Malvern Intl Regulatory News (MLVN)

26 Jun 2007 16:53

AEC Education plc26 June 2007 26th June 2007 AEC EDUCATION PLC ("AEC" or "the Company") Audited Results for the Year Ended 31 December 2006 Set out below is a summary of the audited financial results for AEC for the yearended 31 December 2006. CHAIRMAN'S STATEMENT - DECEMBER 2006 Introduction It is my pleasure to announce the financial results of the Company for thefinancial year ended 31st December 2006. The Company operates in an increasingly competitive Asian environment and facedespecially tough trading conditions in 2006. Overall revenues increased duringthe year by 2.4% to £1,579,204, compared to £1,542,684 in the year 2005 but anincrease in operating expenses, due to a number of strategic program launchesduring the year, as well as the costs of winding down the unprofitable ones, ledto a loss of £271,934 (2005 - profit of £202,346). The Board remains confident that AEC can meet its working capital requirements,including its plans for future growth. I am also delighted to state that themajor shareholders have declared their full funding support for any synergisticacquisition oppportunities that may arise in the future. Review of 2006 Operations Acquisition of BrainBox Limited Vietnam has quietly been experiencing tremendous economic growth in the Asianregion. In order to take advantage of this growth, the Company acquired 64.8% of theequity of BrainBox Limited in April 2006. Brainbox is a private educationprovider, based in Ho Chi Minh City ( the financial capital of Vietnam),specialising in Language training and Management Studies. Vietnam has openedits doors to the flood of global influences and its citizens are eager to be apart of this new world. This is driving an ever-increasing demand forEnglish-language skilled management professionals and this acquisition positionsus to take full advantage of these opportunities. In addition to the current programs running at BrainBox, the Company haslaunched new cross-border programs ( please see the Program Development section)in Vietnam. Of equal importance is the fact that this acquisition provides theCompany with another channel for student recruitment for its programs inSingapore. Acquisition of Smartworks Learning Center Pte. Ltd. (SLC) The Asian region has been experiencing a surge in the real-estate and propertymarket. Consequently, there is an increasing demand for qualified real-estateadvisors and consultants. In order to leverage on this demand, AEC Edu GroupPte Ltd, a wholly-owned Singapore-based subsidiary of the Company, acquired 100%of Smartworks Learning Center Pte. Ltd.(SLC) , a private education providerfocussed on real-estate marketing programs. SLC provides a distance learning program in real estate and marketing incollaboration with the University of South Australia and the College of EstateManagement in the UK. SLC also conducts similar programs in partnership withSingapore Polytechnic. With this acquisition, AEC will be able to widen the range of education servicesit offers and take full advantage of the growing demand for such programs. Program Development During 2006, AEC Edu Group developed a number of programs to meet the increasingdemand for courses focused on creative media/ arts and professional reskilling. Diploma/ Advanced Diploma Programs in Interactive Media With increasing government encouragement of gaming and digital media/contentdevelopment in Singapore, there has been a surge of demand for professionalswith skills in these technologies. In order to meet this demand, AEC hasdeveloped a Diploma and an Advanced Diploma program in Interactive Media and iscurrently running its fifth batch of students in Singapore. The program isaccredited by Napier University in the UK. There are also plans to recruitinternational students for these programs. Diploma in Pre-School Teaching - Leadership In the wake of rising affluence and living standards in the communities that AECserves, there is an increasing need to provide childcare support services tofamilies where both parents work. AEC's Diploma program in Pre-School Teaching- Leadership is accredited by the Singapore Ministry of Community and YouthServices and the Singapore Ministry of Education and provides candidates withthe necessary skills to manage pre-school centers and provide curriculum andoperational support. The program is targetted at bringing older workers backinto the workforce while utilising their earlier experiences in operational andmanagerial roles. Diploma /Advanced Diploma in Hospitality Management The enormous growth in tourism in Singapore and other regions in South-East Asiahas created an increasing demand for Hospitality Management professionals. Tomeet this demand, AEC has recently launched the Diploma and Advanced Diplomaprograms in Hospitality Management in Vietnam through an innovative cross-borderdelivery mechanism. The students start the course in Vietnam and complete it inSingapore, thereby creating bi-lingual professionals who are at ease in theburgeoning global world. Future Plans The last couple of years have been spent consolidating and restructuring ourbusiness activities whilst identifying new strategic areas of opportunity in theASEAN, with specific focus on Singapore and Malaysia. We have launched newprograms to coincide with the economic growth patterns in the region whilsttaking the hard decisions to close down those that have become obsolete. Giventhe slightly longer business cycles in the Education market your directors nowexpect to see a return on these initiatives over the next 2 -3 years. China and India are two of the most important markets in Asia and they provideenormous opportunities for AEC to grow. China is rapidly expanding its education umbrella in preparation for the BeijingOlympics in 2008 and the Shanghai World Expo in 2010. The country is urgentlypreparing its citizens for the bilingual requirements of these two mammothevents. AEC is currently evaluating how best to avail of the opportunitiesarising from this demand. With the rapid increase in demand for trained professionals by theservice-industries, India requires a much larger talent pipeline than itcurrently possesses. AEC is well-poised to provide a series of skill-buildingand career-enhancing programs. We are, therefore exploring alliances andpartnerships in the Indian market that will enable our programs and ongoingdevelopment to be fully exploited. Outlook The Board remains confident that the Company's plans for growth and a rapidreturn to profitability will provide shareholders with a steady growth in value. We believe that we have now taken the tough, yet practical decisions, whichwill yield these results in the future. We will continue to seek acquisitions that are synergistic with our operationsand provide a coherent addition to our growth strategy. Our greatest asset is the commitment and creativity of our loyal employees. TheBoard would like to express its gratitude for their unstinting and steadfastsupport. William SwordsChairman DIRECTORS REPORT The directors present their report and the audited financial statements of AECEducation Plc (the "Company") and its subsidiary companies for the year ended31st December 2006. PRINCIPAL ACTIVITIES The principal activities of the Company are that of investment holding andprovision of educational consultancy services. The principal activities of thesubsidiary companies are set out in Note 13 to the financial statements. Therehave been no significant changes in the nature of these activities during theyear. REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS The markets that the Company operate in were challenging and increasinglycompetitive in 2006. As shown in the consolidated profit and loss account onpage 12, the Group's revenue increased by 2.4% to £1,579,204 compared to£1,542,684 in the year 2005 but an increase in operating expenses, investment instaff for product development and marketing, combined with the slow growth inthe market caused earnings to fall to a loss of £271,934 (2005: profit of£202,346). The Board expect the new products for launch during 2006 to providesteady growth in revenue and earnings while it continues to seek suitable nicheacquisitions. A review of the year's operations and future prospects is given in theChairman's Statement. PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP The Group operates in an increasingly challenging environment mainly inSingapore and