RNS Number:1099U
CML Microsystems PLC
15 November 2005
CML Microsystems Plc
Transition to International Financial Reporting Standards
Introduction
CML Microsystems Plc ("CML" or "the Group") has historically prepared its
consolidated financial statements under UK Generally Accepted Accounting
Practice (UK GAAP). Following the adoption by the United Kingdom of a European
Union (EU) Regulation issued on 19th July 2002, the Group is required to prepare
its financial statements in accordance with International Accounting Standards
(IAS) and International Financial Reporting Standards (IFRS) from 1st April
2005. Accordingly the interim results for the period ended 30th September 2005
will be the Group's first results to be prepared and reported under IFRS.
The Group's financial performance and position is altered by the adoption of
IFRS, however, there is no change to the cash flows of the Group. This document
explains how the Group's reported UK GAAP financial results for the year ended
31st March 2005 and its financial position as at that date would have been
reported under IFRS. Although this document has been prepared in accordance with
our current understanding of IFRS the accounting policies applied assume that
all existing standards in issue from the International Accounting Standards
Board ("IASB") will be fully endorsed by the EU. Since these standards are
subject to ongoing amendment by the IASB and subsequent endorsement by the EU
these first IFRS statements are subject to possible change. This document
includes:
* the Group's consolidated Income statements for the period ended 30th
September 2004 and year ended 31st March 2005;
* the Group's consolidated balance sheets at 30th September 2004 and 31st
March 2005 ;
* the Group's consolidated cash flow statements for the period ended 30th
September 2004 and the year ended 31st March 2005;
* the Group's consolidated statement of changes in equity for the year ended
31st March 2005 and the period ended 30th September 2004;
* a reconciliation of the Group's consolidated Income statements for the
period ended 30th September 2004 and year ended 31st March 2005, from those
prepared under UK GAAP to IFRS;
* a reconciliation of the Group's consolidated balance sheets at 31st March
2004, 30th September 2004 and 31st March 2005, from those prepared under UK
GAAP to IFRS;
* the Group's accounting policies applied in the preparation of this
financial information.
In conjunction with our auditors, the Group has reviewed the changes necessary
to comply with IFRS. The financial information presented in this document is
unaudited. The auditors, Baker Tilly, have reviewed this announcement and the
financial information and accounting policies contained therein.
Financial Impact Summary
The full effect of the financial impact of IFRS in respect of the Group's year
ended 31st March 2005 reported results is set out in detail later in this
document. A summary of the effect on the income statement for the year ended
31st March 2005 is:
Reconciliation of profit for the year ended 31st March 2005 2005
#'000
UK GAAP profit for year (before dividend) 419
Exchange differences (net of tax) (7)
Share based payments (net of tax) (56)
Removal of amortisation of goodwill 1,561
Employee benefits - pension charge (net of tax) 57
Capitalised research and development expenditure in excess of
amortisation (net of tax) 512
------------
IFRS underlying profit on ordinary activities before tax 2,486
------------
The key areas which will affect the financial statements and accounting
policies as reported under UK GAAP are goodwill, share-based payments, employee
benefits, dividends and accounting for research and development costs. The
reporting under IFRS will change the Group's financial performance and position;
however, there is no change to the cash flows of the Group.
CML Microsystems Plc IFRS Results
IFRS 1 "First-time Adoption of International Financial Reporting Standards"
lays out the procedures that the Group must follow when it adopts IFRS for the
first time as the basis for preparing its consolidated financial statements.
Although in general the Group is required to apply the new accounting standards
retrospectively to determine its opening balance sheet this standard allows
companies adopting IFRS for the first time to take certain exemptions from the
full requirements of IFRS in the year of transition. The group has elected to
take the following exemptions:
IFRS 2 - Share-based payments
The Group has elected to apply the exemption that allows entities to apply
IFRS 2 to share based payment awards granted after November 2002.
IFRS 3 - Business combinations
The Group has elected not to apply IFRS 3 retrospectively to acquisitions that
took place prior to the date of transition. As a result, the carrying amount of
goodwill in the UK GAAP balance sheet at 31st March 2004 is brought forward to
the IFRS opening balance sheet without adjustment.
IAS 19 - Employee benefits - actuarial gains and losses
The Group has elected to recognise all cumulative actuarial gains and losses at
the date of transition.
