SIR.L Regulatory News (SIR)

30 Apr 2007 07:03

Sirius Financial Solutions PLC30 April 2007 30 April 2007 Sirius Financial Solutions PLC Operating profit up 22% and EPS up 71% Sirius Financial Solutions, the specialist supplier of software and services tothe insurance and financial services industry worldwide, today announces itspreliminary results for the year ended 31 December 2006 in accordance withInternational Financial Reporting Standards. FINANCIAL HIGHLIGHTS • Group turnover of £23.7m (2005: £21.8m) up 9%• Operating profit (before 2005 property related costs) up 22% to £2.5m (2005: £2.0m), ahead of the board's expectations• Recurring revenues remained strong at £8.9m (2005: £8.7m)• Operating margins improve to 10.4%• Basic earnings per share up 71% to 9.9p (2005: 5.8p)• Proposed final dividend up 10% to 1.375p per share (2005: 1.25p)• Operating cash flows of £1.3m (2005: £0.8m) OPERATIONAL HIGHLIGHTS • Appointment of Duncan Macmillan as COO to senior management team• Continued shift in emphasis from one-off licence sales to services, renewable term licenses.• Strong order book for professional services and development• Continued sales of the Sirius for Insurance product with six new win sales in the year• Launch of Nexus in September 2006, the integrated schemes trading model• Continued expansion of Sirius 21 - 91 systems sold during the year and more than 160 sites are live Stephen Verrall, Chairman and Group Chief Executive of Sirius FinancialSolutions, said: "We have had another good year which has resulted in a strong financialperformance particularly as we continued to improve our operating margins at thesame time as growing revenues. We have started the year strongly and secured anumber of notable wins across all our product areas." Enquiries Sirius Financial Solutions 0121 779 8400Stephen Verrall/ Richard Bowser College HillAdrian Duffield/Ben Way 020 7457 2020 Brewin Dolphin Securities LimitedIfor Williams 0121 236 7000 CHAIRMAN'S STATEMENT Review of Results In 2003 the Group embarked on a defined programme to improve both operatingmargins, and the visibility and sustainability of its revenues. The Board istherefore very pleased to report an improvement in all of these measures for thefourth consecutive year. On turnover of £23.7m (2005: £21.8m) up 9%, operating profit was ahead of theBoard's expectations at £2.5m (2005: £2.0m pre the one-off property relatedcosts), 22% up on 2005. Earnings per share at 9.9p (2005: 5.8p) reported a 71 %increase on 2005, and after interest and tax, profit for the year was £1.7m(2005: £1.0m). The Group ended the year with positive cash balances as the business continuedto generate operating cash inflows, which for the year amounted to £1.3m (2005:£0.8m). Subsequent to the year end cash balances have improved significantlywith net cash at the end of March of £2.5m. The Board propose a final dividend of 1.375p per share (2005: 1.25p) whichcombined with the interim dividend represents a full year dividend up 10% at1.925p (2005: 1.75p). The Group's turnover for the year was supported by recurring revenues of £8.9m,37.6% of total revenues (2005: £8.7m). At the beginning of 2006, we set out our strategic objectives for the year. Weare pleased to be able to report progress against all of them. In 2006 theyincluded: • A shift in emphasis from one-off licence sales to services,recurring revenues and renewable term licences. Nearly all of the new winscontracted in 2006 were sold as term licences - typically over a four year termthus providing the opportunity for renewal at the end of the term. • Improved productivity in the professional services and supportareas of the business through further growth in the Sirius owned and manageddevelopment centre in India. • Continued sales of the Sirius for Insurance product with six newwin sales in the year. • The launch of an integrated schemes trading model - Nexus waslaunched on September 16th, and is being marketed through an innovative businessmodel which should significantly increase our transaction-driven recurringrevenues in 2008 and beyond. • Ongoing expansion of Sirius 21. In 2006 we sold a further 91Sirius 21 systems and currently more than 160 sites are live. Our wholly owned Sirius development centre in Delhi has now been operating fornearly three years and currently has 60 staff. The success of this off shoringstrategy continues to represent a key component in our drive to control the costbase and hence improve the margins across all of our sales lines. PRINCE'S TRUST During the year Sirius continued to support, as Patrons, The Prince's Trust -the UK charity which helps transform the lives of disadvantaged young people. Iam delighted to report that the Insurance Leadership Group (ILG), which Siriuswas instrumental in launching, has been tremendously successful and now boasts35 members from within the industry with well over £2m pledged. BUSINESS REVIEW Since 2005 the Group has operated under the simplified structure of two businessunits: Intermediary Systems and Insurance Systems which now incorporates SiriusWeb Services. Intermediary Systems Intermediary Systems represents all revenue derived from the sale and support ofthe Sirius for Broking application to insurance intermediaries of all sizes. Itis also responsible for the insurance distribution operation, which develops andsupports product distribution between insurers and broking customers. Turnover for this unit was £9.9m (2005: £10.2m). As in previous yearsIntermediary sales are now supported by 4 year term contract renewals. In 2006this accounted for £1.0m of licence renewal alone. A similar trend is expectedin future years. The broking product continues to be sold predominantly in the UK. Sirius 21 (Sirius for Broking) Sirius for Broking continues to attract new customers and the Sirius 21 elementof the Broking application has now been deployed to over 3000 users. At the beginning of 2005 we re-launched our Sirius for Broking product under theSirius 21 brand. Sirius 21 adopts the Managed Service Provision (MSP) hosteddeployment method. By the end of 2006 we had achieved 176 sales with 140 livesites compared to 71 sites live a year ago. As a result we continue to benefitfrom reduced costs of maintenance and a reduction in low margin third partysoftware and hardware. Sirius 21 continues to maintain our competitive edge with one in six systemssold displacing our competitors. All Sirius 21 customers support our financialmodel of term revenues. The UK broker market continues to experience significant consolidation andSirius 21 is well placed to ease the IT burden and make savings for all in thebroker market regardless of size. During the first half, Sirius 21 agreed a major contract win with TowergatePartnership, the UK's leading privately-owned insurance intermediary, whichsigned a two-year contract to migrate 800 users within Towergate's commerciallines