Pennant International Regulatory News (PEN)

24 Sep 2007 07:00

Pennant International Group PLC24 September 2007 Pennant International Group plc Interim Results for the six months ended 30 June 2007 - further significant progress; revenues, earnings and dividend all increase again Pennant International Group plc ("Pennant" or "the Company"), the AIM listedsupplier of integrated logistic support solutions to the defence and industrialsectors, including simulation and training systems, technical data services anddata management systems, announces Interim Results for the six months ended 30June 2007. Revenues, earnings per share and dividend per share all improved overthe same period last year. Highlights • Turnover up to £6.5million (2006: £5.7million)• Profit before tax up to £374,000 (2006: £354,000)• Earnings per share up to 1.1p (2006: 1.07p)• Interim Dividend per share up to 0.22p (2006: 0.2p)• All operating divisions profitable during period• Negotiations in hand to take contract for sale of property in Southampton unconditional• Several contracts increased and/or extended during period including: Hawk programmes for BAESystems; Data Services for Royal Navy Type 45 Destroyers; and the support contract for MOD equipments. In his statement to shareholders, Chairman Christopher Powell said: "I am pleased to report further progress across all divisions during the period,reflected by an increased interim dividend payment to shareholders. Your Boardwill continue its strategy to improve shareholder value by concentrating on corestrengths, identifying new customers and markets and building on establishedgood relationships with existing customers." Enquiries: Pennant International Group plc Tel: 01452 714881Chris Snook, Chief ExecutiveJohn Waller, Finance Director WH Ireland Tel: 0121 616 2101Tim Cofman Winningtons Financial Tel: 0117 920 0092Paul Vann/Tom Cooper Pennant International Group plcChairman's Interim Statement I am pleased to report further progress during the period with both revenue andearnings ahead of the first half of 2006. Sale of Property in Southampton As previously reported, in February 2006 the Group exchanged contracts,conditional upon planning consent, for the sale of property in Southampton.Following the recent grant of planning permission, negotiations are now in handto take the contract unconditional. The agreed price is not less than £747,000and the profit on sale will be in excess of £325,000. Results and Dividend These are the first results presented in compliance with International FinancialReporting Standards ('IFRS'). The comparative figures for the period to June2006 and the year to December 2006 have been restated using accounting policiesconsistent with IFRS. Turnover for the period was £6.5 million, a 14% increase over the period to June2006. The gross margin was lower due to the mix of work and start up costs on amajor contract. Profit before tax was £374,000 (June 2006: £354,000 - restated). Basic earnings per share were 1.10p (June 2006: 1.07p - restated). There was absorption of cash into working capital during the period reflectingthe timing of certain milestone payments. This has resulted in a net outflow ofcash from operations of £503,000 and an increase in net debt to £868,000.Substantial stage payments have since been approved and invoiced and workingcapital and net debt are expected to reduce substantially by the year end. Your board is declaring an increased interim cash dividend of 0.22p per share (2006: 0.20p). The dividend will be paid on 16 November 2007 to shareholders onthe register at close of business on 19 October 2007. The shares are expected togo ex-dividend on 17 October 2007. Current Trading and Prospects All operating divisions were profitable during the period. • Work continued successfully on two major Hawk programmes for BaeSystems (both of which will continue into 2008) and on a major data services contract in the naval sector for the Type 45 destroyer. • Further training devices were added to the support contract with MOD; this growth enhances the annual revenues on this contract until 2011. • An aircraft marshalling trainer was successfully delivered to RAF Cosford.. • New sales were made of OmegaPS, the Group's suite of logistic support analysis software, which also brought additions to the associated annual support revenues. • Consultancy work around the implementation and maintenance of the OmegaPS suite continued to grow, particularly in Canada. • Work continued on significant contracts in the rail sector with Kawasaki and Siemens. • Further e-learning packages were delivered to the Department of Work and Pensions. Tendering activity was high, particularly in the training arena where there aresome major new opportunities. Joint Venture Very little work is being outsourced by Airbus UK for the A380 civil aircraft,and as a result the joint venture continues to disappoint with a loss of£21,000 in the period. However, work has been won on the A400M militaryprogramme from another customer and further work is expected as work-share fromour European grouping. Outlook Your Board will continue