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| Company |
ULTIMA
NETWORKS |
 |
| TIDM |
UTN |
| Headline |
Final Results |
| Released |
07:00 30-Apr-08 |
| Number |
3286 | |
Ultima Networks plc
('Ultima' or the 'Company')
Full Results for the year ended 31 December 2007
30 April 2008
A Year of steady sales growth
Ultima Networks plc, which provides software solutions to the legal profession
through its IT and related services division and merchandises a range of
electric bicycles under its PowaCycle brand through its Other products division,
announces full results for the year ended 31 December 2007, which are presented
under IFRS. The Annual Report and Accounts for the year ended 31 December 2007
will be posted to shareholders during the week commencing 5 May 2008.
Highlights
* Turnover up 12% to £1,564,000 (2006: £1,398,000)
* Operating profit before disposal of freehold property was £233,000 (2006:
£225,000)
* Profit on ordinary activities before taxation was £276,000 (2006: £548,000,
which includes a one-off profit of £462,000 on disposal of freehold property)
* Debt free with cash at bank of £1,026,000
* New product launches planned in the coming months for both divisions
* Continued success of PowaCycle branded range of electric bicycles
* Continuing to seek acquisitions in the Legal IT sector
Prof. Humayun Akhter Mughal, Chairman and CEO, Ultima Networks plc, commented:
'Our philosophy is based on the pursuit of low risk recurring revenues
complemented by a highly selective acquisitions policy. We maintain the view
that the sector for professional application software and services is highly
fragmented and that consolidation opportunities exist. Indeed, we are actively
seeking a number of targets.
We have invested in new technology for both operating divisions, which we
believe will augment our competitive position and increase sales. Further news
on the product launches will be announced in the coming months.'
Enquiries:
Ultima Networks: 01279 821 200
Humayun Mughal, Chairman and CEO
Rob Piper, Finance Director
Nexus Financial: 020 7451 7068
Nicholas Nelson Nicholas.nelson@nexusgroup.co.uk
John Mundy
Blomfield Corporate Finance: 020 7512 0191
Alan MacKenzie
James Pinner
Annual performance history
IFRS IFRS UK UK UK
GAAP GAAP GAAP
2007 2006 2005 2004 2003
Revenue £000 1,564 1,398 1,074 1,659 1,770
Pre-tax profit/ (loss) £000 276 548 (360) 313 185
Net assets/(liabilities) £000 1,168 903 388 836 (789)
Net assets/(liabilities) per share pence 0.57 0.44 0.19 0.41 (0.41)
Basic earnings/ (loss) per share pence 0.13 0.25 (0.20) 0.14 0.09
Dividends - - - - -
Chairman's Statement
Introduction
The Group has seen continued growth in 2007 with all parts of the business
making positive profit contributions, which has resulted in an increase in Group
sales, operating profit before exceptional items and cash balances.
This is the first set of full year results prepared under IFRS with comparisons
against restated 2006 full year results. The adoption of IFRS represents an
accounting change only and does not affect the operations or cash flows of the
Group.
IT and related services division
The IT and related services division made an operating profit of £148,000 (2006:
£126,000) on sales of £701,000 (2006: £778,000). This division principally
provides computer application software and related support and other services to
the legal profession with Cognito Software continuing to be the major
contributor.
The Group has invested in a new document production and management system, which
will be integrated with the existing Cognito Software products and on the market
this July targeting existing customers in the legal IT sector. Additional staff
and other resources have been employed to ensure the efficient implementation of
this project. The system will also be available in a standalone version for sale
to all professional services firms.
On 1 March 2008 the trade of Integrated Publishing Systems ('IPS') was
transferred to UTN Solutions (North) to reduce administration costs. IPS will
continue to be reported within the IT and related services division.
Other products division
The Other products division contributed an operating profit of £85,000 (2006:
£5,000) on sales of £863,000 (2006: £620,000). This division has found
continuing success with its competitively priced PowaCycle branded range of
electric bicycles, which are refreshed by the regular introduction of new models
and are increasingly being sold through a growing number of appointed dealers
throughout the UK, which totalled over 50 at the year end.
The Group has invested in a completely new and premium priced Infineum branded
range of electric bicycles, which will incorporate a new and unique stackable
battery giving the rider a choice over battery weight and distance travelled.
The launch in mid-2008 of this new range of electric bicycles is expected to
fully complement the existing PowaCycle range and therefore increase sales and
profits of the division.
Group results
In the year ended 31 December 2007 the Group achieved increased sales of
£1,564,000 (2006: £1,398,000) and an increased operating profit before sale of
freehold property of £233,000 (2006: £225,000).
The pre-tax profit of the Group was £276,000 (2006: £548,000). The taxation
expense was £11,000 (2006: £33,000) and therefore the profit for the financial
year after taxation was £265,000 (2006: £515,000). The profit for the financial
year 2006 of £515,000 included the one-off profit of £462,000 from the sale of
the freehold investment property in Bradford in September 2006 and therefore
without this would have been £53,000.
The Group continues to operate debt free and had cash at bank of £1,026,000 at
31 December 2007. Any balance of cash funds not required for working capital
purposes is being placed on short term bank deposit to try and maximize interest
receivable.
Outlook
Our philosophy is based on the pursuit of low risk recurring revenues
complemented by a highly selective acquisitions policy. We maintain the view
that the professional services sector is highly fragmented and therefore
opportunities for consolidation exist. Indeed, we are actively seeking a number
of targets.
We have invested in new technology for both operating divisions, which we
believe will augment our competitive position and increase sales. Further news
on the product launches will be announced in the coming months.
Prof. Humayun Akhter Mughal
Chairman and Chief Executive Officer
29 April 2008
Financial Highlights
* Group revenue was £1,564,000 (2006: £1,398,000)
* Gross margin for the year was 71% compared with 73% in 2006
* Group administration expenses were £883,000 (2006: £985,000)
* Operating profit before disposal of freehold property was £233,000 (2006:
£225,000)
* Profit on ordinary activities before taxation for the year was £276,000
(2006: £548,000, which includes a one-off profit of £462,000 on disposal of
freehold property)
* Earnings per share was 0.13p (2006: 0.25p)
* Cash at bank at the year end was £1,026,000 (2006: £832,000)
* Consolidated balance sheet has increased net assets of £1,168,000 (2006:
£903,000)
Report of the Directors
The Directors present their annual report and audited financial statements for
the year ended 31 December 2007.
BUSINESS REVIEW AND PRINCIPAL ACTIVITIES
The principal activities of the Group during the year were the marketing and
support of computer application software and the wholesale and retail
merchandising of various products, but primarily electric bicycles.
There have not been any significant changes in the Group's principal activities
in the year under review and the Directors are not aware at the date of this
report of any likely major changes in the Group's activities in the next year.
The UK market remains the principal area of operation for the Group.
The Group achieved an operating profit of £233,000 (2006: £225,000) on turnover
of £1,564,000 (2006: £1,398,000), with all of the Group's subsidiaries being
profitable for the year.
The Group's operations are managed in two divisions, being the IT and related
services division and the Other products division. The IT and Related Services
division comprises Cognito Software Limited and Integrated Publishing Systems
Limited that are involved in marketing and supporting legal and publishing
application software respectively. This division had sales revenues of £701,000
(2006: £778,000) producing operating profits of £148,000 (2006:
£126,000). The Other products division comprises UTN Solutions (North) Limited
that is involved in merchandising electric bicycles, energy saving lamps and
educational electronic kits. This division had sales revenues of £863,000 (2006:
£620,000) producing operating profits of £85,000 (2006: £5,000).
Since the disposal of its investment property in September 2006, Ultima Networks
plc has acted solely as a holding company recharging its overhead costs to its
trading subsidiaries on an equitable basis.
In the IT and related services division, Cognito Software, the provider of
application software and services to the legal profession, was the major
contributor. Sales were lower than expected due to new business being difficult
to close. Therefore, costs were tightly controlled, but not to the detriment of
customer service and support levels which remained strong and as a result
profitability increased.
The Other products division experienced strong growth with sales up by 39% to
£863,000, the major increase being the sales of the PowaCycle branded range of
electric bicycles through a growing base of dealerships and as a consequence
profits increased strongly to £85,000.
