4th Apr 2008 07:00
Pennant International Group PLC04 April 2008 Pennant International Group plc Preliminary Results for the year ended 31 December 2007 4 April 2008 Pennant International Group plc ("Pennant" or "the Company"), the AIM quotedsupplier of integrated logistic support solutions principally to the defence,rail, aerospace and naval markets, and products and services to a number ofGovernment Departments, announces preliminary results for the year ended 31December 2007. It is expected that the annual report and accounts will be postedto shareholders on 11 April 2008 and will be available from the Company'sregistered office and the Company's website at www.pennantplc.com, from thisdate. Turnover, operating profits, earnings per share and dividends all increasedsubstantially compared to the previous year, while the completion of the sale ofthe Group's freehold property in Southampton during the second half contributedto a much improved cash position at the year-end. Results highlights • Third successive year of increased profits, earnings and dividends. • Group turnover up 9% to £12.35 million (2006: £11.31 million). • Group operating profit up 67% to £1.23 million (2006: £0.74 million) including profit on sale of freehold property of £0.38 million (2006: Nil). • Group trading profit up 16% to £0.86 million (2006: £0.74 million). • Earnings per share (basic) up 82% to 3.23 pence (2006: 1.77 pence) including profit on sale of freehold property (2006: Nil). • Earnings per share (basic) from trading activities up 15% to 2.03 pence (2006: 1.77 pence). • Net cash at year-end of £0.80 million (2006: Nil), including net proceeds from sale of freehold property of £0.75million (2006: Nil). • Proposed final dividend per share up 10% to 0.44 pence (2006: 0.40 pence), making a total dividend per share for the year of 0.66 pence (2006: 0.60 pence). In his statement to shareholders, Mr Christopher Powell, Chairman, said: "Your Board has continued its approach to develop further our core strengths bycontinually enhancing our products and services in line with advances intechnology and by nurturing long-term customer relationships in existing and newmarkets. This has again paid dividends with a third successive year of growth." On current trading and prospects, Mr Powell added: "The Software and Data Services Divisions have good forward visibility while theTraining Systems Division has a number of long-term contracts that run through2008 and are expected to increase in scope and value. Notwithstanding this, theTraining Systems Division may see a reduction in revenues due to budget cuts anddelays to contract placement by the UK Government. "Tendering for medium-term opportunities, both in the UK and overseas, remainsat a satisfactory level and the Group is underpinned by a robust balance sheetand strong cash resources. Your Board remains confident for the future." Enquiries: Pennant International Group plc Tel: 01452 714914Chris Snook, Chief ExecutiveJohn Waller, Finance Director W.H. Ireland Tel: 0121 265 6330Katy Birkin Winningtons Financial Tel: 0117 920 0092Paul Vann/Tom Cooper CHAIRMAN'S STATEMENT AND BUSINESS REVIEW I am pleased to announce the third successive year of increased profits anddividend and a strong cash position. In addition to a satisfactory tradingperformance, the results and cash position have benefited from the successfulcompletion of the sale of property in Southampton. Results and dividend Group turnover rose by 9% to £12,349,683 (2006: £11,311,954). Operating profits increased by 67% to £1,233,554 (2006: £740,700) and compriseprofits arising from trading of £857,557, a 16% increase over 2006, plus theprofit on sale of property of £375,997 (2006: Nil). Earnings were £1,013,259 (2006: £558,600) giving basic earnings per share of3.23p (2006: 1.77p) an increase of 82%. Basic earnings per share excluding theprofit on sale of property were 2.03p (2006: 1.77p) an increase of 15%. The tax charge at 9.4% (2006: 7.8%) of pre-tax profit reflects the benefit ofsignificant tax losses. The Group has tax losses in the UK of £1.24 million andin the USA of £1.5 million (arising from past acquisitions) available forset-off against future profits. The cash position strengthened; net funds at the year end were £804,010 (2006:£1,520). The increase included net proceeds from the sale of property of£748,519. Your Board is recommending a final cash dividend of 0.44p per share (2006:0.40p) which, together with the interim dividend of 0.22p per share gives atotal dividend for the year of 0.66p (2006: 0.60p). The total dividend is 3times covered by earnings excluding the profit on sale of property. The finaldividend will be paid on 20 June 2008 to shareholders on the register at closeof business on 23 May 2008. The shares are expected to go ex-dividend on 21 May2008. Strategy The Board has continued its approach: • To develop the Group's core strengths by maintaining domain and platform expertise to complement customer requirements and continually enhancing its products and services in line with advances in technology. • To grow long term customer relationships in existing and new markets. The Group's sales team has been strengthened during the year to improve coverage and penetration. The Group operates principally in the defence, rail, aerospace and naval marketsand also supplies products and services to Government departments. The Groupwins work from customers as they introduce new products and services or as theysecure work on new platforms and as existing platforms are updated. Asignificant part of the Group's revenue comes from major capital programmes andthe timing of these contracts is usually beyond the Group's control. A principalmedium-term risk reduction objective is therefore to increase the level of theGroup's recurring revenues from product support contracts and softwareconsultancy and maintenance contracts. The Board's approach has produced progress in each of the Group's threedivisions during the year: Training Systems The Training Systems division provides and supports specialist training systemsbased on software emulation, hardware simulation and computer based training forengineer training. The division's sales revenue increased by 13% in 2007 to £6.0 million andprofitability improved significantly; highlights included: • The addition of further equipment to the service provision contract awarded by the MOD in 2006. These packages boost the value of the service provision contract which was originally worth £3.8 million over 5 years until 2011. • Significant success in establishing a position in the naval market by winning two major contracts both of which will be in production throughout 2008: o A contract with BAE Insyte to provide computer based training courseware as part of the Royal Navy's Maritime Composite Training System which covers warfare operator training across the surface fleet. o A contract won in partnership with BAE Insyte under which Pennant is supplying maintenance training media for the T45 Destroyer Warfare System. • Scope and value growth