RNS Number : 7090D
Panceltica Holdings Limited
18 September 2008
For Immediate Release 18 September 2008
Panceltica Holdings Limited
("Panceltica" and together with its subsidiaries, the "Group")
Interim results for the six months ended 30 June 2008
Panceltica (AIM: PANC), the Qatar based provider of fast track steel technology to the international construction industry, is pleased
to announce interim results for the six months ended 30 June 2008.
Financial Highlights:
Six months ended Six months ended Year ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Revenue 156,295 31,024 123,875
Gross profit 31,576 6,737 31,357
Operating profit pre IPO costs 22,161 5,276 25,759
and amortisation
Operating profit 13,678 5,276 25,683
Profit before tax pre IPO and 21,639
non-recurring financing costs* 5,177 26,327
Costs associated with Initial (8,025) - -
Public Offering
Non-recurring financing costs (33,440) - (6,554)
(Loss)/profit before tax (19,826) 5,177 19,773
* As stated under the heading Current Trading and Prospects of the Group in the AIM Introduction Document dated 31 March 2008, the
Company has sustained a non-cash charge in relation to the issuance of convertible loan notes raised in certain Pre IPO fund raisings. This
charge, which will not recur in future periods, amounts to $28.5 million in the period to 30 June, 2008. In addition, $5 million of
associated costs have been amortised during the interim period.
Operational Highlights:
* Completion in January 2008 of two pre IPO funding rounds raising $115 million
* Admitted to AIM on 31 March 2008, one of the most successful in the first six months of the year
* $343 million principal project with Barwa in Qatar close to completion
* Signed Memorandum of Understanding for Saudi Arabia with Smart Cities a company supported by HRH Prince Turki Bin Abdullah Bin
Abdulaziz
* Working successfully with The Miller Group who provide assistance on future tenders, project management, design and build
* Commenced construction of steel slitting plant in Sharjah
* Paul Fraser (CEO) to concentrate on new business, Anthony Wilson (deputy Chairman) to take on more operational role
Paul Fraser, Group Chief Executive Officer, today commented:
"Panceltica has taken a significant step forward in 2008. We successfully listed the Company on AIM, in what was one of the best
performing debuts of the year, and have worked hard on developing our pipeline of new business. Our recent agreement with Smart Cities,
supported by HRH Prince Turki Bin Abdullah Bin Abdulaziz stands us in good stead to expand our geographic footprint throughout the MENA
region and by working with the Miller Group, I believe we now have one of the most compelling fast track construction propositions in the
region.
Our core markets remain very active in terms of construction projects and our pipeline for new business is very encouraging, with
further discussions underway for contracts in both India and Africa. I look forward to updating the market as to our full year results."
For further information please contact:
Panceltica Holdings Limited Today: Tel: +44 (0) 20 7466 5000
Paul Fraser, Chief Executive Officer Thereafter: Tel: +974 462 2252
Ben Bright, Chief Financial Officer
Anthony Wilson, Deputy Chairman
Blomfield Corporate Finance Limited, Tel: +44 (0)207 489 4500
Nominated Adviser
Toby Howell/ Charlie Hill-Wood
Hichens, Harrison & Co. plc, Broker Tel: +44 (0)20 7382 4450
Martin Lampshire
Buchanan Communications Tel: +44 (0) 20 7466 5000
Mark Edwards / Jeremy Garcia
Chairman's statement
It gives me great pleasure to introduce the Group's first interim report as a public company following the Group's admission to AIM on
31 March 2008. The admission was completed in difficult market conditions and was one of the most successful on AIM in the first six months
of this year.
The funding rounds and the subsequent admission to AIM provided the Group with a stronger balance sheet and the resources to develop an
infrastructure and operational capability to allow the capture of more opportunities for our fast track construction technology.
This in turn will provide the Group with the platform to consolidate and then develop its position as a world leader in the provision of
fast track light gauge steel fabrication.
Since admission Panceltica has progressed well and is close to completing the principal project with Barwa in Qatar. Revenue for the six
months ended 30 June 2008 was $156.3 million, compared to $123.9 million for the year ended 31 December 2007 and $31.0 million for the six
months ended 30 June 2007. The Group's operating profit (excluding costs associated with admission and amortisation of $8.5 million) was
$22.2 million; which compares to $25.8 million for the year ended 31 December 2007 and $5.3 million for the six months ended 30 June 2007.
The Group's profit before tax (excluding costs associated with admission and non-recurring financing costs relating to the pre IPO
funding of $41.5 million) was $21.6 million; compared to $26.3 million for the year ended 31 December 2007 and $5.2 million for the six
months ended 30 June 2007.
Looking forward to the second half of the year, our trading prospects are strong as we continue to receive significant enquires from new
customers. In this regard, I am delighted to announce that the Group has recently signed a memorandum of understanding with Smart Cities, a
company supported by HRH Prince Turki Bin Abdullah Bin Abdulaziz.
The memorandum of understanding provides a framework for Panceltica and Smart Cities to work in collaboration to find and undertake
projects for the construction of large scale residential projects across several sites in Saudi Arabia.
His Royal Highness has recognized the benefit of our construction technology in supporting the goal of providing homes and amenities for
the people of Saudi Arabia and Panceltica are proud to have been chosen to participate in such a valuable and worthwhile objective.
As a result of the volume of enquiries being received and the need for Panceltica to secure its new contract pipeline and develop its
business outside Qatar, Paul Fraser will now be focusing his time on developing the business pipeline from October 2008.
To facilitate the above, Anthony Wilson, currently a non executive director, will move into an executive capacity supporting the CEO
Paul Fraser. Anthony brings more than 20 years experience in international finance and commerce.
The Group has an outstanding, resourceful team of people with a wide variety of skills and I would like to thank all of them for the
commitment and dedication shown during this important stage of the Group's development.
Following the announcement of the interim results and after more than 20 years spent working with Paul Fraser, the Group's finance
director Colin Fitzpatrick has decided to step down in order to return to the UK. The board of directors wish Colin every success for the
future and thanks him for his commitment during the early stages of the group's development and the admission process.
