Notes 4, 5 and 6

4. Cost of Sales and Net Operating Expenses

2005
£m		 2004
£m
Cost of sales  (115.6)  (108.9) 
Gross profit  79.3  76.5 
Analysis of net operating expenses     
Distribution costs    
- marketing, selling and distribution costs 27.0 26.3
- research, development and engineering costs(1)  7.8 7.9
  34.8 34.2
Administrative expenses    
- restructuring costs 0.9 2.1
- goodwill impairment - 0.7
- negative goodwill - (0.6)
- amortisation of acquired intangible assets 0.2 -
- other administrative expenses 24.5 24.5
  25.6 26.7
Net operating expenses 60.4 60.9

(1) No development costs have been capitalised in accordance with the Group accounting policies. Engineering costs are incurred as part of active product development programmes in the manufacturing companies.

5. Significant Items

Significant items are those items of financial performance that the directors consider should be separately disclosed to assist in the understanding of the underlying trading and financial performance achieved by the Group and in making projections of future results.

Of the significant items included in net operating expenses, £0.2 million relates to the amortisation of intangible assets acquired as part of the Kata acquisition and £0.9 million relates to the ongoing restructuring costs in Broadcast Systems (primarily severance in connection with the actions taken to enable the business to operate in a more integrated manner).

Other operating income of £0.3 million relates to profit on the sale of property fixed assets (Photographic division).

Prior year significant items included £2.1 million restructuring costs (£2.2 million relating primarily to severance in connection with actions taken to enable Camera Support and Communications businesses to operate in a more integrated manner within the Broadcast Systems division, and £0.1 million of profit relating to restructuring plans in the Photographic division). A related tax credit of £0.9 million was recognised in respect of the restructuring costs.

Also included were £0.7 million of impairment charge in respect of goodwill, that arose on acquisitions of Drake Electronics Limited, in 1998 (£0.4 million) and Vega Holdings Inc, in 1999 (£0.3 million), and a negative goodwill income of £0.6 million which arose on the acquisition of Charter Broadcast North America Inc.

Significant items included in other financial expense comprise the following items:

The Group uses options as part of its hedging of future cash flows. Under IFRS, the Group is able to hedge account for the intrinsic value of such options, but is not permitted to hedge account for the time value of such options. This time value is therefore markedto- market at each balance sheet date. As such options are held to maturity, the ultimate net amount charged to the income statement in respect of any one option will always equate to the initial premium paid for that option. However, as a result of the mark to market, this may introduce volatile income and expenses between periods and such amounts are therefore being identified as other financial expense. The value of this volatile premium on options recorded in significant items within other financial expense was £0.3 million.

Under IFRS, currency translation differences arising on long-term intra-group funding loans that are similar in nature to equity are charged/credited to reserves. Amounts relating to the currency translation differences arising on certain other intra-group funding balances that do not meet this strict criteria but are very similar in nature are included within other financial expense. The value of currency translation on intra-group funding balances recorded in significant items within other financial expense was £0.2 million.

6. Operating Profit

2005
£m		 2004
£m
The following items are included in operating profit     
Goodwill impairment - 0.7
Negative goodwill - (0.6)
Amortisation of acquired intangible assets 0.2 -
Amortisation of capitalised software and development costs 1.0 0.8
Depreciation 8.9 9.4
Net gain on disposal of property, plant and equipment (1.6) (1.0)
Operating lease rental expense    
Plant, machinery and vehicles 0.3 0.2
Property 3.1 3.4
Auditors’ remuneration    
Audit fees 0.4 0.3
Other fees paid to the auditors and its associates 0.4 0.5

Other fees paid to the auditors comprise tax advice £0.2 million (2004: £0.3 million); due diligence assistance on acquisitions £0.1 million (2004: £0.1 million); and other (including a review of the interim accounts) £0.1 million (2004: £0.1 million).

Information correct at 02/05/2006