RNS Number : 5637X
XploiTe PLC
26 June 2008
26 June 2008
Xploite plc
Interim Results for the six months ended 30 April 2008
Xploite plc ("Xploite", "the Group", AIM: XPT), the operator and aggregator of strategic and high-growth IT services businesses has
published its interim results for the six months to 30 April 2008.
Highlights
* Turnover increased 327% from �5.3m to �22.5m
* Increase in proportion of revenues from services (2008:46%, 2007:28%)
* EBITDA increased from a loss of �0.5m to a profit of �1.6m
* Adjusted pretax profit of �0.7m (2007: loss of �0.5m)
* Adjusted earnings per share 2.82p (2007: loss 1.04p)
* Anix businesses fully integrated - managed services operating growing rapidly
* �8.2m contracted revenue for second half
Ian Smith, Xploite Chief Executive commented,
"The businesses we acquired last year are already showing good returns as our strategy of selective acquisitions followed by rapid
integration is working well.
"The rapid integration of the three businesses under the Anix brand has seen a substantial step up in our managed services business
which has resulted in a notable increase in such recurring revenues - now some 46% of Anix' revenues."
Enquiries
Xploite plc www.xploite.com 0870 737 2001
Ian Smith, Chief Executive Officer
Robert Arrowsmith Finance Director
KBC Peel Hunt Ltd 0207 418 8900
Oliver Scott/Nicholas Marren
College Hill 020 7457 2020
Adrian Duffield / Jon Davies
Strategy Overview
The Group's strategy is to identify, acquire, consolidate and develop businesses in the IT services sector. The Board's aim is to create
shareholder value by acquiring businesses with good strategic fit. These are then integrated and consolidated into existing operations.
Costs are reduced through the efficient deployment of people and processes and technologies, and recurring revenue streams developed.
Disposals will be considered by the Board to realise value where appropriate.
The main focus for the six months to 30 April 2008 has been on consolidating and developing three of the acquisitions made last year,
Anix, Red Squared and Posetiv, under the single brand Anix. The objective for the enlarged Anix business has been to become the UK's leading
mid-market managed service provider with a focus on storage and server infrastructure and a strong recurring revenue stream. Despite the
considerable distraction as the Group was in an offer period from 11 December 2007 to 27 March 2008, these results are beginning to show the
real benefits of that integration focus.
The Group's fourth acquisition, Itheon, was acquired before the end of the last financial year, and continues to trade as a separate
entity. Itheon's proprietary software solution replicates an IBM Tivoli* or HP Openview* style of monitoring and reporting environment. It
is ideal for the Group's mid market focus, both in terms of cost and scalability. Itheon's software is also used by Anix in the delivery of
managed services to its customers and is also sold to third party users.
The four new businesses acquired in the previous year have transformed the Group compared to the previous year with revenues of �22.50m
(2007: �5.27m). At the *EBITDA level the Group achieved a profit of �1.58m compared to a loss of �0.54m in the previous year.
The performance against the Group's financial KPIs demonstrate the strength of the trading performance. These are:
- Gross profit has increased from 21% to 28%
- Adjusted operating profit has improved from a loss of �0.65m to a profit of �1.09m
- Adjusted basic earnings per share were 2.82p (2007 : loss 1.04p)
Financial review
These results have been prepared under International Financial Reporting Standards (IFRS). The impact of this on previously reported
numbers is shown in note 6d and an explanation of the main accounting policy differences between UK GAAP and IFRS are shown in note 6b.
Group revenue for the six months to 30 April 2008 was �22.50m (2007: �5.27m), reflecting the revenues from the four new businesses
acquired in the previous financial year. Gross margin has improved from 21% to 28%.
*EBITDA improved by �2.12m from a loss of �0.54m to a profit of �1.58m.
The Group's Adjusted operating profit, before the amortisation and impairment of intangible assets and costs of integration, was �1.09m
(2007: loss �0.65m). A reconciliation of EBITDA and Adjusted operating profit to the statutory operating result is below.
Unaudited - �m 6 months ended 6 months ended Year ended
30 April 2008 30 April 2007 31 October
2007
*EBITDA 1.58 (0.54) 0.77
Depreciation (0.49) (0.11) (0.52)
Adjusted operating profit/(loss) 1.09 (0.65) 0.25
Amortisation and impairment of (1.41) (0.09) (0.54)
intangibles
Costs of integration/exceptional (0.63) 0.22 (0.17)
credit
Operating loss per income (0.95) (0.52) (0.46)
statement
The Group reported an operating loss of �0.95m (2007: loss �0.51m). Included within this loss in 2008 is an impairment charge of �0.64m
in relation to the Red Squared brand. This impairment was required as the Red Squared business was integrated into Anix and the brand ceased
to be used. The net finance cost was �0.35m (2007: income �0.24m).
The Group reported an Adjusted profit before tax of �0.74m (2007: loss of �0.53m) and a reported loss before tax of �1.30m (2007:
�0.40m). A reconciliation of the statutory (loss)/profit before tax and the Adjusted profit/(loss) before tax is below.
Unaudited - �m 6 months ended 6 months ended Year ended
30 April 2008 30 April 2007 31 October
2007
(Loss)/profit before tax (1.30) (0.40) 0.24
Amortisation and impairment of 1.41 0.09 0.54
intangibles
Costs of integration/exceptional 0.63 (0.22) 0.17
credit
Adjusted profit/(loss) before tax 0.74 (0.53) 0.95
Adjusted basic EPS was 2.82p (2007: loss 1.04p). Basic loss per share was 2.33p (2007: loss per share 0.70p).
The Board believes that retention and re-investment of capital will be beneficial for shareholders and, accordingly, will not be paying
a dividend.
