I-design Group Plc : Preliminary Results

AIM: IDG

I-DESIGN GROUP PLC

("i-design" or "the Group" or "the Company")

Preliminary Results

for the year ended 30 September 2012

i-design is a leading provider and developer of marketing and advertising software and services for ATM owners. Its newly launched next generation software, joono, enables banks and ATM owners to communicate targeted marketing messages to customers through the ATM and other digital channels. 

Key Points

·      Revenues of £3.28m (2011: £3.52m) - as a result of lower advertising revenues

·      Record software licence sales for marketing solution - drives profitability, demonstrates continuing success of next generation solution, joono

·     Operating profit up 113% at £215,000 (2011: £101,000)

·      Profit after tax up 71% to £258,000 (2011: £151,000)

·      Basic profit per share up 64% to 1.8p (2011: 1.1p)

·      Net cash and cash equivalents of £757,000 (2011: £941,000) - as a result of a reduction in the days taken to pay creditors

·      Two major new software licence agreements signed for joono, with FDR Limited and a leading Canadian bank

·      Further software licence sales with existing customers, Barclays Bank plc and Cardtronics, Inc

·      Exclusive multi-year exclusive advertising agreement signed with the UK's second largest supermarket, ASDA

·      Post period launch of "Favourite Transaction" functionality - Nationwide Building Society first customer

James Faulds, Chairman of i-design, commented,

"i-design made good progress over the year, adding two major new ATM operators as customers and agreeing further software licence sales with existing customers. As a result, the Company delivered a record year for software licence sales, which helped profit before tax to more than double to £217,000.  The sales build on the launch last year of our next generation software solution, joono, and serve to confirm the strength of our offering to ATM owners. At the end of the financial year, we also added approximately 1,000 ATMs located at Asda stores to our estate of ATMs available for third party advertising.  

We anticipate that in the short term the market will remain challenging but our sales pipeline remains encouraging and the Board remains positive about the Group's growth prospects in the longer term."

Enquiries:

i-design group plc	Ana Stewart, Chief Executive Ian Sunter, Finance Director	T: 01382 323 000
Biddicks	Katie Tzouliadis / Alex Shilov	T: 020 3178 6378
Westhouse Securities	Tom Griffiths	T: 020 7601 6100

CHAIRMAN'S STATEMENT

Introduction

i-design made good progress over the year, adding two major new ATM operators as customers and agreeing additional software licence sales with existing customers.  As a result, i-design delivered its best ever year for software licence sales.  The sales build on the launch last year of our next generation software solution, joono, and serve to confirm the strength of our offering to ATM owners. The total number of major banking networks which have licensed software from us now stands at ten and includes both domestic and overseas banking networks.

Software licence sales also represent our most profitable revenue stream and this year's record software licence sales helped profit before tax to more than double to £217,000 (2011: £105,000) on revenues of £3.28m (2011: £3.52m). Reflecting the economic backdrop, sales from third party advertising were softer year on year.  However, despite continued tough trading conditions, the second half showed a marked improvement on the first half, with a double digit increase in media sales revenues.

The extension of our ATM customer base in both the UK and North America with the addition of FDR Limited (part of First Data Corporation, the global leader in electronic commerce and payment processing) and a leading Canadian bank, together with substantial new licence sales from Barclays and Cardtronics, underline our dominance within the UK ATM market, and the increasing interest we are seeing for our solution overseas, especially North America. This is encouraging and we continue to view our longer term expansion prospects positively.    

Results

Total revenue for the year ended 30 September 2012 was £3.28m million, representing a 7% decrease from £3.52 million in 2011, caused mainly by lower advertising revenues. However, the lower advertising revenues were compensated for by higher software revenues and this together with a capitalisation of research and developments costs meant that gross profit was £79,000 higher than 2011 at £1,456,000 (2011: £1,377,000).  

Administrative costs were £13,000 higher than last year at £1,313,000 (2011: £1,300,000) mainly as a result of increased travel costs. Other income of £72,000 (2011: £24,000, including grants of £5,000) represents grants received in support of the Company continuing to develop. The Group generated an operating profit of £215,000 (2011: £101,000) and a profit before tax of £217,000 (2011: £105,000). These numbers are presented after capitalisation of research and development costs in the year of £132,000 (2011: £74,000) and a charge for amortising capitalised research and development costs of £68,000 (2011: £nil).  Further information on this is provided in note 7. After R&D tax credits of £41,000 (2011: £46,000), the profit after tax was £258,000 (2011: £151,000). The basic profit per share was 1.8p (2011: 1.1p).

