NBI.L Regulatory News (NBI)

12 Mar 2008 07:01

Northbridge Industrial Services PLC12 March 2008 For immediate release 12 MARCH 2008 Northbridge Industrial Services Plc. ("Northbridge" or "The Company") Preliminary Results for the Year Ended 31 December 2007 Northbridge Industrial Services Plc. the industrial services and rental company,today announces its preliminary results for the year ended 31 December 2007. Highlights: • Consolidated Revenue up 62% to £11.2 million (2006: £6.9 million)• Pre-tax profits up 53% to £1.6 million (2006: £1.1 million)• Sales order book and enquiries at the beginning of 2008 at record levels• Acquisition of Loadbank Hire Services in March 2007• Formation of Northbridge (Middle East) FZE in the Jebel li Free Zone, Dubai and the acquisition of 51% of RDS (Technical) Ltd with an option to purchase the remaining 49%• Strong operating cash generation and year end cash balance of £1.1 million• Basic earnings per share up 20% to 15.3 pence 2006: 12.8 pence)• Proposed final dividend payment of 2.0p per share raising the total dividend for the year to 3.0p per share (2006: 2.0p per share) Outlook: We are continuing to trade in buoyant markets worldwide where the increasedinvestment in energy infrastructures has created an ongoing demand for ourproducts and services. Eric Hook, Chief Executive Officer, said: "The sales order book and enquiries at the beginning of 2008 are at recordlevels and we are planning substantial further investment in our hire fleet.Both of our acquisitions in 2007 have made a positive contribution towardsprofits this year and are expected to make a good contribution to earnings overthe full year in 2008." For further information Northbridge Industrial Services plc 077 0283 1110Eric Hook, CEO Charles Stanley Securities (Nominated Adviser) 020 7149 6000Mark Taylor / Freddy Crossley Buchanan Communications 020 7466 5000Charles Ryland / James Strong About Northbridge: Northbridge Industrial Services was incorporated for the purpose of acquiringcompanies that hire and sell specialist industrial equipment supplying anon-cyclical customer base including utility companies, the public sector andthe oil and gas industries. In particular it will seek to acquire specialistbusinesses that have the potential for expansion into complete outsourcingproviders. CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW We are delighted to present our review of the first full year of trading sincethe admission to AIM of Northbridge in March 2006. Crestchic, our main subsidiary continues strongly and has traded at a recordlevel in 2007. Total sales were up 26% compared with the previous year. Thisexcellent performance was spread across the whole of the company's activities. Crestchic Limited designs, manufactures, sells and hires load bank equipmentwhich is primarily used for the commissioning and maintenance of independentpower sources such as diesel generators and gas turbines. The need tocontinually test and maintain standby and independent power systems, and theincreasing reliance on power critical technology used within the banking,medical, marine and defence industries, has all resulted in a strong demand forCrestchic's range of services. Additionally Crestchic is benefiting from abackground of an increasingly unavailable power infrastructure. In March 2007 we were able to strengthen Crestchic's market position by theacquisition of the trade and assets of Loadbank Hire Services, a competitor inthe London area, for a total cost of £909,000. The additional equipment, staffand premises have given us better access to our customers and markets in thesouth east of England. During the year Northbridge (Middle East) FZE (NME) was incorporated in theJebel Ali Free Zone of Dubai. This wholly owned subsidiary will focus on theneeds of the oil and gas industries of the Middle East and Caspian regions. InSeptember NME acquired a 51% shareholding in RDS (Technical) Ltd ("RDS") for£650,000. RDS is a Jersey registered company with a branch office in Azerbaijanwhose principal business is to provide generators and associated equipment tothe oil and gas industries in the Caspian Region. Both of our acquisitions in 2007 have made a positive contribution towardsprofits this year and are expected to make good contributions over the full yearin 2008. Financial performance Northbridge's consolidated revenue for the year to 31 December 2007 was up over62% £11.2 million (2006: £6.9 million), gross