REG-Matchtech Group PLC Half Yearly Report - Part 1

Released : 02/04/09 06:00

http://pdf.reuters.com/Regnews/regnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20090402:RnsB9710P
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RNS Number : 9710P  
  
Matchtech Group PLC  
  
02 April 2009  
  
Matchtech Group plc  
  
2 April 2009  
  
Half year financial report for the six months ended 31 January 2009  
  
Matchtech Group plc ("Matchtech" or the "Group"), one of the UK's leading 
specialist technical recruitment companies, today announces its unaudited 
results for the six months ended 31 January 2009.  
  
Financial Highlights for the six months ended 31 January 2009  
  
 
 * Revenue up 18% to £138.0 (2008 H1: £116.6m) 
 * Net Fee Income (NFI) up 8% to £16.6m (2008 H1: £15.3m) 
 * Contract NFI up 12% & Permanent recruitment fees up 2% 
 * NFI grew 13% in Quarter 1 and 3 % in Quarter 2 
 * Operating profit up 3% to £6.4m (2008 H1: £6.2m) 
 * Operating profit margin 4.6% (2008 H1: 5.3%) 
 * Profit before tax up 7% to £6.1m (2008 H1: £5.7m) 
 * Basic EPS up 12% to 19.03p (2008 H1: 17.02p)  
  
 
 * Interim dividend maintained at 5.0 pence per share (2008: 5.0 pence)  
  
 
 * Cash flow from operations£4.1m (2008 H1: £8.7m) 
 * Debtor Days 41.8 days (2008 H1: 40.3 days) 
 * Net debt reduced to £3.7m (2008 H1: £5.4m) 
 * Banking facilities of £27.5m extended for 2 years until March 2011  
  
Trading since 31 January 2009 & Outlook  
  
 
 * Permanent recruitment fees in February and March 2009 were 26% lower than 12 
months previously (December 2008 and January 2009: 20% lower). Contractor 
numbers at 31 March were essentially unchanged from 31 January 2009 however 
clients are increasingly placing pressure on contractor pay rates and our 
margins. 
 * Headcount has been reduced by 10% since 31 January 2009and savings of £1.0m 
are expected to be realised in the year ending July 2010. In addition the Board 
is focused on tightly controlling capital expenditure. 
 * Based upon current market conditions and expected run rates, the outlook for 
remainder of financial year to 31 July 2009 is now below the Board's previous 
expectations.  
  
Commenting on the results, George Materna, Chairman of Matchtech said:  
  
"We are pleased with these first half results in what are increasingly very 
challenging economic conditions.   
  
"In the six months to 31 January 2009 we have continued to grow; contract Net 
Fee Income was up 12%, while permanent fees were essentially unchanged from the 
same period last year.  Operating margins have fallen due to a combination of 
operational gearing and pay rates and margins being put under increasing 
pressure. With lower interest costs and a write back of unvested LTIP charges, 
we have increased Profits before tax by 7% to £6.1m. Basic earnings per share 
were up 12% to 19.03 pence per share.   
  
"Since the period end the Group has extended its banking facilities with 
Barclays Bank for two years, giving the Group £27.5m of funding in place until 
2011.  
  
"The Board has also taken steps to align the Group's cost base with prevailing 
market conditions. We have reduced headcount by 10% from 315 at 31 January 2009 
to 286 at 31 March 2009.  These actions, along with the high variable element of 
both consultant and management remuneration and the flexibility and cost 
benefits from the Group's single site model will allow us to effectively manage 
the cost base going forward. We expect to make savings of c£1.0m in FY2010 plus 
tight control on capital expenditure.  
  
"The Group continues to focus on those clients that operate in the publicly 
funded defence, transport and infrastructure sectors, where demand remains most 
resilient.  
  
