P .O. Box 25, South Marston Park,
Swindon, Wiltshire, SN3 4TR, UK
Tel: +44 (0)1793 827000
Fax: +44 (0)1793 827578
E-mail: info@intelek.plc.uk
Web site: www.intelek.plc.uk
INTELEK plc Report and Accounts 2007
INTELEK plc Report and Accounts 2007
INTELEK plc INTELEK designs and manufactures electronic systems for
satellite and microwave communications and is a specialist
manufacturer for the aerospace market.
Group Highlights 1
Chairman’s Statement 2
Chief Executive’s Review 4
Financial Review 16
Directors and Senior Executives 18
Directors’ Report 19
Statement of Directors’ Responsibilities 21
Corporate Governance Report 22
Remuneration Report 26
Auditors’ Report (Group) 29
Consolidated Income Statement 30
Consolidated Statement of Recognised
Income and Expense 30
Consolidated Balance Sheet 31
Consolidated Cash Flow Statement 32
Notes to the Financial Statements 33
Five Year Summary 54
Auditors’ Report (Company) 55
Company Balance Sheet 56
Notice of Meeting 59
Glossary 61
Group Company Addresses and Advisers IBC
INTELEK Report and Accounts 2007
Contents
Auditors
RSM Robson Rhodes LLP
Chartered Accountants
Centre City Tower, 7 Hill Street,
Birmingham, B5 4UU
Solicitors
DLA
Victoria Square House,
Victoria Square, Birmingham, B2 4DL
Bankers
Barclays Bank PLC
Park House, Stoke Gifford,
Bristol, BS34 8TN
Fortis Bank
The Imperium, Imperial Way,
Worton Grange, Reading, RG2 0TD
Sovereign Bank
2790 West College Avenue, Suite 800,
State College, PA 16801, USA
Stockbrokers/Nomads
Brewin Dolphin Securities
Edmund House, 12–22 Newhall Street,
Birmingham, B3 3DB
Registrars
and Transfer Office
Lloyds TSB Registrars
The Causeway, Worthing,
West Sussex, BN99 6DA
Advisers
Group Company Addresses
Registered Office
Intelek plc
PO Box 25, South Marston Park,
Swindon, Wiltshire, SN3 4TR
Tel: (01793) 827000
Fax: (01793) 827578
e-mail: info@intelek.plc.uk
Website: www.intelek.plc.uk
Trading Subsidiaries
CML Group Limited
Price Street, Birkenhead,
Wirral, CH41 3PT
Tel: (0151) 647 5531
Fax: (0151) 650 0668
e-mail: enquiries@cml-group.com
Website: www.cml-group.com
Labtech Limited*
Labtech Circuits
Unit 1, Broadaxe Business Park,
Presteigne, Powys, LD8 2UH
Tel: (01544) 260093
Fax: (01544) 260310
Labtech Microwave
8 Vincent Avenue,
Crownhill, Milton Keynes, MK8 0AB
Tel: (01908) 261755
Fax: (01908) 261788
e-mail: ptfe@labtech.ltd.uk
Website: www.labtechcircuits.com
* Held directly by Intelek plc.
Paradise Datacom
Paradise Datacom Ltd*
1 Wheaton Road, Witham,
Essex, CM8 3UJ
Tel: (01376) 515636
Fax: (01376) 533762
e-mail: sales@paradise.co.uk
Paradise Datacom LLC
328 Innovation Boulevard,
Suite 100, State College,
PA 16803, USA
Tel: (001) 814 238 3450
Fax: (001) 814 238 3814
e-mail: sales@paradisedata.com
Website: www.paradisedata.com Intelek
Report and Accounts 2007
GROUP HIGHLIGHTS
 Sales up 5% at £36.8 million (2006: £35.2 million)
 Underlying profit before tax up 30% to £2.3 million
(2006: £1.8 million)
 Profit before tax after exceptionals £5.6 million
(2006: £1.8 million)
 Underlying EPS up 31% to 2.05p (2006: 1.56p)
 Full year dividend increased 8.3% to 0.39p
(2006: 0.36p)
1 CHAIRMAN’S STATEMENT
Paradise Datacom benefited from the
sales of both the amplifier and modem
product ranges growing by 20%.
2006/07 was the first full financial year
availability of the new Evolution high data
rate modem with major success being
achieved in the supply of products to the
Far East. As a consequence, Paradise
Datacom’s operating profits increased by
41% to £3.0 million.
Operating profits at CML increased by
45% to £1.6 million as a result of their
continued attention to production
efficiency, customer service and
broadening their customer base.
Labtech produced an operating loss of
£0.48 million due to a severe downturn in
the telecommunications market with a
number of their major customers de-
stocking in the final quarter. As a number
of these programmes are also reaching
the end of their product life, an asset
impairment and restructuring review was
carried out at the year end. We are
continuing to move the business away
from commodity markets into specialist
microwave packaged solutions and
products and I anticipate that the
business will return to profitability in
2007/08.
Introduction
I am very pleased to report strong growth
of 30% in the Company’s underlying
profit before tax (£2.34 million in 2007)
with two out of our three business
segments performing extremely well. The
strength of Paradise Datacom’s satellite
modems and amplifier sales to a growing
range of international customers was
evident as was CML’s increasing
reputation as a highly reliable
aerostructures supplier into the Airbus
A320 and Raytheon Hawker 800
programmes.
Results
Sales for the year increased by 4.6% to
£36.8 million. Overall gross margins
increased from 27.7% to 28.9%.
Earnings per share from the underlying
profit of the Group increased 31% to
2.05p compared with the previous year’s
figure of 1.56p. Total borrowings
increased by £1.7 million after paying
£2.6 million in enhanced pension transfer
payments. With the total deficit on the
Defined Benefit Pension Scheme reduced
to £5.3 million (2006: £13.0 million), the
balance sheet, therefore, showed a
reduction in borrowings/pension deficit of
£6 million, a significant improvement
during the year.
David Bramwell
www.intelek.plc.uk 2 As reported at the Interims, an enhanced
transfer option was offered to certain
deferred and employee members of the
Defined Benefit Pension Scheme. The
full year effect of this and the de-linking
of final salary has been a reduction of
£6.8 million in the pension deficit at a
cost to the Group of £2.8 million. After
taking account of this one-off gain of
£4.0 million on the pension transfer
project and £0.7 million of restructuring
costs, mainly at Labtech, the full year
profit before tax on continuing operations
was £5.6 million (2006: £1.8 million).
Dividend
The Board is recommending an
increased final dividend of 0.26p (2006:
0.24p) per Ordinary share, increasing the
total dividend by 8.3% to 0.39p (2006:
0.36p). If approved at the Annual General
Meeting on 14 September 2007, this final
dividend will be paid on 26 September
2007 to shareholders on the register at
the close of business on 31 August 2007.
Transfer to AIM
Intelek completed its transfer of trading
in Ordinary Shares to AIM in December
2006 with a view to lowering the costs
and regulatory burden of the Listing and
to agreeing and executing transactions
more quickly.
Strategy
Our strategy continues to be centred on
the development of our businesses in the
communications industry and, in
particular, the satellite segment of that
industry. We intend to develop shareholder
value by continuing to build an integrated
Group with a significant share of niche
global markets in our specific field of
communications and to develop a
profitable and growing aerostructures
business. We aim to grow organically
within our chosen markets by sound
investment in product development,
capital equipment and enhanced
geographic coverage. We will continue to
encourage continuous professional
development of our staff supplemented,
where necessary, by the recruitment of
key additional skills. Our organic growth
will be supplemented by suitable
acquisitions within our core activity as and
when the right opportunity is identified.
People
As ever, the skill, commitment and
enthusiasm of all our staff are key to the
ongoing success of the Group and, on
behalf of the Board, I would like to record
my sincere thanks to them for their
loyalty and valued contributions during
the year.
Prospects
Paradise Datacom is beginning to be
recognised as one of the leading solid
state power amplifier and modem
suppliers to the satellite communications
industry. Continued development of new
products, reduced costs of
manufacturing and a global marketing
strategy will underpin further growth. We
believe we have taken the necessary
action to reduce the cost base at
Labtech to enable a return to break even
in the first six months and to profit in the
second half. We will continue to move
away from commodity products and into
specialist microwave packages and
components which enhance both
margins and intellectual property. The
aerospace market remains buoyant in
the programmes in which CML is
engaged and, consequently, their level of
profit contribution should continue at a
similar or slightly higher level. Taken
together, I expect to see continuing
growth in our performance and we look
forward to the future with confidence.
David M Bramwell
Chairman
5 June 2007
Intelek
Report and Accounts 2007
3
Evolution modems in one of the Tibet ground stations Location in Tibet for our largest ever modem order CHIEF EXECUTIVE’S REVIEW
After the launch of the new Evolution
modem in mid-2005, its presence began
to take hold in the early part of 2006.
Order intake grew substantially in
2006/07 with sales success achieved in
a number of European military
programmes and, notably, winning a 300
modem order from China in August
2006. Total modem sales grew by 20%
with Paradise Datacom’s operating profit
increasing by 41% to £3.0 million.
Labtech faced a more difficult year with a
continuing and sharp fall in their fourth
quarter sales of microwave circuit boards
to the telecommunications mobile
phone infrastructure market. Customers’
forecasts were reducing month by month
from November onwards and, as a
consequence, sales in the second half
were £0.4 million lower than the first half
although the running rate for the
operating loss was reduced following
management action taken in January.
The continuation of the weakness in their
telecommunications market necessitated
a structural review of the Labtech
business with a provision of £0.5 million
Intelek made significant progress during
2006/07 with the underlying profit, before
tax, for the Group at £2.34 million (2006:
£1.81 million), comfortably ahead of
market expectations. The deficit on the
Defined Benefit Pension Scheme was
reduced by 60% and operating cash flow
remained strong.
2006/07 was a year in which Paradise
Datacom benefited from a number of
initiatives put in place some two to three
years ago. At that time, the overriding
objective of R&D expenditure was to
develop a new high data rate modem.
Whilst this was in process, Paradise
Datacom concentrated on promoting
their lesser known but technically
superior range of Solid State Power
Amplifiers (SSPAs). Notable sales
success was achieved in government
programmes, news gathering vehicles
and in increasing global geographic
coverage. As a consequence, Paradise
Datacom has now recorded the third
consecutive year of growth in amplifier
business in excess of 20%.
Ian Brodie
www.intelek.plc.uk 4 being taken in March to cover staff
reduction, the impairment of certain fixed
assets and a reduction in floor space by
terminating a number of short-term
leases. These actions will not adversely
affect Labtech’s ability to move towards
becoming a more specialist microwave
packaged solutions and components
business but should enable Labtech to
break even for the first six months of the
2007/08 year and provide a platform for
profitable trading in the year as a whole.
After a successful 2005/06, CML
continued strongly with added vigour.
The increased demand from Airbus on
single-aisle commercial aircraft and from
Hawker Beechcraft on their corporate
jets was the prime factor in the sales
growth of 6% but the attention given to
margins and overhead control during the
year enabled CML to increase its full year
trading profit by 45% to £1.6 million. At
13.5% of sales, this profit performance is
a measure of the efficiency of this
business.
Intelek
Report and Accounts 2007
5
A Satellite News Gathering truck with Paradise Datacom amplifiers A close-up of the compact outdoor amplifier on the roof of the SNG truck www.intelek.plc.uk 6
Satellite Communications
Equipment Paradise Datacom
CHIEF EXECUTIVE’S REVIEW continued
Sales £16.9m (2006: £14.1m)
Operating Profit £3.0m (2006: £2.1m)
John Restivo President
Paradise Datacom, with facilities in
Essex, UK and Pennsylvania, USA,
produces an extensive line of RF and
modem products used in the Satellite
Communications Industry. The worldwide
satellite communications equipment
market is estimated at $25 billion
according to various industry sources.
Satellite communications equipment is
used extensively on a worldwide basis
to provide internet/intranet, video, voice
and other data services for
corporations, governments and
the general population. Paradise
Datacom’s products are incorporated in
all facets of Satcoms from credit card
authorisation services to ruggedised
military applications.
Solid State Power Amplifiers (SSPAs)
are used in the majority of satellite
ground station terminals and Paradise
Datacom produces a wide range of
products to service this rapidly
expanding market segment. In addition,
Paradise Datacom produces satellite
modems which are designed to provide
high capacity connections from
multiple locations to centralised hub
stations. GSM back haul services,
internet trunking services, military
communications and disaster recovery
services are a few of the market
segments in which Paradise Datacom
products are applied.
Satellite communications is unique
compared to fibre, microwave and other
technologies in that global coverage
can be initiated almost instantaneously
by just placing into service small
inexpensive earth station terminals.
These types of terminals which
incorporate Paradise Datacom products
are used where rapid deployment of
video, voice and data services are
essential and/or for locations that are
remote and do not have an adequate
communications infrastructure.
In an increasing global economy,
satellite communications will continue
to grow to meet the
telecommunications needs of
corporations, governments and the
military where there is a lack of
telecommunications infrastructure.
Paradise Datacom’s modem products
consist of the Evolution series designed
to transmit duplex data signals at rates
up to 55 mb/s (mega-bits per second),
redundancy products and systems. The
Evolution modems utilise the latest
firmware device technology and are
rich with features currently in demand
by government and commercial
markets worldwide.
Paradise Datacom’s RF product range
is one of the most extensive available in
the industry. The range consists of Solid
State Power Amplifiers (SSPAs) with
output power levels from 8 watts to
1,100 watts, Block Up Converter
modules (BUCs), Low-Noise Amplifiers
(LNAs) and a host of redundancy and
combining systems.
Evolution Modem capable of
up to 52 mega-bits per second Paradise Datacom has evolved to become
a market leader in the development,
production and distribution of Solid State
Power Amplifiers (SSPAs) and modems for
the satellite communications industry.
Cutting-edge products, innovative features
and a strategic marketing focus has
positioned Paradise Datacom to continue
to increase its share of the estimated $25
billion ground equipment market.
We continue to invest heavily in research
and development (11% of sales in
2006/07), in an ongoing drive to
differentiate our products from competitors
through the incorporation of unique,
market-driven features. This investment, in
conjunction with focused sales and
marketing, generated impressive results in
virtually all aspects of our business.
Paradise Datacom experienced another
outstanding year both in orders and
turnover. Significant investment in our
Evolution modem product line resulted in a
number of key strategic orders being won
against more heavily favoured incumbents,
largely due to superior performance and
unique features. As with our amplifiers, the
modems experienced strong year-on-year
growth of 20%.
Our business strategy is to continue to
develop our product range and incorporate
market driven features in concert with
designs and practices that reduce
manufacturing costs. For example, the
opening of a high-volume sub contract
modem manufacturing operation in the US
midway through the financial year has
allowed us to increase production and
reduce lead times.
We continue to target market sectors which
require our specialist technology and have
the greatest potential for growth. The single
largest application for satellite modems is
to link GSM/cellular networks together via
satellite in geographic areas that are not
well served by terrestrial services. This
sector continues to generate substantial
growth. With over two billion subscribers
worldwide, cellular customers represent
77% of the total digital communications
market. Though originally used exclusively
for voice communications, today’s cellular
networks support a multitude of high
bandwidth applications including the
transmission and reception of GPS, video
services, web browsing, e-mailing and
other internet-based services. These
networks require sophisticated, bandwidth-
efficient products such as our Evolution
modem. Some of the Evolution’s features
provide significant performance
enhancements, while reducing operational
costs by increasing information throughput.
Our revolutionary new multiplexer option
allows the combining of multiple
communications channels into a single
modem, resulting in major cost savings for
many network architectures.
The satellite industry’s migration from the
use of Travelling Wave Tube Amplifiers
(TWTAs) to SSPA technology began over a
decade ago and the trend will continue. US
and European regulatory agencies are
ensuring the migration from standard to
High-Definition Television (HDTV), driving
the need for satellite uplinks which are best
provided by solid state technology.
In 2005, Paradise Datacom launched an
assault on the digital satellite news-
gathering market through a targeted focus
on system integrators that specialise in
these mobile platforms. In 2006, Paradise
Datacom supplied the industry’s first ultra-
high power, dual-band, mobile transmitter
to support HDTV broadcasts of major
sporting events. The system was proudly
displayed by our customer at this year’s
National Association of Broadcasters
Convention in Las Vegas. Having been a
virtual “unknown” in this market, Paradise
has become a supplier of RF technology to
most of the major integrators with several
of them adopting our products as “the
standard” for their mobile uplinks.
We adopted a global marketing strategy
some three years ago. We progressed this
during the year by implementing a Latin
American initiative with the principal focus
on the related markets of Brazil, Argentina,
Paraguay and Uruguay. Following several
years of stagnant economy, healthy growth
is forecast for a number of Latin American
countries. The vast, topographically diverse
nature of the Amazonian region guarantees
that satellites will provide the core telecoms
infrastructure for years to come.
In three years our strategy has resulted in a
rise in revenues from Asian markets,
increasing from $300,000 in 2004/05 to
over $4 million in 2006/07. Our largest
single modem order was received last year
Intelek
Report and Accounts 2007
7
State-of-the-art amplifiers supplied in rack form
for the HDTV truck
SNG truck with the latest High-Definition TV technology for a GSM network in Tibet. SSPAs
manufactured by Paradise Datacom now
populate the Indonesian landscape where,
until recently, TWTAs reigned supreme. Our
high power SSPAs deliver TV broadcasts
on the island of Fiji and Evolution modems
are replacing legacy products in Papua
New Guinea and Pakistan.
The European, Middle Eastern and African
regions have all achieved steady growth,
particularly from our RF product line.
Operators in Ghana, Nigeria, Kenya,
Djibouti and South Africa are deploying
new networks and expanding existing ones
based on Paradise products. Efforts to
develop new markets in the Middle East
are already yielding positive results. Our
European customer-base continues to
grow, especially in the government sector.
Several high profile military contracts have
been awarded to Paradise Datacom for
both our SSPA and modem products
against strong competition from existing
suppliers. A number of these awards are on
long-term programmes extending five
years into the future.
The North America team is focused largely
on the government and military sectors.
Satellites provide the backbone for
telecoms operators that require secure
communications, maximum flexibility and
the ability to deploy quickly. Satellite
terminals are typically the primary means
for transmission of video, voice and data
for deployed military personnel,
peacekeeping forces and disaster recovery
organisations. Historically, government
departments such as the various
international defence ministries were
reluctant to embrace new technologies
despite widespread adoption by the
commercial side of the industry. With the
undeniable benefits SSPA technology
offers over TWTAs for many applications
which require robust reliable equipment
these agencies are quickly incorporating
solid state technology in their telecom
requirements. Having gained extensive
knowledge and insight into how large
government programmes operate, our
sales force is aggressively marketing
Paradise Datacom solutions to the system
integrators involved. We are also working
with the end user agencies to increase their
awareness of the benefits of using our
products. Large budget allocations for
defence operations, US Homeland Defence
and disaster recovery will present Paradise
Datacom with some very significant
opportunities in coming years.
Overall, our SSPA and modem product
lines continue to flourish. We ended the
year with a record £2.3 million order book
which will form the foundation for 2007/08.
We will continue to invest in developing our
product range, expand our international
reach further and ensure that our
production capabilities are cost-effective,
thereby enabling Paradise Datacom to
continue to develop its global presence.
Key Performance Indicators
Three key ratios for each of the operating
companies have been selected to
www.intelek.plc.uk 8
Satellite Communications
Equipment Paradise Datacom
CHIEF EXECUTIVE’S REVIEW continued
2005 2006 2007
170
160
150
140
130
120
110
100
Sales/Head (£000)
2005 2006 2007
2005 2006 2007
90
80
70
60
50
40
30
Return on Capital Employed (ROCE)
excluding Goodwill
Stock turns per annum
Large transportable PacSat antenna with Paradise Datacom amplifiers loaded
beneath the dish
highlight performance movement in the
last three years with brief explanatory
comments where necessary.
(a) The sales per head ratio continues to
benefit from the restructuring changes
made over the last two years.
(b) Stock turns and ROCE improved
through production efficiencies and
sales performance.
%
5
4
3
2
1
0 Intelek
Report and Accounts 2007
9
Microwave Circuits
and Components Labtech
Labtech Circuits specialises in
advanced microwave printed circuit
processing technology and MMIC
(Monolithic Microwave Integrated
Circuit) packaging and multi-chip
interconnect, used extensively at
component and sub-system level within
the Telecommunications and Defence
Electronics market. Microwave circuit
boards are manufactured in prototype
and medium to high volumes for major
telecommunications, military and space
system customers worldwide.
Labtech Circuits’ technology is based
on processing high performance PTFE
microwave substrates with plated
through holes. Circuits can be bonded
together in a multilayer construction
and include precision machined metal
backing for high frequency applications
such as broadband digital radio links,
microwave power amplifiers and
phased array radar antennas.
