RNS Number:9315R
MTL Instruments Group PLC
29 September 2005
29 September 2005
The MTL Instruments Group plc
Adoption of IFRS
The MTL Instruments Group plc today announces that it has completed its
preparations to adopt International Financial Reporting Standards (IFRS).
In accordance with FSA requirements, The MTL Instruments Group plc will prepare
consolidated accounts in line with IFRS from 2005.
The first results produced under IFRS will be for the 6 months to June 2005 and
the first set of financial statements will be for the year to 31 December 2005.
This announcement provides reconciliations for the year to 31 December 2004 and
highlights the impact of IFRS on the presentation of the group's consolidated
accounts.
Preliminary IFRS Financial Statements
Summary Results 12 months to 31 December 2004
UK GAAP IFRS
#'000 #'000
Revenue 63,411 63,411
Gross profit 30,433 30,433
Operating profit 4,787 5,859
Profit after tax 2,887 3,962
Retained profit for the period 1,718 2,812
Basic EPS 15.3p 21.0p
Diluted EPS 15.2p 20.9p
Commentary
Introduction
From 2005 The MTL Instruments Group plc will prepare consolidated accounts in
line with IFRS.
The first results prepared under IFRS will be for the 6 months to June 2005 and
the first set of financial statements will be for the year to 31 December 2005.
The figures detailed in this announcement are based on the IFRS expected to be
applicable as at 31 December 2005 and the interpretation of those standards.
IFRS are subject to possible amendment by and interpretative guidance from the
International Accounting Standards Board as well as ongoing review and
endorsement by the EU and are, therefore, still subject to change.
It is therefore possible that these figures may require amendment before their
inclusion in the IFRS financial statements for the 12 months to 31 December
2005.
Impact of IFRS
The main impacts of implementing IFRS with respect to the group's consolidated
accounts are:
* Goodwill amortisation:
Goodwill amortisation from 2004 onwards is reversed and goodwill on earlier
acquisitions, is fixed at the 1 January 2004 value. All goodwill balances are
subject to annual impairment tests.
* Pension scheme:
Previously the group accounted for the defined benefit pension scheme under UK
GAAP in accordance with SSAP24, with additional FRS17 disclosures. From 1
January 2004, under IAS19 the pension scheme's net liability is recognised in
the group's consolidated balance sheet under similar accounting treatment to
full adoption of FRS17.
* Dividends:
Under IFRS dividends may only be accounted for on payment, previously under UK
GAAP proposed dividends were accrued in the financial statements.
* Share option schemes:
Previously the cost of share option schemes did not result in a charge to
income. Under IFRS2, all share option schemes result in an expense reflecting
the value of benefits received by employees.
* Capitalised development costs:
This relates to the requirement under IAS38 to capitalise those costs relating
to the development of products from the point at which a development project
meets the "development phase" criteria (as set out in the standard) as
internally-generated intangible assets, which must subsequently be amortised
over their estimated useful economic lives.
The group routinely invests in research and development expenditure, however
only a small proportion of this meets the capitalisation criteria.
* Balance sheet classification:
IFRS requires a number of assets and liabilities to be presented differently.
* EPS:
The calculation methodology for EPS is essentially unchanged from UK GAAP,
however a number of the above items impact on the value of EPS computed under
IFRS compared to that under UK GAAP.
IFRS 1 Exemptions
IFRS1, First Time Adoption of International Financial Reporting Standards,
allows companies adopting IFRS for the first time to elect to utilise some
exemptions from the full requirements of IFRS in the transition period.
The MTL Instruments Group plc has taken the following key exemptions:
* Business combinations prior to the transition date (1 January 2004) have
not been restated under IFRS.
* All cumulative actuarial gains and losses on group pension schemes have
been recognised in equity reserves at the transition date. On an ongoing
basis all actuarial gains and losses will be recognised directly in equity
reserves via the statement of recognised income and expense (SORIE) in a
similar manner to that prescribed under FRS17.
* IAS21 (The Effects of Changes in Foreign Exchange Rates) has not been
retrospectively applied with the effect that the cumulative translation
differences held in reserves under UK GAAP will be set to zero at 1 January
2004. The gain or loss on any future disposal of foreign operations will
therefore only include those foreign exchange differences arising subsequent
to 1 January 2004.
