Transition to IFRS
Alkane Energy PLC
17 September 2007
Alkane Energy plc
Adoption of International Financial Reporting Standards
Contents
Introduction.
Summary.
Key Changes.
Reconciliation of previously reported financial statements under UK GAAP to
IFRS:
Group Balance Sheet at 1 January 2006
Group Income Statement at 30 June 2006
Group Balance Sheet at 30 June 2006
Group Income Statement at 31 December 2006
Group Balance Sheet at 31 December 2006
Group Accounting Policies.
Introduction
This document provides details of the changes to Alkane Energy plc consolidated
reported results arising from the implementation of International Financial
Reporting Standards ('IFRS').
The Group's first full year results under IFRS will be for the year ending 31
December 2007 with comparative results for 2006 restated to IFRS where
applicable. This document provides a narrative explanation and reconciliations
between IFRS and previously reported financial information under UK GAAP as at 1
January 2006, 30 June 2006 and 31 December 2006.
The Group has reviewed and made changes to its accounting policies as required
by IFRS1. The Group's revised accounting policies are set out later in this
statement.
Summary
The main impacts of IFRS on the Group's reported results are shown below:
• An increase in Profit before tax for the year ended 31 December 2006 of
£35,000 - the result of acquired goodwill no longer being amortised offset
by the cost of employee benefits.
• Net assets at 1 January 2006 and 31 December 2006 have decreased by
£198,000 and £151,000 respectively, mainly arising from the recognition of
obligations in respect of employee benefits.
Key Changes
Employee benefits (IAS19)
Short-term employee benefits
IAS19 provides separate rules for the recognition of the expense/liability
related to short-term employee benefits. From the date of transition we have
accrued for the cost of all short term employee benefits. Because these expenses
are now recognised in full, the associated deferred tax liability has been
reversed.
January December
2006 2006
£'000 £'000
Accrual for short-term employee benefits (240) (289)
Reversal of deferred tax liability 42 49
________ ________
Decrease in net assets (198) (240)
________ ________
Property, Plant and Equipment (IAS16)
IAS 16 uses the 'component approach' to depreciation of assets and requires the
separate depreciation of each part of an item of Property, Plant and Equipment
that is significant in relation to the total cost of the item. The Group has
previously classified all assets associated with our Green Energy Parks under
the single heading 'Gas Properties'. These have been depreciated based on the
utilisation of estimated gas reserves. To comply with IAS16 we have carried out
a detailed review of our Gas Properties and identified items that will be
reclassified as Property, Plant and Equipment. These assets will be depreciated
over their useful lives, assessed as 15 years. As a result of this review,
assets with a net book value of £2,867,000 at 31 December 2006 have been
reclassified from Gas Properties to Property Plant and Equipment (31 December
2005: net book value of £2,563,000). The remaining assets within Gas Properties
will continue to be depreciated based on gas reserves. These assets will in
future be called 'Gas Assets'.
January December
2006 2006
£'000 £'000
Decrease Gas Assets
(reclassified as Property, Plant & Equipment) (2,563) (2,867)
Increase Property, Plant and Equipment
(reclassified Gas Assets) 2,563 2,867
________ ________
Effect on net assets - -
________ ________
Business combinations (IFRS3)
Under UK GAAP, the Group amortised goodwill over its estimated useful economic
life. IFRS 3 requires that goodwill is not amortised but is subject to an annual
impairment review. As required by IFRS 1 an impairment test was carried out at
the date of transition to IFRS. An impairment adjustment of £8,000 was
identified in respect of goodwill arising on the acquisition of Pro2 Services.
The adjustment to the Group Balance Sheet as at 31 December 2006 of £89,000
reverses the amortisation of goodwill charged in that year under UK GAAP
(£97,000) and reflects the subsequent impairment of goodwill relating to Pro2
Services (£8,000).
Minority interests
Minority interests were disclosed separately from equity in the UK GAAP balance
sheet. Under IFRS minority interests have been reclassified and presented as
part of equity. The reduction in net assets resulting from IFRS adjustments that
is attributable to minority interests amounts to £79,000 as at 1 January 2006
and £93,000 as at 31 December 2006.
First time adoption (IFRS1)
In accordance with the requirements of IFRS 1 ' First-time Adoption of
International Financial reporting Standards', the Group is subject to a number
of voluntary and mandatory exemptions from full restatement to the requirements
of IFRS, which have been applied as follows:
• The Group has not elected to use fair value as deemed cost for Property,
Plant and Equipment at the date of transition and will continue to
recognise assets at historic cost less accumulated depreciation, less
accumulated impairments.
