RNS Number:3405K
i-mate plc
20 December 2007
For immediate release 20 December 2007
i-mate plc
("i-mate" or the "Company")
Interim results for the 6 months ended 30 September 2007
i-mate plc (London AIM:IMTE), the specialist in Microsoft Windows Mobile(R)
devices and software applications, today announces its Interim Results for the
six months ended 30th September 2007.
All figures in this release are expressed in US dollars unless stated otherwise.
Interim Operational Highlights
* Ultimate range launched in September and October 2007 to critical
acclaim, with initial sales occurring in November 2007
* The Ultimate 9502 voted the Best of CTIA 2007 - Best Smartphone October
2007
* OEM Supplier status achieved
* Strategic alliances established with key suppliers
* Strategic review and reorganisation substantially completed
o Creating four regional profit centres
o After Market Services brought in house to strengthen overall quality
o Non core operating business closed
o Provision made for legacy and non core stock
Interim Financial Highlights
* Turnover $46.2 million (2006: $110.8 million)
* Adjusted Gross profit $8.5 million (2006: $26.1 million)*
* Adjusted Operating (loss) / profit ($12.2) million (2006: $8.7 million)*
* Adjusted net (loss) / profit ($11.4) million (2006: $9.5 million)*
* Net cash position $53.5 million (31 March 2007: $65.8)
* Gross profit $4.1 million (2006: $26.1 million)
* Operating (loss) / profit ($30.2) million (2006: $8.7 million)
* Net (loss) / profit ($29.4) million (2006: $9.5 million)
Jim Morrison, Chief Executive, commented:
"The first six months of trading has been a very difficult and costly period in
which we have fundamentally restructured and refocused the Group. However I am
delighted about the launch of our new models and the demand that they are now
creating.
We have improved and will continue to develop our product mix, expand our
geographical footprint and enhance our relationship with Microsoft. We now have
the devices and services under our control to regain and surpass our prior
market position"
*Adjusted results exclude non-recurring items, see note 5.
For further information please contact:
i-mate plc
Jim Morrison / Mark Paver Tel: 00 971 4367 8500
JPMorgan Cazenove
Nicholas Garrett Tel: 0207 588 2828
Buchanan Communications
Mark Edwards/Jeremy Garcia/Robin Haddrill Tel: 020 7466 5000
CHAIRMAN'S STATEMENT
The 6 months to 30 September 2007 as predicted, have been an extremely testing
period for management and staff at i-mate. Our loss after tax reported today of
$29.4 million is disappointing and is more than our expectations at the time of
our pre close update as a result of greater non recurring items due to our
strategic review and, reorganisation.
As previously reported we have undertaken a fundamental review of the Group's
operations. We have now established an operating model structured around four
key sales and marketing regions (Americas, Europe, Middle East, Australasia)
supported by centres of technical excellence and expertise in product
development, software development and research. This refocusing and streamlining
has resulted in non-recurring charges being taken to the Income Statement of
$18.0 million which include providing in full for the goodwill associated with
our acquisition of A Living Picture plc ("ALP") and the establishing of our
After Market Services department. Our overheads are now structured to
accommodate the revenue streams we expect in Q4 2007/08 and forward into the
next financial year.
Our stated strategy remains clear:
*Design and innovate Windows-based smart phones and PDAs that are best of
class
*Execute an effective sales strategy, and
*Continue to develop the i-mate brand
The launch of our Ultimate range of devices has already resulted in the award of
the industry accolade of "Best of CTIA 2007 - Best Smartphone". The first two
Ultimate devices, the 6150 and 8150, have now been sold into our various
commercial channels with positive feedback coming from our customers. With two
additional Ultimate devices, the 8502 and 9502, and two JAMA devices, the 101
and 201 now coming off the production lines, our new range of 6 unique i-mate
devices coupled with our enhanced suite of services gives the Group a great
opportunity to re-establish its position as the market leader in Windows-based
smart phones.
I also have to report that following his appointment as Chairman of Artilium
Plc, and the recent announcement that he is to chair the review of the Royal
Mail for the UK Government, Richard Hooper one of our Non-Executive Directors
has requested to step down from the board with effect 31 December. The Board
would like to thank him for his contribution to the Company during his time with
us.
Our objective for the remainder of this financial year is to drive sales growth
across all our territories and to begin to return to profitability and positive
cash-flow. The Board believes that our new devices, enhanced manufacturer and
distributor relationships together with our expanded geographical footprint give
i-mate the opportunity to become a substantially larger and profitable business
and therefore return to delivering value to our shareholders.
Bernard Cragg
Chairman
20 December 2007
Chief Executive's Statement
Introduction
The first 6 months of the financial year has been a challenging period for all
at i-mate, during which we focused on delivering on our core set of strategic
goals. Significant progress has been made on all our objectives:-
* Develop our own unique, exclusive products which are technically
superior to other Windows Mobile(R) devices in the marketplace
The JAMA and Ultimate devices have been launched during June and October with
initial sales of the Ultimate range occurring in November. Our device roadmap is
strong.
* Deliver an outstanding out of box experience, top class support and
remote security by enhancing our suite of services
All Ultimate and JAMA devices come with i-mate's "i-Q software" which delivers
individual device management with enhanced security built in as standard.
