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Armour Group PLC (AMR)

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Monday 14 April, 2008

Armour Group PLC

Interim Results

Armour Group PLC
14 April 2008

                                Armour Group plc

(AIM: AMR)

                           Unaudited Interim Statement

                     For the six months to 29 February 2008

Armour Group plc is the United Kingdom's leading consumer electronics group
focused on the in-car communications and entertainment and home entertainment
markets. The Board is pleased to announce interim results for the six months to
29 February 2008.



Financial Highlights



•         Sales of £30.2 million (2007: £28.4 million) up 6%.

•         EBITDA* of £3.4 million (2007: £3.2 million) up 6%.

•         Profit before taxation of £2.6 million (2007: £2.4 million) up 9%.

•         Continuing basic earnings per ordinary share of 2.7p (2007: 2.5p) up
          8%.

•         Continuing underlying basic earnings per ordinary share of 2.8p (2007:
          2.6p) up 8%.

•         Cash generated from operations of £1.6 million (2007: £1.5 million).





* EBITDA is defined as earnings before interest, tax, depreciation, amortisation
of goodwill and share-based payments.



Commenting on today's results, George Dexter, CEO, said:


'We are pleased to report continued organic growth in the first half of the
year. We believe that the group has benefited from our strategy of investment in
our brands, research and development and extensive range of quality products. We
aim to continue this strategy of investment and combine it with market leading
customer service.'



For further information please contact:



Armour Group plc                                 Tel: 01892 502700
George Dexter, Chief Executive
John Harris, Finance Director



FinnCap, Nominated Adviser and Broker             Tel: 0207 600 1658
Geoff Nash



Threadneedle Communications, Financial PR         Tel: 0207 936 9666
Trevor Bass, Alex White




ABOUT ARMOUR
www.armourgroup.uk.com


Armour Group plc is the United Kingdom's leading consumer electronics group,
focused on the in-car communications and entertainment and home entertainment
markets.


The Group has an impressive brand portfolio, which boasts some of the United
Kingdom's market leaders, regularly winning industry awards for quality and
innovation. In the United Kingdom consumer electronics market, the Group has
direct access to over 5,000 retail outlets.


It comprises two divisions: Armour Automotive and Armour Home.


Armour Automotive
www.armourautomotive.uk.com


The Automotive division is the market leader in Europe in the design,
manufacture and supply of products for the in-car entertainment and
communications markets.


Its proprietary brands include Autoleads (connectivity leads and smartleads such
as the telemute lead used in mobile telephone hands free kits), CTI (GSM and GPS
aerials), VEBA (a range of in-car audio-visual entertainment systems) and Mutant
(a range of quality amplifiers and speakers for the in-car entertainment
enthusiast).


The division has recently launched its proprietary iO range of Bluetooth music
streaming and mobile phone hands free solutions for the in-car environment
(www.my-io.com).


Armour Automotive supplies both retail and non-retail customers which include
Halfords, Motorworld, Carphone Warehouse, BMW and Hyundai.


Armour Home
www.armourhome.co.uk
www.alphasondesigns.com


The Home division is a market leader in the United Kingdom's specialist home
entertainment market. It designs, manufactures, distributes and sells product
into the hi-fi, home theatre and home entertainment markets.


Its proprietary brands include QED (quality cables and interconnects),
Systemline (multi-room home entertainment systems), Alphason (hi-fi and
audio-visual furniture), Goldring (turntables, styli and headphones), Q
Acoustics (award winning speakers) and Myryad (mid to high end hi-fi separates).


The Home division also distributes third party brands, typically on an exclusive
basis in the United Kingdom. These brands include Grado headphones, Nevo remote
controls, Sonance speakers, NAD hi-fi separates, Tivoli radios and Audica
speakers.


The Home division's customers are both retail and non-retail and include Comet,
Argos, John Lewis, Tesco, Sevenoaks Sound and Vision, Berkeley Homes, George
Wimpey, Taylor Woodrow, Linden Homes and David Wilson Homes.



            Interim Statement for the six months to 29 February 2008


Results and Dividend

The Group's results for the six months to 29 February 2008 are pleasing with
both sales and operating profit showing solid like for like growth on last year
and cash generation ahead of our expectations.


•         Sales of £30.2 million (2007: £28.4 million) up 6%.

•         EBITDA of £3.4 million (2007: £3.2 million) up 6%.

•         Profit before taxation of £2.6 million (2007: £2.4 million) up 9%.

•         Continuing basic earnings per ordinary share of 2.7p (2007: 2.5p) up
          8%.

•         Continuing underlying basic earnings per ordinary share of 2.8p (2007:
          2.6p) up 8%.

•         Cash generated from operations of £1.6 million (2007: £1.5 million).



The Board is not recommending an interim dividend.


Operations


Armour Automotive

The Automotive division has won a considerable amount of new business and has
successfully launched its iO range of in-car Bluetooth music streaming and
mobile phone hands free solutions.


The first of the iO Bluetooth products, iO Play, which was launched in December
2007, has been very well received in the market and is now being sold in all
Carphone Warehouse's United Kingdom stores and will also be available from April
2008 in over four hundred Halfords stores. The iO brand is building market
awareness and will receive further market exposure with the release, in May
2008, of the second Bluetooth product, iO Talk, which is targeted at the high
volume business to business market. We expect iO to have an increasing influence
on the financial performance of the Automotive division over the coming months.


