MUR.L Regulatory News (MUR)

11 Feb 2008 07:00

Murgitroyd Group PLC11 February 2008 11 February 2008 Murgitroyd Group PLC ("the Group") Unaudited Interim Results for the six months ended 30 November 2007 Highlights • Revenue up 9% to £12.2 million • Gross profit up 10% to £8.1 million • Operating profit before provision* unchanged at £1.7 million • Operating profit £1.5 million • Strong organic growth with increased gross margin percentage • Qualified Attorney numbers up 17% to 55 at 30 November 2007 • Maiden interim dividend declared • Completion of fourth acquisition imminent * Full details of an "Onerous Lease" provision are given in the Chairman'sStatement Ian Murgitroyd, Group Chairman, commented: "I am delighted to announce yet another strong first half performance by theGroup. In our Preliminary Results statement in September 2007, we announcedthat the current financial year would be a year to consolidate our growth anddevelopment, and I believe we have made a positive start. Turnover hasincreased by 9% and gross profit by 10% on last year, reflecting strong organicgrowth. We have continued to develop and expand our office network acrossEurope and attracted and retained a significant number of qualified Attorneys,bringing the Group total to 55 at the end of the period under review. Acquisitions remain an important part of Murgitroyd's growth strategy and, afterhaving made three selective acquisitions in the last four years, the Groupannounced in late December that non-binding Heads of Terms had been entered intowith another company with a view to purchasing a fourth practice. An updatewill be provided on this in due course. We remain committed to generating predictable, long-term growth and value forshareholders, and I believe that Murgitroyd continues to be well positioned toachieve this. The Group remains firmly on track to meet market expectations forthe full year." For further information, please contact: Keith Young, Murgitroyd Group PLC 07802 951913 David Ovens, Noble & Company Limited 0131 225 9677 Nadja Vetter, Cardew Group 020 7930 0777 Notes to Editors Murgitroyd Group PLC, the holding company of Murgitroyd & Company Limited("Murgitroyd & Company"), a European Patent and Trade Mark Attorney practice,was floated on AIM on 30 November 2001. The practice has European offices inAberdeen, Belfast, Dublin, Edinburgh, Glasgow, London, Milan, Muenster, Munich,Nice and York, and a US Sales Office in Raleigh, North Carolina. Murgitroyd Group PLC specialises in the provision of Intellectual Propertyservices, including filing, prosecuting, litigating, licensing, assigning andrenewing Patents, Trade Marks and Designs, advising on Copyright and generallyassisting clients with the management of their Intellectual Property. Patentservices span the major sectors of the global economy including engineering,electronics, chemistry and biotechnology with clients ranging from largemulti-national corporations to individual inventors and both in-house andexternal Patent Attorneys. The practice services major Trade Mark clients fromthe personal care, clothing, food and drinks, tobacco, pharmaceuticals,chemicals and oil industries together with service sector, sport andentertainment and retail industry clients. Trade Mark services are alsoprovided to other private practice Trade Mark Attorneys.Murgitroyd Group PLC ("the Group") Chairman's Statement Financial and operating review This is the first financial report presented under International FinancialReporting Standards ("IFRS") which involved restating our figures for priorperiods back to the date of transition on 1 June 2006. For the six months ended 30 November 2007, Group turnover increased 9% to £12.2million (2006: £11.2 million). Gross profit rose 10% to £8.1 million (2006: £7.3million). This growth reflects strong organic growth of around 8% combined withthe effect of a full period's contribution from the former Fitzpatricks'practice. Operating profit (before provision for an "Onerous Lease") wasslightly ahead of management expectations at £1.7 million (2006: £1.7 million)with additional overhead economies of scale being offset by increased payrollcosts as a consequence of the increased investment in additional Attorneys.Basic earnings per share were 10.5p (2006: 12.9p) during the period, 12.1pbefore the provision for "Onerous Lease" which is explained later in thissection. Gross margin for the Group improved to 66.1% (2006: 65.8%). This improvement wasdue to the continued impetus on time based charging and system improvements, achange which we began implementing at the beginning of 2007. Net cash flow in the period was negative at £81,000. Reasons behind thisincluded higher than normal capital expenditure of £236,000 (2006: £107,000) andthe payment of an increased dividend in October. Interest charges for the six months under review remained higher thananticipated largely as a result of the higher UK Base Rates. Additionally,foreign exchange gains were down 23% to £100,000 (2006: £130,000) as Sterlingmaterially