* Leverage our channels to market to provide global reach for our
exclusive products
Multiple new channels have been established including the opening of our
Singapore regional office in November as a base to target the important Asian
market.
* Implement an operating model structured around four key sales and
marketing regions supported by centres of technical excellence and expertise
in product development, software development and research.
i-mate's operations are now focused around the four key regions: Europe, the
Americas, Australasia & Asia, and the Middle East including Africa and the
Indian subcontinent.
* Transform from a single supplier model with geographical restrictions to
an OEM with ability to sell globally
i-mate now has agreements with 3 equipment manufacturers producing quality
bespoke devices exclusively for i-mate.
Strategic update
i-mate is continuing to evolve its business model as the specialist global
provider of Microsoft Windows Mobile(R) devices and software applications.
Significant restructuring actions have taken place during this half year, which
have had a major impact on the financial result for the period. Our review has
focused on the following key areas of the business:
Regional focus
In April 2007, we announced our intention to restructure the Group into four
geographic regions - Europe, the Americas, Australasia & Asia, and the Middle
East including Africa and the Indian subcontinent. Each of these regions is now
run as a regional profit centre. Each regional business unit has access to
separate Technology and Quality Assurance ("QA") functions as well as direct
reporting lines to the Group's head office.
As part of the reorganisation, we have streamlined our marketing function and
technology centres for development, with teams based in the USA for software and
in the UAE for hardware.
Quality
We are absolutely committed to ensuring that only the highest quality devices
are shipped to market. We have therefore put into place a full QA team to work
alongside our manufacturers. In addition, a separate QA team runs end user
approvals and ensures controls on quality are maintained, independently of the
engineering teams and factory production QA teams.
Our previously outsourced after market services management have been brought in
house and are based in Dubai, to further strengthen the overall quality and
efficiency of our service. Again, we have incurred significant non-recurring
costs of $5.8 million associated with doing this in the first half of the year.
Product update
We have now met our stated aim of becoming a fully fledged OEM supplier with 6
devices already being produced. i-mate has agreements with 3 equipment
manufacturers producing devices exclusively for i-mate.
Our product portfolio now consists of two key ranges:
JAMA
The JAMA range, consisting of two devices, is our entry level device platform
which was launched in June 2007. The latest devices, JAMA 101 and 201 started
shipping in early December which is allowing our distributors to target a new
demographic of first time users of Windows Mobile 6 devices.
Ultimate
The Ultimate range, currently consisting of 4 devices, is our high end, high
specification device platform and was launched as anticipated, in combination at
GITEX, Dubai and CTIA, USA. All 4 Ultimate devices have been extremely well
received by customers and industry specialists alike with the Ultimate 9502
being voted the "Best of CTIA 2007 - Best Smartphone". First shipments of the
6150 and 8150 devices have occurred in November.
Software
Customers and end users are now benefiting from our new and enhanced software
platforms. For our resellers and enterprise customers, our new Customisation and
Ordering Management System ("COMS") platform enables users to buy online in
quantity and to customise their device requirements before delivery with the
system able to provide order management, processing, invoicing and dispatch. The
i-mate control platform allows enterprise managers and individual users to
manage their devices, including the ability to lock and wipe in the event of
theft or loss. Finally, club i-mate provides downloads of images, sounds and
other applications once the device is in use. These three platforms have been
wholly integrated into a new solution for customised device sales and enhanced
support and management for our customers, professional consumers and
enterprises.
We are delivering a unique experience for users straight out of the box, with
minimum fuss and user input. i-mate enterprise customers now have
never-before-seen capabilities including zero-configuration push email and
corporate policy capabilities that we believe will propel i-mate to the
forefront of mobile device service standards for corporate customers and
white-label services for mobile operators. This combination of new devices and
upgraded services, combined with our traditional high quality technical support
for customers, gives us a very powerful offering across the market going
forward.
Product focus
The Group has focused on key product ranges and after a further review of
planned new product lines, it was determined that the Urban line of devices
would not meet our stringent quality tests now in place in time to penetrate
their intended target markets. Therefore, the Urban range was cancelled. We have
also provided for a stock write-down against legacy product supplied by our
previous manufacturing partners.
In addition, digital pictures frames, a market sector which was acquired through
the acquisition of ALP, no longer meets with our on going strategic direction,
that of the manufacture and supply of wireless integrated Pocket PCs and
Smartphones and represents an unnecessary distraction. As a result we have taken
undertaken an impairment review of goodwill and recorded an impairment write off
against this investment and reduced the carrying value of our stock of digital
picture frames with a total write off of $6.4 million.
Financial review
Revenue for the period was $46.2 million (2006: $110.8 million), as a direct
result of the supply limitations of legacy products prior to our new devices
coming on stream.
Gross profit before non-recurring items was $8.5 million (2006: $26.1 million);
with adjusted gross margin of 18.5% (2006: 23.6%) Margin was severely impacted
by the delayed launch of new devices. The gross margin % achieved was also
affected by the legacy devices coming towards the end of life. With the launch
of our new devices underway we anticipate that the Group should, in the medium
term, return to margin levels previously achieved.
