Preliminary Results

Dowlis Corporate Solutions plc 29 March 2007 Date: 29 March 2007 On behalf of: Dowlis Corporate Solutions plc ('Dowlis' or 'the Company') Embargoed until: 0700hrs Dowlis Corporate Solutions plc Preliminary Results 2006 Dowlis Corporate Solutions plc, the marketing, information and logistics solutions business, today announces its preliminary results for the year ended 31 December 2006. Operational Highlights: â€¢ Strong performance and successful integration of all businesses acquired during 2006: - Envoy Catalogue, a promotional product catalogue - Ross Promotional Products Ltd, a promotional gift company - Customer Focus (Software) Ltd (since renamed Industry Software Ltd), a provider of marketing driven business software for SMEs - Distinctive Ideas Ltd, a promotional gift company â€¢ Successful launch of PromoServe in Europe January 2007 â€¢ Appointment of Barrett Bedrossian as the Group's Finance Director and Craig Slater as a non-executive director â€¢ Comprehensive review of business undertaken and decision taken to structure Group under two divisions - Promotional Marketing and Information & Exhibitions Financial Highlights: â€¢ Pre tax profits before goodwill amortisation and operating exceptional items for 12 months to 31 December 2006 of Â£1.3m (**2005: Â£1.3m) â€¢ Turnover for 12 months to 31 December 2006 of Â£18.9m (2005: Â£19.8m restated) â€¢ Turnover for the continuing Information & Exhibition businesses up 20% to Â£2.29 million (2005: Â£1.91 million) / Pre tax profits up 153% to Â£0.51 million (2005: Â£0.21 million) â€¢ Operational cost savings on like for like basis expected to be in a region of Â£0.5m p.a. following review of profitability of promotional products business â€¢ Balance Sheet almost ungeared, after funding acquisitions Commenting on the Group's first full financial year as an AIM listed company, Colin Cooke, Chairman, said: '2006 was a year of further progress for Dowlis Corporate Solutions. In particular, the Group has demonstrated its ability to make a number of strategic acquisitions and to integrate those businesses successfully within the Group. 'There are a number of significant opportunities for the Group to make further strategically important developments and I am confident that Dowlis is now well placed to drive organic growth across the Group's Promotional Marketing and Information & Exhibitions businesses whilst capitalising on synergistic acquisitions.' ** All references to 2005 are to the proforma results for the 12 months ended 31st December 2005. Enquiries: Dowlis Corporate Solutions plc www.dowlis.com Martin Varley (Chief Executive)/Barrett 0870 224 6677 Bedrossian (Finance Director) Redleaf Communications 020 7822 0200 Emma Kane/Sanna Lehtinen Daniel Stewart & Company plc 020 7776 6550 Lindsay Mair / Tom Jenkins Zeus Capital 0161 831 1512 Alex Clarkson â€¢ Publication quality photographs are available via Redleaf. Chairman's Statement 2006 was a year of further progress for Dowlis Corporate Solutions. In particular, the Group has demonstrated its ability to make a number of strategic acquisitions and to integrate those businesses successfully within the Group. Structuring the Group for future growth has been a key focus for the Board this year. During the period under review, the Board took the decision to refocus the Group's activities to target higher margin activities and to reduce costs significantly where required. These decisive, short-term actions have created firm foundations for future growth and have reduced the cost base. The refocusing of the Group is reflected in the financials for the year and your Board is confident that the Company is now well positioned to execute the excellent opportunities that are available. Turnover and profits Turnover in the 12 months to 31 December 2006 was Â£18.9m (**2005: Â£19.8m restated) and operating profit before exceptional items and goodwill amortisation was Â£1.3m (2005: Â£1.3m). Basic earnings per share, before goodwill amortisation and exceptional items for the 12 months to 31 December 2006, were 2.97p (2005: 3.24p) and, after goodwill amortisation and one-off costs, 0.90p (2005: 1.13p). The Board does not propose a dividend in respect of 2006, but plans to review its dividend policy at the interims later this year. Corporate activity It is estimated by PROMOTA that the annual UK market for promotional merchandise is Â£1 billion which comprises approximately 3,000 distributors supported by 600 UK based suppliers of a wide range of products and services. Dowlis is pursuing both an organic and acquisition led strategy within this large, fragmented market to increase the client base and drive synergies. Against this background, the Group made the following acquisitions in 2006: â€¢ the business and goodwill of Envoy Catalogue, a promotional product catalogue