IAS 21 - Foreign currencies
The Group has elected to deem the cumulative amount of exchange differences
arising on consolidation of the net investments in subsidiaries at 1st April
2004 to be zero.
Key financial impacts
The most significant adjustments arising from the transition to IFRS were
highlighted in the 2005 Report and Accounts. These are set out in more detail
below:
Presentation of financial statements
The presentation of the Groups primary financial statements has been presented
in accordance with IAS 1 "Presentation of Financial Statements".
Goodwill
Under UK GAAP the Group was amortising the goodwill arising on the acquisition
of Hyperstone AG over a 36-month period. Under IAS 38 intangible assets with an
indefinite life shall not be amortised, but tested for impairment annually.
Though the Board considered the approach taken under UK GAAP to be the more
prudent, it has complied, as it is required to do, with the accounting approach
under IAS 38.
Share-based payments
In accordance with IFRS2 the Group has recognised the cost of outstanding share
options granted. The fair value has been calculated using the Black-Scholes
model. Deferred tax is provided based upon expected future deductions relating
to share based payments and is recognised over the vesting period of the scheme
concerned.
Employee benefits
Under IAS 19 the Group is required to separately recognise the operating and
financing costs of defined benefit pension schemes. The group has adopted the
amendment to IAS 19 issued on 16th December 2004 that allows all actuarial gains
and losses to be charged or credited to equity rather than in the income
statement. Actuarial gains and losses will be recognised in full immediately in
the statement of recognised income and expenditure. Deferred tax is provided
based upon the expected future deductions or additions as appropriate.
Dividends
IFRS requires that dividends declared after the balance sheet date should not be
recognised as a liability until approved by shareholders. Accordingly the
dividend for the year ended 31st March 2005 and 31st March 2004 is not accrued
in the balance sheet as at those dates.
Accounting for research and development
The Group is continually engaged in significant research and development in
respect of new products and has concluded that the majority of this meets the
criteria as set out in IAS 19 for capitalisation. Though the Board considers
that the previous method of accounting under UK GAAP to be a more prudent
approach it has, as it is required to do, adopted accounting for this
expenditure under IAS 19.
Accordingly the Group has retrospectively reviewed all research and development
expenditure previously charged to the profit and loss account under UK GAAP to
determine its opening balance for this new asset class, amortising the asset
over the appropriate period that has been decided to be between 2 and 4 years.
This change in accounting policy has had the most significant impact on the
Groups results when restated under IFRS since over the last four years the
Groups overall research and development expenditure has significantly increased
(2002-#1,942k; 2003-#2,276k; 2004-#2,817k; 2005-#3,578k) which when capitalised
and amortised must result in an increase in profits when restated.
Cash flow statement
Although there is no effect on the underlying cash receipts and expenditure of
the Group, there are significant presentational changes. Under IAS 7 "Cash Flow
Statements", the movement in cash and cash equivalents includes short -term
investments with maturity of less than three months.
The format of the of the cash flow statement shows cash flows analysed between
operating, investment and financing activities. Cash flows relating to tax are
classified within operating cash flows whereas under UK GAAP these items were
classified separately from operating activities.