The Group operating loss before non-recurring items was $12.2 million (2006:
profit $8.7 million). This was largely caused by the overall reduction in gross
margin and the fixed nature of Group overheads. Distribution costs were $1.1
million (2006: $2.4 million) as a direct result of shipping fewer devices.
Administration expenses before non-recurring items were $19.6 million, which is
an increase of $4.7 million over the first half of 2006/7 and a reduction of
$2.3 million over the second half of 2006/7. The reduction against second half
2006/7 is predominantly as a result of cost control with less marketing and
sales support activities. Administration expenses also includes exchange gains
of $0.9 million (2006: $0.7 million) arising from the retranslation of
non-Dollar denominated net monetary assets.
As previously discussed, the Group has undertaken a strategic review in the
current period which has resulted in costs being treated as non-recurring in
this half year. These costs include:
*The reorganization into four geographic regions resulted in redundancy
costs of $532,000.
*The focus on quality, led to the cancellation of the Urban range of
devices, resulting in $1,168,000 of costs being written off.
*After market services management has been brought in house, based in
Dubai, following the termination of the agreement with the contractor. We
have provided for an exceptional charge of $5,800,000. (see also Note 17)
*Following our goodwill impairment review of the ALP investment goodwill
has been written off ($4,325,000) and the carrying value of our stock of
digital picture frames has been reduced to net realisable value, resulting
in a charge of $2,106,000. The original purchase was funded by the issue of
1,194,619 ordinary shares at a fair value of $3.14 and cash.
*Legacy product from previous years has been reduced to net realisable
value, resulting in a charge of $2,284,000.
*Receivables have been hit by a non-recurring allowance of $1,811,000 in
relation to technical issues on a superseded product.
The combined effect of non-recurring items is to increase the Group operating
loss by $18.0 million to $30.2 million. Interest receivable was $1.2 million
(2006: $1.3 million). Surplus funds are currently placed on short term deposit
for periods of up to three months.
The loss attributable to minority interest of $539,000 (2006: profit $1,209,000)
in the period arose from HTC's interest of 11.25% in Carrier Devices UK Limited,
the holding company for the Group's subsidiary companies trading in our legacy
HTC products. The interest, shown at $1.4 million in the Balance Sheet at 30
September 2007, was granted to HTC in September 2005 as part of the distribution
agreement.
The Group had cash reserves of $53.5 million at 30 September 2007 available to
fund the continued development of exclusive i-mate devices, the working capital
requirements for launching these devices and continuing geographical expansion.
Microsoft update
Our strategy continues to be to develop, manufacture and sell our own unique,
exclusive products which are technically superior to other Windows Mobile
devices. In this context, our relationship with Microsoft is central.
In May we signed a joint Go-To-Market agreement with Microsoft. This agreement
is for trialling and marketing of the i-mate COMS and i-mate Suite software
products into the market. We expect strong sales into the Enterprise market
through this partnership and on the back of the new device launches.
People
The progress we have made in this half year in re-positioning the Group for the
future has been possible due to the continued dedication and belief in i-mate of
the management team and staff throughout all of our offices. I continue to
believe that they should participate in the growth of the Company as we restore
and create future value for shareholders. As a result we will be reviewing and
consolidating our share option plans, to ensure that they continue to motivate,
reward and retain our people.
Outlook
The long-term outlook remains very much as it did when we reported our
preliminary results in June this year but we are making solid progress to
achieve our objectives. We have fundamentally reorganised the Group, business
processes have been strengthened, routes to market are now solid and increasing
and 6 new devices have been successfully launched. Whilst the Group is
developing a strong pipeline of next generation products we are mindful that it
is vital we successfully execute the current stage of our strategy.
We remain positive about the growth opportunities for our business as we
continue to leverage our excellent working relationship with Microsoft and our
routes to market.
The Board continues to feel confident about our trading prospects knowing the
difficulties that we have faced and continue to face during this rebuilding
year. While Q3 has been very slow in terms of sales, we look to an improved
performance in the fourth quarter of the year and beyond as our new products
begin to ship in quantity.
Jim Morrison
Chief Executive
20 December 2007
i-mate plc
Consolidated Income Statement
for the six months ended 30 September 2007
Note Six months Six months Six months Six months Year ended
ended 30 ended 30 ended 30 ended 30 31 March
September 2007 September 2007 September September 2007
pre non- non-recurring 2007 2006
recurring (note 5)
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
$000 $000 $000 $000 $000
Revenue 3 46,173 - 46,173 110,787 195,481
Cost of sales (37,648) (4,390) (42,038) (84,673) (159,161)
Gross
profit/(loss) 8,525 (4,390) 4,135 26,114 36,320
Distribution
costs (1,095) - (1,095) (2,441) (4,930)
Administrative
expenses (19,594) (13,636) (33,230) (14,938) (36,793)
Operating
(loss)/profit 4,7 (12,164) (18,026) (30,190) 8,735 (5,403)
Investment
revenue 6 1,181 - 1,181 1,341 3,335
(Loss)/profit
before
taxation (10,983) (18,026) (29,009) 10,076 (2,068)
Taxation 8 (387) - (387) (576) (820)
(Loss)/profit
for the
financial
period (11,370) (18,026) (29,396) 9,500 (2,888)
Attributable
to:
Equity holders
of the parent (10,995) (17,862) (28,857) 8,291 (3,366)
Minority
interest 13 (375) (164) (539) 1,209 478
(11,370) (18,026) (29,396) 9,500 (2,888)
Earnings per
share
Basic 9 (24.10c) 7.37c (2.83c)
Diluted 9 (24.10c) 7.31c (2.83c)
All revenue and operating results are derived from continuing operations.
