RNS Number:8015P
MWB Business Exchange Plc
11 March 2008
FOR IMMEDIATE RELEASE
11 March 2008
MWB BUSINESS EXCHANGE PLC:
RESULTS FOR YEAR TO 31 DECEMBER 2007
MWB Business Exchange Plc is the UK's second largest provider of flexible office
space and meeting rooms. The organisation currently operates a total of 57
centres focussed on Central London and key regional business centres.
HIGHLIGHTS
==========
*Revenue grew 22% to �100m over comparable year to 31 December 2006.
*EBITDA rose strongly by 97% to �17.5m compared to year to 31 December 2006.
*Pre-tax profits grew 74% to �13.2m against �7.6m for the comparable
12 month period.
*Proposed dividend of 1.93p per share, up 8% from prior year dividend of
1.79p per share.
*Revenue Per Available Workstation (REVPAW) advanced 23% to �8,435 at
31 December 2007 from �6,870 at 31 December 2006.
*Revenue Per Occupied Workstation (REVPOW) up 6% to �9,355 at 31 December 2007
compared to �8,830 at 31 December 2006.
*Meeting and conference room division up by 36% to �10.5m over year to
31 December 2006.
*Occupancy increased to 90% at 31 December 2007, up from 78% at
31 December 2006.
*Robust contracted income already accounting for 60% of current 12 month
projections to December 2008.
*Seven new Business Exchange centres successfully opened during the year.
"This has been another year of strong earnings growth as MWB Business Exchange
continues to consolidate its position as one of the country's leading providers
of flexible office space while increasingly focussing on both client service and
profitability." Richard Balfour-Lynn, Chairman, MWB Business Exchange Plc.
Contact:
MWB Business Exchange Plc
Richard Balfour-Lynn, Chairman Tel: 020 7706 2121
John Spencer, Chief Executive
Keval Pankhania, Finance Director
Baron Phillips Associates Tel: 020 7920 3161
Baron Phillips
KBC Peel Hunt Ltd Tel: 020 7418 8900
Capel Irwin
Nicholas Marren
MWB BUSINESS EXCHANGE PLC CHAIRMAN'S STATEMENT
==============================================
This has been another year of strong earnings growth as MWB Business Exchange
continues to consolidate its position as one of the country's leading providers
of flexible office space while increasingly focussing on both client service and
profitability.
I am delighted to report a 22% growth in revenue for the 12 months to 31
December 2007 as income rose to �100.0m from �82.3m in the comparable period a
year ago. This has resulted in a 97% increase in EBITDA from �8.9m to �17.5m for
the year to December 2007, while pre-tax profits rose by almost 74% to �13.2m
from �7.6m. The Board is proposing a final dividend of 1.93p per ordinary share,
8% higher than last year's dividend of 1.79p, which if approved, will be payable
on 30 May 2008 to shareholders on the register on 9 May 2008.
The Group's strategy of sustainable growth across its four main areas of
activity - Business Exchange, City Executive Centres (CEC), Meeting Rooms and
Partnerships - is consistent and well established. We are continually de-risking
the business to reduce volatility, although we are confident that the current
market conditions will also present opportunities.
We have a strong and established management team that combines property and
business service expertise. This has enabled us to benefit from growth
opportunities available through leasehold acquisitions, Operating and Management
Agreements (OMAs) and back-to-back deals. At the same time we have developed our
Partnerships division, which provides management solutions to landlords,
corporate occupiers and commercial property agents. We have also continued to
seek ways to add value to our client base through service enhancements and new
products, in addition to the continuous development of our people.
Our focus on sustainable growth runs in parallel with our risk mitigation
strategies. During the year to December 2007 growth has focussed on two main
areas: acquisition of occupational leases in London, particularly in the West
End, where the market shows the greatest demand characteristics for the services
we provide, and regional OMAs.
By growing the number of OMAs we can expand the portfolio without exposing the
business to substantial capital expenditure or to long-term lease liabilities,
yet still generating significant management fees and profit share for the
Company. OMAs also provide a gateway for further growth opportunities in the
form of back-to-back leases, turnkey solutions, fit-out services and facilities
management, which in turn generate further returns.
We continue to review the performance of our portfolio on a regular basis with a
view to divesting any poor performing centres. Over the year to December 2007 we
closed seven locations to improve our overall business model and enhance
shareholder returns.
At the year-end, MWB Business Exchange comprised a total of approximately 15,600
workstations in 57 centres, of which 44 operated under the four/five star
Business Exchange brand including four OMAs, together with 13 City Executive
Centres, our three-star brand, which are all management contracts. As a result
we now have almost 1.5m sq ft of flexible office accommodation, incorporating
our highly successful 250 strong Meeting and Conference Room offer.
One of the business's strengths is its extremely broad client spread. We are not
reliant on a few specialised sectors and, at the same time, only a very small
number of clients occupy more than 15% of the workstations in any one centre.
This prevents the business from being materially exposed to a departure from a
large occupier at the end of a contract and allows us to plan move-outs in a
controlled and efficient manner.
In instances where a client does occupy more than 15% of a centre, we ensure a
phased exit clause is incorporated into their contract enabling us to develop a
pipeline of prospective clients who can move in once the first phase of
departure occurs; further ensuring our exposure to large move-outs is limited.
