12th Oct 2005 07:01
Watermark Group PLC12 October 2005 Embargoed until: 07.00, 12 October 2005 Watermark Group plc Interim Results for the six months to 30 June 2005 Watermark Group plc ('Watermark'), the leading provider of inflight catering,products and cabin management services to the airline and travel industry,announces interim results for the six months to 30 June 2005. These interim results are the first for the group prepared in accordance withthe new accounting policies under International Financial Reporting Standards("IFRS") and International Accounting Standards ("IAS"). Financial highlights Comparing consolidated operations under IFRS for the six months to 30 June 2005with 2004: SalesTurnover Up 15% to £35.18m (2004: £30.52m) MarginsGross profit margin Up 4% to 37.18% (2004: 35.87%)Operating profit margin Up 29% to 7.18% (2004: 5.58%) ProfitsGross profit Up 20% to £13.08m (2004: £10.95m)EBITD* Up 61% to £3.04m (2004: £1.89m)Operating profit Up 48% to £2.53m (2004: £1.71m)Profit before tax Up 50% to £2.35m (2004: £1.57m) *EBITD (earnings before interest, taxation and depreciation) is calculated innote 3 Total assets Up 16% to £72.15m (2004: £61.96m) Diluted earnings pershare** Up 9% to 3.52p (2004: 3.23p) *\* The calculation has been adjusted to include the dilution effect of contingentdeferred shares to be issued DividendInterim dividend 0.56p (2004: £nil) This is the first time the company has declared an interim dividend, and theintention is to pay 25% of the total dividend for the year as an interimdividend. It is proposed that the dividend be paid on 27 January 2006 to shareowners on the register at 23 December 2005. For further information: John Caulcutt / Crispin Quail Gemma Chandler / Claire MellyWatermark Group plc Tavistock CommunicationsTel: 01489 897800 Tel: 020 7920 3150 The half year in brief The first six months of 2005 have showed continued growth for our company, withhalf year sales, margins and profits at an all time high. Notwithstanding regional differences across the globe, the overall number ofinternational passengers grew during this period by 8% with an average airlineload factor in excess of 70%. Against this positive background airlines still struggle to deal with theballooning cost of fuel, despite the introduction of higher fuel surcharges topassengers. Continued cost reduction within the industry is critical with the ongoingchallenge to turn passenger growth into profitability. As a major supplier to airlines throughout the globe, we believe that we arewell placed to benefit from this challenge. The low cost model of our cateringdivision and our overall Encompass programme enables us to meet the needs thatthe airlines continue to face. Operational highlights to June 2005 • New client wins; the number of airline and travel clients continues to grow, particularly in the growth areas of India and the Far East. • Encompass; first client adopts total solution package. • OCS, our cleaning services partner, moves into our Heston premises to share resources and maximise synergies. • Launch of new revenue generating product lines. Operational highlights post June 2005 • bmi announces continued expansion on long haul routes from Heathrow. • First "buy-on-board" programme commenced 1 August 2005. • Sri Lankan Airlines catering contract at Heathrow taken on from Gate Gourmet. • Three new client wins at Birmingham catering facility. • Two single source product tenders submitted to major airlines. • Company re-enters marketplace for aircraft containers and receives further orders. • Continuation of the cost reduction programme, involving further outsourcing of labour at Heathrow. Current trading and future outlook • More people than ever are flying, and the industry is vital to the global economy. • New airline business models are meeting consumer expectations for lower fares. • Watermark is working with its airline clients to turn the vision of a simplified business into a reality. • Encouraging start to second half, which gives us comfort for the full year to 31 December 2005. In summary therefore we remain extremely positive about the long termopportunities to grow our business in an industry where our low cost businessmodel, and our total cabin management programme allows airline clients tocontinue to reduce their own cost base on a sustainable basis - whilst at thesame time allowing our company to expand profitably in the future as it has inthe past. John Anstruther-Gough-Calthorpe John CaulcuttChairman Chief Executive Unaudited consolidated income statementfor the 6 months to 30 June 2005 (A) (A) Note 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Revenue 2 35,181 30,520 73,706 Cost of sales (22,102) (19,573) (48,281) ------------------------------------ Gross profit 13,079 10,947 25,425 Operating & administrative expenses (excluding exceptional costs) (10,427) (9,242) (18,445) Exceptional bad debt - - (591) Exceptional start-up costs - - (302) Exceptional re-organisation costs - - (1,436) Movement in fair value of investments (125) - (89) Profit on sale of investments - - 676 ------------------------------------ Total operating & administrative expense (10,552) (9,242) (20,187) Operating profit 2 2,527 1,705 5,238 Finance costs (194) (168) (504) Finance income 39 30 64 Share of