Altitude Group Regulatory News (ALT)

28 Mar 2008 07:01

Dowlis Corporate Solutions plc28 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 £19.7m (2006: £18.9m) - Underlying operating profit of £0.6m (2006: £1.3m) - Loss before tax reduced to £0.1m (2006: loss £0.2m) - Loss per share maintained at 0.3p (2006: loss per share of 0.3p) - Strong cash generation of £0.9m (2006: outflow £1.7m) leaves the Group debt free with net cash of £0.7m (2006: net debt £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 therestructuring changes and investment from 2006 with its new lower cost base. Weare aware of wider economic factors, but anticipate making further profitableprogress in the year. Information and Exhibitions has developed a strong market position and a uniqueoffering, attributes that are expected to help the division achieve significantprogress in 2008. A successful Trade Only national exhibition in January hashelped lead to an encouraging start to the year.Trading in the early part of 2008 has been in line with our expectations." Enquiries: DowlisCraig Slater, Chief Executive Officer 07770 583768Tim Sykes, Group Finance Director 07734 708385 Daniel Stewart & Company plcLindsay Mair 020 7776 6550Tom Jenkins 020 7776 6550 Chairman's StatementPerformance overviewGroup sales increased by 4.3% to £19.7m (2006 : £18.9m). This growth was behindoriginal expectations, following the acquisition of several profitablebusinesses during 2006, but was in line with the statement made during November2007. Gross margin slipped by one point to 36.9% (2006 : 37.9%). After charges for non-recurring items, software development costs, amortisationof customer related intangibles and share based payment charges totalling £0.7m(2006 : £1.5m) the group reported a small loss before taxation of £0.1m (2006 :loss £0.2m). Operating profit before non-recurring items, software developmentcosts, amortisation of customer related intangibles and share based paymentcharges was £0.6m (2006 : £1.3m). The Group balance sheet remains strong, was debt free at 31 December 2007 andthe net cash balance of £0.7m has improved further in the first part of 2008. StrategyThe 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 MarketingPromotional Marketing made an operating profit before non-recurring items,amortisation of customer related intangibles and share based payment charges of£1.2m in 2007 (2006 : £1.8m). The trade business, adproducts, along with RossPromotional and Dowlis Manchester all achieved double digit profit growth in theyear. These strong results were offset by weaker results in Dowlis Byfleet andAviation Gifts which were reorganised during the year; Byfleet to create arenewed and energetic team and Aviation Gifts to reduce overhead costs andincorporate into the Dowlis Manchester business. Information and ExhibitionsInformation and Exhibitions made an operating profit before software developmentcosts, non-recurring items, amortisation of customer related intangibles andshare based payment charges of £0.2m in 2007 (2006 : £0.2m), with profits incatalogues and exhibitions reinvested in software and the magazine. Oursoftware, Promoserve, has rapidly gained market share to become the marketleading choice for distributors and suppliers alike. The Trade Only nationalexhibition produced a profit in January 2007, its first year, and performedexceptionally well in its second year, almost doubling visitor numbers. Ourcatalogue sales continued to grow in 2007 and have good momentum coming intothis year. Corporate EventsWhilst further market consolidation is on our agenda for the future throughfurther acquisitions, our focus is now primarily on the development andprofitability of the existing Group. We made a number of Board changes in the year. Craig Slater joined the Group asChief Executive Officer in October and Barry Fielder was appointed Non-ExecutiveDirector in December. Barrett Bedrossian resigned on 31 December 2008 and wasreplaced 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 thisinterim period. To create clearer brand identities, we intend to re-name Dowlis CorporateSolutions plc. The Group will become Altitude Group plc subject to appropriateshareholder approvals to be sought at the forthcoming Annual General Meeting.Our trading companies will retain their existing names and associated branding. PeopleThe pace of change in the Group creates many opportunities and also places greatdemands on our people. I would like to take this opportunity to thank all of ourstaff for their hard work and achievements in 2007. We introduced in May 2007 anew Long Term Incentive Plan that clearly aligns the remuneration of the Group'ssenior management with wealth creation for our shareholders. OutlookThe Promotional Marketing division is expected to benefit in 2008 from therestructuring changes and investment from 2006 with its new lower cost base. Weare aware of wider economic factors, but anticipate making further profitableprogress in the year. Information and Exhibitions has developed a strong market position and a uniqueoffering, attributes that are expected to help the division achieve significantprogress in 2008. A successful Trade Only national exhibition in January hashelped lead to an encouraging start to the year. Trading in the early part of 2008 has been in line with our expectations. Colin CookeChairman28 March 2008 Operating and financial reviewOperating review Promotional Marketing 2007 2006 £m £mSales 18.4 18.7Operating profit before