MUBL.L Regulatory News (MUBL)

7 Dec 2007 07:00

Air Music & Media Group PLC07 December 2007 7 DECEMBER 2007 AIR MUSIC AND MEDIA GROUP PLC ("Air Group" or the "Group") Unaudited Interim Financial Statements for the Six Months Ended 30 September 2007 The Board of Air Group, the UK distributor of home entertainment products, ispleased to announce its interim results for the six months ended 30 September 2007. Key Points • Sales increased to £29.0 million (2006: £25.8 million); • PBT increased to £1,865,000 (2006: £1,770,000); • EPS for the period 7.4p (2006: 4.1p); • Operating profit £1,931,000 (2006: £2,062,000); • Sales at Music Box Leisure, the core of the Group, have performed strongly benefiting from the continued growth in DVD sales; • Underperforming North American operation disposed in June 2007; and • Trading update on the headline performance through to 31 December 2007 expected in late January 2008. Commenting, Peter Cowgill, Chairman of Air Group, said: "The results for thefirst half of the year are encouraging. We are pleased at the underlying growthin sales we have been able to generate and are working hard to translate this tounderlying growth in profitability. The Group is currently in its most critical trading period of the year andremains dependent on the performance of a relatively small number of UKretailers. Trading since the half year has continued to show an increase insales (of more than 40% compared to the comparable period). This continues toreflect the changing product mix towards lower margin products which, combinedwith retail price pressure, is resulting in gross margins declining in a similarmagnitude to the first half of the year." --ENDS-- Enquiries: AIR MUSIC & MEDIA GROUP PLC Tel: 0161 767 1620 Peter Cowgill (Chairman) BISHOPSGATE COMMUNICATIONS LIMITED Tel: 020 7562 3350Dominic Barretto Mobile: 07930 450 156 SEYMOUR PIERCE LIMITED Tel: 020 7107 8032Mark Percy CHAIRMAN'S STATEMENT I am pleased to announce the interim results for the six months to 30 September2007. During the period, the Board has completed Air Group's strategy ofexiting from the poorer performing aspects of the Group with the sale of ourNorth American operations in June 2007 whilst absorbing the profitable elementsof our predominantly export led distributor of low priced own label music, AirMusic and Media Sales Limited (AMM Sales), into our wholesale business ESDWholesale Limited ("ESD"). Financials This is our first results period following the adoption of InternationalFinancial Reporting Standards (IFRS) as adopted in the EU and consequently wehave an extended disclosure reconciliation. As shown in the reconciliation, theprimary impacts of the transition to IFRS has been our treatment of goodwill,which is subject to a periodic impairment review rather than regularamortisation and our disclosure of discontinued operations, which are presentedon a disaggregated basis. Sales for the period were £29.0 million (2006: £25.8 million). Operating profitwas £1,931,000 (2006: £2,062,000). Net financing costs were £66,000 (2006:£292,000). Profit before tax was £1,865,000 (2006: £1,770,000). Earnings pershare for the period was 7.4p (2006: 4.1p). A summary of the performance of the Group is shown in the table below: 30 30 30 30 September September September September 2007 2006 2007 2006 Sales Sales Operating Operating profit profitActivity £ million £ million Change £ million £ million Change Distribution 25.3 19.5 29.7% 2.0 2.2 -9.1%Wholesale 3.6 6.2 -41.9% 0.2 0.3 -33.3%Other 0.1 0.1 n/a 0.0 -0.2 n/aCentral costs 0.0 0.0 n/a -0.3 -0.2 -50.0% 29.0 25.8 12.4% 1.9 2.1 -9.5% OPERATIONAL UPDATE Distribution Sales at Music Box Leisure ("MBL"), the core of the Group, have performedstrongly benefiting from the continued growth in DVD sales, in part stimulatedby lower retail price points. DVD's now represent approximately 80% of sales atMBL (CD accounting for approximately 10% of sales and PC and console softwarefor approximately 10% sales). This contrasts with 2006, where DVD accounted forapproximately 65% of sales. During the period, sales at MBL have also benefitedfrom the addition of three new customers. These customers accounted forapproximately £1.2 million sales in the period, with the balance of the increasein sales being generated from the existing customer base. Gross profit margins have dropped by 3.6% to 17.2% compared to the period to 30September 2006. Margins have been negatively impacted by the lowering of retailprice points and a change in mix to lower margin products. We continued to useour buying skills to mitigate the impact of falling margins. The increasedlevel of activity has resulted in a relatively small increase in overheads. Wholesale ESD has continued to see sales to independent retailers fall in the period. Theremaining retailers in the music and film specialist sector continue toexperience sales and margin pressure arising from the competitive efforts of thesupermarkets. In addition, the internet and the sector are very much out offavour with the major credit insurers. The sales mix in ESD has moved away fromCD to DVD (which accounted for approximately 55% of sales, compared toapproximately 43% of sales in 2006). Recognising the continued general decline in CD sales, in early July the Boardeffectively closed the operations of AMM Sales and absorbed the profitableelements of its