profit and net profit before taxwere both up strongly at £5.6 million (2006: £3.3 million) and £1.6 million(2006: £1.1 million) respectively. Operating cash flow for the year was £1.4million (2006: £0.9 million). The comparative figures were for a nine monthperiod of trading only as the group's first subsidiary was acquired on 26 March2006, concurrent with the company being traded on AIM. Net Assets at 31 December2007 were £8.1 million (2006: £7.2 million) and the Group had gearing, definedas the ratio of all short and long term borrowings and other financialliabilities to net assets, of 23% (2006: 12%) at the year end. The cash balanceat the year end was £1.1 million (2006: £1.1 million). Fixed asset investment in expanding the hire fleet was £0.6 million (2006: £0.6million) and the acquisitions of LHS and RDS added a further £1.1 million tohire fleet assets. The underlying performance at Crestchic Limited for the whole year showed animprovement in sales of 26% to £10.9 million (2006: £8.7 million). Thecontribution from Loadbank Hire Services since acquisition in March 2007 hasbeen included in these figures as its trade and assets are no longerdistinguishable from those of Crestchic itself. RDS contributed total revenue of £319,000 in the three month period sinceacquisition together with an operating profit of £121,000. The Net Assets of RDSat 31 December 2007 were £1.8 million including £1.0 million of cash. Based on this performance, the Board is pleased to propose the payment of afinal dividend for 2007 of 2.0 pence per share (2006: 2.0 pence) resulting in atotal dividends for the year of 3.0 pence (2006: 2.0 pence) per share, a 50%increase The final dividend will be paid on 25 May 2008 to shareholders on theregister on the 25 April 2008, subject to shareholder approval at the AnnualGeneral Meeting to be held at 12 noon on 14 May 2008 at the offices of BuchananCommunications, 45 Moorfields, London EC2Y 9AE. Business Review During the year the company continued to experience strong sales demand from twoof its main overseas markets, the United States and South East Asia. Rentaldemand was also strong and large projects were successfully completed in SouthAmerica, The Caspian Region and Europe. The previously outlined factory extension and the mezzanine floor completed inthe first half of the year have added to our production capacity. We have beenable to take advantage of this to increase sales during the second half andbuild additional units for our hire fleet. The acquisition of Loadbank Hire Services ("LHS") in March has also enhanced ourhire fleet and strengthens our position in the London area. LHS was a divisionof TGC International Ltd and offers similar services to those of Crestchic Ltd.Pro-forma unaudited turnover and profit before interest and taxation for theyear ended 31 March 2006 were approximately £635,000 and £155,000 respectively.Consideration for the trade and assets of the business was £909,000. Since acquiring the business we have relocated it to new larger premises inRochester. This acquisition not only provides additional scale but also providessignificant operational benefits by enabling us to service South East clientsfrom these premises. The addition of experienced staff and delivery vehicleswill also allow us to offer a better service to our existing customer base. Demand for our services has been strengthened by the continued development ofthe oil and gas industry around the world. Over the past six years Crestchic hassuccessfully performed a number of projects in the Caspian region for large oilconsortia. In September we acquired a controlling 51% shareholding in RDS(Technical) Ltd ("RDS"), a Jersey registered company which conducts the majorityof its activities through a branch office in Baku, Azerbaijan. RDS has beenCrestchic's agent in the area since 2001. The principal business of RDS is toprovide generators and associated equipment by way of hire, sale and service tothe oil and gas industry in the Caspian region. The total consideration for our initial 51% was £650,000. In the unauditedaccounts to 31 March 2006, RDS had a turnover of £1.1 million, profit onordinary activities before UK taxation of £279,000 and net assets (includingcash balances of £567,000) were £1.3 million. Northbridge has a call option to purchase, and the vendor of RDS has a putoption to sell, the remaining 49% of RDS on 31 March 2008. The price will bedetermined on a multiple of the audited