Preliminary Announcement

THURSDAY 30th MARCH 2006 S & U PLC Providers of Consumer Credit & Motor Finance RESULTS FOR THE YEAR TO 31st JANUARY 2006 * REVENUE £53.4m (2005 - £50.7m) GROSS PROFITS £28.1m (£27.7m). * PRE-TAX PROFITS £9.1m (£9.5m), ACHIEVED IN FACE OF CHALLENGING TRADING CONDITIONS, RETURN ON CAPITAL EMPLOYED 16.4%. * TOTAL DIVIDEND FOR THE YEAR 31p UNCHANGED. EARNINGS PER SHARE 54.0p (56.5p). * HOME COLLECTED CREDIT - PRE-TAX PROFITS MAINTAINED SLIGHTLY BELOW LAST YEAR'S RECORDS. NEW OPPORTUNITIES ANTICIPATED IN MORE DYNAMIC MARKET IN 2006. * ADVANTAGE FINANCE - ENCOURAGING ADVANCE IN MOTOR CAR FINANCE PRE-TAX PROFITS £2.24m (£2.07m). IMPROVEMENT IN ALL AREAS OF BUSINESS. * THE OUTLOOK FOR THE GROUP IS "GOOD". Issued on behalf of S & U plc by Simon Preston 0207 655 0500 Enquiries: Derek Coombs or Anthony Coombs Chairman Managing Director S & U PLC S & U PLC Tel: 0207 655 0500 Tel: 07767 687150 Date of issue: Thursday 30th March 2006 POLHILL COMMUNICATIONS TEL: 0207 655 0500 DOME HOUSE FAX: 0207 655 0501 48 ARTILLERY LANE WWW.POLHILL.COM LONDON E1 7LS Polwoods Limited Registration Number 1983318 S & U PLC CHAIRMAN'S STATEMENT Results Good news for S&U plc which continues to achieve steady and reliable growth and profitability in the face of challenging trading conditions in the UK Consumer Credit Market. Revenue for the year ended 31 January 2006 grew to £53.4m compared to £50.7m for 2005. However, profit on ordinary activities before tax for the year was £9.1m compared to £9.5m for 2005. Earnings per share for 2006 was 54.0p (2005 56.5p), maintaining good cover. We maintained our dividend at 9p for the first half year's trading and we are also pleased to announce a further 22p for the second half, making a combined proposed dividend of 31p for the year as a whole. The dividend for ordinary shares of 22p per share will be paid on the 2nd June 2006 and the shares will be dealt ex dividend from the 3rd May 2006. Excellent dividend payment every year since 1988 is our proud achievement and we anticipate continuing this trend. Home Collected Credit All our three home collected credit companies, S&U, Wilson Tupholme and SD Taylor managed to maintain profits at levels slightly below last year's record results. This has been a challenging year and the second half of the year continued to reflect the flagging consumer demand which I referred to in my interim statement. Our own trading improved markedly during the busy Chistmas period and we look forward to 2006 with a strong team and new opportunities in a more dynamic market. Advantage Finance Limited - Motor Car Finance Our motor car finance company Advantage Finance Limited continues to progress and every year is producing rising profits. In more challenging market conditions, a further encouraging advance in profits to £2.24m in 2006 was achieved from £2.07m in 2005. Advantage continues to improve in all areas of business activity and with the calibre of the team we have, I am very confident that these positive results will continue. Staff Every company is only as good as the quality and dedication of its staff. S & U is a very labour intensive operation and therefore even more dependent upon its staff. We have a superb team and I must take this opportunity to thank them on your behalf for their contribution during the year. Outlook for the Group as a whole Good. Derek M Coombs Chairman 29th March 2006 S & U PLC MANAGING DIRECTOR'S REPORT This year I announce a pre-tax profit for S&U Plc of £9.1m, a fall of just under 5% on last year's record result but, given the more challenging trading and regulatory environment I predicted a year ago, a solid performance nevertheless. Group Revenue has increased slightly to £53.4m whilst gross profit rose to £28.1m. Return on capital employed remains a very healthy 16.4%. S&U has always been conservatively managed and hence our financial position remains strong. Group borrowing ended the year £2.4m higher than 2004-2005, reflecting an additional £3.5m investment in our growing Advantage motor finance business. This was partly funded by our cash generative but relatively mature home credit operations. Group gearing remains low for the sector at 79%. Over the past year S&U has faced a number of challenges. Most important has been a fall in consumer optimism, evidenced most recently in the British Retail Consortium's January Survey of High Street spending. A slowing economy, historically high levels of consumer debt, rising unemployment and higher taxes and utility prices