Preliminary Results to Dec 07

Dowlis Corporate Solutions plc 28 March 2008 For immediate release 28 March 2008 Dowlis Corporate Solutions plc Preliminary Results for the year to 31 December 2007 Dowlis Corporate Solutions plc ('Dowlis', the 'Group' or the 'Company') announces its preliminary results for the year to 31 December 2007. Highlights: - Results are in line with the November trading statement - Revenue growth of 4% to Â£19.7m (2006: Â£18.9m) - Underlying operating profit of Â£0.6m (2006: Â£1.3m) - Loss before tax reduced to Â£0.1m (2006: loss Â£0.2m) - Loss per share maintained at 0.3p (2006: loss per share of 0.3p) - Strong cash generation of Â£0.9m (2006: outflow Â£1.7m) leaves the Group debt free with net cash of Â£0.7m (2006: net debt Â£0.2m) - Promotional Marketing is expected to benefit from the restructuring carried out during 2007 - Information and Exhibitions has a unique offering and a strong market position, leading to a good start to 2008 - The Group is well positioned for future profitable growth Colin Cooke, Chairman commented: 'The Promotional Marketing division is expected to benefit in 2008 from the restructuring changes and investment from 2006 with its new lower cost base. We are aware of wider economic factors, but anticipate making further profitable progress in the year. Information and Exhibitions has developed a strong market position and a unique offering, attributes that are expected to help the division achieve significant progress in 2008. A successful Trade Only national exhibition in January has helped lead to an encouraging start to the year. Trading in the early part of 2008 has been in line with our expectations.' Enquiries: Dowlis Craig Slater, Chief Executive Officer 07770 583768 Tim Sykes, Group Finance Director 07734 708385 Daniel Stewart & Company plc Lindsay Mair 020 7776 6550 Tom Jenkins 020 7776 6550 Chairman's Statement Performance overview Group sales increased by 4.3% to Â£19.7m (2006 : Â£18.9m). This growth was behind original expectations, following the acquisition of several profitable businesses during 2006, but was in line with the statement made during November 2007. Gross margin slipped by one point to 36.9% (2006 : 37.9%). After charges for non-recurring items, software development costs, amortisation of customer related intangibles and share based payment charges totalling Â£0.7m (2006 : Â£1.5m) the group reported a small loss before taxation of Â£0.1m (2006 : loss Â£0.2m). Operating profit before non-recurring items, software development costs, amortisation of customer related intangibles and share based payment charges was Â£0.6m (2006 : Â£1.3m). The Group balance sheet remains strong, was debt free at 31 December 2007 and the net cash balance of Â£0.7m has improved further in the first part of 2008. Strategy The Group's core strategy is simple and is built on three objectives : - Information and Exhibitions offers an unrivalled set of tools for the promotional products industry and this will be completed, enhanced and in due course offered outside the UK; - Promotional Marketing will improve customer service and continue to develop more efficient processes in the corporate market; and - The Group will continue to pursue and invest in opportunities that provide the highest return for an acceptable risk. Promotional Marketing Promotional Marketing made an operating profit before non-recurring items, amortisation of customer related intangibles and share based payment charges of Â£1.2m in 2007 (2006 : Â£1.8m). The trade business, adproducts, along with Ross Promotional and Dowlis Manchester all achieved double digit profit growth in the year. These strong results were offset by weaker results in Dowlis Byfleet and Aviation Gifts which were reorganised during the year; Byfleet to create a renewed and energetic team and Aviation Gifts to reduce overhead costs and incorporate into the Dowlis Manchester business. Information and Exhibitions Information and Exhibitions made an operating profit before software development costs, non-recurring items, amortisation of customer related intangibles and share based payment charges of Â£0.2m in 2007 (2006 : Â£0.2m), with profits in catalogues and exhibitions reinvested in software and the magazine. Our software, Promoserve, has rapidly gained market share to become the market leading choice for distributors and suppliers alike. The Trade Only national exhibition produced a profit in January 2007, its first year, and performed exceptionally well in its second year, almost doubling visitor numbers. Our catalogue sales continued to grow in 2007 and have good momentum coming into this year. Corporate Events Whilst further market consolidation is on our agenda for the future through further acquisitions, our focus is now primarily on the development and profitability of the existing Group. We made a number of Board changes in the year. Craig Slater joined the Group as Chief Executive Officer in October and Barry Fielder was appointed Non-Executive Director in December. Barrett Bedrossian resigned on 31 December 2008 and was replaced as Group Finance Director, initially on an interim basis, by Tim Sykes. I am delighted to confirm that Tim will continue with the Group after this interim period. To create clearer brand identities, we intend to re-name Dowlis Corporate Solutions plc. The Group will become Altitude Group plc subject to appropriate shareholder approvals to be sought at the forthcoming Annual General Meeting. Our trading companies will retain their existing names and associated branding. People The pace of change in the Group creates many opportunities and also places great demands on our people. I would like to take this opportunity to thank all of our staff for their hard work and achievements in 2007. We introduced in May 2007 a new Long Term Incentive Plan that clearly aligns the remuneration of the Group's senior management with wealth creation for our shareholders. Outlook The Promotional Marketing division is expected to benefit in 2008 from the restructuring changes and investment from 2006 with its new lower cost base. We are aware of wider economic factors, but anticipate making further profitable progress in the