12th Oct 2005 07:00
Watermark Group PLC12 October 2005 Embargoed until: 7.00, 12 October 2005 Watermark Group plc Restatement of financial information under International Financial Reporting Standards ("IFRS") Contents Page1. General information 2 2. Primary statements in accordance with IFRS i. Consolidated income statement for the year ended 31 December 2004 3 ii. Consolidated balance sheet as at 31 December 2004 4 iii. Consolidated balance sheet as at 1 January 2004 (date of transition) 4 iv. Consolidated cash flow statement for the year ended 31 December 2004 5 v. Consolidated statement of changes in equity 6 3. Adjusted earnings and earnings per share 7 4. First time adoption of International Financial Reporting Standards i. Description of main changes to accounting policies 8 ii. Reconciliation of profit for 2004 from UK GAAP to IFRS 11 iii. Reconciliation of balance sheet and equity as at 1 January 2004 from UK GAAP to IFRS 12 iv. Reconciliation of balance sheet and equity as at 31 December 2004 from UK GAAP to IFRS 13 5. Summary of significant accounting policies 14 Section 1 - General information Watermark Group plc (the "company") is a public limited company incorporated inthe United Kingdom under the Companies Act 1985. In these financial statements,the term "group" means the company and all of its subsidiaries and associatedundertakings. The group has prepared its primary financial statements under UK GenerallyAccepted Accounting Practice ("UK GAAP"). From 2005 the group is required toprepare its consolidated financial statements in accordance with InternationalAccounting Standards ("IAS") and International Financial Reporting Standards("IFRS") as adopted by the European Union ("EU"). References to IFRS throughoutthis document refer to the application of both International AccountingStandards and International Financial Reporting Standards. The first annual report prepared and presented under IFRS will be for 2005. This document explains how the group's reported performance and financialposition are affected by this change. Presentation of Financial Information The group financial statements have been prepared in accordance with IFRS andare presented in UK sterling. This restatement document has been prepared on the basis that all IFRSs,International Financial Reporting Interpretation Committee ("IFRIC"), andcurrent IASB exposure drafts will be issued as final standards and adopted bythe European Commission. The failure of the European Commission to adopt all ofthese standards in time for financial reporting in 2005, or the issue of furtherinterpretations by IFRIC in advance of the reporting date, could result in theneed to change the basis of accounting or presentation of certain financialinformation from that presented in this document. As permitted under IFRS 1, and explained within section 4, first time adoptionof IFRS, the directors have elected not to restate comparative information forthe Financial Instrument Standards IAS 32 and IAS 39. For the interim report arestatement of the opening balance sheet at 1 January 2005 will be provided toalign the group's 2005 opening position under IAS 32 and IAS 39. The UK GAAP financial information contained in this document does not constitutestatutory accounts as defined in section 240 Companies Act 1985. The auditorshave issued unqualified opinions on the group's UK GAAP financial statements forthe years ended 31 December 2003 and 31 December 2004 and these accounts havebeen delivered to the Registrar of Companies. Section 2 - Presentation of the primary financial statements under IFRS Unaudited consolidated income statementfor the year to 31 December 2004 12 months to 31 December 2004 £'000 Revenue 73,706 Cost of sales (48,281) --------Gross profit 25,425 Operating & administrative expenses(excluding exceptional costs) (18,445)Exceptional bad debt (591)Exceptional start-up costs (302)Exceptional re-organisation costs (1,436)Movement in fair value of investments (89)Profit on sale of investments 676 --------Total operating & administrative expenses (20,187) Operating profit Note A 5,238 Finance costs (504)Finance income 64Share of losses from associate (1) -------- Profit before tax attributable to equity share owners 4,797 Taxation (1,680) --------Profit after tax 3,117 ======== Earnings per share (pence) Basic 8.39p ======== Diluted 7.65p ======== Note A: Reconciliation of operating profit to EBITD Operating profit 5,238 Depreciation 514 -------- EBITD 5,752 ======== EBITD refers to earnings beforeinterest, taxation and depreciation. Unaudited consolidated balance sheetas at 31 December 2004 and 1 January 2004 (date of transition to IFRS) 31 December 1 January 2004 2004 £'000 £'000 ASSETSNon-current assetsProperty, plant and equipment 10,173 1,591Goodwill 30,075 30,202Intangible assets 249 -Investment in associates accounted for using the equity method 40 -Available-for-sale financial assets 31 96Assets held at fair value through income statement 145 234Trade and other receivables 112 - -------------------- 