losses from associate (23) - (1) ------------------------------------ Profit before tax attributable to equity share owners 2,349 1,567 4,797 Taxation (741) (430) (1,680) ------------------------------------ Profit after tax 1,608 1,137 3,117 ==================================== Earnings per share (pence) 5 Basic 3.92p 3.35p 8.39p Diluted 3.52p 3.23p 7.65p (A) As restated for the effect of the transition to IFRS. Comparative figures donot include the effects of IAS 32 or IAS 39 which have been adopted by the groupon 1 January 2005. Unaudited consolidated balance sheet as at 30 June 2005 (A) (A) 30 June 30 June 31 December 2005 2004 2004 Note £'000 £'000 £'000 ---------------------------------------------- ASSETS Non-current assets Property, plant and equipment 10,093 3,706 10,173 Goodwill 30,075 30,223 30,075 Intangible assets 1,020 - 249 Investment in associates accounted for using the equity method 17 40 40 Available-for-sale financial assets 5 31 31 Assets held at fair value through income statement 20 234 145 Trade and other receivables 112 - 112 ------------------------------------ 41,342 34,234 40,825 Current assets Inventories 3,026 4,212 3,919 Trade and other receivables 14,560 13,167 15,173 Prepayments 5,500 3,939 4,269 Forward currency contracts 134 - - Cash and short-term deposits 7,587 6,403 1,622 ------------------------------------ 30,807 27,721 24,983 ------------------------------------ TOTAL ASSETS 72,149 61,955 65,808 ==================================== EQUITY AND LIABILITIES Equity attributable to equity share owners of the parent Issued share capital 8 429 390 404 Share premium account 25,518 21,412 22,803 Shares to be issued 3,814 8,032 6,496 Capital redemption reserve 24 24 24 Merger reserve (527) (527) (527) Foreign currency translation reserve (22) (63) (273) Retained earnings 10,937 7,553 9,607 ------------------------------------ Total equity 40,173 36,821 38,534 Non-current liabilities Interest bearing loans and borrowings 793 14 1,314 Other payables due after more than one year 2,128 3,613 3,298 Deferred income tax liabilities 454 25 480 ------------------------------------ 3,375 3,652 5,092 Current liabilities Trade and other payables 10,825 9,464 13,937 Interest bearing loans and borrowings 15,267 8,856 6,082 Other payables due within one year 1,063 1,638 1,063 Income tax 347 849 1,100 Provisions - dividends payable 6 1,099 675 - ------------------------------------ 28,601 21,482 22,182 ------------------------------------ TOTAL LIABILITIES 31,976 25,134 27,274 ------------------------------------ ------------------------------------ TOTAL EQUITY AND LIABILITIES 72,149 61,955 65,808 ==================================== (A) As restated for the effect of the transition to IFRS. Comparative figures donot include the effects of IAS 32 or IAS 39 which have been adopted by the groupon 1 January 2005. Unaudited consolidated cash flow statement for the 6 months to 30 June 2005 6 months to 6 months to 12 months to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 -------------------------------------- Net cash (outflows)/inflows fromoperating activitiesProfit before tax 2,349 1,567 4,797Depreciation and amortisation 511 250 838Profit on sale of investment - - (676)Share based payment expense 90 53 151Finance income (39) (30) (64)Finance cost 194 168 504Movement in fair value of investments 125 - 89Share of loss of associate 23 - 1Movement in fair value of forward exchange rate contracts 597 - -Decrease/(increase) in inventories 971 (1,061) (857)(Increase)/decrease in trade and other receivables (493) 16 (2,660)(Decrease)/increase in trade payables and provisions (3,389) (1,358) 3,416 ------------------------------------Cash inflows/(outflows) generated from operations 939 (395) 5,539Interest received 39 30 64Interest paid (194) (168) (504)Income taxes paid (1,523) (1,517) (2,047) ------------------------------------Net cash (outflows)/inflows from operating activities (739) (2,050) 3,052 ------------------------------------Cash flows from investingactivitiesProceeds from sale of available for sale assets - - 761Purchase of property, plant and equipment (405) (2,302) (7,439)Purchase of available for sale asset - - (70)Purchase of intangible assets (771) - (249)Acquisition of associate, net of cash acquired - (41) (41)Acquisition of subsidiary, net of cash acquired (1,062) (18,310) (19,308) ------------------------------------Net cash flows used in investing activities (2,238) (20,653) (26,346) ------------------------------------ Cash flows from financingactivitiesProceeds from issue of shares 58 20,830 20,830Payment of hire purchase and finance lease obligations (292) (13) (102)Repayment of borrowings - (1,419) (2,979)Dividends paid to equity share owners - - (719) ------------------------------------Net cash flows (used in)/from financing activities (234) 19,398 17,030 ------------------------------------ Net decrease in cash and cash equivalents (3,211) (3,305) (6,264)Net foreign exchange difference 220 (18) (81)Cash and cash equivalents at 1 January 2005 (3,907) 2,438 2,438 ------------------------------------Cash and cash equivalents at 30 June 2005 (6,898) (885) (3,907) ==================================== Unaudited consolidated statement of changes in equityas at 30 June 2005 Consolidated