ADT.L Regulatory News (ADT)

6 Dec 2007 12:56

AdEPT Telecom plc06 December 2007 AdEPT Telecom plc ("AdEPT" or the "Company") Interim Results for the 6 months ended 30 September 2007 AdEPT, a leading independent provider of award-winning telecommunications services for landline calls, line rental and broadband, announces its results for the 6 months ended 30 September 2007. Highlights Financial • During this period of transition generated total revenues of £9.27 million (2006: £9.47 million) • Gross margins improved to 38.8% (2006: 38.3%) • Maintained EBITA at £1.3 million (2006: £1.3 million) • Industry leading EBITDA margin of 14.1% on sales (2006: 13.6%) • EBITDA: cash conversion 93% • Profit after tax (adjusted for amortisation) of £0.84 million (2006: £0.82 million) • EPS (adjusted for amortisation) of 4.0p (2006: 3.9p) Operational • Continued increase in the revenue from business customers now 91% of total revenue (2006: 86%) • Line rental, which is a minimum 12 month contract, now represents 29% of revenue (2006; 21%) • Acquisition of 5,000 business customers from Fizz Telecom, fully integrated within 6 weeks Since the half-year end • Announced today a three year agreement with The CarphoneWarehouse Group ("CPW") to migrate AdEPT customers onto the 21st Century Network of Opal Telecom ("Opal", the B2B division of CPW) generating the associated cost and technological benefits • Announced today the acquisition of Telecom Direct Limited ("Telecom Direct") for an estimated £6.4 million. Telecom Direct generated revenues of £13 million for the 12 months to March 2007. The acquisition will substantially increase Group revenues by over 60% and position AdEPT as one of the UK's largest fixed line resellers Commenting on these results, Chairman Roger Wilson said: "This is a creditable financial performance in what has been a period of transition for the business. We intentionally reduced the pace of our acquisition programme and havesuccessfully reduced churn and increased organic sales, which is reflected by our financial performance against tough comparators in the previous period. AdEPT is now once again in a strong position to accelerate the growth of the business. The three year agreement with CPW will facilitate the introduction of a range of new converged products and with the acquisition of Telecom Direct, the Company has significantly expanded the size of the business. We are currently trading in line with expectations and as a result we are confident about the outlook for the business." Enquiries:+------------------------+------------------------------+----------------------+|AdEPT Telecom |Roger Wilson |Tel: 07786111535 || |Chairman | || | | |+------------------------+------------------------------+----------------------+|Strand Partners |Simon Raggett |Tel: 020 7409 3494 || |Warren Pearce | || | | |+------------------------+------------------------------+----------------------+|Cardew Group |Tim Robertson |Tel: 020 7930 0777 || |Shan Shan Willenbrock | || |David Roach | |+------------------------+------------------------------+----------------------+ Chairman's Statement I am pleased to announce our interim results for the six month period to 30September 2007. The first half of the year has been a period of transitionduring which we reduced the pace of our acquisition programme to focus ongrowing our organic sales channels and reducing churn. As a consequence we havesuccessfully maintained revenues and EBITDA at similar levels to thecorresponding period last year which included significant growth throughacquisitions, and we expect to see further organic sales growth come through inthe second half of this financial year. We have today also announced a three year agreement with The CarphoneWarehouseGroup ("CPW") which enable us to provide AdEPT customers with a greater range ofservices using convergent technology and the acquisition of Telecom Direct, afixed line reseller for an estimated £6.4 million which is expected to increaseGroup revenues by over 60%. These are very significant transactions whichsubstantially increase the size and scope of the ongoing business. Financial review These are the first results we have published under International FinancialReporting Standards. A reconciliation of the impacts of the transition isincluded in note 8 to the accounts. Turnover for the first six months was £9.27million (2006: £9.47million). This inturn has generated EBITA of £1.3 million (2006: £1.3million) and reflects ourability to continue to generate industry leading EBITDA margins of 14.1%. The strength of the Company's consolidated balance sheet has improved