Half-yearly Report

Next Fifteen Communications Plc Next Fifteen Communications Group plc Interim results for the six months ended 31 January 2008 Next Fifteen Communications Group plc ("Next Fifteen" or "the Group"), the international public relations consultancy group, today reports record profitability and revenues for its financial results for the six months to 31 January 2008. Financial highlights: -- Adjusted profit before tax up 9.3% to Â£3.08 million (2007: Â£2.81 million) (see note 3) -- Revenues up 3.3% to Â£30.4 million (2007: Â£29.4 million) -- On the basis of the average currency rates in the first half of 2007, revenue growth would have been up 4.7% -- Operating profit margins improved to 10.2% from 10.0% in the comparative period -- Adjusted earnings per share up 15.2% to 4.01p (2007: 3.48p) (see note 7) -- Interim dividend increased 12.5% to 0.45p (2007: 0.4p) -- Adjusted pre-tax margin before Head Office costs increased to 15.1% (2007: 14.2%), with a reduction in relative staff costs to 67.1% of revenue (2007: 68.2%) -- Net cash of Â£0.4m, following strong cash conversion from operating profit Corporate progress: -- Strong overall performance by the Group's technology and non-technology orientated consulting businesses; growth of existing client revenue and significant new client wins including Facebook, AMD, MTV, EQO and Belkin -- Organic revenue growth in US up 5.3%, in EMEA up 7.4%, in India up 22% -- After the period closed, ownership of Lexis Public Relations was increased to 87.15%, further strengthening the Group's presence beyond the technology sector. Remaining equity to be purchased within the next two years -- OutCast (acquired in June 2005), performed strongly with revenue growth of 18% in dollar terms -- Five-year agreement with Sun Microsystems Commenting on the results, Chairman of Next Fifteen, Will Whitehorn, said: "In generating strong results again for the first half the Group is continuing to make good progress "We are seeing a strong new-business climate in all the Group's key markets and particularly so in the US, UK and mainland Europe. We have expanded our relationships with a number of clients including Xerox, AMD and Barclays Premier League. We have also added clients such as Facebook, MTV, EQO and Belkin. "We remain optimistic about the PR market growth potential of both the high-growth markets such as India (where we have been established for 12 years) and China (where we are in our fifth year) as well as the more established markets such as the UK and US. The Group has not been affected by the turmoil in the Financial Services sector as a result of its strong focus on IT, where budgets remain healthy. The Group is also benefiting from its strong positioning in social media, an area of marketing services that is expanding, as other areas, such as traditional advertising, decline. We therefore remain optimistic about our growth potential and that of the PR market overall. The Board remains confident that the Group will continue to generate good organic growth, based on its sector focus and geographical reach." Chairman and Chief Executive's Statement Next Fifteen is pleased to report another record result for the six months to 31 January 2008. Revenues increased by 3.3% to Â£30.4m (2007: Â£29.4m), which would have been 4.7% had exchange rates remained the same as the previous first half year. Reporting for the first time under IFRS, profit before tax was Â£2.01m (2007: Â£2.64m) but the underlying adjusted profit before tax increased by 9.3% to Â£3.08m (2007: Â£2.81m) (see note 3). At the same time, adjusted earnings per share rose by 15.2% to 4.01p (2007: 3.48p) (see note 7). As a result of this strong performance, the Board has decided to increase the interim dividend by 12.5% to 0.45p (2007: 0.4p). The Group's strategy remains focused on improving margins whilst generating organic growth from its existing PR brands and supplementing this with targeted acquisitions that offer growth potential and which complement the existing PR businesses. In generating strong results again for the first half, the Group is continuing to make good progress. The Group's operating profit margins have improved to 10.2%, up from 10.0% during the same period in 2007. Adjusted pre-tax margins (before Head Office costs) increased to 15.1% from 14.2% (see note 2), which is pleasing progress towards our target of 16%. Dependence on key clients has continued to reduce, with the top 10 clients now accounting for just under 35% of revenue, down from just over 38% in the same period during 2007. We have worked with eight of these clients for more than three years, four of them for more than seven years and two of them for over 15 years, so they provide a stable platform from which we can continue to grow revenue. We are seeing a strong new-business climate in all the Group's key markets and particularly so in the US, UK and mainland Europe. We have expanded our relationships with a number of clients including Xerox, AMD and Barclays Premier League. We have also added clients such as Facebook, MTV, EQO and Belkin. We have also experienced revenue growth of 22% in India, where we have been established since 1996. The Group has seen a return to revenue growth in the US market which had experienced a small decline in the previous six months. This follows the restructuring of the relationship with IBM. During the period, the Group's US businesses produced 5.3% of growth in US dollar terms. OutCast, acquired in June 2005, has again performed well with revenue growing by 18%. Earlier this month the Group acquired a further 10.6% of Lexis, its consumer sector UK agency, by the purchase of shares in Panther Communications Group Limited, taking the Group's ownership to 87.15%. Lexis's revenue grew by 23% in the first half of the year and this purchase further strengthens the Group's presence beyond the technology sector. Under existing agreements, the remaining equity will be purchased within the next two years. IFRS impact The results for the period are the first set of results reported under adopted International Financial Reporting Standards (IFRS). Under IAS 39 Financial Instruments: Recognition and Measurement we are required to report the value of the financial instruments we use to protect the Group from rising interest rates and weaker currencies at fair market value. This effectively means that we are obliged to report in the Income Statement any movement in the market value of these long-term protection measures which have occurred during the period. In 2007 we took out interest rate protection on the dollar denominated loan used to finance the acquisition of OutCast as well as currency protection to mitigate the impact on reported sterling results of any weakening of the US Dollar and the Euro. The impact of reporting the value of financial instruments at their fair value had been minimal in the comparative periods. However, in the current period we have experienced a dramatic reduction in US borrowing costs in response to the credit crisis, as well as a similarly dramatic strengthening of the Euro over the same period, which resulted in a Â£925k reduction in the fair value of the financial protection instruments we hold. There is no immediate cash impact of this movement in fair value and the negative value will unwind to zero as the underlying transactions run their term. A consequence of moving to IAS 39 is that the Company's reported pre-tax profits will reflect the movements in the fair value of the Group's financial protection measures and will be more difficult to predict. For this reason we have decided to adjust