TNG.L Regulatory News (TNG)

7 Nov 2007 07:01

Tangent Communications PLC07 November 2007 TANGENT COMMUNICATIONS PLC Interim Report For the six months ended 31 August 2007 Tangent Communications plc ("Tangent" or the "Company") Interim Results for the Six Months Ended 31 August 2007 7 November 2007 Tangent (AIM: TNG) the technology-led digital marketing company, today announcesits interim results for the six months ended 31 August 2007. Financial Highlights • Revenue up 121% to £8.74m (2006: £3.96m) • Underlying operating profit up 169% to £1.41m (2006: £0.52m) • Underlying operating margin up 22% to 16.1% (2006: 13.2%) • Underlying basic earnings per share up 51% to 0.71p (2006: 0.47p) • Cash from operations up 315% to £1.39m (2006: £0.33m) • Net funds of £2.3m Operational Highlights • 70% of total revenue realised through Tangent's proprietary technology platforms • Ravensworth client base grows to 3,000 up 27% against prior year • Two year contractual agreement with Gala Coral Group for online marketing system • Dividend block being removed by capital reorganisation • Six figure website design and build win confirmed Commenting on the first six months, Nicholas Green, Joint CEO, said: "Our sales run rate has more than doubled from an average of £660,000 a month to£1.46m. Our customer numbers have increased from the hundreds to the thousandsand revenues derived from our technology have increased to 70% of totalrevenues. All of the businesses within the group have started the second sixmonths well, putting Tangent on a strong footing for its next stage of growth." Further Enquiries: Tangent Communications plc 020 7553 6600Nicholas Green (Joint CEO)Graeme Harris (Finance Director) Redleaf CommunicationsTom Newman/Emma Kane 020 7822 0200 Collins StewartSeema Paterson/Stewart Wallace 020 7523 8350 These interim results can also be viewed on the Tangent Communications plcwebsite: www.tangentuk.com Joint Chief Executives' Statement Overview During the first six months of the current financial year, Tangent has madesignificant strides in leveraging its proprietary technology into its clients'businesses. This creates the glue between us and our clients and allows us tomarket our products and services more effectively. We are pleased to report that70% of Tangent's revenue is currently generated directly from our proprietarytechnology platforms. The close nature of the relationship means that Tangent ispositioned strongly in being able to identify growth opportunities. Our acquisition in March 2007 of Ravensworth has performed above expectationsand provided us with the capacity of a modern digital plant for high volumeservices. The business has been successfully integrated and we have realised theplanned operational synergies and continue to exploit revenue synergies. Tangent's focus is now on increasing business from existing clients andconcentrating on broadening its relationship with SAP. Furthermore there havebeen strong new business wins across all services and new digital products havebeen launched creating new revenue streams. Financial review We run the business with a focus on revenue, underlying operating profit,underlying profit margin, underlying earnings per share and operating cashgeneration. In the first six months of the year we have moved ahead in each ofthese key performance indicators and at the start of the second half of our yearthe momentum has continued. This is partly achieved through an increase inrevenues from pure technology sales, a higher percentage of recurring revenuesand more online sales. Revenue grew by 121% to £8.74m and underlying operating profit grew by 169% to£1.41m. The underlying operating margin of 16.1% is up 22% against the prioryear. As the percentage of revenue from pure technology sales grows and theonline work expands, we expect our margin to continue to increase. Operating cash more than quadrupled to £1.39m which represents a 99% conversionrate on underlying operating profit. Underlying basic earnings per share grew by51% to 0.71p. Dividend The board believes that paying a dividend is an important part in providingtotal shareholder return and therefore we have taken steps to createdistributable reserves before the year end so that we can pay dividends.Shareholders will receive notification in due course of a General Meeting atwhich a resolution will be tabled and, if passed and approved by the High Court,will enable Tangent to pay dividends, and it is our intention to do so. Integration of Ravensworth At the end of March 2007, we completed the acquisition of Ravensworth, a digitalmarketing business based in Newcastle, for £5.85m. Since then we havetransferred all property artwork and template design from our Cheltenham officeto Newcastle. This resulted in operational efficiencies within the group and wasachieved with no client loss. In addition, we shut down a legacy template systemand transferred 46 clients onto our software platform, again with no clientloss. The number of live clients now integrated and using our software platformreached a record 3,000 in October and the business has no single clientaccounting for more than 5% of turnover. Between April and August 2007, weproduced a record 15 million individual sales' particulars on behalf of ourclients and brought on 244 new clients. New client sign-ups have continued toperform well in the second half of the year and, whereas we expect seasonalityto play a role over the winter months as it did last year, we expect our growingmarket share to continue to outweigh possibly weaker market conditions. Product Development We are investing substantially in the development of new and complementaryonline products. Like-for-like