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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Designcapital | LSE:DESC | London | Ordinary Share | GB00B28RCR73 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.875 | 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
TIDMDESC
RNS Number : 9202V
Designcapital PLC
18 January 2013
18 January 2013
DESIGNCAPITAL PLC ("designcapital" or the "Company")
Final results for the year to 31 December 2011
designcapital plc, the AIM listed investment company dedicated to high end contemporary furniture design, announces its audited consolidated results for the year to 31 December 2011.
Highlights
-- Turnover GBP40,666 (2010 - GBP633 restated) -- Profit for the year was GBP3,712,195 (2010 - GBP(5,075,411)) -- Basic net earnings per share 5.36p (2009: (8.12p))
-- New distribution strategy adopted for UK, France, North America and Middle East and North Africa
Current Financial Position
Following the changes and restructuring detailed below, the Company is now organised as an investing Company, with minority interests in invested companies.
This restructuring has not only allowed it to reduce overhead and administration costs, but also to implement better risk management of the invested companies.
As an investing company, designcapital plc will derive revenues through a mix of interest received on shareholders loans and funding facilities provided to portfolio companies and also through fees generated by allowing the portfolio companies the use the intellectual property rights on internet sites, design models and designers contracts that are owned by designcapital plc. Additional fees are expected to be generated from the provision of strategic and financial advisory services to be provided to designcapital*finance, in parallel with the commercial development of this new business unit.
These revenues are expected to allow the Company to cover its running costs and generate positive cash flows.
The Company will also retain the option of funding itself further by establishing loans backed by assets and other related debt financing products, which may complement, as appropriate, the Company's ability to issue equity at the level of both the invested portfolio companies and also the Company.
On 20(th) December 2012, the Company secured a GBP25,000 subscription for new ordinary shares which are being issued at 10p per share. This private investor has also joined the Board of Artelano International Ltd. Notwithstanding this cash subscription, the Company's financial position remains weak, and it is currently unable to pay its creditors on time.
Discussions with Luxury Investments S.A., a significant shareholder, have resulted in renegotiated terms for the two loans made available to the Company on 26 June 2009 and 11 June 2010 respectively whereby the repayment of the loans will not be required before 31 December 2013. Further discussions are ongoing and the Directors have a reasonable expectation that they will reach an agreement with Luxury Investments S.A. whereby both parties agree to ensure that the working capital requirements of the Group are not threatened.
On 27th December 2012, Frédéric Bobo, a Director of the Company, provided the Company with an extension of a working capital support of up to GBP150,000, to be drawn down by the Company should the Company need additional funds. The Company has already drawn on this support over 2012 and it is likely that it will continue to draw down on this working capital support unless further cash subscriptions for new ordinary shares in the Company or revenues from operations are received.
Trading in the Company's shares is currently suspended and the suspension will remain pending implementation of its investing policy. If the Company has not implemented its investing policy by 25 February 2013, the Company's listing on AIM will be cancelled pursuant to AIM Rule 15. A further announcement will be made in due course.
Frédéric Bobo, Executive Chairman said:
"2011 and 2012 havebeen a period ofsignificant change during which actions were taken to refocus designcapital's business and to ensure the long term future and success for its shareholders. A new business model and new distribution channels have been established through which the Groups products can be sold on terms that reduce the risk and costs of distribution. Manufacturing and logistics have been outsourced further reducing the fixed costs of the Group.
As a result of the actions taken, the Group now has a cost base considerably lower than in 2011 and with the significant proportion of cost being incurred on a variable basis, the level of sales required to achieve a profit and to generate cash is a fraction of that required in previous years."
Contacts:- designcapital plc Frederic Bobo, Executive Chairman Mike Hosie, Chief Financial Officer +44 20 7554 8555 Libertas Capital Corporate Finance Limited Sandy Jamieson Tim Cofman +44 20 7569 9650
designcapital plc EXECUTIVE CHAIRMAN'S STATEMENT
I am pleased to present the Company's Report and Financial Statements for the year to 31 December 2011.
designcapital plc (the Company) was incorporated in June 2007, and was admitted to AIM on 21 January 2008, with the strategic objective of becoming a major pan-European design-focused investment company.
We were admitted to the AIM market during one of the most difficult periods in living memory, with great uncertainty as to the impact of the "credit crunch", the banking crisis, as well as energy prices and raw material costs, on economic activity.
There were also significant uncertainties as to whether these pressures could be managed by the world's monetary authorities without triggering a deeper recession or a sharp rise in inflation.
The most immediate consequences of the economic crisis that has dominated since 2008, and continues to the present day, has been a sharp contraction in credit, a downturn in economic activity and a worldwide slowdown in most of the industry sectors, including the high-end furniture design industry.
Amidst this very difficult economic background, which affects most of the major markets in which the Company's investment targets operate, the Company has moved quickly to restructure its trading activities and to adopt a strategy appropriate for the adverse market conditions that it expects to continue for the foreseeable future.
In June 2010, after 24 months of restructuring within the intricate and cumbersome framework of French labour regulations, both our Paris based subsidiaries, Artelano, involved in the edition of high-end contemporary design furniture, and Forum Diffusion, a multi-brand retailer of high-end design furniture to the contract and office markets, were allowed to exit their restructuring status and to operate again within the normal commercial markets.
As highlighted in the interim results for the Group at June 2010, the obligation placed on our subsidiaries by the French courts to remain under the restructuring status for the maximum period of "Redressement Judiciaire" allowed by the French law, had seriously compromised the Company's ability to bid for business in their strategic market segments such as banks, public institutions and large multinational companies.
In June 2010 the operating cost base of both companies was running significantly below 2009 levels, and like for like figures demonstrated the overall progress that we had made in the first half of the year as we continued to restructure the businesses, reduce costs and improve operational efficiencies within the logistics side of the business.
Forum Diffusion's business has been refocused on the more profitable contracts market. The show-room of the company, structurally loss-making, was sold in June 2010 for EUR1.1m after costs. This strategy began to produce results as, in September 2010, the Company had identified and targeted more than EUR7.5m worth of projects; bids worth EUR3.2m were being assessed by clients, and EUR1.2m worth of orders had already been contracted for delivery before the end of the year.
In September 2010, we had also re-orientated our Artelano business around its show-room and contract activities and our strategy was to present new higher-end products to clients, and to work on the opening of the first international show-room of Artelano in Mayfair, London.
Notwithstanding the progress brought about through the restructuring, the opportunities that were being identified, most notably at Forum Diffusion, which supported a reasonable anticipation of growth in our French subsidiaries during 2011, subsequently suffered from delays and were ultimately contracted with very thin margins.
The worsening economic conditions that we had started to identify in the latter part of 2010, and the near term business focus that resulted from these extra-ordinary market conditions, prompted us to re-consider the business model and markets that we were active in.
Following the transfer of the Artelano brand and contracts with designers to designcapital plc in London, it had become increasingly apparent to us that maintaining the operations of Artelano S.A. in Paris, which had undergone an 18 month restructuring under the French "Redressement Judiciaire" process, had neither operational or strategic value to the Group.
designcapital plc EXECUTIVE CHAIRMAN'S STATEMENT
Following careful consideration, it was decided to cease the trading activities of Artelano S.A. as soon as was practicable and on 17 May 2011 the liquidation commenced.