• The Group has taken advantage of the exemption from the application of
IFRS 3 for business combinations that occurred before the transition date.
• The Group has taken advantage of the exemption from the application of IFRS
2 to share options granted before 7 November 2002, or to share options that
vested before the transition date.
• The Group has set cumulative translation differences to zero at the
transition date.
Reconciliation of previously reported financial statements under UK GAAP to
IFRS
Reconciliation of the Group Balance Sheet under UK GAAP to the Group Balance
Sheet under IFRS as at 1 January 2006.
IFRS Adjustments
Employee Property, Sub-total
Benefits Plant & IFRS
Equipment adjustments
IAS 19 IAS 16
UK GAAP IFRS
£'000 £'000 £'000 £'000 £'000
Group Balance Sheet
Non-current assets
Intangible assets
- goodwill 764 - - - 764
- other intangible assets 29 - - - 29
Property, plant & equipment 5,706 - 2,563 2,563 8,269
Gas Assets 4,997 - (2,563) (2,563) 2,434
Investments accounted for using the - - - - -
equity method
Other investments - - - - -
Derivative financial instruments - - - - -
Non-current assets 11,496 - - - 11,496
Current assets
Inventories 3,427 - - - 3,427
Trade and other receivables 6,661 - - - 6,661
Other financial assets 164 - - - 164
Cash and short-term deposits 2,090 - - - 2,090
12,342 - - - 12,342
Total assets 23,838 - - - 23,838
Current liabilities
Trade and other payables (7,092) (240) - (240) (7,332)
Financial liabilities (1,514) - - - (1,514)
Income tax payable (137) - - - (137)
Provisions (14) - - - (14)
(8,757) (240) - (240) (8,997)
Non-current liabilities
Other payables (106) - - - (106)
Financial liabilities (2,870) - - - (2,870)
Deferred tax liabilities (42) 42 - 42 -
Provisions (1,588) - - - (1,588)
(4,606) 42 - 42 (4,564)
Total liabilities (13,363) (198) - (198) (13,561)
Net assets 10,475 (198) - (198) 10,277
Equity
Share capital 456 - - - 456
Share premium 33,189 - - - 33,189
Other reserves 56 - - - 56
Retained losses (24,443) (119) - (119) (24,562)
Group shareholders' equity 9,258 (119) - (119) 9,139
Minority interests 1,217 (79) - (79) 1,138
Total equity 10,475 (198) - (198) 10,277
Reconciliation of previously reported financial statements under UK GAAP to
IFRS
Reconciliation of the Group Income Statement under UK GAAP to the Group
Income Statement under IFRS as at 30 June 2006.
IFRS Adjustments
Employee Business Sub-total
Benefits combinations IFRS
IAS 19 IFRS 3 adjustments
UK GAAP IFRS
£'000 £'000 £'000 £'000 £'000
Group Income Statement
Revenue 8,435 - - - 8,435
Cost of sales (5,877) - - - (5,877)
Gross Profit 2,558 - - - 2,558
Administrative expenses (3,853) (26) 49 23 (3,830)
Other operating income 167 - - - 167
Profit on sale of fixed assets - - - - -
Profit on Sale of licence - - - - -
Impairment of Goodwill - - - - -
Operating Profit/(Loss) (1,128) (26) 49 23 (1,105)
Finance income 65 - - - 65
Finance costs (214) - - - (214)
(149) - - - (149)
Profit/(Loss) before tax (1,277) (26) 49 23 (1,254)
Tax (expense) / credit 98 4 - 4 102
Profit/(Loss) for the year (1,179) (22) 49 27 (1,152)
Profit/(Loss) for the year attributable
to:
Equity holders of the parent (520) (13) 49 36 (484)
Minority interest (659) (9) - (9) (668)
(1,179) (22) 49 27 (1,152)
Loss per ordinary share - basic and (0.57p) (0.53p)
diluted
Reconciliation of previously reported financial statements under UK GAAP to
IFRS
Reconciliation of the Group Balance Sheet under UK GAAP to the Group Balance
Sheet under IFRS as at 30 June 2006.
