Transition to IFRS
Sondex PLC
23 November 2005
Sondex plc
Transition to International Financial Reporting Standards
November 2005
Introduction
Sondex plc has adopted International Financial Reporting Standards ("IFRS") from
1 March 2004 and the first full financial statements to be prepared under IFRS
will therefore be for the year ending 28 February 2006. The interim financial
statements for the six months ended 31 August 2005 will be prepared under the
IFRS accounting policies expected to be adopted in the financial statements for
the year ending 28 February 2006, but the company has taken advantage of the
available exemption not to apply IAS 34 (Interim Financial Statements), to these
interim financial statements, with the result that they will be presented under
the requirements of the Listing Rules.
This statement presents the accounting policies and financial information used
in the transition of financial statements previously prepared and published
under UK GAAP to compliance with IFRS.
Key exceptions and exemptions permitted by IFRS 1 First Time Adoption of
International Financial Reporting Standards and applied by Sondex plc are set
out in the Note of Accounting Policies in this statement.
The accounting policies and financial information in this statement have not
been audited but have been reviewed by the company's auditors, Ernst & Young.
Sondex plc's adoption of IFRS changes some accounting policies and the manner in
which some financial information is calculated and presented, but it has no
impact on the company's corporate strategy, its operating decisions or the
underlying value of its business.
Sondex plc is holding a briefing for analysts at 10am on Wednesday 23 November
2005 at College Hill, 5th Floor, 78 Cannon Street, London EC4N 6HH, to explain
the changes brought about by the transition to IFRS and which are presented in
this statement. This briefing will contain no new trading information, and its
associated presentation will be made available on the company's website,
www.sondex.com.
Overview of impact
The impact of the transition to IFRS on the reported profits of the company can
be seen in the following summarised results for the year ended 28 February 2005,
shown here as previously published under UK GAAP and as restated under IFRS:
Comparison of results under UK GAAP and IFRS UK GAAP £'000 IFRS £'000
Year ended 28 February 2005
Revenue 31,713 31,713
Gross profit 17,723 17,555
Operating profit before amortisation of intangible assets 7,400 7,529
Amortisation of intangible assets (2,348) (2,026)
Net finance charges (854) (854)
Taxation charge (1,876) (1,724)
Profit attributable to shareholders 2,323 2,924
Basic earnings per share 4.7 pence 5.9 pence
Diluted earnings per share 4.5 pence 5.1 pence
Reconciliation of results from UK GAAP to IFRS £'000
Year ended 28 February 2005
Profit attributable to shareholders under UK GAAP 2,323
IFRS 2 additional charge for share based payments (245)
IFRS 3 removal of amortisation of goodwill 2,247
IFRS 3 amortisation of intangible assets (1,926)
IAS 38 capitalisation and amortisation of development costs 445
IAS 12 decrease in deferred tax recognised 151
IAS 19 recognition of employee benefits (71)
------
Profit attributable to shareholders under IFRS 2,924
------
The principal factors contributing to the change in the presented results for
the year ended 28 February 2005 are:
IFRS 2 Share-Based Payment
IFRS 2 introduces a new mechanism for the calculation of charges in respect of
share-based payments. This includes charges in respect of share option schemes,
share-saving schemes and fully-funded share remuneration schemes. The total cost
of these under IFRS, before taking account of the benefit of deferred taxation,
is £461,920, compared with the charge calculated under UK GAAP of £216,580.
The charge in respect of share-based payments under IFRS attracts a deferred tax
credit amounting to £331,803, of which £138,110 is recognised within the
taxation charge and £193,693 is taken directly to equity and disclosed in the
Statement of Recognised Income and Expenditure.
IFRS 3 Business Combinations
IFRS 3 requires that intangible assets, including brands, technology and the
value of customer lists are valued upon a business combination such as an
acquisition. The values ascribed to these assets are to be recognised in the
consolidated financial statements for the business combination, and their values
are to be allocated from the residual value of goodwill, and amortised over the
estimated useful lives of the assets. The remaining value attributed to goodwill
is no longer amortised.
Sondex plc has elected to apply IFRS 3 to business combinations arising after 1
March 2004, which therefore includes the acquisition of Geolink in June 2004,
but not the previous acquisition of Computer Sonic Systems in December 2003.
