27th Nov 2007 07:02
Debt Free Direct Group PLC27 November 2007 DEBT FREE DIRECT GROUP PLC ("DFD" or "The Group") Announces International Financial Reporting Standards Debt Free Direct Group plc is presenting a summary of its accounts for the yearended 30 April 2007 and half year financial statements for the period ended 31October 2006, restated under International Financial Reporting Standards ('IFRS') as adopted by the European Union. The change in accounting basis arisesfrom legislation requiring all AIM listed companies to apply IFRS in theirfinancial statements. The disclosures include guidance as to the effect of IFRS on the Group'sreported results and balance sheets and comparative figures expected to be usedin the half year financial statements for the period to 31 October 2007 andfinancial statements for the period to 31 December 2007. Enquiries:Debt Free Direct Group Plc Andrew Redmond, CEO T: 0845 296 0100 Paul Latham, Finance Director T: 0845 296 0200 Numis Securities Lee Aston T: 020 7776 1500 Financial Dynamics Ed Gascoigne-Pees T: 020 7269 7132 Nick Henderson T: 020 7269 7114 Adoption of International Financial Reporting Standards ('IFRS') Summary of results presented under IFRS Introduction On 27 June 2007 DFD reported its financial results for the year ended 30 April2007, prepared for the last time under UK Generally Accepted Accounting Practice('UK GAAP'). Going forward the Group will prepare its consolidated financialstatements in accordance with IFRS as required for all AIM listed companies.DFD's first reported IFRS results will be for the six months to 31 October 2007and the Group's first audited financial statements under IFRS will be for theperiod to 31 December 2007. The impact on the reporting of our results is not significant and the underlyingperformance of the business and its cash flows remain unaffected. Dividendpolicy is unaffected. This announcement describes for investors the key impacts of the conversion fromUK GAAP to IFRS on the Group's results for the year to 30 April 2007 and the keyjudgements in making the transition to IFRS which are expected to form thecomparative figures for both the half year financial statements for the sixmonths to 31 October 2007 and those for the period to 31 December 2007. Key financial highlights The key financial highlights of adopting IFRS for the 30 April 2007 financialstatements are: UK GAAP Adjustment IFRS £000 £000 £000 Profit (loss) from operations 8,978 (980) 7,998Profit (loss) before tax 9,122 (980) 8,142Taxation (2,612) 294 (2,318)Retained (loss) profit 6,510 (686) 5,824Basic EPS (pence) 17.39 (1.82) 15.57Diluted EPS (pence) *116.69 (1.74) *114.95Goodwill 1,622 312 1,934Total equity 21,422 (1,531) 19,891 *1 Calculated after potential exercise of share options of 1,566,562 shares. The key financial highlights of adopting IFRS for the 31 October 2006 half yearfinancial statements are: UK GAAP Adjustment IFRS £000 £000 £000Profit (loss) from operations 5,314 (12) 5,302Profit (loss) before tax 5,415 (12) 5,403Taxation (1,631) 3 (1,628)Retained (loss) profit 3,784 (9) 3,775Basic EPS (pence) 10.12 (0.02) 10.10Diluted EPS (pence) *19.75 (0.02) *19.73Goodwill 1,777 156 1,933Total equity 19,671 (854) 18,817 The Group's date of transition to IFRS is 1 May 2006, being the start of theprevious period that will be presented as comparative information. This document sets out the changes in accounting policies arising from theadoption of IFRS and presents restated information for the opening balance sheetat 1 May 2006, the six months ended 31 October 2006 and the year ended 30 April2007 which were previously published under UK GAAP. *1 Calculated after potential exercise of share options of 1,428,936 shares. 1. Explanation of transition to IFRS The Group's financial statements for the period ending 31 December 2007 will bethe first audited financial statements that comply with IFRS. The Group willapply IFRS 1 in preparing the half year financial statements. The lastfinancial statements under UK GAAP were for the year ended 30 April 2007 and thedate of transition was therefore 1 May 2006. Presented below is thereconciliation of profit for the year ended 30 April 2007 and thereconciliations of equity at 1 May 2006, being the start of that period ("Transition Date") and at 30 April 2007 (date of last UK GAAP financialstatements) as required by IFRS 1. In addition, the reconciliation of equity at31 October 2006 and the reconciliation of profit for the six months ended 31October 2006 have been included below as required by IFRS 1 to enable acomparison of the 2006 half year figures with those published in thecorresponding period of the previous financial year. For explanations of thenature and effect of the changes in accounting policies as a consequence of thetransition to IFRS, refer to note 