FRM.L Regulatory News (FRM)

9 Nov 2006 07:01

Formation Group PLC09 November 2006 FRM.L FORMATION GROUP PLC ("Formation" or "the Group") Preliminary Results for the year ended 31 August 2006 Formation Group plc provides a range of specialist services to professionalathletes and other high net worth individuals and organisations in the sportsand entertainment sector. Services include wealth management & professionalservices, bespoke property investments and representation. Key Points • Post year end - sale of Sports Marketing division to Sportfive Gmbh & Co KG: - £10.223m was paid in cash on completion - an additional amount of up to £1.050m is payable in cash after the year ended 31 August 2007 depending on performance, and the continued employment of selected senior management - net gain on disposal of approximately £4.5m • Group focused on: - Wealth Management & Professional Services - Bespoke property investments - Representation • Financial Results for the year, including Sports Marketing division: - revenue from continuing operations increased by 13% to £15.1m (2005: £13.4m)* - operating profit from continuing operations rose by 23% to £1.6m (2005: £1.3m)* - profit before tax from continuing operations grew by 20% to £1.5m (2005: £1.3m)* - basic earnings per share from continuing operations increased 20% to 0.91 pence (2005: 0.76 pence)* - adoption of International Financial Reporting Standards ("IFRS) with effect from 1 September 2004 • Proposed final dividend of 0.105p per share (2005: 0.095p), an increase of approximately 11% • Board remains confident of Group's prospects for the future * restated in accordance with IFRS John Lawrence, Chairman of Formation, commenting, said: "The disposal of the Sports Marketing division, approved by shareholders on 24October 2006 after the year end, was a significant step for the Group.Accounting for a material part of Group revenue in the last financial year, thesale fundamentally transforms the shape of the business. The offer fromSportfive Gmbh & Co KG enabled us to realise value for the Group and now leavesFormation focused on its Wealth Management & Professional Services operation, aswell as new property ventures, and its Representation division. Looking forward, we see good opportunities to develop the on-going businessesboth organically and by acquisition. Our culture, brand identity and expertiseare well established and the proceeds of the disposal of the Sports Marketingdivision will provide the financial platform to put this strategy into practice.As at 31 October 2006, the Group's net cash amounted to £7m leaving us in veryrobust shape financially." Enquiries: Formation Group plc Neil Rodford Tel: 020 7448 1000 (today) orwww.formationgroupplc.com 01625 539832 (thereafter) Biddicks Katie Tzouliadis Tel: 020 7448 1000 CHAIRMAN'S STATEMENT The disposal of the Sports Marketing division, approved by shareholders on 24October 2006 after the year end, was a significant step for the Group.Accounting for a material part of Group revenue in the last financial year, thesale fundamentally transforms the shape of the business and allows us toconcentrate on activities what we consider to be higher growth opportunities.The offer from Sportfive Gmbh & Co KG, enabled us to realise value for the Groupand now leaves Formation focused on its Wealth Management & ProfessionalServices operation, as well as new property ventures, and its Representationdivision. These two divisions serve two distinct customer groups. The first is high networth athletes and entertainers who require financial planning and ancillaryservices, along with career advice. The second is sporting organisations andclubs for whom we can broker financial solutions. Looking forward, we see good opportunities to develop the on-going businessesboth organically and by acquisition. Our culture, brand identity and expertiseare well established and the proceeds of the disposal of the Sports Marketingdivision will provide the financial platform to put this strategy into practice.As at 31 October 2006, the Group's net cash amounted to £7m leaving us in veryrobust shape financially. The Board and Staff I am pleased to welcome to the board Laurie Turnbull and Ian Battersby. Theyjoined respectively as Non-Executive Director and Director of Wealth Managementon 2 May 2006 and 24 October 2006. Laurie Turnbull is an experienced senior executive in both public and privatecompanies. For over 15 years, he was Chief Executive Officer of Texas Group plc,the venture capital company, and was active in numerous acquisitions and initialpublic offerings. Laurie is currently Chief Executive of PenMc Plc andNon-Executive Chairman of CBG Group Plc. Ian Battersby has been involved at a senior level with the Wealth ManagementDivision since 2000 and has been Business Development Director of KingsbridgeAsset Management Limited since 2003, responsible for product development, sectorpenetration and high net worth client management. The success of the Group is dependent on the skill and dedication of all itsstaff and I would, once again, like to thank all of our employees for theircontribution and efforts in the year. Their hard work is very much recognisedand valued. John LawrenceNon-Executive Chairman CHIEF EXECUTIVE OFFICER'S REPORT Results During the year, the Company adopted International Financial Reporting Standards("IFRS") for the first time. The comparative figures for the year ended 31August 2005 have been restated in