Gb Group Regulatory News (GBG)

30 Nov 2005 07:02

GB Group PLC30 November 2005 Embargoed until 07.00 30 November 2005 GB GROUP PLC ("GB" or the "Group") Interim Results for the Six Months Ended 30 September 2005 Highlights • Group revenue increased by 14% to £5.9m (2004: £5.2m) due entirely to strong growth in DataAuthentication which provides the technology behind URU(TM), the electronic age and ID verification service provided jointly with BT. • The market for electronic age and ID verification continues to grow. Revenue from URU(TM) at £862,000 (2004: £150,000), was more than five times higher than last year and double that of the preceding six months. • URU(TM) has shown strong growth in Mobile Telecommunications, is the clear market leader in Online Gaming and the Financial Services sector represents a major future opportunity. • The number of URU(TM) customers has risen to 82 and usage of the service is expected to increase substantially during the second half of the year. • GB's traditional operations, DataIntegrity and DataSolutions remain profitable and cash generative, delivering an improved profit performance in the first half. • The Group's loss before tax was £183,000 (2004: £20,000 loss) due to increased investment to develop GB's DataAuthentication business, which was partially offset by improved profitability in DataIntegrity and DataSolutions. • Cash balances at 30 September remained strong at £6.4m (2004: £6.3m). John Walker-Haworth, Chairman, commented: "The Group performed well during thefirst half of the year with the DataAuthentication business now contributingsignificantly towards growth. GB's investment in this business has increased asplanned, and this has enabled its technology, through its principal offering ofURU(TM), to establish a strategic position in this new and exciting market. Cash flows from the Group's DataIntegrity and DataSolutions operations arecontinuing to fund technical and commercial development in these businesses andin the DataAuthentication business. We are therefore able to reaffirm ourguidance issued in our preliminary announcement in May 2005 that cash balancesfor the remainder of the year are not expected to fall below £5.5 million. The Board views the second half of the financial year, and the continuingdevelopment of the business, with confidence." - Ends - For further information, please contact: GB Group plcRichard Law, Chief Executive 01244 657333Mona Navin-Mealey, Finance Director Weber Shandwick Square Mile 020 7067 0700Richard Hews/ Rachel Taylor Website www.gb.co.uk Notes to Editors About URU(TM) The URU(TM) service, the DataAuthentication division's principle offering, hasbeen developed jointly with BT. It combines GB's Authenticator(TM) search engineand decision making software, access to GB's comprehensive range of identitydata and BT's high capacity web delivery. It helps organisations to protectthemselves from the growing problem of identity theft and fraud, which isestimated to cost the UK economy over £1.3 billion per annum. URU(TM) enablescompanies subscribing to the service to make an instant decision whether toaccept the identity claimed by any given individual and confirm their age inseconds. URU(TM) works by cross checking personal information provided by an individual atthe point of acquisition against a comprehensive range of datasources to confirm that an individual is who they claim to be, live where they claim to live and meet certain minimum legal age requirements. No personal data is disclosed by the reference databases and as a result URU(TM)is compliant with the Data Protection Act. URU(TM) also provides a valuable audit trail demonstrating that the necessarychecks have taken place, thereby helping companies comply with legislation,including the 2nd European Money Laundering Directive, Proceeds of Crime Act andMinimum Legal Age requirements of certain industry sectors. The addition of data from CallCredit also enables users of URU(TM) to incorporatecredit reference data. The market for identity verification checking continues to grow. Researchpublished in February 2005 showed a 45% increase in the number of individualsaccessing gaming sites compared to the previous year. In addition, it ispredicted that around 10% of potential revenue is lost by MobileTelecommunications operators as a result of fraud and furthermore, the BritishBankers Association reported in March 2005 that losses of its membersattributable to fraud had increased by 11% compared to the previous year. GB is working closely with organisations such as Gamcare, the charity promotingresponsible gambling, and RGA (Remote Gambling Association), formerly ARGO, tohelp promote better understanding by gambling companies of the requirements ofgood social responsibility processes. We are also working closely with some ofour clients to help them develop their social responsibility policies andpractices thereby ensuring they are well placed to address any issues in thisarea as they arise and to adopt "best practice" behaviour. About GB Group plc GB Group plc provides a range of products and services to enable organisationsto capitalise on one of their greatest assets - customer data. The Company hasexpertise across a range of sectors and is able to transform customer data intovaluable information, enabling clients to make better, more informed decisions. The development of innovative software and services, through to the provision ofthe UK's most comprehensive consumer business databases - The National Register(R) and the National Authentication Register - positions GB Group as a widelyacknowledged industry leader in its specialist markets. GB Group plc has three complementary business areas: • The DataAuthentication division helps businesses validate personal identity information and provides anti-fraud solutions to fight crime. • The DataIntegrity division helps companies capture and maintain accurate customer contact data, an essential foundation for any profitable customer relationship. • The DataSolutions division empowers companies to consolidate and analyse customer data from various sources, enabling them to make better, more informed decisions. Established since 1989, GB's core competencies combined with industry sector knowledge have enabled the company to deliver significant value to organisations such as Standard Life, Scottish Power and TD Waterhouse in helping them derive maximum value from their customer data and sustain real advantage over their competition. GB Group is supported by its key relationships with major organisations