Petards Regulatory News (PEG)

28 Sep 2007 07:03

Petards Group PLC28 September 2007 Petards Group plc Restatement of financial information under International Financial ReportingStandards Introduction Petards Group plc (the "Group") has historically prepared its consolidatedfinancial statements under UK Generally Accepted Accounting Practice ("UK GAAP"). The AIM rules require the adoption of Adopted IFRS as adopted by the EU ("Adopted IFRS") (1). IFRS will apply for the first time in the Group's financial statements for theyear ending 31 December 2007. Accordingly the financial results for the 6months ended 30 June 2007 have been prepared and reported under IFRS. As theGroup publishes comparative information in its Annual Report and InterimStatement the date of transition to IFRS is 1 January 2006. To explain how the Group's reported performance and financial position areaffected by this change, information previously published under UK GAAP isrestated under IFRS in the attached appendices as follows: • Appendix 1 - IFRS accounting policies; • Appendix 2 - Financial information on an IFRS basis for the 6 months ended 30 June 2006 and the year ended 31 December 2006 and the transition balance sheet at 1 January 2006; • Appendix 3 - Reconciliations of consolidated income statement and consolidated balance sheet for the year ended 31 December 2006 with explanations of the adjustments made; • Appendix 4 - Reconciliations of consolidated income statement and consolidated balance sheet for the 6 months ended 30 June 2006, with explanations of the adjustments made; • Appendix 5 - Reconciliation of transition consolidated balance sheet at 1 January 2006 with explanations of the adjustments made. This unaudited financial information has been prepared on the basis of IFRSsexpected to be applicable at 31 December 2007. These are subject to ongoingreview and endorsement by the EU or possible amendment by interpretive guidancefrom the IASB and are therefore still subject to change. We will update ourrestated information for any such changes when they occur. The adoption of IFRS has an impact on the presentation of the Group's accountsbut does not change the underlying business performance. There are no changesto the business model, strategy, risk management processes or cash flows. Basis of preparation The unaudited financial information has been prepared in accordance with adoptedIFRS. The accounting policies expected to be applied in the adopted IFRSsfinancial statements for the year ending 31 December 2007 are set out inAppendix 1. The auditors have issued unqualified opinions on the Group's UK GAAP financialstatements for the years ended 31 December 2005 and 31 December 2006. Both thetransition balance sheet as at 1 January 2006 and the financial information forthe year ended 31 December 2006, as prepared on the above basis, will be auditedas part of the audit of the financial statements for the year ending 31 December2007. Subject to that audit, EU endorsement of outstanding standards and nofurther changes from the IASB, this information is expected to form the basisfor comparatives when reporting financial results for 2007, and for subsequentreporting periods. Overview of impact For the year ended 31 December 2006 the net decrease in total recognised incomeand expense attributable to equity holders of the company as a result of theconversion to IFRS was £131,000. The details of these adjustments are given inAppendix 3. Based on the accounting policies detailed in Appendix 1, the effect on keyreported results is as follows: 6 months ended Year ended 30 June 2006 31 December 2006 IFRS UK GAAP IFRS UK GAAP Operating (loss) / profit (£000) (778) (598) (46) 94Loss after tax (£000) (926) (736) (436) (305)Net liabilities (£000) (2,428) (2,347) (1,916) (1,894)Basic EPS (pence) (0.15p) (0.12p) (0.07p) (0.05p) The main areas where IFRS has impacted on the results are as follows: • Goodwill arising from acquisitions is no longer amortised, increasing reported profits and net assets. • Research and development activities which meet certain criteria are capitalised and amortised over the period of their estimated economic benefit, decreasing reported profits and increasing net assets. • The fair value of the order book at the date of acquisition of European Innovation Manufacturing Centre Limited ("EIMC") is capitalised and amortised over the period in which it is delivered, reducing reported profits. • Foreign currency forward and swap contracts are included in the financial statements at fair value with changes being recognised in the profit and loss account. Full details of the adjustments required are given in Appendix 3. Cashflow The Group prepares the cash flow statement for both UK GAAP and IFRS using theindirect method. Consequently, adjustments made to working capital items in thebalance sheet on conversion to IFRS lead to an adjustment in the IFRS cash flowstatement. There are no significant changes