in two large contracts with BAE for training equipment associated with their delivery of aircraft. These contracts now run well into 2008. Data Services The Data Services division supplies electronic documentation, e-learningproducts, virtual reality products, electronic data, publicity and newsletters,parts catalogues and authoring in support of technical products and skills. Thedivision has maintained its sales revenue at £3.4 million. This division has also made progress in the naval arena supplying data modulesand maintenance task analysis to BAE Systems in respect of the T45 Destroyer.This work continues into 2008. Other contracts in progress during the year have been: • Projects with Kawasaki for rail projects in Taiwan and the USA. • Two orders under a framework agreement with Siemens in Germany for documentation relating to rail projects in the USA. • Delivery of further e-learning packages to the Department of Work and Pensions in the UK. • A virtual reality walkthrough of a submarine in collaboration with Flagship Training Limited Profitability in this division has been below expectations arising from majorreorganisations within Government and other customers disrupting the flow oforders and from start-up costs on a major contract. The management of thedivision has been strengthened and the division will benefit from theimprovements to the Group's sales team. Software Services The Software Services division provides and supports software tools used tosupport complex long-life assets. It owns the rights to the market-leadingOmegaPS suite of software which is sold world-wide and used by many majordefence contractors and by the Defence Authorities in both Canada and Australia.During the year sales revenue increased by 8% to £2.96 million and the tradingresult improved by 35% The division continues to benefit from the on-going roll-out of the CanadianGovernment's Materiel Acquisition and Support Information System (MASIS), ofwhich Pennant's OmegaPS supportability engineering software is a component. Asthe project reaches its fifth phase the implementation support provided byPennant is expected to increase. Also the Australian Defence Organisation hascontinued to place orders to develop further its use of the OmegaPS softwaresuite. In 2007, the division sold and installed Omega software to a number of newcustomers including, amongst others, Alenia in Italy, MAN trucks in Germany,Logica in the UK, Boeing in Australia and the Helicopter Institute in China. Joint Venture The joint venture with Sonovision-ITEP, setup to provide technical documentationand engineering support, principally for Airbus, has continued to suffer fromthe ongoing delays and problems at Airbus. Ongoing losses have been reduced bythe closure of the office in Bristol and the redistribution of work to Pennant'sManchester office. People Max Pearce, a non-executive director of the Company, will retire from the Boardat the AGM. He has served as a director since the flotation of the Company in1998. His valued advice and counsel has made a significant contribution to theGroup's development. A search and selection process to appoint a replacementnon-executive director is underway. I would like once again to express the Board's very genuine thanks to theGroup's personnel for a year of considerable effort and achievement. Outlook The Software and Data Services divisions have good forward visibility. TrainingSystems division has a number of long-term contracts that run through 2008 andare expected to increase in scope and value. Notwithstanding this, the divisionmay see a reduction in revenues due to budget cuts and delays to contractplacement by the UK Government. Tendering for medium-term opportunities, in the UK and overseas, remains at asatisfactory level and the Group is underpinned by a robust balance sheet andstrong cash resources. Your Board remains confident for the future. C C Powell Chairman 3 April 2008 CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 £ £Revenue 3 12,349,683 11,311,954Cost of sales (7,936,361) (7,196,241) Gross profit 4,413,322 4,115,713Administration expenses (3,555,765) (3,375,013)Profit on sale of assets held for sale 375,997 - Operating Profit 1,233,554 740,700Share of results of joint venture (33,070) (67,119) 1,200,484 673,581 Finance costs 8 (92,292) (75,262)Finance income 9 9,991 7,368 Profit before taxation 1,118,183 605,687Taxation 10 (104,924) (47,087) Profit for the year attributable to equity holders of 6 1,013,259 558,600parent Earnings per share 12Basic 3.23p 1.77pDiluted 3.02p 1.65p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 £ £Exchange differences on translation of foreign operations 101,860 (63,905)Net income/(losses) recognised directly in equity 101,860 (63,905)Profit for the year 1,013,259 558,600Total recognised income and expenses for the year attributable to 1,115,119 494,695equity holders of the parent CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2007 Notes 2007 2006 £ £Non-current assetsGoodwill 13 909,697 904,228Other intangible assets 14 117,731 43,008Property, plant and equipment 15 2,051,477 2,073,213Equity accounted interest in joint venture 16 16,956 60,027Available for sale investments 17 6,135 6,135Deferred tax assets 26 19,629 16,966Total non-current assets 3,121,625 3,103,577 Current assetsInventories 18 27,378 112,939Trade and other receivables 20 3,161,595 2,794,276Cash and cash equivalents 21 1,568,620 909,609Assets held for sale - 372,522Total current assets 4,757,593 4,189,346Total assets 7,879,218 7,292,923 Current liabilitiesTrade and other payables 23 1,445,520 1,530,004Current tax liabilities 104,779 52,791Obligations under finance leases 24 1,089 1,054Bank loan 22 147,559 141,338Deferred revenue 25 414,838 370,041Total current liabilities 2,113,785 2,095,228Net current assets 2,643,808 2,094,118Non-current liabilitiesBank loan 22 614,430 763,952Obligations under finance leases 24 1,532 1,744Deferred tax liabilities 26 32,000 32,000Deferred revenue 25 25,781 25,877Total non-current liabilities 673,743 823,573Total liabilities 2,787,528 2,918,801Net assets 5,091,690 4,374,122EquityShare capital 27 1,600,000 1,600,000Share premium account 3,582,329 3,582,329Retained earnings 28 (128,594) (744,302)Translation reserve 29 37,955 (63,905)Total equity 5,091,690 4,374,122 CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 £ £Net cash from operations 30 563,799 773,120Investing activitiesInterest received 9,991 7,368Proceeds on disposal of property, plant 748,519 4,507 and equipmentPurchase of intangible assets (107,542) (25,585)Purchase of property, plant and equipment (154,120) (213,005)Loan to Joint Venture 10,000 (45,000)Net cash from/(used in) investing activities 506,848 (271,715)Financing activitiesDividends paid (194,098) (161,490)Transactions in own shares (176,225) (4,339)Repayment of borrowings (143,301) (141,062)Repayment of obligations under finance leases (177) (10,321)Net cash used in financing activities (513,801) (317,212)Net increase in cash and cash equivalents 556,846 184,193Cash and cash equivalents at beginning of year 909,609 797,676Effect of foreign exchange rates 102,165 (72,260)Cash and cash equivalents at end of year 21 1,568,620 909,609 Approved by the Board on 3 April 2008 and signed on its behalf C Snook J M WallerDirector Director NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2007 1. General information Pennant International Group plc is a company incorporated in England and Walesunder the Companies Act 1985. The address of the registered office is: Pennant Court Staverton Technology Park Cheltenham GL51 6TL The principal activity of Group companies during the year was the delivery ofintegrated logistic support solutions. These comprise Logistic Support AnalysisReport software, technical documentation, simulation and computer based trainingsystems to customers worldwide; principally those in defence and aerospace, butalso in rail transport, oil & gas, petro-chemical, power, customer goods retail,information technology and telecommunications industries. 