statement of changes in equity for 6 months to 30 June 2005 Shares Capital Foreign Issued Share to be Retained Merger redemption currency Total Note capital premium issued earnings reserve reserve reserve Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------------ At 31 December 2004 404 22,803 6,496 9,607 (527) 24 (273) 38,534 Effects ofadopting IAS/IFRSIAS 32 & IAS 39 Fair value ofderivativeforward contracts - - - 731 - - - 731 -------------------------------------------------------------------------- At 1 January 2005 404 22,803 6,496 10,338 (527) 24 (273) 39,265Currency translation differences - - - - - - 251 251Profit for theperiod - - - 1,608 - - - 1,608Issue of share capital 24 2,658 (2,682) - - - - -Exercise of share options 1 57 - - - - - 58Cost of share based payments - - - 90 - - - 90Deferred taxation - - - - - - - -Equity dividends 6 - - - (1,099) - - - (1,099) --------------------------------------------------------------------------At 30 June 2005 429 25,518 3,814 10,937 (527) 24 (22) 40,173 ========================================================================== Consolidated statement of changes in equity for 6 months to 30 June 2004 Shares Capital Foreign Issued Share to be Retained Merger redemption currency Total Note capital premium issued earnings reserve reserve reserve Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------------ At 1 January 2004 249 599 8,172 7,057 (527) 24 - 15,574Currency translation differences - - - - - - (63) (63)Profit for theperiod - - - 1,137 - - - 1,137Issue of share capital 131 20,064 (140) - - - - 20,055Exercise of share options 10 749 - - - - - 759Cost of share based payments - - - 53 - - - 53Deferred taxation - - - (19) - - - (19)Equity dividends 6 - - - (675) - - - (675) ------------------------------------------------------------------------------------At 30 June 2004 390 21,412 8,032 7,553 (527) 24 (63) 36,821 ==================================================================================== Notes to the accountsfor the 6 months to 30 June 2005 1. Summary of significant accounting policies Watermark Group plc has previously prepared its primary financial statementsunder UK Generally Accepted Accounting Practice ("UK GAAP"). From 1 January2005, the group is required to prepare its consolidated financial statements inaccordance with International Financial Reporting Standards ("IFRS") andInternational Accounting Standards ("IAS") as adopted by the European Union("EU"). For the purposes of this document the term IFRS is deemed to encompassIAS. These interim financial statements represent the first report the group hasprepared in accordance with its accounting policies under IFRS. The first annualreport under IFRS will be for the year ended 31 December 2005. A description of how the group's reported performance and financial position areaffected by the change to IFRS, including reconciliations from UK GAAP to IFRSfor prior year results and the revised summary of significant accountingpolicies under IFRS is published on the corporate website at www.watermark.co.ukPrinted copies of the transition to IFRS document are available from theCompany Secretary. The results for the year to 31 December 2004 do not constitute statutoryaccounts. They are an abridged version of the full accounts, which received anunqualified report from the auditors and have been filed with the Registrar ofCompanies. The interim results are unaudited. i. Basis of preparation The financial statements have been prepared on a historical cost basis, exceptfor derivative financial instruments, available-for-sale assets and assets heldat fair value through the profit and loss account which are all measured at fairvalue. The consolidated financial statements are presented in sterling and arerounded to the nearest thousand (£'000) except where otherwise indicated. ii. Statement of compliance This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that either are endorsed by the EUand effective (or available for early adoption) at 31 December 2005 or areexpected to be endorsed and effective (or available for early adoption) at 31December 2005, the group's first annual reporting date at which it is requiredto use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directorshave made assumptions about the accounting policies expected to be applied whenthe first annual IFRS financial statements are prepared for the year ending 31December 2005. iii. Consolidation The group financial statements include the financial statements of the companyand all subsidiaries and associated undertakings during the year for the periodduring which they were members of the group. All intercompany balances and transactions entered into between group companiesare eliminated on consolidation. On acquisition, assets and liabilities of subsidiaries are measured at theirfair values at the date of acquisition with any excess of the cost ofacquisition over this value being capitalised as goodwill. iv. Revenue Revenue comprises sales of products and services to third parties at amountsinvoiced net of trade discounts, rebates, Value Added Tax and other similarsales based taxes. Revenue from the sale of products and services is recognisedupon the transfer to the client of the significant risks and rewards ofownership. This is