RNS Number : 0824T
Phoenix IT Group PLC
01 June 2009
Embargoed for 7.00am, 1 June 2009
Preliminary Results Announcement for the year ended 31 March 2009
Phoenix IT Group plc
Phoenix IT Group plc, ("Phoenix" or the "Group"), the UK IT services company, announces its results for the year ended 31 March 2009 after another year of good performance by the Group.
FINANCIAL HIGHLIGHTS
Financial Performance
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Group revenues up 9.7% to £253.2m (2008: £230.8m)
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Adjusted* profit from operations increased 8.0% to £35.7m (2008:£33.0m)
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Adjusted* profit before tax up 10.6% to £28.3m(1) (2008: £25.5m)
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Adjusted* diluted earnings per share increased 9.1% to 26.3p(2) (2008: 24.1p)
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Proposed final dividend of 4.2p per share, giving a total dividend up 15% at 6.3p per share (2008: 5.48p)
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Adjusted* cash generated by operations of £51.6m(3) (2008: £49.6m) representing 144.7% of adjusted profit from operations (2008: 150.1%)
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Net debt (including finance leases) reduced by £14.5m to £88.4m (2008: £102.9m)
* Adjusted for non-recurring items and amortisation of acquired intangibles (See Income Statement).
Statutory Financial Performance
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Profit from operations £23.0m (2008: £23.4m)
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Profit before tax of £15.6m (2008: £15.5m)
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Diluted earnings per share of 14.2p (2008: 14.6p)
OPERATIONAL HIGHLIGHTS
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Continued investment in hosting centres and business continuity facilities
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French operations divested, improving focus and reducing business risk
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Order book provides continued good future visibility and resilience
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Continuing high demand for hosting services
Nick Robinson, Chief Executive of Phoenix, commented:
"It was pleasing to see the momentum in operating margin growth being maintained into the second half and in particular seeing an improved operating margin performance from Phoenix IT Services. The financial performance for the year was solid despite a difficult economic backdrop, the completion of ICM's integration and the restructuring of the Group."
"In this economic climate 2009/10 will be a challenging year for the sector but we are confident that we have taken the necessary steps, including a review of our cost base, in order to be well prepared. The Group continues to have good forward visibility from its order book and high levels of recurring revenues from a diversified customer base. We have achieved good momentum into the current financial year and remain well positioned in each of our chosen markets. In spite of the continuing macro economic uncertainties, we remain positive about the outlook for the current year and beyond and are well placed to capture further opportunities and market share."
Enquiries:
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Phoenix
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Tel: +44 (0)1604 769000
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Peter Bertram
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Executive Chairman
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Nick Robinson
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Chief Executive Officer
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David Simpson
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Chief Financial Officer
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www.phoenixitgroup.com
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Financial Dynamics
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Tel: +44 (0)20 7831 3113
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Giles Sanderson
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Haya Chelhot
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Nicola Biles
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Forward looking statements
Any forward looking statements made within this statement have been made in good faith by the directors based on the information available up to the date of the director's approval of this report, and these forward looking statements should be treated with caution due to the inherent uncertainties, including macroeconomic, and IT services market uncertainties, and business risk factors which may affect the outcome.
This statement has been prepared for the Phoenix IT Group as a whole and therefore it gives greater emphasis to those matters which are significant to Phoenix IT Group plc and its subsidiary undertakings when viewed as a whole.
(1) Profit before tax of £15.6m (2008: £15.5m) plus amortisation of acquired intangibles £3.4m (2008: £3.6m) and non-recurring items £9.3m (2008: £6.4m).
(2) See note 13.
(3) Cash generated by operations of £45.8m (2008: £45.3m) plus non-recurring cash flows of £5.8m (2008: £4.3m)
Chairman's Statement
Review of the Year
I am pleased to be able to report that Phoenix IT Group plc has continued to make good progress over the past year despite challenging trading conditions and a backdrop of economic slowdown. The Group has grown revenue and profit and this, combined with improvements in working capital and cash management, has provided the base for further increases in shareholder value.
Results
Group revenues increased by 9.7% to £253.2m (2008: £230.8m) and operating profit before non-recurring items and amortisation of acquired intangibles increased by 8.0% to £35.7m (2008: £33.0m). On a like-for-like basis, adjusting for the effect of the timing of the ICM acquisition, revenue and operating profit increased by 3.8% and 3.1% respectively. Excluding non-recurring items and amortisation of acquired intangible assets, adjusted diluted earnings per share increased to 26.3p (2008: 24.1p) and diluted earning per share were 14.2p (2008: 14.6p). Profit from operations (after amortisation of acquired intangibles) decreased by 1.8% to £23.0m (2008: £23.4m). The Group has continued to be cash generative during the year reducing its net debt (including finance leases) by £14.5m to £88.4m (2008: £102.9m).
Dividend
The Board recommends a proposed final dividend of 4.2p per share (2008: 3.65p) which, if approved at the Annual General Meeting, will be paid on 9 October 2009 to shareholders on the register at 18 September 2009. Combined with the interim dividend of 2.1p per share paid on 6 April 2009, this would make a total dividend per share of 6.3p (2008: 5.48p), an increase of 15%. It is the Board's current intention to increase future dividends broadly in line with earnings.
Board Changes
John Sussens, who joined the Board in 2004 as a Non-Executive Director, wished to cut back on his commitments and therefore stepped down from his role on 14 August 2008. Jeremy Stafford stepped down from the Board on 21 November 2008 and Nick Robinson returned to the role of Chief Executive. I would like to reiterate our thanks to John and Jeremy and we are grateful for their contributions to the Group.
In addition to these changes we have appointed two new Non-Executive Directors to the Board. David Garman joined the Board on 1 December 2008 and brings extensive Listed Company experience, including Associated British Foods plc, TDG plc and Carillion plc. David Warnock joined the Board on 23 January 2009. He has long experience of the Investment Management industry, latterly at Aberforth Partners LLP.
I am confident that the experienced Board combined with a strong and focused management team will continue to drive our business forward and further enhance our position in our chosen markets.
Employees
This has been another year of good performance by the Group and these results have been delivered by our staff in a year overshadowed by a challenging economic environment. On behalf of the Board and the shareholders I would like to thank all our staff for their hard work and support during the year and for delivering this successful performance.
Annual General Meeting
The Annual General Meeting will be held at the Group's registered office, Technology House, Hunsbury Hill Avenue, Northampton on Friday 31 July 2009 at 10.30 a.m.
Summary
The strategy of the Group has not changed and we continue to focus on delivering profitable organic growth, supported by excellent service and a strong customer focus. With the integration programme now completed and firmly behind us, the Group remains well placed in each of its chosen markets and enters the new financial year with a robust order book and strong sales pipeline. Our close relationships with our customers will allow the Group to gauge market conditions and to take advantage of and gain new business where possible. Management remain focused on being able to respond to changing market conditions and being able to reduce operational gearing in response to weakened economic conditions.
Peter Bertram Chairman
29 May 2009
Chief Executive's Review
Overview
I am pleased to report that in the past year Phoenix IT Group has developed into a larger, more resilient and competitive business with three operating divisions focused on specific sectors of the UK IT services market. The integration of the Group's most recent acquisition, ICM, together with our earlier acquisitions, Servo and NDR, was completed in the year and returns on our investment in additional business recovery and hosting facilities have underpinned our organic revenue growth and positioned the Group for future growth.
We have had a successful year financially. For the year ended 31 March 2009 Group profit before tax (before non-recurring items and amortisation of acquired intangibles) grew by 10.6% to £28.3m(2) (2008: £25.5m) on Group revenues of £253.2m (2008: £230.8m), an increase of 9.7%. Cash generation was also strong enabling a reduction in net debt (including finance leases) of £14.5m to £88.4m (2008: £102.9m).
Factors helping to drive this growth and operational performance include our flexibility and responsiveness to the particular needs of our customers; operational precision and quality of service; the introduction of new and innovative services; and tight cost controls that help us quote competitively for new business in the markets in which we operate.
Strategy
The Group's strategy for increasing shareholder value and accelerating growth by entering into IT outsourcing contracts and through the development of niche IT services, particularly business continuity and hosting, remains unchanged. We are confident that we have the right strategy in place to deliver value to our customers and shareholders. Each of our three operating divisions benefits directly from being part of the wider Group, leveraging our centres of excellence as well as giving opportunities to cross-sell between divisions and to sell a wider portfolio of services to existing and prospective customers. In addition, as we plan for the longer term growth of the Group, we have established a strong modular structure which can be readily expanded with the addition of service lines and potential further acquisitions which meet our strict criteria.
The Board believes that a continuing focus on the UK will maximise the performance of the Group for the foreseeable future and enhance shareholder value through securing profitable, cash generative growth.
The markets the Group serves
With effect from 1 April 2008 the Group moved from five operating businesses to three customer facing divisions: ICM Continuous Business (Business Continuity) serving the Business continuity and Disaster recovery market; Phoenix IT Services (Partner Services), providing a full range of IT support services to large Partner organisations; and Servo (Mid-Market) which serves the UK corporate and public sector mid-market. Where it is most cost effective to do so, these divisions are supported by shared activities, operated as centres of excellence by the division best equipped to provide that function to the other operating divisions in the Group.
Phoenix continues to be well positioned in each of its chosen markets and has good forward visibility and resilience from its forward order book. Our spread of customers and penetration of more defensive sectors, such as the public sector, results in a high level of recurring revenue derived from a diversified customer base. In the year no contract was larger than 4% (2008: 4%) of Group revenue. As at 31 March 2009 the Group's annualised contract value was £179.9m (2008: £182.0m) and the values by sector were:
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Annualised contract value at 31 March 2009
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Vertical sector
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£m
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%
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Other commercial
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69.0
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38.3
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Public Sector
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37.4
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20.8
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Financial Services
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34.9
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19.4
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Telecommunications
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11.7
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6.5
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Utilities, oil and gas
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7.8
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4.4
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Systems integrators
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7.7
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4.3
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Retail
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5.8
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3.2
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Travel & Leisure
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4.2
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2.3
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Construction
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1.4
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0.8
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Grand Total
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179.9
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100.0
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Integration process
As anticipated, we completed our integration programme during the year. The combination of the Phoenix businesses and ICM resulted in a number of cost synergies together with cost savings arising from the increased buying power of the enlarged Group. We are also beginning to benefit from cross-selling and collaborative working across the three customer facing divisions. In addition, the combination of Phoenix and ICM's operations into larger units throughout the UK is providing improved operating efficiency from the greater density of geographical coverage.
Changes to the economic background
The recession is affecting the markets in which we operate and the speed and scale of the general economic downturn has been greater than envisaged by some commentators. As a result, 2009 is likely to be a tough year for some participants in the IT sector. However, having taken early action, including a review of our cost base, the Group is well positioned to be able to withstand the recession and whilst the short-term outlook remains sensitive to recessionary influences, the medium term prospects for growth in our markets are positive.
There is an ongoing need for our customers to invest in IT services, particularly the outsourcing of IT functions, to maintain and improve their competitive positions. The investments we have made during the year combined with the removal of duplicated activities through the integration means we are well positioned in the more difficult economic climate. Each of our three customer facing divisions is appropriately structured and resourced for the less favourable market conditions anticipated for the remainder of 2009 and beyond.
Actions have been taken to cut costs and maximise cash generation in order to mitigate any further downturn and protect the Group's capital position whilst safeguarding the Group's core strengths. The key actions we have taken to reduce costs and improve our working capital efficiency are:
Cost Reduction
Action has been taken to reduce discretionary expenditure and to streamline fixed elements of cost such as central functions and management structures. Regrettable but necessary decisions have been taken to reduce headcount across the Group and to cancel the Group's annual salary review for 2009. I have been encouraged by the positive way that our staff have adapted to these changes. In addition we have imposed a disciplined approach to the use of subcontractors. We now have our cost base at the appropriate level for the current market, though we will continue to drive best value from our supplier relationships and through continuous improvement of our processes and productivity. We are also ready to take any additional action that becomes necessary in individual business units should demand conditions weaken further.
Working Capital Efficiency
We saw pressure on our working capital efficiency ratios during the year as both suppliers and customers sought to conserve cash. However, net working capital reduced by £4.8m compared with 31 March 2008 which was largely due to a reduction in Days Sales Outstanding to 54 days (2008: 60 days). The actions we have taken to improve the efficiency of cash collections from our customers are expected to have an enduring benefit to the Group's working capital position.
Cash-flow and Capital Expenditure
The improvement in net debt was achieved despite significant cash flow pressures on some of our customers during the year. The Group continues to be highly cash generative and I am pleased to report that the Group's net debt position was reduced by £14.5m to £88.4m (2008: £102.9m). This was after continued significant investment in the asset base of the Group to support future growth and non-recurring integration cash costs of £5.8m. The Group also repaid £11.0m of the principal five year term loan in September 2008 and £3.3m drawn on the 364 day facility in February 2009, resulting in the cancellation of these elements of the banking facilities.
Capital expenditure in the year was £15.5m (2008: £21.4m) with significant investment in our hosting centres at the existing Birstall and Farnborough sites and business continuity facilities at our Aston offices. There was also further investment during the second half of the year to increase business continuity and hosting capacity at our Wapping site. Following our investment programme in business recovery and hosting facilities, the Group now has sufficient capacity to support anticipated growth in these two key growth areas for the current financial year. Consequently, planned capital expenditure can be reduced in the new financial year and is expected to be broadly sustainable at this reduced level for one to two years as we continue to invest selectively in capital projects on a sales-led basis where satisfactory investment returns can be achieved.
ICM Continuous Business (Business Continuity)
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Year ended
31 March
2009
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Year ended
31 March 2008
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% Change
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Revenues
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£51.2m
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£42.0m
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22.0%
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Profit from operations
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£13.0m
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£8.9m
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47.1%
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Operating margin
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25.4%
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21.1%
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The formation of the Business Continuity division has created a critical mass business providing a national network of 18 business recovery centres geographically well placed in relation to our target customer groups, with each centre equipped to meet the specific needs of our customers. The ICM acquisition and integration has further strengthened the Group's position in the UK business continuity services market, making the Group one of only four significant providers of these services in the UK. Combining the ICM and NDR customer bases has given us the intended extensive penetration of both the large enterprise and SME sectors providing us with a solid platform for growth and the knowledge and expertise to accelerate business progress. This is reflected in the strong growth of both revenues and operating profit during the year.
