Final Results
Volvere PLC
25 May 2007
25 May 2007
VOLVERE PLC
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
Volvere plc ('Volvere' or 'the Company'), the turnaround investment company,
announces its final results for the year ended 31 December 2006.
HIGHLIGHTS
• Group net assets: £7.76m (2005: £4.09m) of which cash represented £6.54m
(2005: £1.14m)
• Group turnover in the year: £13,777,000 (2005: £10,626,000)
• Group profit before tax: £70,000 (2005: loss £63,000)
• Core areas at Vectra continued to perform strongly
• Sira Test and Certification, acquired in 2005, generated £462,000 profit
before tax, goodwill and group management and service charges (29 September
- 31 December 2005: £107,000)
• Acquired Sira Environmental and Sira Defence & Security
• Group well positioned to seize opportunities in future
• Basic earnings per share 1.85p (2005: loss 1.64p); diluted earnings per
share 1.81p (2005: loss 1.64p)
I am pleased to report on the results for the year ended 31 December 2006.
2006 was a defining year for the Group. We entered the year with two operating
subsidiaries and ended it with four as well as a controlling interest in NMT
Group PLC. Group turnover is at an all-time high, up 30% on last year, and we
have moved from a loss to a small profit. Net assets per ordinary share are up
31% over the period to £1.41 and our balance sheet is strong.
OUTLOOK
The current period has started strongly. I believe that the value of the
investments that we have made will become increasingly apparent.
Lord Kalms of Edgware
Chairman
For further information, please contact:
Jonathan Lander, Chief Executive Officer
Volvere plc + 44 (0) 20 7979 7596
Terry Garrett
Weber Shandwick Square Mile + 44 (0) 20 7067 0700
Tom Hulme
Teather & Greenwood + 44 (0) 20 7426 9000
Introduction
The three largest operating subsidiaries contributed strongly to group overhead,
which is very pleasing given that they were acquired in less than auspicious
times, when they or their former owners were in distress. That is of course the
essence of turnaround investing. Even our smallest unit - the defence and
security business - essentially broke even over the period. I believe it has
the potential for much success, albeit with a high degree of risk due to the
early stage of its development.
The offer for NMT Group PLC, which was made on 14 September 2006 and which was
declared unconditional on 2 November 2006, has resulted in over £5m of extra
cash becoming available to the Group for investing in businesses that fit with
any existing portfolio company, as well as for further turnarounds and activist
investment opportunities.
OPERATING REVIEW
Vectra
Vectra is our largest subsidiary, representing in 2006 about 75% of Group
turnover and employing 75% of our staff. It contributed £0.537m towards Group
central overhead during the period.
We believe Vectra is the largest independent safety consultancy in the UK. It
operates in the Oil and Gas, Transportation and Nuclear markets. Demand for the
services that Vectra offers is linked closely to the level of infrastructure
spend in these areas, which we expect to be significant for the foreseeable
future. Vectra has an excellent track record in its service delivery - spanning
more than 20 years - which is a testament to the high calibre of the individuals
we employ and the long-term relationships we build with our clients.
In spite of the very buoyant labour markets in which Vectra operates 4.6%,
growth in sales was achieved compared to 2005. Vectra's future growth will be a
function partly of the number of suitably qualified people that we can recruit
and we have redoubled efforts to increase our fee earning capacity during 2007.
This is showing early signs of success in the current period.
During 2006 Vectra completed some high profile and challenging assignments. The
Transportation practice continued the safety case for the new Dutch high-speed
rail link between Amsterdam and the Belgian border (completed in early 2007).
This was the largest Public Private Partnership contract ever awarded by the
Dutch government and one of the largest high speed railway projects in Europe to
date. Fees generated on the project over 3 years exceeded £1m. The expected
investment in European high speed rail networks provides an opportunity for
Vectra to leverage its experience and profile to achieve further growth in this
area. In addition, the growing threat from terrorism has provided an
opportunity to win strategically important consulting projects in this area and
we are confident that this will continue to expand.
Our work for the UK rail industry continued to grow, particularly for projects
on the London Underground. Our control room design and passenger information
solutions, which combine safe design with operational effectiveness, are
recognised as industry standards and we see further growth in this business in
the years ahead.
The Nuclear practice continued to provide consulting and related services to the
UK civil and defence nuclear market. Following the relative instability of this
market in 2005 we saw a more stable market in 2006. In addition, we have
diversified our client base to provide greater opportunity for growth and in
2007 further extended our consulting capabilities. We are confident that the
Nuclear sector will continue to provide a steady flow of work for Vectra
reflecting our position as a respected, long term industry player.
The Process practice (which largely serves the oil and gas sectors) made strong
progress during the year. We were delighted to have our framework agreement
with the Shell Group extended in early 2007 for a further 2 years beyond its
initial 3-year term, reflecting the close relationship we have established with
Shell in supporting its European safety activities. The strength of the oil and
gas sectors, coupled with Vectra's reputation and profile, mean we are confident
that the Process practice will continue to perform strongly.
We are actively seeking to acquire other businesses complementary to Vectra in
order to increase the scale and the depth of our offering. During 2006 we came
close to but regrettably could not complete on any transaction. This is
principally because of the high prices being paid for such businesses due to the
scarcity of companies of a size similar to Vectra and the level of demand for
services. We continue to look for such acquisitions.