profits before taxation of RDS for theyear ending 31 March 2008, subject to a maximum price to be paid for 100% of RDSof £1.8 million. This level will be achieved if the profits before taxation ofRDS are £328,000 or more in the year ending 31 March 2008. Net assets at 31December of RDS were £1.8 million including £1.0 million of cash. Our acquisitions and other investments in 2007 have been made out of the Group'sexisting banking facilities. These were renegotiated during the year andcomprise a mortgage against the freehold premises of £1.5 million, with a termof 15 years and an interest rate of 1.25% above base rate, and a multi-optionworking capital facility of £1.0 million. Strategy Northbridge's strategy is set out in the placing document in 2006. This is toacquire and consolidate specialist industrial equipment businesses. The criteriathat these potential targets will possess are; • Potential for expansion into complete outsourcing providers; • Supplying, or capable of supplying a non-cyclical customer base including utility companies, the public sector and the oil and gas sector • Incorporating a strong element of service work • Turnover between approximately £1 million to £10 million By consolidating a number of such companies Northbridge can add significantvalue through organic expansion into new geographical or industry markets andthrough complementary acquisitions, increase the Company's product offering toits customer base. In delivering such a strategy we will be able to capitaliseon the market opportunity to become a significant industrial services businessserving an international market. The Board actively continue to search forsuitable acquisitions. Staff We would like to take the opportunity to thank the employees of the group fortheir contribution in delivering this excellent set of results. We would alsolike to welcome the new employees who have joined the group through recentacquisitions and thank them for the smooth transition to new ownership. Outlook The sales order book and enquiries at the beginning of 2008 are at record levelsand we are planning substantial further investment in our hire fleet. Both ofour acquisitions in 2007 have made a positive contribution towards profits thisyear and are expected to make a good contribution to earnings over the full yearin 2008. We are continuing to trade in buoyant markets worldwide where the increasedinvestment in energy infrastructures has created an ongoing demand for ourproducts and services. Early indications are that RDS will continue to trade strongly and that theoption over the remaining 49% will be exercised on 31 March 2008. Trading at our new operation in the Middle East has got off to a good start andwe are hoping to complete the acquisition of new premises during the year tofurther capitalise on the opportunities in the region. We are confident that we will continue to make good progress in growing theGroup over the coming year. P R Harris E W HookChairman Chief Executive FINANCE DIRECTOR'S REPORT International Financial Reporting Standards (IFRS) Whilst the group accounts have been prepared under IFRS, the board has electedto continue to prepare the accounts of the subsidiary company and the parentcompany under UK GAAP, to enable eventual use of the distributable reserves ofthose companies prior to conversion to IFRS. Interest rate risk The Group is cash positive and places its balances on short term deposit withBank of Scotland. The board manages its interest rate policy centrally, managinginterest rates in relation to Bank of Scotland base rates on all groupborrowings and overdrafts. Foreign currency exchange risk. Part of the cash at bank is held in Euro and US Dollar accounts. There are alsotrade balances and investments in these currencies. The board manages this riskby converting all non functional currency into sterling at the firstopportunity, after allowing for similar functional currency outlays. The group'sforeign exchange risk is not considered to significant and any resulting gainsor losses are recognised in the profit and loss account. Credit risk The group manages its credit risk by assessing all new customers entering intocontracts with them, setting credit ratings which are factored into creditdecisions. The Company's subsidiaries record of debt collection is very positiveand the group has only £136,000 (2006: £26,000) outstanding over 3 months old at31 December 2007. Earnings per share The earnings