31st Dec 2007 12:55
Clarity Commerce Solutions PLC31 December 2007 Clarity Commerce Solutions plc ("Clarity", the "Company" or the "Group") Interim Results for the six months ended 30 September 2007 Clarity Commerce Solutions plc, a leading provider of management software andservices to the leisure, hospitality, retail and ticketing sectors, announcesit's Interim Results for the six months ended 30 September 2007. Basis of Reporting Results have been reported under International Financial Reporting Standards ("IFRS") for the first time, including comparatives where appropriate. Contact : Clarity: Ken Smith, Group Managing Director (contact Jacquie Mitchell Tel: 01932 778001) SVS Securities plc (Broker): Jon Cable, Director Tel: 020 7638 5600 Grant Thornton UK LLP (Nomad): Fiona Kindness, Director Tel: 020 7728 3414 Chairman's statement I am delighted to announce that, following severe difficulties in the earliermonths of 2007/8, resulting in a first half loss before tax of £(1,355,000),under IFRS reporting, Clarity has made excellent progress in its plannedrecovery. The Group has achieved a return to healthy profitable trading acrossrecent months (Sept to Nov inclusive). This has reduced the losses sustainedacross the first half of the year and will be reflected in the full yearresults. The reported losses in the first half were in line with recent publishedresearch. The Company currently believes its performance for the second half ofthe year and the year as a whole remains in line with market expectations. The first half loss may be summarised as follows: • UK GAAP loss before tax of £(1,076,000) • IFRS adjustments of £(279,000) • Revised IFRS loss before tax of £(1,355,000) The IFRS adjustments of £279,000 represent a change of policy in respect ofsoftware rights attributed to recent acquisitions, resulting in an amortisationcharge. This policy of amortisation will continue with subsequent charges beingapplied to the income statement in future periods. The loss resulted from a combination of factors. The events surrounding theExtraordinary General Meeting held on 31 May 2007 undoubtedly caused managementdistraction and low staff morale, as well as material additional costs.Furthermore it raised concerns across the client base, resulting in order delaysand, in some instances, cancellations. All of this resulted in a period ofuncertainty affecting the Company's trading performance, and it is only now thatrestored confidence is being evidenced. The Group had entered into an over-ambitious programme of software developmentprojects which resulted in additional cost and inefficiency. The development ofnew products had become unfocused, poorly-resourced and unstructured, resultingin a number of projects running well behind plan, and the associated effects oflow-quality deliveries. As a result performance in the first half suffered. I am pleased to be able toreport that, with the establishment of our divisional structure, softwaredevelopment is now under strong direction and control with associatedexpenditure determined by clear customer requirements. The restructuring of the core business into four software divisions each withits own divisional head, reporting to Ken Smith, Group Managing Director, hasachieved a return to profitable trading over recent months and improved theoutlook for the future. Staff motivation has recovered, and excess costs havebeen substantially reduced. Furthermore, we are experiencing a good rate ofconversion from prospects to orders, and the Board is confident that this trendwill continue. The Board expects to deliver a strong performance across thesecond half of the year. Board changes Across the first half of the year, various Board changes were reported. Tim Bittleston and Peter Walker retired as Chairman and Executive Directorrespectively. Sir Colin Chandler was appointed a non-executive director on 26 April 2007. SirColin's role was changed to non-executive Deputy Chairman on 26 June 2007. John O'Hara and Ken Smith were appointed to the Board on 26 June 2007 asnon-executive Chairman and part-time CFO respectively. Ken Smith subsequentlybecame full-time Group Managing Director on 27 September 2007. At the same time, Graham York, who had been Chief Executive Officer, changed hisrole to concentrate on strategic and M&A activities. More recently, in November2007, Graham stepped down from his Executive duties, and on 23 December 2007,was removed as a Director by the remaining members of the Board. Operating review Structural changes During the first half of the year, certain key changes to the structure of thebusiness were implemented. Costs have been reduced and a divisional structureintroduced to manage the Group's software products and solutions. Each of thefour resulting divisions; Hospitality, Ticketing, Leisure and Retail, are nowled by accountable business unit managers, who are motivated and givenincentives to maximise turnover, drive down costs and deliver profits resultingin cash generation. Along with the divisional structure the software development and qualityassurance departments were restructured to ensure that projects were focused inthe future, only undertaken to deliver profit and generate cash and with productdirection determined by divisional management in accordance with customerrequirements. Cost reductions Prior to the reorganisation software development had become fragmented, with toomany expensive projects being run concurrently. In order to attempt to completethese projects, expensive sub-contract labour had been employed, which had asignificant adverse impact on the first half of the year. The restructure andrefocus of software development has seen the removal of this costly sub-contractdevelopment. Cost control and reduction will remain a key focus for divisional heads who areaccountable for their division's profitability. First half costs are inclusive of exceptional items all relating to the EGM heldon 31 May 2007. Research and development As explained above, the structure of the Group's development function has beenconsiderably changed. Costs were running at excessive levels, particularly withregard to the use of expensive sub-contractors.A fundamental review was carriedout and strong management and procedural controls initiated, with developmentprojects being a function of divisional