20th Apr 2006 07:02
Huntsworth PLC20 April 2006 Unaudited Preliminary Results for the year ended 31 December 2005 Refocused group with strong start to 2006 Huntsworth PLC, the global public relations group, today announces itspreliminary results for the twelve months to 31 December 2005. These results include eight months' contribution from Incepta with whom theGroup merged on 29 April 2005 and the marketing services businesses untildivestment on 4 November 2005. Highlights • Continuing revenue of £108.3 million (2004: £42.8 million). Revenue on a twelve- month basis for the businesses we owned at 31 December 2005 was £136.2 million. Public relations now represents 90 per cent of Group revenue. • Like-for-like revenue growth from continuing operations of 2.8 per cent with public relations businesses up 4.4 per cent. • Continuing operating profit before highlighted items* increased to £12.9 million (2004: £5.2million). • After highlighted items of £42.9 million, the operating loss from continuing operations was £30.0 million (2004: Profit £2.4 million). Highlighted items include a charge of £29.6 million for the impairment of goodwill and other intangibles. • Continuing operating margins before central costs and highlighted items* of 18.6 per cent. Public relations achieved margins of 19.1 per cent. • Annualised savings in central costs of £5 million which is double the forecast reduction of £2.5 million forecast at the time of the merger. • Proposed final dividend of 1.2 pence per share which will result in an increased total dividend of 1.7 pence. This is the highest dividend for Huntsworth's shareholders for 15 years. • Net cash flow from continuing operations before non recurring items of £18.0 million. Net debt reduced in second half to £23.4 million. The percentage of operating profit before highlighted items turned into cash is 139 per cent. Net cash from operations of £11.6 million. • Strong start to 2006. In the first quarter, over £17 million of net revenues won which will be recognised in 2006. Operating margins to date for existing businesses have continued to improve and we expect to reach our target of 20 per cent during 2007. *Highlighted items of £42.9 million charged to continuing operating profit/losscomprise merger, restructuring and other non-recurring costs, amortisation andimpairment of intangibles and share option charges. Lord Chadlington, Chief Executive of Huntsworth, said: "Over the last year Huntsworth has been transformed into one of the leadingindependent public relations businesses. The integration following the mergeris now complete and we are already delivering a margin of 18.6% before centralcosts, advancing towards our target margin of 20%. The momentum developed in 2005 has continued into 2006 and current tradingindicates that Huntsworth is set to exceed market expectations for thehalf-year." Contacts: Huntsworth plc Lord Chadlington, Chief Executive +44 (0) 20 7408 2232Roger Selman, Finance Director +44 (0) 20 7408 2232 Citigate Dewe Rogerson Simon Rigby +44 (0) 20 7638 9571Anthony KennawayGeorge Cazenove A presentation will take place for analysts at 9am on 20 April at Citigate DeweRogerson, 3rd Floor, 3 London Wall Buildings, London Wall, EC2M 5SY. Notes to Editors: 1. Huntsworth PLC is a global public relations group which is rooted inlocal excellence. The group has 45 principal offices in 21 countries, over2,500 clients and provides services to 37 companies in the FTSE 100, 115 in theFortune 500, and 102 in the Eurotop 300. 2. The Group comprises some of the world's leading public relationsagencies including Citigate Dewe Rogerson, Grayling, Hudson Sandler, Red andTrimedia, in three core sectors; Full Service Public Relations; Financial andCorporate Communications and Public Affairs; and Integrated HealthcareCommunications. The Group employs over 1500 staff with an average fee per headof £92k. 3. Revenue by key areas of activity of our group companies - 44 per centfrom Financial, Investor Relations and Public Affairs, 42 per cent from fullservice PR businesses, and the balance from healthcare PR and non publicrelations activity. 4. The major industry sectors of our clients which Huntsworth servesinclude Pharmaceutical and Health representing 15 per cent of revenues,Financial and Insurance 14 per cent, Fast Moving Consumer Goods 13 per cent,Technology companies 11 per cent and Government and Political organisations 9per cent. 5. Geographically, revenue is now 51 per cent from the UK, 22 per centfrom other European countries, 24 per cent from the USA and 3 per cent from theRest of World. The Group now represents 188 clients in more than one country(2004: 60) and 118 clients are serviced by more than one of our brands (2004:21). The largest client represents 1.3 per cent of continuing revenue with thetop 10 clients representing 10 per cent. Average fee per client is approximately£50,000. 6. Shareholdings of directors, employees and employee trusts representapproximately 12 per cent of Huntsworth's share capital while institutionalshareholdings comprise 67%. Unaudited Preliminary Results for the year ended 31 December 2005 Chief Executive Statement Huntsworth operates in three main areas: - full service public relations consultancy - financial and corporate communications and public affairs consultancy - integrated healthcare communications. Public relations represents some 90% of our revenue. During the year we have simplified and shortened the management reportingstructure to enable the Board to establish comprehensive controls and tocommunicate and drive our strategy. We operate with a small management team atthe centre and remain committed to keeping central costs to a minimum providedgood corporate governance and controls are maintained. Over this year of very significant change - particularly the merger with Inceptaand the sale of the marketing services division - we have concentrated onimproving operating margins, particularly in the PR businesses. Our target is to have all our businesses with an operating margin run rate of20% during 2007. In 2005 we made good progress towards this goal. Operatingmargins before central costs and highlighted items were 18.6% and in our publicrelations businesses we achieved 19.1%. Some 70% of all our PR businesses arenow at or above the operating margin target. Margin management remains a key focus. Several of the companies which we haveacquired either made losses or barely broke even - Trimedia, hatch, AvenueHKM -but now, in a relatively short period, they have either reached, or are withinstriking distance of, the Group margin target. There are still underperforming companies in the Group including some of ourresearch and events businesses. In the current year we are concentrating onraising the margins for these companies. I am particularly pleased to report that growth on a like-for-like basis acrossall our companies was 2.8% and in our public relations businesses growth was4.4%. Some 70% of our PR fees are either on retainer or annual repeat business.During the first three months of 2006, we estimate that we have added over £17million of net revenues which will be recognised in the year. In recent months, the order book has been strong across all our businesses andwe are particularly encouraged by the size of the new business contracts, thelevel of co-operation across companies and the number of multi-office accountwins. The appointment of Human Resources Director Tracey Reid is an indication of theimportance we place on attracting and retaining the best people. We aredetermined to make Huntsworth the best place for communications professionals towork and to find a satisfying and rewarding career. Overall, therefore, following dramatic and far-reaching change, we now have asolid platform on which we expect to build a record year during 2006. Finally, I would like to thank all our staff around the world for making thissuccessful and transformational year happen. It is due to their hard work andco-operation that we enter 2006 with such confidence. Market Review In order to make sure that Huntsworth is well positioned and understands thetrends in the global PR market, we have commissioned an independent globalmarket review on the industry from leading PR commentator Paul Holmes. Paul isthe Editor of The Holmes Report, an electronic newsletter covering trends andissues in the public relations business in North America and Europe. Some keyfindings include: The report values the global in-house and consultancy public relations industryat about $6.5 billion which is set to grow at approximately 11 per cent perannum until at least 2010. It concludes that the key growth sectors are expected to include healthcare andpharmaceutical Public Relations, consumer marketing, and financialcommunications. Geographically, China, India and Eastern Europe will be key areas for growth.According to the report, Public Relations is also likely to claim a larger shareof consumer marketing budgets (currently 2 to 3 per cent) as companies becomebetter at measuring the return on investment from PR activities. Operational Review Full Service Public Relations Our full service brands have continued to develop their business by increasingpractice area focus. Special interest teams to enjoy particular success include Property andRegeneration who have secured the opportunity to promote the exciting newresidential and leisure development in Dubai, called Dubai Sports City here inthe UK; Food & Nutrition where we are working with Nescafe in Switzerland onconsumer brand launches and brand extensions and RHM Group in the UK with acorporate