Interim Results

29th Jul 2008 07:00



29 July 2008

ELECTRIC WORD PLC

Interim results to 31 May 2008

GOOD BALANCE BETWEEN ESTABLISHED BUSINESSES AND OPPORTUNITIES FOR INTERNAL INVESTMENT

RESULTS HIGHLIGHTS

Financial summary under former UK GAAP (£000)	2008 6 months	2007 6 months	Percentage change	2007 12 months
Revenue	8,953	6,605	+36%	13,508
Gross Profit	3,708	3,046	+22%	6,167
Adjusted EBITA*	821	735	+12%	1,381
Adjusted profit before tax*	717	735	-2%	1,353
Profit before tax (PBT)	(101)	164	-161%	186
Adjusted earnings per share*	0.38p	0.31p	+23%	0.69p

Financial summary under IFRS (£000)	2008 6 months	2007 6 months	Percentage change	2007 12 months
Revenue	8,953	6,605	+36%	13,508
Gross Profit	3,673	3,115	+18%	6,262
Adjusted EBITA*	801	807	-1%	1,494
Adjusted profit before tax*	697	807	-14%	1,466
Profit before tax (PBT)	291	620	-53%	1,034
Adjusted earnings per share*	0.36p	0.35p	+3%	0.72p

* Before amortisation, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, tax credits from recognition of tax losses and notional accounting charges.

Turnover growth of 36% to £9m driven by successful integration of acquisitions 

Organic business growing well - continuing business margins under UK GAAP up 11.9% (2007: 11.1%)

Education sector profit margin up 24% on continuing businesses

Adjusted PBT (UK GAAP) down 2% to £717k following strong comparison considering one off gains in the Sports sector in H1 2007 and higher interest from debt financing for acquisition growth

Adjusted EPS (UK GAAP) up 23% to 0.38p 

Short term impact on profit margins from acquisition activity as a result of increased investment expected to be offset by profit generation in the second half and into 2009

Second half bookings on track and ahead of 2007 levels

Trading continues well, and remains in line with the Board's expectations for the current year

  

Julian Turner, Chief Executive of Electric Word, commented:

"The six months to May 2008 shows Electric Word in good health and the Group is benefiting from its focus on the high-value area of professional education and its strength in subscriptions publishing.

"Trading continues well, and remains in line with the Board's expectations for the current year.  New subscription sales are strong, advance conference bookings in the UK education sector continue to run ahead of last year and advertising revenue remains ahead of last year on like-for-like products. There is no evidence that difficulties in the broader economic climate have had any impact on sales in the first half - reflecting the strengths and opportunities within our key markets of UK education and international sports - and we look forward to the full year with confidence."

ENDS

Julian Turner, Chief Executive
Electric Word	020 7954 3470
Helen Thomas / Tim Spratt
Financial Dynamics	020 7831 3113

Chairman's and Chief Executive's Statement

The six months to May 2008 shows Electric Word in good health and on course to meet the Board's expectations for the full year. The Group's main market sectors, UK education and international sport, are sources of both strength and opportunity, and within those markets the Group also benefits from its focus on the high-value area of professional education and its strength in subscriptions publishing. The Group's potential for further organic growth has also been enhanced by the acquisitions completed in 2007, creating a good balance between established profitable businesses and opportunities for internal investment.

FINANCIAL REVIEW

2008 is the year in which the Group moves to International Financial Reporting Standards as adopted for use in the EU ("IFRS"). Tables showing key numbers extracted from the financial statements have therefore been presented under both UK GAAP and IFRS with note 11 showing the impact of this transition on the income statement.

Electric Word has previously recognised promotional expenditure over the life of the marketing campaign to which it relates; but under IFRS it will be expensed as spent. Overall, the transition has a low net effect on 2008 profits in the first half of the year. However, the 2007 comparatives do benefit under IFRS from significant promotional expenditure being reclassified into 2006 as a result of the particularly high level of marketing expenditure at the end of 2006 compared to the end of 2007. As a result, applying IFRS increases profits in 2007 by more than £100k. This has the effect of making 2008 profits look flat against 2007 under IFRS.

The transition to IFRS has had no effect on revenue recognition, with turnover for the first half of 2008 up 36% to £9m. Overall, earnings for the period are very similar under IFRS (adjusted EBITA of £802k) and UK GAAP (adjusted EBITA of £821k). This is an increase of 12% on 2007 adjusted EBITA of £735k (UK GAAP).

Acquisitions made since May 2007 added significantly to revenues but made no net contribution to profits. As a result, Group adjusted EBITA margins reduced to 9.2% from 11.1% in 2007 (UK GAAP), although margins in the continuing businesses improved from 11.1% to 11.9% (UK GAAP). 

OPERATIONAL REVIEW

Overall, the Group continues in excellent health. The acquisitions have further improved the mix of revenues, with 66% (51% in 2007) of Group revenue now driven by sales of content, comprised of renewable subscriptions (32%), books and reports (22%) and event delegates (12%). Of the 34% of revenue generated from selling access to the niche communities our publications serve, 18% is from commerce and e-commerce (i.e., sales of third-party products into our databases), 5% from sponsorship, 2% from contract publishing and just 9% from advertising.

  Education sector

FORMER UK GAAP	Continuing businesses			Acquired	Total
(£'000)	2008	2007	%	2008	2008	2007	%
Revenue	4,422	4,103	+8%	2,093	6,515	4,103	+59%
Adjusted EBITA	748	610	+23%	7	755	610	+24%
Margin	16.9%	14.9%		0.3%	11.6%	14.9%
IFRS	Continuing businesses			Acquired	Total
(£'000)	2008	2007	%	2008	2008	2007	%
Revenue	4,422	4,103	+8%	2,093	6,515	4,103	+59%
Adjusted EBITA	696	712	-2%	7	703	712	-4%
Margin	15.7%	17.3%		0.3%	10.8%	17.3%

The performance of the Group has been driven primarily by further margin improvement in the continuing businesses in its biggest market sector, education. Operating profits from these existing education businesses increased 23% to £748k (UK GAAP), pushing margins up to 16.9% from 14.9% in 2007 (UK GAAP). In particular, 2007 and 2008 have seen significant advances in book publishing (revenues up 31% on 2007) and in the creation of a thriving electronic marketing channel. The overall investment in marketing has been increased in 2008 to support the expanded books list and within the marketing mix the role and effectiveness of education e-marketing has grown strongly  a trend which in future will tend to reduce marketing costs as a proportion of revenue. Margins have also continued to be improved in the education conferences business on the back of a 13% increase in revenues and improved efficiency. 

The growing importance of online channels is also likely to be felt in the three businesses acquired since May 2007, all of which are expected to benefit from increased investment in marketing and access to the Group's expertise and existing education customers. Speechmark Publishing Limited, which serves speech therapists and other special needs professionals with practical therapeutic and professional development books, has been immediately profitable and cash generative within Electric Word and gained from the customer base in schools and cross-selling opportunities across the Group. Special Education Publishing Limited (acquired in February 2008) comprises three magazines, the biggest of which is also aimed at special needs professionals in schools. A substantially increased investment in subscriptions marketing makes this business slightly loss-making in the period (£18k) but has created future value and the business is now starting to generate cash. SEP and Speechmark are both meeting the Board's expectations at the time of acquisition.

MyChild is an education magazine aimed at parents and is in an earlier stage of development. Although this business has, as expected been loss-making in the first half of the year, MyChild is building both subscriptions and a marketing database in a larger market. Taking advantage of this opportunity has required a greater cash investment than anticipated at the time of acquisition but it has demonstrated an ability to generate subscription sales in an exciting market of real potential and will benefit through the year from the investment that Electric Word has made in management, improving back office processes, web development and internet search marketing. 

Together, the three acquired businesses added £2.1m to revenues in the first half of 2008, split between subscriptions and books sales, but had only a marginal net impact on the bottom line (making a £7k contribution to operating profits in the period. These businesses all represent sources of potential future profit growth from 2009 and, in the case of Speechmark and SEP, the second half of 2008.