revenue from our data and web services grew by120% and this continues to increase our operating margin. The development teamhas grown to 27 people compared to 14 a year ago. The new employees are engagedin project delivery for existing clients and new client account management fornew business. The increased headcount is part of our laying of foundations forfuture growth as we expand our range of services. Webcreator Developed internally, Webcreator is a Tangent product for generating nationaland local websites, complementing our Toolkit product which generates local andnational printed marketing materials. Already, three high profile Toolkitcustomers have adopted Webcreator to generate over 2,000 local websites. TheWebcreator product is now being rolled out to a wider base of existing customersand recently played a significant role in differentiating Tangent during asuccessful pitch. Toolkit data integration We have taken a significant step in enabling integration of customers' data intothe Toolkit product. Customers are now able to upload, view and select their owndata within the Toolkit system and then use this data to drive customisedmarketing programmes. Introducing this element into the system increasesTangent's potential share of a client's marketing spend. The solution hasalready been sold to two key clients and it is now being rolled out across ourclient base. Home Information Packs (HIPs) In August 2007, HIPs were introduced as a legal requirement for vendors ofresidential property with four or more bedrooms. Since September, whenlegislation changed to require HIPs for the sale of three or more bedroomproperties, we have seen a significant increase in volume and in October weproduced more HIPs in one day than in the whole of August. We have integratedour digital workflow with systems used by 20 HIPs' providers and in January2008, when legislation is expected to change again and HIPs will be required forthe sale of all residential properties, we expect to see a further significantincrease in volume and revenue. Growth opportunities Website design and build In October 2007 Tangent won its largest project for web build and design. Thefee associated with the project is 100% above any previous fee charged by thegroup. This step change in charging, opens up a new audience for larger highvalue web projects in a huge market place. Tangent is now invited to more pitchrosters for large brands with big budgets for web projects. Tangent was chosenby HarperCollins publishers to establish their first eCommerce enabled websitesand supply end-to-end web purchase functionality from site design to securefulfilment and customer service, further expanding the services that we are ableto offer. SAP At our AGM in July 2007 we announced that we had signed a Global VendorAgreement with SAP. In addition we have developed interfaces which plug directlyinto their software platform. These interfaces offer SAP users customisednavigation around SAP software and data. Our approach is two-fold. We continueto be retained by SAP to create interfaces and marketing applications. Inaddition we aim to create SAP approved products which can be sold to SAP globalcustomers. These products will require SAP certification and would be sold aspart of the SAP partner programme. Gala Coral Group In September 2007 Tangent was confirmed, after a competitive pitch, as thesupplier of online marketing material for the Gala Coral Group. Designed, builtand live we are now focussed on expanding the commercial relationship betweenTangent and Gala Coral. There are 200 Gala Coral sites in the UK and fivemillion members on their database. Data-driven Marketing In July 2007, we invited Lloyds TSB to conduct a site survey of our Newcastlefacility which resulted in Tangent being awarded its first data-driven directmarketing campaign for the bank. Since then Barclays has visited this site and ameeting with a leading high street supermarket is planned. In Newcastle we haveone of the leading digital facilities in the UK and we expect more largecorporate brands to use this facility for high value data-driven marketingmaterial. Outlook The second half of the year has started well. The roll-out of the Gala Coralonline marketing system, continuing work with SAP and expansion of services toexisting clients place Tangent in a strong position and we look forward withconfidence to the next six months. CONSOLIDATED INCOME STATEMENTFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Six months Six months Year ended ended ended 31 August 31 August 28 February 2007 2006 2007 Notes (Unaudited) (Unaudited) (Audited) £000 £000 £000 Revenue 8,740 3,960 8,605Cost of sales (4,523) (2,112) (4,515)Gross profit 4,217 1,848 4,090 Operating expenses 2,810) (1,324) (3,020) Underlying operating profit 1,407 524 1,070 Share based payment charge 8 (200) (196) (388) Operating profit 1,207 328 682 Finance income 10 7 8 Profit before tax 1,217 335 690 Tax (330) (69) (86) Profit for the period 887 266 604 Earnings per share (pence) * 4Basic 0.58 0.27 0.58Diluted 0.52 0.25 0.52 * Earnings per share based on underlying profit is shown in the notes to thefinancial information. The results shown above relate to continuing operations and are attributable toequity shareholders of the Company. CONSOLIDATED BALANCE SHEETAT 31 AUGUST 2007 31 August 31 August 28 February 2007 2006 2007 Notes (Unaudited) (Unaudited) (Audited) £000 £000 £000AssetsNon-current assets Intangible assets - goodwill 5 14,463 7,986 8,487 Property, plant and equipment 1,400 739 675 15,863 8,725 9,162 Current assets Inventories 102 90 87 Trade and other receivables 3,936 1,948 2,268 Cash and cash equivalents 2,610 695 1,334 