management who, in turn, have the directfeedback of their customers and prospects. Many problems and projects needed close attention and, although a great deal hasbeen achieved over recent months, further work remains to be completed over thecoming months. Key to the process, however, has been the acceptance thatprojects be addressed realistically in terms of timescale and cost, with interimreleases of key product elements and a clearly-defined programme to addresscustomer requirements. This new realism and professionalism has already borne fruit, and previouslydissatisfied customers are again turning to Clarity for business solutions. Contract wins Whilst the Board acknowledges that the business has had a difficult first half,we have nevertheless secured some valuable orders across the period. The Company has issued a series of announcements, inclusive of: Schuitema Point of Sale ("POS") systems for Dutch grocer across their estate ofapproximately 450 supermarkets. Co-op Denmark Successful completion of deployment of POS solution. Flytoget Refresh of entire ticketing infrastructure. Movie Park, Germany Installation of ticketing and POS solution for 1.2m per annum visitor themepark. Furthermore, I am pleased to bring to your attention the following positivenews: Europalaces Signing of $1m contract to supply ATMs across the estate. Parisienne MK2 cinema chain $600k maintenance contract commenced in October 2007. CineAlpes Group Initial implementation of ticketing software in four multiplex cinemas. Warren Theatres Contract win for Clarity's ticketing and reservations software suites in a 20screen cinema complex. Broxtowe Borough Council First delivery of the recently developed .NET Clarity Flex Leisure Softwareacross four sites. Forest of Dean District Council Second Clarity Flex Leisure Software contract signed for five sites. FitSpace Order received and delivered for online membership and customer recordssolution. Total Hospitality Solutions ("THS") acquisition THS was acquired in May 2007 for an initial consideration of £2.2m, satisfied bythe issue of Clarity shares. There is a two year earn out and the totalconsideration will not exceed £4m. Since acquisition, this unit has yet to perform in line with expectations andhas had a relatively difficult period of trading. The distractions of theacquisition process itself and the wider Group issues resulted in a climate ofuncertainty which served to slow the signing of new orders. These problems werefurther compounded by the requirement to integrate the company's products andservices with those already existing in Clarity. I am pleased, however, toconfirm that these issues have now been addressed, and THS is now displayingpositive signs of securing new business, and is in discussions with a number ofinteresting prospects. The THS management is working hard to get benefit fromthe obvious synergies between itself and other product offerings throughout theGroup. A number of key orders have been secured over recent weeks and prospectsof further orders are promising. Although the post-acquisition period has seen a slow start, the Boardacknowledges that THS needs to establish itself in its UK marketplace. The THSproduct is, however, widely regarded and the Board is therefore confident thatTHS will have a positive contribution to make to the Group. Financial Review The first half of the current financial year produced the following summaryresults. • Turnover for the period increased by £145,000 to £9,725,000 (2006: £9,580.000) • Gross profits generated of £6,394,000, with operating costs of £7,570,000 (inclusive of IFRS amortisation of software rights of £279,000) • This resulted in a first half loss before amortisation and taxation of £1,076,000 • At the half year close the Group reported net assets of £13,014,000 (2006: £12,652,000) • Trade receivables closed at £4,309,000 (2006: £4,143,000), trade payables closed at £1,978,000 (2006: £1,452,000) • The Group's closing net overdrawn cash position was £1,033,000, (2006: £635,000) In order to address the Company's cash constraints, the Company has considered anumber of initiatives, with one being the disposal of its freehold property inGravesend. The Company entered into a Deed of Sale with a purchaser for theproperty during September 2007. The sale proceeds amounted to £340,000,contributing to the Group's working capital facilities. Other fundraising initiatives are also being considered. IFRS conversion The Group has adopted International Financial Reporting Standards (IFRS) for thefirst time in 2007. The condensed consolidated interim financial statements havebeen prepared on the basis of the accounting policies that will be adopted inthe year end 31 March 2008 Annual Report. Comparative results for the six months ended 30 September 2006 and the yearended 31 March 2007 are reported in accordance with IFRS. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The date of transition to IFRS was 1st April 2006. The Group has taken advantage of an exemption available under IFRS 1 First-timeAdoption of International Financial Reporting Standards, and has elected not toapply IFRS 3 to the business combinations that took place before the date oftransition. As a result, the carrying value of goodwill at 31 March 2006 isfrozen, subject to impairment reviews after then in accordance with IFRS 3. An explanation of the basis of preparation and the accounting policies that willbe adopted are included in the notes to the accounts together withreconciliations explaining the impact of the transition. Overall, the profit before tax has decreased by £279,000 in the first half yearunder IFRS with the main impact arising from the amortisation of software rightsattributed to the acquisitions of MATRA Systems (Holdings) Limited and bothTotal Hospitality Solutions Limited and Total Hospitality Solutions (NZ)Limited, which both fall within the relevant transition period. The increasedamortisation charge for the first half year amounts to £279,000. The Board have considered the issue of capitalisation of development costs, andare of the opinion that the Group largely satisfy the conditions, however, theGroup's internal systems need to evolve further in order that the expenditureattributable to the intangible asset during its development can be measuredreliably. All development costs