EXHIBIT 99.1
VERO GROUP PLC
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
VERO Group plc
We have audited the consolidated balance sheet of VERO Group plc as at
December 31, 1997 and the related consolidated profit and loss accounts and
consolidated statements of total recognized gains and losses and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to form an independent opinion on
these financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VERO Group plc
at December 31, 1997 and the consolidated results of its operations and its
consolidated cash flows for the year then ended in conformity with accounting
principles generally accepted in the United Kingdom which differ in certain
respects from those generally accepted in the United States (see Note 23 of
Notes to the Accounts).
/s/Ernst & Young
----------------
ERNST & YOUNG
Chartered Accountants
Southampton, England
March 23, 1998
VERO GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1997
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
--------------------------------------------------
TURNOVER - CONTINUING OPERATIONS 1 101,219 106,062
Cost of sales (68,524) (68,280)
--------------------------------------
Gross profit 32,695 37,782
--------------------------------------
Distribution costs (13,749) (14,411)
Administration expenses (8,619) (9,257)
Income from interests in associated undertakings 7 39
--------------------------------------
OPERATING PROFIT - CONTINUING OPERATIONS 2 10,334 14,153
Net interest payable 5 (312) (562)
--------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 10,022 13,591
Taxation 6 (3,422) (4,926)
--------------------------------------
Profit on ordinary activities after taxation 6,600 8,665
Minority interest 5 -
--------------------------------------
PROFIT ATTRIBUTABLE TO MEMBERS OF THE PARENT COMPANY 6,605 8,665
--------------------------------------
Dividends 7 (3,454) (3,434)
--------------------------------------
Retained profit for the year 17 3,151 5,231
--------------------------------------
EARNINGS PER ORDINARY SHARE - BASIC 8 11.1P 14.7p
EARNINGS PER ORDINARY SHARE - FULLY DILUTED 8 10.9P 14.3p
--------------------------------------
NOTE OF HISTORICAL COST PROFITS AND LOSSES. There is no difference between the
historical cost profit and the retained profit for the year ended 31 December
1997 or 31 December 1996.
2
VERO GROUP PLC
CONSOLIDATED BALANCE SHEET
as at 31 December 1997
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
----------------------------------------------------
FIXED ASSETS
Tangible assets 9 17,121 15,467
Investments 10 823 543
---------------------------------------
17,944 16,010
CURRENT ASSETS
Stocks 11 13,791 12,735
Debtors 12 18,096 17,982
Cash at bank and in hand 4,093 6,619
---------------------------------------
35,980 37,336
CREDITORS: amounts falling due within one year
Bank and other borrowings 13 (510) (493)
Other creditors 13 (22,706) (24,254)
---------------------------------------
(23,216) (24,747)
---------------------------------------
NET CURRENT ASSETS 12,764 12,589
---------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 30,708 28,599
---------------------------------------
CREDITORS: amounts falling due after more than one year
Bank and other borrowings 14 (6,210) (6,221)
Provision for liabilities and charges 15 (252) (142)
---------------------------------------
24,246 22,236
MINORITY INTERESTS (10) -
---------------------------------------
24,236 22,236
---------------------------------------
CAPITAL AND RESERVES
Called up share capital 16 3,007 3,007
Share premium account 17 18,231 18,231
Capital redemption reserve 17 9 9
Goodwill reserve 17 (11,471) (11,301)
Profit and loss account 17 14,460 12,290
---------------------------------------
Shareholders' funds 24,236 22,236
---------------------------------------
3
VERO GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1997
YEAR TO YEAR TO
31 DECEMBER 31 DECEMBER
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
-------------------------------------------------
Net cash inflow from operating activities 18(a) 11,957 15,561
Returns on investments and servicing of finance 18(b) (310) (644)
Taxation (4,802) (2,498)
Capital expenditure 18(c) (5,054) (5,354)
Acquisitions and disposals 18(d) (1,057) (1,230)
Equity dividend paid (3,442) (1,179)
-----------------------------------
Cash (outflow)/inflow before use of liquid resources and financing (2,708) 4,656
Financing increase/(decrease) in debt 15 (2,009)
-----------------------------------
(Decrease)/increase in cash in the year (2,693) 2,647
-----------------------------------
YEAR TO YEAR TO
31 DECEMBER 31 DECEMBER
1997 1996
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Notes (Pounds)000 (Pounds)000
(unaudited)
--------------------------------------------------
(Decrease)/increase in cash in the year (2,693) 2,647
Cash (inflow)/outflow from movements in debt (15) 2,009
------------------------------------
Change in net debt resulting from cash flows (2,708) 4,656
Exchange adjustment 176 (79)
------------------------------------
Movement in net debt in the year (2,532) 4,577
Net debt at 1 January (95) (4,672)
------------------------------------
Net debt at 31 December 18(e) (2,627) (95)
------------------------------------
4
VERO GROUP PLC
ADDITIONAL STATEMENTS
for the year ended 31 December 1997
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES (Pounds)000 (Pounds)000
(unaudited)
---------------------------------------
Profit for the financial year 3,151 5,231
Exchange loss on retranslation of net assets of subsidiary (981) (1,872)
undertakings
---------------------------------------
Total recognized gains relating to the year 2,170 3,359