for this item in the underlying measure of profits and earnings that we present, to give a better understanding of the performance of the Group (see note 3). The key impacts of the adoption of IFRS are explained in note 9 to the Interim Accounts. Prospects Given the current global economic uncertainty, the Group has taken steps to seek protection against further changes in the business climate. However, we remain optimistic about the PR market growth potential of both the high-growth markets such as India (where we have been established for 12 years) and China (where we are in our fifth year) as well as the more established markets such as the UK and US. The Group has not been affected by the turmoil in the Financial Services sector as a result of its strong focus on IT, where budgets remain healthy. The Group is also benefiting from its strong positioning in social media, an area of marketing services that is expanding, as other areas, such as traditional advertising, decline. We therefore remain optimistic about our growth potential and that of the PR market overall. The Board remains confident that the Group will continue to generate good organic growth, based on its sector focus and geographical reach. In addition, given that the Group currently has no net debt and continues to be a strong cash generator, it is well placed to pursue selective acquisitions to expand its service offerings. We are currently exploring acquisitions mainly outside the UK, in line with our strategy and to capture the more accessible and fairly valued opportunities these markets offer. -0- *T Will Whitehorn Chairman Tim Dyson Chief Executive Officer *T For further information: -0- *T Next Fifteen Tim Dyson, Chief Executive 001 415 350 2801 David Dewhurst, Finance Director 07974 161 183 Merlin 020 7653 6620 Anja Kharlamova 07887 884 788 Rachel Thomas 07787 504 447 *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 31 JANUARY 2008 -0- *T Six months ended 31 Six months ended 31 Year ended January 2008 January 2007 31 July 2007 (Unaudited) (Unaudited) (Unaudited) NoteÂ£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 35,669 34,797 69,422 ================================================================================================= Revenue 2 30,417 29,443 59,268 Staff costs 20,409 20,088 39,963 Depreciation 628 746 1,465 Reorganisation costs - - 295 Other operating charges 6,264 5,667 11,852 ---------- --------- -------- (27,301) (26,501) (53,575) ----------- ----------- --------- Operating profit 3,116 2,942 5,693 ----------- ----------- --------- Finance expense (1,282) (395) (769) Finance income 92 65 142 ----------- ----------- --------- Net finance expense 6 (1,190) (330) (627) ----------- ----------- --------- Share of profit of equity accounted investees 85 32 56 ----------- ----------- --------- Profit before income tax 2,3 2,011 2,644 5,122 Income tax expense 4 (603) (1,013) (1,781) ----------- ----------- --------- Profit for the period 1,408 1,631 3,341 =========== =========== ========= Attributable to: Equity holders of the parent 1,298 1,534 3,100 Minority interest 110 97 241 ----------- ----------- --------- 1,408 1,631 3,341 =========== =========== ========= Earnings per share 7 Basic (pence) 2.52 3.17 6.33 Diluted (pence) 2.48 3.08 6.23 *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE SIX MONTHS ENDED 31 JANUARY 2008 -0- *T Six months ended Six months ended Year ended 31 January 2008 31 January 2007 31 July 2007 (Unaudited) (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Foreign currency translation differences for foreign operations 510 (315) 277 Translation differences on long-term foreign currency inter-company loans 23 301 (124) ----------- -------- ------------ Income and expense recognised directly in equity 533 (14) 153 Profit for the period 1,408 1,631 3,341 ----------- -------- ------------ Total recognised income and expense for the period 1,941 1,617 3,494 ----------- -------- ------------ Attributable to: Equity holders of the Company 1,831 1,520 3,253 Minority interest 110 97 241 ----------- -------- ------------ Total recognised income and expense for the period 1,941 1,617 3,494 ----------- -------- ------------ *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED BALANCE SHEET AS AT 31 JANUARY 2008 -0- *T 31 January 2008 31 January 2007 31 July 2007 (Unaudited) (Unaudited) (Unaudited) Note Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets Property, plant and equipment 2,278 2,643 2,162 Intangible assets 14,102 13,621 13,990 Investments in equity accounted investees 171 124 124 Deferred tax asset 2,630 1,150 2,252 Other receivables 384 355 397 -------- -------- -------- Total non-current assets 19,565 17,893 18,925 Trade and other receivables 15,779 14,932 14,991 Cash and cash equivalents 6,226 2,604 5,834 Current tax assets - 1,556 - Derivative financial assets - 53 69 -------- -------- -------- Total current assets 22,005 19,145 20,894 -------- -------- ---------------- Total assets 2 41,570 37,038 39,819 -------- -------- ---------------- Liabilities Loans and borrowings 5,288 5,499 5,190 Deferred tax liabilities 227 192 95 Deferred consideration 704 1,863 1,662 Share purchase obligation 9(e) 2,487 2,399 2,467 -------- -------- -------- Total non-current liabilities (8,706) (9,953) (9,414) Bank overdraft - 805 - Loans and borrowings 513 624 712 Trade and other payables 12,608 11,409 12,837 Corporation tax liability 191 - 29 Deferred consideration 815 639 766 Derivative financial liabilities 856 - - Total current liabilities (14,983) (13,477) (14,344) -------- -------- ---------------- Total liabilities (23,689) (23,430) (23,758) -------- -------- ---------------- TOTAL NET ASSETS 17,881 13,608 16,061 ======== ======== ================ Equity Share capital 1,340 1,334 1,334 Share premium reserve 5,157 5,157 5,157 Merger reserve 2,357 2,158 2,160 Share purchase reserve (2,243) (2,294) (2,294) Foreign currency translation reserve 510 (315) 277 Investment in own shares (668) (1,280) (681) Retained earnings 11,180 8,793 9,910 -------- -------- ---------------- Total equity attributable to equity holders of the Company 17,633 13,553 15,863 Minority interests 248 55 198 -------- -------- ---------------- TOTAL EQUITY 17,881 13,608 16,061 ======== ======== ================ *T NEXT FIFTEEN COMMUNICATIONS GROUP PLC CONSOLIDATED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED 31 JANUARY 2008 -0- *T Six months ended Six months ended Year ended 31 January 2008 31 January 2007 31 July 2007 (Unaudited) (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash flows from operating activities Profit for the period 1,408 1,631 3,341 Adjustments for: Depreciation 628 746 1,465 Finance income (92) (65) (142) Finance expense 1,282 395 769 Share of profit from equity accounted investees (85) (32) (56) Gain on sale of property, plant and equipment 117 7 151 Income tax expense 603 1,013 1,781 Share based payments 114 174 262 -------- -------- -------- Net cash inflow from operating activities before changes in working capital 3,975 3,869 7,571 Change in trade and other receivables (513) (840) (2,294) Change in trade and other payables (662) (1,132) 1,926 -------- -------- -------- (1,175) (1,972) (368) Net cash generated from operations 2,800 1,897 7,203 Income taxes paid (612) (1,560) (1,992) --------- --------- --------- Net cash from operating activities 2,188 337 5,211 Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (813) (1,956) (1,959) Acquisition of property, plant and equipment (878) (693) (1,168) Payments for long-term cash deposits - (31) (78) Receipts from long-term cash deposits 33 - - Interest