The net cash outflow from operating activities was £42,000 (2011: inflow £247,000), with other investing and financing outflows of £142,000 (2011: outflow £52,000) resulting in a cash outflow of £184,000 in the year (2011: inflow £195,000). The operating cash outflow was mainly as a result of a reduction in the number of days taken to pay creditors.  This reduction was caused by the timing of revenue share payments to network owners. 

Outstanding borrowings of £8,000 at 30 September 2012 (2011: £13,000) represent finance leases on the purchase of computer equipment.  The Group's net cash and cash equivalents position at the year-end stood at £757,000, a decrease of 20% against the same point last year (2011: £941,000).

Dividend

As previously indicated, the Directors intend to devote the Company's cash resources to growing its operations. However, we will reconsider the Company's dividend policy as and when the Company is in a position to pay a dividend.

Business Progress

We have made very good headway over the course of the year in developing our business and our sales pipeline remains encouraging. Our next generation customer engagement software, joono, which we launched in mid 2011, continues to open up new opportunities for us. Crucially, joono enables banks to deliver highly sophisticated customer interaction at the ATM and its architecture has been developed to support the addition of further digital channels, including mobile phones and plasma screens, in addition to ATMs and self-service devices. The software also remains platform independent, capable of installation across any type of self-service/ATM device and, more importantly, any Windows based ATM software application environment. At the same time as facilitating banks' own one-to-one marketing communications with customers, we continue to provide banks and ATM operators with the option of using our exclusive services to generate third party advertising revenues from their ATM estates. This is an unrivalled combination in our industry and we continue to invest in our product offering to ensure that we retain our market-leading position.     

As well as winning two major contracts with ATM operators, we added an exclusive multi-year advertising agreement for ATMs located at the stores of ASDA, the UK's second largest supermarket.  

The November 2011 signing of a major Canadian bank was, as we have previously reported, our first licence agreement in Canada and our first with channel partner, IBM Canada Limited. Covering the bank's entire ATM estate in Canada, comprising over 4,000 ATMs, the deal established us with a presence in this important territory.  In June 2012, we secured an exclusive multi-year contract win with FDR Limited, a subsidiary of global electronic commerce and payment processing company First Data Corporation. The contract marked the third major sale of our marketing solution, joono, since its launch. Also in the year, Barclays and Cardtronics, both existing customers, each acquired additional software licences between them significantly increasing the number of ATMs licensed to run our software in the UK, USA and Canada. 

In the second half of the financial year, in late September, following a competitive tender process, we secured an exclusive multi-year agreement with ASDA Money.  The contract gives i-design exclusive rights to sell advertising space across ASDA's entire network of ATMs, totalling approximately 1,000 high transaction volume machines. Located in ASDA stores across the UK, we believe that this offers a compelling proposition for advertisers. The contract helps to consolidate our third party ATM advertising estate, which already offers advertisers access to ATMs at Tesco stores and other high footfall high street locations as well as numerous other locations throughout the UK.  

Revenues from third party advertising typically reflect the wider economy, which remained tough and revenues for the 12 months under review were softer than the prior year although the second half showed a material improvement on the first half and we continued to retain repeat business with existing adverting clients such as Pizza Hut, Vodafone and Camelot. New high profile ATM advertising campaigns that we secured this year include Arla, Danone, Batchelors, Argos and Budweiser and we continue to extend our relationships with advertising agencies and advertisers. 

After the year end, in November, we launched an add-on component, "Favourite Transaction", to our joono software solution. This new functionality represents an industry first and Nationwide Building Society has rolled out the new feature across its entire self-service estate. "Favourite Transaction" offers cardholders their most used transactions automatically at the ATM, with no manual setup required and also adapts to a customer's changing transactional habits. 

With ten banking networks now having adopted our marketing software, our total licensed ATM estate currently stands at approximately 30,000 (40% higher than 2011), of which 9,500 of these are available for advertising, up by 1,000 on 2011. 

Team Effort

On behalf of the Board, I would like to thank all of our staff for their hard work and commitment during the year. We are also grateful for the continued support of our customers and shareholders.

