21st Apr 2008 07:01
Sport Media Group PLC21 April 2008 Sport Media Group Plc IFRS Transition Document April 2008 Transition to IFRS Sport Media Group plc ("SMG". AIM: SPMG.L), the integrated multi-media groupwhich publishes the Sunday and Daily Sport newspapers and digital content forinternet and mobile phone channels, today publishes its interim results for thesix months ended 31 January 2008. The interim results for the six months ended 31 January 2008 have been preparedin accordance with accounting policies which are based on the recognition andmeasurement principles of International Financial Reporting Standards ('IFRS')expected to be adopted and effective at 31 July 2008, the first full annualreporting date at which SMG is required to apply IFRS. As a result, thecomparative figures for both the previous half year and the full year ended 31July 2007 have been restated to comply with IFRS. The new accounting policiesand reconciliations of the differences between the IFRS results and the resultsas previously published are set out in this document. The information is set out as follows: 1. Nature of operations and general information 2. Summary of significant accounting policies 3. Business combinations 4. Explanation of transition to IFRS and reconciliations Simon Hume KendalChairman21 April 2008 1. Nature of operations and general information Sport Media Group plc ("SMG") is the integrated multi-media group whichpublishes the Sunday and Daily Sport newspapers and digital content for internetand mobile phone channels. The Group was established in 1999 and has subsequently grown significantly bothorganically and through acquisition. On 5 September 2007 the Group completedthe acquisition of Sport Newspapers Limited for £50 million. Sport Media Group plc is the Group's ultimate parent company. It is incorporatedand domiciled in Great Britain. The address of Sport Media Group plc'sregistered office is Ramillies House, 2 Ramillies Street, London W1F 7LN. TheGroup's principal places of business are 26 Thames Road, Barking, Essex IG11 0JAand 19 Great Ancoats Street, Manchester M60 4BT. Sport Media Group plc's sharesare listed on the AIM of the London Stock Exchange. The consolidated interim financial statements of SMG are presented in PoundsSterling, which is also the functional currency of the Group. Sport Media Group Plc's consolidated financial statements were prepared inaccordance with United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice) until 31 July 2007. The date of transition toIFRS was 1 August 2006, as a result, comparative figures in respect of 2007 havebeen restated to reflect changes in accounting policies as a result of adoptionof IFRS. The disclosures required by IFRS 1 concerning the transition from UKGAAP to IFRS are given in the reconciliation schedules, presented and explainedin notes (a) to (e) at the end of this document. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of consolidated interim financial statements. 2. Summary of significant accounting policies The following sets out the Group's new accounting policies for IFRS reporting.These are presented in full. Basis of preparation The consolidated financial statements have been prepared in accordance withapplicable International Financial Reporting Standards as adopted by the EU asissued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historicalcost convention except that they have been modified to include the revaluationof certain non-current assets/ financial assets and liabilities. The measurement bases and principal accounting policies of the Group are set outbelow. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS. The changes to accounting policies are explained in part4, together with the reconciliation of opening balances. The date of transitionto IFRS was 1 August 2006 (transition date). The Group has taken advantage of certain exemptions available under IFRS 1First-time adoption of International Financial Reporting Standards. Theexemptions used are explained under the respective accounting policy. The accounting policies that have been applied in the opening balance sheet havealso been applied throughout all periods presented in these financial statementsexcept that, as permitted by IFRS 1, the comparative period does not reflect thechange in accounting policies required on first adoption of IAS 32 and IAS 39.These accounting policies comply with each IFRS that is mandatory for accountingperiods ending on 31 January 2008. Basis of consolidation The Group financial statements consolidate those of SMG and all of itssubsidiary undertakings drawn up to the reporting date. Subsidiaries areentities over which the Group has the power to control the financial andoperating policies so as to obtain benefits from its activities. The Groupobtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reportedin the financial statements of subsidiaries have been adjusted where necessaryto ensure consistency with the accounting policies adopted by the 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's 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 (including intangibles) ofthe acquired subsidiary at 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 retrospectivelyto business combinations prior to the date of transition 1 August 2006. Accordingly the classification of the combination (acquisition, reverseacquisition or merger) remains unchanged from that used under UK GAAP. Assetsand liabilities are recognised at the date of transition as they would berecognised under IFRS. They are measured using their UK GAAP carrying amountsimmediately post-acquisition as deemed cost under IFRS. Deferred tax isadjusted for the impact of any consequential adjustments after taking advantageof the transitional provisions. The transitional provisions used for pastbusiness combinations apply equally to all past acquisitions. 