Interim Results
Clarity Commerce Solutions PLC
31 December 2007
Clarity Commerce Solutions plc
('Clarity', the 'Company' or the 'Group')
Interim Results for the six months ended 30 September 2007
Clarity Commerce Solutions plc, a leading provider of management software and
services to the leisure, hospitality, retail and ticketing sectors, announces
it's Interim Results for the six months ended 30 September 2007.
Basis of Reporting
Results have been reported under International Financial Reporting Standards
('IFRS') for the first time, including comparatives where appropriate.
Contact :
Clarity: Ken Smith, Group Managing Director
(contact Jacquie Mitchell Tel: 01932 778001)
SVS Securities plc (Broker): Jon Cable, Director Tel: 020 7638 5600
Grant Thornton UK LLP (Nomad): Fiona Kindness, Director Tel: 020 7728 3414
Chairman's statement
I am delighted to announce that, following severe difficulties in the earlier
months of 2007/8, resulting in a first half loss before tax of £(1,355,000),
under IFRS reporting, Clarity has made excellent progress in its planned
recovery. The Group has achieved a return to healthy profitable trading across
recent months (Sept to Nov inclusive). This has reduced the losses sustained
across the first half of the year and will be reflected in the full year
results.
The reported losses in the first half were in line with recent published
research. The Company currently believes its performance for the second half of
the year and the year as a whole remains in line with market expectations.
The first half loss may be summarised as follows:
• UK GAAP loss before tax of £(1,076,000)
• IFRS adjustments of £(279,000)
• Revised IFRS loss before tax of £(1,355,000)
The IFRS adjustments of £279,000 represent a change of policy in respect of
software rights attributed to recent acquisitions, resulting in an amortisation
charge. This policy of amortisation will continue with subsequent charges being
applied to the income statement in future periods.
The loss resulted from a combination of factors. The events surrounding the
Extraordinary General Meeting held on 31 May 2007 undoubtedly caused management
distraction and low staff morale, as well as material additional costs.
Furthermore it raised concerns across the client base, resulting in order delays
and, in some instances, cancellations. All of this resulted in a period of
uncertainty affecting the Company's trading performance, and it is only now that
restored confidence is being evidenced.
The Group had entered into an over-ambitious programme of software development
projects which resulted in additional cost and inefficiency. The development of
new products had become unfocused, poorly-resourced and unstructured, resulting
in a number of projects running well behind plan, and the associated effects of
low-quality deliveries.
As a result performance in the first half suffered. I am pleased to be able to
report that, with the establishment of our divisional structure, software
development is now under strong direction and control with associated
expenditure determined by clear customer requirements.
The restructuring of the core business into four software divisions each with
its own divisional head, reporting to Ken Smith, Group Managing Director, has
achieved a return to profitable trading over recent months and improved the
outlook for the future. Staff motivation has recovered, and excess costs have
been substantially reduced. Furthermore, we are experiencing a good rate of
conversion from prospects to orders, and the Board is confident that this trend
will continue. The Board expects to deliver a strong performance across the
second half of the year.
Board changes
Across the first half of the year, various Board changes were reported.
Tim Bittleston and Peter Walker retired as Chairman and Executive Director
respectively.
Sir Colin Chandler was appointed a non-executive director on 26 April 2007. Sir
Colin's role was changed to non-executive Deputy Chairman on 26 June 2007.
John O'Hara and Ken Smith were appointed to the Board on 26 June 2007 as
non-executive Chairman and part-time CFO respectively. Ken Smith subsequently
became full-time Group Managing Director on 27 September 2007.
At the same time, Graham York, who had been Chief Executive Officer, changed his
role to concentrate on strategic and M&A activities. More recently, in November
2007, Graham stepped down from his Executive duties, and on 23 December 2007,
was removed as a Director by the remaining members of the Board.
Operating review
Structural changes
During the first half of the year, certain key changes to the structure of the
business were implemented. Costs have been reduced and a divisional structure
introduced to manage the Group's software products and solutions. Each of the
four resulting divisions; Hospitality, Ticketing, Leisure and Retail, are now
led by accountable business unit managers, who are motivated and given
incentives to maximise turnover, drive down costs and deliver profits resulting
in cash generation.
Along with the divisional structure the software development and quality
assurance departments were restructured to ensure that projects were focused in
the future, only undertaken to deliver profit and generate cash and with product
direction determined by divisional management in accordance with customer
requirements.
Cost reductions
Prior to the reorganisation software development had become fragmented, with too
many expensive projects being run concurrently. In order to attempt to complete
these projects, expensive sub-contract labour had been employed, which had a
significant adverse impact on the first half of the year. The restructure and
refocus of software development has seen the removal of this costly sub-contract
development.
Cost control and reduction will remain a key focus for divisional heads who are
accountable for their division's profitability.
First half costs are inclusive of exceptional items all relating to the EGM held
on 31 May 2007.
Research and development
As explained above, the structure of the Group's development function has been
considerably changed. Costs were running at excessive levels, particularly with
regard to the use of expensive sub-contractors.A fundamental review was carried
out and strong management and procedural controls initiated, with development
projects being a function of divisional management who, in turn, have the direct
feedback of their customers and prospects.
Many problems and projects needed close attention and, although a great deal has
been achieved over recent months, further work remains to be completed over the
coming months. Key to the process, however, has been the acceptance that
projects be addressed realistically in terms of timescale and cost, with interim
releases of key product elements and a clearly-defined programme to address
customer requirements.
This new realism and professionalism has already borne fruit, and previously
dissatisfied customers are again turning to Clarity for business solutions.
Contract wins
Whilst the Board acknowledges that the business has had a difficult first half,
we have nevertheless secured some valuable orders across the period.
