Unaudited Preliminary Announcement

27th Feb 2009 07:00



All Leisure group plc

Unaudited Preliminary Announcement

27 February 2009

Highlights

Results in line with expectations, Swan Hellenic acquisition successfully integrated

Underlying performance solid: pre-tax profits before derivative contract adjustments grew by 12.6% to £6.3m (2007 - £5.6m)

66% of FY2008/09 capacity sold (FY2007/08 - 69%)

Year-end unrestricted cash (including advanced customer receipts) of £29.9m (2007 - £27.7m). Year-end restricted cash was £3.1m (2007 - £0.4m)

Group poised for acquisition opportunities despite the most challenging trading conditions

Financial Highlights

	Unaudited
	Year ended  31 October 2008	Year ended  31 October 2007	Change
	£'000	£'000	%
Turnover	67,512	45,084	49.7
Operating profit	7,599	4,226	79.8
Profit before taxation	9,052	4,740	91.0
Pre-derivative profit before taxation *	6,275	5,571	12.6
Adjusted profit before taxation **	7,697	7,735	(0.5)
Profit for the financial year	8,814	5,360	64.4
Adjusted profit for the financial year **	7,459	8,355	(10.7)
Earnings per share - Basic and diluted (pence) Adjusted earnings per share -Basic and diluted (pence)**	14.4 12.1	9.6 14.9	50.0  (18.8)
Dividend per share (pence)	3.66	5.00	(26.8)
Total equity	30,358	24,159	25.7
Unrestricted bank balances and cash in hand	29,909	27,694	8.0

* Pre-derivative profit before tax is arrived at by removing the effects of derivative contracts adjustments from  the profit before taxation figures. See Financial Director's Report and note 6 for further details.

**  Adjusted amounts are presented in order to improve comparability in the reported results as disclosed in  note 10.

This unaudited preliminary announcement of All Leisure group plc ("All Leisure", "the Group", "the Company") contains some forward-looking information and statements that involve known and unknown risks and uncertainties, including statements about the Group's plans, objectives and intentions. The information and statements contained herein are stated by the Directors in good faith as at the date of this report and there exists the risk that actual results and outcomes may differ from the information and statements made.

The comparatives for the year ended 31 October 2007 have been restated as described in note 5 for the transition of the Group to IFRS, and for various restatements to the amounts previously reported under UK GAAP.

For further information:

All Leisure group plc

Roger Allard  Chairman 01444 462103

Rob Bryant Chief Executive Officer

Guy Marchant Group Finance Director

Ross Jobber Group Chief Operating Officer

Financial Public Relations

Citigate Dewe Rogerson 020 7282 2945

Ginny Pulbrook/Hannah Seward

Broker and Nominated Adviser 020 7448 4400

Blue Oar Securities Plc

William Vandyk/Matthew Marchant

Chairman's Statement

The year to 31 October 2008 has been one of the most challenging times within the leisure market. Despite this the Group has continued to develop. Swan Hellenic was acquired in July 2007 and has been successfully integrated, the Group having added a second ship, mv Minerva in November 2007 through the purchase of Atholl Shipping Corporation Limited which holds an operating lease for this ship. I am pleased to report that the Group is now enjoying the expected operational synergies announced at the time of acquisition. Despite a series of technical issues during the summer, disruptions to last year's programmes were kept to a minimum and I am pleased to advise that both vessels are now fully operational. It is testament to our staff and crew that customer feedback during the year remained very positive with over 95% of cruise passengers rating their experience as meeting or exceeding their expectations. The first full year of the Group's listing on the AIM market has required a significant, ongoing investment in our processes, and I believe that as a result, the Group has never been better positioned to navigate the challenging economic conditions currently facing our industry. 

Results

Turnover during the year increased by 49.7% to £67.5m due principally to the contribution of mv Minerva and profit for the financial year increased by 64.4% to £8.8m (2007 - £5.4m). Pre-tax profits were £9.1m and before derivatives adjustments grew by 12.6% to £6.3m (2007: £5.6m). In a desire to preserve cash, the proposed final dividend of 1.22p per share will be lower than planned and will, if approved, result in a total payment for the year of 3.66p per share. Including advanced customer receipts, the Group ended the financial year with bank deposits and cash balances of £33.0m (including restricted cash of £3.1m) (2007: £28.1m; restricted cash £0.4m). Further details of the adjusted results can be found in the Finance Director's Report and note 10.

Strategy

The Group's strategy remains unchanged, namely to achieve growth by exploiting the growing demand for cruise holidays and by providing an increasing choice of other niche holiday products.

The Directors believe that the Group's chosen niche markets have a number of fundamental attractions:

Significant barriers to entry. The directors believe that a growing focus by regulators on safety and consumer protection is raising the barriers to entry for those wishing to enter the Group's markets. This is benefiting established brands with strong balance sheets.

High levels of repeat business. The Group has again enjoyed significant repeat passenger business during the year, underlining the benefits of customer loyalty.

Strong revenue visibility. Despite lower prices and a clear trend towards later booking in the ocean cruising market, current year sales as at 25 February 2009 represent 66% of capacity compared with 69% this time last year. Since the start of 2009 booking levels are 20% higher than the same period last year.

An attractive tax regime. From February 2007 mv Discovery qualified for the tonnage tax regime, followed by mv Minerva in May 2008. As a result, the Directors expect the Group tax rate to be lower than the current level of UK corporation tax for the foreseeable future. 

In addition, the Group has other considerable strengths:

Well established brands. Swan Hellenic was established in 1954, Voyages of Discovery was established in 1994 and Discover Egypt in 1999. By virtue of their history, we believe that all three brands represent trusted names, generating significant customer loyalty in their niche markets, both in the UK and overseas.

Operational excellence. On-board surveys of ocean cruise passenger attitudes reveal that nine out of ten of last year's passengers surveyed intend to cruise with the Group in the future.

A committed and experienced management team. The board and two other senior executives together own 76.9 per cent. of the shares in issue. The management team brings a wide range of complementary experience from both inside and outside the travel industry.

Strong asset backing. The Group owns the ship mv Discovery, which has recently been valued comfortably in excess of its balance sheet value.  The outstanding balance due is scheduled to be repaid by May 2010, leaving the Group debt free.

Significant balance sheet liquidity. Including advanced customer receipts the Group ended the financial year with unrestricted cash (including advanced customer receipts) of £29.9m (2007: £27.7m).

Hedging

Currency hedges were taken out during the year covering the majority of the Group's currency requirements for the financial year 2008/09. Given that the Group does not employ hedge accounting, the mark-to-market profits for these hedges as at 31 October 2008 appear in the consolidated income statement for the year. The significant cash flow advantage that these hedges provide will be felt in FY 08/09, although the gain in reducing operating costs versus market rates will not appear in the results for FY 08/09. In line with many other cruise operators, the Group has not historically hedged its exposure to marine fuel and lubricant prices, which in FY 07/08 was in excess of US$16 million. Given recent price volatility, however, and the desire to offer customers a no surcharge guarantee for Summer 2009, in May and September 2008 the Group entered into fuel swaps expected to correlate with future movements in marine fuel prices. The value of the swaps entered into represented approximately 50% of the Group's anticipated calendar 2009 fuel requirements. A subsequent reduction in fuel prices in the fourth quarter of FY 07/08 resulted in the board's decision to renegotiate the terms of these fuel price swaps at a cost of £1.42m. This amount was charged to the income statement in the year ended 31 October 2008.

Dividend policy

2008/09 final dividend

At the time of our interim results the Group paid an interim dividend of 2.44p per share, representing around a third of the board's expected full year payout. Whilst pre-tax profits before derivatives for the year are in line with our expectations, the industry outlook is significantly poorer than that anticipated at our interims in July 2008. For this reason the board feels that it is appropriate to pay a more prudent 1.22p final dividend per share, resulting in a full year FY 07/08 dividend of 3.66p per share. 

Current year dividends

Current market conditions represent not only significant challenges but also significant opportunities for the Group and as a result your board considers it prudent to conserve cash, not only in order to protect the financial stability of the Group but also to provide the flexibility to grow the business via acquisition. The decision during the last financial year not to commit the cash raised at flotation has proved to be a wise one, as valuations continue to move significantly in the Group's favour. For these reasons the board believes that shareholder value can be better enhanced by conserving as much cash as possible at the current time and therefore it has decided not to pay an interim dividend for FY 08/09. The decision regarding a final dividend will be made at the time of the FY 08/09 preliminary announcement. 

Outlook

The Group successfully overcame significant technical challenges during FY 07/08 which led to a reduction in profits. This included the upgrade of two generators on mv Minerva in November 2008 and an engine repair on mv Discovery.  The technical challenges of FY 07/08 have now been replaced by the current uncertain global economic times. Continued pressure on consumer spending, adverse movements in exchange rates and later booking patterns are all currently conspiring to reduce prices and squeeze margins, and are resulting in some of the most challenging trading conditions experienced in recent years. 

Despite this outlook, I believe that the Group is better placed to continue its development than ever before, thanks to the Group's strong financial position and the continued levels of dedication and professionalism shown by the staff and crew as reflected in continued high levels of customer satisfaction. On behalf on the board I would like to thank them for their support. 

By maintaining our financial strength, we continue to believe that the Group is extremely well placed to take advantage of opportunities that arise during these challenging times. 

Roger Allard

Chairman

Chief Executive's Report 

Operating Review

Voyages of Discovery 

Voyages of Discovery offers niche year-round destination-led cruises on board the mv Discovery which appeal to mature customers and include a wide variety of itineraries worldwide. The last financial year saw considerable investment in the ship, not only in terms of infrastructure but also in the upgrading of passenger areas. The winter programme included Antarctica, Central and Southern America, while the summer programme (operating out of Harwich) included Northern Europe and the Mediterranean.

During the winter 2007/08 season mv Discovery (which weighs 20,216 tons gross, has 356 cabins and offers a maximum of 708 lower berths) carried around 5,700 passengers, representing around 78,000 revenue passenger days. During the summer 2008 season, mv Discovery carried around 9,300 passengers.

Sales are generated through a number of sources. Cruises sold in the UK are generally sold directly to the public or on the Group's behalf by specific travel agents with an expertise in the cruise market. The direct sales to the public are either to repeat customers of the Group or generated through passenger referrals, advertising and other promotions. In the US and Canada cruises are sold via the Group's Fort Lauderdale sales office and across the rest of the English speaking world,  via the Group's arrangements with general sales agents in South Africa, Australia, and New Zealand.

In line with our strategy of offering our customers the widest possible choice, we are introducing a number of exciting new destinations in Asia for Winter 2009/10. We are also investing in improving customer access to our product via our online offering.

Swan Hellenic 

In November 2007 a bareboat charter for the ship mv Explorer II (renamed mv Minerva in March 2008) commenced. mv Minerva weighs 12,449 tons gross and has 197 cabins and offers a maximum of 394 lower berths. In July 2007 the Group acquired the Swan Hellenic brand and other associated assets, and several senior members of Swan Hellenic's management team joined the existing management team. 

Following a successful winter season for mv Minerva in Antarctica, the vessel commenced operating under the Swan Hellenic brand in May 2008 and ran a programme of summer cruises (operating out of Dover) to Northern Europe and the Mediterranean. During that summer season mv Minerva carried c.3,300 passengers. 

Early demand for our summer 2008 programme led to exceptionally high levels of forward bookings which underpinned a successful relaunch year for the Swan Hellenic brand. It is important that we continue to differentiate our product in these most challenging of times. As well as re-introducing popular summer itineraries, passengers were offered a range of new products including, given the ability of mv Minerva to enter Antarctic zones 1 and 2, a winter 2008/09 programme that gives passengers the best possible access to this awe inspiring continent.  

We are particularly happy with our new summer 2009 Swans river cruise programme on the Danube and the Rhone. The Rhone river cruises are now almost fully booked and we intend to expand the river cruise product further in our summer 2010 offering. 

Operating Review (continued)

As with mv Discovery, the Group has made significant investment in the passenger areas of mv Minerva. In addition, the ship's generators were upgraded during a two week dry dock commencing 27 October 2008.