have all inevitably led to restrictions in customers' disposable incomes. S&U has always maintained sensibly high underwriting standards and therefore such conditions inevitably impact on book debt growth and the collecting environment. Nevertheless Group book debt grew last year by 9.8%; most of this increase was at Advantage Finance which will feed through to profitability in the next 3 years. Impairment charges rose by 9.8% overall, an increase uniform across all operating companies and which partly reflects the new, more conservative, impairment provisioning introduced under IFRS at July half-year. An additional challenge has been the continued interest Government and its minions take in consumer credit in general and the home credit industry in particular. Last year saw significant changes to our home credit and Advantage operations in response to new Form and Content Insurance and Advertising Regulations. Consumer IVAs and bankruptcies have both, as we predicted, risen in line with recent legislation which has made such a step virtually a life style choice for many consumers. Finally the Competition Commission Inquiry into home credit has yet to produce its final report despite, in its Emerging Thinking, confirming our industry's enduring popularity with our customers. I am confident its findings will vindicate home credit as responsible and valued lenders and provide a clear regulatory base for serving our customers over the next 20 years. Operating Results Year Ended Year Ended 31st January 31st January 2006 2005 £m £m Revenue 53.4 50.7 Cost of Sales 25.3 23.0 Gross Profits 28.1 27.7 Administration Expenses 17.3 16.7 Operating Profit 10.8 11.0 Finance Costs 1.7 1.5 Profit before Taxation 9.1 9.5 Home Credit Our three home credit subsidiaries continue to provide, at £6.9m profit before taxation, over 75% of Group earnings. Nonetheless last year saw a decline of 8% on the record profits of the previous year, mainly due to static turnover and increased impairment. Both productivity and profit on turnover remain high and steps have been taken to ensure that we resume growth this year. In particular improvements to internal accounting systems should increase cash collections from slow-paying customers and hence increase the proportion of our customers with whom we can responsibly trade. Our revalidation as Investors in People, and the strengthening of our HR Department will improve the training and hence productivity of both our Representatives and branch management. A new IT system is already improving customer communications and analysis and will in future streamline our new loans procedures. In addition we continue to acquire good quality book debt and personnel from our competitors during a period of consolidation within the home credit industry as a whole. Advantage Finance Advantage, our Grimsby based motor finance subsidiary, increased profits in a competitive used car market to £2.24m, an increase of 8% on last year. Whilst transactions rose by 7%, revenue improved by 10% as Advantage began to make inroads into higher value better quality sub-prime customers, whilst retaining its traditionally close relationships with smaller car dealerships. Additional investment of £3.5m in the business has produced net receivables up 18% at £ 30m. This is a creditable performance; this year we plan further investment on the basis that Advantage will maintain its excellent collections record and tight control of expenses. This is expected to produce accelerated profits growth and a return on assets employed to the level currently achieved by the S&U Group as a whole. Over the past year we have also been developing the infrastructure for a sub-prime second mortgage based subsidiary, Communitas Finance. If successful this will build upon the skills and customer relationships inherent in our home credit and, in particular, our Advantage Finance subsidiaries. A pilot scheme began in November and a network of around 15 brokers is currently producing leads for small loans in this market. Interest has been encouraging; payment is very strong and the pilot will be evaluated after the first quarter of this financial year. Group Profit, Dividend and Earnings Per Share Year Year 6 months 6 months 6 months 6 months ended ended ended ended ended ended 31.1. 31.1. 31.1. 31.1. 31.7. 31.7. 