PR and crisis management remit; Public Sector where we have beenappointed by Aimhigher to facilitate cross-agency communication to widenparticipation in higher education in the UK; Energy and Utilities having beenappointed by Logica CMG UK to manage corporate relations but also to providededicated support to vertical sectors such as Energy and Utilities andEnvironment where we have been re-appointed by Envirowise to promote resourceefficiency to key business audiences. We are seeing an increasing number of teams working together across practiceareas and geographies to land multi-market clients: Leading Chinese company, Alibaba.com Corporation has appointed us as agency ofrecord in the US and in Asia. We have been appointed by Diageo to co-ordinate corporate PR for the Asia regionwhich is being led by our Singapore office. In Europe we have successfully landed the pan-European consumer, trade and B2BPR remit for Hertz Europe Limited. This accounts for over 500 corporate officesand rental stations across Belgium, France, Germany, Italy, The Netherlands,Spain, Switzerland and the UK. Financial and Corporate Communications and Public Affairs The majority of our business in this division comes from retained clients whichprovide a core stream of revenue for the Group. Our corporate and public affairs teams are increasingly pitching a combinedoffer to multi-national corporations who have a need for total stakeholdercommunications. Some of the biggest companies around the world are clients ofthis division, such as Telefonica, ITV, Next, Compass and LUKOIL. This revenueis augmented by income generated from transactions and other corporateactivities. The buoyant equity market in 2005 has brought new and existing clients to ourfinancial communications companies for their expertise in M&A and IPOs. Majortransactions included Pernod Ricard's successful bid for Allied Domecq,Telefonica's offer for O2 and Easynet's acquisition by BSkyB. This trend hascontinued into the first quarter of 2006. Projects include the IPO of QinetiQ,National Grid's acquisition of Keyspan, Westbury's receipt of an offer fromPersimmon plc and the conclusion of Skandia's defence against Old Mutual. Healthcare Communications Our healthcare business continued to develop its offering, responding to anincreasingly tough and competitive pharmaceutical sector, by providing anintegrated communications mix to most of the world's major pharmaceuticalcompanies. In the pharmaceutical sector, we are seeing a strong shift towards amore integrated approach. Huntsworth Healthcare division includes publicrelations, medical education, advertising and research and is utilising itscross discipline expertise successfully to address client needs. Clients such as Pfizer, Novartis, Sanofi-Aventis and Abbott are utilisingmultiple parts of the Huntsworth Health division. Shire Pharmaceuticalsachieved 'European Launch of the Year' for a new dermatology product with theadvice of four Huntsworth companies. Financial performance All statutory figures are reported under IFRS. Revenue from continuing operations for the 12 months to 31 December 2005 was£108.3 million compared with £42.8 million in the 12 months to 31 December 2004. Revenue on a full twelve-month basis for the businesses we owned at 31December 2005 was £136.2 million. Operating profit from continuing operations before highlighted items (describedin detail below) was £12.9 million, compared with £5.2 million in the 12 monthsto 31 December 2004. In addition there was trading profit included within thediscontinued operations line in the income statement of £2.7 million. Operating loss from continuing operations was £30 million (2004: Profit £2.4million), after highlighted items of £42.9 million which includes the write-downand amortisation of goodwill and other intangibles, and merger, restructuringand other non-recurring items, and share option charges. Earnings and operating margins Losses attributable to ordinary shareholders amounted to £36 million (2004:Profit £1.3 million), after net finance costs of £3 million, profit ofassociates of £0.1 million, tax credit of £2.9 million, discontinued operations(losses on disposal/closure less trading profits) of £5.5 million and minorityinterests of £0.6 million. Adjusted earnings per share (excluding discontinued operations and highlighteditems) were 5.9 pence (2004 adjusted for share consolidation: 7.3 pence). Basicand diluted losses per share from continuing operations were 20.9 pence (2004adjusted for share consolidation: earnings basic 2.1 pence and diluted 2.0pence). Adjusted EPS, as reported above, was adversely affected in the year by two majorelements. First, trading profits from discontinued operations have been excludedand no benefit has been taken from interest on the cash proceeds from themarketing services disposal for their period of ownership until 4 November 2005.This benefit would have amounted to approximately £1.6 million. Second, we havenot had the full benefit of central cost savings, the impact in the year being£1.7 million. The aggregate of these two elements, less tax, reduced theadjusted EPS by 1.8 pence. Crediting these items back to adjusted earnings wouldproduce a notional adjusted EPS of 7.7 pence (2004: 7.3 pence). Operating margins, before central costs and highlighted items, achieved by thecontinuing operations were 18.6 per cent. The margin in public relations was19.1 per cent. With central costs now reduced our operating margins after central costs were11.9 per cent in 2005. In 2006 we expect to continue to make progress towards amargin target of at least 15 per cent. This compares favourably to our SmallCap peer group. Highlighted items (including IFRS related charges) The introduction of International Financial Reporting Standards (IFRS) has beenreflected in both the 2005 and 2004 results. Acquisitions are accounted forunder IFRS from 1 January 2004. This has had a particularly significant effectat Huntsworth because a substantial part of the group has been acquired sincethat date. The total of highlighted items (including finance items) is £42.7 million, andis made up as follows: £29.6 million for the impairment of goodwill and otherintangibles, £3.4 million for the amortisation of intangibles, £0.5 million forshare option charges, a net credit of £0.2 million for imputed interest on thedeferred consideration less revaluation of a put option over minority interest,and £9.4 million for merger, restructuring and other non-recurring costs. Head office and regional cost savings At the time of the announcement of the merger of Huntsworth and Incepta, theGroup estimated that annualised pre-tax cost savings of at least £2.5 millionwould be achieved in 2006. As previously reported, the Group has now achievedannualised savings of some £5 million, comprising reductions in staff costs of£3.4 million, property costs of £1.0 million and in administrative costs of £0.6million. It is expected that central costs will be maintained at around £5.5 million in2006. This compares, in broad terms, with £10.6 million of the combined Inceptaand Huntsworth head office costs at the time of the merger. Treasury In the year Huntsworth generated positive operating cash flow from continuingoperations before non-recurring costs of £18.0 million (2004: £6.6 million). Thepercentage of operating profit before highlighted items turned into cash is 139per cent. The consolidation of the Incepta cash flow from 1 May 2005 gave a oneoff benefit to the cash in the year, as the heavy cash outflows in the firstfour months from bonuses etc had already been paid. The net cash inflow from operations, including discontinued operations andnon-recurring costs was £11.6 million. The other principal movements in net debtduring the year were as follows: payments for net interest, tax and tangiblefixed assets of £8.9 million, acquisitions (including net debt acquired andIncepta dividend) of £69.2 million, dividends of £1.2 million and translationdifferences of £2.5 million. These were offset by the inflow from the disposalof the marketing services division of £53.3 million, resulting in an increase innet debt of £16.9 million, from £6.5 million to £23.4 million. Huntsworth has protected its US dollar and Euro earnings for 2006 by enteringinto average rate option arrangements. It has also partially protected itselfagainst the effects of interest rate increases for the period to July 2007 withan interest rate cap over £5 million. Tax and minority interests The tax credit of £2.9 million on continuing operations comprises a charge of£0.6 million in respect of profit before highlighted items, less £3.5 millionfor tax credits on highlighted items. The charge of £0.6 million includesnon-recurring tax credits of £1.3m, and thus the underlying tax rate oncontinuing operations was 19.4 per cent. Our US tax losses are £26 million, butwith brought forward tax losses in other jurisdictions not available across allcompanies, tax as a percentage of profits will increase to an estimated 30 percent in 2006. Minority interests in continuing operations amounted to £0.6 million for theperiod. Discontinued operations Discontinued operations mainly comprise the marketing services businesses soldto Media Square PLC on 4 November 2005, together with non-core businesses closedin the year as part of the post merger integration. The loss of £5.5 millioncomprises trading profits of £2.7 million, less restructuring and othernon-recurring costs, amortisation of intangibles and share option charges of£2.4 million, losses on disposal and closures of £5.3 million, net finance costsof £0.3 