2. Accounting policies Basis of preparation The financial statements of Pennant International Group plc have been preparedfor the first time in accordance with International Financial ReportingStandards (IFRS) as adopted for use in the EU applied in accordance with theprovisions of the Companies Act 1985. Standards and interpretations issued but not yet effective At the date of authorisation of these financial statements, the followingStandards and Interpretations which have not been applied to these financialstatements were in issue but not yet effective. The directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements. Standards Effective forIFRS 2 Share -based payment - Amendment relating to Annual periods beginning on or after 1 vesting conditions and cancellations. January 2009. Revised 2008IFRS 3 Business combinations - Comprehensive revision on Annual periods beginning on or after 1 applying acquisition method. July 2009. Revised 2008IFRS 8 Operating segments. Annual periods beginning on or after 1 January 2009. Original issuance 2006 IAS 1 Presentation of Financial Statements - Comprehensive Annual periods beginning on or after 1 revision including requiring of statement of January 2009. comprehensive income. 2007IAS 1 Presentation of Financial Statements - Amendments Annual periods beginning on or after 1 relating to disclosure of puttable instruments and July 2009. obligations arising on liquidation. 2008IAS 23 Borrowing costs - Comprehensive revision to prohibit Borrowing costs relating to qualifying immediate expensing 2005. assets for which the commencement date for capitalisation is on or after 1 2007 January 2009.IAS 27 Consolidated and Separate Financial Statements - Annual periods beginning on or after 1 Consequential amendments arising from amendments to July 2009 IFRS 3. 2008IAS 27 Investments in Associates - Consequential amendments Annual periods beginning on or after 1 arising from amendments to IFRS 3. July 2009 2008IAS 31 Interest in Joint Ventures - Consequential Annual periods beginning on or after 1 amendments arsing from amendments to IFRS 3. July 2009 2008IAS 32 Financial Instruments: presentation - Amendments Annual periods beginning on or after 1 relating to puttable instruments and obligations January 2009. arising on liquidation. 2008 Interpretations IFRIC 11 IFRS 2 group and Treasury Share Transactions Annual periods beginning on or after 1 March 2007IFRIC 12 Service Concession Arrangements Annual periods beginning on or after 1 January 2008IFRIC 13 Customer Loyalty Programmes Annual periods beginning on or after 1 July 2008IFRIC 14 IAS 19 - The Limit of a Defined Benefit Asset, Requirements and their Interaction Minimum Funding Requirements and their Interaction Annual periods beginning on or after 1 January 2008. The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies set out below have been consistently applied toall periods presented. IFRS transition IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Thefinancial statements have been prepared on the basis of the followingexemptions: • Business combinations prior to January 2006 have not been restated to comply with IFRS 3 'Business Combinations'. • The Group has elected to deem the cumulative currency translation differences on its net investments in foreign operations to be £nil at 1 January 2006. • The Company has elected to use a previous UK GAAP valuation of an item of Property, Plant and Equipment, before the date of transition to IFRS, as deemed cost at the date of that valuation. • The Group has applied IFRS 2 'Share-based payments' except to those equity settled awards that were granted on or before 7 November 2002. The disclosures required by IFRS 1 concerning the transition from UK GAAP toIFRS are given in note 38. Basis of consolidation The financial statements incorporate the results of the Company and entitiescontrolled by the Company (its subsidiaries). Control is achieved where theCompany has power to govern the financial and operating policies of the investeeentity so as to obtain benefits from its activities. Where necessary, adjustments are made to the results of subsidiaries to bringaccounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Business combinations and goodwill On acquisition, the assets and liabilities and contingent liabilities of thesubsidiaries are measured at their fair value at the date of acquisition. Anyexcess of cost of acquisition over fair values of the identifiable net assetsacquired is recognised as goodwill. Any deficiency of cost of acquisition belowthe fair value of the identified net assets acquired (i.e. discount onacquisition) is credited to profit and loss account in the period ofacquisition. Goodwill arising on consolidation is recognised as an asset andreviewed for impairment at least annually. Any impairment is recognisedimmediately in the profit and loss account and is not subsequently reversed. Interest in joint venture The results and assets and liabilities of joint ventures are incorporated usingthe equity method of accounting. Investments in joint ventures are carried inthe balance sheet at cost as adjusted by post acquisition changes in the Group'sshare of the net assets of the joint venture less any impairment in the value ofthe individual investments. Losses of a joint venture in excess of the Group'sinterest in that joint venture are not recognised. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, VAT and other sales relatedtaxes. Sales of goods are recognised when goods are delivered and title has passed. Revenues arising from the software maintenance programme provided to customersare invoiced in advance but recognised as revenue across the period to which themaintenance agreements relate. Amounts not taken to revenue at a period end areshown in the balance sheet as deferred revenue. Revenue from construction contracts is recognised in accordance with the Group'saccounting policy on constructions contracts (see below). Construction contracts Where the outcome of a construction contract can be estimated reliably, revenueand costs are recognised by reference to the stage of completion of the contractactivity at the balance sheet date. This is normally measured by the proportionthat contract costs incurred for work performed to date bear to the estimatedtotal contract costs, except where this would not be representative of the stageof completion. Variations in contract work, claims and incentive payments areincluded to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably,contract revenue is recognised to the extent of contract costs incurred where itis probable they will be recoverable. Contract costs are recognised as expensesin the period in which they are incurred. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. Foreign currency The individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed in poundssterling, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at rates of exchange prevailing on the dates of the transactions.At the balance sheet date, monetary assets and liabilities that are denominatedin foreign currencies are retranslated at the rates prevailing on the balancesheet date. Non-monetary items carried at fair value that are denominated in foreigncurrencies are translated at the rates prevailing at the date when the fairvalue was determined. Non-monetary items that are measured in terms ofhistorical cost in foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in the profit and loss account for the period exceptfor differences arising on the retranslation of non-monetary items in respect ofwhich gains and losses are recognised directly in equity. For such monetaryitems, any exchange component of the gain or loss is also recognised directly inequity. For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for theperiod, unless exchange rates fluctuate significantly during the period, inwhich case the exchange rates at the date of transactions are used. Exchangedifferences arising, if any, are classified as equity and transferred to theGroup's translation reserve. Such translation differences are recognised asincome and expense in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rates. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from the net profits as reported on the income statement becauseit excludes items of income and expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all temporary differences anddeferred tax assets are recognised to the extent that it is probable that thetaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for temporary differences arising oninvestments in subsidiaries, and interest in joint ventures, except where theGroup is able to control the reversal of the temporary differences and it isprobable that the temporary differences will not reverse in the foreseeablefuture. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or at least realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Share-based payment The Group issues equity-settled share based payments to certain employees.Equity-settled share based payments are measured at fair value (excluding theeffect of non market-based vesting conditions) at the date of grant. The fairvalue determined at the date of grant is expensed on a straight-line basis overthe vesting period, based on the Group's estimate of shares that will eventuallyvest and adjusted for the effect of non market-based vesting conditions. Fair value is measured by use of the binomial model. The expected life used inthe model has been adjusted, based on management's best estimate, for theeffects of non-transferability, exercise restrictions and behaviouralconditions. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. Depreciation is charged to write off the cost of assets over their estimateduseful lives on the following bases: Freehold land Nil Freehold buildings Net book value at 1 January 2007 being Short leasehold buildings written off over 35 years on a straight line basis. Long leasehold buildings (previously 1% per annum on cost or valuation) Plant and equipment 10% to 25% of written down value per annum Computers 33 1/3% of cost per annum Motor vehicles 25% of cost per annum Internally-generated intangible assets An internally generated intangible asset arising from the Company's softwaredevelopment is recognised only if all of the following conditions are met: • an asset is created that can be identified: • it is probable that the asset created will generate future economic benefits: and • the development cost of the asset can be measured reliably. Internally-generated intangible assets are amortised on a straight-line basisover their useful lives, normally three years. Where no internally-generatedintangible asset can be recognised, development expenditure is recognised as anexpense in the period in which it is incurred. Internally-generated assets areonly amortised when complete. Intangible assets Intangible assets are stated at cost less accumulated amortisation and anyrecognised impairment loss. Amortisation is charged to write off intangibleassets over their estimated useful lives on the following basis: Computer software 33 1/3% Inventories Inventories are stated at the lower of cost and net realisable value. Costcomprises direct materials and, where applicable, direct labour costs andoverheads that have been incurred in bringing the inventories to their presentlocation and condition. Net realisable value represents the estimated sellingprice less all estimated costs of completion and costs to be incurred inmarketing, selling and distribution. Financial instruments Financial assets and liabilities are recognised in the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables are measured at initial recognition at fair value, andsubsequently measured at amortised cost using the effective interest ratemethod. A provision is established when there is objective evidence that theGroup will not be able to collect all amounts due. The amount of any provisionis recognised in the income statement. Available for sale investments Available-for-sale investments are initially measured at cost, includingtransaction costs. At subsequent reporting dates available-for-sale investmentsare measured at fair value or cost where fair value is not readilyascertainable. Gains and losses arising from changes in fair value arerecognised directly in equity until the investment is disposed of or isdetermined to be impaired, at which time the cumulative gain or loss recognisedpreviously in equity is included in the income statement for the period.Dividends are recognised in the income statement when the right to receivepayment has been established. Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short term bankdeposits with an original maturity date of three months or less. Trade payables Trade payables are initially measured at fair value, and subsequently measuredat amortised cost, using the effective interest rate method. Financial liabilities Financial liabilities and equity instruments issued by the Group are classifiedin accordance with the substance of the contractual arrangements entered intoand the definition of a financial liability and an equity instrument. An equityinstrument is any contract that evidences a residual interest in the assets ofthe Group after deducting all of its liabilities. Equity instruments issued bythe Company are recorded at the proceeds received, net of direct issue costs. Bank borrowings Interest bearing bank loans, overdrafts and other loans are recorded at theproceeds received, net of direct issue costs. Finance costs are accounted for onthe accruals basis in the income statement using the effective interest rate. 3. Revenue An analysis of the Group's revenue is as follows: 2007 2006 £ £Sale of goods 448,731 333,878Rendering of service 1,681,995 1,449,962Revenue from construction contracts 9,391,229 8,682,421Software maintenance programme 827,728 845,693 12,349,683 11,311,954Investment income 9,991 7,368 12,359,674 11,319,322 4. Business and geographical segments For management purposes the Group is currently organised into three operatingdivisions - Training Systems, Data Services and Software. These divisions arethe basis on which the Group reports its primary segment information. Training Systems Data Services Software Eliminations Consolidated £ £ £ £ £2007 RevenueExternal sales 5,991,396 3,399,833 2,958,454 - 12,349,683Inter-segment sales - 318,249 82,864 (401,113) -Total revenue 5,991,396 3,718,082 3,041,318 (401,113) 12,349,683Result 737,025 13,041 396,850 - 1,146,916Unallocated corporate (289,359)expensesProfit on sale of 375,997propertyShare of results of (33,070)joint ventureOperating profit 1,200,484Finance income 9,991Finance costs (92,292)Profit before tax 1,118,183Tax (104,924)Profit after tax 1,013,259 Training Systems Data Services Software Eliminations Consolidated £ £ £ £ £2006 RevenueExternal sales 5,287,642 3,294,471 2,729,841 - 11,311,954Inter-segment sales - 331,795 61,842 (393,637) -Total revenue 5,287,642 3,626,266 2,791,683 (393,637) 11,311,954Result 260,245 156,790 294,595 - 711,630Unallocated corporate 29,070expensesShare of results of (67,119)joint ventureOperating profit 673,581Finance income 7,368Finance costs (75,262)Profit before tax 605,687Tax (47,087)Profit after tax 558,600 Training Systems Data Services Software Eliminations Consolidated £ £ £ £ £2007Capital additions 71,482 83,198 106,982 - 261,662Depreciation and (150,102) (38,908) (21,603) - (210,613)amortisationBalance sheetAssetsSegment assets 5,040,275 2,100,906 3,815,836 (3,520,736) 7,436,281Interest in joint 16,956ventureUnallocated corporate 425,980assetsConsolidated total 7,879,217assetsLiabilitiesSegment liabilities 1,982,398 1,259,472 1,498,444 (2,782,954) 1,957,360Unallocated corporate 830,168liabilitiesConsolidated total 2,787,528liabilities Training Systems Data Services Software Eliminations Consolidated £ £ £ £ £2006Capital additions 156,667 47,125 34,798 - 238,590Depreciation and (140,601) (24,236) (27,098) - (191,935)amortisationBalance sheetAssetsSegment assets 4,550,303 2,004,576 3,128,281 (2,557,792) 7,125,368Interest in joint 60,027ventureUnallocated corporate 107,528assetsConsolidated total 7,292,923assetsLiabilitiesSegment liabilities 2,216,421 1,117,258 1,190,537 (2,544,385) 1,979,831Unallocated corporate 938,970liabilitiesConsolidated total 2,918,801liabilities Geographical segments The Group's operations are located in the United Kingdom, USA, Canada andAustralia. The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods and services 2007 2006 £ £ United Kingdom 9,368,334 8,253,041Europe 606,222 482,814USA and Canada 1,854,660 1,597,598Australasia 378,771 645,063Africa 4,500 9,600Far East 137,196 323,838 12,349,683 11,311,954 The following is an analysis of the carrying amount of segment assets, andadditions to property, plant and equipment and intangible assets, analysed bygeographical area in which the assets are located: Carrying amount of segment assets Additions to property plant and equipment and intangible assets 2007 2006 2007 2006 £ £ £ £United Kingdom 5,698,360 5,292,759 240,519 223,583USA 53,766 52,981 13,703 -Canada 1,301,945 1,231,983 6,721 12,114Australia 825,146 715,200 719 2,893 7,879,217 7,292,923 261,662 238,590 5. Staff costs 2007 2006 £ £Wages and salaries 4,660,340 4,613,060Social security costs 448,192 445,116Pension costs 204,264 168,624 5,312,796 5,226,800 The average number of persons, including executive directors, employed by theGroup during the year was: Number NumberOffice and management 21 24Production 121 130Selling 8 8 150 162 6. Profit for the year Profit for the year has been arrived at after £ £charging:Net foreign exchange losses/(gains) 56,993 (13,370)Amortisation of intangible assets 32,832 59,264Depreciation of property, plant and equipment 177,781 132,671Staff costs (note 5) 5,312,796 5,226,800Profit on sale of assets held for sale (375,997) -Share-based payment (note 32) (27,228) 17,965 7. Auditors' remuneration The analysis of auditors' remuneration is as follows: £ £Fees payable to the Company's auditors for the audit 12,000 13,000of the Company's annual accounts Fees payable to the Company's auditors for otherservices to the Group:- The audit of the Company's subsidiaries 24,500 22,625- Tax services 5,500 300- Other services 2,980 1,000 44,980 36,925 8. Finance costs 2007 2006 £ £Interest expense for finance lease arrangements 980 1,077Interest expense for borrowings at amortised cost 91,312 74,185 92,292 75,262 9. Finance income 2007 2006 £ £Interest income from deposits 4,966 2,368Interest on loan to joint venture 4,875 4,875Dividends receivable 150 125 9,991 7,368 10. Taxation Recognised in the income statement 2007 2006 £ £Current tax expense 107,587 80,099Over provided in prior years - (29,824)Deferred tax expense relating to origination and (2,663) (3,188)reversal of temporary differencesTotal tax expense in income statement 104,924 47,087Reconciliation of effective tax rateProfit before tax 1,118,183 605,687Tax at the applicable tax rate of 30% (2006: 30%) 335,455 181,706Tax effect of:Share of results of joint venture 9,921 20,135Expenses not deductible for tax 9,214 14,365Income not taxable (112,940) -Chargeable gain 83,478 -Losses (240,456) (182,108)Different tax rates for overseas subsidiaries 5,306 7,861Other differences 17,609 38,140Deferred tax (2,663) (3,188)Over provided in prior year - (29,824)Tax expense 104,924 47,087 11. Dividends 2007 2006 £ £Amounts recognised as distributions to equityholders in the period:Final dividend for the year ended 31 December 2006 125,828 97,855of 0.4p (2006: 0.31p) per shareInterim dividend for the year ended 31 December 2007 68,270 63,635of 0.22p (2006: 0.2p) per share 194,098 161,490 The proposed final dividend for the year ended 31 December 2007 of 0.44p (2006:0.40p) per share is subject to approval of shareholders at the Annual GeneralMeeting and has not been included as a liability in these financial statements. 