I would also like to welcome Ben Bright as the new Chief Financial Officer, Ben's knowledge of the business stems from working on the
Group's AIM admission and following a successful career with the Group's auditors Deloitte, Ben brings a wealth of experience in AIM/UK plc
reporting and in managing international financial projects.
The Group is now well positioned to continue the development and roll-out of its construction technology in its key target markets and
with a strong pipeline of enquiries I look forward to sharing the Group's continued success with shareholders.
Chief Executive's review
Introduction
During the period since the listing on AIM, Panceltica has continued to progress its principal contract in Qatar and has recently signed
a memorandum of understanding with Smart Cities, a company supported by Prince Turki Bin Abdullah Bin Abdulaziz. The terms of the memorandum
provide for the parties to collaborate on winning new contracts to include the construction of large volume villas, houses and amenity
buildings at a number of sites across Saudi Arabia.
The memorandum will see the formation of a new company called Panceltica Saudi Arabia Limited. This new company will operate for a
minimum of 7 years and is tasked with obtaining contracts for the construction of significant volumes of buildings in the Kingdom of Saudi
Arabia. Levels of construction are estimated as follows:
* Commencing 1st September 2008 - projects equivalent to 500 units (100,000 sq metres)
* Commencing 1st September 2009 - projects equivalent to 5,000 units (1 million sq metres)
* Thereafter - annual projects equivalent to 10,000 units (2 million sq metres)
The development volumes of this agreement should make a significant impact on demand for housing and other buildings in the Kingdom of
Saudi Arabia.
Additionally, the Group is working closely with The Miller Group, the UK's largest privately owned construction business. The Miller
Group will support Panceltica on future tenders and project manage full design and build contracts.
Operational overview
Panceltica's primary operations involve the fast track fabrication of residential property units on site. The Group uses the innovative
Scottsdale Technology, secured through the acquisition of Scottsdale Construction Systems Limited in November 2007.
Panceltica use the technology to build lightweight galvanised steel framed structures, with both manufacture and assembly taking place
in-situ on the construction site.
Panceltica also has the rights to exploit truss technology, developed through existing arrangements between SCS, a subsidiary of
Illinois Tool Works and Nucor Corporation.
The Group's head office and principal operations are located in Qatar, with other main operations in New Zealand (our SCS manufacturing
facility), Dubai and Sharjah (United Arab Emirates).
Qatar
Qatar continues to be the primary source of the Group's revenue and profit, with revenue of $154.5 million and operating profit of $22.7
million in the six month period to 30 June 2008 ($31.0 million and $5.3 million respectively in the six months ended 30 June 2007). In the
year to 31 December 2007 the Qatar operations contributed revenue of $123.9 million and operating profit of $25.9 million.
The contract with Barwa in Qatar to build 1,984 apartments continues to progress and the Group is committed to handover to Barwa in two
stages, the first in October 2008, with the second site following at the end of December. At 30 June 2008 the contract was 80% complete on
the cost basis of calculation. The extended construction period is primarily a result of the increased size and specification of the sites.
United Arab Emirates
Panceltica is in the process of building its own steel slitting plant and warehousing facility, situated in Sharjah, with construction
underway and expected to be completed by Q4 2009. With the anticipated increase in contract size from various geographic locations, the
Group's ability to slit coils in-house will provide an enormous logistical benefit and boost production.
This facility will allow the Group to benefit from economies of scale in respect of the purchase, transport and storage of steel mother
coils and shorter lead times.
The project on Sir Bani Yas Island in Abu Dhabi is complete with revenue of $2.8 million recognised to date by our associate, with
potential contract variations under discussion.
New Zealand
Following the acquisition of Scottsdale Construction Systems Limited ("SCS") on 30 November 2007, SCS has contributed revenue of $1.8
million and operating profit of $0.7 million. The continued development of this business and the recently acquired new factory site in
Napier, New Zealand will allow the Group to significantly increase machine manufacturing capacity both to external customers and to support
the growth of the Group's own operations world-wide.
Environmental benefits of our system
The directors believe there are substantial environmental benefits through the modern techniques and materials that the Group use that
offer a higher thermal insulating performance than some conventional building techniques and hence the potential to reduce energy
consumption for heating and cooling requirements in a completed building.
Specifically, the Group's manufacturing methodology allows for the potential improvement in energy savings by a reduction in thermal
losses of up to 80% over a conventional plastered block wall. All of the Group's projects are compliant with the Leadership in Energy and
Environmental Design (LEED) requirements. All specifications are in line with the Kyoto Accord and British robustness standards.
Employees
The Group has over 1,500 full time employees, with around 1,400 employed in a variety of manufacturing functions from unskilled
labourers to supervisors, engineers and project managers. The Group draws on a wide geographical skill base and our employees come from a
range of countries around the world. In addition, over 4,000 sub-contract staff work on current projects.
Market overview
The Group is initially focussing on developing its operations within the Middle East North Africa ("MENA") regions. Central to this is
the growing importance of the Gulf states including Saudi Arabia, Kuwait, UAE, Oman, Qatar and Bahrain. As at the end of 2006 these states
possessed an estimated 40% of the world's proven oil reserves and 22.7% of the world's proven natural gas reserves. Qatar alone held an
estimated 14% of the world's proven natural gas reserves at that date.
Furthermore, independent estimates have suggested that there are currently up to $884 billion worth of construction projects at some
stage of planning in Saudi Arabia, Kuwait, UAE, Oman, Qatar and Bahrain compared with an estimated $190 billion of construction contracts
awarded in 2007. An independent study has stated that as a result of this increase, clients in the region have complained that there are not
enough contractors to meet demand.
The Directors believe, on the basis of these statistics and the enquiries that they have received to date, that the regional outlook in
the construction industry is positive and that the Group will continue to find significant opportunities for new contracts. Outside of Saudi
Arabia, Kuwait, UAE, Oman, Qatar and Bahrain the Directors consider that the Group's business model including the Scottsdale Technology
could provide opportunities in emerging markets such as the wider MENA region, India and Latin America.
