1st Sep 2005 07:00
Vislink PLC01 September 2005 Vislink plc Interim results for the six months ended 30 June 2005 Vislink plc ("The Group"), a leading supplier of microwave radio and satellitetransmission products for the broadcast and security markets and of CCTV systemsfor the marine security market has today announced its interim results for thesix months to 30 June 2005. Financial summary--------------------------------------------------------------------------------For the six months ended 30 June 2005 2004 £'000 £'000--------------------------------------------------------------------------------Revenue 35,753 30,107Operating profit 2,527 661Underlying operating profit 3,046 661Profit before taxation 2,092 447Earnings per share -basic 1.07p 0.29pEarnings per share -basic underlying 1.33p 0.29p-------------------------------------------------------------------------------- Key points •The Group has achieved a significant improvement in its trading performance for the first six months of 2005 •Orders increased by 66% compared with the first six months of 2004 •Link Research Limited ("Link"), acquired on 11 February 2005, has made a strong contribution to the Group's profitability •The Group's reported operating profit was £2.53 million (2004 - £0.66 million) •The Group's underlying operating profit, being operating profit before the amortisation of acquired intangibles, was £3.05 million (2004 - £0.66 million). Bob Morton, Chairman of Vislink said: "All the businesses are trading ahead of last year at the operating profit leveland the synergies and benefits from the acquisition of Link are already showingthrough. The Board is encouraged by the current level of trading, thesignificant orders won by the broadcast businesses and Hernis and continues tolook forward to the rest of the year with confidence." - ends - For further information on 1 September 2005, please contact: Ian Scott-Gall, Chief Executive 01488 685500James Trumper, Group Finance Director 01488 685500 Chairman's Statement Results for six months to 30 June 2005 The Group has achieved a significant improvement in its trading performance forthe first six months of 2005. Orders and sales are well ahead of the first sixmonths of 2004. Link Research Limited ("Link"), acquired on 11 February 2005,has made a strong contribution to the Group's profitability. The Group's order intake for the period was up 66% to £46.90 million (2004 -£28.24 million). Group sales from continuing operations were up 19% to £35.75million (2004 - £30.11 million). The Group's reported operating profit from continuing operations was £2.53million (2004 - £0.66 million). The underlying operating profit, being operatingprofit from continuing operations before the amortisation of acquiredintangibles, was £3.05 million (2004 - £0.66 million). The UK business is nowshowing strong profitability following the acquisition of Link, achieving anoperating profit of £1.46 million (2004 - loss of £1.09 million) before theamortisation of acquired intangibles. In addition operating profits increased atMRC to £2.00 million, (2004 - £1.94 million) and at Hernis to £0.54 million(2004 - £0.44 million). Net interest costs were £0.44 million (2004 - £0.21 million) including £0.12million of interest accruing from the discounting of the deferred considerationassociated with the Link acquisition. The Group made a profit on continuingactivities after interest charges but before tax of £2.09 million (2004 - £0.45million). At 30 June 2005 the Group had net debt of £3.36 million (31 December 2004 -£2.35 million). There was a net cash outflow from operating activities of £0.99million as a result of a reduction in payments received on account across theGroup. Earnings Per Share The reported earnings per share for the period were 1.07 pence (2004 - 0.29pence). The underlying earnings per share were 1.33 pence (2004 - 0.29 pence)after adjusting for the amortisation of acquired intangibles. Dividends As in previous years the Board is not recommending an interim dividend in linewith the Group's stated strategy to only recommend a final dividend. International Financial Reporting Standards (IFRS) From 2005 the Group is required to prepare its consolidated financial statementsin accordance with International Accounting Standards (IAS) and InternationalFinancial Reporting Standards (IFRS) to be adopted by the European Union (EU).The Group's date of transition to IFRS was 1 January 2004 and comparativeinformation in the interim financial statements is restated to reflect theGroup's adoption of IFRS except where otherwise required or permitted by IFRS1.A reconciliation is provided in these interim financial statements of the netassets and profit as reported under UK GAAP as at 31 December 2004 and 30 June2004 to the revised net assets and profit under IFRS. In addition there is areconciliation of the