Interim Results for the 9 months ended 31.12.2010
22 March 2011
1Spatial Holdings plc
(formerly IQ Holdings plc)
("1Spatial" or the "Company")
Interim Results for the Nine Months Ended 31 December 2010
1Spatial, a holding company focused on improving the quality and access to business critical location-data across the globe, today announces its interim results for the nine months ended 31 December 2010.
Commenting on the results, Nic Snape, Chief Executive Officer, said:
"The first half of our 2011 financial year has been a landmark period for 1Spatial. Securing our status as a publicly quoted company has provided a platform for exploiting core technology and marketing investments since our management buy-out in 2003. We have positioned ourselves in a clear market niche and are recognised as leaders in location-data quality and intelligent data management solutions.
"We are starting to see a clear shift in the profile of our business, with software licence revenues ahead of budget for this interim trading period. Our core technology is ideally suited to being offered via Software-as-a Service. We believe this market will grow significantly over the next few years. Increasingly, government organisations and businesses are adopting shared services, helping cost reductions and achieving greater return on technology. Our planned expansion into Australia is timely and will support Australia's increasing demand for access to accurate and up-to-date location-based information".
Highlights:
AIM Reversal:
· 1Spatial Group limited completed the reverse acquisition of IQ Holdings plc on 19 October 2010
· This transaction supports 1Spatial's strategy of growth by providing access to capital. This will support new customer acquisition and develop additional routes to market through strategic partnerships
· The newly acquired plc status has enabled 1Spatial to attract seasoned advisers to the Board, with the appointment of City veteran Steve Berry as non-Executive Chairman and Marcus Hanke, CEO of Avisen plc, as Non-Executive Director
Corporate:
· New holding company finances restructured around 15 month reporting period and cash position strengthened
· Core revenues for the half-year were ahead of expectations although profitability has been impacted by tighter government budgets and delays in contract awards
· Exceptional costs in excess of £1.047m have been incurred as a result of the reverse acquisition
· Additional exceptional costs of £958k have been incurred as a result of reorganising 1Spatial business to centralise operations around the Cambridge headquarters.
Ordnance Survey Phoenix Project:
· As a key part of an international consortium, 1Spatial completed delivery of the geospatial data management systems which underpin all of Ordnance Survey's data products
· This multi-year project will revolutionise the collection and maintenance of large-scale, surveyed, location-data for Great Britain
· The solution will now be delivered and extended under a long-term maintenance contract with Ordnance Survey, enhancing 1Spatial's recurring revenue
Automated Generalisation:
· 1Spatial continued its leadership in the delivery of automated solutions that transform detailed location-data into smaller-scale mapping products
· Awarded a ground-breaking four year framework contract with Ordnance Survey Great Britain, which should be worth a seven figure sum in development, licences and services
· Solutions were also delivered and in operation in 12 of the German Länder as well as IGN France and KMS
Post Period End Highlights
Software-as-a-Service Trial:
· With the on-going move towards software functionality being accessed on demand with cloud computing, 1Spatial has established location-data validation service running currently as a trial. Customers in Ireland, Australia and the UK are supporting the development of this scalable business model
Data Improvement Programme:
· A strategic marketing and business development initiative to ensure that business critical location-data can be shared, transparently and with confidence
· The Data Improvement Process provides access to 1Spatial's expertise and technology to enable organisations to understand how to efficiently exploit their location-data holdings and put a programme in place to improve quality, leading to more accurate and trusted decision making
Australian Expansion:
· Heads of Agreement have been signed with an Australian company. This will provide a greater foothold into the growing Australian location-data market. The acquisition will be funded out of working capital, will involve no dilution in equity and will be earnings enhancing. The acquisition is expected to close before the end of 1Spatial's current financial year
For further information please contact:
Company
1Spatial Holdings plc
Nic Snape / Nadene Sayer +44 (0)1223 420 414
Nominated Advisor
Libertas Capital Corporate Finance Limited
Sandy Jamieson +44 (0)20 7569 9650
Broker
Rivington Street Corporate Finance
Jon Levinson +44 (0)20 7562 3389
Financial PR
Bishopsgate Communications
Duncan McCormick / Deepali Schneider / Natalie Quinn +44 (0)20 7562 3350
Chairman's Statement
The Board of 1Spatial is pleased to present the Company's unaudited interim results for the nine months to 31 December 2010. 1Spatial is an exciting company that I have been involved with since advising on the management buy-out in 2003. 1Spatial has world-leading technology and we are now well poised to exploit the increasing profile of location-based data. Over the last 8 years, the company has invested in re-engineering its technology from a proprietary desk-top solution to an open, web-based service offering. Despite this investment, the Company has managed to grow and has been cash generative throughout that period.