The Group balance sheet continues to be debt free and shows an increase in net
assets to £1,168,000 (2006: £903,000). The year end cash balance was £1,026,000
and is available for working capital purposes and to fund investment in the
expansion of the Group.
RESULTS AND DIVIDENDS
The Group profit for the year before taxation amounted to £276,000 (2006:
£548,000). There is a taxation expense for the year of £11,000 (2006: £33,000).
The profit on ordinary activities after taxation was £265,000 (2006: £515,000).
The profits for the previous year include an exceptional item, being the profit
on the sale of the freehold investment property in Bradford of £462,000 on which
no taxation was payable.
The Directors do not recommend the payment of a dividend for 2007. No dividends
were paid or proposed to be paid in 2006.
KEY PERFORMANCE INDICATORS
The aim of the Group is to increase shareholder value through growth in sales
revenues and operating profitability. Therefore, these are the two key
performance indicators used by the directors to measure performance and are
reported in the table below.
IFRS IFRS IFRS UK GAAP
Target 2007 2006 2005
Key performance indicator £000 £000 £000 £000
Revenue 1,475 1,564 1,398 1,074
Operating profit / (loss) 205 233 225 (115)
The increase in revenue in 2007 over both the target and previous year was
primarily due to sales of the PowaCycle branded range of electric bicycles.
PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP
The businesses within the IT and related services division operate as very small
players in very crowded and competitive market sectors. Many of the customers
are small businesses that are relatively slow to change and update their
business systems, but are also, and more positively, reluctant to change their
supplier. Consolidation is occurring in the legal sector, both among suppliers
and users, effectively reducing the number of new business opportunities.
Against this backdrop the Group has recognised the need to offer excellent
levels of customer service and support to maintain the existing customer base,
which it has successfully achieved and which must be continued. Additional
features and functionality for the existing software products will have to be
incorporated and released in a timely manner to ensure the existing products
remain competitive and embrace the latest legislative changes. In addition the
products will have to integrate easily with leading industry office software
such as Microsoft Office products. Therefore, current and planned software
development work is targeted to ensure the current software products maintain a
modern look and feel by utilising the latest software tools and products and to
enable easier integration with Microsoft Office products. The directors
recognise that organic growth will be slow to realise and therefore
complementary acquisitions are being sought to increase sales revenues and to
grow the customer base.
The Other products division has continued to seek niche market opportunities
with a marketing led strategy for sales generation and making full use of the
Internet. Several product market trials have been made to fully understand the
extent of the potential opportunities and currently the Group is concentrating
on electric bicycles, energy saving lamps and educational electronic kits. The
lamps and electronic kits markets are increasingly crowded and have several
large competitors, but the Group believes it can maintain and continue to grow
its business by being extremely cost competitive and building strong
relationships with suppliers based in China. The PowaCycle range of electric
bicycles has enjoyed continuing success by offering a very cost competitive
product range and this growth is expected to be maintained by increasing the
number of independent UK retail dealers, which stood at over 50 at the year end.
The Group has plans to further enhance turnover and profits by the introduction
of its new Infineum branded range of electric bicycles. This is a premium priced
range and will incorporate a new and unique stackable battery giving the rider a
choice over battery weight and distance travelled. This new range is expected to
complement the existing PowaCycle range and is being launched in mid-2008.
ENVIRONMENT
The Group complies with all legal requirements relating to the environment in
all areas of its operations and therefore, has not incurred any fines or
penalties or been investigated for any breach of environmental regulations.
Specifically, the requirements of the EC Directive on Waste Electrical and
Electronic Equipment (WEEE) have been implemented resulting in UTN Solutions
(North) Limited being registered with the appropriate WEEE compliance schemes to
deal with the taking back and disposal of used equipment. This subsidiary
company has also implemented the requirements of the EC Directive on the
Restriction of the use of Certain Hazardous Substances in Electrical and
Electronic Equipment (RoHS). Compliance with RoHS is based on a self-declaration
and involves requesting material declarations from suppliers, the selected
analysis of products and holding a technical file on each product purchased for
a minimum of four years.
RESEARCH AND DEVELOPMENT
The Group invests in the ongoing design and development of its PowaCycle and new
Infineum branded ranges of electric bicycles. These development design costs
have been estimated by the Directors to have a useful economic life of 3 years
and are therefore capitalised and charged to the profit and loss account in
equal instalments over this period. The Group also invests in the maintenance
and development of its application software products for the legal profession to
ensure they retain a modern look and feel and remain fully compliant with
current legislation and practices. Unless certain conditions are met, all such
expenditure on software products is charged to the profit and loss account as it
is incurred.
SUBSTANTIAL INTERESTS
At the date of this report the following parties had notified the Company of a
beneficial interest that represents 3% or more of the Company's issued ordinary
share capital at that date:
Number of shares % held
Akhter Group plc and related parties 100,075,176 48.9
Barclays Stockbrokers Ltd 10,495,600 5.1
No nominee shareholder held 10% or more of the Company's issued share capital on
29 April 2008.
DIRECTORS AND DIRECTORS' INTERESTS
The Directors who served in office since the beginning of the financial year are
shown on page 2. Mr R.M. Bearpark served since his appointment on 1 October
2007. In addition, Mr P.Y. Thoms served until his resignation on 24 July 2007.
The emoluments, share interests and share options of the Directors are disclosed
in the Directors' Remuneration Report on pages 12 to 13.
EXECUTIVE DIRECTORS
Prof. H.A. Mughal, aged 54, is the co-founder of Akhter Group plc and is its
majority shareholder. He graduated in electronics from Liverpool University. Mr
Mughal originally worked as a research engineer for ITT Components Group Limited
prior to setting up Akhter Instruments Limited in 1979 and he continues to be
responsible for the overall control and direction of Akhter's business. He was
appointed in November 1998.
Mr R.J. Piper, aged 50, was appointed as Finance Director in October 2004. He
previously held the role of Financial Controller with the Company and he also
acts as Company Secretary. He is a fellow of the Association of Chartered
Certified Accountants and is also Finance Director of Akhter Computers plc.
During the year he was appointed as Managing Director of Cognito Software Ltd,
being in addition to his existing roles.
NON-EXECUTIVE DIRECTORS
Mr P.J. Barron, aged 66, has extensive operations experience in the electronics
industry, notably with Texas Instruments Inc in the USA and with Systime
Computers Limited and Chase Advanced Technologies Limited in the UK. He was
appointed in May 1992 and is Chairman of the remuneration and audit committees.
Mr R.M. Bearpark, aged 58, has a significant entrepreneurial and management
experience gained over 38 years in the IT industry. Over the last 18 years he
has been integral to the operations of 5 IT solution and services companies as
either Chief Executive or Managing Director. The last company being AIM Group
Holdings Limited, a company operating mainly in the legal IT sector offering
software solutions to the legal profession. He was appointed in October 2007
and is a member of the remuneration and audit committees.
EMPLOYEES
It is Group policy that employees should be kept as fully informed as is
feasible and practicable about the activities of the Group through consultative
meetings. In addition, managers hold regular meetings with representatives of
their staff in order to encourage employees to make their views known on matters
that affect them.
PENSIONS
During the year the Group contributed to the personal pension schemes (defined
contribution) of certain employees. No contributions were paid in respect of the
Directors.
SHARE OPTION SCHEMES
Microvitec 1994 Inland Revenue Approved Executive Share Option Scheme
During the year ended 31 December 2007 the Company granted no options in respect
of the Microvitec 1994 Inland Revenue Approved Executive Share Option Scheme and
no options lapsed. There were no options exercised during the year. On 31
December 2007 options were outstanding on 100,000 ordinary shares of 1p (2006:
100,000).
Ultima Networks plc 2004 Share Option Scheme
This scheme was approved by the AGM held on 28 May 2004. No options to subscribe
for ordinary shares of 1p each have been granted to date.
CHARITABLE AND POLITICAL CONTRIBUTIONS
There were no donations to UK charitable organisations (2006: nil) and no
political donations (2006: nil).
FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES
The Group's financial instruments comprise cash and various items, such as trade
debtors and creditors that arise directly from its operations. The Group's
exposures to its financial instruments are not material and therefore derivative
financial instruments are not used to manage them.
The main risks arising from the Group's financial instruments can be analysed as
follows:
Credit risk
The Group's credit risk is primarily attributable to its trade receivables.
