21st Sep 2007 07:01
InterQuest Group PLC21 September 2007 InterQuest Group plc Condensed consolidated interim report for the period ended 30 June 2007 Contents Financial highlights Chairman's and Chief Executive's statement Condensed consolidated interim income statement Condensed consolidated interim balance sheet Condensed consolidated interim statement of changes in equity Condensed consolidated interim cash flow statement Notes to the condensed consolidated interim report Financial highlights Revenue up 71% to £38,561,000 (2006: £22,515,000) Gross profit up 54% to £5,717,000 (2006: £3,708,000) EBITA (before IFRS 2 and amortisation charges) up 60% to £1,937,000 (2006:£1,210,000) Profit before taxation up 57% to £1,419,000 (2006: £904,000) Basic adjusted earnings per share up 53% to 4.6 pence (2006: 3.0 pence) Basic earnings per share up 46% to 3.5 pence (2006: 2.4 pence) Chairman's and Chief Executive's statement: Commenting on the results and current prospects, Gary Ashworth, ExecutiveChairman, said: "In the first half of 2007 we have made significant progress in laying down aplatform for continued growth. We moved to new London offices in April whichhave given us room for expansion and the ability to increase our number of feeearners. At the same time, we have achieved organic growth of over 10% incontractor numbers and 16% in permanent fee income. Last years acquisitions,Sand Resources Limited and PeopleCo Worldwide Limited have performed extremelywell in 2007 and on 4 July we added a further specialist division via theacquisition of Intelect Recruitment plc, based in Manchester, which I amconfident will be earnings enhancing in the second half and beyond. On the wholewe are very pleased with progress to date this year and look forward toreporting continued growth in the second half." Chairman's and Chief Executive's statement (continued) In the first half of 2007 we have benefited from the strong demand for ITprofessionals as companies continue to invest in their IT systems andinfrastructure. Overall trading has been strong with the excellent run ratesfrom last year continuing throughout the first half of this year. PeopleCo andSand Resources, who are now both in their second year with the Group, havedelivered impressive performances across both the private and public sectorswhich has lead to the need for geographical expansion in office space. The Group has continued to make targeted investment in additional headcount, newoffices and in negotiating further acquisitions. In April, we moved our Londonhead office and operating divisions into new and significantly larger premises,enabling Sand Resources and PeopleCo to set up new operations in London as wellas providing additional space for continued organic growth of our existingLondon based businesses. The increase in headcount has mainly been achieved fromour academy development programme for new recruits, which has delivered new feeearners into the different business units. On 4 July, since the end of the interim accounting period, we have acquiredIntelect Recruitment plc, an IT recruitment business based in Manchester.Intelect provides contract and permanent recruitment services predominatelywithin software engineering and manufacturing software. Strategically, Intelectis a great fit for the Group, being a high quality, well-run, niche businessfocusing in specialist areas and has given us greater geographical reach as wellas bringing new specialist areas to the Group which hitherto we did not cover.This further diversification also helps to reduce risk for investors. Overall,we believe that the current business climate is healthy as we continue to seemany new projects that are at the beginning of their life cycle. Across our eight brands the majority of the businesses have been focussed onbuilding the business of contract staffing whilst at the same time developingsustainable permanent placement business. This has produced good results withthe contract business growing by 26% since the beginning of the year, of which10% is organic growth. We have maintained our margins and are benefiting fromthe impact of some wage inflation. Organic growth of 16% has been achieved inpermanent placement fees. We are also now realising the benefits from the upgrade of our accountingsystems, implemented late last year, which has increased our capacity to managegrowth and helped us to generate an operating cashflow of £1.6m in the periodfrom EBITA of £1.9m The Group's strategy is based on the success achieved in combining a strongorganic growth model with acquiring and growing independently brandedspecialists. With a full year contribution from PeopleCo and Sand Resources and six monthsfrom Intelect in 2007, combined with increased demand for all our services, weare confident we will meet all our targets for the full year as we continue tobuild critical mass. Gary Ashworth Ross EadesChairman Chief Executive Condensed consolidated interim income statement (Unaudited) (Unaudited) 6 months to 6 months to (Unaudited) 30 June 30 June Year to 