withwhom it works with on major initiatives (an example being British Telecom),together with a team of highly talented and motivated staff successfullydelivering business solutions. GB Group plc is listed on the London Stock Exchange (www.gb.co.uk). CHAIRMANS HALF YEAR STATEMENT OverviewGroup revenue overall increased by 14% compared to the same period last year dueentirely to strong growth in turnover from GB's DataAuthentication divisionwhich provides the technology behind URU(TM), the electronic age and ID verification service provided jointly with BT. The Group's loss before tax was £183,000. This was £163,000 greater than in theprevious year as a result of increased investment to develop GB'sDataAuthentication business, which was partially offset by improvedprofitability in GB's traditional operations. Cash balances at 30 Septemberremained strong at £6.4 million (2004: £6.3 million) giving the Group theability to invest further in DataAuthentication as necessary. DataAuthenticationGB's DataAuthentication business develops technology that automates and improvesthe effectiveness of age and identity verification, a fundamental component ofidentity fraud prevention. GB has developed a suite of software products andprocesses, which collectively comprise GBAuthenticator(TM) technology. To date,the principal application of this technology has been GB's joint project with BTto develop and market URU(TM). URU(TM) was launched in January 2004 and has quickly become established in itsthree principal markets of Online Gaming, Mobile Telecommunications andFinancial Services. Revenue from URU(TM) grew strongly during the first half ofthe year. At £862,000, the revenue was more than 5 times higher than that forthe same period last year and almost double that of the preceding six months.Revenue growth has been driven by the increase in the number of URU(TM) clients,now totalling 82, and usage of the service is expected to increase substantiallyduring the second half of the year in line with the increase in client numbers.Recent new clients include; in Online Gaming, Littlewoods betdirect and Skybet;in Mobile Telecommunications, The Link (DSG international plc); and in FinancialServices, Abbey Stockbrokers and Cattles. The market for electronic age and identity verification continues to grow apace.GB estimates that the number of age and identity checks performed annually inthe UK exceeds half a billion and that this number continues to increaserapidly. Furthermore, GB estimates that over 95% of these checks are performedusing paper based, manual methods. These manual methods of verification arebecoming ineffective and obsolete as the sophistication of fraudsters increasesand fake documents become ever more readily available over the internet.Electronic verification processes, such as URU(TM), which check the underlyingdata sources relating to a person's age or identity, rather than paperdocuments, are therefore much less susceptible to fraud and are alsoconsiderably more cost effective. Our experience is that the rate of adoption of electronic methods of age andidentity verification is increasing across all of our target sectors. This isparticularly so in the Online Gaming and Mobile Telecommunications sectors,where the requirement to verify the age or identity of individuals, either forregulatory purposes or to combat rising fraud, is relatively new. In thesesectors few legacy systems or processes existed, and in open competition, URU(TM)has consistently been selected. Accordingly, URU(TM) has quickly established astrong presence in both of these sectors and in Online Gaming it is the clearmarket leader. The largest target sector for electronic age and identity verification is theFinancial Services sector which, according to Credit Today, accounts for 50% ofall identity verification checks conducted in the UK. The pace of adoption ofelectronic methods of identity verification in this sector to date has beenslower than in GB's other target sectors. This is because this sector is subjectto embedded and established systems, and implementing change is therefore morecomplex and time consuming. As a result, the Financial Services sectorrepresents a major future opportunity for URU(TM). Indications to date arepositive and we expect to see more financial institutions using URU(TM) in thesecond half of the year. Work is continuing to take electronic age and identity verification intointernational markets, however, as previously indicated, the UK market willremain our principal focus. Consequently, revenue expectations frominternational usage in the current year remain modest. In summary, we are very pleased with the progress made both in the 6 months to30 September 2005 and in the continuing period to the end of November 2005. Thefuture rate of growth of revenue from the DataAuthentication business continuesto be dependent on the rate at which the electronic age and identityverification technology is adopted and our current view of prospects is mostencouraging. Other OperationsGB's traditional operations, DataIntegrity and DataSolutions, delivered animproved profit performance in the first half of the year principally as aresult of cost saving measures taken in the last financial year. The marketsserved by these operations are increasingly mature and challenging, particularlythose served by GB's DataIntegrity business. During October and November, newsales in this business declined compared to the same period last year andrevenue to the end of November was 10% behind last year. In order to address thekeen competition in these markets and strengthen GB's differentiators in itstraditional business areas, we have embarked on a programme of investment toenhance a number of our major product and service offerings over the next 12months. Despite the current competitive environment, these operations remainprofitable and cash generative and are expected to continue to fund the majorityof our investment in DataAuthentication in the current year. ProspectsThe Group performed well during the first half of the year with theDataAuthentication business now contributing significantly towards growth. GB'sinvestment in this business has increased as planned, and this has enabled itstechnology, through its principal offering of URU(TM), to establish a strategicposition in this new and exciting market. Cash flows from the Group's DataIntegrity and DataSolutions operations arecontinuing to fund technical and commercial development in these businesses andin the DataAuthentication business. We are therefore