13th Sep 2005 07:04
Chime Communications PLC13 September 2005 CHIME COMMUNICATIONS PLC ("Chime" and "the Group") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2005 * Successful completion of acquisition of VCCP Limited in July 2005. Since the acquisition VCCP Group has won Gala Bingo, More Th>n, Callaway, e-bookers, Samsung and Newspaper Marketing Association and VCCP has been included on the COI Advertising roster. * Operating income up 5% to £28.4 million. * Headline operating profit up 16% to £4.2 million. * Headline profit before tax up 20% to £3.7 million. Statutory profit before tax was £3.1 million after restructuring costs of £655,000. * Earnings per share up 18% to 1.3p. * Headline operating profit margin 14.7% up from 13.4%. * Net debt down to £5.2 million from £8.8 million. * Interim dividend of 0.16p per share. No interim dividend in 2004. Note: Headline figures are shown prior to restructuring costs, share basedpayments, associates, joint ventures and discontinued operations(see note 2). Lord Bell, Chairman of Chime Communications, said: "A good first six months of 2005 and the prospect of a strong second halffollowing the acquisition of VCCP". For further information please contact: Lord Bell, Chairman 020 7861 8515Chime Communications Robin Tozer / Chris Hamilton 020 7861 3232Bell Pottinger Corporate & Financial SUMMARY OF RESULTS The first half of 2005 saw the continuation of the progress we made in 2004.Both public relations and research continued their growth in income andoperating profit. We have finally set the marketing services division on thepath to growth following the acquisition of VCCP, although in the first half of2005 this division continued to underperform. Overall we consider the first halfof 2005 to be a good performance. Operating income in the first half of 2005 increased by 5% from £26.9 million to£28.4 million. Headline operating profit increased by 16% from £3.6 million to£4.2 million. Headline operating profit margin in the first half year continuedto improve from 13.4% to 14.7%. We have a continuing cost control and margin improvement policy and we arecontinuing to restructure following the downturn in the early part of thedecade. As a result of this there were restructuring costs in the first half of2005 of £655,000 which relate to property and personnel costs. We expect somerestructuring costs in the second half of 2005 following the acquisition ofVCCP. These are likely to be less than the restructuring costs incurred in thefirst half of 2005. Earnings per share has increased from 1.1p to 1.3p. The Board is proposing an interim dividend of 0.16p per share. There was nointerim dividend in 2004. Our net debt position continues to improve and as at 30th June 2005 was £5.2million compared to £8.8 million at 30th June 2004 and £6.3 million at 31stDecember 2004. REVIEW OF OPERATIONS (All operating profit and operating income items referred to in this section areshown prior to restructuring costs, discontinued operations and share of resultsof associates). In the first half of 2005 public relations represented 64% of our operatingincome (2004 first half - 63%), marketing services 29% (30%) and research 7%(7%). In terms of operating profit in the first half of 2005 these divisionscontributed 80% (70%), 10% (19%) and 10% (11%). Following the acquisition of VCCP which will be the central part of themarketing services division, we expect operating income next year to representapproximately 54%, 40% and 6% respectively. Public Relations Operating income for the first half of 2005 increased by 8% from £16.9 millionto £18.3 million. Operating profit increased by 29% from £2.6 million to £3.4million. Operating profit margin increased from 15.6% to 18.6%. Bell Pottinger Sans Frontieres continued to make very strong progress and therewere improved performances from Bell Pottinger Corporate and Financial,Resonate, Insight, Rare Corporate Design, Bell Pottinger USA and MMK in Germany. New business wins in 2005 have included : Association of Chartered Certified FujitsuAccountantsAt The Races The Heart Failure Society of AmericaBudget Car Rental LadbrokesCadbury Trebor Bassett Nuclear Decommissioning AuthorityCJIT PetrofacColt Telecom Sony Computer EntertainmentCommonwealth Institute SovcomflotDirectline.com Taylor WoodrowDyson ToshibaEDS Marketing Services Despite a disappointing performance in the first half of 2005 this divisionshould become one of the major growth areas of the Group following theacquisition of VCCP. In the first half of 2005 operating income was stable at £8.2 million comparedto £8.1 million in 2005. Operating profit was down 39% from £0.7 million to £0.4million. Operating profit margin decreased from 8.6% to 5.3%. Our three sector specialist businesses, Teamspirit (Financial Services), TTA(Property) and Ozone (Healthcare) all had good growth in the first half of 2005. Rare Digital performed well in the first half of 2005 but Gasoline, Heresy andPure Media were all disappointing. These four businesses have been integratedinto the VCCP Group and their performance has already improved. Since theacquisition the VCCP Group has won Gala Bingo, More Th>n, Callaway, e-bookers,Samsung and Newspaper Marketing Association. New business wins in 2005 have included : BMI Baby MetroBovis Homes MullerCoca-Cola NCPGala Bingo Paddy PowerGSK Pot NoodleHyundai Threshers Research Operating income in the first half of 2005 increased by 14% from £1.8 million to£2.0 million. Operating profit increased by 5% from £402,000 to £422,000. Operating profit margin was stable at 21% compared to 22% in 2005. We continueto make investment for the future. New business wins in 2005 have included: CBI - Future Services National Farmers UnionDEFRA SiemensDepartment of Health SideshowThe Embassy of Japan SportingbetMacmillan Cancer Care Which? BUSINESS ACTIVITY The Group acted for 818 clients in the first half of 2005, compared to 726 inthe same period in 2004. 134 of these clients used more than one of ourbusinesses (135 in 2004). 124 clients paid us over £50,000 in the first half of 2005 compared to 116 inthe same period in 2004. Our top 30 clients represented 35% of total operatingincome (30th June 2004 - 35%, 31st December 2004 - 34%) and our largest clientrepresented 5.4% of total operating income (30th June 2004 - 2.6%, 31st December2004 - 3.1%). Average income per employee in the first half year was £46,000 in line with lastyear. Average fee income per client was £34,000 compared to £37,000 in the firsthalf of 2004. This is a half year statistic and the reduction is not in our viewmaterial. High profile activities we were involved in included: • The campaign to promote Coca-Cola's full portfolio of drinks brands. • GNER's successful bid to retain their franchise. • The launch of ISA Plus for Scottish Widows. • The launch for MSN and Vodafone of the world's first PC to mobile instant messaging solution. • The marketing and branding for FX which won Best New Channel of the Year in the Broadcast Awards. • The promotion of awareness of pregnancy discrimination for the Equal Opportunities Commission. • The campaign for WH Smith to support the launch of the new Harry Potter