Sport sector

FORMER UK GAAP	Continuing businesses			Acquired	Total
(£'000)	2008	2007	%	2008	2008	2007	%
Revenue	2,438	2,502	-3%	0	2,438	2,502	-3%
Adjusted EBITA	418	425	-2%	0	418	425	-2%
Margin	17.2%	17.0%			17.2%	17.0%
IFRS	Continuing businesses			Acquired	Total
(£'000)	2008	2007	%	2008	2008	2007	%
Revenue	2,438	2,502	-3%	0	2,438	2,502	-3%
Adjusted EBITA	434	392	11%	0	434	392	11%
Margin	17.8%	15.7%			17.8%	15.7%

Profits in the Sports sector are shaped differently in 2008 from 2007. In 2007, first-half profits were particularly strong as a result of the final stages of a successful publishing contract around the Asian Games, and in 2008 the publication of the Britsport directory, a significant annual product, has moved from the first half of the year to the second half. As a result revenue in the period was down 4% (all in contract publishing) and, despite these one-off gains in 2007, the fact that Sport sector profits were flat (£418k adjusted EBITA against £425k in 2007, UK GAAP) is an encouraging achievement and bodes well for the second half. I-Gaming Business also continues to grow and will further support second half profits. In the case of the sports sector the IFRS numbers show 2008 adjusted operating profits up 13% to £438 against £392k in 2007. Again, the treatment of promotional expenditure lies behind this.

The Group also announced at the end of May a strategic partnership with Mobilis Healthcare Limited. This will enable the Sports Performance business to experiment with developing commerce revenues by selling Mobilis products to athletes and physiotherapists and also sharing the costs and benefits of the advanced e-marketing systems that the Group has developed in this market. Mobilis' parent company, Sussex Research Limited, also supported the Group's working capital requirement in the period through a £1.45m loan and, at the same time, acquired an option to purchase the Sports Performance business for £1.4m from 2009. This exciting partnership has already started to show benefits for both parties.

  CURRENT TRADING AND PROSPECTS

Looking forward, the Group's revenue mix greatly helps profit visibility and its key markets in UK education and international sport continue to change and grow in importance - key qualities for an information publisher. These assets, along with the expertise and dynamism of our talented staff, provide a valuable foundation for continued success in the future.

Trading continues well, and remains in line with the Board's expectations for the current year. New subscription sales are strong, advance conference bookings in the UK education sector continue to run ahead of last year and advertising revenue (which is largely confined to the SportBusiness Group products) remains ahead of last year on like-for-like products. There is no evidence that difficulties in the broader economic climate have had any impact on sales in the first half - reflecting the strengths and opportunities within our key markets of UK education and international sports - and we look forward to the full year with confidence.

Peter Rigby

Julian Turner

 

 

CONSOLIDATED INCOME STATEMENT For the six months ended 31 May 2008 - unaudited
		Note	Six months ended 31 May  2008 £	Six months ended 31 May  2007 £	Year ended 30 November 2007 £
REVENUE		2	8,952,700	6,605,093	13,507,561
Cost of sales			(3,758,927)	(2,347,851)	(4,934,997)
Marketing expense			(1,520,558)	(1,142,312)	(2,310,714)
Gross profit			3,673,215	3,114,930	6,261,850
Other operating expenses			(2,915,378)	(2,374,682)	(4,793,316)
Depreciation expense			(63,698)	(53,965)	(126,454)
Amortisation of intangible assets			(250,066)	(50,952)	(204,222)
OPERATING PROFIT		2, 3	444,073	635,331	1,137,858
Non-operating income and expense			21,100	-	-
Finance costs			(184,240)	(28,331)	(136,663)
Investment income			9,896	13,032	32,784
PROFIT BEFORE TAX			290,829	620,032	1,033,979
Tax on profit on ordinary activities		4	(78,524)	(109,384)	(219,610)
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS			212,305	510,648	814,369
Attributable to:
- Equity holders of the parent			152,965	474,554	808,272
- Minority interests			59,340	36,094	6,097
EARNINGS PER SHARE		6
From continuing operations:
Basic			0.11p	0.34p	0.58p
Diluted			0.10p	0.29p	0.52p

 

 

 

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the period ended 31 May 2008 - unaudited
		Note	Six months ended  31 May  2008 £	Six months ended  31 May  2007 £	Year ended 30 November 2007 £
Profit for the period			212,305	510,648	814,369
Tax credit on exercise of options taken to reserves		12 (f)	6,048	-	98,550
Tax taken direct to Reserve for share based payments		9	(208,788)	(30,942)	(176,694)
TOTAL RECOGNISED INCOME AND EXPENSE FOR THE PERIOD			9,565	479,706	736,225
Attributable to:
Equity holders of the parent		9	(49,775)	443,612	730,128
Minority interests			59,340	36,094	6,097

CONSOLIDATED BALANCE SHEET At 31 May 2008 - unaudited
	Note	31 May 2008 £	31 May 2007 £	30 November  2007 £
ASSETS
Non-current assets
Goodwill	10	9,188,824	6,368,775	8,724,224
Other intangible assets	10	3,393,533	364,270	2,987,907
Property and equipment		275,371	333,850	315,219
Deferred tax assets		980,816	1,349,734	1,261,067
		13,838,544	8,416,629	13,288,417
Current Assets
Inventories		765,910	327,308	860,260
Trade and other receivables		3,530,365	2,169,784	3,186,807
Cash and cash equivalents		1,370,091	1,263,625	1,116,199
		5,666,366	3,760,717	5,163,266
TOTAL ASSETS		19,504,910	12,177,346	18,451,683
EQUITY AND LIABILITIES
Capital and reserves
Called up ordinary share capital		1,443,644	1,423,442	1,423,644
Preference share capital		421,321	-	-
Share premium account		3,099,644	3,037,933	3,038,644
Merger reserve		105,011	105,011	105,011
Reserve for own shares		(103,376)	(67,497)	(103,376)
Reserve for Share Based Payments		420,902	636,522	522,395
Retained earnings		899,167	307,886	740,154
Equity attributable to equity holders of the parent		6,286,313	5,443,297	5,726,472
Minority interest in equity		55,263	63,132	28,038
TOTAL EQUITY		6,341,576	5,506,429	5,754,510
Non-current liabilities
Long-term borrowings		2,271,044	407,267	1,799,089
Deferred tax liabilities		913,412	95,438	797,503
Provisions for other liabilities and charges		503,040	346,425	1,007,555
Other liabilities	7	931,596	980,501	906,051
		4,619,092	1,829,631	4,510,198
Current liabilities
Short-term borrowings		1,068,594	150,000	680,442
Current tax liabilities		99,345	186,626	183,383
Trade payables and other liabilities		2,777,526	1,631,287	2,843,467
Deferred income		4,598,777	2,873,373	4,479,683
		8,544,242	4,841,286	8,186,975
TOTAL LIABILITIES		13,163,334	6,670,917	12,697,173
TOTAL EQUITY AND LIABILITIES		19,504,910	12,177,346	18,451,683
These financial statements were approved by the Board of Directors and are authorised for issue on 28 July 2008.

CONSOLIDATED CASH FLOW STATEMENT For the period ended 31 May 2008 - unaudited
	Note	6 months ended 31 May  2008 £	6 months ended 31 May  2007 £	Year ended  30 November 2007 £
Cash flows from operating activities
Operating profit for the period		444,073	635,331	1,137,858
Depreciation of property and equipment		63,698	53,965	126,454
Amortisation of intangible assets		250,066	50,952	204,222
Share based payment charges		107,295	18,109	49,734
Operating cash flows before movements in working capital		865,132	758,357	1,518,268
Change in inventories		94,350	(50,563)	(15,688)
Change in receivables		(112,976)	(87,927)	(692,390)
Change in payables		(660,439)	(367,622)	54,810
Cash generated by operations		186,067	252,245	865,000
Interest and similar expenses paid		(114,382)	(12,651)	(60,640)
Income tax paid		(153,140)	(3,621)	(4,080)
Net cash from operating activities		(81,455)	235,973	800,280
Cash flows from investing activities
Interest and similar income received		9,896	13,032	32,784
Proceeds from sale of disposal option on subsidiary		21,100	-	-
Acquisition of subsidiary, net of cash acquired		(40,178)	(374,122)	(2,557,833)
Deferred consideration paid		(466,461)	-	(254,592)
Acquisition of property and equipment		(13,453)	(73,915)	(115,805)
Acquisition of other intangible assets		(15,771)	-	(117,768)
Net cash used in investing activities		(504,867)	(435,005)	(3,013,214)
Cash flows from financing activities
Proceeds from long-term borrowings		600,000	-	1,500,000
Proceeds from short-term borrowings		950,000	-	500,000
Repayment of borrowings		(689,893)	(92,733)	(170,469)
Payments on finance leases		(19,893)	(22,078)	(41,987)
Proceeds from issues of share capital		-	102,000	102,000
Purchase of own shares		-	-	(35,879)
Net cash used in financing activities		840,214	(12,811)	1,853,665
Net increase in cash equivalents		253,892	(211,843)	(359,269)
Opening cash and cash equivalents		1,116,199	1,475,468	1,475,468
Closing cash and cash equivalents	8	1,370,091	1,263,625	1,116,199

NOTES TO THE INTERIM REPORT

For the period ended 31 May 2008

 

 

 

BASIS OF ACCOUNTING

The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards.