Sira Test and Certification ('STC')
2006 was STC's first full year of ownership by the Group and it made a
contribution to Group central overhead of £0.462m, which is an excellent
performance. STC is a UK leader in the conformity assessment and testing field,
specialising in the safety of equipment used in potentially explosive
atmospheres.
STC serves a range of markets, including the fuel dispenser, mining equipment
and process plant markets as well as offering training relevant to those
markets. Its clients are located throughout the world and we believe that there
are opportunities to further extend its client base and geographic presence. In
2006 STC opened a second office, increasing its fee earning capacity and
embarked on an enhanced marketing programme. The first quarter order intake for
2007 has shown impressive growth over the prior year. We remain confident about
this business's prospects in the years ahead.
Sira Environmental
Sira Environmental was acquired in March 2006 and provides test, calibration and
certification services for people and products that are associated with gas
emissions and effluent flow. The company operates the Monitoring Certification
Scheme ('MCERTS') on behalf of the Environment Agency. MCERTS is a high profile
scheme that provides regulatory assurance in respect of stack emissions and
effluent flow.
Sira Environmental's performance improved as 2006 progressed and it became
profitable in the second half of the year, following its move to a new office
and laboratory. The improved performance has continued into 2007 and we are
confident this business will prosper further as we introduce new activities and
build on existing ones.
Sira Defence & Security ('SDS')
SDS was acquired in March 2006. It develops niche surveillance products and
software for use in security applications. Typically SDS is paid by customers
for the development time associated with a potential product, followed by sales
of the end product should the development be successful.
For the period since acquisition SDS's turnover was £0.18m, which comprised
principally of the sale of surveillance products. We have seen further
encouraging enquiry levels for similar products in early 2007. In addition, we
are positive about relatively significant enquiries received for further related
work.
During 2006 SDS continued development of the Meerkat CCTV image-management
software. This was launched into the police and homeland security sector in
early 2007 and we have been pleased with the level of interest shown.
EMPLOYEES
The Group's strength lies in the commitment and dedication of all its staff and
I am grateful to them for all their continued efforts.
ACQUISITIONS AND FUTURE STRATEGY
Following the acquisition of the NMT Group PLC, we now have access to sufficient
cash resources to make further investments in complementary businesses as well
as activist and turnaround opportunities. We remain committed to ensuring that
the underlying value of the Group's activities is recognised by shareholders
through active management of our portfolio of businesses.
Jonathan Lander
Chief Executive
This Financial Review covers the Group's performance during the year ended 31
December 2006. 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 Generally
Accepted 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 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
Turnover in the year grew by 30% to £13,777,000 (2005: £10,626,000) of which
£717,000 arose from the acquisitions of Sira Environmental and Sira Defence and
Security in March 2006.
Segmental turnover and operating results from the Group's operations (before
intra-group management charges) are set out in Note 2 of the Notes to the
Financial Statements and are further analysed into individual businesses in
Table A below. In view of the growth of the Group during the year and to give
increased clarity to individual company results, support service functions
(principally Finance, IT and Human Resources) were combined into one central
service company, Volvere Central Services ('VCS'), during the year. The costs
relating to these functions had previously been accounted for in Vectra's
results.
Following the all-share offer for the group's former associate undertaking, NMT
Group PLC ('NMT') became a subsidiary undertaking with effect from November 2006
and has been consolidated from that date.
Table A 2006 2006 2006 2006 2006 2006 2006 2005
Operating Profit £000 £000 £000 £000 £000 £000 £000 £000
Head Vectra Sira Sira Sira NMT Total Total
Office/ Test and Environmental Defence & Group Group
VCS Certification Security
Turnover 218 10,358 2,484 535 182 - 13,777 10,626
Operating (loss)/
profit before
goodwill
amortisation
and intra-group
charges (1,101) 537 462 5 (1) (58) (156) (167)
Notes Note 1 Note 2 Note 2 Note 3
1 & 3
Amortisation of
positive goodwill (61) (16)
Realisation of
negative goodwill 234 24
Operating
profit/(loss) 17 (159)
Note 1: The costs of the Group's Finance, IT and HR functions were included in Vectra
until 30 June 2006. From 1 July 2006 they were transferred to VCS. The operating
results of Head Office/VCS and Vectra have been adjusted above on a pro-forma basis
to show the financial performance of each as though VCS had existed throughout the
year.
Note 2: Acquired 29 March 2006.
Note 3: NMT has been consolidated as a subsidiary since November 2006. For the
first 10 months NMT was an associate undertaking. Included in the turnover of Head
Office/Central Services is £218,000 relating to the period for which NMT was an
associate.
The Group's operating profit of £17,000 was much improved over 2005 (loss
£159,000). Performance at Vectra (after adjusting on a pro-forma basis for the
costs that now form part of Volvere Central Services) was improved
over 2005 and Sira Test & Certification (acquired on 29 September 2005)
performed strongly throughout the year, generating an operating profit before
goodwill of £462,000 amortisation (2005: £107,000).