Sales in the non-retail channel have been slow in the first six months, due to
changes in the marketing programme of a major customer. In addition, there has
been weaker demand for our GPS antennae than originally forecast by system
manufacturers, due to slower take up of their vehicle tracking systems. We
expect that business will improve over the remaining months of this calendar
year.


Sales into the retail channel have reduced in the first half of the year due to
our decision to withdraw from selling low margin satellite navigation products
at the end of last year. In the independent retail channel, and having adjusted
to exclude satellite navigation product sales, like-for-like sales have
increased. Sales to the national accounts have been delayed by product range
reviews, which have now been completed, ready for the second half of the year.


In the first six months Armour Automotive has been successful in winning new
business across all channels. In non-retail, significant new contracts have been
secured with LDV Group Limited, Case New Holland and Lunar Caravans with the
realistic prospect of further contract wins in the coming months. In retail, the
most important new business wins have been the listing of the iO range with
Carphone Warehouse and Halfords. The majority of this new business will start to
generate sales over the course of the second half of the year.


Armour Home

The Home division has had a good first six months of the year. All our core
brands and channels to market have shown steady growth.


Our retail channel sales have grown with QED cables, Alphason and Sona
audio-visual furniture, Goldring headphones and Q Acoustics speakers all
performing well. The NAD and Tivoli brands, whose distribution was taken on last
year, are also now making a meaningful contribution in the retail channel. The
wider consumer electronics market continues to be driven forward by the demand
for flat screen televisions, which in turn stimulates sales of accessories such
as cables and audio-visual furniture, two categories where we consider ourselves
to be the United Kingdom market leader.


The continued expansion of the home automation market has been to the benefit of
our Home division. We have seen growth in sales for Systemline multi-room
systems, Sonance speakers and QED Professional cables. The launch, in November
2007, of our new Systemline S6 multi-room system has lifted sales and fuelled
demand for Sonance speakers and our Systemline Music server, which was also
launched last year. We believe that, through our Systemline Brand, we are the
United Kingdom market leader for multi-room systems and now have over 100 home
builders who have adopted and are installing Systemline.


Our international sales have also continued to show good growth with Systemline,
QED and Q Acoustics forming the backbone to our export business. The investment
made last year to expand our international sales and distribution network is
delivering increased sales and building the awareness of our brands
internationally. Exciting opportunities exist in our export markets,
particularly for Systemline Modular, which are expected to come to fruition over
the coming months.


Our channel expansion into hotels, lifestyle and e-commerce is making progress
with new customers secured and sales generated. Whilst it is still early days
for all these new channels, the signs are encouraging.


Outlook

The Group has performed well over the first six months of the year. Our strategy
of investment to expand sales channels, develop new products and build our
brands is delivering good organic growth. Through this momentum, and the
financial strength of the Group, we are well placed to take advantage of
opportunities as they arise in the market.


Bob Morton       George Dexter
Chairman         Chief Executive

14 April 2008


CONSOLIDATED INCOME STATEMENT
For the six months to 29 February 2008


                                                                 Six months to Six months to  Twelve months to
                                                                   29 February   28 February         31 August
                                                                          2008          2007              2007
                                                      Notes          Unaudited  Restated and      Restated and
                                                                                   unaudited         unaudited
                                                                          £000          £000              £000

Continuing operations:

Revenue                                                 3               30,225        28,435            55,171

Profit from operations                                                   2,864         2,745             5,243
Share of (loss)/profit of associated undertakings                          (7)           (4)                 3
Finance income                                                              23            11                22
Finance costs                                                            (304)         (390)             (765)

Profit before taxation                                                   2,576         2,362             4,503
Taxation expense                                        4                (747)         (686)           (1,262)

Profit from continuing operations                                        1,829         1,676             3,241
Discontinued operations                                                      -         (100)           (2,979)

Profit for the financial period                                          1,829         1,576               262

Earnings/(loss) per ordinary share                      5
From continuing and discontinued operations
Basic                                                                     2.7p          2.3p              0.4p
Diluted                                                                   2.7p          2.3p              0.4p

From continuing operations
Basic                                                                     2.7p          2.5p              4.8p
Diluted                                                                   2.7p          2.5p              4.7p

From discontinued operations
Basic                                                                        -        (0.2)p            (4.4)p
Diluted                                                                      -        (0.2)p            (4.3)p


CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the six months to 29 February 2008


                                                                 Six months to Six months to  Twelve months to
                                                                   29 February   28 February         31 August
                                                                          2008          2007              2007
                                                                     Unaudited  Restated and      Restated and
                                                                                   unaudited         unaudited
                                                                          £000          £000              £000

Profit for the financial period                                          1,829         1,576               262
Tax effect of share-based payments recognised                                -           (7)                 -
directly in equity
Currency translation differences on foreign                                 49           (1)               (7)
currency net investments

Total recognised income and expense for the                              1,878         1,568               255
financial period


CONSOLIDATED BALANCE SHEET
At 29 February 2008




                                                                  29 February      28 February         31 August
                                                                         2008             2007              2007
                                                     Notes          Unaudited     Restated and      Restated and
                                                                                     unaudited         unaudited
                                                                         £000             £000              £000

