29th Apr 2008 12:56
Lupus Capital PLC29 April 2008 29 April 2007 Lupus Capital plc Unaudited Preliminary Statement of Results for the year ended 31 December 2007 Chairman's statement Dear Shareholder, Lupus Capital plc ("Lupus") is able to report an eminently satisfactory set ofresults for the year ended 31 December 2007 in addition to a major acquisition,Laird Security Services ("LSS") acquired on 27 April 2007 for £242.5 million,which was paid for mainly by £120 million of debt and £136 million of newequity. The purchase was in line with our strategic objective of creatingvalue for our shareholders by acquiring, integrating and developing businessesin the industrial sector one of which is, in particular, the building productsarea. LSS was not only a competitor of Schlegel Building Products ("Schlegel")but also complementary. With many benefits coming from operating improvements, LSS synergies withSchlegel and our non-US activities including Gall Thomson, we have achieved anexcellent financial performance despite the US building products end markets, inwhich LSS and Schlegel are active, deteriorating throughout 2007. In December 2007 Lupus shares were consolidated on a 1 for 10 basis and allfigures have been adjusted accordingly. Results for the year To help understand the results, adjusted measures of underlying profit beforetax and earnings per share have been used as defined. Sales, including the acquisition of LSS, were £216.859 million (2006: £62.940million) and underlying pre-tax profits increased to £25.021 million (2006:£10.034 million). Reported underlying earnings per share jumped 20% to 14.82p(2006: 12.35p). The figures for the period are not directly comparable as theyinclude a major acquisition. Dividend A growing dividend is also one of our objectives and we have yet again been ableto achieve this with a series of dividends. We are recommending a final dividend for 2007 of 3.51p (2006: 3.34p). Ifapproved at the AGM, which we will be holding on 2 July 2008, this finaldividend will be paid on 14 July 2008 to Shareholders on the register at 9 May2008. This, together with the special interim dividend of 1.50p per Ordinary Share inrespect of the 4 months ending 30 April 2007 and the further interim dividend of0.56p for the first half of 2007, will make a total dividend in respect of the2007 year of 5.57p up over 12% from the 4.97p paid in respect of the 2006 year. Group 2007 Progress The eight month contribution from LSS, although incurring a number ofexceptional cost items, has been significant both in profit and as a result ofmany changes and synergies achieved. The reporting structures of both Schlegel and LSS have been altered dramaticallywith the Schlegel US business now integrated into LSS US and the LSS UKcompanies absorbed under the Schlegel European management team. The LSS lossmaking conservatory subsidiary was sold on 27 July 2007; several US facilitieswere closed; purchasing power has increased; cost savings have been made; crossselling opportunities grasped and shared product development enhanced. Newfinancial disciplines in LSS UK have generated significant cash out of workingcapital and a greater understanding of financial performance and opportunity. Gall Thomson Environmental Ltd ("Gall Thomson", "GTE") which manufactures marinebreakaway couplings primarily for the oil and gas sector, has had another recordperformance beating previous years in sales, profits and cash generation. KLAW,whose industrial products are made for similar sectors, also had a good yearshowing excellent growth in sales of both existing and new products resulting inits best ever annual profits and cash generation. All our businesses have generated exemplary cash flow during 2007 enabling us tokeep our debt taken on for acquisitions under control. Corporate On 11 December 2007 shareholders approved a number of resolutions • Lupus shares were to be consolidated on a one for ten basis with effect from 12 December 2007 • up to 14.99% of shares in issue were able to be purchased by the company and either placed in treasury or cancelled. To date 7.44 million shares have been bought back and placed in treasury costing the company £6.71 million. The new debt facility to finance part of the acquisition of LSS was alldenominated in US$ and consisted of $120 million at a fixed rate before marginof 5.02% for three years and $120 million at a floating rate, although capped at5.5% before margin, also for three years. The acquisition of LSS has broadened the sphere of operations of Lupus Capitalplc and management has reviewed the risk profile of the enlarged group. We continue to seek the development of Lupus through both organic growth andselective acquisitions. The excellent cash generation from all our businesses has enabled Lupus toreduce debt at a speed quicker than originally envisaged. At 31 December 2007net debt stood at £99.992 million. It has also provided funds to increase ourdividend to shareholders for the 2007 year at a higher rate than forecast at thetime of the LSS acquisition. Outlook The general economic climate for 2008 is uncertain and has continued todeteriorate in the first few months. The US housing environment is at a lowebb and the European building components market has become varied betweencountries. The current business conditions require continuous examination andcontrol of our cost base. Nevertheless, there are positive factors. The oil and gas sector remainsbuoyant. Gall Thomson and KLAW both started the year with excellent orderbooks and look forward to continuing to perform well. The initial synergies ofcombining Schlegel and LSS are now manifest and we still plan for furtherbenefits to come; as their end markets start to recover we will be in a strongposition to exploit these new opportunities. With the continuing advantages of our LSS acquisition, its 12 month contributionin 2008, our capable management teams and vigorous financial disciplines, andprovided external conditions allow, we anticipate another year of development atLupus Capital during 2008. Greg HutchingsChairman29 April 2008 GROUP BUSINESS REVIEW Business of Gall Thomson Environmental Limited Gall Thomson is the world's leading supplier of marine breakaway couplings.Its subsidiary, KLAW is a supplier of industrial couplings including quickrelease couplings and breakaway couplings. A Gall Thomson marine breakaway coupling is used in the oil and gas industry toenable a loading line to part safely and then to shut off the product supply inthe event of a vessel moving off station during the loading or discharging ofoil and gas products, whether at offshore moorings or jetty terminals. Thepurpose of the breakaway coupling is firstly to stop environmental pollution andsecondly to prevent damage to pumping and transfer equipment. Gall Thomsonalso supplies the quick release Welin Lambie camlock coupling which is used inthe hose and loading arm system for the transfer of oil and gas products. The greater number of our couplings are designed and made to order for the majoroil producers. Stock and working capital levels are thus easily visible.There is also an increasing demand for refurbishment of our products which havebeen in use for many years and exposed to