---------------------------------------
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED SHAREHOLDERS' FUND (Pounds)000 (Pounds)000
(unaudited)
---------------------------------------
Total recognized gains and losses 2,170 3,359
Other movements:
Goodwill written off (432) (718)
Adjustment to goodwill (note 17) 262 -
---------------------------------------
Net addition to shareholders' funds 2,000 2,641
Opening shareholders' funds 22,236 19,595
---------------------------------------
Closing shareholders' funds 24,236 22,236
---------------------------------------
5
VERO GROUP PLC
COMPANY BALANCE SHEET
as at 31 December 1997
1997 1996
Notes (Pounds)000 (Pounds)000
(unaudited)
----------------------------------------------------
FIXED ASSETS
Tangible assets 9 72 101
Investments 10 22,008 22,008
------------------------------------------
22,080 22,109
CURRENT ASSETS
Debtors 12 14,368 14,000
Cash at bank and in hand 700 53
------------------------------------------
15,068 14,053
CREDITORS: amounts falling due within one year
Bank and other borrowings 13 (3,074) -
Other creditors 13 (8,381) (8,512)
------------------------------------------
(11,455) (8,512)
NET CURRENT ASSETS 3,613 5,541
TOTAL ASSETS LESS CURRENT LIABILITIES 25,693 27,650
------------------------------------------
CREDITORS: amounts falling due after more than one year
Bank and other borrowings 14 (1,500) (3,700)
------------------------------------------
24,193 23,950
------------------------------------------
CAPITAL AND RESERVES
Called up share capital 16 3,007 3,007
Share premium account 17 18,231 18,231
Capital redemption reserve 17 9 9
Profit and loss account 17 2,946 2,703
------------------------------------------
Shareholders' funds 24,193 23,950
------------------------------------------
6
VERO GROUP PLC
ACCOUNTING POLICIES
for the year ended 31 December 1997
A summary of the principal accounting policies, which have been consistently
applied throughout the year, is set out below:
a) BASIS OF PREPARATION The accounts are prepared under the historical cost
convention and in accordance with applicable United Kingdom accounting
standards.
b) BASIS OF CONSOLIDATION The Group accounts consolidate the accounts of VERO
Group plc and all its subsidiary undertakings drawn up to 31 December each
year. Undertakings, other than subsidiary undertakings, in which the Group
has an investment and over which it is in a position to exercise a
significant influence are treated as associated undertakings. The Group
accounts include the appropriate share of associated undertakings' results
and reserves.
No profit and loss account is presented for VERO Group plc as permitted by
section 230 of the Companies Act 1985.
c) GOODWILL Purchased goodwill is set off directly against reserves.
d) DEPRECIATION Depreciation is provided on all tangible fixed assets, other
than freehold land, at rates calculated to write off the cost, less
estimated residual value based on prices prevailing at the date of
acquisition, of each asset evenly over its expected useful life, as
follows:
Freehold buildings - over 25 years
Leasehold buildings: more than 40 years unexpired - over 40 years
Leasehold buildings: less than 40 years unexpired - equally over the life of the lease
Plant and machinery - over 3 years to 10 years
Assets in the course of construction are stated at cost. No depreciation is
provided until the asset is brought into use.
e) STOCKS Stocks are stated at the lower of cost incurred in bringing each
product to its present location and condition and net realizable value, as
follows:
Raw materials, consumables and goods for resale - purchase cost on a first-in, first-out basis.
Work in progress and finished goods - cost of direct materials and labour plus
attributable overheads based on the normal
level of activity.
Net realizable value is based on estimated selling price less any further
costs expected to be incurred to completion and disposal.
f) RESEARCH AND DEVELOPMENT Expenditure on research and development is
written off as incurred.
g) DEFERRED TAXATION Deferred taxation is provided using the liability method
on all timing differences which are expected to reverse in the future
without being replaced, calculated at the rate at which it is anticipated
the timing differences will reverse. Advance corporation tax which is
expected to be recoverable in the future is deducted from the deferred
taxation balance.
h) ADVANCE CORPORATION TAX Advance corporation tax is carried forward only to
the extent that it is recoverable in the foreseeable future.
7
VERO GROUP PLC
ACCOUNTING POLICIES
for the year ended 31 December 1997
i) FOREIGN CURRENCIES Assets and liabilities in overseas currencies are
translated into sterling at the rates ruling at 31 December. Profit and
loss accounts in foreign currencies are translated into sterling at the
average rates applicable during the year. Exchange differences arising on
opening net assets, less any loans hedging those investments, are taken
directly to reserves, as are the differences arising between the
translation of revenue items at average and closing rates. Exchange
differences arising on trading transactions are taken to the profit and
loss account.
j) LEASING AND HIRE PURCHASE COMMITMENTS Assets held under finance leases and
hire purchase contracts, which are those where substantially all the risks
and rewards of ownership have passed to the Group, are capitalized in the
balance sheet and are depreciated over their useful lives. The interest
element of the rental obligations is charged to the profit and loss account
over the period of the lease and represents a constant proportion of the
balance of capital repayments outstanding.