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. Negative goodwill is recognised immediately afteracquisition in the income statement. Goodwill written off to reserves prior to the date of transition to IFRS remainsin reserves. There is no re-instatement of goodwill that was amortised prior tothe transition to IFRS. Goodwill previously written off to reserves is notwritten back to the income statement on subsequent disposal. Intangible assets In accordance with IFRS 3 Business Combinations, an intangible asset acquired ina business combination is deemed to have a cost to the Group of its fair valueat the acquisition date. The fair value of the intangible asset reflects marketexpectations about the probability that the future economic benefits embodied inthe asset will flow to the Group. The acquisitions of Strictly Broadband and Sport Newspapers have resulted in thefollowing categories of intangible assets being identified: • newspaper mastheads, publishing rights and imprints • trade names and marks • customer relationships and contracts The Group has developed a number of software applications to facilitate thedelivery of content/services to mobile phones - to deliver content to endconsumers mobile phones, bill the SIM on the phone for the transaction via themobile operator, produce usage statistics for clients, facilitate the selectionand presentation of content to mobile phone WAP browsers and enable clients tocreate tailored mobile phone content portals. Development costs which meet therecognition criteria set out in IAS 38 are capitalised in the balance sheet. In addition, the Group owns certain licensing rights and related customerdatabases. These assets are recognised in the balance sheet at cost lessaccumulated amortisation. The estimated useful lives of intangibles assets are as follows:Newspaper mastheads, publishing rights and imprints and trade names and marks indefinite livesCustomer relationships and contracts 5 to 7 yearsPhotographic and other content rights 10 yearsLicensing rights and related customer databases licence termSoftware development costs 5 yearsWebsite development costs 4 years Property, plant and equipment Property, plant and equipment is stated at cost or valuation, net ofdepreciation and any provision for impairment. Leasehold property is includedin property, plant and equipment only where it is held under a finance lease. Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. The gain or loss arising from thesale or revaluation of held for sale assets is included in "other income" or"other expense" in the income statement. Any revaluation surplus remaining inequity on disposal of the asset is transferred to the profit and loss reserve. Depreciation Depreciation is calculated to write down the cost less estimated residual valueof all property, plant and equipment other than freehold land, by equal annualinstalments reflecting the basis of consumption of the assets over theirestimated useful economic lives. The rates generally applicable are: Web based file servers 33.33%Plant and machinery 20.00%Fixtures and fittings 20.00% Impairment testing of goodwill, other intangible assets and property, plant andequipment Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Asat the acquisition date any goodwill acquired is allocated to each of the cashgenerating units expected to benefit from the business combination. Impairmentis determined by assessing the recoverable amount of the cash-generating unit towhich the goodwill relates. When the recoverable amount of the cash-generatingunit is less than the carrying amount, including goodwill, an impairment loss isrecognised. Intangible assets and property plant and equipment are reviewed for impairmentwhenever events or changes in circumstances indicate the carrying values may notbe recoverable. In addition, the carrying value of capitalised developmentexpenditure is reviewed for impairment annually before being brought into use.If any such indication exists and where the carrying values exceed the estimatedrecoverable amount, the assets or cash-generating units are written down totheir recoverable amount. The recoverable amount of intangible assets and property, plant and equipment isthe greater of net selling price and value in use. In assessing value in use,the estimated future cash flows are discounted to their present value using apre-tax discount rate that reflects current market assessments of the time valueof money and the risks specific to the asset. For an asset that does notgenerate largely independent cash inflows, the recoverable amount is determinedby the cash-generating unit to which the asset belongs. Revenue Revenue is measured by reference to the fair value of consideration received orreceivable by the Group for goods supplied and services provided, excluding VATand trade discounts. Revenue is recognised upon the performance of services ortransfer of the risks and rewards of ownership to the customer, where the amountof revenue can be measured reliably, it is probable that the economic benefitsassociated with the transaction will flow to the Group, and the costs incurredor to be incurred in respect of the transaction can be measured reliably. The Group has three principal revenue streams as detailed below: • Mobile telephony (premium phone lines and SMS marketing), dialer revenues, internet and website hosting revenues • Newspaper