Northgate Regulatory News (NTG)

21 Dec 2005 10:38

Northgate PLC21 December 2005 NORTHGATE PLC ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") Preliminary restatement of financial information as at 1 May 2004, for the year ended 30 April 2005 and for the six months ended 31 October 2004 1. Introduction and background to the adoption of IFRS Background to the adoption of IFRS The financial year ending 30 April 2006 will be the first year of mandatoryreporting under International Financial Reporting Standards ("IFRS") forNorthgate plc ("the Group" or "the Company"). The Group will therefore berequired to prepare its consolidated financial statements for that period underIFRS and will also present one year of comparative financial information for theyear ended 30 April 2005. The date of transition to IFRS for the Group was 1 May 2004, being the first dayof the comparative period ("the transition date") and the Group is required toprepare a balance sheet as at the transition date ("the transition balancesheet") under IFRS. This document sets out the preliminary restatement of financial information thatwill constitute the comparative financial information, under IFRS, for the yearended 30 April 2006, for the six months ended 31 October 2005 ("the IFRScomparatives") and also for the transition balance sheet as at 1 May 2004. Section 2 of this document sets out the restated financial information for theGroup under IFRS for the year ended 30 April 2005, including: •Consolidated income statement for the year ended 30 April 2005; •Consolidated statement of recognised income and expense for the year ended 30 April 2005; •Consolidated balance sheets as at 1 May 2004 and 30 April 2005; •Consolidated cash flow statement for the year ended 30 April 2005; •Reconciliation of UK GAAP consolidated income statement and balance sheets to IFRS; and •Details of the IFRS adjustments required. Section 3 of this document sets out the restated financial information for theGroup under IFRS for the six months ended 31 October 2004, including: •Consolidated income statement for the six months ended 31 October 2004; •Consolidated statement of recognised income and expense for the six months ended 31 October 2004; •Consolidated balance sheet as at 31 October 2004; •Consolidated cash flow statement for the six months ended 31 October 2004; •Reconciliation of UK GAAP consolidated income statement and balance sheets to IFRS; and •Details of the IFRS adjustments required. Section 4 of this document sets out the principal accounting policies of theGroup, as restated for IFRS, which are expected to be applied to the Group'sfirst set of financial statements required to be prepared under IFRS. Basis of preparation For the year ended 30 April 2006, the Company will prepare consolidatedfinancial statements under 'International Accounting Standards' as adopted bythe European Commission. These will be those International Accounting Standards("IAS"), International Financial Reporting Standards ("IFRS") and relatedInterpretations (SIC-IFRIC interpretations), subsequent amendments to thosestandards and related interpretations, future standards and relatedinterpretations issued or adopted by the International Accounting StandardsBoard ("IASB") that have been endorsed by the European Commission. This processof transition to reporting under IFRS is ongoing and the Commission has yet toendorse certain standards issued by the IASB. In particular the Commission: •endorsed a version of IAS 39 Financial Instruments - Recognition and Measurement that differed from that issued by the IASB in two respects (the so-called 'carve-out'): •The endorsed version of IAS 39 removes the option in the IASB version to fair value certain financial liabilities; and •The endorsed version of IAS 39 widens the range of circumstances in which hedge accounting may be applied; •has not given a final approval to IAS 39 amendments relating to the Fair Value Option, however the Accounting Regulatory Committee (ARC) has recommended endorsement. The Directors have prepared the transition balance sheet and the IFRScomparatives and accompanying reconciliations between UK GAAP and IFRS usingtheir best knowledge of the expected standards and interpretations of the IASB,facts and circumstances, and accounting policies that will be applied when theCompany prepares its first complete set of IFRS financial statements as at 30April 2006. Therefore, until such time, the possibility cannot be excluded thatthe accompanying transition balance sheet and IFRS comparatives may requireadjustment before constituting the final opening balance sheet and IFRScomparatives. Moreover, under IFRS, only a complete set of financial statementscomprising a balance sheet, income statement, statement of recognised income andexpense, statement of changes in equity, cash flow statement and principalaccounting policies, together with comparative financial information andexplanatory notes, can provide a fair presentation of the Company's financialposition, results of operations and cash flow. Statement of Directors' responsibilities The following statement, which should be read in conjunction with the auditors'statement of auditors' responsibilities set out in their reports in Sections 2and 3, is made with a view to distinguishing for shareholders the respectiveresponsibilities of the Directors and of the auditors in relation to thepreliminary restatement of financial information. In preparing the preliminary restated financial information on the basis set outabove, the Directors have: •selected appropriate accounting policies which are consistently applied; •made judgements and estimates that are reasonable and prudent; •made assumptions about the standards and interpretations expected to be effective, and the accounting policies expected to be adopted, when they prepare the Group's first set of IFRS financial statements for the year ended 30 April 2006 and that all accounting standards they consider to be applicable have been followed. The Directors are responsible for ensuring that the Company keeps adequateaccounting records and for safeguarding the assets of the Group and hence fortaking reasonable steps for the prevention and detection of fraud and otherirregularities. The preliminary restated financial information has been prepared on a goingconcern basis as the Directors have a reasonable expectation that the Group hasadequate resources to continue in operational existence for the foreseeablefuture. Differences between UK GAAP and IFRS All relevant accounting standards have been applied to the restated financialinformation and the following accounting standards are those that have the mostsignificant impact on the Group. IFRS 2 (Share-based Payment): An income statement charge is recognised inrespect of the cost of share options granted under the Group's various shareschemes. This cost is deemed to be the fair value of the options granted and ischarged