REG-M&C Saatchi PLC IFRS Impact Statement - Part 2

Released : 21/09/2007 09:42

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RNS Number:2576E 
MC Saatchi PLC      
Part  2 : For preceding part double-click [nRNSU2576E] 
 
 
 
 
 
(2) Business Combinations - IAS 38 Intangible assets 
 
On 24 July 2006 the Group acquired 80% of 03 International Projects GmbH 
(renamed M&C Saatchi Berlin GmbH). At acquisition we acquired customer contracts 
with a fair value of £20k, these contracts had been completed before the year 
end and therefore were fully amortised at the year end. The adjustments that 
relate to M&C Saatchi Berlin GmBH were as follows:- 
 
                                                 December 2006         June 2006 
                                                        Annual           Interim 
                                                        £000              £000 
Income statement 
Operating profit reduced                                 (20)                - 
 
Balance sheet 
UK GAAP goodwill                                         769                 - 
Goodwill reduced                                         (20)                - 
                                                   -----------       ----------- 
IFRS goodwill                                            749                 - 
                                                   -----------       ----------- 
Intangible assets recognised                              20                 - 
Amortisation of intangible assets                        (20) 
                                                   -----------       ----------- 
                                                           -                 - 
                                                   -----------       ----------- 
 
 
 
(3) Presentation of financial statements - associates 
 
Under IAS 1 we show our share of the associate's profit after tax within the 
Associate line in the income statement. 
 
 
The effect of this adjustment is as follows:- 
                                                    December 2006      June 2006 
                                                           Annual        Interim 
                                                           £000           £000 
Income statement 
Reduction in share of results 
associate                                                    10              1 
Reduction in interest payable                                 8              1 
Reduction in taxation                                         2              - 
                                                      -----------    ----------- 
Profit on ordinary activities after taxation                  -              - 
                                                      ===========    =========== 
 
 
 
(4) Loans to loss making associates 
 
In 2006 the Group had one associate Play London Limited (Play); which made a 
£162k start up loss in 2005, funded by a loan from a Group company. Play made a 
small profit in 2006. 
 
 
Under IAS1 the loss is presented as a provision against the investment (in 
accordance with IAS 39). Previously under UK GAAP we have presented the loan as 
an investment and the provision against it separately within provisions. Within 
this adjustment we also show a small reclassification from investments to other 
debtors of £12k. 
 
The effect of this adjustment is as follows:- 
 
                          December 2006       June 2006           1 January 2006 
                                 Annual         Interim 
                                 £000            £000                     £000 
Balance sheet 
Investments of                     93              93                      100 
Reclassified to: 
Other debtors                      12              12                       19 
Trade and other 
receivables                         5               -                        - 
Provisions                         76              81                       81 
 
 
(5) Software defined as intangibles - IAS 16 
 
IFRS defines software as an intangible asset instead of its UK GAAP treatment as 
a tangible asset within plant and equipment (fixed assets). The effect of this 
adjustment is as follows:- 
 
                           December 2006      June 2006           1 January 2006 
                                  Annual        Interim 
                                  £000           £000                     £000 
Balance sheet 
Increase in 
intangible assets                   87             88                       87 
Reduction in plant 
and equipment                      (87)           (88)                     (87) 
 
 
The amortisation of software is included within headline profits. 
 
 
(6) Reclassification to foreign currency translation reserve - IAS 21 
 
We have taken the exemption in IFRS1 to treat cumulative translation differences 
on all foreign operations arising pre 1 January 2006 as nil. 
 
The translation differences between 1 January 2006 and period end are:- 
 
                           December 2006      June 2006           1 January 2006 
                                  Annual        Interim 
                                  £000           £000                     £000 
Balance sheet 
Decrease in 
foreign currency 
translation 
reserve                           (371)          (264)                       - 
Increase in 
retained earnings                  371            264                        - 
 
 
 
(7a) LTIP effect on diluted EPS - IAS 33 
 
The M&C Saatchi plc long term incentive scheme (LTIP) issues a varying number of 
nil priced options in accordance with performance targets. As of 30 June 2006 
and 31 December 2006 the performance target had not been met, so no dilution is 
caused. 
 