Discover Egypt

The majority of Discover Egypt's customers take packaged holidays that include seven-night Nile cruises between Luxor and Aswan, flights, accommodation and a number of excursions. Other customers use Discover Egypt to arrange bespoke holidays. The majority of revenues are generated by direct sales to the public, mostly through its website, newspaper advertising and repeat customers. The business also produces brochures and uses a small number of agents. 

Discover Egypt has been able to use its extensive knowledge of its niche market to exploit growing demand for bespoke holidays. This has allowed it to continue differentiating its offering in the marketplace and to increase average spend per passenger in what are otherwise difficult trading conditions. As a result the division traded satisfactorily in FY 07/08.

Current Trading

As at February 2009 current winter cruise bookings for Voyages of Discovery and Swan Hellenic are slightly ahead of this time last year, whilst summer 2009 cruise bookings are slightly behind. We believe that this is due to later booking patterns amongst our customers given current economic conditions. Discover Egypt is also trading satisfactorily.

Finance Director's Report 

During my first year as Group Finance Director significant improvements have been made to the Group's financial reporting function.  This year my priority has been to ensure that the Group meets its financial reporting requirements, in particular reporting under IFRS for the first time and meeting the reporting standard required by AIM. The changes made reflect the commitment of the Group to accurate financial reporting, and set the tone for the future. 

As a result of the reviews initiated internally by the Group in the period, and following correspondence with the Financial Reporting Review Panel, the Group has identified and corrected various errors in the 31 October 2007 financial statements. These corrections are summarised below with full details given in note 5, including reconciliations from the prior year financial statements. The profit and loss account, balance sheet and cash flow, together with detailed notes, provide a full disclosure of the nature and impact of the restatements on the prior year results. 

The Group has co-operated fully with the Financial Reporting Review Panel, which has now closed its investigation. The board thanks the Panel for the comments made, and the resolution of the various matters raised. 

The Group now has a reliable process with which to meet the required standard of financial reporting in the future. It has resolved the issues raised by the Financial Reporting Review Panel, such that in future periods the Group's continued ability to report financial information under IFRS is enhanced.  In addition, with the full support of the Board, the Group's internal review and control procedures continue to be under review and will continue to be improved. 

Prior year restatement of results under UK Generally Accepted Accounting Principles (UK GAAP)

Profit and loss account

The prior year financial statements have been restated as presented in note 5. The restatements have a significant impact on profit for the year ended 31 October 2007, which has been reduced by £1.3m. This principally reflects the expensing of £0.9m (being £0.7m of cash expenditure and £0.2m share option expense) which were previously charged directly to the share premium account, and the recognition of foreign exchange losses on the revaluation of US Dollar denominated inter-company balances of £0.7m.

Balance sheet

The most significant adjustment with an impact on reported net assets, arises from the reassessment of the functional currency of a subsidiary undertaking, resulting in a change in functional currency from £ sterling to US Dollar. This change has no impact on the cash of the Group, although it does have a significant effect on the net assets of the Group as this subsidiary owns both the Group's principal asset, mv Discovery, and the associated ship loan, both of which are now subject to exchange fluctuations. This accounts for the majority of the decrease in Group net assets at 31 October 2007 of £0.2m from the amounts previously reported, to the restated amount of £25.7m.

Ship accounting

The Group's most significant owned operating asset, other than cash, is the ship mv Discovery. In the financial years up to and including the year ended 31 October 2007, mv Discovery was subject to depreciation. In the current year, the Group has revisited the residual value estimate for mv Discovery, and has determined that the residual value as defined under IFRS exceeds the current carrying value. Accordingly, the Group has ceased to depreciate its core ship asset. This has resulted in a decrease in the depreciation charge year on year of £1.1m. The impact of non-depreciation on EPS is presented in note 10 in an adjusted EPS figure.

International Financial Reporting Standards 

In accordance with AIM reporting requirements, the Group has adopted International Financial Reporting Standards (IFRS) for the financial year ended 31 October 2008 as the basis to report its financial results. This transition has led to some differences between reported numbers under IFRS and UK GAAP that are a result of the accounting framework change and are not a reflection of a change in business performance. The principal impact is the presentation of the revaluation to fair value of the Group's derivative financial instruments at each balance sheet date.

Hedging

The Group takes out derivative contracts to cover fuel and foreign exchange requirements. The nature of the Group's businesses preclude the Group from adopting the hedging provisions of IAS 39 and consequently movements in derivative fair values are taken direct to the income statement, increasing the volatility of stated profits. Derivative related adjustments give rise to a profit effect of £2.8m (2007: £0.9m loss) and are reported within cost of sales. Further details are provided in note 6. 

Results presentation and discussion

For clarity of presentation, and to enable meaningful performance commentary, the table below presents the income statement adjusted in two ways: 

Firstly, pre-derivative to exclude the material fluctuations in derivative fair valuations which increase income statement volatility, and

Secondly, on an adjusted basis. The adjusted basis is calculated on earnings which have been adjusted for non-recurring items and the impact of non-depreciation of the ship.

Management believe that the pre-derivative income statement presents the clearest and most meaningful presentation for results commentary. The commentary below has been prepared on that basis. Non-recurring items are set out in detail in note 9. 

	2008 £'000	2007 £'000
Profit before tax	9,052	4,740
Derivative contract related adjustments in cost of sales  (see note 6 for details)	(2,777)	831
Pre-derivative profit before tax	6,275	5,571
Non-recurring items affecting:
- cost of sales	1,052	-
- administrative expenses	370	1,079
mv Discovery Ship depreciation included in cost of sales	-	1,085
Adjusted profit before tax	7,697	7,735
EPS - Basic and Diluted (pence)	14.4p	9.6p
Adjusted EPS - Basic and Diluted (pence)	12.1p	14.9p

Turnover and gross profit

The introduction of the Group's second cruise ship mv Minerva has been a key element in the increase in Group turnover by 49.7% to £67.5m compared with £45.1m in 2007. Gross profit, adjusted for derivatives, decreased 1.3% to £14.0m (2007: £14.2m) with gross margin reducing from 31.4% to 20.7%. As set out in the Chairman's Statement, the year has been challenging on both an operational and a macro-economic level, with factors such as volatile fuel prices, a weakening of £ sterling against the US Dollar and the Euro and technical challenges significantly impacting operating costs, including certain one off costs. The Group has experienced lost revenue and profits as a result of cancelling two cruises.

Administrative expenses

Administrative expenses in 2007/08 were £9.2m compared with £9.1m in 2006/07, an increase of £0.1m. This small movement however, reflects three main factors:

Non recurrent IPO costs expensed in the prior year;

Favourable foreign exchange movements arising on inter-company balances and cash balances; and

Start-up costs relating to the establishment of the Swan Hellenic business and the general increase in administrative costs of operating the new ship, mv Minerva.

Pre-derivative operating profit

Pre-derivative operating profit decreased 4.6% to £4.8m (2007: £5.1m). 

Investment revenues and finance costs

Investment revenues increased 75.3% to £1.7m (2007: £1.0m). The increase is, in part, a result of funds raised from the AIM listing in October 2007 being held on deposit pending an appropriate investment opportunity. Finance costs relate to a notional 4.5% interest charge on the ship loan required under IFRS and represents a non-cash item.

Profit before taxation

Pre-derivative profit before taxation increased by £0.7m to £6.3m in 2008, an increase of 12.6%. On an unadjusted basis, profit before taxation increased 91.0% from £4.7m to £9.1m.

Taxation

The 2008 effective corporation tax rate was 2.6% (2007: 13.1%). The Group's mv Discovery related cruise operations have been included in the UK tonnage tax regime since February 2007 and 2008 is the first full year in which these benefits have been realised. Free losses acquired on acquisition of Atholl Shipping Corporation were partially utilised in the period prior to the entry of mv Minerva to the tonnage tax regime in May 2008, at which point they were frozen. 

Earnings per share

Basic and diluted earnings per share on an unadjusted basis were 14.4p (2007: 9.6p). Further analysis of EPS, adjusted to present trading profit on a consistent year on year basis, is presented in note 10. Adjusted EPS is 12.1p (2007: 14.9p).

Acquisitions

The Group acquired 100% of the share capital of Atholl Shipping Corporation Limited on 7 November 2007 for a consideration of £1.5m. The Group acquired various assets and liabilities of Atholl on a dollar for dollar basis such that, other than the identified assets acquired (associated with a bareboat charter for mv Minerva (formerly mv Explorer II)), Atholl was left with a zero balance sheet. In addition the Group entered a profit share arrangement with the former shareholders for winter 2007/8 and winter 2008/9 and agreed a contribution towards the necessary dry dock provision and marketing spend. Atholl Shipping Corporation Limited adopted the Group's accounting policies on acquisition and a dry dock asset and provision were recognised at that time in line with the terms of the bareboat charter agreement on mv Minerva. The trading activities of the company were transferred to All Leisure Holidays Limited from May 2008 when the ship began operation under the Swan Hellenic name. At this time technical and commercial management of the ship were transferred to the UK and the ship entered the UK tonnage tax regime. 

 

  Cash Flows

Net cash inflow from operating activities was in line with prior year at £6.8m (2007: £6.8m). Of significance to cash flow during the year were the acquisition of Atholl Shipping Corporation Limited, resulting in a cash inflow of £0.9m, £1.7m repayment of the ship loan, £3.1m dividend payment and £1.5m interest receipt. 

Total cash and balances at bank at the year end amounted to £33.0m, of which £3.3m (2007: £10.6m) is classified as unrestricted cash, £3.1m (2007: £0.4m) classified as restricted cash, and £26.6m (2007: £17.1m) as interest bearing bank deposits. The Group has immediate access to all of these balances, other than the amounts reported as restricted cash.

Going concern

The Group continued to maintain its very strong balance sheet throughout the year, ending as at 31 October 2008 with net assets of £30.4m (2007: £24.2m), net current assets of £14.2m (2007: £13.1m) and a (gross) gearing ratio (debt to equity) of only 16.4% (2007:  21.6%).

In light of the current unprecedented economic conditions and uncertainties, the Group notes that even if it cancelled all of its cruises for the forthcoming year, refunded all of the advance customer payments and maintained administrative expenditure at an unavoidable level based on the results for the year ended 31 October 2008, the Group would have sufficient cash resources to remain in operation for at least a year from the date of approval of the financial statements. The Directors note that this scenario is not envisaged in any of the Group's forecasts, and represents an indication of the strength of the Group provided by the significant asset base including significant cash balances and the contractual arrangement for the operations of the ships.

Based on this strong position and after reviewing in detail our FY 2008/09 forecasts, the directors have formed the view that there is a high expectation that the Group has adequate resources to continue as a going concern for the foreseeable future and has prepared the financial statements on this basis.

Unaudited Consolidated Income Statement

For the year ended 31 October 2008

	Note	Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Revenue		67,512	45,084
Cost of sales (including fair value gains and losses on derivative contracts of £2,777,000 gain (2007: £831,000 loss))	6	(50,755)	(31,758)
Gross profit		16,757	13,326
Administrative expenses		(9,192)	(9,124)
Rental income		34	24
Operating profit	7	7,599	4,226
Investment revenue		1,681	959
Finance costs		(228)	(445)
Profit before taxation		9,052	4,740
Tax (charge)/credit	8	(238)	620
Profit for the financial year		8,814	5,360
Earnings per share (pence):
Basic	10	14.4p	9.6p
Diluted	10	14.4p	9.6p

All results derive from continuing operations and are attributable to equity holders of the parent Company.

The comparatives for the year ended 31 October 2007 have been restated as described in note 5 for the transition of the Group to IFRS, and for various restatements to the amounts previously reported under UK GAAP.

