RNS Number:1760O
Maxima Holdings PLC
18 December 2006
For immediate release 18 December 2006
Maxima Holdings plc
Transition to International Financial Reporting Standards
Maxima Holdings plc ('Maxima' or the 'Group'), the IT systems integration and
managed services group, is adopting International Financial Reporting Standards
(IFRS) for the financial year ended 31 May 2007, ahead of the required timeframe
for AIM quoted companies. Previously the Group has applied United Kingdom
generally accepted accounting principles (UK GAAP).
Maxima's first published financial statements under IFRS will be in respect of
the six months ended 30 November 2006, with the first Annual Report and Accounts
prepared on this basis being in respect of the year ending 31 May 2007 ("2007").
This document explains the impact of the adoption of IFRS on the Group's results
and quantifies the expected impact on 2006 financial information which will be
used for comparison purposes, including the May 2005 balance sheet, previously
prepared under UK GAAP.
Adoption of IFRS will have no effect on the Group's strategy, operations of its
business or its trading cash flows. Distributable reserves in Maxima are also
unaffected.
For further information, please contact:
Maxima
Kelvin Harrison, Chief Executive 01242 211211
Linda Andrews, Group Finance Director 0141 880 1000
Smithfield
Sara Musgrave/Tania Wild 020 7903 0676
Contents of this document
A: Summary of IFRS impact
B: Basis of preparation and transition arrangements
C: Explanatory notes on the impact of IFRS
Appendices:
Reconciliations of financial statements from UK GAAP to IFRS
A: Summary of IFRS impact
The areas of accounting that are most significantly impacted are:
* The treatment of purchased goodwill
* Accounting for business combinations
* Share based payments
* Deferred taxation
The following table summarises the impact of the adoption on the Group's profit
for the six months ended 30 November 2005 and the year ended 31 May 2006.
----------- -----------
6 months ended Year ended
30 November 2005 31 May 2006
#000 #000
----------- -----------
Profit before tax as reported
under UK GAAP 389 1,524
IFRS adjustments:
Reversal of goodwill amortisation 662 1,533
Amortisation of intangibles
recognised on acquisitions (91) (325)
Finance costs charged on
acquisition (47) (35)
Share based payments expensed (37) (73)
Annual leave pay accrued (12) (24)
Capitalisation of R&D net of
resultant amortisation - 32
----------- -----------
Profit before tax as reported
under IFRS 864 2,632
=========== ===========
The impact on total equity (and net assets) at 31 May 2005, 30 November 2005 and
31 May 2006 is shown in the table below:
May 2005 November 2005 May 2006
#000 #000 #000
Net assets as reported under UK GAAP 13,695 19,657 20,669
IFRS adjustments:
Reverse acquisition of Maxima by Azur (8,457) (8,457) (8,457)
Impairment of goodwill in Maxima (4,046) (4,046) (4,046)
Annual leave pay accrued (43) (56) (68)
Finance costs charged on acquisition (45) (91) (78)
Reversal of goodwill amortisation - 662 1,533
Amortisation of intangibles - (91) (325)
Capitalise Research & Development, net
of amortisation - - 32
Deferred tax 11 60 154
----------- ----------- -----------
Net Assets as reported under IFRS 1,115 7,638 9,414
=========== =========== ===========
Detailed reconciliation information for the relevant statements is provided in
the appendix.
B. Basis of Preparation and transition arrangements
Statement of compliance
These extracts of the unaudited statements of Maxima have been prepared, for the
first time, to reflect the anticipated impact of International Accounting and
Financial Reporting Standards ('IFRS') and are covered by IFRS 1 "First-time
Adoption of IFRS" in respect of measurement matters.
As listed companies are adopting IFRS for the first time, there is limited
established practice upon which to draw in terms of interpretation and
application. Furthermore, it is possible that new standards, revisions to
existing standards and new interpretations may be issued which affect the Group.
Consequently it is not possible to quantify definitively the adoption of IFRS,
and therefore the comparative information in the 2007 interim and annual reports
may differ from that presented in this document.
The financial information in this document does not constitute statutory
accounts as defined in section 240 of the Companies Act 1985. The auditors have
issued unqualified opinions on the Group's UK GAAP financial statements for the
period ended 31 May 2005 and the year ended 31 May 2006.