over the vesting period. An amount equivalent to the charge is crediteddirectly to equity, resulting in no net impact on net assets. This accountingtreatment is the same as UK GAAP except that the fair values used under IFRS 2differ from those under UK GAAP. IFRS 3 (Business Combinations): Separate intangible assets are recognised atfair value on the acquisition of businesses after the date of transition toIFRS, which previously formed part of goodwill under UK GAAP. These includenon-contractual customer relationships, brand names and non-compete agreements,all of which are amortised over their respective estimated useful lives. Theresidual goodwill balance under IFRS is therefore lower in value than under UKGAAP but it is no longer amortised and is, instead, tested annually forimpairment. IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations): Vehiclesheld for resale are reclassified from inventories into non-current assets heldfor sale under IFRS. IAS 10 (Events After the Balance Sheet Date): Under IFRS, dividends are notappropriated within the accounts until they are either paid or formallyapproved. IAS 12 (Income Taxes): Deferred taxation changes arise under IFRS as a result ofdifferences between the accounting treatment and taxation treatment in respectof share options (IFRS 2), intangible assets (IFRS 3) and holiday pay accruals(IAS 19). Under IAS 12, deferred tax liabilities are also recognised on allcapitalised buildings, regardless of whether a contractual commitment to sellexists. IAS 16 (Property, Plant and Equipment): Under IAS 16, the Group is required toreview its depreciation rates and estimated useful lives on an annual basis toensure that the net book value of disposals of tangible fixed assets are broadlyequivalent to their market value. Depreciation charges are adjusted for anydifferences that arise between net book values and open market values of usedvehicles upon transfer into non-current assets held for sale, taking intoaccount the further direct costs to sell the vehicles. IAS 18 (Revenue): Under IFRS, income from the sale of used vehicles is notrecognised within revenue and the net book value of vehicles sold is removedfrom cost of sales. IAS 19 (Employee Benefits): An accrual is recognised for employee annual leaveaccrued, but not taken, at each balance sheet date. Where this applies tobusiness combinations, the accrual required at the date of acquisition is deemedto reduce the fair value of the net assets acquired with a correspondingadjustment to goodwill. IAS 21 (The Effects of Changes in Foreign Exchange Rates): Certain exchangedifferences, previously recognised directly within the profit and loss accountreserve under UK GAAP, are reclassified into a separate translation reserve,directly within equity, under IFRS. IAS 32 (Financial Instruments: Disclosure and Presentation): The Company'scumulative preference shares are deemed to be debt rather than equity underIFRS. They are reclassified from share capital to borrowings in the balancesheet and preference dividends are reclassified from dividends to finance costsin the income statement. IAS 38 (Intangible Assets): Certain software assets are reclassified fromtangible to intangible assets under IFRS. Amounts previously charged to theprofit and loss account as depreciation under UK GAAP relating to these fixedassets are reclassified as amortisation within the IFRS income statement. Separate intangible assets are also recognised within business combinations (seeIFRS 3, above). These assets are amortised to the income statement over theirestimated useful lives. IAS 39 (Financial Instruments: Recognition and Measurement): Interest ratederivatives, to which the Group is party, are recognised on the balance sheet attheir fair value. Subsequent changes in the fair value are recognised eitherwithin the income statement, as a finance cost, or directly in equity to theextent that the Group elects to hedge account, within the provisions of IFRS. Asexplained under IFRS 1 options below, this will impact on the Group from 1 May2005 only. IFRS 1 (First-time Adoption of IFRS) will be applied to the financial statementsfor the year ended 30 April 2006 and the relevant comparative financialinformation. The first-time adoption choices are as follows: IFRS options Basis of election Share based payments There are two first-time adoptionexemptions for accounting for sharebased payments: • Share based payments granted on • Share options granted on or or before 7 November 2002 and vested before 7 November 2002 and vested before 1 May 2005 may be restated before 1 May 2005, have not been but restatement is not mandatory; restated in accordance with IFRS 2. • Share based payments granted on • IFRS has been applied to all or before 7 November 2002 and not share options granted on or after 7 vested before 1 May 2005 may be November 2002 which had not vested restated but restatement is not by 1 May 2005. mandatory. Business combinations and goodwill The standard is mandatory for all The standard has been applied only toacquisitions after the Company's business combinations taking placetransition date, 1 May 2004. after the Group's transition date of 1 May 2004.However, the standard allows a Goodwill relating to acquisitions priorfirst-time adopter to apply the standard to the transition date will be held atto all business combinations that net book value on 1 May 2004, no longeroccurred before this date. amortised and subject to annual impairment review (IAS 36) Financial instruments The standard is applicable from the The Group will not accountCompany's transition date, 1 May 2004. retrospectively for financial instruments, including derivatives.However, the standard grants a first The restated results for the year to 30year exemption from its application to April 2005 do not reflect the impact ofthe comparative period but also allows IAS 32 and IAS 39 and the relatedfirst-time adopters to retrospectively applicable financial instruments haveaccount for financial instruments in been accounted for under UK GAAP, withline with the standard. the exception of preference shares. Foreign exchange differences IFRS requires certain translation The Group will deem cumulative exchangedifferences to be recognised as a differences to be zero as at 1 May 2004separate component of equity, rather and will not consider any cumulativethan within retained earnings, and to be exchange differences arising prior to 1considered as part of the profit or loss May 2004 if the relevant foreignon disposal of foreign operations in operations are disposed in thefuture. future. However, the standard allows first-timeadopters to deem the cumulativetranslation differences to be zero atthe date of transition. 