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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Aea Tech Grp | LSE:AAT | London | Ordinary Share | JE00B3ZHFD45 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.05 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMAAT
RNS Number : 9902I
AEA Technology Group PLC
01 August 2012
AEA TECHNOLOGY GROUP PLC
ANNUAL FINANCIAL RESULTS STATEMENT FOR THE YEAR ENDED 31 MARCH 2012
AEA Technology Group plc, a leading technical, energy and sustainability consultancy, today announces its annual financial results for the year ended 31 March 2012.
Highlights
Financial Position
-- On 18 July, the Board announced it would consider all strategic options to realise value and can report that this process is now underway, including ongoing discussions with a number of interested parties. However, as previously announced, the Board does not envisage there will be offers for the share capital of the Company and the Board expects that such options will result in little or no value for shareholders.
-- Lloyds TSB Bank plc (the "Bank") will continue to provide short-term support while the Group executes its financial restructuring plan.
-- The Bank has given an agreement in principle on the terms for a new money facility to provide additional short term funding of GBP5.0 million on a secured basis through to end of October 2012.
-- The Trustee of the Group's pension scheme has agreed to defer all pension payments otherwise due to assist in the Group maintaining appropriate liquidity whilst the strategic review is undertaken.
Financial summary
-- Order intake GBP134.1 million (2011: GBP80.9 million) -- Revenue GBP110.3 million (2011: GBP113.7 million) -- Adjusted operating profit GBP4.1 million (2011: GBP8.8 million) (1) -- Operating loss GBP35.4 million (2011: GBP5.9 million) -- Net debt of GBP36.4 million (2011: GBP28.3 million)
-- Net liabilities in respect of retirement benefits of GBP168.5 million (2011: GBP121.8 million)
Operational summary
-- Despite challenging economic backdrop, the energy and environmental consulting businesses in both the UK and US delivered results in line with expectations.
-- PPC has suffered from failure to secure expected new contracts together with some existing contract losses.
-- New business plan with stronger commercial focus is being implemented by John Lowry. -- Plan supported by a strengthening and change of management in the US businesses.
(1) Adjusted operating profit is defined as operating profit before amortisation of acquired intangibles, impairment of goodwill and other significant items
Dr Paul Golby CBE, Chairman of AEA Technology Group plc, said:
"The difficult trading conditions have made this a challenging year for all of our employees. Nevertheless, I am extremely grateful to them for their hard work, resilience and encouragement.
Despite a robust business plan and the underlying strength and expertise of the Group's employees, the business has been overwhelmed by the growing pension liability.
Going forward, the Board remains cautious in light of the challenging international trading conditions and material uncertainty over the future funding requirements of the Group."
For further information:
Investors
IR Focus
Neville Harris nharris@irfocus.co.uk
Chairman's statement
It has been a very challenging year for AEA. Having acquired ERG in November 2010 the Group was seeking to grow in the US markets and further shift the focus of the Group away from what had been very difficult markets in the UK. However, despite a broadly on track performance from the UK and US energy and environmental consulting businesses, our failure to secure certain contracts, combined with the loss of others in the IT consulting business based in Washington has, despite an improved order intake, resulted in a significant, previously announced, reduction in the expected level of adjusted operating profit.
Capital structure and funding
Since the date of the profit warning in January, Lloyds TSB Bank plc (the "Bank") has remained supportive of the Group's activities while the Board, together with its advisers, prepared a new strategy and business plan. During this period, the Company sought to reach agreement with the Bank as to revised facilities, including amended covenants for 2013. At the same time the Company held detailed discussions with the trustee of the Group's defined benefit pension scheme (the "Trustee") with a view to addressing the significant deficit of the scheme and the Group's on-going funding of these retirement benefit obligations.
The impact of the significantly reduced profit level and its effect on our bank facilities and covenants, combined with the increase in the level of the pension deficit, has meant that the Board has, with the Bank and Trustee, been exploring ways to match the level of Group debt and pension obligations to the level of profit and cash flow being generated by the Group's businesses.
The new strategy and business plan has now been completed and discussed with both the Bank and Trustee. The new strategy and expected operating performance sets out a positive way forward for the Group and its employees, and the actions already taken by the Board to improve operational efficiency have started to deliver results. However, as announced on 18 July 2012, despite constructive discussions with the Bank and Trustee, the Board has been unable to achieve a long term solution to the existing levels of net debt and the significant on-going funding costs of the Group's retirement benefit obligations.
As a result, with the support of the Trustee and the Bank, including short term financial support, the Board decided to consider all strategic options to realise value and can report that this process is now underway, including ongoing discussions with a number of interested parties. However, as previously announced, the Board does not envisage there will be offers for the share capital of the Company and the Board expects that such options will result in little or no value for shareholders.
In order to support the Group whilst these options are pursued, the Bank has given an agreement in principle on the terms for a new money facility to provide additional short term funding of GBP5.0 million on a secured basis through to the end of October 2012. Entering into a formal facility agreement in respect of the additional GBP5.0 million will be conditional upon the Group providing security and an ongoing liquidity covenant.
Going Concern
Additional short term funding is expected to be provided to allow the Group to realise value through a sale of all or part of the Group's businesses and assets which it is hoped will enable the Group to agree a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme in a solvent manner.
The Board believes that preparing the Financial Statements on the going concern basis remains appropriate as it is actively pursuing a sale of all or part of the Group's businesses and assets, and believe this will return sufficient value to enable a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme in a solvent manner. In addition, the Board believes it will be able to finalise the agreement of the GBP5.0 million short term facility, to meet short term cash forecasts and operate within the facilities expected to be provided by the Bank and comply with any related covenants and that it will be able to execute a sale of all or part of the Group's businesses and assets during the period in which facilities are provided by the Bank.
However there can be no certainty that a sale process can be completed in the short term that will enable the discharge of liabilities to the Bank and the pension scheme. Should the Group not maintain the ongoing support of the Bank and pension scheme and execute a financial restructuring plan that provides an appropriate solution for the Bank and pension scheme, and meet its forecast cash requirements it may not have sufficient funds to remain in operational existence. These circumstances indicate the existence of material uncertainties that may cast significant doubt over the Group's ability to continue as a going concern. The Financial Statements do not include any adjustment to the value of balance sheet assets or provision for further liabilities, which would result should the going concern basis not be appropriate.
Results highlights
Revenue from continuing operations was GBP110.3 million (2011: GBP113.7 million). Order intake was improved at GBP134.1 million compared to GBP80.9 million in 2011, although this includes the full year impact of order intake in ERG of GBP43.3 million. Adjusted operating profit fell to GBP4.1 million from GBP8.8 million in the previous year as the significant impact of the decline in the IT business was felt. Europe was ahead at the adjusted operating profit level year on year. The statutory operating loss was GBP35.4 million compared to a loss of GBP5.9 million the year before reflecting an impairment to goodwill on previously acquired businesses of GBP28.8 million, costs of GBP4.4 million to restructure the business and a GBP4.6 million provision to cover the costs of onerous property leases.
Dividend
The Directors are not proposing that a dividend is paid.
Board
Following Andrew McCree's resignation in November 2011, John Lowry was appointed to the Board as Interim CEO in November 2011.
On 16 July 2012, Tim Robinson resigned as Non-Executive Director. Tim Robinson is CEO of Talaris which has recently been the subject of a take-over and he has left AEA to devote his time to the integration of Talaris with the new parent company.
People
The difficult trading conditions have made this a challenging year for all of our employees. Nevertheless, I am extremely grateful to them for their hard work, resilience and encouragement.
Outlook
The operational strategy for an improved future is now in place and execution is in line with plan.
Despite a robust business plan and the underlying strength and expertise of the Group's employees, the business has been overwhelmed by the growing pension liability.
Going forward, the Board remains cautious in light of the challenging international trading conditions and material uncertainty over the future funding requirements of the Group.
Dr Paul Golby CBE, Chairman
Business & performance review
Review of the business
The last twelve months has been a difficult period for AEA and its shareholders.
Following the acquisition of ERG in November 2010 the Group became a leading technical advisor to the US and UK Governments in energy, sustainability, emissions and waste.
However, continued spending cuts and tightened fiscal policy from both our principal customers has meant that the strategic vision has been more difficult to execute than previously expected.
Despite the challenging backdrop, the energy and environmental consulting businesses on both sides of the Atlantic were able to achieve results in line with expectations, through a combination of new project wins and a firm control of costs. However, the Washington based IT business suffered from a failure to win a number of contracts that had been expected to be won and some contract losses. The impact of these on the Group as a whole has been significant, leading to profit warnings in both November 2011 and January 2012.
Future development of the business
Following these trading difficulties, John Lowry, who was appointed Interim CEO last November, has led the Senior Executive Management Team in a root and branch review of the business to determine the best way forward for the Group.
The fundamental strategy of the business based upon consulting in areas of deep domain knowledge, experience and reputation remains unchanged.
However to achieve the best results from these strengths will require a very different method of execution. The new strategy and business plan has been developed by the newly formed AEA Group Executive which is comprised of the CEOs and CFOs of the operating companies and the CEO and CFO of the Group, with the following objectives:
-- Revenue growth will be maximized by the recruitment of senior personnel around whom a more assertive business development culture will be developed.
-- Business will be developed in new market areas adjacent to our existing areas of expertise which have characteristics that demand our existing skills and experience.
-- Target market sectors will be expanded to include new geographic territories where we can leverage our reputation with US and UK development agencies.
-- Work in commercial sectors will be expanded where there is no conflict of interest with government sector work.
-- Cost reduction opportunities continue to be pursued across all aspects of the Group's operations and there have been some notable successes already.
Operational developments
-- Management at PPC, our Washington based business, has been improved and, under the leadership of a new CEO and CFO, this business is steadily improving.
-- At ERG, our Boston based business, the former owner has now left the business after a period of handover and we are seeking a new CEO and CFO.
-- Overall, despite the necessary operational change that is taking place, the commitment of our employees remains strong.
Business wins
Despite the challenges in the market, order intake grew to GBP134.1 million from GBP80.9 million in the previous year, although this includes the full year impact of ERG of GBP43.3 million.
Notable project wins include a framework agreement to support the US Environmental Protection Agency ("EPA") with its development of greenhouse gas emissions legislation (which was won with considerable support from the European operations) and a framework agreement to support the EPA and other members of a high-level Task Force in the development of the restoration strategy for the Gulf of Mexico. The Task Force delivered the final strategy to President Barack Obama in December 2011.
ERG, supported by PPC, was awarded a contract for the US Department of Energy ("DOE") Building Technologies Program Support which will utilise a broad range of the Group's capabilities: programme design and implementation; data management, web design and technology services; market research; partnership development; regulatory support and acquisition and life cycle management for the DOE's Better Buildings Neighborhood Program.
AEA Europe won a rebid to produce the annual UK Inventory of Air Pollutant Emissions, including greenhouse gases, which is used for reporting under international treaties and led a consortium with ICLEI to win an 18 month project to determine how European cities can and should adapt to climate change.
These high profile wins clearly demonstrate the underlying strength and expertise of the Group's technical consulting skills.
Financial performance
The Group has two reportable segments being Europe and the US. The US constitutes two operating segments being PPC and ERG which both provide a similar consulting service, operate in a similar market and both have the US Government as the primary customer. Due to these similar economic characteristics they are amalgamated into one reportable segment. ERG was acquired in November 2010 and contributed to the performance of the Group in the prior year only for a period of 5 months. For that reason, the analysis that follows will include where relevant identification of the impact of ERG to assist in understanding the financial performance of the reportable segments.
