Interim Results
CSS Stellar PLC
28 September 2007
CSS Stellar plc
('CSS' or 'the Group')
Interim Results
for the six months ended 30 June 2007
CSS Stellar plc, the entertainment and sports management and marketing group,
today announces its interim results for the six months ended 30 June 2007.
Highlights:
• Operating profit adjusted for one off write off and restructuring costs
of £0.4 million (2006: £0.8 million)
• Turnover on continuing operations of £14.4 million (2006: £14.5 million)
• Loss per share of 3.28p (2006: earnings of 0.88p)
Commenting on the results David Buchler, Chairman, said:
'The Company has now emerged from a difficult period. Our underlying businesses
operate profitably and provide a sound base for future growth. Following my
appointment as Chairman in August a full strategic review is under way to
develop the group from its present position. The Board is determined that all
our businesses are operated in a way that will deliver maximum benefit to all
Shareholders.'
For further information please contact:
CSS Stellar
David Buchler, Chairman Tel: 020 7647 9903
Bell Pottinger
Stephen Benzikie/Andrew Benbow Tel: 020 7861 3232
CHAIRMAN'S STATEMENT
This is my first opportunity to report to Shareholders since becoming Chairman
on 16 August 2007. During the six months to 30 June 2007 your Group achieved an
adjusted operating profit of £360,000 (2006: adjusted operating profit of
£789,000). This was before making a write off of £853,000 in connection with a
discontinued business and one off restructuring and abortive disposal costs of
£611,000. As a result the Group incurred an operating loss of £1.1 million
(2006: operating profit of £699,000).
The Group operates Talent Management businesses in Europe and USA in the
Entertainment and Sports sectors and Marketing businesses in USA. These are
reviewed in more detail below.
Talent management
In the six months to 30 June 2007 turnover was £7.6 million (2006: £6.8 million)
and operating profit was £298,000 (2006: £359,000). The decrease in operating
profit was principally caused by an increase in agent employment costs.
Entertainment
Our principal operating subsidiary is The Peters Fraser and Dunlop Group
Limited, one of the UK's oldest and largest talent management agencies with
offices in London and New York.
PFD clients Tom Stoppard and David Grindley both won Tony awards at the 61st
ceremony in June 2007, including a record 7 awards for Tom, whose trilogy 'The
Coast of Utopia' won Best Play. Several PFD clients were winners at the
Primetime Emmy Awards, including Ricky Gervais for Outstanding Lead Actor in a
Comedy Series for Extras, and Philip Martin, for Outstanding Directing for a
Miniseries, Movie or Dramatic Special.
In April, Anthony Horowitz's novel 'Nightrise' went straight to Number One in
the Children's Bestseller List. Sophie McKenzie won the Older Readers category
of The Red House Children's Book Award with her thriller 'Girl, Missing' and was
at this year's Hay Festival. In Film, 'Atonement', starring Keira Knightley and
James McAvoy has been released to rave reviews and 'Amazing Grace', written by
Steven Knight and directed by Michael Apted, was released to great box office
success and critical acclaim. Michael Parkinson and Anne Robinson, both clients
of CSS Presenters, continue to be highly successful in their respective spheres
of television.
Sport
Our clients continue to achieve success round the world. In May, Dario
Franchitti won the prestigious Indy 500, and combined this success with outright
championship victory in the Indy Racing League. Allan McNish retained the
American Le Mans Series championship driving a diesel-powered Audi, and AJ
Allmendinger continued to advance his career in his rookie season in Nascar. We
remain confident that we will bring other drivers into this series and are well
positioned to capitalise on the commercial opportunities available.
In MotoGP, Andrea Dovizioso continued to achieve success in the 250 series and
as the leading Honda-backed junior driver. In addition, we are also expecting a
number of deals to be concluded in the second half of 2007 which will lead to
increased representation in Nascar.
Of our other clients, round-the-world yachtsmen Alex Thomson renewed his
headline Hugo Boss sponsorship and is one of the favourites for the forthcoming
Barcelona World Race in 2007. In rowing, as part of the GB Coxless Four, Andy
Hodge continues to win World Cup races.
Within golf, Gonzalo Fernandez-Castano became the 2007 Italian Open Champion and
has built on the success achieved in 2006. Oliver Wilson has achieved continued
success, including reaching the play-off in the Johnnie Walker Championship and
a second place finish in the Deutsche Bank Championship, ranking him 26th on the
European Tour order of merit.
Events
In the six months to 30 June 2007 turnover in our Events company Icon Display
Limited was £4.2 million (2006: £4.7 million) and operating profit was £63,000
(2006: £720,000). The profits achieved in the first half of 2006 included the
positive impact of the 2006 FIFA World Cup. 2007 does not have a sporting event
of similar world wide significance.
