IFRS Statement

Northgate PLC 21 December 2005 NORTHGATE PLC ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS') Preliminary restatement of financial information as at 1 May 2004, for the year ended 30 April 2005 and for the six months ended 31 October 2004 1. Introduction and background to the adoption of IFRS Background to the adoption of IFRS The financial year ending 30 April 2006 will be the first year of mandatory reporting under International Financial Reporting Standards ('IFRS') for Northgate plc ('the Group' or 'the Company'). The Group will therefore be required to prepare its consolidated financial statements for that period under IFRS and will also present one year of comparative financial information for the year ended 30 April 2005. The date of transition to IFRS for the Group was 1 May 2004, being the first day of the comparative period ('the transition date') and the Group is required to prepare a balance sheet as at the transition date ('the transition balance sheet') under IFRS. This document sets out the preliminary restatement of financial information that will constitute the comparative financial information, under IFRS, for the year ended 30 April 2006, for the six months ended 31 October 2005 ('the IFRS comparatives') and also for the transition balance sheet as at 1 May 2004. Section 2 of this document sets out the restated financial information for the Group under IFRS for the year ended 30 April 2005, including: •Consolidated income statement for the year ended 30 April 2005; •Consolidated statement of recognised income and expense for the year ended 30 April 2005; •Consolidated balance sheets as at 1 May 2004 and 30 April 2005; •Consolidated cash flow statement for the year ended 30 April 2005; •Reconciliation of UK GAAP consolidated income statement and balance sheets to IFRS; and •Details of the IFRS adjustments required. Section 3 of this document sets out the restated financial information for the Group under IFRS for the six months ended 31 October 2004, including: •Consolidated income statement for the six months ended 31 October 2004; •Consolidated statement of recognised income and expense for the six months ended 31 October 2004; •Consolidated balance sheet as at 31 October 2004; •Consolidated cash flow statement for the six months ended 31 October 2004; •Reconciliation of UK GAAP consolidated income statement and balance sheets to IFRS; and •Details of the IFRS adjustments required. Section 4 of this document sets out the principal accounting policies of the Group, as restated for IFRS, which are expected to be applied to the Group's first set of financial statements required to be prepared under IFRS. Basis of preparation For the year ended 30 April 2006, the Company will prepare consolidated financial statements under 'International Accounting Standards' as adopted by the European Commission. These will be those International Accounting Standards ('IAS'), International Financial Reporting Standards ('IFRS') and related Interpretations (SIC-IFRIC interpretations), subsequent amendments to those standards and related interpretations, future standards and related interpretations issued or adopted by the International Accounting Standards Board ('IASB') that have been endorsed by the European Commission. This process of transition to reporting under IFRS is ongoing and the Commission has yet to endorse certain standards issued by the IASB. In particular the Commission: •endorsed a version of IAS 39 Financial Instruments - Recognition and Measurement that differed from that issued by the IASB in two respects (the so-called 'carve-out'): •The endorsed version of IAS 39 removes the option in the IASB version to fair value certain financial liabilities; and •The endorsed version of IAS 39 widens the range of circumstances in which hedge accounting may be applied; •has not given a final approval to IAS 39 amendments relating to the Fair Value Option, however the Accounting Regulatory Committee (ARC) has recommended endorsement. The Directors have prepared the transition balance sheet and the IFRS comparatives and accompanying reconciliations between UK GAAP and IFRS using their best knowledge of the expected standards and interpretations of the IASB, facts and circumstances, and accounting policies that will be applied when the Company prepares its first complete set of IFRS financial statements as at 30 April 2006. Therefore, until such time, the possibility cannot be excluded that the accompanying transition balance sheet and IFRS comparatives may require adjustment before constituting the final opening balance sheet and IFRS comparatives. Moreover, under IFRS, only a complete set of financial statements comprising a balance sheet, income statement, statement of recognised income and expense, statement of changes in equity, cash flow statement and principal accounting policies, together with comparative financial information and explanatory notes, can provide a fair presentation of the Company's financial position, results of operations and cash flow. Statement of Directors' responsibilities The following statement, which should be read in conjunction with the auditors' statement of auditors' responsibilities set out in their reports in Sections 2 and 3, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the preliminary restatement of financial information. In preparing the preliminary restated financial information on the basis set out above, the Directors have: •selected appropriate accounting policies which are consistently applied; •made judgements and estimates that are reasonable and prudent; •made assumptions about the standards and interpretations expected to be effective, and the accounting policies expected to be adopted, when they prepare the Group's first set of IFRS financial statements for the year ended 30 April 2006 and that all accounting standards they consider to be applicable have been followed. The Directors are responsible for ensuring that the Company keeps adequate accounting records and for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The preliminary restated financial information has been prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Differences between UK GAAP and IFRS All relevant accounting standards have been applied to the restated financial information and the following accounting standards are those that have the most significant impact on the Group. IFRS 2 (Share-based Payment): An income statement charge is recognised in respect of the cost of share options granted under the Group's various share schemes. This cost is deemed to be the fair value of the options granted and is charged over the vesting period. An amount equivalent to the charge is credited directly to equity, resulting in no net impact on net assets. This accounting treatment is the same as UK GAAP except that the fair values used under IFRS 2 differ from those under UK GAAP. IFRS 3 (Business Combinations): Separate intangible assets are recognised at fair value on the acquisition of businesses after the date of transition to IFRS, which previously formed part of goodwill under UK GAAP. These include non-contractual customer relationships, brand names and non-compete agreements, all of which are amortised over their respective estimated useful lives. The residual goodwill balance under IFRS is therefore lower in value than under UK GAAP but it is no longer amortised and is, instead, tested annually for impairment. IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations): Vehicles held for resale are reclassified from inventories into non-current assets held for sale under IFRS. IAS 10 (Events After the Balance Sheet