15th Oct 2007 07:02
Spice PLC15 October 2007 15 October 2007 Spice plc Information on the adoption of International Financial Reporting Standards Spice plc ("Spice" or "the Group"), the provider of outsourced infrastructuresupport services to the Commercial, Public and Utility Sectors, will report itsresults for the year ending 27 April 2008 under International FinancialReporting Standards ("IFRS"). The Group's first published results under IFRS will be for the six month periodending 28 October 2007, which will include comparative numbers for the six monthperiod ended 29 October 2006 and also for the year ended 29 April 2007 restatedfrom UK Generally Accepted Accounting Principles ("UK GAAP") to IFRS. Spice'seffective date of transition to IFRS is 1 May 2006. The adoption of IFRS does not materially affect the Group's turnover, EBITA orprofit before tax and amortisation for either the year ended 29 April 2007 orperiod ended 29 October 2006. IFRS has no effect on the Group's strategy,cashflows or net debt position. Under IFRS, the Group's adjusted diluted earnings per share are reduced mainlyas a consequence of the tax relief arising on the exercise of share optionsbeing accounted for within equity rather than the income statement. The Groupwill continue to receive the cash benefit of this tax relief under IFRS, in thesame way that it has done under UK GAAP. The impact of IFRS on the Group's key results can be summarised as follows: Year ended 29 April 2007 Period ended 29 October 2006 IFRS IFRS UK GAAP unaudited UK GAAP unaudited £'m £'m £'m £'mRevenue 228.6 228.6 102.6 102.6EBITA* 16.3 16.2 7.2 7.1Operating profit 12.5 15.0 5.5 6.7Profit before tax and amortisation of intangible fixed assets 13.8 13.5 6.4 6.1 Profit before tax 10.1 12.2 4.7 5.8Diluted earnings per share (pence per share) 15.1 18.1 6.5 8.8Adjusted** diluted earnings per share (pence per share) 22.7 20.6 9.9 9.5Net assets 67.3 75.2 43.6 47.3Cash inflow from operating activities 16.3 16.3 5.3 5.3Net debt 34.3 34.3 31.6 31.6 * EBITA comprises profit on ordinary activities before interest, tax and amortisation of intangible fixed assets** Adjusted to exclude the effect of the amortisation of intangible fixed assets - Ends - For further information, please contact: Spice Tel: 0113 384 3838Simon Rigby, Chief Executive OfficerOliver Lightowlers, Group Finance DirectorCarl Chambers, Corporate Development Director Financial Dynamics Tel: 020 7831 3113Billy CleggCaroline Stewart KBC Peel Hunt Tel: 0207 4188900Julian Blunt Information on the adoption of International Financial Reporting Standards Contents 1 Introduction2 Basis of preparation and first time adoption of IFRS3 Impact of transition from UK GAAP to IFRS4 Restated primary financial statements5 Accounting policies 1 Introduction Historically Spice has prepared its consolidated financial statements inaccordance with UK GAAP. As a result of changes in EU legislation and the Aimrules, Spice will prepare consolidated financial statements in accordance withIFRS for all accounting periods beginning on or after 30 April 2007. The Group's first Interim Report published under IFRS will be for the six monthsending 28 October 2007 and its first Annual Report published under IFRS will befor the year ending 27 April 2008. Prior period comparatives numbers have beenrestated to comply with IFRS. This report explains how the Group's UK GAAP balance sheets at 30 April 2006, 29October 2006 and 29 April 2007 would have been reported under IFRS. The reportalso explains how the Group's UK GAAP results for the period ended 29 October2006 and year ended 29 April 2007 would have been reported under IFRS. The Group's accounting policies, updated for IFRS, are set out in Section 5. The main impacts of the adoption of IFRS for the Group are as follows: • Purchased goodwill arising on acquisitions completed before 1 May 2006 is no longer amortised; • Intangible fixed assets acquired through business combinations since 1 May 2006 are separately reported and amortised over their useful economic lives; • Provisions for holiday pay have been established from 1 May 2006; • Provisions for contingent consideration, where material, are now discounted to present value and a non-cash interest charge recognised for the period until that contingent consideration has been satisfied; • The benefits of tax relief arising on the exercise of share options are no longer recognised in the income statement but as a component of equity 2 Basis of Preparation and first time adoption of IFRS The IFRS financial information and adjustments contained in this document areprovisional and unaudited. The UK GAAP information used in this report has beenextracted from the Group's financial statements for the year ended 29 April2007, which contained an unqualified audit report and from the Group's InterimReport for the period ended 29 October 2006, which was unaudited. The IFRS financial information and adjustments presented in this report havebeen prepared on the basis of all IFRS and International Financial ReportingInterpretations Committee interpretations ("IFRICs") issued, effective andadopted for use in the European Union at the date of preparing