Interim Results

25th Jul 2008 07:00



25 July 2008

All Leisure Group plc

Unaudited Interim Condensed Financial Statements

for the six months ended 30 April 2008

Financial Highlights:

Profitable first half despite increased fuel and start up costs

Half year cash balances were £30.2m (up £2.1m after paying £3.1m dividend)

Interim dividend of 2.44p in line with IPO expectations

Board and founding directors elected to take 50% of their interim and final dividend entitlement in shares

Outlook: Good visibility

95% of this year's forecasted revenues achieved

Management actions to minimise fuel cost exposure

In line with organic growth strategy, planned expansion of Swan Hellenic winter programme in the Southern Hemisphere

Winter 2008 bookings on track

Commenting on the results, Roger Allard, Chairman of All Leisure Group plc said: "With the Company's robust business model, strong year-round cash position and unique destination led cruising model, the Board remain confident about the future."

For further information:

All Leisure Group plc

Roger Allard, Chairman 01444 462103

Guy Marchant, Finance Director

Blue Oar Securities

William Vandyk / Shane Gallwey 020 7448 4400

Citigate Dewe Rogerson

Ginny Pulbrook / Hannah Seward  020 7638 9571

Chairman's Statement 

Overview

I am pleased to announce the interim results for All Leisure Group plc for the six months to April 2008, the first to be reported under IFRS. I am particularly pleased that despite higher fuel bills and the expected front end investment associated with the Swan Hellenic acquisition, the Group has met the Board's expectation of a profitable first half performance at the earnings before interest and tax (EBIT) level. This is due in no small part to the focus and dedication of the management and staff during this key period in the Group's development.

Revenue for the period was £32.9m (2007: £23.0m), an increase of £9.9m on the comparative prior year period. On a like for like basis, excluding Explorer II, revenue was £2.7m higher at £25.7m. The newly acquired Explorer II (now Minerva) contributed £7.2m to winter revenues. Operating profit for the half year of £0.2m was £1.5m lower than 2007. Excluding the impact of one-off Swan Hellenic start-up costs of £1.4m, the adjusted 2008 operating profit is £1.6m, £0.1m lower than in the prior year. Even allowing for the favourable impact of the changes, this is a good result in the context of increased fuel costs which were £1.6m higher than budget in the first half. 

From February 2007 the Group has been in the tonnage tax regime and pays corporation tax on its tonnage tax profits. The initial benefits of this were realised in the prior year through the reversal of deferred tax liabilities and there will be ongoing benefits resulting in a significantly lower tax charge going forward. The full benefit of this will be shown in the year end accounts.

The board is proposing an interim dividend of 2.44p per share, in line with our commitment at the time of the IPO, to be paid on 12 November 2008. We believe that this underlines our long term confidence in the Group's business model and the strength of its brands.

Operational Review

The performance of Voyages of Discovery, which operates the 700 berth Group-owned vessel mv Discovery, was in line with expectations during Winter 2007/8, although it was not immune to substantially higher fuel costs - some 70% higher than in the previous period. In line with industry practice it has been necessary for the first time to pass on some of the ever increasing fuel prices to our passengers via surcharges, for cruises departing from June 2008. The cost of fuel has risen by up to 33% since my last statement in April. 

Mv Discovery has operated a full schedule this financial year despite experiencing a common engineering problem. Our efforts to rectify this under sail have been unsuccessful, and we took the decision to cancel the cruise commencing 14 July in order to carry out comprehensive repairs. This is regrettable and represents the first cancellation of an mv Discovery cruise since we took delivery of mv Discovery in Spring 2003. We estimate that the net loss of margin on this cruise will be in the region of £0.8m.

During the first half of the year Swan Hellenic made a loss, as budgeted, having incurred overhead and start up costs of around £1.4m. The Group took delivery of the 380 berth Explorer II on 7 November 2007, prior to the start of its Winter 2007/8 programme. The entire Winter programme was chartered by third party tour operators and made a small contribution after allowing for increased fuel costs of £0.7m over budget. The vessel has subsequently been renamed mv Minerva and has undertaken a refurbishment programme before entering service for Swan Hellenic in May. As previously announced, the first cruise was unfortunately cancelled due to generator failures resulting in a loss of margin of £0.65m. Mv Minerva resumed her sailing schedule on 31 May, although the subsequent repairs continue to cause some operational inconvenience. Given current fuel prices, especially for marine gas oil ("MGO"), the Board has decided to 

purchase two alternative generators which should ensure better reliability and fuel cost savings. We expect these to be installed in the first half of the next financial year. It is expected that the annual fuel savings (at today's prices) due to the more efficient generators should be in the region of £1m per annum starting in the financial year 2009/10.

For the period to 30 April 2008, Discover Egypt's Nile operation has traded extremely well and has increased profits despite a planned reduction in capacity of 12%.

The addition of Swan Hellenic's management team based in Southampton and the appointment of Guy Marchant as Group Finance Director has strengthened the Group's executive team significantly. Furthermore, the integration of the Swan Hellenic reservation and accounting functions into our Burgess Hill operation is now complete. I would like to welcome the Swan Hellenic management team and to thank all our staff for their dedication and commitment during what has been a challenging first half of the year in many ways.