Total order intake was GBP134.1 million (2011: GBP80.9 million).
US operations order intake was GBP86.7 million (2011: GBP49.7 million), with a full year of ERG contributing orders of GBP43.3 million. PPC order intake increased by 30%, which reflects a greater degree of budget certainty within the US Government sector in the second half of the financial year. In Europe order intake was GBP47.4 million (2011: GBP31.2 million), an increase that reflected Europe's strong competitive edge that secured major wins within the UK public sector and a 28% increase in order intake from the international public sector.
Total Group revenue for the year was GBP110.3 million (2011: GBP113.7 million). In Europe the revenue was GBP39.0 million (2011: GBP54.7 million), which reflected the anticipated UK Government budget cuts and also reductions in Government programmes that led to a drop in subcontractor through costs within revenue. In the US revenue in the year was GBP71.3 million (2011: GBP59.0 million), an increase of 21%, with ERG contributing revenue of GBP37.6 million, compared to GBP15.4 million in the five months post acquisition in 2010/11. PPC revenue was GBP33.7 million (2011: GBP43.6 million) due to the reduced spending by the US Government, which resulted in lower revenue in the second half of the year following lower than expected orders.
Amortisation of acquired intangibles, impairment of goodwill and certain other significant items are included within operating profit. In order to give a clearer analysis of the underlying operating performance of the Group these items have been excluded to derive the adjusted operating profit figures. The significant items relate mainly to the impairment of goodwill (GBP28.8 million), costs of restructuring and redundancy during the year (GBP4.4 million) and, having reviewed the properties across the Group in light of the Group's revised forecasts, the provision for onerous property lease costs (GBP4.6 million).
The costs of restructuring and redundancy include:
-- redundancy programmes and restructuring and redundancy of Group senior management teams in the UK and US, including recruitment fees associated with Executive Board members and Senior Management in the US (GBP1.9 million).
-- professional advice in respect of restructuring debt and pension liabilities (GBP1.8 million), -- restructuring US IT operational activities (GBP0.4 million), and -- other minor restructuring costs.
The adjusting significant items are shown below the Consolidated income statement.
The adjusted operating profit in the year was GBP4.1 million (2011: GBP8.8 million). The result reflects the lower organic revenue within the US, which reduced US adjusted operating profit from GBP7.2 million to GBP1.7 million, a drop in organic adjusted operating profit of GBP7.0 million, offset partially by non-organic growth in adjusted operating profit related to the acquisition of ERG in 2010 of GBP1.7 million. This has resulted in the appointment of new management and a programme of cost reductions that will align the cost base with the anticipated future revenue activity and make the business more competitive in the current business environment. Europe mitigated the expected fall in revenue with targeted and pre emptive cost savings in the previous financial year, which continued into the current financial year.
Net finance costs were GBP4.7 million (2011: GBP3.9 million) including interest on debt facilities of GBP2.5 million (2011: GBP1.7 million), which was up from 2010/11 due to higher levels of debt resulting from the lower revenues generated by PPC in the year and a higher margin following the renegotiation of the banking facility in September 2011. Net pension finance costs were GBP2.0 million (2011: GBP2.0 million).
The overall impact of tax on the Group was a charge of GBP0.3 million (2011: GBP4.3 million). Taxable profits of AEA Technology plc are largely offset by brought forward losses in the UK. The tax charge arises from deferred income tax movements of GBP0.3 million (2011: GBP3.4 million), overseas income tax of GBPnil (2011: GBP1.0 million) and a current tax charge of GBPnil (2011: credit GBP0.1 million). As at 31 March 2012 the recognised net deferred income tax asset was GBP0.8 million (2011: asset GBP1.1 million). The Group has an unrecognised deferred income tax asset of GBP68.8 million (2011: GBP56.5 million). The three operating companies of the Group operate in the UK and the US, where the statutory tax rates are 26% and 34% respectively.
The loss for the year attributable to owners of the Company was GBP40.4 million (2011: GBP14.0 million). This loss was driven largely by the increase in significant items of GBP24.8 million, which includes impairment losses on goodwill of GBP28.8 million offset partially by reductions year on year of GBP4.5 million in restructuring, acquisition and onerous property lease costs. The adjusted loss attributable to the owners of the Company excludes the impact of the significant items described above and, additionally, the net finance costs of GBP2.0 million (2011: GBP2.0 million) on the defined benefit pension scheme. Adjusted loss attributable to the owners of the Company, per note 7 was GBP0.7 million (2011: profit GBP0.4 million). This movement is a result of the fall in adjusted operating profit partially offset by a reduction in the tax charge to GBP0.3 million (2011: GBP4.3 million).
The adjusted earnings per share, calculated using the adjusted loss attributable to the owners of the Company, was 0.0p (2011: 0.0p). Basic earnings per share was a loss of 2.8p (2011: loss 1.2p) as a result of both the increase in the weighted average number of Ordinary shares in issue and the loss attributable to owners of the Company. The Group has dilutive Ordinary shares from share options, although due to the loss in the year to 31 March 2012 there remains no dilution resulting from the share options.
Cash flows in the year
The net cash flow generated from business operations of GBP3.6 million (2011: GBP10.3 million) has been used to fund various significant items, principally the costs of restructuring and redundancy discussed above and as shown in the 'Statement of movement in net debt - alternative performance measures', resulting in cash used in operations of GBP4.3 million (2011: GBP3.9 million). In Europe management have continued to focus on active management of working capital, which resulted in cash generated from business operations of GBP4.4 million (2011: GBP4.4 million). Lower profits in the US resulted in cash generated from business operations of GBP3.3 million (2011: GBP8.6 million). Within the Corporate centre the impact of cash expenditure on restructuring increased outflows to GBP4.1 million in the financial year (2011: GBP2.7 million).
Overall net debt increased from GBP28.3 million to GBP36.4 million.
Financial position
Banking facilities and net debt
AEA has a three year bank facility expiring in September 2014, which includes a GBP43.0 million (2011: GBP39.0 million) revolving credit facility (including an overdraft facility of GBP7.0 million) to manage periods of working capital fluctuation and a GBP4.0 million bonding facility to support the obligations of members of the Group arising in the ordinary course of business. Following the year end, the Group has obtained the Bank's agreement in principle on the terms for a new money facility to provide an additional short term facility of GBP5.0 million on a secured basis through to the end of October 2012. Entering into a formal agreement will be conditional upon the Group providing security and an ongoing liquidity covenant.
The balance of net debt is at a low point at the end of March each year, due to the seasonality of cash flows, but historically it is at a peak at the end of December, January and February.
As disclosed in note 2 these banking facilities are not considered sufficient to cover the Group's anticipated funding requirements for the foreseeable future. The short term funding has been provided to allow the Group to consider all strategic options to realise value, including through a sale of all or part of its businesses and assets, which it is hoped will enable the Group to agree a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme.
Net debt at 31 March 2012 was GBP36.4 million (2011: GBP28.3 million). The detailed analysis of the Group's borrowings is shown in note 11.
Capital structure
The Company's authorised and issued share capital as at 31 March 2012, together with details of shares issued during the year, are set out in note 9. Each Ordinary share carries one vote.
At 31 March 2012 the Group's deficit on net shareholder funds amounted to GBP157.3 million (2011: GBP70.1 million).
Dividends and dividend policy
The Board is not recommending the payment of a dividend in respect of the year ended 31 March 2012 (2011: GBPnil).
Share price and market capitalisation
The closing share price of the Group on 31 March 2012 was 0.27p (2011: 4.34p) and market capitalisation of the Group was GBP3.9 million (2011: GBP63.1 million). The high and low prices during the year were 5.00p and 0.18p respectively.
Pensions
The Group assesses pension scheme funding with reference to actuarial valuations and for reporting purposes uses IAS 19. Under IAS 19 the Group's post retirement benefit net liability was GBP168.5 million at 31 March 2012 (2011: GBP121.8 million). The increase in the net liability primarily resulted from a reduction in the discount rate, which dropped to 4.8% (31 March 2011 at 5.6%). AEA Technology plc agreed a schedule of contributions with the Trustee of the AEA Technology Pension Scheme (the "Scheme") in June 2009, which are agreed payments of GBP2.4 million per year commencing July 2010, increasing to GBP6.0 million per year from July 2012 through to April 2029. This has been confirmed by the Pensions Regulator. The Company has been in ongoing discussions to agree a revised schedule of contributions with the Trustee. These discussions have not yet produced an agreed outcome and the discussions continue. As outlined in note 2 the Trustee have agreed a short term deferment of pension contributions.
Accounting policies
A description of the principal accounting policies appears in note 17. The policies followed are in accordance with IFRS as adopted by the EU. The preparation of the Financial Statements conforming with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Any revisions to estimates are recognised prospectively.
The accounting policies and areas that require the most significant estimates and judgments to be used in the preparation of the Financial Statements are in relation to assessment of provisions, contract accounting and defined benefit pension schemes.
Treasury policies and objectives
The Group's finance team manages and monitors external funding and financial risks in support of the CFO who operates within written policies approved by the Board and within the internal control framework.
The Group uses various financial instruments in order to manage the exposures that arise in its business operations as a result of movements in financial markets. A natural hedge is maintained against investment in US activities through maintaining a US dollar denominated portion of the Group's borrowings. Swap contracts are maintained to minimise risk of interest rate variability and such derivatives are valued appropriately in the balance sheet. The Group does not undertake speculative foreign exchange or interest rate dealings for which there is no underlying exposure. Treasury dealings such as investments, borrowings and foreign exchange are conducted only to support underlying business transactions. All treasury activities are focused on the management of risk. The main risks arising from the Group's financial instruments are market risk (including foreign exchange risk and cash flow and interest rate risk), credit risk and liquidity risk.
Entities within the Group are required by the Group's treasury function to maintain and regularly update detailed cash forecasting models. The treasury function supports the cash flow needs of the underlying businesses and maintains financial flexibility through utilising the available funds under the Group's revolving credit facility (note 11). As at 31 March 2012 GBP2.9 million (2011: GBP6.7 million) of this revolving credit facility remains unutilised. However, as noted in the Chairman's statement and further disclosed in note 2, there exist material uncertainties around the sufficiency of headroom under the existing facility and the nature and availability of future facilities. The Group's banking facilities are described in detail in note 11.
There have been no significant changes in the Group's policies in the last year.
Net finance costs
Changing finance costs have a significant impact on AEA's profits. There are two main elements to finance costs: interest expense in respect of bank borrowings (impacting the Group's cash flow) and net interest expense on AEA Technology plc's defined benefit pension liability (not directly impacting the Group's cash flow).
The interest expense on bank borrowings will fluctuate in line with the level of borrowings and with changes in interest rates. The interest rate risk is reduced through the use of interest rate swaps.
The net interest expense in respect of the defined benefit pension liability will fluctuate in line with market conditions and changing yields on corporate bonds. Note 12 details the assumptions used in calculating the pension liability and the sensitivity analysis on changes to the key assumptions.
Outstanding legacy issues
The Group has residual issues relating to divested and closed businesses. Settlement of such issues at amounts differing to the estimates provided for will have an impact on the Group's future cash flows and net borrowings requirement. The risks and uncertainties associated with these issues are discussed in the section entitled Risks and uncertainties.
Significant progress continues to be made in reducing the exposure on residual issues during the year and this will continue to be key area of focus in the new financial year.
Key supplier relationships
The top ten suppliers accounted for 20% of total Group procurement in the year and no single supplier accounted for more than 4% of total Group procurement. The Group is therefore not dependent on any single key supplier for its procurement requirement.
