Last checked at 27 Apr 2010 07:00
The Character Group plc
Designers, developers and international distributors of toys, games and giftware
Date: Tuesday, 27 April 2010
Embargoed: 7.00am
Half-year results for the six months ended 28 February 2010
Strategy of developing own product lines and selectively distributing third party lines has produced a significant turnaround for the business
·; Group sales £43.1 million (2009: £37.8 million) +14.1%
·; Profit before tax £3.73 million against a loss of £3.84 million (an improvement of £7.57m)
·; Basic earnings per share 10.25 pence compared to a loss of 8.44 pence (an improvement of 18.69 pence)
·; The Group has maintained a strong and healthy balance sheet and remains cash positive with cash generated from operations at £13.95 million compared to £7.89 million at the same point in 2009
·; Return to progressive dividend policy - 2.0 pence interim dividend paid on 26 March 2010 (2009: nil)
·; Exceptional on-going consumer demand continues for key product lines:
- ZhuZhu Pets (formerly GoGo Pets), and Kung Zhu to be released shortly
- HM Armed Forces, Peppa Pig, Scooby Doo and the new Doctor Who range all expected to realise gross revenues of around £10 million per brand in this 2010 calendar year
- Postman Pat, Fireman Sam and Let's Cook are also expected to realise around £5 million per brand this calendar year
·; This year will see the Group move into US market with own developed products
"We are pleased to report that our strategy of developing our own-branded toy ranges and selectively distributing third-party product lines has finally matured to where we have achieved a significant turnaround for the business."
"The underlying strength of our portfolio and the enthusiasm for our products by our customers has resulted in increased demand. This very positive progress is reflected in our March results which exceeded internal management forecasts in terms of revenue and profitability giving us a good start to the second half of this financial year."
Richard King, Chairman
| Enquiries: |
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| Richard King, Chairman | Fiona Tooley | Russell Cook |
| Kiran Shah, Group Finance Director & Joint MD | Keith Gabriel | Carl Holmes |
| The Character Group plc | Citigate Dewe Rogerson | Charles Stanley Securities |
| Mobile: +44 (0)7836 250150 (RK) | Mobile: +44 (0)7785 703523 | (Nominated Adviser) |
| Mobile: +44 (0)7956 278522 (KS) | Tel: +44 (0)121 362 4035 | Tel: +44 (0)207 149 6000 |
| Tel: +44 (0)208 329 3377 |
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| www.thecharacter.com |
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| Ticker: AIM: CCT |
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The Character Group plc
('Character' or 'Group' or 'Company')
Designers, developers and international distributors of toys, games and giftware
Half-year results for the six months ended 28 February 2010
Statement by the Chairman, Richard King
We are pleased to report that our strategy of developing our own-branded toy ranges and selectively distributing third-party product lines has finally matured to where we have achieved a significant turnaround for the business.
Following several years of a tough retail environment, Character, in line with its peers and most major retailers, took a conservative view on its sales and stock levels for the approach to Christmas 2009. As we indicated in our trading update on 25 March 2010, most of our portfolio performed up to, or exceeded our expectations of consumer demand.
As a result of our focus in developing our brands, we have produced a strong portfolio of branded product which, despite a decline in the overall toy market, has led to strong sales and a lower level of stockholding throughout the first half of the current financial year ending August 2010.
Financials
Group sales amounted to £43.1 million, a 14.1% increase over the comparable period (2009: £37.8 million). Profit before tax improved to £3.73 million against a loss of £3.84 million in the comparable 2009 six-month period.
Stocks decreased to £3.6 million from £5.05 million for the comparative period of the previous year. This stock reduction together with improved trading and tighter controls led to a significant reduction in the level of loss making or reduced margin clearance sales. Consequently, gross margins improved significantly during the period under review.
Basic earnings per share were 10.25 pence compared to a loss of 8.44 pence for the previous period in 2009.
The Group has maintained a strong and healthy balance sheet and remains cash positive with cash generated from operations at £13.95 million compared to £7.89 million at the same point in 2009. During the period the Company undertook a share buy-back programme at a total cost of £5.05 million. Even after this expenditure net cash at the end of February 2010 was £7.10 million against £3.80 million at the same time last year.
We remain optimistic that, with substantial working capital facilities available and by not being financially constrained, we are in a strong position to further increase our UK market share, our international sales and overall earnings, going forward.
