28th Sep 2005 07:03
IFG Group PLC28 September 2005 IFG Group plc Restatement of Financial Information under International Financial Reporting Standards (IFRS) 28 September 2005 CONTENTS 1. General information2. Basis of preparation of financial information under IFRS3. Optional exemptions availed of on transition to IFRS4. Impact of transition to IFRS5. Detailed reconciliations from Irish GAAP to IFRS • Summary balance sheets at 1 January 2005, 31 December 2004, 30 June 2004 and 1 January 2004 • Detailed balance sheet at 1 January 2004 • Detailed balance sheet as at 30 June 2004 • Detailed balance sheet as at 31 December 2004 • Detailed balance sheet as at 1 January 2005 (transition date for adoption of IAS 32 and IAS 39) • Summary income statement for six months ended 30 June 2004 • Detailed income statement for six months ended 30 June 2004 • Summary income statement for the year ended 31 December 2004 • Detailed income statement for the year ended 31 December 2004 • Statement of changes in shareholders' equity for six months ended 30 June 2004 • Statement of changes in shareholders' equity for the year ended 31 December 2004 and as at 1 January 2005 6. Provisional IFRS accounting policies 1. General information Up to and including 31 December 2004, IFG Group Plc ("IFG") prepared itsconsolidated financial statements in accordance with Irish GAAP. As part of the European Commission's plans to develop a single European capitalmarket, the application of IFRS is mandatory for the consolidated financialstatements for all European entities whose securities are listed on a regulatedexchange in the European Union (EU) and applies in respect of accounting periodscommencing on or after 1 January 2005. The Group has implemented IFRS witheffect from 1 January 2005.It's transition date is 1 January 2004 as this is thestart date of the earliest period for which comparative information under IFRSwill be presented in IFG's 2005 Annual Report. The following financial information is based on IFRS expected to be effective asat 31 December 2005 and presents the consolidated income statement andconsolidated statement of changes in shareholders' equity for the year ended 31December 2004 and consolidated balance sheets as at 1 January 2004, 31 December2004 and 1 January 2005 on this basis. The consolidated financial statements forthese periods were previously prepared under Irish Generally Accepted AccountingPrinciples ("Irish GAAP"). Also included are the unaudited consolidated incomestatement, consolidated statement of changes in shareholders' equity,consolidated cash flow and consolidated balance sheet for the six months ended30 June 2004. 2. Basis of preparation of financial information under International FinancialReporting Standards Previously the Group prepared its audited annual financial statements inaccordance with Irish Generally Accepted Accounting Principles ("Irish GAAP").In accordance with EU Regulations, the Group is required to present its annualconsolidated financial statements for the year ended 31 December 2005 inaccordance with IFRS issued by the International Accounting Standards Board("IASB") and adopted for use by the EU. The Group's transition date to IFRS is 1 January 2004 and the comparativefinancial information for the year ended 31 December 2004 has been restated on aconsistent basis with those accounting policies expected to be applied by Groupin preparing its first full financial statements in accordance with IFRS at 31December 2005, except where otherwise required or permitted by IFRS 1 "Firsttime adoption of International Accounting Standards" (IFRS 1). In preparing this financial information, management has used its best knowledgeof the expected standards and interpretations, facts and circumstances, andaccounting policies that will be applied when the Group prepares its first setof financial statements in accordance with IFRS issued by the IASB and adoptedfor use by the EU as of 31 December 2005. As a result, although the financial information presented in this report isbased on management's best knowledge of expected standards and interpretations,and current facts and circumstances this may change. For example, IFRS standardsand interpretation of those standards by the International Financial ReportingInterpretations Committee ("IFRIC") are subject to ongoing review and possibleamendment or interpretative guidance and therefore subject to change. Therefore,until the Group prepares it first full set of financial statements in accordancewith IFRS issued by the IASB and adopted for use by the EU at 31 December 2005,the possibility cannot be excluded that the financial information presentedherein may have to be adjusted. The transition to IFRS is accounted for in accordance with IFRS 1. This standardsets out how to adopt IFRS for the first time and mandates that most standardsare to be fully applied retrospectively. There are certain limited exemptionsfrom this requirement. The significant decisions taken in respect of availing,or otherwise, of the exemptions available are outlined below in the section"Optional Exemptions Availed of on Transition to IFRS". The Group has made use of the exemptions contained in IFRS 1 to only applyInternational Accounting Standard (IAS) 32 "Financial Instruments: Disclosureand Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" from 1 January 2005. The comparative financial information in relation tofinancial instruments for 2004 is presented in accordance with Irish GAAP. Details of how the transition from Irish GAAP to IFRS has impacted the Group'sconsolidated financial position, results and cash flows are set out in section 5and discussed in section 4 below "Impact of Transition to IFRS".This financial information has been prepared on the historical cost basis,except for certain fixed assets where the previous revaluation was regarded asdeemed cost on transition to IFRS and the measurement at fair value of certainfinancial instruments on adoption of IAS 32 and 39 on 1 January 2005. 3. Optional Exemptions Availed of on Transition to IFRS. In accordance with IFRS 1, which establishes the framework for transition toIFRS by a first-time adopter such as IFG, the Group has elected, in common withthe majority of listed companies, to avail of a number of specified exemptionsfrom the general principle of retrospective restatement as follow: Business Combinations The Group has not applied IFRS 3 "Business Combinations" retrospectively tobusiness combinations that occurred prior to the transition date of 1 January2004, accordingly, goodwill as at the transition date is included in therestated balance sheet at it's previous carrying value and, together withgoodwill arising on business combinations subsequent to the transition date, issubject to impairment testing on an annual basis in accordance with IAS 36"Impairment of Assets". As required under IFRS 1, goodwill was assessed forimpairment as at the transition date and no impairment resulted from thisexercise. Revaluation as Deemed Cost The fixed asset revaluation performed as at 31 December 2004 and referred to inNote 14 to the financial statements in the 2004 Annual Report has been regardedas deemed cost as previous revaluation was broadly comparable to fair value, andtherefore remains unadjusted on transition to IFRS. Employee Benefits The cumulative actuarial gains and losses applicable to the Group's definedbenefit pension scheme at transition date have been recognised in full in equityon the transition date. Cumulative Translation Differences The Group has elected to set the previously accumulated foreign currencytranslation reserve to zero as at transition date. This has no net impact oncapital and reserves attributable to the Company's equity holders. Restatement of Comparatives for IAS 32 and 39 IFRS 1 includes specific transitional provisions for IAS 32 and 39 whereby thesestandards do not need to be applied to the comparative period and thecomparative information may be presented on the basis of Irish GAAP previouslyapplied. The Group has elected to apply this exemption. For the 2004comparatives financial instruments are recognised using the measurement basesand disclosure requirements of Irish GAAP rules relating to such financialinstruments, including financial assets, liabilities and to hedgingrelationships. The adjustments relating to IAS 32 and IAS 39 were made to equity as at 1January 2005. Share-Based Payment Transactions In line with the transitional provisions applicable to a first time adopter ofIFRS, as contained in IFRS 2 "Share-Based Payment", the Group has elected toimplement the standard in respect of share options granted after 7 November 2002and not vested by 1 January 2005. The expense reported in the 2004 interim andfull-year income statements is thus based on share options issued in April 2004and July 2004. 