Released: 31/01/2008
RNS Number:9334M
Spiritel PLC
31 January 2008
31 January 2008
SPIRITEL PLC
("Spiritel" or "The Group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2007
Spiritel plc (AIM: STP), the business communications service provider, today
announces interim results for the six months to 31 October 2007.
Highlights:
-Turnover £6.84 million (2006: £6.83 million)
-Gross profit up 283% to £2.54 million (2006: £0.66m)
-Gross margin increased to 37.1% (2006: 9.7%)
-Adjusted EBITDA* increased to £0.23 million (2006:loss £0.57 million)
-Post period end signed a £1.3 million managed service contract with Regent
Inns plc - the UK's largest hosted VoIP contract
-Acquisition and rapid integration of tdotcom into Spiritel's Business
Division
-Increased earnings visibility with over 35% of Business Division revenues
now in contract for up to five years
-New bank loan facility of £1.375 million
-Extended product range and grew customer bases with early successes in
cross selling
Commenting on the results, Alastair Mills, Chief Executive, said:
"I am delighted to report an excellent set of results which demonstrate the
transformation of Spiritel's operational and financial performance since our
restructure in 2006. The progress in enhancing earnings visibility and restoring
profitability has accelerated during the past six months as Spiritel's
management team is successfully executing its growth strategy.
"At the time of writing, the Company is trading ahead of management's
expectations, building on a strong first half, which delivered operating profit
at an underlying level*. Significant improvements in gross profit and margin for
the period under review demonstrate the value in the change of product mix and
routes to market which have also dramatically increased earnings visibility."
Copies of these results are available on the Company's website:
www.spiritelplc.com.
For further information please visit www.spiritelplc.com or contact:
Spiritel PLC Tavistock Communications Daniel Stewart&Co.Plc
Alastair Mills Simon Hudson Simon Leathers
Chief Executive Clemmie Carr Stewart Dick
+44 (0) 20 7160 0100 +44 (0) 20 7920 3150 +44 (0) 20 777 6579
Review by the Chief Executive
Introduction
I am delighted to report an excellent set of results, which demonstrate the
transformation of Spiritel's operational and financial performance since our
restructure in 2006. The progress in enhancing earnings visibility and restoring
profitability has accelerated during the past six months as Spiritel's
management team has successfully built upon the Company's programme of growth.
Results
I am pleased to report that, at the time of writing, the Company is trading
ahead of management's expectations, building on a strong first half which
delivered operating profit at an underlying level*. Significant improvements in
gross profit and margin for the period under review demonstrate the value in the
change of product mix and routes to market, which have also dramatically
increased earnings visibility.
Highlights:
-Group turnover for the year was £6.84 million (2006: £6.83 million)
-Gross profit up by 283% to £2.54 million (2006: £0.66 million)
-Gross margin increased to 37.1% (2006: 9.7%)
-Adjusted EBITDA* increased to £0.23 million (2006:loss £0.57 million)
-Loss before tax £2.3 million (2006:£1.1 million) - after a one off,
non-cash interest charge of £1.8 million**
*Before interest, tax, depreciation, amortisation, restructuring and acquisition
costs and share based payment charges.
**Following shareholder approval in June 2007 to restructure debt from Penta
Capital, a one-off £1.8 million redemption premium was agreed, alongside equity
conversion rights, in lieu of accrued and ongoing interest charges.
Divisional review
Spiritel Business
Throughout the period Spiritel's Business Division has continued to extend its
product offering to customers, further securing its position as a complete
service provider to businesses in both traditional and emerging IP based voice
and data products. The interim results show the positive contribution from the
acquisitions made during our previous financial year and that they are providing
a platform for future organic and acquisitive growth.
The three successful transactions of the previous financial year were followed
by a fourth, in October 2007, with the acquisition of tdotcom, an award-winning
value added maintainer and supplier of voice and data systems and solutions to
business customers across the UK. It brought to Spiritel an impressive array of
over 50 customers including BBC Worldwide, The Barbican Centre and the City of
London Corporation.
tdotcom demonstrated the success of our tried and tested strategy of
acquisition, integration and growth. The integration of tdotcom into Spiritel
Business was completed within six weeks and we were quickly able to improve its
operational performance. The transaction was immediately earnings enhancing for
Spiritel and is now trading at a level significantly ahead of its previous
results. We expect tdotcom, now fully rebranded within Spiritel Business, to
continue to grow rapidly and its impact on Spiritel's results will be reflected
in the second half of this financial year.
