23rd Nov 2005 07:01
Sondex PLC23 November 2005 Sondex plc Transition to International Financial Reporting Standards November 2005 Introduction Sondex plc has adopted International Financial Reporting Standards ("IFRS") from1 March 2004 and the first full financial statements to be prepared under IFRSwill therefore be for the year ending 28 February 2006. The interim financialstatements for the six months ended 31 August 2005 will be prepared under theIFRS accounting policies expected to be adopted in the financial statements forthe year ending 28 February 2006, but the company has taken advantage of theavailable exemption not to apply IAS 34 (Interim Financial Statements), to theseinterim financial statements, with the result that they will be presented underthe requirements of the Listing Rules. This statement presents the accounting policies and financial information usedin the transition of financial statements previously prepared and publishedunder UK GAAP to compliance with IFRS. Key exceptions and exemptions permitted by IFRS 1 First Time Adoption ofInternational Financial Reporting Standards and applied by Sondex plc are setout in the Note of Accounting Policies in this statement. The accounting policies and financial information in this statement have notbeen audited but have been reviewed by the company's auditors, Ernst & Young. Sondex plc's adoption of IFRS changes some accounting policies and the manner inwhich some financial information is calculated and presented, but it has noimpact on the company's corporate strategy, its operating decisions or theunderlying value of its business. Sondex plc is holding a briefing for analysts at 10am on Wednesday 23 November2005 at College Hill, 5th Floor, 78 Cannon Street, London EC4N 6HH, to explainthe changes brought about by the transition to IFRS and which are presented inthis statement. This briefing will contain no new trading information, and itsassociated presentation will be made available on the company's website,www.sondex.com. Overview of impact The impact of the transition to IFRS on the reported profits of the company canbe seen in the following summarised results for the year ended 28 February 2005,shown here as previously published under UK GAAP and as restated under IFRS: Comparison of results under UK GAAP and IFRS UK GAAP £'000 IFRS £'000Year ended 28 February 2005 Revenue 31,713 31,713 Gross profit 17,723 17,555 Operating profit before amortisation of intangible assets 7,400 7,529Amortisation of intangible assets (2,348) (2,026)Net finance charges (854) (854)Taxation charge (1,876) (1,724)Profit attributable to shareholders 2,323 2,924Basic earnings per share 4.7 pence 5.9 penceDiluted earnings per share 4.5 pence 5.1 pence Reconciliation of results from UK GAAP to IFRS £'000Year ended 28 February 2005 Profit attributable to shareholders under UK GAAP 2,323IFRS 2 additional charge for share based payments (245)IFRS 3 removal of amortisation of goodwill 2,247IFRS 3 amortisation of intangible assets (1,926)IAS 38 capitalisation and amortisation of development costs 445IAS 12 decrease in deferred tax recognised 151IAS 19 recognition of employee benefits (71) ------Profit attributable to shareholders under IFRS 2,924 ------ The principal factors contributing to the change in the presented results forthe year ended 28 February 2005 are: IFRS 2 Share-Based Payment IFRS 2 introduces a new mechanism for the calculation of charges in respect ofshare-based payments. This includes charges in respect of share option schemes,share-saving schemes and fully-funded share remuneration schemes. The total costof these under IFRS, before taking account of the benefit of deferred taxation,is £461,920, compared with the charge calculated under UK GAAP of £216,580. The charge in respect of share-based payments under IFRS attracts a deferred taxcredit amounting to £331,803, of which £138,110 is recognised within thetaxation charge and £193,693 is taken directly to equity and disclosed in theStatement of Recognised Income and Expenditure. IFRS 3 Business Combinations IFRS 3 requires that intangible assets, including brands, technology and thevalue of customer lists are valued upon a business combination such as anacquisition. The values ascribed to these assets are to be recognised in theconsolidated financial statements for the business combination, and their valuesare to be allocated from the residual value of goodwill, and amortised over theestimated useful lives of the assets. The remaining value attributed to goodwillis no longer amortised. Sondex plc has elected to apply IFRS 3 to business combinations arising after 1March 2004, which