Revenues for the year were £51.2m (2008: £42.0m) and operating profit £13.0m (2008: £8.9m). On a pro-forma basis assuming that ICM had been acquired on the first day of the comparative period, revenues have increased by 12.5% and operating profit by 37.5%.
Despite the impact of an increase in electricity costs during the second half of the 2009 financial year, operating margins have continued to improve as the division has increased the utilisation of its syndicated seats and expanded its hosting capacity. The utilisation rate for syndicated seats increased to 47% at 31 March 2009 (31 March 2008: 42%).
During the year our contract with a large investment bank was terminated when that bank ceased trading. Following the acquisition of the UK operations of the failed bank by another bank, the contract continued on amended terms with the new owner, a testimony to our responsiveness and the quality of service we provide.
The Business Continuity order book increased by 6.2% to £98.8m (2008: £93.1m) at 31 March 2009 representing almost two years annual revenues and the division has a strong pipeline of new business opportunities. As a result of the economic downturn, contract renewal rates by value marginally decreased to 87% (2008: 89%) including the net impact of the contract termination and replacement in respect of the large investment bank relationship referred to earlier.
During the year further investment has been made to develop the hosting and business continuity facilities at the Aston offices, where the division is headquartered, to complete the fit-out of the Farnborough business continuity and hosting sites and to provide additional hosting and business continuity capacity at our Wapping offices.
Phoenix IT Services (Partner Services)
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Year ended 31st March 2009
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Year ended 31st March 2008
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% Change
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Revenue
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£105.5m
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£102.9m
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2.5%
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Profit from operations
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£16.1m
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£17.6m
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(9.1%)
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Operating margin
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15.3%
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17.2%
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The Partner Services business provides services to large commercial and public sector end users through 'tier 1' IT services companies (Partners).
The strategy pursued in our Partner Services business is to provide a comprehensive range of IT services to Partner organisations to support their typically multi-year contracts with their end user customers. This approach is increasingly important in these changeable markets and the Partner model continues to have tremendous value with our customer base, particularly in an industry which is consolidating and becoming increasingly commoditised.
Against a market background of increased competition and commoditisation, and the short-term disruption resulting from the integration process, revenues for the year were £105.5m (2008: £102.9m) and operating profit £16.1m (2008: £17.6m). Operating margin for the year was 15.3% (2008: 17.2%).
On a pro forma basis excluding the revenues and operating profit of the Group's French business, the Partner Services division's results were:
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Year ended 31st March 2009¹
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Year ended 31st March 2008¹
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% Change
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Revenue
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£103.9m
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£100.4m
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3.5%
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Profit from operations
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£15.9m
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£17.4m
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(8.6%)
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Operating margin
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15.3%
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17.3%
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¹ Excluding revenues and profit of French operation disposed of during the year.
Management believe the division's margin is broadly sustainable at this level. It is pleasing to note that the actions taken within the division increased the operating margin in the second half of the year to 15.4% compared to the weaker performance in the first six months when the margin was 15.2%.
The performance of the division, and in particular the decline in operating margin, reflects not only difficult market conditions but also some additional costs incurred in relation to the Group's integration. These were necessary to ensure appropriate service levels to customers through the post-integration period. Following the integration, service quality remains high and we continue to meet overall customer service level agreements.
In the competitive market in which Phoenix IT Services operates, in the year there have been fewer large scale multi-million pound, multi-year contract opportunities and consequently new business wins have been increasingly of a smaller size. The uncertainty resulting from the economic downturn has also increased the average time new customers are taking to reach purchasing decisions and has resulted in certain Partners committing to shorter periods of minimum contracted revenues on contract renewals, contributing to a reduction in the division's contract renewal rate by value to 66% (2008: 86%). These factors have held back growth in the order book which reduced by £28.1m to £142.2m at 31 March 2009 (2008: £170.3m).
However, there continues to be a good pipeline of opportunities and the depth of the recession should provide further business opportunities with Partners whose end user customers are seeking reductions in their cost bases to improve their competitive positions.
During the year we sold our small French operation which delivered services to French IT industry Partners by seeking to replicate the UK Partner model. Revenues and operating profit of the French business for the year ended 31 March 2009 were £1.6m (2008: £2.5m) and £0.2m (2008: £0.2m) respectively. This divestment improves our focus and reduces business risk. Whilst UK centric, the Group will continue to offer European services as an adjunct to UK business using third party providers.
Servo (Mid - Market Services)
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Year ended
31 March
2009
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Year ended 31 March 2008
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% Change
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|
|
|
|
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Revenue
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£96.5m
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£85.9m
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12.3%
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Profit from operations
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£10.0m
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£9.0m
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12.1%
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Operating margin
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10.4%
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10.4%
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This division sells a broad range of IT services and IT products to the Mid-market providing customers with a complementary and extensive range of services on a UK-wide basis. Year-on-year operating margins have been maintained with the division achieving increased margins of 10.7% in the second half of the year compared to 10.1% in the first half. This reflects an improvement in Servo's business mix, healthy new business generation and an increase in hosting revenues. A key objective for the Servo division is to extend its presence further in the Mid-market business sector as this represents a significant growth opportunity for the Group.
Hosting revenues increased by 93.3% to £6.1m (2008: £3.1m). Of the Annual Contract Value of £7.4m (2008: £4.2m) at 31 March 2009, 73% is derived from managed hosting. These high quality annuity contracts improve the visibility of future revenues and earnings within this division. Investment in hosting capacity has been made with further significant data centre space commissioned during the latter part of 2008 in response to strong market demand for these services.
Revenues for the year were £96.5m (2008: £85.9m) and operating profit was £10.0m (2008: £9.0m). On a pro-forma basis assuming that ICM had been acquired on the first day of the comparative period, revenues have increased by 1.1% and operating profit by 1.3%.
The Servo order book decreased by 1.4% to £45.9m (2008: £46.5m) at 31 March 2009 reflecting the increase in time being taken by some new customers to reach purchasing decisions and a decrease in the contract renewal rate to 87% (2008: 92%) by value which is a reflection of the current economic background and some disruption during the integration to a small number of customers.
Outlook
With the continued deterioration of the UK economic climate this will be a challenging year for the sector. We are confident that we have taken the necessary steps, including a review of our cost base, to be ready for these challenges. The Group continues to have good forward visibility from its order book and high levels of recurring revenues from a diversified customer base.
We have achieved good momentum into the new financial year and remain well positioned in each of our chosen markets. In spite of continuing macroeconomic uncertainties, we remain positive about the outlook for the current year and beyond and are well placed to capture further opportunities and market share.
Nick Robinson
Chief Executive
29 May 2009
(2) Profit before tax of £15.6m (2008: £15.5m) plus amortisation of acquired intangibles £3.4m (2008: £3.6m) and non-recurring items £9.3m (2008: £6.4m).
Financial Review
Summary of Results
The Group has had a positive year with continuing revenue and profit growth. This was achieved during a period of significant change as the Group transitioned from five principal UK operating companies to three customer facing divisions and during a period of economic uncertainty and recession.
The key financial highlights are as follows:
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Change
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2009
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2008
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|
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% / £m
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£m
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£m
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|
|
|
|
|
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Revenues
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+9.7%
|
253.2
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230.8
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|
|
|
|
|
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Profit from operations (1)
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+8.0%
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35.7
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33.0
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|
Profit before tax (2)
|
+10.6%
|
28.3
|
25.5
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|
Profit after tax
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+2.1%
|
11.0
|
10.7
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Net Debt (including finance leases)
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-14.5m
|
88.4
|
102.9
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|
Diluted earnings per share
|
-2.7%
|
14.2p
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14.6p
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|
Adjusted Diluted earnings per share (3)
|
+9.1%
|
26.3p
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24.1p
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Dividend (p)
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+15.0%
|
6.30p
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5.48p
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Revenues and Profits
Revenues increased by 9.7% to £253.2m (2008: £230.8m). On a pro forma basis, assuming ICM had been acquired on the first day of the comparative period; Group revenues grew by 3.8%. Revenues in all divisions increased in the year, with our Business Continuity division ICM performing particularly strongly with a pro forma 12.5% increase in revenues and a 37.5% increase in profit from operations(1)
Profit from operations before non-recurring items and amortisation of acquired intangibles increased by 8.0% to £35.7m(1) (2008: £33.0m) despite the UK economy entering a period of recession. The economic downturn has led to some customers reducing or delaying their purchasing decisions and continuing margin pressure in the market for Partner Services. On a pro forma basis, assuming ICM had been acquired on the first day of the comparative period, profit from operations before non-recurring items and amortisation of acquired intangibles increased by 3.1%.
Profit before tax before non-recurring items and amortisation of acquired intangibles increased in the year by 10.6% to £28.3m(2) (2008: £25.5m) and profit before tax increased by 0.6% to £15.6m (2008: £15.5m).
Earnings and Dividend
Adjusted diluted earnings per share excluding non-recurring items and amortisation of acquired intangible assets were 26.3p(3) (2008: 24.1p). Diluted earnings per share were 14.2p (2008: 14.6p). Comparable basic earnings per share were 14.7p (2008: 15.0p). A full analysis of the earnings per share calculation is set out in note 13.
A final dividend of 4.20p per share is being recommended by the Board, making a total of 6.30p per share for the year (2008: 5.48p), an increase of 15.0%. The total dividend for the year is covered 2.3 (2008: 2.7) times by basic earnings per share and shareholders' funds at the end of the financial year were £126.4m (2008: £120.3m). If approved by shareholders at the forthcoming Annual General Meeting, the final dividend will be paid on 9 October 2009 to shareholders on the register on 18 September 2009.
Investment Income and Finance Costs
Net financing costs were £7.4m (2008: £7.9m) and net interest cover was 6.7 times (2008: 6.3 times).
The Group's bank term debt carries a variable rate of interest linked to prevailing LIBOR rates. In order to provide a degree of certainty over the interest rate exposure on a proportion of the total debt, the Group entered into a three year interest rate swap on 28 September 2007 at an interest rate of 5.78% plus applicable margin. As at 31 March 2009 £51.8m of debt carried this fixed rate of interest. This will reduce to £42.0m for the period from 1 October 2009 until 30 September 2010. The interest rate swap applies to 75% of the amortising balance of the principal term loan and the balance of the Group's bank debt is unhedged.
Non-recurring Items
Including further impairment losses in respect of freehold properties held for re-sale, £9.3m (2008: £6.4m) of non-recurring items were incurred during the year of which £5.7m relate to expenses arising from the integration of acquired businesses. In total the Group has incurred £11.2m of integration costs since the acquisition of ICM on 29 May 2007. Whilst the physical integration plan was completed during the autumn of 2008, additional costs were incurred in the second half of the year to ensure appropriate customer service levels were maintained during the immediate post-integration period and to ensure that divisional management structures remain fully aligned to business needs.
In response to the economic downturn in the UK the Group has undertaken a restructuring of some of its activities, together with a programme of headcount reduction. The total cost associated with these actions was £1.4m.
Non-recurring costs also include losses arising on the disposal of two non-core trading companies (as detailed further below), which in total amounted to £0.8m, and a further £1.4m of impairment losses in respect of freehold properties held for re-sale at 31 March 2009. Of the total non-recurring costs, £5.8m of cash expenditure was incurred during the year.
The Group currently does not anticipate any further non-recurring costs arising in the next financial year.
A full analysis of the non-recurring items is set out in note 7.
Taxation
The taxation charge was £4.6m (2008: £4.8m). The effective tax rate was 29.5%, down from 30.6% in the prior year as anticipated due to a change in the UK corporation tax rate from 30% to 28% as of 1 April 2008. A full analysis of the tax charge for the year is set out in note 12.
Disposals
On 10 April 2008 the Group disposed of 100% of the ordinary share capital of ICM Business Solutions Limited to R Atherton and A Wilkinson. £0.5m of gross assets were disposed of and the transaction resulted in a loss on disposal of £0.4m. In addition, 100% of the ordinary share capital of the Group's French business, Phoenix Holding SA (and its wholly owned subsidiary Phoenix IT Services SA), was sold on 28 November 2008 to P Sansade. £1.8m of gross assets were disposed of and the transaction resulted in a loss on disposal of £0.4m. The combined loss on disposal of £0.8m has been shown as a non-recurring cost, details of which are set out in note 7. Divesting of these businesses has improved the risk profile of the Group and improved our core business focus in the UK.
Cash Flow
The Group has continued to be highly cash generative. Year-end net debt including finance leases of £16.0m (2008: £13.0m) decreased to £88.4m (2008: £102.9m). Cash-flow from operations was £45.8m (2008: £45.3m) and the Group remains confident that it will continue to be a profitable cash generator and will continue to reduce net debt. Tight controls are exercised over the Group's working capital and conversion of profit to cash. Cash generated by operations before £5.8m of cash cost incurred in the year in respect of non-recurring items was £51.6m(4) (2008: £49.6m) representing 144.7% of profit from operations before non-recurring items and amortisation of intangible assets (2008: 150.1%).
Capital Expenditure
Capital expenditure during the year totalled £15.5m (2008: £21.4m) which included further investment in hosting centres and the completion of the fit-out of the Farnborough business continuity and hosting facility. Capital investments are subject to stringent levels of authorisation and clearly defined authority levels are in place throughout the Group. Whilst the nature of business continuity and the Group's hosting activities are significantly more capital intensive than the other areas of activity, additional capital expenditure is only incurred with clear visibility of the demand for the services that the Group can then provide. Following the significant capital investment of the last two years, the Group is well invested. We will continue to invest in new facilities, particularly in hosting and business continuity where there is sales led demand and where appropriate profit margins can be achieved. The level of planned capital expenditure will further reduce in the new financial year.
Borrowing Facilities and Liquidity
The Group has long-term bank borrowing facilities comprising a £99.0m syndicated credit facility provided by a group of core relationship banks in the form of a term loan (£69.0m) and a revolving credit facility (£30.0m). In addition the Group has access to overdraft facilities of £10.0m giving total facilities of £109.0m at 31 March 2009. The term loan amortises over the next four financial years through to expiry on 27 May 2012 as follows: £13.0m on 30 September 2009; £16.0m on 30 September 2010; £16.0m on 30 September 2011; and with the balance of £24m being repayable on 27 May 2012. The revolving credit facility is available to the Group until 27 May 2012.