between cash flows from operatingactivities, investing activities, and financing activities. No adjustments havebeen made to cash and cash equivalents, and no other adjustments have been madeto the cash flow statement on conversion. IFRS 1 exemptions IFRS 1 First Time Adoption of International Financial Reporting Standards,permits those companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. TheGroup has utilised the following key exemptions: (a) Share based payments: The Group has elected to apply IFRS 2 Sharebased payments only to relevant share based payment transactions granted after 7November 2002. (b) Business combinations: The Group has chosen not to restate businesscombinations prior to the transition date. (c) Cumulative translation differences: The Group has adopted theexemption which allows the cumulative translation differences to be zero at thedate of transition. (d) Decommissioning liabilities included in the cost of property, plantand equipment: The Group has adopted the exemption which allows non compliancewith these requirements for changes in such liabilities before the date oftransition to IFRS. (e) Leases reassessed: The Group has adopted the transitional provisionswhereby the Group has reviewed arrangements existing at the date of transitionon the basis of facts and circumstances at this date. Appendix 1 IFRS Accounting Policies This section provides a summary of the Group's new accounting policies underIFRS for the year ended 31 December 2007. Where policies have changed under IFRSas compared to UK GAAP this is indicated by *. (a) Basis of preparation The preliminary IFRS financial information set out on pages 10 to 21 does notconstitute the company's statutory accounts for the year ended 31 December 2006.Those accounts, which were prepared under UK GAAP, have been reported on bythe company's auditors and delivered to the Registrar of Companies. The reportof the auditors was (i) unqualified, (ii) did not include a reference to anymatters to which the auditors drew attention by way of emphasis withoutqualifying their report and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The financial information is presented in pounds sterling, rounded to thenearest thousand, and is prepared on the historical cost basis with someexceptions, as detailed in the accounting policies set out below. These accounting polices have been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that either are endorsed by the EUand effective (or available for early adoption) at 31 December 2007 or areexpected to be endorsed and effective (or available for early adoption) at 31December 2007, other than the provisions laid down within IFRS 8, the Group'sfirst annual reporting date at which it is required to use adopted IFRSs. Basedon these adopted and unadopted IFRSs, the directors have made assumptions aboutthe accounting policies expected to be applied which are as set out below whenthe first annual IFRS financial statements are prepared for the year ending 31December 2007. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2007 are 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 December 2007. The accounting polices set out below have been applied consistently throughoutthe Group to all periods presented in this financial information. The preparation of financial information in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that effect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting policies are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof revision and future periods if the revision affects both current and futureperiods. (b) Basis of consolidation Control exists where the Group has the power, directly or indirectly, to governthe financial and operating policies of an entity so as to obtain benefits fromits activities. Subsidiaries are entities controlled by the Company. Thefinancial statements of subsidiaries are included in the consolidated financialinformation from the date control commences until the date that control ceases. Intracompany balances, and any unrealised gains and losses or income andexpenses arising from intragroup transactions, are eliminated when preparing theconsolidated financial information. (c) Foreign currency Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated atthe foreign exchange rate ruling at that date. Non-monetary assets andliabilities that are measured in terms of historical cost in a foreign currencyare translated using the exchange rate at the date of the transaction. Foreignexchange differences arising on translation are recognised in the incomestatement. The balance sheet assets and liabilities of foreign subsidiaries are translatedinto sterling at the exchange rate at the balance sheet date, and the incomestatement is translated at the average rate. Gains and losses are then taken toreserves. (d) Intangible assets and goodwill* In order for a business combination to exist, the purchased group of assets mustconstitute