The customer bases gained from our four acquisitions to date have also created
significant opportunities for organic growth. The management team is focussed on
cross selling between our IP Communications, Networks and Mobile product lines
and our pipeline of cross selling activity is at its highest level since the
inception of Spiritel Business in 2006.
During the first half we commenced a significant hosted VoIP trial with Regent
Inns plc, that included developing a hosted IP voice and Wi-Fi solution for one
of the UK's leading pub and restaurant operators. This was the first pilot of
its kind in the UK and Spiritel is currently working with other customers on
similar projects. The trial also advanced Spiritel's relationship with Mitel who
supplied the underlying VoIP technology and with whom we hold the highest level
of accreditation as a premier partner.
Following the successful conclusion of the trial during November 2007, Regent
Inns and Spiritel signed the UK's largest hosted VoIP deal in which Spiritel
provide hosted VoIP across Regent's 100 outlets and head office, enabling them
to provide free Wi-Fi to their customers. The roll out of the service for Regent
Inns is expected to be complete by the end of February 2008. This contract is a
landmark event for Spiritel and establishes Spiritel as a leading provider of
converged communications to business customers.
Spiritel Technologies
Spiritel Technologies continues to play an important role in supporting the IP
based product offerings of our Business Division, clearly evidenced by the part
it played during the Regent Inns VoIP trial and its ongoing contribution to the
current roll out. This strategic role will become even more important as
Spiritel continues its product development with key partners, such as Mitel, as
we work to maintain our position as a leading player in IP based voice and data
solutions.
In the wholesale arena, Technologies has enhanced its product offering and
continued to focus on higher margin routes. Throughout the period, we continued
to expand our customer base and have seen significantly increased levels of
business from some long term major carriers. This trend has continued into the
second half of the financial year and we expect this to boost results for the
full year.
Strategy and progress - acquire, integrate, grow
The strategy set out in our 2007 Annual Report continues to bear fruit. Our
acquisition of a fourth business brought new customers, additional products and,
crucially, new cross-selling opportunities. Whilst we are focussing our efforts
on delivery of organic growth, we continue to identify and pursue suitable
earnings enhancing acquisitions that will bring complementary products and new
customers to our existing portfolio.
A significant step forward in the period was the enhancement of earnings
visibility. Over 35% of revenues from the Business Division are now underpinned
by contracts for up to five years. Our level of 'recurring' revenue, from long
standing customers with large scale solution roll outs, is significantly in
excess of the contracted income. This new level of earnings visibility,
something the Company as previously structured was unable to achieve,
demonstrates clearly how Spiritel's change in product mix and routes to market
are providing increased confidence about the future performance of the business.
In July 2007 we announced that we had secured a new bank loan facility from The
Clydesdale Bank. The £1.375 million facility is an important endorsement by the
Bank of Spiritel's strategy of acquisition, integration and growth. The
facility, which has recently been increased, enhances Spiritel's scope for
making further acquisitions as we demonstrate a clear track record in successful
integration and improving profitability.
Board and appointments
During the period we appointed Ronnie Smith to the Board following a period in
which, as Chief Financial Officer, he made a substantial contribution to the
turnaround and restructure process that has been underway over the last eighteen
months.
We also appointed a new Managing Director of Spiritel Business. David Anahory
joined us from Carphone Warehouse where he was the commercial director
responsible for over 100,000 customers in their Business Division. His
appointment represented a significant step forward for Spiritel as his larger
company experience and product knowledge will prove essential in overseeing the
roll out of our expanding product set to a growing and diverse business customer
base. David was appointed to the Spiritel Board on 24 January 2008.
Current trading and outlook
Post period end, in addition to signing the Regent Inns contract, we were
delighted to announce that we had signed an exclusive agreement to provide a
managed service for Virgin Mobile's new directory enquiry service. 118 918
provides the same functionality as other UK directory services, but crucially it
donates 20 pence from every call to Virgin's selected children's charities, the
highest donation from any directories service. The fact that we were selected to
partner such a significant UK mobile operator highlights our ability to provide
innovative communications solutions for major UK providers.