IFRS Adjustments
Employee Property, Business Sub-total
Benefits Plant & Combinations IFRS
Equipment adjustments
IAS 19 IAS 16 IFRS 3
UK GAAP IFRS
£'000 £'000 £'000 £'000 £'000 £'000
Group Balance Sheet
Non-current assets
Intangible assets
- goodwill 715 - - 49 49 764
- other intangible assets 26 - - - - 26
Property, plant & equipment 3,449 - 2,490 - 2,490 5,939
Gas Assets 5,388 - (2,490) - (2,490) 2,898
Investments accounted for using the - - - - - -
equity method
Other investments - - - - - -
Derivative financial instruments - - - - - -
Non-current assets 9,578 - - 49 49 9,627
Current assets
Inventories 7,020 - - - - 7,020
Trade and other receivables 5,797 - - - - 5,797
Other financial assets 505 - - - - 505
Cash and short-term deposits 1,071 - - - - 1,071
14,393 - - - - 14,393
Total assets 23,971 - - 49 49 24,020
Current liabilities
Trade and other payables (8,323) (267) - - (267) (8,590)
Financial liabilities (1,517) - - - - (1,517)
Income tax payable (119) - - - - (119)
Provisions (1) - - - - (1)
(9,960) (267) - - (267) (10,227)
Non-current liabilities
Other payables (66) - - - - (66)
Financial liabilities (2,925) - - - - (2,925)
Deferred tax liabilities (46) 46 - - 46 -
Provisions (1,587) - - - - (1,587)
(4,624) 46 - - 46 (4,578)
Total liabilities (14,584) (221) - - (221) (14,805)
Net assets 9,387 (221) - 49 (172) 9,215
Equity
Share capital 457 - - - - 457
Share premium 33,207 - - - - 33,207
Other reserves 110 - - - - 110
Retained losses (24,953) (133) - 49 (84) (25,037)
Group shareholders' equity 8,821 (133) - 49 (84) 8,737
Minority interests 566 (88) - - (88) 478
Total equity 9,387 (221) - 49 (172) 9,215
Reconciliation of previously reported financial statements under UK GAAP to IFRS
Reconciliation of the Group Income Statement under UK GAAP to the Group Income
Statement under IFRS as at 31 December 2006.
IFRS Adjustments
Employee Business Sub-total
Benefits combinations IFRS
IAS 19 IFRS 3 adjustments
UK GAAP IFRS
£'000 £'000 £'000 £'000 £'000
Group Income Statement
Revenue 27,319 - - - 27,319
Cost of sales (18,981) - - - (18,981)
Gross Profit 8,338 - - - 8,338
Administrative expenses (7,564) (54) 97 43 (7,521)
Other operating income 343 - - - 343
Profit on sale of fixed assets (3) - - - (3)
Profit on Sale of licence 350 - - - 350
Impairment of Goodwill - - (8) (8) (8)
Operating Profit/(Loss) 1,464 (54) 89 35 1,499
Finance income 124 - - - 124
Finance costs (440) - - - (440)
(316) - - - (316)
Profit/(Loss) before tax 1,148 (54) 89 35 1,183
Tax (expense) / credit (66) 8 - 8 (58)
Profit/(Loss) for the year 1,082 (46) 89 43 1,125
Profit/(Loss) for the year attributable
to:
Equity holders of the parent 1,015 (30) 89 59 1,074
Minority interest 67 (16) - (16) 51
1,082 (46) 89 43 1,125
Earnings per ordinary share - basic 1.11p 1.17p
Earnings per ordinary share - diluted 1.09p 1.15p
Reconciliation of previously reported financial statements under UK GAAP to IFRS
Reconciliation of the Group Balance Sheet under UK GAAP to the Group Balance Sheet under IFRS
as at 31 December 2006.