The result of the application of IFRS 3 is to remove the previous charge for the
amortisation of goodwill, amounting to £2,247,000, and to introduce a charge for
the amortisation of intangible assets, amounting to £1,925,769.
A deferred tax credit of £577,731 is recognised on the amortisation of
intangible assets recognised under IFRS 3, and is included within the taxation
charge under IFRS.
IAS 38 Intangible Assets
IAS 38 requires that qualifying development costs are capitalised and amortised
over their estimated useful lives. Under UK GAAP, the accounting treatment
adopted by the company had been to write off all such costs to the income
statement as incurred.
The impact of this change is to credit the income statement with an amount
capitalised of £1,171,173 and charge the income statement with an amortisation
charge of £725,494. Both the credit and the charge are taken through the
research and development account within the income statement.
IAS 12 Income Taxes
IAS 12 changes the method of calculating deferred taxes in particular. This
effectively widens the scope of the calculation to include factors not
previously accounted for under UK GAAP. These include the charges arising under
IFRS 2 and IFRS 3 as noted above.
The impact is to reduce the charge for deferred tax from £533,068 under UK GAAP
to £382,127 under IFRS, with an additional credit of £193,693 recognised in the
Statement of Recognised Income and Expenditure.
SONDEX PLC
BALANCE SHEET
1 MARCH 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38
UK GAAP PBSE - Income Employee FOREX Intangibles
Balance dividends tax benefits on R&D
Sheet in deferred trans.
IFRS format tax of subs
£ £ £ £ £ £
Non current assets
Goodwill 21,526,597 (601,140)
Other intangible assets 125,172 2,854,849
Property plant & equipment 1,842,664
Investments in associates 153,897
Deferred tax assets 0
----------
23,648,330
----------
Current assets
Inventories 4,196,987
Trade & other receivables 9,987,218
Financial assets -
derivatives 0
Cash & cash equivalents 2,044,390
----------
16,228,595
----------
Current liabilities
Financial liabilities -
borrowings (1,357,271)
Financial liabilities -
derivatives 0
Trade & other payables (3,063,120) 472,086 (67,825)
Current tax (962,144)
Provisions 0
----------
(5,382,535)
----------
Non-current liabilities
Financial liabilities -
borrowings (10,249,708)
Deferred tax liabilities (27,636) (762,696)
Provisions (67,000)
----------
(10,344,344)
----------
Net assets 24,150,046 472,086 (762,696) (67,825) 0 2,253,709
==========--------------------------------------------------------------
Shareholders' equity
Share capital 3,934,047
Share premium 22,476,128
Other reserves 275,660
Retained earnings (2,535,789) 472,086 (762,696) (67,825) 2,253,709
------------------------------------------------------------------------
Total equity 24,150,046 472,086 (762,696) (67,825) 0 2,253,709
==========--------------------------------------------------------------
SONDEX PLC
BALANCE SHEET
1 MARCH 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3
Financial Share Business Business IFRS
instruments based combinations combinations Balance
payments Geolink Goodwill Sheet
£ £ £ £ £
Non current assets
Goodwill 20,925,456
Other intangible assets 2,980,021
Property plant & equipment 1,842,664
Investments in associates 153,897
Deferred tax assets 0
----------
25,902,039
Current assets ----------
Inventories 4,196,987
Trade & other receivables 9,987,218
Financial assets -
derivatives 0
Cash & cash equivalents 2,044,390
----------
16,228,595
Current liabilities ----------
Financial liabilities -
borrowings (1,357,271)
Financial liabilities -
derivatives 0
Trade & other payables (2,658,859)
Current tax (962,144)
Provisions 0
----------
(4,978,274)
----------
Non-current liabilities
Financial liabilities -
borrowings (10,249,708)
Deferred tax liabilities (790,331)
Provisions (67,000)
----------
(11,107,039)
----------
----------------------------------------------------------------------------
Net assets 0 0 0 0 26,045,320
===============-------------------------------------------------============
Shareholders' equity
Share capital 3,934,047
Share premium 22,476,128
Other reserves 191,667 467,326