31 2007 2006 December 2006 Note £'000 £'000 £'000 Revenue 38,561 22,515 57,221Cost of sales (32,844) (18,807) (48,214) --------- --------- ---------Gross profit 5,717 3,708 9,007 Share basedpayment charge (39) (47) (88)Amortisation (287) (130) (422)Otheradministrativecosts (3,780) (2,498) (5,957) --------- --------- ---------Totaladministrationcharge (4,106) (2,675) (6,467) Finance costs (192) (129) (311)Finance income - - 1 --------- --------- ---------Profit beforetax 1,419 904 2,230 Income tax expense 4 (426) (254) (511) --------- --------- ---------Profit for theperiod 993 650 1,719 ========= ========= ========= Earnings per share from both total and continuing operations: Pence Pence PenceBasic earningsper share 5 3.5 2.4 6.1 =========== =========== =========== Diluted earnings per share 5 3.1 2.2 5.6 =========== =========== =========== All results for the Group are derived from continuing operations in both thecurrent and preceding periods. Condensed consolidated interim balance sheet (Unaudited) (Unaudited) (Unaudited) 30 June 30 June 31 December 2007 2006 2006 Note £'000 £'000 £'000 ASSETS Non-current assetsProperty, plant and equipment 451 220 238Goodwill 10,357 10,115 10,193Other intangibleassets 6 2,185 2,764 2,472 --------- --------- ---------Totalnon-currentassets 12,993 13,099 12,903 --------- --------- --------- Current assetsTrade and other receivables 15,273 11,791 13,054Cash and cashequivalents 7 - 975 - --------- --------- ---------Total currentassets 15,273 12,766 13,054 --------- --------- --------- Total assets 28,266 25,865 25,957 --------- --------- --------- LIABILITIES Current liabilitiesTrade and other payables (8,828) (7,368) (7,031)Financial liabilities - borrowings (4,147) (5,726) (4,989)Current tax payable (278) (292) (133)Deferred consideration (832) - (661) --------- --------- ---------Total currentliabilities (14,085) (13,386) (12,814) --------- --------- --------- Non-current liabilitiesObligations under hire purchase (39) (39) (39)contractsDeferred consideration (476) (1,219) (476)Deferred tax liability (75) (91) (243) --------- --------- ---------Totalnon-currentliabilities (590) (1,349) (758) --------- --------- ---------Totalliabilities (14,675) (14,735) (13,572) --------- --------- ---------Net assets 13,591 11,130 12,385 ========= ========= ========= EQUITY Share capital 288 283 287Share premium account 7,422 7,220 7,383Retained earnings 5,653 3,329 4,526Shares to be issued - 150 -Share based payment reserve 228 148 189 --------- --------- ---------Total equity 13,591 11,130 12,385 ========= ========= ========= Condensed consolidated interim statement of changes in equity Share Share Share Shares based capital premium Retained to be payment Total account earnings issued reserve equity £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1January 2006 258 5,955 2,612 - 101 8,926 Deferred taxon employeeshare options - - 67 - - 67Profit for the6 months to 30June 2006 - - 650 - - 650 ------ ------ ------ ------ ------ ------Totalrecognisedincome and - - 717 - - 717expense forthe period Movement inshare basedpaymentreserve - - - - 47 47Issue of sharecapital 25 1,265 - 150 - 1,440 ------ ------ ------ ------ ------ ------Balance at 30June 2006 283 7,220 3,329 150 148 11,130 ====== ====== ====== ====== ====== ======Deferred taxon employeeshare options - - 128 - - 128Profit for the6 months to 31December 2006 - - 1,069 - - 1,069 ------ ------ ------ ------ ------ ------Totalrecognisedincomeand expense forthe period - - 1,197 - - 1,197 Movement inshare basedpaymentreserve - - - - 41 41Issue of sharecapital 4 163 - (150) - 17 ------ ------ ------ ------ ------ ------Balance at 31December 2006 287 7,383 4,526 - 189 12,385 ====== ====== ====== ====== ====== ======Deferred taxon employeeshare options - - 134 - - 134Profit for the6 months to 30June 2007 993 993 ------ ------ ------ ------ ------ ------Totalrecognisedincomeand expense forthe period - - 1,127 - - 1,127 Movement inshare basedpaymentreserve - - - - 39 39Issue of sharecapital 1 39 - - - 40 ------ ------ ------ ------ ------ ------Balance at 30June 2007 288 7,422 5,653 - 228 13,591 ====== ====== ====== ====== ====== ====== Condensed consolidated interim cash flow statement (Unaudited) (Unaudited) (Unaudited) 6 months to 6 months to 30 June Year to 31 30 June 2007 2006 December 2006 Note £'000 £'000 £'000 Cash flows from operating activitiesProfit after taxation 993 650 1,719Adjustments for:Depreciation 70 47 105Share based payment charge 39 47 88Interest charge 192 129 311Interest receivable - - (1)Amortisation 287 130 422Income tax expense 426 254 511Increase in trade and other receivables (2,219) (2,063) (3,550)Increase in trade and other payables 1,783 1,112 1,624 --------- --------- ---------Cash generatedfromoperations 1,571 306 1,229 Income taxespaid (280) (18) (851) --------- --------- ---------Net cash fromoperatingactivities 1,291 288 378 --------- --------- --------- Cash flows from investing activitiesPurchase of property, plant and (284) (20) (95)equipmentAcquisition of