As at 31 March 2009 the Group had total bank borrowings (excluding finance leases) of £72.4m consisting of the term loan of £68.3m (net of unamortised loan issue costs), £10.0m drawn down on the revolving credit facility and £5.9m of cash and cash equivalents. This gave £36.6m of headroom against the Group's banking facilities of £109m. This headroom, together with the proven cash generating capability of the Group, gives assurance that the operating cash requirements of the Group will continue to be met for the foreseeable future.
The Group's borrowings are subject to usual general and financial covenants and potential events of default set by the lenders. Covenant compliance is measured semi-annually using financial results prepared under International Financial Reporting Standards issued and/or adopted by the International Accounting Standards Board. During the 12 month period to 31 March 2009 there were no breaches of covenants, and the Group comfortably achieved compliance with each financial covenant.
Treasury
The Group operates within policies and guidelines approved by the Board using conventional financial instruments and specified derivatives.
It is the Board's preference to manage market risks without the use of derivatives but they are used where necessary and appropriate to reduce the levels of volatility to both income and equity. The use of derivatives is strictly controlled and they are not permitted to be used for speculative or trading purposes.
The Group's main treasury risks relate to the availability of funds to meet its future requirements. The Group's policy with respect to facilities is to ensure that these are sufficient to cover the expected needs of the Group, having reflected the inherent uncertainty of projections and forecasts. Whist the Group maintains un-committed facilities to maintain short-term flexibility its principal debt funding comprises committed bank facilities which are detailed above.
Going Concern
From November 2008 the Financial Reporting Council, in the light of the current economic conditions, has required all of the disclosures regarding going concern and liquidity risk in companies' annual report and accounts to be brought together into a single section or to be cross referenced by way of a note.
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Review. The financial position of the Group, its cash-flows, liquidity position and borrowing facilities are described above. In addition Notes 18 and 19 to the financial statements include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit and liquidity risk.
The Directors are currently of the opinion that the Group's forecast and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within its current borrowing facilities and comply with its banking covenants. A breach of one or more of the covenants could result in the Group's debt becoming immediately repayable. Should a covenant breach become likely, there are several mitigating actions that the Group could take including: deferral of capital expenditure; seeking cost reductions; and entering into negotiations with debt providers which could result in higher financing costs. The Group has not been required to seek any commitment from its banks to waive or amend any existing covenants and is not aware of any reason why its banking group would refuse to support such a request, subject to acceptable terms, were one to be made.
The Group is subject to a number of risks and uncertainties which arise as a result of the current economic environment. In determining that the Group is a going concern, these risks (the most significant of which are listed below) have been considered by the Directors, who have determined that currently they do not represent a significant threat to the Group:
-
Credit risk is heightened as a result of difficulties that might be faced by some of the Group's customers in the current climate and also because of credit risks associated with other counterparties, such as banks, with which the Group has dealings.
-
Following the acquisition of ICM, the Group has a defined benefit pension scheme for certain former ICM employees, which is now closed to new members. The scheme has an accounting deficit at 31 March 2009 of £1.1m (2008: £1.1m). Deterioration in the scheme's funding position together with a requirement to make good a material deficit in a short timescale could adversely impact the Group's liquidity.
The Directors have reviewed the Group's future cash forecasts and revenue projections, which they believe are based on prudent market data and past experience and have formed a judgement that at the time of approving these financial statements, based on those forecasts and projections, there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Principal Risks and Uncertainties
As a result of the contracted revenues in the order book, the Group has a high degree of forward visibility of its revenues over the next twelve months. Nonetheless, there are a number of potential risks and uncertainties, in addition to those noted above, which could have a material impact on the Group's performance over the next financial year and which could cause the Group's actual results to materially deviate from historical and expected results.
Macroeconomic risk
Whilst the Group has not seen a downturn in activity, a prolonged period of recession for the UK economy increases the risk of this occurring. This risk has increased significantly during 2008 and early 2009 and is likely to cause an increasing number of business failures in the UK and a lengthening of the decision-making cycle between prospect and contract. For Phoenix this risk is mitigated by the high proportion of long-term contracted annuity business and stringent management of working capital and cash.
Competitor risk
The IT services industry is highly competitive. Several competitors, including, in some cases, Phoenix's partners, have longer operating histories, higher brand recognition and greater financial, technical, marketing, personnel and other resources than the Group. The Group's competitors have, and other potential competitors may have, well established relationships with current and potential customers of the Group. As a result, these competitors may be able to respond more quickly to new or emerging technology and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their services, than the Group. In addition, the Group may experience increased competition from low cost outsourcing centres, including offshore centres, and new or existing niche market participants whose costs may be lower. Increased competition could lead to the loss of market share, loss of material contracts, renegotiation of price levels or a general reduction in revenues of the Group.
Key Performance Indicators ("KPIs")
Profitability
The Group's principal profitability KPIs are profit from operations before non-recurring items and amortisation of acquired intangibles and adjusted diluted earnings per share. These measures increased in the year by 8.0% and 9.1% respectively to £35.7m and 26.3p (2008: £33.0m and 24.1p).
Operating margin
This represents the Group's profit from operations before non-recurring items and amortisation of acquired intangibles divided by Group revenues. For the year ended 31 March 2009, Group operating profit margin was 14.1% (2008: 14.3%).
Cash generated from operations
Strong control is exercised over the Group's working capital and conversion of profit into cash. For the year ended 31 March 2009, cash generated from operations was £45.8m (2008: £45.3m). Cash generated by operations before non-recurring cash flows were £51.6m(4) (2008: £49.6m) representing 144.7% of profit from operations before non-recurring items and amortisation of intangible assets (2008: 150.1%).
Order book
The order book reduced in the year by 7.9% to £286.9m (2008: £311.5m). Volatility in the order book is to be expected due to the timing of large contract wins and contract renewals. However, there has been a relative scarcity over the year of multi-million pound, multi-year opportunities particularly in the Partner Services market and in response to the increased economic uncertainty, some Partners have responded by committing to minimum contracted forward orders for shorter periods. The economic uncertainty and downturn has also led to a general increase in the decision making timescale for new customers and a decrease in the contract renewal rate by value in each division, both of which have contributed to the decrease in the order book. Assuming that the French business had been disposed of at the start of the comparative period, the pro-forma order book decreased to £286.9m (2008: £309.9m) a decrease of 7.4%. Of the total order book at 31 March 2009, £140.3m (48.9%) is expected to be recognised in revenues in the new financial year.
Annual Contract Value
Primarily due to the effect of the disposal of the French business the Group's Annualised Contract Value (ACV) which is a key measure of the proportion of high quality recurring revenue annuity based contracts declined by £2.1m to £179.9m (2008: £182.0m). On a pro forma basis, excluding the effect of disposals during the year, Group ACV was stable year on year at £179.9m (2008: £180.2m), with the Phoenix IT Services division's ACV increasing to £85.4m (2008: £84.8m); ICM Continuous Business' ACV increasing to £51.5m (2008: £50.3m); and Servo's ACV reducing to £43.0m (2008: £45.1m) reflecting an increase in the contract attrition rate in this division.
David Simpson
Chief Financial Officer
29 May 2009
(1) Before non-recurring items and amortisation of acquired intangibles.
(2) Profit before tax of £15.6m (2008: £15.5m) plus amortisation of acquired intangibles £3.4m (2008: £3.6m) and non-recurring items £9.3m (2008: £6.4m).
(3) See note 13.
(4) Cash generated by operations of £45.8m (2008: £45.3m) plus non-recurring cash flows of £5.8m (2008: £4.3m)
Responsibility statement
The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 March 2009. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
-
the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
-
the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
Consolidated statement of income
For the year ended 31 March 2009
|
|
|
2009
|
2008 Restated (Note 2)
|
|
|
Note
|
Before non-recurring items
£'m
|
Non-recurring items
(Note 7)
£'m
|
Total
£'m
|
Before non-recurring items
£'m
|
Non-recurring items
(Note 7)
£'m
|
Total
£'m
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
Revenue
|
5
|
253.2
|
-
|
253.2
|
230.8
|
-
|
230.8
|
|
|
|
|
|
|
|
|
|
|
Profit from operations before amortisation of
|
|
|
|
|
|
|
|
|
acquired intangibles
|
|
35.7
|
(9.3)
|
26.4
|
33.0
|
(6.0)
|
27.0
|
|
|
|
|
|
|
|
|
|
|
Amortisation of acquired intangibles
|
16
|
(3.4)
|
-
|
(3.4)
|
(3.6)
|
-
|
(3.6)
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
8
|
32.3
|
(9.3)
|
23.0
|
29.4
|
(6.0)
|
23.4
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
5,11
|
0.9
|
-
|
0.9
|
0.9
|
-
|
0.9
|
|
Finance costs
|
11
|
(8.3)
|
-
|
(8.3)
|
(8.4)
|
(0.4)
|
(8.8)
|
|
Profit before tax
|
|
24.9
|
(9.3)
|
15.6
|
21.9
|
(6.4)
|
15.5
|
|
|
|
|
|
|
|
|
|
|
Tax
|
12
|
(7.0)
|
2.4
|
(4.6)
|
(6.7)
|
1.9
|
(4.8)
|
|
Profit for the period
|
34
|
17.9
|
(6.9)
|
11.0
|
15.2
|
(4.5)
|
10.7
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
13
|
23.9p
|
|
14.7p
|
21.3p
|
|
15.0p
|
|
Diluted
|
13
|
23.1p
|
|
14.2p
|
20.6p
|
|
14.6p
|
Consolidated statement of recognised income and expense
For the year ended 31 March 2009
|
|
|
2009
|
2008
|
|
|
Note
|
£'m
|
£'m
|
|
Exchange differences on translation of foreign operations
|
|
(0.1)
|
0.1
|
|
Losses taken to equity in respect of cash flow hedges
|
18
|
(1.8)
|
(1.0)
|
|
Actuarial (losses)/gains on defined benefit pension schemes
|
10
|
(0.8)
|
0.6
|
|
Tax on items taken directly to equity
|
|
0.7
|
0.1
|
|
|
|
|
|
|
Net expense recognised directly in equity
|
|
(2.0)
|
(0.2)
|
|
Profit for the period
|
34
|
11.0
|
10.7
|
|
Total recognised income and expense for the period
|
|
9.0
|
10.5
|
Consolidated balance sheet
As at 31 March 2009
|
|
|
2009
|
2008
|
|
|
|
|
Restated (Note 2)
|
|
|
Note
|
£'m
|
£'m
|
|
Non-current assets
|
|
|
|
|
Goodwill
|
15
|
178.8
|
174.6
|
|
Intangible assets
|
16
|
18.8
|
22.2
|
|
Property, plant and equipment
|
17
|
68.2
|
71.5
|
|
Other receivables
|
23
|
1.0
|
5.1
|
|
|
|
266.8
|
273.4
|
|
Current assets
|
|
|
|
|
Inventories
|
22
|
11.1
|
11.1
|
|
Trade and other receivables
|
23
|
54.7
|
57.8
|
|
Cash and cash equivalents
|
24
|
5.9
|
12.3
|
|
|
|
71.7
|
81.2
|
|
Non-current assets held for sale
|
20
|
3.4
|
4.5
|
|
|
|
75.1
|
85.7
|
|
Total assets
|
|
341.9
|
359.1
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
26
|
(40.8)
|
(43.3)
|
|
Current tax liabilities
|
|
(3.6)
|
(2.5)
|
|
Obligations under finance leases and hire purchase contracts
|
27
|
(4.9)
|
(4.2)
|
|
Bank loans
|
25
|
(12.7)
|
(14.0)
|
|
Provisions
|
28
|
(0.5)
|
(0.2)
|
|
Deferred revenue
|
|
(52.9)
|
(51.5)
|
|
|
|
(115.4)
|
(115.7)
|
|
Net current liabilities
|
|
(40.3)
|
(30.0)
|
|
Non-current liabilities
|
|
|
|
|
Obligations under finance leases and hire purchase contracts
|
27
|
(11.1)
|
(8.8)
|
|
Bank loans
|
25
|
(65.6)
|
(88.2)
|
|
Provisions
|
28
|
(4.1)
|
(4.4)
|
|
Deferred tax liabilities
|
29
|
(7.0)
|
(10.8)
|
|
Derivative financial instruments
|
18
|
(2.8)
|
(1.0)
|
|
Deferred revenue
|
|
(0.8)
|
(0.9)
|
|
Other non-current liabilities
|
26
|
(7.6)
|
(7.9)
|
|
Retirement benefit obligations
|
10
|
(1.1)
|
(1.1)
|
|
|
|
(100.1)
|
(123.1)
|
|
Total liabilities
|
|
(215.5)
|
(238.8)
|
|
Net assets
|
|
126.4
|
120.3
|
|
Equity
|
|
|
|
|
Share capital
|
30
|
0.8
|
0.7
|
|
Share premium account
|
31
|
37.4
|
37.4
|
|
Merger reserve
|
32
|
57.5
|
57.5
|
|
Other reserves
|
33
|
(1.3)
|
1.0
|
|
Retained earnings
|
34
|
32.0
|
23.7
|
|
Total equity
|
|
126.4
|
120.3
|
The financial statements were approved by the Board of Directors and authorised for issue on 29 May 2009. They were signed on its behalf by:
David Simpson
Chief Financial Officer
Consolidated cash flow statement
For the year ended 31 March 2009
|
|
|
|
2009
|
2008
|
|
|
|
Note
|
£'m
|
£'m
|
|
Net cash from operating activities
|
|
36
|
33.9
|
29.9
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(15.5)
|
(21.4)
|
|
Proceeds on disposal of property, plant and equipment
|
|
|
0.1
|
0.1
|
|
Acquisition of subsidiary undertaking:
|
|
|
|
|
|
|
- Cash consideration
|
|
-
|
(61.8)
|
|
|
- Costs of acquisition
|
|
-
|
(3.6)
|
|
|
- Cash and cash equivalents acquired
|
|
-
|
0.8
|
|
Disposal of subsidiary undertaking
|
|
(0.9)
|
-
|
|
Net cash used in investing activities
|
|
|
(16.3)
|
(85.9)
|
|
Financing activities
|
|
|
|
|
|
Dividends paid
|
|
|
(2.7)
|
(3.3)
|
|
Repayments of borrowings
|
|
|
(24.3)
|
(53.2)
|
|
Increase in net obligations under finance leases and hire purchase contracts
|
|
|
3.0
|
5.8
|
|
New bank loans raised
|
|
|
-
|
113.8
|
|
Issue of share capital
|
|
|
-
|
0.2
|
|
Net cash (used in)/from financing activities
|
|
|
(24.0)
|
63.3
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
(6.4)
|
7.3
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
12.3
|
5.0
|
|
Cash and cash equivalents at end of period
|
|
|
5.9
|
12.3
|
Notes to the consolidated financial statements
For the year ended 31 March 2009
1. General information
Phoenix IT Group plc is a company incorporated in the United Kingdom under the Companies Act 1985. The nature of the Group's operations and its principal activities are set out in note 6 and in the chief executive's review and financial review.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in Note 3.