* IFRS2 (Share-based Payment) has not been retrospectively applied to equity
instruments (equity-settled transactions - namely share options) granted on
or before 7 November 2002, nor to those granted after 7 November 2002 that
have vested before 1 January 2005.
* IAS32 (Financial Instruments: Disclosure and Presentation) and IAS39
(Financial Instruments: Recognition and Measurement) will only be applied
from 1 January 2005. As a result the accounting treatment applied to
financial instruments held by the group in 2004 continues to be based on UK
GAAP.
Adjustments to Equity
(references refer to reconciliation schedules 1-3)
(a) Under UK GAAP goodwill is amortised over it's estimated useful life up to
a maximum of 20 years. Under IFRS goodwill is not amortised, but instead subject
to an annual impairment review. Therefore, goodwill amortised in the year to 31
December 2004 is reversed. Goodwill amortisation prior to 1 January 2004, the
date of transition to IFRS, is not reversed as goodwill, but is held at the
value at this date under IFRS.
(b) Under UK GAAP the group's defined benefit pension scheme is accounted for
under SSAP 24 with contributions to the scheme being expensed. Under IFRS, the
net pension scheme liability is recognised in the group balance sheet and the
associated deferred tax arising on the liability recognised separately within
deferred tax assets.
(c) Under UK GAAP proposed dividends are accrued in the period-end balance
sheet. Under IFRS the liability for a dividend is not recognised until it has
been declared. Undeclared accrued dividends are therefore reversed.
(d) Under IFRS, the fair value of share options issued by the group after 7
November 2002 (that have not vested before 1 January 2005) must be expensed over
the option vesting period.
(e) At transition to IFRS, the cumulative translation differences held in
reserves under UK GAAP are set to zero. The balance in the translation reserve
subsequent to 1 January 2004 therefore represents the movement since this date.
(f) Under IFRS, development costs that meet the recognition criteria must be
capitalised as internally-generated intangible assets, and subsequently
amortised over the expected useful economic life of the intangible asset
developed.
(g) Revaluation reserves are cancelled against equity as the investment
property to which the reserves relate is transferred to property plant &
equipment to be subsequently held at depreciated cost.
Adjustments to Income
(references refer to reconciliation schedules 4 and 5)
(h) As noted in (a) above, goodwill is not amortised but is subject to an
annual impairment review. Therefore, goodwill which was amortised in the year to
31 December 2004 is reversed.
(i) As noted in (b) above, under IFRS the pension scheme liability is recognised
within the group's balance sheet.
Further, the contributions paid by the group during the period contribute to the
movement in the period of the net liability - therefore the expense recognised
under UK GAAP is reversed.
Under IFRS the current service cost of the pension scheme is recognised as the
expense in the period.
The net interest for the period on the pension liability is recognised within
finance costs in the income statement.
Actuarial gains and losses arising in the period on the pension scheme are
recognised directly in equity, net of tax.
(j) As noted in (c) above, only declared dividends are recognised under IFRS.
Therefore undeclared dividends accrued under UK GAAP are reversed.
(k) As noted in (d) above, the fair value of share options issued by the group
is expensed over the option vesting period.
(l) As noted in (f) above, development costs that meet recognition criteria
under IFRS are capitalised and subsequently amortised over the useful economic
life of the intangible asset developed.