Key customer relationships
The key customers for the Group are the UK and US Governments, which combined account for 67% of Group revenue (2011: 65%).
Risks & uncertainties
To achieve AEA's strategic objectives the Group must respond effectively to the associated risks.
AEA has a well established risk management process that complies with the FSA's UK Governance Code and addresses strategic risks and risks specific to individual businesses and contracts, including operational risks, financial risks, strategic risks, environmental and safety risks.
The Board has reviewed the material risks identified as well as the mitigating action plan. The principal risks for the Group are as follows:
Liquidity risk
The Group is exposed to a risk of adequate bank funding being available. AEA has a three year bank facility expiring in September 2014, which includes a GBP43.0 million revolving credit facility to manage periods of working capital fluctuation arising in the ordinary course of business. Recent bank covenant tests have been postponed but the longer term borrowing facility in place at 31 March 2012 can now be removed by the Bank at short notice. As disclosed in note 2 an additional short term facility of GBP5.0 million has been agreed in principle to fund the Group whilst it considers all strategic options to realise value, including through a sale of all or part of the Group's businesses and assets which it is hoped will enable the Group to agree a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme. Entering into a formal facility agreement in respect of the additional GBP5.0 million will be conditional upon the Group providing security and an ongoing liquidity covenant.
The Board believes that a sale of all or part of the Group's businesses and assets will return sufficient value to enable a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme. In addition, the Board believe it will be able to meet short term cash forecasts and operate within the short term facilities expected to be provided by the Bank and that they will be able to execute a sale of all or part of the Group's businesses and assets during the period in which facilities are provided by the Bank. However there can be no certainty that such a sale process can be completed in the short term or that it will enable the discharge of liabilities to the Bank and the pension scheme.
Changes in the competitive environment resulting from Government policy
Future risks are likely to be dominated by a hiatus in placing contracts by both UK and US governments, and future changes in both UK and US government policies, priorities and expenditure levels or delays in implementation of legislation which could affect the Group's business. At the very least, internal government reorganisation could mean AEA finds itself working with new customers who have different priorities. AEA must therefore maintain ongoing links with senior officials in key UK and US government departments and anticipate and be able to react swiftly to future changes.
Investment is being made in making more complete use of the breadth of energy and environmental knowledge within and between the business units, increasingly underpinned by sales propositions, relationship skills and senior management connections with relevant parts of the customer organisations. Risk mitigation plans have focused on the development of more integrated propositions, leveraging extensive capabilities within the Group in data and information management and economics analysis. Actions to manage and mitigate risks to sales pipelines will be focused largely on maintaining and expanding sales to public sector bodies and international agencies and development of operating models to support this agenda.
Recruitment and retention of sufficient high calibre people
The risk for the business is that the sourcing of suitably qualified technical experts has become more challenging, particularly in the UK market where demand for high calibre experts has increased. However, through a combination of challenging and rewarding assignment opportunities, enhanced by the opportunities of working both in the US and the UK, and through investment in development in both technical and business skills, the Group has successfully executed its retention strategy and expects to continue this strategy into the future.
Retirement benefits
The Group is exposed to financial risks in relation to the AEA Technology plc Pension Scheme (the "Scheme"), which currently has a large deficit. The amount of the deficit can vary significantly due to changes in the assumptions used to value the longevity of Scheme members, the discount rate, and the inflation rate assumptions. Consequently the Group is exposed to the risk of increases in the cash contributions payable under the recovery plan, volatility in the deficit reported in the Group's Balance sheet and gains/losses recorded in the Group's Consolidated statement of comprehensive income. The Board has also taken steps to improve the governance of the Scheme. This includes the appointment of an independent trustee as chairman of the board of directors of the Trustee and the adoption of a trigger based de risking strategy.
Legacy provisions
The Group has provided for various liabilities inter alia onerous leases, warranties and indemnities in respect of disposals of companies and businesses. Uncertainty exists around the potential for claims under warranties and indemnities in respect of these disposals, with a number of indemnities continuing for five or more years post divestment, and there is uncertainty in estimating the future costs of decommissioning nuclear facilities. The total liability is predominantly represented by provisions, as detailed in note 13.
All residual issues relating to the divested and closed businesses are under the control of the CFO and the Company Secretary. The Group has not become aware of any significant additional liabilities in respect of disposals. We continue actively to address and reduce the legacy risks and have reduced them considerably during 2011/12.
Exchange risk
The Group has operations denominated in US dollars and also maintains a US dollar loan. As a result, the Group's profit and net debt is impacted by exchange rate fluctuations which could have a negative or positive impact on the Group results.
Consolidated income statement
Hot Features
Premium
2012 2011
For the year ended 31 March Note GBPm GBPm
---------------------------------------------- ---------- -------- --------
Revenue 3 110.3 113.7
Cost of sales (64.2) (69.1)
---------------------------------------------- ---------- -------- --------
Gross profit 46.1 44.6
Other operating income 1.6 3.2
Selling and marketing costs (7.1) (7.6)
Administrative expenses (76.0) (46.1)
---------------------------------------------- ---------- -------- --------
Operating loss (35.4) (5.9)
Investment income - 0.1
Finance income 4 20.6 21.2
Finance costs 5 (25.3) (25.1)
---------------------------------------------- ---------- -------- --------
Loss before tax (40.1) (9.7)
Income tax 6 (0.3) (4.3)
---------------------------------------------- ---------- -------- --------
Loss for the year attributable to the owners
of the Company (40.4) (14.0)
---------------------------------------------- ---------- -------- --------
Loss per share attributable to the owners of the
Company during the year
Basic (pence) 7 (2.8)p (1.2)p
Diluted (pence) 7 (2.8)p (1.2)p
------------------------------------------------------ -------- --------
All results relate to continuing operations.
Consolidated income statement - alternative performance
measures (note 16)
2012 2011
Adjusted operating profit Note GBPm GBPm
--------------------------------------------------- ------ ------- ------
Operating loss (35.4) (5.9)
Amortisation of acquired intangibles 1.7 1.3
Impairment of goodwill 28.8 -
Restructuring costs including redundancy 4.4 7.7
Acquisition costs - 4.3
Property onerous lease costs 4.6 1.5
Pension credit from curtailment 12 - (0.1)
Adjusted operating profit 3 4.1 8.8
--------------------------------------------------- ------ ------- ------
2012 2011
Adjusted profit before tax Note GBPm GBPm
------------------------------------------ ----- ------- ------
Loss before tax (40.1) (9.7)
Amortisation of acquired intangibles 1.7 1.3
Impairment of goodwill 28.8 -
Restructuring costs including redundancy 4.4 7.7
Acquisition costs - 4.3
Property onerous lease costs 4.6 1.5
Pension credit from curtailment 12 - (0.1)
Net pension finance costs 12 2.0 2.0
------------------------------------------ ----- ------- ------
Adjusted profit before tax 1.4 7.0
------------------------------------------ ----- ------- ------
Consolidated statement of comprehensive income
2012 2011
For the year ended 31 March Note GBPm GBPm
----------------------------------------------------- ----- ------- -------
Loss for the year attributable to the owners of
the Company (40.4) (14.0)
Other comprehensive (expense)/income:
currency translation gains/(losses) - net of tax(1) 10 0.1 (1.1)
actuarial (losses)/gains on defined benefit pension
schemes - net of tax(1) 12 (46.7) 17.4
----------------------------------------------------- ----- ------- -------
Other comprehensive (expense)/income recognised
for the year - net of tax (46.6) 16.3
Total comprehensive (expense)/income for the year
attributable to the owners of the Company (87.0) 2.3
----------------------------------------------------- ----- ------- -------
(1) The tax charge/(credit) on items taken directly to equity is GBPnil in the current and prior year.
Balance sheets
Group Company
2012 2011 2012 2011
As at 31 March Note GBPm GBPm GBPm GBPm
----------------------------------- ----- -------- -------- ------ ------
ASSETS
Non-current assets
Goodwill 8 41.5 69.9 - -
Other intangible assets 10.3 11.7 - -
Property, plant and equipment 3.1 4.4 - -
Investment in subsidiaries - - 37.5 69.0
Trade and other receivables 0.1 1.3 - 3.7
Deferred income tax assets 1.6 2.3 - -
----------------------------------- ----- -------- -------- ------ ------
56.6 89.6 37.5 72.7
----------------------------------- ----- -------- -------- ------ ------
Current assets
Contract work in progress - 0.1 - -
Trade and other receivables 28.6 31.7 1.3 -
Current income tax assets 0.2 0.2 - -
Cash and cash equivalents 3.4 4.0 - -
----------------------------------- ----- -------- -------- ------ ------
32.2 36.0 1.3 -
----------------------------------- ----- -------- -------- ------ ------
Total assets 88.8 125.6 38.8 72.7
----------------------------------- ----- -------- -------- ------ ------
EQUITY
Capital and reserves attributable
to owners of the Company
Share capital 9 14.5 14.5 14.5 14.5
Share premium 9 - - - -
Merger reserve 10 82.0 82.0 - -
Other (deficit)/reserves 10 (77.0) (28.1) 0.2 0.1
Retained (deficit)/reserves (176.8) (138.5) 16.7 52.4
----------------------------------- ----- -------- -------- ------ ------
Total equity (157.3) (70.1) 31.4 67.0
----------------------------------- ----- -------- -------- ------ ------
LIABILITIES
Non-current liabilities
Trade and other payables 1.8 1.7 - 1.2
Borrowings 11 35.2 30.2 1.0 3.0
Retirement benefit obligations 12 168.5 121.8 - -
Provisions for liabilities and
charges 13 5.9 4.7 - -
Deferred income tax liabilities 0.8 1.2 - -
----------------------------------- ----- -------- -------- ------ ------
212.2 159.6 1.0 4.2
----------------------------------- ----- -------- -------- ------ ------
Current liabilities
Trade and other payables 25.2 32.0 0.7 0.9
Borrowings 11 4.6 2.1 5.7 0.6
Derivative financial instruments 0.5 0.3 - -
Provisions for liabilities and
charges 13 3.5 1.3 - -
Current income tax liabilities 0.1 0.4 - -
----------------------------------- ----- -------- -------- ------ ------
33.9 36.1 6.4 1.5
----------------------------------- ----- -------- -------- ------ ------
Total liabilities 246.1 195.7 7.4 5.7
----------------------------------- ----- -------- -------- ------ ------
Total equity and liabilities 88.8 125.6 38.8 72.7
----------------------------------- ----- -------- -------- ------ ------
Approved by the Board on 31 July 2012.
