Final Results

Volvere PLC 25 March 2004 25 March 2004 VOLVERE PLC FINAL RESULTS FOR THE PERIOD TO 31 DECEMBER 2003 Volvere PLC ('Volvere' or 'the Company'), the activist and turnaround investment company, announces its final results for the period ended 31 December 2003. Highlights * Pre-tax profit for the period of £546,000 on turnover of £7,061,000 * Group net assets increased 22.4% to £4,001,000 (30 June 2003: £3,269,000) * Group net cash inflow from operating activities of £1,356,000 resulting in cash on hand of £3,283,000 at 31 December 2003 (30 June 2003: £2,136,000) * Significant contract win with Shell Group companies worth estimated £2.3m over 3 years * No dividend proposed Sir Stanley Kalms, Chairman of Volvere plc, said: 'I am pleased to report Volvere's first full year of profit, a result which underlines the merits of the strategy set out in late 2002 and which sets a firm foundation for future growth.' For further information, please contact: Jonathan Lander, Chief Executive Officer Nick Lander, Chief Operating and Financial Officer Volvere PLC +44 (0) 20 7979 7596 Terry Garrett / Christian Taylor-Wilkinson Weber Shandwick Square Mile +44 (0) 20 7067 0700 Jeff Keating Teather & Greenwood +44 (0) 20 7426 9000 CHAIRMAN'S STATEMENT I am pleased to report on the results for the period ended 31 December 2003. Volvere was admitted to the Alternative Investment Market ('AIM') at the end of 2002 with the objective of acquiring companies with market capitalisations below the net realisable value of their assets or alternatively companies that were in distress but offered the possibility of a turnaround. At that time global equity markets were at or near five-year lows and optimism appeared scarce. Since then equity markets have rebounded making it more difficult for us to acquire companies in our sphere of activity. Conversely it has helped to increase the value of assets that we already own. In May 2003 we acquired a company that fitted our criteria, namely Vectra Group Limited ('Vectra'). We acquired Vectra from Amey plc when Amey was disposing of non-core assets and was itself the subject of a takeover. We believe our timing was good and that significant value has been, and will continue to be, created for shareholders. Vectra has presented many of the challenges that are typical of companies in distress. Investing in such companies requires clarity of purpose and comprehensive, multi-faceted action to deliver a turnaround in an acceptable timescale. Nevertheless, despite trading losses, one-off restructuring costs and Volvere's own operating expenses, the Group has delivered a profit of £546,000 for the period and an increase in Group net assets to £4,001,000. As a result of our instigation of more rigorous management of working capital, Vectra has also been highly cash generative. Group year-end cash on hand was £3,283,000. We believe that the changes that we have made to Vectra's operations put it on a platform for growth and the achievement of profitability that it has not enjoyed for some time. Following the period end, I am pleased to report that Vectra has won a number of important contracts. This reflects the quality of the staff in Vectra and the rigour of our management of the business. In December we welcomed David Buchler to the Board. David has some 30 years experience in the field of corporate turnaround, being a former Chairman of Kroll for Europe and Africa and a past President of R3, the association of business recovery professionals. OUTLOOK The trading performance of Vectra is encouraging and the outlook for the Group enhanced by its acquisition. In accordance with the policy outlined in the interim statement in June, we continue to seek to acquire companies that are complementary to Vectra. Sir Stanley Kalms Chairman CHIEF EXECUTIVE'S STATEMENT During the period we have been active in turning around the Group's sole operating company, Vectra. OPERATING REVIEW - VECTRA Vectra is a leading provider of safety, risk and other consulting and field services to clients in, and regulators of, regulated industries. The business is split into two divisions: Consulting, and Environment, Infrastructure and Resourcing ('EIR'). For the period from 24 May 2003 to 31 December 2003 Vectra's turnover was £7,061,000 and its operating loss before Group management charges was £444,000. Vectra's operating loss before Group management charges has been reduced significantly from an average 2003 pre-acquisition loss of approximately £201,000 per month to an average of approximately £63,000 per month for the period following acquisition. This has been achieved in spite of lower turnover and significantly increased insurance costs. Following restructuring of the acquired business, the Consulting division is larger as a percentage of the turnover of the overall business and the EIR division