11th Mar 2008 07:00
Interior Services Group PLC11 March 2008 Interior Services Group PLC Interim results for the six months ended 31 December 2007 Strong results, robust business model, strong order book. Interior Services Group PLC is a construction services specialist with leadingUK market positions in commercial office and retail fit out. Over the past 2years the company has diversified the services that it offers, the sectors itfocuses on, and expanded geographically in the UK and into Europe and Asia. Results • Volumes up 27% to £521m (2006 £ 411m) • Fee income increased 37% to £64.4m (2006 £47.2m) • Adjusted operating profit* increased to £6.7m, up 98% (2006 £3.4m) • Adjusted profit before tax* increased 55% to £6.3m (2006 £4.1m) • Profit before tax increased 43% to £5.8m (2006 £4.1m) • Adjusted earnings per share* increased by 55% to 17.30p (2006 11.18p) • Interim dividend increased by 21% to 4.00p (2006 3.30p) • Net cash as of December £22.1m *adjusted for amortisation of intangible assets Strong set of results driven by • Organic growth contributed to 31% of the increase in adjusted operating profit • Continued organic growth in the London Build and Fit out divisions • Organic growth in our Regional construction businesses enhanced by the acquisition of Pearce • Impressive expansion of our National Retail and Leisure business with a full six month contribution from Cathedral • Development of our overseas businesses with the significant organic expansion of activity in China and Hong Kong, and the acquisition of IASA in Europe Current Trading • Demand for our services remains strong • 2nd half to see volumes increase • Order book up 15% to a record £968 million as at December 2007 of which £387 million is for delivery in the next financial year, with an additional £250 million of work also expected to be delivered from our framework agreements (not in order book) David Lawther, Chief Executive, said: "I am delighted to report another set of record results. We are now benefitingfrom our strategy of developing other business areas and expandinginternationally where we are seeing strong growth. All of our businesses continue to perform well. Our order book is at a recordlevel. We are no longer reliant on any single market place, sector or geography.We continue to see opportunities for further growth across a number of oursectors, and the group remains on target to achieve further progress this year." 11 March 2007 Enquiries: Interior Services Group PLCDavid Lawther, Chief Executive 020 7392 5307Jonathan Houlton, Group Finance Director 020 7392 4905 College HillMatthew Smallwood 020 7457 2020 CEO HALF YEAR STATEMENT Introduction The company has continued to make excellent progress during the period underreview. Not only have our key markets remained strong, but we are also beginningto reap the benefits of the diversification of our range of services andexpansion into overseas markets. In the UK we have successfully developed and grown a national retail fit outbusiness through the acquisitions of Pearce, Cathedral and Dean and Bowes. Inaddition, we have built a significant UK regional construction business with anational capability. Overseas we have an international fit out and projectmanagement capability with 13 offices in Europe, Middle East and Asia. The result therefore, as planned, is a business where London now accounts forless than 46% of group activities and we are no longer reliant on any singlemarket place, sector or geography. Our strategy remains the same. We will continue to seek growth organically andthrough acquisition to further expand our existing businesses in the UK and tobuild on our international capabilities particularly across Europe, Middle Eastand Asia where we are currently seeing significant opportunity. The group has a strong order book, a robust business model and an excitingfuture. Results We are pleased to report record results for the six-month period to 31 December2007. Adjusted profit before tax has increased by 55% to £6.3m (2006: £4.1m). The profit improvement was achieved on volumes of £521m (2006: £411m), up 27%,while fee income increased 37% to £64.4m (2006: £47.2m). Adjusted operatingprofit increased to £6.7m (2006: £3.4m), an increase of 98%. Net cash inflowfrom operating activities remained strong with a net inflow of £4.4m (2006:£4.6m), resulting in cash and cash equivalents at the end of the period of£48.7m (2006: £36.3m). The adjusted earnings per share for the period,increased by 55% to 17.30p. As a result of this performance and to rebalance the split between the interimand final dividend, the interim dividend is being increased by 21% to 4.00p andwill be paid on 22 April 2008 to shareholders on the register on 25 March 2008.The ex dividend date will be 19 March 2008. The closing date for elections forthe Dividend Re-Investment Plan is 28 March 2008. These interim condensed consolidated financial statements have been prepared forthe first time in accordance with International Financial Reporting Standards ("IFRS"), with comparative amounts restated. Note 11 sets out the transition toIFRS. Strategic Developments In the last six months our priorities have been: • Growth in our overseas operations On 1 October 2007 we acquired 100% of IASA, an entity in which we previouslyheld a 20% stake, for an initial consideration of £11.2m, and a further £2.8mpayable over a two-year period based on the achievement of certain performancetargets. The business was acquired with £5.4m of cash. IASA is a business thatoffers commercial office, hotel, leisure and retail fit out across mainlandEurope. It has offices in three major European cities, Paris, Milan andFrankfurt, from which it delivers projects to customers across several Europeancountries. During the three months of trading since acquisition, the companyhas generated a profit before tax of £0.8m on £8.0m of work delivered. With the benefit of an order book of £15m, we anticipate increased levels ofactivity and performance in the second half of the year. The European market place provides considerable opportunity and we will seek tocontinue to build our presence and brand across the region. Many of ourcustomers are pan European and our expansion in Europe will give us theopportunity to leverage these relationships. In Asia, we have continued to expand our activities in China and Hong Kong wherewe have achieved like for like growth in the six months of 60%, and we nowoperate from three offices in China; Shanghai, Tianjin and Beijing. In Dubai, wehave obtained a licence to provide fit out delivery services as well as projectmanagement. In addition, we are continuing to seek opportunities to expand ouractivities in the Middle East and Asia. • Increasing our UK regional construction activities On 13 November 2007 we acquired Pearce Group Ltd for an initial consideration of£12.75m, and a further £7.3m deferred consideration, payable over a two-yearperiod based on certain performance targets being met. The business wasacquired with £14.3m of cash. Pearce comprises two divisions; a leadingnational retail fit out division and a regional construction division. TheRegional construction division delivers for both public and private sectorcustomers across the South West of England and South Wales, with high levels ofactivity in the education, industrial, social housing and residential sectors.The business has three social housing frameworks and a number of local authorityframeworks. The group results included a seven-week profit before tax contribution of £0.4mfrom Pearce. We are delighted with the Pearce acquisition and it continues totrade in line with our expectations. • Strengthening our national retail fit out activity The acquisition of Pearce also contributed to strengthening our retail businesswith the addition of a leading national retail fit out business that works on aframework basis with major food and clothing retailers such as Tesco, Marks &Spencer, Sainsbury and ASDA. In addition, the group has continued with its development of the integration ofISG Cathedral and ISG Dean and Bowes to form ISG Retail and Leisure. Thisbusiness has significant framework agreements with retail banking clients; RBS/NatWest, Lloyds TSB, HSBC and Barclays. We remain encouraged with this activitywhich continues to perform ahead of expectations and we will continue to developresources in this section of the market. Retail frameworks will deliver