 

 

Unaudited Consolidated Statement of Changes in Equity

At 31 October 2008 

	Note	Share  capital  £'000	Share premium account £'000	Revaluation reserve £'000	Currency translation reserve £'000	Retained earnings £'000	Total £'000
At 1 November 2006		53	14	11	-	7,353	7,431
Profit for the financial year		-	-	-	-	5,360	5,360
Total income for the financial year		-	-	-	-	5,360	5,360
Issue of share capital		562	13,131	-	-	(503)	13,190
Share issue costs		-	(391)	-	-	-	(391)
Dividends paid	9	-	-	-	-	(1,665)	(1,665)
Share options credit		-	20	-	-	204	224
Exchange gain on translation of subsidiary entities		-	-	-	10	-	10
At 1 November 2007		615	12,774	11	10	10,749	24,159
Profit for the financial year		-	-	-	-	8,814	8,814
Total income for the financial year		-	-	-	-	8,814	8,814
Dividends paid	9	-	-	-	-	(3,070)	(3,070)
Exchange gain on translation of  subsidiary entities		-	-	-	455	-	455
At 31 October 2008		615	12,774	11	465	16,493	30,358

 

Unaudited Consolidated Balance Sheet

At 31 October 2008

				At 31 October 2008 £'000	At 31 October 2007 £'000
Non-current assets
Intangible assets				3,130	3,235
Property, ship, plant and equipment				14,882	11,504
Investment property				272	276
Restricted bank balances				2,635	-
				20,919	15,015
Current assets
Inventories				1,485	805
Trade and other receivables				5,041	1,669
Derivative financial instruments				3,686	-
Interest bearing bank deposits				26,645	17,095
Restricted bank balances				464	361
Cash and cash equivalents				3,264	10,599
Total current bank balances and cash in hand				30,373	28,055
				40,585	30,529
Total assets				61,504	45,544
Current liabilities
Trade and other payables				(24,230)	(14,882)
Current tax liabilities				(60)	(211)
Borrowings				(1,645)	(1,350)
Derivative financial instruments				(493)	(1,006)
				(26,428)	(17,449)
Non-current liabilities
Borrowings				(3,330)	(3,869)
Deferred tax liabilities				(54)	(67)
Provisions				(1,334)	-
				(4,718)	(3,936)
Total liabilities				(31,146)	(21,385)
Net assets				30,358	24,159
Equity
Share capital				615	615
Share premium account				12,774	12,774
Revaluation reserve				11	11
Currency translation reserve				465	10
Retained earnings				16,493	10,749
Total equity				30,358	24,159

The comparatives for the year ended 31 October 2007 have been restated as described in note 5 for the transition of the Group to IFRS, and for various restatements to the amounts previously reported under UK GAAP.

 

Unaudited Consolidated Cash Flow Statement

For the year ended 31 October 2008

	Note			Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Net cash inflow from operating activities	11			6,750	6,829
Investing activities
Interest received				1,476	834
Acquisition of subsidiary				900	-
Rental income				34	24
Purchases of property, plant and equipment				(268)	(2,196)
Movement to short-term interest bearing cash deposits				(9,551)	-
Net cash used in investing activities				(7,409)	(1,338)
Financing activities
Proceeds from issue of shares				-	10,000
Share issue costs				-	(388)
Dividends paid				(3,070)	(1,665)
Repayment of loans				(1,667)	(2,170)
Management of liquid resources - bank deposits				(1,988)	(4,090)
Net cash (used in) / from financing activities				(6,725)	1,687
Net (decrease) / increase in cash and cash equivalents				(7,384)	7,178
Cash and cash equivalents at the start of the year				10,599	3,400
Effect of foreign exchange rate changes				49	21
Cash and cash equivalents at the end of the year				3,264	10,599

The comparatives for the year ended 31 October 2007 have been restated as described in note 5 for the transition of the Group to IFRS, and for various restatements to the amounts previously reported under UK GAAP.

 

Notes to the Unaudited Preliminary Announcement

For the year ended 31 October 2008

1. Financial information

The financial information has been abridged from the draft financial statements for the year ended 31 October 2008.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 October 2008 or 31 October 2007. The financial information for the year ended 31 October 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies, as restated in note 5 for various amendments to the amounts previously reported under UK GAAP and for the transition of the Group to IFRS. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s237(2) or (3) Companies Act 1985.  Reference is made to note 5 which discusses the details of a comment process with the Financial Reporting Review Panel on those accounts. The audit of the statutory accounts for the year ended 31 October 2008 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS. The Group will be publishing full financial statements that comply with IFRS in early March.

2.  Adoption of IFRS, prior year restatements and standards in issue not yet effective

First time adoption of IFRS

The Group has adopted IFRS from 1 November 2006 ('the date of transition').  The effect of the transition from UK GAAP as previously reported and subsequently restated (see below) by the Group to IFRS as at 1 November 2006 and 31 October 2007, and for the financial year ended 31 October 2007, is included in note 5. In accordance with IFRS 1 the Group is entitled to a number of voluntary exemptions from full restatement for certain standards, which have been adopted as dealt with below:

Fair value or revaluations as deemed cost: as described in the IFRS accounting policies in note 3, the Group has elected to adopt the cost model available under IAS 40, Investment Property. Accordingly, the net book value of the sole investment property held by the Group at the date of transition from UK GAAP is the deemed cost under IFRS.

Cumulative translation differences: Under IAS 21, The Effects of Changes in Foreign Exchange Rates, translation differences arising on the conversion of subsidiary undertakings with financial currencies that differ to the Group presentation currency of £ sterling are required to be initially recognised as a separate component of equity that is only recognised in the income statement in the event of a disposal of that foreign operation. The Group has elected not to comply with this requirement for cumulative translation differences that existed at the date of transition and accordingly, the cumulative translation differences for all non sterling functional currency operations are deemed to be zero at the date of transition.

Prior year restatements arising from corrections to errors under UK GAAP 

During the preparation of the financial statements for the year ended 31 October 2008, the Group has identified various errors in the financial statements for the year ended 31 October 2007 which were presented under UK GAAP. The restatements arising from the correction of these errors are significant, and disclosed in note 5 as a restatement of the amounts previously reported under UK GAAP prior to the adjustments arising as a result of the transition to IFRS. The Directors are of the opinion that in the context of the transition to IFRS and the change in the basis of preparation of the financial statements arising, that the amounts are not sufficiently significant to require the financial statements for the year ended 31 October 2007 to be re-issued.

  

3. Significant accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial instruments. The principal accounting policies adopted are set out below.

The financial statements have been prepared on a going concern basis as discussed in the Financial Director's Report and Corporate Governance Statement.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 October each year. Control is achieved when the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

All subsidiaries are 100% owned and there are no minority interests in the Group. 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the IFRS policies used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations 

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. 

The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Foreign exchange

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

  3. Foreign exchange (continued)

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and recognised in the Group's foreign currency translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Property, ship, plant and equipment

Property, ship, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Depreciation

Depreciation is provided on all property, dry docks, ship improvements and plant and equipment, other than freehold land, at rates calculated to write off the cost or revalued amount, less estimated residual value of each asset evenly over its expected useful life, as follows:

Freehold land and buildings	2% per annum straight line
Ship (core asset)	Not depreciated
Dry dock assets	Over period to next planned dry dock
Ship leasehold improvements	Over lease period
Ship improvements, fixtures and fittings	10% - 20% per annum straight line
Office equipment	20% per annum reducing balance

The carrying values of property, plant and equipment are reviewed at least annually for impairment or if events or changes in circumstances indicate the carrying value may not be recoverable.

The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year end.

As discussed in the critical judgements section in note 4, mv Discovery has ceased to be depreciated in the year as the residual value is considered by the Directors to be in excess of her net carrying value.

Land and buildings held for administrative purposes are stated in the balance sheet at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. 

Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on the revaluation of such land and buildings is credited to the properties' revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the properties' revaluation reserve relating to a previous revaluation of that asset. 

3. Significant accounting policies (continued)

Depreciation (continued)

Depreciation on revalued buildings is charged to income. On the subsequent sale of a revalued property, the attributable revaluation surplus remaining in the properties' revaluation reserve is transferred directly to retained earnings.

Investment property

Investment property, which is property held to earn rentals, is stated at deemed cost as the Group elected, under the transitional arrangements available under IFRS 1, to use the previous carrying value under UK GAAP as deemed cost on transition to IFRS. The investment property is depreciated on a straight-line basis of 2% per annum.  The land on which it is situated is not depreciated.

Intangible assets

Intangible assets with a finite useful life are carried at cost less amortisation and any impairment losses. Intangible assets represent items which meet the recognition criteria of IAS 38, "Intangible Assets".

Amortisation of intangible assets is calculated over the following periods:

Customer database	- 10% per annum straight line
Trademark	- 4% per annum straight line
Computer software	- 25% per annum straight line
Order backlog	- over the period supplied

Impairment of tangible and intangible assets 

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the income statement as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 

 3. Significant accounting policies (continued)

 Financial instruments

Financial assets and financial liabilities are recognised on the Group's balance sheet at fair value when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

In accordance with IAS 39, 'Financial Instruments: Recognition and Measurement' financial assets are classified into the following specified categories: 

financial assets 'at fair value through profit or loss' (FVTPL);

'held-to-maturity' investments;

'available-for-sale' (AFS) financial assets; and

'loans and receivables'. 

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Currently the Group has financial assets classified as 'loans and receivables' and financial assets at 'fair value through profit and loss'. No financial assets are classified as 'held to maturity' or 'available-for-sale'.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

The principal financial assets included in this measurement category are:

Trade receivables

Trade receivables represent net amounts receivable and payments made in the normal course of business. All amounts which are not interest bearing are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts, which are charged to the income statement.

 

3. Significant accounting policies (continued)

 

Cash and cash equivalents, bank balances interest bearing bank deposits

Cash and cash equivalents, bank balances and interest bearing bank deposits comprises all balances held by the Group with banking institutions and cash in hand (principally held on board the ships). This category includes the following:

cash and cash equivalents which comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value; 

short and long term restricted bank balances which comprises bank deposits over which counterparties have guarantees charged, such that the Group cannot access the funds until the guarantee is released. The principal amounts of this nature arise from the bare boat charter agreement for mv Minerva, which has a cash guarantee in place for $4.1m; and,

interest bearing bank deposits with a maturity of over three months. Whilst the Group has immediate access to these funds, the Group typically retains these funds in the deposit account until the deposit term as the counterparty financial institution has the right to restrict interest payments in the event of early withdrawal.

Financial assets at FVTPL 

Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. The Group has not designated any financial assets as being at FVTPL and accordingly only holds financial instruments in this category that are deemed to be held for trading under the provisions of IAS 39.

With respect to the Group, all financial assets that are held for trading are derivative instruments that are not designated and effective as hedging instruments (see the derivative accounting policy below).

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. 

Impairment of financial assets

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

Objective evidence of impairment could include:

significant financial difficulty of the counterparty; or

default on payments; or

it becoming probable that the counterparty will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. 

3. Significant accounting policies (continued)

Impairment of financial asset (continued)

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account.

Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are immediately recognised in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the income statement to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. 

De-recognition of financial assets

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

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. 

Equity instruments

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

Financial liabilities 

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'.

Financial liabilities at FVTPL 

Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. The Group has not designated any financial liabilities as being at FVTPL and accordingly only holds financial instruments in this category that are deemed to be held for trading under the provisions of IAS 39.

With respect to the Group, all financial liabilities that are held for trading are derivative instruments that are not designated and effective as hedging instruments (see the derivative accounting policy below).

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

  3. Significant accounting policies (continued)

Financial liabilities (continued)

Other financial liabilities 

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

De-recognition of financial liabilities

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

Derivative financial instruments

The Group's activities expose it primarily to the financial risks of changes in foreign exchange rates and changes in the price of fuel for the ships. Derivative financial instruments are used by the Group to hedge its exposure to movements in currency exchange rates and movements in the price of fuel. The Group does not use derivative financial instruments for speculative purposes.

Whilst the Group's derivatives do not meet the hedge classification criteria of IAS 39, the derivatives operate as economic hedges against movements in the price of fuel, and foreign exchange rates, principally linked to items included within cost of sales. Accordingly, the Group includes the fair value movements on derivative financial instruments meeting the criteria of economic hedges within cost of sales. The amounts in the year are included in note 6.

