Half Year Results 2011

26th August 2011

Lavendon Group plc Half Year Results 2011

Lavendon Group plc, Europe's market leader in the rental of powered access equipment, today announces its Half Year Results for the six months ended 30 June 2011.

Notes

(i) Underlying operating profit is stated before amortisation charges and exceptional operating items.

(ii) Figures are stated before amortisation charges and exceptional items

Lavendon delivers results ahead of the Board's expectations

·; Good momentum in Group trading performance; H1 rental revenues up 8%

·; Revenue growth and margin improvement delivered by all European operations; Middle East rental revenues returned to growth in second quarter

·; Group underlying operating margin increased to 9.5% (2010: 6.7%)

·; Continued debt reduction to £133.7 million; net debt/EBITDA 1.85x

·; Good progress with operational efficiency initiatives; £5m of annualised profit improvement to be delivered by 2013

·; Focus on capital efficiency; exiting and redeploying fleet from Spain

·; ROCE increased to 7.9% (2010: 5.9%)

·; Interim dividend increased by 12%

John Standen, Executive Chairman said:

"We are pleased with the improved performance of the Group in the first half of 2011. The modest recovery in our markets combined with operational improvements have both contributed to increased operating margins and return on capital employed (ROCE). Net debt has continued to fall in line with our plans.

"Following the reviews conducted earlier in the year, we remain confident of the significant benefits which will accrue to the business, both in terms of operational initiatives and our focus on efficient capital allocation. It is our aim to drive ROCE to a sustainable level in excess of the cost of capital over the business cycle and we believe the Group is well positioned to achieve this.

"Trading since the half year end has been in line with our expectations and the Board is confident of the Group's ability to deliver increased shareholder value in the medium term."

Business Highlights

·; Financial Summary:

o Group total revenue +4% to £110.1m, with rental revenues +8%.

o Volume and pricing improvements, alongside increased operational efficiency have driven higher revenues, profits, margins and ROCE for the Group.

o Underlying operating profits +47% to £10.4m, with margins improving to 9.5% driven by the UK and Continental European businesses.

o Underlying EBITDA increased +6% to £32.4m; cash generation of £21.3m.

o Net debt fell from £140.3m at the previous year end to £133.7m at 30 June 2011, with further reductions expected in the second half driven by stronger seasonal cash flows.

o Return on capital employed (ROCE) increased to 7.9% at the half year (2010: 5.9%).

o Underlying earnings per share up to 2.81p (2010 H1: 0.45p).

o Interim dividend increased by 12% to 0.37p (2010: 0.33p).

·; Business Review:

o Considerable progress made with the business plan and operational reviews outlined at the Full Year results; remain confident in the opportunities for the Group to continue to improve efficiency, drive top-line growth and increase margins and ROCE.

o Operational efficiency: implementation of actions now under way, with confirmed target to deliver £5m of annualised profit improvement by 2013. £2m to accrue in 2011 offset by implementation costs.

o Capital efficiency: redeployment of Spanish fleet into other Group markets; review of German operation under way. Focus on effective fleet investment with planned increases in capex directed towards those markets and products that offer the greatest potential to improve margins and ROCE.

o Board changes: search for new Chief Executive Officer is progressing and new management team appointed to the German operation.

Outlook

·; Trading: momentum across the Group has carried into the third quarter and should be augmented by the redeployment of fleet from the Spanish operation and the operational efficiency improvements that are anticipated to accrue through the second half.

·; Net debt and capex: further substantial reductions in net debt are expected in the second half, creating a robust capital structure to support the further development of the Group. Future capital expenditure to be funded from annual cash flows that will allow a highly competitive fleet to be maintained whilst not having to releverage the Group's balance sheet.

·; ROCE: actions to improve the efficiency of the capital base and operational performance should enable the Group to increase returns on capital employed (ROCE) to a level above the cost of capital across the business cycle.

For further information please contact:

A meeting for investors and analysts will be held today at 10.45am at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. A copy of the presentation and audio webcast will be available at www.lavendongroup.com later today.

Next Trading Update

The Group's next scheduled announcement of financial information will be its third quarter interim management statement in November 2011.

Notes to Editors

Lavendon Group is the European and Middle East market leader in the rental of powered access equipment. The quality and diversity of its hire fleet, coupled with the professionalism and accessibility of its depot network, provides an exceptional product range for customers.