this report.These IFRS and IFRICs are subject to ongoing review and possible amendment.Further standards and/or interpretations may be issued that could apply to theGroup's financial statements for the year ending 27 April 2008. If any suchamendments, new standards or interpretations are issued then these may requirethe financial information provided in this report to be changed. The Group will also continue to review its accounting policies in the light ofemerging industry consensus on the practical application of IFRS. This couldalso mean that the financial information provided in this report may requiremodification until the first set of audited IFRS financial statementsare completed for the year ending 27 April 2008. The rules for first time adoption of IFRS are set out in IFRS 1 - First timeAdoption of IFRS. In general a company is required to define its IFRS policiesand apply them retrospectively. However, IFRS 1 does allow a company to takeadvantage of a number of exemptions from restating historical data. Wherematerial to the financial information presented, the choices made by the Groupin respect of these optional exemptions have been described in Section 3 below. The Directors are responsible for the preparation of the restated IFRS financialinformation. This report was approved by the Directors on 15 October 2007. 3 Impact of transition from UK GAAP to IFRS An explanation of the major adjustments arising from the transition to IFRS areset out below. 3.1 IAS 1 - Presentation of financial statements The format of primary financial statements under UK GAAP is governed by theCompanies Act 1985. IAS 1 is less prescriptive in terms of the items that arerequired to be disclosed. The transition to IFRS has resulted in the Groupchanging the format of both its income statement and balance sheet. The format of the cash flow statement will change and the IFRS cash flowstatement will explain the change in cash and cash equivalents rather than justcash as under UK GAAP. Currently the Group has no short term investments thatwould fall into the IFRS definition of cash and cash equivalents. Although theformat of the cash flow statement will change, net cash flows are not impactedand therefore, no revised statement has been provided. A reconciliation of thenet debt position will continue to be provided as additional information. The Group has sought to interpret the IFRS requirements in a manner thatprovides users of its financial statements with clear and concise information.These formats may however require modification as industry consensus develops. 3.2 IFRS 3 - Business Combinations In line with IFRS 1, the Group has chosen not to apply IFRS 3 retrospectivelyand has not restated any business combinations prior to 1 May 2006. Goodwillarising in respect of acquisitions completed prior to the transition date willremain as stated under UK GAAP with the net book value of goodwill becoming thedeemed cost as at the transition date with impairment reviews carried outannually or at other times if there are indications that the carrying value isnot recoverable. As a result, purchased goodwill at 1 May 2006 of £41.0 million will no longer beamortised. The results for the year ended 29 April 2007 and period ended 29October 2006 have been restated to reverse the goodwill amortisation chargerecorded under UK GAAP of £3.5 million and £1.6 million respectively. Thereversal of the goodwill amortisation charge does not affect the Group's taxcharge, because goodwill amortisation is mainly not a deductible expense for taxpurposes. Impairment reviews were carried out at 29 April 2007 and 29 October2006 in accordance with IAS 36 "Impairment of assets" and no impairments wereidentified. 3.3 IAS 38 - Intangible assets In relation to acquisitions completed after 1 May 2006, under IFRS 3 there is arequirement to separately identify intangible fixed assets acquired as part of abusiness combination rather than include these as part of purchased goodwill.Intangible fixed assets, such as brands, customer contracts and customerrelationships have been separately identified, valued and are now beingamortised over their useful economic lives. The acquisitions during the yearended 29 April 2007 of Breval, Inenco, Apollo, Pargas, Atlanta and Optimalresulted in the recognition of separately identifiable intangible fixed assetsof £11.7 million. The amortisation charge in relation to these assets was £1.0million for the year ended 29 April 2007 and £0.2 million for the period ended29 October 2006. In accordance with IAS 12 Income taxes, a deferred tax liability has beenrecognised in relation to separately identifiable intangible fixed assets. 3.4 IAS 21 - The Effects of Changes in Foreign Exchange Rates Under IAS 21 cumulative exchange rate variances on the net investment in foreignoperations are recognised in a separate equity reserve. Whilst the quantum ofthese differences is not material, the Group has elected to set these exchangedifferences to zero at the transition date, as permitted by IFRS 1. 