2. Restated financial information for the year ended 30 April 2005 Independent Auditors' Report to the Board of Directors of Northgate plc on thenon-statutory preliminary comparative IFRS financial information We have audited the non-statutory preliminary comparative IFRS financialinformation of Northgate plc for the year ended 30 April 2005 which comprisesthe consolidated balance sheets as at 30 April 2005 and 1 May 2004, theconsolidated income statement, the consolidated statement of recognised incomeand expense, the consolidated cash flow statement, the Notes to the consolidatedcash flow statement and the related Notes 1 to 14 within Section 2 of thisdocument. This report is made solely to the Board of Directors, in accordance with ourengagement letter dated 5 December 2005 and solely for the purpose of assistingwith the transition to IFRS. Our audit work was undertaken so that we mightstate to the Company's Board of Directors those matters we are required to stateto them in an auditors' report and for no other purpose. To the fullest extentpermitted by law, we will not accept or assume responsibility to anyone otherthan the Company for our audit work, for our report, or for the opinions we haveformed. Respective responsibilities of Directors and auditors The Company's Directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of thepreliminary comparative IFRS financial information on the basis set out inSection 1 of this document, which describes how IFRS will be applied under IFRS1, including the assumptions the Directors have made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when the Company prepares its first complete set of IFRS financialstatements as at 30 April 2006. Our responsibility is to audit the preliminarycomparative financial information in accordance with relevant United Kingdomlegal and regulatory requirements and auditing standards and report to you ouropinion as to whether the preliminary comparative IFRS financial information isprepared, in all material respects, on the basis set out in Section 1 of thisdocument. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standardsissued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the preliminarycomparative IFRS financial information. It also includes an assessment of thesignificant estimates and judgements made by the Directors in the preparation ofthe preliminary comparative IFRS financial information and of whether theaccounting policies are appropriate to the circumstances of the Group,consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminarycomparative IFRS financial information is free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion,we also evaluated the overall adequacy of the presentation of information in thepreliminary comparative IFRS financial information. Without qualifying our opinion, we draw attention to the fact that the basis ofpreparation note in Section 1 of this document explains why there is apossibility that the accompanying preliminary comparative IFRS financialinformation may require adjustment before constituting the final comparativeIFRS financial information. Moreover, we draw attention to the fact that, underIFRS, only a complete set of financial statements comprising a balance sheet,income statement, statement of changes in equity, cash flow statement, togetherwith comparative financial information and explanatory notes, can provide a fairpresentation of the Company's financial position, results of operations and cashflows in accordance with IFRS. Opinion In our opinion the preliminary comparative IFRS financial information isprepared, in all material respects, on the basis set out in Section 1 of thisdocument which describes how IFRS will be applied under IFRS 1, including theassumptions the Directors have made about the standards and interpretationsexpected to be effective, and the policies expected to be adopted, when theCompany prepares its first complete set of IFRS financial statements as at 30April 2006. Deloitte & Touche LLP Chartered Accountants and Registered AuditorsLeeds20 December 2005 Consolidated Income Statementfor the year ended 30 April 2005Restated for IFRS £'000 Revenue 339,382Cost of sales (215,097) --------Gross profit 124,285 Administrative expenses (47,193)Amortisation (855) --------Profit from operations 76,237 Investment income 1,814Finance costs (23,063) -------- Profit before taxation 54,988 Taxation (15,757) -------- Profit attributable to equity holders 39,231 Dividends (11,916) --------Retained profit 27,315 ======== Consolidated Statement of Recognised Income and Expensefor the year ended 30 April 2005Restated for IFRS £'000 Gains on revaluation of land and properties 1,031Foreign exchange differences on long term borrowings 1,635Exchange differences on translation of foreign operations (153)Net deferred tax credit recognised directly in equity 1,084Adjustment for share options granted 88 -------- Net income recognised directly in equity 3,685 Profit attributable to equity holders 39,231 --------Total recognised income and expense for the year 42,916 ======== Consolidated Balance SheetsRestated for IFRS 30 April 2005 1 May 2004 £'000 £'000 Goodwill 12,448 1,981Other intangible assets 4,866 232Property, plant and equipment 569,694 402,456Interest in joint venture - 14,467 -------- --------Total non-current assets 587,008 419,136 -------- -------- Inventories 6,696 5,614Trade and other receivables 92,841 56,382Cash and cash equivalents 41,375 46,160 -------- --------Total current assets 140,912 108,156 -------- -------- -------- Non-current assets held for sale 11,464 9,671 -------- --------TOTAL ASSETS 739,384 536,963 ======== ======== Trade and other payables 44,728 32,535Tax liabilities 7,231 7,143Obligations under finance leasesand hire purchase 36,491 84,422Bank overdrafts, loans and otherdebt 11,919 3,485Proposed dividends 41 - -------- --------Total current liabilities 100,410 127,585 -------- -------- Borrowings 403,819 208,579Deferred tax liabilities 10,124 6,349 -------- --------Total non-current liabilities 413,943 214,928 -------- --------TOTAL LIABILITIES 514,353 342,513 ======== ======== -------- --------NET ASSETS 225,031 194,450 ======== ======== Share capital 3,209 3,202Share premium account 62,544 61,829Revaluation reserve 1,054 23Own shares held (2,471) (1,330)Merger reserve 4,721 4,721Currency translation reserve 1,482 -Retained earnings 154,492 126,005 -------- --------TOTAL EQUITY 225,031 194,450 ======== ======== Consolidated Cash Flow Statementfor the year ended 30 April 2005Restated for IFRS Note £'000 Net cash from operating activities (a) 150,457 ------- Investing activitiesInterest received 1,957Proceeds of disposal of vehicles for hire 116,895Purchases of vehicles for hire (274,517)Proceeds of disposal of other property, plant and equipment 378Purchases of other property, plant and equipment (7,613)Purchases of intangible assets (19)Acquisitions of subsidiaries (19,353) -------Net cash used in investing activities (182,272) ------- Financing activitiesDividends paid (11,874)Repayments of obligations under finance leases (279,243)New finance lease agreements entered into 93,663Increase in bank loans