non-recurring items, amortisation ofcustomer related intangibles and share based payment charges 1.2 1.8Operating profit after non-recurring items, amortisation ofcustomer related intangibles and share based payment charges 0.7 1.0Net assets 5.4 4.7 Promotional Marketing includes our trade supplier adproducts, our marketingdesign consultancy Touchpaper and our end user businesses Dowlis CorporateSolutions, Ross and Distinctive Ideas. The end user businesses form the largestpart of the Group, with £16.4m revenues in 2007 (£16.7m in 2006). adproducts grew sales and profits in 2007, expanding its product offering andits customer base as planned. This business now has over 350 active distributorcustomers out of a total market of approximately 3,500. The business is managedseparately from other activities to avoid competitive conflicts. Touchpaperoffers its creative services both within the Group and externally and also grewsuccessfully during the year. The end user businesses gathered momentum during the year and had strong orderprospects going into 2008. Earlier in 2007, Dowlis Corporate Solutions inByfleet was reorganised to reduce cost and improve customer service and this hashad a beneficial impact in both respects, although the overall results for 2007were less than originally planned. Dowlis Corporate Solutions in Manchesterperformed well, with significant increases in sales and profit and theestablishment of an early stage online presence. Ross Promotional in Glasgowagain performed well, producing steady growth over the previous year. In each of these businesses, improved efficiency and additional sales have apowerful effect on profitability. The infrastructure to enable further sales isin place and the tools to improve efficiency are being put in place. With the exception of the trading business of Dowlis Corporate Solutions, cashperformance was good. Whilst its business model is inherently cash generative,Dowlis suffered from extended debtor days and this has been improved since theyear end. Dowlis had extended its supplier terms through this period and hasused some of the cash generated after the year end to relieve this position. Information and Exhibitions 2007 2006 £m £mSales 2.3 0.9Operating profit before non-recurring items, amortisation ofcustomer related intangibles and share based payment charges 0.2 0.2Operating profit / (loss) after non-recurring items, amortisationof 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 promotionalproducts industry, suppliers and distributors alike. These tools areinter-related but can be used individually and each one can improve efficiencyand 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, exceededexpectations and customer feedback on the overall exhibition experience wasexceptional. The exhibition has rapidly become the leading event in the UKindustry and, unusually, has been profitable from its first year. Spectrum and Envoy catalogues, two of the top four leading offerings in theindustry, grew again. With 176 and 168 pages, 72 and 82 suppliers and print runsof 130,000 and 50,000 respectively these catalogues offer suppliers anddistributors an effective showpiece for their products and creativity. Under the Trade Only banner, Promoserve is an ERP software package and TradeOnly Search is a linked on-line product search offering. Promoserve hascontinued to attract new users, leading to a user base of approximately 350 atthe year-end. The rental model used by this company leads to a good recurringrevenue base, which grew to £55,000 per month by the end of the year (2006 :£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 themost widely read publications in the industry.Each element of this division grew sales in 2007. Promoserve reached a cashbreak-even position late in 2007, but did make a loss in the year as did themagazine. Although they each have a clear cash cycle, leading to capital use atcertain times, these businesses are not significant users of our capital. Financial review Results for the year and key performance indicatorsGroup sales increased by 4.3% to £19.7m (2006 : £18.9m) representing slower thanoriginally planned growth, given the full year effect of businesses acquiredduring 2006. Gross margin slipped by one point to 36.9% (2006 : 37.9%). Withtotal operating costs flat at £7.3m (2006 : £7.3m) the Group posted a lossbefore taxation of £0.1m (2006 : loss £0.2m). Operating costs included £0.7m(2006 : £1.5m) of software development costs, non-recurring items, amortisationof intangible assets and share based payment charges. AcquisitionsDuring the year, the Group acquired the trade and assets of Poyle Promotions, asmall internet based distributor, for £0.1m. This business has since beensubsumed within the operations of the Group and its performance is no longerseparately identifiable. As such, the Directors have impaired the goodwill to£Nil. TaxationThe Group recorded a small tax credit in its consolidated income statement dueprincipally to the reversal of deferred tax provisions in line with theamortisation charge for the associated customer related intangibles on theGroup's various business combinations. Earnings per shareBasic and diluted loss per share remained at 0.3p (2006: loss per share 0.3p). Cash flowThe Group has reported a net cash inflow from operations of £1.1m which is £0.5mbetter than the reported operating profit of the group before softwaredevelopment costs, non-recurring items, amortisation of customer relatedintangibles