The main highlight of the first six months of 2007 has been the UEFA Eurotop
event contract, which covers the European Under 21 Championships in 2007 and
2009, the Women's Championships in 2009 and Euro 2008. In addition to the main
event, we are providing branding services for all supporting workshop and launch
occasions, including the Euro 2008 Final Draw, taking place in Lucerne this
December.
Our other event contracts continued successfully with the first half of the year
containing the UEFA Cup and Champions League Finals, 888.com World Snooker
Championship, BMW PGA and Irish Open Golf Championships and the start of a very
busy season of cricket in the UK.
In the Middle East we once again serviced the Commercial Bank Qatar Masters, the
unique Doha Wheels and Heels event and were awarded the contract to brand the
announcement of Abu Dhabi's successful Formula 1 campaign.
Marketing
Our marketing division consists of two operations in New York and Minneapolis.
In the six months to 30 June 2007 turnover was £2.5 million (2006: £3.0 million)
and operating profit was £264,000 (2006: £163,000). As referred to earlier in my
statement we wrote off an amount of £853,000 previously expected to be received
in respect of our former business in Canada resulting in a loss of £589,000.
GEM New York is a promotional marketing business working with a range of large
corporate clients including General Electric, NBC and UBS. GEM Minneapolis is a
creative design and photography business servicing clients who include 3M, Best
Buy and Fingerhut.
Central Costs
During the six months to 30 June 2007 the Company incurred significant one off
exceptional costs of £611,000 (2006: £90,000). These were caused by professional
fees incurred due to the actions of a former shareholder, a termination payment
to a previous Director and lease costs arising from the relocation of the Head
Office function. Recurring central costs were £266,000 (2006: £330,000).
General
During the period under review the Group's net debt increased from £1.9 million
to £3.1 million principally as a consequence of the exceptional items referred
to above. Shareholders funds decreased from £20.8 million to £19.6 million
principally as a consequence of the exceptional costs and write off previously
referred to.
Board of Directors
Our thanks go to Sean Kelly, who resigned as Chief Executive in July, and I
should also like to thank Peter Owen and Simon Rhodes for their contribution to
the Group. They are both retiring from the Board today and we are welcoming
Caroline Michel as an executive Director following her appointment as Chief
Executive Officer of PFD.
Outlook
The Group has been through a period of change and disruption in the last year
which has inevitably impacted adversely on performance. My first task on
assuming the position of Chairman has been to make clear the Board's strategy in
respect of our major subsidiary PFD. During the first half of 2006 the Board was
approached by certain employees of PFD with a view to commencing negotiations
for a Management Buy Out. Discussions continued during 2006 resulting in various
indicative offers being made during the first six months of 2007.
None of these offers was at a level that in any way reflected the true value of
PFD and as a consequence your Board at no time accepted any of the proposals put
to it. On my appointment as Chairman your Board confirmed its rejection of any
MBO proposals and I communicated this to the management of PFD.
I want to reassure Shareholders about the financial implications of employees
leaving PFD. The speculation that this will cause a reduction in profits either
this year or next year is inaccurate. A substantial proportion of PFD's income
stream is contractually protected for the foreseeable future. Our aim is to grow
the PFD business and to achieve this I announced the appointment of Caroline
Michel, formerly the Chief Executive Officer of the William Morris Group in UK,
as Chief Executive Officer two weeks ago. She has now taken up her role and I
believe that PFD is better placed to face the challenges of the future than it
has ever been.
While I am pleased that all the Group's activities were profitable in the first
half of 2007 and are expected to continue to be profitable in the second half of
2007 your Board has begun a full review of all operations in order to maximise
shareholder returns. At this time I should also like to thank all our hard
working employees for their efforts.
Your Company has gone through a difficult period recently but I am confident
that its underlying businesses provide a sound base for future growth and my
colleagues and I are determined that all our businesses are operated to ensure
the maximum benefit to all Shareholders.
David Buchler
Chairman
28 September 2007
Independent Review report to CSS Stellar plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprise the consolidated interim income
statement, the consolidated interim balance sheet, the consolidated interim cash
flow statement, the consolidated interim statement of recognised income and
expense and the related notes. We have read the other information contained in
the interim report which comprises only the Chairman's Statement 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 APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for
the conclusion 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.
As disclosed in note 2, the next annual financial statements of the group will
be prepared in accordance with International Financial Reporting Standards as
adopted by the European Union. This interim report has been prepared in
accordance with the accounting policies set out in note 3 which are based on the
recognition and measurement principles of IFRS in issue as adopted by the
European Union (EU) and are effective at 31 December 2007 or expected to be
adopted and effective at 31 December 2007, the group's first annual reporting
date at which the group are required to use IFRS accounting standards adopted by
the EU.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements.