and other borrowings 221,166Proceeds from issue of share capital 722Payments to acquire own shares (1,141) -------Net cash from financing activities 23,293 ------- Net decrease in cash and cash equivalents (8,522) Cash and cash equivalents at the beginning of the period 42,675Effect of foreign exchange movements (96) -------Cash and cash equivalents at the end of the period (b) 34,057 ======= Notes to the Consolidated Cash Flow Statementfor the year ended 30 April 2005Restated for IFRS (a) Net cash from operating activities £'000 Profit from operations 76,237Adjustments for:Depreciation of property, plant and equipment 120,831Amortisation of intangible assets 855Loss on disposal of property, plant and equipment 39IFRS 2 share options fair value charge credited to equity 88 -------Operating cash flows before movements in working capital 198,050 Decrease in inventories 1,665Increase in receivables (7,735)Decrease in payables (3,634) -------Cash generated by operations 188,346 Income taxes paid (15,241)Interest paid (22,648) -------Net cash from operating activities 150,457 ======= (b) Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at bank, investments inmoney market instruments and bank overdrafts. Bank overdrafts are includedwithin cash equivalents on the grounds that they are repayable on demand andform an integral part of the Group's cash management. Cash and cash equivalents, as described above, included in the cash flowstatement comprise the following balance sheet amounts: £'000 Cash in hand and at bank 39,601Short term investments 1,774 -------Gross cash and cash equivalents as reported 41,375Bank overdrafts (7,318) -------Net cash and cash equivalents 34,057 ======= Notes to the Consolidated Cash Flow Statementfor the year ended 30 April 2005 (continued) (c) Explanation of differences between cash flow statements under IFRS and UKGAAP The significant differences between the Group cash flow statements under IFRS,as compared to UK GAAP, are as follows: Movements in non-current assets held for sale and movements in trade debtorsrelating specifically to these non-current assets, between the previous andcurrent balance sheet dates, are both classified within "proceeds of disposal ofvehicles for hire" and form part of cash flows from investing activities underIFRS. Under UK GAAP, the non-current assets were classified within "stock" andtheir movement formed part of "(increase) decrease in stock" and the changes indebtors formed part of the "(increase) decrease in debtors", both of which wereclassified within net cash flows from operating activities. Preference dividends form part of finance costs under IFRS and payments ofpreference dividends are classified as "interest paid" within net cash fromoperating activities. Under UK GAAP, these amounts were separately classifiedwithin "returns on investments and servicing of finance". All UK GAAP to IFRS adjustments that impact on profit from operations have nonet impact on net cash flows from operating activities under IFRS. Consolidated Income Statement - UK GAAP to IFRS reconciliationfor the year ended 30 April 2005 UK GAAP to IFRS adjustments £'000 Note UK IFRS2 IFRS3 IAS10 IAS12 IAS16 IAS18 IAS19 IAS32 IAS38 IAS38 IFRS GAAP in Share Goodwill Divi- Taxa- Fixed Vehicle Holiday Prefe- Intang- Software IFRS Options Amortis- dends tion Assets Sales Pay rence ible Assets format ation Divi- Amorti- dends sationRevenue 1 458,267 (118,885) 339,382Cost of 2 (333,913) 7,160 111,725 (69) (215,097)sales ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Gross profit 124,354 7,160 (7,160) (69) 124,285 Administrativeexpenses 3 (47,557) 103 (1) 262 (47,193)Amortisation 4 (1,116) 1,116 (593) (262) (855) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profit fromoperations 75,681 103 1,116 7,160 (7,160) (70) (593) 76,237 Investmentincome 1,814 1,814Finance 5 (23,038) (25) (23,063)costs ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profit beforetaxation 54,457 103 1,116 7,160 (7,160) (70) (25) (593) 54,988 Taxation 6 (15,963) 206 (15,757) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Profitattributableto equityholders 38,494 103 1,116 206 7,160 (7,160) (70) (25) (593) 39,231 Preferencedividends 5 (25) 25Ordinarydividends 7 (12,812) 896 (11,916) ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Retainedprofit 25,657 103 1,116 896 206 7,160 (7,160) (70) (593) 27,315 ----- ------ ------- ------ ----- ----- ------ ----- ------ ------- ------ ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation - 30 April 2005 UK GAAP to IFRS adjustments £'000 Note UK GAAP Date of IFRS3 IFRS3 IFRS5 IAS10 IAS10 IAS12 IAS19 IAS21 IAS32 IAS38 IAS38 IFRS in IFRS Trans- Intan- Good- Vehic- Prop- Divi- Tax Hol- Exch- Pref- Intan- Soft- format ition gible will les osed dend iday ange erence gible ware adjus- assets amorti- for divi- pay- pay diffe- shares amort- ass- tments sation sale dends ment rences isation ets Goodwill 8 14,110 (5,363) 1,116 2,462 123 12,448Otherintangibleassets 9 5,363 (593) 96 4,866Property,plant andequipment 569,790 (96) 569,694 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------Totalnon-currentassets 583,900 1,116 2,462 123 (593) 587,008 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Inventories 10 18,160 (11,464) 6,696Trade andotherreceivables 92,841 92,841Cash and cashequivalents 41,375 41,375 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Total currentassets 152,376 (11,464) 140,912 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Non-currentassets heldfor sale 10 11,464 11,464 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------TOTAL ASSETS 736,276 1,116 2,462 123 (593) 739,384 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------Trade andother payables 11 43,925 609 193 1 44,728Taxliabilities 7,231 7,231Obligationsunder financeleases/hirepurchase 36,491 36,491Bankoverdrafts,loans andother debt 11,919 11,919Proposeddividends 7 7,718 (7,676) (1) 41 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------Total current liabilities 107,284 609 (7,676) 193 100,410 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------Borrowings 12 403,319 500 403,819Deferred taxliabilities 13 9,424 (472) 1,172 10,124 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Totalnon-currentliabilities 412,743 (472) 1,172 500 413,943 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ TOTALLIABILITIES 520,027 137 (7,676) 1,172 193 500 514,353 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------NET ASSETS 216,249 (137) 1,116 7,676 1,290 (70) (500) (593) 225,031 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------Share 3,709 (500) 3,209capitalShare premiumaccount 62,544 62,544Revaluationreserve 1,054 1,054Own shares (2,471) (2,471)Merger reserve 4,721 4,721Currencytranslationreserve 14 1,482 1,482Retainedearnings 146,692 6,643 1,116 7,676 (6,780) 1,290 (70) (1,482) (593) 154,492 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------TOTAL EQUITY 216,249 6,643 