Retained earnings (191,667) (832,181)
----------------------------------------------------------------------------
Total equity 0 0 0 0 26,045,320
===============-------------------------------------------------============
SONDEX PLC
BALANCE SHEET
31 AUGUST 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38
UK GAAP Balance PBSE - Income tax - Employee FOREX on Intangibles
Sheet in IFRS dividends deferred tax benefits trans. of R&D
format subs
£ £ £ £ £ £
Non current assets
Goodwill 48,943,407 5,017,965 (2,205,875)
Other intangible assets 121,026 4,670,752
Property plant &
equipment 5,034,003
Investments in associates 180,758
Deferred tax assets 1,068,538 (471,746)
----------
55,347,732
----------
Current assets
Inventories 6,833,950
Trade & other receivables 14,054,563
Financial assets -
derivatives 0
Cash & cash equivalents 2,638,115
----------
23,526,627
----------
Current liabilities
Financial liabilities -
borrowings (1,357,271)
Financial liabilities -
derivatives 0
Trade & other payables (6,479,433) 357,522
Current tax (1,519,570)
Provisions 0
----------
(9,356,274)
----------
Non-current liabilities
Financial liabilities -
borrowings (22,629,211)
Deferred tax liabilities (29,027) (5,077,142)
Provisions (67,000)
-----------
(22,725,238)
-----------
Net assets 46,792,848 357,522 (530,922) 0 0 2,464,876
===========----------------------------------------------------------------------
Shareholders' equity
Share capital 5,500,828
Share premium 44,902,982
Other reserves 325,660 6,159
Retained earnings (3,936,621) 357,522 (530,922) 0 (6,159) 2,464,876
----------
Total equity 46,792,848 357,522 (530,922) 0 0 2,464,876
==========----------------------------------------------------------------------
SONDEX PLC
BALANCE SHEET
31 AUGUST 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3
Financial Share based Business Business IFRS
instruments payments combinations combinations Balance
Geolink Goodwill Sheet
£ £ £ £ £
Non current assets
Goodwill (13,920,265) 924,000 38,759,233
Other intangible assets 13,438,823 18,230,600
Property plant &
equipment 5,034,003
Investments in associates 180,758
Deferred tax assets 596,792
----------
62,801,386
----------
Current assets
Inventories 6,833,950
Trade & other receivables 14,054,563
Financial assets -
derivatives 0
Cash & cash equivalents 2,638,115
----------
23,526,627
----------
Current liabilities
Financial liabilities -
borrowings (1,357,271)
Financial liabilities -
derivatives 0
Trade & other payables (6,121,911)
Current tax (1,519,570)
Provisions 0
----------
(8,998,752)
----------
Non-current liabilities
Financial liabilities -
borrowings (22,629,211)
Deferred tax liabilities (5,106,169)
Provisions (67,000)
----------
(27,802,380)
----------
Net assets 0 0 (481,442) 924,000 49,526,882
---------------------------------------------------------------============
Shareholders' equity
Share capital 5,500,828
Share premium 44,902,982
Other reserves 364,210 696,028
Retained earnings (364,210) (481,442) 924,000 (1,572,956)
---------------------------------------------------------------------------
Total equity 0 0 (481,442) 924,000 49,526,882
----------------------------------------------------------------===========
SONDEX PLC
INCOME STATEMENT
31 AUGUST 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38
UK GAAP Income PBSE - Income tax Employee FOREX on Intangibles
Statement in dividends - deferred benefits trans. of R&D
IFRS format tax subs
£ £ £ £ £ £
Revenue 9,711,328
Cost of sales (4,758,241) 25,783
----------
Gross profit 4,953,087
----------
Other operating income 102,638
Research and development
expenses (1,417,302) 16,104 211,168
Sales, Marketing & Customer
support expenses (1,353,519) 15,154
Administration expenses (1,953,549) 10,785
Operating profit before
financing costs and
amortisation 331,355
Amortisation of acquired
intangible assets (971,272)
Financial income 21,012
Financial costs (724,500)
----------
Profit/(loss) before
taxation (1,343,404)
Taxation 279,379 160,275
----------
Profit/(loss) attributable
to shareholders (1,064,025)
==========
Dividends (357,522) (114,564)
---------------------------------------------------------------------------------
Retained