NMT's operating loss of £58,000 relates to the overheads for the period since it
became a subsidiary. These costs have reduced significantly in 2007 following
that company's cancellation of its stock market listing and associated costs.
Of the negative goodwill of £278,000 realised in the year, £254,000 was realised
from acquisitions in 2006 (and most of which related to NMT becoming a
subsidiary). This arose because the fair value of the Group's share of the
underlying net assets acquired in NMT was less than the cost of acquiring the
company.
The gross margin for the Group as a whole was improved at 49% for the year
(2005: 46%), reflecting the contribution of the Sira Environmental and Sira
Defence & Security businesses, along with a full year's contribution from Sira
Test and Certification. For the first 10 months of 2006, the gross margin
includes the turnover and profit earned of £218,000 from management fees charged
to NMT whilst an associate (and which are included as part of the share of
associate's operating loss). Vectra's gross margin was in line with 2005.
EARNINGS PER SHARE
The basic and diluted earnings per ordinary share were 1.85p and 1.81p
respectively (2005 Loss: Basic 1.64p; Diluted 1.64p). During the year the Group
continued the operation of a share option scheme in which all staff are entitled
to participate, subject to certain conditions.
NEGATIVE GOODWILL
Negative goodwill arising on the acquisition of Vectra has been capitalised and
has been 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 year an
amount of £24,000 (2005: £24,000) was credited to the profit and loss account.
Negative goodwill arising on the consolidation of the Group's then associate
undertaking, NMT Group PLC, has been credited to the profit and loss account
(£44,000; 2005: £135,000). Negative goodwill of £210,000 (2005: £nil) arising
on the consolidation of NMT as a subsidiary, has been credited to the profit and
loss account during the year.
POSITIVE GOODWILL
Positive goodwill relating to the acquisition of Sira Test and Certification in
2005 is being amortised over 20 years, with a charge in 2006 of £61,000 (2005:
£16,000).
CASH MANAGEMENT
During the year the Group closed the Contract for Difference ('CFD') through
which part of its holding in NMT had been held. This has been accounted for as
repayment of debt. Cash balances at the year end totalled £6,540,000 (2005:
£1,144,000) reflecting the acquisition of NMT and the underlying trading in our
businesses.
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 and
prefers to retain profits as they arise for investment in future opportunities
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 December 2006
Note Total
Year ended Year ended
31 December 31 December
Existing Acquisitions 2006 2005
£000 £000 £000 £000
TURNOVER 2 13,060 717 13,777 10,626
Cost of sales (6,724) (293) (7,017) (5,791)
GROSS PROFIT 6,336 424 6,760 4,835
Administrative expenses
- before goodwill (6,438) (478) (6,916) (5,002)
- realisation of negative 9 24 210 234 24
goodwill
- amortisation of positive 9 (61) - (61) (16)
goodwill
(6,475) (268) (6,743) (4,994)
OPERATING (LOSS)/PROFIT (139) 156 17 (159)
Share of operating loss in (96) (89)
associate
Negative goodwill arising in
respect of associate 9 44 135
Finance income - interest
receivable and similar income
- Group 42 59
- share of associate 63 21
Cost of fundamental
reorganisation - share of
associate 5 - (30)
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE TAX 2 70 (63)
Tax on profit/(loss) on ordinary 6 - 3
activities
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAX 70 (60)
Minority interests 4 -
PROFIT/(LOSS) FOR THE YEAR
TRANSFERRED TO/(FROM) RESERVES 17 74 (60)
EARNINGS/(LOSS) PER ORDINARY SHARE:
- Basic 8 1.85p (1.64p)
- Diluted 8 1.81p (1.64p)
All results are derived from continuing operations.
There are no recognised gains or losses other than the result for the current
and preceding financial years. Accordingly, no statement of total recognised
gains and losses is given.
BALANCE SHEETS
31 December 2006
2006 2005
Note Group Company Group Company
£000 £000 £000 £000
FIXED ASSETS
Intangible fixed assets - positive goodwill 9 1,136 - 1,285 -
- negative goodwill 9 (84) - (66) -
Tangible fixed assets 10 293 - 218 -
Investments 11,12,13 - 6,970 1,535 3,619
1,345 6,970 2,972 3,619
CURRENT ASSETS
Debtors 14 4,743 1,026 3,663 1,997
Cash at bank and in hand 6,540 479 1,144 389
11,283 1,505 4,807 2,386
CREDITORS: amounts falling due 15 (4,452) (280) (3,688) (848)
within one year
NET CURRENT ASSETS 6,831 1,225 1,119 1,538
CREDITORS: amounts falling due
after more than one year 15 (420) - - -
NET ASSETS 7,756 8,195 4,091 5,157
CAPITAL AND RESERVES
Called up share capital 16 50 50 50 50
Share premium account 17 3,313 3,313 361 361
Profit and loss account 17 3,745 4,832 3,680 4,746
SHAREHOLDERS' FUNDS 18 7,108 8,195 4,091 5,157
Minority interests 26 648 - - -
TOTAL CAPITAL EMPLOYED 7,756 8,195 4,091 5,157
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2006
Note 2006 2005
£000 £000
Net cash inflow/(outflow) from operating activities 19 68 (21)
Returns on investments and servicing of finance 20 42 59
Capital expenditure and financial investment 20 (175) (18)
Acquisitions and disposals 20 5,478 (2,457)
Cash inflow/(outflow) before management of liquid
resources and financing 5,413 (2,437)
Financing 20 (17) 578
Increase/(decrease) in cash in the year 21 5,396 (1,859)
NOTES TO THE PRELIMINARY ANNOUNCEMENT
Year ended 31 December 2006
The financial information set out in the announcement does not constitute the
company's statutory accounts for the year ended 31 December 2006 or the year
ended 31 December 2005. The financial information for the year ended 31 December
2005 is derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors reported on those
accounts; their report was unqualified and did not contain a statement under
s237(2) or (3) Companies Act 1985. The statutory accounts for the year ended 31
December 2006 on the basis of the financial information presented by the
directors in this preliminary announcement will be delivered to the Registrar of
Companies following the company's annual general meeting.
