CVH.L Regulatory News (CVH)

23 Apr 2008 07:00

Cavanagh Group PLC23 April 2008 Cavanagh Group plc ("Cavanagh" or "The Group") Results for the year ended 31 December 2007 Cavanagh Group plc, one of the leading firms of Independent Financial Advisers,announces its preliminary results for the year ended 31 December 2007. Key Results • Revenue up by 18% to £16,638,000 (2006: £14,112,000) • Pre tax profit up by 49% to £1,556,000 (2006: £1,046,000) • Net cash generated from operations £1,817,000 (2006: £1,620,000) Andrew Fay, Chief Executive, comments: "2007 has seen Cavanagh's strong organic growth continue and as a result we haveenjoyed a positive twelve months with good performances across all areas of thebusiness." Cavanagh Group plcAndrew Fay (Chief Executive) 01444 475400Brewin Dolphin Investment BankingAndrew Emmott 0845 2708610 Cavanagh Group plcCHAIRMAN'S STATEMENT Financial Results I am pleased to report in my role as Acting Chairman, Cavanagh's results forthe year ended 31 December 2007 which show profit before tax expense of£1,556,173 (2006: £1,046,401) on increased revenue of £16,638,681, 18% up on theprevious year (2006: £14,112,186) and cash generated from operations of£1,817,428 (2006: £1,619,989). Having achieved the Board's aim of returning theGroup to profitability in 2006, our key objective was to generate furtherprofitable growth in 2007 and I believe that these results demonstrate that thishas been successfully achieved. Operations In the Chairman's Interim statement for the six months ended 30 June 2007, hecommented that the Board would consider suitable acquisitions that would fitCavanagh's business model and enhance shareholder value - in November this ledto the acquisition of JRG Financial Consultancy Limited ("JRG") which we believesatisfies both of these requirements. The integration process is well advancedand although only one month of JRG's trading is included in these results, theearly indications are positive for 2008. Additionally we have the opportunity tooffer wealth management advice to JRG clients which are currently predominantlycorporate accounts. At a time of significant uncertainty in the capital marketsI am pleased to note that this acquisition was partly funded by bank debt whichunderlines the level of confidence in the prospects of the combined business. I anticipate that the Board will consider further appropriate opportunitiesduring the coming year. The Chief Executive's Review provides the detail of the Group's activities overthe last year but I would like to briefly highlight a few points which help todifferentiate Cavanagh from the majority of IFA operations. Firstly, the highlevel of average per capita revenue per consultant which has now reached£273,000, an increase of 14% over 2006 - this is not only attributable to theprofile of the client base but also to the depth of technical support andknowledge which enables the consultants to be efficient: secondly, the highlevel of recurring and fee-based revenue which accounted for 40% of 2007turnover and which is expected to increase as a full year of JRG's trading isincluded in 2008; and thirdly, the importance of the value of funds under advicewhich has increased to over £2 billion providing a solid base on which Cavanaghcan obtain value for both clients and shareholders. Reduction of Capital As previously stated, we have been considering the possibility of obtainingshareholder approval to eliminate the deficit on the Company's income statementby means of a reduction in its share premium account so that it has the abilityto make dividend payments in the future, subject to working capital and capitaladequacy requirements. This is now to be proposed as a special resolution at theforthcoming Annual General Meeting, thereby negating the need for anextraordinary general meeting. Adoption of International Financial Reporting Standards These group financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion. Board and Staff At the end of what was the Group's most successful year John Campbell, ourChairman since flotation in 2001 announced his desire to focus on other businessopportunities and resigned from the Board in January. More recently NeilMillard, one of the founders of the Group, decided that he would ratherconcentrate on client-facing activity and has stepped down from the Board. Onbehalf of both the Board and the Group I would like to formally thank them fortheir significant contributions to Cavanagh over the last few years. As a result of John Campbell's departure at the request of the Board, I havetaken on the role of Acting Chairman. One of the other key differentiators of the Group is the enthusiasm,professionalism and dedication across all areas of its staff - I consider thisto be an important reason as to why Cavanagh continues to be successful and Iwould like to take this opportunity to thank them, on behalf of the Board, fortheir contribution. Outlook Although we are operating in a particularly uncertain economic climate weanticipate that the demand for independent financial advice will remain strongand this, together with a number of ongoing initiatives, makes the Boardcautiously optimistic about the current year. Paul SinnettChairman22 April 2008 Cavanagh Group plcCHIEF EXECUTIVE'S REVIEW Overview 2007 has seen Cavanagh's strong organic growth continue and as a result we haveenjoyed a positive twelve months with good performances across all areas of thebusiness. The Group's results for the year ended 31 December 2007 clearly demonstrateCavanagh's progress over the past year, but as we move forward in the currentchallenging economic climate, we are taking nothing for granted. We have