Sepura PLC
("Sepura," "the Group," or "the Company")
Interim results for the six months ended 2 October 2015
Record H1 revenues of €93 million driven by strong organic growth and the contribution from Teltronic
Teltronic integration on track and all cost synergies forecast on completion now secured
Trading in line with market expectations for the full year
Sepura, a leading global provider of critical communications solutions, today announces its interim results for the six month period ended 2 October 2015.
Financial highlights
§ Revenues up 70% to €92.9 million (H1/15: €54.5 million)
§ Organic growth of 34%
§ Teltronic contribution of €20.0 million since acquisition on 27 May 2015
§ Adjusted operating profit1 up 170% to €7.3 million (H1/15 €2.7 million)
§ Adjusted operating profit1 up 215% to €8.5 million on constant currency basis
§ IFRS operating loss of €4.5 million (H1/15: profit of €4.5 million) reflecting non-recurring Teltronic acquisition and restructuring costs
§ Interim dividend increased 15% to 0.79p per share (H1/15: 0.69p)
§ Closing net debt of €77.7 million (H1/15: €13.8 million)
Operational highlights
§ Core business performing strongly
§ H1 TETRA terminal shipments increased by 39% to 123,600
§ Next generation, LTE-ready SC2020 terminal launched in May with volume production in Q4
§ Teltronic integration on track
§ €20 million of revenues and €2.8 million of adjusted operating profit since acquisition
§ Actions already taken that secure all cost synergies forecast on completion, delivering €1.5 million and €3.0 million in FY16 and FY17 respectively
§ Strong order book reflects growing momentum
§ Organic closing order book up 85% to €24.0 million
§ Consolidated closing order book of €56.8 million
Commenting on the Company's results, Gordon Watling, Chief Executive Officer, said:
"Today's results demonstrate a strong performance by our core business together with encouraging early successes as we integrate Teltronic. Our strategy of targeting high growth opportunities with long-term potential is validated by our growing momentum and record closing order book, giving us a solid platform from which to meet market expectations for the year."
"Reliable, robust and secure communication networks are more important than ever for both public safety users and public-facing organisations such as major transportation hubs. Sepura is ideally positioned to support our customers and help them overcome the operational challenges they face."
Summary financial information (Unaudited) |
2 October 2015 |
26 September 2014 |
|
|
|
|
|
Revenue |
€92.9 m |
€54.5 m |
+70% |
Gross margin - Before non-recurring costs |
39.5 % |
45.1 % |
-5.6% |
- After non-recurring costs |
37.1 % |
45.1 % |
-8.0% |
Cash operating costs1 |
€29.4 m |
€21.9 m |
+34% |
Adjusted operating profit 1 |
€7.3 m |
€2.7 m |
+170% |
Adjusted operating profit 1 (constant currency) |
€8.5 m |
€2.7 m |
+215% |
IFRS operating (loss) profit |
€(4.5) m |
€4.5 m |
-200% |
Adjusted EBITDA 1 |
€9.2 m |
€3.8 m |
+142% |
Net debt |
€77.7 m |
€13.8 m |
+463% |
Adjusted diluted EPS 1 |
2.1 c |
1.7 c |
+24% |
Diluted (LPS) EPS |
(3.6) c |
2.7 c |
-233% |
Interim dividend |
0.79 p |
0.69 p |
+15% |
1 The calculations of cash operating costs, adjusted operating profit and EBITDA, and adjusted diluted EPS, are set out in Notes 4 and 6 to the following condensed consolidated financial statements respectively.
Sepura will hold an analyst presentation at 9.00 am today in the offices of Hogan Lovells International LLP, Atlantic House, Holborn Viaduct, London, EC1A 2FG. The presentation slides will be available on the investor relations pages of the Company's website following the event at: http://www.sepura.com/investors/. The content of the Sepura website should not be considered to form a part of, or be incorporated into, this announcement.
The Interim Report to Shareholders will be issued on 17 December 2015.
Cautionary statement
This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of Sepura. By their nature, future events and circumstances can cause results and developments to differ materially from those anticipated. Nothing in this announcement should be construed as a profit forecast. No undertaking is given to update the forward-looking statements whether as a result of new information, future events or otherwise.
Further information:
Sepura Gordon Watling, Chief Executive Officer Steve Chamberlain, Chief Financial Officer Peter Connor, Investor Relations
|
+44 12 2387 6000 |
Bell Pottinger Olly Scott Eve Kirmatzis |
+44 20 3772 2500 |
Notes to editors
Sepura is a global leader in the design, manufacture and supply of digital radios, infrastructure and applications for Professional Mobile Radio ("PMR") users, providing specialist solutions for the public safety, transportation, oil and gas, mining, utilities, industrial and other commercial sectors.
Founded in the UK in 2002, Sepura has expanded rapidly across the world and is now a market leader in over 30 countries, with a network of regional partners that sell, and provide local support for, its market-leading products. Sepura's proven track record of focussing on exciting high growth opportunities, product innovation and delivering quality and customer service was recognised in April 2015 with the award of the prestigious Queen's Award for Enterprise: International Trade.
Headquartered in Cambridge, England and with over 700 employees, Sepura was admitted to the Official List of the London Stock Exchange on 3 August 2007.
Chairman's statement
I am delighted to have been appointed Chairman at such an exciting time for Sepura, with revenues increasing by 70% to €92.9 million and adjusted operating profits up by 215% on a constant currency basis to €8.5 million. The accelerating analogue to digital migration within the Professional Mobile Radio ("PMR") market is creating exciting opportunities as governments and commercial organisations recognise the benefits offered by digital PMR networks. We have continued to invest, both organically and through acquisition, in broadening our product portfolio and our geographical reach to ensure that Sepura is well positioned to capitalise on the long-term trends in our markets.
Our most significant investment has been the acquisition of Teltronic, which represents an important step in the ongoing transformation of Sepura into a global critical communications solutions provider. The acquisition will help the Group accelerate the delivery of its strategic goals by providing additional scale and improved revenue visibility, together with attractive synergies. The enlarged group has a broader product portfolio and increased geographical diversity with Teltronic's established presence in Latin and North America already making a significant contribution to the Group's results. Contract wins include the State of Sergipe in Brazil, which has selected a combined Teltronic and Sepura solution to provide digital communications for every public safety and rescue organisation in the state. We look forward to building on these successes in the future.