Rentals paid under operating leases are charged to income on a straight
line basis over the lease term.
k) PENSIONS The Group operates defined benefit pension schemes in the UK
which require contributions to be made to separately administered funds.
Contributions to these funds are charged to the profit and loss account so
as to spread the cost of pensions over the employees' working lives within
the Group. The regular cost is attributed to individual years using the
projected unit credit method. Variations in pension cost, which are
identified as a result of actuarial valuations, are amortized over the
average expected remaining working lives of employees in proportion to
their expected payroll costs. Differences between the amounts funded and
the amounts charged to the profit and loss account are treated as either
provisions or prepayments in the balance sheet.
The Group also operates defined contribution pension schemes in some
overseas countries. Contributions are charged to the profit and loss
account as they become payable in accordance with the rules of the schemes.
8
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
1. TURNOVER AND SEGMENTAL ANALYSIS
- - --------------------------------------------------------------------------------
Turnover represents the amounts derived from the provision of goods and services
which fall within the Group's ordinary activities, stated net of value added tax
and similar taxes. Turnover and pre-tax profit are attributable to one
continuing activity: the manufacture and sale of mechanical and electronic
components for the electronics and telecommunications industries. Turnover,
profit before taxation and net assets are analyzed as follows:
Year to Year to
31 December 31 December
1997 1996
(Pounds)000 (Pounds)000
(unaudited)
------------------------------------
TURNOVER BY GEOGRAPHICAL DESTINATION
Sales to third parties:
United Kingdom 36,280 33,876
Continental Europe 45,486 55,576
Rest of World 19,453 16,610
------------------------------------
101,219 106,062
------------------------------------
TURNOVER BY GEOGRAPHICAL ORIGIN
Total sales (including inter-Group):
United Kingdom 68,630 70,794
Continental Europe 44,356 50,964
Rest of World 14,310 12,849
------------------------------------
127,296 134,607
------------------------------------
Inter-Group sales:
United Kingdom 1,345 2,445
Continental Europe 18,949 21,180
Rest of World 5,783 4,920
------------------------------------
26,077 28,545
------------------------------------
Sales to third parties:
United Kingdom 67,285 68,349
Continental Europe 25,407 29,784
Rest of World 8,527 7,929
------------------------------------
101,219 106,062
------------------------------------
PROFIT BEFORE TAXATION
United Kingdom 10,507 11,944
Continental Europe 1,999 4,188
Rest of World 307 718
------------------------------------
12,813 16,850
------------------------------------
Common costs (2,479) (2,697)
Net interest payable (312) (562)
------------------------------------
Profit on ordinary activities before taxation 10,022 13,591
------------------------------------
9
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
1. TURNOVER AND SEGMENTAL INFORMATION continued (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
NET ASSETS
United Kingdom 15,893 14,052
Continental Europe 11,606 11,187
Rest of World 4,552 3,671
Unallocated net liabilities (7,815) (6,674)
-----------------------------------------
24,236 22,236
-----------------------------------------
Unallocated net assets/(liabilities) comprise:
Cash at bank and in hand 4,093 6,619
Bank overdrafts (334) (231)
Loans (6,386) (6,483)
Net tax liabilities (2,659) (4,182)
Deferred taxation (252) (142)
Dividend payable (2,267) (2,255)
Minority interests (10) -
------------------------------------------
Unallocated net liabilities (7,815) (6,674)
-----------------------------------------
Year to
2. OPERATING PROFIT YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
Operating profit is stated after charging: (Pounds)000 (unaudited)
- - ----------------------------------------------------------------------------------------------------------
Auditors' remuneration - audit services - UK 50 38
- audit services - overseas 53 38
- non-audit services - UK 59 58
- non-audit services - overseas 43 58
Depreciation 3,290 2,956
Research and development expenditure 1,293 1,218
Operating lease rentals - land and buildings 2,189 1,959
- other 793 579
Year to
3. EMPLOYEE INFORMATION YEAR TO 31 December
31 DECEMBER 1996
The average monthly number of persons (including executive directors) 1997 number
employed by the Group was: NUMBER (unaudited)
- - ----------------------------------------------------------------------------------------------------------
Management and administration 147 133
Manufacturing, sales and distribution 1,520 1,431
------------------------------------
1,667 1,564
------------------------------------
Aggregate staff costs (for the above persons) (Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------
Wages and salaries 30,653 29,886
Social Security costs 4,107 4,177
Other pension costs 1,414 1,450
------------------------------------
36,174 35,513
------------------------------------
10
Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
4. DIRECTORS' EMOLUMENTS (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
Fees - paid to directors 48 39
- paid to third parties 18 18
Executive directors' emoluments (excluding pension contributions) 227 245
----------------------------------
293 302
----------------------------------
Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
5. NET INTEREST PAYABLE (Pounds)000 (unaudited)
- - ------------------------------------------------------------------------------------------------------------
Interest receivable