circa £90m of activity in the current financialyear, and our recent discussions with these clients indicate an increased levelof activity of circa £150m in the next financial year. • Rebalancing of our London activities Over the last 18 months we have been reducing the London businesses' exposure tothe commercial office market by targeting opportunities in the studentaccommodation, residential, transport, government and local authority sectorsand the Olympics. In particular, to offset the decline in opportunities for major commercial fitout projects, which we highlighted in June 2007, we have successfully expandedour London Build division's activity working for owners delivering schemes overthe second half of 2008 and 2009. With several major new commercial office buildings currently in the process ofbeing built, London Fit out division is continuing to track an increased levelof major fit out project opportunities for 2009/2010. Trading Our business carries out work for occupiers fitting out space, and for ownersseeking to build or refurbish space. The following is a summary of the feeincome we earn from managing those projects, the gross value of work performedon those projects and the forward order book: Fee Income Gross Value of Forward Order 6 months to 31 December Work Performed Book 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m London• Fit out 16.5 16.0 161 164 182 280• Build 12.9 9.9 140 95 376 283 Regional construction businesses 17.4 13.7 136 94 285 239 National retail and leisure 8.8 4.6 44 33 88 22 Overseas• Asia 7.0 2.5 30 22 22 21• Europe 1.8 0.5 10 3 15 - Total 64.4 47.2 521 411 968 845 Fee Income grew strongly over the corresponding period last year, up 37% at£64.4m (2006: £47.2m), on volumes up 27% at £521m (2006: £411m). Excluding theimpact of acquisitions in the period, organic growth represented 12% of feeincome growth and 15% of volume growth. Adjusted operating profit increased by98% to £6.7m, with all our business segments increasing year on year. Organicgrowth represented 31% of adjusted operating profit growth. Operating margin onfee income increased by 44% to 10.4% (2006: 7.2%). The group has a strong order book which stands at £968m at the end of December,up 15% on the prior year. £387m is currently to be delivered in the nextfinancial year. In addition, a further £250m is projected to be delivered inthe next financial year under our framework agreements which are not yetincluded in the order book. In London, volumes and fee income increased by 16% and 14% to £301m and £29mrespectively, due to the increased activity of the London Build division.Operating profit for London increased by 37% to £3.7m (2006:£2.7m). London nowrepresents 46% (prior year comparator 64%), of the adjusted operating profit pregroup activities. London Build division's volume and fee income grew by 47% and 30% respectively.With a record order book of £376m, an increase of 33% year on year, on the backof recent project wins with a 32-storey student accommodation tower forBlackstone, a 500,000 square foot mixed use scheme for a repeat client and arefurbishment project for Blackstone in Hayes, we anticipate activity levelscontinuing to grow. Volumes and fee income in our London Fit out division remained roughly in linewith the first half of last year at £161m and £16.5m respectively, withsubstantial projects being undertaken at the new Eurostar Terminal at StPancras, Standard Chartered's new headquarters in the City and the continuedrefurbishment of Shell's South Bank offices. The continuation of these projectsand the recent wins of office fit outs for Eversheds, Transport for London,Mayer Brown International, and Unilever will enable the division to maintaincurrent levels of activity for the second half of the year. In line with thepreviously reported reduction in opportunities for major projects ( > £25m), dueto the current lack of large scale new office space in the City, the forwardorder book has declined from £208m in June 2007 to £182m in December 2007. Thecurrent pipeline of opportunities should enable the division to maintain itsorder book at a similar level in the short to medium term. Our Regional construction businesses' volumes and fee income grew on a like forlike basis by 31% and 12% respectively, and we are pleased with growth of theforward order book up 19% to £285m, principally due to the recovery in activitylevels of ISG Totty, following its reorganisation in the corresponding previousperiod. As a result of this recovery, the businesses are now profitable havingmoved from an operating loss of £0.3m, which included an exceptionalreorganisation provision for ISG Totty of £0.5m, to an operating profit for theperiod of £0.8m. National retail and leisure volumes and fee income increased impressively by 33%and 91% respectively, principally due to the acquisition of Cathedral ContractsLtd, in April 2007, and Pearce Group Ltd, in November 2007. Operating profitwas up 36% in the period at £1.7m. With an order book at December of £88m, therecent start on site of three projects for Marks & Spencer, a strong pipeline ofopportunities from our established framework agreements and the benefit of ourfirst year of activity with Barclays, we anticipate continued growth in profitsin the second half of this calendar year. ISG Asia, acquired in October 2006, continues to grow with volumes and feeincome up on the second half of the previous financial year by 8% and 37%respectively, with an increase in the proportion of higher margin projectmanagement work being undertaken benefiting fee income and operating profit.Operating profit increased in the period to £0.8m (2006: £0.1m). As a result ofthe increase in proportion of project management work, the business's order bookdecreased from £32m in June 2007 to £22m in December 2007, with the proportionof order book being higher margin project management work increasing from 14% to43%. Prospects Having diversified the group over the past 18 months by service offering, sectorand region, we are in a stronger position to weather the current global economicuncertainties. With an order book of £968m at 31 December 2007 (2006: £845m),we expect volumes in the second half to exceed those of the same period lastyear. In London, we are having increasing success identifying opportunities outsidethe City commercial office sector such as those in the student accommodation,residential, transport and public sectors. In Retail, we are encouraged by the sustained capital programmes of our keyclients and the growing market for framework agreements in the food, banking andfashion retail sectors. Our overseas operations in Europe and Asia now represent 20% of our tradingprofits. We expect them to grow significantly as our international client basecontinues to invest in these dynamic economies. Our strategy remains clear and we remain excited about the group's progress andpotential for 2008 and beyond. Specifically, our order book for the second halfof this financial year is excellent, and we remain on target to make furthersignificant progress this year. David LawtherChief Executive CONDENSED CONSOLIDATED INCOME STATEMENTfor the 6 months to 31 December 2007 Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) Notes £'000 £'000 £'000 Gross value of work performed 521,091 411,299 833,492Less: relating to construction management (13,509) (26,086) (54,708)Less: share of associates' and joint ventures' turnover (2,211) (7,327) (11,587) Turnover 3 505,371 377,886 767,197Cost of sales (478,534) (360,207) (725,851) Gross profit 26,837 17,679 41,346 Share of profits of associates and joint ventures 156 330 932Intangible asset charges (455) (99) (699)Gain on disposal of associates - 106 106Administrative expenses (20,291) (14,627) (32,570) Operating profit 6,247 3,389 9,115 Finance income 584 1,017 1,838Finance costs (996) (339) (984) Profit before tax 3 5,835 4,067 9,969Taxation (1,634) (1,107) (2,459) Profit for the period 4,201 2,960 7,510 Attributable to:Equity holders of the parent 4,201 2,960 7,510 Basic earnings per share 6 15.61p 11.20p 28.46p Diluted earnings per share 6 15.41p 11.07p 28.12p CONDENSED CONSOLIDATED BALANCE SHEETas at 31 December 2007 Unaudited Unaudited Audited As at As at As at 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) Notes £'000 £'000 £'000 Non-current assetsGoodwill 76,793 40,304 48,985Other intangible assets 10,111 752 2,964Property, plant and equipment 