a business (an integrated set of activities and assets conducted andmanaged to lower costs) and will generally consist of inputs, processes andoutputs. This requires judgement to be applied on a case by case basis as towhether the acquisition meets the definition of a business combination. Business combinations are accounted for using the acquisition method ofaccounting. The acquired identifiable tangible and intangible assets,liabilities and contingent liabilities are measured at their fair values at thedate of acquisition. Any excess of the cost of acquisition over the net fairvalue of the identifiable assets acquired is recognised as goodwill. Goodwill may also arise upon investments in jointly controlled entities andassociates, being the surplus of the cost of investment over the Group's shareof the net fair value of the identifiable assets. Such goodwill is recordedwithin investments in jointly controlled entities and associates, and anyimpairment of the goodwill is included within the income from jointly controlledentities and associates. IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs inthe transition period. The Group elected not to restate business combinationsthat took place prior to transition date. In respect of acquisitions prior to 1January 2005, goodwill is included at transition date on the basis of its deemedcost, which represents the amount recorded under UK GAAP. Other intangible assets that are acquired by the Group are stated at cost lessaccumulated amortisation and impairment losses. Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives of intangible assets unless such lives areindefinite. Other intangible assets are amortised from the date they areavailable for use. (e) Research and development* Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Expenditure on development activities is capitalised if the product or processis technically and commercially feasible, and the Group has the technicalability and has sufficient resources to complete development and if the Groupcan measure reliably the expenditure attributable to the intangible asset duringits development. The expenditure capitalised includes the cost of materials,direct labour and an appropriate proportion of overheads. Developmentexpenditure not meeting the above criteria is recognised in the income statementas an expense as incurred. Capitalised development expenditure is stated at costless accumulated amortisation and impairment losses. Any internally generated intangible asset arising from development activities isrecognised only if an asset is created that can be identified, it is probablethat the asset created will generate future economic benefit and the developmentcost of the asset can be measured reliably. Contract related development costsare accounted for as part of the cost of the contract and are not capitalised. Internally generated assets are amortised on a straight-line basis over theiruseful lives (3 years). Where no internally-generated intangible asset can berecognised, development expenditure is recognised as an expense in the period inwhich it is incurred. (f) 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 equipmenthave different useful lives, they are accounted for as separate items ofproperty, plant and equipment. Depreciation is charged to the income statement on a straight line basis overthe estimated useful economic lives of each part of an item of property, plantand equipment. The depreciation rates are as follows: Plant and machinery 25% straight lineMotor vehicles 25% straight lineComputer equipment 25% straight lineFurniture and fittings 25% straight lineLeasehold improvements life of lease straight line The residual value, and useful economic life, are reassessed annually. (g) Inventories Inventories are stated at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. The costof inventories is determined on a first in, first out basis. (h) Cash and cash equivalents* 'Cash and cash equivalents' comprises 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 Group's cash management are includedas a component of cash and cash equivalents for the purpose of the statement ofcash flows. (i) Impairment The carrying amounts of the Group's assets, other than inventories and deferredtax assets are reviewed at each balance sheet date to determine whether there isany indication of impairment. An impairment loss is recognised whenever the carrying amount of an assetexceeds its recoverable amount. Impairment losses are recognised in the incomestatement. Impairment losses recognised in respect of cash generating units areallocated first to reduce the carrying amount of any goodwill allocated to cashgenerating units and then to reduce the carrying amount of other assets withinthe unit on a pro-rata basis. A cash generating unit is the smallestidentifiable group of assets that generates cash inflows that are largelyindependent of the cash inflows from other assets or groups of