Interim Results
Sanderson Group PLC
24 May 2007
For Immediate release 24 May 2007
Sanderson Group plc
Interim Results for the period ended 31st March 2007
Sanderson Group plc ('Sanderson'), the software and IT services business
specialising in commercial markets in the UK and Ireland, announces Interim
Results for the six months ended 31 March 2007. Sanderson provides software and
IT services to businesses with annual revenues between £5 million and £250
million.
Highlights
o Revenue from continuing operations of £8.12m up 11% (2006: £7.30m)
o Recurring revenues increased to 56% of total revenue
o Improved conversion of operating profit to cash at 100%
o Strong Balance Sheet with net debt less than 18% of net assets
o Increased interim dividend of 1.15p per ordinary 10p share (2006:1.10p)
o Elucid business acquired from K3 for £1.40m in February; now forms
important part of multi-channel sales business
o Multi-channel sales business continuing to grow; now accounts for 60%
of Group revenue
Commenting on the results, Chairman Christopher Winn said:
'Sanderson has re-positioned itself to enjoy greater repeat revenues and a
lesser reliance on the Manufacturing sector. A stable client base and products
that cater specifically to today's multi-channel markets give us a very good
base to continue to grow organically and by acquisition.'
On prospects Mr Winn added:
'Notwithstanding the continued challenges of business in the manufacturing
sector, the multi-channel markets are proving to be very active and rewarding
for the Group and overall we anticipate an improved business performance in the
second half.'
Enquiries:
Christopher Winn, Executive Chairman Tel: 02476 555466
David O'Byrne, Managing Director Tel: 01709 787787
Adrian Frost, Finance Director Tel: 01709 787787
Paul Vann, Winningtons Financial Tel: 0117 920 0092 or 07768 807631
Chairman's statement
Introduction
The trading results for the six month period to 31 March 2007 show revenue from
continuing operations of £8.12m (2006: £7.30m). Operating profit from continuing
operations before amortisation of acquisition related intangibles and charges in
respect of share based payments, amounted to £1.41m (2006: £1.46m). Statutory
profit after tax from continuing operations was £0.54m (2006: £0.69m).
This is the first interim report produced by the Group following the adoption of
International Financial Reporting Standards (IFRS) in the Annual Report for the
year ended 30 September 2006. As a result, comparative figures included in
respect of the period ended 31 March 2006 have been restated. A reconciliation
between the comparative figures included and those previously reported is set
out in the notes to this report.
Trading result - continuing operations
Unaudited Unaudited
Six months Six months
to 31/03/07 to 31/03/06
Restated
£'000 £'000
Revenue 8,125 7,296
Cost of sales (1,459) (1,196)
--------- ---------
Gross profit 6,666 6,100
Other operating expenses (5,252) (4,643)
--------- ---------
Adjusted operating profit* 1,414 1,457
Amortisation of acquisition related intangibles (314) (80)
Share-based payment charges (318) (316)
Other operating income - 128
--------- ---------
Results from continuing operating activities 782 1,189
Net finance costs (128) (97)
--------- ---------
Profit before tax 654 1,092
Tax (114) (400)
--------- ---------
Profit for the period from continuing operations 540 692
========= =========
* before amortisation of acquisition-related intangibles, share based payment
charges and non-recurring operating income.
Business review
The Group develops and supplies market-specific software and services to the
multi-channel and manufacturing markets in the UK. In the half year to the end
of March 2007, the Group's multi-channel business performed well, whilst the
manufacturing business has continued to experience difficult trading conditions.
The Group has established a large client base over many years and has adopted a
revenue model based upon retaining and developing clients by continuously
offering new products and associated technology with professional services. For
the half year ended 31 March 2007, recurring revenue continued to grow and
represented 56% of total revenue compared with 55% in the full year ending 30
September 2006. Nine new clients were gained in the half year compared with
eleven in the comparative period. Revenue from new clients represented 11%
(2006: 5%) of total revenue in the period.