Malaysia. The principal risks it faces are similar to otherbusinesses. Specifically, keen competition, changes in government policy oneducation, funding and accreditation are some of the factors that could affectthe operations of the Group. Also the general economic and political environmentand the exchange rate fluctuations play an important part in determining therisk the Group is exposed to. The Group manages these risks by monitoring the situation carefully and workingclosely with all the parties concerned to minimise the impact of any changes onthe operations. FINANCIAL INSTRUMENTS The risks faced by the Group, including financial risk, credit risk, liquidityrisk and cash flow interest rate risk and the Group's management of these risksare detailed in note 30 of the accounts. KEY PERFORMANCE INDICATORS 2006 2005 Sales growth 2.4% 2.1%Gross Margin 42.0% 58.0%Operating (loss) / profit (£292,563) £135,059(Loss) / Earnings per share (1.8) pence 1.4 pence As explained in the Chairman's Statement on page 1, due to a number of strategicprogram launches during the year as well as the costs of winding down theunprofitable ones, this has resulted in a drop in gross margin by 16% in theyear and the resulting operating loss of £292,563 as compared to an operatingprofit of £135,059 in the year 2005. CREDITOR PAYMENT POLICY AND PRACTICE Group policy is to pay creditors in line with agreed credit terms and generallythis policy is adhered to. On average, creditors were settled within 60 days oftheir due date except on disputed items. Trade creditor days of the Group forthe year ended 31 December 2006 were 52 days (2005: 52 days), calculated inaccordance with the requirements set down in the Companies Act 1985. Thisrepresents the ratio, expressed in days, between amounts invoiced to the Groupby its suppliers in the year and in the amounts due, at the year end to tradecreditors within one year. The Company has no trade creditors. DIVIDENDS The directors do not recommend the payment of a dividend for the year ended 31stDecember 2006 (2005: £NIL). DIRECTORS The names of the directors who held office during the year and to date were: William Joseph Swords (Chairman) Tunku Iskandar Bin Tunku Abdullah Ramasamy Jayapal Gopinath Pillai Ho Peng Cheong (Appointed on 6th March 2007) DIRECTORS' INTERESTS The directors holding office at the end of the financial year and theirinterests in the share capital of the Company and its related corporations asrecorded in the register of directors' shareholdings were as follows: At beginning At endName of director and company in which interests are held of the year of the year Shares of Shares of £0.10 each £0.10 each William Joseph Swords - -Tunku Iskandar Bin Tunku Abdullah - -Ramasamy Jayapal 574,047 574,047Gopinath Pillai - - Indirect InterestWilliam Joseph Swords - -Tunku Iskandar Bin Tunku Abdullah 399,000 399,000Ramasamy Jayapal - -Gopinath Pillai 25,000 25,000 SUBSTANTIAL SHAREHOLDING At 18th April 2007, notification had been received of the following holdings ofmore than 3% of the issued capital of the Company. Apart from these, thedirectors are not aware of any individual interests or group of interests heldby persons acting together, which exceeds 3% of the Company's issued sharecapital. Shares of % £0.10 each KSP Investments Pte Limited 5,526,048 37.05Pershing Keen Nominees Limited * 2,428,319 16.28Ranch House Limited 2,000,000 13.41Naboobalan s/o Ramansamy Naidu 874,968 5.87Vidacos Nominees Limited 554,318 3.72WB Nominees Limited 475,828 3.19 *Ramasamy Jayapal is deemed to have an interest in the shares held as follows: Pershing Keen Nominees Limited 574,047 DISCLOSURE OF INFORMATION TO AUDITORS At the date of making this report each of the persons who are directors at thetime when this Report is approved confirms that: (a) so far as each director is aware, there is no relevant auditinformation of which the Company's auditors are unaware; and (b) each director has taken all the steps that ought to have been takenas a director, including making appropriate enquiries of fellow directors and ofthe Company's auditors for that purpose, in order to be aware of any informationneeded by the Company's auditors in connection with preparing their Report andto establish that the Company's auditors are aware of that information. AUDITORS A resolution to reappoint Moore Stephens LLP as the Company's auditors will beproposed at the annual general meeting. BY ORDER OF THE BOARD William Swords DIRECTOR25 June 2007 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theCompany and of the Group and of the profit and loss of the Group for thatperiod. In preparing those financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theCompany and of the Group and to enable them to ensure that the financialstatements comply with International Financial Reporting Standards and with theCompanies Act 1985. They are also responsible for the system of internalcontrol, safeguarding the assets of the Group and hence for taking reasonablesteps for the prevention and detection of fraud, error and non-compliance withlaws and regulations. INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF THE AEC EDUCATION PLC Independent Auditors' Report to the Shareholders of AEC Education plc We have audited the group and parent company financial statements (the "financial statements") of AEC Education plc for the year ended 31 December 2006which are set out pages 12 to 51. These financial statements have been preparedunder the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the company's members those matters we are required tostate to them in an auditor's report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company and the company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the financial statements inaccordance with applicable law and International Financial Reporting Standards(IFRSs) as adopted by the European Union are set out in the Statement ofDirectors' Responsibilities. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and whether the financial statements have been properly preparedin accordance with the Companies Act 1985. We also report to you whether in ouropinion the information given in the Directors' Report is consistent with thefinancial statements. In addition we report to you if, in our opinion, the company has not keptproper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by lawregarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether itis consistent with the audited financial statements. This other informationcomprises only the Directors' Report and the Chairman's Statement. We considerthe implications for our report if we become aware of any apparent misstatementsor material inconsistencies with the financial statements. Our responsibilitiesdo not extend to any other 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. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the group's and company's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Opinion In our opinion: • the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's and the parent company's affairs as at 31 December 2006 and of the group's and the parent company's result for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation; and • the information given in the Directors' Report is consistent with the financial statements. MOORE STEPHENS LLP St. Paul's House Registered AuditorsLondon, EC4M 7BPEngland Chartered Accountants 25 June 2007 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 £ £RevenueSale of services (4) 1,463,782 1,439,824 Other income (5) 115,422 102,860 1,579,204 1,542,684 Administrative expenses Cost of services sold 911,220 635,763 Salaries and employees' benefits (6) 416,513 334,426Amortisation of deferred expenditure 11,644 9,135Depreciation of plant and equipment 42,478 32,055Exchange loss 16,547 -Finance costs (7) 8,074 2,939Other operating expenses 465,291 393,307Total operating costs and expenses 1,871,767 1,407,625 Operating (loss) / profit (8) (292,563) 135,059 Share of results of associated companies 25,834 67,620 (Loss) / profit before income tax (266,729) 202,679 Income tax (9) (5,205) (333) (Loss) / profit for the year (271,934) 202,346 Attributable to: Equity holders of the Company (271,934) 202,346 Minority interest - - (271,934) 202,346 (Loss) / Earnings per share (in pence)Basic (10) (1.8) 1.4 BALANCE SHEETS AS AT 31 DECEMBER 2006 Group Company Note 2006 2005 2006 2005 £ £ £ £Non-Current Assets Plant and equipment (11) 125,076 128,815 - -Development expenditure (12) 49,511 28,414 -Investment in a subsidiary company (13) - - 1,308,639 1,308,639Investment in associated companies (14) 1,300,058 1,393,934 - -Goodwill (15) 117,855 - - 1,592,500 1,551,163 1,308,639 1,308,639 Current AssetsInventories (16) 5,936 86,370 - -Trade receivables (17) 460,036 252,288 - -Other receivables (18) 84,132 55,260 8,049 52,140Deferred expenditure (19) 23,762 31,054 - -Due from subsidiary companies (13) - - 236,970 343,000Due from associated companies (14) 169,098 67,106 - -Due from other related parties (20) 1,607 484,210 - -Cash and bank balances (21) 161,998 89,679 512 4,280 906,569 1,065,967 245,531 399,420 Total Assets 2,499,069 2,617,130 1,554,170 1,708,059 EQUITY AND LIABILITIESNon Current LiabilitiesFinance lease obligations (26) 1,200 - - -Deferred taxation (9) 75 480 - - 1,275 480 - - Current LiabilitiesTrade payables (22) 129,916 90,283 - -Deferred income (23) 244,630 156,478 - -Other payables and accruals (24) 274,655 111,174 46,811 23,598Bank overdraft (25) 85,958 120,549 - -Due to other related parties (20) 39,613 50,639 - -Finance lease obligations (26) 1,900 1,755 - -Provision for income tax 29,554 35,511 - - 806,226 566,389 46,811 23,598 Share Capital and ReservesShare capital (27) 1,491,604 1,491,604 1,491,604 1,491,604Share premium 242,519 242,519 242,519 242,519Reserves (42,555) 316,138 (226,764) (49,662) 1,691,568 2,050,261 1,507,359 1,684,461 Minority interest in equity - - -Total Equity and Liabilities 2,499,069 2,617,130 1,554,170 1,708,059 The financial statements were approved by the Board of Directors on 25 June 2007and were signed on its behalf by: William Swords Chairman CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Share Share Retained Translation Capital Capital Premium Earnings Reserves Reserves Total £ £ £ £ £ £Group Balance at 1 January 2005 1,491,604 238,094 66,133 (29,824) 170,560 1,936,567 Profit for the year - - 202,346 - - 202,346 Dividend paid (a) - - (238,657) - - (238,657) Cost of share issue - prior year - 4,425 - - - 4,425overstatedGains not recognised in the incomestatement - Currency translation - - - 145,580 - 145,580difference Balance at 31 December 2005 1,491,604 242,519 29,822 115,756 170,560 2,050,261 Balance at 1 January 2006 1,491,604 242,519 29,822 115,756 170,560 2,050,261 Loss for the year - - (271,934) - - (271,934) Loss not recognised in the income - - - (86,759) - (86,759) statement - Currency translationdifference Balance at 31 December 2006 1,491,604 242,519 (242,112) 28,997 170,560 1,691,568 (a) In 2005, the Company paid an interim dividend of 1.6 pence per share amounting to £238,657. CONSOLIDATED CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Group Note 2006 2005 £ £Cash Flows from Operating Activities(Loss) / Profit before income tax (266,729) 202,679 Adjustments for: Amortisation of deferred expenditure 11,644 9,135 Depreciation of plant and equipment 42,478 32,055 Loss on disposal of plant and equipment 934 - Interest expense 8,074 2,939 Interest income (353) - Exchange gain 14 (1,725) - Currency alignment 14 63,090 (123,068) Share of results of associated companies (25,834) (67,620)Operating cash flow before working capital changes (168,421) 56,120 Changes in working capital: Receivables (286,565) (145,770) Payables 190,647 (49,990) Inventories 80,434 1,742 Related parties 471,577 71,059Net cash generated from/(used in)operations 287,672 (66,839) Interest paid (8,074) (2,939) Interest received 353 - Tax paid (15,931) (5,678)Net cash generated from/(used in)operating activities 264,020 (75,456) Cash Flows from Investing Activities Dividend income received from an associated company 58,344 45,263 Purchase of plant and equipment (41,568) (103,130) Development expenditure (34,627) - Acquisitions of subsidiaries net of cash acquired 15 (58,394) - Net cash used in investing activities (76,245) (57,867) Group 2006 2005 £ £Cash Flows from Financing Activities Proceeds from issue of shares - 100,031 Costs of issue of shares - (126,174) Dividend paid - (238,657) Receipt / (repayment) of loan from third parties - (105,828) Repayment of finance lease creditor (2,451) (2,671) Repayment of amount due to a director - (7,611) Net cash generated from / (used in) financing activities (2,451) (380,910) Effect of foreign exchange rate changes on consolidation (78,414) 62,222 Net increase / (decrease) in cash and cash equivalents 106,910 (452,011)Cash and cash equivalents at beginning of the year (30,870) 421,141 Cash and cash equivalents at end of the year =SUM(ABOVE) (30,870) 76,040 Cash and cash equivalents consist of the following: 2006 2005 £ £ Cash and bank balances 161,998 89,679Bank overdraft (85,958) (120,549) 76,040 (30,870) COMPANY INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note Period from Incorporation on 8th July 2004 to 31st December Year ended 31st 2005 December 2006 £ £ Administrative expensesOther operating expenses (187,896) (136,801) Operating loss (8) (187,896) (136,801) Other operating income Consultancy fee 10,000 -Interest receivable 716 3,799Dividends received - 321,997Miscellaneous income 78 -(Loss) / profit before taxation (177,102) 188,995 Income tax expense (9) - -(Loss) / profit after taxation (177,102) 188,995 Dividends paid - (238,657)(Loss) / profit for the year (177,102) 49,662 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Share Share Retained Capital Premium Earnings Total £ £ £ £ Issue of shares on incorporation 2 - - 2 Issue of shares in consideration for the acquisitionof the entire share capital of AEC Edu Group Pte Ltd 1,308,639 - - 1,308,639 Issue of shares for cash on admission to AIM 182,963 567,185 - 750,148 Cost of share issue - (324,666) - (324,666) Profit for the period - - 188,995 188,995 Dividends paid - - (238,657) (238,657) Balance at 31 December 2005 1,491,604 242,519 (49,662) 1,684,461 As at 1 January 2006 1,491,604 242,519 (49,662) 1,684,461 Loss for the year - - (177,102) (177,102) Balance at 31 December 2006 1,491,604 242,519 (226,764) 1,507,359 COMPANY CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Company Period from Incorporation Year ended on 8th July 31st 2004 to December 31st December 2006 2005 £ £ Cash Outflows from Operating ActivitiesLoss from operations (177,102) (133,002) (177,102) (133,002)Change in working capitalReceivables 44,091 (27,120)Payables 23,213 23,598Related parties 106,030 (343,000)Net cash generated used in operating activities (3,768) (479,524) Cash Flows from Financial ActivitiesProceeds from issue of shares - 725,130Costs of issue of shares - (324,666)Dividends received - 321,997Dividends paid - (238,657)Net cash generated by financial activities - 483,804 Net (decrease) / increase in cash and cash equivalents (3,768) 4,280Cash and cash equivalents at beginning of the year 4,280 - Cash and cash equivalents at end of the year 512 4,280 NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2006 1 General AEC Education plc (the "Company") is a limited liability company incorporated inEngland and Wales on 8 July 2004. The Company was admitted to AIM on 10 December2004. Its registered office is 1 Park Row, Leeds LS1 5AB and its principal placeof business is in Singapore. The principal activities of the Company are that of investmentholding and provision of educational consultancy services. The principalactivities of the subsidiary companies are set out in Note 13 to the financialstatements. There have been no significant changes in the nature of theseactivities during the year. The Board of Directors have authorised the issue of these financialstatements on the date of the Statement by directors set out on page 8. 