1 GENERAL INFORMATION
2 BASIS OF PREPARATION
3 ACCOUNTING POLICIES
4 SEGMENTAL INFORMATION
5 SEASONALITY
6 SHARE CAPITAL AND SHARE PREMIUM
7 RETIREMENT BENEFIT OBLIGATIONS
8 FINANCE INCOME
9 FINANCE COSTS
10 EARNINGS PER SHARE
11 CASH (USED IN)/GENERATED FROM OPERATIONS
12 CONTINGENT LIABILITIES
13 POST BALANCE SHEET EVENTS
1 GENERAL INFORMATION
AEA Technology Group plc (‘the Company’) and its subsidiaries (‘the Group’) is one of the World’s leading energy and climate change consultancies. The Group employs many internationally respected experts in the fields of air quality, energy, knowledge transfer and behaviour change and has established an excellent reputation in resource efficiency, climate change, knowledge and data management.
The Company is a public limited company, incorporated and domiciled in Jersey. The address of the registered office is
22 Grenville Street, St Helier, Jersey, JE4 8PX. The Company is listed on the London Stock Exchange.
These financial statements are presented in pounds sterling, which is the functional currency of the Company, being the currency of the primary economic environment in which AEA Technology plc operated. Foreign operations are included in accordance with the policies described in the annual financial statements of AEA Technology plc for the year ended
31 March 2010.
On 25 November 2010 the consolidated Half-Year Financial Report was authorised for issue by the Board of Directors.
These half-year results do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for AEA Technology plc for the year ended 31 March 2010 were approved by the Board of Directors on 23 June 2010 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an ‘emphasis of matter’ paragraph and did not contain any statement under section 498 of the Companies Act 2006.
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2 BASIS OF PREPARATION
The consolidated financial information for the half-year ended 30 September 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom’s Financial Services Authority and with IAS 34, ‘Interim Financial Reporting’ as adopted by the European Union. The Half-Year Financial Report should be read in conjunction with the Annual Financial Report of AEA Technology plc for the year ended 31 March 2010, which were prepared in accordance with IFRSs as adopted by the European Union.
AEA Technology Group plc was incorporated under the Companies (Jersey) Law 1991 on the 17 September 2010. On
5 November 2010 AEA Technology Group plc became the ultimate holding company of the Group, pursuant to a ‘Scheme of Arrangement’ under section 899 of the UK Companies Act 2006, approved by the High Court of Justice in England and Wales and approved by the shareholders of AEA Technology plc, the parent company (‘the parent’) prior to the Scheme of Arrangement becoming effective (see note 13).
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3 ACCOUNTING POLICIES
Except as described below the accounting policies are consistent with those of the Annual Financial Report of AEA Technology plc for the year ended 31 March 2010, as described in pages 37 to 44 of the Annual Financial Report of AEA Technology plc.
The following new standard is mandatory for the first time for the financial year ending 31 March 2011:
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IFRS 3 (revised), ‘Business combinations’ and related amendments to IAS 27 ‘Consolidated and separate financial statements’, effective for annual periods beginning on or after 1 July 2009. The main changes affect acquisitions achieved in stages and those where less than 100% of the equity is acquired. Additionally, all consideration must now be recorded at fair value as at the date of acquisition, including any contingent consideration. Contingent payments classified as debt are subsequently re-measured through the income statement. Transaction costs should be recognised in the income statement as incurred and may no longer be included as part of the acquisition cost. Purchase accounting must be completed within one year of the acquisition date with no adjustments to goodwill to be made after one year of the acquisition date.
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The following new standards, amendments to existing standards or interpretations are mandatory for the first time for the financial year ending 31 March 2011, but either have no significant impact or are not currently relevant for the Group:
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IFRS 2 amendment, ‘Share-based payment – Group cash-settled share-based payment transactions’, effective for annual periods beginning on or after 1 January 2010;
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IAS 32 amendment, ‘Financial instruments: Presentation and classification of rights issues’, effective for annual periods beginning on or after 1 February 2010;
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IAS 39 amendment, ‘Eligible hedged items’, effective for annual periods beginning on or after 1 July 2009;
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IFRIC 15, ‘Agreements for the construction of real estate’, effective for annual periods beginning on or after
1 January 2009, but EU endorsed for use from 1 January 2010;
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IFRIC 16, ‘Hedges of a net investment in a foreign operation’, effective for annual periods beginning on or after
1 October 2008, but EU endorsed for use from 1 July 2009;
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IFRIC 17, ‘Distribution of non-cash assets to owners’, effective for annual periods beginning on or after
1 July 2009;
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IFRIC 18, ‘Transfers of assets from customers’, effective from 1 July 2009, but EU endorsed for use from
31 October 2009; and
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Annual improvements to IFRSs (2009), effective for annual periods beginning on or after 1 January 2010.