IFRS Adjustments
Employee Property, Business Sub-total
Benefits Plant & Combinations IFRS
Equipment adjustments
IAS 19 IAS 16 IFRS 3
UK GAAP IFRS
£'000 £'000 £'000 £'000 £'000 £'000
Group Balance Sheet
Non-current assets
Intangible assets
- goodwill 667 - - 89 89 756
- other intangible assets 18 - - - - 18
Property, plant & equipment 3,576 - 2,867 - 2,867 6,443
Gas Assets 6,241 - (2,867) - (2,867) 3,374
Investments accounted for using the equity - - - - - -
method
Other investments 3 - - - - 3
Derivative financial instruments - - - - - -
Non-current assets 10,505 - - 89 89 10,594
Current assets
Inventories 6,631 - - - - 6,631
Trade and other receivables 7,768 - - - - 7,768
Other financial assets 512 - - - - 512
Cash and short-term deposits 946 - - - - 946
15,857 - - - - 15,857
Total assets 26,362 - - 89 89 26,451
Current liabilities
Trade and other payables (9,092) (289) - - (289) (9,381)
Financial liabilities (1,084) - - - - (1,084)
Income tax payable (80) - - - - (80)
Provisions (4) - - - - (4)
(10,260) (289) - - (289) (10,549)
Non-current liabilities
Other payables (43) - - - - (43)
Financial liabilities (2,939) - - - - (2,939)
Deferred tax liabilities (49) 49 - - 49 -
Provisions (1,550) - - - - (1,550)
(4,581) 49 - - 49 (4,532)
Total liabilities (14,841) (240) - - (240) (15,081)
Net assets 11,521 (240) - 89 (151) 11,370
Equity
Share capital 459 - - - - 459
Share premium 33,234 - - - - 33,234
Other reserves 81 - - - - 81
Retained losses (23,514) (147) - 89 (58) (23,572)
Group shareholders' equity 10,260 (147) - 89 (58) 10,202
Minority interests 1,261 (93) - - (93) 1,168
Total equity 11,521 (240) - 89 (151) 11,370
GROUP ACCOUNTING POLICIES
Basis of preparation
The Group's financial statements have been prepared in accordance with
International Financial Reporting Standards as they apply to the financial
statements of the Group, and applied in accordance with the Companies Act 1985.
The accounting policies which follow set out those policies which apply in
preparing financial statements for the Group.
The Group financial statements are presented in Sterling and all values are
rounded to the nearest thousand pounds (£000) except where otherwise indicated.
Basis of consolidation
The Group financial statements consolidate the financial statements of Alkane
Energy plc and the entities that it controls (its subsidiaries) drawn up to 31
December each year.
Subsidiaries are consolidated from the date of their acquisition, being the date
on which the Group obtains control, and continue to be consolidated until the
date that such control ceases. The financial statements of subsidiaries used in
the preparation of the consolidated financial statements are prepared for the
same reporting year as the parent company and are based on consistent accounting
policies. All inter-company balances and transactions, including unrealised
profits arising from them, are eliminated.
Minority interests represent the portion of profit or loss and net assets that
is not held by the Group and is presented separately within equity in the
consolidated balance sheet, separately from parent shareholders' equity.
Interests in associates
The Group's interests in associates are accounted for using the equity method of
accounting. Under the equity method the investment is carried in the balance
sheet at cost plus post-acquisition changes in the Group's share of net assets
of the associate, less distributions received and less any impairment in value
of individual investments. The Group income statement reflects the share of the
associate's results after tax. The Group statement of recognised income and
expense reflects the Group's share of any income and expense recognised by the
associate outside profit and loss.
Any goodwill arising on the acquisition of an associate, representing the excess
of the cost of the investment compared to the Group's share of the net fair
value of the associate's identifiable assets, liabilities and contingent
liabilities, is included in the carrying amount of the associate and is not
amortised. To the extent that the net fair value of the associate's
identifiable assets, liabilities and contingent liabilities is greater than the
cost of the investment, a gain is recognised and added to Group's share of the
associate's profit or loss in the period in which the investment is acquired.
Financial statements of associates are prepared for the same reporting period as
the Group. Where necessary adjustments are made to bring the accounting
policies used into line with those of the Group; to take into account fair
values assigned at the date of acquisition, and to reflect impairment losses
where appropriate. Adjustments are also made in the Group's financial
statements to eliminate the Group's share of unrealised gains and losses on
transactions between the Group and its associates.
Foreign currencies
(a) Company
Transactions in foreign currencies are recorded in sterling by applying the
exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at the rate of
exchange ruling at the balance sheet date. All differences are taken to the
income statement.
(b) Group
The assets and liabilities of foreign subsidiaries are translated to sterling by
applying the rate of exchange ruling at the balance sheet date. Income and
expenses are translated at weighted average exchange rates for the year. The
resulting exchange differences arising on the retranslation of the opening net
investment in foreign subsidiaries are taken directly to equity.
Intangible assets
Business combinations are accounted for under IFRS 3 using the purchase method.
Any excess of the cost of the business combination over the Group's interest in
the net fair value of the identifiable assets, liabilities and contingent
liabilities is recognised in the balance sheet as goodwill and is not amortised.