Preliminary International Financial Reporting Standards ("IFRS") Financial
Statements
Schedule
Reconciliations of UK GAAP and IFRS:
Balance sheet at 1 January 2004 1
Balance sheet at 30 June 2004 2
Balance sheet at 31 December 2004 3
Income Statement for the 6 months to 30 June 2004 4
Income Statement for the year to 31 December 2004 5
Schedule 1: Balance sheet Reconciliation at 1 January 2004
Previously Goodwill Pensions Dividends Share Foreign Design & Revaluation Effect of Restated
reported under options currency Development reserve transition under
UK GAAP (a) (b) (c) (d) (e) (f) (g) to IFRS IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Non-current
assets
Goodwill 12,417 - - - - - - - - 12,417
Other
intangible
assets - - - - - - - - - -
Property,
plant &
equipment 6,939 - - - - - - - - 6,939
Deferred tax
assets 448 - 1,036 - - - - - 1,036 1,484
__________________________________________________________________________________________________________
19,804 - 1,036 - - - - - 1,036 20,840
Current assets
Inventories 8,201 - - - - - - - - 8,201
Trade and
other
receivables 15,764 - - - - - - - - 15,764
Cash and cash
equivalents 4,465 - - - - - - - - 4,465
__________________________________________________________________________________________________________
28,430 - - - - - - - - 28,430
__________________________________________________________________________________________________________
Total assets 48,234 - 1,036 - - - - - 1,036 49,270
==========================================================================================================
Current
liabilities
__________________________________________________________________________________________________________
Trade & other
payables (10,867) - - 660 - - - - 660 (10,207)
__________________________________________________________________________________________________________
==========================================================================================================
Net current
assets 17,563 - - 660 - - - - 660 18,223
==========================================================================================================
Non current
liabilities
Creditors
falling due >
1 year (4,469) - - - - - - - - (4,469)
Retirement
benefit
obligation - - (3,454) - - - - - (3,454) (3,454)
Deferred tax
liabilities (6) - - - - - - - - (6)
Long-term
provisions (1,524) - - - - - - - - (1,524)
__________________________________________________________________________________________________________
(5,999) - (3,454) - - - - - (3,454) (9,453)
__________________________________________________________________________________________________________
Total
liabilities (16,866) - (3,454) 660 - - - - (2,794) (19,660)
==========================================================================================================
__________________________________________________________________________________________________________
Net assets 31,368 - (2,418) 660 - - - - (1,758) 29,610
==========================================================================================================
EQUITY
Share capital 1,884 - - - - - - - - 1,884
Share premium
account 2,566 - - - - - - - - 2,566
Revaluation
reserves 1 - - - - - - (1) (1) -
Share options - - - - 6 - - - 6 6
Translation
reserve 340 - - - - (340) - - (340) -
Equity
reserve (P&L) 26,577 - (2,418) 660 (6) 340 - 1 (1,423) 25,154
__________________________________________________________________________________________________________
31,368 - (2,418) 660 - - - - (1,758) 29,610
==========================================================================================================
Schedule 2: Balance sheet Reconciliation at 30 June 2004
Previously Goodwill Pensions Dividends Share Foreign Design & Revaluation Effect of Restated
reported under options currency Development reserve transition under
UK GAAP (a) (b) (c) (d) (e) (f) (g) to IFRS IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Non-current
assets
Goodwill 11,913 504 - - - - - - 504 12,417
Other
intangible
assets - - - - - - - - - -
Property,
plant &
equipment 6,497 - - - - - - - - 6,497
Deferred tax
assets 449 - 1,176 - - - - - 1,176 1,625
__________________________________________________________________________________________________________
18,859 504 1,176 - - - - - 1,680 20,539
Current assets
Inventories 8,982 - - - - - - - - 8,982
Trade and other
receivables 16,778 - - - - - - - - 16,778
Cash and cash
equivalents 4,917 - - - - - - - - 4,917
__________________________________________________________________________________________________________
30,677 - - - - - - - - 30,677
__________________________________________________________________________________________________________
Total assets 49,536 504 1,176 - - - - - 1,680 51,216
==========================================================================================================
Current
liabilities
__________________________________________________________________________________________________________
Trade & other
payables (12,709) - - 490 - - - - 490 (12,219)
__________________________________________________________________________________________________________
Net current
assets 17,968 - - 490 - - - - 490 18,458
==========================================================================================================
Non current
liabilities
Creditors
falling due >
1 year (4,144) - - - - - - - - (4,144)
Retirement
benefit
obligation - - (3,920) - - - - - (3,920) (3,920)
Deferred tax
liabilities - - - - - - - - - -
Long-term
provisions (890) - - - - - - - - (890)