Cash outflow from operations in the period was �6.51m compared with an outflow of �1.60m in the same period last year. This outflow was
the result, in the main, of working capital movements as the Group rapidly regulated its position with creditors. As at 30 April 2008 the
Group's net debt was �7.39m of which �6.09m was bank debt.
Operating Review
Anix
The primary strategic objective of Anix is to become the UK's number one provider of mid-market managed services, with a particular
focus on storage and servers, and a goal of increasing its recurring revenue stream.
Anix has increased the percentage of services revenues from 28% of its total revenues in the six months to 30 April 2007 to 46% for the
six months to 30 April 2008. 69% of gross margin originated from services, with the remainder being generated from hardware related
activities. The increased focus on recurring revenues gives greater forward visibility. �8.20m of the second half revenue was contracted at
the start of the six month period to 31 October 2008 from total contracts under management of �40m.
Anix's hardware reselling activities remain important to the business mix, albeit with less forward visibility. It enables Anix to
retain tier 1 relationships with its key vendor partners and also provides a vital reference and client access point for new managed service
contracts. The Board expects that further acquisitions in the area of managed services, and continued strong organic growth, will drive
gross margin higher in the current financial year.
In a tightening economic climate, managed services are becoming more attractive to both existing and potential new customers. The
ability to replace capital expenditure with operating expenditure means that the customer is able to retain cash for their own core
business. In addition, experience has shown that once a customer relationship has been established and a level of trust has been gained,
further business is more forthcoming. In some cases there has been as much as 100% organic growth from existing customers
Through its own data centres Anix has capacity for 100 customer racks dedicated to managed services. Anix has traditionally stayed away
from server hotel activities which tend to be lower margin and require significantly more scale. To this extent none of Anix's wholly owned
space is sublet to other suppliers. However, to provide scalability for future growth Anix has signed a three year contract which will allow
capacity for another 100 racks in a state-of-the-art data centre near Southampton.
In the period, Anix expanded its sales force by adding a new sales director and five new sales people, all of whom have exemplary track
records and have joined us from industry peers.
The Board is confident that Anix will continue its strong performance in the second half.
Itheon
Itheon has three strands to its software offering being: application assurance; storage resource analysis and utility billing for data
storage.
The Itheon storage resource analysis tool has shown encouraging results in FTSE customers despite these customers already utilising
vendor tools. A great deal of work has already been undertaken to provide this tool as a hosted solution that will simply allow customers to
log onto a website and operate the software themselves. While the software currently only works across the EMC product range, Xploite
anticipates it becoming platform independent by the year end which will greatly increase its market appeal.
Having completed an analysis of their storage requirements, customers are increasingly trying to understand how they can bill their
customers or internal departments for the amount of storage capacity consumed. Often storage is disproportionately consumed within
organisations and the ability to determine the exact usage by department, workgroup or even user is highly advantageous and also facilitates
more accurate forecasting of future requirements. This is very different to the normal charging method of storage which is based on
allocation rather than consumption.
A major reason behind the acquisition of Itheon was to enable Anix to utilise the software in lieu of IBM Tivoli and other vendor
offerings. This programme is progressing well. Additionally, the Group is starting to see customer wins generated by Anix as a result of
using the Itheon product. The recent �3.73m managed service win with a major European bank is a good example.
Itheon has had a slow start to the year; however, there is a strong pipeline for the second half that includes activity with the
majority of the world's top storage vendors. Itheon's management expects to see increased sales from their industry leading products.
Current trading and outlook
The Group's trading to date to date in the current financial year in line with the Board's expectations. The Directors remain confident
that the new acquisitions purchased last year and the Group's strategic focus, particularly the increase in recurring revenues, will
continue to provide attractive returns for shareholders.
Consolidated income statement
Six months ended 30 April 2008
Notes Unaudited Unaudited Unaudited
6 months 6 months Year ended
ended ended 31 October
30 April 30 April 2007
2008 2007 �'000
�'000 �'000
Continuing operations
Revenue 3 22,490 5,270 29,098
Cost of sales (16,225) (4,169) (22,648)
Gross profit 6,265 1,101 6,450
Administrative expenses (excluding (4,690) (1,638) (5,678)
depreciation, amortisation and
costs of integration)
Depreciation (489) (109) (524)
Amortisation and impairment of (1,411) (85) (536)
intangible assets
Costs of integration/exceptional (624) 215 (171)
credit
Total administrative expenses (7,214) (1,617) (6,909)
Earnings before finance 1,575 (537) 772
(cost)/income, tax, depreciation
amortisation and costs of
integration (EBITDA)
Less: depreciation (489) (109) (524)
Adjusted operating profit/(loss) 1,086 (646) 248
Less: amortisation and impairment (1,411) (85) (536)
of intangibles
Less: costs of (624) 215 (171)
integration/exceptional credit
Operating loss 3 (949) (516) (459)
Finance income 18 300 327
Finance cost (366) (61) (102)
Finance (cost)/income - net (348) 239 225
Loss before tax (1,297) (277) (234)
Tax credit 376 123 42
Loss for the period from (921) (154) (192)
continuing operations
Discontinued operations
(Loss)/profit for the period 3 - (118) 430
discontinued operations
