Altitude Group Regulatory News (ALT)

29 Mar 2007 07:03

Dowlis Corporate Solutions plc29 March 2007 Date: 29 March 2007On behalf of: Dowlis Corporate Solutions plc ("Dowlis" or "the Company")Embargoed until: 0700hrs Dowlis Corporate Solutions plc Preliminary Results 2006 Dowlis Corporate Solutions plc, the marketing, information and logisticssolutions business, today announces its preliminary results for the year ended31 December 2006. Operational Highlights: • Strong performance and successful integration of all businesses acquired during 2006: - Envoy Catalogue, a promotional product catalogue - Ross Promotional Products Ltd, a promotional gift company - Customer Focus (Software) Ltd (since renamed Industry Software Ltd), a provider of marketing driven business software for SMEs - Distinctive Ideas Ltd, a promotional gift company • Successful launch of PromoServe in Europe January 2007 • Appointment of Barrett Bedrossian as the Group's Finance Director and Craig Slater as a non-executive director • Comprehensive review of business undertaken and decision taken to structure Group under two divisions - Promotional Marketing and Information & Exhibitions Financial Highlights: • Pre tax profits before goodwill amortisation and operating exceptional items for 12 months to 31 December 2006 of £1.3m (**2005: £1.3m) • Turnover for 12 months to 31 December 2006 of £18.9m (2005: £19.8m restated) • Turnover for the continuing Information & Exhibition businesses up 20% to £2.29 million (2005: £1.91 million) / Pre tax profits up 153% to £0.51 million (2005: £0.21 million) • Operational cost savings on like for like basis expected to be in a region of £0.5m p.a. following review of profitability of promotional products business • Balance Sheet almost ungeared, after funding acquisitions Commenting on the Group's first full financial year as an AIM listed company,Colin Cooke, Chairman, said: "2006 was a year of further progress for Dowlis Corporate Solutions. Inparticular, the Group has demonstrated its ability to make a number of strategicacquisitions and to integrate those businesses successfully within the Group. "There are a number of significant opportunities for the Group to make furtherstrategically important developments and I am confident that Dowlis is now wellplaced to drive organic growth across the Group's Promotional Marketing andInformation & Exhibitions businesses whilst capitalising on synergisticacquisitions." ** All references to 2005 are to the proforma results for the 12 months ended31st December 2005. Enquiries: Dowlis Corporate Solutions plc www.dowlis.comMartin Varley (Chief Executive)/Barrett 0870 224 6677Bedrossian (Finance Director) Redleaf Communications 020 7822 0200Emma Kane/Sanna Lehtinen Daniel Stewart & Company plc 020 7776 6550Lindsay Mair / Tom Jenkins Zeus Capital 0161 831 1512Alex Clarkson • Publication quality photographs are available via Redleaf. Chairman's Statement 2006 was a year of further progress for Dowlis Corporate Solutions. Inparticular, the Group has demonstrated its ability to make a number of strategicacquisitions and to integrate those businesses successfully within the Group. Structuring the Group for future growth has been a key focus for the Board thisyear. During the period under review, the Board took the decision to refocus theGroup's activities to target higher margin activities and to reduce costssignificantly where required. These decisive, short-term actions have createdfirm foundations for future growth and have reduced the cost base. The refocusing of the Group is reflected in the financials for the year and yourBoard is confident that the Company is now well positioned to execute theexcellent opportunities that are available. Turnover and profits Turnover in the 12 months to 31 December 2006 was £18.9m (**2005: £19.8mrestated) and operating profit before exceptional items and goodwillamortisation was £1.3m (2005: £1.3m). Basic earnings per share, before goodwill amortisation and exceptional items forthe 12 months to 31 December 2006, were 2.97p (2005: 3.24p) and, after goodwillamortisation and one-off costs, 0.90p (2005: 1.13p). The Board does not proposea dividend in respect of 2006, but plans to review its dividend policy at theinterims later this year. Corporate activity It is estimated by PROMOTA that the annual UK market for promotional merchandiseis £1 billion which comprises approximately 3,000 distributors supported by 600UK based suppliers of a wide range of products and services. Dowlis is pursuingboth an organic and acquisition led strategy within this large, fragmentedmarket to increase the client base and drive synergies. Against this background,the Group made the following acquisitions in 2006: • the business and goodwill of Envoy Catalogue, a promotional productcatalogue • the entire issued share capital of Ross Promotional Products Ltd("Ross"), a Glasgow-based promotional gift company • 80% of Customer Focus (Software) Limited ('Customer Focus or 'CF''), aprovider of marketing driven business software, designed and developed in the UKfor SMEs and the business and certain of the assets of Customer Focus(Sheffield) Limited • the entire issued share capital of Distinctive Ideas Limited All four businesses acquired in the year have continued to perform at or aboveexpectations set at the time of acquisition. Cash resources and investment At the year end the Group had an overdraft of £0.18m (2005: £1.5m net cash). ** All references to 2005 in the Chairman's Statement, Chief Executive andFinance Director's Review refer to the proforma results for the 12 months ended31st December 2005. Strategy It is the Directors' view that restructuring the Group into two distinctchannels of business will deliver not only a robust platform for growth but alsoa lower cost base. Consequently, two distinct divisions have been created -'Promotional Marketing' and 'Information & Exhibitions'. Each division will be operated autonomously and the new structure will see theestablishment of two business units, managed by their own operating boards,which will remove the potential for channel conflict now that both sides of thebusiness are planning strong growth phases. The Board believes that bystructuring the Group in this way, Dowlis will be better positioned to identifyand deliver opportunities to improve shareholder value. Promotional Marketing The operating board leading this business will be chaired by Craig Slater. Ourstrategy is to continue the process of managing the business into a growth phaseand to identify suitable acquisitions that fit our 'profile'. We aim to buy acontrolling interest in suitable companies and to structure the deal in such away that the existing management are heavily incentivised to increasesustainable profits over a defined period prior to exercising a 'put' option onus to acquire the remaining shares. This strategy helps keep management focussedon delivering growing profits in future years. We expect to make more of theseacquisitions in the coming year. Information & Exhibitions Martin Varley, as Group CEO, will chair the operating board leading theInformation & Exhibitions business which includes the Trade Only(tm) publishingand exhibition operations and the PromoServe software supplier, a leading CRMand order processing system for the industry in the UK. This team will continuethe tremendous growth achieved in the last few years, and will seek to identifysuitable organic and acquisition based growth opportunities. Board and employees In June 2006, two key Board changes were announced - Barrett Bedrossian as theGroup's new Finance Director and Craig Slater as a non-executive director andchair of Dowlis' Audit Committee. Martin Varley, CEO of Dowlis, worked with bothCraig and Barrett, when they were COO and Commercial Manager respectively at4imprint Group PLC. I would like to take this opportunity to thank our shareholders for theirconfidence and continued support for the Company and, as importantly, to thankthe Dowlis team for their continued and significant levels of energy andenthusiasm. Outlook There are a number of significant opportunities for the Group to take furtherstrategic steps and I am confident that we are now well placed to drive organicgrowth across the Group's Promotional Marketing and Information & Exhibitionsdivisions whilst capitalising on synergistic acquisitions. Colin Cooke Chairman 29 March 2007 Chief Executive's Review The Group has made significant progress towards developing two autonomousprofitable divisions with a clear focus on providing services to a wide networkutilising our systems and processes. A change in mix to become less reliant upontraditional corporate business towards the higher growth activities such asinformation and software is expected to deliver the planned results in futureyears. The following review sets out the performance of the Group's two divisionsduring 2006. 1. Promotional Marketing Promotional Products Promotional products are used by thousands of companies as a key part of theirwider marketing campaigns. Dowlis is believed to be the UK's second largestdistributor of these products and sources them from around the world. They arepersonalised according to the client's brand and art design guidelines and soldthrough a combination of direct marketing, corporate programme and traditionalsales channels. This segment includes the traditional Dowlis Corporate Solutions business,Bentley Collection Ltd and the newly acquired Ross Promotional Products Ltd andDistinctive Ideas Ltd. Dowlis Communications Dowlis Communications is the Group's design agency based in Manchester, whichprovides a range of services covering all aspects of design and marketing,including print and brochure production, media planning and buying. 