the elements. The excellence of the couplings and their technology together with thesignificant environmental and financial consequences of risking less establishedproducts gives Gall Thomson a considerable advantage and strong market share. The principal activity of KLAW, which has continued to develop over the year, isthat of the manufacture, assembly and distribution of industrial quick releasecouplings for activities such as refining, exploration and construction. Theyare also used in the transportation of product by road and rail. GTE, who operate mainly in the offshore industry, has benefited from a strongoil price that had encouraged the major oil producers to commence new projectsworldwide. In addition, the drive towards environmental improvementscontinues to have a positive effect. Approximately 90% of turnover was derivedfrom exported sales spanning the world from Europe to Asia, America to theMiddle East and Africa. Nearly all sales are made in pounds sterling so wehave limited exposure to a fluctuating dollar. Business of Schlegel Building Products Schlegel is a leader in the manufacture and marketing of door and window seals,primarily for the worldwide housing market, which currently has around 600employees and more than 5,000 customers, sells over 650 million metres of sealsin a year. Core manufacturing competencies are continuously moulded urethanefoam, narrow fabric textiles, and extruded plastics. As a leading producer ofurethane foam (compression seals) and woven pile (sliding seals) for the windowand door markets, seals are sold in more than 75 countries from sevenmanufacturing plants located around the world. In addition, Schlegel supplyboth manufactured and assembled door and window locking mechanisms to a numberof their key seal customers. Also manufactured are related products for the non-housing markets such ascleaning brushes, static control devices for copiers and printers, specialityautomotive products as in sunroof seals and truck spray suppressants, tractorseat trim and sway bar brushes. Business of LSS LSS is a leader in the design, development, manufacture and distribution ofinnovative products and solutions. These aim to improve performance andthermal efficiency, and enhance protection and security, for homes and buildingswithin the residential building and home improvement markets. Its wide rangeof products includes window and door hardware, composite doors, steelreinforcement products, window seals and uPVC products. These products aremarketed under different brand names and supplied to customers in the UK,Continental Europe, the US and Asia. As at 31 December 2007 LSS employed 2,076people worldwide. Within the UK, LSS is a leading provider of window and door hardware to theretail and wholesale markets and a manufacturer of composite doors primarily tothe social housing market. Other products include window balances, sash windowrefurbishment and steel reinforcement products. In the US, LSS trades as the Amesbury Group. Amesbury is the leading USsupplier of window balances and also manufactures uPVC profiles, foam and pilewindow seals. Other products include door hardware and die cast components. LSS has manufacturing and distribution operations in the UK and the US, alongwith manufacturing facilities in China which, together with partner suppliers,are used as a base to produce components at low cost for supply to the UK andUS. Sales, albeit at low levels, of Chinese manufactured products to theContinental European and Asian markets have also commenced. Strategy Our strategy is to build shareholder value through the acquisition of industrialassets with the potential for development using a spectrum of fundinginstruments, where with the application of our management skills and systems wecan achieve greater profitability. Once they have been improved, potentiallong-term growth configurations installed, and a critical mass built, we wouldexpect to realise a gain through a variety of exit mechanisms. Institutional investors are not sympathetic to public conglomerateorganisations; they have, however, even though with very diverse interests,favoured private equity structures. We intend to follow the private equityprinciple of timed investment exits when critical mass and creation ofshareholder value have been achieved by demergers, IPOs or sales, followed bycash returns to shareholders when appropriate. The speed of our decision making and the management experience we possesstogether with the flexibility of being able to offer an on-going interest shouldgive us a competitive edge over private equity competitors when negotiatingtransactions. In addition, we have proven management skills and systems, aswell as the application of standard financial modelling. Our approach to sectors will be very disciplined and with a clear focus. Targetcompanies will be involved in industrial manufacturing, processing or servicesor distribution for industries, businesses or consumers. Retailing, financialservices, property and media are outside our range of interest. Our keyrequirements are asset based, positive cash flow, industrial activities withpotential for development. In addition, we will target fragmented industries,seek consolidations, as well as develop organic growth opportunities. We will choose to operate in stable markets where the technology is low-riskrather than markets exposed to quick innovation and sudden obsolescence. Weprefer to sell high quantities of inexpensive items or fulfil a high volume ofcontracts as opposed to a small number of very significant cost constituents. We expect to inject our management skills, operating systems, financial controlmechanisms and strategy experience to improve profitability and financialefficiency. Our industrial focus and business experience of acquiring, stabilising,controlling, investing in and developing businesses, together with a strongexisting operation gives Lupus Capital plc exciting prospects. Summary Gall Thomson is a reliable business and looks forward to maintaining itssuccess. There are opportunities in most areas of the world due to an increasein global floating production systems, as well as the traditional Single PointMooring business. The drive to exploration in deeper waters (greater than1,000 metres), which require off loading techniques as opposed to pipelineinfrastructure, provides a sound basis for the Gall Thomson business in theshort and long term. KLAW continues to grow as a result of entering newmarkets with successfully developed innovative products. Both LSS and Schlegel operate within the worldwide housing market, which overthe long term is likely to continue to grow due to increased populations andmore single housing requirements. In addition, environmental regulations forenergy conservation, of which seals are an integral part, are becoming more andmore critical to both developed and developing countries. These factors shouldensure a growing long term future. We are pleased about the progress that we are making with Lupus. Our resultshave been good, backed by cash generation enabling us to reward shareholderswith solid dividends. The purchase of Schlegel and LSS, both leading buildingproducts manufacturers, were yet another step in creating