Half-yearly Report

RDF Group PLC ("RDF" or "the Group") Interim Results RDF Group plc (AIM: RFG), the I.T. services group, with offices in Brighton, Bristol, Edinburgh and London, today announces its unaudited interim results for the six months to 30 September 2007. Key Points * Group revenues increased 38% to £14.735 million (2006: £10.644 million) * Operating profit before depreciation, amortisation of intangible assets and exceptional items of £0.336 million (2006: £0.800 million) * Operating profit of £0.136 million (2006: £0.643m) * Profit before tax of £0.044 million (2006: £0.603 million) * Basic earnings per share of 0.19 pence (2006: 3.94 pence) * Following the acquisition of Aqua Resources Group Limited, the Group's Temporary Staffing and Permanent Recruitment has performed well, increasing income by 91% to £7.775m (2006: £4.080m) * Profits before tax have fallen as a result of increased costs and reduced margins required in order to build the Group's profile as a niche I.T. services group Commenting on the results, Chief Executive David Wood said: "The performance of the IT Recruitment business has, as predicted, developed strongly over the past six months. The need for investment in the Managed Software business has, however, resulted in an overall reduction in the Group's profitability in the period compared to last year. Subject to the continued uncertainty in the Financial Services sector, the Group expects to see an improvement in the results for the second half compared to the results for the period to 30 September 2007." For further information, please contact: RDF Group plc David Wood 01273 200100 Smith & Williamson Corporate Azhic Basirov/Siobhan 020 7131 4000 Finance Sergeant Editor's Notes Founded in 1994, RDF Group plc is a company dedicated to providing high quality managed IT services and recruitment services to their growing portfolio of both local businesses and blue chip clients. From a standing start, the company currently has a turnover in excess of £22 million. RDF currently has a staff of over 300 across the UK, including 120 in Brighton. RDF also provides IT recruitment services for high value contract and permanent staff for clients. Clients include Northern Rock, National Australia Group, Sky TV and a large number of other blue chip companies, many of whom have been clients of RDF for several years and have gradually increased the value of their contracts to substantial levels with the Group. In 2006, RDF has opened new offices in Bristol and London, whilst investing further in their Head Office in Brighton and regional development centre in Livingston, near Edinburgh. For further information on the RDF Group visit www.rdfgroup.com or telephone 01273 200100. Chairman's Statement The results for the six months to 30 September 2007 are mixed. The results of the Managed Software Development division mask the achievements in the strong results of the Temporary Agency and Permanent Recruitment division which is able to grow and produce profits without significant additional investment and is now a core part of the business. These figures are the first results to be prepared on the basis of International Financial Reporting Standards (IFRS). Reconciliations of prior periods' results and balance sheets under IFRS are presented in note 6. Group income for the six months ended 30 September 2007 increased by 38% to £14.735m (2006: £10.644m) through a combination of organic growth and the acquisition of Aqua Resources Group which took place in January 2007. However, the Group's profit before tax has fallen to £44,000 (2006: £603,000). Basic earnings per share fell to 0.19p (2006 restated: 3.94p) with a similar fall in the fully diluted earnings per share to 0.18p (2006 restated: 3.88p). At the start of the period the Group had net debt of £1.085m (2006: net funds £246,000). As a result of the significant growth over the period the Group had net cash outflows of £811,000 from operating activities (2006: net inflows £680,000). Cash outflows from investing activities were £140,000 (2006: £221,000) and cash outflows from financing activities were £134,000 (2006: £68,000). As a result at the end of the period net debt had increased to £2.114m (2006: net funds £581,000). Managed Software Development division Income from managed services software development has increased slightly to £6.960m (2006: £6.564m) and accounts for 47% (2006: 62%) of total income. Operating profit before depreciation and amortisation and exceptional items has declined significantly to £31,000 (2006: £552,000) as a result of the increased costs in staff and infrastructure needed to support the demands of existing, new and prospective clients. Your Directors are reviewing the performance of the division in light of both the continued investment needed to ensure that it is adequately capitalised for growth and that it meets current and prospective customer needs and the ongoing turmoil in the financial markets, in which its key clients operate. Temporary Agency Staff and Permanent Recruitment division The division now accounts for 53% (2006: 38%) of the Group's income. Fees generated in the six months total £7.775m (2006: £4.080m) generating an operating profit