â€¢ the entire issued share capital of Ross Promotional Products Ltd ('Ross'), a Glasgow-based promotional gift company â€¢ 80% of Customer Focus (Software) Limited ('Customer Focus or 'CF''), a provider of marketing driven business software, designed and developed in the UK for SMEs and the business and certain of the assets of Customer Focus (Sheffield) Limited â€¢ the entire issued share capital of Distinctive Ideas Limited All four businesses acquired in the year have continued to perform at or above expectations set at the time of acquisition. Cash resources and investment At the year end the Group had an overdraft of Â£0.18m (2005: Â£1.5m net cash). ** All references to 2005 in the Chairman's Statement, Chief Executive and Finance Director's Review refer to the proforma results for the 12 months ended 31st December 2005. Strategy It is the Directors' view that restructuring the Group into two distinct channels of business will deliver not only a robust platform for growth but also a lower cost base. Consequently, two distinct divisions have been created - 'Promotional Marketing' and 'Information & Exhibitions'. Each division will be operated autonomously and the new structure will see the establishment of two business units, managed by their own operating boards, which will remove the potential for channel conflict now that both sides of the business are planning strong growth phases. The Board believes that by structuring the Group in this way, Dowlis will be better positioned to identify and deliver opportunities to improve shareholder value. Promotional Marketing The operating board leading this business will be chaired by Craig Slater. Our strategy is to continue the process of managing the business into a growth phase and to identify suitable acquisitions that fit our 'profile'. We aim to buy a controlling interest in suitable companies and to structure the deal in such a way that the existing management are heavily incentivised to increase sustainable profits over a defined period prior to exercising a 'put' option on us to acquire the remaining shares. This strategy helps keep management focussed on delivering growing profits in future years. We expect to make more of these acquisitions in the coming year. Information & Exhibitions Martin Varley, as Group CEO, will chair the operating board leading the Information & Exhibitions business which includes the Trade Only(tm) publishing and exhibition operations and the PromoServe software supplier, a leading CRM and order processing system for the industry in the UK. This team will continue the tremendous growth achieved in the last few years, and will seek to identify suitable organic and acquisition based growth opportunities. Board and employees In June 2006, two key Board changes were announced - Barrett Bedrossian as the Group's new Finance Director and Craig Slater as a non-executive director and chair of Dowlis' Audit Committee. Martin Varley, CEO of Dowlis, worked with both Craig and Barrett, when they were COO and Commercial Manager respectively at 4imprint Group PLC. I would like to take this opportunity to thank our shareholders for their confidence and continued support for the Company and, as importantly, to thank the Dowlis team for their continued and significant levels of energy and enthusiasm. Outlook There are a number of significant opportunities for the Group to take further strategic steps and I am confident that we are now well placed to drive organic growth across the Group's Promotional Marketing and Information & Exhibitions divisions whilst capitalising on synergistic acquisitions. Colin Cooke Chairman 29 March 2007 Chief Executive's Review The Group has made significant progress towards developing two autonomous profitable divisions with a clear focus on providing services to a wide network utilising our systems and processes. A change in mix to become less reliant upon traditional corporate business towards the higher growth activities such as information and software is expected to deliver the planned results in future years. The following review sets out the performance of the Group's two divisions during 2006. 1. Promotional Marketing Promotional Products Promotional products are used by thousands of companies as a key part of their wider marketing campaigns. Dowlis is believed to be the UK's second largest distributor of these products and sources them from around the world. They are personalised according to the client's brand and art design guidelines and sold through a combination of direct marketing, corporate programme and traditional sales channels. This segment includes the traditional Dowlis Corporate Solutions business, Bentley Collection Ltd and the newly acquired Ross Promotional Products Ltd and Distinctive Ideas Ltd. Dowlis Communications Dowlis Communications is the Group's design agency based in Manchester, which provides a range of services covering all aspects of design and marketing, including print and brochure production, media planning and buying. 