a successful growinginternational business. We have a defined strategy, a sound balance sheet,good operating activities generating cash and an enthusiastic entrepreneurialmanagement team ambitious to drive Lupus Capital plc forward. Your Board isconfident that Lupus has the right platform to deliver value for shareholders. Unaudited summarised group income statementfor the year ended 31 December 2007 Note 2007 2006 (restated) £'000 £'000 Revenue 4 216,859 62,940Cost of sales (142,675) (22,434) Gross profit 74,184 40,506 Administrative expenses (51,461) (31,068)Operating profit 4 22,723 9,438 Analysed as:Operating profit before exceptional items and amortisation of 31,857 11,567intangible assetsExceptional items 5 (1,385) -Amortisation of intangible (7,749) (2,129)assetsOperating profit 22,723 9,438 Finance income 6 1,888 501Finance costs 6 (9,241) (2,034) Net finance costs (7,353) (1,533) Profit before taxation 15,370 7,905 Income tax expense 7 (3,128) (2,973) Profit for the year from continuing operations 12,242 4,932 Earnings per share- Basic and diluted EPS from continuing operations1 8 10.68p 9.49p All results relate to continuing operations Non GAAP measureAdjusted2 profit before taxation (£'000) 25,021 10,034 Earnings per share- Adjusted2 basic and diluted EPS from continuing operations1 8 14.82p 12.35p 1The 2006 EPS has been restated for the share consolidation in December 2007 2before amortisation of acquired intangible assets, deferred tax on intangibleassets, exceptional items, unwinding of discount on provisions and theassociated tax effect. Unaudited summarised group statement of recognised income and expense for theyear ended 31 December 2007 2007 2006 (restated) £'000 £'000 Actuarial (losses)/gains on (159) 622defined benefit plansExchange differences on (148) (1,653)retranslation of foreign operationsCash flow hedges - net change in fair value (1,546) - Expenses recognised directly (1,853) (1,031)in equity Tax on items recognised 54 (217)directly in equity Net expenditure recognised (1,799) (1,248)directly in equity Profit attributable to 12,242 4,932shareholders Total recognised income and 10,443 3,684expense for the period Unaudited summarised group balance sheetAs at 31 December 2007 Note 2007 2006 (restated) £'000 £'000ASSETSNon-current assetsIntangible assets 9 306,345 80,774Property, plant and equipment 10 36,325 13,030Deferred tax 5,308 6,078Other assets - - 347,978 99,882 Current assetsInventories 35,261 7,396Trade and other receivables 36,755 15,210Cash and short term equivalents 46,969 9,738 118,985 32,344 TOTAL ASSETS 466,963 132,226 LIABILITESCurrent liabilitiesIncome tax payable (3,743) (1,453)Trade and other payables (57,974) (14,967)Finance lease obligations 11 (188) (156)Interest bearing loans and borrowings 11 (16,694) (4,938) (78,599) (21,514) Non-current liabilitiesFinance lease obligations 11 (214) (334)Deferred tax (25,315) (7,828)Interest bearing loans and borrowings 11 (129,865) (27,296)Employee benefit liability (2,194) (3,290)Provisions (20,892) (1,868)Derivative financial instruments (1,546) -Other creditors (1,206) (115) (181,232) (40,731) TOTAL LIABILITIES (259,831) (62,245) NET ASSETS 207,132 69,981 EQUITYCapital and reserves attributable to equity holdersof the CompanyCalled up share capital 12 6,861 3,083Share premium 13 45 45Other reserve 13 10,389 10,389Hedging reserve 13 (1,546) -Translation reserve 13 (1,801) (1,653)Retained earnings 13 193,184 58,117 TOTAL EQUITY 207,132 69,981 Unaudited summarised group cash flow statementFor the year ended 31 December 2007 2007 2006 (restated) Note £'000 £'000 Cash flows from operating activitiesOperating profit 4 22,723 9,438 Depreciation 10 4,702 1,646Amortisation 9 7,749 2,129Loss on sale of fixed assets (12) -Movement in inventories 1,173 1,698Movement in trade and other receivables 11,665 1,394Movement in trade and other payables 3,267 619Movement in provisions 1,110 - Income tax paid (6,492) (2,050) Net cash inflow from operating activities 45,885 14,874 Investing activitiesPayments to acquire property, plant and equipment (3,918) (964)Acquisition of subsidiary, net of cash acquired 3 (239,397) (47,408)Purchase of treasury shares (1,075) -Interest received 1,867 501 Net cash outflow from investing activities (242,523) (47,871) Financing activitiesProceeds from shares issue, net of costs 131,536 51,653Equity dividends paid (3,752) (1,234)New borrowings 119,064 34,734Interest paid (7,173) (2,034)Repayment of long term borrowings - (40,281)Repayment of short term borrowings (5,000) (2,500) Repayment of capital element of finance leases (88) (112) Net cash (outflow)/inflow from financing activities 234,587 40,226 Increase in cash and cash equivalents 37,949 7,229Effect of exchange rates on cash and cash equivalents (718) (145)Cash and cash equivalents at the beginning of the year 9,738 2,654 Cash and cash equivalents at the year end 46,969 9,738 NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES The Group's consolidated financial statements are prepared in accordancewith the principal accounting policies adopted by the Group as set out in note 2and International Financial Reporting Standards ("IFRS") and InternationalFinancial Reporting Interpretations ("IFRIC") as adopted for use in the EuropeanUnion (EU), with those parts of the Companies Act 1985 applicable to companiesreporting under IFRS. The comparative information for the year ended 31 December 2006 was previouslyreported under applicable UK accounting standards (UK GAAP) and has beenrestated where necessary. The relevant changes to accounting policies are as follows: Intangible assets: Under IFRS certain intangible assets that exist as a result of a businesscombination are recognised separately from goodwill if they are separable andmeasurable. As such with respect to the Schlegel acquisition £8,400,000 inrespect of brands and £19,800,000 in respect of customer relationships have beenrecognised separately from goodwill and £2,129,000 has been charged in respectof amortisation of these assets for the period from date of acquisition to 31December 2006. Under UK GAAP there is no requirement to separate intangibleassets and hence all such amounts therefore form part of goodwill and are notthen amortised. Deferred tax: Under IFRS deferred tax is provided for the difference between the book value ofthe intangible assets arising as a result of the acquisition of Schlegel and thetax base of these assets with the corresponding entry being made to goodwill.The deferred tax provided on acquisition was £8,460,000 and £632,000 has beenreleased to the income statement as a result of the amortisation charged in theperiod from date of acquisition to 31 December 2006. Computer software: A reallocation of £91,000 of computer software costs from tangible assets underUK GAAP to intangible assets under IFRS has been made. These accounting policies have been consistently applied to all the periodspresented unless otherwise stated, except as identified below. As explained above, the Group's deemed transition date to IFRS is 1 January2006. The rules for first-time adoption of IFRS are set out in IFRS 1.IFRS 1 allows certain exemptions in the application of particular standards toprior periods in order