business onto Sirius 21.The deployment of this project has progressed wellduring the year and into 2007. In September, we launched the next phase of our Sirius 21 strategy - Nexus. Thiswill aim to further strengthen the value of the offering to our customers byenhancing their ability to compete in the area of e-commerce. Insurance 'schemes' - which are designed for niche markets such as road haulage and letproperty - are a highly-profitable and growing business for brokers. The UK hasmore than 3,000 broker-led schemes. This accounts for over £1.5bn in annualpremiums for the top-four insurers alone. We believe that this will enable usto build on the asset we have in Sirius 21 and will add transaction revenues incoming years. The growing Sirius 21 customer base will allow the emergence of a Nexus tradingcommunity. In particular, this will enable a significant number of specialistschemes which are traded by many Sirius customers to be easily distributed toother Sirius 21 customers via the trading platform. This also permits insurersto make scheme products directly available to the Sirius 21 community andsignificantly cut the cost of distribution for all in the cycle. Sirius willearn a percentage of Gross Written Premium for business placed through this newservice. Sirius Web Services is becoming a critical tool in supporting the way brokerstrade with their market and customers. As well as offering creative web design,development and deployment in the "business-to-business" and consumerenvironments, we are now leading the way with integration into the insuranceindustry owned portal (iMarket) enabling brokers to trade SME products withsingle key entry to iMarket owners; Norwich Union, Royal & Sun Alliance, Zurich,Allianz Cornhill, AXA and Groupama. Insurance Systems During the year the business unit generated £13.8m of revenues (£11.6m 2005). Insurance Systems is responsible for the sale, deployment and support of: • The Sirius for Insurance application for insurers, underwriters and underwriting agencies • The Swift application for financial services organisations • Sirius Web Services with its increasing focus on full web integration of our core products to provide on line servicing Product deployments from this business unit include the UK, North America,Australasia, the Caribbean, Africa, and the Far East. In 2006, this wassuccessfully extended into South Africa and India. Sirius for Insurance We now have over 40 Sirius for Insurance (S4I) sites worldwide and 2006 has seenextensive rollout of product and successful "go lives". In one month alone weimplemented four new customers across four continents. In total 12 sites wentlive during the year, four of which are based in Australasia: The MedicalIndemnity Protection Society (MIPS), Calliden (a tailored insurance provider),AIIL in Melbourne and QBE - Asia Pacific's first Sirius for Insurancedeployment. Other sites were Reliance (India), NEM, Island Heritage andInsurance Company of Barbados (Caribbean) and Royal Insurance Malawi and RoyalKenya (Africa), BPIS and PlusOne. Sirius for Insurance (S4I) continued to make good progress on the new businessfront, with six new deals during the year. The hosted offering, for S4I, hasalso been successfully delivered to UK client Primary General Insurance.Noteworthy wins include Commitment Protection in the UK and Physicians LiabilityInsurance and Company Oklahoma (PLICO) in the US. During the second half of theyear Sirius also achieved success with a win at QBE, this time for their coreoperation in New Zealand. Swift Our hosted financial advisor product, Swift 21, generated a number of additionalsales during the year including Keay Insurance, Harris & Ford, MIC (GB) Ltd,David Roberts & Partners and Perry Appleton. On top of this, Openwork, theZurich supported multi-tied network for financial advisers, has gone live with aSwift network serving more than 2,300 professional advisers - one of the UK'slargest Swift deployments whilst at SJP Swift has now been deployed to 1000users. Lorica went live in 2006 and Skipton Contract Enquiry has now beendelivered providing connectivity with five insurers. Pointon York SIPPSolutions signed a contract in 2006 and went live in Q1 2007. The Financial Adviser business around Swift has cemented its leadership in theupper echelons of this marketplace with the start of a roll-out to the entireSJP adviser community and success with the project at Openwork, the new venturearising from Zurich. The Openwork solution will service over 2,300 advisers andis by far the most significant implementation of its type in the UK for manyyears. With Swift 21, the Managed Service Platform now deployed at Buckles anda new release of Swift under construction containing substantial functionalitysupporting "Straight Through Processing" to insurers, this business is wellplaced for the coming year. Sirius Web Services Sirius Web Services is an interactive communications service provider, offeringcreative web design, development and deployment in the business-to-business andconsumer environments. This business unit continued to contribute a healthyprofit to Sirius capitalising on increasing demand for internet solutions. 2006 saw the result of investment in this arena with truly integrated on lineinsurance delivery. Quotation, policy issuance and servicing on the web is nowseamlessly integrated with Sirius insurance and financial adviser applications.With ACE, Lion of Africa, Island Heritage, Commitments Protection and Relianceas key clients, the on-line proposition continues to evolve positively. This business will continue to create many new opportunities for the WebServices offering in the wider Sirius customer base through the Nexusinitiative. In addition to insurance web solutions Sirius Web Services continues to providea full range of services to organisations such as Astra Zeneca and Coors and weare pleased to have been able to add Rolls Royce to our client list at the startof 2006. FINANCE REVIEW Summary of Group performance On turnover up by 9% to £23.7m, the Group has considerably improved its marginat net operating profit level. Operating profit increased by 22% (before 2005'sone-off property-related costs) and by 92% (after these costs) to £2.5m. Insummary this has been achieved by: • Ongoing focus on cost base • The expansion of new MSP revenues which have and will continue to enhance both margins and recurring revenues • Further extension to our Indian off-shore development facility with a reduction in costs and improved productivity • The sizeable growth in S4I maintenance revenues improving marginal profitability. Operating profit margins (before goodwill amortisation, and one-off propertyrelated costs) have now improved for 4 successive years to over 10% (2005 9.7%). Taxation The Group's effective tax rate for the year was 27% (2005: 17%) of profit beforetax. A full analysis of the taxation charge for the year is set out in thenotes to the consolidated financial statements. EPS Basic earnings per share ('EPS') for the year at 9.9p (2005: 5.8p) represents anincrease of 71% on the prior year. The calculation of basic earnings perordinary share is based on profits of £1,732,194 (2005: £1,002,813) and on17,540,501 (2004: 17,410,126) ordinary shares, being the weighted average numberof ordinary shares in issue during the year. Dividends In addition to the interim dividend of 0.55p (2005: 0.5p) per ordinary sharepaid on 20 October 2006, the Directors recommend a final dividend of 1.375p(2005: 1.25p) per ordinary share to shareholders on the register on 25 May 2007,payable on 22 June 2007. Cash and Treasury The Group ended the year with a positive cash balance. Operating cash inflowsof £1.3m (2005: £0.8m) were used to fund the acquisition of the minorityshareholding in Sirius New Zealand Limited (formerly Sirius Datasure Limited)during the year, which is now a wholly owned subsidiary of the Group.Additional investment in the expansion and improvement to our Sirius 21 hostedservices was also made during the year being part funded through operating cashand part via finance leases. International Financial Reporting Standards As a Group listed on the Alternative Investment Market (AIM), we are required toreport under International Financial Reporting Standards ('IFRS') in preparingconsolidated accounts for accounting periods beginning on or after 1 January2007. The Group has chosen to adopt these standards early. The results for theGroup for the year and the comparative year have therefore been stated inaccordance with IFRS. The financial statements of Sirius Financial SolutionsPlc (the company) are continued to be prepared under UK GAAP. The effects of the restatement of the Group's 2005 financial statements and thereconciliations to UK GAAP are included in note 10. As a result of the adoptionof IFRS, we have been required to; - review goodwill for impairment annually rather than amortising- recognise a holiday pay accrual- recalculate lease charges on property with rent free periods A charge has been recognised this year and in the restated comparatives forshare-based payments. Whilst this charge is required in accordance with IFRS,this charge would have been recognised this year in accordance with the UK GAAPstandard FRS 20 'Share-based Payments'. The change to IFRS has had no material impact on the group's distributablereserves or ability to pay dividends. UK Accounting Standards During 2004, the Accounting Standards Board issued; FRS 20 "Share-based Payments" effective from 1 January 2006. The company has adopted this FinancialReporting Standard in the company financial statements. Adoption of FRS 20 hasa prior year impact which is detailed in the notes to the company financialstatements. Employees The Board would like to record its appreciation of our employees who continue todemonstrate considerable commitment and skill in pursuing the Group's vision formarket leadership. Increasingly, our investment in professional developmentincludes our Indian colleagues with regular training and integration visits tothe UK. As the numbers in India increase, we will continue this commitment bysending UK staff on visits and secondments to our Delhi office. During the year we further strengthened the senior management team with theappointment of Duncan Macmillan to the role of Chief Operating Officer. Outlook for 2007 With net operating margins in 2006 exceeding 10%, in 2007 we intend to continuethis improvement with a longer term objective of 15% operating margins. The outlook for Sirius in 2007 is supported by a confident start with notablenew win sales in all three product areas of the business and a strong order bookfor professional services and development. The launch of Nexus will provideextensive web enablement to our customers and whilst this will not be a majorprofit contributor in 2007, it will lay down the foundation for futuretransaction revenues in 2008 and beyond. Stephen J VerrallChairman and Group Chief Executive27 April 2007 Sirius Financial Solutions PlcCONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2006 2006 2005 £ £ Revenue 3 23,723,417 21,780,968 Cost of sales (13,019,929) (11,843,307) Gross profit 10,703,488 9,937,661 Distribution costs (2,394,171) (2,408,798) Administrative expenses:- depreciation and amortisation of intangibles (630,597) (492,798)- one-off property related costs 5 - (742,604)- other (5,199,183) (5,002,248) - total administrative expenses (5,829,780) (6,237,650) Operating profit pre one-off property related costs 2,479,537 2,033,817One-off property related costs 5 - (742,604) Operating profit 2,479,537 1,291,213 Investment income 35,375 26,148Finance costs (123,070) (88,109) Profit before tax 2,391,842 1,229,252 Tax 7 (655,538) (213,916) Profit for the financial year 6 1,736,304 1,015,336 Attributable to:Equity holders of the parent 1,732,194 1,002,813Minority interests 4,110 12,523 Profit for the financial year 6 1,736,304 1,015,336 Earnings per share: 9- basic 9.9p 5.8p- diluted 9.7p 5.7p Sirius Financial Solutions PlcCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITYfor the year ended 31 December 2006 2006 2005 £ £ Profit for the financial year 1,736,304 1,015,336Exchange differences on translation of foreign operations (138,325) 79,926 Total recognised income and expense for the year 1,597,979 1,095,262Acquisition of minority interest during the year 13,074 -Dividends paid (315,499) (260,832)Shares issued net of expenses and amounts accrued 104,153 94,610Credit to equity for share-based payment 88,105 44,678Deferred tax to equity for share-based payment 26,861 40,107 Total movements in equity during the year 1,514,673 1,013,825 Equity at 1 January 12,282,210 11,268,385 Equity at 31 December 13,796,883 12,282,210 Sirius Financial Solutions PlcCONSOLIDATED BALANCE SHEETat 31 December 2006 2006 2005 Notes £ £Non-current assets Intangible assets 6,397,840 6,084,504Property, plant and equipment 2,034,198 1,607,006Trade and other receivables 629,524 530,282Deferred tax 296,420 396,597 9,357,982 8,618,389 Current assetsInventories 6,071 3,695Trade and other receivables 10,266,770 9,648,975Cash and cash equivalents 344,005 651,105 10,616,846 10,303,775 Current liabilitiesTrade and other payables (3,525,618) (2,964,049)Current tax liabilities (582,987) (667,766)Obligations under finance leases (231,490) (122,645)Provisions (94,424) (185,136)Bank loans and overdrafts - (149,843)Deferred income (1,310,426) (2,272,669) (5,744,945) (6,362,108) Net current assets 4,871,901 3,941,667 Total assets less current liabilities 14,229,883 12,560,056 Non-current liabilities Long-term provisions (188,848) (185,136)Obligations under finance leases (223,632) (91,984)Other payables - (726)Deferred tax (20,520) (433,000) (277,846) Net assets 13,796,883 12,282,210 Equity Share capital 178,101 176,767Share premium account 4,588,756 4,485,937Merger reserve 5,891,572 5,891,572Translation reserve (58,399) 79,926Retained earnings 3,196,853 1,665,192 Equity attributable to equity holders of the parent 13,796,883 12,299,394 Minority interests - (17,184) Total equity 13,796,883 12,282,210 Sirius Financial Solutions PlcCONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2006 As restated 2006 2005 Notes £ £ Net cash from operating activities 1,323,667 802,853 Investing activitiesInterest received 35,375 26,148Interest element of finance lease rental payments (24,593) (18,174)Purchases of property, plant and equipment (1,200,416) (731,809)Proceeds on disposal of property, plant and equipment 8,055 4,818Expenditure on product development - (68,400)Acquisition of subsidiary undertaking (213,548) (64,917) Net cash used in investing activities (1,395,127) (852,334) Financing activitiesDividends paid 8 (315,499) (260,832)Proceeds on issue of shares 104,153 94,610Repayment of long-term loans (150,000) (112,500)Proceeds on issue of finance leases 420,552 -Repayment of capital element of finance leases (180,407) (122,645) Net cash used in financing activities (121,201) (401,367) Net decrease in cash and cash equivalents (192,661) (450,848) Cash and cash equivalents at beginning of year 651,105 1,063,918Effect of foreign exchange rate changes (114,439) 38,035 Cash and cash equivalents at end of year 344,005 651,105 NOTES TO THE ACCOUNTSat 31 December 2006 1. BASIS OF PREPARATION The financial information set out above does not constitute the full statutoryaccounts of Sirius Financial Solutions Plc for the years ended 31 December 2006and 31 December 2005 respectively, but is derived from those accounts.Statutory accounts for 2005 have been delivered to the Registrar of Companies asprepared in accordance with UK GAAP. Statutory accounts for 2006 will bedelivered following Sirius Financial Solutions' Annual General Meeting on 14June 2007. The auditors have reported on those accounts; their reports wereunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs) for the first time. The disclosuresrequired by IFRS 1 concerning the transition from UK GAAP to IFRSs are given innote 10. The financial statements have also been prepared in accordance withIFRSs as adopted by the European Union and therefore comply with Article 4 ofthe EU IAS Regulation. The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe company and entities controlled by the company (its subsidiaries) made up to31 December each year. Control is achieved where the company has power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination andthe minority's share of changes in equity since the date of the combination.Losses applicable to the minority in excess of the minority's interest in thesubsidiary's equity are allocated against the interests of the group except tothe extent that the minority has a binding obligation and is able to make anadditional investment to cover the losses. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe group. No profit or loss account is presented for Sirius Financial Solutions Plc aspermitted by Section 230 of the Companies Act 1985. All intra group transactions, balances, income and expenses are eliminated onconsolidation. Business Combinations The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at thedate of exchange, of assets given, liabilities incurred or assumed, and equityinstruments issued by the group in exchange for control of the acquiree, plusany costs directly attributable to the business combination. The acquiree'sidentifiable assets, liabilities and contingent liabilities that meet theconditions for recognition under IFRS 3 are recognised at their fair value atthe acquisition date, except for non-current assets (or disposal groups) thatare classified as held for resale in accordance with IFRS 5 'Non Current Assets Held for Sale and Discontinued Operations', which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measuredat cost, being the excess of the cost of the business combination over thegroup's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities recognised. If, after reassessment, the group'sinterest in the net fair value of the acquiree's identifiable assets,liabilities and contingent liabilities exceeds the cost of the businesscombination, the excess is recognised immediately in the profit or loss. The interest of minority shareholders in the acquiree is initially measured atthe minority's proportion of the net fair value of the assets, liabilities andcontingent liabilities recognised. Revenue Revenue in respect of goods and services supplied in the normal course ofbusiness is measured at the fair value of consideration received or receivable,net of discounts, VAT and other sales related taxes. Revenue from the supply of software licenses is recognised when the license isissued, a legally binding commitment exists, and no significant costs remain inrespect of outstanding license obligations to the customer. Revenue from installation, consultancy, support and training chargeable on atime and materials basis is recognised with respect to the amount of workperformed. Services and maintenance revenue, billed to customers which relates tosubsequent accounting periods is deferred and is recognised equally over theperiod that the service is to be provided. Revenue from contracts that contain multiple elements is allocated on the basisof the fair value of each element. Where revenue streams are linked in a waythat the commercial effect cannot be understood without reference to thecontract as a whole, revenue is recognised over the contract period. Interest income is accrued on a time basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the ratethat exactly discounts estimated future cash receipts through the expected lifeof the financial asset to that asset's net carrying amount. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the group's interest in the fair value of the identifiableassets and liabilities acquired. Goodwill is initially recognised as an assetat cost and is subsequently measured at cost less any accumulated impairmentlosses. Goodwill which is recognised as an asset is reviewed for impairment atleast annually. Any impairment is recognised immediately in the incomestatement and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of thegroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generatingunit is less than the carrying amount of the unit, the impairment loss isallocated first to reduce the carrying amount of any goodwill allocated to theunit and then to the other assets of the unit pro-rata on the basis of thecarrying amount of each asset in the unit. An impairment loss recognised forgoodwill is not reversed in a subsequent period. Goodwill arising on acquisition before the date of transition to IFRS has beenretained at the previous UK GAAP amounts, subject to being tested for impairmentat that date. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Depreciation is provided on all property, plant and equipment, excludingfreehold land, at rates calculated to write off the cost, less estimatedresidual value, of each asset evenly over its expected useful life, as follows: Freehold buildings - 2% per annumLeasehold improvements - 6.7% to 20% per annumMotor vehicles - 20% per annumOffice and IT equipment - 33.3% per annumFixtures and fittings - 20% per annum Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in the income statement. Intangible assets Separately identifiable intangible assets that are acquired in a businesscombination are recognised at their fair value at the date of acquisition, andsubsequently amortised over their expected useful lives. Purchased softwarelicences are recognised initially at cost and amortised over their expecteduseful lives, typically 3 years. Internal software research and development expenditure Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Expenditure on software development is capitalised onlyif the expenditure relates to a separately identifiable asset, it is probablethat incremental future economic benefits will flow, the technical andcommercial feasibility of the asset has been established, and the costs incurredin developing it can be measured reliably. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of animpairment loss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Costsinclude those incurred in bringing each product to its present location andcondition. Net realisable value is based on estimated selling price lessfurther costs expected to be incurred to completion and disposal. 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 net profit as reported in the income statement because itexcludes items of income or 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 amount 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 taxable temporary differences,and deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if thetemporary differences arises from the initial recognition of goodwill, or fromthe initial recognition (other than in a business combination) of other assetsand liabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the group is able tocontrol the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future. 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 assets to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to 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. Foreign currencies The individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (is functionalcurrency). For the purpose of the consolidated financial statements, theresults 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 statement of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in the income statement for theperiod. 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 translatedat the average exchange rates for the period. Exchange differences arising, ifany, are classified as equity and transferred to the group's translationreserve. Such translation differences are recognised as income or as expensesin the period in which the operation 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 rate. The group has elected to treat goodwill andfair value adjustments arising on acquisitions before the date of transition toIFRSs as sterling denominated assets and liabilities. Leasing and hire purchase commitments Assets held under finance leases are recognised as assets of the group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation.Lease payments are apportioned between finance charges and reduction of thelease obligation so as to achieve a constant rate of interest on the remainingbalance of the liability. Finance charges are charged directly against income. Rentals payable under operating leases are recognised in the income statement ona straight line basis over the lease term. The benefit of any rent free periodsor other incentives are recognised evenly over the term of the lease for the year ended 31 December 2006. Short-term employee benefits The cost of short-term accumulating balances is charged to the income statementover the period during which the entitlement is earned, at an average pay rateplus social security costs. Differences between the entitlement earned and theentitlement actually paid is shown as either accruals or prepayments in thebalance sheet. Retirement benefit costs The group operates a defined contribution retirement benefit scheme.Contributions are charged as an expense to the income statement as they becomepayable in accordance with the rules of the scheme. Financial Instruments Financial assets and financial liabilities are recognised on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables are measured at initial recognition at fair value and aresubsequently measured at amortised cost using the effective interest ratemethod. Appropriate allowances for estimated irrecoverable amounts arerecognised in the income statement when there is objective evidence that theasset is impaired. The allowance recognised is measured as the differencebetween the asset's carrying amount and the present value of estimated futurecash flows discounted at the effective interest rate computed at initialrecognition. Cash and cash equivalents Cash and cash equivalents comprise on hand and demand deposits, and othershort-term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiumspayable on settlement or redemption and direct issue costs, are accounted for onan accrual basis in the income statement using the effective interest ratemethod and are added to carrying amount of the instrument to the extent that thyare not settled in the period in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequentlymeasured at amortised cost, using the effective interest rate method. Equity Instruments Equity instruments issued by the company are recorded at the proceeds received,net of direct issue costs. Share-based payments The group has applied the requirements of IFRS 2 'Share-based Payment'. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested at 1January 2005. The group issues equity-settled share-based payments to certain employees andoperated an Inland Revenue approved SAYE scheme that allows the grant of shareoptions at a discount to the market price at the date of invitation.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 grant date of the equity-settled share-based payments isexpensed on a straight-line basis over the vesting period, based on the group'sestimate of shares that will eventually vest and adjusted for the effect of nonmarket-based vesting conditions. The fair value is calculated using the Black-Scholes option pricing model. Theexpected life used in the model has been adjusted, based on management's bestestimate, for the effects of non-transferability, exercise restrictions andbehavioural considerations. Provisions Provisions are recognised when the group has a present obligation as a result ofa past event and it is probable that the group will be required to settle thatobligation. Provisions are measured at the directors' best estimate of theexpenditure required to settle the obligation at the balance sheet date and arediscounted to present value where the effect is material. 3. REVENUE The group's revenue is analysed as follows: 2006 2005 £ £ Software licences 4,957,903 3,405,512Support and maintenance 6,625,574 6,853,002Professional services 10,754,927 10,489,815Third party products 893,679 797,155Managed service provision 491,334 235,484 23,723,417 21,780,968 Investment income 35,375 26,148 23,758,792 21,807,116 4. SEGMENTAL ANALYSIS For management purposes, the group is currently organised into two primarybusiness units: Intermediary Systems and Insurance Systems. These businessunits are the basis on which the Group reports its primary segment. Intermediary Systems Insurance Systems2006 Group Total £ £ £ £ Revenue 9,939,327 13,784,090 - 23,723,417 Operating profit 3,922,209 4,748,702 (6,191,374) 2,479,537 Interest income 35,375Interest expense (123,070) Profit before tax 2,391,842 Tax (655,538) Profit after tax 1,736,304 Expenditure on additions to 777,859 65,253 552,177 1,395,289non-current assetsDepreciation and amortisation 204,954 81,780 343,863 630,597 Segment assets 5,511,981 14,122,499 340,348 19,974,828Segment liabilities 678,089 5,245,547 254,309 6,177,945 2005 Intermediary Systems Insurance Systems Group Total £ £ £ £ Total revenue 10,156,906 11,624,062 - 21,780,968 Operating profit 3,901,583 3,484,772 (6,095,142) 1,291,213 Interest income 26,148Interest expense (88,109) Profit before tax 1,229,252 Tax (213,916) Profit after tax 1,015,336 Expenditure on additions to 594,010 27,811 275,051 896,872non-current assetsDepreciation and amortisation 68,073 88,685 336,040 492,798 Segment assets 6,422,227 11,853,519 646,418 18,922,164Segment liabilities 1,513,649 5,058,476 67,829 6,639,954 Europe and United North America Australia and Rest of World Total Kingdom and Caribbean New Zealand2006 £ £ £ £ £ Revenue by destination 19,689,981 946,470 1,453,330 1,633,636 23,723,417 Revenue by origin 22,177,311 912,210 633,896 - 23,723,417 Net assets/(liabilities) by 14,324,829 (704,582) (35,894) 212,530 13,796,883segment Additions to property, plant 1,319,811 17,286 25,642 32,550 1,395,289and equipment and intangibleassets Europe and United North America and Australia and New Rest of World Total Kingdom Caribbean Zealand2005 £ £ £ £ £ Revenue by destination 17,797,000 1,326,674 1,472,463 1,184,831 21,780,968 Revenue by origin 19,567,959 1,326,674 886,335 - 21,780,968 Net assets/(liabilities) by 12,684,088 (444,226) (76,911) 119,259 12,282,210segment Additions to property, plant 715,720 12,607 80,346 88,199 896,872and equipment and intangibleassets 5. ONE-OFF PROPERTY RELATED COSTS At the start of 2004, the company relocated its head office from SuttonColdfield to Solihull. The previous leasehold premises were not sublet in 2005as expected and as a result a one-off charge of £742,604 was made to the profitand loss account during 2005. No further charge has been made during 2006. The operating exceptional item of £742,604 represents the costs incurred during2005 in making leasehold improvements to the property together with theprovision for estimated future rental and associated costs of the property. The cash outflow in respect of this item was £87,000 during the year (2005:£372,332). 6. PROFIT FOR THE FINANCIAL YEAR Profit for the year has been arrived at after charging/(crediting): 2006 2005 £ £ Auditors' remuneration for audit services (see below) 82,796 60,584Operating lease rentals:- land and buildings 806,903 765,173- plant and machinery 274,037 214,425Depreciation of:- owned property, plant and equipment 396,839 390,275- assets held under finance leases 114,544 61,322 (Profit)/ Loss on disposal of property, plant and equipment (7,773) 3,742Amortisation of intangible assets 119,214 41,201Share-based payments expense 88,105 44,678Research and development costsForeign exchange differences 25,646 (8,098) The analysis of auditors' remuneration is as follows: 2006 2005 £ £ Fees payable to the company's auditors for the audit of the 8,000 6,000company's annual accounts Fees payable to the company's auditors and their associates forother services to the group:- The audit of the company's subsidiaries pursuant to legislation 74,796 54,584 Total audit fees 82,796 60,584 - Other services pursuant to legislation: - Tax services 39,297 30,257 - Information technology services - - - Internal audit services - - - Valuation and actuarial services - - - Litigation services - - - Recruitment and remuneration services 6,500 3,500 - Corporate finance services - - - Other services 1,774 6,983 Total non-audit fees 47,571 40,740 Fees payable to Deloitte and Touche LLP for non-audit services to the companyare not required to be disclosed because the consolidated financial statementsare required to disclose such fees on a consolidated basis. 7. TAXATION (i) Group tax charge The group tax charge recognised in the income statement comprises: 2006 2005 £ £Corporation tax:- current year UK corporation tax (751,784) (511,914)- adjustment to prior years' UK corporation tax 243,806 91,489 Total corporation tax (507,978) (420,425) Deferred tax:- current year deferred tax (42,838) 159,653- adjustment to prior years' deferred tax (104,722) 46,856 Total deferred tax (147,560) 206,509 Total tax on profit on ordinary activities (655,538) (213,916) (ii) Reconciliation of effective tax rate The differences between the total current tax shown above and the amountcalculated by applying the standard rate of UK corporation tax to the lossbefore tax is as follows: 2006 2005 % £ % £ Profit before tax 2,391,842 1,229,252 Tax using the UK corporation tax rate 30.0% 717,553 30.0% 368,776 Expenses not deductible for tax purposes 3.3% 79,703 0.9% 11,108Effect of tax rates in foreign jurisdictions (1.7%) (39,352) 0.0% -Utilisation of brought forward losses (0.1%) (3,151) (2.2%) (27,624)Losses not recognised 1.7% 39,869 - -Over provision from previous years (5.8%) (139,084) (11.3%) (138,345) Total tax in income statement 27.4% 655,538 17.4% 213,915 In addition to the amount charged to the income statement, deferred tax relatingto employee benefits amounting to £26,861 (2005: £40,107) has been crediteddirectly to equity. (iii) Recognised deferred tax assets and liabilities Property, plant Employee General Leases Develop-ment Total & equipment benefits provisions costs and holiday capitalised pay £ £ £ £ £ £ At 1 January 2005 (90,746) (5,112) (24,143) (31,884) - (151,885)Charge to income (27,857) (13,403) (153,284) (30,581) 20,520 (204,605)Charge to equity - (40,108) - - - (40,108) At 1 January 2006 (118,603) (58,623) (177,426) (62,465) 20,520 (396,597)Charge to income 23,876 (1,096) 155,136 (30,356) - 147,560Charge to equity - (26,861) - - - (26,861) At 31 December 2006 (94,727) (86,580) (22,292) (92,821) 20,520 (275,900) No deferred tax liability has been recognised in respect of temporarydifferences associated with undistributed earnings of subsidiaries because thegroup is in a position to control the timing of the reversal of the temporarydifferences and it is probable that such differences will not reverse in theforeseeable future. At the year end there were unrecognised deferred tax assets of £160,000 and£142,000 in respect of unused losses in Sirius Financial Solutions Plc andSirius Financial Systems Inc respectively. These assets have not beenrecognised due to the unpredictability of future profit streams. 8. DIVIDENDS 2006 2005 £ £Amounts recognised as distributions to equity holders in theperiod:Final dividend for the year ended 31 December 2005 of 1.25p 218,920 173,219(2004: 1.0p) per shareInterim dividend for the year ended 31 December 2006 of 0.55p 96,579 87,613(2005: 0.5p) per share 315,499 260,832 Proposed final dividend for the year ended 31 December 2006 of 241,981 218,9201.375p (2005: 1.25p) per share The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. 9. EARNINGS PER ORDINARY SHARE The calculation of basic earnings per ordinary share is based on profits of£1,732,194 (2005: £1,002,813) and on 17,540,501 (2005: 17,410,126) ordinaryshares, being the weighted average number of ordinary shares in issue during theyear. The 2006 diluted earnings per share is based on the profit for the year of£1,732,194 (2005: £1,002,813) and on 17,947,122 ordinary shares (2005:17,632,540), calculated as follows: 2006 2005 No. No. Basic weighted average number of shares 17,540,501 17,410,126Dilutive potential ordinary shares:Executive share options and employee SAYE scheme 406,620 222,414 17,947,121 17,632,540 Adjusted earnings per share 2006 2005 Adjusted earnings per share 9.9p 10.0pDiluted adjusted earnings per share 9.7p 9.9p The adjusted earnings per share is calculated from the profit for the financialyear before deduction of the operating exceptional item of £nil (2005:£1,744,537) and on 17,540,501 (2005: 17,410,126) ordinary shares of 1p eachbeing the weighted average number in issue during the year. The directors have chosen to present this adjusted earnings per share as theybelieve it provides a more meaningful indicator of the performance of the group. 10. FIRST TIME ADOPTION OF IFRS The year ending 31 December 2006 is the first year that the group has presentedits consolidated financial statements under International Financial ReportingStandards ("IFRS"). The last financial statements under UK GAAP were for theyear to 31 December 2005; the group's date of transition to IFRS was therefore 1January 2005. The disclosures required in the year of transition are givenbelow. The adoption of IFRS represents an accounting change only and does not affectthe operations or cash flows of the group. RECONCILIATION OF EQUITY AT 1 JANUARY 2005 (date of transition to IFRS) Note UK GAAP Effect of Restated under transition to IFRS IFRS £ £ £Non-current assets Intangible assets 1 5,686,700 81,865 5,768,565Property, plant and equipment 1 1,599,121 (81,865) 1,517,256Trade and other receivables 103,485 - 103,485Deferred tax 2 90,746 61,139 151,885 7,480,052 61,139 7,541,191 Current assetsInventories 4,351 - 4,351Trade and other receivables 8,448,967 - 8,448,967Cash and cash equivalents 1,063,918 - 1,063,918 9,517,236 - 9,517,236 Current liabilitiesTrade and other payables 3 (2,621,706) (186,757) (2,808,463)Current tax liabilities (348,891) - (348,891)Obligations under finance leases (122,645) - (122,645)Bank loans and overdrafts (149,352) - (149,352)Deferred income (2,031,563) - (2,031,563) (5,274,157) (186,757) (5,460,914) Net current assets 4,243,079 (186,757) 4,056,322 Total assets less current liabilities 11,723,131 (125,618) 11,597,513 Non-current liabilities Trade and other payables (2,156) - (2,156)Obligations under finance leases (214,629) - (214,629)Bank loans and overdrafts (112,343) - (112,343) (329,128) - (329,128) Net assets 11,394,003 (125,618) 11,268,385 Equity Share capital 175,334 - 175,334Share premium account 4,392,760 - 4,392,760Merger reserve 5,891,572 - 5,891,572Retained earnings 4 964,044 (125,618) 838,426 Equity attributable to shareholders 11,423,710 (125,618) 11,298,092of the parent Minority interests (29,707) - (29,707) Total equity 11,394,003 (125,618) 11,268,385 NOTES TO THE RECONCILIATION OF EQUITY AT 1 JANUARY 2005 1. The application of IAS 38 requires computer software to be recognisedas an intangible asset. Computer software under UK GAAP was capitalised andrecorded as property, plant and equipment. 2. The application of IAS 12 requires the recognition of all deferred taxassets and liabilities regardless of whether the originating entry passesthrough the profit and loss account. Under IFRS deferred tax assets andliabilities should be shown as non-current. The adjustment to the deferred taxasset is in respect of: £ Lease incentives (note 3) 31,884Short-term accumulated compensated balances (note 3) 24,143Share-based payments 5,112 61,139 3. The adjustments to trade payables are as follows: £ Lease incentives (106,279)Short-term accumulated compensated balances (80,478) (186,757) Under UK GAAP, rent free periods were recognised in the profit and loss accountover the period to the first rent review. In accordance with IAS 17, leaseincentives are now recognised in the income statement over the full term of thelease. Short term accumulated compensated balances relating to holiday pay werepreviously expensed as incurred under UK GAAP. Under IFRS a liability isrecognised for all entitlements for holiday at each balance sheet date. 4. The adjustments to retained earnings are as follows: £ Lease incentives (note 3) (106,279)Short-term accumulated compensated balances (note 3) (80,478)Deferred tax asset (note 2) 61,139 (125,618)RECONCILIATION OF PROFIT FOR THE YEAR ENDED 31 DECEMBER 2005 Note UK GAAP Effect of Restated under transition to IFRS IFRS £ £ £ Revenue 21,780,968 - 21,780,968 Cost of sales (11,843,307) - (11,843,307) Gross profit 9,937,661 - 9,937,661 Distribution costs (2,408,798) - (2,408,798) Administrative expenses:- goodwill amortisation 1 (967,238) 967,238 -- depreciation (492,798) - (492,798)- operating exceptional (742,604) - (742,604)- other 2 (4,924,033) (78,215) (5,002,248) - total administrative expenses (7,126,673) 889,023 (6,237,650) Operating profit 402,190 889,023 1,291,213 Interest income 26,148 - 26,148Interest expense (88,109) - (88,109) Profit before tax 340,229 889,023 1,229,252 Tax 3 (237,380) 23,464 (213,916) Profit for the financial year 102,849 912,487 1,015,336 Attributable to:Equity holders of the parent 90,326 912,487 1,002,813Minority interests 12,523 - 12,523 Profit for the financial year 102,849 912,487 1,015,336 NOTES TO THE RECONCILIATION OF PROFIT FOR THE YEAR ENDED 31 DECEMBER 2005 1. The group has elected to take the exemption available under IFRS 1not to apply IFRS 3 retrospectively to business combinations occurring beforethe date of transition to IFRS. Goodwill arising on such acquisitions hastherefore been retained at its UK GAAP carrying value at 1 January 2005, havingbeen satisfactorily tested for impairment at that date. Under UK GAAP goodwill was amortised over its useful economic life, but underIFRS no amortisation charge is made. This increases reported profit for theyear ended 31 December 2005 by £967,238. Instead, goodwill recognised in thebalance sheet is subject to a review for impairment on at least an annual basis,or more frequently if events or changes in circumstance indicate that thecarrying value may be impaired. Goodwill written off to reserves under UK GAAP prior to 1998 has not beenreinstated as an asset and will not be included in determining any future profitor loss on disposal. 2. The following adjustments have been made which were not recognisedunder UK GAAP: £ Lease incentives (101,937)Development costs 68,400Share-based payments (44,678) (78,215) Under UK GAAP, rent free periods were recognised in the profit and loss accountover the period to the first rent review. In accordance with IAS 17, leaseincentives are now recognised in the income statement over the full term of thelease. Under UK GAAP, the accounting policy was to expense all research and developmentin the period that it was incurred. Under IAS 38, however, development costsmust be capitalised and amortised if certain criteria are met. Whilst the majority of the group's software development activity did not meetthe strict criteria for recognition in IAS 38 on transition, costs of £68,400were capitalised during 2005. No amortisation has yet been charged in respectof the capitalised costs. Under IFRS 2, the charge recognised in the income statement for share optionsare based on the 'fair value' of the awards, calculated using an option pricingmodel. This contrasts to UK GAAP, where the charge was based on the 'intrinsicvalue' of awards, being the difference between the market value of the shares atthe date of the award and the option exercise price. No charge was recordedunder UK GAAP because the only options granted at a discount to market pricewere SAYE options, and these were outside the scope of UITF Abstract 17. 3. The above transactions have had the following effect on the currenttax charge: £ Lease incentives 30,581Development costs (20,520)Share-based payments 13,403 23,464 RECONCILIATION OF EQUITY AT 31 DECEMBER 2005 Note UK GAAP Effect of Restated under transition to IFRS IFRS £ £ £Non-current assets Intangible assets 1 4,816,125 1,268,379 6,084,504Property, plant and equipment 2 1,839,747 (232,741) 1,607,006Trade and other receivables 530,28 - 530,282Deferred tax 3 271,887 124,710 396,597 7,458,041 1,160,348 8,618,389 Current assetsInventories 3,695 - 3,695Trade and other receivables 9,648,975 - 9,648,975Cash and cash equivalents 651,105 - 651,105 10,303,775 - 10,303,775 Current liabilitiesTrade and other payables 4 (2,675,355) (288,694) (2,964,049)Current tax liabilities (667,766) - (667,766)Obligations under finance leases (122,645) - (122,645)Provisions (185,136) - (185,136)Bank loans and overdrafts (149,843) - (149,843)Deferred income (2,272,669) - (2,272,669) (6,073,414) (288,694) (6,362,108) Net current assets 4,230,361 (288,694) 3,941,667 Total assets less current liabilities 11,688,402 871,654 12,560,056 Non-current liabilities Trade and other payables (726) - (726)Obligations under finance leases (91,984) - (91,984)Long-term provisions (185,136) - (185,136) (277,846) - (277,846) Net assets 11,410,556 871,654 12,282,210 Equity Share capital 176,767 - 176,767Share premium account 4,485,937 - 4,485,937Merger reserve 5,891,572 - 5,891,572Translation reserve 5 - 79,926 79,926Retained earnings 6 873,464 791,728 1,665,192 Equity attributable to shareholders of 11,427,740 871,654 12,299,394the parent Minority interests (17,184) - (17,184) Total equity 11,410,556 871,654 12,282,210 NOTES TO THE RECONCILIATION OF EQUITY AT 31 DECEMBER 2005 1. The following adjustments have been made to intangible assets: £ Goodwill amortisation 967,238Development costs 68,400Software licenses (note 2) 232,741 1,268,379 Amortisation charged on goodwill under UK GAAP during the year ended 31 December2005 has been reversed as it is not required under IFRS. Development costs of £68,400 met the criteria for recognition under IAS 38 andwere capitalised during the year ended 31 December 2005. Under UK GAAP thesecosts were expensed. 2. Software licenses of £232,741 were disclosed as property, plant andequipment under UK GAAP. In line with IAS 38, these assets have beenreclassified to intangible assets. 3. The application of IAS 12 requires the recognition of all deferredtax assets and liabilities regardless of whether the originating entry passesthrough the profit and loss account. Under IFRS deferred tax assets andliabilities should be shown as non-current. The analysis of the deferred tax asset at 31 December 2005 is as follows: £ Lease incentives (note 4) 62,465Short-term accumulated compensated balances (note 4) 24,143Share-based payments 58,622Development costs (note 1) (20,520) 124,710 4. The adjustments to trade payables are as follows: £ Lease incentives (208,216)Short-term accumulated compensated balances (80,478) (288,694) Under UK GAAP, rent free periods were recognised in the profit and loss accountover the period to the first rent review. In accordance with IAS 17, leaseincentives are now recognised in the income statement over the full term of thelease. Short term accumulated compensated balances relating to holiday pay werepreviously expensed as incurred under UK GAAP. Under IFRS a liability isrecognised for all entitlements for holiday at each balance sheet date. 5. Under IFRS, exchange differences arising on consolidation of thetranslation of overseas subsidiaries are required to be recognised as a separatecomponent of equity. On the disposal of an overseas subsidiary, the cumulativeexchange gain or loss associated with that subsidiary is recognised in theincome statement as part of the profit or loss on disposal. The group has utilised the exemption available in IFRS 1 whereby cumulativetranslation differences are deemed to be zero at the date of transition to IFRS. 6. The adjustments to retained earnings are as follows: £ Lease incentives (note 4) (208,216)Short-term accumulated compensated balances (note 4) (80,478)Deferred tax (note 3) 124,710Goodwill amortisation (note 1) 967,238Development costs (note 1) 68,400Translation reserve (note 5) (79,926) 791,728 This information is provided by RNS The company news service from the London Stock Exchange