IFRS Statement
Microgen PLC
15 September 2005
microgen
Information Management Solutions
www.microgen.co.uk
15 September 2005
Adoption of International Financial Reporting Standards ('IFRS') Restatement of
2004 Financial Information
Microgen plc, the Information Management Solutions company which provides
software, services and consultancy, today announces the impact of the transition
to IFRS on its 2004 financial results previously prepared in accordance with
generally accepted accounting principles in the UK ('UK GAAP'). The impact on
the key financial data for the year ended 31 December 2004 is summarised below:
UK GAAP IFRS
Year ended 31 Dec Year ended 31 Dec Comment on the impact and
2004 2004
£'000 £'000 adjustments of adopting IFRS
Revenue 42,444 42,444
Profit before tax and goodwill 3,892 3,753 Share based payments and Amortisation
amortisation of intangibles.
Goodwill amortisation (2,774) - Goodwill no longer amortised but
subject to annual impairment review
Profit before tax 1,118 3,753 Share based payments, Amortisation of
intangibles and goodwill no longer
amortised.
Profit after tax 173 2,840
Earnings per share
Basic and diluted 0.2p 3.1p
Adjusted Earnings per share
Basic 4.3p 4.2p
Diluted 4.2p 4.2p
Total Equity 62,287 65,061
Net funds 14,600 14,600
Contact: Mike Phillips
Group Finance Director Tel: 01252 772312
MICROGEN PLC
Restatement of financial information under
International Financial Reporting Standards ('IFRS')
15 September 2005
CONTENTS
Introduction
Summary of impact in 2004
Restated consolidated income statements
Restated consolidated balance sheets
Explanation of impact of adopting IFRS
Appendices
Appendix 1 Reconciliation of consolidated income statements for
the six months ended 30 June 2004 and the year
ended 31 December 2004
Appendix 2 Reconciliation of consolidated balance sheets as at
30 June 2004 and as at 31 December 2004
Appendix 3 Reconciliation of Net Assets/Total Equity as at 1
January 2004
Appendix 4 Significant accounting policies under IFRS
Microgen plc
Introduction
Microgen plc is required to report its consolidated financial statements under
IFRS, as adopted by the European Union, for all accounting periods beginning on
or after 1 January 2005. Comparative information for 2004, previously reported
under UK GAAP, must therefore be restated under IFRS.
The first publicly available results to be prepared under IFRS are the interim
results for the six months ended 30 June 2005 which are issued separately today.
The purpose of this document is to explain the differences on the Group's
consolidated results under IFRS, restate the comparative numbers accordingly and
set out the significant accounting policies to be adopted under IFRS.
The financial statements presented in this document are unaudited.
Basis of preparation
This document has been prepared on the basis of IFRS as issued by the
International Accounting Standards Board (IASB), prior to the date of this
document. IFRS are subject to amendment and therefore the restated financial
information included in this document may be subject to change before its
inclusion in the Group's 2005 Report and Accounts, which will contain the
Group's first complete financial statements prepared in accordance with IFRS.
IFRS 1 'First-Time Adoption of International Financial Reporting standards'
details the rules for first time adoption of IFRS and the optional exemptions
which may be used in applying the standards retrospectively to comparative
periods. Microgen has used the following optional exemptions in adopting IFRS:
1. Financial Instruments - Implementation of IAS 32 'Financial Instruments:
Disclosure and presentation' and IAS 39 'Financial Instruments: Recognition
and measurement' has been deferred to the financial year ending 31 December
2005 therefore financial instruments will continue to be accounted for and
presented in accordance with UK GAAP for the year ended 31 December 2004.
2. Business Combinations - IFRS 3 'Business Combinations' has only been applied
to acquisitions completed after 1 January 2004.
3. Cumulative Translation Differences - The cumulative translation differences
are deemed to be zero as at 1 January 2004.
4. Share based payments - Microgen has applied IFRS2 'Share Based Payments' only
to share options issued after 7 November 2002 which had not vested by 31
December 2004.
