Final Results

RNS Number : 9195J

RWS Holdings PLC

11 December 2008

 



11 December 2008

RWS Holdings plc

Preliminary results for the year ended 30 September 2008

RWS Holdings plc, Europe's leading provider of intellectual property support services (patent translations and technical searches) and technical translations, today announced its preliminary results for the year ended 30 September 2008.

 

Financial Highlights:

 

Sales and profits at record levels, for the fifth successive year since flotation in 2003

 

·             Sales increased by 17% to £54.1m (2007: £46.2m)

·             Profit before tax* rose by 26.4% to £13.9m (2007: 11.0m)

·             Profit before tax* margin improved from 23.8% to 25.8%

·             Basic earnings per share* were up 25% to 24.0p (2007: 19.2p)

·             Proposed final dividend of 7.9p gives a total dividend for the year of 10.4p (2007: 
               8.65p)

       -         increased by 20% for the fourth successive year

·             Continued strong cash generation from operations produced net cash at year end of 
       £22.1m (2007: £20.4m), after £5.8m acquisition; no borrowings

·             Weak yen and dollar more than offset by strong euro

 

* before intangibles amortization

 

Operational Highlights:

 

Strong performances from most of our businesses

 

·             Steady progress in core patent translations business, despite London Agreement 
               effect

·             Excellent performance from German businesses, following successful integration of
       Document Service Center in Berlin, acquired in February 2008

·             Information business performed well; PatBase gross subscription sales increased by 
       73%

·             Continued increase in staff productivity

 

Current Trading and Outlook:

 

·             Trading in the first two months of the new financial year has been in line with 
                expectations

·             Dollar exposure fixed for the new financial year; all Euro cash balances sold in
       November 2008 at unprecedented rates

·             Investment in both organic and acquisitive growth

Executive Chairman Andrew Brode commented:

'I am pleased to report a fifth successive year of strong growth in profits in a much more challenging economic environment and despite the implementation of the London Agreement.

'Trading in the first two months of the current financial year has been in line with the Board's expectations and we enter this period of severe economic downturn in a strong financial position, with good opportunities for niche acquisitions and market leadership in our core business. These factors, coupled with our investments in both organic growth and enhanced systems, underpin our commitment to grow our market share and demonstrate progress in 2009.'

For further information contact:

RWS Holdings plc

Andrew Brode, Executive Chairman                    01753 480200

Smithfield

Katie Hunt / Rebecca Whitehead                    020 7360 4900

Numis

Stuart Skinner (Nominated Adviser)

James Serjeant (Corporate Broker)                    020 7260 1000

About RWS:

RWS is Europe's leading provider of intellectual property support services (patent translations and technical searches) to the medical, pharmaceutical, chemical, aerospace, defence, automotive, electronics and telecoms industries. RWS also provides specialist technical, legal and financial translation services for areas of industry outside the patent arena. RWS is based in the UK, with offices in Europe, New York, Tokyo and Beijing, and is listed on AIM, the London Stock Exchange regulated market (RWS.L).

Approximately 1,000,000 patent documents are published per annum, 200,000 of which are published in Europe (Source: European Patent Office) and the intellectual property market has shown significant growth in recent years, with patent applications in Europe having doubled over the last ten years.

For further information please visit: www.rws.com

RWS Holdings plc

Preliminary results for the year ended 30 September 2008

Executive Chairman's Statement

I am delighted to report another year of significant progress for RWS. For its fifth year as a public company it has delivered new record levels for both sales and profits.

Business Overview

RWS is Europe's leading provider of intellectual property support services and high level technical, legal and financial translation services. The core business - patent translation - is probably the largest of its kind in the world, translating over 50,000 patents and intellectual property related documents each year. It serves a multinational blue chip client base drawn from Europe, North America and Japan. Its clients will be active filers of patents in the medical, pharmaceutical, chemical, aerospace, defence, automotive, electronics and telecoms sectors, as well as patent agents with similar clients, and the leading international intellectual property organisations. The Group comprises two divisions, the Translation division providing patent and document translation, filing and localisation services in the UK, USA, Europe, Japan and China, and the Information division, which offers a comprehensive range of patent search, retrieval and monitoring services as well as an extremely comprehensive patent database service accessible by subscribers, known as PatBase.

