7th Mar 2008 07:01
InterQuest Group PLC07 March 2008 InterQuest Group plc Preliminary results for the year ended 31 December 2007 The Board of InterQuest Group plc present audited preliminary results for theyear ended 31 December 2007 and is delighted that the Group has enjoyed anotheryear of substantial growth and progress during 2007. Strong organic growth has continued in our existing businesses and two moresuccessful acquisitions were completed during the year. As a result we havedelivered our best set of financial results to date including a 52% increase inrevenue, a 43% increase in gross profit and a 41% increase in profit before tax. We are also very pleased that despite the current uncertain economic environmentall our businesses have enjoyed a strong start to 2008. We remain confident thatour Group structure, comprising a variety of specialist businesses, stands us ingood stead to meet the challenges of 2008 and beyond. Financial highlights • Year on year revenue up 52% to £86.7m• Gross profit up 43% to £12.9m• EBITA (excluding share based payment charge) up 48% to £4.5m• Profit on ordinary activities before taxation up 41% to £3.1m• Operating cash inflow of £2.7m in 2007 (2006: £0.4m)• Basic earnings per share of 8.2 pence (2006: 6.1 pence)• Basic adjusted earnings per share of 11.0 pence (2006: 8.0 pence) Operational highlights • Strong organic growth of 18% in like-for-like operating profits on a proforma basis• 40% increase in contractor numbers during 2007 including 10% organic growth• Acquisition of Intelect Recruitment plc in July 2007• Acquisition of e-CRM People Limited in September 2007• London operations moved into new larger offices in April 2007 to underpin long term growth• Several major new client wins in 2007 including Serco Group, Turner Broadcasting and the Foreign & Commonwealth Office• Board strengthened with the appointment of Paul Frew as a Non-Executive Director in May 2007 Commenting on the results, Gary Ashworth, Executive Chairman, said: "2007 was an excellent year for InterQuest with strong organic performanceacross the company, coupled with impressive growth from the recent acquisitions.The current year has started with all divisions trading ahead of expectationsshowing solid year on year growth for the first two months. Our bespoke trainingacademy continues to develop fee earners, who have made a significantcontribution to our success. Despite pockets of economic uncertainty being reported elsewhere, I believe thatIT has become a business imperative that defies traditional staffing cycles. Iam confident that our diversified structure, consisting of a variety of ITstaffing businesses, prepares us well to meet the challenges of 2008 and beyond." Enquiries: InterQuest Group plc 020 7025 0100Gary Ashworth, Executive ChairmanRoss Eades, Chief Executive OfficerMichael Joyce, Finance Director Britton Financial PR 020 7251 2544Tim Blackstone Cenkos Securities Limited 020 7397 8900Nicholas WellsIvonne CantuJulian Morse Chairman's and Chief Executive's Statement Introduction We are delighted to report that the Group has once again made significantprogress in 2007. We remain committed to focusing upon niche markets within thetechnology sector and have continued to follow our long term strategy of growingour specialist businesses organically and adding acquisitions of suitablecompanies when appropriate, complemented by a strong central administrative andfinancial core. This strategy has delivered another year of impressive financialresults, our third in a row since flotation in 2005. Two more specialist IT recruitment businesses have joined our Group in 2007.Intelect Recruitment plc, which provides niche recruitment servicespredominantly within the software engineering and manufacturing softwaresectors, was acquired in July 2007. In September 2007, e-CRM People Limitedwhich focuses on the Enterprise Asset Management, IT Service Management, ITStorage and Security sectors also joined the Group. Both businesses haveperformed well since acquisition. As ever, our key asset is our people and we thank our dedicated sales andadministrative teams for their hard work, thorough knowledge of their individualmarkets and their dedication to growing the business in the last twelve months. Results During the year the Group's existing businesses grew organically on alike-for-like basis by 18%. Contractors working on assignments grew by 