The Company has issued a series of announcements, inclusive of:
Schuitema
Point of Sale ('POS') systems for Dutch grocer across their estate of
approximately 450 supermarkets.
Co-op Denmark
Successful completion of deployment of POS solution.
Flytoget
Refresh of entire ticketing infrastructure.
Movie Park, Germany
Installation of ticketing and POS solution for 1.2m per annum visitor theme
park.
Furthermore, I am pleased to bring to your attention the following positive
news:
Europalaces
Signing of $1m contract to supply ATMs across the estate.
Parisienne MK2 cinema chain
$600k maintenance contract commenced in October 2007.
CineAlpes Group
Initial implementation of ticketing software in four multiplex cinemas.
Warren Theatres
Contract win for Clarity's ticketing and reservations software suites in a 20
screen cinema complex.
Broxtowe Borough Council
First delivery of the recently developed .NET Clarity Flex Leisure Software
across four sites.
Forest of Dean District Council
Second Clarity Flex Leisure Software contract signed for five sites.
FitSpace
Order received and delivered for online membership and customer records
solution.
Total Hospitality Solutions ('THS') acquisition
THS was acquired in May 2007 for an initial consideration of £2.2m, satisfied by
the issue of Clarity shares. There is a two year earn out and the total
consideration will not exceed £4m.
Since acquisition, this unit has yet to perform in line with expectations and
has had a relatively difficult period of trading. The distractions of the
acquisition process itself and the wider Group issues resulted in a climate of
uncertainty which served to slow the signing of new orders. These problems were
further compounded by the requirement to integrate the company's products and
services with those already existing in Clarity. I am pleased, however, to
confirm that these issues have now been addressed, and THS is now displaying
positive signs of securing new business, and is in discussions with a number of
interesting prospects. The THS management is working hard to get benefit from
the obvious synergies between itself and other product offerings throughout the
Group. A number of key orders have been secured over recent weeks and prospects
of further orders are promising.
Although the post-acquisition period has seen a slow start, the Board
acknowledges that THS needs to establish itself in its UK marketplace. The THS
product is, however, widely regarded and the Board is therefore confident that
THS will have a positive contribution to make to the Group.
Financial Review
The first half of the current financial year produced the following summary
results.
• Turnover for the period increased by £145,000 to £9,725,000 (2006:
£9,580.000)
• Gross profits generated of £6,394,000, with operating costs of
£7,570,000 (inclusive of IFRS amortisation of software rights of £279,000)
• This resulted in a first half loss before amortisation and taxation
of £1,076,000
• At the half year close the Group reported net assets of £13,014,000
(2006: £12,652,000)
• Trade receivables closed at £4,309,000 (2006: £4,143,000), trade
payables closed at £1,978,000 (2006: £1,452,000)
• The Group's closing net overdrawn cash position was £1,033,000,
(2006: £635,000)
In order to address the Company's cash constraints, the Company has considered a
number of initiatives, with one being the disposal of its freehold property in
Gravesend. The Company entered into a Deed of Sale with a purchaser for the
property during September 2007. The sale proceeds amounted to £340,000,
contributing to the Group's working capital facilities.
Other fundraising initiatives are also being considered.
IFRS conversion
The Group has adopted International Financial Reporting Standards (IFRS) for the
first time in 2007. The condensed consolidated interim financial statements have
been prepared on the basis of the accounting policies that will be adopted in
the year end 31 March 2008 Annual Report.
Comparative results for the six months ended 30 September 2006 and the year
ended 31 March 2007 are reported in accordance with IFRS.
The policies have changed from the previous year when the financial statements
were prepared under applicable United Kingdom Generally Accepted Accounting
Principles (UK GAAP). The date of transition to IFRS was 1st April 2006.
The Group has taken advantage of an exemption available under IFRS 1 First-time
Adoption of International Financial Reporting Standards, and has elected not to
apply IFRS 3 to the business combinations that took place before the date of
transition. As a result, the carrying value of goodwill at 31 March 2006 is
frozen, subject to impairment reviews after then in accordance with IFRS 3.
An explanation of the basis of preparation and the accounting policies that will
be adopted are included in the notes to the accounts together with
reconciliations explaining the impact of the transition.
Overall, the profit before tax has decreased by £279,000 in the first half year
under IFRS with the main impact arising from the amortisation of software rights
attributed to the acquisitions of MATRA Systems (Holdings) Limited and both
Total Hospitality Solutions Limited and Total Hospitality Solutions (NZ)
Limited, which both fall within the relevant transition period. The increased
amortisation charge for the first half year amounts to £279,000.
The Board have considered the issue of capitalisation of development costs, and
are of the opinion that the Group largely satisfy the conditions, however, the
Group's internal systems need to evolve further in order that the expenditure
attributable to the intangible asset during its development can be measured
reliably. All development costs incurred across the first half year have been
charged to the income statement as they have been incurred. The Board will keep
this area of policy, along with its internal control and monitoring systems
under regular review.
Outlook
Although the Group reported losses for the full year to 31 March 2007 as well as
for the first half of the 2008 financial year, the Board is encouraged by the
Group's return to profitable trading over the past three months and plans to
build on this performance across the remainder of the second half of the year,
and beyond.
Revenues have shown a strong improvement in recent months and the Board is
confident of continued progress which will continue to reduce cumulative current
year losses.
The Board is mindful that recent losses have put pressure on the Group's working
capital. Whilst the sale of the Gravesend freehold property was helpful, further
cash-raising initiatives are urgently required. The Board is currently working
on a proposed fundraising which will enhance the Group's working capital
position, and provide a firm foundation for the immediate future. It is expected
that the fund-raising will be completed before the Company's year end.
The Board notes that, in the past, communication with investors has been poor
and intermittent, and intends to maintain regular, closer contact in the future
via a structured investor relations programme. We are planning to meet with a
number of the Company's investors during January. We also plan to further
strengthen the Board with the appointment of an additional non-executive
Director during January 2008.
