Lighthouse Regulatory News (LGT)

17 Aug 2007 12:00

Lighthouse Group PLC17 August 2007 Press Release 17 August 2007 Lighthouse Group plc ("Lighthouse" or "the Group") Restatement of Financial Information under IFRS Lighthouse Group plc (AIM: LGT), one of the UK's largest Independent FinancialAdviser groups, is required under AIM Rules to adopt International FinancialReporting Standards (IFRS) as its primary basis of accounting for the yearending 31 December 2007. IFRS replaces UK Generally Accepted AccountingPractice (UK GAAP), under which the Group previously prepared its financialstatements. The most significant impacts of the adoption of IFRS on the Group's previouslyreported financial information are as follows: • Cessation of goodwill amortisation.• Provision for employee benefit liabilities in respect of holiday pay.• The reclassification of capitalised software costs from tangible fixed assets to intangible assets. A summary of the impact on the Group of the transition to IFRS for the yearended 31 December 2006 is as follows: UK GAAP (as IFRS Movement previously reported)Year ended 31 December 2006: £'000 £'000 % (Loss)/profit after tax (214) 673 +414Earnings before interest, tax, depreciation amortisation andexceptional items 2,306 2,306 -Earnings per share (basic) pence (0.32)p 1.00p +413%Earnings per share (diluted) pence (0.32)p 0.89p +378% A full description of the impacts of the change and adjustments required tobring the financial information in line with IFRS for the 12 months ended 31December 2006 and six months ended 30 June 2006, and on the consolidated BalanceSheet as at the date of transition of 1 January 2006, is presented below. - Ends - For further information, please contact: Lighthouse Group plcMalcolm Streatfield, CEO Tel: +44 (0) 20 7065 5640malcolm.streatfield@lighthousegroup.plc.uk www.lighthousegroup.plc.uk Daniel Stewart & Co.Lindsay Mair Tel: +44 (0) 20 7776 6573lindsay.mair@danielstewart.co.ukChloe Ponsonby Tel: +44 (0) 20 7776 6583Chloe.ponsonby@danielstewart.co.uk www.danielstewart.co.uk Media enquiries:Abchurch CommunicationsHeather Salmondheather.salmond@abchurch-group.comGareth Mead Tel: +44 (0) 20 7398 7700gareth.mead@abchurch-group.com www.abchurch-group.com Restatement of Financial Information under International Financial ReportingStandards ('IFRS') 17 August 2007 Contents 1. Introduction2. First time adoption of IFRS3. Summary of major impacts of adoption of IFRS4. Consolidated Balance Sheet at 1 January 2006 (date of transition to IFRS)5. Consolidated Balance Sheet at 31 December 2006 (end of last period presented under previous GAAP)6. Consolidated Income Statement for the year ended 31 December 20067. Summary of significant accounting policies under IFRS8. Independent Auditors' Report to Lighthouse Group plc on the preliminary IFRS Financial Statements for the year ended 31 December 20069. Appendix 1 - Consolidated Balance Sheet at 30 June 2006 (last Interim Statement presented under previous GAAP)10. Appendix 2 - Consolidated Income Statement for the six months ended 30 June 2006 1. Introduction Lighthouse Group plc (the Company) is a public limited company, incorporated inEngland and Wales under the Companies Act 1985, whose shares are publicly tradedon the Alternative Investment Market (AIM). In these financial statements, 'Group' means the Company and all its subsidiaries. The Group has previously prepared its primary financial statements in accordancewith UK Generally Accepted Accounting Practice (UK GAAP). From 2007 the Group isrequired to prepare its consolidated financial statements in accordance withInternational Accounting Standards (IAS) and International Financial ReportingStandards (IFRS) as adopted by the European Union (EU). References to IFRSthroughout this document refer to the application of International AccountingStandards and International Financial Reporting Standards. The first Annual Report under IFRS will be for the twelve months ended 31December 2007 and the first interim results reported under IFRS will be for thesix months ended 30 June 2007. This document explains the differences that willarise when the Group's financial statements are prepared under IFRS rather thanUK GAAP. Specifically, this document sets out reconciliations of the Group'sconsolidated Balance Sheets, as prepared under UK GAAP, to those prepared inaccordance with IFRS as at 1 January 2006 (the opening consolidated BalanceSheet as at the date of transition to IFRS), 30 June 2006 and 31 December 2006.In addition, this document includes reconciliations of the Group's profit andloss accounts prepared under UK GAAP to those prepared in accordance with IFRSfor the six months to 30 June 2006 and for the year to 31 December 2006. Norestated IFRS cash flows have been presented as there is no difference betweenthe net cash flows presented under IFRS and the net cash flows presented underthe previous GAAP, although a different presentation will apply under IFRS. This restatement document has been prepared on the basis that all IFRS's,International Financial Reporting Interpretation Committee ('IFRIC')interpretations and current IASB exposure drafts will be issued as finalstandards and endorsed by the EU. The UK GAAP information contained in this document does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. The auditors,Ernst & Young LLP, have issued unqualified opinions on the Group's UK GAAPfinancial statements for the years ended 31 December 2005 and 31 December 2006. 