Labtech Microwave exploits its 17
years’ experience to manufacture a
range of high-end broadband
microwave components mainly for the
European defence market. Using high
accuracy thin film ceramic circuit
manufacturing capability, Labtech
Microwave concentrates on designing
and manufacturing MultiOctave
microwave amplifiers, switches and
detector log video amplifiers (DLVAs).
The division operates out of a highly
equipped modern factory in Milton
Keynes, which also includes a 4,000 sq.
ft. clean room. This now includes a fully
automatic chip placement and auto
wire bonding capability. Labtech
Microwave and Labtech Circuits have
worked successfully together to design
and develop a new range of microwave
products which includes broadband
PIN switches, low cost gain modules
and high performance DLVAs.
The combination of precision circuit
machining (including laser technology),
advanced automatic chemical
processing and MMIC packaging,
assembly and test gives Labtech a
leading world-class capability in the
microwave printed circuit board and
component markets.
Sales £8.3m (2006: £10.2m)
Operating Loss £(0.5)m (2006: Profit £0.7m)
Brian Mazonas Managing Director
Labtech MMIC packages going through automatic
wire bonding www.intelek.plc.uk 10
Microwave Circuits
and Components Labtech
CHIEF EXECUTIVE’S REVIEW continued
The sales reduction from £10.2 million to
£8.3 million was attributable to our
circuits operation where long-established
production programmes in the
telecommunications market experienced
a faster than expected downturn,
especially in the first and last quarters.
Sales to Labtech’s two largest telecoms
customers reduced by £2 million with
telecom sales overall down by £2.7
million. Despite taking action to reduce
costs during the year, the sales shortfall
resulted in a trading loss of £0.48 million.
The Mobile Telecoms market has been
the most important sector for Labtech for
many years, but volume and margins
continue to reduce due to global
competitive pressures and the increasing
availability of Asian suppliers. At the end
of the year a restructuring programme
was actioned which will reduce the cost
base and enable the business to move
forward more profitably to address our
chosen specialist markets.
We predicted the decline in the market
some time ago but did not expect the
significant step change which occurred
during the year. During the last two years
we have been changing the Labtech
business model to become an integrated
supplier of specialist microwave circuits,
assembled circuits and fully designed,
manufactured and tested microwave
components, targeting the Defence,
Telecommunication, SatCom and Space
markets. During the year, Labtech
reduced its dependency on the highly
competitive volume Telecoms market
and now concentrates its resources on
manufacturing more complex high
frequency microwave circuits.
The combination of Labtech’s advanced
printed circuit board capability with
microwave design, manufacturing and
test expertise is unique within the
industry and is proving successful within
the Defence market. Labtech is involved
in a number of AESA (Active Electronic
Scanned Array) phased radar
programmes within Europe and this
product area is set to develop to
significant levels of business in the
coming years. Labtech’s established
capability in producing low cost
Mobile phone mast packed with microwave PCBs
and components Intelek
Report and Accounts 2007
11
Artist’s impression of the new T45 frigate for which Labtech’s DLVAs have been selected
packages for miniature semiconductor
MMICs (Monolithic Microwave Integrated
Circuits) is also a key part of the business.
The larger part of this packaging activity
is aimed at the USA where Labtech
targets the specialist GaAs (Gallium
Arsenide) semiconductor manufacturers.
During 2006 Labtech invested £300,000
in fully automatic chip placement and
wire bonding equipment which enables
us to assemble fragile GaAs MMICs into
the various packages. New product
development work at Labtech came to
fruition during the year where our new
high performance DLVA (Detector Log
Video Amplifier) gained much interest in
the defence markets in Europe and
beyond. A £0.23 million DLVA order was
received from a major international
organisation in the closing months of the
financial year and this supplemented
other smaller orders received earlier.
Carefully targeted groundwork and
customer developments undertaken in
2006/07 are expected to result in some
significant contract awards which will
benefit the second half of 2007/8.
Further reductions are expected in
Telecom business levels which should be
broadly offset by increasing activity in
the Defence Electronics sector. The
organisational restructuring was
completed in the first month of the
current financial year and profitability
should return later in the year giving a
positive year end outcome.
Labtech has always taken pride in careful
husbandry of the local environment and
care of employees and has invested
heavily to ensure they minimise waste
and prevent damage to the environment.
Both sites at Labtech are approved to
the International Environmental Standard
ISO 14001.
2005 2006 2007
105
100
95
90
85
80
75
70
Sales/Head (£000)
2005 2006 2007
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
40
30
20
10
0
–10
–20
ROCE
Stock turns per annum
%
2005 2006 2007
The result for the year is reflected in
these ratios, although the full year benefit
of the action taken to mitigate the impact
of the 18% fall in Sales will not show
through until 2007/08.
Labtech designed ERDLVA used in
systems to detect incoming threats www.intelek.plc.uk 12
Aerostructures CML
CHIEF EXECUTIVE’S REVIEW continued
Sales £11.7m (2006: £11.0m)
Operating Profit £1.6m (2006: £1.1m)
Geoff Stewart Managing Director
CML manufactures machined,
composite and sheet metal
components and assemblies for
aerostructures and aircraft systems.
Its customers include Airbus UK, BAE
Systems, GKN Aerospace, Hawker
Beechcraft, Smiths Aerospace and
Westland Helicopters.
The group has four divisions located on
two sites in Birkenhead in the North
West of England.
The Precision Machining Division
is focused on 4 and 5-axis machining of
aluminium and hard metals. Principal
products, covering almost the full range
of Airbus commercial and military
aircraft, include interspar ribs and
ancillary components; landing gear rib
supports, sidestay fittings and links;
underwing access panels; engine thrust
fittings and aft mounting brackets.
Components for military and rotary
wing aircraft are also supplied to other
customers.
The Composites Division specialises
in the manufacture and repair of glass
and carbon fibre components and
assemblies. Products include various
wing and fuselage fairings, covers, and
panels, nose and tail cone assemblies,
air-conditioning ducts, flooring, etc.
The largest new build programme is
the Hawker 800XP business jet
whilst spares and other new build
requirements are supplied for a variety
of civil, business and military aircraft
programmes.
The Fabrication Division’s two main
revenue streams are from the
manufacture of extruded fuselage and
wing stringers for the Hawker 800XP
build programme and from its position
as a key supplier of sheet metal spare
parts for the Airbus in-service fleet. The
installation of the division’s first CNC
Router in 2007 will considerably
enhance their current capabilities.
The Treatments Division provides a
comprehensive in-house surface
treatments capability not only to the
other three divisions but also to a
valuable external customer base.
Gear-rib, part of the landing gear for the A320 CML performed extremely well in
2006/07 with operating profit improving
by some 45% on the previous year on a
sales increase of 6%. Improvements in
operating performance, combined with
sound financial management, have
seen gross margins improve with a
consequential increase in return on
capital employed to 46% (2006: 36%).
As a consequence, the return on sales
was 13.5% and enabled the business to
invest £0.8 million in new equipment.
The Precision Machining Division saw
the benefit of the increase in build rates
for Airbus aircraft, which, combined with
sales to new customers, including
Mecachrome and APPH, accounted for
75% of the growth in sales for CML.
Turnover for our Fabrications Division
grew by some 29% predominantly
through additional sales for in-service
spares, while our Treatments Division
continued to provide excellent service in
support of our internal requirements and,
in addition, grew third party sales by
12.5%.
Sales for Composites were down by
6.5% on the previous year due to a
timing issue with orders expected
earlier in the year. These orders have
now been received and have enabled
CML to start the new financial year with
a Composites’ order book standing at
£3 million. Given the industry’s migration
towards lighter composite structures,
we are investing in developing our
composites capability.
We have accepted an invitation to join
the North West Aerospace Supplier
Excellence programme. The scheme,
supported by Airbus, BAE Systems and
Rolls-Royce, is a significant opportunity
for us to improve further the performance
of the company. In addition, we have
now put in place systems in accordance
with the ISO 14001 Environmental
Management System and shall be
seeking accreditation by the end of
2007/08.
Intelek
Report and Accounts 2007
13
Our business development strategy is to
gain new business from our existing
customer base whilst looking for
diversification through targeting new
customers and programmes both in the
UK and overseas. It has been particularly
encouraging that relationships built over
the year with companies in France, such
as Mecachrome and Aircelle, are now
yielding results, and with our plans to
strengthen our sales team we expect to
maintain our position as an efficient and
profitable supplier in a continuing strong
aerospace market.
Hawker Beechcraft 800, a popular business jet, for which CML supplies a range of composite parts www.intelek.plc.uk 14
Aerostructures CML
CHIEF EXECUTIVE’S REVIEW continued
2005 2006 2007
70
65
60
55
50
Sales/Head (£000)
2005 2006 2007
9.0
8.0
7.0
6.0
5.0
50
40
30
20
10
0
ROCE
Order Book £m (12 months)
%
2005 2006 2007
Headcount and capital investment increased to cater for the rise in demand,
whilst cost efficiencies overall raised profit at a faster level, with ROCE rising as a
consequence. Order Book for delivery in the next 12 months closed at a similar level
to last year, covering a large portion of sales projected for 2007/08.
Airbus A320, CML’s largest programme
400
300
200
100
0
A320 Family Deliveries per year
2003 2004 2005 2006 2007 Paradise Datacom enjoyed a very
successful year in 2006/07. Their high
power amplifiers have been achieving
increasing uptake in the marketplace
over the last three years. They are now,
arguably, the leading US-based supplier
of amplifiers which places them in a
strong position to win an increasing
share of government backed
programmes. The RF development
programmes will continue to expand our
product range at the top and bottom end
of our power levels, always providing
that an acceptable margin can be
targeted from the new products. We will
continue to develop our modem range
and enhance the features to allow
differentiation between ourselves and
our competitors. Consequently, we
expect to continue to see growth in
Paradise Datacom’s global presence
and financial performance.
The restructuring programme at Labtech
should enable the business to break
even in the first six months of the year
and move into profit in the second six
months. There is much work still to be
done in changing the emphasis in
Labtech’s product and customer
portfolio but the strategy is clear, the
determination is there and early signs
are encouraging.
At CML, their major programmes over
the next year will continue to be the
Airbus A320 and the Hawker Beechcraft
corporate jet. Both these programmes
have increased substantially over the
past two years and are expected to
continue strongly. CML will also continue
to invest in plant and equipment thereby
increasing their capacity and productivity
across the company.
Intelek
Report and Accounts 2007
15
Outlook
We will continue to manage the Group’s
exposure to the Defined Benefit Pension
Scheme with the dual objective of
meeting the obligations to Scheme
members whilst minimising the cost to
the Group.
In my report last year, I concluded that
the opportunities available to Intelek
within our existing markets looked
exciting. This was certainly true of
Paradise Datacom and CML. This is still
the case for these companies and with a
recovery at Labtech we look forward to a
further year of improved performance.
Ian D Brodie
Chief Executive
5 June 2007
Latest amplifier product, a direct replacement for TWTAs bank debt in US$ as a partial hedge
against the net assets invested in
Paradise Datacom LLC. This hedge
produced a gain of £0.1 million to set
against the £0.3 million.
Finance costs
Interest costs increased slightly as we
took on extra debt to fund the pension
transfer payments. Measured against
underlying operating profit, interest cover
fell slightly to a still healthy 7.8 times
(2006: 8.7 times). Pension finance costs
are the net of the expected return on
scheme assets and interest on scheme
obligations. The net cost of £0.2 million
is down 67% on 2006.
Taxation
The effective tax rate on underlying profit
reduced from 27% to 26%. The effective
rate on unadjusted profit was higher, at
32%, due to the non-deductibility of
some of the capital restructuring items
included in the exceptional items, and
the scale of the exceptional gain relative
to the operating performance. The
underlying 26% is pleasing especially
given the standard 41% tax rate
applicable to our US-sourced profits,
which provide an increasingly significant
portion of the total Group result. The
main reasons for the improvement are
adjustments for prior years and higher
levels of tax credits in the USA on export
sales. These tax credits ceased to be
available at the end of December 2006.
We have taken action to help mitigate the
rising tax cost in the USA by setting up a
US-based holding company for our
investment in Paradise Datacom LLC to
provide a more balanced distribution of
Group finance. We expect the effective
tax rate in 2007/08 to be in the range
30%–35%.
Earnings per share
Unadjusted EPS (basic and diluted)
increased 190% to 4.53p. Underlying
EPS increased by 31% to 2.05p.
Pension
The Group’s Defined Benefit Pension
Scheme was valued at 31 March 2007 by
the scheme actuary. The outcome was a
reduction in the gross deficit of £7.8
million (60%) to £5.3 million. £6.8 million
of this reduction was a consequence of
the pension projects undertaken during
the year. The principal project was the
invitation to certain non-pensioner
members to transfer out of the scheme in
return for a transfer payment by the
scheme and a supplementary payment
Result
Sales increased by 5% overall, whilst
underlying operating profit increased
by 8% to £2.90 million, with gross
margin increasing to 29%. After reduced
finance costs, underlying profit before
tax increased by 30% to £2.34 million.
The profit before tax in the Income
Statement includes exceptional net
gains of £3.3 million.
Research and Development costs
R&D investment at Paradise Datacom
increased to £1.8 million (2006: £1.7
million), 11% of sales. Labtech invested
£0.2 million in its microwave components
division.
Exchange rate
The Group now derives a significant
portion of sales and profits in US$. The
results of our US subsidiary, Paradise
Datacom LLC, are translated at average
rates which have increased by 7% from
$1.78 to $1.90. The effect on underlying
profit has been a reduction of £0.3
million. Each 1% change in the US$/£
rate causes a profit change on
translation of about £40k. We do not
hedge directly against gains or losses on
translation of the result, though we do
maintain a large portion of the Group’s
Kevin Edwards
www.intelek.plc.uk 16
FINANCIAL REVIEW by Intelek. The project was well received
by members and the take-up was higher
than expected. The cost to Intelek was
£2.8 million, giving a net credit to the
Income Statement of £4.0 million. The
remaining £1.0 million reduction in the
deficit reflects the increase in the
discount rate from 5.0% to 5.45% (used
to arrive at the present value of future
pension payments), investment
performance and changes to
assumptions on the likelihood that
members will take tax free cash sums
on retirement. We have continued to
contribute £1.4 million a year to the
scheme as part of the agreed deficit
recovery programme and we intend to
limit the expenses of the scheme by
taking action to restrict the rise in the
levy put on the scheme by the Pension
Protection Fund.
Restructuring
In addition to the £4.0 million exceptional
pension credit, £0.7 million of
exceptional charges have been
recognised. £0.5 million relates to the
restructuring of the Circuits division of
Labtech, as we take action to transform
that business. The balance relates
primarily to structural changes to the
Group:
1. Intelek plc’s listing was transferred
from the main market to AIM.
2. Following shareholder, creditor and
court approval, £10.2 million of capital
reserves were cancelled.
3. As already mentioned, a new
intermediate holding company, Intelek
Inc, was set up in the USA.
4. Following shareholder approval, a
new Executive Long Term Incentive
Plan was launched.
Cash flow
Net debt increased by £1.7 million to
£5.1 million, after funding £2.8 million for
the pension transfer project and other
exceptional items. Before these items,
cash generated from operations
increased 34% to £3.1 million, after £1.4
million of contributions paid into the
Defined Benefit Pension Scheme. Capital
investments in the business, including
assets on finance lease, amounted to
£1.5 million. £0.8 million was applied to
new machining centres at CML, as we
increased capacity to meet rising
demand. £0.4 million was invested at
Labtech, primarily at the Microwave
Components business, extending its
ability to provide automated assembly
and test. £0.3 million was invested at
Paradise, primarily on test equipment
and design projects.
Shareholders’ equity
In addition to the net profit for the year of
£3.9 million, charges were recognised
directly in equity of £0.2 million for
exchange losses, £0.2 million for net
actuarial losses on the Defined Benefit
Pension Scheme and £0.3 million for
dividends paid in the year. Equity closed
£3.2 million higher at £14.5 million.
Intelek plc
In the Circular for the Capital Reserves
Reduction, the Board stated that we
would be changing the accounting
standards used for the parent company,
Intelek plc, from UK GAAP to
International Standards (IFRS),
consistent with the Group accounts. We
have reviewed the prevailing practice
around UK listed companies and found
that for the second year running, many, if
not most, Groups are retaining UK GAAP
for parent companies because of
continued concerns with the
consequences of adopting IFRS. As we
believe it to be in the best interests of
shareholders and consistent with prior
periods, we have decided to continue
using UK GAAP for the time being.
Kevin Edwards
Finance Director
5 June 2007
Intelek
Report and Accounts 2007
17
31%
29%
40%
2 22%
32%
46%
 2007
 2006
3,000
2,500
2,000
1,500
1,000
500
0
-500
Operating profit by business segment (£000) Sales by business segment
 Satellite communications  Microwave circuits and components  Aerostructures
2007 Total £36.8 million 2006 Total £35.2 million
Satellite
Communications
Microwave circuits
and components
Aerostructures Board of Directors
www.intelek.plc.uk 18
DIRECTORS AND SENIOR EXECUTIVES
David M Bramwell
Non-Executive Chairman. Age 58.
Appointed to the Board in October 2004. Deputy
Chairman of Rights and Issues Investment Trust
plc and Chairman of several venture capital
backed businesses. Previously Chief Executive of
the Peterhouse Group plc and Managing Director
of two engineering companies. David has a First
Class Honours Degree in Engineering and a
Doctorate in Business Management.
Donald Wilson
Senior Independent Non-Executive
Director. Age 74.
Appointed to the Board in 1995. Previously
Managing Director of Rank Xerox (UK) Limited,
and Chairman of Rank Xerox, Sweden, Norway,
Denmark and Ireland.
Ian D Brodie
Chief Executive. Age 55.
Appointed Chief Executive of the Group in 1999
after joining the Board as Group Finance Director
in 1992. Held senior operational finance
appointments within the GEC, Plessey and
Chloride Groups. Ian is a member of the Institute
of Chartered Accountants of Scotland having
trained at Binder Hamlyn and obtained post-
qualifying experience with Touche Ross & Co.
London.
Kevin N Edwards
Finance Director/Company Secretary.
Age 50.
Appointed to the Board in May 2000. Previously
Finance Director of Textron Fastening Systems
Limited, a subsidiary of Textron Inc., and Finance
Director of several subsidiaries within the GEC
Group, having qualified as a Chartered
Accountant with Ernst and Young.
John Restivo
President of Paradise Datacom. Age 45.
Appointed April 2004, having joined in 2003 as
Head of Business Development and Worldwide
Sales. Over 20 years of engineering and executive
experience in the satcoms industry, including
Hughes, Radyne Comstream and, most recently,
Viasat, as an Executive VP & General Manager.
John holds a BSc in Electrical Engineering.
Brian Mazonas
Managing Director of Labtech. Age 52.
Appointed in 1997. Extensive design and
engineering management experience in Marconi
and Plessey, primarily in microwave technology.
In 1989, appointed General Manager of
Elettronica UK (associate of Marconi), which
designed and manufactured microwave
components. This business was bought by Intelek
in 2005. Brian holds a First Class BSc in Electrical
and Electronic Engineering and a PhD in Pulsed
Transferred Electron Oscillators.
Geoff Stewart
Managing Director of CML. Age 55.
Appointed in 1999. Joined CML as an apprentice
in 1968, worked in most of the operational
divisions of the Company and rose to
Manufacturing Director in 1995. Well-known and
respected within the UK aerospace industry.
L – R: John Restivo, Geoff Stewart, Ian Brodie, David Bramwell, Kevin Edwards, Don Wilson, Brian Mazonas
Senior Executives Intelek
Report and Accounts 2007
19
DIRECTORS’ REPORT
The Directors present their report and the
audited financial statements for the year
ended 31 March 2007.
Business review
and principal activities
The principal activities of the Group are
the design and manufacture of electronic
systems for satellite and microwave
communications and manufacture of
precision parts for the aerospace market.
There have not been any significant
changes in the Company’s principal
activities in the year under review. The
Directors are not aware at the date of
this report of any likely major changes in
the Company’s activities in the next year.
This Report should be read in
conjunction with the Chairman’s
Statement, the Chief Executive’s Review
and the Financial Review. In particular,
details of the Group’s trading during the
year and an indication of likely future
developments are contained in the Chief
Executive’s Review on pages 4 to 15.
Results and dividends
The results for the year are set out on
page 30. The profit on continuing
ordinary activities before taxation
amounts to £5,622,000 (2006:
£1,806,000). An interim dividend of 0.13p
(2006: 0.12p) per Ordinary Share was
paid on 24 January 2007. A final dividend
of 0.26p (2006: 0.24p) per share is
recommended for approval at the Annual
General Meeting on 14 September 2007.