The Board is very grateful to SVS Securities plc (as the Company's Broker) and
Grant Thornton UK LLP (as the Company's Nominated Adviser), both of whom were
appointed during the first half of the year. Their assistance and support has
been invaluable. We have also been the recipients of excellent legal advice in a
number of areas, and are grateful to our two advisers in this regard, Faegre &
Benson and Hammonds.
Finally, none of the recent progress within the Group would have been possible
without the outstanding commitment shown by Clarity personnel across the
Company's operating units and the continuing support of our customers and
suppliers. The Board would also like to formally acknowledge the outstanding
performance and leadership shown by Ken Smith, who has demonstrated consistently
sound judgement and leadership in often difficult circumstances and has
maintained a clear focus on managing the operations of the business.
We believe we have turned a corner and the Board looks forward to consolidating
the Company's position as a successful and profitable high technology company.
John O'Hara
Chairman
Date: 31 December 2007
Officers and advisers
Officers
John O'Hara
Chairman
Sir Colin Chandler
Deputy Chairman
Ken Smith
Group Managing Director
Richard Arnold
Group Financial Controller and Company Secretary
All of registered office:
Hooper House
Hatch Warren Farm
Hatch Warren Lane
Hatch Warren
Basingstoke
RG22 4RA
Registered number: 3914814
Advisers
Nominated Adviser
Grant Thornton UK LLP
Melton Street
London
NW1 2EP
Stock Brokers
SVS Securities plc
2 London Wall Buildings
London Wall
London
EC2M 5PP
Auditors
Smith & Williamson Solomon Hare Audit LLP
Oakfield House
Oakfield Grove
Clifton, Bristol
BS8 2BN
Registrars
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Bankers
Bank of Scotland
55 Temple Row
Birmingham
B2 5LS
Consolidated income statement for the six months ended 30 September 2007
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
Revenue 9,725 9,580 20,803
Cost of sales (3,331) (2,964) (7,919)
Gross profit 6,394 6,616 12,884
Operating costs
Operating expenses (7,159) (6,260) (13,092)
Exceptional expenses (132) - -
Amortisation of acquired intangible assets (279) (163) (357)
(7,570) (6,423) (13,449)
Operating (loss)/profit (1,176) 193 (565)
Operating (loss)/profit is analysed between:
Operating (loss)/profit from continuing operations (765) 356 (208)
Exceptional expenses (132) - -
Amortisation of acquired intangible assets (279) (163) (357)
(1,176) 193 (565)
Finance income 309 167 560
Finance costs (488) (305) (870)
(Loss)/profit before taxation (1,355) 55 (875)
Taxation expense (120) (41) (332)
(Loss)/profit for the period (1,475) 14 (1,207)
(Loss)/earnings per share
Basic (6.20)p 0.07p (6.05)p
Diluted (6.20)p 0.07p (6.05)p
Dividends per share - - -
Consolidated statement of recognised income and expense for the six months ended
30 September 2007
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
Profit/(loss) for the period (1,475) 14 (1,207)
Exchange differences on translation of foreign operations (3) 1 (230)
Total recognised income and expense for the period (1,478) 15 (1,437)
Consolidated balance sheet as at 30 September 2007
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
ASSETS
Non current assets
Property, plant and equipment 389 579 556
Goodwill 15,620 15,449 14,506
Intellectual property rights 2,595 1,848 1,633
Software intangibles 24 - 27
Trade and other receivables - - 24
Total non current assets 18,628 17,876 16,746
Current assets
Inventories 865 598 711
Trade receivables 4,309 4,143 4,449
Other current assets 1,623 1,507 1,258
Cash and cash equivalents 234 273 416
Blocked cash collateral accounts 427 1,034 716
Total current assets 7,458 7,555 7,550
Total assets 26,086 25,431 24,296
LIABILITIES
Non current liabilities
Bank loans 1,526 1,819 1,519
Loan notes 124 671 326
Deferred consideration 1,839 4,213 1,800
Obligations under finance lease and hire purchase contracts 24 19 29
Other provisions 41 34 41
Total non current liabilities 3,554 6,756 3,715
Current liabilities
Trade payables 1,978 1,452 2,238
Other current liabilities 3,124 2,099 2,636
Other taxes and social security 1,772 683 1,302
Corporation tax 578 205 484
Bank loans and overdrafts 1,752 1,393 1,266
Loan notes 300 181 300
Obligations under finance lease and hire purchase contracts 14 10 14
Deferred consideration - - 503
Total current liabilities 9,518 6,023 8,743
Total liabilities 13,072 12,779 12,458
Net Assets 13,014 12,652 11,838
EQUITY
Shareholders equity
Share capital 6,228 4,835 5,271
Shares to be issued - 500 -
Share premium 9,439 7,040 7,742
Profit and loss account
Retained earnings (2,103) 593 (628)
Translation reserve (550) (316) (547)
Total equity 13,014 12,652 11,838
Consolidated cash flow statement for the six months ended 30 September 2007
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
Cash flows from operating activities
Operating (loss)/profit (1,176) 193 (565)
Depreciation 78 85 194
Amortisation
Intelectual property rights 296 185 400
Software 3 - -
Taxation (21) (95) (51)
(Increase)/decrease in inventories (154) 38 (75)
(Increase)/decrease in trade and other receivables (193) 2,123 1,984
Increase/(decrease) in trade and other payables 653 (3,078) (1,200)
Share based payments expense
Net cash (outflow)/inflow from operating activities (514) (549) 687
Cash flows from investing activities
Proceeds on disposal of property, plant and equipment 125 - 8
Purchase of software - - (27)
Purchase of property, plant and equipment (36) (36) (111)
Interest received 309 167 528
Payment of deferred consideration (10) - -
Purchase of subsidiary undertakings (172) (2,875) (3,151)
Cash at bank acquired with subsidiary - 370 374
Net cash generated/(absorbed) from investing activities 216 (2,374) (2,379)
Cash flows from financing activities
Issue of share capital - 1,817 1,817
Repayment of loan notes (201) (473) (699)
New bank loans - 2,425 2,425
Repayment of bank loans - (1,039) (1,339)
Capital element of finance leases (6) (2) (7)
Interest element of finance leases (1) (2) (4)
Interest paid (448) (257) (772)
Net cash generated/(absorbed) from financing activities (656) 2,469 1,421
Net increase/(decrease) in cash and cash equivalents (954) (454) (271)
Cash and cash equivalents at the beginning of the period:
Group cash (365) (446) (446)
Blocked cash collateral account 716 1,298 1,298
Cash and cash equivalents at the beginning of the period 351 852 852
Foreign exchange rate adjustments (3) 1 (230)
Cash and cash equivalents at the end of the period:
Group cash (1,033) (635) (365)
Blocked cash collateral account 427 1,034 716
Cash and cash equivalents at the end of the period (606) 399 351
Notes to the condensed consolidated interim financial statements
1 Reporting entity
Clarity Commerce Solutions plc is a public limited company incorporated and
domiciled in England and Wales (registration number 3914814). The Company's
registered address is Hooper House, Hatch Warren Farm, Hatch Warren Lane, Hatch
Warren, Basingstoke, Hampshire, RG22 4RA.