40,825 32,123 Current assetsInventories 3,919 3,180Trade and other receivables 15,173 13,558Prepayments 4,269 3,633Cash and short-term deposits 1,622 6,939 -------------------- 24,983 27,310 --------------------TOTAL ASSETS 65,808 59,433 ==================== EQUITY AND LIABILITIESEquity attributable to equity share ownersof the parentIssued share capital 404 249Share premium account 22,803 599Shares to be issued 6,496 8,172Capital redemption reserve 24 24Merger reserve (527) (527)Foreign currency translation reserve (273) -Retained earnings 9,607 7,057 --------------------Total equity 38,534 15,574 Non-current liabilitiesInterest bearing loans and borrowings 1,314 1,528Other payables due after more than one year 3,298 4,250Deferred income tax liabilities 480 11 -------------------- 5,092 5,789 Current liabilitiesTrade and other payables 13,937 11,989Interest bearing loans and borrowings 6,082 5,985Other payables due within one year 1,063 18,160Income tax 1,100 1,936 -------------------- 22,182 38,070 --------------------TOTAL LIABILITIES 27,274 43,859 -------------------- --------------------TOTAL EQUITY AND LIABILITIES 65,808 59,433 ==================== Unaudited consolidated cash flow statement for the 12 months to 31 December 2004 12 months to 31 December 2004 £'000 Net cash inflow/(outflow) from operatingactivitiesProfit before tax 4,797Depreciation and amortisation 838Profit on sale of investment (676)Share based payment expense 151Finance income (64)Finance cost 504Movement in fair value of investment 89Share of loss of associate 1Increase in inventories (857)Increase in trade and other receivables (2,660)Increase in trade payables and provisions 3,416 --------Cash inflows generated from operations 5,539Interest received 64Interest paid (504)Income taxes paid (2,047) --------Net cash inflow from operating activities 3,052 ======== Cash flows from investing activitiesProceeds from sale of available-for-sale asset 761Purchase of property, plant and equipment (7,439)Purchase of available-for-sale financial assets (70)Purchase of intangible assets (249)Acquisition of associate, net of cash acquired (41)Acquisition of subsidiary, net of cash acquired (19,308) --------Net cash flows used in investing activities (26,346) ======== Cash flows from financing activitiesProceeds from issue of shares 20,830Payment of hire purchase and finance lease obligations (102)Repayment of borrowings (2,979)Dividends paid to equity share owners (719) --------Net cash flows from financing activities 17,030 -------- Net decrease in cash and cash equivalents (6,264)Net foreign exchange difference (81)Cash and cash equivalents at 1 January 2004 2,438 --------Cash and cash equivalents at 31 December 2004 (3,907) ======== Consolidated statement of changes in equityas at 1 January 2004 (date of transition) and for the year ended 31 December2004 (restated) Foreign Capital Issued Share Shares to Retained currency Merger redemption Total capital premium be issued earnings reserve reserve reserve Equity £,000 £'000 £'000 £,000 £'000 £'000 £'000 £'000 At 1 January 2004As previously stated under UK GAAP 249 599 8,172 7,084 - (527) 24 15,601 Effects ofadopting IAS/IFRSEffect of adopting IFRS 2 - - - (4) - - - (4) Cost of share based payments - - - 4 - - - 4 Deferred tax on share based payments - - - 37 - - - 37Foreign exchangecost onretranslatingmonetary assets,liabilities andoverseas net investments from aforward contractedrate to a closingrate - - - (739) - - - (739) Equity dividends - - - 675 - - - 675 ------------------------------------------------------------------------------- At 1 January 2004 (restated) 249 599 8,172 7,057 - (527) 24 15,574 Currency translation differences - - - - (273) - - (273) Profit for the year - - - 3,117 - - - 3,117Issue of share capital 144 21,438 (1,676) - - - - 19,906Exercise of share options 11 766 - - - - - 777Cost of share based payments - - - 151 - - - 151Deferred tax on share based payments - - - 1 - - - 1Equity dividends - - - (719) - - - (719) -------------------------------------------------------------------------------At 31 December 2004 (restated) 404 22,803 6,496 9,607 (273) (527) 24 38,534 =============================================================================== Section 3 - Presentation of earnings per share The adjustment to the accounting policies required under IFRS has led toearnings per share ("EPS") being restated for the year ended 2004. As well as earnings being adjusted to reflect earnings on an IFRS basis, arevision to the calculation of the dilution effect of share options has alsoimpacted the EPS figures. Contingent deferred share consideration relating to past acquisitions iscalculated within the EPS figures. Earnings Weighted average Total earnings per 12 months to shares share December 12 months to 12 months to 2004 December 2004 December 200412 months to December 2004 £'000 number penceBasic earnings per share 3,117 37,134,205 8.39Effect of dilutive securities - Share options - 1,152,929 (0.24)- Contingent shares