12. Earnings per share Earnings per share has been calculated by dividing the net profit attributableto equity holders by the weighted average number of ordinary shares in issueduring the year as follows: 2007 2006 £ £Profit after tax attributable to equity holders 1,013,259 558,600 Number NumberWeighted average number of ordinary shares in issue 31,349,821 31,611,500during the yearDiluting effect of share options 2,230,000 2,207,500Diluted average number of ordinary shares 33,579,821 33,819,000 13. Goodwill Carrying amount £At 1 January 2006 906,066Exchange translation differences (1,838)At 1 January 2007 904,228Exchange translation differences 5,469At 31 December 2007 909,697 The Group tests goodwill annually for impairment. 14. Other intangible assets Software Development costs Total £ £ £ CostAt 1 January 2007 295,630 - 295,630Currency translation 8,335 - 8,335Additions 29,451 78,091 107,542Disposals (204) - (204)At 31 December 2007 333,212 78,091 411,303 AmortisationAt 1 January 2007 252,622 - 252,622Currency translation 8,322 - 8,322Charge for year 32,832 - 32,832Disposals (204) - (204)At 31 December 2007 293,572 - 293,572 Net book valueAt 31 December 2007 39,640 78,091 117,731 At 31 December 2006 43,008 - 43,008 The amortisation period for development cost in respect of the Group's softwareproducts is 3 years from the date that the software is available for sale tocustomers. 15. Property, plant and equipment Land and Fixtures and Motor vehicles Total buildings equipment £ £ £ £ CostAt 1 January 2007 1,816,015 1,426,325 16,869 3,259,209Currency translation - 16,212 - 16,212Additions 11,977 142,143 - 154,120Disposals - (2,270) - (2,270)At 31 December 2007 1,827,992 1,582,410 16,869 3,427,271DepreciationAt 1 January 2007 245,937 923,190 16,869 1,185,996Currency translation - 14,287 - 14,287Charge for the year 45,669 132,112 - 177,781Disposals - (2,270) - (2,270)At 31 December 2007 291,606 1,067,319 16,869 1,375,794Net book valueAt 31 December 2007 1,536,386 515,091 - 2,051,477At 31 December 2006 1,570,078 503,135 - 2,073,213 16. Equity accounted interest in joint venture The Group has a 50% interest, consisting of 5,000 ordinary shares in PennantSonovision ITEP Limited, a joint venture with Sonovision SAS of France. Aggregate amounts relating to the joint venture are: 2007 2006 £ £ Total assets 48,374 248,690Total liabilities (234,461) (368,636)Revenues 263,680 376,549Loss (66,141) (134,239) 17. Available for sale investments The Group owns a non-controlling interest of less than 1% in Quadnetics Groupplc. The shares are not held for trading and accordingly are classified asavailable for sale. The fair value of the investment is based on the quotedmarket price. 18. Inventories Aggregate amounts relating to the joint venture are: 2007 2006 £ £ Raw materials and consumables 25,340 83,915Work in progress 2,038 29,024 27,378 112,939 19. Construction contracts Contracts in progress at the balance sheet date: 2007 2006 £ £ Amounts due from contract customers included in trade and 1,164,933 1,015,200other receivablesAmounts due to contract customers included in trade and (19,520) (56,026)other payables 1,145,413 959,174 Contract costs incurred plus recognised profits less 8,507,703 8,275,682recognised losses to dateLess: progress billings (7,362,290) (7,316,508) 1,145,413 959,174 20. Trade and other receivables 2007 2006 £ £ Trade receivables 1,638,824 1,433,164Amounts due from construction contract customers (note 1,164,933 1,015,20019)Other debtors 76,101 8,288Prepayments and accrued income 281,737 337,624 3,161,595 2,794,276 The directors consider that the carrying amount of trade and other receivablesapproximates their fair value. Some of the unimpaired trade receivables are past due as at the reporting date.The age of the trade receivables past due but not impaired is as follows: 2007 2006 £ £ Not more than 3 months 129,307 87,283More than 3 months but not more than 6 months 83,302 36,104More than 6 months but not more than 1year 31,169 - 243,778 123,387 21. Cash and cash equivalents 2007 2006 £ £Bank balance 1,566,480 906,776Cash 2,140 2,833 1,568,620 909,609 Cash and cash equivalents comprise cash held by the Group and short-term bankdeposits with an original maturity of three months or less. The carrying amountof these assets approximates their fair value. 22. Borrowings Secured borrowings 2007 2006 £ £Bank loan 761,989 905,290Amount due for settlement within 12 months 147,559 141,338Amount due for settlement after 12 months 614,430 763,952 The Group has available bank overdraft facilities of £750,000. The facility wasnot being used at 31 December 2007. Any overdraft arising from the facility isrepayable on demand and carries interest at 1.5% over bank base rate. The loan is repayable in monthly instalments and carries interest at 2.0% plusthe Bank's base rate. The borrowings are secured by fixed and floating charges over the assets ofPennant International Group plc, Pennant Training Systems Limited, PennantSoftware Services Limited and Pennant Information Services Limited 23. Trade and other payables 2007 2006 £ £Amounts due to construction contract customers (note 19) 19,520 56,026Trade creditors 661,134 751,849Taxes and other social security costs 610,150 449,980Other creditors 14,162 54,831Accruals and deferred income 140,389 217,153Unclaimed dividends 165 165 1,445,520 1,530,004 The directors consider that the carrying amount of trade payables approximatestheir fair value. 24. Obligations under finance leases Minimum payments Present value of minimum payments 2007 2006 2007 2006 £ £ £ £Amounts payableWithin 1 year 1,486 1,353 1,089 1,054After 1 year 2,724 3,832 1,532 1,744 4,210 5,185 2,621 2,798Less: future finance charges (1,589) (2,387) 2,621 2,798Less: amounts due for settlement within 1 year (shown in (1,089) (1,054)current liabilities)Amount due for settlement after 1 year 1,532 1,744Carrying amount of assets subject to finance lease Property, plant and equipment 2,004 2,469 The fair value of the Group's lease obligations approximates the carrying value. The Group's obligations under finance leases are secured by the lessor's rightsover the leased assets. 25. Deferred revenue 2007 2006 £ £Revenue deferred in respect of prepaid software 440,619 395,918maintenance contractsLess: amount due for release to revenue within 1 year (414,838) (370,041)(shown in current liabilities)Amount due for release after 1 year 25,781 25,877 26. Deferred tax The following are the deferred tax (liabilities) and assets recognised by theGroup and movements thereon during the current and prior reporting period: Accelerated tax Other timing Property Tax losses Total depreciation differences revaluation £ £ £ £ £ At 1 January 2006 (103,449) 5,233 (32,000) 110,414 (19,802)Exchange translation 1,580 - - - 1,580Charge to income 10,057 (11,115) - 4,246 3,188At 31 December 2006 (91,812) (5,882) (32,000) 114,660 (15,034)Charge (1,358) 13,359 - (9,338) 2,663At 31 December 2007 (93,170) 7,477 (32,000) 105,322 (12,371) Certain deferred tax assets and liabilities have been offset. The following isthe analysis of the deferred tax balances for financial reporting purposes. 