"As stated in our Trading Update on 9 February 2009, the economic climate is 
increasingly challenging, as evidenced by the significant reduction in growth in 
Quarter 2. This has continued into Q3 and the Group has much reduced visibility 
for the remainder of this financial year.  Based upon current market conditions 
and expected run rates, the outlook for remainder of financial year to 31 July 
2009 is now below the Board's previous expectations. "  
  
For further information please contact:  
  
 
  Matchtech Group plc                           01489 898989   
  George Materna, Chairman                                     
  Adrian Gunn, Group Managing Director                         
  Tony Dyer, Group Finance Director                            
                                                               
  Hogarth Partnership                           020 7357 9477  
  John Olsen / James Longfield / Fiona Noblet                  
                                                               
  Arbuthnot Securities                                         
  James Steel / Katie Shelton                   020 7012 2000  
  
  
Background on Matchtech   
  
Matchtech Group plc is a specialist temporary, contract and permanent staffing 
business comprising of three operational business units that service the 
technical and professional recruitment market place. All the business units 
operate out of a single site location in Hampshire, the largest UK recruitment 
centre.   
  
Established in 1984 we have evolved over the years to become a leading provider 
of recruitment outsourcing solutions. Our annual turnover for 2008/09 was 
£258million making us the 19th largest recruitment agency in the UK and this 
revenue has been achieved through organic growth.   
  
The Group has a clear strategy to diversify its client base by offering a wider 
range of skills and services within the recruitment sector from its four 
business units, Engineering & Science, Built Environment & Professional 
Services.  
  
  MATCHTECH GROUP PLC  
  
Interim report for the period ended 31 January 2009  
  
Chairman's statement  
  
Operating review  
  
We are pleased with these first half results in what continue to be very 
challenging economic conditions.    
  
The Group again saw growth in the Engineering and Professional Services, during 
the first half of the financial year, with Built Environment broadly performing 
at the same level as last year.  
  
 
  Sector                  2009 H1   2008 H1   Change  
                          £m        £m        %       
  Engineering                                         
  Net Fee Income          8.6       7.8       +10%    
  Operating Profit        3.7       3.4       +9%     
                                                      
  Built Environment                                   
  Net Fee Income          4.2       4.2       0%      
  Operating Profit        1.7       1.8       -6%     
                                                      
  Professional Services                               
  Net Fee Income          3.8       3.2       +19%    
  Operating Profit        1.0       0.9       +11%    
                                                      
  
  
Engineering, our largest sector, continued to deliver growth. Demand remained 
robust in the Oil & Gas, Defence Electronics and Aerospace but unsurprisingly 
the Automotive sector (which accounts for 8% of this sector's NFI) has been 
adversely affected the most.  We have a strong established brand in the 
Engineering sector and are working closely with clients to ensure that we 
support them through the current economic slowdown.    
  
In the Built Environment, public sector investment is a major driver in this 
market and we have continued to see growth in infrastructure projects in Water 
and Civil Engineering.  Demand in privately funded building projects has, as 
expected, reduced considerably.  Overall the Built Environment has generated the 
same net fee income as the first half of last year.  
  
The foundations laid and investment in new staff in the Professional Services 
sector has delivered good growth.  However, with a higher proportion (around 
48%) of permanent fee business than in the other 2 sectors (around 25%), there 
is greater potential volatility in this sector.  
  
The Group has maintained a healthy balance between contract and permanent 
placements coupled with a highly diversified client and sector base providing a 
degree of protection against market volatility.  
  
 
                                         2009 H1   2008 H1   Change  
                                         £m        £m        %       
  Permanent placements                                               
  Number of permanent placements         1,400     1,356     +3%     
  Permanent fees                         £5.2m     £5.1m     +2%     
  Average permanent fees per placement   £3,708    £3,753    -1%     
                                                                     
  Contractors                                                        
  Number of working contractors          4,528     4,541     0%      
  Contract Net Fee Income                £11.4m    £10.2m    +12%    
                                                                     
  Net Fee Income                                                     
  Contract                               69%       67%       +2%     
  Permanent                              31%       33%       -2%     
                                                                     
  
  
Financial Overview  
  
The Group delivered good results in very challenging market conditions with both 
the Engineering and Professional Services sectors recording growth.  
  
Revenue increased 18% to £138.0m (2008 H1: £116.6m), with Net Fee Income up 8% 
to £16.6m (2008 H1: £15.3m).  
  
Operating profit was £6.4m, an increase of 3% (2008 H1: £6.2m), Operating profit 
included a write back of unvested LTIP charge of £0.3m (2008: £Nil) and 
restructuring charges of £0.1m (2008: £Nil). The operating margin was 4.6% (2008 
H1: 5.3%). Operating margins have fallen due to a combination of operational 
gearing and pay rates and margins being put under increasing pressure.    
  
