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Ocean Finance Loans:
Market Cap
£7.70m
Change Today
-0.13p ()
Share Price
4.00p
Update - Interim Results
Jacques Vert PLC
10 January 2008
DATE: Embargoed until 07.00am, Thursday 10 January 2008
CONTACTS: Paul Allen, Chief Executive
Ian Johnson, Group Finance Director
Jacques Vert Plc
Tel: 08700 345636
Alistair Mackinnon-Musson
Nicola Savage
Hudson Sandler
Tel: 020 7796 4133
Email: jacquesvert@hspr.com
Photographs available: Please contact Hudson Sandler, as above
JACQUES VERT PLC
INTERIM RESULTS
Jacques Vert Plc, the womenswear clothing retailer, is pleased to announce its
Interim results for the 26 weeks ended 27 October 2007, together with an update
on trading for the 10 weeks since that date.
The Group retails four womenswear brands: Jacques Vert, Windsmoor, Planet and
Precis. Sales are made predominantly in the UK, Canada and Eire through circa
960 outlets.
The key points are:
o Sales up 1.8% to £58.8m (2006: £57.7m) and level on a like for like basis
o Operating profit before exceptional items from continuing operations
£2.1m (2006: £2.5m)
o Profit before tax £2.6m after an exceptional credit of £0.9m (2006:
£12.9m including an exceptional credit of £10.5m)
o Net cash generated of £2.2m in the 6 months (2006: £0.5m net cash outflow)
o Net cash at the period end of £1.3m (2006: £1.0m net debt)
o Net assets increased to £21.9m (2006: £17.3m)
o Like for like sales fell by 2.2% in the 10 weeks since 27 October 2007
compared with the previous year mainly due to lower levels of markdown
o As a result of the lower markdown, Gross margin for the 10 week period
is 2.7% ahead of last year
Commenting, Steve Bodger, Chairman, said
"The Group's trading performance in the first half reflects a creditable
performance in an extremely challenging retail environment. Given the importance
of trading in the final quarter to the Group's result we continue to be cautious
about the remainder of the year.
Nevertheless, this set of results reflects the continued improvement in the
financial strength of the Group, with strong growth in net assets and cash
generation."
Chief Executive's Statement
Overview and Results
The trading results for the 26 weeks to 27 October 2007 show reasonable progress
in what were difficult market conditions. Group operating profit before
exceptional items from continuing operations was £2.1m (2006: £2.5m) and Group
profit before tax was £2.6m (2006: £12.9m).
The retail environment, particularly the current Autumn season, has proved
challenging for the market as a whole and one of the consequences has been heavy
discounting. We believe the Group's four brands have performed creditably in
this environment with total sales in the first six months 1.8% ahead of last
year at £58.8m (2006: £57.7m) and like for like sales in line with last year.
The Group re-launched its transactional websites for the four brands just prior
to the period end supported by a comprehensive marketing programme. Initial
customer reaction has been favourable and the Board believes this represents a
good growth opportunity.
Gross margin for the period was 62.5% compared to 64.3% last year mainly as a
result of the need to respond to the high level of markdown activity in the
market.
Operating expenses were £34.6m (2006: £34.5m) before an exceptional credit of
£0.9m (2006: £10.5m credit). This is a particularly good achievement given the
increases in the cost of operating retail stores, particularly concessions, and
after absorbing the costs associated with new store space.
Exceptional Items
The exceptional credit of £0.9m is a non-cash item arising from a reduction in
the provision required in respect of the value of the phantom option relating to
10m shares in Jacques Vert Plc granted to the Baird Group Pension Scheme as part
of the compromise agreement in July 2006. The option is required to be revalued
at each period end using the market share price at that date. Revaluations of
the option at future period ends will also be treated as an exceptional item.
Balance Sheet
Net assets at the period end were £21.9m (2006: £17.3m)
Stock levels have been tightly controlled and as at the period end stocks are in
line with last year.