Our performance over the last nine months has been in line with expectations in terms of revenue. We were particularly pleased by our increasing licence sales, ahead of budget, having secured a number of new customers for the flagship products, Radius Studio and Radius Clarity. I am also pleased by our cash position at this interim period, which has strengthened significantly despite absorbing the costs of the reverse transaction and demanding market conditions.
I am particularly proud to be Chairing the Company at this time. The Company is developing an array of routes to market for our enhanced offering. We are building a critical mass in the company around centres of excellence in Cambridge, Sydney and Cork. The Australian acquisition will be particularly important and enable us to exploit the thriving Australian economy and its need for accurate information about resources and environment. The European mainland will be our next priority, along with an eye on suitable opportunities for partnerships in North America.
Steve Berry
Chairman
Chief Executive Officer's Report
In the six months since completing the admission of the Company's shares to AIM as 1Spatial Holdings plc, significant effort has been invested to position the Company for future growth. This has involved restructuring finances to accommodate both the costs of reversal and operational re-organisation. A number of exceptional costs have been incurred:
· Organisational restructuring costs of £337k to concentrate software operations around the Headquarters in Cambridge
· Impairment of goodwill and IPR related to non-core activities resulting from previous acquisitions of £621k
· Losses resulting from issue of IQ shares to 1Spatial shareholders as part of reverse takeover transaction of £751k
· Absorption of pre-reversal IQ losses of £296k
These one-time costs of restructuring as a plc means that we are reporting a loss of £1.791m, which ensures the business is optimally structured for future profitability. Although the transaction has reduced reserves by approximately £600k since December 2009, the cash position has improved in the same period by over £700k, underlining the core strength of the company.
1Spatial is now established to support the market niche we have developed over the last five years. Our technology developments are gaining significant traction in the marketplace. The Company has been consolidated to focus on three centres of excellence; Cambridge UK for software development, operational management and marketing, Sales/Consulting and first line support in Cork, Ireland and Sydney, Australia.
Opportunities and Outlook
The signing of the new automated map generalisation (simplifying detailed maps for easier understanding) with Ordnance Survey Great Britain, has reinforced our position in our core Data Provider market. We are anticipating new successes in Ireland, Northern Ireland and Germany, which will further consolidate our revenue base. Recurring support revenues from this market are now in excess of £1.7m per annum, ensuring cash flow for future investments in technology and sales.
In our Knowledge Sector market, public sector and commercial users of national mapping agency data sets, we continue to grow our footprint for our flagship product Radius Studio. We have established our core proposition around the improvement of our customers' location-data. This supports greater efficiency in operations and transparency in decision making. We believe we will enjoy significant success in this market over the next 12 months.
Two other areas of activity are also showing great promise for increasing revenues, with significantly reduced cost of sales:
· Software-as-a-Service: Early results of the location-data validation service trial are encouraging. We expect to establish a business model and market offering by late spring. This offering will lower the barriers of entry to our sophisticated, high performance technology and is particularly applicable in the local government marketplace.
· Strategic Partnerships: We are establishing a number of strategic relationships with major players in our sector. These companies are interested in accessing the automated processing capabilities and knowledge management environment provided by Radius Studio. We are working to secure commercial agreements over the next six months, which will open up significant routes to mass markets.