before depreciation and amortisation and exceptional costs of £494,000 (£426,000). The division has secured a number of new customers in the period and is now focussing on improving margins and reducing cost levels. Over the past twelve months, the division has increased turnover to £12.991m and continues to grow. This is an excellent result from a division which only two years ago had income of less than £2m. Current trading and future prospects The first half of this year has seen the Group report a strong growth in turnover, mainly from the Temporary Agency and Permanent Recruitment division. The Board is focused on ensuring costs are kept under control and investing in initiatives to continue to grow the businesses. It is important that these investments continue to be directed towards the appropriate market sectors and that the Group is offering services to fulfil the needs of these sectors. The Board has also been pursuing the identification and appointment of additional non executive directors and expects to make an appointment early in the new year. The Board remains confident that the second half results will be an improvement on those of the first half. Jim Carr Non Executive Chairman 5 December 2007 Independent Review Report to RDF Group plc Introduction We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 September 2007 which comprises the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Shareholders' Equity and the related explanatory notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report, including the conclusion, has been prepared for and only for the Company for the purpose of meeting the requirements of the AIM Rules for Companies and for no other purpose. We do not, therefore, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Directors' Responsibilities The interim financial report, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing and presenting the interim financial report in accordance with the AIM Rules for Companies. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements, as adopted by the European Union. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 September 2007 is not prepared, in all material respects, in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union, and the AIM Rules for Companies. Baker Tilly UK Audit LLP Chartered Accountants International House Queens Road Brighton BN1 3XE 5 December 2007 Consolidated Income Statement For the six months ended 30 September 2007 (unaudited) Six months ended 30 Year ended September 31 March 2007 2006 2007 Note £000 £000 £000 Revenue 2 14,735 10,644 22,227 Cost of sales (12,665) (8,521) (17,967) -------------------------------- Gross profit 2,070 2,123 4,260 Administrative expenses (1,734) (1,323) (2,755) -------------------------------- Operating profit before 2 336 800 1,505 depreciation, amortisation of intangible assets and exceptional items Depreciation (89) (44) (103) Amortisation of intangible fixed (111) - (87) assets Exceptional items - (113) (122) -------------------------------- Operating profit 136 643 1,193 Finance costs (93) (40) (89) Finance income 1 - 4 ------------------------------- Profit before tax 44 603 1,108 Income tax expense (24) (193) (362) ------------------------------- Profit for the period 20 410 746 attributable to equity =============================== shareholders Earnings per share 3 Pence Pence Pence Basic 0.19 3.94 7.17 ============================= Diluted earnings per share 0.18 3.88 6.87 ============================= Consolidated Balance Sheet As at 30 September 2007 (unaudited) Six months ended 30 Year ended September 31 March 2007 2006 2007 £000 £000 £000 ASSETS Non-current assets Intangible assets 838 - 949 Property, plant and equipment 491 426 440 Deferred tax asset - 12 - ----------------------------------- 1,329 438 1,389 =================================== Current assets Trade and other receivables 6,208 3,755 5,287 Cash and cash equivalents 40 581 44 ----------------------------------- 6,248 4,336 5,331 =================================== Total assets 7,577 4,774 6,720 =================================== LIABILITIES Current liabilities Trade and other payables 2,744 2,273 2,894 Current tax liabilities 344 292 336 Financial liabilities 2,114 - 1,034 ----------------------------------- 5,202 2,565 4,264 Non-current liabilities Financial liabilities 40 51 43 Deferred tax liabilities 14 - - ----------------------------------- 54 51 43 =================================== Total liabilities 5,256 2,616 4,307 =================================== Net assets 2,321 2,158 2,413 =================================== EQUITY Share capital 208 208 208 Share premium account 103 103 103 Equity option reserve 71 30 53 Retained earnings 1,939 1,817 2,049 ----------------------------------- Total equity 2,321 2,158 2,413 =================================== Consolidated Cash Flow Statement For the six months ended 30 September 2007 (unaudited) Six months ended 30 Year September ended 31 March 2007 2006 2007 Note £000 £000 £000 Cash flows from operating activities Cash generated from operations 5 (717) 852 499 Net interest (paid)/received (92) (40) (85) Income tax paid (2) (132) (208) ------------------------------------ Net cash from operating (811) 680 206 activities Cash flows from investing activities Acquisition of subsidiary undertakings net of cash and overdraft acquired - - (620) Purchase of property plant, and equipment (140) (221) (338) Investment in intangible assets - - (299) ------------------------------------ Net cash flows from investing (140) (221) (1,257) activities Cash flows from financing activities Payment to cancel share options - (20) (20) Finance leases advanced - 60 60 Repayment of finance leases (4) (4) (9) Equity dividend paid (130) (104) (208) ------------------------------------ Net cash outflow from financing (134) (68) (177) activities ------------------------------------ (Decrease)/ Increase in cash and (1,085) 391 (1,228) cash equivalents for the period ------------------------------------ Reconciliation of net cash flow to movement in net funds (Decrease) / increase in cash and (1,085) 391 (1,228) cash equivalents Decrease/ (Increase) in finance 4 (56) (51) leases ------------------------------------- Change in net funds (1,081) 335 (1,279) Net (debt)/ funds at 1 April (1,033) 246 246 ------------------------------------ Net (debt)/funds at 30 September (2,114) 581 (1,033) ==================================== Consolidated Statement of Shareholders Equity For the six months ended 30 September 2007 (unaudited) Six months ended Share Share Equity Retained Total 30 September 2007 Capital Premium Option earnings Reserve £000 £000 £000 £000 £000 At 1 April 2007 208 103 53 2,049 2,413 Share based payments - - 18 - 18 Profit for the period - - - 20 20 Dividend - - - (130) (130) ---------------------------------------------- At 30 September 2007 208 103 71 1,939 2,321 ============================================== Six months ended Share Share Equity Retained Total 30 September 2006 Capital Premium Option earnings Reserve £000 £000 £000 £000 £000 At 1 April 2006 208 103 23 1,511 1,845 Share based payments - - 27 - 27 Share options lapsed or - - (20) - (20) exercised Profit for the period - - - 410 410 Dividend - - - (104) (104) ------------------------------------------------ At 30 September 2006 208 103 30 1,817 2,158 =============================================== Year ended Share Share Equity Retained Total 31 March 2007 Capital Premium Option earnings Reserve £000 £000 £000 £000 £000 At 1 April 2006 208 103 23 1,511 1,845 Share based payments - - 50 - 50 Share options lapsed or - - (20) - (20) exercised Profit for the period - - - 746 746 Dividend - - - (208) (208) --------------------------------------------- At 31 March 2007 208 103 53 2,049 2,413 ============================================= Notes to the Financial Statements 1. Basis of preparation RDF Group plc is incorporated in England and domiciled in the United Kingdom. Its registered office is 2 Bartholomews, Brighton, BN1 1HG and its principal activities are the provision of software solutions to companies, the provision of contract staff and the sourcing of permanent staff in the Information Technology sectors. The financial statements are prepared in pounds sterling. The Group has historically prepared its audited financial statements and unaudited interim results on the basis of UK Generally Accepted Accounting Practice ("UK GAAP"). In the current year the Group has adopted International Financial Reporting Standards ("IFRS") for the first time as the Group is required to present its annual consolidated financial statements in accordance with accounting standards adopted for use in the European Union. As a result these interim accounts, which are unaudited, have been prepared on the basis of the accounting policies which will apply for the financial year to 31 March 2008. These standards remain subject to ongoing amendment and/or interpretation and are therefore still subject to change. Accordingly, information contained in these interim financial statements may need updating for subsequent amendments to IFRS required for first time adoption or for new standards issued post the balance sheet date. This document includes reconciliations of the Group's equity to IFRS at the date of transition of 1 April 2006 and at the comparative balance sheet dates of 30 September 2006 and 31 March 2007, and reconciliations of the Group's results for the comparative periods ended 30 September 2006 and 31 March 2007. The comparative information for the six months ended 30 September 2006 and the year ended 31 March 2007 have been restated on the basis of IFRS. Reconciliations between financial statements previously reported under UK GAAP and on the basis of IFRS are set out in note 6 to this interim statement in respect of the Consolidated Income Statements for the year ended 31 March 2007 and six months ended 30 September 2006 and Consolidated Balance Sheets as at 31 March 2007. The interim financial statements do not include all of the information required for full annual financial statements and do not comply with all the requirements of IAS 34 `Interim Financial Reporting'. Accordingly whilst the interim financial statements have been prepared in accordance with the transitional rules governing the move from UK GAAP to IFRS they cannot be construed as being in full compliance with IFRS. The