per share figure of 15.3 pence (2006: 12.8 pence) has beencalculated by dividing the profit after taxation by the weighted number ofshares in issue. The diluted earnings per share of 14.5 pence (2006: 12.0 pence)have been calculated by dividing the profit after taxation by the weightednumber of shares in issue and the expected number of shares to be issued fromoutstanding share options. Balance Sheet The balance sheet shows a significant increase in property, plant and equipmentarising from our acquisitions during the year but also our investment into thehire fleet of £0.6 million. Our inventories and receivables have grown in linewith the business to £1.1 million and £3.2 million respectively. We monitorinventory closely and this increase is partly due to buying inventories inadvance of large manufacturing orders for the early part of 2008. Trade andother receivables, whilst high, present little risk and we continue to have alow figure for old debts from customers. Cash Flow During the year, the operational cash flow of Northbridge was derived largelyfrom Crestchic Ltd. The acquisitions made some contribution but this waspartially offset by our investment in setting up Northbridge Middle East. Proposed dividend The Board has proposed, subject to shareholder approval a final dividend of 2.0pence (2006: 2.0 pence) per Ordinary share in addition to the interim dividendof 1.0 pence (2006: nil) paid during the year. The dividend for the full year of3.0 pence (2006: 2.0 pence) is covered 5.1 times by the earnings per share of15.3 pence, and will be paid on 25 May 2008 to shareholders on the register on25 April 2008. A K MehtaFinance Director CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 2007 2006 Note £'000 £'000 REVENUE 11,203 6,933 Cost of sales (5,626) (3,673) GROSS PROFIT 5,577 3,260 Selling and distribution costs (2,385) (1,202)Administrative expenses (1,484) (941) PROFIT FROM OPERATIONS 1,708 1,117 Finance income 23 14Finance costs (100) (43) PROFIT BEFORE INCOME TAX 1,631 1,088 INCOME TAX EXPENSE 2 (477) (357) PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT 1,154 731 Earnings per share - basic (pence) 3 15.3 12.8- diluted (pence) 3 14.5 12.0 All amounts relate to continuing operations. CONSOLIDATED BALANCE SHEET 2007 2006As at 31 December 2007 £'000 £'000 £'000 £'000 ASSETS NON-CURRENT ASSETSIntangible assets 3,254 2,596Property, plant and equipment 5,398 3,797 8,652 6,393 CURRENT ASSETSInventories 1,136 722Trade and other receivables 3,272 1,998Cash and cash equivalents 1,461 1,288 5,869 4,008 TOTAL ASSETS 14,521 10,401 LIABILITIES CURRENT LIABILITESBank overdraft 359 189Trade and other payables 1,953 1,108Financial liabilities 173 166Other financial liabilities 1,150 -Current tax liabilities 589 451 4,224 1,914NON-CURRENT LIABILITESFinancial liabilities 1,342 526Long term provisions 212 265Deferred tax liabilities 604 500 2,158 1,291 TOTAL LIABILITES 6,382 3,205 TOTAL NET ASSETS 8,139 7,196 CAPITAL AND RESERVES ATTRIBUTABLETO EQUITY HOLDERS OF THE COMPANYShare capital 763 739Share premium 5,546 5,527Share option reserve - 209Treasury share reserve (59) -Retained earnings 1,889 721TOTAL EQUITY 8,139 7,196 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2007 Share Share Share Treasury Retained Total Capital Premium Option Share Earnings Reserve Reserve £'000 £'000 £'000 £'000 £'000 £'000 Changes in equity Balance at 31 December 2006 739 5,527 209 - 721 7,196 Retained profit for thefinancial year - - - - 1,154 1,154 Total recognised incomeand expense for the year - - - - 1,154 1,154 Issue of share capital 24 19 - - - 43Share options exercisedduring year - - (200) - 200 -Share option expense - - 29 - - 29Dividends paid - - - - (224) (224)Transfer to retained profit - - (38) - 38 -Purchase of Ordinaryshares for holding intreasury - - - (59) - (59) Balance at 31 December 2007 763 5,546 - (59) 1,889 8,139 For the year ended 31 December 2006 Share Share Share Retained Total Capital Premium Option Earnings Reserve £'000 £'000 £'000 £'000 £'000 Changes in equity Balance at 31 December 2005 26 236 - (10) 252 Retained profit for the financial year - - - 731 731 Total recognised income and expense for the year - - - 731 731 Issue of share capital 704 6,334 - - 7,038Bonus issue of shares 9 (9) - - -Equity share optionsgranted in respect ofcapital raising expenses - (200) 200 - -Share option expense - - 9 - 9Capital raising expenses - (834) - - (834) 713 5,291 209 731 6,944 Balance at 31 