40%during the year (including acquisitions), of which 10% was organic growth. Weare particularly pleased with the performance of PeopleCo Worldwide and SandResources as they represented significant investments for the Group when theywere acquired in 2006. Both have delivered very strong growth in net fee income,contractors working and operating profits during 2007. Total revenues, including part year figures for the two acquisitions, grew by52% to £86.7m, and gross profit ("net fee income") grew by 43% to £12.9m. Thiscontributed to the Group increasing its EBITA to £4.5m after adding back thecharge for IFRS 2 share-based payments. Profit before tax increased by 41% to£3.1m and basic adjusted earnings per share (see note 2) increased by 38% to11.0 pence (2006: 8.0 pence). Operations We have continued to grow our client base during 2007 by adding a number ofsignificant new wins including Serco Group, Turner Broadcasting and the Foreign& Commonwealth Office. The two Catalist accreditations which were awarded to usduring 2006 for at least a three year period by the Office of GovernmentCommerce to allow us to supply specialist IT contractors and interim managers topublic sector organisations have underpinned exceptional growth for us in thepublic sector. We expanded our "Academy" training and development programme for new recruitsinto the industry during 2007 and this has continued to deliver new fee earnersinto the different business units. We consider the Academy to be an essentialdriver for future growth. In April 2007 our London head office and operating divisions moved into a new,larger office twice the size of its predecessor, which will provide space forcontinued organic growth. The move enabled both PeopleCo Worldwide and IntelectRecruitment to establish new operations in London during the summer tocomplement their main offices in Harrogate and Manchester. We expect that e-CRM,which is based in Aylesbury, will do the same in 2008. During the summer of 2007 we relocated our two smallest offices out of Wickford,Essex and East Grinstead, Sussex and moved those operations and staff intoLondon and Tunbridge Wells respectively. The Wickford migration was part of themerger of our smallest division, FJB (Contracts) into Genesis ComputerResources, our specialist banking division. This merger will allow FJB, whichalready has a position in the banking sector to benefit from Genesis' expertiseand reputation in that sector. It also gives that business more critical mass inits operations. The Genesis operations at East Grinstead have moved to TunbridgeWells which has made it easier for the business to attract new sales staff. We believe that the strategy that we have adopted from the outset of focusing onniche sectors by acquiring and growing independently branded specialists isworking and providing the right impetus for present and future success. We will continue to follow our growth strategy by: • Building our specialist businesses to deliver long-term organic growth;• Developing and incentivising our staff at all levels;• Accelerating our training Academy programme to deliver high calibre fee earners into our businesses;• Offering our specialist divisions the benefits of a strong group structure;• Maintaining robust centralised financial control; and• Identifying and acquiring complementary specialist businesses. During the first quarter of 2008 we are undertaking a Group rebranding exerciseto strengthen our corporate image and unify the Group by bridging all ourindividual brands with a common link. Part of this exercise will be to revampall our corporate communications including our websites. In addition, we areundertaking increased industry public relations to strengthen the Group'sprofile within the IT sector. These initiatives, and others, are beingimplemented in order to underpin sustainable long-term growth for the Group. On 1 May 2007, Paul Frew joined the Group and the Board as an independentnon-executive director. Paul is an experienced non-executive director withsignificant knowledge and understanding of the technology sector. His input hasbeen invaluable, particularly when the Board have been discussing potential hotnew areas within the IT sector. Acquisitions On 4 July 2007, the Group acquired the entire issued share capital of IntelectRecruitment plc for initial consideration of £3.7m comprising £3.5m in cash and£0.2m in InterQuest shares