activity in to ESD. Sales attributed to former AMM Saleselements represented £0.3 million of wholesale sales (2006: £1.3 million). Discontinued activities Discontinued activities represent results from the North American subsidiarydisposed of in the year and, in the prior year comparative, results from a pilotretail operation closed in September 2006. Funding position The Group continued to repay its borrowings and remained comfortably within itsbanking covenants in the period. As a consequence of 30 September 2007 fallingon a weekend, cash receipts from customers totalling almost £5.3 million thatwould normally have been received and accounted for at the period end werereceived and accounted for on 1 October 2007. Therefore, although the balancesheet shows Net Debt (the aggregate of cash and cash equivalents and interestbearing loans and borrowings) of £6.7 million at 30 September 2007, on acomparable basis the Group's Net Debt would have been £1.5 million (30 September2006: £4.1 million; 31 March 2007: £0.6 million). Current trading and outlook The results for the first half of the year are encouraging. We are pleased atthe underlying growth in sales we have been able to generate and are workinghard to translate this to underlying growth in profitability. The Group is currently in its most critical trading period of the year andremains dependent on the performance of a relatively small number of UKretailers. Trading since the half year has continued to show an increase insales (of more than 40% compared to the comparable period). This continues toreflect the changing product mix towards lower margin products which, combinedwith retail price pressure, is resulting in gross margins declining in a similarmagnitude to the first half of the year. The Board is disappointed to note that the UK credit insurance market appears tobe classifying our operations on a similar basis to the specialist music andfilm retailers who have struggled over the past 18 months. As a consequence,insured limits provided on Music Box Leisure have been significantly cutcompared to previous years. This has had a recent and significant impact on thecash position of the Group during our critical trading period as the Group hasbeen forced to make advance payments in order to secure product supply. We arein the fortunate position of having adequate working capital facilities to meetthis cash requirement, however remain mindful that cash generation and theavailability of adequate credit terms is of paramount importance to supportingfurther growth of the Group. I look forward to issuing a trading update on the headline performance throughto December at the end of January 2008. Peter CowgillChairman 7 December 2007 Consolidated Income Statementfor the six months ended 30 September 2007 Unaudited Unaudited Unaudited Six months to 30 Six months to 30 Year ended 31 September 2007 September 2006 March 2007 £'000 £'000 £'000Continuing operationsRevenue 28,979 25,848 61,507 Cost of sales (24,005) (20,468) (49,973) Gross profit 4,974 5,380 11,534 Distribution expenses (573) (581) (1,467) Administrative expenses (2,470) (2,737) (8,119) Operating profit 2 1,931 2,062 1,948 Financial income 38 24 53 Financial expenses (104) (316) (478) Net financing costs (66) (292) (425) Profit before tax 1,865 1,770 1,523 Taxation 3 (592) (294) (967) Profit for the period from continuingoperations 1,273 1,476 556 Loss for the period from discontinued 6operations, net of income tax - (780) (2,010) Profit/ (loss) for the periodattributable to equity holders of theparent 1,273 696 (1,454) Continuing operationsBasic and diluted earnings per share 4 7.4p 8.6p 3.2pDiscontinued operations Basic and diluted earnings per share 4 0.0p (4.5)p (11.7)pTotal Basic and diluted earnings per share 4 7.4p 4.1p (8.5)p Consolidated Balance Sheetat 30 September 2007 Unaudited Unaudited Unaudited Six months to 30 Six months to Year ended 31 September 2007 30 September March 2007 2006 £'000 £'000 £'000Non-current assetsIntangible assets 29,423 34,028 29,423 Property, plant and equipment 348 344 326 Deferred tax asset 192 90 212 Total non-current assets 29,963 34,462 29,961 Current assetsInventories 6,664 5,958 6,650Trade and other receivables 5 14,427 8,914 6,803Cash and cash equivalents - 1,544 2,269 21,091 16,416 15,722 Current assets and disposal groups held for sale - - 1,168 Total current assets 21,091 16,416 16,890 Total assets 51,054 50,878 46,851 Current liabilitiesTrade and other payables (8,340) (8,823) (8,924)Current tax payable (1,038) (366) (1,101)Accruals and deferred income (1,616) (1,242) (1,381)Interest-bearing loans and borrowings (6,628) (4,536) (2,715)Provisions - (627) - Total current liabilities (17,622) (15,594) (14,121) Liabilities directly associated with current assets and disposal groups held for sale - - (521) (17,622) (15,594) (14,642) Non-current liabilitiesInterest-bearing loans and borrowings (90) (1,059) (144) Total non-current liabilities (90) (1,059) (144) Total liabilities (17,712) (16,653) (14,786) Net assets 33,342 34,225 32,065 EquityShare capital 12,872 12,872 12,872Share premium 21,453 21,453 21,453Other reserves (2,800) (2,800) (2,800)Translation reserve - (15) (35)Retained earnings 1,817 2,715 575 Total equity attributable to equity shareholders of theparent 33,342 34,225 32,065 Consolidated Cash Flow Statementfor the six months ended 