profit/(loss) (1,421,547) (114,564) 160,275 67,825 0 211,168
===============------------------------------------------------------------------
SONDEX PLC
INCOME STATEMENT
31 AUGUST 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3
Financial Share based Business Business IFRS Income
instruments payments combinations combinations Statement
Geolink Goodwill
£ £ £ £ £
Revenue 9,711,328
Cost of sales (52,695) (4,785,153)
----------
Gross profit 4,926,176
Other operating income 102,638
Research and development
expenses (46,395) (1,236,426)
Sales, Marketing & Customer
support expenses (32,122) (1,370,487)
Administration expenses (41,331) (1,984,095)
----------
Operating profit before
financing costs and
amortisation 437,805
Amortisation of
acquired intangible assets (481,442) 924,000 (528,714)
Financial income 21,012
Financial costs (724,500)
----------
Profit/(loss) before
taxation (794,397)
Taxation 439,654
----------
Profit/(loss) attributable
to shareholders (354,742)
==========
Dividends (472,086)
----------
Retained profit/(loss) 0 (172,543) (481,442) 924,000 (826,828)
--------------------------------------------------------------------------==========
SONDEX PLC IAS 10 IAS 12 IAS 19 IAS 21 IAS 38
BALANCE SHEET
28 FEBRUARY
2005
UK GAAP Balance PBSE - Income tax - Employee FOREX on Intangibles -
Sheet in IFRS dividends deferred tax benefits trans. of R&D
format subs
£ £ £ £ £ £
Non current
assets
Goodwill 46,826,238 5,017,965 (2,205,875)
Other
intangible
assets 857,000 4,905,264
Property plant
& equipment 4,895,395
Investments in
associates 136,738
Deferred tax
assets 226,335 (226,335)
--------------
52,941,706
--------------
Current assets
Inventories 8,014,370
Trade & other
receivables 18,954,468
Financial
assets -
derivatives 0
Cash & cash
equivalents (1,410,229)
--------------
25,558,609
--------------
Current
liabilities
Financial
liabilities -
borrowings (3,957,195)
Financial
liabilities -
derivatives 0
Trade & other
payables (7,202,563) 715,114 (139,057)
Current tax (984,226)
Provisions 0
--------------
(12,143,983)
--------------
Non-current
liabilities
Financial
liabilities -
borrowings (16,544,166)
Deferred tax
liabilities (87,308) (5,209,692)
Provisions (67,000)
(16,698,474)
----------------------------------------------------------------------------------------
Net assets 49,657,857 715,114 (418,061) (139,057) 0 2,699,388
==============--------------------------------------------------------------------------
Shareholders'
equity
Share capital 5,501,360
Share premium 41,019,106
Other reserves 4,376,115 47,597
Retained
earnings (1,238,724) 715,114 (418,061) (139,057) (47,597) 2,699,388
----------------------------------------------------------------------------------------
Total equity 49,657,857 715,114 (418,061) (139,057) 0 2,699,388
==============--------------------------------------------------------------------------
SONDEX PLC IAS 39 IFRS 2 IFRS 3 IFRS 3
BALANCE SHEET
28 FEBRUARY
2005
Financial Share based Business Business IFRS Balance
instruments payments combinations combinations Sheet
Geolink Goodwill
£ £ £ £ £
Non current
assets
Goodwill (13,920,265) 2,247,000 37,965,063
Other
intangible
assets 11,994,496 17,756,760
Property plant
& equipment 4,895,395
Investments in
associates 136,738
Deferred tax
assets 0
--------------
60,753,956
--------------
Current assets
Inventories 8,014,370
Trade & other
receivables 18,954,468
Financial
assets -
derivatives 0
Cash & cash
equivalents (1,410,229)
--------------
25,558,609
--------------
Current
liabilities
Financial
liabilities -
borrowings (3,957,195)
Financial
liabilities -
derivatives 0
Trade & other
payables (6,626,506)
Current tax (984,226)
Provisions 0
--------------
(11,567,926)
--------------
Non-current
liabilities
Financial
liabilities -
borrowings (16,544,166)
Deferred tax
liabilities (5,297,000)
Provisions (67,000)
--------------
(21,908,166)
--------------
-------------------------------------------------------------------------------------
Net assets 0 0 (1,925,769) 2,247,000 52,836,473
-----------------------------------------------------------------------==============
Shareholders'
equity
Share capital 5,501,360
Share premium 41,019,106
Other reserves 437,007 4,860,719