December 2006 739 5,527 209 721 7,196 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2007 Note 2007 2006 £'000 £'000OPERATING ACTIVITIESNet profit from ordinary activities before taxation 1,631 1,088 Adjustments for:Amortisation of intangible fixed assets 126 78Amortisation of capitalised debt fee 18 16Depreciation of property plant and equipment 444 225Loss on sale of property plant and equipment 22 -Decrease in provision for future employment costs (53) -Investment income (23) (14)Taxation (254) (334)Finance costs 100 43Share option expense 29 9 2,040 1,112Increase in inventories (414) (122)Increase in receivables (917) (96)Increase in payables 745 42 CASH GENERATED FROM OPERATIONS 1,454 935Finance costs (100) (43) NET CASH FROM OPERATING ACTIVITES 1,354 892 CASH FLOWS FROM INVESTING ACTIVITIESFinance income 23 14Acquisition of subsidiary undertaking (net of cash acquired) (983) (5,411)Purchase of property, plant and equipment (904) (589)Sale of property, plant and equipment 17 -Expenditure on research and development - (4) Net cash used in investing activities (1,847) (5,990) CASH FLOWS FROM FINANCING ACTIVITIESProceeds from share capital issued 43 6,438Costs of share capital issued - (834)Proceeds from bank borrowings 1,500 750Repayment of bank borrowings (715) (293)Cost of raising bank borrowings - (128)Repayment of finance lease creditors (49)Repurchase of own shares (59) -Dividends paid in the year (224) - Net cash flow from financing activities 496 5,933 NET INCREASE IN CASH AND CASH EQUIVALENTS 3 835Cash and cash equivalents at beginning of period 1,099 264 Cash and cash equivalents at end of period 4 1,102 1,099 During the period the Group acquired property, plant and equipment with anaggregate cost of £985,000 (2006: £648,000) of which £80,000 (2006: £59,000) wasacquired by means of finance leases. Cash payments of £905,000 (2006: £589,000)were made to purchase property plant and equipment. NOTES TO THE PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 1. ACCOUNTING POLICIES 1.1 BASIS OF PREPARATION These preliminary results for the year ended 31 December 2007 have beenprepared in accordance with International Financial Reporting Standards,International Accounting Standards and Interpretations (collectively IFRS)issued by the International Accounting Standards Board (IASB) as adopted byEuropean Union ("adopted IFRSs"). The principal accounting policies adopted in the preparation of thesepreliminary results are as used in previous years financial statements, exceptas stated below, and those policies have been consistently applied to all theyears' presented, unless otherwise stated. The financial information set out herein (which was approved by the Board on11 March 2008 does not constitute the Company's statutory accounts for theyears ended 31 December 2007 and 2006 but is derived from the 2007 statutoryaccounts. The statutory accounts for the year ended 31 December 2006 have beendelivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2007 will be deliveredfollowing the Company's annual general meeting. The auditors have reported onthose accounts; their reports were unqualified, did not include references toany matters to which the auditors drew attention by way of emphasis withoutqualifying their reports and did not contain statements under section 237(2)or (3) of the Companies Act 1985. 1.2 BASIS OF CONSOLIDATION The financial statements consolidate the accounts of NorthbridgeIndustrial Services plc and its subsidiary undertakings. The results of the businesses acquired during the year are included fromthe effective date of acquisition. Intercompany transactions and balancesbetween companies are eliminated in full. 1.3 NEW STANDARDS AND INTERPRETATIONS In preparing the financial statements, the Company has applied thefollowing new standards and interpretations that have became effective inthese financial statements IFRS 7, Financial instruments disclosure; This standard introduces new disclosures of qualitative and quantitativeinformation about exposure to risk. This had no impact on theclassification or valuation of the Group's financial instruments. IFRS 7, Financial Instruments: disclosures and a complementary amendmentto IAS 1, Presentation of Financial Statements - capital disclosures(effective for accounting periods beginning on or after 1 January 2007). This standard introduces new requirements aimed at improving thedisclosure of information about financial