__________________________________________________________________________________________________________
(5,034) - (3,920) - - - - - (3,920) (8,954)
__________________________________________________________________________________________________________
Total
liabilities (17,748) - (3,920) 490 - - - - (3,430) (21,173)
==========================================================================================================
Net assets 31,793 504 (2,744) 490 - - - - (1,750) 30,043
==========================================================================================================
EQUITY
Share capital 1,884 - - - - - - - - 1,884
Share premium
account 2,566 - - - - - - - - 2,566
Revaluation
reserves 1 - - - - - - (1) (1) -
Share options - - - - 11 - - - 11 11
Translation
reserve 39 - - - - (340) - - (340) (301)
Equity
reserve (P&L) 27,303 504 (2,744) 490 (11) 340 - 1 (1,420) 25,883
__________________________________________________________________________________________________________
31,793 504 (2,744) 490 - - - - (1,750) 30,043
==========================================================================================================
Schedule 3: Balance sheet Reconciliation at 31 December 2004
Previously Goodwill Pensions Dividends Share Foreign Design & Revaluation Effect of Restated
reported under options currency Development reserve transition under
UK GAAP (a) (b) (c) (d) (e) (f) (g) to IFRS IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Non-current
assets
Goodwill 11,409 1,008 - - - - - - 1,008 12,417
Other
intangible
assets - - - - - - 151 - 151 151
Property,
plant &
equipment 6,446 - - - - - - - - 6,446
Deferred tax
assets 688 - 1,563 - - - - - 1,563 2,251
__________________________________________________________________________________________________________
18,543 1,008 1,563 - - - - - 2,722 21,265
Current assets
Inventories 9,135 - - - - - - - - 9,135
Trade and
other
receivables 14,548 - - - - - - - - 14,548
Cash and cash
equivalents 7,310 - - - - - - - - 7,310
__________________________________________________________________________________________________________
30,993 - - - - - - - - 30,993
__________________________________________________________________________________________________________
Total assets 49,536 1,008 1,563 - - - - - 2,722 52,258
==========================================================================================================
Current
liabilities
__________________________________________________________________________________________________________
Trade & other
payables (11,352) - - 679 - - - - 679 (10,673)
__________________________________________________________________________________________________________
==========================================================================================================
Net current
assets 19,641 - - 679 - - - - 679 20,320
==========================================================================================================
Non current
liabilities
Creditors
falling due >
1 year (3,627) (3,627)
Retirement
benefit
obligation - - (5,211) - - - - - (5,211) (5,211)
Deferred tax
liabilities (194) - - - - - - - - (194)
Long-term
provisions (1,333) - - - - - - - - (1,333)
__________________________________________________________________________________________________________
(5,154) - (5,211) - - - - - (5,211) (10,365)
__________________________________________________________________________________________________________
Total
liabilities (16,506) - (5,211) 679 - - - - (4,532) (21,038)
==========================================================================================================
Net assets 33,030 1,008 (3,648) 679 - - - - (1,810) 31,220
==========================================================================================================
EQUITY
Share capital 1,887 - - - - - - - - 1,887
Share premium
account 2,618 - - - - - - - - 2,618
Revaluation
reserves 1 - - - - - - (1) (1) -
Share options - - - - 28 - - - 28 28
Translation
reserve 229 - - - - (340) - - (340) (111)
Equity reserve
(P&L) 28,295 1,008 (3,648) 679 (28) 340 - 1 (1,497) 26,798
__________________________________________________________________________________________________________
33,030 1,008 (3,648) 679 - - - - (1,810) 31,220
==========================================================================================================
Schedule 4: Income statement reconciliation for the 6 months to 30 June 2004
Previously Goodwill Pensions Dividends Share Design & Effect of Restated
reported options Development transition under
under UK (h) (i) (j) (k) (l) to IFRS IFRS
GAAP
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Revenue 30,551 - - - - - - 30,551
Cost of sales (16,181) - - - - - - (16,181)
______________________________________________________________________________________________________
Gross profit 14,370 - - - - - - 14,370
Selling &
marketing
costs (7,644) - - - - - - (7,644)
Administrative
expenses (2,764) 504 (31) - (5) - 468 (2,296)
Research,design &
development costs (1,962) - - - - - - (1,962)
______________________________________________________________________________________________________
Operating profit 2,000 504 (31) - (5) - 468 2,468
Interest income 32 - - - - - - 32
Interest costs (69) - - - - - - (69)
Net interest
on pension liability - - (19) - - - (19) (19)
______________________________________________________________________________________________________
Profit before tax 1,963 504 (50) - (5) - 449 2,412
Taxation (760) - 15 - - - 15 (745)