(Loss)/profit for the period (921) (272) 238
attributable to equity
shareholders
Discontinued operations
Post tax results from discontinued - 213 492
operations
Loss on disposal of net tangible - (331) (20)
assets
Taxation - - (42)
Net loss on disposal - (331) (62)
Total - (118) 430
Earnings/(loss) per ordinary share 4
- basic (2.33) (0.70) 0.61
- diluted (2.33) (0.70) 0.57
Earnings/(loss) per ordinary share 4
from continuing operations
- basic (2.33) (0.40) (0.49)
- diluted (2.33) (0.40) (0.49)
Consolidated balance sheet
Notes Unaudited Unaudited Unaudited
30 April 30 April 31
2008 2007 October
�'000 �'000 2007
�'000
Assets
Non-current assets
Goodwill 21,342 15,603 21,280
Intangible assets 10,813 7,282 11,736
Property, plant and equipment 2,177 1,626 1,809
Deferred tax assets 324 15 371
Trade and other receivables 2,415 - 2,847
Deferred consideration on disposals 35 - 35
37,106 24,526 38,078
Current assets
Inventories 2 503 20
Trade and other receivables 14,419 14,434 14,493
Deferred consideration on disposals - 1,605 -
Cash and cash equivalents 634 306 4,225
15,055 16,848 18,738
Liabilities
Current liabilities
Trade and other payables (18,873) (22,784) (26,838)
Deferred consideration on acquisitions (3,284) - -
Current tax liabilities (926) (908) (908)
Borrowings (1,962) (296) (296)
(25,045) (23,988) (28,042)
Non-current liabilities
Borrowings (6,066) (322) (2,978)
Trade and other payables (3,295) (90) (3,667)
Deferred tax liabilities (2,891) (2,026) (3,267)
Deferred consideration on acquisitions - - (3,183)
(12,252) (2,438) (13,095)
Net assets 14,864 14,948 15,679
Shareholders' equity
Called up share capital 5 3,952 3,902 3,952
Share premium account 1,647 1,647 1,647
Merger reserve 3,511 3,393 3,511
Profit and loss account 5,457 5,868 6,378
Share based payment reserve 297 138 191
Total shareholder equity 14,864 14,948 15,679
Statement of changes in equity
Six months ended 30 April 2008
Unaudited Unaudited Unaudited
6 months 6 months Year ended
ended ended 31 October
30 April 30 April 2007
2008 2007 �'000
�'000 �'000
Shareholders' equity at beginning of 15,679 25,251 25,251
period
(Loss)/profit for the period (921) (272) 238
Increase in share based payment reserve 106 41 94
Shares issued in the year - 30 132
Share premium on shares issue in the year - 33 33
Issue of new shares on acquisition of - 177 243
subsidiary
Capital reduction - (10,312) (10,312)
Shareholders' equity at end of period 14,864 14,948 15,679
Consolidated cash flow statement
Six months ended 30 April 2008
Note Unaudited Unaudited Unaudited
6 months 6 months Year ended
ended ended 31 October
30 April 30 April 2007
2008 2007 �'000
�'000 �'000
Cash flows from operating
activities
Cash (used in) /generated from (a) (6,512) (1,604) 5,796
operations
Interest received 18 300 327
Interest paid (265) (61) (102)
Tax paid (80) (541) (615)
Net cash flows from operating (6,839) (1,906) 5,406
activities
Cash flows from investing
activities
Acquisition of subsidiaries (net of (62) (13,436) (18,590)
cash acquired)
Deferred consideration paid on - (1,871) (1,871)
prior period acquisitions
Disposal of subsidiaries (net of - - 252
cash disposed)
Deferred consideration received on - 4,270 5,875
prior period disposals
Purchase of intangible assets (488) - -
Purchase of property, plant and (187) (25) (347)
equipment
Proceeds from sale of property, - 29 70
plant and equipment
Available for sale investments - 2,000 2,000
Net cash flows used in investing (737) (9,033) (12,611)
activities
Cash flows from financing
activities
Net proceeds from issue of ordinary - 63 63
share capital
Capital repayment - reduction in - (10,312) (10,312)
share premium
Net proceeds from issue of bank 3,000 - 2,500
loan
Finance lease principal payments (239) (24) (246)
Repayment of borrowings (200) (830) (855)
Net cash used in financing 2,561 (11,103) (8,850)
activities
Net decrease in cash and cash (5,015) (22,042) (16,055)
equivalents
Cash and cash equivalents at start 4,225 20,280 20,280
of period
Cash and cash equivalents and bank (b) (790) (1,762) 4,225
overdrafts at end of period
Notes to the consolidated cash flow statement
(a) Cash generated from operations
Unaudited Unaudited Unaudited
6 months 6 months Year ended
ended ended 31 October
30 April 30 April 2007
2008 2007 �'000
�'000 �'000
Continuing operations
Net loss before tax (1,297) (277) (319)
Adjustments for:
Finance income/cost - net 348 (239) (225)
Depreciation 489 109 524
Amortisation 1,411 85 536
Share based payment charge 106 41 94
Decrease/(increase) in inventories 18 (18) 35
Decrease/(increase) in trade and other 506 (66) (6,465)
receivables
(Decrease)/increase in trade and other (8,093) (1,756) 10,868
payables
Cash (used in)/generated from (6,512) (2,121) 5,048
continuing operations
Discontinued operations
Net profit before tax - 213 472
Adjustments for:
Tax - - 42
Decrease in inventories - 468 487
(Increase)/decrease in trade and other receivables - (3,067) 1,032
Increase/(decrease) in trade and other payables - 2,903 (1,285)
Cash generated from discontinued operations - 517 748
Cash (used in)/generated from operations (6,512) (1,604) 5,796
(b) Reconciliation of net cash flow to movement in net (debt)/funds
Unaudited Unaudited Unaudited
6 months 6 months Year ended
ended ended 31 October
30 April 30 April 2007
2008 2007 �'000
�'000 �'000
Decrease in cash in the period (5,015) (22,042) (16,055)
Net cash (inflow)/outflow in respect of (2,800) 830 (1,645)
bank loan
Cash outflow in respect of finance 239 24 246
leases
Changes resulting from cash flows (7,576) (21,188) (17,454)
Non cash changes:
Loans and finance leases acquired with - (1,348) (1,400)
subsidiaries
New finance leases (670) (97) (547)
Change in net debt (8,246) (22,633) (19,401)
Net funds at beginning of period 852 20,253 20,253
Net (debt)/funds at end of period (7,394) (2,380) 852
Analysis of net (debt)/funds
Cash and cash equivalents and bank overdrafts (790) (1,762) 1,750
Hire purchase and finance lease obligations (1,306) (618) (898)
Bank loan (5,298) - -
Net (debt)/funds (7,394) (2,380) 852
Cash and cash equivalents and bank overdrafts
Cash at bank and in hand 634 306 4,225
Overdraft (1,424) (2,068) (2,475)
(790) (1,762) 1,750
Notes to the Interim Results
1. Approval of results
The interim statement for the six months ended 30 April 2008 was approved by the Board of Directors on 25 June 2008. They have not been
reviewed or audited by the Company's auditors.