Outlook

We started the year with particularly strong bookings for Summer 2008 and I am pleased to announce that achieved yields are meeting expectations. As at today's date we have achieved 95% of this year's forecasted revenues. Unsurprisingly, whilst sales for Summer 2008 are strong, profits continue to be adversely impacted by continued cost increases namely fuel for the ocean cruising operation. Only a small proportion of increased fuel costs will be recovered through surcharges.

Discover Egypt had a strong Winter performance and, in line with previous seasons, capacity for the Summer is lower than that for the Winter. Bookings remain strong and, as flying has been contracted on a fixed fuel basis, it has not been exposed to additional costs. Sales for Winter 2008/09 are in line with expectations.

Next year will see an expanded Swan Hellenic Winter programme in the Southern Hemisphere in conjunction with our established partners in Antarctica (Regent, Abercrombie & Kent and Noble Caledonia). Sales for Winter 2008/2009 on Swan Hellenic ocean cruising programme are ahead of expectations and bookings for Voyages of Discovery are similar to last year. Whilst there is no market to hedge the main fuel we use, IFO 180, there is a correlation in price with Brent Crude and we have taken the opportunity to enter into a swap agreement covering approximately 1/3rd of our fuel requirement for the calendar year 2009. Based on current fuel prices this will enable us to mitigate our exposure for this Winter and offer a no-surcharge guarantee on early bookings for next summer on both mv Discovery and mv Minerva. As in the past we have covered the majority of the foreign currency exposure for the next financial year. Both Swan Hellenic and Voyages of Discovery are on sale for Summer 2009 and whilst it is too early to draw conclusions, we are operating from a position of relative strength in being able to offer a no-surcharge guarantee, and we continue to be encouraged by the early bookings on the small Swan's River Cruise programme.

We remain confident that the Group's balance sheet strength is a key differentiator in the current economic climate and accordingly All Leisure Group will have ample opportunity to expand when it is most appropriate. At half year cash balances were £30.2m, having increased by £2.1m, during the first half and after paying out the £3.1m dividend in April 2008. With this in mind, the Board are proposing an interim dividend of 2.44p per share to be paid on 12 November 2008 to all shareholders on the Register at 19 September 2008. This dividend will be paid by way of cash or scrip issue.

The Board and founding directors, who account for over 76.74% of the issued shares, have unanimously elected to take 50% of their interim dividend entitlement (and also envisage taking the same percentage of the final dividend entitlement) in shares. All shareholders will be offered the option to receive shares instead of a cash dividend, for all or part of their holding, the details of which will be explained in a circular which will be sent out in due course.

With the Company's robust business model, strong year-round cash position and unique destination led cruising model, the Board remain confident about the future.

Roger Allard

Chairman

25 July 2008

Condensed Consolidated Income Statement (Unaudited)

For the six months ended 30 April 2008

	Note	Six month period ended 30 April 2008 Unaudited £'000	Six month period ended 30 April 2007 Unaudited £'000	Year ended 31 October 2007  Unaudited £'000
Continuing operations:
Revenue		32,855	22,982	45,400
Cost of sales		(28,113)	(17,870)	(30,383)
Gross profit		4,742	5,112	15,017
Administrative expenses		(4,543)	(3,418)	(8,174)
Other operating income		12	12	24
Operating profit		211	1,706	6,867
Investment revenues		782	424	958
Finance costs		(112)	(150)	(424)
Profit before taxation		881	1,980	7,401
Tax (charge)/credit	2	(265)	516	676
Profit for the period attributable to equity holders of the parent		616	2,496	8,077

Earnings per share (pence/£):
Basic and diluted	4	1.0p	£47.54	13.1p

The comparatives for the periods ended 30 April 2007 and 31 October 2007 have been restated as described in the transition to IFRS section attached.

Condensed Consolidated Balance Sheet (Unaudited)

At 30 April 2008

	At 30 April 2008 Unaudited £'000	At 30 April 2007 Unaudited £'000	At 31 October 2007 Unaudited £'000
Non-current assets
Intangible assets	3,234	-	3,235
Property, ship, plant and equipment	13,226	13,458	13,646
Investment property	274	278	276
	16,734	13,736	17,157
Current assets
Inventories	1,194	134	805
Trade and other receivables	2,743	3,624	1,619
Cash and cash equivalents	30,185	15,660	28,055
	34,122	19,418	30,479
Total assets	50,856	33,154	47,636
Current liabilities
Trade and other payables	(22,028)	(15,655)	(14,882)
Current tax liabilities	(331)	(2,054)	(211)
Ship loan	(1,094)	(1,425)	(1,139)
Derivative financial instruments	(327)	(512)	(1,006)
	(23,780)	(19,646)	(17,238)
Non-current liabilities
Ship loan	(3,632)	(4,878)	(4,093)
Deferred tax liability	(13)	(13)	(13)
	(3,645)	(4,891)	(4,106)
Total liabilities	(27,425)	(24,537)	(21,344)
Net assets	23,431	8,617	26,292
Equity
Share capital	615	53	615
Share premium account	12,049	14	12,049
Revaluation reserve	226	226	226
Other reserves	83	83	83
Currency translation reserve	42	113	44
Retained earnings	10,416	8,128	13,275
Total equity	23,431	8,617	26,292

The comparatives for the periods ended 30 April 2007 and 31 October 2007 have been restated as described in the transition to IFRS section attached.