We continue to provide product leadership through our focus on innovation. Our next-generation SC2020 terminal, launched in May, is the first TETRA terminal to incorporate multi-bearer capabilities. This offers customers a future-proof upgrade path that bridges TETRA and emerging LTE technologies in markets such as the UK, giving them confidence in the long-term viability of their ongoing investment in TETRA.
At the same time our core markets have performed strongly, with organic TETRA volumes increasing by 39%. We made significant deliveries to Saudi Arabia under the contract awarded last year, with the expected impact on both gross margin for the period and the weighting of revenues in the first half of the year, and secured further business for our early-stage DMR and Applications products. We ended the period with a record closing order book of €56.8 million, providing a solid foundation for the second half of the year. We have also taken steps to consolidate our existing UK facilities in anticipation of the relocation of our principal UK office within the Cambridge area as we prepare for the next stage of the Group's development. We look to the future with growing confidence, reflected in a 15% increase in the interim dividend from 0.69p to 0.79p per share.
I would like to thank my predecessor, John Hughes, for his outstanding contribution to the transformation of the Group during his tenure, and wish him well for the future. I would also like to welcome our new colleagues at Teltronic, and thank all of our employees for the enthusiasm with which they have approached the integration of our two businesses, and the early successes that this has brought.
Russell King
Chairman
23 November 2015
INTERIM MANAGEMENT REPORT
Record interim revenues and transformational acquisition
The increase in revenues by 70% to €92.9 million reflects strong trading in the Group's core business and the initial contribution from the acquisition of Teltronic SAU ("Teltronic") that completed on 27 May 2015.
Core business performing strongly
Organic revenues increased by 34% reflecting robust demand in the Group's core markets and the delivery of the Saudi Arabian contract secured in the prior year. The total number of TETRA terminals shipped increased by 39% to 123,600 terminals from 89,200 in the same period last year, and exceeded the 119,100 terminals delivered in the second half of last year. During the period 55,000 terminals were delivered to Saudi Arabia, which constrained volumes available in the short-term for the Group's other markets and had the forecast dilutive impact on gross margin for the period. Volumes in Germany were down slightly to 33,000 terminals, with new contracts in the period for 22,500 terminals contributing to a contracted back-log at the end of the period of 42,500 terminals, compared to 53,000 at the end of last year.
Terminal volumes in the UK increased by 11%, driven by increasing penetration of the DMR market with further flagship campus wins including Lord's cricket ground and Goodwood Estates. The uncertainty in the UK over the future role of TETRA for public-safety users had the expected short-term impact on UK TETRA volumes, although this was partly mitigated by orders for additional warranty cover for radios that would otherwise have been refreshed.
Teltronic integration on track
The acquisition of Teltronic represents a significant step in the ongoing transformation of Sepura into a global critical communications solutions provider. Teltronic's trading since the acquisition has been in line with expectations, contributing €20.0 million of revenues during the period and representing 36% of the revenue growth over prior year. Actions have been taken that secure all of the forecast cost synergies, delivering €0.3 million of savings during the period and a total of €1.5 million and €3.0 million in FY16 and FY17 respectively.
Additional scale and improved revenue visibility
Combining Teltronic and Sepura has increased the Group's addressable market to $3.3 billion and created an enlarged business with significant additional scale capable of targeting larger opportunities, with potential customers having increased confidence in sourcing products from a leading global supplier.
Teltronic's predominantly infrastructure orientated business also has a significant contracted backlog as network deployments span several accounting periods, providing improved visibility of future revenues and financial performance. Teltronic's order book on acquisition was €32.2 million, and the order book of the enlarged group at the end of the period was €56.8 million, compared to €13.0 million for Sepura at the end of the same period last year.
Increasing geographical diversity
Teltronic generates its revenues in complementary territories to Sepura, especially Latin and North America which accounted for 60% of Teltronic's revenues in the period. Sepura also generated significant orders for its TETRA terminals in these regions, including 1,000 terminals for Toronto Transit Commission for use on the infrastructure deployed by Sepura Systems last year, while the Group secured its first order combining Sepura terminals and Teltronic infrastructure with a multi-million Euro contract with the State of Sergipe in Brazil. As a result, Latin and North America represented 18% of the Group's revenues for the period, compared to 3% last year.
Increasing end-user diversity
While Teltronic has an established presence in public safety markets, it also derives a higher proportion of its revenues from commercial PMR users than Sepura, especially in the transportation sector. During the period 28% of Teltronic's revenues were from such users, compared to 19% for Sepura and 21% for the Group (H1/15: 29%). The Group's deliveries to Saudi Arabian public-safety users increased the weighting to public safety during the period, as did reduced investment by end-users in the extractive industries, one of Sepura's core commercial sectors, which continues to be impacted by low commodity prices.
Broadened product portfolio
Teltronic has an extensive infrastructure portfolio, including an emerging LTE portfolio and P25 capability. It offers a comprehensive suite of transportation solutions, together with a broad command and control offering that complements Sepura's applications products. Following the acquisition, Teltronic's R&D effort has focussed exclusively on enhancing its infrastructure portfolio while Sepura continues to invest in developing the Group's terminal portfolio. This included the launch of the Group's next-generation SC2020 terminal, the first TETRA terminal to incorporate multi-bearer capabilities that bridge TETRA and emerging LTE technologies. Volume production is scheduled for the fourth quarter of the Group's financial year.
Foreign exchange
Adjusted operating profit for the period on a constant currency basis was €8.5 million after adjusting for the following items:
§ Revenues would have been €1.2 million lower at last year's exchange rates;
§ Product costs would have been €2.6 million lower at last year's exchange rates;
§ The Group's unhedged Sterling operating costs would have been €0.7 million lower at last year's hedge rates; and
§ The Group incurred €0.9 million less of transactional foreign exchange losses compared to the same period last year.
