Real Affinity plc
Interim Results for the six months to 30 September 2007
Further significant increase in turnover
Real Affinity plc ("Real Affinity" or "the Company"), the AIM quoted
marketing services company, announces its unaudited interim results
for the six months ended 30 September 2007.
Highlights
* Turnover on continuing business increased to £11.46m (2006:
£7.77m), representing a 47.6% increase
* Gross profit up to £3.33m (2006: £2.78m) representing a 19.8%
increase
* Operating loss of £345,000 (2006: Loss: £267,000)
* Net loss on ordinary activities before taxation, after charging
impairment of intangible assets of £668,000, increased to
£1,403,000 (2006 Loss: £462,000), being significantly reduced
when compared to 2007 full year loss of £4,140,000
* £1 million funding facility agreed with Red Kite Capital Partners
Ltd
* Appointment of John Ross as Executive Chairman and Martyn Archer
as Group Finance Director, following the resignation of Gerard
Corcoran as Chief Executive
* Notable new business wins including AXA and WH Smith
* New and simplified operational structures introduced
* Sale of Evolve and cessation of trade at Navigator
* Closure of Milton Keynes office
John Ross, Executive Chairman, Real Affinity plc commented:
"The financial performance in the half year ended 30 September was
again below our expectations and trading conditions, particularly for
winning new business, remain very challenging.
"However, we are pleased that the business has clearly improved its
operational performance compared with the second half of last year,
particularly as the benefits of the management and structural changes
to the business carried out in the last six months have yet to
manifest themselves fully in our trading performance.
"Both divisional businesses, Real Affinity Agency and Real Affinity
Events are expected to deliver positive earnings in the year to 31
March 2008 but central costs remain too high and it is likely that an
overall loss before tax will be recorded. However, the Board
believes that a platform for further growth has been put in place and
that next year will be the end of the loss-making and restructuring
phase of the business. Then further expansion both organically and by
selective acquisition can be planned".
31 December 2007
ENQUIRIES:
Real Affinity 0113 290 8730
Martyn Archer, Group Finance Director
Brent Fitzpatrick, Non-executive Director
HB Corporate 020 7510 8600
Edward Hutton / Rachel Kane
Bankside Consultants 020 7367 8888
Michael Padley / Susan Scott
Chairman's Statement
These interim statements for the six months ended 30 June 2007 are
the first that the Company has prepared under International Financial
Reporting Standards ("IFRS") and include reconciliations to the
previously reported numbers prepared under UK GAAP, as well as a
comprehensive restatement of the Company's current accounting
policies. The numbers reported for 31 March 2007 have been audited
under UK GAAP but not under IFRS. The major reconciling item between
UK GAAP and IFRS has arisen following the review of intangibles.
Results
The unaudited results for the six months to 30 September 2007 show a
turnover of £11.46m (2006: £8.10m) with a gross profit of £3.33m
(2006: £2.78m), and an operating loss of £345,000 (2006: £267,000).
After exceptional costs of £275,000 (2006: £54,000), impairment of
intangibles of £668,000 (2006: Nil) and net finance costs of £115,000
(2006: £141,000), the net loss after interest and tax for the period
is £1,403,000 against a net loss after interest and tax of £462,000
for the corresponding period in 2006. The valuation of intangibles,
generating the charge of £668,000, has been undertaken for the
purposes of converting to IFRS.
As previously announced, on 2 August 2007, a £1 million non-interest
bearing funding facility was agreed with Red Kite Capital Partners
Ltd (a company controlled by John Ross), in the form of a convertible
redeemable unsecured loan note, to meet the ongoing working capital
requirements of the Company. The amount drawn down under the facility
at the period end was £390,000.
Senior Management Changes
On 26 July 2007 Gerard Corcoran resigned and John Ross became
Executive Chairman. On 1 November 2007 Martyn Archer was appointed as
Group Finance Director.
Proposed Capital Reorganisation
The market price of the ordinary shares has consistently been below
par value for a number of months, and the Directors will be seeking
approval at the forthcoming Extraordinary General Meeting to
reorganise the share capital. Further details of the proposed capital
reorganisation will be set out in a circular to be sent to
shareholders.
In addition, the impairment review of our intangible assets, as
required under IFRS, has resulted in the net assets falling below 50%
of the called up share capital. Under S142 of Companies Act 1985, the
Directors are required to call an EGM to consider what steps, if any,
should be taken to deal with this situation.
Dividends
Once again, we are unable to recommend or pay a dividend on our
ordinary shares.
Outlook
The Company continues to remain focused on targeting new and existing
customers for our comprehensive, integrated range of marketing
services. Strategically we are marketing the Real Affinity brand, as
we look to raise the profile of the Company rather than the original
individual businesses. The New Business Sales team is now operating
at Company level to ensure opportunities are maximised for
cross-selling into both new customers and our blue chip client base.
Progress has been made in the divisionalisation of business
activities, which has allowed the Company the opportunity to reduce
its cost base, whilst ensuring that a more integrated and dynamic
approach supports our clients' needs. This will be a continuing
process of ongoing improvement within the business.