Cash generation in the period has been strong and at the period end net cash
balances were £1.3m (2006: net debt £1.0m).
As previously announced, the Company is expected to have positive distributable
reserves at the end of the current financial year and as a result the Board will
be able to consider the payment of a dividend.
IFRS
For the financial year ending 26 April 2008 the Group is required to prepare
financial statements in accordance with International Financial Reporting
Standards (IFRS). Accordingly, the Group's interim results for the 26 weeks
ending 27 October 2007 have been prepared and reported under IFRS.
Details of the changes may be found in note 2 of the interim financial
statements. The most significant change has been the recognition of the fair
value of forward exchange contracts which the Group uses to hedge future
currency requirements. This change in accounting policy has reduced Group net
assets by £1.0m at the period end (October 2006: £1.4m; April 2007: £0.8m).
Current Trading and Future Prospects
Sales in the 10 weeks since the period end declined on a like for like basis by
2.2% compared with last year. This decline is largely the result of a lighter
markdown policy compared to the more aggressive markdown approach in the
previous year and as a result, the gross margin in the 10 weeks since the period
is 2.7% ahead of last year.
The final quarter is the key trading period for the Group and the board expects
that the uncertain market conditions will continue for the remainder of the
financial year. However we aim to continue building on the strong cash
performance in the first half, which should place the Group in a good position
to take advantage of opportunities that may arise.
Paul Allen
Chief Executive
10 January 2008
Unaudited consolidated income statement
For the 26 weeks ended 27 October 2007
Note 26 weeks 26 weeks 52 weeks
ended ended ended
27 October 28 October 28 April
2007 2006 2007
£000 £000 £000
Continuing operations
Revenue 58,780 57,717 114,888
Cost of sales (22,067) (20,623) (41,488)
Gross profit 36,713 37,094 73,400
Operating expenses
Distribution costs (28,871) (29,126) (58,099)
Administrative expenses 3 (4,796) 5,058 4,946
Operating profit 3,046 13,026 20,247
Analysed between:
Operating profit before exceptional items 2,113 2,545 5,772
Net exceptional items 3 933 10,481 14,475
Finance income 4a - 287 193
Finance expenses 4b (411) (440) (909)
Profit before income tax 2,635 12,873 19,531
Income tax (expense) / credit 5 (52) (60) 100
Profit for the period from continuing operations 2,583 12,813 19,631
Loss for the period from discontinued operations 6 - (607) (57)
Profit for the period attributable to equity 2,583 12,206 19,574
shareholders
Basic earnings per share 7
- total 1.37p 6.46p 10.35p
- continuing operations 1.37p 6.78p 10.38p
Diluted earnings per share 7
- total 1.28p 6.29p 9.68p
- continuing operations 1.28p 6.60p 9.71p
Unaudited consolidated statement of changes in equity
26 weeks ended 27 October 2007
Share Share Other Hedge Translation Retained Total
Capital Premium Reserve* Reserve Reserve earnings equity
£000 £000 £000 £000 £000 £000 £000
Balance at 29 April 2006 19,244 4,599 969 (1,247) - (18,535) 5,030
Profit for the period - - - - - 12,206 12,206
Change in fair value - - - (51) - - (51)
Change in hedge reserve - - - 237 - - 237
Currency translation differences - - - - (269) - (269)
Share option charge - - - - - 79 79
Sale of own shares - - - - - 36 36
Balance at 28 October 2006 19,244 4,599 969 (1,061) (269) (6,214) 17,268
Share Share Other Hedge Translation Retained Total
Capital Premium Reserve* Reserve Reserve earnings equity
£000 £000 £000 £000 £000 £000 £000
Balance at 28 April 2007 19,244 4,599 969 (359) (295) (4,459) 19,699
Profit for the period - - - - - 2,583 2,583
Change in fair value - - - (199) - - (199)
Change in hedge reserve - - - (290) - - (290)
Currency translation differences - - - - (107) - (107)
Share option charge - - - - - 172 172
Sale of own shares - - - - - 26 26
Balance at 27 October 2007 19,244 4,599 969 (848) (402) (1,678) 21,884
* The Other Reserve relates to a business combination prior to the adoption of
International Financial Reporting Standards ("IFRS") and was previously shown as
a Merger Reserve under UK GAAP. The Group has elected not to revisit business
combinations prior to transition to IFRS and, accordingly, has recognised a
separate reserve in the financial statements.