weakened against both the Euro and US Dollar. Looking ahead, theGroup will continue to monitor exchange rate movements and volatility betweenSterling and both the aforementioned foreign currencies very closely. As a netpurchaser of the Euro, the Group could be adversely impacted by any furthersharp decline in the value of the Sterling against the Euro in particular. The Group now operates twelve offices in eight countries, following the additionof the Milan office in 2007. The growth and development of the Group's officesis ongoing and during the period additional new professional staff were added tothe Dublin, Edinburgh, London, Milan, Muenster and York offices. Expansion tothe US Sales Office reflects the Group's continuing commitment to businessdevelopment in this major market place, and is expected to help fuel futureorganic growth. Business development remains a core focus for the Group. The Group continues to look for, and evaluate, suitable acquisitionopportunities as they arise. Strict assessment criteria remain paramount and wewill only consider acquisitions that will be immediately earnings enhancing andcomplementary to the Group's existing offering as well as providing a long termadditional fee earning capacity. On 24 December 2007, the Group announced thatit had entered into a non binding Heads of Terms Agreement with a party which,subject to certain conditions (including due diligence), may lead to anacquisition. An update will be provided on this in due course. An accounting provision has been made in connection with the Group's lease ofthe former Fitzpatricks offices. When Murgitroyd acquired Fitzpatricks, it wasdecided that these offices would be emptied and Fitzpatricks staff wouldrelocate to the Group's Head Office at Scotland House thereby realising theoperational efficiencies that would accrue from all Glasgow staff being on onesite. The leasing costs associated with the property were fully anticipated andbuilt into the acquisition purchase price, management's expectations and analystpost-acquisition forecasts. Therefore, whilst a sub-letting of the property hasbeen actively pursued since the property was emptied, it was never taken forgranted that a new tenant would be found for a relatively short unexpired lease. I am pleased to say that the Group has now agreed Heads of Terms to sub-let theproperty and the terms thereof should result in the Group generating £150,000 inadditional earnings over the remainder of the lease term (to 2010). However, accounting rules require that future costs be brought forward wherespecific income generated by such a sub-let does not completely offset relatedlease costs and the amount of the provision represents the difference betweenthe remaining costs attaching to the property and the income that should begenerated from the proposed sub-let over the same period. This "Onerous Lease"provision has no cash flow effect. The Market With calendar year 2007's statistics not yet published, in 2006 the EuropeanPatent Office ("EPO") showed a 7% year on year increase in the number ofEuropean Patents filed while the Community Trade Mark ("CTM") Office's 2007statistics demonstrated a considerable 14% increase in new Community Trade Marksfiled. These statistics are used as benchmarks for the number of new filingsfor Intellectual Property Rights and a good indication as to the likely futuremarket environment. Encouragingly, these statistics are reflected in theGroup's own new business pipeline which remains healthy. The Group, as ever, remains watchful of the demographic, market-wide, problem ofa lack of qualified Patent Attorneys. We continue to invest in our internaltraining programme and by pursuing our strategy of growth through acquisitions,the Group continues to counteract this imbalance, although does remain evermindful of it. People Murgitroyd continues to invest in internal training and exam preparation, thebenefits of which are reflected in the newly qualified Attorney retention rate.During the period under review, new Attorneys qualified and the Group was alsosuccessful in attracting new Attorneys, with five laterally hired. The totalnumber of employees as at 30 November 2007 was 206 (2006: 194). This figureincludes a total of 55 qualified Attorneys (2006: 47). I would like to take this opportunity to thank all our staff for their continuedhard work and commitment to the Group. Share Price During the period, the middle market price of the Company's shares fluctuatedbetween 360p and 498p. The current middle market price is 360p. Dividend As a result of the Board's continued confidence in the performance of the Group,it has been decided that a more progressive dividend strategy is appropriategoing forward. Accordingly, an interim dividend policy has been sanctioned andthe Board is proposing a maiden interim dividend of 3p per share. The Boardalso intends, subject to the availability of distributable reserves, torecommend a final dividend. IFRS This is the first financial report presented under International