Interim Results

GB Group PLC 30 November 2005 Embargoed until 07.00 30 November 2005 GB GROUP PLC ('GB' or the 'Group') Interim Results for the Six Months Ended 30 September 2005 Highlights â€¢ Group revenue increased by 14% to Â£5.9m (2004: Â£5.2m) due entirely to strong growth in DataAuthentication which provides the technology behind URU(TM), the electronic age and ID verification service provided jointly with BT. â€¢ The market for electronic age and ID verification continues to grow. Revenue from URU(TM) at Â£862,000 (2004: Â£150,000), was more than five times higher than last year and double that of the preceding six months. â€¢ URU(TM) has shown strong growth in Mobile Telecommunications, is the clear market leader in Online Gaming and the Financial Services sector represents a major future opportunity. â€¢ The number of URU(TM) customers has risen to 82 and usage of the service is expected to increase substantially during the second half of the year. â€¢ GB's traditional operations, DataIntegrity and DataSolutions remain profitable and cash generative, delivering an improved profit performance in the first half. â€¢ The Group's loss before tax was Â£183,000 (2004: Â£20,000 loss) due to increased investment to develop GB's DataAuthentication business, which was partially offset by improved profitability in DataIntegrity and DataSolutions. â€¢ Cash balances at 30 September remained strong at Â£6.4m (2004: Â£6.3m). John Walker-Haworth, Chairman, commented: 'The Group performed well during the first half of the year with the DataAuthentication business now contributing significantly towards growth. GB's investment in this business has increased as planned, and this has enabled its technology, through its principal offering of URU(TM), to establish a strategic position in this new and exciting market. Cash flows from the Group's DataIntegrity and DataSolutions operations are continuing to fund technical and commercial development in these businesses and in the DataAuthentication business. We are therefore able to reaffirm our guidance issued in our preliminary announcement in May 2005 that cash balances for the remainder of the year are not expected to fall below Â£5.5 million. The Board views the second half of the financial year, and the continuing development of the business, with confidence.' - Ends - For further information, please contact: GB Group plc Richard Law, Chief Executive 01244 657333 Mona Navin-Mealey, Finance Director Weber Shandwick Square Mile 020 7067 0700 Richard Hews/ Rachel Taylor Website www.gb.co.uk Notes to Editors About URU(TM) The URU(TM) service, the DataAuthentication division's principle offering, has been developed jointly with BT. It combines GB's Authenticator(TM) search engine and decision making software, access to GB's comprehensive range of identity data and BT's high capacity web delivery. It helps organisations to protect themselves from the growing problem of identity theft and fraud, which is estimated to cost the UK economy over Â£1.3 billion per annum. URU(TM) enables companies subscribing to the service to make an instant decision whether to accept the identity claimed by any given individual and confirm their age in seconds. URU(TM) works by cross checking personal information provided by an individual at the point of acquisition against a comprehensive range of datasources to confirm that an individual is who they claim to be, live where they claim to live and meet certain minimum legal age requirements. No personal data is disclosed by the reference databases and as a result URU(TM) is compliant with the Data Protection Act. URU(TM) also provides a valuable audit trail demonstrating that the necessary checks have taken place, thereby helping companies comply with legislation, including the 2nd European Money Laundering Directive, Proceeds of Crime Act and Minimum Legal Age requirements of certain industry sectors. The addition of data from CallCredit also enables users of URU(TM) to incorporate credit reference data. The market for identity verification checking continues to grow. Research published in February 2005 showed a 45% increase in the number of individuals accessing gaming sites compared to the previous year. In addition, it is predicted that around 10% of potential revenue is lost by Mobile Telecommunications operators as a result of fraud and furthermore, the British Bankers Association reported in March 2005 that losses of its members attributable to fraud had increased by 11% compared to the previous year. GB is working closely with organisations such as Gamcare, the charity promoting responsible gambling, and RGA (Remote Gambling Association), formerly ARGO, to help promote better understanding by gambling companies of the requirements of good social responsibility processes. We are also working closely with some of our clients to help them develop their social responsibility policies and practices thereby ensuring they are well placed to address any issues in this area as they arise and to adopt 'best practice' behaviour. About GB Group plc GB Group plc provides a range of products and services to enable organisations to capitalise on one of their greatest assets - customer data. The Company has expertise across a range of sectors and is able to transform customer data into valuable information, enabling clients to make better, more informed decisions. The development of innovative software and services, through to the provision of the UK's most comprehensive consumer business databases - The National Register(R) and the National Authentication Register - positions GB Group as a widely acknowledged industry leader in its specialist markets. GB Group plc has three complementary business areas: â€¢ The DataAuthentication division helps businesses validate personal identity