instruments. It requires thedisclosure of qualitative and quantitative information about exposure torisks arising from financial instruments, including specified minimumdisclosures about credit risk, liquidity risk and market risk. Where thoserisks are deemed to be material to the group it requires disclosures basedon the information used by key management. It replaces the disclosurerequirements in IAS 32 'Financial Instruments: disclosure andpresentation'. It is applicable to all entities that report under IFRS.The amendment to IAS 1 introduces disclosures about the level andmanagement of an entity's capital. The Group has applied IFRS 7 and theamendment to IAS 1 to the accounts for the year beginning on 1 January2007. 1.4 FINANCIAL INSTRUMMENTS (a) Financial assets The Group's financial assets fall into the categories discussed below,with the allocation depending to an extent on the purpose for which theasset was acquired. Although the Group occasionally uses derivativefinancial instruments in economic hedges of currency rate risk, it doesnot hedge account for these transactions. The Group has not classified anyof its financial assets as held to maturity. Unless otherwise indicated, the carrying amounts of the Groups financialassets are a reasonable approximation of their fair values. Loans and receivables These assets are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They ariseprincipally through the provision of goods and services to customers (e.g.trade receivables) and deposits held at banks, but may also incorporateother types of contractual monetary asset. They are initially recognisedat fair value plus transaction costs that are directly attributable to theacquisition or issue and subsequently carried at amortised cost using theeffective interest rate method, less provision for impairment. The effect of discounting on these financial instruments in not consideredto be material. Impairment provisions are recognised when there is objective evidence(such as significant financial difficulties on the part of thecounterparty or default or significant delay in payment) that the Groupwill be unable to collect all of the amounts due under the termsreceivable, the amount of such a provision being the difference betweenthe net carrying amount and the present value of the future expected cashflows associated with the impaired receivable. For trade receivables, suchprovisions are recorded in a separate allowance account with the lossbeing recognised within administrative expenses in the income statement.On confirmation that the trade receivable will not be collectable, thegross carrying value of the asset is written off against the associatedprovision. (b) Financial liabilities The Group classifies its financial liabilities into one of two categories,depending on the purpose for which the asset was acquired. Although theGroup uses derivative financial instruments in economic hedges of currencyrisk, it does not hedge account for these transactions. Unless otherwise indicated, the carrying amounts of the Groups financialliabilities are a reasonable approximation of their fair values. Financial liabilities measured at amortised cost Other financial liabilities include the following items: • Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. • Bank borrowings and loan notes are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Interest is recognised as a finance expense in the income statement. Fair value is calculated discounting estimated future cash flows using a market rate of interest. (c) Share capital The Group's ordinary shares are classified as equity instruments. The Group isnot subject to any externally imposed capital requirements. Share capitalincludes the nominal value of the shares and any share premium attaching to theshares. (d) Option to purchase minority interest in subsidiary The Company values such options on a fair value basis. Where the considerationfor the acquisition of the minority interest is dependent upon the profitabilityof the subsidiary company, fair value is calculated on the basis of the mostlikely outcome of the results of the subsidiary. 1.5 TREASURY SHARES Consideration paid for the purchase of treasury shares is recognised directly inequity. The cost of treasury shares held is presented as a separate reserve (the"Treasury share reserve"). 