This statement does not constitute statutory accounts within the meaning of the Companies Act 1985 and are unaudited. The figures for
the six months ended 30 April 2008 and the year ended 31 October 2007 have been extracted from the unaudited restatement of the Groups'
results under International Financial Reporting Standards (IFRS). The Group previously reported under UK GAAP.
2. Summary of significant accounting policies
(a) Basis of preparation
The statement for the six months ended 30 April 2008 have been prepared in accordance with the accounting policies the Group expects to
adopt in its 2008 Annual Report which are listed in note 6. These accounting policies are based on the EU-adopted IFRS that the Group
expects to be applicable at that time.
Detail on the main differences in accounting policy arising from the adoption of IFRS can be found in note 6 along with reconciliations
of the effect of the transition from UK GAAP to IFRS on the Group's equity, net income and cash flows.
(b) Consolidation
The results and net assets of subsidiary undertakings acquired are included in the consolidated income statement and consolidated
balance sheet using the acquisition method of accounting from the effective date at which control is obtained by the Group. Subsidiary
undertakings ceases to be consolidated from the date at which the Group no longer retains control. Control comprises the power to govern
the financial and operating policies of the investee so as to obtain benefits from their activities, and is achieved through direct or
indirect ownership of voting rights or by way of contractual agreement. All inter-company balances and transactions are eliminated in full.
3. Segmental analysis
The analysis used by management in monitoring the Group's risks and returns is by operation as presented below:
30 April 2008 Hardware Software Central costs Total
�'000 Total �'000 �'000 �'000
Hardware and
Services
�'000
Services
�'000
Continuing operations
Revenue 11,644 9,977 21,621 899 - 22,520
Less: intersegment sales - - - (30) - (30)
Total revenue from third 11,644 9,977 21,621 869 - 22,490
parties
Cost of sales (9,937) (6,157) (16,094) (131) - (16,225)
Gross profit 1,707 3,820 5,527 738 - 6,265
Administrative expenses (3,394) (534) (762) (4,690)
(excluding depreciation,
amortisation and costs of
integration)
Depreciation (445) (18) (26) (489)
Amortisation and impairment - (17) (1,394) (1,411)
Costs of integration (572) (52) - (624)
Total administrative expenses (4,411) (621) (2,182) (7,214))
Earnings/(costs) before 2,133 204 (762) 1,575
finance (cost)/income, tax,
depreciation amortisation and
costs of integration (EBITDA)
Less: depreciation (445) (18) (26) (489)
Adjusted operating 1,688 186 (788) 1,086
profit/(loss)
Less: amortisation and - (17) (1,394) (1,411)
impairment of intangibles
Less: costs of (572) (52) - (624)
integration/exceptional credit
Operating profit/(loss) 1,116 117 (2,182) (949)
Finance income 13 5 - 18
Finance cost (70) - (296) (366)
Finance (cost)/income - net (57) 5 (296) (348)
Profit/(loss) before tax 1,059 122 (2,478) (1,297)
Tax credit - - 376 376
Profit/(loss) for the period 1,059 122 (2,102) (921)
from continuing operations
30 April 2007 Mobile internet Hardware Central costs Total
solutions �'000 Total �'000 �'000
�'000 Hardware and
Services
�'000
Services
�'000
Continuing operations
Revenue - 3,789 1,481 5,270 - 5,270
Less: intersegment sales - - - - - -
Total revenue from third - 3,789 1,481 5,270 - 5,270
parties
Cost of sales - (3,224) (945) (4,169) - (4,169)
Gross profit - 565 536 1,101 - 1,101
Administrative expenses - (1,002) (636) (1,638)
(excluding depreciation,
amortisation and costs of
integration)
Depreciation - (101) (8) (109)
Amortisation - - (85) (85)
Costs of integration - 215 - 215
Total administrative expenses - (888) (729) (1,617)
Earnings/(costs) before - 99 (636) (537)
finance (cost)/income, tax,
depreciation amortisation and
costs of integration (EBITDA)
Less: depreciation - (101) (8) (109)
Adjusted operating - (2) (644) (646)
profit/(loss)
Less: amortisation and - - (85) (85)
impairment of intangibles
Less: costs of - 215 - 215
integration/exceptional credit
Operating profit/(loss) - 213 (729) (516)
Finance income - 127* 173 300
Finance cost - (22) (39) (61)
Finance income - net - 105 134 239
Profit/(loss) before tax - 318 (595) (277)
Tax credit - - 123 123
Profit/(loss)for the period - 318 (472) (154)
from continuing operations
Discontinued operations
Revenue 1,442 - - 1,442
Post tax results 213 - - 213
Loss on disposal of net (331) - - (331)
tangible assets
Taxation - - - -
Net loss on disposal (331) - - (331)
Loss before tax (118) - - (118)
*Exceptional credit arising on the write back of the settlement of a liability
31 October 2007 Mobile internet Hardware�'000 Total Software Central costs Total
solutions Hardware and �'000 �'000 �'000
�'000 Services
�'000
Services
�'000
Continuing operations
Revenue - 18,531 10,396 28,927 171 - 29,098
Less: intersegment sales - - - - - - -
Total revenue from third - 18,531 10,396 28,927 171 - 29,098
parties
Cost of sales - (15,726) (6,915) (22,641) (7) - (22,648)
Gross profit - 2,805 3,481 6,286 164 - 6,450
Administrative expenses - (4,251) (92) (1,335) (5,678)
(excluding Depreciation,
Amortisation and One off costs
of integration)
Depreciation - (499) (5) (20) (524)