2006 2005 2006 2005 2005 2004 £m £m £m £m £m £m Profit before 9.1 9.5 3.8 4.1 5.3 5.4 tax Profit after 6.3 6.6 2.6 2.9 3.7 3.7 tax Earnings per 54.0 56.5 22.5 24.7 31.5 31.8 share Dividends per 31.0 31.0 22.0 22.0 9.0 9.0 share Although the results reflect the continuing slowdown in sub-prime consumer markets of last year, we judge that improving economic conditions will see renewed growth this year. We therefore propose to maintain our dividend per Ordinary Share, thus making for a final payment of 22p (2005 - 22p) and a total of 31p (2005-31p) for the year. Capital Structure, Liquidity and Treasury The company's financial position is strong and reflected in our current gearing of just 79% (2005 78%). This increase is partly explained by continued investment in Advantage, by the piloting of Communitas and by accounting changes to provisioning policies demanded by the International Financial Reporting Standards for home credit book debt. Our current bank facilities allow comfortably for anticipated organic growth and for small acquisitions when opportunities arise. Although we regard both the current inflation and interest rate prospects as stable, we have put in place hedging arrangements for £20m of our longer-term debt. Whilst our corporate rate of taxation remains at 30% for the year, the revaluation of book debt at half-year associated with IFRS has allowed us a one off tax saving of £3m. This will reduce cash flow required for our operations this year. Prospects Although the level of consumer indebtedness remains high, I anticipate a higher rate of economic growth this year which, together with a historically firm labour market, should allow our customers to borrow with confidence. Although our underwriting standards will remain high for our sector, we anticipate a growth in new customers particularly from those who are increasingly finding the mainstream banking sector unreceptive. All our businesses are in a position to give these customers precisely the first class valued and profitable service our current customers enjoy. We can only do this with the support of our loyal, hardworking and committed staff. I thank all of them, our Board of Directors, and most of all our long-standing customers for their excellent support. It is with their loyal support that I look forward to a year of renewed sales growth and further progress for S & U. Anthony M V Coombs Managing Director 29.3.06 S & U PLC CONSOLIDATED INCOME STATEMENT Year ended 31st January 2006 Note Unaudited Unaudited 2006 2005 £000 £000 Revenue 3 53,427 50,712 Cost of sales 4 (25,295) (22,965) Gross profit 28,132 27,747 Administrative expenses (17,314) (16,679) Operating profit 10,818 11,068 Finance costs 5 (1,694) (1,518) Profit before taxation 3 9,124 9,550 Taxation (2,787) (2,919) Profit for the year 6,337 6,631 Earnings per share basic and diluted 6 54.0p 56.5p Dividends per share - Proposed final dividend 22.0p 22.0p - Total dividend in respect of the year 31.0p 31.0p - Paid in the year 31.0p 30.0p All activities derive from continuing operations. STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Unaudited 2006 2005 £000 £000 Profit for the Year 6,337 6,631 Actuarial gain on defined benefit pension 14 - scheme Total recognised income for the year attributable to equity holders of the parent 6,351 6,631 S & U PLC CONSOLIDATED BALANCE SHEET 31st January 2006 Note Unaudited Unaudited 2006 2005 £000 £000 ASSETS Non Current Assets Property, plant and equipment 2,283 2,357 Amounts Receivable from customers 7 19,807 15,994 Deferred tax assets 27 2,169 22,117 20,520 Current Assets Inventories 81 91 Amounts receivable from customers 7 44,375 42,456 Trade and other receivables 619 717 Current income tax assets 1,427 65 Cash 11 14 46,513 43,343 Total Assets 68,630 63,863 LIABILITIES Current liabilities Bank overdrafts (8,214) (5,791) Trade and other payables (953) (1,294) Tax liabilities (198) (210) Accruals and deferred income (1,303) (1,233) (10,668) (8,528) Non current liabilities Bank loans (20,000) (20,000) Retirement benefit obligation - (23) Deferred tax liabilities - (81) Financial liabilities (2,089) (2,089) Derivative financial instruments (19) - (22,108) (22,193) Total liabilities (32,776) (30,721) NET ASSETS 35,854 33,142 EQUITY Called up share capital 1,467 1,467 Share premium account 2,136 2,136 Profit and loss account 32,251 29,539 Total equity 8 35,854 33,142 S & U PLC CONSOLIDATED CASH FLOW STATEMENT Year ended 31st January 2006 Note Unaudited Unaudited 2006 2005 £000 £000 Net cash from operating activities 10 1,657 1,779 Cash flows from investing activities Proceeds on disposal of property, plant 125 133 and equipment Purchases of property, plant and (569) (567) equipment Net