year. Information and Exhibitions has developed a strong market position and a unique offering, attributes that are expected to help the division achieve significant progress in 2008. A successful Trade Only national exhibition in January has helped lead to an encouraging start to the year. Trading in the early part of 2008 has been in line with our expectations. Colin Cooke Chairman 28 March 2008 Operating and financial review Operating review Promotional Marketing 2007 2006 Â£m Â£m Sales 18.4 18.7 Operating profit before non-recurring items, amortisation of customer related intangibles and share based payment charges 1.2 1.8 Operating profit after non-recurring items, amortisation of customer related intangibles and share based payment charges 0.7 1.0 Net assets 5.4 4.7 Promotional Marketing includes our trade supplier adproducts, our marketing design consultancy Touchpaper and our end user businesses Dowlis Corporate Solutions, Ross and Distinctive Ideas. The end user businesses form the largest part of the Group, with Â£16.4m revenues in 2007 (Â£16.7m in 2006). adproducts grew sales and profits in 2007, expanding its product offering and its customer base as planned. This business now has over 350 active distributor customers out of a total market of approximately 3,500. The business is managed separately from other activities to avoid competitive conflicts. Touchpaper offers its creative services both within the Group and externally and also grew successfully during the year. The end user businesses gathered momentum during the year and had strong order prospects going into 2008. Earlier in 2007, Dowlis Corporate Solutions in Byfleet was reorganised to reduce cost and improve customer service and this has had a beneficial impact in both respects, although the overall results for 2007 were less than originally planned. Dowlis Corporate Solutions in Manchester performed well, with significant increases in sales and profit and the establishment of an early stage online presence. Ross Promotional in Glasgow again performed well, producing steady growth over the previous year. In each of these businesses, improved efficiency and additional sales have a powerful effect on profitability. The infrastructure to enable further sales is in place and the tools to improve efficiency are being put in place. With the exception of the trading business of Dowlis Corporate Solutions, cash performance was good. Whilst its business model is inherently cash generative, Dowlis suffered from extended debtor days and this has been improved since the year end. Dowlis had extended its supplier terms through this period and has used some of the cash generated after the year end to relieve this position. Information and Exhibitions 2007 2006 Â£m Â£m Sales 2.3 0.9 Operating profit before non-recurring items, amortisation of customer related intangibles and share based payment charges 0.2 0.2 Operating profit / (loss) after non-recurring items, amortisation of customer related intangibles and share based payment charges - (0.4) Net capital employed 0.1 0.6 Information and Exhibitions offers a collection of tools to the promotional products industry, suppliers and distributors alike. These tools are inter-related but can be used individually and each one can improve efficiency and increase performance. The Trade Only national exhibition in 2007 was a success on all counts. Exhibitor and visitor numbers, at 190 and 1,600 respectively, exceeded expectations and customer feedback on the overall exhibition experience was exceptional. The exhibition has rapidly become the leading event in the UK industry and, unusually, has been profitable from its first year. Spectrum and Envoy catalogues, two of the top four leading offerings in the industry, grew again. With 176 and 168 pages, 72 and 82 suppliers and print runs of 130,000 and 50,000 respectively these catalogues offer suppliers and distributors an effective showpiece for their products and creativity. Under the Trade Only banner, Promoserve is an ERP software package and Trade Only Search is a linked on-line product search offering. Promoserve has continued to attract new users, leading to a user base of approximately 350 at the year-end. The rental model used by this company leads to a good recurring revenue base, which grew to Â£55,000 per month by the end of the year (2006 : Â£18,000 per month). Operations in this business include development, installation and support alongside sales and marketing. The magazine, PPD, now reaches approximately 8,000 readers and is one of the most widely read publications in the industry. Each element of this division grew sales in 2007. Promoserve reached a cash break-even position late in 2007, but did make a loss in the year as did the magazine. Although they each have a clear cash cycle, leading to capital use at certain times, these businesses are not significant users of our capital. Financial review Results for the year and key performance indicators Group sales increased by 4.3% to Â£19.7m (2006 : Â£18.9m) representing slower than originally planned growth, given the full year effect of businesses acquired during 2006. Gross margin slipped by one point to 36.9% (2006 : 37.9%). With total operating costs flat at Â£7.3m (2006 : Â£7.3m) the Group posted a loss before taxation of Â£0.1m (2006 : loss Â£0.2m). Operating costs included Â£0.7m (2006 : Â£1.5m) of software development costs, non-recurring items, amortisation of intangible assets and share based payment charges. Acquisitions During the year, the Group acquired the trade and assets of Poyle Promotions, a small internet based distributor, for Â£0.1m. This business has since been subsumed within the operations of the Group and its performance is no longer separately identifiable. As such, the Directors have impaired the goodwill to Â£Nil. Taxation The Group recorded a small tax credit in its consolidated income statement due principally to the reversal of deferred tax provisions in line with the amortisation charge for the associated customer related intangibles on the Group's various business combinations. Earnings per share Basic and diluted loss per share remained at 0.3p (2006: loss per share 0.3p). Cash flow The