book. • Work for Thameslink that won the HSBC Rail PR Campaign of the Year. • The launch of Pick Me Up for IPC, the most successful women's magazine launch in the United Kingdom for over a decade. • The acquisition of Durlacher by Panmure Gordon. MARGIN IMPROVEMENT We have a very strong margin and in the past we have achieved some of the bestmargins in our sector. It is one of the key targets for all our managers toimprove their margin as it reflects the efficiency of our business. We have acontinuing cost and margin improvement policy and we are continuing torestructure following the downturn in the early part of the decade. As a resultof this, in the first half of 2005 we have incurred restructuring costs of£655,000. £316,000 of this relates to property and £339,000 to personnel. At 30th June 2005 the Group has outstanding provisions of £534,000 for theexpected costs of empty properties or the cost of properties that have beensub-let or assigned at rents below the level the Group is paying. The Group iseither in negotiations to sub-let its remaining empty properties or is planningto re-occupy them. At this stage we do not consider that further provision isrequired. However, we will keep this under review as our plans develop. BANKING ARRANGEMENTS AND CASH FLOW The Group generated £2.4 million from trading activities in the first half of2005. Net debt at 30th June 2005 was £5.2 million compared to £8.8 million at30th June 2004. The Group remains comfortably within its banking covenants. Following the acquisition of VCCP the Group has expected deferred considerationsof £9.3 million of which £4.8 million is payable in cash and £4.5 million ispayable in shares. Deferred considerations payable in the second half of 2005 total £393,000, ofwhich £293,000 is payable in cash and £100,000 in shares. Deferred considerations payable in 2006 are expected to be £390,000, of which£179,000 is payable in cash and £211,000 in shares. The remaining deferred considerations are payable between 2007 and 2011. DIVIDEND The Board is proposing to pay an interim dividend of 0.16p per share (2004 -nil). This will be payable on 10th November 2005 to shareholders on the registerat 14th October 2005. CORPORATE ACTIVITY In July we completed the acquisition of VCCP Limited. The whole transaction,both initial and deferred considerations, is based on a multiple of 8 times pretax profit in line with other similar deals in our marketplace. The initial consideration for the acquisition was £14.5 million with additionaldeferred consideration, based on profit performance over the next five years, ofup to £15.5 million. Both the initial and deferred considerations are payable50% in Chime shares. £5.3 million of the initial cash consideration was fundedby placing 20.4 million shares representing 8% of the enlarged share capital. VCCP is a leading marketing services company providing advertising, digital,direct marketing, sales promotion and brand consultancy services to clients. Ithas proven management which has carried out campaigns for major clients andbrands. VCCP has taken over the management of some of Chime's marketing servicesbusinesses which complement the existing services of VCCP and creates theopportunity for introducing clients between the businesses. Also in July we completed the acquisition of Baxter Hulme, a public relationsconsultancy based in the North of England. The initial consideration was£307,000 with deferred consideration, based on profit performance over the nexttwo years, of up to £693,000. Both the initial and deferred considerations arepayable half in cash and half in Chime shares. This acquisition will furtherstrengthen Bell Pottinger North which was launched last year. INTERNATIONAL FINANCIAL REPORTING STANDARDS The interim results for 2005 and the comparative results for 2004 have been setout under IFRS. The three principal changes that have resulted from this are: 1. Share based payments, reflecting the costs of options with a charge in the first half of 2005 of £116,000 (2004: £81,000) and an adjustment to prior years totaling £197,000. 2. Accounting for associates a. The deduction of tax from income from associates, previously included in taxation. In the first half of 2005 this amounted to a cost of £32,000 with no changes to the 2004 comparatives. b. The reversal of the share of profits of associates until brought forward losses have been covered. This amounted to a cost of £89,000 in the first half of 2005, compared to £26,000 in the first half of 2004 and £453,000 for the whole of 2004. 3. The costs of discounting deferred acquisition provisions which are included in Finance costs. This amounted to a charge of £34,000 in the first half of 2005 compared to £43,000 in the first half of 2004. TAXATION There has been a one-off reduction in our first half year tax charge of £560,000as a result of agreeing some prior years tax charges. The effective tax charge for the first half year was therefore 13%. We expectthe second half year to return to our normal rate of 31%. CORPORATE AND SOCIAL RESPONSIBILITY In July we issued our first Corporate Responsibility Report. This was producedby our companies, Smart (Corporate and Social Responsibility) and Rare (Design).It reviewed our practices relating to people, clients, the communities in whichwe operate and the natural environment and it stated our aims for the yearahead. This report has been distributed to all staff and is available to clients,potential clients and shareholders. OUTLOOK AND GROWTH STRATEGY Chime is the holding company for: •The UK's biggest Public Relations Group (Source: PR Week League Table) •The leading qualitative and consultative research group, OLR •VCCP one of the fastest growing Marketing Services Groups in the UK Key targets for continued growth in profits: • Improving the number of clients who use more than one Chime company - cross selling. • Strong growth in margin with the objective of achieving 18% - a level we have achieved in the past and which 15 of our 24 companies achieved in the first half of 2005. • Outperforming market growth by being extremely competitive. • Improving our digital capability on the three screens; television, computer and mobile phone. • Developing international revenue through hub based service delivery. • Selective strategic acquisitions or investments in high growth areas of our market. We are now in the growth cycle for our industry, albeit at lower levels thanprevious cycles. We are determined to take advantage of this growth potential,both in terms of improved revenue and improved profits. We will be focusing ondeveloping our relationships with our existing clients and concentrating hard onnew business in order to gain a disproportionate share of market growth.Meanwhile we will be continuing our close attention to cost control and withthis in mind, we are reviewing our corporate costs during the next few months. As expected, the summer months have been quiet but our new business pipeline isgood and despite the uncertainty of the United Kingdom economy we are confidentabout the outcome for the year. Consolidated Income StatementSix months ended 30 June 2005 (unaudited) 6 months 6 months 12 months to