net assets under UK GAAP to IFRS as at the transition datefor the Group. Business Review US Broadcast Business MRC, the US broadcast business, has seen its order intake increase to £32.45million (2004 - £14.70 million) as a result of both the 2GHz relocationprogramme in the US and a substantial increase in its international order intaketo £4.50 million. External sales for the period increased to £16.64 million(2004 - £13.55 million) and operating profits increased to £2.00 million (2004 -£1.94 million). The underlying domestic broadcast and government sales have remained strong inthe period with the benefit of £5.35 million of sales from the 2GHz relocationprogramme. MRC has expanded its production and development facilities in orderto meet the expected increase in production and sales in line with the 2GHzprogramme schedule. UK Broadcast Business The UK broadcast business now comprises the Advent satellite communicationsbusiness, the Link wireless camera business and the Venezuelan TV contract.External sales for the business were £14.41 million (2004 - £12.63 million). Theunderlying operating profit was £1.46 million (2004 - loss of £1.09 million)before the £0.52 million amortisation of acquired intangibles associated withthe acquisition of Link. The core UK satellite business has now been stabilised following the tradinglosses in 2004. The Venezuelan TV contract is progressing well and is on targetto be completed by the end of the year. Link has performed strongly and hasbenefited from the 2GHz relocation programme through the internal supply ofproduct to MRC. Hernis Hernis has made a good start to the year. Orders for the period were up 32% to£5.69 million (2004 - £4.31 million) due to the growth in the offshore oil andgas markets and the marine LNG tanker market. Sales were up 20% to £4.70 million(2004 - £3.92 million) and operating profits were up 23% to £0.54 million (2004- £0.44 million). Strategy and Prospects The broadcast businesses of MRC and Link are expected to benefit from the 2GHzrelocation programme in the US over the next three years. In addition both MRCand Advent are seeing increased demand from international markets. MRC has alsoseen an increased level of business in the period from the emerging publicsafety market in the US. The Group's longer term strategy for the US market isto achieve enhanced sales growth from the development of the government,military and security markets for both microwave and satellite products with aclear focus on the development of new products for markets outside of thetraditional broadcast markets. The acquisition of Link has brought to the Group the intellectual propertyrights for the application of the technologies, which are used extensively inthe Group's microwave radio links and satellite communication products. The goodmargins enjoyed by Link on the sales of these products have significantlyimproved the Group's overall margins. Link has enhanced the broadcast businessesproduct development capability and a new development plan for both satelliteproducts and new electronics has been initiated for release next year. Thedevelopment of High Definition (HD) wireless camera systems is progressing welland the new products will be launched at the International BroadcastingConvention this September. The offshore market is currently strong for Hernis as high oil prices haveencouraged an increasing number of new projects that are coming to fruitionaround the world. In addition the potential in the onshore refinery market isgrowing as a result of Hernis' long term strategic work within the onshore oiland gas industry. The International Ship and Port Safety regulations are nowwell established and have resulted in an increased awareness from the shipowners and port authorities, making it easier for Hernis to gain acceptance forinvestments in marine safety and security products. In summary, all the businesses are trading ahead of last year at the operatingprofit level and the synergies and benefits from the acquisition of Link arealready showing through. The Board is encouraged by the current level of trading, the significant orderswon by the broadcast businesses and Hernis and continues to look forward to therest of the year with confidence. ALR MortonChairman 1 September 2005 CONSOLIDATED GROUP INCOME STATEMENTfor the six months ended 30 June 2005 Six months to Six months to Year ended 31 30 June 2005 30 June December (Unaudited) 2004 2004 (Unaudited (Unaudited and restated) and restated) (Note 9) (Note 9)* Notes £'000 £'000 £'000Continuing operationsRevenue 2 35,753 30,107 67,831Cost of sales (24,506) (22,628) (52,145) --------------------------------------- 11,247 7,479 15,686Sales andmarketing (3,077) (2,901) (5,865)Research anddevelopment (2,272) (1,660) (3,082)Administrativecosts (3,286) (2,199) (6,276)Other expenses (85) (58) (270) ---------------------------------------Operatingprofit