3.5 Fixed Assets - Revaluation of property, plant and equipment Under UK GAAP, Spice adopted a policy of periodic revaluation with regard tofreehold land and buildings. These assets were last valued by independentvaluers in February 2006. IFRS1 permits previous UK GAAP revaluations ofproperty, plant and equipment, at or before the date of transition to IFRS, tobe treated as the deemed cost at the date of transition. Accordingly, property,plant and equipment will not be revalued in future. 3.6 IAS 19 - Employee benefits In accordance with IAS 19, Spice has recorded a provision for holiday pay of£0.3 million at the date of transition to IFRS. An additional provision of £0.1million was also recorded during the year ended 29 April 2007 such that thetotal provision for holiday pay recorded on the Group balance sheet at 29 April2007 was £0.4 million. 3.7 IAS 37 - Effective interest on contingent consideration Under UK GAAP, the Group did not discount contingent consideration to presentvalue in determining the cost of a business combination as the financial impacton the Group was not material. Under IFRS, the Group has decided that contingentconsideration, where material, should be discounted to present value inaccordance with IAS 37. Accordingly, at the date of transition provisionsrecorded for future contingent consideration payments have been discounted by£0.4 million. Consequently the interest charge in the income statement for theyear ended 29 April 2007 and for the period ended 29 October 2006 has increasedby £0.3 million and £0.1 million respectively. In each case this is a non-cashcost. 3.8 IFRS reclassification differences In accordance with IFRS 5, Spice has reclassified property, plant and equipmentheld for resale at 1 May 2006 totalling £0.6 million to non-current assets heldfor resale within current assets. In accordance with IAS 16, Spice has reclassified long leasehold property, plantand equipment at 1 May 2006 totalling £0.3 million to non-current trade andother receivables. 3.9 IAS 12 - Deferred tax on share options The Group receives tax relief on the exercise of share options and, under UKGAAP, this tax relief was recognised in the income statement at the date ofexercise. Under IFRS, the Group will continue to receive tax relief on theexercise of share options (to the extent that the market value of the shareoption exceeds the option price). However, under IFRS, this tax relief is nowaccounted for within equity. The Group will continue to receive the cash benefitof this tax relief under IFRS, in the same way that it has done under UK GAAP. Deferred tax assets, in relation to the expected tax relief to be received onthe future exercise of share options, totalling £1.7 million, £2.8 million and£5.7 million have been recognised at 1 April 2006, 29 October 2006 and 29 April2007 respectively. 4 Restated primary financial statements 4.1 Consolidated income statement for the period ended 29 October 2006 3.6 UK GAAP 3.7 3.2 & 3.3 Holiday Interest Goodwill pay IFRS £'000 £'000 £'000 £'000 £'000 Revenue 102,633 102,633Operating expenses (97,106) 1,318 (100) (95,888) EBITA* 7,209 7,109 Amortisation of intangible fixed assets (1,682) 1,318 (364) Operating profit 5,527 6,745Finance costs (847) (148) (995) PBTA** 6,362 6,114 Amortisation of intangible fixed assets (1,682) 1,318 (364) Profit before tax 4,680 5,750 Tax on profit on ordinary activities (1,404) 71 (1,333) Retained profit for the period 3,276 (148) 1,389 (100) 4,417 Basic EPS 7.3 9.8Diluted EPS 6.5 8.8 * EBITA is earnings before interest, tax, exceptional items and amortisation of intangible fixed assets.** PBTA is profit before tax and amortisation of intangible fixed assets. 4.2 Consolidated income statement for the year ended 29 April 2007 3.6 3.9 3.7 3.2 & 3.3 Holiday Share UK GAAP Interest Goodwill pay options IFRS £'000 £'000 £'000 £'000 £'000 £'000 Revenue 228,560 228,560Operating expense (216,030) 2,541 (100) (213,589) EBITA* 16,296 16,196 Amortisation of intangible fixed assets (3,766) 2,541 (1,225) Operating profit 12,530 14,971Finance costs (2,444) (283) (2,727) PBTA** 13,852 13,469 Amortisation of intangible fixed assets (3,766) 2,541 (1,225) Profit before tax 10,086 12,244 Tax on profit on ordinary activities (2,561) 296 (982) (3,247) Retained profit for the year 7,525 (283) 2,837 (100) (982) 8,997 Basic EPS 16.5 19.7Diluted EPS 15.1 18.1 * EBITA is earnings before interest, tax, exceptional items and amortisation of intangible fixed assets.** PBTA is profit before tax and amortisation of intangible fixed assets. 4.3 Consolidated balance sheet at 30 April 2006 3.6 3.9 3.8 3.7 Holiday Share UK GAAP Reclassifications Interest pay options IFRS £'000 £'000 £'000 £'000 £'000 £'000AssetsNon-current assetsPurchased goodwill 41,458 (439) 41,019Intangible fixed assets 825 825Property, plant and equipment 13,623 (943) 12,680Investment in associates 212 212Trade and other receivables - 341 341Deferred tax assets 65 1,679 1,744 56,183 56,821 Current assetsInventories 4,264 4,264Trade receivables and other receivables 32,607 32,607Cash and cash equivalents - -Non current assets held for resale - 602 602Current tax recoverable - - 36,871 37,473Liabilities Current liabilitiesTrade and other payables (28,710) (300) (29,010)Current tax payable (3,274) (3,274)Financial liabilities (1,310) (1,310) (33,294) (33,594) Non-current