RNS Number:6552Q
NetStore PLC
25 March 2008
For immediate release 25 March 2008
Netstore plc
Interim Results
For the six months ended 31 December 2007
Netstore plc ("Netstore" or the "Company"), a leading UK provider of IT managed
services and IT security, announces its interim results for the six months ended
31 December 2007.
Financial Key Points
*Turnover �19.7m (2006 Restated: �20.0m)
*Adjusted profit before tax* �1.0m (2006 Restated: �1.3m)
*Loss before tax �0.3m (2006 Restated: �0.1m profit)
*Proposed interim dividend 0.16p per share (2006 : 0.15p)
*Successful �7 million placing to develop additional data centre
*Financial review instigated by new management team has led to prior year
restatement
*International Financial Reporting Standards adopted for the first time
* adjusted profit is operating profit before exceptional items, but after
interest (see reconciliation in Chief Financial Officer's review)
Operational Key Points
*Appointment of new management team including new CEO and CFO
*Unified 'ONE Netstore' strategy is driving increased sales and reduced
costs
*New 550 sq/m Tier 3 Data Centre will be commissioned in July 2008
*Significant new contract activity in IT Security - 40 new customers
*Major public and private sector multiyear contracts in IT Managed
Services
*New IT systems for finance, service desk, asset monitoring and cross
business communications providing improved management information
Strategic Review Status
The strategic review which was announced on 19 February 2008 is on-going and
early-stage discussions continue with a number of parties who have expressed
interest in acquiring Netstore. There can be no certainty that these discussions
will result in an offer for the Company.
Graham Kingsmill, Netstore's Chief Executive Officer commented:
"This is the first trading statement under my leadership and I am pleased to
report excellent new business momentum with significant contract wins and
renewals, a new internal delivery organisation, and a strong management team who
are leading the business through a period of change and growth.
I am particularly pleased to report that the process of unifying our sales teams
has led to increased cross-selling, enabling us to capture more of our clients'
IT spend and achieve strategic supplier status with many of our key customers.
We have achieved this despite the additional workload associated with the prior
year accounting review. The exercise is now behind us and PricewaterhouseCoopers
have validated our findings.
The strategic review that we initiated in February is progressing and
discussions continue and have begun with a number of third parties.
Netstore continues to be a sound and solid business, Our trading prospects are
strong and we remain on track to meet market expectations for the year ended 30
June 2008."
For further information please contact:
Netstore Plc Tel: 0870 300 6600
Graham Kingsmill, CEO
David Memory, CFO
Buchanan Communications Tel: 020 7466 5000
Charles Ryland / Jeremy Garcia
Cenkos Tel: 020 7397 8900
Ian Soanes / Nick Wells
Chairman's statement
Overview
My statement as Chairman covers a crucial period in Netstore's history and will
report on encouraging development of the business.
Encouragingly, we have appointed a new executive management team, who have
undertaken a rigorous operational review with positive early results together
with a successful placing to raise �7million, funding development of a high
specification 550 square metre prime data centre space at our Reading facility.
We have also received a number of early-stage approaches from third parties
which may or may not lead to an offer being made for the Company and have led to
the Board announcing a full strategic review. Most importantly, all this has
taken place with minimal impact on trading activity and I am pleased to report
that Netstore is on track to meet its objectives for the year ended 30 June 2008
and is trading in line with management expectations.
Disappointingly, as detailed below, it was necessary during this period to
invite PricewaterhouseCoopers to support management in conducting a thorough
review of historical accounting policies and practices which has resulted in our
need to restate previous years revenue and profit. PricewaterhouseCoopers have
now completed their investigation.
Corporate Update and Management Changes
Firstly, let me start by thanking our new management team for having made such
an immediate and positive impact on Netstore. I see greater management control,
better processes and stronger planning activities that give me the assurance
that the business is well-managed and poised for significant growth.
Following the resignation of the previous Chief Executive in October 2006, I
assumed the role of interim Chief Executive in addition to my role as Chairman.
At that time the Board, led by myself, initiated a search for a new Chief
Executive who had the skills and experience to create a unified, and efficient
business. I was delighted to announce the appointment of Graham Kingsmill in
July 2007, who joined from SAP UK where he was Managing Director. Additionally,
David Memory joined from Tie Rack as Chief Financial Officer in September 2007.
Following these appointments, the new management team initiated a full review of
the business and made immediate changes to many internal business operating
functions and systems, including the replacement of four accounting systems and
multiple customer management systems with single, cross business integrated
systems. These initiatives are part of our drive to create the 'ONE Netstore'
platform, and have already delivered business synergies and cost savings. This
plan is on track to yield further cross-selling opportunities and cost savings
in the second half of the year.
Historical Restatement
I was disappointed to announce in February that we would need to restate our
accounts for the previous year. During the early part of January 2008 and as
part of the half year consolidation process it became clear to the new
management team that there were a number of discrepancies and queries in the
application of our accounting policies and practices that related to previous
accounting periods. This mostly related to missing or incorrect accruals of
operating expenses and non-compliant revenue recognition dating back to
accounting periods ending 30 June 2007. As soon as it was clear that these
issues would require restatement the board appointed PricewaterhouseCoopers to
conduct an independent assessment to validate our initial findings. This
information was announced to shareholders in February 2008. I am pleased to say
that the assessment has now been successfully completed. Futher details are
provided in the Chief Financial Officer's review.
Possible Offer and Strategic Review
In February 2008, we announced to shareholders that the Board had received
certain early-stage approaches from third parties who had expressed interest in
making an offer for the Company. Discussions are continuing with a number of
third parties. It had become clear to the Netstore Board that while we have an
attractive business model which is delivering first class IT solutions to a high
quality customer base the business would benefit from increased scale. The
Board therefore decided that a strategic review, including serious consideration
of approaches that have been received, was the most appropriate course of action
for shareholders, customers and employees. We will make sure all shareholders,
customers and employees are informed as appropriate.
Fundraising
I would also like to highlight our successful �7 million placing announced in
November 2007. These additional funds have enabled Netstore to begin developing
a 550 square metre data centre at our Reading Technology Centre alongside our
existing facility. The new build, which is due for completion in July 2008 will
be state-of-the-art and support the future growth of the business. Demand for
data centre capacity is high and rising and the development offers the potential
to yield significant returns.
In closing, I would like to thank all Netstore staff for their tireless
contribution to the business over what has been a period of significant progress
and challenge. I remain extremely positive about Netstore's prospects in the
current financial year and believe that the blend of strong new business
momentum and additional revenue opportunity provides Netstore with a stable
platform for growth.
Paul Barry-Walsh
25 March 2008
Chief Executive's review
Introduction
I am very encouraged by the results of Netstore for the six months ended 31
December 2007; a period in which we have made significant steps to advance our
operational performance and efficiency.
On joining Netstore I was pleased, following the arrival of David Memory, to
have completed the appointment of the new management team of experienced
professionals with high energy levels and a commitment to drive success. The
team was quick to recognise and act upon opportunities for business improvement.
I am delighted with the response from all Netstore employees who constantly
operate with the best interests of our customers and Netstore at heart.
