RNS Number:8723U
White Young Green PLC
30 November 2005
For Immediate Release 30 November 2005
WHITE YOUNG GREEN PLC
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Introduction
White Young Green plc (WYG) will be reporting its financial results in
accordance with International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU) with
effect from 1 July 2004. This statement presents and explains the conversion of
the results of the Group as previously reported under UK Generally Accepted
Accounting Principles (UK GAAP) onto an IFRS basis for the year ended 30 June
2005 (unaudited).
The transition to IFRS does not impact the Group's underlying business
performance, trading cash flows, its ability to pay ordinary dividends nor its
financing arrangements.
Overview of Impact at 30 June 2005
* Profit before tax #9.4m (UK GAAP #8.1m)
* Earnings per share 16.9p (UK GAAP 13.2p)
* Adjusted earnings per share 17.0p (UK GAAP 18.0p)
* Revenue unchanged at #143.9m
* Net assets #52.3m (UK GAAP #54.4m)
* Free cash flow and movement in net borrowings unaffected
Commenting on the statement, Bob Hartley, Finance Director of WYG, said:
"The two issues that have had the most significant impact on the restated
financial statements are the changes in pension fund accounting and the new
requirement to cease amortising goodwill arising on acquisitions. The Group's
underlying business performance and cash flow remains unaffected."
For further information, please contact:
Bob Hartley Tel: (0113) 2787111
Finance Director
Restatement of financial information for International Financial Reporting
Standards
Contents
1 Introduction
2 Basis of preparation
3 Transition to IFRS - first time adoption
4 IFRS Financial statements for the year ended 30 June 2005
5 Explanation of Principal IFRS adjustments
6 Other impacts
7 Principal Accounting Policies Following IFRS Implementation
1 Introduction
Following a European Union Regulation issued in June 2002, White Young Green Plc
(the Group) is required, as a listed company on a recognised exchange within the
EU, to present its consolidated accounts in accordance with EU-adopted
International Financial Reporting Standards (IFRS) and International Accounting
Standards (IAS) for periods commencing on or after 1 January 2005.
As WYG's statutory year end is 30 June, the Group will adopt IFRS for the first
time for the year ended 30 June 2006 together with restated comparatives for the
year ended 30 June 2005. As such these standards apply from the date of
transition, 1 July 2004, onwards.
This unaudited announcement presents and explains the Group's restated results
for the year ended 30 June 2005 as converted from UK GAAP to IFRS.
The first results to be published under IFRS will be for the half year to 31
December 2005.
The accounting standards which produce the most significant impact on the
consolidated statements of the Group are:
* IAS 19 - Defined benefit pension scheme deficit included on balance sheet
* IAS 19 - Accrual for employee benefits included on the balance sheet
* IFRS 3 - Goodwill is no longer amortised, but subject to an annual
impairment review
* IAS 10 - Final dividends are recognised in the period in which they are
approved by the Company's shareholders. Interim dividends are recognised
when paid.
* IFRS2 - Amendments to accounting for share based payments
2 Basis of preparation
The restated financial information has been prepared in accordance with all
applicable IFRS and related interpretations in force at the date of this
announcement under the assumption that all existing standards in issue from the
International Accounting Standards Board (IASB) will be fully endorsed by the
EU. The failure of the EU to endorse all of these standards for financial
reporting in 2005, the issue of any new or revised standards, or the publishing
of further interpretation guidance, could result in changes to the financial
information presented in this document. In addition, as the financial community
gains more experience, and best practice and interpretative guidance develop,
there may be consequential changes to the methodologies and approaches used in
preparing the financial information shown in this document.
The financial information for the full year ended 30 June 2005, as prepared on
the above basis and included in this document, has not been audited.
The financial statements included here are presented in accordance with IAS 1,
Presentation of Financial Statements. This format and presentation may require
modification in the event that further guidance is issued and as best practice
develops.
IAS 1 does not provide definitive guidance on the format of the income
statement, but states key lines that should be disclosed. It also requires
additional line items and headings to be presented on the face of the income
statement when such presentation is relevant to an understanding of the entity's
financial performance. Factors to be considered include materiality and the
nature and function of the components of income and expense.
3 Transition to IFRS - first time adoption
IFRS 1 "First-time Adoption of International Financial Reporting Standards"
determines that the transition date for WYG will be 1 July 2004. It permits
those companies adopting IFRS for the first time to take certain exemptions from
the full requirements of IFRS during the transition period.