Statement of changes in equity
Share Share Merger Other
capital premium reserve reserves
(note (note (note (note Retained Total
9) 9) 10) 10) deficit equity
Group GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- --------- --------- ---------- --------- --------
Balance as at 1 April
2010 2.3 11.7 82.0 (44.8) (181.4) (130.2)
Comprehensive expense:
Loss for the year - - - - (14.0) (14.0)
--------------------------- --------- --------- --------- ---------- --------- --------
Total comprehensive
expense - - - - (14.0) (14.0)
--------------------------- --------- --------- --------- ---------- --------- --------
Other comprehensive
income/(expense):
Currency translation
losses - - - (1.1) - (1.1)
Actuarial gains on
defined benefit pension
schemes - - - 17.4 - 17.4
--------------------------- --------- --------- --------- ---------- --------- --------
Total other comprehensive
income - - - 16.3 - 16.3
--------------------------- --------- --------- --------- ---------- --------- --------
Total comprehensive
income/(expense)
for the year - - - 16.3 (14.0) 2.3
--------------------------- --------- --------- --------- ---------- --------- --------
Transactions with
owners:
Shares issued under
Firm Placing, Placing
and Open Offer (note
9) 11.1 41.5 - - - 52.6
Consideration shares
issued 1.1 4.6 - - - 5.7
Additional costs of
Firm Placing, Placing
and Open Offer - - - - (0.9) (0.9)
Capital reduction
(note 9) - (57.8) - - 57.8 -
Fair value of share
option schemes (note
10) - - - 0.4 - 0.4
--------------------------- --------- --------- --------- ---------- --------- --------
Total transactions
with owners 12.2 (11.7) - 0.4 56.9 57.8
--------------------------- --------- --------- --------- ---------- --------- --------
Balance as at 31 March
2011 14.5 - 82.0 (28.1) (138.5) (70.1)
--------------------------- --------- --------- --------- ---------- --------- --------
Comprehensive expense:
Loss for the year - - - - (40.4) (40.4)
--------------------------- --------- --------- --------- ---------- --------- --------
Total comprehensive
expense - - - - (40.4) (40.4)
--------------------------- --------- --------- --------- ---------- --------- --------
Other comprehensive
(expense)/income:
Currency translation
gains - - - 0.1 - 0.1
Actuarial losses on
defined benefit pension
schemes - - - (46.7) - (46.7)
--------------------------- --------- --------- --------- ---------- --------- --------
Total other comprehensive
expense - - - (46.6) - (46.6)
--------------------------- --------- --------- --------- ---------- --------- --------
Total comprehensive
expense for the year - - - (46.6) (40.4) (87.0)
--------------------------- --------- --------- --------- ---------- --------- --------
Transactions with
owners:
Fair value of share
option schemes (note
10) - - - (0.2) - (0.2)
Transfer of balance
related to expired
share options - - - (2.1) 2.1 -
--------------------------- --------- --------- --------- ---------- --------- --------
Total transactions
with owners - - - (2.3) 2.1 (0.2)
--------------------------- --------- --------- --------- ---------- --------- --------
Balance as at 31 March
2012 14.5 - 82.0 (77.0) (176.8) (157.3)
--------------------------- --------- --------- --------- ---------- --------- --------
All changes in equity are attributable to the equity holders of the Company.
Share Other
Share premium reserves
capital (note (note Retained Total
(note 9) 9) 10) reserves equity
Company GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- --------- ---------- ---------- --------
Comprehensive expense:
Loss for the year - - - (4.5) (4.5)
----------------------------- ---------- --------- ---------- ---------- --------
Total comprehensive expense - - - (4.5) (4.5)
----------------------------- ---------- --------- ---------- ---------- --------
Transactions with owners:
Issue of shares in AEA
Technology Group plc 2.3 11.7 - - 14.0
Shares issued under Firm
Placing, Placing and
Open Offer (note 9) 11.1 41.5 - - 52.6
Consideration shares
issued 1.1 4.6 - - 5.7
Additional costs of Firm
Placing, Placing and
Open Offer costs - - - (0.9) (0.9)
Capital reduction (note
9) (57.8) - 57.8 -
Fair value of share option
schemes - - 0.1 - 0.1
----------------------------- ---------- --------- ---------- ---------- --------
Total transactions with
owners 14.5 - 0.1 56.9 71.5
----------------------------- ---------- --------- ---------- ---------- --------
Balance as at 31 March
2011 14.5 - 0.1 52.4 67.0
----------------------------- ---------- --------- ---------- ---------- --------
Comprehensive expense:
Loss for the year - - - (35.7) (35.7)
----------------------------- ---------- --------- ---------- ---------- --------
Total comprehensive expense - - - (35.7) (35.7)
----------------------------- ---------- --------- ---------- ---------- --------
Transactions with owners:
Fair value of share option
schemes - - 0.1 - 0.1
----------------------------- ---------- --------- ---------- ---------- --------
Balance as at 31 March
2012 14.5 - 0.2 16.7 31.4
----------------------------- ---------- --------- ---------- ---------- --------
Statement of cash flows
Group Company
2012 2011 2012 2011
For the year ended 31 March Note GBPm GBPm GBPm GBPm
------------------------------------------- ------ ------------ ------------ ------ -------
Cash flows used in operating activities
Cash used in operations 14 (4.3) (3.9) (3.5) (3.7)
Interest paid (2.4) (1.6) (0.1) -
Taxes paid (0.3) (0.8) - -
------------------------------------------- ------ ------------ ------------ ------ -------
Net cash used in operating activities (7.0) (6.3) (3.6) (3.7)
------------------------------------------- ------ ------------ ------------ ------ -------
Cash flows (used in)/generated from
investing activities
Acquisition of subsidiary, including
loan from/(to) subsidiary's previous
shareholders - (48.2) 1.2 (49.1)
Dividends received - - 2.4 -
Purchases of other intangibles (0.6) (0.2) - -
Purchases of property, plant and
equipment (0.3) (1.5) - -
------------------------------------------- ------ ------------ ------------ ------ -------
Net cash (used in)/generated from
investing activities (0.9) (49.9) 3.6 (49.1)
------------------------------------------- ------ ------------ ------------ ------ -------
Cash flows (used in)/generated from
financing activities
Repayment of borrowings (2.0) (17.1) (2.0) -
Draw-down of borrowings 9.7 20.3 5.1 3.6
Capital element of finance lease
repayments (0.5) (0.5) - -
Issue of intra-group loans - - (4.3) (2.4)
Proceeds from intra-group loans - - 1.2 1.3
Capital contribution to AEA Technology
plc - - - (1.4)
Proceeds from new equity issues 9 - 51.7 - 51.7
Net cash generated from financing
activities 7.2 54.4 - 52.8
------------------------------------------- ------ ------------ ------------ ------ -------
Net decrease in cash and cash equivalents (0.7) (1.8) - -
Cash and cash equivalents at beginning
of year 4.0 6.0 - -
Exchange gains/(losses) on cash
and cash equivalents 0.1 (0.2) - -
------------------------------------------- ------ ------------ ------------ ------ -------
Cash and cash equivalents at end
of year 3.4 4.0 - -
------------------------------------------- ------ ------------ ------------ ------ -------
Statement of movement in net debt - alternative performance measures (note 2)
Group Company
Movement in net debt for the year 2012 2011 2012 2011
ended 31 March Note GBPm GBPm GBPm GBPm
---------------------------------------- ----- ------- ------- ------ -------
Net cash flow generated from/(used
in) business operations 3 3.6 10.3 (1.3) (0.2)
Restructuring including redundancy
costs (5.0) (4.7) (2.2) -
Acquisition costs - (3.6) - (3.5)
Legacy cash flows (1.3) (4.1) - -
Funding of pension deficit (1.6) (1.8) - -
---------------------------------------- ----- ------- ------- ------ -------
Cash used in operations 14 (4.3) (3.9) (3.5) (3.7)
Net interest and tax paid (2.0) (2.4) (0.1) -
Net cash (used in)/generated from
investing activities (0.9) (49.9) 3.6 (49.1)
Cancellation of debt - 2.0 - -
Proceeds from new equity issues - 51.7 - 51.7
Non-cash financing - facility fees (0.6) - - -
Non-cash financing - finance leases (0.3) (0.4) - -
Exchange gains on net debt - 0.8 - -
Capital contribution to AEA Technology
plc - - - (1.4)
Net movement in intra-group loans - - (3.1) (1.1)
---------------------------------------- ----- ------- ------- ------ -------
Net increase in net debt (8.1) (2.1) (3.1) (3.6)
Net debt at beginning of year (28.3) (26.2) (3.6) -
---------------------------------------- ----- ------- ------- ------ -------
Net debt at end of year (36.4) (28.3) (6.7) (3.6)
---------------------------------------- ----- ------- ------- ------ -------
Closing net debt comprises: Group Company
2012 2011 2012 2011
Note GBPm GBPm GBPm GBPm
----------------------------- ----- ------------ ------------ ------ ------
Cash at bank and in hand 3.4 4.0 - -
Current borrowings 11 (4.6) (2.1) (5.7) (0.6)
Non-current borrowings 11 (35.2) (30.2) (1.0) (3.0)
----------------------------- ----- ------------ ------------ ------ ------
Net debt at end of year (36.4) (28.3) (6.7) (3.6)
----------------------------- ----- ------------ ------------ ------ ------
These supplementary disclosures do not form part of the Statement of cash flows and these tables are not included in the notes.
Notes to the financial statements
1 GENERAL INFORMATION
The financial information set out above and below for the year ended 31 March 2012 does not constitute the statutory accounts for the year but is derived from those accounts. The statutory Financial Statements for the year, on which the auditors issued an unqualified report which included an emphasis of matter on going concern, will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The comparative financial information for the Group is based on the Group's accounts for the year ended 31 March 2011, which were delivered to the Registrar of Companies and on which the auditors issued an unqualified report.
The Annual Financial Results Statement has been prepared on the basis of the accounting policies set out in the Annual Report and Accounts for the year ended 31 March 2012.
2 GOING CONCERN
The Group has a banking facility, which is provided by its sole bank, Lloyds TSB Bank Plc (the "Bank"), to meet its liquidity needs. In addition the Group has a significant pension deficit and is required to agree a suitable funding programme to alleviate this. The Group currently forecasts that it will be unable to generate cash from its core operations to discharge its obligations to both the Bank and the pension scheme.
Recent bank covenant tests have been postponed but the longer term borrowing facility in place at 31 March 2012 can now be removed by the Bank at short notice. However, the Bank continues to be supportive and the Group has obtained the Bank's agreement in principle on the terms for a new money facility to provide an additional secured, short term facility of GBP5.0 million to fund the Group through to the end of October 2012. Entering into a formal facility agreement will be conditional upon the Group providing security and an ongoing liquidity covenant. The headroom available under these facilities is limited and requires the Group to meet its trading forecasts through this period. The Trustee of the Group's defined benefit pension scheme has agreed to defer all pension payments otherwise due to assist in the Group maintaining appropriate liquidity during this period.
Additional short term funding is expected to be provided to allow the Group to realise value through a sale of all or part of the Group's businesses and assets which it is hoped will enable the Group to agree a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme in a solvent manner.
The Board believes that preparing the Financial Statements on the going concern basis remains appropriate as it is actively pursuing a sale of all or part of the Group's businesses and assets, and believe this will return sufficient value to enable a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme in a solvent manner. In addition, the Board believes it will be able to finalise the agreement of the GBP5.0 million short term facility, to meet short term cash forecasts and operate within the facilities expected to be provided by the Bank and comply with any related covenants and that it will be able to execute a sale of all or part of the Group's businesses and assets during the period in which facilities are provided by the Bank.
However there can be no certainty that a sale process can be completed in the short term that will enable the discharge of liabilities to the Bank and the pension scheme. Should the Group not maintain the ongoing support of the Bank and pension scheme and execute a financial restructuring plan that provides an appropriate solution for the Bank and pension scheme, and meet its forecast cash requirements it may not have sufficient funds to remain in operational existence. These circumstances indicate the existence of material uncertainties that may cast significant doubt over the Group's ability to continue as a going concern. The Financial Statements do not include any adjustment to the value of balance sheet assets or provision for further liabilities, which would result should the going concern basis not be appropriate.
3 SEGMENTAL INFORMATION
The Chief Operating Decision Maker (CODM) is the combination of the Interim CEO and the CFO. The reports reviewed by them, and upon which they allocate resources, are based upon the reportable segments of Europe and the US. The US constitutes two operating segments, being PPC and ERG, which both provide a similar consulting service, operate in a similar market and both have the US Federal Government as the primary customer. Due to these similar economic characteristics they have been amalgamated into one reportable segment. Europe is a reportable segment and an operating segment.