accordance with IFRS. The comparative figureswere included in our interim results for the six months ended 28 February 2006,and details of the adjustments on transition can be found in note 2 of thepreliminary announcement. For the year ended 31 August 2006, Group revenue from continuing operations was13% higher than last year at £15.1 million (2005: £13.4 million). Profit beforetaxation from continuing operations was £1.5 million, a rise of 20% over lastyear (2005: £1.3 million). The loss before taxation from discontinued operationswas £0.6 million (2005: profit of £0.3 million). Basic earnings per share fromcontinuing operations increased by 20% to 0.91p (2005: 0.76p). Basic earningsper share from continuing and discontinued operations was 0.46p (2005: 0.93p). At 31 August 2006, the Group's continuing operations committed future grossprofit was £2.8 million (2005: £5.2 million). £1.5 million will be recognised inthe financial year ending 31 August 2007. This year on year decline is mainlydue to the disposal of six subsidiary companies during and post the year end. At 31 August 2006, Group net funds stood at £2.1 million (2005: £0.4 million),with cash of £1.0 million generated from operations during the year (2005: £2.2million). There was an inflow from acquisitions and disposals of subsidiaryundertakings of £0.8 million (2005: an outflow of £3.2 million) and a net inflowfrom the issue of new share capital and purchases of own shares of £0.7 million(2005: £nil). The Directors are recommending a final dividend payment for the financial yearof 0.105p per share (2005: 0.095p) an increase of approximately 11% per share.Subject to shareholder approval at the Annual General Meeting on 19 December2006, this will be paid on 22 December 2006 to shareholders on the register atthe close of business on 24 November 2006. Trading During the period under review, Formation Group PLC had three operating divisions: - Sports Marketing, trading through Fox Advertising, RC&A Sports Management, Bermitz Sports Advertising, Sponsormatic and Active Sports Marketing. Fox Advertising, RC&A Sports Management, Bermitz Sports Advertising and Sponsormatic all provide outdoor advertising and media to corporate brands. Active Sports Marketing provides marketing services to the same target audience. The division was disposed of on 31 October 2006; - Wealth Management & Professional Services, trading as Kingsbridge Asset Management, CBG Sports and Capital Sports Solutions. Kingsbridge provides financial planning and advice to sporting athletes and associations. Capital Sports Solutions and CBG Sports provide brokerage cash flow management advice to sporting organisations and clubs and general insurance products respectively; - Representation, trading as Proactive Sports Management, provides representation and management services to professional footballers and entertainers. Sports Marketing The division delivered a strong performance, in line with our expectations atthe start of the year. Revenue for the year increased to £8.3 million (2005:£6.7 million) and the segmental operating profit for the division was £1.26million (2005: £1.21 million). On 31 October 2006, the Group disposed of this division for a consideration ofup to £11.273 million. In the Board's opinion, the offer from Sportfive Gmbh &Co KG represented the opportunity to crystallise the underlying value of thisdivision. On completion, the Group received initial consideration of £10.223million. A further £1.050 million is dependent on the financial performance ofthe division in the year to 31 August 2007 and the retention of key employees.Based on the receipt of the initial consideration, the net gain on disposal isapproximately £4.5 million. Wealth Management & Professional Services Through Kingsbridge Asset Management, this division offers financial planning,insurance protection and management advice to individual athletes, entertainersand other high net worth individuals. Revenue for the year was £3.6 million(2005: £3.3 million) and the segmental operating profit was £543,000 (2005:£526,000). Serving predominantly professional football players and coaches based in the UK,we provide advice to these clients in all areas of wealth management, includingtax planning, investments and insurance protection. Given the specialised natureof the division's client base, our products are often bespoke and tailored tomeet clients' needs, unlike a more traditional independent financial advisor.Future opportunities consist of increasing our market share in our chosensegments and adding complementary businesses. This division also provides financial brokerage services to sportingassociations and clubs via Capital Sports Solutions. The Board is pleased withthe progress we are making in this area and is investigating the possibility ofusing the Group's capital to create a bespoke sporting fund. Representation Following the disposal of Proactive Scandinavia, our Scandinavian footballagency business based in Denmark, on 11 July 2006, this division consists of twooperating companies. Excluding Proactive Scandinavia, revenue of the continuingoperations was £3.1 million (2005: £3.4 million) and segmental operating profitwas £995,000 (2005: £1,061,000). The Representation division currently acts for107 (2005: 200) players throughout the world, of whom 81 (2005: 118) haverepresented their country at international level. The division completed 60(2005: 102) transfers or contract renewals in the