therefore includes the acquisition of Geolink in June 2004,but not the previous acquisition of Computer Sonic Systems in December 2003. The result of the application of IFRS 3 is to remove the previous charge for theamortisation of goodwill, amounting to £2,247,000, and to introduce a charge forthe amortisation of intangible assets, amounting to £1,925,769. A deferred tax credit of £577,731 is recognised on the amortisation ofintangible assets recognised under IFRS 3, and is included within the taxationcharge under IFRS. IAS 38 Intangible Assets IAS 38 requires that qualifying development costs are capitalised and amortisedover their estimated useful lives. Under UK GAAP, the accounting treatmentadopted by the company had been to write off all such costs to the incomestatement as incurred. The impact of this change is to credit the income statement with an amountcapitalised of £1,171,173 and charge the income statement with an amortisationcharge of £725,494. Both the credit and the charge are taken through theresearch and development account within the income statement. IAS 12 Income Taxes IAS 12 changes the method of calculating deferred taxes in particular. Thiseffectively widens the scope of the calculation to include factors notpreviously accounted for under UK GAAP. These include the charges arising underIFRS 2 and IFRS 3 as noted above. The impact is to reduce the charge for deferred tax from £533,068 under UK GAAPto £382,127 under IFRS, with an additional credit of £193,693 recognised in theStatement of Recognised Income and Expenditure. SONDEX PLC BALANCE SHEET1 MARCH 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38 UK GAAP PBSE - Income Employee FOREX Intangibles Balance dividends tax benefits on R&D Sheet in deferred trans. IFRS format tax of subs £ £ £ £ £ £ Non current assets Goodwill 21,526,597 (601,140)Other intangible assets 125,172 2,854,849 Property plant & equipment 1,842,664Investments in associates 153,897 Deferred tax assets 0 ---------- 23,648,330 ----------Current assets Inventories 4,196,987Trade & other receivables 9,987,218Financial assets -derivatives 0Cash & cash equivalents 2,044,390 ---------- 16,228,595 ----------Current liabilitiesFinancial liabilities -borrowings (1,357,271)Financial liabilities -derivatives 0Trade & other payables (3,063,120) 472,086 (67,825) Current tax (962,144)Provisions 0 ---------- (5,382,535) ----------Non-current liabilitiesFinancial liabilities -borrowings (10,249,708)Deferred tax liabilities (27,636) (762,696) Provisions (67,000) ---------- (10,344,344) ---------- Net assets 24,150,046 472,086 (762,696) (67,825) 0 2,253,709 ==========--------------------------------------------------------------Shareholders' equityShare capital 3,934,047Share premium 22,476,128Other reserves 275,660Retained earnings (2,535,789) 472,086 (762,696) (67,825) 2,253,709 ------------------------------------------------------------------------ Total equity 24,150,046 472,086 (762,696) (67,825) 0 2,253,709 ==========-------------------------------------------------------------- SONDEX PLC BALANCE SHEET1 MARCH 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3 Financial Share Business Business IFRS instruments based combinations combinations Balance payments Geolink Goodwill Sheet £ £ £ £ £ Non current assets Goodwill 20,925,456Other intangible assets 2,980,021Property plant & equipment 1,842,664Investments in associates 153,897Deferred tax assets 0 ---------- 25,902,039Current assets ---------- Inventories 4,196,987Trade & other receivables 9,987,218 Financial assets -derivatives 0Cash & cash equivalents 2,044,390 ---------- 16,228,595Current liabilities ---------- Financial liabilities -borrowings (1,357,271)Financial liabilities -derivatives 0Trade & other payables (2,658,859)Current tax (962,144)Provisions 0 ---------- (4,978,274) ----------Non-current liabilitiesFinancial liabilities -borrowings (10,249,708)Deferred tax liabilities (790,331)Provisions (67,000) ---------- (11,107,039) ---------- ----------------------------------------------------------------------------Net assets 0 0 0 0 26,045,320 ===============-------------------------------------------------============Shareholders' equity Share capital 3,934,047Share premium 22,476,128Other reserves 191,667 467,326Retained earnings (191,667) (832,181) ----------------------------------------------------------------------------Total equity 0 0 0 0 26,045,320 ===============-------------------------------------------------============ SONDEX PLC BALANCE SHEET31 AUGUST 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38 UK GAAP Balance PBSE - Income tax - Employee FOREX on Intangibles