received 92 52 113 -------- -------- -------- Net cash outflow from investing activities (1,566) (2,628) (3,092) Six months ended Six months ended Year ended 31 January 2008 31 January 2007 31 July 2007 (Unaudited) (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cash flows from financing activities Proceeds from sale of own shares 36 272 953 Proceeds from bank borrowings - 839 539 Repayment of bank borrowings (33) - - Capital element of finance lease rental repayment (113) (34) (299) Interest paid (285) (213) (424) Dividends paid to holders of the parent - (492) (691) -------- -------- -------- Net cash inflow/(outflow) from financing activities (395) 372 78 --------- --------- --------- Net increase/ (decrease) in cash and cash equivalents 227 (1,919) 2,197 Cash and cash equivalents at beginning of the period 5,834 3,791 3,791 Exchange gains/(losses) on cash held 165 (73) (154) --------- --------- --------- Cash and cash equivalents at end of period 6,226 1,799 5,834 --------- --------- --------- *T NOTES TO THE INTERIM ACCOUNTS FOR THE SIX MONTHS ENDED 31 JANUARY 2008 1) ACCOUNTING POLICIES The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. A. Basis of Preparation The interim financial information does not constitute statutory accounts as defined under section 240 of the Companies Act 1985. The AIM rules require that the next annual consolidated financial statements of the Group for the year ending 31 July 2008 be prepared in accordance with International Financial Reporting Standards as adopted by the European Union ('adopted IFRS'). The Group's consolidated financial statements were prepared in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 31 July 2007. UK GAAP differs in some areas from adopted IFRS. In preparing the 2008 consolidated interim financial statements, management has amended certain accounting methods applied under UK GAAP financial statements to comply with adopted IFRS. The interim financial information has been prepared using the recognition and measurement principles of adopted IFRS that are in effect at 31 January 2008 or are expected to be effective at 31 July 2008, the date of the Group's first full financial statements prepared on an IFRS basis. These standards are subject to ongoing amendment by the International Accounting Standards Board ('IASB') and subsequent endorsement by the European Union and are therefore subject to possible change. Further standards and interpretations may also be issued that will be applicable for the financial years beginning on or after 1 January 2007 or that are applicable to later accounting periods but may be adopted early. It is possible that the restated information for the year ended 31 July 2007 presented in this document may be subject to change before its inclusion in the consolidated financial statements for the year ending 31 July 2008, which will contain the Group's first full financial statements prepared in accordance with adopted IFRS. The comparative figures for the year ended 31 July 2007 are not the Group's statutory accounts for that financial year. Those accounts, which were prepared under UK GAAP, have been reported on by the Group's auditors and delivered to the Registrar of Companies. The auditors' report on those financial statements was unqualified and did not include a statement under section 237(2) or (3) of the Companies Act 1985. B. Transitional provisions of IFRS accounting policies An explanation of how the transition to adopted IFRS has affected the reported financial position, financial performance and cash flows of the Group is provided in note 9. The Group's date of transition to adopted IFRS is 1 August 2006. (a) First-time adoption IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the procedures that the Group must follow when it adopts IFRS for the first time as the basis for preparing its consolidated financial statements. The Group is required to establish its IFRS accounting policies as at 31 July 2008 and, in general, apply these retrospectively to determine the IFRS balance sheet at the date of transition. The standard provides a number of optional exemptions to this general principal. The most significant of these are set out below, together with the description in each case of the exemptions adopted by the Group. i) Business combinations that occurred before the transition date (IFRS 3 Business Combinations) The Group has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of transition. As a result, in the transition balance sheet, goodwill of Â£11.2m arising on past business combinations remains as stated under UK GAAP as at 31 July 2006. Some of that goodwill relates to business combinations including overseas subsidiaries. The Group has taken advantage of the exemption allowed under IFRS 1 and treats that goodwill as a sterling item and will not retranslate the balance at each reporting date. ii) Fair value or revaluation at deemed cost (IAS 16 Property and Equipment) The option to restate items of property, plant and equipment to their fair value at the transition date has not been taken by the Group. For all items, the Group has elected to take their carrying value as shown previously under UK GAAP as their deemed cost. iii) Foreign currency translation reserve (IAS 21 The Effects of Changes in Foreign Exchange) The Group has elected to reset the foreign currency translation reserve to zero as at the transition date. For accounting periods beginning on or after 1 January 2007, IFRS requires amounts taken to reserves on the translation of foreign subsidiaries, associates and branches to be recorded in a separate foreign currency translation reserve and to be included in the future calculation of profit or loss on disposal of the subsidiary, associate or branch. C. Basis of consolidation The Group's financial information consolidates the financial information of Next Fifteen Communications Group plc and all of its subsidiary undertakings using the acquisition method of accounting. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Business combinations that took place prior to the transition date have not been restated. Inter-company transactions, balances and unrealised gains on transactions between Group companies (Next Fifteen Communications Group plc and its subsidiaries) are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies for subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. D. Merger reserve Where the conditions set out in Section 131 of the Companies Act 1985 are met, shares issued as part of the consideration in a business combination are recorded at their nominal value in the company balance sheet. For the purpose of the consolidated balance sheet, the difference between the nominal value and fair value of the shares issued is recognised in the merger reserve. E. Associates Where the Group has the power to exercise significant influence over (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated income statement, except that losses in excess of the Group's investment in the associate are not recognised unless there is an obligation to make good those losses. Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate. Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate and subject to impairment in the same way as goodwill arising on intangibles described below. F. Revenue Turnover represents amounts receivable from clients, exclusive of sales taxes, in respect of charges for fees, commission and rechargeable expenses. Revenue represents fees and commissions earned in respect of turnover. Revenue is recognised on the following basis: -- Retainer and other non-retainer fees are recognised as the services are performed. -- Project fees are recognised on a percentage completion basis. -- Expenses are recharged to clients at cost plus an agreed mark-up when the services are performed. G. Intangible assets Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. At 1 August 2006, the goodwill carrying amount under UK GAAP was tested for impairment and based on the conditions existing at the transition date no impairment was identified. Thus, the carrying amount of goodwill in the transition balance sheet is equal to the goodwill carrying amount under UK GAAP. See also note B. (a) i) within this accounting policies section. Computer Software Licenses for software that is not integral to the functioning of a computer are capitalised as intangible assets. Costs that are directly associated with the production of identifiable and unique software products controlled by the Company, and that are expected to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs. Included within software are assets in the course of construction which comprise payments on account in respect of software licenses and consultancy fees relating to the construction of a new IT system which is not yet operational in the business. Only the incremental costs which are directly attributable to the asset in the course of construction are capitalised. No amortisation is charged on assets in the course of construction until they are available for operational use in the business. Capitalised computer software that is not an asset in the course of construction is amortised over its useful economic life of 5 years. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. H. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation. Depreciation is provided on all property, plant and equipment at annual rates calculated to write off the cost, less estimated residual value, of each asset evenly over its expected useful life as follows: -0- *T Leasehold premises - Over the term of the lease, or until the first break clause. Office equipment - 20%-50% per annum straight line. Office furniture - 20% per annum straight line. Motor vehicles - 25% per annum straight line. *T Payments on account in respect of property, plant and equipment which are not yet operational in the business are recorded in a separate fixed asset category called "Assets in the course of construction", and represent the cost of purchasing, constructing and installing tangible fixed assets ahead of their productive use. Only the incremental costs which are directly attributable to the asset in the course of construction are capitalised. No depreciation is charged on assets in the course of construction until they are available for operational use in the business, at which point the assets are transferred into the relevant asset category on the fixed asset register and depreciated over their useful economic life. Assets in the course of construction relate solely to a new IT system and comprise of hardware costs. I. Impairment Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets (including investments in associates but excluding deferred tax) are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount, which is measured as the higher of value in use and fair value less costs to sell, the asset is impaired accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash-generating unit defined as the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows. Goodwill is allocated on initial recognition to each of the group's cash-generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill. Impairment charges are included in the other operating charges line item in the consolidated income statement, except to the extent they reverse gains previously recognised in the consolidated statement of recognised income and expense. An impairment loss recognised for goodwill is not reversed. J. Foreign currency Transactions entered into by group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the exchange rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the exchange rates ruling at the balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement. On consolidation, the results of overseas operations are translated into sterling at the average exchange rates for the accounting period. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the exchange rates ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rates and the results of overseas operations at actual rates are recognised directly in the foreign currency translation reserve within equity. Exchange differences on long-term foreign currency intercompany loans are recognised in the foreign currency translation reserve. On disposal of a foreign operation, the cumulative translation differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal. In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, cumulative translation differences at the date of transition to IFRS are deemed to be zero (see note B. (a) iii) within this accounting policies section) and the gain or loss on a subsequent disposal of those foreign operations would exclude the differences that arose before the date of transition. K. Segment reporting A business segment is a distinguishable component of the group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. -0- *T Primary segment: The Group has one business segment being the provision of public relations services. A second business segment, being research, is not large enough to require segmental disclose. Secondary segments: The Group operates in four geographical segments being the UK, Europe and Africa, North America and Asia Pacific. *T L. Financial instruments Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes party to the contractual provisions of the asset or liability. The Group's accounting policies for different types of financial asset and liability are described below. Trade receivables Trade receivables are initially recognised at fair value and will subsequently be measured at amortised cost less allowances for impairment. An allowance for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the allowance is recognised in the consolidated income statement. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at fair value. Cash and cash equivalents comprise cash in hand and highly liquid securities that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Derivative financial instruments Derivative instruments utilised by the Group are cap and collar interest rate and foreign exchange contracts and forward foreign exchange contracts. Derivative financial instruments are initially recognised at fair value at the contract date and continue to be stated at fair value at the balance sheet date with gains and losses on revaluation being recognised immediately in the consolidated income statement. Bank borrowings Interest-bearing bank loans and overdrafts are recognised at their fair value net of direct issue costs and, thereafter, at amortised cost. Finance costs are charged to the consolidated income statement over the term of the debt so that the amount charged is at a constant rate on the carrying amount. Finance costs include issue costs which are initially recognised as a reduction in the proceeds of the associated capital instrument and unwound over the term of the debt. Share purchase obligation Financial liabilities in respect of share purchase obligations, where the Group is required to purchase the minority interest at a variable date in the future, are recorded in the balance sheet. The carrying value is the amount expected to be paid in the future, discounted for the time value of money. The value of such liabilities is re-measured at each reporting date. The movement in the value, being the unwinding of the discount, is recognised in the consolidated income statement. When the initial value of the liability, in respect of the obligation is recognised, the corresponding debit is included within equity, within the share purchase reserve. When the obligation is settled, the reserve is reduced with the corresponding adjustment against the investment in subsidiary. Trade payables Trade payables are initially recognised at fair value and, thereafter, at amortised cost. M. Retirement benefits Pension costs, which relate to payments made by the Company to employees' own defined contribution pension plans are charged to the profit and loss account as incurred. N. Share-based payments The Group issues equity-settled share-based payments to certain employees. The share-based payments are measured at fair value at the date of the grant and expensed on a straight line basis over the vesting period. The cumulative expense is adjusted for failure to achieve non-market vesting conditions. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as at 1 August 2006. There are equity instruments granted prior to 7 November 2002 which remain outstanding at 31 July 2007 for which no expense has been recognised. Fair value is measured by use of a Black Scholes model on the grounds that there are no market related vesting conditions. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Details of the risk free rate, dividend yield and volatility assumptions used in the model were as follows: -0- *T 2007 2006 Risk free rate 4.40% 4.40% Dividend Yield 1.50% 2.48% Volatility 33% 33% *T The market price on any given day is obtained from external publicly available sources. O. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased asset and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction to the rental expense over the lease term on a straight-line basis. The land and buildings elements of property leases are considered separately for the purposes of lease classification. P. Deferred taxation Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: â€¢ the initial recognition of goodwill; â€¢ goodwill for which amortisation is not tax deductible; â€¢ the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and â€¢ investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the asset can be utilised. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered). Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: â€¢ the same taxable group company; or â€¢ different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Q. Dividends Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting. R. Employee Share Ownership Plan (ESOP) As the Company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purposes of the Group accounts. The ESOP's assets (other than investments in the company's shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The ESOP's investment in the Company's shares is deducted from equity in the consolidated balance sheet as if they were treasury shares. 2) SEGMENT INFORMATION Primary reporting format - business segments The Group operates in one business segment, being the provision of public relations services. A second business segment, being research, is not large enough to require segmental disclosure. Secondary reporting format - geographical segments The Group's operations are based in four main geographical areas. The UK is the home country of the Parent Company. -0- *T Profit Adjusted before profit Total Capital Revenue income before assets expenditure tax income taxÂ² Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Six months ended 31 January 2008 (Unaudited) UK 9,488 1,259 1,311 9,283 535 EMEA(Â¹) 4,749 433 433 3,693 25 North America 12,966 2,486 2,556 14,709 140 Asia Pacific 3,214 297 297 4,011 128 Head Office - (2,464) (1,521) 9,874 112 ---------------------------------------------------- 30,417 2,011 3,076 41,570 940 ==================================================== Six months ended 31 January 2007 (Unaudited) UK 9,092 1,088 1,088 6,586 162 EMEA(Â¹) 4,218 249 249 3,064 55 North America 12,952 2,442 2,519 15,140 206 Asia Pacific 3,119 338 338 3,161 217 Head Office 62 (1,473) (1,381) 9,087 127 ---------------------------------------------------- 29,443 2,644 2,813 37,038 767 ==================================================== Year ended 31 July 2007 (Unaudited) UK 18,443 2,349 2,493 9,048 280 EMEA(Â¹) 8,567 609 609 3,128 69 North America 25,922 3,966 4,136 16,205 236 Asia Pacific 6,336 611 611 3,409 487 Head Office - (2,413) (2,269) 8,029 538 ---------------------------------------------------- 59,268 5,122 5,580 39,819 1,610 ==================================================== *T Â¹ EMEA means Europe (excluding the UK), Middle East and Africa. Â² Adjusted profit before income tax has been reached by adjusting profit before income tax for movements in fair value of financial instruments, reorganisation costs, unwinding of discount on deferred consideration and share purchase obligation and profit on sale of division. See note 3 Reconciliation of pro-forma financial measures. 3) RECONCILIATION OF PRO-FORMA FINANCIAL MEASURES -0- *T Six months Six months ended Year ended ended 31 January 2007 31 July 2007 31 January 2008 (Unaudited) (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Profit before income tax 2,011 2,644 5,122 Movement in fair value of financial instrumentsÂ¹ 925 (13) (29) Reorganisation costs - - 295 Unwinding of discount on deferred consideration(Â²) 70 77 170 Unwinding of discount on share purchase obligationÂ³ 70 105 173 Profit on sale of division - - (151) --------------- --------------- --------------- Adjusted profit before income tax 3,076 2,813 5,580 =============== =============== =============== *T Adjusted profit before income tax has been presented to provide additional information which may be useful to the reader. Â¹ See note 6 (Â²)As required by IAS37 Provisions, Contingent Liabilities and Contingent Asset, an interest charge of Â£70,000 has been recognised during the period in relation to the deferred consideration payable for OutCast Communications. Â³As required by IAS39 Financial Instruments: Recognition and Measurement, an interest charge of Â£70,000 has been recognised during the period in relation to the unwinding of the discount on the share purchase obligation for Lexis Public Relations Limited. 4) INCOME TAX EXPENSE The tax charge is based on the forecast effective tax rate of 30% for the year. 5) DIVIDENDS An interim dividend of 0.45p (2007: 0.4p) per ordinary share will be paid on 29 May 2008 to shareholders on the register of members on 9 May 2008. Shares will go ex dividend on 7 May 2008. The Employee Share Ownership Trust has waived its rights to dividends of Â£15,000 in the six months ended 31 January 2008 (Interim 2007: Â£18,000; Full year 2007: Â£56,000). 6) FINANCE EXPENSE The net finance expense of Â£1,190,000 (January 2007: Â£330,000), includes a charge of Â£925,000 (January 2007: gain of Â£13,000) on financial instruments reflecting the movement in the fair value since 31 July 2007. These financial instruments comprise of financial products used for hedging interest rate risk on long term debt and currency exposure on USD and EUR. Also included within finance expense is a charge of Â£140,000 for the period (January 2007: Â£182,000) relating to the notional interest on the deferred consideration of OutCast Communications and share purchase obligation of Lexis Public Relations Limited. 