With lower interest costs of £0.3m (2008: £0.5m) profits before tax were up by 
7% to £6.1m (2008 H1: £5.7m).  
  
Effective Rate of Tax  
  
The effective rate of tax for the period is 27.1% (2008 H1: 30.8%). The 
reduction is primarily due to the reduction in the Standard Rate of UK 
Corporation tax from 30% to 28%.  
  
Earnings per share  
  
Basic earnings per share increased by 12% to 19.03p (2008 H1: 17.02p), with 
fully diluted earnings per share increasing by 9% to 18.10p (2008 H1: 16.46p)  
  
Cash flow and Net debt  
  
Cash inflows from operations in the period were £4.1m (2008 H1: £8.7m) 
representing cash conversion of 64% (2008 H1: 140%).   
  
The major factor affecting the cash conversion relates to the timing effect on 
the payment of the weekly payroll creditor in relation to the closing working 
day of the period. At 31 July 2008 the period ended on a Thursday with a 
creditor of £10.4m, whilst at 31 January 2009 the period ended on a Friday with 
a creditor of £5.4m.  
  
Capital expenditure was £0.3m (2008 H1: £0.7m).  
  
Net debt (Bank loans and overdrafts plus cash) at 31 January 2009 was £3.7m (31 
January 2008: £5.4m, 31 July 2008: £3.1m).  
  
Debtor days at the end of the period stood at 41.8 (2008 H1: 40.3) with debtors 
over 90 days overdue £0.4m (2008 H1: £0.6m) and unimpaired debtors over 90 days 
overdue £0.0m (2008 H1: £0.5m)  
  
Banking  
  
Since the period end, the Group has extended its Confidential Invoice 
Discounting facility with Barclays Bank. The £20m facility will be in place for 
two years until 31 March 2011 at Barclays Bank Base Rate plus 1.9%. In addition 
the Group has in place a revolving credit facility of £7.5m with Barclays Bank 
until 27 May 2011.  
  
Dividend  
  
Reflecting the performance of our business in the first half and the current 
economic conditions, the Board has declared a maintained interim dividend of 5.0 
pence per share.  
  
The interim dividend will be paid on 23 June 2009 to those shareholders on the 
register at close of business on 5 June 2009.  
  
People  
  
Matchtech's key asset is the strength and stability of our management team and 
the quality of our staff.   
  
At the 31 January 2009 sales staff numbers stood at 215 (January 2008: 189, July 
2008: 209), reflecting the continued growth seen in the period. However, with 
the slowdown of demand seen in Quarter 2, we have taken steps to adjust the 
workforce accordingly and as at 31 March 2009 sales staff numbers stood at 197. 
  
  
We have also reduced headcount in our support staff by 11% and, as at as at 31 
March 2009, support staff numbers stood at 89, down from 100 at 31 January 
2009.  
  
Whilst we continue to review the cost base we will balance this with the need to 
retain quality staff to ensure we are able to react quickly to any improvement 
in demand.   
  
I would like to thank all our staff on behalf of our shareholders for their 
strong and consistent contribution.  
  
Board  
  
Paul Raine, Resources Director, resigned from the Board and left the company by 
mutual agreement on 6 February 2009.  
  
On behalf of the Board, I would like to thank Paul for his contribution to the 
development of Matchtech over the past 19 years. Matchtech is a much bigger and 
stronger business than the one he joined and he leaves with our thanks and our 
best wishes for the future.   
  
There have been no other changes to the Board of directors during the period or 
subsequently.  
  
Risk  
  
As previously disclosed, change in the economic environment is one of the 
principal key risks for the Group and the Board remains vigilant to the 
potential impacts of the 'credit crunch' and a recession within our major 
markets.  
  
The Group considers strategic, financial and operational risks and identifies 
actions to mitigate those risks.  Key risks and their mitigation are disclosed 
in the 2008 Annual Report and no other significant new risks have been 
identified in the period.  
  
Trading since 31 January 2009 & Outlook  
  
The Board has taken steps to ensure that the Group's cost base is appropriately 
aligned with prevailing market conditions. We have reduced headcount by 10% from 
315 at the period end to 286 at 31 March 2009. These actions, along with the 
high variable element of both consultant and management remuneration and the 
flexibility and cost benefits from the Group's single site model will allow us 
to effectively manage the cost base going forward.  
  