issued at 107.5 pence per share. Deferredconsideration up to a maximum of £0.9m is payable over the next three yearsdependant upon the financial performance of the business in the years ending 31March 2008, 2009 and 2010. The business provides niche recruitment servicespredominantly within the software engineering and manufacturing software sectorsand has performed very well since joining the Group. Already, a new operationhas been successfully established in the Group's London office. On 25 September 2007, the Group acquired the entire issued share capital ofe-CRM People Limited for initial consideration of £2.7m comprising £2.4m in cashand £0.3m in InterQuest shares issued at 105 pence per share. Furtherconsideration up to a maximum of £2.3m is payable in September 2008 andSeptember 2009 provided that certain financial targets are achieved in the yearsending 31 July 2008 and 31 July 2009. Of course, we continue to cultivate a healthy pipeline of future acquisitionsthat meet our criteria as niche-focused, specialist IT recruitment businesses. Outlook All our businesses are trading in line or ahead of expectations so far in 2008.The two companies that we acquired in 2007 will contribute a full year ofearnings in 2008, our staff remain highly talented, motivated and committed tothe future of the Group and we are excited about our achievements in 2007. In light of the progress we made last year and with current trading levels morethan satisfactory we believe that we are well positioned to respond quickly tothe challenges we may face in the next twelve months. Consequently, we areconfident that we can achieve our future goals and deliver another successfuloutcome for our shareholders in 2008. Gary Ashworth Ross EadesChairman Chief Executive Finance Director's Report Income Statement Revenue grew by 52% during 2007 to £86.7m (2006: £57.2m). Two acquisitions weremade during the year, Intelect Recruitment plc in July and e-CRM People Limitedin September and they contributed £6.9m of the increased revenue whilst revenuefrom existing operations increased by 40% to £79.8m (2006: £57.2m). Gross profit increased by £3.9m or 43% to £12.9m (2006: £9.0m) with £2.3m of thegrowth derived from continuing operations and £1.6m from the acquisitions. Cash based EBITA (earnings before interest, tax, amortisation of goodwill andIFRS 2 share based payment charge) increased by 48% to £4.5m (2006: £3.0m). The intangible amortisation charge increased to £0.7m (2006: £0.4m) reflectingthe two acquisitions made during the year and the net interest charge increasedto £0.5m (2006: £0.3m) as the Group increased its borrowings to finance the twoacquisitions. Profit before tax increased by 41% to £3.1m (2006: £2.2m). Tax on profits was £0.7m representing an effective tax rate of 24% as the Groupbenefitted from tax relief on the exercise of share options and a deferred taxcredit arising from the amortisation of intangible assets. Basic earnings per share were 8.2 pence in 2007 (2006: 6.1 pence). When theeffect of non-cash and non-trading items, being amortisation and the IFRS 2share based payment charge, are removed the basic adjusted earnings per sharewere 11.0 pence in 2007 representing an increase of 38% from 8.0 pence in 2006.See note 2 for details of the calculation. Balance sheet, cash flow and financing The Group had net assets of £15.8m at 31 December 2007 (2006: £12.4m). Themajority of the increase in net assets was due to the retained profit of £2.4mfor the year. Improved profitability and tight control of working capital delivered £3.3m ofoperating cash flow (before tax and interest payments) despite the burden offunding strong organic growth in contractor numbers. The issue of new sharesduring the year raised £0.3m of cash and new shares with a market value of £0.7mwere issued as consideration for acquisitions. The Group paid £0.6m of tax and £0.5m of interest during the year and capitalexpenditure was £0.4m, the majority of which was spent on fitting out our newLondon offices. In addition, the Group invested £5.8m of cash in the two latestacquisitions and £0.6m of deferred consideration was paid in respect of theacquisition of Sand Resources Limited, purchased in 2006. As a result of these cash flows, net debt increased from £5.0m at the start ofthe year to £9.3m at the end of 2007. International Financial Reporting Standards ("IFRS") The Group is applying IFRS for