30 September 2007 Unaudited Unaudited Unaudited Six months to 30 Six months to Year ended September 2007 30 September 2006 31 March 2007 £'000 £'000 £'000Cash flows from operating activitiesProfit/ (loss) for the period/year:Continuing operations 1,273 1,476 556Discontinued operations - (780) (2,010) 1,273 696 (1,454)Adjustments for:Depreciation 77 107 193Amortisation - 114 4,717Financial income (42) (33) (69)Financial expense 104 316 478Loss on sale of property, plant and equipment - 248 248Foreign exchange (income)/ losses (27) 5 38Taxation 592 301 1,486 Operating profit before changes in working capital and 1,977 1,754 5,637provisions(Increase)/ decrease in trade and other receivables (7,467) 2,007 3,765(Increase)/ decrease in inventories (13) 2,130 1,110Decrease in trade and other payables (349) (2,437) (1,825)Decrease in provisions - - (226) Cash (absorbed)/ generated by the operations (5,852) 3,454 8,461 Tax paid (635) (697) (1,349) Net cash (outflow)/ inflow from operating activities (6,487) 2,757 7,112 Cash flows from investing activitiesInterest received 42 33 69Acquisition of property, plant and equipment (95) (109) (274)Acquisition of intangible assets - (1) (1)Proceeds from sale of property, plant and equipment - - 29Proceeds from sale of subsidiary 72 - -Cash and cash equivalents disposed of with subsidiary (146) (35) (36) Net cash outflow from investing activities (127) (112) (213) Cash flows from financing activitiesInterest paid (105) (316) (450)Proceeds from new borrowings 2,500 - -Repayment of borrowings (1,801) (2,984) (5,744)Capital element of finance lease liabilities (1) - (11) Net cash inflow/ (outflow) from financing activities 593 (3,300) (6,205) Net (decrease)/ increase in cash and cash equivalents (6,021) (655) 694Opening cash and cash equivalents 2,862 2,205 2,205Effect of exchange rate fluctuations on cash held - (6) (37) Cash and cash equivalents held in continuing operations (3,159) 1,544 2,862 Cash and cash equivalents held in a disposal group - - (593) Closing cash and cash equivalents (3,159) 1,544 2,269 Statement of Recognised Income and Expense Unaudited Unaudited Unaudited Six months to Six months to 30 Year ended 30 September September 2006 2007 31 March 2007 £'000 £'000 £'000 Foreign exchange adjustments - (15) (33) Net expense recognised directly in equity - (15) (33)Profit/ (loss) for the period 1,273 696 (1,454) Total recognised income and expense for the period 1,273 681 (1,487) Statement of Changes in Shareholders' Equity Unaudited Unaudited Unaudited Six months to Six months to 30 Year ended 30 September September 2006 2007 31 March 2007 £'000 £'000 £'000 Total equity at beginning of period 32,065 33,544 33,544Total recognised income and expense 1,273 681 (1,487)Share issue: Shares to be issued - (206) (206) Share capital - 199 199 Share premium - 7 7Share based payment charge 4 - 8 Total equity at end of period attributable to equityholders of the parent 33,342 34,225 32,065 Notes (forming part of the interim financial statements) 1 Basis of preparation The consolidated interim financial statements of the Group for the period ended30 September 2007 are unaudited and do not comprise statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. From 1 April 2007, Air Group is required to prepare its consolidated financialstatements in accordance with adopted International Financial ReportingStandards (IFRS) as adopted by the European Union ('adopted IFRS').Reconciliations and descriptions of the effect of the transition from UK GAAP toadopted IFRS on the Group's balance sheet and its income statement are providedon pages iii to vii of the IFRS Restatement Report. This consolidated interim financial information has been prepared on the basisof the recognition and measurement requirements of adopted IFRS as at 30September 2007 that are effective (or available for early adoption) at 31 March2008, the Group's first annual reporting date at which it is required to applyadopted IFRS. Based on these adopted IFRS, the directors have applied theaccounting policies set out in the restatement report, included in thisdocument, which they expect to apply when the first annual financial statementsare prepared in accordance with adopted IFRS for the year ending 31 March 2008. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 March 2008are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 March 2008. The comparative figures for the financial year ended 31 March 2007 are not theCompany's statutory accounts for that financial year. Those accounts, which wereprepared under UK GAAP, have been reported on by the Company's auditors anddelivered to the registrar of companies. The report of the auditors was (i)unqualified, (ii) did not include a reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 237(2) or (3) of the CompaniesAct 1985. 