able to reaffirm ourguidance issued in our preliminary announcement in June 2005 that cash balancesfor the remainder of the year are not expected to fall below £5.5 million. The Board views the second half of the financial year, and the continuingdevelopment of the business, with confidence. John Walker-HaworthChairman 30 November 2005 Footnote: Transition to International Financial Reporting Standards (IFRS) As detailed to shareholders in the 2005 Annual Report & Accounts, all listedcompanies with accounting periods commencing on or after 1 January 2005 are nowrequired to report in accordance with the recognition and measurement principlesof the International Financial Reporting Standards (IFRS) issued and effectiveat the time of reporting to shareholders. The Board is pleased to report thatthe Group has successfully completed this transition to IFRS. Consequently, thecomparative financial statements up to 31 March 2005 detailed in this reportwhich were previously prepared in accordance with the United Kingdom's GenerallyAccepted Accounting Principles (UK GAAP) have been restated. The results, as setout in this report, have been prepared in accordance with IFRS together withunaudited restated comparative periods and details of the adjustments required(although the Group has not applied IAS 34, 'Interim Financial Reporting', whichis not mandatory for UK groups, in the preparation of this report). The mostsignificant changes affecting the results and the financial position of theGroup as a result of the implementation of IFRS are as follows: • the cessation of goodwill amortisation in the consolidated income statement;• the inclusion of a charge in respect of outstanding share options issued after 7 November 2002 in the consolidated income statement; and• the recognition in the consolidated balance sheet of employee benefits (i.e. holidays accrued but not yet taken). The overall effect has been an improvement to the profitability for the sixmonths ended 30 September 2005 and for the comparative periods against thatwhich would be reported under UK GAAP and is explained in more detail in thenotes 2 to 4 in the accounts. CONSOLIDATED INCOME STATEMENTFor the six months ended 30 September 2005________________________________________________________________________________ Note Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £'000 £'000 £'000 Revenue 5,939 5,232 11,231 Cost of sales (2,640) (2,194) (4,678) _________ ________ ________ Gross profit 3,299 3,038 6,553 Other operating expenses (3,638) (3,193) (6,366) Exceptional items - - (321) _________ ________ ________ Loss before tax and finance costs (339) (155) (134) Finance income 156 135 280 _________ ________ ________ (Loss)/profit before tax (183) (20) 146 Income tax - 58 109 _________ ________ ________ (Loss)/profit for the period (183) 38 255 _________ ________ ________ (Loss)/earnings per share- basic for the period 5 (0.2)p 0.0p 0.3p - diluted for the period 5 (0.2)p 0.0p 0.3p Dividends- Dividend paid per share 6 0.5p 0.5p 0.5p - Dividend paid 6 404 398 398 CONSOLIDATED BALANCE SHEETAs at 30 September 2005________________________________________________________________________________ Unaudited Unaudited Unaudited As At As At As At 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £'000 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 362 391 361Goodwill 6,506 6,504 6,506Deferred tax asset 346 340 346 _________ ________ ________ 7,214 7,235 7,213 _________ ________ ________ Current assets Inventories 1 3 -Trade and other receivables 2,097 1,731 2,225Cash and cash equivalents 6,434 6,283 6,749 _________ ________ ________ 8,532 8,017 8,974 _________ ________ ________ TOTAL ASSETS 15,746 15,252 16,187 _________ ________ ________ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 2,030 1,990 2,001Share premium 3,243 3,137 3,170Merger reserve 6,575 6,575 6,575Capital redemption reserve 3 3 3Retained earnings 1,366 1,595 1,869 _________ ________ ________ Total equity 13,217 13,300 13,618 _________ ________ ________ Non-current liabilities Provisions 182 105 230 _________ ________ ________ Current liabilities Trade and other payables 2,347 1,846 2,339Income tax payable - 1 - _________ ________ ________ 2,347 1,847 2,339 _________ ________ ________ TOTAL LIABILITIES 2,529 1,952 2,569 _________ ________ ________ TOTAL EQUITY AND LIABILITIES 15,746 15,252 16,187 _________ ________ ________ CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 September 2005________________________________________________________________________________ Note Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £'000 £'000 £'000 Cash flows from operating activities Cash (consumed)/generated from operations 7 (68) (220) 94 Income tax received - - 58 _________ ________ ________Net cash (consumed)/generated from operating activities (68) (220) 152 _________ ________ ________ Cash flows from investing activities Acquisitions of a subsidiary, net of cash acquired - - (20) Purchase of property, plant and equipment (101) (98) (173) Interest received 156 135 280 _________ ________ ________ Net cash from investing activities 55 37 87 _________ ________ ________ Cash flows from financing activities Proceeds from issue of shares 102 5 49 Dividends paid to Company shareholders (404) (398) (398) _________ ________ ________ Net cash flows used in financing activities (302) (393) (349) _________ ________ ________ Net decrease in cash and cash equivalents (315) (576) (110)Cash and cash equivalents at beginning of period 6,749 6,859 6,859 _________ ________ ________Cash and cash equivalents at end of period 6,434 6,283 6,749 _________ ________ ________ CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 September 2005________________________________________________________________________________ Issued Share Merger Capital Retained Total Capital Premium Reserve Redemption Earnings Equity Reserve £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 April 2004 (UK GAAP) 1,989 3,133 6,575 3 1,570 13,270 _______ _______ _______ _______ _______ _______ Effect of adopting IFRS 2 - - - - (66) (66) Cost of share-based payments - - - - 66 66 Reversal of proposed ordinary dividend - - - - 398 398 Recognition of employee short-term benefits - - - - (62) (62) _______ _______ _______ _______ _______ _______ Balance at 1 April 2004 (restated) 1,989 3,133 6,575 3 1,906 13,606 _______ _______ _______ _______ _______ _______ Profit for the period - - - - 38 38 Issue of shares 1 4 - - - 5 Cost of share-based payments - - - - 49 49 Equity dividend - - - - (398) (398) _______ _______ _______ _______ _______ _______ Balance at 30 September 2004 (restated) 1,990 3,137 6,575 3 1,595 13,300 _______ _______ _______ _______ _______ _______ Profit for the period - - - - 217 217 Issue of shares 11 33 - - - 44 Cost of share-based payments - - - - 57 57 _______ _______ _______ _______ _______ _______ Balance at 31 March 2005 (restated) 2,001 3,170 6,575 3 1,869 13,618 _______ _______ _______ _______ _______ _______ Loss for the period - - - - (183) (183) Issue of shares 29 73 - - - 102 Cost of share-based payments - - - - 84 84 Equity dividend - - - - (404) (404) _______ _______ _______ _______ _______ _______ Balance at 30 September 2005 2,030 3,243 6,575 3 1,366 13,217 _______ _______ _______ _______ _______ _______ NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. CORPORATE INFORMATION The consolidated financial statements of GB Group plc for the six months ended30 September 2005 were authorised for issue in accordance with a resolution ofthe directors on 29 November 2005. GB Group plc is a public limited companyincorporated in the United Kingdom whose shares are publicly traded. All of the revenue, profits and operating assets relate to the Group's principalbusiness activities, being the development, sale and support of businessapplication software, the provision of marketing database and anti-fraudservices and the licensing of technology. Revenue is stated net of value addedtax. Revenue and profits arise principally in the United Kingdom. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of PreparationThese September 2005 interim consolidated financial statements of GB Group plcare for the six months ended 30 September 2005. The Group has not applied IAS34, Interim Financial Reporting, which is not mandatory for UK groups, in thepreparation of these interim financial statements. These interim financialstatements are covered by IFRS 1 'First-time Adoption of IFRS', because they arepart of the period covered by the Group's first IFRS financial statements forthe year ended 31 March 2006. These interim financial statements have beenprepared in accordance with those IFRS standards and IFRIC interpretationsissued and effective or issued and early adopted as at the time of preparingthese statements (November 2005). The IFRS standards and IFRIC interpretationsthat will be applicable at 31 March 2006, including those that will beapplicable on an optional basis, are not known with certainty at the time ofpreparing these interim financial statements. The policies set out below have been consistently applied to all the yearspresented. The Group applied the exemption available under IFRS 1 to only applyIFRS 3 'Business Combinations' from 1 April 2004. Details of the otherexemptions applied can be found in note 4. GB Group's consolidated financial statements were prepared in accordance withthe United Kingdoms Generally Accepted Accounting Principles (UK GAAP) until 31March 2005. UK GAAP differs in some areas from IFRS. In preparing GB Group'sconsolidated interim financial statements, management has amended certainaccounting, valuation and consolidation methods applied in the UK GAAP financialstatements to comply with IFRS. The comparative figures in respect of 2004 wererestated to reflect these adjustments, as described in the accounting policies. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's equity and its net income and are provided in Note 4. These consolidated interim financial statements have been prepared on ahistorical cost basis. The consolidated financial statements are presented insterling and all values are rounded to the nearest thousand (£'000) except whenotherwise indicated. Changes in Accounting PoliciesThe Group has adopted those standards designed to form the 'stable platform'mandatory for financial years beginning on or after 1 January 2005. Theprincipal effects of this decision are discussed below. IFRS 2 'Share-Based Payment'IFRS 2 'Share-Based Payment' requires an expense to be recognised where theGroup buys goods or services in exchange for shares or rights over shares('equity-settled transactions'), or in exchange for other assets equivalent invalue to a given number of shares or rights over shares ('cash-settledtransactions'). The main impact of IFRS 2 on the Group is the expensing ofemployees' and directors' share options and other share-based incentives byusing an option-pricing model. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity settledawards granted after 7 November 2002 that had not vested on or before 1 January2005. The effect of the revised policy has been to decrease profits for the year ended31 March 2005 by £106,000 due to the increase in the share based paymentexpense. Profits for the six months ended 30 September 2005 decreased by £84,000(2004: £49,000) due to the share based payment expense. The amounts charged toprofits in the Income Statement are reinstated in the Group's reserves. IFRS 3 'Business Combinations', IAS 36 'Impairment of Assets' and IAS 38'Intangible Assets'The adoption of IFRS 3, IAS 36 (revised 2004) and IAS 38 (revised 2004) resultedin a change in the accounting policy for goodwill. Until 31 March 2004, goodwillwas:• Amortised on a straight line basis over a period ranging from 5 to 20 years; and• Assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3 and IAS 36:• The Group ceased amortisation of goodwill from 1 April 2004;• Accumulated amortisation as at 31 March 2005 has been eliminated with a corresponding decrease in the cost of goodwill of £527,000;• From 1 April 2005 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. IAS 19 'Employee Benefits'As of 1 April 2004, the Group adopted IAS 19 (revised). As a result, it isnecessary to provide for the value of short-term employee benefits such asaccumulated annual holiday entitlement. IAS 10 'Events after the Balance Sheet Date'Until 31 March 2004, proposed dividends were accounted for in the period in whichthey related to. IAS 10 requires that dividends proposed or declared after thebalance sheet are recognised as a liability in the period in which they areapproved by the Company's shareholders. In addition to the standards referred to above, the Group has adopted thefollowing standards during the year, and comparative figures have been amendedas required: • IAS 1 Presentation of Financial Statements (amended 2004);• IAS 2 Inventories (revised 2003);• IAS 7 Cash Flow Statements;• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (revised 2003);• IAS 12 Income Taxes;• IAS 14 Segment Reporting;• IAS 17 Leases (amended 2004);• IAS 18 Revenue;• IAS 19 Employee Benefits;• IAS 27 Consolidated and Separate Financial Statements (amended 2004);• IAS 33 Earnings per Share (amended 2004);• IAS 32 Financial Instruments: Disclosure and Presentation (amended 2004);• IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and• IAS 39 Financial Instruments: Recognition and Measurement (amended 2004). New Accounting Standards and IFRIC InterpretationsCertain new accounting standards and IFRIC interpretations have been publishedthat are mandatory for accounting periods beginning on or after 1 January 2006.The Group's assessment of the impact of these new standards and interpretationsis that the implementation is not expected to change the accounting for anycurrent arrangements. Property, Plant and EquipmentPlant and equipment is stated at cost less accumulated depreciation and anyimpairment in value. Depreciation is calculated on a straight-line basis overthe estimated useful life of the asset as follows: Plant and equipment - over 4 to 10 years The carrying values of plant and equipment are reviewed for impairment eitherannually, or when events or changes in circumstances indicate the carrying valuemay not be recoverable (whichever is earlier). If any such indication exists andwhere the carrying values exceed the estimated recoverable amount, the assetsare written down to their recoverable amount. An item of plant and equipment is derecognised upon disposal or when no futureeconomic benefits are expected to arise from the continued use of the asset. Anygain or loss arising on derecognition of the asset (calculated as the differencebetween the net disposal proceeds and the carrying amount of the item) isincluded in the income statement in the year the item is derecognised. Residual values and estimated remaining lives are reviewed annually. GoodwillGoodwill on acquisition is initially measured at cost being the excess of thecost of the business combination over the acquirer's interest in the net fairvalue of the identifiable assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill already carried in the balance sheet at 1 April 2004or relating to acquisitions after that date is not amortised. Goodwill isreviewed for impairment, annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to thecash-generating unit expected to benefit from the combination's synergies.Impairment is determined by assessing the recoverable amount of thecash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash generating unit and part of theoperation within that unit are disposed of, the goodwill associated with theoperation disposed of is included in the carrying amount of the operation whendetermining the gain or loss on disposal of the operation. Goodwill disposed ofin this circumstance is measured on the basis of the relative values of theoperation disposed of and the portion of the cash-generating unit retained. Intangible Assets Research and development costsResearch costs are expensed as incurred. An intangible asset arising fromdevelopment expenditure on an individual project is recognised only when theGroup can demonstrate the technical feasibility of completing the intangibleasset so that it will be available for use or sale, its intention to completeand its ability to use or sell the asset, how the asset will generate futureeconomic benefits, the ability of resources to complete and the availability tomeasure reliably the expenditure during the development. Following the initialrecognition of the development expenditure, the cost model is applied requiringthe asset to be carried at cost less any accumulated amortisation andaccumulated impairment losses. Any expenditure capitalised is amortised over theperiod of expected future sales from the related project. InventoriesInventory is stated at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Work in ProgressWork in progress is the cost of direct materials, labour and direct overheadsbased on normal levels of overhead activity. Trade and Other ReceivablesTrade receivables, which generally have 30-90 day terms, are recognised andcarried at original invoice amount less an allowance for any uncollectableamounts. An estimate for doubtful debts is made when collection of the fullamount is no longer probable. Bad debts are written off when identified. Cash and Cash EquivalentsCash and cash equivalents in the balance sheet comprise cash at bank and in handand short-term deposits with an original maturity date of three months or less. For the purpose of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net of anyoutstanding bank overdrafts. ProvisionsProvisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. Where theGroup expects some or all of a provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognised as a separate asset but onlywhen the reimbursement is virtually certain. The expense relating to anyprovision is presented in the income statement net of any reimbursement. If theeffect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate,the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognised as a borrowing cost. PensionsThe Group does not have a contributory pension scheme. Payments are made toindividual private defined contribution pension arrangements. Contributions arecharged in the income statement as they become payable. Exceptional CostsExceptional costs are the costs relating to reorganisations and restructuringshaving a material effect on the nature and focus of the Group's operations. Share-Based Payment TransactionsEmployees (including directors) of the Group receive remuneration in the form ofshare-based payment transactions, whereby employees render services in exchangefor shares or rights over shares ('equity-settled transactions'). Equity-Settled TransactionsThe cost of equity-settled transactions with employees is measured by referenceto the fair value at the date on which they are granted. The fair value isdetermined by an external valuer using a binomial model. In valuingequity-settled transactions, no account is taken of any performance conditions,other than conditions linked to the price of the shares of GB Group plc ('marketconditions'), if applicable. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevantemployees become fully entitled to the award ('the vesting date'). Thecumulative expense recognised for equity-settled transactions at each reportingdate until the vesting date reflects the extent to which the vesting period hasexpired and the Group's best estimate of the number of equity instruments thatwill ultimately vest. The income statement charge or credit for a periodrepresents the movement in cumulative expense recognised as at the beginning andend of that period. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market conditions was satisfied,provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expenseis recognised as if the terms had not been modified. In addition, an expense isrecognised for any modification, which increases the total fair value of theshare-based payment arrangement, or is otherwise beneficial to the employee asmeasured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any expense not yet recognised for the award isrecognised immediately. However, if a new award is substituted for the cancelledaward, and designated as a replacement award on the date that it was granted,the cancelled and new awards are treated as if they were a modification of theoriginal award, as described in the previous paragraph. The dilutive effect of outstanding options is reflected as additional sharedilution in the computation of earnings per share (see note 5). Revenue RecognitionRevenue comprises the fair value for the sale of software and services, net ofvalue-added tax, rebates and discounts and after eliminated sales within theGroup. Revenue is recognised as follows: (a) Sale of software licencesRevenue in respect of software licences where there are no further contractualobligations is recognised in the period of sales. Revenue in respect of softwarelicences where there are further contractual obligations, in the form ofadditional services provided by the Group, is recognised over the duration ofthe licence. (b) Sale of servicesRevenue in respect of services are recognised in the accounting period in whichthe services are rendered, by reference to completion of the specifictransaction assessed on the basis of the actual service provided as a proportionof the total services to be provided. There was a change to an estimation technique during the year ended 31 March2005. A more sophisticated estimation process is now adopted to calculate thefair value of the unfulfilled obligations that arise from the sale of certainsoftware licences. This resulted in a reduction in turnover and profits for theyear ended 31 March 2005 of £89,000 and an increase in turnover and profits forthe six months ended 30 September 2005 of £13,000. Operating LeasesPayments made under operating leases (net of any incentives received from thelessor) are charged to the income statement on a straight-line basis over theperiod of the lease. DividendsDividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. Deferred Income TaxDeferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However, ifthe deferred income tax arises from initial recognition of an asset or liabilityin a transaction other than a business combination that at the time of thetransaction affects neither accounting nor taxable profit or loss, it is notaccounted for. Deferred income tax is determined using tax rates (and laws) thathave been enacted or substantially enacted by the balance sheet date and areexpected to apply when the related deferred income tax asset is realised or thedeferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the Group controls the timing ofthe reversal of the temporary difference and it is probable that the temporarydifference will not reverse in the foreseeable future. 3. SEGMENTAL INFORMATION All of the revenue, profits, operating assets and liabilities relate to theGroup's principal business activities, being the development, sale and supportof business application software, the provision of marketing database andanti-fraud services and the licensing of technology. Revenue is stated net ofvalue added tax. Revenue and operating profit arise principally in the UnitedKingdom. 4. TRANSITION TO IFRS Application of IFRS 1 'First Time Adoption of IFRS'The Group's financial statements for the year ended 31 March 2006 will be thefirst annual financial statements that comply with IFRS. These interim financialstatements have been prepared as described in Note 2. The Group has applied IFRS1 in preparing these consolidated interim financial statements. GB Groups' transition date is 1 April 2004. The Group prepared its opening IFRSbalance sheet at that date. The reporting date of these interim consolidatedfinancial statements is 30 September 2005. In preparing these interim consolidated financial statements in accordance withIFRS 1, the Group has taken advantage of certain of the optional exemptions fromfull retrospective application of IFRS. Exemptions From Full Retrospective Application Elected by the GroupGB Group has elected to apply the following optional exemptions from fullretrospective application. (a) Business combinationsGB Group has applied the business combinations exemption in IFRS 1. It has notrestated business combinations that took place prior to the 1 April 2004transition date. (b) Share-based paymentsThe Group has elected to apply the share-based payment exemption. It appliedIFRS 2 from 1 April 2004 to those options that were issued after 7 November 2002but that have not vested by 1 January 2005. Reconciliations Between IFRS and UK GAAPThe following reconciliations provide a quantification of the effect of thetransition to IFRS. The first reconciliation provides an overview of the impacton equity of the transition at 1 April 2004, 30 September 2004 and 31 March2005. The following six reconciliations provide details of the impact of thetransition on: - equity at 1 April 2004- equity at 30 September 2004- equity at 31 March 2005- net income for the period ended 30 September 2004- net income for the year ended 31 March 2005 4.1 Summary of Equity Unaudited Unaudited Unaudited Note 1 April Note 30 Sept Note 31 March 2004 2004 2005 £'000 £'000 £'000 Total equity under UK GAAP 13,270 13,102 12,745 Reversal of goodwill amortisation - 4.3(a) 264 4.4(a) 527 Reversal of proposed ordinary dividends payable 4.2(c) 398 - 4.4(c) 400 Recognition of employee short -term benefits under IAS19 4.2(c) (62) 4.3(c) (66) 4.4(c) (54) _______ ______ ______Total equity under IFRS 13,606 13,300 13,618 _______ ______ ______ 4.2 Reconciliaton of equity at 1 April 2004 Note UK Effect of IFRS GAAP transition to IFRS £'000 £'000 £'000 ASSETSNon-current assetsProperty, plant and equipment 410 - 410Goodwill 4.2(a) 6,504 - 6,504Deferred income tax asset 340 - 340 _______ _______ _______ 7,254 - 7,254Current assetsInventories 18 - 18Trade and other receivables 2,384 - 2,384Cash and cash equivalents 6,859 - 6,859 _______ _______ _______ 9,261 - 9,261 _______ _______ _______TOTAL ASSETS 16,515 - 16,515 _______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parentIssued capital 1,989 - 1,989Share premium 3,133 - 3,133Merger reserve 6,575 - 6,575Capital redemption reserve 3 - 3Retained earnings 4.2(c) 1,570 336 1,906 _______ _______ _______Total equity 13,270 336 13,606 _______ _______ _______Non-current liabilitiesProvisions 132 - 132 _______ _______ _______Current liabilitiesTrade and other payables 4.2(b) 3,112 (336) 2,776Income tax payable 1 - 1 _______ _______ _______ 3,113 (336) 2,777 _______ _______ _______TOTAL LIABILITIES 3,245 (336) 2,909 _______ _______ _______TOTAL EQUITY AND LIABILITIES 16,515 - 16,515 _______ _______ _______ Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and incomestatement. (a) GoodwillGoodwill was tested for impairment at 1 April 2004. No impairment has beenidentified at 1 April 2004.The recoverable amount has been determined based on a value in use calculation.To calculate this, cash flow projections are based on financial budgets approvedby senior management covering a two-year period. The discount rate applied tocash flow projections is 4.75 per cent (2005: 4.75 per cent) and cash flowsbeyond the two-year period are extrapolated using a nil growth rate for maximumprudence. (b) Trade and other payables (i) Reversal of proposed ordinary dividends payable (398) (ii) Recognition of employee short-term benefits under IAS19 62 ________Total impact - decrease in trade and other payables (336) ________ (i) Dividends proposed after the balance sheet date but before the financialstatements are finalised were treated as an adjusting post-balance sheet eventunder UK GAAP and accrued in the financial statements. Such dividends aretreated as a non-adjusting balance sheet event under IFRS and are not accrueduntil approved at the Annual General Meeting. (ii) Compensated absences such as holiday pay were not accrued under UK GAAP.The costs for earned but unused holiday entitlement are recognised as aliability under IFRS and are accrued. (c) Retained earningsThe cumulative effect of all the above adjustments has resulted in an increasein retained earnings at 1 April 2004 of £336,000. 4.3 Reconciliaton of Equity at 30 September 2004 Note UK Effect of IFRS GAAP transition to IFRS £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 391 - 391Goodwill 4.3(a) 6,240 264 6,504Deferred income tax asset 340 - 340 ______ _______ _______ 6,971 264 7,235Current assetsInventories 3 - 3Trade and other receivables 1,731 - 1,731Cash and cash equivalents 6,283 - 6,283 ______ _______ _______ 8,017 - 8,017 ______ _______ _______TOTAL ASSETS 14,988 264 15,252 ______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 1,990 - 1,990Share premium 3,137 - 3,137Merger reserve 6,575 - 6,575Capital redemption reserve 3 - 3Retained earnings 4.3(c) 1,397 198 1,595 ______ _______ _______Total equity 13,102 198 13,300 ______ _______ _______ Non-current liabilitiesProvisions 105 - 105 ______ _______ _______Current liabilitiesTrade and other payables 4.3(b) 1,780 66 1,846Income tax payable 1 - 1 ______ _______ _______ 1,781 66 1,847 ______ _______ _______TOTAL LIABILITIES 1,886 66 1,952 ______ _______ _______TOTAL EQUITY AND LIABILITIES 14,988 264 15,252 ______ _______ _______ Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and incomestatement.(a) GoodwillDerecognition of goodwill amortisation 264 ________Total impact - increase goodwill 264 ________ Goodwill was tested for impairment at 30 September 2004. No impairment has beenidentified at 30 September 2004.The recoverable amount has been determined based on a value in use calculation.To calculate this, cash flow projections are based on financial budgets approvedby senior management covering a two-year period. The discount rate applied tocash flow projections is 4.75 per cent (2004: 4.75 per cent) and cash flowsbeyond the two-year period are extrapolated using a nil growth rate for maximum prudence. (b) Trade and other payablesRecognition of employee short-term benefits under IAS19 66 ________Total impact - increase in trade and other payables 66 ________ Compensated absences such as holiday pay were not accrued under UK GAAP. Thecosts for earned but unused holiday entitlement are recognised as a liabilityunder IFRS and are accrued (c) Retained earningsThe cumulative effect of all the above adjustments has resulted in an increasein retained earnings at 30 September 2004 of £198,000. 4.4 Reconciliaton of Equity at 31 March 2005 Note UK Effect of IFRS GAAP transition to IFRS £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 361 - 361Goodwill 4.4(a) 5,979 527 6,506Deferred income tax asset 346 - 346 ______ _______ _______ 6,686 527 7,213Current assetsInventories - - -Trade and other receivables 2,225 - 2,225Cash and cash equivalents 6,749 - 6,749 ______ _______ _______ 8,974 - 8,974 ______ _______ _______TOTAL ASSETS 15,660 527 16,187 ______ _______ _______ EQUITY AND LIABILITIES Capital and reserves attributable to equity holders of the parent Issued capital 2,001 - 2,001Share premium 3,170 - 3,170Merger reserve 6,575 - 6,575Capital redemption reserve 3 - 3Retained earnings 4.4(c) 996 873 1,869 ______ _______ _______Total equity 12,745 873 13,618 ______ _______ _______Non-current liabilitiesProvisions 230 - 230 ______ _______ _______Current liabilitiesTrade and other payables 4.4(b) 2,685 (346) 2,339Income tax payable - - - ______ _______ _______ 2,685 (346) 2,339 ______ _______ _______TOTAL LIABILITIES 2,915 (346) 2,569 ______ _______ _______TOTAL EQUITY AND LIABILITIES 15,660 527 16,187 ______ _______ _______ Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and incomestatement. (a) GoodwillDerecognition of goodwill amortisation 527 ________Total impact - increase goodwill 527 ________ Goodwill was tested for impairment at 31 March 2005. No impairment has beenidentified at 31 March 2005.The recoverable amount has been determined based on a value in use calculation.To calculate this, cash flow projections are based on financial budgets approvedby senior management covering a two-year period. The discount rate applied tocash flow projections is 4.75 per cent (2004: 4.75 per cent) and cash flowsbeyond the two-year period are extrapolated using a nil growth rate for maximum prudence. (b) Trade and other payables (i) Reversal of proposed ordinary dividends payable (400) (ii) Recognition of employee short-term benefits under IAS19 54 ________Total impact - decrease in trade and other payables (346) ________ (i) Dividends proposed after the balance sheet date but before the financialstatements are finalised were treated as an adjusting post-balance sheet eventunder UK GAAP and accrued in the financial statements. Such dividends aretreated as a non-adjusting balance sheet event under IFRS and are not accrued. (ii) Compensated absences such as holiday pay were not accrued under UK GAAP.The costs for earned but unused holiday entitlement are recognised as aliability under IFRS and are accrued (c) Retained earningsThe cumulative effect of all the above adjustments has resulted in an increasein retained earnings at 31 March 2005 of £873,000. 