2. First time adoption of IFRS The Group has applied IFRS 1 'First Time Adoption of International FinancialReporting Standards' as a starting point for reporting under IFRS. The Group'sdate of transition to IFRS is 1 January 2006 and comparative information in thefinancial statements is restated to reflect the Group's adoption of IFRS exceptwhere otherwise required or permitted by IFRS 1. IFRS 1 requires an entity to comply with each IFRS effective at the reportingdate for its first financial statements prepared under IFRS. As a general rule,IFRS 1 requires such standards to be applied retrospectively. However, thestandard allows several optional exemptions from full retrospective application. The Group has elected to take advantage of the following exemption: • The Group will adopt a prospective application of IFRS 3 'Business Combinations' to the extent that it applies to acquisitions post 1 January 2006. Acquisitions before that date will be recorded as under previous accounting rules as the Group intends to take advantage of the exemption allowed in IFRS 1 regarding business combinations recognised before the date of transition to IFRS. All goodwill and intangibles will be tested for impairment at the date of transition and, in subsequent periods, goodwill on an annual basis and intangibles when there is an indicator of impairment, as required by IAS 36 ' Impairment of Assets'. 3. Summary of major impacts of adoption of IFRSa) IFRS 3 - Business Combinations The standard deals with accounting for business combinations including goodwill and intangible assets. The Group's current policy under UK GAAP, to amortise goodwill and to test for impairment when there is an indication that the carrying value of an asset might not be recoverable, will be replaced by an annual impairment test and cessation of goodwill amortisation. In accordance with the transitional provisions of IFRS 1 the Group has chosen to apply IFRS 3 prospectively from the date of transition. As a result, the value of goodwill arising from previous acquisitions has been frozen at the amortised value as at the transition date of 1 January 2006 and the amortisation charged in the year to 31 December 2006 has been reversed. The credit to the consolidated Income Statement and increase in net assets for the relevant period is as follows: 31 December 2006 + £ 887,000 b) IAS 19 - Employee benefits The standard requires liabilities for employee benefits to be recognised on the basis of a legal or constructive obligation. Liabilities and expenses are generally recognised in the period in which the services are rendered. In accordance with the standard the Group has recognised a provision for employee holiday pay earned but not taken at the end of each accounting period. The Group's holiday year runs from 1 January to 31 December and no holiday can be accrued at the year end. As a result, adjustments arising from the implementation of IAS 19 arise only at the half year, and the impact of this adjustment for the relevant periods is as follows: Net assets as at 1 January and 31 December 2006 £ nil Consolidated Income Statement for the year ended 31 December 2006 £ nil c) IAS 38 - Intangible assets The standard requires certain assets such as computer software to be recognised as intangible assets, previously under UK GAAP the Group treated these assets as tangible assets. This reclassification, which has no impact in the Consolidated Income Statement, has resulted in computer software being reclassified as intangible assets as follows: As at 1 January 2006 £ nil As at 31 December 2006 £212,000 d) Deferred Tax Under IAS 12 the basis for calculating deferred tax on share based payments has changed, in that an additional asset can be recognised being the temporary difference between the cumulative amount taken through the income statement and the amount of tax relief that would have been received if the award had vested at the balance sheet date, multiplied by the expired portion of the vesting period as at that date. However no adjustment arises as deferred tax assets are not being recognised as the Board is of the opinion that there is not sufficient certainty about obtaining a deduction for the timing differences on future reversal. 