to to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Note CONTINUING OPERATIONSTurnover 49,573 46,731 95,442Cost of sales (21,183) (19,807) (41,681) ----------- ----------- ----------- OPERATING INCOME 28,390 26,924 53,761 Other operating income 5 - -Operating expenses (24,348) (23,401) (46,688) ----------- ----------- ----------- 4,047 3,523 7,073 Share of results of associates 1 187 55Share of results of equityaccounted joint ventures - - 120Restructuring costs (655) - - ----------- ----------- ----------- PROFIT FROM OPERATIONS 2 3,393 3,710 7,248 Profit on disposal of fixedassetinvestment - - 164Investment income 80 50 125Finance costs (408) (637) (1,081)Finance cost of deferredconsideration (34) (43) (87) ----------- ----------- ----------- PROFIT BEFORE TAX 3,031 3,080 6,369 Tax (379) (1,067) (2,051) ----------- ----------- ----------- PROFIT FOR THE PERIOD FROMCONTINUING OPERATIONS 2,652 2,013 4,318 DISCONTINUED OPERATIONSLoss for the period fromdiscontinued operations - (18) (18) ----------- ----------- ----------- PROFIT FOR THE PERIOD 2,652 1,995 4,300 =========== =========== =========== Attributable to:Equity holders of the parent 2,590 1,901 4,123Minority interest 62 94 177 ----------- ----------- ----------- 2,652 1,995 4,300 =========== =========== =========== EARNINGS PER SHARE 3From continuing operationsBasic 1.3p 1.1p 2.2pDiluted 1.3p 1.1p 2.1pFrom continuing anddiscontinuedoperationsBasic 1.3p 1.1p 2.2pDiluted 1.3p 1.0p 2.1p Consolidated Statement of Total Recognised Income and ExpenseSix months ended 30 June 2005 (unaudited) 6 months 6 months 12 months to to to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Loss on disposal of own equity shares heldintreasury - - (3)Exchange differences on translation offoreignsubsidiaries (269) (203) (2) ---------- ---------- ----------Net loss recognised directly inequity (269) (203) (5)Profit for the period 2,652 1,995 4,300 Total recognised income and expense for ---------- ---------- ---------- the period 2,383 1,792 4,295 ---------- ---------- ----------Attributable to:Equity holders of the parent 2,321 1,698 4,118Minority interest 62 94 177 Total recognised gains and lossesrelating ---------- ---------- ----------to the period 2,383 1,792 4,295 ---------- ---------- ---------- Consolidated Balance Sheet as at 30 June 2005 As at As at As at 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Non-current assetsGoodwill 43,919 44,786 45,099Other intangible assets 199 314 264Property, plant and equipment 1,823 2,189 2,079Investments in associates 915 496 807Investments in equity accounted jointventures - - 15Available for sale investments 1 3 3Deferred tax asset 784 1,024 784 ---------- ---------- ---------- 47,641 48,812 49,051 ---------- ---------- ---------- Current assetsWork in progress 598 562 426Trade and other receivables 18,805 20,126 18,714Cash and cash equivalents 6,618 3,065 6,056 ---------- ---------- ---------- 26,021 23,753 25,196 ---------- ---------- ----------Total assets 73,662 72,565 74,247 ---------- ---------- ---------- Current liabilitiesTrade and other payables (22,735) (23,519) (23,422)Current tax liabilities (2,232) (2,841) (2,470)Obligations under finance leases (134) (81) (100)Bank overdraft (1,246) - (1,500)Short-term provisions (782) (2,350) (996) ---------- ---------- ---------- (27,129) (28,791) (28,488) ---------- ---------- ---------- ---------- ---------- ----------Net current liabilities (1,108) (5,038) (3,292) ---------- ---------- ---------- Non-current liabilitiesBank loans (8,940) (9,851) (8,895)Long-term provisions (690) (2,005) (2,025)Obligations under finance leases (142) (144) (136) ---------- ---------- ---------- (9,772) (12,000) (11,056) ---------- ---------- ----------Total liabilities (36,901) (40,791) (39,544) ---------- ---------- ---------- ---------- ---------- ----------Net assets 36,761 31,774 34,703 ---------- ---------- ---------- EquityShare capital 10,363 10,260 10,312Share premium account 16,826 16,260 16,548Own shares (6,967) (6,974) (6,969)Equity reserve 32,698 32,501 32,582Translation reserve (271) (203) (2)Accumulated losses (16,049) (20,246) (18,027) ---------- ---------- ----------Equity attributable to equity holders oftheparent 36,600 31,598 34,444Equity minority interest 161 176 259 ---------- ---------- ----------Total equity 36,761 31,774 34,703 ---------- ---------- ---------- Consolidated cash flow statementSix months ended 30 June 2005 (unaudited) 6 months 6 months 12 months to to to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Note Net cash inflow from operatingActivities 5 2,426 2,625 6,140 Investing activitiesInterest received 79 49 353Dividends received fromassociates - 5 5Proceeds on disposal of property,plantand equipment 114 78 188Purchases of property, plant andequipment (310) (296) (706)Purchases of other intangibleassets - - (15)Proceeds from disposal ofinvestment 264 - -Acquisition of investment in anassociate (75) - (40)Loans granted to associates (120) 154 (5)Loans granted to joint ventures (44) - (69)Acquisition of subsidiary (312) (319) (950) Net cash outflow from returns on investment and servicing of ----------- ----------- -----------finance (404) (329) (1,239) ----------- ----------- ----------- Financing activitiesDividend paid (606) - -Dividends paid to minorities (160) (56) (56)Repayments of borrowing - (9,955) (10,911)New bank loan raised 45 - -Repay loan notes (431) (1,153) (1,239)Repayments of obligations underfinance leases (56) (27) (83)Proceeds on issue of ordinarysharecapital - 18,393 18,375Sale of own shares 2 - 2Expenses of capital reduction - (90) (90)Net cash (used in)/from financing ----------- ----------- -----------activities (1,206) 7,112 5,998 ----------- ----------- ----------- Net increase in cash and cashequivalents 816 9,408 10,899 Cash and cash equivalents atbeginning of year 4,556 (6,343) (6,343) Cash and cash equivalents at end ----------- ----------- -----------of period 5,372 3,065 4,556 =========== =========== =========== Cash and cash equivalents comprise cash at bank, loan note deposits lessoverdrafts and does not take intoaccount the following borrowings:Bank loans (8,940) (9,851) (8,895)Finance leases (276) (225) (236)Loan notes outstanding (1,317) (1,834) (1,748) ----------- ----------- -----------Overall net debt (5,161) (8,845) (6,323) =========== =========== =========== Notes: 1. Business Segments For management purposes, the group is currently organised into three operatingdivisions - Public Relations, Marketing Services and Research. These divisionsare the basis on which the group reports its primary segment information. Principal activities are as follows: Public Relations The public relations division comprises some of the leading names in theindustry, including Bell Pottinger, Good Relations, QBO Bell Pottinger, Harvardand Insight, which together advise the owners and promoters of more than 300major UK and international brands. The public relations division is ranked firstin the PR Week public relations consultancy league table for 2004.Marketing Services ('MS') The MS division possesses specialist skills in marketing services - salespromotion, direct marketing, advertising, design, media