TIDMLGNG
RNS Number : 9929Z
Legion Group PLC
30 September 2009
? 30 September 2009
Legion Group Plc
('Legion Group' or the 'Group')
Results for the Year Ended 31 March 2009
Legion Group Plc, the AIM listed total security solutions group, announces its
results for the year ended 31 March 2009.
Highlights
* Turnover of GBP28.9m for the year (2008 restated 18-month period: GBP26.1m)
* Gross profit of GBP4.1m for the year (2008 restated 18-month period: GBP4.7m)
* Acquisition of Legion Group plc transforms the business into a top-ten UK
security provider
* Strengthened board and management team
* Integration plan on track to deliver value to shareholders during 2009/10
* Re-branding with a single iconic identity for the enlarged group
Chairman's statement
Overview and strategy
This has been a truly transformational year for Legion Group plc with a major
acquisition, a new board, a change of name and a re-branding. These developments
and our performance in the last year have increased confidence in our prospects
among clients, staff and shareholders.
The year began with the integration of ManGuard Ltd acquired from Mark Higgins,
now our chief executive, at the end of the previous financial year on 20 March
2008. This integration was successfully completed during the year resulting in a
substantial uplift in turnover to GBP28.9m (2008 restated 18-month period:
GBP26.1m). The ManGuard acquisition has continued to deliver business
development opportunities throughout 2008/9 and we expect this to continue into
2009/2010 and well beyond. We also continued the integration of previously
acquired business units within our electronic security division with a new
management team focusing on service delivery, new business opportunities and
strong cash generation.
Strategic development
The most significant development in the year was in March 2009, just prior to
our year end, when we completed the acquisition of Legion Group plc from the
Royal British Legion Attendants Company Trust. Legion is an iconic brand with an
unparalleled history and heritage in the sector. It is the UK's oldest
established parking and security services group and a leading provider of manned
guarding and CCTV monitoring services to the public and private sectors. The
acquisition of Legion Group further enhances our position as a top-ten provider.
Legion's heritage, brand and client portfolio will enable the combined business
to generate shareholder value once its integration within the group is
completed.
In order to fund the acquisition of Legion Group, we raised GBP2m via a placing
in March 2009. Mark Higgins our chief executive also provided GBP1m of
additional debt capital in the form of a loan note to Legion Group plc at the
same time.
In April 2009, post year end, we acquired from the Administrator of CS Group Ltd
security and facilities management contracts worth GBP10m per annum for a
consideration of GBP133,000. This addition further strengthened our combined
market share within these sectors following on from the Legion Group
acquisition.
In July 2009, we changed name with Legion Group plc becoming the name of the
AIM-listed legal entity and the holding company for the enlarged group.
As a result of both these acquisitions, the new enlarged Legion Group is now a
top-ten provider of manned guarding within the UK and has nearly 3,000 personnel
group-wide. The company will continue with its integration plan for all three
business units: the previous SectorGuard business, the acquired Legion Group
business and the contracts from CS Group. We have identified approximately GBP3m
of savings per annum in the process. Much of this integration process has been
completed in the first quarter of our new financial year with further progress
planned in the second quarter.
We now have a single operations centre located at our head office at Waltham
Cross which co-ordinates all the activities of the enlarged business.
Centralising support to control and reduce costs is key to the successful
integration of these acquisitions.
Results
Our results for the year ended 31 March 2009 are set out in the financial
statements below.
Board changes
This year we have strengthened the board with significant additional knowledge
and diversity of experience.
I was appointed non-executive chairman of the group in November 2008 with my
co-directors Mark Higgins as chief executive and Charlie Cleverly as managing
director. Since our last interim report, a further board appointment has been
made. I am delighted that General Sir Mike Jackson has joined the board as a
non-executive director. General Sir Mike's highly distinguished military career
ensures that Legion Group acknowledges its heritage and historic connections
with HM Forces - his experience and knowledge will be invaluable as we develop
our business.
During the year David Marks, Robert Weigl and Jim McLeod left the board. Gerard
Kelly was also appointed to the board and resigned during 2009.
The management team below executive board level has also been strengthened
during the year with the appointment of an operations director, Steve Greenaway,
who has experience from OCS and Chubb, to run our manned guarding operation. An
experienced divisional director was also appointed to run our electronic
security division.
We now have the right management team in place with the mix of skills and
knowledge to pursue successfully our next phase of growth whilst maintaining
effective controls and corporate governance to drive sustainable shareholder
value.
Recovery and growth
The new board has had to deal with a number of legacy issues surrounding the
financial position of the business and to restore relationships with its
bankers, investors and other key stakeholders. These issues have taken up
management time during the year and have resulted in significant professional
fees. It is anticipated that a large part of these fees will be recoverable when
the results of legal actions taken by the group are decided. We have also
reviewed the intangible assets in our balance sheet this year resulting in a
further restatement of the prior year positions including an additional
write-down of intangibles in the year ended 31 March 2008 and prior periods.
Whilst this has had a detrimental effect on shareholders funds, it means that
the group has now dealt with the legacy accounting issues inherited by the new
board of directors and the management team.
The key to our future success will be to increase sales, net revenues and cash
generation. With a strong sales pipeline we are on track to reach our sales
targets in the next twelve months. As we move forward, we expect to see
financial rewards to shareholders arising from improved sales performance and
our continued focus on cost reductions from integrating our acquisitions.
Corporate social responsibility
Legion Group is striving to be a company that matches the need to deliver value
to our shareholders with an ethical approach to the way we go about our business
in the interests of our clients, our employees and all stakeholders in our
business.
One of the unique characteristics of Legion Group throughout its history is its
association with HM Forces. Traditionally a large number of Legion staff
previously served in the Army, Navy and Royal Air Force. Under our agreement to
acquire Legion Group we will continue to give significant financial support each
year to the charitable work of the Royal British Legion to help ex-servicemen
and women.
The board is mindful of the group's position as a large employer. We continue to
invest heavily in the training and development of our staff. Our selection
criteria for new staff are fair and rigorous to ensure all our people
demonstrate the core values of our brand. Our continued commitment to the
highest standards is demonstrated by our quality management system and many
other organisational and technical accreditations.
Since the appointment of the new board, significant progress has been made in
the application of fiduciary codes within the business. The board meets
regularly and there is clear division of responsibility among the executive
directors and the role of the non-executive board members. An audit committee
comprising executive and non-executive directors has been appointed and these
accounts have been reviewed and approved by the audit committee.
Summary and outlook
This has been a challenging year for the group. In the middle of a tough
economic environment we have also had to deal with difficult legacy issues in
the group's accounting and funding position. The board has acted swiftly and
decisively to make changes to its management structure in the light of this.
Through the Legion Group acquisition and re-branding, the group is now a larger
and more robust business, able to deliver security solutions on a much larger
scale. Going forward we are a very different and very much improved business
compared with twelve months ago.
We expect to continue to grow our business organically through our strong
business development pipeline and through further opportunities to acquire
additional businesses where these can add shareholder value. The economic
downturn has created opportunity to acquire distressed businesses which cannot
survive in the present trading environment. Through effective management of the
integration of these businesses into the group, removing costs, improving
margins and improving efficiency, we believe we can add gross margin without
significantly increasing overheads.
The progress that has been made this year demonstrates the board's determination
to build Legion Group into a best-in-class security solutions provider. There
are encouraging signs that our integration plan is well on course. This has been
a period of great change for our staff and following our integration plans the
culture of the business is now one of vigour and ambition. I would like to thank
our staff, our customers and all our stakeholders for their continued support
and the part they are playing in the growth of our business.
Stephen Thomas
Non-executive chairman
30 September 2009
Enquiries:
+-----------+---------------+
| Legion | 01992 701972 |
| Group | |
+-----------+---------------+
| Mark | |
| Higgins, | |
| Chief | |
| Executive | |
+-----------+---------------+
| Charlie | |
| Cleverly, | |
| Managing | |
| Director | |
+-----------+---------------+
| | |
+-----------+---------------+
| Seymour | 020 7107 8000 |
| Pierce | |
+-----------+---------------+
| Jonathan | |
| Wright | |
+-----------+---------------+
| | |
+-----------+---------------+
| College | 020 7457 2020 |
| Hill | |
+-----------+---------------+
| Nick | |
| Elwes | |
+-----------+---------------+
The report and accounts of the Company for the year ended 31 March 2009 are
being posted to shareholders and are available on the Company's website
www.legion-group.co.uk
Business review - Operational
Business performance
This is the first full year of trading following the acquisition of ManGuard in
March 2008. Sales in our manned guarding division rose to GBP27.2m in the period
(2008 restated 18-month period: GBP22.1m) reflecting additional contract
revenues from the acquisition. ManGuard brought with it both a substantial
existing contract base and a pipeline of new work. This has performed well
during the year delivering new contracts and expected orders.
Sales in our electronic security division were GBP1.7m (2008 restated 18-month
period: GBP4m) reflecting a more competitive environment for these products and
lower margins. During the year we conducted a strategic review of this division,
re-assessing its performance and the value of the assets we acquired over the
last five years. Positive steps have been taken to strengthen sales in this
division with new management focused on business development and improving
service delivery. We have also reviewed the goodwill values of our previous
acquisitions in this division. The performance of this division will be kept
under review.
Since we announced our last interim results in December 2008, the volatility
affecting markets and all business sectors has continued. While the group's
performance has not been immune from the repercussions, our business continues
to show resilience with a contract portfolio built across diverse private and
public sector organisations.
Acquisitions
By far the most significant event during the year was the acquisition of Legion
Group plc on 20 March 2009 for an initial consideration of GBP1 and deferred
consideration payable over ten years of GBP1m. For the 18 months ended 31 March
2009, Legion had a turnover of GBP42.2m (annualised: GBP28.1m) and gross profit
of GBP6.9m (annualised: GBP4.6m).
Post year end in April 2009 we completed the acquisition of contracts worth
GBP10m per annum from the Administrator of CS Group Ltd for a consideration of
GBP133,000 including other assets.
Together, these acquisitions have transformed the group into a top-ten provider
of manned security services in the UK (source: www.infologue.com). If the
acquisition of Legion Group plc and the purchase of contracts from CS Group Ltd
had occurred on 1 April 2008, then group revenue inclusive of these acquisitions
would have been GBP67m for the twelve month period ended 31 March 2009.
With these acquisitions in the enlarged group, there are clear opportunities to
improve performance progressively over the next year and beyond and through this
generate value for shareholders. Since our financial year end, in the first
quarter this year, we have already made good progress towards these objectives
through:
+----+-------------------------------------------------------------------+
| - | restructuring and re-organisation initiatives; |
+----+-------------------------------------------------------------------+
| - | reducing overheads; |
+----+-------------------------------------------------------------------+
| - | centralising operations and support for our enlarged business; |
+----+-------------------------------------------------------------------+
| - | investing in staff training and development; |
+----+-------------------------------------------------------------------+
| - | improving our business systems to support better data-driven |
| | decision-making; and |
+----+-------------------------------------------------------------------+
| - | improving our marketing and corporate identity with the Legion |
| | brand for all the group's activities. |
+----+-------------------------------------------------------------------+
In 2009/10 we will complete a major restructuring programme across the group
with a target to deliver savings of GBP3m compared with last year. The total
cost of delivering these programmes will be treated as an exceptional item.