2 of this document. (i) Reconciliation of UK GAAP consolidated profit and lossaccount to IFRS income statement for the six months ended 31 October 2006 Six months ended 31 October 2006 Notes UK GAAP Effect of transition IFRS Unaudited Unaudited £000 to IFRS Unaudited £000 £000Revenue 12,978 - 12,978Cost of sales f (2,264) (100) (2,364)Gross profit 10,714 (100) 10,614Administrative expenses:Amortisation of goodwill and intangibles a, e (156) 127 (29)Other administrative expenses b, e (5,244) (39) (5,283)Total administrative expenses (5,400) 88 (5,312)Profit from operations 5,314 (12) 5,302Finance income 105 - 105Finance costs (4) - (4)Profit before taxation 5,415 (12) 5,403Taxation d (1,631) 3 (1,628)Profit after taxation 3,784 (9) 3,775 (ii) Reconciliations of UK GAAP consolidated profit and loss accountto IFRS income statement for the year ended 30 April 2007 Year ended 30 April 2007 Notes UK GAAP Effect of transition IFRS (unaudited) (unaudited) to IFRS (unaudited) £000 £000 £000Revenue 26,575 - 26,575Cost of sales f (6,041) (1,184) (7,225)Gross profit 20,534 (1,184) 19,350Administrative expenses:Amortisation of goodwill and intangibles a, e (312) 232 (80)Other administrative expenses b, e (11,244) (28) (11,272)Total administrative expenses (11,556) 204 (11,352)Profit from operations 8,978 (980) 7,998Finance income 166 - 166Finance costs (22) - (22)Profit before taxation 9,122 (980) 8,142Taxation d (2,612) 294 (2,318)Profit after taxation 6,510 (686) 5,824 (iii) Reconciliation of UK GAAP consolidated profit to IFRS consolidated profit Notes Six months ended Year ended 31 October 2006 30 April 2007 £000 £000 Profit after tax as reported under UK GAAP 3,784 6,510 Adjustments for:Cost of sales f (100) (1,184)Short-term employee benefits b (68) (108)Goodwill a 156 312Deferred tax d 3 294 Profit after tax as reported under IFRS 3,775 5,824 (iv) Reconciliations of consolidated balance sheet at 1 May 2006 from UK GAAPto IFRS Notes UK GAAP Effect of transition IFRS (unaudited) (audited) to IFRS (unaudited) £000 £000 £000ASSETSNon Current AssetsProperty, plant and equipment e 928 (192) 736Goodwill a 1,934 - 1,934Other intangible assets e 8 192 200Total Non Current Assets 2,870 - 3,870Current AssetsTrade receivables 8,152 - 8,152 Other current assets f 2,070 (285) 1,785Cash and cash equivalents 5,367 - 5,367Total Current Assets 15,589 (285) 15,304Total Assets 18,459 (285) 18,174 EQUITYShare capital 373 - 373Share premium account 13,577 - 13,577Other reserves - - -Retained earnings a,b,c,d,f 2,409 (845) 1,564Translation reserve c - - -Total equity attributable to equity 16,359 (845) 15,514holders of the parentLIABILITIESNon Current LiabilitiesLong-term borrowings 25 - 25Provisions 18 - 18Deferred tax liability d 21 (362) (341)Total Non Current Liabilities 64 (362) (298)Current LiabilitiesTrade and other payables b, f 1,715 922 2,637Current tax liabilities 321 - 321Short-term borrowings - - -Total Current Liabilities 2,036 922 2,958Total Liabilities 2,100 560 3,660Total Equity and Liabilities 18,459 (285) 18,174 (v) Reconciliation of consolidated balance sheet at 30 April 2007 from UKGAAP to IFRS Notes UK GAAP Effect of transition IFRS (unaudited) (unaudited) to IFRS (unaudited) £000 £000 £000ASSETSNon Current AssetsProperty, plant and equipment e 2,900 (747) 2,153Goodwill a 1,622 312 1,934Other intangible assets e 27 747 774Total Non Current Assets 4,549 312 4,861Current AssetsTrade receivables 13,896 - 13,896 Other current assets f 7,099 (1,469) 5,630Cash and cash equivalents 373 - 373Total Current Assets 21,368 (1,469) 19,899Total Assets 25,917 (1,157) 24,760 EQUITYShare capital 376 - 376Share premium account 13,777 - 13,777Other reserves 45 - 45Retained earnings a,b,c,d,f 7,224 (1,519) 5,705Translation reserve c - (12) (12)Total equity attributable to equity 21,422 (1,531) 19,891holders of the parentLIABILITIESNon Current LiabilitiesLong-term borrowings 972 - 972Deferred tax liability d 97 (656) (559)Total Non Current Liabilities 1,069 (656) 510Current LiabilitiesTrade and other payables b, f 1,997 1,030 3,027Current tax liabilities 700 - 700Short-term borrowings 729 - 729Total Current Liabilities 3,426 1,030 3,800Total Liabilities 4,495 374 4,869Total Equity and Liabilities 25,917 (1,157) 24,760 (vi) Reconciliation of consolidated balance sheet as at 31 October 2006 fromUK GAAP to IFRS Notes UK GAAP Effect of transition IFRS (unaudited) to IFRS (unaudited) (unaudited) £000 £000 £000ASSETSNon Current AssetsProperty, plant and equipment e 2,339 (380) 1,959Goodwill a 1,777 156 1,933Other intangible assets e 27 380 407Total Non Current Assets 4,143 156 4,299Current AssetsTrade receivables 9,344 - 9,344 Other current assets f 5,794 (385) 5,409Cash and cash equivalents 3,996 - 3,996Total Current Assets 19,134 (385) 18,749Total Assets 23,277 (229) 23,048 