3 Acquisition of subsidiary

On 14 December 2011, the Group acquired all of the ordinary shares in Power Steel & Electro-Plating Works SDN BHD (PSEP) for a maximum consideration of £14.94 million, satisfied in cash of £13.49 million at date of acquisition and deferred consideration of £1.45 million payable in December 2012 subject to no claims being made against warranties. The Company manufactures highly engineered parts to the automotive, motorcycle and compressor industries primarily in Asia. The Trifast Board believes that markets in Asia represent strong growth opportunities and this acquisition is an initial key step towards the Group's future expansion in this area. In the 3.5 months to 31 March 2012 the subsidiary contributed net profit of £0.58 million to the consolidated net profit for the year and £3.56 million to the Group's revenue. If the acquisition had occurred on 1 April 2011, Group revenue would have been increased by an estimated £8.88 million and net profit would have been increased by an estimated £1.43 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 April 2011.

Effect of acquisition

The acquisition had the following effect on the Group's assets and liabilities.


Recognised
values on
acquisition
£000
Acquiree's net assets at the acquisition date:
Property, plant and equipment 6,610
Intangible assets (note 13) 817
Stocks 3,928
Trade and other receivables 2,283
Cash and cash equivalents 3,036
Interest-bearing loans and borrowings (782)
Trade and other payables (925)
Corporation tax payable (68)
Deferred tax liabilities (693)
Net identifiable assets and liabilities 14,206
Consideration paid:
Initial cash price paid 13,491
Deferred consideration at fair value 1,447
Total consideration 14,938
Goodwill on acquisition 732

Goodwill is the excess of the purchase price over the fair value of the net assets acquired and is not deductible for tax purposes. It mostly represents potential synergies, e.g. cross-selling opportunities between PSEP and the Trifast Group.

The Company issued 21,621,622 5p ordinary shares for a cash consideration of £8.00 million (£7.18 million net of expenses).

Fair values determined on a provisional basis2012
£000
Stocks 3,928
Corporation tax payable (68)
Deferred tax liabilities (693)

The above have been determined on a provisional basis because of the following:

Both the Group and Power Steel & Electro-Plating Works SDN BHD value their manufactured stock (work in progress and finished goods) by including an appropriate share of production overheads based on normal operating capacity. Power Steel & Electro-Plating Works SDN BHD does this on a 'Weight basis', whereas the Group performs it on a 'Process basis'. Whilst it is not envisaged that the different methods are considered material, due to practicalities of Reporting deadlines, it was not possible to complete a revaluation of the stock based on the Group's method in time.

Confirmation from the Malaysian tax authorities in relation to tax for the period from Completion to 31 March 2012 was not available in time for Reporting.

Acquisition related costs

The Group incurred acquisition related cost of £0.39 million in relation to the acquisition of Power Steel & Electro-Plating Works SDN BHD. These costs have been included in administrative expenses in the Group's consolidated statement of comprehensive income.

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