Our primary and most immediate concern was that Netstore had become too complex
and needed to be simplified. To this end we created the 'ONE Netstore' platform
in order to optimise performance and most importantly reduce our cost base.
Demonstrable results have been and continue to be delivered. Whilst we still
identify different revenue streams according to the nature of the service being
offered, the services are interrelated and marketed together to potential
customers, in keeping with the ONE Netstore strategy. Each administrative
function is focused across the whole of the business and costs are not allocated
to a particular revenue stream. Accordingly, management consider that there is
only one class of business activity undertaken by the Company - being the
provision of information technology services.
As a consequence of Netstore's growth by acquisition, the Company had a number
of internal management IT systems and processes which needed to be updated and
consolidated. We recognised the size of this task and the strain it would place
on the business, but it was a critical element of our plan and we took the
decision to implement it immediately. It was also critical that we were able to
provide improved service to our customers. This was a difficult process
involving the transition of customers from one live service delivery system to
another, increasing the overall work-load for our delivery teams and reducing
the number of people available for chargeable customer activity. Progress has
been good and our business plan for the full year allowed for higher costs in
the first half of the year to support the transition activities. I am pleased to
report that the first phase to implement a new generation of business and
service management tools is now complete and we have received good feedback from
customers.
Early in the second half of the current financial year we will see the
completion phase of the unification of our sales and pre-sales teams creating
greater economies of scale and cross-referral opportunities. Our acquisition of
new customers via our Security business and our Expert Services to access
further budgets by introducing customers to our wider Managed Service offerings
is encouraging. There is still a way to go in this area but we have demonstrated
the scalability of our model.
Operational review
Overall our trading in the first six months was encouraging. A core objective of
the new management team was to drive a reduction in the cost base whilst at the
same time continuing to provide the excellent service our customers have come to
expect. Both the Security and Managed Service revenue streams have shown growth
year on year. However, our Expert Services (Consulting and Development)
performance was negatively impacted by higher costs as a result of overruns on
fixed price contracts and over-usage of external contractors.
Positive momentum for Security in terms of revenue growth and Managed Services
in terms of long-term contracts has continued into the second half and the
performance of the fee-based Expert Service team is showing positive
improvement.
Greater detail on our revenue stream performance is outlined below:
Security
The Security business has benefited from greater public awareness regarding IT
security breaches and the impact it has on business continuity. As a result, the
level of enquires and conversion to contracts signed has significantly increased
in both size and volume. The number of new customers contracted in the first 6
months was 40 and the average contract value increased from �12,500 to �22,700.
There were 716 contracts won during this reporting period, the largest of which
was �246,000.
The renewal rate for existing contracts increased by 13% over the previous year.
I am particularly pleased to note that Netstore has been elevated to the highest
partner accreditation level by many of our strategic partners such as Nokia,
Checkpoint and Microsoft.
Managed Services
Our Managed Services revenue stream is well-established and accounts for over
half of Netstore's revenue. The core of this service line is the provision of
applications management around a number of Financial ERP solutions. The
reporting period saw a healthy number of new customers added to the user base
and many customers renewed multi-year commitments to Netstore
We have extended the type of services offered to clients and deepened our
relationships with existing clients, elevating Netstore to strategic supplier
status and gaining access to larger share of our clients' IT budgets. This has
been particularly noticeable in the mid-tier market place where many companies
are looking to increase the reliability and cost-effectiveness of their central
IT function. This has developed into an exciting opportunity for us, especially
as we continue to increase sales of our Managed Service offering into our
Security client base.
These opportunities, combined with our Catalist relationships and our
established and growing partner base, point to a good performance from our
Managed Service business, and importantly to a steadily improving position for
our forward order book.
Expert Services (Fee earning Consulting and Development)
This reporting period has been a time of realignment for the Expert Services
team and has seen the merger of different capabilities from previous
acquisitions as part of the 'ONE Netstore' platform initiative.
Expert Services now consists of two sub-divisions, infrastructure Consulting and
Application Consulting. Application Consulting specialises in the design, build
and implementation of business solutions such as portals, transactional
websites, trading platforms and internet-driven business tools on the Microsoft
platform. The Managed Services and Security divisions enhance the offering by
adding run-and-secure services. Infrastructure Consulting focuses on enabling
organisations to realise greater value from their investment in their messaging,
voice and server estates. This drives significant opportunities based on
infrastructure transformation, modernisation and information assurance.
The Expert Services team has now been restructured and expects to achieve modest
growth in the second half of 2008 and more growth opportunities during 2009
driven by the expansion of the Infrastructure Expert Services practice.
Data Centre Expansion
Following our successful �7m fundraising, contracts have been placed with
suppliers to build out Netstore's third Data Centre facility. The new facility
comprises of 550 sq/m of high specification space supplied by 2.5 mVA of new
power being installed on top of the 1 mVA currently in place. There is
considerable potential to attract a significant premium return on investment
from the placing, especially as the facility is specified to a Tier 3 level
meaning that there are two levels of resilience should the power supply fail.
The much higher level of power will also allow the facility to accommodate the
very latest computing servers which have high power and cooling demands. The new
facility can also accommodate the most modern water cooled racking systems
required for the highest level of computing devices. Over 200 racks can be
housed and our plans include the sub-letting of approximately three-quarters of
the space to third parties providing additional short-term income on top of the
traditional Managed Service business income.
Commissioning is on track for 7 July 2008 and we are pleased to announce that we
have received positive interest from a number of parties interested in taking
some or all of the available space.
Outlook
The trend in the UK continues to suggest the demand for Managed IT services and
IT Security services will remain high among both private and public sector
enterprises. Netstore continues to benefit from this trend, given the high level
of new business momentum and cross-selling opportunities we are witnessing. We
continue to expand and improve our services offering and benefit from the
operational efficiencies the 'ONE Netstore' platform generates.
The trading prospects for the Group therefore remain strong and trading is in
line with management's expectations for the year ended 30 June 2008.
Graham Kingsmill
25 March 2008
Chief Financial Officer's Review
The results for the six months ended 31 December 2007 are set out below.
International Financial Reporting Standards
In view of the adoption of International Financial Reporting Standards for the
first time we have restated our comparative figures in accordance with the new
standards. We show the reconciliation of the previously reported figures to the
restated figures and give further explanation in note 18.
Prior Year Adjustments
Following the implementation of the new financial system the detailed interim
reporting process started in late December 2007. This process identified a
number of discrepancies relating to prior year reporting periods and we
initiated a thorough review of the Company's historical accounting records. The
Board resolved in January 2008 to appoint PricewaterhouseCoopers to validate our
findings. The review has now been completed and PricewaterhouseCoopers have
reported to the Board. The results of the review are fully and transparently
reflected in detail in this statement.
The investigation has concluded that the total amount by which prior years
cumulative profits have been overstated is �2.3 million of which �1.6 million
relates to the financial year ended 30 June 2007 and the balance relates to
prior periods. Further adjustments to reserves bring the total restatement of
shareholders funds to �2.5 million. The restatements within the profit and loss
account can be categorised as follows:
Cost accruals (�1.3 million) - a number of expenses have been identified which
should have been charged in prior periods.