IFRS1 Exemptions
The Group has applied IFRS1 'First Time Adoption of International Reporting
Standards' to provide a starting point for reporting under IFRS. The Group's
date of transition to IFRS is 1 June 2005 and all comparative information in the
financial statements is restated to reflect the Group's adoption of IFRS, except
where otherwise required or permitted under IFRS 1. IFRS 1 requires an entity to
comply with each IFRS effective at the reporting date for its first IFRS
financial statements, which will be 30 November 2006. As a general principle,
IFRS 1 requires the standards effective at the reporting date to be applied
retrospectively. However, retrospective application is prohibited in some areas,
particularly where retrospective application would require judgements by
management about past conditions after the outcome of the particular
transactions are already known. A number of optional exemptions from full
retrospective application of IFRS are granted where the cost of compliance is
deemed to exceed the benefits to users of the financial statements.
The Group has elected to take the following optional elections under IFRS 1:
Business combinations that occurred before the date of transition (1 June 2005)
The Group has elected to comply with IFRS for the acquisition of Azur Holdings
Limited ('Azur') by Maxima in November 2004 and has therefore complied for all
combinations after that date. It has not applied IFRS for any combinations prior
to that date.
Share based payments - the provisions of IFRS 2 have not been applied to equity
instruments that were granted in Azur after 7 November 2002 and vested before 1
June 2005.
C: Explanatory notes on the impact of IFRS
The following notes explain the impact that the adoption of IFRS has had on the
Group's consolidated results. Detailed reconciliations are set out in the
Appendix, showing the impact on the income statement for the period ended 30
November 2005 and year ended 31 May 2006, and on the balance sheets at 1 June
2005, 30 November 2005 and 31 May 2006.
1. Business Combinations
Acquisition of Azur Holdings Limited
On 24 November 2004 the Group acquired the share capital of Azur. Under UK GAAP
this was treated under acquisition accounting as the acquisition by Maxima.
Under IFRS 3, this transaction is treated as a reverse acquisition as the
shareholders in Azur gained control of Maxima Holdings plc, since their
shareholdings in Maxima represented more than one-half of its share capital
following the transaction.
As a result, the goodwill arising on the proportion of shares owned by the Azur
shareholders is reversed and goodwill relating to Azur's acquisition of Maxima
is created. The value of the consideration was 12,849,759 shares acquired at
65.514p. The fair value of the net assets of Maxima acquired is:
Book and fair value
#000
Cash at Bank 4,877
Trade creditors (504)
-------------
Fair value of net assets acquired 4,373
Goodwill capitalised 4,046
-------------
8,419
-------------
Satisfied by the fair value of shares acquired 8,419
-------------
The goodwill of #4,046,000 has been written off in full in the opening balance
sheet, as Maxima Holdings plc at the date of the transaction was a shell company
and the goodwill arising on the reverse acquisition of Maxima therefore had no
intrinsic value.
Acquisition of Ringwood Group Limited
On 11 August 2005 the Group acquired the share capital of Ringwood Group
Limited. Under UK GAAP the fair value of the consideration was #2,980,000 and
the fair value of the net assets acquired was #787,000, which gave rise to
#2,193,000 goodwill on acquisition.
The Group has accounted for this acquisition in accordance with IFRS 3 'Business
Combinations'. Under IFRS 3, intangible assets purchased as part of a business
combination may meet the criteria set out in IFRS 3 for categorisation as an
intangible asset other than goodwill, and are then amortised over their useful
economic life.
The Group has recognised an intangible asset for the Intellectual Property and
the associated customer relationships acquired. These have been valued at
#704,000 at the date of acquisition by the Group. This intangible will be
written off over its expected useful life of 7 years. Deferred tax has been
provided on this intangible asset following the principles in IAS 12 'Income
Taxes'.
A reconciliation of goodwill recognised on the acquisition under UK GAAP
compared to IFRS is set out below:
#000's
Goodwill recognised under UK GAAP 2,193
Recognition of intangible asset (704)
Recognition of deferred tax relating to intangible asset 211
Recognition of deferred tax relating to tax losses (140)
-------------
1,560
-------------
Acquisition of Hanston Technology Partners Limited
On 26 September 2005 the Group acquired the share capital of Hanston Technology
Partners Limited. Under UK GAAP the fair value of the consideration was
#8,792,000 and the fair value of the net assets acquired was #345,000, which
gave rise to #8,447,000 goodwill on acquisition.
The Group has accounted for this acquisition in accordance with IFRS 3 'Business
Combinations'. Under IFRS 3, intangible assets purchased as part of a business
combination may meet the criteria set out in IFRS 3 for categorisation as an
intangible asset other than goodwill and are then amortised over their useful
economic life.