John Ross
Chairman
31 December 2007
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Total operations, including continuing, acquired and discontinued #
Six month Six month
period ended period ended Year ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
As restated As restated
REVENUE 4 11,463 8,105 19,576
Cost of sales (8,130) (5,321) (14,117)
---------- ---------- ----------
GROSS PROFIT 3,333 2,784 5,459
Other operating (3,678) (3,051) (6,294)
expenses
---------- ---------- ----------
RESULT FROM OPERATING
ACTIVITIES (345) (267) (835)
Reorganisation costs (275) (54) (1,366)
Impairment of (668) - (1,768)
Intangibles
Net finance costs (115) (141) (171)
---------- ---------- ----------
LOSS BEFORE TAX (1,403) (462) (4,140)
Income tax expense - - (51)
---------- ---------- ----------
LOSS FOR THE PERIOD (1,403) (462) (4,191)
====== ===== ======
Basic and diluted 2 (0.04)p (0.02)p (0.15)p
loss per share
====== ====== ======
# Refer to Note 5 for the analysis of continuing, acquired and
discontinued operations. All operations in the sixth month period
ended 30 September 2007 were continuing operations.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Six month Six month
period ended period ended Year ended
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
As restated As restated
ASSETS
Non-current assets
Property, plant and 619 680 594
equipment
Goodwill 3,873 5,473 4,530
Other tangible assets - 35 -
-------- -------- --------
4,492 6,188 5,120
Current assets
Inventories 348 578 251
Trade and other receivables 2,849 3,369 4,377
Cash and cash equivalents 1,618 639 2,104
-------- -------- --------
4,815 4,586 6,732
-------- -------- --------
TOTAL ASSETS 9,307 10,774 11,856
===== ===== =====
EQUITY AND LIABILITIES
Equity attributable to the
equity holders of the
parent
Share capital 3,249 2,807 3,249
Shares to be issued 1,400 673 1,400
Share premium reserve 5,979 5,897 5,979
Other reserves 479 439 439
Retained earnings (10,875) (5,742) (9,472)
---------- ---------- ----------
232 4,074 1,595
Non-current liabilities
Long term borrowings 647 401 345
Deferred tax liabilities 33 - 33
-------- -------- --------
680 401 378
Current liabilities
Current portion of 2,288 394 2,459
long-term borrowings
Trade and other payables 5,669 5,542 6,945
Current tax liabilities 438 363 479
-------- -------- --------
8,395 6,299 9,883
-------- -------- --------
TOTAL EQUITY AND
LIABILITIES 9,307 10,774 11,856
===== ===== =====
CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
Six month Six month
period ended period ended Year ended
30 September 30 September 31 March
2007 2006 2007
Notes £'000 £'000 £'000
As restated As restated
CASH FLOWS FROM
OPERATING ACTIVITIES
Cash generated from 3 (321) (273) (699)
operations
Interest paid (145) (69) (204)
Income taxes paid - - (5)
-------- -------- --------
NET CASH (USED IN) /
GENERATED FROM
OPERATING ACTIVITIES (466) (342) (908)
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition of - (2,047) (573)
subsidiaries
Net cash acquired on
acquisition of - 947 961
subsidiaries
Purchase of minority
interests in - - -
subsidiaries
Purchase of property,
plant and equipment (129) (40) (95)
Proceeds from sale of
property, plant and - - 1
equipment
Purchase of available
for sale investments (10) - -
Proceeds from sale of
available for sale - - -
investments
Interest received 45 - 55
-------- -------- --------
NET CASH USED IN
INVESTING ACTIVITIES (94) (1,140) 349
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from the
issue of share - 1,616 905
capital
Proceeds from the
exercise of share - - -
options
Proceeds from 390 216 (9)
long-term borrowings
Redemption of (342) - (27)
long-term borrowings
Payment of finance (17) (21) (37)
lease liabilities
-------- -------- --------
NET CASH (USED IN) /
GENERATED FROM
FINANCING ACTIVITIES 31 1,811 832
NET DECREASE IN CASH
AND CASH EQUIVALENTS (529) 329 273
CASH AND CASH
EQUIVALENTS AT THE
BEGINNING OF THE 4 (269) (269)
PERIOD
-------- -------- --------
CASH AND CASH
EQUIVALENTS AT THE (525) 60 4
END OF THE PERIOD
====== ====== ======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
As at 30 September 2007
Share Share Shares Other Retained TOTAL
capital premium to reserves earnings EQUITY
reserve be issued #
£'000 £'000 £'000 £'000 £'000 £'000
As As As
restated restated restated
BALANCE AT 1 3,249 5,979 1,400 439 (9,472) 1,595
APRIL 2007
CHANGES IN
EQUITY
Loss for the - - - - (1,403) (1,403)
period
TOTAL
RECOGNISED - - - - (1,403) (1,403)
INCOME AND
EXPENSE
Issue of - - - - - -
share capital
Equity 40 40
element of
loan funding
Settlement of - - - - - -
consideration
Additions
relating to - - - - - -
acquisitions
--------- --------- --------- --------- --------- ---------
BALANCE AT 30
SEPTEMBER 3,249 5,979 1,400 479 (10,875) 232
2007
====== ====== ====== ====== ====== ======
# At 30 September 2007, other reserves includes a reserve of
£1,400,000 representing shares to be issued relating to the
acquisition of Conferaccom Limited and Corporate Hospitality Services
Limited.