delivered on all our key objectives for 2007 and we continue to buildbrand awareness based on our strengthening reputation for delivering the rightresults to both our clients and shareholders. The Group aims to continue to develop long-term relationships with its clientsby providing quality financial planning solutions tailored to professionals,high net worth individuals and corporates. Business Highlights As is traditional, the headline financial results are reported in the Chairman'sstatement however, I feel it is appropriate to highlight our successes here -strong organic growth has seen pre tax profits up 49% year on year - withprofits 19% up in the second half of the year over the first half. Turnover was up 18% year on year - mainly from organic growth, although thisdoes include one month's trading figures from JRG following the acquisition inlate November. The Group now has a strong infrastructure upon which it can provide a goodplatform for further growth both organically and through appropriateacquisitions. Pensions and investments continue to be a key area of business, and we see thefuture in these areas remaining very strong given the increasing need forprofessional advice due to the complexity of the market and the diversity of theproducts on offer. Cavanagh saw client assets on Wrap products increase from £55 million in 2006,to £90 million in 2007, with additional assets on other platforms in excess of£160m which builds up the base of recurring income in the year. This is an areathat we still believe shows opportunity for significant growth. I am pleased toreport that the first full year of our new investment process has yieldedsignificant benefits helping to manage and develop our investment offerings andwe continue to further build recurring incomes from our PFP, actuarial andcorporate propositions. In addition, we will continue to focus on data cleansingand developing our client segmentation programmes in order to help enhance ourservice proposition. The Group's average adviser productivity increased by 14% from £239,000 in 2006to £273,000 in 2007. This average annual revenue per Cavanagh consultant is,when compared with the rest of the IFA marketplace, already at the top end ofthe productivity range and we are targeting a further increase in productivityin 2008. We continue to have a clear focus on increasing the quality andquantity of business that is generated by our consultants from advising high networth clients. CPRM, the Group's specialist actuarial and advisory service, continues to growsteadily and to attract new corporate clients on a regular basis. It has built asolid and regular income with recurring income accounting for 58% of itsbusiness compared with 53% in 2006. Our internal processes can be seen to have helped increase the quality of workwe undertake and we remain committed to attracting and retaining the highestquality and level of staff, including the technical advisers who are a key partof our operations. To this end we have formalised our training and developmentstructures and the initial results are encouraging. There is a real sense of achievement throughout the Group for delivering thisstrong performance across all areas of business activity. But we cannot becomplacent as we face fresh but exciting challenges in the coming year. Organisation In December 2007 our Chairman, John Campbell, stepped down to concentrate onother business interests and Paul Sinnett became Acting Chairman. We benefitedenormously from John's increased involvement with the Group in 2007 and he wasan important figure in the acquisition of JRG Financial Consultancy Limited. Wewish him well. Paul Sinnett has been a board member since September 2001 and is a member of theRemuneration Committee as well as being Chairman of the Audit Committee; he wasalso Group Finance Director of Lynx Group plc when it was a fully-listedcompany. We are looking forward to Paul continuing to contribute to the Group'ssuccess. I am also pleased to report the Group opened two new offices, in Chichester andCardiff, during the year. We merged our two Edinburgh offices in Decemberfollowing the acquisition of JRG Financial Consultancy Limited and also retainedtheir two other offices in Reigate and Jedburgh. Our geographical coverage hastherefore increased with nine offices in 2006 increasing to 13 offices in 2007.As a result, our staffing level has risen by 11 compared with last year. Strategic Focus & Outlook In 2008 and beyond the Group will continue to look to grow organically; however,we will consider suitable acquisitions when and where the enhancement ofbusiness and shareholder value can clearly be demonstrated. The concept of "treating customers fairly" (TCF) has always been part of theculture within Cavanagh. Initiatives implemented by the FSA have been addressedand firmly remain part of our ongoing focus. We are watching the Government's Retail Distribution Review (RDR) with interest,but feel Cavanagh is well placed to take advantage of any forthcoming changes,due to the strength of our team and our strong client relationships. At this early stage of 2008 I look forward to another successful year. Andrew FayChief Executive22 April 2008 Cavanagh Group plcCONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2007 2007 2006 Notes £ £ REVENUE 16,638,681 14,112,186 Cost of sales (9,293,158) (7,773,821) ------------ ------------GROSS PROFIT 7,345,523 6,338,365Administrative expenses excluding depreciationand amortisation (5,569,557) (4,937,909)Share of joint venture profit after tax 123,238 126,190 ------------ ------------ EARNINGS BEFORE INTEREST, DEPRECIATION,AMORTISATION AND TAX 1,899,204 1,526,646Finance