Bank interest receivable 233 194
Other interest receivable - 11
-----------------------------------
233 205
-----------------------------------
Interest payable
Bank loans and overdrafts (523) (767)
Other loans (22) -
-----------------------------------
(545) (767)
-----------------------------------
Net interest payable (312) (562)
-----------------------------------
Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
6. TAXATION (Pounds)000 (unaudited)
- - ------------------------------------------------------------------------------------------------------------
United Kingdom corporation tax 2,537 2,968
Deferred taxation (note 15) 340 603
Overseas taxation 562 1,291
Adjustments in respect of prior years - overseas taxation (6) 47
- current taxation - (149)
- deferred taxation (11) 166
-----------------------------------
3,422 4,926
-----------------------------------
Year to
YEAR TO 31 December
31 DECEMBER 1996
1997 (Pounds)000
7. DIVIDENDS (Pounds)000 (unaudited)
- - -----------------------------------------------------------------------------------------------------------
Equity dividends on ordinary shares
Interim paid 2.0p (1996: 2.0p (unaudited)) 1,187 1,179
Final proposed 3.8p (1996: 3.8p (unaudited)) 2,267 2,255
---------------------------------
3,454 3,434
---------------------------------
In accordance with the trust deed dated 31 October 1995 between the Company and
the trustee to the employee benefit trust, the trustee has elected to waive all
but 0.001p per share of dividend on the 454,324 shares held by the trust.
11
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
8. EARNINGS PER ORDINARY SHARE
- - --------------------------------------------------------------------------------
The calculation of the basic earnings per ordinary share is based on earnings
for the financial year of (Pounds)6,605,000 (1996: (Pounds)8,665,000
(unaudited)) and 59,340,410 shares (1996: 59,019,149 (unaudited)), being the
weighted average number of shares in issue and ranking for dividend during the
year after adjustment to exclude those shares held by the employee benefit
trust.
The fully diluted earnings per share is based on 60,980,561 (1996: 60,863,460
(unaudited)) ordinary shares, to show the effect on earnings per share of shares
held by the employee benefit trust, of options granted over shares under the
Company's savings related share option schemes and adjusted earnings of
(Pounds)6,645,000 (1996: (Pounds)8,705,000 (unaudited)). Earnings have been
adjusted, in connection with the share options (note 16), by adding interest
deemed to be earned from 2 1/2 % Consolidated Stock on the proceeds of such
share issue.
Assets in Plant
Land and course of machinery &
9. TANGIBLE FIXED ASSETS buildings construction motor vehicles Total
GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------------
COST
At 1 January 1997 3,504 1,369 14,346 19,219
Additions 76 584 4,828 5,488
Disposals (87) - (628) (715)
Reclassifications 115 (1,022) 907 -
Exchange adjustment (458) (89) (937) (1,484)
--------------------------------------------------------------------------
At 31 December 1997 3,150 842 18,516 22,508
--------------------------------------------------------------------------
DEPRECIATION
At 1 January 1997 504 - 3,248 3,752
Charge for the year 127 - 3,163 3,290
Disposals (85) - (598) (683)
Reclassifications 1 - (1) -
Exchange adjustment (195) - (777) (972)
--------------------------------------------------------------------------
At 31 December 1997 352 - 5,035 5,387
--------------------------------------------------------------------------
NET BOOK VALUE
At 31 December 1997 2,798 842 13,481 17,121
--------------------------------------------------------------------------
At 31 December 1996 (unaudited) 3,000 1,369 11,098 15,467
--------------------------------------------------------------------------
12
Assets in Plant
Land and course of machinery &
9. TANGIBLE FIXED ASSETS CONTINUED buildings construction motor vehicles Total
COMPANY (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
COST
At 1 January 1997 - - 158 158
Additions - - - -
Disposals - - - -
-------------------------------------------------------------------------
At 31 December 1997 - - 158 158
------------------------------------------------------------------------
DEPRECIATION
At 1 January 1997 - - 57 57
Charge for the year - - 29 29
Disposals - - - -
-------------------------------------------------------------------------
At 31 December 1997 - - 86 86
------------------------------------------------------------------------
NET BOOK VALUE
At 31 December 1997 - - 72 72
-------------------------------------------------------------------------
At 31 December 1996 (unaudited) - - 101 101
------------------------------------------------------------------------
GROUP Group
1997 1996
The net book value of land and building comprises: (Pounds)000 (Pounds)000
(unaudited)
- - -----------------------------------------------------------------------------------------------------------
Freehold 2,109 2,487
Long leasehold - -
Short leasehold 689 513
--------------------------------------
2,798 3,000
--------------------------------------
Share of net
10. INVESTMENTS tangible assets
Group - associated undertakings (Pounds)000
- - ---------------------------------------------------------------------------------------------------------
At 1 January 1997 543
Exchange adjustment (25)
Second call on shares in VERO President Systems Limited 262
Investment in VERO Austin Electronics (China) Limited 39
Share of profits retained by associated undertakings 4
--------------------
At 31 December 1997 823
-------------------
Income of (Pounds)7,000 and tax of (Pounds)3,000 have been dealt with in the
profit and loss account for the year in respect of associated undertakings.