assets. Animpairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount. An impairment loss is reversed only to theextent that the asset's carrying amount does not exceed the carrying amount thatwould have been determined, net of depreciation, if no impairment loss had beenrecognised. An impairment loss in respect of goodwill is not reversed inrespect of other assets. (j) Employee benefits Defined contribution pension plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as service is provided. Share-based payment transactions The share option programme allows Group employees to acquire shares of theCompany. The fair value of share options granted is recognised as an employeeexpense with a corresponding increase in equity. The fair value is measured atgrant date, using an appropriate model taking into account the terms andconditions upon which the share options were granted, and is spread over theperiod during which the employees become unconditionally entitled to theoptions. The amount recognised as an expense is adjusted to reflect the actualnumber of share options that vest except where forfeiture is only due to marketconditions. For options granted before 7 November 2002, IFRS 2 is not applied. (k) Revenue Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Sales of goods are recognised when goods are delivered and title haspassed. (l) Long-term contracts Contract revenue includes the initial amount agreed in the contract plus anyvariations in contract work, claims and incentive payments to the extent that itis probable that they will result in revenue and can be measured reliably. Assoon as the outcome of a contract can be estimated reliably, contract revenueand expenses are recognised in profit or loss in proportion to the stage ofcompletion of the contract. The stage of completion is assessed by reference to the value of work performed. When the outcome of a contract cannot be estimated reliably, contract revenueis recognised only to the extent of contract costs incurred that are likely tobe recoverable. An expected loss on a contract is recognised immediately inprofit or loss. (m) Expenses (i) Operating lease payments Payments under operating leases are recognised in the income and expenditureaccount on a straight-line basis over the term of the lease. Lease incentivesreceived are recognised in the income statement as an integral part of the totallease expense. (ii) 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. (iii) Finance income Finance income comprises interest receivable on funds invested and foreignexchange gains. Interest income is recognised in the income statement as itaccrues using the effective interest method. (iv) Finance expenses Finance expenses comprise interest payable on borrowings and foreign exchangelosses. (n) Income tax* Income tax on the profit or loss for the period comprises both current anddeferred tax. Income tax is recognised in the income statement except to theextent that it relates to items recognised directly in equity, in which case itis recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amounts of assets and liabilities, using tax ratesenacted or substantially enacted at the balance sheet 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. (o) Derivative financial instruments* Derivative financial instruments are recognised at fair value. The gain or losson remeasurement to fair value is recognised immediately in profit or loss. The fair value of interest rate swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. The fair value of forward exchange contracts is their quotedmarket price at the balance sheet date. (p) 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, risk adjusted, future cash flows at a pre-tax risk-free rate. (q) Operating leases The cost of operating leases is charged on the straight-line basis over theperiod of the lease. Appendix 2 Consolidated Income Statement 6 months ended Year ended 30 June 2006 31 December 2006 Unaudited Unaudited £000 £000Revenue 10,422 23,235Cost of sales (6,820) (14,839) Gross profit 3,602 8,396 Administrative expenses - reorganisation costs (419) (482)Administrative expenses - other (3,961) (7,960)Administrative expenses - total (4,380) (8,442) Operating loss before financing (778) (46)Finance expenses (148) (378) Loss before income tax (926) (424)Income tax - (12) Loss for the period attributable to equity holders of the (926) (436)company Basic loss per share (0.15p) (0.07p)Diluted loss per share (0.15p) (0.07p) Consolidated Balance Sheet 1 January 2006 30 June 2006 31 December 2006 Unaudited Unaudited UnauditedASSETS £000 £000 £000Non-current assetsProperty, plant and equipment 783 889 836Intangible assets - goodwill 887 928 965Intangible assets - other 114 91 70Other investments, including derivatives - - 4Deferred tax assets 245 245 233 Total non-current assets 2,029 2,153 2,108 Current assetsInventories 2,799 2,997 2,345Trade and other receivables 4,417 4,383 4,501Cash and