costs (116,260) (207,031)Depreciation (176,771) (268,587)Amortisation (50,000) (4,627) ------------- ------------ PROFIT BEFORE TAX EXPENSE 1,556,173 1,046,401Tax expense 4 (483,917) (397,439) ------------- ------------PROFIT FOR THE FINANCIAL YEAR 1,072,256 648,962 ============ ============PROFIT ATTRIBUTABLE TO :Equity holders of Parent company 1,038,401 629,237Minority Interests 33,855 19,725 ------------ ------------ 1,072,256 648,962 ============ ========== ============ ========== Basic earnings per share - pence 5 9.5 5.8Fully diluted earnings per share - pence 5 9.4 5.8 The profit from operations arises from the Group's continuing operations. Cavanagh Group plcCONSOLIDATED BALANCE SHEETAs at 31 December 2007 2007 2006ASSETS £ £ Non-current assetsProperty plant and equipment 444,249 364,896Intangible assets 7,190,566 1,532,350Investment in Joint Venture 2,000 2,000Deferred tax asset 243,631 659,069 ------------- ------------- 7,880,446 2,558,315 ------------- -------------Current assetsTrade and other receivables 2,249,127 1,636,048Corporation tax receivable - 3,547Cash and cash equivalents 2,598,367 1,836,595 ------------- ------------- 4,847,494 3,476,190 ------------- -------------TOTAL ASSETS 12,727,940 6,034,505 ------------ ------------LIABILITIESCurrent liabilitiesTrade and other payables 3,117,560 1,807,162Corporation tax payable 309,847 47,320Financial liabilities 1,132,427 600,000 ------------- ------------ 4,559,834 2,454,482 ------------- ------------Non-current liabilitiesFinancial liabilities 4,386,700 2,900,000Deferred tax liability 942,784 -Provisions 209,340 231,365 ------------- ------------ 5,538,824 3,131,365 ------------- ------------Total liabilities 10,098,658 5,585,847 ------------- ------------NET ASSETS 2,629,282 448,658 =========== ============EquityIssued share capital 115,205 108,684Share premium account 3,742,647 2,705,800Share based payment reserve 222,942 157,942Retained earnings (1,502,137) (2,540,538) ------------ -------------TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY 2,578,657 431,888 Minority interests 50,625 16,770 ------------- ------------TOTAL EQUITY 2,629,282 448,658 ============ ============ Cavanagh Group plcCONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2007 Share Share Premium Share Based Retained Minority Total Account Payment Capital Reserve Earnings Interests £ £ £ £ £ £ At 1 January 2006 108,684 2,705,800 112,781 (3,169,775) (2,955) (245,465)Profit for the year - - - 629,237 19,725 648,962Share based payment - - 45,161 - - 45,161 ------------ ------------ ------------ ------------ ------------ ------------ At 31 December 2006 108,684 2,705,800 157,942 (2,540,538) 16,770 448,658Other movements -Issue of new shares 6,521 1,036,847 - - - 1,043,368-Share based payment - - 65,000 - - 65,000Profit for the year - - - 1,038,401 33,855 1,072,256 ------------ ------------ ------------ ------------ ------------ ------------ At 31 December 2007 115,205 3,742,647 222,942 (1,502,137) 50,625 2,629,282 ============ ============ ============ ============ ============ ============ Cavanagh Group plcCONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2007 2007 2006 £ £CASH FLOW FROM OPERATING ACTIVITIESProfit before tax 1,556,173 1,046,401 Share of profit in joint venture (123,238) (126,190)Share based payment 65,000 45,161 Depreciation 176,771 268,587Amortisation 50,000 4,627(Decrease) / increase in trade and otherreceivables (379,553) 600,161Increase / (decrease) in trade and otherpayables 392,835 (409,472)(Decrease) in provisions (36,820) (16,317)Finance costs 116,260 207,031 ------------ ------------NET CASH GENERATED FROM OPERATIONS 1,817,428 1,619,989Income taxes paid (18,284) -Interest paid (241,993) (266,102) ------------ ------------NET CASH FROM OPERATING ACTIVITIES 1,557,151 1,353,887 ------------ ------------CASH FLOWS FROM INVESTING ACTIVITIESPayments to acquire property, plant andequipment (125,642) (40,573)Payments to acquire intangible assets (72,500) -Payment to acquire subsidiary (net of cashacquired) (2,837,422) -Interest received 125,733 59,071Income received from joint venture 95,325 157,738 ------------ ------------NET CASH (USED IN) / FROM INVESTINGACTIVITIES (2,814,506) 176,236 ------------ ------------CASH FLOWS FROM FINANCING ACTIVITIESProceeds of new borrowings 3,519,127 1,500,000Repayment of borrowings (1,500,000) (2,100,000) ------------ ------------NET CASH INFLOW / (OUTFLOW) FROM FINANCING 2,019,127 (600,000) ------------ ------------Net increase in cash and cash equivalents 761,772 930,123Cash & cash equivalents at the beginning ofthe financial year 1,836,595 906,472 ------------ ------------Cash & cash equivalents at the end of thefinancial year 2,598,367 1,836,595 ============ ============ NOTES TO THE RESULTS 1 Basis of the preliminary announcement The board of directors of Cavanagh Group plc approved these results on 22 April2008. The preliminary financial information does not constitute full accounts withinthe meaning of section 240 of the Companies Act 1985 but is derived fromaccounts for the years ended 31 December 2007 and 31 December 2006. The preliminary announcement is prepared on the same basis as set out in thestatutory accounts for the year ended 31 December 2007. Those accounts, uponwhich the Auditors issued an unqualified opinion, will be delivered to theRegistrar of Companies following the Annual General Meeting. Statutory accounts for the year ended 31 December 2006, which were preparedunder accounting practices generally accepted in the UK, have been filed withthe Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain any statement under Section 237 (2) or (3) ofthe Companies Act 1985. The statutory accounts will be posted to shareholders shortly. While the financial information include in this preliminary announcement hasbeen prepared in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRS), as adopted by the EuropeanUnion (EU), this announcement does not in itself contain sufficient informationto comply with IFRS's. The Annual General Meeting will be held at The Courtyard, Staplefield Road,Cuckfield, West Sussex on Thursday 29 May 2008 at 10.00. 