The Group's current hedging method precludes it from adopting the hedge accounting provisions of IAS 39. Derivative financial instruments are measured at fair value as described above. 

A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Dividends

Dividends are provided for in the period in which they become a binding liability on the Group.

Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Inventories

Inventories representing engineering spares, fuels and lubricants are stated at the lower of cost and net realisable value.

Where necessary, provision is made for obsolete and damaged stocks.

  3. Significant accounting policies (continued)

Leases

Leases taken by the Group are assessed individually as to whether they are finance leases or operating leases.

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease rental payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The benefit of any lease incentives is spread over the term of the lease.

All Group leases (which include Bareboat Charter agreements) are classified as operating leases.

Taxation

The tax expense represents the sum of current tax expense and deferred tax expense.

Current tax expense is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Certain of the Group subsidiary companies are subject to taxation under the Tonnage Tax regime. Under this regime, a shipping company may elect to have its taxable profits computed by reference to the net tonnage of each of the qualifying ships it operates. 

Deferred tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for accounting purposes. Deferred tax balances are not significant to the Group due to the majority of the operations being within the tonnage tax regime, or taxed on a basis equivalent to the accounting basis.

Where relevant, deferred tax is measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based upon tax rates and legislation that have been enacted or substantively enacted at that balance sheet date. Deferred tax is charged or credited to the income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. 

Share capital and share premium account

There is one class of shares. When new shares are issued, they are recorded in share capital at their par value. The excess of the issue price over the par value is recorded in the share premium account.

Incremental external costs directly attributable to the issue of new shares are recorded in equity as a deduction, net of tax, in the share premium account.

Share-based payment

The Group has applied the requirements of IFRS 2, 'Share-based Payment', to all grants of equity instruments. The Group issued equity-settled share-based payments to its NOMAD in the year ended 31 October 2007. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments was expensed immediately as the options vested immediately on grant.

Fair value is measured by use of the Black-Scholes pricing 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.

  3. Significant accounting policies (continued)

Revenue recognition

Revenue comprises sales to third parties (excluding VAT and similar sales and port and other taxes). Cruise revenues, together with revenues from onboard and other activities, which include transportation and shore excursion revenues, are recognised in income upon completion of a voyage or on a pro rata basis for cruises underway at the period end. 

Client monies received at the balance sheet date relating to holidays commencing after the year end are deferred and included within trade and other payables.

Retirement benefit costs

The Group operates a defined contribution pension scheme. The amount charged to the income statement in respect of pension costs and other post-retirement benefits is the contributions payable in the year.

Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

Operating profit

Operating profit is stated before investment income and finance costs.

Borrowing costs

All borrowing costs are recognised in profit or loss in the period in which they are incurred.

  4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the Group's accounting policies

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Prior year restatement

As part of the preparation of the financial statements for the year ended 31 October 2008, the Group has identified significant adjustments in the amounts reported as at 31 October 2007 and for the year then ended. 

These adjustments are disclosed in more detail in note 5.

Due to the significance of the overall restatements, the Group has presented all adjustments required to the amounts previously reported under UK GAAP as prior year adjustments. The Group has paid particular attention to FRS 18, 'Accounting policies' and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors and is of the opinion that, while some of the adjustments are not individually fundamental under UK GAAP, or material under IAS, in aggregate, and to improve the clarity and comparability of the financial position, financial performance and cash flows of the Group, it is appropriate to reflect all adjustments in the correct period to which they apply.

Residual value of mv Discovery

The basis of assessing the residual value of the Group's owned ship mv Discovery has changed in the period, resulting in a cessation of depreciation on the core ship component from 1 November 2007. The residual value is now measured on the basis of an operating cruise ship at the current projected end of the economic life to the Group. In prior periods, the residual value was estimated on a scrap basis. Due to the determination of residual values being inherently judgmental, the Group has accounted for this change prospectively from 1 November 2007 as a revision to the residual value estimate. The Group is aware that this change leads to an increase in earnings per share on a comparative basis, and accordingly, the Group presents in note 10 an adjusted EPS to show the results on a year by year basis, as if depreciation had not been charged in the prior period.

The change in the basis of estimating the residual value reflects specialist advice received by the Company from a member of the Institute of Chartered Ship Brokers, relating to the likely disposal value of the ship being $31.0m at 31 October 2008, and at the projected end of the economic life to the Group. This advice indicates that the ship has reached a certain age, such that the passage of time has a much less significant impact on the value of the ship than the state of repair and maintenance. mv Discovery is maintained to a high and increasing standard through ongoing maintenance programmes and regular dry docks such that the residual value is not considered to be decreasing over time in real terms.

  4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Intangible asset valuation and amortisation period

The valuation of intangible assets, for which there is not a readily available market, requires significant judgment on the part of the Group. Intangible assets consist predominantly of two cash generating units: a database of Swan Hellenic past passenger and enquirer names and the Swan Hellenic trademark. These assets were valued in 2007, by White Hart Associates LLP, as required by s108 of the Companies Act 1985 (concerning the issue of shares for a non-cash consideration) to establish the premium arising on the issue of shares that the Company issued as consideration for the purchase of the assets. The directors have considered that valuation and are of the opinion that it is a reasonable basis to establish the fair value of the assets acquired in the prior period.

The amortisation period is also judgmental. The intangible value has been split between the trademark and the database on the basis of discounted future cash flows attributable to each cash generating unit. The database is being amortised over 10 years. The trademark is being amortised over 25 years. The long period attributable to the life of the trademark reflects the fact that the Swan Hellenic brand has a history stretching over more than 50 years and ongoing investment in the brand will ensure its continued development.

These intangible assets became available for use in May 2008 from which date amortisation has commenced. 

Functional currency of Discovery Cruises Limited

The functional currency of Discovery Cruises Limited, a subsidiary entity in the Group is considered by the directors to be US dollars. Discovery Cruises Limited transacts business on behalf of the Group in the United States of America from our Fort Lauderdale office. On transition to IFRS, the Group determined that the functional currency of this subsidiary should always have been US Dollars, as this is the currency of the primary economic environment in which the subsidiary operates. All of its revenue (both from third party customers, and intra group through the bare boat chartering of mv Discovery to All Leisure Holidays Limited) is derived in US Dollars, as are the majority of its costs. 

This subsidiary had historically been treated as a sterling local currency entity under UK GAAP, and this change has required a restatement to the Group accounts, as presented in note 5. 

This judgment has a significant impact on the reported results and financial position of the Group, for the following reasons:

This subsidiary owns the Group's owned asset, mv Discovery, with the associated funding loan. Accordingly, gains and losses arise each period on the retranslation of the assets and liabilities of the entity, are reported within the currency translation reserve in equity. As the ship asset is no longer depreciating, and the ship loan is being repaid, this increases the volatility of movements in net assets to the underlying US Dollar to £ sterling exchange rate, though has limited impact on reported results.

The relationship between Discovery Cruises Limited and All Leisure Holidays Limited (a fellow Group subsidiary) is such that the amounts due to or from All Leisure Holidays Limited and Discovery Cruises Limited are US Dollar denominated. Accordingly, the Group now reports exchange gains and losses on this intercompany balance in the income statement for each period, which do not eliminate on consolidation. Due to the significant size of the inter-company balance, the resulting gains and losses can be significant, and create volatility in the Group. In the current period, they amount to a gain of £725,000 (2007: loss £636,000).

  4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Insurance claims

During the period, the generators on mv Minerva, the Group leased ship, ceased to operate and have been replaced in dry dock over the year end with enhanced, more fuel efficient generators. The replacement is the subject of an insurance claim that the Group is in the process of submitting. 

The Group has expensed all costs associated with the replacement of the generators, other than for amounts that qualify to be capitalised as fixed asset leasehold improvements, estimated at £300,000. Separately, the Group has recorded an insurance receivable asset, for the minimum amount that the Group can be assured to recover under the terms of the insurance contract on mv Minerva. The Group is currently in discussion with the loss adjusters on this claim. 

In arriving at the above treatment, the directors have considered in detail the requirements of IAS 16, Tangible fixed assets, and IAS 37, Provisions, Contingent liabilities and Contingent assets and the terms of the relevant insurance contract, discussions to date with the loss adjusters and all other relevant facts. 

Based on these considerations, the directors are of the opinion that only enhancements to fixed assets can be capitalised, and have derived an estimate based on the difference between indicative values of like for like replacement generators, and the actual generators installed on the ship from the company installing the generators. 

The Directors are also of the opinion that it is appropriate to record an insurance receivable under the terms of the insurance contract, which covers the insured loss. In this respect, the recognition of the insurance claim asset is the amount that the directors believe meets the 'virtually certain' criteria under IAS 37. The amount recorded as a receivable has been arrived at after taking a prudent view of the total potential insurance asset to be recovered, and represents the minimum amount that the Group expects to recover. The Group is confident that it will recover the costs incurred in full, but does not feel that under IAS 37, there is sufficient certainty, given evidence available at the balance sheet date to classify the total insurance claim as virtually certain. 

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Valuation of derivative financial instruments

The Group has significant derivative assets and liabilities on balance sheet as at 31 October 2007 and 31 October 2008, which are carried at fair value as required by IAS 39, Financial instruments: Recognition and Measurement. The fair value is reported in the income statement, and creates volatility in reported results. The Group is fortunate to have significant technical knowledge on derivatives in house through the experience and expertise of the Board. The Group believes that the estimation of the derivative market value at the year end is based on appropriate estimates. The Group notes though that the valuation of derivative financial instruments requires significant estimates, and is subject to change outside of the control of the Group, through changes in forward currency rates and changes in fuel prices between the balance sheet date and the date that the relevant contracts mature. 

  4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Dry dock provisions

The bareboat charter agreement for mv Minerva establishes certain minimum return conditions on the vessel at the end of the agreement. To the extent that these are considered unavoidable, the Group records a provision for the best estimate of the expected expenditure to be incurred, with a corresponding asset recorded. The asset is depreciated to the date that the work is planned to be completed. The estimation of the provision requires significant judgment, and has inherent uncertainties relating to the cost of the work to be completed. Further, the liability will be settled principally in Euro, and is carried in a US Dollar functional currency entity. Accordingly, the level of the liability at Group level is subject to both fluctuations in value between the US$ and Euro exchange rate, and the Euro and £ sterling exchange rate. Due to the significance of the provided amounts, the estimate of the provision and associated foreign exchange fluctuations can create volatility in the Group reported financial position and financial performance, and ultimately in the Group cash flows in the period that the repair and maintenance obligations are discharged.

Impairment reviews

The directors have considered whether the assets of the Group are impaired at the balances sheet date. The principal assets, other than cash, are attributable to either the Swan Hellenic or Voyages of Discovery brands. The principal asset in the Voyages of Discovery brand is the ship, mv Discovery, which is not considered to be impaired due to the factors noted above in the section on key accounting judgments relating to the residual value of the ship exceeding its carrying value. 

The Group has completed a detailed impairment review of the assets in the Swan Hellenic cash generating unit. The table below summarises the results of that impairment review:

	Book Value £'000	Recoverable amount  £'000	Surplus of recoverable amount over  book value £'000
Swan Hellenic CGU	4,524	44,149	39,625

In determining the recoverable amount, the Group has used the following principal inputs:

	Measure
Discount rate - pre tax	5.4%
Cash flow forecast period (budget)	6 years + terminal value
Rate of increase of cash flows beyond the budget period	0%

Based on this review, the Group is satisfied that the assets are not impaired at the balance sheet date. The Directors note that the assumptions made in preparing the impairment review have a significant impact on the recoverable amount of the CGU, and actual events may differ materially from expectation.

Residual value of mv Discovery

As noted in the section on critical accounting judgments, mv Discovery is no longer depreciated due to the estimated residual value of the ship. Cruise ships by their nature are unique assets and as such cannot be valued with the same degree of certainty as more regularly traded generic assets. The Directors have satisfied themselves that the valuation of the ship has been based on the best available information at the point in time in which it was carried out. Reference is made to the section above for further details.