There is no difference between the results stated above and their historical
cost equivalent.
The half year results are unaudited but have been reviewed by the auditors.
i-mate plc
Group Statement of Changes in Equity
for the six months ended 30 September 2007
Share Share Merger Share Retained Exchange Minority Total
Capital Premium Reserve Based Earnings Reserve Interest
Reserve
$000 $000 $000 $000 $000 $000 $000 $000
Six months
ended 30
September
2007
(unaudited)
Opening
Balances 10,549 65,735 (8,663) 1,892 31,796 (354) 1,915 102,870
Shares
issued - - - - - - - -
Currency
differences
on
foreign
currency
net
investments - - - - - 876 - 876
Share based
payment
provision - - - 540 - - - 540
(Loss) for
the
period - - - - (28,857) - (539) (29,396)
Equity at
end
of the
period 10,549 65,735 (8,663) 2,432 2,939 522 1,376 74,890
Six months
ended 30
September
2006
(unaudited)
Opening
balances 10,430 62,120 (8,663) 591 35,162 (889) 1,437 100,188
Shares
issued - - - - - - - -
Currency
differences
on
foreign
currency
net
investments - - - - - 278 - 278
Share based
payment
provision - - - 502 - - - 502
Profit for
the
period - - - - 8,291 - 1,209 9,500
Equity at
end
of the
period 10,430 62,120 (8,663) 1,093 43,453 (611) 2,646 110,468
Year ended
31 March
2007
(audited)
Opening
balances 10,430 62,120 (8,663) 591 35,162 (889) 1,437 100,188
Shares
issued 119 3,615 - - - - - 3,734
Currency
differences
on
foreign
currency
net
investments - - - - - 535 - 535
Share based
payment
provision - - - 1,301 - - - 1,301
(Loss) for
the
year - - - - (3,366) - 478 (2,888)
Equity at
end
of the year 10,549 65,735 (8,663) 1,892 31,796 (354) 1,915 102,870
i-mate plc
Consolidated Balance Sheet
as at 30 September 2007
Note 30 September 30 September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
$000 $000 $000
Non current assets
Goodwill 8 - - 4,325
Intangible assets 10 7,796 3,249 7,532
Property, plant and equipment 3,120 3,007 3,253
10,916 6,256 15,110
Current assets
Inventories 5,332 21,856 11,373
Trade and other receivables 11 23,822 41,288 36,720
Corporation tax asset 442 - -
Cash and cash equivalents 53,500 57,780 65,815
83,096 120,924 113,908
Total assets 94,012 127,180 129,018
Current liabilities
Trade and other payables 12 19,122 15,561 25,737
Current tax liabilities - 1,151 411
Total liabilities 19,122 16,712 26,148
Net assets 74,890 110,468 102,870
Equity
Share capital 14 10,549 10,430 10,549
Share premium account 65,735 62,120 65,735
Merger reserve (8,663) (8,663) (8,663)
Exchange reserve 522 (611) (354)
Share based payment reserve 2,432 1,093 1,892
Retained earnings 2,939 43,453 31,796
Equity attributable to equity
holders of the parent 73,514 107,822 100,955
Minority interest 13 1,376 2,646 1,915
Total equity 74,890 110,468 102,870
i-mate plc
Consolidated Cashflow Statement
For the six months ended 30 September 2007
Note Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited) $'000
$000 $000
Net cash used in operations 15 (12,236) (9,358) (2,893)
Investing activities
Interest received 1,181 1,341 3,335
Proceeds on disposal of
property, plant and equipment - - 56
Purchase of property, plant and
equipment (124) (2,068) (2,772)
Expenditure on intangible
assets (1,808) (1,847) (5,317)
Acquisition of subsidiary - - (2,451)
Net cash used in investing
activities (751) (2,574) (7,149)
Net decrease in cash and cash
equivalents (12,987) (11,932) (4,256)
Cash and cash equivalents at
beginning of period 65,815 69,343 69,343
Effect of foreign exchange rate
changes 672 369 728
Cash and cash equivalents at
end of period 53,500 57,780 65,815
i-mate plc
Notes to Interim Financial Information
30 September 2007
1. Significant accounting policies
Basis of accounting
This interim financial information has been prepared in U.S. Dollars, the
functional currency of the Group, using accounting policies consistent with
International Financial Reporting Standards (IFRS). The directors have chosen
not to adopt IAS 34 "Interim Financial Reporting". Accordingly, the interim
financial information has been prepared in accordance with the recognition and
measurement criteria of IFRS and the disclosure requirements of the Listing
Rules that would be applicable if the Company were admitted to the Official
List. The same accounting policies and methods of computation have been applied
in these interim financial statements as in the financial statements for the
year ended 31 March 2007.