6,648 2,733 3,689Total assets 22,511 11,458 12,851 LiabilitiesCurrent liabilities Borrowings (116) (110) (70) Trade and other payables (3,085) (1,318) (1,721) Current tax liabilities (561) (69) (117) (3,762) (1,497) (1,908) Non-current liabilities Borrowings (181) (249) (215) Provisions for liabilities (539) (514) (500) and charges (720) (763) (715)Total liabilities (4,482) (2,260) (2,623)Net assets 18,029 9,198 10,228 Equity Share capital 7 1,618 1,118 1,118 Share premium account 13,165 7,860 7,860 Merger reserve 7,430 7,022 7,022 Other reserves 2,909 1,515 2,208 Retained losses (7,093) (8,317) (7,980)Total equity - attributable to 18,029 9,198 10,228equity shareholders of theCompany CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Six months Six months Year ended ended ended 31 August 31 August 28 February 2007 2006 2007 (Unaudited) (Unaudited) (Audited) Notes £000 £000 £000Net cash inflow from operationsCash generated from operations 9 1,387 334 1,177Interest paid (17) (8) (19)Tax paid (115) - (27)Net cash inflow from operating 1,255 326 1,131activities Investing activitiesAcquisition of subsidiary, net of (5,480) (482) (483)cash acquiredPurchase of property, plant and (152) (395) (498)equipmentSale of property, plant and 2 61 61equipmentInterest received 27 15 27Net cash used in investing (5,603) (801) (893)activities Financing activitiesProceeds from issue of shares, 5,771 - -net of costsRepayment of borrowings (147) (70) (144)New borrowings raised - 308 308Proceeds from exercise of share - 10 10optionsNet cash inflow from financing 5,624 248 174activities Net increase/(decrease) in cash 1,276 (227) 412and cash equivalents Cash and cash equivalents at 1,334 922 922beginning of periodCash and cash equivalents at end 10 2,610 695 1,334of period CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Share Share Merger Other Retained Total capital premium reserve reserves losses equity £000 £000 £000 £000 £000 £000 Six months ended 31 August 2007At 1 March 2007 1,118 7,860 7,022 2,208 (7,980) 10,228Share-based payment - - - 200 - 200chargeIssue of shares 500 5,594 408 - - 6,502Share issue costs - (289) - - - (289)Contingent consideration - - - 501 - 501Retained profit for the - - - - 887 887periodAt 31 August 2007 1,618 13,165 7,430 2,909 (7,093) 18,029 Six months ended 31 August 2006At 1 March 2006 951 7,860 5,189 1,319 (8,593) 6,726Share-based payment - - - 196 - 196chargeRelease of funds on - - - 1 9 10share distributionIssue of shares 167 - 1,833 - - 2,000Retained profit for the - - - - 266 266periodAt 31 August 2006 1,118 7,860 7,022 1,516 (8,318) 9,198 Year ended 28 February 2007At 1 March 2006 951 7,860 5,189 1,319 (8,593) 6,726Share-based payment - - - 388 - 388chargeRelease of funds on - - 1 9 10share distribution -Issue of shares 167 - 1,833 - - 2,000Contingent consideration - - - 500 - 500Retained profit for the - - - - 604 604periodAt 28 February 2007 1,118 7,860 7,022 2,208 (7,980) 10,228 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 1 Introduction In the year ended 28 February 2007, Tangent Communications plc ("the Company")and its subsidiaries (together "Tangent") prepared its consolidated financialstatements under UK generally accepted accounting principles ("UK GAAP"). Witheffect from 1 March 2007, the Company is required to prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards ("IFRS"). Tangent will therefore prepare both its consolidatedfinancial statements and its parent company financial statements for the yearending 28 February 2008 in compliance with IFRS. Tangent will present one yearof comparative IFRS information for the year ended 28 February 2007, andconsequently the date of transition is 1 March 2006 ("transition date"), beingthe first day of the comparative period. The first published results to beprepared on an IFRS basis are these results for the six months ended 31 August2007, which include comparative IFRS financial statements for the six monthsended 31 August 2006. The comparative figures for the year ended 28 February 2007 prepared under IFRSare not Tangent's statutory accounts for that financial year. Those accounts,which were prepared under UK GAAP, have been reported on by Tangent's auditorsand delivered to the registrar of companies. The report of the auditors was (i)unqualified, (ii) did not include a reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 237(2) or (3) of the CompaniesAct 1985. The financial information for the six months ended 31 August 2007 and31 August 2006 is unaudited. Tangent provides customised marketing services. Tangent's operations are alllocated within the UK and it makes sales primarily to UK based customers. Duringthe year, Tangent acquired control of Ravensworth Digital Services Limited, adigital marketing business operating in the UK. The Company is a public limited company, incorporated and domiciled in England.The address of its registered office is Truscott House, 32-42 East Road, LondonN1 6AD. Information required by AIM Rule 26 is available in the investor relationssection of Tangent's website at www.tangentuk.com The Company is listed on AIM, the Alternative Investment Market of the LondonStock Exchange, and has the TIDM code TNG. This Interim Report, including Tangent's consolidated financial information, wasauthorised for issue by the board of directors on 7 November 2007. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial information are set out below. These policies have beenconsistently applied to all the periods presented. 