fromcontinuingoperations 2 2,527 661 193-------------------------------------------------------------------------------- Operating profit isanalysed as:Underlyingoperatingprofit 5 3,046 661 2,549Amortisationof acquiredintangibles (519) - -Impairment ofgoodwill - - (817)Rationalisation costs - - (1,539)--------------------------------------------------------------------------------Finance costs (475) (250) (591)Investmentincome 40 36 93--------------------------------------------------------------------------------Profit/(loss)on continuingactivitiesbeforetaxation 2,092 447 (305)Tax onprofit/(loss)on ordinaryactivities 3 (741) (156) (827) ---------------------------------------Profit/(loss)for the periodfromcontinuingoperationsbeingprofit/(loss)attributabletoshareholders 1,351 291 (1,132) ======================================= Earnings/(loss) per shareexpressed inpence pershare: From continuing operations - basic 5 1.07p 0.29p (1.12)pFrom continuing operations- diluted 5 1.06p 0.29p (1.11)p ========================================Dividends No dividends have been declared and approved in respect of the six month periodsending 30 June 2005 and 30 June 2004 (see note 4). * The 31 December 2004 results have been restated in accordance with IFRS, basedon the audited financial statements for the year ended 31 December 2004, whichcontained an unqualified audit report (see note 9). CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the six months ended 30 June 2005 Six months to Six months to Year ended 30 June 30 June 31 Dec 2005 2004 2004 (Unaudited) (Unaudited (Unaudited and restated) and restated) (Note 9) (Note 9) Notes £'000 £'000 £'000 Openingshareholders'equity 9 25,001 27,208 27,208 ------------------------------------------------- Profit/(loss)for thefinancialperiod 1,351 291 (1,132)Share options- value ofemployeeservices 42 14 47Dividends 4 (246) (202) (202) -------------------------------------------------Movements inthe profit andloss account 1,147 103 (1,287)Translationdifference onforeigncurrency netinvestments 1,027 (326) (920)Shares issued 7,470 - -Disposal ofinvestment inown shares 4 - - -------------------------------------------------Totalmovements inshareholders'equity 9,648 (223) (2,207) =================================================Closingshareholders'equity 34,649 26,985 25,001 ================================================= CONSOLIDATED GROUP BALANCE SHEETas at 30 June 2005 30 June 30 June 31 Dec 2005 2004 2004 (Unaudited) (Unaudited (Unaudited and restated) and restated) (Note 9) (Note 9) Notes £'000 £'000 £'000 Assets Non-current assets Goodwill 23,181 18,024 16,922Intangible assets 7,394 1,105 1,062Property, plant andequipment 4,785 4,340 4,314Deferred tax assets 1,602 1,241 1,602 --------------------------------------- 36,962 24,710 23,900 ---------------------------------------Current assets Inventories 11,117 10,682 8,936Trade and other receivables 15,686 12,469 15,386Financial assets -available for saleinvestments 259 - - Net cash and cashequivalents 8 2,100 5,371 3,219 --------------------------------------- 29,162 28,522 27,541 ---------------------------------------Liabilities Current liabilitiesFinancial liabilities -borrowings 8 2,660 35 2,190Trade and other payables 17,216 18,290 18,363Current tax liabilities 1,060 - 206Provisions 620 748 757 --------------------------------------- 21,556 19,073 21,516 --------------------------------------- ---------------------------------------Net current assets 7,606 9,449 6,025 --------------------------------------- Non-current liabilities Financial liabilities -borrowings 8 2,795 5,552 3,378Deferred tax liabilities 3,232 954 1,255Other non-currentliabilities 3,752 - -Provisions 140 668 291 --------------------------------------- 9,919 7,174 4,924 --------------------------------------- --------------------------------------- 34,649 26,985 25,001 ---------------------------------------Capital and reservesCalled up share capital 3,392 2,552 2,552Share premium account 6,835 205 205Investment in own shares (156) (160) (160)Merger reserve 27,895 27,895 27,895Translation reserve (2,026) (2,459) (3,053)Profit and loss account (1,291) (1,048) (2,438) ---------------------------------------Total shareholders' equity 34,649 26,985 25,001 --------------------------------------- CONSOLIDATED GROUP CASH FLOW STATEMENTfor the six months ended 30 June 2005 Six months to Six months to Year ended 30 June 30 June 31 Dec 2005 2004 2004 (Unaudited) (Unaudited (Unaudited and restated) and restated) (Note 9) (Note 9) Notes £'000 £'000 £'000Cash flow from operatingactivitiesCash used inoperatingactivities 7 (230) (2,383) (2,613)Investmentincome 40 35 93 Finance costs (387) (152) (590) Taxation paid (413) (403) (737) ---------------------------------------Net cash usedin operatingactivities (990) (2,903) (3,847) --------------------------------------- Cash flows from investingactivities Acquisition ofsubsidiary 6 (2,445) - - Proceeds fromsale ofproperty,plant andequipment - 2 2Purchase ofproperty,plant andequipment (596) (361) (729)Expenditure oncapitaliseddevelopmentcosts (467) (618) (1,032) ---------------------------------------Net cash usedin investingactivities (3,508) (977) (1,759) --------------------------------------- Cash flows from financingactivities Net proceedsfrom issue ofordinary sharecapital 4,470 - -Net proceedsfrom sale ofown sharesheld 4 - -Repayment ofborrowings 8 (1,307) (260) (275)Dividend paidtoshareholders - - (202) --------------------------------------- 3,167 (260) (477) --------------------------------------- Effect offoreignexchange ratechanges 8 212 (29) (238) --------------------------------------- Net decreasein cash andcashequivalents (1,119) (4,169) (6,321)Net cash andcashequivalents atbeginning ofperiod 8 3,219 9,540 9,540 ---------------------------------------Net cash andcashequivalents atend of period 8 2,100 5,371 3,219 --------------------------------------- NOTES TO THE INTERIM ACCOUNTSfor the six months ended 30 June 2005 1. BASIS OF PREPARATION These interim financial statements are the first interim financial statementsfollowing the adoption of International Financial Reporting Standards (IFRS). Asthe Group has not previously published a full set of financial statements underIFRS the content of these statements has been expanded to include summarisedreconciliations to the net assets and profit previously reported under UK GAAPfor the six months ended 30 June 2004 and the year ended 31 December 2004 (note9). Additional statements regarding the transition, together with the new Groupaccounting policies under IFRS can be found on the home page of the Vislink website at www.vislink.co.uk under the heading "Financial News". The financial information has been prepared in accordance with all InternationalFinancial Reporting Standards and IFRIC interpretations that had been publishedby 30 June 2005 and apply to accounting periods beginning on or after 1 January2005. The standards used are those endorsed by the EU together with thosestandards and interpretations that have been issued by the IASB but had not beenendorsed by the EU by 30 June 2005. The 2004 comparative information has, aspermitted by the exemption in IFRS 1, not been prepared in accordance with IAS32 'Financial instruments: Disclosure and presentation' and IAS 39 'Financialinstruments: Recognition and measurement'. Further standards and interpretations may be issued that will be applicable forfinancial years beginning on or after 1 January 2005 or that are applicable tolater accounting periods but may be adopted early. The Group's first full IFRSfinancial statements to 31 December 2005 may, therefore, be prepared inaccordance with some different accounting policies from the financialinformation presented here. IFRS is currently being applied in the United Kingdom and in a large number ofother countries simultaneously for the first time. Furthermore, due to a numberof new and revised Standards included within the body of Standards that compriseIFRS, there is not yet a significant body of established practice on which todraw in forming opinions regarding interpretation and application. Accordingly,practice is continuing to evolve. At this preliminary stage therefore, the fullfinancial effect of reporting under IFRS as it will be applied and reported onin the Group's first IFRS financial statements cannot be determined withcertainty and may be subject to change. This interim report is unaudited and does not constitute audited accounts withinthe meaning of the Companies Act 1985. The accounts for the year ended 31December 2004, on which the auditors gave an unqualified audit opinion, were notprepared in accordance with International Financial Reporting Standards andIFRIC interpretations but have been filed with the Registrar of Companies. 2. SEGMENTAL ANALYSIS Revenue Operating Profit / (Loss) ------------------------------------------ ------------------------------------------- Six months to Six months to Year ended Six months to Six months to Year ended 30 June 2005 30 June 2004 31 Dec 2004 30 June 2005 30 June 2004 31 Dec 2004 £'000 £'000 £'000 £'000 £'000 £'000 By geographiclocationUK - broadcast(note a,b) 17,032 13,265 33,315 942 (1,092) (3,209)US - broadcast 16,757 14,288 29,395 2,003 1,937 3,871Norway -marine CCTV 4,699 3,924 7,960 540 442 714Inter-segmental transactions (2,735) (1,370) (2,839) (260) - -Central costs - - - (698) (626) (1,183) ------------------------------------------ -------------------------------------------Group total 35,753 30,107 67,831 2,527 661 193 ========================================== ===========================================Notes: a) For the year ended 31 December 