 
IAS 33 looks at the position at the balance sheet date; this is different to 
IFRS2 share based payments which looks forward to the position at vesting. 
 
 
 
(7b) Put option effect on diluted EPS - IAS 33 
 
The minority shareholders in group companies have the right to exchange their 
minority holdings in the subsidiary into shares in M&C Saatchi plc (put 
options). The impact of the put options, had they been exercised prior to the 
start of the year would have been to increase diluted EPS by 0.10p (2006 half 
year 0.28p). As this effect does not reduce diluted EPS, the effect is ignored. 
 
 
 
 
 
(8) Deferred tax on employee share options - IAS 12 
 
UK GAAP focuses on the income statement to calculate deferred tax; IFRS focuses 
on the balance sheet to calculate deferred tax. 
 
 
The significant difference between these two standards is the accounting for 
deferred tax on options. In calculating the deferred tax IFRS uses the period 
end balance sheet share price rather than the option charge in the income 
statement as UK GAAP does. The IFRS accounting creates further share price based 
volatility in our numbers, an example of which can be seen in the adjustments 
below. On 1 January 2006 our share price was £1.00 and below accounting price of 
the options, causing the deferred tax benefit to be less than 30% of the income 
statement option charge . By 31 December 2006 our share price was £1.40 and 
above the accounting value of most of our options causing the deferred tax 
benefit to be greater than 30% of the income statement option charge, the excess 
above 30% of the income statement option charge is taken to reserves. The 
adjustment are as follows:- 
 
                           December 2006      June 2006           1 January 2006 
                                  Annual        Interim 
                                  £000           £000                     £000 
Income statement 
Reduction in tax                    32             18                        N/A 
 
Increase in profit 
after taxation                      32             18                        N/A 
 
Balance sheet 
Increase / 
(decrease) in 
deferred tax                        29            (18)                     (36) 
 
Equity 
Increase in the 
future tax benefit 
of options                          33              -                        - 
Decrease in 
retained earnings                   (4)           (18)                     (36) 
 
 
 
 
 
 
 
 
(9) Put options - IAS 32 & IAS 39 Financial instruments 
 
The Group companies have minority shareholders which have the right to exchange 
their minority shareholdings in the subsidiary companies for shares in M&C 
Saatchi plc (a put option). IAS 32 & IAS 39 requires a valuation of these put 
options (liability) at their creation (or at the Group's transition to IFRS) and 
then at each reporting date. The movement in the valuation of the liability is 
charged to the income statement (there is no revaluation of the reserve). At 31 
December 2006 the following put options existed and are exercisable from: 
 
Company                                             Year            % of Company 
                                                                          shares 
                                                                    exchangeable 
Walker Media Holdings Ltd                             2007                12.5 
Walker Media Holdings Ltd                             2008                12.5 
Talk PR Ltd                                           2007                21.9 
The Immediate Sales Company Ltd                       2007                14.0 
M&C Saatchi LA Inc                                    2007                16.0 
M&C Saatchi Marketing Arts Ltd                        2008                50.0 
M&C Saatchi (M) SDN BHD                               2008                20.0 
M&C Saatchi Sports and Entertainment Ltd              2008                22.8 
M&C Saatchi Agency Inc                                2008                 4.0 
M&C Saatchi (Thailand) Co Ltd                         2008                48.0 
Provenance Communication Ltd                          2009                35.0 
Influence Communications Limited                      2009                15.0 
M&C Saatchi Europe Holdings Ltd                       2010                 4.0 
M&C Saatchi GAD SAS                                   2011                28.0 
M&C Saatchi Communications Pty Ltd                    2011                23.0 
M&C Saatchi Berlin GmbH                               2011                20.0 
 
 
 
The impact of accounting for put options are as follows:- 
 
                            December 2006  June 2006 
                                   Annual    Interim 
                                    £000       £000 
Income statement 
Financial costs 
 - Implicit interest expense         132         55 
 - Change in liability caused  
   due to performance  
   and share price                 8,838        329 
                                --------   -------- 
Total charge to financial cost 
and reduction in profit            8,970        384 
 