Strategy

The Group's strategy is to grow both organically and by selective acquisitions in the high level technical translation and intellectual property support services spaces. Organic growth will flow from leveraging RWS' size, financial strength, and reputation for specialist quality with both existing clients and new major corporates in a highly fragmented and largely freelance industry.

Results and Financial Review

Sales and profit for the year established new records. Sales grew by 17% to £54.1 million (2007: £46.2 million); profit before tax and intangibles amortization increased by 26.4% to £13.9 million (2007: £11.0 million). The effective cash tax rate was 21.7% (2007: 24.0%). Basic earnings per share before intangibles amortization advanced by 25% to 24.0p (2007: 19.2p).

This strong performance was achieved despite the implementation of the London Agreement on 1 May 2008, and owed much to client retention, demand for our services, and the successful integration of the DSC acquisition, whilst it was also assisted by a favourable euro/sterling exchange rate. The rate rose from Euro 1.44=£1 at the beginning of the period to 1.26 at the end, with the average experienced throughout the year at 1.30. We continued to exert tight control over translation costs (particularly the use of freelances) and this, combined with improved productivity and the excellent margins in our growing patent database, PatBase, contributed to the further margin improvement. Overall, the profit before tax and intangibles amortization margin rose from 23.8% to 25.8% of sales revenues.

At a time when the markets are increasingly sensitive to a company's financial position, RWS' financial base has strengthened further. Shareholder funds have advanced to £36.4 million, including net cash of £22.1 million. Free cash flow increased to £10.4 million with modest capital expenditure of £460,000. The overall growth was achieved with minimal increases in working capital and tight control of receivables despite deteriorating credit conditions. The acquisition of Document Service Center in Berlin required a net outlay of £5.8 million. Even after this acquisition, and substantially larger tax and dividend payments, net cash advanced by £1.7 million.

Dividend

The Board recommends a final dividend of 7.9p per share, which, together with the interim payment, will result in a total dividend payout for the year of 10.4p per share, a 20% increase over 2007.

The proposed total dividend is more than twice covered by after tax profits. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 20 February 2009 to all shareholders on the register at 23 January 2009.

Acquisitions

RWS acquired Document Service Center (DSC), a technical translations business based in Berlin, in February 2008. DSC's customers are major industrial corporates in Germany and Switzerland. The existing RWS business in Berlin has since moved to DSC's premises in central Berlin under a single management structure.

Having been pleased with the return on all of our acquisitions to date, we continue to review acquisition opportunities, and our financial resources ensure a favourable position when competing for acquisitions. Such acquisitions are likely to be in the technical translations space, with our selection criteria including good margins, growth prospects and the enhancement of shareholder value.

Operating Review

Translations

Patent translations are the Group's core business and account for 70% of sales revenues. Our business model is built upon the premise that we will execute all of the patent translations of our key clients and on our track record of adding new clients and not losing existing ones, whilst the overall numbers of patents granted worldwide continue to grow. We believe that this model performed satisfactorily in 2007-08 despite the commencement of the London Agreement in May 2008, which caused some potential clients to defer changes to their existing arrangements with patent attorneys. The RWS services have long attained a reputation as a high quality, convenient and cost-effective solution for those corporates generating significant patent volumes requiring comprehensive geographical intellectual property protection.

In Japan, we have experienced significant levels of competition during a time when the yen has been weak. More recently, the yen has risen dramatically and we expect to be able to report better results in sterling terms. Our Tokyo office has now also assumed responsibility for marketing PatBase in Japan. Our Beijing office is still in its start up phase, but sales and expressions of interest in our patent translations are encouraging.

All of our recent acquisitions have been in the technical, non-patent area, and have contributed to these activities now accounting for 23% of overall sales revenues. This area of our business encounters the clearest competition which is likely to intensify with the global downturn. Its performance in 2007-08 has fulfilled our expectations. The key to success lies in preferred supplier or approved contractor status, handling larger and/or more difficult assignments.