The interim financial information has been prepared under the historical cost
convention. The principal accounting policies are set out below.
The financial information for the year ended 31 March 2007 does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditors' report on those accounts was not qualified and did not
contain statements under section 237(2) or (3) of the Companies Act 1985.
Basis of consolidation
The interim financial information consolidates the Company and entities
controlled by the Company (its subsidiaries). Control is achieved where the
Company has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair value at the date of acquisition. Any
excess of the cost of acquisition over the fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to the income statement in the period of
acquisition. The interest of minority shareholders is stated at the minority's
proportion of the fair values of the assets and liabilities recognised.
Subsequently, any losses applicable to the minority interest in excess of the
minority interest are allocated against the interests of the parent.
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 the accounting policies used into line with those used by
the Group.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
1. Significant accounting policies (continued)
Goodwill
Goodwill arising on businesses acquired represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition.
Goodwill is initially recognised as an asset at cost and subsequently measured
at cost less any accumulated impairment losses. Goodwill which is recognised as
an asset is reviewed for impairment annually; any impairment is recognised
immediately in profit or loss and is not subsequently reversed.
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Goodwill is
initially recognised as an asset at cost and is subsequently measured at cost
less any accumulated impairment losses. Goodwill which is recognised as an asset
is reviewed for impairment at least annually. Any impairment is recognised
immediately in profit or loss and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to the relevant
cash-generating unit. Cash-generating units to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the unit, and then to the other assets of the unit pro-rata on the
basis of the carrying amount of each asset in the unit.
On disposal of a subsidiary, the attributable amount of goodwill is included in
the determination of the profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Sales in respect of services and licences are recognised on completion of
contractual performance.
Interest receivable is recognised as it arises.
1. Significant accounting policies (continued)
Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of consolidated financial statements, the
results and financial position of each Group company are expressed in U.S.
Dollars, which is the functional currency of the Group and the presentation
currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions
in currencies other than the entity's functional currency are recorded at the
rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historic
cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in profit or loss for the period.
On consolidation, the assets and liabilities of the Group's subsidiaries whose
functional currency is not U.S. Dollars are translated at exchange rates
prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the
period. Exchange differences arising, if any, are classified as equity and
transferred to the Group's retained earnings. In the event of a disposal, such
translation differences are recognised as income or as expenses in the period in
which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The share capital and share premium of the Company is Sterling denominated and
is translated at actual historic rates.
Property, plant and equipment
Property, plant and equipment balances are stated at cost, net of depreciation
and any provision for impairment.
Depreciation is provided on all property, plant and equipment in equal annual
instalments over the estimated useful lives of the assets. The rates of
depreciation are as follows:
Buildings 2.5% per annum
Equipment, fixtures and fittings Between 33% and 50% per annum
Motor vehicles 33% per annum
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in income in the period of disposal.
1. Significant accounting policies (continued)
Research and development
Research expenditure is written off as incurred.
Development expenditure relating to identifiable projects is capitalised
provided it is probable that the project will generate future economic benefits
and the development cost of the project can be measured reliably. In such cases,
the identifiable expenditure is capitalised over the period during which the
Group is expected to benefit. All other development expenditure is written off
as incurred.
Any capitalised development costs are amortised over the life of the products
from the date of launch. If the future economic benefit of the products are
curtailed or significantly reduced, the capitalised development costs will be
reviewed for impairment. Any identified impairment is recognised via an
impairment write-off to profit or loss in the period it is identified and is not
reversed in any subsequent period.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists, a
formal impairment test based on a discounted cash-flow approach is performed and
the recoverable amount of the asset is estimated in order to quantify any
impairment loss. Any impairment loss is recognised as an expense immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value, measured
on a FIFO basis. Cost comprises all costs in bringing the inventories to their
present location and condition. Net realisable value is based on estimated
selling price less further costs expected to be incurred to completion and
disposal. Provision is made for obsolete, slow moving or defective items where
appropriate.
Leases
Operating lease rentals are charged to the income statement in equal annual
amounts over the lease term.
Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual provisions of the
instrument.
The Group's activities give rise to some exposure to the financial risks of
changes in interest rates and foreign currency exchange rates. The Group has no
borrowings and is principally funded by equity, maintaining all its funds in
bank accounts. Surplus funds are placed in risk free cash deposits. The Group's
exposure to foreign currency exchange rates arising from its net investment in
currencies other than the U.S. Dollar is unhedged as this exposure is currently
not viewed as material. The Group does not use derivative financial instruments
for speculative purposes.
Trade receivables
Trade receivables in the normal course of trade do not carry any interest and
are stated at their nominal value as reduced by appropriate allowances for
irrecoverable amounts.
Trade payables
Trade payables in the normal course of trade are not interest bearing and are
stated at their nominal value.
1. Significant accounting policies (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from the net profit as reported in the income statement because
it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or subsequently enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition of other assets
and liabilities in a transaction that affects neither the tax profit nor the
accounting profit.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the Directors' best estimate of the
expenditure required to settle the obligation at the balance sheet date and are
discounted to present value where the effect is material.