to be issued - 2,469,190 (0.50) ---------------------------------------------------------Diluted earnings per share 3,117 40,756,324 7.65 ========================================================= Contingent deferred shares that form part of the sale and purchase agreementsfor company acquisitions are included within the calculation of diluted earningsper share only once relevant performance targets have been achieved. Excludedfrom the diluted earnings per share calculations were 2,707,494 contingentdeferred shares where future performance targets had not yet been achieved atthe reporting date. Section 4 - First time adoption of International Financial Reporting Standards From 1 January 2005, the group will adopt International Financial ReportingStandards ('IFRS') for the first time. Previously the group had reported underUK Generally Accepted Accounting Practice ('UK GAAP'). The group has applied IFRS 1 'First Time Adoption of International FinancialStandards' to provide a starting point for reporting under IFRS. The group'sdate of transition is 1 January 2004 and all comparative information in thefinancial statements is restated to reflect the group's adoptions of IFRS,except where otherwise required or permitted under IFRS 1. IFRS 1 requires an entity to comply with each IFRS effective at the reportingdate for its first financial statements. As a general principle, IFRS 1 requiresthe standards effective at the reporting date to be applied retrospectively.However, retrospective application is prohibited in some areas, particularlywhere retrospective application would require judgements by management aboutpast conditions after the outcome of the particular transaction is alreadyknown. A number of optional exemptions from full retrospective application ofIFRSs are granted where the cost of compliance is deemed to exceed the benefitsto the users of the financial statements. Where applicable, the options selectedby the directors are set out in the explanatory notes below. The adoption of IFRS has resulted in the following changes to the group'saccounting policies: (a) IFRS 2 'Share -Based Payment' IFRS 2 'Share Based Payments' requires an expense to be recognised where thegroup buys goods or services in exchange for shares or rights over shares('equity-settled transactions'), or in exchange for other assets equivalent invalue to a given number of shares or rights over shares ('cash-settledtransactions'). The main impact of IFRS 2 on the group is the expensing ofemployees' and directors' share options and other share-based incentives byusing an option pricing model. IFRS is mandatory for accounting periods beginning 1 January 2005. The group hastaken advantage of the transitional provisions of IFRS 2 in respect ofequity-settled awards and has applied IFRS 2 only to equity-settled awardsgranted after 7 November 2002 that had not vested on or before 31 December 2003. The effect of the revised policy has decreased consolidated current year profitsby £151,000 and reduced opening share owners' funds as at 1 January 2004 by £4,000. (b) IFRS 3 'Business Combinations' The group has not acquired or disposed of any subsidiary undertakings since thedate of transition to International Financial Reporting Standards. The group hastaken advantage of the transitional provisions of IFRS 1 and has not restatedbusiness combinations acquired prior to the date of transition. This means thatthe fair value of assets and liabilities acquired remain at the level reportedin the financial statements ended 31 December 2003. Goodwill will only beadjusted for subsequent amendments to the fair value of the deferred contingentpurchase consideration based on future best estimates of the probable amountsthat will become due for payment. IFRS 3 does not permit goodwill acquired in a business combination to beamortised and instead any goodwill is subject to annual impairment reviews.Under UK GAAP, goodwill arising on acquisitions was amortised through the profitand loss account over a period of 20 years. On transition to InternationalFinancial Reporting Standards, goodwill previously written off to the profit andloss account before the date of transition is not restated. However, thegoodwill charge reflected in the financial statements ended 31 December 2004 hasbeen reversed in the comparative figures increasing net profits for the 2004year by £1,541,000 and net assets by the same amount. (c) IAS 32 'Financial Instruments: Disclosure & Presentation' and IAS 39'Financial Instruments: Recognition & Measurement' Under IFRS 1, the group is not required to present comparative information whichcomplies with IAS 32 and IAS 39. The group will present the 2004 comparativefigures under UK GAAP accounting policy as follows: The group uses forward foreign currency contracts to reduce exposure to foreignexchange risk movements. The instrument must be related to specific foreigncurrency assets or liabilities or to a probable commitment reflected in the sameor similar currencies. Forward foreign currency contracts