year, a 41 per cent decreaseyear on year. We remain committed to this division and are confident about its medium termprospects after a significant period of instability and uncertainty. The PremierLeague enquiry undertaken by Lord Stevens has not yet been completed. However,we welcome this initiative and will comply with all recommendations which areimplemented. We believe any increased compliance and regulation will be ofbenefit to the division and the industry going forward. As at 31 August 2006, the division had committed future gross profit of £2.8million (2005: £3.2 million excluding Proactive Scandinavia) of which £1.5million will be recognised in the year ending 31 August 2007. Risks and Uncertainties The Group's key challenges are focused on four areas: our ability to recruit newclients in all divisions; our ability to retain and motivate senior salespersonnel and management; the continued desire for live English footballmatches, both domestically and internationally, which underpin the financialhealth of football clubs and, therefore, players' salaries; and finally, thesustainability of the UK and European residential and commercial propertysectors. Outlook The business has been significantly transformed over recent months and prospectsfor our retained operations look positive. The view is reinforced by the levelof contracted income within the Group and our strong cash position. The proceedsfrom the disposal of subsidiaries provide the Group with a solid platform fromwhich to grow and our focus will be to generate progressive earnings growth forour shareholders. This will be done though a mix of continuing organic growthand selective acquisition. We view the next phase of the Group's developmentwith much optimism. Neil RodfordChief Executive FORMATION GROUP PLCUnaudited consolidated income statementFor the year ended 31 August 2006 2006 2005* Note £'000 £'000 Continuing operationsRevenue 5 15,091 13,350 Cost of sales (5,267) (4,528) ----------------------- Gross profit 9,824 8,822 Administrative expenses (8,217) (7,517) ----------------------- Operating profit from continuing 5 operations 1,607 1,305 Investment income 9 7Finance costs (108) (56) ---------------------- Profit before taxation 1,508 1,256 Taxation (431) (387) ----------------------- Profit for the year from continuing operations 1,077 869 Discontinued operations(Loss)/profit for the year from discontinued operations (534) 200 ----------------------- Profit for the year attributable to equity holders of parent 543 1,069 Dividends 6 (109) (98) ------------------------ Retained profit for the financial year 434 971 ------------------------ Earnings per shareFrom continuing operationsBasic and diluted 7 0.91p 0.76p ------------------------ From continuing and discontinuedoperationsBasic and diluted 7 0.46p 0.93p ------------------------ * Restated in accordance with IFRS FORMATION GROUP PLCUnaudited consolidated statement of recognised income and expensesFor the year ended 31 August 2006 2006 2005* £'000 £'000 Exchange (loss)/gain on foreign currency translation of foreign operations (17) 8 Profit for the year attributable to equity holders of parent 543 1,069 ------------------------ Total recognised income and expenses for the year attributable to equityholders of the parent 526 1,077 ------------------------ * Restated in accordance with IFRS FORMATION GROUP PLCUnaudited consolidated balance sheetAs at 31 August 2006 2006 2005* £'000 £'000Non-current assetsGoodwill 15,917 17,275Other intangible assets 42 51Property, plant and equipment 349 425Deferred tax asset 124 27 --------------------- 16,432 17,778 --------------------- Current assetsTrade and other receivables 6,782 9,446Cash and cash equivalents 2,187 1,674 --------------------- 8,969 11,120 --------------------- Total assets 25,401 28,898 --------------------- Current liabilitiesTrade and other payables (8,419) (11,407)Tax liabilities (753) (726)Obligations under finance leases (4) (12)Bank overdrafts and loans (44) (400) --------------------- (9,220) (12,545) --------------------- Net current liabilities (251) (1,425) --------------------- Non-current liabilitiesTrade and other payables (343) (820)Obligations under finance leases (30) (42)Bank overdrafts and loans - (800) --------------------- (373) (1,662) --------------------- Total liabilities (9,593) (14,207) --------------------- Net assets 15,808 14,691 --------------------- EquityShare capital 1,264 1,149Share premium account 694 18Treasury shares (138) -Capital redemption reserve 61 61Currency and other reserves 3,839 3,809Profit and loss account 10,088 9,654 -------------------- Total equity 15,808 14,691 -------------------- * Restated in accordance with IFRS FORMATION GROUP PLCUnaudited statement of changes in shareholders' equityFor the year ended 31 August 2006 2006 2005* £'000 £'000 Opening shareholders' equity 14,691 13,676Dividends paid (109) (98)Profit for the year attributable to equity holders of the parent 543 1,069Issue of new shares 791 -Purchase of treasury shares (138) -Other reserves movement due to share options charge 47 36Exchange (loss)/gain on foreign currency translation recognised directly inequity (17) 8 ------------------------- Closing shareholders' equity 15,808 14,691 ------------------------- * Restated in accordance with IFRS FORMATION GROUP PLCUnaudited consolidated cash flow statementFor the year ended 31 August 2006 Note 2006 2005* £'000 £'000 Cash generated by operations 