Interactive Prospect Targeting Holdings plc
Restatement of financial information for the year ended
31 December 2005 under International Financial Reporting Standards (“IFRS”)
Interactive Prospect Targeting
Holdings plc has adopted International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB) with effect from
1 January 2006. The first full-year reporting period will be for the year
ending 31 December 2006. The first results to be prepared by the Group under
IFRS will be the announcement of interim results for the six-month period ended
30 June 2006.
The financial results of the Group
previously published for the year ended 31 December 2005 and for the six months
ended 30 June 2005 were prepared under United Kingdom Generally Accepted
Accounting Practice (UK GAAP). These results have been restated in accordance
with IFRS. The restated information will be included as non-statutory
comparative information in the interim results for the six months ended 30 June
2006.
The
purpose of this document is to:
§
provide an overview of the impact of IFRS;
§
summarise the basis of preparation of financial information
restated under IFRS;
§
describe the principal differences between UK GAAP and IFRS
that impact the Group;
§
detail the significant accounting policies of the Group
under IFRS; and
§
provide a reconciliation of financial information restated
for IFRS to that previously reported under UK GAAP.
Whilst the introduction of IFRS has no impact on the
underlying cash flows of the business, the areas of accounting that will have
the most significant impact on the Group’s financial statements are as follows:
§
The treatment of goodwill
§
The recognition of other intangibles on
acquisition, and their subsequent amortisation
§
Employee share based payment arrangements
§
Other employee benefits – compensated
absences
§
Income tax deduction for share options
exercised
§
Reclassification of software from
property, plant and equipment to intangible assets
§
Revaluation of assets held for sale to
market value at balance sheet date
§
Deferred tax
The following table summarises the impact of the
adoption of IFRS on the Group’s profit after tax for the 6 months ended 30 June
2005 and year ended 31 December 2005.
|
Reconciliation of profit for the period |
|
6 months ended 30
June 2005 |
Year ended 31
December 2005 |
6 months ended 30
June 2005 |
Year ended 31
December 2005 |
|
|
|
£’000 |
£’000 |
Basic
EPS |
|
|
|
|
|
|
|
|
|
Profit after tax under UK GAAP |
|
926 |
2,312 |
3.0p |
7.2p |
|
|
|
|
|
|
|
|
IFRS adjustments |
|
|
|
|
|
|
Goodwill amortisation |
|
2 |
118 |
- |
0.4p |
|
Other intangibles
amortisation |
|
- |
(36) |
- |
(0.1p) |
|
Share based payments |
|
(15) |
(37) |
- |
(0.1p) |
|
Employee
benefits: compensated absences |
|
23 |
(21) |
- |
(0.1p) |
|
Profit on
disposal of available for sale investments |
|
(152) |
(218) |
(0.5p) |
(0.7p) |
|
Reclassification of
income tax deduction to equity |
|
- |
(525) |
- |
(1.7p) |
|
Deferred taxation |
|
149 |
246 |
0.5p |
0.8p |
|
|
|
7 |
(473) |
- |
(1.5p) |
|
|
|
|
|
|
|
|
Profit after tax under IFRS |
|
933 |
1,839 |
3.0p |
5.7p |
See comments on pages 3 to 4 for explanation of the
transition adjustments to IFRS.
Basis of
preparation
General
For
the year ended 31 December 2006, the Group will prepare consolidated financial
statements under IFRS as adopted by the European Commission. These will be
those International Accounting Standards, International Financial Reporting
Standards and related interpretations (SIC-IFRIC interpretations), subsequent
amendments to those standards and related interpretations, future standards and
related interpretations issued or adopted by the IASB that have been endorsed
by the European Commission. This process is ongoing and the Commission has yet
to endorse certain standards issued by the IASB.
The
preliminary restated financial information has been prepared by management
using its best knowledge of the expected standards and interpretations of the
IASB, facts and circumstances, and accounting policies that will be applied
when the Group prepares its first complete set of IFRS financial statements as
at 31 December 2006. Therefore, until such time, the possibility cannot be
excluded that the accompanying preliminary restated financial information may
require adjustment before constituting the final restated financial information.
Moreover, under IFRS, only a complete set of financial statements comprising a
balance sheet, income statement, statement of changes in equity, cash flow
statement, together with comparative financial information and explanatory
notes, can provide a fair presentation of the Group’s financial position,
results of operations and cash flow.