incurred across the first half year have beencharged to the income statement as they have been incurred. The Board will keepthis area of policy, along with its internal control and monitoring systemsunder regular review. Outlook Although the Group reported losses for the full year to 31 March 2007 as well asfor the first half of the 2008 financial year, the Board is encouraged by theGroup's return to profitable trading over the past three months and plans tobuild on this performance across the remainder of the second half of the year,and beyond. Revenues have shown a strong improvement in recent months and the Board isconfident of continued progress which will continue to reduce cumulative currentyear losses. The Board is mindful that recent losses have put pressure on the Group's workingcapital. Whilst the sale of the Gravesend freehold property was helpful, furthercash-raising initiatives are urgently required. The Board is currently workingon a proposed fundraising which will enhance the Group's working capitalposition, and provide a firm foundation for the immediate future. It is expectedthat the fund-raising will be completed before the Company's year end. The Board notes that, in the past, communication with investors has been poorand intermittent, and intends to maintain regular, closer contact in the futurevia a structured investor relations programme. We are planning to meet with anumber of the Company's investors during January. We also plan to furtherstrengthen the Board with the appointment of an additional non-executiveDirector during January 2008. The Board is very grateful to SVS Securities plc (as the Company's Broker) andGrant Thornton UK LLP (as the Company's Nominated Adviser), both of whom wereappointed during the first half of the year. Their assistance and support hasbeen invaluable. We have also been the recipients of excellent legal advice in anumber of areas, and are grateful to our two advisers in this regard, Faegre &Benson and Hammonds. Finally, none of the recent progress within the Group would have been possiblewithout the outstanding commitment shown by Clarity personnel across theCompany's operating units and the continuing support of our customers andsuppliers. The Board would also like to formally acknowledge the outstandingperformance and leadership shown by Ken Smith, who has demonstrated consistentlysound judgement and leadership in often difficult circumstances and hasmaintained a clear focus on managing the operations of the business. We believe we have turned a corner and the Board looks forward to consolidatingthe Company's position as a successful and profitable high technology company. John O'HaraChairman Date: 31 December 2007 Officers and advisers Officers John O'HaraChairman Sir Colin ChandlerDeputy Chairman Ken SmithGroup Managing Director Richard ArnoldGroup Financial Controller and Company Secretary All of registered office: Hooper HouseHatch Warren FarmHatch Warren LaneHatch WarrenBasingstokeRG22 4RA Registered number: 3914814 Advisers Nominated Adviser Grant Thornton UK LLPMelton StreetLondonNW1 2EP Stock Brokers SVS Securities plc2 London Wall BuildingsLondon WallLondonEC2M 5PP Auditors Smith & Williamson Solomon Hare Audit LLPOakfield HouseOakfield GroveClifton, BristolBS8 2BN Registrars Capita Registrars LimitedThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU Bankers Bank of Scotland55 Temple RowBirminghamB2 5LS Consolidated income statement for the six months ended 30 September 2007 Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 Notes £'000 £'000 £'000 Revenue 9,725 9,580 20,803 Cost of sales (3,331) (2,964) (7,919) Gross profit 6,394 6,616 12,884 Operating costs Operating expenses (7,159) (6,260) (13,092) Exceptional expenses (132) - - Amortisation of acquired intangible assets (279) (163) (357) (7,570) (6,423) (13,449) Operating (loss)/profit (1,176) 193 (565) Operating (loss)/profit is analysed between: Operating (loss)/profit from continuing operations (765) 356 (208) Exceptional expenses (132) - - Amortisation of acquired intangible assets (279) (163) (357) (1,176) 193 (565) Finance income 309 167 560 Finance costs (488) (305) (870) (Loss)/profit before taxation (1,355) 55 (875) Taxation expense (120) (41) (332) (Loss)/profit for the period (1,475) 14 (1,207) (Loss)/earnings per share Basic (6.20)p 0.07p (6.05)p Diluted (6.20)p 0.07p (6.05)p Dividends per share - - - Consolidated statement of recognised income and expense for the six months ended30 September 2007 Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 Notes £'000 £'000 £'000 Profit/(loss) for the period (1,475) 14 (1,207) Exchange differences on translation of foreign operations (3) 1 (230) Total recognised income and expense for the period (1,478) 15 (1,437) Consolidated balance sheet as at 30 September 2007 Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 Notes £'000 £'000 £'000 ASSETS Non current assets Property, plant and equipment 389 579 556 Goodwill 15,620 15,449 14,506 Intellectual property rights 2,595 1,848 1,633 Software intangibles 24 - 27 Trade and other receivables - - 24 Total non current assets 18,628 17,876 16,746 Current assets Inventories 865 598 711 Trade receivables 4,309 4,143 4,449 Other current assets 1,623 1,507 1,258 Cash and cash equivalents 234 273 416 Blocked cash collateral accounts 427 1,034 716 Total current assets 7,458 7,555 7,550 Total assets 26,086 25,431 24,296 LIABILITIES Non current liabilities Bank loans 1,526 1,819 1,519 Loan notes 124 671 326 Deferred consideration 1,839 4,213 1,800 Obligations under finance lease and hire purchase contracts 24 19 29 Other provisions 41 34 41 Total non current liabilities 3,554 6,756 3,715 Current liabilities Trade payables 1,978 1,452 2,238 Other current liabilities 3,124 2,099 2,636 Other taxes and social security 1,772 683 1,302 Corporation tax 578 205 484 Bank loans and overdrafts 1,752 1,393 1,266 Loan notes 300 181 300 Obligations under finance lease and hire purchase contracts 14 10 14 Deferred consideration - - 503 Total current liabilities 9,518 6,023 8,743 Total liabilities 13,072 12,779 12,458 Net Assets 13,014 12,652 11,838 EQUITY Shareholders equity Share capital 6,228 4,835 5,271 Shares to be issued - 500 - Share premium 9,439 7,040 7,742 Profit and loss account Retained earnings (2,103) 593 (628) Translation