the first time in its 2007 consolidated financialstatements including the restatement of 2006 comparative information. The mainareas of the financial statements affected by the application of IFRS are:- • the accounting for acquisitions including the recognition of intangible assets and the treatment of goodwill arising upon consolidation including related amortisation;• the accounting for deferred tax on share based payments; and• the presentation of the Group financial statements. An explanation of the transition to IFRS and a reconciliation to UK GAAP areincluded within the notes to the financial statements. Michael JoyceFinance Director Consolidated income statement for the year ended 31 December 2007 Note 2007 2006 £'000 £'000 Revenue 86,772 57,220Cost of sales (73,864) (48,214)Gross profit 12,908 9,006 Amortisation 3 (741) (422)Other administrative expenses (8,491) (6,043)Total administrative expenses (9,232) (6,465) Operating profit 3,676 2,541 Finance income - 1Finance costs (535) (312)Profit before tax 3,141 2,230 Income tax expense 1 (741) (511) Profit for the year 2,400 1,719 Earnings per sharefrom both total and continuing operations: Note Pence Pence Basic earnings per share 2 8.2 6.1 Diluted earnings per share 2 7.4 5.6 All results for the Group are derived from continuing operations in both thecurrent and prior year. Consolidated balance sheet at 31 December 2007 2007 2006 Note £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 488 238Goodwill 3 15,183 10,193Intangible assets 3 3,892 2,472Total non-current assets 19,563 12,903 Current assetsTrade and other receivables 18,661 13,054Cash and cash equivalents 4 135 -Total current assets 18,796 13,054 Total assets 38,359 25,957 LIABILITIESCurrent liabilitiesTrade and other payables (9,363) (7,022)Financial liabilities - borrowings (9,398) (4,998)Current tax payable (833) (133)Deferred consideration (664) (661)Total current liabilities (20,258) (12,814) Non-current liabilitiesFinancial liabilities - borrowings - (39)Deferred consideration (1,495) (476)Deferred income tax liabilities (768) (243)Total non-current liabilities (2,263) (758) Total liabilities (22,521) (13,572) Net assets 15,838 12,385 EQUITYShare capital 301 287Share premium account 8,344 7,383Retained earnings 6,916 4,526Share based payment reserve 277 189Total equity 15,838 12,385 Consolidated statement of changes in equity for the year ended 31 December 2007 Share Share Retained Share Total capital premium earnings based equity account payment reserve £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2006 258 5,955 2,612 101 8,926Profit for the 12 months to 31 - - 1,719 - 1,719December 2006Total recognised income and expense - - 1,719 - 1,719Deferred tax on employee share - - 195 - 195optionsMovement in share based payment - - - 88 88reserveIssue of share capital 29 1,428 - - 1,457Balance at 31 December 2006 287 7,383 4,526 189 12,385Profit for the 12 months to 31 - - 2,400 - 2,400December 2007Total recognised income and expense - - 2,400 - 2,400Deferred tax on employee share - - (10) - (10)optionsMovement in share based payment - - - 88 88reserveIssue of share capital 14 961 - - 975Balance at 31 December 2007 301 8,344 6,916 277 15,838 Consolidated cash flow statement for the year ended 31 December 2007 2007 2006 Note £'000 £'000Cash flows from operating activitiesProfit after taxation 2,400 1,719Adjustments for:Depreciation 160 104Share based payment charge 88 88Interest charge 535 312Interest receivable - (1)Amortisation 741 422Income tax expense 741 511Increase in trade and other receivables (2,186) (3,550)Increase in trade and other payables 856 1,625Cash generated from operations 3,335 1,230Income taxes paid (586) (851)Net cash from operating activities 2,749 379 Cash flows from investing activitiesPurchase of property, plant and equipment (356) (95)Acquisition of subsidiaries net of cash acquired 5 (5,773) (6,324)Payment of deferred consideration (622) -Proceeds from sale of equipment - 1Net cash used in investing activities (6,751) (6,418) Cash flows from financing activitiesProceeds from issue of share capital 312 45Net increase in discounting facility 3,952 4,424Repayment of hire purchase liabilities (22) -Interest received - 1Interest paid (535) (312)Net cash from financing activities 3,707 4,158 Net decrease in cash, cash equivalents and overdrafts (295) (1,881) Cash, cash equivalents and overdrafts