2. Information and Exhibitions Through the implementation of its technological solutions, Dowlis aims toenhance significantly its customers' experience and, in turn, enable the Groupto automate more of its own processes. Trade Only (tm) - publishing Trade Only(tm) is the UK's largest company providing marketing services andproduct data for the Promotional Product Industry, with over 4,500 registereddistributor users and all of the leading suppliers providing product content.Suppliers use the many tools that Trade Only(tm) provides to help efficientlycommunicate with distributors through printed catalogues, exhibitions androadshows, and electronic media. Distributors use the printed catalogues, virtual catalogues, web sites ande-marketing tools to promote their products and services to clients, andidentify suitable products using the www.tradeonly.co.uk research system thatcontains detailed data on 15,000 products, and make virtual samples on line inminutes. Both suppliers and distributors benefit from using PromoServe, which is theleading European software specifically developed for the Promotional ProductIndustry with functionality that helps manage the complete business process fromCRM to accounting. Information Services Information Services - a bespoke, industry specific website that containsdetailed information on over 1,000 products including full details of thesupplier and also detailed product information. Revenue is generated fromsuppliers wishing to be featured on the website. The Directors look forward tofurther growth of the Trade Only(tm) Information Services business throughout2007. AdProducts.com The AdProducts.com offering, which supplies independent distributors via anannual catalogue personalised with company details using the in house printfacility, exhibition and website, receives orders from approximately 25 per centof the UK's distributors. Envoy Catalogue The Envoy Catalogue features promotional merchandise for corporate customers andis supported by over 60 suppliers with approximately 50,000 cataloguesdistributed through 45 regionally separated distributors. Dowlis acquired thecatalogue group in January 2006 and has introduced Dowlis' leading technologyfor the efficient management of product databases and order processing softwareas well as the Virtual Sample technology for which the Group has exclusiverights in the UK market. eCompanyStore Dowlis has a partnership agreement with eCompanyStore ("eCS"), a US-based onlinemerchandising company. Under the terms of the two-year agreement, eCS is actingas the exclusive distributor for Dowlis merchandise in the US and Dowlis is alsooffering an exclusive reciprocal distribution arrangement in the UK for eCSmerchandise. The arrangement has been successful in improving response times forboth Dowlis and eCS customers respectively, reducing shipping times and costsassociated with freight and documentation when goods are transported across theAtlantic. Logistics Solutions Developed from the award winning Customer FOCUS Software and Trade Only(tm) webservices, PromoServe is a business management software package. It has beendeveloped to manage all of the key processes in the promotional productsindustry. It is the UK's leading promotional products software package withover 200 current user sites. Designed to improve efficiency within a company, the software allowsdistributors to raise Picture Quotes with Quality Products quickly and easily,and at the click of a button convert them into Sales Orders. Purchase Orders canbe raised from Sales Orders, then emailed out. Its powerful search functionality allows users to find the item they are lookingfor quickly, with additional costs of delivery times listed and, displaying allrelevant information in seconds. The Directors are encouraged by increasingnumbers of PromoServe subscriptions. Trade Only(tm) - Product Supply Industry Software (formerly Customer Focus Software Limited) is the leadingprovider of software by number of users to the UK promotional product industry.There are three key offerings aimed at the related markets of Print Management,Office Supplies and Promotional Products, with the software 'sold' on a monthlyfee basis. Users benefit uniquely from a data feed that is provided by TradeOnly(tm) providing detailed information on products, pricing and supplier details. The Group's offering is underpinned by its investment in software andinformation technology. Its bespoke sales order processing system and productdatabase was carefully designed to complement the strategy of the Group and itis expected to provide a competitive advantage over others in the