Exposures to credit risk are minimised by employing effective credit management
policies and procedures. Only customers known to the Group are granted credit
terms. Annual fees for software licences and support agreements are payable in
advance and require a uniquely numbered 'valid licence key' to operate.
Price risk
The Group does not hold any listed security investments and therefore has no
exposure to securities price risk.
Foreign currency risk
The Group is not exposed to transaction foreign currency exchange risk in
respect of purchases from suppliers as this process is dealt with on the Group's
behalf by Akhter Group plc. Therefore, any transactions of the Group in foreign
currencies are settled by Akhter Group plc and are converted to pounds sterling
at pre-agreed spot rates for reimbursement by the Group. Therefore, the Group
only holds any cash balances in pounds sterling.
Liquidity risk
The Group has sufficient cash resources available to meet its short-term
liabilities.
Cash flow interest rate risk
The Group has no borrowings and receives variable rate interest based on UK bank
base rates on cash balances and bank deposits.
PAYMENTS TO CREDITORS
The Group does not follow any code or standard on payment practice as the terms
and conditions for its business transactions are agreed with individual
suppliers. Payment is then made in accordance with those terms, subject to the
other terms and conditions being met by the supplier. Creditor days at the end
of the year for the Company were 30 days (2006: 30 days).
STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group and Company
financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union. In preparing these financial
statements, the directors have also elected to comply with IFRSs, issued by the
International Accounting Standards Board (IASB). The financial statements are
required by law to give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for that period.
In preparing those financial statements, the directors are required to: select
suitable accounting policies and then apply them consistently; make judgements
and estimates that are reasonable and prudent; state that the financial
statements comply with IFRSs as adopted by the European Union and IFRSs issued
by IASB; and prepare the financial statements on the going concern basis, unless
it is inappropriate to presume that the Group will continue in business.
The directors confirm that they have complied with the above requirements in
preparing the financial statements.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and to enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate
and financial information on the Group's website. Legislation in the United
Kingdom governing the preparation and dissemination of the financial statements
and other information included in annual reports may differ from legislation in
other jurisdictions.
DISCLOSURE OF INFORMATION TO AUDITORS
At the date of making this report each of the Company's directors, as set out on
page 2, confirm the following:
* so far as each director is aware, there is no relevant information needed
by the Company's auditors in connection with preparing their report of which the
Company's auditors are unaware, and
* each director has taken all the steps that he ought to have taken as a
director in order to make himself aware of any relevant information needed by
the Company's auditors in connection with preparing their report and to
establish that the Company's auditors are aware of that information.
AUDITORS
RSM Robson Rhodes LLP ('Robson Rhodes') merged its audit practice with that of
Grant Thornton UK LLP ('Grant Thornton') with effect from 2 July 2007, with the
successor firm being Grant Thornton. Robson Rhodes resigned as auditors on 25
July 2007 creating a casual vacancy, which the directors have filled by
appointing Grant Thornton. A resolution to reappoint Grant Thornton as auditors
of the Group will be proposed at the forthcoming Annual General Meeting.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company is to be held at Akhter House, Perry
Road, Harlow, Essex CM18 7PN on 29 May 2008 at 1pm. An explanation of the
resolutions to be proposed as special business at that Meeting appears in the
Notice of Annual General Meeting provided with this Annual Report.
APPROVAL
The report of the Directors was approved by the Board on 29 April 2008 and
signed on its behalf by:
Prof. Humayun Akhter Mughal
Chairman and Chief Executive Officer
Corporate Governance
As a Company quoted on the Alternative Investment Market of The London Stock
Exchange, the Company is not required to comply with the provisions of the 2006
Financial Reporting Council's revised Combined Code. However, the Board is
committed to ensuring that proper standards of corporate governance operate
throughout the Group and has therefore followed the principles of the Code so
far as is practicable and appropriate to the nature and size of the Group. A
statement of the directors' responsibilities in respect of the financial
statements is contained within the Report of the Directors above. The statement
below describes the role of the Board and its committees, followed by a
statement regarding the Group's system of internal controls.
THE BOARD
The activities of the Group are ultimately controlled by the Board of Directors,
which at the year-end consisted of a Chairman and Chief Executive Officer, a
Finance Director and two non-executive Directors. Biographical details of all
four Directors are to be found within the Report of the Directors above. All
Directors are equally accountable under law for the proper stewardship of the
Company's affairs. The non-executive Directors have a particular responsibility
to ensure that the strategies proposed by the Executive Directors are fully
discussed and critically examined.
The non-executive directors are Peter Barron (the senior non-executive director)
and Richard Bearpark and the Board considers both to be independent.
The Board meets on a regular basis throughout the year reviewing trading
performance, setting strategy, examining capital expenditure and acquisitions or
disposals, operating budgets and material contracts.
The two Executive Directors do not have service contracts and do not receive any
emoluments directly from the Company. Any director appointed during the year is
required, under the Company's Articles of Association, to retire and seek re-
election by the shareholders at the next Annual General Meeting and one third of
the Board is required to retire each year and seek re-election. The Directors
are able to take independent professional advice at the expense of the Company
in the furtherance of their duties.
NOMINATIONS COMMITTEE
The appointment of Directors is a matter for the Board as a whole and therefore
a nominations committee is considered unnecessary given the present number of
Board members.
AUDIT COMMITTEE
The Audit Committee comprises both non-executive Directors and is chaired by
Peter Barron. This committee assists the Board in its duties regarding the
Group's financial statements and the maintenance of adequate internal financial
controls. The Audit Committee's prime tasks are to receive reports from the
Company's auditors, Grant Thornton UK LLP, and to review the half-yearly and
annual accounts before they are presented to the Board, focusing in particular
on accounting policies and compliance and areas of management judgements and
estimates.
There is no internal audit function for the Group, as the Board does not believe
that this is appropriate given the size of the business.
REMUNERATION COMMITTEE
The Remuneration Committee comprises both non-executive Directors and is chaired
by Peter Barron. Details of the executive remuneration policy are set out in the
separate Directors' Remuneration Report.
SHAREHOLDER RELATIONS
The Board has a policy of providing any reasonably requested historical
information and explanations to shareholders on request. The Group's annual
reports are sent to all shareholders. These reports are also available from the
Company's website along with the Group's half yearly reports and all public
announcements. All shareholders are encouraged to participate in the Company's
Annual General Meeting, which is attended by the Directors.
INTERNAL CONTROL AND FINANCIAL REPORTING
The Board is responsible for ensuring that there is a system of internal control
and for reviewing its effectiveness. Such a system is designed to manage rather
than eliminate the risk of failure to achieve business objectives and can only
provide reasonable and not absolute assurance against material misstatement or
loss. The Audit Committee has been delegated responsibility by the Board for
discharging its internal control review responsibilities.
The Board has established an organisational structure with clearly defined
levels of responsibility and delegation of authority. Control procedures include
annual budget approval and monitoring of actual performance. The Board approves
all investment and acquisition projects for all major acquisitions and major
capital expenditure.
The Board has a clear responsibility for identifying risks facing each of the
businesses and for putting in place procedures to mitigate and monitor risks. As
part of the annual budgeting process risks are formally assessed by the Board.
There is a system of financial reporting and budget planning. On a monthly
basis, actual results are reported and compared to budget with any significant
adverse variances being examined and any remedial action taken as necessary.
The Directors believe that, taken as a whole, the systems of internal control
are appropriate to the business for the year ended 31 December 2007.
GOING CONCERN
Having reviewed the future plans and projections for the business, the Directors
are satisfied that the Group has adequate resources to continue to operate for
the foreseeable future, a period of not less than twelve months from the date of
this report. Also, the Directors have received a letter of support from Akhter
Group plc confirming their intention to continue to provide the staff services,
other services and facilities, as disclosed in Note 24, for the foreseeable
future. For these reasons, they continue to adopt the going concern basis in
preparing the financial statements.
Directors' Remuneration Report
The Directors present the Directors' Remuneration Report for the financial year
ended 31 December 2007. It should be noted that, as a Company quoted on the
Alternative Investment Market of The London Stock Exchange, the Company is not
required to comply with the Remuneration Report regulations and therefore, not
all elements of the regulations have been complied with. For example, a share
price graph has been omitted.