Powered access equipment is designed to enable people to work safely, productively and comfortably at height. It can be used in a comprehensive range of applications, both inside and outside buildings and structures.

The Group has operations in the United Kingdom, Germany, Belgium, France, Spain, Saudi Arabia, the United Arab Emirates, Bahrain, Oman and Qatar. The equipment fleet totals almost 21,000 units and the Group employs over 1,650 people.

Chairman's Statement

During the first six months of the year, the Group's markets have continued to make a modest recovery, a trend established in the second half of 2010. The combination of these improving markets conditions and operational efficiency initiatives has enabled the Group to perform ahead of the Board's expectations in the first half, with revenues, profits, margins and return on capital employed all increasing over the period. In addition, the Group's net debt levels have again reduced, further strengthening our capital structure and underpinning our ability to invest in the Group's longer-term development.

We have made good progress with our business plan; strengthening our management team and taking the strategic decision to exit the Spanish market and redeploy this capital to other areas that offer greater growth and returns potential. We expect further improvements in operating efficiencies and, through effective fleet investment, the allocation of capital. Accordingly, the Board believes that the Group is well positioned to deliver significant value to shareholders in the medium term.

Financial Results

The Group's total revenues for the six months to 30 June 2011 increased by 4% to £110.1 million (2010: £106.0 million), reflecting an 8% increase in rental revenues to £105.8 million (2010: £98.3 million) partly offset, as expected, by lower revenues from the disposal of a smaller number of ex-rental fleet units. Using constant exchange rates with 2010, overall revenues increased by 5%, whilst rental revenues increased by 9%.

Through a combination of revenue growth and improving operational efficiency, underlying operating profits increased by 47% to £10.4 million (2010: £7.1 million), with margins improving to 9.5% (2010: 6.7%). This improved trading performance was accompanied by a further decline in underlying interest costs in the period to £4.4 million (2010: £6.1 million), resulting in a five-fold increase in the Group's underlying profit before tax to £6.1 million (2010: £1.0 million).

With an effective tax rate of 24% (2010: 26%), the Group's underlying profit after tax was £4.6 million (2010: £0.7 million), producing underlying earnings per share of 2.81 pence (2010: 0.45 pence).

In the first half of the year, the Group benefited from an exceptional post-tax credit of £1.5 million (2010: £ nil), being the net effect of exceptional operating costs of £3.1 million (with an associated tax credit of £0.5 million) relating to restructuring charges during the period, and, following agreement with the tax authorities on the treatment of intra-group financing arrangements from prior years, exceptional interest payable and tax credits of £0.5 million and £4.6 million respectively.

Reflecting these exceptional items and amortisation charges of £1.0 million (2010: £1.3 million), the Group's operating profit, profit before tax and profit after tax were £6.4 million (2010: £5.8 million), £1.5 million (2010: a loss of £0.3 million) and £5.4 million (2010: loss of £0.2 million) respectively, with a corresponding earnings per share of 3.28 pence (2010: loss of 0.14 pence).

Cash Flow, Capital Expenditure and Net Debt

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased to £32.4 million (2010: £30.5 million), with margins improving to 29.4% (2010: 28.8%). Cash generated from operations, including the sale and purchase of rental fleet assets, and after movement in working capital, was £21.3 million (2010: £20.9 million). Net cash generated from operating activities after the payment of interest and tax was £14.1 million (2010: £13.2 million).

The Group's capital expenditure during the first six months of the year totalled £7.5 million (2010: £7.7 million), partially funded by disposal proceeds from the sale of retired assets of £2.7 million (2010: £5.7 million). After reflecting movements in the amounts owing to equipment suppliers at the beginning and end of the period, there was a net cash outflow relating to capital expenditure for the first half of £3.9 million (2010: £2.5 million). The Group's investment programme is continuing during the second half of the year and it is anticipated that, as expected, the net investment for the year as a whole will total approximately £15.0 million.

The Group's operating cash flows, combined with a limited capital expenditure programme in the period and after absorbing an adverse foreign exchange movement of £4.7 million on the Group's Euro-denominated net borrowings, reduced net debt levels from £140.3 million at the previous year end to £133.7 million at 30 June 2011. The corresponding debt to equity ratio was 72% (2010: 99%), and the Group's net debt to pre-exceptional EBITDA ratio (calculated on a 12 month rolling basis), was 1.85 times (2010: 2.40 times). The Board expects that the reduction in the Group's net debt levels will accelerate in the second half of the year, due to the traditionally stronger cash flow generation in this period.