2. Information and Exhibitions Through the implementation of its technological solutions, Dowlis aims to enhance significantly its customers' experience and, in turn, enable the Group to automate more of its own processes. Trade Only (tm) - publishing Trade Only(tm) is the UK's largest company providing marketing services and product data for the Promotional Product Industry, with over 4,500 registered distributor users and all of the leading suppliers providing product content. Suppliers use the many tools that Trade Only(tm) provides to help efficiently communicate with distributors through printed catalogues, exhibitions and roadshows, and electronic media. Distributors use the printed catalogues, virtual catalogues, web sites and e-marketing tools to promote their products and services to clients, and identify suitable products using the www.tradeonly.co.uk research system that contains detailed data on 15,000 products, and make virtual samples on line in minutes. Both suppliers and distributors benefit from using PromoServe, which is the leading European software specifically developed for the Promotional Product Industry with functionality that helps manage the complete business process from CRM to accounting. Information Services Information Services - a bespoke, industry specific website that contains detailed information on over 1,000 products including full details of the supplier and also detailed product information. Revenue is generated from suppliers wishing to be featured on the website. The Directors look forward to further growth of the Trade Only(tm) Information Services business throughout 2007. AdProducts.com The AdProducts.com offering, which supplies independent distributors via an annual catalogue personalised with company details using the in house print facility, exhibition and website, receives orders from approximately 25 per cent of the UK's distributors. Envoy Catalogue The Envoy Catalogue features promotional merchandise for corporate customers and is supported by over 60 suppliers with approximately 50,000 catalogues distributed through 45 regionally separated distributors. Dowlis acquired the catalogue group in January 2006 and has introduced Dowlis' leading technology for the efficient management of product databases and order processing software as well as the Virtual Sample technology for which the Group has exclusive rights in the UK market. eCompanyStore Dowlis has a partnership agreement with eCompanyStore ('eCS'), a US-based online merchandising company. Under the terms of the two-year agreement, eCS is acting as the exclusive distributor for Dowlis merchandise in the US and Dowlis is also offering an exclusive reciprocal distribution arrangement in the UK for eCS merchandise. The arrangement has been successful in improving response times for both Dowlis and eCS customers respectively, reducing shipping times and costs associated with freight and documentation when goods are transported across the Atlantic. Logistics Solutions Developed from the award winning Customer FOCUS Software and Trade Only(tm) web services, PromoServe is a business management software package. It has been developed to manage all of the key processes in the promotional products industry. It is the UK's leading promotional products software package with over 200 current user sites. Designed to improve efficiency within a company, the software allows distributors to raise Picture Quotes with Quality Products quickly and easily, and at the click of a button convert them into Sales Orders. Purchase Orders can be raised from Sales Orders, then emailed out. Its powerful search functionality allows users to find the item they are looking for quickly, with additional costs of delivery times listed and, displaying all relevant information in seconds. The Directors are encouraged by increasing numbers of PromoServe subscriptions. Trade Only(tm) - Product Supply Industry Software (formerly Customer Focus Software Limited) is the leading provider of software by number of users to the UK promotional product industry. There are three key offerings aimed at the related markets of Print Management, Office Supplies and Promotional Products, with the software 'sold' on a monthly fee basis. Users benefit uniquely from a data feed that is provided by Trade Only(tm) providing detailed information on products, pricing and supplier details. The Group's offering is underpinned by its investment in software and information technology. Its bespoke sales order processing system and product database was carefully designed to complement the strategy of the Group and it is expected to provide a competitive advantage over