Condensed Consolidated Cash Flow Statement (Unaudited)

For the six months ended 30 April 2008

	Six month period ended 30 April 2008 Unaudited £'000	Six month period ended 30 April 2007 Unaudited £'000	Year ended 31 October 2007  Unaudited £'000
Cash flows from operating activities:
Profit for the period	616	2,496	8,077
Depreciation of property, plant and equipment	304	339	160
Movement in fair value of interest rate swap	(679)	337	831
Investment revenues	(782)	(424)	(958)
Finance costs	112	150	424
Income tax	265	(516)	(676)
Operating cash (outflows)/inflows	(164)	2,382	7,858
Changes in operating assets and liabilities:
Receivables	(1,286)	(382)	703
Inventory	(389)	71	(600)
Payables	7,537	(1,484)	530
Cash inflow/(outflow) generated from operations	5,862	(1,795)	633
Income taxes paid	(45)	(666)	(2,366)
Net cash inflow/(outflow) from operating activities	5,653	(79)	6,125
Cash flows from investing activities:
Interest received	695	424	834
Purchases of property, plant and equipment	(283)	(391)	(743)
Net cash inflow from investing activities	412	33	91
Cash flows from financing activities:
Proceeds from issue of shares	-	-	8,887
Dividends paid	(3,070)	-	(1,665)
Repayment of loans	(865)	(1,081)	(2,170)
Net cash used in financing activities	(3,935)	(1,081)	5,052
Net increase/(decrease) in cash and cash equivalents	2,130	(1,127)	11,268
Cash and cash equivalents at the start of the period/year	28,055	16,787	16,787
Cash and cash equivalents at the end of the period/year	30,185	15,660	28,055

Notes to the Unaudited Interim Condensed Financial Statements

For the six months ended 30 April 2008

Basis of presentation

The accompanying unaudited interim condensed financial statements of All Leisure Group plc ("the Group") have been prepared in conformity with recognition and measurement principles required by International Financial Reporting Standards ("IFRS"). From the year ending 31 October 2008 the Group will prepare its consolidated financial statements in accordance with IFRS as adopted by the European Union in order that the Group financial statements comply with the AIM rules. Previously, the Group reported under UK Generally Accepted Accounting Practice ("UK GAAP"). The Group's date of transition to IFRS is 1 November 2006, which is the beginning of the comparative period for the 2007 financial year.

Reconciliations have been produced on pages 12 to 26 to show the changes made to the statements previously reported under UK GAAP in arriving at the equivalent statements under IFRS. These reconciliations and the resulting restated comparatives have not been audited. UK GAAP accounts for the year ended 31 October 2007 have been filed with the Registrar of Companies and received an unqualified audit report that did not contain statements under Section 237(2) or (3) of the Companies Act 1985.

This interim condensed financial report is unaudited and is not prepared in accordance with IAS 34, 'Interim Financial Reporting' as this is not required under AIM regulations.

Income taxes 

The tax charge of £265k (six months ended 30 April 2007 - credit of £516k, year ended 31 October 2007 - credit of £676k) represents an effective rate of 30% (six months ended 30 April 2007 - 26%, year ended 31 October 2007 - 9%). During February 2007 the Group qualified as a 'tonnage tax group'. Tonnage tax is an alternative charge to corporation tax on relevant shipping profits, which enables certain shipping companies to elect to pay corporation tax on net tonnage, rather than actual commercial profits, in respect of their shipping activities. A tonnage tax charge of £5k arose in the period.

Profits attributable to non-tonnage tax activities totalled £885k, corporation tax thereon equated to £260k. The effective tax rate, for corporation tax on non-tonnage tax related activities, was 29%.

On admission to the tonnage tax regime, the Group was required to reverse all tonnage tax related deferred tax balances. The reversal of the tonnage tax related deferred tax liabilities resulted in a deferred tax credit of £728k being booked during the period ended 30 April 2007. This was principally the reason for the prior period tax credit.

Dividends

	Six month period ended 30 April 2008 Unaudited £'000	Six month period ended 30 April 2007 Unaudited £'000	Year ended 31 October 2007  Unaudited £'000
Final dividend for the prior year recognised in the period of 5p per share (2006: £31.71 per share)	3,070	1,665	1,665

An interim dividend of 2.44p per share has been proposed. In accordance with IAS37, this dividend has not been provided for as a liability in these unaudited interim condensed financial statements. 

The final 2006 dividend of £31.71 per share is on the basis of share capital at that time of 52,500 shares in issue. On 6 September 2007 there was an increase in share capital to 61,406,556 shares. The dividend per share for the year ended 31 October 2006 on the basis of the increased share capital would have been 2.7p.

Earnings per share (pence/£)

			Six month period ended 30 April 2008 Unaudited £	Six month period ended 30 April 2007 Unaudited £	Year ended 31 October 2007  Unaudited £
Earnings per share (pence/£)
Basic and diluted			1.0p	£47.54	13.1p
The calculation of the basic and diluted earnings per share is based on the following data:
			£'000	£'000	£'000
Earnings
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to shareholders of the parent			616	2,496	8,077
			Number	Number	Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share			61,406,556	52,500	61,406,556

During the year ended 31 October 2007 the company's shareholding was increased and subdivided from 52,500 shares to 61,406,556 shares. Had this subdivision occurred prior to 30 April 2007, the comparable earnings per share figure based on the increased number of shares would have been 4.1p per share

5. Acquisition of Atholl Shipping Corporation

The Group acquired 100% of the share capital of Atholl Shipping Corporation on 7 November 2007.  The purpose of this acquisition was to obtain the operating lease on mv Minerva, which was held by Atholl Shipping Corporation at the date acquired. The cash consideration paid for the share capital was £1. The fair value of the net assets acquired at that date was £nil. The reason that the assets and liabilities acquired had a fair value of £nil is due to the fact that as part of the sale agreement, the selling party accepted full responsibility for settling all liabilities on the balance sheet at the date of the sale, and for recovering all assets recognised at that time. Therefore, effectively all that was acquired within the company was the operating lease referred to above. The directors believe that the lease itself had a fair value of £nil as the lease terms are equivalent to market rate, and on its return the ship must be in the same condition as when it was acquired. 