Operating profit
The Group presents adjusted operating profit as a key performance measure in addition to the operating profit reported under IFRS, as the exclusion of certain non-operational or non-cash items better reflects the underlying trading performance of the Group. The adjusted operating profit for the period was €7.3 million, or €8.5 million on a constant currency basis (H1/15: €2.7 million). The operating loss reported under IFRS was €4.5 million (H1/15: profit of €4.5 million), reflecting the costs associated with the acquisition of Teltronic and subsequent restructuring.
Non-recurring costs
The Group incurred €13.1 million (H1/15: €0.6 million) of costs, before tax, in connection with the acquisition of Teltronic and subsequent restructuring that have been charged against the income statement. These costs included €5.0 million of non-cash costs relating to the impairment of capitalised development projects that have been cancelled following the acquisition of Teltronic; the impairment of leasehold improvements in premises that are being closed or relocated; and the unamortised balance on the Group's previous revolving credit facility that was replaced as part of the financing for the acquisition.
Taxation
The Group has continued to benefit from enhanced tax relief on qualifying research and development expenditure, and its brought forward tax losses. Teltronic receives similar benefits on its research activities, which are reflected in deferred tax assets acquired with Teltronic. The income tax charge for the period is based on management's best estimate of the weighted average annual income tax rate expected for the full year, adjusted for the expected tax treatment of the non-recurring costs incurred during the period.
Earnings per share
Adjusted diluted earnings per share, based on expensing development costs as they are incurred and excluding non-recurring costs, the IFRS 2 share option charge, associated National Insurance and the amortisation of acquired intangibles, was 2.1 € cents (H1/15: 1.7 € cents). The IFRS diluted loss per share was 3.6 € cents (H1/15: earnings per share of 2.7 € cents), reflecting the costs associated with the acquisition of Teltronic and subsequent restructuring.
Dividends
The Board has declared an interim dividend of 0.79 pence per Ordinary share, an increase of 15% over last year. This interim dividend will be payable on 8 January 2016 to those shareholders on the register at the close of business on 4 December 2015.
Cash flow and financing
The acquisition of Teltronic had a significant impact on the Group's cash flows during the period, including:
§ €120.8 million of consideration, net of amounts due from the vendor to Teltronic and the cash acquired with Teltronic;
§ €77.5 million of proceeds from the issue of new shares under the Placing and Open Offer, net of expenses;
§ €85.2 million of net new borrowings under the Group's new credit facility, net of the arrangement fee and related costs; and
§ €8.1 million of non-recurring cash costs relating to professional fees and subsequent restructuring costs.
Cash generation for the year is on track to meet market expectations. Closing cash balances at 2 October 2015 stood at €15.0 million (H1/15: €3.8 million), while net debt was €77.7 million (H1/15: €13.8 million).
Working capital outflows for the enlarged group during the period, excluding the receipt of restricted cash, totalled €7.0 million (H1/15: €10.6 million), and related to inventory required to support projects scheduled for delivery in the second half of the current year, while increased receivables reflected the significant growth in revenue during the period.
Other significant non-operating cash flows during the period related to:
§ €7.7 million spent on capitalised development costs;
§ €3.6 million of other capital expenditure;
§ €0.1 million paid in relation to prior period dividends;
§ €4.0 million purchasing shares for Treasury; and
§ €0.6 million received from employees exercising SAYE options that matured during the period.
Share capital
On 21 May 2015 the Company issued 46.5 million Ordinary shares following shareholder approval of the acquisition of Teltronic and a Placing and Open Offer at a price of 130p per share.
During the period options over 2.7 million (H1/15: 2.0 million) Ordinary shares vested following the achievement of targets under the Company's Long-Term Incentive Plan and the maturity of one of the Company's SAYE schemes. In accordance with the Group's policy of not diluting existing shareholders, 2.7 million (H1/15: 2.0 million) Ordinary shares were issued from Treasury to satisfy these awards.
1.8 million (H1/15: 1.7 million) Ordinary shares were purchased for Treasury during the period and on 1 October 2015 the Company announced a further programme to buy back up to 1.8 million Ordinary shares over the following 12 months to satisfy the future exercise of such awards.
Options were granted to senior executives under the Company's Long-Term Incentive Plan totalling 1.5 million shares (H1/15: 1.8 million). These will vest if targets relating to the periods to 31 March 2018 are achieved. Options over a further 0.7 million (H1/15: 0.8 million) shares were granted to employees under the Company's Save-As-You-Earn scheme.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group, before and after the acquisition of Teltronic, for both the first six months and the remaining six months of the financial year are consistent with those stated on pages 14 and 15 of the Group's 2015 Annual Report and Accounts, which are summarised as follows:
§ The risk that alternative products and technologies are developed by the Group's competitors, which threaten its future profitability.
§ The risk that customers delay issuing tenders, orders or payments, as a result of changes in political and economic conditions, with a consequential impact on the likelihood or timing of revenues and cash flows.
§ The risk that strong competition may have an adverse impact on pricing and profitability.
§ The risk that rapid growth may place a significant strain on management, operational and financial resources.
§ The risk that fluctuations in exchange rates, especially the Euro, give rise to revaluations of assets and liabilities which impact the future profitability of the Group.
§ The risk that there is a breach of information security or integrity.
§ The risk that the Group's outsourced electronic manufacturing partners are unable to supply sufficient critical components to meet end-user demand, or that there is a recall of such products due to poor quality products being supplied to the Group.
§ The risk that management are unable to integrate acquired businesses effectively.