and share-based payment charges of £0.6m (2006 : cash inflow fromoperations of negative £0.2m which was £1.5m behind the operating profit of thegroup before software development costs, non-recurring items, amortisation ofcustomer related intangibles and share-based payment charges of £1.3m). Theprinciple reasons are the impact of non-cash charges in the consolidated incomestatement 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 £0.2m cash inflow from a tax refund andwith only minor capital investment during the year, recovered a net £0.8m ofcash (2006 : net £1.7m expended) to leave the Group debt free, with theexception of a small element of hire purchase commitments forward. This positionhas remained into the current year. TreasuryThe Group continues to manage the cash position in a manner designed to maximiseinterest income, whilst at the same time minimising any risk to these funds.Where there are surplus cash funds, these are deposited with commercial banksthat meet credit criteria approved by the Board. At 31 December 2007, the Grouphad £0.7m on short term deposits (2006: £Nil). International financial reporting standards (IFRSs) and new accounting issuesThe Group has adopted the principles of accounting under IFRSs. The principlearea that is affected is in relation to its acquisitions. Under IFRS3 'Businesscombinations' the Group is required to capitalise the separately identifiableintangible assets of the acquired businesses along with any associated goodwilland then to amortise the separately identifiable intangible assets over arelevant period and to review goodwill and the separately identifiableintangible assets annually for impairment. The Group capitalised £0.3m of intangible customer related assets, representingthe value of customer relationships acquired as part of the Ross PromotionalProducts Limited, Distinctive Ideas Limited and Envoy Catalogue acquisitions,and £0.8m of goodwill. The Group has recognised an associated deferred taxliability of £0.1m. The Group has identified indicators that goodwill on both the acquisition ofAviation Gifts and Industry Software Limited was impaired during 2006, and hasrestated with an impairment charge of £0.5m during 2006. These businesses arenon-cash generative. No value was attributed to the separately identifiableintangible assets of these businesses. Changes between these numbers and Interim Statement and prior year restatementsThere has been a change in accounting treatment of two key matters between thesefinancial 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 £0.5m in the year ended 31 December 2006 - The Group capitalised £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 £0.8m of goodwill. The Group has recognised an associated deferred tax liability of £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 £0.2m for the year ended 31 December 2006. Craig Slater Tim SykesChief Executive Officer Group Finance Director28 March 2008 Consolidated Income Statement for the year ended 31 December 2007 2007 2006 Note £000 £000Revenue- 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 softwaredevelopmentexpenditure, amortisation of intangiblecustomer related assets, non recurringadministrative expenses and share based 618 1,332payment chargesSoftware development expenditure (159) (229)Amortisation of intangible customerrelated assets (84) (80)Non-recurring administrative expenses (429) (1,210)Share based payment charges (37) - ------------- ------------ Operating loss (91) (187) Finance income 2 26Finance expenses (55) (16) ------------- ------------Loss before taxation (144) (177) Taxation 31 54 ------------- ------------Loss attributable to the equityshareholders of the Company (113) (123) ------------- ------------ Loss per ordinary share attributable tothe equity shareholders of the Company : - Basic and diluted 3 (0.3p) (0.3p) ------------- ------------ Consolidated Balance Sheet as at 31 December 2007 2007 2006 £000 £000Non-current assetsProperty, plant & equipment 942 926Customer related intangible assets 119 203Goodwill 2,296 2,296 ------------- ------------ 3,357 3,425 ------------- ------------Current assetsInventories 1,800 1,684Trade and other receivables 5,239 5,215Current taxes 290 366Cash and cash equivalents 652 - ------------- ------------ 7,981 7,265 ------------- ------------Total assets 11,338 10,690 ------------- ------------Current liabilitiesBank overdrafts - (179)Trade and other payables (5,018) (4,140)Current taxes (431) (346) ------------- ------------ (5,449) (4,665) ------------- ------------Non-current liabilitiesTrade 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 theCompanyCalled up share capital 153 153Share premium account 5,293 5,293Retained earnings 181 257 ------------- ------------Total equity 5,627 5,703 ------------- ------------ Statement of Changes in Equity Share capital Share premium Retained earnings £000 £000 £000 At 1 January 2006 150 4,966 380Shares issued in theperiod 3 327 -Result for the period - - (123) ------------- ------------- -------------At 31 December 2006 153 5,293 257Result for the period - - (113)Share based paymentcharges - - 37 ------------- ------------- -------------At 31 December 2007 153 5,293 181 ------------- ------------- ------------- Consolidated Cash Flow Statement for the year ended 31 December 2007 2007 2006 £000 £000Operating activitiesLoss for the period (113) (123)Impairment of goodwill 104 495Amortisation of intangible assets 84 80Depreciation 241 242Loss on