generally when goods are delivered to, or services performedfor, clients. In certain circumstances, for instance where contractualagreements confirm the acceptance of the risks and rewards of ownership, revenueis recognised at the time of shipment. v. Foreign currency The presentation currency of the group is sterling. Transactions in foreign currencies are initially recorded in the functionalcurrency of each subsidiary at the exchange rate ruling on the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesare retranslated at the functional currency's rate of exchange ruling at thebalance sheet date. All differences are taken to the consolidated incomestatement. Non-monetary items that are measured in terms of historic cost in aforeign currency are translated using the exchange rate as at the date of theinitial transaction. Non-monetary assets and liabilities measured at fair valuein a foreign currency are translated using the exchange rate at the date whenthe fair value was determined. Where the change in the fair value ofnon-monetary assets and liabilities is recognised directly in equity, anyexchange component of the gain or loss is recognised in equity. Where the changein the fair value of non-monetary assets and liabilities is recognised throughthe income statement, any exchange component of the gain or loss is alsorecognised through the income statement. The functional currency of the overseas subsidiaries may differ from thepresentation currency of the consolidated group accounts. As at the reportingdate, the assets and liabilities of these overseas subsidiaries are translatedinto the presentation currency of Watermark Group plc at the rate of exchangeruling at the balance sheet date, and their income statements are translated atthe actual exchange rates for the year. The exchange differences arising on theretranslation are taken to a separate component of equity. On disposal of aforeign entity, the deferred cumulative amount recognised in equity relating tothat particular foreign operation shall be recognised in the income statement. vi. Goodwill and intangible fixed assets Goodwill on acquisition is initially measured at cost being the excess of thefair value of the purchase consideration over the acquirer's interest in the netfair value of the identifiable assets, liabilities and contingencies. Followinginitial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill arising on acquisitions occurring before 1 January 2004 has not beenamortised after this date. Goodwill arising on acquisitions after 1 January 2004is not subject to amortisation. Instead all goodwill is subject to annualimpairment reviews or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired. Intangible assets acquired separately are capitalised at cost and from abusiness combination are capitalised at the fair value at the date ofacquisition. The useful lives of these intangible assets are assessed to beeither finite or indefinite. Where the life of an intangible asset is identifiedas being finite the cost of the asset is amortised over the useful economiclife, but if the life is indefinite it is subject to annual impairment reviews.Where amortisation is charged on assets with finite lives, this expense is takento the income statement through the 'operating and administrative expenses' lineitem. Computer software costs are accounted for as an intangible fixed asset and areamortised over the estimated useful economic life of not more than 5 years. vii. Financial instruments Available for sale assets and assets classified as held at fair value throughthe income statement. All available for sale assets and assets designated at fair value through theincome statement are initially recognised at cost, being the fair value of theconsideration given and including acquisition charges associated with theinvestment. Subsequent changes to the fair value of available for sale assets are takendirectly to equity. On disposal of the asset the deferred cumulative amountrecognised in equity shall be recognised in the income statement. Subsequent changes to the fair value of assets classified as held at fair valuethrough the income statement are recognised in full within the income statement. The group has designated its investment in FlightStore Group plc as held at fairvalue through the income statement. Loans and receivablesTrade and other receivables and trade and other payables are initiallyrecognised at fair value. Fair value is considered to be the original invoiceamount, discounted where material, for short term receivables and payables. Longterm receivables and payables are measured at amortised cost using the effectiveinterest rate method. Where receivables are denominated in a foreign currency, retranslation is madein accordance with the foreign currency accounting policy above. Derivative financial instrumentsThe group enters into forward exchange rate contracts in order to minimise itsexposure to foreign currency fluctuations. On inception, forward contracts are initially recognised at their fair value.The accounting treatment for subsequent changes to the fair value of forwardexchange contracts is dependent upon whether the forward exchange contractqualifies under the hedging rules set out within IAS 39. Where the forward exchange rate contract