Our sales and marketing continues to focus on attracting smaller and medium size
businesses (SMEs) alongside the ongoing development of existing and new
corporate relationships. As a result we have a broad range of clients across
widely diverse sectors including: professional services, media, consultancy,
leisure, real estate, financial services and government. We believe the breadth
of our client base is a major strength in the current economic and financial
climate.
Our proposition offers an ideal solution for companies, in particular SMEs,
looking to establish a footprint in major UK commercial areas. The traditional
leased office model, prevalent elsewhere in the market, is restrictive if
companies are expanding or contracting in an ever-changing business environment.
It is also an unnecessary risk for companies to take on, which is why so many
are choosing the more flexible and risk averse route we provide.
This is reflected in the demand for our unbranded proposition which has remained
strong. Lead flow has increased by 30% and the number of workstation sales
across our network increased by 31% to December 2007 in comparison to the 12
months to December 2006. The rate we accomplish for workstations sales has gone
from strength to strength and we have achieved an 11% increase in 2007 over the
previous comparable period, largely as a result of the ongoing improvement in
our proposition.
Over the year we have continued our strategy of focussing on prime office
markets with particular emphasis on London's West End. Today we have
approximately 5,000 workstations in the West End, representing 32% of our
portfolio, generating 45% of our total revenue and 54% of our EBITDA before
central costs.
We have significantly expanded our Central London portfolio where demand remains
strong, with new centres reaching maturity in the West End - Baker Street,
Tottenham Court Road and Cavendish Square - and the City - Cannon Street, London
Bridge and London Wall. This was further enhanced by our acquisition of Stanhope
Business Centres which gave us two more excellent properties in Covent Garden,
an area where we have previously been under-represented, that we believe will
deliver significant future earnings.
Our experienced acquisitions and launch team ensures each new centre has a high
level of occupancy prior to opening. An excellent example is our latest centre
close to Liverpool Street Station in the City of London which was virtually
fully occupied on opening, following the signing of a long agreement with a
major clearing bank.
In the year to December 2007 we also added new locations in Central Manchester,
Newcastle and Basinghall Street in the City of London while Baker Street and
London Bridge became fully operational. On average, all our new centres achieve
85% occupancy within less than six months of opening, representing a strong
performance for the group. As we have stated previously, our focus is on
ensuring we drive income and that each centre delivers increasingly profitable
revenue through optimising revenue per available workstation. This approach,
combined with targeted sales and marketing, has resulted in occupancy over the
year growing to 90% compared with 78% at the previous year-end. An excellent
achievement considering we have opened and launched five new centres over this
year, plus the two Stanhope locations.
At the heart of this performance is the substantial progress we have made in
growing income at the basic workstation level. As a result of increases in rate
and services income, revenue per available workstation (REVPAW) increased 23% to
�8,435 from �6,870 at December 2006 while we achieved a 6% rise in revenue per
occupied workstation (REVPOW) to �9,355 from �8,830 a year ago. Service income
also improved, growing by 29% during the year to December 2007.
Clients contract with us, on average, for an initial eight month period, with
over 70% renewing. This leads to an average total stay of nearly two years. Our
strong contracted income equates to over 60% of our current 12-month projections
for the year to December 2008. When renewals are factored in, this figure rises
to 80% further underpinning our business model and providing certainty of our
future income stream.
Currently we have around 1,450 contracted clients with an average initial
requirement of seven workstations. We recognise that our client's brand - not
ours - is most important to them, which is why a majority of our centres are
unbranded, and all will be by the end of 2008.
Our client base is predominantly SMEs. Their feedback indicates that they choose
us on the basis of our ongoing investment in contemporary, bright and
non-branded interiors situated in prime business locations, priced reasonably
while still delivering superior service.
Our highly successful meeting and conference room division, offering 250 rooms
across the UK, grew revenue by 36% to �10.5m from �7.7m for the year to December
2006. Demand remains strong for our business meeting rooms, particularly
from non-residential clients; the volume of repeat bookings is
growing and our sales and marketing activity continues to generate further new
business.
Our continued drive to provide clients with a truly differentiated proposition
remains critically important to us. As the first person our clients see or talk
to, and the people who support them on a day-to-day basis, our staff are
effectively an extension of our clients' business. We invest considerably in
staff training through our "We're the business" programme, to ensure that
everyone in the business fully understands our service ethos and delivers
exceptional client service.
"Centres of Excellence" were established across our business during 2007 in
order to utilise exceptionally high performing centres to educate and develop
other business centre managers and develop best practice throughout the group.
This programme has been a great success and provides learning and development
opportunities both for new recruits and existing employees. Also these centres
are the first to trial our new products and services as we seek to continually
improve the service we offer to our clients.
The Group takes staff recruitment and training very seriously and retaining high
achievers is important to us. We concentrate on creating client-focussed teams,
strengthening staff capabilities and rewarding people for performance.
We are extremely proud that research reveals some 75 per cent of our people are
highly committed to the business, an extraordinary statistic when compared to
other service industries. Our employees are enthusiastic and supportive and aim
to create a lively, positive atmosphere in all our centres.