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The following new standards, amendments to existing standards or interpretations have been issued, but are not effective for the financial year ending 31 March 2011 and have not been adopted early:
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IFRS 9, ‘Financial instruments’, effective for annual periods beginning on or after 1 January 2013, subject to EU endorsement;
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IAS 24 (revised), ‘Related party disclosures’, effective for annual periods beginning on or after 1 January 2011;
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IFRIC 14 amendment, ‘Prepayments of a minimum funding requirement’, effective for annual periods beginning on or after 1 January 2011;
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IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’, effective for annual periods beginning on or after
1 July 2010; and
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Annual improvements to IFRSs (2010), effective for annual periods beginning on or after 1 January 2011, subject to EU endorsement.
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Alternative financial measures
The Group uses a number of alternative (non-Generally Accepted Accounting Practice (non-GAAP)) financial measures, which are not defined by IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and as such these measures are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in this Half-Year Financial Report:
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Adjusted operating profit and adjusted profit before tax
Beneath the Consolidated income statement adjusted operating profit is separately disclosed. This is defined as operating profit before the amortisation of acquired intangibles and certain significant items, which include the cost of integration and the restructuring of the Group. Significant items in 2010 include the costs of the acquisition of Eastern Research Group Inc, the rightsizing of the Group’s headcount and the Group reorganisation (see note 13). The (loss)/profit before tax is also adjusted in the same way with the additional adjustment to exclude the net pension finance cost. A reconciliation of the (loss)/profit before tax to adjusted profit before tax is shown beneath the Consolidated income statement.
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Movement in net debt
Beneath the Consolidated statement of cash flows a statement of movement in net debt is shown, being the movement between opening and closing net debt. An analysis of net debt by balance sheet heading is also shown.
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Adjusted earnings per share
Adjusted earnings per share, as shown in note 10, is calculated by dividing the adjusted earnings attributable to the owners of the parent by the weighted average number of ordinary shares in issue during the year.
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Net cash flow generated from/(used in) business operations
Beneath the Consolidated statement of cash flows the cash (used in)/generated from operations is split into its component parts, representing net cash flow generated from/(used in) business operations; integration and restructuring costs; acquisition and Group reorganisation costs; legacy cash flows and the funding of the pension deficit.
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4 SEGMENTAL INFORMATION
The Group has only one product or service, being that of consultancy, policy support, programme management and data management. The measure of reported segment profit or loss used by the chief operating decision maker (CODM) to assess the performance of the segments is adjusted operating profit. This measurement excludes the effect of amortisation of acquired intangibles and significant items.
All amounts provided to the CODM are measured in accordance with the Group’s accounting policies and are therefore consistent with the amounts presented in the financial statements. Any revenue arising between segments is carried out at arm’s length.
The revenue and adjusted operating profit generated by each of the Group’s segments are summarised as follows:
The reconciliation of adjusted operating profit for reportable segments to the (loss)/profit before tax is as follows:
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5 SEASONALITY
European revenues are subject to seasonal fluctuations, with the peak demand in the fourth quarter of the financial year. This reflects the pattern of purchasing/procurement by the UK Government, Europe’s most significant customer. US revenues are not subject to seasonal fluctuations.
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6 SHARE CAPITAL AND SHARE PREMIUM
The total authorised number of ordinary shares as at 30 September 2010 for AEA Technology plc was 315,000,000 shares (31 March 2010 and 30 September 2009: 315,000,000 shares) with a par value of 12.2 pence per share. All these issued shares were fully paid.
On 5 November 2010 AEA Technology Group plc became the ultimate holding company of the Group pursuant to a Scheme of Arrangement (see note 13).
Warrants
AEA Technology plc had no remaining warrants in issue as at 30 September 2010 (31 March 2010 and 30 September 2009: 5,633,252 warrants in issue) as 5,633,252 warrants expired on 8 July 2010.
Prior to the expiry date holders of the warrants could subscribe for one ordinary share in AEA Technology plc at a price of 65.0 pence per share. The fair value of these warrants as at 30 September 2009, was £nil calculated by reference to a closing market price of 28.0 pence per share and as at 31 March 2010, was £nil calculated by reference to a closing market price of 21.25 pence per share.
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7 RETIREMENT BENEFIT OBLIGATIONS
The amounts recognised in the Consolidated balance sheet are determined as follows:
The retirement benefit obligations have increased to £161.8 million since 31 March 2010 (31 March 2010: £139.8 million,
30 September 2009: £137.6 million). This increase has occurred as a result of changes to the financial assumptions used in calculating the present value of funded obligations and also a decrease in the market value of the pension scheme assets as at 30 September 2010. The asset reduction is mainly due to payments to pensioners in the first half of the year at a time of low cash contributions into the Scheme from AEA Technology plc.