Income recognition (�1.1 million) - the group is often able to invoice for
services in advance of delivery and the majority of this error relates to early
recognition of revenue for consulting services.
Other (�0.1 million credit) - there are a number of adjustments made in respect
of the accounting for share options and the AESOP made to reserves and this is
the net effect thereof insofar as the profit and loss account is affected.
Restatement of Comparative Figures
Note 18 shows the effects of each of the two types of restatement referred to
above.
Results in Reporting Period
The reduction in revenue in the second half of last year has been reversed and
turnover has grown once again in the six months under review to within 2% of
last year's restated amount. Gross margin has declined from a restated 47.7% to
45.6% due to the sales mix and to a poorer performance in consulting where we
saw some project delays on capped implementations. Action has now been taken in
this regard which will improve the consulting margin. Operating costs have
declined a little as we have begun to see the benefits of the 'ONE Netstore'
initiative. Operating profit for the period (before exceptional items) was �1.2
million which compares with a restated figure of �1.4 million for the same
period last year. Operating loss for the period was �0.1 million which compares
to a restated operating profit of �0.1 million for the same period last year.
Adjusted operating profit for the period was �1.0 million (2006 Restated: �1.3
million) and is arrived at as follows:
Unaudited Audited
Unaudited (Restated) (Restated)
6 months 6 months 12 months
to to to
31 31 30
December December June
2007 2006 2007
�000s �000s �000s
Operating profit before exceptional 1,214 1,399 1,510
items
Finance costs (201) (125) (265)
Finance income 23 59 110
Adjusted operating profit 1,036 1,333 1,355
Within exceptional items, restructuring costs were �1.1 million, (2006: �0.9
million) representing redundancy, office closure and relocation costs associated
with the creation of 'ONE Netstore'. These costs include a provision for �0.7
million representing the expected costs of the restructuring which are still to
be incurred during the second half of this financial year.
Share scheme charges are calculated in accordance with IFRS2. There is no change
to the current year charge from the UK GAAP equivalent for these charges
(FRS20).
Cash Flow
Cash flows from operating activities were �2.6 million (2006 restated: �3.9
million), mainly as a result of an increase in the level of debtors (increase of
�3.5 million this year compared to �1.2 million last year) caused by growth in
the security business and delays in invoicing following implementation of the
new system.
Capital expenditure for this period was also higher than for the same six months
last year at �2.2 million (2006: �1.2 million after restatement). This reflects
the considerable investment being made by the group in upgrading systems and in
small part the start of the investment in the new data hall.
�7.0 million was raised by way of the share placing, primarily for investment in
the new data hall. As indicated above, little of this had been spent by 31
December 2007 and at that date was used temporarily to repay short-term
borrowings and the remainder was deposited, increasing the cash balances to �3.4
million (2006 restated: �2.8 million).
Taxation
The group currently has in excess of �20 million of tax losses brought forward.
At 30 June 2007, a deferred tax asset was recognised in respect of just under
�10 million of these losses on the basis that future foreseeable profits would
be sufficient to offset these losses. We continue to recognise this asset, but
due to the impending reduction in the Corporation Tax rate to 28%, we have
reduced the asset accordingly and taken a charge to the income statement for the
difference.
Balance Sheet
Intangible assets (net book value �1.1 million: 2006 Restated: �0.6 million) and
property, plant and equipment (net book value �8.0 million: 2006 Restated: �6.6
million) have increased as a result of the investment in new financial and
client service systems. Debtors (�15.6 million: 2006 Restated: �13.5 million)
have grown with the security business which achieved higher sales in December
2007 than in the prior year. However, there have also been delays in invoicing
due to the implementation of the new system and this is a key area of focus
following the completion of the restatement investigation. Creditors (�9.0
million: 2006 Restated: �11.3 million) have reduced since last December largely
because of the elimination of a number of accruals relating to deferred
consideration, earn outs and loss of office compensation accruals. Provisions
(�1.0 million: 2006 Restated: �3.0 million) have also reduced as the comparative
figure included �2.7 million of deferred consideration to be settled in shares.
The figure at 31 December 2007 includes �0.7 million of restructuring
provisions.
Dividends
The company paid no dividend during the period, the final dividend for last year
having been paid on 7 January 2008, following shareholder agreement thereto at
the AGM on 10 December 2007. The Directors propose an interim dividend of 0.16p
per share (2006: 0.15p) to be paid on 24 April 2008 to members on the register
at 4 April 2008.
Auditors
Following completion of the restatement exercise, the Board has appointed
PricewaterhouseCoopers as auditors of the Group.
David Memory
25 March 2008
CONSOLIDATED INCOME STATEMENT Note Unaudited Unaudited Audited
6 months to (Restated) (Restated)
31 December 6 months to 12 months to
31 December 30 June
2007 2006 2007
�000s �000s �000s
Continuing activities
Revenue 19,679 20,036 36,958
Costs of sales (10,700) (10,470) (18,870)
Gross profit 8,979 9,566 18,088
Selling and distribution costs (5,568) (5,919) (11,374)
Administrative expenses (2,197) (2,248) (5,204)
Operating costs (7,765) (8,167) (16,578)
Operating profit before exceptional 1,214 1,399 1,510
items
Exceptional items 6 (1,302) (1,283) (1,553)
Total operating expenses (9,067) (9,450) (18,131)
Operating (loss)/profit (88) 116 (43)
Finance costs (201) (125) (265)
Finance income 23 59 110
(Loss)/profit before tax (266) 50 (198)
Taxation 7 (197) 406 750
(Loss)/profit for the period (463) 456 552
(Loss)/Earnings per share for
(loss)/profit attributable to the
equity holders of the company 8
- basic (0.32p) 0.37p 0.41p
- diluted (0.32p) 0.36p 0.41p
The notes form an integral part of this condensed half yearly information.