The Company's ordinary shares are traded on the AIM market of the London Stock
Exchange plc. The condensed consolidated interim financial statements of the
Company for the six months ended 30 September 2007 comprise the Company and its
subsidiaries. The condensed consolidated interim financial statements were
authorised for issue in accordance with a resolution of the Directors on 31
December 2007.
The Group is primarily involved in the provision of software solutions for
ticketing, leisure, hospitality, retail, business intelligence and support
services with offices in the United Kingdom, United States, France and New
Zealand.
2 Basis of preparation
The Group's date of transition is 1 April 2006. The accounting policies used for
IFRS are set out in note 3 (Accounting Policies).
The Group has taken advantage of an exemption available under IFRS 1 First-time
Adoption of International Financial Reporting Standards, and has elected not to
apply IFRS 3 to the business combinations that took place before the date of
transition. As a result, the carrying value of goodwill at 31 March 2006 is
frozen, subject to impairment reviews after then in accordance with IFRS 3.
Descriptions of the reconciling items between UK GAAP and IFRS are listed in the
attached notes. The amounts of the reconciling items are detailed in the tables
set out beneath each of the reconciliations.
The interim financial statements are un-audited and do not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985.
Intangible assets
On transition the Group has reclassified separately identifiable computer
software assets from tangible to intangible assets following the provisions of
IAS38.
Expenditure on development activities resulting in new or substantially improved
products which will generate future economic benefit is now capitalised and
amortised over the products useful life. Previously under UK GAAP all such
development costs were expensed.
Holiday pay accruals and provisions
Under UK GAAP the Group has not recognised any accruals or provisions made for
holiday pay owed to its employees in overseas subsidiaries which are required to
make such accruals and provisions under local/national GAAP.
In the transition from UK GAAP to IFRS the Group has recognised these accruals
and provisions in the financial statements and the adjustments are set out under
the relevant income statement reconciliations.
The Group has never recognised the need to make provisions for holiday pay owed
to its UK employees. From time to time, holiday pay is paid to employees when
they leave a subsidiary company. The amounts are small and are not considered
materially sufficient to require a provision during or at the end of an
accounting period, therefore no provision has been made in the financial
statements.
3 Accounting policies
The following accounting policies have been consistently applied in arriving at
the consolidated financial information set out in this report.
Basis of accounting
The consolidated financial information has been prepared under the historical
cost convention, in accordance with International Financial Reporting Standards
(IFRS) as adopted for use in the European Union.
Basis of consolidation
The Group financial statements consolidate the unaudited financial statements of
the Company and all its subsidiaries made up to 30th September 2007. The
acquisition method of accounting is used and the results of subsidiary
undertakings are included from the date of acquisition.
Turnover and revenue recognition
Turnover, which excludes value added tax and sales between Group companies,
represents amounts derived from the provision of goods and services which fall
within the Group's ordinary activities.
The Group derives its income from the following revenue streams; the sale of
software licences, bespoke development projects for clients and fees derived
from support services, installation and training. Each sales stream is
separately identifiable and treated in the following manner:
Software Licences
Licence fees are recognised following delivery of software to the client.
Services
Revenue streams from installation, consultancy and training are recognised at
the point at which the service or product is delivered.
Software development
Revenue is recognised upon staged completion of the software project.
Maintenance income
Income is recognised evenly across the duration of the contractual period.
Property, plant and equipment
The cost of tangible fixed assets less estimated residual value is written off
using the reducing balance method at the following annual rates:
Motor vehicles
25% on reducing balance
Office equipment
20 - 25% on reducing balance
Leasehold properties
25% reducing balance
Freehold property is depreciated on a straight line basis over 50 years.
Intangible software rights
In accordance with IFRS 3, value has been attributed to software rights acquired
since 1st April 2006, which incorporate the acquisitions of MATRA Systems
(Holdings) Limited, and both Total Hospitality Solutions Limited and Total
Hospitality Solutions (NZ) Limited.
A value has been identified and attributed to software rights; no value has been
attributed to other intangible assets such as customer lists or contracts.
The value of the software rights is then amortised over the estimated useful
life of the software, which is considered to be five years.