2004 the UK operating profit is after charging rationalisation costs of £1,539,000 and a goodwill impairment of £817,000. The underlying operating loss was £853,000 excluding these items. b) For the six months to 30 June 2005 the UK operating profit is after charging amortisation in respect of acquired intellectual property and customer relationships of £519,000 (six months to 30 June 2004 and year to 31 December 2004 - £nil), and the underlying operating profit was £1,461,000 excluding this item. The Group's internal organisational and management structure and its system ofinternal financial reporting to the Board of Directors is based on thegeographical location of its businesses. These comprise three regions, the UK,the Unites States of America (US) and Norway. The UK comprises the broadcastbusinesses of Advent Communications (satellite products), projects and thewireless camera systems of Link. The US comprises the microwave radio broadcastbusiness of MRC. Norway comprises the marine CCTV business of Hernis. The table below shows the analysis of Group external revenue, by geographicmarket. Revenue analysis Revenue ----------------------------------------------------- Six months to Six months to Year ended 31 30 June 2005 30 June 2004 Dec 2004 £'000 £'000 £'000By geographic market:UK & Ireland 3,091 2,707 5,517 Rest of Europe 5,403 4,506 8,530North America 15,349 13,101 24,993South America 7,904 6,081 19,911Middle East 520 1,734 2,677Asia 2,908 1,610 4,539Africa 170 280 1,039Other 408 88 625 -----------------------------------------------------Group Total 35,753 30,107 67,831 ----------------------------------------------------- 3. TAX ON PROFIT ON ORDINARY ACTIVITIES The tax charge for the six months ended 30 June 2005 is based on the effectivetax rate, which it is estimated will apply to earnings for the full year. 4. DIVIDENDS No interim dividend is proposed for the period. In 2004 there was no interimdividend and the final dividend of 0.2 pence per share was approved at theAnnual General Meeting on 25 May 2005 and paid on 22 July 2005. 5. EARNINGS PER ORDINARY SHARE Earnings per share is calculated by reference to a weighted average of126,812,000 ordinary shares in issue during the period, excluding shares held bythe Employees' Share Ownership Plan (30 June 2004 - 101,123,000 and 31 December2004 - 101,123,000). The diluted earnings per share is after taking account of a further 945,000shares (30 June 2004- 746,000; 31 December 2004 - 460,000) being the dilutiveeffect of share options. Underlying earnings Vislink believes that underlying operating profit, underlying profit before tax,underlying earnings and underlying earnings per share provide additional usefulinformation on underlying trends to shareholders. These measures are used byVislink for internal performance analysis and incentive compensationarrangements. The term underlying is not a defined term under IFRS and may nottherefore be comparable with similarly titled profit measurements reported byother companies. The principle adjustments are made in respect ofrationalisation costs, the impairment of goodwill and amortisation of acquiredintangibles. The reconciliation between reported and underlying earnings and basic earningsper share is shown below: Six months to Six months to Year ended 30 June 2005 30 June 2004 31 December 2004 Earnings Basic EPS Earnings Basic EPS Earnings Basic EPS £'000 pence £'000 pence £'000 penceReportedearnings 1,351 1.07 291 0.29 (1,132) (1.12)Rationalisation costs - - - - 1,539 1.52Impairment ofgoodwill - - - - 817 0.81Amortisationof acquiredintangiblesafter tax 337 0.26 - - - - ------------------------------------------------------------------Underlyingearnings 1,688 1.33 291 0.29 1,224 1.21 ------------------------------------------------------------------ 6. ACQUISITIONS On 14 January 2005 the Group announced to shareholders the proposed acquisitionof Link Research Limited. The maximum consideration, excluding acquisitioncosts, is £10.75 million comprising an initial consideration of £5.00 million(comprising £3.00 million in ordinary shares and £2.00 million in cash and loannotes), and a further performance related deferred consideration of up to £5.75million payable in loan notes and shares. Also on 14 January 2005 the Group proposed the issue of 20,414,569 ordinaryshares at 22.75p raising £4.64 million before expenses. Both these transactions were approved by the shareholders at an ExtraordinaryGeneral Meeting on 9 February 2005, and the acquisition of Link Research Limitedwas effective on 11 February 2005. Below is a summary of the preliminary valuation of the tangible and intangiblenet assets acquired and the calculation of goodwill: Book value Fair value Fair value adjustment £'000 £'000 £'000 ----------------------------------Net assets acquiredAcquired intangibles -intellectual property - 3,720 