ACCOUNTING POLICIES
A summary of the principal accounting policies, all of which have been applied
during the current and preceding year with the exception of FRS 20 and FRS 25
adopted in 2006, are 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 2006. 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 relevant non monetary assets acquired are consumed or
realised as cash, or the periods expected to benefit.
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.
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 represents amounts receivable for goods and services provided in the
normal course of business, net of trade discounts, VAT and other sales related
taxes and are 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.
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.
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.
Deferred tax is measured on a non discounted basis.
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.
Associates
In the group financial statements investments in associates are accounted for
using the equity method. The consolidated profit and loss account includes the
group's share of associates' profits less losses while the group's share of the
net assets of the associates is shown in the consolidated balance sheet.
Goodwill arising on the acquisition of associates is accounted for in accordance
with the policy set out above. Any unamortised balance of goodwill is included
in the carrying value of the investment in associates.
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 undertakings, Vectra Group Limited and Sira Test and
Certification Limited, operate defined contribution schemes. The contributions
to those schemes are charged against profits in the years in which they fall
due. The assets of the schemes are held separately from those of the relevant
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.
Share-based payment
The group applies the requirements of FRS 20 Share-based Payment. In accordance
with the transitional provisions, FRS 20 applies 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 (excluding the
effect of non market-based vesting conditions) 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 shares that will eventually vest and adjusted for the effect of non
market-based vesting conditions.
Fair value is measured by use of the Black-Scholes pricing 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.
The group has concluded that the impact for 2006 and 2005 comparatives would not
be material.
TURNOVER AND PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAX
The turnover is attributable to the continuing operations and principal
activities of safety and risk consulting, certification services and management
services.
2006 By Destination £000 £000 £000 £000 £000
Safety and risk Certification Management Security Total
consulting services services Solutions
United Kingdom 8,094 2,698 218 182 11,192
Rest of Europe 1,350 154 - - 1,504
United States of America - 119 - - 119
Other 914 48 - - 962
10,358 3,019 218 182 13,777
2005 By Destination £000 £000 £000 £000 £000
Safety and Certification Management Security Total
risk consulting services services Solutions
United Kingdom 7,867 508 70 - 8,445
Rest of Europe 1,297 50 - - 1,347
United States of America - 95 - - 95
Other 734 5 - - 739
9,898 658 70 - 10,626
2006 Segmental Analysis £000 £000 £000 £000 £000 £000
Management Safety and Certification Security Investing Total
services risk services solutions activities
consulting
Turnover
Total sales 939 10,358 3,031 182 - 14,510
Inter-segment sales (721) - (12) - - (733)
Sales to third parties 218 10,358 3,019 182 - 13,777
Segment operating (loss)/profit (1,101) 537 467 (1) (58) (156)
before goodwill (see note (a)
below)
Amortisation of positive (61)
goodwill
Realisation of negative 234
goodwill
Share of associate's
operating loss (96)
Realisation of goodwill 44
arising in associate
Finance income 42
Share of associate's
finance income 63
Profit on ordinary activities 70
before taxation
Segment net assets 113 1,036 844 (10) 5,797 7,780
Unallocated net assets (24)
Net assets 7,756
2005 Segmental Analysis £000 £000 £000 £000 £000 £000
Management Safety and Certification Security Investing Group
services risk services solutions activities
consulting
Turnover
Total sales 934 9,898 658 - - 11,490
Inter-segment sales (864) - - - - (864)
Sales to third parties 70 9,898 658 - - 10,626
Segment operating (loss)/ (202) (48) 67 - - (183)
profit before goodwill (see
note (a) below)
Realisation of negative goodwill 24
Share of associate's operating (89)
loss
Share of associate's exceptional (30)
items reported after operating
loss
Realisation of goodwill arising 135
in associate
Finance income 59
Share of associate's finance 21
income
Profit on ordinary activities (63)
before taxation
Segment net assets (488) 1,408 1,636 - - 2,556
Share of associate's net assets 1,535
Net assets 4,091
Note (a): In response to the acquisitions made in late 2005 and early 2006 the
Group established a central service company (Volvere Central Services Limited)
with effect from 1 July 2006, to provide financial, IT and personnel services to
Group companies. Until that date these activities were accounted for through
the results of Vectra Group Limited and therefore formed part of the Safety and
Risk Consulting segmental analysis. In order to present more clearly the
segmentation of the Group's businesses the 2006 segmental analyses have been
adjusted to reflect the existence of the central service company as though it
had existed throughout that year. No similar exercise was performed for 2005 as
for most of the year the people within Vectra Group Limited worked solely on
operations within that business.