are not recognised within the financialstatements other than to translate the foreign currency monetary balances whichare covered by the financial instrument, using the forward exchange rate, whereappropriate. Gains and losses arising on these contracts are only recognised inthe profit and loss account when the underlying transaction covered by thefinancial instrument has itself been reflected in the group's accounts, or uponmaturity of the instrument. The group does not hold or issue derivative financial instruments forspeculative purposes. IAS 32 'Financial Instruments: Disclosure & Presentation' and IAS 39 'FinancialInstruments: Recognition & Measurement' require the simultaneous adoption ofboth standards. The differences between IFRS and UK GAAP which are relevant to the group are thepresentational rules on the offsetting of cash and borrowings, the requirementto recognise all derivatives on the balance sheet and the detailed requirementsthat have to be met to qualify for hedge accounting. Under IFRS and UK GAAP an enforceable right of setoff is required to offset cashand borrowings. However, under IFRS there must also be an intention to settlethese balances net. This means that the gross cash and borrowing positionsincluded in the IFRS financial statements are different to those shown under UKGAAP. The group's hedging strategy is unchanged in respect to both the hedging of thenet investment position of foreign subsidiaries and covering the transactionalrisk of foreign currency purchases and sales. However, the stricter designation,documentation requirements and effectiveness testing needed to qualify for hedgeaccounting under IFRS means that transactions undertaken as hedges under UK GAAPmay not qualify for the same treatment under IFRS. As far as possible the grouphas structured its ongoing hedging activities to comply with the requirements ofIFRS. However, the timing of clarification on the IFRS rules has meant that ithas not been possible to ensure that the hedges taken out in accordance with UKGAAP in 2003 and 2004 are compliant with the hedge accounting requirements ofIFRS. The group's derivative financial instruments are required to be recognised onthe balance sheet at their fair value with changes to fair value from one periodto the next being shown within the income statement to the extent that hedgeaccounting criteria have not been met. Where the group has successfully entered into a cash-flow hedge, changes to thefair value of the derivative will be reflected through reserves and will berecognised as a realised gain or loss through the income statement at the sametime as the hedged transaction is recognised within the income statement. Where the group has successfully entered into a fair-value hedge, changes to thefair value of the derivative will be reflected as a gain or loss through theincome statement. The group does not hold or issue derivative financial instruments purely forspeculative purposes. (d) IAS 21 'The Effects of Changes in Foreign Exchange Rates' IAS 21 requires all foreign currency monetary assets and liabilities held at theyear end date to be translated using the closing exchange rate at the year enddate. Previously, under UK GAAP, the group translated foreign currency monetaryassets and liabilities at the contracted forward exchange rate. Additionally, under IAS 21, the net assets of overseas subsidiaries are requiredto be translated by using the closing rate net investment method. The cumulativeexchange rate gains and losses arising on retranslation of overseas subsidiariesare held within a separate component of equity and are released through theincome statement on disposal of the subsidiary. Under UK GAAP the group had translated overseas subsidiaries by applying thecontracted forward exchange rate where applicable. Additionally, there was norequirement to separately disclose the cumulative exchange gains and losseswithin a separate component of equity. On adopting IAS 21, the group has retranslated all foreign currency monetaryassets and liabilities and the net investment in overseas entities at theclosing exchange rate. Cumulative exchange gains and losses arising on the retranslation of overseassubsidiaries are recorded within a separate component of equity since the dateof transition to IFRS. The group has taken the exemption provided by IFRS 1 notto separately disclose cumulative exchange gains and losses arising prior to thedate of transition to IFRS. (e) IAS 28 'Investments in Associates' Under IAS 28, the group is required to equity account for associatedundertakings where the group is able to exert significant influence. Thedefinition of significant influence is stricter under IAS 28 compared to UKGAAP. Under IAS 28, significant influence is present where the group has the'power to participate in the financial and operating policy decisions of theinvestee'. UK GAAP required the group to be actively participating in thefinancial and operating policies decisions. On adopting IAS 28, the group's investment in Aero