Prospects

i-design's services remain market leading, with our third party advertising offering opening up new revenue streams to network owners and banks.  The signing of two major new ATM operators as customers this year, along with additional licence purchases from existing clients, and an exclusive advertising agreement with a major supermarket retailer, continues to demonstrate the appeal and revenue generating advantages our solution offers to both ATM owners and advertisers. The advertising market will remain very challenging in the short term but we believe our longer term growth potential remains encouraging, with scope to continue building our ATM customer base as well as third party advertising revenues.  We believe that the business is well placed and the Board remains positive about the Group's longer term growth prospects.

James Faulds

Chairman

I-DESIGN GROUP PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME 

for the year ended 30 September 2012

			2012		2011
	Note		£		£
Revenue	3		3,277,995		3,517,660
Cost of sales			(1,822,231)		(2,140,329)
Gross profit			1,455,764		1,377,331
Other income			71,885		23,582
Administrative expenses			(1,312,527)		(1,299,597)
Operating profit before interest and tax	4		215,122		101,316
Finance income			2,265		4,316
Finance costs			(676)		(691)
Profit before taxation			216,711		104,941
Taxation	5		41,198		46,498
Profit and total comprehensive income for the financial year			257,909		151,439
Profit per share (pence)
Basic and diluted	6		1.8p		1.1p

The accompanying accounting policies and notes form part of these financial statements.

All revenues and profits arise from continuing operations.

I-DESIGN GROUP PLC

GROUP STATEMENT OF FINANCIAL POSITION

at 30 September 2012

	Note		2012		2011
			£		£
Assets
Non-current assets
Property, plant and  equipment			44,708		61,031
Intangible asset	7		136,969		73,806
			181,677		134,837
Current assets
Trade and other receivables			1,250,839		1,074,733
Cash and cash equivalents			756,730		941,158
Total current assets			2,007,569		2,015,891
Total assets			2,189,246		2,150,728
Liabilities
Current liabilities
Trade and other payables			1,452,199		1,664,971
Current borrowings			5,156		4,881
Total current liabilities			1,457,355		1,669,852
Non-current liabilities
Non-current borrowings			3,216		8,343
Total liabilities			1,460,571		1,678,195
Net assets			728,675		472,533
Equity
Share capital			1,410,544		1,410,544
Share premium account			2,231,962		2,231,962
Reverse acquisition reserve			323,945		323,945
Retained earnings			(3,237,776)		(3,493,918)
Total equity attributable to the owners of the parent			728,675		472,533

I-DESIGN GROUP PLC

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2012

	Share  capital		Share Premium		Reverse acquisition reserve		Retained earnings		Total
	£		£		£		£		£
Balance at 1 October 2010	1,410,544		2,231,962		323,945		(3,648,436)		318,015
Share based payments	-		-		-		3,079		3,079
Transactions with owners	-		-		-		3,079		3,079
Profit and total comprehensive profit for the year	-		-		-		151,439		151,439
Balance at 30 September 2011	1,410,544		2,231,962		323,945		(3,493,918)		472,533
Share based payments	-		-		-		(1,767)		(1,767)
Transactions with owners	-		-		-		(1,767)		(1,767)
Profit and total comprehensive profit for the year	-		-		-		257,909		257,909
Balance at 30 September 2012	1,410,544		2,231,962		323,945		(3,237,776)		728,675

I-DESIGN GROUP PLC

GROUP STATEMENT OF CASH FLOWS

for the year ended 30 September 2012

	Note		2012		2011
			£		£
Cash flows from operating activities
Operating profit before interest and tax			215,122		101,316
Depreciation			23,364		22,151
Gain on sale of property			-		(17,922)
Amortisation of intangible assets	7		68,484		-
Increase in trade and other receivables			(180,722)		(472,475)
(Decrease)/increase in trade and other payables			(212,772)		524,706
Share based payment expense Taxation			(1,767) 45,814		3,079 86,624
Net cash (outflow)/ inflow from operating activities			(42,477)		247,479
Cash flows from investing activities
Purchases of property, plant and equipment			(7,041)		(38,311)
Purchase of intangible assets			(131,647)		(73,806)
Disposals of property, plant and equipment			-		70,000
Interest received			2,265		4,316
Net cash received used in investing activities			(136,423)		(37,801)
Cash flows from financing activities
Repayment of borrowings			-		(12,500)
Capital element of finance leases repaid			(4,852)		(1,876)
Interest paid			(676)		(691)
Net cash outflow from financing activities			(5,528)		(15,067)
Net (decrease)/increase in cash and cash equivalents			(184,428)		194,611
Cash and cash equivalents at beginning of year			941,158		746,547
Cash and cash equivalents at the end of the year			756,730		941,158