Responsibility for the international development of the Artelano brand had previously been re-located to London to be driven and managed through Artelano International Ltd ("Artelano International"), designcapital's UK subsidiary with its head office in London.
The liquidation of the business resulted in a termination of the restructuring plan agreed as part of the "Redressement Judiciaire" process, which included the obligation to repay historical "frozen" trade liabilities amounting to approximately GBP1.9 million. Given the losses reported during the year ended 31 December 2010, together with the expected level of future losses, this resulted in a non-cash provision being made against designcapital's investment in Artelano S.A. of GBP1.8 million plus intra group receivables of GBP0.9 million in the Company's financial statements for the year ended 31 December 2010. The goodwill impairment in the Group Financial Statements in 2010 regarding Artelano S.A. was GBP1.2 million.
During the early part of 2011, and despite the fact that Forum Diffusion had gained a number of significant orders, the market started to deteriorate further and more quickly.
In the light of this deterioration the Forum Diffusion restructuring plan was reviewed. As part of the "Redressement Judiciaire" process, Forum Diffusion S.A. was obliged to repay historical "frozen" trade liabilities amounting to approximately EUR4.5 million over a ten year period, however the Company concluded that in the current global economic environment, the restructuring plan was not reasonably achievable.
Following careful consideration, it was decided to cease the trading activities of Forum Diffusion s.a.s. and of Forum Developpement s.a.s. as soon as practicable. The liquidation of Forum Diffusion commenced on 25 August 2011.
The winding up of the Forum Diffusion business resulted in a termination of the restructuring plan agreed as part of the "Redressement Judiciaire" process, including the obligation on Forum Diffusion s.a.s. to repay the residual historical "frozen" trade liabilities amounting to approximately EUR4.5 million.
This resulted in a non-cash provision being made against designcapital's investments in Forum Diffusion s.a.s and Forum Developpement s.a.s of GBP1.7 million plus intra group receivables of GBP0.2 million in the Company's Financial Statements for the year ended 31 December 2010. The goodwill impairment in the Group Financial Statements relating to Forum Diffusion s.a.s. and Forum Developpement s.a.s. was GBP1.4 million.
Financial Performance
Consolidated revenues from continuing operations for the year ended 31 December 2011 were GBP40,666 (2010- GBP633) and cost of sales were GBP18,536 (2010- GBP762), producing a gross profit of GBP22,130 (2010 - gross loss of GBP129) at a margin of 54%.
Administrative and other operating expenses from continuing operations were GBP910,835 (2010 - GBP920,796) and, after taking account of finance income, finance costs and taxation, the loss for the year from continuing operations was GBP1,116,972 (2010 - loss of GBP1,040,468).
The liquidation of the French subsidiary undertakings, resulting in the de-recognition of net liabilities, gave rise to a profit from discontinued operations in the year of GBP4,829,167. The comparatives in the Consolidated Statement of Comprehensive Income have been re-presented for those operations classified as discontinued in the current period.
designcapital plc EXECUTIVE CHAIRMAN'S STATEMENT
Outlook
designcapital was established to act as a consolidator within the European design space.
The recession, lack of credit for smaller businesses and the fact that the entrepreneurs behind many businesses which started in the late 1960's and 1970's are now reaching retirement age without natural successors, together with the impact of e-commerce and of the internet on high-street furniture show-room businesses, means that in a fragmented and difficult market there are numerous opportunities.
Whilst 2009 and 2010 were years in which designcapital worked to establish the foundations for creating a profitable growth business and secure acquisition opportunities within a reasonably steady market environment, the economic crisis that continued to develop and expand throughout 2011 is likely to have negative implications for the foreseeable future has prompted us to reconsider our strategy and to adapt to the new and medium term market conditions.
That said, the Board of designcapital maintains its vision and despite the current market environment and overall economic outlook, believes that within the medium term, the Group can begin generating an attractive margin on solid revenues, from a business model based upon a combination of the procurement of high-end design furniture for business to business (B2B) and contract clients; classic e-commerce distribution of high-end design furniture brands such as Artelano to consumers (B2C); and the provision of financial and other services serving clients and brands of the high-end design furniture industry.
We have a wealth of experience and an excellent practical understanding of the marketaided in part through the restructuringof our French operations.
As a result we have decided to adapt our investing strategy, and while the Directors intend that the Company will continue to make investments in target businesses at all development stages save for start-up businesses, the investment strategy shall not prevent the Company from investing in businesses, projects or activities, that are an adjunct to or a logical extension of existing businesses projects or activities of the Company's portfolio investments, and as such have the potential to create value for Shareholders.
To that extent a significant proportion of the Company's assets will continue to be invested and managed, both directly by the Company, but also through the creation of investment vehicles in respect of which the Company will delegate the management.
While the Directors will continue to actively monitor any investments or acquisitions made by the Company, neither they nor the Company shall take part in the day to day management of the underlying investments, unless required by law or by special situations. Notwithstanding this, the Directors of the Company, or the Company itself represented byone or several Director(s), are permitted to participate in the Boards, or equivalent corporate governance bodies, of any investments or acquisitions made by the Company.
There are no restrictions in the type of investment that the Company might make nor on the type of opportunity that may be considered other than set out above.
Business Strategy
The term "Group" has been used in describing the business ofdesigncapital plc, whose strategic objective is to create a portfolio of integrated companies that are managed accordingly. This description is not intended to infer any management responsibility between the Directors of designcapital and the investments, although in accounting terms they have been accounted for as subsidiaries.
Artelano (International) Ltd
The Artelano trade-mark was re-registered in the name of designcapital in 2010 and Artelano(International) Ltd, a company headquartered in London and then 100% owned by the Company, was given responsibility for the overall strategy of the brand and for the selection of designers and products, as well as for global brand marketing and communications.
The manufacture of Artelano products stopped in the middle of 2011 to allow for the implementation of the new business model. Taking account of the market conditions, we believe that this temporary suspension of the business has allowed us to reduce costs and preserve cash, without damaging the brand.
designcapital plc EXECUTIVE CHAIRMAN'S STATEMENT
Business Strategy (continued)
A new general manager was recruited for Artelano International Limited in the first months of 2012 and, with an equity interest in Artelano International Ltd, will continue to manage the overall strategy of the brand. All other non-core activities will be sub-contracted or licensed to strategic partners, through long-term contracts:
-- The brand will not be distributed through wholesale networks, but rather through direct distribution channels, contract or B2B channels and a show-room located in London; -- The distribution strategy for the B2C segment is focussed on a new e-commerce enabled internet site that will go live as soon as possible, first in France and subsequently in the UK, to allow fast entry into the main European markets; -- The management of the internet site will be licensed to an existing internet venture that manages brand sites; -- This distribution strategy allows the Group to better position and manage the brand's pricing strategy and to decrease the retail price to clients by 25% on average, compared to retail prices of the same or similar Artelano product previously sold through classic show-rooms; -- The new distribution strategy also facilitates a strong affiliation programme internationally and in other markets where the brand will have market presence; -- The production of our products, instead of being spread between a variety of small artisan manufacturers located mostly in Italy will, in the future, be managed in partnership with another editor of high-end furniture. This partnership will allow the Group to generate immediate economies of scale and to mutualise transportation, warehousing and ancillary costs; -- The product range of Artelano, which was previously considered to be niche, too "designer" and unrealistically expensive, has gained breadth and depth by the addition of new designers and products which adds a more contemporary, classic style "twist" to the brand; -- A range of products exclusively aimed at the contract market is also being developed to better answer the needs of this market segment.