therefore smaller. Vectra employs fewer people - staff numbers have fallen from approximately 183 at 30 June 2003 to 156 at 31 December 2003 - but the people it employs are more concentrated on higher value-added services in the market sectors of Nuclear, Transportation, Oil and Gas, Aviation and Property. This is a key part of our strategy for delivering a successful turnaround. During 2003 and since the period end a number of new projects have been won including contracts with ProRail (The Netherlands), Tube Lines Limited, Marathon Oil and ABB (The Netherlands). In particular, following the period end, we won a significant contract with Shell Group (in respect of the UK and The Netherlands) worth approximately £2.3m over three years. This is in addition to our continuing work with BNFL and UKAEA amongst others. During the period we opened offices in Crawley, Aberdeen and the Middle East and strengthened the management of our Den Haag and London offices. EMPLOYEES The performance improvements we have seen in Vectra have been due to the hard work of all the staff during a difficult time following the acquisition from Amey, for which I thank them. ACQUISITIONS AND FUTURE STRATEGY The successful turnaround of Vectra remains the focus of our current efforts to enhance shareholder value. I believe that this is on course. The rise in equity markets, as noted in the Chairman's remarks, has made acquiring related businesses more difficult. During the period we considered a number of acquisitions that would be complementary to Vectra. Nothing that we have considered has met the stringent criteria that the Board has set for evaluating such transactions although we remain in discussions with a number of potential targets. Jonathan Lander Chief Executive FINANCIAL REVIEW This Financial Review covers the Group's performance during the period ended 31 December 2003. It should be read in conjunction with the Chairman's and Chief Executive's statements. ACCOUNTING POLICIES AND BASIS OF PREPARATION The financial statements have been prepared in accordance with UK Accounting Standards and the Group's principal accounting policies, which are set out in note 1 of the Notes to the Financial Statements below. The Group has applied robust and transparent accounting policies since its formation in 2002. The Group carries out regular reviews of its accounting policies in accordance with the requirement of Financial Reporting Standard ('FRS') 18 'Accounting Policies'. TURNOVER AND OPERATING PERFORMANCE As noted in the Chief Executive's report, Vectra's operating performance improved significantly during the period compared to pre-acquisition. Table A below summarises key financial information in relation to Vectra. Turnover in the period was £7,061,000, all of which was generated by Vectra. Vectra's average monthly turnover fell by 14.7% during the post-acquisition period from 24 May 2003 to 31 December 2003 when compared with the pre- acquisition period from 1 January 2003 to 23 May 2003. This was due principally to lower volumes in the EIR division, which represented 51.1% of 2003's pre- acquisition turnover and only 42.8% in the post-acquisition period. Operating profit exclusive of one-off reorganisation costs and Group management charges is the key measure used to assess the operating performance of the Group and its subsidiary company. Realisation of negative goodwill has been a significant factor in the reporting of an operating profit in the Group and reflects the Group's ability to buy and manage the working capital of its acquisitions. Vectra's average monthly operating loss has reduced compared to the pre- acquisition period due to the improvement in gross margins and reduction in overheads. Table A 24 May 2003 1 January 2003 Year ended to 31 December to 23 May 31 December 2003 2003 2002 Turnover (note 1) £000 7,061 5,833 19,721 Average monthly turnover (note 1) £000 1,009 1,183 1,643 Operating loss (notes 1 and 2) £000 (444) (1,006) (2,869) Average monthly operating loss (notes 1 and 2) £000 (63) (201) (239) ============= ============= ============= Note 1: the turnover and operating loss for the periods 1 January to 23 May 2003 and the year ended 31 December 2002 have been restated to exclude certain activities not acquired by Volvere. Further information is contained in note 11 of the Notes to the Financial Statements. The operating loss for the period 24 May to 31 December 2003 is before group management charges of £616,000. Note 2: the operating loss is stated before an exceptional credit in the period 1 January to 23 May 2003 totalling £1,270,000, relating to the settlement of litigation and the sale of tax losses offset by a charge associated with the transfer to Amey plc of a lease obligation. TAXATION The Group had no tax charge in the period. EARNINGS PER SHARE The basic and diluted earnings