its strategy to improve shareholder value byconcentrating on core strengths, identifying new customers and markets andbuilding on established good relationships with existing customers. The Board remains confident about the Group's future prospects and continues towork to position the Group to create and take advantage of new opportunities. C C PowellChairman PENNANT INTERNATIONAL GROUP plc CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2007 Notes Six months ended 30 Six months ended 30 Year ended 31 June 2007 June 2006 December 2006 £ £ £Revenue 6,495,123 5,697,179 11,311,954Cost of sales (4,225,355) (3,546,384) (7,196,241) Gross profit 2,269,768 2,150,795 4,115,713 Administrative expenses (1,832,645) (1,719,304) (3,375,013) Operating profit 437,123 431,491 740,700 Share of results of Joint Venture (20,720) (39,499) (67,119) 416,403 391,992 673,581 Finance costs (41,900) (38,989) (75,262)Finance income 96 1,248 7,368 Profit before taxation 374,599 354,251 605,687 Taxation 3 (30,000) (18,000) (47,087) Profit for the period 344,599 336,251 558,600 Earnings per share 4Basic 1.10p 1.07p 1.77pDiluted 1.02p 0.98p 1.65p PENNANT INTERNATIONAL GROUP plcCONSOLIDATED BALANCE SHEET as at 30 June 2007 30 June 2007 30 June 2006 31 December 2006 £ £ £Non-current assetsGoodwill 902,373 903,959 904,228Other intangible assets 30,115 51,609 43,008Property plant and equipment 2,102,094 2,027,539 2,073,213Interest in Joint Venture 69,307 42,647 60,027Available-for-sale investments 6,135 6,135 6,135Deferred tax asset 12,966 27,808 16,966Total non-current assets 3,122,990 3,059,697 3,103,577 Current assetsInventories 90,297 149,444 112,939Trade and other receivables 3,986,080 2,908,583 2,794,276Cash and cash equivalents 278,802 761,542 909,609Assets held for sale 372,522 372,522 372,522Total current assets 4,727,701 4,192,091 4,189,346 Total assets 7,850,691 7,251,788 7,292,923 Current liabilitiesTrade and other payables 2,125,159 1,974,910 1,925,922Current tax liabilities 24,729 31,114 52,791Obligations under finance leases 0 2,000 412Bank overdraft and loan 454,134 136,695 141,338Total current liabilities 2,604,022 2,144,719 2,120,463 Net current assets 2,123,679 2,047,372 2,068,883 Non current liabilitiesBank loan 692,770 839,566 763,952Obligations under finance leases 0 6,106 2,386Deferred tax liabilities 32,000 39,547 32,000Total non-current liabilities 724,770 885,219 798,338 Total liabilities 3,328,792 3,029,938 2,918,801 Net assets 4,521,899 4,221,850 4,374,122 EquityShare capital 1,600,000 3,045,400 1,600,000Share premium account 3,582,329 3,563,504 3,582,329Retained earnings (631,128) (2,362,191) (744,302)Translation reserve (29,302) (24,863) (63,905)Total equity 4,521,899 4,221,850 4,374,122 PENNANT INTERNATIONAL GROUP plc CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2007 Notes Six months ended Six months ended Year ended 31 30 June 2007 30 June 2006 December 2006 £ £ £ Net cash from/(used in) operating activities 5 (502,715) 284,266 773,120 Investing activitiesInterest received 96 1,248 7,368Proceeds on disposal of property, plant andequipment 0 0 4,507Purchase of intangible assets (11,576) (4,574) (25,585)Purchase of property plant and equipment (120,639) (94,297) (213,005)Loan to Joint Venture (30,000) 0 (45,000)Net cash used in investing activities (162,119) (97,623) (271,715) Financing activitiesDividends paid (125,828) (97,855) (161,490)Transactions in own shares (117,975) (26,974) (4,339)Repayment of borrowings (71,182) (70,091) (141,062)Repayment of obligations under finance leases (2,798) (5,013) (10,321)Increase/(decrease) in bank overdrafts 312,796 0 0Net cash used in financing activities (4,987) (199,933) (317,212) Net (decrease)/increase in cash and cashequivalents (669,821) (13,290) 184,193 Cash and cash equivalents at beginning of period 909,609 797,676 797,676 Effect of foreign exchange rates 39,014 (22,844) (72,260) Cash and cash equivalents at end of period 278,802 761,542 909,609 PENNANT INTERNATIONAL GROUP plc NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2007 1. Accounting policies Basis of preparation The next annual financial statements of Pennant International Group plc ('theGroup') will be prepared in accordance with International Financial ReportingStandards (IFRS) as adopted for use in the EU applied in accordance with theprovisions of the Companies Act 1985. Accordingly, the interim financial information in this report has been preparedusing accounting policies consistent with IFRS. IFRS is subject to amendment andinterpretation by the International Accounting Standards Board (IASB) and theInternational Financial Reporting Committee (IFRIC) and there is an ongoingprocess of review and endorsement by the European Commission. The financialinformation has been prepared on the basis of IFRS that the Directors expect tobe applicable as at 31 December 2007. The principal accounting policies set out below have been consistently appliedto all periods presented. IFRS transition IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theinterim financial information has been prepared on the basis of the followingexemptions: • Business combinations prior to January 2006 have not been restated to comply with IFRS 3 'Business Combinations' • The Group has elected to deem the cumulative currency translation differences on its net investments in foreign operations to be £nil as at 1 January 2006. • The Group has elected to use a previous UK GAAP valuation of an item of Property, Plant and Equipment, before the date of transition to IFRS as deemed cost at the date of that valuation. • The Group has applied IFRS 2 'Share-based payments' except to those equity settled awards that were granted on or before 7 November 2002. The disclosures required by IFRS 1 concerning the transition from UK GAAP toIFRS are given at note 6 Non-statutory accounts The financial information for the year ended 31 December 2006 set out in thisinterim report does not comprise the Group's statutory accounts as defined insection 240 of the Companies Act 1985. The statutory accounts for the year ended 31 December 2006, which were preparedunder UK GAAP, have been delivered to the Registrar of Companies. The auditorsreported on those accounts; their report was unqualified and did not contain astatement under either section 237 (2) or section 237 (3) of the Companies Act1985. The financial information for the 6 months ended 30 June 2007 and 30 June 2006is unaudited Basis of consolidation The financial information incorporates the results of the Company and entitiescontrolled by the Company (its subsidiaries). Control is achieved where theCompany has power to govern the financial and operating policies of the investeeentity so as to obtain benefits from its activities. Where necessary, adjustments are made to the results of subsidiaries to bringaccounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations and goodwill On acquisition, the assets and liabilities and contingent liabilities of thesubsidiaries are measured at their fair values at the date of acquisition. Anyexcess of cost of acquisition over fair values of the identifiable net assetsacquired is recognised as goodwill. Any deficiency of cost of acquisition belowthe fair value of the identifiable net assets acquired (i.e. discount onacquisition) is credited to profit and loss account in the period ofacquisition. Goodwill arising on consolidation is recognised as an asset andreviewed for impairment at least annually. Any impairment is recognisedimmediately in the profit and loss account and is not subsequently reversed. Interest in Joint Venture The results and assets and liabilities of joint ventures are incorporated usingthe equity methods of accounting. Investments in joint ventures are carried inthe balance sheet at cost as adjusted by post acquisition changes in the Group'sshare of the net assets of the joint venture less any impairment in the value ofthe individual investments. Losses of a joint venture in excess of the group'sinterest in that joint venture are not recognised. Revenue recognition 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 has passed. Revenue from construction contracts is recognised in accordance with the Group'saccounting policy on constructions contracts (see below). Construction contracts Where the outcome of a construction contract can be estimated reliably, revenueand costs are recognised by reference to the stage of completion of the contractactivity at the balance sheet date. This is normally measured by the proportionthat contract costs incurred for work performed to date bear to the estimatedtotal contract costs, except where this would not be representative of the stageof completion. Variations in contract work, claims and incentive payments areincluded to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably,contract revenue is recognised to the extent of contract costs incurred where itis probable they will be recoverable. Contract costs are recognised as expensesin the period in which they are incurred. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. Foreign currency The individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed in poundssterling, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at rates of exchange prevailing on the dates of the transactions.At the balance sheet date, monetary assets and liabilities that are denominatedin foreign currencies are retranslated at the rates prevailing on the balancesheet date. Non-monetary items carried at fair value that are denominated inforeign currencies are translated at the rates prevailing at the date when thefair value was determined. Non-monetary items that are measured in terms ofhistorical cost in foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in the profit and loss account for the period exceptfor differences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such monetaryitems, any exchange component of the gain or loss is also recognised directly inequity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated atthe average exchange rates for the period, unless exchange rates fluctuatesignificantly during the period, in which case the exchange rate at the date oftransactions are used. Exchange differences arising, if any, are classified asequity and transferred to the group's translation reserve. Such translationdifferences are recognised as income and expense in the period in which theoperation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rates. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from the net profits as reported on the income statement becauseit excludes items of income and expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. 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 generally recognised for all temporary differences anddeferred tax assets are recognised to the extent that it is probable that thetaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for temporary differences arising oninvestments in subsidiaries, and interest in joint ventures, except where theGroup is able to control the reversal of the temporary differences and it isprobable that the temporary differences will not reverse in the foreseeablefuture. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or at least realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe group intends to settle its current tax assets and liabilities on a netbasis. Share-based payment The group issues equity-settled share based payments to certain employees.Equity-settled share based payments are measured at fair value (excluding theeffect of non market-based vesting conditions) at the date of grant. The fairvalue determined at the date of grant is expensed on a straight-line basis overthe vesting period, based on the Group's estimate of shares that will eventuallyvest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of the binomial model. The expected life used inthe model has been adjusted, based on management's best estimate, for theeffects of non-transferability, exercise restrictions and behaviouralconditions. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Depreciation is charged to write off the cost of assets over their estimateduseful lives on the following bases: Freehold land NilFreehold buildings Net book value at 1 January 2007 being written off over 35 years on a straight line basis. (previouslyShort leasehold buildings 1% per annum on cost or valuation) Long leasehold buildingsPlant and equipment 10% to 25% of written down value per annumComputers 331/3% of cost per annumMotor vehicles 25% of cost per annum Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs andoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Net realisable value represents the estimated sellingprice less all estimated costs of completion and costs to be incurred inmarketing, selling and distribution. Financial instruments Financial assets and liabilities are recognised in the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are measured at initial recognition at fair value, andsubsequently measured at amortised cost using the effective interest ratemethod. A provision is established when there is objective evidence that thegroup will not be able to collect all amounts due. The amount of any provisionis recognised in the income statement. Investments Available-for-sale investments are initially measured at cost, includingtransaction costs. At subsequent reporting dates available-for-sale investmentsare measured at fair value or cost where fair value is not readilyascertainable. Gains and losses arising from changes in fair value arerecognised directly in equity until the investment is disposed of or isdetermined to be impaired, at which time the cumulative gain or loss recognisedpreviously in equity is included in the income statement for the period. Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short term bankdeposits with an original maturity date of three months or less. Trade payables Trade payables are initially measured at fair value, and subsequently measuredat amortised cost, using the effective interest rate method. Financial liabilities Financial liabilities and equity instruments issued by the Group are classifiedin accordance with the substance of the contractual arrangements entered intoand the definition of a financial liability and an equity instrument. An equityinstrument is any contract that evidences a residual interest in the assets ofthe Group after deducting all of its liabilities. Equity instruments issued bythe company are recorded at the proceeds received, net of direct issue costs. Bank borrowings Interest bearing bank loans, overdrafts and other loans are recorded at theproceeds received, net of direct issue costs. Finance costs are accounted for onthe accruals basis in the income statement using the effective interest rate. 2. Critical accounting judgements and key sources of estimation uncertainty The preparation of financial information in conformity with generally acceptedaccounting practice requires management to make estimated and judgements thataffect the reported amounts of assets and liabilities as well as the disclosureof contingent assets and liabilities at the balance sheet date and the reportedamounts of revenues and expenses during the reporting period. Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. The significant judgementsmade by management in applying the Group's accounting policies and the keysources of estimation uncertainty were: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value inuse of the cash-generating units to which goodwill has been allocated. The valuein use calculation requires the group to estimate the future cash flows expectedto arise from the cash-generating unit and a suitable discount rate in order tocalculate the present value. No provision for impairment was made in the period. 3. Taxation Six months ended 30 Six months ended 30 Year ended 31 June 2007 June 2006 December 2006 £ £ £Current tax 26,000 18,000 51,855Deferred tax 4,000 0 (4,768) Total expense for the period 30,000 18,000 47,087 4. Earnings per share Six months ended 30 Six months ended 30 Year ended 31 June 2007 June 2006 December 2006 £ £ £EarningsNet profit attributable to equityshareholders 344,599 336,251 558,600 Number of sharesWeighted average number of ordinaryshares 31,426,167 31,557,786 31,611,500Number of dilutive shares under option 2,247,500 2,757,500 2,207,500Weighted average number of ordinaryshares for the purpose of dilutiveearnings per share 33,673,667 34,315,286 33,819,000 The calculation of diluted earnings per share assumes conversion of allpotentially dilutive ordinary shares, all of which arise from share options. 5. Cash generated from/(used in) operations Six months ended 30 Six months ended 30 Year ended 31 June 2007 June 2006 December 2006 £ £ £ Profit for the period 344,599 336,251 558,600Share of results of Joint Venture 20,720 39,499 67,119Finance income (96) (1,248) (7,368)Finance costs 41,900 38,989 75,262Income tax expense 30,000 18,000 47,087Share-based payment expense 12,378 8,000 17,965Depreciation charge 117,401 92,000 191,935Loss on sale of property, plant andequipment 0 0 2,092 Operating cash flows before movement inworking capital 566,902 531,491 952,692 (Increase)/decrease in debtors (1,191,946) (630) 112,435Decrease in inventories 22,642 51,388 87,893Increase/(decrease) in creditors 199,237 (233,399) (282,387) Cash generated from/(used in) operations (403,165) 348,850 870,633 Tax paid (57,650) (25,595) (22,251)Interest paid (41,900) (38,989) (75,262) Net cash (used in)/generated fromoperations (502,715) 284,266 773,120 6. Transition to IFRS Pennant International Group plc reported under UK GAAP in its previouslypublished financial statements for the year ended 31 December 2006. The analysisbelow shows a reconciliation of equity and profits as reported under UK GAAP asat 31 December 2006 to the revised equity and profits under IFRS as reported inthese financial statements. In addition, there is a reconciliation of equityunder UKGAAP to IFRS at the transition date for this company, being 1 January2006. There is also a reconciliation of equity under UK GAAP to IFRS at thecomparative interim date, being 30 June 2006. Reconciliation of equity Notes As at 31 As at 30 As at 1 December 2006 June 2006 January 2006 £ £ £Equity shareholders' funds under UKGAAP 4,335,421 4,178,150 4,010,829Adjustments:Goodwill (a) 66,974 25,375 0Negative goodwill (b) 0 48,462 48,462Assets held for resale (c) 3,726 1,863 0Deferred tax (d) (32,000) (32,000) (32,000)Equity shareholders' funds under IFRS 4,374,121 4,221,850 4,027,291 Explanation of adjustments to equity (a) Goodwill Under UK GAAP, capitalise goodwill was amortised over its useful economic life.Under IFRS, this goodwill is no longer amortised but is tested at least annuallyfor impairment. The impairment tests carried out by the Group have identified noimpairment loss. The adjustments to the carrying amount of goodwill are as follows: 31 December 2006 30 June 2006 £Reversal of amortisation 68,696 27,720Currency translation differences (1,722) (2,345) 66,974 25,375 (b) Negative goodwill The Group carried negative goodwill of £48,462 in its balance sheet preparedunder UK GAAP at 1 January 2006. This balance was credited to profit and lossaccount under UK GAAP in 2006. Under IFRS negative goodwill is written off immediately to profit and lossaccount. The balance carried at 1 January 2006 (the date of transition) hastherefore been derecognised at that date and credited to retained earnings. The £48,462 credit to profit and loss account in 2006 under UK GAAP has beenreversed in the income statement prepared under IFRS. (c) Assets held for resale IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' requiresthat any asset held for sale is recognised as a current asset in the balancesheet. This has resulted in a reclassification between non-current assets andcurrent assets of £372,522 at the date of transition being the carrying amountat 1 January 2006 of property in Southampton that is subject to a conditionalcontract for sale. IFRS 5 also requires that assets held for sale are not depreciated. Accordinglydepreciation previously charged under UK GAAP has been reversed. (d) Deferred Tax Under UK GAAP deferred tax was provided on timing differences between theaccounting and taxable profit (and income statement approach). Under IFRS,deferred tax is provided on temporary differences between the book carryingvalue