For both the year ended 31 December 2006 and 31 December 2005 the net assets
were all based in the United Kingdom.
Profit/(loss) on ordinary activities before taxation is stated after charging/
(crediting):
2006 2005
£000 £000
Depreciation on owned assets 107 66
Realisation of negative goodwill (see note 9) (278) (159)
Amortisation of positive goodwill 61 16
Auditors' remuneration:
- audit services 38 35
- non-audit services 21 8
Operating lease costs
- plant and machinery 153 162
- other 471 411
Loss on disposal of fixed assets 2 -
Exchange loss/(gain) 17 (2)
Auditors' remuneration in respect of the company was £10,000 (2005: £10,000).
DIRECTORS' EMOLUMENTS
The remuneration of the directors was as follows:
2006 2005
£000 £000
Emoluments 417 152
2006 2005
£000 £000
Lord Kalms 39 7
Neil Ashley 20 8
David Buchler 20 20
Richard Kalms 25 -
Jonathan Lander 59 -
Nick Lander 44 -
207 35
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 not included
in the amount stated above) for the year amounted to £210,000 (2005: £117,000).
None of the directors were members of the group's defined contribution pension
plan in the year (2005: none).
STAFF COSTS (INCLUDING DIRECTORS)
Group 2006 2005
£000 £000
Wages and salaries 6,858 5,623
Social security costs 723 599
Pension costs 302 260
7,883 6,482
The average monthly number of persons employed by the group (including
directors) during the period was 162 (2005: 119) of which management and
administration numbered 40 (2005: 20) and consultants and other fee earning
staff totalled 122 (2005: 99).
Those of the group's subsidiary undertakings, which are set out in Note 24, that
have employees operate defined contribution pension plans to which they and
their employees contribute.
Company
Employees of the company are directors and their costs are as disclosed within
Note 3.
5. EXCEPTIONAL ITEMS
2006 2005
£000 £000
Costs of a fundamental reorganisation (group share) - 30
The exceptional costs in 2005 related to the costs incurred by the Group's then
associated undertaking, NMT Group PLC, in reorganising its business. Further
information on NMT Group PLC is given in Note 12.
6. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
2006 2005
Current tax £000 £000
UK corporation tax - -
Share of associate's tax - 3
Total tax on profit/(loss) on ordinary activities - 3
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.
2006 2005
£000 £000
Profit/(loss) on ordinary activities before tax 70 (63)
Add: share of associate's losses 33 (37)
103 (100)
Tax (charge)/credit on profit/(loss) on ordinary
activities at standard rate of 30% (2005: 30%) (32)
30
Factors affecting credit for the year:
Expenses disallowable for tax purposes (24) (9)
Capital allowances in (less)/excess of depreciation (16) 17
Goodwill not taxable 83
Tax losses carried forward (70) (45)
Utilisation of brought forward losses 62
Movement in short term timing differences (3) 7
Total actual amount of current tax - -
At 31 December 2006 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 against future taxable profits. The amount of the asset not
recognised is £18,644,971 (2005: £534,615). Of this asset £16,789,174 relate to
NMT and therefore may not be available for offset against future profits of
group activities.
7. PROFIT ATTRIBUTABLE TO THE COMPANY
The profit for the financial year dealt with in the financial statements of the
parent company was £95,000 (2005: £713,000). As permitted by Section 230 of the
Companies Act 1985, no separate profit and loss account is presented in respect
of the parent company.
8. PROFIT/(LOSS) PER SHARE
The weighted average number of shares and profit/(loss) used to calculate
earnings per share are given below:
2006 2005
Number Number
Number of shares used for basic profit/(loss) per share 3,992,054 3,667,664
Number of shares deemed to be issued at nil consideration
pursuant to exercise of in-the-money share options 11,092 3,383
Number of shares deemed to be issued at nil consideration
under incentive share scheme
83,831 267,271
Number of diluted shares 4,086,977 3,938,318
2006 2005
£000 £000
Profit/(loss) attributable to shareholders 74 (60)
At the end of the period 5,488,679 ordinary shares (2005: 3,786,588) were in
issue. In addition, 99,470 convertible shares (2005: 99,470) were in issue and
options for 268,553 shares (2005: 277,483) were outstanding. FRS14 requires
presentation of diluted EPS when a company could be called upon to issue shares
that would decrease net profit or increase net loss per share. In 2005 the loss
per share would have decreased if shares had been issued upon exercise of the
share options or under the incentive share scheme and therefore diluted loss per
share was the same as basic loss per share in that year.
9. INTANGIBLE FIXED ASSETS - GOODWILL
Positive Negative
Goodwill Goodwill
£000 £000
Cost
At 1 January 2006 1,301 (1,537)
Additions (see notes 11, 12 and 13) - (296)
Refund of consideration (88) -
At 31 December 2006 1,213 (1,833)
Amortisation
At 1 January 2006 (16) 1,471
(Charged)/realised in the period (61) 278
At 31 December 2006 (77) 1,749
Net book value
At 31 December 2006 1,136 (84)
At 31 December 2005 1,285 (66)
The balance of negative goodwill is being realised over the periods in which
relevant assets to which it relates are consumed by the Group or the periods
which are expected to benefit. For Vectra this period is expected to extend out
three years from the anniversary of the underlying acquisition.