4. Consolidated Balance Sheet at 1 January 2006 (date of transition to IFRS) Under UK GAAP and under IFRS £'000AssetsNon current assetsIntangible Assets 8,263Property, plant and equipment 632 8,895Current AssetsTrade and other receivables 6,317Cash and cash equivalents 5,115 11,432Total Assets 20,327Current liabilitiesTrade and other payables (7,870)Finance Leases (9)Contingent consideration (721)Provisions (2,171) (10,771)Non current liabilitiesFinance Leases (2)Contingent consideration (552)Provisions (1,047) (1,601)Total Liabilities (12,372) Net Assets 7,955 Capital and ReservesCalled up share capital 751Share premium account 15,714Merger reserve 2,003Other reserves 378Profit and loss account (10,891) 7,955 At 1 January 2006 there is no difference between reporting under UK GAAP andunder IFRS. 5. Consolidated Balance Sheet at 31 December 2006 (end of last period presentedunder previous GAAP) As reported Reversal of Re-classification of Restated under UK goodwill software assets under IFRS GAAP amortisation charged in the year £'000 £'000 £'000 £'000AssetsNon current assetsIntangible Assets 6,617 887 212 7,716Property, plant and equipment 697 (212) 485 7,314 887 - 8,201Current AssetsTrade and other receivables 9,629 9,629Cash and cash equivalents 6,800 6,800 16,429 - - 16,429Total Assets 23,743 887 24,630Current liabilitiesTrade and other payables (10,607) (10,607)Finance Leases (3) (3)Contingent consideration (552) (552)Provisions (2,244) (2,244) (13,406) - - (13,406)Non current liabilitiesFinance Leases (1) (1)Contingent consideration - -Provisions (1,038) (1,038) (1,039) - - (1,039)Total Liabilities (14,445) - - (14,445) Net Assets 9,298 887 - 10,185 Capital and ReservesCalled up share capital 752 752Share premium account 15,714 15,714Merger reserve 2,003 2,003Other reserves 1,934 1,934Profit and loss account (11,105) 887 (10,218) 9,298 887 - 10,185 6. Consolidated Income Statement for the year ended 31 December 2006 As reported under UK Reversal of Restated GAAP goodwill under IFRS amortisation charged in the year £'000 £'000 £'000 Revenue 47,160 47,160 Cost of sales (31,459) (31,459) Gross profit 15,701 - 15,701Administrative expensesOther operating expenses (13,395) (13,395) Earnings before interest, tax, depreciation,amortisation and exceptional items 2,306 - 2,306 Depreciation and amortisation (1,159) 887 (272) Exceptional operating expenses (1,519) - (1,519) Total administrative expenses (16,073) 887 (15,186)Operating (loss)/profit (372) 887 515 Interest income 216 216Interest expense (58) (58) (Loss)/profit before tax (214) 887 673 Taxation - - (Loss)/profit for the period (214) 887 673 (Loss)/profit per share (basic) (0.32)p 1.00p (Loss)/profit per share (diluted) (0.32)p 0.89p 7. Summary of significant accounting policies under IFRS Authorisation of Financial Statements The preliminary IFRS financial statements of Lighthouse Group plc wereauthorised for issue by the board of directors on 16 August 2007. Basis of preparation The significant accounting policies which follow set out those policies whichare expected to apply for the year ended 31 December 2007. The consolidatedfinancial statements are rounded to the nearest thousand pounds except whereotherwise indicated. Basis of consolidation The consolidated financial statements comprise the financial statements ofLighthouse Group plc and its subsidiaries as at 31 December each year. Subsidiaries are consolidated from the date of acquisition when the Groupobtains control and cease to be consolidated from the date on which control istransferred out of the Group. Where there is a loss of control of a subsidiary,the consolidated financial statements include the results for the part of thereporting year during which the Group has control. Control comprises the powerto govern the financial and operating policies of the investee so as to obtainbenefit from its activities and is achieved through direct or indirect ownershipof voting rights; currently exercisable or convertible potential voting rights;or by way of contractual agreement. The financial statements of subsidiaries are prepared for the same reportingyear as the parent company, using consistent accounting policies. All intragroup balances and transactions, income and expenses and profit and losses fromintra-group transactions, are eliminated in full. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, is statednet of value added tax and is earned within the United Kingdom as commissions,fees and administration charges earned by subsidiary undertakings. Commission income comprises commissions receivable on inception of a new policyor investment product ('initial commissions') and commission receivable onrenewal ('renewal commissions'). Initial commissions are recognised when the policy goes on risk after takingaccount of provisions for the potential cancellation of policies wherecommission is received under indemnity terms. Renewal commissions are recognisedwhen received. Fees for financial advice, administration charges and other services arerecognised as the services are provided. Interest income represents bank interest receivable on the Group's cash balancesand is recognised as it is earned over the term of the deposit. Business combinations and Goodwill Goodwill recognised under UK GAAP prior to the date of transition to IFRS isstated at net book value as at the transition date. Whilst there have been nofurther acquisitions within the Group since 1 January 2006, businesscombinations post this date will be accounted for under IFRS 3 using thepurchase method. Any future excess of the cost of a business combination overthe Group's interest in the net fair value of the identifiable assets,liabilities and contingent liabilities will be recognised in the consolidatedBalance Sheet as goodwill. Goodwill at the transition date and any that ariseson future acquisitions is not amortised. To the extent that the net fair valueof the acquired entity's identifiable assets, liabilities and contingentliabilities is greater than the cost of the investment, a gain is recognisedimmediately in the consolidated Income Statement. Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill is reviewed for impairment, annually or morefrequently if events or changes in circumstances indicate that the carryingvalue may be impaired. For the purposes of impairment testing, goodwill is allocated to the relatedcash-generating units monitored by management. Where the recoverable amount ofthe cash-generating unit is less than its carrying amount, including goodwill,an impairment loss is recognised in the consolidated Income Statement. The carrying amount of goodwill allocated to a cash-generating unit is takeninto account when determining the gain or loss on disposal of the unit, or anoperation within it. Intangible assets Intangible assets acquired separately are capitalised at cost and thoseidentified in a business acquisition are capitalised at fair value as at thedate of acquisition. An intangible asset acquired as part of a businesscombination is recognised outside goodwill if the asset is separable or arisesfrom contractual or other legal rights and its fair value can be measuredreliably. Following initial recognition, the carrying amount of an intangibleasset is its cost less any accumulated amortisation and any accumulatedimpairment losses. Intangibles with a finite life have no residual value and are amortised on astraight line basis over their expected useful lives as follows: Commissions processing software and development - 5 years Intangible assets are tested for impairment whenever events or changes incircumstances indicate the carrying value may not be recoverable. Property, plant and equipment Property, plant and equipment is stated at cost less any accumulateddepreciation and any impairment in value. Cost comprises the aggregate amountpaid and the fair value of any other consideration given to acquire the assetand includes costs directly attributable to making the asset capable ofoperating as intended. Depreciation is calculated to write off the cost of theasset over its estimated useful life to its residual value based on pricesprevailing at the balance sheet date, on a straight-line basis as follows:Leasehold improvements Lower of life of lease or 10 yearsOffice equipment 5 - 10 yearsComputer equipment 3 yearsMotor vehicles 4 years All property plant and equipment is reviewed for impairment when there areindications that the carrying value may not be recoverable. If there is evidenceof impairment then the asset is written down to its recoverable amount. Anydepreciation or impairment is charged in the Consolidated Income Statement as anexpense. Useful lives and residual values are reviewed annually. An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected to arise from the continued use of theasset. Any gain or loss arising on the derecognition of the asset is included inthe Consolidated Income Statement in the period of derecognition. Impairment of assets At each reporting date, the Group assesses whether there is any indication thatan asset may be impaired. Where an indicator of impairment exists or when annualimpairment testing for an asset is required, the Group makes a formal estimateof the asset's recoverable amount. Where the carrying amount of an asset exceedsits recoverable amount, the asset is considered impaired and is written down toits recoverable amount. Recoverable amount is the higher of an asset's orcash-generating unit's fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset. Impairment losses on continuing operations are recognised in theconsolidated Income Statement in the expense categories consistent with thefunction of the impaired asset. For assets excluding goodwill, an assessment is made at each reporting date asto whether there