TV Limited, an unlistedcompany, will be accounted for as an associate. Under UK GAAP, Aero TV Limitedhas been accounted for as a trade investment. (f) Trade investments Under UK GAAP trade investments are stated at cost less provision for anypermanent diminution in value. Under IFRS, after initial recognition at cost,trade investments are revalued to fair value at each balance sheet date. Under IFRS 1 investments have been designated as available for sale with theexception of the investment in FlightStore Group plc which has been designatedas a financial asset at fair value through the income statement. Trade investments fall within the scope of IAS 32 and IAS 39 for which the groupis not required to present comparative information which complies with thesestandards. The values for 2004 continue to be recorded at cost or market valuefor quoted equity investments. (g) IAS 12 'Income Taxes' Under UK GAAP deferred tax is recognised in respect of all timing differencesthat have originated but not reversed at the balance sheet date wheretransactions or events have occurred at that date that will result in anobligation to pay more, or a right to pay less or to receive more tax. Under IFRS, the change to a balance sheet liability method gives rise to a GAAPdifference on un-remitted overseas earnings to the extent that the directors areexpected to remit these earnings back to the United Kingdom. Additionally, a deferred tax asset is recognised in respect to the anticipatedfuture tax allowance due on the exercise of existing share options. The deferredtax impact is recognised through the income statement up to the cumulative IFRS2 share option charge that has also been recognised through the income statementat the effective tax rate. Any deferred tax impact in excess of this amount isrecognised directly within equity. (h) Dividend accrual Under UK GAAP the group accrued for the final dividend when proposed. Under IFRSthe dividend is only recognised at the point it is declared and approved by theshare owners. Section 4 - First time adoption of International Financial Reporting Standards As Consolidated reported Share Foreign income under UK Goodwill based currency Associated Deferred statement on GAAP amortisation payments transactions undertaking taxation Reclassify adopting IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Revenue 77,581 - - (3,875) - - - 73,706 Cost of sales (51,962) - - 3,681 - - - (48,281) ----------------------------------------------------------------------------------------------------Gross profit 25,619 - - (194) - - - 25,425 Operating &administrativeexpenses (19,601) 1,541 (151) (234) - - - (18,445)Exceptionalbad debt (591) - - - - - - (591)Exceptional start-up costs (302) - - - - - - (302)Exceptional re-organisation cost - - - - - - (1,436) (1,436)Movement in fair value of investments - - - - - - (89) (89)Profit on sale of investments - - - - - - 676 676 ----------------------------------------------------------------------------------------------------Operatingprofit 5,125 1,541 (151) (428) - - (849) 5,238 Finance costs (505) - - 1 - - - (504)Finance income 64 - - - - - - 64Exceptional re-organisation cost (1,436) - - - - - 1,436 -Share of losses from associates - - - - (1) - - (1)Amount written off investments (89) - - - - - 89 -Profit on saleof investments 676 - - - - - (676) - ----------------------------------------------------------------------------------------------------Profit before tax 3,835 1,541 (151) (427) (1) - - 4,797 Taxation (1,713) - - 28 - 5 - (1,680) ----------------------------------------------------------------------------------------------------Profit aftertax 2,122 1,541 (151) (399) (1) 5 - 3,117 ==================================================================================================== Earnings per share (pence) Basic 5.78p 8.39p ===== ===== Diluted 5.60p 7.65p ===== ===== Reconciliation of operating profit to EBITDA under UK GAAP and operating profit to EBITD under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Operating profit 5,125 1,541 (151) (428) - - (849) 5,238 - Depreciation 514 - - - - - - 514- Amortisation 1,541 (1,541) - - - - - -- Exceptional reorganisationcost (1,436) - - - - - 1,436 -- Profit onsale ofinvestments 676 - - - - - (676) -- Amounts writtenoff investments (89) - - - - - 89 - ----------------------------------------------------------------------------------------------------EBITDA / EBITD 6,331 - (151) (428) - - - 5,752 ==================================================================================================== Consolidated income statement for year ended 31 December 2004 Reconciliation of balance sheet and equity as at 1 January 2004 from UK GAAP to IFRS As Foreign reported Goodwill currency Associate under UK amortisation Reclassification translation undertaking Dividend Deferred GAAP taxation IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 1,606 - - (15) - - - 1,591 Goodwill 30,202 - - - - - - 30,202Available-for-salefinancial assets(UK GAAP Tradeinvestment) 