comparedto the same period last year, with net assets of £10.7 million (2006: £10.4million). The Company continues to generate positive cash with 93% of EBITDAbeing converted into cash in the period under review. Net borrowing increased to£3.5m (2006; £2.7m) following the borrowing of £0.75m to pay for the FizzTelecom acquisition in June 2007. Earnings per share (adjusted for amortisation) was 4.0p in the six months to 30 September 2007 (2006: 3.9p). It is the Board's intention to pay dividends in the future, however, at this stage in the Company's development the Board intends to retain surplus funds to grow the business. As part of the process of complying with FRS 20, the Company has taken a chargeagainst profits of £18,000 in the first half year to cover the notional cost ofstock options and warrants awarded to executives and employees. Business review This has been a transition period for the business with the primary focus ongrowing our organic sales channels and reducing churn. We have successfullyachieved our targets in these areas and the business has a much stronger base asa result. Organic sales have doubled over the last six months as a result of increasingthe number of Business Partners selling our services and cross-selling to ourexisting customers using our own call centre. We have focused intently on improving retention levels across the customer basethrough increased investment in both people and systems. As a result gross churnis lower than this time last year. The longer term stability of the customer base has been helped by the increasingproportion of line rental customers being on a minimum 12 month contract, now upto 29% of total revenues (2006: 21%). We have also been successful in continuingto increase the proportion of revenue from business customers, now up to 91% oftotal revenues (2006: 86%). The Opal Agreement AdEPT and Opal have entered into a 3 year deal which will provide AdEPT's customers with calls, line rental and broadband services and facilitate the introduction of a range of new converged products. During the next 12 months, AdEPT intends to migrate a substantial proportion of its customers to the 21st Century Network which is based on Local Loop Unbundling technology that has only recently been put in place by CPW. AdEPT will become one of the first major telecom resellers to move to the 21stCentury Network. The agreement is expected to generate immediate cost savings, including the "bundling" of fixed line and broadband services together, in a way that was not possible using conventional technology. The ability to provide bundled packages has been shown to have multiple benefits in increasing customer satisfaction, increasing average revenue per customer, and reducing churn. The telecoms industry is united in its belief that convergence of voice and data traffic over IP-based Next Generation Networks represents the future. This agreement therefore ensures AdEPT is well positioned to provide its rapidly expanding customer base with new technologies as they develop such as ISDN30 replacements, video conferencing, IPTV and virtual office technology. Acquisitions The Company was established to be a consolidator of the highly fragmented UKfixed line reseller sector, which is estimated to contain almost 1,000 smallservice providers. Our strategy is to take advantage of the considerableeconomies of scale available through increasing revenues via acquisition, whilstmaintaining a relatively fixed cost base. Having now acquired 16 businessessince June 2003 the Company has extensive experience of integrating newbusinesses into its fully scaleable back office systems. During the period under review, the Company acquired some 5,000 small businesscustomers from Fizz Telecom in June 2007. These customers have been fullyintegrated into the Company's billing and back-office systems. As announced earlier today, the Company has also acquired Telecom Direct, a fixed line reseller which currently provides voice telephone services to 5,500 business customers. The acquisition will substantially increase the scale of the business. In the year to 31 March 2007 Telecom Direct generated revenues of £13 million and profits before tax of £0.2 million. The acquisition will therefore increase AdEPT's turnover by over 60% per annum, making the Company one of the largest fixed-line resellers in the UK. The acquisition of Telecom Direct also enhances our organic sales channels with direct sales and dealer channel teams. The consideration payable by AdEPT is subject to performance criteria. We are currently estimating a total payment of an estimated £6.4 million, to be