Preliminary Results

BrainJuicer Group PLC 12 April 2007 Press release 12 April 2007 BrainJuicer Group PLC ('BrainJuicer' or 'the Company') Audited Preliminary Results for the Year ended 31 December 2006 Reported under IFRS BrainJuicer Group PLC (AIM: BJU), a leading international online market research agency, announces its maiden audited preliminary results for the year ended 31 December 2006. £'000 2003 2004 2005 2006 Before Listing Total Listing expenses expenses Revenue 1,032 2,614 2,936 4,608 4,608 Operating Profit (304) 187 2 477 (354) 123 Profit after Tax (301) 191 (38) 291 (354) (63) Highlights • Revenue increased by 57% to £4,608,000 (2005: £2,936,000) • Operating profit (before listing costs) increased to £477,000 (2005: £2,000) • Profit after tax (before listing costs) increased to £291,000 (2005: loss £38,000) • 172% revenue growth in the Netherlands in its second year of operation • Continued strong performance in the UK division • Awarded global mandate from one of the top 50 companies in the world • Established our business in the US • Strengthened our management team with appointment of a senior researcher from Research International to run the UK office and another from Millward Brown to run the US office • Rolled out 2 important new products: Predictive Markets and Quali-Taxi(TM) • Successful AIM IPO Commenting on the results, John Kearon, Chief Executive of BrainJuicer Group PLC, said: '2006 was a very significant year for BrainJuicer. The Company now has 40 employees, strong relationships with approximately 80 clients, including ten of the world's top 50 companies, an innovative suite of products, a presence in three countries, a team of highly credible market research professionals, and a group of experienced software engineers. Our research platform, which was developed in-house, has won several respected industry awards and we are fast earning a reputation as an innovation leader in our industry. In our view, this combination would be very difficult to replicate and places us in a powerful position for sustainable growth within an attractive, rapidly growing market. 'We have established a truly international footprint, adding the US to our Dutch and UK businesses and attracting two extremely talented and experienced researchers to run the US and UK offices. Our R&D unit, BrainJuicer Labs, introduced two highly innovative new products which contributed to our strong growth, accounting for 15% of turnover in their first year. Significantly in 2006, we believe we became the first online research agency to win a global mandate from a top 50 company and we ended the year with a successful listing on AIM.' For further information, please contact: BrainJuicer Group PLC Tel: +44 (0)20 7043 1000 John Kearon, Chief Executive Officer john.kearon@brainjuicer.com James Geddes, Chief Financial Officer james.geddes@brainjuicer.com Teather & Greenwood Tel: +44 (0)20 7426 9000 James Maxwell / Fred Walsh / Simon Brown james.maxwell@teathers.com Media enquiries: Abchurch Communications Tel: +44 (0)20 7398 7700 Heather Salmond / Joanne Shears heather.salmond@abchurch-group.com Chairman's Statement Introduction 2006 has been a significant year in the life of the Company, including geographic expansion, considerable growth, and culminating in the successful flotation on the AIM market of the London Stock Exchange in December 2006. The Company's financial performance has been strong and in line with expectations. Turnover for the year increased by 57% to £4,608,000 (2005: £2,936,000). Operating profit rose from £2,000 in 2005 to £477,000 before listing expenses in 2006, and profit after taxation rose from a loss of £38,000 to a profit of £291,000 before listing expenses, over the same period. Both of BrainJuicer's established business units, in the UK and Holland, performed well and the new unit in the US made a good start. Most of the Company's revenue is transaction based, with 92% deriving from bespoke projects and 8% deriving from Quali-Taxi(TM), our added-value version of what is termed an 'omnibus' in the industry i.e. simple, short, standard surveys. The Company generated £187,000 of cash from operations (before listing expenses) which together with the net proceeds from the flotation increased cash to £1,233,000. We have no borrowings. As this is BrainJuicer's first set of results as a public company, here is a brief summary of the Company's history. BrainJuicer was founded in 1999 with a conviction of the need to improve the insightfulness and inspiration of quantitative research. This conviction was based on the firm belief that consumer focussed companies, the largest buyers of market research, could make a step-change improvement in their innovation process if they had access to more profound consumer information than was otherwise available. There was also a compelling argument that technology could be developed that used the internet to deliver research in a quicker, more creative and ultimately more effective way than was previously possible. Over the first two years, the Company focussed on developing its methodology, conducting trials, and eventually winning BrainJuicer's first significant client in 2002. In January 2003, Unilever Ventures invested £550,000 for an equity stake of approximately 40%, and we have since been steadily and patiently