reserve (550) (316) (547) Total equity 13,014 12,652 11,838 Consolidated cash flow statement for the six months ended 30 September 2007 Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 Notes £'000 £'000 £'000 Cash flows from operating activities Operating (loss)/profit (1,176) 193 (565) Depreciation 78 85 194 Amortisation Intelectual property rights 296 185 400 Software 3 - - Taxation (21) (95) (51) (Increase)/decrease in inventories (154) 38 (75) (Increase)/decrease in trade and other receivables (193) 2,123 1,984 Increase/(decrease) in trade and other payables 653 (3,078) (1,200) Share based payments expense Net cash (outflow)/inflow from operating activities (514) (549) 687 Cash flows from investing activities Proceeds on disposal of property, plant and equipment 125 - 8 Purchase of software - - (27) Purchase of property, plant and equipment (36) (36) (111) Interest received 309 167 528 Payment of deferred consideration (10) - - Purchase of subsidiary undertakings (172) (2,875) (3,151) Cash at bank acquired with subsidiary - 370 374 Net cash generated/(absorbed) from investing activities 216 (2,374) (2,379) Cash flows from financing activities Issue of share capital - 1,817 1,817 Repayment of loan notes (201) (473) (699) New bank loans - 2,425 2,425 Repayment of bank loans - (1,039) (1,339) Capital element of finance leases (6) (2) (7) Interest element of finance leases (1) (2) (4) Interest paid (448) (257) (772) Net cash generated/(absorbed) from financing activities (656) 2,469 1,421 Net increase/(decrease) in cash and cash equivalents (954) (454) (271) Cash and cash equivalents at the beginning of the period: Group cash (365) (446) (446) Blocked cash collateral account 716 1,298 1,298 Cash and cash equivalents at the beginning of the period 351 852 852 Foreign exchange rate adjustments (3) 1 (230) Cash and cash equivalents at the end of the period: Group cash (1,033) (635) (365) Blocked cash collateral account 427 1,034 716 Cash and cash equivalents at the end of the period (606) 399 351 Notes to the condensed consolidated interim financial statements 1 Reporting entity Clarity Commerce Solutions plc is a public limited company incorporated anddomiciled in England and Wales (registration number 3914814). The Company'sregistered address is Hooper House, Hatch Warren Farm, Hatch Warren Lane, HatchWarren, Basingstoke, Hampshire, RG22 4RA. The Company's ordinary shares are traded on the AIM market of the London StockExchange plc. The condensed consolidated interim financial statements of theCompany for the six months ended 30 September 2007 comprise the Company and itssubsidiaries. The condensed consolidated interim financial statements wereauthorised for issue in accordance with a resolution of the Directors on 31December 2007. The Group is primarily involved in the provision of software solutions forticketing, leisure, hospitality, retail, business intelligence and supportservices with offices in the United Kingdom, United States, France and NewZealand. 2 Basis of preparation The Group's date of transition is 1 April 2006. The accounting policies used forIFRS are set out in note 3 (Accounting Policies). The Group has taken advantage of an exemption available under IFRS 1 First-timeAdoption of International Financial Reporting Standards, and has elected not toapply IFRS 3 to the business combinations that took place before the date oftransition. As a result, the carrying value of goodwill at 31 March 2006 isfrozen, subject to impairment reviews after then in accordance with IFRS 3. Descriptions of the reconciling items between UK GAAP and IFRS are listed in theattached notes. The amounts of the reconciling items are detailed in the tablesset out beneath each of the reconciliations. The interim financial statements are un-audited and do not constitute statutoryaccounts within the meaning of section 240 of the Companies Act 1985. Intangible assets On transition the Group has reclassified separately identifiable computersoftware assets from tangible to intangible assets following the provisions ofIAS38. Expenditure on development activities resulting in new or substantially improvedproducts which will generate future economic benefit is now capitalised andamortised over the products useful life. Previously under UK GAAP all suchdevelopment costs were expensed. Holiday pay accruals and provisions Under UK GAAP the Group has not recognised any accruals or provisions made forholiday pay owed to its employees in overseas subsidiaries which are required tomake such accruals and provisions under local/national GAAP. In the transition from UK GAAP to IFRS the Group has recognised these accrualsand provisions in the financial statements and the adjustments are set out underthe relevant income statement reconciliations. The Group has never recognised the need to make provisions for holiday pay owedto its UK employees. From time to time, holiday pay is paid to employees whenthey leave a subsidiary company. The amounts are small and are not consideredmaterially sufficient to require a provision during or at the end of anaccounting period, therefore no provision has been made in the financialstatements. 3 Accounting policies The following accounting policies have been consistently applied in arriving atthe consolidated financial information set out in this report. Basis of accounting The consolidated financial information has been prepared under the historicalcost convention, in accordance with International Financial Reporting Standards(IFRS) as adopted for use in the European Union. Basis of consolidation The Group financial statements consolidate the unaudited financial statements ofthe Company and all its subsidiaries made up to 30th September 2007. Theacquisition method of accounting is used and the results of subsidiaryundertakings are included from the date of acquisition. Turnover and revenue recognition Turnover, which excludes value added tax and sales between Group companies,represents amounts derived from the provision of goods and services which fallwithin the Group's ordinary activities. The Group derives its income from the following revenue streams; the sale ofsoftware licences, bespoke development projects for clients and fees derivedfrom support services, installation and training. Each sales stream isseparately identifiable and