1,116 7,676 (6,780) 1,290 (70) (500) (593) 225,031 ------ ----- ----- ------ ----- ----- ----- ----- ---- ----- ----- ---- --- ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation - 1 May 2004 UK GAAP to IFRS adjustments £'000 Note UK GAAP IFRS5 IAS10 IAS12 IAS19 IAS32 IAS38 IFRS in IFRS Vehicles Divi- Tax- Holiday Pre- Soft- format for sale dends ation pay ference ware shares assetsGoodwill 8 1,981 1,981Otherintangibleassets 9 232 232Property,plant andequipment 402,688 (232) 402,456Interest injoint venture 14,467 14,467 ------- ------- ------- ------- ------ ------ ------- --------Totalnon-currentassets 419,136 419,136 ------- ------- ------- ------- ------ ------ ------- --------Inventories 10 15,285 (9,671) 5,614Trade andotherreceivables 56,382 56,382Cash and cashequivalents 46,160 46,160 ------- ------- ------- ------- ------ ------ ------- --------Total currentassets 117,827 (9,671) 108,156 ------- ------- ------- ------- ------ ------ ------- --------Non-currentassets heldfor sale 10 9,671 9,671 ------- ------- ------- ------- ------ ------ ------- --------TOTAL ASSETS 536,963 536,963 ------- ------- ------- ------- ------ ------ ------- --------Trade andother payables 11 31,926 609 32,535Tax liabilities 7,143 7,143Obligationsunder financeleases/hirepurchase 84,422 84,422Bankoverdrafts andloans 3,485 3,485Proposeddividends 7 6,780 (6,780) ------- ------- ------- ------- ------ ------ ------- --------Total currentliabilities 133,756 (6,780) 609 127,585 ------- ------- ------- ------- ------ ------ ------- --------Borrowings 12 208,079 500 208,579Deferred taxliabilities 13 6,821 (472) 6,349 ------- ------- ------- ------- ------ ------ ------- --------Totalnon-currentliabilities 214,900 (472) 500 214,928 ------- ------- ------- ------- ------ ------ ------- --------TOTALLIABILITIES 348,656 (6,780) (472) 609 500 342,513 ------- ------- ------- ------- ------ ------ ------- --------NET ASSETS 188,307 6,780 472 (609) (500) 194,450 ------- ------- ------- ------- ------ ------ ------- --------Share capital 3,702 (500) 3,202Share premiumaccount 61,829 61,829Revaluationreserve 23 23Own shares (1,330) (1,330)Merger reserve 4,721 4,721Retained earnings 119,362 6,780 472 (609) 126,005 ------- ------- ------- ------- ------ ------ ------- --------TOTAL EQUITY 188,307 6,780 472 (609) (500) 194,450 ------- ------- ------- ------- ------ ------ ------- -------- Notes to the Consolidated Income Statement for the year ended 30 April 2005 1 Revenue £'000 UK GAAP 458,267Removal of used vehicle sales proceeds from revenue inaccordance with IAS18 (118,885) ------- IFRS 339,382 ======= 2 Cost of sales UK GAAP 333,913Removal of cost of used vehicles sold from cost of salesto correspond with (111,725)revenue adjustment (Note 1)Adjustment to depreciation on updated estimate ofresidual values of (7,160)vehicles soldAdditional holiday pay accrual 69 ------- IFRS 215,097 ======= 3 Administrative expenses UK GAAP 47,557Adjustment to fair value of share options granted (103)Holiday pay accrual adjustment 1Reclassification of depreciation of software assets asamortisation (262) ------- IFRS 47,193 ======= 4 Amortisation UK GAAP 1,116Reversal of goodwill amortisation (1,116)Amortisation of intangible assets 593Reclassification of depreciation of software assets asamortisation 262 ------- IFRS 855 ======= 5 Finance costs and preference dividendsUK GAAP 23,038Preference dividends reclassified from dividends tofinance costs 25to match reclassification of preference shares from equity to debt(Note 12) -------IFRS 23,063 ======= 6 Taxation UK GAAP 15,963Deferred tax credit on intangible assets (202)Deferred tax credit on buildings (13)Deferred tax charge on share options 31Deferred tax credit on holiday pay (22) -------IFRS 15,757 ======= 7 Ordinary dividends UK GAAP 12,812Reversal of 2005 final dividend not formally approved at 30 April2005 (7,676)2004 final dividend formally approved in the year ended 30 April 2005 6,780 -------IFRS 11,916 ======= Notes to the Consolidated Balance Sheets as at 30 April 2005 and 1 May 2004 30 April 2005 1 May 2004 £'000 £'000 8 Goodwill UK GAAP 14,110 1,981Amounts reclassified into other intangible assets (Note 9) (5,363) -Reversal of goodwill amortisation, not charged under IFRS 3 1,116 -Deferred tax adjustments in respect of intangible assets 1,839 -Deferred tax adjustments in respect of assets and liabilities 623 -acquired with Fualsa and FoleyReduction in Fualsa net assets acquired due to recognition 123 -of holiday pay accrual -------- -------IFRS 12,448 1,981 ======== ======= 9 Other intangible assets UK GAAP - -Reclassification of software assets at net book value 96 232Brand names recognised* 3,953 -Non-contractual customer relationships recognised* 1,273 -Non-compete agreements recognised* 137 -Amortisation of recognised intangible assets (593) - -------- -------IFRS 4,866 232 ======== =======* Previously classified within goodwill under UK GAAP 10 Inventories UK GAAP 18,160 15,285Net book value of used vehicles held for resalereclassified from inventories (11,464) (9,671)to non-current assets held for sale in accordance withIFRS5 -------- -------IFRS 6,696 5,614 ======== ======= 11 Trade and other payables UK GAAP 43,925 31,926Annual leave accrued by employees but not taken as at thebalance sheet date under IAS 19 802 609Unpaid preference dividends reclassified under IAS 32 1 - -------- ------- 44,728 32,535 ======== ======= 12 Borrowings UK GAAP 403,319 208,079Book and fair value of preference shares reclassified fromequity to debt under IAS32 500 500 -------- -------IFRS 403,819 208,579 ======== ======= 13 Deferred tax liabilities UK GAAP 9,424 6,821Date of transition adjustments (472) -Deferred tax provision on intangible assets 1,637 -Deferred tax provision on buildings 652 300Deferred tax asset on share options (869) (589)Deferred tax asset on holiday pay accrual (248) (183) -------- -------IFRS 10,124 6,349 ======== ======= 14 Currency translation reserve UK GAAP - -Cumulative exchange differences from 1 May 2004 to 30 April 2005 1,482 -reclassified from retained earnings into separate equitycomponent -------- -------IFRS 1,482 - ======== ======= 3. Restated financial information for the six months ended 31 October 2004 Independent Review Report to the Board of Directors of Northgate plc on thepreliminary non-statutory comparative financial information for the six monthsended 31 October 2004 We have reviewed the accompanying preliminary non-statutory InternationalFinancial Reporting Standards (IFRS) consolidated financial information ofNorthgate plc ("the Company") and its subsidiaries (together "the Group") forthe six months ended 31 October 2004, which comprises the consolidated incomestatement, the consolidated balance sheet, the consolidated statement ofrecognised income and expense, the consolidated cash flow statement, the Notesto the consolidated cash flow statement and related Notes 1 to 14 within Section3 of this document (hereinafter referred to as "preliminary financialinformation"). This preliminary financial information is the responsibility of the Company'sdirectors. It has been prepared as part of the Company's conversion to IFRS inaccordance with the basis set out in Section 1 of this document which describeshow IFRS will be applied under IFRS 1, including the assumptions the Directorshave made about the standards and interpretations expected to be effective, andthe policies expected to be adopted, when the Company prepares its firstcomplete set of IFRS financial statements as at 30 April 2006. Ourresponsibility is to express an opinion on this preliminary IFRS comparativefinancial information based on our review. Our review report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so thatwe might state to the Company those matters we are required to state to them inan independent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Review work performed We conducted our review in accordance with Bulletin 1999/4 issued by theAuditing Practices Board. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the preliminary financialinformation and underlying financial data and assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of control andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with United Kingdom auditingstandards and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the preliminary financialinformation. Without modifying our review conclusion, we draw attention to the fact that thebasis of preparation noted in Section 1 of this document explains why there is apossibility that the accompanying preliminary financial information may requireadjustment before constituting the final IFRS comparative information for thesix months ended 31 October 2005. Moreover, we draw attention to the fact that,under IFRS, only a complete set of financial statements comprising an incomestatement, balance sheet, statement of changes in equity, cash flow statement,together with comparative financial information and explanatory notes, canprovide a fair presentation of the Group's financial position, results ofoperations and cash flows in accordance with IFRS. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the preliminary financial information for the six months ended31 October 2004 which has been prepared in accordance with the basis set out inSection 1 of this document. Deloitte & Touche LLPChartered AccountantsLeeds20 December 2005 Consolidated Income Statement for the six months ended 31 October 2004Restated for IFRS £'000 Revenue 167,082Cost of sales (102,499) -------- Gross profit 64,583 Administrative expenses (26,490)Amortisation (409) -------- Profit from operations 37,684 Investment income 871Finance costs (10,916) -------- Profit before taxation 27,639 Taxation (8,449) -------- Profit attributable to equity holders 19,190 Dividends (6,780) -------- Retained profit 12,410 ======== Consolidated Statement of Recognised Income and Expense for the six months ended 31 October 2004Restated for IFRS £'000 Gains on revaluation of land and properties 579Exchange differences on translation of foreign operations 944Net deferred tax credit recognised directly in equity 1,508Adjustment for share options granted (19) -------- Net income recognised directly in equity 3,012 Profit attributable to equity holders 19,190 --------Total recognised income and expense for the period 22,202 ======== Consolidated Balance Sheet Restated for IFRS 31 October 2004 £'000 Goodwill 13,427Other intangible assets 5,302Property, plant and equipment 550,114 ---------Total non-current assets 568,843 --------- Inventories 6,121Trade and other receivables 87,257Cash and cash equivalents 22,570 ---------Total current assets 115,948 --------- Non-current assets held for sale 12,652 ---------TOTAL ASSETS 697,443 ========= Total current liabilities 196,386 Long term liabilities 281,249Deferred tax liabilities 9,745 ---------Total non-current liabilities 290,994 ---------TOTAL LIABILITIES 487,380 =========NET ASSETS 210,063 ========= Share capital 3,206Share premium account 62,201Revaluation reserve 602Own shares (1,515)Merger reserve 4,721Currency translation reserve 944Retained earnings 139,904 ---------TOTAL EQUITY 210,063 ========= Consolidated Cash Flow Statement for the six months ended 31 October 2004Restated for IFRS Note £'000 Net cash from operating activities (a) 73,766 -------- Investing activitiesInterest received 265Proceeds of disposal of vehicles for hire 50,039Purchases of vehicles for hire (134,107)Proceeds of disposal of other property, plant andequipment 221Purchases of other property, plant and equipment (2,350)Purchases of intangible assets (11)Acquisitions of subsidiaries (19,360) --------Net cash used in investing activities (105,303) -------- Financing activitiesDividends paid (6,764)Repayments of obligations under finance leases (124,030)New finance lease agreements entered into 78,680Increase in bank loans and other borrowings 47,136Proceeds from issue of share capital 376 --------Net cash used in financing activities (4,602) -------- Net decrease in cash and cash equivalents (36,139) Cash and cash equivalents at the beginning of the period 42,675Effect of foreign exchange movements 58 --------Cash and cash equivalents at the end of the period (b) 6,594 -------- Notes to the Consolidated Cash Flow Statement for the six months ended 31 October 2004Restated for IFRS (a) Net cash from operating activities £'000 Profit from operations 37,684Adjustments for:Depreciation of property, plant and equipment 59,149Amortisation of intangible assets 409Loss on disposal of property, plant and equipment 19IFRS 2 share options fair value credit charged toequity (19) -------Operating cash flows before movements in workingcapital 97,242 Decrease in inventories 2,313Increase in receivables (703)Decrease in payables (7,689) -------Cash generated by operations 91,163 Income taxes paid (7,775)Interest paid (9,622) -------Net cash from operating activities 73,766 ------- (b) Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at bank, investments inmoney market instruments and bank overdrafts. Bank overdrafts are includedwithin cash equivalents on the grounds that they are repayable on demand andform an integral part of the Group's cash management. Cash and cash equivalents, as described above, included in the cash flowstatement comprise the following balance sheet amounts: £'000 Cash in hand and at bank 20,817Short term investments 1,753 -------Gross cash and cash equivalents as reported 22,570Bank overdrafts (15,976) -------Net cash and cash equivalents 6,594 ------- (c) Explanation of differences between cash flow statements under IFRS compared to UK GAAP The significant differences between the Group cash flow statements under IFRS,as compared to UK GAAP, are as follows: Movements in non-current assets held for sale and movements in trade debtorsrelating specifically to these non-current