planning and buying,digital online content creation, customer publishing and customer loyalty, andspecialises in the niche markets of property, financial services and healthcare. Research The research division is made up of Opinion Leader Research and The SmartCompany.NET. Opinion Leader Research is one of the UK's leading researchconsultancies and The Smart Company is a consultancy, which specialises incorporate social responsibility and related public policy issues. The group's operations are located in the United Kingdom, Germany and USA. Thegroup's Marketing Services and Research divisions are located solely in theUnited Kingdom. Public Relations is carried out in the United Kingdom, Germanyand USA Operating Income Profit from operations 6 months 6 months 12 months 6 months 6 months 12 months to to to 31 to to to 31 30 June 30 June December 30 June 30 June December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000 Class ofbusiness PublicRelations:Continuingoperations 18,262 16,943 35,540 3,083 2,644 5,446 MarketingServices:Continuingoperations 8,078 8,184 14,901 152 705 1,332Discontinuedoperations - 62 62 - (18) (18) --------- --------- --------- --------- --------- --------- 8,078 8,246 14,963 152 687 1,314 Research:Continuingoperations 2,050 1,797 3,320 359 402 689 --------- --------- --------- --------- --------- --------- 28,390 26,986 53,823 3,594 3,733 7,449 Chime CentralCosts - - - (207) (228) (394) --------- --------- --------- --------- --------- --------- 28,390 26,986 53,823 3,387 3,505 7,055 --------- --------- --------- --------- --------- --------- Geographical United Kingdom: Continuingoperations 26,644 25,241 50,129 3,427 3,584 7,148Discontinuedoperations - 62 62 - (18) (18) --------- --------- --------- --------- --------- --------- 26,644 25,303 50,191 3,427 3,566 7,130Europe:Continuingoperations 1,455 1,416 3,095 154 174 315 USA:Continuingoperations 291 267 537 13 (7) 4 --------- --------- --------- --------- --------- --------- 28,390 26,986 53,823 3,594 3,733 7,449 Chime CentralCosts - - - (207) (228) (394) --------- --------- --------- --------- --------- --------- 28,390 26,986 53,823 3,387 3,505 7,055 --------- --------- --------- --------- --------- --------- Profit from operations(before Operating Margin restructuring costs) (restructuring costs) 6 months 6 months 12 months 6 months 6 months 12 months to to to 31 to to to 31 30 June 20 June December 30 June 30 June December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 % % % Class ofbusiness PublicRelations:Continuingoperations 3,400 2,644 5,446 18.6% 15.6% 15.3% MarketingServices:Continuingoperations 427 705 1,332 5.3% 8.6% 8.9%Discontinuedoperations - (18) (18) - - - --------- --------- --------- --------- --------- --------- 427 687 1,314 5.3% 8.3% 8.8%Research:Continuingoperations 422 402 689 20.6% 22.4% 20.8% --------- --------- --------- --------- --------- --------- 4,249 3,733 7,449 15.0% 13.8% 13.8% Chime CentralCosts (207) (228) (394) - - - --------- --------- --------- --------- --------- --------- 4,042 3,505 7,055 14.2% 13.0% 13.1% --------- --------- --------- --------- --------- --------- Geographical UnitedKingdom:Continuingoperations 4,070 3,584 7,148 15.3% 14.2% 14.3%Discontinuedoperations (18) (18) - -29.0% -29.0% --------- --------- --------- --------- --------- --------- 4,070 3,566 7,130 15.3% 14.1% 14.2%Europe:Continuingoperations 166 174 315 11.4% 12.3% 10.2% USA:Continuingoperations 13 (7) 4 4.5% -2.6% 0.7% --------- --------- --------- --------- --------- --------- 4,249 3,733 7,449 15.0% 13.8% 13.8% Chime CentralCosts (207) (228) (394) - - - --------- --------- --------- --------- --------- --------- 4,042 3,505 7,055 14.2% 13.0% 13.1% --------- --------- --------- --------- --------- --------- 2. Headline operating profit 12 months Six months ended 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Profit from operations 3,393 3,710 7,248Add Costs share based payments 116 81 162Add Restructuring costs 655 - -Less share of results of associate (1) (187) (55)Less share of results of equityaccounted joint venture - - (120) --------- --------- ----------Headline operating profit 4,163 3,604 7,235 --------- --------- ---------- Restructuring costs relate to redundancy £339,000 and the cost of vacantproperty £316,000. There were no restructuring costs in 2004. 3. Earnings per share From continuing and discontinued operations The calculation of the basic and diluted earnings per share is based on thefollowing data: 12 months Six months ended 30 June 31 December 2005 2004 2004 £'000 £'000 £'000EarningsEarnings for the purpose of basicearnings per share being net profitattributable to the equity holdersof the parent 2,590 1,901 4,123 -------- --------- --------- Number of sharesWeighted average number of ordinaryshares for the purposes of basicearnings per share 201,193,198 179,269,203 189,947,802 Effect of dilutive potential ordinaryshares:Share options 2,252,031 1,494,613 2,590,300Warrants 1,746,696 1,398,999 2,348,000 -------- --------- ---------Weighted average number of ordinaryshares for the purposes of dilutedearnings per share 205,191,925 182,162,815 194,886,102 -------- --------- --------- From continuing operations 12 months Six months ended 30 June 31 December 2005 2004 2004 £'000 £'000 £'000EarningsNet profit attributable to equityholders of the parent 2,590 1,901 4,123 Adjustments to exclude loss for theperiod from discontinued operations - 18 18 -------- --------- ---------Earnings from continuing operationsfor the purposes of basic earningsper share excluding discontinuedoperations 2,590 1,919 4,141 -------- --------- --------- The denominators used are the same as those detailed above for both the basicand diluted earnings per share from continuing and discontinued operations. The loss per share from discontinued operations is insignificant 4. Dividends 12 months 31 Six months ended 30 June December 2005 2004 2004 £'000 £'000 £'000 Amounts recognised as distributions to equityholders in the period(approved): Final dividend for the year ended 31December of 0.30p (2004:Nil) pershare 614 - - --------- --------- --------- Amounts not recognised as distributions to equityholders in thePeriod (declared): Proposed interim dividend for theyear ended 31 December 2005 of 0.16p(2004:Nil) per share 420 - 614 --------- --------- --------- The proposed interim dividend was approved by the Board on 9th September 2005and has not been included as a liability as at 30 June 2005. The dividend willbe paid on 10 November 2005 to those shareholders on the register at 14 October2005. Under an agreement dated 3 April 1996, The Chime Communications Employee Trustwhich holds 5,265,003 ordinary shares representing 2.54% of the company'scalled-up share capital, has agreed to waive all dividends. 