NOTES TO THE FINANCIAL STATEMENTS

1.   Publication of non-statutory accounts

The financial information contained in this announcement does not constitute statutory accounts within the meaning of section 434 Companies Act 2006. The figures for the years ended 30 September 2011 and 2012 have been extracted from the audited financial statements.  The financial statements for 2012 will be delivered to the Registrar of Companies following the Annual General Meeting and will be sent to shareholders in due course. Additional copies will also be available to the public free of charge, from the Company's registered office at 30 City Quay, Camperdown Street, Dundee DD1 3JA and from the Company's website at www.i-designplc.com.

The financial statements for the years ended 30 September 2011 and 2012 received an unqualified auditors' report which did not contain a statement under section 498 (2) or (3) Companies Act 2006. 

2.   Accounting policies

The significant accounting policies that have been used in the preparation of the financial statements are summarised below.

Basis of preparation

The financial statements have been prepared on a going concern basis. The business model of the Company together with the principal risks and uncertainties are set out in the Operating and Financial Review. Additionally the current financial position of the Company is described in the Chairman's statement and note 17 to the full financial statements and highlights the Company's Risk management objectives and policies.  

Having reviewed cash flow projections, the Directors believe that the Company has adequate resources to continue in operation for the foreseeable future and have therefore adopted the going concern basis in preparing these financial statements.  The Directors believe that the continuing progress made in the financial year in identifying software revenue streams both overseas and in the UK and the redirection of advertising sales focus mean that current projections are achievable.

The Directors have considered various scenarios including the delay of certain software sales beyond the next 12 months. Under the most extreme of these scenarios the Directors are satisfied that costs can be reduced accordingly to enable the Company to continue to operate within its current funding limits for the foreseeable future. As such, they consider it appropriate for the financial statements to be prepared on a going concern basis.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Standards issued but not yet effective up to the date of issuance of the Group's financial statements are listed below:

IFRS 1 First-time Adoption of International Financial Reporting Standards (amendments)

IFRS 7 Financial Instruments Disclosures (amendments)

IFRS 9 Financial Instruments- Classification and Measurement

IFRS 10 Consolidated Financial Statements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

IAS 1 Presentation of Financial Statements (amendments)

IAS 24 Related Party Disclosures

IAS 27 describing the transition for amendments resulting from IAS 27 (2008)

IAS 32 Financial Instruments: Presentation - Amendments relating to classification of rights issues

The Group expects that there will be no material impact on the consolidated financial statements resulting from the implementation of the above standards.

IFRS 13 Fair Value Measurement

The implementation of this standard could impact on the carrying values of the Group's assets and liabilities carried at fair value.

Business combinations

                The financial statements incorporate the financial statements of the Company and all its subsidiaries.  Unrealised gains on transactions between the Group and its subsidiaries are eliminated.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the group.  The cost 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. Acquisition related costs are expensed in the period that the costs are incurred and the services received.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.  The excess of the cost of the acquisition over the fair value of assets and liabilities is recorded as goodwill.  If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired the difference is recognised directly in profit or loss.

On 25 June 2007 i-design group plc became the legal parent company of i-design multimedia limited in a share for share transaction.  Due to the relative size of the companies, i-design multimedia limited shareholders became the majority shareholders of the enlarged share capital.  Furthermore, the company's continuing operations and executive management became those of i-design multimedia limited.  Under IFRS 3 this combination has been accounted for as a reverse acquisition in 2007.

In a reverse acquisition, the cost of the business combination is deemed to have been incurred by the legal subsidiary (the acquirer for accounting purposes) in the form of equity instruments issued to the owners of the legal parent (the acquiree for accounting purposes).  Because such consolidated financial statements represent a continuation of the financial statements of the legal subsidiary, the assets and liabilities of i-design multimedia limited have been recognised and measured in the consolidated financial statements at their pre-combination carrying amounts.  The retained earnings and other equity balances recognised in the consolidated financial statements are the retained earnings and other equity balances of i-design multimedia limited immediately before the business combination. The amount recognised as issued equity instruments in the consolidated financial statements reflects the equity structure of i-design group plc which includes the equity instruments issued to effect the combination.