The measure of reported segmental profit or loss used by the CODM to assess the performance of the segments is adjusted operating profit. This measure excludes the effect of amortisation of acquired intangibles, impairment of goodwill and other significant items, as defined in note 17 'Alternative performance measures'.
The Group has only one service, being that of consultancy, policy support, programme and data management.
All amounts provided to the CODM are measured in accordance with the Group's accounting policies as stated in note 17 and are therefore consistent with the amounts presented in the Financial Statements. Any sales between segments are carried out at arm's length.
The revenue and adjusted operating profit generated by each of the Group's segments, together with the depreciation and amortisation charge and impairment losses for each segment, are summarised as follows:
2012 2011
GBPm GBPm
--------------- ------ ------
Europe 39.0 54.7
US 71.3 59.0
--------------- ------ ------
Total revenue 110.3 113.7
--------------- ------ ------
2012 2011
GBPm GBPm
------------------------------------------- ------ ------
Europe 4.7 4.4
US 1.7 7.2
------------------------------------------- ------ ------
Total segmental adjusted operating profit 6.4 11.6
------------------------------------------- ------ ------
Corporate centre (2.3) (2.8)
------------------------------------------- ------ ------
Total adjusted operating profit 4.1 8.8
------------------------------------------- ------ ------
2012 2011
GBPm GBPm
--------------------------------------------------------- ------ ------
Europe 0.8 1.2
US 0.9 0.6
--------------------------------------------------------- ------ ------
Total depreciation and amortisation charged in adjusted
operating profit 1.7 1.8
--------------------------------------------------------- ------ ------
2012 2011
GBPm GBPm
------------------------------------------------------ ------ ------
Europe - -
US 29.0 -
------------------------------------------------------ ------ ------
Total impairment losses charged in adjusted operating
profit 29.0 -
------------------------------------------------------ ------ ------
Impairment losses are made up of goodwill impairment of GBP28.8 million (2011: nil) and GBP0.2 million (2011: nil) impairment of plant and equipment.
Net cash flow generated from business operations by segment is as follows:
2012 2011
GBPm GBPm
-------------------------------------------------------- ------ ------
Europe 4.4 4.4
US 3.3 8.6
-------------------------------------------------------- ------ ------
Net cash flow generated from business operations 7.7 13.0
-------------------------------------------------------- ------ ------
Corporate centre (4.1) (2.7)
-------------------------------------------------------- ------ ------
Total net cash flow generated from business operations 3.6 10.3
-------------------------------------------------------- ------ ------
A reconciliation from segmental net cash flow generated from business operations to cash used in operations is given within the alternative performance measures, movement in net debt shown beneath the Statement of cash flows.
Reportable segment assets and liabilities represent the operational working capital balances of each of the reportable segments.
Total reportable segment assets are as follows:
2012 2011
GBPm GBPm
--------------------------------- ------ ------
Europe 8.4 9.1
US 18.8 20.7
--------------------------------- ------ ------
Total reportable segment assets 27.2 29.8
--------------------------------- ------ ------
Total reportable segment liabilities are as follows:
2012 2011
GBPm GBPm
-------------------------------------- ------ ------
Europe 9.6 14.0
US 9.0 7.8
-------------------------------------- ------ ------
Total reportable segment liabilities 18.6 21.8
-------------------------------------- ------ ------
A reconciliation of Total segmental adjusted operating profit to loss before tax is as follows:
2012 2011
GBPm GBPm
------------------------------------------- ------- ------
Total segmental adjusted operating profit 6.4 11.5
Corporate centre (2.3) (2.7)
Amortisation of acquired intangibles (1.7) (1.3)
Impairment of goodwill (28.8) -
Restructuring costs including redundancy (4.4) (7.7)
Property onerous lease costs (4.6) (1.5)
Acquisition costs - (4.3)
Investment income - 0.1
Pension credit from curtailment - 0.1
Net finance costs (4.7) (3.9)
------------------------------------------- ------- ------
Loss before tax (40.1) (9.7)
------------------------------------------- ------- ------
Reportable segment assets are reconciled to total assets as follows:
2012 2011
GBPm GBPm
-------------------------------- ------ ------
Reportable segment assets 27.2 29.8
Non-current assets 56.6 89.6
Current assets:
contract work in progress - 0.1
other receivables 1.4 1.9
current income tax assets 0.2 0.2
cash and cash equivalents 3.4 4.0
-------------------------------- ------ ------
Total assets per Balance sheet 88.8 125.6
-------------------------------- ------ ------
Reportable segment liabilities are reconciled to total liabilities as follows:
2012 2011
GBPm GBPm
---------------------------------------- ------ ------
Reportable segment liabilities 18.6 21.8
Non-current liabilities 212.2 159.6
Current liabilities:
other payables 6.6 10.2
borrowings 4.6 2.1
derivative financial instruments 0.5 0.3
provisions for liabilities and charges 3.5 1.3
current income tax liabilities 0.1 0.4
Total liabilities per Balance sheet 246.1 195.7
---------------------------------------- ------ ------
Entity-wide disclosures
The following table shows external revenue by country based on the destination of service. Revenues are disclosed for the UK, the US and other countries in total.
2012 2011
GBPm GBPm
--------------- ------ ------
UK 33.5 49.0
US 71.2 58.5
Other 5.6 6.2
Total revenue 110.3 113.7
--------------- ------ ------
The locations of non-current assets, other than deferred income tax assets, are as follows:
2012 2011
GBPm GBPm
-------------------- ------ ------
UK 2.2 3.9
US 52.8 83.4
Non-current assets 55.0 87.3
-------------------- ------ ------
Revenues of GBP17.9 million (2011: GBP24.5 million) are derived from a single external customer attributable to the Europe segment. Revenues of GBP55.7 million (2011: GBP49.6 million) are derived from a single external customer attributable to the US segment. These revenues are considered to be from single customers as they are from numerous departments and agencies under the control of the UK or US national governments.
4 FINANCE INCOME
2012 2011
GBPm GBPm
---------------------------------------------------------- ------ ------
Expected return on defined benefit pension scheme assets
(note 12) 20.6 21.2
---------------------------------------------------------- ------ ------
20.6 21.2
---------------------------------------------------------- ------ ------
5 FINANCE COSTS
2012 2011
GBPm GBPm
--------------------------------------------------------- ------ ------
Interest on bank overdrafts and loans 2.5 1.7
Interest on finance leases - 0.1
Fair value losses on financial instruments at fair
value through profit or loss:
interest rate swaps 0.2 0.1
Accretion of discount on defined benefit pension scheme
obligations (note 12) 22.6 23.2
--------------------------------------------------------- ------ ------
25.3 25.1
--------------------------------------------------------- ------ ------
6 INCOME TAX
2012 2011
GBPm GBPm
------------------------------------------------------------- ------ ------
UK corporation tax at 26% (2011: 28%) - (0.1)
Overseas tax charge - 1.0
Deferred income tax - origination and reversal of temporary
differences 0.3 3.4
------------------------------------------------------------- ------ ------
Income tax expense 0.3 4.3
------------------------------------------------------------- ------ ------
The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to the loss of the Group as follows:
2012 2011
GBPm GBPm
-------------------------------------------------------- ------- ------
Loss before tax (40.1) (9.7)
-------------------------------------------------------- ------- ------
Tax calculated at domestic tax rates applicable to
(loss)/profits in respective countries (14.8) (2.3)
Income not subject to tax (0.9) -
Deferred tax asset not recognised on impairment losses 11.0 -
Derecognition of deferred tax liability on impairment
losses (1.2) -
Expenses not deductible for tax purposes 0.3 3.0
Current tax losses for which no deferred tax asset
was recognised 3.5 1.9
Overseas tax 0.3 0.1
Derecognition of previously recognised tax losses 2.1 1.6
Income tax expense 0.3 4.3
-------------------------------------------------------- ------- ------
7 EARNINGS PER SHARE
Details of basic, diluted and adjusted earnings per share are set out below.
Basic
Basic earnings per share is calculated by dividing the loss attributable to the owners of the Company by the weighted average number of Ordinary shares in issue during the year.
2012 2011
---------------------------------------------------------- -------- --------
Loss attributable to owners of the Company (GBP million) (40.4) (14.0)
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares in issue
(million) 1,453.6 1,173.6
---------------------------------------------------------- -------- --------
Basic loss per share (pence per share) (2.8)p (1.2)p
---------------------------------------------------------- -------- --------
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of Ordinary shares in issue to assume conversion of all potential dilutive Ordinary shares. The calculation is performed to determine the number of shares that could have been acquired at fair value determined as the average annual market share price of the Company's shares based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of share options to give the number of shares deemed to be issued at nil consideration. These dilutive shares are added to the weighted average number of Ordinary shares in issue.
2012 2011
---------------------------------------------------------- -------- --------
Loss attributable to owners of the Company (GBP million) (40.4) (14.0)
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares in issue
(million) 1,453.6 1,173.6
Adjustment for share options (million) - -
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares for diluted
earnings per share (million) 1,453.6 1,173.6
---------------------------------------------------------- -------- --------
Diluted loss per share (pence per share) (2.8)p (1.2)p
---------------------------------------------------------- -------- --------
Adjusted - alternative performance measures (note 17)
The basic and adjusted earnings per share for adjusted earnings are calculated as follows:
2012 2011
---------------------------------------------------------- -------- --------
Loss attributable to owners of the Company (GBP million) (40.4) (14.0)
Amortisation of acquired intangibles (GBP million) 1.7 1.3
Tax benefit of amortisation of acquired intangibles
(GBP million) (0.4) (0.6)
Impairment of goodwill (GBP million) 28.8 -
Tax cost related to impairment of goodwill (GBP million) (1.2) -
Restructuring costs including redundancy (GBP million) 4.4 7.7
Tax cost related to restructuring costs (GBP million) (0.2) (1.7)
Property onerous lease costs (GBP million) 4.6 1.5
Acquisition costs (GBP million) - 4.3
Pension credit from curtailment (GBP million) - (0.1)
Net pension finance costs (GBP million) 2.0 2.0
Adjusted (loss)/profit attributable to owners of the
Company (GBP million) (0.7) 0.4
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares in issue
(million) 1,453.6 1,173.6
---------------------------------------------------------- -------- --------
Basic adjusted earnings per share (pence per share) 0.0p 0.0p
---------------------------------------------------------- -------- --------
2012 2011
---------------------------------------------------------- -------- --------
Loss attributable to owners of the Company (GBP million) (40.4) (14.0)
Amortisation of acquired intangibles (GBP million) 1.7 1.3
Tax benefit of amortisation of acquired intangibles
(GBP million) (0.4) (0.6)
Impairment of goodwill (GBP million) 28.8 -
Tax cost related to impairment of goodwill (GBP million) (1.2) -
Restructuring costs including redundancy (GBP million) 4.4 7.7
Tax cost related to restructuring costs (GBP million) (0.2) (1.7)
Property onerous lease costs (GBP million) 4.6 1.5
Acquisition costs (GBP million) - 4.3
Pension credit from curtailment (GBP million) - (0.1)
Net pension finance costs (GBP million) 2.0 2.0
Adjusted (loss)/profit attributable to owners of the
Company (GBP million) (0.7) 0.4
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares in issue
(million) 1,453.6 1,173.6
Adjustment for share options (million) - 1.1
---------------------------------------------------------- -------- --------
Weighted average number of Ordinary shares for diluted
adjusted earnings per share (million) 1,453.6 1,174.7
---------------------------------------------------------- -------- --------
Diluted adjusted earnings per share (pence per share) 0.0p 0.0p
---------------------------------------------------------- -------- --------
8 GOODWILL
2012 2011
Group GBPm GBPm
------------------ ------ ------
Cost
At 1 April 69.9 32.7
Additions - 39.3
Foreign exchange 0.4 (2.1)
------------------ ------ ------
At 31 March 70.3 69.9
------------------ ------ ------
Accumulated impairment
At 1 April - -
Impairment losses 28.8 -
At 31 March 28.8 -
---------------------------- ----- -----
Net book value at 31 March 41.5 69.9
---------------------------- ----- -----
Impairment tests for goodwill
For the purpose of performing impairment reviews, goodwill has been allocated to the Group's Cash Generating Units ("CGU") identified according to segment as presented as follows:
2012 2011
GBPm GBPm
-------- ------ ------
Europe - 16.4
PPC 31.0 14.5
ERG 39.3 39.0
-------- ------ ------
70.3 69.9
-------- ------ ------
The goodwill previously allocated to the European CGU has been reallocated in full to the PPC CGU during the period.