FinancialReporting Standards as adopted by the EU ("adopted IFRS") and, as with othercompanies reporting for the first time in this new format, this has involvedrestating our financial statements for prior periods. The main changes whichshareholders will note are changes in accounting for goodwill amortisation,employee benefits and deferred tax. The impact of adopting IFRS is explained in detail in Note 5 to the InterimStatement. Outlook Market conditions have remained favourable, allowing the Group to enter itsseventh consecutive year of growth since flotation. The Group continues topursue its strategy of growing both organically and, where appropriate, throughselective acquisitions. The pipeline of opportunities to tender for meaningfulIntellectual Property portfolios remains healthy and there are a number ofpotential acquisition opportunities for the Group to assess. Therefore the Board believes that Murgitroyd can continue to achievepredictable, long term growth and create value for shareholders. Following agood start, the Board looks forward to the remainder of the year withconfidence. Ian G MurgitroydChairman 8 February 2008 This interim announcement was approved by the Board of Directors on 8 February2008. MURGITROYD GROUP PLC Unaudited Consolidated Income StatementFor the six months ended 30 November 2007 Six months ended Six months ended Year 30 November 2007 30 November 2006 ended £'000 £'000 31 May 2007 £'000 Revenue 12,183 11,163 22,843 Cost of sales (4,130) (3,816) (7,814) Gross profit 8,053 7,347 15,029 Administrative expenses (including Onerous Lease provision of £200,000) (6,574) (5,653) (11,815) Operating profit before Onerous Lease provision 1,679 1,694 3,214Onerous Lease provision (200) - - Operating profit 1,479 1,694 3,214 Financial income 6 6 11Financial expense (153) (138) (284) Profit before income tax 1,332 1,562 2,941 Income tax (459) (494) (931) Profit for the period attributable to equity holders of the parent 873 1,068 2,010 Earnings per share Basic 10.47p 12.88p 24.18pDiluted 10.11p 12.50p 23.43p MURGITROYD GROUP PLC Unaudited Consolidated Statement of Recognised Income and ExpenseFor the six months ended 30 November 2007 Six months ended Six months ended Year 30 November 2007 30 November 2006 ended £'000 £'000 31 May 2007 £'000 Revaluation of property - - 56Income tax on income and expense recognised directly in equity - - (17) Income and expense recognised directly in equity - - 39 Profit for the period 873 1,068 2,010 Total recognised income and expense for the period 873 1,068 2,049 MURGITROYD GROUP PLC Unaudited Consolidated Balance SheetAt 30 November 2007 30 November 30 November 31 May 2007 2006 2007 £'000 £'000 £'000AssetsNon-current assets Property, plant and equipment 2,608 2,389 2,570 Intangible assets 10,409 10,411 10,409 Deferred tax asset 35 - - Total non current assets 13,052 12,800 12,979 Current assets Work in progress 567 443 481 Trade and other receivables 7,658 7,111 7,334 Cash and cash equivalents 353 689 453 Total current assets 8,578 8,243 8,268 Total assets 21,630 21,043 21,247 Current liabilities Bank overdraft (190) (639) (209) Other interest-bearing loans and borrowings (1,175) (1,140) (1,172) Trade and other payables (3,691) (3,450) (3,201) Tax payable (440) (480) (452) Total current liabilities (5,496) (5,709) (5,034) Non-current liabilities Other interest-bearing loans and borrowings (3,164) (3,725) (3,336) Other payables - - (195) Provisions for liabilities (125) - - Deferred tax liabilities - (23) (15) Total non-current liabilities (3,289) (3,748) (3,546) Total liabilities (8,785) (9,457) (8,580) Net assets 12,845 11,586 12,667 Equity Share capital 834 830 834 Share premium 2,337 2,282 2,337 Merger reserve 6,436 6,437 6,436 Revaluation reserve 155 117 155 Retained earnings 3,083 1,920 2,905 Total equity attributable to equityholders of the parent 12,845 11,586 12,667 MURGITROYD GROUP PLC Unaudited Consolidated Statement of Cash FlowsFor the six months ended 30 November 2007 Six months ended Six months ended Year 30 November 30 November ended 31 May 2007 2006 2007 £'000 £'000 £'000 Cash flows from operating activitiesProfit for the period 873 1,068 2,010 Adjustments for: Depreciation 123 110 232 Provision for "Onerous Lease" 200 - - Financing costs 147 132 273 Equity settled share-based payment expense 15 20 38 Income tax expense 459 494 931 1,817 1,824 3,484 Increase in trade and other receivables (324) (373) (595)(Increase)/decrease in work in progress (86) 43 4Increase/(decrease) in trade and other payables 287 (87) (334) 1,694 1,407 2,559Interest paid (117) (91) (198)Interest received 6 6 11Income tax paid (481) (359) (822) Net cash from operating activities 1,102 963 1,550 Cash flows from investing activities Acquisition of property, plant and Equipment (236) (107) (356) Acquisition of subsidiary, net of cash Acquired - (804) (809) Net cash used in investing activities (236) (911) (1,165) Cash flows from financing activities Proceeds from exercise of share Options - 26 85 Loans received 300 