2. Adoption of new and revised Standards and restatements
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 March 2008 except for the presentation of the income statement, which has been changed to show operating expenses by nature (in a note to the financial statements) rather than by function, as the directors believe this presentation more appropriately reflects the costs of the business. The effect of this restatement is presentational and does not impact revenue, profit from operations, profit before tax or profit for the period in the restated periods. The operating expenses breakdown is included in note 8.
Lease incentive balances are being released to the income statement over the duration of the lease, therefore an element of each balance has been classified as amounts due in more than one year under the heading "other non-current liabilities". The comparatives at March 2008 have been reclassified to reflect this presentation to ensure consistency with the March 2009 incentives. This has resulted in a reclassification of £7.9m from trade and other payables due within one year at March 2008. This reclassification has no impact on the income statement.
The following interpretations, issued by the International Financial Reporting Interpretation Committee (IFRIC), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on its consolidated results or financial position:
-
IFRIC 12 - Service Concession Agreements (effective for annual accounting periods beginning on or after 1 January 2008)
-
IFRIC 14 - IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction (effective for annual accounting periods beginning on or after 1 January 2008)
In addition, the Group has elected to adopt IAS 23 (Revised) Borrowing costs in advance of its effective date for accounting periods beginning on or after 1 January 2009. The principal change to the Standard, which was to eliminate the previously available option to expense all borrowing costs as incurred, has meant that the Group has capitalised £0.2m (2008: £0.1m) of borrowing costs in accordance with the policies set out in note 3 that would have previously been expensed through the income statement during the year.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
-
IFRS 1 'first time adoption of IFRS' (amended) - annual periods beginning on or after 1 January 2009
-
IFRS 2 'share based payments' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IFRS 3 'business combinations' (revised) - effective for accounting periods beginning on or after 1 July 2009
-
IFRS 5 'non-current assets held for sale and discontinued operations' (amended) - effective for accounting periods beginning on or after 1 July 2009
-
IFRS 7 'financial instruments: disclosures' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IFRS 8 'operating segments' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 1 'presentation of financial statements' (amended/revised) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 16 'property, plant and equipment' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 19 'employee benefits' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 20 'government grants and disclosure of government assistance' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 27 'consolidated and separate financial statement' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 28 'investments in associates' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 29 'financial reporting in hyperinflationary economies' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 31 'interests in joint ventures' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 32 'financial instruments: presentation' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 36 'impairment of assets' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 38 'intangible assets' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 39 'financial instruments: recognition and measurement' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 40 'investment property' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IAS 41 'agriculture' (amended) - effective for accounting periods beginning on or after 1 January 2009
-
IFRIC 13 'customer loyalty programmes' - effective for accounting periods beginning on or after 1 July 2008
-
IFRIC 15 'agreements for the construction of real estate' - effective for accounting periods beginning on or after 1 January 2009
-
IFRIC 16 'hedges of a net investment in a foreign operation' - effective for accounting periods beginning on or after 1 October 2008
-
IFRIC 17 'distributions of non-cash assets to owners' - effective for accounting periods beginning on or after 1 July 2009
-
IFRIC 18 'transfers of assets from customers' - transfers received on or after 1 July 2009
The Amendment to IFRS 3 will have the effect of expensing all future acquisition costs to the income statement rather than capitalising them. The directors anticipate that the adoption of the remainder of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for additional disclosures required relating to IFRS 8 and IAS 1.
3. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the group financial statements comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical cost basis except where stated below. The principal accounting policies adopted are set out below.
3. Significant accounting policies Continued
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
On acquisition, the assets (including identifiable intangible assets, excluding goodwill) and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. The results of subsidiaries acquired or disposed of during the year are included from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Discontinued operations and assets held for sale
Cash-flows and operations that relate to a major component of the business or geographical region that has been sold or is classified as held for sale are shown separately from continuing operations.
Assets and businesses classified as held for sale are measured at the lower of carrying value and fair value less costs to sell. No depreciation is charged on assets and businesses classified as held for sale.
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Where an asset held for sale has not sold within one year, the asset may remain classified as held for sale provided that the delay is caused by events or circumstances beyond the Group's control and Management are still committed to the sale and the above criteria are still met.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least annually with cash generating units assessed by segment (see note 15). Any impairment is recognised immediately in profit for the period and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRS as adopted by the European Union has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP in the year ended 31 March 1999 and earlier periods has not been reinstated and is not included in determining any subsequent profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Product
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of goods.
Maintenance contracts
For fixed-fee maintenance contracts the revenue arising is spread evenly over the term of the contract. Costs incurred under these contracts are charged to the income statement as they arise (typically these contracts are annual and costs arise evenly over the contract term. If circumstances arise such that costs do not reasonably reflect performance, appropriate adjustments are made).
Other contract revenues
Other contract revenues are recorded according to the stage of completion of the contract by reference to the value of work performed.
The amount by which revenue differs from payments on account is shown under receivables as accrued income, or under payables as deferred revenue, as appropriate.
Provision is made for all anticipated contract losses as soon as they are identified.
Where a contract contains several service elements, the individual elements are accounted for separately at fair value.
Interest income
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
Dividend income
Dividend income from investments is recognised when the Shareholders' rights to receive payment have been established.
Leasing
Assets held under finance leases and hire purchase contracts are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term and discounted where material.
3. Significant accounting policies Continued
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rate prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the period.
On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group's profit and loss reserve. Such translation differences will be recognised as income or as expenses in the period in which the operation is disposed of.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in the income statement in the period in which they are incurred.
Retirement benefit costs
Defined contribution pension schemes
The principal subsidiary undertakings contribute to a number of Group personal pension plans in respect of certain employees. These plans are defined contribution plans and the annual charge to the income statement is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.
Defined benefit pension scheme
The Group operates a defined benefit funded pension scheme.
The costs of providing pensions under the defined benefit funded pension scheme are estimated on the basis of independent actuarial advice, with full actuarial valuations carried out on a triennial basis, and updated at each balance sheet date.
The operating and finance costs of the scheme are recognised separately within the statement of income. Actuarial gains and losses are recognised in full in the period in which they occur and are presented in the statement of recognised income and expense.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service costs, and as reduced by the fair value of scheme assets.
Short-term employee benefits
The cost of short-term accumulating balances is charged to the income statement over the period during which the entitlement is earned, at an average pay rate plus social security costs. Differences between the entitlement earned and the entitlement actually paid is shown as either accruals or prepayments in the balance sheet.
Taxation
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Investments
Investments are included at cost less provisions for impairment.
3. Significant accounting policies continued
Property, plant and equipment
Land and buildings, fixtures and equipment are stated at cost less accumulated depreciation and recognised impairment.
Depreciation is charged so as to write off the cost of assets, other than freehold land, over their estimated useful lives, using the straight-line method, on the following bases:
Freehold buildings 50 years
Leasehold property Period of lease
Fixtures and equipment 2 to 5 years
Motor vehicles 4 years
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
Intangible assets
Intangible assets are measured initially at fair value and are amortised on a systematic basis over their estimated useful lives on the following bases:
Value of trade name 15 years
Customer contracts and relationships 6 to 10 years
Impairment policy
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is immediately recognised as an expense.
Where an impairment loss on assets, other than goodwill, subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is immediately recognised as income.
Research and development
All expenditure on research and development activities is recognised as an expense in the period in which it is incurred.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Service stocks, other than consumable stocks, are systematically amortised over four years so as to reduce their value to nil at the end of the period. Consumable stocks are expensed as they are purchased.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Estimated irrecoverable amounts are based on the ageing of the receivable balances and historical experience. Individual trade receivables are written off when management deems them not to be collectable.
Cash and cash equivalents comprise cash on hand and demand deposits, other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Trade payables are non-interest bearing and are stated at their nominal value.
Borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Equity instruments are any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
3. Significant accounting policies Continued
Financial instruments continued
Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments such as interest rate swaps to hedge risks associated with interest rate fluctuations. Such derivative financial instruments are stated at fair value. The fair values of interest rate swaps are determined by reference to market rates for similar instruments.
In order to qualify for hedge accounting, the Group is required to document from inception the relationship between the item being hedged and the hedging instrument. The Group is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an ongoing basis. This effectiveness testing is performed at each period end to ensure that the hedge remains highly effective.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the highly probable forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the consolidated statement of income for the period.
Cash flow hedges
Changes in the effective portion of the fair value of derivative financial instruments that are designated as hedges of future cash flows are recognised directly in equity, and the ineffective portion is recognised immediately in the statement of income where relevant. If the cash flow hedge of a firm commitment or forecast transaction results in the recognition of a non-financial asset or liability, then, at the time it is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement. For hedges that result in the recognition of a financial asset or liability, amounts deferred in equity are recognised in the statement of income in the same period in which the hedged item affects net profit or loss.
Provisions
Provisions relate to the obligation to reinstate certain properties to their former condition at the end of their leases. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.
Non-recurring items
Non-recurring items are items of income or expenditure that, in management's judgement, should be disclosed separately on the basis that they are material, either by their nature or their size. Such items are included within the income statement caption to which they relate, and are separately disclosed either in the notes to the consolidated financial statements or on the face of the consolidated income statement.
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of options that will eventually vest.
Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Shares purchased through the employee benefit trust (EBT) are held at cost and are deducted from shareholders equity. The right to a dividend on these shares has been waived. 4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimation is contained in the accounting policies or the notes to the accounts, and the key areas are summarised below.
Areas of judgement that have the most significant effect on the amounts recognised in the financial statements are:
Non-recurring items
Non-recurring items are items of income or expenditure that, in management's judgement, should be disclosed separately on the basis that they are material, either by their nature or their size, to an understanding of the Group's financial performance and significantly distort the comparability of financial performance between periods. Items of income or expense that are considered by management for designation as non-recurring items include such items as significant restructuring; impairments of assets; integration of acquired businesses; and gains and losses on disposals of non-current assets. Details of non-recurring items are included in note 7.
Assets held for sale
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification, however an asset may remain in this categorisation for longer than one year if it remains unsold due to events or circumstances beyond the Group's control. In making this judgement, impairment losses of £1.4m (2008: £0.5m) have been reflected in the income statement as non-recurring items. Details of the losses are disclosed in note 20.
Valuation of intangible assets and useful life
The Group has made assumptions in relation to the potential future cash flows to be determined from separable intangible assets acquired as part of business combinations. This assessment involves assumptions relating to potential future revenues, appropriate discount rates and the useful life of such assets. These assumptions impact the income statement over the useful life of the intangible asset. These assumptions are discussed further below.
Key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:
Retirement benefits
The Group operates a defined benefit pension scheme which has been accounted for in accordance with IAS 19 - Employee Benefits. Application of IAS 19 requires the exercise of judgement in relation to various assumptions including future pay rises in excess of inflation, employer and pensioner demographics and the future expected returns on assets. Phoenix IT Group determines the assumptions to be adopted in discussion with its actuaries, and believes these assumptions to be in line with UK practice generally, but the application of different assumptions could have a significant effect on the amounts reflected in the financial statements. Further details can be found in note 10.
Impairment of goodwill and intangible assets
Determining whether goodwill and intangible assets have been impaired requires an estimation of the value in use of the cash-generating units to which they have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Details of the carrying amount of goodwill and intangible assets are shown in notes 15 and 16 respectively.
Share-based payments
In valuing the share-based payments realised in the Group's accounts, the Company has used the Black-Scholes calculation model, which makes various assumptions on factors outside the Group's control, such as share price volatility and risk-free interest rates. Details of the options and assumptions used in deriving the share-based payments are disclosed in note 39.
Dilapidation provisions
Dilapidation provisions have been derived on the basis of the most recent assessment of likely cost. Many of these obligations will not arise for a number of years and the costs are difficult to predict accurately. In making these assessments, the Group has sought the aid of independent experts where appropriate. The total provisions are disclosed in note 28.
5. Revenue
An analysis of the Group's revenue is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Revenue - continuing operations
|
253.2
|
230.8
|
|
Investment income
|
0.9
|
0.9
|
|
|
254.1
|
231.7
|
6. Segmental reporting
The Board has determined that the primary segmental reporting format is by business line, based on the Group's management and internal reporting structure. The Group's operations are based entirely in the UK.
Principal activities are as follows:
|
Partner services business
|
Provision of information technology services, networking support and infrastructure services
|
|
Business continuity
|
Provision of business continuity and IT disaster recovery services
|
|
SME IT services
|
Provision of information technology services and systems
|
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Corporate costs relate to central group costs, including finance, legal and employee costs that are not directly attributable to the operating segments.
Inter segment turnover has been eliminated.
|
Year ended 31 March 2009
|
Partner services business
|
Business continuity
|
SME IT services
|
Corporate
|
Total
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
|
Revenue
|
105.5
|
51.2
|
96.5
|
-
|
253.2
|
|
Profit from operations before amortisation of acquired intangibles and non-recurring items
|
16.1
|
13.0
|
10.0
|
(3.4)
|
35.7
|
|
Amortisation of intangibles
|
|
|
|
|
(3.4)
|
|
Non-recurring items
|
|
|
|
|
(9.3)
|
|
Profit from operations
|
|
|
|
|
23.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure on segment assets
|
0.5
|
10.4
|
4.6
|
-
|
15.5
|
|
Depreciation and amortisation in period
|
0.9
|
10.8
|
5.2
|
-
|
16.9
|
|
Impairment losses recognised in period
|
-
|
0.1
|
1.3
|
-
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
Segment assets
|
58.4
|
147.7
|
135.7
|
0.1
|
341.9
|
|
Total assets
|
|
|
|
|
341.9
|
|
Segment liabilities
|
(34.7)
|
(58.0)
|
(30.7)
|
(0.4)
|
(123.8)
|
|
Unallocated liabilities
|
|
|
|
|
(91.7)
|
|
Total liabilities
|
|
|
|
|
(215.5)
|
|
Year ended 31 March 2008
|
Partner services business
|
Business continuity
|
SME IT services
|
Corporate
|
Total
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
|
Revenue
|
102.9
|
42.0
|
85.9
|
-
|
230.8
|
|
Profit from operations before amortisation of acquired intangibles and non-recurring items
|
17.6
|
8.9
|
9.0
|
(2.5)
|
33.0
|
|
Amortisation of intangibles
|
|
|
|
|
(3.6)
|
|
Non-recurring items
|
|
|
|
|
(6.0)
|
|
Profit from operations
|
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure on segment assets
|
1.3
|
18.5
|
2.0
|
-
|
21.8
|
|
Depreciation and amortisation in period
|
1.0
|
9.2
|
4.2
|
-
|
14.4
|
|
Impairment losses recognised in period
|
-
|
0.5
|
-
|
-
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet
|
|
|
|
|
|
|
Segment assets (restated)
|
59.3
|
179.4
|
120.4
|
-
|
359.1
|
|
Total assets
|
|
|
|
|
359.1
|
|
Segment liabilities
|
(35.2)
|
(67.5)
|
(32.0)
|
(1.2)
|
(135.9)
|
|
Unallocated liabilities
|
|
|
|
|
(102.9)
|
|
Total liabilities
|
|
|
|
|
(238.8)
|
The analysis of total assets and liabilities excludes inter-business balances. Unallocated total liabilities comprise bank loans and overdrafts, taxation and derivative financial liabilities.