and tax base of assets and liabilities (a balance sheet approach). Under UK GAAP the Group did not provide for deferred tax on the amount of therevaluation of certain property on the basis that there was no binding agreementto sell the property. Under IFRS the difference between the carrying amount of are-valued asset and its tax base is deemed to be a temporary difference andgives rise to a deferred tax liability. Accordingly at the transition date adeferred tax provision of £32,000 has been setup and equity reduced by acorresponding amount. Reconciliation of profit for the year ended 31 December 2006 UK GAAP IAS 21 IAS 11 IFRS 3 IFRS 5 presented in Foreign Construction Goodwill Assets held Restated IFRS format exchange contracts for resale under IFRS Notes (c) Note (a) Note(b) & (d) Note (e) £ £ £ £ £ £ Revenue 11,262,322 152,319 (102,687) 11,311,954 Cost of sales (7,204,381) (94,547) 102,687 (7,196,241) Gross profit 4,057,941 57,772 0 4,115,713 Administration expenses (3,368,818) (30,155) 20,234 3,726 (3,375,013) Operating profit 689,123 27,617 0 20,234 3,726 740,700 Share of results of (67,119) (67,119)Joint venture 622,004 27,617 0 20,234 3,726 673,581 Finance costs (75,237) (25) (75,262)Finance income 7,258 110 7,368 Profit before tax 554,025 27,702 0 20,234 3,726 605,687 Taxation (44,334) (2,753) (47,087) Profit for the period 509,691 24,949 0 20,234 3,726 558,600 Reconciliation of profit for the six months ended 30 June 2006 IFRS 5 UK GAAP IAS 21 IAS 11 IFRS 3 Assets presented in Foreign Construction held for Restated IFRS format exchange contracts Goodwill resale under IFRS Notes (c) Note (a) Note(b) & (d) Note (e) £ £ £ £ £ £ Revenue 5,782,031 21,013 (105,865) 5,697,179 Cost of sales (3,640,938) (11,311) 105,865 (3,546,384) Gross profit 2,141,093 9,702 0 2,150,795 Administration expenses (1,742,511) (6,376) 27,720 1,863 (1,719,304) Operating profit 398,582 3,326 0 27,720 1,863 431,491 Share of results of Joint (39,499) (39,499)venture 359,083 3,326 0 27,720 1,863 391,992 Finance costs (38,984) (5) (38,989)Finance income 1,217 31 1,248 Profit before tax 321,316 3,352 0 27,720 1,863 354,251 Taxation (18,000) (18,000) Profit for the period 303,316 3,352 0 27,720 1,863 336,251 Explanation of adjustments to profit (a) Foreign currencies Under UK GAAP the profit and loss accounts of foreign subsidiaries wereconverted to pounds sterling for consolidation purposes at the year end rate.Under IFRS income and expenses have been translated at the average rate for theperiod. This change has resulted in an increase in group profits for the halfyear to June 2006 and for the full year to 31 December 2006 of £3,352 and£24,949 respectively. (b) Construction contracts Under UK GAAP the Group valued construction contracts by reference to the stageof contract activity at the balance sheet date as required by IFRS. However, forcertain small contracts the Group adjusted the movement of amounts due fromcontract customers against cost of sales rather than revenue. In the IFRS incomestatement this movement has been transferred and accounted for as revenue inaccordance with IAS11. This adjustment has no affect on profits. (c) Goodwill Under UK GAAP, capitalise goodwill was amortised over its useful economic life.Under IFRS, this goodwill is no longer amortised but is tested at least annuallyfor impairment. The impairment tests carried out by the Group have identified noimpairment loss and the amortisation provided under UK GAAP has been reversed. The adjustments to profits are as follows: 31 December 2006 30 June 2006 £ £Reversal of amortisation 68,696 27,720Reversal re negative goodwill (see (d) below) (48,462) 0 20,234 27,720 (d) Negative goodwill The Group carried negative goodwill of £48,462 in its balance sheet preparedunder UK GAAP at 1 January 2006. This balance was credited to profit and lossaccount under UK GAAP in 2006. Under IFRS negative goodwill is written off immediately to profit and lossaccount. The balance carried at 1 January 2006 (the date of transition) hastherefore been derecognised at that date and credited to retained earnings. The £48,462 credit to profit and loss account in 2006 under UK GAAP has beenreversed in the income statement prepared under IFRS. (e) Assets held for resale IFRS 5 requires that assets held for sale are not depreciated. Accordinglydepreciation previously charged under UK GAAP has been reversed. Explanation of adjustments to Cash flow statement The Group's cash flow statements are presented in accordance with IAS7. Thestatements present substantially the same information as that required under UKGAAP, with the following principal exceptions: • Under UK GAAP, cash flows are presented under nine standard headings, whereas IFRS requires the classification of cash flows resulting from operating, investing and financing activities. • The cash flows reported under IAS 7 relate to movements in cash and cash equivalents, which include short term liquid investments. Under UK GAAP, cash comprises cash in hand and deposits repayable on demand. This information is provided by RNS The company news service from the London Stock Exchange