building our team, client relationships and the software technology. With our listing on AIM, we have a mechanism to enable Unilever Ventures to exit over time, and access to capital to pursue acquisition targets. Starting a business from scratch isn't always easy and is rarely plain sailing. We are a highly creative and innovative company. Despite being small, our clients are some of the largest, and most demanding, buyers of market research in the world and are hugely appreciative of our innovative research tools and high service ethic. Any company innovating in a market must be prepared for failures and knock-backs along the way. This is something we have embraced from the beginning and it has proved a winning strategy. We intend to maintain our bold approach to innovation and continue to delight our clients, in order to achieve our long term goal of becoming one of the top 10 global Market Research agencies. Over the seven years of the Company's existence, we have created a suite of innovative research products, put in place an infrastructure and technology platform, and established a talented team of credible research professionals. In our view this combination would be very difficult to replicate, and places us in a powerful position for sustainable growth, within an attractive rapidly growing market. I am confident that we will continue to win in the market place and that our client base will continue to grow. Geographic Expansion Following the success BrainJuicer has enjoyed in the Netherlands, the Board decided to take the important step of moving into the US. As well as being the single largest market, the US is also the most developed and competitive online research market in the world with 35% of all research now being conducted online. Establishing a strong presence in the US is key to becoming a major international research agency. As with the Company's move into the Netherlands, we entered the market in a low cost, low risk manner. First year losses were £66,000, which the Board views as a modest investment for what we now have: a four person high level account management team, and some significant new clients. The Board believes the business is now well placed to make significant in-roads in this coming year and is looking to continue the international expansion in a similarly controlled and cost effective manner. BrainJuicer Labs As an innovation leader in the online market research industry, we are constantly striving to create new ways to enable our clients to better understand their consumers and to innovate more successfully. BrainJuicer Labs is our R&D capability made up of internal and external specialists that work on a project basis. In 2006 we rolled out Predictive Markets, a product which can help screen large numbers of concepts quickly, accurately and insightfully. Predictive Markets won a prestigious industry award for Best Methodology Paper, and accounted for 7% of turnover. We also introduced Quali-Taxi(TM), a high value-add 'omnibus' product which without any promotional or advertising spend, accounted for 8% of turnover in its first year. Clients We were delighted with the way our client relationships have developed this year, and the jewel in the crown was the award of a global mandate from one of the top 50 companies in the world. We are mandated to test all of this client's consumer insights (a consumer insight is a precursor, in this particular company, to all product development). We feel that this is real tangible evidence that we are beginning to become recognised as a genuine alternative to the large incumbent agencies. Board of Directors Our Board comprises two executive directors, myself and James Geddes (our CFO), and two non-executive directors, Mark Muth and Simon Godfrey. James, Mark and Simon have each been with been with us since January 2003 and have contributed enormously to the success of the business in the intervening period. James Geddes is a Chartered Accountant originally at Touche Ross (now Deloitte) and prior to joining BrainJuicer was CFO of IoBox, an early stage company that was sold for €230m. He has a tremendous talent for understanding what it takes to turn start-ups into significant players. Mark Muth is one of three directors of Unilever Ventures, and has over 20 years' experience in banking and venture capital. Having been a director of many early stage companies, Mark understands the highs and lows of the early years and has been invaluable in helping us navigate the Company to its current position. Simon Godfrey has over 30 years' experience in quantitative research; he founded and ran SGA, one of the largest UK research suppliers when acquired by WPP in 1998. Simon's experience of delivering research to large clients makes him an extremely wise, knowledgeable and valuable member of the Board. The Board is well balanced, operates in an effective manner for a company of our size, and takes its responsibilities to our shareholders seriously. We recognise the need to split the roles of Chairman and CEO to further comply with best practice, and are looking to appoint a non-executive Chairman later this year. Team Our management team comprises myself, James Geddes, and the Managing Directors of our 3 businesses; the UK (Jim Rimmer), the Netherlands (Evert Bos) and the US (Ari Popper). I believe