3,720Acquired intangibles -customer relationships - 3,100 3,100Intangibles - goodwill 1,384 (1,384) -Property, plant andequipment 636 (329) 307Inventories 450 - 450Trade and other receivables 1,294 - 1,294Investment assets held forresale - 259 259Cash at bank and in hand 140 - 140Trade and other payables (705) - (705)Current tax liabilities (357) - (357)Provisions (65) - (65)Financial liabilities -secured bank borrowings (661) - (661)Financial liabilities -unsecured borrowings (533) - (533)Deferred tax liabilities (63) (2,046) (2,109) ---------------------------------- 1,520 3,320 4,840 ====================Goodwill on acquisition 5,906 --------Total consideration 10,746 ======== Satisfied by:Cash consideration(including acquisition costsof £659,000) 2,585Ordinary shares 3,000Unsecured loan notes 74Deferred consideration 5,087 -------- 10,746 ======== Net cash outflow arising on acquisitionCash consideration(including acquisition costsof £659,000) 2,585Cash and cash equivalentsacquired (140) -------- 2,445 ======== The deferred consideration of £5,750,000 payable over the next 2.5 years hasbeen discounted to its present value at a rate of 5.85% to £5,087,000 at thedate of acquisition. In the period to 30 June 2005 an interest charge of£126,000 has been made to reflect the increase in the present value of thedeferred consideration at 30 June 2005. Link Research Limited contributed £1,067,000 to Group operating profit in theperiod. If the acquisition of Link Research Limited had been completed on thefirst day of the financial year, Group revenues for the year would haveincreased by £571,000 and Group profit attributable to equity holders of theparent company by £97,000. 7. NOTES TO THE CASH FLOW STATEMENT Net cash flow from operating activities comprises: Six months to Six months to Year ended 31 30 June 2005 30 June 2004 Dec 2004 £'000 £'000 £'000 Profit/(loss)attributabletoshareholders 1,351 291 (1,132)Taxation 741 156 827Depreciation 476 406 849Loss/(profit)on disposal ofproperty,plant andequipment 16 (2) (2)Impairment ofgoodwill - - 817Amortisationof developmentcosts 477 360 756Amortisationof acquiredintangibles 519 - -Share options- value ofemployeeservices 42 14 47Investmentincome (40) (36) (93)Finance costs 475 250 591(Increase) ininventories (1,419) (1,745) (68)Decrease/(increase) in tradeand otherreceivables 1,430 (976) (3,999)(Decrease)/increase inpayables (3,925) (214) 33(Decrease) inprovisions (373) (887) (1,239) ----------------------------------------------------Net cashoutflow fromoperatingactivities (230) (2,383) (2,613) ==================================================== 8. NET BORROWINGS The movements in cash and cash equivalents and borrowings in the period are asfollows: Net cash and Short term Other Total net cash borrowings borrowings borrowings equivalents £'000 £'000 £'000 £'000At 1 January2005 3,219 (2,190) (3,378) (2,349)Cash flow forthe period (1,471) 1,307 - (164)Assumed onacquisition 140 (706) (488) (1,054)Exchange rateadjustments 212 - - 212Reclassification - (1,071) 1,071 - ------------------------------------------------------------At 30 June2005 2,100 (2,660) (2,795) (3,355) ============================================================ 9. RECONCILIATION OF NET ASSETS AND PROFIT UNDER UK GAAP TO IFRS The Group reported under UK GAAP in its previously published financialstatements for both the year ended 31 December 2004 (on which the auditors gavean unqualified audit opinion) and the six months ended 30 June 2004 (on whichthe auditors provided an unqualified review report). From 2005 the Group isrequired to prepare its consolidated financial statements in accordance withInternational Accounting Standards (IAS) and International Financial ReportingStandards (IFRS) as adopted by the European Union (EU). The Group has applied IFRS1 'First Time Adoption of International FinancialReporting Standards' as a starting point for reporting under IFRS. The Group'sdate of transition to IFRS is 1 January 2004 and comparative information in thefinancial statements is restated to reflect the Group's adoption of IFRS exceptwhere otherwise required or permitted by IFRS1. IFRS1 requires an entity to comply with each IFRS effective at the reportingdate for its first financial statements prepared under IFRS. As a general rule,IFRS1 requires such standards to be applied retrospectively. However, thestandard allows several optional exemptions from full retrospective application.The Group has elected to take advantage of certain exemptions as explained inthe following paragraphs. The Group will adopt IFRS3 'Business Combinations' to the extent that it appliesto acquisitions post 1 January 2004. Acquisitions before that date will berecorded as under previous accounting rules as the Group intends to takeadvantage of the exemption allowed in IFRS1 regarding business combinationsrecognised