The Group continues to focus on those clients that operate in the publicly 
funded defence, transport and infrastructure sectors, where demand remains most 
resilient.  
  
As stated in our Trading Update on 9 February 2009, the economic climate is 
increasingly challenging, as evidenced by the significant reduction in growth in 
Quarter 2, and the Group has much reduced visibility for the remainder of this 
financial year   
  
Permanent recruitment fees in February and March 2009 were 26% lower than 12 
months previously (December 2008 and January 2009: 20% lower). Contractor 
numbers at 31 March were essentially unchanged from 31 January 2009 but clients 
are placing pressure on contractor pay rates and our margins.  
  
"Based upon current market conditions and expected run rates, the outlook for 
remainder of financial year to 31 July 2009 is now below the Board's previous 
expectations.   
  
George Materna  
  
Chairman  
  
2 April 2009  
  
  CONDENSED CONSOLIDATED INCOME STATEMENT         
  
for the period ended 31 January 2009           
  
 
                            Note   6 months      6 months      12 months    
                                   to 31/01/09   to 31/01/08   to 31/07/08  
                                   Unaudited     Unaudited                  
  CONTINUING OPERATIONS            £'000         £'000         £'000        
  Revenue                   2      138,015       116,562       258,830      
  Cost of Sales                    (121,435)     (101,290)     (225,596)    
  GROSS PROFIT              2      16,580        15,272        33,234       
                                                                            
  Administrative expenses          (10,242)      (9,119)       (19,442)     
  OPERATING PROFIT          2      6,338         6,153         13,792       
                                                                            
  Finance income                   4             18            79           
  Finance cost                     (277)         (500)         (1,074)      
  PROFIT BEFORE TAX                6,065         5,671         12,797       
                                                                            
  Income tax expense        3      (1,645)       (1,745)       (3,705)      
  PROFIT FOR THE PERIOD            4,420         3,926         9,092        
  
  
All of the activities of the group are classed as continuing.            
  
EARNINGS PER ORDINARY SHARE          
  
 
                pence   pence   pence  
  Basic     5   19.03   17.02   39.34  
  Diluted   5   18.10   16.46   38.25  
  
  
  CONDENSED CONSOLIDATED BALANCE SHEET  
  
as at 31 January 2009   
  
 
                                                                            31/01/2009   31/01/2008   31/07/2008  
                                                                            Unaudited    Unaudited                
  ASSETS                                                                    £'000        £'000        £'000       
  Non-current assets                                                                                              
  Property, plant and equipment                                             1,825        2,014        1,809       
  Intangible assets                                                         165          186          170         
  Deferred tax assets                                                       294          502          292         
                                                                            2,284        2,702        2,271       
  Current Assets                                                                                                  
  Trade and other receivables                        7                      34,086       29,039       38,565      
  Cash and cash equivalents                                                 305          91           297         
                                                                            34,391       29,130       38,862      
  TOTAL ASSETS                                                              36,675       31,832       41,133      
                                                                                                                  
  LIABILITIES                                                                                                     
  Current liabilities                                                                                             
  Trade and other payables                                                  (11,844)     (11,677)     (18,930)    
  Current tax liability                                                     (1,775)      (1,773)      (1,788)     
  Bank loans and overdrafts   Short term borrowings                         (4,015)      (2,556)      (3,349)     
                              Current portion of long term borrowings       0            (1,666)      0           
                                                                                                                  
                                                                            (17,634)     (17,672)     (24,067)    
                                                                                                                  
  Non-current liabilities                                                                                         
  Long term borrowings                                                      0            (1,251)      0           
  TOTAL LIABILITIES                                                         (17,634)     (18,923)     (24,067)    
  NET ASSETS                                                                19,041       12,909       17,066      
                                                                                                                  
  Called-up equity share capital                     6                      232          231          232         
  Share premium account                                                     3,045        2,892        3,045       
  Other reserves                                                            1,026        859          1,018       
  Retained earnings                                                         14,738       8,927        12,771      
  TOTAL EQUITY                                                              19,041       12,909       17,066      
  