Return on Capital Employed

The Group's return on capital employed (ROCE) increased to 7.9% at the half year, compared to 5.9% and 6.6% at the 2010 half-year and year-end respectively. This calculation has been based on Group operating profits before exceptional items for the 12 months to 30 June 2011 and the average of the opening and closing capital employed in this period of £329.1 million. We expect the Group's ROCE to continue to improve during the second half of the year and make further progress towards our aim of returning and maintaining the Group's ROCE above our pre-tax weighted average cost of capital of 11.0% across the business cycle.

Dividend

The Board is declaring an interim dividend of 0.37 pence per share, an increase of 12% over the previous year (2010: 0.33 pence per share). This will be paid on 14 October 2011 to shareholders on the register at the close of business on 9 September 2011.

The Group is conscious that with an improving financial performance, its dividend policy will become increasingly important to shareholders. The Board intends to work towards a greater level of distribution over time, that adequately reflects the Group's earnings, together with its investment and funding requirements. This is an area that the Board will keep under active review.

Business Review

Overall, our businesses have performed well in the first half. The combination of volume and pricing improvements in our markets, together with increased operational efficiency, has driven higher revenues, profits, margins and ROCE for the Group. We have made considerable progress with the operational and business plan reviews outlined at our preliminary results in March 2011, and we remain confident in the opportunities for the Group to continue to further improve efficiency, drive top-line growth and increase margins and ROCE.

Operational Efficiency

Implementation of actions to improve the Group's operational performance is now well under way, with the necessary changes to processes and procedures, to secure the expected benefits, mainly completed. The results to date support our initial view of the scale of benefits available and we continue to target an overall profit improvement of £5.0 million over three years. The expected profit improvement is broadly split into pricing/yield benefits of £3.0 million and cost efficiencies in transportation and procurement of £2.0 million. It is expected that around £2.0 million of this improvement will be delivered in 2011, offsetting the cost of implementation of the actions in the year, with the balance being achieved progressively during 2012 and 2013.

Capital Allocation

The redeployment of the capital previously committed to our Spanish operation is now beginning, and planned increases in the Group's capital expenditure for 2012 and future years - which will be fully funded from operational cash flows and are at this stage not committed - will be focused on those markets and products that offer the greatest potential to improve margins and ROCE.

A detailed review of our German business will conclude in the coming weeks. This review has been focused on identifying measures to better align the capital base of the business to the market potential, which, when combined with improving operational efficiency, should generate higher margins and drive significant improvements in ROCE.

Review of Business Operations

Where revenues and revenue growth percentages are given in the review of business operations, they relate to revenues excluding those derived from the sale of ex-rental fleet equipment.

Revenue growth and margin improvement have been delivered in all of our European operations, with the Middle East business returning to growth in the second quarter.

UK

The UK has seen demand levels progressively improve across the first six months of the year, driving fleet utilisation to levels that support our on-going actions to accelerate a recovery in hire rates. Following on from the improvement in pricing discount levels of 7% achieved across 2010, a further 3% improvement in discount levels had been secured by the end of the first half.

Whilst demand from the industrial and commercial construction sectors remains relatively weak, and does not match the growth being seen in other non-construction sectors, we believe our market share has increased with the major powered access users in the construction market. This has been driven by the increasingly recognised value of our technical consultancy services that offer advice on best working practices and deliver solutions to provide safer and more efficient working environments. The development of these services should underpin our clear market leading position in the UK and support our efforts to further improve pricing levels during the second half of the year.

The combination of increased activity levels and improved pricing enabled UK revenues to grow 10% in the first half to £52.1 million (2010: £47.6 million). This revenue growth resulted in underlying operating profits increasing to £4.6 million (2010: £2.5 million), with margins improving to 8.7% (2010: 5.2%).

Continental Europe

Overall Euro revenues from the Group's Continental European operations increased by 12%, whilst Sterling revenues, after reflecting movements in exchange rates, increased by 11% to £42.2 million (2010: £38.1 million). Underlying operating profits increased to £2.5 million (2010: loss of £0.4 million).