million and a tax charge of £0.2 million. Balance Sheet, acquisition payments and bank facilities Net bank debt at 31 December 2005 was £20.2 million, compared with £4.1 millionat 31 December 2004. Shareholders' funds at 31 December 2005 increased to£136.0 million, compared with £43.4 million at 31 December 2004. Acquisitioncosts totalled £7.9 million in the period. Net debt acquired with subsidiariestotalled £59.3 million which was wholly related to Incepta. Net debt after themerger with Incepta peaked in excess of £80 million. A total of 129.9 millionshares (adjusted for share consolidation where issued prior to 14 July 2005),with a value of £130.2 million, were issued in respect of acquisitions in theyear. Huntsworth has a committed, unsecured term overdraft and guarantee facilitytotalling £60 million in place until April 2008. EBITDA interest cover(excluding discontinued operations, provisions discount and highlighted items)was 5 x in the year. Earn-out payments Future earn-out payments are estimated at £9.4 million, comprising £5.6 millionpayable in cash or in shares at Huntsworth's option, £2.1 million in shares and£1.7 million in cash. The timing of the aggregate of these payments is £4.2million in 2006, £3.9 million in 2007 and £1.3 million in 2008. Dividend The Board will propose at the forthcoming AGM on 4 July 2006 a final dividend of1.2 pence per share, which will provide an increased total dividend of 1.7pence. The record date for this dividend will be 7 July 2006 and it will bepayable on 15 September 2006. A scrip dividend alternative will also beavailable. Board Changes It was announced at the time of the merger that Roger Selman would continue asFinance Director until after the integration of the two groups and theimplementation of the strategic review. The Group is now therefore conductingan internal and external recruitment process for his replacement. Furthermore, a committee, under the Chairmanship of the Senior IndependentDirector, Robert Alcock, has started the process of finding a new non-executiveChairman to replace Jon Foulds who will retire this year. We will give a further update to shareholders at the 2006 AGM. Outlook for 2006 With central costs significantly reduced, operating margins moving towards the20 per cent target and a strong new business book, the Board is confident thatwe will have a strong first half which should exceed market expectations andwhich, in turn, will give us an excellent platform for the full year. Consolidated Income Statement for the year ended 31 December 2005 Notes 2005 2004Continuing operations £000 £000 Turnover 154,872 60,911 Revenue 4 108,347 42,806 Operating expenses - excluding highlighted items (95,419) (37,637) Operating expenses - highlighted items 5 (42,958) (2,811) Operating expenses - total (138,377) (40,448) Operating profit before highlighted items 4 12,928 5,169Highlighted items - operating expenses 5 (42,958) (2,811)Operating (loss)/profit (30,030) 2,358 Finance income 6 710 75 Finance costs 6 (3,753) (621)Share of profit of associates 4 142 - Profit before tax and highlighted items 9,787 4,623Highlighted items - operating expenses 5 (42,958) (2,811) Highlighted items - finance items 6 240 - (Loss)/profit from continuing operations before tax (32,931) 1,812 Taxation credit/(charge) 2,947 (353) (Loss)/profit for the year from continuing operations (29,984) 1,459 (Loss)/profit from discontinued operations (5,451) 181 (Loss)/profit for the year (35,435) 1,640 Attributable to:Parent company's equity shareholders (36,034) 1,262Minority interests 599 378 (35,435) 1,640 (Loss)/earnings per share from continuing operations: 8Basic - pence (20.9) 2.1Diluted - pence (20.9) 2.0Adjusted basic - pence* 5.9 7.3Adjusted diluted - pence* 5.7 6.9 (Loss)/earnings per share from continuing and discontinued 8operations:Basic - pence (24.6) 2.4Diluted - pence (24.6) 2.3 * Adjusted basic and diluted earnings per share from continuing operations iscalculated based on (loss)/profit for the year from continuing operationsadjusted for highlighted items charged to continuing operations and the relatedtax effects (see note 8). Consolidated Balance Sheet as at 31 December 2005 Notes 2005 2004 £000 £000 Non-current assets Intangible assets 9 194,641 62,261 Property, plant and equipment 7,148 2,680Investment in associates 238 -Deferred tax 3,316 13 205,343 64,954 Current assets Work in progress 1,277 1,148Trade and other receivables 45,326 18,046Cash and short-term deposits 10(c) 9,277 2,773 55,880 21,967 Current liabilities Bank loans and overdrafts 10(c) (126) (141) Loan notes payable 10(c) (2,790) (2,080) Obligations under finance leases 10(c) (142) (135) Trade and other payables (46,419) (18,088) Corporation tax payable (7,074) (1,312) Provisions (13,470) (4,402) (70,021) (26,158)Non-current liabilities Bank loans and overdrafts 10(c) (29,373) (6,727) Obligations under finance leases 10(c) (224) (162) Provisions (11,753) (8,001) Trade and other payables (6,399) - Deferred tax liabilities (6,239) (1,792) (53,988) (16,682)Net assets 137,214 44,081 Equity Called up share capital 96,070 30,444Share premium account 22,921 23,615Merger reserve 73,729 7,902Foreign exchange translation reserve 2,710 (183)Investment in own shares (691) (8)Potential acquisition of minority interests (4,168) - Retained earnings (54,545) (18,388)Equity attributable to equity holders of the parent 136,026 43,382 Minority interests 1,188 699 Total equity 137,214 44,081 Consolidated Cash Flow Statement for the year ended 31 December 2005 Notes 2005 2004 £000 £000 Cash inflow from operating activities Cash generated from operations 10(a) 11,604 4,635Interest paid (3,750) (570)Interest received 248 75Corporation tax paid (1,877) (522)Net cash inflow from operating activities 6,225 3,618 Cash inflow/(outflow) from investing activitiesAcquisitions of subsidiaries (7,956) (18,164)Special dividend paid to Incepta shareholders (2,100) -Disposal of subsidiaries 53,817 -Purchases of property, plant and equipment (3,649) (380)Proceeds from sale of property, plant and equipment 186 65Proceeds from sale of fixed asset investments 55 -Net cash acquired with subsidiaries 25,920 927 Net cash disposed of with subsidiaries (512) - Net cash inflow/(outflow) from investing activities 65,761 (17,552) Cash (outflow)/inflow from financing activities Proceeds from issue of ordinary shares 62 20,886 Purchase of treasury shares - (3)Repayment of finance lease liabilities (199) (272)Repayment of loan notes (5,636) -Net repayment of borrowings (58,048) (3,303)Dividends paid to minority interests (163) (130)Dividends paid to equity holders of the parent (1,231) (467)Net cash (outflow)/inflow from financing activities (65,215) 16,711 Increase in cash and cash equivalents 6,771 2,777 Movements in cash and cash equivalents Net increase in cash and cash equivalents 6,771 2,777Effects of exchange rate fluctuations on cash held (252) (99)Cash and cash equivalents at 1 January 2,632 (46)Cash and cash equivalents at 31 December 10(c) 9,151 2,632 Consolidated Statement Of Changes In Equity for the year ended 31 December 2005 Called Up Share Share Premium Merger Other Retained Minority Total Capital Account Reserve Reserves Earnings Total Interests Equity £000 £000 £000 £000 £000 £000 £000 £000At 1 January 2004 16,309 13,148 3,459 (5) (19,458) 13,453 - 13,453 Currency translation differences - - - (183) - (183) - (183) Net income recognised directly - - - (183) - (183) - (183)in equityProfit for the year - - - - 1,262 1,262 378 1,640 Total recognised income and - - - (183) 1,262 1,079 378 1,457expense for the yearShares issued for cash 9,935 11,927 - - - 21,862 - 21,862considerationAdditions to minority interests - - - - - - 451 451Acquisitions of subsidiaries 4,200 - 4,443 - - 8,643 - 8,643Movement in investment in own - - - (3) - (3) - (3)sharesShare issue costs - (1,460) - - - (1,460) - (1,460)Credit for share based payments - - - - 244 244 - 244 Deferred tax on share based - - - - 30 30 - 30paymentsEquity dividends - - - - (466) (466) - (466) Dividends to minority interests - - - - - - (130) (130) Balance at 1 January 2005 30,444 23,615 7,902 (191) (18,388) 43,382 699 44,081Impact of adoption of IAS 32 and - - - (4,168) - (4,168) - (4,168)IAS 39 on 1 January 2005 Currency translation differences - - - 2,893 - 2,893 (4) 2,889Net income recognised directly - - - 2,893 - 2,893 (4) 2,889in equity(Loss)/profit for the year - - - - (36,034) (36,034) 599 (35,435) Total recognised income and - - - 2,893 (36,034) (33,141) 595 (32,546)expense for the yearShares issued for cash 50 12 - - - 62 - 62considerationAcquisitions of subsidiaries for 65,556 - 65,827 - - 131,383 240 131,623sharesDisposal of minority interest - - - - - - (183) (183)Movement in investment in own - - - (683) - (683) - (683)sharesShare issue costs - (721) - - - (721) - (721)Credit for share based payments - - - - 1,164 1,164 - 1,164Deferred tax on share based - - - - (21) (21) - (21)paymentsScrip dividend 20 15 - - (35) - - -Equity dividends - - - - (1,231) (1,231) - (1,231)Dividends to minority interests - - - - - - (163) (163)Balance at 31 December 2005 96,070 22,921 73,729 (2,149) (54,545) 136,026 1,188 137,214 Notes to the unaudited preliminary consolidated financial statements for the year ended 31 December 2005 1. Basis of preparation Prior to 2005 the Group prepared its audited financial statements under UKGenerally Accepted Accounting Principles ('UK GAAP'). For the year ended 31December 2005 the Group is required to prepare its annual consolidated financialstatements in accordance with accounting standards adopted for use in theEuropean Union (International Financial Reporting Standards ('IFRS')). Thefinancial information set out in this announcement has been prepared inaccordance with the accounting policies set out below, taking into account therequirements and options in IFRS 1 'First-time adoption of InternationalFinancial Reporting Standards'. The transition date for the Group's application of IFRS is 1 January 2004 andthe comparative figures for 31 December 2004 have been restated accordingly.Reconciliations of the income statement, balance sheet and net equity frompreviously reported UK GAAP to IFRS are shown in note 12. The informationrelating to the year ended 31 December 2005 which was approved by the Directorson 20 April 2005 is unaudited and does not constitute statutory accounts. Thecomparative figures for the year ended 31 December 2004 are not the Company'sstatutory accounts for that financial year. The statutory accounts for the yearended 31 December 2004, prepared under UK GAAP, have been reported on by theCompany's auditors and delivered to the Registrar of Companies. The report ofthe auditors was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 31December 2005 will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. 