Lon.sec Regulatory News (LSC)

28 Sep 2007 07:01

London Security PLC28 September 2007 Chairman's Statement These are the Group's first consolidated financial statements that have beenprepared in accordance with IFRS. The Group's transition date for adoption ofIFRS is 1 January 2006. An analysis of the financial impact of adopting IFRS canbe found in Note 8. Financial highlights Financial highlights of the unaudited results for the six months ended 30 June2007 compared with the restated first half of 2006 are as follows: • Turnover of £32.8 million (2006: £33.4 million)• Operating profit of £8.1 million (2006: £6.6 million)• Profit on ordinary activities before taxation of £7.3 million (2006: £5.7 million)• Earnings per share of 41.0p (2006: 31.0p) Trading and prospects The financial highlights above illustrate that 2007 has been a period of profitimprovement for the Group. The Group's operating profit has increased by £1.5million (23%), despite a decline in turnover of £0.6 million (2%). Thisimprovement is largely due to the full year effect of various initiativesimplemented in 2006, as explained in the 2006 Report and Accounts. The operatingprofit improvement continues the trend experienced in the second half of 2006. In mainland Europe, the Group is introducing a new range of products enablingthe Group's evolution from solely an extinguisher supplier to the customers'safety partner. In the UK, we have carried out a cost review, following which cost efficiencieswere successfully implemented in our commercial network. It remains a principal aim of the Group to grow through acquisition.Acquisitions are being sought throughout Europe and, in the first nine months of2007, we have continued to acquire fire protection businesses. J.G. MurrayChairman28 September 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 ------------------------------ ------- -------- --------Revenue 32,815 33,396 64,426Cost of sales (5,308) (6,197) (11,719) ------- -------- --------Gross profit 27,507 27,201 52,707 Distribution costs (11,294) (12,779) (24,490)Administrative expenses (8,134) (7,781) (15,481) ------- -------- --------Operating profit 8,079 6,641 12,736 ------------------------ -------- ------- -------- --------Operating profit beforedepreciation 8,983 7,675 14,723Depreciation (904) (1,034) (1,987)Operating profit 8,079 6,641 12,736------------------------ -------- ------- -------- --------Finance income 113 64 692Finance costs (923) (1,028) (2,165) ------- -------- --------Finance costs - net (810) (964) (1.473) ------- -------- --------Profit before income tax 7,269 5,677 11,263 Income tax expense (2,215) (1,859) (3,647) ------- -------- --------Profit for the period 5,054 3,818 7,616 ------- -------- --------All profit for the period isattributable to equityshareholdersEarnings per shareBasic and diluted 41.0p 31.0p 61.9p ------- -------- -------- As at As at As at 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000-------------------------------- ------- ------- -------AssetsNon Current AssetsProperty, plant & equipment 7,246 7,629 7,053Intangible assets 47,090 46,825 46,825Deferred tax asset 1,258 1,310 1,258Derivative financial instruments 132 - - ------- ------- ------- 55,726 55,764 55,136 ------- ------- -------Current AssetsInventories 4,990 5,328 4,593Trade & other receivables 15,605 15,766 14,746Cash & cash equivalents 10,249 6,658 8,676 ------- ------- ------- 30,844 27,752 28,015 ------- ------- -------Total Assets 86,570 83,516 83,151 ------- ------- -------LiabilitiesCurrent LiabilitiesTrade & other payables (12,932) (12,272) (11,788)Income tax liabilities (2,295) (2,470) (2,174)Borrowings (5,071) (5,204) (5,051)Provision for liabilities & charges (166) - (350) ------- ------- ------- (20,464) (19,946) (19,363) ------- ------- -------Non Current LiabilitiesTrade & other payables - - (54)Borrowings (27,964) (33,478) (30,395)Derivative financial instruments - - (140)Deferred tax liabilities (34) (189) (46)Retirement benefit obligations (4,167) (4,375) (4,133)Provision for liabilities & charges (130) (157) (157) ------- ------- ------- (32,295) (38,199) (34,925) ------- ------- -------Total Liabilities (52,759) (58,145) (54,288) ------- ------- -------Net Assets 33,811 25,371 28,863 ------- ------- -------Shareholders' equityOrdinary shares 123 123 123Merger reserve 2,033 2,033 2,033Other reserves (266) 83 (257)Retained earnings 31,921 23,132 26,964 ------- ------- -------Total Shareholders' equity 33,811 25,371 28,863 ------- ------- ------- Six months Six months Year ended to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 ------------------------------ -------- -------- --------Cash flows from operating activitiesCash generated from operations 8,361 6,425 14,380Interest paid (1,017) (962) (1,866)Income tax paid (2,150) (2,214) (3,307) -------- -------- --------Net cash generated from operatingactivities 5,194 3,249 9,207 -------- -------- -------- Cash flows from investing activitiesAcquisition of subsidiary undertaking - - (248)Purchases of property, plant andequipment (1,289) (981) (1,836)Proceeds from sale of property, plantand equipment 238 187 650Purchases of intangible assets (272) (32) (32)Interest received 113 64 147 -------- -------- --------Net cash used in investing activities (1,210) (762) (1,319) -------- -------- -------- Cash flows from financing activitiesRepayments of borrowings (2,366) (2,540) (5,858)Capital repayment of finance leases (45) (66) (131)Equity dividends paid - (1,476) (1,476) -------- -------- --------Net cash used in financing activities (2,411) (4,082) (7,465) -------- -------- -------- -------- -------- --------Net increase/(decrease) in cash in theperiod 1,573 (1,595) 423Cash and cash equivalents at beginningof the period 8,676 8,253 8,253 -------- -------- --------Cash and cash equivalents at the endof the period 10,249 6,658 8,676 -------- -------- -------- Six months Six months Year ended to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 ------------------------------ -------- -------- --------Profit for the financial period 5,054 3,818 7,616Currency translation differences onforeign currency net investments (9) 83 (259)Actuarial gain recognised in pensionscheme (Note 6) - - 52Movement on deferred tax relating topension scheme - - (16)------------------------------ -------- -------- --------Net (losses)/gains not recognised inthe income statement (9) 83 (223)------------------------------ -------- -------- --------Total recognised income for the yearattributable to equity shareholders 5,045 3,901 7,393------------------------------ -------- -------- -------- 1 General Information London Security plc is a leader in Europe's fire security industry, providingfire protection for over 200,000 customers through a local presence in theUnited Kingdom, Belgium, the Netherlands, Austria and Switzerland. The Company is a public limited liability company incorporated and domiciled inEngland. The registered office is Wistons Lane, Elland, West Yorkshire HX5 9DS. The Company has its primary listing on the Alternative Investment Market (AIM)of the London Stock Exchange. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial statement are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation Prior to 2007, the group prepared its audited financial statements and unauditedinterim financial statements under UK Generally Accepted Accounting Principles('UK GAAP'). From 1 January 2007, the group is required to prepare its annualconsolidated financial statements in accordance with International FinancialReporting Standards ('IFRS') as adopted by the European Union and implemented inthe UK and those parts of the Companies Act 1985 applicable to companiesreporting under IFRS. The date of transition to IFRS for the group was 1 January2006 and the group prepared its opening IFRS balance sheet as at that date. This interim financial report has been prepared in accordance with theaccounting policies described below. The IFRS and International FinancialReporting Interpretations Committee ('IFRIC') interpretations that will beapplicable as at 31 December 2007, including those that will be applicable on anoptional basis, are not yet known with certainty at the time of preparing thisreport, however, no significant changes are expected between the accountingpolicies adopted in preparing this report and those that will be adopted in the2007 audited financial statements. The comparative figures in respect of 2006 have been restated to reflect therevised accounting policies. Reconciliations and explanations of the effect ofadopting IFRS compliant accounting policies on the group's equity (net assets),profits and cash flows are provided in note 8 in this report. This interim financial report has been prepared under the historical costconvention, as modified by the accounting for derivative financial instrumentsat fair value through profit or loss. In addition, this interim financial reportdoes not comply with IAS 34 'Interim Financial Reporting', which is notcurrently required to be applied under the AIM Rules. The financial information included in this interim financial report for the sixmonths ended 30 June 2007 does not constitute statutory accounts as defined insection 240 of the Companies Act 1985 and is