7,038 5,387 5,585Investment in associates and joint ventures (67) 583 933Deferred tax assets - 766 -Trade and other receivables 4,277 3,532 2,941 98,152 51,324 61,408Current assetsInventories 4,127 2,749 2,346Trade and other receivables 195,965 133,515 155,057Cash and cash equivalents 9 48,690 38,549 40,290 248,782 174,813 197,693 Total assets 346,934 226,137 259,101 Non-current liabilitiesBorrowings 7 (21,757) (6,519) (15,044)Trade and other payables (5,592) (700) (727)Deferred tax liabilities (2,093) - (113) (29,442) (7,219) (15,884) Current liabilitiesBorrowings 7 (4,857) (7,608) (2,933)Trade and other payables (279,685) (189,083) (214,485)Provision (285) (186) (235)Current tax liabilities (2,822) (1,940) (1,782) (287,649) (198,817) (219,435) Total liabilities (317,091) (206,036) (235,319) TOTAL NET ASSETS 29,843 20,101 23,782 EquityCalled up share capital 8 294 275 277Share premium account 8 17,458 12,184 12,513Reserves 8 (74) - (290)Investment in own shares 8 (3,550) (2,504) (2,630)Retained earnings 8 15,715 10,146 13,912 TOTAL EQUITY 29,843 20,101 23,782 CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the 6 months ended 31 December 2007 Exchange differences arising on translation of foreign operations 8 190 (34) (277) Net income recognised directly in equity 190 (34) (277) Profit for the year 4,201 2,960 7,510 Total recognised income and expense 4,391 2,926 7,233 CONDENSED CONSOLIDATED CASH FLOW STATEMENT for the 6 months to 31 December 2007 Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) Notes £'000 £'000 £'000 Cash flows from operating activities Operating profit 6,247 3,389 9,115 Share of profits of associates and joint (156) (330) (932) ventures Intangible asset charges 455 99 699 Gain on disposal of associates - (106) (106) Depreciation on property, plant and equipment 915 511 1,310 Loss / (gain) on disposal of property, plant 12 - (11) and equipment Adjustment for share options 8 42 9 52 Movements in working capital: (Increase) / decrease in inventories (1,617) 663 3,845 Decrease / (increase) in trade and other 2,954 (4,947) (22,555) receivables (Decrease) / increase in trade and other (3,244) 5,358 21,647 payables Cash generated from operations 5,608 4,646 13,064 Taxation (1,219) (28) (1,558) Net cash inflow from operating activities 4,389 4,618 11,506 Cash flows from investing activities Interest received 584 1,008 1,838 Interest paid (996) (339) (984) Dividends received from associates and joint 367 10 128 ventures Payments for property, plant and equipment (848) (3,384) (3,813) Proceeds from disposal of property, plant and - 5 45 equipment Acquisition of subsidiaries (19,593) (4,775) (16,062) Net cash acquired with subsidiaries 10 19,682 3,113 6,360 Proceeds from disposal of subsidiaries - - 2,200 Proceeds from disposal of associates - 1,227 1,227 Net cash outflow from investing activities (804) (3,135) (9,061) Cash flows from financing activities Payments for own shares (920) (1,047) (1,173) Dividends paid (2,414) (1,847) (2,721) Issue of shares (Net) - 89 420 Payments for hire purchase contracts (77) (9) (57) principals Proceeds from borrowings 12,126 2,002 11,732 Repayment of borrowings (3,926) (1,282) (7,022) Net cash inflow / (outflow) from financing 4,789 (2,094) 1,179 activities Net increase / (decrease) in cash and cash 8,374 (611) 3,624 equivalents Cash and cash equivalents at the beginning of 40,290 36,935 36,935 the period Effects of exchange rate changes on the 26 (34) (269) balance of cash held in foreign currencies Cash and cash equivalents at the end of 9 48,690 36,290 40,290 the period NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of preparation The AIM Rules require that the next annual consolidated financial statements ofthe group, for the year ending 30 June 2008, be prepared in accordance withInternational Reporting Standards (IFRS) as adopted by the European Union (EU). These are the group's first IFRS condensed consolidated interim financialstatements for part of the period covered by the first IFRS annual financialstatements and IFRS 1 "First-time Adoption of International Financial ReportingStandards" has been applied. The group's transition date for the adoption of IFRS 1 is 1 July 2006. Thistransition date has been selected in accordance with IFRS "First-time adoptionof International Financial Reporting Standards". The group is required toestablish its IFRS Accounting Policies for the year ended 30 June 2008 and applythese retrospectively to determine its IFRS balance sheet at the transition dateof 1 July 2006 and the comparative information for the year ended 30 June 2007. In preparing the condensed consolidated financial information, the group haselected to take advantage of provisions within IFRS 1, which offer exemptionsfrom applying IFRS to the opening IFRS balance sheet prepared at 1 July 2006. Inparticular: IFRS 3, "Business Combinations", has not been applied retrospectively tobusiness combinations that occurred prior to 1 July 2006. The carrying amount ofgoodwill in the opening IFRS balance sheet as at 1 July 2006 is therefore itscarrying value at that date under United Kingdom Generally Accepted AccountingPractice (UK GAAP). An explanation of how the transition to IFRS has affected the reported financialposition and financial performance of the group is provided in Note 11. Therehas been no impact on the group cash flows. The interim accounts for the six months ended 31 December 2007 have beenprepared by the Directors on the basis of accounting policies set out withinthis announcement. These policies have been applied consistently and in allmaterial respects throughout the period and previous year. The financial information contained in this report does not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. Thefinancial information for the six months to 31 December 2007 and the six monthsto 31 December 2006 is unaudited. The full financial statements for the yearended 30 June 2007, which were prepared under UK GAAP and for which the auditorsissued an unqualified audit report, did not contain a statement under eithersection 237 (2) or (3) of the Companies Act 1985, have been delivered to theRegistrar of Companies. 2. Accounting policies a. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe company and subsidiaries controlled by the company drawn up on the balancesheet date. Subsidiaries are entities over which the group has the power tocontrol the financial and operating policies so as to obtain benefits from itsactivities and are included in the consolidated financial statements from thedate on which control is transferred to the group and cease to be consolidatedfrom the date on which control is transferred out of the group. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used byother members of the group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting policies (continued) b. Business combinations Acquisition of subsidiaries and businesses are accounted for using the purchasemethod. This involves the recognition at fair value of all identifiable assets,including previously unrecognised intangible assets, liabilities and contingentliabilities of the acquired business. Goodwill arising on acquisition isrecognised as an asset and initially measured at cost, being the excess of thecost of the business combination over the group's interest in the net fair valueof the identifiable assets, liabilities and contingent liabilities recognised. Under the UK GAAP, goodwill was capitalised and amortised over its estimateduseful economic life. Under IFRS 3 "Business Combination", goodwill has beenassigned an indefinite life as at the date of transition and it is no longeramortised. The group has elected to apply the exemption related to BusinessCombination and has frozen its goodwill at its carrying value as at 1 July 2006. All accumulated amortisation at this point in time has been reclassifiedagainst the cost of the goodwill. Goodwill is reviewed for impairment annually or more frequently if events ofchanges in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a businesscombination is, from the acquisition date, allocated to each of the group's cashgenerating units, or groups of cash generating units, that are expected tobenefit from the synergies of the combination, irrespective of whether otherassets or liabilities of the group are assigned to those units or groups ofunits. Each unit or group of units to which the goodwill is allocated: • represents the lowest level within the group at which the goodwill is monitored for internal management purposes; and • is not larger than a segment based on either the group's primary or secondary reporting format determined in accordance with IAS 14 "Segment Reporting" Impairment is determined for goodwill by assessing the recoverable amount of thecash generating unit or group of cash generating units, to which the goodwillrelated. Where the recoverable amount of the cash generating unit or group ofcash generating units is less than the carrying amount of the cash generatingunit or group of cash generating units, to which goodwill has been allocated, animpairment loss is recognised. On disposal of a subsidiary the attributable amount of goodwill is included inthe determination of the profit or loss on disposal. The cost of business combinations include, where applicable, deferredconsideration discounted at an appropriate rate of interest to its fair value atthe effective date of combination. c. Intangible assets The cost of intangible assets acquired in a business combination is recognisedseparately from goodwill if the asset is separable and arises from contractualor other legal rights and is based on its fair values as at the date ofacquisition. Following initial recognition, intangible assets are carried atcost and amortised over the estimated useful lives and assessed for impairmentwhenever there is an indication that the intangible asset may be impaired. The categories of intangible assets (all of which were acquired on acquisitionof subsidiaries) and their estimated useful lives are as follows: Customer relationships 4 - 10 years Customer contracts 1 - 2 years NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting policies (continued) d. Investments in associates and joint ventures An associate is an entity over which the group has significant influence andthat is neither a subsidiary nor an interest in a joint venture. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but is not control or joint control over thosepolicies. A joint venture is a contractual arrangement whereby the group and other partiesundertake an economic activity that is subject to joint control that is when thestrategic financial and operating policy decisions relating to the activities ofthe joint venture require the unanimous consent of the parties sharing control. Investment in associates and joint ventures are accounted for using the equitymethods of accounting; initially stated at cost and adjusted thereafter forsubsequent changes in the group's share of net assets less any impairment in thevalue of individual investments. The group's share of associate' and jointventures' post tax results are reported in the condensed consolidated incomestatement and the net investments disclosed in the condensed consolidatedbalance sheet. Any excess of the cost of acquisition over the group's share of the net fairvalue of the identifiable assets, liabilities and contingent liabilities of theassociate and joint venture recognised at the date of acquisition is recognisedas goodwill. The goodwill is included within the carrying amount of the investment and isassessed for impairment as part of the investment. Any excess of the group'sshare of the net fair value of the identifiable assets, liabilities andcontingent liabilities over the cost of acquisition, after reassessment, isrecognised immediately in profit or loss. e. Property, plant and equipment Property, plant and equipment are stated at historical cost net of accumulateddepreciation and any provision for impairment. Depreciation is provided towrite off the cost in equal annual instalments over the estimated usefuleconomic lives of its assets. The estimated useful lives are as follows: Short leasehold property Life of the lease Motor vehicles 4 years IT and office equipment 3 - 5 years Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. The gain or loss arising on the disposal or retirement of an item of property,plant and equipment is determined as the difference between the sales proceedsand the carrying amount of the asset and is recognised in profit or loss. f. Inventories Inventories (previously classified as work in progress and stocks) compriseswork in progress, stocks and property developments. Work in progress and stocks are valued at the lower of cost and net realisablevalue. Provision is made for foreseeable losses. The cost of properties in the course of development includes net outgoings andattributable interest and is included in work in progress. On long termcontracts an appropriate estimate of the profit attributable to the stagecompleted is recognised once the outcome can be assessed with reasonablecertainty. Profit is recognised upon exchange of contracts. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting policies (continued) g. Financial assets Financial assets are recognised on the group's balance sheet when the groupbecomes a party to the contractual provisions of the instrument. Impairment of financial assets The group assesses at each balance sheet date whether a financial asset or groupof assets is impaired. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. In relation to trade receivables, a provision for impairment is made when thereis objective evidence that the group will not be able to collect all of theamounts due in accordance with the original terms of those receivables. Thecarrying amount of the receivable is reduced through use of an allowanceaccount. Impaired debts are derecognised when they are assessed asuncollectible. Cash and cash equivalents Cash and short term deposits in the balance sheet comprise cash at banks and athand and short term deposits. For the purposes of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. h. Financial liabilities Trade payables Trade payables are not interest bearing and are stated at their nominal value. Interest bearing loans and borrowings All loans and borrowings are initially recognised at fair value less directlyattributable transaction costs. After initial recognition interest bearingloans and borrowings are subsequently measured at amortised cost using theeffective interest method. Gains and losses are recognised in the incomestatement when the liabilities are derecognised as well as through theamortisation process. Derecognition of financial assets and liabilities A financial asset or liability is generally derecognised when the contract thatgives rise to it is settled, sold, cancelled or expires. i. Foreign currencies The individual financial statements of each group entity are presented in thecurrency of the primary economic environment in which the entity operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each group company are expressed in poundsterling, which is the functional currency of the Company, and the presentationcurrency for the consolidated financial statements. Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Non-monetary items that are measured at historical cost in a foreigncurrency are translated at the exchange rate at the date of the transaction.Non-monetary items that are measured at fair value in a foreign currency aretranslated using the exchange rate at the date when the fair value wasdetermined. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the profit or loss in the period in whichthey arise. Exchange differences on non-monetary items are recognised in thestatement of recognised income and expenses to the extent that they relate to again or loss on that non-monetary item taken to the statement of recognisedincome and expenses, otherwise such gains and losses are recognised in theincome statement. The assets and liabilities in the financial statements of foreign subsidiariesand related goodwill are translated at the rate of exchange ruling at thebalance sheet date. Income and expenses are translated at the actual rate. Theexchange differences arising from the retranslation of the opening netinvestment in subsidiaries are taken directly to the "foreign currencytranslation reserve" in equity. On disposal of a foreign operation thecumulative translation differences (including, if applicable, gains and losseson related hedges) are transferred to the income statement as part of the gainor loss on disposal. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting policies (continued) j. Income taxes The tax expense represents the sum of the tax currently payable and deferredtax. Current tax The current tax payable is based on taxable profit for the year. Taxable profitdiffers from net profit as reported in the income statement because it excludesitems of income or expense that are taxable or deductible in other years and itfurther excludes items that are never taxable or deductible. The group'sliability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date. Deferred tax Under the UK GAAP deferred tax was provided for timing differences between whenan amount was taxable or allowable for tax purposes as against when it wasrecognised in the profit and loss account and was only recognised if realisablein the short term. Under IAS 12 "Income Taxes", deferred tax is recognised on differences betweenthe carrying amounts of assets and liabilities in the financial statements andthe corresponding tax bases used in the computation of taxable profit, and isaccounted for using the balance sheet liability method. Deferred tax liabilitiesare generally recognised for all taxable temporary differences, and deferred taxassets are generally recognised for all deductible temporary differences to theextent that it is probable that taxable profits will be available against whichthose deductible temporary differences can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from goodwillor from the initial recognition (other than in a business combination) of otherassets and liabilities in a transaction that affects neither the tax profit northe accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesassociated with investments in subsidiaries and associates, and interests injoint ventures, except where the group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax assets arising from deductibletemporary differences associated with such investments and interests are onlyrecognised to the extent that it is probably that there will be sufficienttaxable profits against which to utilise the benefits of the temporarydifferences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax assets and liabilities are measured at the tax rates that areexpected to apply in the period in which the liability is settled or the assetrealised, based on tax rates (and tax laws) that have been enacted orsubstantively enacted by the balance sheet date. The measurement of deferred taxliabilities and assets reflects the tax consequences that would follow from themanner in which the group expects, at the reporting date, to recover or settlethe carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe group intends to settle its current tax assets and liabilities on a netbasis. Current and deferred tax for the period Current and deferred tax are recognised as an expense or income in profit orloss, except when they relate to items credited or debited directly to equity,in which case the tax is also recognised directly in equity, or where they arisefrom the initial accounting for a business combination. In the case of abusiness combination, the tax effect is taken into account in calculatinggoodwill or in determining the excess of the acquirer's interest in the net fairvalue of the acquiree's identifiable assets, liabilities and contingentliabilities over cost. k. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases or hire purchase contracts are initiallyrecognised as assets of the group at their fair value at the inception of thelease or, if lower, at the present value of the minimum lease payments. Thepresent value of future rentals is shown as a liability. The interest elementof rental obligations is charged to the profit and loss account over the periodof the lease in proportion to the balance sheet repayments outstanding. Rentals under operating leases are recognised as an expense on a straight-linebasis over the lease term. In the event that lease incentives are received to enter into operating leases,such incentives are recognised as a liability. The aggregate benefit ofincentives is recognised as a reduction of rental expense on a straight-linebasis. l. Long term contracts Profit on long term contracts is taken as the work is carried out, provided thatthe final outcome can be assessed with reasonable certainty. The profitincluded is calculated on a prudent basis to reflect the proportion of the workcarried out at the year end, by recording turnover and related costs as contractactivity progresses. Turnover is calculated as that proportion of the totalcontract value which has been completed to date. Revenues derived fromvariations on contracts are recognised only when instructions have been receivedfrom the client. Full provision is made for losses on all contracts in the yearin which they are first foreseen. The amount by which turnover is in excess ofpayments on account has been classified as amount recoverable on contracts andincluded in trade receivables. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. Accounting policies (continued) m. Own shares Own shares deducted in arriving at total equity represents the cost of thecompany's ordinary shares acquired by ESOP trusts in connection with the group'semployee share schemes. n. Pensions Contributions to the defined contribution pension schemes are charged to theprofit and loss account as they become payable in accordance with the rules ofthe schemes. o. Provisions Under IAS 37 "Provisions, Contingent Liabilities and Contingent Assets",provisions are recognised when the group has a present obligation (legal orconstructive) as a result of a past event, it is probable that the group will berequired to settle that obligation, and a reliable estimate can be made of theamount of the obligation. The amount recognised as a provision is the best estimate of the considerationrequired to settle the present obligation at the balance sheet date, taking intoaccount the risks and uncertainties surrounding the obligation. Where aprovision is measured using the cash flows estimated to settle the presentobligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision areexpected to be recovered from a third party, the receivable is recognised as anasset if it is virtually certain that reimbursement will be received and theamount of the receivable can be measured reliably. p. Revenue recognition Revenue represents the fair value of consideration receivable, excluding valueadded tax, for services supplied to external customers. It also includes thegroup's proportion of work carried out under jointly controlled operationsduring the year. Revenue from contracts is recognised by reference to the stage of completion, asmeasured by reference to services performed to date as a percentage of totalservices to be performed. Revenue from construction contracts is recognised inaccordance with the group's accounting policy on long term contracts. q. Share-based payments Charges for employee services received in exchange for share-based payment havebeen made for all options that were granted after 7 November 2002 and had notyet vested at 1 January 2005. Options granted under the group's employee share schemes are equity settled andmeasured at fair value at the date of grant. The fair value of such options hasbeen calculated using the Black-Scholes model, based upon publicly availablemarket data and based on the group's estimate of shares that will eventuallyvest and adjusted for the effect of non-market based vesting conditions, and isexpensed over the vesting period. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Business and geographical segments a. Business segments For management purposes, the group is organised into five operating divisions -London, Regional construction, National retail and leisure fit out, Asia andEurope. These divisions are the basis on which the group reports its primarysegment information. Principal activities of each of these divisions are as follows: London - provision of new build, refurbishment and fit out services in London.Regional - provision of new build, refurbishment and fit out services in UK outside London.constructionNational retail and - provision of specialist retail and leisure fit out and refurbishment services in UK.leisure fit outAsia - provision of fit out and project management services in Asia and the Middle East.Europe - provision of specialist fit out services in Europe, mainly France and Germany. Gross value of work performed, turnover, operating and profit before tax may beanalysed as follows: Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) GVWP Turnover GVWP Turnover GVWP Turnover £'000 £'000 £'000 £'000 £'000 £'000London 301,214 287,705 258,772 239,110 511,804 469,122Regional construction 135,702 135,702 94,586 91,328 209,642 200,782National retail and leisure fit out 44,336 44,336 33,275 33,275 56,421 56,421Asia 30,073 29,620 22,142 14,173 50,599 40,872Europe 9,766 8,008 2,524 - 5,026 -Total of all segments 521,091 505,371 411,299 377,886 833,492 767,197 Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) Operating Profit Operating Profit Operating Profit profit before tax profit before tax profit before tax £'000 £'000 £'000 £'000 £'000 £'000London 3,664 4,631 2,673 3,609 6,538 8,358Regional construction 842 855 (262) (194) 1,524 1,534National retail and leisure fit out 1,747 1,901 1,287 1,401 1,979 2,182Asia 781 781 148 136 787 769Europe 847 885 302 312 674 704Total of all segments 7,881 9,053 4,148 5,264 11,502 13,547Group activities (1,179) (1,776) (766) (927) (1,794) (2,349)Cost of acquisition finance - (987) - (277) - (636)Adjusted 6,702 6,290 3,382 4,060 9,708 10,562Intangible asset charges (455) (455) (99) (99) (699) (699)Gain on disposal of associates - - 106 106 106 106Consolidated 6,247 5,835 3,389 4,067 9,115 9,969 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Business and geographical segments (continued) a. Business segments (continued) Balance sheet analysis by business segment: Unaudited Unaudited Audited As at As at As at 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) Assets Liabilities Net Assets Liabilities Net Assets Liabilities Net assets assets assets £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000London 120,522 (115,619) 4,903 119,899 (116,459) 3,440 133,323 (128,720) 4,603Regional 84,109 (81,865) 2,244 35,660 (34,363) 1,297 33,526 (30,427) 3,099constructionNational retail 24,155 (22,220) 1,935 14,443 (14,380) 63 15,098 (14,432) 666and leisure fitoutAsia 20,646 (17,402) 3,244 17,669 (15,616) 2,053 19,883 (16,711) 3,172Europe 16,751 (11,918) 4,833 2,219 (576) 1,643 2,415 (538) 1,877Group activities 80,751 (68,067) 12,684 36,247 (24,642) 11,605 54,856 (44,491) 10,365Consolidated 346,934 (317,091) 29,843 226,137 (206,036) 20,101 259,101 (235,319) 23,782 b. Geographical segments Gross value of work performed, turnover, operating profit and profit before taxmay be analysed as follows: Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) GVWP Turnover GVWP Turnover GVWP Turnover £'000 £'000 £'000 £'000 £'000 £'000United Kingdom 481,252 467,743 386,633 363,713 777,867 726,325Asia 30,073 29,620 22,142 14,173 50,599 40,872Europe 9,766 8,008 2,524 - 5,026 -Total of all segments 521,091 505,371 411,299 377,886 833,492 767,197 Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) Operating Profit Operating Profit Operating Profit profit before tax profit before tax profit before tax £'000 £'000 £'000 £'000 £'000 £'000United Kingdom 5,074 4,624 2,932 3,612 8,247 9,089Asia 781 781 148 136 787 769Europe 847 885 302 312 674 704Adjusted 6,702 6,290 3,382 4,060 9,708 10,562Intangible asset charges (455) (455) (99) (99) (699) (699)Gain on disposal of associates - - 106 106 106 106Consolidated 6,247 5,835 3,389 4,067 9,115 9,969 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Business and geographical segments (continued) b. Geographical segments (continued) Balance sheet analysis by geographical segment: Unaudited Unaudited Audited As at As at As at 31 December 2007 31 December 2006 30 June 2007 (restated) (restated) Assets Liabilities Net Assets Liabilities Net Assets Liabilities Net assets assets assets £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000United Kingdom 309,537 (287,771) 21,766 206,249 (189,844) 16,405 236,803 (218,070) 18,733Asia 20,646 (17,402) 3,244 17,669 (15,616) 2,053 19,883 (16,711) 3,172Europe 16,751 (11,918) 4,833 2,219 (576) 1,643 2,415 (538) 1,877Consolidated 346,934 (317,091) 29,843 226,137 (206,036) 20,101 259,101 (235,319) 23,782 Fee income, which is considered to be a key indicator, is derived as follows: Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) £'000 £'000 £'000Turnover 505,371 377,886 767,197Trade contractor costs recharged (440,923) (330,735) (662,354)Fee income 64,448 47,151 104,843 Fee income represents fees received directly from clients for constructionservices provided by the company's employees. Interest received has beenexcluded from the calculation of fee income and prior period fee income has beenrestated accordingly. 4. Reconciliation of adjusted operating profit and adjusted profit beforetaxation Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2007 2006 2007 £'000 £'000 £'000Operating profit 6,247 3,389 9,115Intangible asset charges 455 99 699Gain on disposal of associates - (106) (106)Adjusted operating profit 6,702 3,382 9,708 Profit before tax 5,835 4,067 9,969Intangible asset charges 455 99 699Gain on disposal of associates - (106) (106)Adjusted profit before tax 6,290 4,060 10,562 The group uses adjusted operating profit and adjusted profit before tax asmeasures to facilitate comparisons between periods. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Dividends proposed Unaudited Unaudited Audited 6 months to 6 months to Year to 31 December 31 December 30 June 2007 2006 2007 £'000 £'000 £'000Proposed ordinary dividends on equity shares 1,122 908 2,201 Proposed ordinary dividends per shares 4.00p 3.30p 8.20p Dividends are accounted for in the period in which they are paid and approved bythe shareholders. Accordingly the final dividend proposed in respect of theperiod ended 31 December 2007 has not been included as a liability as at 31December 2007. 6. Earnings per share Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares duringthe period. Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of alldilutive potential ordinary shares. The group has only one category ofdilutive potential ordinary shares, being share options granted where theexercise price is less than the average price of the company's ordinary sharesduring the period. Adjusted basic earnings per share is calculated by dividing the earningsattributed to ordinary shareholders, pre-intangible asset charges and beforegain / loss on disposal of associates and subsidiaries, by the weighted averagenumber of ordinary shares during the period. Unaudited Unaudited Audited As at As at As at 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) £'000 £'000 £'000Profit for the financial year 4,201 2,960 7,510 Basic and diluted earnings attributable to 4,201 2,960 7,510ordinary shareholdersGain on disposal of associates - (106) (106)Intangible asset charges 455 99 699Adjusted earnings attributable to ordinary 4,656 2,953 8,103shareholders Number Number NumberWeighted average number of ordinary shares for 26,916,118 26,417,155 26,386,424the purposes of basic earnings per shareShares deemed to be issued for no considerationin respect of:Dilutive share options 340,265 317,296 321,090Weighted average number of ordinary shares used 27,256,383 26,734,451 26,707,514in the calculation of diluted earnings per share Pence per share Pence per share Pence per shareBasic earnings per ordinary 15.61 11.20 28.46Diluted earnings per ordinary 15.41 11.07 28.12Adjusted basic earnings per ordinary 17.30 11.18 30.71Adjusted diluted earnings per ordinary 17.08 11.05 30.34 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Borrowings Unaudited Unaudited Audited As at As at As at 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) £'000 £'000 £'000Unsecured - at cost:Loan notes 2,442 - 1,928Secured - at cost:Obligation under hire purchase contracts 153 39 230Bank overdrafts - 2,259 -Secured - at amortised cost:Bank loans 24,019 11,829 15,819 26,614 14,127 17,977 Analysis of repaymentLoan noteswithin one year on demand 964 - 964between two and five years 1,478 - 964 Bank loans and overdraftswithin one year on demand 3,852 7,675 1,940between one and two years 5,765 3,234 3,940between two and five years 12,931 3,395 8,425more than five years 1,913 - 2,000 Obligation under hire purchase contractswithin one year on demand 146 18 133between one and two years 7 14 87between two and five years - 7 10 Less: Unamortised finance cost of borrowingswithin one year on demand (105) (85) (104)between one and two years (105) (48) (104)between two and five years (208) (83) (227)more than five years (24) - (51) 26,614 14,127 17,977Less: amounts due for settlement within 12 monthsLoan