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 management and applying analytical procedures to the financial information
and underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied unless
otherwise disclosed. 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 (UK and Ireland) 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 June 2007.
GRANT THORNTON UK LLP
CHARTERED ACCOUNTANTS
London 28 September 2007
The maintenance and integrity of CSS Stellar plc's website is the responsibility
of the directors: the interim review does not involve consideration of these
matters and, accordingly, the company's reporting accountants accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of
the interim report differ from legislation in other jurisdictions.
Consolidated interim income statement
6 months 6 months to Year to 31
to 30 June 30 June 2006 December 2006
2007
Unaudited Unaudited Unaudited
Note £'000 £'000 £'000
Continuing operations
Revenue 14,378 14,476 31,644
Cost of sales (6,853) (4,543) (11,011)
-----------------------------------
Gross profit 7,525 9,933 20,633
Abortive disposal costs 26 90 -
Write off of irrecoverable debt 853 - -
Restructuring costs 585 - -
Other administrative costs 7,165 9,144 19,154
-----------------------------------
Total administrative costs 8,629 9,234 19,154
-----------------------------------
Operating (loss)/profit (1,104) 699 1,479
Finance income 75 55 141
Finance expense (228) (166) (285)
-----------------------------------
(Loss)/profit before tax (1,257) 588 1,335
Income tax credit/(expense) 115 (292) (469)
-----------------------------------
(Loss)/profit for the period (1,142) 296 866
===================================
Attributable to:
Equity holders of the parent (949) 254 729
Minority interest (193) 42 137
-----------------------------------
(1,142) 296 866
===================================
(Loss)/earnings per share:
Basic (loss)/earnings per share 4 (3.28) 0.88 2.52
===================================
Diluted (loss)/earnings per share (3.28) 0.87 2.47
===================================
Consolidated interim balance sheet
30 June 30 June 31 December
2007 2006 2006
Unaudited Unaudited Unaudited
Note £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 1,900 2,017 1,899
Goodwill 19,396 19,396 19,397
Available for sale financial assets 41 41 41
Deferred tax asset 336 42 65
----------------------------------
21,673 21,496 21,402
----------------------------------
Current assets
Inventories 294 644 187
Trade and other receivables 7,332 7,395 6,635
Cash and cash equivalents 1,233 1,373 1,649
----------------------------------
8,859 9,412 8,471
----------------------------------
Total assets 30,532 30,908 29,873
==================================
LIABILITIES
Current liabilities
Trade and other payables 6,027 6,884 5,073
Short-term borrowings 3,085 2,676 2,109
Current portion of long-term 533 533 533
borrowings
Current tax payable 587 535 487
---------------------------------
10,232 10,628 8,202
---------------------------------
Non-current liabilities
Long-term borrowings 733 953 894
---------------------------------
Total liabilities 10,965 11,581 9,096
---------------------------------
Net assets 19,567 19,327 20,777
=================================
EQUITY
Equity attributable to equity holders
of the parent
Share capital 14,487 14,487 14,487
Share premium account 28,158 28,158 28,158
Revaluation reserve 448 465 456
Translation reserve 80 (73) 80
Profit and loss account (23,855) (23,349) (22,846)
----------------------------------
19,318 19,688 20,335
Minority interest 249 (361) 442
----------------------------------
Total equity 19,567 19,327 20,777
==================================
Consolidated interim statement of recognised income and expense
6 months to 6 months Year to 31
30 June to 30 June December
2007 2006 2006
Unaudited Unaudited Unaudited
Note £'000 £'000 £'000
Exchange differences on translation of
foreign operations 80 (73) 80
-------------------------------
Net income recognised directly in equity 80 (73) 80
(Loss)/profit for the period (1,142) 296 866
-------------------------------
Total recognised income and expense for
the period (1,062) 223 946
===============================
Attributable to:
Equity holders of the parent (869) 181 809
Minority interest (193) 42 137
-------------------------------
(1,062) 223 946
===============================
Consolidated interim cash flow statement
6 months to 6 months to Year to 31
30 June 2007 30 June December
2006 2006
Unaudited Unaudited Unaudited
Note £'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit after taxation (1,142) 296 866
Adjustments for:
Depreciation 279 194 469
Net interest expense 153 111 144
Taxation (credit)/expense recognised in
profit and loss (115) 292 633
Increase in trade and other receivables (503) (2,595) (2,020)
(Increase)/decrease in inventories (107) (364) 93
Increase in trade payables 623 1,803 859
-------------------------------
Cash generated from operations (812) (263) 1,044
Interest paid (228) (171) (285)
Income taxes paid - - (45)
--------------------------------
Net cash (used in)/from operating
activities (1,040) (434) 714
--------------------------------
Cash flows from investing activities
Purchase of property, plant and
equipment (289) (178) (334)
Proceeds from sale of property, plant
and equipment 9 10 9
Interest received 75 60 141
-------------------------------
Net cash used in investing activities (205) (108) (184)
-------------------------------
Cash flows from financing activities
Repayment of long-term borrowings (183) (177) (362)
Payment of finance lease liabilities - - (44)
New finance leases 36 - -
-------------------------------
Net cash used in financing activities (147) (177) (406)
-------------------------------
Net (decrease)/increase in cash and cash
equivalents (1,392) (719) 124
Cash and cash equivalents at beginning
of period (460) (584) (584)
--------------------------------
Cash and cash equivalents at end of
period (1,852) (1,303) (460)
================================
Notes to the consolidated interim financial statements
1 Publications of non-statutory accounts
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
figures from the year ended 31 December 2006 have been extracted from the
statutory financial statements which have been filed with the Registrar of
Companies, and which were prepared under UK GAAP. The auditors' report was
unqualified and did not contain a statement under Section 237(2) of the
Companies Act 1985.