CONDENSED CONSOLIDATED HALF-YEAR INCOME STATEMENT
|
|
|
2 October 2015 |
|
26 September 2014 |
||
|
|
Before non- |
Non-recurring |
After non- |
Before non- |
Non- |
After |
Revenue |
3 |
92,852 |
- |
92,852 |
54,500 |
- |
54,500 |
Cost of sales |
|
(56,136) |
(2,234) |
(58,370) |
(29,942) |
- |
(29,942) |
Gross profit |
|
36,716 |
(2,234) |
34,482 |
24,558 |
- |
24,558 |
Selling, marketing and distribution costs |
|
(12,170) |
(1,830) |
(14,000) |
(8,739) |
- |
(8,739) |
Research and development costs |
|
(5,131) |
(3,448) |
(8,579) |
(4,865) |
- |
(4,865) |
Administrative expenses |
|
(11,067) |
(5,369) |
(16,436) |
(5,777) |
(642) |
(6,419) |
Operating profit (loss) |
|
8,348 |
(12,881) |
(4,533) |
5,177 |
(642) |
4,535 |
Financial income |
|
58 |
- |
58 |
4 |
- |
4 |
Financial expense: interest payable |
|
(1,475) |
(218) |
(1,693) |
(240) |
- |
(240) |
Net financial expense |
|
(1,417) |
(218) |
(1,635) |
(236) |
- |
(236) |
Profit (loss) before income tax |
|
6,931 |
(13,099) |
(6,168) |
4,941 |
(642) |
4,299 |
Income tax (charge) credit |
5 |
(2,291) |
2,338 |
47 |
(626) |
135 |
(491) |
Profit (loss) for the period |
|
|
|
|
|
|
|
Earnings (loss) per share (c) |
|
|
|
|
|
|
|
Basic |
6 |
2.7 |
(6.3) |
(3.6) |
3.1 |
(0.3) |
2.8 |
Diluted |
6 |
2.7 |
(6.3) |
(3.6) |
3.1 |
(0.4) |
2.7 |
1 Non-recurring costs relate to the acquisition of Teltronic SAU in the current period, as described in Note 8, and Fylde Micro Limited in the prior period, together with subsequent restructuring costs.
The results above relate to continuing operations.
CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF COMPREHENSIVE INCOME
|
|
|
2 October 2015 |
26 September 2014 |
(Loss) profit for the period |
|
|
(6,121) |
3,808 |
Other comprehensive (expense) income |
|
|
|
|
Currency translation differences |
|
|
(601) |
(212) |
Cash flow hedges, net of taxation |
|
|
(1,818) |
699 |
Other comprehensive (expense) income |
|
|
|
|
Total comprehensive (expense) income for |
|
|
|
CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF CHANGES IN EQUITY
For the half-year ended 2 October 2015 (Unaudited) |
Share |
Share |
Other |
Retained |
|
At 28 March 2015 |
79 |
999 |
(206) |
83,750 |
84,622 |
Loss for the period |
- |
- |
- |
(6,121) |
(6,121) |
Other comprehensive expense |
- |
- |
(601) |
(1,818) |
(2,419) |
Total comprehensive expense |
- |
- |
(601) |
(7,939) |
(8,540) |
Transactions with owners |
|
|
|
|
|
Issue of shares, net of expenses of €5,173,000 |
31 |
77,423 |
- |
- |
77,454 |
Excess tax on share option schemes |
- |
- |
- |
(703) |
(703) |
Employee share option schemes: value of employee services |
- |
- |
- |
1,587 |
1,587 |
Equity dividends paid |
- |
- |
- |
(95) |
(95) |
Treasury shares - purchase of own shares |
- |
- |
- |
(3,986) |
(3,986) |
Treasury shares - issue of shares to settle employee share options |
- |
- |
- |
589 |
589 |
Total transactions with owners |
31 |
77,423 |
- |
(2,608) |
74,846 |
At 2 October 2015 |
110 |
78,422 |
(807) |
73,203 |
150,928 |
|
|
|
|
|
|
For the half-year ended 26 September 2014 (Unaudited) |
|
|
|
|
|
At 29 March 2014 |
79 |
999 |
(42) |
74,359 |
75,395 |
Profit for the period |
- |
- |
- |
3,808 |
3,808 |
Other comprehensive (expense) income |
- |
- |
(212) |
699 |
487 |
Total comprehensive (expense) income |
- |
- |
(212) |
4,507 |
4,295 |
Transactions with owners |
|
|
|
|
|
Excess tax on share option schemes |
- |
- |
- |
342 |
342 |
Employee share option schemes: value of employee services |
- |
- |
- |
608 |
608 |
Equity dividends paid |
- |
- |
- |
(2,431) |
(2,431) |
Treasury shares - purchase of own shares |
- |
- |
- |
(3,097) |
(3,097) |
Treasury shares - issue of shares to settle employee share options |
- |
- |
- |
111 |
111 |
Total transactions with owners |
- |
- |
- |
(4,467) |
(4,467) |
At 26 September 2014 |
79 |
999 |
(254) |
74,399 |
75,223 |
|
|
|
|
|
|
CONDENSED CONSOLIDATED HALF-YEAR BALANCE SHEET
|
|
2 October 2015 |
26 September 2014 |
27 March 2015 |
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Intangible assets |
9 |
184,086 |
64,571 |
66,552 |
Property, plant and equipment |
9 |
15,039 |
8,592 |
10,329 |
Deferred tax asset |
|
5,624 |
5,270 |
4,294 |
Total non-current assets |
|
204,749 |
78,433 |
81,175 |
Current assets |
|
|
|
|
Inventories |
|
25,209 |
14,093 |
12,133 |
Trade and other receivables (including €965,000 due after more than one year) |
|
|
|
|
Derivative financial instruments |
|
- |
1,272 |
2,516 |
Restricted cash |
10 |
12,115 |
- |
- |
Cash and cash equivalents |
10 |
15,033 |
3,805 |
2,401 |
Total current assets |
|
142,335 |
62,983 |
64,682 |
Total assets |
|
347,084 |
141,416 |
145,857 |
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
10 |
(54,380) |
(17,065) |
(2,983) |
Derivative financial instruments |
|
(372) |
- |
- |
Trade and other payables |
|
(69,775) |
(32,887) |
(45,269) |
Income tax payable |
|
(1,623) |
(1,195) |
(1,195) |
Provisions |
11 |
(12,705) |
(1,522) |
(2,578) |
Total current liabilities |
|
(138,855) |
(52,669) |
(52,025) |
Non-current liabilities |
|
|
|
|
Borrowings |
10 |
(50,484) |
(491) |
(546) |
Trade and other payables |
|
(4,153) |
(4,073) |
(3,348) |
Provisions |
11 |
(274) |
(8,960) |
(5,316) |
Deferred tax liabilities |
|
(2,390) |
- |
- |
Total non-current liabilities |
|
(57,301) |
(13,524) |
(9,210) |
Total liabilities |
|
(196,156) |
(66,193) |
(61,235) |
Net assets |
|
150,928 |
75,223 |
84,622 |
Shareholders' equity |
|
|
|
|
Ordinary share capital |
12 |
110 |
79 |
79 |
Share premium |
12 |
78,422 |
999 |
999 |
Other reserves |
|
(807) |
(254) |
(206) |
Retained earnings |
|
73,203 |
74,399 |
83,750 |
Total equity |
|
150,928 |
75,223 |
84,622 |
CONDENSED CONSOLIDATED HALF-YEAR STATEMENT OF CASH FLOWS