Summary of impact in 2004
The following table summarises the impact of the adoption of IFRS on the Group's
operating profit for the six months ended 30 June 2004 and the year ended 31
December 2004.
Reconciliation of operating profit
Six months ended Year Ended
30 June 2004 31 Dec 2004
£'000 £'000
Operating profit - UK GAAP 1,187 86
Goodwill adjustment 1,317 2,774
Staff costs - holiday pay (147) -
Staff costs - share based payments (44) (107)
Amortisation of other intangible assets - (32)
Reclassification of profit on sale of investment in another - 606
company
Operating profit - IFRS 2,313 3,327
Restated consolidated income statements
Unaudited for the six months ended 30 June 2004 Unaudited for the year ended 31 December 2004
Before Intangibles Total Before Intangibles Total
intangibles amortisation intangibles amortisation and
amortisation and and amortisation exceptional
exceptional exceptional and exceptional items
items items items
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 21,130 - 21,130 42,444 - 42,444
Operating costs (18,817) - (18,817) (37,452) (1,665) (39,117)
Operating profit 2,313 - 2,313 4,992 (1,665) 3,327
Interest payable and similar
charges (25) - (25) (53) - (53)
Interest receivable 163 - 163 479 - 479
Profit on ordinary
activities before tax 2,451 - 2,451 5,418 (1,665) 3,753
Tax on profit on ordinary
activities (471) (913)
Profit for the period 1,980 2,840
Profit attributable
to equity shareholders 1,980 2,815
Profit attributable
to minority interest - 25
1,980 2,840
Restated consolidated balance sheets
Unaudited Unaudited
as at as at
30 June 2004 31 Dec 2004
ASSETS £000 £000
Non-current assets
Property, plant and equipment 3,762 3,774
Goodwill 44,775 53,272
Other intangible assets - 512
Deferred tax asset 1,185 1,972
Investments 2,678 -
52,400 59,530
Current assets
Inventories 127 100
Trade and other receivables 7,456 8,164
Cash and cash equivalents 9,083 14,600
16,666 22,864
Non-current assets classified as held for sale 535 -
17,201 22,864
LIABILITIES
Current liabilities
Trade and other payables (11,111) (14,769)
Current tax liabilities - (120)
Provisions (701) (1,244)
(11,812) (16,133)
Net current assets 4,854 6,731
Non-current liabilities
Provisions (1,683) (1,200)
NET ASSETS 56,106 65,061
SHAREHOLDERS' EQUITY
Ordinary shares 4,347 5,079
Share premium account 8,943 11,143
Merger reserve 31,075 36,389
Other reserves 334 334
Retained earnings 11,218 12,116
EQUITY SHAREHOLDERS' FUNDS 55,917 65,061
Minority interest 189 -
TOTAL EQUITY 56,106 65,061
Explanation of impact of adopting IFRS
The impact of adopting IFRS on the financial results of Microgen plc in 2004 is
explained below:
1. Goodwill
Under UK GAAP goodwill was capitalised and amortised over its useful economic
life, which under Microgen's accounting policies was up to 20 years.
Microgen has taken the exemption under IFRS 1 in respect of goodwill, and
therefore the net book value of goodwill under UK GAAP at 31 December 2003
became the deemed cost of goodwill as at the date of transition (1 January
2004). Under IFRS this goodwill balance is no longer amortised but instead
subject to an annual impairment review.
The impact of adopting IFRS is to reverse the goodwill amortisation charged in
2004 and to increase the carrying value of goodwill in the balance sheets dated
30 June 2004 and 31 December 2004.
2. Other intangible assets
Under UK GAAP research and development costs were expensed in the period they
were incurred. IAS 38 requires that when activity is undertaken for a new or a
substantially different product then this would be deemed to be development
expenditure. This development expenditure is to be capitalised from the point
in time that ALL of the following criteria are met:
1. the technical feasibility of completing an intangible asset so that it will
be available for use or sale;
2. the intention to complete an intangible asset and use it or sell it
3. the ability to use or sell the intangible asset
4. how the intangible asset will generate probable future economic benefit.