                                --------   -------- 
 
                           December 2006  June 2006  1 January 2006 
                                  Annual    Interim 
                                   £000       £000            £000 
Balance sheet 
Non current assets 
 - Goodwill / intangibles            -          -               - 
 
Current assets 
 - Cash                              -          -               - 
 - Increase in 
   provision for put options    (11,077)    (6,821)         (5,540) 
 
Non current liabilities 
 - Increase in 
   provision for put options    (11,211)    (6,782)         (7,679) 
                                --------   --------      ---------- 
Net assets                      (22,288)   (13,603)        (13,219) 
                                ========   ========      ========== 
 
Equity 
 - Share capital /  
   share premium account              -          -               - 
 - Increase in other non 
   distributable reserve        (13,318)   (13,219)        (13,219) 
 
 - reduction in 
   retained earnings             (8,970)      (384)              - 
                                --------   --------      ---------- 
Total Equity                    (22,288)   (13,603)        (13,219) 
                                ========   ========      ========== 
 
 
 
Explanation of the transaction:- 
 
   - Initial valuation of a put option - An assessment is performed on the 
    expected value of the cash and M&C Saatchi plc shares that will be paid in 
    return for the minority interest, at the later of the date of, the put 
    option agreement and transition to IFRS (1 January 2006). Both the value of 
    the cash and shares are discounted to the present value, based on the date 
    from which the put options can be exercised. The shares to be issued are 
    valued at the market price for the shares at the agreement or transition 
    date before a present value discount is applied. A credit is charged to 
    provisions and a debit is charged to equity on initial recognition. 
     
   - The debit in equity will only change if new put options are issued or 
    the put options are exercised. On exercising the option, the debit in equity 
    becomes the investment in the subsidiary, and this amount less the fair 
    value of tangible net assets and intangible assets acquired becomes 
    Goodwill. If Goodwill is negative a credit is taken to the income statement. 
   - Changes in the provision - Assuming that no new options are issued or 
    put options exercised, any changes to the provision will be charged / 
    credited to the income statement. The provision changes in the following 
    way:- 
 
        o It will increase due to an imputed interest charge (implicit interest) 
          being charged to income statement. In 2006 this charge was £132k. The  
          charge is effected by share price movements, thus the full year  
          charge is 21% greater than two times the half year charge (the share  
          price increased by 21% in this period). 
 
        o It will increase / decrease with changes in M&C Saatchi plc share 
          price. As our share price goes up, the value of the shares we issue  
          to fulfil the put option increases. This will have an effect on the  
          imputed interest charge (in the same way that changes in contingent  
          consideration have on its imputed interest charge), as well as the  
          future consideration. Of the £8,970k charge in 2006, £856k was cased  
          by a share price increasing from £1.00 to £1.40. 
 
        o Increases in the value of companies with minorities holdings, due to 
          trading performance, increases the amount of the provision. In 2006  
          this charge was £7,982k excluding the effect of share price movements, 
          most of this movement related to Walker Media. 
 
        o The provision is defined as short term when the minority shareholders 
          can exercise it within one year. The £1.2m increase in the 2006 half  
          year short term creditor is mainly due to Talk PR Ltd, The Immediate  
          Sales Company Ltd and M&C Saatchi LA Inc being able to exercise in  
          less than one year. 
 
   - When the put option is exercised the value of the provision should equal 
    the total value of the cash and equity given at the date of the transaction. 
    Any differences will be charged to the income statement. 
 
 
Comment on the different answers that IFRS gives from similar transactions.  
The formula we use to calculate the value that we pay minorities for their  
shares are the same for put and call options. Under IFRS these are similar  
transactions that produce the same result differently, the only key difference  
between the transactions is how the date of exercise is determined. As of the  
date of this announcement we have the following similar transactions that are  
accounted for differently:- 
 
   - Put option have to be accounted for under IAS 32 and IAS 39 as the group 
    has an obligation it cannot avoid (the minority has a right to decide when 
    to exercise). 
 
   - If M&C Saatchi plc has a call option then we account also under IAS 32 
    and 39, however the options value from an accounting perspective is nothing 
    and thus has no effect on the financial statements (M&C Saatchi decides when 
    to exercise). 
 