Remuneration Committee
The Remuneration Committee consists wholly of non-executive directors, Peter
Barron and Richard Bearpark. Peter Barron served as a member of the
Remuneration Committee throughout the year and in the period to 29 April
2008. Richard Bearpark served as a member of the Remuneration Committee from
his appointment in October 2007. In addition, Peter Thoms, previously a non-
executive director, was a member of the committee from the beginning of the
period until his retirement on 24 July 2007.
The Remuneration Committee determines any remuneration and benefits packages of
the executive directors and considers any service contracts, salaries, other
benefits, including bonuses and participation in the Company's share option
plans, and any other terms and conditions of employment including any
compensation payments on termination of office.
Remuneration Policy
Any basic salaries and benefits in kind are set to be comparable with those of
peer group companies. Any share options are granted to strengthen the link
between personal interests and those of the shareholders. A scheme was approved
by the AGM held on 28 May 2004, being the Ultima Networks plc 2004 Share Option
Scheme, but no options to subscribe for ordinary shares of 1p each have been
granted to date. No director has any options outstanding under the 1994
Microvitec Inland Revenue Approved Executive Share Option Scheme.
Non-executive directors
The non-executive directors do not have contracts for services. The non-
executive directors have letters of appointment concerning, amongst other
things, the initial terms for which they are appointed, a general statement of
their role and duties, the fees they will receive as a director and any
supplementary fees receivable for additional work, such as being a member of
more than one Board committee. The fees of non-executive directors are
determined by the full Board within the limits set out in the Memorandum and
Articles of Association.
Service Contracts and Letters of Appointment
The Company does not have service contracts in respect of the Executive
Directors. The letters of appointment in respect of the non-executive directors
who served during the year ended 31 December 2007 are for a rolling 12 month
period. The letters of appointment do not contain notice periods or provision
for termination payments.
Directors' remuneration payable for the year to 31 December 2007 was as follows:
Pension Pension
Basic Benefits 2007 2006 contributions contributions
Salary Fees in kind Total Total 2007 2006
£000 £000 £000 £000 £000 £000 £000
Executive
H.A Mughal - - - - - - -
R.J. Piper - - - - - - -
Non-Executive
P.J. Barron - 12 - 12 12 - -
P.Y. Thoms - 6 - 6 12 - -
R.M. Bearpark - 3 - 3 - - -
- 21 - 21 24 - -
H.A. Mughal is a director of Akhter Group plc. No remuneration is paid directly
by the Group for the services of the two Executive Directors. However, a charge
to the Company from Akhter Group plc of £56,000 (2006: £50,000) and to Cognito
Software Limited of £9,000 (2006: nil) for executive management services,
disclosed in Note 24 of the financial statements, is for the services of the
Company's finance director and Akhter's marketing director. There is currently
no pension provision for any of the directors and therefore no pension is
accrued to them.
The beneficial interests in the share capital of the Company of those persons,
who were Directors at the year end, as recorded in the register of Director's
interests, were as follows:
31 December 2007 31 December 2006
Ordinary Ordinary Ordinary Ordinary
shares share shares share
of 1p options of 1p options
H.A. Mughal* 100,075,176 - 100,075,176 -
R.J. Piper - - - -
P.J. Barron - - - -
P.Y. Thoms - - - -
R.M. Bearpark - - - -
*Prof. H.A. Mughal's holding includes 54,055,336 Ordinary Shares beneficially
owned by Akhter Group plc, of which he is the majority shareholder and 6,013,360
Ordinary Shares beneficially owned by the trustees of the Akhter Group plc
Directors' SSAS Pension Fund, under which he is a beneficiary.
At 31 December 2007 no options were outstanding over shares granted to
directors. No director was granted or exercised any share options during this or
the previous year nor did any lapse.
No director has any interest in the shares of any subsidiary of Ultima Networks
plc.
There have been no changes in the above interests between 31 December 2007 and
29 April 2008.
Beneficial holdings include the directors' personal holdings and those of their
spouse and children as well as holdings in family trusts of which the Director's
spouse or their children are beneficiaries or potential beneficiaries.
The market price at 31 December 2007 was 0.75p and the range during the year was
0.25p to 2.25p.
Approval
The Directors' Remuneration Report was approved by the Board on 29 April 2008
and signed on its behalf by:
Peter Barron
Chairman, Remuneration Committee
Report of the Independent Auditor to the Members of Ultima Networks plc
We have audited the group and parent company financial statements (the
''financial statements'') of Ultima Networks plc for the year ended 31 December
2007 which comprise the group income statement, the group and parent company
balance sheets, the group and parent company cash flow statements, the group and
parent company statement of recognised income and expense and notes 1 to 26.
These financial statements have been prepared under the accounting policies set
out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report, the Directors'
Remuneration Report and the financial statements in accordance with applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union are set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements have been properly prepared
in accordance with the Companies Act 1985. We also report to you whether in our
opinion the information given in the Report of the Directors is consistent with
the financial statements.
In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report, the Directors' Remuneration Report, the
Chairman's Statement and the Financial Highlights and the Corporate Governance
Statement. We consider the implications for our report if we become aware of
any apparent misstatements or material inconsistencies with the financial
statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
* the group financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the group's affairs
as at 31 December 2007 and of its profit for the year then ended;
* the parent company financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union as applied in accordance
with the provisions of the Companies Act 1985, of the state of the parent
company's affairs as at 31 December 2007;
* the financial statements have been properly prepared in accordance with the
Companies Act 1985; and
* the information given in the Report of the Directors is consistent with the
financial statements.
Grant Thornton UK LLP
Chartered Accountants and Registered Auditors
Cambridge, England
29 April 2008
Consolidated income statement
for the year ended 31 December 2007
Note 2007 2006
£000 £000
Revenue 3 1,564 1,398
Cost of sales (452) (372)
Gross profit 1,112 1,026
Administration expenses (883) (985)
Other operating income 7 4 184
Operating profit before disposal 233 225
of freehold property
Disposal of freehold property 8 - 462
Operating profit 5 233 687
Finance income 4 43 11
Finance costs 4 - (150)
Profit before taxation 276 548
Taxation expense 10 (11) (33)
Profit for the period attributable 265 515
to equity holders of the parent
Basic and diluted earnings per
share - pence 11 0.13 0.25
All amounts relate to continuing activities.