CONSOLIDATED INTERIM BALANCE SHEET Unaudited Audited
Unaudited (Restated) (Restated)
As at As at As at
31 December 31 December 30 June
Note 2007 2006 2007
�000s �000s �000s
Assets
Non-current assets
Goodwill 9 23,947 23,947 23,947
Intangible assets 10 1,073 602 877
Property plant and equipment 7,964 6,554 6,368
Deferred tax assets 11 2,760 2,633 2,957
Total non-current assets 35,744 33,736 34,149
Current assets
Trade and other receivables 15,642 13,555 12,095
Cash and cash equivalents 4,862 4,443 1,462
Total current assets 20,504 17,998 13,557
Total assets 56,248 51,734 47,706
Liabilities
Current liabilities
Borrowings 12 602 666 615
Trade and other payables 13 8,992 11,335 5,899
Deferred income 7,117 6,730 5,989
Current tax liabilities 219 207 219
Total current liabilities 16,930 18,938 12,722
Non-current liabilities
Borrowings 12 1,095 2,834 3,924
Provisions 14 956 3,003 483
Total non-current liabilities 2,051 5,837 4,407
Total liabilities 18,981 24,775 17,129
Net assets 37,267 26,959 30,577
Shareholders' equity
Share capital 34,521 28,159 28,852
Share premium reserve 9,345 4,678 8,017
Merger reserve (9,914) (9,914) (9,914)
Profit and loss reserve 3,649 4,662 4,112
Share option reserve 557 202 318
Investment in own shares (891) (828) (808)
Total shareholders' equity 37,267 26,959 30,577
The notes form an integral part of this condensed half yearly information.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months to (Restated) (Restated)
31 December 6 months to 12 months to
2007 31 December 30 June
2006 2007
Note �000s �000s �000s
Cash flows from operations 15 2,738 3,971 2,049
Interest received 23 59 110
Interest paid under finance leases and (39) (102) (95)
similar agreements
Other interest paid (162) (23) (170)
Tax paid - - 32
Cash flows from operating activities 2,560 3,905 1,926
Investing activities
Payment to acquire property, plant and (2,196) (1,220) (2,493)
equipment
Payment to acquire investments (83) (283) (414)
Cash flows from investing activities (2,279) (1,503) (2,907)
Financing activities
Dividends paid - - (605)
Proceeds from issue of ordinary share 6,997 248 263
capital
Repayment of capital element of (534) (154) (320)
finance leases
Repayment of short and long term loans (3,344) (90) (182)
Proceeds from issue of long term loans - - 1,250
Cash flows from financing activities 3,119 4 406
Increase/(decrease) in cash and cash 3,400 2,406 (575)
equivalents
Cash and cash equivalents at the 1,462 2,037 2,037
beginning of the period
Cash and cash equivalents at the end 4,862 4,443 1,462
of the period
The notes form an integral part of this condensed half yearly information.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Merger Share Profit and Investment Total
Capital Premium Reserve Option Loss in own
Reserve Reserve Reserve Shares
�000 �000 �000 �000 �000 �000 �000
At 1 July 25,078 4,668 (9,914) 125 5,006 (862) 24,101
2006 as
previously
reported
Prior year 267 (941) (93) (767)
adjustments
At 1 July 25,078 4,668 (9,914) 392 4,065 (955) 23,334
2006
(restated)
Profit for 456 456
the period
Shares 3,081 10 3,091
issued
Share based 360 360
payment
charge
Investment (203) (203)
in shares
Options (550) 220 330 -
exercised
Treasury (79) (79)
shares
acquired
At 31 28,159 4,678 (9,914) 202 4,662 (828) 26,959
December
2006
Profit for 96 96
the period
Dividend (605) (605)
paid
Total (509) (509)
recognised
expense for
the period
Shares 693 3,339 4,032
issued
Share based 226 226
payment
charge
Investment (90) (90)
in shares
Options (110) 110 -
exercised
Treasury (41) (41)
shares
acquired
At 30 June 28,852 8,017 (9,914) 318 4,112 (808) 30,577
2007
Loss for (463) (463)
the period
Shares 5,669 1,328 6,997
issued
Share based 239 239
payment
charge
Investment (83) (83)
in shares
Options -
exercised
At 31 34,521 9,345 (9,914) 557 3,649 (891) 37,267
December
2007
Notes to the financial information (unaudited)
1. General Information
The Company is a limited liability company incorporated and domiciled in the UK.
The address of its registered office is; 1 Transcentral, Bennet Road, Reading,
Berkshire RG2 0QX.
The Company has its primary listing on the AIM market of the London Stock
Exchange.
This interim consolidated financial information was approved for issue on 19
March 2008.
These interim financial results do not comprise statutory accounts within the
meaning of Section 240 of the Companies Act 1985. Statutory accounts for the
year ended 30 June 2007 were approved by the board of directors on 9 November
2007 and delivered to the Registrar of Companies. The report of the auditors on
those accounts was unqualified, did not contain an emphasis of matter paragraph
and did not contain any statement under Section 237 of the Companies Act 1985.
2. Basis of Preparation
This interim consolidated financial information for the six months ended 31
December 2007, has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services Authority and with IAS 34, Interim
Financial Reporting, as adopted by the European Union. This financial
information is also covered by IFRS 1, First-time Adoption of IFRS, because it
covers part of the period covered by the Group's first IFRS financial statements
for the year ended 30 June 2008.
3. Restatement for Errors
The impact of the prior year adjustments on the group's equity and net income
and cash flows arising from the restatement exercised are summarised in Note
18"Transition to IRFS and Restatement for Errors".
4. Accounting Policies
The accounting policies applied in this unaudited interim financial information
are those that the Group expects to apply in its annual financial statements for
the year ended 30 June 2008, which will be prepared in accordance with
International Financial Reporting Standards (IFRS) endorsed by the European
Union (EU), and those parts of the Companies Act 1985 that remain applicable to
companies reporting under IFRS.
Netstore plc's consolidated financial statements were previously prepared in
accordance with United Kingdom's Generally Accepted Account Principles (UK GAAP)
until 30 June 2007. UK GAAP differs in some areas from IFRS. In preparing
Netstore plc's 2007 consolidated interim financial information, management has
amended certain accounting, valuation and consolidation methods applied in the
UK GAAP financial statements to comply with IFRS. The comparative figures in
respect of 2007 have been restated to reflect these adjustments, as described in
the accounting policies.
Reconciliation and descriptions of the effect of the transition from UK GAAP to
IFRS on the Group's equity and net income and cash flows are provided in note 18
"Transition to IFRS and Restatement for Errors".
Historical Cost Convention
The interim financial information has been prepared under the historical cost
convention with the exception of certain items which are measured at fair value,
as disclosed in the accounting policies below.
Transitional Arrangements
The group has taken the following optional exemptions contained in IFRS 1
'First-time Adoption of International Financial Reporting Standards in preparing
the Group's balance sheet on transition to IFRS at 1 July 2006:
* Business combinations - IFRS 3 'Business Combinations' has been applied
prospectively from 1 July 2006 and business combinations occurring prior to
transition to IFRS have not been re-valued.
* IFRS2 - Share based payments has been applied to equity instruments that were
granted after 7 November 2002 and that had not vested on or before 1 July 2006.
The following new standards, amendments to standards or interpretations are
mandatory for the first time for the financial year ending 30 June 2008.
IFRIC 10, 'Interims and impairment'
IFRIC 11, 'IFRS 2 Group and treasury share transactions'
IFRS 7, 'Financial instruments: Disclosures'
IAS 1, 'Amendments to capital disclosures'
As this interim report contains only condensed financial statements, and as
there are no material financial instrument related transactions in the period,
full IFRS 7 disclosures are not required at this stage. The full IFRS 7
disclosures, including the sensitivity analysis to market risk and capital
disclosures required by the amendment of IAS 1, will be given in the annual
financial statements.
None of these has had a material impact on the current or prior periods.
Principal risks and uncertainties
There are a number of risks and uncertainties which could have a material impact
on the Group's performance over the remaining six months of the financial year
and could cause actual results to differ materially from expected results. The
principal risks remain the following:
1. Reputational risk resulting from non-delivery
The Group's reputation is dependent on the timely delivery of excellent service.
Many of the projects the Group undertakes are critical to the business
operations and information systems of its customers. The failure or inability of
the Group to meet its clients' expectations could have a material adverse impact
on the customers' operations and could result in damage to the Group's
reputation.