8 1,017 2,210Income taxes paid (395) (129)Interest paid (108) (56) ----------------------- Net cash inflow from operating activities 514 2,025 ----------------------- Investing activitiesInterest received 14 12Proceeds on disposal of property, plant and equipment 18 62Purchases of property, plant and equipment (170) (196)Purchases of trademarks and rights (2) (2)Deferred consideration paid (356) (3,031)Acquisition of subsidiaries (242) (468)Cash acquired with subsidiaries 135 342Acquisition expenses (107) -Proceeds on disposal of subsidiary 1,366 -Cash disposed of with subsidiary (8) - ---------------------- Net cash generated by/(used in) investing activities 648 (3,281) ---------------------- Financing activitiesDividends paid (109) (98)Proceeds on issue of shares 791 -Purchase of own shares (138) -Repayments of obligations under finance leases (20) (12)New bank loans raised - 1,200Repayment of bank loan (1,200) - ---------------------- Net cash (used)/generated by financing activities (676) 1,090 ---------------------- Net increase/(decrease) in cash and cash equivalents 486 (166) Cash and cash equivalents at the beginning of the year 1,674 1,829 Effect of foreign exchange rate changes (17) 11 ---------------------- Cash and cash equivalents at end of the year 2,143 1,674 ---------------------- * Restated in accordance with IFRS FORMATION GROUP PLC Notes to the unaudited preliminary announcementFor the year ended 31 August 2006 1. Basis of preparation The financial information set out in this unaudited preliminary statement doesnot comprise the Company's statutory accounts within the meaning of section 240(5) of the Companies Act 1985. The statutory accounts of the Company for theyear ended 31 August 2006, to be published in November 2006, will be finalisedon the basis of the financial information presented by the Directors in thisunaudited preliminary statement and will be delivered to the Registrar ofCompanies for England and Wales in due course and will also be sent toshareholders. Formation Group plc will produce its statutory accounts for the year ended 31August 2006 in accordance with International Financial Reporting Standards("IFRS"). Whilst the financial information included in this unauditedpreliminary statement has been computed in accordance with IFRS, thisannouncement does not itself contain sufficient information to comply with IFRS. The financial information set out in this unaudited preliminary statementincludes comparative figures that have been prepared on the same basis and aretherefore restated from those previously reported under UK GAAP. The auditorshave reported on the financial statements for the year ended 31 August 2005which were prepared under UK GAAP. Their report was unqualified and did notcontain any statements under s237(2) or (3) Companies Act 1985. 2. Transitional arrangements This is the first year that the Group has presented its financial statementsunder IFRS. The following disclosures are required in the year of transition.The Group has adopted IFRS from 1 September 2004, the date of transition. TheGroup is required to define its accounting policies under IFRS and then applythese policies retrospectively in determining the opening balance sheet underIFRS at the date of transition, these are set out in note 3. The rules for the first-time adoption of IFRS are set out in IFRS 1 'First-timeadoption of International Financial Reporting Standards'. IFRS 1 requires thatIFRS be applied retrospectively unless a specific exemption is applied. Inpreparing these consolidated financial statements, the Group has opted to takethe following exemptions permitted under IFRS 1: • IFRS 3 'Business combinations': Business combinations that took place before the transition date have not been restated and therefore all goodwill written-off to reserves or amortised prior to the date of transition remains written-off to reserves and will not be taken into account either for subsequent impairment reviews or on disposal of the subsidiary. • IAS 16 'Property, plant and equipment': To treat the property valuations as undertaken at 31 August 2004 as deemed cost at 1 September 2004; the related asset values therefore are unchanged on transition to IFRS. • IFRS 2 'Share based payments': The provisions of the standard has only been applied to options issued after 7 November 2002 which had not vested at 1 January 2005. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's net income and equity are included in note 4 of thesestatements. 3. Accounting policies The preliminary announcement has been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted for use in the European Union(EU), including International Accounting Standards (IAS) and interpretationsissued by the International Financial Reporting Interpretations Committee(IFRIC). Results for the comparative period have been restated under IFRS asadopted for use in the EU. Practice is continuing to evolve on the applicationand interpretation of IFRS. Further standards may be issued by the InternationalAccounting Standards Board (IASB) and standards currently in issue and endorsedby the EU may be subject to interpretations issued by the IFRIC. IFRS, as adopted by the EU, differs in certain respects from IFRS as issued bythe IASB. However, the consolidated financial statements for the periodspresented would be no different had the Group applied IFRS as issued by theIASB. References to IFRS hereafter should be construed as references to