that BrainJuicer is now in the enviable position of possessing a talented and experienced team who are committed to building the Company into a major international research house and a leader in online research. Evert Bos joined the team at the end of 2004 to manage the Dutch business. Evert was previously head of Market Research at Bestfoods, a subsidiary of Unilever, in the Netherlands. Evert's 12 years of marketing and research experience have been invaluable in building a successful Dutch business. Jim Rimmer joined the team in June 2006 to manage the UK business. Jim has over 20 years' research experience, previously as General Manager at SGA Research International. Already the UK research teams have benefited from Jim's exceptional research talent and coaching ability to delight our clients and build our brand share and reputation. Ari Popper joined the team at the end of 2006 to manage the US business. Ari was previously a Vice President at Millward Brown in the US and one of the senior managers of their LA office. His nine years of marketing and research experience, extensive knowledge of the biggest customers in the US and desire to build a major new force in the US market made it a perfect fit on both sides. We have for a while felt that our creative techniques and innovative approach to market research creates a stimulating and creative work environment into which we can attract some of the most talented and experienced research professionals from the large incumbents. So it was particularly gratifying to supplement our team with Jim and Ari during 2006. Our staff are loyal and dedicated and have coped remarkably well with the challenges of working in a fast moving, high growth environment. I am very grateful, and am committed to ensuring we continue to hire equally talented staff. Business and Financial Review Our Business We are a full service online market research agency. Our target market comprises consumer goods and services companies which are, in the main, the largest buyers of market research in the world. We operate in Europe and the US which together form the geography from which the majority of the world's research is purchased. Although BrainJuicer is not as large as some competitors, we compete head-on with the large traditional market research providers who dominate the market. We have a distinct, yet proven research approach, which is supported by our proprietary software technology. The combination enables us to collect and deliver quantitative data together with qualitative diagnostics quickly and efficiently. Our core products are firmly aimed at helping our clients throughout their development process (be it development of products, packaging or advertising), particularly during the difficult 'fuzzy front end' of the typical innovation funnel, when lots of ideas and concepts need to be tested in an insightful yet cost efficient way. Our projects tend to be bespoke and high in value, yet can be delivered at low cost, relative to that of our competitors. We have conducted research in over 50 countries, in more than 30 languages, for over 80 clients (including 10 of the top 50 global companies). We have two offices in the UK, and one in each of the Netherlands and the US. We own a panel of 33,000 respondents in the UK, but in the main access panellists from third party suppliers. Whilst we are a relatively young company, we have been recognised with the following awards: • Best Methodology Paper (ESOMAR); • Most Innovative Use of IT (Effective IT Awards); and • Service Business of the Year (Start-up Awards). Our Objectives We have three simple operational imperatives: • to deepen our client relationships by continuing to exceed expectations in each and every project we undertake; • to continue to create new online research techniques, which enable our clients to engage with their consumers more intimately and more immediately; and • to continue to improve the sophistication of our technology and the quality of our internal processes. We believe that this combination will enable: • higher average revenue, and therefore profit, per project; • significant growth from our existing client base; and • increased capacity from our operations; which together will result in growth which is both highly profitable and sustainable. We also believe that this will provide a stimulating work environment into which we can continue to attract, and retain, high calibre market research professionals and software engineers. Having successfully established our business in the Netherlands and the US, we will be looking to expand our geographic footprint in Europe and to follow our clients into China. Our overseas offices use our central UK infrastructure to service their operational, financial and administrative needs, so providing we can find the right people, we can open overseas offices cheaply and quickly. Our Operations We were pleased with the strong performance of each of our three account management teams. Gross profit, our primary top-line performance metric, grew in the UK by 20% and in Holland by 143%, which together with a first year gross profit of £278,000 in the US, resulted in overall gross profit growth of 50%. We achieved this growth with only a small increase in overall headcount, from an average of 34 in 2005 to 38 in 2006. New Products