Since the advent of the global banking problems and the intensification of economic malaise, we have seen potential clients for our services become increasingly concerned about the possible failure of suppliers to deliver business critical translations. As such, we expect the Group's financial strength and scale to position it well in what is otherwise a highly fragmented market.

Information

The information division accounts for only 7% of group sales but produces excellent margins. This has continued to be the case as we enjoy European market leadership in the provision of patent search, patent watch and document services. Sales benefited from one, unusually large, assignment.

Additionally, the information division includes PatBase, an extremely comprehensive and searcher-friendly patent database (PatBase). Available only on subscription, PatBase has achieved in excess of 70% growth in gross subscription revenues in 2008 accompanied by outstanding margins.

Investment

During the reporting year, we commenced an investment programme which we expect to continue through the new financial year. Whilst historically much of our patent translation work has come as a result of referrals, we have more recently increased our sales effort, particularly in the USA, and this trend will continue in 2009.

Additionally, we are implementing a number of new systems to further support our workflow, customer interface and documentation management. These include a new web portal to allow clients interactive access; translation memory software which will be used for selective assignments and a comprehensive document and customer relationship management system expected to go live in 2009.We expect the implementation of these systems to enhance efficiency and reduce costs when fully operational.

Principal Risks

The Directors continue to believe that the principal risks to the business are errors in the provision of the Group's services; in a mismatch between currencies (i.e. sales are predominantly in euros, whilst costs are mainly incurred in sterling); and in regulatory changes to patent translation requirements in Europe.

The Group addresses these risks as follows:

• Failings in service provision are most likely to arise as a result of human error. RWS has long been ISO-certified and has exhaustive and regularly updated procedures in place to minimise the risk of error. The Group also carries extensive professional indemnity insurance.

• Currency risks can normally be addressed via hedging operations. During the financial year ended 30 September 2008, we experienced unfavourable hedges in the first half and favourable hedges in the second half of the year. Sterling/dollar exposure for the whole of 2008-09 has been fixed at $1.60=£1. All of the Group's euro cash balances were sold in November 2008 at a rate of Euro 1.16=£1. There are presently no other hedges in place as we believe sterling weakness will continue in the short term.

• At the time RWS floated on AIM in November 2003, two regulatory initiatives were identified as possible threats to our patent translations business. The first - a European Community Patent - was decisively rejected in 2005, although discussions continue. The second - the London Agreement - came into effect in its first phase on 1 May 2008. This voluntary arrangement amongst certain European countries is expected to reduce profits before tax by not less than £2 million in a full year, which we have already factored into our expectations. As previously highlighted, our core patent translation activities (into English, primarily for filing at the US Patent Office) are entirely unaffected; the loss of work comprises the into European language translations performed by freelances. We are, therefore, better able to manage the direct costs related to this work and we continue to focus on managing our cost base as the impact of the London Agreement flows through. In addition, the Group's acquisition strategy, which will target technical translations, is designed to more than compensate for the reduction in profits from the impacted business.

People

Quality business support services rely heavily upon human resources for excellent execution. The RWS brand is a byword for quality in the intellectual property services space. That is testament to the continuing efforts of our entire staff and evidenced by yet another set of excellent results.

Current Trading and Outlook

In the face of arguably the most challenging economic environment in our lifetime we are cautiously optimistic that the business will broadly prove to be resilient.

Trading in the first two months of the current financial year has been in line with the Board's expectations and we enter this period of severe economic downturn in a strong financial position, with good opportunities for niche acquisitions, and market leadership in our core business. These factors and the investments we intend to make in both organic growth and enhanced systems, underpin our commitment to grow our market share and demonstrate progress in 2009.