satisfied by a cash payment of £5 million on completion, £0.4 million payable six months following completion, and the balance of £1 million payable after 12 months. As the final amount paid is subject to future operational and financial criteria the actual amount may be more or less than this. The total consideration will be funded by a mixture of cash and bank debt. Outlook As a result of the agreement with Opal and the acquisition of Telecom Direct theCompany has significantly expanded the size and potential scope of the businessgoing forward. The migration of customers to the 21st Century Network willgenerate significant opportunity to market a wide range of new products based onconvergent technology and the acquisition of Telecom Direct makes AdEPT one ofthe largest fixed line resellers in the UK. These transactions represent animportant step change for the business. Looking ahead, the Company is well placed to grow by continuing it's policy ofselective earnings enhancing acquisitions. We have in place a strong pipeline ofpotential acquisitions and our EBITDA profit margins continue to besignificantly ahead of the sector at 14.1%, reflecting the strength of theCompany's automated back office systems. We are currently trading in line withexpectations and as a result we are confident about the outlook for thebusiness. Finally, I would like to offer my sincere appreciation to our customers, ourstaff and our business partners for their commitment and support to AdEPT and Ilook forward to continuing to work together with them in the future. Roger Wilson6 December 2007 UNAUDITED CONSOLIDATED INCOME STATEMENTFor the six months ended 30 Sept 2007 Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 Note £'000 £'000 £'000 REVENUE 7 9,271 9,471 18,827 Cost of sales (5,676) (5,847) (11,536) GROSS PROFIT 3,595 3,624 7,291 Administrative expenses (2,291) (2,339) (4,801) EARNINGS BEFORE INTEREST TAXATION DEPRECIATION 1,304 1,285 2,490AND AMORTISATION Depreciation (46) (30) (63) Amortisation of intangible fixed assets (821) (716) (1,325) OPERATING PROFIT 437 539 1,102 Finance costs (217) (127) (321)Finance income - 6 8 PROFIT BEFORE INCOME TAX 220 418 789 Income tax expense (200) (317) (489) PROFIT FOR THE PERIOD 20 101 300 Attributable to:Equity holders of the parent 20 101 300 Earnings per share Basic earnings per share (pence) 4 0.1p 0.5p 1.4p Diluted earnings per share (pence) 4 0.1p 0.4p 1.3p Adjusted earnings per share, being profit forthe period add back amortisation Basic earnings per share (pence) 4 4.0p 3.9p 7.7p Diluted earnings per share (pence) 4 3.7p 3.5p 7.1p UNAUDITED CONSOLIDATED BALANCE SHEET 30-Sep 30-Sep 31-Mar 2007 2006 2007 Note £'000 £'000 £'000NON-CURRENT ASSETSOther intangible assets 15,450 14,216 14,654Property, plant and equipment 178 109 158Deferred income tax 18 34 18 15,646 14,359 14,830 CURRENT ASSETSTrade and other receivables 3,338 3,388 3,309Cash and cash equivalents 1,475 946 1,340 4,813 4,334 4,649 TOTAL ASSETS 20,459 18,693 19,479 CURRENT LIABILITIESTrade and other payables 4,153 4,093 3,941Borrowings - - -Income tax 645 598 665 4,798 4,691 4,606 NON-CURRENT LIABILITIESBorrowings 5,000 3,600 4,250 TOTAL LIABILITIES 9,798 8,291 8,856 NET ASSETS 10,661 10,402 10,623 EQUITY ATTRIBUTABLE TO EQUITY HOLDERSOF THE PARENTShare capital 2,107 2,107 2,107Share premium 7,965 7,967 7,965Retained earnings 589 328 551TOTAL EQUITY 10,661 10,402 10,623 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of parent Share Share Retained Total capital premium earnings equity £'000 £'000 £'000 £'000 Balance at 1 April 2006 2,107 7,976 188 10,271 Profit for six months ended 30 September 101 1012006 Total recognised income and expense for 101 101the six months to 30 September 2006Share option issued during the period 39 39Additional expense in connection with (9) (9)previous share issue 0 (9) 140 131 Balance at 30 September 2006 2,107 7,967 328 10,402 Profit for six months ended 31 March 2007 199 199 Total recognised income and expense for 0 0 199 199the six months to 31 March 2007Share option charge 24 24Additional expense in connection with (2) (2)previous share issue 0 (2) 223 221 Balance at 31 March 2007 2,107 7,965 551 10,623 Profit for six months ended 30 September 20 202007 Total recognised income and expense for 0 0 20 20the six months to 30 September 2007Share option charge 18 18 0 0 38 38 Balance at 30 September 2007 2,107 7,965 589 10,661 UNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 September 2007 Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 Note £'000 £'000 £'000Operating cash flows before movements in 3a 1,322 1,324 2,554working