30th Nov 2005 07:01
White Young Green PLC30 November 2005 For Immediate Release 30 November 2005 WHITE YOUNG GREEN PLC TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS Introduction White Young Green plc (WYG) will be reporting its financial results inaccordance with International Accounting Standards (IAS) and InternationalFinancial Reporting Standards (IFRS) as adopted by the European Union (EU) witheffect from 1 July 2004. This statement presents and explains the conversion ofthe results of the Group as previously reported under UK Generally AcceptedAccounting Principles (UK GAAP) onto an IFRS basis for the year ended 30 June2005 (unaudited). The transition to IFRS does not impact the Group's underlying businessperformance, trading cash flows, its ability to pay ordinary dividends nor itsfinancing arrangements. Overview of Impact at 30 June 2005 • Profit before tax £9.4m (UK GAAP £8.1m) • Earnings per share 16.9p (UK GAAP 13.2p) • Adjusted earnings per share 17.0p (UK GAAP 18.0p) • Revenue unchanged at £143.9m • Net assets £52.3m (UK GAAP £54.4m) • Free cash flow and movement in net borrowings unaffected Commenting on the statement, Bob Hartley, Finance Director of WYG, said: "The two issues that have had the most significant impact on the restatedfinancial statements are the changes in pension fund accounting and the newrequirement to cease amortising goodwill arising on acquisitions. The Group'sunderlying business performance and cash flow remains unaffected." For further information, please contact: Bob Hartley Tel: (0113) 2787111Finance Director Restatement of financial information for International Financial Reporting Standards Contents 1 Introduction 2 Basis of preparation 3 Transition to IFRS - first time adoption 4 IFRS Financial statements for the year ended 30 June 2005 5 Explanation of Principal IFRS adjustments 6 Other impacts 7 Principal Accounting Policies Following IFRS Implementation 1 Introduction Following a European Union Regulation issued in June 2002, White Young Green Plc(the Group) is required, as a listed company on a recognised exchange within theEU, to present its consolidated accounts in accordance with EU-adoptedInternational Financial Reporting Standards (IFRS) and International AccountingStandards (IAS) for periods commencing on or after 1 January 2005. As WYG's statutory year end is 30 June, the Group will adopt IFRS for the firsttime for the year ended 30 June 2006 together with restated comparatives for theyear ended 30 June 2005. As such these standards apply from the date oftransition, 1 July 2004, onwards. This unaudited announcement presents and explains the Group's restated resultsfor the year ended 30 June 2005 as converted from UK GAAP to IFRS. The first results to be published under IFRS will be for the half year to 31December 2005. The accounting standards which produce the most significant impact on theconsolidated statements of the Group are: • IAS 19 - Defined benefit pension scheme deficit included on balance sheet • IAS 19 - Accrual for employee benefits included on the balance sheet • IFRS 3 - Goodwill is no longer amortised, but subject to an annual impairment review • IAS 10 - Final dividends are recognised in the period in which they are approved by the Company's shareholders. Interim dividends are recognised when paid. • IFRS2 - Amendments to accounting for share based payments 2 Basis of preparation The restated financial information has been prepared in accordance with allapplicable IFRS and related interpretations in force at the date of thisannouncement under the assumption that all existing standards in issue from theInternational Accounting Standards Board (IASB) will be fully endorsed by theEU. The failure of the EU to endorse all of these standards for financialreporting in 2005, the issue of any new or revised standards, or the publishingof further interpretation guidance, could result in changes to the financialinformation presented in this document. In addition, as the financial communitygains more experience, and best practice and interpretative guidance develop,there may be consequential changes to the methodologies and approaches used inpreparing the financial information shown in this document. The financial information for the full year ended 30 June 2005, as prepared onthe above basis and included in this document, has not been audited. The financial statements included here are presented in accordance with IAS 1,Presentation of Financial Statements. This format and presentation may requiremodification in the event that further guidance is issued and as best practicedevelops. IAS 1 does not provide definitive guidance on the format of the incomestatement, but states key lines that should be disclosed. It also requiresadditional line items and headings to be presented on the face of the incomestatement when such presentation is relevant to an understanding of the entity'sfinancial performance. Factors to be considered include materiality and thenature and function of the components of income and expense. 