Spiritel has progressed immeasurably following our concentrated period of
restructure and refocus and we can now look forward to the full year with
confidence. The new management team has been successful in implementing the new
business model we announced in 2006 and I am delighted that this is now being
reflected so strongly with much improved financial performance. At the time of
writing we are trading ahead of management's expectations and we look forward to
a strong conclusion to the current financial year.
We now have the right platform to continue our dual approach of making selective
earnings enhancing acquisitions alongside the delivery of organic growth through
cross selling. In the coming months we expect our business model to deliver
sustained improvements in profitability and earnings visibility and so ensure
long term enhancement in shareholder value.
Alastair Mills
Chief Executive
30 January 2008
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT
Restated Restated
Six months Six months Year
ended ended ended
31 October 31 October 30 April 2007
2007 2006
Note Unaudited Unaudited Unaudited
£'000 £'000 £'000
Continuing operations
Revenue 6,842 6,837 13,649
Cost of sales (4,302) (6,173) (11,613)
------------------------------------------
Gross profit 2,540 664 2,036
Administrative expenses (3,051) (1,703) (4,501)
------------------------------------------
Operating loss (511) (1,039) (2,465)
Share of operating loss of
joint venture - (18) (25)
------------------------------------------
(511) (1,057) (2,490)
Finance costs (1,828) (90) (589)
------------------------------------------
Loss before taxation (2,339) (1,147) (3,079)
Income tax expense - - 21
------------------------------------------
Loss for the financial period (2,339) (1,147) (3,058)
------------------------------------------
Attributable to:
Equity holders of the parent (2,339) (1,013) (2,924)
Minority interest - (134) (134)
------------------------------------------
(2,339) (1,147) (3,058)
------------------------------------------
Loss per ordinary share in
pence 4 (0.74) (0.57) (1.35)
There were no recognised gains or losses other than the loss for the financial
period.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEET
Restated Restated
31 October 2007 31 October 2006 30 April 2007
Unaudited Unaudited Unaudited
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 303 715 408
Goodwill 816 691 789
Other intangible assets 4,249 1,791 4,001
------------------------------------------
5,368 3,197 5,198
------------------------------------------
Current assets
Inventories 446 - 392
Trade and other receivables 3,817 1,059 3,007
Cash and cash equivalents - 252 322
------------------------------------------
4,263 1,311 3,721
------------------------------------------
------------------------------------------
Total assets 9,631 4,508 8,919
------------------------------------------
LIABILITIES
Current liabilities
Trade and other payables (3,606) (1,777) (3,991)
Short term borrowings 191) (2,243) (4,037)
Current portion of long term
borrowings ( 111) - -
Current tax payable (207) (48) (236)
------------------------------------------
(4,115) (4,068) (8,264)
------------------------------------------
------------------------------------------
Non-current liabilities
Long term borrowings (5,280) (4,695) (4,812)
Deferred tax liabilities (17) (18) (17)
------------------------------------------
(5,297) (4,713) (4,829)
------------------------------------------
------------------------------------------
Total liabilities (9,412) (8,781) (13,093)
------------------------------------------
------------------------------------------
Net assets / (liabilities) 219 (4,273) (4,174)
------------------------------------------
EQUITY
Capital and reserves
Share capital 3,162 2,195 3,162
Additional paid in capital 4,550 3,630 4,550
Reverse acquisition reserve (5,763) (5,763) (5,763)
Other reserves 6,829 54 97
Profit and loss account (8,559) (4,389) (6,220)
------------------------------------------
Total equity 219 (4,273) (4,174)
------------------------------------------
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Share Additional Reverse Other Profit and Total
capital paid in acquisition Reserves loss equity
capital reserve account
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 May 2006 1,654 2,850 (5,763) 15 (3,376) (4,620)
Loss for period - - - - (1,013) (1,013)
----------------------------------------------------------------
Total recognised income &
expense 654 2,850 (5,763) 15 (4,389) (5,633)
Credit for equity settled
share based payments - - - 39 - 39
Issue of share capital 541 780 - - - 1,321
----------------------------------------------------------------
Balance at 31 October 2006 2,195 3,630 (5,763) 54 (4,389) (4,273)
----------------------------------------------------------------
Balance at 1 May 2006 1,654 2,850 (5,763) 15 (3,376) (4,620)
Loss for year - - - - (2,924) (2,924)
----------------------------------------------------------------