Among other things, the company can demonstrate the existence of a market
for the output of the intangible asset or the intangible asset itself or, if
it is to be used internally the usefulness of the intangible asset.
5. the availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset
6. the ability to measure reliably the expenditure attributable to the
intangible asset during its development
Once ALL of the criteria 1 - 6 above are satisfied then the applicable
expenditure from that date until the date the new or substantially different
product goes into maintenance and support mode would be capitalised and
amortised over the useful life of the asset.
Microgen has reviewed the Group's development expenditure against the IAS 38
capitalisation criteria and also reviewed best practice of international
software and solutions companies and has determined that the amount to be
capitalised is nil and so all costs have been expensed.
3. Employee benefits
Holiday pay
IAS 19 requires that a liability for holiday pay is recorded for all accrued
entitlement at each balance sheet date; this was not a requirement under UK
GAAP.
It is not company policy to allow staff to carry forward annual leave or to pay
any untaken annual leave; instead all staff are encouraged to take their full
entitlement. Therefore, IAS 19 only impacts interim results in ensuring the
correct cost has been allocated to each half year.
4. Share based payments
The Group has applied IFRS 2 to all share options awarded after 7 November 2002
that had not vested before 31 December 2004. The standard requires that a cost
is recognised in the income statement based on the fair value of the options and
that this cost is spread over the vesting period of the scheme. The fair value
is measured using an option pricing model.
Microgen has used the Black Scholes model to determine the value of options
awarded under the SAYE Scheme and the Monte Carlo pricing model for shares
awarded under the executive share option schemes.
Under UK GAAP no charge was recorded in the income statement for the award of
share options as all awards were issued at market price. The impact of adopting
IFRS is to expense a new cost in the income statement.
The deferred tax impact of the IFRS 2 change has also been incorporated into the
restatement under IFRS.
5. Business combinations
Under UK GAAP the cost of an acquisition over and above the value of the net
assets was deemed to be goodwill. IFRS 3 requires that each acquisition is
considered separately and a value attributed to any identifiable other
intangible assets such as software; customer lists and relationships; brand
names and in progress research and development. The goodwill cost is therefore
the difference between the consideration for the investment after deducting the
value of net assets including other intangible assets.
Microgen has considered the acquisition of AFA Systems plc in September 2004 and
a value of £544,000 was attributed to customer contracts and related
relationships. This intangible asset will be amortised over the useful life of
the asset which in this case is deemed to be 5 years.
6. Presentational changes
The primary financial statements contained in this document have been presented
in accordance with IAS1 'Presentation of Financial Statements', IAS 7 'Cash Flow
Statements' and IFRS 5 'Non-Current Assets Held for Sale and Discontinued
Operations'
a) Cash flows
The Group has adopted IAS 7 'Cash Flow Statement'. None of the adjustments
arising from IFRS restatement relate to cash and therefore there is no impact on
the reported cash flows. Although there is no change to the cash flows of the
Group, the format of the cash flow statement has changed and cash flows are now
analysed between Operating, Investing and Financing activities.
b) Non-current assets held for sale
Under UK GAAP there is no requirement to separate tangible assets to be used
within the business from those where the intention is to dispose of the assets.
Microgen acquired two freehold properties as part of the MMT Computing plc
acquisition in November 2003 which fall into this category as at 30 June 2004.
IFRS 5 stipulates that such items are identified separately on the face of the
balance sheet. The impact for Microgen is to separate out these items on the
face of the balance sheet and to revise the Tangible Fixed Assets note.
c) Provisions
Under UK GAAP there is no requirement to separate provisions between current
liabilities and non current liabilities. In adopting IFRS, Microgen has divided
the provision for vacant properties between amounts due within one year, shown
under current liabilities, and those due after more than one year which are
shown in non-current liabilities on the face of the balance sheet.
d) Reclassification of profit on investment in other company
Under UK GAAP the profit on disposal of an investment in other company was an
exceptional item in the income statement shown after Operating profit. Under
IFRS this has been reclassified and although still an exceptional item it is
included when arriving at operating profit.