Consolidated balance sheet
at 31 December 2007
Note 2007 2006
£000 £000
ASSETS
Non current assets
Property, plant and equipment 12a 120 127
Intangible assets - development 12b 6 7
costs
Deferred tax asset 19 5 4
Total non current assets 131 138
Current assets
Inventories 14 257 208
Trade and other receivables 15 284 234
Cash and cash equivalents 16 1,026 832
Total current assets 1,567 1,274
Total assets 1,698 1,412
LIABILITIES
Current liabilities
Trade and other payables 17 97 139
Current tax liabilities 98 65
Accruals and deferred income 335 305
Total current liabilities 530 509
Total liabilities 530 509
Net assets 1,168 903
EQUITY
Capital and reserves attributable
to equity holders of the parent
Called up share capital 20 7,554 7,554
Share premium account 5,602 5,602
Other reserves - 1,334
Retained earnings (11,988) (13,587)
Total equity 1,168 903
These financial statements were approved by the board of directors on 29 April 2008
and were signed on its behalf by:
Prof. Humayun Akhter Mughal
Chairman and Chief Executive Officer
Company balance sheet
at 31 December 2007
Note 2007 2006
£000 £000
ASSETS
Non current assets
Property, plant and equipment 12a 107 112
Investments 13 513 513
Total non current assets 620 625
Current assets
Trade and other receivables 15 22 43
Cash and cash equivalents 16 1,012 827
Total current assets 1,034 870
Total assets 1,654 1,495
LIABILITIES
Current liabilities
Trade and other payables 17 961 860
Accruals and deferred income 44 28
Total current liabilities 1,005 888
Total liabilities 1,005 888
Net assets 649 607
EQUITY
Capital and reserves attributable
to equity holders of the parent
Called up share capital 20 7,554 7,554
Share premium account 5,602 5,602
Other reserves 202 5,618
Retained earnings (12,709) (18,167)
Total equity 649 607
These financial statements were approved by the board of directors on 29 April 2008
and were signed on its behalf by:
Prof. Humayun Akhter Mughal
Chairman and Chief Executive Officer
Consolidated cash flow statement
for the year ended 31 December 2007
2007 2006
£000 £000
Profit for the financial period 265 515
Taxation expense 11 33
Interest receivable (43) (11)
Interest payable - 150
Depreciation charges 12 96
Profit on disposal of property, - (462)
plant and equipment
Amortisation of intangibles 5 3
Operating profit before changes in 250 324
working capital
Increase in inventories (49) (94)
Increase in trade and other (50) (22)
receivables
Increase/ (decrease) in trade 9 (49)
payables and other current
liabilities
Cash generated from operations 160 159
Taxation - -
Net cash generated from operating 160 159
activities
Cash flows from investing
activities
Purchase of property, plant and (5) (17)
equipment
Development expenditure (4) (10)
Proceeds from sale of property, - 4,163
plant and equipment
Net cash used in investing (9) 4,136
activities
Cash flows from financing
activities
Interest received 43 11
Interest paid - (226)
Repayment of borrowings - (3,068)
Net cash used in financing 43 (3,283)
activities
Net increase in cash and cash 194 1,012
equivalents
Cash and cash equivalents at 832 (180)
beginning of the period
Cash and cash equivalents at end 1,026 832
of the period
Company cash flow statement
for the year ended 31 December 2007
2007 2006
£000 £000
Profit for the financial period 42 226
Interest receivable (43) (11)
Interest payable - 150
Depreciation charges 5 89
Profit on disposal of property, - (462)
plant and equipment
Impairment charges - 100
Operating profit before changes in 4 92
working capital
Decrease/ (increase) in trade and 21 (4)
other receivables
Increase in trade payables and 117 41
other current liabilities
Cash generated from operations 142 129
Taxation - -
Net cash generated from operating 142 129
activities
Cash flows from investing
activities
Proceeds from sale of property, - 4,163
plant and equipment
Net cash used in investing - 4,163
activities
Cash flows from financing
activities
Interest received 43 11
Interest paid - (226)
Repayment of borrowings - (3,068)
Net cash used in financing 43 (3,283)
activities
Net increase in cash and cash 185 1,009
equivalents
Cash and cash equivalents at 827 (182)
beginning of the period
Cash and cash equivalents at end 1,012 827
of the period
Consolidated statement of changes in equity
(i) Year ended 31 December 2007
Called up
Share Share Revaluation Other Retained Total
capital premium reserve reserve earnings equity
£000 £000 £000 £000 £000 £000
At 1 January 2007 7,554 5,602 - 1,334 (13,587) 903
Profit for the period - - - - 265 265
Transfer - - - (1,334) 1,334 -
At 31 December 2007 7,554 5,602 - - (11,988) 1,168
Other reserve
The balance of £1,334,000 on the other reserve at 1 January 2007 comprises the
premium on shares issued as part of the consideration for the acquisition of
various subsidiary undertakings less the expenses of issuing those shares, the
costs of the acquisitions and goodwill written off. Therefore, as those
subsidiary undertakings representing this balance on the other reserve have been
disposed of, it has been transferred to retained earnings.
(ii) Year ended 31 December 2006
Called up
Share Share Revaluation Other Retained Total
capital premium reserve reserve earnings equity
£000 £000 £000 £000 £000 £000
At 1 January 2006 7,554 5,602 2,071 1,334 (16,173) 388
Profit for the period - - - - 515 515
Sale of freehold property - - (2,071) - 2,071 -
At 31 December 2006 7,554 5,602 - 1,334 (13,587) 903
Company statement of changes in equity
(i) Year ended 31 December 2007
Called up
Share Share Revaluation Other Retained Total
capital premium reserve reserve earnings equity
£000 £000 £000 £000 £000 £000
At 1 January 2007 7,554 5,602 - 5,618 (18,167) 607
Profit for the period - - - - 42 42
Transfer - - - (5,416) 5,416 -
At 31 December 2007 7,554 5,602 - 202 (12,709) 649
Other reserve
The balance of £5,618,000 on the other reserve at 1 January 2007 comprises the
premium on shares issued as part of the consideration for the acquisition of
various subsidiary undertakings less the expenses of issuing those shares and
the costs of the acquisitions. All but one of the subsidiary undertakings
representing this balance on the other reserve has either been disposed of or
the carrying value of the investment in it has been impaired to nil, the amount
representing this has been transferred to retained earnings leaving the balance
on the reserve to represent the remaining subsidiary.
(ii) Year ended 31 December 2006
Called up
Share Share Revaluation Other Retained Total
capital premium reserve reserve earnings equity
£000 £000 £000 £000 £000 £000
At 1 January 2006 7,554 5,602 2,071 5,618 (20,464) 381
Profit for the period - - - - 226 226
Sale of freehold property - - (2,071) - 2,071 -
At 31 December 2006 7,554 5,602 - 5,618 (18,167) 607
1 GENERAL INFORMATION
Ultima Networks plc ('the Company') and its subsidiaries (together 'the
Group') are involved in the marketing and support of computer application
software and the merchandising of various products, but primarily electric
bicycles.
The Company is a public limited company, which is quoted on the Alternative
Investment Market of The London Stock Exchange and is incorporated and
domiciled in the UK. The address of its registered office is Akhter House,
Perry Road, Harlow CM18 7PN.
The registered number of the Company is 1435584.
2 ACCOUNTING POLICIES
Authorisation of financial statements and statement of compliance with
IFRS:
The Group's and Company's financial statements for the year ended 31
December 2007 were authorised for issue by the Board of Directors on 29
April 2008 and the balance sheets were signed on the Board's behalf by
Prof. Humayun Akhter Mughal.
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS') and International
Financial Reporting Interpretations Committee ('IFRIC') interpretations as
endorsed by the European Union, and with those parts of the Companies Act
1985 applicable to companies reporting under IFRS. The Company's financial
statements have been prepared on the same basis and as permitted by Section
230(3) of the Companies Act 1985, no income statement is presented for the
Company. Within the consolidated profit, a profit of £42,000 (2006:
£226,000) is dealt with in the financial statements of the parent Company.
Basis of preparation:
These are the Group's and Company's first financial statements prepared
under IFRS and IFRS 1 'First Time Adoption of International Financial
Reporting Standards' has been applied. The last financial statements under
UK Generally Accepted Accounting Principles ('UK GAAP') were for the year
to 31 December 2006 and the comparatives have been restated to comply with
IFRS. The transition from UK GAAP to IFRS is explained in note 25.
The financial statements are presented in pounds sterling and all values
are rounded to the nearest thousand pounds (£000) except when otherwise
indicated.
The accounting policies have been applied consistently to all periods
presented in these consolidated financial statements and in preparing an
opening balance sheet at 1 January 2006, being the date of transition, for
the purposes of transition to IFRS unless otherwise stated.
Basis of consolidation:
The consolidated financial statements incorporate the results and net
assets of Ultima Networks plc and its subsidiary undertakings (together
referred to as the `Group') for the year ended 31 December 2007. A
subsidiary is an entity over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of
more than 50% of the voting rights. The results of each subsidiary are
included from the date that control transferred to the Group and are
adjusted to align accounting policies with the Group's accounting policies.
Subsidiaries are no longer consolidated from the date that control ceases.
All intercompany balances and transactions are eliminated in full.
Company investment in subsidiaries:
In its separate financial statements the Company recognises its investments
in subsidiaries at cost. Income is recognised from these investments only
in relation to distributions received from post acquisition profits.
Share-based payments:
All share-based payment arrangements granted after 7 November 2002 that
had not vested prior to 1 January 2006 are recognised in the financial
statements.
All goods and services received in exchange for the grant of any share-
based payment are measured at their fair values. Where employees are
rewarded using share-based payments, the fair values of employee's
services are determined indirectly by reference to the fair value of the
instrument granted to the employee. This fair value is appraised at the
grant date and excludes the impact of non-market vesting conditions (for
example, profitability and sales growth targets). All equity-settled
share-based payments are ultimately recognised as an expense in the
income statement with a corresponding credit to reserves.