During the year a second call was made on the shares issued by VERO President
Systems Limited at the time of its flotation. The Group did not subscribe for
any such shares and therefore is not required to make a further payment. The
Group only recognizes its share of the increased net assets on a received basis.
During the year, the Group's share of net tangible assets increased by
(Pounds)262,000 with an appropriate adjustment to goodwill (note 17).
The shares of the associated undertaking, VERO President Systems Limited, are
listed on the Pune and Bangalore stock exchanges in India. As at 31 December
1997 the market value of those shares was (Pounds)1,300,000.
13
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
10. INVESTMENTS CONTINUED
- - ------------------------------------------------------------------------------
During the year the Group set up VERO Austin Electronics (China) Limited, a
company registered in Hong Kong. VERO Austin Electronics (China) Limited is a
distributor of networking products into the Hong Kong Chinese region. The
Group's interest in the company is 50%.
Subsidiary Associated
undertaking undertaking Total
Company (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
At 1 January and 31 December 1997 20,778 1,230 22,008
Details of the principal investments in which the Group or the Company holds
more than 10% of the nominal value of any class of share capital are as follows:
Country of
Registration
(or incorporation)
NAME OF SUBSIDIARY UNDERTAKINGS Holding and operation
- - -----------------------------------------------------------------------------------------------------------
VERO Electronics Limited 100% England
VERO Electronics Overseas Investments Limited 100% England
*VERO Electronics SA 100% France
*VERO Electronics GmbH 100% Germany
*VERO Electronics SrL 100% Italy
*VERO Electronics AB 100% Sweden
*VERO Electronics Inc. 100% USA
*VERO Electronics Pte Limited 60% Singapore
During the year the Group set up VERO Electronics Pte Limited, a company
registered in Singapore. VERO Electronics Pte Limited is a distributor of
electronic components into the ASEAN region. The Group's interest in the
company is 60%.
Country of
Registration
(or incorporation)
NAME OF ASSOCIATED UNDERTAKINGS Holding and operation
- - -----------------------------------------------------------------------------------------------------------
VERO President Systems Limited 35% India
*VERO Austin Electronics (China) Limited 50% Hong Kong
VERO Electronics Overseas Investments Limited acts as the intermediate holding
company for overseas subsidiary undertakings. All other subsidiary and
associated undertakings are principally engaged in the manufacture and sale of
mechanical and electronic components for the electronics and telecommunications
industries (*denotes that shares are held through an intermediate holding
company).
The issued share capital of VERO President Systems Limited is 5,040,000 ordinary
shares of Rs 10 each.
The issued share capital of VERO Austin Electronics (China) Limited is 1,010,000
ordinary shares of HK$1 each.
14
GROUP Group
1997 1996
11. STOCKS (Pounds)000 (Pounds)000
(unaudited)
- - ----------------------------------------------------------------------------------------------------------
Raw materials 3,228 3,126
Work in progress 3,891 2,959
Finished goods and goods for resale 6,672 6,650
------------------------------------------
13,791 12,735
------------------------------------------
The difference between purchase price or production cost of stock and their
replacement cost is not significant.
GROUP COMPANY
1997 1996 1997 1996
12. DEBTORS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
Trade debtors 16,126 16,569 - -
Amounts owed by subsidiary undertakings - - 11,603 11,234
Overseas tax 239 129 - -
Advance corporation tax 130 346 567 564
Deferred tax (note 15) - - 29 26
Other debtors 377 214 70 103
Prepayments and accrued income 1,224 724 22 14
Dividends receivable - - 2,077 2,059
--------------------------------------------------------------------
18,096 17,982 14,368 14,000
--------------------------------------------------------------------
GROUP COMPANY
Amounts falling due after more than 1997 1996 1997 1996
one year included above are: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
Overseas tax 110 129 - -
Advance corporation tax 130 346 864 564
Deferred taxation - - 29 26
Other debtors 4 - - -
Prepayments and accrued income 62 - - -
--------------------------------------------------------------------
306 475 893 590
--------------------------------------------------------------------
GROUP COMPANY
13. CREDITORS: AMOUNTS FALLING DUE 1997 1996 1997 1996
WITHIN ONE YEAR (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - ---------------------------------------------------------------------------------------------------------------
Current installments due on loans (note 14) 176 262 - -
Bank overdraft (note 14) 334 231 3,074 -
Trade creditors 9,083 7,152 - -
Amounts owed to subsidiary undertakings - - 4,870 4,840
Current corporation tax 2,018 3,327 - 119
Overseas tax 146 471 - -
Advance corporation tax 864 859 864 859
Other taxes and social security costs 1,609 1,885 24 27
Other creditors 2,984 3,525 208 115
Accruals 3,735 4,780 148 297
Dividend payable 2,267 2,255 2,267 2,255
--------------------------------------------------------------------
23,216 24,747 11,455 8,512
--------------------------------------------------------------------
Included in other creditors is an amount of (Pounds)525,000 (1996:
(Pounds)567,000 (unaudited)) in respect of the German pension scheme.