2 Significant Accounting Policies (a) Basis of Preparation The financial statements have been prepared in accordance with applicableInternational Financial Reporting Standards ("IFRS") as adopted by the EuropeanUnion. (b) Basis of Consolidation The consolidation of AEC Edu. Group Pte Ltd has been prepared on thebasis of the pooling of interest method to reflect the effective Groupre-structure by way of a share for share exchange with common shareholdersduring the period ended 31 December 2005. On this basis, the Company has beentreated as the holding company of its subsidiary company for the financial yearspresented rather than from the date of its acquisition. Acquisitions since the Group re-structure are accounted for applyingthe purchase method. All significant intercompany transactions and balances within theGroup are eliminated in the preparation of the consolidated financialstatements. (c) Subsidiary Company A subsidiary company is an entity in which the Group, directly or indirectly,holds more than 50% of the issued share capital, or controls more than half ofthe voting power, or controls the composition of the board of directors or hasthe power to govern the financial and operating policies. Investment in subsidiaries is stated in the financial statements of the Companyat cost less impairment losses. The financial statements of subsidiariesacquired are consolidated in the financial statements of the Group from the datethat control commences until the date control ceases, using the purchase methodof accounting. (d) Associated Companies Associates are those entities in which the Group has an interest of not lessthan 20% of the equity and over whose financial and operating policy decisionsthe Group exercises significant influence. The consolidated financial statements include the Group's share of the totalrecognised gains and losses of associates on an equity accounted basis, from thedate that significant influence commences until the date that significantinfluence ceases. When the audited financial statements of associated companies arenot co-terminous with those of the Group, the Group's share of profits andlosses is arrived at based on the last audited financial statements availableand unaudited management accounts to the end of the accounting period. In the Company's balance sheet, investments in associates are statedat cost less any provision for impairment losses. (e) Functional and Presentation Currency The consolidated financial statements have been presented with United Kingdomsterling as the presentation currency as the Company is incorporated in Englandand Wales with sterling denominated shares which are traded on AIM. Items included in the financial statements of each subsidiary of the Group aremeasured using the currency of the primary economic environment in which thesubsidiary operates ("the functional currency"). The primary functionalcurrency of Group companies is Singapore Dollars. (f) Foreign Currency Translations Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Foreign currency monetary assets and liabilities aretranslated using the exchange rate prevailing at the balance sheet date.Non-monetary assets and liabilities are measured using the exchange ratesprevailing at the transaction dates, or in the case of the items carried at fairvalue, the exchange rates ruling when the values were determined. Foreignexchange gains and losses resulting from the settlement of foreign currencytransactions and translation of foreign currency denominated assets andliabilities are recognised in the income statements. Assets and liabilities of the entities having a functional currency other thanthe presentation currency are translated into sterling equivalents at exchangerates ruling at the balance sheet date. Revenues and expenses are translated ataverage exchange rates for the year, which approximates the exchange rates atthe dates of transactions. All resultant differences are taken directly toequity. On disposal of a foreign entity, accumulated exchange differences arerecognised in the income statement as part of the gain or loss on disposal. The following rates of exchange have been applied: 2006 20051 £ to 1 Singapore Dollar Closing rate 3.00 2.87 Average rate 2.93 2.971 Malaysian Ringgit to 1 Singapore Dollar Closing rate 2.31 2.25 Average rate 2.31 2.27 (g) Revenue Recognition Revenue is recognised on the following basis: (i) Course fees are recognised as income based on classes conducted during year. (ii) All other course fees in respect of courses offered with no obligation to impart lessons are recognised when the students register for the course and collect the study materials. (iii) Revenue from sub-letting of office space is recognised over the period of the lease. (iv) Consulting income is recognised on an accrual basis based on agreed amounts between parties. (v) Commission income is recognised when services are rendered. (vi) Management fee income is recognised when services are rendered. (vii) Dividend income from investments in associated companies is recognised when the shareholders' rights to receive payment have been established. (viii) Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. (h) Borrowing Costs Borrowing costs incurred to finance the development of plant and equipment arecapitalised during the period of time that is required to complete and preparethe asset for its intended use. The capitalised costs are depreciated over theuseful life of the plant and equipment. Other borrowing costs including interest cost and foreign exchange differences,on short term borrowings are recognised on a time-apportioned basis in theprofit and loss account using the effective interest method. (i) Plant and Equipment Plant and equipment are stated at cost less accumulated depreciated and anyimpairment losses. Depreciation policy, useful lives and residual values arereviewed at least annually, for all asset classes to ensure that the currentmethod is the most appropriate. Expenditure incurred after the plant and equipment have been put into operation,such as repairs and maintenance is charged to the income statement. Expenditurefor additions, improvements and renewals is capitalized when it can be clearlydemonstrated that the expenditure has resulted in an increase in the futureeconomic benefits expected to be realized from the use of the items of plant andequipment beyond their originally assessed standard of performance. Depreciation is calculated based on the straight-line method to write off thecost of plant and equipment over their estimated useful lives as follows: Furniture and fittings - 5 - 10 years Classroom and office equipment - 4 - 10 years Computers - 4 - 5 years Renovation - 5 years Motor vehicles - 5 years Library books - 5 - 10 years Plant and equipment held under finance leases are depreciated over theirestimated useful lives on the same basis as owned assets or, where shorter, termof the relevant leases. (j) Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand and bank deposits. Bankoverdrafts that are repayable on demand and form an integral part of the Group'scash management are included as a component of cash and cash equivalents for thepurpose of the cash flow statement. (k) Trade and Other Receivables Trade and other receivables, which generally have 30 to 90 days terms, areinitially measured at fair value, and subsequently measured at amortised cost,using the effective interest method, less allowance for impairment. An allowancefor impairment of trade receivables is established when there is objectiveevidence that the Group will not be able to collect all amounts due according tothe original term of the receivables. The amount of the allowance is thedifference between the asset's carrying amount and the present value of theestimated cash flows discounted at the original effective interest rate. Theamount of the allowance is recognised in the income statement. (l) Inventories Inventories are stated at the lower of cost and net realisable value. Cost isdetermined using the first-in, first-out method. Cost comprises all costs ofpurchase, cost of conversion and other costs incurred in bringing theinventories to their present location and conditions. Net realisable valuerepresents the estimated selling price less all estimated costs of completionand costs to be incurred in marketing, selling and distribution. Allowance or impairment is made for obsolete, slow moving and defective stocks. (m) Trade and Other Payables Trade and other payables, which are normally settled on 30 to 90 days term, areinitially measured at fair value, and subsequently measured at amortised cost,using the effective interest method. (n) Deferred Income Deferred income relates to course fees received in advance and is recognised inthe income statement based on classes conducted. (o) Income Tax Current tax is the expected tax payable on the taxable income for the year basedon the tax rate enacted or substantively enacted at the balance sheet date, andany adjustment to tax payable in respect of prior years. Deferred income tax is provided, using the liability method, on all temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the financial statements. Deferred tax assets andliabilities are offset when they relate to income taxes levied by the same taxauthority. Tax rates enacted or substantively enacted by the balance sheet dateare used to determine deferred income tax. Deferred income tax is provided on temporary differences arising on investmentsin subsidiary companies and associated companies, except where the timing of thereversal of the temporary difference can be controlled by the Group and it isprobable that the temporary difference will not reverse in the foreseeablefuture. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. (p) Development Expenditure Development expenditure represents direct expenditure and related costs incurredin developing new courses and are capitalised and deferred only when there is aclearly defined project and the outcome of the project has been assessed withreasonable certainty as to its technical feasibility and its ultimate commercialviability. These costs are amortised over the expected course duration of notmore than five years, starting in the year when the course commences. (q) Impairment of Assets An assessment is made at each balance sheet date of whether there is anyindication of impairment of an asset, or whether there is any indication that animpairment loss previously recognised for an asset in prior years may no longerexist or may have decreased. If any such indication exists, the asset'srecoverable amount is estimated. An asset's recoverable amount is calculated asthe higher of the asset's value in use or its net selling price. Where it is not possible to estimate the recoverable amount of an individualasset, the Group estimates the recoverable amount of the cash-generating unit towhich the asset belongs. If the recoverable amount of an asset (orcash-generating unit) is estimated to be less than its carrying amount, thecarrying amount of the asset (cash-generating unit) is reduced to itsrecoverable amount. Impairment losses are recognised as an expense immediately, unless the relevantasset is at a revalued amount, in which case the impairment loss is treated as arevaluation decrease. Where an impairment loss subsequently reverses, thecarrying amount of the asset (cash-generating unit) is increased to the revisedestimate of its recoverable amount, but so that the increased carrying amountdoes not exceed the carrying amount that would have been determined had noimpairment loss been recognised for the asset (cash-generating unit) in prioryears. A reversal of an impairment loss is recognised as income immediately,unless the relevant asset is carried at a revalued amount, in which case thereversal of the impairment loss is treated as a revaluation increase. (r) Leases Leases where the lessor effectively retains substantially all the risks andrewards of ownership of the leased item are classified as operating leases.Operating lease payments are recognised as rental expenses in the incomestatement in equal annual amounts over the lease terms. (s) Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation,and a reliable estimate can be made of the amount of the obligation. (t) Employees' Benefits Defined contribution plans Contributions to defined contribution plans are recognised as an expense in theincome statement as incurred. Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue toemployees. A provision is made for the estimated liability for annual leave as aresult of services rendered by employees up to the balance sheet date. (u) Goodwill Goodwill arising on a business combination represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of the acquired subsidiary/associated company at the dateof acquisition. All business combinations are accounted for using the purchasemethod. Goodwill is recognised as an asset and is tested annually for impairmentand carried at cost less any impairment losses. Any impairment is recognisedimmediately as a charge to the income statement and is not subsequentlyreversed. (v) Deferred expenditure Deferred expenditure relates to course fees and related expenses paid in advanceand is recognised in the income statement based on classes conducted. (w) Minority Interests Minority interests are that part of the net results of operations and of netassets of a subsidiary attributable to interests which are not owned directly orindirectly by the Group. It is measured at the minorities' share of the fairvalue of the subsidiaries' identifiable assets and liabilities at the date ofacquisition by the Group and the minorities' share of changes in equity sincethe date of acquisition, except when the losses applicable to minority interestin a subsidiary exceed the minority interests in the equity of that subsidiary,in which case, the losses are absorbed by the Group except to the extent thatthe minority has a binding obligation and is able to make an additionalinvestment to cover its share of those losses. Critical Accounting Judgements and Key Sources of Estimation Uncertainty In the process of applying the Group's accounting policies above, managementnecessarily make judgements and estimates that have a significant effect on theamounts recognised in the financial statements. Changes in the assumptionsunderlying the estimates could result in a significant impact to the financialstatements. The most critical of these accounting judgement and estimation areasare noted. (i) Estimated Impairment of Goodwill The Group tests annually whether goodwill has suffered anyimpairment, in accordance with the accounting policy stated in Note 2(u). Therecoverable amount of goodwill of £907,680 stated in Note 14 is determined fromvalue in use calculation. The key assumption for the value in use calculationare those regarding expected discounted future cash flows of the associatedcompany. In the opinion of the directors, as at 31 December 2006 there is noindication of impairment in the value of goodwill. (ii) Income Taxes The Group is subject to income taxes in numerous jurisdictions.Significant judgement is required in determining the capital allowance,deductibility of certain expenses and taxability of certain income during theestimation of the provision for income taxes. There are many transactions andcalculations for which the ultimate tax determination is uncertain during theordinary course of business. The Group recognises liabilities based on estimatesof whether additional taxes will be due. Where the final tax outcome isdifferent from the amounts that were initially recorded, such differences willimpact the income tax and deferred income tax provisions in the period in whichsuch determination is made. (iii) Trade receivables The directors exercise their judgement in making allowances fortrade receivables. Trade receivable are stated at their nominal value as reducedby appropriate allowances for estimated irrecoverable amounts. (iv) Impairment of assets/(other than goodwill) The Group reviews the carrying amounts of assets as at each balancesheet date to determine whether there is any indication of impairment inaccordance with the accounting policy stated in note 2(p). If any suchindication exists, the assets' recoverable amount or value in use is estimated.Determining the value in use of plant and equipment, which requires thedetermination of future cash flows expected to be generated from the continueduse and ultimate disposition of such asset, requires the company to makeestimates and assumptions can materially affect the financial statements. Anyresulting impairment loss could have a material adverse impact on the Group'sfinancial condition and results of operations. 3 Segmental Information All revenue and profit before taxation arises from operations in theeducation sector, and in South East Asia. 4 Sale of Services Group 2006 2005 £ £ Course fees 1,412,760 926,503 Sales of systems and support services 14,741 476,015 Application fees and registration fees 36,281 37,306 1,463,782 1,439,824 In 2005, application fees and registration fees was classified asother income. 