George W Gurry 15th November 2005
Chairman
For further information contact:
Nigel G Clark
Financial Director and Company Secretary 01621 875500
CML Microsystems Plc
Consolidated Income Statement (under IFRS)
Year ended Six months
ended
31st March 30th September
2005 2004
#'000 #'000
Revenue 23,457 11,440
Cost of sales (8,597) (4,435)
-------------- -------------
Gross profit 14,860 7,005
Distribution and administration costs (12,507) (5,819)
-------------- -------------
2,353 1,186
Other operating income 581 276
-------------- -------------
Operating profit before adjustments 2,934 1,462
Restructuring costs (420) -
Share based payment (79) (39)
-------------- -------------
Operating profit after adjustments 2,435 1,423
Finance cost (249) (118)
Finance income 119 47
-------------- -------------
Profit before tax 2,305 1,352
Taxation 181 (381)
-------------- -------------
Profit for the period attributable to equity
shareholders 2,486 971
============== =============
Earnings per share
Basic 16.77p 6.66p
-------------- -------------
Diluted 16.64p 6.56p
-------------- -------------
Statement of Recognised Income and Expenditure (under IFRS)
Year ended Six months
ended
31st March 30th September
2005 2004
#'000 #'000
Profit for the period attributable to equity
shareholders 2,486 971
Foreign exchange differences (40) 77
Actuarial losses (493) -
Deferred tax 148 -
-------------- -------------
Recognised gains and losses relating to the
period 2,101 1,048
============== =============
CML Microsystems Plc
Consolidated Balance Sheet (under IFRS)
31st March 30th September
2005 2004
#'000 #'000
Assets
Non current assets
Property, plant and equipment 7,193 6,828
Investment properties 3,150 3,150
Intangible assets - Research & development 5,089 4,629
Intangible assets - Goodwill on consolidation 3,512 3,512
Deferred tax asset 1,573 1,066
-------------- -------------
20,517 19,185
-------------- -------------
Current assets
Inventories 1,723 1,991
Trade receivables and prepayments 4,093 3,837
Cash and cash equivalents 8,449 8,471
-------------- -------------
14,265 14,299
-------------- -------------
Total assets 34,782 33,484
-------------- -------------
Liabilities
Current liabilities
Bank loans and overdrafts 4,378 4,378
Trade and other liabilities 4,086 4,788
Current tax liabilities 272 418
-------------- -------------
8,736 9,584
-------------- -------------
Non current liabilities
Deferred tax liabilities 2,624 2,408
Provisions 420 -
Long term liabilities 3,504 3,093
-------------- -------------
6,548 5,501
-------------- -------------
Total liabilities 15,284 15,085
-------------- -------------
Net Assets 19,498 18,399
============== =============
Equity
Share capital 744 741
Convertible warrants 120 240
Share premium 3,752 3,630
Share based payments 83 42
Capital Redemption Reserve 255 255
Foreign exchange differences (40) 77
Retained earnings 14,584 13,414
-------------- -------------
Shareholders' equity 19,498 18,399
============== =============
CML Microsystems Plc
Consolidated Cash Flow Statement (under IFRS)
Year ended Six months
ended
31st March 30th September
2005 2004
#'000 #'000
Operating activities
Net profit for the period before income taxes 2,305 1,352
Adjustments for:
Depreciation 663 289
Movement in pension deficit (82) -
Amortisation of research and development 3,354 1,301
Share based payments 79 39
Exceptional restructuring costs 420 -
Interest expense 235 118
Interest income (119) (47)
Increase in working capital 243 385
-------------- -------------
Cash flows from operating activities 7,098 3,437
Income tax refunded 142 284
-------------- -------------
Net cash flows from operating activities 7,240 3,721
-------------- -------------
Investing activities
Purchase of tangible fixed assets (1,351) (593)
Investment in intangible assets (4,093) (1,579)
Disposals of tangible fixed assets 99 53
Interest income 119 47
-------------- -------------
Net cash flows from investing activities (5,226) (2,072)
-------------- -------------
Financing activities
Issue of ordinary shares 47 41
Dividends paid to group shareholders (1,556) (1,556)
Interest expense (235) (118)
-------------- -------------
Net cash flows from financing activities (1,744) (1,633)
-------------- -------------
Increase in cash and cash equivalents 270 16
============== =============
Movement in cash and cash equivalents:
At start of period 8,245 8,245
Increase 270 16
Effects of exchange rate changes (66) 210
-------------- -------------