As at 31 March 2007
Share Share Shares Other Retained TOTAL
capital premium to reserves earnings EQUITY
reserve be issued #
£'000 £'000 £'000 £'000 £'000 £'000
As As As
restated restated restated
BALANCE AT 1
OCTOBER 2006 2,807 5,897 673 439 (5,742) 4,074
CHANGES IN
EQUITY
Loss for the - - - - (3,730) (3,730)
period
TOTAL
RECOGNISED - - - - (3,730) (3,730)
INCOME AND
EXPENSE
Issue of 442 82 - - - 524
share capital
Settlement of
consideration - - - - - -
Additions
relating to - - 727 - - -
acquisitions
--------- --------- --------- --------- --------- ---------
BALANCE AT 31
MARCH 2007 3,249 5,979 1,400 439 (9,472) 1,595
====== ====== ====== ====== ====== ======
# At 31 March 2007, other reserves includes a reserve of £1,400,000
representing shares to be issued relating to the acquisition of
Conferaccom Limited and Corporate Hospitality Services Limited.
As at 30 September 2006
Share Share Shares Other Retained TOTAL
capital premium to reserves earnings EQUITY
reserve be issued #
£'000 £'000 £'000 £'000 £'000 £'000
As As As
restated restated restated
BALANCE AT 1
APRIL2006
Adjusted 1,622 5,466 462 439 (5,281) 2,708
balance
CHANGES IN
EQUITY
Loss for the - - - - (461) (461)
period
TOTAL
RECOGNISED - - - - (461) (461)
INCOME AND
EXPENSE
Issue of 1,185 431 - - - 1,616
share capital
Settlement of
consideration - - (462) - - (462)
Additions
relating to - - 1,135 - - 1,135
acquisitions
--------- --------- --------- --------- --------- ---------
BALANCE AT 30
SEPTEMBER 2,807 5,897 673 439 (5,742) 4,074
2006
====== ====== ====== ====== ====== ======
# At 30 September 2006, other reserves includes a merger reserve of
£427,000 and a reserve of £12,000 relating to the equity element of
convertible loan notes.
NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PREPARATION
Real Affinity plc will be reporting its financial results in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRS") with effect from 1 April 2007.
The financial information in these interim group financial statements
has been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS") for the
first time and the first annual report to be prepared in accordance
with IFRS will be for the year ended 31 March 2008. The last set of
group financial statements presented by the company under United
Kingdom Generally Accepted Accounting Practice ("UK GAAP") was for
the year ended 31 March 2007. The date of transition to IFRS is
therefore 1 April 2006. The interim group financial statements have
been prepared on the historical cost basis, except for the
revaluation of certain financial instruments.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of Real Affinity plc (the "company") and enterprises
controlled by the company (its "subsidiaries", together referred to
as the "group").
Status of financial information
These interim financial statements, which were approved by the
directors on 28 December 2007, do not constitute statutory accounts
of the group within the meaning of Section 240 of the Companies Act
1985. The figures in respect of the year ended 31 March 2007 are not
the group's statutory financial statements for that financial year as
defined in Section 240 of the Companies Act 1985. Those statutory
financial statements, which were prepared under using accounting
policies generally accepted in the UK, have been reported on by the
group's auditor and delivered to the Registrar of Companies in the
UK. The report of the auditor was unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying its report and did not contain
statements under either Section 237(2) or Section 237(3) of the
Companies Act 1985.
Accounting policies
The accounting policies that the group intends to apply for the year
ending 31 March 2008 are set out below. The accounting policies have
been applied consistently to all periods presented in these interim
group financial statements, subject to the exemptions contained in
IFRS 1 that the group has elected to use.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial
statements of Real Affinity plc (the "company") and enterprises
controlled by the company (its "subsidiaries", together referred to
as the "group"). The excess of cost of acquisition over the fair
values of the group's share of identifiable net assets acquired is
recognised as goodwill. Any deficiency of the cost of acquisition
below the fair value of identifiable net assets acquired (a discount
on acquisition) is recognised directly in the income statement.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the group. The costs of an
acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of
exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are initially measured
at fair value at the acquisition date irrespective of the extent of
any minority interest.
The results of subsidiaries acquired or disposed of during the year
are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as
appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with
those used by other members of the group.
All intra-group transactions, balances and unrealised gains on
transactions between group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and any recognised impairment losses.
Depreciation is charged so as to write off the cost of assets to
their estimated residual values over their estimated useful lives on
the following bases:
Leasehold improvements straight line over the term of the
lease
Fixtures and office equipment over 3 to 5 years straight line
Motor vehicles over 4 years straight line
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the
carrying amount of the asset and is recognised in income.
GOODWILL
Goodwill arising on consolidation represents the excess of the cost
of acquisition over the group's interest in the fair value of the
identifiable assets, liabilities and contingent liabilities of a
subsidiary, associate or jointly controlled entity at the date of
acquisition.
Goodwill on acquisition of subsidiaries is separately disclosed.
Goodwill on acquisition of associates and jointly controlled entities
is included in investment in associates and jointly controlled
entities.