There may well be further opportunities to build Legion Group through bolt-on
acquisitions, which can bring significant gross margin and are capable of being
supported without a large increase in overheads and using existing
infrastructure. Acquisitions may also support geographic expansion of the Legion
brand. Scope also exists to improve our information systems to enhance data-flow
and speed up decision-making. This creates opportunities to leverage the scale
of the group through group-wide staff-rostering, procurement, and IT.
Operating performance
Our operating profit before depreciation, amortisation, goodwill impairment and
exceptional items in the period was GBP281,797 (2008 restated 18-month period:
GBP763,261).
The group incurred non-recurring exceptional costs of GBP404,738 (2008 restated
18-month period: GBP348,750), largely in relation to legal costs and
professional fees expected to be recoverable from previous directors.
Cash generation
Headline operating cash outflow totalled GBP207,339 (2008 restated 18 month
period: GBP2,053,909). Net debt has decreased by GBP1.8m during the year
primarily as a result of rescheduling of borrowings.
Financing
In March 2009 we successfully completed a major refinancing. A total of
197,925,400 new ordinary shares were issued at 1p per share through a placing
raising GBP1.98m before costs. This cash was raised during an uncertain and
volatile period for equity and capital markets on the strength of investors'
perception of the synergies and cost savings achievable through the acquisition
and integration of Legion. At the same time I also agreed to provide the company
with a loan of GBP1m repayable after 18 months or convertible into ordinary
shares at 1p each. During 2009/10 we will continue to look for further
opportunities to improve our financing profile and funding.
Dividend
The directors do not propose to pay a dividend in respect of the result for the
period under review. In view of the UK economic backdrop, the costs of
integrating the enlarged group and in order to take full advantage of any
opportunistic acquisitions that may be presented to the group, the directors
believe that shareholders' interests are best served by retaining cash within
the business.
The future
Our business has not been immune to the national and global economic challenges
of the last year but our performance and strategic development leaves the group
with a strong client portfolio going forward. Legion Group will also benefit
from the global need for better security. Across the group, our focus remains to
deliver our cost saving initiatives, generate cash and deliver long-term value
for shareholders.
The first quarter of our 2009/10 financial year has already started positively
with encouraging profitability arising from the integration savings already
evident. Given that the most of these savings will only be fully realised from
the second quarter onwards, profitability for the first quarter is an
encouraging indicator that our strategy and its execution are working.
Legion is a brand that through its heritage and commitment to client service
provides sustainable competitive advantage for the group. The brand is also
characterised by outstanding customer loyalty built on the origins and ethos of
Legion. We are mindful and respectful of these origins. We also understand our
clients' needs for high quality security services and value in a competitive
marketplace. By combining the vigour and ambition for growth as a public
company, building on Legion's foundations and heritage, the new Legion Group
will prosper.
Business review - Financial
Overview
The financial statements of the group have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union. Legion FM Limited (formerly Legion Group plc) was acquired on 20 March
2009. The consolidated financial statements reflect the position of Legion FM
Limited as if the acquisition had occurred on 31 March 2009. The consolidated
income statement does not include the trading results of Legion FM Limited for
the period from acquisition until 31 March 2009 as the short trading period has
been judged not to be material.
Revenue
The revenue from continuing operations for the twelve months ended 31 March 2009
was GBP28.9m (2008 restated 18-month period: GBP26.1m). The previous accounting
period was for the 18 months from 1 October 2006 to 31 March 2008. The
comparatives used are from the income statement for this 18 month period and the
balance sheet as at 31 March 2008.
EBITDA
Earnings before interest, tax, depreciation, amortisation, exceptional items and
goodwill impairment were GBP0.3m (2008 restated 18-month period: GBP0.8m).
Pre-tax loss for the year
The consolidated loss before tax was GBP1.4m (2008 restated 18-month period:
GBP1.2m).
Exceptional restructuring expense
At the time of the acquisition of Legion FM Limited in March 2009, the group
announced its intention to reduce costs within the acquired business and put in
place a restructuring plan to achieve profitability in the combined group. A
provision for restructuring costs of GBP540,730 has been recognised in Legion FM
Limited as at 31 March 2009. The restructuring will allow the group to deliver
lower operating costs and overheads in the next financial year.
Intangible assets
A comprehensive impairment review of intangible assets has been carried out as
at 31 March 2009 together with a review of the impairment calculation carried
out at 31 March 2008 by the previous board. As a result of this review, a
write-down of prior period balances as at 30 September 2006 has been made and a
further write down of balances at 31 March 2008.
In respect of the acquisition of Legion FM Limited an intangible asset of
GBP4.3m and goodwill of GBP0.1m has been recognised.
Finance costs
Finance costs rose to GBP651,121 (2008 restated 18-month period: GBP271,703)
reflecting higher levels of borrowing incurred by the group and higher average
LIBOR borrowing rates in the period. Lower LIBOR rates and falling borrowings at
year end have resulted in lower ongoing finance costs.
Prior year restatement
Following the changes in the board of directors and in the management team
during the year, a number of adjustments to the prior period figures have been
made. These adjustments include:
+----+-------------------------------------------------------------------+
| - | misstatements in the previous financial periods, details of which |
| | are set out in notes 7 and 8 below; and |
+----+-------------------------------------------------------------------+
| - | the results of the impairment testing of goodwill and intangibles |
| | as at 31 March 2008 and the identification of impairment charges |
| | for prior periods, details of which are set out in notes 7 and 8 |
| | below. |
+----+-------------------------------------------------------------------+
Balance sheet
Net assets at 31 March 2009 were GBP26.0m (2008 restated: GBP18.9m).
Summary of financial key performance indicators for the group
+------------------------------------+------------------+------------------+
| Restated |
+--------------------------------------------------------------------------+
| 12 months ended | 18 months ended |
+-------------------------------------------------------+------------------+
| 31 March 2009 | 31 March 2008 |
+-------------------------------------------------------+------------------+
| GBPm | GBPm |
+-------------------------------------------------------+------------------+
| Turnover | 28.9 | 26.1 |
+------------------------------------+------------------+------------------+
| Loss before tax | 1.4 | 1.2 |
+------------------------------------+------------------+------------------+
| Net cash flow from operations | (0.2) | 2.1 |
+------------------------------------+------------------+------------------+
Cash flow and borrowings
In March 2008 the group entered into a new GBP4m five-year term loan with Royal
Bank of Scotland which was used to fund the ManGuard acquisition. During the
year this loan was restructured and repaid faster than expected. As at 31 March
2009 the loan stood at GBP1.1m. The group also operates an invoice finance
working capital facility through RBS. With the acquisition of Legion, the group
now has an additional banking relationship with Lloyds TSB.
The Legion deal and the acquisition of contracts from CS Group Ltd will increase
demand for working capital as our business grows. Our largest single cost is
staff and often with growth in contract revenues, cash terms given to clients in
a competitive market will exceed the number of days in the payroll cycle
creating demand for cash to fund profitable business. However the strength of
our debtor book and the certainty from long-term contract revenues creates a
valuable asset base on which to secure additional funding. The board is in
discussion with a number of banks to obtain loan facilities for the enlarged
group which recognise the growth achieved and the benefits which can be realised
from the integration of acquisitions and cost savings. We anticipate of a
positive outcome from these discussions.
Share option charges
The group has an objective to issue share options to all full-time permanent
employees with the aim of rewarding all staff equally for their loyalty to the
business. In accordance with IFRS 2 "Share Based Payments", share options are
measured at fair value at the date of grant and expensed on a straight-line
basis over the vesting period.
Risks and uncertainties
The board has considered the financial and operating risks to the group and
taken appropriate steps to mitigate these risks. Details are given in the
directors' report.
Our financial key performance indicators
The board and our management team regularly review a series of performance
indicators. The directors consider the key financial performance indicators of
the group to be turnover, profit and cash flow.
Mark Higgins
Chief executive
30 September 2009
Consolidated income statement
for the year ended 31 March 2009
+--------------------------------------+------+--------------+--------------+
| Restated |
+---------------------------------------------------------------------------+
| 12 months | 18 months |
+------------------------------------------------------------+--------------+
| ended | ended |
+------------------------------------------------------------+--------------+
| 31 March 2009 | 31 March |
| | 2008 |
+------------------------------------------------------------+--------------+
| Note | GBP | GBP |
+---------------------------------------------+--------------+--------------+
| Revenue | 5 | 28,898,429 | 26,094,494 |
+--------------------------------------+------+--------------+--------------+
| Cost of sales | (24,845,616) | (21,371,791) |
+---------------------------------------------+--------------+--------------+
| Gross profit | 4,052,813 | 4,722,703 |
+---------------------------------------------+--------------+--------------+
| Operating expenses (including exceptional | (4,764,661) | (5,704,862) |
| items) | | |
+---------------------------------------------+--------------+--------------+
| Operating loss | 3 | (711,848) | (982,159) |
+--------------------------------------+------+--------------+--------------+
| Operating profit before depreciation, amortisation, |
+---------------------------------------------------------------------------+
| goodwill impairment and exceptional items | 281,797 | 763,261 |
+---------------------------------------------+--------------+--------------+
| Depreciation | (179,954) | (367,101) |
+---------------------------------------------+--------------+--------------+
| Amortisation | (408,953) | (39,870) |
+---------------------------------------------+--------------+--------------+
| Goodwill impairment | - | (989,699) |
+---------------------------------------------+--------------+--------------+
| Exceptional items | (404,738) | (348,750) |
+---------------------------------------------+--------------+--------------+
| | 3 | (711,848) | (982,159) |
+--------------------------------------+------+--------------+--------------+
| Finance income | 8 | 2,787 | 6,012 |
+--------------------------------------+------+--------------+--------------+
| Finance costs | 9 | (651,121) | (271,703) |
+--------------------------------------+------+--------------+--------------+
| Loss before tax | | (1,360,182) | (1,247,850) |
+--------------------------------------+------+--------------+--------------+
| Taxation | 10 | 356,408 | 536,586 |
+--------------------------------------+------+--------------+--------------+
| Loss for the period | | (1,003,774) | (711,264) |
+--------------------------------------+------+--------------+--------------+
| Loss per share for loss attributable to the equity holders |
+---------------------------------------------------------------------------+
| of the group during the period (pence) - see note 11 in the full |
| accounts: |
+---------------------------------------------------------------------------+
| - basic | (0.25) | (0.27) |
+---------------------------------------------+--------------+--------------+
| - diluted | (0.25) | (0.27) |
+--------------------------------------+------+--------------+--------------+
The notes on pages 34 to 63 of the full accounts form an integral part of these
financial statements.
All activities were in respect of continuing operations.
The group has decided to take the exemption under section 230 of the Companies
Act 1985 not to present the parent company income statement.
The loss attributable to the parent company for the period was GBP794,767 (2008:
loss of GBP761,770 after restatement).