2 Operating profit Operating profit for continuing operations is stated after charging thefollowing exceptional items: Unaudited Unaudited Unaudited Six months to 30 Six months to 30 Year ended September 2007 September 2006 31 March 2007 £'000 £'000 £'000Impairment of goodwill associated with AirMusic and Media Sales business - - 2,137 Accelerated amortisation of copyright costscapitalised as intangible assets - - 1,670 - - 3,807 3 Taxation The taxation charge has been estimated by the Company based on adjustments totax payable in respect of previous years and the tax rate for the year ended 31March 2008. The tax charge for the periods to 30 September 2006 and 31 March2007 benefited from tax relief on operations classified as discontinued. Notes (forming part of the interim financial statements) 4 Earnings per share The calculation of the basic earnings per share is based on the profit aftertaxation divided by the weighted average number of shares in issue, being17,162,735 (period ended 30 September 2006: 17,162,735; year ended 31 March2007: 17,162,735). The diluted earnings per share takes the weighted average number of ordinaryshares in issue during the period and adjusts this for dilutive share optionsexisting at the period end. The diluted weighted average number of shares inthe period ended 30 September 2007 was 17,162,735 (period ended 30 September2006: 17,163,218; year ended 31 March 2007: 17,171,280). Adjusted earnings per share, as disclosed below, are calculated using the profitafter tax for the period, having added back exceptional items (after adjustingfor the effect of tax) and goodwill amortisation charge over the basic anddiluted weighted average number of shares in issue during the six month period. Unaudited Unaudited Unaudited Six months to 30 Six months to 30 Year ended September 2007 September 2006 31 March 2007 £'000 £'000 £'000 Profit/(loss) after taxation 1,273 696 (1,454)Accelerated amortisation of intangible - - 1,670assetsImpairment of goodwill - - 2,137Taxation on exceptionals - - (501)Adjusted profit 1,273 696 1,852Loss from discontinued operations - 780 2,010Adjusted profit attributable from continuingoperations 1,273 1,476 3,862 Basic and diluted earnings/ (loss) per share 7.4p 4.1p (8.5)pLoss per share from discontinued operations - 4.5p 11.7pBasic and diluted earnings per share fromcontinuing operations 7.4p 8.6p 3.2p Basic and diluted adjusted earnings/ (loss)per share 7.4p 4.1p 10.8pLoss per share from discontinued operations - 4.5p 11.7pBasic and diluted adjusted earnings pershare from continuing operations 7.4p 8.6p 22.5p 5 Trade and other receivables As a consequence of 30 September 2007 falling on a weekend, cash receipts fromcustomers totalling almost £5.3 million that would normally have been receivedand accounted for at the period end were received and accounted for on 1 October2007. 6 Discontinued operations Discontinued operations in the period to 30 September 2007 relate to a Canadiansubsidiary, Legacy Entertainment Inc., which was sold on 15 June 2007.Discontinued operations for the year to 31 March 2007 and the period to 30September 2006 relate to Legacy Entertainment Inc. and Play Media Limited. PlayMedia Limited was placed into voluntary liquidation on 20 September 2006. 7 Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and rewards that are differentfrom those of other business segments. The primary format is based upon theGroup's management and internal reporting structure which reflects the statutorysubsidiaries of the Group. Segment results constitute items directly attributable to the business.Unallocated items comprise mainly central costs and net interest expense The Group comprises the following main business segments: • Distribution. The full service, merchandising and sale of homeentertainment products (primarily pre-recorded films, music and computer andconsole games) to general retailers for whom these products are not the primaryfocus of the retailer. • Wholesale. The sale of home entertainment products to specialistindependent and internet retailers. • Other. Dormant companies and holding companies. Notes (forming part of the interim financial statements) Segmental Analysis Profit and Continuing Operations TotalLossAccount Distribution Wholesale Other 6 months 6 months year 6 months 6 months Year 6 months 6 months Year 6 months 6 months Year ended ended ended ended ended ended ended ended ended ended ended ended 30.09.07 30.09.06 31.03.07 30.09.07 30.09.06 31.03.07 30.09.07 30.09.06 31.03.07 30.09.07 30.09.06 31.03.07 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue from 25,310 19,519 48,491 3,595 6,217 12,879 74 112 137 28,979 25,848 61,507externalcustomers Inter-segment 3,181 4,726 10,306 454 1,104 1,745 301 - 672 3,936 5,830 12,723revenue Total revenue 28,491 24,245 58,797 4,049 7,321 14,624 375 112 809 32,915 31,678 74,230 Segment 1,994 2,160 6,430 178 287 (215) 33 (182) (1,730) 2,205 2,265 4,485result Central costs (274) (203) (2,537)Operating 1,931 2,062 1,948profit Net financing (66) (292) (425)costs Taxation (592) (294) (967) Discontinued - (780) (2,010)operations Profit for 1,273 696 (1,454)the period Air Music and Media Group plc IFRS Restatement report IFRS Restatement report (unaudited) Air Music and Media Group plc transition to IFRS From 1 April 2007 the Group is required to prepare its consolidated accountsunder International Financial Reporting Standards (collectively referred to as "adopted IFRS" throughout this document) as adopted by the European Union ("EU")having previously prepared its accounts under UK Generally Accepted AccountingPrinciples ("UK GAAP"). The transition date for the Group is 1 April 2006 andthis report covers the restatement of the opening consolidated balance sheet asat 1 April 2006, the consolidated accounts for the year ended 31 March 2007 andthe consolidated accounts for the six months ended 30 September 