   - When the shareholders or sales purchase agreement determines the date of 
    exercise, then it is a capital commitment and should be disclosed but not 
    accounted for (the minority and M&C Saatchi have agreed the date in 
    advance). 
 
 
 
(10) Holiday pay accrual - IAS 19 
 
As a result of further guidance in IAS 19, a £436k increase in the Group's 
holiday pay accrual has been made at 30 June 2006. No accrual is required at 1 
Jan 2006 and 31 Dec 2006 as the countries that this adjustment affects, have a 
holiday year end of 31 December with an immaterial amount of holiday being 
carried forward into the following year. 
 
 
The effect of this adjustment is as follows:- 
                                                 December 2006         June 2006 
                                                        Annual           Interim 
                                                        £000              £000 
Income statement 
Reduction in operating profit                              -              (436) 
Reduction in taxation on profits 
from ordinary activities                                   -               133 
                                                   -----------       ----------- 
Reduction in profit after taxation                         -              (303) 
                                                   ===========       =========== 
 
 
 
 
 
Accounting Policies 
 
These are the IFRS accounting policies that M&C Saatchi plc has adopted to 
comply with IFRS. 
 
 
Significant accounting policies 
 
Our financial statements will be prepared in accordance with International 
Financial Reporting Standards (IFRS) adopted by the European Union and therefore 
the Group financial statements comply with Article 4 of the EU IAS Regulation. 
 
 
Headline results 
 
Headline results are used for internal performance management and the 
calculation of rewards in the LTIP scheme. M&C Saatchi management focus on these 
results in explaining the performance of the business. The term headline is not 
a defined term in IFRS. 
 
 
The key items that are excluded from headline results are the fair value gains 
and losses on liabilities caused by our put option agreements, amortisation of 
intangible assets created in business combinations and charges as a result of 
goodwill impairment. 
 
 
Basis of preparation 
 
The financial information presented in this document has been prepared on the 
basis of the recognition and measurement requirements of adopted IFRSs in issue 
that either are endorsed by the EU and effective (or available for early 
adoption) at 31 December 2007 or are expected to be endorsed and effective (or 
available for early adoption) at 31 December 2007, the Group's first annual 
reporting date at which it is required to use adopted IFRSs. Based on these 
adopted and unadopted IFRSs, the directors have made assumptions about the 
accounting policies expected to be applied, the significant effects of 
 
which are set out below, when the first annual IFRS financial statements are 
prepared for the year ending 31 December 2007. 
 
 
In addition, the adopted IFRSs that will be effective (or available for early 
adoption) in the annual financial statements for the year ending 31 December 
2007 are still subject to change and to additional interpretations and therefore 
cannot be determined with certainty. Accordingly, the accounting policies for 
that annual period will be determined finally only when the annual financial 
statements for the Group are prepared for the year ending 31 December 2007. 
 
 
The Group's financial results for the six month period ending 30 June 2007 will 
be prepared on the basis of the principles of adopted IFRS, and will be 
presented together with details of the accounting policies expected to be 
applied for the year ending 31 December 2007. 
 
 
Basis of consolidation 
 
The M&C Saatchi plc consolidated financial statements incorporate the financial 
statements of M&C Saatchi plc and entities (including special purpose entities) 
controlled by M&C Saatchi plc (its subsidiaries). Control is achieved where M&C 
Saatchi plc has the power to govern the financial and operating policies of an 
entity so as to obtain benefits from its activities. Where subsidiaries are 
acquired in the year, their results and cash flows are included from the date of 
acquisition up to the balance sheet date. 
 
 
Where necessary, adjustments are made to the financial statements of 
subsidiaries to bring their accounting policies into line with those used by 
other members of the Group. All intra-Group transactions, balances, income and 
expenses are eliminated on consolidation. 
 
 
Where a consolidated company is less than 100% owned by the Group, the minority 
interest share of the results and net assets is recognised at each reporting 
date. Where such a company has net liabilities, no asset is recorded within 
minority interests unless the minority shareholder has an obligation to make 
good its share of the net liabilities. 
 