information and provides anti-fraud solutions to fight crime. â€¢ The DataIntegrity division helps companies capture and maintain accurate customer contact data, an essential foundation for any profitable customer relationship. â€¢ The DataSolutions division empowers companies to consolidate and analyse customer data from various sources, enabling them to make better, more informed decisions. Established since 1989, GB's core competencies combined with industry sector knowledge have enabled the company to deliver significant value to organisations such as Standard Life, Scottish Power and TD Waterhouse in helping them derive maximum value from their customer data and sustain real advantage over their competition. GB Group is supported by its key relationships with major organisations with whom it works with on major initiatives (an example being British Telecom), together with a team of highly talented and motivated staff successfully delivering business solutions. GB Group plc is listed on the London Stock Exchange (www.gb.co.uk). CHAIRMANS HALF YEAR STATEMENT Overview Group revenue overall increased by 14% compared to the same period last year due entirely to strong growth in turnover from GB's DataAuthentication division which provides the technology behind URU(TM), the electronic age and ID verification service provided jointly with BT. The Group's loss before tax was Â£183,000. This was Â£163,000 greater than in the previous year as a result of increased investment to develop GB's DataAuthentication business, which was partially offset by improved profitability in GB's traditional operations. Cash balances at 30 September remained strong at Â£6.4 million (2004: Â£6.3 million) giving the Group the ability to invest further in DataAuthentication as necessary. DataAuthentication GB's DataAuthentication business develops technology that automates and improves the effectiveness of age and identity verification, a fundamental component of identity fraud prevention. GB has developed a suite of software products and processes, which collectively comprise GBAuthenticator(TM) technology. To date, the principal application of this technology has been GB's joint project with BT to develop and market URU(TM). URU(TM) was launched in January 2004 and has quickly become established in its three principal markets of Online Gaming, Mobile Telecommunications and Financial Services. Revenue from URU(TM) grew strongly during the first half of the year. At Â£862,000, the revenue was more than 5 times higher than that for the same period last year and almost double that of the preceding six months. Revenue growth has been driven by the increase in the number of URU(TM) clients, now totalling 82, and usage of the service is expected to increase substantially during the second half of the year in line with the increase in client numbers. Recent new clients include; in Online Gaming, Littlewoods betdirect and Skybet; in Mobile Telecommunications, The Link (DSG international plc); and in Financial Services, Abbey Stockbrokers and Cattles. The market for electronic age and identity verification continues to grow apace. GB estimates that the number of age and identity checks performed annually in the UK exceeds half a billion and that this number continues to increase rapidly. Furthermore, GB estimates that over 95% of these checks are performed using paper based, manual methods. These manual methods of verification are becoming ineffective and obsolete as the sophistication of fraudsters increases and fake documents become ever more readily available over the internet. Electronic verification processes, such as URU(TM), which check the underlying data sources relating to a person's age or identity, rather than paper documents, are therefore much less susceptible to fraud and are also considerably more cost effective. Our experience is that the rate of adoption of electronic methods of age and identity verification is increasing across all of our target sectors. This is particularly so in the Online Gaming and Mobile Telecommunications sectors, where the requirement to verify the age or identity of individuals, either for regulatory purposes or to combat rising fraud, is relatively new. In these sectors few legacy systems or processes existed, and in open competition, URU(TM) has consistently been selected. Accordingly, URU(TM) has quickly established a strong presence in both of these sectors and in Online Gaming it is the clear market leader. The largest target sector for electronic age and identity verification is the Financial Services sector which, according to Credit Today, accounts for 50% of all identity verification checks conducted in the UK. The pace of adoption of electronic methods of identity verification in this sector to date has been slower than in GB's other target sectors. This is because this sector is subject to embedded and established systems, and implementing change is therefore more complex and time consuming. As a result, the Financial Services sector represents a major future opportunity for URU(TM). Indications to date are positive and we expect to see more financial institutions using URU(TM) in the second half of the year. Work is continuing to take electronic age and identity verification into international markets, however, as previously indicated, the UK market will remain our principal focus. Consequently, revenue expectations from international usage in the current year remain modest. In summary, we are very pleased with the progress made both in the 6 months to 30 September 2005 and in the continuing period to the end of November 2005. The future rate of growth of revenue from the DataAuthentication business continues to be dependent on the rate at which the electronic age and identity verification technology is adopted and our