The Group has recognised an intangible asset under IFRS3 for the contracts and
customer relationships acquired. These have been valued at #254,000 and #878,000
respectively at the date of acquisition by the Group. These intangibles will be
written off over their expected useful lives of between 2 and 4 years. Deferred
tax has been provided on this intangible asset in line with the principles in
IAS 12 'Income Taxes'.
A reconciliation of goodwill recognised on the acquisition under UK GAAP
compared to IFRS is set out below:
#000's
Goodwill recognised under UK GAAP 8,447
Recognition of intangible asset for contracted open order book (254)
Recognition of intangible asset for customer relationships (878)
Recognition of deferred tax relating to intangible asset 340
------------
7,655
------------
Acquisition of Seabrook Research Limited
On 24 February 2006 the Group acquired the trade and assets of Seabrook Research
Limited. Under UK GAAP the fair value of the consideration was #504,000 and the
fair value of the net liabilities acquired was #136,000, which gave rise to
#640,000 goodwill on acquisition.
The Group has accounted for this acquisition in accordance with IFRS 3 'Business
Combinations'. Under IFRS 3, intangible assets purchased as part of a business
combination may meet the criteria set out in IFRS 3 for categorisation as an
intangible asset other than goodwill and are then amortised over their useful
economic life.
The Group has recognised an intangible asset under IFRS 3 for the customer
relationships acquired. These have been valued these at #194,000 and will be
written off over their expected useful life of 5 years. Deferred tax has been
provided on this intangible asset in line with the principles in IAS 12 'Income
Taxes'.
A reconciliation of goodwill recognised at acquisition under UK GAAP compared to
IFRS is set out below:
#000's
Goodwill recognised under UK GAAP 640
Recognition of intangible asset for customer relationships (194)
Recognition of deferred tax liability relating to intangible asset 58
------------
504
------------
Acquisition of QED Business Systems Limited
On 12 May 2006 the Group acquired the share capital of QED Business Systems
Limited. Under UK GAAP the fair value of the consideration was #4,526,000 and
the fair value of the net assets acquired was #121,000, which gave rise to
#4,405,000 goodwill on acquisition.
The Group has accounted for this acquisition in accordance with IFRS 3 'Business
Combinations'. Under IFRS 3, intangible assets purchased as part of a business
combination may meet the criteria set out in IFRS 3 for categorisation as an
intangible asset other than goodwill and are then amortised over their useful
economic life.
The Group has recognised an intangible asset under IFRS 3 for the contracts and
customer relationships acquired. These have been valued at #417,000 and
#1,160,000 respectively at the date of acquisition by the Group, and will be
written off over their expected useful lives of between 2 and 5 years. Deferred
tax has been provided on this intangible asset in line with the principles in
IAS 12 'Income Taxes'.
A reconciliation of goodwill recognised on the acquisition under UK GAAP
compared to IFRS is set out below:
#000's
Goodwill recognised under UK GAAP 4,405
Recognition of intangible asset for contracted open order book (417)
Recognition of intangible asset for customer relationships (1,160)
Recognition of deferred tax liability relating to intangible asset 473
------------
3,301
------------
2. Intangible assets
(a) Goodwill
Under IAS 38 'Intangible Assets', goodwill is not amortised but instead is
reviewed annually for impairment. The Group has elected to not apply IFRS 3
retrospectively before the acquisition of Azur Holdings Limited in November
2004. The net book value of goodwill has therefore been frozen at November 2004
with no further amortisation charged on goodwill held at that date or on
subsequent acquisitions.
An impairment review is also required at the date of transition under IFRS 1 in
accordance with the guidelines set out in IAS 36 'Impairment of Assets'
regardless of whether any indications of impairment exist. The Group reviewed
the goodwill held at the date of transition and no impairment was noted.
The adjustments taken through the income statements in each of the periods has
been set out below:
----------- -----------
6 months ended Year ended
30 November 2005 31 May 2006
#000 #000
----------- -----------
Reversal of goodwill
amortisation
previously charged 662 1,533
=========== ===========
(b) Other intangibles
The amortisation charge in respect of the intangible assets acquired as part of
the above business combinations are set out below:
----------- -----------
6 months ended Year ended
30 November 2005 31 May 2006
#000 #000
----------- -----------
Intellectual Property - Ringwood
Software Ltd 34 84
Customer Relationships
- Hanston Technology Partners
Ltd 37 146
- Seabrook Research Limited - 10
Contracts/Open Order Book
- Hanston Technology Partners
Ltd 21 85
----------- -----------
92 325
=========== ===========
As QED Business Systems Limited was held for less than one month prior to 31 May
2006 no amortisation has been charged in respect of the intangible in that
period.