2. Significant accounting policies The financial statements have been prepared on the historical cost basis, exceptfor derivative financial instruments which have been measured at fair value. TheGroup's significant accounting policies are listed below: Basis of consolidation Huntsworth PLC (the Company) is a limited company incorporated and domiciled inthe United Kingdom. The Group financial statements consolidate the financialstatements of Huntsworth PLC and all of its subsidiaries. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated financial statements from the date of acquisitionor to the date of disposal respectively. On acquisition of a business, all ofthe assets and liabilities of that business that exist at the date ofacquisition are recorded at their fair values reflecting their condition at thatdate. Turnover and revenue Group turnover represents amounts received or receivable from clients, exclusiveof value added tax, for the rendering of services and comprises charges forfees, commissions, rechargeable expenses and sales of marketing products. Group revenue is turnover less amounts payable to external suppliers where theyare retained to perform part of a specific client project or service, andrepresents fees, commissions and mark-ups on rechargeable expenses and marketingproducts. Turnover and revenue reflect the fair value of the proportion of the workcarried out in the year by recording turnover and related costs as serviceactivity progresses. Public Relations Revenue is derived from retainers and fees for services provided. Revenue isrecognised when the service is performed in accordance with the contract and thestage of completion. Non Public Relations Revenue is in the form of commissions on media placements and fees for creativeand production services provided. Revenue is recognised as the services areperformed. The majority of the Group's marketing services businesses whichrepresented most of the Non Public Relations segment were sold during the year. Associates An associate is an entity in which the Group has significant influence and whichis neither a subsidiary nor a joint venture. Associates are accounted for underthe equity method of accounting, where the investment in the associate iscarried in the consolidated balance sheet at cost plus post-acquisition changesin the Group's share of net assets of the associate. Goodwill relating to anassociate is included in the carrying amount of the investment and is notamortised. The income statement reflects the share of the results of theoperations of the associate after tax. Associates have 31 December reportingdates and their accounting policies conform to those used by the Group. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits. Bankoverdrafts repayable on demand are an integral part of the Group's cashmanagement and are included as a component of cash and cash equivalents for thepurpose of the cash flow statement. Goodwill and intangible fixed assets Goodwill arising on consolidation, being the excess of the fair value of theconsideration paid over the net fair value of the identifiable assets,liabilities and contingent liabilities acquired, is capitalised as an asset inthe balance sheet. As described in note 12, the Group has taken advantage of thefirst time adoption exemptions in IFRS 1 and consequently goodwill arisingbefore the date of transition to IFRS was retained at its carrying value as at 1January 2004. Goodwill is reviewed for impairment annually and in any periods in which eventsor changes in circumstances indicate the carrying value may not be recoverable.For the purpose of impairment testing, goodwill acquired in a businesscombination is allocated to each of the Group's cash generating units that areexpected to benefit from the synergies of the combinations. Impairment testingis determined by assessing the recoverable amount of the cash generating unit towhich the goodwill relates. If the recoverable amount is less than the carryingamount of the cash generating unit, the impairment loss is allocated first toreduce the carrying amount of the goodwill and then to other assets of the unit. Determining whether goodwill is impaired requires an estimation of the value inuse of cash generating units to which the goodwill is allocated. The value inuse calculation requires the entity to estimate future cash flows expected toarise from the cash generating unit and to choose a suitable discount rate inorder to calculate the present value of those cash flows. The carrying amount ofgoodwill at the balance sheet date was £174.5 million (2004: £55.4 million). Intangible fixed assets comprise acquired separable corporate brand names andcustomer relationships. Intangible fixed assets are amortised systematicallyover their estimated useful lives, which vary from 3 to 20 years depending onthe nature of the asset. These intangible assets are reviewed for impairment inany periods in which events or changes in circumstances indicate the carryingvalue may not be recoverable. Property, plant and equipment Property, plant and equipment are stated at their purchase price, together withany incidental expenses of acquisition. Provision for depreciation is made so asto write off the cost of property, plant and equipment less the estimatedresidual value, on a straight line basis, over the expected useful economic lifeof the assets concerned. The principal annual rates used for this purpose are: Motor vehicles 25% Equipment, fixtures and fittings 15% - 35% Leasehold improvements are amortised over the period of the lease. Depreciation is provided on freehold property over the useful economic life ofbetween 30 and 70 years. The carrying values of property, plant and equipment are reviewed for impairmentperiodically if events or changes in circumstances indicate the carrying valuemay not be recoverable. Work in progress Work in progress is stated at the lower of cost and net realisable value, andconsists of third party costs incurred on behalf of clients which have still tobe recharged. This is credited to revenue when the relevant part of the servicehas been performed. Taxation The tax charge for the period represents the sum of the tax currently payableand deferred tax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement as itexcludes items of income or expense that are deductible in other years and itemsthat are never deductible. The current and deferred tax charges are calculatedusing tax rates and laws that have been enacted or substantively enacted at thebalance 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 taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable 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 of other assetsand liabilities in a transaction (other than in a business combination) thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. 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 the asset is 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. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources will be required to settle the obligation and a reliable estimate canbe made of the amount of the obligation. If the amounts involved are material,provisions are determined by discounting the expected future cash flows at apre-tax rate which reflects the current market assessment of the time value ofmoney and when appropriate the risks specific to the liability. Wherediscounting is applied to provisions, the increase in the value of the provisiondue to the passage of time is recognised as a finance cost. Where a leasehold property substantially ceases to be used for the Group'sbusiness, or a commitment is entered into which would cause this to occur,provision is made to the extent that the recoverable amount of the interest inthe property is expected to be insufficient to cover the future obligationsrelating to the lease. Acquisitions made by the Group typically involve an earn-out arrangement wherebythe consideration payable includes a deferred element that is contingent on thefuture financial performance of the acquired entity. No material contingentconsideration will become payable unless the acquired entity delivers greaterrevenues or profits during the earn-out period prior to acquisition. Theprovision for contingent consideration for acquisitions represents thedirectors' best estimate of the amount expected to be payable in cash or shares.The estimated value of contingent consideration payable by the issue of newordinary shares in the Company of £7,702,000 (2004: £7,157,000) is included inthe balance sheet within provisions. Leasing and hire purchase commitments Assets held under finance leases, which are leases where substantially all therisks and rewards of ownership of the asset have passed to the Group, and hirepurchase contracts are capitalised in the balance sheet and are depreciated overtheir useful lives. The capital elements of future obligations under financeleases and hire purchase contracts are included as liabilities in the balancesheet. The interest elements of the rental obligations are charged in the incomestatement over the periods of the finance leases and hire purchase contracts andrepresent a constant proportion of the balance of capital repaymentsoutstanding. Rentals payable under operating leases are charged to the income statement on astraight line basis over the lease term. Foreign currencies Sterling is the functional currency of Huntsworth PLC and the presentationalcurrency of the Group. The functional currency of subsidiaries is the localcurrency of the economic environment in which they operate. Transactionsdenominated in foreign currencies are initially translated at the exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are retranslated at the rate of exchangeruling at the balance sheet date. All gains and losses are recorded in theincome statement, with the exception of gains and losses relating to borrowingsthat provide a hedge against a net investment in a foreign entity, in which casethey are recorded in equity until the disposal of the net investment to whichthey relate at which time they are recognised in the income statement. The financial statements of subsidiaries are translated into the presentationalcurrency of the Group on consolidation. Assets and liabilities are translated atthe exchange rate ruling at the balance sheet date with items in the incomestatement being translated at the average rate for the period. Exchangedifferences arising on consolidation are recorded in a separate component ofequity, but are recognised in the consolidated income statement on disposal ofthe subsidiary to which they relate. Goodwill and fair value adjustments arising on the acquisition of an overseassubsidiary are treated as assets and liabilities of the overseas subsidiary andtranslated at the closing rate. Derivative financial instruments The Group uses derivative financial instruments to reduce its exposure toforeign exchange and interest rate movements. The Group does not hold or issuederivative financial instruments for financial trading purposes but derivativesthat do not qualify for hedge accounting are accounted for at fair value throughthe income statement. Derivative financial instruments are initially recognisedat fair value at the contract date and continue to be stated at fair value atthe balance sheet date with gains and losses on revaluation being recognisedimmediately in the income statement. Option agreements that allow holders of equity instruments of subsidiaries torequire the Group to purchase the minority interest are treated as derivativesover equity instruments and are recorded in the balance sheet at fair value andthe valuation is re-measured at each period end. The financial liabilityrelating to the potential purchase of the minority interest is recorded at itsestimated fair value with a corresponding debit entry to equity. Movements inthe fair values of the option agreements and the financial liabilities arerecognised as finance income or expense in the income statement. Borrowing costs Borrowing costs are recognised as an expense when incurred. Share-based payments The Group issues equity-settled share-based payments to certain employees. TheGroup has used a binomial share option valuation model for the purposes ofcalculating the fair value of the share options granted to employees. The costof share-based payments is recognised in the income statement as an expensespread over the relevant vesting period, with a corresponding increase inequity. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the non-market conditions and the number of equity instrumentsthat will ultimately vest. The movement in cumulative expense since the previousbalance sheet date is recognised in the income statement, with a correspondingentry in equity. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the incomestatement for the award is expensed immediately. Any compensation paid up to thefair value of the award at the cancellation or settlement date is deducted fromequity, with any excess over fair value being treated as an expense in theincome statement. The fair value of options in acquired companies which are rolled over into theGroup's option schemes is pro-rated between the pre- and post-acquisitionperiods in accordance with the vesting period. In accordance with the first time adoption exemptions available under IFRS 1,the Group has elected to fair value only equity instruments that have beengranted after 7 November 2002 that had not vested by 1 January 2005. Employee benefits All accumulating employee compensated absences that are unused at the balancesheet date are recognised as a liability. Dividends Interim dividends are recognised as a deduction from equity in the period inwhich they are paid. Final dividends are recognised in the period in which theyare approved by the Company in general meeting. Pensions The Group operates defined contribution money purchase pension schemes and makescontributions to individual employees' personal pension schemes. The Group'scontributions are charged against profits in the year in which the relatedemployee services are performed. The employees of Trimedia Communications Suisse SA, a subsidiary of the Group,belong to a multi-employer defined benefit pension plan. Because theadministrator of the plan has been unable to provide sufficient information forthe Group to identify its share of the underlying financial position andperformance of the plan, the Group accounts for the plan as if it were a definedcontribution scheme in accordance with IAS 19. Employee share ownership plans Consideration to acquire shares in Huntsworth PLC through Employee BenefitTrusts has been deducted from equity. Adoption of new standards and amendments The IASB and IFRIC have issued a number of standards and interpretations with aneffective date after the date of these financial statements. The Group has notapplied any of these standards and interpretations in these financialstatements. The directors anticipate that the adoption of these standards andinterpretations in future periods will have no material impact on the financialstatements of the Group. 3. Acquisitions The following acquisitions were made during the year: Incepta Group plc On 29 April 2005 the Group acquired 100% of the issued share capital of InceptaGroup plc, an international marketing and communications group, through a sharefor share exchange in which 3.13654 ordinary 10p Huntsworth PLC shares wereissued for every Incepta ordinary share of 5p each. The fair value of theconsideration given for the acquisition of the Incepta shares was £126.6 millionbased on the issue of 633,086,083 Huntsworth 10p ordinary shares at the quotedmarket bid price of 20p at the date of acquisition (after the shareconsolidation on 14 July 2005 this equates to 126,617,217 Huntsworth 50pordinary shares at a market price of £1). There were also related acquisitioncosts incurred of £3.0 million that are included in the total cost ofacquisition. Sinclair Mason Limited On 23 February 2005 the Group acquired 100% of the issued share capital ofSinclair Mason Limited for an initial consideration of £1.1 million satisfied by£620,000 of cash and £480,000 of Huntsworth shares. Additional deferredconsideration is payable dependent on the next three years' trading profits upto a maximum of £2.8 million. Neisser Communications On 26 May 2005 the Group acquired the brand and associated client and staffcontracts of Neisser Communications for an initial consideration of €139,000(£96,000) satisfied 50% in cash and the balance by the issue of Huntsworthshares. Additional deferred consideration based on financial performance overthe next three years is payable up to a maximum of €1.1 million (£753,000). Zahner and Partner AG On 1 July 2005 the Group acquired 100% of the issued share capital of Zahner andPartner AG for an initial consideration of CHF2.1 million satisfied by CHF1.2million (£548,000) of cash and CHF900,000 (£411,000) of Huntsworth shares.Additional deferred consideration is payable dependent on the three years'trading profits from January 2006 up to a maximum of CHF1.1 million (£485,000). Context Research International Limited On 12 August 2005 the Group acquired 100% of the issued share capital of ContextResearch International Limited for an initial consideration of £3.0 millionsatisfied by £1.8 million of cash and £1.2 million of Huntsworth shares.Additional deferred consideration is payable dependent on the next three years'trading profits up to a maximum of £3.6 million. Brand Health International Limited On 12 August 2005 the Group acquired 100% of the issued share capital BrandHealth International Limited for an initial consideration of £33,000 satisfiedin cash. Additional deferred consideration is payable dependent on the next fouryears' trading profits up to a maximum of £5 million. The Anne McBride Company Inc. On 17 August 2005 the Group acquired 100% of the issued share capital of TheAnne McBride Company Inc. for an initial consideration of $2.7 million (£1.5million) satisfied by the issue of 1,263,501 Huntsworth ordinary shares.Additional deferred consideration is payable dependent on the two years' tradingprofits from September 2006 to up to a maximum of $2.3 million (£1.3 million). 