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Released: 30/01/2009
Part 2 : For preceding part double click [nRn1d5053M]
Taxation
2007
2008
£000 £000
Current taxation:
UK corporation credit for the period - (3,729)
Overseas tax 53 -
Adjustment in respect of prior periods 19 -
72 (3,729)
Deferred taxation:
Origination and reversal of timing differences 326 (2,494)
Adjustment in respect of prior periods - (59)
326 (2,553)
398 (6,282)
The total tax charge is reconciled with the standard rate of UK corporation tax
as follows:
2008 2007
£000 £000
Loss before tax (49,833) (69,743)
UK corporation tax at standard rate of 29% (2007: 30%) (14,452) (20,923)
Factors affecting the charge for the period:
Non-deductible expenses 108 250
Difference between accounting and tax treatment of warrants 22 492
Impairment of goodwill 7,802 9,090
Ineligible depreciation 182 626
Deferred tax asset not provided on losses 4,827 4,095
Deferred tax asset not provided on other timing differences (469) -
Deferred tax asset not provided on property, plant and 2,306 -
equipment
Tax rate changes - 88
Overseas tax rate differences 53 -
Adjustment for under provision in prior years 19 -
398 (6,282)
With effect from 1 April 2008 the statutory rate of corporation tax changed to
28%. As a result the standard rate of tax for the year ended 30 September 2008
was 29%, being 30% from 1 October 2007 to 31 March 2008 and 28% from 1 April to
30 September 2008.
5. Dividends
2008 2007
£000 £000
Equity - ordinary
Final for the year ended 30 September 2006 - paid 1.50p - 1,543
per share
- 1,543
The Directors do not propose a final dividend for the year ended 30 September
2008.
Notes to the Financial Statements continued
6. Earnings Per Share
Basic and Diluted Earnings Per Share
Basic earnings per share is calculated by dividing the profit attributable to
equity shareholders by the weighted average number of ordinary shares in issue
during the period.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. These represent share options granted to employees where the exercise
price is less than the average market price of the Company's ordinary shares
during the period. In the current and prior year there were no dilutive options
as they would increase the loss per share. The Directors draw attention to the
existence of share options and warrants which could have a potentially dilutive
effect in future years.
Weighted average numbers of shares:
2008 2007
000 000
Weighted average number of shares in issue during the 102,871 102,861
period
Weighted average number of dilutive shares - -
Number of shares for diluted earnings per share 102,871 102,861
Adjusted Earnings Per Share
In addition to basic earnings per ordinary share, an additional adjusted
earnings per share has been provided below which excludes one off costs (net of
tax). The earnings used for the basic and additional calculations, together with
the resultant basic earnings per share are shown below:
2008 2007
£000 £000
Lossafter tax for the period (50,231) (63,461)
Non-recurring costs post tax 30,721 55,656
Loss for the period excluding one off costs (19,510) (7,805)
Lossper ordinary share - basic (48.8)p (61.7)p
Adjusted lossper ordinary share - basic (18.9)p (7.6)p
Loss per ordinary share - diluted (48.8)p (61.7)p
Adjusted lossper ordinary share - diluted (18.9)p (7.6)p
Notes to the Financial Statements continued
7. Intangible Assets
Computer software Patents and trademarks Goodwill Total
£000 £000 £000 £000
Cost
At 1 October 2006 12,275 299 77,064 89,638
Additions 923 - 924 1,847
Exchange difference (12) - - (12)
At 30 September 2007 13,186 299 77,988 91,473
At 1 October 2007 13,186 299 77,988 91,473
Additions 297 3 - 300
At 30 September 2008 13,483 302 77,988 91,773
Amortisation
At 1 October 2006 3,406 61 - 3,467
Charge for the period 2,019 17 - 2,036
Impairment - - 30,300 30,300
At 30 September 2007 5,425 78 30,300 35,803
At 1 October 2007 5,425 78 30,300 35,803
Charge for the period 2,056 17 - 2,073
Impairment - - 26,900 26,900
At 30 September 2008 7,481 95 57,200 64,776
Net book value
At 1 October 2006 8,869 238 77,064 86,171
At 30 September 2007 7,761 221 47,688 55,670
At 30 September 2008 6,002 207 20,788 26,997
For the purpose of impairment testing of goodwill, the Directors have grouped
together all of the business CGUs (Cash Generating Units), being the lowest
level at which goodwill is monitored for internal management purposes in both
the current and prior year. The impairment test was based on value in use in the
prior year. The Directors assessed the future cash flows of the business and
due primarily to the reduced number of stores, they did not expect to recover
the carrying value of the goodwill attaching to the business. Therefore an
impairment charge of £26,900,000 (2007: £30,300,000) was recognised in the
income statement as noted above.