does not qualify as a hedge anysubsequent changes to the fair value of the forward exchange rate contract isrecognised through the income statement. Forward exchange rate contracts that are designated as a cash flow hedge or as ahedge against the net investment in a foreign entity are tested for hedgeeffectiveness at each reporting date. Where the forward exchange rate contractcontinues to be an effective hedge, any changes to the fair value of thederivative financial instrument is deferred within equity and released into theincome statement when the underlying hedged asset or liability is realised.Where the forward exchange rate contract is not considered to be an effectivehedge, subsequent fair value changes to the ineffective portion of thederivative financial instrument is immediately recognised through the incomestatement. viii. Borrowing costs Interest and borrowing costs are accounted for on the accruals basis and arerecognised through the income statement in full. No interest or borrowing costshave been capitalised. ix. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Depreciation is provided on all plant andequipment, at rates calculated to write off the cost, less estimated residualvalue, of each asset on a straight line basis over its expected useful economiclife at the following annual rates: Plant and machinery - 10% to 20%Fixtures and fittings - 10% to 25%Office equipment - 25%Motor vehicles - 20% to 25%Leasehold improvements - Over the term of the lease The carrying value of plant and equipment is reviewed for impairment when eventsor changes in circumstances indicate the carrying value may not be recoverable.If any such indication exists and where the carrying value exceeds estimatedrecoverable amount, the higher of the value in use and net selling price, theassets are written down to their recoverable amount. x. Adoption of IAS 32 and IAS 39 As permitted under IFRS 1 First Time Adoption of International FinancialReporting Standards, the directors decided not to restate comparativeinformation for the Financial Instrument standards IAS 32 and IAS 39. 2. Segmental reporting Segmental information by business segment for 2005 Products Services Total Eliminations Consolidation 6 months to 6 months to 6 months to 6 months to 6 months to June 2005 June 2005 June 2005 June 2005 June 2005 £'000 £'000 £'000 £'000 £'000REVENUENet sales to external clients 13,861 21,320 35,181 - 35,181Net sales to other segments - - - - - -----------------------------------------------------------------Total revenue 13,861 21,320 35,181 - 35,181 ================================================================= RESULTSegment result 1,545 2,148 3,693 - 3,693 =================================================Unallocated corporateexpenses (1,041)Amounts written offinvestments (125) --------------Operating profit 2,527Interest expense (194)Interest income 39Share of loss of associate (23)Income tax (741) --------------Profit after tax 1,608 ============== Segmental information by business segment for 2004 (comparative information) Products Services Total Eliminations Consolidation 6 months to 6 months to 6 months to 6 months to 6 months to June 2004 June 2004 June 2004 June 2004 June 2004 £'000 £'000 £'000 £'000 £'000REVENUENet sales to external clients 14,725 15,795 30,520 - 30,520 Net sales to other segments 2 - 2 (2) - -----------------------------------------------------------------Total revenue 14,727 15,795 30,522 (2) 30,520 ================================================================= RESULTSegment result 959 1,880 2,839 (2) 2,837 =================================================Unallocated corporateexpenses (1,132) --------------Operating profit 1,705Interest expense (168)Interest income 30Income tax (430) --------------Profit after tax 1,137 ============== 2. Segmental reporting The Watermark group is organised on a worldwide basis into two primary businesssegments, namely the products and services divisions. These reportable segmentsare the two strategic divisions for which monthly financial information isprovided to the board. The products division provides a broad range of travel supplies predominately tothe international travel industry on a global basis. The services division isone of the major suppliers of catering and media services to the internationaltravel industry within the United Kingdom. Whilst the group's two divisions are managed on a worldwide basis, they operatein three principal geographical areas of the world. The main region wheresignificant group revenues are earned is the UK, Europe & Middle East region andthis business is conducted from the United Kingdom. Operations in Asia areconducted through the Hong Kong subsidiary and in the Americas through the USAsubsidiary, whose offices are in Miami. Information on primary reporting by business segment is shown above. Segment revenue, expenses and results include transfers and transactions betweenbusiness segments and between geographical segments. Such transactions areaccounted for at competitive market prices which would be charged tounaffiliated clients for similar goods. All inter-segment transactions areeliminated on consolidation. 