capital Increase in trade and other receivables 214 (91) (75)Increase in trade payables (321) 770 292 Cash generated from operations 1,215 2,003 2,771 Income taxes paid (309) - - Net cash from operating activities 906 2,003 2,771 Cash flows from investing activitiesInterest received 1 6 8Interest paid (140) (127) (252)Purchase of intangible assets (1,321) (5,055) (5,873)Purchase of property, plant and equipment (61) (52) (134)Net cash used in investing activities (1,521) (5,228) (6,251) Cash flows from financing activitiesExpenses paid in connection with share issue - (9) (10)Increase of bank loan 750 3,600 4,250Net cash (used in)/from financing activities 750 3,591 4,240 Net increase in cash and cash equivalents 135 366 760 Cash and cash equivalents at beginning of 1,340 580 580period/year Cash and cash equivalents at end of period/ 3b 1,475 946 1,340year ACCOUNTING POLICIES 1 Nature of operations and general information AdEPT Telecom plc is a leading independent provider of telecommunicationsservices with award winning customer service. The Company is focused ondelivering a complete telecommunications service for small and medium sizedbusiness customers with a targeted product range including landline calls, linerental, broadband, mobile and other services. AdEPT Telecom plc is the Group's ultimate parent company and is incorporated anddomiciled in the UK. The Company's shares are listed on the alternativeinvestment market (AIM) of the London Stock Exchange. The financial information set out in this interim report which has not beenaudited, does not constitute statutory accounts as defined in Section 240 of theCompanies Act 1985. The Group's statutory financial statements for the yearended 31 March 2007, prepared under UK GAAP, have been filed with the Registrarof Companies. The auditor's report on those financial statements was unqualifiedand did not contain a statement under Section 237(2) or (3) of the Companies Act1985. 2 Basis of preparation and summary of significant accounting policies Basis of preparation The interim consolidated financial statements have been prepared in accordancewith applicable International Financial Reporting Standards (IFRS) as adopted bythe EU as issued by the International Accounting Standards Board and inparticular International Accounting Standard (IAS) 34, Interim FinancialReporting and IFRS 1, First Time Adoption of International Financial ReportingStandards because they are part of the period covered by the Group's first IFRSfinancial statements for the year ended 31 March 2008. The interim consolidated financial statements have been prepared under thehistorical cost convention. The measurement bases and principal accountingpolicies of the Group are set out below. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS and the changes to accounting policies are explained innote 7, together with the reconciliation of opening balances. The date oftransition to IFRS was 1 April 2006 (transition date). The accounting policies that have been applied in the opening balance sheet havealso been applied throughout all periods presented in these financialstatements. Basis of consolidation The Group financial statements consolidate those of the Company and all of itssubsidiary undertakings drawn up to 30 September 2007. Subsidiaries are entitiesover which the Group has the power to control the financial and operatingpolicies so as to obtain benefits from its activities. The Group obtains andexercises control through voting rights. Unrealised gains on transactions between the Company and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiaries have been adjusted where necessary toensure consistency with the accounting policies adopted by the Group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their fair values, which are also used as thebases for subsequent measurement in accordance with the Group's accountingpolicies. Goodwill is stated after separating out identifiable intangibleassets. Goodwill represents the excess of acquisition cost over the fair valueof the Group's share of the identifiable net assets (including intangibles) ofthe acquired subsidiary at the date of acquisition. Revenue Revenue is measured by reference to the fair value of consideration received orreceivable by the Group for goods supplied and services provided, excluding VATand trade discounts. Revenue is recognised upon the performance of services ortransfer of the risks and rewards of ownership to the customer. Revenue comprises of both invoiced and un-invoiced amounts for performance ofnetwork services supplied by the Group during the year. The network services,which