The Group's software products are designed to meet all the operational needs of
a broad range of businesses and cover functions such as sales and marketing,
finance, human resources, purchasing, production, supply and distribution whilst
also addressing specific requirements such as ingredient handling and call
centre operations. Sanderson owns and develops the IPR to its software products
and licences their use to customers.
Review of manufacturing
The manufacturing sector accounts for 40% of Group revenue, compared with 60%
two years ago. The Group's manufacturing business covers the provision of IT
solutions to areas of manufacturing including engineering, plastics,
electronics, furniture, automobile parts and printing. Market conditions
continue to be challenging with discretionary spend lower than in previous
years. Despite this trend, the Group has won a number of contracts from existing
clients, including a £400,000 order from Magnadata Limited to upgrade their
existing IT system. The second half of the financial year has seen the Group
gain a new client, Anstey Wallcoverings and we anticipate an improved
performance from the manufacturing business during the remainder of the year.
Review of multi-channel sales
Multi-channel sales, which accounts for 60% of Group revenue, addresses the
needs of companies who sell goods via retail outlets, online sales, call centre,
mail order and distributors. Increasing competition and the rapid growth in
online sales have encouraged companies to seek efficiency gains through
investment in IT, representing a significant opportunity for the Group. Several
new customers were gained during the half year including the Royal Botanical
Gardens Kew. The Group continues to develop a number of sales opportunities in
what is an active market sector and a good performance in the second half year
is anticipated.
Acquisition
In February 2007, the Group acquired the business and assets of Elucid from K3
Business Technology Group plc for a consideration of £1.40m. Elucid has a strong
product offering aimed at the mid-tier mail order and e-commerce market and has
over 50 existing customers. Elucid now forms an important part of the Sanderson
multi-channel sales business and strengthens our activities in these markets.
Elucid made a small contribution to both revenue and operating profit in the
period post acquisition.
Following the acquisition, the Group carried out a strategic review of its
products aimed at the mid-tier mail order and e-commerce market and decided to
rationalise development costs and discontinue further development of an existing
product. This discontinued operation incurred a loss of £385,000 after tax in
the half year to 31 March 2007 including full provision for closure costs. In
the comparative period to 31 March 2006, the discontinued operation incurred a
loss of £94,000 after tax.
Strategy
Our strategy is to develop the Group by a combination of organic growth
complemented by selective acquisitions. Our primary aim is to continue to
deliver shareholder value through a progressive dividend policy which is made
possible by a business model that delivers high levels of profit and cash. We
continue to develop a number of acquisition opportunities.
Balance sheet
In the period, the Group generated cash in excess of 100% of adjusted operating
profit from continuing and discontinued operations. This represents a
significant improvement compared with the first half, last year. Net debt as at
31 March 2007 was £3.61m (2006: £3.26m). The Group has the debt capacity to
pursue additional strategic acquisitions.
The Group balance sheet remains strong, with net debt representing less than 18%
of the Group's net assets.
Pensions
Subsequent to the period end, the Group has finalised negotiations both with the
trustee of the two defined benefit pension schemes (of which a subsidiary
company is principal employer), as well as with former Group companies Civica
plc and Talgentra Holdings Limited. As a result, the Group has been released
from all contingent liabilities in respect of one scheme, and has agreed to the
other scheme being sectionalised, such that each employer becomes responsible
for a defined proportion of the scheme assets and liabilities. We believe that
this course of action leaves the Group better placed to address the ongoing
funding of the scheme, and provides certainty to the Group's obligations.
Dividend
In accordance with the Group's progressive dividend policy, we are pleased to
announce an increased interim dividend of 1.15 pence per ordinary share (2006:
1.1 pence per share), which will be paid on 27 July 2007 to shareholders on the
register at the close of business on 29 June 2007.
Auditors
As part of a review, the Group invited a number of accountancy firms to present
to the board, and after careful consideration RSM Robson Rhodes LLP have been
appointed as auditors. We would like to record our thanks and appreciation for
the audit and tax team at our previous auditors, KPMG, for their work over the
previous seven years.