 
Subsidiary acquisition 
 
The acquisition of subsidiaries is accounted for using the purchase method. The 
cost of acquisition is measured at the aggregate of the fair values of the 
assets given, liabilities incurred or assumed and the equity instruments issued 
by the Group in exchange for control, together with any costs that are directly 
attributable to the business combination. The identifiable assets and 
liabilities (including contingent liabilities) acquired that meet the conditions 
for recognition under IFRS 3 are recognised at their fair values at the date of 
acquisition. 
 
 
The interest of minority shareholders in the acquiree is initially measured at 
the minority's proportion of the net fair value of the assets, liabilities and 
contingent liabilities recognised. 
 
 
 
Goodwill 
 
Goodwill arising on the acquisition of a subsidiary or a jointly controlled 
entity is recognised as an asset, being the excess of the cost of the business 
combination over the Group's interest in the net fair value of the identifiable 
net assets acquired. 
 
 
Goodwill relating to associates is included within the carrying value of the 
investment in associates. 
 
 
Following initial recognition, goodwill is carried at cost less any accumulated 
impairment losses. Goodwill recognised under UK GAAP prior to the date of 
transition to IFRS is stated at net book value as at that date. 
 
 
For the purpose of impairment testing, goodwill is allocated to each of the 
Group's cash-generating units expected to benefit from the combination. 
Cash-generating units to which goodwill has been allocated are tested for 
impairment annually, or more frequently when there is an indication of 
impairment. Any impairment is recognised immediately in the income statement and 
is not subsequently reversed. 
 
 
Goodwill arising from foreign investments are translated at the year end rate. 
 
 
Associates 
 
Associates are all entities over which the Group has significant influence but 
not control, generally accompanying a shareholding of between 20% and 50% of the 
voting rights. Investments in associates are accounted for using the equity 
method of accounting and are initially recognised at cost. The Group's 
investment in associates includes goodwill identified on acquisition, net of any 
accumulated impairment loss. 
 
 
The Group's share of its associates' post-acquisition profits or losses is 
recognised in the income statement, and its share of post-acquisition movements 
in reserves is recognised in reserves. The cumulative post-acquisition movements 
are adjusted against the carrying amount of the investment. When the Group's 
share of losses in an associate equals or exceeds its interest in the associate, 
including any other unsecured receivables, the Group does not recognise further 
losses, unless it has incurred obligations or made payments on behalf of the 
associate. 
 
 
Unrealised gains on transactions between the Group and its associates are 
eliminated to the extent of the Group's interest in the associates. Unrealised 
losses are also eliminated unless the transaction provides evidence of an 
impairment of the asset transferred. Accounting policies of associates have been 
changed where necessary to ensure consistency with the policies adopted by the 
Group. 
 
 
Intangible assets 
 
Separately acquired intangible assets are capitalised at cost. Intangible assets 
acquired as part of a business combination are capitalised at fair value at the 
date of acquisition. Intangible assets that relate to associates are included 
within the carrying value of the investment in associates. 
 
 
Intangible assets are stated at historical cost less accumulated amortisation. 
 
 
Amortisation is provided to write off the cost of all intangible assets, less 
estimated residual values, evenly 
 
over their expected useful lives. 
 
 
Amortisation is calculated at the following annual rates: 
 
 
Software          - 33% in equal instalments 
Client contract   - length of contract in equal instalments 
Brands acquired   - over expected length of time that brand will be in use in 
                    equal instalments 
 
The need for any intangible asset impairment write-down is assessed by 
comparison of the carrying value of the asset against the higher of net 
realisable value and value in use. 
 
 
 
Property, plant and equipment 
 
Tangible fixed assets are stated at historical cost less accumulated 
depreciation. 
 
 
Depreciation is provided to write off the cost of all fixed assets, less 
estimated residual values, evenly 
 
over their expected useful lives. 
 
 
Depreciation is calculated at the following annual rates: 
 
 
Leasehold improvements   - over the period of the lease 
Furniture, fittings      - 10% in equal instalments 
Other equipment          - 25% in equal instalments 
Computer equipment       - 33% in equal instalments 
Motor vehicles           - 25% in equal instalments 
 
The need for any fixed asset impairment write-down is assessed by comparison of 
the carrying value of the asset against the higher of net realisable value and 
value in use. 
 