others in the industry. Conclusion The acquisitions made since the Group floated on AIM have been fully integrated and are performing in line with or ahead of our expectations. The fact that the majority of vendors of these businesses are seeking to take large parts of their consideration in Dowlis shares is a testament to the fact that they believe they will be more successful as part of the Group. We continue to focus our efforts on driving further growth in the higher margin businesses and on the acquisition of complementary businesses which can be integrated rapidly to generate increased shareholder value. The current financial year has started strongly and we look forward to 2007 with confidence. Martin Varley Chief Executive 29 March 2007 Finance Director's Review The Group has been trading on AIM since November 2005 and presents the results for its first full year as a quoted company. The comparatives shown within the profit and loss account include both the results since incorporation on 30 July 2004 as well as the 12 months proforma results to 31st December 2005 which allow a more meaningful comparison. As explained to shareholders in the Interim Report, the promotional products business underwent a full review of its profitability and as a result was restructured in the second half of 2006. The resulting annual impact on cost savings on a like for like basis is expected to be in the region of Â£0.5m. During the year, the Trade Only(tm) business underwent a strategic review to capitalise on the new segmental structure leading to the creation of the Adproducts name alongside the existing Trade Only(tm) business. Both these businesses performed well during the year. The Group was strengthened further in 2006 with the acquisition of Envoy Catalogue, Ross Promotional Products Limited, Industry Software Limited (formerly Customer Focus Software Limited) and Distinctive Ideas Limited with all four acquisitions subsequently performing above expectation. Trading results Turnover for the 12 months to 31 December 2006 was Â£18.9m (2005: Â£19.8m restated). Operating profit before exceptional items and goodwill amortisation was Â£1.3m (2005: Â£1.3m). The Group is managed through two distinct and largely autonomous segments: Promotional Marketing and Information & Exhibitions. The former includes the traditional promotional products business of Dowlis as well as the newly acquired businesses of Ross Promotional Products and Distinctive Ideas. The latter supplies some products to Marketing Solutions, hence the internal sales shown below, but predominantly sells to the large number of smaller distributors in the sector and includes Trade Only(tm), Adproducts and the newly acquired businesses of Envoy and Industry Software. An analysis of turnover and profit by business segment can be seen in note 1 to the accounts. Operating exceptional items Operating exceptional items in the year amounted to Â£0.71m. This figure comprised Â£0.68m for restructuring costs within the Promotional Marketing segment (of which Â£0.52m related to staff costs and Â£0.16m to asset write offs) and Â£0.03m within the Information and Exhibitions segment. Although these costs have been included in administration expenses in the profit and loss account they have been disclosed separately due to their size and one off nature. Acquisitions On 16 January 2006, the Group completed the acquisition of the Envoy Catalogue business for a maximum consideration of Â£0.21m (including legal fees). The initial consideration paid included Â£0.1m in cash and Â£0.07m through the issue of 147,368 ordinary shares. Due to the achievement of certain performance criteria a further Â£0.03m will be payable in cash by the end of April 2007. The post acquisition results for this business are reported under the Information & Exhibitions segment of the Group. On 27 February 2006, the Group completed the acquisition of Ross Promotional Products Limited, the Glasgow based promotional gift company, for a total consideration of Â£0.85m (including legal fees). The consideration was paid Â£0.73m in cash and Â£0.1m through the issue of 210,526 ordinary shares. The post acquisition results of this business are reported under the Promotional Marketing segment of the Group. On 3 July 2006, the Group completed the acquisition of 80% of the issued share capital of Industry Software Limited (formerly known as Customer Focus Software Limited). This business provides marketing driven business software designed and developed in the UK for SME's. The consideration paid was Â£0.17m through the issue of 344,086 shares. The remaining 20% of Industry Software shares remains with the former management team, who still have a significant involvement in the running of the company, and is subject to a put option which may be exercised by the sellers no earlier than