Staff
We would like to thank our colleagues for their commitment, expertise and
continued dedication in working with our customers and partners to successfully
develop the Sanderson Group.
Outlook
Notwithstanding the continued challenges of business in the manufacturing
sector, the multi-channel markets are proving to be very active and rewarding
for the Group and overall we anticipate an improved business performance in the
second half.
Christopher Winn
Chairman
24 May 2007
CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months Year to
to 31/03/ to 31/03/ 30/09/06
07 06
Restated
Notes £'000 £'000 £'000
Continuing Operations
-----------------------
Revenue 8,125 7,296 15,896
Cost of sales (1,459) (1,196) (2,591)
--------- --------- --------
Gross profit 6,666 6,100 13,305
Other operating expenses (5,884) (4,911) (10,869)
--------- --------- --------
Results from operating activities 782 1,189 2,436
-------------------------- ------ --------- --------- --------
Results from operating activities
before amortisation, share based
payment charges and non-recurring
items 1,414 1,457 3,278
Amortisation of acquisition related
intangibles (314) (80) (319)
Share-based payment charges (318) (316) (642)
Other operating income - 128 119
--------- --------- --------
Results from operating activities 782 1,189 2,436
--------- --------- --------
Net finance costs (128) (96) (275)
--------- --------- --------
Profit before tax 654 1,093 2,161
Tax 3 (114) (400) 17
--------- --------- --------
Profit for the period from
continuing operations 540 693 2,178
Discontinued Operations
-------------------------
Loss for the period from
discontinued operations 2 (385) (94) (183)
--------- --------- --------
Profit for the period 155 599 1,995
========= ========= ========
Earnings per share
From continuing operations
Basic 5 1.29p 1.69p 5.26p
Diluted 5 1.21p 1.57p 4.91p
From continuing and discontinued
operations
Basic 5 0.37p 1.46p 4.81p
Diluted 5 0.35p 1.36p 4.50p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Actuarial gains on defined benefit pension
schemes - - 630
Tax on items taken directly to equity - - (190)
Profit for the period 155 599 1,995
-------- ---------- --------
Total recognised income and expense for the
period 155 599 2,435
======== ========== ========
CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
As at As at As at
to 31/03/07 to 31/03/06 30/09/06
Restated
Notes £'000 £'000 £'000
Non-current assets
Goodwill 25,256 24,624 24,624
Other intangible assets 3,093 2,356 2,427
Property, plant & equipment 528 637 585
Deferred tax asset 384 493 488
--------- -------- --------
29,261 28,110 28,124
Current assets
Inventories 209 409 258
Trade and other receivables 4,941 6,332 4,127
Income tax receivable 234 - 211
Cash and cash equivalents 235 413 463
--------- -------- --------
5,619 7,154 5,059
--------- -------- --------
Total assets 34,880 35,264 33,183
--------- -------- --------
Current liabilities
Bank overdraft and loans (528) (979) (528)
Trade and other payables (3,241) (3,869) (2,351)
Deferred contingent consideration (725) - -
Current tax liabilities - (397) -
Deferred income (4,228) (4,713) (4,278)
--------- -------- --------
(8,722) (9,958) (7,157)
--------- -------- --------
Net current liabilities (3,103) (2,804) (2,098)
Non-current liabilities
Retirement benefit obligation (1,825) (2,463) (1,849)
Deferred contingent consideration - (453) (464)
Deferred income (490) (684) (587)
Loans and borrowings (3,319) (2,690) (2,420)
--------- -------- --------
(5,634) (6,290) (5,320)
--------- -------- --------
Total liabilities (14,356) (16,248) (12,477)
--------- -------- --------
Net assets 20,524 19,016 20,706
========= ======== ========
Equity
Called-up share capital 4,181 4,181 4,181
Share premium 14,578 14,578 14,578
Shares to be issued 495 495 495
Retained earnings 8 1,270 (238) 1,452
--------- -------- --------
Total equity 20,524 19,016 20,706
========= ======== ========
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
Restated
Notes £'000 £'000 £'000
Net cash from operating activities 9 760 536 1,790
Investing activities
Purchases of property, plant &
equipment (30) (62) (120)
Expenditure on product development (67) (111) (271)
Purchase of shares in subsidiary
undertaking - (1,480) (1,480)