Germany

German activity levels showed a marked year on year increase in the first half, albeit with the 2010 comparator being influenced by the extreme adverse weather at the start of that year. This increase in demand, with broadly stable pricing, enabled Euro revenues to increase by 10%, whilst revenues in Sterling, after reflecting movements in exchange rates, increased 9% to £23.0 million (2010: £21.2 million). Underlying operating profits for the first half increased by £1.6 million to £0.6 million (2010: loss of £1.0 million), with margins at 2.8% (2010: negative margin of 4.7%).

During the first half of the year, the German management team was strengthened with the appointment of new Managing and Operations Directors. This new management team is completing the planning work necessary to reshape the business over the next 12-18 months, so that it is more aligned with the market place and has greater capacity to deliver acceptable returns on the capital employed in the business. We have a clear strategy in place to achieve this objective, and the realignment of the business will start once the detailed implementation plans are finalised.

Belgium

Our Belgian business has performed strongly in the first six months of the year, driven principally by an increase in activity in both the construction and non-construction sectors, with pricing levels broadly stable. During the second half of the year, we will look to expand the Belgian rental fleet by transferring around 250 units from our Spanish operation, to facilitate further development of this growing business.

Euro revenues for the first half increased by 17% and, after reflecting movements in exchange rates, Sterling revenues increased by 16% to £7.3 million (2010: £6.3 million). Underlying operating profits increased to £1.3 million (2010: £0.6 million), with margins almost doubling to 18.0% (2010: 9.3%).

France

Whilst the demand environment in the French market has remained relatively subdued during the first half, with continued pressure on pricing, we have been able to increase revenues through further market share gains and the annualised benefit of the Marseille Depot that opened in March 2010.

The market share gains are being achieved through improved service levels and the continuing ability to be price competitive due to our efficient cost structure (smaller number of larger scale depots). We believe there is an opportunity to continue to grow our French business through our existing depot network, and consequently we will transfer around 370 rental units from our Spanish operation during the second half of the year.

Euro revenues for the first half increased by 16% and, after reflecting movements in exchange rates, Sterling revenues increased by 15% to £8.0 million. Underlying operating profits increased to £0.6 million (2010: £0.2 million), while margins improved to 7.0% (2010: 2.8%).

Spain

The Spanish market environment continued to be difficult during the first half and, whilst we have a well-managed business, the weak long-term outlook for the market has led to, as previously announced, a strategic decision to exit the Spanish powered access market during the second half of 2011.

The majority of our Spanish rental fleet will be redeployed to our other markets (principally Belgium and France), with the remainder being sold into the secondary used equipment market. The cost to close our Spanish business will be approximately £5.0 million (net cash costs will be approximately £1.25 million after the disposal of the fleet not redeployed to other markets) and this will be mainly incurred in the second half of the year and charged as an exceptional item in our final accounts for 2011.

Euro revenues for the first half increased by 5% and, with little impact from exchange movements, Sterling revenues increased by almost 5% to £3.9 million (2010: £3.7 million). Underlying operating profits were at a breakeven level for the period, compared to a loss of £0.2 million in the previous year.

Middle East

The performance of our Middle East region in the first half as a whole has been disappointing, although rental revenues have returned to year on year growth on a monthly basis during the second quarter. This rental revenue growth is principally driven by increased activity levels in Saudi Arabia and Abu Dhabi, and these markets are now more than absorbing continued weakness in Dubai and Qatar.

Whilst visibility of short-term demand remains uncertain, it is clear that the region's major opportunities lie in the markets of Saudi Arabia and Abu Dhabi, where a number of large-scale, long-term projects are now underway. Consequently, we are redistributing part of the region's fleet and personnel into these areas, to increase our capacity to benefit from these growth markets. At this stage, we are only committing additional investment to the region for known projects with clear visible demand that will be quickly reflected in increased revenues.

Total local currency revenues for the first half, including the sale of new equipment, declined by 5%, while local currency rental revenues (excluding the sale of new equipment) declined by 2%. Upon translation to Sterling, total revenues declined by 10% to £13.2 million (2010: £14.7 million), with rental revenues declining by 8% to £12.4 million (2010: £13.4 million). Underlying operating profits reduced to £3.4 million (2010: £5.1 million), with margins at 25.4% (2010: 34.3%).