Amortisation - - - (536) (536)
One off costs of integration - (171) - - (171)
Total administrative expenses - (4,921) (97) (1,891) (6,909)
Earnings/(costs) before - 2,035 72 (1,335) 772
finance (cost)/income, tax,
depreciation amortisation and
costs of integration
Less: depreciation - (499) (5) (20) (524)
Adjusted operating - 1,536 67 (1,355) 248
profit/(loss)
Less: amortisation and - - - (536) (536)
impairment of intangibles
Less: costs of - (171) - - (171)
integration/exceptional credit
Operating profit/(loss) - 1,365 67 (1,891) (459)
Finance income - 127* - 200 327
Finance cost - (56) - (46) (102)
Finance income - net - 71 - 154 225
Profit/(loss) before tax - 1,436 67 (1,737) (234)
Tax credit - - - 42 42
Profit/(loss) for the period - 1,436 67 (1,695) (192)
Discontinued operations
Revenue 2,129 - - - 2,129
Post tax results 492 - - - 492
Loss on disposal of net (20) - - - (20)
tangible assets
Taxation (42) - - - (42)
Net loss on disposal (62) - - - (62)
Profit before tax 430 - - - 430
*Exceptional credit arising on the write back of the settlement of a liability
4. Earnings per share
In accordance with IAS 33, the calculation of profit/(loss) per ordinary share is based upon:
Unaudited Unaudited Unaudited
6 months 6 months ended 30 Year ended 31
ended April 2007 October 2007
30 April �'000 �'000
2008
�'000
Profit attributable to equity
holders
Continuing operations (921) (154) (192)
Discontinued operations - (118) 430
(921) (272) 238
Adjustments:
Amortisation of intangible 1,411 85 536
assets
Costs of 624 (215) 171
integration/(exceptional
credit)
Adjusted profit/(loss) 1,114 (402) 945
Basic weighted average number 39,516,955 38,715,830 39,202,070
of shares
Diluted weighted average 39,516,955 38,715,830 41,687,373
number of shares
Earnings per share - pence
Basic (2.33) (0.70) 0.61
Diluted (2.33) (0.70) 0.57
Basic - continuing (2.33) (0.40) (0.49)
Diluted - continuing (2.33) (0.40) (0.49)
Adjusted - Basic 2.82 (1.04) 2.41
Adjusted - Diluted 2.82 (1.04) 2.27
Where there is a loss, the share options are not dilutive and hence the diluted earnings per share is the same as basic.
In the period to 30 April 2008, the share options did not have a dilutive effect on the number of shares in issue.
5. Called up share capital
Unaudited Unaudited Unaudited
6 months ended 30 6 months ended 30 Year ended
April 2008 April 2007 31 October
�'000 �'000 2007
�'000
Authorised
50,000,000 ordinary shares of 5,000 5,000 5,000
10p each
Allotted, called up and fully Number Number Number
paid
Ordinary shares of 10p each 39,516,955 39,025,717 39,516,955
Allotted, called up and fully �'000 �'000 �'000
paid
Ordinary shares of 10p each 3,952 3,902 3,952
6. Transition to IFRS
(a) Application of IFRS 1: First time adoption of International Accounting Standards
The Group is preparing its financial statements in accordance with IFRS as adopted by the European Union for the first time and
consequently has applied IRFS 1 First-time Adoption of International Financial Reporting Standards. The Groups' transition date is 1
November 2006.
IFRS 1 First time adoption of International Financial Reporting Standards sets out the transition rules, which must be applied, when
IFRS is adopted for the first time. The standard sets out certain mandatory exemptions to retrospective application and certain optional
exemptions. The optional exemptions available and taken by the Group are as follows:
(i) Deemed cost; the Group has taken the exemption not to restate individual items of property plant and equipment to fair value at the
date of transition.
(ii) Business combinations; the Group adopted the business combinations exemption in IFRS 1. It has not restated business combinations
that took place prior to the 1 November 2006 transition date.
(b) Main policy differences between IFRS and UK GAAP
(i) Acquisition of subsidiaries; IFRS 3 Business Combinations and IAS 12 Income taxes
Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill is not amortised, instead it is subject to annual impairment tests, or more frequently if
there is an indication of impairment. An adjustment has therefore been made to reverse the goodwill amortisation previously charged.
IFRS 3 also requires that intangible assets acquired are identified separately from goodwill. Hence for the business combinations
acquired after 1 November 2006 part of the cost of acquisition has been allocated to intangible assets. This element is then amortised
through the income statement over the useful economic life as noted in the detailed accounting policies. An adjustment has been made for
the reallocation to intangible assets along with the appropriate amortisation charge.
A deferred tax liability has been provided against these intangible assets, resulting in an increase in residual goodwill by this
amount. Although this liability has been recognised in accordance with IAS12, and a proportion will be amortised to the income statement as
the related intangible asset is amortised, this liability is only payable if the intangible asset is sold separately and this is not
expected to happen.
(ii) Deferred tax; IAS 12 Income taxes
Deferred tax is provided in full using the liability method, on temporary differences arising between the tax base of assets and
liabilities and their carrying amounts in the consolidated accounts.