1,000 1,500 Repayment of borrowings (488) (422) (1,103) Payment of finance lease liabilities (8) (29) (46) Dividends paid (751) (386) (386) Net cash (used in)/from financing activities (947) 189 50 Net (decrease)/increase in cash and cash Equivalents (81) 241 435Cash and cash equivalents at start of period 244 (191) (191) Cash and cash equivalents at period end 163 50 244 NOTES: 1 Significant accounting policies Murgitroyd Group PLC ("the Company") is a company domiciled in the UnitedKingdom. The consolidated interim financial statements of the Company for thesix months ended 30 November 2007 comprise the Company and its subsidiaries(together referred to as the "Group"). Basis of preparation The AIM rules require that the next annual consolidated financial statements ofthe Company, for the year ending 31 May 2008, will be prepared in accordancewith International Financial Reporting Standards ("IFRS") as adopted by the EU("adopted IFRS"). This interim financial information has been prepared on the basis of therecognition and measurement requirements of adopted IFRS as at 30 November 2007that are effective (or available for early adoption) at 31 May 2008, the Group'sfirst annual reporting date at which it is required to use adopted IFRS. Basedon these adopted IFRS, the Directors have applied the accounting policies, asset out below, which they expect to apply when the first annual IFRS financialstatements are prepared for the year ending 31 May 2008. However, the adopted IFRS that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 May 2008 arestill subject to change and to additional interpretations and therefore cannotbe determined with certainty. Accordingly, the accounting policies for thatannual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 May 2008. The interim report for the six months ended 30 November 2007 was approved by theBoard of Directors on 8 February 2008. Comparative figures The comparative figures for the year ended 31 May 2007 are not the Company'sstatutory accounts for that financial year. Those statutory accounts, whichwere prepared under UK Generally Accepted Accounting Practices ("UK GAAP" or"previous GAAP"), have been reported on by the Company's Auditors and deliveredto the Registrar of Companies. The report of the Auditors was (i) unqualified,(ii) did not include a reference to any matters which the Auditors drewattention to by way of emphasis without qualifying their report and (iii) didnot contain a statement under section 237(2) or (3) of the Companies Act 1985. Impact of IFRS As required by IFRS 1, an explanation of how the transition to IFRS has affectedthe reported financial position, financial performance and cash flows of theGroup is provided in Note 5. This note includes reconciliations of equity andprofit or loss for comparative periods reported under UK GAAP to those reportedfor those periods under IFRS. 1 Significant accounting policies (continued) The interim statements are prepared on the historical cost basis except thatfreehold property stated at fair value. The preparation of the interimstatements requires the Directors to make judgements, estimates and assumptionsthat affect the application of policies and reported amounts of assets andliabilities, income and expenses. The estimates and associated assumptions arebased on historical experience and various other factors that are believed to bereasonable under the circumstances, the results of which form the basis ofmaking the judgements about carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates. Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when theGroup has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.In assessing control, potential voting rights that are currently exercisable orconvertible are taken into account. The financial statements of subsidiariesare included in the consolidated financial statements from the date that controlcommences until the date that control ceases. Intangible assets - goodwill Subject to the transitional relief in IFRS 1, all business combinations areaccounted for by applying the purchase method. Goodwill represents amountsarising on acquisition of subsidiaries. In respect of acquisitions that haveoccurred since 1 June 2006, goodwill represents the difference between the costof acquisition and the net fair value of the identifiable assets, liabilitiesand contingent liabilities acquired. In respect of acquisitions prior to thatdate goodwill is included on the basis of its deemed cost, which represents theamount recorded under UK GAAP. The classification and accounting treatment ofbusiness combinations that occurred prior to 1 June 2006 by merger accountinghas not been reconsidered. Goodwill is stated at cost less any accumulated impairment losses. The value ofgoodwill is tested for impairment on an annual basis. An impairment isrecognised whenever the carrying amount of the asset exceeds its recoverableamount. The recoverable amount is the greater of the value in use and fairvalue less costs to sell. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time, value of money and risksspecific to the cash-generating unit. Any impairment is recognised immediatelyin the income statement and is not subsequently reversed. Intangible assets acquired as part of an acquisition are capitalised at theirfair value where this can be measured reliably and are amortised on a straightline basis over their useful economic lives. 1 Significant accounting policies (continued) Property, plant and equipment Items of plant and equipment are stated at cost less accumulated depreciationand any impairment losses. Cost includes expenditure that is directlyattributable to the acquisition of the asset. Depreciation is recognised in theprofit and loss account to write off the cost less the estimated residual valueof plant and equipment by equal annual instalments over their estimated usefuleconomic lives of each part of an item of plant and equipment. The estimateduseful economic lives over which assets are depreciated are as follows: Leasehold improvements Over the term of the leaseMotor vehicles 25%Furniture and fixtures 10% to 20%Office equipment 20% Freehold property is stated at fair value. Freehold property is not depreciated as the Directors believe any annual oraccumulated depreciation would be immaterial. Any impairment will be charged toprofit although annual testing carried out does not indicate that any suchimpairment has taken place. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated using the rate of exchangeruling at the balance sheet date and the gains or losses on translation areincluded in the income statement. The assets and liabilities of overseasoperations are translated at the rate of exchange ruling at the balance sheetdate. The revenues and expenses of foreign operations are translated at anaverage rate for the period. Exchange differences arising from this translationof foreign operations are taken directly to reserves. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. Lease 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 are recognisedin the income statement as an integral part of the total lease expense. 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. 1 Significant accounting policies (continued) Financial income and expense Financial income and expenses comprise interest payable, finance charges onshares classified as liabilities and finance leases, interest receivable onfunds invested, dividend income, 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. Employee benefits Defined contribution pension plans The amounts charged to the income statement represent the contributions payableto the schemes in respect of the accounting period. Share based payment transactions The share option scheme allows employees to acquire shares of the company. Thefair value of options granted after 7 November 2002 and not vested as at 1 June2006 is recognised as an employee expense with a corresponding increase inequity. The fair value is measured at grant date and spread over the periodduring which the employees become unconditionally entitled to the options. Thefair value of the options granted is measured using an option pricing model,taking into account the terms and conditions upon which the options weregranted. The amount recognised as an expense is adjusted to reflect the actualnumber of share options that vest except where forfeiture is only due to shareprices not achieving the threshold for vesting. Work in progress Work in progress represents costs incurred on specific client assignments priorto reaching a specific act which results in revenue being recognised. Work inprogress is stated at the lower of direct cost and net realisable value. Costcomprises direct salary costs and a proportion of attributable overhead costs.Net realisable value represents estimated selling price less all estimated coststo complete. 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, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting theexpected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, the risksspecific to the liability. Provision is made for future net lease obligationsin respect of onerous leases of vacant, partially vacant or sublet properties. Taxation The tax expense represents the sum of the current taxes payable and deferredtax. Tax is recognised in the income statement except to the extent that itrelates to items recognised directly in equity, in which case it is recognisedin equity. The current tax payable is based on taxable income for the year using tax ratesthat have been enacted or substantively enacted by the balance sheet date. 1 Significant accounting policies (continued) Taxation (continued) Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. The carrying amount of deferred tax assets is reviewed at eachbalance sheet date and reduced to the extent that it is no longer probable thatsufficient taxable profits will be available to allow all or part of the assetto be recovered. Deferred tax is measured at the tax rates that are expected