per share were 16.53p and 15.44p respectively. In 2004 the Group will implement a share option scheme. NEGATIVE GOODWILL Negative goodwill arising on the acquisition of Vectra has been capitalised as an intangible asset and credited to the profit and loss account during the period in so far as the assets acquired have been consumed or realised as cash. In the period an amount of £1,402,000 was capitalised and £1,252,000 credited to the profit and loss account. CASH MANAGEMENT The Group had no borrowings during the period. Cash of £3,455,000 (net of expenses) was raised pursuant to the issues of share capital in November and December 2002 and at 31 December 2003 cash balances totalled £3,238,000. HEDGING It is not the Group's policy to enter into derivative instruments to hedge interest rate risk. DIVIDENDS In accordance with the policy set out in our prospectus on our admission to AIM, the Board does not currently intend to recommend payment of a dividend but prefers to retain profits as they arise for investment in future opportunities. CANCELLATION OF SHARE PREMIUM ACCOUNT On 27 November 2003 the company's share premium account was cancelled to increase distributable reserves. Nick Lander Chief Operating & Financial Officer Volvere plc CONSOLIDATED PROFIT AND LOSS ACCOUNT Period from 5 July 2002 to 31 December 2003 Period from 5 July 2002 to 31 December 2003 Note £000 £000 TURNOVER - ACQUIRED OPERATIONS 2 7,061 Cost of sales - Acquired Operations (4,090) ------- GROSS PROFIT - ACQUIRED OPERATIONS 2,971 Administrative expenses - before realisation of negative goodwill (3,768) - realisation of negative goodwill 1,252 ------- (2,516) ------- OPERATING PROFIT - ACQUIRED OPERATIONS 455 Finance income - interest receivable 91 ------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 2 546 Tax on profit on ordinary activities 5 - PROFIT ON ORDINARY ACTIVITIES AFTER TAX, BEING RETAINED PROFIT FOR THE PERIOD 15 546 ======== EARNINGS PER ORDINARY SHARE OF 0.00001p: - Basic 7 16.53p -------- - Diluted 7 15.44p -------- All results are derived from continuing operations. There are no unrecognised gains or losses other than the profit for the period. Accordingly, a statement of total recognised gains and losses has not been presented. Volvere plc BALANCE SHEETS 31 December 2003 Note Group Company 2003 2003 £000 £000 FIXED ASSETS Intangible fixed assets - negative goodwill 8 (150) - Tangible fixed assets 9 215 - Investment 10 & 11 - 2,124 ------- ------- 65 2,124 CURRENT ASSETS Stocks 5 - Debtors 12 2,937 645 Cash at bank and in hand 3,283 1,258 ------- ------- 6,225 1,903 CREDITORS: amounts falling due within one year 13 (2,289) (184) ------- ------- NET CURRENT ASSETS 3,936 1,719 ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 4,001 3,843 ======= ======= CAPITAL AND RESERVES Called up share capital 14 50 50 Profit and loss account 15 3,951 3,793 ------- ------- EQUITY SHAREHOLDERS' FUNDS 16 4,001 3,843 ======= ======= These financial statements were approved by the Board of Directors on 25 March 2004 Volvere plc CONSOLIDATED CASH FLOW STATEMENT Period from 5 July 2002 to 31 December 2003 Note 2003 £000 Net cash inflow from operating activities 17 1,356 ------- Returns on investments and servicing of finance 18 91 Capital expenditure and financial investment 18 (59) Acquisitions and disposals 18 (1,560) ------- Cash outflow before management of liquid resources and financing (172) Financing 18 3,455 ------- Increase in cash in the year 3,283 ======= Volvere plc NOTES TO THE FINANCIAL STATEMENTS Period from 5 July 2002 to 31 December 2003 1. ACCOUNTING POLICIES A summary of the principal accounting policies, all of which have been applied during the period from incorporation, is set out below. Basis of accounting The financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. The group financial statements consolidate the financial statements of Volvere plc and its subsidiary undertaking drawn up to 31 December 2003. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method. Goodwill Goodwill, representing the excess of the fair value of consideration given over the fair value of separable net assets acquired, is capitalised as an intangible asset and is amortised over a period of 20 years, being the directors assessment of its likely future life. Provision is made for any impairment. Negative goodwill, representing the excess of the fair value of the separable net assets acquired over the fair value of the consideration given, is capitalised as an intangible asset and credited to the profit and loss account over the periods in which the assets acquired are consumed or realised as cash. Tangible fixed assets The cost of tangible fixed assets is their purchase cost, together with any incidental costs of acquisition. Depreciation is calculated so as to write off the cost of tangible fixed