Gross Profit
Gross margin (52.0%) was higher than 2007 (50.9%) as expected, gaining from foreign currency effects and economies of scale as Afinion and AxSYM sales volumes have increased.
Underlying operating costs increased by 25.3% to GBP39.1 million (2007: GBP31.2 million).
At constant currency, operating costs increased by 13.9%. This increase was driven by planned increases in sales and marketing and the acquisition of our Swiss distribution business, while administration and R&D costs reduced marginally from 2007 after currency effects, in line with expectations.
Underlying operating profits were GBP5.3 million (2007: GBP2.8 million). This is after charges for share-based payments totalling GBP0.6 million (2007: GBP0.3 million).
Balance Sheet
The Group’s non-current assets at 31 December 2008 were GBP58.4 million (2007: GBP45.3 million), which consisted principally of property, plant and equipment of GBP20.5 million (2007: GBP17.6 million), goodwill of GBP10.5 million (2007: GBP7.3 million), other intangible assets of GBP7.7 million (2007: GBP7.4 million) and capitalised development costs of GBP4.2 million (2007: GBP6.2 million). The major increase in property, plant and equipment relates to the investment in our new Afinion™ production line. In addition, there is a deferred tax asset of GBP15.4 million (2007: GBP6.8 million), comprising broughtforward UK tax losses of GBP5.3 million and Norwegian tax losses of GBP10.1 million recognised in 2008.
Inventories have increased to GBP13.1 million (2007: GBP12.3 million) as a result of the Swiss acquisition, the scale-up of Afinion manufacturing and foreign exchange effects. At constant currency, inventories were GBP1.0 million lower than at 31 December 2007. Trade and Other Receivables increased to GBP19.4 million (2007: GBP13.3 million) as a result of higher sales volumes and the Swiss acquisition. Trade and Other Payables, which include the current amount due on the AxSYM® licensing agreement, have increased from GBP16.3 million in 2007 to GBP18.0 million.
Current borrowings have increased from GBP1.5 million to GBP3.3 million, as payments under the Afinion™ production line lease increase. Non-current liabilities include lease finance and term loan borrowings, which have increased to GBP13.6 million (2007: GBP10.0 million) and retirement benefit obligations of GBP3.1 million (2007: GBP2.5 million). Retirement benefit obligations are now recognised in full at actuarial valuations, following the change of accounting policy described in note 1 to the financial statements. In addition, other non-current liabilities, which relate to deferred income and deferred payment of exceptional items amount to GBP0.7 million (2007: GBP0.5 million).
At 31 December 2008, shareholders’ funds stood at GBP59.6 million an increase of GBP6.9 million over 2007 (GBP52.7 million).