Deferred tax assets, not recognised on the balance sheet, and consisting of postponed capital allowances and tax losses of £2,598,000 were also acquired. In the opinion of the directors the deferred tax assets have a fair value of £nil as no future economic benefit will be derived from them, as Atholl Shipping Corporation was not previously under the tonnage tax scheme.

6. UK GAAP Adjustments

In conjunction with the appointment of Deloitte & Touche LLP as the Group's auditors, the board undertook a review of the Group's UK GAAP accounting policies to improve clarity and as a result several changes were agreed. For ease of understanding, these adjustments are presented separately to the IFRS adjustments and are presented below.

Adjustment to cruise revenue and cost recognition

A refinement has been made to the method of revenue recognition to better reflect the economic reality of the business model.  Whereas previously all revenue (and anticipated costs) for a cruise were booked on departure, revenue and costs are now recognised on a pro-rata basis dependant on the number of days of the cruise that have taken place. This refinement is in line with industry best practice and has a positive effect on the current period result of £568,000. The adjustment has been booked in the current period in its totality as a prior period adjustment under IAS 8 is not required on the grounds of materiality.

Ship Loan Translation

In prior periods the US dollar denominated ship loan was translated at the historic rate at each period end. This has now been corrected on the basis of the provisions of SSAP 20 and IAS 8 to translate the ship loan at the period end rate. The effect of this is shown below:

Balance sheet effect

		1 November 2006 £'000	30 April 2007 £'000	31 October 2007 £'000	30 April 2008  £'000
Increase in ship loan value		293	586	718	387
Increase in reserves		293	586	718	387

Profit and loss account effect

			Six month period ended 30 April 2007 £'000	Year ended 31 October 2007 £'000	Six month  period ended 30 April 2008 £'000
Income statement increase/(decrease)			293	425	(331)

Dry Dock Asset Accounting

Prior to transition the Group did not component account for its owned ship. Since 1 November 2007 the accounting policy has been to component account for the dry dock asset and the ship separately. Prior to transition depreciation was provided over the useful economic life of both the ship and the dry dock cost as a single asset. In addition a dry dock provision was built up over the period to the next scheduled dry dock on the basis of expected dry dock costs.

On transition the policy was changed to account for a dry dock cost asset separately and to depreciate it over the period to the next dry dock. A dry dock took place in November 2006 and is now shown separately to the ship asset. At this time the existing dry dock provision was released.

The ship and the dry dock asset are accounted for under component accounting as they have separable identifiable useful economic lives. Other than catering equipment, which is accounted for within plant and machinery, no further parts of the ship are accounted for on a component basis as they are considered by the directors to have equivalent useful lives as the ship as a whole. Ongoing repairs and replacement components are expensed as incurred and refurbishment costs are capitalised within dry dock costs.

Transition of results under UK GAAP to IFRS

Accounting policies

Basis of preparation

The preliminary balance sheets and income statements shown in the Transition to IFRS section have been prepared on the basis of IFRSs expected to be in issue at 31 October 2008. The preliminary IFRS financial statements will form the basis of the comparative information in the first IFRS accounts and have been prepared on the basis of IFRSs expected to be in issue at 31 October 2008 but are still subject to change. We will update the restated information for any such change in the 31 October 2008 financial statements.

Whilst the financial information included in the transition to IFRS section has been prepared in accordance with IFRSs as adopted for use by the European Union, it does not constitute full IFRS compliant financial statements. In particular, the information contained in the transition to IFRS section indicates the quantitative adjustments that are expected to arise as a result of the transition to IFRS, but does not include all the primary statements that would be required under IFRS, nor does it include the disclosures that are required for IFRS compliant financial statements.

The Group will comply with all of these requirements when it prepares its first annual IFRS statements covering the year ending 31 October 2008.

The preliminary IFRS financial statements have been prepared on an historical cost basis, except for the measurement of certain balances at fair value as disclosed in the accounting policies below.

Interim financial statements

As permitted, the Group has not adopted IAS 34 "Interim Financial Reporting". Therefore the disclosures presented would not comply in full with the requirements of that standard.

First time adoption

The Group has adopted IFRS from 1 November 2006 ('the date of transition').

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 October and 30 April each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Group income statement includes the results of subsidiaries acquired or disposed of during the year from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations 

The acquisition of subsidiaries, or trade and assets, is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued, or to be issued, by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 "Non Current Assets Held for Sale and Discontinued Operations", which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The Group has taken the exemption conferred in IFRS 1, "First-time Adoption of International Financial Reporting Standards", not to restate business combinations that occurred prior to the transition date of 1 November 2006 under IFRS 3.