(c) Research and Development
Under IAS 38 'Intangible Assets' research and development activities which meet
certain criteria are capitalised and amortised over the period of their economic
benefit. The Group has determined that it has certain activities which meet the
IAS 38 criteria and therefore should be capitalised.
The effect on the financial statements of the Group is set out below:
----------- -----------
6 months ended Year ended
30 November 2005 31 May 2006
#000 #000
----------- -----------
Research & Development activity
capitalised - 49
Resulting amortisation - (17)
----------- -----------
Net book value of
Research & Development - 32
=========== ===========
3. Share Based Payment
IFRS 2 'Share Based Payments' requires that an expense is recognised over the
vesting period in respect of all equity instruments that have been granted,
based on their fair value at the date of grant, in order to reflect the cost of
issuing these share options. The Group has applied the Black-Scholes method of
valuing the fair value of the relevant share options.
4. Deferred Taxation
Deferred tax under UK GAAP was not provided due to materiality.
IAS 12 'Income Taxes' requires that full provision be made for all taxable
temporary timing differences except those arising on goodwill. The principal
impact of adopting IAS 12 has been to recognise deferred tax liabilities on the
temporary differences arising on intangible assets and to recognise deferred tax
assets on brought forward tax losses recognised in accordance with IFRS 3
relating to each of the acquisitions to the extent where recoverability is
considered probable.
5. Employee benefits
IFRS has introduced more detailed guidance on recognising employee benefits in
accounts when the benefit is earned as opposed to when it is paid. The Group has
made provision for the accrued holiday pay.
Appendices
1. Reconciliation of balance sheet at 1 June 2005 (date of transition to IFRS)
Effect of transition to IFRS
UK Reverse Annual Acquisition Taxation Goodwill IFRS
GAAP Acquire leave finance impairment
Maxima expense costs
------- -------- ---------- ------- ---------
#000 #000 #000 #000 #000 #000 #000
Non-current assets
Goodwill 14,704 (8,457) (4,046) 2,201
Other intangible
assets
Property, plant
& equipment 319 319
------- --------
15,023 2,520
Current assets
Trade and other
receivables 4,086 (45) 4,041
Cash and cash
equivalents 2,925 2,925
------- --------
7,011 6,966
Non-current assets
Deferred tax - 11 11
Total assets 22,055 9,497
Current
Liabilities
Trade and other (1,774) (1,774)
payables
Deferred
Income (4,900) (4,900)
Tax liabilities - -
Short term
provisions (1,665) (43) (1,708)
------- --------
(8,339) (8,382)
Net current
liabilities (1,328) (1,416)
------- --------
Net Assets 13,695 1,115
======= ========
Equity
Called up
share capital 119 119
Reverse
Acquisition
Reserve (9,180) (9,180)
Share premium
account 12,510 12,510
Capital
redemption
Reserve 50 50
Translation
reserve
Retained
earnings 1,016 723 (43) (45) 11 (4,046) (2,384)
------- --------
Total equity 13,695 1,115
======= ========
2.1 Reconciliation of profit for the six months ended 30 November 2005
Effect of transition to IFRS
UK Annual Share Acquisition Goodwill Taxation Amortisation IFRS
GAAP leave based finance amortisation of
expense payments costs intangibles
------- -------- -------- --------- ------- ----------
#000 #000 #000 #000 #000 #000 #000 #000
Turnover 8,093 8,093
Cost of Sales (1,960) (1,960)
------- -------
Gross Profit 6,133 6,133
Administration
Expenses (4,949) (12) (37) (47) (5,045)
------- -------
EBITA&E 1,184 1,088
Exceptional Items (119) (119)
Goodwill
amortisation (662) 662 (91) (91)
------- -------
Operating Income 403 878
Net interest (14) (14)
------- -------
Profit before tax 389 864
Tax (190) 11 41 (138)
------- -------
Profit after Tax 199 726
======= =======
2.2 Reconciliation of balance sheet at 30 November 2005
Effect of transition to IFRS