Retained
earnings (437,007) (1,925,769) 2,247,000 1,455,288
-------------------------------------------------------------------------------------
Total equity 0 0 (1,925,769) 2,247,000 52,836,473
-----------------------------------------------------------------------==============
SONDEX PLC IAS 10 IAS 12 IAS 19 IAS 21 IAS 38
INCOME STATEMENT
28 FEBRUARY
2005
UK GAAP Income PBSE - Income tax - Employee FOREX on Intangibles -
Statement in dividends deferred benefits trans. of R&D
IFRS format tax subs
£ £ £ £ £ £
Revenue 31,713,198
Cost of sales (13,990,380) (27,078)
-------------
Gross profit 17,722,817
Other
operating
income 178,484
Research and
development
expenses (3,438,774) (16,912) 445,679
Sales,
Marketing &
Customer
support
expenses (3,181,514) (15,915)
Administration
expenses (3,880,756) (11,326)
-------------
Operating
profit before
financing
costs and
amortisation 7,400,258
Amortisation
of acquired
intangible
assets (2,347,674)
Financial
income 206,771
Financial
costs (1,060,874)
-------------
Profit before
taxation 4,198,481
Taxation (1,875,505) 150,941
-------------
Profit
attributable
to
shareholders 2,322,976
=============
Dividends (1,072,671) 243,028
--------------------------------------------------------------------------------------
Retained
profit 1,250,305 243,028 150,941 (71,231) 0 445,679
=============-------------------------------------------------------------------------
SONDEX PLC IAS 39 IFRS 2 IFRS 3 IFRS 3
INCOME STATEMENT
28 FEBRUARY
2005
Financial Share based Business Business IFRS Income
instruments payments combinations - combinations - Statement
Geolink Goodwill
£ £ £ £ £
Revenue 31,713,198
Cost of sales (141,070) (14,158,529)
------------
Gross profit 17,554,669
Other
operating
income 178,484
Research and
development
expenses (124,206) (3,134,212)
Sales,
Marketing &
Customer
support
expenses (85,996) (3,283,425)
Administration
expenses 105,932 (3,786,150)
------------
Operating
profit before
financing
costs and
amortisation 7,529,366
Amortisation
of acquired
intangible
assets (1,925,769) 2,247,000 (2,026,442)
Financial
income 206,771
Financial
costs (1,060,874)
------------
Profit before
taxation 4,648,820
Taxation (1,724,564)
------------
Profit
attributable
to
shareholders 2,924,256
============
Dividends (829,643)
-----------------------------------------------------------------------------------
Retained
profit 0 (245,340) (1,925,769) 2,247,000 2,094,613
-----------------------------------------------------------------------============
Transition to IFRS: Key income statement and balance sheet adjustments
The notes set out below explain the key adjustments to the income statement and
balance sheet that have resulted from the transition to IFRS.
IAS 10 Events After the Balance Sheet Date
IFRS requires dividends payable to be recognised in the period in which they are
approved. Under UK GAAP, dividends were accrued and recognised in the period in
which they were proposed and to which they were considered to relate. Since
approval occurs after the end of the relevant period, the impact of this change
is to delay the recognition of dividends payable.
IAS 12 Income Taxes
UK GAAP required deferred taxation to be recognised on timing differences,
whereas IFRS requires that deferred taxation recognised on temporary
differences. The impact is the recognition of deferred taxation on a wider range
of items, including revaluation reserves and certain foreign exchange
differences.
IAS 19 Employee Benefits
IAS 19 requires the accrual of certain employee benefits, including holiday pay,
that were recognised as incurred under UK GAAP.
IAS 21 The Effects of Changes in Foreign Exchange Rates
Under UK GAAP, foreign exchange differences arising upon the retranslation on
consolidation of the net assets of a subsidiary were recognised in the Statement
of Total Recognised Gains and Losses, and formed part of the profit and loss
reserve. Under IFRS, such differences are not recognised in the results for the
period but are taken directly to a separate reserve within equity. Sondex plc
has elected not to apply IAS 21 to cumulative translation differences that
existed at the date of transition to IFRS (1 March 2004).