2. Dependence on major client contracts
Whilst a significant proportion of the Group's revenue is derived from large
contracts, no one customer accounts for more than 2% of revenue. A major
customer failing to renew a contract could adversely affect the Group's results.
3. Dependence on recruitment and retention of suitably qualified personnel
A high level of demand exists for suitably qualified personnel within the IT
outsourcing and consulting markets. The Group's ability to compete effectively
with other IT suppliers is dependent on the skills and experience of its staff.
4. Risk management and control in light of complexity and variability of
customers contracts
Many contracts are negotiated on individual case-by-case bases with customers.
The complexity, variability and duration of client contracts increase the
challenges of managing and controlling risks in this respect."
5. Sustained reduction in data centre capacity
In the event that access to one of the data centres was denied for a period
there is a risk of down time for those clients who do not have a disaster
recovery process in place.
Basis of Consolidation
The consolidated financial information includes those of the Company and all its
subsidiary undertakings drawn up to 31 December 2007.
All intercompany transactions and balances are eliminated on consolidation.
Intangible Assets
All intangible assets, except goodwill, are stated at cost less accumulated
amortisation and any accumulated impairment losses. Goodwill is not amortised
and is stated at cost less any accumulated impairment losses.
Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of
the group's interest in the identifiable assets and liabilities acquired in a
business combination.
Other Intangible Assets
Intangible assets purchased separately, such as software licences that do not
form an integral part of related hardware, are capitalised at cost and amortised
over their useful economic life. Intangible assets acquired through a business
combination are initially measured at fair value and amortised over their useful
economic lives.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation. The cost of an item of property, plant and equipment comprises its
purchase price and any costs directly attributable to bringing the asset into
use.
Land is not depreciated. Depreciation is calculated on a straight-line basis to
write down the other assets to their estimated residual value over their useful
economic lives at the following rates:
Long leasehold buildings over 50 years
Fixtures and fittings over 3 years
Leasehold improvements over the shorter of the lease term and 4 years
Mechanical and electrical equipment over 8 years
Motor vehicles 25% on cost
Office and Computer equipment 25 to 50% on cost
Finance costs directly attributable to the developments of property, plant and
equipment have been capitalised as part of the cost of those assets.
Leasing and Hire Purchase Commitments
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 and hire purchase contracts are initially
recognised as property, plant and equipment at an amount equal to the fair value
of the leased assets or, if lower, the present value of minimum lease payments
at the inception of the lease, and then depreciated over their useful economic
lives. Lease payments are apportioned between repayment of capital and interest.
The capital element of future lease payments is included in the balance sheet as
a liability. Interest is charged to the income statement so as to achieve a
constant rate of interest on the remaining balance of the liability.
Rentals payable under operating leases are charged to the income statement on a
straight-line basis over the lease term.
Impairment of Assets
The integration of the structure and processes of acquired companies is a
significant focus of management. The ongoing operations are increasingly managed
as one unified company providing a range of related products and services within
the information technology sector. Goodwill cannot, therefore, be allocated to a
cash-generating unit smaller than the Group for the purposes of impairment
testing.
The consolidated value of goodwill is tested against the estimated recoverable
amount by the Group annually for impairment or when events or changes in
circumstances indicate that it might be impaired.
The carrying values of property, plant and equipment, investments measured using
a cost basis and intangible assets other than goodwill are reviewed for
impairment only when events indicate the carrying value may be impaired.
In an impairment test, the recoverable amount of the cash-generating unit or
asset is estimated to determine the extent of any impairment loss. The
recoverable amount is the higher of fair value less costs to sell and the value
in use to the group. An impairment loss is recognised to the extent that the
carrying value exceeds the recoverable amount.
In determining a cash-generating units or asset's value in use, 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 risks
specific to the cash-generating unit or asset that have not already been
included in the estimate of future cash flows.
Financial Instruments
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the
balance sheet date which are classified as non-current assets. Loans and
receivables are classified as "trade and other receivables" in the balance
sheet.
Trade Receivables
Trade and other receivables are recognised initially at invoiced value less
provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Company will not be able
to collect all the amounts due according to the original terms of the
receivables, for example where there is default or delinquency in payments as a
result of significant financial difficulties of the debtor or probability that
the debtor will enter bankruptcy or financial reorganisation.
Cash and Cash Equivalents
Cash and cash equivalents include cash at bank and in hand, and short-term
deposits with an original maturity period of three months or less.
Bank overdrafts that are an integral part of a group company's cash management
are included in cash and cash equivalents where they have a legal right of
set-off against positive cash balances, otherwise bank overdrafts are classified
as borrowings.
Trade Payables
Trade payables are recognised at invoiced value.
Borrowings
Borrowings are recognised initially at fair value. Borrowings are subsequently
stated at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the income
statement over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Taxation
Current tax is recognised based on the amounts expected to be paid or recovered
under the tax rates and laws that have been enacted or substantively enacted at
the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events have occurred at that date that will result in an obligation to pay more,
or a right to pay less or to receive more tax, with the following exceptions:
*Provision is made for tax on gains arising from the revaluation (and
similar fair value adjustments) of fixed assets, and gains on disposal of
fixed assets that have been rolled over into replacement assets, only to the
extent that, at the balance sheet date, there is a binding agreement to
dispose of the assets concerned. However, no provision is made where, on the
basis of all available evidence at the balance sheet date, it is more likely
than not that the gain will be rolled over into replacement assets and
charged to tax only where the replacement assets are sold.
*Deferred tax assets are recognised to the extent that it is probable that
future taxable profits will be available against which the asset can be
offset.
Deferred tax is measured on an undiscounted basis using the tax rates and laws
that have been enacted or substantively enacted at the balance sheet date.
Current and deferred tax are recognised in the income statement, except when the
tax relates to items charged or credited directly to equity, in which case the
tax is also dealt with directly in equity.
Provisions
Provisions are recognised for restructuring costs when the group has a detailed
formal plan for the restructuring that has been communicated to affected
employees. Restructuring provisions include lease termination penalties and
employee termination payments. Provisions are not recognised for future
operating losses.
Provisions are management's best estimate of the expenditure required to settle
the present obligation at the balance sheet date.
Foreign Currencies
The presentation and functional currency of the group is pounds sterling.
Transactions denominated in foreign currencies are translated into the
functional currency of the entity at the rates prevailing at the dates of the
individual transactions. Foreign currency monetary
assets and liabilities are translated at the rates prevailing at the balance
sheet date. Exchange gains and losses arising are charged or credited to the
income statement within net operating costs.
Revenue
Revenue represents the fair value of consideration received or receivable from
clients for goods and services provided by the group, net of discounts and VAT.
Revenue is largely derived from managed application services under long term
contracts. Other revenues are derived from consultancy and implementation
services and software and hardware sales.
For managed application services, revenue is credited to the income statement
over the period to which the sales obligations are fulfilled under the related
sales contract. Revenue from consultancy and implementation services is
recognised on a percentage to completion basis, comparing at each period end the
actual time spent on the project with total estimated time to completion.
Exceptional Items
Exceptional items are those significant items which are separately disclosed by
virtue of their size or incidence to enable a full understanding of the Group's
financial performance.