Non-current assets
Goodwill                                                               21,082           23,338            21,082
Other intangible assets                                                 1,233            1,027               991
Property, plant and equipment                                           1,425            2,081             1,604
Investment in associated undertakings                                     368              368               375

Total non-current assets                                               24,108           26,814            24,052

Current assets
Inventories                                                            11,561           11,065            10,490
Trade and other receivables                                            11,055           10,946            11,430
Cash and cash equivalents                                                 245              445               892

Total current assets                                                   22,861           22,456            22,812

Total assets                                                           46,969           49,270            46,864


Current liabilities
Bank overdrafts and borrowings                                        (4,176)          (2,456)             (714)
Trade and other payables                                              (9,855)         (13,626)          (14,664)
Corporation taxation liability                                        (1,400)          (1,410)           (1,146)
Provisions                                                              (266)            (140)             (296)

Total current liabilities                                            (15,697)         (17,632)          (16,820)

Non-current liabilities
Borrowings                                                            (2,739)          (3,423)           (3,082)
Deferred taxation liability                                              (84)             (19)              (18)

Total non-current liabilities                                         (2,823)          (3,442)           (3,100)

Total liabilities                                                    (18,520)         (21,074)          (19,920)

Total net assets                                                       28,449           28,196            26,944


Equity
Share capital                                                           6,848            6,848             6,848
Share premium account                                                   8,513            8,512             8,513
Other reserves                                                            871              871               871
Retained earnings                                                      12,375           12,166            10,919
Translation reserve                                                        42              (1)               (7)
Share trust reserve                                                     (200)            (200)             (200)

Total equity                                           6               28,449           28,196            26,944



CONSOLIDATED CASH FLOW STATEMENT
For the six months to 29 February 2008


                                                                Six months to    Six months to  Twelve months to
                                                                  29 February      28 February         31 August
                                                                         2008             2007              2007
                                                                    Unaudited     Restated and      Restated and
                                                     Notes                           unaudited         unaudited
                                                                         £000             £000              £000

Cash flow from operating activities
Cash generated from operations                         7                1,614            1,539             5,892
Income taxes paid                                                       (427)            (140)             (919)

Net cash from operating activities                                      1,187            1,399             4,973

Investing activities
Acquisition of subsidiary, net of cash acquired        8              (4,302)             (85)             (155)
Disposal of subsidiary, net of cash disposed                              400                -                 -
Purchase of property, plant and equipment                               (146)            (375)             (718)
Sale of property, plant and equipment                                     126               14                84
Expenditure on intangible assets                                        (384)            (230)             (646)
Invested in associated undertakings                                         -            (372)             (372)
Interest received                                                          23               11                22

Net cash used in investing activities                                 (4,283)          (1,037)           (1,785)

Financing activities
Proceeds on issue of shares                                                 -               23                24
Dividends paid                                                          (439)            (371)             (371)
Repayment of bank loans                                                 (360)            (360)             (720)
Repayment of finance lease creditors                                     (16)             (23)              (44)
Interest paid                                                           (263)            (240)             (511)

Net cash used in financing activities                                 (1,078)            (971)           (1,622)

Net (decrease)/increase in cash and cash               9              (4,174)            (609)             1,566
equivalents



Notes to the Interim Financial Statements

1.  Basis of preparation

Armour Group plc (the 'Company') has historically prepared its consolidated
financial statements in accordance with UK Generally Accepted Accounting
Practice ('UK GAAP'). As required by the AIM Rules and European Union Law, the
Company is required to prepare its consolidated financial statements for the
accounting period ending 31 August 2008 in accordance with International
Financial Reporting Standards ('IFRS').


Accordingly, these interim financial statements have been prepared using
accounting policies consistent with those that the Board expects will apply to
the Company's consolidated financial statements to be included in the first
annual report to adopt IFRS, being that for the year ending 31 August 2008.


The consolidated financial statements for the year ending 31 August 2008 will
include IFRS re-stated comparative figures for the year ended 31 August 2007.
Therefore, the transition date for the adoption of IFRS is 1 September 2006.


IFRS currently in issue are subject to ongoing review and endorsement by the
European Commission, or possible amendment by the International Accounting
Standards Board, and are therefore subject to change. Further standards or
clarification of interpretations may be issued that could be applicable for the
consolidated financial statements for the year ending 31 August 2008. These
potential changes could result in the need to change the basis of accounting or
presentation of certain financial information from that presented in this
Interim Report.


These results for the six months to 29 February 2008, and the comparative
figures for the six months to 28 February 2007, are unaudited and do not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985.


Consolidated statutory accounts for the twelve months to 31 August 2007,
prepared in accordance with UK GAAP and on which the auditors gave an
unqualified opinion, were approved by shareholders at the Annual General Meeting
and have been delivered to the Registrar of Companies. They did not include a
reference to any matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not include a statement under section
237(2) or 237(3) of the Companies Act 1985.