Share based payments
The Group issues equity-settled share based benefits to employees. These share
based payments are measured at their fair value at the date of grant and the
fair value of expected shares is expensed on a straight-line basis over the
vesting period. Fair value is measured using the Black Scholes Model.
Dividends
Dividends payable to the Company's shareholders are recorded as a liability in
the period in which the dividends are approved. No dividends have been paid by
the Company to date and none are proposed for the current year.
Non-recurring items
Non-recurring items, as disclosed on the face of the income statement, are items
which due to their materiality and non-recurring nature have been classified
separately in order to draw them to the attention of the reader of the accounts
and to highlight the impact of non-recurring items on the results of the Group.
2. Critical accounting judgements and key sources of estimation
uncertainty
In the process of applying the Group's accounting policies, as described in note
1, management has made the following judgements that have the most significant
effect on the amounts recognised in the interim financial information.
Issue of shares in subsidiary company to HTC
In September 2005, Carrier Devices UK Limited (a subsidiary company) issued
shares to HTC, which at that time was the Group's principal manufacturing
partner. These shares were issued for no cash consideration as part of a
distribution agreement and resulted in HTC owning 11.25% of the share capital of
Carrier Devices UK Limited. Carrier Devices UK Limited is the holding company of
a number of trading subsidiaries within the Group.
Management's view was that the fair value of these shares issued to HTC was zero
and that as a result no intangible asset was created by their issue. The reasons
for arriving at this view were:
* The resulting minority interest of 11.25% gave HTC no influence in the
running of Carrier Devices UK Limited.
* The minority interest had no marketable value.
* Under the original agreement, additional shares were to be granted to
HTC in 1.25% increments per year such that their overall shareholding would
eventually be increased to 15%. As the distribution agreement was terminated
at 31 May 2007, the shareholding has not been increased and remains at
11.25%.
Valuation of share based payments to employees
The Group estimates the expected value of share-based payments to employees and
this is charged through the income statement over the vesting period of the
relevant payments. The cost is estimated using the Black Scholes valuation model
which requires a number of assumptions to be made such as levels of share
vesting, time of exercise and share price volatility. This method of estimating
the value of share based payments is intended to ensure that the actual value
transferred to employees is provided for by the time such payments are made.
Bad debt and inventory provisions
The trade receivables balances recorded in the Group's balance sheet comprise a
relatively small number of large balances. A full line-by-line review of trade
receivables is carried out at the end of each month. Similarly the aged
inventory records are reviewed at the end of each month. Whilst every attempt is
made to ensure that the bad debt and inventory provisions are as accurate as
possible, there remains a risk that the provisions do not match the level of
debts which ultimately prove to be uncollectible and the inventory which
ultimately proves not to be sellable above its carrying value.
Taxation
Under the structure of the Group, the principal operating companies, i-mate
Middle East FZ-LLC and Carrier Devices Middle East FZ-LLC, operate in a tax free
zone and accordingly profits from these companies are not subject to tax. No
deferred tax has been provided on the accumulated unremitted earnings of these
companies as it is assumed that no dividend will be paid to the parent company
for the currently foreseeable future.
2. Critical accounting judgements and key sources of estimation uncertainty
(continued)
Warranty provision
The Group provides for the expected costs of future warranty claims by
estimating the annual failure rate per individual device and the average cost
per repair. A review is performed quarterly of the carrying value of this
provision. However there remains a risk that the provision does not match the
level of actual failures and costs incurred to repair those faults.
Development costs
Capitalised development expenditure relating to identifiable projects is
capitalised provided it is probable that the project will generate future
economic benefits. There remains a risk that costs previously capitalised relate
to projects that are subsequently considered uneconomic or technically
inadequate, at which time they would be expensed immediately.
Revenue recognition
Rebates due from manufacturing partners are recognised in the income statement
only once a product has commenced commercial production and purchases are
occurring.
3. Segmental Information
For management purposes, the Group's primary segment is geographical. The
business operates in two secondary business segments, hardware and software.
Revenue and the carrying value of assets in respect of software are less than
10% in the current and prior periods and so have not been disclosed separately.
This may change with the potential future growth of software and service
revenue.
Intra-segment sales are charged on an agreed transfer pricing basis.
(a) Segmental revenue
Sales Inter Total
$000 Intra -Segment Revenue
Sales $000
$000
Six months ended 30 September 2007
(unaudited)
Middle East 39,046 (20,218) 18,828
Australasia 22,843 - 22,843
Europe 3,601 - 3,601
Americas 901 - 901
66,391 (20,218) 46,173
Six months ended 30 September 2006
(unaudited)
Middle East 103,713 (50,514) 53,199
Australasia 26,742 - 26,742
Europe 29,390 - 29,390
Americas 1,456 1,456
161,301 (50,514) 110,787
Year ended 31 March 2007 (audited)
Middle East 158,426 (69,902) 88,524
Australasia 61,797 61,797
Europe 40,659 - 40,659
Americas 4,501 - 4,501
265,383 (69,902) 195,481
3. Segmental Information (continued)
(b) Segmental result Six months Six months Year ended
Pre non-recurring items ended ended 31 March
30 September 30 September 2007
2007 2006 (audited)
(unaudited) (unaudited) $000
$000 $000
Middle East 1,579 5,169 4,095
Australasia 354 5,351 4,877
Europe (2,061) 6,077 3,305
Americas 917 (51) (1,496)
789 16,546 10,781
Unallocated operating expenses (12,953) (7,811) (16,184)
Operating (loss)/profit (12,164) 8,735 (5,403)
Investment revenue 1,181 1,341 3,335
Taxation (387) (576) (820)
(Loss)/profit after taxation (11,370) 9,500 (2,888)
All development, new venture start-up and the majority of sales force expansion
costs are allocated to the Middle East segment.