|
|
2 October 2015 |
26 September 2014 |
(Loss) profit before income tax |
|
(6,168) |
4,299 |
Adjustments for: |
|
|
|
Depreciation charges |
|
1,317 |
966 |
Amortisation charges |
|
5,421 |
4,497 |
Impairment of intangible fixed assets |
|
2,412 |
- |
Impairment of property, plant and equipment |
|
139 |
- |
Equity settled share based payment charge |
|
1,587 |
608 |
Financial income |
|
(58) |
(4) |
Financial expense |
|
1,693 |
240 |
Cash generated from operations |
|
|
|
Increase in inventories |
|
(4,788) |
(3,357) |
Increase in trade and other receivables |
|
(3,677) |
(4,901) |
Increase (decrease) in trade and other payables |
|
1,328 |
(2,252) |
Increase (decrease) in provisions |
|
168 |
(63) |
|
|
(6,969) |
(10,573) |
Receipt of restricted cash |
|
(12,115) |
- |
Cash (consumed by) generated from operations |
|
(12,741) |
33 |
Income taxes paid |
|
(516) |
(174) |
Net cash consumed by operating activities |
|
(13,257) |
(141) |
Cash flow from investing activities |
|
|
|
Interest received |
|
58 |
4 |
Purchase of property, plant and equipment |
|
(1,860) |
(1,819) |
Capitalised development costs |
|
(7,686) |
(7,681) |
Purchase of subsidiary undertakings, net of cash acquired |
8 |
(120,809) |
(3,403) |
Purchase of other intangible assets |
|
(1,876) |
(359) |
Proceeds on disposal of property, plant and equipment |
|
222 |
- |
Net cash used in investing activities |
|
(131,951) |
(13,258) |
Cash flow from financing activities |
|
|
|
New borrowings |
10 |
101,812 |
15,200 |
Arrangement fee and related costs |
10 |
(1,620) |
- |
Repayment of borrowings |
|
(15,000) |
(380) |
Interest paid |
|
(1,336) |
(216) |
Dividends paid to shareholders |
7 |
(95) |
(2,431) |
Issue of shares |
12 |
82,627 |
- |
Expenses incurred on the issue of shares |
12 |
(5,173) |
- |
Purchase of own shares for Treasury |
12 |
(3,986) |
(3,097) |
Issue of share capital from Treasury |
12 |
589 |
111 |
Net cash generated from financing activities |
|
157,818 |
9,187 |
Net increase (decrease) in cash and cash equivalents |
|
12,610 |
(4,212) |
Cash and cash equivalents at the beginning of the period |
|
2,401 |
8,017 |
Exchange losses on cash and cash equivalents |
|
22 |
- |
Cash and cash equivalents at the end of the period |
10 |
15,033 |
3,805 |
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF-YEAR ENDED 2 October 2015
1. General information
Sepura plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose Ordinary shares of £0.0005 each are traded on the Main Market of the London Stock Exchange. The Company's registered office is Radio House, St Andrew's Road, Cambridge, CB4 1GR, England.
The Company has prepared condensed consolidated financial statements for the period to 2 October 2015, being the nearest Friday to the end of the period. This approach aligns external reporting dates with internal reporting periods and is in accordance with industry practice.
The condensed consolidated financial statements were approved for issue on 23 November 2015.
The condensed consolidated financial statements do not constitute the statutory accounts of the Company within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 27 March 2015 have been delivered to the Registrar of Companies. The auditors have reported on those accounts and their report was not qualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. These condensed consolidated financial statements have been reviewed and not audited.
2. Basis of preparation
The condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 "Interim financial reporting" as adopted by the European Union. The condensed consolidated financial statements should be read in conjunction with the annual financial statements for the year ended 27 March 2015, which have been prepared in accordance with IFRS as adopted by the European Union. These condensed consolidated financial statements have been prepared under the same accounting policies and methods of computation as those applied in the preparation of the most recent Annual Report, other than taxes on income in the interim period are accrued using the tax rate that would be applicable to the expected annual profit or loss.
The preparation of these condensed consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed consolidated financial statements the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 27 March 2015.
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 27 March 2015.
After making due enquiry, and having considered the Group's forecast for the coming year together with outline projections through to 2017 and available bank facilities, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Consequently, the going concern basis has been applied in preparing these condensed consolidated financial statements.
3. Segmental reporting
The Group has historically had a single reportable segment, being the design, development and supply of secure digital radio products and systems developed specifically for critical communications applications, as its operating segments could be amalgamated because they shared the same economic characteristics due to the nature of the products sold, the production processes used and the type of customer for the products.
The organisational structure for the enlarged group following the acquisition of Teltronic is currently being finalised as part of the Group's integration plan, and will reflect the fact that Teltronic, while supplying similar products, generates a significant proportion of its revenues from providing infrastructure as prime contractor and uses in-house manufacturing. This may result in additional reportable segments that will be disclosed in the Group's financial statements for the period ending 1 April 2016.