2006. Thisreport shows the impact of the transition to adopted IFRS on the Group'sreported performance and financial position; reconciles this to previouslyreported financial information; and explains the reasons for the adjustments. Transitional arrangements - Application of IFRS 1 The Group's financial statements for the year ended 31 March 2008 will be theGroup's first annual financial statements in compliance with adopted IFRS. TheGroup's transition date is 1 April 2006 and the Group prepared its opening IFRSbalance sheet at that date. On transition to adopted IFRS an entity is generally required to apply adoptedIFRS retrospectively, except where an exemption is available under IFRS 1 'First-time Adoption of International Financial Reporting Standards'. The Group has considered the key elections from IFRS 1 and has elected to adoptthe IFRS 1 exemption in relation to business combinations and will only applyIFRS 3 'Business Combinations' prospectively from 1 April 2006. As a result thebalance of goodwill under UK GAAP as at 31 March 2006 will be deemed the cost ofgoodwill at 1 April 2006. The interim results for the period ended 30 September 2007 have been prepared inaccordance with accounting policies under adopted IFRS. The Group's revisedaccounting policies under IFRS are included in note 2 to this restatementreport. IFRS Restatement report (continued) Reconciliation of income statement from UK GAAP to adopted IFRS (unaudited) UKGAAP IFRS 30-Sep-06 Goodwill Discontinued 30-Sep-06 amortisation(note operations 1) £'000 £'000 £'000 £'000 Revenue 27,796 - -1,948 25,848 Cost of sales -21,786 - 1,318 -20,468 Gross profit 6,010 - -630 5,380 Distribution -635 - 54 -581expensesAdministration -4,972 877 1,358 -2,737expenses Operating profit 403 877 782 2,062 Financial income 33 - -9 24 Financial -316 - - -316expenses Net financing -283 - -9 -292costs Profit before tax 120 877 773 1,770 Taxation -301 - 7 -294 (Loss)/ profit -181 877 780 1,476from continuingoperations Loss for the - - -780 -780period fromdiscontinuedoperations (Loss)/ profitfor the period -181 877 - 696 IFRS Restatement report (continued) Reconciliation of income statement from UK GAAP to adopted IFRS (unaudited) UK GAAP IFRS Goodwill amortisation and impairment (note 1) 31-Mar Discontinued 31-Mar operations 2007 2007 £'000 £'000 £'000 £'000 Revenue 64,593 - -3,086 61,507 Cost of sales -52,245 - 2,272 -49,973 Gross profit/ 12,348 - -814 11,534(loss) Distribution -1,564 - 97 -1,467expenses Administration -11,933 1,590 2,224 -8,119expenses Operating (loss) -1,149 1,590 1,507 1,948/ profit Financial income 69 - -16 53 Financial -478 - - -478expenses Net financing -409 - -16 -425costs (Loss)/ profit -1,558 1,590 1,491 1,523before tax Taxation -1,486 - 519 -967 (Loss)/ profit -3,044 1,590 2,010 556from continuingoperations Loss for the - - -2,010 -2,010period fromdiscontinuedoperations (Loss)/ profit -3,044 1,590 - -1,454for the period IFRS Restatement report (continued) Reconciliation of balance sheet from UK GAAP to adopted IFRS (unaudited) UK GAAP IFRS 30-Sep-06 30-Sep-06 Goodwill Translation amortisation reserve (note 1) £'000 £'000 £'000 £'000 Non currentassets Property plant 344 - - 344and equipment Intangible assets 33,151 877 - 34,028 Deferred tax 90 - - 90asset Total non current 33,585 877 - 34,462assets Current assets Inventories 5,958 - - 5,958 Trade and other 8,914 - - 8,914receivables Cash and cash 1,544 - - 1,544equivalents Assets classified - - - -as held forresale Total current 16,416 - - 16,416assets Total assets 50,001 877 - 50,878 Currentliabilities Trade and other -8,823 - - -8,823payables Current tax -366 - - -366payable Accruals and -1,242 - - -1,242deferred income Interest-bearing -4,536 - - -4,536loans andborrowings Provisions -627 - - -627 Liabilities - - - -classified asheld for resale Total current -15,594 - - -15,594liabilities Non currentliabilities Interest-bearing -1,059 - - -1,059loans andborrowings Total non current -1,059 - - -1,059liabilities Total liabilities -16,653 - - -16,653 Net assets 33,348 877 - 34,225 Equity Issued capital 12,872 - - 12,872 Share premium 21,453 - - 21,453 Reserves -2,800 - - -2,800 Translation - - -15 -15reserve Retained earnings 1,823 877 15 2,715 Total equityattributable toequityshareholders 33,348 877 - 34,225 IFRS Restatement report (continued) Reconciliation of balance sheet from UK GAAP to adopted IFRS (unaudited) UK GAAP IFRS Goodwill Goodwill Assets impairment held for sale 31-Mar-07 amortisation (note 1) Translation 31-Mar-07 (note 1) reserve £'000 £'000 £'000 £'000 £'000 £'000 Non currentassetsProperty plant 388 - - - -62 326and equipment Intangible assets 27,833 4,388 -2,798 - - 29,423 Deferred tax 212 - - - - 212asset Total non current 28,433 4,388 -2,798 - -62 29,961assets Current assets Inventories 6,855 - - - -205 6,650 Trade and other 7,278 - - - -475 6,803receivables Cash and cash 2,862 - - - -593 2,269equivalents Assets classified - - - - 1,168 1,168as held forresale Total current 16,995 - - - -105 16,890assets Total assets 45,428 4,388 -2,798 - -167 46,851 Currentliabilities Trade and other -9,279 - - - 355 -8,924payables Current tax -1,017 - - - -84 -1,101payable Accruals and -1,381 - - - - -1,381deferred income Interest-bearing -2,715 - - - - -2,715loans andborrowings Provisions -417 - - - 417 - Liabilities - - - - -521 -521classified asheld for resale Total