BrainJuicer Labs continued to innovate, and we rolled out two new products in 2006: Predictive Markets and Quali-Taxi(TM). Our new products start life as experimental projects, then are written up as research papers, extensively trialled with client partners and finally, are launched. Predictive Markets. The basic premise behind Predictive Markets is the counter-intuitive proposition that in a properly controlled environment, crowds can make better decisions than experts. We have tested, and have found that a crowd of non-experts, when operating through a market mechanism, can be just as accurate as established research approaches. Using this insight, Predictive Markets, is able to test a multitude of concepts and ideas accurately and at very much lower cost than traditional techniques. In 2005, this won an ESOMAR award for Best Methodology Paper, and after further trials was launched during Q2 of 2006. It accounted for 7% of turnover in its first year. Quali-Taxi(TM). A Quali-Taxi(TM) is our version of an omnibus (a survey in which questions from many organisations are compiled and presented to a nationally representative sample of the population at certain predetermined times, and delivered a few weeks later). However, unlike an omnibus, a Quali-Taxi(TM) gives a client its own tailored survey which starts whenever the client wants, with only that client's questions, and includes our qualitative, as well as the standard quantitative, question types. In its first year, Quali-Taxi(TM)'s generated £366,000 in revenue, without any significant up-front investment, or any advertising or other promotional spend. Clients Our top 20 clients, representing 75% of our revenue, are all large well-known consumer focussed companies. In the main we have developed our relationships with these key accounts well. 70% grew substantially in 2006, 10% were new to us, and only 20% declined. We were particularly pleased to be entrusted with a global mandate from one of our largest clients, for all of their Insight testing. This has led to a step-change improvement in our relationship with this client. It is also pleasing that most of our clients use BrainJuicer on an on-going basis; 85% of our 2006 revenue was from repeat business, and 15% from new clients won during the year. Average spend per project increased from £11,468 in 2005 to £13,317 in 2006. Our Financials Operating Profit Our revenue growth drove up operating profit from what was essentially break-even in 2005 (£2,000) to £477,000 before listing costs. Our key productivity and efficiency metric, gross margin per hour, increased to £171 per hour (2005: £165 per hour). Administrative expenses increased 29% from £2,284,000 to £2,942,000 (excluding listing expenses of £354,000). £343,000 of this relates to employee costs and overheads in our US office which opened in late 2005. In addition, we paid a bonus of £291,000 (zero in 2005). We have a scalable business model and can continue to grow with only modest increases in the headcount of our management, administrative and technical teams (approximately half of our headcount). Taxation Our effective tax rate in 2006 before disallowable listing expenses was 35.1% (2005: nil). This is above the standard rate of taxation of 30% in the UK principally due to certain legal fees and preference share interest charges being disallowable for corporation tax purposes, and US tax losses for which we have taken no credit this year. We anticipate the effective rate of tax will decline in future years. Cash flow In listing on AIM, we issued 1,388,900 new ordinary shares at £1.08, raising proceeds of £1,500,000. We incurred listing expenses of £455,000 of which £354,000 was charged to the income statement and £101,000 offset against share premium. The net proceeds were £1,045,000. We generated cash from operations before listing expenses of £187,000 (2005: £207,000 outflow). This is especially pleasing given the early stage nature of our Dutch business and investment in establishing our US business. Balance sheet We have low levels of capital expenditure - £92,000 this year in improving our UK offices and in some IT equipment. Non-current assets also include a deferred tax asset of £213,000 which relates to the future corporate tax deductions available to the Group when share option holders exercise their share options. Of this amount, £207,000 has been credited directly to equity, as required by International Financial Reporting Standards ('IFRS'). Trade receivables (including accrued income) have grown from £788,000 to £1,612,000. Debtor days have grown from 74 to 88 but remain in control, and we had no bad debts. Trade and other payables have increased from £409,000 to £944,000 principally due to year end bonus accruals. Financial liabilities relate to dividends due to preference shareholders, which accrued until they were converted to ordinary shares. We anticipate having sufficient distributable reserves to pay these dividends during 2007. International Financial Reporting Standards ('IFRS') We have prepared our Annual Report under IFRS. The main difference between UK GAAP and IFRS impacting BrainJuicer is: • Credit to equity of £207,000 relating to the recognition of a deferred tax asset of £213,000 for the future anticipated tax deduction relating to our stock option charge. We have