4. Impact of transition to IFRS The adoption of IFRS will result in significant changes to the Group'saccounting policies and the financial impact of each as at the date oftransition to IFRS is summarised below. The accounting policies which will applyunder IFRS are set out in detail in section 6. The detailed reconciliationschedules are found in section 5. (a) IAS 19-Employee Benefits Under Irish GAAP, the Group measures pension commitments and other relatedbenefits in accordance with SSAP 24 and has adopted the transitionalrequirements of FRS 17 Retirement benefits. Under IFRS, the Group measurespension commitments and other related benefits in accordance with IAS 19Employee Benefits. IAS 19 is similar to FRS 17 in that it adopts a balance sheetapproach, requiring the assets and liabilities of defined benefit pensionschemes to be capitalised gross of deferred tax on the face of the balance sheetwithin retirement benefit obligations. Deferred tax has been computed in respectof the defined benefit pension scheme and the related deferred tax assets andliabilities are included in the restatements at the various balance sheet dates.In accordance with the exemption under IFRS 1, the group has recognised allcumulative actuarial gains and losses attributable to its defined pension schemeas at the transition date. The group has adopted the corridor approach under IAS 19 to determine thetreatment of actuarial gains and losses arising during the year. Under thisapproach to the extent that the cumulative actuarial gains or losses remainwithin a corridor, defined as the greater of 10% of the schemes assets orliabilities, they are not recognised in the financial statements. If thecumulative gains and losses exceed the 10% corridor, the excess is charged orcredited to the income statement over the average remaining service lives of theactive scheme members. Under FRS 17, disclosure of the deficit on the pension scheme was included inthe 2004 annual report. Under IFRS, the deficit on the scheme that has beenbrought onto the balance sheet is €881,000 at 1 January 2004. The relateddeferred tax asset (€88,000) has also been recognised. (b) IFRS 2-Share-based payments The Group operates a share option scheme under which options are granted toemployees. Under Irish GAAP no expense has been recognised in the incomestatement given that the intrinsic value of such options was nil (intrinsicvalue being the difference between the market price at the date of grant and theexercise price). Under IFRS, an expense is recognised in the income statementfor all share based awards. This expense has been calculated based on the fairvalue of the award using the Black-Scholes model and is spread over the vestingperiod of the instrument. The balance sheet entry is based on the fair value ofall awards and results in a credit for equity settled awards. Under IFRS 1, thisrequirement applies only to grants of shares, share options or other equityinstruments made after 7 November 2002 that have not vested by 1 January 2005. The implementation of IFRS 2 results in a nil charge to revenue reserves forFinancial Year 2003 as there were no options granted from November 2002 untilApril 2004. In Financial Year 2004, IFRS 2 has resulted in a charge to operatingexpenses in the income statement of €247,000. (c) IFRS 3-Business combinations and goodwill Irish GAAP requires goodwill to be amortised over its useful economic life.Under IFRS 3 goodwill arising after the transition date is no longer amortisedbut is held at its carrying amount at the date of transition to IFRS and testedannually for impairment. The Group has availed of the optional exemption in IFRS1 not to restate business combinations made before the date of transition.Under Irish GAAP, goodwill that was previously held in reserves is recycled andincluded within the profit/loss on disposal calculation. Under IFRS any goodwillheld in reserves is not recycled on disposal. On disposal of an operation underIFRS, the Group will transfer the cumulative amount of exchange differencespreviously recognised in equity since the transition date to the incomestatement as part of the profit or loss on disposal. Under Irish GAAP cumulativeexchange differences remain in reserves. The principal implications of IFRS 3 for the financial statements are: • The group ceased amortisation of goodwill at 31 December 2003. • Accumulated amortisation as at 31 December 2003 has been eliminated with a corresponding reduction in the deemed cost of goodwill. • From the year ended 31 December 2004 onwards, goodwill is tested annually for impairment as well as when there are indications of impairment. Goodwill amortisation of €4,231,000 charged in 2004 under Irish GAAP has beenreversed. All goodwill has been tested for impairment at the transition date andfor the year ended 31 December 2004 in accordance with IFRS. No adjustment wasnecessary. Prior to 2004, the financial statements of a subsidiary were not consolidated asthere were severe long term restrictions that hindered the exercise of therights of the parent undertaking over the assets of the subsidiary. Theserestrictions have ceased and therefore this subsidiary has been consolidated atthe date of transition resulting in a reduction in reserves of €228,000. (d) IAS 8-Accounting Policies, Changes in Accounting Estimates and Errors Under Irish GAAP when a material error occurred it was corrected by means of aprior year adjustment in the current period. In accordance with IAS 8, a priorperiod error shall be corrected by retrospective restatement.In 2004, following a review of the revenue recognition policy an amount of€759,000 was identified as revenue that should have been recognised in priorperiods. The opening retained earnings at the transition date were credited with€759,000 and a corresponding reduction has been made in the income statement forthe year ended 31 December 2004. A foreign exchange gain of €417,000 should have been recognised in the incomestatement in the year ended 31 December 2004. It was taken to reserves in error.The income statement for the year ended 31 December 2004 has been adjusted totake account of the gain with a resulting reduction in the translation reserve. In the six months ended 30 June 2004, an amount of €1,155,000 was incorrectlyclassified as being an administrative expense when it should have beenclassified as cost of sales. This error has been corrected to ensure consistencywith classification in future periods.(e) IAS 16-Property, plant and equipment Under Irish GAAP, fixed assets were stated at cost or valuation less accumulateddepreciation. Depreciation was calculated on all fixed assets, with theexception of freehold land, on a straight line basis, by reference to theexpected useful lives of the assets concerned. Under IAS 16, property, plant and equipment is initially measured at cost andafter initial recognition will be carried at cost less accumulated depreciationand accumulated impairment costs. The Group have availed of IFRS 1 to use adeemed cost at transition date for assets acquired prior to transition. Deemedcost can be • The depreciated historical cost • The fair value of the asset at date of transition, or • A revaluation to fair value under previous GAAP which has been depreciated up to the transition date. Valuations of the Group's freehold premises were carried out at 31 December2004. These valuations were based on an open market value basis. The Group has elected to use the third option above for the freehold premisesthat were revalued, and depreciated historical cost for buildings acquired sincethe revaluation date. (f) IAS 21- the Effects of Changes in Foreign Exchange Rates All goodwill held related to subsidiaries whose functional currency is not thesame as