3. EBITD (Earnings before interest, taxation and depreciation) Reconciliation of operating profit to EBITD: 6 months to 6 months to 12 months to June June December 2005 2004 2004 £'000 £'000 £'000Operating profit 2,527 1,705 5,238- Depreciation 508 185 514 ---------------------------------------EBITD 3,035 1,890 5,752 ======================================= Adjusted EBITD (earnings before interest, taxation, depreciation and exceptionalcosts) Reconciliation of operating profit to adjusted EBITD: 6 months to 6 months to 12 months to June June December 2005 2004 2004 £'000 £'000 £'000Operating profit 2,527 1,705 5,238- Exceptional bad debt - - 591- Exceptional contract start-up costs - - 302- Exceptional re-organisation costs - - 1,436- Depreciation 508 185 514 ---------------------------------------Adjusted EBITD 3,035 1,890 8,081 ======================================= 4.Adjusted profits Reconciliation of profit before tax attributable to equity share owners toadjusted profit before tax attributable to equity share owners: 6 months to 6 months to 12 months to June June December 2005 2004 2004 £'000 £'000 £'000Profit before tax attributable to equity shareowners 2,349 1,567 4,797- Exceptional bad debts - - 591- Exceptional contract start-up costs - - 302- Exceptional re-organisation costs - - 1,436- Profit on sale of investments - - (676) ---------------------------------------Adjusted profits 2,349 1,567 6,450 ======================================= 5. Earnings per share Weighted Total earnings Earnings average shares per share 6 months to June 6 months to 6 months to 2005 June 2005 June 20056 months to June 2005 £'000 number penceBasic earnings per share 1,608 41,059,734 3.92Effect of dilutive securities- Share options - 2,028,784 (0.18)- Contingent shares to be issued - 2,537,376 (0.22) ---------------------------------------Diluted earnings per share 1,608 45,625,894 3.52 ========================================= Weighted Total earnings Earnings average shares per share 6 months to June 6 months to 6 months to 2004 June 2004 June 20046 months to June 2004 £'000 number penceBasic earnings per share 1,137 33,975,773 3.35Effect of dilutive securities- Share options - 1,196,638 (0.12)- Contingent shares to be issued - - - ---------------------------------------Diluted earnings per share 1,137 35,172,411 3.23 ========================================= Earnings Weighted Total earnings 12 months to average shares per share December 12 months to 12 months to 2004 December 2004 December 200412 months to December 2004 £'000 number penceBasic earnings per share 3,117 37,134,205 8.39Effect of dilutive securities- Share options - 1,152,929 (0.24)- Contingent shares to be issued - 2,469,190 (0.50) --------------------------------------- Diluted earnings per share 3,117 40,756,324 7.65 ========================================= Contingent deferred shares that form part of the sale and purchase agreementsfor company acquisitions are included within the calculation of diluted earningsper share only once relevant performance targets have been achieved. Excludedfrom the diluted earnings per share calculations were 2,022,010 (30 June 2004:5,176,684 and at 31 December 2004: 2,707,494) contingent deferred shares wherefuture performance targets had not yet been achieved at the reporting date. 6. Dividends 6 months to 6 months to 12 months to June June December 2005 2004 2004 £'000 £'000 £'000 Final dividend payable at 1.78p per share for the year ended 31December 2003 - 675 719Final dividend payable at 1.96p per share for year ended 31December 2004 841 - -Interim dividend payable at 0.56p per share for the year to31 December 2005 258 - - --------------------------------------- 1,099 675 719 ========================================= The final dividend accrued as at 30 June 2004 related to the financial yearended 31 December 2003. This dividend was paid to share owners during July 2004. The final dividend accrued as at 30 June 2005 related to the financial yearended 31 December 2004. This dividend was paid to share owners during July 2005. The interim dividend accrued as at 30 June 2005 is in respect to the financialyear ending 31 December 2005. This dividend will be paid to share owners duringJanuary 2006. 7. Property, plant & equipment During the period the group has purchased plant & equipment amounting to£405,000 (6 months to June 2004: £2,302,000). 8. Share capital During the period 84,882 ordinary shares of 1p each were allotted as a result ofthe exercise of share options from which the group received total considerationof £58,000. A further 2,401,553 ordinary shares of 1p each were allotted underthe terms of sale and purchase agreements for company acquisitions. Independent review report to Watermark Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises the consolidated profit andloss account, consolidated balance sheet, consolidated cash flow statement andthe related notes 1 to 8. We have read the other information contained in the interim report which comprises only the Chairman's and Chief Executive's letter to share owners and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. Our responsibilities do not extend to any other information. This report is made solely to the company's members, as a body, in accordancewith guidance contained in APB Bulletin 1999/4 "Review of Interim FinancialInformation". Our review work has been undertaken so that we might state to thecompany's members those matters we are required to state to it in a reviewreport and for no other purpose. To the fullest extent permitted by law, we donot accept or assume responsibility to anyone other than the company and thecompany's members as a body, for our review work, for this report, or for theconclusion we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority, which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with UnitedKingdom auditing standards and therefore provides a lower level of assurancethan an audit. Accordingly, we do not express an audit opinion on the financialinformation. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. GRANT THORNTON UK LLPChartered AccountantsSouthampton12 October 2005 Appendix A - First time adoption of International Financial Reporting Standards Consolidated income statement for the 6 months to 30 June 2004 As reported Share Foreign Consolidated under UK Goodwill based currency Deferred income statement GAAP amortisation payments transactions taxation on adopting IFRS £'000 £'000 £'000 £'000 £'000 £'000 Revenue 32,013 - - (1,493) - 30,520 Cost of sales (20,941) - - 1,368 - (19,573) -------------------------------------------------------------------------------- Gross profit 11,072 - - (125) - 10,947 Operating & administrativeexpenses (9,996) 767 (53) 40 - (9,242) -------------------------------------------------------------------------------- Operating profit (seeanalysis below) 1,076 767 (53) (85) - 1,705 Finance costs (168) - - - - (168)Finance income 30 - - - - 30 -------------------------------------------------------------------------------- Profit before tax 938 767 (53) (85) - 1,567 Taxation (437) - - 1 6 (430) -------------------------------------------------------------------------------- Profit after tax 501 767 (53) (84) 6 1,137 ================================================================================ Earnings per share (pence) Basic 1.49p 3.35p ----------- ----------- Diluted 1.43p 3.23p ----------- ----------- Reconciliation of operating profit to EBITDA under UK GAAP and operating profit to EBITD under IFRS Operating profit 1,076 767 (53) (85) - 1,705 - Depreciation 185 - - - - 185- Amortisation 767 (767) - - - - --------------------------------------------------------------------------------EBITDA / EBITD 2,028 - (53) (85) - 1,890 ================================================================================ Explanation of adjustments GoodwillUnder IFRS, goodwill is no longer amortised and instead is subject to annualimpairment reviews. Accordingly EBITDA becomes EBITD following the impact ofIFRS on the group. Share-based paymentsIFRS 2 requires share options granted after 7 November 2002 to be fair valued atthe date of the grant. A charge, equal to the fair value is recognised throughthe income statement over the vesting period of the share option. Foreign currencyUnder UK GAAP the group had translated foreign currency monetary assets andliabilities, net assets of overseas investments and revenue and expenses at theunderlying forward exchange contracted rate. Under IFRS, all assets andliabilities are required to be valued at the closing exchange rate and revenueand expenses at the actual exchange rate ruling at the date of the transaction. Appendix B - Reconciliation of balance sheet and equity as at 30 June 2004 from UK GAAP toIFRS As reported Foreign under UK Goodwill currency Deferred GAAP amortisation Reclassification translation taxation IFRS £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 3,720 - - (14) - 3,706Goodwill 29,456 767 - - - 30,223Intangible fixed assets - - - - - -Investment in associates - - 40 - - 40Available-for-sale financial assets (UK GAAPTrade investment) 305 - (274) - - 31Financial assets at fair value through income statement - - 234 - - 234 ----------------------------------------------------------------------------- 33,481 767 - (14) - 34,234 Current assets Inventories 4,474 - - (262) - 4,212Trade and othe receivables 14,000 - - (833) - 13,167Prepayments 3,996 - - (57) - 3,939Cash and short-term deposits 6,526 - - (123) - 6,403 ----------------------------------------------------------------------------- 28,996 - - (1,275) - 27,721 -----------------------------------------------------------------------------TOTAL ASSETS 62,477 767 - (1,289) - 61,955 ============================================================================= EQUITY AND LIABILITIESEquity attributable toequity share owners ofthe parentIssued share capital 390 - - - - 390Share premium account 21,412 - - - - 21,412Shares to be issued 8,032 - - - - 8,032Capital redemption reserve 24 - - - - 24Merger reserve (527) - - - - (527)Foreign currency translation reserve - - - (63) - (63)Retained earnings 7,585 767 - (822) 23 7,553 -----------------------------------------------------------------------------Total equity 36,916 767 - (885) 23 36,821Non-current liabilitiesInterest bearing loans and borrowings 14 - - - - 14Other payables due after more than one year 3,613 - - - - 3,613Deferred income tax liabilities 48 - - - (23) 25 ----------------------------------------------------------------------------- 3,675 - - - (23) 3,652Current liabilitiesTrade and other payables 9,921 - - (457) - 9,464Interest bearing loans and