Goodwill is recognised as an asset and reviewed for impairment at
least annually. Any impairment is recognised immediately in the
income statement and is not subsequently reversed. Goodwill is
allocated to cash generating units for the purpose of impairment
testing. Each of these cash generating units represents the group's
investment in each country of operation by primary reporting segment.
On disposal of a subsidiary, associate or jointly controlled entity,
the attributable amount of goodwill is included in the determination
of the profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to
IFRS has been retained at the amount previously calculated under UK
GAAP subject to being tested for impairment at that date. Goodwill
written off to reserves under UK GAAP prior to 1998 has not been
reinstated and is not included in determining any subsequent profit
or loss on disposal.
OTHER INTANGIBLE ASSETS
Intellectual property rights and patents
Intangible assets such as intellectual property rights and patents
are measured initially at their purchase cost and amortised on a
straight-line basis over their estimated useful lives.
Intangible assets acquired as part of an acquisition are capitalised
at their fair value where this can be reliably measured.
IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS EXCLUDING GOODWILL
At each balance sheet date, the group reviews the carrying amounts of
its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if
any). Where the asset does not generate cash flows that are
independent from other assets, the group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for
impairment annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of
future cash flows have been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense immediately,
unless the relevant asset is carried at a revalued amount, in which
case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount
of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset
(cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset
is carried at a revalued amount, in which case the reversal of the
impairment loss is treated as a revaluation increase.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value.
Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is
calculated using the weighted average method. Net realisable value
represents the estimated selling price less all estimated costs to
completion and costs to be incurred in marketing, selling and
distribution.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash in hand, deposits repayable
on demand less overdrafts repayable on demand, and short-term bank
deposits.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the
group's balance sheet when the group has become a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are initially recognised at fair value and then
subsequently measured at amortised cost using the effective interest
rate method. Trade receivables do not carry any interest and are
stated at their nominal value as reduced by appropriate allowances
for estimated irrecoverable amounts.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according
to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest
in the assets of the group after deducting all of its liabilities.
Bank borrowings
Bank borrowings are initially recognised at fair value and then
subsequently measured at amortised cost using the effective interest
rate method. Interest-bearing bank loans and overdrafts are recorded
at the proceeds received, net of direct issue costs. Finance charges,
including premiums payable on settlement or redemption, are accounted
for on an accrual basis and are added to the carrying amount of the
instrument to the extent that they are not settled in the period in
which they arise.
Convertible loan notes
Convertible loan notes are regarded as compound instruments,
consisting of a liability component and an equity component. At the
date of issue, the fair value of the liability component is estimated
using the prevailing market interest rate for similar non-convertible
debt. The liability component is subsequently measured at amortised
cost using the effective interest rate method. The difference between
the proceeds of issue of the convertible loan notes and the fair
value assigned to the liability component, representing the embedded
option to convert the liability into equity of the group, is included
in equity.
Issue costs are apportioned between the liability and equity
components of the convertible loan notes based on their relative
carrying amounts at the date of issue. The portion relating to the
equity component is charged directly against equity.
The interest expense on the liability component is calculated by
applying the prevailing market interest rate for similar
non-convertible debt to the instrument. The difference between this
amount and the interest paid is added to the carrying value of the
convertible loan note.
Trade payables
Trade payables are initially recognised at fair value and then
subsequently measured at amortised cost using the effective interest
rate method. Trade payables are not interest bearing and are stated
at their nominal value.
Equity instruments
Equity instruments issued by the company are recorded at the proceeds
received, net of direct issue costs.
LEASING
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the
group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of lease obligation
so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against
income, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the group's
general policy on borrowing costs.
Rentals payable under operating leases are charged to income on a
straight-line basis over the term of the relevant lease. Benefits
received and receivable as an incentive to enter into an operating
lease are also spread on a straight line basis over the lease term.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts,
Value Added Tax and other sales related taxes. Sales of goods are
recognised when goods are delivered and title has passed.
In particular, the group's main revenue categories are as follows:
Events sales - Revenue from events is recognised when elements of
work are completed and invoiced.
Agency revenues - Agency revenues are recognised when elements of
work are completed and invoiced.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that
asset's net carrying amount.
SHARE-BASED PAYMENTS
The group has applied the requirements of IFRS 2: Share-based
Payments. In accordance with the transitional provisions, IFRS 2 has
been applied to all grants of equity instruments after 7 November
2002 that were unvested as of 1 January 2006.
The group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant
date of equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the group's
estimate of shares that will eventually vest.
Fair value is measured by use of the Black-Scholes model. The
expected life used in the model has been adjusted, based on
management's best estimate, for the effect of non-transferability,
exercise restrictions, and behavioural considerations.
RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit plans are charged
as an expense as they fall due. Payments made to state-managed
retirement benefit schemes are dealt with as payments to defined
contribution plans where the group's obligations under the schemes
are equivalent to those arising in a defined contribution retirement
benefit plan.
TAXATION
The tax expense represents the sum of the current tax and the
deferred tax elements.
The current tax is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The group's liability for current tax is
calculated by using tax rates that have been enacted or substantively
enacted by the balance sheet date.
The Finance Bill 2007 received Royal Assent on 19 July 2007 and as a
result the tax rate applicable to the group in the United Kingdom for
2008/2009 will be 28% (2007/2008 and previous years: 30%).