subsidiaries net of cash (12) (6,234) (6,324)acquiredProceeds from sale of equipment - - 1Interest received - - 1Interest paid (192) (129) (311) --------- --------- ---------Net cash usedin investingactivities (488) (6,383) (6,728) --------- --------- --------- Cash flows from financing activitiesProceeds from issue of share capital 40 28 45Net (decrease) / increase in tradereceivables finance (354) 5,726 4,424facility --------- --------- ---------Net cash (usedin) / fromfinancingactivities (314) 5,754 4,469 --------- --------- --------- Net increase / (decrease) in cash and 489 (341) (1,881)cash equivalents Cash and cash equivalents at beginning (565) 1,316 1,316of period --------- --------- ---------Cash and cashequivalents atend of period 7 (76) 975 (565) ========= ========= ========= Notes to the condensed consolidated interim report 1 Nature of operations and general information InterQuest Group plc and its subsidiaries' ("the Group") principal activity isthe provision of IT recruitment solutions. The Group is one of the UK's leadingstaffing businesses in the information and communications technology sector. TheGroup comprises of eight specialist niche businesses, including the recentacquisition of Intelect plc on 4 July 2007, currently operating from five UKlocations, combined with a centralised finance and administration function. The Group's condensed consolidated interim report is presented in PoundsSterling (£). The condensed consolidated interim report has been approved for issue by theBoard of Directors on 18 September 2007. The financial information set out in this interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. TheGroup's statutory financial statements for the year ended 31 December 2006,prepared under UK GAAP, have been filed with the Registrar of Companies. Theauditor's report on those financial statements was unqualified and did notcontain a statement under Section 237(2) of the Companies Act 1985. 2 Basis of preparation The interim condensed consolidated report is for the six months ended30 June 2007 and has been prepared in accordance with the accounting policiesset out below which are based on the recognition and measurement principles ofIFRS in issue as adopted by the European Union (EU) and are effective at 31December 2007 or are expected to be adopted and effective at 31 December 2007,our first annual reporting date at which we are required to use IFRS accountingstandards adopted by the EU. They do not include all of the informationrequired for full annual financial statements, and should be read in conjunctionwith the consolidated financial statements of the Group for the year ended 31December 2006. The interim report has been prepared under the historical cost convention,except for financial instruments. InterQuest Group plc's consolidated financial statements were prepared inaccordance with United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice) until 31 December 2006. The date of transition toIFRS was 1 January 2006. The comparative figures in respect of 2006 have beenrestated to reflect changes in accounting policies as a result of adoption ofIFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAPto IFRS are given in the reconciliation schedules, presented and explained innote 9. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of the condensed consolidated interim report. 3 Summary of significant accounting policies Basis of consolidation The Group's interim report consolidates those of the company and all of itssubsidiary undertakings drawn up to 30 June 2007. Subsidiaries are entitiesover which the Group has the power to control the financial and operatingpolicies so as to obtain benefits from its activities. The Group obtains andexercises control through voting rights. Amounts reported in the financial statements of subsidiaries have been adjustedwhere necessary to ensure consistency with the accounting policies adopted bythe Group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchasemethod involves the recognition at fair value of all identifiable assets andliabilities, including contingent liabilities of the subsidiary, at theacquisition date, regardless of whether or not they were recorded in thefinancial statements of the subsidiary prior to acquisition. On initialrecognition, the assets and liabilities of the subsidiary are included in theconsolidated balance sheet at their fair values, which are also used as thebases for subsequent measurement in accordance with the Group accountingpolicies. Goodwill is stated after separating out identifiable intangibleassets. Goodwill represents the excess of acquisition cost over the fair valueof the Group's share of the identifiable net assets of the acquired subsidiaryat the date of acquisition. Business combinations completed prior to date of transition to IFRS The Group has elected not to apply IFRS 3 "Business Combinations"retrospectively to business combinations prior to 1 January 2006. Accordingly the classification of the combination (acquisition, reverseacquisition or