(b) Segmental result Six months Six months Year ended
Including non-recurring ended ended 31 March
30 September 30 September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Middle East (9,840) 5,169 4,095
Australasia 500 5,351 4,877
Europe (1,399) 6,077 3,305
USA (895) (51) (1,496)
(11,634) 16,546 10,781
Unallocated operating expenses (18,556) (7,811) (16,184)
Operating (loss)/profit (30,190) 8,735 (5,403)
Investment revenue 1,181 1,341 3,335
Taxation (387) (576) (820)
(Loss)/profit after taxation (29,396) 9,500 (2,888)
4. Operating (loss)/profit
Operating (loss)/profit is stated after charging/(crediting):
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Amortisation of intangible assets 1,438 269 1,102
Impairment of intangible assets 132 - -
Impairment of goodwill 4,325 - -
Depreciation of property, plant and
equipment 412 232 766
Loss on disposal of property, plant
and equipment - - (19)
Research and development costs 182 32 237
Staff costs 8,570 5,278 12,787
Share option costs 540 502 1,301
Auditors' remuneration 207 19 228
Exchange differences (935) (706) (1,893)
In addition to auditors' remuneration shown above, the auditors received the
following fees for non audit services:
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Taxation compliance and advisory 70 81 137
Other services 67 10 83
Other financial advisory services - - 146
137 91 366
5. Non-recurring items
Six months
ended 30
September
2007
(unaudited)
$000 $000
b. Inventory provisions
Legacy products 2,284
Digital picture frames 2,106
Cost of sales 4,390
a. Reorganisation costs
Redundancy costs 532
Urban write-off 1,168
c. Goodwill Impairment 4,325
d. AMS provision 5,800
e. Receivables provision 1,811
Administrative expenses 13,636
Total non-recurring items 18,026
a. Reorganisation Costs
In April 2007 the Group initiated a restructuring program, resulting in the
operations being split into four geographic regions - Europe, the Americas,
Australasia & Asia, and the Middle East including Africa and the Indian
subcontinent. The reorganisation resulted in redundancy costs totalling $532,000
being incurred.
Following the restructuring, a further review of new product development was
undertaken. As a result it was concluded that the Urban range of devices would
not meet our stringent quality standards in time to penetrate their intended
target markets. The Urban range was therefore abandoned, resulting in costs of
$1,168,000 being expensed immediately.
b. Inventory provisions
During the period non-recurring inventory provisions totalling $4,390,000 were
recorded. Provisions totalling $2,284,000 were made in relation to legacy
products which are considered to be reaching the end of their product life. In
addition, a $2,106,000 provision has been made against inventories held of
digital picture frames, which as a result of our strategic review and
restructuring are considered not to be core to our business going forward. As
such a provision has been recorded to write these inventories down to there
estimated realisable value.
5. Non-recurring items (continued)
c. Goodwill Impairment
During the period management completed an impairment review of goodwill. The
goodwill relates solely to the acquisition of A Living Picture plc. As a result
of the impairment review an impairment charge of $4,325,000 has been recorded
during the period.
d. After Market Services Provision
As set out in note 17, the Group has had to establish an in-house function for
after market services, based in Dubai, following the termination of the contract
with the previous third party provider and the withdrawal of that contractor
from all historic warranty obligations. Non-recurring costs totalling $5,800,000
have been incurred in the period for the additional warranty costs assumed by
the Group, for provisions against claims under dispute with the contractor and
for costs associated with the establishment of the in-house function.
e. Receivables
Receivables have been hit by a non-recurring allowance of $1,811,000 in relation
to technical issues on a superseded product.
In prior periods there were no material non-recurring items.
6. Investment revenue
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Bank interest receivable 1,181 1,341 2,779
Trade debtor interest receivable - - 556
1,181 1,341 3,335
7. Employee information
The average number of employees, including executive Directors and key
management personnel, employed by the Group during the period was:
Six months Six months Year
ended 30 ended 30 ended
September September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
Development 43 61 74
Sales and Customer Support 33 56 56
Administration 80 36 46
156 153 176
The aggregate payroll costs of the people employed by the Group (including
executive Directors) were as follows:
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Wages and salaries 8,027 5,009 11,931
Social security costs 543 269 856
8,570 5,278 12,787
In addition to the above, $540,000 was charged to the income statement in
respect of awards to employees under share option agreements (six months to 30
September 2006:$502,000, year to 31 March 2007:$1,301,000).