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities in
the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the balance
sheet liability method. Deferred tax liabilities are recognised for
all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can
be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition of goodwill
or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction which
affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in jointly controlled entities, except where the group
is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realised or the liability is
settled. Deferred tax is charged or credited in the income statement,
except when it relates to items credited or charged directly to
equity, in which case the deferred tax is also dealt with in equity.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
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 group makes estimates and assumptions concerning the future. The
resulting accounting judgements will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are
discussed below:
* Goodwill has been tested for impairment by comparing the amount
of goodwill against a multiple of forecast profit and/or revenue
expected to be generated in the future by the appropriate asset,
cash-generating unit, or business segment.
* The fair value of share-based payments is measured using the
Black-Scholes model, which inherently makes use of significant
estimates and assumptions concerning the future applied by the
directors.
* Deferred tax assets and liabilities are assessed on the basis of
assumptions regarding the future, the likelihood that assets will
be realised and liabilities will be settled, and estimates as to
the timing of those future events and as to the future tax rates
that will be applicable.
* Deferred consideration is provided on the basis that earn out
targets will be achieved in full. Bonus consideration for over
achievement of targets is not provided.
2. EARNINGS PER SHARE
The calculation of the basic and diluted loss per share is based on
the following data:
Six month Six month
Period ended Period ended Year ended
30 September 30 September 31 March
2007 2006 2007
£'000 £'000 £'000
As restated As restated
Earnings
Earnings for the
purposes of basic
earnings per share, (1,403) (462) (4,191)
being the net loss
for the period
attributable to the
equity holders of the
parent
======= ======= ======
Number Number Number
Number of shares
Weighted average
number of ordinary 3,249,188,317 2,334,965,559 2,717,790,934
shares for the
purposes of basic
loss per share
=========== =========== ===========
3. CASH GENERATED FROM OPERATIONS
Six month Six month
Period ended Period Year ended
30 September ended 31 March
2007 30 2007
September
2006
£'000 £'000 £'000
As restated As restated
Result from operating (345) (267) (835)
activities
Adjustments for:
Depreciation and 104 86 225
amortisation
Loss on sales of fixed - - 79
assets
Exceptional restructuring (275) (54) (479)
costs
Write-offs and provision - - (888)
--------- --------- ---------
Operating cash flows
before movements in (516) (235) (1,898)
working capital
Increase/(decrease) in (97) 66 392
inventories
Decrease/(increase) in 1,528 (495) (1,449)
receivables
(Decrease)/increase in (1,236) 391 2,256
payables
--------- --------- ---------
Cash generated from (321) (273) (699)
operations
===== ===== =====
4. BUSINESS AND GEOGRAPHICAL SEGMENTS
Business segments
For management purposes, the Group is organised into two operating
divisions - Real Affinity Agency and Real Affinity Events, and a
headquarters unit. These divisions are the basis on which the Group
reports its primary segment information.
Principal activities are as follows:
Agency:
Design and delivery of advertising DM and other printed and
electronic promotional materials
Events:
Venue booking and Event Management services
In prior years, the Group was also involved in the sports marketing.
That operation was discontinued from 30 March 2007.
For the year ended 31 March 2007
Sports
REVENUE Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
External sales 7,231 11,764 581 - - 19,576
Inter-segment
sales(1) 395 1,288 54 - (1,737) -
---------- ---------- ---------- ---------- ---------- ----------
Total revenue 7,626 13,052 635 - (1,737) 19,576
====== ====== ====== ====== ====== ======
RESULT
Segment result (48) 326 (481) (632) - (835)
Reorganisation
costs (282) - (968) (116) - (1,366)
Goodwill
Impairment - (8) - (1,760) - (1,768)
Finance costs (54) 46 (8) (155) - (171)
Profit before (384) 364 (1,457) (2,663) - (4,140)
tax
Income tax - (36) (15) - - (51)
expense
---------- ---------- ---------- ---------- ---------- ----------
Profit after (384) 328 (1,472) (2,663) - (4,191)
tax
====== ====== ====== ====== ====== ======
OTHER
INFORMATION
Capital 39 442 - 3 - 484
additions(2)
Depreciation
and (97) (77) - (10) - (184)
amortisation
====== ====== ====== ====== ====== ======
(1) Inter-segment sales are charged at prevailing market rates.
(2) Capital additions comprise additions to property, plant and
equipment and intangible assets including additions resulting from
acquisitions through business combinations.
Sports
BALANCE SHEET Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Segment 5,261 5,547 54 6,822 (5,828) 11,856
assets(1)
====== ====== ====== ====== ====== ======
Liabilities
Segment
liabilities(2) (4,310) (5,210) (5,013) (1,515) 5,787 (10,261)
====== ====== ====== ====== ====== ======
(1) Segment assets consist primarily of property, plant and
equipment, intangible assets, financial asset investments and other
operating leases.
(2) Segment liabilities consist primarily of operating
liabilities.