7) EARNINGS PER SHARE -0- *T Six months ended Six months ended Year ended 31 31 January 2008 31 January 2007 July 2007 (Unaudited) (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Basic and diluted earnings attributable to ordinary shareholders 1,298 1,534 3,100 Reorganisation costs after taxation - - 207 Unwinding of discount on deferred consideration 46 51 112 Unwinding of discount on share purchase obligation 70 105 173 Profit on sale of division after taxation - - (106) Movement in fair value of financial instruments after tax 654 (6) (14) ----------------- ----------------- --------------- Adjusted and diluted adjusted earnings attributable to ordinary shareholders 2,068 1,684 3,472 ================= ================= =============== Number Number Number Weighted average number of ordinary shares 51,581,138 48,346,868 48,954,264 Dilutive shares 719,602 1,503,880 819,624 ----------------- ----------------- --------------- Diluted weighted average number of ordinary shares 52,300,740 49,850,748 49,773,888 ----------------- ----------------- --------------- Basic earnings per share 2.52p 3.17p 6.33p Diluted earnings per share 2.48p 3.08p 6.23p Adjusted earnings per share 4.01p 3.48p 7.09p Diluted adjusted earnings per share 3.95p 3.38p 6.98p *T Adjusted and diluted adjusted earnings per share have been presented to provide additional useful information. The adjusted earnings per share is the performance measure used for the vesting of employee share options and performance shares. 8) ACQUISITIONS 1. On 31 October 2007, the Company paid Â£977,000 ($2,030,000) relating to the deferred consideration for the purchase of OutCast Communications Limited ("OutCast") in June 2005. Â£791,000 ($1,644,000) of the Â£977,000 was settled in cash and the remainder in shares. 2. On 31 October 2007, the Company acquired a further 0.6% stake in the UK public relations company Lexis Public Relations Limited ("Lexis") by the purchase of a 0.6% stake in Panther Communications Group Limited ("Panther"), the parent company of Lexis. The stake was acquired for a total consideration of Â£51,000 of which Â£38,000 was satisfied in cash and the remainder in shares, taking the Company's total stake to 76.6%. It is the intention of the Company to acquire the whole of Panther by 2010 and Panther's existing management has agreed to sell further stakes in the company over the next two years. 9) TRANSITION TO ADOPTED IFRS As stated in note 1, the interim financial information has been prepared on the basis of the recognition and measurement requirements of adopted IFRS. The accounting policies set out in note 1 have been applied (subject to IFRS 1 exemptions taken) in preparing the financial statements for the six months ended 31 January 2008, the comparative information presented in these financial statements for the six months ended 31 January 2007 and the year ended 31 July 2007 and the preparation of the opening IFRS balance sheet at 1 August 2006 (the Group's transition date). The changes in accounting policies as a consequence of the transition to adopted IFRS and the reconciliations of the effects of the transition to adopted IFRS on the Group's financial statements are presented below. Only the presentation of the cashflow statement has changed as a result of the adoption of IFRS. The transition to adopted IFRS resulted in the following changes in accounting policies: a) Goodwill The change to adopted IFRS means that goodwill is no longer amortised but is tested for impairment annually or when external factors indicate that it may be impaired. The carrying value of goodwill was tested for impairment at the date of transition and as at 31 July 2007. No impairment was required, therefore the amortisation charge for the year ended 31 July 2007 of Â£826,000 (for the period ended 31 January 2007: Â£404,000) has been fully reversed under IFRS and the carrying value of goodwill as at the transition date remains the same as under UK GAAP in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards. b) Short-term Compensated Absences In accordance with IAS 19 Employee Benefits, the Group must recognise the expected cost of short-term employee benefits in the form of compensated absences, including contractual vacation and sick leave allowances. Accumulated unused allowances accrued at the transition date, at 31 January 2007 and at 31 July 2007 were Â£1,148,000, Â£978,000 and Â£1,181,000, respectively, resulting in an additional expense for the year ended 31 July 2007 of Â£33,000 (31 January 2007: a reduction in expense of Â£170,000). c) Financial Instruments As at 31 July 2007 and 31 January 2007 the Group held a reset cap and collar interest rate contract and forward exchange contracts with a fair value of Â£69,000 and Â£53,000 respectively (Â£40,000 as at 1 August 2006). These contracts meet the IAS 39 Financial Instruments: Recognition and Measurement definition of a derivative, falling into the category of a "financial asset at fair value through profit or loss". Therefore, in compliance with IAS 39, the fair value of these contracts is recognised on the balance sheet at each post transition reporting date, with corresponding finance income in the consolidated income statement for the year ended 31 July 2007 of Â£29,000 (January 2007: Â£13,000). The transition to adopted IFRS for the six months ended 31 January 2008 was a non-cash charge of Â£925,000 to the consolidated income statement. The fair value liability carried in the balance sheet at 31 January 2008 is Â£856,000, of which Â£292,000 relates to a USD interest rate hedge on borrowings used to finance the acquisition of OutCast Communications, Â£123,000 to USD foreign exchange hedging and Â£442,000 to EUR foreign exchange hedging. The negative fair value on these financial instruments has resulted from USD interest rate reductions and both EUR and USD foreign exchange strengthening during the six months ended 31 January 2008. d) Income Tax IAS 12 looks at 'temporary differences' between tax and book values for deferred tax whereas UK GAAP assesses 'permanent' and 'timing differences' reversing in future periods. The impact on the consolidated income statement and consolidated balance sheet arises in relation to share-based payments. As a result, a deferred tax asset of Â£210,000 was recognised as at 31 July 2007 (31 January 2007: Â£235,000 and Â£78,000 at the transition date) with the corresponding credit recognised partially in the income statement and partially in equity. e) Contingent Consideration and Share Purchase Obligations Under IAS 32 Financial Instruments: Presentation, own shares issued in return for another financial asset should be classified as a liability rather than within shareholders' equity. As at 31 July 2007 the Group had a balance of Â£190,000 of shares to be issued as contingent consideration for the acquisition of OutCast. This balance has been presented as a liability resulting in a reduction in equity of Â£190,000 (Â£240,000 as at 31 January 2007). Under IAS 32 Financial Instruments Presentation and IAS 39 Financial Instruments: Recognition and Measurement, share purchase obligations must be recognised as a liability at fair value. The obligation to acquire the remaining shares in Lexis Public Relations Limited ("Lexis") is recorded, on transition, at the discounted expected settlement amount of Â£4,364,000 and a corresponding share purchase reserve is recognised within equity. At each balance sheet date, the remaining liability is re-valued to its discounted expected settlement amount (amortised cost). Any changes in the carrying value of the liability will be recognised in the consolidated income statement in accordance with IAS 39 and an interest charge is recognised within finance