Business combinations
Under the acquisition accounting treatment, upon initial recognition the assets
and liabilities of the subsidiary are included in the consolidated balance sheet
at their fair values, which are also used as the bases for subsequent
measurement in accordance with the Group's accounting policies. Goodwill is
stated after separating out identifiable intangible assets.
Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the
Group's share of the identifiable net assets of the acquired subsidiary at the
date of acquisition, and is capitalised and reviewed annually for impairment.
Goodwill is carried at cost less accumulated impairment losses. Negative
goodwill is recognised immediately after acquisition in the income statement.
Goodwill written off to reserves prior to the date of transition to IFRS remains
in reserves. There is no re-instatement of goodwill that was amortised prior to
the transition to IFRS. Goodwill previously written off to reserves is not
written back to profit or loss on subsequent disposal.
Impairment of assets
Goodwill, other intangible assets with an indefinite useful life, and those
intangible assets not yet available for use, are tested for impairment at least
annually. All other individual assets are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable.
Impairment of goodwill is evaluated by comparing the present value of the
expected future cash flows, excluding finance and tax (the 'value in use'), to
the carrying value of the underlying net assets and goodwill.
If the net assets and goodwill were to exceed the value in use, an impairment
would have deemed to have occurred and the resultant write down in the goodwill
would be charged to the income statement immediately.
Financial instruments
Investments held as fixed assets are carried at cost less any provision required
for impairment.
Inventory
Inventory is valued at lower of cost and net realisable value, after due
allowances for obsolete and slow moving items.
Taxation
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in subsidiaries and
joint ventures is not provided if reversal of these temporary differences can be
controlled by the Group and it is probable that reversal will not occur in the
foreseeable future. In addition, tax losses available to be carried forward as
well as other income tax credits to the Group are assessed for recognition as
deferred tax assets.
Deferred tax liabilities are provided in full. Deferred tax assets are
recognised to the extent that it is probable that the underlying deductible
temporary differences will be able to be offset against future taxable income.
Current and deferred tax assets and liabilities are calculated at tax rates that
are expected to apply to their respective period of realisation, provided they
are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that are
charged or credited directly to equity, in which case the related deferred tax
is also charged or credited directly to equity.
Leased assets
Assets held under hire purchase agreements are capitalised and disclosed under
tangible fixed assets at their fair value. The capital element of the future
payments is treated as a liability and the interest is charged to the profit and
loss account in equal proportions over the period of the lease.
Where the Group enters into a finance lease which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is treated as a
finance lease. The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated in accordance with the above depreciation policies.
Future instalments under such leases, net of finance charges, are included with
creditors. Rentals payable are apportioned between the finance element, which is
charged to the income statement in equal proportions over the period of the
lease, and the capital element which reduces the outstanding obligation for
future instalments.
Rentals applicable to operating leases where substantially all of the benefits
and risks of ownership remain with the lessor are charged against the income
statement as incurred.
Capital instruments
Capital instruments are recorded at the fair value of the consideration received
less issue costs in accordance with IAS 39.
Research and development
Development costs incurred are capitalised when all the following conditions are
satisfied:
• completion of the intangible asset is technically feasible so that
it will be available for use or sale;
• the Group intends to complete the intangible asset and use or sell
it;
• the Group has the ability to use or sell the intangible asset;
• the intangible asset will generate probable future economic
benefits. Among other things, this requires that there is a market for the
output from the intangible asset or for the intangible asset itself, or, if
it is to be used internally, the asset will be used in generating such
benefits;
• there are adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset; and
• the expenditure attributable to the intangible asset during its
development can be measured reliably.
Development costs not meeting the criteria for capitalisation are expensed to
the income statement as incurred.
The cost of an internally generated intangible asset comprises all directly
attributable costs necessary to create, produce, and prepare the asset to be
capable of operating in the manner intended by the Group.
Directly attributable costs include employee (except Directors) costs incurred
on software development, together with associated overheads.
Amortisation commences in the month that costs are incurred, and the
amortisation period is five years (being the estimated useful life of the
assets). Amortisation of development costs is included within operating costs
in the income statement.
Blocked cash collateral accounts
The Group has blocked cash collateral accounts which are sums of money that are
specifically set aside to meet known future liabilities in respect of
acquisition consideration and earn out arrangements entered into at completion.
These sums are available to the Company exclusively for this purpose.
Foreign exchange
Assets and liabilities denominated in foreign currencies are translated into
sterling at the rates of exchange ruling at the balance sheet date. Transactions
in foreign currencies are translated into sterling at the rate of exchange
ruling at the date of the transaction. Exchange differences are taken into
account in arriving at the operating profit.
For the purposes of the consolidation, assets and liabilities of overseas
subsidiary undertakings are translated at exchange rates ruling at the balance
sheet date. Trading results are translated at the rates of exchange ruling at
the end of each month. Differences arising on the retranslation of opening
assets are dealt with through equity.
4 Earnings/(loss) per share
The calculations of earnings per share are based on the (loss)/profit after tax
for the financial period and the following numbers of shares:
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
Number of Number of Number of
shares shares shares
Weighted average number of shares:
For basic earnings/(loss) per per share 23,796,400 18,895,463 19,955,595
For diluted earnings/(loss) per share 23,796,400 18,872,251 19,955,595
Unaudited Unaudited Unaudited
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
(Loss)/earnings for period (1,475) 14 (1,207)
(Loss)/earnings per share:
Basic (6.20)p 0.07p (6.05)p
Diluted (6.20)p 0.07p (6.05)p
As a result of the loss for the period there is no difference between the basic
and diluted loss per share, or for the year ended 31 March 2007.