The relative contribution from the organic Sepura group, Teltronic and the synergies realised during the period was as follows:
|
Sepura |
Teltronic |
Central |
Total |
Third-party revenue |
70,623 |
22,229 |
- |
92,852 |
Intra-segmental |
2,223 |
(2,223) |
- |
- |
Revenue |
72,846 |
20,006 |
- |
92,852 |
Adjusted operating profit |
4,171 |
2,757 |
340 |
7,268 |
Adjustments |
(7,388) |
(4,413) |
- |
(11,801) |
Operating loss |
(3,217) |
(1,656) |
340 |
(4,533) |
Net financial expense |
|
|
|
(1,635) |
Loss before tax |
|
|
|
(6,168) |
|
|
|
|
|
Total assets |
180,403 |
166,681 |
- |
347,084 |
|
|
|
|
|
Total liabilities |
(160,185) |
(35,971) |
- |
(196,156) |
4. Adjusted performance measures
The Group presents adjusted figures as key performance measures in addition to those reported under IFRS. These adjusted figures, comprising EBITDA, adjusted EBITDA, adjusted operating profit and adjusted operating margin, exclude certain non-operational or non-cash items and so, in management's view, better reflect the underlying trading performance of the Group. They may not be comparable to measures with a similar description used by other entities.
Earnings before interest, tax, depreciation and amortisation has been calculated as follows:
|
|
Half-year ended |
Half-year ended |
Operating (loss) profit |
|
(4,533) |
4,535 |
Depreciation (see Note 9) |
|
1,317 |
966 |
Amortisation (see Note 9) |
|
5,421 |
4,497 |
EBITDA |
|
2,205 |
9,998 |
Non-recurring costs (including impairment) |
|
12,881 |
642 |
Reversal of capitalised development costs (see Note 9) |
|
(7,686) |
(7,681) |
Reversal of the IFRS 2 share-option charge |
|
1,587 |
608 |
Reversal of the NI payable on the |
|
|
|
Adjusted EBITDA |
|
9,220 |
3,757 |
|
|
|
|
Adjusted operating profit has been calculated as follows:
|
|
Half-year ended |
Half-year ended |
Operating (loss) profit |
|
(4,533) |
4,535 |
Adjustments |
|
|
|
Non-recurring costs |
|
12,881 |
642 |
Reversal of capitalised development costs (see Note 9) |
|
(7,686) |
(7,681) |
Reversal of associated amortisation (see Note 9) |
|
2,262 |
3,700 |
Reversal of amortisation of acquired intangibles (see Note 9) |
|
2,524 |
720 |
Reversal of the IFRS 2 share-option charge |
|
1,587 |
608 |
Reversal of the NI payable on the |
|
|
|
Adjusted operating profit |
|
7,268 |
2,714 |
Adjusted operating margin, |
|
|
|
Adjusted operating costs have been calculated as follows:
For the period ended 2 October 2015 (unaudited) |
Selling, |
Research and |
Administrative |
Total |
Per consolidated income statement |
14,000 |
8,579 |
16,436 |
39,015 |
Adjustments |
|
|
|
|
Non-recurring costs |
(1,830) |
(3,448) |
(5,369) |
(10,647) |
Reversal of capitalised development costs (see Note 9) |
- |
7,686 |
- |
7,686 |
Reversal of associated amortisation (see Note 9) |
- |
(2,262) |
- |
(2,262) |
Reversal of amortisation of acquired intangibles (see Note 9) |
- |
- |
(2,524) |
(2,524) |
Reversal of the IFRS 2 share-option charge |
- |
- |
(1,587) |
(1,587) |
Reversal of the NI payable on the shares subject to the |
|
|
|
|
Adjusted operating costs |
12,170 |
10,555 |
6,723 |
29,448 |
|
|
|
|
|
For the period ended 26 September 2014 (unaudited) |
Selling, |
|
|
|
Per consolidated income statement |
8,739 |
4,865 |
6,419 |
20,023 |
Adjustments |
|
|
|
|
Non-recurring costs |
- |
- |
(642) |
(642) |
Reversal of capitalised development costs (see Note 9) |
- |
7,681 |
- |
7,681 |
Reversal of associated amortisation (see Note 9) |
- |
(3,700) |
- |
(3,700) |
Reversal of amortisation of acquired intangibles (see Note 9) |
- |
- |
(720) |
(720) |
Reversal of the IFRS 2 share-option charge |
- |
- |
(608) |
(608) |
Reversal of the NI payable on the shares subject to the |
|
|
|
|
Adjusted operating costs |
8,739 |
8,846 |
4,259 |
21,844 |
|
|
|
|
|
5. Income tax (charge) credit
The income tax (charge) credit for the period is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full year, adjusted for the expected tax treatment of the non-recurring costs incurred during the period. The tax charge for the period is lower than the standard rate of Corporation Tax in the UK, which is 20% (2015: 21%), due primarily to the receipt of Research and Development credits, offset by non-deductible costs incurred on the acquisition of Teltronic SAU.
6. Earnings (loss) per share
Basic earnings per share has been calculated by dividing earnings attributable to owners of the parent by the weighted average number of shares of the Company. For diluted earnings per share, the weighted average number of shares is adjusted to allow for the conversion of all dilutive equity instruments.
|
Half-year ended |
Half-year ended |
||||
|
Before |
Non-recurring |
After |
Before |
Non- |
After |
Earnings attributable to |
|
|
|
|
|
|
Number of shares |
|
|
|
|
|
|
Basic weighted average |
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
Employee incentive plans ('000) |
1,139 |
- |
- |
1,142 |
1,142 |
1,142 |
Diluted weighted average |
|
|
|
|
|
|
Basic EPS (c) |
2.7 |
(6.3) |
(3.6) |
3.1 |
(0.3) |
2.8 |
Diluted EPS (c) |
2.7 |
(6.3) |
(3.6) |
3.1 |
(0.4) |
2.7 |
|
|
|
|
|
|
|
Share options are anti-dilutive for the half-year ended 2 October 2015 for the purposes of calculating the loss per share after non-recurring costs and their effect is therefore not considered.