Unaudited consolidated balance sheet
At 27 October 2007
Note 27 October 28 October 28 April
2007 2006 2007
£000 £000 £000
Non current assets
Intangible assets 2,431 2,431 2,431
Property, plant and equipment 4,861 5,358 4,979
Deferred income tax asset 3,360 3,360 3,360
10,652 11,149 10,770
Current assets
Inventories 28,236 28,239 27,992
Trade and other receivables 12,106 11,487 11,624
Current assets held for sale 6 - 7,965 -
Cash and cash equivalents 2,252 4,847 3,644
42,594 52,538 43,260
Current liabilities
Trade and other creditors (23,230) (25,439) (21,171)
Borrowings (1,000) (5,854) (4,500)
Derivative financial instruments (997) (1,351) (798)
Current liabilities held for sale 6 - (6,962) -
(25,227) (39,606) (26,469)
Net current assets 17,367 12,932 16,791
Non current liabilities
Provisions for liabilities and charges 8 (6,135) (6,813) (7,862)
Net assets 21,884 17,268 19,699
Equity
Called up equity share capital 19,244 19,244 19,244
Share premium account 4,599 4,599 4,599
Other reserve 969 969 969
Hedge reserve (848) (1,061) (359)
Translation reserve (402) (269) (295)
Retained earnings (1,678) (6,214) (4,459)
Total shareholders' equity 21,884 17,268 19,699
Unaudited consolidated cash flow statement
For the 26 weeks ended 27 October 2007
Note 26 weeks ended 26 weeks 52 weeks
27 October ended ended
2007 28 October 28 April
£000 2006 2007
£000 £000
Cashflows from continuing operating activities
Profit before income tax 2,635 12,873 19,531
Net finance expense 411 153 716
Depreciation charge 862 970 2,021
Charges relating to options and employee share awards 173 79 364
Decrease / (increase) in working capital 1,002 2,615 (1,797)
Decrease in provisions (1,863) (16,834) (22,162)
Cash generated from / (used in) operations 3,220 (144) (1,327)
Interest paid (279) (329) (422)
Corporation tax received - 9 100
Cash flow from continuing operating activities 2,941 (464) (1,649)
Cash flow from discontinued operations - 883 393
Net cash flow from operating activities 2,941 419 (1,256)
Cashflows from investing activities
Disposal of subsidiary - - 2,229
Purchase of property, plant and equipment (771) (1,080) (1,544)
Interest received 5 118 44
Discontinued operations 6 - (31) (83)
Net cash flow from investing activities (766) (993) 646
Cash flows from financing activities
Loan repayment (3,500) - -
New loans - 2,500 1,189
Sale of shares by ESOP Trust 28 36 38
Net cash flow from financing activities (3,472) 2,536 1,227
Net (decrease) / increase in cash and cash (1,297) 1,962 617
equivalents
Cash and cash equivalents at beginning of 3,644 3,046 3,046
period
Exchange rate movement (95) (161) (19)
Cash and cash equivalents 9 2,252 4,847 3,644
Unaudited notes to the Interim Financial Statements
For the 26 weeks ended 27 October 2007
1. Basis of preparation
The Group is required to prepare its next annual consolidated
financial statements in accordance with International Financial Reporting
Standards as adopted for use in the EU ("IFRS") and to those parts of the
Companies Act 1985 applicable to those companies reporting under IFRS.