the 5th anniversary of the date of completion and no later than the 10th anniversary of completion, subject to a maximum deferred consideration payment of Â£10m. The post acquisition results of this business are reported under the Information & Exhibitions segment of the Group. On 3 October 2006, the Group completed the acquisition of Distinctive Ideas Limited, a Watford based distributor of promotional products and gifts predominantly within the media sector, for a total consideration of Â£0.36m. The post acquisition results of this business are reported under the Promotional Marketing segment of the Group. All four businesses acquired in the year have continued to perform at or above expectations at the time of acquisition. Taxation The tax charge for the 12 months is close to the prevailing tax rate of 30%. On 10 January 2007, the Group received a corporation tax refund of Â£0.25m relating to payments made in previous periods. This credit arose as a result of the crystallization of options exercised by Martin Varley on flotation. This amount has been included as a corporation tax debtor in the balance sheet for the year ended 31 December 2006. Earnings per share Normalised earnings per share before goodwill amortisation and non-operating exceptional items for the 12 months to 31 December 2006 are 2.97p (2005: 3.24p). This is based on a weighted average number of shares of 37,980,283 (2005: 26,884,005). The increase in the weighted average number of shares is representative of the issue of new shares on flotation. With no share options outstanding at the end of the year there is no dilutive effect on the earnings per share figure. Prior year turnover restatement An amount of Â£0.6m has been deducted from prior year turnover and cost of sales. This relates to additional internal sales for which no adjustment was made in last years annual report and accounts. There was no related profit impact. Pensions The Group operates a defined contribution scheme into which most employees are invited. The ongoing contribution to these schemes for the year ending 31st December 2006 was Â£0.13m (2005: Â£0.16m). The Group does not operate and has no obligation to any defined benefit final salary schemes. Cash flow and investment The Group began 2006 with a cash surplus of Â£1.53m and ended with a small deficit of Â£0.18m. This was after all four acquisitions were financed through our increased overdraft facility of Â£1.5m. Â£1.37m was used as consideration in cash in addition to which a further Â£0.44m cash was paid out on restructuring costs (net of asset write offs). With treasury policy managed centrally the Group takes advantage of any cash pooling arrangement available and actively holds any surplus cash on deposit in order to maximise interest income. The net cash inflow from operating activities was Â£0.01m. The total capital expenditure was Â£0.71m and relates primarily to plant additions and software development costs. Interest cost Until 7 November 2005, the Group was a net borrower. In 2006 the Group enjoyed surplus cash balances except where the overdraft facility was used to finance an acquisition. Net interest expense for the year was Â£0.02m (2005: Â£0.13m) with interest earned in 2006 being Â£0.03m. Liability for Puttable financial instruments Included in the Balance Sheet is an amount of Â£0.15m being the present value of deferred consideration for Industry Software Limited. This is based on the value of a conditional put option to purchase the shares held by the minority shareholders in Industry Software Limited. This put option, as described further in note 7 of this preliminary results announcement, is available between 2011 and 2016. Other financial instruments and foreign exchange risk Until the flotation, the main financial instrument the Group held was its bank loan and loan debt, both now repaid. The Group's other financial instruments comprise cash and liquid resources and other various items such as trade debtors and trade creditors which arise directly from its operations. The Group has no overseas assets or liabilities apart from trade related purchases and any currency rate movements have had little or no material impact. Carrying values The Directors have carried out a review of the carrying values of the intangible and tangible assets and have concluded that as each of those businesses acquired are performing at or above the level when acquired no change to the carrying values is necessary. Accounting standards As an AIM listed company, the Group is required to adopt International Financial Reporting Standards (IFRS) in 2007. Our interim results for this year will be the first set of figures reported under IFRS with 2006 comparatives for the same period also restated under these standards. We are actively involved in ensuring that this transition process will