is any indication that previously recognised impairment lossesmay no longer exist or may have decreased. If such indication exists, the Groupmakes an estimate of recoverable amount. A previously recognised impairment lossis reversed only if there has been a change in the estimates used to determinethe asset's recoverable amount since the last impairment loss was recognised. Ifthat is the case the carrying amount of the asset is increased to itsrecoverable amount. That increased amount cannot ''exceed" the carrying amountthat would have been determined, net of depreciation, had no impairment lossbeen recognised for the asset in prior years. Such reversal is recognised in theconsolidated Income Statement unless the asset is carried at revalued amount, inwhich case the reversal is treated as a revaluation increase. Impairment lossesrecognised in relation to goodwill are not reversed for subsequent increases inits recoverable amount. Financial assets Financial assets are recognised when the Group becomes party to the contractsthat give rise to them and are classified as financial assets at fair valuethrough profit or loss or loans and receivables, as appropriate. The Groupdetermines the classification of its financial assets at initial recognition andre-evaluates this designation at each financial year-end. When financial assetsare recognised initially, they are measured at fair value, being the transactionprice plus, in the case of financial assets not at fair value through profit orloss, directly attributable transaction costs. All regular purchases and sales of financial assets are recognised on the tradedate, being the date that the Group commits to purchase or sell the asset.Regular transactions require delivery of assets within the timeframe generallyestablished by regulation or convention in the market place. The subsequentmeasurement of financial assets depends on their classification, as follows: Financial assets at fair value through profit or loss Financial assets classified as held for trading and other assets designated assuch on inception are included in this category. Assets are carried in theconsolidated Balance Sheet at fair value with gains or losses recognised in theconsolidated Income Statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market, do not qualify astrading assets and have not been designated as either fair value through profitand loss or available for sale. Such assets are carried at amortised cost usingthe effective interest method if the time value of money is significant. Gainsand losses are recognised in income when the loans and receivables arederecognised or impaired, as well as through the amortisation process. Trade and other receivables Trade and other receivables are recognised and carried at the lower of theirinvoiced value and recoverable amount. Provision is made when there is objectiveevidence that the Group will not be able to recover balances in full. Balancesare written off when the probability of recovery is assessed as being remote. Cash and cash equivalents Cash and short-term deposits in the consolidated Balance Sheet comprise cash atbank and in hand and short-term deposits with an original maturity of threemonths or less. For the purpose of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event and it is probable that an outflow ofeconomic benefits will be required to settle the obligation. If the effect ismaterial, expected future cashflows are discounted using a current pre-tax ratethat reflects, where appropriate, the risks specific to the liability. Where the Group expects some or all of a provision to be reimbursed, forexample, under an insurance policy, the reimbursement is recognised as aseparate asset but only when recovery is virtually certain. The expense relatingto any provision is presented in the consolidated Income Statement net of anyreimbursement. Where discounting is used, the increase in the provision due tounwinding the discount is recognised as a finance cost. The provision for clawback of indemnity commission represents the expected valueof commissions potentially reclaimable by product providers in respect ofpolicies cancelled during the indemnity period based on past experience of suchclaims. Pension schemes The Group maintains a number of defined contribution schemes and contributionsare charged to the consolidated Income Statement in the year in which they aredue. Income taxes Tax on profit or loss for the year comprises current and deferred tax. Tax isrecognised in the consolidated Income Statement except where it relates to anitem recognised directly in equity, in which case the related tax is alsorecognised directly in equity. Current tax is the expected tax payable on the taxable income for the year,using rates enacted or substantively enacted at the balance sheet date, and anyadjustments in respect of prior years. Deferred tax