Employee Benefits
Retirement benefits
The group operates retirement benefit plans of a defined contribution benefit
nature. Assets are held separately from those of the Group in an independently
administered fund. The cost of contributions is charged to the income statement
as they become payable in accordance with the rules of the scheme.
Share-based payment
The cost of share-based employee compensation arrangements, whereby employees
receive remuneration in the form of shares or share options, is included in
staff costs in the notes to the income statement and the credit is taken to a
share-based payment reserve included within the capital and reserves section of
the balance sheet.
The fair value of share options issued by the Company is charged to the income
statement over vesting periods for those options.
The fair value of the options is determined using the Black-Scholes method.
Short-term compensated absences
A liability for short-term compensated absences, such as holidays, is recognised
for the amount the group may be required to pay as a result of the unused
entitlement that has accumulated at the balance sheet date.
Employee Share Ownership Trusts
The company operates an AESOP trust and has control of the shares held by the
trust and bears their benefits and risks. The results and assets and liabilities
of the trust are therefore consolidated by the Group.
Dividends
Dividends to the company's shareholders are recognised as a liability and
deducted from shareholders' equity in the period in which the shareholders'
right to receive payment is established.
5. Segment information
Whilst the Group can identify different revenue streams according to the nature
of the service being offered, the services are interrelated and marketed
together to potential customers from a single sales force, in keeping with our
ONE Netstore strategy. Each administrative function is focussed across the whole
of the business and costs are not allocated to a particular revenue stream.
Accordingly, management consider that there is only one class of business
activity undertaken by the Company - being the provision of information
technology services.
The entire Group's operations are based in the UK.
6. Exceptional Items
Unaudited Audited
Unaudited (Restated) (Restated)
6 months to 6 months to 12 months to
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Write Back of contingent deferred - - 135
consideration
Share based payment charges (239) (360) (586)
Restructuring Costs (1,063) (923) (1,102)
(1,302) (1,283) (1,553)
7. Taxation
The group currently has in excess of �20 million of tax losses brought forward.
At 30 June 2007, a deferred tax asset was recognised in respect of just under
�10 million of these losses on the basis that future foreseeable profits would
be sufficient to offset these losses. We continue to recognise this asset, but
due to the impending reduction in the Corporation Tax rate to 28%, we have
reduced the asset accordingly and taken a charge to the profit and loss account
for the difference.
8. Earnings per share
The calculation of basic earnings per share has been based on the earnings
attributable to ordinary shareholders of the Company and the weighted average
number of shares for each period. The weighted average number of shares used in
the calculation was 143,230,823 (31 December 2006: 124,693,852; 30 June 2007:
133,278,298).
The diluted earnings per share have been calculated after taking account of the
share options.
The weighted average number of shares used in the calculation was 143,764,171
(31 December 2006: 127,883,397; 30 June 2007 134,232,134).
Employee share trust shares have been excluded in the calculation of the
weighted average number of shares.
9. Goodwill
Amortisation Net Book
Cost and Impairment Value
�'000 �'000 �'000
At 1 July 2006 as reported 27,907 4,488 23,419
Adjustment for compliance with IFRS 528 528
At 1 July 2006 as restated and at subsequent 28,435 4,488 23,947
period ends
10. Intangible Assets
Net Book
Cost Amortisation Value
�'000 �'000 �'000
At 1 July 2006 as reported - - -
Transfer of software from plant property and 1,076 (565) 511
equipment
At 1 July 2006 as restated 1,076 (565) 511
Additions 228 - 228
Provided during the 6 months - (137) (137)
At 31 December 2006 1,304 (702) 602
Additions 452 - 452
Provided during the 6 months - (177) (177)
At 30 June 2007 1,756 (879) 877
Additions 398 - 398
Provided during the 6 months - (202) (202)
At 31 December 2007 2,154 (1,081) 1,073
11. Deferred Tax Asset
Deferred
Tax
�'000
At 1 July 2006 2,227
Transferred to/(from) the income statement 406
At 31 December 2006 2,633
Transferred to/(from) the income statement 324
At 1 July 2007 2,957
Transferred to/(from) the income statement (197)
At 31 December 2007 2,760
Due to the impending reduction in the Corporation Tax rate to 28%, we have
reduced the asset accordingly and taken a charge to the income statement for the
difference in the six months ended 31 December 2007.
12. Borrowings
Unaudited (Restated) (Restated)
As at As at As at
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Amounts falling due within one year
Bank loans 100 186 144
Obligations under finance leases 502 480 471
602 666 615
Amounts falling due after more than one
year
Bank loans 400 2,500 3,700
Obligations under finance leases 695 334 224
1,095 2,834 3,924
Unaudited (Restated) (Restated)
As at As at As at
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Analysis of debt maturity
In one year or less or on demand 100 186 144
In more than one year but not more than 100 100 100
two years
In more than two years but not more than 300 2,300 3,550
five years
In five years or more 100 50
500 2,686 3,844
The Group's original long term loan of �1,000,000 is repayable in quarterly
instalments of �25,000 and bears interest at the rate of 1.5% per annum above
the bank base rate. This loan is secured on the Group's long leasehold property.
The Group also has a �5,000,000 loan facility agreement for a 5 year term, which
bears interest at the rate of 1.35% per annum over the bank base rate. At 31
December 2007, none (2006: �2,500,000) of this facility was being utilised.
Unaudited (Restated) (Restated)
As at As at As at
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Obligations under finance leases and hire
purchase contracts
Amounts payable:
Within one year 522 499 491
Within more than two years but not more 765 360 243
than five years
1,287 859 734
Less: finance charges allocated to future (90) (45) (39)
periods
1,197 814 695
Obligations under finance leases and hire purchase contracts are secured by
those related assets.
13. Trade and Other Payables
Unaudited Audited
Unaudited (Restated) (Restated)
As at As at As at
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Trade creditors 5,788 5,581 3,053
Other taxes and social security costs 1,509 1,466 1,236
Other creditors and accruals 1,695 4,288 1,610
8,992 11,335 5,899
14. Provisions
Shares to
be issued Restructuring Other Total
�000s �000s �000s �000s
At 1 July 2006 as reported 5,560 - - 5,560
Prior year adjustments - - 372 372
At 1 July 2006 as restated 5,560 - 372 5,932
Charge to income statement - - 21 21
Utilised during period (2,844) - (106) (2,950)
At 31 December 2006 2,716 - 287 3,003
Charge to income statement - - 196 196
Utilised during period (2,716) - - (2,716)
At 30 June 2007 - - 483 483
Charge to income statement - 667 - 667
Utilised during period - - (194) (194)
At 31 December 2007 - 667 289 956
The provision for restructuring represents an estimate of the amount that the
Board believes will be required for the closure of the Birmingham office and
completion of the restructuring of the business in connection with the 'One
Netstore' initiative.
The release of other provisions relates to the seasonal fluctuations in the
holiday pay provision.