Segmental assets have been restated to include goodwill which was previously unallocated.
7. Non-recurring items
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Costs of reorganisation of newly acquired subsidiaries (a)
|
5.7
|
5.5
|
|
Loss on disposal of subsidiaries (b)
|
0.8
|
-
|
|
Write-off of unamortised loan costs and loan break costs following arrangement of new bank facilities
|
-
|
0.4
|
|
Impairment loss on property held for sale (notes 20)
|
1.4
|
0.5
|
|
Redundancy costs (c)
|
1.4
|
-
|
|
|
9.3
|
6.4
|
(a) Costs of reorganisation relate to expenses incurred in relation to the restructuring that has taken place in the business since the acquisition of ICM Computer Group on 29 May 2007.
(b) On 10 April 2008, ICM Business Solutions Limited was sold to R Atherton and A Wilkinson. The gross assets disposed of were £0.5m and the transaction gave rise to a loss on disposal of £0.4m. On 28 November 2008, 100% of the ordinary share capital of Phoenix Holding SA and its wholly owned subsidiary, Phoenix IT Services SA was sold to P Sansade. The gross assets disposed of were £1.8m and the transaction gave rise to a loss on disposal of £0.4m.
(c) In response to the economic downturn in the UK the Group has undertaken a restructuring of some of its activities, together with a programme of headcount reduction.
8. Profit from operations
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Revenue
|
253.2
|
230.8
|
|
|
|
|
|
Raw materials and consumables
|
(6.6)
|
(5.1)
|
|
Staff costs
|
(100.9)
|
(92.4)
|
|
Depreciation of property, plant and equipment
|
(13.5)
|
(10.8)
|
|
Amortisation of acquired intangibles
|
(3.4)
|
(3.6)
|
|
Other operating charges
|
(105.8)
|
(95.5)
|
|
|
23.0
|
23.4
|
The analysis of auditors' remuneration is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Fees payable to Deloitte LLP for the Company's annual financial statements
|
-
|
-
|
|
Fees payable to Deloitte LLP for other services to the Group:
|
|
|
|
Audit of the Company's subsidiaries pursuant to legislation
|
0.2
|
0.2
|
|
|
0.2
|
0.2
|
|
Other services pursuant to legislation
|
-
|
-
|
|
Tax services
|
0.1
|
0.1
|
|
Corporate finance services
|
-
|
0.1
|
|
|
0.1
|
0.2
|
|
|
0.3
|
0.4
|
Amounts payable to Deloitte LLP and their associates by the Company and its subsidiary undertakings in respect of non-audit services (included above) which have not been charged to the income statement were £nil (2008: £0.1m).
9. Staff costs
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Their aggregate remuneration comprised:
|
|
|
|
Wages and salaries
|
88.9
|
80.5
|
|
Social security costs
|
10.0
|
9.2
|
|
Other pension costs (see note 10)
|
2.3
|
1.7
|
|
Share based payments
|
(0.3)
|
1.0
|
|
|
100.9
|
92.4
|
The average monthly number of employees (including Directors) was:
|
|
Number
|
Number
|
|
Partner services
|
2,096
|
1,345
|
|
Business continuity
|
192
|
167
|
|
SME IT services
|
484
|
822
|
|
Central administration
|
18
|
15
|
|
|
2,790
|
2,349
|
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Short-term employee benefits
|
1.3
|
2.0
|
|
Post-employment benefits
|
0.2
|
0.2
|
|
|
1.5
|
2.2
|
10. Retirement benefit schemes
Defined contribution scheme
The Group operates a defined contribution retirement benefit scheme. The assets of this scheme are held separately from those of the Group.
Pension costs for defined contribution schemes are as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Defined contribution scheme
|
1.8
|
1.7
|
Defined benefit scheme
The Group operates a defined benefit scheme for certain of its employees. Under the scheme the employees are entitled to retirement benefits varying between 1.25% and 1.67% of final salary, multiplied by number of years of pensionable service, on attainment of a retirement age of 65. No other post retirement benefits are provided. The scheme is a funded scheme.
The most recent full actuarial valuation of the scheme's defined benefit obligation was carried out at 6 April 2006 and updated to 31 March 2009 by a qualified independent actuary for IAS 19 purposes. The projected unit method was used in all valuations and assets were taken into account using market values.
The major assumptions used by the actuary were:
|
|
2009
|
2008
|
|
|
%
|
%
|
|
Discount rate
|
6.70
|
6.40
|
|
Expected return on equities, bonds and cash
|
6.43
|
6.80
|
|
Expected rate of salary increases
|
3.75
|
4.25
|
|
Future pension increases
|
3.00
|
3.30
|
|
Inflation
|
3.10
|
3.60
|
|
Mortality tables used
|
PxA92(YOB)MC
|
PxA92(YOB)MC
|
The current life expectancies post retirement (in years) underlying the value of the accrued liabilities for defined benefit pension scheme are:
|
|
2009
|
2008
|
|
|
Male
|
Female
|
Male
|
Female
|
|
Member currently age 65
|
22.1
|
25.0
|
21.9
|
24.7
|
|
Member currently age 40
|
23.3
|
26.1
|
23.2
|
26.0
|
Amounts recognised in income in respect of the defined benefit scheme are as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Current service cost
|
0.5
|
0.4
|
|
Interest cost
|
0.9
|
0.7
|
|
Expected return on scheme assets
|
(0.9)
|
(0.6)
|
|
|
0.5
|
0.5
|
The current service cost for the period has been included in staff costs. Actuarial losses of £0.8m (2008: £0.6m gain) have been reported in the consolidated statement of recognised income and expense.
The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit retirement benefit scheme is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Present value of defined benefit obligations
|
12.6
|
13.2
|
|
Fair value of scheme assets
|
(11.5)
|
(12.1)
|
|
Deficit in scheme and liability recognised in the balance sheet
|
1.1
|
1.1
|
10. Retirement benefit schemes continued
Movements in the present value of defined benefit obligations were as follows:
|
|
2009
|
|
|
£'m
|
|
At 1 April 2008
|
13.2
|
|
Current service cost
|
0.5
|
|
Interest cost
|
0.9
|
|
Benefits paid
|
(0.2)
|
|
Members' contributions
|
0.4
|
|
Actuarial gains on defined benefit obligation
|
(2.2)
|
|
At 31 March 2009
|
12.6
|
Movements in the fair value of scheme assets were as follows:
|
|
2009
|
|
|
£'m
|
|
At 1 April 2008
|
12.1
|
|
Expected return on scheme assets
|
0.9
|
|
Contributions by employer
|
1.3
|
|
Members' contributions
|
0.4
|
|
Benefits paid
|
(0.2)
|
|
Actuarial losses on scheme assets
|
(3.0)
|
|
At 31 March 2009
|
11.5
|
The fair value of the scheme assets at the balance sheet date is analysed as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Equities
|
7.0
|
7.4
|
|
Bonds
|
4.3
|
4.7
|
|
Cash
|
0.2
|
-
|
|
|
11.5
|
12.1
|
The scheme assets do not include any of the Group's own financial instruments, nor any property occupied or other assets used by the Group.
The expected rate of return on the equities was determined by reference to long term historic out performance of this asset class over bonds so a view was taken that it was appropriate to take a future return rate on equities of 7.20% (2008: 7.5%) pa. The investment return in relation to these assets is variable and as such they are considered riskier investments. This results in 'the equity risk premium' which is included in the yield on the equity investment and compensates investors for the additional risk of holding this type of investment. There is significant uncertainty about the expected size of this risk premium and this risk is managed by holding assets which are less risky in nature but have a corresponding lower return.
The expected rate of return on bonds was determined by taking a blend between the gross redemption yields on corporate and government bonds, which was the two types of bonds held within the scheme at 31 March 2009, resulting in a return rate on bonds of 5.40% (2008: 5.70%). The risk of default on these assets is considered to be small.
The expected rate of return on cash was determined by reference to the level of bank base rate of 0.5% (2008: 5.25%) pa.
The overall expected rate of return is calculated by weighting the individual rates in accordance with how the plan assets are invested.
The actual return on scheme assets was a loss of £2.1m (2008: £0.4m).
The history of the scheme for the current period is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Present value of defined benefit obligation
|
12.6
|
13.2
|
|
Fair value of scheme assets
|
(11.5)
|
(12.1)
|
|
Deficit
|
1.1
|
1.1
|
|
|
|
|
|
Experience adjustments on scheme liabilities
|
-
|
-
|
|
Percentage of scheme liabilities
|
0%
|
0%
|
|
|
|
|
|
Experience adjustments on scheme assets
|
(3.0)
|
(1.0)
|
|
Percentage of scheme assets
|
25.9%
|
7.95%
|
The estimated amounts of contributions expected to be paid to the scheme during the next financial year is £1.2m which includes payments to eliminate the pension deficit of £0.7m. The employer's ordinary contribution rate is 8.9% of pensionable salaries. The Group has agreed with the trustees that it will aim to eliminate the deficit over a three year period.
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
|
Assumption
|
Change in assumption
|
Impact on scheme liabilities £'m
|
|
Discount rate
|
Decrease by 0.5ppts
|
Increase by 1.5
|
|
Rate of salary growth
|
Increase by 0.25ppts
|
Increase by 0.3
|
|
Inflation
|
Increase by 0.25ppts
|
Increase by 0.7
|
|
Mortality
|
Improved life expectancy by using Lower Cohort with 1% floor instead of Medium Cohort
|
Increase by 0.6
|
11. Finance costs and investment income
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Finance costs:
|
|
|
|
Interest on bank overdrafts and loans
|
(6.3)
|
(6.8)
|
|
Interest on obligations under finance leases and hire purchase contracts
|
(0.8)
|
(0.5)
|
|
Amortisation of loan issue costs
|
(0.4)
|
(0.3)
|
|
Other interest
|
(0.1)
|
(0.2)
|
|
Interest cost on defined benefit scheme
|
(0.9)
|
(0.7)
|
|
Non-recurring finance costs
|
-
|
(0.4)
|
|
Total interest expense
|
(8.5)
|
(8.9)
|
|
Less: amounts included in the cost of qualifying assets
|
0.2
|
0.1
|
|
|
(8.3)
|
(8.8)
|
|
Investment income:
|
|
|
|
Expected return on defined benefit pension scheme assets
|
0.8
|
0.7
|
|
Interest on bank deposits
|
0.1
|
0.2
|
|
|
0.9
|
0.9
|
|
Net finance costs
|
(7.4)
|
(7.9)
|
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a capitalisation rate of 7.098% (2008: 7.621%) to expenditure on such assets.
12. Taxation
The tax charge on profit from operations for the year was as follows:
|
|
|
2009
|
2008
|
|
|
|
£'m
|
£'m
|
|
Current tax:
|
|
|
|
|
|
UK corporation tax
|
5.9
|
5.0
|
|
|
Adjustment in respect of prior periods
|
0.1
|
(0.1)
|
|
|
Foreign tax
|
0.1
|
0.1
|
|
|
|
6.1
|
5.0
|
|
Deferred tax (Note 29):
|
|
|
|
|
|
Current year
|
(0.9)
|
0.3
|
|
|
Adjustment in respect of prior periods
|
(0.6)
|
(0.5)
|
|
|
Impact of change in United Kingdom tax rate
|
-
|
-
|
|
|
|
4.6
|
4.8
|
Corporation tax is calculated at 28% (2008: 30%) of the estimated assessable profit for the year. The change from the previous year is due to a change in UK government legislation that came into force on 1 April 2008.
Taxation for jurisdictions other than the UK is calculated at the rates prevailing in the respective jurisdictions.