assets, less their estimated residual values, on a straight line basis over the expected useful economic lives of the assets concerned. The principal annual rates used for this purpose are: Improvements to short leasehold property Over the life of the lease Plant and machinery 20% - 33% Investments Investments are carried in the balance sheet at cost less provision for diminution in value. Stocks and work in progress Stock is valued at the lower of cost and net realisable value. Provision is made for obsolete, slow moving and defective stocks. Net realisable value is based on estimated selling price less the estimated cost of disposal. Amounts recoverable on contracts Amounts recoverable on short-term contracts include the cost of direct materials and labour plus attributable overheads. Full provision is made on uncompleted contracts for anticipated losses to completion. Turnover Turnover is recognised on a basis appropriate to the nature of the income source. Turnover earned on time and materials contracts is recognised as costs are incurred. Income from fixed price contracts is recognised in proportion to the stage of completion of the relevant contract. Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred at the balance sheet date. Timing differences are differences between the group's taxable profits and its results as stated in the financial statements. These arise from including gains and losses in different periods from those recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing difference can be deducted. Foreign currencies All transactions denominated in foreign currencies are translated into sterling at the actual rate of exchange ruling on the date of the transaction. Assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date at the end of the financial year. All exchange differences arising are taken to the profit and loss account in the year in which they arise. Investment income Income from investments is included in the profit and loss account on an accruals basis, before deduction of any related tax credit. Pension costs The group's subsidiary undertaking, Vectra, operates a defined contribution scheme. Vectra's contributions are charged against profits in the years in which they fall due. The assets of the scheme are held separately from those of the company and group in independently administered funds. The group provides no other post retirement benefits to its employees. Operating leases Costs in respect of operating leases are charged to the profit and loss account on a straight line basis over the lease term. 2. TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAX The turnover is attributable to the continuing operations and principal activity of safety, risk and other consulting and field services. 2003 By destination £000 United Kingdom 6,197 Rest of Europe 555 United States of America 23 Other 286 ------- 7,061 ======= Profit on ordinary activities before taxation is stated after charging/ (crediting): 2003 £000 Profit on sale of fixed assets 1 Depreciation on owned assets 80 Realisation of negative goodwill (see note 8) (1,252) Auditors' remuneration: - audit services 48 - non-audit services 24 Operating lease costs - plant and machinery 131 - other 218 Exchange gains (19) ======= In addition to the amounts shown above, Deloitte & Touche LLP received fess totalling £22,000 in connection with the listing of the Company on the Alternative Investment Market. These fees were charged to the share premium account. Deloitte & Touche received further fees totalling £51,000 for due diligence services on the acquisition of Vectra Group Limited, these fees being included with the cost of this investment. 3. DIRECTORS' EMOLUMENTS The remuneration of the directors was as follows: 2003 £000 Emoluments 91 ======= The services of Jonathan Lander, Nick Lander and Richard Kalms are provided under the terms of a Service Agreement dated 19 December 2002 with Dawnay, Day Lander Limited. The amount charged under this agreement (which is included in the amount stated above) for the period amounted to £77,000. None of the directors were members of the group's defined contribution pension plan in the period. 4. STAFF COSTS 2003 £000 Wages and salaries 4,111 Social security costs 429 Pension costs 148 ------- 4,688 ======= The average monthly number of persons employed by the group during the period was 184 (management and administration 38, consultants 146). The group's subsidiary undertaking, Vectra, operates a defined contribution pension plan to which it and its employees contribute. 5. TAX ON LOSS ON ORDINARY ACTIVITIES 2003 £000 UK corporation tax - ======= The standard rate of tax for the year, based on the UK standard rate of corporation tax is 30%. The actual tax charge for the period exceeds the standard rate for the reasons set out in the following reconciliation. 