industry. Conclusion The acquisitions made since the Group floated on AIM have been fully integratedand are performing in line with or ahead of our expectations. The fact that themajority of vendors of these businesses are seeking to take large parts of theirconsideration in Dowlis shares is a testament to the fact that they believe theywill be more successful as part of the Group. We continue to focus our efforts on driving further growth in the higher marginbusinesses and on the acquisition of complementary businesses which can beintegrated rapidly to generate increased shareholder value. The current financial year has started strongly and we look forward to 2007 withconfidence. Martin Varley Chief Executive 29 March 2007 Finance Director's Review The Group has been trading on AIM since November 2005 and presents the resultsfor its first full year as a quoted company. The comparatives shown within theprofit and loss account include both the results since incorporation on 30 July2004 as well as the 12 months proforma results to 31st December 2005 which allowa more meaningful comparison. As explained to shareholders in the InterimReport, the promotional products business underwent a full review of itsprofitability and as a result was restructured in the second half of 2006. Theresulting annual impact on cost savings on a like for like basis is expected tobe in the region of £0.5m. During the year, the Trade Only(tm) businessunderwent a strategic review to capitalise on the new segmental structureleading to the creation of the Adproducts name alongside the existing TradeOnly(tm) business. Both these businesses performed well during the year. The Group was strengthened further in 2006 with the acquisition of EnvoyCatalogue, Ross Promotional Products Limited, Industry Software Limited(formerly Customer Focus Software Limited) and Distinctive Ideas Limited withall four acquisitions subsequently performing above expectation. Trading results Turnover for the 12 months to 31 December 2006 was £18.9m (2005: £19.8mrestated). Operating profit before exceptional items and goodwill amortisationwas £1.3m (2005: £1.3m). The Group is managed through two distinct and largely autonomous segments:Promotional Marketing and Information & Exhibitions. The former includes thetraditional promotional products business of Dowlis as well as the newlyacquired businesses of Ross Promotional Products and Distinctive Ideas. Thelatter supplies some products to Marketing Solutions, hence the internal salesshown below, but predominantly sells to the large number of smaller distributorsin the sector and includes Trade Only(tm), Adproducts and the newly acquiredbusinesses of Envoy and Industry Software. An analysis of turnover and profit by business segment can be seen in note 1 tothe accounts. Operating exceptional items Operating exceptional items in the year amounted to £0.71m. This figurecomprised £0.68m for restructuring costs within the Promotional Marketingsegment (of which £0.52m related to staff costs and £0.16m to asset write offs)and £0.03m within the Information and Exhibitions segment. Although these costshave been included in administration expenses in the profit and loss accountthey have been disclosed separately due to their size and one off nature. Acquisitions On 16 January 2006, the Group completed the acquisition of the Envoy Cataloguebusiness for a maximum consideration of £0.21m (including legal fees). Theinitial consideration paid included £0.1m in cash and £0.07m through the issueof 147,368 ordinary shares. Due to the achievement of certain performancecriteria a further £0.03m will be payable in cash by the end of April 2007. Thepost acquisition results for this business are reported under the Information &Exhibitions segment of the Group. On 27 February 2006, the Group completed the acquisition of Ross PromotionalProducts Limited, the Glasgow based promotional gift company, for a totalconsideration of £0.85m (including legal fees). The consideration was paid£0.73m in cash and £0.1m through the issue of 210,526 ordinary shares. The postacquisition results of this business are reported under the PromotionalMarketing segment of the Group. On 3 July 2006, the Group completed the acquisition of 80% of the issued sharecapital of Industry Software Limited (formerly known as Customer Focus SoftwareLimited). This business provides marketing driven business software designed anddeveloped in the UK for SME's. The consideration paid was £0.17m through theissue of 344,086 shares. The remaining 20% of Industry Software shares remainswith the former management team, who still have a significant involvement in therunning of the company, and is subject to a put option which may be exercised bythe sellers no earlier than the 5th anniversary of the date of completion