before the date of transition to IFRS. All goodwill and intangibleswill be tested for impairment, as required by IAS36 'Impairment of Assets',goodwill on an annual basis and all intangibles, including goodwill, when thereis an indication of impairment. The Group will elect to apply the exemptions in IAS32 'Financial Instruments:Disclosure and Presentation' and IAS39 'Financial Instruments: Recognition andMeasurement'. The Group will apply these standards from 1 January 2005. The Group will elect to take advantage of the exemptions allowed in IFRS1regarding IFRS2 'Share-based payments'. The Group will apply the exemptions forshare-based payments granted on or before 7 November 2002. This means that onlyequity instruments granted after 7 November 2002 that vest after the effectivedate of IFRS2 on 1 January 2005 need to be valued and accounted for under IFRS2. The analysis below shows a reconciliation of net assets and profit as reportedunder UK GAAP as at 31 December 2004 and 30 June 2004 to the revised net assetsand profit under IFRS as reported in these financial statements. In additionthere is a reconciliation of net assets under UK GAAP to IFRS as at thetransition date for the Group, being 1 January 2004. Notes Six months to Year ended 30 June 2004 31 Dec 2004 £'000 £'000 Reconciliation of profit before interest Loss before interest asreported under UK GAAP (109) (311)Share based payments a (14) (47)Goodwill amortisation b 566 1,132Goodwill impairment b - (817)Development costscapitalised f 578 992Development costs -amortisation f (360) (756) -----------------------Profit before interestreported under IFRS 661 193 ======================= Reconciliation of profit/(loss)attributable to shareholders Loss as reported under UKGAAP (408) (1,820)Share based payments a (14) (47)Goodwill amortisation b 566 1,132Goodwill impairment b - (817)Dividends c - 246Taxation d 3 7Development costscapitalised f 375 694Development costs -amortisation f (231) (527) -----------------------Profit/(loss) attributableto shareholders under IFRS 291 (1,132) ======================= Six months to Year ended 30 June 2004 31 Dec 2004 pence pence Reconciliation of basic (loss)/earnings pershare Basic (loss) per share underUK GAAP (0.40) (1.56)IFRS adjustments 0.69 0.44 -----------------------Basic earnings/(loss) pershare under IFRS 0.29 (1.12) ======================= Reconciliation of equity at 1 January 2004 Notes UK GAAP IFRS IFRS IFRS As reported Reclassifications Adjustments Restated £'000 £'000 £'000 £'000 Assets Non-currentassets Goodwill b 18,091 - - 18,091Intangibleassets f - 101 838 939Property,plant andequipment 4,464 (101) - 4,363Deferred taxassets - 1,241 - 1,241 ------------------------------------------------- 22,555 1,241 838 24,634 -------------------------------------------------Current assets Inventories 9,099 - - 9,099Trade andotherreceivables 12,857 (1,716) - 11,141Financialassets -available forsaleinvestments - 475 - 475 Cash at bankand in hand 9,540 - - 9,540 ------------------------------------------------- 31,496 (1,241) - 30,255 -------------------------------------------------Liabilities CurrentliabilitiesFinancialliabilities -borrowings - 276 - 276Trade andother payables c 19,121 (405) (202) 18,514Current taxliabilities - 129 - 129Provisions - 1,431 - 1,431 ------------------------------------------------- 19,121 1,431 (202) 20,350 ------------------------------------------------- -------------------------------------------------Net currentassets 12,375 (2,672) 202 9,905 ------------------------------------------------- Non-currentliabilities Financialliabilities -borrowings 5,567 - - 5,567Deferred taxliabilities d - 237 652 889Provisions 2,543 (1,668) - 875 ------------------------------------------------- 8,110 (1,431) 652 7,331 ------------------------------------------------- ------------------------------------------------- 26,820 - 388 27,208 =================================================Capital andreservesCalled upshare capital 2,552 - - 2,552Share premiumaccount 205 - - 205Investment inown shares (160) - - (160)Merger reserve 27,895 - - 27,895Translationreserve e - - (2,133) (2,133)Profit andloss account (3,672) - 2,521 (1,151) -------------------------------------------------Totalshareholders'equity 26,820 - 388 27,208 ================================================= The reclassifications represent the reclassification of certain assets andliabilities in the balance sheet into the format required under IFRS. Reconciliation of equity at 31 December 2004 Notes UK GAAP IFRS IFRS IFRS As reported Reclassifications Adjustments Restated £'000 £'000 £'000 £'000Assets Non-currentassets Goodwill b 16,622 - 300 16,922Intangibleassets f - 29 1,033 1,062Property,plant andequipment 4,343 (29) - 4,314Deferred taxassets - 1,602 - 1,602 ---------------------------------------------------- 20,965 1,602 1,333 