cash used in investing activities (444) (434) Cash flows from financing activities Dividends paid (3,639) (3,521) Repayment of borrowings - (15,000) Issue of new borrowings - 20,000 Net increase/(decrease) in overdraft 2,423 (2,820) Net cash (used in)/generated by financing (1,216) (1,341) activities Net (decrease)/increase in cash and cash (3) 4 equivalents Cash and cash equivalents at the 14 10 beginning of period Cash and cash equivalents at the end of 11 14 period Cash and cash equivalents comprise Cash 11 14 There are no cash and cash equivalents which are not available for use by the group. (2005 £nil). S & U PLC NOTES TO PRELIMINARY ANNOUNCEMENT 31ST JANUARY 2006 1. SHAREHOLDER INFORMATION 1.1 Preliminary Announcement The figures shown for the year ended 31 January 2006 are not statutory accounts within the meaning of section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 January 2006 upon which the auditors have still to report, will be delivered to the Registrar of Companies following the company's annual general meeting. The figures shown for the year ended 31 January 2005 are not statutory accounts. A copy of the statutory accounts prepared under UK GAAP has been delivered to the Registrar of Companies, contained an unqualified audit report and did not contain an adverse statement under section 237(2) or 237 (3) of the Companies Act 1985. 1.2 Annual General Meeting The Annual General Meeting will be held on 19th May 2006. 1.3 Dividend If approved at the Annual General Meeting a final dividend of 22.0p per Ordinary Share is proposed, payable on 2nd June 2006 with a record date of 5 May 2006. 1.4 Annual Report The 2006 Annual Report and Financial Statements will be posted to shareholders in due course. Copies of this announcement are available from the Company Secretary, S & U plc, Royal House, Prince's Gate, Homer Road, Solihull, West Midlands B91 3QQ. 2. KEY ACCOUNTING POLICIES The 2006 financial statements have been prepared in accordance with applicable accounting standards and accounting policies - these key accounting policies are a subset of the full accounting policies. 2.1 Basis of preparation Prior to 2005 S&U plc has prepared its financial statements under UK generally accepted accounting principles ("UK GAAP") but as a listed company we are now required to prepare our consolidated financial statements in accordance with international financial reporting standards (IFRS) as endorsed by the European Union.The date of transition to IFRS for S&U plc was 1st February 2004 and the group has prepared its opening balance sheet at that date. Reconciliations between previously reported UK GAAP results and IFRS as adopted are presented in note 11. The financial information within this report has been prepared in accordance with applicable accounting standards. 2.2 Revenue recognition Credit charges are recognised in the income statement for all loans and receivables measured at amortised cost using the effective interest rate method (EIR). The EIR is the rate that exactly discounts estimated future cash flows through the contractual term or expected life of the loan if shorter, back to the present value (the advance). Acceptance fees charged to customers are included as credit charges in the calculation and any direct transaction costs are added to the advance. Under IAS 39 credit charges on loan products continue to accrue at the EIR on all outstanding capital balances including arrears but excluding impairment throughout the life of the agreement irrespective of the terms of the loan and whether the customer is actually being charged arrears interest. This is referred to as the gross up adjustment to revenue and is offset by a corresponding gross up adjustment to the loan loss provisioning charge to reflect the fact that this additional revenue is not collectable. Commission received from third party insurers for brokering the sale of insurance products, for which the group does not bear any underlying insurance risk is recognised and credited to the income statement when the brokerage service has been provided. Sales of goods are recognised in the income statement when the product has been supplied. 