Purchase of trade and assets (1,162) - -
Purchase of intellectual property - (200) (200)
Disposal proceeds of property, plant
& equipment - 539 530
--------- --------- --------
Net cash used in investing
activities (1,259) (1,314) (1,541)
--------- --------- --------
Financing activities 6
Equity dividends paid (625) (575) (1,024)
Proceeds from bank borrowing 1,162 1,375 1,375
Repayment of bank borrowing (250) (125) (625)
Repayment of finance lease principal (16) (8) (36)
--------- --------- --------
Net cash received from / (used in)
financing activities 271 667 (310)
--------- --------- --------
Decrease in cash and cash
equivalents (228) (111) (61)
Cash and cash equivalents at start
of the period 463 524 524
--------- --------- --------
Cash and cash equivalents at end of
the period 235 413 463
========= ========= ========
Notes to the consolidated financial statements
1. Significant accounting polices
a) Basis of preparation
The Group adopted International Financial Reporting Standards (IFRS) during the
second half of the 2006 financial year, and reported the results for the year
ended 30 September 2006 under IFRS. The accounting policies applied in the
preparation of this financial information are consistent with those adopted in
the statutory accounts for the year ended 30 September 2006. Certain significant
accounting policies are clarified below, and the full accounting policies of the
Group are set out in the last Annual Report.
The comparative data for the six months to 31 March 2006 has been restated and
reconciliations are included in the notes to explain the changes from UK GAAP.
The financial information set out within this statement does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The statutory accounts for the year ended 30 September 2006, which have been
delivered to the Registrar of Companies, carry an unqualified report by the
auditors and do not contain a statement under Section 237 (2) or section 237 (3)
of the Companies Act 1985.
Copies of this Statement are being sent to Shareholders. Further copies are
available from the Company Secretary.
b) Basis of consolidation
The financial statements of the Group consolidate the financial statements of
Sanderson Group plc and all its subsidiaries. Subsidiaries are entities
controlled by the Company. The results of subsidiaries and businesses are
included in the consolidated financial statements from the date on which control
commences and until that date on which control ceases.
In respect of acquisitions since 1 October 2004, goodwill arising on
consolidation represents the excess of cost of acquisition over the Group's
interest in the fair value of the identifiable assets and liabilities of the
acquired entity at the date of acquisition. For acquisitions prior to this date,
goodwill is included on the basis of its deemed cost, which represents the
amount recorded under previous GAAP. Goodwill is recognised as an asset and
assessed for impairment at least annually. Impairment is assessed by comparing
the goodwill with the discounted cashflows projected for the acquired entity,
using a discount rate that management estimate to be the risk adjusted average
cost of capital for that entity.
c) Research and development
Research expenditure is written off as incurred. Development expenditure is
written off as incurred unless the development is for a new or substantially
improved product which is both technically and commercially viable. Development
costs satisfying these criteria are capitalised and amortised over their useful
economic life or three years, whichever is the shorter.
d) Property, plant and equipment
Property, plant and equipment are shown at historical cost, less any provision
for impairment in value.
Depreciation is provided at rates calculated to write off the cost less
estimated residual value of each asset on a straight-line basis over its
expected useful life, except freehold land which is not depreciated, as follows:
Freehold buildings - 2%
Leasehold buildings - over the life of the lease
Plant, machinery, fixtures and fittings - 15% - 33.3%
Notes to the consolidated financial statements
1. Significant accounting polices (continued)
e) Impairment of non-current assets
All non-current assets are assessed annually for indications of impairment.