In the current year the Directors reassessed their forecasts in the light of
current market conditions and ongoing sales declines. Future cash flows were
projected into perpetuity based on actual operating results and the Group's
current business plan to 2011 (prior year: 2010). Growth has been assumed to be
2% beyond the initial three year period which is consistent with the
expectations of the Directors for this industry. Key assumptions in the current
and prior year represent the Directors' assessment of future trends and are
based on both external and internal sources. The primary assumptions made in
projecting cash flows relate to like-for-like sales trends, gross margins and
the outcomes of planned and/or implemented operational and organizational
initiatives. In addition to these assumptions the Directors considered the
discount rate to be used. During the year the bank facilities were renegotiated,
resulting in a reduced weighted average cost of capital. Conversely, market risk
premiums increased. On balance the Directors concluded that these effects were
broadly equal and so a pre-tax discount rate of 16.8% (2007: 16.8%) was applied
in determining the recoverable amount of the units. The discount rate used
reflects the best estimate by the Director's of the rate reflective of the risks
specific to the business for which the future cash flow estimates have not been
adjusted.
The key assumption made by the Directors lies in the discount rate used; an
increase in the pre-tax discount rate of 1% would cause an increase in the
impairment by £3.6 million.
Notes to the Financial Statements continued
8. Borrowings
2008 2007
Restated
£000 £000
Current:
Bank overdrafts 5,420 -
Bank loans 2,786 348
Bank debt 8,206 348
Obligations under HP and finance lease 1,414 1,356
9,620 1,704
Non current:
Bank loans 54,861 57,086
Obligations under HP and finance lease 1,313 2,388
56,174 59,474
The maturity profile of the Group's non-current bank loans is as follows:
2008 2007
£000 £000
Expiring between 1 and 2 years 4,190 57,086
Expiring between 2 and 5 years 50,671 -
54,861 57,086
The 2007 analysis has been restated to present all amounts related to bank loans
as a single amount within borrowings. Finance fees of £7 million have been
reclassified from other creditors in the comparative balance sheet.
The Directors are of the view that the amended disclosure is more appropriate.
The bank facilities are secured by fixed and floating charges over the Group's
assets.
The Group also has access to an overdraft facility the level of which varies
dependant on the working capital needs of the business. Interest is charged at
2.25% (previously 5.25%) over LIBOR on amounts drawn down under this facility.
The facility is repayable on demand.
On 30 August 2007 the Group entered into a £60,000,000 loan facility split into
Facility A for £20,000,000 and Facility B for £40,000,000.The facilities were
due to expire on 31 December 2008.
On 26 September 2008 the Group renegotiated the unexpired portion of these
facilities such that they are repayable of the period to 31 December 2011.
Interest rate margins payable above LIBOR have also been varied. A comparison of
the margin rates is shown below:
Original Agreement Agreement
30 August Extension
2007 26 September 2008
% %
Facility A 3.00 2.50
Facility B - Cash 2.00 2.00
- Deferred interest 3.25 2.00
5.25 4.00
Notes to the Financial Statements continued
8. Borrowings (Continued)
The deferred interest is rolled up and is payable on the 31 December 2011.