5 Other Income Group 2006 2005 £ £ Commission income - 344 Consultancy fees - 40,404 Exchange gain 647 - Interest income 1,069 - Rental and related income 92,746 20,816 Sale of material and textbooks 9,664 2,698 Summer camp income - 22,980 Miscellaneous income 11,296 15,618 115,422 102,860 6 Salaries and Employees' Benefits Group 2006 2005 £ £ Staff salaries and related costs 290,032 246,978 Director's fee 45,000 22,500 Directors' remuneration 81,481 64,948 416,513 334,426 Average number of employees: Administration 46 40 46 40 7 Finance Costs Group 2006 2005 £ £ Interest on bank overdraft 7,120 1,303 Interest on loan from third party - 1,536 Interest on finance lease 206 100 Others 748 - 8,074 2,939 8 Operating (loss) / profit Operating (loss) / profit is stated after charging the following: Group Company 2006 2005 2006 2005 £ £ £ £ Auditor's remuneration: - Fees payable to the Company's auditors 34,526 22,940 15,000 12,000 and their associates for statutory audits - Fees payable to the Company's auditors 5,696 5,479 3,540 1,000 and their associates for taxation services - Fees payable to the Company's 8,318 9,778 5,239 7,375 auditors' and their associates for other services Bad debts written off 7,628 48,452 - - Exchange loss / (gain) 16,547 (22,752) - - Inventory written off 47,482 - - - Loss on disposal of plant and equipment 934 - - - Amortisation of pre-operating expenses - 16,748 Office and equipment rental 146,373 39,916 1,200 3,500 Allowance for/(write-back of) impairment of trade receivables - net (854) (1,703) - - 9 Income tax Tax expense attributable to the results is made up of: Group Company 2006 2005 2006 2005 £ £ £ £ Current income tax 1,049 - - - Deferred tax - - - - 1,049 - - - (Over)/underprovision in respect of prior years:- Current income tax 4,156 13,464 - - Deferred tax - (13,131) - - 5,205 333 - - The reconciliation of the current year tax expense and the product of accountingprofit multiplied by the Singapore statutory tax rate is as follows: Group 2006 2005 £ % £ % (Loss) / profit before income tax (266,730) 202,679 Income tax at the statutory rate of 30% (80,019) 30.0 60,804 30.0 Difference arising from foreign tax rate 19,983 (7.5) 17,734 8.7 Non allowable items 49,990 (18.7) 23,375 11.5 Tax exempted income (68,214) 25.6 (95,296) (47.0) Group relief set-off (7,347) 2.8 Singapore statutory stepped income exemption - (2,040) (1.0) Future tax benefits not recognised 86,580 (32.5) (4,577) (2.2) Underprovision of income tax in respect of prior 4,155 (1.6) 13,464 6.6 years Under provision of deferred tax in prior years 77 - (13,131) (6.5) 5,205 (2.0) 333 (0.1) At the balance sheet date, the Group had unutilised tax losses and unabsorbedcapital allowances amounting to approximately £153,445 (2005: £22,577) and£35,956 (2005: £Nil) respectively available for offsetting against futuretaxable profit for subsidiary companies in Singapore. The Group has unutilised tax losses amounting to £9,579 (2005: £16,727) frompre-pioneer status year carried forward available for off-setting against futuretaxable profits for its subsidiary company in Malaysia. The utilisation of thesetax losses is subject to the agreement with the tax authorities and compliancewith certain provisions of the tax legislation. The deferred tax benefit arising from the unutilised tax losses has not been recognised in accordancewith the accounting policy in Note 2(n) to the financial statements. Temporary differences arising from investment in subsidiary and associatedcompanies are considered to be insignificant to the Group. Group Company 2006 2005 2006 2005 £ £ £ £ Composition of deferred taxation: On the excess of the net book value over tax written down value of plant and equipment 75 480 - - Analysis of provision for deferred taxation: Balance at the beginning of the year 480 12,877 - - Overprovision of deferred taxation (405) (12,397) - - Balance at the end of the year 75 480 - - 10 (Loss) / Earnings Per Share The (loss) / earnings per ordinary share is based on (loss) / profitattributable to shareholders amounting to £(271,934) (2005: profit of £202,346)and the weighted average number of ordinary shares in issue of 14,916,062 (2005:14,916,062) shares. There is no dilution as the Group did not have any potential ordinary sharesoutstanding as at 31 December 2006 and 2005. 11 Plant and Equipment Classroom Furniture and office Motor Library Renovation Computers & fittings equipment vehicle books Total Group £ £ £ £ £ £ £ 2006 Cost As at 1 January 2006 88,101 51,022 25,694 80,482 422 2,226 247,947 Additions 27,294 5,435 9,657 1,950 - - 44,336 Disposals - (1,006) - - - - (1,006) Acquisition of subsidiary - 497 - - - - 497 Currency realignment (4,243) 40,126 8,959 (57,231) (24) (176) (12,589) As at 31 December 2006 111,152 96,074 44,310 25,201 398 2,050 279,185 Accumulated depreciation As at 1 January 2006 18,689 34,942 4,634 59,047 296 1,524 119,132 Charge for the year 21,342 9,803 7,742 3,092 81 418 42,478 Disposal - (96) - - - - (96) Currency realignment (1,637) 36,508 6,846 (49,006) (19) (97) (7,405) As at 31 December 2006 38,394 81,157 19,222 13,133 358 1,845 154,109 Net book value At 31 December 2006 72,758 14,917 25,088 12,068 40 205 125,076 Classroom Furniture and office Motor Library Renovation Computers & fittings equipment vehicle books Total Group £ £ £ £ £ £ £ 2005 Cost As at 1 January 2005 15,658 34,888 3,522 73,346 392 1,993 129,799 Additions 71,199 12,716 21,776 1,865 - - 107,556 Currency realignment 1,244 3,418 396 5,271 30 233 10,592 As at 31 December 2005 88,101 51,022 25,694 80,482 422 2,226 247,947 Accumulated depreciation As at 1 January 2005 6,929 27,295 2,194 41,366 196 1,010 78,990 Charge for the year 10,692 4,798 2,147 13,916 82 420 32,055 Currency realignment 1,068 2,849 293 3,765 18 94 8,087 As at 31 December 2005 18,689 34,942 4,634 59,047 296 1,524 119,132 Net book value At 31 December 2005 69,412 16,080 21,060 21,435 126 702 128,815 At the balance sheet date, the Group's net book value of computers under financelease arrangements amounted to £3,504 (2005: £3,615). 12 Development Expenditure Group 2006 2005 £ £ Cost As at beginning of the year 47,351 43,125 Addition 33,754 - Currency realignment (2,173) 4,226 As at end of the year 78,932 47,351 Amortisation As at beginning of the year 18,937 8,624 Charge for the year 11,644 9,135 Currency realignment (1,160) 1,178 As at end of the year 29,421 18,937 Net Book Value As at end of the year 49,511 28,414 13 Investment in Subsidiary Company Company 2006 2005 £ £ Investment in a subsidiary - AEC.Edu Group Pte Ltd Unquoted equity shares, at cost 1,308,639 1,308,639 Due from subsidiary company 236,970 343,000 AEC Edu Group Pte Ltd is the Company's immediate subsidiary. The details of AECEdu Group Pte Ltd and the subsidiaries companies it held at 31 December 2006 areas follows: Subsidiary companies and country of Principal activities Equity held by incorporation (Place of business) the Company 2006 2005 % % AEC.Edu Group Pte Ltd Investment holding and (Singapore) provision of education consultancy services 100 100 (Singapore) Subsidiaries held by AEC Edu.Group Pte Ltd AEC Resource Development Pte Ltd Education, training and 100 100 (Singapore) human resource consultancy (Singapore) AEC Accountancy & Business School Pte Ltd Education, training and 100 100 (Singapore) human resource consultancy (Singapore) The McGregorr Consultants Pte Ltd Advisors and consultants for 100 100 (Singapore) further learning and dealing in study kits and manuals (Singapore) Flexi Learning Systems Pte Ltd Operator and agent of schools, 100 100 (Singapore) colleges, institutions, and professional associations in promoting training and educational programmes and courses (Singapore) AEC Internet Education Technology Pte Ltd E-learning applications 100 100 service (Singapore) provider to develop, distribute and implement dynamic educational content and innovative learning processes and software tools (Singapore) The details of the subsidiary company as at 31 December 2006 are as follows: Subsidiary companies and country of Principal activities Equity held by incorporation (Place of business) the Company 2006 2005 % % Subsidiaries held by AEC Edu.Group Pte Ltd AEC Edutech Sdn Bhd Development, management, 100 100 (Malaysia) and provision of consultancy and market educational technology solutions related products (Malaysia) Brighton Commercial Training Centre Pte Ltd Technical, vocational and 100 - (Singapore) commercial education (Singapore) AEC Business School Pte Ltd Technical, vocational and 100 - (Singapore) commercial education (Singapore) Brainbox Limited Consulting & marketing in 64.8 - (British Virgin Island) education, training and related services (Vietnam) Smartworks Learning Centre Pte Ltd Commercial education and 100 - (Singapore) provide training in property investments, consultancy and maintenance (Singapore) Held by AEC Edutech Sdn Bhd Dormant 100 100 ST Synergy (Malaysia) Sdn Bhd (Malaysia) Held by Brainbox Limited Brainbox Foreign Training courses in foreign 64.8 - languages and business Language & administration Management Studies (Vietnam) Training Center (Vietnam) In 2005, AEC Edu Group Pte Ltd converted 2 sole-proprietors, Brighton CommercialTraining Centre and AEC Business School to limited liability companies with paidup capital of S$1 each respectively. In the opinion of the directors, the recoverable amount of the investment insubsidiary companies is not less than the carrying amount of the investment onthe basis that the present value of the estimated future cash flows expected toarise from the subsidiaries' operations over the next few year will exceed thecarrying amount of the investment in these subsidiaries. 