2.1 Basis of preparation This interim consolidated financial information of the Company and itssubsidiaries are for the six months ended 31 August 2007. This has been preparedin accordance with IAS 34 'Interim Financial Reporting', and is covered by IFRS1 'First-time adoption of IFRS', because it is part of the period covered byTangent's first IFRS financial statements for the year ending 28 February 2008.This interim financial information has been prepared in accordance with thoseIFRS standards effective as at the time of preparing this Interim Report. TheIFRS standards that will be applicable at 28 February 2008 including those thatwill be applicable on an optional basis, are not known with certainty at thetime of preparing this Interim Report. UK GAAP differs in some areas from IFRS. In preparing this consolidated interimfinancial information, the directors have amended certain accounting, valuationand consolidation methods applied in the UK GAAP financial statements to complywith IFRS. The comparative figures have been restated to reflect theseadjustments. Reconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on Tangent's equity, net assets, net income and cashflows are provided innote 11. The consolidated financial information has been prepared under the historicalcost convention and on a going concern basis. 2.2 Consolidation Subsidiaries are all entities which Tangent has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. Subsidiaries are fully consolidated from thedate on which control is transferred to Tangent. They are de-consolidated fromthe date that control ceases. All active subsidiaries were held by a direct 100%shareholding by the parent company at the balance sheet date. The purchase method of accounting is used to account for the acquisition ofsubsidiaries. The cost of an acquisition is measured as the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair value at the dateof acquisition. The excess of the cost of acquisition over the fair value ofTangent's share of the identifiable net assets acquired is recorded as goodwill. Intra-group transactions, balances and unrealised gains on transactions betweengroup companies are eliminated. Accounting policies of subsidiaries have beenchanged, where necessary, to ensure consistency with the policies adopted byTangent. 2.3 Revenue recognition Revenue comprises the fair value of the consideration received or receivable forthe sale of goods and services in the ordinary course of Tangent's activities.Revenue is shown net of value-added tax, returns, rebates and discounts andafter eliminating intra-group sales. Tangent recognises revenue when the amount of revenue can be reliably measured,it is probable that future economic benefits will flow to Tangent and specificdelivery criteria have been met. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 2.4 Segmental reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those of segments operatingin other economic environments. In the directors' opinion Tangent operates inone segment which cannot be subdivided in a meaningful way. 2.5 Foreign currency translation (a) Functional and presentational currency Items included in the financial information of each of Tangent's entities aremeasured in Sterling, which is the Company's and the Group's functional andpresentation currency. (b) Transactions and balances Foreign currency transactions are translated into Sterling using the exchangerates prevailing at the dates of the transactions. Exchange differences arisingfrom the translation at the year-end exchange rates of monetary assets andliabilities denominated in foreign currencies are recognised in the incomestatement. 2.6 Employee benefits (a) Pension obligations Tangent has defined contribution plans under which Tangent pays fixedcontributions into a separate entity. Tangent has no legal or constructiveobligations to pay further contributions relating to employee service in thecurrent and prior periods. The contributions are recognised as an employeebenefit expense when they are due. (b) Share-based compensation Tangent operates a number of equity-settled, share-based compensation plans. Thefair value of the employee services received in exchange for the grant of theoptions is recognised as an expense. The total amount to be expensed over theperiod until the option can be exercised is determined by reference to the fairvalue of the options granted, excluding the impact of any non-market vestingconditions (e.g. profitability and revenue growth targets). Non-market vestingconditions are included in the assumptions about the number of options that areexpected to vest. At each balance sheet date, Tangent revises its estimates ofthe number of options that are expected to vest. It recognises the impact of therevision to original estimates, if any, in the income statement, with acorresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the options areexercised. 2.7 Intangible assets - goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof Tangent's share of the net identifiable assets of the acquired subsidiary atthe date of acquisition. Goodwill on acquisition of subsidiaries is included inintangible assets. Goodwill is tested annually for impairment and carried atcost less accumulated impairment losses. Any impairment on goodwill isrecognised immediately in the income statement and is not subsequently reversed.Gains and losses on the disposal of an entity include the carrying amount ofgoodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairmenttesting. The allocation is made to those cash-generating units or groups ofcash-generating units that are expected to benefit from the business combinationin which the goodwill arose. Tangent currently allocates goodwill to a singlebusiness segment. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 2.8 Property, plant and equipment Property plant and equipment are stated at historic cost less subsequentdepreciation and impairment. Historic cost includes expenditure that is directlyattributable to the acquisition of the items. Depreciation on assets is calculated using the straight-line method to allocatetheir cost less their residual values over their estimated useful lives, asfollows: Buildings Over the term of the leasePlant and equipment 2 to 10 years The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Subsequent costs are included in an asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to Tangent and the cost of the itemcan be measured reliably. The carrying amount of a replaced part isderecognised. All other repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred. An asset's carrying amount is written down immediately to its recoverable amountif the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with thecarrying amount and are recognised in the income statement. 2.9 Inventories Inventories are stated at the lower of cost and net realisable value. 2.10 Trade receivables Trade receivables are recognised initially at fair value. A provision forimpairment of trade receivables is established when there is objective evidencethat the group will not be able to collect all amounts due according to theoriginal terms of the receivables. The amount of the provision is the differencebetween the asset's carrying amount and the present value of estimated futurecash flows. The carrying amount of the asset is reduced through the use of anallowance account, and the amount of the loss is recognised in the incomestatement within operating expenses. When a trade receivable is uncollectible,it is written off against the allowance account for trade receivables.Subsequent recoveries of amounts previously written off are credited againstoperating expenses in the income statement. 2.11 Cash and cash equivalents Cash and cash equivalents on the balance sheet include cash in hand, short termdeposits held with banks. Bank overdrafts are shown within borrowings in currentliabilities on the balance sheet. For the purposes of the cash flow statement,cash and cash equivalents also include the bank overdrafts. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 2.12 Leases Leases in which a significant portion of the risks and rewards of ownership areretained by the lessor are classified as operating leases. Payments underoperating leases (net of any incentives received from the lessor) are charged tothe income statement on a straight-line basis over the period of the lease. Tangent leases certain plant and equipment where Tangent has substantially allthe risks and rewards of ownership. These leases are classified as financeleases. Finance leases are capitalised at the lease commencement at the lower ofthe fair value of the leased property and the present value of the minimum leasepayments. Each finance lease payment is allocated between the liability and financecharges so as to achieve the explicit or implicit interest rate on the financebalance outstanding. The corresponding rental obligations, net of financecharges, are included in other short term and other long term borrowings. Theinterest element of the finance cost is charged to the income statement over thelease period. The property plant and equipment acquired under finance leases isdepreciated over the shorter of the useful life of the asset and the lease term. 2.13 Provisions Provisions are recognised when Tangent has a present legal or constructiveobligation as a result of past events, it is probable that an outflow ofresources will be required to settle the obligation and the amount has beenreliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to berequired to settle the obligation using a pre-tax rate that reflects currentmarket assessments of the time value of money and the risks specific to theobligation. The increase in the provision due to the passage of time isrecognised as interest expense. 2.14 Deferred tax Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. Deferred tax is notaccounted for if it arises from initial recognition of an asset or liability ina transaction other than a business combination that, at the time of thetransaction, affects neither accounting nor taxable profit or loss. Deferred taxis determined using tax rates that are expected to apply when the relateddeferred tax asset is realised or when the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profits will be available against which the temporary differences can beutilised. 2.15 Share capital Ordinary shares are classified as equity. Costs directly attributable to theissue of new shares are shown as equity as a deduction from the proceeds. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. Tangent makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, rarely equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to carrying amounts of assets and liabilities within thenext financial year are outlined below: (a) Intangible fixed assets Tangent tests annually whether goodwill has suffered any impairment, inaccordance with the accounting policy stated in note 2. The recoverable amountsfrom cash-generating units are determined based on value-in-use calculations.These calculations require the use of estimates. In arriving at the fair valueof goodwill, Tangent estimates the future consideration payable for acquisitionswhere the final consideration is contingent upon future events or performance.Estimated future consideration is reviewed and accrued at each balance sheetdate. If recoverable amounts of cash-generating units are below the estimated levelsor if the future consideration payable on acquisitions is higher than estimatedan impairment loss may be triggered. (b) Deferred tax Tangent estimates future profitability in arriving at the fair value of thedeferred tax assets and liabilities. If the final tax outcome is different tothe estimated deferred tax amount the resulting changes will be reflected in theincome statement, unless the tax relates to an item charged to equity in whichcase the changes in tax estimates will also be reflected in equity. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 4 Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing: Six months Six months ended ended Year ended 31 August 2007 31 August 2006 28 February 2007 £000 £000 £000Profit attributable to 887 266 604shareholdersShare based payments 200 196 388Underlying profitattributable toshareholders 1,087 462 992 Weighted average number of Number 000 Number 000 Number 000shares:For basic earnings per 153,161 98,297 104,278shareAdjustment for options 9,578 9,278 8,972outstandingAdjustment for contingent 8,342 - 2,665sharesFor diluted earnings per 171,081 107,575 115,915share Earnings per share: Pence per share Pence per share Pence per shareBasic 0.58 0.27 0.58Underlying basic 0.71 0.47 0.95 Diluted 0.52 0.25 0.52Underlying diluted 0.64 0.43 0.86 Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. Tangent has two categories of dilutive potentialordinary shares: share options and shares contingently issuable as considerationfor an acquisition. A calculation is performed for the share options to determine the number ofshares that could have been acquired at fair value based on the monetary valueof the subscription rights attached to the outstanding share options. The numberof shares from this calculation is compared with the number of shares that wouldhave been issued assuming the exercise of the options and the difference isdeemed to be the number of dilutive shares attributable to share options. The estimated number of shares that will be issued in the future as purchaseconsideration for current subsidiaries is deemed to be the number of dilutiveshares issuable as consideration for acquisitions. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 5 Intangible assets - Goodwill £000Cost and net book value:At 1 March 2007 8,487Additions 5,976At 31 August 2007 14,463 Additions to goodwill comprise £5,475,000 on the acquisition of RavensworthDigital Services Limited (note 6) and an additional £501,000 of contingentequity consideration that the directors estimate will be payable on theacquisition of Tangent Labs Limited. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 6 Acquisition On 27 March 2007 Tangent acquired 100% of the share capital of RavensworthDigital Services Limited ("Ravensworth"), a digital marketing business based inNewcastle, principally serving the property sector. The assets and liabilitiesarising from the acquisition are as follows: Book values Fair value Fair values adjustments £000 £000 £000 Property, plant and equipment 963 (139) 824Inventories 32 - 32Trade and other receivables 1,867 (56) 1,811Cash and cash equivalents 120 - 120Borrowings (159) - (159)Provisions for liabilities and charges (39) - (39)Trade and other payables (1,805) - (1,805)Current tax liabilities (234) 17 (217)Net assets 745 (178) 567 Goodwill 5,475Total consideration 6,042 Total consideration was paid asfollows:Cash 5,408Direct costs of acquisition 192Issue of shares 442 6,042 Net cash outflow arising from theacquisition was as follows:Purchase consideration settled in cash 5,408Costs of acquisition 192Cash and cash equivalents in (120)subsidiary acquired 5,480 No deferred or contingent consideration is payable as part of the acquisition ofRavensworth. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 7 Share capital The movements in share capital during the period was asfollows: Number of ordinary shares Nominal value 000 £000At 1 March 2007 111,780 1,118Issue of shares for cash at 13p per 46,615 466shareIssue of shares as part ofconsideration for acquisition ofsubsidiary at 13p per share 3,396 34At 31 August 2007 161,791 1,618 8 Share options and share-based payment charge The movements in share options and the corresponding weightedaverage exercise prices during the period were as follows: Weighted Number of average share options exercise price 000 PenceAt 1 March 2007 13,525 4.44Share options granted 790 7.15Share options lapsed (93) 12.12At 31 August 2007 14,222 4.70 For the share options outstanding at 31 August 2007 exercise prices rangedbetween 1p and 13.25p per share and the weighted average remaining contractuallife was 7.9 years. No options were exercised in the period. The fair value of share options granted in the period was calculated using aBlack-Scholes option pricing model. The volatility, measured as the standarddeviation of expected share price return, is based on statistical analysis ofthe FTSE Support Services Index over the past four years which resulted in anassumed volatility of 14%. The risk free interest rate has been assumed as 5.3%. The total share option charge for the period was £200,000 which relatesprincipally to the share options granted to directors in September 2005. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 9 Cash generated from operations Six months Six months ended ended Year ended 31 August 31 August 28 February 2007 2006 2007 £000 £000 £000Profit before tax for the period 1,217 335 690Depreciation 249 175 342Profit on sale of plant and equipment - (56) (56)Net interest income (10) (7) (8)Share based payment charge 200 196 388Decrease in inventories 17 8 11Decrease/(increase) in trade and other 144 (157) (464)receivables(Decrease)/increase in trade and other (430) (160) 274payablesCash generated from operations 1,387 334 1,177 10 Analysis of net funds At 1 Acquisition Cash At 31 March Flows August 2007 2007 £000 £000 £000 £000Cash at bank 1,334 120 1,156 2,610Bank borrowings - (52) 52 -Finance leases (285) (107) 95 (297) 1,049 (39) 1,303 2,313 11. Transition from UK GAAP to IFRS Tangent's first published results which have been prepared on an IFRS basis arethese for the six months ended 31 August 2007, which include comparative IFRSfinancial information for the six months ended 31 August 2006 and the year ended28 February 2007. Set out below are extracts from Tangent's consolidated financial statements forthe year ended 28 February 2007 and the consolidated financial information forthe six months ended 31 August 2006 restated in accordance with IFRS includingthe income statements and balance sheets showing in each case the equivalentstatement under UK GAAP and reconciliations between UK GAAP and IFRS. Thesestatements constitute preliminary comparative IFRS financial information in thecontext of the financial information for the six months ended 31 August 2007.This note also includes Tangent's balance sheet under IFRS at the transitiondate (1 March 2006), together with a reconciliation to the originally publishedUK GAAP balance sheet at that date. Cash flow statements have not been preparedas there are no adjustments. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 There are no changes to the parent company's financial information resultingfrom the transition from UK GAAP to IFRS at the transition date of 1 March 2006and for the six months ended 31 August 2006 and the year ended 28 February 2007,therefore, no financial information is shown below for the Company. The changes on the transition to IFRS arise from the following principalfactors: (i) Presentation of financial information Presentation has been changed to be in compliance with IAS 1: 'Presentation ofFinancial Statements' and terminology has also been changed to reflect headingsused in IFRS. The cash flow statements are presented in accordance with IAS 7 'Cash FlowStatements'. Cash flows have been grouped under three main headings, cash flowsfrom operating, investing and financing activities; these headings differ fromthose presented under UK GAAP. (ii) IFRS 3 'Business Combinations' Under IFRS, goodwill arising on acquisition is capitalised and subject to anannual impairment review. Under UK GAAP, goodwill was amortised over itsestimated useful life. Consequently under IFRS, this amortisation charge hasbeen reversed from the consolidated income statement and added back to the netbook value of goodwill. IFRS 1 'First-time Adoption of International Financial Reporting Standards'permits companies adopting IFRS for the first time to take certain exemptionsfrom the full requirements of IFRS in the transition period. The interimfinancial information has been prepared on the basis of the following materialexemptions: Net book value as deemed cost IFRS 1 does not require a company to recreate cost information for property,plant and equipment and goodwill. The Group's net book value of goodwill at 1March 2006 is the deemed cost under IFRS going forward. These costs willtherefore be used as the basis for subsequent impairment tests for goodwill. Accounting estimates IFRS 1 prohibits the use of hindsight to correct estimates made under previousGAAP unless there is objective evidence of error. The Group used the sameestimates made under UK GAAP for the opening IFRS balance sheet at 1 March 2006. Statement of directors' responsibilities The directors consider, in preparing the preliminary comparative IFRS financialinformation, that the Company and the Group have used appropriate accountingpolicies, consistently applied and supported by reasonable and supportablejudgments and estimates; and these accounting principles include the assumptionsthe directors have made about the standards and interpretations expected to beeffective, and the policies expected to be adopted, when they prepare the firstcomplete set of IFRS financial statements for the year ending 28 February 2008.All accounting standards which the directors consider to be applicable havetherefore been followed including the preparation of the preliminary comparativeIFRS financial information. NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Balance sheet at 1 March 2006 (date of transition) Effect of transition UK GAAP to IFRS IFRS £000 £000 £000AssetsNon-current assets Intangible assets - goodwill 5,051 - 5,051 Property plant and equipment 516 - 516 5,567 - 5,567 Current assets Inventories 98 - 98 Trade and other receivables 1,656 - 1,656 Cash and cash equivalents 922 - 922 2,676 - 2,676Total assets 8,243 - 8,243 LiabilitiesCurrent liabilities Borrowings (108) - (108) Trade and other payables (1,362) - (1,362) Current tax liabilities (2) - (2) (1,472) - (1,472) Non-current liabilities Borrowings (13) - (13) Provisions for liabilities (32) - (32) and charges (45) - (45)Total liabilities (1,517) - (1,517)Net assets 6,726 - 6,726 Equity Share capital 951 - 951 Share premium account 7,860 - 7,860 Merger reserve 5,189 - 5,189 Other reserves 1,319 - 1,319 Retained losses (8,593) - (8,593)Total equity and reserves 6,726 - 6,726 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Balance sheet at 31 August 2006 (comparative interim date) Effect of transition UK GAAP to IFRS IFRS £000 £000 £000AssetsNon-current assets Intangible assets - goodwill 7,827 159 7,986 Property plant and equipment 739 - 739 8,566 159 8,725 Current assets Inventories 90 - 90 Trade and other receivables 1,948 - 1,948 Cash and cash equivalents 695 - 695 2,733 - 2,733Total assets 11,299 