unaudited. The restated comparativefigures for 2006 are also unaudited. A copy of the group's statutory accountsfor the year ended 31 December 2006, which were prepared in accordance with UKGAAP, and on which the auditors gave an unqualified opinion and did not make astatement under section 237 of the Companies Act 1985, has been filed with theRegistrar of Companies. This interim financial report will be published on the company's website, inaddition to the paper version posted to shareholders. The maintenance andintegrity of the London Security plc website is the responsibility of thedirectors. Legislation in the UK governing the preparation and dissemination offinancial statements may differ from legislation in other jurisdictions. The Group has taken advantage of the following exemptions on transition to IFRSas permitted by paragraph 13 of IFRS 1: • The requirements of IFRS 3 - Business Combinations - have not beenapplied to business combinations that occurred before the date of transition toIFRS.• The carrying values of freehold properties are based on previouslyadopted UK GAAP valuations and these are now taken as deemed cost on transitionto IFRS.• The foreign exchange translation reserve has been set to nil ontransition to IFRS. 2.2 Consolidation Subsidiaries are all entities (including special purpose entities) over whichthe Group has the power to govern the financial and operating policies generallyaccompanying a shareholding of more than one half of the voting rights. Theexistence and effect of potential voting rights that are currently exercisableor convertible are considered when assessing whether the Group controls anotherentity. Subsidiaries are fully consolidated from the date on which control istransferred to the Group. They are de-consolidated from the date that controlceases. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable net assets acquired is recorded as goodwill. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. Unrealised losses are also eliminatedbut considered an impairment indicator of the asset transferred. Accountingpolicies of subsidiaries have been changed where necessary to ensure consistencywith the policies adopted by the Group. 2.3 Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. The directors are of the opinion that there isone operation, the provision and maintenance of fire protection equipment,operating in one geographical market, Europe. 2.4 Foreign currency translation (a) Functional and presentation currencyItems included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The consolidated financialstatements are presented in pounds sterling, which is the Company's functionaland presentation currency. (b) Transactions and balancesForeign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement, exceptwhen deferred in equity as qualifying cash flow hedges and qualifying netinvestment hedges. (c) Group companiesThe results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates; and (iii) all resulting exchange differences are recognised as a separate component of equity, and are reported within the Statement of Other Recognised Income and Expense. In accordance with IFRS 1, the translation reserve has been set at zero at thedate of transition to IFRS. On consolidation, exchange differences arising from the translation of the netinvestment in foreign operations, and of borrowings and other currencyinstruments designated as hedges of such investments, are taken to shareholders'equity. When a foreign operation is sold, exchange differences that wererecorded in equity are recognised in the income statement as part of the gain orloss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. 2.5 Property, plant and equipment Property is carried at deemed cost at the date of transition to IFRS based onthe previous UK GAAP valuations. Plant and equipment held at the date oftransition and subsequent additions to property, plant and equipment are statedat purchase cost including directly attributable costs, less accumulateddepreciation. Costs are recognised when it is probable that future economic benefitsassociated with the items will flow to the Group and the costs of the item canbe measured reliably. Land is not depreciated. Depreciation on other assets is calculated using thestraight-line method to allocate their cost over their estimated useful lives,as follows: - Buildings 2-6% - Plant, Machinery and vehicles 10-33% - Fixtures, fittings and equipment 10% - Share in aircraft 5% The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carryingamount. These are included in the income statement. 