Share Buy-Backs
During the first half, the Company acquired 4,820,327 ordinary shares of 5 pence each amounting to 16.2% of the Company's issued share capital (excluding shares held in treasury), and these shares have now been cancelled. As at 1 April 2010, the Company had 29,806,154 ordinary shares in issue (2009: 41,477,481), excluding 4,019,456 ordinary shares held in treasury (April 2009: 4,019,456).
It remains part of the Group's overall strategy to continue to repurchase its shares when appropriate, thereby further enhancing shareholder value.
The Company now has an unutilised capacity to buy-back up to a further 3,798,673 ordinary shares in the Company under the authority granted at the AGM on 20 January 2010. The Company may seek to buy-back shares up to this limit within the current financial period. As was previously the case, individual directors have indicated that they may be prepared to participate in any future share buy-backs should the Company be unable to identify sufficient shares in the marketplace to satisfy its plans for shareholder value enhancement.
Dividend
Given the strong cash position and the legislative tax changes in the UK effective from this month, an interim dividend for the period to 28 February 2010 of 2.0 pence per share (2009: nil) was paid on 26 March 2010 to shareholders on the Register as at 12 March 2010. As already indicated to the market, the Board believes that the Company is now in a position to return to its progressive dividend policy.
People
I would like to personally thank my co-directors, senior management as well as all our loyal and hard working employees in both the UK and Asia for their effort and commitment to the Group over what has been a very challenging period.
Last month, Non-Executive Directors Alan Mackay and Ian Fenn stepped down from the Board. On behalf of investors and staff I would like to thank them for their wise counsel over a number of years and wish them both well in the future. The Board now consists of four Executive and two Non-Executive Directors and this is currently considered by the Board to be an appropriate balance for a Company of Character's size and structure. We will however continue to review this position on a regular basis.
Outlook
Our strategy of developing our own product lines and selectively distributing third party lines has produced a significant turnaround for the business and a very strong half-year performance despite a decline in the overall toy market in 2009 and the general economic climate.
In addition, our strategy has allowed us to finally open up the U.S. market to our own developed products and whilst relatively modest at the outset, we are hopeful of strong growth going forward.
There continues to be exceptional on-going consumer demand for ZhuZhu Pets (formerly GoGo Pets), as well as great interest in the boys' version Kung Zhu which is to be released shortly. These, together with HM Armed Forces, Peppa Pig, Scooby Doo and the new Doctor Who range just launched with the new TV series, are all expected to realise gross revenues of around £10 million per brand in this 2010 calendar year whilst Postman Pat, Fireman Sam andLet's Cook are also expected to realise around £5 million per brand this year.
The underlying strength of our portfolio and the enthusiasm for our products by our customers has resulted in increased demand. This very positive progress is reflected in our March results which exceeded internal management forecasts in terms of revenue and profitability giving us a good start to the second half of this financial year.
Looking at both the calendar and financial year, we remain very optimistic that the business will achieve a further improvement in sales and profitability during 2010 as we continue to enhance our product portfolio and widen our sales both in the UK and internationally.