Consolidated balance sheet
at 31 March 2009
+--------------------------------------+------+--------------+-------------+
| | Restated |
+------------------------------------------------------------+-------------+
| As at | As at |
+------------------------------------------------------------+-------------+
| 31 March 2009 | 31 March |
| | 2008 |
+------------------------------------------------------------+-------------+
| Note | GBP | GBP |
+---------------------------------------------+--------------+-------------+
| Non-current assets |
+--------------------------------------------------------------------------+
| Intangible assets | 15 | 14,731,545 | 10,686,739 |
+--------------------------------------+------+--------------+-------------+
| Property, plant and equipment | 16 | 843,589 | 679,706 |
+--------------------------------------+------+--------------+-------------+
| 15,575,134 | 11,366,445 |
+------------------------------------------------------------+-------------+
| Current assets |
+--------------------------------------------------------------------------+
| Inventories | 17 | 123,191 | 151,941 |
+--------------------------------------+------+--------------+-------------+
| Trade and other receivables | 18 | 9,337,085 | 7,208,500 |
+--------------------------------------+------+--------------+-------------+
| Current tax recoverable | - | 91,068 |
+---------------------------------------------+--------------+-------------+
| Cash and cash equivalents | 19 | 988,263 | 79,768 |
+--------------------------------------+------+--------------+-------------+
| 10,448,539 | 7,531,277 |
+------------------------------------------------------------+-------------+
| Total assets | 26,023,673 | 18,897,722 |
+---------------------------------------------+--------------+-------------+
| Current liabilities |
+--------------------------------------------------------------------------+
| Trade and other payables | 20 | 10,493,677 | 6,672,014 |
+--------------------------------------+------+--------------+-------------+
| Current tax liabilities | 13,373 | - |
+---------------------------------------------+--------------+-------------+
| Loans and overdrafts | 21 | 3,503,464 | 1,984,119 |
+--------------------------------------+------+--------------+-------------+
| Obligations under finance leases | 24 | 55,995 | 90,243 |
+--------------------------------------+------+--------------+-------------+
| Provisions | 23 | 1,117,658 | 180,000 |
+--------------------------------------+------+--------------+-------------+
| 15,184,167 | 8,926,376 |
+------------------------------------------------------------+-------------+
| Non-current liabilities |
+--------------------------------------------------------------------------+
| Loans and overdrafts | 21 | 2,375,669 | 3,152,000 |
+--------------------------------------+------+--------------+-------------+
| Deferred tax liabilities | 22 | 1,401,243 | 543,974 |
+--------------------------------------+------+--------------+-------------+
| Obligations under finance leases | 24 | 7,676 | 57,110 |
+--------------------------------------+------+--------------+-------------+
| Provisions | 23 | 1,956,981 | 2,799,027 |
+--------------------------------------+------+--------------+-------------+
| 5,741,569 | 6,552,111 |
+------------------------------------------------------------+-------------+
| Total liabilities | 20,925,736 | 15,478,487 |
+---------------------------------------------+--------------+-------------+
| |
+--------------------------------------------------------------------------+
| Equity | | | |
+--------------------------------------+------+--------------+-------------+
| Share capital | 25 | 2,968,881 | 1,779,254 |
+--------------------------------------+------+--------------+-------------+
| Share premium account | 6,338,441 | 4,787,277 |
+---------------------------------------------+--------------+-------------+
| Share-based payment reserve | 98,604 | 156,920 |
+---------------------------------------------+--------------+-------------+
| Merger reserve | 1,274,000 | 1,274,000 |
+---------------------------------------------+--------------+-------------+
| Own shares in employee trust | (292,963) | (292,963) |
+---------------------------------------------+--------------+-------------+
| Retained earnings | (5,289,027) | (4,285,253) |
+---------------------------------------------+--------------+-------------+
| Total equity | 5,097,936 | 3,419,235 |
+---------------------------------------------+--------------+-------------+
| Total liabilities and equity | 26,023,673 | 18,897,722 |
+--------------------------------------+------+--------------+-------------+
The notes on pages 34 to 63 of the full accounts form an integral part of these
financial statements.
The accounts were approved by the board of directors on 30 September 2009 and
were signed on its behalf by:
Mark Higgins
Chief executive
Consolidated statement of changes in equity
for the period ended 31 March 2009
+-------------------+-----------+-----------+-------------+---------+--------+-----------+-------------+-------------+
| Share | Share-based | | Own shares |
+-------------------------------------------+-------------+---------+--------------------+
| Share | premium | payment | Merger | in | Retained | Total |
| | | | | employee | | |
+-------------------------------+-----------+-------------+------------------+-----------+-------------+-------------+
| capital | account | reserve | reserve | trust | earnings | restated |
+-------------------------------+-----------+-------------+------------------+-----------+-------------+-------------+
| GBP | GBP | GBP | GBP | GBP | GBP | GBP |
+-------------------------------+-----------+-------------+------------------+-----------+-------------+-------------+
| At 1 October 2006 |
+--------------------------------------------------------------------------------------------------------------------+
| as originally | 1,547,726 | 4,756,463 | 67,054 | 332,732 | (201,438) | 2,759,255 | 9,261,792 |
| stated | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Restatement of retained |
+--------------------------------------------------------------------------------------------------------------------+
| earnings (note | - | - | - | - | - | (5,996,844) | (5,996,844) |
| 33) | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| At 1 October 2006 |
+--------------------------------------------------------------------------------------------------------------------+
| after restatement | 1,547,726 | 4,756,463 | 67,054 | 332,732 | (201,438) | (3,237,589) | 3,264,948 |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Loss for the | - | - | - | - | - | (711,264) | (711,264) |
| period restated | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Proceeds from | 231,528 | 39,119 | - | 941,268 | - | - | 1,211,915 |
| shares issued | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Costs associated with |
+--------------------------------------------------------------------------------------------------------------------+
| share options | - | (8,305) | - | - | - | - | (8,305) |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Shares based | - | - | 89,866 | - | - | - | 89,866 |
| payment | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Shares acquired | - | - | - | - | (91,525) | - | (91,525) |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Dividends paid | - | - | - | - | - | (336,400) | (336,400) |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| At 31 March 2008 |
+--------------------------------------------------------------------------------------------------------------------+
| after restatement | 1,779,254 | 4,787,277 | 156,920 | 1,274,000 | (292,963) | (4,285,253) | 3,419,235 |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Loss for the year | - | - | - | - | - | (1,003,774) | (1,003,774) |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Proceeds from | 1,189,627 | 1,589,627 | - | - | - | - | 2,779,254 |
| shares issued | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Costs associated | - | (38,463) | - | - | - | - | (38,463) |
| with share issue | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| Share-based | - | - | (58,316) | - | - | - | (58,316) |
| payment | | | | | | | |
+-------------------+-----------+-----------+-------------+------------------+-----------+-------------+-------------+
| At 31 March 2009 | 2,968,881 | 6,338,441 | 98,604 | 1,274,000 | (292,963) | (5,289,027) | 5,097,936 |
+-------------------+-----------+-----------+-------------+---------+--------+-----------+-------------+-------------+
Consolidated cash flow statement
for the period ended 31 March 2009
+--------------------------------------+------+--------------+-------------+
| Restated |
+--------------------------------------------------------------------------+
| 12 months | 18 months |
+------------------------------------------------------------+-------------+
| ended | ended |
+------------------------------------------------------------+-------------+
| 31 March 2009 | 31 March |
| | 2008 |
+------------------------------------------------------------+-------------+
| Note | GBP | GBP |
+---------------------------------------------+--------------+-------------+
| Operating activities |
+--------------------------------------------------------------------------+
| Cash (outflow)/inflow from | 27 | (311,780) | 2,321,672 |
| operations | | | |
+--------------------------------------+------+--------------+-------------+
| Taxation received/(paid) | 104,441 | (267,763) |
+---------------------------------------------+--------------+-------------+
| Net cash (outflow)/inflow from operating | (207,339) | 2,053,909 |
| activities | | |
+---------------------------------------------+--------------+-------------+
| Investing activities |
+--------------------------------------------------------------------------+
| Acquisition of businesses | - | (1,167,283) |
+---------------------------------------------+--------------+-------------+
| Acquisition of subsidiaries net of cash | 721,774 | (4,156,382) |
| acquired | | |
+---------------------------------------------+--------------+-------------+
| Payments to acquire tangible fixed assets | (33,204) | (269,560) |
+---------------------------------------------+--------------+-------------+
| Proceeds from disposal of tangible fixed | 121,590 | 17,969 |
| assets | | |
+---------------------------------------------+--------------+-------------+
| Net cash inflow/(outflow) from investing | 810,160 | (5,575,256) |
| activities | | |
+---------------------------------------------+--------------+-------------+
| Financing activities |
+--------------------------------------------------------------------------+
| Interest received | 2,787 | 6,012 |
+---------------------------------------------+--------------+-------------+
| Interest paid | (545,360) | (262,096) |
+---------------------------------------------+--------------+-------------+
| Interest element of finance leases | (4,257) | (9,607) |
+---------------------------------------------+--------------+-------------+
| Equity dividends paid | - | (336,400) |
+---------------------------------------------+--------------+-------------+
| Issue of equity share capital | 2,740,791 | 42,095 |
+---------------------------------------------+--------------+-------------+
| Purchase of own equity shares | - | (91,525) |
+---------------------------------------------+--------------+-------------+
| Repayment of bank loans and overdrafts | (1,804,605) | (1,507,020) |
+---------------------------------------------+--------------+-------------+
| New bank loans | - | 5,600,000 |
+---------------------------------------------+--------------+-------------+
| Repayment of capital element of finance | (83,682) | (143,389) |
| leases | | |
+---------------------------------------------+--------------+-------------+
| Net cash inflow from financing activities | 305,674 | 3,298,070 |
+---------------------------------------------+--------------+-------------+
| Increase/(decrease) in cash and cash | 908,495 | (223,277) |
| equivalents | | |
+---------------------------------------------+--------------+-------------+
| Cash and cash equivalents at beginning of | 79,768 | 303,045 |
| period | | |
+---------------------------------------------+--------------+-------------+
| Cash and cash equivalents at end of period | 988,263 | 79,768 |
+---------------------------------------------+--------------+-------------+
| Cash and cash equivalents at the end of the period comprise: |
+--------------------------------------------------------------------------+
| Cash at bank | 19 | 988,263 | 79,768 |
+--------------------------------------+------+--------------+-------------+
Notes to the Financial Statements
1. Significant accounting policies
The financial statements of Legion Group plc for the year ended 31 March 2009
were authorised for issue by the board of directors on 30 September 2009 and the
balance sheet was signed on behalf of the board by Mark Higgins. The group
provides total security solutions encompassing the supply of security personnel,
car parking, facilities management and the supply, installation and maintenance
of electronic security systems.
Legion Group plc is a public limited company incorporated and domiciled in the
United Kingdom under the Companies Act 1985 with a listing on the London Stock
Exchange, trading on AIM. Its registered office is at Hanover House, Queensgate,
Britannia Road, Waltham Cross, Hertfordshire EN8 7TF.
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the periods presented.
Both the consolidated financial statements and the separate financial statements
of the company have been prepared in accordance with the accounting policies set
out below.