2 Basis of preparation
These consolidated interim financial statements are for the six months ended
30 June 2007. They do not include all of the information required for full
annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group for the year ended 31 December
2006.
These consolidated interim financial statements have been prepared under the
historical cost convention, except for revaluation of certain properties and
financial instruments.
The Directors have prepared cash flow forecasts which show that the Group will
be able to meet its financial obligations for at least twelve months from the
date of these financial statements. The Company's bankers have indicated
continuing support during this period while the Directors carry out their
strategic review. Accordingly, the Directors consider it appropriate to prepare
the financial statements on a going concern basis.
These consolidated interim financial statements (the interim financial
statements) have been prepared in accordance with the accounting policies set
out in note 2 which are based on the recognition and measurement principles of
IFRS in issue as adopted by the European Union (EU) and are effective at
31 December 2007 or are expected to be adopted and effective at
31 December 2007, our first annual reporting date at which we are required to
use IFRS accounting standards adopted by the EU.
CSS Stellar plc's consolidated interim financial statements were prepared in
accordance with United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice) until 31 December 2006. The date of transition to
IFRS was 1 January 2006. The comparative figures in respect of 2006 have been
restated to reflect changes in accounting policies as a result of adoption of
IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP
to IFRS are given in the reconciliation schedules, presented and explained in
note 5.
The accounting policies have been applied consistently throughout the Group for
the purposes of preparation of these consolidated interim financial statements.
3 Principal accounting policies
Basis of Consolidation
The interim financial statements consolidate those of the company and all of its
subsidiary undertakings drawn up to 30 June 2007. Subsidiaries are entities over
which the group has the power to control the financial and operating policies so
as to obtain benefits from its activities. The group obtains and exercises
control through voting rights.
Unrealised gains on transactions between the group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported in
the financial statements of subsidiaries have been adjusted where necessary to
ensure consistency with the accounting policies adopted by the group.
Acquisitions of subsidiaries are dealt with by the purchase method. The purchase
method involves the recognition at fair value of all identifiable assets and
liabilities, including contingent liabilities of the subsidiary, at the
acquisition date, regardless of whether or not they were recorded in the
financial statements of the subsidiary prior to acquisition. On initial
recognition, the assets and liabilities of the subsidiary are included in the
consolidated balance sheet at their fair values, which are also used as the
bases for subsequent measurement in accordance with the group accounting
policies. Goodwill is stated after separating out identifiable intangible
assets. Goodwill represents the excess of acquisition cost over the fair value
of the group's share of the identifiable net assets of the acquired subsidiary
at the date of acquisition.
Business combinations completed prior to date of transition to IFRS
The group has elected not to apply IFRS 3 Business Combinations retrospectively
to business combinations prior to the date of transition.
Accordingly the classification of the combination remains unchanged from that
used under UK GAAP. Assets and liabilities are recognised at date of transition
if they would be recognised under IFRS, and are measured using their UK GAAP
carrying amount immediately post-acquisition as deemed cost under IFRS, unless
IFRS requires fair value measurement. Deferred tax and minority interest are
adjusted for the impact of any consequential adjustments after taking advantage
of the transitional provisions.
Goodwill
Goodwill representing the excess of the cost of acquisition over the fair value
of the group's share of the identifiable net assets acquired is capitalised and
reviewed annually for impairment. Goodwill is carried at cost less accumulated
impairment losses.
Goodwill written off to reserves prior to date of transition to IFRS remains in
reserves. There is no re-instatement of goodwill that was amortised prior to
transition to IFRS. Goodwill previously written off to reserves is not written
back to profit or loss on subsequent disposal.