Of particular note is the signing of a Heads of Agreement with a company in Australia. Once concluded, this transaction, funded out of working capital, will provide a critical mass in Australia and a base for expansion into the wider Asia-Pacific region. We have identified significant opportunities in this cash rich economy. Our technology and expertise is ideally suited to create the accurate spatial information products required to support resource exploration and environmental management. The acquisition will be earnings enhancing and will involve no dilution in equity.
Nic Snape
Chief Executive Officer
UNAUDITED CONSOLIDATED INCOME STATEMENT 9 MONTHS ENDED 31 DECEMBER 2010
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9 Months ended |
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9 Months ended |
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31 December 2010 |
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31 December 2009 |
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|
|
|
|
(Unaudited) |
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(Unaudited) |
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|
£'000 |
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£'000 |
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|
Continuing Operations |
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||
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|
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Revenue |
5,395 |
|
5,554 |
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||
|
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Cost of Sales |
(2,910) |
|
(2,943) |
|
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Gross Profit |
2,485 |
|
2,611 |
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|
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Other Administrative Expenses |
(2,578) |
|
(3,069) |
|
|
|
|
Loss from operating activities |
(93)
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|
(458) |
|
|
||
|
|
Exceptional cost provision arising from restructuring costs post reverse takeover |
(337)
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|
- |
|
|
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|
Exceptional goodwill and IPR impairment |
(621) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance expense |
(3) |
|
(9) |
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|
Loss before taxation |
(1,054) |
|
(467) |
|
|
||
|
|
Income tax credit/(expense) |
(8)
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|
- |
|
|
|
|
(Loss)/profit from continuing operations before exceptional items resulting from reverse takeover |
(1,062) |
|
(467) |
|
|
||
|
|
Exceptional loss arising on issue of shares as part of reverse takeover
Pre-acquisition losses of IQ Holdings plc |
(751)
(296)
|
|
-
-
|
|
|
|
|
|
Discontinued businesses |
318 |
|
268 |
|
|
|
|
(Loss)/profit for the financial period |
(1,791) |
|
(199) |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Pence per share |
|
Pence per share |
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|
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CONTINUING OPERATIONS |
|
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|
|
||
|
Basic (loss)/profit per ordinary share |
(16.2p) |
|
(39.7p) |
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DISCONTINUED OPERATIONS |
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||
|
Basic (loss)/profit per ordinary share |
(11.1p) |
|
22.8p |
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UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 9 MONTHS ENDED 31 DECEMBER 2010
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Called up |
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Share |
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|
|
Currency |
|
Profit & |
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|
|
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Share capital |
|
Premium Account |
|
Other Reserves |
|
Translation Reserve |
|
Loss Account |
|
Total Equity |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
At 1 April 2010 |
11 |
|
1,826 |
|
23 |
|
- |
|
1,520 |
|
3,380 |
|
Cancellation of share premium |
- |
|
(1,826) |
|
- |
|
- |
|
1,826 |
|
- |
|
Introduction of balances of 1Spatial Holdings plc (formerly IQ Holdings plc) |
837 |
|
217 |
|
(23) |
|
- |
|
- |
|
1,031 |
|
Equity dividends payable |
- |
|
- |
|
- |
|
- |
|
(200) |
|
(200) |
|
Purchase of own shares |
- |
|
- |
|
- |
|
- |
|
(125) |
|
(125) |
|
Loss for the period |
- |
|
- |
|
- |
|
- |
|
(1,791) |
|
(1,791) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010 |
848 |
|
217 |
|
- |
|
- |
|
1,230 |
|
2,295 |
|
|
|
|
|
|
|
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UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 9 MONTHS ENDED 31 DECEMBER 2009
|
|
Called up |
|
Share |
|
|
|
Currency |
|
Profit & |
|
Total |
|
|
Share capital |
|
Premium Account |
|
Other Reserves |
|
Translation Reserve |
|
Loss Account |
|
Equity |
|
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
£'000 |
|
At start of period |
11 |
|
1,826 |
|
23 |
|
- |
|
1,456 |
|
3,316 |
|
Purchase of own shares |
- |
|
- |
|
- |
|
- |
|
(216) |
|
(216) |
|
Profit for the period |
- |
|
- |
|
- |
|
- |
|
(199) |
|
(199) |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
At end of period |
11 |
|
1,826 |
|
23 |
|
- |
|
1,041 |
|
2,901 |
|
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2010 |
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NOTES TO THE UNAUDITED INTERIM FINANCIAL REPORT For the 9 months ended 31 December 2010
1 BASIS OF PREPARATION OF INTERIM REPORT
The information for the period ended 31 December 2010 is not audited and does not constitute statutory accounts, and is being published in accordance with section 435 of the Companies Act 2006. The interim information for the nine month period ended 31 December 2009 is also unaudited.