to assist companies with the transition process. TheGroup has applied the following exemptions: IFRS 3 - "Business Combinations" is applied from 1 January 2006 and notretrospectively to earlier business combinations. IAS21 - "The Effects of Changes in Foreign Exchange Rates" is applied from 1January 2006 and not retrospectively to cumulative translation differences ontranslation of foreign operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting convention The financial statements are prepared under the historic cost convention and arepresented in pounds sterling Basis of consolidation The historical financial information consolidates the Company and its subsidiaryundertakings drawn up to 31 December each year. The financial statements of thesubsidiaries are prepared as of the same reporting date as the parent, usingconsistent accounting policies. Subsidiaries are fully consolidated from the date on which control istransferred to the Group and continue to be consolidated until the date thatsuch control ceases. All business combinations are accounted for using the purchase method. The costof a business combination is measured as the aggregate of the fair values, atthe acquisition date, of any assets given, liabilities incurred or assumed,including contingent liabilities, and equity instruments issued by the Group,plus any costs directly attributable to the combination. The identifiable assetsand liabilities of the acquiree are measured initially at fair value at theacquisition date. The excess of the cost of the business combination over theGroup's interest in the net fair value of the identifiable assets, includingthose of an intangible and tangible nature, liabilities and contingentliabilities is recognised as goodwill. Inter-company transactions, balances and unrealized gains on transactionsbetween Group companies are eliminated. Unrealised losses are also eliminatedbut are considered an impairment indicator of the asset transferred. Accountingpolicies of subsidiaries have been changed where necessary to ensure consistencywith the policies adopted by the Group. Recent accounting developments The following new IFRS standard became mandatory in the year ended 31 December2007: IFRS 7, "Financial Instruments: Disclosures" replaces IAS 32 "FinancialInstruments: Presentation and Disclosures" and has been applied by the Groupduring the year. This standard does not have a material impact on the Company'sand Group's consolidated financial statements. During the year, the IASB and IFRIC have issued the following standards andinterpretations with effective dates after the date of these financialstatements that have not yet been adopted by the company: IFRS 8 "Operating Segments" - effective date 1 January 2009 IFRIC 11 "Group and Treasury Share Transactions" - effective date 1March 2007 IFRIC 12 "Service Concession Arrangements" - effective date 1 January2008 IFRIC 13 "Customer Loyalty Programmes" - effective date 1 July 2008 IFRIC 14 "The Limit on a Defined Benefit Asset Minimum Funding Requirements and their interaction" - effective date 1 January 2008 The directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the Group's financialstatements in the period of initial application. Principal accounting policies The preparation of financial statements in conformity with generallyaccepted accounting policies requires the directors to make judgments andassumptions that affect the reported amounts of assets and liabilities anddisclosures of contingencies at the date of the financial statements andthe reported income and expense during the reporting periods. Although the judgments and assumptions are based on the directors' bestknowledge of the amount, events or actions, actual results may differ from theseestimates. The accounting policies set out below have been used to prepare the financial information. Goodwill Goodwill, being the difference between the fair value of consideration paid fornew interests in Group companies and the fair value of the Group's share oftheir net identifiable assets and contingent liabilities at the date ofacquisition, is capitalised. Goodwill represents consideration paid by the Groupin anticipation of future economic benefits from assets that are notcapable of being individually identified and separately recognised. Goodwill is not amortised but is subject to an impairment review on an annualbasis or more frequently when events or changes in circumstances indicate itmight be impaired. Any impairment is charged to the income statement in theperiod in which it arises. Intangible assets On acquisition of Group companies, the Group recognises any separately identifiable intangible assets separately from goodwill, initially measuringthe intangible assets at fair value. Purchased intangible assets acquired through a business combination, includingpurchased brands, customer relationships, trademarks and licenses, arecapitalised at fair value and amortised on a straight-line basis over theirestimated useful economic lives as follows: Acquired brands - 5 years to indefinite Customer relationships - 9 to 16 years Trade marks and licenses - 3 to 4 years The Group capitalises acquired computer software at cost. Computer software isamortised on a straight-line basis over its estimated useful life, up to 3years. The carrying value of intangible assets with a finite life isreviewed for impairment whenever events or changes in circumstances indicatethat the carrying value may not be recoverable. Impairment of assets Goodwill arising on business combinations is allocated to cash-generating units(equivalent to the reported primary business segments). The recoverable amountof the cash-generating unit to which goodwill has been allocated is tested forimpairment annually or more frequently when events or changes in circumstanceindicate that it might be impaired. Goodwill that has been impaired previouslycannot be reversed at a later date. The carrying values of property, plant and equipment, and intangible assets withfinite lives are reviewed for impairment when events or changes incircumstance indicate the carrying value may be impaired. If any such indicationexists, the recoverable amount of the asset is estimated in order to determinethe extent of impairment loss. Where purchased intangible assets are considered by the Board of Directors tohave an indefinite life, they are not amortised but are subject to animpairment review on an annual basis or more frequently if necessary. Intangibleassets not yet available for use are tested for impairment annually. An impairment review is performed by comparing the carrying value of theproperty, plant and equipment or intangible asset or goodwill with itsrecoverable amount, being the higher of the fair value less costs to sell andvalue in use. The fair value less costs to sell is the amount that could beobtained on disposal of the asset. The value in use is determined bydiscounting, using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to theasset, the expected future cash flows resulting from its continued use,including those on final disposal. Impairment losses are recognised inthe income statement immediately. Where it is not possible to estimate therecoverable amount of an