2.3 Amounts receivable from customers All customer receivables are initially recognised at the amount loaned to the customer plus direct transaction costs. After initial recognition the amounts receivable from customers are subsequently measured at amortised cost. Amortised cost is the amount of the customer receivable at initial recognition less customer repayments, plus revenue earned less any deduction for impairment. The directors assess on an ongoing basis whether there is objective evidence that a loan asset or group of loan assets is impaired and requires a deduction for impairment. A loan asset or a group of loan assets is impaired only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the loan. Impairment is then calculated by estimating the future cash flows for such impaired loans, discounting the flows to a present value using the original EIR and comparing this figure with the balance sheet carrying value. All such impairments are charged to the income statement. 2.4 Derivative financial instruments The group's activities expose it to the financial risks of changes in interest rates and the group uses interest rate derivative contracts to hedge these exposures. The group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the group's policies approved by the board of directors which provides written principles on the use of financial derivatives. Changes in the fair value of derivative financial instruments that are designated effective as hedges of future cash flows are directly recognised in equity and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of and asset or liability then at the time the asset or liability is recognised the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised or no longer qualifies for hedge accounting. At that time any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur the net cumulative gain or loss is recognised in equity is transferred to net profit or loss for the period. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with gains or losses reported in the income statement. 3. SEGMENTAL ANALYSIS Analyses by class of business of revenue and profit before taxation are stated below: Unaudited Unaudited ←_Revenue__→ ← Profit before taxation→ Class of business Year Year Year Year ended ended ended ended 31.1.06 31.1.05 31.1.06 31.1.05 £000 £000 £000 £000 Consumer credit, rentals and 43,633 41,746 6,887 7,485 other retail trading Car finance 9,794 8,966 2,237 2,065 53,427 50,712 9,124 9,550 In accordance with IAS39 "Financial instruments recognition and measurement", additional interest is required to be accrued which will not be recovered from the customer due to the fixed charge nature of the loan agreement. The amount of this additional interest included in revenue is referred to as the gross up charge and a full provision is made against it in cost of sales. For the year ended January 2006 the amount of the gross up charge and corresponding full provision was £15,046,000 (2005 £14,270,000). Analyses by class of business of assets and liabilities are stated below: Unaudited Unaudited ←__ Assets ___→ ←___ Liabilities __→ Class of business Year Year Year Year ended ended ended ended 31.1.06 31.1.05 31.1.06 31.1.05 £000 £000 £000 £000 Consumer credit, rentals and 38,215 38,168 (5,425) (7,248) other retail trading Car finance 30,415 25,695 (27,351) (23,473) 68,630 63,863 (32,776) (30,721) Depreciation of assets for consumer credit was £387,000 (2005 £405,000) and for car finance was £90,000 (2005 £ 88,000 ). The assets and liabilities of the parent company are classified as consumer credit, rentals and other retail trading. No geographical analysis is presented because all operations are situated in the United Kingdom. 4. COST OF SALES Unaudited Unaudited 2006 2005 £000 £000 Loan loss provisioning charge 21,836 19,880 Other cost of sales 3,459 3,085 25,295 22,965 The loan loss provisioning charge includes the gross up adjustment of £ 15,046,000 (2005 £14,270,000), note 3. 5. FINANCE COSTS Unaudited Unaudited 2006 2005 £000 £000 31.5% cumulative preference dividend 142 142 6% cumulative preference dividend 12 12 Bank loan and overdraft 1,515 1,353 Loss on financial derivative instrument 19 - Other interest payable 6 11 1,694 1,518 6. EARNINGS PER ORDINARY SHARE The calculation of earnings per Ordinary share is based on profit after tax of £6,337,000 (2005 -£6,631,000). The number of shares used in the calculation is the average number of shares in issue during the year of 11,737,228 (2005 - 11,737,228). There are no dilutive shares. 