159 11,458 LiabilitiesCurrent liabilities - Borrowings (110) - (110) Trade and other payables (1,318) - (1,318) Current tax liabilities (69) - (69) (1,497) - (1,497) Non-current liabilities Borrowings (249) - (249) Provisions for liabilities (514) - (514) and charges (763) - (763)Total liabilities (2,260) - (2,260)Net assets 9,039 159 9,198 Equity Share capital 1,118 - 1,118 Share premium account 7,860 - 7,860 Merger reserve 7,022 - 7,022 Other reserves 1,516 - 1,516 Retained losses (8,477) 159 (8,318)Total equity and reserves 9,039 159 9,198 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Balance sheet at 28 February 2007 (comparative year end date) Effect of transition UK GAAP to IFRS IFRS £000 £000 £000AssetsNon-current assets Intangible assets - goodwill 8,102 385 8,487 Property plant and equipment 675 - 675 8,777 385 9,162 Current assets Inventories 87 - 87 Trade and other receivables 2,268 - 2,268 Cash and cash equivalents 1,334 - 1,334 3,689 - 3,689Total assets 12,466 385 12,851 LiabilitiesCurrent liabilities Borrowings (70) - (70) Trade and other payables (1,721) - (1,721) Current tax liabilities (117) - (117) (1,908) - (1,908) Non-current liabilities Borrowings (215) - (215) Provisions for liabilities (500) - (500) and charges (715) - (715)Total liabilities (2,623) - (2,623)Net assets 9,843 385 10,228 Equity Share capital 1,118 - 1,118 Share premium account 7,860 - 7,860 Merger reserve 7,022 - 7,022 Other reserves 2,208 - 2,208 Retained losses (8,365) 385 (7,980)Total equity and reserves 9,843 385 10,228 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 Income statement for six months ended 31 August 2006 (comparative interimperiod) Effect of transition UK GAAP to IFRS IFRS £000 £000 £000Revenue 3,960 - 3,960Cost of sales (2,112) - (2,112)Gross profit 1,848 - 1,848 Operating expenses (1,324) - (1,324)Underlying operating profit 524 - 524 Amortisation of goodwill (159) 159 -Share-based payments (196) - (196)Operating profit 169 159 328 Finance costs - net 7 - 7Profit before tax 176 159 335 Tax (69) - (69) Profit for the period 107 159 266 Income statement for year ended 28 February 2007 (comparative annual period) Effect of transition UK GAAP to IFRS IFRS £000 £000 £000Revenue 8,605 - 8,605Cost of sales (4,515) - (4,515)Gross profit 4,090 - 4,090 Operating expenses (3,020) - (3,020)Underlying operating profit 1,070 - 1,070 Amortisation of goodwill (385) 385 -Share-based payments (388) - (388)Operating profit 297 385 682 Finance costs - net 8 - 8Profit before tax 305 385 690 Tax (86) - (86) Profit for the period 219 385 604 NOTES TO THE FINANCIAL INFORMATIONFOR THE SIX MONTHS ENDED 31 AUGUST 2007 12. Further copies of the Interim Report The interim report is being sent to shareholders and further copies areavailable at the Tangent Communications plc registered office, Truscott House,32-42 East Road, London N1 6AD. COMPANY INFORMATIONAS AT 31 AUGUST 2007 Directors Piers Caldecote Non-executive chairman Nicholas Green Joint chief executive Timothy Green Joint chief executive Graeme Harris Finance director Paul Murray Non-executive director Company secretary Graeme Harris Company number 3967805 Registered office Truscott House 32-42 East Road London N1 6AD Nominated adviser and broker Collins Stewart Europe Limited 88 Wood Street London EC2V 7QR Solicitors Rosenblatt St Andrew House 18-20 St Andrew Street London EC4A 3AF Group auditors UHY Hacker Young LLP St. Alphage House 2 Fore Street London EC2Y 5DH Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Bankers HSBC Bank plc 60 Queen Victoria Street London EC4N 4TR INDEPENDENT REVIEW REPORT BY THE AUDITORSTO TANGENT COMMUNICATIONS PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 31 August 2007 which comprises the consolidated incomestatement, consolidated balance sheet, consolidated statement of changes inequity, consolidated cash flow statement and related notes. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with the terms of ourengagement. Our review has been undertaken so that we might state to the Companythose matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company for our review work, for thisreport, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM ruleswhich require that the half-yearly report must be presented and prepared in aform consistent with that which will be adopted in the AIM company's annualaccounts having regard to the accounting standards applicable to such annualfinancial statements. As disclosed in note 1 to the financial information, the next annual financialstatements of the group will be prepared in accordance with IFRSs as adopted bythe European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with IFRSs as adopted by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the UK. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the financial information andunderlying financial data and, based thereon, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (UK and Ireland) and therefore provides a lower level of assurance thanan audit. Accordingly, we do not express an audit opinion on the financialinformation. 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 August 2007. UHY Hacker Young LLPChartered AccountantsLondon 7 November 2007 Notes 1. The maintenance and integrity of the Tangent Communications plcwebsite is the responsibility of the directors; the work carried out by theauditors does not involve consideration of these matters and, accordingly, theauditors accept no responsibility for any changes that may have occurred to theinterim report or the auditors' review report since they were initiallypresented on the website. 2. Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock Exchange