It is proposed that this should be paid on
26 September 2007 to shareholders on
the register at the close of business on
31 August 2007.
Research and development activities
The Group continued to invest in new
product development, primarily in
satellite communications and microwave
components.
Key performance indicators
Key performance indicators are set out
and explained for each business
segment in the Chief Executive’s Review.
Principal risks and
uncertainties facing the Group
The Annual Report contains certain
forward-looking statements. These
statements are made by the Directors in
good faith, based on the information
available to them up to the time of
approval of this report. Actual results
may differ from those expressed in such
statements, depending on a variety of
factors. These factors include customer
acceptance of the Group’s products;
changes in customer requirements and in
levels of demand in the market;
restrictions to market access;
competitive pressure on pricing, delivery
or technology; delays or additional cost
in product design and launch
programmes; fluctuations in
manufacturing delivery performance,
yields and costs; the loss or lack of
key personnel; overall economic
conditions.
Financial instruments
The Group’s operations expose it to a
variety of financial risks including the
effects of changes in interest rates on
debt, foreign currency exchange rates,
credit risk and liquidity risk.
The Group’s principal financial
instruments comprise cash and bank
deposits, bank loans and overdrafts and
obligations under finance leases together
with trade debtors and trade creditors
that arise directly from its operations.
The main risks arising from the
Company’s financial instruments can be
analysed as follows:
Price risk
The Group has no significant exposure to
securities price risk, except indirectly
through its responsibility for the Group
Defined Benefit Pension Scheme.
Foreign currency risk
The Group is exposed in its trading
operations to the risk of changes in
foreign currency exchange rates. The
main foreign currencies in which the
Group operates are the euro and the
US dollar. The Group uses derivative
instruments in its management of this
risk. This is explained in notes 1 and 36
of these financial statements.
Credit risk
The Group’s principal financial assets are
bank balances, cash, and trade debtors,
which represent the Group’s maximum
exposure to credit risk in relation to
financial assets.
The Group’s credit risk is primarily
attributable to its trade debtors. Credit
risk is managed by monitoring the
aggregate amount and duration of
exposure to any one customer depending
upon their credit rating. The amounts
presented in the balance sheet are net of
allowances for doubtful debts, estimated
by the Group’s management based on
prior experience and their assessment of
the current economic environment.
The Group has no significant concentration
of credit risk, with exposure spread over a
large number of customers.
The credit risk on liquid funds is limited
because the counterparties are banks
with high credit ratings assigned by
international credit-rating agencies.
Liquidity risk
The Group’s policy has been to ensure
continuity of funding through acquiring
an element of the Group’s fixed assets
under finance leases, and arranging
funding for operations via medium-term
loans and additional revolving credit
facilities to aid short-term flexibility. 20 www.intelek.plc.uk
DIRECTORS’ REPORT continued
Cash flow interest rate risk
Interest bearing assets comprise cash and
bank deposits, all of which earn interest at
a market rate. The interest rate on bank
borrowings is at market rate and the
Group’s policy is to keep the bank
borrowings within defined limits such that
the risk that could arise from a significant
change in interest rates would not have a
material impact on cash flows. The
Group’s policy is to maintain other
borrowings at fixed rates to fix the amount
of future interest cash flows. The Directors
monitor the overall level of borrowings and
interest costs to limit any adverse effects
on financial performance of the Company.
Environment
The Group’s policy with regard to the
environment is to ensure that we
understand and effectively manage the
actual and potential environmental
impact of our activities. Our operations
are conducted such that we comply with
all legal requirements relating to the
environment in all areas where we carry
out our business. During the period
covered by this report the Group has not
incurred any significant fines or penalties
or been investigated for any significant
breach of environmental regulations.
The principal business segments for
which environmental matters are relevant
in reviewing the Group are CML and
Labtech, and comments in this respect
are contained within the Chief
Executive’s Review on pages 11 and 13.
Directors
The Directors listed on page 18 served
throughout the year. In addition, MrNL
Mills served as a Director until he
resigned on 15 September 2006. DrDM
Bramwell retires by rotation and, being
eligible, offers himself for re-election.
Directors’ shareholdings
The interests of the Directors and their
families in the Ordinary Shares at the
beginning and end of the year were as
follows:
31 March 31 March
2007 2006
David Bramwell 1,500,000 1,250,000
Ian Brodie
Beneficial 476,776 364,027
Conditional 1,000,000 —
Kevin Edwards
Beneficial 187,111 120,401
Conditional 750,000 —
Don Wilson 294,296 258,592
There are no non-beneficial interests.
There have been no changes in the
above Directors’ interests in the period to
5 June 2007.
The Directors’ options to subscribe for
shares under the Executive, Savings
Related and other share option schemes,
are set out in the Remuneration Report
on pages 26 to 28.
Share capital
As at 5 June 2007, the Directors have
been notified of the following interests
amounting to 3% or more of the issued
share capital of the Company:
Rights & Issues
Investment
Trust Plc 17,500,000 – 20.03%
N L Mills 6,591,550 – 7.54%
N Lewis 5,650,000 – 6.47%
R B Fletcher 4,946,081 – 5.66%
Framlington Investment
Management Ltd. 4,850,000 – 5.55%
Payment of creditors
The Group’s policy for the year ending
31 March 2008, for all suppliers, is to fix
terms of payment for each business
transaction, to ensure that the supplier is
aware of those terms, and to abide by
the agreed terms of payment. The
Company had no trade creditors.
Donations
The Group did not make any political
or charitable donations in the year
(2006: £Nil).
Employee involvement
During the year the Group has continued
its policy of full involvement of employees
wherever possible. This has taken place
through the provision of information,
consultation on policy issues where
appropriate, and the mutual setting of
objectives against which performance is
measured. The Group takes the approach
of maximising performance through the
heightening of awareness of corporate
objectives and policies.
Disabled persons
It is the Group’s policy to offer equal
opportunities to disabled persons
applying for vacancies, having regard to
their abilities in relation to the job for
which they apply. It is also Group
practice, wherever possible, to continue
the employment of any employees who
become disabled during the course of
their employment.
Corporate governance
The Board’s formal statement of
Compliance with the Combined Code is
given on page 22 and its Remuneration
Report on page 26.
Special business
A resolution will be proposed at the
Annual General Meeting to renew the
existing authority of the Directors,
conferred by a resolution passed in
September 2006, to allot unissued
shares in the Company. The authority
(resolution 8 in the Notice of Meeting) will
extend until the earlier of the Annual
General Meeting for 2008 and fifteen
months from the date of the Annual
General Meeting for 2007.
The Company was authorised at the
Annual General Meeting in September
2006 to purchase up to 10% of its issued
Ordinary Shares, subject to certain
restrictions. This authority has not yet
been exercised, but the Directors
consider that purchases by the Company
of its Ordinary Shares for cancellation
could in certain circumstances be Intelek
Report and Accounts 2007
21
advantageous to Shareholders, and are
accordingly seeking the renewal of the
authority (resolution 8 in the Notice of
Meeting) to extend until the earlier of the
Annual General Meeting for 2008 and
fifteen months from the date of the
Annual General Meeting for 2007. This
authority will only be exercised if to do
so would result in an increase in earnings
per share. Under the proposed authority,
the maximum price payable for the
purchase of shares shall not exceed 5%
above the average of the middle market
quotations taken from The London Stock
Exchange Official List for the five
business days before a purchase is
made, and the minimum price shall be
5p per share.
In addition, the Directors consider it
advisable that they continue to have
power to make allotments of Ordinary
Shares in the Company for cash, up to a
maximum of 4,368,804 Ordinary Shares,
being 5% of the issued Ordinary Share
Capital of the Company at 31 March
2007. The authority (resolution 9 in the
Notice of Meeting) will extend until the
earlier of the Annual General Meeting for
2008 and fifteen months from the date of
the Annual General Meeting for 2007.
Auditors
So far as the Directors are aware, there is
no relevant information needed by the
Company’s auditors in connection with
preparing their report of which the
Company’s auditors are unaware.
RSM Robson Rhodes LLP (“Robson
Rhodes”) has announed its intention to
merge its audit practice with that of
Grant Thornton UK LLP with effect from
1 July 2007. Accordingly, a resolution to
appoint either Robson Rhodes or
(subject to such merger having
completed) its successor firm, Grant
Thornton UK LLP , as auditors of the
Company and to authorise Directors to
fix their remuneration will be proposed at
the Annual General Meeting.
The Auditors, RSM Robson Rhodes LLP ,
offer themselves for reappointment in
accordance with Section 385 of the
Companies Act 1985.
Approval
The Report of the Directors was
approved by the Board on 5 June 2007
and signed on its behalf by:
K N Edwards
Director and Secretary
5 June 2007
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Company law in the United Kingdom
requires the Directors to prepare financial
statements for each financial year which
give a true and fair view of the state of
affairs of the Company and the Group
and of the profit or loss of the Group for
that period.
The Directors are required to prepare the
Group financial statements in accordance
with IFRS as adopted by the EU and have
elected to prepare the Parent Company
financial statements in accordance with
UK Accounting Standards.
In preparing each of the Group and
Parent Company financial statements,
the Directors are required to:
 select suitable accounting policies
and then apply them consistently;
 make judgements and estimates
that are reasonable and prudent;
 for the Group financial statements,
state whether they have been
prepared in accordance with IFRS
as adopted by the EU; and
 for the Parent Company financial
statements, state whether
applicable UK Accounting
Standards have been followed.
The Directors are responsible for ensuring
that the Company and the Group
maintain proper accounting records
which disclose with reasonable accuracy
at any time the financial position of the
Company and enable them to ensure that
the financial statements comply with the
Companies Act 1985. They are also
responsible for safeguarding the assets
of the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information on the
Group’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of the financial statements
and other information included in annual
reports may differ from legislation in other
jurisdictions.
On behalf of the Board
K N Edwards
Director and Secretary
5 June 2007 22 www.intelek.plc.uk
CORPORATE GOVERNANCE REPORT
Combined Code
In June 1998, the Combined Code on
Corporate Governance was issued by
the London Stock Exchange, and this
was revised in July 2003 (‘the Code’).
Section 1 of the Code is applicable to
companies. A statement on how the
Company has applied the principles and
a statement explaining the extent to
which it has complied with the provisions
of the Code appear below. The Code
contains fourteen principles of
governance, which are divided into the
following six areas:
1. Directors
The Company is controlled through a
Board of Directors, which presently
comprises two executive and two non-
executive Directors. David Bramwell is
non-executive Chairman, Ian Brodie is
Chief Executive and Kevin Edwards is
Finance Director. Don Wilson is the Senior
Independent non-executive Director. All
Directors will submit themselves for
re-election at least every three years.
Appointments to the Board are made on
the recommendation of the Nomination
Committee.
The Board has a formal schedule of
matters reserved to it and meets at least
eleven times a year. It is responsible for
overall Group strategy, policy on
corporate governance issues, acquisition
policy, approval of major capital
expenditure and consideration of
significant financial and operational
matters. It monitors the exposure to key
business risks and reviews the strategic
direction of the trading subsidiaries, their
annual budgets and progress towards
the achievement of those budgets and
their investment programmes. It also
considers legislative, environmental,
health and safety and employment
issues. The Board has approved a
written statement of the division of key
responsibilities between the Chairman
and the Chief Executive.
The Chairman leads the Board, ensuring
that each Director is able to make an
effective contribution. He also monitors the
information provided to the Board to
ensure it is sufficient, timely and clear, and
from time to time the Board reviews the
adequacy of this information.
The Board held twelve meetings during
2006/07, other than those required for
specific approvals (for example, bank
mandates and annual accounts). The
attendances were:
David Bramwell 12
Ian Brodie 12
Kevin Edwards 12
Nigel Mills (resigned 15 Sept. 2006) 2
Don Wilson 12
Four of the meetings were combined
with visits to subsidiary company
operations and one included
presentations by senior executives on
their areas of responsibility. Individual
visits to operational sites by non-
executive Directors also occurred. In
addition to the regular Board meetings,
key financial information is circulated to
Directors outside of meetings. The Chief
Executive has regular direct contact with
the non-executive Directors and keeps
them informed of material developments
between Board meetings.
All Directors have direct access to the
Company Secretary and are able to take
independent professional advice in the
furtherance of their duties if necessary.
The Company maintains Directors’ &
Officers’ insurance in respect of the risk
of claims against Directors.
The Chairman held two meetings during
the year with the non-executive Director,
without the executive Directors being
present. The Senior Independent Director
held one meeting during the year with
the other Directors, without the Chairman
being present, to review the Chairman’s
performance, as described in more
detail below.
The Board has adopted an induction
process for new Directors and this is
facilitated by the Chief Executive and the
Company Secretary. The Chairman
ensures that all Directors receive
appropriate training on appointment and
then subsequently as needed, taking into
account their need to update their skills
and their knowledge of the Company's
business.
The Board has established three
standing committees, the Audit
Committee, the Remuneration
Committee and the Nomination
Committee, which operate within defined
terms of reference. Details may be
obtained from the Company Secretary.
The minutes of committee meetings are
available to all the Directors. During the
year, the Remuneration Committee met
four times, the Audit Committee two and
the Nomination Committee three. All
committee meetings were attended by
all members of the relevant committee.
Since 1 April 2005, the Board has
undertaken an evaluation of its
performance and the performance of its
committees and the individual Directors.
This comprised:
 Appraisal of the Finance Director by
the Chief Executive
 Appraisal of the Chief Executive by
the Senior Independent non-
executive Director
 Appraisal of the Chairman and the
other non-executive Directors and of
the Board as a whole collectively by
the Board
The appraisals focused on performance
against objectives set for the past year,
on establishing objectives for the new
financial year and, for the Board, on its
operation and effectiveness. The Board
was satisfied that the process showed
that the Board and its committees
worked effectively. Intelek
Report and Accounts 2007
23
2. Directors’ remuneration
The Remuneration Committee consists
of the Chairman and the Senior
Independent non-executive Director and
meets at least two times a year. Its
responsibilities include a review of the
performance of executive Directors and
other senior executives prior to
determining their remuneration. The
remuneration of the non-executive
Directors is determined by the Board of
Directors as a whole. No Director plays a
part in the discussion about his own
remuneration.
The Remuneration Report is set out on
pages 26 to 28.
3. Nomination committee
The principal role of the Nomination
Committee is to identify and nominate, for
Board approval, candidates to fill Board
vacancies as and when they arise. It is
required to prepare a description of the
role, and capabilities required, for any
appointment, and to maintain contact
with major shareholders about
appointments to the Board. It also reviews
the induction process for newly appointed
Directors, reviews annually the time
required of non-executive Directors,
keeps the structure, size and composition
of the Board under review, and considers
Board succession planning for both
executive and non-executive Directors.
The committee comprises Don Wilson
(Chairman), David Bramwell, both
Independent non-executive Directors, and
Ian Brodie, Chief Executive.
For Board appointment the committee
seeks advice and recommendations from
the Group’s lawyers, corporate finance
advisers and auditors.
During the year, the committee reviewed
the balance of experience on the Board
and recommended to the Board that no
additional appointments were required.
The Chairman of the Nominations
Committee will be available at the Annual
General Meeting to answer any
questions about the work of the
committee.
4. Accountability and audit
A review of the performance of the
Group’s trading subsidiaries, of the
financial position of the Group and of the
Group’s prospects is included in the
Chairman’s statement, the Chief
Executive’s review and the Financial
Review set out on pages 2 to 17. The
Directors’ responsibilities for the financial
statements are described on page 21.
Internal Control
The Board of Directors is responsible for
the Group’s system of internal control
and for reviewing its effectiveness. In
designing the system of internal control,
consideration is given to the significant
risks to the business, the probability of
these risks manifesting themselves and
the overall cost of controlling them. The
system is designed to manage rather
than eliminate the risk of failing to
achieve business objectives and
therefore can only provide reasonable,
and not absolute, assurance against
material misstatement or loss.
The implementation and day-to-day
operation of the system of internal
controls has been delegated to executive
Directors and senior management, but
the effectiveness of the system is
regularly reviewed by the Board in a
process that accords with the Turnbull
Report. As part of its corporate
governance procedures, the Board has
received regular reports on specific areas
of risk. If appropriate, these reports
include recommendations for
improvement in controls or for the
management of those risks. Furthermore,
steps continue to be taken to integrate
risk management procedures into the
Group’s operations, to extend awareness
of the importance of the management of
risk and to ensure that recommended
improvements brought to the attention of
the Board are implemented. In
conjunction with the Audit Committee,
the Board has carried out an annual
review of the overall effectiveness of the
system of internal control and risk
management procedures during the year
and up until the date of approval of the
annual report.
Audit committee and auditors
Role of the audit committee
The Audit Committee is responsible for:
 Monitoring the integrity of the
financial statements of the Company
and any formal announcements
relating to the Company’s financial
performance, and reviewing
significant financial reporting
judgements contained therein;
 Reviewing the Company’s internal
financial controls and, unless
expressly addressed by the Board
itself, the Company’s internal control
and risk management systems;
 Monitoring and reviewing the
effectiveness of the Company’s
internal audit operation;
 Making recommendations to the
Board, for a resolution to be put to
the shareholders for their approval in
general meeting, in relation to the
appointment of the external auditors
and the approval of the
remuneration and terms of
engagement of the external auditors;
 Reviewing and monitoring the
external auditors’ independence and
objectivity and the effectiveness of
the audit process, taking into
consideration relevant UK
professional and regulatory
requirements; 24 www.intelek.plc.uk
CORPORATE GOVERNANCE REPORT continued
 Developing and implementing a
policy on the engagement of the
external auditors to supply non-
audit services, taking into account
relevant guidance regarding the
provision of non-audit services by
the external audit firm.
The Audit Committee is required to
report its findings to the Board,
identifying any matters in respect
of which it considers that action or
improvement is needed, and make
recommendations as to the steps to
be taken.
Composition of the audit committee
The Audit Committee comprises David
Bramwell (Chairman) and Don Wilson,
both of whom served throughout the
year. Both members of the committee
are considered to be independent.
David Bramwell has relevant financial
experience.
Meetings and attendance
The committee met twice during 2006/07
to consider, inter alia, the annual results,
the interim results and the independence,
objectivity and reappointment of the
Auditors. Internal financial control
systems were also considered at each
meeting. The Chairman of the committee
also invited the Chief Executive and the
Finance Director to attend each meeting
and the internal auditor and external
auditors to attend the meeting for the
year’s results. During the latter meeting,
the external auditors were given the
opportunity to talk with the committee
without the presence of management.
Main activities of the committee
during the year
At its meeting in May, the committee
reviewed the annual financial statements
of the Company and received reports
from the internal auditors on control
matters and from the external auditors
on the conduct of their audit, their
review of accounting policies, areas of
judgement and the financial statements
and their comments on risk and internal
control. A similar review was undertaken
at its November meeting when the
interim statements were considered.
External auditors
The Company places great importance on
the effectiveness and independence of its
external auditors and, together with them,
is careful to ensure their objectivity is not
compromised. At its May meeting, the
auditors presented to the committee the
findings from their audit, together with
details of how they ensure that their
objectivity and independence are not
compromised.
It is the role of the committee to ensure
compliance with the Board’s policy in
respect of services provided by, and fees
paid to, the auditors. Audit fees are
negotiated by the Finance Director and
approved by the Audit Committee. For
other services that may be provided by
the auditors, the Company’s policy is:
Audit related services
The auditors are invited by the Company
to undertake those services that they are
required to and are most suited to
perform. Such work would include stock
exchange related reporting and, where
appropriate, assistance with acquisitions.
Taxation
The external auditors assist the Group
to meet general tax compliance
requirements as well as providing advice
on acquisitions and tax planning. Should
opportunities arise for them to advise on
special tax projects, their suitability is
assessed at the time to ensure it would
not compromise their audit
independence, with the work being
tendered where appropriate.
Consulting
To avoid any possible conflict of interest
the Group’s policy is not to employ its
auditors for general consulting work.
Following its May 2006 meeting, the
committee recommended to the Board
that a resolution be put to shareholders
at the Annual General Meeting for the
reappointment of the external auditors,
and to authorise the Directors to fix their
remuneration.
Internal audit
The internal audit work is contracted-out
to Norris Small, Chartered Accountants.
The firm has no association with the
external auditors. As well as its reviews
of the internal auditor’s role and
processes, during its meeting in 2006/07,
the committee received presentations
from the internal auditor, the results of
work undertaken by him and his plan for
work in 2007. The committee considered
the need for an internal audit function
and decided that, in view of the size
of the Group, a full-time resource could
not be justified and that the service
should continue to be contracted-out.
Overview
As a result of its work during the year,
the Audit Committee has concluded that
it has acted in accordance with its terms
of reference and has ensured the
independence and objectivity of the
external auditors.