be as smooth as possible and do not believe that the impact of conversion will be significant. Corporate governance The Group supports the principles of corporate governance and has sought to comply where practicable, using the guidance for AIM companies established by the Quoted Companies Alliance. Going concern statement After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the financial statements. Barrett Bedrossian Finance Director 29 March 2007 Consolidated Profit & Loss account for the year ending 31 December 2006 12m 12m 17m Dec 06 Dec 05 Dec 05 Notes Â£'000's Â£'000's Â£'000's unaudited Restated Restated proforma audited Turnover - Continuing 2 16,125 19,794 25,621 - Acquisitions 2,733 - - 18,858 19,794 25,621 Cost of Sales (11,712) (12,969) (17,105) Gross Profit 7,146 6,825 8,516 Administrative expenses (6,855) (5,664) (7,162) Operating Profit (before exceptional items and goodwill amortisation) 1,291 1,345 1,582 Operating exceptional items 3 (715) - - Goodwill amortisation (285) (184) (228) Operating Profit/ (loss) - Continuing (86) 1,161 1,354 - Acquisitions 377 - - 291 1,161 1,354 Non-operating exceptional items - (446) (446) Profit on ordinary activities before finance charges 291 715 908 Interest receivable 26 17 22 Interest payable and similar charges (16) (130) (170) Profit on ordinary activities before taxation 301 602 760 Taxation 4 41 (298) (380) Profit for the financial year/period 342 304 380 Earnings per share Basic and diluted 5 0.90 1.13 1.43 The comparatives for the 12 months ended 31 December 2005 were prepared for information purposes only. Consolidated Balance Sheet as at 31 December 2006 Dec 06 Dec 05 Â£'000's Â£'000's Fixed Assets Intangible Assets 2,906 1,669 Tangible Assets 926 815 3,832 2,484 Current Assets Stocks 1,684 1,245 Debtors 5,581 4,918 Cash at bank and in hand - 1,537 7,265 7,700 Creditors: amounts falling due within one year Bank overdraft 179 - Trade Creditors 2,545 3,305 Corporation tax 346 207 Other taxes and social security 419 252 Other creditors 126 131 Accruals and deferred income 1,050 701 4,665 4,596 Net Current Assets 2,600 3,104 Total assets less current liabilites 6,432 5,588 Creditors: amounts falling due after more than one year 182 15 Provision for liabilities and charges-deferred tax 83 77 Net Assets 6,167 5,496 Capital and reserves Called up share capital 153 150 Share premium account 5,293 4,966 Profit and loss account 741 380 Equity shareholders' funds 6,167 5,496 Consolidated Cash Flow Statement for the year ending 31 December 2006 12m 17m Dec 06 Dec 05 Â£000 Â£000 Net cash inflow from operating activities 1 930 Returns on investment and servicing of finance 10 (148) Taxation (131) (96) Capital expenditure Purchase of fixed assets (716) (660) Sale of tangible fixed assets 15 14 Net cash outflow for capital expenditure (701) (646) Acquisitions and disposals (1,206) (1,003) Cash outflow before financing (2,027) (963) Financing Proceeds from issue of share capital 331 4,500 Expenses of share issue taken to share premium - (165) Repayment of loan notes - (1,200) Repayment of bank loans - (110) Repayment of loans acquired - (490) Repayment of capital elements of hire purchase (20) (35) contracts Net cash inflow from financing 311 2,500 (Decrease)/Increase in cash in period (1,716) 1,537 Reconciliation of operating profit to operating cash flows for the year ending 31 December 2006 12m 17m Dec 06 Dec 05 Â£000 Â£000 Operating profit 291 1,354 Depreciation 265 152 Amortisation 285 228 Loss on sale of fixed assets 148 39 Increase in stocks (395) (188) (Decrease)/Increase in debtors 129 (480) (Decrease)/Increase in creditors and provisions (722) 153 Non operating exceptional items - (328) Net cash inflow from operating activities 1 930 Included within operating profit is Â£0.44m being cash paid in the year in relation to operating exceptional items as detailed in note 3. Notes to the accounts for the year ending 31 December 2006 1. Basis of Preparation The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2006. The Company's comparative accounting period was a seventeen month period ending on 31 December 2005. Proforma information for the twelve month period ended 31 December 2005 has been provided for the information of shareholders. This statement has been agreed with the auditors and was approved by the Board on 28 March 2007. The statutory accounts for the Company for the year ended 31 December 2006 have not yet been approved, audited or filed. The accounting policies adopted by the Group in preparing these accounts are consistent with those applied to its first accounting period ending 31st December 2005. 