10. TANGIBLE FIXED ASSETS
Group Short
leasehold Plant and
property machinery Total
£000 £000 £000
Cost
At 1 January 2006 449 1,084 1,533
Acquisition of business (see note 13) - 10 10
Additions 29 151 180
Disposals - (15) (15)
At 31 December 2006 478 1,230 1,708
Depreciation
At 1 January 2006 351 964 1,315
Charge for the period 26 81 107
Disposals - (7) (7)
At 31 December 2006 377 1,038 1,415
Net book value
At 31 December 2006 101 192 293
At 31 December 2005 98 120 218
11. FIXED ASSET INVESTMENTS
2006 2005
Group Company Group Company
£000 £000 £000 £000
Subsidiary undertakings - 6,970 - 2,124
Investment in associated undertaking - - 1,535 1,495
- 6,970 1,535 3,619
The Company's investments represent 100% of the ordinary share capital of Vectra
Group Limited and 88.7% of the ordinary share capital of NMT Group PLC. The
Company acquired, for cash, further shares in NMT Group PLC during February
2006, bringing its holding to 29.9%. On 14 September 2006 the Company announced
a recommended all-share offer for the shares in NMT Group PLC that it did not
already own. As a result of shares issued to NMT Group PLC shareholders under
the terms of the offer, the Company's holding in NMT Group PLC increased to
88.7% at the year end. This holding has been reclassified from an associated
undertaking to that of a subsidiary undertaking. The investments in subsidiary
and associated undertakings are stated at cost. On 1 December 2006 the
admission of NMT Group PLC's ordinary shares to trading on AIM was cancelled.
The Company acquired its original stake in NMT Group PLC for cash but, on 23
September 2005, entered into a Contract for Difference ('CFD') in respect of
1,306,600 shares (out of a then total holding of 2,269,024 shares). This
resulted in the legal ownership in these shares transferring to the CFD
provider, with the Company retaining the economic interest. On this basis the
economic benefit of these shares was reflected in the associate interest
accounted for by the group in 2005. The funds received from the CFD provider
upon the transfer of the holding to it, net of the funds provided by the Company
as security under the terms of the CFD, were treated as an increase in debt.
During 2006 the Company repurchased the shares which were subject to the CFD.
The associated cash outflow was treated as a repayment of debt, in line with the
treatment in the prior year.
Subsidiary undertakings - (see Note 24) Group Company
£000 £000
Cost and Net Book Value
1 January 2006 - 2,124
Reclassification as subsidiary undertaking (see
Associated undertaking below)
- 1,685
Additions (Note 12 below) - 3,161
31 December 2006 - 6,970
Associated undertaking Group Company
£000 £000
Cost and Net Book Value
1 January 2006 1,535 1,495
Additions 190 190
Share of loss of associated undertaking (33) -
Realisation of negative goodwill 44 -
Reclassification as subsidiary undertaking (1,736) (1,685)
31 December 2006 - -
12. ACQUISITION OF SUBSIDIARY UNDERTAKING
As noted in Note 11 above, during the year the Company increased its investment
in NMT Group PLC and subsequently reclassified it from being an investment in an
associated undertaking to a subsidiary undertaking. The following table sets
out the book values of the identifiable assets and liabilities acquired at the
point that NMT Group PLC became a subsidiary undertaking and their fair value to
the Group:
Book Provisional Fair value at
value at fair value acquisition
acquisition adjustments
£000 £000 £000
Current assets
Other debtors 74 - 74
Cash 5,822 - 5,822
Total assets 5,896 - 5,896
Creditors
Trade and other creditors (114) - (114)
Total liabilities (114) - (114)
Net assets acquired 5,782 - 5,782
Minority interest (675)
Costs treated previously as associated (1,736)
undertaking
Negative goodwill recognised (210)
Purchase consideration 3,161
Satisfied by
Cash 209
Shares 2,952
3,161
The financial information below, in relation to 2006, has been extracted from
the unaudited management accounts for the period from 1 January to 31 October
2006, the nearest date to that upon which NMT Group PLC became a subsidiary
undertaking and the audited financial statements for the year ended 31 December
2005:
Unaudited Audited
1 January - 12 months to 31
31 October 2006 December 2005
£000 £000
Turnover - -
Cost of sales - -
Gross profit - -
Distribution costs - (237)
Administration expenses (327) (1,123)
Operating loss (327) (1,360)
Exceptional item - (336)
Loss before interest and tax (327) (1,696)
Interest income 215 293
Loss on ordinary activities before tax (112) (1,403)
Taxation on loss on ordinary activities - 39
Loss for the period (112) (1,364)
13. ACQUISITION OF BUSINESSES AND ASSETS
On 29 March 2006 the Group acquired certain businesses and assets from the Sira
group of companies for a consideration of £31,000 payable in cash at completion.