expense in each period in relation to the unwinding of the discount rate on the share purchase obligation. During the year ended 31 July 2007 and the period ended 31 January 2007 the Company acquired a further 25% stake in Lexis by the acquisition of a 25% stake in the Panther Communications Group Limited ("Panther"), the parent company of Lexis. The share purchase obligation was reduced by the consideration of Â£2,071,000 with a corresponding decrease in the share purchase reserve. The interest charge for the period ending 31 July 2007 was Â£173,000 (31 January 2007: Â£105,000) thus the share purchase liability as at 31 July 2007 was Â£2,467,000 (31 January 2007: Â£2,399,000). During the six months ended 31 January 2008 the liability was reduced by the consideration of Â£51,000 for the purchase of a 0.6% stake in Lexis, with a corresponding decrease in the share purchase reserve. The interest charge for the period was Â£70,000. As at 31 January 2008 the share purchase obligation is Â£2,487,000. f) Software Under IAS 38 Intangible Assets, certain computer software must be classified as an intangible asset. Consequently, Â£829,000 as at 31 July 2007 (Â£394,000 as at 31 January 2007 and Â£298,000 as at the transition date) has been reclassified from property, plant and equipment to intangible assets. g) Share-based payments Previously the company maintained a separate reserve within equity for share based payments under UK GAAP. For the sake of simplicity under adopted IFRS the Group has included within retained earnings Â£491,000 as at 31 July 2007 (Â£516,000 as at 31 January 2007 and Â£229,000 as at the transition date) which was previously presented as the share-based payments reserve. h) Foreign currency translation In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, exchange differences resulting from the translation of foreign subsidiaries in the consolidated balance sheet must be presented as a separate reserve within shareholders' equity. Under IFRS goodwill on foreign subsidiaries is treated as a currency asset. IFRS 1 exempts the Group from applying this rule to foreign subsidiaries prior to the transition date and the Group will apply it prospectively from the transition date (see IFRS 1 Exemptions iii). As a result the Group has reclassified Â£277,000 as at 31 July 2007 (Â£315,000 as at 31 January 2007 and Â£nil as at the transition date) from retained earnings to the foreign currency translation reserve. The change to adopted IFRS means that goodwill, as a result of acquisitions by overseas subsidiaries, is no longer restated at each reporting date. Exchange differences on goodwill, reported under UK GAAP since 1 August 2006, have been reversed and taken to the foreign currency translation reserve. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position and financial performance is set out in the tables below and the notes that accompany the tables. There are no material adjustments to the cash flow statement in any of the periods presented. Reconciliation of profit for the six months ended 31 January 2007 (comparable Interim period under UK GAAP) -0- *T UK GAAP IFRS 3 IAS 19 IAS 30 IAS 12 IAS IFRS 32/39 Period Period ended 31 ended 31 Jan 07 Jan 07 9(a) 9(b) 9(c) 9(d) 9(e) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 34,797 - - - - - 34,797 ================================================================================================= Revenue 29,443 - - - - - 29,443 Staff costs 20,258 - (170) - - - 20,088 Depreciation 746 - - - - - 746 Amortisation and amounts written off intangible assets 404 (404) - - - - - Reorganisation costs - - - - - - - Other operating charges 5,667 - - - - - 5,667 -------------------------------------------------------------- (27,075) 404 170 - - - (26,501) -------------------------------------------------------------- Operating profit 2,368 404 170 - - - 2,942 -------------------------------------------------------------- Finance expense (290) - - - - (105) (395) Finance income 52 - - 13 - - 65 -------------------------------------------------------------- Net finance expense (238) - - 13 - (105) (330) -------------------------------------------------------------- Share of profit of equity accounted investees 32 - - - - - 32 -------------------------------------------------------------- Profit before income tax 2,162 404 170 13 - (105) 2,644 Income tax expense (888) (39) (60) (4) (22) - (1,013) -------------------------------------------------------------- Profit for the period 1,274 365 110 9 (22) (105) 1,631 ============================================================== Attributable to: Equity holders of the parent 1,177 365 110 9 (22) (105) 1,534 Minority interest 97 - - - - - 97 -------------------------------------------------------------- 1,274 365 110 9 (22) (105) 1,631 ============================================================== Earnings per share Basic (pence) 2.43 3.17 Diluted (pence) 2.29 3.08 *T Reconciliation of profit for the year ended 31 July 2007 (end of last period presented under UK GAAP) -0- *T UK GAAP IFRS 3 IAS 19 IAS 30 IAS 12 IAS IFRS 32/39 Period Period ended 31 ended 31 July 07 July 07 9(a) 9(b) 9(c) 9(d) 9(e) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Turnover 69,422 - - - - - 69,422 =============================================================================================== Revenue 59,268 - - - - - 59,268 Staff costs 39,930 - 33 - - - 39,963 Depreciation 1,465 - - - 1,465 Amortisation and amounts written off intangible assets 826 (826) - - - - - Reorganisation costs 295 - - - - - 295 Other operating charges 11,852 - - - - - 11,852 ----------------------------------------------------------- (54,368) 826 (33) - - - (53,575) ----------------------------------------------------------- Operating profit 4,900 826 (33) - - - 5,693 ----------------------------------------------------------- Finance expense (596) - - - - (173) (769) Finance income 113 - - 29 - - 142 ----------------------------------------------------------- Net finance expense (483) - - 29 - (173) (627) ----------------------------------------------------------- Share of profit of equity accounted investees 56 - - - - - 56 ----------------------------------------------------------- Profit before income tax 4,473 826 (33) 29 - (173) 5,122 Income tax expense (1,746) (74) 99 (9) (51) - (1,781) ----------------------------------------------------------- Profit for the period 2,727 752 66 20 (51) (173) 3,341 =========================================================== Attributable to: Equity holders of the parent 2,486 752 66 20 (51) (173) 3,100 Minority interest 241 - - - - - 241 ----------------------------------------------------------- 2,727 752 66 20 (51) (173) 3,341 =========================================================== Earnings per share Basic (pence) 5.08 6.33 Diluted (pence) 4.99 6.23 *T Reconciliation of equity for the six months ending 31 January 2007 (comparable Interim period under UK GAAP) -0- *T UK GAAP Reclass IFRS 3 IAS 19 IAS 30 IAS 12 IAS IFRS 32/39 Period Period ended 31 ended 31 Jan 07 Jan 07 9(f,g,h) 9(a) 9(b) 9(c) 9 (d) 9(e) Assets Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Property, plant and equipment 3,037 (394) - - - - - 2,643 Intangible assets 12,551 394 676 - - - - 13,621 Investments in equity accounted investees 124 - - - - - - 124 Deferred tax asset 757 - - 158 - 235 - 1,150 Other receivables 355 - - - - - - 355 ------------------------------------------------------------------------ Total non-current assets 16,824 - 676 158 - 235 - 17,893 ------------------------------------------------------------------------ Trade and other receivables 14,932 - - - - - - 14,932 Cash and cash equivalents 2,604 - - - - - - 2,604 Current tax assets 1,556 - - - - - - 1,556 Derivative financial assets - - - - 53 - - 53 ------------------------------------------------------------------------ Total current assets 19,092 - - - 53 - - 19,145 ------------------------------------------------------------------------ Total assets 35,916 - 676 158 53 235 - 37,038 ======================================================================== Liabilities Loans and borrowings 5,499 - - - - - - 5,499 Deferred tax liability 137 - 39 - 16 - - 192 Deferred consideration 1,863 - - - - - - 1,863 Share purchase obligation - - - - - - 2,399 2,399 ------------------------------------------------------------------------ Total non-current liabilities (7,499) - (39) - (16) - (2,399) (9,953) ------------------------------------------------------------------------ Bank overdraft 805 - - - - - - 805 Loans and borrowings 624 - - - - - - 624 Trade and other payable 10,431 - - 978 - - - 11,409 Corporation tax liability - - - - - - - - Deferred consideration 399 - - - - - 240 639 ------------------------------------------------------------------------ Total current liabilities (12,259) - - (978) - - (240) (13,477) ------------------------------------------------------------------------ Total liabilities (19,758) - (39) (978) (16) - (2,639) (23,430) ------------------------------------------------------------------------ TOTAL NET ASSETS 16,158 - 637 (820) 37 235 (2,639) 13,608 ======================================================================== Equity Share capital 1,334 - - - - - - 1,334 Share premium reserve 5,157 - - - - - - 5,157 Merger reserve 2,158 - - - - - - 2,158 Share purchase reserve - - - - - - (2,294) (2,294) Foreign currency translation reserve - (587) 272 - - - - (315) Share-based payment reserve 516 (516) - - - - - - Shares to be issued 240 - - - - - (240) - Investment in owns shares (1,280) - - - - - - (1,280) Retained earnings 7,978 1,103 365 (820) 37 235 (105) 8,793 ------------------------------------------------------------------------ Total equity attributable to equity holders of the Company 16,103 - 637 (820) 37 235 (2,639) 13,553 Minority interests 55 - - - - - - 55 ------------------------------------------------------------------------ TOTAL EQUITY 16,158 - 637 (820) 37 235 (2,639) 13,608 ======================================================================== *T Reconciliation of equity for the year ended 31 July 2007 (end of last period presented under UK GAAP) -0- *T UK GAAP Reclass IFRS 3 IAS 19 IAS 30 IAS 12 IAS IFRS 32/39 Period Period ended 31 ended 31 July 07 July 07 9(f,g,h) 9(a) 9(b) 9(c) 9 (d) 9(e) Assets Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Property, plant and equipment 2,991 (829) - - - - - 2,162 Intangible assets 11,871 829 1,290 - - - - 13,990 Investments in equity accounted investees 124 - - - - - - 124 Deferred tax asset 1,725 - - 317 - 210 - 2,252 Other receivables 397 - - - - - - 397 ------------------------------------------------------------------------- Total non-current assets 17,108 - 1,290 317 - 210 - 18,925 ------------------------------------------------------------------------- Trade and other receivables 14,991 - - - - - - 14,991 Cash and cash equivalents 5,834 - - - - - - 5,834 Current tax assets - - - - - - - - Derivative financial assets - - - - 69 - - 69 ------------------------------------------------------------------------- Total current assets 20,825 - - - 69 - - 20,894 ------------------------------------------------------------------------- Total assets 37,933 - 1,290 317 69 210 - 39,819 ========================================================================= Liabilities Loans and borrowings 5,190 - - - - - - 5,190 Deferred tax liability - - 74 - 21 - - 95 Deferred consideration 1,662 - - - - - - 1,662 Share purchase obligation - - - - - - 2,467 2,467 ------------------------------------------------------------------------- Total non-current liabilities (6,852) - (74) - (21) - (2,467) (9,414) ------------------------------------------------------------------------- Bank overdraft - - - - - - - - Loans and borrowings 712 - - - - - - 712 Trade and other payable 11,656 - - 1,181 - - - 12,837 Corporation tax liability 29 - - - - - - 29 Deferred consideration 576 - - - - - 190 766 ------------------------------------------------------------------------- Total current liabilities (12,973) - - (1,181) - - (190) (14,344) ------------------------------------------------------------------------- Total liabilities (19,825) - (74) (1,181) (21) - (2,657) (23,758) ------------------------------------------------------------------------- TOTAL NET ASSETS 18,108 - 1,216 (864) 48 210 (2,657) 16,061 ========================================================================= Equity Share capital 1,334 - - - - - - 1,334 Share premium reserve 5,157 - - - - - - 5,157 Merger reserve 2,160 - - - - - - 2,160 Share purchase reserve - - - - - - (2,294) (2,294) Foreign currency translation reserve - (187) 464 - - - - 277 Share-based payment reserve 491 (491) - - - - - - Shares to be issued 190 - - - - - (190) - Investment in owns shares (681) - - - - - - (681) Retained earnings 9,259 678 752 (864) 48 210 (173) 9,910 ------------------------------------------------------------------------- Total equity attributable to equity holders of the Company 17,910 - 1,216 (864) 48 210 (2,657) 15,863 Minority interests 198 - - - - - - 198 ------------------------------------------------------------------------- TOTAL EQUITY 18,108 - 1,216 (864) 48 210 (2,657) 16,061 ========================================================================= *T -0- *T As at 1 August 2006 (date of transition) Effect of Under UK GAAP transition to Under IFRS IFRS Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets Property, plant and equipment 3,063 (298) 2,765 Intangible assets 11,188 298 11,486 Investments in equity accounted investees 92 - 92 Deferred tax asset 854 297 1,151 Other receivables 335 - 335 -------- -------- -------- Total non-current assets 15,532 297 15,829 Trade and other receivables 14,411 - 14,411 Cash and cash equivalents 4,018 - 4,018 Current tax assets 169 - 169 Derivative financial assets - 40 40 Total current assets 18,598 40 18,638 --------- --------- ---------- Total assets 34,130 337 34,467 ========= ========= ========== Liabilities Loans and borrowings 4,642 - 4,642 Deferred tax liabilities - 12 12 Deferred consideration 2,192 318 2,510 Share purchase obligation - 2,467 2,467 -------- -------- -------- Total non-current liabilities (6,834) (2,797) (9,631) Bank overdraft 227 - 227 Loans and borrowings 588 - 588 Trade and other payable 11,304 1,148 12,452 Corporation tax liability - - - Deferred consideration 435 240 675 Share purchase obligation - 1,897 1,897 -------- -------- -------- Total current liabilities (12,554) (3,285) (15,839) --------- --------- ---------- Total liabilities (19,388) (6,082) (25,470) --------- --------- ---------- TOTAL NET ASSETS 14,742 (5,745) 8,997 ========= ========= ========== Equity Share capital 1,303 - 1,303 Shares to be issued 558 (558) - Share premium reserve 5,157 - 5,157 Merger reserve 1,353 - 1,353 Share purchase reserve - (4,364) (4,364) Share-based payment reserve 229 (229) - Investment in own shares (1,487) - (1,487) Retained earnings 7,629 (594) 7,035 --------- --------- ---------- Total equity attributable to equity holders of the Company 14,742 (5,745) 8,997 Minority interests - - - --------- --------- ---------- TOTAL EQUITY 14,742 (5,745) 8,997 ========= ========= ========== *T

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