Total recognised income &
expense 1,654 2,850 (5,763) 15 6,300) (7,544)
Credit for equity settled
share based payments - - - 62 - 62
Equity component of
compound financial
instrument - - - 100 - 100
Transfer between reserves - - - (80) 80 -
Issue of share capital 1,508 1,700 - - 3,208
----------------------------------------------------------------
Balance at 30 April 2007 3,162 4,550 (5,763) 97 (6,220) (4,174)
----------------------------------------------------------------
Balance at 1 May 2007 3,162 4,550 (5,763) 97 (6,220) (4,174)
Loss for period - - - - (2,339) (2,339)
----------------------------------------------------------------
Total recognised income &
expense 3,162 4,550 (5,763) 97 (8,559) (6,513)
Credit for equity settled
share based payments - - - 101 - 101
Equity component of
compound financial
instrument - - - 6,631 - 6,631
----------------------------------------------------------------
Balance at 31 October 2007 3,162 4,550 (5,763) 6,829 (8,559) 219
----------------------------------------------------------------
CONSOLIDATED INTERIM CASH FLOW STATEMENT
Restated
Six months Six months Year
ended ended ended
31 October 31 October 30 April
2007 2006 2007
Unaudited Unaudited Unaudited
£'000 £'000 £'000
Cash flows from operating activities
Loss before taxation (2,339) (1,139) (3,079)
Adjustments for:
Depreciation and amortisation 517 225 610
Impairment of tangible fixed assets 64 - 422
Impairment of goodwill - - 227
Loss on disposal of tangible fixed
assets - 18 12
Decrease / (increase) in inventory (54) - 2
Decrease / (increase) in receivables (651) 132 14
(Decrease) / increase in payables (994) 46 (44)
Equity settled share based payments 101 125 45
Share of loss of joint venture - 18 25
Interest expense / (receipt) 1,766 90 (2)
Income taxes (paid) / received - 17 (9)
-----------------------------------------
Net cash used in operating
activities (1,590) (468) (1,187)
-----------------------------------------
Cash flows from investing activities
Acquisition of subsidiaries net of cash
acquired (109) (1,484) (2,810)
Purchase of property, plant and
equipment (74) (94 (101)
Proceeds from sale of equipment - - 6
-----------------------------------------
Net cash used in investing activities (183) (1,578) (2,905)
-----------------------------------------
Cash flows from financing activities
Net proceeds from issue of share
capital - 500 1,223
Proceeds from borrowings 1,280 1,700 3,100
Payment of finance lease liabilities (20) - (7)
-----------------------------------------
Net cash from financing activities 1,260 2,200 4,316
-----------------------------------------
Net (decrease) / increase in cash and
equivalents (513) 154 224
Cash and equivalents at beginning of
period 322 98 98
-----------------------------------------
Cash and equivalents at end of period (191) 252 322
-----------------------------------------
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Nature of operations and general information
Spiritel Plc and its subsidiaries' ("the Group") principal activity is the
provision of telecommunications services.
Spiritel Business supplies a range of products and services that includes
design, supply and maintenance of traditional business telephone systems as well
as IP-based voice and data services. Spiritel Technologies is a supplier of
wholesale voice services to leading telecommunications providers.
Spiritel Plc is the Group's ultimate parent company. It is incorporated and
domiciled in Great Britain. The address of Spiritel Plc's registered office,
which is also its principal place of business, is 18 King William Street,
London, EC4N 7BP. Spiritel Plc's ordinary shares are listed on the Alternative
Investment Market of the London Stock Exchange.
Spiritel Plc's consolidated interim financial statements are prepared in Pounds
Sterling ("£"), which is also the functional currency of the parent company.
These consolidated condensed interim financial statements have been approved for
issue by the Board of Directors on 30 January 2008.
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
Group's statutory financial statements for the year ended 30 April 2007,
prepared under UK GAAP, have been filed with the Registrar of Companies. The
auditor's report was unqualified and did not contain a statement under Section
237(2) or Section 237(3) of the Companies Act 1985.
2. Basis of preparation
These interim condensed consolidated financial statements are for the six months
ended 31 October 2007. They have been prepared in accordance with the
requirements of IFRS 1 "First-time Adoption of International Financial Reporting
Standards" relevant to interim reports, because they are part of the period
covered by the Group's first IFRS financial statements for the year ended 30
April 2008. They do not include all of the information required for full annual
financial statements, and should be read in conjunction with the consolidated
financial statements of the Group for the year ended 30 April 2007.
