Further re Final Results
01 Février 2010 - 8:00AM
UK Regulatory
TIDMREAL
RNS Number : 4137G
Real Office Group PLC
01 February 2010
Real Office Group plc ("ROG", the "Group" or "the Company")
Further commentary regarding the Final Results
Real Office Group, the AIM quoted global design and build business today has
posted its audited financial statements to shareholders for the year ended 31
July 2009.
On the 1 December 2009 the company issued its unaudited final results. However,
the audit had not been completed by that date and subsequent to this release a
number of changes to the presentation and disclosures in the accounts were
discussed and agreed with the Company's Auditors. Accordingly, the results
issued at that time differ materially from the results that appear in the
audited accounts released today for the reasons set out below. The directors
believe that the audited financial statements present a more appropriate and
relevant analysis of the Company's financial position than those un-audited
results released on 1 December 2009. As a general point the audited financial
statements reflect disclosure akin to that included in the pro forma analysis of
Group trading set out the trading statement released on 30 October 2009.
Results presentation
· In conjunction with its Auditors the Company accepted that the "pooling of
interests" method or as more commonly known merger accounting method should be
adopted rather than acquisition accounting. The reason for this was that on the
acquisition of ROG by Leander Group Limited ('Leander')on 10 November 2008, all
of the companies subsequently acquired by ROG on 2 April 2009 were under the
common control of the Chairman Roger Smee. After discussion with its Auditors,
the unaudited results were prepared on the basis that ROG was the acquirer. In
the unaudited preliminary statement the Group results for 2008 were those of the
company alone for the thirteen month period to 30 April 2008, and the results
for 2009 for the Company alone from 1 May 2008 to 10 November 2008, with the
results of the trading subsidiaries being consolidated from 10 November 2008 to
31 July 2009.
· The Company, through the Chairman of its audit committee subsequently
argued that this approach to presentation failed to adequately reflect the
results of the trading group as envisaged under merger accounting principles
which require that the results for the current (2009) and preceding (2008) years
should be presented as if the merged entities had existed throughout the period.
After lengthy technical consideration on 15 January 2010, the Auditors' agreed
that it was acceptable to adopt the approach proposed by the Company, which gave
priority to the results of the trading subsidiaries rather than ROG. The audited
accounts therefore now include the results of the trading subsidiaries for the
years to 31 July 2008 and 2009 and the accounts of ROG from the date of its
acquisition on 10 November 2009.
· The unaudited preliminary statement did not identify the minority interests
in profits which existed at 10 November 2008 and were acquired by ROG on 29th
April 2009. The audited financial statements reflect the interests of the
minority throughout the period prior to acquisition on 29 April 2009.
· The tax charge appearing in the unaudited financial statements of
GBP149.6k was increased to GBP349.4k in the audited financial statements.
A comparison between the unaudited results issued on 1 December 2009 ( shown in
italics below) and the audited results issued today for 2009 and 2008 is set out
below:-
+---------+--------+--------+------------+------------+--+------------+-----------+
| | | | Audited | Unaudited | | Audited | Unaudited |
+---------+--------+--------+------------+------------+--+------------+-----------+
| | | | 2009 | 2009 | | 2008 | 2008 |
+---------+--------+--------+------------+------------+--+------------+-----------+
| | | | GBP'000 | GBP'000 | | GBP'000 | GBP'000 |
+---------+--------+--------+------------+------------+--+------------+-----------+
| Revenue | | | 45,011.0 | 30,317.0 | | 37,846.4 | 0.0 |
+---------+--------+--------+------------+------------+--+------------+-----------+
| Cost of sales | | (36,828.6) | (24,914.4) | | (32,254.3) | 0.0 |
+------------------+--------+------------+------------+--+------------+-----------+
| Gross profit | | 8,182.4 | 5,402.6 | | 5,592.1 | 0.0 |
+------------------+--------+------------+------------+--+------------+-----------+
| Administrative expenses | (7,144.4) | (5,822.5) | | (4,295.9) | (1,004.9) |
+---------------------------+------------+------------+--+------------+-----------+
| Other income | | 139.9 | 139.9 | | 0.0 | 0.0 |
+------------------+--------+------------+------------+--+------------+-----------+
| Operating profit/(loss) | 1,177.9 | (280.0) | | 1,296.2 | (1,004.9) |
+---------------------------+------------+------------+--+------------+-----------+
| Finance revenue | | 73.6 | 95.0 | | 68.6 | 99.3 |
+------------------+--------+------------+------------+--+------------+-----------+
| Finance costs | | (1.0) | (1.0) | | (4.1) | 0.0 |
+------------------+--------+------------+------------+--+------------+-----------+
| Profit/ (loss) before | 1,250.5 | (186.0) | | 1,360.7 | (905.6) |
| tax | | | | | |
+---------------------------+------------+------------+--+------------+-----------+
| Tax | | | (349.4) | (149.6) | | (527.4) | 0.0 |
+---------+--------+--------+------------+------------+--+------------+-----------+
| Profit/ (loss) after tax | 901.1 | (335.6) | | 833.3 | (905.6) |
+---------------------------+------------+------------+--+------------+-----------+
| | | | | | | | |
+---------+--------+--------+------------+------------+--+------------+-----------+
Financial position
· At the time of the release of the unaudited accounts the Company was
advised by its Auditors that the brought forward reserves of the trading
subsidiaries of GBP2.593m.as at 10 November 2008 should be posted to Unity of
Interest Reserve (or as more commonly known Merger Reserve). It has
subsequently been agreed that they should be posted to retained earnings.