the functional currency of the parent was restated to its sterlingamount and translated to euro at transition date to IFRS. This resulted in areduction of goodwill of €4,773,000 at transition date. Subsequent to that date,sterling denominated goodwill is translated at the balance sheet rate andmovements taken to equity. As at 31 December 2004 the foreign currency movementon goodwill was €5,842,000 (g) IAS 10-Events after the Balance Sheet Date Under Irish GAAP, the Company accounted for proposed dividends relating to agiven accounting period in that period, even if the date of approval for thatdividend was after the balance sheet date. Under IFRS, proposed dividends do notmeet the definition of a liability until such time as they have been approved bythe shareholders. Thus the Company will no longer recognise a liability in anyperiod for proposed dividends not approved by the balance sheet date. Thisresults in an increase in retained earnings of €1,020,000 at 1 January 2004 (h) IAS 28-Investments in associates In line with its treatment of associates under Irish GAAP, IFG will equityaccount for its associates under IFRS. However under Irish GAAP, results forassociates were presented in the financial statements reflecting the Group'sshare of the operating profit, interest, tax and minority interest. As per IAS28; Investments in Associates, the Group's share of profit after interest, taxand minority interest is shown as a single line item in the income statement.This has resulted in a reclassification of items in the income statement only,it has no impact on either the Group's profit for the year or on the Group's netassets. (i) IAS 32 and IAS 39-Financial assets and financial instruments The Group has availed of the option within IFRS 1 to implement IAS 32 and IAS 39from 1 January 2005 thus the transition adjustments that arise on implementationof these standards arise at this date. The IAS 32 and IAS 39 transitionadjustments relate to the following: Under Irish GAAP, investments were classified in the balance sheet under fixedassets and were reviewed for impairment. Investments are now classified asavailable-for-sale and carried at fair value. These are classified asnon-current assets unless the company has a plan to dispose of such assetswithin 12 months. Under IFRS any fair value movements are taken to equity andheld there until such time as the assets are disposed or unless there isobjective evidence of an impairment. Amounts totalling €630,000 previously classified as investments are nowclassified as available-for-sale financial assets as at 1 January 2005. Theserepresent investments in equity securities that are both quoted and unquoted andwhich present the Group with the opportunity for a return through both dividendand capital gain. The available-for-sale investments are remeasured at fairvalue resulting in a reduction in value of €119,000. While such investments areclassified as available-for-sale it is not the Group's intention to dispose ofsuch investments and as such they are classified under the non-current assetscategory. (j) Reclassifications • Under Irish GAAP, the deferred tax liability or asset was shown within provisions for liabilities and charges or debtors as appropriate. Under IFRS a separate classification on the balance sheet of deferred income tax assets or liabilities is shown under the non-current heading. • Under Irish GAAP, the current income tax liability is shown within creditors on the face of the balance sheet. Under IFRS ,the income tax liability is shown separately on the face of the balance sheet. This resulted in €1,043,000 being reclassified from creditors to current tax liability at the transition date and €1,574,000 at 31 December 2004. • Under Irish GAAP, computer software was shown within Property, Plant & Equipment. Under IFRS it is shown as a component of Intangible Assets. The reclassification was €203,000 at transition date; €269,000 at 30 June 2004 and €245,000 at 31 December 2004. • Under Irish GAAP, three types of exceptional items were required to be shown after operating profit- (1) profits or losses on sale or termination of an operation, (2) costs of a fundamental restructuring and (3) profits/ losses on disposal of fixed assets. Under IFRS all exceptional items, apart from the results of discontinued operations are disclosed in the appropriate operating line item before operating profit, with separate disclosure for items that are exceptional by virtue of their size or nature. This has resulted in a reclassification of exceptional items as reported by the Group for the year ended 31 December 2004. (k) IAS 7-Cash flow Statement The IFRS cash flow statement is presented in a different format from thatrequired by Irish GAAP, with cash flows split into three categories ofactivities- operating activities, investing activities and financing activities.In preparing the cash flow statement under IFRS, cash and cash equivalentsinclude cash at bank and in hand and short term deposits with an originalmaturity of three months or less. Bank overdrafts that are repayable on demandand form part of the Group's cash management are included as a component of cashand cash equivalents for the purpose of the statement of cash flows. The reconciling items between the Irish GAAP presentation and the IFRSpresentation have had no impact on the net cash flows generated. Consolidated Balance Sheet 01-Jan-05 31-Dec-04 30-Jun-04 01-Jan-04 Audited Audited Unaudited Audited •'000 •'000 •'000 •'000ASSETSNon-current assetsProperty plant & equipment 5,870 5,870 5,975 5,576Intangible assets 51,203 51,203 60,720 57,968Investments in associates 2,041 2,041 408 343Deferred income tax assets 1,492 1,492 996 990Available for sale 511 - - -Investments - 630 727 727 ---------- -------- ---------- ----------- 61,117 61,236 68,826 65,604 ---------- -------- ---------- -----------Current assetsInventories 1,124 1,124 1,714 1,220Trade and other receivables 34,786 34,786 44,099 44,417Current income tax asset 1,415 1,415 1,320 1,385Cash and cash equivalents 17,944 17,944 21,023 20,753 ---------- -------- ---------- ---------- 55,269 55,269 68,156 67,775 ---------- -------- ---------- ---------- ---------- -------- ---------- ----------Total assets 116,386 116,505 136,982 133,379 ========== ======== ========== ========== LIABILITIESNon-current liabilitiesBorrowings 38,872 39,026 46,602 38,116Deferred income taxliabilities - - - 1,278Retirement benefit 881 881 881 881obligationsProvisions for otherliabilities and charges 1,250 1,250 5,972 6,224 ---------- -------- -------- ------------- 41,003 41,157 53,455 46,499 ---------- -------- -------- ------------- Current liabilitiesTrade and other payables 32,387 32,387 35,566 19,271Current income tax 1,574 1,574 2,370 1,043liabilitiesBorrowings 12,936 12,936 8,308 37,436Provisions for otherliabilities and charges 3,682 3,682 4,576 - ---------- --------- ----------- --------- 50,579 50,579 50,820 57,750 Total liabilities 91,582 91,736 104,275 104,249 ========== ======== ============= ========= ---------- -------- ------------- ---------Net assets 24,804 24,769 32,707 29,130 ========== ======== ============= ========= Equity & reservesShare capital 7,827 7,827 7,800 7,800Share premium 44,867 44,867 44,831 44 ,831Other reserves 2,450 2,231 493 414Retained earnings (31,713) (31,529) (22,069) (25,285) 23,431 23,396 31,055 27,760Minority interest 1,373 1,373 1,652 1,370 Total equity 24,804 24,769 32,707 29,130 Balance Sheet as at 1 January 2004Reconciliation from Irish GAAP to IFRS Irish Foreign Employee Dividends Deferred Reclass Correction of Opening GAAP Exchange Benefits Tax -ifications Error IFRS Balance sheet & Other Balance sheet •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000ASSETSNon-currentassetsPropertyplant & equipment 5,779 - - - - (203) - 5,576Intangibleassets 62,538 (4,773) - - - 203 - 57,968Investmentsin associates 343 - - - - - - 343Deferredincome taxassets 965 - - - 25 - - 990Investments 727 - - - - - - 727 ------- ------ ------ ------ ------ ------ ------- ------- 70,352 (4,773) - - 25 - - 65,604 ------- ------ ------ ------ ------ ------ ------- -------Current AssetsInventories 1,220 - - - - - - 1,220Trade and otherreceivables 42,263 - - - - 1,395 759 44,417Current income tax asset 1,385 - - - - - - 1,385Cash and