Basis of preparation
The financial statements have been prepared under the historical cost convention
in accordance with IFRS as adopted for use in the EU applied in accordance with
the provisions of the Companies Act 1985.
The preparation of financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the accounting policies of the
group. The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial
statements, are disclosed in note 2.
The financial statements have been prepared on a going concern basis of
preparation.
The reasons for this are:
+---+--------------------------------------------------------------------+
| - | the directors expect that the business will achieve profitability |
| | and positive operating cash flow during 2009/10; |
+---+--------------------------------------------------------------------+
| - | the directors have begun to implement a major re-structuring plan |
| | to reduce costs in the group. The board will continue to evaluate |
| | further cost saving measures to improve revenues and cash |
| | generation; |
+---+--------------------------------------------------------------------+
| - | the directors are currently in the advanced stages of negotiating |
| | a refinancing agreement for the group; and |
+---+--------------------------------------------------------------------+
| - | the directors have identified a series of mitigating actions that |
| | the board can take if cash generation does not reach the expected |
| | level. |
+---+--------------------------------------------------------------------+
The directors have prepared a cash flow forecast based upon the group's approved
budgets through to March 2011 and have considered the current levels of
committed funding which are necessary to support the group's working capital
requirements for at least the next twelve months from the date of approving
these financial statements.
The group is currently funded by two invoice discounting facilities with Royal
Bank of Scotland ("RBS") and Lloyds TSB, as described further in note 21, which
are both cancellable on six months notice from the respective banks. The group
also has a term loan from RBS which presently stands at GBP1,000,000 and is
being repaid in quarterly instalments by September 2010 (see details in note
21). In addition the group also has loans outstanding from its Chief Executive,
Mark Higgins amounting to GBP2,000,000 which are not expected to be repaid until
the group has sufficient funds to do so (see details in note 21).
The directors are seeking to expand the business and also to place it on a
sounder financial footing than was previously the case. This also includes
repaying approximately GBP3.7m of VAT and PAYE tax which are overdue and are
expected to be settled in monthly installments by September 2010 in line with a
repayment schedule agreed with Her Majesty's Revenue and Customs. The group
currently has an offer from one of its lenders to provide an invoice discounting
facility of up to GBP10m, dependant upon the level of qualifying receivables.
This offer is subject to certain conditions, which the group is able to fulfill
if finally approved by the lender. Careful cash management remains a priority
for the group. The directors also believe that they are able to raise finance
from a number of sources in order to fund the financial requirements of a
growing business undergoing a period of integration.
On this basis the directors have concluded that it is appropriate to prepare the
accounts on the going concern basis.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the company and all entities controlled by the company (its subsidiaries)
prepared up to the accounting period end. Control is achieved where the company
has the power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring accounting policies used into line with those used by the
group.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquiree's
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 "Business Combinations" are recognised
at their fair value at the acquisition date.
The cost of the acquisition is shown as an investment in the company's separate
financial statements. Where a business combination agreement provides for
deferred consideration, the amount of this consideration is included in the cost
of the acquisition to the extent it is expected to become payable. Deferred
consideration is discounted to its present value based on the projected cost of
meeting the obligation as it falls due.
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
group's interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised.
Goodwill
Goodwill arises on the acquisition of business assets and subsidiary
undertakings and represents the excess of the fair value of consideration over
the fair value of identifiable net assets acquired. Goodwill is included in
"intangible assets"; it is tested annually for impairment and carried at cost
less accumulated impairment losses.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of
impairment testing. The allocation is made to those CGUs or groups of CGUs that
are expected to benefit from the business combination in which the goodwill
arose. Any impairment is recognised immediately in the consolidated income
statement and is not subsequently reversed. On disposal of a CGU, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Other intangible assets
Other intangible assets are stated at cost less provisions for amortisation and
impairments. Customer lists separately acquired or acquired as part of a
business combination are amortised over their estimated useful lives, using the
straight-line basis, from the time they are available for use. The estimated
useful life for determining the amortisation charge is ten years and is reviewed
annually.
Impairment
The group reviews the carrying amounts of its tangible and intangible assets
annually to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the group estimates the recoverable amount of the
CGU to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its
carrying amount, the carrying amount of the asset (or CGU) is reduced to its
recoverable amount. An impairment loss is recognised as an expense immediately.
Goodwill is tested annually for impairment irrespective of whether there is any
indication that an impairment may exist.
Revenue
Revenue comprises the fair value of the consideration receivable for the sale of
goods and services in the ordinary course of the group's activities. Revenue is
shown net of value added tax and early settlement discounts.
The group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits will flow to the group
and when specific criteria have been met for each of the group's activities as
described below.
Manned guarding and mobile patrol
Revenue represents the amount earned during the period for the provision of
security calculated on an hourly basis.
Supply and installation of electronic security systems and consumables
Revenue represents the amount earned during the period from supplying and
installing electronic security systems and consumables. Revenue is recognised
once equipment is supplied and installed to clients' premises.
Electronic security systems maintenance agreements and keyholding and alarm
response services
Revenue represents a non-refundable annual fixed fee charged to the group's
clients during the period for the provision of services and is recognised in the
income statement over the term of the contract. Revenue also includes the
amounts earned on call-out charges during the period arising when the group is
required to attend the client's premises, and is invoiced and recognised when
the engineer visits the site.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products and services that are subject to risks and returns different from those
of other business segments. A geographical segment is engaged in providing
products and services within a particular economic environment that are subject
to risks and returns different from those of other segments operating in other
economic environments.
The group manages its operations on a business segment basis and this is the
basis on which it reports its primary segment information.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation and less
impairment.
Depreciation is calculated so as to write off the cost of an asset, less its
estimated residual value, over the useful economic life of that asset as
follows:
+------------------------------------+------------------------------------+
| Leasehold improvements | Over the lease period |
+------------------------------------+------------------------------------+
| Fixtures and fittings | 20% straight-line |
+------------------------------------+------------------------------------+
| Motor vehicles | 25% straight-line |
+------------------------------------+------------------------------------+
| Equipment | 20% straight-line |
+------------------------------------+------------------------------------+
Exceptional items
Exceptional items are those significant credits or charges which, in the opinion
of the directors, should be separately disclosed by virtue of their size or
incidence to enable a full understanding of the group's financial performance.
Inventories and work in progress
Inventories are stated at the lower of cost and net realisable value. Cost
comprises the purchase price and is determined using the first-in, first-out
basis. Due allowance is made for obsolete and slow-moving items.
Work in progress is valued at cost, which includes outlays incurred on behalf of
clients and an appropriate proportion of directly attributable costs and
overheads on incomplete contracts.
Provision is made for irrecoverable costs where appropriate.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost. Appropriate allowances for estimated irrecoverable
amounts are recognised in the income statement when there is objective evidence
that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash-in hand and call deposits.
Invoice financing policy
The group operates invoice finance facilities in each of its two main trading
entities, Legion Group plc and Legion FM Limited with two separate banks. Cash
is available for drawdown on approved invoices when invoices are issued at up to
85% of the invoice value. The balance of the invoice is available when the
invoice is paid by the client, less the bank's interest and charges.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost.
Finance lease agreements
Where the group enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as an item of property, plant
and equipment and is depreciated in accordance with the above depreciation
policies. Future instalments under such leases, net of finance charges, are
included within creditors. Rentals payable are apportioned between the finance
element, which is charged to the consolidated income statement on a
straight-line basis, and the capital element which reduces the outstanding
obligation for future instalments.
Operating lease agreements
Rentals applicable to operating leases where substantially all of the benefits
and risks of ownership remain with the lessor are charged against profits on a
straight-line basis over the period of the lease.
Pension costs
Contributions to defined contribution schemes are charged to the income
statement as they become payable in accordance with the rules of the scheme.
Borrowing costs
Borrowing costs are recognised in the income statement in the period in which
they are incurred.
Taxation
The tax expense represents the sum of the current tax payable and deferred tax.
Deferred taxation is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Deferred tax assets are recognised
to the extent that it is probable that future taxable profits will be available
against which the temporary differences can be utilised.
Deferred tax is measured at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised, based upon tax
rates and legislation that have been enacted or substantively enacted at the
balance sheet date.
The charge for current tax is based on the results for the period, adjusted for
items which are non-assessable or disallowed, and for prior period over or under
provisions, at the tax rate applicable for those periods.
Provisions
Provisions are recognised when the group has a legal or contractual obligation
as a result of past events, it is more likely than not that an outflow of
resources will be required to settle the obligation and the amount has been
reliably estimated. If the effect of the time value of money is material,
provisions are determined by discounting the future cash flows at a pre-tax rate
that reflects market assessments of the time value of money. When discounting is
used the increase in the provisions due to the passage of time is recognised as
a borrowing cost.
Equity instruments
Equity instruments issued by the company are recorded at the proceeds received,
net of direct issue costs.
Share option schemes
The group issues share options to all full-time permanent employees with the aim
of rewarding all staff equally for their loyalty to the group. Share options are
measured at fair value at the date of grant. The fair value is expensed on a
straight-line basis over the vesting period, which is usually three years.
Options are forfeited if the employee leaves before the option vests. The
expected life used in the models has been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations. Where relevant, the value of the option has also
been adjusted to take account of market conditions applicable to the option.
Employee share ownership trust
The group controls an Employee Share Ownership Trust. The assets and liabilities
of the trust are included in the consolidated financial statements and the costs
of the group's own shares held by the trust are presented as a deduction from
equity.
New standards and interpretations not applied
During the period and up to the date of signature of these financial statements,
the International Accounting Standards Board (IASB) has issued the following
standards and interpretations with an effective date after the date of these
financial statements:
+---------------------------------------------------------+--------------+
| Amendments to standards | Effective |
| | from |
+---------------------------------------------------------+--------------+
| IAS 1 (Amendment) "Presentation of Financial | 1 January |
| Statements" | 2009 |
+---------------------------------------------------------+--------------+
| IAS 23 (Amendment) "Borrowing Costs" | 1 January |
| | 2009 |
+---------------------------------------------------------+--------------+
| IAS 27 (Amendment) "Consolidated and Separate Financial | 1 July 2009 |
| Statements" | |
+---------------------------------------------------------+--------------+
| IAS 32 (Amendment) "Financial Instruments - | 1 January |
| Presentation" | 2009 |
+---------------------------------------------------------+--------------+
| IFRS 1 and IAS27 (Amendment) "Cost of an Investment in a Subsidiary, |
+------------------------------------------------------------------------+
| Jointly Controlled Entity or Associate" | 1 January |
| | 2009 |
+---------------------------------------------------------+--------------+
| IFRS 3 (Amendment) "Business Combinations" | 1 July 2009 |
+---------------------------------------------------------+--------------+
| IFRS 7 (Amendment) "Financial Instrument Disclosures" | 1 July 2008 |
+---------------------------------------------------------+--------------+
| IFRS 8 "Operating Segments" | 1 January |
| | 2009 |
+---------------------------------------------------------+--------------+
| IFRIC 13 "Customer Loyalty Programmes" | 1 July 2008 |
+---------------------------------------------------------+--------------+
| IFRIC 14 "The Limit on a Defined Benefit Asset, Minimum Funding |
+------------------------------------------------------------------------+
| Requirements and their Interaction" | 1 January |
| | 2008 |
+---------------------------------------------------------+--------------+
| IFRIC 15 "Agreements for the Construction of Real | 1 January |
| Estate" | 2009 |
+---------------------------------------------------------+--------------+
| IFRIC 16 "Hedges of a Net Investment in a Foreign | 1 October |
| Operation" | 2008 |
+---------------------------------------------------------+--------------+
| IFRIC 17 "Distributions of Non-cash Assets to Owners" | 1 July 2010 |
+---------------------------------------------------------+--------------+
| IFRIC 18 "Transfer of Assets from Customers" | 1 January |
| | 2010 |
+---------------------------------------------------------+--------------+
"Improvements to IFRS" was issued in May 2008 and its requirements are effective
over a range of dates, with the earliest effective date being for annual periods
beginning on or after 1 January 2009. This comprises a number of amendments to
IFRS, which resulted from the IASB's annual improvements project. The group is
currently assessing the impact and expected timing of adoption of these
amendments on the group's results and financial position.