notes (964) - (964)Obligation under hire purchase contracts (146) (18) (133)Bank overdrafts - (2,259) -Bank loans (3,747) (5,331) (1,836) 21,757 6,519 15,044 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Reconciliation of movements in equity Share Share Foreign General Investment in Retained Total currency reserve own shares earnings £'000 capital premium reserve £'000 £'000 £'000 £'000 £'000 £'000Balance as at 274 12,096 - 436 (1,457) 8,622 19,971 1 July 2006Profit for the period - - - - - 2,960 2,960Payment of dividends - - - - - (1,847) (1,847)Issue of shares 1 88 - - - - 89Recognition of investment - - - - (1,047) - (1,047)in own sharesRecognition of share based - - - - - 9 9paymentsRealisation of ISG - - - (436) - 436 -AsiaprofitExchange differences - - - - - (34) (34)arising on translation offoreign operationsBalance as at 275 12,184 - - (2,504) 10,146 20,101 31 December 2006Profit for the period - - - - - 4,550 4,550Payment of dividends - - - - - (874) (874)Issue of shares 2 329 - - - - 331Recognition of investment - - - - (126) - (126)in own sharesRecognition of sharebased - - - - - 43 43paymentsExchange differences - - (290) - - 47 (243)arising on translation offoreign operationsBalance as at 277 12,513 (290) - (2,630) 13,912 23,782 30 June 2007Profit for the period - - - - - 4,201 4,201Payment of dividends - - - - - (2,414) (2,414)Issue of shares 17 4,945 - - - - 4,962Recognition of investment - - - - (920) - (920)in own sharesRecognition of share based - - - - - 42 42paymentsExchange differences - - 216 - - (26) 190arising on translation offoreign operationsBalance as at 294 17,458 (74) - (3,550) 15,715 29,843 31 December 2007 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Analysis of net cash Unaudited Unaudited Audited As at As at As at 31 December 31 December 30 June 2007 2006 2007 (restated) (restated) £'000 £'000 £'000Cash and cash equivalents as per balance sheet 48,690 38,549 40,290Bank overdrafts 7 - (2,259) -Cash and cash equivalents per the cash flow 48,690 36,290 40,290statementLoan notes 7 (2,442) - (1,928)Obligation under hire purchase contracts 7 (153) (39) (230)Bank loans 7 (24,019) (11,829) (15,819)Net cash 22,076 24,422 22,313 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Acquisition of subsidiaries IASA1 Pearce2 Total Book Fair value Fair Book value Fair value Fair Book value Fair value value adjustment value adjustment value £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Goodwill 138 - 138 524 - 524 662 662Intangible assets 8 - 8 - - - 8 8Property, plant and 60 - 60 1,824 (374) 1,450 1,884 1,510equipmentInventories - - - 164 - 164 164 164Trade and 6,408 - 6,408 43,738 (1,190) 42,548 50,146 48,956 other receivablesCash and cash 5,376 - 5,376 14,306 - 14,306 19,682 19,682equivalentsTrade and (9,485) (250) (9,735) (57,432) (936) (58,368) (66,917) (68,103) other payablesNet assets acquired 2,505 (250) 2,255 3,124 (2,500) 624 5,629 2,879Goodwill 10,450 16,277 26,727Other intangible assets:Customer relationships 2,004 5,222 7,226Customer contracts 219 157 376Deferred tax (623) (1,506) (2,129)liabilitiesTotal consideration 14,305 20,774 35,079 Satisfied by:Cash 9,591 8,984 18,575Shares 1,636 3,255 4,891Loan notes - 514 514Deferred cash 2,106 3,646 5,752Deferred shares 682 3,647 4,329Directly attributable costs 290 728 1,018 14,305 20,774 35,079 1 On 1 October 2007 the group acquired 100% of the issued share capital ofInterior Alpha SA and its subsidiaries (IASA), in which it formerly had a 20%shareholding, for a fair value consideration before expenses of £14,305,000satisfied by cash of £9,591,000, the issue of 563,456 shares at a fair value of290.4pence and deferred consideration of £2,788,000 (subject to the businessachieving certain profit targets). The fair value of the ordinary shares hasbeen calculated by reference to the average middle market quotation of eachordinary share on each of the ten business days preceding completion. Thisbusiness combination has been accounted for as an acquisition. The aggregatenet liabilities acquired and their provisional fair values, based on the board'sinitial assessment of net realisable value, are detailed above. 2 On 13 November 2007 the group acquired 100% of the issued share capital ofPearce Group Limited, for a fair value consideration before expenses of£20,774,000 satisfied by cash of £8,984,000, the issue of 1,154,324 shares at afair value of 282.0pence, loan notes of £514,000 and deferred consideration of£7,293,000 (subject to the business achieving certain profit targets). The fairvalue of the ordinary shares has been calculated by reference to the averagemiddle market quotation of each ordinary share on each of the ten business dayspreceding completion. This business combination has been accounted for as anacquisition. The aggregate net liabilities acquired and their provisional fairvalues, based on the board's initial assessment of net realisable value, aredetailed above. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Transition to IFRS For all periods up to and including the year to 30 June 2007 the group hasprepared its financial statements in accordance with UK generally acceptedaccounting practice (UK GAAP). For the year to 30 June 2008 the group isrequired to prepare consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EuropeanCommission. The group's transition date to IFRS is 1 July 2006. This has been determined inaccordance with IFRS 1 "First Time Adoption of International Financial ReportingStandards", being the start of the earliest period of comparative information. To explain the change to IFRS, a reconciliation has been provided of the equityat 1 July 2006, 31 December 2006 and 30 June 2007 and the net income for the sixmonths to 31 December 2006 and the year to 30 June 2007 from the previouslypublished consolidated financial statements, prepared in accordance with UK GAAPto the accompanying consolidated financial statements prepared in accordancewith IFRS. An explanation of the principle adjustments required by the group onconversion to IFRS is set out below. None of the IFRS adjustments relevant to the group relate to cash and thereforethere is no impact on cash flows. IAS 7 'Cash Flow Statements' changes thedefinition of cash used in the cash flow statement to cash and cash equivalents. The UK GAAP figures have been restated to take account of any presentationalchanges required by IFRS adoption, where for instance items are required to beshown on the face of the primary statements rather than in the notes and whereexisting items are now split current/non-current or shown on different lines(e.g. intangible asset). a. Effects of IFRS transition Goodwill Under IFRS 3 "Business Combination", goodwill has been assigned an indefinitelife as at the date of transition and it is no longer amortised. The group haselected to apply the exemption related to business combination and has frozenits goodwill at its carrying value as at 1 July 2006. Under UK GAAP, goodwill recognised by the group on acquisition was capitalisedand amortised over a period of 20 years. Therefore, all amortisation chargespost 1 July 2006 have been reclassified against the cost of the goodwill. Theresult of these adjustments is to decrease the amortisation charge in the incomestatement by £1,088,000 for the half year ending 31 December 2006 and by£2,357,000 for the year ending 30 June 2007 and increase the carrying value ofthe goodwill by the same amounts respectively. Intangible assets Application of IFRS 3 and IAS 38 "Intangible Assets" resulted in identificationof intangible assets, including customer relationships and customer contracts.Under IFRS these have been recognised separately in the balance sheet at theirfair value at the date of the combination. Under UK GAAP these intangible assets were subsumed within goodwill. Therefore,all identifiable intangible assets have been reclassified on acquisition of ISGAsia Limited and Cathedral Contracts Limited. As at 31 December 2006, followingthe acquisition of ISG Asia Limited, the result of this adjustment is todecrease goodwill by £851,000 and increase the carrying value of intangibleassets by the same amounts at the date of the combination. Subsequent to therecognition of the intangible assets, deferred tax liabilities increased by£238,000 and the carrying value of goodwill increased by the same amount at thedate of the combination, therefore creating a net impact on goodwill