Revenue
Revenue is measured by reference to the fair value of consideration received or
receivable by the group for goods supplied and services provided, excluding VAT
and trade discounts. Revenue is recognised upon the performance of services or
transfer of risk to the customer.
Talent Management
Turnover represents commission recognised on an agent basis when contractually
due from clients.
Marketing
Turnover represents fees and advertising sales, recognised when the services are
performed in accordance with contractual arrangements for client representation
and sales invoiced to
third parties.
Events
Turnover represents gross fees and sales of materials. Turnover is recognised on
performance of services in accordance with contractual arrangements, and sales
of materials are recognised on delivery.
Turnover excludes value added tax and similar sales related taxes.
Dividends
Dividends are recognised when the shareholders right to receive payment is
established.
Property, plant and equipment
Property, plant and equipment is stated at cost or valuation, net of
depreciation and any provision for impairment.
Assets carried at valuation
The only class of assets that is carried at fair value is freehold property.
Revaluations are performed with sufficient frequency to ensure that the carrying
amount does not differ materially from that which be determined using fair value
at each reporting date. Any revaluation surplus is credited to 'revaluation
reserve' in equity, unless the carrying amount has previously suffered a
revaluation decrease or impairment loss. To the extent that any decrease has
previously been recognised in the income statement, a revaluation increase is
recognised in the income statement, with the remaining part of the increase
charged to equity. Downward revaluations are recognised upon appraisal or
impairment testing, with the decrease being charged against any revaluation
surplus in equity relating to this asset and any remaining decrease recognised
in the income statement.
Revalued assets carried at cost after first adoption of IFRS
On first adoption of IFRS the carrying value of land and freehold buildings that
had previously been revalued is shown as deemed cost, and not subsequently
revalued. The revaluation surplus that had been previously recognised is
retained in the revaluation reserve and transferred to distributable reserves on
impairment, depreciation or disposal of the relevant properties as above.
Depreciation
Depreciation is calculated to write down the cost less estimated residual value
of all property, plant and equipment other than freehold land by equal annual
instalments over their estimated useful economic lives. The rates generally
applicable are:
Freehold properties 3.3% per annum
Leasehold properties Period of lease
Motor vehicles 25% per annum
Event equipment 20% - 33% per annum
Office equipment 33% per annum
Furniture and fittings 15 - 25% per annum
Leasehold improvements Period of lease
Material residual value estimates are updated as required, but at least
annually, whether or not the asset is revalued.
Leased assets
In accordance with IAS 17, the economic ownership of a leased asset is
transferred to the lessee if the lessee bears substantially all the risks and
rewards related to the ownership of the leased asset. The related asset is
recognised at the time of inception of the lease at the fair value of the leased
asset or, if lower, the present value of the minimum lease payments plus
incidental payments, if any, to be borne by the lessee. A corresponding amount
is recognised as a finance leasing liability.
The interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the income statement over the
period of the lease.
All other leases are regarded as operating leases and the payments made under
them are charged to the income statement on a straight line basis over the lease
term. Lease incentives are spread over the term of the lease.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs of
ordinarily interchangeable items are assigned using the first in, first out cost
formula. Cost includes materials and direct labour.
Taxation
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit. Deferred tax on
temporary differences associated with shares in subsidiaries and joint ventures
is not provided if reversal of these temporary differences can be controlled by
the group and it is probable that reversal will not occur in the foreseeable
future. In addition, tax losses available to be carried forward as well as other
income tax credits to the group are assessed for recognition as deferred tax
assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax
assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Current and deferred tax assets and liabilities are calculated
at tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at the balance
sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that are
charged or credited directly to equity in which case the related deferred tax is
also charged or credited directly to equity.
Financial assets
Financial assets are divided into the following categories: loans and
receivables and available-for-sale financial assets. Financial assets are
assigned to the different categories by management on initial recognition,
depending on the purpose for which they were acquired.
Provision against trade receivables is made when there is objective evidence
that the group will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the present
value of estimated future cash flows.
Available-for-sale financial assets include non-derivative financial assets that
are either designated as such or do not qualify for inclusion in any of the
other categories of financial assets. All financial assets within this category
are measured subsequently at fair value, with changes in value recognised in
equity, through the statement of recognised income and expense. Gains and losses
arising from investments classified as available-for-sale are recognised in the
income statement when they are sold or when the investment is impaired.
In the case of impairment of available-for-sale assets, any loss previously
recognised in equity is transferred to the income statement. Impairment losses
recognised in the income statement on equity instruments are not reversed
through the income statement. Impairment losses recognised previously on debt
securities are reversed through the income statement when the increase can be
related objectively to an event occurring after the impairment loss was
recognised in the income statement.