The amendment to IFRS 3 will apply to business combinations occurring on or
after 1 April 2010. The revised standard introduces a number of changes in the
accounting for business combinations that will impact the amount of goodwill
recognised, the reported results in the period that a business acquisition
occurs and future reported results. Under IFRS 3, transaction costs of a
business acquisition are not included in the cost of the acquisition, but
expensed to the consolidated income statement in the period incurred. Assets and
liabilities arising from business combinations before 1 April 2010 will not be
restated and thus there will be no effect on the group's results or financial
position on adoption. However, this standard is likely to have a significant
impact on the accounting for business acquisitions post-adoption.
Certain of the other standards and interpretations may, when adopted, require
addition to or amendment of disclosures in the financial statements.
2. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. The group makes estimates and
assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results.
Goodwill impairment
The estimate with the most significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year is
in respect of the testing for impairment of goodwill. The calculation of any
impairment loss requires an estimate of the value in use of the CGUs to which
goodwill has been allocated. This involves a forecast of the future cash flows
of the CGU and the selection of appropriate discount rates in order to ascertain
present values. A significant element of judgement is needed.
The cash flow projections are based on financial plans approved by senior
management covering a five-year period. Cash flows for the following five years
are extrapolated based on an estimated growth rate of 5% to 10% for the first
five years and at 2.25% for the following five years. This rate does not exceed
the average long-term growth rate for the UK. Management estimates discount
rates using post-tax rates that reflect current market assessments of the time
value of money and the risks specific to the CGUs.
For the period ended 31 March 2009, the group has carried out a review of
goodwill and intangible assets. An impairment charge of GBP6,558,457 has been
made in relation to goodwill recognised on acquisitions prior to 1 April 2008
which has been recorded as a restatement of the prior years financial statements
because management believe that based upon the evidence available, the
impairment should have been recorded in the earlier periods. (See notes 33 and
34 to the full accounts)
The carrying value of goodwill at the balance sheet date is GBP6,419,551 (2008:
GBP6,300,359) and for the company GBPnil (2008: GBPnil).
Deferred consideration
The group has recognised a provision for deferred consideration for the
acquisition of ManGuard Limited and GBP1,000,000 of this was discharged by issue
of GBP1,000,000 convertible loan notes (see note 21). The remaining
consideration will become payable if the revenue and profits of ManGuard Limited
exceed given levels over the next year. The directors are of the opinion that
this will become payable in full. The carrying value of the provision in
relation to the acquisition of ManGuard Limited at the balance sheet date is
GBP1,900,531 (2008: GBP2,799,027 for ManGuard Limited).
Following the acquisition of Legion FM Limited, the group has recognised
deferred consideration at a cash flow discounted value of GBP633,378 (2008:
GBPnil).
Useful life of other intangible assets
Other intangible assets consist of customer lists. The estimation of the useful
life of these assets involves judgement which effects the annual amortisation
charge and the carrying value of these assets. The directors are of the opinion
that the useful life of these assets approximates to ten years. The cost of
customer lists at the balance sheet date for the group is GBP8,765,098 (2008:
GBP4,430,531) and the accumulated amortisation is GBP453,104 (2008: GBP165,951).
The costs of customer lists at the balance sheet date of the company is
GBP1,559,000 (2008: GBP1,559,000) and the amortisation charge is GBP165,951
(2008: GBP44,151).
3. Segmental information
Primary reporting format - business segments
The group is organised into two main business segments: security personnel and
electronic security systems.
The segment results for the year ended 31 March 2009 were as follows:
+-------------------------------------+------------+-----------+------------+-------------+
| Electronic |
+---------------------------------------------------------------------------+
| Security | security |
+--------------------------------------------------------------+------------+
| personnel | systems | Group |
+--------------------------------------------------------------+------------+-------------+
| GBP | GBP | GBP |
+--------------------------------------------------------------+------------+-------------+
| Revenue | 27,237,787 | 1,660,642 | 28,898,429 |
+-------------------------------------+------------------------+------------+-------------+
| Result |
+-----------------------------------------------------------------------------------------+
| Operating profit/(loss) before depreciation, |
+-----------------------------------------------------------------------------------------+
| amortisation and exceptional items | 341,727 | (59,930) | 281,797 |
+--------------------------------------------------+-----------+------------+-------------+
| Operating loss | (371,464) | (340,384) | (711,848) |
+--------------------------------------------------+-----------+------------+-------------+
| Finance income | 2,787 | - | 2,787 |
+--------------------------------------------------+-----------+------------+-------------+
| Finance costs | (623,687) | (27,434) | (651,121) |
+--------------------------------------------------+-----------+------------+-------------+
| Loss before tax | (992,364) | (367,818) | (1,360,182) |
+--------------------------------------------------+-----------+------------+-------------+
| Taxation | 356,408 |
+---------------------------------------------------------------------------+-------------+
| Loss for the period | 1,003,774 |
+-------------------------------------+------------+-----------+------------+-------------+
The restated segment results for the 18 month period ended 31 March 2008 were as
follows:
+---------------------------+----------+-----------+-----------+-------------+-------------+
| Electronic |
+--------------------------------------------------------------+
| Security | security |
+--------------------------------------------------+-----------+
| personnel | systems | Unallocated | Group |
+--------------------------------------------------+-----------+-------------+-------------+
| GBP | GBP | GBP | GBP |
+--------------------------------------------------+-----------+-------------+-------------+
| Revenue | 22,140,440 | 3,954,054 | - | 26,094,494 |
+---------------------------+----------------------+-----------+-------------+-------------+
| Result |
+------------------------------------------------------------------------------------------+
| Operating profit before depreciation, |
+------------------------------------------------------------------------------------------+
| amortisation and exceptional items | 645,187 | 118,074 | - | 763,261 |
+--------------------------------------+-----------+-----------+-------------+-------------+
| Operating loss | (20,888) | (961,271) | - | (982,159) |
+--------------------------------------+-----------+-----------+-------------+-------------+
| Finance income | 5,126 | 886 | - | 6,012 |
+--------------------------------------+-----------+-----------+-------------+-------------+
| Finance costs | (234,408) | (37,295) | - | (271,703) |
+--------------------------------------+-----------+-----------+-------------+-------------+
| Loss before tax | (250,170) | (997,680) | - | (1,247,850) |
+--------------------------------------+-----------+-----------+-------------+-------------+
| Taxation | 536,586 |
+----------------------------------------------------------------------------+-------------+
| Loss for the period | (711,264) |
+---------------------------+----------+-----------+-----------+-------------+-------------+
The segment assets and liabilities at 31 March 2009 and capital expenditure,
depreciation and amortisation for the year then ended are as follows:
+--------------------------------------+------------+-----------+------------+
| Electronic |
+---------------------------------------------------------------+
| Security | security |
+---------------------------------------------------+-----------+
| personnel | systems | Group |
+---------------------------------------------------+-----------+------------+
| GBP | GBP | GBP |
+---------------------------------------------------+-----------+------------+
| Segment assets | 23,423,099 | 2,600,574 | 26,023,673 |
+--------------------------------------+------------+-----------+------------+
| Segment liabilities | 20,273,268 | 652,468 | 20,925,736 |
+--------------------------------------+------------+-----------+------------+
| Segment capital expenditure | 1,231,027 | - | 1,231,027 |
+--------------------------------------+------------+-----------+------------+
| Segment depreciation and | 428,363 | 160,544 | 588,907 |
| amortisation | | | |
+--------------------------------------+------------+-----------+------------+
| Segmental goodwill impairment | - | - | - |
+--------------------------------------+------------+-----------+------------+
The restated segment assets and liabilities at 31 March 2008 and capital
expenditure, depreciation and amortisation for the period then ended are as
follows:
+--------------------------------------+------------+------------+------------+
| Electronic |
+----------------------------------------------------------------+
| Security | security |
+---------------------------------------------------+------------+
| personnel | systems | Group |
+---------------------------------------------------+------------+------------+
| GBP | GBP | GBP |
+---------------------------------------------------+------------+------------+
| Segment assets | 16,125,738 | 2,771,984 | 18,897,722 |
+--------------------------------------+------------+------------+------------+
| Segment liabilities | 14,118,382 | 1,360,105 | 15,478,487 |
+--------------------------------------+------------+------------+------------+
| Segment capital expenditure | 5,436,300 | 1,281,175 | 6,717,475 |
+--------------------------------------+------------+------------+------------+
| Segment depreciation and | 317,325 | 89,646 | 406,971 |
| amortisation | | | |
+--------------------------------------+------------+------------+------------+
| Segment goodwill impairment | - | 989,699 | 989,699 |
+--------------------------------------+------------+------------+------------+
Secondary reporting format - geographical segments
The group operates only in the UK and therefore has only one geographical
segment.
4. Loss per share
The basic loss per ordinary share is calculated by dividing loss for the period
by the weighted average number of shares outstanding during the period.
The diluted loss per ordinary share (LPS) is calculated by dividing loss for the
period by the weighted average number of shares outstanding during the period
after adjusting both figures for the effect of dilutive potential ordinary
shares.