interim financial statements are unaudited and were approved by the board of directors on 6 December 2007. The financial information contained in these statements does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The financial information for the year to 31 March 2007 has been extracted from the statutory accounts for that year and adjusted for the conversion to IFRS. The statutory accounts for the year ended 31 March 2007, which were prepared under UK GAAP, received an unqualified audit report and did not contain a statement made under Section 237(2) and (3) of the Companies Act 1985, and have been filed with the Registrar of Companies. Following the implementation of IFRS, the Group's accounting policies have been consistently applied to all the periods presented unless otherwise stated. The principal policies are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of RDF Group plc and of its subsidiaries. Subsidiaries are all entities over which the Group has the power to govern financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which the Group takes control of a subsidiary. The Group adopts the purchase method in accounting for the acquisition of subsidiaries. On acquisition the cost is measured at the fair value of the assets given, plus equity instruments issued and liabilities incurred or assumed at the date of exchange plus any costs directly attributable to the acquisition. The assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair value at the date of acquisition. Any excess of the fair value of the consideration over the fair value of the identifiable net assets acquired is recorded as goodwill. Any deficiency of the fair value of the consideration below the fair value of identifiable net assets acquired is credited to the Income Statement in the period of the acquisition. The results of subsidiary undertakings 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. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. Inter-company transactions and balances between Group companies are eliminated. Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. Whilst the directors believe that the estimates and assumptions used in the preparation of the interim financial statements are reasonable, the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities within the next financial year are discussed below. i. Impairment of goodwill The Group tests annually whether the goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations which require the use of estimates. ii. Customer contracts and relationships Similarly the computation of the fair value of customer contracts and relationships acquired is based on an estimate of future cash flows arising from those existing customers. Revenue recognition The income shown in the Consolidated Income Statement represents the value of services provided during the period, exclusive of Value Added Tax. Income is recognised when the risks and rewards of the underlying services have been substantially transferred to the customer. Exceptional items Items which are non-recurring and sufficiently material are presented separately within their relevant Consolidated Income Statement category. The separate reporting helps provide a better understanding of the Group's underlying business performance. Property, plant and equipment Depreciation is calculated to write down the cost less estimated residual value of all tangible fixed assets by equal annual instalments over their expected useful lives. The rates generally applicable are: Computer equipment and software 33% per annum Office equipment 10% per annum Motor vehicles 33% per annum Leasehold property improvements Over the lease term Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the company's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is included in intangible assets and is tested annually for impairment. Any impairment is recognised immediately in the Income Statement and is not subsequently reversed. Computer software Costs associated with the production of identifiable and unique software products, including the payroll costs of the development teams, are recognised as intangible assets when they meet the following criteria: i. the technical feasibility of the product can be demonstrated ii. it is probable that the product will generate future economic benefit iii. the costs of the product can be reliably measured iv. the Group has the necessary resources available to complete the development of the product Computer software development costs capitalised as assets are amortised over their expected useful lives of 2 years. Customer contracts and customer relationships Customer contracts and customer relationships acquired with subsidiaries are recognised at their fair value at the date of acquisition. The value is amortised over a period not exceeding ten years. Impairment of intangible assets and property, plant and equipment Intangible assets that have an indefinite life and are not subject to amortisation are tested annually for impairment. Other property, plant and equipment and intangible assets that are subject to amortisation or depreciation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. Any impairment losses are