Accordingly, the directors have applied the accounting policies set out in Note
10. Due to the transition from UK Generally Accepted Accounting Principles (UK
GAAP) to IFRS, the comparative figures for the 52-week period ended 28 April
2007 are not as shown in the statutory accounts for that period. The financial
statements for that period, prepared under UK GAAP, have been delivered to the
Registrar of Companies. The auditors report on these financial statements was
unqualified and did not include a statement under Section 237 (2) or (3) of the
Companies Act 1985.
2. Adoption of IFRS
a. Revised accounting policies
The Group adopted IFRS with effect from 29 April 2006 and has taken certain
exemptions under IFRS 1, "First time adoption of international financial
reporting standards" as follows:
IFRS 3, "Business combinations"
The Group has elected not to apply IFRS 3, "Business combinations"
retrospectively to acquisitions that took place before the date of transition.
IAS 21, "The effects of changes in foreign exchange rates"
The Group has elected to set all brought forward translation gains and losses in
equity to zero at the date of transition.
IAS 16, "Property, plant and equipment"
The Group has elected to continue to recognise property, plant and equipment at
historic cost less accumulated depreciation on transition to IFRS.
The full Group accounting policies are set out in Note 10. Excerpts
from those accounting policies adopted as a result of the application of IFRS
and which affect the results or net assets of the Group are shown below:
IFRS 3, "Business combinations"
Goodwill on acquisition of subsidiaries is included within 'intangible assets'.
Goodwill is not amortised but is tested annually for impairment. Impairment
losses are not reversed. Gains and losses on the disposal of an entity include
the carrying value of goodwill relating to the entity sold.
IFRS 5, "Non current assets held for sale and discontinued operations"
Assets and liabilities held within discontinued operations have been classified
as disposal groups under IFRS. Accordingly, those assets and liabilities are
shown as held for sale in the balance sheet at the lower of their carrying value
and their fair value less costs of sale.
IAS 17, "Leasing"
Payments made under operating leases are charged to the income statement on a
straight-line basis over the period of the lease. Inducements to enter into a
lease are recognised over the full lease term.
IAS 32 and IAS 39, "Financial Instruments"
Financial instruments that are documented as part of an effective cash flow
hedge are recognised directly in equity and recycled to the income statement
when the underlying cash flows occur, or are no longer expected to occur.
IAS 1, "Presentation of financial statements"
The directors consider transactions that are material in size and/or nature
warrant specific disclosure in the primary financial statements. These are
highlighted as exceptional items in the income statement. Further details are
included in Note 3. Such transactions are treated consistently in each period
that they arise.
b. Reconciliation of profit after tax under UK GAAP to IFRS
26 weeks ended 52 weeks ended
28 October 2006 28 April 2007
£000 £000
Profit after tax as previously reported under UK GAAP 12,087 19,350
IFRS adjustments:
- IAS 17 - increased credit from deferred lease
incentives (to the income statement) 47 208
- IAS21 - recycle the cumulative translation
difference relating to disposals (to the income
statement) - (128)
- IFRS 3 - exclude amortisation of Goodwill
(from the income statement) 72 144
Profit after tax for the period in accordance with IFRS 12,206 19,574
c. Reconciliation of shareholders' equity under UK GAAP to
IFRS
28 April 2007 28 October 2006 29 April 2006
£000 £000 £000
Total shareholders' equity as previously reported 20,452 18,956 7,023
under UK GAAP
IFRS adjustments:
- IAS 17 - increase in lease incentives
held as deferred income (538) (699) (746)
- IAS 39 - recognise the fair value of
derivative financial instruments (359) (1,061) (1,247)
- IFRS 3 - exclude amortisation of
Goodwill 144 72 -
Total shareholders' equity in accordance with IFRS 19,699 17,268 5,030
3. Administrative expenses and exceptional items