15. Reconciliation of operating profit to cash generated from operations
Unaudited Audited
Unaudited (Restated) (Restated)
6 months to 6 months to 12 months to
31 December 31 December 30 June
2007 2006 2007
�000s �000s �000s
Operating profit / (loss) (88) 116 (43)
(Gain) / loss on disposal of fixed - 35
assets
Depreciation 1,442 1,154 2,348
Write back of contingent deferred - (135)
consideration
Increase / (decrease) in deferred 1,128 1,550 812
income
(Increase) / decrease in receivables (3,547) (1,223) 239
Increase / (decrease) in payables 3,091 2,099 (1,904)
Increase / (decrease) in provisions 473 (85) 111
Share based payment charges 239 360 586
Net cash inflow from operating 2,738 3,971 2,049
activities
16. Related Party Transactions
Ian Daly, who resigned as Director of the company on 31 September 2007, provided
the company with a �100,000 interest-free loan as part of the acquisition of
Intercea. Following the completion of the Intercea earnout period, the loan
became interest bearing at the Bank of England base rate from 1 February 2007.
The loan was repaid in full on 31 October 2007, together with the interest of
4,223.
17. Post Balance Sheet Events
Since 31 December 2007 there have been expressions of interest in the company
and as a result the board has decided to undertake a strategic review of the
business.
In addition, as a result of the discovery of discrepancies relating to prior
years, the board appointed PricewaterhouseCoopers on 30 January 2008 to validate
the findings of management during the restatement exercise. These findings have
been adjusted for in these interims financial statements.
18. Transition to IFRS and Restatement for Errors
IFRS
The impact that the adoption of IFRS has had on comparative information as at
and for the six months ended 31 December 2006 and as at and for the year ended
30 June 2007 is explained below; and summarised in the tables that follow:
a) Goodwill
Under UK GAAP, goodwill was capitalised and amortised on a straight line basis
over its useful economic life, up to a maximum period of 20 years.
The group has taken the exemption in IFRS 1 for business combinations. As a
result, the net book value of goodwill under UK GAAP at 30 June 2006 became the
deemed cost of goodwill at the date of transition to IFRS. Under IFRS, this
balance is no longer amortised but is subject to impairment testing on an annual
basis, or more frequently if there is an indication of impairment.
The effect of adopting IFRS was to reverse the goodwill amortisation recognised
under UK GAAP and to increase the carrying value of goodwill in the balance
sheet at 31 December 2006 and 30 June 2007.
b) Other Intangible Assets
Software licences
Under UK GAAP, purchased software licences were capitalised within tangible
fixed assets as part of the computer hardware to which they related and
depreciated over their useful economic life.
IAS 38 requires that computer software that is an integral part of the related
hardware, such as an operating system, is treated as property, plant and
equipment.
Software that is not an integral part of the related hardware must be
capitalised as an intangible asset and amortised over its useful economic life.
The effect of this change was to reclassify certain software licences from
property, plant and equipment to intangible assets in the balance sheets and to
reclassify the related depreciation expense to amortisation expense in the
income statement.
c) Cash Flow Statement
Although there was no effect on the underlying cash generation and expenditures
of the group, there were some presentational changes on the adoption of IAS 7
'Cash Flow Statements'.
The cash flow statement under IFRS shows the movement in cash and cash
equivalents. Cash and cash equivalents include short-term deposits with a
maturity of less than three months.
Prior Year Adjustment
The impact of the prior year adjustments on the group's equity and net income
and cash flows restatement exercise are summarised in the tables below:
RECONCILIATION OF INCOME STATEMENTS
6 months ended 31 December 2006
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to �000s
�000s �000s Effect IFRS
�000s �000s
Revenue 20,077 (41) 20,036 20,036
Costs of sales (10,470) (10,470) (10,470)
Gross profit 9,607 (41) 9,566 - 9,566
Selling and (5,919) (5,919) (5,919)
distribution
costs
Administrative (2,236) (12) (2,248) (2,248)
expenses
Operating costs (8,155) (12) (8,167) - (8,167)
Operating 1,452 (53) 1,399 - 1,399
profit before
goodwill
impairment and
exceptional
items
Amortisation of (691) (691) 691 -
goodwill
Write back of - -
contingent
deferred
consideration
Share based (170) (190) (360) (360)
payment charges
Restructuring (923) (923) (923)
costs
Operating (332) (243) (575) 691 116
(loss)/profit
Finance costs (125) (125) (125)
Finance income 59 59 59
(Loss)/profit (398) (243) (641) 691 50
before tax
Taxation 406 406 406
(Loss)/profit 8 (243) (235) 691 456
for the period
RECONCILIATION OF INCOME STATEMENTS
Year ended 30 June 2007
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to �000s
�000s �000s Effect IFRS
�000s �000s
Revenue 37,600 (642) 36,958 36,958
Costs of sales (18,763) (107) (18,870) - (18,870)
Gross profit 18,837 (749) 18,088 - 18,088
Selling and (11,212) (162) (11,374) (11,374)
distribution
costs
Administrative (4,562) (642) (5,204) (5,204)
expenses
Operating costs (15,774) (804) (16,578) - (16,578)
Operating 3,063 (1,553) 1,510 - 1,510
profit before
goodwill
impairment and
exceptional
items
Amortisation of (1,635) (1,635) 1,635 -
goodwill
Write Back of 135 135 135
contingent
deferred
consideration
Share based (542) (44) (586) (586)
payment charges
Restructuring (1,102) (1,102) (1,102)
costs
Operating (81) (1,597) (1,678) 1,635 (43)
(loss)/profit
Finance costs (218) (47) (265) (265)
Finance income 110 110 110
(Loss)/profit (189) (1,644) (1,833) 1,635 (198)
before tax
Taxation 750 750 750
(Loss)/profit 561 (1,644) (1,083) 1,635 552
for the period
RECONCILIATION OF BALANCE SHEETS
As at 1 July 2006
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to
Effect IFRS
�000s �000s �000s �000s �000s
Assets
Non-current
assets
Goodwill 23,419 23,419 528 23,947
Intangible 0 511 511
assets
Property plant 6,654 6,654 (511) 6,143
and equipment
Deferred tax 2,227 2,227 2,227
assets
Total 32,300 - 32,300 528 32,828
non-current
assets
Current assets
Trade and other 12,333 12,333 12,333
receivables
Cash and cash 2,565 2,565 (528) 2,037
equivalents
Total current 14,898 - 14,898 (528) 14,370
assets
Total assets 47,198 - 47,198 - 47,198
Liabilities
Current
liabilities
Borrowings 508 508 508
Trade and other 9,187 49 9,236 9,236
payables
Deferred income 4,839 341 5,180 5,180