Group has reported a net cash inflow from operations of Â£1.1m which is Â£0.5m better than the reported operating profit of the group before software development costs, non-recurring items, amortisation of customer related intangibles and share-based payment charges of Â£0.6m (2006 : cash inflow from operations of negative Â£0.2m which was Â£1.5m behind the operating profit of the group before software development costs, non-recurring items, amortisation of customer related intangibles and share-based payment charges of Â£1.3m). The principle reasons are the impact of non-cash charges in the consolidated income statement and a favourable swing in the working capital profile at the year end, reversing the unfavourable swing at the prior year end. The Group benefited in the year from a Â£0.2m cash inflow from a tax refund and with only minor capital investment during the year, recovered a net Â£0.8m of cash (2006 : net Â£1.7m expended) to leave the Group debt free, with the exception of a small element of hire purchase commitments forward. This position has remained into the current year. Treasury The Group continues to manage the cash position in a manner designed to maximise interest income, whilst at the same time minimising any risk to these funds. Where there are surplus cash funds, these are deposited with commercial banks that meet credit criteria approved by the Board. At 31 December 2007, the Group had Â£0.7m on short term deposits (2006: Â£Nil). International financial reporting standards (IFRSs) and new accounting issues The Group has adopted the principles of accounting under IFRSs. The principle area that is affected is in relation to its acquisitions. Under IFRS3 'Business combinations' the Group is required to capitalise the separately identifiable intangible assets of the acquired businesses along with any associated goodwill and then to amortise the separately identifiable intangible assets over a relevant period and to review goodwill and the separately identifiable intangible assets annually for impairment. The Group capitalised Â£0.3m of intangible customer related assets, representing the value of customer relationships acquired as part of the Ross Promotional Products Limited, Distinctive Ideas Limited and Envoy Catalogue acquisitions, and Â£0.8m of goodwill. The Group has recognised an associated deferred tax liability of Â£0.1m. The Group has identified indicators that goodwill on both the acquisition of Aviation Gifts and Industry Software Limited was impaired during 2006, and has restated with an impairment charge of Â£0.5m during 2006. These businesses are non-cash generative. No value was attributed to the separately identifiable intangible assets of these businesses. Changes between these numbers and Interim Statement and prior year restatements There has been a change in accounting treatment of two key matters between these financial statements and the interim statement. These are as follows : - Goodwill on Aviation Gifts and Industry Software Limited which was incorrectly capitalised within intangible assets as at 31 December 2006 and at the time of the interim statement has been impaired within the consolidated income statement as a prior year restatement. This has resulted in an impairment charge of Â£0.5m in the year ended 31 December 2006 - The Group capitalised Â£0.3m of intangible customer related assets, representing the value of customer relationships acquired as part of the Ross Promotional Products Limited, Distinctive Ideas Limited and Envoy Catalogue acquisitions, and Â£0.8m of goodwill. The Group has recognised an associated deferred tax liability of Â£0.1m. This was not included within the interim statement; and - Development costs previously incorrectly capitalised within the software business have been taken to the consolidated income statement in the year in which they were incurred as a prior year restatement. This has resulted in a charge of Â£0.2m for the year ended 31 December 2006. Craig Slater Tim Sykes Chief Executive Officer Group Finance Director 28 March 2008 Consolidated Income Statement for the year ended 31 December 2007 2007 2006 Note Â£000 Â£000 Revenue - continuing 19,684 18,858 Cost of sales (12,419) (11,712) ------------- ------------ Gross profit 7,265 7,146 Administrative costs (7,356) (7,333) ------------- ------------ Operating profit before software development expenditure, amortisation of intangible customer related assets, non recurring administrative expenses and share based 618 1,332 payment charges Software development expenditure (159) (229) Amortisation of intangible customer related assets (84) (80) Non-recurring administrative expenses (429) (1,210) Share based payment charges (37) - ------------- ------------ Operating loss (91) (187) Finance income 2 26 Finance expenses (55) (16) ------------- ------------ Loss before taxation (144) (177) Taxation 31 54 ------------- ------------ Loss attributable to the equity shareholders of the Company (113) (123) ------------- ------------ Loss per ordinary share attributable to the equity shareholders of the Company : - Basic and diluted 3 (0.3p) (0.3p) ------------- ------------ Consolidated Balance Sheet as at 31 December 2007 2007 2006 Â£000 Â£000 Non-current assets Property, plant & equipment 942 926 Customer related intangible assets 119 203 Goodwill 2,296 2,296 ------------- ------------ 3,357 3,425 ------------- ------------ Current assets Inventories 1,800 1,684 Trade and other receivables 5,239 5,215 Current taxes 290 366 Cash and cash equivalents 652 - ------------- ------------ 7,981 7,265 ------------- ------------ Total assets 11,338 10,690 ------------- ------------ Current liabilities Bank overdrafts - (179) Trade and other payables (5,018) (4,140) Current taxes (431) (346) ------------- ------------ (5,449) (4,665) ------------- ------------ Non-current liabilities Trade and other payables (20) (35) Deferred consideration (147) (147) Deferred tax liabilities (95) (140) ------------- ------------ (262) (322) ------------- ------------ Total liabilities (5711) (4,987) ------------- ------------ Net assets 5,627 5,703 ------------- ------------ Equity attributable to equity holders of the Company Called up