330 - (234) - - - - 96Financial assets at fair valuethrough incomestatement - - 234 - - - - 234 ---------------------------------------------------------------------------------------------------- 32,138 - - (15) - - - 32,123 Current assetsInventories 3,381 - - (201) - - - 3,180Trade and otherreceivables 14,473 - - (915) - - - 13,558Prepayments 3,684 - - (51) - - - 3,633Cash and short-termdeposits 7,102 - - (163) - - - 6,939 ---------------------------------------------------------------------------------------------------- 28,640 - - (1,330) - - - 27,310 ----------------------------------------------------------------------------------------------------TOTAL ASSETS 60,778 - - (1,345) - - - 59,433 ==================================================================================================== EQUITY ANDLIABILITIES Equityattributable toequity shareowners of theparentIssued share capital 249 - - - - - - 249 Share premium account 599 - - - - - - 599 Shares to be issued 8,172 - - - - - - 8,172 Capital redemptionreserve 24 - - - - - - 24 Merger reserve (527) - - - - - - (527) Retained earnings 7,084 - - (739) - 675 37 7,057 ----------------------------------------------------------------------------------------------------Total equity 15,601 - - (739) - 675 37 15,574 Non-currentliabilitiesInterest bearing loans and borrowings 1,528 - - - - - - 1,528 Other payables due after more thanone year 4,250 - - - - - - 4,250Deferred income tax liabilities 48 - - - - - (37) 11 ---------------------------------------------------------------------------------------------------- 5,826 - - - - - (37) 5,789 Currentliabilities Trade and other payables 12,559 - - (570) - - - 11,989Interest bearing loans and borrowings 6,012 - - (27) - - - 5,985Other payables due within one year 18,160 - - - - - - 18,160Income tax 1,945 - - (9) - - - 1,936Provisions - due within one year 675 - - - - (675) - - ---------------------------------------------------------------------------------------------------- 39,351 - - (606) - (675) - 38,070 ----------------------------------------------------------------------------------------------------TOTAL LIABILITIES 45,177 - - (606) - (675) (37) 43,859 ---------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------TOTAL EQUITY AND LIABILITIES 60,778 - - (1,345) - - - 59,433 ==================================================================================================== Reconciliation of balance sheet and equity as at 31 December 2004 from UK GAAP to IFRS As reported Foreign under UK Goodwill currency Associate Deferred GAAP amortisation Reclassification translation undertaking Dividend taxation FRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,433 - (249) (11) - - - 10,173Goodwill 28,534 1,541 - - - - - 30,075Intangible assets - - 249 - - - - 249Investment inassociates - - - - 40 - - 40Available-for-sale financial assets(UK GAAP Tradeinvestment) 217 - (145) - (41) - - 31 Financial assets at fair value through incomestatement - - 145 - - - - 145Non-current receivables - - 112 - - - - 112 ---------------------------------------------------------------------------------------------------- 39,184 1,541 112 (11) (1) - - 40,825 Current assetsInventories 4,096 - - (177) - - - 3,919Trade and other receivables 16,311 - (112) (1,026) - - - 15,173Prepayments 4,300 - - (31) - - - 4,269Cash and short-term deposits 1,823 - - (201) - - - 1,622 ---------------------------------------------------------------------------------------------------- 26,530 - (112) (1,435) - - - 24,983 ----------------------------------------------------------------------------------------------------TOTAL ASSETS 65,714 1,541 - (1,446) (1) - - 65,808 ==================================================================================================== EQUITY ANDLIABILITIES Equityattributable toequity shareowners of theparentIssued share capital 404 - - - - - - 404 Share premium account 22,803 - - - - - - 22,803Shares to be issued 6,496 - - - - - - 6,496Capital redemption reserve 24 - - - - - - 24Merger reserve (527) - - - - - - (527)Foreign currency reserve - - - (273) - - - (273)Retained earnings 8,381 1,541 - (1,198) (1) 841 43 9,607 ----------------------------------------------------------------------------------------------------Total equity 37,581 1,541 - (1,471) (1) 841 43 38,534 Non-currentliabilitiesInterest bearing loans and borrowings 1,314 - - - - - - 1,314Other payables due after more than one year 3,298 - - - - - - 3,298Deferred income tax liabilities 523 - - - - - (43) 480 ---------------------------------------------------------------------------------------------------- 5,135 - - - - - (43) 5,092 CurrentliabilitiesTrade and other payables 14,461 - - (524) - - - 13,937 Interest bearing loans and borrowings 5,515 - - 567 - - - 6,082 Other payables due within one year 1,063 - - - - - - 1,063 Income tax 1,118 - - (18) - - - 1,100Provisions - duewithin one year 841 - - - - (841) - - ---------------------------------------------------------------------------------------------------- 