We look ahead to 2008 with confidence. The strategy of sustainability and risk
mitigation is ongoing as we continue to improve profitability across the
portfolio and pursue new growth opportunities in areas that we have prioritised.
The Group will also seek to further differentiate our proposition in the
marketplace and look at new and innovative ways to improve our clients'
experience with MWB Business Exchange. We believe that the right business model
is in place to ensure that we continue to deliver growth in shareholder value.
Richard Balfour-Lynn
Chairman
MWB Business Exchange Plc
11 March 2008
KEY FINANCIAL HIGHLIGHTS
========================
The key performance indicators, together with the trading performance and
balance sheets for the year ended 31 December 2007, are summarised below:-
Year Year
ended ended
31 December 31 December
2007 2006
Operating statistics
--------------------
Revenue �'000 100,046 82,305
Occupancy at year end % 90 78
Annualised revenue per available
workstation (REVPAW) at year end � 8,435 6,870
Annualised revenue per occupied
workstation (REVPOW) at year end � 9,355 8,830
EBITDA �'000 17,477 8,875
Number of leased centres at year end 41 39
Number of Operating and Management
Agreements at year end 16 16
Financial performance
---------------------
Profit before tax �'000 13,242 7,626
Basic earnings per share 18.9p 11.0p
Dividend proposed/paid per share 1.93p 1.79p
At At
31 December 31 December
2007 2006
Balance sheet composition
-------------------------
Property, plant and equipment �'000 42,197 31,451
Equity attributable to shareholders �'000 22,945 11,062
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2007
===================================
Year Year
ended ended
31 December 31 December
2007 2006
Notes �'000 �'000
--------------------------------------------------------------------------------
Revenue 2 100,046 82,305
Cost of sales (84,895) (73,805)
--------------------------------------------------------------------------------
Gross profit 15,151 8,500
Administrative expenses (1,662) (1,105)
--------------------------------------------------------------------------------
Results from operating activities 13,489 7,395
Finance income 4 352 473
Finance expense 4 (599) (242)
--------------------------------------------------------------------------------
Profit before taxation 13,242 7,626
Taxation 5 (180) -
--------------------------------------------------------------------------------
Profit for the year 11 13,062 7,626
================================================================================
Basic earnings per share 6 18.9p 11.0p
Diluted earnings per share 6 18.8p 11.0p
================================================================================
All amounts relate to continuing operations.
CONSOLIDATED BALANCE SHEET
at 31 December 2007
==========================
31 December 31 December
2007 2006
Notes �'000 �'000
--------------------------------------------------------------------------------
Non-current assets
Intangible assets 7 7,587 -
Property, plant and equipment 8 42,197 31,451
--------------------------------------------------------------------------------
49,784 31,451
Current assets
Trade and other receivables 17,889 15,464
Cash and cash equivalents 4,512 576
--------------------------------------------------------------------------------
22,401 16,040
--------------------------------------------------------------------------------
Total assets 72,185 47,491
--------------------------------------------------------------------------------
Current liabilities
Loans and borrowings 10 (491) (573)
Trade and other payables 9 (28,397) (27,786)
--------------------------------------------------------------------------------
(28,888) (28,359)
Non-current liabilities
Loans and borrowings 10 (9,411) (344)
Other payables and accruals 9 (10,941) (7,726)
--------------------------------------------------------------------------------
(20,352) (8,070)
--------------------------------------------------------------------------------
Total liabilities (49,240) (36,429)
--------------------------------------------------------------------------------
Net assets 22,945 11,062
================================================================================
Equity
Share capital 11 69 69
Share premium account 11 35,459 35,459
Merger reserve 11 38,831 38,831
Retained earnings 11 (51,414) (63,297)
--------------------------------------------------------------------------------
Total equity 11 22,945 11,062
================================================================================
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2007
===================================
Year Year
ended ended
31 December 31 December
2007 2006
�'000 �'000
--------------------------------------------------------------------------------
Profit for the year 13,062 7,626
Adjustments for non-cash items
Finance expense 599 242
Finance income (352) (473)
Depreciation of property, plant and equipment 3,988 1,480
Equity settled share based payments 58 59
--------------------------------------------------------------------------------
Cash flows from operations before changes in
working capital 17,355 8,934
Change in trade and other receivables (391) (3,551)
Change in trade and other payables 2,496 4,144
--------------------------------------------------------------------------------
Cash generated from operations 19,460 9,527
Interest paid (523) (294)
--------------------------------------------------------------------------------
Net cash from operating activities 18,937 9,233
--------------------------------------------------------------------------------
Cash flows from investing activities
Interest received 352 473
Purchase of property, plant and equipment (12,695) (15,069)
Acquisition of subsidiary net of cash acquired
(note 7) (10,199) -
--------------------------------------------------------------------------------
Net cash from investing activities (22,542) (14,596)
--------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from drawdown of borrowings 9,411 917
Borrowings repaid (633) (4,914)
Payment of finance lease liabilities - (1,677)
Dividends paid (1,237) -
--------------------------------------------------------------------------------
Net cash received/(used) in financing activities 7,541 (5,674)
--------------------------------------------------------------------------------
Net increase/(decrease)in cash and cash
equivalents 3,936 (11,037)
Opening cash and cash equivalents 576 11,613
--------------------------------------------------------------------------------
Closing cash and cash equivalents 4,512 576
================================================================================
NOTES
=====
1. ACCOUNTING POLICIES
======================
Basis of preparation
--------------------
The financial information set out in the preliminary announcement does not
constitute the Company's statutory accounts for the year ended 31 December 2007
or the year ended 31 December 2006. Statutory accounts for the year ended 31
December 2006, which were prepared under UK GAAP, have been delivered to the
Registrar of companies, and those for 2007, prepared under International
Financial Reporting Standards as adopted by the EU ('Adopted IFRS'), will be
delivered following the Company's Annual General Meeting. The auditors have
reported on those accounts; their reports were unqualified and did not include
references to any matters to which the auditors drew attention by way of
emphasis without qualifying their reports and did not contain statements under
section 237(2) or (3) of the Companies Act 1985.