2. Turnover and segmental information The turnover, profit before tax and operating assets relate to the Group's principal activity of the sale of promotional products, business gifts and related marketing services. Turnover and operating profit before goodwill amortisation and exceptional items, analysed by segment is as follows: 12m 12m 17m Turnover Dec 2006 Dec 2005 Dec 2005 Â£m Â£m Â£m Promotional Marketing 16.7 19.1 24.8 Information and Exhibitions 3.0 1.9 2.2 Less internal sales (0.8) (1.2) (1.4) Total 18.9 19.8 25.6 12m 12m 17m Operating profit before one-off items and Dec 2006 Dec 2005 Dec 2005 goodwill amortisation Â£m Â£m Â£m Promotional Marketing 0.7 1.1 1.4 Information and Exhibitions 0.6 0.2 0.2 Total 1.3 1.3 1.6 Turnover, analysed by destination is predominantly all to United Kingdom customers. 3. Operating Exceptional items These costs arose from the restructuring exercise which was completed in the second half of 2006 and resulted in the reorganisation of the Group into separately identifiable divisions. The total cost of Â£0.71m was made up of Â£0.55m in staff and redundancy costs of which Â£0.52m relates to the Promotional Marketing segment and Â£0.03m to the Information & Exhibitions segment (as at 31st December 2006 Â£0.45m of this cost had been paid). The remaining Â£0.16m relates to fixed asset write offs within the Promotional Marketing segment. 4. a) Corporation Tax 12m 17m Dec 06 Dec 05 Â£000 Â£000 Analysis of charge UK corporation tax on profits for the period 202 303 Corporation tax refund in relation to previous (249) - years (note 4 (c)) Deferred tax Origination and reversal of timing differences 6 77 Tax (credit) on profit on ordinary activities (41) 380 b) Factors affecting current tax charge The tax charge on the profit on ordinary activities for the year is higher than the standard rate of corporation tax in the UK of 30%. The differences are reconciled below: 12m 17m Dec-06 Dec-05 Â£000 Â£000 Profit on ordinary activities before taxation 301 760 UK Corporation tax at 30% 90 228 Effect of goodwill amortisation 68 55 Expenses not deductible for tax purposes 5 92 Depreciation in excess of capital allowances 22 (36) Other timing differences (5) 13 Adjustment in respect to previous years 22 - Utilisation of tax losses - (35) Adjustment in respect of small companies rate - (14) Total current tax (note 4(a)) 202 303 c) Corporation tax refund An amount of Â£0.25m corporation tax was received on 10 January 2007. This credit arose as a result of the crystallization of options exercised by Martin Varley on flotation. This amount has been included as a corporation tax debtor in the balance sheet for the year ended 31 December 2006. 5. Earnings per share 12m 12m 17m Dec 06 Dec 05 Dec 05 Â£000 Â£000 Â£000 Basic and diluted earnings 341 304 380 Adjustment for amortisation of goodwill 285 184 228 Adjusted profit for earnings before amortisation of 626 488 608 goodwill Adjustment for operating/ non-operating exceptional 715 446 446 items Tax on exceptional items (214) (62) (62) Adjusted profit for earnings before amortisation of 1,127 872 992 goodwill and exceptional items Earnings per share Basic 0.90p 1.13p 1.43p Before goodwill amortisation 1.65p 1.82p 2.29p Before goodwill amortisation and exceptional items 2.97p 3.24p 3.74p Diluted 0.90p 1.13p 1.43p Earnings per share is calculated by dividing the profit after tax by 37,980,283 for the 12 months to 31 December 2006 (12 months ended 31 December 2005 - 26,884,005), being the weighted average number of shares in issue during the period. The earnings per share before amortisation of goodwill uses the profit after tax, adjusted to exclude the effect of the amortisation of goodwill divided by the weighted average number of shares. The profit before amortisation of goodwill and exceptional items uses the profit after tax, adjusted to exclude the effect of amortisation of goodwill and exceptional items net of tax divided by the weighted average number of shares. The diluted earnings per share uses the profit after tax divided by the weighted average number of shares plus any shares representing the dilutive effect of the weighted average number of shares under option of which none existed at the end of the year. 6. Software Development costs All costs identified as software development are amortised over five years where the Group believes it will derive future economic benefits with reasonable certainty out of specifically defined projects. Under IFRS this policy will be reviewed on an annual basis for appropriateness. 7. 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. On maturity of the commitment, if the minority interests are not purchased, the entries previously recognised will be reversed. If the minority interests are purchased the amount recognised in financial liabilities is reversed, offset by the cash outflow relating to the purchase of the minority interests. END This information is provided by RNS The company news service from the London Stock Exchange

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