sale of property, plant andequipment - 148Net finance expense / (income) 53 (10)Income tax charge / (credit) (31) (54)Share based payment charges 37 - ------------- ------------Operating cash inflow before changes inworking capital 375 778Movement in inventories (116) (395)Movement in trade and other (24) 129receivablesMovement in trade and other payables 833 (740) ------------- ------------Operating cash inflow from operations 1,068 (228)Interest received 2 26Interest paid (55) (16)Income tax received / (paid) 229 (131) ------------- ------------Net cash flow from operating 1,244 (349)activities ------------- ------------Investing activitiesPurchase of plant and equipment (257) (472)Acquisition of subsidiaries (134) (1,206) ------------- ------------Net cash flow from investing activities (391) (1,678) ------------- ------------Financing activitiesProceeds from issue of shares - 330Repayment of hire purchase contracts (22) (19) ------------- ------------Net cash flow from financing (22) 311activities ------------- ------------Net increase / (decrease) in cash andcash equivalents 831 (1,716)Cash and cash equivalents at thebeginning of the year (179) 1,537 ------------- ------------Cash and cash equivalents at the endof 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 thebasis of the financial information presented by the directors in thispreliminary announcement and will be delivered to the registrar of companiesfollowing the Annual General Meeting. The comparative information in respect ofthe year ended 31 December 2006 has been derived from the audited statutoryaccounts for the year ended on that date, as restated for the first timeadoption of International Financial Reporting Standards ("IFRS") as referred tobelow, upon which an unqualified audit opinion was expressed and which did notcontain a statement under section 237 (2) or (3) of the Companies Act 1985. Theaudited financial statements will be available by contacting the CompanySecretary at the Company's Registered Office. 2. Basis of preparation The financial information has been prepared and approved by the directors inaccordance with IFRS as adopted by the European Union. The first time adoptionof IFRS has impacted on the year's results. The principal changes relate to theacquisition of subsidiaries (treatment of goodwill and intangible assets). The rules for first time adoption of IFRS are set out in IFRS1 'First timeadoption of international financial reporting standards'. In accordance withIFRS1, the Company has determined its IFRS accounting policies and has appliedthese retrospectively to determine its opening balance sheet under IFRS. Theaccounting policies adopted are set out at Note 5. The Group has taken the business combination exemption, which allows that IFRS3not 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 transitionare consistent with the estimates made at the same time under UK GAAP.Reconciliations and explanations of the affect of the transition from UK GAAP toIFRS 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 restatementin respect of two matters. The prior year restatement of £683,000 charge relatesto development costs of £188,000 which had been capitalised during the yearended 31 December 2006 in error and goodwill of £495,000 that had not beenimpaired at 31 December 2006 in error. The error in respect of goodwill includes£345,000 for the impairment of goodwill on the acquisition of Industry SoftwareLimited (acquired during 2006) and £150,000 for the impairment of goodwill onthe acquisition of the trade and assets of Aviation Gifts (acquired during2005). The financial impact of these matters along with the financial impact ofthe translation to IFRS is set out at Note 4. The following Standards and Interpretations have been issued, but are not yeteffective 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 -3IAS Consolidated and Separate Financial 1 July 2009 -27 StatementsIFRS Amendment to IFRS 2 Share Based Payment : 1 January 2009 -2 Vesting Conditions and CancellationsIAS Presentation of Financial Statements 1 January 2009 -1IAS Revision to IAS 23 Borrowing costs 1 January 2009 -23IAS 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 LiquidationIFRS Operating Segments 1 January 2009 21 November8 2007IFRIC Service Concession Arrangements 1 January 2008 -12IFRIC Customer Loyalty Programmes 1 July 2008 -13IFRIC IAS 19 - The Limit on a Defined Benefit 1 January 2008 -14 Asset, Minimum Funding Requirements and their InteractionIFRIC IFRS 2 Group and Treasury Share 1 March 2007 2 June 200711 Transactions IAS 1 Presentation of Financial Statements (Revised 2007) will result in changesto the presentation of the Group's financial statements as the format currentlyadopted for the Statement of Changes in Equity will no longer be permitted.Instead, the Group will present a Statement of Comprehensive Income combiningthe existing Income Statement with other income and expenses currently presentedas part of the Statement of Changes in Equity. In addition, the Group willpresent a separate Statement of Changes in Equity showing owner changes inequity. The Group does not consider that the other Standards and Interpretationsreferred to above will have a material impact on the financial statements of theGroup. 3. Basic and diluted loss per ordinary shareThe calculation of earnings per ordinary share is based on the profit or lossfor the period and the weighted average number of equity voting shares in issue. 