Transition to Adopted IFRS
--------------------------
The Group is preparing its financial statements in accordance with Adopted IFRS
for the first time in these financial statements for the year ended 31 December
2007 and has applied IFRS 1 First Time Adoption of International Financial
Reporting Standards. The adoption of IFRSs has no effect on the underlying
operations of the Group, its strategy and management, nor on the cash flows
derived from the Group's business operations. These standards do, however,
affect the way in which such activities are presented in the Group financial
statements.
An explanation of how the transition to Adopted IFRS has affected the reported
financial performance, positions and cash flows of the Group is set out in
detail in note 12.
Use of estimates and judgements
-------------------------------
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised and in any future periods
affected.
In particular, information about significant areas of estimation, uncertainty
and critical judgements in applying accounting policies that have the most
significant effect on the amount recognised in the financial statements are
described in the following notes:
Note 7 - measurement of recoverable amounts of cash generating units containing
goodwill
Note 8 - measurement of property, plant and equipment
Basis of consolidation
----------------------
Subsidiaries are entities controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or convertible
are taken into account.
The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that
control ceases. Where necessary, accounting policies of subsidiaries are changed
on acquisition to align them with the policies adopted by the Group.
Intra-group balances and transactions and any unrealised income and expenses
arising from intra-group transactions are eliminated in preparing the
consolidated financial statements.
Goodwill
--------
Goodwill arises on the acquisition of subsidiaries and represents the excess of
cost of acquisition over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities of the acquired
company. When the excess is negative it is recognised immediately in the Income
Statement. Goodwill is measured at cost less accumulated impairment losses.
Property, plant and equipment
-----------------------------
Leasehold improvements relating to operating leases, fixtures and equipment are
measured at cost less accumulated depreciation and any impairment losses. Cost
includes expenditure that is directly attributable to the acquisition of an
asset and includes professional fees and, for qualifying assets, capitalised
borrowing costs.
The gain or loss on disposal or retirement of property, plant and equipment is
determined by comparing the sale proceeds with the carrying amount of the asset
at the date of disposal or derecognition, and is recognised in the Income
Statement.
Depreciation is charged so as to write off the cost or valuation of property,
plant and equipment, using the straight line method, over the following
estimated useful lives:-
Operating leasehold improvements:
Machinery and electrical The shorter of the useful economic life
and the term of the lease
Ceilings, floors and partitions The shorter of 15 years and the term of
the lease
Front of house The shorter of 7 years and the term of
the lease
Other plant, machinery and equipment 3 to 10 years
Leased assets
-------------
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges and reduction of the finance
lease obligation, so as to achieve a constant rate of interest on the remaining
balance of the liability.
Assets held under operating leases are not recognised as assets of the Group.
Rentals payable and incentives received under operating leases are recognised in
the Income Statement on a straight-line basis over the non-cancellable period of
the lease.
Impairment
----------
The carrying amounts of the Group's non-financial assets other than deferred tax
assets are reviewed at each balance sheet date to determine whether there is any
indication of impairment. If any indication exists, the asset's recoverable
amount is estimated. For goodwill and intangible assets that have an indefinite
useful life, the recoverable amount is estimated at each balance sheet date.
The recoverable amount of an asset or cash generating unit is the greater of its
value in use and its fair value, less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a
pre-discount rate that reflects current market assessments of the time value of
money, and the risks specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use which is largely independent of the
cash inflows of other assets or groups of assets (the 'cash-generating unit').
For the purpose of impairment testing, the goodwill acquired in a business
combination is allocated to cash-generating units that are expected to benefit
from the synergies of the combination.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in the Income Statement. Impairment losses recognised in respect of
cash-generating units are allocated first to reduce the carrying amount of any
goodwill allocated to the units and then to reduce the carrying amount of other
assets in the unit on a pro-rata basis.
Financial instruments
---------------------
Non-derivative financial instruments comprise trade and other receivables, cash
and cash equivalents, loans and borrowings and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value.
Subsequent to initial recognition, non-derivative financial instruments,
excluding cash and cash equivalents, are measured at amortised cost using the
effective interest method, less any impairment losses.
Cash and cash equivalents comprise cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group's
cash management are included as a component of cash and cash equivalents for the
purpose only of the Cash Flow Statement.
Interest bearing bank loans and overdrafts are initially recorded at fair value.
The net amount of any premium or discount over the nominal value, less issue
costs, is amortised over the life of the instrument using the effective interest
method at a constant cost of financing over its life and charged or credited to
interest payable in the Income Statement.