merger) remains unchanged from that used under UK GAAP. Assetsand liabilities are recognised at date of transition if they would be recognisedunder IFRS, and are measured using their UK GAAP carrying amount immediatelypost-acquisition as deemed cost under IFRS, unless IFRS requires fair valuemeasurement. Deferred tax is adjusted for the impact of any consequentialadjustments after taking advantage of the transitional provisions. Intangible assets Other intangible assets An intangible asset, which is an identifiable non-monetary asset withoutphysical substance, is recognised to the extent that it is probable that theexpected future economic benefits attributable to the asset will flow to theGroup and that its cost can be measured reliably. The asset is deemed to beidentifiable when it is separable or when it arises from contractual or otherlegal rights. Customer relationships, acquired as part of a business combination arecapitalised separately from goodwill and are carried at cost less accumulatedamortisation and accumulated impairment losses. Amortisation is calculated usingthe straight line method over a period of five years. Goodwill Goodwill representing the excess of the cost of acquisition over the fair valueof the Group's share of the identifiable net assets acquired, is capitalised andreviewed annually for impairment. Goodwill is carried at cost less accumulatedimpairment losses. Goodwill written off to reserves prior to date of transition to IFRS remains inreserves. There is no re-instatement of goodwill that was amortised prior totransition to IFRS. Goodwill previously written off to reserves is not writtenback to profit or loss on subsequent disposal. Revenue Revenue is measured by reference to the fair value of consideration received orreceivable by the Group's provision of IT recruitment services. Revenue for temporary contract assignments is recognised over the contractperiod for the services of the temporary contractor. Revenue recognised, but notyet invoiced, at the balance sheet date, is correspondingly accrued on thebalance sheet within "trade and other receivables". Revenue from permanent placements, which is based on a percentage of thecandidate's remuneration package, is derived from both retained assignments(income recognised on completion of defined stages of work) and non-retainedassignments (income is recognised at the time the candidate accepts an offer offull time employment and where a start date has been determined). Provision is made for the expected cost of meeting obligations where employeesdo not work for the specified contractual period. Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net ofdepreciation and any provisions for impairment. Depreciation is calculated to write down the cost less estimated residual valueof all property, plant and equipment by annual instalments over their expecteduseful lives. The rates generally applicable are: Leasehold improvements 20% straight lineOffice furniture and equipment 20% straight lineMotor vehicles 25% reducing balance Impairment of assets For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment andsome are tested at the cash-generating unit level. Goodwill is allocated tothose cash-generating units that have arisen from business combinations andrepresent the lowest level within the Group at which management monitors therelated cash flows. Impairment of assets (continued) Goodwill, other individual assets or cash-generating units that includegoodwill, other intangible assets with an indefinite useful life, and thoseintangible assets not yet available for use are tested for impairment at leastannually. All other individual assets or cash-generating units are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Leased assets In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. The interest element of leasingpayments represents a constant proportion of the capital balance outstanding andis charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over the leaseterm. Lease incentives are spread over the term of the lease. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value. Bank overdrafts that are repayable on demand and form anintegral part of the Group's cash management are included as a component of cashand cash equivalents. Bank overdrafts are included within the balance sheet incurrent financial liabilities - borrowings. Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fairvalue of consideration received for equity shares, net of expenses of the shareissue. • "Retained earnings" represents retained profits. • "Shares to be issued" represents the nominal value of equity shares tobe issued in relation to the business combination of Sand Resources Limited • "Share based payment reserve" represents equity-settled share-basedemployee remuneration until such share options are exercised. Current and deferred tax Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. In addition, taxlosses available to be carried forward as well as other income tax credits tothe group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferredtax assets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity in which case the related deferred tax isalso charged or credited directly to equity. Foreign currenciesTransactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Non-monetary items that are measured at historical cost in a foreigncurrency are translated at the exchange rate at the date of the transaction. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the profit or loss in the period in whichthey arise. Financial instruments Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Financial liability and equity instrumentsFinancial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Trade receivables and trade payables Trade receivables and payables are initially recognised at fair value andthereafter at amortised cost using the effective interest rate method. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at fair value, net ofdirect issue costs. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are accounted for on an effective interestmethod and are added to the carrying amount of the instrument to the extent thatthey are not settled in the period in which they relate. Employee benefits Defined contribution pension scheme Group companies contribute to defined contribution pension plans of someemployees at rates agreed between the companies and the employees. The assets ofeach scheme are held separately from those of the Group. Contributions arerecognised as they become payable. Share-based payment Equity settled share-based payment There is an Inland Revenue approved Enterprise Management Incentive Share OptionPlan and an Unapproved Share Option Plan under which share options are grantedto key employees. All share-based payment arrangements granted after 7 November 2002 that had notvested prior to 1 January 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-basedpayment are measured at their fair values. Where employees are rewarded usingshare-based payments, the fair values of employees' services are determinedindirectly by reference to the fair value of the instrument granted to theemployee. This fair value is appraised at the grant date and excludes the impactof non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expensein the income statement with a corresponding credit to "share based paymentreserve". If vesting periods or other non-market vesting conditions apply, the expense isallocated over the vesting period, based on the best available estimate of thenumber of share options expected to vest. Estimates are subsequently revisedif there is any indication that the number of share options expected to vestdiffers from previous estimates. Any cumulative adjustment prior to vesting isrecognised in the current period. No adjustment is made to any expenserecognised in prior periods if share options that have vested are not exercised. Upon exercise of share options, the proceeds received net of attributabletransaction costs are credited to share capital, and where appropriate sharepremium. Acquisition and working capital finance facilities The Group has access to £11,500,000 of acquisition and working capital financeprovided by the Group's bankers and secured by a fixed and floating charges overthe Group's assets. These facilities comprise a confidential trade receivablesfinance facility of up to £10,000,000 and an overdraft of up to £1,500,000. Provisions, contingent liabilities and contingent assets Provisions for dilapidations, onerous leases and deemed employment exposures arerecognised when there is a legal or constructive obligation as a result of pastevents, where it is more likely than not that an outflow of resources will berequired to settle the obligation and the amount has been reliably estimated. Significant judgements and estimates The preparation of this condensed consolidated interim report under IFRSrequires the Group to make estimates and assumptions that affect the applicationof policies and reported amounts. Estimates and judgements are continuallyevaluated and are based on historical experience and other factors includingexpectations of future events that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates. The estimates andassumptions which have a significant risk of causing a material adjustment tothe carrying amount of assets and liabilities are discussed below. Intangible assets The Group recognises intangible assets acquired as part of business combinationsat fair value at the date of acquisition. The determination of these fair valuesis based upon management's judgement and includes assumptions on the timing andamount of future incremental cash flows generated by the assets and selection ofan appropriate cost of capital. Furthermore, management must estimate theexpected useful lives of intangible assets and charge amortisation on theseassets accordingly. Impairment of goodwill The Group is required to test, at least annually, whether goodwill has sufferedany impairment. The recoverable amount is determined based on value