The Group presents an adjusted earnings per share figure which excludes non-recurring costs, the capitalisation of development costs (together with associated amortisation), the amortisation of acquired intangibles and the IFRS 2 share-option charge, all net of Corporation Tax at the relevant standard rate. This adjusted earnings per share figure has been based on adjusted basic earnings for each financial period and on the same number of diluted weighted average shares in issue as the GAAP earnings per share calculation above.
|
|
Half-year ended |
Half-year ended |
|||
(Loss) earnings attributable to owners of the parent |
|
(6,121) |
3,808 |
|||
Adjustments |
|
|
|
|||
Non-recurring costs |
|
13,099 |
642 |
|||
Reversal of capitalised development costs |
|
(7,686) |
(7,681) |
|||
Reversal of associated amortisation |
|
2,262 |
3,700 |
|||
Reversal of amortisation of acquired intangibles |
|
2,524 |
720 |
|||
Reversal of the IFRS 2 share-option charge |
|
1,587 |
608 |
|||
Reversal of the NI payable on the shares subject to the IFRS 2 share-option charge |
233 | 190 | ||||
|
|
|
|
|
||
|
|
12,019 |
(1,821) |
|||
Effect of Corporation Tax |
|
(2,316) |
382 |
|||
Net of Corporation Tax |
|
9,703 |
(1,439) |
|||
Adjusted earnings attributable to owners of the parent |
|
3,582 |
2,369 |
|||
Adjusted diluted EPS (c) |
|
2.1 |
1.7 |
|||
7. Dividends
An interim dividend for the financial year ending 1 April 2016 of 0.79 pence per Ordinary share has been declared payable by the Company on 8 January 2016 to shareholders on the register at the close of business on 4 December 2015. The declared dividend has not been included as a liability in these condensed consolidated financial statements.
8. Acquisitions
On 27 May 2015 the Group announced it had completed the acquisition of the entire share capital of Teltronic SAU, ("Teltronic"), which provides integrated solutions for mission critical communication activities including voice and data. The acquisition of Teltronic provides additional scale to the Group's existing operations, additional geographical and customer diversity, and expands the Group's addressable market by broadening the Group's product portfolio.
The provisional book and fair values of the assets and liabilities acquired are as follows:
|
Book value |
Fair value adjustments |
Provisional fair value |
Intangible assets |
7,258 |
53,268 |
60,526 |
Property, plant and equipment |
4,541 |
- |
4,541 |
Non-current financial assets recoverable from vendor |
3,055 |
- |
3,055 |
Deferred tax - Assets |
5,760 |
6,608 |
12,368 |
- Liability on acquired intangibles |
- |
(14,915) |
(14,915) |
Inventories |
8,288 |
- |
8,288 |
Trade and other receivables |
38,669 |
- |
38,669 |
Income taxes receivable |
742 |
- |
742 |
Cash at bank and in hand |
3,690 |
- |
3,690 |
Borrowings |
(15,786) |
- |
(15,786) |
Derivative financial instruments |
(614) |
- |
(614) |
Trade and other payables |
(23,372) |
- |
(23,372) |
Provisions |
(4,917) |
- |
(4,917) |
Net assets acquired |
27,314 |
44,961 |
72,275 |
Goodwill |
|
|
55,279 |
Purchase consideration |
|
|
127,554 |
Offset of non-current financial assets recoverable from vendor |
|
|
(3,055) |
Cash at bank and in hand acquired |
|
|
(3,690) |
Net cash outflow |
|
|
120,809 |
|
|
|
|
Intangible assets acquired relate to existing customer contracts and relationships together with the business' brand names. These are being amortised over the expected useful economic lives, which have been assessed as between two and seventeen years. The goodwill arising on the acquisition is attributable to the value of synergies arising from the acquisition, Teltronic's assembled workforce and future profits arising from access to new markets. None of the goodwill on this acquisition is expected to be deductible for tax.
The Group incurred €13,099,000 (H1/15: €642,000) of costs, before tax, in connection with acquisitions and subsequent restructuring that have been charged to the condensed consolidated half year income statement.
Teltronic reported a profit after tax for the year ended 31 December 2014 of €5.6 million, and contributed €20.0 million and €1.5 million to the Group's revenues and loss for the period respectively, while the Group's revenue and loss would have been €99.7 million and €9.5 million respectively if Teltronic had been a member of the Group for the whole period.
9. Capital expenditure
|
Capitalisation of |
Software |
Acquired |
Total |
Property, |
Net book value at 28 March 2015 |
40,145 |
1,948 |
24,459 |
66,552 |
10,329 |
Foreign exchange |
- |
- |
- |
- |
(13) |
Additions |
7,686 |
1,876 |
- |
9,562 |
1,860 |
Acquisitions (see Note 8) |
4,870 |
2,388 |
108,547 |
115,805 |
4,541 |
Disposals |
- |
- |
- |
- |
(222) |
Amortisation or depreciation charge |
(2,262) |
(635) |
(2,524) |
(5,421) |
(1,317) |
Impairment |
(1,510) |
- |
(902) |
(2,412) |
(139) |
Net book value at 2 October 2015 |
48,929 |
5,577 |
129,580 |
184,086 |
15,039 |
|
|
|
|
|
|
Major additions during the period related to property, plant and equipment and comprised test and IT equipment and leasehold improvements for the Group's new headquarters in Cambridge.
The impairment of capitalised development costs related to development projects which are no longer required following the acquisition of Teltronic. The impairment of acquired intangibles relates to the fair value of Teltronic's terminals business which was recognised on acquisition and then immediately impaired as the Group has ceased development of Teltronic's terminal portfolio. The impairment of property, plant and equipment related to leasehold improvements in properties which are being closed or relocated.