3 Transition to IFRS - first time adoption IFRS 1 "First-time Adoption of International Financial Reporting Standards"determines that the transition date for WYG will be 1 July 2004. It permitsthose companies adopting IFRS for the first time to take certain exemptions fromthe full requirements of IFRS during the transition period. WYG has taken the following key exemptions: 3.1 Pensions The Group has elected to recognise all cumulative actuarial gains and losses inrelation to employee benefit schemes at the date of transition. The Group hasrecognised actuarial gains and losses in full in the period in which they occurin reserves via the statement of recognised income and expense in accordancewith the amendment to IAS19, issued on 16 December 2004. 3.2 Cumulative translation differences The Group has adopted the exemption in IFRS1 "First-time Adoption ofInternational Financial Reporting Standards" allowing cumulative translationdifferences to be reset to zero at the transition date. 3.3 Share based payments The Group has adopted the exemption to apply IFRS 2 "Share based payments" onlyto awards granted after 7 November 2002 that had not vested by 1 January 2005.There is no change in the treatment for options granted before 7 November 2002. 3.4 Business combinations The Group has elected not to apply IFRS 3 "Business Combinations"retrospectively and restate business combinations completed prior to the date oftransition. As a result, in the opening balance sheet, goodwill arising frompast business combinations of £34.0 million remains as stated under UK GAAP at 1July 2004. 3.5 Financial Instruments Comparatives The Group has taken advantage of the exemption in IFRS 1 not to restatecomparatives for IAS 32 "Financial Instruments: Disclosure and Presentation" andIAS 39 "Financial Instruments: Recognition and Measurement" and the standardswill be applied from 1 July 2005 only. The comparative information in the 2005financial statements will be presented on the existing UK GAAP basis and willnot be restated in line with IAS 32 and IAS 39. 4 IFRS Financial statements for the year ended 30 June 2005 4.1 Consolidated Income Statement for the year ended 30 June 2005 £'000 Unaudited Continuing OperationsRevenue 143,906 Operating expenses (132,636) Operating profit 11,270 Finance costs (1,883) Profit before tax 9,387 Tax (2,638) Profit for the year 6,749 Earnings per shareBasic 16.9pDiluted 16.5p 4.2 Reconciliation of reported profits for the year ended 30 June 2005 As reported Pensions Goodwill Employee Share-based Other As restated under UK amortisation benefits payments under IFRS GAAP £'000 £'000 £'000 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited 5.1 5.2 5.4 5.5 5.6, 6.3 Continuing Operations Revenue 143,906 - - - - - 143,906 Operating expenses (134,209) 227 1,883 (383) (112) (42) (132,636) Operating profit 9,697 227 1,883 (383) (112) (42) 11,270 Finance costs (1,549) (334) - - - - (1,883) Profit before tax 8,148 (107) 1,883 (383) (112) (42) 9,387 Tax (2,849) 33 - 115 34 29 (2,638) Profit for theyear 5,299 (74) 1,883 (268) (78) (13) 6,749 Earnings per shareBasic 13.2p (0.2p) 4.8p (0.7p) (0.2p) - 16.9pDiluted 13.0p (0.2p) 4.6p (0.7p) (0.2p) - 16.5p Adjusted earnings per shareBasic 18.0p (0.2p) - (0.7p) (0.2p) 0.1p 17.0pDiluted 17.6p (0.2p) - (0.7p) (0.2p) 0.1p 16.6p 4.3 Consolidated Balance Sheets as at 30 June 2005 and 1 July 2004 30 June 2005 1 July 2004 £'000 £'000 Unaudited Unaudited Non-current assetsGoodwill 36,675 34,010Other intangible assets 985 781Property, plant and equipment 9,097 6,354Deferred tax assets 2,224 1,186 48,981 42,331 Current assetsWork in progress 28,772 24,030Trade and other receivables 39,505 33,699Tax recoverable 289 538Cash and cash equivalents 5,579 4,586 74,145 62,853 Current liabilitiesTrade and other payables (42,806) (34,432)Tax liabilities (1,561) (1,565)Obligations under finance leases (2,547) (2,127)Bank overdraft and loans (4,500) (1,847) (51,414) (39,971) Net current assets 22,731 22,882 Non-current liabilitiesBank loans (10,811) (12,011)Retirement benefit obligation (5,336) (3,084)Deferred tax liabilities (100) (50)Obligations under finance leases (3,143) (2,833) (19,390) (17,978) NET ASSETS 52,322 47,235 SHAREHOLDERS' EQUITYShare capital 2,050 1,995Shares to be issued 1,550 2,433Share premium account 33,554 30,676Cumulative translation reserve (440) -Retained earnings 15,608 12,131 Total shareholders' equity 52,322 47,235 4.4 Reconciliation of equity and net assets as at 30 June 2005 As reported Pensions Goodwill Dividends Employee Share-based Other As under amortisation benefits payments restated UK GAAP under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited 5.1 5.2 5.3 5.4 5.5 5.6, 6.3 Non-currentassetsGoodwill 34,917 - 1,883 - - - (125) 36,675Other intangible - - - - - - 985 985assetsProperty, plant 9,999 - - - - - (902) 9,097and equipmentDeferred tax 193 1,601 - - - 339 91 2,224assets 45,109 1,601 1,883 - - 339 49 48,981 Current assetsWork in progress 28,772 - - - - - - 28,772Trade and other 39,505 - - - - - - 39,505receivablesTax recoverable 289 - - - - - - 289Cash and cash 5,579 - - - - - - 5,579equivalents 74,145 - - - - - - 74,145 CurrentliabilitiesTrade and other (42,176) - - 1,681 (2,213) (98) - (42,806)payablesTax liabilities (1,676) - - - 115 - - (1,561)Obligations (2,547) - - - - - - (2,547)under financeleasesBank overdraft (4,500) - - - - - - (4,500)and loans (50,899) - - 1,681 (2,098) (98) - (51,414) Net current 23,246 - - 1,681 (2,098) (98) - 22,731assets Non-currentliabilitiesBank loans (10,811) - - - - - - (10,811)Retirement - (5,336) - - - - - (5,336)benefitobligationDeferred tax - - - - - - (100) (100)liabilitiesObligations (3,143) - - - - - - (3,143)under financeleases (13,954) (5,336) - - - - (100) (19,390) NET ASSETS 54,401 (3,735) 1,883 1,681 (2,098) 241 (51) 52,322 4.4 Reconciliation of equity and net assets as at 30 June 2005 (continued) As reported Pensions Goodwill Dividends Employee Share-based Other As under amortisation benefits payments restated UK GAAP under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited 5.1 5.2 5.3 5.4 5.5 5.6, 6.3 SHAREHOLDERS' EQUITYShare capital 2,050 - - - - - - 2,050Shares to be 1,550 - - - - - - 1,550issuedShare premium 33,554 - - - - - - 33,554accountCumulative - - - - - - (440) (440)translationreserveRetained 17,247 (3,735) 1,883 1,681 (2,098) 241 389 15,608earnings Total 54,401 (3,735) 1,883 1,681 (2,098) 241 (51) 52,322shareholders'equity 4.5 Reconciliation of equity and net assets as at 1 July 2004 As reported Pensions Goodwill Dividends Employee Share-based Other As under amortisation benefits payments restated UK GAAP under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited 5.1 5.2 5.3 5.4 5.5 5.6, 6.3 Non-currentassetsGoodwill 34,010 - - - - - - 34,010Other - - - - - - 781 781intangibleassetsProperty, plantand equipment 7,135 - - - - - (781) 6,354Deferred tax 164 925 - - - 85 12 1,186assets 41,309 925 - - - 85 12 42,331 Current assetsWork in progress 24,030 - - - - - - 24,030Trade and other receivables 33,699 - - - - - - 33,699 Tax recoverable 538 - - - - - - 538 Cash and cash equivalents 4,586 - - - - - - 4,586 62,853 - - - - - - 62,853 CurrentliabilitiesTrade and other payables (34,048) - - 1,468 (1,830) (22) - (34,432)Tax liabilities (1,565) - - - - - - (1,565)Obligationsunder finance (2,127) - - - - - - (2,127)leases Bank overdraftand loans (1,847) - - - - - - (1,847) (39,587) - - 1,468 (1,830) (22) - (39,971) Net current assets 23,266 - - 1,468 (1,830) (22) - 22,882 Non-currentliabilitiesBank loans (12,011) - - - - - - (12,011)Retirementbenefit obligation - (3,084) - - - - - (3,084)Deferred tax - - - - - - (50) (50)liabilities Obligationsunder finance leases (2,833) - - - - - - (2,833) (14,844) (3,084) - - - - (50) (17,978) NET ASSETS 49,731 (2,159) - 1,468 (1,830) 63 (38) 47,235 4.5 Reconciliation of equity and net assets as at 1 July 2004 (continued) As reported Pensions Goodwill Dividends Employee Share-based Other As under amortisation benefits payments restated UK GAAP under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Audited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited 5.1 5.2 5.3 5.4 5.5 5.6, 6.3 SHAREHOLDERS' EQUITYShare capital 1,995 - - - - - - 1,995Shares to be 2,433 - - - - - - 2,433issuedShare premium 30,676 - - - - - - 30,676accountCumulativetranslation reserve - - - - - - - -Retained 14,627 (2,159) - 1,468 (1,830) 63 (38) 12,131earnings Total 49,731 (2,159) - 1,468 (1,830) 63 (38) 47,235shareholders'equity 4.6 Consolidated cash flow statement for the year ended 30 June 2005 £'000 Unaudited Operating activities Cash generated from operations 12,756Interest paid (1,557)Tax paid (2,673) Net cash