wholesale revenues • Newspaper advertising revenues Revenue from the sale of digital content, chat and internet based video ondemand access is recognised generally in the month in which the customeraccesses the content via a premium phone line or online. Revenue from the saleof content via premium phone lines is recognised generally in the month in whichthe customer accesses the content via a premium phone line. Revenue from theprovision of website hosting and from SMS marketing services is recognised whenthe Group has transferred to the buyer the significant risks and rewards ofownership of the services, which is generally on delivery of the hosting or SMSmarketing services according to contractually agreed delivery schedules. Revenues from the sale of Sport Newspaper titles through wholesalers areinvoiced in arrears based on daily sales of the relevant titles less returns andrecognised in the period to which the sales relate. Revenues from classified advertising are generally recognised when theadvertisement is placed, with payment having been received in advance. Revenuesfrom display advertising are generally recognised and invoiced in arrearsfollowing the publication of the advertisement. 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. Inventories Inventories are stated at the lower of cost and net realisable value. Costs ofordinarily interchangeable items are assigned using the first in, first out costformula. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries is not provided ifreversal of these temporary differences can be controlled by the Group and it isprobable that reversal will not occur in the foreseeable future. In addition,tax losses available to be carried forward as well as other income tax creditsto the Group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets 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 (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Financial liabilities The objectives of the Group's treasury activities are to manage financial risk,secure cost-effective funding where necessary and minimise adverse effects offluctuations in the financial markets on the value of the Group's financialassets and liabilities, on reported profitability and on cash flows of theGroup. The Group's principal financial instruments used for fundraising are bank loans,loan notes and invoice discounting facilities. The Group has various otherfinancial instruments such as cash, trade receivables and trade payables thatarise directly from its operations. Financial liabilities categorised as at fair value through profit or loss arere-measured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance cost in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. A financial liability ceases to be recognised only when the obligation isextinguished, that is, when the obligation is discharged or cancelled orexpires. 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. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at fair value less directlyattributable transaction costs. After initial recognition, interest-bearingloans and borrowings are subsequently measured at amortised cost using theeffective interest method. Gains and losses arising on the repurchase, settlement or otherwise cancellationof liabilities are recognised in the finance cost line in the income statement Borrowing costs Loans are carried at cost, net of un-amortised issue costs of debt. These costsare amortised over the loan term. Financial instruments Financial assets and liabilities are recognised in the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument.The Group currently does not use derivative financial instruments to manage orhedge financial exposures or liabilities. Dividends Dividend distributions payable to equity shareholders are included in "othershort term financial liabilities" when the dividends are approved at the annualgeneral meeting prior to the balance sheet date. Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares. • "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • "Capital redemption reserve" represents the reserve created at the time of a share buyback in 2005. • "Share option reserve" represents equity-settled share-based employee remuneration until such share options are exercised. • "Profit and loss reserve" represents retained profits. Employee benefits The Group operates defined contribution schemes in respect of certain employees.The pension costs charged against operating profit are the contributions payableto the scheme in respect of the accounting period. The assets of the schemesare held separately from those of the Group. Share-based payments The Company's employee share schemes allow the employees of the Group to acquireshares in the Company. The cost of equity-settled transactions with employeesis measured by reference to the fair value of the award at the date at whichthey are granted and is recognised as an expense over the vesting period, whichends on the date at which the relevant employees become fully entitled to theaward. Fair value is appraised at the grant date and excludes the impact onnon-market vesting conditions such as profitability and sales growth targets,using an appropriate pricing model for which the assumptions are approved by theDirectors. In valuing equity-settled transactions, only vesting conditionslinked to the market price of the shares of the Company are considered. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. At each balance sheet date before vesting, the cumulative expense is calculated,representing the extent to which the vesting period has expired and management'sbest estimate of the achievement or otherwise of non market conditions, numberof equity instruments that will ultimately vest or in the case of an instrumentsubject to a market condition, be treated as vesting described above. Themovement in the cumulative expense since the previous balance sheet date isrecognised in the income statement, with a corresponding entry in equity. Where the terms of an equity-settled award are modified or a new award isdesignated as replacing a cancelled or settled award, the cost based on theoriginal award terms continues to be recognised over the original vestingperiod. In addition an expense is recognised over the remainder of the newvesting period for the incremental fair value of any modification, based on thedifference between the fair value of the original award and the fair value ofthe modified award, both as measured on the date of the modification. Noreduction is recognised if this difference is negative. Credit risk The Group's credit risk is primarily attributable to its trade receivables. Theamounts presented in the balance sheet are net of allowances for doubtfulreceivables, estimated based on prior experience and assessment of the currenteconomic environment. Critical judgements in applying the accounting policies In the process of applying the accounting policies, described above, managementhas made the following judgements that have the most significant effect on theamounts recognized in the financial statements: Acquisitions: Judgements have been made in respect of the identification ofintangible assets based on pre-acquisition forecasts, analysis and negotiations.The initial valuations of acquired intangible assets will be reviewed forimpairment on an annual basis and more often if necessary. Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimationuncertainty at the balance sheet date, that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year, are discussed below: Impairment of intangible assets: Determining whether intangible publishingrights and titles in respect of print publishing activities, and intellectualproperty in respect of online activities, are impaired requires an estimation ofthe value in use of the cash generating units to which these intangible assetshave been allocated. The value in use calculation requires the Group toestimate the future cash flows expected to arise from the cash generating unitsand a suitable discount rate in order to calculate the present value. 3. Business combinations Fair value adjustments have been made to the book value of the assets andliabilities of Strictly Broadband Limited, which was acquired in December 2006and previously accounted for under UK GAAP. Further details are set out belowand in the reconciliations in Note 4. The fair values below are preliminary andwill be further reviewed based on additional information available at 31 July2008. On 4 December 2006 the Company announced that it had acquired a controllinginterest in Strictly Broadband by increasing its then existing stake from 16% to55.5%. Strictly Broadband has been consolidated as a subsidiary of the Groupwith effect from the date of acquisition of the controlling interest as follows: Book Fair value Provisional Value adjustments fair value £'000s £'000s £'000s Trade names, domain names, customer relationships and contracts - 150 150Property, plant and equipment 25 - 25Trade and other receivables 240 - 240Cash 182 - 182Trade and other payables (485) - (485)Minority interest 12 - 12 ------------- --------------- ---------------Net liabilities acquired (55.5%) (26) 150 124Goodwill 200 ---------------Consideration 324 ===============Satisfied by:Cash 158Shares issued 106Transfer from fixed asset investments 32Acquisition costs 28 --------------- 324 =============== The material provisional fair value adjustments to the net assets of StrictlyBroadband were calculated as follows: Intangible assets in the form of the trade name and marks of Strictly Broadbandas well as certain existing customer relationships and contracts are recognisedbased on the Directors' assessment of their value taking into consideration thefuture cash flows that are expected to be derived from them. 4. Explanation of transition to IFRS and reconciliations 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 August 2006, the Group's date of transition toIFRS, have not been restated to comply with IFRS 3 "Business Combinations".Goodwill arising from these business combinations of £Nil has not been restated. Reconciliation of equity at 1 August 2006 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sNon-current assetsProperty, plant and equipment 106 - - - - - 106Other intangible assets - - - - 216 - 216Investments 32 - - - - - 32 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current assets 138 - - - 216 - 354 ----------- ----------- ----------- ----------- ----------- ----------- -----------Current assetsTrade and other receivables 2,020 - - - - (162) 1,858Cash and cash equivalents 3,421 - - - - - 3,421 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total current assets 5,441 - - - - (162) 5,279 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total assets 5,579 - - - 216 (162) 5,633 ----------- ----------- ----------- ----------- ----------- ----------- -----------Current liabilitiesTrade and other payables 1,129 - - - - - 1,129Short-term borrowings 1 - - - - - 1Current tax payable 668 - - - - 668 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total current liabilities 1,798 - - - - - 1,798 ----------- ----------- ----------- ----------- ----------- ----------- -----------Non-current liabilitiesDeferred