To the extent that the net fair value of the identifiable assets, liabilities
and contingent liabilities is greater than the cost of the investment, a gain is
recognised immediately in the income statement. Goodwill recognised as an asset
as at 31 December 2005 is recorded at its carrying value under UK GAAP and is
not amortised. Any goodwill asset arising on the acquisition of equity
accounted entities is included within the cost of those entities.
The carrying value of goodwill is reviewed annually and also whenever events or
changes in circumstances indicate that the carrying value may be impaired.
The purchase costs of licences are capitalised as intangible assets and
amortised over their useful economic life of 5 years. The net book value is
transferred to tangible fixed assets - gas assets once development of sites has
commenced. The carrying value of licences is reviewed annually and also
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable.
Gas assets
Gas assets are the exploration and evaluation assets that lead to the extraction
of gas that is sold to third parties or used by the Group to generate
electricity that is then sold to third parties.
Gas assets are stated at cost net of depletion and accumulated impairment
losses.
Expenditure on gas assets is accounted for under IFRS 6. The Group has adopted
the successful efforts method of accounting for gas assets. Under this method,
research and appraisal costs for projects in each licence area are capitalised
pending determination of success in that licence area in terms of the discovery
of commercial gas reserves.
At the point where success within a licence area can be assessed the capitalised
costs are depleted using a unit of production method, commencing at the start of
commercial production.
Commercial reserves used in the unit of production calculations are proven and
probable gas reserves. The directors calculate the reserves estimates by
reference to mine records of void space and coal methane content, together with
an assessment of rising mine water.
The capitalised costs for licence areas determined to be unsuccessful are
written off in the period in which the determination is made.
The effects of changes in estimated costs or other factors affecting unit of
production calculations for depreciation are dealt with prospectively over the
estimated remaining commercial reserves of each licence area.
The carrying values of gas assets are reviewed for impairment annually and also
when events or changes in circumstances indicate the carrying value may not be
recoverable. If such indication exists and where the carrying values exceed the
estimated recoverable amount, the assets are written down to their recoverable
amount. The recoverable amount of gas assets is the greater of net selling
price and value in use. In assessing value in use the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assumptions of the time value of money and the risks
specific to the asset. Impairment losses are recognised in the income
statement.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation
and accumulated impairment losses. Cost comprises the aggregate amount paid or
expended during construction and includes costs directly attributable to making
the asset capable of operating as intended. Borrowing costs attributable to
assets under construction are recognised as an expense as incurred.
Depreciation is provided on all property, plant and equipment at rates
calculated to write down the cost, less estimated residual value based on prices
prevailing at the balance sheet date over its expected useful life as follows:
Motor vehicles - over 5 years straight line
Long leasehold land - over the lease term
Plant & machinery - over 5 to 15 years reducing balance/straight line
Fixtures & fittings - over 3 to 10 years reducing balance/straight line
The carrying values of property, plant and equipment are reviewed for impairment
annually and also when events or changes in circumstances indicate that the
carrying value may not be recoverable.
Leasing and hire purchase commitments
Assets held under finance leases, which are leases where substantially all the
risks and rewards of ownership of the asset are passed to the Group, and hire
purchase contracts are capitalised in the balance sheet and are depreciated over
their useful lives. A corresponding liability is recognised for the lower of
the fair value of the leased asset and the present value of the minimum lease
payments. Lease payments are apportioned between the reduction of the lease
liability and finance charges in the income statement so as to achieve a
constant rate of interest on the remaining balance of the liability.
Rentals payable under operating leases are charged to the income statement on a
straight-line basis over the lease term.
Sale and finance leaseback arrangements
The Group has entered into certain sale and finance leaseback transactions
whereby the risks and rewards of ownership of the assets concerned have not been
substantially transferred to the lessor. In accordance with IAS 17 the assets
subject to these sale and finance leaseback transactions have been retained on
the Group's balance sheet and the proceeds of sale are included within creditors
as obligations under sale and finance leaseback. Lease payments are apportioned
between the reduction of the lease liability and finance charges in the income
statement so as to achieve a constant rate of interest on the remaining balance
of the liability.
Provisions
A provision is recognised when the Group has a legal or constructive obligation
as a result of a past event and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect is material,
expected future cash flows are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability. The expense
relating to any provision is presented in the income statement less any
reimbursement.