from operating activities 8,526 Investing activities Proceeds on disposal of property, plant and equipment 196Purchases of property, plant and equipment (2,662)Purchase of subsidiary undertakings (1,521)Cash balances acquired with subsidiaries 143 Net cash used in investing activities (3,844) Financing activities Proceeds on issue of shares 70Equity dividends paid (2,423)Repayments of borrowings (8,763)Drawdown of loan facilities 7,873Repayments of obligations under finance leases (2,832) Net cash used in financing activities (6,075) Net decrease in cash and cash equivalents (1,393) Cash and cash equivalents at beginning of the year 4,501 Cash and cash equivalents at end of year 3,108 5 Explanation of Principal IFRS adjustments 5.1 Pensions Principal difference Under UK GAAP, the Group measures pension commitments and other related benefitsin accordance with SSAP 24 "Accounting for Pension Costs". Additionaldisclosures are given in accordance with the transitional requirements of FRS 17"Retirement Benefits". Under IFRS, the Group measures pension commitments andother related benefits in accordance with IAS 19 "Employee Benefits". IAS 19 issimilar to FRS 17 in that it adopts a balance sheet approach, bringing thedeficit/surplus of the pension/post-retirement benefits schemes onto the balancesheet. However, FRS 17 dictates that all actuarial gains and losses are to berecognised directly in reserves, whereas IAS 19 also includes an alternativeoption allowing a corridor approach whereby actuarial gains and losses to beheld on the balance sheet and released to the income statement over a period oftime. WYG has elected not to adopt this alternative option and therefore willbe accounting for post-retirement benefits in a manner consistent with FRS 17.As such WYG has chosen to adopt early the amendment to IAS 19 issued on 16December 2004 by the IASB. The amendment has yet to be adopted by the EU but isexpected to be shortly. Impact on income statement for the year ended 30 June 2005 The pension charge under IAS 19 for 2005 is £0.1 million higher than the chargeunder SSAP 24. Impact on net assets as at 1 July 2004 A post-retirement benefit liability of £3.1 million together with a relateddeferred tax asset of £0.9 million has been recognised at the transition date,there were no provisions or prepayments previously recognised under UK GAAP toreverse. The net effect is a reduction in shareholders' funds of £2.2 millionon transition. Impact on net assets as at 30 June 2005 Throughout the year all movements in the deficit on pension schemes arerecognised against the liability. At the end of the year, the liability on thebalance sheet reflects the closing deficit of the pension schemes. This hasbeen adjusted to reflect the actuarial loss net of tax for the year of £1.5million which has been recognised directly in reserves. 5.2 Goodwill and impairments Principal difference Under UK GAAP, the Group amortises goodwill on a straight line basis over theuseful economic life of the acquired asset, up to a maximum of twenty years.Provision is made when impairment is indicated by external business factors andis considered against the value of all businesses acquired as part of eachsingle acquisition. This is in accordance with FRS 10 "Goodwill and IntangibleAssets". Under IFRS 3 "Business Combinations" annual amortisation is no longerrequired, instead goodwill must be allocated to each income generating unitacquired, and an annual impairment review must be performed for each discreteunit in accordance with IAS 36 "Impairment of Assets". The Group has performed this allocation and subsequent review and no impairmenthas been noted. Impact on income statement for the year ended 30 June 2005 Amortisation of goodwill is reduced from £1.9 million under UK GAAP to £nilunder IFRS. Impact on net assets at 1 July 2004 No impact noted. Impact on net assets at 30 June 2005 The closing balance sheet for 2005 is subject to an increase in the value ofnon-current assets of £1.9 million. 