For the half year ended 30 September 2006
Sports
REVENUE Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
External sales 3,428 4,339 338 - - 8,105
Inter-segment 63 265 41 - (369) -
sales
-------- -------- -------- -------- -------- --------
Total revenue 3,491 4,604 379 - (369) 8,105
===== ===== ===== ===== ===== =====
RESULT
Segment result (27) 186 (130) (296) - (267)
Reorganisation
costs - - (81) 27 - (54)
Finance costs (37) (4) (7) (93) - (141)
Profit before (64) 182 (218) (362) - (462)
tax
Income tax - - - - - -
expense
-------- -------- -------- -------- -------- --------
Profit after (64) 182 (218) (362) - (462)
tax
===== ===== ===== ===== ===== =====
OTHER
INFORMATION
Capital 23 14 1 - - 38
additions(1)
Depreciation
and (43) (27) (6) (5) - (81)
amortisation
(1) Capital additions comprise additions to property, plant and
equipment and intangible assets including additions resulting from
acquisitions through business combinations.
Sports
BALANCE SHEET Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Segment 3,463 2,805 1,084 6,946 (3,524) 10,774
assets(1)
====== ====== ====== ====== ====== ======
Liabilities
Segment
liabilities(2) (2,209) (2,634) (1,354) (2,432) 1,929 (6,700)
====== ====== ====== ====== ====== ======
(1) Segment assets consist primarily of property, plant and
equipment, intangible assets, financial asset investments and other
operating leases.
(2) Segment liabilities consist primarily of operating
liabilities.
For the half year ended 30 September 2007
Sports
REVENUE Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
External sales 3,194 8,269 - - - 11,463
Inter-segment(1)
sales 211 214 - - (425) -
--------- --------- --------- --------- --------- ---------
Total revenue 3,405 8,483 - - (425) 11,463
====== ====== ====== ====== ====== ======
RESULT
Segment result 169 (159) - (355) - (345)
Reorganisation costs
(20) - - (255) - (275)
Goodwill Impairment
- - - (668) - (668)
Finance costs (37) 45 - (123) - (115)
Profit before tax 112 (114) - (1,401) - (1,403)
Income tax expense - - - - - -
Profit after tax 112 (114) - (1,401) - (1,403)
====== ====== ====== ====== ====== ======
OTHER INFORMATION
Capital additions(2) 34 48 47 - - 129
Depreciation and
amortisation (40) (55) (9) - - (104)
====== ====== ====== ====== ====== ======
(1) Inter-segment sales are charged at prevailing market rates.
(2) Capital additions comprise additions to property, plant and
equipment and intangible assets including additions resulting from
acquisitions through business combinations.
Sports
BALANCE SHEET Agency Events Mktg Headquarters Eliminations Consolidated
£'000 £'000 £'000 £'000 £'000 £'000
Assets
Segment 2,756 4,548 10 3,951 (1,958) 9,307
assets(1)
====== ====== ====== ====== ====== ======
Liabilities
Segment
liabilities(2) (1,721) (4,283) (1,481) (3,556) 1,966 (9,075)
====== ====== ====== ====== ====== ======
(1) Segment assets consist primarily of property, plant and
equipment, intangible assets, financial asset investments and other
operating leases.
(2) Segment liabilities consist primarily of operating
liabilities.
5. CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
For the year ended 31 March 2007
Continuing Acquired Discontinued TOTAL
£'000 £'000 £'000 £'000
As restated As restated As restated
REVENUE 8,096 10,899 581 19,576
Cost of sales (3,613) (10,138) (366) (14,117)
---------- ---------- ---------- ----------
GROSS PROFIT 4,483 761 215 5,459
Other operating (5,100) (498) (696) (6,294)
expenses
---------- ---------- ---------- ----------
RESULT FROM
OPERATING (617) 263 (481) (835)
ACTIVITIES
Reorganisation (324) - (1,042) (1,366)
costs
Impairment of (246) (8) (1,514) (1,768)
Intangibles
Net finance (217) 54 (8) (171)
costs
---------- ---------- ---------- ----------
LOSS BEFORE TAX (1,404) 309 (3,045) (4,140)
Income tax - (36) (15) (51)
expense
---------- ---------- ---------- ----------
LOSS FOR THE (1,404) 273 (3,060) (4,191)
PERIOD
====== ====== ====== ======
For the six month period ended 30 September 2006
Continuing Acquired Discontinued TOTAL
£'000 £'000 £'000 £'000
As restated As restated As restated As
restated
REVENUE 4,428 3,339 338 8,105
Cost of sales (2,123) (3,019) (179) (5,321)
---------- ---------- ---------- ----------
GROSS PROFIT 2,305 320 159 2,784
Other operating (2,493) (269) (289) (3,051)
expenses
---------- ---------- ---------- ----------
RESULT FROM
OPERATING (188) 51 (130) (267)
ACTIVITIES
Reorganisation 27 - (81) (54)
costs
Net finance (136) 1 (6) (141)
costs
---------- ---------- ---------- ----------
LOSS BEFORE TAX (297) 52 (217) (462)
Income tax - - - -
expense
---------- ---------- ---------- ----------
LOSS FOR THE (297) 52 (217) (462)
PERIOD
====== ====== ====== ======
6. Explanation of transition to IFRS
The primary reporting statements adopted by the group under IFRS have
resulted in reclassifications of certain asset and liabilities which
have therefore given rise to representation of information. In
addition, for the reasons set out below, some of the figures have
been restated upon adoption of the group's new set of IFRS compliant
accounting policies.