also included a charge for stock options in accordance with IFRS 2 'Share-based payment' of £22,000 (2005: £26,000) (this would also have been a UK GAAP requirement this year). A full list of our accounting policies under IFRS can be found in note 2 of this preliminary announcement. Prospects We believe our market positioning, our client relationships and our low cost scaleable business model set us up for sustainable, highly profitable growth. John Kearon Chief Executive Officer 12 April 2007 CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 2006 2005 Note £'000 £'000 ASSETS Non-current assets Property, plant and equipment 78 - Deferred tax asset 213 - 291 - Current assets Inventories 45 13 Trade and other receivables 1,612 788 Cash and cash equivalents 1,233 64 2,890 865 Total assets 3,181 865 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 126 111 Share premium account 1,390 - Merger reserve 477 445 Foreign currency translation reserve (5) 1 Other reserve 255 26 Retained earnings (277) (214) Total equity 1,966 369 LIABILITIES Current liabilities Trade and other payables 944 408 Current income tax liabilities 163 - Financial liabilities 108 - 1,215 408 Non-current liabilities Financial liabilities - 88 Total liabilities 1,215 496 Total equity and liabilities 3,181 865 CONSOLIDATED INCOME STATEMENT FOR YEAR ENDED 31 DECEMBER 2006 Note 2006 2006 2006 2005 Before Listing Listing expenses expenses Total £'000 £'000 £'000 £'000 Revenue 3 4,608 - 4,608 2,936 Cost of sales (1,189) - (1,189) (650) Gross profit 3,419 - 3,419 2,286 Administrative expenses (2,942) (354) (3,296) (2,284) Operating profit 477 (354) 123 2 Investment income 3 - 3 4 Finance costs (32) - (32) (44) Profit / (loss) before taxation 448 (354) 94 (38) Income tax expense (157) - (157) - Profit / (loss) for the financial year 291 (354) (63) (38) Attributable to equity holders of the Company (63) (38) Earnings per share attributable to the equity holders of the Company Basic loss per share 4 (0.9p) (0.6p) Diluted loss per share 4 (0.9p) (0.6p) All of the activities of the group are classed as continuing. CONSOLIDATED CASH FLOW STATEMENT FOR YEAR ENDED 31 DECEMBER 2006 2006 2005 Note £'000 £'000 Net cash used by operations 5 (167) (207) Interest paid (1) - Net cash used by operating activities (168) (207) Cash flows from investing activities Purchases of property, plant and equipment (92) - Interest received 3 4 Net cash (used by)/generated from investing activities (89) 4 Cash flows from financing activities Proceeds from initial public offering net of share issue expenses 1,399 - Proceeds from other issue of ordinary shares 27 - Net cash generated from financing activities 1,426 - Net increase/(decrease) in cash and cash equivalents 1,169 (203) Cash and cash equivalents at beginning of year 64 267 Cash and cash equivalents at end of year 1,233 64 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2006 Share Share Merger Foreign Other Retained Total capital premium reserve currency reserve earnings account translation reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2005 111 - 445 - - (176) 380 Exchange differences on - consolidation - - 1 - - 1 Loss for the financial year - - - - - (38) (38) Total income / (expense) recognised for 2005 - - - 1 - (38) (37) Share-based payment charge - - - - 26 - 26 - - - 1 26 (38) (11) At 31 December 2005 111 - 445 1 26 (214) 369 Exchange differences on consolidation - - - (6) - - (6) Deferred tax credited to equity - - - 207 - 207 Loss for the financial year - - - - - (63) (63) Total income / (expense) recognised for 2006 - - - (6) 207 (63) 138 Shares issued prior to Group reconstruction - - 21 - - - 21 Transfer of liability element of preferred shares to equity - - 11 - - - 11 Shares issued on IPO 14 1,486 - - - - 1,500 Share issue costs deducted from equity - (101) - - - - (101) Share options exercised subsequent to Group reconstruction 1 5 - - - - 6 Share-based payment charge - - - - 22 - 22 15 1,390 32 (6) 229 (63) 1,597 At 31 December 2006 126 1,390 477 (5) 255 (277) 1,966 1. Basis of Preparation The financial information set out above in respect of 31 December 2006 does not constitute statutory accounts as defined in section 240 of the Companies Act. The financial information contained in this announcement has been extracted from the 2006 financial statements upon which the auditors' opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. Whilst not yet an AiM requirement, the Group has chosen to prepare its maiden preliminary announcement in accordance with International Financial Reporting Standards ('IFRSs') as adopted in the European Union and as applied in accordance with the provisions of the Companies Act 1985. The disclosures required by IFRS 1, First-time Adoption of International Financial Reporting Standards, in respect of the transition from accounting principles generally accepted in the United Kingdom ('UK GAAP') to IFRS are provided in note 6. The preliminary announcement has been prepared under the historical cost convention. First time adoption of IFRS As permitted by IFRS 1, the following key exemptions have been taken in the transition to IFRS. Recognition and measurement requirements of IFRS 2 'Share Based Payments' have only been applied to equity instruments granted after 7 November 2002 that had not vested by 1 January 2005. Cumulative translation differences for all foreign currency operations have been reset to nil as at 1 January 2005. 