tobe applied to the temporary differences when they reverse, based on the lawsthat have been enacted or substantially enacted by the reporting date. Revenue Revenue represents the amounts (excluding valued added tax) derived from theprovision of Intellectual Property services, including filing, prosecuting,litigating, licensing, assigning and renewing Patents, Trade Marks and Designsto third party customers. Revenue is recognised in the period as specific actsare completed on each client assignment. Dividends on shares presented within equity attributable to equity holders Dividends unpaid at the balance sheet date are only recognised as a liability atthat date to the extent that they are appropriately authorised and are no longerat the discretion of the company. Unpaid dividends that do not meet thesecriteria are disclosed in the notes to the financial statements. Trade and other receivables Trade and other receivables are initially recognised at their fair value andthen stated at amortised cost. Trade and other payables Trade and other payables are initially recognised at fair value and then statedat amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayableon demand and form an integral part of the company's cash management areincluded as a component of cash and cash equivalents for the purposes of thestatement of cash flows. 2 Taxation A charge for taxation has been included at the effective rate likely to beapplied to the UK result for the full year to 31 May 2008. Deferred tax isrecognised at 28% (November 2006 and May 2007: 30%) following the change in theUK corporation tax rate from April 2008 which was substantively enacted by 30June 2007. The impact of the change in rate is immaterial. 3 Earnings per share The earnings per share of Murgitroyd Group PLC are calculated by reference tothe earnings attributable to ordinary shareholders divided by the weightedaverage number of shares in issue during each period, as follows: Six months ended Six months ended Year 30 November 2007 30 November 2006 ended £'000 £'000 31 May 2007 £'000Profit on ordinary activities after taxation and for the period 873 1,068 2,010 ________ ________ ________ Basic weighted average number of shares 8,343,239 8,293,464 8,307,012Diluted weighted average number of shares 8,638,132 8,545,175 8,573,799 Basic earnings per share 10.47p 12.88p 24.18pDiluted earnings per share 10.11p 12.50p 23.43p Earnings per share before provision for Onerous Lease is calculated on profit onordinary activities after taxation for the period of £1,013,000 and the basicweighted average number of shares of 8,343,239 4 Dividend The Directors propose to pay an interim dividend of 3p per share (six-monthperiod ended November 2006: nil). In addition the Directors intend, subject tothe availability of distributable reserves, to recommend a final dividend toshareholders in respect of the financial year ending 31 May 2008. 5 Explanation of transition to IFRS The rules for first time adoption of IFRS are set out in IFRS 1 "First-timeadoption of International Financial Reporting Standards". In general a companyis required to determine its IFRS accounting policies and apply theseretrospectively to determine its balance sheet, at the date of transition, underIFRS. The standard allows a number of exceptions to this general principle toassist companies in the transition period. The 2006 comparative informationhas, as permitted by IFRS 1, been prepared taking advantage of the exemption notto restate business combinations prior to 1 June 2006. The accounting policiesset out in note 1 have been applied consistently in the transition to adoptedIFRS including the opening IFRS balance sheet and comparative information. The reconciliations of equity at 1 June 2006 (date of transition to IFRS) and at31 May 2007 (date of last UK GAAP financial statements) and the reconciliationof profit for the year ended 31 May 2007 are required under IFRS in the year oftransition. In addition to the above reconciliations, the reconciliation ofequity at 30 November 2006 and the reconciliation of profit for the six monthsended 30 November 2006 have been included below to enable a comparison of the2007 interim figures with the corresponding period of the previous financialyear. No adjustments have been made for changes in estimates made at the time ofapproval of the last UK GAAP financial statements on which the IFRS comparativeinformation is based. 