2 SIGNIFICANT ACCOUNTING POLICIES The Group's previous financial statements have been prepared under UK GenerallyAccepted Accounting Practice (UK GAAP). However for the financial year ended 31December 2007, the Group has decided to prepare its annual consolidatedfinancial statements in accordance with IFRS as adopted by the European Union(EU) and implemented in the UK. The presentation of financial information under IFRS is governed by IFRS 1. Insome cases this will require the presentation of an item in a differentposition, or the use of a different description in the IFRS income statement orbalance sheet to that adopted in the UK GAAP profit and loss account or balancesheet. These reclassifications have been described in the explanatory notes. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's results and income statement for the year ended 31 December 2006, andthe equity and balance sheets as at 1 January 2006 and 31 December 2006 is setout in note 7. IFRS 7 Financial Instruments: Disclosures became effective for accountingperiods commencing on or after 1 January 2007. The Group has adopted IFRS 7accordingly. The accounting policy amendment affects disclosures only and hasno material impact on the current or preceding periods' financial position andperformance. At the date of the authorisation of the financial information the followingstandards and interpretations, which have not been applied in the financialinformation, were in issue but not yet effective: IFRS 8 Operating segmentsIAS 1 Amendment to IAS 1 - Presentation of Financial StatementsIFRIC 10 Interim financial reporting and impairmentIFRIC 11 Group and treasury share transactionsIFRIC 12 Service concession arrangementsIFRIC 13 Customer loyalty programmesIFRIC 14 The limit on a Defined Benefit Asset, minimum funding requirement and their interactionIAS 23 Amendment to IAS 23 Borrowing CostIAS 27 Amendment - Consolidated and Separate Financial StatementsIFRS 3 Amendment - Business CombinationsIFRS 2 Amendment - Share-based payment The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialinformation when the relevant standards and interpretations come into effect. BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements ofthe Company and its subsidiaries. The results of subsidiaries acquired ordisposed of during the year are included in the Consolidated income statementfrom the date control is obtained to the date control is transferred to a thirdparty. Subsidiaries are entities controlled by the Group. Control exists when theGroup has the power to govern the financial and operating policies of an entityso as to obtain benefits from its activities. In assessing control, potentialvoting rights that currently are exercisable are taken into account. Thefinancial statements of subsidiaries are included in the consolidated financialstatements from the date that control commences until the date that controlceases. Intra-group balances and transactions, and any unrealised income and expensesarising from intra-group transactions, are eliminated in preparing theconsolidated financial statements. Unrealised gains arising from transactionswith equity accounted investees are eliminated against the investment to theextent of the Group's interest in the investee. Unrealised losses areeliminated in the same way as unrealised gains, but only to the extent thatthere is no evidence of impairment. Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement and requiring unanimous consentfor strategic financial and operating decisions. Jointly controlled entitiesare accounted for using the equity method and are initially recognised at cost.The consolidated financial statements include the Group's share of the incomeand expenses and equity movements after adjustments to align the accountingpolicies with those of the Group, from the date that joint control commencesuntil the date that joint control ceases. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the financial information in conformity with IFRS requiresmanagement to make judgement, estimates and assumptions that affect theapplication of policies and the reported amounts of assets and liabilities,income and expenses. The estimates and associated assumptions are based onhistorical experience and various other factors that are believed to bereasonable under the circumstances, the results which form the basis of makingthe judgements about carrying values of assets and liabilities that are bothreadily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoingbasis. Revisions to accounting estimates are recognised in the period in whichthe estimate is revised if the revision affects only that period or in theperiod of the revision and future periods if the revision affects both currentand future periods. Critical accounting estimates concern the valuation of intangible assets arisingon business combinations and provision for future clawback commission. REVENUE Revenue represents commissions and consultancy fees and is recorded at the fairvalue of the consideration, excluding value added tax. Revenue is recognised onthe following basis: - initial commission is recognised as revenue on the date that the relevant