Earnings per share previously reported under UK GAAP were as follows
Unaudited Unaudited
six months twelve
ended months ended
30 September 31 March
2006 2007
£'000 £'000
(Loss)/earnings for period 230,000 (790,000)
(Loss)/earnings per share:
Basic 1.22p (3.96)p
Diluted 1.12p (3.96)p
5 Segment Information
Revenue by geographic region
six months six months twelve
ended ended months ended
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
United Kingdom 6,704 6,424 13,947
Europe excluding United kingdom 1,205 1,513 3,898
United States of America 1,461 1,468 2,620
Rest of World 355 175 338
9,725 9,580 20,803
6 Acquisition of subsidiary undertaking (THS)
On 22 May 2007 the company acquired the entire share capital of Total
Hospitality Solutions Limited and Total Hospitality Solutions (NZ) Limited. The
consideration payable at completion of £2.2m was entirely satisfied by the issue
of ordinary shares in the Company.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their values to the group:
Book value Fair value Provisional
adjustments fair value to
the group
£'000 £'000 £'000
ASSETS
Property, plant and equipment 14 14
Other intangible assets 1,258 1,258
Trade receivables 112 112
Other current assets 11 11
137 1,258 1,395
LIABILITIES
Trade and other payables (178) (178)
Bank overdraft (10) (10)
Deferred income (6) (6)
Other taxes (26) (26)
(220) (220)
Net liabilties (83) 1,258 1,175
Goodwill 1,197
Costs of acquisition (172)
Consideration 2,200
Satisfied by shares issued 2.200
The intangible asset recognised in the fair value adjustments relates to the
software rights.
The goodwill is attributable to the significant synergies which are expected to
arise from the integration of the business with the Hospitality and othe
divisions of the Group and those intangibles such as the workforce which are not
recognised seperately.
7 Exceptional expenses
Exceptional expenses of £132,000 were incurred during the first half of the year
and are recognised in the consolidated income statement. These expenses all
relate to the Extraordinary General Meeting held on 31 May 2007.
8 Consolidated interim statement of changes in equity
Share Share Profit and Translation Total
capital premium loss account reserve
account
£'000 £'000 £'000 £'000 £'000
At 31 March 2006 and 1 April 2006 4,084 5,974 579 (317) 10,320
Issue of shares 751 1,066 1,817
Shares to be issued 500 500
Consolidated (loss) for the period 14 14
Exchange differences on translation of 1 1
foreign operations
At 30 September 2006 and 1 October 2006 5,335 7,040 593 (316) 12,652
Issue of shares 436 702 1,138
Shares to be issued (500) (500)
Consolidated (loss) for the period (1,221) (1,221)
Exchange differences on translation of (231) (231)
foreign operations
At 31 March 2007 and 1 April 2007 5,271 7,742 (628) (547) 11,838
Issue of shares 957 1,697 2,654
Consolidated (loss) for the period (1,475) (1,475)
Exchange differences on translation of (3) (3)
foreign operations
At 30 September 2007 6,228 9,439 (2,103) (550) 13,014
9 Post balance sheet events
There have been no events following the balance sheet date of 30th September
2007 that have had any material impact or effect on the reported interim
results.
Appendix to the interim report
To explain the impact of the transition, reconcilations have been included that
show the changes made to the statements previously reported under UKGAAP. The
following unaudited reconcilations are included:
• Reconcilation of Group income statement for the 6 months ended 30
September 2007 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 30 September 2007 from UK
GAAP to IFRS
• Reconcilation of Group income statement for the 6 months ended 30
September 2006 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 30 September 2006 from UK
GAAP to IFRS
• Reconcilation of Group income statement for the 12 months ended 31
March 2007 from UK GAAP to IFRS
• Reconcilation of Group balance sheet at 31 March 2007 from UK GAAP
to IFRS
• Reconcilation of Group balance sheet at 31 March 2006 from UK GAAP
to IFRS
The Group's date of transition is 1 April 2006. The accounting policies used for
IFRS are set out in note 3.
Descriptions of the reconciling items between UK GAAP and IFRS are listed.
The amounts of the reconciling items are detailed in the tables set out beneath
each of the reconcilations.
Reconciliation of consolidated income statement for the six months ended 30
September 2007 from UK GAAP to IFRS
UK GAAP IFRS IFRS
30 adjustments 30
September 30 September September
2007 2007 2007
Notes £'000 £'000 £'000
Revenue
Continuing operations 9,571 9,571
Acquisitions 154 154
9,725 9,725
Cost of sales (3,331) (3,331)
Gross profit 6,394 6,394
Operating costs 1 (7,291) (279) (7,570)
Operating profit/(loss)
Continuing operations (853) (195) (1,048)
Acquisitions (44) (84) (128)
(897) (279) (1,176)
Operating loss is analysed between:
Operating loss from continuing operations (853) (195) (1,048)
Operating profit from acquired operations before amortisation of (44) (44)
acquired intangibles
Amortisation of acquired intangibles (84) (84)
(897) (279) (1,176)
Finance income 309 309
Finance costs (488) (488)
Loss before taxation (1,076) (279) (1,355)
Taxation expense (120) (120)
Loss for the period (1,196) (279) (1,475)
Earnings/(loss) per share
Basic (5.03)p (6.03)p
Diluted (5.03)p (6.03)p
Dividends per share - -
Notes
UK GAAP IFRS IFRS
30 September adjustments 30 September
2007 30 September 2007
2007
Note Conversion effects comprise: £'000 £'000 £'000