WYG has taken the following key exemptions:
3.1 Pensions
The Group has elected to recognise all cumulative actuarial gains and losses in
relation to employee benefit schemes at the date of transition. The Group has
recognised actuarial gains and losses in full in the period in which they occur
in reserves via the statement of recognised income and expense in accordance
with the amendment to IAS19, issued on 16 December 2004.
3.2 Cumulative translation differences
The Group has adopted the exemption in IFRS1 "First-time Adoption of
International Financial Reporting Standards" allowing cumulative translation
differences to be reset to zero at the transition date.
3.3 Share based payments
The Group has adopted the exemption to apply IFRS 2 "Share based payments" only
to awards granted after 7 November 2002 that had not vested by 1 January 2005.
There is no change in the treatment for options granted before 7 November 2002.
3.4 Business combinations
The Group has elected not to apply IFRS 3 "Business Combinations"
retrospectively and restate business combinations completed prior to the date of
transition. As a result, in the opening balance sheet, goodwill arising from
past business combinations of #34.0 million remains as stated under UK GAAP at 1
July 2004.
3.5 Financial Instruments Comparatives
The Group has taken advantage of the exemption in IFRS 1 not to restate
comparatives for IAS 32 "Financial Instruments: Disclosure and Presentation" and
IAS 39 "Financial Instruments: Recognition and Measurement" and the standards
will be applied from 1 July 2005 only. The comparative information in the 2005
financial statements will be presented on the existing UK GAAP basis and will
not be restated in line with IAS 32 and IAS 39.
4 IFRS Financial statements for the year ended 30 June 2005
4.1 Consolidated Income Statement for the year ended 30 June 2005
#'000
Unaudited
Continuing Operations
Revenue 143,906
Operating expenses (132,636)
Operating profit 11,270
Finance costs (1,883)
Profit before tax 9,387
Tax (2,638)
Profit for the year 6,749
Earnings per share
Basic 16.9p
Diluted 16.5p
4.2 Reconciliation of reported profits for the year ended 30 June 2005
As reported Pensions Goodwill Employee Share-based Other As restated
under UK amortisation benefits payments under IFRS
GAAP
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
5.1 5.2 5.4 5.5 5.6, 6.3
Continuing Operations
Revenue 143,906 - - - - - 143,906
Operating expenses (134,209) 227 1,883 (383) (112) (42) (132,636)
Operating profit 9,697 227 1,883 (383) (112) (42) 11,270
Finance costs (1,549) (334) - - - - (1,883)
Profit before tax 8,148 (107) 1,883 (383) (112) (42) 9,387
Tax (2,849) 33 - 115 34 29 (2,638)
Profit for the
year 5,299 (74) 1,883 (268) (78) (13) 6,749
Earnings per share
Basic 13.2p (0.2p) 4.8p (0.7p) (0.2p) - 16.9p
Diluted 13.0p (0.2p) 4.6p (0.7p) (0.2p) - 16.5p
Adjusted earnings per share
Basic 18.0p (0.2p) - (0.7p) (0.2p) 0.1p 17.0p
Diluted 17.6p (0.2p) - (0.7p) (0.2p) 0.1p 16.6p
4.3 Consolidated Balance Sheets as at 30 June 2005 and 1 July 2004
30 June 2005 1 July 2004
#'000 #'000
Unaudited Unaudited
Non-current assets
Goodwill 36,675 34,010
Other intangible assets 985 781
Property, plant and equipment 9,097 6,354
Deferred tax assets 2,224 1,186
48,981 42,331
Current assets
Work in progress 28,772 24,030
Trade and other receivables 39,505 33,699
Tax recoverable 289 538
Cash and cash equivalents 5,579 4,586
74,145 62,853
Current liabilities
Trade and other payables (42,806) (34,432)
Tax liabilities (1,561) (1,565)
Obligations under finance leases (2,547) (2,127)
Bank overdraft and loans (4,500) (1,847)
(51,414) (39,971)
Net current assets 22,731 22,882
Non-current liabilities
Bank loans (10,811) (12,011)
Retirement benefit obligation (5,336) (3,084)
Deferred tax liabilities (100) (50)
Obligations under finance leases (3,143) (2,833)
(19,390) (17,978)
NET ASSETS 52,322 47,235
SHAREHOLDERS' EQUITY
Share capital 2,050 1,995
Shares to be issued 1,550 2,433
Share premium account 33,554 30,676