On 1 December 2007, Electric Word plc adopted International Financial Reporting Standards ("IFRS") as adopted for use in the EU. Consequently the next annual financial statements of the Group will be prepared in accordance with IFRS. Accordingly the financial information in these interim financial statements has been prepared on the basis of the expected accounting policies which the Group will comply with in the financial statements to 30 November 2008 and on a basis consistent with the recognition and measurement principles of IFRS. These are subject to on-going amendment by the IASB and subsequent endorsement by the European Commission and are therefore subject to possible change. As a result, information contained within this release will require updating for any subsequent amendment to IFRS required for first time adoption or those standards that the Group may elect to adopt early.

IFRS 1 "First-time adoption of International Financial Reporting Standards" sets out the accounting that the Group must follow when IFRS is adopted for the first time as the basis for preparing Group consolidated financial statements. It provides a number of exemptions that are available on first time adoption to assist companies in the transition to reporting under adopted IFRS. The following exemptions have been taken:

The Group has taken advantage of the exemption from restating all acquisitions prior to the date of transition (1 December 2006) under IFRS 3 "Business Combinations"; and

The Group has set its cumulative translation differences to zero at the date of transition to adopted IFRS.

The interim accounts for the six months ended 31 May 2008 and the comparative figures for the six months ended 31 May 2007 are not audited by the Group's auditors. The comparative figures for the twelve months ended 30 November 2007 are not the statutory accounts within the meaning of Section 240 of the Companies Act 1985 but are abridged from such accounts and then re-presented under IFRS.

The financial statements for the twelve months ended 30 November 2007 as previously presented under UK GAAP as applicable at that date have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors on such accounts was unqualified and did not contain any statement under Sections 237(2) or 237(3) of the Companies Act 1985.

GOING CONCERN

The Group and Company have net current liabilities positions at 31 May 2008. However both have net assets overall and the directors believe it is appropriate to prepare the financial statements on a going concern basis. There is long-term financing in place and the Group continues to maintain positive cash flows excluding acquisition spend. A significant element of the Group's net liabilities position is deferred revenue accumulated from payments received in advance, notably on subscription publishing, and on which the cost of fulfilment is significantly less then the refund exposure included in the balance sheet.

BASIS OF CONSOLIDATION

These financial statements incorporate those of the Company and all its subsidiary undertakings under the purchase method of consolidation. The results of acquired entities are included in the consolidated income statement from the date control passes to the Group. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The cost of an acquisition is measured as the cash paid and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The results of subsidiaries acquired or sold are included in the consolidated financial statements based on the date control passes. Where necessary, adjustments are made to the results of the acquired subsidiaries to align their accounting policies with those of the Group. All intra-group transactions are eliminated on consolidation.

Minority interests in the net assets of the consolidated subsidiaries are identified separately from the Group's equity and consist of the amount of those interests at the date of the original business combination plus their share of changes in equity since that date.

GOODWILL

Goodwill arising on the acquisition of subsidiary companies and businesses is calculated as the excess of the purchase consideration over the fair value of net identifiable assets and liabilities at the date of acquisition. It is recognised as an asset at cost, assessed for impairment at least annually and subsequently measured at cost less accumulated impairment losses. Where an impairment test is performed a discounted cash flow analysis is carried out based on the cash flows of the income generating unit compared with the carrying value of that goodwill. Management estimate the discount rates as the risk affected cost of capital for the particular businesses. Any impairment is recognised immediately in the Income Statement.

Upon disposal the attributable carrying value of goodwill is included in the calculation of the profit or loss on disposal.

INTANGIBLE ASSETS

Intangible assets mainly comprise book and magazine titles, which are both stated at fair value. For business combinations, fair value is calculated based on the Group's valuation methodology, using discounted cash flows. These assets are amortised on a straight line basis over their estimated useful lives, which tend to be 3 to 10 years for book and magazine lists, 4 years for customer databases and 3 years for other intangible assets, including customer relationships and contacts.

Software which is not integral to a related item of hardware is also recognised as intangible assets. Capitalised internal-use software costs include external direct costs of materials and services consumed in the development or purchase of the software, use of dedicated contractors, and payroll and related costs for employees who are directly associated with or who devote substantial time to the project. Capitalisation of these costs ceases when the project is substantially complete and ready for its internal purpose. These costs are amortised over their expected useful life deemed to be two to three years in all cases so far.

The expected useful lives of intangible assets are reviewed annually.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost less accumulated depreciation and provision for impairment. Depreciation is provided to write off the cost of an asset less its estimated residual value in equal instalments over its estimated useful economic life. On disposal of an asset the difference between the proceeds and residual net book value at that time is taken to the income statement as a gain or loss on disposal.

The rates of depreciation are as follows:

Fixtures, fittings and equipment 30% reducing balance

Computer equipment 50% straight line

Leasehold property improvements over term of lease

Website design 25% straight line

Website content 50% straight line

The assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable or as otherwise required by accounting standards. Impairment losses are recognised in the income statement.

INVESTMENTS

Shares in subsidiary undertakings are considered long-term investments and are classified as non-current assets. All investments are stated at cost. Provision is made for any impairment in the value of non-current asset investments where events or changes in circumstances indicate the carrying value may not be recoverable.

INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost comprises direct materials and expenses incurred in bringing the inventory to its present condition and location measured on a first in, first out basis. Net realisable value represents the estimated selling price less costs expected to be incurred in the sale. Work in progress includes costs (excluding promotional costs) incurred for books not yet being sold at the balance sheet date. Provision is made for obsolete and slow moving items.

IMPAIRMENT

Assets are carried at fair value and reviewed for potential impairment on at least an annual basis. If management believe their value to be impaired the value is written down and a loss is taken to the income statement.

BORROWING COSTS

All borrowing costs are recognised in the income statement in the period in which they are incurred.

FOREIGN CURRENCIES

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into the functional currency at the rates of exchange ruling at that date. Transactions in foreign currencies are recorded at the rate ruling at the date of transaction. All differences on translation are disclosed in the Income Statement. The functional currency for the parent is pounds sterling (GBP).

LEASED ASSETS AND OBLIGATIONS

Where assets are financed by leasing agreements that give rights approximating to ownership ('finance leases'), the assets are treated as if they had been purchased outright. The assets are capitalised at their fair value as the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor.

Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the Income Statement in proportion to the remaining balance outstanding.

All other leases are 'operating leases' and the annual rentals are charged to the Income Statement on a straight-line basis over the lease term.

TAXATION

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax nor accounting profit.

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

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

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on the rates enacted and substantially enacted at the balance sheet date. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

PENSION COSTS

The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from the individual companies. The pension charge associated with the scheme represents contributions payable.

SHARE BASED PAYMENTS

The Group issues equity-settled share based payments to certain employees. A fair value for the equity-settled share awards is measured at the date of the grant. The fair value is measured using the binomial model of valuation, which is considered to be the most appropriate valuation technique. The valuation takes into account factors such as non-transferability, exercise restrictions and behavioural considerations.

An expense is recognised to spread the fair value of each award over the vesting period on a straight-line basis, after allowing for an estimate of the share awards that will actually vest. The estimate of vesting is reviewed annually, with any impact on the cumulative charge being recognised immediately.

Amounts to be settled in shares are presented within Equity, representing the expected time-apportioned fair value of the awards that are expected to vest.

REVENUE

Revenue represents the value, net of Value Added Tax, of subscription income, events income and other income and is recognised in the Income Statement as services are performed with that portion relating to subsequent years included in deferred revenue.

Subscription revenue is deferred and recognised over the term of the subscription as the obligation is met. Conference and exhibition revenue is deferred and recognised when the event is held. Other revenue such as consultancy and contract publishing are recognised as services are delivered.

FINANCIAL ASSETS

Financial assets are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are classified by Management upon initial recognition dependent upon purpose for which they were acquired between: loans and receivables, financial assets at fair value through profit or loss, held to maturity investments, and available-for-sale investments.