Ordinary share capital is classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are recognised as
a deduction from equity, net of any tax effects. When share capital recognised
as equity is purchased by the Company, the amount of consideration paid
including directly attributable costs, net of any tax effects, is recognised as
a deduction from total equity.
Retirement benefits
-------------------
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in future contributions is
available as a result of such prepaid amounts.
Provisions
----------
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
Revenue recognition
-------------------
Revenue is measured at the fair value of consideration received or receivable.
Revenue principally comprises licence fees billed to clients for their office
accommodation, rentals charged and service charges invoiced to tenants. Licence
fee income is invoiced in advance, deferred and recognised on provision of the
service. Service income is recognised in the month the service is provided.
Where a rent free period is included in a lease, the rental income foregone is
allocated evenly over the period from the date of lease commencement to the
earliest termination date. In all instances, revenue is shown net of discounts
and VAT.
Cost of sales
-------------
Cost of sales comprises the direct costs incurred in managing and operating the
Group's operational activities.
Share-based payment transactions
--------------------------------
The share option programme allows certain employees to acquire shares in the
Company.
The fair value of options granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period in which the
employees become unconditionally entitled to the options. The fair value of the
options granted is measured using an option valuation model, taking into account
the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share
options that vest except where forfeiture is due only to share prices not
achieving the threshold for vesting.
Dividends
---------
Dividends which have been approved by shareholders at previous Annual General
Meetings are included within liabilities if still unpaid at the balance sheet
date. Interim and final dividends proposed at the balance sheet date that are
subject to approval by shareholders at the Annual General Meeting are not
included as a liability in the current period's financial statements.
Finance income and expense
--------------------------
Finance income comprises interest receivable on funds invested. Interest income
is recognised in the Income Statement as it accrues, using the effective
interest method.
Finance expense comprises interest payable and finance charges on finance leases
that are recognised in the Income Statement. Interest incurred on loans specific
to leasehold improvement in the course of development is capitalised during the
development phase but ceases to be capitalised once the improvement is completed
and ready for occupation. Where such interest is allowable in computing the
taxation liabilities of the Group, this is used to reduce the tax charge in the
Income Statement. All other interest payable is charged to the Income Statement.
Taxation
--------
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the Income Statement except to the extent that it relates to items
recognised directly in Equity, in which case any tax effect is also recognised
on the appropriate line within the Equity section of the Balance Sheet.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for the following temporary differences: the
initial recognition of assets or liabilities in a transaction which is not a
business combination and which affects neither accounting nor taxable profit,
and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the
foreseeable future. In addition, deferred tax is not recognised for taxable
temporary differences arising on the initial recognition of goodwill. Deferred
tax is measured at the tax rates that are expected to be applied to the
temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets and
liabilities are offset if there is a legally enforceable right to offset current
tax liabilities and assets, and they relate to income taxes levied by the same
tax authority on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future
taxable profits will be available against which the temporary difference can be
utilised. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
Additional income taxes which arise from the distribution of dividends are
recognised at the same time as the liability to pay the related dividend is
recognised.
New standards and interpretations not yet adopted
-------------------------------------------------
A number of new standards, amendments to standards and interpretations have been
issued recently but are not effective for this financial year ended 31 December
2007. Accordingly, they have not been applied in preparing these financial
statements. Their adoption is not expected to have a material affect on the
financial statements. The main standard which may affect future financial
statements of the Group is as follows:-
*IFRS 8 Operating Segments introduces the management approach to segment
reporting. IFRS 8, which will be mandatory for the Group's 31 December 2009
financial statements, will require the disclosure of segment information based
on the internal reports regularly reviewed by the Board in order to assess each
segment's performance and to allocate resources to them. There is no profit
impact from the adoption of IFRS 8.
2. REVENUE
==========
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
Licence fees and related income from leased assets 95,266 75,548
Licence fees and related income from Operating and
Management Agreements 4,780 6,757
------- -------
100,046 82,305
======= =======
3. EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION AND AMORTISATION ('EBITDA')
===============================================================================
The Board's primary measure of return used to monitor results is the level of
earnings before interest, taxation, depreciation and amortisation ('EBITDA').
The EBITDA for the year ended 31 December 2007, with comparatives for the
previous year, is calculated as follows:
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
Operating profit 13,489 7,395
Add depreciation of plant, machinery and equipment 3,988 1,480
------ ------
Total EBITDA for the year 17,477 8,875
====== ======
4. FINANCE INCOME AND EXPENSE
=============================
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
Finance income arose on:
Interest income on cash deposits 352 473
=== ===
Finance expense arose on:
Bank loans and overdrafts 176 53
Bank charges 173 108
Finance lease and hire purchase contracts - 37
Other loans 250 44
--- ---
599 242
=== ===
5. TAXATION
===========
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
The current taxation for the year arose as follows:-
UK Corporation tax
Tax on result for the year 180 -
=== ===
No deferred tax was required to be recognised in the Consolidated Income
Statement during the year ended 31 December 2007 or in the previous year ended
31 December 2006.
The taxation has been reduced from the amount that would arise from applying the
prevailing corporation tax rate to the profit before taxation in the
Consolidated Income Statement, as follows:-
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
UK corporation tax charge at 30% (2006: 30%) for
the year on the profit before taxation in
Consolidated Income Statement 3,973 2,288
Excess of capital allowances claimed over
depreciation charged (763) (1,130)
Expenditure permanently disallowed for taxation
purposes and unrelieved tax losses - 470
Profits not taxable and capitalised expenditure
deductible for taxation purposes (1,247) (138)
Tax losses brought forward from earlier years
utilised in current year (1,783) (1,490)
----- -----
Total corporation tax charge for the year 180 -
===== =====
At 31 December 2007 the Group had unrecognised deferred tax assets derived from
capital expenditure in current and prior periods of approximately �0.1 million
(2006: �11.5 million), after deducting all deferred tax liabilities.