Cumulative translation reserve (440) -
Retained earnings 15,608 12,131
Total shareholders' equity 52,322 47,235
4.4 Reconciliation of equity and net assets as at 30 June 2005
As reported Pensions Goodwill Dividends Employee Share-based Other As
under amortisation benefits payments restated
UK GAAP under IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
5.1 5.2 5.3 5.4 5.5 5.6, 6.3
Non-current
assets
Goodwill 34,917 - 1,883 - - - (125) 36,675
Other intangible - - - - - - 985 985
assets
Property, plant 9,999 - - - - - (902) 9,097
and equipment
Deferred tax 193 1,601 - - - 339 91 2,224
assets
45,109 1,601 1,883 - - 339 49 48,981
Current assets
Work in progress 28,772 - - - - - - 28,772
Trade and other 39,505 - - - - - - 39,505
receivables
Tax recoverable 289 - - - - - - 289
Cash and cash 5,579 - - - - - - 5,579
equivalents
74,145 - - - - - - 74,145
Current
liabilities
Trade and other (42,176) - - 1,681 (2,213) (98) - (42,806)
payables
Tax liabilities (1,676) - - - 115 - - (1,561)
Obligations (2,547) - - - - - - (2,547)
under finance
leases
Bank overdraft (4,500) - - - - - - (4,500)
and loans
(50,899) - - 1,681 (2,098) (98) - (51,414)
Net current 23,246 - - 1,681 (2,098) (98) - 22,731
assets
Non-current
liabilities
Bank loans (10,811) - - - - - - (10,811)
Retirement - (5,336) - - - - - (5,336)
benefit
obligation
Deferred tax - - - - - - (100) (100)
liabilities
Obligations (3,143) - - - - - - (3,143)
under finance
leases
(13,954) (5,336) - - - - (100) (19,390)
NET ASSETS 54,401 (3,735) 1,883 1,681 (2,098) 241 (51) 52,322
4.4 Reconciliation of equity and net assets as at 30 June 2005 (continued)
As reported Pensions Goodwill Dividends Employee Share-based Other As
under amortisation benefits payments restated
UK GAAP under IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
5.1 5.2 5.3 5.4 5.5 5.6, 6.3
SHAREHOLDERS' EQUITY
Share capital 2,050 - - - - - - 2,050
Shares to be 1,550 - - - - - - 1,550
issued
Share premium 33,554 - - - - - - 33,554
account
Cumulative - - - - - - (440) (440)
translation
reserve
Retained 17,247 (3,735) 1,883 1,681 (2,098) 241 389 15,608
earnings
Total 54,401 (3,735) 1,883 1,681 (2,098) 241 (51) 52,322
shareholders'
equity
4.5 Reconciliation of equity and net assets as at 1 July 2004
As reported Pensions Goodwill Dividends Employee Share-based Other As
under amortisation benefits payments restated
UK GAAP under IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
5.1 5.2 5.3 5.4 5.5 5.6, 6.3
Non-current
assets
Goodwill 34,010 - - - - - - 34,010
Other - - - - - - 781 781
intangible
assets
Property, plant
and equipment 7,135 - - - - - (781) 6,354
Deferred tax 164 925 - - - 85 12 1,186
assets
41,309 925 - - - 85 12 42,331
Current assets
Work in
progress 24,030 - - - - - - 24,030
Trade and other
receivables 33,699 - - - - - - 33,699
Tax recoverable 538 - - - - - - 538
Cash and cash
equivalents 4,586 - - - - - - 4,586
62,853 - - - - - - 62,853
Current
liabilities
Trade and other
payables (34,048) - - 1,468 (1,830) (22) - (34,432)
Tax liabilities (1,565) - - - - - - (1,565)
Obligations
under finance (2,127) - - - - - - (2,127)
leases
Bank overdraft
and loans (1,847) - - - - - - (1,847)
(39,587) - - 1,468 (1,830) (22) - (39,971)
Net current
assets 23,266 - - 1,468 (1,830) (22) - 22,882
Non-current
liabilities
Bank loans (12,011) - - - - - - (12,011)
Retirement
benefit
obligation - (3,084) - - - - - (3,084)
Deferred tax - - - - - - (50) (50)
liabilities
Obligations
under finance
leases (2,833) - - - - - - (2,833)
(14,844) (3,084) - - - - (50) (17,978)
NET ASSETS 49,731 (2,159) - 1,468 (1,830) 63 (38) 47,235
4.5 Reconciliation of equity and net assets as at 1 July 2004 (continued)
As reported Pensions Goodwill Dividends Employee Share-based Other As
under amortisation benefits payments restated
UK GAAP under IFRS
#'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
5.1 5.2 5.3 5.4 5.5 5.6, 6.3
SHAREHOLDERS' EQUITY
Share capital 1,995 - - - - - - 1,995
Shares to be 2,433 - - - - - - 2,433
issued
Share premium 30,676 - - - - - - 30,676