Long-term strategy and business objectives
Panceltica is focused on developing the business model in the MENA region, where increased wealth and spending on infrastructure, along
with the growth in the population, is driving demand for residential accommodation. Panceltica's construction system also lends itself to
other areas of the world with similar pressures and requirements.
As set out in the AIM admission document, the Group has developed a tiered business model in order to maximise the opportunities in
relevant markets.
* Steel frame and installation service, which delivers a 'closed' building envelope (i.e. structure and exterior walls);
* Full project management service offering the client a design and build turnkey contract;
* Serviced package or sale of Scottsdale roll-forming or truss machines, with design and operational consultants where required.
Financial Summary
Revenue
Group revenue of $156.3 million for the six months ended 30 June 2008 ($31.0 million for six months ended 30 June 2007) compares to
$123.9 million for the year ended 31 December 2007.
Gross margin and operating profit
The Group's gross margin was 20.2%, compared to 25.3% for the year ended 31 December 2007, which reflects additional cost pressures in
the first half due to the increased size and specification of the Barwa project. The total expected gross margin on this contract is now
22%.
The Group operating profit prior to costs associated with admission and amortisation of $8.5 million was $22.2 million, which compares
to operating profit of $25.8 million for the year ended 31 December 2007 and $5.3 million for the six months ended 30 June 2007.
Administrative expenses relate primarily to salaries and accommodation costs, which are borne by the company due to the relative cost of
housing in the GCC region and the need to attract key employees. The increase in such costs is due to the scaling up of the business in the
second half of 2007 as the Barwa contract progressed in Qatar and the Group built up operational capacity with a view to securing further
contract wins in the second half of 2008.
We have also incurred costs of $8 million in respect of the Group's admission to AIM, of which $4.9 million is a non-cash charge
relating to shares issued in lieu of services rendered and $3.1 million relates to professional and advisors' fees.
Finance costs and other gains and losses
As stated under the heading Current Trading and Prospects of the Group in the AIM Introduction Document dated 31 March 2008, the Company
has sustained a non-cash charge in relation to the issuance of convertible loan notes raised in certain Pre IPO fund raisings.
These costs, of $27.8 million, along with the fair value charge on the embedded equity conversion option of $0.7 million (total non-cash
charge of $28.5 million) are a non-recurring charge to the interim results. A further non-recurring financing charge of $5.2 million in
respect of the amortisation of the related issue costs has also been recognised in the interim period.
The costs connected with the pre IPO convertible loan notes have now been expensed in full. These costs and the conversion of the loan
notes is explained in note 7 to the condensed financial statements.
Earnings per share
The basic loss per share of $0.10 compares with earnings of $0.13 for the year ended 31 December 2007 and earnings of $0.03 per share
for the six months ended 30 June 2007.
On an adjusted basis, excluding pre IPO and non-recurring financing costs and after adjusting for the minority interest in the profits
of the Group, earnings per share for the six months ended 30 June 2008 were $0.11 ($0.17 for the year ended 31 December 2007).
Financial position
The Group had net assets of $129.7 million at 30 June 2008, compared to $15.0 million at 31 December 2007, primarily due to the
conversion of the convertible loan notes into ordinary shares following the admission of the Group to AIM.
During the period capital expenditure has been incurred on a new manufacturing facility for Scottsdale Construction Systems Limited and
on the commencement of construction of our slitting plant in Sharjah.
The remaining capital expenditure relates to equipment purchases in Qatar.
At 30 June 2008 the Group had cash reserves of $12.2 million and no debt following the conversion of the loan notes on admission. Trade
debtors include $86.2 million receivable on construction contracts, of which $7.0 million relates to contract retentions receivable after
one year.
Acquisitions
A Group restructuring was undertaken prior to the admission to AIM and this resulted in a number of acquisitions and share transfers
taking place, which are detailed in note 8 to the condensed financial statements.
The most significant of these was the shareholder agreement between Panceltica Limited and Panceltica Qatar WLL, through which the Group
controls 97% of the profits and losses of our Qatar operations.
Cash flow
Net cash outflow from operating activities for the six months ended 30 June 2008 was $53.5 million which reflects the timing of receipts
from construction contracts and increases in inventory to support the construction schedule. Additionally, cash of $16.2 million has been
used for a cash backed performance bond facility and as such has been included within debtors in the balance sheet.
The net proceeds of the second pre IPO funding round were $59 million, after deducting cash payments in respect of the associated fees.
Related party transactions
Related party transactions are disclosed in note 12 to the condensed set of financial statements.
Dividend and dividend policy
It is the opinion of the Directors that the Company should be a payer of dividends. However, at present, as a consequence of the
non-recurring costs of $33.4 million sustained in the current period, including $28.5 million attributable to the issuance of convertible
notes referred to in the Financial Highlights on the first page of this announcement, which costs will not recur, the Company has
insufficient distributable reserves to pay a dividend.
Outlook
The Group continues to receive significant enquiries regarding its fast track steel frame construction technology from within the MENA
region and other areas. Our track record and clear market leadership continues to provide a compelling proposition for the provision for
both residential and commercial new builds.
In addition to the memorandum of understanding announced today, we are also participating in a number of contract tenders, primarily in
Qatar and the UAE. The board of directors therefore believes that the Group is well placed to win major contracts in its key markets.