6. EARNINGS PER SHARE
=====================
The earnings per share figures are calculated by dividing the profit
attributable to equity shareholders of the Company for the year by the weighted
average number of ordinary shares in issue during the year, as follows:-
Year ended Year ended
31 December 31 December
2007 2006
�'000 �'000
Profit on ordinary activities after taxation 13,062 7,626
====== ======
Number Number
'000 '000
Weighted average number of ordinary shares (basic) 69,100 69,100
Effect of shares issuable under share option
schemes 545 262
------ ------
Weighted average number of shares (diluted) 69,645 69,362
====== ======
Earnings per share 18.9p 11.0p
====== ======
Diluted earnings per share 18.8p 11.0p
====== ======
7. INTANGIBLE ASSETS
====================
31 December 31 December
2007 2006
�'000 �'000
Cost
At 1 January - -
Acquisition in the year (see below) 7,587 -
----- -----
At 31 December 7,587 -
===== =====
The goodwill balance arose from the acquisition of Stanhope Business Centres
Limited on 28 September 2007. For the period between the date of acquisition and
31 December 2007 Stanhope Business Centres Limited contributed �1.4 million
revenue, �0.5 million EBITDA and �0.4 million profit before tax to the Group's
results. If Stanhope Business Centres Limited had been acquired on 1 January
2007, the additional revenue for the year would have been �3.7 million, EBITDA
�1.7 million and profit before tax �1.2 million. Thus the corresponding Group
figures would have been: revenue �103.7 million; EBITDA �19.2 million; profit
before tax �14.4 million.
The Directors do not consider that any separately identifiable intangible assets
were acquired as the value of the business to the Group resides in the
incorporation of the centres into the MWB Business Exchange business model and
not in any other element of the companies acquired.
An impairment review was undertaken by the Directors on 31 December 2007 which
compared the carrying value of goodwill with the anticipated recoverable amount
of the cash-generating unit to which goodwill was allocated. The recoverable
amount of the cash-generating unit is based on value in use, which is calculated
from cash flow projections for years ending 31 December 2008 and 31 December
2009 using data from Board approved budgets. The key assumptions for value in
use calculations are those regarding discount rates, licence fee income, client
renewals and occupancy rates. The Directors estimate discount rates using
pre-tax rates that reflect the current market assessments of the time value of
money and risks specific to the cash generating unit, and therefore the discount
rate that is considered by the Directors to be appropriate is a pre-tax risk
adjusted discount rate of 11%. Changes in licence fee income, client renewals,
occupancy rates and direct costs are based on an assumed compound growth rate of
6%, past experience and expectations of future changes in the market. As a
result of this review, the Directors have concluded that there has been no
impairment to goodwill during the year ended 31 December 2007.
On 28 September 2007, the Group acquired 100% of the issued share capital of
Stanhope Business Centres Limited for a total consideration of �12.0 million.
Stanhope Business Centres Limited is the parent company of a group of companies
providing flexible serviced office solutions identical to the Group's existing
activities. This transaction was accounted for using the purchase method of
accounting and is summarised below:
Book Fair value Fair value at
value adjustments acquisition
�'000 �'000 �'000
Net assets acquired
Property, plant and equipment 2,039 - 2,039
Trade and other receivables 2,034 - 2,034
Cash and cash equivalents 1,775 - 1,775
Trade and other payables (3,755) 2,294* (1,461)
------ ------ ------
2,093 2,294 4,387
------ ------
Goodwill 7,587
------
Total consideration 11,974
======
Satisfied by: �'000
Cash 11,516
Directly attributable costs 458
------
11,974
======
Net cash outflow arising on acquisition �'000
Cash consideration 11,974
Cash and cash equivalents acquired (1,775)
------
10,199
======
* The fair value adjustment to trade and other payables reflects the alignment
of accounting policies of the subsidiaries acquired to those of the rest of the
Group.
The goodwill arising on the acquisition of Stanhope Business Centres Limited is
attributable to the profitability of the sites acquired and the complementary
fit of the business operations.