2003 £000 Profit on ordinary activities before tax 546 Tax charge on loss on ordinary activities at standard rate (164) Factors affecting charge for the period: Income not chargeable for tax purposes 336 Capital allowances in excess of depreciation (3) Tax losses not recognised (167) Movement in short term timing differences (2) ------- Total actual amount of current tax - ======= At 31 December 2003 a deferred tax asset has not been recognised in respect of timing differences relating to capital allowances, revenue losses and other short term timing differences as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is £396,000. 6. PROFIT ATTRIBUTABLE TO THE COMPANY The profit for the financial year dealt with in the financial statements of the parent company was £388,000. As permitted by Section 230 of the Companies Act 1985, no separate profit and loss account is presented in respect of the parent company. 7. EARNINGS PER SHARE The weighted average number of shares and earnings used to calculate earning per share are given below: 2003 Number Number of shares used for basic earnings per share 3,303,602 Number of shares deemed to be issued at nil consideration under incentive share scheme 232,053 ---------- Number of shares used for diluted earnings per share 3,535,655 ---------- £000 Earnings attributable to shareholders 546 ---------- 8. INTANGIBLE FIXED ASSETS - NEGATIVE GOODWILL Negative Goodwill £000 Cost Acquisition of subsidiary undertaking (note 11) (1,402) ---------- At 31 December 2003 (1,402) ---------- Amortisation Realised in the period 1,252 ---------- At 31 December 2003 1,252 ---------- Net book value At 31 December 2003 (150) ========== The balance of negative goodwill is being realised over the periods in which the assets to which it relates are consumed by the Group. This period is expected to extend out five years. 9. TANGIBLE FIXED ASSETS Group Short Leasehold Plant and property machinery Total £000 £000 £000 Cost Acquisition of subsidiary undertaking 414 942 1,356 Additions - 64 64 Disposals - (12) (12) ---------- ---------- ---------- At 31 December 2003 414 994 1,408 ---------- ---------- ---------- Depreciation Acquisition of subsidiary undertaking 271 848 1,119 Charge for the period 23 57 80 Disposals - (6) (6) ---------- ---------- ---------- At 31 December 2003 294 899 1,193 ---------- ---------- ---------- Net book value At 31 December 2003 120 95 215 ========== ========== ========== 10.FIXED ASSET INVESTMENTS 2003 Group Company £000 £000 Investments - 2,124 ========== ========== The Company's investment represents 100% of the ordinary share capital of Vectra Group Limited. 11.ACQUISITION OF SUBSIDIARY UNDERTAKING On 24 May 2003 the company acquired 100% of the issued share capital of Vectra Group Limited for a cash consideration of £2.0m. On completion of this acquisition Vectra Group Limited granted Amey plc an option to acquire 5% of the existing equity in Vectra Group Limited for a consideration of £115,000 in the three year period following the acquisition. Volvere plc granted to Amey plc an option to require Volvere plc to purchase Amey plc's shareholding acquired under the terms of the Vectra option. The option is exercisable during the period commencing on the 57th month anniversary and ending on the 60th month anniversary of the acquisition date and the consideration would be £115,000. The fair value of the total consideration was £2,124,000 (including £124,000 of associated expenses). The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the group: Fair value Book value Fair value to group at at acquisition adjustments acquisition £000 £000 £000 Fixed assets Intangible - Purchased goodwill 879 (879) - Tangible 405 (168) 237 Current assets Debtors (incl.amounts recoverable under contracts) 4,341 85 4,426 Cash 564 - 564 ---------- ---------- ---------- Total assets 6,189 (962) 5,227 ---------- ---------- ---------- Creditors Corporation tax (23) - (23) Other creditors including social security (614) - (614) Trade creditors (427) (36) (463) Accruals and deferred income (595) (6) (601) ---------- ---------- ---------- Total liabilities (1,659) (42) (1,701) ---------- ---------- ---------- Net assets acquired 4,530 (1,004) 3,526 ---------- ---------- Negative goodwill capitalised (1,402) ---------- Purchase consideration, including certain costs 2,124 ========== Satisfied by Cash 2,124 ========== Details of the fair value adjustments are as follows: Intangible assets - Purchased goodwill Purchased goodwill related to the acquisition of the net assets of Enviresponse. The directors performed a review for impairment and concluded that this goodwill had been impaired and no residual value to the group. Tangible fixed assets The directors performed a review for impairment of tangible fixed assets. This review resulted in an impairment charge against plant and