4. Segmental analysis The Group offers its clients a range of public relations services. Following thedisposal of the marketing services division during the year, a review of thecompanies presented in the Group's internal reporting was undertaken todetermine whether those companies constituted business segments to be disclosedseparately. Services were considered under a number of criteria (nature ofservices, type or category of clients, methods of distribution and supply ofservices, nature of regulatory environment), and it was concluded that theGroup's Public Relations businesses generally have similar risks and returns andtherefore represent a business segment. The Group also has a small number ofother Non Public Relations businesses which operate in areas such as events andadvertising and have different risks and returns from Public Relations and theseare treated separately, as set out below. Business segments The following table analyses the revenue and operating profit/(loss) regardingthe Group's business segments for the year ended 31 December 2005: Total Non Public Continuing Public Relations Eliminations Operations Relations £000 £000 £000 £000Revenue External 94,972 13,375 - 108,347 Intra-group (4) 97 (93) - Total revenue 94,968 13,472 (93) 108,347 Operating profit/(loss)Segment operating profit from continuing operations 18,164 1,939 - 20,103 Unallocated expenses (7,175) Operating profit before highlighted items 12,928 Highlighted items - operating expenses (34,769) (8,189) (42,958)Net finance costs (3,043) Share of profit of associates 142 - 142Loss before tax (32,931)Taxation 2,947Loss for the year from continuing operations (29,984) Inter-segment sales are arm's length transactions at prevailing market rates. The loss from discontinued activities of £5,451,000 relates to businesses in theNon Public Relations segment. The following table analyses the revenue and operating profit regarding theGroup's business segments for the year ended 31 December 2004: Total Non Public Continuing Public Relations Eliminations Operations Relations £000 £000 £000 £000Revenue External 36,310 6,496 - 42,806 Intra-group 36 - (36) - Total revenue 36,346 6,496 (36) 42,806 Operating profitSegment operating profit from continuing 6,279 1,974 - 8,253operations Unallocated expenses (3,084) Operating profit before highlighted items 5,169 Highlighted items - operating expenses (2,646) (165) (2,811)Net finance costs (546) Share of profit of associates -Profit before tax 1,812Taxation (353)Profit for the year from continuing operations 1,459 The profit from discontinued activities of £181,000 relates to businesses in theNon Public Relations segment. Geographical segments The following tables analyse the Group's revenue and operating profit bygeographical segments for the years ended 31 December 2005 and 31 December 2004: 2005 2004 £000 £000 RevenueUnited Kingdom 58,293 29,673 Other European 22,857 9,050 USA 24,035 3,645 Rest of World 3,162 438 Total 108,347 42,806 Operating profitUnited Kingdom 11,504 6,415 Other European 4,000 1,201 USA 3,945 524 Rest of World 654 113 Segment operating profit from continuing operations 20,103 8,253 Unallocated expenses (7,175) (3,084) Operating profit before highlighted items 12,928 5,169 5. Highlighted items charged to operating (loss)/profit The following highlighted items have been recognised in arriving at operating(loss)/profit from continuing operations: 2005 2004 £000 £000Amortisation of intangible assets 3,402 448Impairment of goodwill and intangible assets 29,571 -Share options charge 576 244Merger, restructuring and other non-recurring costs 9,409 2,119 42,958 2,811 Highlighted items charged to operating (loss)/profit comprise significantnon-cash charges and non-recurring items which are highlighted in the incomestatement because separate disclosure is considered helpful in understanding theunderlying performance of the business. Impairment of goodwill and intangible assets Of the impairment charge for goodwill and intangible assets, £12.5 millionrelates to the write down of Citigate Sard Verbinnen to recoverable amountfollowing the signing of an agreement to sell the business as announced on 15February 2006 and as approved by shareholders at the Extraordinary GeneralMeeting on 6 March 2006. A further £1.8 million relates to writing down torecoverable amounts non-core businesses sold after the year end and £15.3million relates to impairments following the strategic review and a review ofthe future prospects of certain companies. Merger, restructuring and other non-recurring costs Merger, restructuring and other non-recurring costs comprise expenses relatingto the integration and restructuring of businesses within the Group togetherwith certain other non-recurring costs. The components are: employee severancecosts (£4.5 million), property charges (£2.7 million), integration costs (£1.2million), closures (£0.2 million) and other non-recurring costs (£0.8 million).In 2004 the components were: restructuring costs (£1.8 million), propertycharges (£0.1 million) and other non-recurring costs (£0.2 million). 6. Finance costs and income 2005 2004 £000 £000Bank interest payable 3,207 536Loan note interest 66 39Finance lease interest 30 42Other net interest payable - 4Provision discount adjustment 240 -IFRS imputed interest on deferred consideration 210 -Finance costs 3,753 621 Bank interest receivable (227) (75)Revaluation of put option over minority interest (450) -Other net interest receivable (33) -Finance income (710) (75) 3,043 546 Highlighted items charged/(credited) to finance costs and income comprise IFRSrelated non-cash items which are highlighted in the income statement becauseseparate disclosure is considered helpful in understanding the underlyingperformance of the business. Highlighted finance items of £240,000 comprise the net of the revaluation crediton the put option over minority interests of £450,000, which under IFRS has beencredited to the income statement, and the IFRS imputed interest charge ondeferred consideration payable in cash or shares of £210,000, wherenotwithstanding the Company's option to settle in shares, under IFRS theexpected amounts are recognised as a financial liability and discountedaccordingly. 7. Dividends 2005 2004 £000 £000Equity dividends on ordinary shares:Interim dividend for year ended 2003 - 0.5p* - 163Interim dividend for year ended 2004 - 0.5p* - 303Special second interim dividend for year ended 2004 - 0.5p* 306 -Interim dividend for year ended 2005 - 0.5p 960 - 1,266 466 *Adjusted for share consolidation on 14 July 2005. A final dividend of 1.2 pence per share has been proposed for approval at theAnnual General Meeting in 2006 and has not been recognised as a liability at 31December 2005. 8. (Loss)/earnings per share The data used in the calculations of the (loss)/earnings per share numbers issummarised in the table below: 2005 2004* (Loss)/ Weighted average (Loss)/ Weighted average Earnings Earnings no of shares no of shares £'000 £'000 000's 000'sContinuing operations:Basic (30,583) 146,579 1,081 51,591Diluted (30,583) **146,579 1,081 53,929Adjusted basic 8,598 146,579 3,742 51,591Adjusted diluted 8,598 149,970 3,742 53,929 Continuing and discontinued operations:Basic (36,034) 146,579 1,262 51,591Diluted (36,034) **146,579 1,262 53,929 * The weighted average number of shares has been restated to reflect that theCompany's existing 10p ordinary shares were consolidated on the basis of 1 new50p ordinary share for 5 existing 10p ordinary shares on 14 July 2005. ** Because basic EPS results in a loss per share the diluted EPS is calculatedusing the undiluted weighted average number of shares. The basic (loss)earnings per share calculation is based on the (loss)/profit forthe year attributable to parent company shareholders divided by the weightedaverage number of ordinary shares outstanding during the year. Diluted (loss)/earnings per share is calculated based on the (loss)/profit forthe period attributable to parent company shareholders divided by the weightedaverage number of ordinary shares outstanding during the year adjusted for thepotentially dilutive impact of employee share option schemes and shares to beissued as part of deferred consideration on acquisitions of subsidiaries. Adjusted earnings per share is calculated in order to provide information toshareholders about continuing trading performance and is based on the profitattributable to parent company shareholders excluding discontinued operationsand highlighted items together with related tax effects as set out below: (a) From continuing operations The calculation of basic and diluted (loss)/earnings per share attributable toparent company shareholders is based on the following: 2005 2004 £000 £000Earnings:(Loss)/profit for the year attributable to parent company's shareholders (36,034) 1,262Add/(less): Loss/(gain) from discontinued operations 5,451 (181)(Loss)/earnings for basic and diluted earnings per share from continuing (30,583) 1,081operationsHighlighted items 42,718 2,811Tax on highlighted items (3,537) (150)Adjusted earnings 8,598 3,742 2005 2004 000's 000'sNumber of shares:Weighted average number of ordinary shares - basic and adjusted 146,579 51,591Effect of share options in issue 1,743 2,338Effect of deferred consideration 1,648 -Weighted average number of ordinary shares - diluted 149,970 53,929 (b) From continuing and discontinued operations Earnings for basic and diluted (loss)/earnings per share from continuing anddiscontinued operations is the (loss)/profit for the year attributable to parentcompany shareholders. The number of shares is the same as those detailed forcontinuing operations. (c) From discontinued operations Basic (loss)/earnings per share for the discontinued operations is a loss of 3.7pence per share (2004: profit of 0.4 pence per share) and diluted earnings pershare is a loss of 3.7 pence per share (2004: profit of 0.3 pence per share),based on the loss for the year from the discontinued operations of £5,451,000(2004: gain of £181,000) and denominators above for both the basic and diluted(loss)/earnings per share. 