Exclusive licencing agreements have already been established for North America, the Middle East and North Africa (MENA) with companies whose managers will take responsibility for the local marketing and promotion, distribution and other logistics. These agreements may transfer into capital partnership once appropriate performance results have been achieved.
To facilitate the re-establishment of Artelano International in the market, the brand owned by designcapital was sold subsequent to the year end and the Company's interest in Artelano International reduced to 30% in favour of MAK Designs, an existing commercial partner of Artelano International with a vested interest in developing the business.
designcapital now has a strategic investment in Artelano International and also retains ownership of the designers' contracts and the related Intellectual Property.
HOMECREA sarl
The e-commerce business of the Artelano brand(www.artelano.co)is to be managed by local partners, through the establishment of long-term licence contracts for the distribution of designcapital's products. The first such licence agreement was signed with Homecrea s.a.r.l. for the French market in January 2012 and negotiations are advancing with another internationalpartner for a number of additional countries.In order to establish the relationship with Homecrea s.a.r.l., a 20% shareholding was acquired by designcapital in September 2012, a Paris based company that, until recently, had been operating various e-commerce sites offering decoration products and design furniture.
This participation was acquired from M. Théodore d'Alberti, a minority investor of Homecréa who will not hold further interests into Homecréa pursuant to the transaction. This participation was acquired for a 35 000 EUR consideration, paid by way of an allotment of 273 000 ordinary shares of the Company, issued at a price of 10p per share.
This acquisition will allow the other investee companies of designcapital to access, on a remunerated basis, the database of 700 000 client e-mail addresses today actively managed by Homecréa, and to establish the bases of the e-commerce business of the Artelano brand.
B2B e-procurement platform (Deezplay.com)
With the initial scoping and design work having been completed in conjunction with Forum Diffusion, the next development stages of the B2B platform are currently being negotiated with an operator active in the internet and e-commerce market. Once the agreement is finalised, the deezplay.com e-procurement platform will be run under a joint venture arrangement.
Deezplay.com is expected to become the first B2B platform for the distribution of high-end designer furniture and is an extension of the work previously undertaken by the Forum businesses in Paris.
designcapital plc EXECUTIVE CHAIRMAN'S STATEMENT
Business Strategy (continued)
Designcapital*finance
Designcapital*finance is an initiative developed through the trading experiences of Forum Diffusion. The Directors believe it will provide a complementary business set up as an adjunct to designcapital's distribution businesses, the purpose of which is to firstly provide a solution to the problem of funding non-strategic assets and secondly to secure long term relationships with clients for the on-going sale of furniture and provision of related support services. The financing element will be sub-contracted to experts in the field of asset finance and sales and will be managed out of the Company's established distribution businesses.
Designcapital*finance is expected to be incorporated in France in early 2013 with designcapital plc owning 20% of the share capital. A Managing Director with appropriate experience has been recruited for the business and a number of opportunities have already been identified.
2010 and 2011 to date have been periods of significant change during which actions were taken to refocus designcapital's business and to ensure the long term future and success for its shareholders. New distribution channels are being established through which the Groups products can be sold and on terms that reduce the risk and costs of distribution. Manufacturing and logistics have been outsourced further reducing the fixed costs of the Group.
As a result of the restructuring and liquidation of the French subsidiaries during 2011, the Group's obligation to pay trade liabilities frozen under the "Redressement Judiciaire" process totalling approximately EUR6.1 million have been terminated.
Finally, as a result of the actions taken, the Group now has a cost base considerably lower than during the years 2010 and 2011, and, with the significant proportion of cost being incurred on a variable basis, the level of sales required to achieve a profit and to generate cash is a fraction of that required in previous years.
Financial Strategy
Following restructuring, the Company is now organised as an investing Company, with minority interests in invested companies. It will retain an appropriate influence over the development of its portfolio investments.
This approach has not only allowed it to reduce overhead and administration costs, but also to implement better risk management of the invested companies. It also facilitates better incentivisation of the management of the portfolio companies.
As an investing company, designcapital plc will to derive revenues through a mix of interest received on shareholders loans and funding facilities provided to portfolio companies, and also through fees generated by allowing the portfolio companies to use the intellectual property rights on internet sites, design models and designers contracts that are owned by designcapital plc. Additional fees are expected to be generated from the provision of strategic and financial advisory services provided to designcapital*finance, in parallel with the commercial development of this new business unit.
These revenues are expected to allow the Company to cover its running costs and generate positive cash flows.
The Company will also retain the option of funding itself further by establishing loans backed by assets and other related debt financing products, which may complement, as appropriate, the Company's ability to issue equity at the level of both the invested portfolio companies and also the Company.
Board of Directors
As the business moves towards delivering its new strategy, a number of complimentary appointments will be made to strengthen the Board.
In particular, expertise will be required in support of the development of the North American and Middle East markets, as well as in the key area of brand and product development.
Frédéric Bobo
Executive Chairman
18 January 2013
designcapital plc CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2011
Hot Features
Premium
Year Year
ended ended
31 December
31 December 2010
2011 (restated)
Continuing operations GBP GBP
Revenue 40,666 633
Cost of sales (18,536) (762)
------------- --------------
Gross Profit 22,130 (129)
Other income 1,777 -
Administrative and other operating
expenses (910,835) (920,796)
Operating Loss (886,928) (920,925)
Finance income - -
Finance costs (230,044) (119,543)
------------- --------------
Loss before Tax (1,116,972) (1,040,468)
Income tax expense - -
------------- --------------
Loss for the Year from continuing
operations (1,116,972) (1,040,468)
------------- --------------
Discontinued operations
Loss for the year from discontinued
operations - (4,034,943)
Profit on liquidation of discontinued 4,829,167 -
operations
------------- --------------
Profit/(loss) for the year 3,712,195 (5,075,411)
------------- --------------
Other Comprehensive Income
Currency translation differences - 61,418
------------- --------------
Other Comprehensive Income for
the Year, Net of Tax - 61,418
------------- --------------
Total Comprehensive Income for
the Year 3,712,195 (5,013,993)
============= ==============
Year Year
ended ended
31 December 31 December
2011 2010
Basic Earnings per Share
(pence per share) attributable
to the Equity Holders of the
Company during the Year
Continuing operations (1.61) (1.66)
Profit/(loss) for the year 5.36 (8.12)
============= ==============
Diluted Earnings per Share
(pence per share) attributable
to the Equity Holders of the
Company during the Year
Continuing operations (1.61) (1.66)
Profit/(loss) for the year 5.35 (8.12)
============= ==============
The currency translation differences within other comprehensive income have no income tax effect.