Where impairment is likely, the fair value is measured and any impairment loss
is charged to the income statement.
f) Inventories
Inventories are valued at the lower of cost and net realisable value after
making due allowance for obsolete and slow moving items. Costs incurred in
bringing each product to its present location and condition are accounted for as
follows:
* Goods for resale - purchase cost on a 'first in / first out' basis;
* Work in progress - cost of direct materials and labour and a
proportion of overheads based on normal operating capacity.
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.
g) Taxation
The tax charge for the period includes the charge for tax currently payable and
deferred taxation. The current tax charge represents the estimated amount due
that arises from the operations of the Group in the financial period and after
making adjustments in respect of prior years.
Deferred tax is recognised in respect of all differences between the carrying
amount of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit, except where
the temporary difference arises from goodwill or from the initial recognition of
assets or liabilities that effect neither accounting nor taxable profit.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Deferred tax is measured at the tax rates that are expected to apply in the
periods in which the timing differences are expected to reverse.
h) Revenue
Revenue comprises the value of sales of licences, support & maintenance
contracts and training, consulting and implementation services and hardware.
Revenue excludes both value added tax and transactions between Group companies.
Revenues are recognised on the basis of the performance of contractual
obligations and to the extent that the right to consideration has been earned.
In cases where a single contractual arrangement involves the sale of licences,
support, maintenance, training and consultancy services, the consideration
received is allocated to the components of the arrangement on a fair value
basis.
Licence fees are recognised upon the provision of software to the customer,
providing that the payment terms are unconditional, full payment is
contractually binding, collection is reasonably certain and there are no
contractual conditions or warranties. Revenue from the provision of professional
services including support, maintenance, training and consultancy services is
recognised when the services have been performed. Hardware sales are recognised
on delivery. Maintenance and support revenues are recognised evenly over the
period to which they relate.
Notes to the consolidated financial statements
1. Significant accounting polices (continued)
i) Employee benefits
Obligations for contributions to defined contribution plans are recognised as an
expense in the income statement as incurred.
The Group's net obligation in respect of its defined benefit pension plan is
calculated by estimating the amount of future benefits payable to members,
discounted to present value, and deducting the fair value of the plan assets.
The calculation is performed by a qualified actuary using the projected unit
credit method. Actuarial gains or losses are included in the consolidated
Statement of Recognised Income and Expense. Current and past service costs,
curtailments and settlements are recognised within operating profit. Returns on
scheme assets and interest on obligations are recognised as a component of
financing costs.
Share based incentive arrangements are provided to employees under the Group's
share option schemes. Share based arrangements put in place since 7 November
2002 are valued at the date of grant and charged to operating profit over the
vesting period of the scheme. Options are valued using an appropriate pricing
model. The annual charge is modified to take account of shares forfeited by
employees who leave during the vesting period.
j) Leased assets
Leasing agreements that transfer substantially all the risks and rewards of
ownership to the Group are classified as Finance Leases. Assets financed by a
Finance Lease are accounted for as if they had been purchased outright, with the
corresponding liability to the leasing company included as an obligation. The
rentals payable are apportioned between interest, which is charged to the income
statement, and capital, which reduces the outstanding obligation. All other
leases are classified as Operating Leases and lease rentals are charged to the
income statement on a straight-line basis over the term of the lease.
k) Financial instruments and hedging
Trade receivables and trade payables do not carry any interest and are stated at
nominal value. Bank overdraft and loans are interest bearing and interest is
accounted for on an accruals basis. The Group does not use derivative financial
instruments to hedge its exposure to interest rate or currency risk.
Notes to the consolidated financial statements
2. Discontinued operation
Following a strategic review, the Group has decided to focus its development
activity and product marketing at the mid-tier mail order market around the
recently acquired Elucid product. This has necessitated the discontinuance of
the activities previously undertaken by the Group in this area prior to the
acquisition of Elucid.