2.  Summary of Significant Accounting Policies


The significant accounting policies used in the preparation of these interim
financial statements are outlined as follows:


IFRS 1 exemptions applied

The Company has elected to apply the following exemptions:


  • Not to apply IFRS 3: Business Combinations to acquisitions that occurred
    before the transition date.
  • Not to revisit currency translation reserve movements prior to the
    transition date.
  • Not to apply IFRS 2: Share-based Payments to share-based payments granted
    prior to 7 November 2002. The consolidated accounts for the twelve months to
    31 August 2007, prepared by the Company under UK GAAP, adopted FRS 20
    Share-based Payments and therefore no additional adjustment is required on
    conversion to IFRS.


Notes to the Interim Financial Statements (continued)


Basis of consolidation
The Group's financial statements consolidate the financial information of the
Company and its subsidiary undertakings. Subsidiary undertakings are entities
over which the Group has control in terms of the power to govern the financial
and operating policies of an acquired entity so as to obtain benefits from its
activities.


Goodwill
Goodwill arising on the acquisition of a business represents any excess of the
fair value of the consideration over the fair value of the identifiable assets
and liabilities acquired. The identifiable assets and liabilities acquired are
incorporated into the consolidated financial statements at their fair value to
the Group.


In accordance with IFRS 3, with effect from 1 September 2006 goodwill is not
amortised but tested for impairment annually. Any impairment is recognised
immediately in the income statement and is not subsequently reversed.


On disposal of a business, the attributable amount of goodwill is included in
the determination of the profit or loss on disposal.


Goodwill that arose on consolidation prior to 1 May 1998, which represented the
excess of the fair value of the consideration over the fair value of the net
assets acquired, was written off directly to reserves in accordance with the
United Kingdom accounting standard then in force. This goodwill has not been
reinstated and is not included in determining any subsequent profit or loss on
disposal.


Intangible assets (excluding goodwill)
Intangible assets (excluding goodwill) include the following:


(a)   Development costs

Development costs, both internal and external, associated with the production of
saleable products, are capitalised as an intangible asset where an asset is
created that can be identified, the cost can be measured reliably and it is
probable that the asset will generate future economic benefits. The asset is
then amortised on a straight line basis over the expected sales period for the
product, on a product type by product type basis.


Where no intangible asset can be identified, development expenditure is
recognised as an expense in the financial period in which it is incurred.


(b)   Other intangible assets

Other intangible assets include investments, recorded at cost, in software which
is separately identifiable from the hardware on which it runs. The asset so
created is then depreciated on a straight line basis over the software's
expected useful life.


Where the software is not separately identifiable from the hardware, it is
included with the hardware in property, plant and equipment.


Property, plant and equipment

Property, plant and equipment are stated at cost less the accumulated
depreciation and, where appropriate, provision for impairment in value or
estimated loss on disposal. Property, plant and equipment are depreciated over
their estimated useful lives on a straight line basis as follows:


  • Plant and fixtures and fittings           10% - 33%
  • Motor vehicles                            20% - 25%


Notes to the Interim Financial Statements (continued)


Associated undertakings

An entity is treated as an associated undertaking where the Group exercises
significant influence over its operating and financial policy decisions.


Interests in associated undertakings are accounted for using the equity method
of accounting. The Consolidated Income Statement includes the Group's share of
the profit after taxation of such undertakings based upon the most recently
available management information. In the Consolidated Balance Sheet, the
investment in associated undertakings is shown as the Group's share of the
identifiable net assets and the premium paid on acquisition, to the extent that
the latter has not been impaired.


Deferred taxation

Deferred taxation is the taxation expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding taxation bases used in the
computation of taxable profit. It is accounted for using the balance sheet
liability method.  Deferred taxation liabilities are generally recognised for
all taxable temporary differences. Deferred taxation assets are recognised to
the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.


Deferred taxation is calculated at the taxation rate that is expected to apply
in the financial period when the liability is settled or the asset is realised.


Inventories

Inventories have been valued at the lower of cost and net realisable value. Cost
includes all direct expenditure to bring items to their condition and location
at the accounting date, together with, in the case of goods manufactured by the
Group, an appropriate proportion of production overhead expenditure attributable
thereto.


Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, at bank and deposits where the
amounts are not part of the Group's set-off arrangements and, in the case of
deposits, where they are repayable within three months and are subject to an
insignificant risk of a change in value. Overdrafts are shown within current
liabilities in the Consolidated Balance Sheet but are included within cash and
cash equivalents in respect of the Consolidated Cash Flow Statement.


Foreign currencies

The results of overseas subsidiary undertakings are translated into sterling at
the actual rates of exchange during the financial period and their balance
sheets at the rates ruling at the financial period end. Gains or losses arising
on the translation of the opening net assets and results of overseas subsidiary
undertakings are taken to the Group's Translation Reserve.


Transactions denominated in foreign currencies are translated into sterling at
the exchange rate in operation on the date of the transaction. Monetary assets
and liabilities originally denominated in foreign currencies are translated into
sterling at the exchange rate in operation at the date of the financial period
end. Exchange gains and losses are reported as part of the Consolidated Income
Statement.


The Group makes use of foreign currency derivatives (forward foreign currency
contracts) to protect its position on the purchase of inventories. Under UK
GAAP, foreign currency derivatives were held off balance sheet. Under IAS 32 and
IAS 39, derivative contracts are valued ('marked to market') at the balance
sheet date and any resulting gains or losses are taken to the Consolidated
Income Statement.