include call revenues (billing for call minutes) and fixed charges such asline rental or broadband, are generally billed monthly in arrears. The revenueis recognised in the month to which the calls relate. Investments Shares in the Subsidiaries are valued at cost less provision for permanentimpairment. Intangible assets acquired as part of a business combination and amortisation In accordance with IFRS 3 Business Combinations, an intangible asset acquired ina business combination is deemed to have a cost to the Group of its fair valueat the acquisition date. The fair value of the intangible asset reflects marketexpectations about the probability that the future economic benefits embodied inthe asset will flow to the Group. Intangible fixed assets continue to be subject to an impairment review on thefirst anniversary after acquisition, when appropriate lives are selected. In the balance sheet as at 31 March 2007, the goodwill has been re-classified asthe intangible asset "customer base" to more accurately reflect its description.The intangible asset "customer base" is amortised to the income statement overits estimated economic life. The average estimated useful economic life of allthe acquisitions has been estimated at 11 years. Other intangible assets Also included within intangible fixed assets are the development costs of theGroup's billing and customer management system plus an individual license. Theseother intangible assets are stated at cost, less amortisation and any provisionfor impairment. Amortisation is provided at rates calculated to write off thecost, less estimated residual value of each intangible asset, over its expecteduseful life on the following bases:+-----------------------------------------+----------------------------------+|Customer management system |3 years straight line |+-----------------------------------------+----------------------------------+|Other licences |Contract license period |+-----------------------------------------+----------------------------------+ Property plant and equipment Property plant and equipment are stated at cost, less depreciation and anyprovision for impairment. Depreciation is provided on all property plant andequipment at rates calculated to write off the cost, less estimated residualvalue of each asset, over its expected useful life on the following bases: Short term leasehold improvements 5 years straight lineFixtures and fittings 3 years straight lineOffice equipment 3 years straight lineComputer software 3 years straight line Operating leases Rentals under operating leases, where substantially all of the benefits andrisks of ownership remain with the lessor, are charged to the income statementon a straight line basis, even if payments are not made on such a basis. Income tax Income tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred income tax is generally provided on the difference betweenthe carrying amounts of assets and liabilities and their tax bases. However,deferred income tax is not provided on the initial recognition of goodwill, noron the initial recognition of an asset or liability unless the relatedtransaction is a business combination or affects tax or accounting profit. The hive up of intangible assets between Group companies is not considered abusiness combination under IFRS 3 (Business combinations) and therefore deferredincome tax is not provided on the intangible customer base asset thus acquiredby AdEPT Telecom plc. Deferred income tax on temporary differences associated with shares insubsidiaries is not provided if reversal of these temporary differences can becontrolled by the Group and it is probable that reversal will not occur in theforeseeable future. In addition, tax losses available to be carried forward aswell as other income tax credits to the Group are assessed for recognition asdeferred income tax assets. Deferred income tax liabilities are provided in full, with no discounting.Deferred income tax assets are recognised to the extent that it is probable thatthe underlying deductible temporary differences will be able to be offsetagainst future taxable income. Current and deferred income tax assets andliabilities are calculated at tax rates that are expected to apply to theirrespective period of realisation, provided they are enacted or substantivelyenacted at the balance sheet date. Changes in deferred income tax assets or liabilities are recognised as acomponent of income tax expense in the income statement, except where theyrelate to items that are charged or credited directly to equity in which casethe related deferred income tax is also charged or credited directly