Administrative expenses include several exceptional items that are material in
size and/or nature. These are analysed as follows:
26 weeks ended 26 weeks ended 52 weeks ended
27 October 2007 28 October 2006 28 April 2007
£000 £000 £000
Restructuring costs and costs relating to potential - - (754)
litigation
Increase in provisions for legacy issues - (551) (1,227)
Phantom option granted to the BGPS Trustee over 10 933 - (1,385)
million shares in Jacques Vert Plc
Curtailment gain on pension scheme net of costs - 11,032 17,841
Net exceptional items 933 10,481 14,475
Administrative expenses excluding exceptional items are analysed
below:
26 weeks ended 26 weeks ended 52 weeks ended
27 October 2007 28 October 2006 28 April 2007
£000 £000 £000
Administrative expenses 4,796 (5,058) (4,946)
Add back: Net exceptional items 933 10,481 14,475
Administrative expenses excluding exceptional items 5,729 5,423 9,529
4. Finance income and expenses
26 weeks ended 26 weeks ended 52 weeks ended
27 October 2007 28 October 2006 28 April 2007
£000 £000 £000
a. Finance income
Interest receivable - 52 134
Finance credit on pension schemes - 235 59
- 287 193
b. Finance expenses
Interest payable (275) (223) (512)
Unwinding of discount on provisions (136) (217) (397)
(411) (440) (909)
Net finance expense (411) (153) (716)
5. Income tax expense
No UK income tax expense has been recognised in the period to 27
October 2007 (period ended 28 October 2006: £nil; year to 28 April 2007: £nil).
A charge of £52,000 has been included in the period to 27 October
2007 relating to tax on overseas operations (period ended 28 October 2006:
£60,000 charge; year ended 28 April 2007: £100,000 credit).
6. Discontinued operations
On 29 December 2006 the Group sold 100% of the shares in M/T Owner AB ("Melka
Tenson") whose activities comprised the Group's Wholesale Division. Accordingly,
the results of the subsidiary have been disclosed as discontinued operations at
October 2006 and April 2007.
7. Earnings per Share
Basic/diluted earnings per share
The basic earnings per share have been calculated by dividing the
profit after taxation for the period by the weighted average number of shares in
issue during the period excluding those held by the employee share ownership
plan ("ESOP"). At 27 October 2007, 3,239,809 shares were held by the ESOP Trust
(October 2006 and April 2007: 3,370,678).
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The group has two classes of dilutive potential ordinary shares: those
share options granted to employees where the exercise price is lower than the
average market price of the company's ordinary shares during the year and awards
under the company's long-term incentive plan ("the LTIP") to the extent that
performance criteria attached to those awards are expected to be met. At 27
October 2007, the diluted weighted average number of ordinary shares in issue
was 202,308,332 (October 2006: 194,061,316; April 2007: 202,177,463).
26 weeks ended 26 weeks ended 52 weeks ended
27 October 2007 28 October 2006 28 April 2007
£000 £000 £000
Basic earnings per share
- continuing 1.37p 6.78p 10.38p
- discontinued - (0.32)p (0.03)p
Diluted earnings per share
- continuing 1.28p 6.60p 9.71p
- discontinued - (0.31)p (0.03)p
Adjusted earnings per share
The directors consider that an appropriate measure of performance of the group
is the adjusted earnings per share for the continuing operations ("adjusted EPS
"). The adjusted EPS has been calculated by dividing an adjusted profit for the
period by the weighted average number of shares in issue during the period as
shown below:
Adjusted profit for the period: 26 weeks ended 26 weeks ended 52 weeks ended
27 October 2007 28 October 2006 28 April 2007
£000 £000 £000
Profit for the period 2,583 12,206 19,574
Loss from discontinued operations - 607 57
Profit for the period - continuing 2,583 12,813 19,631
Charges relating to options and employee share 173 79 364
awards
Costs of vacating onerous property lease - - 200
Exceptional items (933) (10,481) (14,475)
Finance credit on pension schemes - (235) (59)
Unwinding of discount on provisions 136 217 397
Adjusted profit for the period - continuing 1,959 2,393 6,058
Adjusted earnings per share - Basic 1.04p 1.27p 3.20p
Adjusted earnings per share - Diluted 0.97p 1.23p 3.00p
8. Provisions