A specific provision is made for the restoration of gas properties. The
directors estimate the date of closure and cost of restoration for each site. A
discount factor is applied to the expected costs in order to arrive at the
present value reflected in the provision. The unwinding of discount is treated
as an administrative expense in the income statement.
Financial assets
Financial assets are recognised when the Group becomes party to the contracts
that give rise to them and are classified as financial assets at fair value
through profit or loss; loans and receivables; held-to-maturity investments; or
as available-for-sale financial assets, as appropriate.
The Group assesses at each balance sheet date whether a financial asset or group
of financial assets is impaired.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
refers to the purchase price on a first-in, first-out basis. Net realisable
value is based on estimated selling price less any further costs expected to be
incurred to completion and disposal.
Trade and other receivables
Trade receivables are recognised and carried at the lower of their original
invoiced value and the recoverable amount. Where the time value of money is
material, receivables are carried at amortised cost. Provision is made when
there is objective evidence that the Group will not be able to recover balances
in full. Balances are written off when the probability of recovery is assessed
as being remote.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at banks and in
hand and short-term deposits with an original maturity of three months or less.
For the purpose of the consolidated cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
Interest bearing loans and borrowings
Obligations for loans and borrowings are recognised when the Group becomes party
to the related contracts and are measured initially at fair value less directly
attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Gains and losses arising on the repurchase, settlement or otherwise cancellation
of liabilities are recognised respectively in finance revenue or finance cost.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and laws
that have been enacted or substantively enacted by the balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that
are credited or charged to equity; otherwise income tax is recognised in the
income statement.
Deferred taxation
Deferred tax is recognised in respect of all temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in
the financial statements, with the following exceptions:
• where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a
business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss;
• in respect of taxable temporary differences associated with investments in
subsidiaries and associates, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future; and
• deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis
at the tax rates that are expected to apply when the related asset is realised
or liability is settled, based on tax rates and laws enacted or substantively
enacted at the balance sheet date.
Pensions
The Group operates two defined contribution pension schemes. The Company and a
subsidiary undertaking Alkane Energy UK Limited operate a scheme covering all
employees of those companies; and the subsidiary undertaking Pro2 Anlagentechnik
GmbH operates a scheme for the benefit of three directors of that company.
Contributions are charged to the income statement in the period in which they
become payable.
Revenue recognition
Revenue comprises the contracted sales value of energy, goods and other services
supplied to customers during the year and is measured at the fair value of
consideration received, excluding VAT and other sales taxes or duty. The
following criteria must be met before revenue is recognised:
(a) The sale of energy is measured at the contractual value of metered units
supplied during the year. Where applicable, the contractual value includes a
premium for climate change levy exemption;
(b) Sale of goods is recognised when the substantial risks and rewards of
ownership of the goods have passed to the buyer, usually when the customer has
signed for acceptance of the goods;
(c) Other services are recognised when the service has been performed.
Borrowing costs
Borrowing costs are recognised as an expense in the income statement as
incurred.
Share options
The Company has share option schemes under which options to subscribe for the
Company's shares have been granted to employees. For those share options where
it is applicable there is included within the financial statements a provision
for the national insurance costs arising on the exercise of the share options.
Share-based payments
The cost of equity-settled transactions with employees is measured by reference
to the fair value at the date at which they are granted and is recognised as an
expense over the vesting period, which ends on the date at which the relevant
employees become fully entitled to the award. Fair value is determined using an
appropriate pricing model. In valuing equity-settled transactions, no account
is taken of any vesting conditions other than conditions linked to the price of
the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and management's
best estimate of the achievement or otherwise of non-market conditions, the
number of equity instruments which will eventually vest, or in the case of an
instrument subject to a market condition, be treated as vesting as described
above. The movement in cumulative expense since the previous balance sheet date
is recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award term continues to be recognised over the original vesting period.
In addition, an expense is recognised over the remainder of the new vesting
period for the incremental fair value of any modification, based on the
difference between the fair value of the original award and the fair value of
the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on
the date of cancellation, and any cost not yet recognised in the income
statement for the award is expensed immediately. Any compensation paid up to
the fair value of the award at the cancellation or settlement date is deducted
from equity, with any excess over fair value being treated as an expense in the
income statement.
The Group has taken advantage of the exemption in IFRS 1 in respect of
equity-settled awards so as to apply IFRS 2 only to those equity-settled awards
granted after 7 November 2002 that had not vested before 1 January 2006.
Ends
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