1 IAS 38 - Amortisation of software rights in acquired company (279)
reclassified from goodwill
Profit/(loss) for the period attributable to equity shareholders (279)
Reconciliation of group balance sheet as at 30 September 2007 from UK GAAP to
IFRS
UK GAAP Reclassification IFRS IFRS
30 30 September 2007 adjustments 30
September 30 September September
2007 2007 2007
Notes £'000 £'000 £'000 £'000
ASSETS
Non current assets
Property, plant and equipment 1 413 (24) 389
Goodwill 3 18,827 (3,207) 15,620
Intellectual property rights 4 24 2,571 2,595
Software intangibles 2 - 24 24
Total non current assets 19,264 - (636) 18,628
Current assets
Inventories 865 865
Trade receivables 4,309 4,309
Other current assets 1,623 1,623
Cash and cash equivalents 234 234
Blocked cash collateral accounts 427 427
Total current assets 7,458 7,458
Total assets 26,722 (636) 26,086
LIABILITIES
Non current liabilities
Bank loans 1,526 1,526
Loan notes 124 124
Deferred consideration 1,839 1,839
Obligations under finance lease and hire purchase 24 24
contracts
Other provisions 41 41
Total non current liabilities 3,554 3,554
Current liabilities
Trade payables 1,978 1,978
Other current liabilities 5 3,064 60 3,124
Other taxes and social security 1,772 1,772
Corporation tax 578 578
Bank loans and overdrafts 1,752 1,752
Loan notes 300 300
Obligations under finance lease and hire purchase 14 14
contracts
Total current liabilities 9,458 60 9,518
Total liabilities 13,012 60 13,072
Net Assets 13,710 (696) 13,014
EQUITY
Shareholders equity
Share capital 6,228 6,228
Shares to be issued
Share premium 9,439 9,439
Profit and loss account
Retained earnings (1,407) (696) (2,103)
Translation reserve (550) (550)
Total equity 13,710 (696) 13,014
Notes
Shareholder's
equity
Note Conversion effects comprise: £'000 £'000
Non-current assets
1 Reclassification of software from tangible assets to software intangible (24)
assets
2 Reclassification of software from tangible assets to software intangible 24
assets
3 Recognition of software rights acquired reclassified from goodwill to (3,207)
intelectual property rights less amortisation
4 Recognition of software rights acquired reclassified from goodwill to 2,571 (636)
intelectual property rights less amortisation
Current liabilities
5 Recognition of non UK employee benefits (60) (60)
Net movement (696) (696)
Reconciliation of consolidated income statement for the six months ended 30
September 2006 from UK GAAP to IFRS
UK GAAP IFRS IFRS
30 adjustments 30
September 30 September September
2006 2006 2006
Notes £'000 £'000 £'000
Revenue
Continuing operations 7,730 7,730
Acquisitions 1,850 1,850
9,580 9,580
Cost of sales (2,964) (2,964)
Gross profit 6,616 6,616
Operating costs 1, 2 (6,207) (216) (6,423)
Operating profit/(loss)
Continuing operations 337 (53) 284
Acquisitions 72 (163) (91)
409 (216) 193
Operating profit/(loss) is analysed between:
Operating profit/(loss) from continuing operations 337 (53) 284
Operating profit from acquired operations before amortisation of 72 72
acquired intangibles
Amortisation of acquired intangible assets (163) (163)
409 (216) 193
Finance income 167 167
Finance costs (305) (305)
Profit/(loss) before taxation 271 (216) 55
Taxation expense (41) (41)
Profit/(loss) for the period 230 (216) 14
Earnings/(loss) per share
Basic 1.22p 0.07p
Diluted 1.12p 0.07p
Dividends per share - -
Notes
UK GAAP IFRS IFRS
30 September adjustments 30 September
2006 30 September 2006
2006
Note Conversion effects comprise: £'000 £'000 £'000
1 IAS 19 - Employee benefits relating holiday accruals in overseas (53)
subsidiaries
2 IAS 38 - Amortisation of software rights in acquired company (163)
reclassified from goodwill
Profit/(loss) for the period attributable to equity shareholders (216)
Reconciliation of group balance sheet as at 30 September 2006 from UK GAAP to
IFRS
UK GAAP Reclassification IFRS IFRS
30 30 September 2006 adjustments 30
September 30 September September
2006 2006 2006
Notes £'000 £'000 £'000 £'000
ASSETS
Non current assets
Property, plant and equipment 579 579
Goodwill 1 17,398 (1,949) 15,449
Intellectual property rights 2 62 1,786 1,848
Total non current assets 18,039 (163) 17,876
Current assets
Inventories 598 598
Trade receivables 4,143 4,143
Other current assets 1,507 1,507
Cash and cash equivalents 273 273
Blocked cash collateral accounts 1,034 1,034
Total current assets 7,555 7,555
Total assets 25,594 (163) 25,431
LIABILITIES
Non current liabilities
Bank loans 1,819 1,819
Loan notes 671 671
Deferred consideration 4,213 4,213
Obligations under finance lease and hire purchase 19 19
contracts
Other provisions 34 34
Total non current liabilities 6,756 6,756
Current liabilities
Trade payables 1,452 1,452
Other current liabilities 3 2,046 53 2,099
Other taxes and social security 683 683
Corporation tax 205 205
Bank loans and overdrafts 1,393 1,393
Loan notes 181 181
Obligations under finance lease and hire purchase 10 10
contracts
Total current liabilities 5,970 53 6,023
Total liabilities 12,726 53 12,779
Net Assets 12,868 (216) 12,652
EQUITY
Shareholders equity
Share capital 4,835 4,835
Shares to be issued 500 500
Share premium 7,040 7,040
Profit and loss account
Retained earnings 809 (216) 593
Translation reserve (316) (316)
Total equity 12,868 (216) 12,652
Notes
Shareholder's
equity
Note Conversion effects comprise: £'000 £'000
Non-current assets
1 Recognition of software rights acquired reclassified from goodwill to (1,949)
intelectual property rights less amortisation