For the purpose of undertaking this transaction, the company established a new
wholly-owned subsidiary, Sira Environmental Limited, which since the acquisition
has commenced trading. On 1 August 2006, Sira Environmental Limited transferred
certain of the acquired activities to another new wholly-owned subsidiary, Sira
Defence & Security Limited. As part of the acquisition, the group companies
became the sole members of Sira Certification Service, a company limited by
guarantee. Sira Certification Service holds certain accreditations relating to
the businesses of Sira Test and Certification Limited (acquired in 2005), Sira
Environmental Limited and certain third party activities undertaken outside of
the group.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair values to the group:
Book Provisional fair Fair value to
group at
value at value acquisition
acquisition adjustments
£000 £000 £000
Fixed assets
Tangible 10 - 10
Current assets
Debtors (incl. amounts recoverable under contracts) 110 - 110
Total assets 120 - 120
Creditors
Trade creditors (36) (11) (47)
Total liabilities (36) (11) (47)
Net assets acquired 84 (11) 73
Negative goodwill capitalised (42)
Purchase consideration, including certain costs,
after debtors transfer to seller 31
Satisfied by
Cash 31
Details of the fair value adjustments are as follows:
Tangible fixed assets
The directors performed a review for impairment of tangible fixed assets. This
review did not result in a change to the book value of the assets acquired.
Debtors
The directors performed a review of the recoverability of debtors (including
amounts recoverable under contracts) and this did not result in a change to the
book value of the assets acquired.
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.
The businesses and assets acquired were previously part of the trading
operations undertaken by the seller's group and accordingly statutory accounts
were not prepared for the business acquired. No financial information was
available in respect of the businesses and assets acquired.
14. DEBTORS
2006 2005
Group Company Group Company
£000 £000 £000 £000
Trade debtors 2,987 - 2,112 28
Amounts recoverable on contracts 1,362 - 1,253 -
Amounts due from subsidiary undertakings - 1,005 - 1,960
Other debtors 148 16 67 -
Prepayments and accrued income 246 5 231 9
4,743 1,026 3,663 1,997
15. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2006 2005
Group Company Group Company
£000 £000 £000 £000
Bank loans and overdrafts 150 - - -
Other loans - - 578 578
Trade creditors 1,672 199 919 94
Other taxes and social security 221 3 193 -
VAT payable 370 - 363 73
Other creditors 372 7 285 -
Accruals and deferred income 1,667 71 1,350 103
4,452 280 3,688 848
The Company's subsidiary, Sira Test and Certification Limited, drew down a term
loan of £600,000 during the year. At the year end the balance outstanding
totalled £570,000 and the amount of £150,000 relates to the current portion of
that loan. The balance of £420,000 is shown as creditors falling due after more
than one year. The other loans balance in 2005 is the net amount due under a
contract for difference (see note 11), which was repaid during 2006.
The company's subsidiaries Vectra Group Limited and Sira Test and Certification
Limited have issued debentures creating fixed and floating charges over
substantially all Vectra Group Limited's and Sira Test and Certification
Limited's assets to secure amounts owing to their bankers for both working
capital and term debt facilities. As at 31 December 2006 the total amount drawn
down and outstanding pursuant these facilities (including bank guarantees and
term debt but excluding overdrafts for which there is a right of set off with
credit balances) totalled £630,000.
16. CALLED UP SHARE CAPITAL
Company 2006 2005
£000 £000
Authorised
100,100,000 Ordinary shares of £0.0000001 each - -
50,000 A shares of £0.49999995 each 25 25
50,000 B shares of £0.49999995 each 25 25
4,999,999,500,000 Deferred shares of £0.00000001 each 50 50
100 100
Issued, called-up and fully paid
5,488,679 ordinary shares (2005: 3,786,588) of £0.0000001 each - -
49,735 A shares of £0.49999995 each 25 25
49,735 B shares of £0.49999995 each 25 25
26,499,985,533 Deferred shares of £0.00000001 each - -
50 50
Between 16 November and 29 December 2006 a total of 1,707,091 £0.0000001
ordinary shares were issued at prices of between £1.2625 and £1.7625 each,
giving rise to share premium on issue of £2,952,000. On 20 July 2006 the
Company purchased 5,000 £0.0000001 ordinary shares at a price of £1.85 per share
and cancelled them.
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 became 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 £1.40 at 31 December 2006, the A and B class
shares would be capable of converting into 83,831 ordinary shares (2005:
267,271). The deferred shares carry no rights to participate in the profits or
assets of the Company and carry no voting rights.
Option scheme Date of grant Exercise price Number
(pence)
Volvere plc EMI Plan 30 June 2006 197.5 71,263
30 June 2005 190.0 69,240
30 June 2004 187.5 60,953
Unapproved 13 April 2004 187.5 31,000
24 December 2002 100.0 36,097
268,553
Options granted under the Volvere plc EMI Plan vest subject to certain
performance and time-based criteria and are exercisable between 3 and 10 years
following grant. Options over 16,864 shares at 1.875p and 63,329 shares at £1.90
were cancelled during 2005.
The Unapproved options granted on 13 April 2004 vested as to 10,334 on each of 8
December 2004 and 8 December 2005 and 10,332 on 8 December 2006. Those granted
on 24 December 2002 can be exercised at any time until 24 December 2007.
