995 Net assets 11,249 462 - 11,711 Share capital 2,408 - - 2,408Share premium account 6,966 - - 6,966Shares to be issued 32 - - 32Own shares (151) - - (151)Retained profits 1,994 462 - 2,456 Total shareholders' equity 11,249 462 - 11,711 7.3 Reconciliation of equity and net assets as at 30 September 2006 As reported under Goodwill As restated UK GAAP amortisation Other under IFRS £'000 £'000 £'000 £'000 (note 8a) (notes 8b & c) Non-current assetsGoodwill 8,887 224 9,111Other intangible assets 9 - 2 11Property, plant and equipment 263 - (2) 261 9,159 224 - 9,383 Current assetsInventories 1,303 - - 1,303Trade and other receivables 2,998 - - 2,998Cash and cash equivalents 4,820 - - 4,820 9,121 - - 9,121 Current liabilitiesTrade and other payables (5,486) - (26) (5,512)Tax liabilities (548) - - (548)Obligations under finance leases and hire purchase contracts (12) - - (12)Bank overdraft and loans (1,200) - - (1,200) (7,246) - (26) (7,272) Net current liabilities 1,875 - (26) 1,849 Non-current liabilitiesBank and other loans (3,604) - - (3,604)Deferred tax (22) - - (22)Loan notes (4,125) - - (4,125) (7,751) - - (7,751) Net assets 3,283 224 (26) 3,481 Shareholders' equityShare capital 1,750 - - 1,750Share premium account 60 - - 60Retained profits 1,473 224 (26) 1,671 Total shareholders' equity 3,283 224 (26) 3,481 7.4 Reconciliation of reported profits for the six months ended 30 September 2006 As reported under Goodwill As restated UK GAAP amortisation Other under IFRS £'000 £'000 £'000 £'000 (note 8a) (note 8b) Continuing operationsRevenue 9,237 - - 9,237 Operating expenses (7,821) 224 (26) (7,623) Operating profit 1,416 224 (26) 1,614 Finance income 71 - - 71Finance costs (304) - - (304) Profit before tax 1,183 224 (26) 1,381 Tax (554) - - (554) Profit for the period 629 224 (26) 827 Earnings per shareBasic 3.60p 1.28p (0.15p) 4.73pDiluted 3.53p 1.26p (0.15p) 4.64p 7.5 Reconciliation of reported profits for the year ended 31 March 2007 As reported under Goodwill As restated UK GAAP amortisation Other under IFRS £'000 £'000 £'000 £'000 (note 8a) (note 8b) Continuing operationsRevenue 16,756 - - 16,756 Operating expenses (14,669) 462 - (14,207) Operating profit 2,087 462 - 2,549 Finance income 165 - - 165Finance costs (344) - - (344) Profit before tax 1,908 462 - 2,370 Tax (913) - - (913) Profit for the year 995 462 - 1,457 Earnings per shareBasic 4.90p 2.27p - 7.17pDiluted 4.78p 2.21p - 6.99p 8. Explanation of the reconciling items between UK GAAP and IFRS (a) Under IFRS 3 "Business combinations" annual amortisation of goodwill is no longer permitted. Instead goodwill must be allocated to each income generating unit acquired and an annual impairment review must be performed for each discrete unit in accordance with IAS 36 "Impairment of assets". The Group has elected not to apply IFRS 3 "business combinations" retrospectively and restate business combinations completed prior to the date of transition. As a result, in the opening balance sheet, goodwill arising from past business combinations of £9.372 million remains as stated under UK GAAP at 1 April 2006. (b) IAS 19 "Employee benefits" requires employers to recognise the total cost of all short term employee benefits expected to be paid in exchange for employees' services in the accounting period. This includes holiday pay (the Brulines holiday year runs from 1 April to 31 March and therefore coincides with the 31 March statutory financial year end but not with the half year) which has previously been accounted for as incurred. This results in a charge of £0.026m for the six months ended 30 September 2006 but has no effect on the year ended 31 March 2007. (c) Under UK GAAP, website development is included within tangible fixed assets as plant and equipment. Under IFRS, website development should be recorded as an intangible asset. Accordingly a reclassification of the total net book value of website development has been made between property, plant and equipment and intangible assets. There is no effect on net assets. INDEPENDENT REVIEW REPORT TO BRULINES (HOLDINGS) PLC Introduction We have been engaged by the company to review the financial information in thehalf-yearly financial report for the six months ended 30 September 2007 whichcomprises the consolidated income statement, the consolidated balance sheet, thecash flow statement and the statement of changes in shareholders' equity and thenotes to the interim results. We have read the other information contained inthe half yearly financial report which comprises only the Chairman's Report, theChief Executive's Report and Finance Director's Report and considered whether itcontains any apparent misstatements or material inconsistencies with theinformation in the financial information. This report is made solely to the company in accordance with guidance containedin ISRE (UK and Ireland) 2410, "Review of Interim Financial Informationperformed by the Independent Auditor of the Entity". Our review work has beenundertaken so that we might state to the company those matters we are requiredto state to them in a review report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company, for our review work, for this report, or for theconclusion we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The AIM rules of the London Stock Exchange require that theaccounting polices and presentation applied to the interim figures areconsistent with those which will be adopted in the annual accounts having regardto the accounting standards applicable for such accounts. Our Responsibility Our responsibility is to express to the Company a conclusion on the financialinformation in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat any material modifications should be made to the financial information inthe half-yearly financial report for the six months ended 30 September 2007. GRANT THORNTON UK LLP Chartered Accountants Leeds 11 December 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Vianet Grp