  
  CONDENSED CONSOLIDATED CASH FLOW STATEMENT  
  
for the period ended 31 January 2009   
  
 
                                                                             6 months      6 months      12 months    
                                                                             to 31/01/09   to 31/01/08   to 31/07/08  
                                                 Note                        Unaudited     Unaudited     Unaudited    
                                                                             £'000         £'000         £'000        
  CASH FLOWS FROM OPERATING ACTIVITIES                                                                                
  Profit after taxation                                                      4,420         3,926         9,092        
  Adjustments for:                                                                                                    
                     Depreciation                                            320           306           643          
                     Profit on disposal of property, plant and equipment     0             (3)           27           
                     Interest income                                         (4)           (18)          (79)         
                     Interest expense                                        277           500           1,074        
                     Taxation expense recognised in profit and loss          1,645         1,745         3,705        
                     (Increase)/decrease in trade and other receivables      4,480         2,902         (6,385)      
                     Increase/ (decrease) in trade and other payables        (7,087)       (891)         6,313        
                     Share based payment charge                              72            250           540          
  Cash generated from operations                                             4,123         8,717         14,930       
  Interest paid                                                              (277)         (500)         (1,074)      
  Income taxes paid                                                          (1,716)       (1,024)       (3,241)      
  NET CASH FROM OPERATING ACTIVITES                                          2,130         7,193         10,615       
                                                                                                                      
  CASH FLOWS FROM INVESTING ACTIVITIES                                                                                
  Purchase of plant and equipment                                            (336)         (708)         (880)        
  Proceeds from sale of plant and equipment                                  6             37            62           
  Interest received                                                          4             18            79           
  NET CASH USED IN INVESTING ACTIVITIES                                      (326)         (653)         (739)        
                                                                                                                      
  CASH FLOWS FROM FINANCING ACTIVITIES                                                                                
  Proceeds from issue of share capital                                       0             64            218          
  Proceeds from borrowings                                                   729           (5,096)       (7,256)      
  Dividends paid                                                             (2,463)       (2,148)       (3,310)      
  NET CASH USED IN FINANCING ACTIVITIES                                      (1,734)       (7,180)       (10,348)     
                                                                                                                      
  NET INCREASE IN CASH AND CASH EQUIVALENTS                                  70            (640)         (472)        
  CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           187           659           659          
  CASH AND CASH EQUIVALENTS AT END OF PERIOD                                 257           19            187          
  
  
  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  
  
for the period ended 31 January 2009  
  
 
                                                       Foreign currency translation reserve   Share Capital   Share Premium   Other reserve   Share based payment reserve   Retained Earnings   Total    
                                                       £'000                                  £'000           £'000           £'000           £'000                         £'000               £'000    
  Balance at 1 August 2007                             0                                      230             2,829           224             386                           7,154               10,823   
  Profit for the period                                0                                      0               0               0               0                             3,990               3,990    
  Total recognised income and expense for the period   0                                      0               0               0               0                             3,990               3,990    
                                                                                                                                                                                                         
  Dividends                                            0                                      0               0               0               0                             (2,149)             (2,149)  
  Deferred tax movement re share options               0                                      0               0               0               0                             (68)                (68)     
  IFRS 2 credit                                        0                                      0               0               0               249                           0                   249      
  IFRS 2 reserves transfer                             0                                      0               0               0               (87)                          87                  0        
  New share capital                                    0                                      1               63              0               0                             0                   64       
                                                       0                                      1               63              0               162                           (2,130)             (1,904)  
  Balance at 31 January 2008                           0                                      231             2,892           224             548                           9,014               12,909   
                                                                                                                                                                                                         
  Balance at 1 August 2007                             0                                      230             2,829           224             386                           7,154               10,823   
  Profit for the year                                  0                                      0               0               0               0                             9,092               9,092    
  Total recognised income and expense for the year     0                                      0               0               0               0                             9,092               9,092    
                                                                                                                                                                                                         
  Dividends                                            0                                      0               0               0               0                             (3,310)             (3,310)  
  Deferred tax movement re share options               0                                      0               0               0               0                             (296)               (296)    
  IFRS 2 credit                                        0                                      0               0               0               539                           0                   539      
  IFRS 2 reserves transfer                             0                                      0               0               0               (131)                         131                 0        
  New share capital                                    0                                      2               216             0               0                             0                   218      
                                                       0                                      2               216             0               408                           (3,475)             (2,849)  
  Balance at 31 July 2008                              0                                      232             3,045           224             794                           12,771              17,066   
                                                                                                                                                                                                         