5 Explanation of transition to IFRS (continued) Reconciliation of equity at 1 June 2006 (date of transition to IFRS) Previously reported IFRS 3 IAS 19 IAS 12 Effect of under UK Business Employee Income Transition Restated GAAP* Combinations Benefits Taxes to IFRS under IFRS £'000 £'000 £'000 £'000 £'000 £'000 Non-current assetsProperty, plant and equipment 2,252 - - - - 2,252Intangible assets 8,695 - - - - 8,695 10,947 - - - - 10,947 Current assetsWork in progress 317 - - - - 317Trade and other receivables 5,981 - - - - 5,981Cash and cash equivalents 298 - - - - 298 6,596 - - - - 6,596 Total assets 17,543 - - - - 17,543 Current liabilitiesBank overdraft (489) - - - - (489)Other interest bearing loans andborrowings (727) - - - - (727)Trade and other payables (2,592) - (54) - (54) (2,646)Tax payable (328) - - - - (328) (4,136) - (54) - (54) (4,190) Non-current liabilitiesOther interest-bearing loans andborrowings (2,499) - - - - (2,499)Other payables - - - - - -Deferred tax liabilities (73) - 16 (22) (6) (79) (2,572) - 16 (22) (6) (2,578) Total liabilities (6,708) - (38) (22) (60) (6,768) Net assets 10,835 - (38) (22) (60) 10,775 EquityShare capital 828 - - - - 828Share premium 2,258 - - - - 2,258Merger reserve 6,436 - - - - 6,436Revaluation reserve 166 - - (50) (50) 116Retained earnings 1,147 - (38) 28 (10) 1,137 Total equity attributable toequity holders of the parent 10,835 - (38) (22) (60) 10,775 * In IFRS Format 5 Explanation of transition to IFRS (continued) Reconciliation of equity at 30 November 2006 Previously reported IFRS 3 IAS 19 IAS 12 Effect of Restated under UK Business Employee Income Transition under GAAP* Combinations Benefits Taxes to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 Non-current assetsProperty, plant and equipment 2,389 - - - - 2,389Intangible assets 10,091 320 - - 320 10,411 12,480 320 - - 320 12,800 Current assetsWork in progress 443 - - - - 443Trade and other receivables 7,111 - - - - 7,111Cash and cash equivalents 689 - - - - 689 8,243 - - - - 8,243 Total assets 20,723 320 - - 320 21,043 Current liabilitiesBank overdraft (639) - - - - (639)Other interest bearing loansand borrowings (1,140) - - - - (1,140)Trade and other payables (3,448) - (2) - (2) (3,450)Tax payable (480) - - - - (480) (5,707) - (2) - (2) (5,709) Non-current liabilitiesOther interest-bearing loansand borrowings (3,725) - - - - (3,725)Other payables - - - - - -Deferred tax liabilities (81) - - 58 58 (23) (3,806) - - 58 58 (3,748) Total liabilities (9,513) - (2) 58 56 (9,457) Net assets 11,210 320 (2) 58 376 11,586 EquityShare capital 830 - - - - 830Share premium 2,282 - - - - 2,282Merger reserve 6,437 - - - - 6,437Revaluation reserve 167 - - (50) (50) 117Retained earnings 1,494 320 (2) 108 426 1,920 Total equity attributable toequity holders of the parent 11,210 320 (2) 58 376 11,586 * In IFRS Format 5 Explanation of transition to IFRS (continued) Reconciliation of equity at 31 May 2007 (date of last UK GAAP financialstatements) Previously reported IFRS 3 IAS 19 IAS 12 Effect of Restated under UK Business Employee Income Transition under GAAP* Combinations Benefits Taxes to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsProperty, plant and equipment 2,570 - - - - 2,570Intangible assets 9,757 652 - - 652 10,409 12,327 652 - - 652 12,979Current assetsWork in progress 481 - - - - 481Trade and other receivables 7,334 - - - - 7,334Cash and cash equivalents 453 - - - - 453 8,268 - - - - 8,268 Total assets 20,595 652 - - 652 21,247 Current liabilitiesBank overdraft (209) - - - - (209)Other interest bearing loans and borrowings (1,172) - - - - (1,172)Trade and other payables (3,138) - (63) - (63) (3,201)Tax payable (452) - - - - (452) (4,971) - (63) - (63) (5,034) Non-current liabilitiesOther interest-bearing loans and borrowings (3,336) - - - - (3,336)Other payables (195) - - - - (195)Deferred tax liabilities (101) - 19 67 86 (15) (3,632) - 19 67 86 (3,546) Total liabilities (8,603) - (44) 67 23 (8,580) Net assets 11,992 652 (44) 67 675 12,667 EquityShare capital 834 - - - - 834Share premium 2,337 - - - - 2,337Merger reserve 6,436 - - - - 6,436Revaluation reserve 222 - - (67) (67) 155Retained earnings 2,163 652 (44) 134 742 2,905 Total equity attributable toequity holders of the parent 11,992 652 (44) 67 675 12,667 * In IFRS Format 5 Explanation of transition to IFRS (continued) Reconciliation of profit for the six months ended 30 November 2006 Previously reported IFRS 3 IAS 19 Effect of Restated under UK Business Employee transition under GAAP* Combinations benefits to IFRS IFRS £'000 £'000 £'000 £'000 £'000 Revenue 11,163 - - - 11,163 Cost of sales (3,816) - - - (3,816) Gross profit 7,347 - - - 7,347 Administrativeexpenses (includinggoodwillamortisation) (6,025) 320 52 372 (5,653) Operating profit 1,322 320 52 372 1,694 Financial income 6 - - - 6Financial expense (138) - - - (138) Profit before tax 1,190 320 52 372 1,562 Taxation (479) - (15) (15) (494) Profit after Tax 711 320 37 357 1,068 Earnings Per ShareBasic 8.58p 12.88pDiluted 8.32p 12.50p * In IFRS Format 5 Explanation of transition to IFRS (continued) Reconciliation of profit for the year ended 31 May 2007 Previously reported IFRS 3 IAS 19 Effect of Restated under UK Business Employee transition under GAAP* Combinations benefits to IFRS IFRS £'000 £'000 £'000 £'000 £'000 Revenue 22,843 - - - 22,843 Cost of sales (7,814) - - - (7,814) Gross profit 15,029 - - - 15,029 Administrativeexpenses (includinggoodwill amortisation) (12,458) 652 (9) 643 (11,815) Operating profit 2,571 652 (9) 643 3,214 Financial income 11 - - - 11Financial expense (284) - - - (284) Profit before tax 2,298 652 (9) 643 2,941 Taxation (934) - 3 3 (931) Profit after Tax 1,364 652 (6) 646 2,010 Earnings Per ShareBasic 16.41p 24.18pDiluted 15.90p 23.43p * In IFRS Format 5 Explanation of transition to IFRS (continued) Intangible assets Under UK GAAP, goodwill was amortised over its useful economic life, notexceeding 20 years. As of 1 June 2006, under IFRS 3 "Business Combinations"goodwill is not amortised but tested annually for impairment. Accordingly, thegoodwill amortisation charge for the year ended 31 May 2007 of £652,000(six-month period ended November 2006: £320,000) has been reversed. All goodwillhas been tested for impairment at 1 June 2006 and at 31 May 2007 and noimpairments have been identified. Deferred Tax The scope of IAS 12, "Income Taxes" is wider than the corresponding UK GAAPstandards, and requires deferred tax to be provided on all temporary differencesrather than just timing differences (under UK GAAP). A deferred tax liabilityhas therefore been recognised in respect of the uplift on the revaluation of theGroup's property. The impact on the IFRS opening balance sheet at 1 June 2006 isto increase the deferred tax liability by £50,000, (30 November 2006 by £50,000,31 May 2007 by £67,000) and decrease equity by a corresponding amount. Adeferred tax asset has been recognised on the allowable tax deduction that theGroup would receive if the share options within the various schemes operated bythe company were exercised. The impact on the IFRS opening Balance Sheet at 1June 2006 is to decrease the deferred tax liability by £28,000 (30 November 2006by £108,000; 31 May 2007 by £134,000) and to increase equity by a correspondingamount. Employee benefits A liability has been reflected in respect of compensated absences in accordancewith the requirements of IAS 19, "Employee Benefits". The impact on the IFRSopening Balance Sheet at 1 June 2006 was to increase trade and other liabilitiesby £54,000 (30 November 2006 by £2,000; 31 May 2007 by £63,000) with acorresponding decrease in the deferred tax liability of £16,000 (30 November2006: £nil; 31 May 2007: £19,000) and decreasing equity by £38,000 (30 November2006 by £2,000; 31 May 2007 by £44,000). Explanation of material adjustments to the cash flow statement for 2007 There are no material differences between the cash flow statements presentedunder IFRS and the cash flow statements presented under UK GAAP other thanreclassification between cash flow statement categories. Copies of this announcement and the full interim statement will be available,free of charge for a period of one month, from the Group's Nominated Adviser: Noble & Company Limited Noble & Company Limited76 George Street 120 Old Broad StreetEdinburgh EH2 3BU London EC2N 1AR KPMG Audit Plc 191 West George Street Glasgow G2 2LJ United Kingdom Independent review report to Murgitroyd Group PLC Introduction We have been engaged by the company to review the condensed set of financialstatements in the half-yearly report for the six months ended 30 November 2007which comprises the Consolidated Income Statement, the Consolidated Statement ofRecognised Income and Expense, the Consolidated Balance Sheet, the ConsolidatedStatement of Cash Flows and the related explanatory notes. We have read theother information contained in the half-yearly report and considered whether itcontains any apparent misstatements or material inconsistencies with theinformation in the condensed set of financial statements. This report is made solely to the company in accordance with the terms of ourengagement. Our review has been undertaken so that we might state to the companythose matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company for our review work, for thisreport, or for the conclusions we have reached. Directors' responsibilities The half-yearly report is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the half-yearly report inaccordance with the AIM Rules. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with IFRSs as adopted by the EU. The accounting policies that have been adopted in preparing the condensed set offinancial statements are consistent with those that the directors currentlyintend to use in the next annual financial statements. There is, however, apossibility that the directors may determine that some changes to these policiesare necessary when preparing the full annual financial statements for the firsttime in accordance with IFRSs as adopted by the EU. Our responsibility Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly report based on our review. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland) and consequently does notable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly report for thesix months ended 30 November 2007 is not prepared, in all material respects, inaccordance with the recognition and measurement requirements of IFRSs as adoptedby the EU and the AIM rules. KPMG Audit PlcChartered AccountantsGlasgow 8 February 2008 This information is provided by RNS The company news service from the London Stock Exchange