At end of period 8,449 8,471
============== =============
CML Microsystems Plc
Consolidated Statement of Changes in Equity
Share Capital Convertible Share Premium Share based Capital Foreign Retained Total
Warrants payments redemption Exchange earnings
reserve differences
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
At 1st
April 740 240 3,590 3 255 - 13,999 18,827
2004
Shares 4 163 167
issued
Warrants
converted (120) (120)
Foreign
Exchange
differences (40) (40)
Net
actuarial
losses
recognised
directly to (493) (493)
equity
Dividends (1,556) (1556)
paid
Profit for
period 2,486 2,486
Share based
payments 79 79
Deferred 148 148
tax
------- -------- ------- ------- -------- -------- ------- -------
At 31st
March 744 120 3,753 82 255 (40) 14,584 19,498
2005 ======= ======== ======= ======= ======== ======== ======= =======
Share Capital Convertible Share Premium Share based Capital Foreign Retained Total
Warrants payments redemption Exchange earnings
reserve differences
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
At 1st
April 740 240 3,590 3 255 - 13,999 18,827
2004
Shares 1 40 41
issued
Foreign
Exchange
differences 77 77
Net
actuarial
losses
recognised
directly to
equity
Dividends (1,556) (1,556)
paid
Profit for
period 971 971
Share based
payments 39 39
------- -------- ------- ------- -------- -------- ------- -------
At 30th
September 741 240 3,630 42 255 77 13,414 18,399
2004 ======= ======== ======= ======= ======== ======== ======= =======
CML Microsystems Plc
Reconciliation of the group's consolidated income statement for the year ended
31st March 2005
------- ------- ------ ------- -------
Year ended IAS10 IAS19 IAS38 Foreign IFRS2 Year ended
31st March 2005 Dividend Employee Intangible Exchange Share based 31st March 2005
Under UK GAAP Benefits Assets Differences Payments Restated Under
IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Revenue 23,459 (2) 23,457
Cost of (9,685) 1,071 17 (8,597)
sales
--------- ---------
Gross 13,774 14,860
profit
Distribution
& (12,256) 96 (332) (15) (12,507)
admin costs
--------- ---------
1,518 2,353
Other
operating
income 583 (2) 581
--------- ---------
Operating
profit before
adjustment 2,101 2,934
Amortisation
of goodwill (1,561) 1,561 -
Restructuring
costs (420) (420)
Share Based
payment - (79) (79)
--------- ---------
Operating
profit after
adjustments 120 2.435
Finance (235) (14) (249)
cost
Finance 118 1 119
income
--------- ---------
Profit before
tax 3 2,305
Taxation 416 (25) (227) (6) 23 181
--------- ---------
Profit for
the 419 2,486
period
Dividend
proposed/paid (1,564) 1,564 -
--------- ---------
Profit for
the
period
attributable
to equity (1,145) 2,486
shareholders --------- ---------
Reconciliation of statement of recognised income and expenditure
Profit for the period attributable to equity
shareholders (1,145) 2,486
Foreign exchange differences (63) 23 (40)
Actuarial losses - (493) (493)
Deferred tax - 148 148
--------- ---------
Recognised gains and losses relating to the (1,208) 2,101
period --------- ------- ------- ---------
CML Microsystems Plc
Reconciliation of the group's consolidated income statement for the 6 months
ended 30th September 2004
------- ------ ------- -------
6 months ended IAS10 IAS38 Foreign IFRS2 6 months ended
30th September Dividend Intangible Exchange Share based 30th September
2004 2004
Under UK GAAP Assets Differences Payments Restated Under
IFRS
#'000 #'000 #'000 #'000 #'000 #'000
Revenue 11,559 (119) 11,440
Cost of (4,500) 65 (4,435)
sales
--------- ---------
Gross 7,059 7,005
profit
Distribution
& (6,139) 278 42 (5,819)
admin costs
--------- ---------
920 1,186
Other
operating
income 278 (2) 276
--------- ---------
Operating
profit
before 1,198 1,462
adjustments
Amortisation
of goodwill (781) 781 -
Share Based
payment - (39) (39)
--------- ---------
Operating
profit after
adjustments 417 1,423
Finance (118) (118)
cost
Finance 47 47
income
--------- ---------
Profit
before 346 1,352
tax
Taxation (305) (89) 1 12 (381)
--------- ---------
Profit for
the
period
attributable
to equity 41 971
shareholders --------- ---------
Reconciliation of statement of recognised income and expenditure
Profit for the period attributable to equity 41 971
shareholders
Foreign exchange differences 48 29 77
Actuarial losses - -
--------- ---------
Recognised gains and losses relating to the period 89 1,048
--------- ------- ---------
CML Microsystems Plc
Reconciliation of the group's consolidated balance sheet as at 31st March 2004