Pension Pension Other legacy Total
schemes settlement business
costs provisions
£000 £000 £000 £000
At 30 April 2006 21,028 - 5,461 26,489
(Credited) / charged to income (11,032) - 551 (10,481)
statement
Utilised (5,487) - (873) (6,360)
Unwinding of discount 31 - 186 217
Finance credit (235) - - (235)
Exchange rate adjustment (35) - (3) (38)
At 28 October 2006 4,270 - 5,322 9,592
Pension Pension Other legacy Total
schemes settlement business
costs provisions
£000 £000 £000 £000
At 29 April 2007 442 2,239 5,181 7,862
(Credited) to income statement - (933) - (933)
Utilised (127) (66) (737) (930)
Unwinding of discount - - 136 136
At 27 October 2007 315 1,240 4,580 6,135
9. Net funds / (debt)
27 October 2007 28 October 2006 28 April
£000 £000 2007
£000
Cash and cash equivalents 2,252 4,847 3,644
Bank loans (1,000) (5,854) (4,500)
1,252 (1,007) (856)
10. Accounting policies
Basis of preparation
These consolidated financial statements have been prepared in accordance with EU
endorsed IFRS, IFRIC interpretations and the Companies Act 1985 applicable to
companies reporting under International Financial Reporting Standards ("IFRS").
The consolidated financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets and
liabilities at fair value. These financial statements are the first prepared by
the Group since the transition on 29 April 2006 to IFRS. The principal
accounting policies applied in the preparation of these consolidated financial
statements are set out below. These policies have been consistently applied to
all the years presented, unless otherwise stated.
The following exemptions have been taken under IFRS 1 at 29 April 2006, the date
of transition to IFRS ("Transition"):
o The Group has elected not to apply IFRS 3, "Business combinations"
retrospectively to acquisitions that took place before Transition.
o The Group has elected to set all brought forward translation gains and
losses in equity to zero at Transition. Translation gains and losses arising
after Transition will be recycled to the income statement on disposal of the
overseas subsidiaries to which they relate.
o The Group has elected to continue to recognise all property, plant and
equipment at historical cost less accumulated depreciation at Transition.
The following IFRS, amendments and interpretations issued by the International
Accounting Standards Board ("IASB") have become effective since 28 April 2007
but none has had a material effect on the results or the net assets of the
Group:
o IFRS 7, "Financial Instruments - Disclosure" and the complementary
amendment to IAS 1, "Presentation of Financial Statements" - Capital Disclosures
" introduce new disclosures relating to financial instruments and do not have
any effect on the classification or valuation of the Group's financial
instruments.
o IFRIC 8, "Scope of IFRS 2"; IFRIC 9, "Re-assessment of embedded
derivatives"; IFRIC10, "Interim financial reporting and impairment"; IFRIC 11, "
Group and treasury share transactions" and IFRIC 12, "Service concession
arrangements" do not have a material effect on the assessment or recognition of
assets and liabilities in the Group's financial statements.
The following IFRS, amendments and interpretations have been issued by the IASB
and the Group has chosen not to adopt them early. None is expected to have a
material impact on the results or the net assets of the Group:
o IFRS 8, "Operating Segments" was issued in November 2006. It replaces
IAS 14, "Segmental Reporting" and requires operating segments to be disclosed on
the same basis as that used for internal reporting. It is required to be
implemented by the Group from May 2009 and will have no effect on the results or
the net assets of the Group.
o Amendment to IAS23, "Borrowing Costs" was issued in March 2007. It
removes the option of immediately expensing borrowing costs that are directly
attributable to a qualifying asset and requires that such costs be capitalised.
It is required to be implemented by the Group from May 2009, but is not expected
to have a material effect on the results or the net assets of the Group.
o IFRIC 13, "Customer loyalty programmes" and IFRIC 14, "The limit on a
defined benefit asset" are not expected to have a material effect on the results
or assets of the Group.