share capital 153 153 Share premium account 5,293 5,293 Retained earnings 181 257 ------------- ------------ Total equity 5,627 5,703 ------------- ------------ Statement of Changes in Equity Share capital Share premium Retained earnings Â£000 Â£000 Â£000 At 1 January 2006 150 4,966 380 Shares issued in the period 3 327 - Result for the period - - (123) ------------- ------------- ------------- At 31 December 2006 153 5,293 257 Result for the period - - (113) Share based payment charges - - 37 ------------- ------------- ------------- At 31 December 2007 153 5,293 181 ------------- ------------- ------------- Consolidated Cash Flow Statement for the year ended 31 December 2007 2007 2006 Â£000 Â£000 Operating activities Loss for the period (113) (123) Impairment of goodwill 104 495 Amortisation of intangible assets 84 80 Depreciation 241 242 Loss on sale of property, plant and equipment - 148 Net finance expense / (income) 53 (10) Income tax charge / (credit) (31) (54) Share based payment charges 37 - ------------- ------------ Operating cash inflow before changes in working capital 375 778 Movement in inventories (116) (395) Movement in trade and other (24) 129 receivables Movement in trade and other payables 833 (740) ------------- ------------ Operating cash inflow from operations 1,068 (228) Interest received 2 26 Interest paid (55) (16) Income tax received / (paid) 229 (131) ------------- ------------ Net cash flow from operating 1,244 (349) activities ------------- ------------ Investing activities Purchase of plant and equipment (257) (472) Acquisition of subsidiaries (134) (1,206) ------------- ------------ Net cash flow from investing activities (391) (1,678) ------------- ------------ Financing activities Proceeds from issue of shares - 330 Repayment of hire purchase contracts (22) (19) ------------- ------------ Net cash flow from financing (22) 311 activities ------------- ------------ Net increase / (decrease) in cash and cash equivalents 831 (1,716) Cash and cash equivalents at the beginning of the year (179) 1,537 ------------- ------------ Cash and cash equivalents at the end of the year 652 (179) ------------- ------------ Notes 1. The financial information set out herein does not constitute the Group's statutory accounts for the year ended 31 December 2007 but is derived from those financial statements. The statutory accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies following the Annual General Meeting. The comparative information in respect of the year ended 31 December 2006 has been derived from the audited statutory accounts for the year ended on that date, as restated for the first time adoption of International Financial Reporting Standards ('IFRS') as referred to below, upon which an unqualified audit opinion was expressed and which did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. The audited financial statements will be available by contacting the Company Secretary at the Company's Registered Office. 2. Basis of preparation The financial information has been prepared and approved by the directors in accordance with IFRS as adopted by the European Union. The first time adoption of IFRS has impacted on the year's results. The principal changes relate to the acquisition of subsidiaries (treatment of goodwill and intangible assets). The rules for first time adoption of IFRS are set out in IFRS1 'First time adoption of international financial reporting standards'. In accordance with IFRS1, the Company has determined its IFRS accounting policies and has applied these retrospectively to determine its opening balance sheet under IFRS. The accounting policies adopted are set out at Note 5. The Group has taken the business combination exemption, which allows that IFRS3 not be applied to business combinations that took place prior to 1 January 2006, the date of transition to IFRS. Estimates under IFRS at the date of transition are consistent with the estimates made at the same time under UK GAAP. Reconciliations and explanations of the affect of the transition from UK GAAP to IFRS on the Group's equity and its profit or loss are set out at Note 4. Further, the Group has identified the need to recognise a prior year restatement in respect of two matters. The prior year restatement of Â£683,000 charge relates to development costs of Â£188,000 which had been capitalised during the year ended 31 December 2006 in error and goodwill of Â£495,000 that had not been impaired at 31 December 2006 in error. The error in respect of goodwill includes Â£345,000 for the impairment of goodwill on the acquisition of Industry Software Limited (acquired during 2006) and Â£150,000 for the impairment of goodwill on the acquisition of the trade and assets of Aviation Gifts (acquired during 2005). The financial impact of these matters along with the financial impact of the translation to IFRS is set out at Note 4. The following Standards and Interpretations have been issued, but are not yet effective and have not been adopted early by the Group : Title Latest Date of EU effective date endorsement - reporting periods starting on or later than IFRS Business Combinations (Revised 2008) 1 July 2009 - 3 IAS Consolidated and Separate Financial 1 July 2009 - 27 Statements IFRS Amendment to IFRS 2 Share Based Payment : 1 January 2009 - 2 Vesting Conditions and Cancellations IAS Presentation of Financial Statements 1 January 2009 - 1 IAS Revision to IAS 23 Borrowing costs 1 January 2009 - 23 IAS Amendment to IAS 32 Financial Instruments : 1 January 2009 - 32 Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations arising on Liquidation IFRS Operating Segments 1 January 2009 21 November 8 2007 IFRIC Service Concession Arrangements 1 January 2008 - 12 IFRIC Customer Loyalty Programmes 1 July 2008 - 13 IFRIC IAS 19 - The Limit on a Defined Benefit 1 January 2008 - 14 Asset, Minimum Funding Requirements and their Interaction IFRIC IFRS 2 Group and Treasury Share 1 March 2007 2 June 2007 11 Transactions IAS 1 Presentation of Financial Statements (Revised 2007) will result in changes to the presentation of the Group's financial statements as the format currently adopted for the Statement of Changes in Equity will no longer be permitted. Instead, the Group will present a Statement of Comprehensive Income combining the existing Income Statement with other income and expenses currently presented as part of the Statement of Changes in Equity. In addition, the Group will present a separate Statement of Changes in Equity showing owner changes in equity. The Group does not consider that the other Standards and Interpretations referred to above will have a material impact on the financial statements of the Group. 