· Subsequent to issuing the unaudited preliminary statement and prior to
issuing the audited accounts, the Company re-evaluated its forecasts for ISIS
Projects Limited ("ISIS") for 2010 and 2011 and released GBP1.086m of provision
for deferred consideration included in other payables under Non Current
Liabilities in the unaudited financial statements. On 4th January 2010, Leander
Group Limited waived its entitlement to GBP1.505m of deferred consideration due
in respect of the audited results of ISIS to 31 July 2009, which was included in
trade and other payables under Current Liabilities in the unaudited financial
statements but released in the audited financial statements.
A reconciliation of the main differences between the financial position at 31
July 2009 in the unaudited financial statements and the financial position in
the audited financial statements at the same date is as follows:
2009
GBP'000
Net liabilities in the unaudited financial statements
4,384.0
Deferred consideration in Current Liabilities waived by Leander
(1,505.0)
Provision for deferred consideration in Non Current Liabilities released
(1,085.9)
Increase in tax provision referred to above
199.8
Other adjustments
94.3
Net liabilities in the audited financial statements
2,087.2
Other matters arising from the Audited Financial Statements
On13 December 2009 the Company proposed an alternative approach to accounting
methodology to that which had been used to prepare the unaudited statements
released on 1 December and which had previously been agreed with the Auditors.
The proposed methodology included using the accounting periods of the
subsidiaries for the accounts. Discussions continued during December regarding
the accounting periods disclosed in the consolidated accounts for the Company
and subsidiary and the matter was deliberated on numerous times by the Auditors
technical panel. On 15 January 2010 it was agreed that the accounting periods of
the subsidiaries, rather than those of the Company could be followed. This left
the Company with very limited time to alter and re-issue its accounts under the
IFRS principals. In their audit report the Auditors draw attention to a number
of limitations of audit scope, and non compliances relating to various
disclosures. For the most part the Directors assert that these issues arose
because of the delay in agreeing technicalities relating to the accounting
approach to be adopted leading to insufficient time to meet all of the
Auditors' requirements. However, the Directors believe that the revised
accounts were necessary for investors to be presented with an accurate picture
of the Company's financial position.
The Auditors have qualified the accounts because of disagreement over the
treatment of costs described in the audited accounts on their advice under
investments ( note 10) as "acquisition costs settled in cash" GBP763,417 which
they describe differently in their Auditors report as representing the "costs of
reorganizing the Group". The Company agrees with the Auditors that under FRS6
group reorganization costs should be written off , however it disagrees that
these costs, including legal and accounting due diligence, acquisition
agreements including minorities and the costs of re-admitting the Company on
AIM, are in the nature of group re-organization costs. The costs were
capitalized on advice from the Auditors and were not written off on
consolidation in the unaudited accounts released on 1 December 2009.
The Company strongly disagrees with the statement in the audit report which says
that the directors have adopted FRS 6 as the basis for the pooling of interest
accounting in the Group Financial Statements. In the absence of an IFRS standard
on merger accounting no one standard fully and comprehensively addresses all of
the complex accounting issues that arise in this case. Indeed FRS 6 does not
address reverse acquisitions, or common control transactions at all. Furthermore
the Company does not meet the criteria under FRS 6 to be able to prepare
accounts on a unity of interests or merger accounting basis. Under FRS6 the ROG
transactions should be accounted for as acquisitions, in which case the costs of
acquisition would not be written off.
IAS 8- Accounting Policies, Changes in Accounting Estimates and Errors requires
that in the absence of specific guidance in IFRS, management shall use its
judgement in developing and applying accounting policy that is relevant and
reliable. As part of that process management considered all relevant guidance
including IFRS 3, Chapter 10 of iGAAP 2009 as well as FRS 6 but adopted none of
them in isolation. Instead judgement was exercised under IAS8 to select a policy
that was relevant and reliable. and presented the financial performance of the
group on a comparable and consistent basis The impact of the disagreement over
acquisition costs is set out below:
Method adopted Method proposed
by the directors
by the Auditors
GBP'000GBP'000
Profit before tax 1,250.5
487.1
Tax (349.4)
(349.4)
Profits after tax 901.1
137.7
Consolidated retained earnings (1,010.2)
(1,857.4)
Unity of interest reserve (18,840.8)
(17,993.6)
All of the matters raised by the auditors in their report will be addressed
subsequently and scrutinized by the Audit Committee to reduce, so far as is
possible, any impact on audit reports in future years. Procedures and controls
will be out in place to ensure clear audit trails and the timely preparation of
cashflow statements by subsidiary companies.
Real Office Group plc
Roger Smee, Chairman
Philip Brady, Finance Director
0202 7822 0989
Cenkos, Nominated Advisor to the Company
Nick Wells/Elizabeth Bowman
0207 397 8900
Smithfield
Reg Hoare
020 7360 4900
This information is provided by RNS
The company news service from the London Stock Exchange
END
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