The results of this business activity, classified in the consolidated income
statement as discontinued operations, were as follows:
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
£'000 £'000 £'000
Revenue 69 139 253
Expenses (619) (273) (515)
-------- -------- --------
Loss before tax (550) (134) (262)
Tax 165 40 79
-------- -------- --------
Loss for the period (385) (94) (183)
======== ======== ========
The business that has been discontinued was run as part of a larger business
unit within a Group subsidiary. As a result, it is not practical to separately
report the cash flows associated with the discontinued activity, but they are
not anticipated as being materially different from the trading results shown
above, with the exception of certain provisions made for the discontinuance. The
cash effect of these provisions will be reported in the second half of the
current financial year.
3. Taxation
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
Restated
Recognised in the income statement in £'000 £'000 £'000
respect of continuing operations:
Current tax expense
UK corporation tax for the current
period 290 400 679
Relating to prior periods - - (515)
-------- -------- --------
Total current tax 290 400 164
-------- -------- --------
Deferred tax
Deferred tax for the current period (176) - (154)
Relating to prior periods - - (27)
-------- -------- --------
Total deferred tax (176) - (181)
-------- -------- --------
Taxation charge / (credit) in respect
of continuing operations 114 400 (17)
Recognised in the income statement in
respect of discontinued operations:
UK corporation tax for the current
period (150) (40) (79)
Deferred tax for the current period (15) - -
======== ======== ========
Total taxation (credited) / charged to the
income statement (51) 360 (96)
======== ======== ========
Notes to the consolidated financial statements
3. Taxation (continued)
Reconciliation of the effective tax rate:
The current consolidated tax charge on continuing operations for the period
differs from the standard rate of corporation tax in the UK of 30%. The
differences are explained below.
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
Restated
£'000 £'000 £'000
Profit before tax - continuing
operations 654 1,093 2,161
Tax using the UK corporation tax rate
of 30% 196 328 648
Effects of:
Expenses not deductible for tax
purposes 49 25 47
Tax payable at less than 30% - - (6)
Losses not utilised in the period
arising (101) - 101
Overprovision in prior periods - - (542)
Expenses not reported in the income
statement - - (170)
Change in temporary differences (30) 47 (95)
======== ======== ========
Total tax in the income statement in respect of
continuing operations 114 400 (17)
======== ======== ========
4. Segmental reporting
Whilst it is possible for the Group to analyse revenue by reference to the
markets in which customers operate, the businesses within the Group are not
managed in this way, such that cost information and assets and liabilities
cannot be reported by markets. Consequently, the operations of the Group are
regarded as a single business segment. Substantially all of the Group's revenue
originates from the UK. Revenue by destination is not materially different from
revenue by origin.
5. Earnings per share
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
Restated
Earnings £'000 £'000 £'000
Continuing 540 693 2,178
Continuing and discontinued 155 599 1,995
Average number of shares during period No. '000 No. '000 No. '000
In issue at the start of the period 41,813 40,814 40,814
Effect of shares issued in the period - 204 604
-------- -------- --------
Weighted average number of shares at
period end 41,813 41,018 41,418
Effect of share options 1,939 2,070 1,939
Effect of deferred consideration 1,000 1,000 1,000
======== ======== ========
Weighted average number of shares 44,752 44,088 44,357
(diluted) at period end
======== ======== ========
Earnings per share pence pence pence
Continuing - basic 1.29 1.69 5.26
- diluted 1.21 1.57 4.91
Continuing and discontinued - basic 0.37 1.46 4.81
- diluted 0.35 1.36 4.50
Notes to the consolidated financial statements
6. Equity dividends
Six months Six months Year to
to 31/03/07 to 31/03/06 30/09/06
Restated
£'000 £'000 £'000
Interim dividend - - 449
Final dividend 625 575 575
-------- -------- ---------
Total dividend paid in period 625 575 1,024
======== ======== =========
An interim dividend of 1.15 pence (2006: 1.10 pence) per ordinary 10 pence share
will be paid on 27 July 2007.
7. Acquisition
On 1 February 2007 the Group acquired the trade and certain assets of Elucid for
consideration of £1,400,000, which comprised cash payable on completion of
£1,100,000, deferred cash consideration of £250,000 and costs of acquisition
amounting to £50,000. Provisional goodwill and other intangible assets arising
as a result of the acquisition amount to £1,150,000.