22,998 - - 25 - (841) - 22,182 ----------------------------------------------------------------------------------------------------TOTAL LIABILITIES 28,133 - - 25 - (841) (43) 27,274 ----------------------------------------------------------------------------------------------------TOTAL EQUITY AND LIABILITIES 65,714 1,541 - (1,446) (1) - - 65,808 ==================================================================================================== Section 5 - Summary of significant accounting policies The significant accounting policies adopted in the preparation of the group'sIFRS financial statements and the accounting policies that will form the basisof future financial statements are set out below i. Basis of preparation The financial statements have been prepared on a historical cost basis, exceptfor derivative financial instruments, available-for-sale assets and assets heldat fair value through the profit and loss account which are all measured at fairvalue. The consolidated financial statements are presented in sterling and arerounded to the nearest thousand (£'000) except where otherwise indicated. ii. Statement of compliance This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRSs in issue that either are endorsed by the EUand effective (or available for early adoption) at 31 December 2005 or areexpected to be endorsed and effective (or available for early adoption) at 31December 2005, the group's first annual reporting date at which it is requiredto use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directorshave made assumptions about the accounting policies expected to be applied whenthe first annual IFRS financial statements are prepared for the year ending 31December 2005. iii. Consolidation The group financial statements include the financial statements of the companyand all subsidiaries and associated undertakings during the year for the periodduring which they were members of the group. All intercompany balances and transactions entered into between group companiesare eliminated on consolidation. On acquisition, assets and liabilities of subsidiaries are measured at theirfair values at the date of acquisition with any excess of the cost ofacquisition over this value being capitalised as goodwill. iv. Revenue Revenue comprises sales of products and services to third parties at amountsinvoiced net of trade discounts, rebates, Value Added Tax and other similarsales based taxes. Revenue from the sale of products and services is recognisedupon the transfer to the client of the significant risks and rewards ofownership. This is generally when goods are delivered to, or services performedfor, clients. In certain circumstances, for instance where contractualagreements confirm the acceptance of the risks and rewards of ownership, revenueis recognised at the time of shipment. v. Foreign currency The presentation currency of the group is sterling. Transactions in foreign currencies are initially recorded in the functionalcurrency of each subsidiary at the exchange rate ruling on the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesare retranslated at the functional currency's rate of exchange ruling at thebalance sheet date. All differences are taken to the consolidated incomestatement. Non-monetary items that are measured in terms of historic cost in aforeign currency are translated using the exchange rate as at the date of theinitial transaction. Non-monetary assets and liabilities measured at fair valuein a foreign currency are translated using the exchange rate at the date whenthe fair value was determined. Where the change in the fair value ofnon-monetary assets and liabilities is recognised directly in equity, anyexchange component of the gain or loss is recognised in equity. Where the changein the fair value of non-monetary assets and liabilities is recognised throughthe income statement, any exchange component of the gain or loss is alsorecognised through the income statement. The functional currency of the overseas subsidiaries may differ from thepresentation currency of the consolidated group accounts. As at the reportingdate, the assets and liabilities of these overseas subsidiaries are translatedinto the presentation currency of Watermark Group plc at the rate of exchangeruling at the balance sheet date, and their income statements are translated atthe actual exchange rates for the year. The exchange differences arising on theretranslation are taken to a separate component of equity. On disposal of aforeign entity, the deferred cumulative amount recognised in equity relating tothat particular foreign operation shall be recognised in the income statement. vi. Goodwill and intangible fixed assets Goodwill on acquisition is initially measured at cost being the excess of thefair value of the purchase consideration over the acquirer's interest in the netfair value of the identifiable assets, liabilities and contingencies. Followinginitial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill arising on acquisitions