Sheet in IFRS dividends deferred tax benefits trans. of R&D format subs £ £ £ £ £ £ Non current assetsGoodwill 48,943,407 5,017,965 (2,205,875)Other intangible assets 121,026 4,670,752Property plant & equipment 5,034,003Investments in associates 180,758Deferred tax assets 1,068,538 (471,746) ---------- 55,347,732 ----------Current assets Inventories 6,833,950Trade & other receivables 14,054,563Financial assets -derivatives 0Cash & cash equivalents 2,638,115 ---------- 23,526,627 ----------Current liabilities Financial liabilities -borrowings (1,357,271)Financial liabilities -derivatives 0Trade & other payables (6,479,433) 357,522Current tax (1,519,570)Provisions 0 ---------- (9,356,274) ----------Non-current liabilitiesFinancial liabilities -borrowings (22,629,211)Deferred tax liabilities (29,027) (5,077,142)Provisions (67,000) ----------- (22,725,238) -----------Net assets 46,792,848 357,522 (530,922) 0 0 2,464,876 ===========----------------------------------------------------------------------Shareholders' equity Share capital 5,500,828Share premium 44,902,982Other reserves 325,660 6,159Retained earnings (3,936,621) 357,522 (530,922) 0 (6,159) 2,464,876 ----------Total equity 46,792,848 357,522 (530,922) 0 0 2,464,876 ==========---------------------------------------------------------------------- SONDEX PLC BALANCE SHEET31 AUGUST 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3 Financial Share based Business Business IFRS instruments payments combinations combinations Balance Geolink Goodwill Sheet £ £ £ £ £ Non current assets Goodwill (13,920,265) 924,000 38,759,233Other intangible assets 13,438,823 18,230,600Property plant & equipment 5,034,003Investments in associates 180,758Deferred tax assets 596,792 ---------- 62,801,386 ----------Current assets Inventories 6,833,950Trade & other receivables 14,054,563Financial assets -derivatives 0Cash & cash equivalents 2,638,115 ---------- 23,526,627 ----------Current liabilitiesFinancial liabilities -borrowings (1,357,271)Financial liabilities -derivatives 0Trade & other payables (6,121,911)Current tax (1,519,570)Provisions 0 ---------- (8,998,752) ----------Non-current liabilitiesFinancial liabilities -borrowings (22,629,211)Deferred tax liabilities (5,106,169)Provisions (67,000) ---------- (27,802,380) ---------- Net assets 0 0 (481,442) 924,000 49,526,882 ---------------------------------------------------------------============Shareholders' equityShare capital 5,500,828Share premium 44,902,982Other reserves 364,210 696,028Retained earnings (364,210) (481,442) 924,000 (1,572,956) ---------------------------------------------------------------------------Total equity 0 0 (481,442) 924,000 49,526,882 ----------------------------------------------------------------=========== SONDEX PLC INCOME STATEMENT31 AUGUST 2004 IAS 10 IAS 12 IAS 19 IAS 21 IAS 38 UK GAAP Income PBSE - Income tax Employee FOREX on Intangibles Statement in dividends - deferred benefits trans. of R&D IFRS format tax subs £ £ £ £ £ £ Revenue 9,711,328Cost of sales (4,758,241) 25,783 ----------Gross profit 4,953,087 ---------- Other operating income 102,638Research and developmentexpenses (1,417,302) 16,104 211,168Sales, Marketing & Customer support expenses (1,353,519) 15,154Administration expenses (1,953,549) 10,785 Operating profit beforefinancing costs andamortisation 331,355 Amortisation of acquiredintangible assets (971,272)Financial income 21,012Financial costs (724,500) ----------Profit/(loss) beforetaxation (1,343,404) Taxation 279,379 160,275 ----------Profit/(loss) attributableto shareholders (1,064,025) ========== Dividends (357,522) (114,564) ---------------------------------------------------------------------------------Retainedprofit/(loss) (1,421,547) (114,564) 160,275 67,825 0 211,168 ===============------------------------------------------------------------------ SONDEX PLC INCOME STATEMENT31 AUGUST 2004 IAS 39 IFRS 2 IFRS 3 IFRS 3 Financial Share based Business Business IFRS Income instruments payments combinations combinations Statement Geolink Goodwill £ £ £ £ £ Revenue 9,711,328Cost of sales (52,695) (4,785,153) ----------Gross profit 4,926,176 Other operating income 102,638Research and developmentexpenses (46,395) (1,236,426)Sales, Marketing & Customersupport expenses (32,122) (1,370,487)Administration expenses (41,331) (1,984,095) ----------Operating profit beforefinancing costs andamortisation 437,805 Amortisation of acquired intangible assets (481,442) 924,000 (528,714)Financial income 21,012Financial costs (724,500) ----------Profit/(loss) beforetaxation (794,397) Taxation 439,654 ----------Profit/(loss) attributable to shareholders (354,742) ==========Dividends (472,086) ----------Retained profit/(loss) 0 (172,543) (481,442) 924,000 (826,828) --------------------------------------------------------------------------========== SONDEX PLC IAS 10 IAS 12 IAS 19 IAS 21 IAS 38BALANCE SHEET28 FEBRUARY2005 UK GAAP Balance PBSE - Income tax - Employee FOREX on Intangibles - Sheet in IFRS dividends deferred tax benefits trans. of R&D format subs £ £ £ £ £ £ Non currentassetsGoodwill 46,826,238 5,017,965 (2,205,875)Otherintangibleassets 857,000 4,905,264Property plant& equipment 4,895,395Investments inassociates 136,738Deferred taxassets 226,335 (226,335) -------------- 52,941,706 -------------- Current assetsInventories 8,014,370Trade & otherreceivables 18,954,468Financialassets -derivatives 0Cash & cashequivalents (1,410,229) -------------- 25,558,609 -------------- CurrentliabilitiesFinancialliabilities -borrowings (3,957,195)Financialliabilities -derivatives 0Trade & otherpayables (7,202,563) 715,114 (139,057)Current tax (984,226)Provisions 0 -------------- (12,143,983) -------------- Non-currentliabilitiesFinancialliabilities -borrowings (16,544,166)Deferred taxliabilities (87,308) (5,209,692)Provisions (67,000) (16,698,474) ----------------------------------------------------------------------------------------Net assets 49,657,857 715,114 (418,061) (139,057) 0 2,699,388 ==============-------------------------------------------------------------------------- Shareholders'equityShare capital 5,501,360Share premium 41,019,106Other reserves 4,376,115 47,597Retainedearnings (1,238,724) 715,114 (418,061) (139,057) (47,597) 2,699,388 ----------------------------------------------------------------------------------------Total equity 49,657,857 715,114 (418,061) (139,057) 0 2,699,388 ==============-------------------------------------------------------------------------- SONDEX PLC IAS 39 IFRS 2 IFRS 3 IFRS 3BALANCE SHEET28 FEBRUARY2005 Financial Share based Business Business IFRS Balance instruments payments combinations combinations Sheet Geolink Goodwill £ £ £ £ £ Non currentassetsGoodwill (13,920,265) 2,247,000 37,965,063Otherintangibleassets 11,994,496 17,756,760Property plant& equipment 4,895,395Investments inassociates 136,738Deferred taxassets 0 -------------- 60,753,956 -------------- Current assetsInventories 8,014,370Trade & otherreceivables 18,954,468Financialassets -derivatives 0Cash & cashequivalents (1,410,229) -------------- 25,558,609 -------------- CurrentliabilitiesFinancialliabilities -borrowings (3,957,195)Financialliabilities -derivatives 0Trade & otherpayables (6,626,506)Current tax (984,226)Provisions 0 -------------- (11,567,926) -------------- Non-currentliabilitiesFinancialliabilities -borrowings (16,544,166)Deferred taxliabilities (5,297,000)Provisions (67,000) -------------- (21,908,166) -------------- -------------------------------------------------------------------------------------Net assets 0 0 (1,925,769) 2,247,000 52,836,473 -----------------------------------------------------------------------============== Shareholders'equityShare capital 5,501,360Share premium 41,019,106Other reserves 437,007 4,860,719Retainedearnings (437,007) (1,925,769) 2,247,000 1,455,288 -------------------------------------------------------------------------------------Total equity 0 0 (1,925,769) 2,247,000 52,836,473 -----------------------------------------------------------------------============== SONDEX PLC IAS 10 IAS 12 IAS 19 IAS 21 IAS 38INCOME STATEMENT28 FEBRUARY2005 UK GAAP Income PBSE - Income tax - Employee FOREX on Intangibles - Statement in dividends deferred benefits trans. of R&D IFRS format tax subs £ £ £ £ £ £ Revenue 31,713,198Cost of sales (13,990,380) (27,078) -------------Gross profit 17,722,817 Otheroperatingincome 178,484Research anddevelopmentexpenses (3,438,774) (16,912) 445,679Sales,Marketing &Customersupportexpenses (3,181,514) (15,915)Administrationexpenses (3,880,756) (11,326) -------------Operatingprofit beforefinancingcosts andamortisation 7,400,258 Amortisationof acquiredintangibleassets (2,347,674)Financialincome 206,771Financialcosts (1,060,874) -------------Profit beforetaxation 4,198,481 Taxation (1,875,505) 150,941 -------------Profitattributabletoshareholders 2,322,976 ============= Dividends (1,072,671) 243,028 --------------------------------------------------------------------------------------Retainedprofit 1,250,305 243,028 150,941 (71,231) 0 445,679 =============------------------------------------------------------------------------- SONDEX PLC IAS 39 IFRS 2 IFRS 3 IFRS 3INCOME STATEMENT28 FEBRUARY2005 Financial Share based Business Business IFRS Income instruments