First time adoption exemptions
The
requirements for the first time adoption of IFRS are set out in IFRS 1 First
Time Adoption of International Financial Reporting Standards. Generally, IFRS 1
requires that accounting policies be adopted that are compliant with IFRS and
that these policies be applied retrospectively to all periods presented.
However, under IFRS 1, a number of exemptions are permitted to be taken in
preparing the balance sheet as at the date of transition to IFRS on 1 January
2005. The exemptions which the Group has taken advantage of are explained
below:
o
The Group has elected not to apply IFRS 3 Business
Combinations to business combinations that took place before 1 January 2005.
o
The Group has elected not to apply the provisions of IFRS 2
Share-based Payment to options and awards that were granted on or before 7
November 2002 or which had vested by 1 January 2005.
o
The Group has elected to designate shares held in companies
that are not part of the Group as available for sale under IAS39 Financial
Instruments: recognition and measurement.
The
appendix to this report reconciles the results and net assets of the Group as
reported under UK GAAP to the information restated under IFRS. The principal
differences between UK GAAP and IFRS as shown in the appendix are described
below.
Share-based
payment
Under UK
GAAP, the charges for the Group’s share option schemes are based on the
difference between the market price of the share on the date of the grant and
the exercise price to be paid. As all option prices equated to the market price
at the date of the grant, no charge was required in the income statement.
IFRS 2 Share-based
payment requires the fair value of the awards to be calculated. This fair
value is assessed at the date of the grant and is recognised over the vesting
period.
As a
result, a charge of £15,000 for share-based payments has been recognised within
administrative expenses for the six months ended 30 June 2005. Similarly, the
charge recognised for the year ended 31 December 2005 was £37,000.
Goodwill
Goodwill
arising on business combinations
Under
UK GAAP, the difference between the consideration paid for an acquisition and
the fair value of the net assets acquired was recognised as goodwill. IFRS 3
requires that the intangible assets of an acquired business are recognised separately from goodwill and are then amortised over their useful lives.
Under
the IFRS 1 transition rules, the Group has elected not to identify any acquired
intangible assets for acquisitions made before 1 January 2005.
The Postal Preference Service Limited (PPS) was acquired by the Group in August 2005 giving rise
to goodwill on acquisition of £2,928,000 under UK GAAP. In applying IFRS 3 the
Group has reclassified intangible assets arising on acquisition of £766,000 out
of goodwill, representing the values placed on the PPS trade name and customer
relationships. Amortisation charged on these intangible assets of £37,000 was recognised from the date of acquisition
to 31 December 2005.
Goodwill
amortisation
Under UK
GAAP, goodwill arising from business combinations was amortised over its estimated
useful economic life.
IFRS 3 Business
combinations prohibits the amortisation of goodwill, instead requiring the
goodwill to be tested for impairment.
As a
result, amortisation of goodwill resulting from the acquisition of Newsletters
Online Limited of £2,000 for the six months ended 30 June 2005 and £5,000 for
the year ended 31 December 2005 has been released to the income statement.
Similarly
the amortisation of goodwill resulting from the acquisition of The Postal
Preference Service Limited is decreased by £114,000 for the period from date of
acquisition to 31 December 2005.
Employee
benefits: compensated absences
Under UK
GAAP, the Group made no accrual for compensated absences. Under IAS 19 Employee
benefits, the expected costs of short-term accumulating compensated
absences are accrued as earned by employees.
At the
transition date of 1 January 2005, the balance sheet has been adjusted to
reflect liabilities not recognised under UK GAAP in respect of these
compensated absences of £52,000. In the six months to 30 June 2005, due to a
reversal of previously accrued costs, a credit of £23,000 was recorded within
expenses. However, in the year ended 31 December 2005, an increase in the
accrued costs results in an additional cost of £21,000 since 1 January 2005.
Software licences
Under
UK GAAP, Software licences were capitalised as property, plant and equipment as
part of computer equipment and depreciated over their useful economic life.
Under IFRS, IAS38 requires that software licences, which are not an integral
part of the related hardware, are capitalized as an intangible asset and
amortised over their useful economic life.
The impact of this change was to reclassify such software licenses which
do not form the integral part of the hardware, such as the operating system,
from property, plant and equipment to intangible assets. The related
depreciation was reclassified to amortisation expense in the income statement.
The amounts transferred were £72,000 as at 1 January 2005, £66,000 as at 30
June 2005 and £307,000 as at 31 December
2005.The net impact on the income statement is £nil.
