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Notes to the Accounts (1-2)
1 Basis of presentation
The consolidated profit and loss account and balance sheets include the accounts of the Company and its subsidiary
undertakings made up to 31 December 2004. The accounts have been prepared in accordance with all applicable accounting
standards under the historical cost convention modified to include the revaluation of certain land and buildings.
The Urgent Issues Task Force (UITF) Abstract 38 changes the presentation of an entity’s own shares held in an Employee Share
Ownership Plan (ESOP) Trust by requiring them to be deducted in arriving at the shareholders’ funds instead of showing them as
an asset. Accordingly, the prior periods’ balance sheets have been restated to show shares held in respect of grants under share
option schemes of £0.5 million as at 31 December 2004 and as at 31 December 2003 as a deduction from shareholders’ funds
instead of as a fixed asset investment.
2 Accounting policies
Basis of consolidation
The results of subsidiaries sold or acquired during the year are included in the accounts up to, or from, the date that control
passes, unless otherwise stated.
For acquisitions made prior to 1 January 1998, the differences between the fair value of the consideration paid for investments
in subsidiaries or businesses and the fair value of their net assets at the date of acquisition is treated as purchased goodwill and
is written off directly against reserves.
For acquisitions made on or after 1 January 1998, purchased goodwill arising from the differences between the fair value of the
consideration paid and the fair value of the net assets acquired as at the date of acquisition is capitalised in the balance sheet
as an intangible asset. Positive goodwill is being charged to the profit and loss account through amortisation on a straight-line
basis over its estimated useful life up to a maximum of 20 years. Negative goodwill is being recognised in the profit and loss
account in the periods in which the non-monetary assets are recovered, through depreciation or sale.
Impairment tests are carried out on the purchased goodwill arising on acquisitions that occurred in the preceding year or when a
triggering event occurs. Where necessary, provision is made for any impairment that has arisen.
Turnover
Turnover, which excludes value added tax and sales between Group companies, represents the value of products and services
sold. Other than for long term contracts, the treatment of which is set out separately below, revenue arising from product sales is
recognised when title passes to the customer.
Revenue arising from asset rental is recognised over the duration of the rental contract at the gross amount billed to the
customer, where we act as the principal in the rental transaction.
Long term contracts
The amount of profit attributable to the stage of completion of a long term contract is recognised when the outcome of the
contract can be forseen with reasonable certainty. Turnover for such contracts is stated at cost appropriate to the stage of
completion plus attributable profits, less amounts recognised in previous years. Provision is made for any losses as soon as they
are forseen.
Contract work in progress is stated at costs incurred, less those transferred to the profit and loss account, after deducting
forseeable losses and payments on account not matched with turnover.
Amounts recoverable on contracts are included in debtors and represent turnover recognised in excess of payments received on account.
Foreign currencies
Transactions in foreign currencies with overseas customers and suppliers are converted at the average rates for the months in
which transactions occur. Profits and losses arising from the difference between these rates and contracted rates on forward
exchange contracts, which are set up as hedges against such sales and purchases, are recorded in cost of sales. Foreign trading
profits and cash flows are translated at the average rates for the year. Monetary assets and liabilities are translated at the yearend
rates and the gains or losses on translation are included in the profit and loss account. Differences on translation of
investments in overseas companies are taken directly to reserves.
Research and development
Expenditure on the Group’s research and development projects is generally charged to the profit and loss account in the year in
which it is incurred. In certain specialised cases where a development project meets clearly defined criteria and the commercial
outcome can be assessed with reasonable certainty, development expenditure is capitalised. Such capitalised expenditure is
amortised over the life of the project.
Investments
Fixed asset investments are stated individually at cost less, where appropriate, provision for impairment in value. Current asset
investments are stated at the lower of cost and net realisable value. Cost includes, where appropriate, accrued interest.
Fixed assets and depreciation
Depreciation is provided at rates estimated to write off the cost or valuation of the relevant assets less their estimated residual
values by equal annual amounts over their expected useful lives. No depreciation is provided on freehold land. Other fixed assets
are depreciated at the rates indicated below:
| Freehold and long leasehold buildings |
21/2% – 5% on cost or valuation |
| Short leasehold property |
over the remaining period of the lease |
| Plant and machinery |
121/2% – 25% on cost |
| Motor vehicles |
25% – 33 1/3% on cost |
| Equipment, fixtures & fittings |
10% – 33 1/3% on cost |
| IT development costs |
20% on cost |
| Rental equipment |
20% on cost |
Fixed assets are stated at cost except that, as allowed FRS 15 ‘Tangible Fixed Assets’, on adoption of that standard in the year
ending 31 December 2000 when the book amounts of revalued land and buildings were retained. These book values are based
on the previous revaluation on 31 March 1989 and have not been subsequently revalued.
Stock and work in progress
Stock and work in progress is valued at the lower of cost and net realisable value, less progress payments. Cost includes
materials, direct labour and production overheads incurred in bringing stocks and work in progress to their present location and
condition.
Capital instruments
Capital instruments are stated in the balance sheet after the deduction of issue costs, which are charged to the profit and loss
account over the term of the debt.
Receipts and payments on interest rate instruments are recognised on an accruals basis over the life of the instrument. Cash
flows associated with derivative financial instruments are classified in the cash flow statement in a manner consistent with those
of the transactions being hedged.
Deferred tax
The charge for taxation is based on the profit for the year and takes into account tax deferred because of timing differences
between the treatment of certain items for tax and accounting purposes. Full provision for deferred tax is made, on an undiscounted
basis, where there is an obligation to pay more tax, or a right to pay less tax, in the future. Deferred tax assets are
recognised to the extent that it is regarded as more likely than not that they will be recovered.
Pension costs
The costs of providing pensions for employees under defined benefit pension schemes are charged to the profit and loss account
over the working lives of the employees in accordance with the recommendations of qualified actuaries. Any funding surpluses or
deficits that may arise are amortised over the average working life of the employees but surpluses may first be used to improve
members’ benefits. The costs of providing pensions for employees under state and other defined contribution schemes are
expensed as incurred.
FRS 17 ‘Retirement Benefits’. This Standard replaces use of actuarial values for assets in a pension scheme in favour of a
market-based approach. In order to cope with the volatility inherent in this measurement basis, the Standard requires that the
profit and loss account shows the relatively stable ongoing service cost, interest cost and expected return on assets. Fluctuations
in market values and changes in actuarial assumptions are reflected in the statement of total recognised gains and losses. The
Group has continued to account for pensions and other post employment benefits in accordance with SSAP 24 but has complied
with the transitional disclosure requirements of FRS 17.
Employee share schemes
The costs of awards to employees that take the form of shares or rights to shares (including conditional rights) are recognised
over the periods to which the employees’ performance relates. No cost is recognised in respect of SAYE schemes that are offered
on similar terms to all or substantially all employees.
Leases
Rentals under operating leases are charged to the profit and loss account on a straight-line basis.
Assets held for short-term rental are recorded as plant and machinery within fixed assets and depreciated over their estimated
useful lives. Rental income from these assets is recognised as earned on a straight-line basis over the rental period.
Information correct at 13/04/05