treated in the following manner: Software Licences Licence fees are recognised following delivery of software to the client. Services Revenue streams from installation, consultancy and training are recognised atthe point at which the service or product is delivered. Software development Revenue is recognised upon staged completion of the software project. Maintenance income Income is recognised evenly across the duration of the contractual period. Property, plant and equipment The cost of tangible fixed assets less estimated residual value is written offusing the reducing balance method at the following annual rates: Motor vehicles 25% on reducing balance Office equipment 20 - 25% on reducing balance Leasehold properties 25% reducing balance Freehold property is depreciated on a straight line basis over 50 years. Intangible software rights In accordance with IFRS 3, value has been attributed to software rights acquiredsince 1st April 2006, which incorporate the acquisitions of MATRA Systems(Holdings) Limited, and both Total Hospitality Solutions Limited and TotalHospitality Solutions (NZ) Limited. A value has been identified and attributed to software rights; no value has beenattributed to other intangible assets such as customer lists or contracts. The value of the software rights is then amortised over the estimated usefullife of the software, which is considered to be five years. Business combinations Under the acquisition accounting treatment, upon initial recognition the assetsand liabilities of the subsidiary are included in the consolidated balance sheetat their fair values, which are also used as the bases for subsequentmeasurement in accordance with the Group's accounting policies. Goodwill isstated after separating out identifiable intangible assets. Goodwill Goodwill represents the excess of acquisition cost over the fair value of theGroup's share of the identifiable net assets of the acquired subsidiary at thedate of acquisition, and is capitalised and reviewed annually for impairment.Goodwill is carried at cost less accumulated impairment losses. Negativegoodwill is recognised immediately after acquisition in the income statement. Goodwill written off to reserves prior to the date of transition to IFRS remainsin reserves. There is no re-instatement of goodwill that was amortised prior tothe transition to IFRS. Goodwill previously written off to reserves is notwritten back to profit or loss on subsequent disposal. Impairment of assets Goodwill, other intangible assets with an indefinite useful life, and thoseintangible assets not yet available for use, are tested for impairment at leastannually. All other individual assets are tested for impairment whenever eventsor changes in circumstances indicate that the carrying amount may not berecoverable. Impairment of goodwill is evaluated by comparing the present value of theexpected future cash flows, excluding finance and tax (the "value in use"), tothe carrying value of the underlying net assets and goodwill. If the net assets and goodwill were to exceed the value in use, an impairmentwould have deemed to have occurred and the resultant write down in the goodwillwould be charged to the income statement immediately. Financial instruments Investments held as fixed assets are carried at cost less any provision requiredfor impairment. Inventory Inventory is valued at lower of cost and net realisable value, after dueallowances for obsolete and slow moving items. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries andjoint ventures is not provided if reversal of these temporary differences can becontrolled by the Group and it is probable that reversal will not occur in theforeseeable future. In addition, tax losses available to be carried forward aswell as other income tax credits to the Group are assessed for recognition asdeferred tax assets. Deferred tax liabilities are provided in full. Deferred tax assets arerecognised to the extent that it is probable that the underlying deductibletemporary differences will be able to be offset against future taxable income.Current and deferred tax assets and liabilities are calculated at tax rates thatare expected to apply to their respective period of realisation, provided theyare enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity, in which case the related deferred taxis also charged or credited directly to equity. Leased assets Assets held under hire purchase agreements are capitalised and disclosed undertangible fixed assets at their fair value. The capital element of the futurepayments is treated as a liability and the interest is charged to the profit andloss account in equal proportions over the period of the lease. Where the Group enters into a finance lease which entails taking substantiallyall the risks and rewards of ownership of an asset, the lease is treated as afinance lease. The asset is recorded in the balance sheet as a tangible fixedasset and is depreciated in accordance with the above depreciation policies.Future instalments under such leases, net of finance charges, are included withcreditors. Rentals payable are apportioned between the finance element, which ischarged to the income statement in equal proportions over the period of thelease, and the capital element which reduces the outstanding obligation forfuture instalments. Rentals applicable to operating leases where substantially all of the benefitsand risks of ownership remain with the lessor are charged against the incomestatement as incurred. Capital instruments Capital instruments are recorded at the fair value of the consideration receivedless issue costs in accordance with IAS 39. Research and development Development costs incurred are capitalised when all the following conditions aresatisfied: • completion of the intangible asset is technically feasible so that it will be available for use or sale; • the Group intends to complete the intangible asset and use or sell it; • the Group has the ability to use or sell the intangible asset; • the intangible asset will generate probable future economic benefits. Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits; • there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the expenditure attributable to the intangible asset during its development can be measured reliably. Development costs not meeting the criteria for capitalisation are expensed tothe income statement as incurred. The cost of an internally generated intangible asset comprises all directlyattributable costs necessary to create, produce, and prepare the asset to becapable of operating in the manner intended by the Group. Directly attributable costs include employee (except Directors) costs incurredon software development, together with associated overheads. Amortisation commences in the month that costs are incurred, and theamortisation period is five years (being the estimated useful life of theassets). Amortisation of development costs is included within operating costsin the income statement. Blocked cash collateral accounts The Group has blocked cash collateral accounts which are sums of money that arespecifically set aside to meet known future liabilities in respect ofacquisition consideration and earn out arrangements entered into at completion. These sums are available to the Company exclusively for this purpose. Foreign exchange Assets and liabilities denominated in foreign currencies are translated intosterling at the rates of exchange ruling at the balance sheet date. Transactionsin foreign currencies are translated into sterling at the rate of exchangeruling at the date of the transaction. Exchange differences are taken intoaccount in arriving at the operating profit. For the purposes of the consolidation, assets and liabilities of overseassubsidiary undertakings are translated at exchange rates ruling at the balancesheet date. Trading results are translated at the rates of exchange ruling atthe end of each month. Differences arising on the retranslation of openingassets are dealt with through equity. 4 Earnings/(loss) per share The calculations of earnings per share are based on the (loss)/profit after taxfor the financial period and the following numbers of shares: Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 Number of Number of Number of shares shares shares Weighted average number of shares: For basic earnings/(loss) per per share 23,796,400 18,895,463 19,955,595 For diluted earnings/(loss) per share 23,796,400 18,872,251 19,955,595 Unaudited Unaudited Unaudited six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 £'000 £'000 £'000 (Loss)/earnings for period (1,475) 14 (1,207) (Loss)/earnings per share: Basic (6.20)p 0.07p (6.05)p Diluted (6.20)p 0.07p (6.05)p As a result of the loss for the period there is no difference between the basicand diluted loss per share, or for the year ended 31 March 2007. Earnings per share previously reported under UK GAAP were as follows Unaudited Unaudited six months twelve ended months ended 30 September 31 March 2006 2007 £'000 £'000 (Loss)/earnings for period 230,000 (790,000) (Loss)/earnings per share: Basic 1.22p (3.96)p Diluted 1.12p (3.96)p 5 Segment Information Revenue by geographic region six months six months twelve ended ended months ended 30 September 30 September 31 March 2007 2006 2007 £'000 £'000 £'000 United Kingdom 6,704 6,424 13,947 Europe excluding United kingdom 1,205 1,513 3,898 United States of America 1,461 1,468 2,620 Rest of World 355 175 338 9,725 9,580 20,803 6 Acquisition of subsidiary undertaking (THS) On 22 May 2007 the company acquired the entire share capital of TotalHospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited. Theconsideration payable at completion of £2.2m was entirely satisfied by the issueof ordinary shares in the Company. The following table sets out the book values of the identifiable assets andliabilities acquired and their values to the group: Book value Fair value Provisional adjustments fair value to the group £'000 £'000 £'000 ASSETS Property, plant and equipment 14 14 Other intangible assets 1,258 1,258 Trade receivables 112 112 Other current assets 11 11 137 1,258 1,395 LIABILITIES Trade and other payables (178) (178) Bank overdraft (10) (10) Deferred income (6) (6) Other taxes (26) (26) (220) (220) Net liabilties (83) 1,258 1,175 Goodwill 1,197 Costs of acquisition (172) Consideration 2,200 Satisfied by shares issued 2.200 The intangible asset recognised in the fair value adjustments relates to thesoftware rights. The goodwill is attributable to the significant synergies which are expected toarise from the integration of the business with the Hospitality and othedivisions of the Group and those intangibles such as the workforce which are notrecognised seperately. 7 Exceptional expenses Exceptional expenses of £132,000 were incurred during the first half of the yearand are recognised in the consolidated income statement. These expenses allrelate to the Extraordinary General Meeting held on 31 May 2007. 8 Consolidated interim statement of changes in equity Share Share Profit and Translation Total capital premium loss account reserve account £'000 £'000 £'000 £'000 £'000 At 31 March 2006 and 1 April 2006 4,084 5,974 579 (317) 10,320 Issue of shares 751 1,066 1,817 Shares to be issued 500 500 Consolidated (loss) for the period 14 14 Exchange differences on translation of 1 1foreign operations At 30 September 2006 and 1 October 2006 5,335 7,040 593 (316) 12,652 Issue of shares 436 702 1,138 Shares to be issued (500) (500) Consolidated (loss) for the period (1,221) (1,221) Exchange differences on translation of (231) (231)foreign operations At 31 March 2007 and 1 April 2007 5,271 7,742 (628) (547) 11,838 Issue of shares 957 1,697 2,654 Consolidated (loss) for the period (1,475) (1,475) Exchange differences on translation of (3) (3)foreign operations At 30 September 2007 6,228 9,439 (2,103) (550) 13,014 9 Post balance sheet events There have been no events following the balance sheet date of 30th September2007 that have had any material impact or effect on the reported interimresults. Appendix to the interim report To explain the impact of the transition, reconcilations have been included thatshow the changes made to the statements previously reported under UKGAAP. Thefollowing unaudited reconcilations are included: • Reconcilation of Group income statement for the 6 months ended 30 September 2007 from UK GAAP to IFRS • Reconcilation of Group balance sheet at 30 September 2007 from UK GAAP to IFRS • Reconcilation of Group income statement for the 6 months ended 30 September 2006 from UK GAAP to IFRS • Reconcilation of Group balance sheet at 30 September 2006 from UK GAAP