2. Principal accounting policies The principal accounting policies applied in the preparation of these consolidated results are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of consolidation On 14 November 2006, the Company acquired, in return for the issue of new equity share capital, the entire issued share capital of BrainJuicer Limited. As the shareholders were identical before and after this transaction, this share for share exchange qualifies as a common control transaction and a group reorganisation and falls outside of the scope of IFRS 3, Business Combinations. Consequently, merger accounting has been adopted. No goodwill has been recorded and the difference between the parent Company's cost of investment and BrainJuicer Limited's share capital and share premium is presented as a merger reserve within equity on consolidation. Comparative amounts are restated as if the combination had taken place at the beginning of the earliest comparative period presented. Accordingly, the Group financial statements have been prepared as if the Group was in existence for the whole of the current and prior years. The consolidated financial statements incorporate the financial statements of the Company and all entities controlled by it after eliminating internal transactions. Control is achieved where the Group has the power to govern the financial and operating policies of a Group undertaking so as to obtain economic benefits from its activities. Undertakings' results are adjusted, where appropriate, to conform to group accounting policies. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation. Depreciation is provided to write off the cost of all property, plant and equipment to its residual value on a straight-line basis over its expected useful economic lives, which are as follows: Leasehold improvements 5 years or over the period of the lease, if shorter Furniture, fittings and equipment 5 years Computer hardware 2 to 3 years Impairment of property, plant and equipment At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment for any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. The recoverable amount is the higher of the fair value less costs to sell and value in use. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and bank deposits available on demand. Trade receivables Trade receivables are stated at fair value, taking into account estimated irrecoverable amounts which are recognised where there is evidence that the full amount of the trade receivable is not collectible, and are charged to the income statement. Inventories - work in progress Work in progress comprises directly attributable costs on incomplete market research projects and is held in the balance sheet at the lower of cost and net realisable value. Trade payables Trade payables are stated at fair value and are not interest bearing. Fair value normally equates to the amount payable due to their short term nature. Income taxes Current income tax liabilities comprise those obligations to fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement, except where it relates to items charged or credited directly to equity. Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. 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 always provided for in full. 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. Deferred tax assets and liabilities are calculated, without discounting, 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. Deferred tax is recognised as a component of tax expense in the income statement, except where it relates to items charged or credited directly to equity. Operating lease agreements Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged to the income statement net of any incentives received from the lessor on a straight line basis over the period of the lease. Revenue recognition Revenue is recognised when the right to consideration has been obtained for each market research project, which is normally after delivery of the project debrief to the client. Delivery of the debrief is the most significant act of each project. Employee benefits All accumulating employee-compensated absences that are unused at the balance sheet date are recognised as a liability. Share-based payment transactions The Group issues equity settled share-based compensation to certain employees (including directors). Equity settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period, together with a corresponding increase in equity, based upon the Group's estimate of the shares that will eventually vest. These estimates are subsequently revised if there is any indication that the number of 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. Fair value is measured by an external valuer using the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Where the terms of an equity-settled transaction are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured by the date of modification. Where an equity-settled transaction is cancelled, it is treated as if it had vested on the due date of the cancellation, and any expense not yet recognised for the transaction is recognised immediately. However, if a new transaction is substituted for the cancelled