Sondrel Plc Regulatory News (SND)

24 May 2007 07:03

Sanderson Group PLC24 May 2007 For Immediate release 24 May 2007 Sanderson Group plc Interim Results for the period ended 31st March 2007 Sanderson Group plc ("Sanderson"), the software and IT services businessspecialising in commercial markets in the UK and Ireland, announces InterimResults for the six months ended 31 March 2007. Sanderson provides software andIT services to businesses with annual revenues between £5 million and £250million. Highlights o Revenue from continuing operations of £8.12m up 11% (2006: £7.30m) o Recurring revenues increased to 56% of total revenue o Improved conversion of operating profit to cash at 100% o Strong Balance Sheet with net debt less than 18% of net assets o Increased interim dividend of 1.15p per ordinary 10p share (2006:1.10p) o Elucid business acquired from K3 for £1.40m in February; now forms important part of multi-channel sales business o Multi-channel sales business continuing to grow; now accounts for 60% of Group revenue Commenting on the results, Chairman Christopher Winn said: "Sanderson has re-positioned itself to enjoy greater repeat revenues and alesser reliance on the Manufacturing sector. A stable client base and productsthat cater specifically to today's multi-channel markets give us a very goodbase to continue to grow organically and by acquisition." On prospects Mr Winn added: "Notwithstanding the continued challenges of business in the manufacturingsector, the multi-channel markets are proving to be very active and rewardingfor the Group and overall we anticipate an improved business performance in thesecond half." Enquiries: Christopher Winn, Executive Chairman Tel: 02476 555466 David O'Byrne, Managing Director Tel: 01709 787787 Adrian Frost, Finance Director Tel: 01709 787787 Paul Vann, Winningtons Financial Tel: 0117 920 0092 or 07768 807631 Chairman's statement Introduction The trading results for the six month period to 31 March 2007 show revenue fromcontinuing operations of £8.12m (2006: £7.30m). Operating profit from continuingoperations before amortisation of acquisition related intangibles and charges inrespect of share based payments, amounted to £1.41m (2006: £1.46m). Statutoryprofit after tax from continuing operations was £0.54m (2006: £0.69m). This is the first interim report produced by the Group following the adoption ofInternational Financial Reporting Standards (IFRS) in the Annual Report for theyear ended 30 September 2006. As a result, comparative figures included inrespect of the period ended 31 March 2006 have been restated. A reconciliationbetween the comparative figures included and those previously reported is setout in the notes to this report. Trading result - continuing operations Unaudited Unaudited Six months Six months to 31/03/07 to 31/03/06 Restated £'000 £'000 Revenue 8,125 7,296 Cost of sales (1,459) (1,196) --------- ---------Gross profit 6,666 6,100 Other operating expenses (5,252) (4,643) --------- ---------Adjusted operating profit* 1,414 1,457 Amortisation of acquisition related intangibles (314) (80)Share-based payment charges (318) (316)Other operating income - 128 --------- ---------Results from continuing operating activities 782 1,189 Net finance costs (128) (97) --------- ---------Profit before tax 654 1,092 Tax (114) (400) --------- ---------Profit for the period from continuing operations 540 692 ========= ========= * before amortisation of acquisition-related intangibles, share based paymentcharges and non-recurring operating income. Business review The Group develops and supplies market-specific software and services to themulti-channel and manufacturing markets in the UK. In the half year to the endof March 2007, the Group's multi-channel business performed well, whilst themanufacturing business has continued to experience difficult trading conditions. The Group has established a large client base over many years and has adopted arevenue model based upon retaining and developing clients by continuouslyoffering new products and associated technology with professional services. Forthe half year ended 31 March 2007, recurring revenue continued to grow andrepresented 56% of total revenue compared with 55% in the full year ending 30September 2006. Nine new clients were gained in the half year compared witheleven in the comparative period. Revenue from new clients represented 11%(2006: 5%) of total revenue in the period. The Group's software products are designed to meet all the operational needs ofa broad range of businesses and cover functions such as sales and marketing,finance, human resources, purchasing, production, supply and distribution whilstalso addressing specific requirements such as ingredient handling and callcentre operations. Sanderson owns and develops the IPR to its software productsand licences their use to customers. Review of manufacturing The manufacturing sector accounts for 40% of Group revenue, compared with 60%two years ago. The Group's manufacturing business covers the provision of ITsolutions to areas of manufacturing including engineering, plastics,electronics, furniture, automobile parts and printing. Market conditionscontinue to be challenging with discretionary spend lower than in previousyears. Despite this trend, the Group has won a number of contracts from existingclients, including a £400,000 order from Magnadata Limited to upgrade theirexisting IT system. The second half of the financial year has seen the Groupgain a new client, Anstey Wallcoverings and we anticipate an improvedperformance from the manufacturing business during the remainder of the year. Review of multi-channel sales Multi-channel sales, which accounts for 60% of Group revenue, addresses theneeds of companies who sell goods via retail outlets, online sales, call centre,mail order and distributors. Increasing competition and the rapid growth inonline sales have encouraged companies to seek efficiency gains throughinvestment in IT, representing a significant opportunity for the Group. Severalnew customers were gained during the half year including the Royal BotanicalGardens Kew. The Group continues to develop a number of sales opportunities inwhat is an active market sector and a good performance in the second half yearis anticipated. Acquisition In February 2007, the Group acquired the business and assets of Elucid from K3Business Technology Group plc for a consideration of £1.40m. Elucid has a strongproduct offering aimed at the mid-tier mail order and e-commerce market and hasover 50 existing customers. Elucid now forms an important part of the Sandersonmulti-channel sales business and strengthens our activities in these markets.Elucid made a small contribution to both revenue and operating profit in theperiod post acquisition. Following the acquisition, the Group carried out a strategic review of itsproducts aimed at the mid-tier mail order and e-commerce market and decided torationalise development costs and discontinue further development of an existingproduct. This discontinued operation incurred a loss of £385,000 after tax inthe half year to 31 March 2007 including full provision for closure costs. Inthe comparative period to 31 March 2006, the discontinued operation incurred aloss of £94,000 after tax. Strategy Our strategy is to develop the Group by a combination of organic growthcomplemented by selective acquisitions. Our primary aim is to continue todeliver shareholder value through a progressive dividend policy which is madepossible by a business model that delivers high levels of profit and cash. Wecontinue to develop a number of acquisition opportunities. Balance sheet In the period, the Group generated cash in excess of 100% of adjusted operatingprofit from continuing and discontinued operations. This represents asignificant improvement compared with the first half, last year. Net debt as at31 March 2007 was £3.61m (2006: £3.26m). The Group has the debt capacity topursue additional strategic acquisitions. The Group balance sheet remains strong, with net debt representing less than 18%of the Group's net assets. Pensions Subsequent to the period end, the Group has finalised negotiations both with thetrustee of the two defined benefit pension schemes (of which a subsidiarycompany is principal employer), as well as with former Group companies Civicaplc and Talgentra Holdings Limited. As a result, the Group has been releasedfrom all contingent liabilities in respect of one scheme, and has agreed to theother scheme being sectionalised, such that each employer becomes responsiblefor a defined proportion of the scheme assets and liabilities. We believe thatthis course of action leaves the Group better placed to address the ongoingfunding of the scheme, and provides certainty to the Group's obligations. Dividend In accordance with the Group's progressive dividend policy, we are pleased toannounce an increased interim dividend of 1.15 pence per ordinary share (2006:1.1 pence per share), which will be paid on 27 July 2007 to shareholders on theregister at the close of business on 29 June 2007. Auditors As part of a review, the Group invited a number of accountancy firms to presentto the board, and after careful consideration RSM Robson Rhodes LLP have beenappointed as auditors. We would like to record our thanks and appreciation forthe audit and tax team at our previous auditors, KPMG, for their work over theprevious seven years. Staff We would like to thank our colleagues for their commitment, expertise andcontinued dedication in working with our customers and partners to successfullydevelop the Sanderson Group. Outlook Notwithstanding the continued challenges of business in the manufacturingsector, the multi-channel markets are proving to be very active and rewardingfor the Group and overall we anticipate an improved business performance in thesecond half. Christopher Winn Chairman 24 May 2007 CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited Six months Six months Year to to 31/03/ to 31/03/ 30/09/06 07 06 Restated Notes £'000 £'000 £'000 Continuing Operations----------------------- Revenue 8,125 7,296 15,896 Cost of sales (1,459) (1,196) (2,591) --------- --------- --------Gross profit 6,666 6,100 13,305 Other operating expenses (5,884) (4,911) (10,869) --------- --------- --------Results from operating activities 782 1,189 2,436 -------------------------- ------ --------- --------- --------Results from operating activitiesbefore amortisation, share basedpayment charges and non-recurringitems 1,414 1,457 3,278 Amortisation of acquisition relatedintangibles (314) (80) (319)Share-based payment charges (318) (316) (642)Other operating income - 128 119 --------- --------- --------Results from operating activities 782 1,189 2,436 --------- --------- -------- Net finance costs (128) (96) (275) --------- --------- --------Profit before tax 654 1,093 2,161 Tax 3 (114) (400) 17 --------- --------- --------Profit for the period fromcontinuing operations 540 693 2,178 Discontinued Operations------------------------- Loss for the period fromdiscontinued operations 2 (385) (94) (183) --------- --------- --------Profit for the period 155 599 1,995 ========= ========= ======== Earnings per share From continuing operationsBasic 5 1.29p 1.69p 5.26pDiluted 5 1.21p 1.57p 4.91pFrom continuing and discontinuedoperationsBasic 5 0.37p 1.46p 4.81pDiluted 5 0.35p 1.36p 4.50p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Actuarial gains on defined benefit pension schemes - - 630Tax on items taken directly to equity - - (190)Profit for the period 155 599 1,995 -------- ---------- --------Total recognised income and expense for the period 155 599 2,435 ======== ========== ======== CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited As at As at As at to 31/03/07 to 31/03/06 30/09/06 Restated Notes £'000 £'000 £'000Non-current assetsGoodwill 25,256 24,624 24,624Other intangible assets 3,093 2,356 2,427Property, plant & equipment 528 637 585Deferred tax asset 384 493 488 --------- -------- -------- 29,261 28,110 28,124Current assetsInventories 209 409 258Trade and other receivables 4,941 6,332 4,127Income tax receivable 234 - 211Cash and cash equivalents 235 413 463 --------- -------- -------- 5,619 7,154 5,059 --------- -------- --------Total assets 34,880 35,264 33,183 --------- -------- -------- Current liabilitiesBank overdraft and loans (528) (979) (528)Trade and other payables (3,241) (3,869) (2,351)Deferred contingent consideration (725) - -Current tax liabilities - (397) -Deferred income (4,228) (4,713) (4,278) --------- -------- -------- (8,722) (9,958) (7,157) --------- -------- -------- Net current liabilities (3,103) (2,804) (2,098) Non-current liabilitiesRetirement benefit obligation (1,825) (2,463) (1,849) Deferred contingent consideration - (453) (464)Deferred income (490) (684) (587)Loans and borrowings (3,319) (2,690) (2,420) --------- -------- -------- (5,634) (6,290) (5,320) --------- -------- --------Total liabilities (14,356) (16,248) (12,477) --------- -------- --------Net assets 20,524 19,016 20,706 ========= ======== ======== EquityCalled-up share capital 4,181 4,181 4,181Share premium 14,578 14,578 14,578Shares to be issued 495 495 495Retained earnings 8 1,270 (238) 1,452 --------- -------- --------Total equity 20,524 19,016 20,706 ========= ======== ======== CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 Restated Notes £'000 £'000 £'000 Net cash from operating activities 9 760 536 1,790 Investing activities Purchases of property, plant &equipment (30) (62) (120)Expenditure on product development (67) (111) (271)Purchase of shares in subsidiaryundertaking - (1,480) (1,480) Purchase of trade and assets (1,162) - - Purchase of intellectual property - (200) (200) Disposal proceeds of property, plant& equipment - 539 530 --------- --------- --------Net cash used in investingactivities (1,259) (1,314) (1,541) --------- --------- -------- Financing activities 6 Equity dividends paid (625) (575) (1,024)Proceeds from bank borrowing 1,162 1,375 1,375Repayment of bank borrowing (250) (125) (625)Repayment of finance lease principal (16) (8) (36) --------- --------- --------Net cash received from / (used in)financing activities 271 667 (310) --------- --------- -------- Decrease in cash and cashequivalents (228) (111) (61) Cash and cash equivalents at startof the period 463 524 524 --------- --------- --------Cash and cash equivalents at end ofthe period 235 413 463 ========= ========= ======== Notes to the consolidated financial statements 1. Significant accounting polices a) Basis of preparation The Group adopted International Financial Reporting Standards (IFRS) during thesecond half of the 2006 financial year, and reported the results for the yearended 30 September 2006 under IFRS. The accounting policies applied in thepreparation of this financial information are consistent with those adopted inthe statutory accounts for the year ended 30 September 2006. Certain significantaccounting policies are clarified below, and the full accounting policies of theGroup are set out in the last Annual Report. The comparative data for the six months to 31 March 2006 has been restated andreconciliations are included in the notes to explain the changes from UK GAAP. The financial information set out within this statement does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985. The statutory accounts for the year ended 30 September 2006, which have beendelivered to the Registrar of Companies, carry an unqualified report by theauditors and do not contain a statement under Section 237 (2) or section 237 (3)of the Companies Act 1985. Copies of this Statement are being sent to Shareholders. Further copies areavailable from the Company Secretary. b) Basis of consolidation The financial statements of the Group consolidate the financial statements ofSanderson Group plc and all its subsidiaries. Subsidiaries are entitiescontrolled by the Company. The results of subsidiaries and businesses areincluded in the consolidated financial statements from the date on which controlcommences and until that date on which control ceases. In respect of acquisitions since 1 October 2004, goodwill arising onconsolidation represents the excess of cost of acquisition over the Group'sinterest in the fair value of the identifiable assets and liabilities of theacquired entity at the date of acquisition. For acquisitions prior to this date,goodwill is included on the basis of its deemed cost, which represents theamount recorded under previous GAAP. Goodwill is recognised as an asset andassessed for impairment at least annually. Impairment is assessed by comparingthe goodwill with the discounted cashflows projected for the acquired entity,using a discount rate that management estimate to be the risk adjusted averagecost of capital for that entity. c) Research and development Research expenditure is written off as incurred. Development expenditure iswritten off as incurred unless the development is for a new or substantiallyimproved product which is both technically and commercially viable. Developmentcosts satisfying these criteria are capitalised and amortised over their usefuleconomic life or three years, whichever is the shorter. d) Property, plant and equipment Property, plant and equipment are shown at historical cost, less any provisionfor impairment in value. Depreciation is provided at rates calculated to write off the cost lessestimated residual value of each asset on a straight-line basis over itsexpected useful life, except freehold land which is not depreciated, as follows: Freehold buildings - 2% Leasehold buildings - over the life of the lease Plant, machinery, fixtures and fittings - 15% - 33.3% Notes to the consolidated financial statements 1. Significant accounting polices (continued) e) Impairment of non-current assets All non-current assets are assessed annually for indications of impairment.Where impairment is likely, the fair value is measured and any impairment lossis charged to the income statement. f) Inventories Inventories are valued at the lower of cost and net realisable value aftermaking due allowance for obsolete and slow moving items. Costs incurred inbringing each product to its present location and condition are accounted for asfollows: * Goods for resale - purchase cost on a 'first in / first out' basis; * Work in progress - cost of direct materials and labour and aproportion of overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. g) Taxation The tax charge for the period includes the charge for tax currently payable anddeferred taxation. The current tax charge represents the estimated amount duethat arises from the operations of the Group in the financial period and aftermaking adjustments in respect of prior years. Deferred tax is recognised in respect of all differences between the carryingamount of assets and liabilities in the financial statements and thecorresponding tax bases used in the computation of taxable profit, except wherethe temporary difference arises from goodwill or from the initial recognition ofassets or liabilities that effect neither accounting nor taxable profit. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax is measured at the tax rates that are expected to apply in theperiods in which the timing differences are expected to reverse. h) Revenue Revenue comprises the value of sales of licences, support & maintenancecontracts and training, consulting and implementation services and hardware.Revenue excludes both value added tax and transactions between Group companies. Revenues are recognised on the basis of the performance of contractualobligations and to the extent that the right to consideration has been earned.In cases where a single contractual arrangement involves the sale of licences,support, maintenance, training and consultancy services, the considerationreceived is allocated to the components of the arrangement on a fair valuebasis. Licence fees are recognised upon the provision of software to the customer,providing that the payment terms are unconditional, full payment iscontractually binding, collection is reasonably certain and there are nocontractual conditions or warranties. Revenue from the provision of professionalservices including support, maintenance, training and consultancy services isrecognised when the services have been performed. Hardware sales are recognisedon delivery. Maintenance and support revenues are recognised evenly over theperiod to which they relate. Notes to the consolidated financial statements 1. Significant accounting polices (continued) i) Employee benefits Obligations for contributions to defined contribution plans are recognised as anexpense in the income statement as incurred. The Group's net obligation in respect of its defined benefit pension plan iscalculated by estimating the amount of future benefits payable to members,discounted to present value, and deducting the fair value of the plan assets.The calculation is performed by a qualified actuary using the projected unitcredit method. Actuarial gains or losses are included in the consolidatedStatement of Recognised Income and Expense. Current and past service costs,curtailments and settlements are recognised within operating profit. Returns onscheme assets and interest on obligations are recognised as a component offinancing costs. Share based incentive arrangements are provided to employees under the Group'sshare option schemes. Share based arrangements put in place since 7 November2002 are valued at the date of grant and charged to operating profit over thevesting period of the scheme. Options are valued using an appropriate pricingmodel. The annual charge is modified to take account of shares forfeited byemployees who leave during the vesting period. j) Leased assets Leasing agreements that transfer substantially all the risks and rewards ofownership to the Group are classified as Finance Leases. Assets financed by aFinance Lease are accounted for as if they had been purchased outright, with thecorresponding liability to the leasing company included as an obligation. Therentals payable are apportioned between interest, which is charged to the incomestatement, and capital, which reduces the outstanding obligation. All otherleases are classified as Operating Leases and lease rentals are charged to theincome statement on a straight-line basis over the term of the lease. k) Financial instruments and hedging Trade receivables and trade payables do not carry any interest and are stated atnominal value. Bank overdraft and loans are interest bearing and interest isaccounted for on an accruals basis. The Group does not use derivative financialinstruments to hedge its exposure to interest rate or currency risk. Notes to the consolidated financial statements 2. Discontinued operation Following a strategic review, the Group has decided to focus its developmentactivity and product marketing at the mid-tier mail order market around therecently acquired Elucid product. This has necessitated the discontinuance ofthe activities previously undertaken by the Group in this area prior to theacquisition of Elucid. The results of this business activity, classified in the consolidated incomestatement as discontinued operations, were as follows: Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 £'000 £'000 £'000 Revenue 69 139 253 Expenses (619) (273) (515) -------- -------- -------- Loss before tax (550) (134) (262) Tax 165 40 79 -------- -------- -------- Loss for the period (385) (94) (183) ======== ======== ======== The business that has been discontinued was run as part of a larger businessunit within a Group subsidiary. As a result, it is not practical to separatelyreport the cash flows associated with the discontinued activity, but they arenot anticipated as being materially different from the trading results shownabove, with the exception of certain provisions made for the discontinuance. Thecash effect of these provisions will be reported in the second half of thecurrent financial year. 3. Taxation Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 RestatedRecognised in the income statement in £'000 £'000 £'000respect of continuing operations: Current tax expense UK corporation tax for the currentperiod 290 400 679 Relating to prior periods - - (515) -------- -------- -------- Total current tax 290 400 164 -------- -------- -------- Deferred tax Deferred tax for the current period (176) - (154) Relating to prior periods - - (27) -------- -------- -------- Total deferred tax (176) - (181) -------- -------- -------- Taxation charge / (credit) in respectof continuing operations 114 400 (17) Recognised in the income statement inrespect of discontinued operations: UK corporation tax for the currentperiod (150) (40) (79) Deferred tax for the current period (15) - - ======== ======== ======== Total taxation (credited) / charged to the income statement (51) 360 (96) ======== ======== ======== Notes to the consolidated financial statements 3. Taxation (continued) Reconciliation of the effective tax rate: The current consolidated tax charge on continuing operations for the perioddiffers from the standard rate of corporation tax in the UK of 30%. Thedifferences are explained below. Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 Restated £'000 £'000 £'000 Profit before tax - continuingoperations 654 1,093 2,161 Tax using the UK corporation tax rateof 30% 196 328 648 Effects of: Expenses not deductible for taxpurposes 49 25 47 Tax payable at less than 30% - - (6) Losses not utilised in the periodarising (101) - 101 Overprovision in prior periods - - (542) Expenses not reported in the incomestatement - - (170) Change in temporary differences (30) 47 (95) ======== ======== ======== Total tax in the income statement in respect ofcontinuing operations 114 400 (17) ======== ======== ======== 4. Segmental reporting Whilst it is possible for the Group to analyse revenue by reference to themarkets in which customers operate, the businesses within the Group are notmanaged in this way, such that cost information and assets and liabilitiescannot be reported by markets. Consequently, the operations of the Group areregarded as a single business segment. Substantially all of the Group's revenueoriginates from the UK. Revenue by destination is not materially different fromrevenue by origin. 5. Earnings per share Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 Restated Earnings £'000 £'000 £'000 Continuing 540 693 2,178 Continuing and discontinued 155 599 1,995 Average number of shares during period No. '000 No. '000 No. '000 In issue at the start of the period 41,813 40,814 40,814 Effect of shares issued in the period - 204 604 -------- -------- -------- Weighted average number of shares atperiod end 41,813 41,018 41,418 Effect of share options 1,939 2,070 1,939 Effect of deferred consideration 1,000 1,000 1,000 ======== ======== ======== Weighted average number of shares 44,752 44,088 44,357 (diluted) at period end ======== ======== ======== Earnings per share pence pence pence Continuing - basic 1.29 1.69 5.26 - diluted 1.21 1.57 4.91 Continuing and discontinued - basic 0.37 1.46 4.81 - diluted 0.35 1.36 4.50 Notes to the consolidated financial statements 6. Equity dividends Six months Six months Year to to 31/03/07 to 31/03/06 30/09/06 Restated £'000 £'000 £'000 Interim dividend - - 449 Final dividend 625 575 575 -------- -------- --------- Total dividend paid in period 625 575 1,024 ======== ======== ========= An interim dividend of 1.15 pence (2006: 1.10 pence) per ordinary 10 pence sharewill be paid on 27 July 2007. 7. Acquisition On 1 February 2007 the Group acquired the trade and certain assets of Elucid forconsideration of £1,400,000, which comprised cash payable on completion of£1,100,000, deferred cash consideration of £250,000 and costs of acquisitionamounting to £50,000. Provisional goodwill and other intangible assets arisingas a result of the acquisition amount to £1,150,000. 8. Reserves As at As at As atRetained earnings 31/03/07 31/03/06 30/09/06 Restated £'000 £'000 £'000 Balance at beginning of the period 1,452 (555) (555) Actuarial gains on employee benefits - - 630 Deferred taxation - - (190) Dividends paid (note 6) (625) (575) (1,024) Credit to equity for share-based payments 288 293 596 Result for the period 155 599 1,995 -------- -------- --------- Balance at end of the period 1,270 (238) 1,452 ======== ======== ========= Notes to the consolidated financial statements 9. Net cash from operating activities Six months Six months Year to 31/03/07 to 31/03/06 30/09/06 Restated £'000 £'000 £'000 Profit for the period from continuingoperations 540 693 2,178 Loss for the period from discontinuedoperations (385) (94) (183) Adjustments for: Depreciation and amortisation 472 159 479 Share based payment charges 318 316 642 Net finance expense 128 97 275 Income tax (credit)/expense (51) 360 (96) Profit on disposal of property, plant &equipment - (128) (119) --------- --------- --------- Operating cash flow before workingcapital movements 1,022 1,403 3,176 Decrease / (Increase) in workingcapital 30 (308) (489) --------- --------- --------- Cash generated by operations 1,052 1,095 2,687 Additional pension payment (41) (40) (80) Interest paid (88) (109) (178) Income taxes paid (163) (410) (639) --------- --------- --------- Net cash from operating activities 760 536 1,790 ========= ========= ========= 10. Reconciliation of movement in net debt At start of Cash flow Non-cash At end of period movements period £'000 £'000 £'000 £'000 Cash 463 (228) - 235 Bank loan: Within one year (500) - - (500) After one year (2,390) (912) (3) (3,305) Obligationsunder financeleases (58) 16 - (42) -------- --------- --------- --------- Net debt (2,485) (1,127) (3) (3,612) ======== ========= ========= ========= Notes to the consolidated financial statements 11. Explanation of transition to IFRS In restating the comparative information in respect of the income statement forthe six months ended 31 March 2006, and the balance sheet on that date, tocomply with the accounting policies adopted in the last Annual Report certainchanges have been made and are described below. IFRS 2 'Share based payments' requires the fair value of providing employeeshare ownership plans to be charged to the income statement over the estimatedlife of the share ownership plans. Under UK GAAP such charges were restricted toone specific share ownership plan, namely the long term incentive plan (LTIP). IFRS 3 'Business combinations' requires goodwill to be capitalised and subjectedto an annual impairment test rather than amortised over its estimated usefullife as required by UK GAAP. The standard also requires separable, identifiable,intangible assets arising on acquisition to be capitalised at fair value andamortised over their estimated useful economic lives. In addition, deferredcontingent consideration in respect of previous acquisitions has beenreassessed. IAS 10 'Events after the balance sheet date' requires dividends to be recordedin the period in which they are approved or paid. Under UK GAAP dividends wereadjusted for as a post balance sheet event. IAS 12 'Income taxes' requires that deferred taxation be provided in respect ofthe share based payment charges and acquisition related intangible assets. IAS 19 'Employee benefits' requires recognition of pension scheme deficits onthe balance sheet and service costs, interest costs and expected returns onscheme assets to be charged to the income statement. Under FRS 17, definedbenefit scheme liabilities were presented net of deferred tax on the balancesheet. In accordance with IAS 19 the pension liability has been presented gross.Provision has also been made for holidays earned but not yet taken. IFRS 5 'Discontinuing operations' requires the attributable revenues and costsassociated with the operation to be shown as a single line on the face of theincome statement, net of any related tax charge or credit. The decision todiscontinue the operation in question was taken during the current period, andcomparative figures have been restated accordingly. IAS 38 'Intangible assets' requires that development expenditure meeting certaincriteria be capitalised and amortised over its useful economic life. Under UKGAAP all such development expenditure was expensed as incurred. Notes to the consolidated financial statements 11. Explanation of transition to IFRS (continued) Reconciliation of UK GAAP profit to IFRS profit: Six months to March 2006 UK IFRS 2 IFRS 3 IFRS 5 IAS 38 Restated IFRS GAAP £'000 £'000 £'000 £'000 £'000 £'000 Continuing Operations----------------------- Revenue 7,435 - - (139) - 7,296 Cost of sales (1,204) - - 8 - (1,196) -------- ------- -------- -------- -------- --------Gross profit 6,231 - - (131) - 6,100 Other operatingexpenses (5,980) (112) 698 265 90 (5,039)Profit on disposal ofassets 128 - - - - 128Finance costs (96) - - - - (96) -------- ------- -------- -------- -------- --------Profit before tax 283 (112) 698 134 90 1,093 Tax (360) - - (40) - (400) -------- ------- -------- -------- -------- --------(Loss)/Profit for theperiod fromcontinuing operations (77) (112) 698 94 90 693 -------- ------- -------- -------- -------- -------- DiscontinuedOperations Loss for the periodfromdiscontinuedoperations - - - (94) - (94) -------- ------- -------- -------- -------- --------Loss for the periodfrom discontinuedoperations - - - (94) - (94) -------- ------- -------- -------- -------- -------- Notes to the consolidated financial statements 11. Explanation of transition to IFRS (continued) Reconciliation of equity: At 31 March 2006 UK IFRS 3 IAS 12 IAS 19 IAS 38 Restated IFRS GAAP £'000 £'000 £'000 £'000 £'000 £'000 Non-currentassetsIntangible 24,933 1,099 647 - 301 26,980assetsProperty, plant& equipment 637 - - - - 637Deferred tax asset 400 - (647) 740 - 493 Current assetsInventories 409 - - - - 409Trade and otherreceivables 6,332 - - - - 6,332Cash and cashequivalents 413 - - - - 413 -------- ------- -------- -------- -------- --------Total assets 33,124 1,099 - 740 301 35,264 -------- ------- -------- -------- -------- -------- CurrentliabilitiesTrade and otherpayables (8,376) - - (206) - (8,582)Current taxliabilities (397) - - - - (397)Bank overdraftand loans (979) - - - - (979) Non-currentliabilitiesDeferred income (684) - - - - (684)Retirementbenefit obligation (1,723) - - (740) - (2,463) Deferredcontingent (1,203) 750 - - - (453)considerationBank loans &borrowings (2,690) - - - - (2,690) -------- ------- -------- -------- -------- --------Total liabilities (16,052) 750 - (946) - (16,248) -------- ------- -------- -------- -------- --------Net assets 17,072 1,849 - (206) 301 19,016 ======== ======= ======== ======== ======== ======== EquityCalled-up sharecapital 4,181 - - - - 4,181Share premium 14,578 - - - - 14,578Capitalredemption reserve 495 - - - - 495Profit and lossaccount (2,182) 1,849 - (206) 301 (238) -------- ------- -------- -------- -------- --------Total equity 17,072 1,849 - (206) 301 19,016 ======== ======= ======== ======== ======== ======== INDEPENDENT REVIEW REPORT TO SANDERSON GROUP PLC Introduction We have been instructed by the company to review the financial information setout on pages 1 to 18. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is madesolely to the company having regard to guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing PracticesBoard. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our work, for this report,or for the conclusions we have formed.Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the AIMRules. The directors are also responsible for ensuring that the accountingpolicies and presentation applied to the interim figures are consistent withthose which will be adopted in the annual accounts having regard to theaccounting standards applicable to such accounts.Review work performed We conducted our review having regard to guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information.Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 March 2007. RSM Robson Rhodes LLPChartered Accountants Birmingham, England24 May 2007 This information is provided by RNS The company news service from the London Stock Exchange