Current tax 177 30 207 207
liability
Total current 14,711 420 15,131 - 15,131
liabilities
Non-current
liabilities
Borrowings 2,801 2,801 2,801
Provisions 5,585 347 5,932 5,932
Total 8,386 347 8,733 - 8,733
non-current
liabilities
Total 23,097 767 23,864 - 23,864
liabilities
Net assets 24,101 (767) 23,334 - 23,334
Shareholders'
equity
Called up share 25,078 25,078 25,078
capital
Share premium 4,668 4,668 4,668
reserve
Merger reserve (9,914) (9,914) (9,914)
Profit and loss 5,006 (941) 4,065 4,065
reserve
Share option 125 267 392 392
reserve
Investment in (862) (93) (955) (955)
own shares
Total 24,101 (767) 23,334 - 23,334
shareholders'
equity
RECONCILIATION OF BALANCE SHEETS
As at 31 December 2006
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to
Effect IFRS
�000s �000s �000s �000s �000s
Assets
Non-current
assets
Goodwill 22,728 22,728 1,219 23,947
Intangible assets - 602 602
Property plant 7,156 7,156 (602) 6,554
and equipment
Deferred tax 2,668 (35) 2,633 2,633
assets
Total non-current 32,552 (35) 32,517 1,219 33,736
assets
Current assets
Trade and other 13,520 35 13,555 13,555
receivables
Cash and cash 4,971 4,971 (528) 4,443
equivalents
Total current 18,491 35 18,526 (528) 17,998
assets
Total assets 51,043 - 51,043 691 51,734
Liabilities
Current
liabilities
Borrowings 666 666 666
Trade and other 10,734 601 11,335 11,335
payables
Deferred income 6,348 382 6,730 6,730
Current tax 207 207 207
liability
Total current 17,955 983 18,938 - 18,938
liabilities
Non-current
liabilities
Borrowings 2,834 2,834 2,834
Provisions 2,741 262 3,003 3,003
Total non-current 5,575 262 5,837 - 5,837
liabilities
Total liabilities 23,530 1,245 24,775 - 24,775
Net assets 27,513 (1,245) 26,268 691 26,959
Shareholders'
equity
Called up share 28,159 28,159 28,159
capital
Share premium 4,678 4,678 4,678
reserve
Merger reserve (9,914) (9,914) (9,914)
Profit and loss 4,801 (830) 3,971 691 4,662
reserve
Share option 448 (246) 202 202
reserve
Investment in own (659) (169) (828) (828)
shares
Total 27,513 (1,245) 26,268 691 26,959
shareholders'
equity
RECONCILIATION OF BALANCE SHEETS
As at 30 June 2007
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to
Effect IFRS
�000s �000s �000s �000s �000s
Assets
Non-current assets
Goodwill 22,312 22,312 1,635 23,947
Intangible assets - 877 877
Property plant and 7,350 (105) 7,245 (877) 6,368
equipment
Deferred tax 2,957 2,957 2,957
assets
Total non-current 32,619 (105) 32,514 1,635 34,149
assets
Current assets
Trade and other 12,455 (360) 12,095 12,095
receivables
Cash and cash 1,404 58 1,462 1,462
equivalents
Total current 13,859 (302) 13,557 - 13,557
assets
Total assets 46,478 (407) 46,071 1,635 47,706
Liabilities
Current
liabilities
Borrowings 615 615 615
Trade and other 5,016 883 5,899 5,899
payables
Deferred income 5,212 777 5,989 5,989
Current tax 219 219 219
liability
Total current 11,062 1,660 12,722 - 12,722
liabilities
Non-current
liabilities
Borrowings 3,924 3,924 3,924
Provisions 25 458 483 483
Total non-current 3,949 458 4,407 - 4,407
liabilities
Total liabilities 15,011 2,118 17,129 - 17,129
Net assets 31,467 (2,525) 28,942 1,635 30,577
Shareholders'
equity
Called up share 28,852 28,852 28,852
capital
Share premium 8,017 8,017 8,017
reserve
Merger reserve (9,914) (9,914) (9,914)
Profit and loss 4,962 (2,485) 2,477 1,635 4,112
reserve
Share option 538 (220) 318 318
reserve
Investment in own (988) 180 (808) (808)
shares
Total 31,467 (2,525) 28,942 1,635 30,577
shareholders'
equity
RECONCILIATION
OF GROUP
STATEMENT OF
CASH FLOWS
6 months ended 31 December 2006
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to
Effect IFRS
�000s �000s �000s �000s �000s
Cash flows from 3,486 485 3,971 - 3,971
operations
Interest 59 59 59
received
Interest paid (102) (102) (102)
under finance
lease and
similar
agreements
Other interest (23) (23) (23)
paid
Tax paid - - -
Cash flows from 3,420 485 3,905 - 3,905
operating
activities
Investing
activities
Payment to (1,656) 436 (1,220) (1,220)
acquire
property,plant
and equipment
Payment to - - -
acquire
subsidiaries
Payment to 202 (485) (283) (283)
acquire
investments
Cash flows from (1,454) (49) (1,503) - (1,503)
investing
activities
Financing
activities
Dividends paid - - -
Proceeds from 248 248 248
issue of
ordinary share
capital
Repayment of 282 (436) (154) (154)
capital element
of finance
leases
Repayment of (90) (90) (90)
short and long
term loans
Proceeds from
issue of long
term loans
Cash flows from 440 (436) 4 - 4
financing
activities
Increase/ 2,406 - 2,406 - 2,406
(decrease) in
cash and cash
equivalents
Cash and cash 2,565 2,565 (528) 2,037
equivalents at
the beginning of
the period
Cash and cash 4,971 - 4,971 (528) 4,443
equivalents at
the end of the
period
RECONCILIATION OF GROUP
STATEMENT OF CASH FLOWS
Year ended 30 June 2007
As Previously Error Restated Prior Effect of Restated
Reported Restatement to IFRS Transition to
Effect IFRS
�000s �000s �000s �000s �000s
Cash flows 1,891 158 2,049 - 2,049
from
operations
Interest 110 110 110
received
Interest paid (48) (47) (95) (95)
under finance
lease and
similar
agreements
Other (170) (170) (170)
interest
paid
Tax paid 32 32 32
Cash flows 1,815 111 1,926 - 1,926
from
operating
activities
Investing
activities
Payment to (2,598) 105 (2,493) (2,493)
acquire
property,
plant and
equipment
Payment to (528) (528) 528 -
acquire
subsidiaries
Payment to (256) (158) (414) (414)
acquire
investments
Cash flows (3,382) (53) (3,435) 528 (2,907)
from
investing
activities
Financing
activities
Dividends (605) (605) (605)
paid
Proceeds 263 263 263
from issue
of ordinary
share
capital
Repayment of (320) (320) (320)
capital
element of
finance
leases
Repayment of (182) (182) (182)
short and
long term
loans
Proceeds 1,250 1,250 1,250
from issue
of long term
loans
Cash flows 406 - 406 - 406
from
financing
activities
Increase/ (1,161) 58 (1,103) 528 (575)
(decrease)
in cash and
cash
equivalents
Cash and cash 2,565 2,565 (528) 2,037
equivalents at
the beginning
of the period
Cash and 1,404 58 1,462 - 1,462
cash
equivalents
at the end
of the
period
Statement of Directors' Responsibilities
The directors' confirm that this interim set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the interim management report herein includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8.
The directors of Netstore Plc are listed in the Netstore Group Annual Report for
30 June 2007. A list of current directors is maintained on the Netstore Group
website www.netstore.co.uk.
Graham Kingsmill
25 March 2008
Chief Executive Officer
David Memory
25 March 2008
Chief Finance Officer
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR MGGZFLDZGRZM
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