IFRS asadopted by the EU. The preparation of financial information, in conformity with generally acceptedaccounting principles under IFRS, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial information and the reported amounts of revenues andexpenses during the reporting period. Although these estimates are based onmanagement's best knowledge of the amount, event or actions, actual results mayultimately differ from those estimates. The disclosures required by IFRS 1 'First-time adoption of InternationalFinancial Reporting Standards' concerning the transition from United KingdomGenerally Accepted Accounting Practice (UK GAAP) to IFRS are given in note 2. . The preliminary announcement has been prepared on a historical cost basis. Basis of consolidation The Group's preliminary announcement consolidates the results of Formation GroupPlc and entities controlled by the Company (its subsidiaries) made up to the 31August each year. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity as to obtain benefitsfrom its activities. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies into line with those used by theGroup. All intra-group transactions, balances, income and expenses areeliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed and equityinstruments issued by the Group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 'Business Combinations' are recognisedat their fair value at the acquisition date, except for non-current assets (ordisposal groups) that are classified as held for resale in accordance with IFRS5 'Non-Current Assets Held for Sale and Discontinued Operations', which arerecognised and measured at fair value less costs to sell. Goodwill Goodwill arising on the acquisition of subsidiary undertakings and businesses,representing any excess of the fair value of the consideration given over thefair value of the identifiable assets and liabilities acquired, is recognised asan asset. Goodwill is reviewed for impairment at least annually and anyimpairment will be recognised in the income statement and is not subsequentlyreversed. As such it is stated at cost less provision for impairment in value. Intangible assets Trademarks are included at cost and amortised in equal annual instalments over aperiod of ten years which is their estimated useful economic life. Provision ismade for any impairment. Other rights are image rights which are included at cost and written off inequal instalments over their useful economic life. Provision is made for anyimpairment. Plant, property and equipment Plant, property and equipment are stated at cost, net of depreciation and anyprovision for impairment. Depreciation is provided on all plant, property andequipment at rates calculated to write off the cost or valuation, less estimatedresidual value, of each asset on a straight-line basis over its expected usefullife, as follows: Freehold land and buildings 20 years Short leasehold improvements Term of lease Fixtures and fittings 5 years Office equipment Between 3 and 5 years Plant & equipment Between 3 and 10 years Motor vehicles 4 years Residual value is calculated on prices prevailing at the date of acquisition The gains or loss arising on the disposal or retirement of an asset isdetermined as the difference between the sales proceeds and the carrying amountof the asset and is recognised in income. Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. Taxation The tax expense represents the sum of the corporation tax currently payable andthe deferred tax charge. The corporation tax currently payable is based on taxable profit for the year.Taxable profit differs from profit before tax as reported in the incomestatement because it excludes items of income or expense that are taxable ordeductible in other years and it further excludes items that are never taxableor deductible. The Group's liability for current tax is calculated using therates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on interests in subsidiaries and associates, and interests in jointventures where the Group is able to control the reversal of the temporarydifference and it is probable that the temporary difference will not reverse inthe foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the average tax rates that are expected to applyin the periods in which the timing differences are expected to reverse based ontax rates and laws that have been enacted by the balance sheet date. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against of current taxliabilities and where they relate to income taxes levied by the same taxationauthority and the Group intends to settle its current tax assets and liabilitieson a net basis. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and that these benefits can be measuredreliably. It is measured at the fair value of the consideration received orreceivable for goods and services provided, net of discounts, value added taxand excludes intra-group transactions. Revenue for football management services is recognised in accordance with theterms and conditions of the contract. Revenue derived from image rights held by the Group is recognised on a straightline basis over the terms of the contract. Revenue for sports marketing services represents the commission earned when theservice is provided. Revenue for corporate hospitality events is recognised when the event takesplace. Revenue is net of VAT and other sales related taxes. Invoices raised by theGroup but not yet recognised as revenue, in line with the revenue recognitionpolicy above, are credited to accruals and deferred income. Similarly invoicesreceived by the Group but not yet recognised as costs, in line with the profitrecognition policy above, are debited to prepayments and accrued income. Employee benefits - retirement benefit costs The Group operates a defined contribution scheme. The amount charged to theincome statement in respect of pension costs and other post-retirement benefitsis the contributions payable in the year. Differences between contributionspayable in the year and contributions actually paid are shown as either accrualsor prepayments in the balance sheet. Foreign currency The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each Group company are expressed in poundssterling, which is the functional currency of the Company and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items that are measured in terms ofhistorical cost in foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the year. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatesignificantly during that period, in which case the exchange rates at the dateof the transactions are used. Exchange differences arising, if any, areclassified as equity and transferred to the Group's translation reserve. Suchtranslation differences are recognised as income or as expenses in the period inwhich the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. The Group has elected to treat goodwill and fairvalue adjustments arising on acquisitions before the date of transition to IFRSas sterling denominated assets and liabilities. Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all of the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases and other similar contracts, which conferrights and obligations similar to those attached to owned assets, arecapitalised in the balance sheet and are depreciated over the shorter of thelease terms and their useful lives. The capital elements of future leaseobligations are recorded as liabilities, while the interest elements are chargedto the income statement over the period of the leases to produce a constant rateof charge on the balance of capital repayments outstanding. Hire purchasetransactions are dealt with similarly, except that assets are depreciated overtheir useful lives. Rentals under operating leases are charged on a straight-line basis over thelease term, even if the payments are not made on such a basis. Benefits receivedand receivable as an incentive to sign an operating lease are similarly spreadon a straight-line basis over the lease term. Finance costs Finance costs of debt are recognised in the income statement over the term ofsuch instruments at a constant rate on the carrying amount. Debt Debt is initially stated at the amount of the net proceeds after deduction ofissue costs. The carrying amount is increased by the finance cost in respect ofthe accounting period and reduced by payments made in the period. Share-based payments The Group issues equity-settled share-based payments to certain employees(including directors). The fair value of these payments is calculated by theGroup using the Black Scholes option pricing model. The expense is recognised ona straight line basis over the period from the date of award to the date ofvesting, based on the Group's best estimate of shares that will eventually vest. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables measured at initial recognition at fair value, and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the profit or loss when there is objective evidence that the assetis impaired. The allowance recognised is measured as the difference between theasset's carrying amount and the present value of the estimated future cash flowsdiscounted at the effective interest rate computed at initial recognition. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis in profit or loss using the effective interest rate method and areadded to the carrying amount of the instrument to the extent that they are notsettled in the period in which they arise. Trade payables Trade payables are not interest bearing and are stated at their nominal value. Derivative financial instruments and hedge accounting The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates and interest rates. Due to the relatively stablenature the foreign currencies used by the Group, the use of forward exchangecontracts is not considered necessary. The use of financial derivatives is governed by the Group's policies approved bythe Board of Directors, which provide principles in the use of financialderivatives consistent with the Group's risk management strategy. The Group doesnot use derivative financial instruments for speculative purposes. Changes inthe fair value of derivative financial instruments, if any, are recognised inthe income statement as they arise. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event and it is probable that the Group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date, and arediscounted to present value where the effect is material. Operating profit Operating profit from operations is stated excluding the results of discontinuedoperations, investment income, finance costs and taxation. 