______________________________________________________________________________________________________
Profit after tax 1,203 504 (35) - (5) - 464 1,667
Dividends paid (490) - - (170) - - (170) (660)
______________________________________________________________________________________________________
Retained profit
for the period 713 504 (35) (170) (5) - 294 1,007
Items recognised
directly in
equity during
the period 13 - (291) - - - (291) (278)
______________________________________________________________________________________________________
Equity (P&L)
reserve movement
in the period 726 504 (326) (170) (5) - 3 729
=====================================================================================================
Basic EPS 6.4p 2.7p (0.2)p - - - 2.5p 8.9p
=====================================================================================================
Diluted EPS 6.3p 2.7p (0.2)p - - - 2.5p 8.8p
=====================================================================================================
Schedule 5: Income statement reconciliation for the 12 months to 31 December 2004
Previously Goodwill Pensions Dividends Share Design & Effect of Restated
reported options Development transition under
under UK (h) (i) (j) (k) (l) to IFRS IFRS
GAAP
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Revenue 63,411 - - - - - - 63,411
Cost of sales (32,978) - - - - - - (32,978)
______________________________________________________________________________________________________
Gross profit 30,433 - - - - - - 30,433
Selling &
marketing costs (15,544) - - - - - - (15,544)
Administrative
expenses (6,052) 1008 (65) - (22) - 921 (5,131)
Research, design &
development costs (4,050) - - - - 151 151 (3,899)
______________________________________________________________________________________________________
Operating profit 4,787 1008 (65) - (22) 151 1,072 5,859
Interest income 65 - - - - - - 65
Interest costs (147) - - - - - - (147)
Net interest on
pension liability - - (23) - - - (23) (23)
______________________________________________________________________________________________________
Profit before tax 4,705 1008 (88) - (22) 151 1,049 5,754
Taxation (1,818) - 26 - - - 26 (1,792)
______________________________________________________________________________________________________
Profit after tax 2,887 1008 (62) - (22) 151 1,075 3,962
Dividends paid (1,169) - - 19 - - 19 (1,150)
______________________________________________________________________________________________________
Retained profit
for the period 1,718 1008 (62) 19 (22) 151 1,094 2,812
Items recognised
directly in equity
during the period - - (1,168) - - - (1,168) (1,168)
______________________________________________________________________________________________________
Equity (P&L)
reserve movement
in the period 1,718 1008 (1,230) 19 (22) 151 (74) 1,644
======================================================================================================
Basic EPS 15.3p 5.3p (0.3)p - (0.1)p 0.8p 5.7p 21.0p
======================================================================================================
Diluted EPS 15.2p 5.3p (0.3)p - (0.1)p 0.8p 5.7p 20.9p
======================================================================================================
Notes:
Note 1:
The figures detailed above are based on the IFRS expected to be applicable as
at 31 December 2005 and the interpretation of those standards.
IFRS are subject to possible amendment by and interpretative guidance from the
International Accounting Standards Board as well as ongoing review and
endorsement by the EU and are, therefore, still subject to change.
It is therefore possible that these figures may require amendment before their
inclusion in the IFRS financial statements for the 12 months to 31 December
2005.
Note 2:
Under IFRS, new accounting policies have been drafted on which basis the figures
detailed above have been computed. These policies are:
Basis of accounting:
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) for the first time. The disclosures
required by IFRS1 concerning the transition from UK GAAP to IFRSs are given on
the face as well as in the notes to the financial statements.
The financial statements have been prepared on the historical cost basis. The
principal accounting policies are set out below.
Basis of consolidation:
The consolidated financial statements incorporate the financial statements of
The MTL Instruments Group Plc and entities controlled by the company (its
subsidiaries) made up to 31 December each year.
Control is achieved where The MTL Instruments Group Plc has the power to govern
the financial and operating policies of an investee entity so as to obtain
benefits from its activities.
On acquisition, the assets and 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
profit and loss in the period of acquisition.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
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.
Intangible assets - goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the group's interest in the fair value of the identifiable
assets and liabilities of its subsidiaries and jointly controlled entities at
the dates of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least
annually. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.
On disposal of a subsidiary or jointly controlled entity, the attributable
amount of goodwill is included in the determination of the profit or loss on
disposal.
Goodwill arising on acquisitions before the date of transition to IFRS has been
retained at the previous UK GAAP amount subject to being tested for impairment
at that date.