Panceltica Holdings Limited
Interim report for the six months ended 30 June 2008
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF PANCELTICA HOLDINGS LIMITED
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the income statement, the balance sheet, the cash flow statement and related notes 1 to 12. We
have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements 2410 issued by the Auditing
Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
18 September 2008
Manchester
United Kingdom
CONDENSED CONSOLIDATED INCOME STATEMENT
SIX MONTHS ENDED 30 JUNE 2008
Six months ended Six months ended Year ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Revenue 156,295 31,024 123,875
Cost of sales (124,719) (24,287) (92,518)
Gross profit 31,576 6,737 31,357
Administrative expenses (8,671) (1,461) (5,598)
Share of results of associates (744) - -
Operating profit pre IPO costs 22,161 5,276 25,759
and intangible amortisation
Costs associated with Initial (8,025) - -
Public Offering
Intangible amortisation (458) - (76)
Operating profit 13,678 5,276 25,683
Investment income 151 - 725
Finance costs (32,991) (99) (6,492)
Other gains and losses (664) - (143)
(Loss)/profit before taxation (19,826) 5,177 19,773
Taxation - - -
(Loss)/profit for the period (19,826) 5,177 19,773
Attributable to: (19,929)
Equity holders of the parent 5,177 19,773
Minority interest 103 - -
(19,826) 5,177 19,773
Earnings per share ($)
Basic (0.10) 0.03 0.13
Diluted (0.10) 0.03 0.13
CONDENSED CONSOLIDATED BALANCE STATEMENT
30 JUNE 2008
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Non-current assets
Goodwill 39,390 - 33,481
Other intangible assets 4,965 - 5,424
Property, plant and equipment 16,366 11,406 15,578
Interests in associates 53 - -
60,774 11,406 54,483
Current assets
Inventories 17,716 - 5,672
Trade and other receivables 115,668 5,348 124,586
Cash and cash equivalents 12,229 28,724 44,753
145,613 34,072 175,011
Total assets 206,387 45,478 229,494
Current liabilities
Obligations under finance leases (33) - (53)
Trade and other payables (71,217) (4,220) (37,883)
Bank overdraft - - (1,385)
Current tax liabilities - - (464)
Deferred revenue - (31,636) (52,243)
(71,250) (35,856) (92,028)
Net current assets 74,363 9,622 82,983
Non-current liabilities
Obligations under finance leases (182) - (176)
Deferred consideration (3,529) - (3,529)
Convertible loan notes - - (115,560)
Deferred land payment (1,738) (3,185) (3,185)
(5,449) (3,185) (122,450)
Total liabilities (76,699) (39,041) (214,478)
Net assets 129,688 6,437 15,016
Equity
Share capital 469,000 Note 1 Note 1
Other reserve (322,240) Note 10 Note 10
Legal reserve -
Retained earnings (17,682)
Equity attributable to equity holders of 129,078 6,437 15,016
the parent
Minority interest 610 - -
Total equity 129,688 6,437 15,016
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
30 JUNE 2008
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Net cash from operating activities (53,525) 34,262 37,231
Investing activities
Interest received 151 - 725
Purchase of property, plant and (3,321) (5,646) (10,563)
equipment
Acquisition of subsidiary (731) - (27,345)
Loan to associates (4,339) - -
Net cash used in investing activities (8,240) (5,646) (37,183)
Financing activities
Dividends paid (24,065) - (6,044)
Net proceeds on issue of convertible 59,006 - 49,256
loan notes
(Decrease)/increase in bank overdrafts (1,386) - 1,385
Repayment of related party loan (4,300) - -
Repayment of obligations under finance (14) - -
leases
Net cash from financing activities 29,241 - 44,597
Net (decrease)/increase in cash and cash (32,524) 28,616 44,645
equivalents
Cash and cash equivalents at beginning 44,753 108 108
of the year
Cash and cash equivalents at the end of 12,229 28,724 44,753
the year
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED 30 JUNE 2008
1. ACCOUNTING POLICIES
The annual financial statements of Panceltica Holdings Limited are prepared in accordance with IFRSs as adopted by the European Union.
The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International
Accounting Standards 34 'Interim Financial Reporting', as adopted by the European Union.
The information in this report relating to the six months ended 30 June 2008 and the six months ended 30 June 2007 is unaudited and does
not constitute full statutory accounts within the meaning of the Companies (Jersey) Law 1991.
Basis of preparation
The acquisitions of Panceltica Limited by Panceltica Holdings Limited, and subsequently that of Panceltica Qatar WLL by Panceltica
Limited, have been accounted for on the basis of the scope exclusion in IFRS 3 'Business Combinations' relating to entities under common
control.
All of these entities were ultimately controlled by Paul Fraser and Hameed Mostafawi both before and after this series of transactions.
As a result of the directors applying this scope exclusion, the following accounting approaches have been adopted to the common control
transactions:
* assets and liabilities have been recorded at their previous carrying value;
* the difference between the purchase consideration and the net assets acquired has been recorded as an adjustment to
equity; and
* for the purposes of the consolidated financial statements, comparative figures for Panceltica Qatar WLL and Panceltica
Limited have been stated on a combined basis as described below.
For the six months ended 30 June 2007, the operating results, cash flows and balance sheet represent the results of Panceltica Qatar
WLL.
Following the incorporation of Panceltica Limited in November 2007, the operating results and cash flows for the year ended 31 December
2007 and the balance sheet at that date consist of the combined results for Panceltica Qatar WLL and Panceltica Limited.
The combination is effected from the beginning of the financial period in which the common control transactions occurred. Income
statement and balance sheet comparatives are restated on a combined basis and adjustments are made to achieve consistency of accounting
policies.
For the six months ended 30 June 2008, acquisitions of other entities or investments in associated companies have been accounted for on
the basis of the accounting policies below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of 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.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Minority
interests consist of the amount of those interests at the date of the original business combination (see below) and the minority's share of
changes in equity since the date of the combination.
Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of
the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
Except as disclosed above in respect of Panceltica Qatar WLL and Panceltica Limited, the results of subsidiaries acquired or disposed of
during the year 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. ACCOUNTING POLICIES (continued)
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 are
recognised at their fair value at the acquisition date.
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.
If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent
liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.
Investments in associates
An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control,
through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of
accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share
of the net assets of the associate, less any impairment in the value of individual investments.
Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance,
form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable net assets of the associate at the
date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for
impairment as part of that investment. Any deficiency of the cost of acquisition below the Group's share of the fair values of the
identifiable net assets of the associate at the date of acquisition (i.e. discount on acquisition) is credited in profit or loss in the
period of acquisition.