payments combinations - combinations - Statement Geolink Goodwill £ £ £ £ £ Revenue 31,713,198Cost of sales (141,070) (14,158,529) ------------Gross profit 17,554,669 Otheroperatingincome 178,484Research anddevelopmentexpenses (124,206) (3,134,212)Sales,Marketing &Customersupportexpenses (85,996) (3,283,425)Administrationexpenses 105,932 (3,786,150) ------------Operatingprofit beforefinancingcosts andamortisation 7,529,366 Amortisationof acquiredintangibleassets (1,925,769) 2,247,000 (2,026,442)Financialincome 206,771Financialcosts (1,060,874) ------------Profit beforetaxation 4,648,820 Taxation (1,724,564) ------------Profitattributabletoshareholders 2,924,256 ============ Dividends (829,643) -----------------------------------------------------------------------------------Retainedprofit 0 (245,340) (1,925,769) 2,247,000 2,094,613 -----------------------------------------------------------------------============ Transition to IFRS: Key income statement and balance sheet adjustments The notes set out below explain the key adjustments to the income statement andbalance sheet that have resulted from the transition to IFRS. IAS 10 Events After the Balance Sheet Date IFRS requires dividends payable to be recognised in the period in which they areapproved. Under UK GAAP, dividends were accrued and recognised in the period inwhich they were proposed and to which they were considered to relate. Sinceapproval occurs after the end of the relevant period, the impact of this changeis to delay the recognition of dividends payable. IAS 12 Income Taxes UK GAAP required deferred taxation to be recognised on timing differences,whereas IFRS requires that deferred taxation recognised on temporarydifferences. The impact is the recognition of deferred taxation on a wider rangeof items, including revaluation reserves and certain foreign exchangedifferences. IAS 19 Employee Benefits IAS 19 requires the accrual of certain employee benefits, including holiday pay,that were recognised as incurred under UK GAAP. IAS 21 The Effects of Changes in Foreign Exchange Rates Under UK GAAP, foreign exchange differences arising upon the retranslation onconsolidation of the net assets of a subsidiary were recognised in the Statementof Total Recognised Gains and Losses, and formed part of the profit and lossreserve. Under IFRS, such differences are not recognised in the results for theperiod but are taken directly to a separate reserve within equity. Sondex plchas elected not to apply IAS 21 to cumulative translation differences thatexisted at the date of transition to IFRS (1 March 2004). IAS 38 Intangible Assets IFRS requires the recognition and capitalisation of certain internally-generatedintangible assets, notably development costs, if they meet specified criteria.Under UK GAAP, Sondex plc expensed all development costs as they were incurred.The effect of this change is that relevant project development costs have beencapitalised from the date that the project qualifies under IAS 38 until theresultant product is released commercially. The costs capitalised are subsequently amortised over the estimated life of theproduct. The charge to the income statement in respect of research anddevelopment costs therefore comprises the immediate write off of research andnon-qualifying development projects, and the amortisation charge in respect ofdevelopment projects previously capitalised. IFRS 2 Share-Based Payment IFRS 2 requires that the fair value of all share-based payments, including thefair value of share options, are recognised as an expense over their vestingperiods. In accordance with the IFRS transitional provisions, IFRS 2 has beenapplied to grants of equity instruments issued after 7 November 2002 that havenot vested as of 1 January 2005. The fair value of the share options areestimated at the date of grant using either the Black-Scholes model (where nomarket-based performance conditions exist) or a stochastical model (wheremarket-based performance criteria exist). The following table gives theassumptions made during the year ended 28 February 2005: All Employee Incentive Save As You Earn Performance Plan Share Plan Dividend yield (%) 1 1 1Volatility (%) 32.2 29.2 31.3Risk-free interest rate (%) 4.55 4.92 4.33Expected life of option (years) 6.5 3.25 3Weighted average share price (£) 1.58 2.1 1.60 Under UK GAAP, only the intrinsic value of share options issued under thePerformance Share Plan was recognised in the profit and loss account, with othergrants having a nil intrinsic value. Accordingly, the income statement now contains an incremental charge in respectof the fair value of share-options and share-save