The statutory accounts of IQ Holdings plc for the 18 months ended 31 March 2010 have been reported on by the Company's auditors and have been delivered to the Registrar of Companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of the preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Interim Financial Report should be construed as a profit forecast.
This Interim Financial Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to 1Spatial Holdings plc. and its subsidiaries when viewed as a whole.
2 ACCOUNTING POLICIES
Basis of accounting
The report has been prepared on a going concern basis in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") at 31 December 2010 as well as all interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") at 31 December 2010. The group has not availed itself of early adoption options in such standards and interpretations.
The principal accounting policies adopted are as set below.
Basis of consolidation Reverse takeover The acquisition of 1Spatial Group Limited and its subsidiaries by 1Spatial Holdings plc, formerly IQ Holdings plc meets the definition of a reverse takeover involving a non-operating public shell and a private operating entity. As a result, in accordance with generally accepted accounting practice ("GAAP"), although the financial statements are issued under the name of the legal parent (1Spatial Holdings plc), the accounts presented are a continuation of the accounts of 1Spatial Group Limited and its subsidiaries ("the 1Spatial sub group") with one adjustment, which is to adjust the legal capital of 1Spatial Group Limited at the date of the reverse takeover to reflect the legal capital of the 1Spatial Holdings Plc.
The assets and liabilities of the 1Spatial sub group have been recognised and measured at their pre-combination carrying amounts.
The retained earnings and other equity balances for the period ended 31 December 2009 represent the balances in respect of the 1Spatial sub group. The results for the period to 19 October 2010, the date of the reverse takeover, include solely the results of the 1Spatial sub group. On this date the assets and liabilities of the 1Spatial Holdings plc entity are, for the purposes of these consolidated financial statements, recorded as being acquired at their fair value. In this case, as the entity comprised principally cash and short term payables, fair value equates to book value.
The cost of the reverse takeover has been calculated using GAAP, being the notional cost to the existing shareholders of 1Spatial Group Limited of issuing shares equivalent to the percentage of the 1Spatial sub group which have been disposed of, calculated as the excess of the fair value of the percentage disposed of, less the fair value of the net assets of the legal parent entity. In accordance with GAAP, this cost is accounted for as an expense in the income statement.
The consolidated financial statements incorporate the financial statements of the 1Spatial sub group made up to 31 December and 30 June each year.
Acquisitions Control is achieved where the Company has the power to govern the financial and operating policies so as to obtain benefits from its activities.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the indefinable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.
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 in full on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or jointly controlled entity.
Revenue recognition
Revenue is recognised when it is probable that economic benefits will flow to the company. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts.
Sales of goods are recognised when the goods are delivered and title has passed.
Royalty income is recognised upon shipment of the royalty earning product by the licensee.
For the sale of services and contract income, revenue is recognised in accounting periods in which the service is rendered on a percentage of completion basis. Revenue from post-contract support is recognised over the period of performance. The excess of service fees and post-contract support invoiced over revenue recognised is recorded as deferred income.
Revenue is shown net of estimated provision for credit notes and returns.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Leasing
Rentals payable under operating leases are charged to the income statement on a straight line basis over the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.
Foreign currencies
The functional currency of the group is UK Sterling. Transactions in currencies other than UK Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in the net profit/loss for the period.