individual asset, the Group estimates the recoverableamount of the cash-generating unit to which it belongs. Considerable managementjudgment is necessary to estimate discounted future cash flows.Accordingly, actual cash flows could vary considerably from forecastedcash flows. Impairment reversals are permitted to property, plant andequipment or intangible assets (but not goodwill) to the extent that the newcarrying value does not exceed the amount it would have been had no impairmentloss been previously recognised. Segment reporting The Group's continuing operations are divided into two business segments, Oilservices and Building products. The group's primary reporting format is businesssegments and its secondary format is geographical segments. A business segmentis a component of the Group that is engaged in providing a group of relatedproducts and is subject to risks and returns that are different from those ofthe other segments. A geographical segment is a component of the Group thatoperates within a particular economic environment and is subject to risks andreturns that are different from those of components operating in other economicenvironments. Revenue Revenue is recognised to the extent that it is probable that economic benefit will flow to the Group and the revenue can be reliablymeasured. Revenue represents amounts receivable for goods provided or the valueof work completed for customers during the year in the normal course ofbusiness, net of trade discounts, VAT and other sales-related taxes. As suchrevenue from the sale of goods is recognised when the significant risksand rewards of ownership of the goods have passed to the buyer, usually ondispatch of the goods. Cash and cash equivalent Cash and cash equivalents include cash at bank and in hand as well as short-termhighly liquid investments such as money market instruments and bank deposits.Money market instruments are financial assets carried at fair valuethrough profit or loss. Interest bearing bank loans and borrowings Interest bearing bank loans and overdrafts are recorded as the proceeds receivedless directly attributable transaction costs. After initial recognition,interest bearing loans and borrowings are subsequently measured at amortisedcost using the effective interest method. Gains and losses are recognised in the income statement when the liabilities arederecognised as well as through the amortisation process. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand accumulated impairment value. Depreciation is provided on all assets exceptfreehold land at rates calculated to write off the cost less estimated residualvalue of each asset on a straight-line basis over its expected useful life, atthe following annual rates: Freehold land - not depreciatedFreehold buildings 2% to 5%Plant and machinery 7.5% to 33%Motor vehicles 20% to 25% The carrying values of property, plant and equipment are reviewed for impairmentperiodically if events or changes in circumstances indicate that the carryingvalue may not be recoverable. The assets' residual values, useful lives andmethod of depreciation are reviewed, and adjusted if appropriate, at eachfinancial year end. Inventories Inventories are valued at the lower of cost and net realisable value. Costincludes cost of materials determined on a purchase cost basis, direct labourand an appropriate proportion of manufacturing overheads based on normal levelof activity. Net realisable value is based on estimated selling prices, lessfurther costs expected to be incurred to completion and disposal. Leases Where the group has substantially all the risks and rewards of ownership of anasset subject to a lease, the lease is treated as a finance lease.Assets held under finance leases and similar contracts which confer therights and obligations similar to those attached to owned assets are capitalisedat the inception of the lease at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges andreduction of the lease liability so as to achieve a constant rate of interest onthe remaining balance of the liability. Finance charges are reflected in theincome statement. All other leases are treated as operating leases, and rentals payable arecharged to the income statement account on a straight line basis over the leaseterm. Foreign currencies The individual financial statements of each Group entity are presented in thecurrency of the primary economic environment in which the entity operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each entity are expressed in PoundsSterling which is the functional currency of the Group and the presentationcurrency for the consolidated financial statements. In individual companies, transactions in foreign currencies are recorded at therate of exchange prevailing at the date of the transaction. Monetary assets andliabilities in foreign currencies are translated at the exchange rate prevailingat the balance sheet date. Any resulting exchange differences are taken to theincome statement, except where hedge accounting is applied. In thesecircumstances exchange differences are taken directly to equity until either thedisposal of the hedging instrument, at which time they are recognised in theincome statement. On consolidation, assets and liabilities of Group companies denominated inforeign currencies are translated into sterling at the exchange rate prevailingat the balance sheet date. Income and expense items are translated into sterlingat the average rates for the year. Exchange differences arising on the translation of opening net assets of Groupcompanies, together with differences arising from the translation of the netresults at average or actual rates to the exchange rate prevailing at thebalance sheet date, are taken to equity. On disposal of a foreign entity, thedeferred accumulated amount recognised in equity relating to that particularforeign operation is recognised in the income statement. Provisions Provisions are recognised: • when the Group has a present legal or constructive obligation as a result of a past event; • it is probable that an outflow of resources will be required to settle the obligation; and • the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employeetermination payments. Provisions are measured at the present value of the expenditures expected to berequired to settle the obligation using a pre-tax rate that reflects currentmarket assessments of the time value of money and the risks specific to theobligation. The increase in the provision due to the passage of time isrecognised as interest expense. Pensions and other post employment benefits The Group operates a defined contribution pension and a definedbenefit scheme. The cost of providing benefits under the defined benefitscheme is determined using the projected unit credit actuarial valuation method.The operating and financing costs of the pension scheme are charged tothe income statement in the period in which they arise and are recognisedseparately. The costs of past service benefit enhancements, settlementsand curtailments are also recognised in the period in which they arise. The pastservice cost is recognised as an expense on a straight line basis over theaverage period until the benefits become vested. If the benefitsare