2.6 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries isincluded in 'intangible assets'. Separately recognised goodwill is testedannually for impairment and carried at cost less accumulated impairment losses.An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell, and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which thereare separately indentifiable cash flows. Impairment losses on goodwill are not reversed. Gains and losses on the disposalof an entity include the carrying amount of goodwill relating to the entitysold. (b) Trademarks and licences Trademarks and licences are shown at historical cost. Trademarks and licenceshave a finite useful life and are carried at cost less accumulated amortisation.Amortisation is calculated using the straight-line method to allocate the costof trademarks and licences over their estimated useful lives (15-20 years). (c) Computer software Acquired computer software licences are capitalised on the basis of the costsincurred to acquire and bring to use the specific software. These costs areamortised over their estimated useful lives (three to five years). (d) Service contracts Acquired service contracts are capitalised on the basis of the costs incurred toacquire. Amortisation is calculated using the straight-line method to allocatethe cost of the contracts over 20 years. 2.7 Derivative financial instruments and hedging activities The Group's borrowings of £33.0 million (£24.2 million denominated in Euros and£8.8 million denominated in Sterling) are subject to floating rates based onLIBOR and EURIBOR plus a margin of between 0.6% and 1.5%. The Group usesfinancial derivatives to cap the total exposure to LIBOR to a maximum of 5.5%and EURIBOR to a maximum of 4.25%. The caps took effect from September 2006until the loans are repaid in June 2010. The Group's policy is not to hedge its international assets with respect toforeign currency balance sheet translation exposure, nor against foreigncurrency transactions. The Group does not enter into any forward exchangecontracts and it does not use financial instruments for speculative purposes. Derivative financial instruments are initially measured at cost, and arere-measured at fair value at the balance sheet date with any valuationadjustment being reflected in the income statement. 2.8 Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined using the first-in, first-out (FIFO) method. The cost of finishedgoods and work in progress comprises, raw materials, direct labour, other directcosts and related production overheads. Net realisable value is the estimatedselling price in the ordinary course of business, less applicable variableselling expenses. Provision is made for obsolete, slow moving or defective itemswhere appropriate 2.9 Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. Significantfinancial difficulties of the debtor, probability that the debtor will enterbankruptcy or financial reorganisation, and default or delinquency in paymentsare considered indicators that the trade receivable is impaired. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate. The amount of the provision is recognised in the income statementwithin 'administrative expenses'. 2.10 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. 2.11 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Where the Company purchases its own shares, the consideration paid, includingany directly attributable incremental costs (net of income taxes) is deductedfrom equity attributable to the Company's equity holders until the shares arecancelled. 2.12 Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost; any differencebetween the proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using theeffective interest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. 2.13 Deferred income tax Deferred 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,the deferred income tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other than a businesscombination that at the time the transaction affects neither accounting nortaxable profit or loss. Deferred income tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realisedor the deferred 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. 