Effective interest method

This is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or, where appropriate, a shorter period, to the net carrying amount of the financial asset. Income is recognised on an effective basis for all debt instruments within the Group.

Loans and receivables

Trade receivables, being loans and other receivables, are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method, less any impairment.

Cash and cash equivalents

These comprise cash in hand and demand deposits and other short-term highly liquid investments that are readily convertible (with a maturity of three months or less) to a known amount of cash and are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement.

Available-for-sale investments

Listed and unlisted shares held by the Group that are traded in an active market are classified as being available-for-sale and are stated at fair value. Fair value is determined by the quoted market price for listed shares. Gains or losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the Income Statement for the period.

Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the available-for-sale investments reserve is included in profit or loss for the period.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For unlisted shares classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or 

default or delinquency in interest or principal payments; or 

it becoming probable that the borrower will enter bankruptcy or financial reorganisation. 

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. A specific provision will also be raised for trade receivables when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade receivable is impaired.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account. When a trade receivable is considered uncollectible, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against the provision account. Changes in the carrying amount of the provision account are recognised in the income statement.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity instruments issued by the Group

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

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

Financial guarantee contract liabilities

Financial guarantee contract liabilities are measured at the amount of the obligation under the contract, as determined in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".

Borrowings

Interest-bearing loans and overdrafts are recorded at fair value net of direct issue costs and subsequently at amortised cost. Premiums, payable on settlement or redemption, are accounted for on an accrual basis in the income statement using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Trade payables and other financial liabilities

Trade payables and other financial liabilities are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method, with interest expense recognised on an effective yield basis.

The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount of the financial liability.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

OWN SHARES

Own shares deducted in arriving at Equity represent the cost of the Company's ordinary shares acquired by the Employee Share Option Plan trusts in connection with certain of the Group's employee share schemes.

PROVISIONS

A provision is recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation which can be measured reliably. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Within the consolidated financial statements there are a number of areas where management has to include their best estimate of likely outcomes based on their first hand knowledge of the markets and situation. The preparation of consolidated financial statements will require management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. 

In preparing these consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were:

Valuation of intangibles - which are based on management's considered opinion of what has been bought and what value it is to the Group in the future;

Impairment of assets - assets are subject to at least annual impairment reviews and testing, and the running of these tests and the numbers that form part of them will be based as far as possible on actual known results but will by nature include predictions of future outcomes;

Deferred contingent consideration - at the period ends the Group has had a number of deferred payments, the size of which is dependent on future outcomes so management has had to estimate the likely outturn and make their best estimate of how much to provide.

  

2 SEGMENTAL INFORMATION

Segmental information is presented in respect of the Group's business segment. This primary format is based on the Group's management and internal reporting structure.

The primary format consists of three market sectors. The education sector produces printed and on-line information and a range of events for professionals and consumers across education, plus sells access to these markets to third parties. The sport sector offers information and analysis on all applicable formats to the professional communities supporting the sport and on-line gaming industries, as well as to consumers. Group overheads represent central PLC costs which are not directly related to the sector trading and are not recharged.

	Revenue			Segment result: profit / (loss) from operations
	Six months ended 31 May 2008	Six months ended 31 May 2007	Year ended 30 November 2007	Six months ended 31 May 2008	Six months ended 31 May 2007	Year ended 30 November 2007
	£	£	£	£	£	£
Analysis by market sector
Education Sector	6,514,462	4,102,941	8,678,152	461,981	706,132	1,164,269
Sport Sector	2,438,238	2,502,152	4,829,409	385,338	347,329	843,846
Group overheads	-	-	-	(403,246)	(418,130)	(870,257)
	---------	---------	---------	---------	---------	---------
	8,952,700	6,605,093	13,507,561	444,073	635,331	1,137,858
	---------	---------	---------	---------	---------	---------

The following primary sector analysis under the adjusted definition of operating profit (note 3) has been made to allow shareholders to gain a further understanding of the trading performance of the Group:

	Adjusted operating profit under IFRS			Adjusted operating profit under UK GAAP
	Six months ended 31 May 2008	Six months ended 31 May 2007	Year ended 30 November 2007	Six months ended 31 May 2008	Six months ended 31 May 2007	Year ended 30 November 2007
	£	£	£	£	£	£
Analysis by market sector
Education Sector	703,362	712,657	1,327,092	754,542	609,731	1,275,635
Sport Sector	434,456	391,756	982,970	418,424	425,552	939,846
Group overheads	(336,384)	(297,337)	(815,564)	(351,568)	(300,313)	(834,621)
	---------	---------	---------	---------	---------	---------
	801,434	807,076	1,494,498	821,398	734,970	1,380,860
	---------	---------	---------	---------	---------	---------
	IFRS transition adjustments to adjusted operating profit (note 11)
Education Sector	(51,180)	102,926	51,457
Sport Sector	16,032	(33,796)	43,124
Group overheads	15,184	2,976	19,057
	---------	---------	---------
	(19,964)	72,106	113,638
	---------	---------	---------

  3 ADJUSTED PROFITS

The adjusted profits have been made to allow shareholders to gain a further understanding of the trading performance of the Group. Profits are adjusted for items not perceived by management to be part of the underlying trends in the business and the related tax effect of those items.

Adjusted numbers exclude goodwill amortisation, exceptional gains and costs (non-trading and of a non-recurring nature), the tax impact of the adjusting items, tax credits from recognition of tax losses and notional accounting charges. The amount for notional accounting charges encompasses the unwinding of discounts on preference shares and provisions and share based payment costs.

The adjustment adds back items which have no cash impact or are not trade related and of a non-recurring type. All of the items have no cash impact, except for the exceptional gains and costs which are excluded as they are not in the normal course of trading and are not recurring.

 

	6 months ended 31 May 2008 £	6 months ended 31 May 2007 £	Year ended  30 November 2007 £
Operating profit for the period	444,073	635,331	1,137,858
Amortisation of intangible assets	250,066	50,952	204,222
Notional accounting charges – share based payment charges	107,295	18,109	49,734
Costs of a fundamental reorganisation of the business	-	102,684	102,684
Adjusting items to operating profit	357,361	171,745	356,640
Adjusted operating profit for the period	801,434	807,076	1,494,498
Profit before tax for the period	290,829	620,032	1,033,979
Adjusting items to operating profit	357,361	171,745	356,640
Notional accounting charges – unwinding of discounts	69,858	15,680	76,023
Non-recurring gains	(21,100)	-	-
Adjusting items to profit before tax	406,119	187,425	432,663
Adjusted profit before tax for the period	696,948	807,457	1,466,642
	152,965	474,554	808,272
Adjusting items to profit before tax	406,119	187,425	432,663
Attributable tax expense on adjusting items	5,908	(28,752)	(28,752)
Add back recognition of tax losses	(67,310)	(107,000)	(90,198)
Add back minority interest	59,340	36,094	6,097
	404,057	87,767	319,810
Adjusted profit for the period	557,022	562,321	1,128,082

 

 

The costs in 2007 of a fundamental reorganisation were related to a significant change in management responsibilities and a restructure of the businesses into four subsidiaries matching the Group's major business units. The costs associated with this included some redundancy and legal and financial assistance. The non-recurring gain made in 2008 relates to sale of an option for a third party to potentially acquire part of the business (the Sports Performance section trading through P2P Publishing Limited). These were all considered to be taxable items for corporation tax and thus attributable tax has been included in the period at 28% of their value. All other adjusting items do not have a tax affect on the Group.

  4 TAXATION

The Group has recognised deferred tax assets and liabilities as set out in note 12 (f).

The tax charge is estimated based on the expected full year rate of taxation. This has been estimated as follows:

			%
	Standard rate of corporation tax in the UK		28
	Tax losses expected to be recognised		(18)
	Expenses forecast to not be deductible for tax purposes		17
	Effective tax rate		27

5 DIVIDENDS

 

The directors do not recommend the payment of a dividend.

  

 6 EARNINGS PER SHARE

Basic and diluted earnings per share are based on the profit for the financial year and on the following weighted average number of shares in issue. Earnings per share have been diluted to reflect the impact of potentially dilutive share options and warrants which are added to the weighted average number of shares in issue as if those options had been exercised on the first day of the accounting period or the date of the grant if later.