Board Changes

On 30 June 2011, Kevin Appleton stepped down as Chief Executive Officer after nine years with the Group. I would like to offer the sincere thanks of the Board to Kevin for all that he achieved in increasing the scale and quality of the business during that time. As an interim measure, until a new Chief Executive Officer is appointed, I have assumed the role of Executive Chairman, with Jan Åstrand (the Group's Senior Independent Director) taking on the role of Chief Executive - Continental Europe. The search for a new Chief Executive Officer for the Group is progressing, and we look forward to updating shareholders in due course.

As previously announced, Tim Ross, who had been a Non-Executive Director of the Group since 2005, retired from the Board at the Group's Annual General Meeting on 20 April 2011. I would like to thank Tim for his contribution to the Board.

Summary and outlook

We have been encouraged by the Group's performance in the first half, with revenue growth and margin improvement delivered in all of our European operations, and with our Middle East business returning to revenue growth in the second quarter. This momentum has been carried into the third quarter to date, and should be augmented by the redeployment of capital from our Spanish operation and by the operational efficiency improvements that we anticipate through the second half of the year.

Our net debt levels have continued to reduce in the first half, and further substantial reductions are expected in the second half of the year, creating a robust capital structure from which to support the development of the Group. Our future capital expenditure plans will be funded from our annual cash flows, ensuring that our rental fleet remains highly competitive without having to releverage the Group's balance sheet.

We remain confident that the on-going management of our capital base together with our actions to improve operating efficiency and margins will enable the Group to increase returns on capital employed to a level above its cost of capital over the business cycle.

Trading since the half-year has been in line with the Board's expectations, and whilst remaining mindful of the continuing economic uncertainties, the Board believes that the Group is well positioned to deliver significant value to shareholders in the medium term.

John Standen

Executive Chairman

Group income statement (unaudited)

All of the Group's trading activities relate to continuing activities.

Group statement of comprehensive income (unaudited)

Group balance sheet (unaudited)

The condensed consolidated interim financial information on pages 7 to 22 was approved by the Board of Directors on 26 August 2011 and signed on its behalf by:

Group statement of cash flows (unaudited)

Analysis of changes in net borrowings (unaudited)

during the six months ended 30 June 2011

Statement of changes in equity (unaudited)

For the six months ended 30 June 2011

For the six months ended 30 June 2010

Statement of changes in equity (unaudited)

For the year ended 31 December 2010

Notes to the interim financial information (unaudited)

1. This condensed consolidated interim financial information has been prepared in accordance with the disclosure and transparency rules of the Financial Services Authority ("FSA") and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed consolidated interim financial information as applied in the Group's audited financial statements for the year ended 31 December 2010 which were prepared in accordance with IFRS's as adopted by the European Union, with the exception of new standards and interpretations that were only applicable from the beginning of the current financial year.

The new standards and interpretations applicable from the beginning of the year are as follows:

• IAS 24 (revised) 'Related party disclosures'

• Amendment to IAS 32 'Financial Instruments: Presentation on classification of rights issues'

• Amendment to IFRS 1 'First time adoption on financial instrument disclosures'

• Annual improvements 2010

• Amendment to IFRIC 14 'Pre-payments of a minimum funding requirement'

• IFRIC 19 'Extinguishing financial liabilities with equity instruments'

There is no significant impact on the condensed consolidated interim financial information for the period ended 30 June 2011.

The financial information for the year ended 31 December 2010 is extracted from the audited accounts for that period, which have been delivered to the Registrar of Companies. The Auditors' report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The condensed consolidated interim financial information for the six months ended 30 June 2011 and the comparatives to 30 June 2010 are unaudited, but have been reviewed by the Auditors.

The Group does not consider that any standards or interpretations issued by the International Accounting Standards Board (IASB), but not yet applicable, will have a significant impact on the financial statements for the year ending 31 December 2011.

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing this condensed consolidated interim financial information.

This condensed consolidated interim financial information was approved for issue on 26 August 2011.

2. Segmental analysis

The Group's chief operating decision maker (the "CODM") is the Group Board, comprising the executive directors and direct reports from the operating subsidiaries and business functional units in the Group. The Group Board reviews the Group's internal reporting in order to monitor and assess performance of the operating segments for the purpose of making decisions about allocation of resources. Performance of the operating segments is evaluated based on actual results compared to agreed targets and performance in prior periods.

The primary profit measure used by the CODM is the underlying operating profit.

Six months ended 30 June 2011

Note:

The assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle East operation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM.