designcapital plc CONSOLIDATED BALANCE SHEET
Company number: 06290400 As at 31 December 2011
As at
31 December
As at 2010
31 December
2011
ASSETS GBP GBP
Non-Current Assets
Property, plant and equipment 2,376 190,015
Intangible assets - 1,969
Trade and other receivables - 162,973
Deferred income tax assets - 47,273
-------------
Total Non-Current Assets 2,376 402,230
------------- -------------
Current Assets
Inventories - 479,181
Trade and other receivables 269,509 1,118,225
Cash and cash equivalents 774 356,890
-------------
Total Current Assets 270,283 1,954,296
------------- -------------
TOTAL ASSETS 272,659 2,356,526
============= =============
EQUITY AND LIABILITIES
Equity Attributable to Owners of
the Parent
Ordinary shares 7,083,222 6,530,085
Share premium 204,089 196,816
Shares to be issued - 100,000
Translation reserve - 6,211
Retained losses (9,420,562) (13,138,968)
------------- -------------
Total Equity (2,133,251) (6,305,856)
------------- -------------
Non-Current Liabilities
Trade and other payables - 3,407,160
Borrowings - 278,940
Provisions for other liabilities
and charges - 477,243
------------- -------------
Total Non-Current Liabilities - 4,163,343
------------- -------------
designcapital plc CONSOLIDATED BALANCE SHEET
Company number: 06290400 As at 31 December 2011
Current Liabilities
Trade and other payables 825,117 2,884,869
Borrowings 1,580,793 1,528,134
Provisions for other liabilities
and charges - 86,036
---------- ----------
Total Current Liabilities 2,405,910 4,499,039
---------- ----------
Total Liabilities 2,405,910 8,662,382
---------- ----------
TOTAL EQUITY AND LIABILITIES 272,659 2,356,526
========== ==========
designcapital plc COMPANY BALANCE SHEET
Company number: 06290400 As at 31 December 2011
As at As at
31 December 31 December
2011 2010
GBP GBP
ASSETS
Non-Current Assets
Property, plant and equipment 2,375 4,697
Investment in subsidiary undertakings 10 10
Total Non-Current Assets 2,385 4,707
------------ ------------
Current Assets
Trade and other receivables 295,592 610,738
Cash and cash equivalents - 18,405
------------ ------------
Total Current Assets 295,592 629,143
------------ ------------
TOTAL ASSETS 297,977 633,850
============ ============
EQUITY AND LIABILITIES
Equity attributable to Owners
of the Parent
Ordinary shares 7,083,222 6,530,085
Share premium 204,089 196,816
Shares to be issued - 100,000
Retained losses (9,335,851) (8,142,919)
Total Equity (2,048,540) (1,316,018)
------------ ------------
Current Liabilities
Borrowings 1,580,751 1,434,599
Trade and other payables 765,766 515,269
Total Current Liabilities 2,346,517 1,949,868
------------ ------------
TOTAL EQUITY AND LIABILITIES 297,977 633,850
============ ============
designcapital plc CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2011
Shares
Share to be Translation Retained
Share Capital Premium Issued Reserve Losses Total
GBP GBP GBP GBP GBP GBP
Balance as at 1 January
2010 5,822,533 30,071 - (55,207) (8,063,557) (2,266,160)
-------------- --------- -------- ------------ ------------- ------------
Comprehensive Income
Loss for the year - - - - (5,075,411) (5,075,411)
Other Comprehensive
Income
Currency translation
differences - - - 61,418 - 61,418
-------------- --------- -------- ------------ ------------- ------------
Total Comprehensive
Income - - - 61,418 (5,075,411) (5,013,993)
-------------- --------- -------- ------------ ------------- ------------
Transactions with
Owners
Issue of ordinary
share capital 707,552 166,745 - - - 874,297
Shares to be issued - - 100,000 - - 100,000
Total Transactions
with Owners 707,552 166,745 100,000 - - 974,297
-------------- --------- -------- ------------ ------------- ------------
Balance as at 31 December
2010 6,530,085 196,816 100,000 6,211 (13,138,968) (6,305,856)
-------------- --------- -------- ------------ ------------- ------------
Comprehensive Income
Profit for the year - - - (6,211) 3,718,406 3,712,195
Other Comprehensive
Income
Currency translation - - - - - -
differences
Total Comprehensive
Income - - - (6,211) 3,718,406 3,712,195
---------- -------- ---------- -------- ------------ ------------
Transactions with
Owners
Issue of ordinary
share capital 553,137 7,273 (100,000) - - 460,410
Total Transactions
with Owners 553,137 7,273 (100,000) - - 460,410
---------- -------- ---------- -------- ------------ ------------
Balance as at 31 December
2011 7,083,222 204,089 - - (9,420,562) (2,133,251)
---------- -------- ---------- -------- ------------ ------------
designcapital plc COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2011
Shares Retained
Share Capital Share Premium to be issued Losses Total
GBP GBP GBP GBP GBP
Balance as at 1 January
2010 5,822,533 30,071 - (2,066,012) 3,786,592
-------------- -------------- -------------- ------------ ------------
Comprehensive Income
Loss for the year - - - (6,076,907) (6,076,907)
-------------- -------------- -------------- ------------ ------------
Total Comprehensive
Income - - - (6,076,907) (6,076,907)
-------------- -------------- -------------- ------------ ------------
Transactions with Owners
Issue of ordinary share
capital 707,552 166,745 - - 874,297
Shares to be issued - - 100,000 - 100,000
Total Transactions
with Owners 707,552 166,745 100,000 - 974,297
-------------- -------------- -------------- ------------ ------------
Balance as at 31 December
2010 6,530,085 196,816 100,000 (8,142,919) (1,316,018)
-------------- -------------- -------------- ------------ ------------
Comprehensive Income
Loss for the year - - - (1,192,932) (1,192,932)
---------- -------- ---------- ------------ ------------
Total Comprehensive
Income - - - (1,192,932) (1,192,932)
---------- -------- ---------- ------------ ------------
Transactions with Owners
Issue of ordinary share
capital 553,137 7,273 (100,000) - 460,410
---------- -------- ---------- ------------ ------------
Total Transactions
with Owners 553,137 7,273 (100,000) - 460,410
---------- -------- ---------- ------------ ------------
Balance as at 31 December
2011 7,083,222 204,089 - (9,335,851) (2,048,540)
---------- -------- ---------- ------------ ------------
designcapital plc CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2011
Year
ended
31 December
2010
Year
ended
31 December
2011
GBP GBP
Operating Activities
Profit/ (Loss) before taxation including
discontinued operations 3,712,195 (5,049,722)
Adjustments for:
Gain on disposal of discontinued operations (5,090,615) -
Depreciation of property, plant and
equipment 2,322 407,582
Profit on disposal of property, plant
and equipment - (770,539)
Amortisation of intangible assets - 87,594
Impairment of goodwill - 2,612,673
Exceptional income - (794,995)
Foreign exchange (7,995) 84,667
Finance income - (1,085)
Finance expense 154,650 223,248
Share-based payments - 75,440
Provisions - 12,995
Operating Loss before Changes in Working
Capital (1,229,443) (3,111,880)
Decrease in inventories 18,033 464,937
Decrease in trade and other receivables 441,843 902,645
Increase in trade and other payables 302,300 471,409
------------- -------------
Net Cash Outflows from Operating Activities (467,267) (1,731,303)
------------- -------------
Investing Activities
Purchase of property, plant and equipment (2,457) (43,768)
Net cash disposed of from discontinued (65,945) -
operations
Additions to intangible assets - (1,392)
Proceeds from sale of property, plant
and equipment - 945,317
Interest received - 1,085
Net Cash Outflows from Investing Activities (68,402) 901,242
------------- -------------
Financing Activities
Increase in bank and other loans - 655,783
Proceeds from issue of share capital 460,410 190,000
Proceeds from shares to be issued - 100,000
Interest paid (797) (43,421)
Net Cash Inflows from Financing Activities 459,613 902,362
------------- -------------
Increase/(decrease) in Cash and Cash
Equivalents (76,056) 72,301
Cash and Cash Equivalents at Beginning
of Year 51,488 (22,061)
Effect of Foreign Exchange Rate Changes - 1,248
Cash and Cash Equivalents at End of
Year (24,569) 51,488
============= =============
designcapital plc COMPANY CASH FLOW STATEMENT
For the year ended 31 December 2011
Year Year
ended ended
31 December 31 December
2011 2010
GBP GBP
Operating Activities
Profit/ (Loss) before taxation (1,192,932) (6,076,907)
Adjustments for:
Depreciation of property, plant
and equipment 2,322 2,184
Foreign exchange (7,992) 77,056
Impairment of investment - 3,429,663
Bad debt provision - 1,590,007
Share-based payments - 75,440
Finance income - (16,282)
Finance expense 154,650 118,170
------------ ------------
Operating Loss before Changes in
Working Capital (1,043,952) (800,669)
Decrease/ (Increase) in trade and
other receivables 298,795 (1,015,417)
Increase in trade and other payables 250,497 871,481
------------ ------------
Net Cash Outflow from Operating
Activities (494,660) (944,605)
------------ ------------
Investing Activities
Purchase of property, plant and
equipment - (1,156)
Interest received - 16,282
Net Cash Inflow from Investing Activities - 15,126
------------ ------------
Financing Activities
Proceeds from issue of share capital 460,410 190,000
Shares to be issued - 100,000
Interest paid (797) (5,629)
Increase in borrowings - 641,697
Net Cash Inflow from Financing Activities 459,613 926,068
------------ ------------
Decrease in Cash and Cash Equivalents (35,047) (3,411)
Cash and Cash Equivalents at Beginning
of Year 9,745 13,156
Cash and Cash Equivalents at End
of Year (25,302) 9,745
============ ============
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
1. General Information
designcapital plc ("the Company") is a public limited company which is listed on the Alternative Investment Market (AIM) and incorporated and domiciled in the UK.