account
Cumulative
translation
reserve - - - - - - - -
Retained 14,627 (2,159) - 1,468 (1,830) 63 (38) 12,131
earnings
Total 49,731 (2,159) - 1,468 (1,830) 63 (38) 47,235
shareholders'
equity
4.6 Consolidated cash flow statement for the year ended 30 June 2005
#'000
Unaudited
Operating activities
Cash generated from operations 12,756
Interest paid (1,557)
Tax paid (2,673)
Net cash from operating activities 8,526
Investing activities
Proceeds on disposal of property, plant and equipment 196
Purchases of property, plant and equipment (2,662)
Purchase of subsidiary undertakings (1,521)
Cash balances acquired with subsidiaries 143
Net cash used in investing activities (3,844)
Financing activities
Proceeds on issue of shares 70
Equity dividends paid (2,423)
Repayments of borrowings (8,763)
Drawdown of loan facilities 7,873
Repayments of obligations under finance leases (2,832)
Net cash used in financing activities (6,075)
Net decrease in cash and cash equivalents (1,393)
Cash and cash equivalents at beginning of the year 4,501
Cash and cash equivalents at end of year 3,108
5 Explanation of Principal IFRS adjustments
5.1 Pensions
Principal difference
Under UK GAAP, the Group measures pension commitments and other related benefits
in accordance with SSAP 24 "Accounting for Pension Costs". Additional
disclosures are given in accordance with the transitional requirements of FRS 17
"Retirement Benefits". Under IFRS, the Group measures pension commitments and
other related benefits in accordance with IAS 19 "Employee Benefits". IAS 19 is
similar to FRS 17 in that it adopts a balance sheet approach, bringing the
deficit/surplus of the pension/post-retirement benefits schemes onto the balance
sheet.
However, FRS 17 dictates that all actuarial gains and losses are to be
recognised directly in reserves, whereas IAS 19 also includes an alternative
option allowing a corridor approach whereby actuarial gains and losses to be
held on the balance sheet and released to the income statement over a period of
time. WYG has elected not to adopt this alternative option and therefore will
be accounting for post-retirement benefits in a manner consistent with FRS 17.
As such WYG has chosen to adopt early the amendment to IAS 19 issued on 16
December 2004 by the IASB. The amendment has yet to be adopted by the EU but is
expected to be shortly.
Impact on income statement for the year ended 30 June 2005
The pension charge under IAS 19 for 2005 is #0.1 million higher than the charge
under SSAP 24.
Impact on net assets as at 1 July 2004
A post-retirement benefit liability of #3.1 million together with a related
deferred tax asset of #0.9 million has been recognised at the transition date,
there were no provisions or prepayments previously recognised under UK GAAP to
reverse. The net effect is a reduction in shareholders' funds of #2.2 million
on transition.
Impact on net assets as at 30 June 2005
Throughout the year all movements in the deficit on pension schemes are
recognised against the liability. At the end of the year, the liability on the
balance sheet reflects the closing deficit of the pension schemes. This has
been adjusted to reflect the actuarial loss net of tax for the year of #1.5
million which has been recognised directly in reserves.
5.2 Goodwill and impairments
Principal difference
Under UK GAAP, the Group amortises goodwill on a straight line basis over the
useful economic life of the acquired asset, up to a maximum of twenty years.
Provision is made when impairment is indicated by external business factors and
is considered against the value of all businesses acquired as part of each
single acquisition. This is in accordance with FRS 10 "Goodwill and Intangible
Assets". Under IFRS 3 "Business Combinations" annual amortisation is no longer
required, instead goodwill must be allocated to each income generating unit
acquired, and an annual impairment review must be performed for each discrete
unit in accordance with IAS 36 "Impairment of Assets".