Weighted average number of shares in issue:

Period ended 31 May 2008 141,972,525 (Diluted: 154,112,860)

Period ended 31 May 2007 138,603,572 (Diluted: 161,858,452)

Year ended 30 November 2007 139,754,588 (Diluted: 156,148,186)

Adjusted earnings per share

The basic and diluted adjusted earnings per share calculations have been made to allow shareholders to gain a further understanding of the trading performance of the Group. They are based on the calculations described above except that profits are adjusted for items not perceived by management to be part of the underlying trends in the business and the related tax effect of those items (as explained in note 3):

 

	Note	6 months ended 31 May  2008 £	6 months ended 31 May  2007 £	Year ended  30 November 2007 £
Profit for the period		152,965	474,554	808,272
Adjusting items net of attributable taxation	3	404,057	87,767	319,810
Adjusted profit for the period		557,022	562,321	1,128,082
Earnings per share:
- Adjusted basic (p)		0.39	0.41	0.81
- Adjusted diluted (p)		0.36	0.35	0.72

 

7 OTHER LIABILITIES

		6 months ended 31 May 2008 £	6 months ended 31 May 2007 £	Year ended 30 November 2007 £
Obligations under finance leases		28,230	49,005	28,230
Preference shares		903,366	931,496	877,821
		931,596	980,501	906,051

  8 CASH FLOWS

	Analysis of funds	At 1 December 2007 £	Cash flow £	Other non cash changes £	At 31 May 2008 £
	Cash at bank and in hand	1,116,199	253,892	-	1,370,091
	Bank debt due within one year	(180,442)	89,893	(128,045)	(218,594)
	Other debt due within one year	(500,000)	(350,000)	-	(850,000)
	Finance leases due within one year	(38,399)	19,893	-	(18,506)
	Short-term debt	(718,841)	(240,214)	(128,045)	(1,087,100)
	Bank debt due after one year	(1,799,089)	-	128,045	(1,671,044)
	Other debt due within one year	-	(600,000)	-	(600,000)
	Finance leases due after one year	(28,230)	-	-	(28,230)
	Long-term debt	(1,827,319)	(600,000)	128,045	(2,299,274)
	Net debt	(1,429,961)	(586,322)	-	(2,016,283)

Other debt relates to borrowings from Sussex Research Limited [should you not state that Sussex is a related party because they are a substantial shareholder in the Company]. As at 30 November 2007 the Group had drawn down £500,000 on a £600,000 facility charging interest at 2.5% above Bank of England base rate, payable with the capital by 30 May 2008. The further £100,000 available was drawn down in April 2008 and all was repaid with the interest in May 2008. At that point the loan was replaced with a new facility for £1,450,000 which carries an interest rate of 2.5% over LIBOR, with £250,000 due to be repaid on 30 November 2008, £600,000 on 30 April 2009 and £600,000 on 30 April 2010.

Under UK GAAP the £500,000 drawn down as at 30 November 2007 was shown in other creditors. This has been re-presented under the IFRS transition to be included in borrowings.

  9 RECONCILIATION OF MOVEMENTS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

		Share  capital  £	Pref- erence shares £	Share premium account £	Merger reserve £	Reserve for own shares £	Reserve for SBP £	Retained earnings £	TOTAL £
At 30 November 2006		1,381,442	-	2,977,933	105,011	(67,497)	649,355	(166,668)	4,879,576
Profit attributable to members of the holding company		-	-	-	-	-	-	474,554	474,554
Issue of shares		42,000	-	60,000	-	-	-	-	102,000
Share based payments		-	-	-	-	-	18,109	-	18,109
Tax taken directly to equity		-	-	-	-	-	(30,942)	-	(30,942)
At 31 May 2007		1,423,442	-	3,037,933	105,011	(67,497)	636,522	307,886	5,443,297
Profit attributable to members of the holding company		-	-	-	-	-	-	333,718	333,718
Issue of shares		202	-	711	-	-	-	-	913
Purchase of own shares		-	-	-	-	(35,879)	-	-	(35,879)
Share based payments		-	-	-	-	-	31,625	-	31,625
Tax taken directly to equity		-	-	-	-	-	(145,752)	98,550	(47,202)
At 30 November 2007		1,423,644	-	3,038,644	105,011	(103,376)	522,395	740,154	5,726,472
Profit attributable to members of the holding company		-	-	-	-	-	-	152,965	152,965
Issue of shares		20,000	-	61,000	-	-	-	-	81,000
Issue of preference shares (note 10)		-	421,321	-	-	-	-	-	421,321
Share based payments		-	-	-	-	-	107,295	-	107,295
Tax taken directly to equity		-	-	-	-	-	(208,788)	6,048	(202,740)
At 31 May 2008		1,443,644	421,321	3,099,644	105,011	(103,376)	420,902	899,167	6,286,313

To the extent that a share based payment cost has not been reflected in the income statement, deferred tax movements are also not recognised in the income statement but are taken to the reserve for share based payments.

  

10 ACQUISITIONS

SEP

On 29 February 2008 the Group exercised its option to acquire 100% of the issued share capital of Special Education Publishing Limited ("SEP") for a consideration of 875,000 £1 preference shares convertible at 13.25p and £25,875 of related costs. A fair value adjustment of £453,679 has been made to the carrying value of the preference shares as the share price at acquisition date was 6.38p. 

SEP is a specialist education publisher with three established titles. On acquisition SEP had net assets of £166,593, which included intangible assets for the three titles. In the six month period from incorporation to 29 February 2008 SEP made a loss of £40,568 off revenue of £288,908. In the period from acquisition to 31 May 2008 SEP contributed £(17,940) to the group's result and £94,733 to the group's net operating cash flows.

					Book and Fair value
					£
Intangible assets					657,135
Trade and other receivables					223,757
Trade and other payables					(714,299)
					---------
Net assets					166,593
Goodwill arising on consolidation					280,603
					---------
Total consideration					447,196
					---------
Satisfied by:
Consideration - preference shares at fair value					421,321
Acquisition costs					25,875
					---------
					447,196
					---------

 

The intangibles acquired represent the three titles. These have been valued, in line with the Group's standard method, based on discounting their future projected cash flows over ten years, the same period as which the resultant intangibles will be amortised. This is seen to be a reasonable period through which the titles can be fully expected to run. The goodwill represents the commercial value of the deferred subscription liability acquired and the scale and presence it brings to the Group's education sector, not least in being able to fold older product in to these titles, build an advertising presence and offer sponsorship and exhibition packages in conjunction with the Group's events in the sector.

Other adjustments

Fair value adjustments have also been made to two of the acquisitions made in 2007 and under IFRS have been retrospectively applied to the November 2007 balance sheet (noting that neither had an impact on the May 2007 numbers as acquired post May 2007).

Fair value adjustments have been made to the 23 November 2007 acquisition of MyChild Limited, decreasing goodwill by £813,028. On review of the database and subscription recognition deferred revenue has been reduced by £575,482. Other adjustments include corrections to working capital totalling £30,787, £200,000 reduction to the provision for deferred consideration, and a net £6,759 of other adjustments.

Fair value adjustments have also been made to the October 2007 acquisition of Speechmark Publishing Limited, decreasing goodwill by £32,883. A fair value adjustment of £34,396 was required to reflect the fact that the deferred consideration was interest free, and costs of £1,513 have been added.

  

11 EFFECT OF IFRS ON INCOME STATEMENT

	Notes	6 months ended 31 May  2008  £	6 months ended 31 May  2007 £	Year ended  30 November  2007 £
Adjusted operating profit for the period under UK GAAP		821,398	734,970	1,380,860
Remove deferral of promotion expenses	i	(35,148)	69,130	94,581
Accrue for holiday pay	ii	(7,229)	2,976	4,380
Reclassify computer software depreciation as amortisation	iii	22,413	-	14,677
Transition impact of IFRS on adjusted operating profit		(19,964)	72,106	113,638
Adjusted operating profit for the period under IFRS	3	801,434	807,076	1,494,498
Operating profit for the period under UK GAAP		51,924	282,470	392,320
Transition impact of IFRS on adjusted operating profit		(19,964)	72,106	113,638
Reverse UK GAAP amortisation of intangible assets	iv	662,179	434,391	938,806
Post IFRS amortisation of intangible assets	iv	(250,066)	(50,952)	(204,222)
Costs of a fundamental reorganisation of the business	v	-	(102,684)	(102,684)
Transition impact of IFRS on operating profit		392,149	352,861	745,538
Operating profit for the period under IFRS		444,073	635,331	1,137,858
(Loss) / profit before tax for the period under UK GAAP		(101,320)	164,487	185,757
Transition impact of IFRS on operating profit		392,149	352,861	745,538
Costs of a fundamental reorganisation of the business	v	-	102,684	102,684
Transition impact of IFRS on financing costs and investment income		-	-	-
Transition impact of IFRS on (loss) / profit before tax		392,149	455,545	848,222
Profit before tax for the period under IFRS		290,829	620,032	1,033,979
(Loss) / profit for the period under UK GAAP		(169,756)	63,412	35,109
Transition impact of IFRS on profit before tax		392,149	455,545	848,222
Deferred tax in relation to amortisation	vi	63,743	14,267	53,073
Deferred tax recognition in relation to share based payments	vii	12,573	6,314	(85,670)
Adjustments to tax expense from transition items	viii	(86,404)	(28,890)	(36,365)
		382,061	447,236	779,260
Profit for the period under IFRS		212,305	510,648	814,369

In the year ended 30 November 2006, the transition to stating the accounts under IFRS decreased retained profit for the period by £108,228 as a result of removing the deferral of promotion expenses £76,128 and accruing for holiday pay £32,100. The initial set up of a holiday pay accrual decreased retained earnings by £1,912 and removal of deferred promotion expense by £333,448.