at beginning of 4 (565) 1,316periodCash, cash equivalents and overdrafts at end of 4 (860) (565)period Notes to the preliminary announcement 1 Taxation 2007 2006 £'000 £'000Current taxCorporation tax on profits for the period 847 317Adjustments in respect of prior periods 27 (29)Total current tax 874 288 Deferred taxUtilisation of tax losses 64 400Accelerated capital allowance 43 (23)Charge on share based payments (21) (23)Other temporary differences 3 (6)Intangible asset temporary differences (222) (125)Total deferred tax (133) 223 Total tax charge 741 511 2007 2006 £'000 £'000 Profit before taxation 3,141 2,230 Profit before taxation multiplied by standard rate of corporation tax in the UK 942 669of 30% (2006: 30%)Effects of:Expenses not deductible for tax purposes 17 203Capital allowances in excess of depreciation - (6)Other tax adjustments (226) (189)Tax losses utilised in the year - 36Under/(over) provisions in prior years 27 (29)Profits chargeable at lower rates 15 (6)Other intangible asset temporary differences (34) (167)Total tax charge 741 511 Factors that may affect future tax charges: The standard rate of corporation tax in the United Kingdom changes to 28% witheffect from 1 April 2008. 2 Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares and the post tax effect ofdividends and/or interest, on the assumed conversion of all dilutive options andother dilutive potential ordinary shares. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below. 2007 2006 £'000 £'000 Profit for the periodBasic earnings 2,400 1,719 Adjustments to basic earningsIntangible assets amortisation 741 422Share based payment charge 88 88 Adjusted earnings 3,229 2,229 2007 2006 £'000 £'000Number of sharesWeighted average number of ordinary shares for the purposes of basic 29,299,010 27,966,694earnings per shareWeighted average number of share options in issue 3,060,076 2,551,473Weighted average number of ordinary shares for the purposes of diluted 32,359,086 30,518,167earnings per share Earnings per share Pence PenceBasic earnings per share 8.2 6.1Diluted earnings per share 7.4 5.6 Adjusted earnings per shareBasic earnings per share 11.0 8.0Diluted earnings per share 10.0 7.3 3 Goodwill and intangible assets Goodwill Customer relationships Total £'000 £'000 £'000 Cost at 1 January 2006 5,053 - 5,053Accumulated amortisation - - -Net book amount at 1 January 2006 5,053 - 5,053 Net book amount at 1 January 2006 5,053 - 5,053Additions 5,140 2,894 8,034Amortisation - (422) (422)Net book amount at 31 December 2006 10,193 2,472 12,665 Cost at 31 December 2006 10,193 2,894 13,087Accumulated amortisation - (422) (422)Net book amount at 31 December 2006 10,193 2,472 12,665 Net book amount at 1 January 2007 10,193 2,472 12,665Additions from business combinations 4,795 2,161 6,956Revision to deferred consideration 195 - 195Amortisation - (741) (741)Net book amount at 31 December 2007 15,183 3,892 19,075 Cost at 31 December 2007 15,183 5,055 20,238Accumulated amortisation - (1,163) (1,163)Net book amount at 31 December 2007 15,183 3,892 19,075 Goodwill is allocated to the group's cash generating units (CGU's) identifiedaccording to business units as follows: 2007 2006 £'000 £'000 InterQuest Group (UK) Limited 5,053 5,053PeopleCo Worldwide Limited 3,093 3,093Sand Resources Limited 2,242 2,047Intelect Recruitment plc 2,197 -e-CRM People Limited 2,598 - 15,183 10,193 The recoverable amount of a CGU is determined based on value-in-usecalculations. The key assumptions used for value-in-use calculations are asfollows: Range from / to % % Gross margin 16 31Growth rate 10 10Discount rate 13 15 These assumptions have been used for the analysis of each CGU. Management determine budgeted gross margin and growth rates based upon pastperformance, detailed budgets and expectations of market developments. Thediscount rates are pre-tax and reflect specific risks relating to the relevantCGU's. The value in use calculations are not considered to be sensitive to achange in any key assumptions. 4 Cash and cash equivalents 2007 2006 £'000 £'000 Cash and cash equivalents 135 - Cash, cash equivalents and bank overdrafts include the following for thepurposes of the cash flow statement: 2007 2006 £'000 £'000 Cash and cash equivalents 135 -Bank overdrafts (995) (565) (860) (565) The carrying value of cash and cash equivalents are considered to be areasonable approximation of fair value. 