These financial statements have been prepared under the historical cost
convention, except for revaluation of certain financial instruments.
These condensed consolidated interim financial statements (the interim financial
statements) have been prepared in accordance with the accounting policies set
out below which are based on the recognition and measurement principles of IFRS
in issue as adopted by the European Union (EU) and are expected to be adopted
and effective at 30 April 2008, our first annual reporting date at which we are
required to use IFRS accounting standards adopted by the EU.
Spiritel Plc's consolidated financial statements were prepared in accordance
with United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) until 30 April 2007. The date of transition to IFRS was 1
May 2006. The comparative figures in respect of 30 April 2007 and 31 October
2006 have been restated to reflect changes in accounting policies as a result of
adoption of IFRS. The disclosures required by IFRS 1 concerning the transition
from UK GAAP to IFRS are given in the reconciliation schedules, presented and
explained in note 6.
The accounting policies have been applied consistently throughout the Group for
the purposes of preparation of these condensed consolidated interim financial
statements.
3. Summary of significant accounting policies
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and all subsidiary undertakings, together with the Group's share of
the net assets and results of joint ventures. The financial statements of all
Group companies are adjusted, where necessary, to ensure the use of consistent
accounting policies. The results of companies acquired or disposed of are
included in the Group income statement from or up to the date that control
passes respectively.
Acquisitions are accounted for under the acquisition method. The acquisition of
Expo Communications Limited during 2005 has been accounted for under the reverse
acquisition method, on the basis that the substance of the business combination
was that Expo Communications Limited acquired Spiritel Plc in a reverse
acquisition.
Business combinations completed prior to date of transition to IFRS
The Group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations prior to 1 May 2006.
Accordingly the classification of the combination (acquisition, reverse
acquisition or merger) remains unchanged from that used under UK GAAP. Assets
and liabilities are recognised at date of transition if they would be recognised
under IFRS, and are measured using their UK GAAP carrying amount immediately
post-acquisition as deemed cost under IFRS, unless IFRS requires fair value
measurement. Deferred tax and minority interest are adjusted for the impact of
any consequential adjustments after taking advantage of the transitional
provisions.
The transitional provisions used for past business combinations apply equally to
past acquisitions of interests in associates and joint ventures.
Revenue
Revenue is the total amount receivable by the Group for services provided,
excluding VAT and trade discounts. Revenue relates principally to call
termination services, which are recognised as income on the same day as the call
occurs.
Revenue from the sale of goods is recognised when the significant risks and
benefits of ownership of the product have transferred to the buyer, which may be
upon shipment, completion of the product or the product being ready for
delivery, based on specific contract terms.
Revenue from services provided by the Group is recognised when the Group has
performed its obligations and in exchange obtained the right to consideration.
For maintenance sales, revenue is recognised only on the part of the maintenance
period that falls within the financial year.
Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is capitalised and
reviewed annually for impairment. Goodwill is carried at cost less accumulated
impairment losses. Negative goodwill is recognised immediately after acquisition
in the income statement.
Goodwill written off to reserves prior to the date of transition to IFRS remains
in reserves. There is no re-instatement of goodwill that was amortised prior to
transition to IFRS. Goodwill previously written off to reserves is not written
back to profit and loss on subsequent disposal.
Property, plant and equipment
Property, plant and equipment are included at cost, less accumulated
depreciation. Depreciation is provided on tangible fixed assets, excluding land,
on a straight line basis to write off their historical cost, less estimated
residual value, over their estimated useful economic lives as follows:
Leasehold improvements - over the period of the lease
Office and computer equipment - 10% or 33% straight line
Motor vehicles - 33% straight line
Intangible assets
In accordance with IFRS 3 Business Combinations an intangible asset acquired in
a business combination is deemed to have a cost to the Group of its fair value
at the date of acquisition. The fair value of the intangible asset reflects the
market expectations about the probability that the future economic benefits
embodied in the asset will flow to the Group.