and nolater than the 10th anniversary of completion, subject to a maximum deferredconsideration payment of £10m. The post acquisition results of this business arereported under the Information & Exhibitions segment of the Group. On 3 October 2006, the Group completed the acquisition of Distinctive IdeasLimited, a Watford based distributor of promotional products and giftspredominantly within the media sector, for a total consideration of £0.36m. Thepost acquisition results of this business are reported under the PromotionalMarketing segment of the Group. All four businesses acquired in the year have continued to perform at or aboveexpectations at the time of acquisition. Taxation The tax charge for the 12 months is close to the prevailing tax rate of 30%. On10 January 2007, the Group received a corporation tax refund of £0.25m relatingto payments made in previous periods. This credit arose as a result of thecrystallization of options exercised by Martin Varley on flotation. This amounthas been included as a corporation tax debtor in the balance sheet for the yearended 31 December 2006. Earnings per share Normalised earnings per share before goodwill amortisation and non-operatingexceptional items for the 12 months to 31 December 2006 are 2.97p (2005: 3.24p).This is based on a weighted average number of shares of 37,980,283 (2005:26,884,005). The increase in the weighted average number of shares isrepresentative of the issue of new shares on flotation. With no share optionsoutstanding at the end of the year there is no dilutive effect on the earningsper share figure. Prior year turnover restatement An amount of £0.6m has been deducted from prior year turnover and cost of sales.This relates to additional internal sales for which no adjustment was made inlast years annual report and accounts. There was no related profit impact. Pensions The Group operates a defined contribution scheme into which most employees areinvited. The ongoing contribution to these schemes for the year ending 31stDecember 2006 was £0.13m (2005: £0.16m). The Group does not operate and has noobligation to any defined benefit final salary schemes. Cash flow and investment The Group began 2006 with a cash surplus of £1.53m and ended with a smalldeficit of £0.18m. This was after all four acquisitions were financed throughour increased overdraft facility of £1.5m. £1.37m was used as consideration incash in addition to which a further £0.44m cash was paid out on restructuringcosts (net of asset write offs). With treasury policy managed centrally theGroup takes advantage of any cash pooling arrangement available and activelyholds any surplus cash on deposit in order to maximise interest income. The net cash inflow from operating activities was £0.01m. The total capitalexpenditure was £0.71m and relates primarily to plant additions and softwaredevelopment costs. Interest cost Until 7 November 2005, the Group was a net borrower. In 2006 the Group enjoyedsurplus cash balances except where the overdraft facility was used to finance anacquisition. Net interest expense for the year was £0.02m (2005: £0.13m) withinterest earned in 2006 being £0.03m. Liability for Puttable financial instruments Included in the Balance Sheet is an amount of £0.15m being the present value ofdeferred consideration for Industry Software Limited. This is based on the valueof a conditional put option to purchase the shares held by the minorityshareholders in Industry Software Limited. This put option, as described furtherin note 7 of this preliminary results announcement, is available between 2011and 2016. Other financial instruments and foreign exchange risk Until the flotation, the main financial instrument the Group held was its bankloan and loan debt, both now repaid. The Group's other financial instrumentscomprise cash and liquid resources and other various items such as trade debtorsand trade creditors which arise directly from its operations. The Group has nooverseas assets or liabilities apart from trade related purchases and anycurrency rate movements have had little or no material impact. Carrying values The Directors have carried out a review of the carrying values of the intangibleand tangible assets and have concluded that as each of those businesses acquiredare performing at or above the level when acquired no change to the carryingvalues is necessary. Accounting standards As an AIM listed company, the Group is required to adopt International FinancialReporting Standards (IFRS) in 2007. Our interim results for this year will bethe first set of figures reported under IFRS with 2006 comparatives for the sameperiod also restated under these standards. We are actively involved in ensuringthat this transition process will be as smooth as possible and do not believethat the impact of conversion