  

5. Restatement of the comparative information under UK GAAP and transition to IFRS

As required by the AIM Rules, the Group has prepared the 31 October 2008 consolidated financial statements, including comparative information, under International Financial Reporting Standards ('IFRS'). The Group reported on its preliminary IFRS transition as at 31 October 2006 and for the year ended 31 October 2007 in the unaudited condensed interim consolidated financial statements for the six month period ended 30 April 2008, released on 25 July 2008.

As disclosed in the unaudited condensed interim consolidated financial statements for the six month period ended 30 April 2008, during the process of completing the IFRS conversion for the Group, the Group identified various errors in the accounting treatment previously adopted under UK GAAP in the preparation of the 31 October 2007 financial statements. Where material to the profit and loss account, or individual line items on the balance sheet, the Group presented these adjustments clearly as restatements to the amounts previously reported under UK GAAP.

Subsequent to the issue of the unaudited condensed interim consolidated financial statements for the six month period ended 30 April 2008, the Group received a comments letter from the Financial Reporting Review Panel dated 5 August 2008. The Group has paid particular attention to the comments raised in this initial letter and co-operated fully with the Panel. As a result of the comments raised through the dialogue with the Panel, and internally initiated improvements in the Group's accounting function and processes, certain further adjustments have been required to present fairly the Group's financial position, financial performance and cash flows under IFRS, and to provide a true and fair presentation of the UK GAAP comparative information, had this been appropriately prepared.

We present below details of the restatements required to the amounts previously reported under UK GAAP in note 5.1. for the financial position of the Group as at 31 October 2006, 31 October 2007 and for the results of operations and cash flows for the year ended 31 October 2007. We present in note 5.2. details of the adjustments required to the restated UK GAAP amounts arising from the transition of the Group to IFRS from 1 November 2006.

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007

The Group presents below a reconciliation of the adjustments that are required to the amounts previously reported under UK GAAP as at 31 October 2007 and 1 November 2006 and for the year ended 31 October 2007. While certain of these adjustments are not material, and would not individually require a restatement under FRS 18, 'Accounting policies' of the amounts previously reported, the Group presents all relevant adjustments to UK GAAP amounts to provide a complete analysis of adjustments reported in the periods to which they apply.

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1.1 Restatement of UK GAAP Profit and Loss Account for the year ended 31 October 2007

	UK GAAP as previously stated	FRS 15 Revised  Ship accounting	FRS15 Freehold Building Depreciation	SSAP 20 Foreign currency translation	FRS 25 IPO  costs	FRS 20 Share  based payments	UK GAAP as restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Turnover	45,400	-	-	(316)	-	-	45,084
Cost of sales	(30,383)	(1,181)	-	509	-	-	(31,055)
Gross profit	15,017	(1,181)	-	193	-	-	14,029
Administrative expenses	(8,841)	1,233	(20)	(613)	(675)	(204)	(9,120)
Other operating income	24	-	-	-	-	-	24
Operating profit	6,200	52	(20)	(420)	(675)	(204)	4,933
Interest receivable and similar income	958	-	-	1	-	-	959
Interest payable and similar charges	(124)	-	-	-	-	-	(124)
Profit on ordinary activities before taxation	7,034	52	(20)	(419)	(675)	(204)	5,768
Tax on profit on ordinary activities	522	-	-	(57)	-	-	465
Profit for the financial year	7,556	52	(20)	(476)	(675)	(204)	6,233

5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.2  Restatement of UK GAAP Balance Sheet at 31 October 2007

	UK GAAP as previously stated	Other Reserves	SSAP 19 Investment  property	FRS 10 Goodwill and intangible fixed assets	FRS 15 Revised  fixed asset  accounting	FRS 15 Freehold building depreciation	SSAP 20 Foreign currency translation	FRS 25 IPO Costs	FRS 1  Cash	UK GAAP As  Restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Fixed assets
Intangible assets:
Goodwill	3,207	-	-	(3,207)	-	-	-	-	-	-
Other intangible assets	-	-	-	3,207	-	-	-	-	-	3,207
	3,207	-	-	-	-	-	-	-	-	3,207
Tangible assets:
Ship, property, plant and equipment	12,825	-	(280)	-	1,220	(20)	(1,283)	-		12,462
Investment property	-	-	280	-	-	-	-	-	-	280
	12,825	-	-	-	1,220	(20)	(1,283)	-	-	12,742
	16,032	-	-	-	1,220	(20)	(1,283)	-	-	15,949
Current assets
Stocks	805	-	-	-	-		-	-	-	805
Debtors:
Trade debtors	6	-	-	-	-		-		-	6
Other debtors and prepayments	2,533	-	-	-	(920)	-	-	50	-	1,663
	2,539	-	-	-	(920)	-	-	50	-	1,669
Interest bearing bank deposits	-	-	-	-	-	-	-	-	17,095	17,095
Restricted bank balances	-	-	-	-	-	-	-	-	361	361
Unrestricted cash and cash equivalents	28,055	-	-	-	-	-	-	-	(17,456)	10,599
Total bank balances and cash in hand	28,055	-	-	-	-	-	-	-	-	28,055
	31,399	-	-	-	(920)	-	-	50	-	30,529
Creditors: amounts falling due within one year
Ship loan	(1,763)	-	-	-	-	-	199	-	-	(1,564)
Trade creditors	(2,651)	-	-	-	-	-	-	-	-	(2,651)
Corporation tax	(63)	-	-	-	-	-	-	-	-	(63)
Other taxation and social security	(148)	-	-	-	-	-	-	-	-	(148)
Other creditors	(12)	-	-	-	-	-	-	-	-	(12)
Accruals and deferred income	(12,219)	-	-	-	-	-	-	-	-	(12,219)
	(16,856)	-	-	-	-	-	199	-	-	(16,657)
Net current assets	14,543	-	-	-	(920)	-	199	50	-	13,872
Total assets less current liabilities	30,575	-	-	-	300	(20)	(1084)	50	-	29,821
Creditors: amounts falling due after more than one year
Ship loan	(4,612)	-	-	-	-	-	520	-	-	(4,092)
Provisions for liabilities
Deferred taxation	(13)	-	-	-	-	-	-	-	-	(13)
Net assets	25,950	-	-	-	300	(20)	(564)	50	-	25,716

5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.2  Restatement of UK GAAP Balance Sheet at 31 October 2007 (continued)

	UK GAAP as previously stated	Other reserves	SSAP 19 Investment  property	FRS 10 Goodwill and intangible fixed assets	FRS 15 Revised ship accounting	FRS 15 Freehold building depreciation	SSAP 20 Foreign currency translation	FRS 25 IPO costs	FRS 1 Cash	UK GAAP as restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Capital and reserves
Called up share capital	615	-	-	-	-	-	-	-	-	615
Share premium	12,049	-	-	-	-	-	-	725	-	12,774
Revaluation reserve	226	-	-	-	-	-	-	-	-	226
Other reserves	83	(83)	-	-	-	-	-	-	-	-
Profit and loss account	12,977	83	-	-	300	(20)	(564)	(675)	-	12,101
Shareholders' funds	25,950	-	-	-	300	(20)	(564)	50	-	25,716

5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.3 Restatement of UK GAAP Balance Sheet at 1 November 2006

	UK GAAP as previously stated	Other reserves	SSAP 19 Investment  Property	FRS 15 Revised  ship accounting	SSAP 20 Foreign currency translation	FRS 1 Cash	UK GAAP as restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Fixed assets
Tangible assets:
Ship, property, plant and equipment	14,552	-	(280)	(987)	(374)	-	12,911
Investment property	-	-	280	-	-	-	280
	14,552	-	-	(987)	(374)	-	13,191
Current assets
Stocks	205	-	-	-	-	-	205
Debtors:
Trade debtors	1,118	-	-	-	(34)	-	1,084
Other debtors and prepayments	2,124	-	-	-	(10)	-	2,114
	3,242	-	-	-	(44)		3,198
Interest bearing bank deposits	-	-	-	-	-	13,005	13,005
Restricted bank balances	-	-	-	-	-	393	393
Unrestricted cash and cash equivalents	16,787	-	-	-	11	(13,398)	3,400
	16,787	-	-	-	11	-	16,798
	20,234	-	-	-	(33)		20,201
Creditors: amounts falling due within one year
Ship loan	(2,170)	-	-	-	74	-	(2,096)
Trade creditors	(3,608)	-	-	1,237	-	-	(2,371)
Corporation tax	(2,373)	-	-	-	9	-	(2,364)
Other taxation and social security	(69)	-	-	-	-	-	(69)
Other creditors	(100)	-	-	-	(34)	-	(134)
Accruals and deferred income	(11,535)	-	-	-	68	-	(11,467)
	(19,855)	-	-	1,237	117	-	(18,501)
Net current assets	379	-	-	1,237	84	-	1,700
Total assets less current liabilities	14,931	-	-	250	(290)	-	14,891
Creditors: amounts falling due after more than one year
Ship loan	(6,375)	-	-	-	218	-	(6,157)
Provisions for liabilities
Deferred taxation	(591)	-	-	-	33	-	(558)
Net assets	7,965	-	-	250	(39)	-	8,176
Capital and reserves
Called up share capital	53	-	-	-	-	-	53
Share premium	14	-	-	-	-	-	14
Revaluation reserve	226	-	-	-	-	-	226
Other reserves	83	(83)	-	-	-	-	-
Profit and loss account	7,589	83	-	250	(39)	-	7,883
Shareholders' funds	7,965	-	-	250	(39)	-	8,176

5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.4  Restatement of the UK GAAP Cash Flow Statement for the year ended 31 October 2007

	UK GAAP as  previously stated	FRS 15 Ship Accounting	FRS15 Freehold Building Depreciation	FRS 25 IPO Costs	SSAP 20 Local currency adjustment	FRS 20 Share options expense	FRS 1 Cash	UK GAAP As Restated
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Operating profit	6,200	52	(20)	(675)	(420)	(204)	-	4,933
Depreciation charges	1,233	481	20	-	-	-	-	1,734
Decrease in stock	(600)	-	-	-	-	-	-	(600)
Decrease/(increase) in debtors	703	920	-	(50)	-	-	-	1,573
(Decrease)/increase in creditors	(282)	1,237	-	-	(216)	-	-	739
Unrealised loss on intercompany balances	-	-	-	-	636	-	-	636
Share based payments	-	-	-	-	-	204	-	204
Net cash flow from operating activities	7,254	2,690	-	(725)	-	-	-	9,219
Returns on investments and servicing of finance	834	-	-	-	-	-	-	834
Taxation	(2,366)	-	-	-	-	-	-	(2,366)
Capital expenditure	494	(2,690)	-	-	-	-	-	(2,196)
Equity dividends paid	(1,665)	-	-	-	-	-	-	(1,665)
Cash inflow before management of liquid resources and financing	4,551	-	-	(725)	-	-	-	3,826
Management of liquid resources - bank deposits	-	-	-	-	-	-	(4,090)	(4,090)
Financing - Issue of share capital	8,887	-	-	725	-	-	-	9,612
Financing - Loan repayments	(2,170)	-	-	-	-	-	-	(2,170)
Revaluation of bank balances	-	-	-	-	21	-	-	21
Increase in cash in the year	11,268	-	-	-	21	-	(4,090)	7,199

5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.5  Explanation of the adjustments required to restate the amounts previously reported under UK GAAP

SSAP 19, Accounting for investment properties

The Group owns a freehold property at 54/54a The Hundred, Romsey, Hampshire. This building is held to earn rental income and for capital appreciation. Accordingly, under SSAP 19, this property should have been separately classified as an investment property, and carried at open market value. The Group previously carried this property at open market value within Freehold land and buildings and accordingly the change in classification has no impact on the profit and loss account for the year to 31 October 2007, net assets as at 1 November 2006 and 31 October 2007, or the face of the balance sheet, but does cause a reclassification within the fixed asset note as at 1 November 2006 and 31 October 2007, of £280,000 from Freehold land and buildings to Investment properties. 