Date): Under IFRS, dividends are not appropriated within the accounts until they are either paid or formally approved. IAS 12 (Income Taxes): Deferred taxation changes arise under IFRS as a result of differences between the accounting treatment and taxation treatment in respect of share options (IFRS 2), intangible assets (IFRS 3) and holiday pay accruals (IAS 19). Under IAS 12, deferred tax liabilities are also recognised on all capitalised buildings, regardless of whether a contractual commitment to sell exists. IAS 16 (Property, Plant and Equipment): Under IAS 16, the Group is required to review its depreciation rates and estimated useful lives on an annual basis to ensure that the net book value of disposals of tangible fixed assets are broadly equivalent to their market value. Depreciation charges are adjusted for any differences that arise between net book values and open market values of used vehicles upon transfer into non-current assets held for sale, taking into account the further direct costs to sell the vehicles. IAS 18 (Revenue): Under IFRS, income from the sale of used vehicles is not recognised within revenue and the net book value of vehicles sold is removed from cost of sales. IAS 19 (Employee Benefits): An accrual is recognised for employee annual leave accrued, but not taken, at each balance sheet date. Where this applies to business combinations, the accrual required at the date of acquisition is deemed to reduce the fair value of the net assets acquired with a corresponding adjustment to goodwill. IAS 21 (The Effects of Changes in Foreign Exchange Rates): Certain exchange differences, previously recognised directly within the profit and loss account reserve under UK GAAP, are reclassified into a separate translation reserve, directly within equity, under IFRS. IAS 32 (Financial Instruments: Disclosure and Presentation): The Company's cumulative preference shares are deemed to be debt rather than equity under IFRS. They are reclassified from share capital to borrowings in the balance sheet and preference dividends are reclassified from dividends to finance costs in the income statement. IAS 38 (Intangible Assets): Certain software assets are reclassified from tangible to intangible assets under IFRS. Amounts previously charged to the profit and loss account as depreciation under UK GAAP relating to these fixed assets are reclassified as amortisation within the IFRS income statement. Separate intangible assets are also recognised within business combinations (see IFRS 3, above). These assets are amortised to the income statement over their estimated useful lives. IAS 39 (Financial Instruments: Recognition and Measurement): Interest rate derivatives, to which the Group is party, are recognised on the balance sheet at their fair value. Subsequent changes in the fair value are recognised either within the income statement, as a finance cost, or directly in equity to the extent that the Group elects to hedge account, within the provisions of IFRS. As explained under IFRS 1 options below, this will impact on the Group from 1 May 2005 only. IFRS 1 (First-time Adoption of IFRS) will be applied to the financial statements for the year ended 30 April 2006 and the relevant comparative financial information. The first-time adoption choices are as follows: IFRS options Basis of election Share based payments There are two first-time adoption exemptions for accounting for share based payments: • Share based payments granted on • Share options granted on or or before 7 November 2002 and vested before 7 November 2002 and vested before 1 May 2005 may be restated before 1 May 2005, have not been but restatement is not mandatory; restated in accordance with IFRS 2. • Share based payments granted on • IFRS has been applied to all or before 7 November 2002 and not share options granted on or after 7 vested before 1 May 2005 may be November 2002 which had not vested restated but restatement is not by 1 May 2005. mandatory. Business combinations and goodwill The standard is mandatory for all The standard has been applied only to acquisitions after the Company's business combinations taking place transition date, 1 May 2004. after the Group's transition date of 1 May 2004. However, the standard allows a Goodwill relating to acquisitions prior first-time adopter to apply the standard to the transition date will be held at to all business combinations that net book value on 1 May 2004, no longer occurred before this date. amortised and subject to annual impairment review (IAS 36) Financial instruments The standard is applicable from the The Group will not account Company's transition date, 1 May 2004. retrospectively for financial instruments, including derivatives. However, the standard grants a first The restated results for the year to 30 year exemption from its application to April 2005 do not reflect the impact of the comparative period but also allows IAS 32 and IAS 39 and the related first-time adopters to retrospectively applicable financial instruments have account for financial instruments in been accounted for under UK GAAP, with line with the standard. the exception of preference shares. Foreign exchange differences IFRS requires certain translation The Group will deem cumulative exchange differences to be recognised as a differences to be zero as at 1 May 2004 separate component of equity, rather and will not consider any cumulative than within retained earnings, and to be exchange differences arising prior to 1 considered as part of the profit or loss May 2004 if the relevant foreign on disposal of foreign operations in operations are disposed in the future. future. However, the standard allows first-time adopters to deem the cumulative translation differences to be zero at the date of transition. 2. Restated financial information for the year ended 30 April 2005 Independent Auditors' Report to the Board of Directors of Northgate plc on the non-statutory preliminary comparative IFRS financial information We have audited the non-statutory preliminary comparative IFRS financial information of Northgate plc for the year ended 30 April 2005 which comprises the consolidated balance sheets as at 30 April 2005 and 1 May 2004, the consolidated income statement, the consolidated statement of recognised income and expense, the consolidated cash flow statement, the Notes to the consolidated cash flow statement and the related Notes 1 to 14 within Section 2 of this document. This report is made solely to the Board of Directors, in accordance with our engagement letter dated 5 December 2005 and solely for the purpose of assisting with the transition to IFRS. Our audit work was undertaken so that we might state to the Company's Board of Directors those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we will not accept or assume responsibility to anyone other than the Company for our audit work, for our report, or for the opinions we have formed. Respective responsibilities of Directors and auditors The Company's Directors are responsible for ensuring that the Company and the Group maintains proper accounting records and for the preparation of the preliminary comparative IFRS financial information on the basis set out in Section 1 of this document, which describes how IFRS will be applied under IFRS 1, including the assumptions the Directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the Company prepares its first complete set of IFRS financial statements as at 30 April 2006. Our responsibility is to audit the preliminary comparative financial information in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards and report to you our opinion as to whether the preliminary comparative IFRS financial information is prepared, in all material respects, on the basis set out in Section 1 of this document. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the preliminary comparative IFRS financial information. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the preliminary comparative IFRS financial information and of whether the accounting policies are appropriate to the circumstances of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the preliminary comparative IFRS financial information is free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the preliminary comparative IFRS financial information. Without qualifying our opinion, we draw attention to the fact that the basis of preparation note in Section 1 of this document explains why there is a possibility that the accompanying preliminary comparative IFRS financial information may require adjustment before constituting the final comparative IFRS financial information. Moreover, we draw attention to the fact that, under IFRS, only a complete set of financial statements comprising a balance sheet, income statement, statement of changes in equity, cash flow statement, together with comparative financial information and explanatory notes, can provide a fair presentation of the Company's financial position, results of operations and cash flows in accordance with IFRS. Opinion In our opinion the preliminary comparative IFRS financial information is prepared, in all material respects, on the basis set out in Section 1 of this document which describes how IFRS will be applied under IFRS 1, including the assumptions the Directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the Company prepares its first complete set of IFRS financial statements as at 30 April 2006. Deloitte & Touche LLP Chartered Accountants and Registered Auditors Leeds 20 December 2005 Consolidated Income Statement for the year ended 30 April 2005 Restated for IFRS £'000 Revenue 339,382 Cost of sales (215,097) -------- Gross profit 124,285 Administrative expenses (47,193) Amortisation (855) -------- Profit from operations 76,237 Investment income 1,814 Finance costs (23,063) -------- Profit before taxation 54,988 Taxation (15,757) -------- Profit attributable to equity holders 39,231 Dividends (11,916) -------- Retained profit 27,315 ======== Consolidated Statement of Recognised Income and Expense for the year ended 30 April 2005 Restated for IFRS £'000 Gains on revaluation of land and properties 1,031 Foreign exchange differences on long term borrowings 1,635 Exchange differences on translation of foreign operations (153) Net deferred tax credit recognised directly in equity 1,084 Adjustment for share options granted 88 -------- Net income recognised directly in equity 3,685 Profit attributable to equity holders 39,231 -------- Total recognised income and expense for the year 42,916 ======== Consolidated Balance Sheets Restated for IFRS 30 April 2005 1 May 2004 £'000 £'000 Goodwill 12,448 1,981 Other intangible assets 4,866 232 Property, plant and equipment 569,694 402,456 Interest in joint venture - 14,467 -------- -------- Total non-current assets 587,008 419,136 -------- -------- Inventories 6,696 5,614 Trade and other receivables 92,841 56,382 Cash and cash equivalents 41,375 46,160 -------- -------- Total current assets 140,912 108,156 -------- -------- -------- Non-current assets held for sale 11,464 9,671 -------- -------- TOTAL ASSETS 739,384 536,963 ======== ======== Trade and other payables 44,728 32,535 Tax liabilities 7,231 7,143 Obligations under finance leases and hire purchase 36,491 84,422 Bank overdrafts, loans and other debt 11,919 3,485 Proposed dividends 41 - -------- -------- Total current liabilities 100,410 127,585 -------- -------- Borrowings 403,819 208,579 Deferred tax liabilities 10,124 6,349 -------- -------- Total non-current liabilities 413,943 214,928 -------- -------- TOTAL LIABILITIES 514,353 342,513 ======== ======== -------- -------- NET ASSETS 225,031 194,450 ======== ======== Share capital 3,209 3,202 Share premium account 62,544 61,829 Revaluation reserve 1,054 23 Own shares held (2,471) (1,330) Merger reserve 4,721 4,721 Currency translation reserve 1,482 - Retained earnings 154,492 126,005 -------- -------- TOTAL EQUITY 225,031 194,450 ======== ======== Consolidated Cash Flow Statement for the year ended 30 April 2005 Restated for IFRS Note £'000 Net cash from operating activities (a) 150,457 ------- Investing activities Interest received 1,957 Proceeds of disposal of vehicles for hire 116,895 Purchases of vehicles for hire (274,517) Proceeds of disposal of other property, plant and equipment 378 Purchases of other property, plant and equipment (7,613) Purchases of intangible assets (19) Acquisitions of subsidiaries (19,353) ------- Net cash used in investing activities (182,272) ------- Financing activities Dividends paid (11,874) Repayments of obligations under finance leases (279,243) New finance lease agreements entered into 93,663 Increase in bank loans and other borrowings 221,166 Proceeds from issue of share capital 722 Payments to acquire own shares (1,141) ------- Net cash from financing activities 23,293 ------- Net decrease in cash and cash equivalents (8,522) Cash and cash equivalents at the beginning of the period 42,675 Effect of foreign exchange movements (96) ------- Cash and cash equivalents at the end of the period (b) 34,057 ======= Notes to the Consolidated Cash Flow Statement for the year ended 30 April 2005 Restated for IFRS (a) Net cash from operating activities £'000 Profit from operations 76,237 Adjustments for: Depreciation of property, plant and equipment 120,831 Amortisation of intangible assets 855 Loss on disposal of property, plant and equipment 39 IFRS 2 share options fair value charge credited to equity 88 ------- Operating cash flows before movements in working capital 198,050 Decrease in inventories 1,665 Increase in receivables (7,735) Decrease in payables (3,634) ------- Cash generated by operations 188,346 Income taxes paid (15,241) Interest paid (22,648) ------- Net cash from operating activities 150,457 ======= (b) Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at bank, investments in money market instruments and bank overdrafts. Bank overdrafts are included within cash equivalents on the grounds that they are repayable on demand and form an integral part of the Group's cash management. Cash and cash equivalents, as described above, included in the cash flow statement comprise the following balance sheet amounts: £'000 Cash in hand and at bank 39,601 Short term investments 1,774 ------- Gross cash and cash equivalents as reported 41,375 Bank overdrafts (7,318) ------- Net cash and cash equivalents 34,057 ======= Notes to the Consolidated Cash Flow Statement for the year ended 30 April 2005 (continued) (c) Explanation of differences between cash flow statements under IFRS and UK GAAP The significant differences between the Group cash flow statements under IFRS, as compared to UK GAAP, are as follows: Movements in non-current assets held for sale and movements in trade debtors relating specifically to these non-current assets, between the previous and current balance sheet dates, are both classified within 'proceeds of disposal of vehicles for hire' and form part of cash flows from investing activities under IFRS. Under UK GAAP, the non-current assets were classified within 'stock' and their movement formed part of '(increase) decrease in stock' and the changes in debtors formed part of the '(increase) decrease in debtors', both of which were classified within net cash flows from operating activities. Preference dividends form part of finance