2007 2006 Earnings (£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 £000 £000 £000 £000 £000 £000 £000 £000RevenueContinuing 16,125 - - - 16,125 - - 16,125Acquisitions 2,733 - - - 2,733 - - 2,733 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 18,858 - - - 18,858 - - 18,858Cost of sales (11,712) - - - (11,712) - - (11,712) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Gross profit 7,146 - - - 7,146 - - 7,146 Administrativecosts (6,855) (188) (345) (150) (7,538) 285 (80) (7,333) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Operatingprofit 291 (188) (345) (150) (392) 285 (80) (187) Finance income 26 - - - 26 - - 26Financeexpenses (16) - - - (16) - - (16) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Profit beforetaxation 301 (188) (345) (150) 113 285 (80) (177) Taxation 41 - - - 41 - 13 54 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Loss for theyear 342 (188) (345) (150) (341) 285 (67) (123) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- a. A review of the nature of development costs previously capitalised identified £256,000 (£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining £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 £188,000 and to decrease the value of intangible assets and the Group's net assets by £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 £345,000 and to decrease the value of intangible assets and the Group's net assets by £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 £150,000 and to decrease the value of intangible assets and the Group's net assets by £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 £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 £283,000 of customer related intangible assets and an associated provision for deferred tax of £70,000. The customer related intangible assets attracted an amortisation charge of £80,000 for the year ended 31 December 2006 and an associated release of £13,000 of the deferred tax provision. Reconciliation of equity at 1 January 2006 UK GAAP Effect of IFRS transition to IFRS £000 £000 £000Non-current assetsProperty, plant & equipment 815 - 815Intangible assets 1,669 - 1,669 ------------- ------------- ------------- 2,484 - 2,484 ------------- ------------- -------------Current assetsInventories 1,245 - 1,245Trade and other receivables 4,918 - 4,918Cash and cash equivalents 1,537 - 1,537 ------------- ------------- ------------- 7,700 - 7,700 ------------- ------------- -------------Total assets 10,184 - 10,184 ------------- ------------- -------------Current liabilitiesTrade and other payables (4,389) - (4,389)Current taxes (207) - (207) ------------- ------------- ------------- (4,596) - (4,596) ------------- ------------- -------------Non-current liabilitiesTrade 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 equityholders of the CompanyCalled up share capital 150 - 150Share premium 4,966 - 4,966Retained 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 £000 £000 £000 £000 £000 £000 £000 £000Non-current assetsProperty, plant &equipment 926 - - - 926 - - 926Development costs 256 (256) - - - - - -Customer relatedintangibleassets - - - - - - 203 203Goodwill 2,651 68 (345) (150) 2,224 285 (213) 2,296 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 3,833 (188) (345) (150) 3,150 285 (10) 3,425 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Current assetsInventories 1,684 - - - 1,684 - - 1,684Trade and otherreceivables 5,215 - - - 5,215 - - 5,215Current taxes 366 - - - 366 - - 366 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 7,265 - - - 7,265 - - 7,265 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Total assets 11,098 (188) (345) (150) 10,415 285 (10) 10,690 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------CurrentliabilitiesBank (179) - - - (179) - - (179)overdraftsTrade andother (4,140) - - - (4,140) - - (4,140)payablesCurrent taxes (346) - - - (346) - - (346) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (4,665) - - - (4,665) - - (4,665) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Non-currentliabilitiesTrade and other payables (35) - - - (35) - - (35)Deferredconsideration (147) - - - (147) - - (147)Deferredtaxation (83) - - - (83) - (57) (140) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (265) - - - (265) - (57) (322) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Totalliabilities (4,930) - - - (4,930) - (57) (4,987) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Net assets 6,168 (188) (345) (150) 5,485 285 (67) 5,703 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Equityattributableto equityholders ofthe CompanyCalled upshare capital 153 - - - 153 - - 153Share premiumaccount 5,293 - - - 5,293 - - 5,293Retained 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 £256,000 (£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining £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 £68,000 as a result of reducing the fair value of the assets acquired and to reduce the retained profits of the year by £188,000 and to decrease the value of intangible assets and the Group's net assets by £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 £345,000 and to decrease the value of intangible assets and the Group's net assets by £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 £150,000 and to decrease the value of intangible assets and the Group's net assets by £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 £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 £283,000 of customer related intangible assets and an associated provision for deferred tax of £70,000 giving a net adjustment to goodwill of £213,000. The customer related intangible assets attracted an amortisation charge of £80,000 for the year ended 31 December 2006 and an associated release of £13,000 of the deferred tax provision. 