The Chairman of the Audit Committee
will be available at the Annual General
Meeting to answer any questions about
the work of the committee. Intelek
Report and Accounts 2007
25
5. Relations with shareholders
The Company encourages two-way
communication with both its institutional
and private investors and responds
promptly to all enquiries received orally
or in writing. During the year the
Chairman, Chief Executive and the
Finance Director, either separately or
together, attended a number of meetings
with analysts, and with major
shareholders. Written reports about the
Company by analysts or brokers are
circulated to all Directors.
All shareholders receive at least twenty
working days’ notice of the Annual
General Meeting at which all Directors
are available for questions. Each
substantive issue is the subject of a
separate resolution. The numbers of
proxy votes for and against each
resolution are announced at the meeting,
after the voting has taken place.
6. Going concern
After making enquiries, the Directors
have formed a judgement at the time of
approving the financial statements that
there is a reasonable expectation that
the Company and the Group have
adequate resources to continue in
operational existence for the foreseeable
future. For this reason, they continue to
adopt the going concern basis in
preparing the financial statements.
7. Corporate governance
compliance statement
The Company is pleased to report that it
has complied throughout the year ended
31 March 2007 with the provisions set
out in Section 1 of the Code, except:
A2.2 The Chairman is a Director of
Rights and Issues Investment Trust plc,
a significant shareholder of Intelek plc.
The Board is satisfied that this does not
influence the Chairman in his role on
the Board and considers him to be
independent for the purposes of
the Code.
A3.1 The Senior Independent Director,
Don Wilson, has been on the Board for
more than nine years, having been
appointed on 14 July 1995. The Board
considers that Don Wilson continues to
provide independent and valuable input
to the Board, bringing to bear his
extensive experience as a senior
executive at Rank Xerox and elsewhere.
D1.1 The Senior Independent Director
does not attend meetings with major
shareholders as a matter of routine.
However, he is available should he be
required and is present at the AGM.
The Chairman attends the six-monthly
announcements to shareholders and,
with a 1.7% shareholding, has a close
affinity with shareholders’ interests. 26 www.intelek.plc.uk
REMUNERATION REPORT
The Directors present the Remuneration
Report for the financial year ended
31 March 2007.
The auditors report to the shareholders
on the “auditable part” of the Directors’
Remuneration Report and state whether
in their opinion the “auditable part” of the
Directors’ Remuneration Report has
been prepared in accordance with the
Companies Act 1985. This Report
therefore has separate sections
containing unaudited and audited
information.
Unaudited Information
Remuneration Committee
The Remuneration Committee is
responsible for determining the
remuneration and other terms of
employment of the executive Directors. No
external advisers have been used. In
determining remuneration for the year, the
Committee has given full consideration to
the requirements of the Combined Code.
The Remuneration Committee consists
wholly of independent non-executive
Directors who have no day-to-day
involvement in the running of the Group’s
business. The following independent
non-executive Directors served as
members of the Remuneration
Committee during the year and to the
date stated:
Don Wilson (Chairman of the
Remuneration Committee)
(to 5 June 2007)
David Bramwell (to 5 June 2007)
Remuneration policy
The key objectives of the Committee in
determining the remuneration packages
of executive Directors for 2007 and
subsequent years are:
1. The recruitment, retention and
incentivisation of Executive
management.
2. The alignment of Executive
management and shareholder
interests.
The remuneration packages of executive
Directors comprise the following elements:
Basic salary and benefits
Basic annual salaries for executive
Directors are reviewed annually having
regard to individual performance and
market practice. Benefits provided to
executive Directors vary but may
comprise the provision of a company car
and health insurance.
Annual bonus
The targets for annual bonus are set each
year by the Committee. The maximum
bonus is 100% of basic salary. If the bonus
exceeds 10% of basic salary, it is payable
33% in shares and 67% in cash. Bonus at
10% or below is payable in cash. The
bonus for 2006/07 comprised three
elements based respectively on: (a)
Underlying Profit Before Tax at each
quarter end during the year; (b) Net debt at
the year end; (c) Underlying EPS for the full
year with bonus commencing at 90% of
the prior year EPS.
Long-Term Incentive Plan —
Executive Scheme
(i) Share options
The Executive Share Option Scheme is
designed to promote long-term
improvement in the performance of the
Company, sustained increase in
shareholder value and clear linkage
between Executive reward and the
Company’s performance. There are two
sections of the scheme still operative,
1995 and 2000. The 1995 and 2000
sections are conditional upon achieving
headline EPS growth in the aggregate of
6% above RPI in the 3 years prior to
exercise. No further grants of options
can be made under this scheme.
(ii) Share options — Chief Executive
The Chief Executive has been granted
separate options over 700,000 shares at
an option price of 17p per share, being
the mid-market price on the date of his
appointment, with the same performance
conditions as the 1995 Plan. These
options are now exercisable with the
performance conditions having already
been satisfied. These shares will be
provided out of the Employee Share
Ownership Plan. The difference between
the option price and the cost of the
shares to the Plan was charged to profit
in the year to 31 March 2000 and is
recorded as a provision against
investment in own shares.
(iii) Share scheme
In September 2006, shareholders
approved a new Executive LTIP , under
which shares may be issued to members
of the executive from time to time,
subject to compulsory resale of the
shares to Intelek’s ESOP trust at a
nominal price to the extent that
performance conditions are not satisfied.
The shares are divided into four equal
parts, two for each measurement period,
3 and 5 years, and, within each period,
one for each performance criterion,
Underlying EPS and Shareholder Return.
The Remuneration Committee sets
targets for EPS. Shareholder Return is
measured against movement in the
techMARK 100 index. If less than 80% of
the target is reached, no shares vest; if
80%, 25% vest; if 120%, 100% vest; and
pro rata in between.
Don Wilson Intelek
Report and Accounts 2007
27
Directors’ shareholdings
These are as set out in the Directors’
Report on page 20.
Pension contributions
The Company makes annual
contributions to the Intelek Pension
Schemes for the executive Directors. The
Schemes are funded, Inland Revenue
approved, contributory occupational
pension schemes.
Service contracts and letters of
appointment
The executive Directors are provided
with service contracts, none of which
exceeds one year.
Ian Brodie has a notice entitlement of
one year. Kevin Edwards has a notice
entitlement of six months. In the event of
the Company being taken over and the
Directors leaving the Company, the
notice periods are as follows: Ian Brodie,
two years; Kevin Edwards, one year. Don
Wilson and David Bramwell have
contracts with notice entitlements of
three months.
The Committee considers the Directors’
notice entitlements to be appropriate as
they are in line with the market and take
account of the Directors’ knowledge and
experience.
Non-executive Directors
The fees of non-executive Directors are
determined by the full Board to an
amount not exceeding £200,000, as set
out in the Articles of Association. The
non-executive Directors are not eligible
for bonuses or pension benefits.
Performance graph
This graph shows the Company’s
performance for the last five years, as
measured by the Total Shareholder
Return (TSR) (with dividends reinvested),
for equity shareholders of Intelek plc,
compared with the TSR of the Techmark
100 index.
This index was chosen as it represents a
broad indication of performance in the
sector in which the Company operates.
120
100
80
60
40
20
0
Return
Intelek FTSE Techmark 100
Total Return Analysis
2002 2003 2004 2005 2006 2007
Source: Bloomberg
Audited information
Directors’ emoluments
Details of the Directors’ emoluments are as follows:
Current year Previous year
Pension Pension
Salary/ contribu- contribu-
fees Benefits Bonus tions Total tions Total
£000 £000 £000 £000 £000 £000 £000
Executive
Ian Brodie 158 16 126 37 337 33 270
Kevin Edwards 119 11 95 20 245 16 190
Non-Executive
David Bramwell 35 — — — 35 — 30
Nigel Mills (to 15 Sept. 2006) 14 1— 5 20 10 43
Don Wilson 24 —— — 24 — 24
Total 350 28 221 62 661 59 557
Benefits comprise primarily car allowances and medical care. In addition, £23,000 has been accrued for the new LTIP (2006: £Nil). 28 www.intelek.plc.uk
REMUNERATION REPORT continued
No Director was materially interested either at the year end or during the year in any contract of significance to the Group.
2007 2006
Directors’ pensions No. No.
The number of Directors who are accruing benefits under:
— money purchase schemes 2 2
— defined benefit schemes (further accrual terminated 1 October 2002) 1 1
Directors’ defined benefit pension entitlement excluding additional voluntary contributions:
Increase in accrued Transfer value of Accumulated total Accumulated total
annual pension increase less Directors’ accrued pension at accrued pension at
excluding inflation contributions 31 March 2007 31 March 2006
£000 £000 £000 £000
Ian Brodie (2) (26) 18 18
The transfer value of the Directors’ accrued benefit at the end of the financial year is shown below. (Note that the transfer value
represents a liability of the Company, not a sum paid or due to an individual.)
Ian Brodie £000
Transfer value at 31 March 2006 266
Increase in transfer value (less Directors’ contributions) 12
Transfer value at 31 March 2007 278
Directors’ share options
Ordinary shares under the Executive Scheme, all of which are exercisable:
Granted Exercised Expired Option
31 March during during during 1 April price Expiry
Scheme 2007 year year year 2006 £ date
Ian Brodie 1995 — —— (50,000) 50,000 0.330 29.01.07
1995 250,000 —— — 250,000 0.360 29.07.07
Special 700,000 —— — 700,000 0.170 20.09.07
2000 250,000 —— — 250,000 0.190 11.02.12
Total 1,200,000 —— (50,000) 1,250,000
Kevin Edwards 1995 150,000 —— — 150,000 0.350 28.07.07
2000 250,000 —— — 250,000 0.190 11.02.12
2000 100,000 — —— 100,000 0.105 07.01.13
Total 500,000 — —— 500,000
Ordinary shares under the Savings Related Scheme
Granted Exercised Expired Option
31 March during during during 1 April price Expiry
2007 year year year 2006 £ date
Ian Brodie — —— (6,529) 6,529 0.340 01.03.07
Total — —— (6,529) 6,529
The bid price at 31 March 2007 was 14.3p. The highest bid price during the year was 14.8p and the lowest bid price during the year
was 10.3p.
The performance criteria for annual bonuses and share options are set out in the unaudited section of this report.
Approval
The Directors’ Remuneration Report was approved by the Board on 5 June 2007 and signed on its behalf by:
D Wilson
Director
Chairman of the Remuneration Committee
5 June 2007 Intelek
Report and Accounts 2007
29
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF INTELEK plc
We have audited the Group financial
statements on pages 30 to 53. These
Group financial statements have been
prepared under the accounting policies set
out therein.
We have reported separately on the
Parent Company financial statements of
Intelek plc for the year ended 31 March
2007 and on the information in the
Directors’ Remuneration Report that is
described as having been audited.
This report is made solely to the
Company’s shareholders, as a body, in
accordance with Section 235 of the
Companies Act 1985. Our audit work has
been undertaken so that we might state
to the Company’s shareholders those
matters we are required to state to them
in an auditors’ report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
Company and the Company’s
shareholders, as a body, for our audit
work, for this report, or for the opinions
we have formed.
Respective responsibilities of
Directors and Auditors
The Directors’ responsibilities for
preparing the Annual Report and the
Group financial statements in
accordance with applicable law and
International Financial Reporting
Standards (IFRSs) as adopted for use in
the European Union are set out in the
Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group
financial statements in accordance with
relevant legal and regulatory
requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to
whether the Group financial statements
give a true and fair view and whether the
Group financial statements have been
properly prepared in accordance with the
Companies Act 1985 and Article 4 of the
IAS Regulation. We also report to you if,
in our opinion, the Directors’ Report is
not consistent with the Group financial
statements, if we have not received all
the information and explanations we
require for our audit, or if information
specified by law regarding Directors’
remuneration and other transactions is
not disclosed.
We review whether the Corporate
Governance Report reflects the
Company’s compliance with the nine
provisions of the 2003 FRC Combined
Code specified for our review by the
Listing Rules of the Financial Services
Authority, and we report if it does not.
We are not required to consider whether
the Board’s statements on internal
control cover all risks and controls, or
form an opinion on the effectiveness of
the Group’s corporate governance
procedures or its risk and control
procedures.
We read other information contained in
the Annual Report, and consider whether
it is consistent with the audited Group
financial statements. The other
information comprises the Chairman’s
Statement, the Chief Executive’s Review,
the Financial Review, the Corporate
Governance Report, the Remuneration
Report and the Directors’ Report. We
consider the implications for our report if
we become aware of any apparent
misstatements or material inconsistencies
with the Group financial statements. Our
responsibilities do not extend to any other
information. We report to you whether in
our opinion the information given in the
Directors’ Report is consistent with the
financial statements.
Basis of audit opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK and Ireland) issued by the Auditing
Practices Board. An audit includes
examination, on a test basis, of evidence
relevant to the amounts and disclosures
in the Group financial statements. It also
includes an assessment of the significant
estimates and judgements made by the
Directors in the preparation of the Group
financial statements, and of whether the
accounting policies are appropriate to
the Group’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so
as to obtain all the information and
explanations which we considered
necessary in order to provide us with
sufficient evidence to give reasonable
assurance that the Group financial
statements are free from material
misstatement, whether caused by fraud
or other irregularity or error. In forming
our opinion we also evaluated the overall
adequacy of the presentation of
information in the Group financial
statements.
Opinion
In our opinion:
 The Group financial statements give
a true and fair view, in accordance
with IFRSs as adopted for use in the
European Union of the state of
affairs of the Group as at 31 March
2007 and of its profit for the year
then ended.
 The Group financial statements and
part of the Directors’ Remuneration
Report described as having been
audited have been properly
prepared in accordance with the
Companies Act 1985 and Article 4 of
the IAS Regulation.
 The information given in the
Directors’ Report is consistent with
the financial statements.
As explained in Note 1 to the Group
financial statements, the Group in
addition to complying with its legal
obligation to comply with IFRSs as
adopted for use in the European Union,
has also complied with the IFRSs as
issued by the International Accounting
Standards Board.
In our opinion the Group financial
statements give a true and fair view, in
accordance with IFRSs, of the state of
the Group’s affairs as at 31 March 2007
and of its profit for the year then ended.
RSM Robson Rhodes LLP
Chartered Accountants and
Registered Auditors
Birmingham, England
5 June 2007 Accounts
30
Accounts
www.intelek.plc.uk
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2007
Group
2007 2006
Note £000 £000
Continuing Operations
Sales 4 36,840 35,212
Cost of goods sold (26,189) (25,473)
Gross profit 10,651 9,739
Selling and administrative expenses (2,389) (5,274)
Research and development expenses (2,075) (1,764)
Operating profit* 6,187 2,701
Interest receivable 5 46 71
Interest payable 5 (419) (382)
Expected return on pension scheme assets 6 1,092 761
Interest on pension scheme obligations 6 (1,284) (1,345)
Finance costs — net (565) (895)
Profit before tax from continuing operations** 5,622 1,806
Taxation 10 (1,789) (483)
Profit for the year attributable to equity shareholders 3,833 1,323
Earnings per share — basic 11 4.53p 1.56p
Earnings per share — diluted 11 4.53p 1.56p
* Underlying operating profit 8 2,905 2,701
** Underlying profit before tax 8 2,340 1,806
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 31 March 2007
2007 2006
Note £000 £000
Foreign exchange translation differences (net of tax) (316) 123
Net gain/(loss) on hedge of net investment in foreign subsidiary (net of tax) 107 (89)
Actuarial gains and losses on defined benefit pension plan 6 (215) (943)
Deferred tax on actuarial gains and losses 6 60 283
Income and expense recognised directly in equity (364) (626)
Profit for the year 3,833 1,323
Total recognised income and expense for the year
attributable to equity shareholders of the Parent 3,469 697 CONSOLIDATED BALANCE SHEET
as at 31 March 2007
2007 2006
Note £000 £000
ASSETS
Goodwill 13 13,391 13,608
Intangible assets 14 337 466
Property, plant and equipment 15 6,051 6,176
Deferred tax assets arising on pension obligation 6, 21 1,479 3,914
Other deferred tax assets 21 1,000 418
Total non-current assets 22,258 24,582
Inventories 17 3,883 4,218
Trade and other receivables 18 6,494 6,701
Current tax assets 19 — 30
Cash and cash equivalents 20 543 1,114
Total current assets 10,920 12,063
Total assets 33,178 36,645
LIABILITIES
Defined benefit pension obligation 6 (5,283) (13,048)
Borrowings 34 (1,775) (2,065)
Deferred tax liabilities 21 (366) (1,070)
Deferred government grants 22 (86) (93)
Total non-current liabilities (7,510) (16,276)
Borrowings 34 (3,894) (2.452)
Trade and other payables 23 (6,496) (6,454)
Current tax liabilities 19 (469) —
Provisions and other liabilities 24 (265) (73)
Total current liabilities (11,124) (8,979)
Total liabilities (18,634) (25,255)
Net assets attributable to equity shareholders 27 14,544 11,390
SHAREHOLDERS’ EQUITY
Issued capital 25 4,369 4,304
Share premium 27 — 9,104
Own shares 27, 28 (488) (326)
Other reserves 27 3,411 4,366
Retained earnings 27 7,252 (6,058)
Total equity 14,544 11,390
Approved by the Board of Directors and signed on their behalf on 5 June 2007 by:
I D Brodie
Directors
K N Edwards
Intelek
Report and Accounts 2007
31
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www.intelek.plc.uk 32
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 March 2007
2007 2006
Note £000 £000
Cash flows from operating activities
Cash generated from operations 29 286 2,281
Interest paid (419) (382)
Interest received 46 71
Tax paid (20) (190)
Net cash from operating activities (107) 1,780
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 5 70
Purchases of property, plant, equipment and intangible assets (316) (710)
Acquisition of businesses 31 — (462)
Net cash from investing activities (311) (1,102)
Cash flows from financing activities
Increase in bank loans 872 334
Finance lease payments (704) (590)
Dividends paid 12 (315) (305)
Net cash from financing activities (147) (561)
Net (decrease)/increase in cash and cash equivalents (565) 117
Cash and cash equivalents at 1 April 1,114 1,091
Effect of foreign exchange rates (6) (94)
Cash and cash equivalents at 31 March 20, 30 543 1,114 Intelek
Report and Accounts 2007
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2007
1. Significant Accounting Policies
(a) Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC
interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Group
financial statements have been prepared under the historical cost convention with the exception of derivative financial instruments
which are measured at fair value. The policies have been consistently applied for all years presented. The following IFRS have
been issued but were not effective for the period of these financial statements. They are expected to have no, or minimal, effect
on the results or financial position of the Group.
 IFRS 6 “Exploration for and evaluation of minerals”
 IFRS 7 “Financial instruments: disclosures”
 IFRS 8 “Segmental Reporting”
(b) Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of all of
the Group’s subsidiaries are included in the consolidated financial statements from the date that control commences until the date
that control ceases.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal.
All Intra-Group transactions, balances, income and expenses are eliminated on consolidation.
(c) Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured as the
aggregate of the fair values, at the date of exchange, of the assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The
assets, liabilities and contingent liabilities that meet the conditions under IFRS 3 are recognised at their fair values at the
acquisition date.
Goodwill arising on acquisition is recognised as an asset, being the excess of the cost of the business combination over the net
fair value of the assets being acquired.
(d) Foreign currency
The individual financial statements for each company are presented in the currency of the primary economic environment in which
it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of
the Group are expressed in pounds sterling, which is the functional currency of the Company.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional
currency are translated at the foreign exchange rate ruling at the date of transaction. Monetary assets and liabilities in foreign
currencies are translated at the exchange rates ruling at the balance sheet date. Foreign exchange differences arising are
recognised in the income statement.
The results and cash flows of overseas subsidiaries are translated to sterling at average exchange rates. The assets and liabilities
are translated at exchange rates ruling at the balance sheet date. Foreign exchange differences arising are classified as equity and
transferred to the Group’s translation reserve. Translation reserves are recognised as income or as expense in the period in which
the related overseas subsidiary is disposed of.
In order to hedge its exposure to certain foreign currency exchange risks, the Group uses derivative financial instruments (forward
contracts) to hedge significant exposure on foreign exchange transactions. This is explained in the Financial instruments
accounting policy.
(e) Financial instruments
Financial assets and liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Trade receivables: trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts.
Financial liability and equity: financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Intelek
Report and Accounts 2007
33 Accounts
www.intelek.plc.uk 34
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
1. Significant Accounting Policies continued
Bank borrowings: interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs.
Finance charges, including premiums on settlement or redemption, are accounted for on an accruals basis to the profit and loss
account using the effective interest method.
Trade payables: trade payables are not interest bearing and are stated at their nominal value.