+--------------------------------------------+--------------+-------------+
| | Restated |
+-----------------------------------------------------------+-------------+
| 12 months | 18 months |
+-----------------------------------------------------------+-------------+
| ended | ended |
+-----------------------------------------------------------+-------------+
| 31 March 2009 | 31 March |
| | 2008 |
+-----------------------------------------------------------+-------------+
| Number | Number |
+-----------------------------------------------------------+-------------+
| Weighted average number of ordinary shares for the |
+-------------------------------------------------------------------------+
| purpose of basic LPS | 402,006,482 | 309,650,945 |
+--------------------------------------------+--------------+-------------+
| Effect of dilutive potential ordinary shares: |
+-------------------------------------------------------------------------+
| Share options | 598,436 | 598,436 |
+--------------------------------------------+--------------+-------------+
| Weighted average number of ordinary shares for the |
+-------------------------------------------------------------------------+
| purpose of diluted LPS | 402,604,918 | 310,249,381 |
+--------------------------------------------+--------------+-------------+
| Basic LPS |
+-------------------------------------------------------------------------+
| Loss after taxation (GBP) | (1,003,774) | (711,264) |
+--------------------------------------------+--------------+-------------+
| Loss per share (pence) | (0.25) | (0.27) |
+--------------------------------------------+--------------+-------------+
| Diluted LPS |
+-------------------------------------------------------------------------+
| Loss after taxation (GBP) | (1,003,774) | (711,264) |
+--------------------------------------------+--------------+-------------+
| Loss per share (pence) | (0.25) | (0.27) |
+--------------------------------------------+--------------+-------------+
5. Acquisitions
The group acquired the entire share capital of Legion FM Limited (formerly
Legion Group plc), a company operating in the manned guarding and parking
facilities sectors, on 20 March 2009 at a cost of GBP833,763. The consideration
was made up as follows:
+-------------------------------------------------------------+----------+
| GBP |
+------------------------------------------------------------------------+
| Cash | 1 |
+-------------------------------------------------------------+----------+
| Deferred consideration | 633,378 |
+-------------------------------------------------------------+----------+
| Costs directly attributable to the acquisition | 200,384 |
+-------------------------------------------------------------+----------+
| Total consideration for acquisition of Legion FM Limited | 833,763 |
+-------------------------------------------------------------+----------+
The assets and liabilities of Legion FM Limited recognised in the consolidated
financial statements at the date of acquisition were:
+----------------------------------------------+-------------+-------------+
| | Acquiree's |
+------------------------------------------------------------+-------------+
| | carrying |
+------------------------------------------------------------+-------------+
| Fair value | amount |
+------------------------------------------------------------+-------------+
| GBP | GBP |
+------------------------------------------------------------+-------------+
| Intangible assets - customer list | 4,334,567 | - |
+----------------------------------------------+-------------+-------------+
| Intangible assets - goodwill | 121,745 | - |
+----------------------------------------------+-------------+-------------+
| Property, plant and equipment | 435,513 | 435,513 |
+----------------------------------------------+-------------+-------------+
| Trade and other receivables | 4,196,166 | 4,196,166 |
+----------------------------------------------+-------------+-------------+
| Cash at hand and at bank | 919,596 | 919,596 |
+----------------------------------------------+-------------+-------------+
| Creditors: amounts falling due within one | (6,419,414) | (6,419,414) |
| year | | |
+----------------------------------------------+-------------+-------------+
| Creditors: amounts falling due after more | (1,000,000) | (1,000,000) |
| than one year | | |
+----------------------------------------------+-------------+-------------+
| Provisions | (540,733) | (540,733) |
+----------------------------------------------+-------------+-------------+
| Deferred taxation | (1,213,677) | - |
+----------------------------------------------+-------------+-------------+
| | 833,763 | (2,408,872) |
+----------------------------------------------+-------------+-------------+
An intangible asset of GBP4,334,567 has been recognised in respect of the
customer contracts of Legion FM Limited (formerly Legion Group plc).
As the acquisition date of Legion FM Limited was only a few days before the
period end, the results of Legion FM Limited for those days have not been
included in the consolidated income statement as they are judged not to be
material.
In the 18 months to 31 March 2009 Legion FM Limited had revenue of GBP42,246,513
and losses after tax of GBP2,775,909, after deducting exceptional costs of
GBP540,730.
6. Notes to the cash flow statement
Group
Reconciliation of operating loss for the period to net cash from operating
activities
+----------------------------------------------+-------------+-------------+
| | Restated |
+------------------------------------------------------------+-------------+
| 12 months | 18 months |
+------------------------------------------------------------+-------------+
| ended | ended |
+------------------------------------------------------------+-------------+
| 31 March 2009 | 31 March |
| | 2008 |
+------------------------------------------------------------+-------------+
| GBP | GBP |
+------------------------------------------------------------+-------------+
| Operating loss for the period | (711,848) | (982,159) |
+----------------------------------------------+-------------+-------------+
| Depreciation of property, plant and | 179,954 | 367,101 |
| equipment | | |
+----------------------------------------------+-------------+-------------+
| Amortisation of intangible assets | 408,953 | 39,870 |
+----------------------------------------------+-------------+-------------+
| Goodwill impairment | - | 989,699 |
+----------------------------------------------+-------------+-------------+
| Movement in share-based payment reserve | (58,316) | 89,866 |
+----------------------------------------------+-------------+-------------+
| Loss/(profit) on disposal of property, plant | 3,289 | (9,973) |
| and equipment | | |
+----------------------------------------------+-------------+-------------+
| Decrease in inventories | 28,750 | 12,312 |
+----------------------------------------------+-------------+-------------+
| Decrease in receivables | 2,060,771 | 723,442 |
+----------------------------------------------+-------------+-------------+
| (Decrease)/increase in trade and other | (2,043,333) | 911,514 |
| payables | | |
+----------------------------------------------+-------------+-------------+
| (Decrease)/increase in provisions | (180,000) | 180,000 |
+----------------------------------------------+-------------+-------------+
| Cash (outflow)/inflow generated from | (311,780) | 2,321,672 |
| operations | | |
+----------------------------------------------+-------------+-------------+
| Corporation tax received/(paid) | 104,441 | (267,763) |
+----------------------------------------------+-------------+-------------+
| Net cash (outflow)/inflow from operations | (207,339) | 2,053,909 |
+----------------------------------------------+-------------+-------------+
7. Adjustments to restate comparative consolidated financial information
The group identified material misstatements which occurred for the period ended
31 March 2008 and prior and has restated the financial information accordingly
to reflect the balance sheet, income statement and cash flow statement had the
misstatement not occurred.
(a) Consolidated balance sheet
18 months ended 31 March 2008
+--------------------------------+-------------+---------------+-------------+
| Previously | Restated |
+----------------------------------------------+-----------------------------+
| reported in | consolidated |
+----------------------------------------------+-----------------------------+
| annual report | Misstatements | balance |
| | | sheet |
+----------------------------------------------+---------------+-------------+
| 2008 | identified | 2008 |
+----------------------------------------------+---------------+-------------+
| GBP | GBP | GBP |
+----------------------------------------------+---------------+-------------+
| Non-current assets |
+----------------------------------------------------------------------------+
| Intangible assets | 18,130,802 | (7,444,063) | 10,686,739 |
+--------------------------------+-------------+---------------+-------------+
| Property, plant and equipment | 679,706 | - | 679,706 |
+--------------------------------+-------------+---------------+-------------+
| Deferred tax recoverable | 36,999 | (36,999) | - |
+--------------------------------+-------------+---------------+-------------+
| 18,847,507 | (7,481,062) | 11,366,445 |
+----------------------------------------------+---------------+-------------+
| Current assets |
+----------------------------------------------------------------------------+
| Inventories | 221,941 | (70,000) | 151,941 |
+--------------------------------+-------------+---------------+-------------+
| Trade and other receivables | 7,208,500 | - | 7,208,500 |
+--------------------------------+-------------+---------------+-------------+
| Current tax recoverable | 119,890 | (28,822) | 91,068 |
+--------------------------------+-------------+---------------+-------------+
| Cash and cash equivalents | 79,768 | - | 79,768 |
+--------------------------------+-------------+---------------+-------------+
| 7,630,099 | (98,822) | 7,531,277 |
+----------------------------------------------+---------------+-------------+
| Total assets | 26,477,606 | (7,579,884) | 18,897,722 |
+--------------------------------+-------------+---------------+-------------+
| Current liabilities |
+----------------------------------------------------------------------------+
| Trade and other payables | 6,447,109 | 224,905 | 6,672,014 |
+--------------------------------+-------------+---------------+-------------+
| Current tax liabilities | 362,937 | (362,937) | - |
+--------------------------------+-------------+---------------+-------------+
| Loans and overdrafts | 1,962,386 | 21,733 | 1,984,119 |
+--------------------------------+-------------+---------------+-------------+
| Obligations under finance | 90,243 | - | 90,243 |
| leases | | | |
+--------------------------------+-------------+---------------+-------------+
| Provisions | - | 180,000 | 180,000 |
+--------------------------------+-------------+---------------+-------------+
| | 8,862,675 | 63,701 | 8,926,376 |
+--------------------------------+-------------+---------------+-------------+
| Non-current liabilities |
+----------------------------------------------------------------------------+
| Loans and overdrafts | 3,152,000 | - | 3,152,000 |
+--------------------------------+-------------+---------------+-------------+
| Deferred tax liabilities | 804,029 | (260,055) | 543,974 |
+--------------------------------+-------------+---------------+-------------+
| Obligations under finance | 57,110 | - | 57,110 |
| leases | | | |
+--------------------------------+-------------+---------------+-------------+
| Provisions | 2,799,027 | - | 2,799,027 |
+--------------------------------+-------------+---------------+-------------+
| 6,812,166 | (260,055) | 6,552,111 |
+----------------------------------------------+---------------+-------------+
| Total liabilities | 15,674,841 | (196,354) | 15,478,487 |
+--------------------------------+-------------+---------------+-------------+
| Share capital | 1,779,254 | - | 1,779,254 |
+--------------------------------+-------------+---------------+-------------+
| Share premium account | 4,787,277 | - | 4,787,277 |
+--------------------------------+-------------+---------------+-------------+
| Share-based payment reserve | 156,920 | - | 156,920 |
+--------------------------------+-------------+---------------+-------------+
| Merger reserve | 1,274,000 | - | 1,274,000 |
+--------------------------------+-------------+---------------+-------------+
| Own shares in employee share | (292,963) | - | (292,963) |
| trust | | | |
+--------------------------------+-------------+---------------+-------------+
| Retained earnings | 3,098,277 | (7,383,530) | (4,285,253) |
+--------------------------------+-------------+---------------+-------------+
| Total equity | 10,802,765 | (7,383,530) | 3,419,235 |
+--------------------------------+-------------+---------------+-------------+
| Total liabilities and equity | 26,477,606 | (7,579,884) | 18,897,722 |
+--------------------------------+-------------+---------------+-------------+
(b) Consolidated income statement
18 months ended 31 March 2008
+-------------------------------+--------------+---------------+---------------+
| Previously | Restated |
+----------------------------------------------+-------------------------------+
| reported in | consolidated |
+----------------------------------------------+-------------------------------+
| annual report | Misstatements | income |
| | | statement |
+----------------------------------------------+---------------+---------------+
| 2008 | identified | 2008 |