The Company is an investment holding company and does not trade.
The Consolidated Financial Statements of the Company include Artelano International Limited ("the Group").
2. Summary of Significant Accounting Policies
The principal accounting policies adopted in the preparation of these Financial Statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
(a) Basis of Preparation
The Financial Statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRSs") and IFRIC interpretations as adopted by the European Union, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of certain of the subsidiaries' land and buildings to fair value for consolidation purposes.
The preparation of Financial Statements in conformity with IFRSs requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information, including the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Financial Statements, are disclosed in note 2(w).
Going Concern Basis
As described in the 2008, 2009 and 2010 Executive Chairman's Statements, the French registered subsidiary undertakings Artelano S.A. and Forum Diffusion s.a.s. entered into a "Redressement Judiciaire" arrangement on 30 December 2008. "Redressement Judiciaire" is a court based procedure which is applied for where a company is in a state of "cessation des payments" (cessation of payments) but has not ceased its trading activities and is considered capable of being rehabilitated. The first stage of the process is an observation period during which management remain charged with managing the business and creditors are barred from taking action to obtain payment for liabilities that arose before the court initiated the "Redressement Judiciaire".
During the observation period, which typically lasts for three to six months, although it can be extended to a maximum of 18 months, where the court is confident that the business can be rehabilitated, the business can be restructured under the protection of the court and the procedure. Once the observation period ends a company will continue to manage its old liabilities in accordance with the "Continuation" plan established with the court whereby pre-"Redressement Judiciaire" liabilities are settled over a period that extends to a maximum of ten years.
During 2010 and early 2011 worsening economic conditions prompted the Group's management to re-consider the business model and the markets that the Group was active in.
Maintaining the operations of Artelano S.A. in Paris, which had undergone an 18 month restructuring under the French "Redressement Judiciaire" process, had neither operational nor strategic value to the Group. As a consequence it was decided to allow the company to be liquidated on 17 May 2011 resulting in the termination of the restructuring plan agreed as part of the "Redressement Judiciaire" process.
Similarly, the Forum Diffusion s.a.s. restructuring plan was reviewed. As part of the "Redressement Judiciaire" process, Forum Diffusion s.a. was obliged to repay historical "frozen" trade liabilities amounting to approximately EUR4.5 million over a ten year period. However, the Company concluded that in the current global economic environment, the restructuring plan was not reasonably achievable. Following careful consideration, it was also decided to cease the trading activities of Forum Diffusion s.a.s. on 25 August 2011.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (a) Basis of Preparation (continued)
Going Concern Basis (continued)
The ceasing of trading activities and subsequent liquidation of both businesses resulted in an immediate termination of the restructuring plans agreed as part of the "Redressement Judiciaire" process, including the obligation on Artelano S.A. and Forum Diffusion s.a.s. to repay historical "frozen" trade liabilities of approximately EUR1.5 million and EUR4.5 million respectively.
A decision was also taken by the Board to apply for the liquidation of Forum Developpement s.a.s.
Court decisions were taken on 17 May 2011 for Artelano S.A., 25 August 2011 for Forum Diffusion s.a.s. and on 26 July 2012 for Forum Developpement s.a.s.
An alternative business model has subsequently been adopted based on the subcontracting of manufacturing and logistics and the establishment of joint venture distribution agreements which will reduce the cash requirements of the Group. The fixed overhead and running costs of the Company have been reduced and wherever possible are now incurred on a variable basis.
Licencing arrangements have been established with MAK Design for the exploitation of the Middle East and North African market and with Fuaris Consulting Inc. for the United States and Canadian markets. Each company will be licenced to manufacture and distribute products owned by the Group in return for royalty payments.
Additional arrangements are planned for the French and other European markets. The Group's future is partly dependent on the success of these licencees.
The Directors' plans and strategy for the short and medium term assume a growth in income and profitability in the Group's remaining investments. Due to the time needed to establish the new business model, further finance will be required by the Company to implement or acquire the currently planned growth opportunities. The need to raise additional funds will depend upon the timing of the development of the trading subsidiaries and joint ventures and the availability of funds to secure planned growth opportunities.
The ability of the Company to arrange and secure such financing in the future will depend on capital market conditions and the business performance of the Group. There can be no assurance that the Company will successfully arrange additional finance, if required, nor that it will be on terms which are satisfactory to the Company.
The Directors have had discussions with Luxury Investments S.A., a significant shareholder, and have renegotiated the terms of the two loans made available to the Company on 26 June 2009 and 11 June 2010 respectively whereby the repayment of the loans will not be required before 31 December 2013. Further discussions are ongoing and the Directors have a reasonable expectation that they will reach an agreement with Luxury Investments S.A. whereby both parties agree to ensure that the working capital requirements of the Group are not threatened.
On 24 October 2012, Stunning Partners LLC, a company in which Frédéric Bobo, a Director in the Company, has a controlling interest and Kerr Douglas Limited, a company in which Michael Hosie, a Director of the Company, has a controlling interest agreed to postpone the sums due to them at that date until 31 December 2013 or to write-off the loans in the event that they had not been converted into equity at that date.
On 22 December 2011, Frédéric Bobo, a Director of the Company, provided the Company with an eighteen month working capital facility of up to GBP150,000, to be drawn down by the Company should the Company need additional funds.