Exemptions applied by the group in the year of transition
The group has taken the exemption in respect of business combinations
from the requirement to restate combinations occurring before the
date of transition.
The group has also elected to apply the foreign exchange exemption
and set cumulative exchange translation differences to zero at the
date of transition.
Main changes in the basis of preparation between IFRS and UK GAAP
In accordance with the requirements of IFRS 3, goodwill has been
frozen at its brought forward net book value at the date of
transition, and amortisation charged under UK GAAP for the periods
ended 30 September 2006 and 31 March 2007 has been reversed.
In accordance with the requirements of IAS 39, convertible loan notes
have been split into a liability component and an equity component.
The adoption of IFRS has not had an impact on the amount of cash
disclosed under UK GAAP in any of the periods of account in the
financial statements.
Consolidated balance sheet reconciliation at 1 April 2006 (Transition
Date)
UK GAAP Effect of Reported
in IFRS transition under
format to IFRS IFRS
Adjustments £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and 311 - 311
equipment
Goodwill 3,333 - 3,333
Other tangible 41 - 41
assets
-------- -------- --------
3,685 - 3,685
Current assets
Inventories 643 - 643
Trade and other 2,011 - 2,011
receivables
Cash and cash 220 - 220
equivalents
-------- -------- --------
2,874 - 2,874
-------- -------- --------
TOTAL ASSETS 6,559 - 6,559
===== ===== =====
EQUITY AND
LIABILITIES
Equity attributable
to the equity
holders of the
parent
Share capital 1,622 - 1,622
Shares to be issued 462 - 462
Share premium 5,466 - 5,466
reserve
Other reserves a 427 12 439
Retained earnings a (5,251) (30) (5,281)
---------- ---------- ----------
2,726 (18) 2,708
Non-current
liabilities
Long term borrowings a 431 (10) 421
-------- -------- --------
431 (10) 421
Current liabilities
Current portion of
long-term borrowings 590 - 590
Trade and other a 2,565 28 2,593
payables
Current tax 247 - 247
liabilities
-------- -------- --------
3,402 28 3,430
-------- -------- --------
TOTAL EQUITY AND
LIABILITIES 6,559 - 6,559
===== ===== =====
Adjustments:
a Relates to the split of compound financial instruments
(convertible loan notes) into debt and equity components, with
associated finance costs.
Consolidated balance sheet reconciliation at 30 September 2006
UK GAAP Effect of Reported
in IRFS transition under
format to IFRS IFRS
Adjustments £'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and 680 - 680
equipment
Goodwill 5,473 - 5,473
Other tangible 35 - 35
assets
-------- -------- --------
6,188 - 6,188
Current assets
Inventories 578 - 578
Trade and other 3,369 - 3,369
receivables
Cash and cash 639 - 639
equivalents
-------- -------- --------
4,586 - 4,586
-------- -------- --------
TOTAL ASSETS 10,774 - 10,774
===== ===== =====
EQUITY AND
LIABILITIES
Equity attributable
to the equity
holders of the
parent
Share capital 2,807 - 2,807
Shares to be issued 673 - 673
Share premium 5,897 - 5,897
reserve
Other reserves a 427 12 439
Retained earnings a (5,701) (41) (5,742)
---------- ---------- ----------
4,103 (29) 4,074
Non-current
liabilities
Long term borrowings a 410 (9) 401
Deferred tax - - -
liabilities
-------- -------- --------
410 (9) 401
Current liabilities
Current portion of
long-term borrowings 394 - 394
Trade and other a 5,504 38 5,542
payables
Current tax 363 - 363
liabilities
-------- -------- --------
6,261 38 6,299
-------- -------- --------
TOTAL EQUITY AND
LIABILITIES 10,774 - 10,774
===== ===== =====
Adjustments:
a Relates to the split of compound financial instruments
(convertible loan notes) into debt and equity components, with
associated finance costs.
Consolidated balance sheet reconciliation at 31 March 2007
UK GAAP Effect of Reported
in IFRS transition under
format to IFRS IFRS
Adjustments £'000 £'000 £'000
As restated As restated
ASSETS
Non-current assets
Property, plant 594 - 594
and equipment
Goodwill 4,530 - 4,530
Other tangible - - -
assets
-------- -------- --------
5,124 - 5,124
Current assets
Inventories 251 - 251
Trade and other 4,377 - 4,377
receivables
Cash and cash 2,104 - 2,104
equivalents
-------- -------- --------
6,732 - 6,732
-------- -------- --------
TOTAL ASSETS 11,856 - 11,856
===== ===== =====
EQUITY AND
LIABILITIES
Equity
attributable to
the equity holders
of the parent
Share capital 3,249 - 3,249
Shares to be 1,400 - 1,400
issued
Share premium 5,979 - 5,979
reserve
Other reserves a 427 12 439
Retained earnings a (9,420) (52) (9,472)
---------- ---------- ----------
1,635 (40) 1,595
Non-current
liabilities
Long term a 352 (7) 345
borrowings
Deferred tax 33 33
liabilities
-------- -------- --------
385 (7) 378
Current
liabilities
Current portion of
long-term 2,459 - 2,459
borrowings
Trade and other a 6,898 47 6,945
payables
Current tax 479 - 479
liabilities
-------- -------- --------
9,836 47 9,883
-------- -------- --------
TOTAL EQUITY AND
LIABILITIES 11,856 - 11,856
===== ===== =====
Adjustments:
a Relates to the split of compound financial instruments
(convertible loan notes) into debt and equity components, with
associated finance costs.