  Balance at 1 August 2008                             0                                      232             3,045           224             794                           12,771              17,066   
  Profit for the period                                0                                      0               0               0               0                             4,420               4,420    
  Total recognised income and expense for the period   0                                      0               0               0               0                             4,420               4,420    
                                                                                                                                                                                                         
  Dividends                                            0                                      0               0               0               0                             (2,463)             (2,463)  
  Deferred tax movement re share options               0                                      0               0               0               0                             (54)                (54)     
  IFRS 2 credit                                        0                                      0               0               0               72                            0                   72       
  IFRS 2 reserves transfer                             0                                      0               0               0               (64)                          64                  0        
  New share capital                                    0                                      0               0               0               0                             0                   0        
                                                       0                                      0               0               0               8                             (2,453)             (2,445)  
  Balance at 31 January 2009                           0                                      232             3,045           224             802                           14,738              19,041   
  
  
  NOTES  
  
forming part of the financial statements  
  
1       THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES  
  
i The business of the Group  
  
Matchtech Group plc is a human capital resources business dealing with contract 
and permanent recruitment in the Private and Public sector. The Group is 
organised in three sectors, Engineering, Built Environment and Professional 
Services, with niche activities within each sector.  
  
ii Basis of preparation of interim financial information  
  
These interim condensed consolidated financial statements are for the six months 
ended 31 January 2009. They have been prepared in accordance with IAS 34 
"Interim Financial Reporting". They do not include all of the information 
required for full annual financial statements, and should be read in conjunction 
with the consolidated financial statements for the year ended 31 July 2008 which 
have been filed with the Registrar of Companies. The auditor's report on those 
financial statements was unqualified and did not contain a statement under 
section 237 (2) and (3) of the Companies Act 1985.   
  
These condensed consolidated interim financial statements (the interim financial 
statements) have been prepared in accordance with the accounting policies set 
out below which are based on the recognition and measurement principles of IFRS 
in issue as adopted by the European Union (EU) and are effective at 31 July 2009 
or are expected to be adopted and effective at 31 July 2009.  
  
These financial statements have been prepared under the historical cost 
convention. The accounting policies have been applied consistently throughout 
the Group for the purposes of preparation of these condensed interim financial 
statements. A summary of the principal accounting policies of the group are set 
out below.  
  
iii Basis of consolidation  
  
The group financial statements consolidate those of the company and all of its 
subsidiary undertakings drawn up to the balance sheet date. Subsidiaries are 
entities over which the group has power to control the financial and operating 
policies so as to obtain benefits from its activities. The group obtains and 
exercises control through voting rights.  
  
Acquisitions of subsidiaries are dealt with by the purchase method. The purchase 
method involves the recognition at fair value of all identifiable assets and 
liabilities, including contingent liabilities of the subsidiary, at the 
acquisition date, regardless of whether or not they were recorded in the 
financial statements of the subsidiary prior to acquisition. On 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 group accounting policies.  
  
iv Revenue  
  
Revenue is measured by reference to the fair value of consideration received or 
receivable by the group for services provided, excluding VAT and trade 
discounts. Revenue on temporary placements is recognised upon receipt of a 
client approved timesheet or equivalent. Revenue from permanent placements, 
which is based on a percentage of the candidate's remuneration package, is 
recognised when candidates commence employment.  
  
v Property, plant and equipment  
  
Property, plant and equipment is stated at cost or valuation, net of 
depreciation and any provision for impairment.  
  
Depreciation is calculated so as to write off the cost of an asset, less its 
estimated residual value, over the useful economic life of that asset as 
follows:  
  
 
  Motor Vehicles       25.00%   Reducing balance  
  Computer equipment   25.00%   Straight line     
  Equipment            12.50%   Straight line     
  
  
          Residual value estimates are updated as required, but at least 
annually, whether or not the asset is revalued.  
  
vi Intangible assets  
  
Separately acquired software licences are included at cost and amortised on a 
straight-line basis over the useful economic life of that asset at 20%-33%. 
Provision is made against the carrying value of intangible assets where an 
impairment in value is deemed to have occurred. Amortisation is recognised in 
the income statement under administrative expenses.  
  