2007 2006 £ £ Deferred tax liabilities (32,000) (32,000)Deferred tax assets 19,629 16,966 (12,371) (15,034) At the balance sheet date the Group had unused tax losses of £2,754,283(2006:£3,551,022) available for set off against future profits. A deferred tax assethas been recognised in respect of £351,073 (2006: £382,200) of such losses. Nodeferred tax asset has been recognised in respect of the remaining £2,403,210(2006: £3,168,822) due to the unpredictability of future profit streams. 27. Share capital 2007 2006 £ £Authorised 51,092,000 ordinary shares of 5p each 2,554,600 2,554,600Issued and fully paid 32,000,000 ordinary shares of 5p each 1,600,000 1,600,000 The Company has one class of ordinary shares which carry no right to fixedincome. 28. Retained earnings £Balance at 1 January 2007 (744,302)Retained profit for the year 1,013,259Dividends (194,098)Transactions in treasury shares (176,225)Share-based payment (27,228)Balance at 31 December 2007 (128,594) 29. Translation reserve £Balance at 1 January 2007 (63,905)Currency translation differences on foreign currency 101,860net investmentsBalance at 31 December 2007 37,955 30. Note to the cash flow statement Cash generated from/(used in) operations 2007 2006 £ £ Profit for the year 1,013,259 558,600Share of results of joint venture 33,070 67,119Finance income (9,991) (7,368)Finance costs 92,292 75,262Income tax expense 104,924 47,087Depreciation charge 210,613 191,935Profit/(loss) on sale of property plant and equipment (375,997) 2,092Share based payment (27,228) 17,965Operating cash flows before movement in working capital 1,040,942 952,692(Increase)/decrease in receivables (367,319) 112,435Decrease in inventories 85,561 87,893(Decrease) in payables (84,484) (215,956)Increase/(decrease) in deferred revenue 44,701 (66,431)Cash generated from operations 719,401 870,633Tax paid (63,310) (22,251)Interest paid (92,292) (75,262)Net cash generated from operations 563,799 773,120 31. Operating lease arrangements Minimum lease payments under operating leases recognised 227,371 179,125as an expense in the year At 31 December 2007 the Company had commitments under non-cancellable operatingleases as follows: Land and buildings Other 2007 2006 2007 2006 £ £ £ £ Within one year 129,893 135,651 100,793 84,896In the second to fifth years 255,950 352,160 94,956 89,125In the sixth to tenth years 134,833 169,833 - -After ten years 278,588 285,138 - - 799,264 942,782 195,749 174,021 Commitments after 10 years relate to ground rents on long leasehold propertiesthat run until 2098. 32. Share based payments The Group operates a Share Option Scheme under which share options have beengranted to employees as described below: Date granted Options outstanding Expired Options Exercisable Exercise price at 1 January 2007 outstanding at 31 December 2006 31 October 2000 17,500 (17,500) - 2003-2007 122.5p 15 October 2002 420,000 - 420,000 2005-2012 11.5p 27 March 2003 1,000,000 - 1,000,000 2006-2013 10p 3 May 2005 500,000 - 500,000 2008-2015 13p 12 October 2006 270,000 - 270,000 2009-2016 17.5p The options outstanding at 31 December 2007 had a weighted average remainingcontractual life of 6 years. The exercise of the options granted on 15 October 2002 and 12 October 2006 isconditional upon the percentage growth in the Group's annualised earnings pershare over a prescribed period being 2% over the movement in the Retail PriceIndex. The options granted on 27 March 2003 and 3 May 2005 may be exercised in theevent that the Company is taken over. The directors consider that it is unlikelythat these options will vest and, accordingly, the charges made against incomein prior years in connection with these options have been reversed in 2007. Fair value of options The fair values of awards granted after 7 November 2002 under the Share OptionScheme and expected to vest have been calculated using a variation of thebinomial option pricing model that takes into account the specific features ofthe scheme. The following principal assumptions were used in the valuation. Granted 12/10/2006 Share price at date of grant 17.5pExpected dividend yield 2.0%Expected volatility 64%Risk-free interest rate 4.61%Employee turnover None Volatility has been based on share prices from flotation in 1998 to date ofgrant. Using the above assumptions the fair value of the options granted on 12 October2006 is estimated as 9.67p. Based on the above, the credit to income, arising from share options granted toemployees is analysed follows: 2007 2006 £ £ (Credit)/charge in respect of options granted on 27 March (35,145) 16,0592003 and 3 May 2005Charge in respect of options granted 12 October 2006 7,917 1,906 (27,228) 17,965 33. Employee benefits Defined contribution The Group runs defined contribution pension schemes. The assets of the schemesare held separately from those of the Group in an independently administeredfunds. The pension cost charge represents contributions payable by the Group tothe funds. 2007 2006 £ £ Contributions payable by the Group for the year 204,264 168,624 34. Financial assets and liabilities Financial assets by category The IAS 39 categories of financial asset included in the balance sheet and theheadings in which they are included are as follows: 2007 2006 £ £Non current assetsAvailable for sale financial assets 6,135 6,135Current assetsTrade and other receivables- Loans and receivables 3,161,595 2,794,276Cash and cash equivalents 1,568,620 909,609 4,736,350 3,710,020 Financial liabilities by category The IAS 39 categories of financial liability included in the balance sheet andthe headings in which they are included are as follows: 2007 2006 £ £Current liabilitiesBorrowings- Financial liabilities measured at amortised cost 147,559 141,338Trade payables- Financial liabilities measured at amortised cost 1,445,520 1,530,004Non current liabilitiesBorrowings- Financial liabilities measured at amortised cost 614,430 763,952 2,207,509 2,435,294 The directors consider that the carrying amounts of financial assets andliabilities approximate their fair values. 35. Risk management The Group's approach to credit and liquidity risk is set out in the directors'report. In the opinion of the directors the business has no significant exposure tomarket risk arising from interest rate, currency exchange or other pricefluctuations and it has therefore not been deemed necessary to include asensitivity analysis. 36. Capital commitments At 31 December 2007 and 31 December 2006 the Group had no capital commitments. 37. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the Group and the joint venture are disclosed below. During the year the following transactions took place with related parties whoare not members of the Group: Sales of goods and services 2007 2006 £ £ Joint venture 57,639 39,758 There were no amounts outstanding in respect of the above services at 31December 2007 or 31 December 2006. Sales and purchases of goods and services to related parties were made followingthe Group's usual policies. Loans made/(repayments received)Joint venture (10,000) 45,000 Year end loan balancesJoint venture 115,000 125,000 The loan is unsecured and carries interest at 2% over Bank base rate. Remuneration of key management personnel Amounts paid to Group directors who are the key management personnel of theGroup are set out in the Directors' Report. 