15
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
GROUP COMPANY
1997 1996 1997 1996
14. BANK AND OTHER BORROWINGS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - --------------------------------------------------------------------------------------------------------------
Secured borrowings - - - -
Unsecured borrowings 6,386 6,483 1,500 3,700
--------------------------------------------------------------------
Total loans 6,386 6,483 1,500 3,700
Bank overdrafts 334 231 3,074 -
--------------------------------------------------------------------
6,720 6,714 4,574 3,700
--------------------------------------------------------------------
Unsecured borrowings include certain borrowings on which rates of interest vary
in accordance with market rates. As at 31 December 1997, these borrowings bear
interest at rates of between 4.4375% and 8.5250%.
CURRENCY ANALYSIS GROUP COMPANY
The outstanding loans are repayable in 1997 1996 1997 1996
the following currencies: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - -------------------------------------------------------------------------------------------------------------
Sterling 1,676 3,962 1,500 3,700
Deutsche Marks 1,689 889 - -
French Francs 1,263 - - -
US Dollars 1,758 1,632 - -
------------------------------------------------------------
6,386 6,483 1,500 3,700
------------------------------------------------------------
AMOUNTS FALLING DUE WITHIN ONE YEAR
Repayable other than by installments 176 262 - -
Repayable by installments - - - -
------------------------------------------------------------
176 262 - -
------------------------------------------------------------
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Repayable other than by installments
Between one and two years - - - -
Between two and five years 6,210 6,221 1,500 3,700
In five years or more - - - -
------------------------------------------------------------
6,210 6,221 1,500 3,700
------------------------------------------------------------
16
15. PROVISION FOR LIABILITIES AND CHARGES GROUP COMPANY
DEFERRED TAXATION (Pounds)000 (Pounds)000
- - -----------------------------------------------------------------------------------------------------------
At 1 January 1997 (142) 26
ACT movement 219 -
Arising during the year (340) 3
Prior year adjustment 11 -
---------------------------------------
At 31 December 1997 (252) 29
---------------------------------------
GROUP COMPANY
AMOUNT PROVIDED AMOUNT PROVIDED
1997 1996 1997 1996
DEFERRED TAX PROVIDED IN THE ACCOUNTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
Tax effect of timing differences:
Excess of tax allowances over depreciation (684) (563) - -
Other short term timing differences (5) 203 29 26
------------------------------------------------------------------
(689) (360) 29 26
------------------------------------------------------------------
Less: advance corporation tax recoverable 437 218 - -
------------------------------------------------------------------
(252) (142) 29 26
------------------------------------------------------------------
No provision has been made in respect of the tax which might become payable if
the retained profits of overseas subsidiary undertakings were fully distributed
to the United Kingdom because there is no current intention that such profits be
remitted. There is no unprovided deferred tax.
16. SHARE CAPITAL 1997 1996 1997 1996
AUTHORIZED NO. No. (Pounds) (Pounds)
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
Ordinary shares of 5p each 75,000,000 75,000,000 3,750,000 3,750,000
------------------------------------------------------------------
1997 1996 1997 1996
ALLOTTED, CALLED UP AND FULLY PAID NO. No. (Pounds) (Pounds)
(unaudited) (unaudited)
- - -----------------------------------------------------------------------------------------------------------------
Ordinary shares of 5p each 60,131,827 60,131,827 3,006,591 3,006,591
------------------------------------------------------------------
The Company operates a savings related share option scheme under which options
to subscribe for the Company's shares have been granted to subscribing
employees. At 1 January 1997 options under this scheme were outstanding over
731,633 shares at (Pounds)2.22 each, exercisable between February 2001 and
August 2001. During the year options were granted over 558,116 shares at
(Pounds)1.525 each, exercisable between June 2000 and June 2002. As at 31
December 1997 the total number of shares over which options were outstanding was
901,962 shares.
17
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
Share Capital
premium Goodwill redemption Profit and
17. RESERVES account reserve reserve loss account
GROUP (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ---------------------------------------------------------------------------------------------------------------
At 1 January 1997 18,231 (11,301) 9 12,290
Retained profit for the year - - - 3,151
Exchange adjustment - - - (981)
Arising on acquisition - (432) - -
Adjustment to goodwill - 262 - -
---------------------------------------------------------------------
At 31 December 1997 18,231 (11,471) 9 14,460
---------------------------------------------------------------------
COMPANY
At 1 January 1997 18,321 - 9 2,703
Retained profit for the year - - - 243
---------------------------------------------------------------------
At 31 December 1997 18,321 - 9 2,946
---------------------------------------------------------------------
The Company's profit for the financial year amounted to (Pounds)3,697,000 (1996:
(Pounds)3,589,000 (unaudited)).