1.6 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of consolidated financial statements under IFRS requires theGroup to make estimates and assumptions that affect the application ofpolicies and reported amounts. Estimates and judgements are continuallyevaluated and are based on historical experience and other factors includingexpectations of future events that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates. The estimatesand assumptions which have a significant risk of causing a materialadjustment to the carrying amount of assets and liabilities within the nextfinancial year are discussed below: Estimated impairment of goodwill The Group is required to test whether goodwill has suffered any impairment.The recoverable amounts of cash generating units have been determined basedon value-in-use estimations. The use of this method requires the estimationof future cash flows expected to arise from the continuing operation of thecash generating unit. Actual outcomes could vary significantly from theseestimates. Impairment of assets Property, plant and equipment are reviewed for impairment if events orchanges in circumstances indicate that the carrying amount may not berecoverable. When a review for impairment is conducted, the recoverableamount of an asset or a cash generating unit is determined based onvalue-in-use calculations prepared on the basis of management's assumptionsand estimates. Provisions Provisions have been made for employment costs. These provisions areestimates and the actual costs and timings of future cash flows aredependent upon future events. Any difference between expectations and theactual future liability will be accounted for in the period when suchdetermination is made. Income taxes The Group recognises expected liabilities for tax based on an estimation ofthe likely taxes due, which requires significant judgement as to theultimate tax determination of certain items. Where the actual liabilityarising from these issues differs from these estimates, such differenceswill have an impact on income tax and deferred tax provisions in the periodwhen such determination is made. Option to purchase minority interest in subsidiary The Company has an option to purchase the 49% of the equity shares of asubsidiary company that it doesn't own. As described in note 1.12, theCompany values such options on a fair value basis. The consideration for theacquisition of the minority interest is dependent upon the profitability ofthe subsidiary company and fair value has been calculated by an independentvaluer on the basis of the most likely outcome of the results of thesubsidiary. 2. INCOME TAX EXPENSE 2007 2006 £'000 £'000 Current tax expense 392 343 Deferred tax expense resulting from the origination and reversal of temporary differences 85 14 TAX ON PROFIT ON ORDINARY ACTIVITIES 477 357 FACTORS AFFECTING TAX CHARGE FOR THE YEAR The tax assessed for the year is lower than the standard rate of corporation taxin the UK (30%). The differences are explained below: 2007 2006 £'000 £'000 Profit on ordinary activities before tax 1,631 1,089 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2006 : 30 %) 490 327 EFFECTS OF: Expenses not allowable for tax purposes 60 27 Income not taxable for tax purposes (34) - Other differences 9 3 Overprovision in prior period (48) - TOTAL TAX CHARGE FOR THE YEAR (see note above) 477 357 FACTORS THAT MAY AFFECT FUTURE TAX CHARGE There are no factors that may affect future tax charges 3. EARNINGS PER SHARE 2007 2006Numerator £'000 £'000 Earnings used in basic and diluted EPS (£'000) 1,154 731 Denominator Number Number Weighted average number of shares used in basic EPS 7,532,163 5,711,064Effects of:- share options 433,630 378,058 Weighted average number of shares used in diluted EPS 7,965,793 6,089,122 4. NOTE SUPPORTING CASH FLOW STATEMENT 2007 2006 £'000 £'000Cash and cash equivalents comprises: Cash available on demand 1,461 1,288Overdrafts (359) (189) 1,102 1,099 5. DIVIDENDS 2007 2006 £'000 £'000 Final dividend of 2.0 pence (2006: nil) per ordinary share proposed and paid during the year relating to theprevious year's results 147 - Interim dividend of 1.0 pence (2006: nil) per ordinary share paid during the year 77 - 224 - The directors are proposing a final dividend of 2.0 pence (2006: 2.0 pence) pershare totalling £152,000 (2006: £147,000), resulting in dividends for the wholeyear of 3.0 pence (2006: 2.0 pence) per share. The dividend has not been accruedat the balance sheet date. This information is provided by RNS The company news service from the London Stock Exchange EN