5.3 Proposed dividends Principal difference Under UK GAAP, ordinary dividends are accounted for in the period to which theyrelate even if the approval of that dividend takes place after the balance sheetdate. Under IFRS, proposed ordinary dividends do not meet the definition of aliability until such time as they have been approved. In the case of a finaldividend this approval is by shareholders at the Annual General Meeting. Theapproval of an interim dividend takes place at a meeting of the Board ofDirectors. Under IFRS, ordinary dividends are no longer disclosed on the face of the incomestatement but shown as a movement in equity. Impact on income statement for the year ended 30 June 2005 No charge is made for the final 2005 dividend in the 2005 income statement.Instead, it is replaced by a direct charge to equity for the 2004 final dividendof £1.5 million. The net impact is a £0.2 million increase in retained profitin 2005 under IFRS. No dividend payable is shown as part of the income statement but the dividendsdeclared in the year, the final 2004 and the interim 2005 dividend are shows asa deduction from the retained earnings reserve. Impact on net assets at 1 July 2004 The impact at 1 July 2004 is to derecognise the 2004 final dividend liability of£1.5 million in the transitional balance sheet. Impact on net assets at 30 June 2005 The dividend liability of £1.7 million is removed from the balance sheet. 5.4 Employee Benefits Principal difference There are no specific accounting standards in UK GAAP dealing with employeebenefits payable during employment. IAS 19 "Employee Benefits" requiresemployers to recognise the total cost of all short term employee benefitsexpected to be paid in exchange for employee's services in the accountingperiod. This includes holiday pay (the WYG holiday year runs from 1 January to31 December and does not therefore coincide with the 30 June statutory financialyear end) and all bonus entitlements, both of which have previously beenaccounted for as incurred. This results in an additional accrual to be made bythe Group. Impact on income statement for the year ended 30 June 2005 An additional operating expense of £0.4 million is recognised in the incomestatement representing the increase in the holiday pay and bonus accrual between1 July 2004 and 30 June 2005. Impact on net assets at 1 July 2004 At 1 July 2004 an accrual for £1.8 million has been recognised representing theexcess of employees' six months holiday entitlement over holidays actually takenand employee bonuses, including National Insurance, representing amounts paidpost year-end but relating to that financial year. Impact on net assets at 30 June 2005 An accrual of £2.2 million is recognised in the balance sheet along with areduction in the tax liability of £0.1m. 5.5 Share based payments Principal difference Under UK GAAP the cost of awards to employees through the Long Term IncentivePlan and the Investment Bonus Plan were charged to the income statement over theperiod to which the employees' performance related. Historically provision hasbeen made for the cost of awards based on the share price ruling at grant date.All of the Group's share options have an exercise price equivalent to the fairvalue at the date of award, therefore there was no requirement to recognise anyexpense under UK GAAP. Under IFRS, all share awards will be measured at fair value at grant date andrecognised as an expense over the vesting period, subject to performancecriteria and vesting levels. Impact on income statement for the year ended 30 June 2005 An additional operating expense of £0.1 million is recognised in the incomestatement together with a reduction in the tax charge of £0.03 million. Impact on net assets at 1 July 2004 At 1 July 2004 a deferred tax asset of £0.08 million has been created and anaccrual for employer's National Insurance payable on exercise of £0.02 millionhas been recognised. The net impact is an increase in distributable reserves of£0.06 million. Impact on net assets at 30 June 2005 A deferred tax asset of £0.3 million and a liability for employers' NationalInsurance of £0.1 million is recognised, leading to an increase in shareholders'funds of £0.2 million. 5.6 Deferred tax Principal difference Under UK GAAP deferred tax is recognised on the basis of timing differences,being the difference between accounting profit and taxable profit. IFRSrequires deferred tax to be based on temporary differences, being the differencebetween the carrying value of an asset of liability and its tax base. The main impacts of this are the recognition of a deferred tax asset on sharebased payments where IFRS requires a deferred tax asset to be established basedon the potential future tax deduction available to the company estimated usingthe information available at the balance sheet date. A deferred tax asset alsowill be recognised in respect of the pension deficit and a deferred taxliability based on the temporary difference between the carrying value of taxdeductable goodwill and its tax base. Impact on income statement for the year ended 30 June 2005 The impact of the above factors results in a reduction in the tax charge of £0.1million in the income statement. Impact on net assets at 1 July 2004 The impacts in respect of the pension and share based payment adjustments arenoted above, the overall impact of IFRS is an increase in the deferred tax assetby £1.0 million. A deferred tax liability of £0.05 million is separatelyrecognised in respect of tax deductable goodwill. Impact on net assets at 30 June 2005 An additional deferred tax asset of £2.0 million is recognised primarily inrespect of the pension and share based payments IFRS adjustments. A deferredtax liability of £0.1 million is separately recognised in respect of taxdeductable goodwill. 