current view of prospects is most encouraging. Other Operations GB's traditional operations, DataIntegrity and DataSolutions, delivered an improved profit performance in the first half of the year principally as a result of cost saving measures taken in the last financial year. The markets served by these operations are increasingly mature and challenging, particularly those served by GB's DataIntegrity business. During October and November, new sales in this business declined compared to the same period last year and revenue to the end of November was 10% behind last year. In order to address the keen competition in these markets and strengthen GB's differentiators in its traditional business areas, we have embarked on a programme of investment to enhance a number of our major product and service offerings over the next 12 months. Despite the current competitive environment, these operations remain profitable and cash generative and are expected to continue to fund the majority of our investment in DataAuthentication in the current year. Prospects The Group performed well during the first half of the year with the DataAuthentication business now contributing significantly towards growth. GB's investment in this business has increased as planned, and this has enabled its technology, through its principal offering of URU(TM), to establish a strategic position in this new and exciting market. Cash flows from the Group's DataIntegrity and DataSolutions operations are continuing to fund technical and commercial development in these businesses and in the DataAuthentication business. We are therefore able to reaffirm our guidance issued in our preliminary announcement in June 2005 that cash balances for the remainder of the year are not expected to fall below Â£5.5 million. The Board views the second half of the financial year, and the continuing development of the business, with confidence. John Walker-Haworth Chairman 30 November 2005 Footnote: Transition to International Financial Reporting Standards (IFRS) As detailed to shareholders in the 2005 Annual Report & Accounts, all listed companies with accounting periods commencing on or after 1 January 2005 are now required to report in accordance with the recognition and measurement principles of the International Financial Reporting Standards (IFRS) issued and effective at the time of reporting to shareholders. The Board is pleased to report that the Group has successfully completed this transition to IFRS. Consequently, the comparative financial statements up to 31 March 2005 detailed in this report which were previously prepared in accordance with the United Kingdom's Generally Accepted Accounting Principles (UK GAAP) have been restated. The results, as set out in this report, have been prepared in accordance with IFRS together with unaudited restated comparative periods and details of the adjustments required (although the Group has not applied IAS 34, 'Interim Financial Reporting', which is not mandatory for UK groups, in the preparation of this report). The most significant changes affecting the results and the financial position of the Group as a result of the implementation of IFRS are as follows: â€¢ the cessation of goodwill amortisation in the consolidated income statement; â€¢ the inclusion of a charge in respect of outstanding share options issued after 7 November 2002 in the consolidated income statement; and â€¢ the recognition in the consolidated balance sheet of employee benefits (i.e. holidays accrued but not yet taken). The overall effect has been an improvement to the profitability for the six months ended 30 September 2005 and for the comparative periods against that which would be reported under UK GAAP and is explained in more detail in the notes 2 to 4 in the accounts. CONSOLIDATED INCOME STATEMENT For the six months ended 30 September 2005 ________________________________________________________________________________ Note Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Â£'000 Â£'000 Â£'000 Revenue 5,939 5,232 11,231 Cost of sales (2,640) (2,194) (4,678) _________ ________ ________ Gross profit 3,299 3,038 6,553 Other operating expenses (3,638) (3,193) (6,366) Exceptional items - - (321) _________ ________ ________ Loss before tax and finance costs (339) (155) (134) Finance income 156 135 280 _________ ________ ________ (Loss)/profit before tax (183) (20) 146 Income tax - 58 109 _________ ________ ________ (Loss)/profit for the period (183) 38 255 _________ ________ ________ (Loss)/earnings per share - basic for the period 5 (0.2)p 0.0p 0.3p - diluted for the period 5 (0.2)p 0.0p 0.3p Dividends - Dividend paid per share 6 0.5p 0.5p 0.5p - Dividend paid 6 404 398 398 CONSOLIDATED BALANCE SHEET As at 30 September 2005 ________________________________________________________________________________ Unaudited Unaudited Unaudited As At As At As At 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment 362 391 361 Goodwill 6,506 6,504 6,506 Deferred tax asset 346 340 346 _________ ________ ________ 7,214 7,235 7,213 _________ ________ ________ Current assets Inventories 1 3 - Trade and other receivables 2,097 1,731 2,225 Cash and cash equivalents 6,434 6,283 6,749 _________ ________ ________ 8,532 8,017 8,974 _________ ________ ________ TOTAL ASSETS 15,746 15,252 16,187 _________ ________ ________ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 2,030 1,990 2,001 Share premium 3,243 3,137 3,170 Merger reserve 6,575 6,575 6,575 Capital redemption reserve 3 3 3 Retained earnings 1,366 1,595 1,869 _________ ________ ________ Total equity 13,217 13,300 13,618 _________ ________ ________ Non-current liabilities Provisions 182 105 230 _________ ________ ________ Current liabilities Trade and other payables 2,347 1,846 2,339 Income tax payable - 1 - _________ ________ ________ 2,347 1,847 2,339 _________ ________ ________ TOTAL LIABILITIES 2,529 1,952 2,569 _________ ________ ________ TOTAL EQUITY AND LIABILITIES 15,746 15,252 16,187 _________ ________ ________ CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 September 2005 ________________________________________________________________________________ Note Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Â£'000 Â£'000 Â£'000 Cash flows from operating activities Cash (consumed)/generated from operations 7 (68) (220) 94 Income tax received - - 58 _________ ________ ________ Net cash (consumed)/generated from operating activities (68) (220) 152 _________ ________ ________ Cash flows from investing activities Acquisitions of a subsidiary, net of cash acquired - - (20) Purchase of property, plant and equipment (101) (98) (173) Interest received 156 135 280 _________ ________ ________ Net cash from investing activities 55 37 87 _________ ________ ________ Cash flows from financing activities Proceeds from issue of shares 102 5 49 Dividends paid to Company shareholders (404) (398) (398) _________ ________ ________ Net cash flows used in financing activities (302) (393) (349) _________ ________ ________ Net decrease in cash and cash equivalents (315) (576) (110) Cash and cash equivalents at beginning of period 6,749 6,859 6,859 _________ ________ ________ Cash and cash equivalents at end of period 6,434 6,283 6,749 _________ ________ ________ CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 September 2005 ________________________________________________________________________________ Issued Share Merger Capital Retained Total Capital Premium Reserve Redemption Earnings Equity Reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Balance at 1 April 2004 (UK GAAP) 1,989 3,133 6,575 3 1,570 13,270 _______ _______ _______ _______ _______ _______ Effect of adopting IFRS 2 - - - - (66) (66) Cost of share-based payments - - - - 66 66 Reversal of proposed ordinary dividend - - - - 398 398 Recognition of employee short-term benefits - - - - (62) (62) _______ _______ _______ _______ _______ _______ Balance at 1 April 2004 (restated) 1,989 3,133 6,575 3 1,906 13,606 _______ _______ _______ _______ _______ _______ Profit for the period - - - - 38 38 Issue of shares 1 4 - - - 5 Cost of share-based payments - - - - 49 49 Equity dividend - - - - (398) (398) _______ _______ _______ _______ _______ _______ Balance at 30 September 2004 (restated) 1,990 3,137 6,575 3 1,595 13,300 _______ _______ _______ _______ _______ _______ Profit for the period - - - - 217 217 Issue of shares 11 33 - - - 44 Cost of share-based payments - - - - 57 57 _______ _______ _______ _______ _______ _______ Balance at 31 March 2005 (restated) 2,001 3,170 6,575 3 1,869 13,618 _______ _______ _______ _______ _______ _______ Loss for the period - - - - (183) (183) Issue of shares 29 73 - - - 102 Cost of share-based payments - - - - 84 84 Equity dividend - - - - (404) (404) _______ _______ _______ _______ _______ _______ Balance at 30 September 2005 2,030 3,243 6,575 3 1,366 13,217 _______ _______ _______ _______ _______ _______ NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The consolidated financial statements of GB Group plc for the six months ended 30 September 2005 were authorised for issue in accordance with a resolution of the directors on 29 November 2005. GB Group plc is a public limited company incorporated in the United Kingdom whose shares are publicly traded. All of the revenue, profits and operating assets relate to the Group's principal business activities, being the development, sale and support of business application software, the provision of marketing database and anti-fraud services and the licensing of technology. Revenue is stated net of value added tax. Revenue and profits arise principally in the United Kingdom. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation These September 2005 interim consolidated financial statements of GB Group plc are for the six months ended 30 September 2005. The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK groups, in the preparation of these interim financial statements. These interim financial statements are covered by IFRS 1 'First-time Adoption of IFRS', because they are part of the period covered by the Group's first IFRS financial statements for the year ended 31 March 2006. These interim financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (November 2005). The IFRS standards and IFRIC interpretations that will be applicable at 31 March 2006, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing these interim financial statements. The policies set out below have been consistently applied to all the years presented. The Group applied the exemption available under IFRS 1 to only apply IFRS 3 'Business Combinations' from 1 April 2004. Details of the other exemptions applied can be found in note 4. GB Group's consolidated financial statements were prepared in accordance with the United Kingdoms Generally Accepted Accounting Principles (UK GAAP) until 31 March 2005. UK GAAP differs in some areas from IFRS. In preparing GB Group's consolidated interim financial statements, management has amended certain accounting, valuation and consolidation methods applied in the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2004 were restated to reflect these adjustments, as described in the accounting policies. Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS on the Group's equity and its net income and are provided in Note 4. These consolidated interim financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in sterling and all values are rounded to the nearest thousand (Â£'000) except when otherwise indicated. Changes in Accounting Policies The Group has adopted those standards designed to form the 'stable platform' mandatory for financial years beginning on or after 1 January 2005. The principal effects of this decision are discussed below. IFRS 2 'Share-Based Payment' IFRS 2 'Share-Based Payment' requires an expense to be recognised where the Group buys goods or services in exchange for shares or rights over shares ('equity-settled transactions'), or in exchange for other assets equivalent in value to a given number of shares or rights over shares ('cash-settled transactions'). The main impact of IFRS 2 on the Group is the expensing of employees' and directors' share options and other share-based incentives by using an option-pricing model. The Group has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards and has applied IFRS 2 only to equity settled awards granted after 7 November 2002 that had not vested on or before 1 January 2005. The effect of the revised policy has been to decrease profits for the year ended 31 March 2005 by Â£106,000 due to the increase in the share based payment expense. Profits for the six months ended 30 September 2005 decreased by Â£84,000 (2004: Â£49,000) due to the share based payment expense. The amounts charged to profits in the Income Statement are reinstated in the Group's reserves. IFRS 3 'Business Combinations', IAS 36 'Impairment of Assets' and IAS 38 'Intangible Assets' The adoption of IFRS 3, IAS 36 (revised 2004) and IAS 38 (revised 2004) resulted in a change in the accounting policy for goodwill. Until 31 March 2004, goodwill was: â€¢ Amortised on a straight line basis over a period ranging from 5 to 20 years; and â€¢ Assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3 and IAS 36: â€¢ The Group ceased amortisation of goodwill from 1 April 2004; â€¢ Accumulated amortisation as at 31 March 2005 has been eliminated with a corresponding decrease in the cost of goodwill of Â£527,000; â€¢ From 1 April 2005 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. IAS 19 'Employee Benefits' As of 1 April 2004, the Group adopted IAS 19 (revised). As a result, it is necessary to provide for the value of short-term employee benefits such as accumulated annual holiday entitlement. IAS 10 'Events after the Balance Sheet Date' Until 31 March 2004, proposed dividends were accounted for in the period in which they related to. IAS 10 requires that dividends proposed or declared after the balance sheet are recognised as a liability in the period in which they are approved by the Company's shareholders. In addition to the standards referred to above, the Group has adopted the following standards during the year, and comparative figures have been amended as required: â€¢ IAS 1 Presentation of Financial Statements (amended 2004); â€¢ IAS 2 Inventories (revised 2003); â€¢ IAS 7 Cash Flow Statements; â€¢ IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (revised 2003); â€¢ IAS 12 Income Taxes; â€¢ IAS 14 Segment Reporting; â€¢ IAS 17 Leases (amended 2004); â€¢ IAS 18 Revenue; â€¢ IAS 19 Employee Benefits; â€¢ IAS 27 Consolidated and Separate Financial Statements (amended 2004); â€¢ IAS 33 Earnings per Share (amended 2004); â€¢ IAS 32 Financial Instruments: Disclosure and Presentation (amended 2004); â€¢ IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and â€¢ IAS 39 Financial Instruments: Recognition and Measurement (amended 2004). New Accounting Standards and IFRIC Interpretations Certain new accounting standards and IFRIC interpretations have been published that are mandatory for accounting periods beginning on or after 1 January 2006. The Group's assessment of the impact of these new standards and interpretations is that the implementation is not expected to change the accounting for any current arrangements. Property, Plant and Equipment Plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Plant and equipment - over 4 to 10 years The carrying values of plant and equipment are reviewed for impairment either annually, or when events or changes in circumstances indicate the carrying value may not be recoverable (whichever is earlier). If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. Residual values and estimated remaining lives are reviewed annually. Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill already carried in the balance sheet at 1 April 2004 or relating to acquisitions after that date is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to the cash-generating unit expected to benefit from the combination's synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash generating unit and part of the operation within that unit are disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. Intangible Assets Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an individual project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the ability of resources to complete and the availability to measure reliably the expenditure during the development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure capitalised is amortised over the period of expected future sales from the related project. Inventories Inventory is stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Work in Progress Work in progress is the cost of direct materials, labour and direct overheads based on normal levels of overhead activity. Trade and Other Receivables Trade receivables, which generally have 30-90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Cash and Cash Equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity date of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdrafts. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. Pensions The Group does not have a contributory pension scheme. Payments are made to individual private defined contribution pension arrangements. Contributions are charged in the income statement as they become payable. Exceptional Costs Exceptional costs are the costs relating to reorganisations and restructurings having a material effect on the nature and focus of the Group's operations. Share-Based Payment Transactions Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares ('equity-settled transactions'). Equity-Settled Transactions The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuer using a binomial model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of GB Group plc ('market conditions'), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/ or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('the vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market conditions was satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it was granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see note 5). Revenue Recognition Revenue comprises the fair value for the sale of software and services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Sale of software licences Revenue in respect of software licences where there are no further contractual obligations is recognised in the period of sales. Revenue in respect of software licences where there are further contractual obligations, in the form of additional services provided by the Group, is recognised over the duration of the licence. (b) Sale of services Revenue in respect of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. There was a change to an estimation technique during the year ended 31 March 2005. A more sophisticated estimation process is now adopted to calculate the fair value of the unfulfilled obligations that arise from the sale of certain software licences. This resulted in a reduction in turnover and profits for the year ended 31 March 2005 of Â£89,000 and an increase in turnover and profits for the six months ended 30 September 2005 of Â£13,000. Operating Leases Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Dividends Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Deferred Income Tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 3. SEGMENTAL INFORMATION All of the revenue, profits, operating assets and liabilities relate to the Group's principal business activities, being the development, sale and support of business application software, the provision of marketing database and anti-fraud services and the licensing of technology. Revenue is stated net of value added tax. Revenue and operating profit arise principally in the United Kingdom. 4. TRANSITION TO IFRS Application of IFRS 1 'First Time Adoption of IFRS' The Group's financial statements for the year ended 31 March 2006 will be the first annual financial statements that comply with IFRS. These interim financial statements have been prepared as described in Note 2. The Group has applied IFRS 1 in preparing these consolidated interim financial statements. GB Groups' transition date is 1 April 2004. The Group prepared its opening IFRS balance sheet at that date. The reporting date of these interim consolidated financial statements is 30 September 2005. In preparing these interim consolidated financial statements in accordance with IFRS 1, the Group has taken advantage of certain of the optional exemptions from full retrospective application of IFRS. Exemptions From Full Retrospective Application Elected by the Group GB Group has elected to apply the following optional exemptions from full retrospective application. (a) Business combinations GB Group has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the 1 April 2004 transition date. (b) Share-based payments The Group has elected to apply the share-based payment exemption. It applied IFRS 2 from 1 April 2004 to those options that were issued after 7 November 2002 but that have not vested by 1 January 2005. Reconciliations Between IFRS and UK GAAP The following reconciliations provide a quantification of the effect of the transition to IFRS. The first reconciliation provides an overview of the impact on equity of the transition at 1 April 2004, 30 September 2004 and 31 March 2005. The following six reconciliations provide details of the impact of the transition on: - equity at 1 April 2004 - equity at 30 September 2004 - equity at 31 March 2005 - net income for the period ended 30 September 2004 - net income for the year ended 31 March 2005 4.1 Summary of Equity Unaudited Unaudited Unaudited Note 1 April Note 30 Sept Note 31 March 2004 2004 2005 Â£'000 Â£'000 Â£'000 Total equity under UK GAAP 13,270 13,102 12,745 Reversal of goodwill amortisation - 4.3(a) 264 4.4(a) 527 Reversal of proposed ordinary dividends payable 4.2(c) 398 - 4.4(c) 400 Recognition of employee short -term benefits under IAS19 4.2(c) (62) 4.3(c) (66) 4.4(c) (54) _______ ______ ______ Total equity under IFRS 13,606 13,300 13,618 _______ ______ ______ 4.2 Reconciliaton of equity at 1 April 2004 Note UK Effect of IFRS GAAP transition to IFRS Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment 410 - 410 Goodwill 4.2(a) 6,504 - 6,504 Deferred income tax asset 340 - 340 _______ _______ _______ 7,254 - 7,254 Current assets Inventories 18 - 18 Trade and other receivables 2,384 - 2,384 Cash and cash equivalents 6,859 - 6,859 _______ _______ _______ 9,261 - 9,261 _______ _______ _______ TOTAL ASSETS 16,515 - 16,515 _______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 1,989 - 1,989 Share premium 3,133 - 3,133 Merger reserve 6,575 - 6,575 Capital redemption reserve 3 - 3 Retained earnings 4.2(c) 1,570 336 1,906 _______ _______ _______ Total equity 13,270 336 13,606 _______ _______ _______ Non-current liabilities Provisions 132 - 132 _______ _______ _______ Current liabilities Trade and other payables 4.2(b) 3,112 (336) 2,776 Income tax payable 1 - 1 _______ _______ _______ 3,113 (336) 2,777 _______ _______ _______ TOTAL LIABILITIES 3,245 (336) 2,909 _______ _______ _______ TOTAL EQUITY AND LIABILITIES 16,515 - 16,515 _______ _______ _______ Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet and income statement. (a) Goodwill Goodwill was tested for impairment at 1 April 2004. No impairment has been identified at 1 April 2004. The recoverable amount has been determined based on a value in use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a two-year period. The discount rate applied to cash flow projections is 4.75 per cent (2005: 4.75 per cent) and cash flows beyond the two-year period are extrapolated using a nil growth rate for maximum prudence. (b) Trade and other payables (i) Reversal of proposed ordinary dividends payable (398) (ii) Recognition of employee short-term benefits under IAS19 62 ________ Total impact - decrease in trade and other payables (336) ________ (i) Dividends proposed after the balance sheet date but before the financial statements are finalised were treated as an adjusting post-balance sheet event under UK GAAP and accrued in the financial statements. Such dividends are treated as a non-adjusting balance sheet event under IFRS and are not accrued until approved at the Annual General Meeting. (ii) Compensated absences such as holiday pay were not accrued under UK GAAP. The costs for earned but unused holiday entitlement are recognised as a liability under IFRS and are accrued. (c) Retained earnings The cumulative effect of all the above adjustments has resulted in an increase in retained earnings at 1 April 2004 of Â£336,000. 4.3 Reconciliaton of Equity at 30 September 2004 Note UK Effect of IFRS GAAP transition to IFRS Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment 391 - 391 Goodwill 4.3(a) 6,240 264 6,504 Deferred income tax asset 340 - 340 ______ _______ _______ 6,971 264 7,235 Current assets Inventories 3 - 3 Trade and other receivables 1,731 - 1,731 Cash and cash equivalents 6,283 - 6,283 ______ _______ _______ 8,017 - 8,017 ______ _______ _______ TOTAL ASSETS 14,988 264 15,252 ______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 1,990 - 1,990 Share premium 3,137 - 3,137 Merger reserve 6,575 - 6,575 Capital redemption reserve 3 - 3 Retained earnings 4.3(c) 1,397 198 1,595 ______ _______ _______ Total equity 13,102 198 13,300 ______ _______ _______ Non-current liabilities Provisions 105 - 105 ______ _______ _______ Current liabilities Trade and other payables 4.3(b) 1,780 66 1,846 Income tax payable 1 - 1 ______ _______ _______ 1,781 66 1,847 ______ _______ _______ TOTAL LIABILITIES 1,886 66 1,952 ______ _______ _______ TOTAL EQUITY AND LIABILITIES 14,988 264 15,252 ______ _______ _______ Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet and income statement. (a) Goodwill Derecognition of goodwill amortisation 264 ________ Total impact - increase goodwill 264 ________ Goodwill was tested for impairment at 30 September 2004. No impairment has been identified at 30 September 2004. The recoverable amount has been determined based on a value in use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a two-year period. The discount rate applied to cash flow projections is 4.75 per cent (2004: 4.75 per cent) and cash flows beyond the two-year period are extrapolated using a nil growth rate for maximum prudence. (b) Trade and other payables Recognition of employee short-term benefits under IAS19 66 ________ Total impact - increase in trade and other payables 66 ________ Compensated absences such as holiday pay were not accrued under UK GAAP. The costs for earned but unused holiday entitlement are recognised as a liability under IFRS and are accrued (c) Retained earnings The cumulative effect of all the above adjustments has resulted in an increase in retained earnings at 30 September 2004 of Â£198,000. 4.4 Reconciliaton of Equity at 31 March 2005 Note UK Effect of IFRS GAAP transition to IFRS Â£'000 Â£'000 Â£'000 ASSETS Non-current assets Property, plant and equipment 361 - 361 Goodwill 4.4(a) 5,979 527 6,506 Deferred income tax asset 346 - 346 ______ _______ _______ 6,686 527 7,213 Current assets Inventories - - - Trade and other receivables 2,225 - 2,225 Cash and cash equivalents 6,749 - 6,749 ______ _______ _______ 8,974 - 8,974 ______ _______ _______ TOTAL ASSETS 15,660 527 16,187 ______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 2,001 - 2,001 Share premium 3,170 - 3,170 Merger reserve 6,575 - 6,575 Capital redemption reserve 3 - 3 Retained earnings 4.4(c) 996 873 1,869 ______ _______ _______ Total equity 12,745 873 13,618 ______ _______ _______ Non-current liabilities Provisions 230 - 230 ______ _______ _______ Current liabilities Trade and other payables 4.4(b) 2,685 (346) 2,339 Income tax payable - - - ______ _______ _______ 2,685 (346) 2,339 ______ _______ _______ TOTAL LIABILITIES 2,915 (346) 2,569 ______ _______ _______ TOTAL EQUITY AND LIABILITIES 15,660 527 16,187 ______ _______ _______ Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet and income statement. (a) Goodwill Derecognition of goodwill amortisation 527 ________ Total impact - increase goodwill 527 ________ Goodwill was tested for impairment at 31 March 2005. No impairment has been identified at 31 March 2005. The recoverable amount has been determined based on a value in use calculation. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a two-year period. The discount rate applied to cash flow projections is 4.75 per cent (2004: 4.75 per cent) and cash flows beyond the two-year period are extrapolated using a nil growth rate for maximum prudence. (b) Trade and other payables (i) Reversal of proposed ordinary dividends payable (400) (ii) Recognition of employee short-term benefits under IAS19 54 ________ Total impact - decrease in trade and other payables (346) ________ (i) Dividends proposed after the balance sheet date but before the financial statements are finalised were treated as an adjusting post-balance sheet event under UK GAAP and accrued in the financial statements. Such dividends are treated as a non-adjusting balance sheet event under IFRS and are not accrued. (ii) Compensated absences such as holiday pay were not accrued under UK GAAP. The costs for earned but unused holiday entitlement are recognised as a liability under IFRS and are accrued (c) Retained earnings The cumulative effect of all the above adjustments has resulted in an increase in retained earnings at 31 March 2005 of Â£873,000. 