Where a Group company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest
in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made
for impairment.
Goodwill
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 or associate 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 each of the Group's cash-generating units expected to benefit from the
synergies of the combination. 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. An impairment loss recognised
for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
1. ACCOUNTING POLICIES (continued)
Intangible assets
Intangible assets relate to the rights to future smart card revenue acquired by the Group following the acquisition of Scottsdale
Construction Systems Limited. The intangible asset is amortised over its useful life of six years on a straight line basis.
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.
Revenue from construction contracts is recognised in accordance with the Group's accounting policy on construction contracts (see
below).
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net
carrying amount.
Construction contracts
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of
completion of the contract activity at the balance sheet date. This is normally measured by the proportion that contract costs incurred for
work performed to date bear to the estimated total contract costs, except where this would not be representative of the stage of completion.
Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract
costs incurred where it is probable they will be recoverable. Contract costs are recognised as expenses in the period in which they are
incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense
immediately.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance
sheet as a finance lease obligation. Lease payments are apportioned between finance costs and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless
they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group's general policy on
borrowing costs.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the
lease term.
1. ACCOUNTING POLICIES (continued)
Foreign currencies
The individual financial statements of each of the Group's subsidiaries are presented in the currency of the primary economic
environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and
financial position of each of the subsidiaries are expressed in US Dollars, which is the presentational 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 (foreign currencies) 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 historical cost in a foreign currency are not
retranslated.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations 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, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions
are used. Exchange differences arising, if any, are classified as equity and recognised in the Group's foreign currency translation reserve.
Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.
Borrowing costs
Borrowing costs are recognised in profit or loss in the period in which they are incurred.
Operating profit
Operating profit is stated before investment income, finance costs and other gains and losses.
Employees' end of service benefits
Under Qatar Commercial Company's Law No. 14 of 2004, Panceltica Qatar WLL is obliged to provide end of service benefits to its employees
in Qatar. The entitlement to these benefits is based upon the employees' final salary and length of service, subject to the completion of a
minimum service period.
The expected costs of these benefits are accrued over the period of employment and are included within staff costs.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax, in those jurisdictions where the Group is liable to
corporation tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from 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 substantively
enacted by the balance sheet date.
No deferred tax was assessable on the Group's operations in the period and hence there are no deferred tax balances in the balance
sheet.
1. ACCOUNTING POLICIES (continued)
Property, plant and equipment
Freehold land is not depreciated.
Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over
their estimated useful lives, using the straight-line method, on the following bases:
Buildings 2.5%
Motor Vehicles 25%
Office equipment 25%
Plant & equipment 16.7%-25%
Buildings include portacabins which are depreciated over two years.
Buildings in the course of construction are carried at cost. Depreciation of these assets commences when the assets are ready for their
intended use.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter,
over the term of the relevant lease.
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.
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, 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 cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be
impaired.
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 cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless
the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is
recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment
loss is treated as a revaluation increase.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and is calculated using the
weighted average method.
Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
1. ACCOUNTING POLICIES (continued)
Financial instruments
Financial assets and financial liabilities are recognised in the balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets
Financial assets are classified as 'loans and receivables'. The classification depends on the nature and purpose of the financial assets
and is determined at the time of initial recognition.
Loans and receivables
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified
as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment.
Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest
would be immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the investment have been impacted.
For all financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or
counterparty.
The carrying amount of the trade receivable is reduced through the use of an allowance account. When a trade receivable is considered
uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises it's retained interest in the asset and an associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the
financial asset and also recognises a collateralised borrowing for the proceeds received.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of directly attributable transaction costs and
are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield
basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period.
1. ACCOUNTING POLICIES (continued)
Financial instruments
Convertible loan notes
The convertible loan notes issued by the Group were recorded as financial liabilities and an embedded conversion option in accordance
with the substance of the contractual arrangement. At the date of issue, the fair value of the embedded conversion option was estimated by
the directors at its full conversion value on the basis that Panceltica Holdings Limited would complete the Initial Public Offering. The
debt component was determined by deducting the amount of the total proceeds from the fair value of the embedded conversion option as a
whole. The debt component is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon
conversion or maturity.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.
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.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, the directors are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the
revision affects both current and future periods.
Critical judgements
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the
directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts
recognised in financial statements.
Fair value of embedded equity conversion option
In determining the fair value of the embedded conversion option, the directors made the judgement at inception that all of the loan note
holders would exercise their option to convert the loan notes to equity on the Initial Public Offering of Panceltica Holdings Limited and
that Panceltica Holdings Limited would complete the Initial Public Offering.
Valuation of intangible assets
In determining the fair value of intangible assets, management have made a judgement as to the expected cash flows arising from the
Group's ownership of the asset and the period over which those cash flows will continue.
Management have made this judgement on the basis of their best estimate of the probability of future cash flows and have considered the
period to be equivalent to the expected depreciation period of the underlying steel roll forming equipment.
1. ACCOUNTING POLICIES (continued)
Critical judgements (continued)
Taxation
As set out in note 3, Panceltica Qatar WLL has applied for a tax exemption in Qatar and the Directors have a reasonable expectation of
this application being approved. However as the position is not yet confirmed tax may be payable at the standard rate of 35% on 49% of the
profits arising in Panceltica Qatar WLL post June 2007, which reflects the proportion of Panceltica Qatar WLL owned by a non-Qatari
national.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
Revenue recognition
Determining the percentage of completion of construction contracts involves an estimation of expected total contract costs against which
to compare actual costs at the balance sheet date. This estimation is calculated by management based on their best estimate of expected
total costs.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has
been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to calculate present value.