If vesting periods or other non-market vesting conditions apply; the
expense is allocated over the vesting period, based on the best available
estimate of the number of share options expected to vest. Estimates are
subsequently revised if there is any indication that the number of share
options expected to vest differs from previous estimates. Any cumulative
adjustment prior to vesting is recognised in the current period. No
adjustment is made to any expense recognised in prior periods if share
options ultimately exercised are different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate
share premium.
Goodwill:
Goodwill on acquisitions comprises the excess of the fair value of the
purchase consideration over the fair value of identifiable assets and
liabilities acquired. Goodwill is recognised as an asset on the Group's
balance sheet in the year in which it arises. Goodwill is not amortised and
is tested for impairment at least annually and more frequently if events or
changes indicate that the carrying value may be impaired and is carried at
cost less accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to the cash generating units on which it
arose. Any impairment is recognised immediately in the consolidated income
statement and is not subsequently reversed.
The Group has elected to take the exemption not to apply IFRS 3
retrospectively to business combinations occurring prior to the date of
transition to IFRS. Under IFRS 3 any goodwill arising on such acquisitions
is not amortised, but is subject to impairment reviews.
Revenue recognition:
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured.
Revenue consists of the fair value (excluding VAT) of consideration
received for goods and services supplied to third parties.
Revenue from the sale of software product licences is recognised at the
time the software licence is granted. Revenue relating to hardware and
software support is recognised proportionally over the period to which it
relates. Revenue from the sale of other products is recognised when the
Group has delivered the products and there is no unfulfilled obligation
that could affect the customer's acceptance of the products.
Research and development:
All research expenditure is written off in the year in which it is
incurred. Unless certain conditions are met, all development expenditure is
also written off in the year in which it is incurred.
The Group incurs development costs that are design costs relating to the
production of new or substantially improved devices and products for the
Groups `PowaCycle' and `Infineum' ranges of electric bicycles and
development costs that relate to the production of new or substantially
improved application software products for the legal profession.
Development costs are capitalised only if the following conditions are met:
A new or substantially improved asset is created that can be clearly
identified; it is probable that the asset created will generate future
economic benefits and the development cost of the asset can be measured
reliably. If all these conditions are met then the associated development
costs are amortised on a straight line basis over the useful life of the
asset, which is estimated to be 3 years.
Segment reporting:
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are
different from those of other business segments and whose operating results
are reviewed on a regular basis by the Group's board and for which discrete
financial information is available. A geographical segment is engaged in
providing products or services within a particular economic environment
that is subject to risks and returns that are different from those of
segments operating in other economic environments.
Property, plant and equipment:
Property, plant and equipment is carried at cost or valuation less
accumulated depreciation and any recognised impairment in value. Cost
comprises the aggregate amount paid to acquire the asset and includes costs
directly attributable to making the asset capable of operating as intended.
All land and buildings are included at valuation. Valuations are kept up-to-
date through periodic valuations carried out by external valuers.
Depreciation is provided evenly on the cost (or valuation where
appropriate) of the assets, to write them down to their estimated residual
values over their expected useful lives. No depreciation is provided on
freehold land. The principal annual rates used for other assets are:
Freehold buildings - 25 to 50 years
Office equipment - 5 years
Motor vans - 4 years
Computer equipment - 3 years
The assets' residual values, useful lives and methods of depreciation are
reviewed, and adjusted if appropriate on an annual basis. An item of
property, plant and equipment is derecognised upon disposal or when no
future economic benefits are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is
included in the income statement in the year that the asset is
derecognised.
Impairment of assets:
At each balance sheet date, the Group reviews the carrying amounts of its
property, plant and equipment and intangible assets to determine whether
there is any indication that these assets have suffered an impairment loss.
If any such indication exists, the recoverable amount of the asset, which
is the higher of its fair value less costs to sell and its value in use, is
estimated in order to determine the extent of the impairment loss. 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 impairment charge is recognised in the income statement in the year in
which it occurs. When an impairment loss, other than an impairment loss on
goodwill, subsequently reverses due to a change in its original estimate,
the carrying amount of the asset is increased to the revised estimate of
its recoverable amount. The increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years.
Inventories:
Inventories are valued at the lower of cost and net realisable value. Cost
of raw materials, consumables and goods purchased for resale means actual
purchase price, including transport and handling and is determined using
the FIFO method. Net realisable value means estimated net selling price
less estimated costs of disposal.
Trade and other receivables:
Trade receivables do not carry any interest and are recognised and carried
at the lower of their original invoiced value and recoverable amount.
Provision against trade receivables is made when there is objective
evidence that the Group will not be able to collect all amounts due to it
in accordance with the original terms of those receivables. The amount of
the write-down is determined as the difference between the asset's
carrying amount and the present value of estimated future cash flows.
Cash and cash equivalents:
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities
of three months or less, and bank overdrafts. Bank overdrafts are shown
within financial liabilities in current liabilities on the balance sheet.
Trade and other payables:
Trade payables are not interest bearing and are stated at their fair value
and then subsequently measured at amortised cost using the effective
interest method.
Provisions:
Provisions are recognised when there is a present legal or constructive
obligation as a result of past events, for which it is probable that an
outflow of economic benefit will be required to settle the obligation, and
where the amount of the obligation can be reliably measured.
Foreign currencies:
The Group does not carry investments, assets or liabilities denominated in
foreign currencies or hold derivative instruments. Transactions in foreign
currencies are dealt with on the Group's behalf by Akhter Group plc.
Therefore, any transactions of the Group in foreign currencies are settled
by Akhter Group plc and are converted to pounds sterling at pre-agreed spot
rates for reimbursement by the Group.
Income taxes:
Current income tax assets and liabilities are measured at the amount
expected to be recovered or paid to the taxation authorities, based on tax
rates and laws that are enacted or substantively enacted by the balance
sheet date.
Deferred income tax is recognised using the balance sheet liability method,
providing for temporary differences between the tax bases and the
accounting bases of assets and liabilities. Deferred income tax is
calculated on an undiscounted basis at the tax rates that are expected to
apply in the period when the liability is settled or the asset is realised,
based on tax rates and laws enacted or substantively enacted at the balance
sheet date.
Deferred income tax liabilities are recognised for all temporary
differences, except where the deferred income tax liability from the
initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and at the time of the
transaction, affects neither the accounting profit nor taxable profit or
loss.
Deferred income tax is charged or credited to 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. Deferred income tax
assets and liabilities are offset against each other only when the Group
has a legally enforceable right to do so.
Deferred income tax assets are recognised only to the extent that it is
probable that future taxable profits will be available against which the
deductible temporary differences can be utilised.
Pensions:
The Group does not operate any pension schemes, but does contribute to the
personal pension plans of certain staff. The contributions are charged as
an expense as they fall due. Any contributions unpaid at the balance sheet
date are included as an accrual at that date. The Group has no future
payment obligations once the contributions have been paid.
Leased assets - Group as lessee:
Leases are classified as finance leases when the terms of the lease
transfer substantially all the risks and rewards of ownership to the Group.
All other leases are classified as operating leases.
Assets leased under operating leases are not recorded on the balance sheet.
Rentals payable are charged direct to the income statement. Lease
incentives, for example, up-front cash payments or rent-free periods, are
capitalised and spread over the period of the lease term. Payments made to
acquire operating leases are treated as prepaid lease expenses and
amortised over the life of the lease.
Leased assets - Group as lessor:
Assets leased out under operating leases are included in property, plant
and equipment and depreciated over their useful lives. Rental income,
including the effect of lease incentives, is recognised on a straight line
basis over the lease term.
Use of assumptions and estimates:
The Group makes judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities,
income and expenses. The resulting accounting estimates calculated using
these judgements and assumptions will, by definition, seldom equal the
related actual results but are based on historical experience and
expectations of future events. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision
effects only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
The estimates and assumptions that have a significant effect on the
amounts recognised in the financial statements are:
* establishing depreciation and amortisation periods for the Group;
* estimates in relation to future cash flows and discount rates utilised in
impairment testing;
* whether development costs meet the capitalisation criteria in IAS 38;
* the recognition and quantification of provisions under IAS 37;
* changes in estimates under IAS 8;
* fair-values in share-based payments under IFRS 2;
* estimates of net realisable values of inventories under IAS 2; and
* management intentions for realisation of tax assets and liabilities under
IAS 12.
