Transition to IFRS
Software Radio Technology plc
Transition to International Financial Reporting Standards
Software Radio Technology plc ('SRT plc' or 'the Group' or 'the Company'), the
AIM-listed developer and licensor of sophisticated wireless technology, will be
reporting its financial results in accordance with International Financial
Reporting Standards ('IFRS') with effect from 1 April 2007. On 5 November 2007
the Group will report its interim results for the six months ended 30 September
2007 under IFRS, including the restated comparatives for the six months to 30
September 2006.
This statement presents and explains the conversion of the Group's results as
previously reported under UK Generally Accepted Accounting Principles ('UK
GAAP') onto an IFRS basis for the year ended 31 March 2007.
The key changes for the Group are as follows:
goodwill is no longer amortised; and
the recognition of a liability for employees' unused entitlement to annual
leave
The net impact of these changes for the year ended 31 March 2007 is a £50,217
decrease in the Group's loss before taxation, and a reduction in the basic loss
per share from 3.83 pence to 3.76 pence.
The transition to IFRS has no effect on the cash flows of the business.
Full details are set out in this announcement.
Enquiries:
Software Radio Technology plc
Matthew Rogers, Group Finance Director 01761 409500
Hanson Westhouse Limited
Tim Feather / Matthew Johnson 0113 246 2610
Transition to International Financial Reporting Standards
1 Introduction
EU law (IAS Regulation EC 1606/2002) and AIM notice 22 require that the next
annual consolidated financial statements of the Company, for the year ending 31
March 2008, be prepared in accordance with International Financial Reporting
Standards and IFRIC interpretations as endorsed by the European Union
(collectively "IFRS").
The results for the year ended 31 March 2007 have been restated from UK GAAP to
IFRS, adopting a 1 April 2006 transition date. This announcement presents and
explains this restatement.
Our first results to be published under IFRS will be for the half year to 30
September 2007, which will be reported in an announcement to be issued on 5
November 2007.
2 Basis of preparation
This financial information has been prepared on the basis of the recognition
and measurement requirements of IFRSs in issue that either are endorsed by the
EU and effective (or available for early adoption) or are expected to be
endorsed and effective (or available for early adoption) at 31 March 2008, the
Group's first annual reporting date at which it is required to use adopted
IFRS. Based on these adopted and unadopted IFRS's, the directors have made
assumptions about the accounting policies expected to be applied, which are as
set out in section 6, when the first annual IFRS financial statements are
prepared for the year ending 31 March 2008.
In addition, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 March 2008
are still subject to change and further interpretation and therefore cannot be
determined with certainty. Accordingly, the accounting policies for that
annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 March 2008.
The financial information contained in this statement does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The figures prepared under IFRS shown in this statement are unaudited. The
consolidated statutory financial statements of SRT plc for the year ended 31
March 2007 prepared under UK GAAP have been filed with the Registrar of
Companies. The auditors' report on those financial statements was unqualified
and did not contain any statement under section 237 (2) or (3) of the Companies
Act 1985.
3 Transition to IFRS - first time adoption
IFRS 1 'First-time Adoption of International Financial Reporting Standards'
sets 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.
The Group is required to establish its accounting policies for the year ending
31 March 2008 and, in general, apply these retrospectively to determine the
IFRS opening balance sheet as at its date of transition, 1 April 2006. This
standard permits companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS during the transition period. As
permitted under the transitional provisions of IFRS 1, the relevant exemption
adopted by the Group is set out below.
i) Business combinations
The Group has chosen not to restate business combinations completed prior to
the transition date on an IFRS basis.
4 Principal differences to UK GAAP
i) Intangible assets
The Group had previously opted to capitalise qualifying development expenditure
line with SSAP 13 'Accounting for Research and Development' under UK GAAP. For
the purposes of considering the impact of transition, the relevant
requirements of IAS 38 'Intangible assets' have been compared to the
capitalisation criteria and approach adopted under SSAP 13.
Our review has concluded that there are no significant differences between the
approach previously adopted under UK GAAP and the requirements of IAS 38 and
consequently no transition adjustments have been made to the development
expenditure previously capitalised.
IAS 38 also requires computer software to be classified as an intangible asset.
This has resulted in a balance sheet reclassification from property, plant and
equipment to intangible assets at 31 March 2007 of £2,331.
ii) Business combinations and goodwill
The Group has not undertaken any business combinations in the period since the
1 April 2006 and, as noted above, has chosen not to restate business
combinations completed prior to the transition date.
The goodwill recognised by the Group at 1 April 2006 of £112,158, which relates
to a business combination completed on 5 December 2002, is to no longer be
amortised from that date but will instead be subject to an annual impairment
review in line with the requirements of IFRS 3 'Business Combinations' and IAS
36 'Impairment of Assets' . As a result, the UK GAAP amortisation charge of £
67,296 for the year to 31 March 2007 has been reversed.
iii) Employee benefits
In accordance with IAS 19 'Employee benefits' the Group is required to
recognise a liability for employees' unused entitlement to annual leave.