(the "opening " IFRS balance sheet)
------- ------- ------ ------- -------
IAS10 IAS19 IAS38 IAS12 IFRS2
31st March 2004 Dividend Employee Intangible Investment Share based 31st March 2004
Under UK GAAP Benefits Assets Property Payments Restated Under
IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Assets
Non current
assets
Property,
plant and
equipment 6,522 6,522
Investment
properties 3,150 3,150
Intangible
assets - R & - 4,333 4,333
D
Intangible
assets -
Goodwill 3,512 3,512
Deferred tax
asset 153 928 1 1,082
--------- ---------
13,337 18,599
--------- ---------
Current
assets
Inventories 1,784 1,784
Trade
receivables
and
prepayments 3,388 3,388
Cash and cash
equivalents 8,413 8,413
--------- ---------
13,585 13,585
--------- ---------
Total 26,922 32,184
assets --------- ---------
Liabilities
Current
liabilities
Bank loans
and 4,546 4,546
overdrafts
Trade and
other
liabilities 4,687 (1,554) 3,133
Current tax
liabilities 252 252
--------- ---------
9,485 7,931
--------- ---------
Non current
liabilities
Deferred tax
liabilities 737 1,300 296 2,333
Long term
liabilities - 3,093 3,093
--------- ---------
737 5,426
--------- ---------
Total
liabilities 10,222 13,357
--------- ---------
Net assets 16,700 18,827
--------- ---------
Equity
Share 740 740
capital
Convertible
warrants 240 240
Share 3,590 3,590
premium
Share based
payments - 3 3
Capital
redemption
reserve 255 255
Revaluation
reserve 986 (986) -
Retained
earnings 10,889 1,554 (2,165) 3,033 690 (2) 13,999
--------- ---------
Shareholders'
equity 16,700 18,827
--------- ---------
CML Microsystems Plc
Reconciliation of the group's consolidated balance sheet as at 31st March 2005
------- ------- ------ ------- ------- -------
IAS10 IAS19 IAS38 Foreign IAS12 IFRS2
31st March 2005 Dividend Employee Intangible Exchange Investment Share based 31st March 2005
Under UK GAAP Benefits Assets Differences Property Payments Restated Under
IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Assets
Non current
assets
Property,
plant and
equipment 7,195 (2) 7,193
Investment
properties 3,150 3,150
Intangible
assets - R & - 5,089 5,089
D
Intangible
assets -
Goodwill 1,951 1,561 3,512
Deferred tax
asset 497 1,051 25 1,573
-------- ---------
12,793 20,517
-------- ---------
Current
assets
Inventories 1,723 1,723
Trade
receivables
and
prepayments 4,093 4,093
Cash and cash
equivalents 8,449 8,449
-------- ---------
14,265 14,265
-------- ---------
Total 27,058 34,782
assets -------- ---------
Liabilities
Current
liabilities
Bank loans
and 4,378 4,378
overdrafts
Trade and
other
liabilities 5,649 (1,563) 4,086
Current tax
liabilities 272 272
-------- ---------
10,299 8,736
-------- ---------
Non current
liabilities
Deferred tax
liabilities 801 1,527 296 2,624
Provisions 420 420
Long term
liabilities - 3,504 3,504
-------- ---------
1,221 6,548
-------- ---------
Total
liabilities 11,520 15,284
-------- ---------
Net assets 15,538 19,498
-------- ---------
Equity
Share 744 744
capital
Convertible
warrants 120 120
Share 3,752 3,752
premium
Share based
payments - 83 83
Capital
redemption
reserve 255 255
Revaluation
reserve 986 (986) -
Foreign
exchange
differences - (40) (40)
Retained
earnings 9,681 1,563 (2,453) 5,121 40 690 (58) 14,584
-------- ---------
Shareholders'
equity 15,538 19,498
-------- ---------
CML Microsystems Plc
Reconciliation of the group's consolidated balance sheet as at 30th September
2004
------ ------ ------- ------- ------- -------
IAS10 IAS19 IAS38 Foreign IAS12 IFRS2
30th September Dividend Employee Intangible Exchange Investment Share based 30th September
2004 2004
Under UK GAAP Benefits Assets Differences Property Payments Restated Under
IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Assets
Non current
assets
Property,
plant and
equipment 6,828 6,828
Investment
properties 3,150 3,150
Intangible
assets - R & - 4,629 4,629
D
Intangible
assets -
Goodwill 2,732 780 3,512
Deferred tax
asset 126 928 12 1,066
------- -------
12,836 19,185
------- -------
Current
assets
Inventories 1,991 1,991
Trade
receivables
and
prepayments 3,837 3,837
Cash and cash
equivalents 8,471 8,471
------- -------
14,299 14,299
------- -------
Total 27,135 33,484
assets ------- -------
Liabilities
Current
liabilities
Bank loans
and 4,378 4,378
overdrafts
Trade and
other
liabilities 4,786 2 4,788
Current tax
liabilities 418 418
------- -------
9,582 9,584
------- -------
Non current
liabilities
Deferred tax
liabilities 723 1,389 296 2,408