to IFRS • Reconcilation of Group income statement for the 12 months ended 31 March 2007 from UK GAAP to IFRS • Reconcilation of Group balance sheet at 31 March 2007 from UK GAAP to IFRS • Reconcilation of Group balance sheet at 31 March 2006 from UK GAAP to IFRS The Group's date of transition is 1 April 2006. The accounting policies used forIFRS are set out in note 3. Descriptions of the reconciling items between UK GAAP and IFRS are listed. The amounts of the reconciling items are detailed in the tables set out beneatheach of the reconcilations. Reconciliation of consolidated income statement for the six months ended 30September 2007 from UK GAAP to IFRS UK GAAP IFRS IFRS 30 adjustments 30 September 30 September September 2007 2007 2007 Notes £'000 £'000 £'000 Revenue Continuing operations 9,571 9,571 Acquisitions 154 154 9,725 9,725 Cost of sales (3,331) (3,331) Gross profit 6,394 6,394 Operating costs 1 (7,291) (279) (7,570) Operating profit/(loss) Continuing operations (853) (195) (1,048) Acquisitions (44) (84) (128) (897) (279) (1,176) Operating loss is analysed between: Operating loss from continuing operations (853) (195) (1,048) Operating profit from acquired operations before amortisation of (44) (44)acquired intangibles Amortisation of acquired intangibles (84) (84) (897) (279) (1,176) Finance income 309 309 Finance costs (488) (488) Loss before taxation (1,076) (279) (1,355) Taxation expense (120) (120) Loss for the period (1,196) (279) (1,475) Earnings/(loss) per share Basic (5.03)p (6.03)p Diluted (5.03)p (6.03)p Dividends per share - - Notes UK GAAP IFRS IFRS 30 September adjustments 30 September 2007 30 September 2007 2007Note Conversion effects comprise: £'000 £'000 £'000 1 IAS 38 - Amortisation of software rights in acquired company (279) reclassified from goodwill Profit/(loss) for the period attributable to equity shareholders (279) Reconciliation of group balance sheet as at 30 September 2007 from UK GAAP toIFRS UK GAAP Reclassification IFRS IFRS 30 30 September 2007 adjustments 30 September 30 September September 2007 2007 2007 Notes £'000 £'000 £'000 £'000 ASSETS Non current assets Property, plant and equipment 1 413 (24) 389 Goodwill 3 18,827 (3,207) 15,620 Intellectual property rights 4 24 2,571 2,595 Software intangibles 2 - 24 24 Total non current assets 19,264 - (636) 18,628 Current assets Inventories 865 865 Trade receivables 4,309 4,309 Other current assets 1,623 1,623 Cash and cash equivalents 234 234 Blocked cash collateral accounts 427 427 Total current assets 7,458 7,458 Total assets 26,722 (636) 26,086 LIABILITIES Non current liabilities Bank loans 1,526 1,526 Loan notes 124 124 Deferred consideration 1,839 1,839 Obligations under finance lease and hire purchase 24 24contracts Other provisions 41 41 Total non current liabilities 3,554 3,554 Current liabilities Trade payables 1,978 1,978 Other current liabilities 5 3,064 60 3,124 Other taxes and social security 1,772 1,772 Corporation tax 578 578 Bank loans and overdrafts 1,752 1,752 Loan notes 300 300 Obligations under finance lease and hire purchase 14 14contracts Total current liabilities 9,458 60 9,518 Total liabilities 13,012 60 13,072 Net Assets 13,710 (696) 13,014 EQUITY Shareholders equity Share capital 6,228 6,228 Shares to be issued Share premium 9,439 9,439 Profit and loss account Retained earnings (1,407) (696) (2,103) Translation reserve (550) (550) Total equity 13,710 (696) 13,014 Notes Shareholder's equity Note Conversion effects comprise: £'000 £'000 Non-current assets 1 Reclassification of software from tangible assets to software intangible (24) assets 2 Reclassification of software from tangible assets to software intangible 24 assets 3 Recognition of software rights acquired reclassified from goodwill to (3,207) intelectual property rights less amortisation 4 Recognition of software rights acquired reclassified from goodwill to 2,571 (636) intelectual property rights less amortisation Current liabilities 5 Recognition of non UK employee benefits (60) (60) Net movement (696) (696) Reconciliation of consolidated income statement for the six months ended 30September 2006 from UK GAAP to IFRS UK GAAP IFRS IFRS 30 adjustments 30 September 30 September September 2006 2006 2006 Notes £'000 £'000 £'000 Revenue Continuing operations 7,730 7,730 Acquisitions 1,850 1,850 9,580 9,580 Cost of sales (2,964) (2,964) Gross profit 6,616 6,616 Operating costs 1, 2 (6,207) (216) (6,423) Operating profit/(loss) Continuing operations 337 (53) 284 Acquisitions 72 (163) (91) 409 (216) 193 Operating profit/(loss) is analysed between: Operating profit/(loss) from continuing operations 337 (53) 284 Operating profit from acquired operations before amortisation of 72 72acquired intangibles Amortisation of acquired intangible assets (163) (163) 409 (216) 193 Finance income 167 167 Finance costs (305) (305) Profit/(loss) before taxation 271 (216) 55 Taxation expense (41) (41) Profit/(loss) for the period 230 (216) 14 Earnings/(loss) per share Basic 1.22p 0.07p Diluted 1.12p 0.07p Dividends per share - - Notes UK GAAP IFRS IFRS 30 September adjustments 30 September 2006 30 September 2006 2006Note Conversion effects comprise: £'000 £'000 £'000 1 IAS 19 - Employee benefits relating holiday accruals in overseas (53) subsidiaries 2 IAS 38 - Amortisation of software rights in acquired company (163) reclassified from goodwill Profit/(loss) for the period attributable to equity shareholders (216) Reconciliation of group balance sheet as at 30 September 2006 from UK GAAP toIFRS UK GAAP Reclassification IFRS IFRS 30 30 September 2006 adjustments 30 September 30 September September 2006 2006 2006 Notes £'000 £'000 £'000 £'000 ASSETS Non current assets Property, plant and equipment 579 579 Goodwill 1 17,398 (1,949) 15,449 Intellectual property rights 2 62 1,786 1,848 Total non current assets 18,039 (163) 17,876 Current assets Inventories 598 598 Trade receivables 4,143 4,143 Other current assets 1,507 1,507 Cash and cash equivalents 273 273 Blocked cash collateral accounts 1,034 1,034 Total current assets 7,555 7,555 Total assets 25,594 (163) 25,431 LIABILITIES Non current liabilities Bank loans 1,819 1,819 Loan notes 671 671 Deferred consideration 4,213 4,213 Obligations under finance lease and hire purchase 19 19contracts Other provisions 34 34 Total non current liabilities 6,756 