of£613,000. As at 30 June 2007, following the acquisition of Cathedral Contracts Limited,the result of this adjustment is to further decrease goodwill by £2,812,000 andincrease the carrying value of intangible assets by the same amounts at the dateof the combination. Subsequent to the recognition of the intangible assets,deferred tax liabilities increased by £788,000 and the carrying value ofgoodwill increased by the same amount at the date of the combination, thereforecreating a net impact on goodwill of £2,024,000. Intangible assets charge Under IAS 38, intangible assets have been assigned finite useful lives at dateof the combination and have been amortised over the assigned useful lives. Theresult of this adjustment is to increase intangible assets charge in the incomestatement for the half year ending 31 December 2006 by £99,000 and for the yearending 30 June 2007 by £699,000 and decrease the carrying value of theintangible assets by the same amounts respectively. Subsequent to therecognition of the intangible asset charges, deferred tax liabilities decreasedin the balance sheet and the tax charge in the income statement decreased by£28,000 for the half year ending 31 December 2006 and by £196,000 for the yearending 30 June 2007. Employee benefits Under IAS 19 "Employee benefits", the group is required to recognise a provisionin respect of holiday pay. The result of this adjustment is to increaseprovisions by £186,000 in the transition balance sheet as at 1 July 2006 and by£235,000 in the balance sheet as 30 June 2007. Subsequent to the recognition ofthe provision, deferred tax liabilities decreased by £56,000 as at 1 July 2006and by £66,000 for the year ending 30 June 2007. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Transition to IFRS (continued)b. Effects of IFRS on the balance sheet as at 1 July 2006 UK GAAP Goodwill Intangible Intangible Employee IFRS amort. assets asset charge benefits £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 38,157 - - - - 38,157Property, plant and equipment 2,322 - - - - 2,322Investment in associates and 1,492 - - - - 1,492joint venturesDeferred tax assets 927 - - - 56 983Trade and other receivables 5,726 - - - - 5,726 48,624 - - - 56 48,680Current assetsInventories 3,346 - - - - 3,346Trade and other receivables 112,534 - - - - 112,534Cash and cash equivalents 38,215 - - - - 38,215 154,095 - - - - 154,095Total assets 202,719 - - - 56 202,775Non-current liabilitiesBorrowings (7,473) - - - - (7,473)Trade and other payables (762) - - - - (762) (8,235) - - - - (8,235)Current liabilitiesBorrowings (4,964) - - - - (4,964)Trade and other payables (168,873) - - - - (168,873)Provision - - - - (186) (186)Current tax liabilities (546) - - - - (546) (174,383) - - - (186) (174,569)Total liabilities (182,618) - - - (186) (182,804)TOTAL NET ASSETS 20,101 - - - (130) 19,971EquityCalled up share capital 274 - - - - 274Share premium account 12,096 - - - - 12,096Reserves 436 - - - - 436Investment in own shares (1,457) - - - - (1,457)Retained earnings 8,752 - - - (130) 8,622TOTAL EQUITY 20,101 - - - (130) 19,971 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Transition to IFRS (continued)c. Effects of IFRS on the income statement for the financial year ended 30 June 2007 UK GAAP Goodwill Intangible Intangible Employee IFRS amort. assets asset charge benefits £'000 £'000 £'000 £'000 £'000 £'000Gross value of work performed 833,492 - - - - 833,492Less: relating to construction (54,708) - - - - (54,708)managementLess: share of associates' and (11,587) - - - - (11,587)joint ventures' turnover Turnover 767,197 - - - - 767,197Cost of sales (725,851) - - - - (725,851)Gross profit 41,346 - - - - 41,346 Share of profits of associates and 932 - - - - 932joint venturesAmortisation of goodwill (2,357) 2,357 - - - -Intangible asset charges - - - (699) - (699)Gain on disposal of associates 106 - - - - 106Administrative expenses (32,521) - - - (49) (32,570)Operating profit 7,506 2,357 - (699) (49) 9,115 Finance income 1,838 - - - - 1,838Finance costs (984) - - - - (984)Profit before tax 8,360 2,357 - (699) (49) 9,969 Taxation (2,665) - - 196 10 (2,459)Profit for the period 5,695 2,357 - (503) (39) 7,510 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)11. Transition to IFRS (continued)d. Effects of IFRS on the balance sheet as at 30 June 2007 UK GAAP Goodwill Intangible Intangible Employee IFRS amort. assets asset charge benefits £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 49,265 2,357 (2,637) - - 48,985Other intangible assets - - 3,663 (699) - 2,964Property, plant and equipment 5,585 - - - - 5,585Investment in associates and 933 - - - - 933joint venturesTrade and other receivables 2,941 - - - - 2,941 58,724 2,357 1,026 (699) - 61,408Current assetsInventories 2,346 - - - - 2,346Trade and other receivables 155,057 - - - - 155,057Cash and cash equivalents 40,290 - - - - 40,290 197,693 - - - - 197,693Total assets 256,417 2,357 1,026 (699) - 259,101Non-current liabilitiesBorrowings (15,044) - - - - (15,044)Trade and other payables (727) - - - - (727)Deferred tax liabilities 651 - (1,026) 196 66 (113) (15,120) - (1,026) 196 66 (15,884)Current liabilitiesBorrowings (2,933) - - - - (2,933)Trade and other payables (214,485) - - - - (214,485)Provision - - - - (235) (235)Current tax liabilities (1,782) - - - - (1,782) (219,200) - - - (235) (219,435)Total liabilities (234,320) - (1,026) 196 (169) (235,319)TOTAL NET ASSETS 22,097 2,357 - (503) (169) 23,782EquityCalled up share capital 277 - - - - 277Share premium account 12,513 - - - - 12,513Reserves (290) - - - - (290)Investment in own shares (2,630) - - - - (2,630)Retained earnings 12,227 2,357 - (503) (169) 13,912TOTAL EQUITY 22,097 2,357 - (503) (169) 23,782 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)11. Transition to IFRS (continued)e. Effects of IFRS on the income statement for the financial year ended 31 December 2006 UK GAAP Goodwill Intangible Intangible Employee IFRS amort. assets asset charge benefits £'000 £'000 £'000 £'000 £'000 £'000Gross value of work performed 411,299 - - - - 411,299Less: relating to construction (26,086) - - - - (26,086)managementLess: share of associates' and (7,327) - - - - (7,327)joint ventures' turnover Turnover 377,886 - - - - 377,886Cost of sales (360,207) - - - - (360,207)Gross profit 17,679 - - - - 17,679 Share of profits of associates 330 - - - - 330and joint venturesAmortisation of goodwill (1,088) 1,088 - - - -Intangible asset charges - - - (99) - (99)Gain on disposal of associates 106 - - - - 106Administrative expenses (14,627) - - - - (14,627)Operating profit 2,400 1,088 - (99) - 3,389 Finance income 1,017 - - - - 1,017Finance costs (339) - - - - (339)Profit before tax 3,078 1,088 - (99) - 4,067 Taxation (1,135) - - 28 - (1,107)Profit for the period 1,943 1,088 - (71) - 2,960 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Transition to IFRS (continued)f. Effects of IFRS on the balance sheet as at 31 December 2006 UK GAAP Goodwill Intangible Intangible Employee IFRS amort. assets asset benefits charge £'000 £'000 £'000 £'000 £'000 £'000Non-current assetsGoodwill 39,829 1,088 (613) - - 40,304Other intangible assets - - 851 (99) - 752Property, plant and equipment 5,387 - - - - 5,387Investment in associates and 583 - - - - 583joint venturesDeferred tax assets 920 - (238) 28 56 766Trade and other receivables 3,532 - - - - 3,532 50,251 1,088 - (71) 56 51,324Current assetsInventories 2,749 - - - - 2,749Trade and other receivables 133,515 - - - - 133,515Cash and cash equivalents 38,549 - - - - 38,549 174,813 - - - - 174,813Total assets 225,064 1,088 - (71) 56 226,137Non-current liabilitiesBorrowings (6,519) - - - - (6,519)Trade and other payables (700) - - - - (700) (7,219) - - - - (7,219)Current liabilitiesBorrowings (7,608) - - - - (7,608)Trade and other payables (189,083) - - - - (189,083)Provision - - - - (186) (186)Current tax liabilities (1,940) - - - - (1,940) (198,631) - - - (186) (198,817)Total liabilities (205,850) - - - (186) (206,036)TOTAL NET ASSETS 19,214 1,088 - (71) (130) 20,101EquityCalled up share capital 275 - - - - 275Share premium account 12,184 - - - - 12,184Investment in own shares (2,504) - - - - (2,504)Retained earnings 9,259 1,088 - (71) (130) 10,146TOTAL EQUITY 19,214 1,088 - (71) (130) 20,101 12. Approval of interim accounts The Interim Accounts were approved by the Board of Directors on 10 March 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ISG.L