9. Intangible fixed assets Brands and Goodwill Total customer relationships £000 £000 £000CostAt 1 January 2005 7,318 55,391 62,709Arising on acquisitions in the year 36,178 176,986 213,164Adjustment to prior year acquisitions (201) (767) (968)Arising on disposal of subsidiaries in the year (13,708) (38,836) (52,544)Exchange differences 1,068 5,220 6,288At 31 December 2005 30,655 197,994 228,649Amortisation and impairment chargesAt 1 January 2005 448 - 448Charge for the period 3,402 - 3,402Impairment (continuing operations) 6,697 22,874 29,571Impairment (discontinued operations) - 616 616Exchange differences (29) - (29)At 31 December 2005 10,518 23,490 34,008Net book value at 31 December 2005 20,137 174,504 194,641Net book value at 31 December 2004 6,870 55,391 62,261 Brands and customer relationships are being amortised over their useful economiclives of between 3 and 20 years. The amounts recognised above for intangibleassets arising on acquisitions in the period are provisional awaiting finaldetermination in accordance with the time limit allowed in IFRS 3. Details ofacquisitions made during the period are set out in note 3. 10. Cash flow analysis (a) Reconciliation of operating profit to net cash inflow from operations 2005 2004 £000 £000Operating (loss)/profit from continuing operations (30,030) 2,358Operating profit from discontinued operations 283 207Depreciation 1,059 2,892Share option charge 712 244Loss on write down of associated undertaking - 151Property, plant and equipment written off - 50 Loss on disposal of property, plant & equipment 67 744Amortisation of intangible assets 448 4,594Impairment of goodwill and intangible assets 30,187 -Decrease in work in progress 214 394Decrease/(increase) in debtors 2,781 (1,611) Increase in creditors 3,208 1,757Decrease in provisions (4,161) (309)Net cash inflow from operations 4,635 11,604 Net cash inflow/(outflow) from operations is analysed as follows: 2005 2004 £000 £000Before highlighted items and discontinued operations 17,960 6,591Highlighted items (10,728) (1,610)Discontinued operations 4,372 (346) 11,604 4,635 10(b) Reconciliation of net cash flow to movement in net debt 2005 2004 £000 £000Increase in cash and cash equivalents in the year 6,771 2,777Cash outflow from debt repayment 58,048 3,303 Bank loans and overdrafts acquired (78,536) - Loan notes acquired (6,325) - Loan notes repaid 5,636 - Repayment of capital element of finance leases 199 272 Change in net debt resulting from cashflows (14,207) 6,352 Loan notes issued - (2,080)Finance leases acquired with subsidiaries (159) (60) New finance leases (236) (137) Disposal/cancellation of finance leases 131 43 Translation differences (2,435) (99) (Increase)/decrease in net debt (16,906) 4,019 Net debt at beginning of year (6,472) (10,491) Net debt at end of year (23,378) (6,472) 10(c) Analysis of net debt 1 January 31 December 2005 Cash flow Other 2005 £000 £000 £000 £000Cash and short terms deposits 2,773 6,751 (247) 9,277Bank loans and overdrafts (141) 20 (5) (126)Net cash and cash equivalents 2,632 6,771 (252) 9,151Bank loans and overdrafts (6,727) (20,488) (2,158) (29,373)Obligations under finance leases (297) 199 (268) (366)Loan notes payable (2,080) (689) (21) (2,790)Net debt (6,472) (14,207) (2,699) (23,378) 11. Post balance sheet events On 15 February 2006 the Company announced that it had reached an agreement tosell Citigate Sard Verbinnen ('CSV') by the end of 31 December 2009.Shareholders approved the sale on 6 March 2006. Under the sale agreements, 51%will be acquired by certain executives of CSV on 1 January 2007 for $2.5 million(£1.4 million) and the remaining 49% will be acquired no later than 31 December2009 for a total cash consideration of a further $17.5 million (£10.2 million)(such amounts to have an aggregate present value of $20 million (£11.6 million)as at 1 January 2006). This will be reduced by the amount of cash distributionsfrom CSV from 1 January 2006. On 16 February 2006 the Company announced the acquisition of 100% of EurotandemSAS, a leading independent public relations consultancy based in Paris, for aninitial consideration of €4.1 million (£2.8 million) in cash and the issue of1,469,455 new ordinary shares of Huntsworth PLC with a fair value of £1.3million . Further consideration is dependent on the future financial performanceof Eurotandem. The maximum consideration payable is €8.65 million (£6.0million). On 6 March 2006 the Company announced the sale of the business and assets ofnxtMOVE LLC, formerly trading as Citigate Global Intelligence, for $1.6 million(£0.9 million) to Optimisa PLC. The sales proceeds have been used to reducedebt. 12. Explanation of transition to IFRS The accounting policies in note 2 have been applied in preparing the comparativefinancial statements for the year ended 31 December 2004 and the preparation ofthe opening IFRS balance sheet at 1 January 2004 (the Group's date oftransition). In preparing its opening balance sheet and comparative information for the yearended 31 December 2004, the Group has adjusted amounts reported previously infinancial statements prepared in accordance with UK GAAP. An explanation of the principal changes in accounting policies and how thetransition from UK GAAP to IFRS has affected the Group's income statement,balance sheet and net equity is set out in the tables and accompanying notesbelow. IFRS 1 First-time adoption of IFRS In making the transition to IFRS, the following optional exemptions from fullretrospective application of IFRS accounting policies have been adopted: (1) Business combinations - the Group has chosen not to restate businesscombinations which completed prior to the transition date of 1 January 2004. (2) Share based payments - the Group has elected to fair value onlyequity instruments that have been granted after 7 November 2002 that had notvested by 1 January 2005. (3) Cumulative translation differences - the Group has chosen to resetall translation reserves to £nil as at 1 January 2004. (4) Recognition, measurement and disclosure of financial instruments -the Group has opted not to apply IAS 32 and IAS 39 for the periods to 31December 2004 and has adopted these standards from 1 January 2005. Goodwill The Group's application of IAS 38 to acquisitions after 1 January 2004 hasresulted in the recognition of intangible assets that did not qualify forrecognition under UK GAAP, and were instead subsumed into goodwill. Theseintangibles which include the fair value of brands and customer relationshipsare amortised over their useful economic lives, which vary depending on theindividual characteristics of the intangible assets. Under IAS 36 remaining goodwill is tested annually for impairment, unless thereis any indication of impairment before that time. Share-based payments IFRS 2 requires that the costs of share-based payments are recognised in theincome statement as an expense spread over the relevant vesting period. TheGroup has used a binomial share option valuation model for the purposes ofcalculating the fair value of these share options granted to employees. Dividends IAS 10 requires that interim dividends are recognised as a deduction from equityin the period in which they are paid, and final dividends are recognised in theperiod in which they are approved by the company in general meeting.Consequently dividends proposed or declared after the balance sheet date do notrepresent a present obligation of the entity at that date. Therefore certainprior year dividends have been derecognised on transition to IFRS and have beendisclosed as a movement in shareholders equity. Employee benefits Short term employee benefits are payable within one year after the end of theperiod in which the services have been rendered and in accordance with IAS 19employee holiday pay owing at the end of a financial period is now beingrecorded as a current liability. Cumulative translation differences Under IAS 21 'The Effects of Changes in Foreign Exchange Rates', cumulativetranslation differences are separately accounted for within reserves and arerecycled from equity to the income statement on disposal of a foreign operation. Deferred tax Under IFRS deferred tax is provided in full using the balance sheet liabilitymethod, on the basis of temporary differences between the carrying value ofassets and liabilities in the balance sheet and their tax bases used in thecomputation of taxable profit. Deferred tax assets are recognised only to theextent that it is probable that they can be utilised against future taxableprofits. The principal items that result in adjustments to deferred tax betweenUK GAAP and IFRS are fair value accounting for share-based payments and acquiredintangible assets. Financial instruments: recognition and measurement All derivative financial instruments have been recognised at fair value on thedate the derivative contract is entered into and are subsequently remeasured attheir fair value at the balance sheet date. The method of recognising theresulting gain or loss on revaluation depends on whether the derivative isdesignated as a hedging instrument and, if so, on the nature of the asset orliability being hedged. Certain derivative instruments that provide effectivehedging of the Group's economic exposures are not designated as hedges as theyare not taken out to cover a specific position and the change in their fairvalue is recognised in the income statement. Shares to be issued Shares to be issued as contingent consideration for acquisitions, previouslyshown in equity, have been reclassified to current and non-current liabilities. 