cash equivalents 550 26 502 Total current assets 7,766 7,406 7,348 Total assets 9,795 9,559 9,456 LIABILITIESNon-current liabilitiesInterest-bearing loans and borrowings (3,964) (3,651) (3,224)Derivatives (5) (15) -Provisions - - (121) Total non-current liabilities (3,969) (3,666) (3,345) Current liabilitiesBank overdraft - (146) (674)Other interest-bearing loans and borrowings (605) (743) (816)Trade and other payables (6,942) (7,432) (6,537) Total current liabilities (7,547) (8,321) (8,027) Total liabilities (11,516) (11,987) (11,372) Net liabilities (1,721) (2,428) (1,916) EQUITYCapital and reserves attributable to equity holdersIssued capital 6,224 6,367 6,367Share premium 23,198 23,255 23,255Reserves (including currency translation) (31,143) (32,050) (31,538) Total deficit attributable to equity holders of the (1,721) (2,428) (1,916)company Consolidated Statement of Cash Flows 6 months ended Year ended 31 December 30 June 2006 2006 Unaudited Unaudited £000 £000Cash flows from operating activitiesLoss for the period (926) (436) Adjustments for:Depreciation 197 467Amortisation of intangibles 179 202Profit on sale of property, plant and equipment - (4)Share based payment expenses 19 44Finance expenses 148 378Income tax expense - 12Decrease in inventories 249 168Decrease in trade and other receivables 214 871Increase/(decrease) in trade and other payables 265 (708) Cash inflow from operations 345 994Interest paid (433) (633)Income tax received - 70 Net cash (outflow) / inflow from operating activities (88) 431 Cash flows from investing activitiesCapitalised internal development expenditure - (2)Acquisition of property, plant and equipment (144) (364)Proceeds from sale of property, plant and equipment - 6Acquisition of subsidiary, net of cash acquired (187) (188) Net cash outflow from investing activities (331) (548) Cash flows from financing activitiesRepayment of borrowings (222) (546)Payment of finance lease liabilities (29) (59) Net cash outflow from financing activities (251) (605) Net decrease in cash and cash equivalents (670) (722)Cash and cash equivalents at the start of the period 550 550 Cash and cash equivalents at the end of the period (120) (172) Cash and cash equivalents comprise:Cash and cash equivalents 26 502Bank overdraft (146) (674) (120) (172) Consolidated statement of changes in equity Year ended 31 December 2006 Attributable to equity shareholdersUnaudited Currency Share premium Retained translation Total Share capital earnings differences £000 £000 £000 £000 £000 At 1 January 2006 6,224 23,198 (31,143) - (1,721)Shares issued in the period 143 57 - - 200Loss for the period - - (436) - (436)Share based payments - - 44 - 44Foreign currency translation - - - (3) (3)differencesAt 31 December 2006 6,367 23,255 (31,535) (3) (1,916) Six months ended 30 June 2006 Attributable to equity shareholdersUnaudited Currency Share Share Retained translation capital premium earnings differences Total £000 £000 £000 £000 £000At 1 January 2006 6,224 23,198 (31,143) - (1,721)Shares issued in the period 143 57 - - 200Loss for the period - - (926) - (926)Share based payments - - 19 - 19At 30 June 2006 6,367 23,255 (32,050) - (2,428) Appendix 3 Reconciliation of Consolidated Income Statement - unaudited For the year ended 31 December 2006 UK GAAP IFRS adjustments IFRS Goodwill R&D Amortisation of Currency amortisation capitalised intangibles contracts (a) (b) (d) (e) £000 £000 £000 £000 £000 £000Revenue 23,235 - - - - 23,235Cost of sales (14,839) - - - - (14,839) Gross profit 8,396 - - - - 8,396 Administrative expenses- reorganisation costs (482) - - - - (482)Administrative expenses- other (7,820) 60 (44) (156) - (7,960) Administrative expenses- total (8,302) 60 (44) (156) - (8,442) Operating profit/(loss) 94 60 (44) (156) - (46)Finance expenses (387) - - - 9 (378) Loss before income tax (293) 60 (44) (156) 9 (424)Income tax (12) - - - - (12) Loss for the periodattributable to equityholders of the company (305) 60 (44) (156) 9 (436) Explanation of the IFRS adjustments to the Consolidated Income Statement for theyear ended 31 December 2006 and 6 months ended 30 June 2006 (a) IFRS 3 - Business combinations Under UK GAAP, the Group amortised the cost of goodwill arising on theacquisition of subsidiaries acquired prior to the transition date to IFRS overits useful life. Under IFRS 3, goodwill on acquisition is no longer amortised,but is held at its carrying value at the transition date, or acquisition date,as appropriate, and is then subject to impairment review at each reporting date. The Group has restated the value of goodwill in its balance sheet to that at thetransition date (1 January 2006) and has carried out an impairment review as at1 January 2006, 30 June 2006 and 31 December 2006. The impact has been toincrease reported profit by £28,000 in the six months ended 30 June 2006 and by£60,000 in the year ended 31 December 2006, which relates to the reversal ofgoodwill amortisation. (b) IAS 38 - Research and development Under UK GAAP, the Group expensed research and development costs as they wereincurred. Under IAS 38 'Intangible Assets' research and development activitieswhich meet certain criteria must be capitalised and amortised over the period oftheir economic benefit. The Group has determined that it has certain activitieswhich meet the IAS 38 criteria and therefore should be capitalised. The impactis as follows Balance sheet 1 Jan 2006 30 June 2006 31 Dec 2006 £000 £000 £000 Increase in other intangibles - cost 137 137 139Increase in other intangibles - amortisation (23) (46) (69) Net increase in other intangibles 114 91 70 Income statement 6 months ended Year ended 30 June 2006 31 Dec 2006 £000 £000 Amortisation charge (23) (46)Capitalised development costs - 2 Net change in administrative expenses (23) (44) (c) and (d) IFRS 3 - Business combinations Acquisition of European Innovation Manufacturing Centre Limited ("EIMC") On 8 March 2006 the Group acquired the entire issued share capital of EIMC.Under UK GAAP the fair value of the consideration was £271,000 and the fairvalue of the net liabilities acquired was £21,000, which gave rise to £292,000goodwill on acquisition. The Group has accounted for this acquisition in accordance with IFRS 3 'BusinessCombinations'. Under IFRS 3, intangible assets purchased as part of a businesscombination may meet the criteria set out in IFRS 3 for categorisation as anintangible asset other than goodwill and are then amortised over their usefuleconomic life. The Group has recognised an intangible asset under IFRS3 for the customer ordersacquired. This has been fair valued at £156,000 at the date of acquisition bythe Group. This has been amortised to £nil in the period over which the orderswere satisfied, which was in the period ended 30 June 2006. A reconciliation of goodwill recognised on the acquisition under UK GAAPcompared to IFRS is set out below: £000 Goodwill recognised under UK GAAP 292Recognition of intangible asset for contracted open order book (156)Goodwill recognised under IFRS 136 The impact on the income statement has been to decrease reported results by£156,000 in both the six months ended 30 June 2006 and the year ended 31December 2006, as a result of the amortisation of this intangible fixed asset. (e) IAS 32 and 39 - Financial Instruments Under UK GAAP, foreign exchange contracts and other derivative financialinstruments were not required to be recorded in the financial statements. UnderIFRS, IAS 39 requires foreign exchange contracts to be recorded in the balancesheet at their fair value and movements in the fair value between balance sheetdates are included in the income statement. The value of the Group's foreign exchange contracts at balance sheet dates andthe impact on the consolidated income statement are set out below: £000Value at 1 January 2006 (liability) (5)Movement in value in 6 months to 30 June 2006 (10) Value at 30 June 2006 (15)Movement in value in 6 months to 31 December 2006 19 Value at 31 December 2006 (asset) 4 (f) IAS 19 - Employee benefits IFRS has introduced more detailed guidance on recognising employee benefits inaccounts when the benefit is earned as opposed to when it is paid. The Grouphas made provision for the accrued holiday pay. This is only a factor at Junebecause all holiday must be taken by the end of December. The impact has beento decrease reported profit by £29,000 in the six months ended 30 June 2006. Reconciliation of Consolidated Balance Sheet - unaudited As at 31 December 2006 UK GAAP IFRS adjustments IFRS Goodwill R&D Asset Amortisa- Currency amortisa- capitalised reclassific- tion of contracts tion ation intangibles (a) (b) (c) (d) (e)ASSETS £000 £000 £000 £000 £000 £000 £000Non-current assetsProperty, plant and 836 - - - - - 836equipmentIntangible assets - 1,061 60 - (156) - - 965goodwillIntangible assets - - - 70 156 (156) - 70otherOther investments, - - - - - 4 4including derivativesDeferred tax assets 233 - - - - - 233 Total non-current 2,130 60 70 - (156) 4 2,108assets Current assetsInventories 2,345 - - - - - 2,345Trade and other 4,501 - - - - - 4,501receivablesCash and cash 502 - - - - - 502equivalents Total current assets 7,348 - - - - - 7,348 Total assets 9,478 60 70 - (156) 4 9,456 LIABILITIESNon-currentliabilitiesInterest-bearing loans (3,224) - - - - - (3,224)and borrowingsProvisions (121) - - - - - (121) Total non-current (3,345) - - - - - (3,345)liabilities Current liabilitiesBank overdraft (674) - - - - - (674)Interest-bearing loansand borrowings (816) - - - - - (816)Trade and other (6,537) - - - - - (6,537)payables Total current (8,027) - - - - - (8,027)liabilities Total liabilities (11,372) - - - - - (11,372) Net liabilities (1,894) 60 70 - (156) 4 (1,916) EQUITYCapital and reservesattributable to equityholdersIssued capital 6,367 - - - - - 6,367Share premium 23,255 - - - - - 23,255Reserves (includingcurrency translation) (31,516) 60 70 - (156) 4 (31,538) Total