4.5 Reconciliaton of net income for six months ended 30 September 2004 Note UK Effect of IFRS GAAP transition to IFRS Â£'000 Â£'000 Â£'000 Revenue 5,232 - 5,232 Cost of sales (2,194) - (2,194) _______ _______ _______ Gross profit 3,038 - 3,038 Other operating expenses 4.5(a) (3,404) 211 (3,193) _______ _______ _______ Loss before tax and finance costs (366) 211 (155) Finance income 135 - 135 _______ _______ _______ Loss before tax (231) 211 (20) Income tax 58 - 58 _______ _______ _______ (Loss)/profit from ordinary activities after tax (173) 211 38 _______ _______ _______ Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet and income statement. (a) Other operating expenses (i) Derecognition of goodwill amortisation 264 (ii) Recognition of charge on share options issued after 7 November 2002 and not vested at 1 January 2005 (49) (iii)Recognition of employee short-term benefits under IAS19 (4) ________ Total impact - decrease in other operating expenses 211 ________ 4.6 Reconciliaton of net income for year ended 31 March 2005 Note UK Effect of IFRS GAAP transition to IFRS Â£'000 Â£'000 Â£'000 Revenue 11,231 - 11,231 Cost of sales (4,678) - (4,678) _______ _______ _______ Gross profit 6,553 - 6,553 Other operating expenses 4.6(a) (6,795) 429 (6,366) Exceptional items (321) - (321) _______ _______ _______ Loss before tax and finance costs (563) 429 (134) Finance income 280 - 280 _______ _______ _______ (Loss)/profit before tax (283) 429 146 Income tax 109 - 109 _______ _______ _______ (Loss)/profit from ordinary activities after tax (174) 429 255 _______ _______ _______ Explanation of the effect of the transition to IFRS The following explains the material adjustments to the balance sheet and income statement. (a) Other operating expenses (i) Derecognition of goodwill amortisation 527 (ii) Recognition of charge on share options issued after 7 November 2002 and not vested at 1 January 2005 (106) (iii) Reduction in value of employee short-term benefits under IAS19 8 ________ Total impact - decrease in other operating expenses 429 ________ 5. EARNINGS PER ORDINARY SHARE Earnings per share have been calculated in accordance with International Accounting Standard 33. Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the basic weighted average number of ordinary shares in issue during the year. Unaudited 6 Months Unaudited 6 Months Unaudited Year to to 30 September to 30 September 31 March 2005 2005 2004 (Restated) (Restated) Pence Pence Pence per per per share Â£'000 share Â£'000 share Â£'000 (Loss)/ profit attributable to equity holders of the Company (0.2) (183) 0.0 38 0.3 255 _______ _______ _______ _______ _______ _______ Diluted Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 30 Sept 30 Sept 31 March 2005 2004 2005 No. No. No. (Restated) (Restated) Basic weighted average number of shares in issue 80,667,324 79,624,238 79,754,856 Diluted effect of share options - 2,510,802 3,076,165 __________ __________ __________ Diluted weighted average number of shares in issue 80,667,324 82,135,040 82,831,021 __________ __________ __________ Unaudited 6 Months Unaudited 6 Months Unaudited Year to to 30 September to 30 September 31 March 2005 2005 2004 (Restated) (Restated) Pence Pence Pence per per per share Â£'000 share Â£'000 share Â£'000 Diluted (Loss)/ profit attributable to equity holders of the Company (0.2) (183) 0.0 38 0.3 255 _______ _______ _______ _______ _______ _______ 6. DIVIDENDS PAID AND PROPOSED 30 Sept 30 Sept 31 March 2005 2004 2005 Â£'000 Â£'000 Â£'000 (Restated) (Restated) Declared and paid during the period Final dividend for 2005: 0.5p (2004: 0.5p) 404 398 398 _________ _________ _________ Proposed for approval at AGM (not recognised as a liability at 31 March 2005) Final dividend for 2005: 0.5p (2004: 0.5p) - - 404 _________ _________ _________ 7. RECONCILIATION OF THE LOSS BEFORE INCOME TAX TO NET CASH (CONSUMED)/GENERATED FROM OPERATIONS Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) Â£'000 Â£'000 Â£'000 Loss before income tax (339) (155) (134) Depreciation 100 117 222 Loss on disposal of tangible fixed assets 1 - - Adjustment for share based payments 84 49 106 (Increase)/decrease in inventory (1) 15 18 (Decrease)/increase in provisions (48) (27) 98 Decrease in debtors 128 653 204 Increase/(decrease) in creditors 7 (872) (420) ________ ________ ________ (68) (220) 94 ________ ________ ________ INDEPENDENT REVIEW REPORT TO GB GROUP PLC Introduction We have been instructed by the company to review the financial information for the six months ended 30 September 2005 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity, and the related notes 1 to 7. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority. As disclosed in note 2, the next annual financial statements of the group will be prepared in accordance with those IFRSs adopted for use by the European Union. The accounting policies are consistent with those that the directors intend to use in the next financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with those IFRSs adopted for use by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2005. Ernst & Young LLP 100 Barbirolli Square Manchester M2 3EY This information is provided by RNS The company news service from the London Stock Exchange

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