already vested immediately following the introduction of, or changes to, apension plan, past service costs are recognised immediately. The differencebetween the actual and expected returns on assets during the year, includingchanges in the actuarial assumptions, is recognised in the statement ofrecognised income and expenses. The defined benefit assets and liability comprise the presentvalue of the defined benefit obligations less the past servicecost not yet recognised and less the fair value of plan assets out of which theobligations are to be settled directly. The value of any assets is restricted tothe sum of any past service costs not yet recognised and the present value ofany economic benefit available in the form of refunds from the plan orreductions in the future contributions to the plan. Contributions to the defined contribution scheme are charged to theincome statement as incurred. Share capital Ordinary shares are classified as equity. Where any Group company purchases the company's equity share capital (treasuryshares), the consideration paid, including any directly attributable incrementalcosts (net of income taxes) is deducted from equity attributable to theCompany's equity holders until the shares are cancelled or reissued. Where suchshares are subsequently sold or reissued, any consideration received, net of anydirectly attributable incremental transaction costs and the related income taxeffects, is included in equity attributable to the Company's equity holders. Financial assets, liabilities and derivatives Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrumentand are generally derecognised when the contract that gives rise to it issettled, sold, cancelled or expires. Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost, using the effective interest rate method, lessappropriate allowances for estimated irrecoverable amounts. Trade payables arerecognised initially at fair value and subsequently measured at amortised costusing the effective interest rate method. Derivative financial instruments are initially recognised at fair valueon the date on which a derivative contract is entered into and are subsequentlyremeasured at fair value. Derivatives are carried as assets when fair value ispositive and as liabilities when fair value is negative. IAS 39 - "Financial Instruments: Recognition and Measurement" requires specificaccounting treatment for derivatives that are designated as hedging instrumentsin cash flow hedge relationships. To qualify for hedge accounting, the hedgingrelationship must meet several strict conditions with respect to documentation,probability of occurrence, hedge effectiveness and reliability of measurement.All other derivative financial instruments are accounted for at fair value toprofit or loss. For the reporting periods under review the Group has designated certain interestrate swap and cap contracts as hedging instruments in cash flow hedgerelationships. These relationships have been entered into to mitigate interestrate risk arising from certain loan arrangements. For the period under reviewthis results in the recognition of financial assets and liabilities, which arepresented under "Derivative financial instruments" on the face of the balancesheet. To the extent that the hedge is effective, changes in the fair value ofderivatives designated as hedging instruments in cash flow hedges are reportedin equity and recycled when the hedge relationship ceases. At the time thehedged item affects profit or loss, any gain or loss previously recognised inequity is released to the income statements. Any ineffectiveness in the hedgerelationship is charged immediately to the income statement. Deferred taxation Income tax expense represents the sum of the current tax and deferred tax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred income tax is the tax expected to be payable or recoverable ondifferences between the carrying amount of assets and liabilities in thefinancial statements and the corresponding tax basis used in the computation oftaxable profit and is accounted for using the balance sheet liability method.Deferred income tax liabilities are generally recognised for all taxabletemporary differences and deferred tax assets are recognised to the extent thatit is probable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are notrecognised if the temporary difference arises from goodwill (or negativegoodwill) or from the initial recognition (other than in a business combination)of other assets and liabilities in a transaction that affects neither the taxprofit nor the accounting profit. Deferred income tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the asset tobe recovered. Deferred income tax is calculated at the tax rates enacted at the balance sheetdates and that are expected to apply in the period when the liability is settledor the asset realised. Deferred tax is charged or credited in the incomestatement, except when it relates to items charged or credited directly toequity, in which case the deferred tax is also dealt with in equity. Deferred income tax assets and liabilities are offset when they relate to incometaxes levied by the same taxation authority and the Group intends to settle itscurrent tax assets and liabilities on a net basis. Exceptional items The Group presents as exceptional items on the face of the income statement,those material items of income and expense which, because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison withprior periods and to access better trends in financial performance. Share-based payments All share-based arrangements are recognised in the consolidated financialstatements. The Group operates an equity-settled share-based remuneration planfor remuneration of certain employees. All employee services received in exchange for the grant of any share-basedremuneration are measured at their fair values. All share-based remuneration is ultimately recognised as an expense in theincome statement with a corresponding credit to equity, net of deferred taxwhere applicable. Non GAAP measure accounting policy The directors believe that the 'adjusted' profit and earnings per share measuresprovide additional useful information for shareholders on the underlyingperformance of the business. These measures are consistent with how business performance is measuredinternally. The adjusted profit before tax measure is not a recognised profitmeasure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies. Theadjustments made to reported profit before tax are to include the following: • exceptional income and charges. These are largely one-off in nature and therefore create volatility in reported earnings; and • amortisation of intangible items because of the nature and expected infrequency of the events giving rise to them Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimationuncertainty at the Balance Sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year, are discussed below. Impairment of goodwill and other intangible assets There are a number of assumptions management have considered in performingimpairment reviews of goodwill and intangible assets, as determining whethergoodwill is impaired requires an estimation of the value in use of the cashgenerating units to which goodwill has been allocated. The value in usecalculation requires the directors to estimate the future cash flows expected toarise from the cash-generating unit and a suitable discount rate in order tocalculate present value. Provisions Provisions are measured at the Directors' best estimate of the expenditurerequired to settle the obligation at the Balance Sheet date, and are discountedto present value where the effect is material. Valuation of financial instruments at fair value Management makes a number of assumptions with regards to the models used tovalue financial instruments at their fair value at year end. Valuationtechniques commonly used by market practitioners are applied. For derivativefinancial instruments, assumptions are made based on quoted market ratesadjusted for specific features of the instrument. 