5. Significant accounting policies Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable orconvertible are taken into account. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date that controlcommences until the date that control ceases. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup'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 thesubsidiary acquired, the difference is recognised directly in the incomestatement. All intra-group balances and transactions, including unrealised profits arisingfrom intra-group transactions, are eliminated fully on consolidation. Financial liabilities The Group has granted certain conditional commitments (put options) toshareholders of its fully consolidated subsidiary, Industry Software Limited, topurchase their minority interests. These are in the form of conditional putoptions based on performance parameters over the next 5 to 10 years. The presentvalue of the estimated purchase consideration has been recognised in the balancesheet as a long term liability contingent on the profitability of IndustrySoftware Limited over the period of the put option. This has been offset againstminority interests with the balance through goodwill. Subsequent changes in thevalue of the commitment will be recognised by an adjustment to goodwill, withthe exception of the unwinding of the discount recognised in other financialcharges and income. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated using the rate of exchangeruling at the balance sheet date and the gains and losses on translation arerecognised in the income statement. Property, plant and equipment Property, plant and equipment are held at cost less accumulated depreciation andimpairment charges. Depreciation is provided at the following annual rates in order to write off thecost less estimated residual value, which is based on up to date prices, ofproperty, plant and equipment over their estimated useful lives as follows: Leasehold improvements - Over remaining life of leasePlant and machinery - 5 to 10 yearsFixtures and fittings - 3 to 10 yearsMotor vehicles - 4 years Intangible assets - Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the net identifiable assets of the acquired subsidiary at the date ofacquisition. Goodwill on acquisition of subsidiaries is included in intangibleassets. Goodwill is tested annually for impairment and carried at cost lessaccumulated impairment losses. Acquired intangible assets - business combinations Intangible assets that are acquired as a result of a business combination andthat can be separately measured at fair value on a reliable basis are separatelyrecognised on acquisition at their fair value. Amortisation is charged on astraight-line basis to the income statement over their expected useful economiclives as follows : Customer relationships - 3 yearsUnfulfilled sales orders - 1 month Assets that are subject to amortisation are tested for impairment when events ora change in circumstances indicate that the carrying amount may not berecoverable. Impairment The carrying amount of the Group's non-financial assets, are reviewed at eachbalance 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 assetsthat are not yet available for use, the recoverable amount is estimated at eachbalance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or itscash generating unit exceeds its recoverable amount. Impairment losses arerecognised in the consolidated income statement. An impairment loss is recognised for the amount by which the carrying amountexceeds its recoverable amount. The recoverable amount is the higher of theasset's fair value less costs to sell and the value in use. For the purposes ofassessing impairments, assets are grouped at the lowest levels for which thereare identifiable cash flows. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to cash-generatingunits (group of units) and then, to reduce the carrying amount of the otherassets of the unit (group of units) on a pro-rata basis. Inventories Inventories are valued at the lower of cost and net realisable value aftermaking due allowance for obsolete and slow moving inventory. Cost is determinedusing the first in, first out ("FIFO") method. Net realisable value is based onestimated selling price less any further costs expected to be incurred tocompletion and disposal. Trade and other receivables Trade receivables are recognised and carried at original invoice amount lessallowance for any uncollectible amounts. Where receivables are considered to beirrecoverable 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', financialinstruments issued by the Group are treated as equity only to the extent thatthey meet the following two conditions: - they include no contractual obligations upon the group to deliver cash orother financial assets or to exchange financial assets or financial liabilitieswith another party under conditions that are potentially unfavourable to thegroup; and - where the instrument will or may be settled in the company's own equityinstruments, it is either a non-derivative that includes no obligation todeliver a variable number of the company's own equity instruments or is aderivative that will be