Basis of consolidation
The Group financial statements consolidate the results of Jacques Vert Plc ("the
Company") and its subsidiary undertakings under acquisition accounting for the
26 weeks ended 27 October 2007. Under this method, the assets and liabilities of
subsidiary undertakings acquired are incorporated at their fair value at the
date of acquisition and the Group income statement includes only that proportion
of the result of subsidiaries arising whilst meeting the definition of a
subsidiary. Subsidiaries are entities controlled by the Company. Control exists
when the Company has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities.
Revenue recognition
Revenue represents sales by the Group to third parties, net of returns, trade
discounts and applicable tax.
Revenue is shown net of unredeemed customer loyalty vouchers and a provision for
customer returns representing the Group's estimate of the amount of product sold
during the period that will be returned in the following period.
Revenue is recognised when the significant risks and rewards of ownership of the
goods have passed to the buyer which is generally when goods are delivered to
the customer.
Exceptional items
Transactions that are material in size and/or nature are considered significant
enough to warrant specific disclosure in the primary financial statements. These
are highlighted as exceptional items in the income statement and analysed in the
notes to the financial statements. Such transactions are treated consistently in
each period that they arise.
Discontinued operations
Operations of the Group are considered as discontinued if they meet the
following criteria:
o The operation has been disposed of; or
o The operation is a major line of business or geographical area of
operations which is actively marketed for sale at the balance sheet date; and
o The sale of the operation is considered highly probable.
All other activities are considered as continuing operations.
Where an operation is discontinued, the post tax profit for the period together
with any profit or loss on disposal is shown separately in the income statement.
The assets and liabilities of the discontinued operation are shown as 'held for
sale' at the lower of their carrying value and their fair value less any costs
of sale.
Share based payments
The Group operates an equity settled Employee Share Ownership Plan ("ESOP"). The
Group has also granted equity settled share options ("Options"). Share awards
made under the ESOP and the Options are measured at fair value at the date of
grant. The fair value is measured by use of the Black-Scholes model and expensed
on a straight-line basis over the vesting period based on an estimate of the
shares that will eventually vest.
The level of vesting is reviewed annually and the charge is adjusted to reflect
actual and estimated levels of vesting.
Shares held on behalf of the ESOP are shown as a deduction from shareholders'
equity. The cost of the ESOP is borne by the Group.
Pensions
The Group operates several defined contribution and defined benefit schemes for
its employees.
With respect to the defined contribution schemes, the pension cost recognised in
the income statement represents contributions payable to the scheme.
With respect to the defined benefit schemes:
o Valuations are performed triennially by an independent qualified
actuary.
o A credit representing the expected return on the schemes' assets during
the year is included within interest.
o A charge representing the expected increase in the schemes' liabilities
during the year is included within interest.
o The differences between the market value of the assets and liabilities
of the schemes are shown as assets or liabilities in the balance sheet.
o Pension scheme assets and the credits and charges above are recognised
only to the extent that they will affect future cashflows between the schemes
and the Group.
o Actuarial gains and losses are recognised at the year end balance sheet
date in the statement of recognised income and expense.
Intangible Assets
Goodwill arising on consolidation represents the excess of the cost of
acquisitions over the Group's interest in the fair value of the identifiable
assets and liabilities of the acquired entities at the date of acquisition.
Goodwill is recognised as an asset and is assessed for impairment at least
annually. Any impairment is recognised immediately in the income statement and
is not subsequently reversed.
Upon disposal of a subsidiary the attributable goodwill is included in the
calculation of the profit or loss arising on disposal.
Goodwill arising on acquisitions arising prior to 3 May 1998 has not been
reinstated and is not included in any subsequent profit or loss on disposal.
Taxation
The tax charge comprises current tax payable and deferred tax.
The current tax payable is provided on taxable profits using tax rates enacted
or substantively enacted at the balance sheet date.