On 10 January 1997 the Group acquired the assets and liabilities of a French
company, Societe de Realisations Metallurgiques SA ("SRM"). Net assets at the
date of acquisition were:
Book Fair value to
value Group
(Pounds)000 (Pounds)000
- - ----------------------------------------------------------------------------------------------------------
Tangible fixed assets 557 557
Stock 29 29
------------------------------
Net assets 586 586
--------------
Goodwill arising on acquisition 432
-----------------
1,018
-----------------
Discharged in cash 1,018
-----------------
The goodwill arising on acquisition of (Pounds)432,000 has been written off
against reserves.
The adjustment to goodwill in the year reflects the increase in the Group's
share of the net assets of VERO President Systems Limited following a second
call on the shares it issued at the time of its flotation (note 10).
As at 31 December 1997 accumulated goodwill on acquisitions written off to
reserves amounted to (Pounds)11,471,000 (1996: (Pounds)11,301,000 (unaudited)).
Shareholders' funds are attributable to equity interests only. As at 31
December 1997 and 31 December 1996 there were no non-equity interests.
18
YEAR TO Year to
31 DECEMBER 31 December
18. CASHFLOW 1997 1996
(A) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
Operating profit 10,334 14,153
Depreciation charges 3,290 2,956
Profit on disposal of tangible fixed assets (50) (142)
Share of profits of associated undertakings (7) (39)
Increase in stock (1,456) (125)
Increase in debtors (921) (278)
Increase/(decrease) in creditors and provisions 767 (964)
-------------------------------------
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 11,957 15,561
-------------------------------------
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(B) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
Interest received 230 200
Interest paid (540) (844)
-------------------------------------
(310) (644)
-------------------------------------
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(C) CAPITAL EXPENDITURE (Pounds)000 (Pounds)000
(unaudited)
- - ------------------------------------------------------------------------------------------------------------
Purchase of tangible fixed assets (5,136) (6,065)
Proceeds from sale of tangible fixed assets 82 711
-------------------------------------
(5,054) (5,354)
-------------------------------------
YEAR TO Year to
31 DECEMBER 31 December
1997 1996
(D) ACQUISITIONS AND DISPOSALS (Pounds)000 (Pounds)000
(unaudited)
- - -----------------------------------------------------------------------------------------------------------
Payment to acquire trade business (note 17) 1,018 -
Investments in associated undertakings 39 1,230
------------------------------------
1,057 1,230
------------------------------------
1 January Exchange 31 DECEMBER
1997 Cash flow movement 1997
(E) ANALYSIS OF DEBT (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - -----------------------------------------------------------------------------------------------------------------
Cash in hand and at bank 6,619 (2,596) 70 4,093
Overdrafts (231) (97) (6) (334)
-------------------------------------------------------------------------------
6,388 (2,693) 64 3,759
Debt due after 1 year (6,221) (101) 112 (6,210)
Debt due within 1 year (262) 86 - (176)
-------------------------------------------------------------------------------
(95) (2,708) 176 (2,627)
-------------------------------------------------------------------------------
19
VERO GROUP PLC
NOTES TO THE ACCOUNTS
for the year ended 31 December 1997
GROUP COMPANY
1997 1996 1997 1996
19. FINANCIAL COMMITMENTS (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
CAPITAL COMMITMENTS (unaudited) (unaudited)
- - ------------------------------------------------------------------------------------------------------------
Capital expenditure that has been contracted
for but has not been provided for in the accounts 1,076 782 - -
------------------------------------------------------
1997 1996
(unaudited)
LEASING COMMITMENTS LAND AND Land and
At 31 December the Group had annual commitments BUILDINGS OTHER buildings Other
under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ------------------------------------------------------------------------------------------------------------
Expiring within one year 30 169 37 151
Expiring between two and five years 89 537 179 566
Expiring in over five years 2,073 - 1,947 -
------------------------------------------------------
2,192 706 2,163 717
------------------------------------------------------
1997 1996
(unaudited)
LAND AND Land and
At 31 December the Company had annual commitments BUILDINGS OTHER buildings Other
under non-cancelable operating leases as follows: (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
- - ---------------------------------------------------------------------------------------------------------------
Expiring within one year - - - -
Expiring between two and five years - 14 - 11
Expiring in over five years - - - -
------------------------------------------------------
- 14 - 11
------------------------------------------------------
20. PENSION COMMITMENTS
- - --------------------------------------------------------------------------------
The Group operates a number of pension schemes around the world.
The pension cost in respect of the UK pension schemes for the year ended 31
December 1997 amounted to (Pounds)1,196,000 (1996: (Pounds)1,178,000
(unaudited)). Contributions are charged to the profit and loss account so as to
spread the costs of pensions over employees' working lives within the Group.