17. SHARE PREMIUM AND RESERVES
Group Profit and
Share premium loss
account Total
£000 £000 £000
At beginning of year 361 3,680 4,041
Profit transferred for the year - 74 74
Premium on shares issued 2,952 - 2,952
Shares redeemed and cancelled - (9) (9)
At end of year 3,313 3,745 7,058
Company Profit and
Share premium loss account Total
£000 £000 £000
At beginning of year 361 4,746 5,107
Profit transferred for the year - 95 95
Premium on shares issued 2,952 - 2,952
Shares redeemed and cancelled - (9) (9)
At end of year 3,313 4,832 8,145
18. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
2006 2005
Group Company Group Company
£000 £000 £000 £000
Opening shareholders' funds 4,091 5,157 3,840 4,133
Issue of share capital 2,952 2,952 300 300
Refund of expenses associated with issue of share
capital - - 11 11
Shares redeemed and cancelled (9) (9) - -
Profit/(loss) for the year 74 95 (60) 713
Closing shareholders' funds 7,108 8,195 4,091 5,157
The refund of expenses associated with the issue of share capital in 2005 was as
a result of VAT being refunded that had been written off previously to the share
premium account.
19. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOWS
Group 2006 2005
£000 £000
Operating profit/(loss) 17 (159)
Depreciation and goodwill amortisation 168 82
Realisation of negative goodwill (234) (24)
Loss on sale of fixed assets 2 -
Profit on sale of investments - (11)
Increase in debtors (896) (366)
Increase in creditors 1,011 457
Net cash inflow/(outflow) from operating activities 68 (21)
20. ANALYSIS OF CASH FLOWS
Group 2006 2005
£000 £000
Returns on investments and servicing of finance
Interest received 42 59
Net cash inflow from returns on investments and
servicing of finance 42 59
Capital expenditure and financial investment
Purchase of tangible fixed assets (180) (97)
Sale of tangible fixed assets 5 3
Sale of equity investment - 76
Net cash outflow from capital expenditure and
financial investment (175) (18)
Acquisitions and disposals
Acquisition of business (31) (1,090)
Net cash acquired on acquisition of subsidiary undertaking net of
associated costs 5,822 1
Refund of consideration in relation to previous acquisition 88 -
Costs associated with acquisition of subsidiary undertaking (211) -
Investment in associated undertaking (190) (1,368)
Net cash inflow/(outflow) from acquisitions and
disposals 5,478 (2,457)
Financing
Redemption of share capital (9) -
Increase in short term borrowings - 874
Repayment of short term borrowings (578) (296)
Increase in bank borrowings 570 -
Net cash (outflow)/ inflow from financing (17) 578
21. ANALYSIS AND RECONCILIATION OF NET FUNDS
Group 1 January 2006 Cash 31 December 2006
£000 flow £000
£000
Cash in hand at bank, being net funds 1,144 5,396 6,540
Bank loan - due within one year - (150) (150)
Bank loan - due after one year - (420) (420)
Other loans - within one year (578) 578 -
566 5,404 5,970
Reconciliation of net funds 2006 2005
£000 £000
Increase/(decrease) in cash in the year 5,396 (1,859)
Cashflow from movement in debt and lease financing 8 (578)
5,404 (2,437)
Net funds at start of the year 566 3,003
Net funds at end of year 5,970 566
22. COMMITMENTS AND CONTINGENCIES
Operating leases
The group has the following annual commitments under non-cancellable operating
leases:
2006 2005
Land and Land and
buildings Other buildings Other
£000 £000 £000 £000
Expiry date
- within one year 35 45 344 40
- between two and five years 284 72 49 80
1,138 117 393 120
23. 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 payable under this agreement in the period amounted to
£210,000 (2005: £117,000). 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 payable under this
agreement during the period amounted to £35,000. The amount earned from NMT
Group PLC for management services for the period for which it was an associated
undertaking was £218,000 (2005: £83,000).
24. SUBSIDIARY UNDERTAKINGS
The subsidiary undertakings at 31 December 2006 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 100%
and field services
Vectra Partners Limited Dormant 100%
Vectra (Middle East) Limited Provision of safety, risk and other consulting 100%
and field services
Sira Test and Certification Limited Certification services 100%
Sira Certification Service* Certification services 67%
Sira Environmental Limited Certification services 100%
Sira Defence & Security Limited Security solutions 100%
NMT Group PLC Investing company 88.7%
New Medical Technology Limited Dormant 100%
Zero-Stik Limited Dormant 100%
The investments in Vectra Partners Limited and Vectra (Middle East) Limited are
held by Vectra Group Limited. The investments in New Medical Technology Limited
and Zero-Stik Limited are held by NMT Group PLC. The proportion of voting
rights held is equivalent to the equity shareholdings.
* Sira Certification Service is a company limited by guarantee. The Group
controls all of the member shares.
25. POST BALANCE SHEET EVENT
Subsequent to the year end the Company has issued a further 186,593 shares
pursuant to the offer for NMT Group PLC. This has increased the Company's
holding in that company to approximately 95%.
26. MINORITY INTEREST
The minority interest of £648,000 relates to the share of NMT assets
attributable to those shares not held by the group at 31 December 2006.
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