The charge for the year can be reconciled to the profit per the income statement as follows:
|
|
2009
|
2008
|
|
|
£'m
|
%
|
£'m
|
%
|
|
Profit before tax
|
15.6
|
|
15.5
|
|
|
|
|
|
|
|
|
Tax at the UK corporation tax rate of 28% (2008: 30%)
|
4.4
|
28.0
|
4.7
|
30.0
|
|
Effects of:
|
|
|
|
|
|
Expenses that are not deductible in determining taxable profit
|
0.6
|
3.7
|
0.8
|
5.0
|
|
Tax adjustments relating to share options
|
0.1
|
0.6
|
(0.1)
|
(0.6)
|
|
Adjustments in respect of prior periods
|
(0.5)
|
(2.8)
|
(0.6)
|
(3.8)
|
|
Tax expense and effective tax rate for the year
|
4.6
|
29.5
|
4.8
|
30.6
|
In addition to the amount charged to the income statement, the following amounts have been charged/(credited) directly to equity:
|
|
|
2009
|
2008
|
|
|
|
£'m
|
£'m
|
|
Current tax:
|
|
|
|
|
|
Tax on share based payments
|
-
|
(0.1)
|
|
|
|
-
|
(0.1)
|
|
Deferred tax (Note 29):
|
|
|
|
|
|
Tax on actuarial (losses)/gains
|
(0.2)
|
0.2
|
|
|
Tax on cash flow hedge
|
(0.5)
|
(0.3)
|
|
|
Tax on share based payments
|
-
|
0.1
|
|
|
|
(0.7)
|
(0.1)
|
13. Earnings per share
|
|
2009
|
2008
|
|
Adjusted earnings per share excluding amortisation of acquired intangibles and non-recurring items
|
|
|
|
|
Basic
|
27.1p
|
24.8p
|
|
|
Diluted
|
26.3p
|
24.1p
|
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Earnings for the purposes of basic earnings per share and diluted earnings per share being net profit attributable to equity holders of the parent
|
11.0
|
10.7
|
|
Amortisation of acquired intangibles
|
3.4
|
3.6
|
|
Non-recurring items
|
9.3
|
6.4
|
|
Tax on amortisation of acquired intangibles and non-recurring items
|
(3.3)
|
(3.0)
|
|
Earnings for the purposes of adjusted earnings per share being net profit attributable to equity holders of the parent excluding amortisation of acquired intangibles and non-recurring items
|
20.4
|
17.7
|
Number of shares
|
|
2009
|
2008
|
|
|
'm
|
'm
|
|
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
|
75.1
|
71.8
|
|
Effect of dilutive potential Ordinary Shares:
|
|
|
|
Share options
|
2.4
|
2.2
|
|
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
|
77.5
|
74.0
|
14. Dividends
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Amounts recognised as distributions to Shareholders in the year:
|
|
|
|
Second interim dividend for the year ended 31 March 2008 of nil (2007: 3.174p) per share
|
-
|
1.9
|
|
Final dividend for the year ended 31 March 2008 of 3.65p (2007: nil) per share
|
2.7
|
-
|
|
Interim dividend for the year ended 31 March 2008 of 1.83p per share
|
-
|
1.4
|
|
|
2.7
|
3.3
|
|
|
|
|
|
Proposed interim dividend for the year ended 31 March 2009 of 2.10p per share
|
1.6
|
-
|
|
Proposed final dividend for the year ended 31 March 2009 of 4.20p (2008: 3.65p) per share
|
3.2
|
2.7
|
The proposed interim dividend was recommended by the Board on 19 November 2008 and was paid on 6 April 2009.
The proposed final dividend was recommended by the Board on 27 May 2009 and will be paid on 9 October 2009.
These dividends are subject to approval by Shareholders at the Annual General Meeting and accordingly they have not been included as a liability in these financial statements.
15. Goodwill
|
|
£'m
|
|
Cost and carrying amount
|
|
|
At 1 April 2007
|
84.0
|
|
Additions
|
90.6
|
|
At 1 April 2008
|
174.6
|
|
Additions arising from revisions to provisional fair values (Note 35)
|
4.2
|
|
At 31 March 2009
|
178.8
|
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Partner services business
|
21.7
|
21.7
|
|
Business continuity
|
79.9
|
82.8
|
|
SME IT services
|
77.2
|
70.1
|
|
|
178.8
|
174.6
|
The movement in allocation of goodwill to the CGUs is due to the revision of the provisional fair values in relation to the ICM acquisition.
Impairment
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations and from time to time the Group may also obtain independent appraisals of fair values to determine recoverable amounts.
The recoverable amounts of the CGUs are determined from value-in-use calculations based on 3 year financial forecasts approved by the Directors, with year 1 extracted from a detailed financial budget and years 2-3 from the strategic plan. The main assumptions within the forecast operating cash flows include the Directors conservative estimates of revenue growth, future profitability and ongoing levels of working capital and capital expenditure to support growth.
The key assumptions used in determining the value in use calculations are set out below and these assumptions have been revised in the year in light of the current economic environment which has resulted in more conservative estimates about the future.
Cash-flow projections
The Group prepares risk-adjusted cash-flow forecasts derived from the most recent annual financial budgets and 3 year business plans approved by the Directors with an extrapolation of these cash flows beyond a 3 year horizon to perpetuity applying an assumed annual growth rate of 2.25%.
Discount rate
The Directors have used discount rates ranging from 10-12% (2008: 10-13%) which represents the Group pre-tax weighted average cost of capital adjusted for the risk profiles of the individual CGUs.
Growth rates
Growth rates are determined with reference to: current market conditions; external forecasts and historical trends for the Group's key end markets. Cash flow growth rates are derived from the Directors latest estimates of forecast revenues taking into consideration past experience of operating margins achieved in the CGU. Historically, such forecasts have been reasonably accurate. To forecast beyond three years a long-term average growth rate of 2.25% has been used to calculate a terminal value. The Directors have made the judgement that this long-term growth rate does not exceed the long-term average growth rate for the industry. The terminal value represents the value of cash flows beyond the third year to perpetuity. In the short-term (up to 3 years) growth rates of between 0% and 12.3% have been used.
In assessing goodwill for impairment as at 31 March 2009, the Directors made use of the most recent detailed calculations of the recoverable amount of the Group's CGUs, prepared at 31 March 2009. Those calculations resulted in recoverable amounts exceeded the carrying values for each of the Group's three CGUs, despite the weaker markets currently being experienced.
Sensitivity to changes in assumptions
Whilst the Directors consider that their assumptions are realistic, it is possible that an impairment would be identified if any of the above key assumptions were changed significantly. The Group's impairment review is sensitive to a change in the key assumptions used, most notably the discount rates. Based on the Group's sensitivity analysis, an increase in the discount rate in any of the CGUs of 1.8% or a decrease in forecast cash flows of 16.9% (in isolation) would not lead to an impairment.
Using a discounted cash flow methodology necessarily involves making numerous estimates and assumptions regarding revenue growth, operating margins, tax rates, appropriate discount rates, capital expenditure levels and working capital requirements. These estimates will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In addition, judgements are applied by the Directors in determining the level of cash-generating unit identified for impairment testing and the criteria used to determine which assets should be aggregated. A difference in testing levels could affect whether an impairment is recorded and the extent of impairment loss.
Changes in business activities or structure may also result in changes to the level of testing in future periods. Further, future events could cause the Group to conclude that impairment indicators exist and that the asset values associated with a given operation have become impaired. Any resulting impairment loss could have a material impact on the Group's financial condition and results of operations.
16. Intangible assets
|
|
£'m
|
|
Cost
|
|
|
At 1 April 2007
|
11.1
|
|
Additions
|
18.7
|
|
At 1 April 2008 and 31 March 2009
|
29.8
|
|
Accumulated amortisation
|
|
|
At 1 April 2007
|
4.0
|
|
Charge for the year
|
3.6
|
|
At 1 April 2008
|
7.6
|
|
Charge for the year
|
3.4
|
|
At 31 March 2009
|
11.0
|
|
Net book value
|
|
|
At 31 March 2009
|
18.8
|
|
At 31 March 2008
|
22.2
|
Intangible assets arose on the acquisition of NDR (Holdings) Limited, Servo Computer Services Limited and ICM Computer Group plc and relate to the valuation of brand name and the acquired customer relationships expected to endure beyond the minimum contracted order terms.
17. Property, plant and equipment
|
|
|
Short
|
Fixtures
|
|
|
|
|
Freehold
|
leasehold
|
and
|
Motor
|
|
|
|
property
|
properties
|
equipment
|
vehicles
|
Total
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
|
Cost
|
|
|
|
|
|
|
At 1 April 2007
|
2.3
|
3.3
|
17.3
|
0.6
|
23.5
|
|
Acquired with subsidiary undertaking (Note 35)
|
27.9
|
2.3
|
20.6
|
0.9
|
51.7
|
|
Additions
|
0.3
|
2.2
|
19.2
|
0.1
|
21.8
|
|
Reclassified as held for sale
|
(5.0)
|
-
|
-
|
-
|
(5.0)
|
|
Disposals
|
-
|
-
|
(3.3)
|
-
|
(3.3)
|
|
At 1 April 2008
|
25.5
|
7.8
|
53.8
|
1.6
|
88.7
|
|
Reclassifications
|
0.8
|
(1.6)
|
0.4
|
0.1
|
(0.3)
|
|
At 1 April 2008 restated
|
26.3
|
6.2
|
54.2
|
1.7
|
88.4
|
|
Adjustments to provisional fair values (Note 35)
|
(4.8)
|
-
|
-
|
-
|
(4.8)
|
|
Additions
|
-
|
1.6
|
13.9
|
-
|
15.5
|
|
Reclassified as held for sale
|
-
|
-
|
(0.3)
|
-
|
(0.3)
|
|
Disposals
|
-
|
-
|
(0.5)
|
(0.2)
|
(0.7)
|
|
At 31 March 2009
|
21.5
|
7.8
|
67.3
|
1.5
|
98.1
|
|
Accumulated depreciation
|
|
|
|
|
|
|
At 1 April 2007
|
0.2
|
0.9
|
8.5
|
0.1
|
9.7
|
|
Charge for the year
|
0.3
|
1.0
|
8.9
|
0.6
|
10.8
|
|
Impairment loss
|
0.5
|
-
|
-
|
-
|
0.5
|
|
Reclassified as held for sale
|
(0.5)
|
-
|
-
|
-
|
(0.5)
|
|
Disposals
|
-
|
-
|
(3.3)
|
-
|
(3.3)
|
|
At 1 April 2008
|
0.5
|
1.9
|
14.1
|
0.7
|
17.2
|
|
Reclassifications
|
-
|
(0.3)
|
-
|
-
|
(0.3)
|
|
At 1 April 2008 restated
|
0.5
|
1.6
|
14.1
|
0.7
|
16.9
|
|
Charge for the year
|
0.7
|
0.7
|
11.6
|
0.5
|
13.5
|
|
Disposals
|
-
|
-
|
(0.3)
|
(0.2)
|
(0.5)
|
|
At 31 March 2009
|
1.2
|
2.3
|
25.4
|
1.0
|
29.9
|
|
Net book value
|
|
|
|
|
|
|
At 31 March 2009
|
20.3
|
5.5
|
41.9
|
0.5
|
68.2
|
|
At 31 March 2008
|
25.0
|
5.9
|
39.7
|
0.9
|
71.5
|
The reclassifications to cost and depreciation are to reallocate the assets acquired with ICM Computer Group.
The impairment loss on freehold property in 2008 relates to properties reclassified as held for sale during that year and reflected the difference between their carrying value and fair value in the market.
Included in the above is land at cost of £5.8m (2008: £5.8m) which is not depreciated.
The net book value of fixed assets includes £15.4m (2008: £13.5m) in respect of assets held under finance leases and hire purchase contracts.
At 31 March 2009, the Group had entered into contractual commitments for the redevelopment of property amounting to £0.1m (2008: £2.0m).
18. Derivative financial instruments
|
|
|
2009
|
2008
|
|
|
|
Liability
|
Liability
|
|
|
|
Fair value
|
Notional
|
Fair value
|
Notional
|
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
|
Cash flow hedges
|
|
|
|
|
|
|
Interest rate swaps
|
|
2.8
|
51.8
|
1.0
|
80.0
|
The Group has entered into an interest rate swap to hedge risks associated with interest rate fluctuations on variable rate borrowings. The main terms of the interest rate swap are disclosed in note 19. The derivative financial instrument matures on 30 September 2010.
19. Financial risk management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
Funding and treasury risk management is carried out under a framework of policies and guidelines approved by the Board. The Board is responsible for regular review and monitoring of treasury activity and for approval of specific transactions, the authority of which may be delegated. The Group accounting function provides regular update reports of treasury activity to the Board of Directors.
The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Capital risk management
The Group seeks to match long term assets with long term funding and short term assets with short term funding.
Equity, retained profits and long term fixed interest debt are used primarily to finance intangible assets and fixed assets. Short term borrowings are required primarily to finance current assets.
The Group capitalisation policy seeks to maintain a strong credit rating and an appropriate funding structure whilst safeguarding Group ability to continue as a going concern.
Market risk
(a) Foreign exchange risk
The Group publishes its consolidated financial statements in sterling but also conducts some business in foreign currencies, mainly the US Dollar and Euro. As a result it is subject to foreign exchange currency risk due to exchange rate movements, which will affect the Group's transaction costs. All foreign operations were disposed of during the year.
The Board periodically reviews the net exchange risk and implements strategies as appropriate. Due to the relative stability of the foreign currencies in which the Group deal and size of the foreign exchange transactions, the Group does not hedge the foreign exchange risk as the potential exposure is considered not to be material to the Group's results.
The carrying amounts of the Group's foreign currency denominated monetary assets and liabilities at the reporting date are as follows:
|
|
|
Assets
|
Liabilities
|
|
|
|
2009
|
2008
|
2009
|
2008
|
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
|
US Dollar
|
|
0.9
|
0.3
|
0.1
|
0.1
|
|
Euro
|
|
-
|
2.5
|
-
|
1.6
|
|
Norwegian Kroner
|
|
0.1
|
0.1
|
-
|
-
|
|
|
|
1.0
|
2.9
|
0.1
|
1.7
|
(b) Interest rate risk
The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts. These practices serve to reduce the volatility of the Group's reported financial performance.
All borrowings before interest rate swaps are at variable rates. The table below sets out the carrying amount of borrowings that are exposed to interest rate risk after taking into account interest rate swaps:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Fixed interest rate borrowings (note 25)
|
51.8
|
80.0
|
|
Floating interest rate borrowings (note 25)
|
27.2
|
23.3
|
|
Total borrowings
|
79.0
|
103.3
|
The contractual maturity of these borrowings can be found in the relevant notes shown above.
The Group holds an interest rate swap to hedge risks associated with interest rate fluctuations on variable rate the £51.8m term loan (note 18) which matures on 30 September 2010. The interest rate swap settles on a quarterly basis. The rate was fixed at 5.78% based on three months LIBOR. The Group will settle the difference between the fixed and floating interest rate on a net basis. The interest swap has been designated as a cash flow hedge in order to reduce the Group's cash flow exposure resulting from the variable interest rate on the term loan. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the period that the floating rate interest payments on debt impact profit or loss.
The quantitative disclosures relating to derivative financial instruments can be found in note 18.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group monitors its credit exposures to its counterparties via their credit rating, where applicable, or through other publicly available financial information and its own trading records.
The Group does not have any significant credit risk exposure to any single counterparty or group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are connected entities. Concentration of credit risk with respect to trade receivables is limited due to the Group's customer base being large and unrelated. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-rating assigned by international credit rating agencies.
The carrying amounts of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group's maximum exposure to credit risk.
Liquidity risk
The Group manages its liquidity requirements by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows. All borrowing is agreed and monitored by the Board of Directors. The Group's undrawn committed borrowing facilities are shown in note 25. The Group has a policy of pooling Group cash flows in order to maximise the return on surplus cash and also utilise cash within the Group. Surplus cash is placed on short-term deposits.