costs under IFRS and payments of preference dividends are classified as 'interest paid' within net cash from operating activities. Under UK GAAP, these amounts were separately classified within 'returns on investments and servicing of finance'. All UK GAAP to IFRS adjustments that impact on profit from operations have no net impact on net cash flows from operating activities under IFRS. Consolidated Income Statement - UK GAAP to IFRS reconciliation for the year ended 30 April 2005 UK GAAP to IFRS adjustments £'000 Note UK IFRS2 IFRS3 IAS10 IAS12 IAS16 IAS18 IAS19 IAS32 IAS38 IAS38 IFRS GAAP in Share Goodwill Divi- Taxa- Fixed Vehicle Holiday Prefe- Intang- Software IFRS Options Amortis- dends tion Assets Sales Pay rence ible Assets format ation Divi- Amorti- dends sation Revenue 1 458,267 (118,885) 339,382 Cost of 2 (333,913) 7,160 111,725 (69) (215,097) sales ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Gross profit 124,354 7,160 (7,160) (69) 124,285 Administrative expenses 3 (47,557) 103 (1) 262 (47,193) Amortisation 4 (1,116) 1,116 (593) (262) (855) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profit from operations 75,681 103 1,116 7,160 (7,160) (70) (593) 76,237 Investment income 1,814 1,814 Finance 5 (23,038) (25) (23,063) costs ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profit before taxation 54,457 103 1,116 7,160 (7,160) (70) (25) (593) 54,988 Taxation 6 (15,963) 206 (15,757) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profit attributable to equity holders 38,494 103 1,116 206 7,160 (7,160) (70) (25) (593) 39,231 Preference dividends 5 (25) 25 Ordinary dividends 7 (12,812) 896 (11,916) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Retained profit 25,657 103 1,116 896 206 7,160 (7,160) (70) (593) 27,315 ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation - 30 April 2005 UK GAAP to IFRS adjustments £'000 Note UK GAAP Date of IFRS3 IFRS3 IFRS5 IAS10 IAS10 IAS12 IAS19 IAS21 IAS32 IAS38 IAS38 IFRS in IFRS Trans- Intan- Good- Vehic- Prop- Divi- Tax Hol- Exch- Pref- Intan- Soft- format ition gible will les osed dend iday ange erence gible ware adjus- assets amorti- for divi- pay- pay diffe- shares amort- ass- tments sation sale dends ment rences isation ets Goodwill 8 14,110 (5,363) 1,116 2,462 123 12,448 Other intangible assets 9 5,363 (593) 96 4,866 Property, plant and equipment 569,790 (96) 569,694 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Total non-current assets 583,900 1,116 2,462 123 (593) 587,008 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Inventories 10 18,160 (11,464) 6,696 Trade and other receivables 92,841 92,841 Cash and cash equivalents 41,375 41,375 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Total current assets 152,376 (11,464) 140,912 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Non-current assets held for sale 10 11,464 11,464 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ TOTAL ASSETS 736,276 1,116 2,462 123 (593) 739,384 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Trade and other payables 11 43,925 609 193 1 44,728 Tax liabilities 7,231 7,231 Obligations under finance leases/hire purchase 36,491 36,491 Bank overdrafts, loans and other debt 11,919 11,919 Proposed dividends 7 7,718 (7,676) (1) 41 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Total current liabilities 107,284 609 (7,676) 193 100,410 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Borrowings 12 403,319 500 403,819 Deferred tax liabilities 13 9,424 (472) 1,172 10,124 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Total non-current liabilities 412,743 (472) 1,172 500 413,943 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ TOTAL LIABILITIES 520,027 137 (7,676) 1,172 193 500 514,353 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ NET ASSETS 216,249 (137) 1,116 7,676 1,290 (70) (500) (593) 225,031 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Share 3,709 (500) 3,209 capital Share premium account 62,544 62,544 Revaluation reserve 1,054 1,054 Own shares (2,471) (2,471) Merger reserve 4,721 4,721 Currency translation reserve 14 1,482 1,482 Retained earnings 146,692 6,643 1,116 7,676 (6,780) 1,290 (70) (1,482) (593) 154,492 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ TOTAL EQUITY 216,249 6,643 1,116 7,676 (6,780) 1,290 (70) (500) (593) 225,031 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation - 1 May 2004 UK GAAP to IFRS adjustments £'000 Note UK GAAP IFRS5 IAS10 IAS12 IAS19 IAS32 IAS38 IFRS in IFRS Vehicles Divi- Tax- Holiday Pre- Soft- format for sale dends ation pay ference ware shares assets Goodwill 8 1,981 1,981 Other intangible assets 9 232 232 Property, plant and equipment 402,688 (232) 402,456 Interest in joint venture 14,467 14,467 ------- ------- ------- ------- ------ ------ ------- -------- Total non-current assets 419,136 419,136 ------- ------- ------- ------- ------ ------ ------- -------- Inventories 10 15,285 (9,671) 5,614 Trade and other receivables 56,382 56,382 Cash and cash equivalents 46,160 46,160 ------- ------- ------- ------- ------ ------ ------- -------- Total current assets 117,827 (9,671) 108,156 ------- ------- ------- ------- ------ ------ ------- -------- Non-current assets held for sale 10 9,671 9,671 ------- ------- ------- ------- ------ ------ ------- -------- TOTAL ASSETS 536,963 536,963 ------- ------- ------- ------- ------ ------ ------- -------- Trade and other payables 11 31,926 609 32,535 Tax liabilities 7,143 7,143 Obligations under finance leases/hire purchase 84,422 84,422 Bank overdrafts and loans 3,485 3,485 Proposed dividends 7 6,780 (6,780) ------- ------- ------- ------- ------ ------ ------- -------- Total current liabilities 133,756 (6,780) 609 127,585 ------- ------- ------- ------- ------ ------ ------- -------- Borrowings 12 208,079 500 208,579 Deferred tax liabilities 13 6,821 (472) 6,349 ------- ------- ------- ------- ------ ------ ------- -------- Total non-current liabilities 214,900 (472) 500 214,928 ------- ------- ------- ------- ------ ------ ------- -------- TOTAL LIABILITIES 348,656 (6,780) (472) 609 500 342,513 ------- ------- ------- ------- ------ ------ ------- -------- NET ASSETS 188,307 6,780 472 (609) (500) 194,450 ------- ------- ------- ------- ------ ------ ------- -------- Share capital 3,702 (500) 3,202 Share premium account 61,829 61,829 Revaluation reserve 23 23 Own shares (1,330) (1,330) Merger reserve 4,721 4,721 Retained earnings 119,362 6,780 472 (609) 126,005 ------- ------- ------- ------- ------ ------ ------- -------- TOTAL EQUITY 188,307 6,780 472 (609) (500) 194,450 ------- ------- ------- ------- ------ ------ ------- -------- Notes to the Consolidated Income Statement for the year ended 30 April 2005 1 Revenue £'000 UK GAAP 458,267 Removal of used vehicle sales proceeds from revenue in accordance with IAS18 (118,885) ------- IFRS 339,382 ======= 2 Cost of sales UK GAAP 333,913 Removal of cost of used vehicles sold from cost of sales to correspond with (111,725) revenue adjustment (Note 1) Adjustment to depreciation on updated estimate of residual values of (7,160) vehicles sold Additional holiday pay accrual 69 ------- IFRS 215,097 ======= 3 Administrative expenses UK GAAP 47,557 Adjustment to fair value of share options granted (103) Holiday pay accrual adjustment 1 Reclassification of depreciation of software assets as amortisation (262) ------- IFRS 47,193 ======= 4 Amortisation UK GAAP 1,116 Reversal of goodwill amortisation (1,116) Amortisation of intangible assets 593 Reclassification of depreciation of software assets as amortisation 262 ------- IFRS 855 ======= 5 Finance costs and preference dividends UK GAAP 23,038 Preference dividends