3. Basic and diluted loss per ordinary share The calculation of earnings per ordinary share is based on the profit or loss for the period and the weighted average number of equity voting shares in issue. 2007 2006 Earnings (Â£000) (113) (123) ------------- ------------- Weighted average number of shares (number '000) 38,203 37,980 ------------- ------------- Basic and diluted loss per ordinary share (pence) (0.3p) (0.3p) ------------- ------------- 4. Prior year restatement and IFRS translation Reconciliation of profit - year ended 31 December 2006 UK GAAP Error restatement UK GAAP IFRS 3 Business IFRS (after Combinations restatement) Note a b C d e Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Revenue Continuing 16,125 - - - 16,125 - - 16,125 Acquisitions 2,733 - - - 2,733 - - 2,733 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 18,858 - - - 18,858 - - 18,858 Cost of sales (11,712) - - - (11,712) - - (11,712) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit 7,146 - - - 7,146 - - 7,146 Administrative costs (6,855) (188) (345) (150) (7,538) 285 (80) (7,333) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit 291 (188) (345) (150) (392) 285 (80) (187) Finance income 26 - - - 26 - - 26 Finance expenses (16) - - - (16) - - (16) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Profit before taxation 301 (188) (345) (150) 113 285 (80) (177) Taxation 41 - - - 41 - 13 54 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Loss for the year 342 (188) (345) (150) (341) 285 (67) (123) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- a. A review of the nature of development costs previously capitalised identified Â£256,000 (Â£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining Â£188,000 having been capitalised since acquisition) of costs that had been capitalised in error as the assessment of the criteria leading to the capitalisation was not correct as at 31 December 2006. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained profits of the year by Â£188,000 and to decrease the value of intangible assets and the Group's net assets by Â£188,000. b. A review of the carrying value of the goodwill relating to the acquisition of Industry Software Limited identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained profits of the year by Â£345,000 and to decrease the value of intangible assets and the Group's net assets by Â£345,000. c. A review of the carrying value of the goodwill relating to the acquisition of the trade and assets of Aviation Gifts identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained profits of the year by Â£150,000 and to decrease the value of intangible assets and the Group's net assets by Â£150,000. d. IFRS 3 'Business Combinations' no longer permits amortisation of goodwill. Instead, goodwill is carried at cost and is subject to regular impairment review. The impact of the application of this policy in the year ended 31 December 2006 is a reversal of the amortisation charge of Â£285,000. e. IFRS 3 'Business Combinations' requires valuation and subsequent amortisation of separately identifiable intangible assets. The impact of the application of this policy was the initial recognition of Â£283,000 of customer related intangible assets and an associated provision for deferred tax of Â£70,000. The customer related intangible assets attracted an amortisation charge of Â£80,000 for the year ended 31 December 2006 and an associated release of Â£13,000 of the deferred tax provision. Reconciliation of equity at 1 January 2006 UK GAAP Effect of IFRS transition to IFRS Â£000 Â£000 Â£000 Non-current assets Property, plant & equipment 815 - 815 Intangible assets 1,669 - 1,669 ------------- ------------- ------------- 2,484 - 2,484 ------------- ------------- ------------- Current assets Inventories 1,245 - 1,245 Trade and other receivables 4,918 - 4,918 Cash and cash equivalents 1,537 - 1,537 ------------- ------------- ------------- 7,700 - 7,700 ------------- ------------- ------------- Total assets 10,184 - 10,184 ------------- ------------- ------------- Current liabilities Trade and other payables (4,389) - (4,389) Current taxes (207) - (207) ------------- ------------- ------------- (4,596) - (4,596) ------------- ------------- ------------- Non-current liabilities Trade and other payables (15) - (15) Deferred taxation (77) - (77) ------------- ------------- ------------- (92) - (92) ------------- ------------- ------------- Total liabilities (4,688) - (4,688) ------------- ------------- ------------- Net assets / (liabilities) 5,496 - 5,496 ------------- ------------- ------------- Equity attributable to equity holders of the Company Called up share capital 150 - 150 Share premium 4,966 - 4,966 Retained earnings 380 - 380 ------------- ------------- ------------- Total equity 5,496 - 5,496 ------------- ------------- ------------- Reconciliation of equity at 31December 2006 UK GAAP Error restatement UK GAAP IFRS 3 Business IFRS (after Combinations restatement) Note a b c d e Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Non-current assets Property, plant & equipment 926 - - - 926 - - 926 Development costs 256 (256) - - - - - - Customer related intangible assets - - - - - - 203 203 Goodwill 2,651 68 (345) (150) 2,224 285 (213) 2,296 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 3,833 (188) (345) (150) 3,150 285 (10) 3,425 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Current assets Inventories 1,684 - - - 1,684 - - 1,684 Trade and other receivables 5,215 - - - 5,215 - - 5,215 Current taxes 366 - - - 366 - - 366 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 7,265 - - - 7,265 - - 7,265 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total assets 11,098 (188) (345) (150) 10,415 