14 Investment in Associated Companies Group 2006 2005 £ £ Unquoted shares, at cost 1,386,694 1,386,694 Goodwill transferred to capital reserves 14,038 14,038 Share of net post-acquisition reserves Balance at beginning of year (6,798) (152,223) Exchange gain 1,725 - Share in profits for the year 31,562 99,283 Share of taxes (5,729) (31,663) Dividends received (58,344) (45,263) Currency alignment (63,090) 123,068 Balance at end of year (100,674) (6,798) 1,300,058 1,393,934 Due from associated company 169,098 67,106 The carrying amount of the investment in associated companies includes goodwillof £907,680 (2005: £907,680). The amounts due from associated companies aretrade in nature, unsecured, interest-free and payable within the next twelvemonths. Summarised financial information in respect of the Company's associatedcompanies is set out below: 2006 2005 £ £ Total assets 2,433,122 2,558,434 Total liabilities (1,112,103) (984,883) Net assets 1,321,019 1,573,551 Revenue 2,459,957 2,952,900 Profit for the year 70,687 220,462 Details of associated companies are as follows: Associated companies and country of Principal activities Equity held by incorporation (Place of business) the Group 2006 2005 % % Held by AEC.Edu Group Pte Ltd Keris Murni Sdn Bhd Provides education services and the 30 30 operation (Malaysia) of education tuition centers (Malaysia) Pusat Tuisyen Kasturi Sdn Provides education services and the 30 30 operation Bhd of education tuition centre (Malaysia) (Malaysia) Educational Resources Pte Provides consultancy services in education 34.96 34.96 Ltd related services and business training (Singapore) (Singapore) In the opinion of the directors, the recoverable amount of the investment inassociated companies is not less than the carrying amount of the investment onthe basis that the present value of the estimated future cash flows expected toarise from the associated companies' operations over the next few years willexceed the carrying amount of the investment in these associated companies. 15 Goodwill Group 2006 2005 £ £ Cost At beginning of the year - - Additions 117,855 - At end of the year 117,855 - Provision for impairment in value At beginning and end of year - - At end of the year 117,855 - Goodwill arose in the year as a result of acquisitions by the Group. On 27 April 2006, the Group acquired 64.8% of Brainbox Limited, a companyincorporated in British Virgin Island for a consideration of £16,650. The fair values of net assets acquired were as follows: £ Net assets acquired - Goodwill 16,650 Total purchase price 16,650 Less: Cash of Brainbox Limited - Cash flow on acquisition net of cash acquired 16,650 On 5 September 2006, the Group acquired the entire share capital of SmartworksLearning Centre Pte Ltd ("Smartworks"), a company incorporated and operating inSingapore, which provides a distance learning programme in real estate andmarketing in collaboration with the University of South Australia and theCollege of Estate Management in the UK, for a total consideration of £147,180.The consideration comprised cash and £73,590 was paid on completion fromexisting cash resources and £73,590 is to be paid six months after completiondate. The deferred consideration of £73,590 was paid on 5 March 2007. The fair values of net assets acquired were as follows: £ Cash and cash equivalent 105,436Trade receivables 13,370Other receivables 31,385Plant and equipment 745Trade and other payables (104,961)Net assets acquired 45,975Goodwill 101,205Total purchase price 147,180Less: Cash of Smartworks (105,436)Cash flow on acquisition net of cash acquired 41,744 16 Inventories Inventories pertains to the net realisable value of goods received in exchangefor the rendering of training services in 2004. 17 Trade Receivables Group 2006 2005 £ £ Trade receivables are stated after deducting allowance for impairment of 24,331 37,529 Group 2006 2005 £ £ Trade receivables are denominated in the following currencies: Singapore dollars 300,725 250,728 Pound sterling 714 - Malaysian ringgit 158,597 1,560 460,036 252,288 18 Other Receivables Group Company 2006 2005 2006 2005 £ £ £ £ Deposits 1,618 1,795 - - Prepayments 24,194 227 - - Other debtors 58,320 53,238 8,049 52,140 84,132 55,260 8,049 52,140 Other receivables are denominated in the following currencies: Singapore dollars 18,315 2,145 - - Vietnamese dong 57,156 - - - Pound sterling 7,335 52,140 8,049 52,140 Malaysian ringgit 1,326 975 - - 84,132 55,260 8,049 52,140 19 Deferred Expenditure Deferred expenditure relates to consultancy and course fees paid in advance. Group Company 2006 2005 2006 2005 £ £ £ £ Deferred expenditure is denominated in the following currencies: Singapore dollars 23,762 31,054 - - 20 Due from/(to) Other Related Parties Related parties are entities (except for subsidiary companies and associatedcompanies) with common direct/indirect shareholders and directors. Parties areconsidered to be related (directly or indirectly) if one party has the abilityto control or exercise significant influence over the other party in makingfinancial and operating decision by virtue of such common interests. Group 2006 2005 £ £ Due from related parties Trade - 223,567 Non-trade 1,607 260,643 1,607 484,210 Due to related parties Trade (16,391) (27,407) Non-trade (23,222) (23,232) (39,613) (50,639) Total (38,006) 433,571 Balances with related parties are denominated in the following currencies: Singapore dollar (38,006) 186,920 Malaysian ringgit - 246,651 (38,006) 433,571 The amounts due (to) / from related parties are unsecured, interest-free and duewithin the next twelve months. 21 Cash and Bank Balances Group Company 2006 2005 2006 2005 £ £ £ £ Cash and bank balances are denominated in the following currencies: Singapore dollars 149,886 65,764 - - Vietnamese dong 3,745 - - - Pound sterling 512 4,280 512 4,280 Malaysian ringgit 7,855 19,635 - - 161,998 89,679 512 4,280 22 Trade Payables Group Company 2006 2005 2006 2005 £ £ £ £ Trade payables balances are denominated in the following currencies: Singapore dollars 129,916 90,283 - - 23 Deferred Income Deferred income relates to course fees received in advance. Group Company 2006 2005 2006 2005 £ £ £ £ Deferred income is denominated in the following currencies: Singapore dollars 244,630 156,478 - - 24 Other Payables Group Company 2006 2005 2006 2005 £ £ £ £ Other creditors 152,470 61,480 22,061 23,598 Accrued expenses 122,185 49,694 24,750 - 274,655 111,174 46,811 23,598 Other payables are denominated in the following currencies: Singapore dollars 189,964 84,329 - - Vietnamese dong 35,430 - - - Pound sterling 46,809 23,598 46,811 23,598 Malaysian ringgit 2,452 3,247 - - 274,655 111,174 46,811 23,598 25 Bank Overdraft The bank overdraft facility of the Group is secured by a personal guarantee by adirector and incurs interest of prime rate plus 2% per annum. The bank overdraftis payable within 12 months from the balance sheet date. 26 Finance Lease Obligations Group Group Present value Minimum of minimum lease payments lease payments 2006 2005 2006 2005 £ £ £ £ Within one year 2,124 1,806 1,900 1,755 Due after one year 1,239 - 1,200 - 3,363 1,806 3,100 1,755 Less: Future finance charges (263) (51) - - Present value of lease obligations 3,100 1,755 3,100 1,755 Effective rate of interest per annum for finance lease 5.4% 4.5% Finance lease creditors are denominated in the following currency: Singapore dollars - 1,755 Malaysian ringgit 3,100 - 3,100 1,755 27 Share Capital Group and Company 2006 2005 £ £ Authorised 50,000,000 ordinary shares of 10p each 5,000,000 5,000,000 Allotted, called up 14,916,042 ordinary shares of 10p each 1,491,604 1,491,604 28 Related Party Transactions In addition to the related party information disclosed elsewhere in theconsolidated financial statements, there were