2. BUSINESS and geographical SEGMENTS
Business segments
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Segment revenue
Construction contracts 154,457 31,024 123,875
Sale of machines and smart cards 1,838 - -
156,295 31,024 123,875
Segment result
Construction contracts 22,695 5,276 25,909
Sale of machines and smart cards 724 - -
23,419 5,276 25,909
Central administration costs (514) - (150)
Share of results of associates (744) - -
Operating profit pre IPO costs and 22,161 5,276 25,759
amortisation
Costs associated with IPO (8,025) - -
Amortisation (458) - (76)
Operating profit 13,678 5,276 25,683
Investment revenue 151 - 725
Finance costs (32,991) (99) (6,492)
Other gains and losses (664) - (143)
(Loss)/profit before taxation (19,826) 5,177 19,773
Segment assets
Construction contracts 154,001 6,437 107,797
Sale of machines and smart cards 2,907 - 3,188
Unallocated assets 49,479 - 118,509
Consolidated total assets 206,387 6,437 229,494
As the group is primarily engaged in long-term construction contracts, seasonality has a limited impact on the group's results.
Geographical segments
The Group's revenue and results from construction contracts is from contracts in Qatar. Sales of machines and smart cards are from the
Group's subsidiary, SCS Limited, which is based in New Zealand.
The Group's associates are based in Dubai and Sharjah, in the UAE.
The subsidiaries in Turkey and the UK do not make up a material part of the Group's financial results or position and as such are not
disclosed separately.
3. taX
The Group's historical liability for current tax arose in New Zealand and was calculated using tax rates that have been enacted or
substantively enacted by the balance sheet date. No tax charge is recognised in the six months to 30 June 2008.
Panceltica Qatar WLL has applied for a tax exemption in Qatar and the Directors have a reasonable expectation of this application being
approved due to the nature of the contracts being undertaken in Qatar. However as the position is not yet confirmed tax may be payable at
the standard rate of 35% on 49% of the profits arising in Panceltica Qatar WLL post June 2007, which reflects the profits in Panceltica
Qatar WLL owned by a non-Qatari national. There are further proposals in Qatar to reduce the standard rate of tax from 35% to 12% although
the commencement date remains uncertain.
No tax liability has been recognised in the balance sheet at 30 June 2008 in this regard.
4. FINANCE COSTS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Interest on bank overdrafts - 99 45
(Release of interest accrued)/interest (229) - 229
on convertible loan notes
(229) 99 274
Unwinding of discount on deferred 215 - 36
consideration
Amortisation of convertible bond issue 5,169 - 825
costs
Amortisation of discount on convertible 27,836 - 5,357
loan notes
32,991 99 6,492
5. DIVIDENDS
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
$'000 $'000 $'000
Dividends paid (pre admission) 24,065 - 6,044
6. EARNINGS PER SHARE
From continuing operations
The calculation of basic and diluted earnings per share is based on the following data:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2008 2007 2007
Earnings
Earnings for the purposes of basic and (19,929) 5,177
diluted earnings per share being net
profit/(loss) attributable to equity
holders of the parent ($'000) 19,773
Number of shares
Weighted average number of ordinary 155,000,000
shares for the purposes of basic and 196,000,000 155,000,000
diluted earnings per share (number of
shares)
In the period from the admission to AIM to 30 June 2008, the Group has issued share options to employees. These share options have not
been included in the calculation of diluted earnings per share on the basis that the average market price of ordinary shares during the
period was less than the issue price of the share options.
No account has been taken of the impact of the convertible loan notes on diluted earnings per share as such adjustments are
anti-dilutive and therefore excluded from the calculation of diluted earnings, in accordance with the requirements of IAS 33 'Earnings per
Share'.
7. CONVERTIBLE LOAN NOTES
Pre IPO First Fundraising
On 27 November 2007 Panceltica Limited issued $55 million of convertible loan notes (the Pre IPO First Fundraising), ordinarily
repayable by 31 March 2008. The loan notes were convertible at the option of the holder if Panceltica Holdings Limited completed the IPO
prior to 1 July 2008. The convertible loan notes were convertible into ordinary shares of Panceltica Holdings Limited at a value of $1.40 of
ordinary shares for each $1 of convertible loan notes held.
At initial recognition the conversion option was valued at $21,428,000, which reflected the full value of the conversion option of
$22,000,000 discounted at 8% to reflect the time value of money. This discount then unwound over the period to the IPO and as such a charge
of $143,000 was reflected within other gains and losses in the income statement for the year ended 31 December 2007 and a further charge of
$429,000 was reflected for the six months ended 30 June 2008.
The Directors reflected the total value of the conversion option at initial recognition on the basis that Panceltica Holdings Limited
would complete the IPO.
The balance of the value of the initial proceeds allocated to the debt was $33,572,000. Over the period to the IPO the discount on the
debt amortised up to the notional value and as such an amortisation charge of $5,357,000 was recognised within finance costs in the income
statement for the year ended 31 December 2007 and a further charge of $16,071,000 was recognised for the six months to 30 June 2008.
All holders of the loan notes exercised their conversion options in full upon the Group's IPO on 31 March 2008.
Pre IPO Second Fundraising
On 31 December 2007 Panceltica Limited issued a further $60 million of convertible loan notes (the Pre IPO Second Fundraising) that were
convertible at the option of the holder if Panceltica Holdings Limited completed the IPO prior to 1 July 2008. The convertible loan notes
were convertible into ordinary shares of Panceltica Holdings Limited on IPO at a value of $1.20 of ordinary shares for each $1 of loan notes
held.
At initial recognition the conversion option was valued at $11,765,000 which reflected the full value of the conversion option of
$12,000,000 discounted at 8% to reflect the time value of money. This discount then unwound over the period to the IPO and as such a charge
of $235,000 was reflected within other gains and losses in the income statement for the six months ended 30 June 2008.
The Directors reflected the full value of the conversion option at initial recognition on the basis that Panceltica Holdings Limited
would complete the IPO.
The balance of the value of the initial proceeds allocated to the debt element was $48,235,000. Over the period to the IPO the discount
on the debt amortised up to the notional value and as such an amortisation charge of $11,765,000 was recognised within finance costs in the
income statement for the six months to 30 June 2008.