26 April 2010
CONSOLIDATED INCOME STATEMENT
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| Notes | 6 months to 28 February 2010 (unaudited) £'000 | 6 months to 28 February 2009 (unaudited) £'000 | 12 months to 31 August 2009 (audited) £'000 |
| Continuing operations |
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| Revenue |
| 43,114 | 37,789 | 68,622 |
| Cost of sales |
| (27,734) | (26,828) | (48,587) |
| Gross profit |
| 15,380 | 10,961 | 20,035 |
| Net operating expenses |
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| Selling and distribution costs |
| (4,538) | (6,956) | (8,999) |
| Administration expenses |
| (7,112) | (6,704) | (12,265) |
| Other operating income |
| 11 | 12 | 132 |
| Operating profit/(loss) before exceptional items |
| 3,741 | (2,687) | (1,097) |
| Exceptional bad debt |
| - | (1,056) | (1,056) |
| Operating profit/(loss) |
| 3,741 | (3,743) | (2,153) |
| Net finance costs |
| (10) | (96) | (21) |
| Profit/(loss) before taxation |
| 3,731 | (3,839) | (2,174) |
| Taxation |
| (277) | 362 | 532 |
| Profit/(loss) for the year attributable to equity holders of the parent |
| 3,454 | (3,477) | (1,642) |
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| Earnings/(loss) per share (pence) |
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| Basic | 5 | 10.25p | (8.44p) | (4.09p) |
| Fully diluted | 5 | 9.98p | (8.44p) | (4.09p) |
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| Dividend per share | 4 | 1.00p | - | - |
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| EBITDA (earnings/(loss) before interest, tax, depreciation and amortisation) |
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5,131 | (1,635) | 2,351 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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| 6 months to 28 February 2010 (unaudited) £'000 | 6 months to 28 February 2009 (unaudited) £'000 | 12 months to 31 August 2009 (audited) £'000 |
| Profit/(loss) for the period after tax | 3,454 | (3,477) | (1,642) |
| Exchange differences on translation of foreign operations recognised in equity |
(452) |
(663) |
(387) |
| Net effective change in value of cash flow hedges |
(264) |
941 |
117 |
| Total comprehensive income for the period attributable to equity holders of the parent | 2,738 | (3,199) | (1,912) |
CONSOLIDATED BALANCE SHEET
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| At 28 February 2010 (unaudited) £'000 | At 28 February 2009 (unaudited) £'000 | At 31 August 2009 (audited) £'000 |
| Non - current assets |
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| Intangible assets - product development | 720 | 2,149 | 823 |
| Property, plant and equipment | 1,093 | 1,249 | 1,174 |
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| 1,813 | 3,398 | 1,997 |
| Current assets |
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| Inventories | 3,636 | 5,051 | 7,043 |
| Trade and other receivables | 9,803 | 6,897 | 13,352 |
| Derivative financial instruments | 97 | 1,609 | 464 |
| Income Tax | 168 | 1,560 | - |
| Cash and cash equivalents | 7,730 | 3,901 | 11,428 |
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| 21,434 | 19,018 | 32,287 |
| Current liabilities |
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| Short term borrowings | (629) | (118) | (10,574) |
| Trade and other payables | (13,069) | (8,843) | (10,599) |
| Income tax payable | - | (96) | (386) |
| Derivative financial instruments | (262) | - | (936) |
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| (13,960) | (9,057) | (22,495) |
| Net current assets | 7,474 | 9,961 | 9,792 |
| Non Current Liabilities Deferred tax | - | (817) | - |
| Net assets | 9,287 | 12,542 | 11,789 |
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Equity |
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| Share capital | 1,691 | 2,275 | 1,925 |
| Shares held in treasury | (3,373) | (3,373) | (3,373) |
| Investment in own shares | (908) | (908) | (908) |
| Capital redemption reserve | 1,039 | 448 | 798 |
| Share based payment reserve | 802 | 641 | 733 |
| Share premium account | 12,663 | 12,587 | 12,587 |
| Merger reserve | 651 | 651 | 651 |
| Translation reserve | 2,100 | (162) | 1,866 |
| Profit and loss account | (5,378) | 383 | (2,490) |
| Total equity | 9,287 | 12,542 | 11,789 |
CONSOLIDATED CASH FLOW STATEMENT
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| 6 months to 28 February 2010 (unaudited) £'000 | 6 months to 28 February 2009 (unaudited) £'000 | 12 months to 31 August 2009 (audited) £'000 |
| Cash flow from operating activities Profit/(loss) before taxation for the period | 3,731 | (3,839) | (2,174) |
| Adjustments for: |
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| Depreciation of property, plant and equipment | 135 | 164 | 306 |
| Amortisation of intangible assets | 1,255 | 1,944 | 4,198 |
| (Profit) on disposal of property, plant and equipment | (3) | - | (8) |
| Interest expense | 10 | 96 | 21 |
| Financial instruments fair value adjustments | (674) | 1,207 | 2,143 |