An assessment for impairment is undertaken at least at each balance sheet date.
A financial asset is derecognised only where the contractual rights to the cash
flows from the asset expire or the financial asset is transferred and that
transfer qualifies for derecognition. A financial asset is transferred if the
contractual rights to receive the cash flows of the asset have been transferred
or the group retains the contractual rights to receive the cash flows of the
asset but assumes a contractual obligation to pay the cash flows to one or more
recipients. A financial asset that is transferred qualifies for derecognition if
the group transfers substantially all the risks and rewards of ownership of the
asset, or if the group neither retains nor transfers substantially all the risks
and rewards of ownership but does transfer control of that asset.
Financial liabilities
Financial liabilities are obligations to pay cash or other financial assets and
are recognised when the group becomes a party to the contractual provisions of
the instrument. Financial liabilities categorised as at fair value through
profit or loss are recorded initially at fair value, all transaction costs are
recognised immediately in the income statement. All other financial liabilities
are recorded initially at fair value, net of direct issue costs.
All financial liabilities are recorded at amortised cost using the effective
interest method, with interest-related charges recognised as an expense in
finance cost in the income statement. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are charged to the
income statement on an accruals basis using the effective interest method and
are added to the carrying amount of the instrument to the extent that they are
not settled in the period in which they arise. A financial liability is
derecognised only when the obligation is extinguished, that is, when the
obligation is discharged or cancelled or expires.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of
changes in value.
Dividends
Dividend distributions payable to equity shareholders are included in 'other
short term financial liabilities' when the dividends are approved in general
meeting prior to the balance sheet date.
Equity
Equity comprises the following:
• 'Share capital' represents the nominal value of
equity shares.
• 'Share premium' represents the excess over nominal
value of the fair value of consideration received for equity shares, net of
expenses of the share issue.
• 'Other reserve' represents equity-settled
share-based employee remuneration until such share options are exercised.
• 'Translation reserve' represents the differences
arising from translation of investments in overseas subsidiaries.
• 'Revaluation reserve' represents gains and losses
due to the revaluation of certain financial assets and property, plant and
equipment.
• 'Profit and loss reserve' represents retained
profits.
Foreign currencies
Transactions in foreign currencies are translated at the exchange rate ruling at
the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the balance sheet
date. Non-monetary items that are measured at historical cost in a foreign
currency are translated at the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was
determined. Any exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different from those at which they
were initially recorded are recognised in the profit or loss in the period in
which they arise. Exchange differences on non-monetary items are recognised in
the statement of recognised income and expenses to the extent that they relate
to a gain or loss on that non-monetary item taken to the statement of recognised
income and expenses, otherwise such gains and losses are recognised in the
income statement.
The assets and liabilities in the financial statements of foreign subsidiaries
and related goodwill are translated at the rate of exchange ruling at the
balance sheet date. Income and expenses are translated at the actual rate. The
exchange differences arising from the retranslation of the opening net
investment in subsidiaries are taken directly to the Translation reserve in
equity. On disposal of a foreign operation the cumulative translation
differences are transferred to the income statement as part of the gain or loss
on disposal.
The group has taken advantage of the exemption in IFRS 1 and has deemed
cumulative translation differences for all foreign operations to be nil at the
date of transition to IFRS. The gain or loss on disposal of these operations
excludes translation differences that arose before the date of transition to
IFRS and includes later translation differences.
Share-based payment - Equity settled share-based payment
All share-based payment arrangements granted after 7 November 2002 that had not
vested prior to 1 January 2006 are recognised in the financial statements. All
equity-settled share-based payments are ultimately recognised as an expense in
the income statement with a corresponding credit to 'other reserve'.
If vesting periods or other non-market vesting conditions apply, the expense is
allocated over the vesting period, based on the best available estimate of the
number of share options expected to vest. Estimates are subsequently revised if
there is any indication that the number of share options expected to vest
differs from previous estimates. Any cumulative adjustment prior to vesting is
recognised in the current period. No adjustment is made to any expense
recognised in prior periods if share options ultimately exercised are different
to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate share
premium.
4 Earnings per share
The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the year.
The calculation of diluted earnings per share is based on the basic earnings per
share, adjusted to allow for the issue of shares and the post tax effect of
dividends and/or interest, on the assumed conversion of all dilutive options and
other dilutive potential ordinary shares.
Reconciliations of the earnings and weighted average number of shares used are
set out below.