Property, ship, plant and equipment

Property, ship, plant and equipment is stated at cost or deemed cost less accumulated depreciation and any impairment in value.

Depreciation

Depreciation is provided on all property, dry docks, ship improvements, plant and equipment, other than freehold land, at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful life, as follows:

Buildings	2% per annum straight line
Dry dock assets	Over period to next planned dry dock
Minerva ship improvements	Over lease period
Plant & machinery	25% per annum reducing balance
Fixtures and fittings	25% per annum reducing balance

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.

The assets' residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.

As discussed in the critical judgements section on page 18, mv Discovery is not depreciated as her residual value is considered by the directors to be in excess of her net carrying value.

Investment property

Investment property, which is property held to earn rentals is stated at its historic cost as the Group elected, under the transitional arrangements available under IFRS 1, to use the previous carrying value under UK GAAP as deemed cost in transition.  The investment property is depreciated on a straightline basis of 2% per annum, however the land on which it is situated is not depreciated.

Intangible assets

Intangible assets with a finite useful life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet the recognition criteria of IAS 38, "Intangible Assets".

Amortisation of intangible assets is calculated over the following periods:

Customer database	- 10% per annum straight line
Trademark	- 4% per annum straight line
Computer software	- 25% reducing balance

Impairment of tangible and intangible assets 

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the income statement as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet at fair value when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables

Trade receivables represent net amounts receivable and prepayments in the normal course of business. All other amounts which are not interest bearing are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts, which are charged to the income statement.

Cash and cash equivalents

Cash and cash equivalents include cash at hand and deposits held at call with banks with original maturities of one year or less.

Financial liabilities and equity instruments

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

The Group's activities expose it primarily to the financial risks of changes in foreign exchange rates. Derivative financial instruments are used by the Group to hedge its exposure to movements in currency exchange rates. The Group does not use derivative financial instruments for speculative purposes.

The Group's current hedging method precludes it from adopting the hedge accounting provisions of IAS 39. Derivative financial instruments are initially measured at fair value on the date that the contract is entered into and subsequently remeasured to fair value at each reporting date. The gains and losses on remeasurement are taken to the income statement and reported in administrative expenses.

Dividends

Dividends are provided for in the period in which they become a binding liability on the Group.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Where necessary provision is made for obsolete, slow moving and damaged stocks.

Leases

Leases taken by the Group are assessed individually as to whether they are finance leases or operating leases.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease rental payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The benefit of any lease incentives is spread over the term of the lease. All Group leases are classified as operating leases.

Taxation

The tax expense represents the sum of current tax expense and deferred tax expense.

Current tax expense is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which these items can be utilised.

Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of an asset and liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be utilised.

Deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at that balance sheet date. Deferred tax is charged or credited to the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. 

Share capital and share premium account

There is one class of shares. When new shares are issued, they are recorded in share capital at their par value. The excess of the issue price over the par value is recorded in the share premium account.

Incremental external costs directly attributable to the issue of new shares (other than in connection with a business combination) are recorded in equity as a deduction, net of tax, to the share premium account.

Revenue recognition

Revenue comprises sales to third parties (excluding VAT and similar sales and port and other taxes). Cruise revenues, together with revenues from onboard and other activities, which include transportation and shore excursion revenues, are recognised in income upon completion of voyage or on a pro rata basis for cruises underway at the period end. 

Client monies received at the balance sheet date relating to holidays commencing after the year end are deferred and included within trade and other payables.

Retirement benefit costs

The Group operates a defined contribution pension scheme. The amount charged to the income statement in respect of pension costs and other post-retirement benefits is the contributions payable in the year.

Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

Operating profit

Operating profit is stated before investment income and finance costs.

Foreign exchange

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the result and the financial position of each group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange relates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or an expense in the period in which the operation is disposed of.

Transition to IFRS 

Critical judgements

The following critical judgements on adoption of IFRS have been made:

Ship accounting

The loan provided by the vendor was interest free and was treated as such under UK GAAP.

To meet the requirements of IAS 16 an implied fixed interest rate of 4.5% has been used to calculate the element of the purchase price paid that is deemed to represent future interest. 4.5% represents the fixed US Dollar interest rate that would have been obtainable for the period of the loan at the time the ship was acquired.

Ship depreciation is no longer chargeable under IFRS on the basis that the definition of residual value differs to that under UK GAAP. IAS 16 defines residual value as the estimated amount that would currently be obtainable from disposal of the asset, after deducting the estimated costs of disposal, if the ship were already of the age and in the condition expected at the end of its useful life. Such residual value is considered by the directors to be in excess of its current net book value. It also requires residual value to be reassessed each year at current prices. Under FRS 15 the definition of residual value is the net realisable value of an asset at the end of its useful economic life, where residual values are based on prices prevailing at the date of the acquisition (or revaluation) of the asset and do not take account of expected future price changes.

For UK GAAP accounting purposes the useful economic life of the ship was deemed to extend to 2015 and it was being depreciated over that period. There is no change to the ship's useful economic life as a result of transition to IFRS. Ongoing maintenance programmes and regular dry docks ensure that the ship is maintained in consistent condition and therefore the board considers the ship to be in the same condition now as it will be in 2015. The ship was formally valued at $32.5 million in October 2006 which is in excess of its current carrying value.