8. Reserves
As at As at As at
Retained earnings 31/03/07 31/03/06 30/09/06
Restated
£'000 £'000 £'000
Balance at beginning of the period 1,452 (555) (555)
Actuarial gains on employee benefits - - 630
Deferred taxation - - (190)
Dividends paid (note 6) (625) (575) (1,024)
Credit to equity for share-based payments 288 293 596
Result for the period 155 599 1,995
-------- -------- ---------
Balance at end of the period 1,270 (238) 1,452
======== ======== =========
Notes to the consolidated financial statements
9. Net cash from operating activities
Six months Six months Year
to 31/03/07 to 31/03/06 30/09/06
Restated
£'000 £'000 £'000
Profit for the period from continuing
operations 540 693 2,178
Loss for the period from discontinued
operations (385) (94) (183)
Adjustments for:
Depreciation and amortisation 472 159 479
Share based payment charges 318 316 642
Net finance expense 128 97 275
Income tax (credit)/expense (51) 360 (96)
Profit on disposal of property, plant &
equipment - (128) (119)
--------- --------- ---------
Operating cash flow before working
capital movements 1,022 1,403 3,176
Decrease / (Increase) in working
capital 30 (308) (489)
--------- --------- ---------
Cash generated by operations 1,052 1,095 2,687
Additional pension payment (41) (40) (80)
Interest paid (88) (109) (178)
Income taxes paid (163) (410) (639)
--------- --------- ---------
Net cash from operating activities 760 536 1,790
========= ========= =========
10. Reconciliation of movement in net debt
At start of Cash flow Non-cash At end of
period movements period
£'000 £'000 £'000 £'000
Cash 463 (228) - 235
Bank loan:
Within one year (500) - - (500)
After one year (2,390) (912) (3) (3,305)
Obligations
under finance
leases (58) 16 - (42)
-------- --------- --------- ---------
Net debt (2,485) (1,127) (3) (3,612)
======== ========= ========= =========
Notes to the consolidated financial statements
11. Explanation of transition to IFRS
In restating the comparative information in respect of the income statement for
the six months ended 31 March 2006, and the balance sheet on that date, to
comply with the accounting policies adopted in the last Annual Report certain
changes have been made and are described below.
IFRS 2 'Share based payments' requires the fair value of providing employee
share ownership plans to be charged to the income statement over the estimated
life of the share ownership plans. Under UK GAAP such charges were restricted to
one specific share ownership plan, namely the long term incentive plan (LTIP).
IFRS 3 'Business combinations' requires goodwill to be capitalised and subjected
to an annual impairment test rather than amortised over its estimated useful
life as required by UK GAAP. The standard also requires separable, identifiable,
intangible assets arising on acquisition to be capitalised at fair value and
amortised over their estimated useful economic lives. In addition, deferred
contingent consideration in respect of previous acquisitions has been
reassessed.
IAS 10 'Events after the balance sheet date' requires dividends to be recorded
in the period in which they are approved or paid. Under UK GAAP dividends were
adjusted for as a post balance sheet event.
IAS 12 'Income taxes' requires that deferred taxation be provided in respect of
the share based payment charges and acquisition related intangible assets.
IAS 19 'Employee benefits' requires recognition of pension scheme deficits on
the balance sheet and service costs, interest costs and expected returns on
scheme assets to be charged to the income statement. Under FRS 17, defined
benefit scheme liabilities were presented net of deferred tax on the balance
sheet. In accordance with IAS 19 the pension liability has been presented gross.
Provision has also been made for holidays earned but not yet taken.
IFRS 5 'Discontinuing operations' requires the attributable revenues and costs
associated with the operation to be shown as a single line on the face of the
income statement, net of any related tax charge or credit. The decision to
discontinue the operation in question was taken during the current period, and
comparative figures have been restated accordingly.