| Share based payments | 69 | 106 | 199 |
| Decrease in inventories | 3,407 | 4,751 | 2,759 |
| Decrease in trade and other receivables | 3,549 | 12,244 | 5,790 |
| Increase/(decrease) in trade and other creditors | 2,471 | (8,784) | (7,029) |
| Cash generated from operations | 13,950 | 7,889 | 6,205 |
| Interest paid | (10) | (96) | (21) |
| Income tax paid | (728) | (1,465) | 58 |
| Net cash inflow from operating activities | 13,212 | 6,328 | 6,242 |
| Cash flows from investing activities |
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| Payments for intangible assets | (1,152) | (1,678) | (2,606) |
| Payments for property, plant and equipment | (55) | (102) | (182) |
| Proceeds from disposal of property, plant and equipment | 5 | - | 17 |
| Net cash outflow from investing activities | (1,202) | (1,780) | (2,771) |
| Cash flows from financing activities |
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| Proceeds from issue of share capital | 83 | - | - |
| Purchase of own shares for cancellation | (5,050) | - | (2,132) |
| Purchase of treasury shares | - | (97) | (97) |
| Dividends paid | (342) | - | - |
| Net cash used in financing activities | (5,309) | (97) | (2,229) |
| Net increase in cash and cash equivalents | 6,701 | 4,451 | 1,242 |
| Cash, cash equivalents at the beginning of the period | 854 | 3 | 3 |
| Effects of exchange rate movements | (454) | (671) | (391) |
| Cash, cash equivalents and borrowing at the end of the period | 7,101 | 3,783 | 854 |
Cash, cash equivalents and borrowings consist of:
| Cash and cash equivalents | 7,730 | 3,901 | 11,428 |
| Short term borrowings | (629) | (118) | (10,574) |
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| 7,101 | 3,783 | 854 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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| Called up share capital £000's | Investment in own shares £000's | Treasury Shares £000's | Capital redemption reserve £000's | Share premium account £000's | Merger reserve £000's | Share Based Payment £000's | Translation Reserve £000's | Profit and loss account £000's | Total £000's |
| Balance as at 1 September 2008 | 2,275 | (908) | (3,277) | 448 | 12,587 | 651 | 534 |
501 | 2,920 | 15,731 |
| Loss for the period | - | - | - | - | - | - | - | - | (3,477) | (3,477) |
| Translation reserve movement | - | - | - | - | - | - | - | 3,310 | (3,973) | (663) |
| Net gain on cash flow hedged forward contract | - | - | - | - | - | - | - | - | 941 | 941 |
| Total comprehensive income/(expense) for the period | - | - | - | - | - | - | - | 3,310 | (6,509) | (3,199) |
| Share based payment | - | - | - | - | - | - | 107 | - | - | 107 |
| Shares purchased | - | - | (96) | - | - | - | - | - | (1) | (97) |
| Six months ended 28 February 2009 | 2,275 | (908) | (3,373) | 448 | 12,587 | 651 | 641 | 3,811 | (3,590) | 12,542 |
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| Balance as at 1 September 2008 | 2,275 | (908) | (3,277) | 448 | 12,587 | 651 | 534 |
501 | 2,920 | 15,731 |
| Loss for the year | - | - | - | - | - | - | - | - | (1,642) | (1,642) |
| Translation reserve movement | - | - | - | - | - | - | - | 1,365 | (1,752) | (387) |
| Net gain on cash flow hedged forward contract | - | - | - | - | - | - | - | - | 117 | 117 |
| Total comprehensive income/(expense) for the year | - | - | - | - | - | - | - | 1,365 | (3,277) | (1,912) |
| Share based payment | - | - | - | - | - | - | 199 | - | - | 199 |
| Shares cancelled | (350) | - | - | 350 | - | - | - | - | (2,132) | (2,132) |
| Shares purchased | - | - | (96) | - | - | - | - | - | (1) | (97) |
| Year ended 31 August 2009 | 1,925 | (908) | (3,373) | 798 | 12,587 | 651 | 733 | 1,866 | (2,490) | 11,789 |
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| Balance as at 1 September 2009 | 1,925 | (908) | (3,373) | 798 | 12,587 | 651 | 733 | 1,866 | (2,490) | 11,789 |
| Profit for the period | - | - | - | - | - | - | - | - | 3,454 | 3,454 |
| Translation reserve movement | - | - | - | - | - | - | - | 234 | (686) | (452) |
| Net loss on cash flow hedged forward contract | - | - | - | - | - | - | - | - | (264) | (264) |
| Total comprehensive income/(expense) for the period | - | - | - | - | - | - | - | 234 | 2,504 | 2,738 |
| Dividend paid | - | - | - | - | - | - | - | - | (342) | (342) |
| Share based payment | - | - | - | - | - | - | 69 | - | - | 69 |
| Shares issued | 7 | - | - | - | 76 | - | - | - | - | 83 |
| Shares cancelled | (241) | - | - | 241 | - | - | - | - | (5,050) | (5,050) |
| Six months ended 28 February 2010 | 1,691 | (908) | (3,373) | 1,039 | 12,663 | 651 | 802 | 2,100 | (5,378) | 9,287 |
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
The financial information set out in this interim statement has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's annual report and financial statements for the year ending 31 August 2010. These are consistent with the accounting policies used in the financial statements for the year ended 31 August 2009 as described in those annual financial statements, except for the changes set out below.