Deferred tax impacts arise on all the IFRS adjustments made as noted in the reconciliations including the intangible assets as noted
above.
(iii) Computer software; IAS 38 Intangible assets
Under UK GAAP, all capitalised computer software is included within tangible fixed assets on the balance sheet. Under IFRS, only
computer software that is integral to a related item of hardware should be included as property, plant and equipment. All other computer
software should be recorded as an intangible asset. Accordingly, a reclassification has been made from tangible assets to intangible assets
for this software.
(iv) Fair value of available for sale financial assets; IAS 39 Financial instruments: Recognition and measurement
Under IFRS, available for sale financial assets must be reported in the balance sheet at their fair values with the corresponding entry
to the income statement. Under UK GAAP these assets were stated at historic cost. The impact of this change is to increase the fair value at
the date of transition. Increasing the fair value at the date of acquisition, increased the loss to the profit and loss account on their
subsequent sale.
(v) Holiday pay accrual; IAS 19 Employee Benefits
IAS 19 requires the recording of a holiday pay accrual. This has been included in the acquisition balance sheets with a corresponding
entry to goodwill. There are income statement impacts when comparing a position at 31 October to 30 April. On an annual basis, no
significant impact is expected.
(C) Reconciliations between IFRS and UK GAAP
(i) Reconciliation of UK GAAP loss to IFRS (loss)/profit
Note Unaudited Unaudited*
6 months Year ended
ended 31 October 2007
30 April �'000
2007
�'000
Loss for the period/year as reported under (245) (565)
UK GAAP
Adjustments for:
Reinstatement of goodwill amortisation (i) 266 1,357
Amortisation of intangible assets (i) (85) (536)
Deferred tax on amortisation of intangible (i) 24 150
assets
Movement on fair value of financial (iv) (331) (331)
instruments
Deferred tax on movement on fair value of (ii) 99 99
financial instruments
Movement on holiday pay accrual (v) - 89
Deferred tax on movement on holiday pay (ii) - (25)
accrual
Net impact of adjustments (27) 803
Total (loss)/profit for the period/year as (272) 238
reported under IFRS
(ii) Reconciliation of equity from UK GAAP to IFRS
Note Unaudited* Unaudited Unaudited*
31 October 30 April 31 October
2006 2007 2007
�'000 �'000 �'000
Total equity as reported under UK 25,019 14,743 14,644
GAAP
Adjustments for:
Transfer to intangible assets from (i) - 7,322 12,115
goodwill
Transfer from goodwill to (i) - (7,322) (12,115)
intangible assets
Deferred tax liability on (i) - 2,050 3,392
intangibles to goodwill
Deferred tax liability (i) - (2,050) (3,392)
Reinstatement of goodwill (i) - 266 1,357
amortisation
Amortisation of intangible assets (i) - (85) (536)
Deferred tax on amortisation of (i) - 24 150
intangible assets
Transfer of software costs to (iii) 45 157
intangible assets
Transfer of software costs from (iii) (45) (157)
tangible assets to intangible
assets
Movement on fair value of financial (iv) 331 - -
instruments
Deferred tax on movement on fair (ii) (99) - -
value of financial instruments
Adjustment to goodwill re: holiday (v) - 156 156
pay accrual
Accrual for holiday pay (v) - (156) (156)
Movement on holiday pay accrual (v) - - 89
Deferred tax on movement on holiday (ii) - - (25)
pay accrual
Net impact of adjustments 232 205 1,035
Total equity as reported under IFRS 25,251 14,948 15,679
*Unaudited except for the loss for the period and equity at the period end as stated under UK GAAP
(iii) Reconciliation of cash flows from UK GAAP to IFRS
The consolidated statement of cash flows prepared under IFRS presents substantially the same information as that required under UK
GAAP.
Under IFRS only three categories of cash flow activity are required to be reported: operating, investing and financing. Cash flows from
returns on investments and servicing of finance under UK GAAP are including as operating activities and investing activities respectively
under IFRS. There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement
presented under UK GAAP.
D) Detailed reconciliations between IFRS and UK GAAP
(i) Reconciliations of UK GAAP consolidated profit and loss account to IFRS consolidated income statement
Six months ended 30 April 2007 (date of corresponding interim financial information)
UK GAAP Effect of transition IFRS
Unaudited to IFRS Unaudited
6 months �'000 6 months
ended ended
30 April 30 April
2007 2007
�'000 �'000
Continuing operations
Revenue 5,270 - 5,270
Cost of sales (4,169) - (4,169)
Gross profit 1,101 - 1,101
Administrative expenses (1,638) - (1,638)
(excluding depreciation,
amortisation and costs of
integration)
Depreciation (109) - (109)
Amortisation (266) 181 (85)
Exceptional credit 215 - 215
Total administrative expenses (1,798) 181 (1,617)
OPERATING LOSS (697) 181 (516)
Finance income 300 - 300
Finance cost (61) - (61)
Finance income - net 239 - 239
Loss before tax (458) 181 (277)
Tax credit - 123 123
Loss for the period from (458) 304 (154)
continuing operations
Discontinued operations
Profit/(loss) for the period 213 (331) (118)
from discontinued operations
Loss for the period (245) (27) (272)
attributable to equity
shareholders
Discontinued operations