Andrew Brode

Executive Chairman

10 December 2008

  Consolidated Income Statement

For the year ended 30 September

	Note	2008 £'000	2007 £'000
Revenue	3	54,106	46,208
Cost of sales		(31,746)	(26,920)
Gross profit		22,360	19,288
Other operating income		-	5
Administrative expenses		(9,598)	(9,087)
Operating profit		12,762	10,206
Analysed as:
Operating profit before amortization of customer relationships and trademarks		13,028	10,222
Amortization of customer relationships and trademarks		(266)	(16)
Operating profit		12,762	10,206
Finance income		919	765
Finance expense		(1)	(7)
Profit before taxation		13,680	10,964
Taxation	4	(4,093)	(3,315)
Profit for the year		9,587	7,649
Attributable to:
Equity holders of the Company	7	9,587	7,649
Basic earnings per Ordinary share (pence per share)	6	23.5	19.2
Diluted earnings per Ordinary share (pence per share)	6	22.7	18.2

Consolidated Statement of Recognised Income and Expense

For the year ended 30 September

	Note	2008 £'000	2007 £'000
Exchange gains on retranslation of foreign operations	7	667	15
Net income recognised directly in equity		667	15
Profit for the year		9,587	7,649
Total recognised income and expense for the year		10,254	7,664
Attributable to:
Equity holders of the Company		10,254	7,664
Minority interest		-	-

Consolidated Balance Sheet

at 30 September

	Note	2008 £'000	2007 £'000
Assets
Non-current assets
Goodwill		10,924	7,144
Intangible assets		3,532	528
Property, plant and equipment		738	732
Deferred tax assets		1,265	1,849
		16,459	10,253
Current assets
Trade and other receivables		10,861	10,642
Cash and cash equivalents		22,081	22,144
		32,942	32,786
Total assets		49,401	43,039
Liabilities
Current liabilities
Bank overdraft		-	1,755
Trade and other payables		6,790	6,058
Income tax payable		5,328	6,308
Derivative financial instruments		-	63
		12,118	14,184
Non-current liabilities
Deferred tax liabilities		884	133
		884	133
Total liabilities		13,002	14,317
Total net assets		36,399	28,722
Equity
Capital and reserves attributable to equity holders of the Company
Share capital	7	2,065	2,016
Share premium	7	3,401	2,992
Reverse acquisition reserve	7	(8,483)	(8,483)
Foreign currency reserve	7	682	15
Retained earnings	7	38,724	32,172
		36,389	28,712
Minority interest	7	10	10
Total equity		36,399	28,722

Consolidated Cash Flow Statement

For the year ended 30 September

		2008 £'000	2007 £'000
Cash flows from operating activities
Profit before taxation		13,680	10,964
Adjustments for:
Depreciation of property, plant and equipment		315	305
Amortization of intangible assets		359	54
Finance income		(919)	(765)
Finance expense		1	7
Gain on sale of property, plant and equipment		-	(5)
Other non-cash movements		-	38
Operating cash flow before movements
in working capital and provisions		13,436	10,598
Decrease/(increase) in trade and other receivables		402	(1,751)
Increase in trade and other payables		244	8
Cash generated from operations		14,082	8,855
Interest paid		(1)	(7)
Income tax paid		(4,119)	(1,859)
Net cash inflow from operating activities		9,962	6,989
Cash flows from investing activities
Interest received		889	752
Acquisition of subsidiary, net of cash acquired		(5,817)	(1,130)
Purchases of property, plant and equipment		(258)	(245)
Purchases of intangibles (computer software)		(202)	(39)
Sale of property, plant and equipment		-	26
		(5,388)	(636)
Cash flows from financing activities
Proceeds from the issue of share capital		458	1,077
Dividends paid		(3,647)	(2,990)
Net cash inflow from financing activities		(3,189)	(1,913)
Net increase in cash and cash equivalents		1,385	4,440
Cash and cash equivalents at beginning of the year		20,389	15,912
Exchange gains on cash and cash equivalents		307	37
Cash and cash equivalents at end of the year		22,081	20,389
Free cash flow
Analysis of free cash flow
Net cash generated from operating activities		14,082	8,855
Net interest received		888	745
Income tax paid		(4,119)	(1,859)
Purchases of property, plant and equipment		(258)	(245)
Purchase of intangibles (computer software)		(202)	(39)
Sale of property, plant and equipment		-	26
Free cash flow		10,391	7,483

The Directors consider that the free cash flow analysis above indicates the cash generated from normal activities excluding acquisitions and dividends.