liabilities Financial liabilities (12,237) (12,237) Deferred tax liabilities - -Provisions for other liabilities and charges (7,677) 439 (7,238)Other non-current liabilities - - (19,914) (19,475) Net assets 39,846 (300) 1,679 41,225 Shareholders equityShare capital 4,947 4,947Share premium account 27,462 27,462Other reserves 100 100Retained Earnings 7,337 (300) 1,679 8,716 Equity shareholders funds 39,846 (300) 1,679 41,225 4.4 Consolidated balance sheet at 29 October 2006 3.6 3.9 3.8 3.7 Holiday 3.2 & 3.3 Share UK GAAP Reclassifications Interest pay Goodwill options IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 AssetsNon-current assetsPurchased goodwill 59,675 (439) (2,080) 57,156Intangible fixed assets 782 4,957 5,739Property, plant and equipment 14,799 (934) 13,865Investment in associates 212 212Trade and other receivables - 339 339Deferred tax assets 65 (1,488) 2,828 1,405 75,533 78,716 Current assetsInventories 6,649 6,649Trade receivables and other receivables 43,229 43,229Cash and cash equivalents - -Non current assets held for resale - 595 595Current tax recoverable - - 49,878 50,473Liabilities Current LiabilitiesTrade and other payables (47,654) (400) (48,054)Current tax payable (4,677) (4,677)Financial liabilities (3,327) (3,327) (55,658) (56,058) Non-Current LiabilitiesFinancial liabilities (17,576) (17,576)Deferred tax liabilities - -Provisions for other liabilities and charges (8,571) 291 (8,280)Other non-current liabilities - - (26,147) (25,856) Net assets 43,606 (148) (400) 1,389 2,828 47,275 Shareholders equityShare capital 4,947 4,947Share premium account 27,462 27,462Other reserves 100 100Retained Earnings 11,097 (148) (400) 1,389 2,828 14,766 Equity shareholders funds 43,606 (148) (400) 1,389 2,828 47,275 4.5 Consolidated balance sheet at 29 April 2007 3.6 3.9 3.8 3.7 Holiday 3.2 & 3.3 Share UK GAAP Reclassifications Interest pay Goodwill options IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 AssetsNon-current assets Purchased goodwill 77,272 (439) (4,674) 72,159 Intangible fixed assets 832 10,734 11,566 Property, plant and equipment 18,330 (924) 17,406Investment in associates 212 212Trade and other receivables - 335 335Deferred tax assets 961 (3,223) 5,742 3,480 97,607 105,158 Current assetsInventories 6,688 6,688Trade receivables and other receivables 55,323 55,323Cash and cash equivalents - - Non current assets held for resale - 589 589 Current tax recoverable - - 62,011 62,600Liabilities Current LiabilitiesTrade and other payables (47,784) (400) (48,184)Current tax payable (4,889) (4,889) Financial liabilities (5,023) (5,023) (57,696) (58,096) Non-Current LiabilitiesFinancial liabilities (29,238) (29,238) Deferred tax liabilities - - Provisions for other liabilities and charges (5,376) 156 (5,220) Other non-current liabilities - - (34,614) (34,458) Net assets 67,308 (283) (400) 2,837 5,742 75,204 Shareholders equityShare capital 5,347 5,347Share premium account 46,523 46,523Other reserves 100 100 Retained Earnings 15,338 (283) (400) 2,837 5,742 23,234 Equity shareholders funds 67,308 (283) (400) 2,837 5,742 75,204 5 Accounting policies The principal accounting policies applied in the preparation of thisconsolidated financial information are set out below. Basis of consolidation The Group financial statements consolidate the financial statements of Spice andits subsidiary undertakings drawn up to the year end using the acquisitionmethod of accounting. Subsidiaries are entities that are directly or indirectlycontrolled by the Group. Control exists where the Company has the power togovern the financial and operating policies of the entity so as to obtainbenefits from its activities. In assessing control, potential voting rights thatare currently exercisable or convertible are taken into account. The results ofacquired companies are included from the date of acquisition. Where necessary,adjustments are made to the accounting policies of subsidiary undertakings tobring these accounting policies into line with those used by the Group. All transactions and balances between Group companies have been eliminated fromthe consolidated financial statements. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts, value added tax and other salesrelated taxes. Revenue is recognised in the income statement at the point that a service isprovided or products are supplied and title has passed for each of the followingactivities: • facilities management and maintenance services;• consultancy, infrastructure design and asset maintenance services;• private mobile radio products;• drain care, maintenance, repair and cleaning services;• water meter installation and meter reading;• services for the development and support of telecommunications networks;• gas maintenance and safety inspections;• energy, water and telecommunications cost control; and• information technology installation, commissioning and maintenance activities. Where the Group receives revenue from service agreements, where the substance ofa contract is that the Group's contractual obligations are performed over time,this revenue is recognised over the period of the agreement to reflect theGroup's performance of