5. Notes to the consolidated cash flow statement 6 months 6 months 12 months to to to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Profit from operations 3,393 3,710 7,248Adjustments for:Loss from discontinued operation - (18) (18)Share of associates and jointventure results (1) (187) (175)Share based payment expense 116 81 162Translation differences (5) (2) 22Depreciation of property, plantand equipment 560 626 1,142Amortisation of other intangibleassets 65 64 129Gain on disposal of property, plantandequipment (19) (27) (63)Decrease in provisions (219) (447) (845) ---------- ---------- ---------- Operating cash flows before movementsinworking capital 3,890 3,800 7,602 Decrease/(increase) in work inprogress (172) (26) 109Increase in receivables (91) (3,009) (1,195)(Decrease)/increase in payables (153) 2,897 2,462 ---------- ---------- ---------- Cash generated by operations 3,474 3,662 8,978 Income taxes paid (615) (268) (1,383)Interest paid (433) (769) (1,455) ---------- ---------- ---------- Net cash from operating activities 2,426 2,625 6,140 ========== ========== ========== 6. Events after the balance sheet date On 19th July 2005 the group acquired the entire share capital of VCCP Limited.The initial consideration for the acquisition was £14.5 million and theadditional deferred consideration of up to £15.5million is payable subject tocertain profit targets being met. The maximum consideration payable is£30.0million. Costs relating to the acquisition were £1.3million. 7. Explanation of transition to IFRS This is the first year that the group has presented its financial statementsunder IFRS. The following disclosures are required in the year of transition.The last financial statements under UK GAAP were for the year ended 31 December2004 and the date of transition to IFRSs was therefore 1 January 2004. Thereconciliation of equity at 30 June 2004 and the reconciliation of profit forthe six months ended 30 June 2004 have been included below to enable comparisonof the 2005 published interim figures with those published in the correspondingperiod of the previous financial year Reconciliation from UK GAAP to IFRSBalance sheet As at 1 January 2004 IFRS Effect of (opening transition IFRS Previous to balance GAAP IFRSs Sheet) Note £'000 £'000 £'000 Non-current assetsGoodwill 1,2,11 44,985 (35) 44,950Other intangible assets 3 - 378 378Property, plant and equipment 3 2,830 (378) 2,452Investments in associates 4,5,7 423 60 483Investments in equity accounted - - -joint venturesAvailable for sale investments 3 - 3Deferred tax asset 1,024 - 1,024 -------- ---------- ---------- 49,265 25 49,290 -------- ---------- ----------Current assetsWork in progress 535 - 535Trade and other receivables 4 17,450 (379) 17,071Cash and cash equivalents 2,987 - 2,987 -------- ---------- ---------- 20,972 (379) 20,593 -------- ---------- ----------Total assets 70,237 (354) 69,883 -------- ---------- ---------- Current liabilitiesTrade and other payables 9 (22,240) - (22,240)Current tax liabilities 7 (2,040) - (2,040)Obligations under finance leases (41) - (41)Bank overdraft (9,330) - (9,330)Short-term provisions 6 (1,285) (544) (1,829) -------- ---------- ---------- (34,936) (544) (35,480) -------- ---------- ---------- -------- ---------- ----------Net current liabilities (13,964) (923) (14,887) -------- ---------- ---------- Non-current liabilitiesBank loans (19,806) - (19,806)Long-term provisions 5,6,7,11,12 (3,197) 266 (2,931)Obligations under finance leases (86) - (86) -------- ---------- ---------- (23,089) 266 (22,823) -------- ---------- ----------Total liabilities (58,025) (278) (58,303) -------- ---------- ---------- -------- ---------- ----------Net assets 12,212 (632) 11,580 -------- ---------- ---------- EquityShare capital 7,980 - 7,980Share premium account 173 - 173Shares to be issued 6 1,359 (1,359) -Own shares (6,984) - (6,984)Equity reserve 8 32,385 35 32,420Translation reserve 10 - - -Accumulated losses 8,12 (22,839) 692 (22,147) -------- ---------- ----------Equity attributable to equityholders of theparent 12,074 (632) 11,442 -------- ---------- ----------Equity minority interest 138 - 138 -------- ---------- ----------Total equity 12,212 (632) 11,580 -------- ---------- ---------- Reconciliation from UK GAAP to IFRSBalance sheet As at 30 June 2004 Effect of transition Previous to GAAP IFRSs IFRS Note £'000 £'000 £'000 Non-current assetsGoodwill 1,2,11 44,964 (178) 44,786Other intangible assets 3 - 314 314Property, plant and equipment 3 2,503 (314) 2,189Investments in associates 4,5,7 496 - 496Investments in equity accounted - - -joint venturesAvailable for sale investments 3 - 3Deferred tax asset 1,024 - 1,024 -------- ---------- ---------- 48,990 (178) 48,812 -------- ---------- ----------Current assetsWork in progress 562 - 562Trade and other receivables 4 20,351 (225) 20,126Cash and cash equivalents 3,065 - 3,065 -------- ---------- ---------- 23,978 (225) 23,753 -------- ---------- ----------Total assets 72,968 (403) 72,565 -------- ---------- ---------- Current liabilitiesTrade and other payables 9 (23,519) - (23,519)Current tax liabilities 7 (2,849) 8 (2,841)Obligations under finance leases (81) - (81)Bank overdraft - - -Short-term provisions 6 (1,640) (710) (2,350) -------- ---------- ---------- (28,089) (702) (28,791) -------- ---------- ---------- -------- ---------- ----------Net current liabilities (4,111) (927) (5,038) -------- ---------- ---------- Non-current liabilitiesBank loans (9,851) - (9,851)Long-term provisions 5,6,7,11,12 (2,274) 269 (2,005)Obligations under finance leases (144) - (144) -------- ---------- ---------- (12,269) 269 (12,000) -------- ---------- ----------Total liabilities (40,358) (433) (40,791) -------- ---------- ---------- -------- ---------- ----------Net assets 32,610 (836) 31,774 -------- ---------- ---------- EquityShare capital 10,260 - 10,260Share premium account 16,260 - 16,260Shares to be issued 6 1,359 (1,359) -Own shares (6,974) - (6,974)Equity reserve 8 32,385 116 32,501Translation reserve 10 - (203) (203)Accumulated losses 8,12 (20,856) 610 (20,246) -------- ---------- ----------Equity attributable to equityholders of theparent 32,434 (836) 31,598 -------- ---------- ----------Equity minority interest 176 - 176 -------- ---------- ----------Total equity 32,610 (836) 31,774 -------- ---------- ---------- Reconciliation from UK GAAP to IFRSBalance sheet As at 31 December 2004 Effect of transition Previous to GAAP IFRSs IFRS Note £'000 £'000 £'000 Non-current assetsGoodwill 1,2,11 45,110 (11) 45,099Other intangible assets 3 - 264 264Property, plant and equipment 3 2,343 (264) 2,079Investments in associates 4,5,7 822 (15) 807Investments in equity accountedjoint 15 - 15venturesAvailable for sale investments 3 - 3Deferred tax asset 784 - 784 -------- ---------- ---------- 49,077 (26) 49,051 -------- ---------- ----------Current assetsWork in progress 426 - 426Trade and other receivables 4 18,714 - 18,714Cash and cash equivalents 6,056 - 6,056 -------- ---------- ---------- 25,196 - 25,196 -------- ---------- ----------Total assets 74,273 (26) 74,247 -------- ---------- ---------- Current liabilitiesTrade and other payables 9 (24,025) 603 (23,422)Current tax liabilities 7 (2,612) 142 (2,470)Obligations under finance leases (100) - (100)Bank overdraft (1,500) - (1,500)Short-term provisions 6 (641) (355) (996) -------- ---------- ---------- (28,878) 390 (28,488) -------- ---------- ---------- -------- ---------- ----------Net current liabilities (3,682) 390 (3,292) -------- ---------- ---------- Non-current liabilitiesBank loans (8,895) - (8,895)Long-term provisions 5,6,711,12 (1,782) (243) (2,025)Obligations under finance leases (136) - (136) -------- ---------- ---------- (10,813) (243) (11,056) -------- ---------- ----------Total liabilities (39,691) (147) (39,544) -------- ---------- ---------- -------- ---------- ----------Net assets 34,582 121 34,703 -------- ---------- ---------- EquityShare capital 10,312 - 10,312Share premium account 16,548 - 16,548Shares to be issued 6 848 (848) -Own shares (6,969) - (6,969)Equity reserve 8 32,385 197 32,582Translation reserve 10 - (2) (2)Accumulated losses 8,12 (18,801) 774 (18,027) -------- ---------- ----------Equity attributable to equityholders of theparent 34,323 121 34,444 -------- ---------- ----------Equity minority interest 259 - 259 -------- ---------- ----------Total equity 34,582 121 34,703 -------- ---------- ---------- Reconciliation from UK GAAP to IFRSBalance sheetReconciliation of equity at 1 January 2004, 30 June 2004 and 31 December 2004 1 30 31 January June December 2004 2004 2004 £'000 £'000 £'000 Total equity previous GAAP 12,212 32,610 34,582 1. Goodwill not amortised after date of transition - 21 422. Translation differences in relation to foreign goodwill 282 118 2773. Reclassification of software to intangibles - - -4. Reclassification of loan from short term current assets to non current assets - - -5. Reclassification of loss from associate to non current asset where long term loans exceed loss - - -6. Reclassification of share to be issued to current and non current liabilities (1,359) (1,359) (848)7. Derecognition of losses of associates with net liabilities 445 427 1348. Cost of share based payments - - -9. Derecognition of final dividend - - 60310. Foreign exchange movement on foreign subsidiaries - - -11. Adjustment to deferred consideration to net present value - - -12. Interest charge on deferred consideration - - - in relation to net present value - (43) (87) ---------- ---------- ---------- Total adjustment to equity (632) (836) 121 ---------- ---------- ----------Total equity IFRS 11,580 31,774 34,703 ========== ========== ========== Reconciliation from UK GAAP to IFRSIncome Statement 6 months to 30 June 2004 Effect of transition to UK GAAP IFRSs IFRS Note £'000 £'000 £'000 CONTINUING OPERATIONSTurnover 2,5 46,808 (77) 46,731Cost of sales 2,5 (19,830) 23 (19,807) --------- --------- -------- OPERATING INCOME 26,978 (54) 26,924 Other operating incomeOperating expenses 1,2,4,5 (23,415) 14 (23,401) --------- --------- -------- 3,563 (40) 3,523 Share of results of associates 3 213 (26) 187Share of results of equity accountedjointventures - - - --------- --------- -------- PROFIT FROM OPERATIONS 3,776 (66) 3,710 Profit on disposal of fixed asset - - -investmentInvestment income 50 - 50Finance costs (637) - (637)Finance costs of deferred consideration 6 - (43) (43) --------- --------- --------PROFIT BEFORE TAX 3,189 (109) 3,080 Tax 3 (1,075) 8 (1,067) --------- --------- -------- PROFIT FOR THE PERIOD FROMCONTINUING OPERATIONS 2,114 (101) 2,013 DISCONTINUED OPERATIONSLoss for the period fromdiscontinuedoperations 2 - (18) (18) --------- --------- -------- PROFIT FOR THE PERIOD 2,114 (119) 1,995 ========= ========= ======== Reconciliation from UK GAAP to IFRSIncome Statement 12 months to 31 December 2004 Effect of transition to UK GAAP IFRSs IFRS Note £'000 £'000 £'000 CONTINUING OPERATIONSTurnover 2,5 95,701 (259) 95,442Cost of sales 2,5 (41,767) 86 (41,681) --------- --------- ------- OPERATING INCOME 53,934 (173) 53,761 Other operating incomeOperating expenses 1,2,4,5 (46,737) 49 (46,688) --------- --------- ------- 7,197 (124) 7,073 Share of results of associates 3 508 (453) 55Share of results of equity accountedjointventures 120 - 120 --------- --------- ------- PROFIT FROM OPERATIONS 7,825 (577) 7,248 Profit on disposal of fixed assetinvestment 164 - 164Investment income 125 - 125Finance costs (1,081) - (1,081)Finance costs of deferred consideration 6 - (87) (87) --------- --------- ------- PROFIT BEFORE TAX 7,033 (664) 6,369 Tax 3 (2,193) 142 (2,051) --------- --------- ------- PROFIT FOR THE PERIOD FROMCONTINUING OPERATIONS 4,840 (522) 4,318 DISCONTINUED OPERATIONSLoss for the period from discontinuedoperations 2 - (18) (18) --------- --------- ------- PROFIT FOR THE PERIOD 4,840 (540) 4,300 ========= ========= ======= Reconciliation from UK GAAP to IFRSReconciliation of income statement at 30 June 2004 and 31 December 2004 6 months to 30 June 2004 12 months to 31 December 2004 Profit Profit Profit Profit Profit Profit From Before For the From Before For the operations Tax period operations tax period £'000 £'000 £'000 £'000 £'000 £'000 Profit perprevious 3,776 3,189 2,114 7,825 7,033 4,840GAAP 1. Goodwill notamortised afterdate ofTransition 21 21 21 42 42 422. Loss ondiscontinuedoperations shownAfter profit aftertax 18 18 - 18 18 -3. Derecognitionof losses ofassociates withNet liabilities (26) (26) (18) (453) (453) (311)4. Share basedpayments (81) (81) (81) (162) (162) (162)5. Change inforeign exchangerate used toConvert foreignsubsidiaries 2 2 2 (22) (22) (22)6. Interest chargeon deferredconsiderationIn relation to netpresent value - (43) (43) - (87) (87) -------- -------- -------- --------- ------- -------- Total adjustmentto profit (66) (109) (119) (577) (664) (540) -------- -------- -------- --------- ------- --------Profit per IFRS 3,710 3,080 1,995 7,248 6,369 4,300 ======== ======== ======== ========= ======= ======== Reconciliation from UK GAAP to IFRSCashflow Statement 6 months to 30 June 2004 12 months to 31 December 2004 Effect of Effect of Transition Transition UK GAAP To IFRSs IFRS To IFRSs IFRS £'000 £'000 £'000 £'000 £'000 £'000 Cashflow fromoperatingactivities 2,625 - 2,625 6,140 - 6,140Cashflow frominvestingactivities (329) - (329) (1,239) - (1,239) -------- --------- ------- -------- -------- ------- 2,296 - 2,296 4,901 - 4,901 Cashflow fromfinancingactivities 18,123 (11,011) 7,112 18,038 (12,040) 5,998 -------- --------- ------- -------- -------- ------- Net increase/(decrease) incash and cashequivalents 20,419 (11,011) 9,408 22,939 (12,040) 10,899 Cash and cashequivalents atthe beginningof the period (29,263) 22,920 (6,343) (29,263) 22,920 (6,343) -------- --------- ------- -------- -------- ------- Cash and cashequivalents atthe endof the period (8,844) 11,909 3,065 (6,324) 10,880 4,556 ======== ========= ======= ======== ======== ======= Reconciliation from UK GAAP to IFRSReconciliation of cashflow for period to 31 December 2004 and 30 June 2004 As at As at 30 June 31 December 2004 2004 Net debt under UK GAAP (8,844) (6,324) Loan notes excluded from cash and cash equivalents 1,834 1,748Long term loans excluded from cash and cashequivalents 9,851 8,895Finance leases excluded from cash and cash equivalents 224 237 ---------- ----------Total adjustment due to IFRS 11,909 10,880 ---------- ----------Cash and cash equivalents under IFRS 3,065 4,556 ========== ========== Cash and cash equivalents consists of Cash at hand and in bank 1,231 4,308Loan note cash deposits 1,834 1,748Bank overdrafts - (1,500) ---------- ---------- 3,065 4,556 ========== ========== 8. Significant accounting policies The accounting policies adopted by the group are as follows: Basis of accounting The financial statements of the group for the year ended 31 December 2005 willbe prepared under International Financial Reporting Standards (IFRS). Theseinterim financial statements have been prepared in accordance with IFRS with theexception that the group have not adopted the interim reporting requirements ofIAS 34 (Interim Financial Reporting). The financial statements have been prepared under the historical cost basisexcept for certain financial instruments that are carried at fair value inaccordance with the accounting policies set out below. The principal accountingpolicies adopted are set out below. In preparing the group's IFRS balance sheet at 31 December 2004, the followingexemptions from full retrospective application of IFRS accounting policies havebeen adopted: (i) Business combinations - in accordance with IFRS 1, the group has chosen not to restate business combinations that took place before the date of transition.