At 30 September 2010 a discount rate of 5.0% (31 March 2010: 5.6%, 30 September 2009: 5.6%) was used to discount the gross liabilities of the Scheme to the present value. The movement in the discount rate is due to changes in corporate bond yields at the consolidated balance sheet date. The result of the movement is an increase in the present value of the obligations, although the effect has been partially compensated by a fall in the inflation assumption from 3.6% to 3.1%. There have been no other significant changes to the assumptions used and disclosed in note 28 of the 2010 Annual Financial Report of AEA Technology plc.
The UK Government announced its intention in June and July 2010 to change the measure of inflation for the purposes of statutory minimum rates at which pensions must increase for both public and private sector defined benefit schemes. This change will reference the consumer prices index as the measure of inflation rather than the retail prices index as is currently the case. If the change in index had been effective as at 30 September 2010, the Actuary estimates that there would be a 2% reduction in the Scheme liabilities as at that date.
The Scheme’s past service funding deficit is expected to be cleared over approximately 19 years under a schedule of contributions agreed by AEA Technology plc and the Trustees in June 2009.
The amounts recognised in respect of pension benefits in the Consolidated income statement are as follows:
The past service credit and curtailment loss in prior periods arose from closing the funded defined benefit pension scheme to future accrual and amending the entitlements of certain members of the Scheme in 2009.
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8 FINANCE INCOME
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9 FINANCE COSTS
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10 EARNINGS PER SHARE
Details of basic, diluted and adjusted earnings per share are set out below:
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Basic earnings per share
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Basic (loss)/earnings per share is calculated by dividing the (loss)/profit for the period attributable to the owners of the parent by the weighted average number of ordinary shares in issue for the period.
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Diluted earnings per share
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Diluted (loss)/earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. AEA Technology plc had two categories of potential dilutive ordinary shares; share options and, in the year ended 31 March 2010, warrants. The calculation is performed for the share options and the warrants to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of AEA Technology plc’s shares) based on the monetary value of the subscription rights attached to outstanding share options and 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 options and warrants to give the number of shares deemed to be issued at nil consideration. These dilutive shares are added to the weighted average number of ordinary shares in issue.
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Adjusted earnings per share – alternative performance measures (note 3)
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The adjusted earnings per share is calculated as follows:
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11 CASH (USED IN)/GENERATED FROM OPERATIONS
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12 CONTINGENT LIABILITIES
The Group has contingent liabilities in respect of contracts entered into in the normal course of business and in respect of the disposal of businesses and subsidiaries. Other than those items provided for, it is not expected that these will have a material effect on the financial position of the Group.
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13 POST BALANCE SHEET EVENTS
Group reorganisation
On 5 November 2010 AEA Technology Group plc became the ultimate holding company of the Group, pursuant to a ‘Scheme of Arrangement’ under section 899 of the UK Companies Act 2006, approved by the High Court of Justice in England and Wales and approved by the shareholders of AEA Technology plc. AEA Technology Group plc issued new ordinary shares, which were exchanged on a one-for-one basis by the existing shareholders for the ordinary shares of AEA Technology plc.
As a result of the Scheme of Arrangement, AEA Technology plc became a wholly owned subsidiary of AEA Technology Group plc. The new shares carry substantially the same rights as the old shares. The Scheme of Arrangement did not involve any cash payment for the existing shares of AEA Technology plc. Immediately after the Scheme of Arrangement became effective AEA Technology Group plc had the same Board of Directors, management and corporate governance arrangements as AEA Technology plc had prior to the Scheme of Arrangement. The consolidated assets and liabilities of the Group remained the same immediately before and after the Scheme of Arrangement became effective.
The costs attributable to the Scheme of Arrangement incurred up to 30 September 2010 have been charged to the Consolidated income statement but taken out of adjusted operating profit as a significant item.
Subsequent to the Scheme of Arrangement, AEA Technology Group plc successfully placed 1,111,581,000 new ordinary shares with a nominal value of 1.0 pence at a price of 5.0 pence per share raising £55.6 million before expenses. The net proceeds of the placing were used to fund the acquisition of Eastern Research Group Inc (ERG).
Business combinations
On 8 November 2010, the Group acquired 100% of the share capital of ERG. The purchase consideration of
£53.5 million comprised cash of £47.8 million and consideration shares issued at a value of £5.7 million.
ERG is an environmental consulting firm with a very strong relationship with the US Federal Government. It brings complementary core expertise in the areas of environmental and energy consulting and adds significant capability in water. The acquisition advances AEA’s strategy to leverage high level UK consultancy expertise in energy and climate change into the US Government and Federal markets.
Transaction costs incurred to 30 September 2010 of £5.8 million have been charged to the Consolidated income statement but taken out of adjusted operating profit as a significant item. The purchase price allocation, including the fair value calculation of acquired tangible and intangible assets, will be undertaken in the second half of the financial year when the information is available and full disclosure of the business combination will be made in the 2011 Annual Financial Report.
On 17 November 2010, following confirmation by the Jersey court, a reduction of capital became effective with all amounts in the Share premium account of AEA Technology Group plc being credited to distributable reserves.
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