will be significant. Corporate governance The Group supports the principles of corporate governance and has sought tocomply where practicable, using the guidance for AIM companies established bythe Quoted Companies Alliance. Going concern statement After making enquiries, the directors have a reasonable expectation that theGroup has adequate resources to continue in operational existence for theforeseeable future. For this reason, they have adopted the going concern basisin preparing the financial statements. Barrett Bedrossian Finance Director 29 March 2007 Consolidated Profit & Loss account for the year ending 31 December 2006 12m 12m 17m Dec 06 Dec 05 Dec 05 Notes £'000's £'000's £'000's unaudited Restated Restated proforma audited Turnover - Continuing 2 16,125 19,794 25,621 - Acquisitions 2,733 - - 18,858 19,794 25,621 Cost of Sales (11,712) (12,969) (17,105) Gross Profit 7,146 6,825 8,516 Administrative expenses (6,855) (5,664) (7,162) Operating Profit (before exceptional items and goodwill amortisation) 1,291 1,345 1,582Operating exceptional items 3 (715) - -Goodwill amortisation (285) (184) (228) Operating Profit/ (loss) - Continuing (86) 1,161 1,354 - Acquisitions 377 - - 291 1,161 1,354 Non-operating exceptional items - (446) (446) Profit on ordinary activities before finance charges 291 715 908 Interest receivable 26 17 22Interest payable and similar charges (16) (130) (170) Profit on ordinary activities before taxation 301 602 760 Taxation 4 41 (298) (380) Profit for the financial year/period 342 304 380 Earnings per share Basic and diluted 5 0.90 1.13 1.43 The comparatives for the 12 months ended 31 December 2005 were prepared for information purposes only. Consolidated Balance Sheet as at 31 December 2006 Dec 06 Dec 05 £'000's £'000's Fixed Assets Intangible Assets 2,906 1,669Tangible Assets 926 815 3,832 2,484 Current Assets Stocks 1,684 1,245Debtors 5,581 4,918Cash at bank and in hand - 1,537 7,265 7,700 Creditors: amounts falling due within one yearBank overdraft 179 -Trade Creditors 2,545 3,305Corporation tax 346 207Other taxes and social security 419 252Other creditors 126 131Accruals and deferred income 1,050 701 4,665 4,596 Net Current Assets 2,600 3,104 Total assets less current liabilites 6,432 5,588 Creditors: amounts falling due after more than one year 182 15 Provision for liabilities and charges-deferred tax 83 77 Net Assets 6,167 5,496 Capital and reserves Called up share capital 153 150Share premium account 5,293 4,966Profit and loss account 741 380 Equity shareholders' funds 6,167 5,496 Consolidated Cash Flow Statement for the year ending 31 December 2006 12m 17m Dec 06 Dec 05 £000 £000Net cash inflow from operating activities 1 930Returns on investment and servicing of finance 10 (148)Taxation (131) (96)Capital expenditurePurchase of fixed assets (716) (660)Sale of tangible fixed assets 15 14Net cash outflow for capital expenditure (701) (646)Acquisitions and disposals (1,206) (1,003) Cash outflow before financing (2,027) (963) FinancingProceeds from issue of share capital 331 4,500Expenses of share issue taken to share premium - (165)Repayment of loan notes - (1,200)Repayment of bank loans - (110)Repayment of loans acquired - (490)Repayment of capital elements of hire purchase (20) (35)contractsNet cash inflow from financing 311 2,500(Decrease)/Increase in cash in period (1,716) 1,537 Reconciliation of operating profit to operating cash flows for the year ending 31 December 2006 12m 17m Dec 06 Dec 05 £000 £000Operating profit 291 1,354Depreciation 265 152Amortisation 285 228Loss on sale of fixed assets 148 39Increase in stocks (395) (188)(Decrease)/Increase in debtors 129 (480)(Decrease)/Increase in creditors and provisions (722) 153Non operating exceptional items - (328) Net cash inflow from operating activities 1 930 Included within operating profit is £0.44m being cash paid in the year inrelation to operating exceptional items as detailed in note 3. Notes to the accounts for the year ending 31 December 2006 1. Basis of Preparation The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2006. The Company'scomparative accounting period was a seventeen month period ending on 31 December2005. Proforma information for the twelve month period ended 31 December 2005has been provided for the information of shareholders. This statement has beenagreed with the auditors and was approved by the Board on 28 March 2007. Thestatutory accounts for the Company for the year ended 31 December 2006 have notyet been approved, audited or filed. The accounting policies adopted by the Group in preparing these accounts areconsistent with those applied to its first accounting period ending 31stDecember 2005. 