current -14,809 - - - 167 -14,642liabilities Non currentliabilitiesInterest-bearing -144 - - - - -144loans andborrowings Total non current -144 - - - - -144liabilities Total liabilities -14,953 - - - 167 -14,786 Net assets 30,475 4,388 -2,798 - - 32,065 EquityIssued capital 12,872 - - - - 12,872 Share premium 21,453 - - - - 21,453 Reserves -2,800 - - - - -2,800 Translation - - - -35 - -35reserve Retained earnings -1,050 4,388 -2,798 35 - 575 Total equityattributable toequityshareholders 30,475 4,388 -2,798 - - 32,065 IFRS Restatement report (continued) Reconciliation of balance sheet from UK GAAP to adopted IFRS (unaudited)(continued) The balance sheet as at 1 April 2006 is unchanged from that presented under UKGAAP. Reconciliation of cash flow statements from UK GAAP to adopted IFRS (unaudited) With the exception of reclassifications, there were no material differencesbetween cash flows presented under adopted IFRS and the cash flows presentedunder UK GAAP. Reconciliation of retained earnings from UK GAAP to adopted IFRS (unaudited) UK GAAP IFRS Goodwill amortisation (note 1) 30-Sep 30-Sep-06 2006 £'000 £'000 £'000 (Loss)/ profit forthe financial period -181 877 696 Translation -15 - -15difference Total recognisedincome and expense inthe period -196 877 681 Opening retained 2,019 - 2,019earnings Closing retainedearnings 1,823 877 2,700 UK GAAP IFRS Goodwill Goodwill impairment 31-Mar amortisation (note 1) Assets 31-Mar (note 1) held for sale 2007 2007 £'000 £'000 £'000 £'000 £'000 (Loss)/profit forthefinancial -3,044 4,388 -2,798 - -1,454period Share basedpaymentcharge 8 - - - 8 Translation -33 - - - -33difference Totalrecognisedincome in -3,069 4,388 -2,798 - -1,479the period Opening 2,019 - - - 2,019retainedearnings Closingretainedearnings -1,050 4,388 -2,798 - 540 Notes to the IFRS Restatement report 1. IFRS 3 'Business combinations' - income statement The Group has elected to take the exemption available under IFRS 1 in respect ofrestating business combinations and therefore the net book value of goodwill asat the transition date, 1 April 2006, is deemed to be cost. The adoption of IFRS 3 'Business Combinations' has resulted in the write back ofgoodwill amortised since 1 April 2006 (see note 2). In the six months ended 30September 2006 £877,000 amortisation has been added back and £4,388,000 has beenadded back for the year ended 31 March 2007. At 31 March 2007 it was considered appropriate to make an impairment charge of£2,798,000. 2. Accounting policies The following accounting policies represent the Group's revised policies underIFRS which will be adopted by the Group in its financial statements for the yearended 31 March 2008. Basis of preparation The financial statements are presented in sterling, to the nearest thousand andare prepared on a historical costs basis. Basis of consolidation The Group financial statements comprise the financial statements of the Companyand all of its subsidiary undertakings made up to the financial year end.Subsidiaries are entities controlled by the Group. Control exists when the Grouphas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. In assessingcontrol, potential voting rights that are currently exercisable or convertibleare taken into account. The financial statements of subsidiaries are included inthe consolidated financial statements from the date that control commences untilthe date that control ceases. The results of subsidiary undertakings acquired or disposed of in the year areincluded in the Group Income Statement from the effective date of acquisition orto the effective date of disposal. Accounting policies are consistently appliedthroughout the Group. Inter-company balances and transactions have beeneliminated. Material profits from inter company sales, to the extent that theyare not yet realised outside the Group, have also been eliminated. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short term highly liquid investments. Bank overdrafts are shownwithin borrowings in current liabilities on the balance sheet. Bank overdrafts that are repayable on demand and form an integral part of theGroup's cash management are included as a component of cash and cash equivalentsfor the purpose only of the statement of cash flows. Foreign currency transactions Transactions in foreign currencies are translated to the respective functionalcurrencies of group entities at the foreign exchange rate ruling at the date ofthe transaction. Monetary assets and liabilities denominated in foreigncurrencies at the balance sheet date are translated to sterling at the foreignexchange rate ruling at that date. Foreign exchange differences arising ontranslation are recognised in the income statement. Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated to sterling atforeign exchange rates ruling at the balance sheet date. The revenues andexpenses of foreign operations are translated to sterling at rates approximatingto the foreign exchange rates ruling at the dates of the transactions. Foreignexchange differences arising on retranslation are recognised directly in aseparate component of equity. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand impairment losses. Where parts of an item of property, plant and equipment have different usefullives, they are accounted for as separate items of property, plant andequipment. Notes to the IFRS Restatement report (continued) 2. Accounting policies (continued) Leases in which the Group assumes substantially all the risks and rewards ofownership of the leased asset are classified as finance leases. Where land andbuildings are held under finance leases the accounting treatment of the land isconsidered separately from that of the buildings. Leased assets acquired by wayof finance lease are stated at an amount equal to the lower of their fair valueand the present value of the minimum lease payments at inception of the lease,less accumulated depreciation and impairment losses. Lease payments areaccounted for as described below. Depreciation is charged to the income statement on a straight-line basis overthe estimated useful lives of each part of an item of property, plant andequipment. Land is not depreciated. The estimated useful lives are as follows: Building leasehold - over the lease termPlant, machinery and equipment - 10% - 33.3% per annum on straight line basisMotor vehicles - 25% per annum on straight line basis Inventories Inventories are valued at the lower of cost and net realisable value. Cost iscalculated as the direct costs incurred in bringing the stocks to their theirpresent location and condition. Intangible assets All business combinations are accounted for by applying the purchase method.Goodwill represents amounts arising on acquisition of subsidiaries. In respectof business acquisitions that have occurred since 1 April 2006, goodwillrepresents the difference between the cost of the acquisition and the fair valueof the identifiable assets, liabilities and contingent liabilities acquired.Identifiable intangibles are those which can be sold separately or which arisefrom legal rights regardless of whether those rights are separable. Goodwill on acquisition of subsidiaries is included in intangible assets.Goodwill is stated at cost less any accumulated impairment losses. Goodwill isallocated to cash generating units and is not amortised, but is tested annuallyfor impairment. An impairment charge is recognised for any amount by which thecarrying value of goodwill exceeds its recoverable amount. In respect of acquisitions prior to 1 April 2006, goodwill is included at 1April 2006 on the basis of its deemed cost, which represents the amount recordedunder UK GAAP which was broadly comparable save that only separable intangibleswere recognised and goodwill was amortised. On transition, amortisation ofgoodwill has ceased as required by IFRS 3. Other intangible assets that are acquired by the Group are stated at cost lessaccumulated amortisation and impairment losses. Revenue Revenue represents the invoiced value of goods sold net of customer returns,rebates and settlement discount and is net of value added tax. Revenue from thesale of goods is recognised in the income statement when the significant risksand rewards of ownership have been transferred to the buyer. Taxation Tax comprises current and deferred tax. Tax is recognised in the incomestatement except to the extent that it relates to items recognised directly inequity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantively enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is recognised on temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and the amounts usedfor taxation purposes. Deferred tax on the following temporary differences arenot recognised for: the initial recognition of goodwill; the initial recognitionof assets or liabilities that affect neither accounting nor taxable profit otherthan in a business combination, and differences relating to investments insubsidiaries to the extent that they will probably not reverse in theforeseeable future. The amount of deferred tax provided is based on the expectedmanner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Notes to the IFRS Restatement report (continued) 2. Accounting policies (continued) Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent initial recognition, interestbearing borrowings are stated at amortised cost with any difference between costand redemption value being recognised in the income statement over the period ofthe borrowings on an effective interest basis. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, that can beestimated reliably and it is probable that an outflow of economic benefits willbe required to settle the obligation. If the effect is material, provisions aredetermined by discounting the expected future cash flows at a pre-tax rate thatreflects current market assessments of the time value of money and the risksspecific to the liability. Impairment of assets The carrying amounts of the Group's assets, other than inventories and deferredtax assets, are reviewed at each balance sheet date to determine whether thereis any indication of impairment. If any such indication exists, the asset'srecoverable amount is estimated. For goodwill the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to cash-generatingunits and then to reduce the carrying amount of the other assets in the unit ona pro rata basis. A cash generating unit is the smallest identifiable group ofassets that generates cash inflows that are largely independent of the cashinflows from other assets or groups of assets. Goodwill was tested for impairment at 1 April 2006, the date of transition toAdopted IFRS, though no indication of impairment existed. i) Calculation of recoverable amount The recoverable amount of the Group's investments and receivables carried atamortised cost is calculated as the present value of estimated future cashflows, discounted at the original effective interest rate (i.e., the effectiveinterest rate computed at initial recognition of these financial assets).Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their fair value lesscost to sell and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and therisks specific to the asset. For an asset that does not generate largelyindependent cash inflows, the recoverable amount is determined for thecash-generating unit to which the asset belongs. ii) Reversals of impairment An impairment loss in respect of a receivable carried at amortised cost isreversed if the subsequent increase in recoverable amount can be relatedobjectively to an event occurring after the impairment loss was recognised. Notes to the IFRS Restatement report (continued) 2. Accounting policies (continued) ii) Reversals of impairment (continued) An impairment loss in respect of goodwill is not reversed. In respect of otherassets, an impairment loss is reversed when there is an indication that theimpairment loss may no longer exist and there has been a change in the estimatesused to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carryingamount does not exceed the carrying amount that would have been determined, netof depreciation or amortisation, if no impairment loss had been recognised. Non-current assets held for sale and discontinued operations A non-current asset or a group of assets containing a non-current asset (adisposal group) is classified as held for sale if its carrying amount will berecovered principally through sale rather than through continuing use, it isavailable for immediate sale and sale is highly probable within one year. On initial classification as held for sale, non-current assets and disposalgroups are measured at the lower of previous carrying amount and fair value lesscosts to sell with any adjustments taken to profit or loss. The same applies togains and losses on subsequent re-measurement. In accordance with IFRS 1, theabove policy is effective from 1 April 2006; no reclassifications are made inprior periods. A discontinued operation is a component of the Group's business that representsa separate major line of business or geographical area of operations or is asubsidiary acquired exclusively with a view to resale, that has been disposedof, has been abandoned or that meets the criteria to be classified as held forsale. Discontinued operations are presented on the income statement (including thecomparative period) as a column analysing the post tax profit or loss of thediscontinued operation and the post tax gain or loss recognised on there-measurement to fair value less costs to sell or on disposal of the assets/disposal groups constituting discontinued operations. Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease incentives received arerecognised in the income statement as an integral part of the total leaseexpense. Finance lease payments Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. The finance charge is allocated to eachperiod during the lease term so as to produce a constant periodic rate ofinterest on the remaining balance of the liability. Net financing costs Net financing costs comprise interest payable, finance charges on sharesclassified as liabilities and finance leases, interest receivable on fundsinvested, dividend income and foreign exchange gains and losses that arerecognised in the income statement. Interest income and interest payable is recognised in profit or loss as itaccrues, using the effective interest method. Dividend income is recognised inthe income statement on the date the entity's right to receive payments isestablished. The interest expense component of finance lease payments isrecognised in the income statement using the effective interest rate method. Employee benefits Defined contribution plan The Group operates a defined contribution pension scheme for employees. Theassets of the scheme are held separately from those of the Group. The annualcontributions payable are charged to the income statement. Notes to the IFRS Restatement report (continued) 2. Accounting policies (continued) Share based payments The share option programme allows Group's employees to acquire shares of theultimate parent company; these awards are granted by the ultimate parent. Thefair value of options granted is recognised as an employee expense with acorresponding increase in equity. The fair value is measured at grant date andspread over the period during which the employees become unconditionallyentitled to the options. The fair value of the options granted is measured usingan option valuation model, taking into account the terms and conditions uponwhich the options were granted. The amount recognised as an expense is adjustedto reflect the actual number of share options that vest except where forfeitureis due only to share prices not achieving the threshold for vesting. This statement will be available at the Company's registered office at Unit 9Enterprise Court, Lancashire Enterprise Business Park, Centurion Way, LeylandPR26 6TZ and on the website www.airmusicandmedia.com. This information is provided by RNS The company news service from the London Stock Exchange