FRS 10, Goodwill and intangible fixed assets

The Group acquired the Swan Hellenic customer database and trademark during the year ended 31 October 2007. The surplus of the consideration paid measured by reference to the fair value of the shares issued to acquire the customer database and trademark was incorrectly classified as goodwill in the 31 October 2007 financial statements. Under UK GAAP, goodwill can only arise in a business combination. After further careful consideration, the Group is now of the opinion that this acquisition represents the purchase of an intangible asset rather than a business combination, and accordingly the asset has been reclassified from goodwill to intangible assets. This reclassification has no impact on the reported net assets or profit for the year to 31 October 2007 or as at 31 October 2006.

FRS 15, Revised ship accounting

Component accounting

The Group owns one of the ships that it operates - mv Discovery. Under FRS 15, the Group is required to component account for this fixed asset where the identifiable components have different useful economic lives. The Group has determined that the ship has three significant components with a shorter useful economic life to the principal asset, being the service potential that will be restored by legally required dry dock overhauls, ship upgrades and fixtures and fittings. 

In the year ended 31 October 2007, the Group determined that it was necessary to account separately for the dry dock component. The amount of the dry dock expense incurred in November 2006 was written off to reflect the consumption of the initial dry dock component inherent in the ship when it was acquired in May 2005. The cost of this dry dock was capitalised within Other Debtors. The Group has considered the appropriateness of this policy and determined that it is not compliant with FRS 15 as the dry dock asset should have been recorded within fixed assets. Accordingly, the Group has reclassified the amount that was reported under Other Debtors of £920,000 into fixed assets. Separately, adjustments have been made to decrease the depreciation charges for the period from the acquisition of the vessel in May 2005 through to 31 October 2007. 

The Group has also further analysed the ship into identifiable components for fixtures and fittings and ship upgrades, which are now depreciated over their useful economic lives, assessed as 5 years and 10 years respectively. 

The impact of the above adjustments is an increase in reported profit for the year to 31 October 2007 of £52,000 and an increase in net assets at 31 October 2007 of £300,000. 

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.5  Explanation of the adjustments required to restate the amounts previously reported under UK GAAP (continued)

 

FRS 15, Revised ship accounting (continued)

Component accounting (continued)

Until 31 October 2006, the Group had adopted a different approach to accounting for dry dock expenditure. As at that date, the Group did not component account for the dry dock within fixed assets, and accordingly stated the ship fixed asset as if it was one component. The Group recognised a separate liability (included within the amounts reported for the ship loan) for the next dry dock expenditure to be incurred through building up a provision equal to the anticipated cost of the next dry dock expenditure. Accordingly, the adjustment required at 31 October 2006 is to offset the amount provided for within trade creditors of £1,237,000 against the fixed asset to reflect the consumption of the dry dock component. 

This adjustment, combined with the impact of the revised component depreciation referred to above results in an increase in reported net assets at 31 October 2006 of £250,000.

In the year to 31 October 2007, the Group reported depreciation on mv Discovery within administrative expenses. The Group is of the opinion that the expense is more akin to a cost of sales item, and accordingly the Group has reclassified £1,233,000 of depreciation from Administrative expenses to Cost of Sales. This reclassification has no impact on the reported net profit, cash flows or net assets of the Group for the year ended 31 October 2007. 

FRS 15, Freehold building depreciation

The Group owns freehold land with an administrative building (Lynnem House) in Burgess Hill. Lynnem House has a revalued carrying value of £850,000 at 31 October 2006 based on a valuation completed at that date by an external valuer. In the financial statements for the year ended 31 October 2007, the Group did not record depreciation against the building component of Lynnem House. FRS 15 contains a general requirement for tangible fixed assets, other than land, to be depreciated. The Group has accordingly recorded a depreciation charge for the year to 31 October 2007 of £20,000, reducing the carrying value of tangible fixed assets by this amount, with a corresponding decrease in the profit for the year and Group net assets.

SSAP 20, Foreign currency translation

SSAP 20 requires that each subsidiary in the Group identifies, and reports transactions, in its local currency. Local currency is defined as the currency of the primary economic environment in which the company operates and generates net cash flows. The Group has determined that a subsidiary company in the Group has a local currency of US$. This company previously reported transactions and year end balances in £ Sterling in error. 

This subsidiary undertaking owns the Group's ship, mv Discovery which was acquired in 2005 for $28,000,000 with an associated interest free loan of $21,000,000. In the 31 October 2007 financial statements, due to the incorrect local currency of the subsidiary, the ship was carried at the historical conversion rate to £ Sterling and the loan was not revalued to the closing US$:£ Sterling conversion rate.

As a result of the correction of the local currency of this entity, which principally affects the reported amounts for the ship and the associated loan, its net assets have been determined under its local currency of US$. For Group reporting purposes its net assets have then been converted at the closing rate to £ sterling, and its results for the period at the average rate, with exchange differences arising on the conversion being reported directly to Group retained earnings. Further, the inter-company balance between this entity and a fellow Group company has been determined to be US$ denominated. Accordingly, the revaluation of the inter-company balance at the year end results in foreign currency gains or losses reported in the consolidated profit and loss account. As a result of this adjustment, the Group profit for the financial year ended 31 October 2007 has been reduced by £476,000 and the net assets of the Group at 31 October 2007 by £564,000. At 31 October 2006, the net assets of the Group have been reduced by £39,000.

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.5  Explanation of the adjustments required to restate the amounts previously reported under UK GAAP (continued)

 

FRS 25, Financial instruments: Disclosure and presentation - IPO Costs

When preparing the 31 October 2007 financial statements, the Group expensed all costs associated with the Company's Initial Public Offering ('IPO') and listing on AIM in October 2007, to the share premium account.

FRS 25 requires that transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of certain exiting shares and a stock exchange listing of other new shares) are allocated to those transactions using a basis of allocation that is rational and consistent with similar transactions. In light of this guidance, the Group has reallocated the expenses incurred with the listing and issue of new shares between the profit and loss account and share premium account based on the nature of the expenses incurred. Where these related directly to new shares, the Group has allocated the expenses to the share premium account. Where the expenses relate to both the issuance of new shares and the listing of existing shares, the expenses have been allocated between the profit and loss account and share premium account based on the relative number of new shares issued at IPO, and the existing number of shares. Accordingly, £675,000 of the costs incurred which were previously expensed to the share premium account have been expensed to the profit and loss account and £50,000 has been recorded as a prepayment of NOMAD fees (billed in advance for NOMAD continuing obligations covering FY2007/08). The adjustment has an impact on net assets of £50,000. 

This adjustment has no impact on the reported net assets at 31 October 2006.

FRS 20, Share based payments

As disclosed in paragraph 9.13 of the Company's admission document to AIM, the Company granted options over shares in the Company to Blue Oar Securities, the Company's NOMAD. Blue Oar Securities has the option to subscribe, at any time within 5 years of the admission date of the Company's shares to trading on AIM for:

(1) a number of shares equal to 1 percent of the issued share capital of the Company immediately  following the admission, at a price equal to the placing price at the initial admission date; and

(2) a number of shares equal to 0.75 percent of the issued share capital of the Company immediately  following the admission, at a price equal to 1.5 times the placing price at the initial admission date.

The Group is required under FRS 20 to determine the fair value of the services provided by Blue Oar Securities for which the options granted represent compensation. The Group determined that the granting of these options reduced the cash costs payable to Blue Oar Securities for the listing and raising of new share capital. As noted above, the Group previously expensed all costs associated with the IPO to the share premium account. Accordingly, the Group was of the opinion that the share option expense determined under FRS 20 would also be expensed to the share premium account. As the options are equity settled, the associated credit to equity would also have been recorded to the share premium account with no impact on the amounts reported at 31 October 2007.

Due to the guidance noted above under FRS 25, the Group is now of the opinion that the treatment adopted was incorrect, as the share option expense related both to the issuance of new shares, and to the concurrent listing of existing shares. Accordingly, the Group has determined the expense that would have arisen under FRS 20 (determined by reference to the fair value of the options granted using the Black-Scholes Merton Valuation Model). The aggregate expense of £204,000 has been allocated between the share premium account and the profit and loss account on the same basis as the allocation of all other joint listing and issue expenses, resulting in an additional expense of £204,000 to the profit and loss account, covering the year ended 31 October 2007. As the options are equity settled in shares of the Company, this adjustment has no impact on the reported net assets of the Group, or the amounts reported within equity for the share premium account or the retained earnings. This adjustment has no impact on the reported net assets at 31 October 2006.

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.1  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.1.5  Explanation of the adjustments required to restate the amounts previously reported under UK GAAP (continued)

FRS 1, Cash

Short term interest bearing deposits

The Group has significant available resources in the form of balances at bank, £17,095,000 at 31 October 2007 and £13,005,000 at 1 November 2006 of the amounts reported as cash are held in interest bearing deposits. While the Group has immediate access to these funds, in the event of withdrawal prior to the deposit term, the counterparty bank contractually has the right to reduce or not pay interest on the deposit. Accordingly, we believe that these amounts are 'readily disposable stores of value' rather than 'cash' within the narrow meaning of FRS 1. Accordingly, we have reclassified the amounts to liquid resources (under the heading 'Interest bearing bank deposits') from cash. The cash flow statement has been updated to reflect this reclassification which is shown as a movement in liquid resources in the year. This reclassification has no impact on the net assets or reported profit for the year.

Restricted cash

The nature of the Group's operations require the Group to allow customers the facility to make payment for goods and services provided through credit cards. This requires the Group to hold certain funds as credit card security deposits held with the independent credit card clearing company. The Group does not have access to these funds on a day to day basis and accordingly these amounts are restricted funds in restricted cash accounts. The total amount at 1 November 2006 and 31 October 2007 amounts to $750,000, which represents £393,000 and £361,000 respectively in £ sterling. We believe that these amounts should have been disclosed under best practice separately from the unrestricted funds, albeit remaining as a component of the overall cash balance. This reclassification has no impact on the net assets, reported profit or reported cash flows for the year. 

5.2  Conversion of the UK GAAP restated information to IFRS as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007

The Group presents below a reconciliation of the adjustments that are required to the UK GAAP restated amounts (as per note 5.1) for the transition to IFRS as at the transition date of 1 November 2006, for the comparative balance sheet at 31 October 2007 and for the year then ended. 

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.2.1 Transition to the IFRS Income Statement of the UK GAAP restated Profit and Loss Account for the year ended 31 October 2007

	UK GAAP as restated in IFRS format	IAS 16 Property, plant and equipment	IAS 39 Financial instruments: Recognition and measurement	IAS 40 Investment property	IFRS
	£'000	£'000	£'000	£'000	£'000
Continuing operations
Revenue	45,084	-	-	-	45,084
Cost of sales	(31,055)	128	(831)	-	(31,758)
Gross profit	14,029	128	(831)	-	13,326
Administrative expenses	(9,120)	-	-	(4)	(9,124)
Other operating income	24	-	-	-	24
Operating profit	4,933	128	(831)	(4)	4,226
Investment revenues	959	-	-	-	959
Finance costs	(124)	(321)	-	-	(445)
Profit before tax	5,768	(193)	(831)	(4)	4,740
Tax credit	465	155	-	-	620
Profit for the financial year	6,233	(38)	(831)	(4)	5,360

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.2.2 Transition to IFRS of the UK GAAP restated Balance Sheet at 31 October 2007