IAS 38 'Intangible assets' requires that development expenditure meeting certain
criteria be capitalised and amortised over its useful economic life. Under UK
GAAP all such development expenditure was expensed as incurred.
Notes to the consolidated financial statements
11. Explanation of transition to IFRS (continued)
Reconciliation of UK GAAP profit to IFRS profit: Six months to March 2006
UK IFRS 2 IFRS 3 IFRS 5 IAS 38 Restated IFRS
GAAP
£'000 £'000 £'000 £'000 £'000 £'000
Continuing Operations
-----------------------
Revenue 7,435 - - (139) - 7,296
Cost of sales (1,204) - - 8 - (1,196)
-------- ------- -------- -------- -------- --------
Gross profit 6,231 - - (131) - 6,100
Other operating
expenses (5,980) (112) 698 265 90 (5,039)
Profit on disposal of
assets 128 - - - - 128
Finance costs (96) - - - - (96)
-------- ------- -------- -------- -------- --------
Profit before tax 283 (112) 698 134 90 1,093
Tax (360) - - (40) - (400)
-------- ------- -------- -------- -------- --------
(Loss)/Profit for the
period from
continuing operations (77) (112) 698 94 90 693
-------- ------- -------- -------- -------- --------
Discontinued
Operations
Loss for the period
from
discontinued
operations - - - (94) - (94)
-------- ------- -------- -------- -------- --------
Loss for the period
from discontinued
operations - - - (94) - (94)
-------- ------- -------- -------- -------- --------
Notes to the consolidated financial statements
11. Explanation of transition to IFRS (continued)
Reconciliation of equity: At 31 March 2006
UK IFRS 3 IAS 12 IAS 19 IAS 38 Restated IFRS
GAAP
£'000 £'000 £'000 £'000 £'000 £'000
Non-current
assets
Intangible 24,933 1,099 647 - 301 26,980
assets
Property, plant
&
equipment 637 - - - - 637
Deferred tax
asset 400 - (647) 740 - 493
Current assets
Inventories 409 - - - - 409
Trade and other
receivables 6,332 - - - - 6,332
Cash and cash
equivalents 413 - - - - 413
-------- ------- -------- -------- -------- --------
Total assets 33,124 1,099 - 740 301 35,264
-------- ------- -------- -------- -------- --------
Current
liabilities
Trade and other
payables (8,376) - - (206) - (8,582)
Current tax
liabilities (397) - - - - (397)
Bank overdraft
and
loans (979) - - - - (979)
Non-current
liabilities
Deferred income (684) - - - - (684)
Retirement
benefit
obligation (1,723) - - (740) - (2,463)
Deferred
contingent (1,203) 750 - - - (453)
consideration
Bank loans &
borrowings (2,690) - - - - (2,690)
-------- ------- -------- -------- -------- --------
Total
liabilities (16,052) 750 - (946) - (16,248)
-------- ------- -------- -------- -------- --------
Net assets 17,072 1,849 - (206) 301 19,016
======== ======= ======== ======== ======== ========
Equity
Called-up share
capital 4,181 - - - - 4,181
Share premium 14,578 - - - - 14,578
Capital
redemption
reserve 495 - - - - 495
Profit and loss
account (2,182) 1,849 - (206) 301 (238)
-------- ------- -------- -------- -------- --------
Total equity 17,072 1,849 - (206) 301 19,016
======== ======= ======== ======== ======== ========
INDEPENDENT REVIEW REPORT TO SANDERSON GROUP PLC
Introduction
We have been instructed by the company to review the financial information set
out on pages 1 to 18. 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 having regard to 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 AIM
Rules. The directors are also responsible for ensuring that the accounting
policies and presentation applied to the interim figures are consistent with
those which will be adopted in the annual accounts having regard to the
accounting standards applicable to such accounts.
Review work performed
We conducted our review having regard to guidance contained in Bulletin 1999/4
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 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 31 March 2007.
RSM Robson Rhodes LLP
Chartered Accountants
Birmingham, England
24 May 2007
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