The results of the operations of the group's overseas subsidiaries are translated at the average rate of exchange during the period and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on the translation of the opening net assets and results of operations are reported in the statement of comprehensive income. All other exchange differences are included in the income statement.
Operating profit
Operating profit is stated before investment income and finance costs.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused carry forward tax losses and unused carried forward tax credits can be utilised.
However, such assets and liabilities are not recognised if the temporary differences arise from:
· Goodwill
· The initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax liabilities and when they relate to income tax levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the value of assets, less estimated residual value, over their estimated useful lives, using the straight-line method, on the following basis.
Fixtures and fittings 5 years Computer equipment 3 years
Residual values are the estimated amount that the group would obtain from disposal of the asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life, based on prices prevailing at the balance sheet date.
In general residual values are zero or negligible, due to the technical and specialised nature of assets held.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of the acquisition over the group's interests in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. The carrying value of the group's goodwill is re-assessed annually, or whenever events or circumstances indicate the carrying value is too high.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Other intangible assets
Other intangible assets are stated at cost, net of amortisation and any provision for impairment. Amortisation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line basis over its expected useful life as follows.
Software 3 years Contracts acquired over the term of the contract Development costs 5 years Intellectual property rights 5 years Customer lists 3-5 years
Residual values are the estimated amount that the company would obtain from disposal of the asset, after deducting estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life, based on prices prevailing at the balance sheet date.
In general residual values are zero or negligible, due to the technical and specialised nature of assets held.
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
Impairment of tangible and intangible assets excluding goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell 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 assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the company's product development is recognised only if all of the following conditions are met.
· An asset is created that can be identified (such as a new device);
· The project from which the asset arises meets the company's criteria for assessing technical feasibility;
· It is probable that the asset created will generate future economic benefit; and
· The development cost of the asset can be measured reliably.
Internally generated intangible assets are amortised on a straight line basis over their useful lives. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Patents and trademarks
Expenditure on patents and trademarks is recognised as an expense in the period in which it is incurred.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the FIFO method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and liabilities are recognised on the Group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets are classified in accordance with the nature and purpose of the financial assets and are determined at the time of initial recognition.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Equity instruments
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense.
Share-Based Payments
The group has applied the requirements of IFRS 2 Share-Based Payment in the consolidated financial statements. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 July 2010
The parent company issues equity-settled share-based payments to certain employees, including share options with non-market based vesting conditions. Equity settled share-based payments are measured at the fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the parent company's estimate of shares that will eventually vest.
Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Equity
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recognised at eh amount of proceeds received net of costs directly attributable to the transaction. To the extent that those proceeds exceed the par value of the shares issued they are credited to a share premium account.
Pension contributions
Contributions to money purchase pension plans are charged to the profit and loss account as they become payable.
Critical judgements in applying the group's accounting policies
In the process of applying the group's accounting policies, which are described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below).
Exceptional items
Exceptional items are presented in the financial statements where there are material items of income and expense which, because of their nature and the expected rarity of the circumstances which generate them, they should be presented separately to shareholders so as to enhance their judgement of the current year's financial performance and its comparability with prior years.
It is the policy of the Company to provide for such items in the financial statements as and when they are identified.
Available-for-sale financial assets
All investments are initially recorded at cost, being the fair value of the consideration given and including acquisition charges associated with the investment.
After initial recognition, investments which are classified as available-for-sale are measured at fair value. Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income.
Other long-term investments that are intended to be held to maturity, such as bonds, are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the period to maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortisation process.
For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the statement of financial position date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment.
All regular way purchases of financial assets are recognised on the trade date i.e. the date that the group commits to purchase the asset. All regular way sales of financial assets are recognised on the settlement date i.e. the date the asset is delivered to the counter party. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.
Key sources of estimation uncertainty
Impairment of assets. Determining whether non current assets of the group's investment in subsidiaries are impaired requires an estimation of the value in use of the cash generating units to which the assets have been allocated. The value in use requires management to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. Additionally, estimates and assumptions have been made by the board in respect of the fair value of share options, the estimated useful lives of tangible and intangible assets, accruals and provisions.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
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This information is provided by RNS