cashequivalents 20,753 - - - - - - 20,753 ------- ------ ------ ------ ------ ------ ------- ------- 65,621 - - - - 1,395 759 67,775 ------- ------ ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------ ------- -------Total assets 135,973 (4,773) - - 25 1,395 759 133,379 ======= ====== ====== ====== ====== ====== ======= =======LIABILITIESNon-currentliabilitiesBorrowings 38,116 - - - - - - 38,116Deferredincome taxliabilities 1,316 - - - (38) - - 1,278Retirementbenefitobligations - - 881 - - - - 881Provisionsfor otherliabilities 6,224 - - - - - - 6,224and chargesOther non-current liabilities - - - - - - - - ------- ------ ------ ------ ------ ------ ------- ------- 45,656 - 881 - (38) - - 46,499 ------- ------ ------ ------ ------ ------ ------- -------Current liabilitiesTrade and other payables 18,668 - - (1,020) - 1,623 - 19,271Current income tax liabilities 1,043 - - - - - - 1,043Borrowings 37,436 - - - - - - 37,436Provisions for other liabilitiesand charges - - - - - - - - ------- ------ ------ ------ ------ ------ ------- ------- 57,147 - - (1,020) - 1,623 - 57,750 ------- ------ ------ ------ ------ ------ ------- ------- ------- ------ ------ ------ ------ ------ ------- -------Totalliabilities 102,803 - 881 (1,020) (38) 1,623 - 104,249 ======= ====== ====== ====== ====== ====== ======= ======= ------- ------ ------ ------ ------ ------ ------- -------Net assets 33,170 (4,773) (881) 1,020 63 (228) 759 29,130 ======= ====== ====== ====== ====== ====== ======= ======= Equity & reservesShare capital 7,800 - - - - - - 7,800Share premium 44,831 - - - - - - 44,831Other reserves 687 - - - - (273) - 414Retained earnings (21,518) (4,773) (881) 1,020 63 45 759 (25,285) ------- ------ ------ ------ ------ ------ ------- ------- 31,800 (4,773) (881) 1,020 63 (228) 759 27,760Minority interest 1,370 - - - - - - 1,370 ------- ------ ------ ------ ------ ------ ------- -------Total equity 33,170 (4,773) (881) 1,020 63 (228) 759 29,130 ======= ====== ====== ====== ====== ====== ======= ======= Balance Sheet as at 30 June 2004Reconciliation from Irish GAAP to IFRS Irish Goodwill/ Employee Dividends Correction Deferred Share ReClass- Foreign IFRS GAAP Intangibles Benefits Of error Tax Options ifications Exchage & Other •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000ASSETSNon-currentassetsProperty plant &equipment 6,244 - - - - - - (269) - 5,975Intangible Assets 61,772 2,111 - - - - - 269 (3,432) 60,720Investments in associates 408 - - - - - - - - 408Deferred income taxassets 965 - - - - 31 - - - 996Investments 727 - - - - - - - - 727 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 70,116 2,111 - - - 31 - - (3,432) 68,826 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Current AssetsInventories 1,714 - - - - - - - - 1,714Trade and otherreceivables 41,945 - - - 759 - - 1,395 - 44,099Current income taxasset 1,320 - - - - - - - - 1,320Cash and cashequivalents 21,023 - - - - - - - - 21,023 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 66,002 - - - 759 - - 1,395 - 68,156 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total assets 136,118 2,111 - - 759 31 - 1,395 (3,432) 136,982 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== LIABILITIESNon-currentliabilitiesBorrowings 46,602 - - - - - - - - 46,602Deferred income taxliabilities 32 - - - - (32) - - - -Retirement benefitobligations - - 881 - - - - - - 881Provisions for otherliabilitiesand charges 5,972 - - - - - - - - 5,972Other non-currentliabilities - - - - - - - - - - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 52,606 - 881 - - (32) - - - 53,455 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------CurrentliabilitiesTrade and otherpayables 34,237 - 200 (494) - - - 1,623 - 35,566Current income taxliabilities 2,370 - - - - - - - - 2,370Borrowings 8,308 - - - - - - - - 8,308Provisions for otherliabilities and charges 4,576 - - - - - - - - 4,576Other currentliabilities - - - - - - - - - - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 49,491 - 200 (494) - - - 1,623 - 50,820 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total liabilities 102,097 - 1,081 (494) - (32) - 1,623 - 104,275 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Net Assets 34,021 2,111 (1,081) 494 759 63 - (228) (3,432) 32,707 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Equity &ReservesShare Capital 7,800 - - - - - - - - 7,800Share Premium 44,831 - - - - - - - - 44,831Other reserves 687 - - - - - 79 (273) - 493Retained earnings (20,949) 2,111 (1,081) 494 759 63 -79 45 (3,432) (22,069) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 32,369 2,111 (1,081) 494 759 63 - (228) (3,432) 31,055Minority interest 1,652 - - - - - - - - 1,652 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total equity 34,021 2,111 (1,081) 494 759 63 - (228) (3,432) 32,707 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Balance Sheet as at 31 December 2004Reconciliation from Irish GAAP to IFRS Irish Goodwill Employee Dividends Deferred Share ReClass Foreign IFRS GAAP /Intangibles Benefits Tax Options -ifications Exchange •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000ASSETSNon-currentassetsPropertyplant & equipment 6,115 - - - - - (245) - 5,870Intangibleassets 52,569 4,231 - - - - 245 (5,842) 51,203Investmentsin associates 2,041 - - - - - - - 2,041Deferredincome taxassets 1,581 - - - (89) - - - 1,492Investments 630 - - - - - - - 630 ----- ------ ------ ------ ------ ----- ------ ------ ----- 62,936 4,231 - (89) - - (5,842) 61,236 ----- ------ ------ ------ ------ ----- ------ ------ ----- Current AssetsInventories 1,124 - - - - - - - 1,124Trade andotherreceivables 34,786 - - - - - - - 34,786Currentincome 1,415 - - - - - - - 1,415tax assetCash and cashequivalents 17,944 - - - - - - - 17,944 ----- ------ ------ ------ ------ ----- ------ ------ ----- 55,269 - - - - - - - 55,269 ----- ------ ------ ------ ------ ----- ------ ------ -----Total 118,205 4,231 - - (89) - - (5,842) 116,505assets ===== ====== ====== ====== ====== ===== ====== ====== ===== LIABILITIESNon-currentliabilitiesBorrowings 39,026 - - - - - - - 39,026Deferredincome taxliabilities 78 - - - (78) - - - -Retirementbenefitobligations - - 881 - - - - - 881Provisionsfor otherliabilities and charges 1,250 - - - - - - - 1,250 ------ ------ ------ ------ ------ ----- ------ ------ ------ 40,354 - 881 - (78) - - - 41,157 ------ ------ ------ ------ ------ ----- ------ ------ ------CurrentliabilitiesTrade andother payables 33,457 - - (1,070) - - - - 32,387Currentincome tax liabilities 1,574 - - - - - - - 1,574Borrowings 12,936 - - - - - - - 12,936Provisionsfor otherliabilities and charges 3,682 - - - - - - - 3,682Other current - - - - - - - - -liabilities ------ ------ ------ ------ ------ ----- ------ ------ ------ 51,649 - - (1,070) - - - - 50,579 ------ ------ ------ ------ ------ ----- ------ ------ ------Totalliabilities 92,003 - 881 (1,070) (78) - - - 91,736 ====== ====== ====== ====== ====== ===== ====== ====== ====== ------ ------ ------ ------ ------ ----- ------ ------ ------Net assets 26,202 4,231 (881) 1,070 (11) - - (5,842) 24,769 ====== ====== ====== ====== ====== ===== ====== ====== ====== Equity &reservesShare capital 7,827 - - - - - - - 7,827Share premium 44,867 - - - - - - - 44,867Other reserves 2,257 - - - - 247 (273) - 2,231Retainedearnings (30,122) 4,231 (881) 1,070 (11) (247) 273 (5,842) (31,529) ------ ------ ------ ------ ------ ----- ------ ------ ------ 24,829 4,231 (881) 1,070 (11) - - (5,842) 23,396Minorityinterest 1,373 - - - - - - - 1,373 ------ ------ ------ ------ ------ ----- ------ ------ ------Total equity 26,202 4,231 (881) 1,070 (11) - - (5,842) 24,769 ====== ====== ====== ====== ====== ===== ====== ====== ====== Balance Sheet as at 1 January 2005Reconciliation from IFRS as at 31 December 2004 to IFRS as at 1 January 2005 toreflect the adoption of IAS 32 and IAS 39 IFRS Effect of IFRS 31-Dec-04 adoption of 01-Jan-05 IAS 32 & IAS 39 •'000 •'000 •'000ASSETSNon-current assetsProperty plant & equipment 5,870 - 5,870Intangible Assets 51,203 - 51,203Investments in associates 2,041 - 2,041Deferred income tax assets 1,492 - 1,492Available for Sale financial assets - 511 511Investments 630 (630) - ------- --------- ------- 61,236 (119) 61,117 ------- --------- ------- Current AssetsInventories 1,124 - 1,124Trade and other receivables 