Notes:

(i) Promotional expense was deferred to match it with the revenue generated. For example mailings on an event would not be expensed until the month of the event so that they matched with the event result. Under IFRS all promotional costs are expensed in the month they are incurred. The deferred promotion on the balance sheet at each period end under former accounting policies is written off to the income statement.

(ii) Under IFRS vacation days due for each employee are accrued for at the period end. No such accrual was made under former UK GAAP.

(iii) Computer software that is distinguishable from hardware and capital in nature is accounted for as an intangible asset and thus amortised. It was reflected under former UK GAAP as a tangible asset and depreciated. As all amortisation is added back in the adjusted numbers presented by the directors, a difference is created in the adjusted numbers from the change in treatment. The related costs reclassified were £117,768 as at November 2007 and a further £5,374 in the period to 31 May 2008.

(iv) Under UK GAAP the excess of amounts paid to acquire businesses or subsidiaries over the net assets acquired was capitalised as an intangible asset and amortised over its effective life (3 to 10 years). Under IFRS the acquisitions are reviewed for what intangible assets are actually taken on with the remainder taken to goodwill. The intangibles are amortised dependent on their individual expected useful lives whilst the goodwill is not amortised but is subject to impairment testing, as are the intangible assets. This difference in treatment results in the reversal of the UK GAAP amortisation and it is replaced by an entirely new amortisation charge based on the new intangible assets recognised which are reviewed at least annually for impairment.

(v) The costs of a fundamental reorganisation which were previously shown as an exceptional cost and thus excluded from operating profit is now included in operating profit under IFRS, although it is still added back for the adjusted profits.

(vi) As explained in note (iv) under IFRS intangible assets are recognised in relation to the acquisitions made, as opposed to the goodwill capitalised under former UK GAAP. Under IFRS deferred tax is recognised on the temporary timing difference.

(vii) Share based payments are charged to the income statement over the period from grant to vesting dates. Under IFRS a deferred tax asset is recognised at grant to reflect the tax reduction from these expenses and is credited to the income statement to the extent that the charge is recognised in the income statement and over the same grant to vesting period.

(viii) The transition adjustments to not defer promotional expenditure (i) and to accrue holiday pay (ii) are both taxable items and thus have an impact on the tax charge for the period.

  12 EFFECT OF IFRS ON BALANCE SHEET

(a) As at 30 November 2006	Under UK GAAP £		Goodwill / intangible recognition £		Income statement Transitions (note 11) £		2007 FVA on acquis -itions (note 12e) £		Deferred promo & holiday pay (note 11) £		Other acquisition accounting (note 12e) £		Taxation (note 12f) £	Under IFRS £
ASSETS
Non-current assets
Goodwill	-		6,122,743		-		246,032		-		-		-	6,368,775
Other intangible assets	6,122,743		(6,122,743)		-		-		-		-		-	-
Property and equipment	313,900		-		-		-		-		-		-	313,900
Other investments	90,000		-		-		(90,000)		-		-		-	-
Deferred tax assets	729,297		-		-		-		-		-		739,619	1,468,916
	7,255,940		-		-		156,032		-		-		739,619	8,151,591
Current Assets
Inventories	284,462				-		(9,808)		-		-		-	274,654
Trade and other receivables	2,467,136		-		(76,128)		-		(333,448)		-		-	2,057,560
Cash and cash equivalents	1,475,468		-		-		-		-		-		-	1,475,468
	4,227,066		-		(76,128)		(9,808)		(333,448)		-		-	3,807,682
TOTAL ASSETS	11,483,006		-		(76,128)		146,224		(333,448)		-		739,619	11,959,273
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital	1,381,442		-		-		-		-		-		-	1,381,442
Share premium account	2,977,933		-		-		-		-		-		-	2,977,933
Merger reserve	105,011		-		-		-		-		-		-	105,011
Reserve for own shares	(67,497)		-		-		-		-		-		-	(67,497)
Reserve for Share Based Payments	54,448		-		-		-		-		-		594,907	649,355
Retained earnings	156,391		-		(108,228)		-		(335,360)		-		120,529	(166,668)
Equity attributable to equity holders of the parent	4,607,728		-		(108,228)		-		(335,360)		-		715,436	4,879,576
Minority interests	27,037		-		-		-		-		-		-	27,037
TOTAL EQUITY	4,634,765		-		(108,228)		-		(335,360)		-		715,436	4,906,613
Non-current liabilities
Long-term borrowings	500,000		-		-		-		-		-		-	500,000
Deferred tax liabilities	-		-		-		-		-		-		24,183	24,183
Provisions	330,592		-		-		-		-		-		-	330,592
Other payables	989,302		-		-		-		-		-		-	989,302
	1,819,894		-		-		-		-		-		24,183	1,844,077
Current liabilities
Short-term borrowings	150,000		-		-		-		-		-		-	150,000
Current tax liabilities	149,531		-		-		-		-		-		-	149,531
Trade payables and other liabilities	1,648,911		-		32,100		146,224		1,912		-		-	1,829,147
Deferred income	3,079,905		-		-		-		-		-		-	3,079,905
	5,028,347		-		32,100		146,224		1,912		-		-	5,208,583
TOTAL LIABILITIES	6,848,241		-		32,100		146,224		1,912		-		24,183	7,052,660
TOTAL EQUITY AND LIABILITIES	11,483,006		-		(76,128)		146,224		(333,448)		-		739,619	11,959,273

  

(b) As at 31 May 2007	Under UK GAAP (restated) £		Opening Balance Transitions £		Income statement Transitions (note 11) £		MyChild acquisition accounting (note 12e) £		Speechmark acquisition accounting (note 12e) £		Other acquisition accounting (note 12e) £		Taxation (note 12f) £	Under IFRS £
ASSETS
Non-current assets
Goodwill	-		6,368,775		-		-		-		-		-	6,368,775
Other intangible assets	6,388,465		(6,368,775)		383,439		-		-		(38,859)		-	364,270
Property and equipment	333,850		-		-		-		-		-		-	333,850
Deferred tax assets	668,937		739,619		-		-		-		-		(58,822)	1,349,734
	7,391,252		739,619		383,439		-		-		(38,859)		(58,822)	8,416,629
Current Assets
Inventories	335,025		-		-		-		-		(7,717)		-	327,308
Trade and other receivables	2,511,017		(409,576)		69,130		-		-		(787)		-	2,169,784
Cash and cash equivalents	1,263,625		-		-		-		-		-		-	1,263,625
	4,109,667		(409,576)		69,130		-		-		(8,504)		-	3,760,717
TOTAL ASSETS	11,500,919		330,043		452,569		-		-		(47,363)		(58,822)	12,177,346
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital	1,423,442		-		-		-		-		-		-	1,423,442
Share premium account	3,037,933		-		-		-		-		-		-	3,037,933
Merger reserve	105,011		-		-		-		-		-		-	105,011
Reserve for own shares	(67,497)		-		-		-		-		-		-	(67,497)
Reserve for Share Based Payments	72,557		594,907		-		-		-		-		(30,942)	636,522
Retained earnings	183,709		(323,059)		455,545		-		-		14,266		(22,576)	307,885
Equity attributable to equity holders of the parent	4,755,155		271,848		455,545		-		-		14,266		(53,518)	5,443,296
Minority interests	63,132		-		-		-		-		-		-	63,132
TOTAL EQUITY	4,818,287		271,848		455,545		-		-		14,266		(53,518)	5,506,428
Non-current liabilities
Long-term borrowings	407,267		-		-		-		-		-		-	407,267
Deferred tax liabilities	-		24,183		-		-		-		76,559		(5,304)	95,438
Provisions	408,925		-		-		-		-		(62,500)		-	346,425
Other payables	980,501		-		-		-		-		-		-	980,501
	1,796,693		24,183		-		-		-		14,059		(5,304)	1,829,631
Current liabilities
Short-term borrowings	150,000		-		-		-		-		-		-	150,000
Current tax liabilities	186,626		-		-		-		-		-		-	186,626
Trade payables and other liabilities	1,675,940		34,012		(2,976)		-		-		(75,688)		-	1,631,288
Deferred income	2,873,373		-		-		-		-		-		-	2,873,373
	4,885,939		34,012		(2,976)		-		-		(75,688)		-	4,841,287
TOTAL LIABILITIES	6,682,632		58,195		(2,976)		-		-		(61,629)		(5,304)	6,670,918
TOTAL EQUITY AND LIABILITIES	11,500,919		330,043		452,569		-		-		(47,363)		(58,822)	12,177,346