6 months to 30 June 2007 (unaudited)
Earnings Weighted Per share
average amount
number of
shares
£'000 Pence
Continuing operations
Loss after tax (949)
------
Earnings attributable to ordinary
shareholders (949)
Weighted average number of shares (used 28,976,581
for basic earnings per share)
Dilutive effect of options (297,181)
---------
Diluted weighted average number of
shares (used for diluted earnings per
share) 28,679,400
Basic earnings per share (3.28)
======
Diluted earnings per share (3.28)
=======
6 months to 30 June 2006 (unaudited)
Earnings Weighted Per share
average amount
number of
shares
£'000 Pence
Continuing operations
Profit after tax 254
------
Earnings attributable to ordinary
shareholders 254
Weighted average number of shares (used
for basic earnings per share) 28,976,581
Dilutive effect of options 58,450
----------
Diluted weighted average number of
shares (used for diluted earnings per
share) 29,035,031
Basic earnings per share 0.88
====
Diluted earnings per share 0.87
====
Year to 31 December 2006 (unaudited)
Earnings Weighted Per share
average no. amount
shares
£'000 Pence
Continuing operations
Profit after tax 729
----
Earnings attributable to ordinary
shareholders 729
Weighted average number of shares (used
for basic earnings per share) 28,976,581
Dilutive effect of options 487,619
----------
Diluted weighted average number of
shares (used for diluted earnings per
share) 29,464,200
Basic earnings per share 2.52
=====
Diluted earnings per share 2.47
=====
5 Transition to IFRS
As stated in Note 2, these are the Group's first consolidated interim financial
statements for part of the period covered by the first IFRS annual consolidated
financial statements prepared in accordance with IFRS. An explanation of how the
transition from UK GAAP to IFRS has affected the Group's financial position,
financial performance and cash flows is set out in the following tables and
notes that accompany the tables.
Goodwill
Under UK GAAP, the Group's policy was to amortise goodwill over periods from 5
to 20 years. Under IFRS 3 'Business Combinations' there is no amortisation of
goodwill although goodwill is subject to annual impairment review. As announced
in the Chairman's Statement the new Board is carrying out a full review of all
the Group's operations. As part of this review the Board will be undertaking, in
accordance with International Accounting Standard 36 'Impairment of assets', a
review of the carrying value of the Group's operating entities which will be
conducted during the second half of this year.
Translation differences on foreign operations
Cumulative translation differences on foreign operations are deemed to be nil at
1 January 2006, in accordance with IFRS 1 First Time Adoption of International
Financial Reporting Standards. Any gains and losses recognised in the
consolidated income statement on subsequent disposal of foreign operations will
exclude translation differences arising prior to the transition date.
Foreign Exchange Rates
The Group has elected not to apply IAS 21 The Effects of Changes in Foreign
Exchange Rates retrospectively to goodwill and fair value adjustments arising on
business combinations before the Group's date of transition to IFRS. Such
goodwill and fair value adjustments are not treated as foreign currency assets
and so are not retranslated at each reporting date
Reconciliation of equity at 1 January 2006 (unaudited)
Notes
UK GAAP a b c d e IFRS
£ £ £ £ £ £ £
Non-current assets
Property, plant and
equipment 2,043 - - - - - 2,043
Goodwill 19,397 - - - - - 19,397
Available for sale
financial assets 41 - - - - - 41
Deferred tax assets - - - 205 - (164) 41
Current assets
Inventories 280 - - - - - 280
Trade and other
receivables 5,102 - - (205) - - 4,897
Cash and cash
equivalents 954 - - - - - 954
Current liabilities
Trade and other
payables 4,487 - - - - - 4,487
Short-term borrowings 1,538 - - - - - 1,538
Current portion of
long-term borrowings 533 - - - - - 533
Current tax payable 193 - - - - - 193
Non-current
liabilities
Long-term borrowings 1,275 - - - - - 1,275
---------------------------------------------------------------
Net assets 19,791 - - - - (164) 19,627
===============================================================
Equity
Share capital 14,487 - - - - - 14,487
Share premium account 28,158 - - - - - 28,158
Revaluation reserve 637 - - - - (164) 473
Translation reserve - - - 20 - - 20
Profit and loss
account (23,611) - - (20) - - (23,631)
Minority interest 120 - - - - - 120
--------------------------------------------------------------
Total equity 19,791 - - - - (164) 19,627
==============================================================
Reconciliation of equity at 30 June 2006 (unaudited)
Notes
UK GAAP a b c d e IFRS
£ £ £ £ £ £
Non-current assets
Property, plant and
equipment 2,017 - - - - - 2,017
Goodwill 18,604 792 - - - - 19,396