4.5 Reconciliaton of net income for six months ended 30 September 2004 Note UK Effect of IFRS GAAP transition to IFRS £'000 £'000 £'000 Revenue 5,232 - 5,232Cost of sales (2,194) - (2,194) _______ _______ _______Gross profit 3,038 - 3,038Other operating expenses 4.5(a) (3,404) 211 (3,193) _______ _______ _______ Loss before tax and finance costs (366) 211 (155) Finance income 135 - 135 _______ _______ _______ Loss before tax (231) 211 (20) Income tax 58 - 58 _______ _______ _______(Loss)/profit from ordinary activities after tax (173) 211 38 _______ _______ _______ Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and incomestatement. (a) Other operating expenses (i) Derecognition of goodwill amortisation 264 (ii) Recognition of charge on share options issued after 7 November 2002 and not vested at 1 January 2005 (49) (iii)Recognition of employee short-term benefits under IAS19 (4) ________Total impact - decrease in other operating expenses 211 ________ 4.6 Reconciliaton of net income for year ended 31 March 2005 Note UK Effect of IFRS GAAP transition to IFRS £'000 £'000 £'000 Revenue 11,231 - 11,231Cost of sales (4,678) - (4,678) _______ _______ _______ Gross profit 6,553 - 6,553 Other operating expenses 4.6(a) (6,795) 429 (6,366)Exceptional items (321) - (321) _______ _______ _______ Loss before tax and finance costs (563) 429 (134) Finance income 280 - 280 _______ _______ _______ (Loss)/profit before tax (283) 429 146 Income tax 109 - 109 _______ _______ _______ (Loss)/profit from ordinary activities after tax (174) 429 255 _______ _______ _______ Explanation of the effect of the transition to IFRSThe following explains the material adjustments to the balance sheet and incomestatement. (a) Other operating expenses (i) Derecognition of goodwill amortisation 527 (ii) Recognition of charge on share options issued after 7 November 2002 and not vested at 1 January 2005 (106) (iii) Reduction in value of employee short-term benefits under IAS19 8 ________Total impact - decrease in other operating expenses 429 ________ 5. EARNINGS PER ORDINARY SHAREEarnings per share have been calculated in accordance with InternationalAccounting Standard 33. BasicBasic earnings per share is calculated by dividing the profit attributable toequity holders of the Company by the basic weighted average number of ordinaryshares in issue during the year. Unaudited 6 Months Unaudited 6 Months Unaudited Year to to 30 September to 30 September 31 March 2005 2005 2004 (Restated) (Restated) Pence Pence Pence per per per share £'000 share £'000 share £'000 (Loss)/ profit attributable to equity holders of the Company (0.2) (183) 0.0 38 0.3 255 _______ _______ _______ _______ _______ _______ DilutedDiluted earnings per share amounts are calculated by dividing the net profit forthe year attributable to ordinary equity holders by the weighted average numberof ordinary shares outstanding during the year plus the weighted average numberof ordinary shares that would be issued on the conversion of all the dilutivepotential ordinary shares into ordinary shares. 30 Sept 30 Sept 31 March 2005 2004 2005 No. No. No. (Restated) (Restated) Basic weighted average number of shares in issue 80,667,324 79,624,238 79,754,856Diluted effect of share options - 2,510,802 3,076,165 __________ __________ __________Diluted weighted average number of shares in issue 80,667,324 82,135,040 82,831,021 __________ __________ __________ Unaudited 6 Months Unaudited 6 Months Unaudited Year to to 30 September to 30 September 31 March 2005 2005 2004 (Restated) (Restated) Pence Pence Pence per per per share £'000 share £'000 share £'000 Diluted (Loss)/ profit attributable to equity holders of the Company (0.2) (183) 0.0 38 0.3 255 _______ _______ _______ _______ _______ _______ 6. DIVIDENDS PAID AND PROPOSED 30 Sept 30 Sept 31 March 2005 2004 2005 £'000 £'000 £'000 (Restated) (Restated)Declared and paid during the periodFinal dividend for 2005: 0.5p (2004: 0.5p) 404 398 398 _________ _________ _________Proposed for approval at AGM (not recognised as a liability at 31 March 2005)Final dividend for 2005: 0.5p (2004: 0.5p) - - 404 _________ _________ _________ 7. RECONCILIATION OF THE LOSS BEFORE INCOME TAX TO NET CASH (CONSUMED)/GENERATEDFROM OPERATIONS Unaudited Unaudited Unaudited 6 months to 6 months to Year to 30 September 30 September 31 March 2005 2004 2005 (restated) (restated) £'000 £'000 £'000 Loss before income tax (339) (155) (134)Depreciation 100 117 222Loss on disposal of tangible fixed assets 1 - -Adjustment for share based payments 84 49 106(Increase)/decrease in inventory (1) 15 18(Decrease)/increase in provisions (48) (27) 98Decrease in debtors 128 653 204Increase/(decrease) in creditors 7 (872) (420) ________ ________ ________ (68) (220) 94 ________ ________ ________ INDEPENDENT REVIEW REPORT TO GB GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 September 2005 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Changes in Equity, and the related notes 1 to 7. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 2, the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directors intend touse in the next financial statements. There is, however, a possibility that thedirectors may determine that some changes to these policies are necessary whenpreparing the full annual financial statements for the first time in accordancewith those IFRSs adopted for use by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof group management and applying analytical procedures to the financialinformation and underlying financial data, and based thereon, assessing whetherthe accounting policies have been applied. A review excludes audit proceduressuch as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing and therefore provides alower level of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. Ernst & Young LLP100 Barbirolli SquareManchesterM2 3EY This information is provided by RNS The company news service from the London Stock Exchange