transaction, and designated as a replacement transaction on the date that it is granted, the cancelled and new transactions are treated as if they were a modification of the original transaction, as described in the previous paragraph. Foreign currencies Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange prevailing at the date of the transaction. Exchange gains and losses are included in the income statement for the period. For consolidation purposes, the trading results and cash flows in foreign currencies, arising in foreign subsidiaries, are translated into sterling at average exchange rates for the period. Assets and liabilities denominated in foreign currencies are translated using the rate of exchange prevailing at the balance sheet date. Exchange differences arising upon consolidation are taken directly to the cumulative foreign currency translation reserve. Such translation differences are recognised as income or expense in the period in which the operation is disposed of. Segment reporting A segment is a distinguishable component of the group that is engaged in providing products or services within a particular economic environment (geographical segment). Financial instruments/ liabilities Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the income statement. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Compound instruments Compound instruments comprise both a liability and an equity component. At date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar debt instrument. The liability component is accounted for as a financial liability. The residual is the difference between the net proceeds of issue and the liability component (at time of issue). The residual is the equity component, which is accounted for as an equity instrument. The interest expense on the liability component is calculated applying the effective interest rate for the liability component of the instrument. The difference between this amount and any repayments is added to the carrying amount of the liability in the balance sheet. Share capital Ordinary shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Share premium 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 The other reserve represents equity-settled share-based employee remuneration until such share options are exercised and deferred tax taken directly to equity in respect of such options. Merger reserve The merger reserve represents the difference between the parent company's cost of investment and a subsidiary's share capital and share premium where a business combination qualifies as a common control transaction. Foreign currency translation reserve The foreign currency translation reserve represents the differences arising from translation of investments in overseas subsidiaries. 3. Segment information The Group operates in one business segment, that of market research. Whilst there are a number of products within the business segment, management reporting is principally based on location of service delivery. Accordingly the Group presents its primary segment analysis on this basis: Year ended 31 December 2006 United Europe Rest of the Group Total Kingdom World £'000 £'000 £'000 £'000 £'000 Total segment revenue 3,065 1,198 375 - 4,638 Inter segment revenue (30) - - - (30) Segment revenue 3,035 1,198 375 - 4,608 Segment result 860 529 (66) (1,200) 123 Investment income 3 Finance costs (32) Profit before taxation 94 Taxation (157) Loss for the financial year (63) Segment assets 1,072 855 237 1,264 3,428 Segment liabilities (712) (179) (300) (271) (1,462) Net assets 360 676 (63) 993 1,966 Capital expenditure 86 3 3 - 92 Depreciation 13 1 - - 14 Group costs include directors' remuneration and central project costs which are not directly attributable to geographic segments. Group assets include centrally held cash at bank and deferred tax assets. Group liabilities include income tax and financial liabilities. Year ended 31 December 2005 United Europe Rest of the Group Total Kingdom World £'000 £'000 £'000 £'000 £'000 Total segment revenue 2,533 440 - - 2,973 Inter segment revenue (23) (14) - - (37) Segment revenue 2,510 426 - - 2,936 Segment result 891 142 - (1,031) 2 Investment income 4 Finance costs (44) Loss before taxation (38) Taxation - Loss for the financial year (38) Segment assets 631 234 - - 865 Segment liabilities (331) (77) - (88) (496) Net assets 300 157 - (88) 369 Capital expenditure - - - - - Depreciation - - - - - Group costs include directors' remuneration and central project costs which are not directly attributable to geographic segments. Group liabilities include income tax and financial liabilities. 4. Earnings per share (a) Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average of ordinary shares in issue during the year. 2006 2005 £'000 £'000 Loss attributable to equity holders of the Company (63) (38) Listing expenses 354 - Adjusted profit/(loss) before listing expenses attributable to equity holders of 291 (38) the Company Weighted average number of ordinary shares in issue 7,196,792 6,126,465 Basic loss per share (0.9p) (0.6p) Adjusted basic earnings/(loss) per share before listing expenses 4.0p (0.6p) (b) Diluted Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding to assume conversion of all dilutive potential ordinary shares. For share options, a calculation is made in order to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated in this way is compared with the number of shares that would have been issued assuming the exercise of the share options. 