charged to the Income Statement in the period in which they are identified. Where an asset does not generate cash flows that are independent of other assets, the assets are allocated to cash-generating units and the Group tests the recoverable amount of the cash-generating unit to which the asset belongs. Employee benefits Pensions Pension contributions are made for a number of directors and employees on a defined contribution basis. Contributions payable for the year are charged in the Income Statement. The Group has no further payment obligations once the contributions have been paid. Share based payments The Group operates a number of share option schemes which allow employees to acquire shares in the company. Where the company awards share options under these schemes, the fair value of options granted is calculated at the grant date using the Black Scholes Model and the resulting cost is charged to the Income Statement over the vesting period during which the recipient becomes unconditionally entitled to exercise the option and credited to the Equity Option Reserve. Taxation Income tax expense represents the aggregate of the current tax and deferred tax charges. The current tax charge is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the Income Statement as it excludes items of income or expense that are taxable or deductible in other years or 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. Deferred taxation is provided in full using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates that have been enacted at or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Leases Where an asset is acquired under a finance lease, the asset is capitalised and the corresponding liability to the finance company is included in creditors. Depreciation on assets held under finance leases is provided in accordance with the policy noted under property, plant and equipment above. Finance lease payments are treated as consisting of capital and interest elements and the interest is charged to the Income Statement on a geometric basis over the period of the agreement. Rentals payable under operating leases are charged to the Income Statement on a straight line basis over the period of the lease. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid funds with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowing in current liabilities on the balance sheet. Financial instruments Financial assets and liabilities are recognised in the balance sheet when the Group becomes party to the contractual provisions of the instrument. Trade and other receivables Trade and other receivables are measured at cost less any provision necessary when there is objective evidence that the Group will not be able to collect all amounts due. They are non interest bearing and are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method. Trade and other payables Trade and other payables are not interest bearing and are measured at original invoice amount. 2. Segmental Review i) Primary business segment Segmental information is presented in respect of the Group's business segments. The primary business segments are based on the Group's reporting structure and comprises of Managed Software Solutions and Temporary Agency Staffing and Permanent Recruitment Fees. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate and head office expenses. The Group's operating units do not operate as separate business units. The segmental reporting of revenue and operating profit before depreciation and the amortisation of intangible assets and exceptional costs has been prepared in order to provide a better understanding of the Group's performance and is not a full segmental report. The assets and liabilities of the Group are centrally managed, and therefore it is not possible to allocate them to the business segments. Six months ended 30 September Year ended 31 March 2007 2006 2007 £000 £000 £000 Revenue Managed Software Developments 6,960 6,564 12,931 Temporary Agency Staffing and Permanent Recruitment Fees 7,775 4,080 9,296 ------------------------------------ 14,735 10,644 22,227 ==================================== Operating profit before depreciation and the amortisation of intangible assets and exceptional costs Managed Software Developments 31 552 927 Temporary Agency Staffing and Permanent Recruitment Fees 494 426 917 Software and other sales Central departments (189) (178) (339) ------------------------------------- 336 800 1,505 ===================================== ii. Secondary business segment All of the Group's activities take place in the United Kingdom for clients located in the United Kingdom. 