2. Turnover and segmental information The turnover, profit before tax and operating assets relate to the Group'sprincipal activity of the sale of promotional products, business gifts andrelated marketing services. Turnover and operating profit before goodwill amortisation and exceptionalitems, analysed by segment is as follows: 12m 12m 17mTurnover Dec 2006 Dec 2005 Dec 2005 £m £m £mPromotional Marketing 16.7 19.1 24.8Information and Exhibitions 3.0 1.9 2.2Less internal sales (0.8) (1.2) (1.4)Total 18.9 19.8 25.6 12m 12m 17mOperating profit before one-off items and Dec 2006 Dec 2005 Dec 2005goodwill amortisation £m £m £mPromotional Marketing 0.7 1.1 1.4Information and Exhibitions 0.6 0.2 0.2Total 1.3 1.3 1.6 Turnover, analysed by destination is predominantly all to United Kingdomcustomers. 3. Operating Exceptional items These costs arose from the restructuring exercise which was completed in thesecond half of 2006 and resulted in the reorganisation of the Group intoseparately identifiable divisions. The total cost of £0.71m was made up of£0.55m in staff and redundancy costs of which £0.52m relates to the PromotionalMarketing segment and £0.03m to the Information & Exhibitions segment (as at31st December 2006 £0.45m of this cost had been paid). The remaining £0.16mrelates to fixed asset write offs within the Promotional Marketing segment. 4. a) Corporation Tax 12m 17m Dec 06 Dec 05 £000 £000Analysis of charge UK corporation tax on profits for the period 202 303Corporation tax refund in relation to previous (249) -years (note 4 (c))Deferred taxOrigination and reversal of timing differences 6 77Tax (credit) on profit on ordinary activities (41) 380 b) Factors affecting current tax charge The tax charge on the profit on ordinary activities for the year is higher thanthe standard rate of corporation tax in the UK of 30%. The differences arereconciled below: 12m 17m Dec-06 Dec-05 £000 £000 Profit on ordinary activities before taxation 301 760UK Corporation tax at 30% 90 228Effect of goodwill amortisation 68 55Expenses not deductible for tax purposes 5 92Depreciation in excess of capital allowances 22 (36)Other timing differences (5) 13Adjustment in respect to previous years 22 -Utilisation of tax losses - (35)Adjustment in respect of small companies rate - (14)Total current tax (note 4(a)) 202 303 c) Corporation tax refund An amount of £0.25m corporation tax was received on 10 January 2007. This creditarose as a result of the crystallization of options exercised by Martin Varleyon flotation. This amount has been included as a corporation tax debtor in thebalance sheet for the year ended 31 December 2006. 5. Earnings per share 12m 12m 17m Dec 06 Dec 05 Dec 05 £000 £000 £000Basic and diluted earnings 341 304 380Adjustment for amortisation of goodwill 285 184 228Adjusted profit for earnings before amortisation of 626 488 608goodwillAdjustment for operating/ non-operating exceptional 715 446 446itemsTax on exceptional items (214) (62) (62)Adjusted profit for earnings before amortisation of 1,127 872 992goodwill and exceptional items Earnings per shareBasic 0.90p 1.13p 1.43pBefore goodwill amortisation 1.65p 1.82p 2.29pBefore goodwill amortisation and exceptional items 2.97p 3.24p 3.74pDiluted 0.90p 1.13p 1.43p Earnings per share is calculated by dividing the profit after tax by 37,980,283for the 12 months to 31 December 2006 (12 months ended 31 December 2005 -26,884,005), being the weighted average number of shares in issue during theperiod. The earnings per share before amortisation of goodwill uses the profitafter tax, adjusted to exclude the effect of the amortisation of goodwilldivided by the weighted average number of shares. The profit before amortisationof goodwill and exceptional items uses the profit after tax, adjusted to excludethe effect of amortisation of goodwill and exceptional items net of tax dividedby the weighted average number of shares. The diluted earnings per share usesthe profit after tax divided by the weighted average number of shares plus anyshares representing the dilutive effect of the weighted average number of sharesunder option of which none existed at the end of the year. 6. Software Development costs All costs identified as software development are amortised over five years wherethe Group believes it will derive future economic benefits with reasonablecertainty out of specifically defined projects. Under IFRS this policy will bereviewed on an annual basis for appropriateness. 7. 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. On maturity of the commitment, if the minority interests are not purchased, theentries previously recognised will be reversed. If the minority interests arepurchased the amount recognised in financial liabilities is reversed, offset bythe cash outflow relating to the purchase of the minority interests. END This information is provided by RNS The company news service from the London Stock Exchange