Derivative financial instruments and hedge accounting
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument and, if so, the nature of the item being hedged. The Group designates certain derivatives as either:
 hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge)
 hedges of highly probable forecast transactions (cash flow hedge)
 hedges of net investments in foreign operations (net investment hedge)
Changes in the value of a fair value hedge are recorded in the Income Statement, together with any changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk.
Changes in the value of a cash flow hedge are recorded in the Income Statement except for changes in the effective portion,
which are recognised initially in equity and either:
(i) transferred to the Income Statement when the hedged item affects profit and loss, or, if the item is no longer expected to
occur, immediately;
(ii) transferred to the initial measurement of a non-financial asset arising as a result of the hedged item.
Foreign currency borrowings are used as a net investment hedge. Any gain or loss on the hedge is recognised in equity. Gains
and losses accumulated in equity are transferred to the Income Statement on disposal of the foreign operation.
The Group does not use derivative financial instruments for speculative purposes.
(f) Intangible assets
(i) Goodwill
In respect of acquisitions since 1 April 2004, goodwill arising on consolidation represents the excess of cost of acquisition
over the Group’s interest in the fair value of the net identifiable assets and liabilities of the acquired entity at the date of
acquisition. For acquisitions prior to this date, goodwill is included on the basis of its deemed cost. Goodwill is recognised as
an asset and assessed for impairment at least annually. Impairment is assessed by comparing the goodwill with the
discounted cash flows projected for the acquired entity, using a pre-tax discount rate that management estimate to be the
risk adjusted average cost of capital for that entity.
(ii) Research and development
Research expenditure is written off as incurred. Expenditure on a development project will be written off as incurred unless
and until:
(i) the project is identified as being:
(a) for a new or substantially improved product or process;
(b) technically feasible;
(c) commercially feasible, with a high probability that recovery will take place
and (ii) measurable costs can be attributed to the asset and adequate resources are available to complete the project.
For a project meeting these criteria, subsequent costs will be capitalised and amortised from the date the product or process
is available for use on a straight-line basis over the product’s estimated life.
(iii) Acquired intangible assets
Intangible assets that are acquired as a result of a business combination are recorded at fair value at acquisition date,
provided they can be separately and reliably measured. The assets are amortised on a straight-line basis over their expected
useful lives. Intelek
Report and Accounts 2007
1. Significant Accounting Policies continued
(g) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment loss. Cost comprises the
purchase price and costs directly incurred in bringing the asset into use. Where assets are in the course of construction at the
balance sheet date, they are classified separately and not depreciated.
Depreciation is charged so as to write off the cost of assets to their residual value over their expected useful lives using the
straight-line method. The principal rates are as follows:
Freehold land Nil
Leasehold properties Over the lease period
Plant and equipment 7%–33%
(h) Leases
Leasing agreements that transfer substantially all the risks and rewards of ownership to the Group are classified as Finance
Leases. Assets financed by a Finance Lease are accounted for as if they had been purchased outright, with the corresponding
liability to the leasing company included as an obligation. The rentals payable are apportioned between interest, which is charged
to the Income Statement, and capital, which reduces the outstanding obligation. All other leases are classified as Operating
Leases and lease rentals are charged to the Income Statement on a straight-line basis over the term of the lease.
Depreciation of finance leased assets is consistent with that for owned assets unless there is no reasonable certainty that the
Group will obtain ownership by the end of the lease term, in which case depreciation is straight-line over the period of the lease.
Interest is charged to the Income Statement so as to produce a constant periodic rate of interest on the remaining balance of the
liability. Benefits received and receivable as an incentive to enter into an Operating Lease are also spread on a straight-line basis
over the lease term.
(i) Impairment of non-current assets
All non-current assets are assessed annually for indications of impairment. Where impairment is likely, the fair value is measured
and any impairment loss is charged to the Income Statement.
(j) Inventories
Inventories are valued on a FIFO basis at the lower of cost and estimated net realisable value, due allowance being made for
obsolete and slow-moving items. Cost includes the relevant proportion of production overhead assuming normal levels of activity.
Net realisable value is the estimated selling price less the estimated costs of completion and selling expenses.
(k) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the Income Statement as
incurred.
(ii) Defined benefit plan
The Group’s net obligation in respect of its defined benefit pension plan is calculated by estimating the amount of future
benefit payable to members, discounted to present value, and deducting the fair value of the plan assets. The calculation is
performed by a qualified actuary on an annual basis using the projected unit credit method. Actuarial gains and losses are
included in the Statement of Recognised Income and Expense. Current and past service costs, curtailments and settlements
are recognised within operating profit. Returns on scheme assets and interest on obligations are recognised as a component
of financing costs.
(iii) Share-based payment transactions
Share-based incentive arrangements are provided to employees under the Group’s share option, incentive and other share
award schemes. Share-based arrangements put in place since 7 November 2002 are valued at the date of grant or award
and charged to operating profit over the performance or vesting period of the scheme. Options are valued using an
appropriate pricing model (Black-Scholes). The annual charge is modified to take account of shares forfeited by employees
who leave during the performance or vesting period and where it becomes unlikely that the option or shares will vest.
(l) Provisions
A provision is recognised in the Balance Sheet when the Group has a legal or constructive obligation as a result of a past event.
The provisions are not discounted.
Intelek
Report and Accounts 2007
35 Accounts
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NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
1. Significant Accounting Policies continued
(i) Warranty
Provision for warranty is made only for those customer claims in respect of which the Group expects to incur liability.
(ii) Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the
restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.
(iii) Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are
lower than the unavoidable cost of meeting its obligations under the contract.
(m) Revenue recognition
(i) Sales represent the invoiced value, excluding value added tax, of goods and services, where the significant risks and rewards
of ownership have been transferred to the buyer. No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due or the possible return of goods.
(ii) Interest income is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate
applicable.
(n) Government grants
Government grants are recognised in the Balance Sheet initially as deferred income. Grants in respect of assets are transferred to
the Income Statement as other operating income over the estimated useful life of the asset concerned. Grants to compensate for
expenses are transferred to the Income Statement in the same periods as the expenses are incurred.
(o) Taxation
The tax charge for the year includes the charge for tax currently payable and deferred taxation. The current tax charge represents
the estimated amount due that arises from the operations of the Group in the financial year and after making adjustments in
respect of prior years.
Deferred tax is recognised in respect of all differences between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, except where the temporary difference
arises from goodwill or from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised.
Deferred tax is measured at the tax rates that are enacted or substantially enacted at the Balance Sheet date.
2. General information
Intelek plc is a company incorporated in the United Kingdom under the Companies Act 1985.
3. Critical accounting judgements and key sources of estimation uncertainty
The Group makes estimates and assumptions about the future. The resulting accounting estimates seldom equal the related actual
results. The estimates and assumptions that have a material risk to the carrying value of assets and liabilities within the next financial
year are discussed below:
Defined benefit scheme
Details of the Group’s defined benefit pension scheme are set out in notes 1 (k)(ii) and 6 of the financial statements. The scheme has
been accounted for in accordance with IAS 19 “Employee benefits”. The main area of judgement is the valuation of the pension
scheme liabilities, which represent the net present value of projected future pension payments. These calculations are performed by
the scheme actuary, with whom the Directors have agreed the underlying assumptions to be applied. The key assumptions are rates of
increase in pension benefits, mortality rates, inflation and the discount rate applied to produce the net present value. The discount rate
is derived from market rates on AA corporate bonds at the balance sheet date.
Goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has
been allocated. The value in use calculation requires the estimation of future cash flows expected to arise from the cash-generating
unit and a suitable discount rate in order to calculate present value. Details are set out in note 13.
Financial Risk Management
Principal risks and uncertainties facing the Group are set out in the Directors’ Report on pages 19 and 20 of these financial statements. Intelek
Report and Accounts 2007
4. Business and geographical segments
For management purposes, the Group is currently organised into three operating divisions, Satellite communications, Microwave circuits
and components, and Aerostructures. These divisions are the basis on which the Group reports its primary segment information.
2007 2006
Sales Profit Margin Sales Profit Margin
Business segment £000 £000 % £000 £000 %
Satellite communications Paradise Datacom 16,941 2,953 17% 14,114 2,098 15%
Microwave circuits and components Labtech 8,311 (479) -6% 10,194 652 6%
Aerostructures CML 11,704 1,582 14% 10,996 1,091 10%
Eliminate intra-segment trading (116) —— (92) ——
Continuing operations 36,840 4,056 11% 35,212 3,841 11%
Central costs (1,151) (1,140)
Net finance costs (565) (895)
Underlying profit before tax 36,840 2,340 35,212 1,806
Pension curtailment and settlement gains 3,992
Exceptional operating costs:
Microwave circuits and components (531)
Other exceptional items — Central (see Note 8) (179)
Taxation (1,789) (483)
Total for the period 36,840 3,833 35,212 1,323
Intra-segment sales are charged at prevailing market rates.
Assets Liabilities Net Assets Liabilities Net
£000 £000 £000 £000 £000 £000
Satellite communications 20,847 (6,522) 14,325 20,933 (7,955) 12,978
Microwave circuits and components 5,987 (4,503) 1,484 6,646 (3,905) 2,741
Aerostructures 6,971 (4,161) 2,810 6,081 (3,328) 2,753
Continuing operations 33,805 (15,186) 18,619 33,660 (15,188) 18,472
Centre and consolidation adjustments (2,106) 1,835 (271) (929) 2,981 2,052
Defined benefit pension obligation 1,479 (5,283) (3,804) 3,914 (13,048) (9,134)
Total for the period 33,178 (18,634) 14,544 36,645 (25,255) 11,390
2007 Capital expenditure Funded by Other
Finance non-cash
Tangible Intangible Lease Depreciation Impairment expenses
£000 £000 £000 £000 £000 £000
Satellite communications 215 26 — (561) — (24)
Microwave circuits and components 407 — (433) (508) (225) —
Aerostructures 830 — (738) (355) —2
Continuing operations 1,452 26 (1,171) (1,424) (225) (22)
Centre 3 —— (11) ——
Pension finance cost ————— (192)
Total for the period 1,455 26 (1,171) (1,435) (225) (214)
2006 Capital expenditure Funded by Other
Finance non-cash
Tangible Intangible Lease Depreciation expenses
£000 £000 £000 £000 £000
Satellite communications 238 130 (18) (477) (49)
Microwave circuits and components 987 — (766) (506) —
Aerostructures 556 — (415) (273) 2
Continuing operations 1,781 130 (1,199) (1,256) (47)
Centre 3 —— (6) 5
Pension finance cost ———— (584)
Total for the period 1,784 130 (1,199) (1,262) (626)
Intelek
Report and Accounts 2007
37 Accounts
www.intelek.plc.uk 38
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
4. Business and geographical segments continued
Geographical segments
The Group’s operations are located in the United Kingdom, with the exception of Paradise Datacom LLC, which is registered in the USA.
Sales Net assets Capital expenditure
2007 2006 2007 2006 2007 2006
£000 £000 £000 £000 £000 £000
UK 16,238 14,695 11,665 9,679 1,316 1,716
Rest of Europe 6,747 9,974 — — — —
North America 6,502 5,836 2,879 1,711 165 193
Rest of World 7,353 4,707 — — — —
Total for the period 36,840 35,212 14,544 11,390 1,481 1,909
The sales analysis in the above table is based on the location of the customer. The analysis of assets and capital expenditure is based
on the location of the operation.
5. Interest
2007 2006
Interest received £000 £000
Bank deposit interest 46 71
Interest paid
Bank loans and overdrafts (269) (258)
Finance leases (114) (75)
Amortisation of loan arrangement fees (36) (49)
Total (419) (382)
6. Pension commitments
The Group operates a defined benefit pension scheme that was closed to new members in January 2000 and ceased further service
accrual for employees in September 2002. The scheme has a net deficit, for which the Group has agreed a Schedule of Contributions
with the Trustee. This requires payment of £1,316,000 a year to 2016, plus scheme expenses. In addition, the Group has arranged a
£2.4 million guarantee in favour of the scheme, based on certain of the Group’s assets. The scheme owns the 999 year lease of the
premises occupied by Labtech Ltd, a Group subsidiary, at Presteigne, Powys. The premises are let under a 24 year lease expiring in
2018 at a current commercial rental of £75,750 per annum.
De-linking and Transfer projects
During the year, two projects were undertaken concerning the scheme. The first project terminated the link from final salary for
employee members. For these members, the pensionable salary was fixed as at 1 July 2006, adjusted thereafter at the lower of
movements in the retail price index and 5% each year. The second project involved an invitation to certain of the non-pensioner
members to transfer out of the scheme. The offer included a supplementary sum to be paid by the Company. The offer was well
received by the membership. Because of the way in which the liabilities are calculated for accounting purposes, these projects gave
rise to reductions in the reported scheme deficit. Both projects are now complete, except that £154,000 remains to be paid over to a
few of the members pending finalisation of the procedures for transfer by receiving schemes. The scheme actuary has evaluated the
effect of the two projects as:
Reduction Reduction Reduction
in liability in assets in gross deficit
£000 £000 £000
Project 1: De-linking of final salary 268 — 268
Project 2: Transfers out 7,128 (611) 6,517
7,396 (611) 6,785
The expenses and supplementary sums payable by the Company on these transfers out amounted to £2,793,000, leaving a net credit
to the Income Statement of £3,992,000.
The defined benefit scheme was valued by the scheme actuary at 31 March 2007. The key assumptions applied were:
At 31 March At 31 March
2007 2006
% %
Rate of increase in salaries (not applicable to 2007 as the benefit is no longer linked to final salary) n/a 3.20
Rate of increase in pensions in payment 3.20 2.70
Discount rate 5.45 5.00
Inflation 3.20 2.70
Expected return on plan assets (being the weighted average return for the scheme assets at 31 March) 7.41 7.35
Mortality:
On actuarial advice, the valuation in 2007 used the same mortality assumption as 2006, applying table PMA 92 (2010). For example,
men aged 65 are assumed to live a further 19 years. Intelek
Report and Accounts 2007
6. Pension commitments continued
The market value of the assets and obligations of the defined benefit scheme, and the expected rates of return, are as follows:
Long-term rate
of return expected
Value at 31 March at 31 March
2007 2006 2007 2006
£000 £000 % %
Equities 12,803 12,401 7.50 7.50
Freehold property 700 700 9.00 9.00
Property fund 836 718 6.50 7.50
Government Bonds 1 1 5.00 4.25
Corporate Bonds 504 499 5.40 5.00
Cash 572 625 5.00 4.25
Fair value of assets 15,416 14,944
Present value of scheme obligations (20,699) (27,992)
Actuarial deficit (5,283) (13,048)
Deferred tax 1,479 3,914
Actuarial deficit after deferred tax (3,804) (9,134)
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption Change in assumption Impact on scheme liabilities
Discount rate Increase by 0.5% Reduce by £1.4 million
Decrease by 0.5% Increase by £1.6 million
Rate of inflation Increase by 0.5% Increase by £1.6 million
Decrease by 0.5% Reduce by £1.5 million
Rate of mortality Increase by 1 year Increase by £0.7 million
The Group’s policy is to recognise all actuarial gains and losses immediately. Consequently, there are no unrecognised gains or losses.
The cumulative amount recognised since 1 April 2004 is a loss of £3,296,000.
2007 2006
£000 £000
Movement in scheme obligations during the year:
As at 1 April (27,992) (25,025)
Interest (1,284) (1,345)
Curtailment and settlement gain 6,785 —
Distributions 1,736 1,207
Actuarial gains and losses 56 (2,829)
As at 31 March (20,699) (27,992)
Movement in scheme assets during the year:
As at 1 April 14,944 12,107
Distributions (1,736) (1,207)
Contributions 1,387 1,397
Expected return on assets 1,092 761
Actual return (£821,000 (2006: £2,647,000)) less expected return on assets (271) 1,886
As at 31 March 15,416 14,944
The amounts reflected in the Group’s Income Statement are as follows:
2007 2006
£000 £000
Operating profit
Curtailment gain recognised in Administration expenses 6,785 —
Total 6,785 —
Net finance cost
Expected return on pension scheme assets 1,092 761
Interest on pension scheme obligations (1,284) (1,345)
Total (192) (584)
The actuarial gains and losses are recognised net of tax in the Statement of Recognised Income and Expense:
Actual return less expected return on scheme assets (271) 1,886
Actuarial gains and losses arising on scheme obligations 56 (2,829)
(215) (943)
Less: deferred tax thereon 60 283
Actuarial gains and losses (155) (660)
Intelek
Report and Accounts 2007
39 Accounts
www.intelek.plc.uk 40
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
6. Pension commitments continued
The history of experience gains and losses is as follows: 2007 2006 2005 2004 2003
£000 £000 £000 £000 £000
Fair value of assets 15,416 14,944 12,107 10,447 8,847
Present value of scheme obligations (20,699) (27,992) (25,025) (22,882) (22,680)
Deficit (5,283) (13,048) (12,918) (12,435) (13,833)
Difference between the expected and actual return
on scheme assets:
Amount (£000) (271) 1,886 (73) 1,108 (4,060)
Percentage of scheme assets -2% 13% -1% 11% -46%
Experience gains and losses on scheme liabilities:
Amount (£000) 56 (2,829) (2,065) (314) (2,244)
Percentage of present value of the scheme obligations 0% -10% -3% -1% -4%
Cumulative actuarial gains and losses since 1 April 2004 are £3,296,000 (2006: £3,081,000).
Defined contribution schemes
The Group also operates defined contribution schemes for all qualifying employees. The assets of the schemes are held separately
from those of the Group. In 2007, £404,000 was expensed (2006: £421,000), representing contributions payable to these schemes by
the Group at rates specified in the scheme rules.
7. Analysis of profit before taxation
The profit before taxation is stated after charging:
2007 2006
£000 £000
Realised foreign exchange losses 40 —
Depreciation of tangible assets 1,287 1,239
Impairment of tangible assets 225 —
Research and development expenses 2,075 1,764
Amortisation of capitalised development costs (included in Research and development expenses) 148 23
Cost of inventories recognised as an expense 24,121 25,571
Auditors’ remuneration (see note below) 191 138
Staff costs (see note 9) 13,042 12,409
Operating lease rentals: plant hire 232 520
property 696 692
Loss on sale of fixed assets 25 46
and after crediting:
Realised foreign exchange gains — 48
Deferred income from government grants 7 7
Net gain on sale of fixed assets 4 —
Fees payable to the Company’s auditors comprise:
Services to the Company and its subsidiaries:
Audit of the financial statements of the Group and subsidiaries 54 54
Audit of the financial statements of the parent company 5 5
Other services pursuant to legislation — regulatory reporting 1 1
Other services relating to taxation — compliance 56 33
— advisory 75 45
191 138
Services to the Intelek pension scheme for audit of its financial statements 5 5
Total fees 196 143 Intelek
Report and Accounts 2007
8. Reconciliations between profit and underlying profit
2007 2006
Note £000 £000
Operating profit 6,187 2,701
Less:
Asset impairment and restructuring at Microwave Circuits and Components a (531) —
Curtailment gain on delinking the final salary for active members of the
defined benefit pension scheme (see Note 6) 268 —
Restructuring of the holding company and its listing c (124) —
Abortive costs of disposal/acquisition (26) —
Setting up the Executive LTIP b (29) —
Gain arising on transfers from the defined benefit pension scheme (see Note 6) 3,724 —
3,282 —
Underlying operating profit 2,905 2,701
Profit before taxation 5,622 1,806
Adjustments to operating profit per above (3,282) —
Underlying profit before taxation 2,340 1,806
Profit for the year 3,833 1,323
Adjustments to profit before taxation per above (3,282) —
Tax effect of adjustments to operating profit 1,182 —
Underlying profit for the year 1,733 1,323
a. The Circuits division of Labtech is adjusting its business towards a lower volume, more complex process capability. This is expected
to require fewer resources, both production facilities and personnel. As a consequence, the assets of the division have been assessed
for impairment and an impairment charge computed at £225,000. In addition, an announcement has been made concerning personnel
likely to be affected by the changes and the cost associated for this element is estimated at £218,000. Other costs associated with
these changes amount to £88,000.
b. In September 2006, shareholders approved a new Executive Long-Term Incentive Plan (Executive LTIP). Under this plan, shares are
granted to certain members of the Executive conditional upon achievement of earnings per share or share price targets. This is the
balance of the cost for setting up the Plan.
c. This is the cost for three restructuring events: (i) In September 2006, shareholders approved the transfer of the listing of Intelek plc to
the Alternative Investment Market. The transfer took effect on 14 December 2006. (ii) Cancellation of the Share Premium Reserve and
the Capital Redemption Reserve (see Note 27). (iii) To provide a more equitable distribution of the Group’s loan finance, Intelek set up a
new intermediate holding company, Intelek Inc, in the USA, for its investment in Paradise Datacom LLC. The investment was sold to
the new company for a combination of equity and loans.