3. Business combinations Acquisition of Laird Security Systems Division (LSS) On 27 April 2007, the Group acquired 100% of the equity of LSS. The acquisitionwas funded by the raising of £136 million by way of a placing and open offer of755.6 million new ordinary shares with a nominal value of 0.5p per share inLupus Capital plc at an issue price of 18p per share and by way of a new debtfacility comprising a term loan of $240 million. The fair value of the identifiable assets and liabilities of LSS as at the dateof acquisition and the corresponding carrying amounts immediately before theacquisition were: Book values Provisional fair value to Group £'000 £'000 Intangible assets 341 96,575Tangible assets 27,627 25,108Inventories 39,450 29,640Trade receivables and other debtors 38,437 33,420Deferred tax asset 13,605 13,605Cash at bank 120 120Current liabilities (33,350) (24,667)Taxation (4,413) (2,744)Non-current liabilities (95) (95)Provision for liabilities and charges (4,557) (18,391)Deferred tax (2,760) (34,772) Net assets 74,405 117,799 Goodwill arising on acquisition (Note 9) 134,298 Total Consideration 252,097 Discharged by:Agreed consideration 242,500Working capital adjustment 2,709Adjustment for loans acquired (940)Total payable to The Laird Group 244,269Transaction costs 7,828Total Consideration 252,097 From the date of acquisition, LSS has contributed £9.9 million to the operatingprofit of the Group. As at 31 December 2007 management was unable to obtainsufficiently reliable information to disclose what LSS's profit and revenuewould have been for the whole year had the combination taken place at thebeginning of the year. Fair values include the effect of the disposal of the LSS loss makingconservatory subsidiary sold on 27 July 2007. 4. Segmental analysis Primary reporting format- business segments The following tables present revenue and profit and certain assets and liabilityinformation regarding the Group's business segments: Year ended 31 December 2007 Oil services Building Total £'000 £'000 £'000Continuing operationsRevenueSales of Goods including inter-segment sales 11,342 207,978 219,320Inter-segment sales - (2,461) (2,461)Total revenue 11,342 205,517 216,859 ResultsOperating profit 5,557 17,166 22,723Net finance costs (7,353)Profit before income tax 15,370Income tax expense (3,128)Profit for the year 12,242 Assets and liabilitiesSegment assets 11,828 416,791 428,619Unallocated assets 38,344Total assets 466,963 Segment liabilities (2,290) (247,082) (249,372)Unallocated liabilities (10,459)Total liabilities (259,831) Year ended 31 December 2006 Oil services Building Total £'000 £'000 £'000Continuing operationsRevenue -Sales including inter-segment sales 9,314 59,380 68,694Inter-segment sales - (5,754) (5,754)Total revenue 9,314 53,626 62,940 ResultsOperating profit 3,445 5,993 9,438Net finance costs (1,533)Profit before income tax 7,905Income tax expense (2,973)Profit for the year 4,932 Assets and liabilitiesSegment assets 14,363 101,975 116,338Unallocated assets 15,888Total assets 132,226 Segment liabilities (1,588) (18,091) (19,679)Unallocated liabilities (42,566)Total liabilities (62,245) 5. Exceptional items 2007 2006 £'000 £'000 Reorganisation costs 1,236 -Workers compensation 149 - 1,385 - 6. Finance revenue and costs 2007 2006 £'000 £'000 Finance incomeBank interest receivable 1,845 501Fair value gains on financial instruments - interest rate swap - cash flow hedge, transfer from equity 43 - 1,888 501 Finance costsInterest payable on bank loans and overdraft (8,303) (1,736)Finance charges payable under finance lease and hire purchase contracts (23) (172)Amortisation of borrowing costs (264) (48)Unwinding of discount on provisions (517) -Other finance costs (134) (78) (9,241) (2,034) Net finance costs (7,353) (1,533) 7. Taxation 2007 2006 £'000 £'000 Tax charge on profits for the year 5,141 2,973Deferred tax adjustment relating to the rate of corporation changingfrom 30% to 28% (2,013) - Tax charge in the income statement 3,128 2,973 8. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders by the weighted average number ofordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders by the weighted average number ofordinary shares outstanding during the year plus the weighted average number ofordinary shares that would be issued on the conversion of all the dilutivepotential ordinary shares into ordinary shares. 2007 2006 '000 '000 (restated)Weighted average number of shares (excluding treasury shares) 114,648 51,985Treasury shares (39) - Weighted average number of shares 114,609 51,985 Earnings per share from continuing operations before exceptional items The Group presents as exceptional items on the face of the income statement,those material items of income and expense which, because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to assess better trends in financial performance. To this end, basic and diluted earnings per share is also presented as anadditional measure on this basis and using the weighted average number ofordinary shares for both basic and diluted amounts as per the table above. Netprofit from continuing operations before exceptional items is derived asfollows: 2007 2006 £'000 £'000 (restated)Profit for the year from continuing operations 12,242 4,932Exceptional costs 1,385 -Amortisation of intangible assets and unwinding discounton provisions 8,266 2,129Tax effect on exceptional costs and amortisation of (2,895) (639)intangible assetsDeferred tax adjustment relating to the rate of corporationchanging from 30% to 28% (2,013) - Adjusted underlying profit after tax 16,985 6,422 Adjusted underlying basic and diluted earnings per share 14.82p 12.35p 9. Intangible fixed assets Computer Acquired Customer Goodwill Total software brands relations £'000 £'000 £'000 £'000 £'000 CostAt 1 January 2006 - - - 11,421 11,421Acquisition of Schlegel 75 8,400 19,800 43,170 71,445Additions 37 - - - 37At 31 December 2006 112 8,400 19,800 54,591 82,903Acquisition of Schlegel - - - 2,302 2,302Acquisition of LSS (note 3) 341 19,813 76,421 134,298 230,873Additions 145 - - - 145At 31 December 2007 598 28,213 96,221 191,191 316,223 Amortisation and impairmentAt 1 January 2006 - - - - -Amortisation for the year 21 252 1,856 - 2,129At 31 December 2006 21 252 1,856 - 2,129Amortisation for the year 16 2,526 5,207 - 7,749At 31 December 2007 37 2,778 7,063 - 9,878 Net book