8. PROPERTY, PLANT AND EQUIPMENT
================================
Plant,
Operating machinery,
leasehold fixtures &
improvements equipment Total
�'000 �'000 �'000
Cost
At 1 January 2007 66,599 22,878 89,477
Acquisition of subsidiaries 1,731 308 2,039
Additions 9,428 3,267 12,695
------- ------- -------
At 31 December 2007 77,758 26,453 104,211
======= ======= =======
Depreciation
At 1 January 2007 (42,342) (15,684) (58,026)
Charge for the year (1,427) (2,561) (3,988)
------- ------- -------
At 31 December 2007 (43,769) (18,245) (62,014)
------- ------- -------
Net book value
at 31 December 2007 33,989 8,208 42,197
======= ======= =======
9. TRADE AND OTHER PAYABLES
===========================
31 December 31 December
2007 2006
�'000 �'000
Due within one year
Trade payables 1,910 909
Amounts due to related parties - 73
Client deposits 13,203 11,575
Operating lease incentives 1,096 1,188
Accruals 8,007 9,711
Corporation tax 180 -
PAYE, NIC and VAT 1,904 988
Deferred income 2,097 3,342
------ ------
28,397 27,786
====== ======
Due after more than one year
Operating lease incentives 10,293 6,964
Deferred income 648 762
------ ------
10,941 7,726
====== ======
10. LOANS AND BORROWINGS
========================
31 December 31 December
2007 2006
�'000 �'000
Current liabilities:
Unsecured other loan borrowings 491 573
----- -----
491 573
===== =====
Non-current liabilities:
Secured bank loan borrowings 9,411 -
Other unsecured loan borrowings - 344
----- -----
9,411 344
===== =====
The Group's loans are denominated in Sterling; no foreign exchange risk was
suffered by the Group on its debt arrangements during the year ended 31 December
2007 or in the previous year. The Group's loans bear floating rates of interest
which are normally for periods ranging from one week to one year, set by
reference to Bank Base Rate.
11. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
===============================================
Attributable to equity holders of the company
Share Share Merger Retained
capital premium reserve earnings Total
�'000 �'000 �'000 �'000 �'000
At 1 January 2007 69 35,459 38,831 (63,297) 11,062
Profit for the year - - - 13,062 13,062
------ ------ ------ ------ ------
Total recognised income and
expense 69 35,459 38,831 (50,235) 24,124
Dividends to equity
shareholders - - - (1,237) (1,237)
Share-based payments - - - 58 58
------ ------ ------ ------ ------
At 31 December 2007 69 35,459 38,831 (51,414) 22,945
====== ====== ====== ====== ======
At 1 January 2006 69 35,459 38,831 (70,982) 3,377
Profit for the year - - - 7,626 7,626
------ ------ ------ ------ ------
Total recognised income and
expense 69 35,459 38,831 (63,356) 11,003
Share-based payments - - - 59 59
------ ------ ------ ------ ------
At 31 December 2006 69 35,459 38,831 (63,297) 11,062
====== ====== ====== ====== ======
12. EXPLANATION OF TRANSITION TO IFRS
=====================================
As stated in note 1, these financial statements are the first audited
consolidated financial statements of the Group that have been presented under
Adopted IFRS.
The accounting policies in note 1 have been applied consistently in preparing
the consolidated financial statements for the year ended 31 December 2007,
together with the comparative information for the year ended 31 December 2006
which are set out in this document. The same policies have also been applied in
the preparation of an opening IFRS balance sheet at 1 January 2006, the Group's
date of transition.
In preparing the opening IFRS balance sheet and the comparative information for
the year ended 31 December 2006, the Board has adjusted amounts reported
previously in its financial statements for the years then ended which had been
prepared in accordance with UK GAAP. An explanation of how the transition from
previous UK GAAP to IFRS has affected the Group's reported financial position
and its reported financial performance is set out in the following tables and
the notes that accompany these tables.
The principal change arising from the adoption of IFRS on the results of the
Group for the year ended 31 December 2006, and the resultant effect on the
results for the year ended 31 December 2007, is as follows:-
*SIC 15 Operating Lease Incentives. Under UK GAAP, lease incentives are
required to be amortised over the period to the next rent review. Under SIC
15, these are required to be amortised over the non-cancellable period of
the lease. The effect of this has been to reduce the credit to the Income
Statement relating to the amortisation of lease incentives received in prior
years, and to increase the resulting provision carried in the Balance Sheet
at December 2006.