9. Employees
2007 2006
No. No.
The average monthly number of Group employees, including executive directors was:
Production 348 336
Administration and sales 57 59
405 395
Costs in respect of these employees were: £000 £000
Wages and salaries 11,561 10,936
Social security costs 1,077 1,052
Other pension costs (see note 6) 404 421
13,042 12,409
Other pension costs comprise:
Defined contribution scheme 404 421
404 421
Directors’ emoluments, pension arrangements and share options are disclosed in the Remuneration Report on page 26, details of
which form part of these financial statements.
Intelek
Report and Accounts 2007
41 Accounts
www.intelek.plc.uk 42
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
10. Taxation
2007 2006
£000 £000
Continuing operations
United Kingdom Corporation Tax
Current tax on income for the year — —
Adjustment in respect of prior years — (1)
Total — (1)
Overseas Tax
Current tax on income for the year (670) (223)
Adjustment in respect of prior years 139 312
Total (531) 89
Current taxation (531) 88
Deferred taxation (1,258) (571)
Total taxation (1,789) (483)
Taxation on discontinued operations — (7)
The differences between the total taxation for continuing operations shown above and the amount
calculated by applying the standard rate of UK corporation tax to the profit before tax is as follows:
Profit on ordinary activities before taxation 5,622 1,806
Theoretical tax at UK corporation tax rate 30% (2006: 30%) (1,687) (542)
Effects of:
different tax rates (43) (131)
adjustments in respect of prior years (117) 120
research and development tax credit 49 38
export tax credit 107 63
other (expenditure) that is not tax deductible/income that is not taxable (98) (31)
Actual taxation (1,789) (483)
Taxation on items charged to equity
Deferred tax credit on actuarial gains and losses on defined benefit plans (Continuing operations) 60 283
11. Earnings per Share
Basic earnings per share (EPS) were calculated based on the profit for the year divided by the weighted average number of ordinary
shares outstanding during the period, excluding those held by the Employee Share Trust and those held by Directors that remain
subject to performance conditions. These excluded shares are accounted for as an investment in own shares (see note 28). The total
for 2007 was 84,586,012 (2006: 84,586,012). Diluted EPS is calculated by adjusting the number of shares used in the basic EPS
calculation to assume conversion of all dilutive potential ordinary shares resulting from outstanding employee share plans. There were
267,500 exercisable share options in existence at the year end (2006: 327,500) the exercise price for which is below the average fair
value of 13.1p per share of the ordinary shares in issue during the year. These create a dilution in shares of 53,092 (2006: 45,635).
In order to provide a trend measure of underlying performance, the Board also monitors underlying EPS, computed as follows:
Earnings EPS
2007 2006 2007 2006
£000 £000 p p
Profit for the year 3,833 1,323 4.53 1.56
Less: Exceptional items (see note 8) (3,282) — (3.88) —
Tax on these items 1,182 — 1.40 —
Underlying 1,733 1,323 2.05 1.56
Effective tax rate on underlying profit 26% 27% Intelek
Report and Accounts 2007
12. Dividends
The following dividend payments have been made on the Ordinary 5p shares in issue:
2007 2006
Rate Date Shares in issue £000 £000
Final 2004/05 0.24p 30 September 2005 86,076,072 — 207
Interim 2005/06 0.12p 25 January 2006 86,076,072 — 103
Final 2005/06 0.24p 27 September 2006 86,076,072 207 —
Interim 2006/07 0.13p 24 January 2007 87,376,072 114 —
Less: dividends paid on shares in the employee share trust and the Executive LTIP (6) (5)
315 305
At 31 March 2007, the 2006/07 final dividend had not been approved by Shareholders and as such was not included as a liability. The
dividend is expected to be £227,000, 0.26 pence per share, and to be paid on 26 September 2007 to shareholders on the register at
31 August 2007.
13. Goodwill
2007 2006
£000 £000
Cost
At 1 April 15,939 15,726
Exchange adjustment (243) 172
Additions — 41
At 31 March 15,696 15,939
Amortisation/impairment
At 1 April (2,331) (2,312)
Exchange adjustment 26 (19)
At 31 March (2,305) (2,331)
Net book value
At 31 March 13,391 13,608
The goodwill relates entirely to the Satellite communications business segment, a cash generating unit. No impairment has been
recognised in either 2006 or 2007. The recoverable amount of the business segment is evaluated based on its value in use.
Impairment
During the year, the goodwill was tested for impairment against cash flow projections for the unit discounted at management’s
estimate of the risk adjusted cost of capital. The cash flows were taken from the unit’s business plan for 2008 to 2010, extended for
seven years thereafter at the projected market growth rate of 7%. The pre-tax discount rate applied was 11%. These assumptions
reflect management’s past experience and are consistent with external sources of information. After sensitivity analysis of the results,
in particular for presumed growth rates, it was concluded that no impairment was required.
14. Intangible assets
2007 2006
Development £000 £000
Cost
At 1 April 489 343
Exchange adjustment (7) —
Additions 26 130
Reclassification — 16
At 31 March 508 489
Amortisation
At 1 April (23) —
Charge for the year (148) (23)
At 31 March (171) (23)
Net book value
At 31 March 337 466
The additions relate entirely to assets acquired from third parties. The useful economic life of the intangible assets is three years.
Amortisation is charged to Research and Development expenses in the Income Statement.
Intelek
Report and Accounts 2007
43 Accounts
www.intelek.plc.uk 44
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
15. Property, plant and equipment
Assets in the
Freehold Leasehold Plant and course of
properties properties Equipment construction Total
£000 £000 £000 £000 £000
Cost at 1 April 2005 12 918 15,140 80 16,150
Exchange adjustment — 2 101 — 103
Additions — 101 1,683 — 1,784
Disposals — (58) (366) — (424)
Reclassification — (5) 69 (80) (16)
Cost at 31 March 2006 12 958 16,627 — 17,597
Exchange adjustment —— (153) — (153)
Additions — 13 1,442 — 1,455
Disposals —— (202) — (202)
Cost at 31 March 2007 12 971 17,714 — 18,697
Depreciation at 1 April 2005 (1) (272) (10,148) — (10,421)
Exchange adjustment —— (60) — (60)
Charge for the year — (50) (1,189) — (1,239)
Disposals —— 299 — 299
Depreciation at 31 March 2006 (1) (322) (11,098) — (11,421)
Exchange adjustment —— 111 — 111
Charge for the year — (60) (1,227) — (1,287)
Impairment loss —— (225) — (225)
Disposals —— 176 — 176
Depreciation at 31 March 2007 (1) (382) (12,263) — (12,646)
Carrying Amount 31 March 2007 11 589 5,451 — 6,051
31 March 2006 11 636 5,529 — 6,176
The impairment loss on plant and equipment arose in connection with the restructuring of Labtech, as explained in Note 8.
The carrying amount of plant and equipment includes £3,260,000 (2006: £2,735,000) in respect of assets held under finance leases,
the depreciation charge on which amounted to £638,000 (2006: £395,000). The carrying amount of leasehold properties includes
£227,000 (2006: £233,000) in respect of a long leasehold property and £362,000 (2006: £403,000) in respect of short leasehold
property.
At 31 March 2007, the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £187,000 (2006: £304,000).
16. Subsidiaries
The principal investments, all of which are wholly owned, are as follows:
Country of incorporation Activity
Intelek Properties Ltd UK Investment company
Intelek Inc USA Investment company
Paradise Datacom Ltd UK Manufacturer of satellite communications equipment
Paradise Datacom LLC USA Manufacturer of satellite communications equipment
Labtech Ltd UK Manufacturer of microwave communications components
CML Group Ltd UK Manufacturer of aerostructure components Intelek
Report and Accounts 2007
17. Inventories
2007 2006
£000 £000
Raw materials and components 2,404 2,280
Work in progress 1,338 1,664
Finished goods 141 274
3,883 4,218
The above inventory has been pledged as security for the Group’s bank loans and overdrafts.
In the Directors’ opinion, the replacement cost of inventories does not differ materially from the stated amounts.
18. Trade and other receivables
2007 2006
£000 £000
Trade receivables Gross 5,928 6,143
Provision for impairment (71) (76)
Other receivables 273 152
Prepayments and accrued income 364 482
6,494 6,701
The Group has no significant concentration of credit risk, with trade receivables spread over a large number of customers and
representing an average of 47 days of sales (2006: 46 days). The Directors’ consider the carrying amounts of trade and other
receivables approximate to their fair values. The charge for impairment loss in the year amounted to £14,000 (2006: £56,000).
19. Current tax assets/(liabilities)
2007 2006
£000 £000
Overseas taxation (469) 30
(469) 30
20. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with maturity of three months or less. The
carrying value of these assets approximates to their fair value. The credit risk on liquid funds is limited because counterparties are
banks with high credit ratings assigned by international credit-rating agencies.
2007 2006
£000 £000
Cash 404 875
Cash held on deposit 139 239
543 1,114
Intelek
Report and Accounts 2007
45 Accounts
www.intelek.plc.uk 46
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
21. Deferred taxation
2007 2006
£000 £000
Provisions at 1 April 3,262 3,561
Exchange adjustment 49 (11)
Income Statement (1,258) (571)
Deferred tax on defined benefit obligation recognised in equity 60 283
Provisions at 31 March 2,113 3,262
The deferred taxation charge to the Income Statement comprises:
2007 2006
£000 £000
Defined benefit pension (2,422) (262)
Capital allowances 279 89
Other timing differences 633 (68)
Losses 252 (330)
(1,258) (571)
The closing balances for deferred taxation are analysed into three Balance Sheet categories:
2007 2006
Defined Defined
benefit Other benefit Other
pension assets Liabilities Net pension assets Liabilities Net
£000 £000 £000 £000 £000 £000 £000 £000
Defined benefit pension 1,479 —— 1,479 3,914 —— 3,914
Capital allowances — 54 (124) (70) — 153 (517) (364)
Other timing differences — 694 (242) 452 — 265 (553) (288)
Losses — 252 — 252 —— ——
1,479 1,000 (366) 2,113 3,914 418 (1,070) 3,262
22. Deferred government grants
2007 2006
£000 £000
At 1 April (93) (100)
Income Statement 7 7
At 31 March (86) (93)
23. Trade and other payables
2007 2006
£000 £000
Trade payables (3,107) (3,965)
Other taxes and social security (643) (615)
Other payables (528) (568)
Accruals (2,218) (1,306)
(6,496) (6,454) Intelek
Report and Accounts 2007
24. Provisions and other liabilities
2007 2006
Restructuring Warranty Total Warranty Total
£000 £000 £000 £000 £000
At 1 April — (73) (73) (35) (35)
Exchange adjustment — 3 3 (1) (1)
Income Statement (251) — (251) (37) (37)
Utilised — 56 56 ——
At 31 March (251) (14) (265) (73) (73)
The warranty and restructuring provisions are not discounted and are estimated to be fully utilised within 12 months.
25. Share Capital
2007 2006
£000 £000
Authorised:
110,000,000 (2006: 110,000,000) Ordinary 5p shares 5,500 5,500
Allotted and fully paid:
87,376,072 (2006: 86,076,072) Ordinary 5p shares 4,369 4,304
During the year, 1,300,000 shares were issued to the Intelek plc ESOP trust at 12.5p a share to increase the shares available for the
Executive LTIP (see note 28).
Share options
Details of the Group share option schemes are set out in the Remuneration Report on page 26. At 31 March 2007 there were
outstanding options under the Executive Scheme in respect of 2,382,500 ordinary shares, exercisable between 2007 and 2013 at
prices varying between 10.5p and 36.0p per share.
The movement in the year in respect of share options is analysed as follows:
Exercise
Scheme Date of grant 2007 Lapsed 2006 price (p) Expiry
1995 approved 09/10/96 — (27,500) 27,500 28.0 10/10/06
12/01/98 62,500 (7,500) 70,000 16.0 13/01/08
20/08/99 55,000 — 55,000 20.0 21/08/09
28/01/00 15,000 — 15,000 33.0 29/01/10
27/07/00 7,500 — 7,500 35.0 28/07/10
1995 unapproved 28/01/00 — (50,000) 50,000 33.0 29/01/07
27/07/00 150,000 — 150,000 35.0 28/07/07
28/07/00 250,000 — 250,000 36.0 29/07/07
2000 approved 20/12/00 50,000 — 50,000 35.5 19/12/10
10/08/01 117,000 (22,500) 139,500 34.0 09/08/11
08/08/02 73,000 — 73,000 14.0 07/08/12
08/01/03 167,500 (60,000) 227,500 10.5 07/01/13
2000 unapproved 10/08/01 135,000 — 135,000 34.0 09/08/11
08/08/02 500,000 — 500,000 19.0 11/02/12
08/01/03 100,000 — 100,000 10.5 07/01/13
1,682,500 (167,500) 1,850,000
Chief Executive option 19/09/00 700,000 — 700,000 17.0 20/09/07
2,382,500 (167,500) 2,550,000
SAYE 25/07/01 — (391,555) 391,555 34.0 01/09/06
International sharesave 31/12/01 — (70,732) 70,732 19.0 01/02/07
2,382,500 (629,787) 3,012,287
Intelek
Report and Accounts 2007
47 Accounts
www.intelek.plc.uk 48
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
26. Share-based payments
Share options
In accordance with IFRS 2 “Share-based payment”, the Group has appraised share options granted after 7 November 2002. The only
options applicable to date are those issued on 8 January 2003 at a price of 10.5p, expiring on 7 January 2013. The options were
issued conditional upon achieving growth in earnings per share at a rate in excess of 2% a year above the retail price index over any
consecutive three years in the ten year period from 31 March 2002. This condition was met following announcement of the results for
the year to 31 March 2006. To date, none of the options has been exercised. The details are as follows:
2007 2006
Weighted Weighted
average average
No. price No. price
Outstanding at 1 April 327,500 10.5p 380,000 10.5p
Options forfeited (60,000) 10.5p (52,500) 10.5p
Outstanding at 31 March 267,500 10.5p 327,500 10.5p
Exercisable at 31 March 267,500 10.5p 327,500 10.5p
For these options, the fair value has been assessed, applying the Black-Scholes option pricing model. The model assumed volatility of
39.1%, expected dividend yield of 2.8%, risk-free interest rate of 4.2%. On this basis, the fair value of the options at grant date was
3.8p. No accrual has been taken to the Income Statement as the amounts are not material. At 31 March 2007, a charge of £10,000
would have been accrued (2006: £12,000).
Long-Term Incentive Plan
In October 2006, the Group introduced a Long-Term Incentive Plan (LTIP) under which shares are issued by Intelek’s ESOP trust to
selected senior managers at grant date, subject to compulsory sale back to the trust at a nominal price to the extent that performance
conditions are not met. The awards are split equally into two measurement periods, 3 years and 5 years, and again into two categories
of performance condition, EPS and Share Price. For the EPS tranches, actual adjusted EPS at the end of the measurement period is
compared with the target EPS. For the Share Price tranches, the growth in share price is compared with the growth in the techMARK
100 index over the measurement period. The targets are set by the Remuneration Committee. In all cases, if less than 80% of the
target is met, none of the shares vest, if 80%, 25% vest, if 120%, 100% vest, and pro rata between 80% and 120%. During the
measurement period, the senior managers own the voting rights attaching to the shares and receive dividends. However, to the extent
that the shares do not vest, the dividends, less tax, have to be paid over to the Trust.
The first award under the LTIP was made in October 2006 to Mr Ian Brodie and Mr Kevin Edwards, details of which are set out in the
Remuneration Report. In total, 1,750,000 shares were issued at 12.5p a share. Under IFRS 2, the cost of this benefit is required to be
estimated and taken over the measurement period. As the shares have already been issued, the price is known and has been applied
to the projected number of shares that will vest. For the EPS tranches, the number of shares has been computed based on
management projections of EPS. For the Share Price tranches, the number of shares has been computed assuming that (a) the share
price will grow in line with EPS, modified for the market’s perception of risk, and (b) the techMARK 100 index will grow consistent with
the 3-year period 31.3.04 to 31.3.07. For 2007, a provision of £23,000 has been taken to the Income Statement. Intelek
Report and Accounts 2007
27. Changes in shareholders’ equity
Retained earnings
Share Accumu-
Share premium Own Other Hedging Translation lated
capital account shares reserves reserve reserve profits Net
£000 £000 £000 £000 £000 £000 £000 £000
At 1 April 2005 4,304 9,104 (326) 4,366 (11) (27) (6,412) 10,998
Exchange difference on hedging —— —— (89) —— (89)
Exchange difference on translation of
overseas operation —— —— — 123 — 123
Actuarial losses arising on defined
benefit pension plan, net of deferred tax—— ———— (660) (660)
Dividends paid —— ———— (305) (305)
Transfer from profit and loss account —— ———— 1,323 1,323
At 31 March 2006 4,304 9,104 (326) 4,366 (100) 96 (6,054) 11,390
Issue of shares 65 97 (162) —— ———
Cancellation of reserves (note b) — (9,201) — (955) —— 10,156 —
Exchange difference on hedging —— —— 107 —— 107
Exchange difference on translation
of overseas operation —— ——— (316) — (316)
Actuarial losses arising on defined
benefit pension plan, net of deferred tax—— ———— (155) (155)
Dividends paid —— ———— (315) (315)
Transfer from profit and loss account—— ———— 3,833 3,833
At 31 March 2007 4,369 — (488) 3,411 7 (220) 7,465 14,544
a. Other reserves include the Capital Redemption Reserve and a Merger Reserve created on acquisition in prior years. The hedging
and translation reserves represent, respectively, the accumulated net currency variations on hedging instruments, and equity
shareholders’ interest in overseas net assets.
b. Following approval by shareholders and the High Court, with appropriate safeguards for creditors, the Share Premium Reserve and
the Capital Redemption Reserve were cancelled. This took effect on 22 December 2006.
28. Own Shares
Own shares represent the cost of shares in Intelek plc purchased in the market and held by the Intelek plc Employee Share Ownership
Plan (ESOP). As stated in note 25, 1,300,000 shares were purchased during the year at 12.5p a share.
The Intelek plc ESOP trust was established by a deed on 7 November 1991 made between the Company and EFG Reads Trustees
Limited of Jersey. The trust was established for the benefit of the bona fide employees or former employees of the Company and other
Group Companies (“the Beneficiaries”). The trust is a discretionary trust whose assets are shares in the Company and the Trustees
have full authority and power to distribute such shares as they deem fit to the Beneficiaries. In addition, the Trustees may satisfy
options granted by the Company to participants in one or more of the Group’s share option schemes should the Trustees in their
absolute discretion and with the agreement of the Company decide to do so.
Administration costs amount to £5,000 per annum. As of 31 March 2007, the Trust held 1,040,060 (2006: 1,490,060) Ordinary shares of
5p each in the capital of the Company. As of 31 March 2007 2,382,500 (2006: 3,012,287) shares of the Company are under option to
the participants in the Group’s Share Option Schemes and the Trustees may by agreement with the Company use all or any of the
shares in the Trust to satisfy such options. As of today’s date, 700,000 shares in the trust have been set aside for the options. In
addition, the Trust held signed transfer documents in respect of a further 1,750,000 shares issued under the Executive LTIP . These
shares will be sold to the Trust for a nominal value to the extent that the LTIP performance conditions are not satisfied. For accounting
purposes, these shares are included as part of the investment in Own Shares until vesting under the LTIP . The total investment in own
shares is 2,790,060 (3.2% of the allotted share capital), the market value of which at 31 March 2007 was £404,559 (2006: £178,807) i.e.
14.5p per share (2006: 12.2p per share). Dividends on these shares have not been waived.