reclassified from dividends to finance costs 25 to match reclassification of preference shares from equity to debt (Note 12) ------- IFRS 23,063 ======= 6 Taxation UK GAAP 15,963 Deferred tax credit on intangible assets (202) Deferred tax credit on buildings (13) Deferred tax charge on share options 31 Deferred tax credit on holiday pay (22) ------- IFRS 15,757 ======= 7 Ordinary dividends UK GAAP 12,812 Reversal of 2005 final dividend not formally approved at 30 April 2005 (7,676) 2004 final dividend formally approved in the year ended 30 April 2005 6,780 ------- IFRS 11,916 ======= Notes to the Consolidated Balance Sheets as at 30 April 2005 and 1 May 2004 30 April 2005 1 May 2004 £'000 £'000 8 Goodwill UK GAAP 14,110 1,981 Amounts reclassified into other intangible assets (Note 9) (5,363) - Reversal of goodwill amortisation, not charged under IFRS 3 1,116 - Deferred tax adjustments in respect of intangible assets 1,839 - Deferred tax adjustments in respect of assets and liabilities 623 - acquired with Fualsa and Foley Reduction in Fualsa net assets acquired due to recognition 123 - of holiday pay accrual -------- ------- IFRS 12,448 1,981 ======== ======= 9 Other intangible assets UK GAAP - - Reclassification of software assets at net book value 96 232 Brand names recognised* 3,953 - Non-contractual customer relationships recognised* 1,273 - Non-compete agreements recognised* 137 - Amortisation of recognised intangible assets (593) - -------- ------- IFRS 4,866 232 ======== ======= * Previously classified within goodwill under UK GAAP 10 Inventories UK GAAP 18,160 15,285 Net book value of used vehicles held for resale reclassified from inventories (11,464) (9,671) to non-current assets held for sale in accordance with IFRS5 -------- ------- IFRS 6,696 5,614 ======== ======= 11 Trade and other payables UK GAAP 43,925 31,926 Annual leave accrued by employees but not taken as at the balance sheet date under IAS 19 802 609 Unpaid preference dividends reclassified under IAS 32 1 - -------- ------- 44,728 32,535 ======== ======= 12 Borrowings UK GAAP 403,319 208,079 Book and fair value of preference shares reclassified from equity to debt under IAS32 500 500 -------- ------- IFRS 403,819 208,579 ======== ======= 13 Deferred tax liabilities UK GAAP 9,424 6,821 Date of transition adjustments (472) - Deferred tax provision on intangible assets 1,637 - Deferred tax provision on buildings 652 300 Deferred tax asset on share options (869) (589) Deferred tax asset on holiday pay accrual (248) (183) -------- ------- IFRS 10,124 6,349 ======== ======= 14 Currency translation reserve UK GAAP - - Cumulative exchange differences from 1 May 2004 to 30 April 2005 1,482 - reclassified from retained earnings into separate equity component -------- ------- IFRS 1,482 - ======== ======= 3. Restated financial information for the six months ended 31 October 2004 Independent Review Report to the Board of Directors of Northgate plc on the preliminary non-statutory comparative financial information for the six months ended 31 October 2004 We have reviewed the accompanying preliminary non-statutory International Financial Reporting Standards (IFRS) consolidated financial information of Northgate plc ('the Company') and its subsidiaries (together 'the Group') for the six months ended 31 October 2004, which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense, the consolidated cash flow statement, the Notes to the consolidated cash flow statement and related Notes 1 to 14 within Section 3 of this document (hereinafter referred to as 'preliminary financial information'). This preliminary financial information is the responsibility of the Company's directors. It has been prepared as part of the Company's conversion to IFRS in accordance with the basis set out in Section 1 of this document which describes how IFRS will be applied under IFRS 1, including the assumptions the Directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the Company prepares its first complete set of IFRS financial statements as at 30 April 2006. Our responsibility is to express an opinion on this preliminary IFRS comparative financial information based on our review. Our review report is made solely to the Company in accordance with Bulletin 1999 /4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Review work performed We conducted our review in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the preliminary financial information and underlying financial data and assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of control and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the preliminary financial information. Without modifying our review conclusion, we draw attention to the fact that the basis of preparation noted in Section 1 of this document explains why there is a possibility that the accompanying preliminary financial information may require adjustment before constituting the final IFRS comparative information for the six months ended 31 October 2005. Moreover, we draw attention to the fact that, under IFRS, only a complete set of financial statements comprising an income statement, balance sheet, statement of changes in equity, cash flow statement, together with comparative financial information and explanatory notes, can provide a fair presentation of the Group's financial position, results of operations and cash flows in accordance with IFRS. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the preliminary financial information for the six months ended 31 October 2004 which has been prepared in accordance with the basis set out in Section 1 of this document. Deloitte & Touche LLP Chartered Accountants Leeds 20 December 2005 Consolidated Income Statement for the six months ended 31 October 2004 Restated for IFRS £'000 Revenue 167,082 Cost of sales (102,499) -------- Gross profit 64,583 Administrative expenses (26,490) Amortisation (409) -------- Profit from operations 37,684 Investment income 871 Finance costs (10,916) -------- Profit before taxation 27,639 Taxation (8,449) -------- Profit attributable to equity holders 19,190 Dividends (6,780) -------- Retained profit 12,410 ======== Consolidated Statement of Recognised Income and Expense for the six months ended 31 October 2004 Restated for IFRS £'000 Gains on revaluation of land and properties 579 Exchange differences on translation of foreign operations 944 Net deferred tax credit recognised directly in equity 1,508 Adjustment for share options granted (19) -------- Net income recognised directly in equity 3,012 Profit attributable to equity holders 19,190 -------- Total recognised income and expense for the period 22,202 ======== Consolidated Balance Sheet Restated for IFRS 31 October 2004 £'000 Goodwill 13,427 Other intangible assets 5,302 Property, plant and equipment 550,114 --------- Total non-current assets 568,843 --------- Inventories 6,121 Trade and other receivables 87,257 Cash and cash equivalents 22,570 --------- Total current assets 115,948 --------- Non-current assets held for sale 12,652 --------- TOTAL ASSETS 697,443 ========= Total current liabilities 196,386 Long term liabilities 281,249 Deferred tax liabilities 9,745 --------- Total non-current liabilities 290,994 --------- TOTAL LIABILITIES 487,380 ========= NET ASSETS 210,063 ========= Share capital 3,206 Share premium account 62,201 Revaluation reserve 602 Own shares (1,515) Merger reserve 4,721 Currency translation reserve 944 Retained earnings 139,904 --------- TOTAL EQUITY 210,063 ========= Consolidated Cash Flow Statement for the six months ended 31 October 2004 Restated for IFRS Note £'000 Net cash from operating activities (a) 73,766 -------- Investing activities Interest