  Notes to the Accounts

1.  General information

RWS Holdings plc is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is 55 Baker Street, London, W1U 7EU.

The Group's financial statements for the year ended 30 September 2008, from which this financial information has been extracted, and for the comparative year ended 30 September 2007, are prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the EU.

The financial information shown in the announcement for the year ended 30 September 2008 and the year ended 30 September 2007 set out above does not constitute statutory accounts but is derived from those accounts. The results have been prepared using accounting policies consistent with those used in the preparation of the statutory accounts. The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the year ended 30 September 2007 have been delivered to the registrar of companies and those for the year ended 30 September 2008 will be delivered shortly. The auditors have reported on the accounts for the year ended 30 September 2008; their report was unqualified, did not contain statements under s 237 (2) or (3) of the Companies Act 1985 and did not contain any matters to which the auditors drew attention without qualifying their report.

Copies of this announcement are available at the registered office of the Company for a period of 14 days from the date hereof.

2.  Significant accounting policies

Basis of accounting

The principal accounting policies adopted in the preparation of this preliminary announcement are set out below.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Group expects to publish full financial statements that comply with IFRSs on 15 January 2009.

This is the first year in which the Group is preparing its financial information in accordance with Adopted IFRSs, having previously used UK accounting standards. The date of transition to IFRS is 1 October 2006.  The restatements are set out in note 10.

3.  Segmental information

The Group's operations are based in UK, Europe, Asia and the United States of America.

The table below shows turnover by the geographic market in which customers are located.

	2008 £'000	2007 £'000
UK	7,903	7,123
Continental Europe	38,757	30,282
Asia and United States of America	7,446	8,803
	54,106	46,208

  4. Taxation

		2008 £'000	2007 £'000
Taxation recognised in the income statement is as follows:
Current tax expense
Tax on profits for the current year
- UK		2,750	2,437
- Overseas		472	266
Adjustment to prior years		(254)	(69)
		2,968	2,634
Deferred tax expense
Origination and reversal of temporary differences		872	681
Adjustment to prior years		253	-
		1,125	681
Total taxation expense in the income statement		4,093	3,315

The table below reconciles the UK statutory tax charge to the Group's total tax charge.

	2008 £'000	2007 £'000
Profit before taxation	13,680	10,964
Multiplied by the rate of corporation tax in the UK of 29% (2007: 30%)	3,967	3,289
Effects of:
Items not deductible for tax purposes	116	9
Items not chargeable for tax purposes	(18)	7
Overseas tax rate differences	33	75
Adjustment to prior years	-	(69)
Other	(5)	4
Total tax charge for the year	4,093	3,315

5.  Dividends to shareholders

	2008 per share	2008 £'000	2007 per share	2007 £'000
Final, paid 22 February 2008 (2007: paid 16 February 2007)	6.50	2,621	5.35	2,123
Interim, paid 18 July 2008 (2007: paid 13 July 2007)	2.50	1,026	2.15	867
	9.00	3,647	7.50	2,990

The Directors recommend a final dividend in respect of the financial year ending 30 September 2008 of 7.9 pence per Ordinary share to be paid on 20 February 2009 to shareholders who are on the register at 23 January 2009. This dividend is not reflected in these financial statements as it does not represent a liability at 30 September 2008 The final proposed dividend will reduce shareholders' funds by an estimated £3.3 million.

6.  Earnings per Ordinary share

Basic and diluted earnings per share are based on the post-tax group profit for the year and a weighted average number of Ordinary shares in issue during the year calculated as follows:

	2008	2007
Weighted average number of Ordinary shares in issue for basic earnings	40,790,376	39,883,725
Dilutive impact of share options outstanding	1,370,712	2,108,859
Weighted average number of Ordinary shares for diluted earnings	42,161,088	41,992,584

An adjusted earnings per Ordinary share has also been presented to eliminate the effects of amortization of customer relationships and trademarks. This presentation shows the trend in earnings per Ordinary share that is attributable to the underlying trading activities. The reconciliation between the basic and adjusted figures is as follows:

	2008 £'000	2007 £'000	2008 Basic earnings per share pence	2007 Basic earnings per share pence	2008 Diluted earnings per share pence	2007 Diluted earnings per share pence
Profit for the year	9,587	7,649	23.5	19.2	22.7	18.2
Amortization of customer relationships and trademarks (after taxation)	192	12	0.5	0.0	0.5	0.0
Adjusted earnings	9,779	7,661	24.0	19.2	23.2	18.2

7. Statement of changes in equity and reserves

	Share capital £'000	Share premium account £'000	Other reserves £'000	Retained earnings £'000	Attributable to equity holders of the Company £'000	Minority interest £'000	Total equity £'000
At 1 October 2006	1,954	1,977	(8,483)	27,214	22,662	10	22,672
Issue of shares	62	1,015	-	-	1,077	-	1,077
Equity element of deferred tax on share based payments	-	-	-	299	299	-	299
Dividends	-	-	-	(2,990)	(2,990)	-	(2,990)
Profit retained for financial year	-	-	-	7,649	7,649	-	7,649
Currency translation differences	-	-	15	-	15	-	15
At 30 September 2007	2,016	2,992	(8,468)	32,172	28,712	10	28,722
Issue of shares	49	409	-	-	458	-	458
Equity element of deferred tax on share based payments	-	-	-	612	612	-	612
Dividends	-	-	-	(3,647)	(3,647)	-	(3,647)
Profit retained for financial year	-	-	-	9,587	9,587	-	9,587
Currency translation differences	-	-	667	-	667	-	667
At 30 September 2008	2,065	3,401	(7,801)	38,724	36,389	10	36,399

  8.  Acquisitions during the period

On 11 February 2008, the Group acquired the whole of the issued share capital of Document Service Center Technische Ubersetzungen und Software-Lokalisierung GmbH, whose principal activity is the provision of technical translations to a cross-section of German and Swiss corporates, for a cash consideration of € 9,303,000 (£6,944,000). The fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

	Book value	Fair value adjustments	Fair value
	£'000	£'000	£'000
Net assets acquired:
Property, plant and equipment	50	-	50
Intangible assets - software	33	-	33
Intangible assets - customer relationships	-	2,721	2,721
Intangible assets - trademarks	-	220	220
Trade and other receivables	593	-	593
Cash and cash equivalents	1,127	-	1,127
Trade and other payables	(349)	-	(349)
Current tax liabilities	(243)	-	(243)
Deferred tax liabilities	-	(823)	(823)
	1,211	2,118	3,329
Goodwill			3,615
Total consideration			6,944
Satisfied by:
Cash			6,866
Directly attributable costs: legal and professional fees			78
Total consideration			6,944
Cash flow:
Total consideration			6,944
Cash and cash equivalents included in undertaking acquired			(1,127)
Net cash consideration			5,817

The intangible assets acquired are to be amortized over their estimated useful lives, which is 5 years for trademarks and 10 years for customer relationships.

The main factors leading to a recognition of goodwill on the acquisition of Document Service Center are, the presence of certain intangible assets in the acquired entity which do not qualify for separate recognition such as the assembled workforce, cost synergies and technology inter-change and cross-selling opportunities within the Group's operations in Germany, and, an unidentified proportion representing the balance contributing to profit generation.

Document Service Center contributed £2.7 million revenue and £0.7 million to the Group's profit before tax for the period between the date of acquisition and the balance sheet date. If the acquisition had been completed on the first day of the financial year, group revenues for the period would have been £55.4 million and group profit attributable to equity holders of the parent would have been £10.0 million

9.  Post balance sheet events

There have been no events since 30 September 2008 that require disclosure.