its contractual obligations. Where the Group operates as principal to the transaction, revenue is recognisedat gross values. Where the Group acts as agent in the transaction, with thefranchisee being the principal, the Group recognises within revenue the netcommission earned on the transaction. Long term contracts Revenue arising from long term contracts is recognised in the income statementover the term of the related long term contract so as to match revenue andprofits arising with related costs incurred to date. The amount of long termcontracts, at cost incurred, net of amounts transferred to cost of sales, afterdeducting foreseeable losses and payments on account not matched with revenue,is included in work in progress. In certain circumstances, such as the construction of a substation or otherrelated asset, the related customer contracts include both a design andconstruction element. These activities are not capable of separateidentification due to the design and construction activities being intrinsicallylinked. Purchased goodwill Purchased goodwill represents the excess of the cost of acquisition over theGroup's interest in the fair value of the identifiable assets (includingintangible fixed assets) and liabilities of a subsidiary at the date ofacquisition. Purchased goodwill is initially recognised as an asset at cost andis subsequently measured at cost less any accumulated impairment losses. Purchased goodwill which is recognised as an asset is reviewed for impairment atleast annually. Any impairment is recognised immediately in income statement andis not subsequently reversed. For the purpose of impairment testing, purchasedgoodwill is allocated to each of the Group's cash-generating units expected tobenefit from the synergies of the business combination. Cash-generating unitsare tested for impairment annually, or more frequently when there is anindication that the unit may be impaired. If the recoverable amount of thecash-generating unit is less than the carrying amount of the unit, theimpairment loss is allocated first to reduce the carrying value of any purchasedgoodwill allocated to the unit and then to the other assets of the unit pro-rataon the basis of the carrying amount of each asset in the unit. Purchased goodwill arising on acquisitions before the date of transition to IFRShas been retained at the UK GAAP net book value as at 1 May 2006. Such purchasedgoodwill has not been amortised in the period since transition. Other intangible assets Other separately identifiable intangible assets arising on business combinationsare recognised at their fair value at the date of acquisition. Each asset isassessed on acquisition and amortisation is charged so as to write off the costof the identifiable assets over their estimated useful economic lives, using thestraight line method as follows: Brand 10 yearsCustomer relationships and contracts 2 to 10 yearsCustomer order books 3 yearsPatents 4 years Property, plant and equipment Property, plant and equipment, excluding freehold land and buildings, are statedat historic cost together with any incremental expenses of acquisition less anyprovision for depreciation. Historic cost includes the expenditure that isdirectly attributable to the acquisition of the related assets. Freehold landand buildings are stated at deemed cost less depreciation. Deemed cost includessurpluses arising on the revaluation of freehold land and buildings to theirfair values prior to the date of transition. Depreciation of property, plant and equipment is calculated to write off theircost less any residual value over their estimated useful economic lives on areducing balance basis as follows: Freehold buildings 50 yearsLeasehold property shorter of lease term and 50 yearsPlant and machinery 5 to 10 yearsFixtures, fittings and vehicles 2 to 6 years Reviews are performed annually of the estimated remaining lives and residualvalues of individual productive assets and adjustments are made whereappropriate. Depreciation is calculated from the date of purchase. Freehold land is notdepreciated. Assets held under finance leases or hire purchase contracts are depreciated overtheir expected useful economic lives on the same basis as owned assets or, whereshorter, over the term of the relevant lease or hire purchase contract. The gain or loss arising on the disposal or retirement of an asset is recognisedin the income statements and is determined as the difference between the netsales proceeds, less any related taxes, and the carrying amount of the netasset. Employee benefits The Group operates a number of defined contribution pension schemes.Contributions to defined contribution pension schemes are charged to the incomestatement in the financial year to which the contributions relate. Thecontributions paid by the Group and the employees are invested within theindividual pension funds in the month following the month of deduction. Share based payments The Group issues share options to certain employees which are measured at fairvalue, calculated using the either the Black Scholes or Monte Carlo models, andare recognised as an expense in the income statement with a correspondingincrease in retained