2 Recognition of software rights acquired reclassified from goodwill to 1,786 (163)
intelectual property rights less amortisation
Current liabilities
3 Recognition of non UK employee benefits (53) (53)
Net movement (216) (216)
Reconciliation of consolidated income statement for the twelve months ended 31
March 2007 from UK GAAP to IFRS
UK GAAP IFRS IFRS
31 March adjustments 31 March
2007 31 March 2007 2007
Notes £'000 £'000 £'000
Revenue
Continuing operations 16,401 16,401
Acquisitions 4,402 4,402
20,803 20,803
Cost of sales (7,919) (7,919)
Gross profit 12,884 12,884
Operating costs 1, 2 (13,032) (417) (13,449)
Operating profit/(loss)
Continuing operations (581) (60) (641)
Acquisitions 433 (357) 76
(148) (417) (565)
Operating (loss)/profit is analysed between:
Operating (loss)/profit from continuing operations (581) (60) (641)
Operating profit from acquired operations before amortisation of 433 433
acquired intangibles
Amortisation of acquired intangible assets (357) (357)
(148) (417) (565)
Finance income 560 560
Finance costs (870) (870)
Loss before taxation (458) (417) (875)
Taxation expense (332) (332)
Loss for the period (790) (417) (1,207)
Earnings/(loss) per share
Basic (3.96)p (6.05)p
Diluted (3.96)p (6.05)p
Dividends per share - -
Notes
UK GAAP IFRS IFRS
31 March adjustments 31 March
2007 31 March 2007 2007
Note Conversion effects comprise: £'000 £'000 £'000
1 IAS 19 - Employee benefits relating holiday accruals in overseas (60)
subsidiaries
2 IAS 38 - Amortisation of software rights in acquired company (357)
reclassified from goodwill
Profit/(loss) for the period attributable to equity shareholders (417)
Reconciliation of group balance sheet as at 31 March 2007 from UK GAAP to IFRS
UK GAAP Reclassification IFRS IFRS
31 March 31 March 2007 adjustments 31 March
2007 31 March 2007 2007
Notes £'000 £'000 £'000 £'000
ASSETS
Non current assets
Property, plant and equipment 1 583 (27) 556
Goodwill 3 16,455 (1,949) 14,506
Intellectual property rights 4 41 1,592 1,633
Software intangibles 2 - 27 27
Trade and other receivables 5 - 24 24
Total non current assets 17,079 24 (357) 16,746
Current assets
Inventories 711 711
Trade receivables 6 4,473 (24) 4,449
Other current assets 1,258 1,258
Cash and cash equivalents 416 416
Blocked cash collateral accounts 716 716
Total current assets 7,574 (24) 7,550
Total assets 24,653 - (357) 24,296
LIABILITIES
Non current liabilities
Bank loans 1,519 1,519
Loan notes 326 326
Deferred consideration 1,800 1,800
Obligations under finance lease and hire purchase 29 29
contracts
Other provisions 41 41
Total non current liabilities 3,715 3,715
Current liabilities
Trade payables 2,238 2,238
Other current liabilities 7 2,576 60 2,636
Other taxes and social security 1,302 1,302
Corporation tax 484 484
Bank loans and overdrafts 1,266 1,266
Loan notes 300 300
Obligations under finance lease and hire purchase 14 14
contracts
Deferred consideration 503 503
Total current liabilities 8,683 60 8,743
Total liabilities 12,398 60 12,458
Net Assets 12,255 (417) 11,838
EQUITY
Shareholders equity
Share capital 5,271 5,271
Shares to be issued
Share premium 7,742 7,742
Profit and loss account
Retained earnings (211) (417) (628)
Translation reserve (547) (547)
Total equity 12,255 (417) 11,838
Notes
Shareholder's
equity
Note Conversion effects comprise: £'000 £'000
Non-current assets
1 Reclassification of software from tangible assets to software intangible (27)
assets
2 Reclassification of software from tangible assets to software intangible 27
assets
3 Recognition of software rights acquired reclassified from goodwill to (1,949)
intelectual property rights less amortisation
4 Recognition of software rights acquired reclassified from goodwill to 1,592 (357)
intelectual property rights less amortisation
5 Reclasification of trade receivable from current assetss to to non-current 24
assets
Current assets
6 Reclasification of trade receivable from current assetss to to non-current (24)
assets
Current liabilities
7 Recognition of non UK employee benefits (60) (60)
Net movement (417) (417)
Reconciliation of group balance sheet as at 31 March 2006 from UK GAAP to IFRS
UK GAAP Reclassification IFRS IFRS
31 March 31 March 2006 adjustments 31 March
2006 31 March 2006 2006
Notes £'000 £'000 £'000 £'000
ASSETS
Non current assets
Property, plant and equipment 563 563
Goodwill 11,268 11,268
Intellectual property rights 84 84
Total non current assets 11,915 11,915
Current assets
Inventories 600 600
Trade receivables 5,529 5,529
Other current assets 1,249 1,249
Cash and cash equivalents (446) (446)
Blocked cash collateral accounts 1,298 1,298
Total current assets 8,230 8,230
Total assets 20,145 20,145
LIABILITIES
Non current liabilities
Loan notes 671 671
Deferred consideration 1,000 1,000
Obligations under finance lease and hire purchase 20 20
contracts
Other provisions 34 34
Total non current liabilities 1,725 1,725
Current liabilities
Trade payables 1,901 1,901
Other current liabilities 2,870 2,870
Other taxes and social security 1,531 1,531
Corporation tax 214 214
Bank loans and overdrafts 918 918
Loan notes 654 654
Obligations under finance lease and hire purchase 12 12
contracts
Total current liabilities 8,100 8,100
Total liabilities 9,825 9,825
Net Assets 10,320 10,320
EQUITY
Shareholders equity
Share capital 4,084 4,084
Share premium 5,974 5,974
Profit and loss account
Retained earnings 579 579
Translation reserve (317) (317)
Total equity 10,320 10,320
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