The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

Group funding represents the value of external borrowing held by Lavendon Group plc on behalf of the Group.

Six months ended 30 June 2010

Note:

The assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle East operation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM.

The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

Group funding represents the value of external borrowing held by Lavendon Group plc on behalf of the Group.

Year ended 31 December 2010

Note:

The assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle East operation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and reporting to the CODM.

The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

Group funding represents the value of external borrowing held by Lavendon Group plc on behalf of the Group.

3. Exceptional items and amortisation

Exceptional items and amortisation incurred during the period are set out below:

Notes:

(i) A number of rental units in Spain have been written down to reflect their economic value.

(ii) Restructuring costs related to consultancy costs, employee termination costs and associated professional fees that arose following the operational and business plan reviews conducted during the period.

(iii) The Group reached an agreement with certain tax authorities on the treatment of intra group financing arrangements from prior periods. This agreement resulted in a reduction being required to the Group's corporation tax and deferred tax creditors to reduce these provisions to reflect the actual liability agreed. Interest payable on the agreed liability then became due.

4. Interest receivable and payable

5. Taxation

Analysis of (credit)/charge for the period:

The tax charge on the underlying profits is based on the estimated effective rate for the whole period.

The Finance Act (No 2) 2010 was substantively enacted on 20 July 2010 and included legislation to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011. Further reductions to the UK corporation tax rate were announced in the March 2011 Budget, reducing the rate of corporation tax to 26% from 1 April 2011. Legislation to further reduce the main rate of corporation tax from 26% to 25% from 1 April 2012 is expected to be included in the Finance Act 2011.

The deferred tax liability at 30 June 2011 has been re-measured to reflect the reduction in the corporation tax rate from 27% to 26%.

The effect of the changes expected to be enacted in the Finance Act 2011 would be to further reduce the deferred tax liability provided at the balance sheet date by an additional £509,000. This £509,000 decrease in the deferred tax liability would increase after tax profits by £509,000. This decrease in the deferred tax liability is due to the reduction in the corporation tax rate from 26 per cent to 25 per cent with effect from 1 April 2012.

Further reductions to the main rate of corporation tax by 1% per year to 23% by 1 April 2014 are proposed and are expected to be enacted separately each year. The overall effect of the further changes from 25% to 23%, if these applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax liability by an additional £1,018,000.

Included within the corporation tax credit of £1,259,000 is a credit of £3,511,000 relating to exceptional items (see note 3).

Included within the deferred tax credit of £2,641,000 is a credit of £1,558,000 relating to exceptional items (see note 3).

6. Earnings per share

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

The potentially dilutive securities are not included in the 30 June 2010 calculation of diluted loss per share, as this dilution cannot be applied to a loss.

Profit per share is calculated on the 164,577,734 ordinary shares in issue for the six months ended 30 June 2011 being the weighted average number of ordinary shares in issue (six months ended 30 June 2010: 163,594,163 ; year ended 31 December 2010: 164,011,025).

Diluted underlying earnings per share assumes conversion of all potential dilutive ordinary shares which arise from share incentive scheme awards granted to employees and deferred consideration shares where the exercise price is less than the average market price of the Company's ordinary share capital during the six months. The effect of this dilution is to increase the weighted average number of ordinary shares to 164,587,292 (six months ended 30 June 2010: 163,594,738; year ended 31 December 2010: 164,011,436).

Underlying earnings per share is presented to exclude the impact of exceptional items and amortisation charges in the period and their associated tax effect. The Directors believe that underlying earnings per share provides additional relevant information about underlying business performance.

7. Dividends

The directors are proposing an interim dividend of 0.37 pence per ordinary share which will distribute an estimated £610,000 of shareholders' funds. It will be paid on 14 October 2011 to shareholders who are on the register at 9 September 2011.

8. Intangible assets

Goodwill acquired in a business combination was allocated, at date of acquisition, to the cash generating unit that benefited from that business combination. The Directors consider that a cash-generating unit is generally an individual country of operation.

The allocation of goodwill by operating segment is shown in the table below:

Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. For the purpose of determining potential goodwill impairment, recoverable amounts are determined from value in use calculations using cash flow projections based on financial plans as set out in the financial statements for the year ended 31 December 2010. A goodwill impairment review will be performed at 31 December 2011.

9. Property, plant and equipment