assets, between the previous andcurrent balance sheet dates, are both classified within "proceeds of disposal ofvehicles for hire" and form part of cash flows from investing activities underIFRS. Under UK GAAP, the non-current assets were classified within "stock" andtheir movement formed part of "(increase) decrease in stock" and the changes indebtors formed part of the "(increase) decrease in debtors", both of which wereclassified within net cash flows from operating activities. Preference dividends form part of finance costs under IFRS and payments ofpreference dividends are classified as "interest paid" within net cash fromoperating activities. Under UK GAAP, these amounts were separately classifiedwithin "returns on investments and servicing of finance". All UK GAAP to IFRS adjustments that impact on profit from operations have nonet impact on net cash flows from operating activities under IFRS. Consolidated Income Statement - UK GAAP to IFRS reconciliation for the six months ended 31 October 2004 UK GAAP to IFRS adjustments IAS38 IFRS3 IAS32 Intang- UK Good- IAS16 Pref- ible GAAP in IFRS2 will IAS10 IAS18 IAS19 erence amort- IAS38 IFRS Share amort- Divi- IAS12 Fixed Vehicle Holiday divid- isat- Software£'000 Note format options isation dends Tax assets sales pay ends tion assets IFRS Revenue 1 222,592 (55,510) 167,082Cost of 2 (157,987) 3,962 51,548 (22) (102,499)sales ------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ------ ------ Gross profit 64,605 3,962 (3,962) (22) 64,583 Administrativeexpenses 3 (26,799) 19 158 132 (26,490)Amortisation 4 (514) 514 (277) (132) (409) ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profit fromoperations 37,292 19 514 3,962 (3,962) 136 (277) 37,684 Investmentincome 871 871Finance 5 (10,903) (13) (10,916)costs ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profit beforetaxation 27,260 19 514 3,962 (3,962) 136 (13) (277) 27,639 Taxation 6 (8,500) 51 (8,449) ------ ----- ------- ------ ----- ----- ----- ----- ------ ------ ------ ------ Profitattributableto equityholders 18,760 19 514 51 3,962 (3,962) 136 (13) (277) 19,190 Preferencedividends 5 (13) 13Ordinarydividends 7 (5,136) (1,644) (6,780) ------ ----- ------- ------ ----- ---- ----- ----- ------ ------ ------ ------ Retainedprofit 13,611 19 514 (1,644) 51 3,962 (3,962) 136 (277) 12,410 ------ ----- ------- ------ ----- ---- ----- ----- ------ ------ ------ ------ Consolidated Balance Sheet - UK GAAP to IFRS reconciliation as at 31 October 2004 UK GAAP to IFRS adjustments IAS38 Date IFRS3 IFRS In of Good- 5 IAS10 IAS21 tang- UK Tran- IFRS3 will Vehic- Divi- IAS19 Ex- IAS32 gible IAS38 GAAP in sition Intan- amort- les IAS10 dend IAS12 Holi- change Pref- amort- Soft- IFRS adjust- gible isa- for Divi- pay- day differ- erence isa- ware£'000 Note format ments assets tion sale dends ment Tax pay ences shares tion assets IFRS Goodwill 8 15,679 (5,363) 514 2,474 123 13,427Otherintangibleassets 9 5,363 (277) 216 5,302 Property,plant andequipment 550,330 (216) 550,114 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- -----Totalnon-currentassets 566,009 514 2,474 123 (277) 568,843 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Inventories 10 18,773 (12,652) 6,121Trade andotherreceivables 87,257 87,257Cash and cashequivalents 22,570 22,570 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Total currentassets 128,600 (12,652) 115,948 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- -----Non-currentassets heldfor sale 10 12,652 12,652 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- TOTAL ASSETS 694,609 514 2,474 123 (277) 697,443 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- -----Total currentliabilities 11 200,926 609 (5,136) (13) 196,386Long termliabilities 12 280,749 500 281,249Deferred taxliabilities 13 9,302 (472) 915 9,745 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Totalnon-currentliabilities 290,051 (472) 915 500 290,994 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- TOTALLIABILITIES 490,977 137 (5,136) 915 (13) 500 487,380 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- NET ASSETS 203,632 (137) 514 5,136 1,559 136 (500) (277) 210,063 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Share capital 3,706 (500) 3,206Share premiumaccount 62,201 62,201Revaluation reserve 602 602Own shares (1,515) (1,515)Merger reserve 4,721 4,721Currencytranslationreserve 14 944 944Retainedearnings 133,917 6,643 514 5,136 (6,780) 1,559 136 (944) (277) 139,904 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- -----TOTAL EQUITY 203,632 6,643 514 5,136 (6,780) 1,559 136 (500) (277) 210,063 ------ ------ ------ ------ ----- ----- ----- ----- ----- ------ ----- ----- ----- ----- Notes to the Consolidated Income Statement for the six months ended 31 October 2004 1 Revenue £'000 UK GAAP 222,592Removal of used vehicle sales proceeds from revenue inaccordance with IAS18 (55,510) -------IFRS 167,082 ======= 2 Cost of sales UK GAAP 157,987Removal of cost of used vehicles sold from cost of salesto correspond with revenue adjustment (Note 1) (51,548)Adjustment to depreciation on updated estimate ofresidual values of vehicles sold (3,962)Additional holiday pay accrual 22 -------IFRS 102,499 ======= 3 Administrative expenses UK GAAP 26,799Adjustment to fair value of share options granted (19)Holiday pay accrual adjustment (158)Reclassification of depreciation of software assets asamortisation (132) -------IFRS 26,490 ======= 4 Amortisation UK GAAP 514Reversal of goodwill amortisation (514)Amortisation of intangible assets 277Reclassification of depreciation of software assets asamortisation 132 -------IFRS 409 ======= 5 Finance costs and preference dividends UK GAAP 10,903Preference dividends reclassified from dividends tofinance costs to match reclassification 13of preference shares from equity to debt (Note 12) -------IFRS 10,916 ======= 6 Taxation UK GAAP 8,500Deferred tax credit on intangible assets (95)Deferred tax credit on buildings (7)Deferred tax charge on share options 6Deferred tax charge on holiday pay 45 -------IFRS 8,449 ======= 7 Ordinary dividends UK GAAP 5,136Reversal of 2004 interim dividend not paid at 31 October 2004 (5,136)2004 final dividend formally approved in the six months ended 31October 2004 6,780 -------IFRS 6,780 ======= Notes to the Consolidated Balance Sheet as at 31 October 2004 8 Goodwill £'000 UK GAAP 15,679Amounts reclassified into other intangible assets (Note 9) (5,363)Reversal of goodwill amortisation, not charged under IFRS 3 514Deferred tax adjustments in respect of intangible assets 1,839Deferred tax adjustments in respect of assets and liabilities 635acquired with FualsaReduction in Fualsa net assets acquired due to recognition 123of holiday pay accrual -------IFRS 13,427 ======= 9 Intangible assets UK GAAP -Reclassification of software assets at net book value 216Brand names recognised* 3,953Non-contractual customer relationships recognised* 1,273Non-compete agreements recognised* 