34,786 - 34,786Current income tax asset 1,415 - 1,415Cash and cash equivalents 17,944 - 17,944 ------- --------- ------- 55,269 - 55,269 ------- --------- ------- ------- --------- -------Total assets 116,505 (119) 116,386 ======= ========= =======LIABILITIESNon-current liabilitiesBorrowings 39,026 (154) 38,872Deferred income tax liabilities - - -Retirement benefit obligations 881 - 881Provisions for other liabilities andcharges 1,250 - 1,250 ------- --------- ------- 41,157 (154) 41,003 ------- --------- -------Current liabilitiesTrade and other payables 32,387 - 32,387Current income tax liabilities 1,574 - 1,574Borrowings 12,936 - 12,936Provisions for other liabilities andcharges 3,682 - 3,682 ------- --------- ------- 50,579 - 50,579 ------- --------- -------Total liabilities 91,736 (154) 91,582 ======= ========= ======= ------- --------- -------Net assets 24,769 35 24,804 ======= ========= =======Equity & reservesShare capital 7,827 - 7,827Share premium 44,867 - 44,867Other reserves 2,231 219 2,450Retained earnings (31,529) (184) (31,713) ------- --------- ------- 23,396 35 (23,431)Minority interest 1,373 - 1,373 ------- --------- -------Total equity 24,769 35 24,804 ======= ========= ======= Income statementSix months ended 30 June 2004 IFRS •'000 Revenue 44,965Cost of Sales (3,760) ------Gross Profit 41,205 Operating expensesAdministrative expenses (excluding exceptional items) (34,008)Exceptional items (109) ------Total administrative expenses (34,117) Operating Profit 7,088Finance costs (2,224)Share of profit of associates 66 ------Profit before income tax 4,930Income tax expense (606) ------Profit for the period 4,324 ====== Attributable to:Equity holders of the company 4,039Minority interest 285 ------ 4,324 ====== Earnings per ordinary share (cent) Basic 6.21 =====Fully diluted 6.19 ===== Income statementSix months ended 30 June 2004- Reconciliation from Irish GAAP Irish Correction Goodwill Employee Associates Dividends Share IFRS GAAP Error /Intangibles Benefits Options •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Revenue 44,965 - - - - - 44,965Cost of sales (2,605) (1,155) - - - - - (3,760) ----- ------ ------ ------ ------ ------ ----- -----Gross profit 42,360 - - - - - - 41,205 OperatingexpensesAdministrativeexpenses (37,437) 1,663 2,111 (200) (66) - (79) (34,008)Exceptionalitems (109) - - - - - - (109) ----- ------ ------ ------ ------ ------ ----- ----- (37,546) 1,663 2,111 (200) (66) - (79) (34,117) Operatingprofit/(loss) 4,814 508 2,111 (200) (66) - (79) 7,088Financecosts-net (2,224) - - - - - - (2,224)Share ofprofit ofassociates - - - - 66 - - 66 ----- ------ ------ ------ ------ ------ ----- -----Profit/(loss)before incometax 2,590 508 2,111 (200) - - (79) 4,930Income taxexpense (606) - - - - - - (606) ----- ------ ------ ------ ------ ------ ----- -----Profit/(loss)for the period 1,984 508 2,111 (200) - - (79) 4,324Minorityinterest (285) - - - - - - (285) ----- ------ ------ ------ ------ ------ ----- -----Profit for thefinancialperiod 1,699 508 2,111 (200) - (79) 4,039Dividends (494) - - - - (526) - (1,020) ----- ------ ------ ------ ------ ------ ----- -----Retainedprofit/(loss)for period 1,205 508 2,111 (200) - (526) (79) 3,019 ===== ====== ====== ====== ====== ====== ===== ===== Profit/(loss)for periodattributableto:Equity holdersof the company 1,699 4,039Minorityinterest 285 285 ----- ----- 1,984 4,324 ===== ===== Income statementYear ended 31 December 2004 IFRS •'000 Revenue 95,373Cost of sales (19,226) ------Gross profit 76,147 Operating expensesAdministrative expenses (excluding exceptional items) (66,068)Exceptional items (9,567) ------Total administrative expenses (75,635) Operating profit 512Finance costs (3,703)Share of profit of associates 106 ------Loss before income tax (3,085)Income tax expense 516 ------Loss for the period (2,569) ====== Attributable to:Equity holders of the company (3,227)Minority interest 658 ------ (2,569) ======Loss per ordinary share (cent)Basic (4.96) ======Fully diluted (4.96) ====== Income statementYear ended 31 December 2004- Reconciliation from Irish GAAP Irish Correction of Goodwill Associates Dividends Share Other IFRS GAAP Error /Intangibles Options •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000Revenue 96,132 (759) - - - - - 95,373Cost of Sales (19,226) - - - - - - (19,226) ----- ------- ------- ------ ------ ----- ----- -----Gross Profit 76,906 (759) - - - - - 76,147 OperatingexpensesAdministrativeexpenses (70,353) 417 4,231 (116) - (247) - (66,068)Exceptionalitems (9,567) - - - - - - (9,567) ----- ------- ------- ------ ------ ----- ----- ----- (79,920) 417 4,231 (116) - (247) - (75,635) Operating(loss)/profit (3,014) (342) 4,231 (116) - (247) - 512Financecosts-net (3,703) - - - - - - (3,703)Share ofprofit/loss ofassociates - - - 106 - - - 106 ----- ------- ------- ------ ------ ----- ----- -----(Loss)/profitbefore incometax (6,717) (342) 4,231 (10) - (247) - (3,085)Income taxexpense 580 - - 10 - - (74) 516 ----- ------- ------- ------ ------ ----- ----- -----(Loss)/Profitfor the period (6,137) (342) 4,231 - - (247) (74) (2,569)Minorityinterest (658) - - - - - - (658) ----- ------- ------- ------ ------ ----- ----- -----Profit for thefinancial year (6,795) (342) 4,231 - - (247) (74) (3,227)Dividends (1,564) - - - 50 - (1,514) ----- ------- ------- ------ ------ ----- ----- -----Retained(loss)/profitfor year (8,359) (342) 4,231 - 50 (247) (74) (4,741) ===== ======= ======= ====== ====== ===== ===== ===== (Loss)/Profitfor periodattributableto:Equity holdersof the company (6,795) (3,227)Minorityinterest 658 658 ----- ----- (6,137) (2,569) ===== ===== IFG GROUP PLC- STATEMENT OF CHANGES IN EQUITYPERIOD ENDED 31 DECEMBER 2004 & 1 JANUARY 2005 Attributable to Share Share Capital Other Translation Retained equity holders Minority Total capital premium conversion reserves reserve earnings of the company interest equity •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Balance at1 January 2004 7,800 44,831 414 - (4,773) (20,512) 27,760 1,370 29,130 Changes inequity for2004Currencytranslationadjustment - - - - (1,503) - (1,503) (1) (1,504)Loss forthe year - - - - - (3,227) (3,227) 658 (2,569)Revaluationof investment in associate - - - 1,570 - - 1,570 - 1,570Dividends - - - - - (1,514) (1,514) (606) (2,120)Issue ofshare capital 27 36 - - - - 63 - 63Sale ofinterest insubsidiary - - - - - - - (48) (48)Equityshareoptions - - - 247 - - 247 - 247granted ----- ------ ------ ------ ------ ------ ------- ------ -----Balance at31 December 2004 7,827 44,867 414 1,817 (6,276) (25,253) 23,396 1,373 24,769Adoption ofIAS 32 andIAS 39 - - - 219 - (184) 35 - 35 ----- ------ ------ ------ ------ ------ ------- ------ -----Balance at1 January 2005 7,827 44,867 414 2,036 (6,276) (25,437) 23,431 1,373 24,804 ===== ====== ====== ====== ====== ====== ======= ====== ===== IFG GROUP PLC- STATEMENT OF CHANGES IN EQUITYPERIOD ENDED 30 JUNE 2004 Attributable to Share Share Capital Other Translation Retained equity holders Minority Total capital Premium Conversion reserves reserve earnings of the company interest equity •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 •'000 Balance at1 January 2004 7,800 44,831 414 - (4,773) (20,512) 27,760 1,370 29,130 Changes inequity for2004Currencytranslationadjustment - - - - 197 - 197 (3) 194Profit forthe period - - - - - 4,039 4,039 285 4,324Dividends - - - - - (1,020) (1,020) - (1,020)Equityshareoptions - - - 79 - - 79 - 79granted ----- ------ ------ ------ ------ ------ ------- ------ -----Balance at30 June 2004 7,800 44,831 414 79 (4,576) (17,493) 31,055 1,652 32,707 ===== ====== ====== ====== ====== ====== ======= ====== ===== Provisional IFRS accounting policiesBasis of preparation of the consolidated financial statements The consolidated financial statements of IFG Group Plc, which are presented ineuro have been prepared using the historical cost convention as modified by themeasurement at fair value of share options and available-for-sale financialassets. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgment in the process of applying the Company's accountingpolicies. These assumptions affect the reported amounts of revenues, expenses,assets and liabilities, and the disclosure of contingent liabilities at the dateof the financial statements. If in the future such estimates and assumptionswhich are based on management's best judgement at the date of the financialstatements, deviate from the actual outcome, the original estimates andassumptions will be modified as appropriate in the year in which thecircumstances change. Consolidation These financial statements are the consolidated financial statements of IFGGroup plc, a company registered in the Republic of Ireland and its subsidiaries("IFG"). The subsidiaries are entities over which the Group has the power to govern thefinancial and operating policies generally accompanying shareholdings of morethan 50% of the voting rights. Companies acquired during the year areconsolidated from the date on which control is transferred to the Group and arede-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. The excess of the cost of the acquisition over the fair value ofthe Group's share of the identifiable net assets acquired is recorded asgoodwill. Inter-company balances and transactions and resulting unrealisedincome are eliminated in full. Minority interests represent the proportion of the profit or loss and net assetsof a subsidiary attributable to equity interests that are not owned, directly orindirectly through subsidiaries, by the parent company. Associates Associates are entities, not being subsidiary undertakings, over which the Grouphas the ability to exercise significant influence over the operating andfinancial policies. The Group's share of the results and net assets ofassociates are included based on the equity method of accounting. The results ofassociates are included from the effective date on which the Group's significantinfluence arises until the date on which such significant influence ceases. Segment Reporting A segment is a distinguishable component of the Group that is engaged either inproviding services (business segment), or in providing services within aparticular economic environment (geographical segment), which is subject torisks and rewards that are different from those other segments. Foreign Currency Translation The presentational and functional currency of the Group and its Irishsubsidiaries is the euro (•). Transactions denominated in foreign currencies aretranslated into Euro at the rate of exchange ruling at the transaction date.Monetary assets and liabilities denominated in foreign currencies are translatedat the rate of exchange ruling at the balance sheet date. All translationdifferences are taken to the consolidated income statement with the exception ofdifferences on foreign currency borrowings that provide a hedge against a netinvestment in a foreign entity. These are taken directly to equity together withthe exchange difference on the net investment in the foreign entity until thedisposal of the net investment, at which time they are recognised in theconsolidated income statement. Results and cash flows of subsidiary undertakings with different functionalcurrency to the parent are translated into euro using average exchange ratesduring the year, and the related balance sheets have been translated using therates of exchange ruling at the balance sheet date. Adjustments arising ontranslation of the results of subsidiary undertakings with different functionalcurrency to the parent at average rates, and on the restatement of the openingnet assets at closing rates, are dealt with in a separate translation reservewithin equity, net of differences on related currency borrowings. All othertranslation differences are taken to the income statement. On disposal of a foreign operation, accumulated currency translation differencesare recognised in the income statement as part of the overall gain or loss ondisposal. The cumulative currency translation differences arising prior to thetransition date have been set to zero for the purposes of ascertaining the gainor loss on disposal of a foreign operation subsequent to 1 January 2004.Goodwill and fair value adjustments arising on acquisition of a foreignoperation are regarded as assets and liabilities of the foreign operation, areexpressed in the functional currency of the foreign operation and are recordedat the exchange rate at the date of the transaction and subsequentlyretranslated at the applicable closing rates. Property, Plant and Equipment Property, plant and equipment are stated at cost or deemed cost less accumulateddepreciation and impairment losses. The Group's UK properties were revalued in2003. At date of transition the Group has elected to use these revaluations asdeemed cost given that they were broadly comparable to fair value. Subsequent costs are included in an asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to the Group and the cost of thereplaced item can be measured reliably. All other repair and maintenance costsare charged to the income statement during the financial period in which theyare incurred. Property, plant and equipment are depreciated over their useful economic life ona straight line basis at the following rates: Buildings 2%Fixtures & Fittings 10-25%Motor vehicles 20-25%Office equipment 10-25%Computer equipment 20-33% The residual value and useful lives of property, plant and equipment arereviewed and adjusted if appropriate at each balance sheet date. On disposal of property, plant and equipment the cost and related accumulateddepreciation and impairments are removed from the financial statements and thenet amount, less any proceeds, is taken to the income statement. Business Combinations The Group applies the purchase method of accounting for all businesscombinations. The Group has availed of the IFRS 1 exemption in relation to businesscombinations and has not re-stated business combinations prior to the date oftransition. IFRS 3 will be applied prospectively by the Group from transitiondate and goodwill amortisation ceased from transition date. The cost of a business combination is the aggregate of the fair values at thedate of exchange of assets given, liabilities incurred or assumed, equityinstruments issued by the acquirer and any directly attributable costs.Adjustments to the business combination's cost that are contingent on futureevents are included in the combination's cost at the acquisition date if theadjustment is probable and has been reliably measured. At the date of acquisition, acquiree's identifiable net assets and contingentliabilities are measured at their fair values. Adjustments to the initialaccounting for a business combination are recognized within twelve months of theacquisition date and are effected prospectively from that date. The interest of minority shareholders is calculated based on fair values ofassets and liabilities at acquisition date. Intangible Assets Goodwill Goodwill arising on acquisitions prior to the date of transition to IFRS hasbeen retained at the previous Irish GAAP amount being its deemed cost subject tobeing tested for impairment. Goodwill written off to reserves under Irish GAAPprior to 1998 has not been reinstated and is not included in determining anysubsequent profit or loss on disposal. Goodwill on acquisitions is initially measured at cost being the excess of thecost of the business combination over the acquirer's interest in the net fairvalue of the identifiable asset, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill relating to acquisitions from 1 January 2004 andgoodwill carried in the balance sheet at 1 January 2004 is not amortised.Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. As atthe acquisition date, any goodwill acquired is allocated to each of thecash-generating units expected to benefit from the combination's synergies.Impairment is determined by assessing the recoverable amount of thecash-generating unit, to which the goodwill relates. Where goodwill forms part of a cash-generating unit and part of the operationwithin that unit are disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determiningthe gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured on the basis of the relative values of the operationdisposed of and the proportion of the cash-generating unit retained. Computer Software Computer software is stated at cost, less amortisation and provisions forimpairment, if any. Costs incurred on acquisition of computer software arecapitalised as are costs directly related to developing the programs. Costsassociated with maintaining software are recognised as an expense when incurred.Capitalised computer software is amortised over 3 to 5 years. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation arereviewed for impairment when events or circumstances indicate that the carryingvalue may be impaired or may not be recoverable. An impairment loss isrecognised to the extent that the carrying value of the assets exceeds itsrecoverable amount. For the purposes of assessing impairment, assets are groupedat the lowest levels for which there are separately identifiable cash flows(cash generating units). Financial assets From 1 January 2004 to 31 December 2004Financial fixed assets include investments in companies other than subsidiaries,associates and joint ventures. Such financial fixed assets are recorded at costless provision for impairment. From 1 January 2005The Group classifies its investments in the following categories: held tomaturity investments, loans and receivables and available-for-sale financialassets. The classification depends on the purpose for which the investments wereacquired. Management determines the classification of its investments at initialrecognition (i.e. 1 January 2005 being the date of transition for financialinstruments). Held-to-maturity investments. Held-to-maturity financial assets are securities with a fixed maturity that theGroup has the intent and ability to hold until maturity. During the periodspresented the Group did not hold any investments in this category. Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides services directly to a debtor with no intention of tradingthe receivable. They are included in current assets, except for maturitiesgreater than 12 months after the balance sheet date. These are classified asnon-current assets. Loans and receivables are included in trade and otherreceivables in the balance sheet. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are eitherclassified in this category or not classified in any other category. They areincluded in non-current assets unless management intends to dispose of theinvestment within 12 months of the balance sheet date. All financial assets are initially recorded at cost, including transactioncosts. All purchases and sales are recognised on the settlement date.Held-to-maturity financial assets are subsequently carried at amortised costusing the effective interest method. Available-for-sale financial assets aresubsequently carried at fair value with all unrealised changes in fair valuerecorded in equity. When available-for-sale financial assets are sold orimpaired, the accumulated fair value adjustments are included in the incomestatement as gains and losses from investment securities. Financial assets are assessed for impairment at each balance sheet date. In thecase of equity securities classified as available-for-sale, a significant orprolonged decline in the fair value of the security below its cost is consideredin determining whether the securities are impaired. For such assets, anyimpairment charge is the amount currently carried in equity for the differencebetween the original cost, net of any previous impairment, and the fair value. Inventory Inventory is stated at the lower of cost and net realisable value. Work inprogress comprises cost incurred in bringing the pipeline of work to its presentcondition. Cash and Cash Equivalents Cash and short term deposits in the balance sheet comprise cash at bank and inhand and short term deposits with an original maturity of three months or less.Bank overdrafts that are repayable on demand and form part of the Group's cashmanagement are included as a component of cash and cash equivalents for thepurpose of the statement of cash flows. They are however shown as part ofborrowings in current liabilities on the balance sheet. Leases Finance leases, which transfer to the Group substantially all the risks andbenefits to ownership of the leased asset, are capitalised at the inception ofthe lease at the fair value of the leased asset or if lower the present value ofthe minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between the finance charges and reduction of the lease obligation soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to the income statement as part offinance costs. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset or the lease term. Leases where the lessor retainssubstantially all the risks and benefits of ownership of the assets areclassified as operating leases. Operating lease payments are recognised as anexpense in the income statement on a straight line basis over the lease term. Interest - Bearing Loans and Borrowings All loans and borrowings are initially recognised at cost being the fair valueof the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings aresubsequently measured at amortised cost using the effective interest method.Amortised cost is calculated by taking into account any issue costs, and anydiscount or premium on settlement. Gains and losses are recognised in the incomestatement when the liabilities are derecognised or impaired, as well as throughthe amortisation process. Taxation The tax expense in the income statement represents the sum of the tax currentlypayable and deferred tax.Tax currently payable is based on taxable profit for the year. Taxable profitdiffers from net profit as reported in the income statement because it excludesitems of income or expense that are taxable or deductible in other years and itfurther excludes items that are not taxable or deductible. The Group's liabilityfor current tax is calculated using rates that have been enacted orsubstantially enacted at the balance sheet date. Deferred income tax is provided in full, using the liability method, on alltemporary differences between the tax bases of assets and liabilities and theircarrying amounts in the financial statements. Deferred income tax is determinedusing tax rates (and laws) that have been enacted or substantially enacted bythe balance sheet date and are expected to apply in the year when the relateddeferred income tax asset is realised or the deferred income tax liability issettled. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries except to the extent that the timing of the reversal iscontrolled by the Group and it is probable that the temporary difference willnot reverse in the foreseeable future.Deferred income tax assets are recognised to the extent that it is probable thattaxable profit will be available against which the deductible temporarydifferences can be utilised.The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit would be available to allow all or part of thedeferred income tax asset to be utilised. Employee Benefits (A) Pension obligations Defined Contribution PlansObligations to the defined contribution pension plans are recognised as anexpense in the income statement as incurred. Defined Benefit PlanThe Group has taken the option to recognise in full in equity at the transitiondate the cumulative actuarial gains and losses applicable to the Group's definedbenefit pension scheme. From 1 January 2004, the Group will apply the "corridorapproach" in relation to the recognition of actuarial gains and lossesapplicable to the Group's defined benefit scheme. Actuarial gains and losses comprise the effects of differences between theprevious actuarial assumptions and what has actually occurred and the effects ofchanges in actuarial assumptions. The "corridor approach" refers to a thresholdbeing the higher of 10% of the fair value of the plan assets or 10% of thepresent value of the defined benefit obligations at the end of the previousreporting period. Actuarial gains and losses at the end of the previousreporting period in excess of this threshold are recognised as income or expenseover the average remaining service lives of employees participating in the plan.Other than these and the actuarial deficit recognised on transition to IFRS, theactuarial gain or loss is not recognised. The Group operates a defined benefit pension scheme via its subsidiary IFGManagement for eligible employees which require contributions to be made toseparately administered funds. The Group's net obligation in respect of definedbenefit pension schemes is calculated by estimating the amount of futurebenefits that