+----------------------------------------------+---------------+---------------+
| GBP | GBP | GBP |
+----------------------------------------------+---------------+---------------+
| Revenue | 26,844,494 | (750,000) | 26,094,494 |
+-------------------------------+--------------+---------------+---------------+
| Cost of sales | (21,301,791) | (70,000) | (21,371,791) |
+-------------------------------+--------------+---------------+---------------+
| Gross profit | 5,542,703 | (820,000) | 4,722,703 |
+-------------------------------+--------------+---------------+---------------+
| Operating expenses | (4,304,352) | (1,400,510) | (5,704,862) |
+-------------------------------+--------------+---------------+---------------+
| Operating profit | 1,238,351 | (2,220,510) | (982,159) |
+-------------------------------+--------------+---------------+---------------+
| Finance income | 6,012 | - | 6,012 |
+-------------------------------+--------------+---------------+---------------+
| Finance costs | (253,201) | (18,502) | (271,703) |
+-------------------------------+--------------+---------------+---------------+
| Profit/(loss) before tax | 991,162 | (2,239,012) | (1,247,850) |
+-------------------------------+--------------+---------------+---------------+
| Taxation | (315,740) | 852,326 | 536,586 |
+-------------------------------+--------------+---------------+---------------+
| Profit/(loss) for the period | 675,422 | (1,386,686) | (711,264) |
+-------------------------------+--------------+---------------+---------------+
(c) Consolidated cash flow statement
18 months ended 31 March 2008
+-----------------------------+-------------+---------------+------------------+
| Previously | Restated |
+-------------------------------------------+----------------------------------+
| reported in | consolidated |
+-------------------------------------------+----------------------------------+
| annual report | Misstatements | cash flow |
| | | statement |
+-------------------------------------------+---------------+------------------+
| 2008 | identified | 2008 |
+-------------------------------------------+---------------+------------------+
| GBP | GBP | GBP |
+-------------------------------------------+---------------+------------------+
| Operating activities |
+------------------------------------------------------------------------------+
| Cash flow from operations | 2,492,718 | (171,046) | 2,321,672 |
+-----------------------------+-------------+---------------+------------------+
| Taxation paid | (266,828) | (935) | (267,763) |
+-----------------------------+-------------+---------------+------------------+
| Net cash inflow from | | | |
+-----------------------------+-------------+---------------+------------------+
| operating activities | 2,225,890 | (171,981) | 2,053,909 |
+-----------------------------+-------------+---------------+------------------+
| Investing activities |
+------------------------------------------------------------------------------+
| Acquisition of businesses | (1,167,283) | - | (1,167,283) |
+-----------------------------+-------------+---------------+------------------+
| Acquisition of subsidiaries net |
+------------------------------------------------------------------------------+
| of cash acquired | (4,258,391) | 102,009 | (4,156,382) |
+-----------------------------+-------------+---------------+------------------+
| Payments to acquire tangible |
+------------------------------------------------------------------------------+
| fixed assets | (269,560) | - | (269,560) |
+-----------------------------+-------------+---------------+------------------+
| Proceeds from disposal of tangible |
+------------------------------------------------------------------------------+
| fixed assets | 17,969 | - | 17,969 |
+-----------------------------+-------------+---------------+------------------+
| Net cash outflow from |
+------------------------------------------------------------------------------+
| investing activities | (5,677,265) | 102,009 | (5,575,256) |
+-----------------------------+-------------+---------------+------------------+
| Financing activities |
+------------------------------------------------------------------------------+
| Interest received | 6,012 | - | 6,012 |
+-----------------------------+-------------+---------------+------------------+
| Interest paid | (243,594) | (18,502) | (262,096) |
+-----------------------------+-------------+---------------+------------------+
| Interest element of finance | (9,607) | - | (9,607) |
| leases | | | |
+-----------------------------+-------------+---------------+------------------+
| Equity dividends paid | (336,400) | - | (336,400) |
+-----------------------------+-------------+---------------+------------------+
| Issue of equity share | 42,095 | - | 42,095 |
| capital | | | |
+-----------------------------+-------------+---------------+------------------+
| Purchase of own equity | (91,525) | - | (91,525) |
| shares | | | |
+-----------------------------+-------------+---------------+------------------+
| Repayment of loans | (2,732,253) | 1,225,233 | (1,507,020) |
+-----------------------------+-------------+---------------+------------------+
| New bank loans | 5,600,000 | - | 5,600,000 |
+-----------------------------+-------------+---------------+------------------+
| Repayment of capital element |
+------------------------------------------------------------------------------+
| of finance leases | (143,389) | - | (143,389) |
+-----------------------------+-------------+---------------+------------------+
| Net cash inflow from |
+------------------------------------------------------------------------------+
| financing activities | 2,091,339 | 1,206,731 | 3,298,070 |
+-----------------------------+-------------+---------------+------------------+
| Decrease in cash and |
+------------------------------------------------------------------------------+
| cash equivalents | (1,360,036) | 1,136,759 | (223,277) |
+-----------------------------+-------------+---------------+------------------+
| Cash and cash equivalents |
+------------------------------------------------------------------------------+
| at beginning of period | 274,135 | 28,910 | 303,045 |
+-----------------------------+-------------+---------------+------------------+
| Cash and cash equivalents at |
+------------------------------------------------------------------------------+
| end of period | (1,085,901) | 1,165,669 | 79,768 |
+-----------------------------+-------------+---------------+------------------+
| Cash and cash equivalents |
+------------------------------------------------------------------------------+
| at the end of the period comprise: |
+------------------------------------------------------------------------------+
| Cash at bank | 79,768 | - | 79,768 |
+-----------------------------+-------------+---------------+------------------+
| Bank working capital | (1,165,669) | 1,165,669 | - |
| facility | | | |
+-----------------------------+-------------+---------------+------------------+
| (1,085,901) | 1,165,669 | 79,768 |
+-----------------------------+-------------+---------------+------------------+
The misstatements identified in the consolidated financial statements arose as
follows:
Consolidated balance sheet
The principal adjustments to the consolidated balance sheet at 31 March 2008,
which reduced consolidated shareholders equity at that date by GBP7.4m, are as
follows:
+---+--------------------------------------------------------------------+
| - | correct an error which overstated the goodwill arising on the |
| | ManGuard acquisition in the prior year by GBP473,259, overstated |
| | revenue during the comparative period to March 2008 by GBP750,000, |
| | understated the ManGuard tax payable on acquisition by GBP210,000 |
| | and understated accruals by GBP66,741; |
+---+--------------------------------------------------------------------+
| - | reverse costs of GBP168,750 which were previously included in the |
| | cost of the ManGuard acquisition in error and have now been |
| | correctly charged to administrative expenses (exceptional items), |
| | reducing goodwill by the same amount; |
+---+--------------------------------------------------------------------+
| - | record an impairment of intangible assets of GBP989,699 during the |
| | 18 month period to 31 March 2008 and GBP5,568,758 during the |
| | periods proceeding 1 October 2006 for intangible assets which the |
| | directors believe are unsupportable and which they consider should |
| | have been impaired in prior years on the basis of the available |
| | evidence; |
+---+--------------------------------------------------------------------+
| - | recording of a provision of GBP180,000 for costs of restructuring |
| | the ManGuard business which met the criteria requiring recognition |
| | at 31 March 2008 but which were not recorded in error; |
+---+--------------------------------------------------------------------+
| - | recording a provision of GBP70,000 against obsolete inventory at |
| | 31 March 2008; |
+---+--------------------------------------------------------------------+
| - | additional accruals relating to expenditure prior to 31 March 2008 |
| | and the write off of unrecoverable receivables within accounts |
| | payable amounting to GBP224,905. |
+---+--------------------------------------------------------------------+
| - | a reduction in corporation tax payable of GBP334,115 and a |
| | reduction of deferred tax liabilities amounting to GBP223,056 |
| | resulting from the adjustments described above; and |
+---+--------------------------------------------------------------------+
Consolidated income statement
The principal adjustments to the consolidated income statement for the 18 month
period ended 31 March 2008, and which in aggregate reduced group profit before
tax by GBP2.2m and reduced group profit for the year by GBP1.4m, are as follows:
+---+--------------------------------------------------------------------+
| - | correction of an error of GBP750,000, which overstated revenue and |
| | goodwill arising on the ManGuard acquisition (see above); |
+---+--------------------------------------------------------------------+
| - | costs of GBP168,750 previously capitalised as acquisition costs in |
| | error have been charged to administrative expenses (exceptional |
| | items); |
+---+--------------------------------------------------------------------+
| - | impairment charge of GBP989,699 recorded in respect of the |
| | Electronic Security division which the directors consider should |
| | have been charged during that period to appropriately reflect the |
| | fair value of the intangible assets relating to this business at |
| | 31 March 2008; |
+---+--------------------------------------------------------------------+
| - | charge of GBP180,000 in respect of restructuring of ManGuard |
| | Limited which should have been recorded in the period to 31 March |
| | 2008; |
+---+--------------------------------------------------------------------+
| - | miscellaneous administrative expenses of GBP62,061 relating to the |
| | period ended 31 March 2008 which had not been correctly accrued |
| | previously; |
+---+--------------------------------------------------------------------+
| - | recording a provision of GBP70,000 against obsolete inventory |
| | arising during the period which has been charged to cost of sales; |
+---+--------------------------------------------------------------------+
| - | finance costs of GBP18,502 associated with terminating a facility |
| | prior to 31 March 2008 which had not been recorded; and |
+---+--------------------------------------------------------------------+
| - | a reduction in the current and deferred tax charge amounting to |
| | GBP852,326 in total, to take account of the accounting tax impact |
| | of the errors corrected above. |
+---+--------------------------------------------------------------------+
Movement in shareholder's equity
The opening consolidated shareholders equity as at 1 October 2006 has been
reduced by GBP5.9m. The significant elements of this restatement to correct
prior year errors are as follows:
+---+--------------------------------------------------------------------+
| - | record an impairment of intangible assets of GBP6.0m prior to 1 |
| | October 2006 for intangible assets which the directors believe are |
| | unsupportable and which they consider should have been impaired |
| | prior to this date on the basis of the available evidence; |
+---+--------------------------------------------------------------------+
| - | irrecoverable receivables of GBP99,334 held within accounts |
| | payable have been written off; and |
+---+--------------------------------------------------------------------+
| - | a reduction in the current tax liability of GBP115,765 and an |
| | increase in the deferred tax liability of GBP61,746 as a result of |
| | the corrections above. |
+---+--------------------------------------------------------------------+
Consolidated cash flow statement
The principal adjustments to the consolidated cash flow statement for the 18
month period ended 31 March 2008 arise from the adjustments noted above and
result in a number of reclassifications within the cash flow statement as set
out in the table on page 59. The invoice discounting facility has been
reclassified to loans and overdrafts rather than being described as a bank
working capital facility and included within cash as had originally been the
case in previous years.
8. Adjustments to restate comparative company financial information
The company identified material misstatements which occurred for the period
ended 31 March 2008 and prior and has restated the financial information
accordingly to reflect the balance sheet and cash flow statement had the
misstatement not occurred.