Provisions - -
Long term
liabilities - 3,093 3,093
------- -------
723 5,501
------- -------
Total
liabilities 10,305 15,085
------- -------
Net assets 16,830 18,399
------- -------
Equity
Share 741 741
capital
Convertible
warrants 240 240
Share 3,630 3,630
premium
Share based
payments - 42 42
Capital
redemption
reserve 255 255
Revaluation
reserve 986 (986) -
Foreign
exchange
differences - 77 77
Retained
earnings 10,978 (2) (2,165) 4,020 (77) 690 (30) 13,414
------- -------
Shareholders'
equity 16,830 18,399
------- -------
CML Microsystems Plc
Accounting Policies
Basis of accounting
The financial statements have been prepared in accordance with IAS and IFRS
issued by the IASB. The accounting polices applied assume that all existing
standards in issue from the IASB will be fully endorsed by the EU. These are
subject to amendment by the IASB and subsequent endorsement by the EU and are
therefore subject to possible change.
The financial statements have been prepared under the historical cost convention
with the exception of investment properties, which are carried at valuation.
The consolidated financial statements for the year ended 31st March 2006 will be
the Group's first full IFRS financial statements. Comparative information at
31st March 2005 and for the year then ended has been restated under IFRS.
The Group has elected to take certain optional exemptions contained in IFRS 1
"First time Adoption of IFRS" in preparing the Group's balance sheet on
transition to IFRS. These exemptions apply to accounting under IFRS 2 "Share
based payments", IAS 19 "Employee Benefits" and IAS 21 "Cumulative Translation
Differences".
Basis of consolidation
The financial statements incorporate the financial statements of the Company and
its subsidiary undertakings using the acquisition method of accounting. The
results of acquired subsidiary undertakings are included from the date of
acquisition.
Segmental reporting
The Group's primary reporting format is in two segments being Semi-conductor
Components and Equipment. These individual segments are engaged in separate
business sectors and are subject to different risks and returns.
Revenue
Revenue represents the total amount receivable by the Group for the sale of its
product or services to third parties in respect of deliveries of goods and
services rendered during the year, excluding local sales tax.
Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated at the
rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are recorded at the rates ruling at the date of the transactions. All
differences are taken to the profit and loss account.
The income statements of overseas subsidiaries are translated into sterling at
the average rate for the period. Translation differences are dealt with through
the Foreign Exchange differences reserve in shareholders funds.
The Group has elected to deem the cumulative amount of exchange differences
arising on consolidation of the net investments in subsidiaries at 1st April
2004 to be zero.
Tangible Fixed Assets
All tangible fixed assets, other than investment properties, are stated at
historic cost.
Depreciation is provided on all tangible fixed assets other than freehold land
and investment properties at rates calculated to write each asset down to its
estimated residual value evenly over its expected useful life as follows:
Freehold and long leasehold premises 2% straight line
Short leasehold premises period of lease
Plant and equipment: Fixtures and fittings 20% reducing balance
Other equipment 20% & 25% straight line
Motor Vehicles 25% straight line
Investment Properties
Investment properties comprise freehold and long leasehold land and buildings.
Investment properties are carried at fair value in accordance with IAS 40
'Investment Properties'. Properties are recognised as investment properties when
held for long-term rental yields, and after consideration has been given to a
number of factors including length of lease, quality of tenant and covenant,
value of lease, management intention for future use of property, planning
consents and percentage of property leased. Investment properties are revalued
annually by the directors and every third year by professional external
surveyors and included in the balance sheet at their fair value. Gains or losses
arising from changes in the fair values of assets are recognised in the
consolidated income statement. In accordance with IAS 40, investment properties
are not depreciated.