2006 2005 £'000 £'000 Loss attributable to equity holders of the Company (63) (38) Interest expense on convertible preference shares 31 43 (Loss) / profit used to determine diluted earnings per share (32) 5 Listing expenses 354 - Adjusted profit used to determine adjusted diluted earnings per share 322 5 Weighted average number of ordinary shares in issue 7,196,792 6,126,465 Assumed conversion of convertible preference shares 4,014,201 4,817,041 Share options 364,377 312,209 Weighted average number of ordinary shares for diluted earnings per share 11,575,370 11,255,715 Diluted loss per share (0.9p) (0.6p) Adjusted diluted earnings/(loss) per share before listing expenses 2.8p (0.6p) The share options and convertible preference shares are considered to be anti-dilutive in 2005 and anti-dilutive after listing expenses in 2006. 5. Cash used by operations 2006 2005 £'000 £'000 Profit /(loss) before taxation 94 (38) Depreciation 14 - Net finance costs 29 40 Share-based payment expense 22 26 Increase in inventory (32) (5) Increase in receivables (824) (222) Increase/(decrease) in payables 536 (9) Exchange differences (6) 1 Net cash used by operations (167) (207) 6. First time adoption of IFRS Key impact analysis The analysis below sets out the most significant adjustments arising from the transition to IFRS. 1) Presentation of financial statements The format of the Group's primary financial statements has been presented in accordance with IAS 1 'Presentation of Financial Statements'. 2) Share-based payment IFRS 2, 'Share based payment' requires that an expense for equity settled share based payment be recognised in the financial statements based on their fair value at the date of grant. This expense, which is in relation to employee share options granted under an EMI scheme, is recognised over the vesting period of the options. IFRS 2 has been applied to all options granted after 7 November 2002 and not fully vested by 1 January 2005, the Group's date of transition to IFRS. 3) IAS 19 Employee benefits Under IAS 19, all accumulating employee-compensated absences that are unused at the balance sheet date must be recognised as a liability. There is no similar requirement under UK GAAP. In addition, employee benefits which fall within the scope of IAS 19 have been recognised in the Group's balance sheet. 4) Foreign exchange differences Under IAS 21 'The effects of changes in foreign exchange rates', exchange differences arising upon consolidation are taken directly to a cumulative translation reserve rather than to the profit and loss account. Such translation differences are recognised as income or expense in the period in which the operation is disposed of. Differences between UK GAAP applicable at 1 January 2005 and UK GAAP at the date of this report reflect the implementation of the following standards: • Financial Reporting Standard No. 20 'Share-based payments'; and • Financial Reporting Standard No. 26 'Financial Instruments: Measurement' Reconciliation of equity as at 1 January 2005 (date of transition to IFRS) UK GAAP Employee IFRS benefits £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment - - - Deferred tax asset - - - - - - Current assets Inventories 8 - 8 Trade and other receivables 566 - 566 Cash and cash equivalents 267 - 267 Total assets 841 - 841 EQUITY Share capital 111 - 111 Share premium account 445 - 445 Other reserves - - - Retained earnings (166) (10) (176) Total equity 390 (10) 380 LIABILITIES Current liabilities Trade and other payables 355 10 365 Current income tax liabilities 53 - 53 408 10 418 Non-current liabilities Financial liabilities 43 - 43 Total liabilities 451 10 461 Total equity and liabilities 841 - 841 Reconciliation of income statement for the year ended 31 December 2005 UK GAAP Share-based Employee IFRS payment benefits £'000 £'000 £'000 £'000 Revenue 2,936 - - 2,936 Cost of sales (650) - - (650) Gross profit 2,286 - - 2,286 Administrative expenses (2,253) (26) (5) (2,284) Operating profit 33 (26) (5) 2 Investment income 4 - - 4 Finance costs (44) - - (44) Loss before taxation (7) (26) (5) (38) Income tax expense - - - - Loss for the financial year (7) (26) (5) (38) Reconciliation of equity as at 31 December 2005 UK GAAP Share-based Employee Foreign IFRS payment benefits exchange £'000 £'000 £'000 £'000 £'000 ASSETS Non-current assets Tangible fixed assets - - - - - Deferred tax asset - - - - - - - - - - Current assets Inventories 13 - - - 13 Trade and other receivables 788 - - - 788 Cash and cash equivalents 64 - - - 64 865 - - - 865 EQUITY Share capital 111 - - - 111 Merger reserve 445 - - - 445 Foreign currency translation reserve - - - 1 1 Other reserve - 26 - - 26 Retained earnings (172) (26) (15) (1) (214) Total equity 384 - (15) - 369 LIABILITIES Current liabilities Trade and other payables 393 - 15 - 408 Current income tax liabilities - - - - - 393 15 408 Non-current liabilities Financial liabilities 88 - - - 88 Total liabilities 481 15 496 Total equity and liabilities 865 - - - 865 This information is provided by RNS The company news service from the London Stock Exchange

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