EQUITYShare capital 374 - 374Share premium account 13,644 - 13,644Other reserves 22 - 22Retained earnings a,b,c,d,f 5,631 (854) 4,777Translation reserve c - - -Total equity attributable to equity 19,671 (854) 18,817holders of the parentLIABILITIESNon Current LiabilitiesLong-term borrowings 11 - 11Deferred tax liability d 21 (365) (344)Total Non Current Liabilities 32 (365) (333)Current LiabilitiesTrade and other payables b,f 1,597 990 2,587Current tax liabilities 1,977 - 1,977Short-term borrowings - - -Total Current Liabilities 3,574 990 4,564Total Liabilities 3,606 625 4,231Total Equity and Liabilities 23,277 (229) 23,048 (vii) Reconciliation of consolidated equity from UK GAAP to IFRS Notes 1 May 2006 31 October 2006 30 April 2007 £000 £000 £000 Total equity as reported under UK GAAP 16,359 19,671 21,422 Adjustments for:Cost of sales f (1,001) (1,101) (2,185)Short-term employee benefits b (206) (274) (314)Goodwill a - 156 312Deferred tax d 362 365 656 Total equity as reported under IFRS 15,514 18,817 19,891 2. Explanation of adjustments to equity at 30 April 2007, 31 October 2006and 1 May 2006 and to profit for the year ended 30 April 2007 and for the sixmonths ended 31 October 2007 The transition to IFRS resulted in the following changes: a. Goodwill Goodwill is not amortised under IFRS but is measured at cost less impairmentlosses. Under UK GAAP, goodwill was amortised on a straight-line basis over thetime that the Group was estimated to benefit from it. The change does notaffect equity at 1 May 2006 because, as permitted by IFRS 1, goodwill arising onacquisitions before 1 May 2006 (date of transition to IFRS) has been frozen atthe UK GAAP amounts subject to being tested for impairment at that date, theresults of which assessment indicated no such impairment. The adjustmentsincrease profits for the six months to 31 October 2006 by £156,000 and for theyear to 30 April 2007 by £312,000 with corresponding increases in retainedearnings. b. Short-term employee benefits IAS 19 Employee benefits requires the expense of services rendered that increaseemployees' entitlement to future compensated absence (i.e. paid holiday) to berecognised in the period. Therefore, the cost of holidays earned but not takenat the balance sheet date has been accrued for. The adjustments decreaseprofits for the six months to 31 October 2006 by £68,000 and for the year to 30April 2007 by £108,000; retained earnings are reduced by £206,000 at 1 May 2006,£274,000 at 31 October 2006 and £314,000 at 30 April 2007. c. Other reserves The foreign exchange differences arising after that date on consolidation havebeen credited to the translation reserve within equity rather than to retainedearnings. The adjustments are £nil for the six months to 31 October 2006 and£12,000 for the year to 30 April 2007. d. Deferred tax Differences in timing between the recognition of accounting for tax chargesunder IAS and the deduction of amounts in the corporation tax computations nowcreate temporary differences resulting in deferred tax rather than permanentdifferences under UK GAAP on which no deferred tax balances were recognised. The reversal of goodwill amortisation has resulted in the creation of a deferredtax liability and the recognition of holiday pay accruals under IAS and therestatement of cost of sales has resulted in a deferred tax asset. IAS 12 applies to all share based payments and is not time restricted to thoseissued post 7 November 2002. Under IAS 12 the deferred tax recognised throughthe profit and loss account cannot exceed 30% of the share-based payment chargeon a cumulative basis; the balance is therefore adjusted to equity. The adjustments increase profits for the six months to 31 October 2006 by £3,000and for the year to 30 April 2007 by £294,000; retained earnings are increasedby £294,000 at 1 May 2006 , £365,000 at 31 October 2006 and £656,000 at 30 April2007. e. Capitalised software Under UK GAAP, the cost of capitalised software is classified within property,plant and equipment. Under IAS 38 these costs are classified as intangibleassets. The balance sheet impact of the reclassification is to increaseintangible assets and decrease property, plant and equipment by £192,000 at 1May 2006; £380,000 at 31 October 2006 and £747,000 at 30 April 2007. The UK GAAPdepreciation charge in respect of capitalised software is replaced with an equalamortisation charge under IAS 38 and consequently there is no net impact on theincome statement, however there has been a movement of £29,000 for the sixmonths to 31 October 2006 and £80,000 for the year to 30 April 2007 from otheradministrative expenses to amortisation. f. Cost of sales Under UK GAAP, marketing and related expenditures are permitted to be recognisedover the period in which separately identifiable revenue was generated. UnderIAS 