IAS 38 Intangible Assets
IFRS requires the recognition and capitalisation of certain internally-generated
intangible assets, notably development costs, if they meet specified criteria.
Under UK GAAP, Sondex plc expensed all development costs as they were incurred.
The effect of this change is that relevant project development costs have been
capitalised from the date that the project qualifies under IAS 38 until the
resultant product is released commercially.
The costs capitalised are subsequently amortised over the estimated life of the
product. The charge to the income statement in respect of research and
development costs therefore comprises the immediate write off of research and
non-qualifying development projects, and the amortisation charge in respect of
development projects previously capitalised.
IFRS 2 Share-Based Payment
IFRS 2 requires that the fair value of all share-based payments, including the
fair value of share options, are recognised as an expense over their vesting
periods. In accordance with the IFRS transitional provisions, IFRS 2 has been
applied to grants of equity instruments issued after 7 November 2002 that have
not vested as of 1 January 2005. The fair value of the share options are
estimated at the date of grant using either the Black-Scholes model (where no
market-based performance conditions exist) or a stochastical model (where
market-based performance criteria exist). The following table gives the
assumptions made during the year ended 28 February 2005:
All Employee Incentive Save As You Earn Performance
Plan Share Plan
Dividend yield (%) 1 1 1
Volatility (%) 32.2 29.2 31.3
Risk-free interest rate (%) 4.55 4.92 4.33
Expected life of option (years) 6.5 3.25 3
Weighted average share price (£) 1.58 2.1 1.60
Under UK GAAP, only the intrinsic value of share options issued under the
Performance Share Plan was recognised in the profit and loss account, with other
grants having a nil intrinsic value.
Accordingly, the income statement now contains an incremental charge in respect
of the fair value of share-options and share-save schemes.
IFRS 3 Business Combinations
IFRS 3 requires the identification and recognition at fair value of an
acquiree's intangible assets at the date of acquisition, and their subsequent
amortisation over their estimated useful lives.
Sondex plc has elected not to apply IFRS 3 to acquisitions completed before 1
March 2004, but has applied IFRS 3 to the acquisition of Geolink International
Limited on 30 June 2004. The estimated useful lives of the intangible assets
identified vary between one and ten years.
IFRS 3 prohibits the amortisation of goodwill. Under UK GAAP, Sondex plc
amortised goodwill over a period of 20 years.
The impact on the income statement of the application of IFRS 3 is to replace
the previous amortisation of goodwill with a charge for the amortisation of
specific intangible assets recognised upon the acquisition of a subsidiary after
the date of transition to IFRS.
Sondex plc
Accounting policies
Accounting convention
The financial statements have been prepared in accordance with International
Accounting Standards (IAS) and International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB), subject to
the exemptions noted below. The accounting policies applied assume that all
existing standards in issue from the IASB will be fully endorsed by the EU.
These are subject to ongoing amendment by the IASB and subsequent endorsement by
the EU and therefore are subject to possible change.
The group's date of transition to IFRS is 1 March 2004 and the financial
statements for the year ending 28 February 2006 will be the group's first full
financial statements under IFRS. Comparative financial information at 28
February 2005 and for the year then ended has been restated under IFRS.
The financial statements have been prepared on a historical cost basis, except
for certain items which, as disclosed in the accounting policies below, are
measured at fair value.
IFRS exemptions
IFRS 1 "First-Time Adoption of International Financial Reporting Standards"
The group has elected to take advantage of certain exemptions made available by
IFRS 1 ("First time Adoption of International Financial Reporting Standards").
These exemptions apply to the preparation of the group's balance sheet on
transition to IFRS and to accounting under the following standards:
IFRS 2 "Share Based Payment"
The group has taken advantage of the transitional provisions of IFRS 2 in
respect of equity settled awards and has applied IFRS 2 only to equity settled
awards granted after 7 November 2002 that have not vested on or before 31
December 2004.
IFRS 3 "Business Combinations"
The group has elected not to apply IFRS 3 retrospectively to business
combinations that took place before 1 March 2004. As a result, all prior
business acquisition accounting has been frozen at the transition date. This
includes the net book values for goodwill which had been amortised until that
date, and assumes that cumulative exchange differences on the retranslation of
the net assets of overseas subsidiaries are zero at that date.