  

(c) As at 30 November 2007	Under UK GAAP £		Opening balance transitions £		Income statement Transitions (note 11) £		MyChild acquisition accounting (note 12e) £		Speechmark acquisition accounting (note 12e) £		Other acquisition accounting (note 12e) £		Taxation and £0.5m loan reclass (note 12f / 8) £	Under IFRS £
ASSETS
Non-current assets
Goodwill	-		6,368,775		-		1,580,527		774,922		-		-	8,724,224
Other intangible assets	10,870,300		(6,368,775)		852,352		(2,107,130)		(349,666)		90,826		-	2,987,907
Property and equipment	418,310		-		(103,091)		-		-		-		-	315,219
Deferred tax assets	730,623		739,619		-		-		-		-		(209,175)	1,261,067
	12,019,233		739,619		749,261		(526,603)		425,256		90,826		(209,175)	13,288,417
Current Assets
Inventories	860,260		-		-		-		-		-		-	860,260
Trade and other receivables	3,466,081		(409,576)		94,581		35,721		-		-		-	3,186,807
Cash and cash equivalents	1,116,199		-		-		-		-		-		-	1,116,199
	5,442,540		(409,576)		94,581		35,721		-		-		-	5,163,266
TOTAL ASSETS	17,461,773		330,043		843,842		(490,882)		425,256		90,826		(209,175)	18,451,683
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital	1,423,644		-		-		-		-		-		-	1,423,644
Share premium account	3,038,644		-		-		-		-		-		-	3,038,644
Merger reserve	105,011		-		-		-		-		-		-	105,011
Reserve for own shares	(103,376)		-		-		-		-		-		-	(103,376)
Reserve for Share Based Payments	104,182		594,907		-		-		-		-		(176,694)	522,395
Retained earnings	185,403		(323,059)		848,222		-		8,226		35,036		(13,674)	740,154
Equity attributable to equity holders of the parent	4,753,508		271,848		848,222		-		8,226		35,036		(190,368)	5,726,472
Minority interests	28,038		-		-		-		-		-		-	28,038
TOTAL EQUITY	4,781,546		271,848		848,222		-		8,226		35,036		(190,368)	5,754,510
Non-current liabilities
Long-term borrowings	1,799,089		-		-		-		-		-		-	1,799,089
Deferred tax liabilities	-		24,183		-		286,424		449,913		55,790		(18,807)	797,503
Provisions	1,261,492		-		-		(219,541)		(34,396)		-		-	1,007,555
Other payables	906,051		-		-		-		-		-		-	906,051
	3,966,632		24,183		-		66,883		415,517		55,790		(18,807)	4,510,198
Current liabilities
Short-term borrowings	180,442		-		-		-		-		-		500,000	680,442
Current tax liabilities	183,383		-		-		-		-		-		-	183,383
Trade payables and other liabilities	3,294,605		34,012		(4,380)		17,717		1,513		-		(500,000)	2,843,467
Deferred income	5,055,165		-		-		(575,482)		-		-		-	4,479,683
	8,713,595		34,012		(4,380)		(557,765)		1,513		-		-	8,186,975
TOTAL LIABILITIES	12,680,227		58,195		(4,380)		(490,882)		417,030		55,790		(18,807)	12,697,173
TOTAL EQUITY AND LIABILITIES	17,461,773		330,043		843,842		(490,882)		425,256		90,826		(209,175)	18,451,683

  

(d) As at 31 May 2008	Under UK GAAP £		Opening balance transitions £		Income statement Transitions (note 11) £		MyChild acquisition accounting (note 12e) £		SEP acquisition accounting (note 10) £		Other acquisition accounting (note 12e) £		Taxation (note 12f) £	Under IFRS £
ASSETS
Non-current assets
Goodwill	-		8,724,224		-		-		464,600		-		-	9,188,824
Other intangible assets	10,293,132		(7,882,393)		417,487		813,028		(280,603)		32,882		-	3,393,533
Property and equipment	361,423		(103,091)		17,039		-		-		-		-	275,371
Deferred tax assets	737,337		530,444		-		-		-		-		(286,965)	980,816
	11,391,892		1,269,184		434,526		813,028		183,997		32,882		(286,965)	13,838,544
Current Assets
Inventories	765,910		-		-		-		-		-		-	765,910
Trade and other receivables	3,880,508		(279,274)		(35,148)		(35,721)		-		-		-	3,530,365
Cash and cash equivalents	1,370,091		-		-		-		-		-		-	1,370,091
	6,016,509		(279,274)		(35,148)		(35,721)		-		-		-	5,666,366
TOTAL ASSETS	17,408,401		989,910		399,378		777,307		183,997		32,882		(286,965)	19,504,910
EQUITY AND LIABILITIES
Capital and reserves
Called up share capital	1,443,644		-		-		-		-		-		-	1,443,644
Preference share capital	421,321		-		-		-		-		-		-	421,321
Share premium account	3,099,644		-		-		-		-		-		-	3,099,644
Merger reserve	105,011		-		-		-		-		-		-	105,011
Reserve for own shares	(103,376)		-		-		-		-		-		-	(103,376)
Reserve for Share Based Payments	211,477		418,213		-		-		-		-		(208,788)	420,902
Retained earnings	(43,692)		554,751		392,149		-		-		-		(4,041)	899,167
Equity attributable to equity holders of the parent	5,134,029		972,964		392,149		-		-		-		(212,829)	6,286,313
Minority interests	55,263		-		-		-		-		-		-	55,263
TOTAL EQUITY	5,189,292		972,964		392,149		-		-		-		(212,829)	6,341,576
Non-current liabilities
Long-term borrowings	2,271,044		-		-		-		-		-		-	2,271,044
Deferred tax liabilities	-		797,503		-		-		183,997		-		(68,088)	913,412
Provisions	503,040		(253,937)		-		219,541		-		34,396		-	503,040
Other payables	931,596		-		-		-		-		-		-	931,596
	3,705,680		543,566		-		219,541		183,997		34,396		(68,088)	4,619,092
Current liabilities
Short-term borrowings	1,068,594		-		-		-		-		-		-	1,068,594
Current tax liabilities	105,393		-		-		-		-		-		(6,048)	99,345
Trade payables and other liabilities	2,740,665		48,862		7,229		(17,716)		-		(1,514)		-	2,777,526
Deferred income	4,598,777		(575,482)		-		575,482		-		-		-	4,598,777
	8,513,429		(526,620)		7,229		557,766		-		(1,514)		(6,048)	8,544,242
TOTAL LIABILITIES	12,219,109		16,946		7,229		777,307		183,997		32,882		(74,136)	13,163,334
TOTAL EQUITY AND LIABILITIES	17,408,401		989,910		399,378		777,307		183,997		32,882		(286,965)	19,504,910

  

(e) Acquisition accounting

 

MyChild acquisition accounting

The Group acquired MyChild Limited ('MyChild') in 2007, taking a controlling ownership of 50.1% on 23 November 2007. Under UK GAAP goodwill of £3,130,075 was recognised in intangible assets as at 30 November 2007 and was being amortised over 10 years.

In the period to 31 May 2008 fair value adjustments ("FVA") have been recognised which reduce the asset by £813,028 (note 10). Under IFRS these are applied back against the November 2007 balance sheet as part of the transition (and count against the opening balance adjustment to intangible assets on transition to IFRS 2008 as posted there now under UK GAAP). In addition a deferred tax liability on the temporary timing difference has been recognised for the future amortisation of the intangibles (note 11 vi) which increases goodwill by £286,425.