schemes. IFRS 3 Business Combinations IFRS 3 requires the identification and recognition at fair value of anacquiree's intangible assets at the date of acquisition, and their subsequentamortisation over their estimated useful lives. Sondex plc has elected not to apply IFRS 3 to acquisitions completed before 1March 2004, but has applied IFRS 3 to the acquisition of Geolink InternationalLimited on 30 June 2004. The estimated useful lives of the intangible assetsidentified vary between one and ten years. IFRS 3 prohibits the amortisation of goodwill. Under UK GAAP, Sondex plcamortised goodwill over a period of 20 years. The impact on the income statement of the application of IFRS 3 is to replacethe previous amortisation of goodwill with a charge for the amortisation ofspecific intangible assets recognised upon the acquisition of a subsidiary afterthe date of transition to IFRS. Sondex plc Accounting policies Accounting convention The financial statements have been prepared in accordance with InternationalAccounting Standards (IAS) and International Financial Reporting Standards(IFRS) issued by the International Accounting Standards Board (IASB), subject tothe exemptions noted below. The accounting policies applied assume that allexisting standards in issue from the IASB will be fully endorsed by the EU.These are subject to ongoing amendment by the IASB and subsequent endorsement bythe EU and therefore are subject to possible change. The group's date of transition to IFRS is 1 March 2004 and the financialstatements for the year ending 28 February 2006 will be the group's first fullfinancial statements under IFRS. Comparative financial information at 28February 2005 and for the year then ended has been restated under IFRS. The financial statements have been prepared on a historical cost basis, exceptfor certain items which, as disclosed in the accounting policies below, aremeasured at fair value. IFRS exemptions IFRS 1 "First-Time Adoption of International Financial Reporting Standards" The group has elected to take advantage of certain exemptions made available byIFRS 1 ("First time Adoption of International Financial Reporting Standards").These exemptions apply to the preparation of the group's balance sheet ontransition to IFRS and to accounting under the following standards: IFRS 2 "Share Based Payment" The group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity settled awards and has applied IFRS 2 only to equity settledawards granted after 7 November 2002 that have not vested on or before 31December 2004. IFRS 3 "Business Combinations" The group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place before 1 March 2004. As a result, all priorbusiness acquisition accounting has been frozen at the transition date. Thisincludes the net book values for goodwill which had been amortised until thatdate, and assumes that cumulative exchange differences on the retranslation ofthe net assets of overseas subsidiaries are zero at that date. IAS 21 "Cumulative Translation Differences" The group has elected not to record cumulative translation differences arisingprior to the transition date. All cumulative exchange differences are thereforedeemed to be zero as at 1 March 2004. IAS 32 and IAS 39 "Financial Instruments" The group has elected not to present its comparative financial information inaccordance with IAS 32 "Financial Instruments: Disclosure and Presentation" andIAS 39 " Financial Instruments: Recognition and Measurement". The comparativefinancial information presented in the interim financial statements for the sixmonths ended 31 August 2005 and the financial statements for the year ending 28February 2006 will in this respect therefore be presented in accordance with UKGAAP. IAS 34 "Interim Financial Statements" The group has elected not to apply IAS 34 to the first interim financialstatements after the adoption of IFRS. The interim financial statements for thesix months ended 31 August 2005 will therefore be prepared under the IFRSaccounting policies that the group expects to apply in its next full financialstatements, for the year ending 28 February 2006, but with the disclosurescompliant with the Listing Rules. Basis of consolidation The consolidated financial statements include those of Sondex plc and allsubsidiary undertakings. Subsidiaries are all entities over which the group has the power to governfinancial and operating policies. Subsidiaries are consolidated from the date onwhich such power to control is transferred to the group. They are de-consolidated from the date that such control ceases. Segmental reporting Based on the risks and returns of the group's products