Revenue recognition

Revenue is measured by reference to the fair value of consideration received or receivable for goods and services provided in the normal course of business, excluding VAT and trade discounts.  Revenue is recognised upon the performance of services or transfer of risk to the customer. The business is regarded as one operating segment due to the nature of services provided and the methods used to provide these services. All operations are conducted from the UK.

Software

On a contract by contract basis revenue is recognised fully at the point of transfer of risk and rewards of ownership to the customer.  For each contract, revenue is not recognised until it is probable that economic benefit will flow to the Group.

Maintenance

Invoiced annually in advance and recognised evenly with reference to the period over which the support will be provided.

Professional services and consultancy

Invoiced and recognised on the performance of the service.  Invoiced once identifiable and agreed stages of completion of the service have been completed based on charge out terms as agreed with the client on a short term basis.

Advertising

The Company has exposure to the risks and rewards associated with the provision of the service, it is responsible for all pricing, receiving and processing orders, delivery, invoicing and  cash receipts (including the credit risk of non payment by the advertiser) and as such is acting as principal in the sale of advertising. The sale of advertising space and additional creative and campaign operations services is invoiced on the date that the advertising campaign commences (except for campaigns lasting more than three months which are invoiced each month in advance). The revenue in respect of advertising space is recognised evenly with reference to the period over which the campaign will run. Additional creative and campaign operations revenues are recognised on the date the campaign commences.

Cost of sales

Cost of sales includes direct wages and direct costs relating to advertising revenue. The costs relating to advertising revenue are the revenue shares that are paid by the Company to network owners for making the ATM space available.

Interest income 

Bank interest is recognised as it is earned on an accruals basis.

Expense recognition

Operating expenses are recognised in profit or loss upon utilisation of the service.

Intangible assets

Research and development

All research costs which consist predominantly of salaries are charged to profit or loss as incurred, however costs are capitalised as an intangible asset when recognition criteria are met such as the technical feasibility and, in particular, it is clear that the development expenditure will generate future economic benefit. 

Amortisation is provided on a straight line basis over the useful life of three years subject to impairment as noted below. Amortisation commenced in the year ending 30 September 2012. The amortisation charge is included within cost of sales.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment.  If any such indication exists, a formal impairment test based on the discounted cash flow approach is performed and the recoverable amount of the asset is estimated in order to quantify any impairment loss.  Any impairment loss is recognised as an expense immediately. 

Tangible assets

Property, plant and equipment

Property, plant and equipment are shown at cost, net of depreciation and any provision for impairment.  Depreciation is provided on all property, plant and equipment at varying rates calculated to write off cost to the expected current residual value by equal annual instalments over their estimated useful economic lives.  The principal rates employed are:

Office furniture                                      -                     20%

Computer equipment                            -                     33%

Disposal of assets

The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in profit or loss.  The gain or loss arising from the sale is included in "other income" or "administrative expense" in the profit or loss.

Lease 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. Assets held under leases are capitalised in the balance sheet at the fair value of the leased assets or, if lower, at the present value of the minimum of lease payments plus incidental expenses, if any, to be borne by the lessee and are depreciated over their useful lives. The capital element of future obligations under the contract is included in liabilities in the balance sheet.        

                The interest element of the rental obligations is charged to profit or loss over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding.

All other leases are classified as operating leases and rentals are charged to profit or loss on a straight line basis over the lease term.

Pensions

Defined contribution pension scheme

The Group operates a defined contribution pension scheme for certain employees. Contributions to this scheme are charged to profit or loss in the period to which they relate.

Financial assets

Trade and other receivables

Trade and other receivables are initially recognised at fair value which is normally the invoice value. Thereafter they are carried at amortised cost using the effective interest rate.  A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of these receivables.  The amount of the provision is recognised in profit or loss.  Trade receivables do not carry any interest charge.  

Cash

Cash includes cash in hand, deposits held at call with banks, and bank overdrafts.  Bank overdrafts are shown within current liabilities on the balance sheet.

Financial liabilities

Trade payables

Trade payables are non-interest-bearing and are initially measured at fair value and thereafter at amortised cost using the effective interest rate.