Deferred tax is recognised 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. Deferred tax is
recognised at tax rates that are enacted or substantively 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 more likely than not
that future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax liabilities on net earnings in
overseas subsidiaries are provided only to the extent that at the balance sheet
date dividends have been accrued as receivable.
Property, plant and equipment
Property, plant and equipment are stated at the lower of cost less accumulated
depreciation and recoverable amount. Borrowing costs are not capitalised.
Depreciation is calculated so as to write off the cost of property, plant and
equipment less any residual value over their estimated useful economic lives by
equal annual instalments at the following rates:
Leasehold improvements Remaining period of the lease
Plant, fixtures and equipment 10% - 33%
Freehold property 2% - 5%
Freehold land is not depreciated.
The assets' residual values and useful lives are reviewed for impairment, and
adjusted if appropriate, at each balance sheet date. Asset carrying values are
written down immediately to the estimated recoverable amount where the estimated
recoverable amount is less than the carrying value.
Operating and finance leases
Rentals payable under operating leases are charged to the income statement on a
straight-line basis over the life of the lease.
The value of any lease incentives received on leasehold properties is recognised
as deferred income and released to the income statement on a straight-line basis
over the life of the lease.
Inventories
Inventories and work in progress are valued at the lower of cost and net
realisable value. Cost comprises the cost of direct materials and labour and an
appropriate proportion of overheads. Net realisable value is the value at which
stocks and work in progress can be realised in the ordinary course of business.
Foreign currencies
Transactions denominated in foreign currencies are translated at the exchange
rates at the date of the transaction. Foreign exchange gains and losses arising
from such transactions and from the translation at year end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement.
The results and financial position of subsidiaries which have a functional
currency other than Sterling are translated for consolidated accounts as
follows:
o assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of the balance sheet
o income and expenses for each income statement presented are translated
at weighted average exchange rates
o all resulting exchange differences are recognised as a separate
component of equity until the disposal of the relevant subsidiary when they are
recycled to the income statement
Financial instruments
a. Trade receivables and payables
Trade receivables are recorded at their nominal amount less an allowance for
doubtful debts where appropriate. Trade payables are held at their nominal value
b. Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds
received, less any direct issue costs.
c. Derivative financial instruments
The Group uses derivative financial instruments, in particular forward currency
contracts, to manage the financial risks associated with the Group's underlying
business activities and the financing of those activities. Such financial
instruments are initially recorded at fair value and are thereafter revalued to
fair value at each balance sheet date. The Group does not enter into speculative
currency contracts.
Gains or losses on derivative financial instruments that are designated and
effective as hedges against future cash flows are recognised directly in equity
("hedge accounting"). Any gain or loss relating to an ineffective hedge or a
derivative financial instrument that does not qualify for hedge accounting is
immediately recognised in the income statement.
Where a hedged commitment results in the recognition of an asset or a liability,
the gain or loss on the hedge previously recognised in equity is thereafter
included in the initial measurement of the asset or liability. For hedges that
do not result in the recognition of an asset or liability, amounts deferred in
equity are recognised in the income statement in the same period in which the
hedged commitment affects profit and loss.
Hedge accounting ceases when a financial instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge accounting. The
cumulative gain or loss relating to the instrument that has previously been
recognised in equity is retained in equity until the hedged transaction occurs.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances and short term deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group's
cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
Provisions
Provisions are recognised when either a legal or constructive obligation, as a
result of a past event, exists at the balance sheet date and where the likely
outcome and the amount of the obligation can be measured with reasonable
certainty. Other legacy business provisions are discounted at a rate of 10%.
Critical accounting estimates and judgements
The preparation of consolidated financial statements requires the Group to make
estimates and assumptions that affect the application of policies and reported
amounts. Estimates and judgements are continually evaluated and are based on
historical experience and other factors including expectations of future events
that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates.
The estimates and assumptions which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities relate
mainly to legacy business provisions which require the exercise of management
judgement.
- ENDS -
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