Intelek
Report and Accounts 2007
49 Accounts
www.intelek.plc.uk 50
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
29. Cash generated from operations
2007 2006
£000 £000
Underlying operating profit 2,905 2,701
Depreciation and amortisation 1,437 1,257
Pension contribution paid towards deficit (1,387) (1,397)
Deferred income (7) (7)
Loss/(profit) on disposal of tangible fixed assets 20 53
Decrease/(increase) in inventories 137 (644)
Decrease/(Increase) in receivables 9 (586)
Increase in payables 18 968
Net cash flow before restructuring 3,132 2,345
Pension transfer project (2,639) —
Other exceptional items (207) —
Special pension contribution in respect of Pascall disposal — (64)
Cash generated from operations 286 2,281
Being: Continuous operations 286 2,345
Discontinued operations — (64)
30. Reconciliation of net cash flow to movement in net debt
2007 2006
£000 £000
Net increase in cash and cash equivalents (565) 117
Effect of foreign exchange rates 217 (233)
Repayment of finance leases 703 590
Cash inflow from debt (907) (334)
Changes in net debt resulting from cash flows (552) 140
New finance leases (1,171) (1,199)
Net movement in debt (1,723) (1,059)
Opening debt (3,403) (2,344)
Closing debt (5,126) (3,403)
2007 2006
£000 £000
Analysis of net debt:
Cash at bank 543 1,114
Bank overdrafts and loans (3,912) (3,223)
Finance leases (1,757) (1,294)
Total net debt (5,126) (3,403)
31. Acquisitions
Cash flow in 2005/06 includes two elements for business acquisition:
2006
£000
i) Settlement for the trade and assets of the Filtronic microwave facility acquired in March 2005 (421)
ii) A residual amount for the 2001 Paradise Datacom acquisition, associated with the earn-out agreement (41)
(462) Intelek
Report and Accounts 2007
32. Operating Lease Commitments
Commitments for future minimum lease payments under non-cancellable operating leases fall due as follows:
Total Total
Properties Plant 2007 Properties Plant 2006
£000 £000 £000 £000 £000 £000
Within one year 593 152 745 603 246 849
Between one and five years 2,289 53 2,342 2,226 150 2,376
After five years 3,309 — 3,309 3,937 — 3,937
6,191 205 6,396 6,766 396 7,162
33. Contingent Liabilities and Assets
The Company is guarantor for the lease of the property occupied by Pascall Electronics on the Isle of Wight. The lease expires in 2016
and is at a current rental of £245,000 per annum. As part of the disposal agreement for Pascall Electronics, the Company secured full
indemnity for this guarantee from both the purchaser and the purchaser’s ultimate holding company. The Directors consider it unlikely
that there will be a default that affects the Group under this guarantee. Even if there were to be a default, the Group would expect to be
able to re-let the property and mitigate much of the liability.
34. Borrowings
a) Summary
2007 2006
£000 £000
Bank loans (3,912) (3,223)
Finance leases (1,757) (1,294)
(5,669) (4,517)
Non-current liabilities (1,775) (2,065)
Current liabilities (3,894) (2,452)
(5,669) (4,517)
b) Maturity of borrowings
The maturity profile of the Group financial liabilities was as follows:
2007 2006
Bank Finance Bank Finance
loans leases Total loans leases Total
£000 £000 £000 £000 £000 £000
In one year or less or on demand (3,192) (702) (3,894) (1,891) (561) (2,452)
In more than one year but not more
than two years (480) (487) (967) (1,066) (481) (1,547)
In more than two years but not more
than five years (240) (568) (808) (266) (252) (518)
(3,912) (1,757) (5,669) (3,223) (1,294) (4,517)
Bank overdraft and loans are fully secured on the assets of the Group.
c) Borrowing facilities
The Group has the following undrawn committed borrowing facilities:
2007 2006
£000 £000
Expiring in less than one year 663 2,144
Expiring in more than one year but not more than two years — —
In more than two years 3,276 1,168
3,939 3,312
Intelek
Report and Accounts 2007
51 Accounts
www.intelek.plc.uk 52
NOTES TO THE FINANCIAL STATEMENTS continued
for the year ended 31 March 2007
34. Borrowings continued
d) Finance leases
2007 2006
Minimum Minimum
lease Present lease Present
payments value payments value
£000 £000 £000 £000
Within one year (793) (702) (621) (561)
One to five years (1,146) (1,055) (783) (733)
(1,939) (1,757) (1,404) (1,294)
Less future finance charges 182 110
Present value of lease obligations (1,757) (1,294)
e) Interest
The weighted average interest rates paid were as follows:
2007 2006
% %
Bank loans 6.3 6.0
Finance leases 7.7 7.5
f) Fair value of financial liabilities
The fair value of financial liabilities at 31 March compared with book value was:
2007 2006
Book value Fair value Book value Fair value
£000 £000 £000 £000
Short-term borrowings (3,894) (3,912) (2,452) (2,471)
Long-term borrowings (1,775) (1,802) (2,065) (2,090)
(5,669) (5,714) (4,517) (4,561)
The fair value of other financial liabilities and assets is not considered to be materially different from recorded book values.
g) Principal features of the Group’s borrowings
The Group’s borrowing facilities are secured by a debenture over the Group’s assets and unlimited cross guarantees given by the
Company and certain subsidiary undertakings. The Group has a US$ denominated bank loan of £1,200,000 being repaid at £120,000 a
quarter. It will be fully repaid by September 2009. The interest rate on the loan is 1.50% above the bank’s base rate.
35. Financial Instruments
The Group’s financial instruments comprise borrowings, cash at bank and various items such as trade debtors and creditors that arise
directly from its operations. The main purpose of these instruments is to raise finance for operations. The Group has not entered into
derivative transactions, with the exception of foreign exchange contracts in the normal course of trade, nor does it trade in financial
instruments as a matter of policy. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk and
foreign currency risk. The Board’s policy on interest rate and liquidity risk is described in note 1 on significant accounting policies and
in the Directors’ Report, which forms part of these financial statements.
Operations are financed through a mixture of retained profits, lease finance and bank borrowings. Other than finance leases and loan
notes, the Board’s policy is to use variable rate borrowings. To ensure continuity of debt funding the Group’s policy is to keep a
substantial part of debt as due in more than one year’s time. Short-term flexibility is achieved by overdraft facilities. 35. Financial Instruments continued
Carrying and fair values of the Group’s financial assets and liabilities at 31 March 2007:
Carrying value Fair value
£000 £000
Derivative instruments
— forward foreign currency contracts ——
Financial assets
— trade and other receivables 6,494 6,494
— cash and cash equivalents 543 543
Financial liabilities
— borrowings bank loans (3,912) (3,912)
finance leases (1,757) (1,802)
— trade and other payables (6,496) (6,496)
Management consider the fair values to approximate to the present value of future cash flows based on market rates. They do not
expect the derivative instruments to vary materially relative to their hedged item, having applied such sensitivities as:
(i) 1% increase in interest rates
(ii) 10% weakening in the value of sterling against all other currencies from the levels applicable at 31 March 2006.
The currency and interest rate profile of the Group’s financial assets and liabilities that are subject to interest rate risk at 31 March
2007 was:
Floating Fixed
Cash and
cash Bank Finance
equivalent loans leases Total
£000 £000 £000 £000
Sterling 146 (1,489) (1,757) (3,100)
US$ 383 (2,423) — (2,040)
Euro 14 —— 14
543 (3,912) (1,757) (5,126)
The floating rate financial liabilities bear interest at rates based on the Barclays Bank base rate. The fixed rate financial liabilities have a
weighted average interest rate of 7.7% over a weighted average period of 3.3 years.
36. Derivative financial instruments
Currency derivatives
The Group utilises forward foreign currency contracts to hedge significant future transactions and cash flows. The instruments
purchased are primarily denominated in US$ and euros. At 31 March 2007, they comprised:
Gross contract Carrying Fair
amount value value
£000 £000 £000
Purchase:
US$ 44 4
Euro —— —
These amounts are based on the market value of equivalent instruments at the balance sheet date. All of these derivatives are
designated and effective as cash flow hedges and have been deferred in equity. The contracts mature in less than one year.
Net investment hedge
The Group has a US-based subsidiary company which can affect the sterling Group Balance Sheet as a result of movements in the
sterling/dollar exchange rate. The Group has partly hedged the US subsidiary company’s net asset exposure at 31 March 2007 using
bank loans designated in US$. The net currency movements on the subsidiary net assets and the related bank loans are recognised at
each year end and recorded through reserves. At 31 March 2007, the Group held $6.8 million net assets overseas and held loans of
$4.7 million designated as a partial hedge against this exposure. The hedge has been tested for effectiveness at inception and at each
reporting date.
53 Intelek
Report and Accounts 2007 www.intelek.plc.uk 54
FIVE YEAR SUMMARY
IFRS UK GAAP
2007 2006 2005 2005 2004 2003
£000 £000 £000 £000 £000 £000
Sales
Continuing operations 36,840 35,212 31,524 31,524 31,965 34,473
Discontinued operations — —— 5,768 6,926 7,121
Total 36,840 35,212 31,524 37,292 38,891 41,594
Underlying Operating Profit 2,905 2,701 2,789 2,301 2,370 2,462
Interest (373) (311) (447) (506) (565) (745)
Net pension finance cost (192) (584) (631) ———
Underlying Profit 2,340 1,806 1,711 1,795 1,805 1,717
Continuing operations 2,340 1,806 1,711 1,911 1,508 1,749
Discontinued operations — —— (116) 297 (32)
Amortisation of goodwill — —— (789) (794) (803)
Exceptional items 3,282 — (309) (2,185) (289) (415)
Profit before taxation 5,622 1,806 1,402 (1,179) 722 499
Taxation (1,789) (483) (493) (359) (209) (331)
Profit after taxation 3,833 1,323 909 (1,538) 513 168
Discontinued operations — — 1,893 ———
Profit for the year 3,833 1,323 2,802 (1,538) 513 168
Earnings per Ordinary share (pence)
Basic 4.53 1.56 3.31 (1.82) 0.61 0.21
Diluted 4.53 1.56 3.31 (1.82) 0.61 0.21
Underlying: Continuing operations 2.05 1.56 1.33 1.49 1.47 1.21
Dividends per Ordinary share (pence) 0.39 0.36 0.36 0.36 0.36 0.34
Net debt (5,126) (3,403) (2,344) (2,344) (6,630) (9,259)
Shareholders’ funds 14,544 11,390 10,998 21,615 19,885 20,126 Intelek
Report and Accounts 2007
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF INTELEK plc
We have audited the Parent Company
financial statements on pages 56 to 58.
These Parent Company financial
statements have been prepared under
the accounting policies set out therein.
We have also audited the information in
the Directors’ Remuneration Report that
is described as having been audited.
We have reported separately on the
Group financial statements of Intelek plc
for the year ended 31 March 2007.
This report is made solely to the
Company’s shareholders, as a body, in
accordance with Section 235 of the
Companies Act 1985. Our audit work has
been undertaken so that we might state
to the Company’s shareholders those
matters we are required to state to them
in an auditors’ report and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
Company and the Company’s
shareholders, as a body, for our audit
work, for this report, or for the opinions
we have formed.
Respective responsibilities of
Directors and Auditors
The Directors’ responsibilities for
preparing the Annual Report, the
Directors’ Remuneration Report and the
Parent Company financial statements in
accordance with applicable law and
United Kingdom Accounting Standards
are set out in the Statement of Directors’
Responsibilities.
Our responsibility is to audit the Parent
Company financial statements and the
part of the Directors’ Remuneration
Report to be audited in accordance with
relevant legal and regulatory
requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to
whether the Parent Company financial
statements give a true and fair view and
whether the Parent Company financial
statements and the part of the Directors’
Remuneration Report to be audited have
been properly prepared in accordance
with the Companies Act 1985. We also
report to you if, in our opinion, the
Directors’ Report is not consistent with
the Parent Company financial
statements, if the Company has not kept
proper accounting records, if we have
not received all the information and
explanations we require for our audit, or
if information specified by law regarding
Directors’ remuneration and other
transactions is not disclosed.
We read other information contained in
the Annual Report, and consider whether
it is consistent with the audited Parent
Company financial statements. The other
information comprises only the Directors’
Report, the unaudited part of the
Directors’ Remuneration Report, the
Chairman’s Statement and the Operating
and Financial Review. We consider the
implications for our report if we become
aware of any apparent misstatements or
material inconsistencies with the Parent
Company financial statements. Our
responsibilities do not extend to any
other information. We report to you
whether in our opinion the information
given in the Directors’ Report is
consistent with the financial statements.
Basis of audit opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK and Ireland) issued by the Auditing
Practices Board. An audit includes
examination, on a test basis, of evidence
relevant to the amounts and disclosures
in the Parent Company financial
statements and the part of the Directors’
Remuneration Report to be audited. It
also includes an assessment of the
significant estimates and judgements
made by the Directors in the preparation
of the Parent Company financial
statements, and of whether the
accounting policies are appropriate to
the Company’s circumstances,
consistently applied and adequately
disclosed.
We planned and performed our audit so
as to obtain all the information and
explanations which we considered
necessary in order to provide us with
sufficient evidence to give reasonable
assurance that the Parent Company
financial statements and the part of the
Directors’ Remuneration Report to be
audited are free from material
misstatement, whether caused by fraud
or other irregularity or error. In forming
our opinion we also evaluated the overall
adequacy of the presentation of
information in the Parent Company
financial statements and the part of the
Directors’ Remuneration Report to be
audited.
Opinion
In our opinion the Parent Company
financial statements give a true and fair
view, in accordance with United
Kingdom Generally Accepted Accounting
Practice, of the state of affairs of the
Company as at 31 March 2007 and the
Parent Company financial statements
and the part of the Directors’
Remuneration Report to be audited have
been properly prepared in accordance
with the Companies Act 1985. The
information given in the Directors’ Report
is consistent with the financial
statements.
RSM Robson Rhodes LLP
Chartered Accountants and
Registered Auditors
Birmingham, England
5 June 2007
Intelek
Report and Accounts 2007
55 www.intelek.plc.uk 56
INTELEK plc
BALANCE SHEET
as at 31 March 2007
}
2007 2006
Note £000 £000
ASSETS
Investment in subsidiaries P3 17,414 10,067
Amounts due from subsidiaries P3 11,020 —
Plant and equipment P4 11 13
Deferred tax assets 347 4
Total non-current assets 28,792 10,084
Amounts due from subsidiaries 9,792 11,609
Other receivables 56 50
Cash and cash equivalents 142 4
Total current assets 9,990 11,663
Total assets 38,782 21,747
LIABILITIES
Borrowings P5 (719) (1,332)
Total non-current liabilities (719) (1,332)
Borrowings P5 (4,246) (2,836)
Amounts due to subsidiaries (51) (51)
Trade and other payables (647) (311)
Total current liabilities (4,944) (3,198)
Total liabilities (5,663) (4,530)
Net assets 33,119 17,217
EQUITY
Issued capital P7 4,369 4,304
Share premium — 9,104
Own shares P7 (489) (326)
Other reserves 605 1,559
Retained earnings — non-distributable P3 14,494 —
— distributable P6 14,140 2,576
Total equity P7 33,119 17,217
The financial statements on pages 56 to 58 were approved by the Board of Directors and signed on their behalf on 5 June 2007 by:
I D Brodie
Directors
K N Edwards Intelek
Report and Accounts 2007
Intelek
Report and Accounts 2007
57
NOTES TO THE INTELEK plc BALANCE SHEET
Significant accounting policies and basis of preparation
The separate financial statements of the Company are presented as required by the Companies Act 1985. They have been prepared under
the historical cost convention and in accordance with applicable United Kingdom Standards (UK GAAP) and law.
Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment.
Employee benefits: Defined benefit scheme
The Company participates in the Group’s multi-employer defined benefit pension scheme. The Company is unable to identify its share of
the underlying assets of the scheme as the assets form a single fund. Consequently, the Company accounts for the scheme by expensing
contributions as they become due. Details of the scheme assets and liabilities are set out in the notes to the Group’s financial statements.
Cash flow and related party transactions
The Group consolidated financial statements contain a consolidated cash flow statement and therefore the Company has taken advantage
of the exemption under FRS 1 not to present its own cash flow statement. Similarly, the Company has taken advantage of the exemption
under FRS 8 not to disclose related party transactions.
Financial instruments
The Group financial statements include disclosure sufficient to satisfy FRS 25 and consequently, the Company has taken advantage of the
exemption not to present separate financial instrument disclosures.
P1. Profit and loss account
As permitted by section 230 of the Companies Act 1985, the Company has elected not to present its own profit and loss account for
the year. The profit for the year ended 31 March 2007 was £16,110,000 (2006: Loss £1,272,000).
P2. Employees
2007 2006
The average monthly number of employees, including Executive Directors, was:
Administration 7 7
£000 £000
Costs in respect of these employees were:
Wages and salaries 617 468
Social security costs 74 63
Other pension costs 62 54
753 585
P3. Fixed asset investments
2007 2006
£000 £000
Cost
At 1 April 10,844 10,808
Additions 11,220 2,241
Disposals (3,873) (2,205)
At 31 March 18,191 10,844
Provision
At 1 April and 31 March (777) (777)
Net book value 17,414 10,067
Additions in the year comprise £7.4 million for the investment in Intelek Inc., a new wholly owned investment holding company set up
in March 2007, and £3.8 million for the acquisition from Paradise Datacom Ltd of its investment in Paradise Datacom LLC. The
investment in Paradise Datacom LLC was subsequently sold at its estimated market value, £18.4 million, to Intelek Inc. The profit on
disposal of £14.5 million has been credited to a non-distributable reserve, as the proceeds are not yet realised. The transaction was
funded by the issue of shares (£7.4 million, as noted above) and a five-year, renewable, loan agreement for £11.0 million. The loan is
interest-bearing at commercial rates. It is recorded as a non-current amount due from subsidiaries. www.intelek.plc.uk 58
NOTES TO THE INTELEK PLC BALANCE SHEET
P4. Plant and equipment
£000
Cost at 1 April 2006 77
Additions 3
Disposal —
Cost at 31 March 2007 80
Depreciation at 1 April 2006 (64)
Charge for the year (5)
Disposal —
Depreciation at 31 March 2007 (69)
Net book value at 31 March 2007 11
Net book value at 31 March 2006 13
P5. Borrowings
2007 2006
£000 £000
Bank overdraft (2,560) (945)
Bank loans payable within one year (1,686) (1,891)
(4,246) (2,836)
Bank loans payable:
in more than one year but not more than two years (479) (1,066)
in more than two years but not more than five years (240) (266)
(719) (1,332)
Further details are included in the Group financial statements, note 34.
P6. Retained earnings
2007
Non- 2006
distributable Distributable Total Distributable
£000 £000 £000 £000
At 1 April — 2,576 2,576 4,242
Profit/(loss) for the year 14,494 1,616 16,110 (1,272)
Cancellation of reserves — 10,156 10,156 —
Dividends — (315) (315) (305)
Exchange adjustment — 107 107 (89)
At 31 March 14,494 14,140 28,634 2,576
The non-distributable reserve is explained in note P3.
The cancellation of reserves is explained in note 27 to the Group financial statements.
P7. Reconciliation of movements in equity
2007 2006
£000 £000
At 1 April 17,217 18,883
Profit/(loss) for the year 16,110 (1,272)
Dividends (315) (305)
Exchange adjustment 107 (89)
At 31 March 33,119 17,217
Details of the share capital of Intelek plc and of the investment in own shares are disclosed in notes 25, 27 and 28 to the Group’s
financial statements. NOTICE OF ANNUAL GENERAL MEETING
Notice is given that the 2007 Annual General Meeting of the Company will be held at the premises of Intelek plc, South Marston Park,
Swindon, Wiltshire, SN3 4TR on Friday, 14 September 2007 at 10.30 am. The meeting will be for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following resolutions as ordinary resolutions:
1 To receive and adopt the Statement of Accounts for the year ended 31 March 2007 together with the Directors’ Report and the
Auditors’ Report on those accounts.
2 To declare a final dividend for the year ended 31 March 2007 of 0.26 pence per ordinary share in the capital of the Company, to be paid
on 26 September 2007 to shareholders whose names appear on the register at the close of business on 31 August 2007.
3 To re-elect Dr David M Bramwell, who retires by rotation, as a Director.
4 To reappoint RSM Robson Rhodes LLP as Auditors (or if the proposed merger between RSM Robson Rhodes LLP and Grant Thornton
UK LLP takes place, then to appoint Grant Thornton UK LLP as Auditors) to hold office from the conclusion of the meeting until the
conclusion of the next meeting at which the accounts are laid before the Company.
5 To authorise the Directors to fix the remuneration of the Auditors.
Special Business
To consider and, if thought fit, to pass Resolutions 6, 7, 8, 9, and 10, as to which 6 and 7 will be proposed and voted on as Ordinary
Resolutions, and 8, 9 and 10 will be proposed and voted on as Special Resolutions.
6 To authorise the Company to send or supply any documents or information to members by making them available on a website for the
purposes of paragraph 10(2) of schedule 5 to the Companies Act 2006 and otherwise.
7 That, the Directors be and are hereby generally and unconditionally authorised pursuant to the provisions of section 80 of the
Companies Act 1985 (“Act”), to exercise all the powers of the Company to allot relevant securities as defined by section 80 of the Act,
provided that:
a) the maximum nominal amount of such securities that may be allotted under this authority (within the meaning of section 80 of the
Act) is £1,131,196; and
b) this authority shall, unless it is (prior to its expiry) duly revoked or is renewed, expire at the conclusion of the Annual General
Meeting of the Company to be held in 2008 or fifteen months from the date of passing this Resolution (whichever shall occur first)
save that the Company may, before such expiry, make an offer or agreement which will or may require relevant securities to be
allotted after such expiry and the Directors of the Company may allot relevant securities in pursuance of such offer or agreement
as if the power conferred by this Resolution had not yet expired;
and provided also that the authority granted by this Resolution is in substitution for any existing authority to allot relevant
securities previously granted to the Directors which (to the extent that it remains in force and unexercised) is hereby revoked.