	UK GAAP as restated in  IFRS format	IAS 38 Intangible assets - software	IAS 16 Property, plant & equipment	IAS 39 Financial instruments: Recognition and measurement	IAS 40 Investment Property	IFRS
	£'000	£'000	£'000	£'000	£'000	£'000
Non-current assets
Goodwill	-	-	-	-	-	-
Intangible asset	3,207	28	-	-	-	3,235
Property, ship, plant & equipment	12,462	(28)	(930)	-	-	11,504
Investment property	280	-	-	-	(4)	276
	15,949	-	(930)	-	(4)	15,015
Current Assets
Inventories	805	-	-	-	-	805
Trade and other receivables	1,669	-	-	-	-	1,669
Interest bearing bank deposits	17,095	-	-	-	-	17,095
Restricted bank balances	361	-	-	-	-	361
Unrestricted cash and cash equivalents	10,599	-	-	-	-	10,599
	10,960	-	-	-	-	10,960
Total current bank balances and cash in hand	28,055	-	-	-	-	28,055
	46,478	-	(930)	-	(4)	45,544
Current liabilities
Trade and other payables	(14,882)	-	-	-	-	(14,882)
Current tax liabilities	(211)	-	-	-	-	(211)
Borrowings	(1,564)	-	214	-	-	(1,350)
Derivative financial liabilities	-	-	-	(1,006)	-	(1,006)
	(16,657)	-	214	(1,006)	-	(17,449)
Non current liabilities
Borrowings	(4,092)	-	223	-	-	(3,869)
Deferred taxation	(13)	-	-	-	(54)	(67)
	(4,105)	-	223	-	(54)	(3,936)
Total Liabilities	(20,762)	-	437	(1,006)	(54)	(21,385)
Net Assets	25,716	-	(493)	(1,006)	(58)	24,159
Equity
Share capital	615	-	-	-	-	615
Share premium account	12,774	-	-	-	-	12,774
Revaluation reserve	226	-	-	-	(215)	11
Currency translation reserve	(51)	-	61	-	-	10
Profit and loss account	12,152	-	(554)	(1,006)	157	10,749
	25,716	-	(493)	(1,006)	(58)	24,159

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

 

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

 

5.2.3 Transition to IFRS of the UK GAAP restated Balance Sheet at 1 November 2006

	UK GAAP as restated in IFRS format	IAS 16 Property, plant & equipment	IAS 39 Financial instruments: Recognition and measurement	IAS 40 Investment Property	IFRS
	£'000	£'000	£'000	£'000	£'000
Non-current assets
Property, ship, plant & equipment	12,911	(1,146)	-	-	11,765
Investment property	280	-	-	-	280
	13,191	(1,146)	-	-	12,045
Current Assets
Inventories	205	-	-	-	205
Trade and other receivables	3,198	-	-	-	3,198
Interest bearing bank deposits	13,005	-	-	-	13,005
Restricted bank balances	393	-	-	-	393
Unrestricted cash and cash equivalents	3,400	-	-	-	3,400
	3,793	-	-	-	3,793
Total current bank balances and cash in hand	16,798	-	-	-	16,798
	20,201	-	-	-	20,201
Total Assets	33,392	(1,146)	-	-	32,246
Current liabilities
Trade and other payables	(14,041)	-	-	-	(14,041)
Current tax liabilities	(2,364)	-	-	-	(2,364)
Borrowings	(2,096)	310	-	-	(1,786)
Derivative financial liabilities	-	-	(175)	-	(175)
	(18,501)	310	(175)	-	(18,366)
Non current liabilities
Borrowings	(6,157)	475	-	-	(5,682)
Deferred taxation	(558)	(155)	-	(54)	(767)
	(6,715)	320	-	(54)	(6,449)
Total Liabilities	(25,216)	630	(175)	(54)	(24,815)
Net Assets	8,176	(516)	(175)	(54)	7,431
Equity
Share capital	53	-	-	-	53
Share premium account	14	-	-	-	14
Revaluation reserve	226	-	-	(215)	11
Profit and loss account	7,883	(516)	(175)	161	7,353
	8,176	(516)	(175)	(54)	7,431

  5.2.4 Transition to IFRS of the UK GAAP restated Cash Flow Statement for the year ended 31 October 2007

	UK GAAP as restated in IFRS format	IAS 16 Property, plant & equipment	IAS 39 Financial instruments: Recognition  and measurement	IAS 40 Investment property	IFRS
	£'000	£'000	£'000	£'000	£'000
Cash flows from operating activities:
Profit for the financial year	6,233	(38)	(831)	(4)	5,360
Investment revenues	(959)	-	-	-	(959)
Rental income	(24)	-	-	-	(24)
Finance costs	124	321	-	-	445
Income tax - income	(465)	(155)	-	-	(620)
Depreciation of property, ship, plant and equipment	1,734	(128)	-	4	1,610
Unrealised foreign exchange loss on inter-company balances	636	-	-	-	636
Movement in fair value of interest rate swap	-	-	831	-	831
Non cash share option expense	204	-	-	-	204
Operating cash flow before movements in working capital	7,483	-	-	-	7,483
Changes in operating assets and liabilities:
Increase in inventories	(600)	-	-	-	(600)
Decrease in receivables	1,573	-	-	-	1,573
Increase in payables	739	-	-	-	739
Cash inflow generated from operations	9,195	-	-	-	9,195
Income taxes paid	(2,366)	-	-	-	(2,366)
Net cash inflow from operating activities	6,829	-	-	-	6,829
Cash flows from investing activities:		-	-	-
Interest received	834	-	-	-	834
Rental income	24				24
Purchases of property, plant and equipment	(2,196)	-	-	-	(2,196)
Net cash outflow from investing activities	(1,338)	-	-	-	(1,338)
Cash flows from financing activities:
Proceeds from issue of shares	10,000	-	-	-	10,000
Share issue costs	(388)	-	-	-	(388)
Dividends paid	(1,665)	-	-	-	(1,665)
Repayment of loans	(2,170)	-	-	-	(2,170)
Management of liquid resources - bank deposits	(4,090)	-	-	-	(4,090)
Net cash from financing activities	1,687	-	-	-	1,687
Revaluation of bank balances	21	-	-	-	21
Net increase in cash and cash equivalents	7,199	-	-	-	7,199
Cash and cash equivalents at the start of the year	3,400	-	-	-	3,400
Cash and cash equivalents at the end of the year	10,599	-	-	-	10,599

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

5.2.5  Explanation of the adjustments required for the conversion of the restated UK GAAP information to IFRS as at 31 October 2007, 1 November 2006 and for the year ended 31 October 2007

5.2.5.1 First time adoption exemptions

IFRS 1 permits a number of first time adoption exemptions and the Group has elected to take those relating to business combinations, fair value or revaluation as deemed cost and cumulative translation differences.

These are explained in more detail below:

Fair value or revaluations as deemed cost: as described in the IFRS accounting policies, the Group has elected to adopt the cost model available under IAS 40, Investment Property. Accordingly, the net book value of the property at the date of transition from UK GAAP has been treated as deemed cost under IFRS.

Cumulative translation differences: Under IAS 21, some translation differences are required to be initially recognised as a separate component of equity that is only recognised in the income statement on the disposal of that foreign operation. The Group has elected not to comply with this requirement for cumulative translation differences that existed at the date of transition and accordingly, the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition. The adjustment as at 31 October 2007 for currency translation differences reported under UK GAAP in retained earnings amounts to a loss of £10,000. This amount has been separately presented as a component of equity in the restated UK GAAP balance sheet under IFRS format reported above at 31 October 2007.

5.2.5.2 IFRS adjustments

IAS 38, Intangible assets - software 

Under UK GAAP, all capitalised software costs are included within tangible fixed assets. IAS 38 requires that where such software costs are not an integral part of the associated hardware such that the software is capable of operating independently, they should be classified as intangible assets. Accordingly, certain items of property, plant and equipment have been reclassified to intangible assets at each reference date where they are items of software that meet the recognition criteria of IAS 38. This results in a reclassification of £28,000 at 31 October 2007 from Ship, Property, Plant and Equipment to Other intangible assets

There is no net impact on the income statement as a result of this reclassification.

IAS 16, Property, plant and equipment 

Determination of the cost of mv Discovery

IAS 16 requires that when payment for an item of property, plant and equipment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payments is recognised as an interest expense over the period of credit. mv Discovery was acquired with an interest free loan provided by the vendor. The interest free nature of this loan has been determined to represent a deferral of payment beyond normal credit terms. 

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

5.2.5  Explanation of the adjustments required for the conversion of the restated UK GAAP information to IFRS as at 31 October 2007, 1 November 2006 and for the year ended 31 October 2007

5.2.5.2 IFRS adjustments (continued)

IAS 16, Property, plant and equipment (continued)

Determination of the cost of mv Discovery (continued)

To meet the requirements of IAS 16 an implied fixed interest rate of 4.5% has been used to calculate the element of the purchase price paid that is deemed to represent future interest. 4.5% represents the fixed US Dollar interest rate that would have been obtainable for the period of the loan at the time the ship was acquired. The amount derived totalling £785,000 has been adjusted against the cost of the ship, with a corresponding reduction in the ship loan liability. The adjustment of $2,548,000 at the acquisition date, which reduced the carrying value of the ship and the associated loan, is being recognised through the income statement over the life of the loan to result in a constant rate of interest over the loan period. The impact of this adjustment is a reduction in net assets of £493,000 at 31 October 2007, a reduction in net assets of £516,000 at 1 November 2006, a reduction in reported pre tax profit for the year to 31 October 2007 of £193,000 and a reduction in reported post tax profit for the year to 31 October 2007 of £38,000. (For the separate tax impact of this adjustment see below under Deferred taxation).

Depreciation

IAS 16 requires asset components to be depreciated separately. With the exception of dry dock, ship improvements and fixtures and fittings which are depreciated over their useful economic lives, there are no separately identifiable ship assets that require separate disclosure and depreciation. The cost of ongoing renovations, repairs and maintenance are all expensed as incurred.

While not relevant in the above reconciliations, the Group has ceased to depreciate its owned ship, mv Discovery, from 1 November 2007. The Group has estimated that the residual value of the ship (being the estimated amount that would currently be obtainable from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life), based on an independent third party valuation by a member of the Royal Institute of Ship Valuers, exceeds the carrying value at that date. Under IAS 16, the Group is required to account for changes in the estimated residual value prospectively in the depreciation charge, rather than through adjustments to amounts previously reported. 

Accordingly, the Group has not restated the corresponding amounts which are determined based on the residual value estimate that was applicable at each reporting date under UK GAAP (adjusted only for price level restatements in the residual value that are required under IFRS) IAS 16 requires residual value to be reassessed each year at current prices and accordingly the Group will recommence depreciation should the estimated residual value decrease below the carrying value. In future an annual impairment review will take place while the ship continues not to be depreciated. Should there be an impairment in the value of mv Discovery an impairment charge will be recorded in the income statement in that period.

Deferred taxation 

IAS 12 requires a deferred tax provision to be recognised for all taxable temporary differences between the tax base and the associated carrying amount for assets and liabilities, except where an initial recognition exemption is available. The above mentioned adjustment results in an increase in temporary differences and accordingly an additional deferred tax liability of £155,000 arises as at 1 November 2006. This increase is subsequently released to the income statement in the year ended 31 October 2007 increasing reported profit when the subsidiary company that it arises in entered the tonnage tax regime. The above mentioned adjustment has no impact on net assets as at 31 October 2007 - please also see below under IAS 12.

  5. Restatement of the comparative information under UK GAAP and transition to IFRS (continued)

5.2  Restatement of UK GAAP as at 31 October 2007, 31 October 2006 and for the year ended 31 October 2007 (continued)

5.2.5  Explanation of the adjustments required for the conversion of the restated UK GAAP information to IFRS as at 31 October 2007, 1 November 2006 and for the year ended 31 October 2007

5.2.5.2 IFRS adjustments (continued)

IAS 39, Financial instruments: Recognition and measurement 

IAS 39 requires all derivatives, including forward foreign exchange contracts, to be initially recognised and subsequently re-measured at fair value. The Group had open forward foreign exchange collar contracts in place at 1 November 2006 and 31 October 2007 which have accordingly been fair valued. The Group had not adopted the hedging provisions of IAS 39 at this time and accordingly, changes in fair value are taken to the income statement in the period in which they arise.

The impact of fair valuing the forward foreign exchange contracts is to decrease net assets at 31 October 2007 by £1,006,000, decrease net assets at 1 November 2006 by £175,000 and decrease the reported profit for the year ended 31 October 2007 by £831,000.