 
 
Inventory - work in progress 
 
Work in progress comprises all outlays incurred on behalf of clients which have 
still to be recharged, and is stated at the lower of cost and net realisable 
value. 
 
 
 
Cash and cash equivalents 
 
Cash and cash equivalents include cash at bank and in hand and deposits with an 
original maturity of three months or less, net of overdrafts. 
 
 
 
Leased assets 
 
Leases are classified as finance leases whenever the terms of the lease transfer 
substantially all the risks and rewards of ownership to the lessee. All other 
leases are classified as operating leases. 
 
 
Assets held under finance lease agreements are treated as if they had been 
purchased outright. The amount capitalised is the present value of the minimum 
lease payments payable over the term of the lease. The corresponding leasing 
commitments are shown as amounts payable to the lessor. Lease payments are 
apportioned between finance charges and reduction of the lease obligation so as 
to achieve a constant rate of interest on the remaining balance of the 
liability. 
 
 
Rentals payable under operating leases are charged to profit or loss on a 
straight-line basis over the term of the lease. Reverse premiums and similar 
incentives to enter into operating lease agreements are initially recorded as 
deferred income and released to profit or loss account over the lease term. 
 
 
 
Revenue recognition 
 
Turnover (billings) represents the gross amounts billed to clients in respect of 
revenue earned and other client recharges, net of discounts and sales taxes. 
 
 
Revenue comprises commission and fees earned in respect of turnover. 
 
 
Revenue for each type of revenue is recognised on the 
 
following basis: 
 
 
(1) Project fees are recognised over the period of the relevant assignments or 
    agreements. 
 
 
(2) Retainer fees are spread over the period of the contract on a straight-line 
    basis. 
 
 
(3) Commission on media spend is recognised when the advertisements appear in 
    the media. 
 
 
Employee benefits 
 
 
Pensions 
 
Contributions to personal pension plans are charged to the income statement in 
the period in which they are due. 
 
 
Share-based compensation 
 
Certain employees receive remuneration in the form of share based payments, 
including shares or rights over shares. The cost of equity settled transactions 
with employees is measured by reference to the fair value at the date at which 
they are granted excluding the impact of any non-market vesting conditions (for 
example profitability and sales growth targets). The non-market vesting 
conditions are included in assumptions about the number of options that are 
expected to become exercisable. At each balance sheet date the entity revises 
its estimates of the number of the options that are expected to become 
exercisable. It recognises the impact of the revision of original estimates, if 
any, in the income statement, and a corresponding adjustment to equity over the 
remaining vesting period. Where awards depend on future events we assess the 
likelihood of these conditions being met and make an appropriate charge at the 
end of each reporting period. The credit for equity settled transactions is 
taken to the share option reserve. 
 
 
For cash-settled share based payments, a liability is recognised for the amount 
payable at the balance sheet date with a corresponding charge being made to the 
income statement. Where payments depend on future events an assessment is made 
of the likelihood of these conditions being met in determining the amounts to be 
recorded. Where cash settled share options are only part of the way through 
their vesting period, the liability and income statement charge are adjusted to 
reflect the proportion of the vesting period that has been covered up to the 
balance sheet date. 
 
 
The charge for equity settled share based payments is recognised, together with 
a corresponding increase in equity, over the vesting period of the related share 
options. The cumulative expense recognised for equity-settled share based 
payments at each reporting date reflects the extent to which the directors 
consider, as at the balance sheet date that the awards will ultimately vest. 
 
 
The dilutive effect of un-vested outstanding options is calculated based on the 
number that would vest had the balance sheet date been the vesting date, this 
dilution is reflected in the computation of diluted earnings per share. 
 
 
Share based payments include options issued to employees, phantom bonuses and 
other long term equity linked bonuses. Payments may be in the form of cash or 
equity. When options are exercised, the cash received for the issued shares is 
taken to share capital and share premium and the related balance in the share 
option reserve is taken to the profit and loss reserve. In the event that an 
option is unexercised at the end of the period when it is exercisable then the 
related balance in the share option reserve is taken to the profit and loss 
reserve. 
 