Notes to the Interim Financial Statements (continued)


Revenue

Revenue represents the invoiced value of goods sold and the value of services
provided to third party customers, excluding value added tax. Revenue is
recognised when the risks and rewards of owning the goods have passed to the
customer, which is generally on delivery or when services have been provided.


Share-based payments

Where share options are awarded to employees, the fair value of the option at
the date of grant is charged to the Consolidated Income Statement over the
vesting period. Non-market vesting conditions are taken into account by
adjusting the number of equity instruments expected to vest at each balance
sheet date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually vest. Market
vesting conditions are factored into the fair value of the options granted. As
long as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.


Pension Costs

The Group operates defined contribution arrangements. The pension costs payable
by the Group in the financial period are charged to the Consolidated Income
Statement.



Financial Instruments



(a)   Derivative financial instruments

The Group uses foreign exchange forward contracts to hedge financial risks to
changes in foreign currency exchange rates. These financial instruments are
included in the balance sheet as assets or liabilities at their fair values. The
Group does not use derivative financial instruments for speculative purposes but
its financial instruments do not qualify for hedge accounting under IFRS and
consequently changes in their fair values are recognised in the Consolidated
Income Statement as they arise.



(b)   Bank Borrowings

Bank borrowings are initially recognised at fair value. Such interest bearing
liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability carried in the
balance sheet. The interest expense includes initial transaction costs and
premiums payable on redemption, as well as any interest coupon payable while the
liability is outstanding.



(c)   Trade receivables and trade payables

Trade receivables and trade payables are non-derivative assets and liabilities
of fixed or determinable amounts that are not quoted in an active market. They
arise principally through the provision of goods and services to customers
(trade debtors) or the purchase of goods and services (trade creditors, accruals
and prepayments). They are carried at amortised cost less any provision for
impairment.



Provisions

Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation.



Notes to the Interim Financial Statements (continued)


3.  Business Segments


                                                                Six months to    Six months to  Twelve months to
                                                                  29 February      28 February         31 August
                                                                         2008             2007              2007
                                                                    Unaudited     Restated and      Restated and
                                                                                     unaudited         unaudited
                                                                         £000             £000              £000

Revenue
Armour Automotive                                                       7,360            8,490            17,290
Armour Home                                                            22,865           19,945            37,881

Total                                                                  30,225           28,435            55,171


Revenue by country of operation
United Kingdom                                                         29,939           28,163            54,591
Sweden                                                                    553              572             1,198
Inter-area eliminations                                                 (267)            (300)             (618)

                                                                       30,225           28,435            55,171

Revenue by country of destination
United Kingdom                                                         25,725           24,244            46,930
Rest of Europe                                                          3,499            3,444             6,624
Rest of world                                                           1,001              747             1,617

                                                                       30,225           28,435            55,171


4.  Taxation


The taxation charge for the six months to 29 February 2008 is based on the
effective taxation rate, which is estimated will apply to earnings for the year
ending 31 August 2008.



5.  Earnings per Ordinary Share


Basic earnings per ordinary share is calculated using the weighted average
number of shares in issue during the financial period of 67,514,067 (28 February
2007: 67,473,568 and 31 August 2007: 67,493,840).


Diluted earnings per ordinary share is calculated using the weighted average
number of shares in issue during the financial period of 68,506,387 (28 February
2007: 68,709,936 and 31 August 2007: 68,831,976).


The 966,000 ordinary shares held by the Armour Employees' Share Trust are not
included in either the weighted average, or diluted weighted average, ordinary
shares in issue during the financial period.


Underlying earnings per share is also shown calculated by reference to earnings
before share-based payments. The Directors consider that this gives a useful
additional indication of underlying performance.



Notes to the Interim Financial Statements (continued)


5.  Earnings per share (continued)


                                                     Six months to       Six months to     Twelve months to
                                                   29 February 2008    28 February 2007     31 August 2007
                                                       Unaudited         Restated and        Restated and
                                                                           unaudited           unaudited
Basic earnings per ordinary share                      £000         p      £000         p      £000         p

Total operations
Profit for the financial period                       1,829       2.7     1,576       2.3       262       0.4
Share-based payments                                     48       0.1        43       0.1        87       0.1

Underlying earnings                                   1,877       2.8     1,619       2.4       349       0.5

Continuing operations
Profit from continuing operations                     1,829       2.7     1,676       2.5     3,241       4.8
Share-based payments of continuing operations            48       0.1        41       0.1        83       0.1

Underlying earnings                                   1,877       2.8     1,717       2.6     3,324       4.9


                                                     Six months to       Six months to     Twelve months to
                                                   29 February 2008    28 February 2007     31 August 2007
                                                       Unaudited         Restated and        Restated and
                                                                           unaudited           unaudited
Diluted earnings per ordinary share                    £000         p      £000         p      £000         p

Total operations
Profit for the financial period                       1,829       2.7     1,576       2.3       262       0.4
Share-based payments                                     48         -        43       0.1        87       0.1

Underlying earnings                                   1,877       2.7     1,619       2.4       349       0.5

Continuing operations
Profit from continuing operations                     1,829       2.7     1,676       2.5     3,241       4.7
Share-based payments of continuing operations            48         -        41         -        83       0.1