7. AMOUNTS RECEIVABLE FROM CUSTOMERS Unaudited Unaudited 2006 2005 £000 £000 Consumer Credit 48,857 46,529 Car finance hire purchase 37,920 31,438 86,777 77,967 Less: Loan loss provision (22,595) (19,517) Amounts receivable from customers 64,182 58,450 Analysed as -due within one year 44,375 42,456 - due in more than one year 19,807 15,994 64,182 58,450 8. SHAREHOLDERS' FUNDS AND STATEMENT OF CHANGES IN EQUITY Called up Share Profit Total Share Premium and Loss Equity Capital Account Account The Group £000 £000 £000 £000 At 1 February 2004 Unaudited 1,467 2,136 26,429 30,032 Profit for year - - 6,631 6,631 Dividends - - (3,521) (3,521) At 1 February 2005 Unaudited 1,467 2,136 29,539 33,142 Actuarial gain on pension - - 14 14 Profit for year - - 6,337 6,337 Dividends - - (3,639) (3,639) At 31 January 2006 Unaudited 1,467 2,136 32,251 35,854 9. DERIVATIVE FINANCIAL INSTRUMENTS The group's activities expose it to the financial risks of changes in interest rates and the group uses interest rate derivative contracts to hedge these exposures in accordance with the accounting policy noted in 2.4 above. A 5 year hedge contract on £20m of the group's borrowings was entered into on 20th September 2005. The fair value of this contract at 31st January 2006 was estimated to be a derivative liability of £19,000. The contract is designated and effective as a hedge. The charge of £19,000 has been included within finance costs for the year (note 5). 10. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH FROM OPERATING ACTIVITIES Unaudited Unaudited 2006 2005 £000 £000 Profit before taxation 9,124 9,550 Tax paid (2,074) (2,854) Depreciation on plant, property and 477 493 equipment Loss on disposal of plant, property and 41 58 equipment Increase in amounts receivable from (5,732) (5,975) customers Decrease in inventories 10 14 Decrease in trade and other receivables 98 87 Increase/(decrease) in trade and other (353) 32 payables Increase in accruals and deferred income 70 439 Fair value movements on derivatives 19 - Decrease in retirement benefit (23) (65) obligations Net cash from operating activities 1,657 1,779 11. RECONCILIATIONS BETWEEN IFRS AND UK GAAP a) Reclassifications The following reclassifications have been made within the income statement and the balance sheet on transition from UK GAAP to IFRS; - Under UK GAAP preference share capital was shown as part of the issued share capital but under IFRS is now shown as a non current liability (see note e). - Under UK GAAP, excess depreciation on certain revalued properties was set off against a revaluation reserve. Under IFRS1 the group has elected to use the revalued amounts as the deemed cost of these properties and the balance on the revaluation reserve is transferred to accumulated profit and loss. - Under IFRS we have reanalysed deferred tax as a non current liability. Deferred tax at 30% has been provided on the net book value of those properties acquired as part of a business acquisition. b) Revenue and Impairment Under UK GAAP credit charges were recognised on a received or receivable basis using the sum of the digits method and acceptance fees in our car finance business were recognised upfront. Under IFRS, credit charges and acceptance fees are recognised in the income statement for all loans and receivables measured at amortised cost using the effective interest rate method (EIR). The EIR is the rate that exactly discounts estimated future cash flows of the loan back to the present value (the advance). Under IAS 39 credit charges on loan products continue to accrue at the EIR on all outstanding capital balances including arrears throughout the life of the agreement irrespective of the terms of the loan and whether the customer is actually being charged arrears interest. This is referred to as the gross up adjustment to revenue and is offset by a corresponding gross up adjustment to the impairment charge to reflect the fact that this additional revenue is not collectable. Under UK GAAP, a specific reserve being the difference between the carrying value of the debt and the expected actual cash flows was made on all debts which are considered doubtful. Under IFRS, debts are assessed for impairment and the impairment charge to the income statement is then calculated by estimating the future cash flows for such impaired loans, discounting the flows to a present value using the original EIR and comparing this figure with the balance sheet carrying value. c) Dividends Under UK GAAP dividends declared after the date of the balance sheet were recorded in the balance sheet as at the balance sheet date. Under IFRS, dividends declared after the date of the balance sheet cannot be included as a liability at the balance sheet date. d) Tax The tax asset derived from the IFRS adjustments above has been reclassified as deferred tax, as opposed to current tax as disclosed in the interim announcement of 6 October 2005, on the basis that the deductions are not crystallised until the current year. e) Preference share capital Since the interim announcement of 6 October 2005, in addition to the reclassification in point a) above, the preference share capital has been included at transition at fair value. This has resulted in an increase in its value of £1.44m and an equivalent decrease in profit and loss reserve. 