IAS 16 requires residual values to be revised using current prices at each balance sheet date. In future an annual impairment review will take place. Should there be an impairment in the value of mv Discovery an impairment charge will be booked in that period. 

Intangible asset valuation and amortisation period

Intangible assets consist predominantly of two cash generating units: a database of Swan Hellenic past passenger and enquirer names and the Swan Hellenic trademark. The intangible value has been split between the trademark and the database on the basis of discounted future cash flows attributable to each cash generating unit. The database is being amortised over 10 years. The trademark is being amortised over 25 years. Swan Hellenic has a history stretching over more than 50 years and ongoing investment in the brand will ensure its continued development

Note that as at 30 April 2008, no amortisation had been charged on these intangible assets due to the fact that the Swan Hellenic brand was not available for use until May 2008.

The following pages set out reconciliations from UK GAAP to IFRS for the balance sheet at 1 November 2006, 30 April 2007 and 31 October 2007 and the income statements for the 6 month period ended 30 April 2007 and the year ended 31 October 2007.

The principal accounting policy changes from UK GAAP that have had an impact on the balance sheet or income statement are set out in note 6 to the Interim Condensed Financial Statements and are dealt with in the tables on pages 22 to 26. In addition to these changes, there are a number of other assets and liabilities that are classified differently under IFRS. These reclassifications have been reflected in the numerical reconciliation in the opening columns of UK GAAP (IFRS format).

IFRS1 - First time adoption of IFRS

IFRS 1 permits a number of first time adoption exemptions and the Group has elected to take those relating to business combinations, fair value or revaluation as deemed cost and cumulative translation differences.

These are explained in more detail below:

Fair value or revaluations as deemed cost: as described in the IFRS accounting policies, the Group has elected to adopt the cost model available under IAS 40, Investment Property. Accordingly, the net book value of the property at the date of transition from UK GAAP will be deemed as cost under IFRS.

Cumulative translation differences: Under IAS 21, some translation differences are required to be initially recognised as a separate component of equity that is only recognised in the income statement on the disposal of that foreign operation. The Group has elected not to comply with this requirement for cumulative translation differences that existed at the date of transition and accordingly, the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition. The Group has also elected to treat goodwill and fair value adjustments arising on acquisitions prior to 1 January 2006 as sterling denominated assets and liabilities.

IAS 12 - Income Taxes 

General

IAS 12 requires a deferred tax provision to be recognised for all taxable temporary differences between the tax bases and the associated carrying amounts for assets and liabilities.

The income tax adjustments required under IAS12 fall into two categories: Firstly, deferred tax that needs to be provided in respect of other IFRS restatement accounting adjustments. Secondly, specific deferred tax adjustments that arise on the different recognition criteria of deferred tax balances between UK GAAP (FRS19) and IFRS (IAS12).

As a result of the Group being in the tonnage tax regime, there are no significant taxation adjustments relating to the adoption of IFRS. The additional deferred tax in the balance sheet has led to a reduction in net assets of £155k as at 1 November 2006. There was no impact at either 30 April 2007 or 31 October 2007.

IAS 16 - Property, plant and equipment 

Ship accounting

As referred to in the critical judgements section on page 18, the ship is no longer being depreciated.

IAS 16 requires asset components to be depreciated separately. With the exception of dry dock and catering equipment which are depreciated over their useful economic lives, there are no separately identifiable ship assets that require separate disclosure and depreciation. The cost of ongoing renovations, repairs and maintenance are all expensed as incurred.

IAS 19 - Employee Benefits 

Holiday pay accrual

IAS 19 requires an accrual to be made for earned but unpaid holiday pay. The Group's holiday year runs from November to October and holiday carryover is not permitted. The 30 April 2007 balance sheet is impacted negatively by £37,000 with the income statement for the period incurring a charge by the corresponding movement. The year end balance sheet is not affected.

IAS 21 - The effect of changes in foreign exchange

Under IAS 21, it is necessary to present foreign exchange differences arising from the retranslation of overseas subsidiaries into the presentation currency of the Group from the transition date as a separate reserve in equity. Accordingly, such movements have been reclassified for the periods ended 30 April 2007 and 31 October 2007.

IAS 38 - Intangible Assets

Intangible assets amortisation

IAS 38 requires that amortisation is provided where an intangible asset has a finite life. Amortisation of intangible assets is carried out in line with the Group's amortisation policy. An annual impairment review is also carried out in accordance with IAS 36.

Note that in the UK GAAP financial statements to 31 October 2007, the intangible asset arising on the acquisition of the Swan Hellenic customer database and trademark had been classified as goodwill. This has been reclassified to intangibles under the provisions of IAS 38.

IAS 39 - Financial Instruments: Recognition and Measurement 

Forward exchange contract fair value

IAS 39 requires all derivatives, including forward foreign exchange contracts, to be initially recognised and subsequently re-measured at fair value. The Group had open forward foreign exchange collar contracts in place at 1 November 2006, 30 April 2007 and 31 October 2007. The Group had not adopted the hedging provisions of IAS 39 at this time and accordingly, changes in fair value are taken to the income statement in the period in which they arise.

IAS 40 - Investment Property

On reviewing the Group's UK GAAP accounting policies against IFRS, it was noted that the characteristics of a building owned by the Group meant it would more appropriately be classified as an investment property. The Group has chosen to adopt the cost measurement accounting policy as allowed by IAS 40. This new policy has had no impact in the income statement but does cause a reclassification in the balance sheet of £280,000 within non-current assets; the amounts for subsequent periods is reduced by the depreciation charge for that period.