The Group and Company will be required to raise additional funds over the twelve month period from the date of approval of the Financial Statements. The Directors have a reasonable expectation that they will secure the necessary additional funding when required.
The Directors have concluded that, notwithstanding the future financial support described immediately above, the circumstances set out beforehand represent a material uncertainty that casts doubt upon the Company's and Group's ability to continue as a going concern, and therefore the Company may be unable to realise its assets and discharge its liabilities in the normal course of business.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (a) Basis of Preparation (continued)
Going Concern Basis (continued)
After considering the uncertainties mentioned above, the extension of the loans from Luxury Investments S.A., the postponement of amounts due to Stunning Partners LLC and Kerr Douglas Limited, the expectation that they will secure additional funding required, the guaranteed facility from Frédéric Bobo and based upon the Board-approved forecasts and projections, the Directors have a reasonable expectation that the Company will continue in operational existence for the foreseeable future and at least until the end of December 2013.
(a) New and amended standards adopted by the Group.
There are no other IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning 1 January 2011 that have a material impact on the Group.
(b) New and amended standards, and interpretations mandatory for the first time for the financial year beginning 1 January 2011 but not currently relevant to the Group.
The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2011 or earlier periods, but not currently relevant to the Group.
A revised version of IAS 24 "Related Party Disclosures" simplified the disclosure requirements for government-related entities and clarified the definition of a related party. This revision was effective for periods beginning on or after 1 January 2011.
An amendment to IFRS 1 "First-time Adoption of International Financial Reporting Standards" relieved first-time adopters of IFRSs from providing the additional disclosures introduced in March 2009 by "Improving Disclosures about Financial Instruments" (Amendments to IFRS 7). This amendment was effective for periods beginning on or after 1 July 2010.
Amendments to IAS 32 "Financial Instruments: Presentation" addressed the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. These amendments were effective for periods beginning on or after 1 February 2010.
IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" clarified the treatment required when an entity renegotiates the terms of a financial liability with its creditor, and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially. This interpretation was effective for periods beginning on or after 1 July 2010.
An amendment to IFRIC 14 "IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction", on prepayments of a minimum funding requirement, applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permitted such an entity to treat the benefit of such an early payment as an asset. This amendment was effective for periods beginning on or after 1 January 2011.
(c) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011 and not early adopted.
IFRS 10 "Consolidated Financial Statements" builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
IFRS 11 "Joint Arrangements" provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form (as is currently the case). The standard addresses inconsistencies in the reporting of joint arrangements by requiring a single method to account for interests in jointly controlled entities. This standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (b) Basis of Preparation (continued)
IFRS 12 "Disclosure of Interests in Other Entities" is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. This standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
IFRS 13 "Fair Value Measurement" improves consistency and reduces complexity by providing, for the first time, a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. It does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards. This standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
IAS 27 "Separate Financial Statements" replaces the current version of IAS 27 "Consolidated and Separate Financial Statements" as a result of the issue of IFRS 10 (see above). This revised standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
IAS 28 "Investments in Associates and Joint Ventures" replaces the current version of IAS 28 "Investments in Associates" as a result of the issue of IFRS 11 (see above). This revised standard is effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
Amendments to IAS 1 "Presentation of Financial Statements" require items that may be reclassified to the profit or loss section of the income statement to be grouped together within other comprehensive income (OCI). The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. These amendments are effective for periods beginning on or after 1 July 2012, subject to EU endorsement.
Amendments to IAS 19 "Employment Benefits" eliminate the option to defer the recognition of gains and losses, known as the "corridor method"; streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income; and enhance the disclosure requirements for defined benefit plans, providing better information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. These amendments are effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
Amendments to IFRS 7 "Financial Instruments: Disclosures" require disclosure of information that will enable users of financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities, on the entity's financial position. These amendments are effective for periods beginning on or after 1 January 2013, subject to EU endorsement.
Amendments to IFRS 9 "Financial Instruments" and IFRS 7 "Financial Instruments: Disclosures" require entities to apply IFRS 9 for annual periods beginning on or after 1 January 2015 instead of on or after 1 January 2013. Early application continues to be permitted. The amendments also require additional disclosures on transition from IAS 39 "Financial Instruments: Recognition and Measurement" to IFRS 9.
Amendments to IAS 32 "Financial Instruments: Presentation" add application guidance to address inconsistencies identified in applying some of the criteria when offsetting financial assets and financial liabilities. This includes clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. These amendments are effective for periods beginning on or after 1 January 2014, subject to EU endorsement.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (c) Basis of Preparation (continued)
Amendments to IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosure of Interests in Other Entities" clarify the IASB's intention when first issuing the transition guidance in IFRS 10, provide similar relief in IFRS 11 and IFRS 12 from the presentation or adjustment of comparative information for periods prior to the immediately preceding period, and provide additional transition relief by eliminating the requirement to present comparatives for the disclosures relating to unconsolidated structured entities for any period before the first annual period for which IFRS 12 is applied. The amendment applies to annual periods beginning on or after 1 January 2013, subject to EU endorsement.
Amendments to IAS 12 "Income Taxes" introduce a presumption that recovery of the carrying amount of an asset measured using the fair value model in IAS 40 "Investment Property" will normally be through sale. The amendment applies to annual periods beginning on or after 1 January 2012, subject to EU endorsement.
"Annual Improvements 2009 - 2011 Cycle" sets out amendments to various IFRSs and provides a vehicle for making non-urgent but necessary amendments to IFRSs:
-- An amendment to IFRS 1 "First-time Adoption of International Financial Reporting Standards" clarifies whether an entity may apply IFRS 1:
(a) if the entity meets the criteria for applying IFRS 1 and has applied IFRS 1 in a previous reporting period; or
(b) if the entity meets the criteria for applying IFRS 1 and has applied IFRSs in a previous reporting period when IFRS 1 did not exist.
The amendment also addresses the transitional provisions for borrowing costs relating to qualifying assets for which the commencement date for capitalisation was before the date of transition to IFRSs.
-- An amendment to IAS 1 "Presentation of Financial Statements" clarifies the requirements for providing comparative information:
(a) for the opening statement of financial position when an entity changes accounting policies, or makes retrospective restatements or reclassifications; and
(b) when an entity provides financial statements beyond the minimum comparative information requirements.
-- An amendment to IAS 16 "Property, Plant and Equipment" addresses a perceived inconsistency in the classification requirements for servicing equipment.
-- An amendment to IAS 32 "Financial Instruments: Presentation" addresses perceived inconsistencies between IAS 12 "Income Taxes" and IAS 32 with regard to recognising the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction.
-- An amendment to IAS 34 "Interim Financial Reporting" clarifies the requirements on segment information for total assets and liabilities for each reportable segment.
The amendments apply to annual periods beginning on or after 1 January 2013.
The impact on the Group's financial statements of the future standards, amendments and interpretations is still under review, but the Group does not currently expect any of these changes to have a material impact on the results or the net assets of the Company or the Group.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
(b) Basis of Consolidation
The Consolidated Financial Statements include the results of the Company and entities controlled by the Company (its subsidiaries), forming the Group. All entities prepare financial statements made up to 31 December.