Underlying earnings                                   1,877       2.7     1,717       2.5     3,324       4.8


6. Reconciliation of Movement in Equity


                                                                Six months to Six months to   Twelve months to
                                                                  29 February   28 February          31 August
                                                                         2008          2007               2007
                                                                    Unaudited  Restated and       Restated and
                                                                                  unaudited          unaudited
                                                                         £000          £000               £000

Opening equity                                                         26,944        26,915             26,915

Profit for the financial period                                         1,829         1,576                262
Dividend                                                                (439)         (371)              (371)

Profit/(loss) for the financial period retained                         1,390         1,205              (109)
New share capital subscribed                                                -            23                 24
Share-based payments                                                       66            61                121
Tax effect of share-based payments recognised directly in                   -           (7)                  -
equity
Currency translation differences                                           49           (1)                (7)

Net movement in equity                                                  1,505         1,281                 29

Closing equity                                                         28,449        28,196             26,944

Notes to the Interim Financial Statements (continued)


7.  Net Cash Inflow from Operating Activities


                                                                Six months to Six months to   Twelve months to
                                                                  29 February   28 February          31 August
                                                                         2008          2007               2007
                                                                    Unaudited  Restated and       Restated and
                                                                                  unaudited          unaudited
                                                                         £000          £000               £000

Profit from operations                                                  2,864         2,745              5,243
Loss from trading of discontinued operations                                -         (143)              (269)
Depreciation of property, plant and equipment                             307           385                715
Amortisation of intangible assets                                         142           153                553
Share-based payments                                                       66            61                121
(Gain)/loss on sale of property, plant and equipment                    (108)             -                  9

Earnings before movements in working capital                            3,271         3,201              6,372

Increase in inventories                                               (1,071)       (1,229)            (1,201)
Increase in trade and other receivables                                  (25)       (1,244)            (1,926)
(Decrease)/increase in trade, other payables and provisions             (561)           811              2,647

Net cash from operating activities                                      1,614         1,539              5,892


8.  Acquisition of Subsidiary


£4.2 million has been spent during the financial period, being deferred
consideration relating to Alphason Designs Limited, acquired by the Group in
February 2006. In addition, a payment of £0.1 million has been made being the
final instalment of deferred consideration for Myryad Systems Limited, acquired
by the Group in November 2004.


9.  Reconciliation of Net Cash Flow to Movement in Net Debt


                                                                Six months to Six months to   Twelve months to
                                                                  29 February   28 February          31 August
                                                                         2008          2007               2007
                                                                    Unaudited  Restated and       Restated and
                                                                                  unaudited          unaudited
                                                                         £000          £000               £000

Net (decrease)/increase in cash and cash equivalents                  (4,174)         (609)              1,566
Net cash outflow from debt and lease financing                            376           383                764
Other non-cash movements                                                   32          (17)               (43)

(Increase)/decrease in net debt in the financial period               (3,766)         (243)              2,287
Opening net debt                                                      (2,904)       (5,191)            (5,191)

Closing net debt                                                      (6,670)       (5,434)            (2,904)


10.  Copies of Interim Report


Copies of this interim report are being sent to shareholders and will also be
made available upon request to members of the public at the Company's Registered
Office, Lonsdale House, 7 - 9 Lonsdale Gardens, Tunbridge Wells, Kent, TN1 1NU.
This interim report can also be viewed on the Group's website:
www.armourgroup.uk.com.



Notes to the Interim Financial Statements (continued)


11.  Explanation of Transition to IFRS

The differences between UK GAAP and IFRS are outlined below in the
reconciliation of the consolidated balance sheets at 31 August 2006, 28 February
2007 and 31 August 2007 and in the reconciliations of net profit for the six
months to 28 February 2007 and twelve months to 31 August 2007.


The following represents the differences relevant to the Group of moving from UK
GAAP to IFRS:


(a)  Goodwill

Under IFRS 3, goodwill is not amortised but instead is subject to an annual
impairment review. An adjustment has been made to remove the goodwill
amortisation charge made under UK GAAP. Under the transition rules, no
adjustment need be made to the carrying value of goodwill at the date of
transition.


(b)  Software costs

Under UK GAAP, IT software was considered to be part of the operating system of
the computer systems used by the Group and was capitalised within plant and
equipment. Under IAS 38, this software should be separately identified as an
intangible asset.


(c)  Product development expenditure

Under UK GAAP, the Group's accounting policy was to expense all development
expenditure when incurred. In accordance with IAS 38, costs incurred on product
development are capitalised as an intangible asset where the asset created can
be identified, its cost measured reliably and it is probable that the asset will
generate future economic benefits. Capitalised development expenditure is
amortised over its expected useful life.


(d)  Translation reserve

Under IAS 21, foreign exchange differences arising from the translation of
opening net assets, must be included in a separate translation reserve rather
than being included in retained profit. The Group has elected not to revisit
currency translation reserve movements prior to the date of transition.
Accordingly, at the date of transition, the Translation Reserve balance was
zero. Only cumulative translation differences arising after the date of
transition in respect of overseas subsidiaries will be recycled to the income
statement on disposal of these subsidiaries.