tax - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current liabilities - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total liabilities 1,798 - - - - - 1,798 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Net assets 3,781 - - - 216 (162) 3,835 ====== ====== ====== ====== ====== ====== ======EquityShare capital 96 - - - - - 96Share premium account 1,161 - - - - - 1,161Other reserves 100 - - - - - 100Share option reserve - 8 - - - - 8Retained earnings 2,424 (8) - - 216 (162) 2,470 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total equity 3,781 - - - 216 (162) 3,835 =========== =========== =========== =========== =========== =========== =========== Reconciliation of equity at 31 January 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sNon-current assetsProperty, plant and equipment 122 - - - - - 122Customer relationships and contracts - - - 145 - - 145Goodwill 313 - 3 (150) - - 166Other intangible assets 483 - - - 263 - 746Deferred tax assets - 8 - - - - 8 ---------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current assets 918 8 3 (5) 263 - 1,187 ---------- ----------- ----------- ----------- ----------- ----------- -----------Current assetsTrade and other receivables 2,435 - - - - (162) 2,273Cash and cash equivalents 2,387 - - - - - 2,387 ---------- ----------- ----------- ----------- ----------- ----------- -----------Total current assets 4,822 - - - - (162) 4,660 ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------Total assets 5,740 8 3 (5) 263 (162) 5,847 ---------- ----------- ----------- ----------- ----------- ----------- -----------Current liabilitiesTrade and other payables 1,263 - - - - - 1,263Short-term borrowings 326 - - - - - 326Current tax payable 370 - - - 22 - 392 ---------- ----------- ----------- ----------- ----------- ----------- -----------Total current liabilities 1,959 - - - 22 - 1,981 ---------- ----------- ----------- ----------- ----------- ----------- -----------Non-current liabilitiesDeferred tax - - - - - - - ---------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current liabilities - - - - - - - ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------Total liabilities 1,959 - - - 22 - 1,981 ---------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------- ----------- -----------Net assets 3,781 8 3 (5) 241 (162) 3,866 =========== =========== =========== =========== =========== =========== ===========EquityShare capital 96 - - - - - 96Share premium account 1,262 - - - - - 1,262Other reserves 100 - - - - - 100Share option reserve - 28 - - - - 28Retained earnings 2,309 (20) 3 (5) 241 (162) 2,366 ---------- ----------- ----------- ----------- ----------- ----------- -----------Equity shareholders' funds 3,767 8 3 (5) 241 (162) 3,852 14 - - - - - 14 Minority interest ----------- ------------ ------------ ----------- ----------- ----------- -----------Total equity 3,781 8 3 (5) 241 (162) 3,866 ===== ====== ====== ====== ====== ====== ====== Reconciliation of equity at 31 July 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sNon-current assetsProperty, plant and equipment 126 - - - - - 126Customer relationships and - - - 130 - - 130contractsGoodwill 334 - 16 (150) - - 200Other intangible assets 467 - - - 303 - 770Investments 3 - - - - - 3Deferred tax assets - 20 - - - - 20 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current assets 930 20 16 (20) 303 - 1,249 ----------- ----------- ----------- ----------- ----------- ----------- -----------Current assetsInventories 35 - - - - - 35Trade and other receivables 4,552 - - - - (162) 4,390Cash and cash equivalents 1,704 - - - - - 1,704 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total current assets 6,291 - - - - (162) 6,129 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total assets 7,221 20 16 (20) 303 (162) 7,378 ----------- ----------- ----------- ----------- ----------- ----------- -----------Current liabilitiesTrade and other payables 1,518 - - - - - 1,518Current tax payable 873 - 4 (6) 43 - 914 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total current liabilities 2,391 - 4 (6) 43 - 2,432 ----------- ----------- ----------- ----------- ----------- ----------- -----------Non-current liabilitiesDeferred tax - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- -----------Total non-current liabilities - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------Total liabilities 2,391 - 4 (6) 43 - 2,432 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net assets 4,830 20 12 (14) 260 (162) 4,946 ====== ====== ====== ====== ====== ====== ======EquityShare capital 96 - - - - - 96Share premium account 1,187 - - - - - 1,187Other reserves 100 - - - - - 100Share option reserve - 68 - - - - 68Retained earnings 3,416 (48) 12 (14) 260 (162) 3,464 ----------- ----------- ----------- ----------- ----------- ----------- -----------Equity shareholders' funds 4,799 20 12 (14) 260 (162) 4,915 Minority interest 31 - - - - - 31 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total shareholders' funds 4,830 20 12 (14) 260 (162) 4,946 =========== =========== =========== =========== =========== =========== =========== Reconciliation of profit for the six months ended 31 January 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sContinuing operationsRevenue 5,109 - - - - - 5,109Cost of sales (2,368) - - - 72 - (2,296) ----------- ----------- ----------- ----------- ----------- ----------- -----------Gross profit 2,741 - - - 72 - 2,813 Administrative costs (729) (20) - (5) (22) - (776) ----------- ----------- ----------- ----------- ----------- ----------- -----------Operating profit 2,012 (20) - (5) 50 - 