The effect on equity attributable to shareholders of the Group at 31 December
2006 as a result of adopting IFRS was as follows:-
Pence
�'000 per share
Equity attributable to shareholders under UK GAAP 17,503 25.3p
SIC 15 - Lease incentives amortised over non-cancellable
period of lease (6,441) (9.3p)
------ ------
Equity attributable to shareholders under Adopted IFRS 11,062 16.0p
====== ======
Reconciliation of consolidated income statement for the year ended 31 December
2006
Previously Reclassifi- SIC 15
reported cation of Operating Restated
under bank lease under
For the year ended UK GAAP charges incentives IFRS
31 December 2006 �'000 �'000 �'000 �'000
Turnover 82,305 - - 82,305
--------------------------------------------------------------------------------
Cost of sales (73,766) 108 (147) (73,805)
--------------------------------------------------------------------------------
Gross profit 8,539 108 (147) 8,500
--------------------------------------------------------------------------------
Administration expenses (997) (108) - (1,105)
--------------------------------------------------------------------------------
Net operating profit before
finance income 7,542 - (147) 7,395
--------------------------------------------------------------------------------
Net finance income 231 - - 231
--------------------------------------------------------------------------------
Profit before tax 7,773 - (147) 7,626
--------------------------------------------------------------------------------
Current taxation on
ordinary activities - - - -
--------------------------------------------------------------------------------
Profit after taxation for
the year 7,773 - (147) 7,626
--------------------------------------------------------------------------------
Attributable to:
--------------------------------------------------------------------------------
Equity shareholders
of the Company 7,773 - (147) 7,626
--------------------------------------------------------------------------------
Profit for the year 7,773 - (147) 7,626
--------------------------------------------------------------------------------
Basic profit per share -
pence 11.2p - (0.2p) 11.0p
--------------------------------------------------------------------------------
Diluted profit per share -
pence 11.2p - (0.2p) 11.0p
--------------------------------------------------------------------------------
Reconciliation of net assets and equity at 31 December 2006
1 January
2006
Previously Opening SIC 15
reported balance Operating Restated
under sheet lease under
UK GAAP adjustment incentives IFRS
At 31 December 2006 �'000 �'000 �'000 �'000
Non-current assets
--------------------------------------------------------------------------------
Operational properties 24,257 - - 24,257
--------------------------------------------------------------------------------
Plant and equipment 7,194 - - 7,194
--------------------------------------------------------------------------------
31,451 - - 31,451
--------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------
Trade and other receivables 13,878 - - 13,878
--------------------------------------------------------------------------------
Cash and cash equivalents 2,162 - - 2,162
--------------------------------------------------------------------------------
16,040 - - 16,040
--------------------------------------------------------------------------------
Total assets 47,491 - - 47,491
--------------------------------------------------------------------------------
Current liabilities
--------------------------------------------------------------------------------
Trade and other payables (26,970) (257) (559) (27,786)
--------------------------------------------------------------------------------
Borrowings including finance
leases (573) - - (573)
--------------------------------------------------------------------------------
(27,543) (257) (559) (28,359)
--------------------------------------------------------------------------------
Non-current liabilities
--------------------------------------------------------------------------------
Other payables and accruals (2,445) (6,037) 412 (8,070)
--------------------------------------------------------------------------------
Total liabilities (29,988) (6,294) (147) (36,429)
--------------------------------------------------------------------------------
Net assets 17,503 (6,294) (147) 11,062
--------------------------------------------------------------------------------
Equity
--------------------------------------------------------------------------------
Called up share capital 69 - - 69
--------------------------------------------------------------------------------
Share premium account 35,459 - - 35,459
--------------------------------------------------------------------------------
Merger reserve 38,831 - - 38,831
--------------------------------------------------------------------------------
Retained earnings (56,856) (6,294) (147) (63,297)
--------------------------------------------------------------------------------
Total equity 17,503 (6,294) (147) 11,062
--------------------------------------------------------------------------------
Equity shareholders' funds per
share - pence per share 25.3p (9.1p) (0.2p) 16.0p
--------------------------------------------------------------------------------
Reconciliation of net assets and equity - opening balance sheet at 1 January
2006
Previously SIC 15
reported Operating Restated
under lease under
UK GAAP incentives IFRS
At 1 January 2006 �'000 �'000 �'000
Non-current assets
--------------------------------------------------------------------------------
Operational properties 15,941 - 15,941
--------------------------------------------------------------------------------
Plant and equipment 1,921 - 1,921
--------------------------------------------------------------------------------
17,862 - 17,862
--------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------
Trade and other receivables 9,472 - 9,472
--------------------------------------------------------------------------------
Cash and cash equivalents 14,054 - 14,054
--------------------------------------------------------------------------------
23,526 - 23,526
--------------------------------------------------------------------------------
Total assets 41,388 - 41,388
--------------------------------------------------------------------------------
Current liabilities
--------------------------------------------------------------------------------
Trade and other payables (24,129) (257) (24,386)
--------------------------------------------------------------------------------
Borrowings including finance leases (6,591) - (6,591)
--------------------------------------------------------------------------------
(30,720) (257) (30,977)
--------------------------------------------------------------------------------
Non-current liabilities
--------------------------------------------------------------------------------
Other payables and accruals (997) (6,037) (7,034)
--------------------------------------------------------------------------------
Total liabilities (31,717) (6,294) (38,011)
--------------------------------------------------------------------------------
Net assets 9,671 (6,294) 3,377
--------------------------------------------------------------------------------
Equity
--------------------------------------------------------------------------------
Called up share capital 69 - 69
--------------------------------------------------------------------------------
Share premium account 35,459 - 35,459
--------------------------------------------------------------------------------
Merger reserve 38,831 - 38,831
--------------------------------------------------------------------------------
Retained earnings (64,688) (6,294) (70,982)
--------------------------------------------------------------------------------
Total equity 9,671 (6,294) 3,377
--------------------------------------------------------------------------------
13. ACCOUNTS AND FINANCIAL INFORMATION
======================================
This preliminary announcement of audited results for MWB Business Exchange Plc
for the year ended 31 December 2007 and the unaudited interim accounts for the
six months ended 30 June 2007 are available from the Company Secretary, Filex
Services Limited, at the Company's registered office of 179 Great Portland
Street, London W1W 5LS. The Annual Report and Financial Statements for the year
ended 31 December 2007 will be posted to shareholders in April 2008 and will
also be available from the Company Secretary.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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