  10. Implementation of International Financial Reporting Standards

In implementing the transition to IFRS, the Group has followed the requirements of IFRS 1 'First time adoption of International Financial Reporting Standards', which in general requires IFRS accounting policies to be applied fully retrospectively in deriving the opening balance sheet at the date of transition. IFRS 1 contains certain mandatory exemptions and some optional exemptions to this principle of retrospective application. When the Group has taken advantage of the exemptions they are noted below. The adoption of IFRS represents an accounting change only and does not affect the operations or cash flows of the Group. In addition to the previous transitional adjustments that were disclosed in the interim report for the 6 months to 31 March 2008 which was published on 2 June 2008, the Group has identified further adjustments that have increased net assets at 1 October 2006 and 30 September 2007 by an additional £1.4 million and £0.9 million respectively, and reduced the profit for the financial year ended 30 September 2007 by an additional £0.8 million.  The principal areas of impact are described below.

(a)	On adoption of IFRS 3 (2004) 'Business combinations' the Group has elected to take the exemption not to apply this retrospectively to business combinations occurring prior to the date of transition. Goodwill arising on such acquisitions has therefore been retained at its UK GAAP carrying value of £6,418,000 at 1 October 2006. Under IFRS 3 this goodwill is subject to impairment reviews and is not amortized, any goodwill previously amortized in the 30 September 2007 accounts under UK GAAP has been reversed. In 2007 the amount of amortization reversed was £635,000.
	In respect of the acquisition of Japanese Language Services Limited in June 2007, a fair value of £494,000 has been attributed to intangible assets (customer relationships). This amount is being amortized over 10 years. The amount charged in the prior year was £16,000.
(b)	IAS 12 'Income taxes' has been adopted and resulted in the recognition of deferred tax on temporary differences rather than just timing differences as under UK GAAP deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which tax deductible temporary differences can be utilised. Deferred tax liabilities have been recognised in respect of the intangible assets identified on business combinations, Japanese Language Services Limited in 2007. In addition, deferred tax assets have been recognised on employee benefit accruals and the anticipated future benefit arising from the exercise of share options.
(c)	As a result of adopting IAS 16 'Property, plant and equipment' and IAS 38 'Intangible assets' software which is not an integral part of a related item of hardware is now reclassified as an intangible asset, whereas under UK GAAP such software was included in tangible fixed assets. The measurement at the transition date was cost less accumulated depreciation.
(d)	IAS 19 'Employee benefits' has been adopted and resulted in the provision for the unused element of employees' holiday entitlement and other benefits for each reporting period.
(e)	On adopting IAS 21 'The effects of changes in foreign currency rates' cumulative exchange differences are deemed to be zero at the date of transition.
(f)	The adoption of IAS 39 'Financial instruments recognition and measurement' has resulted in foreign forward exchange contracts being recognised at fair value through the consolidated income statement.

Reconciliations to previously presented financial statements are set out below.

Implementation of International Financial Reporting Standards

Reconciliation of Consolidated Income Statement For the year ended 30 September 2007

	Note	Previously reported under UK GAAP £'000	IFRS 3 Business combinations (a) £'000	IAS 12 Deferred tax (b) £'000	IAS 19 Employee benefits (d) £'000	IAS 39 Financial instruments (f) £'000	Restated under IFRS £'000
Revenue		46,208	-	-	-	-	46,208
Cost of sales		(26,920)	-	-	-	-	(26,920)
Gross profit		19,288	-	-	-	-	19,288
Other operating income		5	-	-	-	-	5
Administrative expenses		(9,635)	619	-	(8)	(63)	(9,087)
Operating profit		9,658	619	-	(8)	(63)	10,206
Finance income		765	-	-	-	-	765
Finance expense		(7)	-	-	-	-	(7)
Profit before taxation		10,416	619	-	(8)	(63)	10,964
Taxation		(2,634)	-	(681)	-	-	(3,315)
Profit for the year		7,782	619	(681)	(8)	(63)	7,649
Attributable to :
Equity holders of the parent		7,782	619	(681)	(8)	(63)	7,649
Basic earnings per Ordinary share (pence per share)		19.5					19.2
Diluted earnings per Ordinary share (pence per share)		18.5					18.2