and services, and on thebasis of the internal management structure and system of reporting, thedirectors consider that the group's primary reporting format is by businesssegment and the secondary reporting format is by geographical segment. Revenue recognition Revenue, which excludes Value Added Taxes and intra-group sales, represents theinvoiced value of goods and services sold to customers. The group recognises revenue when title to goods passes to the customer or whenservice delivery has occurred and the right to consideration has been obtained. Intangible assets Goodwill and separable intangible assets arising from acquisitionsGoodwill represents the excess of the cost of an acquisition over the fair valueof the group's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill is tested for impairment annually or morefrequently if events or changes in circumstances indicate that the carryingvalue may be impaired, and is carried at cost less cumulative impairment losses.Gains and losses arising on the disposal of a subsidiary include the carryingvalue of the goodwill relating to the subsidiary sold. Separable intangibleassets, including technology, trademarks, licences and brands, are recognisedseparately from goodwill on all acquisitions completed after 1 March 2004, thedate of transition to IFRS. Such assets are amortised over their estimateduseful lives and carried at cost less accumulated amortisation. Such intangibleassets are additionally reviewed for impairment on an annual basis. Research & development Development expenditure is capitalised when a clear, commercially viable futurefor that development is confirmed and it is amortised on a straight-line basisover the life of the project from commencement of commercial production.Capitalised development expenditure is also reviewed for impairment on an annualbasis. All other development expenditure and all research expenditure is writtenoff in the year in which it is incurred. Other Other intangible assets acquired are capitalised and amortised over theirestimated useful lives. They are also reviewed for impairment on an annual basis. Property, plant & equipment Property, plant and equipment is stated at historical cost less accumulateddepreciation and any impairment provision. Depreciation is charged on all property plant and equipment, except freeholdland, at rates designed to write off the cost, less the residual value, of eachasset over its expected useful life. The depreciation rates used are as follows: Freehold buildings 50 yearsOther plant and equipment 3-10 years Depreciation for rental assets (ie finished tools held for demonstration andsimilar purposes) is considered to be immaterial as they have a residual valueat least equal to their book value. The rental assets are fully maintained andany costs incurred during the year are expensed through the income statementduring the year. The rental assets are also subject to an annual impairmentreview. The residual values and useful lives are reviewed annually. Inventories Inventories are stated at the lower of cost, calculated on a first in first outbasis, or net realisable value. Cost includes a proportion of productionoverheads based on normal levels of activity, and provision is made for obsoleteand slow moving items as necessary. Cash & cash equivalents Cash and cash equivalents includes cash in hand, deposits at call with banks,other short term highly liquid investments and bank overdrafts. Bank overdraftsare shown within borrowings in current liabilities on the balance sheet. Borrowings Borrowings are recognised net of the associated finance costs, which areamortised to the income statement over the life of the borrowings. Borrowingsare classified as current liabilities unless the group has an unconditionalright to defer settlement of the liability for at least twelve months after thebalance sheet date. Leasing Payments in respect of assets held under operating leases are charged to theincome statement, net of any incentives received, on a straight-line basis overthe period of the lease. Foreign currency The consolidated financial statements are presented in Sterling, which is thecompany's functional and presentational currency. Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the date of the transactions. Foreign exchangegains and losses resulting on the settlement of such transactions and from thetranslation at the year end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities, using the closing rate on the balance sheetdate, and of borrowings and other currency instruments designated as hedges orany other such instruments, are taken to shareholders' equity. Such exchangedifferences are recognised in the income statement as part of the gain or losson sale, when a foreign operation is sold. The group has elected to deem the cumulative amount of exchange differencesarising on consolidation of the net investment in subsidiaries at 1 March 2004to be zero. Financial instruments The group's operations result in a number of financial risks that includefluctuations in foreign currencies and interest rates, and credit risks. Thegroup's treasury policy is set by the board and is reviewed regularly. The group operates over a wide geographical area and is therefore exposed toforeign currency transactional risk, particularly with respect to the US dollar.The group applies transactional hedging for highly probable sales receipts andpurchase commitments denominated in foreign currencies. The denomination ofborrowings in foreign currency also provides a natural hedge against somecurrency fluctuations. Derivatives and foreign currency hedging instruments are recognised at fairvalue on the date a contract is entered into and subsequently are remeasured attheir fair value. The resulting gain or loss is recognised in the incomestatement. The group has elected not to present its comparative financial information inaccordance with IAS 32 "Financial Instruments: Disclosure and Presentation" andIAS 39 " Financial Instruments: Recognition and Measurement". The comparativefinancial information presented in the interim financial statements for the sixmonths ended 31 August 2005 and the financial statements for the year ending 28February 2006 will in this respect therefore be presented in accordance with UKGAAP. Deferred tax Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. Deferred tax iscalculated using tax rates that have been enacted or substantially enacted bythe balance sheet date and are expected to apply when the related deferred taxliability is realised. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Government grants Government grants in respect of capital expenditure are credited to a deferredincome account and released through the income statement over the expecteduseful lives of the relevant assets, by equal annual instalments. Grants of arevenue nature are credited through the income statement in a manner to matchthem with the expenditure to which they relate. Employee benefits Pensions The group operates a defined contribution pension scheme. Contributions arecharged in the income statement as they become payable in accordance with therules of the scheme. Share-based remuneration The group operates a number of equity settled, share based compensation plans.The fair value of the employee services received in exchange for the grant ofthe shares or the share options is recognised as an expense. The total amount tobe expensed over the vesting period is determined by reference to the fairmarket value of the shares and options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions taken into account inthe assumptions about the number of shares and options that are expected tobecome exercisable. At each balance sheet date, the group revises its estimatesof the number of shares and options that are expected to become exercisable. Itrecognises the impact of the revision of the original estimate, if any, in theincome statement, and a corresponding adjustment to equity over the remainingvesting period. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. The cost of equitysettled transactions with employees is measured by reference to the fair valueat the date at which they are granted. The fair value is determined with theassistance of an external valuer using a Black-Scholes model, or a stochasticalmodel if the grant includes a market-based performance condition (see"Transition to IFRS: Key income statement and balance sheet adjustments" forassumptions used). The dilutive effect of outstanding options is reflected asadditional share dilution in the computation of earnings per share. The proceeds received, net of any directly attributable transaction costs, arecredited to the nominal value of share capital and to share premium when theshares vest and options are exercised. The group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity settled awards, and had applied IFRS 2 only to equity settledawards granted after 7 November 2002 that have not vested on or before 31December 2004. Other awards continue to be accounted for under UITF 17. Dividends Dividends are recognised at the date on which they are declared and approved bythe shareholders at the annual general meeting, or paid if earlier. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDX Energy