Assets held for sale
Under UK GAAP, assets held for sale were stated at cost. Under IFRS
assets held for sale are measured at fair value, with fair value gains or
losses recognised directly in equity, and recycled into the income statement on
sale or impairment of the asset at which time the cumulative gain or loss
previously recognised in equity is recognised in profit or loss for the period.
The impact of this change is to revalue assets held for sale at 1
January 2005 at their market value of £673,000, where previously they had been
stated at cost of £30,000. The difference of £643,000 was taken to revaluation
reserve. A deferred tax liability of £193,000 was also recognized on the
revaluation reserve at that date.
At 30 June 2005, after the disposal of some of these assets, the market
value of remaining assets was £186,000 and the resulting revaluation reserve
was £117,000. The net impact on the income statement is £nil.
Taxation
Income tax
deduction for share options exercised
Under UK GAAP, the Group recognised an income tax
deduction for the excess of market value of share options over their exercise
price when share options were exercised.
IAS
12 Income Taxes requires deferred tax to be calculated based upon the number of
share options outstanding at the balance sheet date by reference to the
difference between the grant price and the market value of the shares at that
date. Changes to the amount of deferred tax in excess of the charge reported in
the income statement are recognised in equity not in income tax.
The impact of this change was to reclassify a tax deduction of £525,000
in the year ended 31 December 2005 from income tax to equity. The net impact on
the income statement is £525,000.
Deferred
tax
Deferred
tax was recognised in respect of all timing differences, with a few exceptions
that have originated but not reversed at the balance sheet date. Timing
differences arise when the profit or loss is recognised in a different period
in the tax computation from that in the financial statements.
Under
IFRS the Group is required to adopt a balance sheet approach under which
temporary differences are identified for each asset and liability rather than
accounting for the effects of timing and permanent differences between taxable
and accounting profit.
The impact of this is to recognise deferred tax on the estimated future
tax deduction arising in relation to the exercise of UK employee share options
and adjustments to qualifying goodwill, holiday pay liabilities and intangible assets and the
related amortisation, following the different accounting treatment of these
items under IFRS.
At 31 December 2005 a deferred tax asset of £341,000 was reported in the
UK GAAP balance sheet. The IFRS balance sheet at that date includes a deferred
tax asset of £1,139,000 (the increase mainly arising as a result of the
deferred tax asset on share options) and a deferred tax liability of £219,000
(arising as a result of the recognition of intangible assets on the PPS
acquisition in accordance with IFRS 3). Deferred tax adjustments arising on the
transition to IFRS have been offset only to the extent that this offset is
permitted under IAS 12.
There
is also a presentational change that includes classifying deferred tax
liabilities and assets as non-current and reporting them separately on the face
of the balance sheet.
Cash flows
There are no material differences between the
cash flow statement prepared under UK GAAP and that prepared under IFRS for
each of the periods presented, other than presentational changes.
Basis of
accounting
The financial statements have been
prepared in accordance with International Financial Reporting Standards for the
first time, with a transition date of 1 January 2005. The financial statements
have also been prepared in accordance with IFRS adopted for use in the European
Union and therefore comply with Article 4 of the EU IAS Regulation.
The financial statements have been
prepared on the historical cost basis.
The principal accounting policies adopted are set out below.
Basis of
consolidation
The Group’s consolidated financial
statements incorporate the financial statements of Interactive Prospect
Targeting Holdings plc (‘the Company’) and entities controlled by the Company
(its ‘subsidiaries’). Control is
achieved where the Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired
or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of
disposal, as appropriate.
Where necessary, adjustments are made
to the financial statements of subsidiaries to bring the accounting policies
used into line with those used by the Group.
All intra-Group transactions,
balances, income and expenses are eliminated on consolidation.
Business
combinations
The acquisition of subsidiaries is
accounted for using the purchase method.
The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or
assumed, and equity instruments issued by the Group in exchange for control of
the acquiree, plus any costs directly attributable to the business combination.
The acquiree’s identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 are recognised at their fair
value at the acquisition date, except for non-current assets that are
classified as held for resale in accordance with
IFRS 5 Non-current assets held for sale and discontinued operations, which
are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is
recognised as an asset and initially measured at cost, being the 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
recognised. If, after reassessment, the
Group’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities exceed the cost of the business
combination, the excess is recognised immediately in profit or loss.