38. Transition to IFRS Pennant International Group plc reported under UK GAAP in its previouslypublished financial statements for the year ended 31 December 2006. The analysisbelow shows a reconciliation of equity and profits as reported under UK GAAP asat 31 December 2006 to the revised equity and profits under IFRS as reported inthese financial statements. In addition, there is a reconciliation of equityunder UKGAAP to IFRS at the transition date for this Company, being 1 January2006. Reconciliation of equity Notes As at 31 December 2006 As at 1 January 2006 £ £ Equity shareholders' funds under UK GAAP 4,335,421 4,010,829Adjustments:Goodwill (a) 66,975 -Negative goodwill (b) - 48,462Assets held for sale (c) 3,726 -Deferred tax (d) (32,000) (32,000)Equity shareholders' funds under IFRS 4,374,122 4,027,291 Explanation of adjustments to equity (a) Goodwill Under UK GAAP, capitalised goodwill was amortised over its useful economic life.Under IFRS, this goodwill is no longer amortised but is tested at least annuallyfor impairment. The impairment tests carried out by the Group have identified noimpairment loss. The adjustments to the carrying amount of goodwill are as follows: 31 December 2006 £ Reversal of amortisation 68,696Currency translation differences (1,721) 66,975 (b) Negative goodwill The Group carried negative goodwill of £48,462 in its balance sheet preparedunder UK GAAP at 1 January 2006. This balance was credited to profit and lossaccount under UK GAAP in 2006. Under IFRS negative goodwill is written off immediately to profit and lossaccount. The balance carried at 1 January 2006 (the date of transition) hastherefore been derecognised at that date and credited to retained earnings. The £48,462 credit to profit and loss account in 2006 under UK GAAP has beenreversed in the income statement prepared under IFRS. (c) Assets held for sale IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations' requiresthat any asset held for sale that is expected to be sold within 1 year isrecognised as a current asset in the balance sheet. This has resulted in areclassification between non-current assets and current assets of £372,522 atthe date of transition being the carrying amount at 1 January 2006 of propertyin Southampton that is subject to a conditional contract for sale. IFRS 5 also requires that assets held for sale are not depreciated. Accordinglydepreciation previously charged under UK GAAP has been reversed. (d) Deferred Tax Under UK GAAP deferred tax was provided on timing differences between theaccounting and taxable profit (and income statement approach). Under IFRS,deferred tax is provided on temporary differences between the book carryingvalue and tax base of assets and liabilities (a balance sheet approach). Under UK GAAP the Group did not provide for deferred tax on the amount of therevaluation of certain property on the basis that there was no binding agreementto sell the property. Under IFRS the difference between the carrying amount of are-valued asset and its tax base is deemed to be a temporary difference andgives rise to a deferred tax liability. Accordingly at the transition date adeferred tax provision of £32,000 has been established and equity reduced by acorresponding amount. Reconciliation of profit for the year ended 31 December 2006 UK GAAP IAS 21 IAS11 IFRS3 IFRS 5 Restated presented in under IFRS IFRS format Foreign exchange Construction Goodwill Assets held contracts for resale Note (a) Note (b) Notes (c) & Note (e) (d) £ £ £ £ £ £ Revenue 11,262,322 152,319 (102,687) - - 11,311,954Cost of sales (7,204,381) (94,547) 102,687 - - (7,196,241)Gross profit 4,057,941 57,772 - - - 4,115,713Administration expenses (3,368,818) (30,155) - 20,234 3,726 (3,375,013)Operating profit 689,123 27,617 - 20,234 3,726 740,700Share of results of (67,119) - - - - (67,119)joint venture 622,004 27,617 - 20,234 3,726 673,581Finance costs (75,237) (25) - - - (75,262)Finance income 7,258 110 - - - 7,368Profit before tax 554,025 27,702 - 20,234 3,726 605,687Taxation (44,334) (2,753) - - - (47,087)Profit for the year 509,691 24,949 - 20,234 3,726 558,600 Explanation of adjustments to profit (a) Foreign currencies Under UK GAAP the profit and loss accounts of foreign subsidiaries wereconverted to pounds sterling for consolidation purposes at the year end rate.Under IFRS income and expenses have been translated at the average rate for theperiod. This change has resulted in an increase in Group profits for the year to31 December 2006 of £24,949. (b) Construction contracts Under UK GAAP the Group valued construction contracts by reference to the stageof contract activity at the balance sheet date as required by IFRS. However, forcertain small contracts the Group adjusted the movement of amounts due fromcontract customers against cost of sales rather than revenue. In the IFRS incomestatement this movement has been transferred and accounted for as revenue inaccordance with IAS11. This adjustment has no affect on profits. (c) Goodwill Under UK GAAP, capitalised goodwill was amortised over its useful economic life.Under IFRS, this goodwill is no longer amortised but is tested at least annuallyfor impairment. The impairment tests carried out by the Group have identified noimpairment loss and the amortisation provided under UK GAAP has been reversed. The adjustments to profits are as follows: 31 December 2006 £ Reversal of amortisation 68,696Reversal re negative goodwill (see (d) below) (48,462) 20,234 (d) Negative goodwill The Group carried negative goodwill of £48,462 in its balance sheet preparedunder UK GAAP at 1 January 2006. This balance was credited to profit and lossaccount under UK GAAP in 2006. Under IFRS negative goodwill is written off immediately to profit and lossaccount. The balance carried at 1 January 2006 (the date of transition) hastherefore been derecognised at that date and credited to retained earnings. The £48,462 credit to profit and loss account in 2006 under UK GAAP has beenreversed in the income statement prepared under IFRS. (e) Assets held for sale IFRS 5 requires that assets held for sale are not depreciated. Accordinglydepreciation previously charged under UK GAAP has been reversed. Explanation of adjustments to Cash flow statement The Group's cash flow statements are presented in accordance with IAS7. Thestatements present substantially the same information as that required under UKGAAP, with the following principal exceptions: - Under UK GAAP, cash flows are presented under nine standard headings, whereas IFRS requires the classification of cash flows resulting from operating, investing and financing activities. - The cash flows reported under IAS 7 relate to movements in cash and cash equivalents, which include short term liquid investments. Under UK GAAP, cash comprises cash in hand and deposits repayable on demand. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Pennant International