(a) Company balance sheet
18 months ended 31 March 2008
+--------------------------------+------------+---------------+-------------+
| Previously | Restated |
+---------------------------------------------+-----------------------------+
| reported in | company |
+---------------------------------------------+-----------------------------+
| annual report | Misstatements | balance |
| | | sheet |
+---------------------------------------------+---------------+-------------+
| 2008 | identified | 2008 |
+---------------------------------------------+---------------+-------------+
| GBP | GBP | GBP |
+---------------------------------------------+---------------+-------------+
| Non-current assets |
+---------------------------------------------------------------------------+
| Investments | 7,888,429 | (102,009) | 7,786,420 |
+--------------------------------+------------+---------------+-------------+
| Intangibles | 8,904,182 | (7,389,333) | 1,514,849 |
+--------------------------------+------------+---------------+-------------+
| Property, plant and equipment | 675,241 | - | 675,241 |
+--------------------------------+------------+---------------+-------------+
| Deferred tax recoverable | 37,934 | 222,121 | 260,055 |
+--------------------------------+------------+---------------+-------------+
| 17,505,786 | (7,269,221) | 10,236,565 |
+---------------------------------------------+---------------+-------------+
| Current assets |
+---------------------------------------------------------------------------+
| Inventories | 199,967 | (70,000) | 129,967 |
+--------------------------------+------------+---------------+-------------+
| Trade and other receivables | 4,852,356 | (180,919) | 4,671,437 |
+--------------------------------+------------+---------------+-------------+
| Current tax recoverable | - | 181,178 | 181,178 |
+--------------------------------+------------+---------------+-------------+
| Cash and cash equivalents | 78,694 | - | 78,694 |
+--------------------------------+------------+---------------+-------------+
| | 5,131,017 | (69,741) | 5,061,276 |
+--------------------------------+------------+---------------+-------------+
| Total assets | 22,636,803 | (7,338,962) | 15,297,841 |
+--------------------------------+------------+---------------+-------------+
| Current liabilities |
+---------------------------------------------------------------------------+
| Trade and other payables | 3,804,186 | 717,449 | 4,521,635 |
+--------------------------------+------------+---------------+-------------+
| Current tax liabilities | 362,937 | (362,937) | - |
+--------------------------------+------------+---------------+-------------+
| Loans and overdrafts | 1,954,919 | 21,733 | 1,976,652 |
+--------------------------------+------------+---------------+-------------+
| Obligations under finance | 86,671 | - | 86,671 |
| leases | | | |
+--------------------------------+------------+---------------+-------------+
| Provisions | - | 180,000 | 180,000 |
+--------------------------------+------------+---------------+-------------+
| 6,208,713 | 556,245 | 6,764,958 |
+---------------------------------------------+---------------+-------------+
| Non-current liabilities |
+---------------------------------------------------------------------------+
| Loans and overdrafts | 3,152,000 | - | 3,152,000 |
+--------------------------------+------------+---------------+-------------+
| Obligations under finance | 57,110 | - | 57,110 |
| leases | | | |
+--------------------------------+------------+---------------+-------------+
| Provisions | 2,799,027 | - | 2,799,027 |
+--------------------------------+------------+---------------+-------------+
| 6,008,137 | - | 6,008,137 |
+---------------------------------------------+---------------+-------------+
| Total liabilities | 12,216,850 | 556,245 | 12,773,095 |
+--------------------------------+------------+---------------+-------------+
| Share capital | 1,779,254 | - | 1,779,254 |
+--------------------------------+------------+---------------+-------------+
| Share premium account | 4,787,277 | - | 4,787,277 |
+--------------------------------+------------+---------------+-------------+
| Share-based payment reserve | 156,920 | - | 156,920 |
+--------------------------------+------------+---------------+-------------+
| Merger reserve | 1,274,000 | - | 1,274,000 |
+--------------------------------+------------+---------------+-------------+
| Retained earnings | 2,422,502 | (7,895,207) | (5,472,705) |
+--------------------------------+------------+---------------+-------------+
| Total equity | 10,419,953 | (7,895,207) | 2,524,746 |
+--------------------------------+------------+---------------+-------------+
| Total liabilities and equity | 22,636,803 | (7,338,962) | 15,297,841 |
+--------------------------------+------------+---------------+-------------+
(b) Company cash flow statement
18 months ended 31 March 2008
+-----------------------------+------+--------------+---------------+-------------+
| Restated |
+---------------------------------------------------------------------------------+
| Previously | company |
+---------------------------------------------------+-----------------------------+
| reported in | cash flow |
+---------------------------------------------------+-----------------------------+
| annual report | Misstatements | statement |
+---------------------------------------------------+---------------+-------------+
| 2008 | identified | 2008 |
+---------------------------------------------------+---------------+-------------+
| Note | GBP | GBP | GBP |
+------------------------------------+--------------+---------------+-------------+
| Operating activities |
+---------------------------------------------------------------------------------+
| Cash flow from operations | 27 | 2,307,889 | (1,001,309) | 1,306,580 |
+-----------------------------+------+--------------+---------------+-------------+
| Taxation paid | (266,828) | 79,328 | (187,500) |
+------------------------------------+--------------+---------------+-------------+
| Net cash inflow from operating | 2,041,061 | (921,981) | 1,119,080 |
| activities | | | |
+------------------------------------+--------------+---------------+-------------+
| Investing activities |
+---------------------------------------------------------------------------------+
| Acquisition of businesses | (1,167,288) | - | (1,167,288) |
+------------------------------------+--------------+---------------+-------------+
| Acquisition of subsidiaries | (4,250,924) | 852,009 | (3,398,915) |
+------------------------------------+--------------+---------------+-------------+
| Payments to acquire tangible fixed | (269,560) | - | (269,560) |
| assets | | | |
+------------------------------------+--------------+---------------+-------------+
| Proceeds from disposal of |
+---------------------------------------------------------------------------------+
| tangible fixed assets | 17,969 | - | 17,969 |
+------------------------------------+--------------+---------------+-------------+
| Net cash outflow from investing | (5,669,803) | 852,009 | (4,817,794) |
| activities | | | |
+------------------------------------+--------------+---------------+-------------+
| Financing activities |
+---------------------------------------------------------------------------------+
| Interest received | 5,886 | - | 5,886 |
+------------------------------------+--------------+---------------+-------------+
| Interest paid | (243,594) | (18,502) | (262,096) |
+------------------------------------+--------------+---------------+-------------+
| Interest element of finance leases | (9,607) | - | (9,607) |
+------------------------------------+--------------+---------------+-------------+
| Equity dividends paid | (340,500) | - | (340,500) |
+------------------------------------+--------------+---------------+-------------+
| Issue of equity share capital | 42,095 | - | 42,095 |
+------------------------------------+--------------+---------------+-------------+
| Repayment of loans | (2,632,253) | 1,217,766 | (1,414,487) |
+------------------------------------+--------------+---------------+-------------+
| New bank loans | 5,600,000 | - | 5,600,000 |
+------------------------------------+--------------+---------------+-------------+
| Repayment of capital element |
+---------------------------------------------------------------------------------+
| of finance leases | (143,389) | - | (143,389) |
+------------------------------------+--------------+---------------+-------------+
| Net cash inflow from financing | 2,278,638 | 1,199,264 | 3,477,902 |
| activities | | | |
+------------------------------------+--------------+---------------+-------------+
| Decrease in cash and cash | (1,350,104) | 1,129,292 | (220,812) |
| equivalents | | | |
+------------------------------------+--------------+---------------+-------------+
| Cash and cash equivalents at | | | |
+------------------------------------+--------------+---------------+-------------+
| beginning of period | 270,596 | 28,940 | 299,506 |
+------------------------------------+--------------+---------------+-------------+
| Cash and cash equivalents at | | | |
+------------------------------------+--------------+---------------+-------------+
| end of period | (1,079,508) | 1,158,202 | 78,694 |
+------------------------------------+--------------+---------------+-------------+
| Cash and cash equivalents at the |
+---------------------------------------------------------------------------------+
| end of the period comprise: |
+---------------------------------------------------------------------------------+
| Cash at bank | 78,694 | - | 78,694 |
+------------------------------------+--------------+---------------+-------------+
| Bank working capital facility | (1,158,202) | 1,158,202 | - |
+------------------------------------+--------------+---------------+-------------+
| | (1,079,508) | 1,158,202 | 78,694 |
+-----------------------------+------+--------------+---------------+-------------+
The misstatements identified in the company financial statements arose as
follows:
Company balance sheet
The principal adjustments to the company balance sheet at 31 March 2008, which
reduced shareholders equity at that date by GBP7.9m, are as follows:
+----+-------------------------------------------------------------------+
| - | record an impairment of intangible assets of GBP989,699 during |
| | the 18 month period to 31 March 2008 and GBP6,399,634 during the |
| | periods proceeding 1 October 2006 for intangible assets which the |
| | directors believe are unsupportable and which they consider |
| | should have been impaired in prior years on the basis of the |
| | available evidence; |
+----+-------------------------------------------------------------------+
| - | correction of the investment in ManGuard, reducing the cost by |
| | GBP102,009; |
+----+-------------------------------------------------------------------+
| - | recording of a provision of GBP180,000 for costs of restructuring |
| | the ManGuard business which met the criteria requiring |
| | recognition at 31 March 2008 but which were not recorded in |
| | error; |
+----+-------------------------------------------------------------------+
| - | recording a provision of GBP70,000 against obsolete inventory at |
| | 31 March 2008; |
+----+-------------------------------------------------------------------+
| - | record accounts payable of GBP717,449 to correct intercompany |
| | balance and write off receivables within accounts payable which |
| | are irrecoverable; |
+----+-------------------------------------------------------------------+
| - | write off GBP180,919 of irrecoverable accounts receivable; |
+----+-------------------------------------------------------------------+
| - | a reduction in corporation tax payable of GBP544,115 and an |
| | increase in deferred tax assets amounting to GBP222,121 resulting |
| | from the adjustments described above; and |
+----+-------------------------------------------------------------------+
Movement in shareholder's equity
The opening company shareholders equity as at 1 October 2006 has been reduced by
GBP6.4m. The significant elements of this restatement to correct prior year
errors are as follows:
+----+-------------------------------------------------------------------+
| - | record an impairment of intangible assets of GBP6,399,634 prior |
| | to 1 October 2006 for intangible assets which the directors |
| | believe are unsupportable and which they consider should have |
| | been impaired prior to this date on the basis of the available |
| | evidence; |
+----+-------------------------------------------------------------------+
| - | irrecoverable receivables of GBP102,125 held within accounts |
| | payable have been written off; and |
+----+-------------------------------------------------------------------+
| - | a reduction in the current tax liability of GBP115,765 and an |
| | increase in the deferred tax liability of GBP62,681 as a result |
| | of the corrections above. |
+----+-------------------------------------------------------------------+
Company cash flow statement
The principal adjustments to the company cash flow statement for the 18 month
period ended 31 March 2008 arise from the adjustments noted above and result in
a number of reclassifications within the cash flow statement as set out in the
table on page 62. The invoice discounting facility has been reclassified to
loans and overdrafts rather than being described as a bank working capital
facility and included within cash as had originally been the case in previous
years.
9. Financial information
The financial information set out above does not constitute the Group's
statutory accounts for the year ended 31 March 2009 or period ended 30 March
2008 but is derived from these accounts. Statutory accounts for 2009 will be
delivered to the Registrar of Companies in England and Wales shortly.
The auditors have reported on the 2009 accounts. The audit report to the
statutory financial statements will contain a qualified opinion arising from a
limitation in scope in respect of the completeness of related party
transactions, including directors' emoluments, and the timing of the impairments
of intangible assets and goodwill. The audit report attached to the statutory
financial statements does not contain statements under section 237 (2) or (3) of
the Companies Act 1985.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EBLFXKKBBBBD
Legion Group (LSE:LGNG)
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