3. Earnings per share The basic earnings per share is based on attributable profit for the period of £20,000 (September 2006: £410,000; year ended 31 March 2007: £746,000) and on 10,400,000 ordinary shares (September 2006: 10,400,000; year ended 31 March 2007: 10,400,000) being the weighted average number of ordinary shares in issue during the periods. The diluted earnings per share is based on attributable profit for the period of £20,000 (September 2006: £410,000; year ended 31 March 2007: £746,000) and on 10,782,508 ordinary shares (September 2006: 10,553,664; year ended 31 March 2007: 10,864,537), calculated as follows: Six months ended Year ended 30 September 30 March 2007 2006 2007 No. No. No. Basic weighted average number of shares 10,400,000 10,400,000 10,400,000 Dilutive potential ordinary shares: Share options 382,508 153,664 464,537 ------------------------------------ 10,782,508 10,553,664 10,864,537 ==================================== 4. Dividend Six months ended Year ended 30 September 30 March 2007 2006 2007 £000 £000 £000 Dividends paid to equity shareholders Interim 1.25 per share (2006: 1.0p) 0 0 104 Final 1.25p per share (2006: 1.0p) 130 104 104 ------------------------------ 130 104 208 ============================== 5. Reconciliation of operating profit to net cash generated from operating activities Six months ended Year ended 30 September 30 March 2007 2006 2007 £000 £000 £000 Operating profit 136 643 1,193 Depreciation of property, plant and 89 44 103 equipment Amortisation of intangible assets 111 - 87 Share based payment expense 18 27 50 (Increase)/decrease in receivables (921) 530 (370) (Decrease)/increase in payables (150) (392) (564) ------------------------------- Cash (used)/generated by operations (717) 852 499 =============================== 6. Principal impact of IFRS The key differences between UK GAAP and IFRS that will impact the Group are set out below. The rules for the first time adoption of IFRS are set out in IFRS1 `First Time Adoption of International Financial Reporting Standards'. The rules state that a company should use the same accounting policies in its opening IFRS balance sheet and throughout all periods presented in its first IFRS financial statements. Goodwill Under UK GAAP, the Group was amortising goodwill arising on acquisitions over periods of 10 years. Under IFRS 3 `Business combinations', goodwill is not amortised but instead is subject to annual impairment tests or more frequently if there is an indication of impairment. Reconciliations The following pages show the reconciliation of Profit under UK GAAP to Profit under IFRS for the year ended 31 March 2007 and Equity under UK GAAP to Equity under IFRS at 31 March 2007. Reconciliation of Profit from UK GAAP to IFRS (unaudited) Year ended 31 March 2007 Under UK Effect of Under IFRS GAAP transition to IFRS £000 £000 £000 Revenue 22,227 - 22,227 Cost of sales (17,967) - (17,967) ---------------------------------- Gross profit 4,260 - 4,260 Administrative expenses (2,755) - (2,755) ---------------------------------- Operating profit before depreciation, 1,505 - 1,505 the amortisation of intangible assets and exceptional items Depreciation of fixed assets (103) (103) Amortisation of intangible fixed assets (75) (12) (87) Amortisation of goodwill on acquisition (12) 12 - Exceptional items (122) - (122) ---------------------------------- Operating profit 1,193 - 1,193 Finance costs (89) - (89) Finance income 4 - 4 ---------------------------------- Profit on ordinary activities before tax 1,108 - 1,108 Tax on profit on ordinary activities (362) - (362) ---------------------------------- Profit for the financial period 746 - 746 ================================== Profit under UK GAAP 746 Amortisation of capitalised client 12 relationships Amortisation of goodwill (12) ---------------------------------- Profit under IFRS 746 ================================== Earnings per share Basic 7.17p ================================== Diluted earnings per share 6.87p ================================== There were no effects of the transition to IFRS on the income statements for the period ended 30 September 2006 Reconciliation of Equity at 31 March 2007 (unaudited) As at 31 March 2007 Under UK Transition to Under IFRS GAAP IFRS £000 £000 £000 ASSETS Non-current assets Intangible fixed assets 225 724 949 Goodwill 724 (724) - Property, plant and equipment 440 - 440 Deferred tax assets -------------------------------------- 1,389 - 1,389 ====================================== Current assets Trade and other receivables 5,287 - 5,287 Cash and cash equivalents 44 - 44 --------------------------------------- 5,331 - 5,331 ======================================= Total assets 6,720 - 6,720 ======================================= LIABILITIES Current liabilities Trade and other payables 2,894 - 2,894 Current tax liabilities 336 - 336 Financial liabilities 1,034 - 1,034 --------------------------------------- 4,264 - 4,264 ======================================= Non-current liabilities Financial liabilities 43 - 43 ======================================= Total liabilities 4,307 - 4,307 ======================================= Net assets 2,413 - 2,413 ======================================= EQUITY Share capital 208 - 208 Share premium account 103 - 103 Equity option reserve 53 - 53 Retained earnings 2,049 2,049 --------------------------------------- Total equity 2,413 - 2,413 ======================================= There were no effects of the transition to IFRS on the balance sheet or equity at 1 April 2006 or 30 September 2006 Reconciliation of Cash Flows from UK GAAP to IFRS (unaudited) There are no changes to the Group's cash flows as a result of the impact of the change from UK GAAP to IFRS

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