Appendix 1
Reconciliation of consolidated income statement for the six months ended 30 June 2004
UK GAAP IFRS Adjustments IFRS
£'000 £'000 £'000
Revenue 21,130 - 21,130
Net operating expenses (19,943) 1,126 (18,817)
Operating profit 1,187 1,126 2,313
Interest receivable 163 - 163
Interest payable (25) - (25)
Profit before tax 1,325 1,126 2,451
Tax (484) 13 (471)
Profit for the period 841 1,139 1,980
Reconciliation of consolidated income statement for the year ended 31 December 2004
UK GAAP IFRS Adjustments IFRS
£'000 £'000 £'000
Revenue 42,444 - 42,444
Net operating expenses (42,358) 3,241 (39,117)
Operating profit 86 3,241 3,327
Exceptional profit on disposal of investment in other 606 (606) -
company
Interest receivable 479 - 479
Interest payable (53) - (53)
Profit before tax 1,118 2,635 3,753
Tax (945) 32 (913)
Profit after tax 173 2,667 2,840
Minority Interest (25) - (25)
Retained Profit 148 2,667 2,815
Appendix 1 - continued
Analysis of IFRS income statement adjustments for the six months ended 30 June 2004
Share based Amortisation Amortisation Staff costs - Total IFRS impact
payments of goodwill of intangibles holiday pay
£'000 £'000 £'000 £'000 £'000
Revenue - - - - -
Net operating expenses (44) 1,317 - (147) 1,126
Operating profit (44) 1,317 - (147) 1,126
Interest receivable - - - - -
Interest payable - - - - -
Profit before tax (44) 1,317 - (147) 1,126
Taxation 13 - - - 13
Profit for the period (31) 1,317 - (147) 1,139
Analysis of IFRS income statement adjustments for the year ended 31 December 2004
Share based Amortisation Amortisation Reclassification of Total IFRS impact
payments of goodwill of intangibles profit on disposal
of investment in
other company
£'000 £'000 £'000 £'000 £'000
Revenue - - - - -
Net operating expenses (107) 2,774 (32) 606 3,241
Operating profit (107) 2,774 (32) 606 3,241
Exceptional profit on disposal - - - (606) (606)
of investment in other company
Interest receivable - - - - -
Interest payable - - - - -
Profit before tax (107) 2,774 (32) - 2,635
Taxation 32 - - - 32
Profit for the period (75) 2,774 (32) - 2,667
Appendix 2
Reconciliation of consolidated balance sheet as at 30 June 2004
UK GAAP IFRS impact IFRS
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant & equipment 4,297 (535) 3,762
Goodwill 43,458 1,317 44,775
Other intangible assets - - -
Deferred tax asset 1,172 13 1,185
Investments in other companies 2,678 - 2,678
51,605 795 52,400
Current assets
Inventories 127 - 127
Trade and other receivables 7,456 - 7,456
Cash and cash equivalents 9,083 - 9,083
16,666 - 16,666
Non-current assets classified as held for sale - 535 535
16,666 535 17,201
LIABILITIES
Current liabilities
Trade and other payables (10,964) (147) (11,111)
Current tax liabilities - - -
Provisions (2,384) 1,683 (701)
(13,348) 1,536 (11,812)
Net current assets 3,318 2,071 5,389
Non-current liabilities
Provisions - (1,683) (1,683)
NET ASSETS 54,923 1,183 56,106
SHAREHOLDERS' EQUITY
Ordinary shares 4,347 - 4,347
Share premium account 8,943 - 8,943
Merger reserve 31,075 - 31,075
Other reserves 334 - 334
Retained earnings 10,035 1,183 11,218
EQUITY SHAREHOLDERS' FUNDS 54,734 1,183 55,917
Minority interest 189 - 189
TOTAL EQUITY 54,923 1,183 56,106
Appendix 2 - continued
Reconciliation of consolidated balance sheet as at 31 December 2004
UK GAAP IFRS Impact IFRS
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant & equipment 3,774 - 3,774
Goodwill 51,042 2,230 53,272
Other intangible assets - 512 512
Deferred tax asset 1,940 32 1,972
Investments in other companies - - -
56,756 2,774 59,530
Current assets
Inventories 100 - 100
Trade and other receivables 8,164 - 8,164
Cash and cash equivalents 14,600 - 14,600
22,864 - 22,864
Non-current assets classified as held for sale - - -
22,864 - 22,864
LIABILITIES
Current Liabilities
Trade and other payables (14,769) - (14,769)