UK Reverse Annual Acquisition Goodwill Asset Taxation Amortisation IFRS
GAAP Acquire leave finance amortisation Reclassification of
Maxima expense costs intangibles
#000 #000 #000 #000 #000 #000 #000 #000 #000
Non-current
assets
Goodwill 24,655 (12,503) 662 (1,836) 481 11,459
Other
intangible
assets - 1,836 (91) 1,745
Property,
plant &
equipment 500 500
------- -------
25,155 13,704
Current
assets
Trade and
other
receivables 6,613 (91) 6,522
Cash and cash
equivalents 1,278 1,278
------- -------
7,891 7,800
Non-current
assets
Deferred - 102 102
tax
Total 33,046 21,606
assets
Current
Liabilities
Trade and
other (1,244) (1,244)
payables
Deferred
Income (6,246) (6,246)
Tax
liabilities (566) (566)
Bank loans (700) (700)
Short term
provisions (1,833) (56) (1,889)
------- -------
(10,589) (10,645)
Net current
liabilities (2,698) (2,845)
Non-current
liabilities
Bank Loans (2,800) (2,800)
Deferred - (523) (523)
tax ------- -------
(3,323)
Total
Liabilities (13,389) (13,968)
------- -------
Net Assets 19,657 7,638
======= =======
Equity
Called up
share capital 157 157
Reverse
Acquisition
Reserve (9,180) (9,180)
Share premium
account 18,463 18,463
Capital
Redemption
Reserve 50 50
Translation
reserve 7 7
Retained
earnings 980 (3,323) (56) (91) 662 60 (91) (1,859)
------- -------
Total 19,657 7,638
equity ======= =======
3.1 Reconciliation of profit for the year ended 31 May 2006
Effect of transition to IFRS
UK GAAP Annual Share Acquisition Goodwill Taxation Amortisation Capitalise IFRS
leave based finance amortisation of R&D
expense payments costs intangibles
------- ------- --------- --------- -------- -------- ---------
#000 #000 #000 #000 #000 #000 #000 #000 #000
Turnover 19,131 19,131
Cost of (4,142) (4,142)
Sales
------- --------
Gross Profit 14,989 14,989
Administration
Expenses (11,623) (24) (73) (35) 48 (11,707)
------- --------
EBITA&E 3,366 3,282
Other
operating
income
Exceptional
Items (236) (236)
Amortisation (1,533) 1,533 (325) (16) (341)
------- --------
Operating
Income 1,597 2,705
Net interest (73) (73)
------- --------
Profit before
tax 1,524 2,632
Tax (655) 22 97 (536)
------- --------
Profit after
Tax 869 2,096
======= ========
------- ------- -------- --------- ---------- ------- --------- --------
UK Reverse Annual Acquisition Goodwill Asset Taxation Amortisation Capitalise IFRS
GAAP Acquire leave finance amortisation Reclassi- of
Maxima expense costs fication intangibles R&D
------- ------- -------- --------- ---------- ------- --------- --------
#000 #000 #000 #000 #000 #000 #000 #000 #000 #000
Non-current
assets
Goodwill 28,905 (12,503) 1,533 (3,608) 943 15,270
Other
intangible
assets - 3,608 (341) 48 3,315
Property,
plant &
equipment 556 556
------- -------
29,461 19,141
Current
assets
Trade and
other
receivables 6,464 (78) 6,386
Cash and cash
equivalents 3,029 3,029
------- -------
9,493 9,415
Non-current
assets
Deferred - 196 196
tax
Total 38,954 28,752
assets
Current
Liabilities
Trade and
other (1,559) (1,559)
payables
Deferred
income (7,045) (7,045)
Tax
liabilities (1,132) (1,132)
Bank loans (3,700) (3,700)
Short term
provisions (2,074) (68) (2,142)
------- -------
(15,510) (15,578)
Net current
liabilities (6,017) (6,163)
Non-current
liabilities
Bank Loans (2,450) (2,450)
Deferred - (985) (985)
Tax
Deferred
Consideration (325) (325)
------- -------
(2,775) (3,760)
Total
Liabilities (18,285) (19,338)
------- -------
Net Assets 20,669 9,414
======= =======
Equity
Called up
share capital 160 160
Reverse
acquisition
reserve - (9,180) (9,180)
Share premium
account 17,270 17,270
Capital
redemption
reserve 50 50
Merger 1,766 1,766
reserve
Retained
earnings 1,423 (3,323) (68) (78) 1,533 154 (341) 48 (652)
------- -------
Total 20,669 9,414
equity =======
=======
3.2 Reconciliation of balance sheet at 31 May 2006 (date of last UK GAAP
Financial Statements)
Effect of transition to IFRS
This information is provided by RNS
The company news service from the London Stock Exchange
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