Delta Technologies Plc. has published its proposals for resolutions for the Annual General Meeting on 30 October. The annual accounts presented by the listed company, which carried out a reverse takeover in the financial year, are unusual in several respects: the capital position of the listed company has been settled and the results of Delta Systems Ltd. have been consolidated for the first time.
The Annual General Meeting of Delta Technologies Plc, listed on the Budapest Stock Exchange, will be held on 30 October. The company has previously decided to shift its financial year to align it with the different financial year of its subsidiary Delta Systems Kft. However, the fact that the annual general meeting - and thus the adoption of the annual accounts - can take place in the autumn is not the only peculiarity.
Individual reports
The capital position of the listed company has been settled after many years, with equity increasing from HUF -124 million to HUF 4 728 million. The profit after tax of HUF -21,397 million is mainly due to a one-off item, the revaluation of the Delta Systems Kft. stake based on the company valuation prepared on 30 September. Delta Systems Ltd. closed the year with a profit after tax of HUF 342 million, of which HUF 171 million will be paid as dividends to the listed parent company.
| Delta Technologies Plc. | Delta Systems Ltd. | |
|---|---|---|
| Business year | 1 January 2020 - 30 June 2020. | 1 July 2019 - 30 June 2020. |
| Balance sheet total | HUF 7 352 million | HUF 3 516 million |
| Equity capital | HUF 4 728 million | 440 million forints |
| Profit after tax | HUF -21 397 million | HUF 342 million |
Consolidated accounts
For the first time, the financial results of Delta Systems Ltd. were consolidated in the financial statements of the listed company, as the ownership of the company was registered by the Commercial Court with effect from 6 February 2020. Therefore, although the accounts of Delta Technologies Plc cover the financial year from 1 January 2020 to 30 June 2020, the results of its wholly owned subsidiary are only shown from the date of the acquisition of control.
The majority of the total comprehensive income of HUF -61 664 million in the consolidated income statement is due to one item highlighted in the report, the „listing expenses”; apart from this highlighted item, the result is HUF -67 million.
Commenting on the flagship item, Gergely Bodzási (FCCA), Member of the Board of Delta Technologies Plc:
The complex Delta Systems transaction closed in the financial year required special accounting treatment, being a reverse acquisition under IFRS, and has therefore been treated in the preparation of the consolidated financial statements as a transaction resulting in the same ownership structure as at present, with only a reverse ownership between Delta Systems Ltd. and Delta Technologies Plc (the legal acquirer (Delta Technologies Plc.Ltd) has been identified as the acquirer for accounting purposes, while the legal acquirer (Delta Systems Ltd) has been identified as the acquirer for accounting purposes).
A the specific accounting effects of this reverse acquisition transaction when preparing the consolidated accounts have been taken into account.
In accounting terms, Delta Systems Ltd. has made a capital increase (HUF 59 023 million through a hypothetical issue of shares), the issued shares have been exchanged by the owners of Delta Technologies Plc for their existing shares and HUF 2 350 million will be paid to the seller (the same as in the legal transaction).
The total purchase price of the reverse acquisition transaction taken into account in the preparation of the consolidated financial statements is thus HUF 61 373 million, while the net asset value received in exchange is HUF -224 million, i.e. the result of the transaction is HUF -61 597 million. In the case of a business combination, a similarly calculated excess value would be recognised as goodwill, but as the transaction does not meet the definition of a business combination, it is recognised as an expense, „listing costs”.
As a result of the transaction, the consolidated entity's equity will increase by HUF 59 023 million due to the hypothetical share issue, and then decrease by HUF 61 597 million through profit or loss due to the „listing costs”, i.e. an overall decrease of HUF 2 574 million, which is the difference between the purchase price part of HUF 2 350 million and the fair value of the identifiable net assets received, i.e. the purchase price part of HUF 2 350 million is recognised as an expense instead of an equity interest in the consolidation item, contrary to the approach in the separate financial statements.
As this is a consolidation adjustment, it does not generate any additional expenditure and does not affect the individual financial position of the company(ies) or the cash flow of the companies.
The accounting treatment of the transaction was prepared by Big4 consultancy, and the company's IFRS financial statements were prepared by Dr Ildikó Rózsa PhD (FCCA, Chartered Accountant, Adjunct Professor at the ELTE Institute of Economics, Lecturer in International and Group Accounting). The auditors (A MOORE STEPHENS K E S AUDIT Ltd.) also highlighted in their report that „During our audit procedures, we focused on which IFRS standard the transaction falls under. Our examination included a review of the full accounting treatment of the transaction and a recalculation of the cost of the listing.”
Commenting on the report, Zoltán Csontos, Chairman of the Board, said.„the flotation of Delta Systems Ltd. was an unusual transaction, which should also be treated in an unusual way in the report just published. However, this has had no real impact on the business, both companies are financially sound, and the vision outlined to investors is being built and the business strategy, including acquisitions and product development, is being implemented uninterrupted. Our goal remains to build a dynamically growing IT company with increasingly strong fundamentals on the domestic stock exchange.”