Any 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 excluding goodwill:
Internally-generated intangible assets - Research & Development
Expenditure on research activities is recognised as an expense in the period in
which it is incurred.
An internally generated intangible asset arising from the group's development is
recognised only if all of the following conditions are met:
* an asset is created that can be identified;
* it is probable that the asset created will generate future economic
benefits; and
* the development cost of the asset can be measured reliably.
Internally generated intangible assets are amortised on a straight-line basis
over their useful lives. Where no internally generated intangible assets can be
recognised, development expenditure is recognised as an expense in the period in
which it is incurred.
Patents & trademarks
Patents and trademarks are measured initially at purchase cost and are amortised
on a straight-line basis over their estimated useful lives.
Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over
their estimated useful lives, using the straight line method, on the following
bases:
Buildings: 30 - 50 years
Long leasehold buildings: Over the shorter of the lease term or 50 years
Fixtures & equipment: 3-5 years
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset and is recognised in income.
Investment property:
Investment property, which is property held to earn rentals and / or for capital
appreciation, is stated at its fair value at the balance sheet date. Gains or
losses arising from changes in the fair value of investment property are
included in profit or loss for the period in which they arise.
Impairment of tangible and intangible assets excluding goodwill:
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).
An intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell 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.
Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately, unless the relevant
asset is carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years.
A reversal of an impairment loss is recognised as income immediately, unless the
relevant asset is carried at a revalued amount, in which case the reversal of
the impairment loss is treated as a revaluation increase.
Inventories
Inventories and work in progress are stated at the lower of cost and net
realisable value.
Cost comprises direct material costs of purchase and where applicable, direct
labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition as follows:
Raw materials & components:
- purchase cost on a first-in, first-out basis, including transport.
Work in progress and finished goods:
- cost of direct materials and labour plus a reasonable proportion of
manufacturing overheads based on normal levels of activity.
Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution.
Provisions:
Provisions for warranty costs are recognized at the date of sale of the relevant
products, at the directors' best estimate of the expenditure required to settle
the Group's liabilities.
Provisions for restructuring costs are recognised when the Group has a detailed
formal plan for the restructuring that has been communicated to affected
parties.
Taxation:
The charge for current tax is based on the results for the period as adjusted
for items that are non-assessable or disallowed. It is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet date.
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 negative 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.
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.
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 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 profit and loss account, except when it relates to
items charged or credited directly to equity, in which case the deferred tax is
also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Revenue recognition:
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales related
taxes.
Sales of goods are recognised when the risks and rewards of ownership pass to
the customer, which usually occurs at the point of shipment.
Revenue for transactions involving the rendering of services is recognised when
the outcome can be reliably estimated, by reference to the stage of completion
of the transaction at the balance sheet date.
When the outcome cannot be estimated reliably, revenue is recognised only to the
extent of the expenses recognised that are recoverable.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Dividend income is recognised when the shareholders rights to receive payment
have been established.
Leases:
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating
lease are also spread on a straight-line basis over the lease term.
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease.
The corresponding liability to the lessor is included in the balance sheet as a
finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability.
Finance charges are charged directly against income, unless they are directly
attributable to qualifying assets, in which case they are capitalised in
accordance with the general policy on borrowing costs.
Employee benefits:
Retirement Benefit costs:
Payments to the defined contribution retirement benefit schemes are charged as
an expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as payments to defined contribution schemes where the
Group's obligations under the schemes are equivalent to those arising in a
defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the Projected Unit Credit Method, with actuarial valuations
being carried out at each balance sheet date.
Actuarial gains and losses are recognised in full in the period in which they
occur. They are recognised outside profit or loss and presented in the statement
of recognised income and expense.
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation as adjusted for unrecognised
past service cost, and as reduced by the fair value of scheme assets. Any asset
resulting from this calculation is limited to past service cost, plus the
present value of available refunds and reductions in future contributions to the
plan.
Short-term employee benefit costs:
The undiscounted amount of short-term benefits attributable to services that
have been rendered in the period are recognised as an expense, unless
specifically required or permitted within the scope of IFRS reporting to be
included in the cost of an asset.
Any difference between the amount of cost recognised and cash payments made is
treated as a liability or prepayment as appropriate.
Borrowing costs:
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. Investment income earned on
the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the profit or loss in the period in
which they are incurred.