received 265 Proceeds of disposal of vehicles for hire 50,039 Purchases of vehicles for hire (134,107) Proceeds of disposal of other property, plant and equipment 221 Purchases of other property, plant and equipment (2,350) Purchases of intangible assets (11) Acquisitions of subsidiaries (19,360) -------- Net cash used in investing activities (105,303) -------- Financing activities Dividends paid (6,764) Repayments of obligations under finance leases (124,030) New finance lease agreements entered into 78,680 Increase in bank loans and other borrowings 47,136 Proceeds from issue of share capital 376 -------- Net cash used in financing activities (4,602) -------- Net decrease in cash and cash equivalents (36,139) Cash and cash equivalents at the beginning of the period 42,675 Effect of foreign exchange movements 58 -------- Cash and cash equivalents at the end of the period (b) 6,594 -------- Notes to the Consolidated Cash Flow Statement for the six months ended 31 October 2004 Restated for IFRS (a) Net cash from operating activities £'000 Profit from operations 37,684 Adjustments for: Depreciation of property, plant and equipment 59,149 Amortisation of intangible assets 409 Loss on disposal of property, plant and equipment 19 IFRS 2 share options fair value credit charged to equity (19) ------- Operating cash flows before movements in working capital 97,242 Decrease in inventories 2,313 Increase in receivables (703) Decrease in payables (7,689) ------- Cash generated by operations 91,163 Income taxes paid (7,775) Interest paid (9,622) ------- Net cash from operating activities 73,766 ------- (b) Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at bank, investments in money market instruments and bank overdrafts. Bank overdrafts are included within cash equivalents on the grounds that they are repayable on demand and form an integral part of the Group's cash management. Cash and cash equivalents, as described above, included in the cash flow statement comprise the following balance sheet amounts: £'000 Cash in hand and at bank 20,817 Short term investments 1,753 ------- Gross cash and cash equivalents as reported 22,570 Bank overdrafts (15,976) ------- Net cash and cash equivalents 6,594 ------- (c) Explanation of differences between cash flow statements under IFRS compared to UK GAAP The significant differences between the Group cash flow statements under IFRS, as compared to UK GAAP, are as follows: Movements in non-current assets held for sale and movements in trade debtors relating specifically to these non-current assets, between the previous and current balance sheet dates, are both classified within 'proceeds of disposal of vehicles for hire' and form part of cash flows from investing activities under IFRS. Under UK GAAP, the non-current assets were classified within 'stock' and their movement formed part of '(increase) decrease in stock' and the changes in debtors formed part of the '(increase) decrease in debtors', both of which were classified within net cash flows from operating activities. Preference dividends form part of finance costs under IFRS and payments of preference dividends are classified as 'interest paid' within net cash from operating activities. Under UK GAAP, these amounts were separately classified within 'returns on investments and servicing of finance'. All UK GAAP to IFRS adjustments that impact on profit from operations have no net impact on net cash flows from operating activities under IFRS. Consolidated Income Statement - UK GAAP to IFRS reconciliation for the six months ended 31 October 2004 UK GAAP to IFRS adjustments IAS38 IFRS3 IAS32 Intang- UK Good- IAS16 Pref- ible GAAP in IFRS2 will IAS10 IAS18 IAS19 erence amort- IAS38 IFRS Share amort- Divi- IAS12 Fixed Vehicle Holiday divid- isat- Software £'000 Note format options isation dends Tax assets sales pay ends tion assets IFRS Revenue 1 222,592 (55,510) 167,082 Cost of 2 (157,987) 3,962 51,548 (22) (102,499) sales ------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ------ ------ Gross profit 64,605 3,962 (3,962) (22) 64,583 Administrative expenses 3 (26,799) 19 158 132 (26,490) Amortisation 4 (514) 514 (277) (132) (409) ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profit from operations 37,292 19 514 3,962 (3,962) 136 (277) 37,684 Investment income 871 871 Finance 5 (10,903) (13) (10,916) costs ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profit before taxation 27,260 19 514 3,962 (3,962) 136 (13) (277) 27,639 Taxation 6 (8,500) 51 (8,449) ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profit attributable to equity holders 18,760 19 514 51 3,962 (3,962) 136 (13) (277) 19,190 Preference dividends 5 (13) 13 Ordinary dividends 7 (5,136) (1,644) (6,780) ------ ----- ------- ------ ----- ---- ----- ----- ------ ------ ------ ------ Retained profit 13,611 19 514 (1,644) 51 3,962 (3,962) 136 (277) 12,410 ------ ----- ------- ------ ----- ---- ----- ----- ------ ------ ------ ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation as at 31 October 2004 UK GAAP to IFRS adjustments IAS38 Date IFRS3 IFRS In of Good- 5 IAS10 IAS21 tang- UK Tran- IFRS3 will Vehic- Divi- IAS19 Ex- IAS32 gible IAS38 GAAP in sition Intan- amort- les IAS10 dend IAS12 Holi- change Pref- amort- Soft- IFRS adjust- gible isa- for Divi- pay- day differ- erence isa- ware £'000 Note format ments assets tion sale dends ment Tax pay ences shares tion assets IFRS Goodwill 8 15,679 (5,363) 514 2,474 123 13,427 Other intangible assets 9 5,363 (277) 216 5,302 Property, plant and equipment 550,330 (216) 550,114 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Total non-current assets 566,009 514 2,474 123 (277) 568,843 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Inventories 10 18,773 (12,652) 6,121 Trade and other receivables 87,257 87,257 Cash and cash equivalents 22,570 22,570 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Total current assets 128,600 (12,652) 115,948 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Non-current assets held for sale 10 12,652 12,652 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- TOTAL ASSETS 694,609 514 2,474 123 (277) 697,443 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Total current liabilities 11 200,926 609 (5,136) (13) 196,386 Long term liabilities 12 280,749 500 281,249 Deferred tax liabilities 13 9,302 (472) 915 9,745 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Total non-current liabilities 290,051 (472) 915 500 290,994 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- TOTAL LIABILITIES 490,977 137 (5,136) 915 (13) 500 487,380 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- NET ASSETS 203,632 (137) 514 5,136 1,559 136 (500) (277) 210,063 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Share capital 3,706 (500) 3,206 Share premium account 62,201 62,201 Revaluation reserve 602 602 Own shares (1,515) (1,515) Merger reserve 4,721 4,721 Currency translation reserve 14 944 944 Retained earnings 133,917 6,643 514 5,136 (6,780) 1,559 136 (944) (277) 139,904 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- TOTAL EQUITY 203,632 6,643 514 5,136 (6,780) 1,559 136 (500) (277) 210,063 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Notes to the Consolidated Income Statement for the six months ended 31 October 2004 1 Revenue £'000 UK GAAP 222,592 Removal of used vehicle sales proceeds from revenue in accordance with IAS18 (55,510) ------- IFRS 167,082 ======= 2 Cost of sales UK GAAP 157,987 Removal of cost of used vehicles sold from cost of sales to correspond with revenue adjustment (Note 1) (51,548) Adjustment to depreciation on updated estimate of residual values of vehicles sold (3,962) Additional