IAS 21 "Cumulative Translation Differences"
The group has elected not to record cumulative translation differences arising
prior to the transition date. All cumulative exchange differences are therefore
deemed to be zero as at 1 March 2004.
IAS 32 and IAS 39 "Financial Instruments"
The group has elected not to present its comparative financial information in
accordance with IAS 32 "Financial Instruments: Disclosure and Presentation" and
IAS 39 " Financial Instruments: Recognition and Measurement". The comparative
financial information presented in the interim financial statements for the six
months ended 31 August 2005 and the financial statements for the year ending 28
February 2006 will in this respect therefore be presented in accordance with UK
GAAP.
IAS 34 "Interim Financial Statements"
The group has elected not to apply IAS 34 to the first interim financial
statements after the adoption of IFRS. The interim financial statements for the
six months ended 31 August 2005 will therefore be prepared under the IFRS
accounting policies that the group expects to apply in its next full financial
statements, for the year ending 28 February 2006, but with the disclosures
compliant with the Listing Rules.
Basis of consolidation
The consolidated financial statements include those of Sondex plc and all
subsidiary
undertakings.
Subsidiaries are all entities over which the group has the power to govern
financial and operating policies. Subsidiaries are consolidated from the date on
which such power to control is transferred to the group. They are de-
consolidated from the date that such control ceases.
Segmental reporting
Based on the risks and returns of the group's products and services, and on the
basis of the internal management structure and system of reporting, the
directors consider that the group's primary reporting format is by business
segment and the secondary reporting format is by geographical segment.
Revenue recognition
Revenue, which excludes Value Added Taxes and intra-group sales, represents the
invoiced value of goods and services sold to customers.
The group recognises revenue when title to goods passes to the customer or when
service delivery has occurred and the right to consideration has been obtained.
Intangible assets
Goodwill and separable intangible assets arising from acquisitions
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. Goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that the carrying
value may be impaired, and is carried at cost less cumulative impairment losses.
Gains and losses arising on the disposal of a subsidiary include the carrying
value of the goodwill relating to the subsidiary sold. Separable intangible
assets, including technology, trademarks, licences and brands, are recognised
separately from goodwill on all acquisitions completed after 1 March 2004, the
date of transition to IFRS. Such assets are amortised over their estimated
useful lives and carried at cost less accumulated amortisation. Such intangible
assets are additionally reviewed for impairment on an annual basis.
Research & development
Development expenditure is capitalised when a clear, commercially viable future
for that development is confirmed and it is amortised on a straight-line basis
over the life of the project from commencement of commercial production.
Capitalised development expenditure is also reviewed for impairment on an annual
basis. All other development expenditure and all research expenditure is written
off in the year in which it is incurred.
Other
Other intangible assets acquired are capitalised and amortised over their
estimated useful lives. They are also reviewed for impairment on an annual
basis.
Property, plant & equipment
Property, plant and equipment is stated at historical cost less accumulated
depreciation and any impairment provision.
Depreciation is charged on all property plant and equipment, except freehold
land, at rates designed to write off the cost, less the residual value, of each
asset over its expected useful life. The depreciation rates used are as follows:
Freehold buildings 50 years
Other plant and equipment 3-10 years
Depreciation for rental assets (ie finished tools held for demonstration and
similar purposes) is considered to be immaterial as they have a residual value
at least equal to their book value. The rental assets are fully maintained and
any costs incurred during the year are expensed through the income statement
during the year. The rental assets are also subject to an annual impairment
review.
The residual values and useful lives are reviewed annually.
Inventories
Inventories are stated at the lower of cost, calculated on a first in first out
basis, or net realisable value. Cost includes a proportion of production
overheads based on normal levels of activity, and provision is made for obsolete
and slow moving items as necessary.
Cash & cash equivalents
Cash and cash equivalents includes cash in hand, deposits at call with banks,
other short term highly liquid investments and bank overdrafts. Bank overdrafts
are shown within borrowings in current liabilities on the balance sheet.
Borrowings
Borrowings are recognised net of the associated finance costs, which are
amortised to the income statement over the life of the borrowings. Borrowings
are classified as current liabilities unless the group has an unconditional
right to defer settlement of the liability for at least twelve months after the
balance sheet date.