6,756 Current liabilities Trade payables 1,452 1,452 Other current liabilities 3 2,046 53 2,099 Other taxes and social security 683 683 Corporation tax 205 205 Bank loans and overdrafts 1,393 1,393 Loan notes 181 181 Obligations under finance lease and hire purchase 10 10contracts Total current liabilities 5,970 53 6,023 Total liabilities 12,726 53 12,779 Net Assets 12,868 (216) 12,652 EQUITY Shareholders equity Share capital 4,835 4,835 Shares to be issued 500 500 Share premium 7,040 7,040 Profit and loss account Retained earnings 809 (216) 593 Translation reserve (316) (316) Total equity 12,868 (216) 12,652 Notes Shareholder's equity Note Conversion effects comprise: £'000 £'000 Non-current assets 1 Recognition of software rights acquired reclassified from goodwill to (1,949) intelectual property rights less amortisation 2 Recognition of software rights acquired reclassified from goodwill to 1,786 (163) intelectual property rights less amortisation Current liabilities 3 Recognition of non UK employee benefits (53) (53) Net movement (216) (216) Reconciliation of consolidated income statement for the twelve months ended 31March 2007 from UK GAAP to IFRS UK GAAP IFRS IFRS 31 March adjustments 31 March 2007 31 March 2007 2007 Notes £'000 £'000 £'000 Revenue Continuing operations 16,401 16,401 Acquisitions 4,402 4,402 20,803 20,803 Cost of sales (7,919) (7,919) Gross profit 12,884 12,884 Operating costs 1, 2 (13,032) (417) (13,449) Operating profit/(loss) Continuing operations (581) (60) (641) Acquisitions 433 (357) 76 (148) (417) (565) Operating (loss)/profit is analysed between: Operating (loss)/profit from continuing operations (581) (60) (641) Operating profit from acquired operations before amortisation of 433 433acquired intangibles Amortisation of acquired intangible assets (357) (357) (148) (417) (565) Finance income 560 560 Finance costs (870) (870) Loss before taxation (458) (417) (875) Taxation expense (332) (332) Loss for the period (790) (417) (1,207) Earnings/(loss) per share Basic (3.96)p (6.05)p Diluted (3.96)p (6.05)p Dividends per share - - Notes UK GAAP IFRS IFRS 31 March adjustments 31 March 2007 31 March 2007 2007Note Conversion effects comprise: £'000 £'000 £'000 1 IAS 19 - Employee benefits relating holiday accruals in overseas (60) subsidiaries 2 IAS 38 - Amortisation of software rights in acquired company (357) reclassified from goodwill Profit/(loss) for the period attributable to equity shareholders (417) Reconciliation of group balance sheet as at 31 March 2007 from UK GAAP to IFRS UK GAAP Reclassification IFRS IFRS 31 March 31 March 2007 adjustments 31 March 2007 31 March 2007 2007 Notes £'000 £'000 £'000 £'000 ASSETS Non current assets Property, plant and equipment 1 583 (27) 556 Goodwill 3 16,455 (1,949) 14,506 Intellectual property rights 4 41 1,592 1,633 Software intangibles 2 - 27 27 Trade and other receivables 5 - 24 24 Total non current assets 17,079 24 (357) 16,746 Current assets Inventories 711 711 Trade receivables 6 4,473 (24) 4,449 Other current assets 1,258 1,258 Cash and cash equivalents 416 416 Blocked cash collateral accounts 716 716 Total current assets 7,574 (24) 7,550 Total assets 24,653 - (357) 24,296 LIABILITIES Non current liabilities Bank loans 1,519 1,519 Loan notes 326 326 Deferred consideration 1,800 1,800 Obligations under finance lease and hire purchase 29 29contracts Other provisions 41 41 Total non current liabilities 3,715 3,715 Current liabilities Trade payables 2,238 2,238 Other current liabilities 7 2,576 60 2,636 Other taxes and social security 1,302 1,302 Corporation tax 484 484 Bank loans and overdrafts 1,266 1,266 Loan notes 300 300 Obligations under finance lease and hire purchase 14 14contracts Deferred consideration 503 503 Total current liabilities 8,683 60 8,743 Total liabilities 12,398 60 12,458 Net Assets 12,255 (417) 11,838 EQUITY Shareholders equity Share capital 5,271 5,271 Shares to be issued Share premium 7,742 7,742 Profit and loss account Retained earnings (211) (417) (628) Translation reserve (547) (547) Total equity 12,255 (417) 11,838 Notes Shareholder's equity Note Conversion effects comprise: £'000 £'000 Non-current assets 1 Reclassification of software from tangible assets to software intangible (27) assets 2 Reclassification of software from tangible assets to software intangible 27 assets 3 Recognition of software rights acquired reclassified from goodwill to (1,949) intelectual property rights less amortisation 4 Recognition of software rights acquired reclassified from goodwill to 1,592 (357) intelectual property rights less amortisation 5 Reclasification of trade receivable from current assetss to to non-current 24 assets Current assets 6 Reclasification of trade receivable from current assetss to to non-current (24) assets Current liabilities 7 Recognition of non UK employee benefits (60) (60) Net movement (417) (417) Reconciliation of group balance sheet as at 31 March 2006 from UK GAAP to IFRS UK GAAP Reclassification IFRS IFRS 31 March 31 March 2006 adjustments 31 March 2006 31 March 2006 2006 Notes £'000 £'000 £'000 £'000 ASSETS Non current assets Property, plant and equipment 563 563 Goodwill 11,268 11,268 Intellectual property rights 84 84 Total non current assets 11,915 11,915 Current assets Inventories 600 600 Trade receivables 5,529 5,529 Other current assets 1,249 1,249 Cash and cash equivalents (446) (446) Blocked cash collateral accounts 1,298 1,298 Total current assets 8,230 8,230 Total assets 20,145 20,145 LIABILITIES Non current liabilities Loan notes 671 671 Deferred consideration 1,000 1,000 Obligations under finance lease and hire purchase 20 20contracts Other provisions 34 34 Total non current liabilities 1,725 1,725 Current liabilities Trade payables 1,901 1,901 Other current liabilities 2,870 2,870 Other taxes and social security 1,531 1,531 Corporation tax 214 214 Bank loans and overdrafts 918 918 Loan notes 654 654 Obligations under finance lease and hire purchase 12 12contracts Total current liabilities 8,100 8,100 Total liabilities 9,825 9,825 Net Assets 10,320 10,320 EQUITY Shareholders equity Share capital 4,084 4,084 Share premium 5,974 5,974 Profit and loss account Retained earnings 579 579 Translation reserve (317) (317) Total equity 10,320 10,320 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Crossword Cybersecurity