On the transition to IFRS this acquisition has been reviewed to determine the intangible assets that were acquired with the remainder being transferred to goodwill to represent the potential of this young but fast growing business. The potential is in the business model which already has a proven database and route to market which is bringing in substantial amounts of new subscribers each month.

The intangible recognised is the subscription offering together with its existing subscriber base and route to new. This is valued by forecasting cash predictions on the business and discounting those at a cost of capital of 10% (based around the most recent bank borrowing by the Group but inflated for the risk associated with a relatively new business). This valued the intangibles with regards to the back list at £1,022,945. This will be amortised over ten years as seen to be a reasonable length over which the Group can be sure of their continued success and consistent with other acquisitions made by the Group.

 

Speechmark acquisition accounting

The Group acquired Speechmark Publishing Limited ('Speechmark') on 8 October 2007. Under UK GAAP goodwill of £1,985,878 was recognised at 30 November 2007 in intangible assets costs and was being amortised over 10 years.

In the period to 31 May 2008 fair value adjustments have been recognised which reduce the asset by £32,883 (note 10), largely representing accounting for a time discount on nil interest deferred consideration due with regards to the acquisition. Under IFRS these are applied back against the November 2007 balance sheet as part of the transition (and count against the opening balance adjustment to intangible assets on transition to IFRS 2008 as posted there now under UK GAAP). In addition a deferred tax liability on the temporary timing difference has been recognised for the future amortisation of the intangibles (note 11 vi) which increases goodwill by £458,139.

On the transition to IFRS this acquisition has been reviewed to determine the intangible assets that were acquired. The acquired company, a publisher with a market leading position in special needs and which specialises in communication and speech and language therapy, had the rights to publish nearly three hundred titles. These titles are notably colour card packs, an area where ranges have up to 25 year history, and other practical hands-on resources.

The intangibles recognised are therefore seen to be the titles themselves. These titles were individually valued by review of more than 2 years of sales history and forecasting that forwards based on current expectations. The revenue was then loaded with budgeted costs and discounted at a cost of capital of 7.75% (based around the most recent bank borrowing by the Group). This valued the intangibles with regards to the back list at £1,636,212. This will be amortised over ten years as seen to be a reasonable length over which the Group can be sure of their continued success. The residual balance of £349,666 has been taken to goodwill together with the 2008 fair value adjustments and the deferred tax liability recognised. This represents the merger benefits of combining the acquisition with the existing education portfolio, not least operationally moving it into the Milton Keynes office with the Incentive Plus business, and also the potential to develop the front list.

Other acquisitions accounting

The Group acquired Smallwood Publishing Limited ('Smallwood') on 1 May 2007. Under UK GAAP goodwill was recognised of £180,054 at 30 November 2007 and £235,264 at 31 May 2007 in intangible assets costs and was being amortised over 3 years. The fair value adjustments made in the six months to November 2007 have been applied retrospectively to the balance sheet at May 2007 under IFRS.

On the transition to IFRS this acquisition has been reviewed to determine the intangible assets that were acquired. The acquired company is a publisher with the rights to publish three significantly valued titles, which are marketed through the Group's catalogue business.

The intangibles recognised are therefore seen to be the titles themselves. These titles were individually valued following discussions between the relevant business leads and forecasted forwards based on current expectations. The revenue was then loaded with the budgeted associated costs and discounted at a cost of capital of 7.75% (based around the most recent bank borrowing by the Group). On this basis the back list of titles was found to fully carry the cost of acquisition with no transfer made to goodwill. The titles will be amortised over three years as seen to be a reasonable length over which the Group can be sure of their continued success, noting that there is little to no historic analysis to support these largely new titles.

The Group acquired ArkSports Limited ('ArkSports') on 5 February 2007. Under UK GAAP goodwill was recognised of £144,324 at 30 November 2007 and £107,824 at 31 May 2007 in intangible assets costs and was being amortised over 3 years.  The fair value adjustments made in the six months to November 2007 have been applied retrospectively to the balance sheet at May 2007 under IFRS.

On the transition to IFRS this acquisition has been reviewed to determine the intangible assets that were acquired. The acquired company is a specialist conference and research business in the sport and technology sector.

On review the intangibles to be recognised included two reports (one of which was in production), an annual conference, a management contract which was used to help the on-line push in the Group's sports sector, and a database. These intangibles were reviewed following discussions between the relevant business managers. It was noted however that most of the value coming from the intangibles was seen in terms of income generation and benefit in the first year, with some benefit to be recognised in year two, although the positive impact of the deal would continue into the future. As such it was deemed fair and proper to recognise the goodwill cost against the intangibles but amortise most in 2007 and the remainder through 2008.

A deferred tax liability has been recognised on the temporary timing differences with regards to the amortisation on both these acquisitions (note 11 vi) which increases other intangible assets by £90,826 at the acquisition dates.

Fair value adjustments against 2006 acquisitions totalling £246,032 were made in 2007. Under IFRS these are applied retrospectively against the balance sheet as at 30 November 2006 as part of the IFRS transition. In the opening balance transitions column these adjustments are moved from the individual rows posted against on the 2006 transition to show against intangible assets as this is where they are now recognised under UK GAAP in the year. Within these a negative adjustment of £110,984 was made in the second half of 2007 and so is included in the other acquisition adjustments to move to IFRS as at 31 May 2007.

 (f) Taxation 

		Losses recognised under UK GAAP £	Share based payment £	Deferred promotion £	Holiday pay accrual £	Deferred tax asset under IFRS £	SIP share based payment £	Intangible asset amor -tisation £	Deferred tax liability IFRS £
Former UK GAAP as at 30 November 2006		729,297	-	-	-	729,297	-	-	-
Timing differences		-	607,700	122,873	9,046	739,619	-	-	-
Accrue liability as SIP SBP is not deductible		-	-	-	-	-	(24,183)	-	(24,183)
Under IFRS as at 30 November 2006		729,297	607,700	122,873	9,046	1,468,916	(24,183)	-	(24,183)
Rate change		(48,620)	(40,513)	(7,814)	(603)	(97,550)	1,612	-	1,612
Recognised losses		107,000	-	-	-	107,000	-	-	-
Utilisation of losses		(118,740)	-	-	-	(118,740)	-	-	-
Credit / (charge) to the income statement		-	1,010	(27,548)	(1,342)	(27,880)	5,304	14,267	19,571
Credit / (charge) to equity		-	9,571	7,814	603	17,988	(1,612)	-	(1,612)
Addition to other intangible assets		-	-	-	-	-	-	(90,826)	(90,826)
At 31 May 2007		668,937	577,768	95,325	7,704	1,349,734	(18,879)	(76,559)	(95,438)
Recognised losses		(16,802)	-	-	-	(16,802)	-	-	-
Losses in acquisition		151,059				151,059
Utilisation of losses		(72,571)	-	-	-	(72,571)	-	-	-
Credit / (charge) to the income statement		-	2,873	(7,126)	(348)	(4,601)	3,692	38,806	42,498
Credit / (charge) to equity		-	(145,752)	-	-	(145,752)	-	-	-
Addition to goodwill		-	-	-	-	-	-	(744,563)	(744,563)
At 30 November 2007		730,623	434,889	88,199	7,356	1,261,067	(15,187)	(782,316)	(797,503)
Recognised losses		67,310	-	-	-	67,310	-	-	-
Utilisation of losses		(60,596)	-	-	-	(60,596)	-	-	-
Credit / (charge) to the income statement		-	8,228	(88,199)	1,794	(78,177)	4,346	63,743	68,089
Credit / (charge) to equity		-	(208,788)	-	-	(208,788)	-	-	-
Addition to goodwill		-	-	-	-	-	-	(183,998)	(183,998)
At 31 May 2008		737,337	234,329	-	9,150	980,816	(10,841)	(902,571)	(913,412)

In addition to the above movements, the income statement was charged with £98,550 in the period to November 2007 and the amount was taken directly to equity - retained earnings to remove tax relief recognised in the period under UK GAAP. This is accounted for under IFRS by the deferred tax asset on options movements. In the period to May 2008 £6,048 was removed from the corporation tax creditor and taken directly to equity to reflect options exercised where no share based payment charge had been made (as granted before November 2002).

ENDIR FKFKPFBKDPOB

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