IAS 40, Investment property

Under UK GAAP as restated, one of the owned properties meets the definition of an investment property. UK GAAP requires that investment properties are carried at open market value at each balance sheet date, with revaluations taken directly to a revaluation reserve. No depreciation is provided on investment properties under UK GAAP. IAS 40 allows a choice on transition to IFRS with respect to investment properties, which can either be carried at fair value, or deemed cost on transition. As already noted above, the Group has chosen to adopt the deemed cost measurement accounting policy. This policy has no impact on reported net assets at 1 November 2006 but requires the Group to reclassify the revaluation on this property of £215,000, previously included in the revaluation reserve under UK GAAP, into retained earnings under IFRS. As at 31 October 2007, it results in a decrease in net assets of £4,000 due to depreciation charged in the period which has decreased the reported profit for the year to 31 October 2007 by this amount.

Deferred taxation

The investment property was revalued under UK GAAP, with a cumulative revaluation at 1 November 2006 and 31 October 2007 of £215,000. This revaluation creates a taxable temporary difference under IFRS as at 1 November 2006 and 31 October 2007, resulting in a decrease in net assets at both dates of £54,000. This adjustment has no impact on the income statement for the year ended 31 October 2007.

IAS 12, Income taxes

The income tax adjustments required under IAS12 fall into two categories: Firstly, deferred tax that needs to be provided in respect of other IFRS restatement accounting adjustments. Secondly, specific deferred tax adjustments that arise on the different recognition criteria of deferred tax balances between UK GAAP (FRS19) and IFRS (IAS12).

As a result of certain subsidiary companies in the Group being in the tonnage tax regime from February 2007, there are no significant taxation adjustments relating to the adoption of IFRS as at 31 October 2007. Where required, due to the relevant subsidiary companies, or transactions not being in the tonnage tax regime as at 31 October 2006, however, additional deferred tax has been provided. The adjustments arising, where relevant, are described above. 

  

6. Cost of Sales

The Group has in place various derivative financial instruments comprising fuel and currency contracts. These contracts do not qualify for hedge accounting under IAS 39, and accordingly are revalued through the income statement at each balance sheet date, resulting in a net income statement gain or loss reported in Cost of sales.

These contracts represent economic hedges against the Group's future exposure to commodity and currency fluctuations. Accordingly, while they are included in the current year income statement in arriving at gross profit, they relate to items that will eventually be cash flows in future periods. The Group believes it is appropriate to analyse such movements due to their significance on the reported results and draw attention to the following movements in the year:

	Year ended  31 October  2008 £'000	Year ended  31 October  2007 £'000
Reversal of prior year end unrealised revaluation	1,006	175
Recognition of current year end unrealised revaluation on  currency contracts	3,686	(1,006)
Recognition of current year end unrealised revaluation on  fuel contracts	(493)	-
Realised loss on fuel contract *	(1,422)	-
Total gain / (loss)	2,777	(831)

*  One of the Group's contracts was renegotiated on 31 October 2008 to reset the forward fuel price to the market rates as at that date. Accordingly, the Group presents this item in the above reconciliation as the payment represents the negotiated amount required to settle forward liabilities on the contract. 

7. Operating profit

	Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Operating profit has been arrived at after (crediting) charging:
Foreign exchange (gains)/losses:
- on inter-company balances	(725)	636
- other	(1,896)	(1,448)
Depreciation of property, ship, plant and equipment	907	1,557
Depreciation of investment property	4	4
Amortisation of intangibles	270	2
Staff costs	4,577	3,485
Adjustments arising from derivative financial instruments	(2,777)	831
Other items (see below)	1,422	1,079

Foreign exchange gains and losses

All foreign exchange gains and losses are reported in administrative expenses. Gains and losses arising on inter-company balances between subsidiary undertakings in the Group with different functional currencies, principally £ sterling and US Dollar are shown separately above and are all unrealised. Other gains and losses relate to the retranslation of the foreign currency denominated monetary assets and liabilities in each subsidiary company to its relevant functional currency.

  7. Operating profit (continued)

Other items

Certain items of income and expense are non-recurring and material such that the Group considers it appropriate to draw attention to these items. These have been separately analysed and disclosed to provide additional information and to assist in the comparability of the current year results with those of the comparative period. They are also dealt with in detail in the Financial Director's Report.

The items are:

	Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Minerva generator failure additional costs - included in cost of sales	1,052	-
Swan Hellenic start up costs - included in administrative expenses	370	200
Initial public offering costs - included in administrative expenses	-	879
	1,422	1,079

mv Minerva generator failure additional costs

mv Minerva suffered the failure of both her generators during the year which resulted in temporary generators having to be hired pending a permanent repair, and additional harbour and dry dock costs being incurred. mv Minerva entered dry dock on 27 October 2008 for two replacement, higher specification generators to be installed. Please refer to note 4 for further details concerning the overall treatment in the financial statements of the generator failure and associated insurance claim.

Swan Hellenic start up costs

Swan Hellenic start up costs relate to increased marketing and office costs incurred prior to the launch of the Swan Hellenic programme in May 2008.

Initial Public Offering costs

As disclosed in note 5, the Group incurred expenditure in the prior year associated with the Initial Public Offering of the Company's shares on AIM. Certain of these costs, including share option expenses of £204,000, were required to be expensed to the income statement under FRS 25. These items are non recurring and material and accordingly are presented separately above.

  

8. Tax charge/(credit)

a) Tax charge/(credit) on profit

				Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Current tax
- Current year				81	153
- Adjustment with respect to prior years				(42)	(97)
Total current tax				39	56
Deferred tax				199	(676)
Total tax credit/(charge)				238	(620)

b) Factors affecting the tax charge/(credit) for the year

The tax assessed for the year is lower than that resulting from applying the standard rate of corporation tax in the UK of 28.8% (2007 - 30%). The differences are explained below:

	Year ended 31 October 2008 £'000	Year ended 31 October 2008 %	Year ended 31 October 2007 £'000	Year ended 31 October 2007 %
Profit before tax: Continuing operations	9,052	-	4,740	-
Tax at the UK corporation tax rate of 28.8% (2007: 30%)	2,607	28.8	1,422	30.0
Adjustments from: Income taxed under the tonnage tax regime	(2,542)	(28.08)	(1,947)	(40.99)
Expenses not allowable for tax purposes	212	2.35	2	-
Unutilised losses carried forward	8	0.08	-	-
Marginal rate differences	(5)	(0.05)	-	-
Adjustment in respect of prior years	(42)	(0.46)	(97)	(20.46)
Total tax and effective tax rate	238	2.63	(620)	(13.08)

For accounting periods beginning on or after 1 January 2000 a shipping company or group may elect to have its taxable profits computed by reference to the net tonnage of each qualifying ship it operates. The Group received correspondence from HM Revenue & Customs that confirms that certain of the Group subsidiary undertakings qualified for taxation under this basis from February 2007. Additionally, the Group is of the opinion that mv Minerva entered the tonnage tax regime on 23 May 2008. Accordingly, the majority of the Group's profits are not subject to taxation under the normal corporation tax regime. This results in a significant reduction in the taxation liability of the Group, reflected above in the income taxed under tonnage tax regime line items.

  9. Dividends

		Year ended 31 October 2008 £	Year ended 31 October 2007 £
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 October 2007 of 5.00p (2006: £31.71) per share.		3,070	1,665
Interim dividend for the year ended 31 October 2008 of 2.44p  (2007: nil) per share.		1,498	-
Proposed final dividend for the year ended 31 October 2008 of 1.22p (2007:  5p) per share.		749	3,070

The interim dividend of £1,498,000 was payable to shareholders on the register on 19 September 2008 and was paid on 12 November 2008. Interim dividends only become binding liabilities on the Company when declared as paid and accordingly, the interim dividend in respect of financial year 2007/8 has not been included as a liability in these financial statements. Shareholders had the opportunity to receive their interim dividend payment in either cash or scrip dividend. £923,000 was paid in cash on 12 November 2008 with the balance being paid by way of new shares. 

The proposed final dividend of £749,000 is subject to approval by shareholders at the Annual General Meeting and has also not been included as a liability in these financial statements.

  10. Earnings per share

		Year ended 31 October 2008	Year ended 31 October 2007
		Pence	Pence
Basic		14.4p	9.6p
Diluted		14.4p	9.6p

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings		£'000	£'000
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent		8,814	5,360
Number of shares		No.	No.
Weighted average number of ordinary shares for the purposes of basic earnings per share		61,406,556	56,075,490
Effect of potential dilutive ordinary shares:
Options		2,402	2,977
Weighted average number of ordinary shares for the purposes of diluted earnings per share		61,408,958	56,078,467

All results derive from continuing operations and accordingly total earnings per share and earnings per share from continuing operations are the same.

Adjusted earnings per share

The Group presents below an adjusted earnings per share figure in order to aid the comparability of the amounts reported for each period, in accordance with the presentation of results to the Board of Directors of the Group. The number of shares for the purpose of the calculation is as per Basic and Diluted earnings per share:

	Year ended  31 October  2008	Year ended  31 October  2007
	£'000	£'000
Earnings for the purpose of basic and diluted earnings per share	8,814	5,360
Adjustments:
Depreciation for mv Discovery (Note i)	-	1,085
Year end mark to market adjustment of derivative financial instruments - (gain) / loss (ii)	(4,199)	831
Realised loss in the year on derivative fuel contract (iii)	1,422	-
IPO related costs (iv)	-	879
Other items (v)	1,422	200
Earnings for the purpose of basic and diluted adjusted earnings per share	7,459	8,355
Adjusted earnings per share:
Basic	12.1p	14.9p
Diluted	12.1p	14.9p

  10. Earnings per share (continued)

Adjusted earnings per share (continued)

(i) - In the current financial year the Group has ceased to depreciate the core ship component of mv Discovery as disclosed in note 4. This has a significant impact on the depreciation charge. Accordingly, the Group presents the comparative profit for the year ended 31 October 2007 as if the core component of mv Discovery had not been depreciated in the year ended 31 October 2007.

(ii) - The Group has in place economic hedges against fuel and foreign currency as disclosed in note 8. Due to the requirements of IAS 39 and in the absence of hedge accounting, the Group is required to mark these derivative financial instruments to market at each balance sheet date. This results in gains or losses being recognised on these contracts for forward purchases and sales. The Group adjusts for the effect of the year end revaluation in each period, resulting in an EPS figure which is adjusted to match the realisation of the economic hedge against the related cash flows.

(iii) - The Group re-negotiated the terms of one of its fuel contracts immediately prior to the year end. This results in a negotiated payment, reflecting the anticipated future losses on the contract which is recognised in the period. Had the Group not renegotiated this contract, the realised loss would have been reflected in the year end mark to market of the instrument.

(iv) - As disclosed in note 5, the Group incurred expenditure in the prior year associated with the Initial Public Offering of the Company's shares on AIM. Certain of these costs, including share option expenses of £204,000, were required to be expensed to the income statement under FRS 25. These items are non recurring and material and accordingly are presented separately above.

(v) - The Group has incurred certain items of expenditure which are material in the period, and anticipated to be non recurring as disclosed in note 7.

  

11. Notes to the cash flow statement

		Year ended 31 October 2008 £'000	Year ended 31 October 2007 £'000
Profit for the financial year		8,814	5,360
Adjustments for:
Investment revenues		(1,681)	(959)
Rental income		(34)	(24)
Finance costs		228	445
Income tax expense/(income)		238	(620)
Depreciation of property, ship, plant and equipment		907	1,606
Depreciation of investment property		4	4
Amortisation of intangible assets		270	-
Unrealised foreign exchange (gain)/loss on inter-company balances		(725)	636
Non cash share option expense		-	204
Movement in fair value of derivatives		(4,199)	831
Increase/(decrease) in provisions		(209)	-
Operating cash flows before movements in working capital		3,613	7,483
Decrease/(increase) in inventories		162	(600)
Decrease/(increase) in receivables		(2,511)	1,573
Increase in payables		5,543	739
Cash inflow generated from operations		6,807	9,195
Income taxes paid		(57)	(2,366)
Net cash inflow from operating activities		6,750	6,829
12. Ultimate controlling party
By virtue of his majority shareholding, the ultimate controlling party of the Company is Mr R J Allard.

ENDFR UNVURKRRUUUR

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Related Shares:

ALLG.L