Borrowings

Interest-bearing loans and bank overdrafts are initially carried at the fair value.  Finance charges, including premia payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to profit or loss using the effective interest method 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. Thereafter they are carried at amortised cost using the effective interest rate.

Share based payments

All goods and services received in exchange for the grant of any share based payment are measured at their fair values.  Where employees are rewarded using share based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).

                All equity-settled share-based payments are ultimately recognised as an expense in profit or loss with a corresponding credit to reserves. 

                If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.   Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates.  Any cumulative adjustment prior to vesting is recognised in the current period.  No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

Government grants

Revenue grants are taken direct to profit or loss and are shown as other income. Where grants are potentially repayable under certain conditions they are treated as a liability until such time as there is objective evidence that the grant will not be repayable at which time they are taken to profit or loss. During the year the Group received £71,885 (2011 - £5,154) of Government grants. There are no unfulfilled conditions or other contingencies attached to the Government assistance recognised during the period.

Taxation

Current tax is the tax currently payable based on taxable results for the year.

Deferred income taxes are calculated using the liability method on temporary differences.  However, deferred tax is not provided on the initial recognition of an asset or a liability unless the related transaction is a business combination or affects tax or accounting profit.  Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases.  In addition, tax losses available to be carried forward as well as other income tax credits to the company are assessed for recognition as deferred tax assets.  

Deferred tax liabilities are provided in full, with no discounting.  Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.  Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Foreign currencies

Transactions in foreign currencies are translated at the exchange rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss.

Equity              

Equity comprises the following:

·      share capital represents the nominal value of equity shares.

·      share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.

·      retained earnings include all current and prior period results as disclosed in profit or loss.

·      in the Group balance sheet, share capital represents the nominal value of the shares.

·      the reverse acquisition reserve arose as a result of the reverse acquisition. It is the difference between the fair value of the consideration shares issued on the reverse acquisition and their nominal value.

Critical judgements in applying the Company's accounting policies

In the process of applying the Group's accounting policies, management has made the following judgement that has the most significant effect on the amounts recognised in the financial statements.

Key sources of estimating uncertainty

Share based payments

The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they were granted. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments depending on the terms and conditions of the grant. During the year the Group used a Black-Scholes option pricing model for the options. Management are required to use certain assumptions in determining the most appropriate inputs to the valuation model, including expected life of the option, volatility, risk free rate and dividend yield. The assumptions and models used are fully disclosed in note 8.

3.  Revenue segmental information

Segmental information is presented in respect of the Group's geographical areas. The Directors consider that there is only one operating segment due to the nature of services provided and the methods used to provide these services.

	2012		2011
	£		£
UK	2,724,565		3,424,016
Europe	39,155		59,365
Rest of the World	514,275		34,279
	3,277,995		3,517,660

4.  Operating profit

	2012 £		2011 £
The operating profit is stated after charging/(crediting):
Directors' remuneration	259,834		291,937
Depreciation
- owned assets	18,382		20,235
- leased assets	4,982		1,916
Amortisation of intangible asset	68,484		-
Auditors' remuneration
- audit of the parent and group	18,000		21,600
- subsidiary company audit	2,750		5,250
Share options	(1,767)		3,079
Research and development costs	390,458		329,123
Foreign exchange loss	12,838		5,620
Operating leases - land and buildings	62,783		56,998
Gain on sale of property	-		(17,922)

Included in share options is £2,311 (2011 - £1,294) relating to Directors. The share options credit relating to other staff members is £4,078 (2011 - charge £1,785). The option credit is the result of options lapsing on employees leaving and performance criteria not being met.

 5.  Taxation

	2012 £		2011 £
Corporation tax credit
Current year	(41,882)		(46,498)
Previous year	684		-
	(41,198)		(46,498)

The tax credit arises from research and development expenditure.

The Group has not recognised a deferred tax asset in respect of tax losses within one of the subsidiaries, as the subsidiary has available tax losses amounting to £2,461,730 (2011 - £2,437,360), and the Board is not able to forecast when these losses will be utilised, given the ongoing investment in Research and Development.