The Group has performed this allocation and subsequent review and no impairment
has been noted.
Impact on income statement for the year ended 30 June 2005
Amortisation of goodwill is reduced from #1.9 million under UK GAAP to #nil
under IFRS.
Impact on net assets at 1 July 2004
No impact noted.
Impact on net assets at 30 June 2005
The closing balance sheet for 2005 is subject to an increase in the value of
non-current assets of #1.9 million.
5.3 Proposed dividends
Principal difference
Under UK GAAP, ordinary dividends are accounted for in the period to which they
relate even if the approval of that dividend takes place after the balance sheet
date. Under IFRS, proposed ordinary dividends do not meet the definition of a
liability until such time as they have been approved. In the case of a final
dividend this approval is by shareholders at the Annual General Meeting. The
approval of an interim dividend takes place at a meeting of the Board of
Directors.
Under IFRS, ordinary dividends are no longer disclosed on the face of the income
statement but shown as a movement in equity.
Impact on income statement for the year ended 30 June 2005
No charge is made for the final 2005 dividend in the 2005 income statement.
Instead, it is replaced by a direct charge to equity for the 2004 final dividend
of #1.5 million. The net impact is a #0.2 million increase in retained profit
in 2005 under IFRS.
No dividend payable is shown as part of the income statement but the dividends
declared in the year, the final 2004 and the interim 2005 dividend are shows as
a deduction from the retained earnings reserve.
Impact on net assets at 1 July 2004
The impact at 1 July 2004 is to derecognise the 2004 final dividend liability of
#1.5 million in the transitional balance sheet.
Impact on net assets at 30 June 2005
The dividend liability of #1.7 million is removed from the balance sheet.
5.4 Employee Benefits
Principal difference
There are no specific accounting standards in UK GAAP dealing with employee
benefits payable during employment. IAS 19 "Employee Benefits" requires
employers to recognise the total cost of all short term employee benefits
expected to be paid in exchange for employee's services in the accounting
period. This includes holiday pay (the WYG holiday year runs from 1 January to
31 December and does not therefore coincide with the 30 June statutory financial
year end) and all bonus entitlements, both of which have previously been
accounted for as incurred. This results in an additional accrual to be made by
the Group.
Impact on income statement for the year ended 30 June 2005
An additional operating expense of #0.4 million is recognised in the income
statement representing the increase in the holiday pay and bonus accrual between
1 July 2004 and 30 June 2005.
Impact on net assets at 1 July 2004
At 1 July 2004 an accrual for #1.8 million has been recognised representing the
excess of employees' six months holiday entitlement over holidays actually taken
and employee bonuses, including National Insurance, representing amounts paid
post year-end but relating to that financial year.
Impact on net assets at 30 June 2005
An accrual of #2.2 million is recognised in the balance sheet along with a
reduction in the tax liability of #0.1m.
5.5 Share based payments
Principal difference
Under UK GAAP the cost of awards to employees through the Long Term Incentive
Plan and the Investment Bonus Plan were charged to the income statement over the
period to which the employees' performance related. Historically provision has
been made for the cost of awards based on the share price ruling at grant date.
All of the Group's share options have an exercise price equivalent to the fair
value at the date of award, therefore there was no requirement to recognise any
expense under UK GAAP.
Under IFRS, all share awards will be measured at fair value at grant date and
recognised as an expense over the vesting period, subject to performance
criteria and vesting levels.
Impact on income statement for the year ended 30 June 2005
An additional operating expense of #0.1 million is recognised in the income
statement together with a reduction in the tax charge of #0.03 million.
Impact on net assets at 1 July 2004
At 1 July 2004 a deferred tax asset of #0.08 million has been created and an
accrual for employer's National Insurance payable on exercise of #0.02 million
has been recognised. The net impact is an increase in distributable reserves of
#0.06 million.
Impact on net assets at 30 June 2005
A deferred tax asset of #0.3 million and a liability for employers' National
Insurance of #0.1 million is recognised, leading to an increase in shareholders'
funds of #0.2 million.
5.6 Deferred tax
Principal difference
Under UK GAAP deferred tax is recognised on the basis of timing differences,
being the difference between accounting profit and taxable profit. IFRS
requires deferred tax to be based on temporary differences, being the difference
between the carrying value of an asset of liability and its tax base.