The following is an analysis of the contractual undiscounted cash flows payable under financial liabilities and derivative financial instruments as at the balance sheet date. The table includes both interest and principal cash flows:
|
|
Due within one year
|
Due between one and two years
|
Due between two and three years
|
Due in over three years
|
Total
|
|
Non derivative financial liabilities
|
|
|
|
|
|
|
Bank loans
|
13.0
|
16.0
|
16.0
|
34.0
|
79.0
|
|
Finance lease liabilities
|
5.5
|
4.9
|
4.2
|
2.7
|
17.3
|
|
Other non interest-bearing liabilities
|
30.9
|
-
|
-
|
-
|
30.9
|
|
|
49.4
|
20.9
|
20.2
|
36.7
|
127.2
|
|
Derivative financial instruments
|
|
|
|
|
|
|
Net settled interest rate swaps
|
1.9
|
0.9
|
-
|
-
|
2.8
|
|
|
|
|
|
|
|
|
Total as at 31 March 2009
|
51.3
|
21.8
|
20.2
|
36.7
|
130.0
|
|
|
|
|
|
|
|
|
Non derivative financial liabilities
|
|
|
|
|
|
|
Bank loans
|
14.3
|
13.0
|
16.0
|
60.0
|
103.3
|
|
Finance lease liabilities
|
4.9
|
3.6
|
3.1
|
2.9
|
14.5
|
|
Other non interest-bearing liabilities
|
33.7
|
0.1
|
-
|
-
|
33.8
|
|
|
52.9
|
16.7
|
19.1
|
62.9
|
151.6
|
|
Derivative financial instruments
|
|
|
|
|
|
|
Net settled interest rate swaps
|
0.2
|
0.6
|
0.2
|
-
|
1.0
|
|
|
|
|
|
|
|
|
Total as at 31 March 2008
|
53.1
|
17.3
|
19.3
|
62.9
|
152.6
|
Floating rate interest has been estimated using a future interest rate curve as at 31 March. The cash flow movements on the interest rate swap are expected to affect the statement of income in the same period in which they occur.
Sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity to changes in market variables, being UK interest rates and the US dollar and Euro to sterling exchange rate on the Group's financial instruments.
The analysis excludes the impact of movements in market variables on the carrying value of pension and other post-retirement benefits obligations, provisions and on the non-financial assets and liabilities of the overseas subsidiary.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and the derivative portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31 March 2009 and 31 March 2008, respectively.
The following table shows the illustrative effect on the income statement and items that are recognised directly in equity that would result from reasonably possible movements in changes in UK interest rates and in the US dollar and Euro to Sterling exchange rate, before the effects of tax.
|
|
|
2009
|
2008
|
|
|
|
Income statement
|
Equity
|
Income statement
|
Equity
|
|
|
|
-/+ £'m
|
-/+ £'m
|
-/+ £'m
|
-/+ £'m
|
|
UK interest rates +/- 0.50ppts
|
|
0.1
|
-
|
0.1
|
-
|
|
US dollar exchange rate +/- 10%
|
|
0.1
|
-
|
-
|
-
|
|
Euro exchange rate +/- 10%
|
|
-
|
-
|
-
|
-
|
20. Non-current assets held for sale
Assets held for sale of £3.4m (2008: £4.5m) consist of properties held in the business continuity segment, £nil (2008: £4.1m), and the SME IT services segment, £3.4m (2008: £0.4m).
These assets were classed as held for sale at 31 March 2008 however due to market conditions outside of the Group's control they remained unsold at 31 March 2009. Management are still committed to the sale of these assets, are actively marketing them and hope the sale will occur in the next financial year ended 31 March 2010.
An impairment loss of £1.4m has been recognised in the year on properties held for sale and reflects the difference between their carrying value and their estimated fair value in the market less costs of sale.
21. Subsidiaries
The significant subsidiaries included within the Group accounts at 31 March 2009 are as follows:
|
Name of subsidiary
|
Country of registration
|
Class of share capital held
|
Nature of business
|
|
Phoenix IT Services Limited
|
England and Wales
|
Ordinary
|
Provision of information technology services
|
|
Trend Network Services
|
England and Wales
|
Ordinary
|
Provision of information technology, networking support
and infrastructure services
|
|
ICM Business Continuity Services Limited
|
England and Wales
|
Ordinary
|
Provision of business continuity and IT disaster recovery services
|
|
Network Disaster Recovery Limited
|
England and Wales
|
Ordinary
|
Provision of business continuity and IT disaster recovery services
|
|
Servo Limited
|
England and Wales
|
Ordinary
|
Provision of information technology services and systems
|
|
Servo Computer Services Limited
|
England and Wales
|
Ordinary
|
Provision of information technology services and systems
|
22. Inventories
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Service stocks
|
11.1
|
11.1
|
23. Trade and other receivables
Trade and other receivables at the balance sheet date comprise:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Included within non-current assets:
|
|
|
|
Prepayments and accrued income
|
1.0
|
5.1
|
|
Included within current assets:
|
|
|
|
Trade debtors
|
42.4
|
47.6
|
|
Other debtors
|
4.3
|
0.2
|
|
Prepayments and accrued income
|
8.0
|
10.0
|
|
|
54.7
|
57.8
|
The Group's trade receivables are stated after allowances for bad and doubtful debts based on managements' assessment of creditworthiness, an analysis of which is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Balance at the beginning of the period
|
0.3
|
0.1
|
|
Increase in provision
|
1.2
|
0.5
|
|
Amounts utilised
|
(0.7)
|
(0.3)
|
|
Balance at the end of the period
|
0.8
|
0.3
|
As at 31 March 2009, trade receivables of £6.4m (2008: £2.5m) were past due but not impaired. The ageing of these trade receivables from due date is as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Under 30 days
|
3.3
|
1.7
|
|
30 - 60 days
|
0.9
|
0.4
|
|
60 - 90 days
|
1.1
|
0.1
|
|
90 - 120 days
|
0.5
|
0.3
|
|
Over 120 days
|
0.6
|
-
|
|
Total
|
6.4
|
2.5
|
Concentration of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated. Due to this, the Directors believe there is no further credit risk provision required in excess of the allowance for bad and doubtful debts.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value due to their short maturities.
24. Cash and cash equivalents
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Cash and cash equivalents
|
5.9
|
12.3
|
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value.
Net cash and cash equivalents are held in the following currencies; those held in currencies other than sterling have been converted into sterling at year-end exchange rates.
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Sterling
|
5.4
|
11.4
|
|
Euro
|
-
|
0.5
|
|
US Dollar
|
0.4
|
0.3
|
|
Norwegian Kroner
|
0.1
|
0.1
|
|
|
5.9
|
12.3
|
25. Bank loans
The following table analyses bank borrowings, excluding bank overdrafts:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Current:
|
|
|
|
Bank loans
|
12.7
|
14.0
|
|
Non-current
|
|
|
|
Bank loans
|
65.6
|
88.2
|
|
Total borrowings
|
78.3
|
102.2
|
Total borrowings are repayable as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Within one year
|
12.7
|
14.0
|
|
In more than one year but not more than two years
|
15.7
|
12.7
|
|
In more than two years but not more than five years
|
49.9
|
75.5
|
|
|
78.3
|
102.2
|
All bank borrowings are denominated in sterling.
The other principal features of the Group's borrowings are as follows:
(i) a loan of £69m. Repayments are annual in September and the loan expires in May 2012. The Company and certain subsidiaries (as guarantor) have entered into a composite guarantee in favour of Royal Bank of Scotland on account of the Company and certain subsidiaries (as principal). The loan carries an interest rate of 1.262% above LIBOR. The hedging terms relating to the loan are discussed in note 19.
(ii) a revolving credit facility of £30m. The facility is due for repayment in full in May 2012. The Company and certain subsidiaries (as guarantor) have entered into a composite guarantee in favour of Royal Bank of Scotland on account of the Company and certain subsidiaries (as principal). The loan carries an interest rate of 1.262% above LIBOR.
The Directors estimate the fair value of the Group's bank borrowings to be equivalent to its book value. At 31 March 2009, of the total committed borrowing facilities of £99.0m (2008: £139.5m), the Group had available £20.0m (2008: £36.2m) of undrawn facilities.
26. Trade and other payables
Trade and other payables principally comprise the following amounts:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Included within non-current liabilities:
|
|
|
|
Other creditors
|
7.6
|
7.9
|
|
Included within current liabilities:
|
|
|
|
Trade creditors
|
16.1
|
19.3
|
|
Other creditors
|
4.3
|
1.9
|
|
Social security and other taxes
|
8.7
|
10.2
|
|
Accruals
|
11.7
|
11.9
|
|
|
40.8
|
43.3
|
As at 31 March 2009, trade creditors of the Group were equivalent to 38 days (2008: 48 days (restated)).
The Directors consider that the carrying amount of trade payables approximates their fair value.
27. Obligations under finance leases and hire purchase contracts
|
|
Minimum lease payments
|
Present value of minimum lease payments
|
|
|
2009
|
2008
|
2009
|
2008
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
|
Amounts payable under finance leases and hire purchase contracts:
|
|
|
|
|
|
Within one year
|
5.5
|
4.9
|
4.9
|
4.2
|
|
In the second to fifth years inclusive
|
11.8
|
9.6
|
11.1
|
8.8
|
|
|
17.3
|
14.5
|
16.0
|
13.0
|
|
Less: future finance charges
|
(1.3)
|
(1.5)
|
|
|
|
Present value of lease obligations
|
16.0
|
13.0
|
|
|
|
Less: amounts due for settlement within 12 months
|
|
|
(4.9)
|
(4.2)
|
|
Amounts due for settlement after 12 months
|
|
|
11.1
|
8.8
|
It is the Group's policy to lease certain of its fixtures, fittings and equipment under finance leases and hire purchase contracts. The average term is 5 years. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
All lease and hire purchase obligations are denominated in sterling.
There is no material difference between the minimum lease payments and the present value of the minimum lease payments.
The fair value of the Group's lease and hire purchase obligations approximates their carrying amount.
The Group's obligations under finance leases and hire purchase contracts are secured by the lessors' charges over the leased assets.
28. Provisions
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Balance at the start of the period
|
4.6
|
1.5
|
|
Additional provision in the year
|
0.6
|
0.9
|
|
Utilisation of provision
|
(0.6)
|
-
|
|
Adjustment to fair values of subsidiary undertaking
|
-
|
2.2
|
|
Balance at the end of the period
|
4.6
|
4.6
|
|
Included in current liabilities
|
0.5
|
0.2
|
|
Included in non-current liabilities
|
4.1
|
4.4
|
|
|
4.6
|
4.6
|
The provision relates to the obligation to reinstate certain properties to their former condition at the end of their leases which end between 2009 and 2020.
29. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior year.
|
|
|
|
Accelerated
|
Share
|
|
Retirement
|
|
|
|
|
Intangible
|
tax
|
option
|
|
Benefit
|
|
|
|
Hedging
|
assets
|
depreciation
|
costs
|
Provisions
|
obligations
|
Total
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
£'m
|
|
At 1 April 2007
|
-
|
(2.1)
|
(0.2)
|
0.6
|
0.9
|
-
|
(0.8)
|
|
Acquisition of subsidiary (Note 35)
|
-
|
(5.2)
|
(7.0)
|
-
|
1.2
|
0.8
|
(10.2)
|
|
Charge to income
|
-
|
1.0
|
-
|
-
|
(0.5)
|
(0.3)
|
0.2
|
|
Charge to equity
|
0.3
|
-
|
-
|
(0.1)
|
-
|
(0.2)
|
-
|
|
Change to rate of tax
|
-
|
0.1
|
-
|
-
|
(0.1)
|
-
|
-
|
|
At 1 April 2008
|
0.3
|
(6.2)
|
(7.2)
|
0.5
|
1.5
|
0.3
|
(10.8)
|
|
Adjustments to fair values (Note 35)
|
-
|
-
|
1.3
|
-
|
0.3
|
-
|
1.6
|
|
Charge to income
|
-
|
1.0
|
1.5
|
(0.4)
|
(0.4)
|
(0.2)
|
1.5
|
|
Charge to equity
|
0.5
|
-
|
-
|
-
|
-
|
0.2
|
0.7
|
|
At 31 March 2009
|
0.8
|
(5.2)
|
(4.4)
|
0.1
|
1.4
|
0.3
|
(7.0)
|
30. Share capital
|
|
|
Authorised
|
|
Allotted and Fully Paid
|
|
|
|
Number
|
£'m
|
|
Number
|
£'m
|
|
Ordinary shares of 1p each
|
|
|
|
|
|
|
|
At 1 April 2007
|
|
100,000,000
|
1.0
|
|
60,269,985
|
0.6
|
|
Exercise of share options
|
|
-
|
-
|
|
410,636
|
-
|
|
Shares transferred to the employee benefit trust
|
|
-
|
-
|
|
261,750
|
-
|
|
New shares issued on acquisition
|
|
-
|
-
|
|
14,047,184
|
0.1
|
|
At 1 April 2008
|
|
100,000,000
|
1.0
|
|
74,989,555
|
0.7
|
|
Exercise of share options
|
|
-
|
-
|
|
32,000
|
-
|
|
Shares transferred to the employee benefit trust
|
|
-
|
-
|
|
119,579
|
0.1
|
|
At 31 March 2009
|
|
100,000,000
|
1.0
|
|
75,141,134
|
0.8
|
During the year, options were exercised on 32,000 Ordinary Shares at prices varying from 37.8p to 200p and that number of shares was issued for a total gross consideration of £54,367 comprising £54,047 of share premium and £320 of capital.
A total of 129,941 Ordinary Shares are held by the employee benefit trust (2008: 261,750), for which the right to receive dividends has been waived.
The Company has one class of ordinary share capital which carries no right to fixed income.
31. Share premium account
|
|
£'m
|
|
At 1 April 2007
|
37.1
|
|
Premium on issue of shares
|
0.3
|
|
At 1 April 2008
|
37.4
|
|
Premium on issue of shares
|
-
|
|
At 31 March 2009
|
37.4
|
32. Merger reserve
|
|
£'m
|
|
At 1 April 2007
|
2.2
|
|
Premium on issue of shares
|
55.3
|
|
At 1 April 2008 and 31 March 2009
|
57.5
|
In accordance with section 131 of the Companies Act 1985, the premium on ordinary shares issued in relation to acquisitions is recorded as a merger reserve. The reserve is not distributable but can be used to make a bonus issue on fully paid shares or to make a transfer to the profit and loss reserve, an amount equal to the amount that has become realised, on either the disposal or write down of the related investment.