Therefore, an additional accrual amounting to £57,396 has been recognised at 31
March 2007.
5 Restatement of financial information under IFRS
The financial information set out in this section has been prepared on the
basis of the accounting policies set out in section 6. An explanation of the
principal effects of transition to IFRS is provided above in section 4.
i) Consolidated Income Statement for the year ended 31 March 2007
The reconciliation below shows the UK GAAP profit and loss account presented in
an IFRS Consolidated Income Statement format and the adjustments to the
reported performance for the period required as a result of the adoption of
IFRS.
IAS 38 IFRS 3 IAS 19
Intangible Business Employee
UKGAAP assets combinations benefits IFRS
£ £ £ £ £
Revenue 1,817,588 1,817,588
Cost of sales (1,628,531) (17,079) (1,645,610)
Gross profit 189,057 (17,079) 171,978
Administrative expenses (3,237,494) 67,296 (3,170,198)
Operating loss (3,048,437) 67,296 (17,079) (2,998,220)
Finance income 85,791 85,791
Finance costs - -
Loss before income tax (2,962,646) 67,296 (17,079) (2,912,429)
Taxation - -
Loss for the year (2,962,646) 67,296 (17,079) (2,912,429)
Basic and diluted (3.83)p (3.76)p
loss per share
ii) Consolidated Balance Sheet as at 31 March 2007
The reconciliation below shows the UK GAAP balance sheet presented in an IFRS
format and the adjustments to the reported position required as a result of the
adoption of IFRS.
IAS 38 IFRS 3 IAS 19
Intangible Business Employee
UKGAAP assets combinations benefits IFRS
£ £ £ £ £
Assets
Non-current assets
Intangible assets 4,883,768 2,331 67,296 4,953,395
Tangible assets 522,485 (2,331) 520,154
Total non-current assets 5,406,253 67,296 5,473,549
Current assets
Inventories 161,938 161,938
Trade and other receivables 2,971,612 2,971,612
Cash and cash equivalents 317,005 317,005
Total current assets 3,450,555 3,450,555
Liabilities
Current liabilities
Trade and other liabilities (1,589,170) (57,396) (1,646,566)
Total current liabilities (1,589,170) (57,396) (1,646,566)
Net assets 7,267,638 67,296 (57,396) 7,277,538
Shareholders equity
Ordinary shares 78,288 78,288
Share premium 7,787,787 7,787,787
Other reserves 5,719,383 5,719,383
Retained earnings (6,317,820) 67,296 (57,396) (6,307,920)
Total equity 7,267,638 67,296 (57,396) 7,277,538
iii) Consolidated Balance Sheet as at 1 April 2006
The reconciliation below shows the UK GAAP balance sheet presented in an IFRS
format and the adjustments to the reported position required as a result of the
adoption of IFRS.
IAS 38 IFRS 3 IAS 19
Intangible Business Employee
UKGAAP assets combinations benefits IFRS
£ £ £ £ £
Assets
Non-current assets
Intangible assets 2,860,875 6,469 2,867,344
Tangible assets 324,199 (6,469) 317,730
Total non-current assets 3,185,074 3,185,074
Current assets
Inventories 290,091 290,091
Trade and other receivables 1,903,977 1,903,977
Cash and cash equivalents 1,233,431 1,233,431
Total current assets 3,427,499 3,427,499
Liabilities
Current liabilities
Trade and other liabilities (890,347) (40,317) (930,664)
Total current liabilities (890,347) (40,317) (930,664)
Net assets 5,722,226 (40,317) 5,681,909
Shareholders equity
Ordinary shares 69,045 69,045
Share premium 3,659,873 3,659,873
Other reserves 5,724,512 5,724,512
Retained earnings (3,731,204) (40,317) (3,771,521)
Total equity 5,722,226 (40,317) 5,681,909
iv) Cash flow Statement for the year ended 31 March 2007
The reconciliation below shows the UK GAAP cash flow statement presented in an
IFRS format and the adjustments to the reported performance for the period
required as a result of the adoption of IFRS.
IAS 38
Intangible
UKGAAP assets IFRS
£ £ £
Cash flows from operating activities
Cash generated from operations (2,503,430) (2,503,430)
Interest received 85,791 85,791
Net cash from operating activities (2,417,639) (2,417,639)
Cash flows from investing activities
Purchase of intangible fixed assets (2,218,164) (1,620) (2,219,784)
Purchase of tangible fixed assets (412,651) 1,620 (411,031)
Net cash used in investing activities (2,630,815) (2,630,815)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 4,132,028 4,132,028
Net cash used in financing activities 4,132,028 4,132,028
Net decrease in cash and cash equivalents (916,426) (916,426)
Cash and cash equivalents at 1 April 1,233,431 1,233,431
Cash and cash equivalents at 31 March 317,005 317,005
6 IFRS Accounting Policies
The Group's principal accounting policies applied in preparing this financial
information are set out below.