borrowings 8,801 - - 55 - 8,856Other payables due within one year 1,638 - - - - 1,638Income tax 851 - - (2) - 849Provisions - due within one year 675 - - - - 675 ----------------------------------------------------------------------------- 21,886 - - (404) - 21,482 -----------------------------------------------------------------------------TOTAL LIABILITIES 25,561 - - (404) (23) 25,134 ----------------------------------------------------------------------------- TOTAL EQUITY AND LIABILITIES 62,477 767 - (1,289) - 61,955 ============================================================================= Explanation of adjustmentsAdjustments required under IFRS are detailed at the foot of appendix A. Appendix C - Restatement of balance sheet & equity at 1 January 2005 for theeffects of the Financial Instruments Standards, IAS 32 and IAS 39 Under IFRS 1 First time adoption of International Financial Reporting Standards,the group is not required to present comparative information which complies withIAS 32 and IAS 39. The group's hedging strategy is unchanged in respect to bothhedging the net investment position of foreign subsidiaries and covering thetransactional risk of foreign currency sales and purchases. The accountingdifferences for which the opening 2005 balance sheet is restated and which willapply to the 2005 figures are noted below: IFRS pre Gross up Transitional restatement for debt forward for IAS offset contracts Restated 32 & 39 (a) (b) IFRS £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,173 - - 10,173Goodwill 30,075 - - 30,075Intangible fixed assets 249 - - 249Investment in associates 40 - - 40Available-for-sale financial assets (UK GAAP Trade investment) 31 - - 31Financial assets at fair value through income statement 145 - - 145Trade and other receivables 112 - - 112 ------------------------------------------ 40,825 - - 40,825 Current assetsInventories 3,919 - - 3,919Trade and other receivables 15,173 - - 15,173Prepayments 4,269 - - 4,269Forward currency contracts - - 731 731Cash and short-term deposits 1,622 10,419 - 12,041 ------------------------------------------ 24,983 10,419 731 36,133 ------------------------------------------TOTAL ASSETS 65,808 10,419 731 76,958 ========================================== EQUITY AND LIABILITIESEquity attributable to equityshare owners of the parentIssued share capital 404 - - 404Share premium account 22,803 - - 22,803Shares to be issued 6,496 - - 6,496Capital redemption reserve 24 - - 24Merger reserve (527) - - (527)Foreign currency reserve (273) - - (273)Retained earnings 9,607 - 731 10,338 ------------------------------------------Total equity 38,534 - 731 39,265 Non-current liabilitiesInterest bearing loans and borrowings 1,314 - - 1,314Other payables due after more than one year 3,298 - - 3,298Deferred income tax liabilities 480 - - 480 ------------------------------------------ 5,092 - - 5,092 Current liabilitiesTrade and other payables 13,937 - - 13,937Interest bearing loans and borrowings 6,082 10,419 - 16,501Other payables due within one year 1,063 - - 1,063Income tax 1,100 - - 1,100 ------------------------------------------ 22,182 10,419 - 32,601 ------------------------------------------TOTAL LIABILITIES 27,274 10,419 - 37,693 ------------------------------------------TOTAL EQUITY AND LIABILITIES 65,808 10,419 731 76,958 ========================================== Appendix C - Restatement of balance sheet & equity at 1 January 2005 for theeffects of the Financial Instruments Standards, IAS 32 and IAS 39 (continued) (a) Under IFRS and UK GAAP an enforceable right of offset is required to offset cash and borrowings. However, under IFRS there must also be an intention 0to settle these balances net. This means that the gross cash and borrowing positions included in the IFRS financial statements are different to those shown under UK GAAP. (b) Under IAS 39, there is a requirement to recognise on the balance sheet forward exchange contracts and other derivatives at their fair value. The group had entered into forward exchange contracts prior to 1 January 2005 and on initial recognition under IAS 39 this has resulted in a fair value asset being recognised on the balance sheet and within reserves of £731,000. On maturity of these forward exchange contracts, any realised gains or losses are recognised within the income statement. Additionally, any changes to the fair value of forward exchange contracts from one reporting period to the next is also reported within the income statement. Under IAS 39, certain types of forward exchange contracts can be designated as a hedging instrument. Where hedging criteria is satisfied and the relevant documentation has been put in place, any movement in the fair value of forward exchange contracts is recognised within reserves rather than through the income statement. Where new forward exchange contracts are being entered into, the group is ensuring these comply with the hedging criteria as set out within IAS 39. On the basis the hedge effectiveness is maintained, any movements in the fair value of forward exchange contracts will be deferred within reserves and matched to the settlement of the underlying hedged asset or liability. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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