No intangible assets other than goodwill have indefinite useful lives. The impairment reviews compare the carrying value of each CGU, including allocated goodwill, with the present value of future cash flows arising from the use of assets in the unit (value in use). The key assumptions for the value in use calculations are those regarding discount rates and growth rates. As described in the Business and Performance Review, continued spending cuts and tightened fiscal policy in the US has meant that the strategic vision for the Group has been more difficult to execute than previously expected which led to a profit warning being issued in January 2012. This has led the group to revise its assumptions around cash flow forecasts and growth rates in the near term, and created an impairment in the second half of the year ended 31 March 2012. There is inherently an element of judgement applied in arriving at these assumptions. Sensitivities to a movement in the key assumptions are provided in note 3 to these financial statements.
The value in use calculations use cash flow projections based on financial budgets approved by management covering a three-year period. The revenue growth rates over this period are assumed to average 7.0% and 5.5% per annum for PPC and ERG, respectively, underpinning growth in profitability. This assumes success is made towards implementing the Group's new business plan. Subsequent cash flows are extrapolated into perpetuity (as appropriate for such long-term businesses) based on an estimated long-term growth rate of 3.0% (2011: 2.3%). This rate reflects inflation rates and is in line with long-term growth rates for the industry.
The discount rates are derived from the Group Weighted Average Cost of Capital, calculated as 9.7% (2011: 9.9%) for the PPC and ERG CGUs and 9.9% for the European CGU in 2011, which are then adjusted based upon a long-term assessment of the average cost of equity and debt of comparable companies within the market and territories that the Group operates.
This gives a post-tax discount rate that is then applied to the cash flow projections, which include tax cash flows at the statutory rate for the relevant country. The discount rates used are equivalent to pre-tax discount rates as follows:
2012 2011
% %
------------- ----- -----
Europe N/A 12.2
PPC and ERG 13.6 14.9
------------- ----- -----
For the PPC CGU poor trading in the current period resulting from the failure to secure certain contracts, combined with the loss of the other contracts in the IT consulting business based in Washington, has led the Board to revise projections used to assess impairment in previous periods. The result of the impairment review is that an impairment loss of GBP17.5 million has been recognised against the goodwill in the PPC CGU during the year to reduce the carrying value to the value in use leaving a net book value of GBP13.5 million of goodwill in the PPC CGU at 31 March 2012. The net book value of goodwill in the ERG CGU at 31 March 2012 is GBP28.0 million (2011: Europe GBP16.4 million, PPC GBP14.5 million and ERG GBP39.0 million) following an impairment loss of GBP11.3 million having been recognised against the goodwill to reduce the carrying value to the value in use. This impairment loss in ERG arises from more modest growth rates forecast for the US markets than previously assumed. The total impairment loss of GBP28.8 million has been charged to administrative expenses in the Consolidated income statement.
The Board has assessed the carrying value of the CGUs on the value in use basis and do not believe this is materially different to the fair value less cost to sell assessment.
9 SHARE CAPITAL AND SHARE PREMIUM
Number Ordinary Share
of shares shares premium Total
Group millions GBPm GBPm GBPm
---------------------------------------------------------- ----------- --------- --------- -------
At 1 April 2010 228.8 2.3 11.7 14.0
Firm Placing, Placing and Open Offer 1,111.6 11.1 41.5 52.6
Consideration shares issued on acquisition of subsidiary 113.2 1.1 4.6 5.7
Capital reduction - - (57.8) (57.8)
At 1 April 2011 and 31 March 2012 1,453.6 14.5 - 14.5
---------------------------------------------------------- ----------- --------- --------- -------
Number Ordinary Share
of shares shares premium Total
Company millions GBPm GBPm GBPm
---------------------------------------------------------- ----------- --------- --------- -------
On incorporation - - - -
Issue of shares on Scheme of Arrangement effective date 228.8 2.3 11.7 14.0
Firm Placing, Placing and Open Offer 1,111.6 11.1 41.5 52.6
Consideration shares issued on acquisition of subsidiary 113.2 1.1 4.6 5.7
Capital reduction - - (57.8) (57.8)
At 1 April 2011 and 31 March 2012 1,453.6 14.5 - 14.5
---------------------------------------------------------- ----------- --------- --------- -------
The total authorised number of Ordinary shares is 5,000,000,000 shares with a par value of 1.0 pence per share. All issued shares are fully paid.
10 OTHER RESERVES
Share Actuarial Currency Other
option pension translation (deficit)/ Merger Total
reserve reserve reserve reserves reserve reserves*
Group GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ---------- ------------- ------------ --------- -----------
At 1 April 2010 2.3 (48.9) 1.8 (44.8) 82.0 37.2
Currency translation
differences - - (1.1) (1.1) - (1.1)
Actuarial gains on
defined benefit pension
schemes - 17.4 - 17.4 - 17.4
Fair value of share
option schemes 0.4 - - 0.4 - 0.4
At 31 March 2011 2.7 (31.5) 0.7 (28.1) 82.0 53.9
Currency translation
differences - - 0.1 0.1 - 0.1
Actuarial losses on
defined benefit pension
schemes - (46.7) - (46.7) - (46.7)
Fair value of share
option schemes (0.2) - - (0.2) - (0.2)
Transfer of balance
related to expired
share options (2.1) - - (2.1) - (2.1)
-------------------------- --------- ---------- ------------- ------------ --------- -----------
At 31 March 2012 0.4 (78.2) 0.8 (77.0) 82.0 5.0
-------------------------- --------- ---------- ------------- ------------ --------- -----------
Share
option Total
reserve reserves*
Company GBPm GBPm
------------------------------------ --------- -----------
On incorporation - -
Fair value of share option schemes 0.1 0.1
------------------------------------ --------- -----------
At 31 March 2011 0.1 0.1
------------------------------------ --------- -----------
Fair value of share option schemes 0.1 0.1
------------------------------------ --------- -----------
At 31 March 2012 0.2 0.2
------------------------------------ --------- -----------
*Excluding retained (deficit)/reserves
Distributable reserves
The Company currently has GBP16.9 million (2011: GBP52.5 million) of distributable reserves. Distributable reserves comprise retained earnings and the share option reserve.
11 BORROWINGS
Group Company
--------------------------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
-------------------------------- ------ ------ ------ ------
Non-current borrowings
Unsecured bank and other loans 35.0 30.0 1.0 3.0
Finance lease liabilities 0.2 0.2 - -
-------------------------------- ------ ------ ------ ------
Non-current borrowings 35.2 30.2 1.0 3.0
-------------------------------- ------ ------ ------ ------
Current borrowings
Unsecured bank and other loans 4.3 1.7 5.7 0.6
Finance lease liabilities 0.3 0.4 - -
-------------------------------- ------ ------ ------ ------
Current borrowings 4.6 2.1 5.7 0.6
-------------------------------- ------ ------ ------ ------
Total borrowings 39.8 32.3 6.7 3.6
-------------------------------- ------ ------ ------ ------
Maturity of total borrowings is as follows:
Group Company
---------------------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
--------------------------- ------ ------ ------ ------
Within one year 4.6 2.1 5.7 0.6
Between one and two years 35.2 30.2 1.0 3.0
Total borrowings 39.8 32.3 6.7 3.6
--------------------------- ------ ------ ------ ------
The fair values of current and non-current borrowings are not materially different from the carrying values stated above.
Unsecured bank and other loans excluding finance leases
Group Company
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
--------------------------------- ------ ------ ------ ------
Bank debt - revolving credit
facility 40.1 32.3 6.7 3.6
Capitalised loan arrangement
fees (0.7) (0.6) - -
Revaluation of bank debt (0.1) - - -
Total non-current and current
unsecured bank and other loans 39.3 31.7 6.7 3.6
--------------------------------- ------ ------ ------ ------
Bank debt
At 31 March 2012 the Company had a GBP43.0 million loan facility agreement (the 'facility') with Lloyds TSB Bank plc (2011: GBP39.0 million). This facility was entered into in September 2011 for a period of three years (including an overdraft facility of GBP7.0 million) to manage periods of working capital fluctuation. Recent bank covenant tests have been postponed but the longer term borrowing facility in place at 31 March 2012 can now be removed by the Bank at short notice. The facility will mature in September 2014, save for the overdraft facility, which is renewable annually. Annual extensions are expected as the overdraft facility forms part of the revolving credit facility. Following the year end, the Group has obtained the Bank's agreement in principle on the terms for a new money facility to provide an additional facility of GBP5.0 million on a secured basis through to the end of October 2012. Entering into a formal facility agreement in respect of the additional GBP5.0 million short term facility will be conditional upon the Group providing security and an ongoing liquidity covenant.
The facility is denominated in Sterling, although borrowings under the facility are in Sterling and US Dollars. The utilised amounts bear interest at LIBOR plus 3.5% or US Dollar-LIBOR plus 3.5%. The agreement contains financial covenants in relation to the ratio of net borrowings to PBITDA and the ratio of PBITDA to net interest payable.
The same bank also provides a GBP4.0 million bonding facility.
At 31 March the following amounts were outstanding under the facility:
2012 2011
Available Utilised Unutilised Available Utilised Unutilised
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- --------- ----------- ---------- --------- -----------
Bank debt - revolving credit
facility 43.0 40.1 2.9 39.0 32.3 6.7
------------------------------ ---------- --------- ----------- ---------- --------- -----------
12 Retirement benefit obligations
Defined contribution plans
In Europe, AEA Technology plc and AEA Technology Group plc jointly operate a defined contribution stakeholder plan (the "UK Plan") for all qualifying employees. Participants may make voluntary contributions to the UK Plan up to the maximum amount allowable by UK law. The assets of the UK Plan are held separately from those of both AEA Technology plc and AEA Technology Group plc in individual accounts under the control of the pension provider. The only obligation of AEA Technology plc and AEA Technology Group plc with respect to the UK Plan is to make the specified contributions.
The US subsidiaries, Project Performance Corporation and ERG Inc, operate defined contribution 401(K) profit sharing plans (the "US Plans") for all eligible employees. Participants may make voluntary contributions to the US Plans up to the maximum amount allowable by US law. Employer contributions to the US Plans are at the discretion of management and vest to the participants over a five-year period. The assets of the US Plan are held separately from those of both Project Performance Corporation and ERG Inc in funds under the control of trustees and insurance companies. The only obligation of Project Performance Corporation and ERG Inc with respect to the US Plans is to make the specified contributions.
Neither Project Performance Corporation nor ERG Inc have further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as assets to the extent that a cash refund or reduction of future payment is available.