Available for sale
financial assets 41 - - - - - 41
Deferred tax assets - - 142 - 64 (164) 42
Current assets
Inventories 644 - - - - - 644
Trade and other
receivables 7,537 - (142) - - - 7,395
Cash and cash
equivalents 1,373 - - - - - 1,373
Current liabilities
Trade and other
payables 6,671 - - - 213 - 6,884
Short-term borrowings 2,676 - - - - - 2,676
Current portion of
long-term borrowings 533 - - - - - 533
Current tax payable 535 - - - - - 535
Non-current liabilities
Long-term borrowings 953 - - - - - 953
--------------------------------------------------------------
Net assets 18,848 792 - - (149) (164) 19,327
==============================================================
Equity
Share capital 14,487 - - - - - 14,487
Share premium account 28,158 - - - - - 28,158
Revaluation reserve 629 - - - - (164) 465
Translation reserve - - - (73) - - (73)
Profit and loss account (24,065) 792 - 73 (149) - (23,349)
Minority interest (361) - - - - - (361)
----------------------------------------------------------------
Total equity 18,848 792 - - (149) (164) 19,327
===============================================================
Reconciliation of equity at 31 December 2006 (unaudited)
Notes
UK GAAP a b c d e IFRS
£ £ £ £ £ £ £
Non-current assets
Property, plant and
equipment 1,899 - - - - - 1,899
Goodwill 18,036 1,361 - - - - 19,397
Available for sale
financial assets 41 - - - - - 41
Deferred tax assets - - 229 - - (164) 65
Current assets
Inventories 187 - - - - - 187
Trade and other
receivables 6,864 - (229) - - - 6,635
Cash and cash
equivalents 1,649 - - - - - 1,649
Current liabilities
Trade and other
payables 5,073 - - - - - 5,073
Short-term borrowings 2,109 - - - - - 2,109
Current portion of
long-term borrowings 533 - - - - - 533
Current tax payable 487 - - - - - 487
Non-current
liabilities
Long-term borrowings 894 - - - - - 894
----------------------------------------------------
Net assets 19,580 1,361 - - - (164) 20,777
====================================================
Equity
Share capital 14,487 - - - - - 14,487
Share premium account 28,158 - - - - - 28,158
Revaluation reserve 620 - - - - (164) 456
Translation reserve - - - 80 - - 80
Profit and loss
account (24,127) 1,361 - (80) - - (22,846)
Minority interest 442 - - - - - 442
-----------------------------------------------------
Total equity 19,580 1,361 - - - (164) 20,777
=====================================================
Reconciliation of profit for the 6 months ended 30 June 2006 (unaudited)
Notes
UK GAAP a b c d e IFRS
£ £ £ £ £ £ £
Continuing operations
Revenue 14,476 - - - - - 14,476
Cost of sales (4,543) - - - - - (4,543)
---------------------------------------------------
Gross profit 9,933 - - - - - 9,933
Administrative costs (9,813) 792 - - (213) - (9,234)
---------------------------------------------------
Operating profit 120 792 - - (213) - 699
Finance income 55 - - - - - 55
Finance expense (166) - - - - - (166)
---------------------------------------------------
Profit before tax 9 792 - - - - 588
Income tax expense (356) - - - 64 - (292)
----------------------------------------------------
(Loss)/Profit after
tax (347) 792 - - (149) - 296
====================================================
Reconciliation of profit for the year ended 31 December 2006 (unaudited)
Notes
UK GAAP a b c d e IFRS
£ £ £ £ £ £ £
Continuing operations
Revenue 31,644 - - - - - 31,644
Cost of sales (11,011) - - - - - (11,011)
--------------------------------------------------------
Gross profit 20,633 - - - - - 20,633
Administrative costs (20,515) 1,361 - - - - (19,154)
--------------------------------------------------------
Operating profit 118 1,361 - - - - 1,479
Finance income 141 - - - - - 141
Finance expense (285) - - - - - (285)
-------------------------------------------------------
(Loss)/profit before
tax (26) 1,361 - - - - 1,335
Income tax expense (469) - - - - - (469)
------------------------------------------------------
(Loss)/profit after
tax (495) 1,361 - - - - 866
======================================================
Notes to the reconciliations
a) Goodwill recognised by the Group on acquisitions under UK GAAP was
amortised over periods of 5 to 20 years. Under IFRS goodwill is not amortised,
but tested annually for impairment. The goodwill amortisation charge recognised
in accordance with UK GAAP in 2006 and the interim period has been derecognised
on transition to IFRS.
b) Reclassification of deferred tax from current to non-current assets in
accordance with IAS 12 Income Taxes.
c) Reclassification of translation reserve from profit and loss reserve in
accordance with IAS 21 The effects of changes in foreign exchange rates.
d) Recognition of holiday pay accrual and deferred tax asset thereon under
IAS 19 Employee Benefits.
e) Recognition of deferred tax liability on revaluation reserve.
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