policy is placed on risk with the insurance company; - some initial commission is paid on indemnity terms. As a result, commission may subsequently be clawed back by the insurance companies. Provision is made for future clawback commission to cover the liability of repayments in the event of premiums ceasing within the indemnity period; - renewals commission is recognised when it is receivable; and - any fees charged for consultancy are recognised as revenue during the period in which the consultancy is provided. SEGMENTAL REPORTING A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is a group of assets and operations that provide aproduct or service within a particular economic environment and that is subjectto risks and returns that are different from segments operating in differentenvironments. The directors consider that the Group operates in only onegeographic segment, being the United Kingdom. INTANGIBLE ASSETS Intangible assets such as computer software and web sites which have finiteuseful lives, are measured at cost, net of any amortisation and any provisionfor impairment. Amortisation is calculated so as to write off the cost of anasset, less its estimated residual value, over the useful economic life of thatasset as follows: Web sites over 7 years on a straight line basisSoftware over 3 years on a straight line basis Websites acquired during the period have been recognised as intangible assets inaccordance with the principles outlined in SIC Interpretation 32 (IntangibleAssets - Web Site Costs). All intangible assets are externally generated. INTANGIBLE ASSETS ACQUIRED AS PART OF A BUSINESS COMBINATION The value of acquired customer relationships is determined by estimating the netpresent value of the future profits expected from those customer relationshipswhich have finite useful lives. The resultant carrying value is amortised overits expected useful economic life as follows: Acquired customer relationships over 7 years on a straight line basis GOODWILL Goodwill arising on a business combination represents the excess of the cost ofacquisition over the Group's interest in the fair share of the identifiableassets and liabilities of the business combination. Goodwill on acquisition of subsidiaries is separately disclosed, as anintangible asset. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in the income statement andis not subsequently reversed. Goodwill is allocated to cash generating units for the purpose of impairmenttesting. On disposal of a subsidiary, the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. CONTINGENT CONSIDERATION Deferred and contingent consideration payable in cash is recorded at fair valueand is shown as other payables within current or non current liabilities, asappropriate, on the balance sheet to the extent that a contractual obligationexists and there is a probable transfer of economic benefit. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Cost comprises purchase price and otherdirectly attributable costs. Depreciation is charged so as to write off the costor valuation of assets to their residual values over their estimated usefullives, on the following bases: Freehold property 2% per annum straight lineLeasehold improvements over the term of the leaseFixtures and fittings 20% on reducing balance methodEquipment over 3 years on a straight line basis The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in the income statement. The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. IMPAIRMENT At each balance sheet date, the Group reviews the carrying amounts of itsproperty, plant and equipment and intangibles with finite lives to determinewhether there is any indication that those assets have suffered an impairmentloss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss (if any). Goodwill is tested for impairment annually. Where the asset does not generatecash flows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately. FINANCIAL ASSET INVESTMENTS Investments consist of the Group's subsidiary undertakings. Investments areinitially recorded at cost, being the fair value of the consideration given andincluding directly attributable expenses associated with the investment.Subsequently they are reviewed for impairment if events or changes incircumstances indicate the carrying value may not be recoverable. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised on the balance sheetwhen the Group has become a party to the contractual provisions of theinstrument. Trade and other receivables Trade and other receivables are recognised initially at fair value andsubsequently measured at amortised cost using the effective interest method,less provision for impairment. A provision for impairment of trade receivablesis established when there is objective evidence that the Group will not be ableto collect all amounts due according to the original terms of receivables. Theamount of provision is the difference between the asset's carrying amount andthe present value of estimated future cash flows, discounted at the effectiveinterest rate. Any provision is recognised in a separate allowance account andany impairment loss is recognised in the income statement. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and deposits held atcall with banks. For the purposes of the Cash Flow Statement, cash and cash equivalents consistof cash and cash equivalents as defined above. Financial liabilities Financial liabilities consist of bank borrowings and other loans. Financialliabilities are classified according to the substance of the contractualarrangements entered into. An instrument will be classified as a financialliability when there is a contractual obligation to deliver cash or anotherfinancial asset to another enterprise. Borrowings Borrowings comprise of interest-bearing bank loans and overdrafts.Interest-bearing bank loans are initially recorded at fair value, whichrepresents the fair value of the consideration received, net of any directlyattributable issue costs. Borrowings are subsequently stated at amortised cost. Finance charges are allocated over the term of the instrument using theeffective rate of interest, and are recognised in the income statement. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. LEASING COMMITMENTS Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalised at theinception of the lease at the fair value of the leased item or, if lower, at thepresent value of the minimum lease payments. Lease payments are apportionedbetween the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset or the lease term. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. TAXATION The tax expense represents the sums of the current tax expense and deferred taxexpense. Current tax is the expected corporation tax payable or receivable in respect ofthe taxable profit for the financial year using tax rates enacted orsubstantively enacted at the balance sheet date, less any adjustments to taxpayable or receivable in respect of previous periods. Deferred tax is recognised in respect of all temporary differences between thecarrying amounts of assets and liabilities included in the financial statementsand the amounts used for tax purposes that will result in an obligation to paymore, or a right to pay less or to receive more tax, with the followingexceptions: No provision is made relating to the initial recognition of assets orliabilities that affect neither accounting nor taxable profit other than thoseacquired as part of a business combination. Provision is made for deferred tax that would arise on all taxable temporarydifferences associated with investments in joint ventures, except where theGroup can control the reversal of the temporary differences. Deferred tax assets are recognised only to the extent that the directorsconsider that it is probable that there will be suitable taxable profits fromwhich the future reversal of the underlying temporary differences and unused taxlosses and credits can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that areexpected to apply in the periods in which the asset is realised or liability issettled, based on tax rates and laws enacted or substantively enacted at thebalance sheet date. PROVISIONS Provisions are recognised when the Group has a present obligation as a result ofa past event which it is probable will result in an outflow of economic benefitsthat can be reliably estimated. Provision is made for future clawback commission to cover the liability ofrepayments in the event of premiums ceasing within the indemnity period. Provision is made for dilapidations where the Group has a contractual obligationto restore leasehold properties to the condition on commencement of each leaseand is included in other payables. DEFINED CONTRIBUTION PENSION PLANS Obligations for contributions to defined contribution retirement benefit plansare charged as an expense as they fall due. SHARE-BASED PAYMENT The Group has applied the requirements of IFRS 2 Share-based payment. The Group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of equity-settled share-basedpayments is expensed on a straight line basis over the vesting period, based onthe Group's estimate of share options that will eventually vest and acorresponding amount credited to share based payments reserve. Fair value is measured by use of the Black-Scholes model. The expected life usedin the model has been adjusted, based on management's best estimate, for theeffect of non-transferability, exercise restrictions and behaviouralconsiderations. 3 SEGMENTAL INFORMATION The directors are of the opinion that there are two business segmentswithin the activities of the Group. Activities of Independent Financial Advisersand also actuarial services. All operations are carried out within the UnitedKingdom. 2007 2007 2007 2006 2006 2006 Total IFA Actuarial Total IFA Actuarial £ £ £ £ £ £ Income 16,638,681 15,209,201 1,429,480 14,112,186 12,993,090 1,119,096 ============ ============ ============ ============ ============ ============Profit beforetax expense 1,556,173 1,408,533 147,640 1,046,401 969,286 77,115Tax expense (483,917) (444,181) (39,736) (397,439) (380,754) (16,685) ------------- ------------- ------------- ------------- ------------- -------------Profit for thefinancial year 1,072,256 964,352 107,904 648,962 588,532 60,430 ============ ============ ============ ============ ============ ============Tradereceivables 1,904,375 1,530,179 374,196 1,130,943 846,140 284,803 ============ ============ ============ ============ ============ ============Total net assets 2,629,282 2,457,269 172,013 448,658 391,759 56,899 ============ ============ ============ ============ ============ ============Average number of staff employed 159 143 16 148 133 15 ============ ============ ============ ============ ============ ============ 4 TAXATION ON ORDINARY ACTIVITIES 2007 2006 £ £Current tax:Corporation tax at 30% (2006: 30%) 68,471 16,285Adjustment in respect of prior years 8 (513) ------------- -------------Total current tax 68,479 15,772 Deferred tax: 415,438 381,667 ------------- -------------Income tax expense 483,917 397,439 ============ ============ The charge for the year can be reconciled to the profit per the Income Statementas follows: 2007 2006 £ £ Profit before tax expense 1,072,256 648,962Total income tax expense 483,917 397,439 ------------- ------------Profit for the financial year 1,556,173 1,046,401 ============ ============ Tax at the UK corporation tax rate of 30% (2006:30%) 466,852 313,920Expenses not deductible for tax purposes 5,857 2,907Unrelieved tax losses and other deductions inthe year 77,761 77,034Other (22,353) (10,865)Over provision in prior year (40,770) 14,443Marginal relief (3,430) - ------------ ------------Total current tax 483,917 397,439 ============ ============ 5 EARNINGS PER SHARE 2007 2006 £ £ Profit for the financial year after taxationattributable to Equity holders 1,038,401 629,237Share based compensation charge 65,000 45,161 ------------ ------------Adjusted profit after taxation 1,103,401 674,398 ============ ============Weighted average number of shares (No)For basic earnings per ordinary share 10,930,952 10,868,421Exercise of share options 122,013 33,109 ------------- ------------For fully diluted earnings per ordinary share 11,052,965 10,901,530 ============ ============ Earnings per ordinary share - basic 9.5p 5.8p ============ ============Earnings per ordinary share - adjusted 10.1p 6.2p ============ ============Earnings per ordinary share - fully diluted 9.4p 5.8p ============ ============ 6 ACQUISITION OF JRG FINANCIAL CONSULTANCY LIMITED On 27 November 2007, the Company purchased 100% of the issued ordinary shares inJRG Financial Consultancy Limited for a maximum total consideration of£5,300,000 plus costs which was satisfied by £3,500,000 in cash, the issue of652,105 new shares and contingent consideration of £750,000 payable after oneyear subject to certain profit targets being met. At the date of acquisition JRG Financial Consultancy Limited had assets made upas follows: Book value Fair value Fair Value adjustment £ £ £ Intangible assets - 3,349,360 a) 3,349,360Property, plant and equipment 95,173 35,309 b) 130,482Receivables 233,526 - 233,526Cash and cash equivalents 812,988 - 812,988Payables (411,355) - (411,355)Deferred taxation - (942,784) c) (942,784)Provisions (14,795) - (14,795) ------------ ------------ ------------ 715,537 2,441,885 3,157,422 ============ ============Goodwill arising onacquisition 2,286,356 ------------ 5,443,778 ============Settled by:Shares issued 1,043,368Cash consideration 3,500,000Acquisition costs 150,410Contingent consideration 750,000 ________Total 5,443,778 ============ Cash Outflow £Cash consideration 3,500,000Acquisition costs 150,410Less cash and cash (812,988)equivalents acquired ________ 2,837,422 ============ a) Customer relationships acquired as part of the business combination have been valued using the multi-period excess earnings method. b) The freehold property was independently revalued as at 27 November 2007 to open market value c) Deferred taxation has been recognised in respect of the temporary difference between the carrying amount of the freehold property and its tax base. Deferred taxation is also recognised in respect of future taxable profits anticipated to be generated from the acquired customer relationships. Due to the proximity of the business combination to the year end, managementcontinues to assess information to support the assumptions that are currentlybeing used to calculate the amount of goodwill attributable to the value ofcustomer relationships. The results of the entities acquired during the year were: Revenue Post tax profit Year to Post Year to Post 31 December acquisition 31 December acquisition 2007 2007 £ £ £ £JRG Financial ConsultancyLimited 3,564,000 302,000 594,000 40,000 ============ ============ ============ ============ 7 EXPLANATION OF TRANSITION TO IFRS This is the first year that the Group has presented its financial statementsunder IFRS. The last financial statements under UK GAAP were for the year ended31 December 2006 and the date of transition to IFRS was therefore 1 January2006. For all periods up to and including the year ended 31 December 2006 the Groupprepared its financial statements in accordance with United Kingdom GenerallyAccepted Accounting Practices (UK GAAP). In preparing these financial statements, the Group has started from an openingbalance sheet as at 1 January 2006, the Group's date of transition to IFRS, andmade those changes in accounting policies and other restatements required byIFRS 1 for the first time adoption of IFRS. IFRS 1 allows first time adopters certain exemptions from the generalrequirements to retrospectively apply IFRS as effective for the 31 December 2005year end. The optional exemptions taken by the Group are as follows: Business Combinations: The Group has elected not to apply IFRS 3 BusinessCombinations retrospectively to business that took place prior to the transitiondate. Consequently goodwill arising on business combinations before transitiondate remains at its previous UK GAAP carrying value as at the date oftransition. The entity has also elected to apply IFRS 2 to equity instruments granted on orafter 7 November 2002 that had not vested as at the transition date as permittedby IFRS 1. The reconciliation between UK GAAP and IFRS for the Group's profit/(loss),income statement, balance sheet and total equity are presented below: Reconciliation of equity as at 31 December 2006 Year ended 31 December 2006 £ Total equity under UK GAAP 252,758Amortisation of goodwill 195,900 ----------------Total equity under IFRS 448,658 ================ The principal effects identified on adoption of IFRS are discussed below: Goodwill IFRS 3 'Business Combinations', IAS 36 and IAS 38 resulted in a change to thecarrying values of Goodwill. Until 31 December 2005, goodwill was amortised ona straight line basis over a period of up to 10 years from the year ofacquisition