4. Explanation of transition to IFRS This note sets out the changes in accounting policies which have arisen from theadoption of IFRS. The restated balance sheets as at 31 August 2004 and 31 August2005 have been included, together with the restated income statement for theyear ended 31 August 2005. Differences between IFRS and UK GAAP Share option charge - IFRS 2, Share-based payments This charge to the income statement is for share-based payments in accordancewith IFRS 2. The charge is based on the fair value of the option at the date ofgrant recognised over the vesting period of the option. The fair value has beenmeasured using the Black-Scholes method. Employee benefits - IAS 19, Employee benefits The cost of holidays accrued to staff but not taken has been included in theincome statement. Dividend recognition - IAS 10, Events after the balance sheet date Under IFRS dividends are not recognised as liabilities until approved and soproposed dividends under UK GAAP have been removed from the accounts. Goodwill amortisation - IFRS 3, Business combinations In accordance with IFRS goodwill is no longer amortised but is subject toregular impairment reviews. An adjustment has been made to remove the goodwillamortisation charge under UK GAAP. Cumulative translation differences - IAS 21, The effects of changes in foreignexchange rates Under IFRS, exchange rate differences arising on consolidation from thetranslation of overseas subsidiary companies are required to be recognised in aseparate equity reserve. Reclassification of finance lease receivable - IAS 17, Leases The Group leases certain assets to customers which were previously treated asoperating leases and held as property, plant and equipment and the incomeassociated with the assets treated as rental income. Under IFRS these aretreated as finance leases and the asset de-recognised from property, plant andequipment and recognised as a financial asset that under IFRS is recognisable asa finance lease receivable. Derecognition of financial liabilities - IAS 39, Financial instruments:recognition and measurement A financial liability is derecognised under IFRS when, and only when, it isextinguished. This liability has not been legally discharged and therefore hasbeen restated. a Reconciliation of consolidated balance sheet and equity at 1 September 2004 Accounting policy changes under IFRS Cumulative Share Employee Dividend translation option UK GAAP charge benefits recognition differences IFRS £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 16,336 16,336Other intangible 60 60assetsProperty, plant and 504 504equipmentDeferred tax asset 18 7 17 42 ---------------------------------------------------------------- 16,918 7 17 - - 16,942 ---------------------------------------------------------------- Current assetsTrade and other 6,240 6,240receivablesCash and cash 1,829 1,829equivalents ---------------------------------------------------------------- 8,069 - - - - 8,069 ---------------------------------------------------------------- Total assets 24,987 7 17 - - 25,011 ---------------------------------------------------------------- Current liabilities Trade and other (8,735) (57) 98 (8,694)payablesTax liabilities (404) (404)Obligations under (12) (12)finance leases ---------------------------------------------------------------- (9,151) - (57) 98 - (9,110) ---------------------------------------------------------------- Net current (1,082) - (57) 98 - (1,041)liabilities ---------------------------------------------------------------- Non-currentliabilitiesTrade and other (2,171) (2,171)payablesObligations under (54) (54)finance leases ---------------------------------------------------------------- (2,225) - - - - (2,225) ---------------------------------------------------------------- Total liabilities (11,376) - (57) 98 - (11,335) ---------------------------------------------------------------- Net assets 13,611 7 (40) 98 - 13,676 ---------------------------------------------------------------- EquityCalled-up share 1,149 1,149capitalShare premium 18 18accountCapital redemption 61 61reserveCurrency and other 3,689 24 52 3,765reservesProfit and loss 8,694 (17) (40) 98 (52) 8,683account ----------------------------------------------------------------Total equity 13,611 7 (40) 98 - 13,676 ---------------------------------------------------------------- b Reconciliation of consolidated balance sheet and equity at 31 August 2005 Accounting policy changes under IFRS Share Cumulative Reclass- Restatement ification of finance UK option Employee Goodwill Dividend translation lease of financial GAAP charge benefits amortisation recognition differences receivable liability IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Non-currentassetsGoodwill 16,350 925 17,275Other 51 51intangibleassetsProperty, 459 (34) 425plant andequipmentDeferred (36) 17 21 25 27tax asset --------------------------------------------------------------------------------------------- 16,824 17 21 925 - - (34) 25 17,778 ---------------------------------------------------------------------------------------------CurrentassetsTrade and 9,412 34 9,446otherreceivablesCash and 1,674 1,674cashequivalents --------------------------------------------------------------------------------------------- 11,086 - - - - - 34 - 11,120 ---------------------------------------------------------------------------------------------Total 27,910 17 21 925 - - - 25 28,898assets ---------------------------------------------------------------------------------------------CurrentliabilitiesTrade and (11,365) (69) 109 (82) (11,407)otherpayablesTax (726) (726)liabilitiesObligations (12) (12)underfinanceleasesBank (400) (400)overdraftsand loans --------------------------------------------------------------------------------------------- (12,503) - (69) - 109 - - (82) (12,545) ---------------------------------------------------------------------------------------------Net current (1,417) - (69) - 109 - 34 (82) (1,425)liabilities --------------------------------------------------------------------------------------------- Non-currentliabilitiesTrade and (820) (820)otherpayablesObligations (42) (42)underfinanceleasesBank (800) (800)overdraftsand loans --------------------------------------------------------------------------------------------- (1,662) - - - - - - - (1,662) ---------------------------------------------------------------------------------------------Total (14,165) - (69) - 109 - - (82) (14,207)liabilities --------------------------------------------------------------------------------------------- Net assets 13,745 17 (48) 925 109 - - (57) 14,691 --------------------------------------------------------------------------------------------- EquityCalled-up 1,149 1,149share capitalShare 18 18premium accountCapital 61 61redemptionreserveCurrency 3,689 60 60 3,809and otherreservesProfit and 8,828 (43) (48) 925 109 (60) (57) 9,654loss account ---------------------------------------------------------------------------------------------Total 13,745 17 (48) 925 109 - - (57) 14,691equity --------------------------------------------------------------------------------------------- c Reconciliation of Group income for the year ended 31 August 2005 UK Share Employee Goodwill Dividend Restatement Reclass- option of financial ification of dis-continued GAAP charge benefits amortisation recognition liability operations IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue - 14,903 (1,553) 13,350continuingoperations Cost of sales (4,794) (82) 348 (4,528) ---------------------------------------------------------------------------------- Gross profit 10,109 - - - - (82) 8,822 (1,205) Administrative (9,322) (36) (12) 925 928 (7,517) ----------------------------------------------------------------------------------expenses Profit from 787 (36) (12) 925 - (82) (277) 1,305operations Investment income 12 (5) 7Finance charge (56) (56) ----------------------------------------------------------------------------------- Profit before 743 (36) (12) 925 - (82) 1,256taxation fromcontinuing (282)operations Taxation (508) 10 4 25 82 (387) ----------------------------------------------------------------------------------- Profit for the year 235 (26) (8) 925 - (57) 869from continuingoperations (200) Profit for the year - 200 200from discontinuedoperations ----------------------------------------------------------------------------------- Profit for the year 235 (26) (8) 925 - (57) 1,069attributable toequity holders of -the parent Dividends (109) 11 (98) ----------------------------------------------------------------------------------- Retained profit 126 (26) (8) 925 11 (57) - 971 ----------------------------------------------------------------------------------- Earnings per share Basic 0.20p 0.93p -------- ------------ Diluted 0.20p 0.93p -------- ------------ 5. Segment information 2006 2005* Profit from Profit from Revenue operations Revenue operationsContinuing operations £'000 £'000 £'000 £'000By class of business:Sports marketing 8,325 1,261 6,734 1,213Wealth management & professional 3,635 543 3,259 526servicesRepresentation 3,131 995 3,357 1,061 ----------------------------------------- 15,091 2,799 13,350 2,800 --------- --------Common costs (1,192) (1,495) ---------- ---------- Profit from operations 1,607 1,305 ---------- ---------- 6. Dividends 2006 2005* £'000 £'000Final dividend paid for the year ended 109 9831 August 2005 of 0.095 pence perordinary share (2004 - 0.085 pence) --------------------------Proposed final dividend paid for the 133 109year ended 31 August 2006 of 0.105 penceper ordinary share (2005 - 0.095 pence) -------------------------- The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these accounts. 7. Earnings per share Earnings per share are based on the following profits and numbers of shares: 2006 2005* £'000 £'000Profit for the period:Basic and diluted - continuing operations 1,077 869Basic and diluted - discontinued operations (534) 200 -------------------------- Basic and diluted - continuing and discontinued operations 543 1,069 -------------------------- Number of Number of shares shares '000 '000Weighted average number of shares:Basic and diluted 118,462 114,874 -------------------------- Earnings per share is calculated by dividing the profit for the yearattributable to equity shareholders by the weighted average number of shares inissue during the year. * Restated in accordance with IFRS 8. Reconciliation of profit from operations to net cashfrom operations 2006 2005* £'000 £'000 Profit from continuing operations 1,607 1,305(Loss)/profit from discontinued operations (238) 277Depreciation of property, plant and 168 178equipmentAmortisation of intangible assets 11 10Share option charge 47 36Profit on sale of fixed assets - (17) ----------------------- Operating cash flows before movements in 1,595 1,789working capitalDecrease/(increase) in receivables 2,776 (1,994)(Decrease)/increase in payables (3,354) 2,415 ----------------------- Cash generated by operations 1,017 2,210 ----------------------- * Restated in accordance with IFRS This information is provided by RNS The company news service from the London Stock Exchange