Subsidiaries are all entities where the Company has the power to govern their financial and operating policies, generally accompanied by a shareholding equal to more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition of subsidiaries (all of which occurred in previous accounting periods) are accounted for using the purchase method. The cost of acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus certain costs directly attributable to the acquisition. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies into line with those used by the Group.
(c) Foreign Currency Translation
Functional and Presentation Currency
Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (its "functional currency").
The Financial Statements are presented in Pounds Sterling (GBP) rounded to the nearest pound, which is the Company's functional and the Group's presentation currency.
Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are retranslated at the rates of exchange ruling at the Balance Sheet date. Foreign exchange differences on retranslation and settlement are recognised in profit or loss within "administrative and other operating expenses".
Group Companies
The results and financial position of all the Group's entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
i) assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet;
ii) income and expenses in profit or loss for each Statement of Comprehensive Income presented are translated at average exchange rates for the period; and
iii) all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders' equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (d) Property, Plant and Equipment
Property, plant and equipment is recorded at historical cost (including expenditure that is directly attributable to the acquisition of the items) less depreciation and impairment losses.
Property, plant and equipment is depreciated using the straight line method over the expected useful life of the assets, as follows:
Asset Useful life Leasehold improvements Over the remaining term of the lease Plant and machinery 5 - 10 years Office and computer equipment 1 - 5 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains and losses on disposal, determined by comparing proceeds with the carrying amount of the respective assets, are included in operating profit or loss.
An asset's carrying amount is written down immediately to its recoverable amount if the carrying amount is greater than the estimated recoverable amount.
(e) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset at cost less accumulated impairment losses, and reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired.
(f) Other Intangible Assets
Intangible assets that are acquired or developed by the Group are carried at historical cost less accumulated amortisation and impairment losses.
Product Development
The cost of product development is charged to profit or loss on a straight line basis over its estimated useful life of 3 years. Both the period and method of amortisation are reviewed annually.
Trademarks and Licences
Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licences have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method to allocate the cost of trademarks and licences over their estimated useful economic lives which extends to a maximum of 5 years.
Computer Software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on a straight line basis over their estimated useful economic lives of 3 to 5 years.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (g) Impairment of Non-Current Assets
Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:
-- property, plant and equipment; -- intangible assets; -- other receivables; -- investments in subsidiaries; and -- goodwill.
If any such indication exists, the asset's recoverable amount is estimated. In addition, for goodwill, the recoverable amount is estimated annually whether or not there is any indication of impairment.
Calculation of Recoverable Amount
The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (ie a cash-generating unit).
Recognition of Impairment Losses
An impairment loss is recognised in profit or loss whenever the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units), and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.
Reversals of Impairment Losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
A reversal of an impairment loss is limited to the asset's carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.
(h) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated re-sale value of the inventories in the ordinary course of business, reduced by the cost of disposal. The cost of inventories is quantified on a first in, first out basis and is inclusive of the costs associated with their acquisition or production (in the case of internally produced goods) and the costs incurred in bringing them to their present location and condition.
(i) Leases
An operating lease is one in which a significant portion of the risks and rewards of ownership are retained by the lessor. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the lease.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (j) Trade and Other Receivables
Trade and other receivables are recognised initially at fair value, being the original invoice amount, and subsequently carried at this amount less impairment losses, based on a review of all outstanding amounts at the year-end. An impairment loss is recognised in respect of doubtful trade receivables when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.
The criteria that the Group uses to determine that there is such objective evidence include:
-- significant financial difficulty of the customer or other counterparty; -- a breach of contract, such as a default or delinquency in repayment;
-- it becomes probable that the customer or other counterparty will enter bankruptcy or other financial reorganisation.
The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset's original effective interest rate. The asset's carrying amount is reduced, and the loss is recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.
(k) Cash and Cash Equivalents
For the purposes of the Cash Flow Statement, cash and cash equivalents comprise cash in hand, call deposits held with banks and bank overdrafts included in Borrowings on the Balance Sheet.
(l) Share Capital
Ordinary Shares and shares to be issued are classified as equity. Shares to be issued are recognised when there is a contractual obligation for the Company to issue shares.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds provided there is sufficient premium available. Should sufficient premium not be available placing costs are recognised through profit or loss.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (m) Share-based payments
The Company has issued equity-settled, share-based payments as consideration for equity instruments (warrants) of the Company. Where material, the fair value of the share based payments issued to ordinary share subscribers is recognised as a cost of the shares issued. The cost is charged to equity to the extent that there is premium available to offset the cost, any additional expense is recognised in profit or loss. The total amount to be expensed or charged is determined by reference to the fair value of the warrants granted:
-- including any market performance conditions;
-- excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period); and
-- including the impact of any non-vesting conditions.
Non-market vesting conditions are included in assumptions about the number of warrants that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied.
When the warrants are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the warrants are exercised.
Shares issued for services to settle liabilities are valued using the direct method with reference to the fair value of the service provided or liability extinguished where determinable. Where the fair value of the service or liability is not determinable the services are valued with reference to the fair value of the equity instruments issued. The fair value of goods or services received in exchange for shares is recognised as an expense.
(n) Trade and Other Payables
Trade and other payables are initially recognised at fair value, being the original invoice amount, and thereafter stated at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they continue to be held at their original invoice amount.
(o) Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings, using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services, and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
(p) Post Retirement Benefits
The Group's obligation in respect of retirement benefits is calculated by estimating the value of benefits that employees have earned in return for their service in the current and prior periods, based on the level of employee earnings and length of service in accordance with French law.
The Group has established a provision for staff retirement benefits based on an actuarial study which is performed by an independently qualified firm.
(q) Current and Deferred Income Taxes
The income tax expense for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss, except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.
The current income tax charge is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date in the countries where the Company's subsidiaries operate and generate taxable income, and any adjustment to tax payable in respect of previous periods.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided that those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.
The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (r) Provisions
Provisions for restructuring costs are only recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Restructuring provisions principally comprise employee termination payments.
Provisions are not recognised for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost where material.
(s) Revenue Recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and incidental services in the ordinary course of the Group's activities. Revenue is shown net of Value-Added Tax, returns, rebates and discounts, and after eliminating sales within the Group.
Provided it is probable that the economic benefits associated with the transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows:
-- revenue from sales of goods is recognised when goods are delivered and title has passed; -- interest income is recognised as it accrues using the effective interest method. (t) Exceptional items
Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to assist in a full understanding of the Group's financial performance.
(u) Financial Instruments and Financial Risk Management
The Group's major financial instruments include cash and cash equivalents, borrowings, trade receivables and trade payables. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The risks associated with these financial instruments include credit risk, liquidity risk, currency risk and interest rate risk. The policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and effective manner.
The Directors of the Company have built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Company monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group's operations and mitigate the effects of fluctuations in cash flows.
Foreign Currency Risk
Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.
During the year ended 31 December 2010, as a result of its business operations in France, the Group's revenue and expenses were mainly denominated in Euros, and the majority of the financial assets and liabilities were denominated in Euros. The effect of the fluctuation in the exchange rate of the Euro against other currencies on the Group's results of operations gave rise to exchange differences. The Group has not entered into any hedging transactions in order to reduce the Group's exposure to foreign currency risk in this regard.