5 Business combinations Intelect Recruitment plc On 5 July 2007 the Group acquired Intelect Recruitment plc for an initialconsideration of £3.55m in cash and £0.17m in new InterQuest Group shares issuedat 107.5p each being the average closing share price over the prior fivebusiness days. A maximum further cash consideration of £0.5m payable in respectof the year to 31 March 2008, together with further amounts of £0.2m and £0.2mpayable in respect of the following two years thereafter, in each case providedthat certain financial targets are met. e-CRM People Limited On 25 September 2007 the Group acquired e-CRM People Limited for an initialconsideration of £2.4m in cash and £0.27m in new InterQuest Group shares issuedat 105p each being the average closing share price over the prior five businessdays. A maximum of £2.28m is payable in September 2008 and September 2009provided certain financial targets are met. Analysis of the acquisitions of Intelect Recruitment plc and e-CRM PeopleLimited Acquiree's Fair value carrying amount £'000 £'000Intelect Recruitment plcIntangible assets - 1,046Property, plant and equipment 49 49Trade and other receivables 889 889Cash and cash equivalents 955 955Trade and other payables (577) (577)Deferred tax liabilities - (314)Net assets 1,317 2,048 Net assets acquired 2,048 e-CRM People LtdIntangible assets - 1,115Property, plant and equipment 3 3Trade and other receivables 2,535 2,535Cash and cash equivalents (577) (577)Trade and other payables (1,325) (1,322)Deferred tax liabilities - (334)Net assets 636 1,420 Net assets acquired 1,420 Total net assets acquired 3,468Goodwill arising on acquisition 4,795 8,263Discharged by:Initial consideration in cash 5,949Initial consideration in shares 444Deferred contingent consideration 1,668Costs associated with the acquisition 202 8,263 Effects on group cash flow:Cash consideration and costs (6,151)Cash balances on acquisition 378Net cash outflow (5,773) The Group has acquired 100% of both companies. Separately identifiable intangible assets, primarily representing customerrelationships, amounting to £2,161,000 (deferred taxation liability thereontotaling £648,000) were recognised as a fair value adjustment on acquisition. The Group has used the income approach to measure the forecasted economicbenefit streams of the acquired businesses' key customer relationships. Thesebenefit streams have been discounted to a present value with an appropriate riskadjusted weighted average cost of capital. Risk adjusted includes general marketrates of return at the valuation date, business risks associated with theindustry and other risks specific to the assets being valued. The directors have not identified further intangibles as part of the businesscombinations due to the fact that the remaining goodwill represents the keymanagement and employees of the businesses. The acquired companies do not havesufficient control over their employees and therefore over the probable futureeconomic benefits arising from the employees. The fair value adjustments are provisional as the Directors intend to reservetheir right to re-appraise fair values up until twelve months from the date ofacquisition. 6 Explanation of transition to IFRS As stated in the Basis of Preparation, this is the Group's first financialstatement report for the period covered by the first IFRS annual consolidatedfinancial statements prepared in accordance with IFRS as adopted by the EU. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Thesefinancial statements have been prepared on the basis of taking the followingexemptions: • business combinations prior to 1 January 2006, the Group's date oftransition to IFRS, have not been restated to comply with IFRS 3 "BusinessCombinations". Goodwill arising from these business combinations of £5,053,000has not been restated other than as set out in the note below. Reconciliation of equity Note 1 January 2006 31 December 31 December 2006 2007 £'000 £'000 £'000 Net assets and equity under UK GAAP 8,920 11,923 15,106 Adjustments (after taxation)IFRS 3 - 'Business combinations' a - - -Goodwill - (1,470) (2,183)Other intangible assets - 2,472 3,892Deferred tax liability - (741) (1,168)IAS 12 - 'Income taxes' - - -Deferred tax assets b 6 (297) (208)Deferred tax liabilities - 498 399 Net assets and equity under IFRS 8,926 12,385 15,838 Reconciliation of profit Note Year ended 31 Year ended 31 December 2006 