 
 
Taxation 
 
Current tax, including UK and foreign tax, is provided at amounts expected to be 
paid (or recovered) using the tax rates and laws that have been enacted or 
substantively enacted at the balance sheet date. 
 
 
Deferred tax is provided in full, using the liability method, on temporary 
differences arising between the tax bases of assets and liabilities and their 
carrying amounts in the consolidated financial statements. However, the deferred 
tax is not accounted for, if it arises from initial recognition of an asset or 
liability in a transaction other than a business combination that at the time of 
the transaction affects neither accounting nor taxable profit or loss. Deferred 
tax is determined using tax rates (and laws) that have been enacted or 
substantially enacted by the balance sheet date and are expected to apply when 
the related deferred tax asset is realised or the deferred tax liability is 
settled. 
 
Deferred tax assets are recognised to the extent that it is probable that future 
taxable profit will be available against which the temporary differences can be 
utilised. 
 
Deferred tax is provided on temporary differences arising on investments in 
subsidiaries and associates, except where the timing of the reversal of the 
temporary difference is controlled by the Group and it is probable that the 
temporary difference will not reverse in the foreseeable future. 
 
 
Dividends 
 
Interim dividends are recorded when they are paid and the final dividends are 
recorded when they become legally payable. 
 
 
 
Foreign currency 
 
Foreign currency transactions arising from normal trading activities are 
recorded in local currency at the current 
 
exchange rates. 
 
 
Monetary assets and liabilities denominated in foreign currencies at the year 
end are translated at the year end 
 
exchange rate. 
 
 
Foreign currency gains and losses are credited or charged to the income 
statement as they arise. 
 
 
For overseas operations, results are translated at the average rate of exchange 
and balance sheets are translated 
 
at the closing rate of exchange. Exchange differences which arise from 
translation of foreign subsidiary results are taken to a separate component of 
equity. 
 
 
Non monetary items that are measured in terms of historical cost in a foreign 
currency are not retranslated. 
 
 
 
Financial instruments 
 
 
Financial assets and financial liabilities principally include the following: 
 
 
Trade receivables 
 
Trade receivables do not carry any interest and are stated at amortised cost. If 
the trade receivable becomes irrecoverable then a bad specific debt provision is 
created. 
 
 
Trade payables 
 
Trade payables are not interest bearing and are stated at their amortised cost. 
 
 
Bank borrowings 
 
Interest-bearing bank loans and overdrafts are initially recorded as the 
proceeds received, net of direct issue costs. Direct issue costs are amortised 
over the period of the loans and overdrafts to which they relate. Finance 
charges, including premiums payable on settlement or redemption and direct issue 
costs, are charged to the income statement as incurred using the effective 
interest method and are added to the carrying value of the instrument to the 
extent that they are not settled in the period in which they arise. 
 
 
Equity instruments 
 
Equity instruments issued by the Company are recorded at the proceeds received, 
net of direct issue costs. 
 
 
Derivative financial instruments - put options 
 
Liabilities in respect of put option agreements that allow the Group's equity 
partners to require the Group to purchase the minority interest are treated as 
derivatives over equity instruments and are recorded in the balance sheet at 
fair value. The fair value of such put options is re-measured at each period 
end. The movement in the fair value is recognised in profit or loss. The Group 
recognises its best estimate of the amount it is likely to pay, should these put 
options be exercised by the minority interests, as a liability in the balance 
sheet. 
 
 
When the initial fair value of the liability in respect of the put options is 
created the corresponding debit is included in equity. When the put option is 
exercised this debit becomes the investment in the subsidiary. 
 
 
Provisions 
 
Provisions are recognised when the Group has a present obligation as a result of 
a past event, and it is probable that the Group will be required to settle that 
obligation. Provisions are measured at the directors' best estimate of the 
expenditure required to settle the obligation at the balance sheet date, and are 
discounted to present value where the effect is material. The increase in the 
provision due to passage of time is recognised as interest expense. 
 
 
 
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            The company news service from the London Stock Exchange 
 
END