2.14 Employee benefits Pension obligations Group companies operate various pension schemes. The schemes are generallyfunded through payments to insurance companies or trustee-administered funds,determined by periodic actuarial calculations. The Group has both definedbenefit and defined contribution plans. A defined contribution plan is a pensionplan under which the Group pays fixed contributions into a separate entity. TheGroup has no legal or constructive obligations to pay further contributions ifthe fund does not hold sufficient assets to pay all employees the benefitsrelating to employee service in the current and prior periods. A defined benefitplan is a pension plan that is not a defined contribution plan. Typically,defined benefit plans define an amount of pension benefit that an employee willreceive on retirement, usually dependent on one or more factors such as age,years of service and compensation. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets, together with adjustmentsfor unrecognised actuarial gains or losses and past service costs. The definedbenefit obligation is calculated triennially by independent actuaries using theprojected unit credit method. The present value of the defined benefitobligation is determined by discounting the estimated future cash outflows usinginterest rates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid and that have terms to maturityapproximating to the terms of the related pension liability. The interest cost and the expected return on the assets are shown within financecost and finance income respectively within the income statement. Actuarialgains and losses are recognised immediately in the consolidated Statement ofRecognised Income and Expense. Net defined benefit pension scheme deficits arepresented separately on the balance sheet within non current liabilities beforetax relief. The attributable deferred tax asset is included within deferred tax,and is subject to the recognition criteria as set out in the accounting policyon deferred taxation. For defined contribution plans, the Group pays contributions to publicly orprivately administered pension insurance plans on a mandatory, contractual orvoluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as employeebenefit expense when they are due. 2.15 Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events; it is more likely than not that anoutflow of resources will be required to settle the obligation; and the amounthas been reliably estimated. Provisions are not recognised for future operatinglosses. 2.16 Revenue recognition Revenue comprises the fair value of the consideration received or receivable forthe sale of goods and services in the ordinary course of the Group's activities.Revenue is shown, net of value-added tax, estimated returns, rebates anddiscounts and after eliminated sales within the Group. Revenue is recognised asfollows: (a) Outright sale of equipmentRevenue from the outright sale of equipment is recognised upon delivery to thecustomer. (b) Installation and serviceRevenue from the installation and servicing of equipment is recognised when theinstallation or service has been performed. (c) MaintenanceRevenue from the provision of maintenance services is recognised over the termof the maintenance contract on a pro rata basis with the unexpired portion heldin deferred income. (d) Equipment leasesRevenue from the equipment leased to customers under an operating lease isrecognised over the term of the lease on a pro rata basis. (e) Interest incomeInterest income on any short term deposit is recognised in the income statementas it accrues. 2.17 Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments made underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. 2.18 Dividend distribution Dividend 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. 3. Financial risk management 3.1 Financial risk factors The Board considers foreign currency translation exposure and interest rates tobe the only potential financial risks. Risk management is carried out undertreasury policies and guidelines authorised and reviewed by the Board ofDirectors. (a) Foreign exchange riskThe Group has certain investments in foreign operations, whose net assets areexposed to foreign currency translation risk. Currency exposure arising from thenet assets of the Group's foreign operations is managed primarily throughborrowings denominated in the relevant foreign currencies. (b) Interest rate riskThe Group's interest rate risk arises from long-term borrowings. Theseborrowings were issued at variable rates based on EURIBOR and LIBOR and exposethe Group to cash flow interest rate risk. The Group manages its cash flow interest rate risk by using interest rate caps.The effect of these caps is to limit the Group's exposure to EURIBOR to amaximum of 4.25% and LIBOR to a maximum of 5.5%. The caps took effect fromSeptember 2006 until the loans are repaid in June 2010. 3.2 Fair value estimationThe fair value of interest rate caps is calculated as the present value of theestimated future cash flows. The nominal value less impairment provision of trade receivables and payablesare assumed to approximate their fair values. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying value of assets and liabilities within thenext financial year are discussed below. (a) Estimated impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment, inaccordance with its accounting policy. The recoverable amounts ofcash-generating units have been determined based on value-in-use calculations (b) Pension scheme assumptions and mortality tablesThe carrying value of the defined benefit pension scheme is valued usingactuarial valuations. These valuations are based on assumptions including theselection of the most appropriate mortality table for the profile of the membersin the scheme and the financial assumptions concerning discount rates andinflation. All these are estimates of future events, and are thereforeuncertain. The choices are based on advice received from the scheme's actuarieswhich are checked from time to time with benchmark surveys. 5. Earnings per share The calculation of basic earnings per ordinary share is based on the profit onordinary activities after taxation of £5,054,000 (2006: £3,818,000) and on12,294,798 (2006: 12,323,198) ordinary shares, being the weighted average numberof ordinary shares in issue during the period. For diluted earnings per ordinary share, the weighted average number of sharesin issue is adjusted to assume conversion of all potentially dilutive ordinaryshares. The revised weighted average number of shares is 12,294,798 (2006:12,323,198). After taking into account the effect of dilutive securities, thebasic EPS and adjusted EPS figures are unaltered. Six months Six months Year ended to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000------------------------------ -------- -------- --------Profit on ordinary activities aftertaxation 5,054 3,818 7,616------------------------------ -------- -------- -------- Basic earnings per ordinary share 41.0p 31.0p 61.9p------------------------------ -------- -------- -------- 6. Actuarial valuation of pension scheme In common with many other companies, the Group has not prepared an actuarialvaluation of pension scheme assets and liabilities for the 2007 interimstatement. In accordance with IAS19 such a valuation will be prepared for thepurposes of the Group's 2007 Report and Accounts. 7. Consolidated statement of changes in equity Six months Six months Year ended to 30 June to 30 June 31 December 2007 2006 2006 £'000 £'000 £'000------------------------------ -------- -------- --------Profit for the financial period 5,054 3,818 7,616Dividends - (1,476) (1,476)Currency translation differences onforeign currency net investments (9) 83 (259)Purchase of own shares (97) - -Actuarial gain recognised in pensionscheme (Note 6) - - 52Movement on deferred tax relating topension scheme - - (16)------------------------------ -------- -------- --------Net increase in shareholders' funds 4,948 2,425 5,917Shareholders' funds at the beginningof the period 28,863 22,946 22,946------------------------------ -------- -------- --------Shareholders' funds at the end of theperiod 33,811 25,371 28,863------------------------------ -------- -------- -------- 8. Explanation of transition to IFRS The following analysis explains the financial impact of the Group's adoption ofIFRS. The date of transition was1 January 2006. Reconciliation of equity as at 1 January 2006 (date of transition to IFRS)Category Note Previous Effect of IFRS IFRS GAAP Transition £'000 £'000 £'000AssetsNon Current AssetsProperty, plant &equipment (i) 7,823 (59) 7,764Intangible assets (e), (i) 46,230 528 46,758 Deferred tax asset (a) - 1,310 1,310Derivative financial - - -instruments ---------- ------------- -------- 54,053 1,779 55,832 ---------- ------------- --------Current AssetsInventories 4,897 - 4,897Trade & otherreceivables (i) 15,676 (469) 15,207Cash & cashequivalents 8,253 - 8,253 ---------- ------------- -------- 28,826 (469) 28,357 ---------- ------------- --------Total Assets 82,879 1,310 84,189 ---------- ------------- --------LiabilitiesCurrent LiabilitiesTrade & otherpayables (d) (15,247) 2,856 (12,391)Current taxliabilities (d) - (2,856) (2,856)Borrowings (5,330) - (5,330) ---------- ------------- -------- (20,577) - (20,577) ---------- ------------- --------Non Current LiabilitiesTrade & other payables - - -Borrowings (35,958) - (35,958)Deferred taxliabilities (b) - (189) (189)Retirement benefitobligations (a) (2,999) (1,310) (4,309)Provision forliabilities &charges (b) (399) 189 (210) ---------- ------------- -------- (39,356) (1,310) (40,666) ---------- ------------- --------Total