vii Disposal of assets  
  
The gain or loss arising on the disposal of an asset is determined as the 
difference between the disposal proceeds and the carrying amount of the asset 
and is recognised in the income statement.  
  
viii Operating lease agreements  
  
Rentals applicable to operating leases are charged against profits on a straight 
line basis over the lease term. Lease incentives are spread over the term of the 
lease.  
  
ix 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 liabilities are provided in full, with no discounting. Deferred tax 
assets are recognised to the extent that it is probable that the underlying 
deductible temporary differences will be able to 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 (such as the revaluation of land) in 
which case the related deferred tax is also charged or credited directly to 
equity.  
  
x Pension costs  
  
The company operates a defined contribution pension scheme for employees. The 
assets of the scheme are held separately from those of the company. The annual 
contributions payable are charged to the income statement as they accrue.  
  
xi Share based payment  
  
All share-based remuneration is ultimately recognised as an expense in the 
income statement with a corresponding credit to "share-based payment reserve". 
All goods and services received in exchange for the grant of any share-based 
remuneration are measured at their fair values. Fair values of employee services 
are indirectly determined by reference to the fair value of the share options 
awarded. Their value is appraised at the grant date and excludes the impact of 
non-market vesting conditions (for example, profitability and sales growth 
targets).  
  
If vesting periods or other non-market vesting conditions apply, the expense is 
allocated over the vesting period, based on the best available estimate of the 
number of share options expected to vest. Estimates are subsequently revised if 
there is any indication that the number of share options expected to vest 
differs from previous estimates. Any cumulative adjustment prior to vesting is 
recognised in the current period. No adjustment is made to any expense 
recognised in prior periods if share options ultimately exercised are different 
to that estimated on vesting. Upon exercise of share options, proceeds received 
net of attributable transaction costs are credited to share capital and share 
premium.  
  
xii Exceptional items  
  
Non-recurring items which are sufficiently material are presented separately 
within their relevant consolidated income statement category. This helps to 
provide a better understanding of the group's financial performance.  
  
xiii Business combinations completed prior to date of transition to IFRS  
  
The group has elected not to apply IFRS 3 Business Combinations retrospectively 
to business combinations prior to 1 August 2006.  
  
Accordingly the classification of the combination (merger) remains unchanged 
from that used under UK GAAP. Assets and liabilities are recognised at date of 
transition if they would be recognised under IFRS, and are measured using their 
UK GAAP carrying amount immediately post-acquisition as deemed cost under IFRS, 
unless IFRS requires fair value measurement. Deferred tax is adjusted for the 
impact of any consequential adjustments after taking advantage of the 
transitional provisions.  
  
xiv  Financial assets  
  
All financial assets are recognised when the group becomes a party to the 
contractual provisions of the instrument. Financial assets are recognised at 
fair value plus transaction costs.  
  
Loans and receivables are non-derivative financial assets with fixed or 
determinable payments that are not quoted in an active market. Trade receivables 
are classified as loans and receivables. Loans and receivables are measured 
subsequent to initial recognition at amortised cost using effective interest 
method, less provision for impairment. Any change in their value through 
impairment or reversal of impairment is recognised in the income statement.  
  
Provision against trade receivables is made when there is objective evidence 
that the group will not be able to collect all amounts due to it in accordance 
with the original terms of those receivables. The amount of the write-down is 
determined as the difference between the asset's carrying amount and the present 
value of estimated future cash flows.  
  
A financial asset is derecognised only where the contractual rights to cash 
flows from the asset expire or the financial asset is transferred and that 
transfer qualifies for derecognition. A financial asset is transferred if the 
contractual rights to receive the cash flows of the asset have been transferred 
or the group retains the contractual rights to receive the cash flows of the 
asset but assumes a contractual obligation to pay the cash flows to one or more 
recipients. A financial asset that is transferred qualifies for derecognition if 
the group transfers substantially all the risks and rewards of ownership of the 
asset, or if the group neither retains nor transfers substantially all the risks 
and rewards of ownership but does transfer control of that asset.  
  
xv Financial liabilities  
  
Financial liabilities are obligations to pay cash or other financial assets and 
are recognised when the group becomes a party to the contractual provisions of  
  
  
More to follow, for following part double-click [nRn2B9710P]