Standards issued by the International Accounting Standards Board (IASB) not
yet effective for the current year and not adopted by the Group:
The following standards and interpretations have been issued by the IASB.
They become effective after the current year and have not been early
adopted by the Group and Company:
To be
adopted by
the Group
International Financial Reporting Effective and
Standards (IFRS) date Company
during
years
commencing
IFRS 2 Amendment - Share-based Payment 01.01.2009 01.01.2009
Vesting Conditions and
Cancellations
IFRS 8 Operating Segments 01.01.2009 01.01.2009
IFRS 3 Business Combinations (revised 01.01.2009 01.01.2010
2008)
IAS 1 Presentation of Financial 01.01.2009 01.01.2009
Statements (revised 2007)
IAS 23 Amendment - Borrowing Costs 01.01.2009 01.01.2009
IAS 27 Consolidated and Separate 01.01.2009 01.01.2010
Financial Statements (revised
2008)
IAS 32 Amendment - Puttable Financial 01.01.2009 01.01.2009
Instruments and Obligations
Arising on Liquidation
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 11 IFRS 2 - Group and Treasury 01.03.2007 01.01.2008
Share Transactions
IFRIC 12 Service Concession Arrangements01.01.2008 01.01.2008
IFRIC 13 Customer Loyalty Programmes 01.07.2008 01.01.2009
IFRIC IAS 19 - The Limit on a Defined 01.01.2008 01.01.2008
14 Benefit Asset, Minimum Funding
Requirements and their
Interaction
The impact on the Group's and Company's financial statements from the
adoption of these new financial reporting standards is not expected to be
material.
3 SEGMENTAL REPORTING
The Group operates wholly within the United Kingdom and therefore has no
separate geographical segments of operation.
At 31 December 2007, the Group is organised into two principal business
segments:
- IT and related services (comprising legal and publishing application
software)
- Other products (comprising electric bicycles, energy saving lamps and
educational electronic kits)
The segmental results for the year ended 31 December 2007 are as follows:
IT and Other
related products Unallocated Group
services
£000 £000 £000 £000
Revenue 701 863 - 1,564
Operating profit 148 85 - 233
Finance income 43
Profit before 276
taxation
Depreciation 4 3 5 12
Amortisation - 5 - 5
The segment results for the year ended 31 December 2006 are as follows:
IT and Other
related products Unallocated Group
services
£000 £000 £000 £000
Revenue 778 620 - 1,398
Operating profit 126 5 556 687
Finance costs - net (139)
Profit before 548
taxation
Depreciation 3 4 89 96
Amortisation - 3 - 3
The unallocated operating profit in 2006 of £556,000 relates to the
activities of the Company and includes rent receivable of £180,000 from the
freehold investment property in Bradford and the profit of £462,000 on the
sale of this property in September 2006. Since the disposal of this
property, the Company has acted solely as a holding company recharging its
administration costs to its trading subsidiaries on an equitable basis.
The assets and liabilities of the Group cannot be allocated to the above
segments. Entity balance sheets are not split into segments for internal
reporting purposes.
4 FINANCE INCOME AND COSTS
2007 2006
£000 £000
Interest expense:
- Interest payable on bank loans and - 84
overdrafts
- Interest payable on other loans - 35
( Akhter Group plc)
- Interest payable on unsecured 8% - 31
loan notes
Finance costs - 150
Finance income:
- Bank interest receivable (43) (11)
Net finance (income)/ costs (43) 139
5 OPERATING PROFIT
2007 2006
£000 £000
Operating profit is stated after
charging:
Depreciation and other amounts written 12 96
off property, plant and equipment
Amortisation of intangible 5 2
development costs
Operating leases - rent of buildings 49 34
6 AUDITOR REMUNERATION
Services provided by the Company's auditor and its associates
During the year the Group obtained the following services from the
Company's auditor and its associates:
2007 2006
£000 £000
Group
Fees payable to the Company's auditor
for the audit of the Company and 11 7
consolidated financial statements
Fees payable to the Company's auditor
and its associates for other
services:
- The audit of Company's 7 7
subsidiaries pursuant to legislation
18 14
7 OTHER OPERATING INCOME
2007 2006
£000 £000
Rent receivable from freehold - 180
property
Royalty receivable from sale of 4 4
subsidiary
4 184
8 DISPOSAL OF FREEHOLD PROPERTY
2007 2006
£000 £000
Valuation - 3,900
Accumulated depreciation - (199)
Net book value - 3,701
Costs of disposal - 37
Profit on disposal - 462
Cash consideration - 4,200
On 29 September 2006 the Company completed the sale of its freehold
investment property in Bradford to an unconnected third party. The sale did
not give rise to a charge to corporation tax. Therefore, the balance on the
revaluation reserve was realised and transferred to profit and loss
account.
9 EMPLOYEES
2007 2006
£000 £000
Employees costs including executive
directors during the year amounted
to:
Wages and salaries 461 499
Social security costs 45 47
Other pension costs 3 3
509 549
Number of employees
2007 2006
The average number of persons
employed during the year
including executive directors
analysed by category was made up as
follows:
Production 2 2
Sales and marketing 2 4
Product development and support 8 8
Administration 9 10
21 24
The Company has no employees and no
staff costs.
2007 2006
£000 £000
The total remuneration of Directors
was as follows:
Fees of non-executives 21 24
Remuneration as executives (including - -
benefits in kind)
Pension contributions - -
21 24
No remuneration is paid directly by the Group for the services of the two
Executive Directors. However, a charge to the Company from Akhter Group plc
of £56,000 (2006: £50,000) and Cognito Software Limited of £9,000 (2006:
nil) for executive management services, disclosed in Note 24 of the
financial statements, is for the services of the Company's finance director
and Akhter's marketing director. There is currently no pension provision
for any of the directors and therefore no pension is accrued to them.
Details of Directors' interests in the share capital of the Company
together with further details of the Directors' remuneration are contained
in the Remuneration Report on pages 12 to 13.
10 TAXATION ON PROFIT
(a) Analysis of charge in the year 2007 2006
£000 £000
Current taxation
UK corporation tax on profits for the 29 17
year
Adjustments in respect of previous (17) -
periods
Total current taxation 12 17
Deferred taxation
Origination and reversal of temporary (1) 16
differences (note 19)
Taxation expense 11 33
(b) Factors affecting charge in the
year
Profit on ordinary activities before 276 548
taxation
Tax at UK corporation tax rate 20% 55 104
(2006: 19%)
Effect of:
Profit on sale of property not - (88)
taxable
Expenditure not tax deductible - 17
Utilisation of tax losses not (27) -
recognised for deferred taxation
Adjustments in respect of previous (17) -
periods
Taxation expense 11 33
The corporation tax rate has been changed from the rate of 19% applied in
the prior year to reflect the actual rate applicable to the current year of
20%.
The Group has tax losses to carry forward of £5,760,000 (2006: £5,978,000)
which may be available for offset against future trading profits.
11 EARNINGS PER SHARE
2007 2006
Number Number
Weighted average ordinary shares in 204,747,964 204,747,964
issue during the year
Potentially dilutive share options - -
under the Group's share option
schemes
Weighted average ordinary shares for 204,747,964 204,747,964
diluted earnings per share
£'s £'s
Earnings/ (loss) attributable to
shareholders:
Continuing operations 265,000 515,000
Discontinued operations - -
The calculation of earnings per ordinary share is based on the profit for
the period attributable to equity holders of the parent and the weighted
average number of ordinary shares in issue during the year.