285 (10) 10,690 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Current liabilities Bank (179) - - - (179) - - (179) overdrafts Trade and other (4,140) - - - (4,140) - - (4,140) payables Current taxes (346) - - - (346) - - (346) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (4,665) - - - (4,665) - - (4,665) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Non-current liabilities Trade and other payables (35) - - - (35) - - (35) Deferred consideration (147) - - - (147) - - (147) Deferred taxation (83) - - - (83) - (57) (140) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (265) - - - (265) - (57) (322) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total liabilities (4,930) - - - (4,930) - (57) (4,987) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net assets 6,168 (188) (345) (150) 5,485 285 (67) 5,703 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Equity attributable to equity holders of the Company Called up share capital 153 - - - 153 - - 153 Share premium account 5,293 - - - 5,293 - - 5,293 Retained earnings 722 (188) (345) (150) 39 285 (67) 257 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total equity 6,168 (188) (345) (150) 5,485 285 (67) 5,703 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- a. A review of the nature of development costs previously capitalised identified Â£256,000 (Â£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining Â£188,000 having been capitalised since acquisition) of costs that had been capitalised in error as the assessment of the criteria leading to the capitalisation was not correct as at 31 December 2006. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to increase goodwill on the acquisition of Industry Software Limited by Â£68,000 as a result of reducing the fair value of the assets acquired and to reduce the retained profits of the year by Â£188,000 and to decrease the value of intangible assets and the Group's net assets by Â£188,000. b. A review of the carrying value of the goodwill relating to the acquisition of Industry Software Limited identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained profits of the year by Â£345,000 and to decrease the value of intangible assets and the Group's net assets by Â£345,000. c. A review of the carrying value of the goodwill relating to the acquisition of the trade and assets of Aviation Gifts identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained profits of the year by Â£150,000 and to decrease the value of intangible assets and the Group's net assets by Â£150,000. d. IFRS 3 'Business Combinations' no longer permits amortisation of goodwill. Instead, goodwill is carried at cost and is subject to regular impairment review. The impact of the application of this policy in the year ended 31 December 2006 is a reversal of the amortisation charge and to increase the retained profits for the year and the Group's net assets by Â£285,000. e. IFRS 3 'Business Combinations' requires valuation and subsequent amortisation of separately identifiable intangible assets. The impact of the application of this policy was the initial recognition of Â£283,000 of customer related intangible assets and an associated provision for deferred tax of Â£70,000 giving a net adjustment to goodwill of Â£213,000. The customer related intangible assets attracted an amortisation charge of Â£80,000 for the year ended 31 December 2006 and an associated release of Â£13,000 of the deferred tax provision. 5. Significant accounting policies Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of net assets of the subsidiary acquired, the difference is recognised directly in the income statement. All intra-group balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated fully on consolidation. Financial liabilities The Group has granted certain conditional commitments (put options) to shareholders of its fully consolidated subsidiary, Industry Software Limited, to purchase their minority interests. These are in the form of conditional put options based on performance parameters over the next 5 to 10 years. The present value of the estimated purchase consideration has been recognised in the balance sheet as a long term liability contingent on the profitability of Industry Software Limited over the period of the put option. This has been offset against minority interests with the balance through goodwill. Subsequent changes in the value of the commitment will be recognised by an adjustment to goodwill, with the exception of the unwinding of the discount recognised in other financial charges and income. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains and losses on translation are recognised in the income statement. Property, plant and equipment Property, plant and equipment are held at cost less accumulated depreciation and impairment charges. Depreciation is provided at the following annual rates in order to write off the cost less estimated residual value, which is based on up to date prices, of property, plant and equipment over their estimated useful lives as follows: Leasehold improvements - Over remaining life of lease Plant and machinery - 5 to 10 years Fixtures and fittings - 3 to 10 years Motor vehicles - 4 years Intangible assets - Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Acquired intangible assets - business combinations Intangible assets that are acquired as a result of a business combination and that can be separately measured at fair value on a reliable basis are separately recognised on acquisition at their fair value. Amortisation is charged on a straight-line basis to the income statement over their expected useful economic lives as follows : Customer relationships - 3 years Unfulfilled sales orders - 1 month Assets that are subject to amortisation are tested for impairment when events or a change in circumstances indicate that the carrying amount may not be recoverable. Impairment The carrying amount of the Group's non-financial assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement. An impairment loss is recognised for the amount by which the carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the value in use. For the purposes of assessing impairments, assets are grouped at the lowest levels for which there are identifiable cash flows. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount of the other assets of the unit (group of units) on a pro-rata basis. Inventories Inventories are valued at the lower of cost and net realisable value after making due allowance for obsolete and slow moving inventory. Cost is determined using the first in, first out ('FIFO') method. Net realisable value is based on estimated selling price less any further costs expected to be incurred to completion and disposal. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less allowance for any uncollectible amounts. Where receivables are considered to be irrecoverable an impairment charge is included in the income statement. Classification of financial instruments issued by the Group Following the adoption of IAS32 'Financial instruments: presentation', financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: - they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the group; and - where the instrument will or may be settled in the company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. Finance payments associated with financial liabilities are dealt with as part of finance expenses. Finance payments associated with financial instruments that are classified in equity are treated as distributions and are recorded directly in equity. Financial assets The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired: Loans and receivables: These assets are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (trade receivables). They are carried at fair value on initial recognition less provision for impairment. Cash and cash equivalents comprise cash in hand, deposits held at call with banks and bank overdrafts. Financial liabilities Financial liabilities are comprised of trade payables and other short-term monetary liabilities, which are recognised at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the group's cash management are included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Revenue recognition Revenue represents the amounts receivable, excluding sales related taxes, for goods and services supplied during the period to external customers shown net of VAT, returns, rebates and discounts. Revenue is recognised when the buyer takes title, provided that it is probable that the delivery will be made; the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognised; the buyer specifically acknowledges the deferred delivery instructions; and the usual payment terms apply. Income in respect of software product licences and associated maintenance and support services are recognised evenly over the period to which they relate. Services revenues are recognised when the service is performed. Operating segments The origin and destination of substantially all revenue arises in the UK but the Group is organised into two main business segments : - sale of promotional products, business gifts and related marketing services ('Promotional marketing'); and, - provision of information and exhibitions to the wider industry ('Information & Exhibitions'). The selection of these operating segments follows the principles of IFRS 8 'Operating segments'. Research and development Expenditure on research activities is recognised as an expense in the period in which it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, the Group can demonstrate all of the following: - the technical feasibility of completing the intangible asset so that it will be available for use or sale; - its intention to complete the intangible asset and use or sell it; - its ability to use or sell the intangible asset; - how the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; - the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and - its ability to measure reliably the expenditure attributable to the intangible asset during its development. Internally generated intangible assets are amortised over their useful economic life. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. During the year, the Directors recognised that development expenditure that had previously been capitalised as an intangible asset at 31 December 2006 did not actually fulfil the strict criteria referred to above. The consolidated income statement for the year ended 31 December 2006, the consolidated balance sheet at 31 December 2006 and the consolidated cash flow statement for the year ended 31 December 2006 and the associated notes to the financial statements have been restated to recognise this error. Leases Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases. Rentals payable under operating lease rentals are charged to the income statement on a straight line basis over the term of the lease. Lease where the Company retains substantially all of the risks and rewards of ownership are classified as finance leases or hire purchase contracts. Assets held under finance leases or hire purchase contracts are capitalised and depreciated over their useful economic lives. The capital element of the future obligations under finance leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged to the income statement over the periods of the finance leases and hire purchase contracts and represent a constant proportion of the balance of capital outstanding. Non-recurring items Non-recurring items are material items in the Income Statement which derive from events or transactions which fall within the ordinary activities of the Group and which individually or, if of a similar type, in aggregate the Group has highlighted as needing to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view. Post retirement benefits The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged to the income statement represents the contributions payable to the scheme in respect of the accounting period. Share based payments The fair value of awards to employees that take the form of shares or rights to shares is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the tax currently payable based on taxable profit for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in previous years. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity (such as the revaluation of land) in which case the related deferred tax is also charged or credited directly to equity. Key judgements and estimates The Directors consider that the key judgements and sources of estimation made in preparation of the financial statements are: Intangible fixed assets (other than goodwill) Unsatisfied purchase orders - at the time of each of the business combinations of Distinctive Ideas Limited and Ross Promotional Products Limited, the acquired subsidiaries each had unsatisfied sales orders. The Directors consider that these unsatisfied sales orders were of value to the Group at the date of acquisition, and hence were an intangible asset. The orders were valued at Â£26,000 for both of the acquisitions in total and this value was reflected within customer related intangibles at the date of each business combination. The orders were all satisfied during the year ended 31 December 2006, and the value of the intangible asset was amortised during that period. Customer relationships - at the time of each of the business combinations of Distinctive Ideas Limited, Ross Promotional Products Limited and Envoy Catalogue, the acquired businesses each had a portfolio of customers and there is evidence that these customers continued and still do continue to repeat purchase. The Directors consider that these customers were of value to the Group at the date of acquisition, and hence were an intangible asset. The value of those customer relationships has been estimated at Â£257,000 for all of the acquisitions together and further, that the average length of a customer relationship is three years. As such, Â£257,000 was reflected within customer related intangible assets at the date of each acquisition and is being amortised over a three year period from the date of each acquisition. Further, this type of customer related intangible asset has an associated deferred tax liability which is being released to the profit and loss account over the same three year period. Minority interests On 3 July 2006, the Group acquired 80% of the issued share capital of Industry Software Limited. The Group carries a liability of Â£147,000 in respect of deferred consideration for the remaining 20% of the issued share capital. This is based on the value of a conditional put option to purchase the shares held by the minority shareholders in Industry Software Limited. The put option is exercisable between the end of 2011 and the end of 2016 and is subject to a maximum deferred consideration of Â£10m. 6. Interim results The basis of preparation of this financial information is set out at Note 2. This basis is different form that used to prepare the financial information within the Group's Interim Statement dated 27 September 2007. Set out below is a table which compares the key elements of the financial information as reported in the Interim Statement and the impact that applying the basis of preparation as set out in Note 2 above would have had on that financial information. Note Balance per Impact of Balance under Interim change in basis this basis of Statement of preparation preparation Extracts from Consolidated balance sheet Â£000 Â£000 Â£000 Development costs a 324 (324) - Customer related intangible assets d - 161 161 Goodwill b, c, d 2,954 (658) 2,296 Deferred tax d (83) (64) (147) Other assets and liabilities 3,541 - 3,541 ------------- ------------- ------------- Net assets 6,736 (885) 5,851 ------------- ------------- ------------- Share capital and share premium 5,446 - 5,446 Retained earnings 1,290 (885) 405 ------------- ------------- ------------- 6,736 (885) 5,851 ------------- ------------- ------------- Extracts from Consolidated Income Statement Revenues 10,415 - 10,415 Operating profit a, d 480 (142) 338 Profit before taxation a, d 464 (142) 322 Taxation d (180) 6 (174) ------------- ------------- ------------- Earnings attributable to the equity shareholders of the Company 284 (136) 148 ------------- ------------- ------------- a. A review of the nature of development costs previously capitalised identified Â£324,000 (Â£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining Â£256,000 having been capitalised since acquisition) of costs that had been capitalised in error as the assessment of the criteria leading to the capitalisation was not correct as at 30 June 2007. The correction of this error would have resulted in an adjustment to the balance sheet as at 30 June 2007 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment is to reduce the retained earnings for the year by Â£100,000 and to decrease the value of intangible assets and the Group's net assets by Â£324,000. b. A review of the carrying value of the goodwill relating to the acquisition of Industry Software Limited identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment as at 30 June 2007 is to reduce the retained earnings of the Group by Â£345,000 and to decrease the value of intangible assets and the Group's net assets by Â£345,000. c. A review of the carrying value of the goodwill relating to the acquisition of the trade and assets of Aviation Gifts identified that this goodwill should have been impaired as at 31 December 2006 as the assessment of the future profitability of the company at that date was not correct. The correction of this error has resulted in an adjustment to the balance sheet as at 31 December 2006 in accordance with IAS8 'Accounting Policies, Changes in Accounting Estimates and Errors'. The impact of the adjustment as at 30 June 2007 is to reduce the retained earnings of the Group by Â£150,000 and to decrease the value of intangible assets and the Group's net assets by Â£150,000. d. IFRS 3 'Business Combinations' requires valuation and subsequent amortisation of separately identifiable intangible assets. The impact of the application of this policy is to recognise a customer related intangible asset of Â£161,000 and a deferred tax provision of Â£64,000. The customer related intangible assets attracted an amortisation charge of Â£42,000 for the period ended 30 June 2007 and an associated release of Â£6,000 of the deferred tax provision. . This information is provided by RNS The company news service from the London Stock Exchange

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