Reconciliation of the consolidated income statement for the six month
period ended 30 September 2006
UK GAAP Effect of Reported
in IFRS transition Under
format to IFRS IFRS
Adjustments £'000 £'000 £'000
REVENUE 8,105 - 8,105
Cost of sales (5,321) - (5,321)
---------- ---------- ----------
GROSS PROFIT 2,784 - 2,784
Other operating (3,051) - (3,051)
expenses
---------- ---------- ----------
RESULT FROM
OPERATING ACTIVITIES (267) - (267)
Reorganisation costs (54) - (54)
Net finance costs a (130) (11) (141)
---------- ---------- ----------
LOSS BEFORE TAX (451) (11) (462)
Income tax expense - - -
---------- ---------- ----------
LOSS FOR THE PERIOD (451) (11) (462)
====== ====== ======
Earnings per share
Basic (0.019)p - (0.020)p
====== ====== ======
Diluted (0.019)p - (0.020)p
====== ====== ======
Adjustments:
a Relates to the split of compound financial instruments
(convertible loan notes) into debt and equity components, with
associated finance costs.
Reconciliation of the consolidated income statement for the year
ended 31 March 2007
UK GAAP Effect of Reported
in IFRS transition under
format to IFRS
IFRS
Adjustments £'000 £'000 £'000
REVENUE 19,576 - 19,576
Cost of sales (14,117) - (14,117)
---------- ---------- ----------
GROSS PROFIT 5,459 - 5,459
Other operating b (6,548) 254 (6,294)
expenses
---------- ---------- ----------
RESULT FROM
OPERATING ACTIVITIES (1,089) - (835)
Reorganisation costs (1,366) - (1,366)
Goodwill impairment b (1,514) (254) (1,768)
Net finance costs a (149) (22) (171)
---------- ---------- ----------
LOSS BEFORE TAX (4,118) (22) (4,140)
Income tax expense (51) - (51)
---------- ---------- ----------
LOSS FOR THE YEAR (4,169) (22) (4,191)
====== ====== ======
Earnings per share
Basic (0.15)p - (0.15)p
====== ====== ======
Diluted (0.15)p - (0.15)p
====== ====== ======
Adjustments:
a Relates to the split of compound financial instruments
(convertible loan notes) into debt and equity components, with
associated finance costs.
b Relates to the reversal of UK GAAP amortisation of
goodwill and the calculation of IFRS goodwill impairment.
Reconciliation of the consolidated cash flow statement for the six
month period ended 30 September 2006
UK GAAP Effect of Reported
in IFRS transition under
format to IFRS IFRS
£'000 £'000 £'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations (273) - (273)
Interest paid (69) - (69)
Income taxes paid - - -
-------- -------- --------
NET CASH USED IN OPERATING (342) - (342)
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries (2,047) - (2,047)
Net cash acquired on acquisition of 947 - 947
subsidiaries
Purchase of property, plant and (40) - (40)
equipment
Proceeds from sale of property, - - -
plant and equipment
Interest received - - -
-------- -------- --------
NET CASH USED IN INVESTING (1,140) - (1,140)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of share 1,616 - 1,616
capital
Proceeds from long-term borrowings 216 - 216
Payment of finance lease liabilities (21) - (21)
-------- -------- --------
NET CASH USED IN FINANCING 1,811 - 1,811
ACTIVITIES
NET DECREASE IN CASH AND CASH
EQUIVALENTS 329 - 329
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE PERIOD (269) - (269)
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END
OF THE PERIOD 60 - 60
====== ====== ======
Reconciliation of the consolidated cash flow statement for the year
ended 31 March 2007
UK GAAP Effect of Reported
in IFRS transition under
format to IFRS IFRS
£'000 £'000 £'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations (699) - (699)
Interest paid (204) - (204)
Income taxes paid (5) - (5)
-------- -------- --------
NET CASH USED IN OPERATING (908) - (908)
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries (573) - (573)
Net cash acquired on acquisition of 961 - 961
subsidiaries
Purchase of minority interests in - - -
subsidiaries
Purchase of property, plant and (95) - (95)
equipment
Proceeds from sale of property, 1 - 1
plant and equipment
Interest received 55 - 55
-------- -------- --------
NET CASH USED IN INVESTING 349 - 349
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of share 905 - 905
capital
Proceeds from the exercise of share (9) - (9)
options
Repayment of long-term borrowings (27) - (27)
Payment of finance lease liabilities (37) - (37)
-------- -------- --------
NET CASH GENERATED FROM FINANCING
ACTIVITIES 832 - 832
NET DECREASE IN CASH AND CASH
EQUIVALENTS 273 - 273
CASH AND CASH EQUIVALENTS AT THE
BEGINNING OF THE YEAR (269) - (269)
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END
OF THE YEAR 4 - 4
====== ====== ======
Availability of interims
A copy of these interims is available from the Company's website
www.realaffinity.co.uk
---END OF MESSAGE---