|
Capitalisation of |
Software |
Acquired |
Total |
Property, |
Net book value at 29 March 2014 |
33,784 |
1,693 |
17,387 |
52,864 |
7,706 |
Additions |
7,681 |
359 |
- |
8,040 |
1,819 |
Acquisitions |
- |
- |
8,164 |
8,164 |
33 |
Amortisation or depreciation charge |
(3,700) |
(77) |
(720) |
(4,497) |
(966) |
Net book value at 26 September 2014 |
37,765 |
1,975 |
24,831 |
64,571 |
8,592 |
|
|
|
|
|
|
10. Reconciliation of cash flows to movements in net debt
|
Half-year ended |
Half-year ended |
Net increase (decrease) in cash and cash equivalents |
12,610 |
(4,212) |
Net new borrowings |
(86,812) |
(14,820) |
Receipt of restricted cash |
12,115 |
- |
Payment of arrangement fee and related costs |
1,620 |
- |
Changes in net debt resulting from cash flows |
(60,467) |
(19,032) |
Amortisation of debt issue costs |
(139) |
(24) |
Write-off of unamortised debt issue costs from previous facility |
(218) |
- |
Borrowings acquired with subsidiary undertaking |
(15,786) |
- |
Net movements in net debt |
(76,610) |
(19,056) |
Net (debt) funds at the beginning of the period |
(1,128) |
5,305 |
Foreign exchange loss on cash and cash equivalents |
22 |
- |
Net debt at the end of the period |
(77,716) |
(13,751) |
|
|
|
Net debt comprises: |
|
|
Restricted cash |
12,115 |
- |
Cash and cash equivalents |
15,033 |
3,805 |
Borrowings Current borrowings |
(54,380) |
(17,065) |
Non-current borrowings |
(50,484) |
(491) |
Net debt at the end of the period |
(77,716) |
(13,751) |
|
|
|
Restricted cash
The Company has received €12.1 million of advance payments from a customer that are treated as "restricted cash" in accordance with IAS 7 "Statement of cash flows" as, although the funds are held in a separate account in the Company's name, they are not available for general use until predetermined periods have elapsed following the delivery of the related goods.
New bank facility
On 1 May 2015 the Company entered into a €50 million term loan for a period of five years, together with a €70 million revolving credit facility that is available for five years, as part of the financing for the acquisition of Teltronic. The total arrangement fee and related costs are being amortised over the life of the facility.
11. Provisions
At the end of the period provisions included €4.9 million of contingent consideration relating to the acquisition of Portalify in 2013, together with €2.1 million in relation to the acquisition of Fylde in 2014 and €4.9 million of provisions acquired with Teltronic.
12. Share capital
During the period the following changes occurred in the Company's issued share capital of Ordinary shares of £0.0005 each:
|
Half-year ended |
Half-year ended |
||||||
|
Number |
£ |
Share |
Share |
Number |
£ |
Share capital €'000 |
Share |
At the beginning of the period |
138,645,431 |
69,323 |
79 |
999 |
138,645,431 |
69,323 |
79 |
999 |
Issue of new shares, net of expenses, as part of the acquisition of Teltronic |
|
|
|
|
|
|
|
|
At the end of the period |
185,183,892 |
92,592 |
110 |
78,422 |
138,645,431 |
69,323 |
79 |
999 |
|
|
|
|
|
|
|
|
|
During the period the following changes occurred in the number of Ordinary shares held in Treasury:
|
Half-year ended |
Half-year ended |
||||
|
Number |
Aggregate consideration |
Employee consideration |
Number |
Aggregate consideration |
Employee consideration |
At the beginning of the period |
1,220,099 |
|
|
503,432 |
|
|
Purchase of Ordinary Shares |
|
|
|
|
|
|
Exercise of options under employee share option schemes |
|
|
|
|
|
|
At the end of the period |
361,890 |
|
|
203,917 |
|
|
|
|
|
|
|
|
|
Subsequent to the end of the period the Company has purchased a further 300,000 shares for Treasury under the share buy-back programme announced on 1 October 2015.
13. Seasonality
Deliveries during the period reflected the usual weighting towards the second half of the year, which includes the end of the UK and German public sector fiscal years and the corresponding increase in business as customer budgets are confirmed.
14. Contingent liabilities
The Group has entered into guarantee and performance bond arrangements with its customers totalling approximately €15 million (2015: €2.7 million). The Group is also subject to disputes with suppliers during the ordinary course of business. Provision is made for any amounts that the Directors consider will probably become payable under such arrangements.
15. Financial instruments
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date that a derivative contract is entered into and are subsequently re-measured at their fair value.
Fair value estimation
The fair value of foreign exchange contracts is determined by comparing contracted forward exchange rates with the prevailing exchange rates at the balance sheet date. As a result they fall into "Level 2" of the fair value hierarchy as defined in Paragraph 27A of IFRS 7 "Financial Instruments: Disclosures". The nominal value less impairment provision of trade receivables and payables approximates to their fair value. The book value of all other financial assets and liabilities approximate to fair value.
16. Post balance sheet events
There have been no material post balance sheet events.
17. Changes to UK GAAP
Following changes to accounting standards in the UK, the Company intends to adopt FRS 101 for its individual financial statements for the period ending 1 April 2016. This will have no impact on the preparation or presentation of the consolidated financial statements.
Statement of Directors' responsibilities
A copy of the condensed consolidated financial statements of the Group is placed on the Company's website. The Directors are responsible for the maintenance and integrity of information on the Company's website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
§ This condensed set of consolidated interim financial statements has been prepared in accordance with IAS 34 as adopted by the European Union;
§ The interim management report includes a fair review of the information required by:
§ DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remainder of the financial year; and
§ DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any material changes in the related party transactions described in the last Annual Report.
The Directors of the Group are listed in the Group's Annual Report for the year ended 27 March 2015, with the exception of Dr John Hughes, CBE, who retired from the Board at the 2015 AGM held on 7 September 2015.
A list of the current directors is also maintained on the Sepura website: www.sepura.com.
By order of the Board,
Gordon Watling
Chief Executive Officer
Steve Chamberlain
Chief Financial Officer
23 November 2015
Independent review report to Sepura plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Sepura plc's condensed consolidated interim financial statements (the "interim financial statements") in the half-yearly financial report of Sepura plc for the 6 month period ended 2 October 2015. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
§ the condensed consolidated half-year balance sheet as at 2 October 2015;
§ the condensed consolidated half-year income statement and condensed consolidated half-year statement of comprehensive income for the period then ended;
§ the condensed consolidated half-year statement of cash flows for the period then ended;
§ the condensed consolidated half-year statement of changes in equity for the period then ended; and
§ the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The half-yearly financial report, including the interim financial statements, 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 Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
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 enquiries, 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.
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 interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Cambridge
23 November 2015
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