earnings. The fair value of the employee services receivedin exchange for the grant of the options is recognised as an expense. The totalamount to be expensed over the vesting period is determined by reference to thefair value of the options granted. The fair values of these payments are measured at the dates of grant and isrecognised over the period during which employees become unconditionallyentitled to the awards. At each balance sheet date, the Group revises itsestimates of the number of options that are expected to vest. It recognises theimpact of the revision to original estimates, if any, in the income statement,with a corresponding adjustment to retained earnings. Employee share ownership plan (ESOP) The Company operates an ESOP which is designed to facilitate employeeshareholdings and distribute shares to employees under remuneration schemes.Under IFRS, an entity that controls an employee benefit trust is required by SIC12 to consolidate that trust and, in doing so, apply the requirements of IAS32to the entity's own shares held by the trust. Shares acquired by the ESOP,funded by the Company, and held for the continuing benefit of the Company, areshown as a reduction in the shareholders' funds. Movements in the year arisingfrom additional purchases, by the ESOP, of shares or the receipt of funds due tothe exercise of options by employees are accounted for within reserves and shownas a movement in shareholders' funds in the year. Administration expenses of theTrust are charged to the Company's income statement as incurred. Foreign currencies Functional and presentation currency The financial statements of each Group company are measured using the currencyof the primary economic environment in which that company operates (thefunctional currency). The consolidated financial statements record the resultsand financial position of each Group company in pounds sterling, which is thefunctional currency of the company and the presentation currency for theconsolidated financial statements. Transactions and balances Transactions in foreign currencies are recorded at the exchange rates prevailingon the dates of the transactions. Assets and liabilities denominated in foreigncurrencies are translated into pounds sterling at the relevant exchange ratesprevailing at the balance sheet date. Exchange gains and losses are taken tothe income statement. Group companies The results and financial position of all the Group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: - assets and liabilities for each balance sheet are translated at the closing rate at the balance sheet date; and- income and expenses are translated at average exchange rates. All resulting exchange differences are recognised as a separate component ofequity. Goodwill and fair value adjustments arising on foreign entity acquisitions aretreated as assets and liabilities of the foreign entity and translated at theclosing rate. Translation differences previously recognised in equity are takento the income statement upon disposal of that entity. Leases Leases are classified as finance leases if the terms of the lease involve thetransfer of substantially all the risks and rewards of ownership to the lessee.All other leases are classified as operating leases. Tangible fixed assets acquired under finance leases and hire purchase contractsare capitalised at the lower of their estimated fair value or the present valueof the minimum lease payments at the date of inception of each lease orcontract. Leases consist of capital and interest elements. The capital elementis shown as an obligation under finance leases and reduced to reflect theoutstanding obligation. The interest element is allocated over the period ofthe lease in such a way as to give a reasonably constant charge on theoutstanding liability. Rentals paid under operating leases are charged to the income statement asincurred. Benefits received and receivable as an incentive to enter into anoperating lease are spread on a straight line basis over the lease term. Stock Stock is stated at the lower of cost and net realisable value. Cost comprisesall expenditure incurred in the normal course of business in bringing the stockto its location and condition at the balance sheet date including, whereappropriate, direct labour and other direct costs but excluding borrowing costs.Cost is computed on a first in first out basis. Net realisable value isbased on estimated selling price less the estimated cost of disposal. Provisionis made for any obsolete or slow moving stock where appropriate. Investments in subsidiary undertakings The Company's investment in subsidiary undertakings is stated at cost, less anyprovision for impairment. Investments in associated undertakings The Company's investment in its associated undertaking, TMC Pty Ltd, isaccounted for using the equity method of accounting and is initially recognisedat cost. Spice's share of the associate's results is not material and hastherefore not been disclosed separately on the face of the income statement inthis report. Tax The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on the taxable profit for the year. Taxableprofit differs from profit before