the following significanttransactions with related parties on terms agreed between the parties: Group Company 2006 2005 2006 2005 £ £ £ £ With subsidiary AEC Edu Group Pte Ltd - Consultancy fee income - - 10,000 - - Management fee paid - - (25,000) - With a related party with common directors OLOL Management Service Pte Ltd - Commission paid and payable (411,687) (343,748) - - Savant Infocomm Pte Ltd - Consultancy fees income - (41,880) - - - Accounting fees (28,598) - (6,000) - AEC Property Management Pte Ltd - Office rental expenses - (904) - - - Air-conditioning and electricity charges - - - - expenses Integrative Organisational Learning Sdn Bhd - revenue - Royalty and Licensing - 1,563 - - - Computer software and hardware - 2,863 - - - Implementation, training and testing - 2,978 - - - Management and consultancy fees - 391 - - Open Learning Agency Malaysia Sdn Bhd - revenue - Royalty and Licensing - 16,877 - - - Computer software and hardware - 30,920 - - - Implementation, training and testing - 32,159 - - - Management and consultancy fees - 4,219 - - QLA Learning Associates Malaysia Sdn Bhd -revenue - Royalty and Licensing 121 199 - - - Computer software and hardware 170 365 - - - Implementation, training and testing 282 379 - - - Management and consultancy fees 30 50 - - Intellectual Challenge Sdn Bhd -revenue - Royalty and Licensing - 3,128 - - - Computer software and hardware - 5,731 - - - Implementation, training and testing - 5,961 - - - Management and consultancy fees - 782 - - With associated companies and its related companies Genting Mutiara Sdn Bhd -revenue - Royalty and Licensing 8,731 10,238 - - - Computer software and hardware 12,270 18,756 - - - Implementation, training and testing 20,364 19,507 - - - Management and consultancy fees 2,183 2,559 - - Indopelangi Sdn Bhd - revenue - Royalty and Licensing 4,941 5,417 - - - Computer software and hardware 6,943 9,924 - - - Implementation, training and testing 11,524 10,321 - - - Management and consultancy fees 1,235 1,354 - - Jaguh Suria Sdn Bhd - revenue - Royalty and Licensing 4,431 3,608 - - - Computer software and hardware 6,226 6,609 - - - Implementation, training and testing 10,333 6,874 - - - Management and consultancy fees 1,108 902 - - Keris Murni Sdn Bhd -revenue - Royalty and Licensing 23,472 28,688 - - - Computer software and hardware 32,984 52,557 - - - Implementation, training and testing 54,743 54,663 - - - Management and consultancy fees 5,868 7,172 - - Pusat Tiusyen Kasturi Sdn Bhd -revenue - Royalty and Licensing 17,376 19,422 - - - Computer software and hardware 24,418 35,582 - - - Implementation, training and testing 40,525 37,008 - - - Management and consultancy fees 4,344 4,856 - - Pelangi Tegas Sdn Bhd - revenue - Royalty and Licensing 5,862 6,376 - - - Computer software and hardware 8,237 11,681 - - - Implementation, training and testing 13,671 12,149 - - - Management and consultancy fees 1,465 1,594 - - Group 2006 2005 £ £ Key management personnel - Short term benefits 123,417 87,420 - Post employment benefit 3,063 1,102 126,480 88,522 A director, Mr Ho Peng Cheong, had an interest in contracts of the companyduring the year by reason of his 1% shareholding in the ultimate holding companyof the following: Integrative Organisation Learning Sdn Bhd Open Learning Agency Malaysia Sdn Bhd QLA Learning Associates Malaysia Sdn Bhd Intellectual Challenge Sdn Bhd 29 Operating Lease Commitments The Group leases its office premises for a period of 2 years, renewable for suchperiod and under such terms and conditions as may be agreed upon with thelessor. There are no restrictions placed upon the Group in entering into theselease arrangements. The Group also leases various plant and machinery under non-cancellableoperating lease arrangements. The lease expenditure charged to the incomestatement during the financial year is disclosed in Note 8. At the balance sheet date, the future minimum rental payable under thesenon-cancellable operating leases are as follows:- Group 2006 2005 £ £ Payable: Within one year 117,544 119,472 Between two to five years 10,081 99,560 127,625 219,032 30 Financial Instruments IFRS 7 Financial Instruments: Disclosure was issued in August 2005, but comesinto force for accounting periods beginning on or after 1 January 2007. IFRS 7will have no impact on the net assets of the Company or Group, but will requireincreased disclosure in respect of the credit, liquidity and market risks facedby the Company and Group. At the same time as IFRS 7 comes into force, IAS 1 has also been amended torequire additional disclosure in respect of capital. The impact of the revisionof IAS 1 on the Company and Group will be limited, as neither the Company northe Group is subject to externally imposed capital requirements. (a) Financial Risk Management Objectives and Policies The Group does not have written risk management policies and guidelines.Generally, the Group adopts conservative strategies in its risk management. Thedirectors believe that the Group's exposure associated with these risks isminimal. (i) Credit risk The carrying amount of trade and other receivables, subsidiary companies andrelated parties balances and cash represent the Group's maximum exposure tocredit risk. The Group has no significant concentration of credit risk. (ii) Liquidity risk The Group adopts prudent liquidity risk management by maintaining sufficientcash and having adequate amount of credit facilities. Due to the nature of theGroup's operations, the Group aims at maintaining flexibility in funding bykeeping committed credit facilities available. (iii) Foreign exchange risk The Group incurs foreign currency risk on commission payable to universities,the sale of system and support services, and loans advanced from third partiesthat are primarily denominated in currencies other than Singapore dollars. Thecurrencies giving rise to this risk are Australian dollar, Singapore dollar andMalaysian ringgit. The Group does not use derivative financial instruments to hedge against thevolatility associated with foreign currency transactions as the directorsbelieve that the risks arising from fluctuations in foreign currency exchangerates are not significant. (iv) Interest rate risk The Group's exposure to market risk for changes in interest rates relateprimarily to the Group's bank overdraft facility. The tables below set out the Group's exposure to interest rate risks. Includedin the tables are the assets and liabilities at carrying amounts, categorised bythe earlier of contractual repricing or maturity dates. Fixed rates Less Non-interest than 6 Bearing Total months £ £ £At 31.12.2006Assets Trade and other receivables - 714,873 714,873 Cash and bank balances - 161,998 161,998 Non-financial assets - 1,622,198 1,622,198Total assets - 2,499,069 2,499,069 At 31.12.2006Liabilities Trade and other payables - 473,738 473,738 Borrowings 89,058 - 89,058 Non-financial liabilities - 244,705 244,705Total Liabilities 89,058 718,443 807,501 Fixed rates Less Non-interest than 6 Bearing Total months £ £ £At 31.12.2005Assets Trade and other receivables - 858,864 858,864 Cash and bank balances - 89,679 89,679 Non-financial assets - 1,668,587 1,668,587Total assets - 2,617,130 2,617,130 At 31.12.2005Liabilities Trade and other payables - 287,607 287,607 Borrowings 122,304 - 122,304 Non-financial liabilities - 156,958 156,958Total Liabilities 122,304 444,565 566,869 (b) Fair Values The fair value of financial assets and liabilities are not materially differentfrom their carrying amounts because of the immediate or short-term maturity ofthese financial instruments. 31 Comparative figures Certain comparative figures have been reclassified to confirm with the currentyear's presentation as follows: 2005 2005 Before After reclassification reclassification Effect £ £ £ GroupIncome StatementSale of services (1,402,518) (1,439,824) (37,306)Other income (140,166) (102,860) 37,306 The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2006, but is derived fromthose accounts. Statutory accounts for the period have been delivered to theRegistrar of Companies. Copies of the accounts will be posted to shareholders very shortly. **End** For further information please visit www.aec.edu.sg or enquire to: Liam Swords, Chairman 020 8308 1202 / 07775 787427AEC Education plc David Nabarro / Anthony Rowland 020 7710 7400Nabarro Wells & Co Limited This information is provided by RNS The company news service from the London Stock Exchange