The major scheme (which is operated in the UK) covers the majority of the
Group's UK employees and is a defined benefit scheme. The assets of the scheme
are held in a separately administered trust and managed by independent
professional investment managers. Contributions are determined by a
professionally qualified actuary on the basis of triennial actuarial valuations
using the projected unit credit funding method. The latest valuation was at 1
January 1995. The most significant actuarial assumptions made were that the rate
of return on investments would be 10% per annum and the rate of increase in
salaries would be 8% per annum. The actuarial valuation as at 1 January 1995
showed that the market value of the scheme's assets, ignoring any net current
assets which were assumed to be negligible, was (Pounds)12,154,773 and that the
actuarial value of those assets represented 102% of the benefits that had
accrued to members, after allowing for expected increases in salaries. In
accordance with the Actuary's recommendation the contributions of the Group are
currently 9.1% of pensionable salaries per annum. Employees' contributions at
the rate of 5% of pensionable salaries per annum are payable in addition.
A valuation as at 1 January 1998 is due to be undertaken by the Actuary, the
results of which will be available later this year, whereupon the Actuary's
recommendations regarding the funding rate will be reviewed.
The Group also operates a number of smaller pension schemes in the UK,
Continental Europe and the United States. These are set up in accordance with
local conditions and practices in the countries concerned.
20
21. CONTINGENT LIABILITIES
- - --------------------------------------------------------------------------------
The Company has guaranteed bank loan facilities to certain Group undertakings.
As at 31 December 1997 the maximum potential liability under these guarantees
was (Pounds)4,710,000 (1996: (Pounds)2,521,000 (unaudited)).
As at 31 December 1997, the Company has given guarantees and indemnities in the
ordinary course of business in respect of certain Group undertakings.
22. RELATED PARTY TRANSACTIONS
- - --------------------------------------------------------------------------------
The Group recharges the VERO Group pension schemes with the costs of
administration and independent advisors borne by the Group. The total amount
recharged during the year to 31 December 1997 was (Pounds)210,000 (1996:
(Pounds)146,000 (unaudited)).
During the year VERO Group plc made sales of (Pounds)3,000 (1996: (Pounds)40,000
(unaudited)) to VERO President Systems Limited and sales of (Pounds)68,000 to
VERO Austin Electronics (China) Limited. The balances owing to the Group at 31
December 1997 were respectively (Pounds)13,000 (1996: (Pounds)40,000
(unaudited)) and (Pounds)68,000.
21
23. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
- - --------------------------------------------------------------------------------
The Group's consolidated accounts are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP") which differ
from United States generally accepted accounting principles ("U.S. GAAP"). The
only significant difference applicable to the Group relates to the treatment of
goodwill.
In the consolidated accounts, goodwill arising on acquisition of subsidiaries is
written off to shareholders' funds. Under US GAAP, such goodwill would be
capitalised and amortised over its estimated useful life. For the purposes of
the reconciliation below, the useful life is taken as 40 years. Under US GAAP,
the recoverability of capitalised goodwill would be periodically evaluated based
on undiscounted cash flows and if any impairment is identified the amount of
such impairment would be calculated based on the estimated fair value of such
goodwill.
The following is a summary of the significant adjustment to profit for the year
and shareholders' funds which would be required if US GAAP were to be applied
instead of UK GAAP.
Year to
31 December
1997
(Pounds) 000
- - --------------------------------------------------------------------------------
Profit for the year as reported in the consolidated profit
and loss account 6,605
Adjustment
Goodwill amortisation (287)
-------
Net income as adjusted to accord with US GAAP 6,318
=======
Shareholders' funds as reported in the consolidated balance sheet 24,236
Adjustment
Goodwill at cost 11,471
Amortisation (1,148)
-------
Net book amount 10,323
-------
Shareholders' funds as adjusted to accord with US GAAP 34,559
=======
22
Consolidated statement of cash flows
The consolidated statement of cash flows prepared under UK GAAP presents
substantially the same information as that required under US GAAP but it
differs, however, with regard to classification of items within the statements
and as regards the definition of cash under UK GAAP and cash and cash
equivalents under US GAAP.
Under US GAAP, cash and cash equivalents include short-term highly liquid
investments but do not include bank overdrafts. Under UK GAAP, cash flows are
presented separately for operating activities, returns on investments and
servicing of finance, taxation, capital expenditure and financial investment,
acquisitions, equity dividends and management of liquid resources and financing.
US GAAP, however, requires only three categories of cash flow activity to be
reported; operating, investing and financing. Cash flows from taxation and
returns on investments and servicing of finance shown under UK GAAP would be
included as operating activities under US GAAP. The payment of dividends would
be included in financing under US GAAP. Capital expenditure and financial
investment and acquisitions would be reported under investing under US GAAP.
The categories of cash flow activity under US GAAP can be summarised as follows:
As at
31 December
1997
(Pounds)000
- - --------------------------------------------------------------------------------
Cash inflow from operating activities 6,845
Cash outflow on investing activities (6,111)
Cash outflow from financing activities (3,330)
------
Decrease in cash and cash equivalents (2,596)
Effect of foreign exchange rate changes 70
Cash and cash equivalents at 1 January 6,619
------
Cash and cash equivalents at 31 December 4,093
======
23