liabilities are providedfor, using the liability method. Deferred tax is provided on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes with the following exceptions: • Where the deferred tax liability arises from the initial recognition of goodwill• Where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss, and• In respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised only to the extent that the directorsconsider that it is more likely than not that there will be suitable taxableprofits from which the future reversal of the underlying timing differences canbe deducted. Deferred income tax assets and liabilities are measured on an undiscounted basisat the tax rates that are expected to apply to the year when the asset isrealised or the liability is settled, based on tax rates and laws enacted orsubstantively enacted at the balance sheet date. Exceptional Items The Group presents as exceptional items on the face of the Consolidated IncomeStatement, those material items of income and expense which, because of thenature and expected infrequency of the events giving rise to them, meritseparate presentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to better assess trends in financial performance. Share based payments The cost of equity settled transactions with employees is measured by referenceto the fair value at the date which they are granted and is recognised as anexpense over the vesting period, which ends on the date on which the relevantemployees become fully entitled to the award. Fair value is determined using anappropriate pricing model. In valuing equity settled transactions, no account istaken of any vesting conditions, other than conditions linked to the price ofthe shares of the company (market conditions). 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 condition is satisfied,provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non-market conditions and ofthe number of equity instruments that will ultimately vest or in the case of aninstrument subject to a market condition, be treated as vesting as describedabove. The movement in cumulative expense since the previous balance sheet dateis recognised in the consolidated Income Statement, with a corresponding entryin equity. Where the terms of equity settled awards are modified or a new award isdesignated as replacing a cancelled or settled award, the cost based on theoriginal award terms continues to be recognised over the original vestingperiod. In addition, an expense is recognised over the remainder of the newvesting period for the incremental fair value of any modification, based on thedifference between the fair value of the original award and the fair value ofthe modified award, both measured on the date of modification. No reduction isrecognised if this difference is negative. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the consolidatedIncome Statement for the award is expensed immediately. Any compensation paid upto the fair value of the award at the cancellation or settlement date isdeducted from equity, with any excess over fair value being treated as anexpense in the consolidated Income Statement. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity settled awards so as to apply IFRS 2 only to those equitysettled awards granted after 7 November 2002 that had not vested before 1January 2006. Leases Leases where the lessor retains a significant portion of the risks and benefitsof ownership of the asset are classified as operating leases and rentals payableare charged in the consolidated Income Statement on a straight line basis overthe lease term. Assets held under finance leases, which transfer to the Group substantially allthe risks and benefits incidental to ownership of the leased item, arecapitalised at the inception of the lease, with a corresponding liability beingrecognised for the lower of the fair value of the leased asset and the presentvalue of the minimum lease payments. Lease payments are apportioned between thereduction of the lease liability and finance charges in the consolidated IncomeStatement so as to achieve a constant rate of interest on the remaining balanceof the liability. Assets held under finance leases are depreciated over theshorter of the estimated useful life of the asset and the lease term. 8. Independent Auditors Report to Lighthouse Group plc on the preliminary IFRSFinancial Statements for the year ended 31 December 2006 We have audited the accompanying preliminary International Financial ReportingStandards ('IFRS') financial statements of Lighthouse Group plc (the Company)for the year ended 31 December 2006 which comprise the opening IFRS consolidatedBalance Sheet as at 1 January 2006, the Consolidated Income Statement for theyear ended 31 December 2006 and the consolidated Balance Sheet as at 31 December2006, together with the related accounting policies note set out on