Basis of preparation
This financial information has been prepared under the historical cost
convention and in accordance with the UK Companies Act 1985 and on a basis
consistent with International Financial Reporting Standards and IFRIC
interpretations as endorsed by the European Union and interpretations expected
to be in issue at 31 March 2008.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
SRT plc and its subsidiary undertakings. Subsidiaries are all entities over
which the Group has the power to govern their financial and operating policies.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and are de-consolidated from the date that control ceases.
Revenue
The Group follows the principles of IAS 18 'Revenue recognition' in determining
appropriate revenue recognition policies. Revenue is recognised to the extent
that it is probable that the economic benefits associated with the transaction
will flow into the Group.
Revenue, which is presented net of discounts, VAT and other sales related
taxes, comprises the value of sales of Marine products, royalties arising from
the sale of PMR reference design components, revenues from technology licence
and product development support contracts.
Revenue from the sale of Marine products and in respect of royalties arising
from the sale of PMR reference design components is recognised when the risks
and rewards of ownership of the product or component is transferred to the
customer, which is usually upon the delivery of the goods to the customer.
Revenue from technology licence and product development support contracts is
recognised on a percentage of completion basis which is calculated as the
number of actual contract hours to date compared to the total estimated
contract hours requirement, which approximates to the extent of performance. If
the amount of revenue recognised exceeds the amounts invoiced to customers, the
excess amount is recorded as amounts recoverable on contracts within
receivables. Where the position is reversed (i.e. the amount invoiced exceeds
the amounts of revenue recognised) the excess is recognised as deferred revenue
within liabilities.
Research and development
Research expenditure is written off to the Consolidated Income Statement in the
year in which it is incurred. Development expenditure is written off in the
same way unless the directors are satisfied that capitalisation criteria set
out in IAS 38 'Intangible Assets' have been met, including consideration of the
technical, commercial and financial viability of individual projects. In this
situation, the expenditure is deferred and amortised over the period during
which the Company is expected to benefit, currently considered to be five
years.
Development expenditure capitalised represents time spent by Company employees
and sub-contractor costs, valued at cost.
Goodwill
Goodwill arising on an acquisition is recognised as an asset and initially
measured at cost, being the excess of the fair value of the consideration and
directly attributable costs over the fair value of the identifiable assets,
liabilities and contingent liabilities.
Goodwill is not amortised. However, it is reviewed annually for any indication
of potential impairment. Any impairment identified is immediately charged to
the Consolidated Income Statement. Subsequent reversals of impairment losses
for goodwill are not recognised.
Property, plant and equipment
Property, plant and equipment items are stated at cost less accumulated
depreciation and any provision for impairment. Cost comprises all costs that
are directly attributable to bringing the asset into working condition for its
intended use. Depreciation is calculated to write down the cost of fixed
assets to their residual values on a straight-line basis over the following
estimated useful economic lives:
Plant and machinery - 2 - 10 years
Impairment
Assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. In addition,
goodwill is reviewed for impairment annually. An impairment loss is recognised
for the amount by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair value (less
disposal costs) and value in use.
Value in use is based on the present value of the future cash flows relating to
the asset. For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (Cash
Generating Units).
Taxation
Income tax on the profit or loss for the year comprises current and deferred
tax.
Current tax is the expected tax payable on the taxable income for the year
using rates substantially enacted at the balance sheet date, and any
adjustments to tax payable in respect of prior years.
Deferred tax is provided in full on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the amounts
used for taxation purposes. Deferred tax is calculated at the tax rates that
are expected to apply in the period when the liability is settled or the asset
is realised. Deferred tax assets are only recognised to the extent that it is
probable that future taxable profits will be utilised.
Tax is recognised in the Consolidated Income Statement except to the extent
that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Pension costs
The Group operates defined contribution pension schemes. Contributions are
charged in the Consolidated Income Statement as they become payable in
accordance with the rules of the scheme.
Leases
Rental costs under operating leases are charged to the Consolidated Income
Statement on a straight-line basis over the lease term.
Foreign currencies
Transactions denominated in a foreign currency are translated into sterling at
the rate of exchange ruling at the date of the transaction. At the balance
sheet date, monetary assets and liabilities denominated in foreign currency are
translated at the rate ruling at that date. All exchange differences are dealt
with in the Consolidated Income Statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and
attributable overheads that have been incurred in bringing the inventories to
their present location and condition.
Share based payments
In determining the fair value of equity settled share based payments and the
related charge to the income statement, the Group makes assumptions about
future events and market conditions. In particular, judgment must be made as to
the likely number of shares that will vest, and the fair value of each award
granted. The fair value is determined using a valuation model, which is
dependant on further estimates, including the Group's future dividend policy,
employee turnover, the timing with which options will be exercised and the
future volatility in the price of the Group's shares. Such assumptions are
based on publicly available information and reflect market expectations and
advice taken from qualified personnel. Different assumptions about these
factors to those made by the Group could materially affect the reported value
of share based payments.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, and call deposits
which have maturity of three months or less.
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