23,900 ----------------------------------------------------Current assets Inventories 8,936 - - 8,936Trade andotherreceivables 16,988 (1,602) - 15,386Cash at bankand in hand 3,219 - - 3,219 ---------------------------------------------------- 29,143 (1,602) - 27,541 ----------------------------------------------------Liabilities CurrentliabilitiesFinancialliabilities -borrowings - 2,190 - 2,190Trade andother payables c 21,005 (2,396) (246) 18,363Current taxliabilities - 206 - 206Provisions - 757 - 757 ---------------------------------------------------- 21,005 757 (246) 21,516 ---------------------------------------------------- ----------------------------------------------------Net currentassets 8,138 (2,359) 246 6,025 ---------------------------------------------------- Non-currentliabilities Financialliabilities -borrowings 3,378 - - 3,378Deferred taxliabilities d - 541 714 1,255Provisions 1,589 (1,298) - 291 ---------------------------------------------------- 4,967 (757) 714 4,924 ---------------------------------------------------- ---------------------------------------------------- 24,136 - 865 25,001 ====================================================Capital andreservesCalled upshare capital 2,552 - - 2,552Share premiumaccount 205 - - 205Investment inown shares (160) - - (160)Merger reserve 27,895 - - 27,895Translationreserve e - - (3,053) (3,053)Profit andloss account (6,356) - 3,918 (2,438) ----------------------------------------------------Totalshareholders'equity 24,136 - 865 25,001 ==================================================== The reclassifications represent the reclassification of certain assets andliabilities in the balance sheet into the format required under IFRS. Reconciliation of equity at 30 June 2004 Notes UK GAAP IFRS IFRS IFRS As reported Reclassifications Adjustments Restated £'000 £'000 £'000 £'000 Assets Non-currentassets Goodwill b 17,458 - 566 18,024Intangibleassets f - 58 1,047 1,105Property,plant andequipment 4,398 (58) - 4,340Deferred taxassets - 1,241 - 1,241 ----------------------------------------------------- 21,856 1,241 1,613 24,710 -----------------------------------------------------Current assets Inventories 10,682 - - 10,682Trade andotherreceivables 13,710 (1,241) - 12,469Cash at bankand in hand 5,371 - - 5,371 ----------------------------------------------------- 29,763 (1,241) - 28,522 -----------------------------------------------------Liabilities CurrentliabilitiesFinancialliabilities -borrowings 35 - - 35Trade andother payables 18,290 - - 18,290Current tax - - - -liabilitiesProvisions - 748 - 748 ----------------------------------------------------- 18,325 748 - 19,073 ----------------------------------------------------- -----------------------------------------------------Net currentassets 11,438 (1,989) - 9,449 ----------------------------------------------------- Non-currentliabilities Financialliabilities -borrowings 5,552 - - 5,552Deferred taxliabilities d - 231 723 954Provisions 1,647 (979) - 668 ----------------------------------------------------- 7,199 (748) 723 7,174 ----------------------------------------------------- ----------------------------------------------------- 26,095 - 890 26,985 =====================================================Capital andreservesCalled upshare capital 2,552 - - 2,552Share premiumaccount 205 - - 205Investment inown shares (160) - - (160)Merger reserve 27,895 - - 27,895Translationreserve e - - (2,459) (2,459)Profit andloss account (4,397) - 3,349 (1,048) -----------------------------------------------------Totalshareholders'equity 26,095 - 890 26,985 ===================================================== The reclassifications represent the reclassification of certain assets andliabilities in the balance sheet into the format required under IFRS. Notes a) IFRS 2 - Share-based payments Provision for share-based payments not previously recognised under UK GAAP.Under IFRS 2, charges are required in respect of all employee share basedremuneration schemes. These charges are designed to reflect the fair value ofthe awards made under the Group's share option schemes and the Group's Sharesavescheme at the time of the grant. Transitional arrangements for this standardrequire its application to all awards granted after 7 November 2002. The Grouphas adopted the Black-Scholes model to value the options. b) IFRS3 - Business Combinations (goodwill amortisation) Under UK GAAP, goodwill recognised on acquisitions made after 31 December 1997was capitalised and amortised over its estimated useful life, which in theGroup's case was 20 years. Under IFRS 3, goodwill, including residual goodwillfrom pre-transition acquisitions, is no longer amortised, but is required to bereviewed for impairment at least annually. At the transition date the Group had goodwill assets of £18.10 million, whichRelated Shares:
Pebble Beach