pages 9 to15. This report is made solely to the Company in accordance with our engagementletter dated 24 May 2007. Our audit work has been undertaken so that we mightstate to the Company those matters we are required to state to them in anauditors report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility or liability to anyone other thanthe Company for our audit work, for this report, or for the opinions we haveformed. Respective responsibilities of directors and auditors These preliminary IFRS financial statements are the responsibility of theCompany's directors and have been prepared as part of the Company's conversionto IFRS. They have been prepared in accordance with the basis set out in Note 1which describes how IFRS have been applied under IFRS 1, and the policiesexpected to be adopted when management prepares its first complete set of IFRSfinancial statements as at 31 December 2007. Our responsibility is to express an independent opinion on the preliminary IFRSfinancial statements based on our audit. We read the other informationaccompanying the preliminary IFRS financial statements and consider whether itis consistent with the preliminary IFRS financial statements. This otherinformation comprises the description of significant changes in accountingpolices on pages 9 to 15. We consider the implications for our report if webecome aware of any apparent misstatements or material inconsistencies with thepreliminary IFRS financial statements. Our responsibilities do not extend to anyother information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. Those Standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe preliminary IFRS financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the preliminary IFRS financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the preliminaryIFRS financial statements. We believe that our audit provides a reasonable basisfor our opinion. Opinion In our opinion, the preliminary IFRS financial statements for the year ended 31December 2006 have been prepared, in all material respects, in accordance withthe basis set out in Note 1, which describe how IFRS have been applied underIFRS 1, and the policies expected to be adopted, when management prepares itsfirst complete set of IFRS financial statements as at 31 December 2007. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that under IFRSonly a complete set of financial statements with comparative financialinformation and explanatory notes can provide a fair presentation of theCompany's financial position, results of operations and cash flows in accordancewith IFRS's. Ernst & Young LLPRegistered AuditorLondon16 August 2007 9. Appendix 1 - Consolidated Balance Sheet at 30 June 2006 (last InterimStatement presented under previous UK GAAP) As reported IAS 19 Reversal of Re-classification Restated under UK GAAP adjustment in goodwill of software assets under IFRS respect of amortisation untaken holiday charged in the accrual year £'000 £'000 £'000 £'000 £'000AssetsNon current assetsIntangible Assets 7,827 468 6 8,301Property, plant and equipment 561 (6) 555 8,388 - 468 - 8,856Current AssetsTrade and other receivables 6,377 6,377Cash and cash equivalents 5,012 5,012 11,389 - - - 11,389Total Assets 19,777 - 468 - 20,245Current liabilitiesTrade and other payables (6,972) (107) (7,079)Finance leases (3) (3)Contingent consideration (721) (721)Provisions (2,299) (2,299) (9,995) (107) - - (10,102)Non current liabilitiesFinance leases (3) (3)Contingent consideration (552) (552)Provisions (1,144) (1,144) (1,699) - - - (1,699)Total Liabilities (11,694) (107) - - (11,801) Net Assets 8,083 (107) 468 - 8,444 Capital and ReservesCalled up share capital 751 751Share premium account 15,714 15,714Merger reserve 2,003 2,003Other reserves 394 394Profit and loss account (10,779) (107) 468 (10,418) 8,083 (107) 468 - 8,444 10. Appendix 2 - Consolidated Income Statement for the six months ended 30 June2006 (last Interim Statement presented under previous UK GAAP) As reported Reversal of IAS 19 Restated under UK GAAP goodwill adjustment under IFRS amortisation in respect charged in the of untaken year holiday accrual £'000 £'000 £'000 £'000 Revenue 20,519 20,519 Cost of sales (12,979) (12,979) Gross profit 7,540 - - 7,540Administrative expensesOther operating expenses (6,900) (107) (7,007) Earnings before interest, tax, depreciation,amortisation and exceptional items 640 (107) 533 Depreciation and amortisation (601) 468 (133) Exceptional operating expenses - - Total administrative expenses (7,501) 468 (107) (7,140)Operating profit 39 468 (107) 400 Interest income 88 88Interest expense (15) (15) Profit before tax 112 468 (107) 473 Taxation - - Profit for the period 112 468 (107) 473 Profit per share (basic) 0.15p 0.71p Profit per share (diluted) 0.15p 0.62p This information is provided by RNS The company news service from the London Stock Exchange