Implementation of International Financial Reporting Standards

Reconciliation of Consolidated Balance Sheet At 30 September 2007

Note		Previously reported under UK GAAP     £'000	IFRS 3 Business combinations   (a) £'000	IAS 12 Deferred tax   (b) £'000	IAS 38 Intangibles - computer software   (c ) £'000	IAS 19 Employee benefits   (d) £'000	IAS 21 Changes in foreign currency rates (e) £'000	IAS 39 Financial instruments   (f) £'000	Restated under IFRS     £'000
Assets
Non-current assets
Goodwill		6,865	141	138	-	-	-	-	7,144
Intangible assets		-	478	-	50	-	-	-	528
Property, plant and equipment		749	-	-	(17)	-	-	-	732
Deferred tax assets		-	-	1,849	-	-	-	-	1,849
		7,614	619	1,987	33	-	-	-	10,253
Current assets
Trade and other receivables		10,675	-	-	(33)	-	-	-	10,642
Cash and cash equivalents		22,144	-	-	-	-	-	-	22,144
		32,819	-	-	(33)	-	-	-	32,786
Total assets		40,433	619	1,987	-	-	-	-	43,039
Liabilities
Current liabilities
Bank overdraft		1,755	-	-	-	-	-	-	1,755
Trade and other payables		5,247	-	-	-	811	-	-	6,058
Income tax payable		6,308	-	-	-	-	-	-	6,308
Derivative financial instruments		-	-	-	-	-	-	63	63
		13,310	-	-	-	811	-	63	14,184
Non-current liabilities
Deferred tax liabilities		-	-	133	-	-	-	-	133
		-	-	133	-	-	-	-	133
Total liabilities		13,310	-	133	-	811	-	63	14,317
Total net assets		27,123	619	1,854	-	(811)	-	(63)	28,722
Equity
Capital and reserves attributable equity holders of the Company
Share capital		2,016	-	-	-	-	-	-	2,016
Share premium account		2,992	-	-	-	-	-	-	2,992
Reverse acquisition reserve		(8,483)	-	-	-	-	-	-	(8,483)
Foreign currency reserve		-	-	-	-	-	15	-	15
Retained earnings		30,588	619	1,854	-	(811)	(15)	(63)	32,172
		27,113	619	1,854	-	(811)	-	(63)	28,712
Minority interest		10	-	-	-	-	-	-	10
Total equity		27,123	619	1,854	-	(811)	-	(63)	28,722

The share option reserve and capital reserve previously presented separately under UK GAAP have been aggregated into retained earnings.

Implementation of International Financial Reporting Standards

Reconciliation of Consolidated Balance Sheet At 1 October 2006

	Note	Previously reported under UK GAAP   £'000	IAS 12 Deferred tax (b) £'000	IAS 38 Intangibles - computer software (c) £'000	IAS 19 Employee benefits (d) £'000	Restated under IFRS   £'000
Assets
Non-current assets
Goodwill		6,418	-	-	-	6,418
Intangible assets		-	-	49	-	49
Property, plant and equipment		836	-	(23)	-	813
Deferred tax assets		-	2,236	-	-	2,236
		7,254	2,236	26	-	9,516
Current assets
Trade and other receivables		8,839	-	(26)	-	8,813
Cash and cash equivalents		16,139	-	-	-	16,139
		24,978	-	(26)	-	24,952
Total assets		32,232	2,236	-	-	34,468
Liabilities
Current liabilities
Bank overdraft		227	-	-	-	227
Trade and other payables		5,233	-	-	803	6,036
Income tax payable		5,533	-	-	-	5,533
		10,993	-	-	803	11,796
Non-current liabilities
Deferred tax liabilities		-	-	-	-	-
		-	-	-	-	-
Total liabilities		10,993	-	-	803	11,796
Total net assets		21,239	2,236	-	(803)	22,672
Equity
Capital and reserves attributable to equity holders of the Company
Share capital		1,954	-	-	-	1,954
Share premium account		1,977	-	-	-	1,977
Reverse acquisition reserve		(8,483)	-	-	-	(8,483)
Retained earnings		25,781	2,236	-	(803)	27,214
		21,229	2,236	-	(803)	22,662
Minority interest		10	-	-	-	10
Total equity		21,239	2,236	-	(803)	22,672

The share option reserve and capital reserve previously presented separately under UK GAAP have been aggregated into retained earnings.

 

END

 

 

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