December 2007 £'000 £'000 Net income under UK GAAP 1,458 2,120 Adjustments (before taxation)IFRS 3 - 'Business combinations' a 134 58IAS 12 - 'Income taxes' b 127 222 Net income under IFRS 1,719 2,400 Note a The Group acquired PeopleCo Worldwide Limited on 1 March 2006 and acquired SandResources Limited on 8 June 2006. Application of IFRS 3 to these businesscombinations resulted in identification of intangible assets, being customerrelationships. Under IFRS this has been recognised separately in the balancesheet at their fair value at the date of acquisition. Under UK GAAP theseintangible assets were subsumed within goodwill. The result of this adjustmentis to decrease goodwill and increase intangible assets at the date ofcombination. At the 31 December 2006 and 31 December 2007 the value ofintangible assets was increased by £2,472,000 and £3,892,000 respectively. Acorresponding decrease in goodwill was also taken at the same periods. Thisadjustment has also had an impact on the deferred tax liability recognised.Amortisation previously accounted for under UK GAAP has been reversed out andamortisation under IFRS has been applied. As at the 31 December 2006 and 31December 2007 administration expenses have been reduced by £134,000 and £58,000respectively IAS 12 requires deferred tax to be provided on all taxable temporarydifferences. The income earned whilst the intangible asset is used will betaxable and there will be no tax deductions against that income from the use ofthe asset. This results in a temporary difference equal to the carrying value ofthe asset on initial recognition in the consolidated accounts. The result ofthis adjustment is to increase the deferred tax liability, increase retainedearnings and increase goodwill. As at the 31 December 2006 and 31 December 2007the value of deferred tax liabilities was increased by £741,000 and £1,168,000respectively. As the intangible asset is amortised, the temporary differencewill decrease and there is a reduction in the deferred tax liability recognisedin the consolidated income. The recognition of this deferred tax credit to theincome statement reduces the impact of the amortisation of the intangible asseton the profits for the year. Note b IAS 12 requires a deferred tax asset to be recognised for deductible temporarydifferences to the extent that it is probable that taxable profits will beavailable against which the deductible temporary difference can be utilised.For equity-settled share-based payments, a deductible temporary difference mayarise where a Schedule 23 deduction is available in the future. The excess ofthe deferred tax is recognised in equity. The result of this adjustment is toincrease deferred tax asset and increase equity. As at 31 December 2006 and 31December 2007 deferred tax assets were increased by £201,000 and £191,000 with acorresponding entry against equity. Significant changes to the cash flow statement for the year to 31 December 2006 None of the adjustments arising from IFRS relate to cash and therefore there isno impact on reported cash flows apart from presentation and cash and cashequivalents. 7 Publication of non-statutory financial statements The preliminary announcement has been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) andthose parts of the Companies Act 1985 applicable to companies reporting underIFRS. The accounting policies (that comply with IFRS and IAS) adopted by theGroup are set out in the Interim Report for the six months ended 30 June 2007. The preliminary announcement does not constitute the statutory financialstatements of the Group within the meaning of Section 240 of the Companies Act1985. The financial information for the year ended 31 December 2006, as restatedto comply with IFRS, is derived from the statutory financial statements for thatyear which have been filed with the Registrar of Companies. The auditors havereported on those financial statements and on the statutory financial statementsfor the year ended 31 December 2007, which will be filed with the Registrar ofCompanies following the Company's Annual General Meeting on 26 June 2008. Theopinion given in both the audit reports is unqualified and does not contain anystatement under sections 237 (2) or (3) of the Companies Act 1985. The preliminary announcement has been agreed with the Company's auditors forrelease. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
InterQuest Group