The total cost charged to the income statement of GBP3.4 million (2011: GBP3.2 million) represents contributions payable to these plans by the Group at rates specified in the rules of the plans.
Defined benefit schemes - funded obligations
The AEA Technology plc Pension Scheme (the "Scheme"), a defined benefit pension scheme, was closed to future accrual on 31 July 2009 and no further benefits will be built up with effect from that date.
The funding of the Scheme is based on long-term trends and assumptions relating to market growth, as advised by the Scheme actuary. The calculations for the Scheme are based on the liabilities determined at the funding valuation as at 31 March 2008 in accordance with the requirements of the Pensions Act 2004. Based on the schedule of contributions agreed by AEA Technology plc and Trustee in June 2009 the Scheme's past service funding deficit was expected to be cleared over approximately 20 years. The Company is in discussions with the Trustee to agree a revised schedule of contributions. These discussions have not yet produced an agreed outcome and the discussions continue. The tri-annual funding valuation of the Scheme as at 31 March 2011 is currently being undertaken in accordance with the requirements of the Pensions Act 2004.
International Accounting Standard 19 'Employee Benefits' (IAS 19) requires the Group to include in the Balance sheet the surplus or deficit on the Scheme calculated as at the balance sheet date. The method used for the calculation is as prescribed by IAS 19. It is a snapshot view that can be significantly influenced by short-term market factors. The calculation of the surplus or deficit is, therefore, dependent on factors which are beyond the control of the Group - principally the value at the balance sheet date of the assets in which the Scheme has invested and long-term interest rates, which are used to discount future liabilities.
AEA Technology plc's actuaries (the "Actuaries"), Aon Hewitt Associates Limited, carried out the valuation. The results are then adjusted by the Actuaries each year, allowing for the IAS 19 financial and demographic assumptions and rolling forward the liabilities to the balance sheet date.
AEA Technology plc employs a building block approach in determining the long-term rate of return on pension scheme assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The assumed long-term rate of return on each asset class is set out within this note. The overall long-term expected rate of return on assets at 31 March 2012 and 31 March 2011 is derived by modelling the expected returns on the agreed strategic asset allocation at the start of the accounting year, taking into account the interactions between asset classes to derive an expected return for the portfolio as a whole.
The estimated amount of contributions expected to be paid to the Scheme during the financial year to 31 March 2013 was GBP5.9 million. In addition AEA Technology plc pays a contribution equal to the Pension Protection Fund levy, which for the year to 31 March 2012 amounted to GBP0.2 million (2011: GBP0.6 million). As noted above, the Company is in discussions with the Trustee to agree a revised schedule of contributions. These discussions have not yet produced an agreed outcome and the discussions continue. As disclosed in note 2, the Trustee has agreed to defer all pension payments from July 2012 onwards while these discussions continue.
As at 31 March 2012 contributions of GBPnil (2011: GBPnil) due in respect of the year to 31 March have not been paid over to the Scheme.
Defined benefit schemes - unfunded obligations
In Europe AEA Technology plc operates a formal, employer financed retirement benefit scheme to provide benefits in excess of the HMRC earnings cap for a former director and also has unfunded top-up arrangements in place to provide benefits to certain former directors and employees (the Unfunded Company Scheme).
The value of the pensions reserve required to be recognised under IAS 19 is calculated by the Actuaries using the same assumptions as used for the Scheme, with the exception of post-retirement mortality. The post-retirement mortality assumption, given within this note, adopted for the unapproved reserves is less pessimistic than that adopted for the mixed population of the Scheme. This reflects the lower mortality rates typically experienced by individuals with above average levels of personal wealth.
Pension benefits
The amounts recognised in the Consolidated income statement and the Group balance sheet in respect of the defined benefit scheme are summarised as follows:
2012 2011
GBPm GBPm
-------------------------------------- ------ ------
Balance sheet obligation for pension
benefits 168.5 121.8
-------------------------------------- ------ ------
Income statement charge for pension
benefits 2.0 1.9
-------------------------------------- ------ ------
The amounts recognised in the balance sheet are determined as follows:
2012 2011
GBPm GBPm
----------------------------------------------------- -------- --------
Present value of funded obligations 450.9 406.0
Fair value of defined benefit pension scheme assets (286.4) (287.8)
----------------------------------------------------- -------- --------
Retirement benefit obligations of the Scheme 164.5 118.2
Present value of unfunded obligations 4.0 3.6
----------------------------------------------------- -------- --------
Retirement benefit obligations 168.5 121.8
----------------------------------------------------- -------- --------
The amounts recognised in the Consolidated income statement are as follows:
2012 2011
GBPm GBPm
---------------------------------------------------------- ------- -------
Curtailment gains - (0.1)
---------------------------------------------------------- ------- -------
Net pension credit - (0.1)
Accretion of discount on defined benefit pension scheme
obligations 22.6 23.2
Expected return on defined benefit pension scheme assets (20.6) (21.2)
---------------------------------------------------------- ------- -------
Amount included in employee benefit costs 2.0 1.9
---------------------------------------------------------- ------- -------
The net pension credit in 2010/11 results from a curtailment credit arising on the cessation of benefits payable to one individual in the unfunded scheme.
The accretion of discount on defined benefit pension scheme obligations of GBP22.6 million (2011: GBP23.2 million) and the expected return on defined benefit pension scheme assets of GBP20.6 million (2011: GBP21.2 million) are included in 'finance costs' and 'finance income' respectively. The total of the expected return on defined benefit pension scheme assets (GBP20.6 million) and the actuarial loss on defined benefit pension scheme assets (GBP11.8 million that is debited to the pension reserve) equates to an actual gain on defined benefit pension scheme assets of GBP8.8 million (2011: GBP15.4 million).
The movement in the pension obligation recognised in the Group balance sheet is as follows:
Funded Unfunded Funded Unfunded
Company Company Company Company
Scheme Scheme 2012 Scheme Scheme 2011
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- --------- ------- --------- --------- -------
At 1 April 406.0 3.6 409.6 416.4 3.9 420.3
Accretion of discount on
defined benefit obligations 22.4 0.2 22.6 23.0 0.2 23.2
Curtailment gains - - - - (0.1) (0.1)
Actuarial losses/(gains) 34.5 0.4 34.9 (23.1) (0.1) (23.2)
Benefits paid (12.0) (0.2) (12.2) (10.3) (0.3) (10.6)
------------------------------ --------- --------- ------- --------- --------- -------
At 31 March 450.9 4.0 454.9 406.0 3.6 409.6
------------------------------ --------- --------- ------- --------- --------- -------
The movement in the pension asset recognised in the Group balance sheet is as follows:
Funded Unfunded Funded Unfunded
Company Company Company Company
Scheme Scheme 2012 Scheme Scheme 2011
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- --------- --------- ------- --------- --------- -------
At 1 April 287.8 - 287.8 280.5 - 280.5
Expected return on defined
benefit pension scheme assets 20.6 - 20.6 21.2 - 21.2
Actuarial losses (11.8) - (11.8) (5.8) - (5.8)
Contributions paid by employer 1.8 - 1.8 2.2 - 2.2
Benefits paid (12.0) - (12.0) (10.3) - (10.3)
-------------------------------- --------- --------- ------- --------- --------- -------
At 31 March 286.4 - 286.4 287.8 - 287.8
-------------------------------- --------- --------- ------- --------- --------- -------
The net pension obligation is as follows:
Total
GBPm
------------------ ------
At 31 March 2012 168.5
------------------ ------
At 31 March 2011 121.8
------------------ ------
A GBP46.7 million loss (2011: GBP17.4 million gain) in respect of actuarial gains and losses is reported in the Consolidated statement of comprehensive income (SOCI) and the cumulative total of actuarial losses and gains reported through the SOCI is a net GBP78.2 million loss (2011: GBP31.5 million).
The principal actuarial assumptions used are as follows:
2012 2011
% %
--------------------------------- ----- -----
Discount rate 4.8 5.6
RPI inflation 3.3 3.4
CPI inflation 2.3 2.5
Expected return on plan assets:
equities 8.0 8.3
corporate bonds 4.8 5.6
infrastructure 8.0 8.3
property 7.7 8.0
other 1.0 0.8
Future salary increases n/a n/a
Future pension increases n/a n/a
--------------------------------- ----- -----
The discount rate is based on future projected cash flows and the AA-corporate bond yield curve as at 31 March 2012, with an adjustment so that the yield relates to bonds that were AA-rated as at 31 March 2012. The assumed rate of inflation has been calculated based on future projected cash flows and the inflation curve as at 31 March 2012, with an allowance for an inflation risk premium.
The expected rates of return on categories of the Scheme assets are determined using a building block approach. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted market principles.
Post-retirement mortality assumptions are as follows:
2012 2011
---------------------- ---------------------------------- ---------------------------------
Funded Company Scheme "S1PxA" Year of Use tables.
"S1PxA" Year of Use tables. Improvements in line with
Improvements in line with 80% of the Long Cohort for
the 'CMI_2010' Core Projections, males and 60% of the Long
with a long term rate of Cohort for females, subject
improvements of 1.0% per to a minimum annual improvement
annum. of 1.0%.
Scaling factor of 100%. Scaling factor of 95%.
---------------------- ---------------------------------- ---------------------------------
Unfunded Company "S1PxA Light" Year of Use
Scheme tables.
"S1PxA Light" Year of Use Improvements in line with
tables. Improvements in line 80% of the Long Cohort for
with the 'CMI_2010' Core males and 60% of the Long
Projections, with a long Cohort for females, subject
term rate of improvements to a minimum annual improvement
of 1.0% per annum. of 1.0%.
Scaling factor of 100%. No scaling factor.
---------------------- ---------------------------------- ---------------------------------
Demographic assumptions (post-retirement mortality)
Based on the mortality assumptions adopted, the following table shows the expected future lifetime of a Scheme member on retirement at age 60:
2012 2011
Years Years
------------------------------ ------ ------
Males retiring today 26.7 27.1
Females retiring today 29.0 29.1
Males retiring in 20 years 28.3 29.2
Females retiring in 20 years 30.7 31.0
------------------------------ ------ ------
Sensitivity analysis of the principal assumptions used to measure Scheme liabilities
Assumption Change in assumption Impact on Scheme liabilities ------------------ -------------------------- ----------------------------- Discount rate Increase/decrease by 0.5% Decrease/increase by 9% Rate of inflation Increase/decrease by 0.5% Increase/decrease by 8% Rate of mortality Increase by 1 year Increase/decrease by 3% ------------------ -------------------------- -----------------------------
The analysis of the Scheme assets and expected rate of return at 31 March is as follows:
Expected return Fair value of
assets
--------------------
2012 2011 2012 2011
% % GBPm GBPm
-------------------- -------- -------- ------- -------
Equity instruments 7.0 8.3 145.2 147.1
Corporate bonds 4.8 5.6 80.1 67.6
Infrastructure 7.0 8.3 29.6 27.2
Property 6.7 8.0 22.2 16.8
Other assets 1.0 0.8 9.3 29.1
-------------------- -------- -------- ------- -------
286.4 287.8
-------------------- -------- -------- ------- -------
The five-year history of defined benefit pension scheme obligations and defined benefit pension scheme assets is as follows:
2012 2011 2010 2009 2008
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------- -------- -------- -------- --------
Present value of defined benefit
obligations 454.9 409.6 420.3 313.7 318.4
Fair value of defined benefit pension
scheme assets (286.4) (287.8) (280.5) (205.5) (258.4)
--------------------------------------- -------- -------- -------- -------- --------
Retirement benefit obligation 168.5 121.8 139.8 108.2 60.0
--------------------------------------- -------- -------- -------- -------- --------
The five-year history of experience adjustments is as follows:
2012 2011 2010 2009 2008
-------------------------------------- ------- ------ ------- ------- -------
Experience (losses)/gains on defined
benefit scheme obligations
Amount (GBP million) (34.9) 23.2 (95.9) 15.0 57.6
Percentage of Scheme liabilities 8.5% 5.6% 22.8% 4.8% 18.1%
-------------------------------------- ------- ------ ------- ------- -------
Experience (losses)/gains on defined
benefit pension scheme assets
Amount (GBP million) (11.8) (5.8) 67.3 (68.4) (27.3)
Percentage of Scheme assets 4.1% 2.0% 24.0% 33.3% 10.6%
-------------------------------------- ------- ------ ------- ------- -------
Development of net retirement benefit obligation over the year to 31 March 2012
The pension cost recognised in the Consolidated income statement is calculated based on assumptions made at the beginning of the year. If experience over the year is in line with the assumptions made at the start of the year, the retirement benefit obligation would reduce by the excess of the cash contributions made over the income statement charge. Actuarial gains and losses due to differences between actual experience and the assumptions made at the start of the year are recognised in full in the SOCI.