6 Other impacts 6.1 Cash flow The Group's underlying cash position is unaffected by the transition to IFRS.However, there are a number of presentational differences arising in the cashflows reported under IAS 7 "Cash Flow Statements". The cash flows themselvesrelate to movements in cash and cash equivalents (rather than simply cash) andare classified under three headings (operating, investing and financing) whichresults in the reordering of entries from their UK GAAP format. 6.2 Segmental Reporting Under IAS 14 "Segment Reporting" additional reporting requirements are requiredfor the primary reporting segments and disclosure is also required for secondaryreporting segments. The Group has elected to treat business segments:Engineering, Management Services and Planning & Environmental as the primaryreporting segments and geographical business segments: UK, Ireland and Europe asthe secondary reporting segments. 6.3 Reclassifications Various reclassifications are required in order to comply with the disclosurerequirements of the IFRS and IAS. The most significant of these are: 6.3.1 Computer Software Under UK GAAP, all capitalised software is included within tangible fixed assetsas plant and equipment. Under IFRS, only computer software that is integral toa related item of hardware should be included as plant and equipment. All othercomputer software should be recorded as an intangible asset. Accordingly a reclassification of the net book value amount of capitalisedsoftware of £0.8 million has been made in the transition balance sheet and £0.9million in the balance sheet as at 30 June 2005 between property, plant andequipment and intangible assets. There is no impact on the income statement as a result of the reclassificationsince, under both UK GAAP and IFRS, computer software is written down over itsestimated useful life. 6.3.2 Cumulative Translation Differences IAS 21 "The Effects of Changes in Foreign Exchange Rates" requires that allexchanges differences resulting from a translation of a foreign operation to thepresentational currency shall be recognised as a separate component of equity.As a result at 30 June 2005 translation losses of £0.4 million are reclassifiedfrom retained earnings to the cumulative translation reserve. There is no impact on the transitional balance sheet as an exemption has beentaken to reset all cumulative translation differences to be reset to zero at thetransition date. Under UK GAAP these differences did not pass through theincome statement so there is no impact on the income statement. 6.3.3 Intangible Assets During the year ended 30 June 2005 the Group acquired WynThomasGordonLewisLimited and Robert Long Consultancy Limited. IFRS 3 "Business Combinations"requires that for all business combinations completed after the date oftransition to IFRS, separately identified intangible assets should be valued andare subject to amortisation. As a result, £0.1m of amounts previously classified as goodwill under UK GAAP inrelation to acquired order books and contracts has been reclassified as anintangible asset. This will be amortised over a 12 month period from the dateof acquisition which results in a £0.04m charge to the income statement in theyear-ended 30 June 2005. 7 Principal Accounting Policies FollowingIFRS Implementation The principal accounting policies that the Group anticipates adopting in its 30June 2006 financial statements to be prepared under IFRS are detailed below. The accounting policies assume that all existing standards in issue from theIASB will be fully endorsed by the EU. 7.1 Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRSs), International Financial ReportingInterpretations Committee (IFRIC) interpretations and those parts of theCompanies Act 1985 that remain applicable to companies reporting under IFRS.The financial statements have been prepared on the historical cost basis withthe exception of certain items which are measured at fair value as disclosed inthe principal accounting policies set out below. The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to30 June each year. Control is achieved where the Company has the power to governthe financial and operating policies of an investee entity so as to obtainbenefits from its activities. Results of subsidiary undertakings acquired or sold during the year areconsolidated from or to the date on which control passes. The trading results ofcompanies acquired during the year are accounted for under the acquisitionmethod of accounting. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. 7.2 Revenue recognition Revenue represents the value of work earned during the year on contracts byreference to total contract value and stage of completion. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. Work in progress is stated at cost plus attributable profits less foreseeablelosses and progress payments received and receivable. Cost comprises directstaff costs and attributable overheads. Attributable profit is that proportionof the total profit currently estimated to arise over the duration of acontract, as earned at the balance sheet date. Third party payments represent costs incurred by the Group on behalf of clientswhich are invoiced at no margin. Progress payments receivable in excess of thevalue of work executed on individual contracts are included in creditors. 7.3 Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is recognised as an asset and tested forimpairment at least annually and is carried at cost less accumulated impairmentlosses. Any impairment is recognised immediately in profit or loss and is notsubsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 1998 hasnot been reinstated and is not included in determining any subsequent profit orloss on disposal. 7.4 Other intangible assets Intangible assets purchased separately, such as software licences that do notform an integral part of related hardware, are capitalised at cost and amortisedover their useful economic life. Intangible assets acquired through a businesscombination are initially measured at fair value and amortised over their usefuleconomic lives. 7.5 Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment and whenever events or changes incircumstance indicate that the carrying amount may not be recoverable. Assetsthat are subject to amortisation are tested for impairment whenever events orchanges in circumstance indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis the higher of an asset's fair value less costs to sell and value in use. Forthe purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash-generating units). 7.6 Property, plant and equipment Properties, plant and equipment are stated at cost less accumulated depreciationand any recognised impairment loss. The cost of an item of property, plant andequipment comprises its purchase price and any costs directly attributable tobring the asset into use. Borrowing costs related to the purchase of fixedassets are not capitalised. Depreciation is charged so as to write off the cost or valuation of assets, overtheir estimated useful lives, on the following bases: Short leasehold improvements - equally over the life of the lease Motor vehicles - 25% per annum on net book value Office furniture and equipment - 20-33.3% per annum on original cost Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of therelevant lease. 7.7 Leased assets Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Benefits received and receivable asan incentive to enter into an operating lease are also spread on a straight linebasis over the lease term. 7.8 Tax The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. 7.9 Foreign currency translation Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the 'functional currency'). The consolidated financialstatements are presented in pounds Sterling, which is the Company's functionaland presentation currency. Transactions in currencies other than the functional currency are recorded atthe rates of exchange prevailing on the dates of the transactions. At eachbalance sheet date, monetary assets and liabilities that are denominated inforeign currencies are retranslated at the rates prevailing on the balance sheetdate. Gains and losses arising on retranslation are included in net profit orloss for the period, except for exchange differences arising on non-monetaryassets and liabilities where the changes in fair value are recognised directlyin equity. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are classified as equity and transferred to the Group's translationreserve. Such translation differences are recognised as income or as expenses inthe period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. 7.10 Investments in subsidiary undertakings Investments in subsidiary undertakings are stated in the Company's balance sheetat cost less any provision for impairment in value. 7.11 Employee Benefits Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. For defined benefit retirement benefit schemes, the cost of providing benefitsis determined using the Projected Unit Credit Method, with independent actuarialvaluations being carried out at each balance sheet date. Actuarial gains andlosses are recognised in full in the period in which they occur. They arerecognised outside profit or loss and presented in the statement of recognisedincome and expense. Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents thepresent value of the defined benefit obligation as adjusted for unrecognisedpast service cost, and as reduced by the fair value of scheme assets. Any assetresulting from this calculation is limited to past service cost, plus thepresent value of available refunds and reductions in future contributions to theplan. Short-term compensated absences A liability for short-term compensated absences, such as holiday, is recognisedfor the amount the Group may be required to pay as a result of the unusedentitlement that has accumulated at the balance sheet date. 7.12 Deferred and contingent consideration In respect of acquisitions for which part of the purchase consideration ispayable during future accounting periods, the full amount of the deferredconsideration is recognised immediately, except in respect of acquisitions forwhich part of the purchase consideration is determined by the profits generatedby the acquired Company during future accounting periods. In such cases thecontingent consideration is included in the accounts based on the best estimatesof future profitability of the Company at this time. Estimates are revised asfurther and more certain information becomes available. Goodwill and shares tobe issued are adjusted accordingly. 7.13 Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that issubject to risks and returns that are different from those of segments operatingin other economic environments. 7.14 Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1January 2005. There is no change in the treatment for equity instrumentsgranted before 7 November 2002. The Group issues equity-settled payments to certain employees. Equity-settledshare-based payments are measured at fair value at the date of grant. The fairvalue determined at the grant date of the equity-settled share-based payments isexpensed on a straight-line basis over the vesting period, based on the Group'sestimate of shares that will eventually vest. Fair value is measured by use of the Black-Scholes model. The expected life usedin the model has been adjusted, based on management's best estimate, for theeffects of non-transferability, exercise restrictions, and behaviouralconsiderations. 7.15 Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts.A provision for impairment is established where there is objective evidencethat the Group will not be able to collect all amounts due according to theoriginal terms of the receivables. The amount of the provision is recognised inthe income statement. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis to the profit and loss account using effective interest method andare added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise. Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Derivative financial instruments and hedge accounting The Group's activities expose it primarily to the financial risks of changes inforeign currency exchange rates. The Group hedges its net investment in foreignoperations via a foreign currency bank loan. The Group does not use derivativefinancial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies approved bythe board of directors, which provide written principles on the use of financialderivatives. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity and the ineffective portion is recognised immediately in the incomestatement Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated, or exercised, or no longer qualifies for hedge accounting. At thattime, any cumulative gain or loss on the hedging instrument recognised in equityis retained in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to net profit or loss for the period. 7.16 Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
WYG