Liabilities (59,933) (1,310) (61,243) ---------- ------------- --------Net Assets 22,946 - 22,946 ---------- ------------- --------Shareholders' EquityOrdinary shares 123 - 123Merger reserve 2,033 - 2,033Retained earnings 20,790 - 20,790 ---------- ------------- --------Total Shareholders'Equity 22,946 - 22,946 ---------- ------------- -------- Reconciliation of equity as at 31 December 2006 (date of last UK GAAPstatements)Category Note Previous Effect of IFRS IFRS GAAP Transition £'000 £'000 £'000AssetsNon Current AssetsProperty, plant &equipment (i) 7,103 (50) 7,053Intangible assets (e), (i) 43,260 3,565 46,825Deferred tax asset (a) - 1,258 1,258 ---------- ------------- -------- 50,363 4,773 55,136 ---------- ------------- --------Current AssetsInventories 4,593 - 4,593Trade & otherreceivables (i) 15,148 (402) 14,746Cash & cashequivalents 8,676 - 8,676 ---------- ------------- -------- 28,417 (402) 28,015 ---------- ------------- --------Total Assets 78,780 4,371 83,151 ---------- ------------- --------LiabilitiesCurrentLiabilitiesTrade & otherpayables (d) (13,962) 2,174 (11,788)Current taxliabilities (d) - (2,174) (2,174)Borrowings (5,051) - (5,051)Provision forliabilities &charges (c) - (350) (350) ---------- ------------- -------- (19,013) (350) (19,363) ---------- ------------- --------Non CurrentLiabilitiesTrade & otherpayables (54) - (54)Borrowings (30,395) - (30,395)Derivative financialinstruments (h) - (140) (140)Deferred taxliabilities (b) - (46) (46)Retirement benefitobligations (a) (2,875) (1,258) (4,133)Provision forliabilities &charges (b),(c) (553) 396 (157) ---------- ------------- -------- (33,877) (1,048) (34,925) ---------- ------------- --------Total Liabilities (52,890) (1,398) (54,288) ---------- ------------- --------Net Assets 25,890 2,973 28,863 ---------- ------------- --------Shareholders'EquityOrdinary shares 123 - 123Merger reserve 2,033 - 2,033Other reserves(translation) (g) - (257) (257)Retained earnings (e),(g),(h) 23,734 3,230 26,964 ---------- ------------- --------Total Shareholders'Equity 25,890 2.973 28,863 ---------- ------------- -------- Reconciliation of profit for the year ended 31 December 2006 (date of last UKGAAP statements) Category Note Previous Effect of IFRS IFRS GAAP Transition £'000 £'000 £'000Revenue 64,426 - 64,426Cost of sales (11,719) - (11,719) ---------- ------------- --------Gross profit 52.707 - 52,707 Distribution costs (24,490) - (24,490)Administrativeexpenses (e) (18,594) 3,113 (15,481) ---------- ------------- --------Operating profit 9,623 3,113 12,736------------------- ------ ---------- ------------- --------EBITDA 14,723 - 14,723Depreciation (1,987) - (1,987)Amortisation ofgoodwill (3,113) (3,113) -Operating profit 9,623 - 12,736------------------- ------ ---------- ------------- --------Finance income (f) - 692 692Finance costs (f),(h) (1,333) (832) (2,165) ---------- ------------- --------Finance costs - net (1,333) (140) (1,473) ---------- ------------- --------Profit beforeincome 8,290 2,973 11,263tax Income tax expense (3,647) - (3,647) ---------- ------------- --------Profit for the year 4,643 2,973 7,616 ---------- ------------- -------- Six months to 30 June 2006 Reconciliation of equity as at 30 June 2006Category Note Previous Effect of IFRS IFRS GAAP Transition £'000 £'000 £'000AssetsNon Current AssetsProperty, plant &equipment (i) 7,676 (47) 7,629Intangible assets (e), (i) 44,710 2,115 46,825 Deferred tax asset (a) - 1,310 1,310 ---------- ------------- -------- 52,386 3,378 55,764 ---------- ------------- --------Current AssetsInventories 5,328 - 5,328Trade & otherreceivables (i) 16,268 (502) 15,766Cash & cashequivalents 6,658 - 6,658 ---------- ------------- -------- 28,254 (502) 27,752 ---------- ------------- --------Total Assets 80,640 2,876 83,516 ---------- ------------- --------LiabilitiesCurrent LiabilitiesTrade & otherpayables (d) (14,742) 2,470 (12,272)Current taxliabilities (d) - (2,470) (2,470)Borrowings (5,204) - (5,204) ---------- ------------- -------- (19,946) - (19,946) ---------- ------------- --------Non CurrentLiabilitiesBorrowings (33,478) - (33,478)Deferred taxliabilities (b) - (189) (189)Retirement benefitobligations (a) (3,065) (1,310) (4,375)Provision forliabilities &charges (b) (346) 189 (157) ---------- ------------- -------- (36,889) (1,310) (38,199) ---------- ------------- --------Total Liabilities (56,835) (1,310) (58,145) ---------- ------------- --------Net Assets 23,805 1,566 25,371 ---------- ------------- --------Shareholders' EquityOrdinary shares 123 - 123Merger reserve 2,033 - 2,033Other reserves(translation) (g) - 83 83Retained