settled by the company's exchanging a fixed amount ofcash 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 areclassified as a financial liability. Where the instrument so classified takesthe legal form of the company's own shares, the amounts presented in thesefinancial statements for called up share capital and share premium accountexclude amounts in relation to those shares. Finance payments associated with financial liabilities are dealt with as part offinance expenses. Finance payments associated with financial instruments thatare classified in equity are treated as distributions and are recorded directlyin 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 withfixed and determinable payments that are not quoted in an active market. Theyarise principally through the provision of services to customers (tradereceivables). They are carried at fair value on initial recognition lessprovision 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-termmonetary liabilities, which are recognised at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bankoverdrafts that are repayable on demand and form an integral part of the group'scash management are included as a component of cash and cash equivalents for thepurpose of the consolidated cash flow statement. Revenue recognition Revenue represents the amounts receivable, excluding sales related taxes, forgoods and services supplied during the period to external customers shown net ofVAT, returns, rebates and discounts. Revenue is recognised when the buyer takes title, provided that it is probablethat the delivery will be made; the item is on hand, identified and ready for delivery to the buyer at the timethe sale is recognised; the buyer specifically acknowledges the deferred delivery instructions; and theusual payment terms apply. Income in respect of software product licences and associated maintenance andsupport 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 theGroup 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 inwhich it is incurred. An intangible asset arising from development (or from the development phase ofan internal project) is recognised if, and only if, the Group can demonstrateall of the following: - the technical feasibility of completing the intangible asset so that it willbe 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 theoutput of the intangible asset or the intangible asset itself or, if it is to beused internally, the usefulness of the intangible asset; - the availability of adequate technical, financial and other resources tocomplete the development and to use or sell the intangible asset; and - its ability to measure reliably the expenditure attributable to the intangibleasset during its development. Internally generated intangible assets are amortised over their useful economiclife. Where no internally generated intangible asset can be recognised,development expenditure is recognised as an expense in the period in which it isincurred. During the year, the Directors recognised that development expenditure that hadpreviously been capitalised as an intangible asset at 31 December 2006 did notactually fulfil the strict criteria referred to above. The consolidated incomestatement for the year ended 31 December 2006, the consolidated balance sheet at31 December 2006 and the consolidated cash flow statement for the year ended 31December 2006 and the associated notes to the financial statements have beenrestated to recognise this error. Leases Leases where the lessor retains substantially all of the risks and rewards ofownership are classified as operating leases. Rentals payable under operatinglease rentals are charged to the income statement on a straight line basis overthe term of the lease. Lease where the Company retains substantially all of the risks and rewards ofownership are classified as finance leases or hire purchase contracts. Assetsheld under finance leases or hire purchase contracts are capitalised anddepreciated over their useful economic lives. The capital element of the futureobligations under finance leases and hire purchase contracts are included asliabilities in the balance sheet. The interest elements of the rentalobligations are charged to the income statement over the periods of the financeleases and hire purchase contracts and represent a constant proportion of thebalance of capital outstanding. Non-recurring items Non-recurring items are material items in the Income Statement which derive fromevents or transactions which fall within the ordinary activities of the Groupand which individually or, if of a similar type, in aggregate the Group hashighlighted as needing to be disclosed by virtue of their size or incidence ifthe financial statements are to give a true and fair view. Post retirement benefits The Group operates a defined contribution pension scheme. The assets of thescheme are held separately from those of the Group in an independentlyadministered fund. The amount charged to the income statement represents thecontributions 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 toshares is recognised as an employee expense with a corresponding increase inequity. The fair value is measured at grant date and spread over the periodduring which the employees become unconditionally entitled to the options. Thefair value of the options granted is measured using an option valuation model,taking into account the terms and conditions upon which the options weregranted. The amount recognised as an expense is adjusted to reflect the actualnumber of share options that vest except where forfeiture is due only to shareprices 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 itrelates to items recognised directly in equity, in which case it is recognisedin 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, andany adjustment to tax payable in previous years. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries and joint venturesis not provided if reversal of these temporary differences can be controlled bythe group and it is probable that reversal will not occur in the foreseeablefuture. In addition, tax losses available to be carried forward as well asother income tax credits to the group are assessed for recognition as deferredtax assets. Deferred tax liabilities are provided in full, with no discounting. Deferredtax assets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Key judgements and estimates The Directors consider that the key judgements and sources of estimation made inpreparation of the financial statements are: Intangible fixed assets (other than goodwill) Unsatisfied purchase orders - at the time of each of the business combinationsof Distinctive Ideas Limited and Ross Promotional Products Limited, the acquiredsubsidiaries each had unsatisfied sales orders. The Directors consider thatthese unsatisfied sales orders were of value to the Group at the date ofacquisition, and hence were an intangible asset. The orders were valued at£26,000 for both of the acquisitions in total and this value was reflectedwithin customer related intangibles at the date of each business combination.The orders were all satisfied during the year ended 31 December 2006, and thevalue of the intangible asset was amortised during that period. Customer relationships - at the time of each of the business combinations ofDistinctive Ideas Limited, Ross Promotional Products Limited and EnvoyCatalogue, the acquired businesses each had a portfolio of customers and thereis evidence that these customers continued and still do continue to repeatpurchase. The Directors consider that these customers were of value to the Groupat the date of acquisition, and hence were an intangible asset. The value ofthose customer relationships has been estimated at £257,000 for all of theacquisitions together and further, that the average length of a customerrelationship is three years. As such, £257,000 was reflected within customerrelated intangible assets at the date of each acquisition and is being amortisedover a three year period from the date of each acquisition. Further, this typeof customer related intangible asset has an associated deferred tax liabilitywhich is being released to the profit and loss account over the same three yearperiod. Minority interests On 3 July 2006, the Group acquired 80% of the issued share capital of IndustrySoftware Limited. The Group carries a liability of £147,000 in respect ofdeferred consideration for the remaining 20% of the issued share capital. Thisis based on the value of a conditional put option to purchase the shares held bythe minority shareholders in Industry Software Limited. The put option isexercisable between the end of 2011 and the end of 2016 and is subject to amaximum deferred consideration of £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 informationwithin the Group's Interim Statement dated 27 September 2007. Set out below is atable which compares the key elements of the financial information as reportedin the Interim Statement and the impact that applying the basis of preparationas 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 preparationExtracts from Consolidated balance sheet £000 £000 £000Development costs a 324 (324) -Customer relatedintangible assets d - 161 161Goodwill b, c, d 2,954 (658) 2,296Deferred tax d (83) (64) (147)Other assets andliabilities 3,541 - 3,541 ------------- ------------- -------------Net assets 6,736 (885) 5,851 ------------- ------------- -------------Share capital and share premium 5,446 - 5,446Retained earnings 1,290 (885) 405 ------------- ------------- ------------- 6,736 (885) 5,851 ------------- ------------- -------------Extracts fromConsolidated IncomeStatementRevenues 10,415 - 10,415Operating profit a, d 480 (142) 338Profit beforetaxation a, d 464 (142) 322Taxation d (180) 6 (174) ------------- ------------- -------------Earnings attributableto the equityshareholdersof the Company 284 (136) 148 ------------- ------------- ------------- a. A review of the nature of development costs previously capitalised identified £324,000 (£68,000 of which was capitalised in the books of Industry Software Limited on the date the company was acquired, and the remaining £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 £100,000 and to decrease the value of intangible assets and the Group's net assets by £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 £345,000 and to decrease the value of intangible assets and the Group's net assets by £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 £150,000 and to decrease the value of intangible assets and the Group's net assets by £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 £161,000 and a deferred tax provision of £64,000. The customer related intangible assets attracted an amortisation charge of £42,000 for the period ended 30 June 2007 and an associated release of £6,000 of the deferred tax provision.. This information is provided by RNS The company news service from the London Stock Exchange