The tax charge or credit for the year is different from the standard small company effective rate of corporation tax in the UK for the year of 20% (2011 - 20.5%).  The differences are explained as follows:

	2012 £		2011 £
Factors affecting the tax charge:
Profit for the year before tax	216,711		104,941
Tax thereon at 20% (2011 - 20.5%)	43,342		21,513
Effects of:
Expenses not deductible for tax	1,906		6,199
Capital allowances in excess of depreciation	1,345		(18,637)
Depreciation on  items ineligible for capital allowances	1,529		(4,265)
R&D tax adjustment	(111,928)		(52,208)
Surrender of tax losses for R&D tax credit refund	34,551		-
Prior year adjustment	684		-
Other short term timing differences	1,404		900
Timing differences not recognised in computation	(1,399)		-
Timing differences arising on consolidation	(12,632)		-
Corporation tax credit	(41,198)		(46,498)

6.  Earnings per share and dividends

      No dividends have been paid during the year ended 30 September 2012.

     The earnings per share have been calculated on a weighted average basis.

	2012		2011
	£		£
Profit attributable to equity holders of the group	257,909		151,439
	No.		No.
Weighted average number of shares in issue for the purpose of basic EPS	14,105,437		14,105,437
Effect of dilutive potential ordinary shares
-         Options	82,050		35,315
Number of shares - diluted earnings per share	14,187,487		14,140,752
Profit/(loss) per share - basic	1.8p		1.1p
Profit/(loss) per share - diluted	1.8p		1.1p

7.  Intangible assets
		Development cost £
Group
Cost At 30 September 2011		73,806
Additions		131,647
At 30 September 2012		205,453
Amortisation At 30 September 2011		-
Charge for the period		68,484
At 30 September 2012		68,484
Net book value At 30 September 2012		136,969
At 30 September 2011		73,806

The addition to intangible assets is as a result of the development of 'joono', the next generation of the Company's marketing software solution.  The remaining amortisation period is two years.

8.  Share based payments

The following options remain exercisable under certain conditions by employees under share based payment schemes. The options are in i-design group plc; 20,000 as identified below were originally granted in i-design multimedia limited.

The fair value of options granted is calculated using the Black-Scholes option pricing model incorporating the following assumptions:

		Jul 2007 on IPO (approved scheme)	Jul 2007 on IPO (unapproved scheme)	July 2007 formerly in subsidiary	Nov 2009 (approved scheme)	Jun 2011 (approved scheme)
	Number of options	284,500	396,000	20,000	70,000	70,000
	Volatility	30%	30%	30%	30%	30%
	Spot price	£0.67	£0.67	£0.67	£ 0.24	£0.27
	Interest rate	5.5%	5.5%	5.5%	2.7%	2.0%
	Dividend yield	Nil	Nil	Nil	Nil	Nil
	Vesting period	3 years	3 years	3 years	3 years	3 years
	Contractual life	5 years	5 years	5 years	5 years	5 years
	Weighted average exercise price	£0.25	£0.25	£0.42	£0.07	£0.08

The volatility assumption is based upon historic share price volatility in the media sector.

As disclosed in note 4 the share option credit for the year was £1,767 (2011 - charge £3,079). 

Options granted to certain employees are subject to additional exercise conditions based on the satisfaction of certain performance criteria and business objectives, which are set by the remuneration committee.  These criteria are the attainment of certain team and individual revenue targets.  During the year 190,500 options lapsed as a result of employees leaving and performance criteria not being met.

The weighted average exercise price of the total number of options granted and not exercised at 30 September 2012 was £0.22 (2011 - £0.21).

Summary of options

Exercise Price	Exercise Date	Expiry Date	30 Sept 2011		Granted		Lapsed		30 Sept 2012	Weighted average exercise  price
Enterprise management incentive scheme
£0.67	2010	2017	305,000		-		(20,500)		284,500	£0.25
£0.34	2010	2017	20,000		-		-		20,000	£0.42
£0.24	2012	2019	70,000		-		-		70,000	£0.07
£0.22	2014	2021	30,000		-		(30,000)		-	£0.07
£0.27	2014	2021	115,000		-		(45,000)		70,000	£0.08
£0.31	2014	2021	45,000		-		(45,000)		-	£0.09
£0.60	2014	2021	-		50,000		(50,000)		-	£0.22
Unapproved scheme
£0.67	2010	2017	396,000		-		-		396,000	£0.25
			981,000		50,000		(190,500)		840,500

9.  Availability of preliminary results announcement

This preliminary announcement was approved by the Board of Directors on 19 December 2012. Copies are available from the Company's registered office at 30 City Quay, Camperdown Street, Dundee DD1 3JA and from its website at www.i-designplc.com.