(ii) Translation of foreign subsidiaries - in accordance with IFRS 1, the group has chosen to reduce all translation reserves arising prior to transition into IFRS to a nil balance.(iii)Share based payments - in accordance with IFRS 2 Share-based payments granted before 7 November 2002 or that had vested by the transition date have not been restated. Basis of consolidationThe consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is achieved where the Company has the power to govern the financial andoperating policies of an investee entity so as to obtain benefits from itsactivities.On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to income statement in the period ofacquisition. The interest of minority shareholders is stated at the minority'sproportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Investments in associatesAn associate is an entity over which the group is in a position to exercisesignificant influence, but not control or joint control, through participationin the financial and operating policy decisions of the investee. The results, assets, and liabilities of associates are incorporated in thesefinancial statements using the equity method of accounting except whenclassified as held for sale. Investments in associates are carried in thebalance sheet at cost carried in the balance sheet at cost as adjusted bypost-acquisition changes in the group's share of the net assets of theassociate, less any impairment in the value of individual investments. Losses ofthe associates in excess of the group's interest in those associates are notrecognised. Any excess of the cost of acquisition over the group's share of the fair valuesof the identifiable net assets of the associate at the date of acquisition isrecognised as goodwill. Any deficiency of the cost of acquisition below thegroup's share of the fair values of the identifiable net assets of the associateat the date of acquisition (i.e. discount on acquisition) is credited in incomestatement in the period of acquisition. Where a group company transacts with an associate of the group, unrealisedprofits and losses are eliminated to the extent of the group's interest in therelevant associate. Investments in joint venturesA joint venture is an entity which the group jointly controls with anotherparty, through participation in the financial and operating policy decisions ofthe entity. The results, assets, and liabilities of joint ventures are incorporated in thesefinancial statements using the equity method of accounting. Investments in jointventures are carried in the balance sheet at cost as adjusted bypost-acquisition changes in the group's share of the net assets of the jointventure, less any impairment in the value of individual investments. Losses ofthe joint venture in excess of the group's interest in those joint ventures arenot recognised. Any excess of the cost of acquisition over the group's share of the fair valuesof the identifiable net assets of the joint venture at the date of acquisitionis recognised as goodwill. Any deficiency of the cost of acquisition below thegroup's share of the fair values of the identifiable net assets of the jointventure at the date of acquisition (i.e. discount on acquisition) is credited inincome statement in the period of acquisition. Where a group company transacts with a joint venture of the group, unrealisedprofits and losses are eliminated to the extent of the group's interest in therelevant associate. GoodwillGoodwill arising on consolidation represents the excess of the cost ofacquisition over the group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised in the income statement and is notsubsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRSs has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 1998 hasnot been reinstated and is not included in determining any subsequent profit orloss on disposal. Goodwill impairment is assessed by comparing the carrying value of goodwill tothe net present value of future cash flows derived from the underlying assetsconsidering forecast cash flows over an initial projection period of up to threeyears for each income-generating unit. After this period, growth rates ofnominal GDP are generally assumed for each income-generating unit. In certaininstances, accelerated growth rates higher than the nominal GDP may be used forthe initial projection period if management believes the higher rate is moreappropriate to reflect the economic cycles that occur within the market whichthe income-generating unit operates. The weighted average cost of capital used by the Group to discount the futurecash flows to their present value is 8.1%. For two recent acquisitions with a combined value of £6.4 million (and of atotal goodwill value of £43.9 million) we have used accelerated growth rates.Further changes in assumptions around growth rates of businesses will bedisclosed in the year end financial statements. Future anticipated payments to vendors in respect of earnouts are based on thedirectors' best estimates of future obligations, which are dependent on futureperformance of the interests acquired and assume the operating companies improveprofits in line with directors' estimates. When earnouts are to be settled incash consideration, the fair value of the consideration is obtained bydiscounting to present value the amounts expected to be payable in the future.The resulting interest charge is included within net interest payable andsimilar charges. Turnover recognitionTurnover is measured at the fair value of the consideration received orreceivable and comprises the gross amounts billed to clients in respect of feesearned, expenses recharged and commission-based income. Operating incomecomprises commission and fees earned in respect of turnover. Cost of salesinclude fees paid to external suppliers where they are retained to perform partor all of a specific project for a client, and the resulting expenditure isdirectly attributable to the revenue earned. Turnover and Operating income arestated exclusive of VAT, sales taxes and trade discounts. Public Relations Operating income is typically derived from retainer fees and services performedsubject to specific agreement. Operating