13 PROVISIONS FOR LIABILITIES AND CHARGES
Decommissioning
and waste
management Restructuring Contracts Other Total
Group GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---------------- -------------- ---------- ------ ------
At 1 April 2010 4.1 2.9 1.2 1.6 9.8
Utilised (3.9) (1.1) (0.6) (0.5) (6.1)
Balance sheet reclassification - (0.6) 0.6 - -
Increase in provision - - 1.0 0.3 1.3
Money received in respect
of leasehold obligation - - 0.8 - 0.8
Acquisition of subsidiary - - 0.2 - 0.2
-------------------------------- ---------------- -------------- ---------- ------ ------
At 31 March 2011 0.2 1.2 3.2 1.4 6.0
Utilised - (0.3) (0.7) - (1.0)
Release of provision - (0.1) (0.1) - (0.2)
Increase in provision - - 4.6 - 4.6
At 31 March 2012 0.2 0.8 7.0 1.4 9.4
-------------------------------- ---------------- -------------- ---------- ------ ------
Group Company
----------------------------------------
2012 2011 2012 2011
Provisions for liabilities and charges GBPm GBPm GBPm GBPm
---------------------------------------- -------- ---------- -------- ---------
Current 3.5 1.3 - -
Non-current 5.9 4.7 - -
---------------------------------------- -------- ---------- -------- ---------
9.4 6.0 - -
---------------------------------------- -------- ---------- -------- ---------
Provisions for liabilities and charges comprise both legacy and continuing provisions. Legacy provisions relate to potential costs that result from businesses that have either been discontinued or sold by the Group.
Decommissioning and waste management
On 31 March 1996 certain properties, rights and liabilities of UKAEA were vested in AEA Technology plc in accordance with the Transfer Scheme made pursuant to section 1 of the Atomic Energy Authority Act 1995.
A supplemental agreement entered into pursuant to the Transfer Scheme provides that liabilities for decommissioning any nuclear facility in existence as at 31 March 1996 and for any waste transferred to UKAEA ("the Authority") for disposal prior to 31 March 1996 are to remain with the Authority. All new or incremental decommissioning, waste management and clean up liabilities arising after 1 April 1996 were assumed by the Group except for certain liabilities, which have been transferred to, or assumed by, third parties.
Provisions for these costs were made in full once facilities became contaminated and were calculated on the latest technical assessments of the processes and methods likely to be used in the future and represent estimates derived from a combination of the technical knowledge available, existing legislation and regulations and commercial agreements. The principal liabilities are now settled.
These provisions are expected to be utilised within the next one to two years.
Restructuring
In the two years to 31 March 2007 the Group completed the transformation of its business from a diverse Group to a single mission Group focused on climate change and energy consultancy. Provisions related to this restructuring are held for associated warranties and indemnities given under business sale agreements. These provisions are expected to be utilised within the next one to two years.
Contracts
Contract provisions are in respect of projected losses or commitments on long-term contracts, notably onerous property lease contracts. These provisions will be utilised when the costs are incurred on the long-term contracts. Where future cash flows can be predicted with reasonable certainty a discount factor has been applied to the calculation of the carrying value of the provision. Where cash flows cannot be predicted with reasonable certainty then a discount rate has not been applied. The increase in the provision during the year relates to providing for onerous leases in both the UK and the US following a review of property requirements across the Group. These provisions are expected to be utilised within the remaining terms of the leases to which the provisions relate.
Other
The remainder of the provisions are primarily dilapidations and wear and tear provisions on the Group's property assets. These provisions will be utilised as dilapidation repairs are carried out. These provisions are expected to be utilised within the remaining terms of the leases to which the provisions relate.
14 CASH (USED IN)/GENERATED FROM OPERATIONS
Group Company
-------------------------------------------
2012 2011 2012 2011
GBPm GBPm GBPm GBPm
------------------------------------------- ------- ------- ------- ------
Loss for the year (40.4) (14.0) (35.7) (4.5)
Adjustments for:
tax 0.3 4.3 - -
depreciation of property, plant
and equipment 1.5 1.6 - -
amortisation 1.9 1.5 - -
impairment losses 29.0 0.8 35.0 -
share option (credit)/charge (0.2) 0.4 - -
finance costs 25.3 25.1 0.2 -
finance income (20.6) (21.2) (0.2) -
dividend income - - (2.4) -
other 0.2 0.6 - -
Changes in working capital:
work in progress - 0.3 - -
trade and other receivables 3.1 4.5 - -
trade and other payables (5.8) (1.0) 0.1 0.4
inter-company balances - - (0.5) 0.4
Changes in retirement benefit obligations (2.0) (2.8) - -
Changes in provisions for liabilities
and charges 3.4 (4.0) - -
------------------------------------------- ------- ------- ------- ------
Cash used in operations (4.3) (3.9) (3.5) (3.7)
------------------------------------------- ------- ------- ------- ------
15 POST BALANCE SHEET EVENTS
There were no post Balance sheet events.
16 ANNUAL ACCOUNTS AND ANNUAL GENERAL MEETING
Copies of the Annual Report and Accounts will be available in electronic format on www.aeat.com and will be sent to shareholders in August 2012. Copies will also be available from the Company Secretary.
The Annual General Meeting will be held during September 2012.
17 SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of preparation
The consolidated Financial Statements have been prepared in accordance with IFRS and IFRIC interpretations, as adopted for use within the European Union and Jersey Law 1991 applicable to companies reporting under IFRS. These consolidated Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of financial instruments at fair value through profit or loss.
The preparation of Financial Statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise itsjudgmentin the process of applying the Group's accounting policies.
As disclosed more fully in note 2 the Board believes that preparing the financial statements on the going concern basis remains appropriate as it is actively pursuing a sale of all or part of the Group's businesses and assets, and believe this will return sufficient value to enable a financial restructuring plan which will discharge its liabilities to the Bank and the pension scheme in a solvent manner. In addition, the Board believes it will be able to finalise the agreement of the GBP5.0 million short term facility, to meet short term cash forecasts and operate within the facilities expected to be provided by the Bank and that it will be able to execute a sale of all or part of the Group's businesses and assets during the period in which facilities are provided by the Bank.
Application of new standards and interpretations
The following new standards, amendments to existing standards or interpretations are mandatory for the first time for the financial year ending 31 March 2012, but either have no significant impact or are not currently relevant for the Group:
-- IAS 24 (revised), 'Related party disclosures', effective for annual periods beginning on or after 1 January 2011;
-- IFRIC 14 amendment, 'Prepayments of a minimum funding requirement', effective for annual periods beginning on or after 1 January 2011;
-- IFRIC 19, 'Extinguishing financial liabilities with equity instruments', effective for annual periods beginning on or after 1 July 2010; and
-- Annual improvements to IFRSs (2010), effective for annual periods beginning on or after 1 January 2011.
The following new standards, amendments to existing standards or interpretations have been issued, but are not effective for the financial year ending 31 March 2012 and have not been adopted early:
-- IFRS 7 amendment, 'Financial instruments: Disclosures on de recognition', effective for annual periods beginning on or after 1 July 2011, subject to EU endorsement;
-- IFRS 7 amendment, 'Disclosures - offsetting financial assets and liabilities', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IFRS 9, 'Financial instruments', effective for annual periods beginning on or after 1 January 2015, subject to EU endorsement;
-- IFRS 10, 'Consolidated financial statements', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IFRS 11, 'Joint arrangements', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IFRS 12, 'Disclosure of interests in other entities', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IFRS 13, 'Fair value measurements', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IAS 1 amendment, 'Financial statement presentation', effective for annual periods beginning on or after 1 July 2012 subject to EU endorsement;
-- IAS 12 amendment, 'Income taxes on deferred tax', effective for annual periods beginning on or after 1 January 2012, subject to EU endorsement;
-- IAS 19 amendment, 'Employee benefits', effective for annual periods beginning on or after 1 January 2013 subject to EU endorsement;
-- IAS 27, 'Separate financial statements', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IAS 28, 'Investments in associates and joint ventures', effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
-- IAS 32 amendment, 'Offsetting financial assets and financial liabilities', effective for annual periods beginning on or after 1 January 2014, subject to EU endorsement.
These standards will require additional disclosures but otherwise will not have a material impact on the Group Financial Statements when they are adopted.
Alternative performance measures
The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) financial measures, which are not defined by IFRS. The Board use these measures in order to assess the underlying operational performance of the Group and as such these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in this Annual Report and Accounts:
a) Adjusted operating profit and adjusted profit before tax
Beneath the Consolidated income statement adjusted operating profit is separately disclosed. This is defined as operating profit before amortisation of acquired intangibles, impairment of goodwill and other significant items, which includes acquisition, group restructuring and redundancy costs (which include Board and Senior Management recruitment fees) and property onerous lease costs. Profit before tax is also adjusted in the same way, with the additional adjustment to exclude net pension finance costs. A reconciliation of profit before tax to adjusted profit before tax is shown beneath the Consolidated income statement.
b) Movement in net debt
Beneath the Statement of cash flows a Statement of movement in net debt is shown being the movement between opening and closing net debt. An analysis of net debt by Balance sheet heading is also shown.
c) Adjusted earnings per share
Adjusted earnings per share as shown in note 6 is calculated by dividing the adjusted (loss)/profit attributable to owners of the Company by the weighted average number of Ordinary shares in issue during the year.
d) Net cash flow generated from business operations
Beneath the Statement of cash flows in the Statement of movement in net debt the 'Cash used in operations' is split into its component parts, representing net cash flow generated from business operations; restructuring including redundancy costs, acquisition costs, legacy cash flows (note 12) and the funding of the pension deficit.
18 RESPONSIBILITY STATEMENT OF THE DIRECTORS
To the best of the knowledge of the Directors (whose names and functions are set out below), the Annual Financial Results Statement which has been prepared using accounting policies and methods of computation consistent with those used in the Group's annual report for the year ended 31 March 2011 and to be adopted for the financial year ended 31 March 2012, gives a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole; and Pursuant to Disclosure and Transparency Rules, Chapter 4, the Directors' Report of the Company's annual report will include a fair review of the development and performance of the business and the position of the Company, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.
Paul Golby Chairman
John Lowry Interim Chief Executive Officer
Kevin Higginson Group Chief Financial Officer
Rodney Westhead Non Executive Director
Bernard Lord Non Executive Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
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