11. RECONCILIATIONS BETWEEN IFRS AND UK GAAP (CONTINUED) Income Statement Audited Reclassifications Revenue& Dividends Unaudited Impairment 31st January 2005 UK Gaap Note 11a Note 11b Note 11c IFRS £'000 Revenue 36,363 14,349 50,712 Cost of sales (3,067) (19,898) (22,965) Gross Profit 33,296 (5,549) 27,747 Administrative (22,174) 5,495 (16,679) expenses Operating profit 11,122 (54) 11,068 Finance costs (1,364) (154) (1,518) Profit before 9,758 (154) (54) 9,550 taxation Taxation (2,936) 17 (2,919) Profit for the 6,822 (154) (37) 6,631 year 11. RECONCILIATIONS BETWEEN IFRS AND UK GAAP (CONTINUED) 1st February 2004 Audited Reclassifications Revenue& Dividends Unaudited Impairment £'000 UK Gaap Note 11a Note 11b Note 11c IFRS NET ASSETS Property plant 2,474 2,474 and equipment Amounts 14,520 (704) 13,816 receivable from customers Deferred tax 2,252 2,252 asset Non current 16,994 1,548 18,542 assets Inventories 105 105 Amounts 50,006 (11,347) 38,659 receivable from customers Trade and Other 804 804 Receivables Current Income 144 (53) 91 tax assets Cash at bank and 10 10 in hand Current assets 51,069 (53) (11,347) 39,669 Total assets 68,063 (53) (9,799) 58,211 Bank overdrafts (23,611) (23,611) and loans Trade and other (3,815) 88 2,465 (1,262) payables Tax liabilities (1,612) 1,363 (249) Accruals and (794) (794) Deferred Income Current (29,832) 88 1,363 2,465 (25,916) liabilities Retirement (88) (88) benefit obligation Deferred tax (86) (86) liability Financial (2,089) (2,089) liabilities Non current (2,263) (2,263) liabilities Total liabilities (29,832) (2,175) 1,363 2,465 (28,179) NET ASSETS 38,231 (2,228) (8,436) 2,465 30,032 Called up share 2,117 (650) 1,467 capital Share premium 2,136 2,136 account Revaluation 501 (501) - Reserve Profit and loss 33,477 (1,077) (8,436) 2,465 26,429 account SHAREHOLDERS' 38,231 (2,228) (8,436) 2,465 30,032 EQUITY 11. RECONCILIATIONS BETWEEN IFRS AND UK GAAP (CONTINUED) 31st January 2005 Audited Reclassify Revenue & Dividends Unaudited Impairment £'000 UK Gaap Note 11a Note 11b Note 11c IFRS NET ASSETS Property plant 2,357 2,357 and equipment Amounts 16,758 (764) 15,994 receivable from customers Deferred tax 2,169 2,169 asset Non current 19,115 1,405 20,520 assets Inventories 91 91 Amounts 53,799 (11,343) 42,456 receivable from customers Trade and Other 717 717 Receivables Current Income 123 (58) 65 tax assets Cash at bank and 14 14 in hand Current assets 54,744 (58) (11,343) 43,343 Total assets 73,859 (58) (9,938) 63,863 Bank overdrafts (5,791) (5,791) and loans Trade and other (3,900) 23 2,583 (1,294) payables Tax liabilities (1,674) 1,464 (210) Accruals and (1,233) (1,233) Deferred Income Current (12,598) 23 1,464 2,583 (8,528) liabilities Bank loans (20,000) (20,000) Retirement (23) (23) benefit obligation Deferred tax (81) (81) liabilities Financial (2,089) (2,089) liabilities Non current (20,000) (2,193) (22,193) liabilities Total liabilities (32,598) (2,170) 1,464 2,583 (30,721) NET ASSETS 41,261 (2,228) (8,474) 2,583 33,142 Called up share 2,117 (650) 1,467 capital Share premium 2,136 2,136 account Revaluation 496 (496) - Reserve Profit and loss 36,512 (1,082) (8,474) 2,583 29,539 account SHAREHOLDERS' 41,261 (2,228) (8,474) 2,583 33,142 EQUITY 12. RESTATEMENT OF CONSOLIDATED CASHFLOW STATEMENT ON ADOPTION OF IFRS The presentation of the cashflow statement as specified by IAS 7 differs from UK GAAP requirements. A number of items have been reclassified, but there is no impact on cashflows. There is no change to the level of cash and cash equivalents at either the start or end of the year. 13. NON STATUTORY FINANCIAL INFORMATION Key ratios have been calculated as follows: "Return on capital employed" is calculated as Operating Profit divided by the sum of Total Equity plus Bank Overdrafts plus Bank Loans and Financial Liabilities (both as disclosed within Non Current Liabilities). "Group Gearing" is calculated as the sum of Bank Overdrafts plus Bank Loans (as disclosed within Non Current Liabilities) divided by Total Equity

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