All holders of the loan notes exercised their conversion options in full upon the Group's IPO on 31 March 2008.
7. CONVERTIBLE LOAN NOTES (continued)
The carrying value of the convertible loan notes in the balance sheet at 31 December 2007 can be reconciled as follows:
$'000
Pre IPO First Fundraising
Embedded conversion option 21,571
Debt 38,929
At 31 December 2007 60,500
Pre IPO Second Fundraising
Embedded conversion option 11,765
Debt 48,235
At 31 December 2007 60,000
Carrying value of Pre IPO Fundraisings at 31 December 2007 120,500
Directly attributable transaction costs (5,169)
115,331
Interest charged and accrued at 31 December 2007 229
At 31 December 2007 115,560
The movement in the carrying value of the convertible loan notes in the six months to 30 June 2008 can be reconciled as follows:
$'000
At 31 December 2007 115,560
Pre IPO First Fundraising
Amortisation of conversion option 429
Amortisation of discount on convertible loan notes 16,071
Pre IPO Second Fundraising
Amortisation of conversion option 235
Amortisation of discount on convertible loan notes 11,765
Release interest accrued on convertible notes (229)
Amortisation of convertible loan note issue costs 5,169
149,000
Conversion to equity on 31 March 2008 (149,000)
At 30 June 2008 -
Net cash inflow arising from issue of convertible loan notes
Cash received - Pre IPO Second Fundraising 60,000
Directly attributable costs paid in the year (994)
59,006
8. ACQUISITION OF SUBSIDIARIES
On 18 January 2008 Panceltica Limited acquired 25% of the issued share capital of Golden Horn (Turkey) for $1 million payable in shares,
which were issued on admission of the Group to AIM. Additionally, Paul Fraser transferred his 75% controlling share interest in Golden Horn
to Panceltica Limited for no consideration.
On 28 February 2008 Panceltica Holdings acquired Panceltica Limited for nil consideration.
On 28 February 2008 Panceltica Limited acquired 100% of the issued share capital of Scottsdale Steel Europe Limited, for total
consideration of $4.4 million, payable $1.0 million in cash and $3.4 million in shares, which were issued on admission of the Group to AIM.
On 29 February 2008 Panceltica Limited acquired 75% of the issued share capital of Panceltica Global Limited (UK), for consideration of
$300,000 payable in shares, which were issued on admission of the Group to AIM. Additionally, Colin Fitzpatrick transferred his 25% share
interest in Panceltica Global Limited to Panceltica Limited for no consideration.
On 10 March 2008 a shareholders' agreement was made between Hameed Mostafawi, Paul Fraser and Panceltica Limited, under which Paul
Fraser's 49% ownership of Panceltica Qatar WLL was transferred to Panceltica Limited. Additionally, under the terms of this agreement,
management control of Panceltica Qatar WLL is exercised by Panceltica Limited and profits and losses of the company would be apportioned 97%
to Panceltica Limited and 3% to Hameed Mostafawi.
As set out in the basis of preparation in note 1 to the condensed financial statements, the acquisitions of Panceltica Limited by
Panceltica Holdings Limited, and subsequently that of Panceltica Qatar WLL by Panceltica Limited, have been accounted for on the basis of
the scope exclusion in IFRS 3 'Business Combinations' relating to entities under common control.
All of these entities were ultimately controlled by Paul Fraser and Hameed Mostafawi both before and after this series of transactions.
As a result of the directors applying this scope exclusion, the following accounting approaches have been adopted to the common control
transactions:
* assets and liabilities have been recorded at their previous carrying value;
* the difference between the purchase consideration and the net assets acquired has been recorded as an adjustment to equity (as
shown in the acquisitions table below); and
* for the purposes of the consolidated financial statements, comparative figures for Panceltica Qatar WLL and Panceltica Limited
have been stated on a combined basis.
8. ACQUISITION OF SUBSIDIARIES (continued)
Scottsdale
Steel
Golden Horn Europe Panceltica Panceltica Global Panceltica
$'000 $'000 Limited $'000 Qatar WLL
$'000 $'000 Total
$'000
Book and fair value of
net assets/(liabilities)
acquired
Investments - - 1,300 - - 1,300
Property, plant & equipment 15 74 - - 15,320 15,409
Inventories - - - - 4,923 4,923
Trade and other receivables 9 235 44,234 - 53,073 97,551
Cash and cash equivalents - 263 75,206 - 17,935 93,403
Trade and other payables (142) (696) (12,072) - (74,335) (20,345)
Convertible loan notes - - (136,879) - - (136,879)
Net (liabilities)/assets (118) (124) (28,211) - 16,916 (11,537)
Net (liabilities)/assets (118) (124) (28,211) - 16,408* (12,045)
acquired
Goodwill recognised 1,118 4,491 - 300 - 5,909
Equity adjustment - - 28,211 - 294,029 322,240
Total consideration 1,000 4,367 - 300 310,437 316,104
Satisfied by:
Cash - 994 - - - 994
Issue of shares 1,000 3,373 - 300 310,437 316,104
1,000 4,367 - 300 310,437 317,098
Net cash inflow arising on
acquisition
Cash consideration - (994) - - - (994)
Cash acquired - 263 - - - 263
- 731 - - - 731
* 97% of net assets acquired
The fair values shown above are provisional at 30 June 2008.
Panceltica Qatar WLL contributed revenue of $154.5 million and operating profit of $22.7 million in the period from 1 January 2008.
Panceltica Limited contributed revenue of $nil and a loss of $37.7 million in the period from 1 January 2008. As disclosed above and in the
basis of preparation in note 1 to the condensed financial statements, the results of these entities have been included in the comparatives
on the basis of common control and ownership.
The remaining entities acquired have not made a material contribution to the Group's revenues and operating results in the period and
hence are not disclosed separately.
The provisional goodwill arising on the acquisition of Scottsdale Steel Europe Limited and Golden Horn is attributable to the
anticipated future operating benefits from in-house design, engineering and purchasing synergies.