earnings 21,649 1,483 23,132 ---------- ------------- --------Total Shareholders'Equity 23,805 1,566 25,371 ---------- ------------- -------- Six months to 30 June 2006 Reconciliation of profit for the six months ended 30 June 2006 Category Note Previous GAAP Effect of IFRS IFRS Transition £'000 £'000 £'000Revenue 33,398 - 33,398Cost of sales (6,197) - (6,197) ---------- ------------- --------Gross profit 27,201 - 27,201 Distribution costs (12,779) - (12,779)Administrativeexpenses (e) (9.347) 1,566 (7,781) ---------- ------------- --------Operating profit 5,075 1,566 6,641 ------------------- ------ ---------- ------------- --------EBITDA 7,675 - 7,675Depreciation (1,034) - (1,034)Amortisation ofgoodwill (1,566) (1,566) -Operating profit 5,075 - 6,641------------------- ------ ---------- ------------- -------- Finance income (f) - 64 64Finance costs (f) (964) (64) (1,028) ---------- ------------- --------Finance costs - net (964) - (964) ---------- ------------- --------Profit before incometax 4,111 1,566 5,677 Income tax expense (1,859) - (1,859) ---------- ------------- --------Profit for theperiod 2,252 1,566 3,818 ---------- ------------- -------- Notes (a) IAS 19 - Employee Benefits IAS 19 requires pension assets or liabilities and the associated deferred taxbalance to be presented separately on the balance sheet. Under FRS 17 thesebalances were presented net. (b)(d) IAS 12 - Income Taxes IAS 12 is conceptually different to UK GAAP and deferred tax is recognised on"temporary differences" rather than "timing differences". Timing differences, which focus on profit and loss movements, represent thedifference between the taxable amount and the pre-tax accounting profit thatoriginate in one reporting period and reverse in one or more subsequent periods. Temporary differences, which focus on balance sheet movements, are thedifferences between the carrying amount of an asset or liability in the balancesheet and its tax base. In many cases the deferred tax position will be the same under both IAS 12 andFRS 19. IAS 12 requires current tax liabilities, deferred tax liabilities, and deferredtax assets to be disclosed separately on the face of the balance sheet. (c) IAS 37 - Provisions, contingent liabilities and contingent assets IAS 37 requires provisions to be separately identified on the face of thebalance sheet analysed between current and non current liabilities. (e) (i) IFRS 3 - Business Combinations IFRS 3 has been applied prospectively from 1 January 2006. IFRS 3 has a strict definition of what constitutes a business within the contextof a business combination. IFRS 3 requires that all the acquiree's intangibleassets at the acquisition date should be recognised separately in theconsolidated financial statements if they meet the definition of an intangibleasset in IAS 38 (Intangible Assets) and if their fair value can be measuredreliably. Under IAS 38, there is a rebuttable presumption that the intangible asset's fairvalue can be measured reliably if it has a finite useful life. Application of IFRS 3 resulted in no change to the split of intangibles andgoodwill attributable to acquisitions post 1 January 2006. Under both IFRS and UK GAAP, goodwill arising on an acquisition is treated as anasset; however, under IFRS goodwill is not amortised, instead, it is subject toan annual impairment review. On transition, the group was required to review thecarrying value of goodwill for impairment which showed that no impairment losshad occurred. (f) IAS 1 - Presentation of Financial Statements IAS 1 requires interest paid and received to be shown separately on the face ofthe income statement and reclassified as finance costs and finance income. (g) IAS 21 - The Effects of Changes in Foreign Exchange Rates IAS 21 requires exchange differences on a monetary item forming part of areporting entity's net investment in a foreign operation to be recognised in aseparate component of equity in the reporting entity's consolidated financialstatements. (h) IAS 39 - Financial Instruments: Recognition and Measurement IAS 39 covers the recognition, measurement and derecognition of financialinstruments. In accordance with IAS 39 the fair value of interest rate caps hasbeen recognised. The group has re-assessed its provisioning policies in accordance with IAS 39.There is no change on adoption, and provisions continue to be calculated basedon experience, and the provisioning level will continue to be reassessed asexperience emerges. (i) The cashflow statement has been reclassified in line with IFRS 1 and IAS 7. This information is provided by RNS The company news service from the London Stock Exchange