machinery of £168,000. Debtors The directors performed a review of the recoverability of debtors (including amounts recoverable under contracts) and this has resulted in an increase in the carrying values. Trade creditors and accruals The directors performed a review of the valuation of creditors and accruals which has resulted in certain creditors and accruals being restated. Cash Net cash in respect of the acquisition comprised: £000 Purchase consideration including certain costs 2,124 Cash at bank acquired (564) -------- Net cash 1,560 ======== The profit and loss accounts for Vectra Group Limited for the 21-week period to 24 May 2003 and the year ended 31 December 2002, based on unaudited management accounts, are summarised below. Prior to the acquisition of Vectra Group Limited by Volvere, Vectra Group Limited transferred certain business activities to Amey plc - financial information relating to these business activities is shown separately below. Information relating to cash flows for Vectra Group Limited for the period following acquisition is contained in note 18 to these financial statements. 21 weeks to acquisition on 52 weeks to 24 May 2003 31 December 2002 £000 £000 Turnover - business activities not acquired 84 5,934 - business activities acquired 5,833 19,721 ========== ========== Total turnover 5,917 25,655 Operating loss - before exceptional items - business activities not acquired - (1,635) - business activities acquired (1,006) (2,869) ========== ========== Operating loss - before exceptional items (1,006) (4,504) Exceptional items 1,270 - ---------- ---------- Operating profit/(loss) - after exceptional items 264 (4,504) ---------- ---------- Net profit/(loss) before taxation 241 (4,559) Taxation (89) (79) ---------- ---------- Net profit/(loss) after taxation 152 (4,638) ========== ========== The exceptional credit in the period to 24 May 2003 related to the receipt of certain sums, net of expenses arising from litigation (£897,000) and income from the sale of tax losses (£823,000), offset by fees paid upon the transfer to Amey plc of certain lease obligations (£450,000). The result for the period to 24 May 2003 excludes the effect of the impairment review undertaken at acquisition, which resulted in an overall write-down of certain balance sheet items amounting to £1,004,000. 12.DEBTORS 2003 Group Company £000 £000 Trade debtors 1,383 - Amounts recoverable on contracts 1,231 - Amounts due from subsidiary undertaking - 636 Other debtors 49 - Prepayments and accrued income 274 9 ---------- ---------- 2,937 645 ========== ========== 13.CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2003 Group Company £000 £000 Trade creditors 655 32 Corporation tax 12 - Other taxes and social security 211 - VAT payable 402 90 Other creditors 277 - Accruals and deferred income 732 62 ---------- ---------- 2,289 184 ========== ========== 14.CALLED UP SHARE CAPITAL Company 2003 £000 Authorised 100,100,000 Ordinary shares of £0.0000001 each - 50,000 A shares of £0.49999995 each 25 50,000 B shares of £0.49999995 each 25 4,999,999,500,000 Deferred shares of £0.00000001 each 50 ========== Issued, called-up and fully paid 3,609,720 ordinary shares of £0.0000001 each - 50,000 A shares of £0.49999995 each 25 50,000 B shares of £0.49999995 each 25 ========== On incorporation the authorised share capital of the Company was £50,000 divided into 50,000 ordinary shares of £1 each of which 2 were issued at par (nil paid) as subscriber shares to the two subscribers. On 19 November 2002, 49,998 ordinary shares of £1 each were issued at par (nil paid). On 25 November 2002 100% of the nominal value of each ordinary share was paid up. On 18 December 2003 each issued £1 ordinary share was subdivided into one £0.0000001 ordinary share, one £0.49999995 'A' class share and one £0.49999995 'B' class share. On 24 December 2002 3,559,720 £0.0000001 ordinary shares were issued at £1 each, giving rise to share premium on issue of £3,405,000 net of expenses of the share issue. The A and B class shares rank pari passu with the ordinary shares on a return of capital and have equal voting rights. The A and B shares are capable of being converted into ordinary shares at the option of the holder on or after 24 December 2003 and 24 December 2004 respectively, on a predetermined conversion formula based upon share price performance, whereby 15% of the growth in market capitalisation of Group is attributable to the holders of the A and B shares. Based on the closing share price of £1.75 at 31 December 2003, the A and B class shares would be capable of converting into 232,053 ordinary shares. The deferred shares carry no rights to participate in the profits or assets of the Company and carry no voting rights. 