9. NOTES TO THE CASH FLOW STATEMENT
Six months ended Six months ended Year
30 June 30 June ended 31
December
2008 2007 2007
$'000 $'000 $'000
Operating profit 13,678 5,276 25,683
Adjustments for:
Depreciation of property, 1,170 354 1,272
plant and equipment
Amortisation of intangible 458 - 76
assets
Loss on disposal of - - 20
property, plant and equipment
Non-cash IPO costs 4,890 - -
Share of loss of associate 744 - -
Operating cash flows before 20,940 5,630 27,051
movements in working capital
Increase in receivables (30,299) (3,749) (62,949)
Increase in performance bond (16,207) - -
Increase in inventories (12,044) - (4,925)
(Decrease)/increase in (15,451) 32,480 78,099
payables
Cash (outflow)/inflow (53,061) 34,361 37,276
generated by operations
Interest paid - (99) (45)
Income taxes paid (464) - -
Net cash (outflow)/inflow from (53,525) 34,262 37,231
operating activities
10. SHARE CAPITAL AND RESERVES
Profit and
loss account Other reserve
$'000 $'000
Allocation from prior year closing reserves 14,192 -
Loss for the period (19,929) -
Dividends paid (24,065) -
Equity adjustment on acquisition (note 8) - (322,240)
Reserves acquired on common control 12,120 -
transactions
At 30 June 2008 (17,682) (322,240)
On 31 March 2008, the company issued 236,376,000 shares of GBP 1, or $469,000,000.
11. CONTINGENT LIABILITIES
Letters of credit with a value of $17.9 million had been signed as accepted at 30 June 2008 (31 December 2007 - $747,000) and are
therefore included in other creditors. The Group arranged further letters of credit with a value of $6.6 million (31 December 2007 - $48.2
million), however these had not been signed as accepted at 30 June 2008 and as such represent a contingent liability at that date.
At 31 December 2007 a contingent liability of $15.1 million arose from a performance bond guaranteed by the Qatar Building Company (a
related party) in respect of the Group's principal construction contract. Following the admission of the Group to AIM, this performance bond
has been replaced by the Group by way of a performance bond deposit, which is included within other debtors.
Pursuant to an agreement dated 15 March 2007, Panceltica Qatar WLL was retained by Barwa in respect of the fabrication and construction
of the Barwa affordable housing project, pursuant to which Barwa has engaged Panceltica Qatar WLL to construct nearly 2,000 units. This
agreement contains standard provisions including liquidated damages.
Unless otherwise stated, no amounts were accrued in respect of the contingent liabilities disclosed above.
12. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on combination and are not
disclosed in this note.
Transactions between the Group and its associates are disclosed below.
Trading transactions
During each year, the Group entered into the following transactions with related parties who are not members of the Group:
Revenue from construction contracts Purchase of goods or supply of services
Six months ended Six months ended Year Six months ended Six months ended Year
30 June 30 June ended 31 30 June 30 June ended 31
2008 2007 December 2008 2007 December
$'000 $'000 2007 $'000 $'000 2007
$'000 $'000
Qatar Building Company - in - 67 - 27,231
respect of construction
contracts
- 31,253
Qatar Building Company - - - 7 26
management fee - 13
- - 67 31,260 13 27,257
Panceltica Qatar WLL completed a construction contract in 2007 for the Qatar Building Company, recognising revenue of $67,000. The
Qatar Building Company is a sub-contractor on the Group's principal construction contract in Qatar, and has been paid $38,734,000 out of a
total current contract value of $55,952,000 in respect of their work to 30 June 2008 under this arrangement.
The Qatar Building Company previously provided office accommodation and administrative support to Panceltica Qatar WLL, at a cost of
$26,000 per annum.
12. RELATED PARTY TRANSACTIONS (continued)
Period end balances
At each year end, the Group had the following balances with related parties who are not members of the Group:
Amounts owed by related parties Amounts owed to related parties
Six months ended Six months ended Year Six months ended Six months ended Year
30 June 30 June ended 31 30 June 30 June ended 31
2008 2007 December 2008 2007 December
$'000 $'000 2007 $'000 $'000 2007
$'000 $'000
Qatar Building Company - - - 905 255 4,977
Loan from Paul Fraser - - - - - 4,300
Panceltica Contracting Company 4,339 - - - -
-
Paul Fraser - - 82 - - -
4,339 - 82 905 255 9,277
At 30 June the Group had an outstanding loan of $4.3 million due from its associated entities.
The Qatar Building Company is a related party of the Group due to Hameed Mostafawi being the Managing Director and also being a
non-executive director of Panceltica Holdings Limited.
On 4 November 2007 Panceltica Qatar WLL acquired a property in Qatar for $1.3 million, which is used as a principal residence by Paul
Fraser. No rent is payable under this arrangement.
On 28 November 2007 Panceltica Limited acquired Scottsdale Construction Systems Limited, as part of this transaction, Paul Fraser
provided a loan to Panceltica Limited of $3.8 million which formed part of the consideration for this acquisition. No interest was payable
on this loan, however a facility fee of $500,000 was payable to Paul Fraser in respect of the provision of the loan.
The outstanding loan creditor to Paul Fraser at 31 December 2007 was paid in full by the Group on 4 January 2008 and the facility fee
was paid in full on 7 January 2008.
During the year ended 31 December 2007, the Group completed a construction contract with a value of $358,000 for the Gulf Development
Network, a company of which Paul Fraser is a shareholder. The outstanding related party balance of $358,000 in respect of this contract was
written off in full during the year and recognised in administrative expenses.
Pursuant to an agreement dated 15 March 2007, Panceltica Qatar WLL was retained by Barwa in respect of the fabrication and construction
of the Barwa affordable housing project, pursuant to which Barwa has engaged the company to construct 1,984 units for a total initial
contract price of over $320 million. Following the conversion of the Pre-IPO Fundraisings Barwa is a substantial shareholder in Panceltica
Holdings Limited and Ghanim Al Saad of Barwa is a non-executive of the Group.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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