2,037 Interest received 65 - - - - - 65Finance costs - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit before tax 2,077 (20) - (5) 50 2,102 Income tax expense (644) 8 - - (22) - (658) ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit for the period from continuing operations 1,433 (12) - (5) 28 - 1,444 Minority interest (10) - - - - - (10) ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit for the period 1,423 (12) - (5) 28 - 1,434 =========== =========== =========== =========== =========== =========== =========== Reconciliation of profit for the year to 31 July 2007 UK GAAP a b c d e IFRS £'000s £'000s £'000s £'000s £'000s £'000s £'000sContinuing operationsRevenue 11,363 - - - - - 11,363Cost of sales (4,505) - - - 144 - (4,361) ----------- ----------- ----------- ----------- ----------- ----------- -----------Gross profit 6,858 - - - 144 - 7,002 Administrative costs (1,658) 8 16 (20) (57) - (1,711) ----------- ----------- ----------- ----------- ----------- ----------- -----------Operating profit 5,200 8 16 (20) 87 - 5,291 Interest received 109 - - - - - 109Finance costs (2) - - - - - (2) ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit before tax 5,307 8 16 (20) 87 - 5,398 Income tax expense (1,644) 20 (4) 6 (43) - (1,665) ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit for the period from continuing operations 3,663 28 12 (14) 44 - 3,733 Minority interest (43) - - - - - (43) ----------- ----------- ----------- ----------- ----------- ----------- -----------Profit for the period 3,620 28 12 (14) 44 - 3,690 =========== =========== =========== =========== =========== =========== =========== Notes to the reconciliations a) Under UK GAAP, the Group applied FRS 20, "Share-Based Payment" for the firsttime in the year ended 31 July 2007. However, under IFRS 2, the equivalentinternational standard, retrospective adjustments are required at 31 July 2006and 31 January 2007. The values of these changes were £8,000 and £20,000respectively before adjustments for deferred tax. For presentational purposesthe resultant entries are presented within equity as movements on a share optionreserve. b) Goodwill recognised by the Group on the acquisition of Strictly Broadbandprior to 31 July 2007 under UK GAAP was amortised over a period of 15 years.Under IFRS goodwill is not amortised, but tested annually for impairment. Thegoodwill amortisation charged in 2007 in accordance with UK GAAP has beenwritten back. c) The Group acquired a controlling interest in Strictly Broadband on 4 December2006. Application of IFRS 3 to this business combination resulted in theidentification of a number of customer relationships and contracts. Under IFRSthese have been recognised separately in the balance sheet at their fair valueat the date of the combination. Under UK GAAP these intangible assets weresubsumed within goodwill. The result of these adjustments is to decrease goodwill and increase intangibleassets at the combination date. At 31 January 2007 and 31 July 2007 the carryingvalue of other intangible assets was increased by £145,000 and £130,000respectively. The value of goodwill at 31 January 2007 and 31 July 2007 wasreduced by £150,000. Goodwill recognised by the Group on the acquisitions of the Strictly Broadbandunder UK GAAP was amortised over a period of 15 years. Under IFRS goodwill isnot amortised, but tested annually for impairment. The goodwill amortisationcharge recognised in accordance with UK GAAP in 2007 has been written back.However, intangible assets other than goodwill identified on these businesscombinations in accordance with IFRS as described above are amortised inaccordance with the accounting policy explained in note 3. The result of theseadjustments is to increase the amortisation charge in the income statement forthe six months ending 31 January 2007 by £5,000 and by £20,000 for the yearending 31 July 2007 and increase the carrying value of total intangible assetsby the same amounts. d) Under UK GAAP the Group expensed the cost of developing its bespoke softwareapplications as they were incurred. Under IFRS the development costs which meetthe recognition criteria set out in IAS38 are capitalised in the balance sheetand amortised over their expected useful life of five years. The result of these adjustments is to increase other intangible assets at 1August 2006 by £216,000. At 31 January 2007 and 31 July 2007 the carrying valueof other intangible assets was increased by a further £72,000 less amortisationcharged of £25,000 and at 31 July 2007 the carrying value of other intangibleassets was increased by a further £72,000 less further amortisation charged of£32,000. e) In carrying out an assessment of the fair values of financial instruments atthe date of transition to IFRS an adjustment was made to reduce the carryingvalue of certain trade receivables by £162,000. Explanation of material adjustments to the cash flow statement The definition of cash is narrower under UK GAAP than under IAS 7 "Cash FlowStatements". Under IFRS highly liquid investments, readily convertible to aknown amount of cash and with an insignificant risk of changes in value, areregarded as cash equivalents. The cash flow statement in the last UK GAAPfinancial statements reported movements in cash. The cash flow statement inthese IFRS consolidated interim financial statements reports movements in cashand cash equivalents. There are no other material differences between the cash flow statementpresented under IFRS and the cash flow statement presented under UK GAAP. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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