Unaudited Reconciliations on transition from UK GAAP to IFRS

The balance sheet reconciliations at 1 November 2006 (date of transition to IFRS) and at 31 October 2007 (date of last UK GAAP financial statements) and the reconciliation of profit for financial year 2006, as required by IFRS 1 are shown below:

1.  Unaudited balance sheet reconciliation at 1 November 2006

	UK GAAP (IFRS format) as previously reported	Ship Loan Translation	Dry Dock Asset	Restated UK GAAP (IFRS format)	Property, ship, plant & equipment	Holiday Pay Accrual	Loss on  forward Exchange Contracts	Investment Property	IFRS
					IAS 16	IAS 19	IAS 39	IAS 40
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Non-current assets
Property, ship, plant and equipment	14,552	-	(1,237)	13,315	(868)	-	-	(280)	12,167
Investment property	-	-	-	-	-	-	-	280	280
	14,552	-	(1,237)	13,315	(868)	-	-	-	12,447
Current assets
Inventories	205	-	-	205	-	-	-	-	205
Trade and other receivables	3,242	-	-	3,242	-	-	-	-	3,242
Cash and cash equivalents	16,787	-	-	16,787	-	-	-	-	16,787
	20,234	-	-	20,234	-	-	-	-	20,234
Total assets	34,786	-	(1,237)	33,549	(868)	-	-	-	32,681
Current liabilities
Trade and other payables	(15,243)	-	-	(15,243)	-	-	-	-	(15,243)
Current tax liabilities	(2,442)	-	-	(2,442)	-	-		-	(2,442)
Ship Loan	(2,170)	74	1,237	(859)	725	-	-	-	(134)
Derivative financial instruments	-	-	-	-	-	-	(175)	-	(175)
	(19,855)	74	1,237	(18,544)	725	-	(175)	-	(17,994)
Non-current liabilities		-	-
Ship loan	(6,375)	219	-	(6,156)	-	-	-	-	(6,156)
Deferred tax liability	(591)	-	-	(591)	(155)	-	-	-	(746)
	(6,966)	219	-	(6,747)	-	-	(175)	-	(6,902)
Total liabilities	(26,821)	293	1,237	(25,291)	725	-	(175)	-	(24,896)
Net assets	7,965	293	-	8,258	(298)	-	(175)	-	7,785
Equity
Share capital	53	-	-	53	-	-	-	-	53
Share premium account	14	-	-	14	-	-	-	-	14
Revaluation reserve	226	-	-	226	-	-	-	-	226
Other reserves	83	-	-	83	-	-	-	-	83
Retained earnings	7,589	293	-	7,882	(298)	-	(175)	-	7,409
	7,965	293	-	8,258	(298)	-	(175)	-	7,785

2. Unaudited balance sheet reconciliation at 30 April 2007 

	UK GAAP (IFRS format)	Ship Loan Translation	Restated UK GAAP (IFRS format)	Property, ship, plant & equipment	Holiday Pay Accrual	Currency translation differences	Loss on  forward Exchange Contracts	Investment Property	IFRS
				IAS 16	IAS 19	IAS21	IAS 39	IAS 40
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Non-current assets
Property, ship, plant and equipment	14,087	-	14,087	(349)	-	-	-	(280)	13,458
Investment property	-	-	-	-	-	-	-	278	278
	14,087	-	14,087	(349)	-	-	-	(2)	13,736
Current assets
Inventories	134	-	134	-	-	-	-	-	134
Trade and other receivables	3,624	-	3,624	-	-	-	-	-	3,624
Cash and cash equivalents	15,660	-	15,660	-	-	-	-	-	15,660
	19,418	-	19,418	-	-	-	-	-	19,418
Total assets	33,505	-	33,505	(349)	-	-	154	(2)	33,154
Current liabilities
Trade and other payables	(15,616)	-	(15,878)	-	(37)	-	-	-	(15,655)
Current tax liabilities	(2,054)	-	(2,054)	-	-	-	-	-	(2,054)
Ship Loan	(2,179)	170	(2,000)	575	-	-	-	-	(1,425)
Derivative financial instruments	-	-	-	-	-	-	(512)	-	(512)
	(19,842)	170	(19,672)	575	(37)	-	(512)	-	(19,646)
Non-current liabilities
Ship loan	(5,294)	416	(4,878)	-	-	-	-	-	(4,878)
Deferred tax liability	(13)		(13)	-	-	-	-	-	(13)
	(5,307)	416	(4,891)	-	-	-	-	-	(4,891)
Total liabilities	(25,149)	586	(24,563)	575	(37)	-	(512)	-	(24,537)
Net assets	8,356	586	8,942	226	(37)	-	(512)	(2)	8,617
Equity
Share capital	53	-	53	-	-	-	-	-	53
Share premium account	14	-	14	-	-	-	-	-	14
Revaluation reserve	226	-	226	-	-	-	-	-	226
Other reserves	83	-	83	-	-	-	-	-	83
Currency translation reserve	-	-	-	-	-	113	-	-	113
Retained earnings	7,980	586	8,566	226	(37)	(113)	(512)	(2)	8,128
	8,356	586	8,942	226	(37)	-	(512)	(2)	8,617