8. Taxation
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
The tax charge comprises:
UK corporation tax 101 144 120
Foreign tax 286 432 700
Total current tax 387 576 820
9. Earnings per share
IAS 33 requires presentation of diluted earnings per share when a company could
be called upon to issue shares that would decrease net profit or increase loss
per share. For a loss making company with outstanding share options, net loss
per share would only be increased by the exercise of out of money options. Since
it seems inappropriate to assume that options holders would exercise
out-of-money options, no adjustment has been made to dilute loss per share for
out-of-money share options.
Basic earnings per share is calculated on the (loss)/profit of the Group
attributable to equity holders of the Company and the weighted average number of
shares in issue during the period.
The diluted earnings per share is calculated on the weighted average number of
shares in issue during the period, adjusted for the dilutive effect of share
options.
Six months Six months 31
months ended March
ended 30 30 September 2007
September 2006
2007
(unaudited) (unaudited) (audited)
(Loss)/profit for the period (28,857) 8,291 (3,366)
($'000)
Weighted average number of shares
in issue 119,722,916 118,528,297 118,926,503
Fully diluted weighted average
number of shares in issue 119,722,916 120,693,956 118,926,503
Basic earnings per share (cents per
share) (24.10) 7.37 (2.83)
Diluted earnings per share (cents
per share) (24.10) 7.31 (2.83)
10. Intangible fixed assets
Intangible fixed assets at 30 September 2007 comprise capitalised development
expenditure, net of amortisation and impairment, in respect of i-mate(TM) suite
and hardware product and software development costs.
11. Trade and other receivables
30 September 30 September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
$000 $000 $000
Trade receivables 14,147 37,919 31,419
Other receivables 678 191 212
Prepayments and accrued income 8,997 3,178 5,089
23,822 41,288 36,720
12. Trade and other payables
30 September 30 September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
$000 $000 $000
Trade payables 4,715 11,187 18,925
Accruals and deferred income 14,403 2,803 6,271
Social security and other taxes - 635 407
Other payables 4 936 134
19,122 15,561 25,737
13. Reconciliation of movements in equity minority interest
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
At 1 April 2007 1,915 1,437 1,437
Share of (loss)/profit for the period (539) 1,209 478
At 30 September 2007 1,376 2,646 1,915
In September 2005, the Group issued shares in Carrier Devices UK Limited (a
subsidiary which is an intermediate holding company) to HTC, then the Group's
principle manufacturing partner. This 11.25% interest was granted to HTC as part
of a distribution agreement.
14. Share capital
30 September 30 September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
$000 $000 $000
Authorised
200,000,000 ordinary shares of 5p
each 17,600 17,600 17,600
(translated at historic rate of $1.76)
Allotted, issued and fully paid
118,528,297 ordinary shares of 5p
each 10,430 10,430 10,430
(translated at historic rate of $1.76)
1,194,619 ordinary shares of 5p each 119 - 119
(translated at historic rate of $1.98)
10,549 10,430 10,549
15. Notes to the cashflow statement
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited)
$000 $000 $000
Operating (loss)/profit (30,190) 8,735 (5,403)
Adjustments for:
Amortisation of intangible assets 1,438 269 1,102
Impairment of intangible assets 132 - -
Impairment of goodwill 4,325 - -
Depreciation of property, plant and
equipment 413 232 766
Loss/(profit) on disposal of
property, plant and equipment - - (19)
Share based payment provision 540 502 1,301
Operating cashflows before movements (23,342) 9,738 (2,253)
in Working capital
Decrease/(increase) in inventories 6,041 210 10,491
Decrease/(increase) in receivables 12,898 (4,454) 573
(Decrease) in payables (6,615) (14,522) (4,592)
Cash (used)/generated from operations
before tax (11,018) (9,028) 4,219
Income taxes paid (1,218) (330) (1,326)
Net cash used in operations (12,236) (9,358) (2,893)
16. Financial commitments
Minimum lease payments under operating leases recognised in the income statement
for the period:
Six months Six months Year ended
ended 30 ended 30 31 March
September September 2007
2007 2006 (audited)
(unaudited) (unaudited) $000
$000 $000
502 341 876
At 30 September 2007, the Group had outstanding commitments for future minimum
lease payments under non cancellable operating leases which fall due as follows:
30 September 30 September 31 March
2007 2006 2007
(unaudited) (unaudited) (audited)
$000 $000 $000
- within one year 1,003 922 289
- between one and five years 1,835 1,721 1,577
2,838 2,643 1,866
17. Contingent Liabilities
During the period Workz International FZE, a contractor who provided management,
administration and repair services for products in and out of warranty
terminated their agreement with the Group and, in breach of that agreement,
ceased all historic warranty cover. As a result the Group assumed responsibility
for all historic warranty obligations and established an in-house management
function for after-market services. Provision has been made for the related
costs in the period ended 30 September 2007. The contractor is pursuing a number
of claims against the Group and the matter is currently the subject of an
international arbitration. The Group is contesting the contractor's claims
vigorously and the Directors consider that no material unrecorded liability will
accrue to the Group.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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