income is recognised when the serviceis performed in accordance with the contractual arrangement. Operating income isrecognised on long-term contracts, if the outcome can be assessed with reasonable certainty, by including in the income statement revenue and related costs as contract activity progresses. Marketing Services and Research Operating income is recognised on each market research contract in proportion tothe level of services performed. Costs, including an appropriate proportion ofoverheads relating to contracts in progress at the balance sheet date, arecarried forward in work in progress. Losses are recognised as soon as they areforeseen. LeasingLeases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases and the related lease obligations are recordedin the balance sheet at the fair value of the leased assets at the inception ofthe leases. The excess of the lease payments over the recorded lease obligationsis treated as finance charges which are amortised over each lease term to give aconstant rate of charge on the remaining balance of the obligation. Rental costs under operating leases are charged to the income statement in equalannual amounts over the periods of the leases. Benefits received and receivable as an incentive to enter into an operatinglease are also spread on a straight-line basis over the lease term or the periodto the next review. Cash and cash equivalentsCash comprises cash and cash held on short-term deposit (up to three months).Cash equivalents are cash deposits held on three months deposit at the RoyalBank of Scotland plc. The deposits guarantee the loan note creditors. Interestaccruing on the deposits are payable to the holders of the loan notes less anycosts arising. Foreign currenciesTransactions in UK companies denominated in currencies other than poundssterling are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Gains and losses arising on retranslation areincluded in net profit or loss for the period. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at the exchange rates prevailing on the balance sheet date.Income and expenses are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the Group's translationreserve. Such translation reserve differences are recognised as income or asexpenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Finance costsFinance costs are recognised in profit or loss in the period in which they areincurred. Profit from operationsProfit from operations is stated after charging restructuring costs and afterthe share of results of associates and equity accounted joint ventures butbefore investment income and finance costs. Retirement benefit costsThe pension cost is the amount of contributions payable by the Group to thedefined contribution pension scheme and to personal pension schemes of certainemployees during the accounting period. These are charged as an expense as theyfall due. TaxationThe tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. Thegroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Property, plant and equipment Property, plant and equipment are stated at cost net of depreciation and anyprovision for impairment. Depreciation is provided in equal instalments over theestimated useful economic lives of assets, using the following rates: Short-term leasehold improvements - 20%Motor vehicles - 16 2/3%Fixtures, fittings and equipment - 25% Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets. The gain or loss arising on the disposal of an asset is determined as thedifference between the sales proceeds and the carrying amount of the asset andis recognised in income statement. Other intangible assetsAcquired computer software is capitalised based on the cost incurred to acquireand bring to use the specific software. These costs are amortised over theirestimated useful lives (four years). Software is stated at cost net ofamortisation and any provision for impairment. Impairment of property, plant and equipment and intangible assets excludinggoodwillAt each balance sheet date, the group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cashflows are discounted totheir present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset forwhich estimates of future cashflows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised immediately as an expense in the income statement. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairmentloss been recognised for the asset (cash-generating unit) in prior years. Work in progressWork in progress is stated at the lower of invoiced cost and net realisablevalue, net of payments received on account. Cost represents work supplied fromoutside the Group awaiting billing to clients at the year-end. Financial instrumentsFinancial assets and financial liabilities are recognised on the group's balancesheet when the group becomes a party to the contractual provisions of theinstrument. Trade receivablesTrade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. InvestmentsInvestments are recognised and derecognised on a trade date where a purchase orsale of an investment is under contract whose terms require the delivery of theinvestment within the timeframe established by the market concerned, and areinitially measured at cost, including transaction costs. Investments are classified as available for sale, and are measured at subsequentreporting dates at fair value. Gains and losses arising from changes in fairvalue are recognised directly in equity, until the security is disposed of or isdetermined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Bank BorrowingsInterest bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Trade payablesTrade payables are not interest-bearing and are stated at their nominal value. Equity instrumentsEquity instruments issued by the Company are recorded at the fair value ofproceeds received, net of direct issue costs. Share-based paymentsThe group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. The group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value at the date ofgrant. The fair value determined at the grant date of the equity-settledshare-based payments is expensed on a straight-line basis over the vestingperiod, based on the group's estimate of shares that will eventually vest andadjusted for the effect of non-market based vesting conditions. Fair value is measured for all schemes with market-based conditions by use ofthe Monte Carlo model. For all other schemes, fair value is measured by use ofthe Black-Scholes model. The expected life used in the model has been adjusted,based on management's best estimate, for the effects of non-transferability,exercise restrictions, and behavioural considerations. A liability equal to the portion of the goods or services received is recognisedat the current fair value determined at each balance sheet date for cash-settledshare-based payments. The group also provides employees with the ability to purchase the group'sordinary shares at 85 % of the current market value. The group records anexpense, based on its estimate of the 15 % discount related to shares expectedto vest on a straight-line basis over the vesting period. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
CHW.L