33. Other reserves
|
|
|
|
|
Total
|
|
|
Hedging
|
Translation
|
Shares to
|
Other
|
|
|
Reserve
|
Reserve
|
be Issued
|
Reserves
|
|
|
£'m
|
£'m
|
£'m
|
£'m
|
|
At 1 April 2007
|
-
|
-
|
1.5
|
1.5
|
|
Exchange difference arising on the restatement of net assets of overseas subsidiaries
|
-
|
0.1
|
-
|
0.1
|
|
IFRS 2 share option expense
|
-
|
-
|
0.9
|
0.9
|
|
Transfer to retained earnings on exercise of share options
|
-
|
-
|
(0.8)
|
(0.8)
|
|
Loss recognised on cash flow hedges
|
(0.7)
|
-
|
-
|
(0.7)
|
|
At 1 April 2008
|
(0.7)
|
0.1
|
1.6
|
1.0
|
|
Disposal of subsidiary
|
-
|
(0.1)
|
-
|
(0.1)
|
|
IFRS 2 share option expense
|
-
|
-
|
(0.3)
|
(0.3)
|
|
Transfer to retained earnings on exercise of share options
|
-
|
-
|
(0.6)
|
(0.6)
|
|
Loss recognised on cash flow hedges
|
(1.3)
|
-
|
-
|
(1.3)
|
|
At 31 March 2009
|
(2.0)
|
-
|
0.7
|
(1.3)
|
Other reserves are shown net of taxation, as appropriate.
Hedge reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.
Translation reserve
The translation reserve represents exchange differences relating to the translation of net assets of the Group's foreign operations from their functional currency to the parent's functional currency.
Share to be issued
Shares to be issued represents amounts expensed in the income statement in connection with awards made under the Group's share option scheme less any exercises or lapses of such awards. 34. Retained earnings
|
|
£'m
|
|
At 1 April 2007
|
15.1
|
|
Share-based payment transaction deferred tax reserve
|
(0.1)
|
|
Share-based payment transaction corporation tax reserve
|
0.1
|
|
Movement on pension deficit
|
0.6
|
|
Deferred tax on pension reserve
|
(0.2)
|
|
Exercise of IFRS 2 options
|
0.8
|
|
Retained profit for the year
|
10.7
|
|
Dividends
|
(3.3)
|
|
At 1 April 2008
|
23.7
|
|
Movement on pension deficit
|
(0.8)
|
|
Deferred tax on pension reserve
|
0.2
|
|
Exercise of IFRS 2 options
|
0.6
|
|
Retained profit for the year
|
11.0
|
|
Dividends
|
(2.7)
|
|
At 31 March 2009
|
32.0
|
35. Acquisition of subsidiary undertaking
On 29 May 2007 the Group acquired control of ICM Computer Group Limited (ICM). As at 31 March 2008 the fair values assigned to the assets and liabilities acquired were provisional. During the year ended 31 March 2009 these have been reviewed and adjusted as necessary these adjustments are set out in the following table.
|
|
|
Provisional Fair value
|
|
Revised Fair value
|
|
|
|
to Group
|
Revaluation
|
to Group
|
|
|
|
£m
|
£m
|
£m
|
|
Fixed assets
|
|
|
|
|
|
Property, plant and equipment
|
|
51.7
|
(4.8)
|
46.9
|
|
Intangible asset arising on acquisition
|
|
18.7
|
-
|
18.7
|
|
Current assets
|
|
|
|
|
|
Inventories
|
|
3.7
|
(0.9)
|
2.8
|
|
Trade and other receivables
|
|
14.9
|
-
|
14.9
|
|
Cash and cash equivalents
|
|
0.8
|
-
|
0.8
|
|
Total assets
|
|
89.8
|
(5.7)
|
84.1
|
|
Liabilities
|
|
|
|
|
|
Bank loans
|
|
(15.8)
|
-
|
(15.8)
|
|
Trade and other payables
|
|
(12.1)
|
(0.1)
|
(12.2)
|
|
Provisions
|
|
(2.2)
|
-
|
(2.2)
|
|
Current tax liabilities
|
|
(0.6)
|
-
|
(0.6)
|
|
Deferred tax liabilities
|
|
(10.2)
|
1.6
|
(8.6)
|
|
Retirement benefit obligations
|
|
(2.8)
|
-
|
(2.8)
|
|
Deferred revenue
|
|
(15.9)
|
-
|
(15.9)
|
|
Total liabilities
|
|
(59.6)
|
1.5
|
(58.1)
|
|
Net assets
|
|
30.2
|
(4.2)
|
26.0
|
|
Goodwill
|
|
90.6
|
4.2
|
94.8
|
|
|
|
120.8
|
-
|
120.8
|
|
Satisfied by:
|
|
|
|
|
|
Cash
|
|
61.8
|
-
|
61.8
|
|
Shares
|
|
55.4
|
-
|
55.4
|
|
Cash - costs of acquisition
|
|
3.6
|
-
|
3.6
|
|
|
|
120.8
|
-
|
120.8
|
Details of the amendments to the provisional fair values of the acquired identifiable assets and liabilities are as follows:
(a) Property, plant and equipment's value was revised in order to reflect their fair value to the Group.
(b) Inventories were adjusted to reflect the valuation on the date of acquisition.
(c) Other creditors were adjusted to take account of additional liabilities identified on the date of acquisition.
(d) Deferred tax liabilities were revalued to take account of the deferred tax that arises from the other fair value adjustments.
36. Notes to the cash flow statement
|
|
2009
|
2008
restated
|
|
|
£’m
|
£’m
|
|
Profit from operations
|
23.0
|
23.4
|
|
Adjustments for:
|
|
|
|
Depreciation of property, plant and equipment
|
13.5
|
10.8
|
|
Impairment of property
|
1.4
|
0.5
|
|
Loss/(profit) on disposal of property, plant and equipment
|
0.1
|
(0.1)
|
|
Amortisation of acquired intangibles
|
3.4
|
3.6
|
|
Share option costs
|
(0.3)
|
0.9
|
|
Loss on disposal of subsidiaries
|
0.7
|
-
|
|
Retirement benefit - difference between contribution and amounts charged
|
(0.8)
|
(0.7)
|
|
Exchange difference
|
-
|
0.1
|
|
Operating cash flows before movements in working capital
|
41.0
|
38.5
|
|
Increase in stocks
|
(1.4)
|
(1.0)
|
|
Decrease/(increase) in receivables
|
6.1
|
(15.1)
|
|
(Decrease)/increase in payables
|
(2.3)
|
11.8
|
|
Increase in deferred income
|
2.4
|
11.1
|
|
Cash generated by operations
|
45.8
|
45.3
|
|
Income taxes paid
|
(5.0)
|
(6.4)
|
|
Interest received
|
0.1
|
0.3
|
|
Interest paid
|
(7.0)
|
(9.3)
|
|
Net cash from operating activities
|
33.9
|
29.9
|
Additions to fixtures and equipment during the year amounting to £7.0m (2008: £8.8m) were financed by new finance leases.
37. Reconciliation of net borrowings
|
|
|
2009
|
2008
|
|
|
|
£'m
|
£'m
|
|
(Decrease)/increase in cash and cash equivalents during the period
|
|
(6.4)
|
7.3
|
|
Movement in borrowings
|
|
20.9
|
(66.1)
|
|
Borrowings of business acquired
|
-
|
(16.4)
|
|
Movement in net borrowings during the period
|
14.5
|
(75.2)
|
|
Net borrowings brought forward
|
|
(102.9)
|
(27.7)
|
|
Net borrowings carried forward
|
(88.4)
|
(102.9)
|
|
Cash and cash equivalents
|
5.9
|
12.3
|
|
Other current borrowings
|
(17.6)
|
(18.2)
|
|
Non-current borrowings
|
(76.7)
|
(97.0)
|
|
Net borrowings carried forward
|
|
(88.4)
|
(102.9)
|
38. Operating lease arrangements
The Group as lessee
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Minimum lease payments under operating leases recognised in income for the year
|
8.5
|
3.2
|
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
|
|
2009
|
2008
|
|
|
£'m
|
£'m
|
|
Within one year
|
7.3
|
7.4
|
|
In the second to fifth years inclusive
|
23.6
|
22.4
|
|
After five years
|
11.9
|
16.8
|
|
|
42.8
|
46.6
|
Operating lease payments represent rentals payable by the Group for land and buildings, fixtures and fittings, equipment and motor vehicles.
39. Share-based payments
Equity-settled share option plans
The Company has operated the following equity-settled share option plans during the period:
Employee Share Plan (ESP)
Enterprise Management Incentive Plan (EMI)
Performance Share Plan (PSP)
Post flotation, no further awards will be made under the ESP or the EMI plan.
The general terms and conditions of each plan are as follows:
|
|
ESP
|
EMI
|
PSP
|
|
Exercise price:
|
Agreed market price of the Company's shares at date of grant.
|
All grants under the EMI plan were made at prices higher than the agreed market price of the Company's shares at the date of grant. The grant prices reflected the grant prices of option rights under the ESP waived by option holders prior to the adoption of the EMI plan.
|
All awards made under the PSP have a nil exercise price. The number of options granted to eligible Group employees is determined as a proportion of base salary using the average of the middle market quotes for the Company's shares for the three days immediately prior to grant.
|
|
|
|
|
|
|
Vesting period:
|
Generally three years from the date of grant.
|
Vesting of all EMI plan options was conditional upon the flotation of the Company. Consequently, all the EMI plan options vested in November 2004.
|
Three years from the date of grant.
|
|
|
|
|
|
|
Lapse date:
|
Generally options granted under the ESP automatically lapse if they remain unexercised after a period of seven years from the date of grant. Furthermore, generally options granted under the ESP are forfeited if the option holder ceases to be a Group employee before exercising the option.
|
All EMI plan options automatically lapse if they remain unexercised after a period of 10 years from the date of grant. Furthermore, options are forfeited if the option holder ceases to be a Group employee before exercising the option.
|
PSP options lapse if they remain unexercised after a period of 10 years from the date of grant. Furthermore, options are forfeited if the option holder ceases to be a Group employee before exercising the option.
|
|
|
|
|
|
|
Performance conditions:
|
None.
|
None.
|
The PSP awards are subject to achieving a performance condition related to average annual growth in either EPS or profit growth over a three-year period of between 5% and 20% per annum. This results in between 20% and 100% of the options granted vesting. Performance between these points is on a progressive scale.
|
ESP
|
|
2009
|
2008
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
average
|
|
average
|
|
|
|
exercise
|
|
exercise
|
|
|
Options
|
price
|
Options
|
price
|
|
Balance at the start of the period
|
132,500
|
197p
|
303,500
|
165p
|
|
Granted during the period
|
-
|
-
|
-
|
-
|
|
Exercised during the period
|
(25,000)
|
200p
|
(155,500)
|
139p
|
|
Forfeited during the period
|
-
|
-
|
(15,500)
|
151p
|
|
Outstanding at the end of the period
|
107,500
|
197p
|
132,500
|
197p
|
|
Exercisable at the end of the period
|
107,500
|
197p
|
132,500
|
197p
|
39. Share-based payments continued
EMI
|
|
2009
|
2008
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
average
|
|
average
|
|
|
|
exercise
|
|
exercise
|
|
|
Options
|
price
|
Options
|
price
|
|
Balance at the start of the period
|
125,500
|
80p
|
143,000
|
78p
|
|
Granted during the period
|
-
|
-
|
-
|
-
|
|
Exercised during the period
|
(7,000)
|
62p
|
(16,500)
|
69p
|
|
Forfeited during the period
|
(500)
|
96p
|
(1,000)
|
96p
|
|
Outstanding at the end of the period
|
118,000
|
81p
|
125,500
|
80p
|
|
Exercisable at the end of the period
|
118,000
|
81p
|
125,500
|
80p
|
PSP
|
|
2009
|
2008
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Average
|
|
average
|
|
|
|
Exercise
|
|
exercise
|
|
|
Options
|
Price
|
Options
|
price
|
|
Balance at the start of the period
|
2,221,811
|
-
|
1,817,655
|
-
|
|
Granted during the period
|
877,004
|
-
|
860,607
|
-
|
|
Exercised during the period
|
(238,295)
|
-
|
(251,727)
|
-
|
|
Forfeited during the period
|
(71,014)
|
-
|
(204,724)
|
-
|
|
Expired during the period
|
(419,639)
|
-
|
-
|
-
|
|
Outstanding at the end of the period
|
2,369,867
|
-
|
2,221,811
|
-
|
|
Exercisable at the end of the period
|
131,749
|
-
|
248,659
|
-
|
The weighted average share price at the date of exercise for share options exercised during the period was:
ESP 321p
EMI 331p
PSP 318p
The options outstanding at 31 March 2009 had a weighted average exercise price of 12p, and a weighted average remaining contractual life of 8 years. In 2008, options were granted on 22 August 2007 and 13 September 2007. The aggregate of the estimated fair values of the options granted on those dates is £3 million. In 2009, options were granted on 20 June 2008. The aggregate of the estimated fair values of the options granted on those dates is £2 million.
The inputs into the Black-Scholes model are as follows:
|
|
2009
|
2008
|
|
Weighted average share price
|
£2.93
|
£4.01
|
|
Weighted average exercise price
|
Nil
|
Nil
|
|
Expected volatility
|
30%
|
30%
|
|
Expected life
|
4 years
|
4 years
|
|
Weighted average risk-free rate
|
5.22%
|
5.31%
|
|
Weighted average dividend yield
|
1.87%
|
1.19%
|
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous six months and by comparison with comparable companies. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Other share-based plans
The Company introduced a Share Incentive Plan on flotation. All employees were entitled to apply for free shares up to a value of £1,250 depending on their period of service. The Company issued 259,558 shares in connection with this award.
In addition, employees are able to buy shares by deduction from their pre-tax salary. Under the current SIP legislation this is restricted to
a maximum of £1,500 in each tax year or, if less, 10% of salary.
The Group recognised total income of £0.3m relating to equity-settled share-based payment transactions in 2009 (2008: expense of £1.0m).
40. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. Transactions with directors are disclosed in note 9.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2008 or 2009, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s237(2) or (3) Companies Act 1985.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEDFMUSUSEDI