Stilo Regulatory News (STL)

12 Sep 2007 07:01

Stilo International PLC12 September 2007 12 September 2007 STILO INTERNATIONAL PLC UNAUDITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2007 Stilo International plc ("Stilo" or the "Company"), the AIM quoted software andservices company, today announces its unaudited Interim Results for the sixmonths ended 30 June 2007. Highlights • Profit before taxation, before exceptional items and write-down of intangible assets, of £5,000 (2006: £86,000 profit) • Results adversely affected by a weak US dollar, this having a £52,000 adverse impact upon profits compared to same period last year • Sales revenues increased by 14% to £1,251,000 (2006: £1,096,000) • R&D spend continuing at 8.4% of revenues (£105,000 in the period) • Collaborative software development undertaken with North American customer • Customers in this period included Boeing, Wolters Kluwer, ABX Air, Thomson, Bae Systems, Westland Helicopters, Toshiba and the European Parliament • Consolidation of European operations in UK Barry Welck, Chairman, commenting on the Company's performance, stated, 'Whilst trading results have remained steady, we have continued to makesignificant investments in the development of Version 9 of OmniMark, ourflagship product. In recent months we have collaborated with an important NorthAmerican customer to build an industry-specific, technical informationpublishing solution. We have re-organised operations in Europe, and are nowadditionally investing heavily in the development of ground-breaking, onlineservices for delivery over the internet. All of these development efforts willculminate with market releases in 2008, and which we believe will provide Stilowith new opportunities to drive significant sales growth in the future.' Enquiries: Les Burnham, Chief Executive, Stilo International plc 01793 441444 Russell Cook and Carl Holmes, Charles Stanley Securities 020 7149 6000(Nominated Adviser and broker) Chairman's Statement I am pleased to announce Stilo's unaudited interim results for the six monthsended 30 June 2007 and to report upon the continued progress made by the Companyduring the period. Strategy Stilo International provides specialist software and professional services tolarge organisations. Our goal is to be the market leader in our target businesssectors, and to aggressively grow sales revenues year on year. In July 2007 we made significant organisational changes to better focusresources on the following key capabilities i.e. • Content Migration • Technical Information Publishing • Product Lifecycle and Document Management for SAP customers In each area of capability, Stilo can justifiably claim a market leadershipposition upon which we intend to build in the future, supported by continuedinvestment in software developments. In the first half of 2007 development spendwas £105,000 representing 8.4% of sales revenues. In the second half of 2007,this spend will be further increased to 19% of projected revenues as new,ground-breaking developments are embarked upon based upon the online delivery ofservices over the internet. These developments will be announced later in 2007, and are expected to make apositive contribution to 2008 revenues and beyond. They will be representativeof the emerging worldwide trend for organisations to adopt Software as a Service(SaaS) business models, and provide exciting opportunities for the achievementof significant, scaleable growth in the years ahead. Operating from offices in the UK and North America, we support an extensive listof customers in Aerospace and Defence, Manufacturing, IT, Telecommunications,Publishing and Government. They include Boeing, Wolters Kluwer, ABX Air, BAeSystems, Thomson Publishing, Westland Helicopters, Toshiba and the EuropeanParliament. Results The Company continues to build a solid foundation to support future growth. The interim trading profit before taxation, and before exceptional items andwrite-down of intangible assets, was £5,000 (2006: £86,000). Total sales revenues for the period increased by 14% to £1,251,000 (2006:£1,096,000), including a total 97% growth in professional services revenues to£582,000 (2006: £295,000). Recurring maintenance revenues for OmniMark softwarewere sustained at £360,000. Results were affected by a weak US dollar, this having a £52,000 adverse impactupon profits, compared to the same period last year. Non-recurring exceptional costs for the period totalled £37,000, comprisingstaff redundancy costs. In the e-Publishing solutions business, sales decreased to £794,000 (2006:£1,096,000), primarily as a result of declining software orders and customerdelays in placing project services contracts. During the course of the period,overheads in this business were further reduced through a lowering of staffnumbers and the closure of the Paris office. European operations are now centredin the UK. The Engineering Solutions business achieved sales revenues of £457,000 in theperiod, and made a positive contribution to overall profitability. In August 2007 the Company paid a sum of £90,000 in deferred consideration ("Initial Deferred Consideration") to Proceed Holdings. The Initial DeferredConsideration was payable based upon the achievement of a turnover target of noless than £750,000 for Engineering Solutions in the year ended 31 July 2007. Asannounced at the time of the acquisition, Proceed Holdings agreed to reinvestthe sum of £90,000 by subscribing for 4,500,000 new 1p Ordinary shares in Stiloat 2p per share. At 30 June 2007, the group employed 29 staff, with 12 based in the UK, 15 inNorth America and 2 in Europe. The Company had a cash balance of £237,000 as at 30 June 2007 (30 June 2006:£321,000). Working capital of approximately £100,000 was tied up in one longterm services contract, with collection of cash from this expected in the secondhalf of 2007. The accompanying interim results for the six months ended 30 June 2007 have beenprepared for the first time in accordance with International Financial ReportingStandards as adopted by the European Union as now required for AIM companies,and a full reconciliation of the impact of these changes (including restatementof the comparative periods) is attached to these results as an appendix. PRODUCTS, SERVICES and SOLUTIONS OmniMark OmniMark provides an application development and high performance run-timeenvironment for XML content processing applications. Users of OmniMark are ableto reduce significantly the time and costs of developing and maintaining newcontent processing applications, whilst ensuring high-performance levels ofexecution which is especially critical to major web applications. OmniMark hasbeen deployed by customers around the world over a fifteen year period, and is arobust, well-proven technology. Stilo interactive Technical Information Publisher (iTIP) Originally developed for the Canadian Military, Stilo's iTIP has evolved over aten year period as a proven approach to distributing complex technicalinformation to large and widely-distributed user communities. The iTIP solution provides an integrated approach to delivering technicaldocumentation using simple web browsers so that organisations can maximise thebenefits of electronic distribution while keeping deployment costs low. The iTIPalso provides easy-to-use feedback mechanisms that facilitate knowledgeacquisition and continuous quality improvement. The combination of these capabilities makes the iTIP environment a completesolution for organisations that create, manage and deliver technical informationacross the full product lifecycle, including mission-critical equipment systemsin the aerospace, defence, automotive, transportation, manufacturing andengineering sectors. Solutions for SAP customers mySAPTM Product Lifecycle Management (mySAP PLM) provides a comprehensiveend-to-end solution to help manage the product lifecycle at every stage fromdesign to disposal. Stilo is one of the UK's leading specialists in mySAP PLM,delivering innovative and practical solutions to leading names in the Europeanand global aerospace, defence and manufacturing industries. Stilo has also teamed up with certified SAP software partners to integrate,where necessary, proven tools and techniques at every stage of the documentmanagement process; from capture, indexing, storage, retrieval, through toarchiving. Software partners include Easy Software (UK) plc, SEAL Systems AG andReadsoft. Outlook Whilst trading results have remained steady, we have continued to makesignificant investments in the development of Version 9 of OmniMark, ourflagship product. In recent months we have collaborated with an important NorthAmerican customer to build an industry-specific, technical informationpublishing solution. We have re-organised operations in Europe, and are nowadditionally investing heavily in the development of ground-breaking, onlineservices for delivery over the internet. All of these development efforts willculminate with market releases in 2008, and which we believe will provide Stilowith new opportunities to drive significant sales growth in the future. Barry WelckChairman12 September 2007 Unaudited Group Income Statementfor the six months ended 30 June 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 Unaudited Unaudited Unaudited (restated) (restated) £'000 £'000 £'000Continuing OperationsRevenue 1,251 1,096 2,264 Cost of sales (129) (23) (157) Gross profit 1,122 1,073 2,107 Administrative expenses (1,120) (989) (2,102)Write down of intangible assets (7) - -Exceptional expenses re staff redundancies (37) (39) (169) Operating (loss) / profit (42) 45 (164) Finance income 3 2 4 (Loss) / profit before tax (39) 47 (160)Income tax - - 16 (Loss) / profit for the period from continuingoperations (39) 47 (144) (Loss) / earnings per share from continuing operations - (0.04p) 0.05p (0.16)pbasic and diluted (note 3) All losses / profits are attributable to equity holders of the parent. Unaudited Interim Group statement of recognised income and expensefor the six months ended 30 June 2007 Six months Six months Year to to 30 June to 30 June 31 December 2007 2006 2006 Unaudited Unaudited Unaudited (restated) (restated) £'000 £'000 £'000 Foreign currency translation differences 47 (1) (32) Net income / (expense) recognised directly in equity 47 (1) (32) (Loss) / Profit for the period (39) 47 (154) Total recognised income and expense for the period 8 46 (186)attributable to the equity shareholdersof the parent Unaudited Group Balance Sheetas at 30 June 2007 As at As at As at 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Unaudited (restated) (restated) £'000 £'000 £'000 Non-current assetsGoodwill and other intangible assets 1,797 1,606 1,804Plant and equipment 31 59 37Deferred tax assets 100 100 100 1,928 1,765 1,941Current assetsTrade and other receivables 715 595 557Income tax asset 17 57 17Cash and cash equivalents 237 321 420 969 973 994 Total Assets 2,897 2,738 2,935 Current Liabilities: Trade and other payables (681) (589) (727) Net current assets 288 384 267 Net assets 2,216 2,149 2,208 Shareholders' Equity Capital and reservesCalled up share capital 5,523 5,423 5,523Shares to be issued 45 - 45Share premium account 5,485 5,349 5,485Merger reserve 658 658 658Retained earnings (9,495) (9,281) (9,503) Total equity shareholders' funds 2,216 2,149 2,208 Unaudited Group Cash Flow Statementfor the six months ended 30 June 2007 Six months to Six months to Year to 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Unaudited (restated) (restated) £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations (180) (48) (86)Tax credit received - - 57 Net cash from operating activities (180) (48) (29) Cash flows from investing activitiesFinance income 3 2 4Purchase of plant and equipment (6) (6) (11)Goodwill purchased - - (108) Net cash used in investing activities (3) (4) (115) Financing activities Issue of ordinary share capital - - 191 Net cash in from financing activities - - 191 Net (decrease) / increase in cash and cash equivalents (183) (52) 47 Cash and cash equivalents at beginning of period 420 373 373 Cash and cash equivalents at end of period 237 321 420 Notes to the Interim Resultsfor the six months ended 30 June 2007 1. The interim results (approved by the Board of Directors on 11 September 2007) are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the full preceding year is extracted from the statutory accounts for the financial year ended 31 December 2006 amended for the impact of the adoption of International Financial Reporting Standards (IFRS) as adopted by the European Union. Those accounts, upon which the auditors issued an unqualified opinion, and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. The figures for the six months ended 30 June 2006 have been extracted from the 2006 interim accounts amended for the impact of the adoption of IFRS. Details of the impact of the adoption of IFRS are set out in Appendix 1 of this announcement. As permitted this interim report has been prepared in accordance with UK AIM listing rules and not in accordance with IAS 34 'Interim Financial Reporting', therefore it is not fully in compliance with IFRS. 2. Stilo Interntional plc is a public limited company incorporated in the United Kingdom under the Companies Act 1985. The Company is domiciled in the United Kingdom and its ordinary shares are traded on the AIM market of the London Stock Exchange plc. Stilo provides specialist software and professional services. This interim report is the Group's first set of financial statements prepared inaccordance with International Financial Reporting Standards (IFRS) as adopted bythe European Union and International Financial Reporting Committee ("IFRC")interpretations that are expected to be applicable to the consolidated financialstatements for the year ending 31 December 2007. These standards remain subjectto ongoing amendment and / or interpretation and are therefore still subject tochange. Accordingly, information contained in these interim financial statementsmay need updating for subsequent amendments to IFRS required for first timeadoption or for new standards issued post balance sheet date. The basis of preparation and accounting policies followed in this interim reportdiffer from those set out in the Annual Report and Accounts for the year ended31 December 2006 which were prepared in accordance with United Kingdomaccounting standards (UK GAAP). A summary of the significant accountingpolicies used in the preparation of this interim report under IFRS is providedbelow, however this does not include accounting policies which are not currentlyexpected to change on transition from UK GAAP. The consolidated financial statements have been prepared in accordance with IFRSincluding standards and interpretations issued by the International AccountingStandards Board, as adopted by the European Union. They have been prepared usingthe historical cost convention. The preparation of the financial statements requires management to makeestimates and assumptions that affect the reported amounts of revenues,expenses, assets and liabilities, and the disclosure of contingent liabilitiesat the date of the financial statements. If in the future such estimates andassumptions which are based on management's best judgement at the date of thefinancial statements, deviate from the actual circumstances, the originalestimates and assumptions will be modified as appropriate in the year in whichthe circumstances change. Where necessary, the comparatives have beenreclassified or extended from the previously reported results to take intoaccount presentational changes. (a) 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 the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. The trading results of subsidiaries acquired or disposed of during the year areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances, income and expenditure are eliminated onconsolidation. (b) Turnover and revenue recognition Turnover represents the value of goods and services supplied and is stated netof value added tax. Contract income represents the value of contracts, whichwere completed during the period, as well as the estimated value of partiallycompleted contracts at 30 June 2007. (c) Goodwill Goodwill arising on consolidation is recorded as an intangible asset and is thesurplus of the cost of acquisition over the Group's interest in the fair valueof identifiable net assets acquired. Goodwill is allocated to cash generatingunits and is reviewed annually for impairment. Any impairment identified as aresult of the review is charged in the income statement. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. The Group has elected to take the exemption available under IFRS1 not to applyIFRS3 retrospectively to business combinations occurring prior to the date oftransition to IFRS. Goodwill arising on such acquisitions has therefore beenretained at its UK GAAP carrying value at 1 January 2006, having beensatisfactorily tested for impairment at that date. (d) Foreign currency translation Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheetdate. All differences are taken to income statement. (e) Intangible assets other than goodwill An intangible asset, which is an identifiable non-monetary asset withoutphysical substance, is recognised to the extent that it is probable that theexpected future economic benefits attributable to the asset will flow to theGroup and that its cost can be measured reliably. The asset is deemed to beidentifiable when it is separable or when it arises from contractual or otherlegal rights. Computer software that is not integral to an item of property, plant andequipment is recognised separately as an intangible asset and is carried at costless accumulated amortisation and accumulated impairment losses. Costs includesoftware licences and consulting costs attributable to the development, designand implementation of the computer software. Amortisation is calculated usingthe straight-line method so as to charge the cost of the computer software tothe income statement over its estimated useful life (1-7 years). Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Development expenditure is capitalised as an intangible asset only if thefollowing conditions are met: • an asset is created that can be identified; • it is probable that the asset created will generate future economic benefit; • it is technically and commercially feasible; • sufficient resources are available to complete the development; • the development cost of the asset can be measured reliably. Development expenditure thus capitalised is amortised on a straight-line basisover its useful life. Where the criteria are not met, development expenditureis recognised as an expense in the income statement. (f) Taxes Income taxes include all taxes based upon the taxable profits of the company.Other taxes not based on income, such as property and capital taxes, areincluded within operating expenses or financial expenses according to theirnature. Deferred income tax is provided, using the liability method, on temporarydifferences between the tax bases of assets and liabilities and their carryingamounts, in the financial statements. Deferred income tax assets relating tothe carry-forward of unused tax losses are recognised to the extent that it isprobable that future taxable profit will be available against which the unusedtax losses can be utilised. Current and deferred income tax assets and liabilities are offset when theincome taxes are levied by the same taxation authority and when there is alegally enforceable right to offset them. (g) Fair values Fair value is the amount for which a financial asset, liability or instrumentcould be exchanged between knowledgeable and willing parties in an arm's lengthtransaction. It is determined by reference to quoted market prices, adjusted forestimated transaction costs that would be incurred in an actual transaction, orby use of established estimation techniques. The fair values at the balancesheet date are approximately in line with their reported carrying values unlessspecifically mentioned in the notes to the financial statements. (h) Financial instruments Financial assets and financial liabilities are recognised in the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables do not carry any interest and are stated at their fair valueas reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash 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 change in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its trade payables. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption, are accounted for on an accrual basis and are addedto the carrying amount of the instrument to the extent that they are not settledin the period in which they arise. Derivative financial instruments The company uses derivative financial instruments such as foreign currencycontracts to hedge its risks associated with foreign currency fluctuations. All derivative financial instruments are initially measured at fair value on thecontract date and are also measured at fair value at subsequent reporting dates.Derivatives are carried as assets when the fair value is positive and asliabilities when the fair value is negative. The fair value of forward currencycontracts is calculated by reference to current forward exchange rates forcontracts with similar maturity profiles. For those derivatives designated as hedges and for which hedge accounting isdesired, the hedging relationship is documented at its inception. Thisdocumentation identifies the hedging instrument, the hedged item or transaction,the nature of the risk being hedged and how effectiveness will be measuredthroughout its duration. Such hedges are expected at inception to be highlyeffective. Forward currency contract hedge relationships are classified as cash flow hedgeswhere the derivative financial instruments hedge the currency risk of futurehighly probable inventory sales. Changes in the fair value of derivativefinancial instruments that are designated and effective as hedges of future cashflows are recognised directly in equity and the ineffective portion isrecognised immediately in the income statement. Amounts taken to equity aretransferred to the income statement when the hedged transaction affects profitor loss, such as when a forecast sale occurs. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. 3. The basic earnings per share is calculated on the weighted average number of shares in issue during the period. The fully diluted earnings per share takes account of outstanding options. The exercise price of the share options was more than the average share price for the period and therefore no adjustment to the basic earnings per share is necessary in respect of shares under option. The weighted average number of ordinary shares in issue for the six months to 30 June 2007 was 100,228,470 shares (30 June 2006: 90,228,470 shares). 4. Copies of this report will be sent to shareholders shortly and will be available to the public from the company's registered office, Regus House, Windmill Hill Business Park, Whitehill Way, Swindon, SN5 6QR. Appendix 1 Explanation of transition to IFRS Shares in Stilo International plc are quoted on the AIM market of the LondonStock Exchange plc. It is therefore required to report its consolidatedfinancial statements in accordance with International Accounting Standards(IFRS) as adopted by the European Union for its accounting periods commencing onor after 1 January 2007. In order to comply with this requirement StiloInternational plc has published this Interim Report for the period to 30 June2007 on the basis of IFRS, including the restatement of the June 2006comparative information. In doing so it has applied the requirements of IFRS 1 'First time adoption of IFRS'. This is the first period that the Group has presented its interim financialstatements under International Financial Reporting Standards (IFRS) as adoptedby the European Union. The following disclosures are required in the year oftransition. The last financial statements prepared under UK GAAP were for theyear ended 31 December 2006 and the date of transition to IFRS is therefore 1January 2006. The purpose of this section is to advise on the impact of theinitial transition balance sheet adjustments and the restatement of the 2006published interim and full year information. Although we have discussed theidentified adjustments with our auditors the numbers in this report areunaudited and may be subject to revision when the audited financial statementsfor the year ended 31 December 2007 are published. Reconciliation of consolidated balance sheet at 1 January 2006 Effect of Restated IFRS transition to IFRS UK GAAP £'000 £'000 £'000 Non-current assetsGoodwill and other intangible assets 1,606 1,606Plant and equipment 64 64Deferred tax assets - 100 100 1,670 1,770Current assetsTrade and other receivables 577 577Current tax asset 55 55Cash and cash equivalents 373 373 1,005 1,005Current Liabilities: Trade and other payables (672) (672) Net current assets 333 333 Total assets 2,003 100 2,103 Capital and reservesCalled up share capital 5,423 5,423Share premium account 5,349 5,349Merger reserve 658 658Retained earnings (9,427) 100 (9,327) Total equity 2,003 100 2,103 Reconciliation of consolidated balance sheet at 31 December 2006 UK GAAP Effect of Restated IFRS transition to £'000 IFRS £'000 £'000 Non-current assetsGoodwill and other intangible assets 1,511 293 1,804Plant and equipment 37 37Deferred tax assets - 100 100 1,548 393 1,941Current assetsTrade and other receivables 557 557Current tax asset 17 17Cash and cash equivalents 420 420 994 994Current Liabilities: Trade and other payables (727) (727) Net current assets 267 267 Total assets 1,815 393 2,208 Capital and reservesCalled up share capital 5,523 5,523Shares to be issued 45 45Share premium account 5,485 5,485Merger reserve 658 658Retained earnings (9,896) 393 (9,503) Total equity 1,815 393 2,208 Reconciliation of consolidated balance sheet at 30 June 2006 UK GAAP Effect of Restated IFRS transition to £'000 IFRS £'000 £'000 Non-current assetsGoodwill and other intangible assets 1,459 147 1,606Plant and equipment 59 59Deferred tax assets - 100 100 1,518 247 1,765Current assetsTrade and other receivables 595 595Current tax asset 57 57Cash and cash equivalents 321 321 973 973Current Liabilities: Trade and other payables (589) (589) Net current assets 384 384 Total assets 1,902 247 2,149 Capital and reservesCalled up share capital 5,423 5,423Shares to be issued - -Share premium account 5,349 5,349Merger reserve 658 658Retained earnings (9,528) 247 (9,281) Total equity 1,902 247 2,149 Reconciliation of consolidated income statement for the six months ended 30 June2006 UK GAAP Effect of Restated IFRS transition to £'000 IFRS £'000 £'000Continuing OperationsRevenue 1,096 1,096 Cost of sales (23) (23) Gross profit 1,073 1,073 Administrative expenses (989) (989)Exceptional expenses re staff redundancies (39) (39) Amortisation of goodwill (147) 147 - Operating (loss) / profit (102) 147 45 Finance income 2 2 (Loss) / profit before tax (100) 147 47Taxation - - (Loss) / profit for the period from continuing operations (100) 147 47 (Loss) / earnings per share from continuing operations - (0.11p) 0.05pbasic and diluted (note 5) Reconciliation of consolidated income statement for the year ended 31 December2006 UK GAAP Effect of Restated IFRS transition to £'000 IFRS £'000 £'000Continuing OperationsRevenue 2,264 2,264 Cost of sales (157) (157) Gross profit 2,107 2,107 Administrative expenses (2,102) (2,102)Exceptional expenses re staff redundancies (169) (169) Amortisation of goodwill (293) 293 - Operating (loss) / profit (457) 293 (164) Finance income 4 4 (Loss) / profit before tax (453) 293 (160)Taxation 16 16 (Loss) / profit for the period from continuing operations (437) 293 (144) (Loss) / earnings per share from continuing operations - (0.5p) (0.16p)basic and diluted (note 5) Notes to the reconciliation of equity at 1 January and 31 December 2006 Transitional arrangements (IFRS 1) The opening fair values of fixed assets have been deemed to be their accountingvalues as at 1 January 2006, after reviewing for impairment as appropriate. Goodwill and Business Combinations (IFRS3) The Group has elected to take the exemption available under IFRS1 not to applyIFRS3 retrospectively to business combinations occurring prior to the date oftransition to IFRS. Goodwill arising on such acquisitions has therefore beenretained at its UK GAAP carrying value at 1 January 2006, having beensatisfactorily tested for impairment at that date. Under UK GAP goodwill was amortised over its useful economic life, but underIFRS no amortisation charge has been made. This increases profit in the sixmonth period ended 30 June 2006 by £147,000, and in the year to 31 December 2006by £293,000. Instead, goodwill recognised in the balance sheet will be subjectto review for impairment on at least an annual basis, or more frequently ifevents or changes in circumstances indicate that the carrying value may beimpaired. Deferred Taxation (IAS 12) IAS 12 takes a balance sheet approach to deferred tax whereby deferred tax isrecognised in the balance sheet by applying the appropriate tax rate to thetemporary differences arising between the carrying value of the assets andliabilities and their tax base. Adjustments made to the financial statements on the transition to IFRS result inthe recognition of a deferred tax asset for the value of tax losses to theextent that it is reasonably foreseen that they will be utilised in the nearfuture. This asset was not previously recognised under FRS 19. This information is provided by RNS The company news service from the London Stock Exchange