employees have earned in return for their service in the currentand prior periods. That benefit is discounted to determine its present value,and the fair value of any plan asset is deducted. The discount rate employed indetermining the present value of the schemes' liabilities is determined byreference to market yields at the balance sheet date on high quality corporatebonds for a term consistent with the currency and term of the associatedpost-employment benefit obligations. The net surplus or deficit arising in the Group's defined benefit pensionschemes are shown within either non-current assets or liabilities on the face ofthe Group Balance Sheet. The deferred tax impact of pension scheme surpluses anddeficits is disclosed separately within deferred tax assets or liabilities asappropriate. Past service costs are recognised as an expense over the average period untilthe benefits become vested, in which case the past service costs are recognisedas an expense immediately. To the extent that the benefits vest immediately, theexpense is recognised immediately in the income statement. The expected returnon the plans' assets and the expected increase during the period in the presentvalue of the plans's liabilities arising are included in finance costs (net). The amounts charged to the income statement in respect of defined benefit plansconsist of current service cost, interest cost, the expected return of any planassets, actuarial gains and losses ( under the "corridor approach"), the effectof any curtailments or settlements and past service costs. (B) Share Based Payment Transactions Group share schemes allow employees to acquire shares in the company. The fairvalue of share options granted is recognised as an employee expense in theincome statement with a corresponding increase in equity. The fair value wasdetermined using the Black-Scholes model. Share options granted by the companyare subject to non market-based vesting conditions. The expense for the shareoptions shown in the income statement is based on the fair value of the totalnumber of options expected to vest and is allocated to accounting periods on astraight line basis over the vesting period. The cumulative charge to the incomestatement is only reversed where options do not vest where an employee inreceipt of share options leaves the Group before the end of the vesting period.The proceeds received by the company when the share options are exercised arecredited to share capital and share premium. In line with the transitionalarrangements set out in IFRS 2, "Share Based Payment", the recognition andmeasurement principles of this standard have been applied only in respect ofshare entitlements granted after 7 November 2002 and not vested by 1 January2005. The Group does not operate any cash-settled share-based payment schemes orshare-based payment transactions with cash alternatives as defined in IFRS 2. 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 would be required to settle the obligation.If the effect of the time value of money is material, provisions are determinedby discounting the expected future cash flows at a pre-tax rate that reflectsthe time value of money and, where appropriate, the risks specific to theliability.A provision for restructuring is recognised when the Group has approved adetailed and formal restructuring plan and announced its main provisions.Provisions are not recognised for future operating losses. Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhere there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. The amount of the provision is recognisedin the income statement. Revenue recognition Revenue comprises fees and commissions from the intermediation of financialservices, the provision of international trustee & corporate services, theprovision of actuarial and pensioneer trustee services and from employeeleasing. Revenue is recognised, when, and to the extent that, the Group hasobtained the right to consideration in exchange for the services that itprovides.Accordingly, initial commissions from the intermediation of financial servicesare recognised as revenue on the effective inception date of the product orservice, subject to a reduction for expected clawback where commission is earnedon an indemnity basis. Renewal or trail commissions are recognised as revenuewhen the contingent events which give rise to the right to receive thosecommissions, typically renewal or persistency, have occurred. In certaincircumstances, the Group may obtain a right to consideration when some but notall of it's contractual obligations have been fulfilled. In these circumstances,the Group recognises revenue to the extent that a right to consideration hasbeen obtained in relation to services provided up to that point.Where the Group receives payment from customers in advance of the performance ofits contractual obligations, a liability equal to the amount received isrecognised. That liability is reduced and the amount of the reduction recognisedas revenue, when and as the Group obtains the right to consideration in exchangefor the contracted service it provides. Net Financing Costs Net financing costs comprise interest payable on borrowings calculated using theeffective interest rate method, interest receivable on funds invested and gainsand losses on hedging instruments that are recognised in the income statement. Interest income is recognised in the income statement as it accrues, using theeffective interest method. The interest expense component of finance leasepayments is recognised in the income statement using the effective interest ratemethod. Share Capital Financial instruments that have been issued are classified as equity where theymeet the definition of equity and confer on the holder a residual interest inthe assets of the Group. Dividends Dividends on ordinary shares are recognised as a liability in the Group'sfinancial statements in the period in which the dividends are approved by theCompany's shareholders. Dividends declared after the balance sheet date aredisclosed in the subsequent events note. Netting Financial assets and liabilities are offset and the net amount reported in thebalance sheet if, and only if, there is a currently enforceable legal right toset off the recognised amounts and there is an intention to settle on a netbasis, or to realise an asset and settle the liability simultaneously. Accounting for Derivative Financial Instruments and Hedging activities Derivative financial instrumentsDerivative financial instruments are mainly used to manage exposures to foreignexchange risks.Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at fair value. TheGroup does not have any hedging derivatives. Hedging The Group documents at the inception of the hedging transaction the relationshipbetween hedging instruments and hedged items, as well as its risk managementobjective and strategy for undertaking various hedge transactions. The Groupalso documents its assessments, both at hedge inception and on an ongoing basis,of the effectiveness of the hedge in offsetting changes in fair values or cashflows of hedged items. Net investment hedgesWhere foreign currency borrowings provide a hedge against a net investment in aforeign operation, foreign exchange differences are taken directly to a foreigncurrency translation reserve (being a separate component of equity). Cumulativegains and losses remain in equity until disposal of the net investment in theforeign operation at which point the related differences are transferred to theincome statement as part of the overall gain or loss on sale. Convertible Loan NotesFrom 1 January 2004 to 31 December 2004Convertible loan notes are classified as long term borrowings withinliabilities. From 1 January 2005Convertible loan notes are regarded as compound financial instruments ,consisting of a liability component and an equity component. The fair value ofthe liability component is estimated using the prevailing market interest rateat the date of issue for similar non-convertible debt and is included inliabilities. The difference between the fair value of the liability and the fairvalue of the compound financial instrument as a whole represents equity. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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