12a PROPERTY, PLANT AND EQUIPMENT
At 31 December 2007
Freehold Office and
land and computer
buildings equipment
and Total
motor vans
GROUP £000 £000 £000
Cost or valuation
At beginning of year 120 30 150
Additions - 5 5
At end of year 120 35 155
Depreciation
At beginning of year 8 15 23
Charge for year 5 7 12
At end of year 13 22 35
Net book value
At end of year 107 13 120
At beginning of year 112 15 127
At 31 December 2006
Freehold Office and
land and computer
buildings equipment
and Total
motor vans
GROUP £000 £000 £000
Cost or
valuation
At beginning of year 4,020 118 4,138
Additions - 17 17
Disposals (3,900) (105) (4,005)
At end of year 120 30 150
Depreciation
At beginning of year 118 113 231
Charge for year 89 7 96
Disposals (199) (105) (304)
At end of year 8 15 23
Net book value
At end of year 112 15 127
At beginning of year 3,902 5 3,907
12a PROPERTY, PLANT AND EQUIPMENT continued
At 31 December At 31 December
2007 2006
Freehold land Freehold land
and buildings and buildings
COMPANY £000 £000
Valuation
At beginning of year 120 4,020
Disposals - (3,900)
At end of year 120 120
Depreciation
At beginning of year 8 118
Charge for year 5 89
Disposals - (199)
At end of year 13 8
Net book value
At end of year 107 112
At beginning of year 112 3,902
The aggregate amounts at which freehold land and buildings would have been
shown in the financial statements had they not been revalued are as
follows:
GROUP AND 2007 2006
COMPANY
£000 £000
Cost 120 120
Depreciation (13) (8)
107 112
Freehold land and buildings include depreciable assets of £108,000 (2006:
£108,000).
The freehold land and buildings owned by the Company and located in
Crediton, Devon was revalued on the basis of market value and rental value.
The valuation report, dated 20 September 2004, quotes a market value that
agrees to the original cost of £120,000. The directors do not consider this
valuation to be materially different as at 31 December 2007 and therefore
that the carrying value is not materially different from the fair value.
12b INTANGIBLE ASSETS
At 31 At 31
December December
2007 2006
GROUP Development Development
costs costs
£000 £000
Cost
At beginning of year 10 -
Additions 4 10
At end of year 14 10
Amortisation
At beginning of year 3 -
Charge for year 5 3
At end of year 8 3
Net book value
At end of year 6 7
At beginning of year 7 -
13 INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
At 31
December
2007
COMPANY
£000
Cost
At beginning of year 6,066
Adjustment * (3,538)
At end of year 2,528
Provision
At beginning and 5,553
end of year
Adjustment * (3,538)
At end of year 2,015
Net book value
At end of year 513
At beginning of year 513
* The adjustment is in respect of disposals made in prior periods.
The principal subsidiary undertakings are all wholly owned by the Company,
are consolidated and include the following:
Subsidiary Principal activity
undertakings
UTN Solutions (North) Merchandising of electric bicycles
Limited and other products
Integrated Publishing Support of computer application
Systems Limited software
Cognito Software Marketing and support of computer
Limited application software
All Companies were incorporated in England and Wales and
trade in the UK.
14 INVENTORY
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Finished goods 257 208 - -
257 208 - -
15 TRADE AND OTHER RECEIVABLES
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Trade receivables 162 134 - -
Less: provision for - - - -
impairment
Trade receivables - 162 134 - -
net
Owed by related 23 - - -
party (see note 24)
Other receivables 15 15 15 15
Tax recoverable 7 16 7 12
Prepayments and 77 69 - 16
accrued income
284 234 22 43
The directors do not consider there to be any material difference between
the fair values of trade and other receivables and the amounts shown above.
The trade and other receivables of the Company and the Group are all
denominated in pounds sterling. The Group's main credit risk relates to
trade receivables. No collateral is held as security against these
receivables and the carrying value approximates to the fair value.
Trade receivables that are less than three months past due are not
considered impaired. As of 31 December 2007, trade receivables of £2,000
(2006: nil) were past due but not impaired. These relate to a number of
independent customers for whom there is no recent history of default. The
ageing analysis of these trade receivables is as follows:
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Up to 3 months 2 - - -
3 to 6 months - - - -
2 - - -
As of 31 December 2007, trade receivables of £3,000 (2006: nil) were
impaired, but not provided for as the directors considered the amounts to
be immaterial. The ageing of these receivables is as follows:
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Up to 3 months - - - -
3 to 6 months 3 - - -
3 - - -
16 CASH AND CASH EQUIVALENTS
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Cash at bank and on 76 832 62 827
hand
Short-term bank 950 - 950 -
deposits
1,026 832 1,012 827
17 TRADE AND OTHER PAYABLES
Group Company
2007 2006 2007 2006
£000 £000 £000 £000
Trade payables 50 71 6 12
Amounts due to Group - - 927 798
undertakings
Owed to related 47 68 28 50
party (see note 24)
97 139 961 860
The directors consider that the carrying value of trade and other payables
approximates to their fair value.
18 FINANCIAL INSTRUMENTS
The Group's principal financial instruments, from which financial
instrument risk arises, comprise cash and cash equivalents, trade
receivables and trade payables that arise directly from its operations. The
main financial instrument risks arising from, and impacted by, the
financial assets and liabilities of the Group are credit risk, cash flow
interest rate risk and liquidity risk. The Board reviews and agrees
policies for managing these risks and they are summarised below.
The Group does not hold any derivative financial instruments. The Group's
financial assets and liabilities are measured at amortised cost.
The principal financial assets of the Group are trade receivables and cash
at bank. Cash is held in Sterling only in either current account or on
short-term deposit. The amounts being as follows:
Current financial assets 2007 2006
£000 £000
Trade receivables 165 134
Cash and cash equivalents 1,026 832
1,191 966
Trade receivables arise directly from the Group's operations and do not
carry any interest. All cash balances attract interest at floating rates
that vary with UK bank base rates. The Group does not have any undrawn
borrowing facilities.
The principal financial liabilities of the Group are trade payable, the
amounts being as follows:
Current financial liabilities 2007 2006
£000 £000
Trade payables 50 71
Trade payables arise directly from the Group's operations and are not
interest bearing.
Credit risk
The Group's credit risk is primarily attributable to its trade receivables.
Exposures to credit risk are minimised by employing effective credit
management policies and procedures. Only customers known to the Group are
granted credit terms. Annual fees for software licences and support
agreements are payable in advance and require a uniquely numbered 'valid
licence key' to operate.
Cash flow interest rate risk
The Group is cash positive and places its balances on short-term deposits
with Lloyds TSB Bank plc. Variable rate interest receivable is based on UK
bank base rates and therefore changes in interest rates will affect the
return on cash balances. No interest is received on any of the Group's
other assets or receivables. The Group does not have any loans, bank
borrowings or other interest bearing payables.
Liquidity risk
It is the Group's policy to maintain sufficient cash resources to meet its
short-term liabilities
Foreign currency risk
The Group is not exposed to transaction foreign currency exchange risk in
respect of purchases from suppliers as this process is dealt with on the
Group's behalf by Akhter Group plc. Therefore, any transactions of the
Group in foreign currencies are settled by Akhter Group plc and are
converted to pounds sterling at pre-agreed spot rates for reimbursement by
the Group. Therefore, the Group only holds any cash balances in pounds
sterling.
Price risk
The Group does not hold any listed security investments and therefore has
no exposure to securities price risk.
Capital risk management
The Group considers its capital to comprise its ordinary and deferred share
capital, share premium account and accumulated retained losses.
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. In order to maintain or
adjust the capital structure, the Group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new shares or
sell assets to reduce debt.
The Group considers equity funding as the most appropriate form of capital
for the Group, but keeps this under review taking into account the risks,
costs and benefits to equity shareholders of introducing debt.
19 DEFERRED TAXATION
Group Company
£'000 £'000
Deferred tax asset at 1 January 2007 4 -
Credited to income statement in the 1 -
year
Deferred tax asset at 31 December 2007 5 -
GROUP Provided Not provided
2007 2006 2007 2006
£000 £000 £000 £000
Accelerated capital (5) (4) - -
allowances
Losses - - (1,152) (1,136)
(5) (4) (1,152) (1,136)
COMPANY Provided Not provided
2007 2006 2007 2006
£000 £000 £000 £000
Losses - - (974) (951)
- - (974) (951)
The Group has tax losses of £5,760,000 as at 31 December 2007 (2006:
£5,978,000) which have not been recognised for deferred tax purposes as
these may only be set against certain profits arising in future accounting
periods.
20 CALLED UP SHARE CAPITAL
2007 2006
£000 £000
Authorised
449,302,276 ordinary shares of 1p each 4,493 4,493
137,674,431 deferred shares of 4p each 5,507 5,507
10,000 10,000
Allotted, called up and fully paid up
204,747,964 ordinary shares of 1p each 2,047 2,047
137,674,431 deferred shares of 4p each 5,507 5,507