18, marketing costs are recognised at the point that services are delivered.The adjustments decrease profits for the six months to 31 October 2006 by£100,000 and for the year to 30 April 2007 by £1,184,000. Retained earnings arereduced by £1,001,000 at 1 May 2006, which is split between an increase of£716,000 in trade and other payables and a decrease of £285,000 in other currentassets; £1,101,000 at 31 October 2006, which is split between an increase of£716,000 in trade and other payables and a decrease of £385,000 in other currentassets and £2,185,000 at 30 April 2007, which is split between an increase of£716,000 in trade and other payables and a decrease of £1,469,000 in othercurrent assets. g. Exemptions IFRS 1 First-time Adoption of International Financial Reporting Standards setsout the transition rules, which must be applied, when IFRS is adopted for thefirst time. The standard sets out certain mandatory exemptions to retrospectiveapplication and certain optional exemptions. The most significant optionalexemptions available and taken by the Group are as follows: (i) Business combinations: the Group has adopted the exemption under IFRS1 relating to business combinations which occurred before the date oftransition, 1 May 2006. The goodwill arising from combinations before that datetherefore remains at the amount shown under UK GAAP at 1 May 2006, subject toany subsequent impairment. (ii) Share-based transactions: The Group adopted the exemption in IFRS 1which allows a first-time adopter to apply the standard only to share optionsand equity instruments granted after 7 November 2002 that have not vested by 1May 2006. Basis of preparation The half year financial statements to be announced on 27 November 2007, will beprepared in accordance with the accounting policies the Group expects to adoptin its 31 December 2007 audited financial statements. These accounting policiesare based on the IAS, IFRS and IFRIC interpretations that the Group expects tobe applicable at that time. The IFRS and IFRIC interpretations that will beapplicable at 31 December 2007, including those that will be applicable on anoptional basis, are not known with certainty at the time of preparing the halfyear financial statements, although the International Accounting Standards Boardhas stated that it will not issue any further statements during 2007. The Group's consolidated financial statements were prepared in accordance withUK GAAP until 30 April 2007. The Group has applied those IAS, IFRS and IFRICinterpretations expected to be applicable in the 31 December 2007 auditedfinancial statements to the half year financial statements. Reconciliationsbetween previously reported financial statements prepared under UK GAAP and theIFRS equivalents are presented for profit for the year ended 30 April 2007andthe six months ended 31 October 2006 and total equity as at 30 April 2007, 31October 2006 and 1 May 2006 in note 2 of this document. IFRS 1 provides certain optional exemptions from full retrospective applicationof all accounting standards effective at the Group's reporting date. Asdiscussed in more detail in the relevant sections above, the Group has takenadvantage of the exemptions relating to: business combinations, cumulativetranslation differences and share-based payment transactions. The Group has nottaken advantage of the available optional exemption relating to fair valuemeasurement of financial assets and financial liabilities at initialrecognition. The comparatives for the full year ended 30 April 2007 are not the Group'sstatutory accounts for that year. A copy of the statutory accounts for thatyear, which were prepared under UK GAAP, have been delivered to the Registrar ofCompanies. The auditors' report on those accounts was unqualified, did notinclude references to any matters to which the auditors drew attention by way ofemphasis without qualifying their report and did not contain a statement underSection 237(2)-(3) of the Companies Act 1985. This document is unaudited. 3. Summary of significant accounting policies The significant accounting policies which the Group will be applying to its halfyear financial statements for the six months to 31 October 2007 and which itexpects to apply in its full financial statements for the period ending 31December 2007 are set out below. Principles of consolidation The consolidated half year financial statements incorporate the half yearfinancial statements of the Group and all group undertakings. Intra-grouptransactions, including sales, profits, receivables and payables, have beeneliminated on the Group consolidation. The subsidiary undertakings accounts areadjusted, where appropriate, to conform to Group accounting policies. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when theGroup has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.In assessing control, potential voting rights that presently are exercisable orconvertible are taken into account. The financial statements of subsidiariesare included from the date that control commences until the date that controlceases. Business combinations The results of subsidiaries acquired in the period are included in the incomestatement from the date they are acquired. On acquisition, all of thesubsidiaries' assets and liabilities that exist at the date of acquisition arerecorded at their fair values reflecting their condition at that date. Goodwill All business combinations are accounted for by applying the purchase method.Goodwill represents the excess of the fair value of the consideration paid onacquisition of a business over the fair value of the assets, including anyintangible assets identified, liabilities and contingent liabilities acquired.Goodwill is not amortised but is measured at cost less impairment losses. Indetermining the fair value of consideration, the fair value of equity issued isthe market value of equity at the date of completion, and the fair value ofcontingent consideration is based upon the extent to which the directors believeperformance conditions will be met and thus whether any further considerationwill be payable. As permitted by IFRS 1, goodwill arising on acquisitions before 1 May 2006 (dateof transition to IFRS) has been frozen at the UK GAAP amounts subject to beingtested for impairment at that date. Goodwill is tested for impairment at leastannually. The Group performs its impairment reviews at the cash-generating unitlevel. Any impairment is recognised immediately in the income statement and isnot subsequently reversed. On disposal of a subsidiary, the attributable net book value of goodwill isincluded in the determination of the profit or loss on disposal. Amortisation Amortisation is charged to the income statement on a systematic basis over theestimated useful lives of intangible assets unless such lives are indefinite.Goodwill and intangible assets with an indefinite life are systematically testedfor impairment at each balance sheet date. Other intangible assets areamortised from the date they are available for use. The useful lives fortrademarks are estimated to be ten years and capitalised software estimated tobe four years. Impairment charges The Group considers at each reporting date whether there is any indication thatnon-current assets are impaired. If there is such an indication, the Groupcarries out an impairment test by measuring an asset's recoverable amount, whichis the higher of its fair value less costs to sell and its value in use(effectively the expected cash to be generated from using the asset in thebusiness). The estimated future cash flows are discounted to their present valueusing a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset for which the estimatesof future cash flows have not been adjusted. If the recoverable amount is lessthan the carrying amount an impairment loss is recognised, and the asset iswritten down to its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately. Turnover The turnover shown in the Group profit and loss account represents amounts inrespect of the provision of financial solutions to individuals experiencingpersonal debt problems. Turnover is largely derived from IVA fees which resultfrom individual voluntary arrangements (IVA's). These fees are recognised asfollows: IVA fees: Fees are recognised following approval at the Meeting of Creditors. Turnover isrecorded to recognise revenue during the life of the IVA, based upon the fairvalue of the service provided rather than on invoicing. Fair value for thispurpose is based upon that proportion of the anticipated revenue on a case whichis represented by the value of work done to date as a function of the totalvalue of anticipated work. The Group also receives commission income from the referral of both Scottish andself employed IVAs and customers who wish to remortgage their property. Theincome is recognised as follows: IVA commission: IVA referral income is recorded at the date at which the IVA isapproved at the Meeting of Creditors. Remortgaging commission: Remortgage commission is recorded at the date on whichapproval is obtained. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. The Groupconsiders all highly liquid investments with original maturity dates of threemonths or less to be cash equivalents. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management system areincluded as a component of cash and cash equivalents for the purpose of thestatement of cash flows. Tangible fixed assets The cost of items of property, plant and equipment is its purchase cost,together with any incidental costs of acquisition. Depreciation is calculated so as to write off, on a reducing balance basis overthe expected useful economic lives of the asset concerned, the cost of property,plant and equipment, less estimated residual values, which are adjusted, ifappropriate, at each balance sheet date. The principal economic lives used forthis purpose are: • Fixtures and fittings Four years • Computer equipment Four years Provision is made against the carrying value of items of property, plant andequipment where impairment in value is deemed to have occurred. Leased assets Leases in terms of which the Group assumes substantially all the risks andrewards of ownership are classified as finance leases. Assets held underfinance leases and hire purchase contracts are capitalised in the balance sheetand disclosed under tangible fixed assets at their fair value. The capitalelement of the future payments is treated as a liability and the interest ischarged to the Group profit and loss account on a straight line basis. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight-line basis over the leaseterm. Foreign currency translation Transactions in foreign currencies are recorded at the rate of exchange at thedate of the transaction or, if hedged, at the forward contract rate. Monetaryassets and liabilities denominated in foreign currencies at the balance sheetdate are reported at the rates of exchange prevailing at that date or, ifappropriate, at the forward contract rate. The results of overseas operations are translated at the average rates ofexchange during the year and the balance sheet is translated into sterling atthe rate of exchange ruling at the balance sheet date. Exchange differenceswhich arise from the translation of the opening net assets and results offoreign subsidiary undertakings are taken to equity. Such translationdifferences are recognised as income or as expenses in the period in which theoperation is disposed of. Financial instruments Financial assets and financial liabilities are recognised at fair value on theGroup's balance sheet when the Group becomes a party to the contractualprovisions of the instrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges are accounted for on an accrual basis to the income statementusing the effective interest method and are added to the carrying amount of theinstrument to the extent that they are not settled in the period in which theyarise. Trade payables Trade payables are not interest bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the Group are recorded at the proceeds received,net of direct issue costs. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, except where the Group isable to control the reversal of the temporary difference and it is probable thatthe temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Pension contributions Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. The Group has nodefined benefit arrangements in place. Investment income Investment income relates to interest income, which is accrued on a time basis,by reference to the principal outstanding and at the effective interest rateapplicable. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.Provisions are measured at the Directors' best estimate of the expenditurerequired to settle the obligation at the balance sheet date, and are discountedto present value where the effect is material. Provisions are reviewed on a regular basis and released to profit and lossaccount where changes in circumstances indicate that a provision is no longerrequired. Profit from operations Profit from operations is stated after charging all operating costs includingthose separately disclosed by virtue of their size or unusual nature or tofacilitate a more helpful understanding of the group's results. It is statedbefore investment income and finance costs. Key sources of estimation uncertainty The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The keysources of estimation that have a significant impact on the carrying value ofassets and liabilities are discussed below: Valuation of intangibles acquired in business combinations Determining the fair value of intangibles acquired in business combinationsrequires estimation of the value of the cashflows related to the identifiedintangibles and a suitable discount rate in order to calculate the presentvalue. Impairment of goodwill and other intangibles Determining whether goodwill is impaired requires an estimation of the value inuse of the cash generating units to which goodwill has been allocated. Thevalue in use calculation requires an entity to estimate the future cash flowsexpected to arise from the cash generating unit and a suitable discount rate inorder to calculate present value. An impairment review has been performed atthe adoption date and no impairment has been identified. 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