Current tax liabilities (120) - (120)
Provisions (2,444) 1,200 (1,244)
(17,333) 1,200 (16,133)
Net current assets 5,531 1,200 6,731
Non-current liabilities
Provisions - (1,200) (1,200)
NET ASSETS 62,287 2,774 65,061
SHAREHOLDERS' EQUITY
Ordinary shares 5,079 - 5,079
Share premium account 11,143 - 11,143
Merger reserve 36,389 - 36,389
Other reserves 334 - 334
Retained earnings 9,342 2,774 12,116
EQUITY SHAREHOLDERS' FUNDS 62,287 2,774 65,061
Minority Interest - - -
TOTAL EQUITY 62,287 2,774 65,061
Appendix 2 - continued
Analysis of IFRS balance sheet adjustments as at 30 June 2004
Amortisation Reclassification Staff Reclassification Deferred tax Total IFRS
of goodwill of assets costs - of provision adjustment in impact
holiday respect of
pay Share based
payments
ASSETS £'000 £'000 £'000 £'000 £'000 £'000
Non-current assets
Property, plant &
equipment - (535) - - - (535)
Goodwill 1,317 - - - - 1,317
Other intangible assets - - - - - -
Deferred tax asset - - - - 13 13
Investments in other companies - - - - - -
1,317 (535) - - 13 795
Current assets
Inventories - - - - - -
Trade and other receivables - - - - - -
Cash and cash equivalents - - - - - -
- - - - - -
Non-current assets classified as
held for sale - 535 - - - 535
- 535 - - - 535
LIABILITIES
Current Liabilities
Trade and other payables - - (147) - - (147)
Current tax liabilities - - - - - -
Provisions - - - (1,683) - (1,683)
- - (147) (1,683) - (1,830)
Net current assets/(liabilities) - - (147) (1,683) - (1,830)
Non-current liabilities
Provisions - - - 1 ,683 - 1,683
NET ASSETS 1,317 - (147) - 13 1,183
SHAREHOLDERS' EQUITY
Ordinary shares - - - - - -
Share premium account - - - - - -
Merger reserve - - - - - -
Other reserves - - - - - -
Retained
earnings 1,317 - (147) - 13 1,183
EQUITY SHAREHOLDERS' FUNDS 1,317 - (147) - 13 1,183
Minority interest - - - - - -
TOTAL EQUITY 1,317 - (147) - 13 1,183
Appendix 2 - continued
Analysis of IFRS balance sheet adjustments as at 31 December 2004
Amortisation Reclassification Amortisation Deferred tax Reclassification Total IFRS
of goodwill of intangibles of intangibles adjustment in of provision impact
respect of
share based
payments
ASSETS £'000 £'000 £'000 £'000 £'000 £'000
Non-current assets
Property, plant & equipment - - - - - -
Goodwill 2,774 (544) - - - 2,230
Other intangible assets - 544 (32) - - 512
Deferred tax asset - - - 32 - 32
Investments in other companies - - - - - -
2,774 - (32) 32 - 2,774
Current assets
Inventories - - - - - -
Trade and other receivables - - - - - -
Cash and cash equivalents - - - - - -
- - - - - -
Non-current assets classified as - - - - - -
held for sale
- - - - - -
LIABILITIES
Current Liabilities
Trade and other payables - - - - - -
Current tax liabilities - - - - - -
Provisions - - - - (1,200) (1,200)
- - - - (1,200) (1,200)
Net current assets/ (liabilities) - - - - (1,200) (1,200)
Non-current liabilities
Provisions - - - - 1,200 1,200
NET ASSETS 2,774 - (32) 32 - 2,774
SHAREHOLDERS' EQUITY
Ordinary shares - - - - - -
Share premium account - - - - - -
Merger reserve - - - - - -
Other reserves - - - - - -
Retained earnings 2,774 - (32) 32 - 2,774
EQUITY SHAREHOLDERS' FUNDS 2,774 - - -
Minority Interest - - - - - -
TOTAL EQUITY 2,774 - (32) 32 - 2,774
Appendix 3
Reconciliation of Net Assets/Total Equity as at 1 January 2004
£'000
Total Net Equity/Total Assets under UK GAAP 54,081
IFRS adjustments -
---------
Total Net Equity/Total Assets under IFRS 54,081
=====
Appendix 4
Significant accounting policies under IFRS
Basis of preparation
European law requires that the Group's financial statements for the year ended
31 December 2005 are prepared on the basis of IFRS as endorsed for use in the
European Union. IFRS are subject to amendment or interpretation by the IASB and
there is an ongoing process of review and endorsement by the European
Commission. The financial information contained in this document has been