The main impacts of this are the recognition of a deferred tax asset on share
based payments where IFRS requires a deferred tax asset to be established based
on the potential future tax deduction available to the company estimated using
the information available at the balance sheet date. A deferred tax asset also
will be recognised in respect of the pension deficit and a deferred tax
liability based on the temporary difference between the carrying value of tax
deductable goodwill and its tax base.
Impact on income statement for the year ended 30 June 2005
The impact of the above factors results in a reduction in the tax charge of #0.1
million in the income statement.
Impact on net assets at 1 July 2004
The impacts in respect of the pension and share based payment adjustments are
noted above, the overall impact of IFRS is an increase in the deferred tax asset
by #1.0 million. A deferred tax liability of #0.05 million is separately
recognised in respect of tax deductable goodwill.
Impact on net assets at 30 June 2005
An additional deferred tax asset of #2.0 million is recognised primarily in
respect of the pension and share based payments IFRS adjustments. A deferred
tax liability of #0.1 million is separately recognised in respect of tax
deductable goodwill.
6 Other impacts
6.1 Cash flow
The Group's underlying cash position is unaffected by the transition to IFRS.
However, there are a number of presentational differences arising in the cash
flows reported under IAS 7 "Cash Flow Statements". The cash flows themselves
relate to movements in cash and cash equivalents (rather than simply cash) and
are classified under three headings (operating, investing and financing) which
results in the reordering of entries from their UK GAAP format.
6.2 Segmental Reporting
Under IAS 14 "Segment Reporting" additional reporting requirements are required
for the primary reporting segments and disclosure is also required for secondary
reporting segments. The Group has elected to treat business segments:
Engineering, Management Services and Planning & Environmental as the primary
reporting segments and geographical business segments: UK, Ireland and Europe as
the secondary reporting segments.
6.3 Reclassifications
Various reclassifications are required in order to comply with the disclosure
requirements of the IFRS and IAS. The most significant of these are:
6.3.1 Computer Software
Under UK GAAP, all capitalised software is included within tangible fixed assets
as plant and equipment. Under IFRS, only computer software that is integral to
a related item of hardware should be included as plant and equipment. All other
computer software should be recorded as an intangible asset.
Accordingly a reclassification of the net book value amount of capitalised
software of #0.8 million has been made in the transition balance sheet and #0.9
million in the balance sheet as at 30 June 2005 between property, plant and
equipment and intangible assets.
There is no impact on the income statement as a result of the reclassification
since, under both UK GAAP and IFRS, computer software is written down over its
estimated useful life.
6.3.2 Cumulative Translation Differences
IAS 21 "The Effects of Changes in Foreign Exchange Rates" requires that all
exchanges differences resulting from a translation of a foreign operation to the
presentational currency shall be recognised as a separate component of equity.
As a result at 30 June 2005 translation losses of #0.4 million are reclassified
from retained earnings to the cumulative translation reserve.
There is no impact on the transitional balance sheet as an exemption has been
taken to reset all cumulative translation differences to be reset to zero at the
transition date. Under UK GAAP these differences did not pass through the
income statement so there is no impact on the income statement.
6.3.3 Intangible Assets
During the year ended 30 June 2005 the Group acquired WynThomasGordonLewis
Limited and Robert Long Consultancy Limited. IFRS 3 "Business Combinations"
requires that for all business combinations completed after the date of
transition to IFRS, separately identified intangible assets should be valued and
are subject to amortisation.
As a result, #0.1m of amounts previously classified as goodwill under UK GAAP in
relation to acquired order books and contracts has been reclassified as an
intangible asset. This will be amortised over a 12 month period from the date
of acquisition which results in a #0.04m charge to the income statement in the
year-ended 30 June 2005.
7 Principal Accounting Policies Following
IFRS Implementation
The principal accounting policies that the Group anticipates adopting in its 30
June 2006 financial statements to be prepared under IFRS are detailed below.
The accounting policies assume that all existing standards in issue from the
IASB will be fully endorsed by the EU.
7.1 Basis of accounting
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs), International Financial Reporting
Interpretations Committee (IFRIC) interpretations and those parts of the
Companies Act 1985 that remain applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical cost basis with
the exception of certain items which are measured at fair value as disclosed in
the principal accounting policies set out below.