to equity. Pensions The Group contributes to a defined contribution pension scheme. The pensioncosts charged against operating profit are the contributions payable to thescheme in respect of the accounting period. Capital instruments The costs incurred directly in connection with the issue of debt instruments arecharged to the income statement on a straight line basis over the life of thedebt instrument. Share based payments The cost of equity-settled transactions with employees is measured by referenceto the fair value of the award at the date at which they are granted and isrecognised as an expense over the vesting period, which ends on the date atwhich the relevant employees become fully entitled to the award. Fair value isappraised at the grant date and excludes the impact on non-market vestingconditions such as profitability and sales growth targets, using an appropriatepricing model for which the assumptions are approved by the Directors. Invaluing equity-settled transactions, only vesting conditions linked to themarket price of the shares of the Company are considered. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non market conditions, numberof equity instruments that will ultimately vest or in the case of an instrumentsubject to a market condition, be treated as vesting described above. Themovement in the cumulative expense since the previous balance sheet date isrecognised in the income statement, with a corresponding entry in equity. 3 Notes to the consolidated Cashflow statement a. Operating cash flows beforemovements in working capital Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000 Profit before income tax 220 418 789Depreciation and amortisation 867 746 1,388(Profit)/loss on sale of property, - - 1plant and equipmentShare based payments 18 39 63Net finance costs 217 121 313Operating cash flows before movements 1,322 1,324 2,554in working capital b. Cash and cash equivalents Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000 Cash at bank and in hand 1,475 946 1,340Bank overdrafts - - - Cash and cash equivalents 1,475 946 1,340 4 Earnings per share Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Earnings for the purposes of basic anddiluted earnings per shareProfit for the period attributable to 20 101 300equity holders of the parentAmortisation 821 716 1,325Adjusted profit attributable to equity 841 817 1,625holders of the parent, adding backamortisation Number of sharesWeighted average number of shares used for 21,067,443 21,067,443 21,067,443earnings per shareDilutive effect of share plans 1,957,070 1,969,866 1,957,070Diluted weighted average number of shares 23,024,513 23,037,309 23,024,513used to calculate fully diluted earningsper share Earnings per shareBasic earnings per share (pence) 0.1p 0.5p 1.4pFully diluted earnings per share (pence) 0.1p 0.4p 1.3p Adjusted earnings per share, after addingback amortisationAdjusted basic earnings per share (pence) 4.0p 3.9p 7.7pAdjusted fully diluted earnings per share 3.7p 3.5p 7.1p(pence) Earnings per share is calculated by dividing the profit attributable to equityholders of the parent by the weighted average number of ordinary shares inissue. Adjusted earnings per share is calculated by dividing the profit attributable toequity holders of the parent (after adding back amortisation) by the weightedaverage number of ordinary shares in issue. Fully diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares by existing share options, assuming dilution throughconversion of all existing options. 5 Acquisitions In July 2007 AdEPT acquired a customer base from Fizz Telecom limited comprising5,000 business customers. The fair value tables in respect of these acquisitionscan be summarised as follows: Six months ended 31 March 30-Sept-07 30-Sept-06 2007 £'000 £'000 £'000Satisfied by:Cash 950 1,500 3,691Deferred consideration 595 1,576 307Acquisition costs 38 219 256 Intangible assets 1,583 3,295 4,254 6 Events after the balance sheet date On 5 December 2007 AdEPT Telecom plc announced the acquisition of Telecom Directacquired through the acquisition of 100% of shares in Oxtalk Limited which isthe holding company for Telecom Direct Limited. 7 Revenue Following acquisitions the customers are fully integrated into a single billingand customer service platform. Whilst turnover can be separately identified byacquisition, costs cannot. Calls are routed across various network operators andthe overhead base serves all customers. The analysis of turnover by existing andacquired businesses is as follows: Revenue Six months ended Year ended 30-Sep 30-Sep 31-Mar 2007 2006 2007 £'000 £'000 £'000Existing businesses at start 8,155 7,923 14,911of yearBusinesses acquired in the 1,116 1,548 3,916yearTotal sales 9,271 9,471 18,827 8 Explanation of the transition to International Financial Reporting Standards (IFRS) As stated in the Basis of Preparation, these are the Group's first consolidatedinterim financial statements prepared in accordance with IFRS. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set outbelow. The transition to IFRS resulted in computer software being reclassified fromtangible fixed assets to intangible fixed assets and the related depreciationexpense reclassified to amortisation in the income statement. There have been noother changes to the financial statements as a result of the transition to IFRS. As at 30 September 2006 As at 31 March 2007 Effect of Effect of Under Transition Under Under UK Transition Under UK GAAP to IFRS IFRS GAAP to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 REVENUE 9,471 - 9,471 18,827 - 18,827 Cost of sales (5,847) - (5,847) (11,536) - (11,536) GROSS PROFIT 3,624 - 3,624 7,291 - 7,291 Administration expenses (2,339) - (2,339) (4,801) - (4,801) EARNINGS BEFORE INTEREST 1,285 - 1,285 2,490 - 2,490TAXATION DEPRECIATIONAND AMORTISATIONDepreciation 81 (51) 30 176 (113) 63Amortisation of 665 51 716 1,212 113 1,325intangible fixed assets OPERATING PROFIT 539 - 539 1,102 - 1,102 Finance costs (127) - (127) (321) - (321)Finance income 6 - 6 8 - 8 PROFIT BEFORE INCOME TAX 418 - 418 789 - 789 Income tax expense (317) - (317) (489) - (489) PROFIT FOR THE PERIOD 101 - 101 300 - 300 Attributable to:Equity holders of the 101 - 101 300 - 300parent Basic earnings per share 0.5p - 0.5p 1.4p - 1.4p(pence)Diluted earnings per 0.4p - 0.4p 1.3p - 1.3pshare (pence) 8 Explanation of the transition to International Financial Reporting Standards(continued) At 1 April 2006 At 30 Sept 2006 At 31 March 2007 Under Effect of Opening Effect of Opening Effect of Opening transition IFRS Under transition IFRS Under IFRS UK to IFRS Balance UK to IFRS Balance UK Transition Balance GAAP Sheet GAAP Sheet GAAP to IFRS Sheet £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 NON-CURRENTASSETSOther 11,174 136 11,310 14,004 212 14,216 14,422 232 14,654intangibleassetsProperty, 224 (136) 88 321 (212) 109 390 (232) 158plant andequipmentDeferred 29 - 29 34 - 34 18 - 18income taxassets 11,427 - 11,427 14,359 - 14,359 14,830 - 14,830 CURRENTASSETSTrade and 3,307 - 3,307 3,388 - 3,388 3,309 - 3,309otherreceivablesCash and cash 580 - 580 946 - 946 1,340 - 1,340equivalents 3,887 - 3,887 4,334 - 4,334 4,649 - 4,649 TOTAL ASSETS 15,314 - 15,314 18,693 - 18,693 19,479 - 19,479 CURRENTLIABILITIESTrade and 4,756 - 4,756 4,093 - 4,093 3,941 - 3,941otherpayablesBorrowings - - - - - - - - -Income tax 287 - 287 598 - 598 665 - 665payable 5,043 - 5,043 4,691 - 4,691 4,606 - 4,606 NON-CURRENTLIABILITIESBorrowings - - - 3,600 - 3,600 4,250 - 4,250 TOTAL 5,043 - 5,043 8,291 - 8,291 8,856 - 8,856LIABILITIES NET ASSETS 10,271 - 10,271 10,402 - 10,402 10,623 - 10,623 CAPITAL ANDRESERVESCalled-up 2,107 - 2,107 2,107 - 2,107 2,107 - 2,107share capitalShare premium 7,976 - 7,976 7,967 - 7,967 7,965 - 7,965accountRetained 188 - 188 328 - 328 551 - 551earnings TOTAL EQUITY 10,271 - 10,271 10,402 - 10,402 10,623 - 10,623 8 Explanation of the transition to International Financial Reporting Standards(continued) As at 30 September 2006 As at 31 March 2007 Effect of Effect of Under UK Transition Under Under Transition Under UK GAAP to IFRS IFRS GAAP to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 Net cash from operating 2,003 - 2,003 2,771 - 2,771activities Cash flows frominvesting activitiesInterest received 6 - 6 8 - 8Interest paid (127) - (127) (252) - (252)Purchase of intangible (4,928) (127) (5,055) (5,664) (209) (5,873)assetsPurchase of property, (179) 127 (52) (343) 209 (134)plant and equipmentProceeds from disposal - - - - - -of property, plant andequipmentNet cash used in (5,228) - (5,228) (6,251) - (6,251)investing activities Cash flows fromfinancing activitiesExpenses paid in (9) - (9) (10) - (10)connection with shareissueIncrease of bank loan 3,600 - 3,600 4,250 - 4,250(Repayment)/increase inborrowingsNet cash (used in)/from 3,591 - 3,591 4,240 - 4,240financing activities Net increase in cash and 366 - 366 760 - 760cash equivalents Cash and cash 580 - 580 580 - 580equivalents at beginningof period/year Cash and cash 946 - 946 1,340 - 1,340equivalents at end ofperiod/year There are no material adjustments to the total equity in any of the periods forthese financial statements. END This information is provided by RNS The company news service from the London Stock Exchange