The acquisitions of CallPlan Limited, Networks Direct (UK) Limited, Ashland
Group Limited and Tdotcom Limited have resulted in the following categories of
intangible assets being identified:
- Customer relationships
- Marketing assistance
- Customer order backlogs
- Trade names
Amortisation
The estimated useful lives of intangible assets are as follows:
Customer relationships - 6 years
Third party marketing
assistance - 3 years
Customer order backlog - over the period that the orders will be invoiced
Trade names - 1 to 2 years
Impairment testing of goodwill, other intangible assets and property, plant and
equipment
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating
units). As a result, some assets are tested individually for impairment and some
are tested at cash-generating unit level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of the related
business combination and represent the lowest level within the Group at which
management monitors the related cash flows.
Goodwill, other individual assets or cash-generating units that include
goodwill, other intangible assets with an indefinite useful life, and those
intangible assets not yet available for use are tested for impairment at least
annually. All other individual assets or cash-generating units are tested for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of fair value, reflecting market conditions
less costs to sell, and value in use based on an internal discounted cash flow
evaluation. Impairment losses recognised for cash-generating units, to which
goodwill has been allocated, are credited initially to the carrying amount of
goodwill. Any remaining impairment loss is charged pro rata to the other assets
in the cash generating unit. With the exception of goodwill, all assets are
subsequently reassessed for indications that an impairment loss previously
recognised may no longer exist.
Investments in joint ventures
Entities whose economic activities are controlled jointly by the Group and by
other ventures independent of the Group are accounted for using the equity
method.
Investments in joint ventures are recognised initially at cost and subsequently
accounted for using the equity method. Acquired investments in joint ventures
are also subject to purchase method accounting. However, any goodwill or fair
value adjustment attributable to the share in the joint ventures is included in
the amount recognised as investment in joint ventures.
All subsequent changes to the share of interest in the equity of the joint
ventures are recognised in the Group's carrying amount of the investment.
Changes resulting from the profit or loss generated by the joint ventures are
reported in "share of profits of joint ventures" in the consolidated income
statement and therefore affect net results of the Group. These changes include
subsequent depreciation, amortisation or impairment of the fair value
adjustments of assets and liabilities.
Items that have been recognised directly in the joint venture's equity are
recognised in the consolidated equity of the Group. However, when the Group's
share of losses in a joint venture equals or exceeds its interest in the joint
venture, including any unsecured receivables, the Group does not recognise
further losses, unless it has incurred obligations or made payments on behalf of
the joint ventures. If the joint ventures subsequently reports profits, the
investor resumes recognising its share of those profits only after its share of
the profits equals the share of losses not recognised.
Unrealised gains on transactions between the Group and its joint ventures are
eliminated to the extent of the Group's interest in the joint ventures.
Unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Amounts reported in the financial
statements of joint ventures have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
Leased assets
Finance leases and hire purchase agreements
Where the Company enters into a lease that transfers substantially all the risks
and rewards of ownership of an asset to the lessee, the lease is treated as a
finance lease. The asset is recorded in the balance sheet as a tangible fixed
asset at the present value of the minimum lease payments and is depreciated over
the shorter of the lease term and the asset's useful economic life. Future
instalments under such leases, net of finance charges, are included in
creditors. Rentals payable are apportioned between the finance element, which is
charged to the income statement at a constant rate of charge on the balance of
capital repayments outstanding, and the capital element, which reduces the
outstanding obligation.
Operating lease agreements
Leases where substantially all of the risks and rewards of ownership are not
transferred to the Company are treated as operating leases. Rentals under
operating leases are charged against profits on a straight-line basis over the
period of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value, after
provisions are made in respect of obsolete and slow moving items. Net realisable
value is the estimated selling price less all further costs to complete and all
costs to be incurred in marketing, selling and distribution.
Current tax
The current tax charge is based on the profit or loss for the year and is
measured at the amounts expected to be paid based on the tax rates and laws
substantively enacted by the balance sheet date. Current and deferred tax is
recognised in the income statement for the period except to the extent that it
is attributable to a gain or loss that is or has been recognised directly in the
statement of total recognised gains and losses.
Deferred tax
Deferred tax is recognised on all timing differences where the transactions or
events that give the Group an obligation to pay more tax in the future, or a
right to pay less tax in the future, have occurred by the balance sheet date.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax
assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Deferred tax assets and liabilities are calculated at tax rates
that are expected to apply to their respective period of realisation, provided
that they are enacted or substantively enacted by the balance sheet date.
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