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
30 June each year. Control is achieved where the Company has the power to govern
the financial and operating policies of an investee entity so as to obtain
benefits from its activities.
Results of subsidiary undertakings acquired or sold during the year are
consolidated from or to the date on which control passes. The trading results of
companies acquired during the year are accounted for under the acquisition
method of accounting.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
7.2 Revenue recognition
Revenue represents the value of work earned during the year on contracts by
reference to total contract value and stage of completion.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised as an expense immediately.
Work in progress is stated at cost plus attributable profits less foreseeable
losses and progress payments received and receivable. Cost comprises direct
staff costs and attributable overheads. Attributable profit is that proportion
of the total profit currently estimated to arise over the duration of a
contract, as earned at the balance sheet date.
Third party payments represent costs incurred by the Group on behalf of clients
which are invoiced at no margin. Progress payments receivable in excess of the
value of work executed on individual contracts are included in creditors.
7.3 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 a subsidiary, associate or jointly controlled entity
at the date of acquisition. Goodwill is recognised as an asset and tested for
impairment at least annually and is carried at cost less accumulated impairment
losses. Any impairment is recognised immediately in profit or loss and is not
subsequently reversed.
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.
7.4 Other intangible assets
Intangible assets purchased separately, such as software licences that do not
form an integral part of related hardware, are capitalised at cost and amortised
over their useful economic life. Intangible assets acquired through a business
combination are initially measured at fair value and amortised over their useful
economic lives.
7.5 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
circumstance indicate that the carrying amount may not be recoverable. Assets
that are subject to amortisation are tested for impairment whenever events or
changes in circumstance 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 (cash-generating units).
7.6 Property, plant and equipment
Properties, plant and equipment are stated at cost less accumulated depreciation
and any recognised impairment loss. The cost of an item of property, plant and
equipment comprises its purchase price and any costs directly attributable to
bring the asset into use. Borrowing costs related to the purchase of fixed
assets are not capitalised.
Depreciation is charged so as to write off the cost or valuation of assets, over
their estimated useful lives, on the following bases:
Short leasehold improvements - equally over the life of the lease
Motor vehicles - 25% per annum on net book value
Office furniture and equipment - 20-33.3% per annum on original cost
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.
7.7 Leased assets
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.
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.
7.8 Tax
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 year. 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. The
Group's liability for current tax 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 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 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.
7.9 Foreign currency translation
Items included in 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 'functional currency'). The consolidated financial
statements are presented in pounds Sterling, which is the Company's functional
and presentation currency.
Transactions in currencies other than the functional currency 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. 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.
7.10 Investments in subsidiary undertakings
Investments in subsidiary undertakings are stated in the Company's balance sheet
at cost less any provision for impairment in value.
7.11 Employee Benefits
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due.
For defined benefit retirement benefit schemes, the cost of providing benefits
is determined using the Projected Unit Credit Method, with independent 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 compensated absences
A liability for short-term compensated absences, such as holiday, is recognised
for the amount the Group may be required to pay as a result of the unused
entitlement that has accumulated at the balance sheet date.
7.12 Deferred and contingent consideration
In respect of acquisitions for which part of the purchase consideration is
payable during future accounting periods, the full amount of the deferred
consideration is recognised immediately, except in respect of acquisitions for
which part of the purchase consideration is determined by the profits generated
by the acquired Company during future accounting periods. In such cases the
contingent consideration is included in the accounts based on the best estimates
of future profitability of the Company at this time. Estimates are revised as
further and more certain information becomes available. Goodwill and shares to
be issued are adjusted accordingly.
7.13 Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that is
subject to risks and returns that are different from those of segments operating
in other economic environments.
7.14 Share-based payments
The Group has applied the requirements of 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. There is no change in the treatment for equity instruments
granted before 7 November 2002.
The Group issues equity-settled 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 is measured by use of the Black-Scholes model. The expected life used
in the model has been adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions, and behavioural
considerations.
7.15 Financial instruments
Financial assets and financial 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.
A provision for impairment is established where 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 recognised in
the income statement.
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
accrual 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. The Group hedges its net investment in foreign
operations via a foreign currency bank loan. 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, which provide written principles on the use of financial
derivatives.
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
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.
7.16 Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a liability
in the Group's financial statements in the period in which the dividends are
approved by the Company's shareholders.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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