On renegotiation of the borrowing facilities in September 2008 the terms of the
facility were substantially modified. This is on the basis that the present
value of the cash flows under the new facility, discounted using the original
effective interest rate, were at least 10% different to the discounted present
value of the remaining cash flows of the facility being replaced. Accordingly
the transaction has been accounted for as an extinguishment of the old facility,
resulting in a gain of £86,000 being recorded within finance income in the
income statement. The £86,000 represents the difference between the book value
of the old facility and the fair value of the new facility.
The £7,000,000 deferred refinancing fee arising in respect of the old facility
has been reduced to £5,000,000, with payment now deferred until 31 December
2011. The reduction of the deferred refinancing fee was a factor considered by
the Directors in assessing the fair value of the new facilities and has been
included in the calculation of the gain disclosed above.
The assessment of the fair value of the new facilities at £57,000,000 is a
source of estimation uncertainty. In the absence of readily observable market
data, the directors have considered the underlying effective interest rate for
reasonableness. A reduction in the fair value of the loan would have resulted in
a higher gain on derecognition on extinguishment of the previous facility and a
higher interest rate expense (measured on an effective interest method) over the
remaining term of the debt.
Two warrants over un - issued ordinary shares representing 10% of Jessops issued
share capital were issued in reference to the original facility agreement of 30
August 2007. It was agreed that on signing the extension to the agreement on 26
September 2008 to issue warrants over a further 5% over the issued share capital
of the Company to HSBC Bank plc. HSBC Bank Plc now hold warrants over 15% of the
issued share capital.
The fair value of the service received in connection with the warrants formed
part of the overall fees payable in relation to the facilities provided.
Consequently the fair value of the warrants was estimated directly, rather than
by reference to the fair value of the services provided. The directors consider
that the warrants, in respect of which there are no vesting conditions, relate
to the provision of the facility itself and the fair value has therefore been
expensed immediately. The fair value charge in the year is £76,000
(2007:£1,093,000).
Notes to the Financial Statements continued
9. Analysis of Movement in Net Debt
At 1 October 2007
(restated) At 30 September 2008
Other non cash changes
Cash flow
£000 £000 £000 £000
Cash at bank and in hand 13,079 (13,079) - -
Bank overdraft - (5,420) - (5,420)
13,079 (18,499) - (5,420)
Debt due within one year (348) (2,438) - (2,786)
Debt due after one year (57,086) 2,224 - (54,862)
Amounts due under HP and finance leases (3,744) 1,017 - (2,727)
Net debt (48,099) (17,696) - (65,795)
10. Capital and Reserves
Share capital Share premium Retained earnings Translation reserve Total equity
£000 £000 £000 £000
£000
As at 1 October 2006 2,571 89,161 4,950 2 96,684
Loss for the period - - (63,461) - (63,461)
Employee share option scheme - - 247 - 247
Fair value of warrants issued - - 1,093 - 1,093
Impact of tax rate change on deferred tax asset - - (162) - (162)
Deferred tax on share options - - (27) - (27)
Purchase of own shares - - (115) - (115)
Actuarial loss(net of tax) - - (293) - (293)
Currency translation difference - - - (18) (18)
Dividends paid - - (1,543) - (1,543)
2,571 89,161 (59,311) 32,405
As at 30 September 2007 (16)
As at 1 October 2007 2,571 89,161 (59,311) 32,405
(16)
Loss for the period - - (50,231) - (50,231)
Employee share option scheme - - 225 - 225
Fair value of warrants issued - - 75 - 75
Purchase of own shares - - 29 - 29
Actuarial gain (net of tax) - - 2,175 - 2,175
Currency translation difference - - - 16
16
As at 30 September 2008 2,571 89,161 (107,038) (15,306)
-
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END
FR IFFIFLIIAFIA