in usecalculations. The use of this method requires the estimation of future cashflows and the choice of a suitable discount rate in order to calculate thepresent value of these cash flows. Actual outcomes could vary. Impairment of property, plant and equipment Property, plant and equipment are reviewed for impairment if events or changesin circumstances indicate that the carrying amount may not be recoverable. Whena review for impairment is conducted, the recoverable amount is determined basedon value in use calculations prepared on the basis of management's assumptionsand estimates. Depreciation of property, plant and equipment Depreciation is provided so as to write down the assets to their residual valuesover their estimated useful lives as set out above. The selection of theseestimated lives requires the exercise of management judgement. Deferred consideration Where deferred consideration is payable in cash, the liability is discounted toits present value. Where the deferred consideration is contingent and dependentupon future trading performance, an estimate of the present value of the likelyconsideration payable is made. Where a business combination agreement providesfor an adjustment to the cost that is contingent on future events, contingentconsideration is included in the cost of an acquisition if the adjustment isprobable (that is, more likely than not) and can be measured reliably. Thedifference between the costs of acquisition and the net assets acquired iscapitalised as goodwill. 4 Taxation Year ended 6 months ended 6 months ended 31 December 30 June 2007 30 June 2006 2006 £'000 £'000 £'000 Current tax Corporation tax on profits for the 459 306 317periodOver provision in respect of prior - - (28)periods ---------- ---------- ----------Total current tax 459 306 289 Deferred taxUtilisation of tax losses 64 - 400Accelerated capital allowance - - (23)Charge on share based payments (12) (14) (23)Other timing differences - - (6)Intangible asset temporary differences (85) (38) (126) ---------- ---------- ----------Total deferred tax (33) (52) 222 ---------- ---------- ----------Total tax charge 426 254 511 ========== ========== ========== 5 Earnings per share The calculation of the basic earnings per share is based on the earningsattributable to ordinary shareholders divided by the weighted average number ofshares in issue during the year. The calculation of diluted earnings per share is based on the basic earnings pershare, adjusted to allow for the issue of shares and the post tax effect ofdividends and/or interest, on the assumed conversion of all dilutive options andother dilutive potential ordinary shares. Reconciliations of the earnings and weighted average number of shares used inthe calculations are set out below. 6 months 6 months Year ended ended 30 ended 30 31 December June 2007 June 2006 2006 £'000 £'000 £'000 Profit for the periodBasic earnings 993 650 1,719 Adjustments to basic earningsIntangibleassetsamortisation 287 130 422Share basedpayment charge 39 47 88 Adjustedearnings 1,319 827 2,229 =========== =========== =========== Number of sharesWeightedaverage numberof ordinaryshares for thepurposes ofbasic earningsper share 28,770,449 27,292,982 27,966,694 Weightedaverage numberof ordinaryshares for thepurposes ofdilutedearnings pershare 32,332,151 29,130,263 30,518,167 Earnings per share Pence Pence PenceBasic earningsper share 3.5 2.4 6.1Dilutedearnings pershare 3.1 2.2 5.6 Adjusted earnings per shareBasic earningsper share 4.6 3.0 8.0Dilutedearnings pershare 4.1 2.8 7.3 6 Other intangible assets The following table show the significant movements in intangible assets. Customer Relationships Total £'000 £'000 Carrying amount at - -1 January 2006 Additions 2,894 2,894Amortisation (130) (130) -------- --------Carrying amount at 30June 2006 2,764 2,764 ======== ======== Carrying amount at 1July 2006 2,764 2,764 Amortisation (292) (292) -------- --------Carrying amount at 31December 2006 2,472 2,472 ======== ======== Carrying amount at 1January 2007 2,472 2,472 Amortisation (287) (287) -------- --------Carrying amount at 30June 2007 2,185 2,185 ======== ======== The Group has used the income approach to measure the forecasted economicbenefit streams of the acquired businesses key customer relationships. Thesebenefit streams have been discounted to a present value with an appropriate riskadjusted weighted average cost of capital. Risk adjusted includes general marketrates of return at the valuation date, business risks associated with theindustry and other risks specific to the assets being valued. Customerrelationships are being amortised over a period of five years. 