Post tax results from 213 - 213
discontinued operations
Loss on disposal of net - (331) (331)
tangible assets
Taxation - - -
Net loss on disposal - (331) (331)
Total 213 (331) (118)
Year ended 31 October 2007 (last period presented under UK GAAP)
UK GAAP Effect of transition IFRS
Audited to IFRS Unaudited
Year ended �'000 Year ended
31 October 31 October
2007 2007
�'000 �'000
Continuing operations
Revenue 29,098 - 29,098
Cost of sales (22,648) - (22,648)
Gross profit 6,450 - 6,450
Administrative expenses (5,767) 89 (5,678)
(excluding depreciation,
amortisation and costs of
integration)
Depreciation (524) - (524)
Amortisation (1,357) 821 (536)
Costs of integration (171) - (171)
Total administrative expenses (7,819) 910 (6,909)
Operating loss (1,369) 910 (459)
Finance income 327 - 327
Finance cost (102) - (102)
Finance income - net 225 - 225
Loss before tax (1,144) 910 (234)
Tax (expense)/credit (182) 224 42
Loss for the year from (1,326) 1,134 (192)
continuing operations
Discontinued operations
Profit for the year from 761 (331) 430
discontinued operations
(Loss)/profit for the year (565) 803 238
attributable to equity
shareholders
Post tax results from 492 - 492
discontinued operations
Gain/(loss) on disposal of net 311 (331) (20)
tangible assets
Taxation (42) - (42)
Net gain/(loss) on disposal 269 (331) (62)
Total 761 (331) 430
(ii) Reconciliations of equity at 1 November 2006 (end of last period under UK GAAP) from UK GAAP to IFRS
As at 1 November 2006 (date of transition)
UK GAAP Effect of IFRS
Audited transition Unaudited
31 October 2006 to IFRS 31 October
�'000 �'000 2006
�'000
Assets
Non-current assets
Property, plant and equipment 62 - 62
Deferred tax assets 15 - 15
Available for sale financial assets 2,000 331 2,331
2,077 331 2,408
Current assets
Inventories 861 - 861
Trade and other receivables 1,885 - 1,885
Deferred consideration on disposals 5,875 - 5,875
Cash and cash equivalents 20,280 - 20,280
28,901 - 28,901
Liabilities
Current liabilities
Trade and other payables (2,973) - (2,973)
Deferred consideration on (1,871) - (1,871)
acquisitions
Current tax liabilities (1,088) - (1,088)
Borrowings (9) - (9)
(5,941) - (5,941)
Non current liabilities
Borrowings (18) - (18)
Deferred tax liabilities - (99) (99)
(18) (99) (117)
Net assets 25,019 232 25,251
Shareholders' equity
Called up share capital 3,820 - 3,820
Share premium account 11,926 - 11,926
Merger reserve 3,268 - 3,268
Profit and loss account 6,005 232 6,237
Total shareholder equity 25,019 232 25,251
(iii) Reconciliations of equity at 30 April 2007 and 31 October 2007 from UK GAAP to IFRS
Six months ended 30 April 2007 (date of corresponding interim financial statements)
UK GAAP Effect of transition to IFRS IFRS
Unaudite �'000 Unaudite
d d
�'000 �'000
Assets
Non-current assets
Goodwill 20,453 (4,850) 15,603
Intangible assets - 7,282 7,282
Property, plant and equipment 1,671 (45) 1,626
Deferred tax assets 15 - 15
22,139 2,387 24,526
Current assets
Inventories 503 - 503
Trade and other receivables 14,434 - 14,434
Deferred consideration on 1,605 - 1,605
disposals
Cash and cash equivalents 306 - 306
16,848 - 16,848
Liabilities
Current liabilities
Trade and other payables (22,628) (156) (22,784)
Current tax liabilities (908) - (908)
Borrowings (296) - (296)
(23,832) (156) (23,988)
Non current liabilities
Borrowings (322) - (322)
Trade and other payables (90) - (90)
Deferred tax liabilities - (2,026) (2,026)
(412) (2,026) (2,438)
Net assets 14,743 205 14,948
Shareholders' equity
Called up share capital 3,902 - 3,902
Share premium account 1,647 - 1,647
Merger reserve 3,393 - 3,393
Profit and loss account 5,663 205 5,868
Share based payment reserve 138 - 138
Total shareholder equity 14,743 205 14,948
Year ended 31 October 2007 (end of last period presented under UK GAAP)
UK GAAP Effect of transition to IFRS IFRS
Audited �'000 Unaudite
�'000 d
�'000
Assets
Non-current assets
Goodwill 28,490 (7,210) 21,280
Intangible assets - 11,736 11,736
Property, plant and equipment 1,966 (157) 1,809
Deferred tax assets 371 - 371
Trade and other receivables 2,847 - 2,847
Deferred consideration on 35 - 35
disposals
33,709 4,369 38,078
Current assets
Inventories 20 - 20
Trade and other receivables 14,493 - 14,493
Cash and cash equivalents 4,225 - 4,225
18,738 - 18,738
Liabilities
Current liabilities
Trade and other payables (26,771) (67) (26,838)
Current tax liabilities (908) - (908)
Borrowings (296) - (296)
(27,975) (67) (28,042)
Non-current liabilities
Borrowings (2,978) - (2,978)
Trade and other payables (3,667) - (3,667)
Deferred tax liabilities - (3,267) (3,267)
Deferred consideration on (3,183) - (3,183)
acquisitions
(9,828) (3,267) (13,095)
Net assets 14,644 1,035 15,679
Shareholders' equity
Called up share capital 3,952 - 3,952
Share premium account 1,647 - 1,647
Merger reserve 3,511 - 3,511
Profit and loss account 5,343 1,035 6,378
Share based payment reserve 191 - 191
Total shareholder equity 14,644 1,035 15,679
(a) Accounting policies to be adopted for the year ending 31 October 2008
At the time of preparing these interim financial statements the IFRS policies that are expected to be applicable at 31 October 2008 are
given below.
Revenue recognition
Revenue comprises the value of sales to customers, excluding value added taxes. Revenue is recognised when the risks and rewards of
ownership have passed to the customer.