If the UK Pound had weakened/strengthened by 5% against the Euro, with all other variables held constant, the effect on post-tax loss for the year would have been immaterial at 31 December 2011 and 2010.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (u) Financial Instruments and Financial Risk Management (continued)
Cash Flow and Fair Value Interest Rate Risk
The Group is exposed to cash flow interest rate risk in relation to variable rate bank borrowings. It is the Group's policy to keep its borrowings at floating rates of interest so as to minimise the fair value interest rate risk.
The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group cash flow interest rate risk is mainly concentrated on the fluctuation of EURIBOR arising from the Group's Euro borrowings.
The impact on post-tax loss of a 0.1% shift in rates would have been immaterial at 31 December 2011 and 2010.
Credit Risk
As at 31 December 2011, the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated balance sheet after deducting any impairment allowance.
In respect of cash and cash equivalents, balances are maintained with reputable financial institutions.
In respect of trade and other receivables, in order to minimise risk, the management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis. Credit evaluations of the financial position and condition of the customers of the Group are performed on all customers requiring credit over a certain amount. Debtors with overdue balances, which will be reviewed on a case-by-case basis, are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not obtain collateral from customers but does require deposits to be paid on order.
Liquidity Risk
Individual operating entities within the Group are responsible for their own cash management, including the raising of loans to cover expected cash demands, subject to approval by the Board of Directors. The Group's policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient reserves of cash.
The following table details the Group's remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes principal cash flows.
Within
90 91-360 Over 360 Less future Carrying
days days days interest amount
GBP GBP GBP GBP GBP
At 31 December
2010
Trade and other
payables 1,260,241 - 3,400,464 - 4,660,705
Borrowings 1,676,675 - 278,940 (148,541) 1,807,074
Provisions 86,036 - 477,243 - 563,279
---------- ---------- ---------- ------------ ----------
3,022,952 - 4,156,647 (148,541) 7,031,058
========== ========== ========== ============ ==========
At 31 December
2011
Trade and other
payables 529,074 - - - 529,074
Borrowings 25,343 1,555,450 - - 1,580,793
Provisions - - - - -
554,417 1,555,450 - - 2,109,867
========== ========== ========== ============ ==========
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (u) Financial Instruments and Financial Risk Management (continued)
Capital Management
The Group's objectives when managing capital, which are unchanged from the previous year, are to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, the Group will balance its overall capital structure through new share issues as well as the issue of new debt or the redemption of existing debt as it sees fit.
Fair Value Estimation
All financial instruments are carried at amounts not materially different from their fair values as at 31 December 2011 and 2010.
Carrying amount of financial assets and financial liabilities by category
Group As at
31 December
As at 2010
31 December
Financial assets - loans and receivables 2011
GBP GBP
Non-current
Deposits - 162,973
- 162,973
------------- -------------
Current
Trade receivables net of provision for
impairment - 176,804
Other receivables 262,220 808,590
Cash and cash equivalents 774 356,890
262,994 1,342,284
------------- -------------
Total financial assets - loans and receivables 262,994 1,505,257
============= =============
As at
31 December
As at 2010
Financial liabilities - held at amortised 31 December
cost 2011
GBP GBP
Non-current liabilities
Borrowings - 278,940
Trade payables - 2,782,812
Other payables - 15,394
------------- -------------
- 3,077,146
------------- -------------
Current liabilities
Borrowings 1,580,793 1,528,134
Trade payables 494,010 1,259,238
Other payables 35,064 1,003
------------- -------------
2,109,867 2,788,375
------------- -------------
Non-current provisions
Pension obligations - 111,527
Other provisions - 365,716
------------- -------------
- 477,243
------------- -------------
Current provisions
Other provisions - 86,036
------------- -------------
Total financial liabilities - held at
amortised cost 2,109,867 6,428,800
============= =============
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (u) Financial Instruments and Financial Risk Management (continued)
Carrying amount of financial assets and financial liabilities by category (continued)
Company As at As at
31 December 31 December
2011 2010
Financial assets - Loans and receivables GBP GBP
Non-current
Amounts due from Group undertakings - -
------------- -------------
Current
Amounts due from group undertakings 41,465 -
Other receivables 246,838 498,923
Cash and cash equivalents - 18,405
------------- -------------
288,303 517,328
------------- -------------
Total financial assets - loans and receivables 288,303 517,328
------------- -------------
Investments in subsidiary undertakings 10 10
10 10
Total financial assets 288,313 517,338
============= =============
As at As at
31 December 31 December
Financial liabilities - held at amortised 2011 2010
cost
GBP GBP
Current liabilities
Borrowings 1,580,751 1,434,599
Trade payables 491,575 377,763
Total financial liabilities - held at
amortised cost 2,072,326 1,812,362
============= =============
(v) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group's chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Executive Chairman.
designcapital plc NOTES TO THE FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued) (w) Critical Accounting Estimates and Judgements
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgments are continually evaluated, and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Provision for Impairment of Trade and Other Receivables
The Group makes provision for doubtful debts based on an assessment of the recoverability of trade and other receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The carrying value of trade and other receivables at 31 December 2011, excluding prepayments, was GBP262,220 (2010 - GBP1,011,425), net of a provision for impairment of GBPnil (2010 - GBP215,838).
The identification of doubtful debts requires the use of judgement and estimates. Where the expectation is different from the original estimate, such differences will impact on the carrying value of receivables and doubtful debt expenses in the period in which such estimate has been changed.
Net Realisable Value of Inventories
The Group makes provision for slow-moving or obsolete inventories based on an assessment of the net realisable value of the inventories. Provisions are applied to inventories where events or changes in circumstances indicate that the net realisable value is less than cost. The carrying value of inventories at 31 December 2011 was GBPnil (2010 - GBP479,181).
The determination of net realisable value requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact on the carrying value of the inventories and the provision for inventory expenses in the period in which such estimates have been changed. The calculations have been tested for sensitivity to changes in key assumptions and the Board does not believe that the key assumptions will change to such an extent so as to cause the carrying values to exceed the recoverable amounts.
3. Earnings per Share
(a) Basic profit/(loss) per share is calculated by dividing the profit/(loss) after tax attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
Year Year
ended ended
31 December 31 December
2011 2010
Loss attributable to equity holders
of the Company (GBP) (1,116,972) (1,040,468)
Profit/ (Loss) from discontinued operations
attributable to equity holders of the
Company 4,829,167 (4,034,943)
------------- -------------
Total 3,712,195 (5,075,411)
------------- -------------
Weighted average number of ordinary
shares in issue 69,242,902 62,473,665
------------- -------------
Earnings per share from discontinued
operations (pence per share)
Basic earnings per share 6.97 (6.46)
Discontinued operations 6.96 (6.46)
============= =============
The basic and diluted loss per share is the same for the year ended 31 December 2010, as the effect of the exercise of the share warrants would be to decrease the loss per share.
(b) Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: share warrants. For the share warrants, a calculation is done 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 warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share warrants.
Year ended
31 December
2011
Weighted average number of ordinary shares in issue 69,242,902
Adjustments for:
- Share warrants 116,189
Weighted average number of ordinary shares for diluted
earnings per share 69,359,091
-------------
Other
The report and accounts for the year ended 31 December 2011 will be posted to shareholders shortly and will be laid before the next Annual General Meeting.
Copies will also be available via the website (www.designcapitalplc.com) in accordance with AIM Rule 26.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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