7 Cash and cash equivalents 30 June 30 June 31 December 2007 2006 2006 £'000 £'000 £'000 Cash at bank and in hand - 975 -Bank overdrafts (76) - (565) --------- --------- ---------Total (76) 975 (565) ========= ========= ========= 8 Events after the balance sheet date On 4 July 2007 the Group acquired the entire share capital of IntelectRecruitment Plc for an initial consideration of £3.55m in cash and £0.17m in newInterQuest shares issued at a value of 107.5 pence per share. There is a maximumfurther cash consideration of up to £0.5m payable in respect of the year to 31March 2008, together with further amounts of £0.2m and £0.2m payable in respectof the following two years thereafter, in each case provided that certainfinancial targets are achieved for those respective years. At the date of authorisation of the interim report, providing further detailssurrounding the assets acquired and any resulting goodwill from this acquisitionis deemed not to be practical as the directors are currently in the process ofmaking this assessment. 9 Explanation of transition to IFRS As stated in the Basis of Preparation, this is the Group's first condensedconsolidated interim report for part of the period covered by the first IFRSannual consolidated financial statements prepared in accordance with IFRS asadopted by the EU. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theseinterim financial statements have been prepared on the basis of taking thefollowing exemptions: • business combinations prior to 1 January 2006, the Group's date oftransition to IFRS, have not been restated to comply with IFRS 3 "BusinessCombinations". Goodwill arising from these business combinations of £4,759,000has not been restated other than as set out in the note below. Reconciliation of equity 01 January 30 June 31 December Note 2006 2006 2006 £'000 £'000 £'000 Net assets andequity underUK GAAP 8,920 10,922 11,923 Adjustments (after taxation)IFRS 3 - 'Businesscombinations' a Goodwill - (1,799) (1,470) Other intangible assets - 2,764 2,472 Deferred tax liability - (829) (741)IAS 12 - 'Income taxes' b Deferred tax assets 6 (666) (297) Deferred tax liabilities - 738 498 -------- -------- --------Net assets andequity underIFRS 8,926 11,130 12,385 ======== ======== ======== Reconciliation of profit 6 months 6 months Year ended ended 30 ended 30 31 December June 2007 June 2006 2006 £'000 £'000 £'000 Net incomeunder UK GAAP 898 514 1,458 Adjustments (before taxation)IFRS 3 -'Businesscombinations' a 9 97 134 IAS 12 -'Income taxes' b 86 39 127 -------- -------- --------Net incomeunder IFRS 993 650 1,719 ======== ======== ======== Note a The Group acquired Peopleco Worldwide Limited on 1 March 2006 and acquired SandResources Limited on 8 June 2006. Application of IFRS 3 to these businesscombinations resulted in the identification of intangible assets, beingcustomer relationships. Under IFRS these have been recognised separately in thebalance sheet at their fair value at the date of acquisition. Under UK GAAPthese intangible assets were subsumed within goodwill. The result of thisadjustment is to decrease goodwill and increase intangible assets at the date ofcombination. At the 30 June 2006, 31 December 2006 and 30 June 2007 the value ofintangible assets was increased by £2,764,000, £2,472,000 and £2,185,000respectively. A corresponding decrease in goodwill was also taken at the sameperiods. This adjustment has also had an impact on the deferred tax liabilityrecognised. Amortisation previously accounted for under UK GAAP has beenreversed out and amortisation under IFRS has been applied. As at the 30 June2006, 31 December 2006 and 30 June 2007 administration expenses have beenreduced by £97,000, £134,000 and £9,000 respectively IAS 12 requires deferred tax to be provided on all taxable temporarydifferences. The income earned whilst the intangible asset is used will betaxable and there will be no tax deductions against that income from the use ofthe asset. This results in a temporary difference equal to the carrying value ofthe asset on initial recognition in the consolidated accounts. The result ofthis adjustment is to increase the deferred tax liability, increase retainedearnings and increase goodwill. As at the 30 June 2006, 31 December 2006 and 30June 2007 the value of deferred tax liabilities was increased by £829,000,£741,000 and £655,000 respectively. As the intangible asset is amortised, thetemporary difference will decrease and there is a reduction in the deferred taxliability recognised in the consolidated income. The recognition of thisdeferred tax credit to the income statement reduces the impact of theamortisation of the intangible asset on the profits for the year. Note b IAS 12 requires a deferred tax asset to be recognised for deductible temporarydifferences to the extent that it is probable that taxable profits will beavailable against which the deductible temporary difference can be utilised.For equity-settled share-based payments, a deductible temporary difference mayarise where a Schedule 23 deduction is available in the future. The excess ofthe deferred tax is recognised in equity. The result of this adjustment is toincrease deferred tax asset and increase equity. As at the 30 June 2006, 31December 2006, 30 June 2007 deferred tax assets were increased by £72,000,£201,000 and £335,000 with a corresponding entry against equity. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
InterQuest Group