(e)   Forward foreign currency contracts

The Group makes use of foreign currency derivatives (forward foreign currency
contracts) to protect its position on the purchase of inventories. Under UK
GAAP, foreign currency derivatives were held off balance sheet. Under IAS 32 and
IAS 39, derivative contracts are valued ('marked to market') at the balance
sheet date and any resulting gains or losses are taken to the income statement.


(f)   Lease incentives

In accordance with IAS 17: Leases and SIC 15: Operating Leases - Incentives,
adjustments have been made to recognise the benefit of lease incentives over the
full lease term rather than to the date of the first break clause.


(g)   Share of profits/losses in associated undertakings

Under UK GAAP, the premium on acquisition of the investment was amortised to nil
in equal annual instalments over its estimated useful life of 20 years. Under
IFRS, the premium is not amortised but instead is subject to an annual
impairment review. An adjustment has been made to remove the amortisation charge
made under UK GAAP.



Notes to the Interim Financial Statements (continued)


11.  Explanation of Transition to IFRS (continued)


(h)  Deferred taxation

Adoption of IFRS has caused adjustment to the value of deferred taxation assets
and liabilities. The most significant adjustment has been caused by the
recognition of product development expenditure as an asset, thereby creating a
deferred taxation liability.


(i)  Balance sheet reclassifications

To comply with IFRS 1, various amounts have been reclassified within the balance
sheet. Provisions have been separated within current liabilities and deferred
taxation assets and liabilities are shown separately within non-current assets
and liabilities respectively.


Notes to the Interim Financial Statements (continued)


11.  Explanation of Transition to IFRS (continued)


Reconciliation of the Consolidated Balance Sheet at 31 August 2006 (date of
transition to IFRS).


                                                                                     Transition
                                                                       UK GAAP      adjustments             IFRS
                                                     Notes                £000             £000             £000

Non-current assets
Goodwill                                               a                23,338                -           23,338
Other intangible assets                               b, c                   -              950              950
Property, plant and equipment                          b                 2,256            (151)            2,105
Deferred taxation assets                              h, i                 291            (291)                -

Total non-current assets                                                25,885              508           26,393

Current assets
Inventories                                                              9,836                -            9,836
Trade and other receivables                                              9,702                -            9,702
Cash and cash equivalents                                                  186                -              186

Total current assets                                                    19,724                -           19,724

Total assets                                                            45,609              508           46,117


Current liabilities
Bank overdrafts and borrowings                                         (1,610)                -          (1,610)
Trade and other payables                            e, f, i           (12,631)              (8)         (12,639)
Corporation taxation liability                                           (916)                -            (916)
Provisions                                             i                     -            (140)            (140)

Total current liabilities                                             (15,157)            (148)         (15,305)

Non-current liabilities
Borrowings                                                             (3,767)                -          (3,767)
Deferred consideration                                                   (127)                -            (127)
Deferred taxation liability                           h, i                   -              (3)              (3)

Total non-current liabilities                                          (3,894)              (3)          (3,897)

Total liabilities                                                     (19,051)            (151)         (19,202)

Total net assets                                                        26,558              357           26,915

Equity
Share capital                                                            6,841                -            6,841
Share premium account                                                    8,496                -            8,496
Other reserves                                                             871                -              871
Retained earnings                                                       10,550              357           10,907
Share trust reserve                                                      (200)                -            (200)

Total equity                                                            26,558              357           26,915


Notes to the Interim Financial Statements (continued)


11. Explanation of Transition to IFRS (continued)


Reconciliation of profit for the year ended 31 August 2007



                                                                                  Transition
                                                                       UK GAAP   adjustments              IFRS
                                                                          £000          £000              £000
Revenue
Continuing operations                                                   55,171             -            55,171
Discontinued operations                                                  2,185       (2,185)                 -

                                                                        57,356       (2,185)            55,171

Profit from operations
Continuing operations                                                    4,118         1,125             5,243
Discontinued operations                                                  (360)           360                 -

                                                                         3,758         1,485             5,243
Share of (loss)/profit of associated undertakings                         (15)            18                 3
Finance income                                                              22             -                22
Finance costs                                                            (765)             -             (765)

Profit before taxation                                                   3,000         1,503             4,503
Taxation expense                                                       (1,155)         (107)           (1,262)
                                                                         1,845         1,396             3,241
Discontinued operations                                                (2,711)         (268)           (2,979)

(Loss)/profit for the financial period                                   (866)         1,128               262


Summary of adjustments                                                                Notes                £000

Reversal of amortisation of goodwill                                                    a                 1,168
Development costs capitalised in the financial period                                   c                   539
Amortisation and amounts written off capitalised development costs                      c                 (484)
Losses recognised on derivatives                                                        e                  (58)
Restatement of lease rental incentives                                                  f                  (40)
Restatement of associated undertakings                                                  g                    18
Deferred taxation adjustment                                                            h                  (15)
Total of adjustments                                                                                      1,128


The trading result of discontinued operations, being a post tax loss of
£268,000, has been reclassified within the single income statement heading of '
Discontinued operations'.