deficitattributable to equityholders of the company (1,894) 60 70 - (156) 4 (1,916) Group cashflow statement For the year ended 31 December 2006 The Group prepares the cash flow statement for both UK GAAP and IFRS using theindirect method. Consequently, adjustments made to working capital items in thebalance sheet on conversion to IFRS lead to an adjustment in the IFRS cash flowstatement. There are no significant changes between cash flows from operatingactivities, investing activities, and financing activities. No adjustments havebeen made to cash and cash equivalents, and no other adjustments have been madeto the cash flow statement on conversion. Appendix 4 Reconciliation of Consolidated Income Statement - unaudited For the 6 months ended 30 June 2006 UK GAAP IFRS adjustments IFRS Goodwill Amortisation Holiday amortisation of intangibles R&D Currency pay capitalised contracts accrual (a) (b) (d) (e) (f) £000 £000 £000 £000 £000 £000 £000 Revenue 10,422 - - - - - 10,422Cost of sales (6,820) - - - - - (6,820) Gross profit 3,602 - - - - - 3,602 Administrative expenses -reorganisation costs (419) - - - - - (419)Administrative - other (3,781) 28 (23) (156) - (29) (3,961) Administrative costs - total (4,200) 28 (23) (156) - (29) (4,380) Operating loss (598) 28 (23) (156) - (29) (778)Finance expenses (138) - - - (10) - (148) Loss before income tax (736) 28 (23) (156) (10) (29) (926)Income tax - - - - - - - Loss for the periodattributable to equityholders of the company (736) 28 (23) (156) (10) (29) (926) (a), (b), (d), (e), (f) - see Appendix 3 Reconciliation of Consolidated Balance Sheet - unauditedAs at 30 June 2006 UK GAAP IFRS adjustments IFRS Asset reclassification Goodwill R&D Amortisation Currency Holiday amortisation capitalised of contracts pay intangibles accrual (a) (b) (c) (d) (e) (f)ASSETS £000 £000 £000 £000 £000 £000 £000 £000Non-current assetsProperty, plant and 889 - - - - - - 889equipmentIntangible assets - 1,056 28 - (156) - - - 928goodwillIntangible assets - - - 91 156 (156) - - 91otherDeferred tax assets 245 - - - - - - 245 Total non-current 2,190 28 91 - (156) - - 2,153assets Current assetsInventories 2,997 - - - - - - 2,997Trade and other 4,383 - - - - - - 4,383receivablesCash and cash 26 - - - - - - 26equivalents Total current assets 7,406 - - - - - - 7,406 Total assets 9,596 28 91 - (156) - - 9,559 LIABILITIESNon-currentliabilitiesInterest-bearing (3,651) - - - - - - (3,651)loans and borrowingsDerivatives - - - - - (15) - (15) Total non-current (3,651) - - - - (15) - (3,666)liabilities Current liabilitiesBank overdraft (146) - - - - - - (146)Other (743) - - - - - - (743)interest-bearingloans and borrowingsTrade and other (7,403) - - - - - (29) (7,432)payables Total current (8,292) - - - - - (29) (8,321)liabilities Total liabilities (11,943) - - - - (15) (29) (11,987) Net liabilities (2,347) 28 91 - (156) (15) (29) (2,428) EQUITYCapital and reservesattributable toequity holdersIssued capital 6,367 6,367Share premium account 23,255 23,255Reserves (includingcurrency translation) (31,969) 28 91 - (156) (15) (29) (32,050) Total deficitattributable to (2,347) 28 91 - (156) (15) (29) (2,428)equity holders of the company (a), (b), (c), (d), (e) (f) - see Appendix 3 Reconciliation of Consolidated Balance Sheet - unaudited As at 1 January 2006 UK GAAP IFRS adjustments IFRS R&D Currency capitalised contracts (b) (e) £000 £000 £000 £000ASSETSNon-current assetsIntangible assets - goodwill 887 - - 887Property, plant and equipment 783 - - 783Intangible assets - other - 114 - 114Deferred tax assets 245 - - 245 Total non-current assets 1,915 114 - 2,029 Current assetsInventories 2,799 - - 2,799Trade and other receivables 4,417 - - 4,417Cash and cash equivalents 550 - - 550 Total current assets 7,766 - - 7,766Total assets 9,681 114 - 9,795 LIABILITIESNon-current liabilitiesInterest bearing loans and borrowings (3,964) - - (3,964)Derivatives - - (5) (5) Total non-current liabilities (3,964) - (5) (3,969) Current liabilitiesInterest-bearing loans and borrowings (605) - - (605)Trade and other payables (6,942) - - (6,942) Total current liabilities (7,547) - - (7,547) Total liabilities (11,511) - (5) (11,516) Net liabilities (1,830) 114 (5) (1,721) EQUITYCapital and reserves attributableto equity holdersIssued capital 6,224 - - 6,224Share premium account 23,198 - - 23,198Reserves (including currency translation) (31,252) 114 (5) (31,143) Total deficit attributable to equity holders (1,830) 114 (5) (1,721)of the company (b), (e) - see Appendix 3-------------------------- (1) References to IFRS throughout this document refer to the application ofInternational Financial Reporting Standards as adopted by the EU ("Adopted IFRS"), including International Accounting Standards ("IAS") and interpretationsissued by the International Accounting Standard Board ("IASB") and itscommittees, and as interpreted by any regulatory bodies applicable to the Group. 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