Hardware
Hardware revenue is recognised when the hardware is delivered and accepted by the customer. Software revenue is recognised depending on
licensing terms:
1. For a licence in perpetuity, where there are no further obligations, the revenue is recognised at the time the
licence is sold.
2. For a licence that has a fixed term and there are further obligations the revenue is recognised over the term
of the licence.
Maintenance and managed services
Maintenance revenue is recognised depending on the terms of the maintenance agreement:
1. Where the maintenance is sold for a fixed term and there is a continuing performance obligation, then the
revenue is deferred and recognised over the term of the agreement.
2. Where maintenance is sold for a fixed term and there is a continuing constructive obligation then revenue is
deferred over the term of the agreement.
3. For maintenance that is sold on behalf of a third party, and where it can be shown that there is no continuing
constructive obligations then the revenue is recognised at the time of sale.
Managed services revenue is recognised over the period to which the sales obligations are fulfilled under the related sales contract
Long term contracts
With longer term contracts where a contract typically covers an initial activity comprising the design, supply, professional services
and thereafter the provision of specific support and maintenance service solutions, the contract value is split into a number of elements
based on the fair value of each element of the contract.
The projected outcome of any given contract is necessarily based on the estimates of the revenues and costs to completion. Whilst the
assumptions made are based on professional judgements, subsequent events may mean that estimates as calculated prove inaccurate, with a
consequent effect on the reporting results.
Profit is recognised on the percentage of completion basis, provided the outcome of the contract can be reliably measured. Where the
percentage completion method cannot be measured reliably, revenue is recognised when specified contractual milestones have been met or on
project completion. Full provision is made for estimated losses.
Fair value attribution
Where a project involves the invoicing of equipment together with professional services, the recognition of revenue is in accordance
with the following:
Hardware margin On delivery of the equipment to the customer
Professional Services Throughout the duration of the project on a percentage of completion basis
Accrued income/deferred income
To the extent that the recognition of revenue differs from the contractual billing terms, revenue is either accrued or amounts billed in
advance are treated as deferred income.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of
the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses. The carrying value of capitalised goodwill is reviewed if events or changes in circumstances indicate a potential
impairment. Any impairment is charged to the income statement. Gains and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and impairment losses.
An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from
contractual or other legal rights and its fair value can be measured reliably.
Expenditure on internally developed intangible assets, excluding development costs, is taken to the income statement in the year in
which it is incurred. Development expenditure is recognised as an intangible asset only after its reliable measurement, technical
feasibility and commercial viability can be demonstrated.
Software and software licences are classified as intangible assets and include computer software that is not integral to a related item
of hardware.
Intangible assets with a finite life are amortised on a straight line basis over their expected useful lives, as follows:
- Brands - 5 to 15 years
- Customer contracts and related relationships - 6 to 10 years
- Software - 4 to 7 years
Impairment and amortisation charges are included within the administrative expenses line in the income statement.
Property, plant and equipment
Tangible fixed assets are stated at cost less accumulated depreciation and impairment losses.
Depreciation is provided at rates calculated to write off the cost or valuation of fixed assets, less their estimated residual value
over their expected useful lives on the following basis:
Leasehold fixtures and fittings 20% per annum - straight line
Property improvements over period of lease
Motor vehicles 25% per annum - straight line
Fixtures, fittings and equipment 20%-50% per annum - straight line
The Directors annually review the level of estimated useful lives of the fixed assets.
Tax
Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based
on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements.
A deferred tax liability is provided on intangible assets acquired as part of a business combination. This results in an increase in
residual goodwill by the same amount. Although this liability has been recognised in accordance with IAS12, and a proportion will be
amortised to the income statement as the related intangible asset is amortised. This liability is only payable if the intangible asset is
sold separately and this is not expected to happen.
Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred tax balances are not discounted.
Gross profit
In the accounts, gross profit is calculated by subtracting the cost of goods sold and the salaries of technical staff involved in the
delivery of goods and services, from revenue.
Costs of integration
Integration costs are incurred by the group when integrating one trading business with another. The type of costs includes staff related
costs such as redundancy, property costs such as lease termination penalties and re-branding costs.
Integration costs are highlighted separately on the profit and loss account as management believe that they need to be considered
separately to gain and understanding of the underlying profitability of the trading businesses.
In 2007, an exceptional credit arose with respect to the write back of a creditor on the early settlement of a liability.
Holiday pay
The group accrues for holiday pay to the extent of what would be paid out if all employees of the Group left the business at its
reporting date.
Inventories
Inventories are valued at the lower of cost and net realisable value after making allowances for any slow or obsolete items.
Trade and other receivables
Trade receivables are recognised and carried at fair value. Allowance is made when collection of the full amount is no longer probable.
Bad debts are written off when identified.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand.
For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective
interest method.
Share based payments
The group operates a number of equity-settled, share-based payment compensation plans. The fair value of the employee service received
in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined
by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability
and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest.
At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of
the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium
when the options are exercised.
Leases
Assets held under leases that result in Group companies receiving substantially all the risks and rewards of ownership are classified as
finance leases and capitalised as tangible fixed assets at the estimated present value of the underlying lease payments. The interest
element of the rental obligation is allocated to the accounting periods to reflect a constant rate of interest on the outstanding
obligation. The corresponding finance lease obligation is included within creditors.
Rentals under operating leases are charged to the profit and loss account as incurred.
Pension
Pension contributions made into personal pension's schemes are charged to the profit and loss account as incurred.
Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The significant estimates and assumptions used include the following:
Impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The recoverable amounts
of cash-generating units have been determined based on value-in-use. These calculations require the use of estimates.
Valuation of intangible assets
Management have to make a number of estimates and judgements when valuing intangible assets. For example expected growth rates,
attrition rates, useful economic lives and royalty rates.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRGDLIUDGGIU
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