prepared on the basis of IFRS and International Financial Reporting
Interpretations Committee 'IFRIC' interpretations and with those parts of the
Companies Act 1985 applicable to companies reporting under IFRS that the
Directors expect to be applicable as at 31 December 2005. For the reasons
outlined above, it is possible that the restated information for 2004 presented
in this document may be subject to change before its inclusion in the Group's
2005 Report and Accounts, which will contain the Group's first complete
financial statements prepared in accordance with IFRS.
The policies set out below have been consistently applied to all the periods
presented except for those relating to classification and measurement of
financial instruments. The Group has made use of the exemption available under
IFRS 1 to only apply IAS 32 and IAS 39 from 1 January 2005.
Basis of consolidation
The financial statements consolidate the results of Microgen plc and its
subsidiary undertakings (subsidiaries). The results of the subsidiaries
acquired are included within the consolidated income statement from the date
that control passes to the Group. They are de-consolidated from the date on
which control ceases. Acquisitions are accounted for under the purchase method
of accounting.
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies generally accompanying a shareholding of more
than one half of the voting rights.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at
acquisition date, irrespective of the extent of any minority interest. The
excess of cost of acquisition over the fair value of the Group's share of the
identifiable net assets is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated on consolidation.
Revenue Recognition
Software revenues are recognised in accordance with the principles of US GAAP
SOP 97 -2 which also complies with IAS 18 'Revenue'. Software licences are
recognised as revenue when the software has been delivered, provided a signed
agreement is in place, the licence fee is fixed and determinable, no specific
vendor obligations remain and the collection of the fee is probable. Where the
licence fee relates to a specific term, this is recognised on a straight line
basis over the term of the licence.
Revenue from consulting and other monthly services is recognised at the time the
service is performed. Revenue from maintenance and support contracts are
recognised over the term of the contract on a straight line basis.
Segmental reporting
A business segment is a group of assets and operations engaged in providing
products and services that are subject to risks and returns that are different
to those from other segments. A geographical segment is engaged in providing
products and services within a particular economic environment that is subject
to risks and returns that are different from those of segments in other economic
environments.
The primary segmental reporting is by business sector being Financial Services
and Commercial.
Leasing
Leases where the lessor retains substantially all the risks and rewards are
classified as operating leases. Operating lease rentals are charged to the
profit and loss account on a straight line basis over the life of the lease.
The Group has no finance leases.
Inventories
Inventories, which comprise raw materials and consumables have been valued at
lower of cost and net realisable value.
Property, plant and equipment
Property, plant and equipment is shown at cost less subsequent depreciation and
adjusted for any impairment or revaluation. Land is not depreciated. Costs
include expenditure that is directly attributable to the acquisition of the
items.
Depreciation is provided on assets so as to write off the cost of tangible fixed
assets over their estimated useful lives by equal annual instalments at the
following rates.