valueAt 31 December 2007 561 25,435 89,158 191,191 306,345 At 31 December 2006 91 8,148 17,944 54,591 80,774 10. Property, plant and equipment Freehold Plant land and and buildings Machinery Total £'000 £'000 £'000CostAt 1 January 2006 292 488 780Additions 170 855 1,025Acquisition of subsidiary 1,792 12,459 14,251Disposals - (121) (121)Foreign currency adjustment (80) (898) (978)At 31 December 2006 2,174 12,783 14,957Additions 96 4,386 4,482Acquisition of subsidiary 10,350 36,648 46,998Amounts written off (513) (2,595) (3,108)Foreign currency adjustment 151 445 596At 31 December 2007 12,258 51,667 63,925 Accumulated depreciationAt 1 January 2006 45 292 337Charge for the year 84 1,562 1,646Disposals - (19) (19)Foreign currency adjustment (2) (35) (37)At 31 December 2006 127 1,800 1,927Charge for the year 421 4,281 4,702Acquisition of subsidiary 1,142 20,748 21,890Amounts written off (86) (970) (1,056)Foreign currency adjustment 10 127 137At 31 December 2007 1,614 25,986 27,600 Net book valueAt 31 December 2007 10,644 25,681 36,325 At 31 December 2006 2,047 10,983 13,030 11. Interest-bearing loans and borrowings 2007 2006 £'000 £'000CurrentBank borrowings 16,694 4,938Obligations under finance leases and hire purchase contracts 188 156 16,882 5,094 Non-currentBank borrowings 129,865 27,296Obligations under finance leases and hire purchase contracts 214 334 130,079 27,630 Minimum lease payments due under finance leases are as follows:Less than one year 188 1561 to 5 years 214 334 402 490 The Group took out loans totalling £35,000,000 from Bank of Scotland and HSBC inconnection with the acquisition of Schlegel, of which £30,000,000 was a longterm loan and £5,000,000 short term. Repayments of £7,500,000 have been made. A further revolving credit facility of £10,000,000 was made available by thebanks, but no drawings under this facility have been made at the balance sheetdate. The Group took out a 5 year loan of $240,000,000 from Bank of Scotland, HSBC andRoyal Bank of Scotland during the year in connection with the acquisition ofLSS. No repayments had been made at 31 December 2007. A revolving credit facility of $40,000,000 was arranged with bankers during theyear. Drawings made under this facility during the year had been repaid at thebalance sheet date. 12. Share capital Number of Ordinary shares1 shares of 5p each 000 £'000At 1 January 2006 23,770 1,188Proceeds of shares issued 37,857 1,894Proceeds of shares issued in lieu of directors remuneration 29 131 December 2006 61,656 3,083Proceeds of shares issued 75,556 3,77831 December 2007 137,212 6,861 1Restated to reflect the share consolidation in December 2007 The total authorised number of ordinary shares is 180,000,000 (2006:1,800,000,000) with a nominal value of 5p per share (2006: 0.5p per share). Allissued shares are fully paid. Issue of shares in connection with the acquisition of Laird The acquisition of LSS was completed on 27 April 2007. The acquisition wasfunded by the raising of £136 million by way of a placing and open offer of755,555,556 ordinary shares with a nominal value of 0.5p in the Company at anissue price of 18 pence per share and by a new debt facility comprising a termloan of $240,000,000 and a multicurrency revolving loan facility of $40,000,000. The Company's authorized share capital was increased from £4,125,000 to£9,000,000 by shareholders at the extraordinary general meeting held on 19 April2007 to authorise the Laird transaction. Share consolidation At the extraordinary general meeting of the Company held on 11 December 2007,shareholders approved a consolidation of the share capital of the Company from1,372,115,334 ordinary shares of 0.5 pence into 137,211,533 ordinary shares of 5pence. The authorised share capital was consolidated from 1,800,000,000 ordinaryshares of 0.5 pence to 180,000,000 ordinary shares of 5 pence 13. Reconciliation of movements in equity Share Share Other Hedging Translation Retained capital Premium reserves reserve reserve earnings Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 1,188 - 10,389 - - 4,301 15,878Shares issued net of 1,895 45 - - - 49,713 51,653costsTotal recognised incomeand expense for the year - - - - (1,653) 5,337 3,684 Dividends paid - - - - - (1,234) (1,234)At 31 December 2006 3,083 45 10,389 - (1,653) 58,117 69,981Shares issued net of 3,778 - - - - 127,758 131,536costsTotal recognised incomeand expense for the year - - - (1,546) (148) 12,137 10,443Dividends paid - - - - - (3,753) (3,753)Share buyback - - - - - (1,075) (1,075)At 31 December 2007 6,861 45 10,389 (1,546) (1,801) 193,184 207,132 Dividends 2007 2006 £'000 £'000Dividends paid in the year were as follows: Final dividend for 2005 at 0.278p per share - 661Interim dividend for 2006 at 0.049p per share - 302Special interim dividend for 2006 at 0.114p per share - 271Final dividend for 2006 at 0.334p per share 2,059 -Special interim dividend for 2007 at 0.150p per share 925 -Interim dividend for 2007 at 0.056p per share 769 - 3,753 1,234Dividends not reflected in the financial statements:Proposed final dividend for the year 2007 at 3.51p per share 4,557 2,059 The shares issued in connection with the acquisition of LSS, as described innote 12 above, were issued in consideration for shares in Lupus Capital (Jersey)Limited and the premium thereon represented a capital profit taken to retainedearnings. Purchase of own shares At the extraordinary general meeting of the Company held on 11 December 2007,shareholders authorised the Company to make market purchases of its own ordinaryshares up to a maximum of 20,568,008 ordinary shares, representing 14.99% of theordinary shares in issue. Up to 31 December 2007 purchases were made of 1,309,675 ordinary shares, whichare being held in Treasury. The Company's voting ordinary share capital at 31December 2007 was therefore 135,901,858 shares. The aggregate cost of thesepurchases was £1,074,930. Since 31 December 2007, the Company has made further purchases amounting to6,137,008 ordinary shares. These shares are also held in Treasury. Included within the profit and loss account is £96,000, which represents anamount transferred to a Special Reserve within the accounts of a subsidiarycompany under the terms of a Court Order on a reduction in share capital of thatcompany. 14. Status of this report The above results or the year ended 31 December 2007 are unaudited. Thefinancial information does not constitute the Company and Group's statutoryaccounts for the year ended 31 December 2007, which will be finalized on thebasis of the financial information in this Preliminary Announcement. Statutory accounts for the year ended 31 December 2007 are to be delivered tothe Registrar of Companies following the Annual General Meeting. The information for the year ended 31 December 2006 has been extracted from thelatest published audited financial statements, as restated to comply withInternational Financial Reporting Standards (IFRS). The audited financialstatements for the year ended 31 December 2006 have been filed with theRegistrar of Companies. The report of the auditors on those accounts containedno qualification or statement under section 237(2) or (3) of the Companies Act1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Tyman