holiday pay accrual 22 ------- IFRS 102,499 ======= 3 Administrative expenses UK GAAP 26,799 Adjustment to fair value of share options granted (19) Holiday pay accrual adjustment (158) Reclassification of depreciation of software assets as amortisation (132) ------- IFRS 26,490 ======= 4 Amortisation UK GAAP 514 Reversal of goodwill amortisation (514) Amortisation of intangible assets 277 Reclassification of depreciation of software assets as amortisation 132 ------- IFRS 409 ======= 5 Finance costs and preference dividends UK GAAP 10,903 Preference dividends reclassified from dividends to finance costs to match reclassification 13 of preference shares from equity to debt (Note 12) ------- IFRS 10,916 ======= 6 Taxation UK GAAP 8,500 Deferred tax credit on intangible assets (95) Deferred tax credit on buildings (7) Deferred tax charge on share options 6 Deferred tax charge on holiday pay 45 ------- IFRS 8,449 ======= 7 Ordinary dividends UK GAAP 5,136 Reversal of 2004 interim dividend not paid at 31 October 2004 (5,136) 2004 final dividend formally approved in the six months ended 31 October 2004 6,780 ------- IFRS 6,780 ======= Notes to the Consolidated Balance Sheet as at 31 October 2004 8 Goodwill £'000 UK GAAP 15,679 Amounts reclassified into other intangible assets (Note 9) (5,363) Reversal of goodwill amortisation, not charged under IFRS 3 514 Deferred tax adjustments in respect of intangible assets 1,839 Deferred tax adjustments in respect of assets and liabilities 635 acquired with Fualsa Reduction in Fualsa net assets acquired due to recognition 123 of holiday pay accrual ------- IFRS 13,427 ======= 9 Intangible assets UK GAAP - Reclassification of software assets at net book value 216 Brand names recognised* 3,953 Non-contractual customer relationships recognised* 1,273 Non-compete agreements recognised* 137 Amortisation of recognised intangibles (277) ------- IFRS 5,302 ======= * Previously classified within goodwill under UK GAAP 10 Inventories UK GAAP 18,773 Net book value of used vehicles held for resale reclassified from inventories (12,652) to non-current assets held for sale in accordance with IFRS5 ------- IFRS 6,121 ======= 11 Current liabilities UK GAAP 200,926 Annual leave accrued by employees but not taken as at the balance sheet date 596 under IAS 19 Derecognition of 2004 interim dividend, not paid until after the (5,136) balance sheet date, under IAS 10 ------- IFRS 196,386 ======= 12 Long term liabilities UK GAAP 280,749 Book and fair value of preference shares reclassified from equity to debt under IAS32 500 ------- IFRS 281,249 ======= 13 Deferred tax liabilities UK GAAP 9,302 Date of transition adjustments (472) Deferred tax provision on intangible assets 1,743 Deferred tax provision on buildings 673 Deferred tax asset on share options (1,319) Deferred tax asset on holiday pay accrual (182) ------- IFRS 9,745 ======= 14 Currency translation reserve UK GAAP - Cumulative exchange differences from 1 May 2004 to 31 October 2004 944 reclassified from retained earnings into separate equity component ------- IFRS 944 ======= 4. Principal Accounting Policies Statement of compliance and first time adoption choices The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretations adopted by the International Accounting Standards Board (IASB). These are the Group's first consolidated financial statements prepared under IFRS and IFRS1 has been applied. Basis of preparation The financial information has been prepared on the historical cost basis, except for the revaluation of certain land and buildings and the treatment of certain financial instruments. The accounting policies set out below have been prepared by management using its best knowledge of the expected standards and interpretations of the International Accounting Standards Board, facts and circumstances, and accounting policies that will be applied when the Company prepares its first complete set of IFRS financial statements as at 30 April 2006. Therefore, until such time, the possibility cannot be excluded that the accompanying preliminary opening balance sheet at 1 May 2004 and the restated financial information for the year ended 30 April 2005 may require adjustment before constituting the final opening balance sheet and IFRS comparatives. Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The consolidated financial statements include the financial statements of the Company and its undertakings made up to 1 May 2004, 31 October 2004 and 30 April 2005. The results of new subsidiary undertakings are included from the dates of acquisition. Where an entity has ceased to be a subsidiary undertaking during the year, its results are included to the date of cessation. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognised. Subsequently any losses applicable to the minority interest in excess of the minority interest are allocated against the interests of the parent. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Revenue recognition Group revenue is measured at the fair value of the consideration received or receivable in respect of the hire of vehicles and the supply of related goods and services in the normal course of business, net of value added tax and discounts. Revenue from vehicle rentals is recognised evenly over the rental period and revenue from sales of other related goods and services is recognised at the point of sale. Goodwill All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiary undertakings and interests in associates and is the difference between the cost of the acquisition and the fair value of the net identifiable assets and liabilities acquired. Goodwill is stated at cost less any accumulated impairment losses identified through an annual test for impairment. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Intangible assets - arising on business combinations Amortisation of intangible assets is charged to the income statement on a straight-line basis over the estimated useful lives of each intangible asset. Intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Customer relationships 5 to 9 years Brand names 5 to 10 years Non-compete agreements 2 to 4 years Intangible assets - other Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. Software assets are amortised over their estimated useful lives, which do not exceed three years. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and any provision for impairment. Depreciation is provided so as to write off the cost of assets to residual values on a straight-line basis over the assets' useful estimated lives as follows: Freehold buildings 50 years Leasehold buildings Over 50 years or over the period of lease whichever is shorter Plant, equipment and fittings Over 8 to 10 years Vehicles for hire 3 to 6 years Motor vehicles 3 to 6 years Vehicles for hire are depreciated on a straight-line basis using depreciation rates that reflect economic lives of between three and six years. These depreciation rates have been determined with the anticipation that the net book values at the point the vehicles are transferred into non-current assets held for sale is in line with the open market values for those vehicles. Depreciation charges are adjusted for any differences that arise between net book values and open market values of used vehicles upon transfer into non-current assets held for sale, taking into account the further direct costs to sell the vehicles. Property under construction is not depreciated. Depreciation commences when these assets are ready for their intended use. Freehold land is not depreciated. Depreciation on revalued buildings is charged to the income statement. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. The residual value, if not insignificant, is reassessed annually. Non-current assets held for resale Non-current assets classified as held for resale are valued at the lower of carrying amount or fair value less estimated costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sales transaction. Fixed asset investments Fixed asset investments are shown at cost less any provision for impairment. Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less selling costs and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units and then to reduce the carrying amount of other assets in the unit on a pro rata basis. Inventories Inventories comprise goods for resale and finished goods and are valued at the lower of cost or net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally 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 arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, 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 in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Financial instruments and hedge accounting Financial assets and liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provision of the instrument. Trade receivables are non-interest bearing and are stated at their nominal value less the amount of any appropriate provision for irrecoverable amounts. Trade payables are non-interest bearing and are stated at their nominal value. The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are stated at fair value. Any gain or loss on remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of resultant gain or loss depends on the nature of the items being hedged. The fair value of the interest swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity, and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting for cash flow hedges is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period. Bank loans and issue costs Bank loans are stated at the amount of proceeds after deduction of issue costs, which are amortised over the period of the loan. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for in the income statement on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Foreign currencies Transactions in foreign currencies other than UK Sterling are recorded at the rate prevailing at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. At each balance sheet date, monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange prevailing at the balance sheet date or, if appropriate, at the forward contract rate and any variances are reflected in the income statement. The accounts of overseas subsidiary undertakings are translated into UK Sterling at the rate of exchange ruling at the balance sheet date. The exchange difference arising on the retranslation of opening net assets is recognised directly in equity. All other translation differences are taken to the income statement with the exception of differences in equity on foreign currency borrowings to the extent that they are used to finance or provide a hedge against Group equity investments in foreign enterprises, which are recognised directly in equity, together with the exchange difference on the net investment in these enterprises. The results of overseas subsidiary undertakings and joint ventures are translated into UK Sterling using average exchange rates for the financial period and variances compared with the exchange rate at the balance sheet date are recognised directly in equity. The Company maintains certain borrowings in the same currency as the functional currency of its overseas subsidiary undertaking, as a hedge against the net assets of the subsidiary. These borrowings are translated into UK Sterling using the exchange rate prevailing at the balance sheet date. Any variances are recognised directly in equity. Goodwill and fair value adjustments, arising on acquisition of a foreign entity, are treated as assets and liabilities of the foreign entity. They are denominated in the functional currency of the foreign entity and translated at the exchange rate prevailing at the balance sheet date, with any variances reflected directly in equity. All foreign exchange differences reflected directly in equity are shown in the currency translation reserve component of equity. Leasing and hire purchase commitments As Lessee: Assets held under finance leases and hire purchase contracts are capitalised in the balance sheet at their fair value or, if lower, the present value of the future minimum lease payments, and are depreciated over their useful economic lives using Group policies. The capital elements of future obligations under finance leases and hire purchase contracts are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged to the income statement over the periods of the leases and hire purchase contracts so as to produce a constant rate of return on the outstanding balance. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease term. As Lessor: Motor vehicles and equipment leased to certain customers under operating leases are included within property, plant and equipment. Income from such leases is taken to the income statement evenly over the period of the operating lease agreement. Retirement benefit costs The Group operates defined contribution type arrangements. Contributions in respect of these arrangements are charged to the income statement in the period they fall due. Pension contributions in respect of one of these arrangements are held in trustee administered funds, independently of the Group's finances. The other arrangements are group personal pension plans. Employee share schemes and share based payments The Group has applied the requirements of IFRS 2 (Share-based Payment). In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 30 April 2005. The Group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled employee schemes, including employee share options and deferred annual bonuses, provide employees with the option to acquire shares of the Company. Employee share options and deferred annual bonuses are generally subject to performance or service conditions. The fair value of equity-settled share-based payments is measured at the date of grant and charged to the income statement over the period during which performance or service conditions are required to be met, or immediately where no performance or service criteria exist. The fair value of equity-settled share-based payments granted is measured using the Black-Scholes model. The amount recognised as an expense is adjusted to reflect the actual number of employee share options that vest, except where forfeiture is only due to market based performance criteria not being met. For cash-settled share-based payments a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance sheet date. The Group also operates a Share Incentive Plan (SIP) under which employees each have the option to purchase up to £1,500 of shares annually and receive an equivalent number of free shares. The Group recognises the free shares as an expense evenly throughout the period over which the employees must remain in the employ of the Group in order to receive the free shares. Dividends Dividends on ordinary shares are recognised as a liability in the period in which they are either paid or formally approved, whichever is earlier. Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. For further information, please contact: Northgate plc 01325 467558 Steve Smith, Chief Executive Gerard Murray, Finance Director Hogarth Partnership Limited 020 7357 9477 Andrew Jaques Barnaby Fry This information is provided by RNS The company news service from the London Stock Exchange

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