and assessed for an indication of impairment at each balance sheetdate. Under IFRS 3, goodwill is no longer amortised and, instead, is assessed annuallyfor impairment. As a result of this change, the goodwill asset was increased by£195,900. Intangible Assets. IAS 38 resulted in a change of classification of computer software. Under UKGAAP, computer software was classified as a tangible non current asset. UnderIAS 38, computer software is classified as an intangible non current asset. Joint Ventures IAS 1 resulted in a change to the presentation of profits attributable to jointventure operations. Under UK GAAP, the proportion of turnover, profits fromoperations and taxation arising from joint venture operations were disclosedseparately. Reconciliation of balance sheet at 1 January 2006 (date of transition to IFRS) As previously Effect of As restated restated under transition to under IFRS UK GAAP IFRS 1 January 2006 1 January 2006 £ £ £Non-current assetsProperty plant and equipment 604,477 - 604,477Intangible assets 1,525,410 - 1,525,410Investment in joint venture 2,000 - 2,000Deferred tax asset 1,040,736 - 1,040,736 ------------ ------------ ------------ 3,172,623 - 3,172,623 ------------ ------------ ------------ Current assetsTrade and other receivables 2,236,209 - 2,236,209Corporation tax receivable 3,547 3,547Cash and cash equivalents 906,472 - 906,472 ------------ ------------ ------------ 3,146,228 - 3,146,228 ------------ ------------ ------------Total assets 6,318,851 - 6,318,851 ============ ============ ============Current liabilitiesTrade and other payables 2,216,634 - 2,216,634Financial liabilities 600,000 - 600,000 ------------ ------------ ------------ 2,816,634 - 2,816,634 Non current liabilitiesFinancial liabilities 3,500,000 - 3,500,000Provisions 247,682 - 247,682 ------------ ------------ ------------ 3,747,682 - 3,747,682 ------------ ------------ ------------Total liabilities 6,564,316 - 6,564,316 ------------ ------------ ------------Net liabilities (245,465) - (245,465) ============ ============ ============EquityIssued share capital 108,684 - 108,684Share premium account 2,705,800 - 2,705,800Share based payment reserve 112,781 - 112,781Retained earnings (3,169,775) - (3,169,775)Minority interests (2,955) - (2,955) ------------ ------------ ------------Total equity (245,465) - (245,465) ============ ============ ============ Reconciliation of balance sheet at 31 December 2006 (date of last UK GAAPStatements) As previously IAS 38 IFRS 3 As restated stated under UK Intangible Business under IFRS 31 GAAP assets combinations December 2006 31 December £ £ £ 2006 £Non-current assetsProperty, plant and equipment 371,836 (6,940) - 364,896Intangible assets 1,329,510 6,940 195,900 1,532,350Share of assets in joint venture 2,000 - - 2,000Deferred tax asset 659,069 - - 659,069 ------------ ------------ ------------ ------------ 2,362,415 - 195,900 2,558,315 ------------ ------------ ------------ ------------ Current assetsTrade and other receivables 1,636,048 - - 1,636,048Corporation tax receivables 3,547 - - 3,547Cash and cash equivalents 1,836,595 - - 1,836,595 ------------ ------------ ------------ ------------ 3,476,190 - - 3,476,190 ------------ ------------ ------------ ------------Total assets 5,838,605 - 195,900 6,034,505 ============ ============ ============ ============ Current liabilitiesTrade and other payables 1,807,162 - - 1,807,162Corporation tax payable 47,320 - - 47,320Financial liabilities 600,000 - - 600,000 ------------ ------------ ------------ ------------ 2,454,482 2,454,482 Non-current liabilitiesFinancial liabilities 2,900,000 - - 2,900,000Provisions 231,365 - - 231,365 ------------ ------------ ------------ ------------ 3,131,365 - - 3,131,365 Totalliabilities 5,585,847 - - 5,585,847 ------------ ------------ ------------ ------------Net assets 252,758 - 195,900 448,658 ============ ============ ============ ============EquityIssued Share capital 108,684 - - 108,684Share premium account 2,705,800 - - 2,705,800Share based payment reserve 157,942 - - 157,942Retained earnings (2,736,438) - 195,900 (2,540,538)Minority interests 16,770 - - 16,770 ------------ ------------ ------------ ------------Total equity 252,758 - 195,900 448,658 ============ ============ ============ ============ Reconciliation of income statement at 31 December 2006 As previously stated IAS 31 Interest in IFRS 3 Business As restated under under UK GAAP Joint Ventures and combinations IFRS IAS 38 Intangible 31 December 2006 31 December 2006 assets £ £ £ £ Revenue 14,112,186 - - 14,112,186 Cost of Sales (7,773,821) - - (7,773,821) ____________ ____________ ____________ ____________Gross Profit 6,338,365 - - 6,338,365 ____________ ____________ ____________ ____________ Administrative expensesexcluding depreciationand amortisation 4,937,909 - - 4,937,909Share of joint venture profit after tax (157,738) 31,548 - (126,190) ____________ ____________ ____________ ____________Earnings before financecosts, depreciationand tax 1,558,194 (31,548) - 1,526,646 Finance Costs 207,031 - - 207,031Depreciation 273,214 (4,627) - 268,587Amortisation 195,900 4,627 (195,900) 4,627 ------------ ------------ ------------ ------------Profit before tax expense 882,049 - 195,900 1,046,401 Tax expense (428,987) 31,548 - (397,439) ____________ ____________ ____________ ____________Profit attributable to equity holders of parent 453,062 - 195,900 648,962 ============ ============ ============ ============ Reconciliation of Cash Flow at 31 December 2006 (date of last UK GAAPStatements) There are no adjustments to Cash Flow resulting from the transition to IFRS. 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