tax as reported in the income statementbecause it excludes items of income or expense that are taxable or deductible inother years and it further excludes items of income or expense that are nevertaxable or deductible. The Group's liability for current tax is calculated usingtax rates that have been enacted or substantively enacted as at the balancesheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying value of assets and liabilities in the financial statementsand the corresponding tax bases used in the computation of taxable profit, andis accounted for using the balance sheet liability method. Deferred taxliabilities are generally recognised for all timing differences and deferred taxassets are recognised to the extent that it is probable that taxable profitswill be available against which deductible timing differences can be utilised.Such assets and liabilities are not recognised if the timing difference arisesfrom the initial recognition of purchased goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the taxable profit nor theprofit before tax as reported in the income statement. Deferred tax liabilities are recognised on business combinations for timingdifferences arising on investments in subsidiaries and associates and interestsin joint ventures, except where the Group is able to control the reversal of thetiming difference and it is probable that the timing difference will not reversein the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the related deferred taxis also dealt with as an addition or reduction in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Warranty provision Warranty provisions are calculated based on the expected future cost ofservicing warranty obligations existing at the balance sheet date. Thisestimate includes assumptions relating to the expected profile of claims overthe remaining life of warranty obligations and also as to the expected cost perclaim. The provisions are discounted where the effect of discounting ismaterial. Internally generated intangible fixed assets - research and developmentexpenditure Expenditure on research activities which does not meet the criteria of IAS38,Intangible assets is recognised as an expense in the period in which it isincurred. An internally generated intangible fixed asset arising from the Group'sactivities is recognised only if all of the following conditions are met: • an asset is created that can be identified;• it is probable that the asset created will generate future economic benefits; and• the development cost of the asset can be reliably measured. Internally generated intangible fixed assets are amortised on a straight linebasis over their useful economic lives. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying values of itstangible and intangible fixed assets to determine whether there is anyindication that those assets have suffered an impairment loss. If any suchindication exists, the recoverable amount of the asset is estimated in order todetermine the extent of the impairment loss (if any). Where the asset does notgenerate cash flows that are independent from the other assets, the Groupestimates the recoverable amount of the cash-generating unit to which the assetbelongs. The recoverable amount is the higher of fair value less costs to sell and valuein use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of the asset (or cash-generating unit) is estimated tobe less than its carrying value, the carrying value of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised immediately in the income statement. When an impairment loss subsequently reverses, the carrying value of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying value does not exceed the carryingvalue that would have been determined had no impairment loss been recognised forthe asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised immediately in the income statement. Trade receivables Trade receivables are recognised and measured at their original invoiced amountless provision for any uncollectible amounts. An estimate for doubtful debts ismade when the collection of the full amount is no longer probable. Bad debts arewritten off to the income statement when they are identified. Provisions Provisions are measured at the present value of the expenditures expected to berequired to settle the obligation. Present values are calculated using a pre-taxdiscount rate that reflects current market assessments of the time value ofmoney and the risks specific to the obligation. The increase in the provisiondue to passage of time is recognised as interest expense. Contingent and deferred considerationThe amount of contingent and deferred consideration is determined by discountingthe amounts payable to their present value at the date of exchange, taking intoaccount any premium or discount likely to be incurred in settlement. Contingentconsideration is determined by reference to the appropriate factors thatinfluence the possible payment of that consideration. Bank borrowings Interest bearing bank loans and overdrafts are recorded at the proceeds receivednet of direct issue costs. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Spire Healthcare