Non-current
assets held for sale
Non-current assets classified as held
for sale are measured at the lower of carrying amount and fair value less costs
to sell.
Goodwill
Goodwill arising on consolidation
represents the excess of the cost of acquisition over the Group’s interest in
the fair value of the identifiable assets and liabilities of a subsidiary,
associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset
at cost and is subsequently measured at cost less any accumulated impairment
losses. Goodwill, which is recognised as
an asset, is reviewed for impairment at least annually. Any impairment is recognised immediately in
profit or loss and is not subsequently reversed.
For the purpose of impairment
testing, goodwill is allocated to each of the Group’s cash-generating units
expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has
been allocated are tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is
not reversed in a subsequent period.
On disposal of a subsidiary,
associate or jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal.
Goodwill arising on acquisitions
before the date of transition to IFRS has been retained at the previous UK GAAP
amounts subject to being tested for impairment at that date.
Other intangible assets
Other intangible assets are held at
cost less accumulated amortisation and any recognised impairment loss.
Amortisation is charged so as to
write off the cost of assets, less their estimated residual value, on a
straight-line basis over their estimated useful lives as follows:
Data acquisition costs 3 years
Licences 1-5
years
Capitalised computer software 2 years
Property, plant and equipment
Property, plant and equipment are
stated at cost, net of depreciation and any recognised impairment loss.
Depreciation is charged so as to
write off the cost or valuation of assets, over the estimated useful lives,
using the straight-line method, on the following bases:
Computer equipment 33% on
cost
Fixtures and fittings 20%
on cost
Assets held under finance leases are
depreciated over their expected useful lives on the same basis as owned assets
or, where shorter, over the term of the relevant lease.
Internally-generated
intangible assets – research and development expenditure
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 Group’s website developments is recognised only if all
of the following conditions are met:
·
an asset is created that can be identified (such as software
and new processes);
·
it is probable that the asset created will generate future
economic benefits; and
·
the development costs 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.
Leases
Leases are classified as finance
leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All
other leases are classified as operating leases.
Assets held under finance leases are
recognised as assets of the Group at their fair value or, if lower, at the
present value of the minimum lease payments, each determined at the inception
of the lease. The corresponding
liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation so as
to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged
directly against income.
Rentals payable under operating
leases are charged to income 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.
Pension costs
The Group does not operate any
pension plans, but does administer a stakeholder pension scheme on behalf of
any employees wishing to participate.
Revenue
recognition
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, VAT and other sales related taxes.
Sales of goods are recognised when
goods are delivered and title has passed. Sales of services are recognised with
reference to the stage of completion.
Foreign
currencies
The individual financial statements
of each Group company are presented in the currency of the primary economic
environment in which it operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group company are
expressed in pounds sterling, which is the functional currency of the Company,
and the presentation currency for the consolidated financial statements.
In preparing the financial statement
of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) 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 items
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. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the
settlement of monetary items, and on the retranslation of monetary items, are
included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items
carried at fair value are included in profit or loss for the period except for
differences arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in equity.
For the purpose of presenting
consolidated financial statements, the assets and liabilities of the Group’s
foreign operations are translated at exchange rates prevailing on the balance
sheet date. Income and expense items are
translated at the average exchange rates for the period. Exchange differences arising are classified
as equity and transferred to the Group’s translation reserve. Such translation differences are recognised
as income or as expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments
arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing rate.
Operating
profit
Operating profit is stated after
charging restructuring costs but 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 or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Group’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 can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises from the
initial recognition of goodwill or from 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.
Deferred tax liabilities are
recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable
future.
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 related to items
charged or credited directly to equity, in which case the 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
assets against current tax liabilities and whey they relate to income taxes
levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Impairment
of tangible and intangible assets excluding goodwill
At each balance sheet date, 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. Where the asset
does not generate cash flows that are independent from other assets, the Group
estimates the recoverable amount of the cash-generating unit to which the asset
belongs. An intangible asset with an
indefinite useful life is tested for impairment 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 and the impairment loss is recognised as an expense
immediately.
When 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 as income immediately.
Financial
instruments
Financial assets and financial
liabilities are recognised on the Group’s balance sheet when the Group becomes
a party to the contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any
interest and are measured at their nominal value as reduced by any appropriate
allowances for irrecoverable amounts.
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.
Financial liabilities and equity