15.SHARE PREMIUM AND RESERVES Group Share Profit and premium loss account Total £000 £000 £000 At beginning of period - - - Profit transferred for the period - 546 546 Premium on share issues (net of expenses) 3,405 - 3,405 Cancellation of share premium account (3,405) 3,405 - ---------- ---------- --------- At end of period - 3,951 3,951 ========== ========== ========= Company Share Profit and premium loss account Total £000 £000 £000 At beginning of period - - - Profit transferred for the period - 388 388 Premium on share issues (net of expenses) 3,405 - 3,405 Cancellation of share premium account (3,405) 3,405 - ---------- ---------- --------- At end of period - 3,793 3,793 ========== ========== ========= The cancellation of the parent company's share premium account, which was confirmed by the Court on 26 November 2003 and became effective on 27 November 2003, has been used to create distributable reserves of the same amount by transfer to the profit and loss account. 16.RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Group Company 2003 2003 £000 £000 Opening shareholders' funds - - Issue of share capital 3,610 3,610 Expenses associated with issue of share capital (155) (155) Profit for the period 546 388 ---------- ---------- Closing shareholders' funds 4,001 3,843 ========== ========== 17.RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS Group 2003 £000 Operating profit 455 Depreciation 80 Realisation of negative goodwill (1,252) Loss on sale of fixed assets 1 Increase in stocks (5) Decrease in debtors 1,489 Increase in creditors 588 ---------- Net cash inflow from operating activities 1,356 ========== 18.ANALYSIS OF CASH FLOWS Group 2003 £000 Returns on investments and servicing of finance Interest received 91 ---------- Net cash inflow from returns on investments and servicing of finance 91 ========== Capital expenditure and financial investment Purchase of tangible fixed assets (64) Sale of tangible fixed assets 5 ---------- Net cash outflow from capital expenditure and financial investment (59) ========== Acquisitions and disposals Acquisition of subsidiary undertaking (2,124) Net cash acquired on acquisition of subsidiary undertaking 564 ---------- Net cash outflow from acquisition and disposals (1,560) ========== Financing Issue of share capital 3,610 Costs associated with issue of share capital (155) ---------- Net cash inflow from financing 3,455 ========== Vectra Group Limited, acquired during the year, contributed £1,510,000 to the group's net operating cash flows, received £10,000 respect of net returns on investment and servicing of finance, paid £nil in respect of taxation and utilised £64,000 for capital expenditure. 19.ANALYSIS AND RECONCILIATION OF NET FUNDS Group 5 July 31 December 2002 Cashflow 2003 £000 £000 £000 Cash in hand at bank, being net funds - 3,283 3,283 ========== ========== ========== The group had no debt during the period or at the period end. 20.COMMITMENTS AND CONTINGENCIES Operating leases The group has the following annual commitments under non-cancellable operating leases: 2003 Plant and machinery Other £000 £000 Expiry date - within one year 47 205 - between two and five years 97 199 ---------- ---------- 144 404 ========== ========== 21.RELATED PARTIES The company has taken advantage of the exemption available to it under FRS8 paragraph 3(b) relating to transactions and balances with subsidiaries. As stated in note 3 above, the company's Executive Directors are provided under the terms of a Service Agreement dated 19 December 2002 with Dawnay, Day Lander Limited. The amount charged under this agreement in the period amounted to £77,000. In addition, pursuant to a Facilities Agreement dated 19 December 2002 with Dawnay, Day Lander Limited, the company is provided with certain administrative and support services. The amount charged under this agreement during the period amounted to £36,000. 22.SUBSIDIARY UNDERTAKINGS The subsidiary undertakings at 31 December 2003 are shown below. All subsidiary undertakings are registered in the United Kingdom and prepare accounts to 31 December each year. Principal Activity Holding Vectra Group Limited Provision of safety, risk and other consulting and field services 100% Vectra Partners Limited Dormant 100% Vectra Technologies Limited Dormant 100% The investments in Vectra Partners Limited and Vectra Technologies Limited are held by Vectra Group Limited. The proportion of voting rights held is equivalent to the equity shareholdings. On 9th March 2004 Vectra Technologies Limited changed its name to Vectra (Middle East) Limited. 23.FINANCIAL INFORMATION The financial information set out above does not constitute the Company's statutory accounts for the period ended 31 December 2003, but is derived from those accounts. Statutory accounts for 2003 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified 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

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