Intangible Assets - Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Historically the Group's policy for goodwill arising
on acquisition of a subsidiary undertaking was to write it off directly against
reserves but following the introduction of Financial Reporting Standard 10
goodwill arising on the acquisition of a subsidiary undertaking was capitalised,
classified as an asset and amortised over its economic useful life. Under IFRS 1
the Group has elected to adopt the 31st March 2004 balance sheet amortised value
prepared under UK GAAP for goodwill and carry out annual impairment reviews as
required under IAS 38.
Intangible Assets - Research and Development
Research and development assets that fall within the scope of IAS 19 are shown
at historical cost less accumulated amortisation since research and development
has a definite useful life. Amortisation is calculated using the straight line
method to allocate the cost of the research and development over its estimated
useful life of between 2 and 4 years.
Research and development expenditure that falls outside the scope of IAS 19 is
charged to the income statement when it is incurred.
Inventories
Inventories are valued on a first in, first out basis and are stated at the
lower of cost and net realisable value. In respect of work in progress and
finished goods, cost comprises direct materials, direct labour and a proportion
of overhead expenses appropriate to the business.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts where there is a set off arrangement
with the bank. Other bank overdrafts are shown within borrowings in current
liabilities on the balance sheet.
Income tax
The charge for current income tax is based on the results for the year as
adjusted for items which are not taxed or disallowed. It is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet date.
Deferred income tax is accounted for using the liability method in respect of
temporary differences arising from differences between the tax bases of assets
and liabilities and their carrying amounts in the financial statements.
In principle, deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference is due to goodwill arising on a business
combination or from an asset or liability, the initial recognition of which does
not affect either taxable or accounting income.
In respect of the deferred tax on the revaluation surplus, this is calculated on
the basis of the chargeable gains that would crystallise on the sale of the
investment portfolio as at the reporting date. The calculation takes account of
indexation on the historic cost of the properties and any available capital
losses.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries except where the Group is able to control
the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or liability is settled. Deferred tax is
charged or credited in the income statement, except when it relates to items
credited or charged directly to shareholders' equity, in which case the deferred
tax is also dealt with in shareholders' equity.
Investments
Fixed asset investments are stated at cost less any provision for diminution on
value. Investments held as current assets are stated at the lower of cost and
net realisable value.
Employee Benefits - Pension Obligations
Group companies operate both defined benefit and defined contribution pension
schemes. The schemes are funded through payments to funds administered by
trustees and these are determined by periodic actuarial calculations in respect
of the defined benefit pension schemes.
The Group has elected to recognise all cumulative actuarial gains and losses in
relation to employee defined benefit schemes at the date of transition.
The liability recognised in the balance sheet in respect of the defined benefit
pension schemes is the present value of the defined benefit obligation at the
balance sheet date less the fair value of the scheme assets. Independent
actuaries using the projected unit method calculate the defined benefit
obligation annually.
Past service costs are included where the benefits have vested, otherwise they
are amortised on a straight line basis over the vesting period. The expected
return on assets of the defined benefit pension plan and the imputed interest on
the pension plan liabilities comprise the pension element of the net finance
cost/income in the income statement.
Differences between the actual and expected return on assets, changes to the
retirement benefit obligation due to experience and changes in actuarial
assumptions are included in the statement of recognised income and expense in
full in the period in which they arise.
For defined contribution schemes, contributions are recognised as an employee
benefit expense when they are due.
Employee Benefits - Share Based Payments
The Group has taken advantage of the transitional provisions that allows it to
apply IFRS 2 to share option awards granted after 7th November 2002 that had not
vested on or before 31st March 2005.
Share options are valued using the Black Scholes model. This fair value is
charged to the income statement over the vesting period of the share based
payment scheme. The value of the charge is adjusted to reflect expected and
actual levels of options vesting.
EU Grants
EU grants receivable to assist the Group with costs in respect of development
work are credited to the income statement so as to match them with the
expenditure to which they relate.
Leases
Leases of property, plant and equipment where the Group has substantially all
the risk and rewards of ownership are classified as finance leases. The Group
has no such leases. Leases in which a significant number of the risks and
rewards of ownership are retained by the lessor are classified as operating
leases. Rental payments under operating leases are charged to the income
statement on a straight-line basis.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the year end
are not recognised in the financial statements until they have been approved by
the shareholders at the Annual General Meeting. Interim dividends, which do not
require shareholder approval are recognised when they are approved by the Board
of Directors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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