  3. Unaudited balance sheet reconciliation at 31 October 2007 

	UK GAAP (IFRS format) As previously  reported	Ship Loan Translation	Dry Dock Asset	Restated UK GAAP (IFRS format)	Property, ship, plant & equipment	Holiday Pay Accrual	Currency translation differences	Intangible fixed  assets	Loss on forward Exchange Contracts	Investment Property	IFRS
					IAS 16	IAS 19	IAS21	IAS 38	IAS 39	IAS 40
Non-current assets	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Goodwill	3,207	-	-	3,207	-	-	-	(3,207)	-	-	-
Intangible assets	-		-		-	-	-	3,235	-	-	3,235
Property, ship, plant and equipment	12,825	-	969	13,794	160	-	-	(28)	-	(280)	13,646
Investment property	-	-	-		-	-	-	-	-	276	276
	16,032	-	969	17,001	160	-	-	-	-	(4)	17,157
Current assets					-	-	-	-	-	-
Inventories	805	-	-	805							805
Trade and other receivables	2,539	-	(920)	1,619	-	-	-	-	-	-	1,619
Cash and cash equivalents	28,055	-	-	28,055	-	-	-	-	-	-	28,055
	31,399	-	(920)	30,479	-	-	-	-	-	-	30,479
Total assets	47,431	-	49	47,480	160	-	-	-	302	(4)	47,636
Current liabilities
Trade and other payables	(14,882)	-	-	(14,882)	-	-	-	-	-	-	(14,882)
Current tax liabilities	(211)	-	-	(211)	-	-	-	-	-	-	(211)
Ship Loan	(1,763)	199	-	(1,564)	425	-	-	-	-	-	(1,139)
Derivative financial instruments	-	-	-	-	-	-	-	-	(1,006)	-	(1,006)
	(16,856)	199	-	(16,657)	425	-	-	-	(1,006)	-	(17,238)
Non-current liabilities
Ship loan	(4,612)	519	-	(4,093)	-	-	-	-	-	-	(4,093)
Deferred tax liability	(13)	-	-	(13)	-	-	-	-	-	-	(13)
	(4,625)	519	-	(4,106)	-	-	-	-	-	-	(4,106)
Total liabilities	(21,481)	718	-	(20,763)	425	-	-	-	(1,006)	-	(21,344)
Net assets	25,950	718	49	26,717	585	-	-	-	(1,006)	-	26,292
Equity
Share capital	615	-	-	615	-	-	-	-	-	-	615
Share premium account	12,049	-	-	12,049	-	-	-	-	-	-	12,049
Revaluation reserve	226	-	-	226	-	-	-	-	-	-	226
Other reserves	83	-	-	83	-	-	-	-	-	-	83
Currency translation reserve	-	-	-	-	-	-	44	-	-	-	44
Retained earnings	12,977	718	49	13,744	585	-	(44)	-	(1,006)	(4)	13,275
	25,950	718	49	26,717	585	-	-	-	(1,006)	(4)	26,292

  

4. Unaudited income statement reconciliation for the six month period ended 30 April 2007

	UK GAAP (IFRS Format)	Ship  loan translation	Restated UK GAAP (IFRS format)	Property, ship, plant & equipment	Holiday Pay Accrual	Loss on  forward Exchange Contracts	Investment Property	IFRS
				IAS 16	IAS 19	IAS 39	IAS 40
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	22,982	-	22,982	-	-	-	-	22,982
Cost of sales	(17,870)	-	(17,870)	-	-	-		(17,870)
Gross profit	5,112	-	5,112	-	-	-	-	5,112
Administrative expenses	(3,854)	293	(3,561)	519	(37)	(337)	(2)	(3,418)
Other operating income	12	-	12	-	-	-	-	12
Operating profit	1,270	293	1,563	519	(37)	(337)	(2)	1,706
Investment revenues	424	-	424	-	-	-	-	424
Finance costs	-	-	-	(150)	-	-	-	(150)
Profit before tax	1,694	293	1,987	369	(37)	(337)	(2)	1,980
Tax credit	362	-	362	154	-	-	-	516
Profit for the period	2,056	293	2,349	523	(37)	(337)	(2)	2,496

  

5. Unaudited income statement reconciliation for the year ended 31 October 2007

	UK GAAP (IFRS Format) as previously reported	Ship  loan translation	Restated UK GAAP (IFRS format)	Property, ship, plant & equipment	Loss on  forward Exchange Contracts	Investment Property	IFRS
				IAS 16	IAS 39	IAS 40
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	45,400	-	45,400	-	-	-	45,400
Cost of sales	(30,383)	-	(30,383)	-	-	-	(30,383)
Gross profit	15,017	-	15,017	-	-	-	15,017
Administrative expenses	(8,792)	425	(8,367)	1,028	(831)	(4)	(8,174)
Other operating income	24	-	24	-	-	-	24
Operating profit	6,249	425	6,674	1,028	(831)	(4)	6,867
Investment revenues	958	-	958	-	-	-	958
Finance costs	(124)	-	(124)	(300)	-	-	(424)
Profit before taxation	7,083	425	7,508	728	(831)	(4)	7,401
Tax credit	522	-	522	154	-	-	676
Profit for the year	7,605	425	8,030	882	(831)	(4)	8,077

ENDIR FKQKKCBKDNOB

---

Related Shares:

ALLG.L