Leasing
Payments in respect of assets held under operating leases are charged to the
income statement, net of any incentives received, on a straight-line basis over
the period of the lease.
Foreign currency
The consolidated financial statements are presented in Sterling, which is the
company's functional and presentational currency.
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the date of the transactions. Foreign exchange
gains and losses resulting on the settlement of such transactions and from the
translation at the year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
On consolidation, exchange differences arising from the translation of the net
investment in foreign entities, using the closing rate on the balance sheet
date, and of borrowings and other currency instruments designated as hedges or
any other such instruments, are taken to shareholders' equity. Such exchange
differences are recognised in the income statement as part of the gain or loss
on sale, when a foreign operation is sold.
The group has elected to deem the cumulative amount of exchange differences
arising on consolidation of the net investment in subsidiaries at 1 March 2004
to be zero.
Financial instruments
The group's operations result in a number of financial risks that include
fluctuations in foreign currencies and interest rates, and credit risks. The
group's treasury policy is set by the board and is reviewed regularly.
The group operates over a wide geographical area and is therefore exposed to
foreign currency transactional risk, particularly with respect to the US dollar.
The group applies transactional hedging for highly probable sales receipts and
purchase commitments denominated in foreign currencies. The denomination of
borrowings in foreign currency also provides a natural hedge against some
currency fluctuations.
Derivatives and foreign currency hedging instruments are recognised at fair
value on the date a contract is entered into and subsequently are remeasured at
their fair value. The resulting gain or loss is recognised in the income
statement.
The group has elected not to present its comparative financial information in
accordance with IAS 32 "Financial Instruments: Disclosure and Presentation" and
IAS 39 " Financial Instruments: Recognition and Measurement". The comparative
financial information presented in the interim financial statements for the six
months ended 31 August 2005 and the financial statements for the year ending 28
February 2006 will in this respect therefore be presented in accordance with UK
GAAP.
Deferred tax
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
calculated using tax rates that have been enacted or substantially enacted by
the balance sheet date and are expected to apply when the related deferred tax
liability is realised.
Deferred tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be
utilised.
Government grants
Government grants in respect of capital expenditure are credited to a deferred
income account and released through the income statement over the expected
useful lives of the relevant assets, by equal annual instalments. Grants of a
revenue nature are credited through the income statement in a manner to match
them with the expenditure to which they relate.
Employee benefits
Pensions
The group operates a defined contribution pension scheme. Contributions are
charged in the income statement as they become payable in accordance with the
rules of the scheme.
Share-based remuneration
The group operates a number of equity settled, share based compensation plans.
The fair value of the employee services received in exchange for the grant of
the shares or the share options is recognised as an expense. The total amount to
be expensed over the vesting period is determined by reference to the fair
market value of the shares and options granted, excluding the impact of any non-
market vesting conditions. Non-market vesting conditions taken into account in
the assumptions about the number of shares and options that are expected to
become exercisable. At each balance sheet date, the group revises its estimates
of the number of shares and options that are expected to become exercisable. It
recognises the impact of the revision of the original estimate, if any, in the
income statement, and a corresponding adjustment to equity over the remaining
vesting period.
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied. The cost of equity
settled transactions with employees is measured by reference to the fair value
at the date at which they are granted. The fair value is determined with the
assistance of an external valuer using a Black-Scholes model, or a stochastical
model if the grant includes a market-based performance condition (see
"Transition to IFRS: Key income statement and balance sheet adjustments" for
assumptions used). The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of earnings per share.
The proceeds received, net of any directly attributable transaction costs, are
credited to the nominal value of share capital and to share premium when the
shares vest and options are exercised.
The group has taken advantage of the transitional provisions of IFRS 2 in
respect of equity settled awards, and had applied IFRS 2 only to equity settled
awards granted after 7 November 2002 that have not vested on or before 31
December 2004. Other awards continue to be accounted for under UITF 17.
Dividends
Dividends are recognised at the date on which they are declared and approved by
the shareholders at the annual general meeting, or paid if earlier.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 1 hour ago Johnson Matthey
- 2 hours ago ASOS
- 2 hours ago Coca-Cola Europacific Partners (DI)
- 2 hours ago Liontrust Asset Management
- 2 hours ago Liontrust Asset Management