Notes to the Interim Financial Statements (continued)


11. Explanation of Transition to IFRS (continued)


Reconciliation of the Consolidated Balance Sheet at 31 August 2007


                                                                                     Transition
                                                                       UK GAAP      adjustments             IFRS
                                                     Notes                £000             £000             £000
Non-current assets
Goodwill                                               a                19,914            1,168           21,082
Other intangible assets                               b, c                   -              991              991
Property, plant and equipment                          b                 1,741            (137)            1,604
Investment in associated undertakings                  g                   357               18              375
Deferred taxation assets                              h, i                 291            (291)                -

Total non-current assets                                                22,303            1,749           24,052

Current assets
Inventories                                                             10,490                -           10,490
Trade and other receivables                                             11,430                -           11,430
Cash and cash equivalents                                                  892                -              892

Total current assets                                                    22,812                -           22,812

Total assets                                                            45,115            1,749           46,864

Current liabilities
Bank overdrafts and borrowings                                           (714)                -            (714)
Trade and other payables                            e, f, i           (14,714)               50         (14,664)
Corporation taxation liability                                         (1,146)                -          (1,146)
Provisions                                             i                     -            (296)            (296)

Total current liabilities                                             (16,574)            (246)         (16,820)

Non-current liabilities
Borrowings                                                             (3,082)                -          (3,082)
Deferred taxation liability                           h, i                   -             (18)             (18)

Total non-current liabilities                                          (3,082)             (18)          (3,100)

Total liabilities                                                     (19,656)            (264)         (19,920)

Total net assets                                                        25,459            1,485           26,944


Equity
Share capital                                                            6,848                -            6,848
Share premium account                                                    8,513                -            8,513
Other reserves                                                             871                -              871
Retained earnings                                                        9,427            1,492           10,919
Translation reserve                                    d                     -              (7)              (7)
Share trust reserve                                                      (200)                -            (200)

Total equity                                                            25,459            1,485           26,944


Notes to the Interim Financial Statements (continued)


11.  Explanation of Transition to IFRS (continued)


Reconciliation of profit for the six months to 28 February 2007



                                                                                  Transition
                                                                       UK GAAP   adjustments              IFRS
                                                                          £000          £000              £000

Revenue
Continuing operations                                                   28,435             -            28,435
Discontinued operations                                                  1,054       (1,054)                 -
                                                                        29,489       (1,054)            28,435

Profit from operations
Continuing operations                                                    2,103           642             2,745
Discontinued operations                                                  (188)           188                 -
                                                                         1,915           830             2,745
Share of loss of associated undertakings                                  (13)             9               (4)
Finance income                                                              11             -                11
Finance costs                                                            (390)             -             (390)

Profit before taxation                                                   1,523           839             2,362
Taxation expense                                                         (616)          (70)             (686)
                                                                           907           769             1,676
Discontinued operations                                                      -         (100)             (100)

Profit for the financial period                                            907           669             1,576


Summary of adjustments                                                                Notes                £000

Reversal of amortisation of goodwill                                                    a                   655
Development costs capitalised in the period                                             c                   212
Amortisation and amounts written off capitalised development costs                      c                 (128)
Losses recognised on derivatives                                                        e                  (65)
Restatement of lease rental incentives                                                  f                    13
Restatement of associated undertakings                                                  g                     9
Deferred taxation adjustment                                                            h                  (27)

Total of adjustments                                                                                        669


The trading result of discontinued operations, being a post tax loss of
£100,000, has been reclassified within the single income statement heading of '
Discontinued operations'.


Notes to the Interim Financial Statements (continued)

11. Explanation of Transition to IFRS (continued)


Reconciliation of the Consolidated Balance Sheet at 28 February 2007


                                                                                     Transition
                                                                       UK GAAP      adjustments             IFRS
                                                     Notes                £000             £000             £000

Non-current assets
Goodwill                                               a                22,683              655           23,338
Other intangible assets                               b, c                   -            1,027            1,027
Property, plant and equipment                          b                 2,225            (144)            2,081
Investment in associated undertakings                  g                   359                9              368
Deferred taxation assets                              h, i                 309            (309)                -

Total non-current assets                                                25,576            1,238           26,814

Current assets
Inventories                                                             11,065                -           11,065
Trade and other receivables                                             10,946                -           10,946
Cash and cash equivalents                                                  445                -              445

Total current assets                                                    22,456                -           22,456

Total assets                                                            48,032            1,238           49,270


Current liabilities
Bank overdrafts and borrowings                                         (2,456)                -          (2,456)
Trade and other payables                            e, f, i           (13,566)             (60)         (13,626)
Corporation taxation liability                                         (1,410)                -          (1,410)
Provisions                                             i                     -            (140)            (140)

Total current liabilities                                             (17,432)            (200)         (17,632)

Non-current liabilities
Borrowings                                                             (3,423)                -          (3,423)
Deferred taxation liability                           h, i                   -             (19)             (19)

Total non-current liabilities                                          (3,423)             (19)          (3,442)

Total liabilities                                                     (20,855)            (219)         (21,074)

Total net assets                                                        27,177            1,019           28,196


Equity
Share capital                                                            6,848                -            6,848
Share premium account                                                    8,512                -            8,512
Other reserves                                                             871                -              871
Retained earnings                                                       11,146            1,020           12,166
Translation reserve                                    d                     -              (1)              (1)
Share trust reserve                                                      (200)                -            (200)

Total equity                                                            27,177            1,019           28,196




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