12(a) IFRS reconciliation of income statement comparatives 2004 Notes *Published UK IFRS adjustments Restated under GAAP IFRSContinuing operations £000 £000 £000 Turnover 60,911 - 60,911 Revenue 42,806 - 42,806 Operating expenses - excluding highlighted items (37,637) - (37,637) Operating expenses - highlighted items (2,531) (280) (2,811) Operating expenses - total (40,168) (280) (40,448) Operating profit before highlighted items 5,169 - 5,169 Highlighted items - operating expensesAmortisation of intangibles 1,2 (413) (35) (448)Share option charge 3 - (244) (244)Merger, restructuring and other non-recurring costs (2,118) (1) (2,119)Operating profit 2,638 (280) 2,358 Finance income 75 - 75 Finance costs (621) - (621) Profit before tax and highlighted items 4,623 - 4,623Highlighted items - operating expenses (2,531) (280) (2,811)Profit from continuing operations before tax 2,092 (280) 1,812 Taxation (charge)/credit 4 (503) 150 (353) Profit for the year from continuing operations 1,589 (130) 1,459 Profit from discontinued operations 182 (1) 181 Profit for the year 1,771 (131) 1,640 Attributable to: Parent company's equity shareholders 1,393 (131) 1,262 Minority interests 378 - 378 1,771 (131) 1,640 Earnings per share from continuing operations:Basic - pence 2.3 (0.2) 2.1Diluted - pence 2.2 (0.2) 2.0Adjusted basic - pence 7.3 0.0 7.3 Earnings per share from continuing and discontinuedoperations:Basic - pence 2.7 (0.3) 2.4Diluted - pence 2.6 (0.3) 2.3 *As amended for the presentation of the profit from discontinued operations as asingle line item in the income statement and the renaming of other line items tobe consistent with the IFRS presentation. 12(b) IFRS reconciliation of balance sheet comparatives 31 December 2004 Published UK IFRS adjustments Restated under GAAP IFRS Notes £000 £000 £000 Non-current assets Intangible assets 1 60,043 2,218 62,261 Property, plant and equipment 2,680 - 2,680Deferred tax 5 - 13 13 62,723 2,231 64,954 Current assets Work in progress 1,148 - 1,148Trade and other receivables 18,046 - 18,046Cash and short-term deposits 2,773 - 2,773 21,967 - 21,967 Current liabilities Bank overdrafts (141) - (141) Loan notes payable (2,080) - (2,080) Obligations under finance leases (135) - (135) Trade and other payables 2 (18,106) 18 (18,088) Corporation tax payable (1,312) - (1,312) Provisions 4,8 - (4,402) (4,402) (21,774) (4,384) (26,158)Non-current liabilities Bank loans and overdrafts (6,727) - (6,727) Obligations under finance leases (162) - (162) Provisions 4,8 (5,215) (2,786) (8,001) Deferred tax liabilities 3 - (1,792) (1,792) (12,104) (4,578) (16,682)Net assets 50,812 (6,731) 44,081 Equity Called up share capital 30,444 - 30,444Share premium account 23,615 - 23,615Merger reserve 7,902 - 7,902Foreign exchange translation reserve 6 - (183) (183)Shares to be issued 8 7,157 (7,157) -Investment in own shares (8) - (8)Retained earnings 7 (18,997) 609 (18,388)Equity attributable to equity holders of the parent 50,113 (6,731) 43,382 Minority interests 699 - 699 Total equity 50,812 (6,731) 44,081 *As amended for the renaming of line items to be consistent with the IFRSpresentation. 12(c) Reconciliation of net equity 1 January 2004 31 December 2004 £000 £000 Net equity under UK GAAP 16,306 50,113 Impact of changes in accounting under IFRS: Add back goodwill amortisation - 413 Amortisation of intangible assets - (448)Holiday pay accrual (48) (50)Reclassification of shares to be issued to provisions (2,995) (7,157)Deferred tax on intangibles, holiday pay and share-based payments 27 207Write back of proposed dividends 163 304Net equity under IFRS 13,453 43,382 Explanatory notes to the UK GAAP to IFRS reconciliations Income statement 1. Under UK GAAP goodwill was, where considered appropriate, amortisedthrough the income statement on a straight line basis whereas under IFRS 3goodwill is not amortised through the income statement but is instead subject toan annual impairment test. This change results in a credit to the incomestatement for the year ended 31 December 2004. 2. Under IAS 38 and the transitional provisions of IFRS 1 being adoptedby the Group, acquisitions made after 1 January 2004 result in recognition ofintangible assets including brands and customer relationships that did notqualify for recognition under UK GAAP and were subsumed into goodwill. Theseintangible assets are being amortised over their useful economic lives and thecharge for the year ended 31 December 2004 is £448,000. 3. IFRS 2 requires the expensing of employee share options to the incomestatement that were not previously charged to profit under UK GAAP and theseamount to £244,000 for the year ended 31 December 2004. The charge relates tothe share options granted after 7 November 2002. 4. Under IAS 12 deferred tax is recognised on the basis of temporarydifferences between balance sheet amounts of assets and liabilities and theircorresponding tax bases rather than the UK GAAP approach of recognising deferredtax assets and liabilities for the estimated future tax effects of all timingdifferences that have originated but not reversed at the balance sheet date andare expected to crystallise a tax asset or liability in the future. The abovedifferences relate to fair value accounting for share options, acquiredintangible assets and holiday pay. A £150,000 deferred tax credit has beenrecognised in the year ended 31 December 2004. 5. Under IAS 10 equity dividends are not recognised until they are paidor formally approved whereas under UK GAAP dividends relating to a period wererecognised at the balance sheet date even if they were declared or approvedafter the balance sheet date. Accordingly certain dividends have beenderecognised in prior periods and a credit of £141,000 has been reflected forthe year ended 31 December 2004. Balance sheet 1. The £2,218,000 net debit to intangible assets in the 31 December 2004balance sheet consists of additional goodwill arising on the reversal ofgoodwill previously charged to profit of £413,000, £448,000 of amortisation ofbrands and customer relationships, additional goodwill of £267,000 recognised asa result of provisions made for holiday pay in businesses acquired during theperiod and deferred tax liabilities arising on brands and customer relationshipsof £1,986,000. 2. The £18,000 debit to trade and other payables in the 31 December 2004balance sheet consists of £286,000 of holiday pay accruals less the £304,000debit arising on the de-recognition of the proposed dividend. 3. The £1,792,000 credit to deferred tax liabilities represents theadditional deferred tax liabilities of £1,851,000 arising from the recognitionof brands and customer relationships less a £59,000 debit in respect of deferredtax relief on share based payments. 4. Under IFRS provisions previously shown under UK GAAP as provisions forliabilities and charges have been reclassified to show the analysis ofprovisions that are current liabilities and those that are payable beyond oneyear. The amounts reclassified from provisions due after more than one year toprovisions due within one year are £3,753,000 at 31 December 2004. The balanceof £31,000 credited to provisions due within one year at 31 December 2004represents the cost of providing for long term staff benefits. 5. The debit to deferred tax at 31 December 2004 arises from deferred taxrelief on share based payments of £13,000. 6. In accordance with IAS 21, cumulative translation differences areseparately accounted for within reserves and are recycled from equity to theincome statement on disposal of a foreign operation. The adjustments of £183,000for the year ended 31 December 2004 represents a reclassification of a balancepreviously shown in retained earnings under UK GAAP. 7. The net credit to retained earnings of £609,000 for the year ended 31December 2004 consists of the following: a £304,000 credit arising from dividendde-recognition, a holiday pay charge of £50,000, deferred tax relief credit onshare options and holiday pay of £72,000, a credit of £413,000 in respect of thereversal of previously amortised goodwill, a charge of £448,000 for goodwill onbrands and customer relationships and a £135,000 deferred tax credit arising onthe recognition of brands and customer relationships. In addition £183,000 ofcumulative foreign exchange losses have been reclassified to a separate reserve(see note 6 above). 8. Under IFRS shares to be issued in respect of deferred consideration,previously shown under UK GAAP within equity, are regarded as liabilities andhave therefore been reclassified to current and non-current liabilities asprovisions. The amounts reclassified from shares to be issued to provisions duewithin one year at 31 December 2004 are £618,000 and the amounts reclassifiedfrom shares to be issued to provisions due in more than one year at 31 December2004 are £6,539,000. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HNT.L