Freehold and long leasehold buildings 2 per cent
Leasehold improvements 20 per cent (or the life of the lease if shorter)
Plant and Machinery 20 - 50 per cent
Fixtures and Fittings 20 per cent
Estimation of the useful economic life includes an assessment of the expected
rate of technological developments and the intensity at which the assets are
expected to be used.
Goodwill
Goodwill arising on consolidation represents the excess of the fair value of the
consideration given over the fair value of the identifiable net assets acquired.
Goodwill is capitalised on the balance sheet and subject to an annual
impairment test. The carrying value of goodwill is cost less accumulated
impairment losses.
Other intangibles assets
Research and development
Research expenditure is expensed to the profit and loss account as incurred.
Costs incurred on development projects relating to new or substantially improved
products are recognised as other intangible assets when there is evidence as to
the commercial and technical feasibility of the project. Technical feasibility
of software products is generally reached shortly before the product is
released, costs incurred after technical feasibility is achieved are not
material and accordingly development costs are expensed when occurred.
Identification of other intangibles
Other intangible assets that are acquired by the Group as part of an acquisition
are stated at cost less accumulated amortisation and impairment losses. The
useful life of each of these assets is assessed on an individual basis and can
range from 1 to 20 years. Amortisation is charged on a straight line basis over
the estimated useful life of the assets.
Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment and whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Assets
that are subject to amortisation are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and value in use. For
the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows.
Investments
Financial fixed assets include investments in companies other than subsidiaries,
which are recorded at cost, including additional direct charges.
Cash and cash equivalents
Cash is defined as cash in hand and on demand deposits. Cash equivalents are
defined as short term, highly liquid investments with original maturities of
three months or less.
Share options
The cost of issuing share options is recognised in the income statement based on
the fair value of the options and this cost is spread over the period of the
options. The fair value is measured using an option pricing model.
The option pricing models used are the Black Scholes pricing model for the save
as you earn schemes and the Monte Carlo pricing model for the executive share
option schemes.
Foreign currency
Items included within the financial statements of each of the Group's entities
are measured using the currency of the primary economic environment in which the
entity operates. The consolidated financial statements are presented in
sterling, which is the Group's functional and presentational currency.
Foreign transactions are translated into the functional currency at the exchange
rate ruling when the transaction is entered into. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement.
On consolidation, the balance sheet of each overseas subsidiary is translated at
the closing rate at the date of the balance sheet, and the income and expenses
for each income statement are translated at the average exchange rate for the
period. Exchange gains and losses arising thereon are recognised in the
cumulative translation adjustment within reserves.
Exchange differences arising from the translation of the net investment in
foreign subsidiaries and are taken to shareholders' equity on consolidation.
When a foreign operation is sold, such exchange differences are recognised in
the income statement as part of the gain or loss on sale.
Financial instruments
1 January 2004 to 31 December 2004
The Group did not use derivatives to manage its exposure to interest rates.
Financial instruments were recognised in the balance sheet at their historical
cost with long term liabilities discounted to their present value.
From 1 January 2005 onwards
In order to manage exchange rate risk the company operates a policy of entering
into forward contracts in respect of transactions with the group's overseas
development operations. Outstanding forward contracts are recognised at their
fair value at each reporting date with any movement in the fair value taken to
the income statement.
Pensions
The Group operates money purchase pension schemes in respect of its UK
employees. The schemes are defined contribution schemes and employee and
employer contributions are based on basic earnings for the current year. The
schemes are funded by payments to a trustee-administered fund completely
independent of the Group's finances. The expense is recognised on a monthly
basis as incurred
Taxation
Deferred income 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 financial statements. Currently enacted tax
rates are used in the determination of deferred income tax.
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.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables. The amount of
the provision is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The amount of the provision is recognised in the income
statement.
Provisions
Provisions are created for vacant properties when the Group has a legal
obligation for future expenditure. The provision is measured at the present
value of management's best estimate of the expenditure required to settle the
present obligation at the balance sheet date. The discount rate used to
determine the present value reflects current market assessments of the time
value of money and the increases specific to the liability.
This information is provided by RNS
The company news service from the London Stock Exchange
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