occurring before 1 January 2004 has not beenamortised after this date. Goodwill arising on acquisitions after 1 January 2004is not subject to amortisation. Instead all goodwill is subject to annualimpairment reviews or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired. Intangible assets acquired separately are capitalised at cost and from abusiness combination are capitalised at the fair value at the date ofacquisition. The useful lives of these intangible assets are assessed to beeither finite or indefinite. Where the life of an intangible asset is identifiedas being finite the cost of the asset is amortised over the useful economiclife, but if the life is indefinite it is subject to annual impairment reviews.Where amortisation is charged on assets with finite lives, this expense is takento the income statement through the 'operating and administrative expenses' lineitem. Computer software costs are accounted for as an intangible fixed asset and areamortised over the estimated useful economic life of not more than 5 years. vii. Financial instruments Available for sale assets and assets classified as held at fair value throughthe income statement. All available for sale assets and assets designated at fair value through the income statement are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with theinvestment. Subsequent changes to the fair value of available-for-sale assets are takendirectly to equity. On disposal of the asset the deferred cumulative amountrecognised in equity shall be recognised in the income statement. Subsequent changes to the fair value of assets classified as held at fair valuethrough the income statement are recognised in full within the income statement. The group has designated its investment in FlightStore Group plc as held at fairvalue through the income statement. Loans and receivablesTrade and other receivables and trade and other payables are initiallyrecognised at fair value. Fair value is considered to be the original invoiceamount, discounted where material, for short term receivables and payables. Longterm receivables and payables are measured at amortised cost using the effectiveinterest rate method. Where receivables are denominated in a foreign currency, retranslation is madein accordance with the foreign currency accounting policy above. Derivative financial instrumentsThe group enters into forward exchange rate contracts in order to minimise itsexposure to foreign currency fluctuations. On inception, forward contracts are initially recognised at their fair value.The accounting treatment for subsequent changes to the fair value of forwardexchange contracts is dependent upon whether the forward exchange contractqualifies under the hedging rules set out within IAS 39. Where the forward exchange rate contract does not qualify as a hedge anysubsequent changes to the fair value of the forward exchange rate contract isrecognised through the income statement. Forward exchange rate contracts that are designated as a cash flow hedge or as ahedge against the net investment in a foreign entity are tested for hedgeeffectiveness at each reporting date. Where the forward exchange rate contractcontinues to be an effective hedge, any changes to the fair value of thederivative financial instrument is deferred within equity and released into theincome statement when the underlying hedged asset or liability is realised.Where the forward exchange rate contract is not considered to be an effectivehedge, subsequent fair value changes to the ineffective portion of thederivative financial instrument is immediately recognised through the incomestatement. viii. Borrowing costs Interest and borrowing costs are accounted for on the accruals basis and arerecognised through the income statement in full. No interest or borrowing costshave been capitalised. ix. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciationand any impairment in value. Depreciation is provided on all plant andequipment, at rates calculated to write off the cost, less estimated residualvalue, of each asset on a straight line basis over its expected useful economiclife at the following annual rates: Plant and machinery - 10% to 20%Fixtures and fittings - 10% to 25%Office equipment - 25%Motor vehicles - 20% to 25%Leasehold improvements - Over the term of the lease The carrying value of plant and equipment is reviewed for impairment when eventsor changes in circumstances indicate the carrying value may not be recoverable.If any such indication exists and where the carrying value exceeds estimatedrecoverable amount, the higher of the value in use and net selling price, theassets are written down to their recoverable amount. x. Adoption of IAS 32 and IAS 39 As permitted under IFRS 1 First Time Adoption of International FinancialReporting Standards, the directors decided not to restate comparativeinformation for the Financial Instrument standards IAS 32 and IAS 39. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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