8 That the Company be authorised pursuant to section 166 of the Act to make market purchases (as defined by section 163 of the Act)
of Ordinary Shares of 5p each in the capital of the Company (“Shares“) on such terms as the Directors of the Company may determine,
provided that such authority shall be limited as follows:
a) the Company shall purchase not more than 8,737,607 Ordinary Shares (representing 10 per cent of the Company’s issued
Ordinary Share capital;
b) the price per Ordinary Share (exclusive of dealing and other incidental costs and stamp duty) to be paid by the Company shall be:
i) not less than 5p; and
ii) not more than 105 per cent of the average of the middle market quotations for the Shares taken from the Daily Official List of
the London Stock Exchange for each of the five business days immediately preceding the date upon which the purchase is
made;
c) the authority granted by this Resolution shall, unless it is (prior to its expiry) duly revoked, expire at the conclusion of the Annual
General Meeting to be held in 2008 or twelve months from the date of passing this Resolution (whichever shall occur first).
However, the Company may purchase its own shares of 5p each after this date provided that any such purchase is made pursuant
Intelek
Report and Accounts 2007
59 www.intelek.plc.uk 60
NOTICE OF ANNUAL GENERAL MEETING continued
to a contract concluded before the authority expires, under which such purchases will or may be completed or executed wholly or
partly after such expiry, and provided also that the authority granted by this Resolution is in substitution for any authority to
purchase its own shares previously granted to the Company which (to the extent that it remains in force and unexercised) is
hereby revoked.
9 That, subject to and conditional upon the passing of Resolution 7 set out above, the Directors of the Company be and are hereby
empowered pursuant to Section 95 of the Act to allot equity securities (within the meaning of Section 94 of the Act) for cash pursuant
to Section 80 of the Act as if Section 89(1) of the Act did not apply to any such allotment, provided that this power shall be limited to:
a) the allotment of equity securities in connection with a rights issue in favour of or general offer to Ordinary Shareholders where the
equity securities respectively attributable to the interests of all the Ordinary Shareholders are proportionate (as nearly as may be)
to the number of Ordinary Shares held by them (but subject to such exclusions and other arrangements as the Directors of the
Company may deem necessary or expedient in relation to fractional entitlements and any legal or practical difficulties or the
requirements of any regulatory body or stock exchange); and
b) the allotment, otherwise than pursuant to subparagraph a) above, of equity securities up to an aggregate nominal value of
£218,440;
and shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2008 or fifteen months from the date of
passing this Resolution, whichever shall occur first, save that the Company may before such expiry make an offer or agreement which
would or may require equity securities to be allotted after such expiry and the Directors of the Company may allot equity securities in
pursuance of such offer or agreement as if the power conferred hereby had not expired and provided also that the authority and power
hereby conferred shall be in substitution for any previous authority conferred upon the Directors pursuant to the said Section 95 prior
to the date of passing this Resolution.
10 That the Articles of Association of the Company be amended by deleting the present Article 101 in its entirety.
By order of the Board
K N Edwards
Director and Secretary
South Marston Park, Swindon, Wiltshire, SN3 4TR
5 June 2007
Notes
1 To be entitled to attend and vote at the meeting (and for the purpose of the determination by the Company of the numbers of
votes they may cast), members must be entered on the Company’s register of members by close of business on Wednesday,
12 September 2007.
2 A member entitled to vote at the above meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote instead of
the member. A proxy need not also be a member of the Company.
3 A form of proxy for the use of members is enclosed with this notice. To be effective the form must be deposited, duly completed and
signed, at the Company’s registrars, Lloyds TSB Registrars, SEA 10846, The Causeway, Worthing, West Sussex, BN99 6ZL not less
than 48 hours before the time appointed for the holding of the meeting. Completion of the proxy does not preclude a member from
subsequently attending and voting at the meeting in person if he so wishes.
4 There will be available for inspection at the Registered Office of the Company during normal business hours from the date of this notice
until the date of the Annual General Meeting, and at the place of meeting from 9.30 am on 14 September 2007 until the conclusion of
the meeting:
a) copies of the Directors’ service contracts; and
b) the register of Directors’ interests in accordance with Section 325 of the Companies Act 1985.
5 Biographical details of all those Directors who are offering themselves for re-election at the meeting are set out on page 18. GLOSSARY
Satellite Communications
Amplifier
A device used to boost the strength of
an electronic signal.
Analog
A form of transmitting information
characterized by continuously variable
quantities, as opposed to digital
transmission, which is characterized
by discrete bits of information in
numerical steps. An analog signal is
responsive to changes in light, sound,
heat and pressure.
Aperture
A cross sectional area of the antenna
which is exposed to the satellite signal.
Backhaul
A terrestrial communications channel
linking an earth station to a local
switching network or population centre.
Bandwidth
A measure of spectrum (frequency)
use or capacity. For instance, a voice
transmission by telephone requires a
bandwidth of about 3,000 cycles per
second (3kHz). A TV channel occupies a
bandwidth of 6 million cycles per second
(6 MHz) in terrestrial systems. In satellite-
based systems a larger bandwidth of
17.5 to 72 MHz is used to spread or
“dither” the television signal in order to
prevent interference.
Bit
A single digital unit of information.
Bit Error Rate
The fraction of a sequence of message
bits that are in error. A bit error rate of
10-6 means that there is an average of
one error per million bits.
Bit Rate
The speed of a digital transmission,
measured in bits per second.
Block Down Converter
A device used to convert the 3.7 to
4.2 kHz signal down to UHF or lower
frequencies (1 GHz and lower).
C Band
This is the band between 4 and 8 GHz
with the 6 and 4 GHz band being
used for satellite communications.
Specifically, the 3.7 to 4.2 GHz satellite
communication band is used as the
downlink frequencies in tandem with
the 5.925 to 6.425 GHz band that serves
as the uplink.
Carrier
The basic radio, television, or telephony
centre of frequency transmit signal. The
carrier in an analog signal is modulated
by manipulating its amplitude (making it
louder or softer) or its frequency (shifting
it up or down) in relation to the incoming
signal. Microwave and satellite
communications transmitters operate
in the band from 1 to 14 GHz.
Channel
A frequency band in which a specific
broadcast signal is transmitted.
Television signals require a 6 MHz
frequency band to carry all the necessary
picture detail.
DBS
Direct broadcast satellite. Refers to
service that uses satellites to broadcast
multiple channels of television
programming directly to home mounted
small-dish antennas.
Delay
The time it takes for a signal to go
from the sending station through the
satellite to the receiving station. This
transmission delay for a single hop
satellite connection is very close to one-
quarter of a second.
Demodulator
A satellite receiver circuit which extracts
or “demodulates” the “wanted” signals
from the received carrier.
Digital
Conversion of information into bits of
data for transmission through wire,
fibre-optic cable, satellite, or over air
techniques. Method allows simultaneous
transmission of voice, data or video.
Downlink
The satellite to earth half of a 2-way
telecommunications satellite link. Often
used to describe the receive dish end
of the link.
Earth Station
The combination of antenna, amplifiers,
frequency converters and electronics
used to transmit/receive a signal via
satellite. Earth Station antennas vary in
size from 2 foot to 12 foot (65
centimetres to 3.7 metres) diameter size
used for TV reception to as large as 100
feet (30 metres) in diameter sometimes
used for international communications.
Footprint
A map of the signal strength over the
earth’s surface. Different satellite
transponders on the same satellite will
often have different footprints of the
signal strength.
Forward Error Correction (FEC)
Adds unique codes to the digital signal
at the source so errors can be detected
and corrected at the receiver.
Frequency
The number of times that an alternating
current goes through its complete cycle
in one second of time. One cycle per
second is also referred to as one hertz.
Geostationary
Refers to a satellite angle with zero
inclination, so the satellite appears to
hover over one spot on the earth’s
equator. For a planet the size and mass
of the earth, the satellite orbit required is
22,237 miles above the surface.
Intelek
Report and Accounts 2007
61 www.intelek.plc.uk 62
GLOSSARY continued
Gigahertz (GHz)
One billion cycles per second. Signals
operating above 3 Gigahertz are known
as microwaves. Above 30 GHz they are
know as millimetre waves. As one moves
above the millimetre waves signals begin
to take on the characteristics of
Iightwaves.
Hertz (Hz)
A measure of frequency. One cycle per
second.
INMARSAT
The International Maritime Satellite
Organization operates a network of
satellites for international transmissions
for all types of international mobile
services including maritime, aeronautical,
and land mobile.
INTELSAT
The International Telecommunications
Satellite Organization operates a
network of satellites for international
transmissions.
Interference
Energy which tends to interfere with the
reception of the desired signals, such as
fading from airline flights, RF interference
from adjacent channels, or ghosting from
reflecting objects such as mountains and
buildings.
Ka Band
The frequency range from 18 to 31 GHz.
Kbps
Kilobits per second. Refers to
transmission speed of 1,000 bits per
second.
Kilohertz (kHz)
Refers to a unit of frequency equal to
1,000 hertz.
Klystron
A microwave tube which uses the
interaction between an electron beam
and the RF energy on microwave cavities
to provide signal amplification. The
klystron operates on principles of
velocity modulation very similar to those
in a TWT except that klystron interaction
takes place at discrete locations along
the electron beam. Common types of
klystrons are the reflex klystron (an
oscillator having only one cavity), two-
cavity klystron amplifiers and oscillators,
and multi-cavity klystron amplifiers.
Ku Band
The frequency range from 10.9 to
17 GHz.
L-Band
The frequency range from 0.5 to
1.5 GHz. Also used to refer to the 950
to 1,450 MHz used for mobile
communications.
Low Noise Amplifier (LNA)
This is the preamplifier between the
antenna and the earth station receiver.
For maximum effectiveness, it must be
located as near to the antenna as
possible, and is usually attached directly
to the antenna receive port. The LNA is
especially designed to contribute the
least amount of thermal noise to the
received signal.
Low Noise Block Downconverter
(LNB)
A combination Low Noise Amplifier and
downconverter built into one device
attached to the feed.
Megahertz (MHz)
Refers to a frequency equal to one
million hertz, or cycles per second.
Microwave
Line-of-sight, point-to-point transmission
of signals at high frequency. Many TV
systems receive some television signals
from a distant antenna location with the
antenna and the system connected by
microwave relay. Microwaves are also
used for data, voice, and indeed all types
of information transmission.
Microwave Interference
Interference which occurs when an earth
station aimed at a distant satellite picks
up a second, often stronger signal, from
a local telephone terrestrial microwave
relay transmitter. Microwave interference
can also be produced by nearby radar
transmitters as well as the sun itself.
Relocating the antenna by only several
feet will often completely eliminate the
microwave interference.
Modem
Short for modulator/demodulator. A
communications device that converts
one form of a signal to another that is
suitable for transmission over
communication circuits, typically from
digital to analog and then from analog
to digital.
Modulation
The process of manipulating the
frequency or amplitude of a carrier in
relation to an incoming video, voice or
data signal.
Modulator
A device which modulates a carrier.
Modulators are found as components in
broadcasting transmitters and in satellite
transponders.
Multiplexing
Techniques that allow a number of
simultaneous transmissions over a
single circuit.
Noise
Any unwanted and unmodulated energy
that is always present to some extent
within any signal.
Rain Outage
Loss of signal at Ku or Ka Band
frequencies due to absorption and
increased sky-noise temperature caused
by heavy rainfall.
Receiver (Rx)
An electronic device which enables a
particular satellite signal to be separated from all others being received by an
earth station, and converts the signal
format into a format for video, voice
or data.
RF
Radio Frequency refers to alternating
current having characteristics such that
if the current is input to an antenna, an
electromagnetic field is generated
suitable for wireless broadcasting and
communication. These frequencies
cover a significant portion of the
electromagnetic radiation spectrum,
extending from 9 kilohertz to thousands
of gigahertz.
Router
Network layer device that determines the
optimal path along which network traffic
should be forwarded. Routers forward
packets from one network to another
based on network layer information.
Satellite
A sophisticated electronic
communications relay station orbiting
22,237 miles above the equator moving
in a fixed orbit at the same speed and
direction of the earth (about 7,000 mph
east to west).
Slot
That longitudinal position in the
geosynchronous orbit into which a
communications satellite is “parked”.
Communications satellites are typically
positioned in slots which are based at
two to three degree intervals.
SNG
Satellite news gathering usually with a
transportable uplink truck.
Spectrum
The range of electromagnetic radio
frequencies used in transmission of
voice, data and television.
SSPA
Solid state power amplifier. A VSLI solid
state device that is gradually replacing
Travelling Wave Tubes in satellite
communications systems because they
are lighter weight and are more reliable.
Synchronization (Sync)
The process of orienting the transmitter
and receiver circuits in the proper
manner in order that they can be
synchronized.
Transmitter
An electronic device consisting of
oscillator, modulator and other circuits
which produce a radio or television
electromagnetic wave signal for radiation
into the atmosphere by an antenna.
Transponder
A combination receiver, frequency
converter, and transmitter package,
physically part of a communications
satellite. Transponders have a typical
output of five to ten watts, operate over
a frequency band with a 36 to 72
megahertz bandwidth in the L, C, Ku,
and sometimes Ka Bands or in effect
typically in the microwave spectrum,
except for mobile satellite
communications. Communications
satellites typically have between 12 and
24 onboard transponders although the
INTELSAT VI at the extreme end has 50.
TWT (Travelling wave tube)
A microwave tube of special design
using a broadband circuit in which a
beam of electrons interacts continuously
with a guided electromagnetic field to
amplify microwave frequencies.
TWTA (Travelling wave tube amplifier)
A combination of a power supply, a
modulator (for pulsed systems), and a
travelling wave tube, often packaged in a
common enclosure.
Uplink
The earth station used to transmit signals
to a satellite.
VSAT
Very small aperture terminal. Refers to
small earth stations, usually in the 1.2 to
2.4 metre range. Small aperture terminals
under 0.5 metre are sometimes referred
to as Ultra Small Aperture Terminals
(USATs)
Waveguide
A metallic microwave conductor, typically
rectangular in shape, used to carry
microwave signals into and out of
microwave antennas.
Intelek
Report and Accounts 2007
63 www.intelek.plc.uk 64
GLOSSARY continued
Microwave Communications
Broadband Amplifiers
Components which amplify microwave
signals over a broad range of frequencies
such as Octaves (e.g. 6–12 GHz) or
multi-octaves (e.g. 2–18 GHz).
Chip
An unpackaged semiconductor device or
integrated circuit.
Chip & Wire Assembly
Operation of attaching bare semiconductor
chips to a circuit or package and
connecting to the chips using thin wires.
Clean Room
A manufacturing area with high levels of
humidity, temperature and dust control.
Digital Radio Link
A pair of subsystems which can transmit
and receive high frequency digital data.
Can be used on mobile telecom base
stations to provide network connectivity.
ERDLVA
Extended Range Detector Log Video
Amplifier — detects incoming microwave
signals over a very wide input power
range (e.g. >70 decibels). Output voltage
is directly proportioned to incoming
power measured in decibels.
Laser Profiling
Using a Laser to accurately separate
individual circuits from a multicircuit
panel.
MIC
Microwave Integrated Circuit. The
technology of integrating microwave
chips into a circuit.
Microwave
A general term relating to the frequency
bands (~1 GHz to 100 GHz) in which a
product operates.
Microwave Power Amplifiers
Amplify microwave signals from relatively
low powers (e.g. 0.001 watts) to output
levels from ~5 to say 2000 watts.
MMIC
Monolithic Microwave Integrated Circuit
— operating in the microwave frequency
range. These circuits are made out of
substrate material suitable for operating
at very high frequencies, e.g. GaAs
(Gallium Arsenide), and are available as
chips or chips in packages.
Multilayer
A PCB consisting of more than 2
dielectric and copper foil layers.
Package
The package of a semiconductor is the
physical and electrical interface between
the chip and the system in which it
operates.
PCB
Printed Circuit Board — used extensively
in the electronics industry to integrate
individual components and chips.
Phased Array Radar
Usually uses a static antenna face and
steers the radar beam electronically as
opposed to more conventional radars
which physically rotate through 360º.
Photoprinter
Transfers a precision artwork film pattern
onto a circuit board using UV light
exposure.
PIN Switch
An electronic component capable of
quickly routing high frequency microwave
signals by using silicon PIN Diodes.
Plated Through Holes
Holes drilled through microwave
dielectric insulating substrates and then
electro plated to provide electrical
connection from top conductor layers to
bottom conductor layers.
PTFE Substrates
Dielectric material used to produce high
performance microwave circuits. This
material contains a significant element of
PTFE (Teflon) to reduce microwave signal
transmission losses of power.
Thin Dielectric Substrate
Microwave circuit material with a
dielectric (sandwiched between 2 copper
foil layers) thickness of say 0.005 inches.
Ultra Broadband Microwave Amplifier
Gain Modules
Modular building blocks which can be
cascaded to make a 2–18 GHz
microwave amplifier or used in a
microwave sub-system to provide
distributed gain at various key points.
Wire Bonding
Operation of electrically connecting to
semiconductor chips using thin wire
typically 25 microns in diameter. INTELEK designs and manufactures electronic systems for
satellite and microwave communications and is a specialist
manufacturer for the aerospace market.
Group Highlights 1
Chairman’s Statement 2
Chief Executive’s Review 4
Financial Review 16
Directors and Senior Executives 18
Directors’ Report 19
Statement of Directors’ Responsibilities 21
Corporate Governance Report 22
Remuneration Report 26
Auditors’ Report (Group) 29
Consolidated Income Statement 30
Consolidated Statement of Recognised
Income and Expense 30
Consolidated Balance Sheet 31
Consolidated Cash Flow Statement 32
Notes to the Financial Statements 33
Five Year Summary 54
Auditors’ Report (Company) 55
Company Balance Sheet 56
Notice of Meeting 59
Glossary 61
Group Company Addresses and Advisers IBC
INTELEK Report and Accounts 2007
Contents
Auditors
RSM Robson Rhodes LLP
Chartered Accountants
Centre City Tower, 7 Hill Street,
Birmingham, B5 4UU
Solicitors
DLA
Victoria Square House,
Victoria Square, Birmingham, B2 4DL
Bankers
Barclays Bank PLC
Park House, Stoke Gifford,
Bristol, BS34 8TN
Fortis Bank
The Imperium, Imperial Way,
Worton Grange, Reading, RG2 0TD
Sovereign Bank
2790 West College Avenue, Suite 800,
State College, PA 16801, USA
Stockbrokers/Nomads
Brewin Dolphin Securities
Edmund House, 12–22 Newhall Street,
Birmingham, B3 3DB
Registrars
and Transfer Office
Lloyds TSB Registrars
The Causeway, Worthing,
West Sussex, BN99 6DA
Advisers
Group Company Addresses
Registered Office
Intelek plc
PO Box 25, South Marston Park,
Swindon, Wiltshire, SN3 4TR
Tel: (01793) 827000
Fax: (01793) 827578
e-mail: info@intelek.plc.uk
Website: www.intelek.plc.uk
Trading Subsidiaries
CML Group Limited
Price Street, Birkenhead,
Wirral, CH41 3PT
Tel: (0151) 647 5531
Fax: (0151) 650 0668
e-mail: enquiries@cml-group.com
Website: www.cml-group.com
Labtech Limited*
Labtech Circuits
Unit 1, Broadaxe Business Park,
Presteigne, Powys, LD8 2UH
Tel: (01544) 260093
Fax: (01544) 260310
Labtech Microwave
8 Vincent Avenue,
Crownhill, Milton Keynes, MK8 0AB
Tel: (01908) 261755
Fax: (01908) 261788
e-mail: ptfe@labtech.ltd.uk
Website: www.labtechcircuits.com
* Held directly by Intelek plc.
Paradise Datacom
Paradise Datacom Ltd*
1 Wheaton Road, Witham,
Essex, CM8 3UJ
Tel: (01376) 515636
Fax: (01376) 533762
e-mail: sales@paradise.co.uk
Paradise Datacom LLC
328 Innovation Boulevard,
Suite 100, State College,
PA 16803, USA
Tel: (001) 814 238 3450
Fax: (001) 814 238 3814
e-mail: sales@paradisedata.com
Website: www.paradisedata.com P .O. Box 25, South Marston Park,
Swindon, Wiltshire, SN3 4TR, UK
Tel: +44 (0)1793 827000
Fax: +44 (0)1793 827578
E-mail: info@intelek.plc.uk
Web site: www.intelek.plc.uk
INTELEK plc Report and Accounts 2007
INTELEK plc Report and Accounts 2007
INTELEK plc