Foreign currency:
Transactions in currencies other than the functional currency of the reporting
entity are recorded at the rates of exchange prevailing on the dates of the
transactions.
At each balance sheet date, monetary assets and liabilities that are denominated
in foreign currencies are retranslated at the rates prevailing on the balance
sheet date.
Non-monetary assets and liabilities carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing at the date when
the fair value was determined.
Gains and losses arising on retranslation are included in net profit or loss for
the period, except for exchange differences arising on non-monetary assets and
liabilities where the changes in fair value are recognised directly in equity.
On consolidation, the assets and liabilities of the Group's overseas operations
are translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the
period unless exchange rates fluctuate significantly. Exchange differences
arising, if any, are classified as equity and transferred to the Group's
translation reserve.
Such translation differences are recognised as income or as expenses in the
period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The Group has elected to treat goodwill and fair value adjustment arising on
acquisitions before the date of transition to IFRSs as sterling denominated
assets and liabilities.
Financial instruments:
Financial assets and liabilities are recognised on the group's balance sheet
when the group becomes a party to the contractual provisions of the instrument.
Trade Receivables
Trade receivables do not carry any interest and are stated at their nominal
value as reduced by appropriate allowances for estimated irrecoverable amounts.
Financial liability and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the group after
deducting all of its liabilities.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds
received, net of direct issue costs. Finance charges, including premiums payable
on settlement or redemption and direct issue costs, are accounted for on an
accruals basis to the profit and loss account using effective interest method
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.
Trade Payables
Trade payables are not interest bearing and are stated at their nominal value.
Equity Instruments
Equity instruments issued by the company are recorded at the proceeds received,
net of direct issue costs.
Derivative financial instruments and hedge accounting
The group's activities expose it primarily to the financial risks of changes in
foreign currency exchange rates and interest rates.
The group uses foreign exchange forward contracts to hedge the foreign currency
exchange rate exposures. The group does not use derivative financial instruments
for speculative purposes.
The use of financial derivatives is governed by the group's policies approved by
the board of directors:
The group's objective in managing its currency exposure is to minimise the risk
of adverse currency movements. The group sets budgeted rates annually which
provide the basis of determining group budgeted profitability.
The company does not speculate in order to maximise returns.
The group sells and buys goods throughout the world. It is the policy of the
company to make purchases in one of three currencies; # Sterling, US Dollars and
Euros. It is the policy of the group to maximisie purchases in US Dollars and
Euros wherever possible to create a natural hedge.
The cost base of the business is predominantly # Sterling. Sales and purchases
in foreign currencies are likely to give rise to fluctuating revenues depending
upon the relative strength of # Sterling on the foreign exchange markets.
At the start of each budget year, the group agrees budgeted exchange rates for
the next 12 month period. These rates are used in determining budgeted profits
for the year. Achievement of budgeted profits demominated in a foreign currency
may therefore be impacted by exchange differences.
The monthly accounts identify unrealised and realised exchange gains and losses
generated from the difference in the rate at which a sale/purchase is booked in
the accounts compared to the month end rate or compared to the rate of the
subsequent cash receipt/payment.
It is the usual policy to only hedge exposures up to 12 months ahead.
It is the company policy to hedge a minimum of 25% known exposures up to a
maximum of 75% over a rolling 12 month period.
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 a 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 the 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.
For an effective hedge of an exposure to changes in the fair value, the hedged
item is adjusted for changes in fair value attributable to the risk being hedged
with the corresponding entry in profit or loss. Gains or losses from
re-measuring the derivative, or for non-derivatives the foreign currency
component of its carrying amount, are recognised in 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 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.
Derivatives embedded in other financial instruments or other host contracts are
treated as separate derivatives when their risks and characteristics are not
closely related to those of hosts contracts and the host contracts are not
carried at fair value with unrealised gains or losses reported in the income
statement.
Share-based payments:
The Group has applied the requirements or IFRS 2 Share-based Payments.
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 1
January 2005.
The Group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant.
The fair value determined at the grant date of the equity-settled, share-based
payments is expensed on a straight-line basis over the vesting period, based on
the Group's estimate of shares that will eventually vest.
Fair value of the equity-settled share-based payments is measured by use of a
Black Scholes model.
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 for any
cash-settled, share-based payments.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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