As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 'Interim Financial Reporting'.
The consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments and share based payments at fair value.
These interim financial statements and the financial information for the six months ended 28 February 2009 do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited. These unaudited interim financial statements were approved by the Board of Directors on 26 April 2010.
The information for the year ended 31 August 2009 is based on the consolidated financial statements for that year on which the Group's auditors' report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
2 CHANGES IN ACCOUNTING POLICIES
The following new standards and amendments are mandatory for the first time for the financial period beginning 1 September 2009:
IAS 1 (revised), 'Presentation of financial statements'. The revised standard requires 'non-owner changes in equity' to be presented separately from 'owner changes in equity'. All 'non-owner changes in equity' are required to be shown in a performance statement.
Entities can choose whether to present one performance statement (the statement of total comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Group has elected to present two statements: income and a statement of comprehensive income. The interim financial information has been prepared under the revised presentation requirements.
As this standard affects presentation only, there is no impact on previously reported results.
IFRS 2 (amendment) 'Share-based payment'. This amendment to an existing standard deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions.
3 GOING CONCERN
The Directors consider that the Group has adequate resources to continue operating for the foreseeable future and therefore continue to adopt the going concern basis in preparing the financial statements.
4 DIVIDENDS
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| For the six months ended 28 February 2010 (unaudited) £000's | For the six months ended 28 February 2009 (unaudited) £000's | For the year ended 31 August 2009 (audited) £000's |
| Final dividend for year ended 31 August 2009 - 1.0 pence per share | 342 | - | - |
| Interim | - | - | - |
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| 342 | - | - |
5 EARNINGS/(LOSS) PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all dilutive potential ordinary shares. The Group has only one category of dilutive potential ordinary shares, being share options granted where the exercise price is less than average price of the company's ordinary shares during this period.
The calculations are based on the following:
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| For the six months ended 28 February 2010 (unaudited) £000's | For the six months ended 28 February 2009 (unaudited) £000's | For the year ended 31 August 2009 (audited) £000's |
| Profit/(loss) attributable to equity shareholders of the parent | 3,454 | (3,477) | (1,642) |
| Weighted average number of shares |
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| In issue during the year - basic | 33,713,253 | 41,211,689 | 40,204,746 |
| Dilutive potential ordinary shares | 904,828 | 11,468 | 9,675 |
| Weighted average number of ordinary shares for diluted earnings per share*¹ | 34,618,081 |
41,211,689 | 40,214,421 |
*¹The weighted average number of shares used in the calculation of the diluted loss per share for the six months ended 28 February 2009 and year ended 31 August 2009 is the same as that in respect of the basic loss per share calculation as the effect of exercising options would be to reduce the loss per share and is therefore not dilutive under the terms of IAS 33.
| Basic earnings/(loss) per share (pence) | 10.25 | (8.44) | (4.09) |
| Diluted earnings/(loss) per share (pence) | 9.98 | (8.44) | (4.09) |
6 INTERIM REPORT
Copies of the interim report for the Company for the period ended 28 February 2010 will be available on the Group's website at www.thecharacter.com.
INDEPENDENT REVIEW REPORT TO THE CHARACTER GROUP PLC
Introduction
We have been engaged by the Company to review the financial statements presented in the half-yearly report for the six months ended 28 February 2010, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and related notes 1 to 5. We have read the other information contained in the half-yearly report which comprises only the Chairman's statement and considered whether it contains any apparent misstatements or material inconsistencies with the financial statements.
This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purposes. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.
As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Review conclusion
Based on our review, nothing has come to our attention that causes us to believe that the financial statements in the half-yearly report for the six months ended 28 February 2010 are not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.
HLB Vantis Audit plc
Chartered Accountants
London
26 April 2010