137Amortisation of recognised intangibles (277) -------IFRS 5,302 =======* Previously classified within goodwill under UK GAAP 10 Inventories UK GAAP 18,773Net book value of used vehicles held for resale reclassified frominventories (12,652)to non-current assets held for sale in accordance with IFRS5 -------IFRS 6,121 ======= 11 Current liabilities UK GAAP 200,926Annual leave accrued by employees but not taken as at the balancesheet date 596under IAS 19Derecognition of 2004 interim dividend, not paid until after the (5,136)balance sheet date, under IAS 10 -------IFRS 196,386 ======= 12 Long term liabilities UK GAAP 280,749Book and fair value of preference shares reclassified from equity todebt under IAS32 500 -------IFRS 281,249 ======= 13 Deferred tax liabilities UK GAAP 9,302Date of transition adjustments (472)Deferred tax provision on intangible assets 1,743Deferred tax provision on buildings 673Deferred tax asset on share options (1,319)Deferred tax asset on holiday pay accrual (182) -------IFRS 9,745 ======= 14 Currency translation reserve UK GAAP -Cumulative exchange differences from 1 May 2004 to 31 October2004 944reclassified from retained earnings into separate equitycomponent -------IFRS 944 ======= 4. Principal Accounting Policies Statement of compliance and first time adoption choices The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and their interpretationsadopted by the International Accounting Standards Board (IASB). These are theGroup's first consolidated financial statements prepared under IFRS and IFRS1has been applied. Basis of preparation The financial information has been prepared on the historical cost basis, exceptfor the revaluation of certain land and buildings and the treatment of certainfinancial instruments. The accounting policies set out below have been preparedby management using its best knowledge of the expected standards andinterpretations of the International Accounting Standards Board, facts andcircumstances, and accounting policies that will be applied when the Companyprepares its first complete set of IFRS financial statements as at 30 April2006. Therefore, until such time, the possibility cannot be excluded that theaccompanying preliminary opening balance sheet at 1 May 2004 and the restatedfinancial information for the year ended 30 April 2005 may require adjustmentbefore constituting the final opening balance sheet and IFRS comparatives. Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of the entity so as to obtain benefits from its activities.The consolidated financial statements include the financial statements of theCompany and its undertakings made up to 1 May 2004, 31 October 2004 and 30 April2005. The results of new subsidiary undertakings are included from the dates ofacquisition. Where an entity has ceased to be a subsidiary undertaking duringthe year, its results are included to the date of cessation. On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to the income statement in the period ofacquisition. The interest of minority shareholders is stated at the minority'sproportion of the fair values of the assets and liabilities recognised.Subsequently any losses applicable to the minority interest in excess of theminority interest are allocated against the interests of the parent. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses areeliminated on consolidation. Revenue recognition Group revenue is measured at the fair value of the consideration received orreceivable in respect of the hire of vehicles and the supply of related goodsand services in the normal course of business, net of value added tax anddiscounts. Revenue from vehicle rentals is recognised evenly over the rental period andrevenue from sales of other related goods and services is recognised at thepoint of sale. Goodwill All business combinations are accounted for by applying the purchase method.Goodwill represents amounts arising on acquisition of subsidiary undertakingsand interests in associates and is the difference between the cost of theacquisition and the fair value of the net identifiable assets and liabilitiesacquired. Goodwill is stated at cost less any accumulated impairment losses identifiedthrough an annual test for impairment. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 1998 hasnot been reinstated and is not included in determining any subsequent profit orloss on disposal. Intangible assets - arising on business combinations Amortisation of intangible assets is charged to the income statement on astraight-line basis over the estimated useful lives of each intangible asset.Intangible assets are amortised from the date they are available for use. Theestimated useful lives are as follows: Customer relationships 5 to 9 yearsBrand names 5 to 10 yearsNon-compete agreements 2 to 4 years Intangible assets - other Other intangible assets that are acquired by the Group are stated at cost lessaccumulated amortisation and impairment losses. Software assets are amortised over their estimated useful lives, which do notexceed three years. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulateddepreciation and any provision for impairment. Depreciation is provided so as towrite off the cost of assets to residual values on a straight-line basis overthe assets' useful estimated lives as follows: Freehold buildings 50 yearsLeasehold buildings Over 50 years or over the period of lease whichever is shorterPlant, equipment and fittings Over 8 to 10 yearsVehicles for hire 3 to 6 yearsMotor vehicles 3 to 6 years Vehicles for hire are depreciated on a straight-line basis using depreciationrates that reflect economic lives of between three and six years. Thesedepreciation rates have been determined with the anticipation that the net bookvalues at the point the vehicles are transferred into non-current assets heldfor sale is in line with the open market values for those vehicles. Depreciationcharges are adjusted for any differences that arise between net book values andopen market values of used vehicles upon transfer into non-current assets heldfor sale, taking into account the further direct costs to sell the vehicles. Property under construction is not depreciated. Depreciation commences whenthese assets are ready for their intended use. Freehold land is not depreciated. Depreciation on revalued buildings is charged to the income statement. On thesubsequent sale or retirement of a revalued property, the attributablerevaluation surplus remaining in the revaluation reserve is transferred directlyto retained earnings. The residual value, if not insignificant, is reassessed annually. Non-current assets held for resale Non-current assets classified as held for resale are valued at the lower ofcarrying amount or fair value less estimated costs to sell. Non-current assetsare classified as held for sale if their carrying amount will be recoveredthrough a sales transaction. Fixed asset investments Fixed asset investments are shown at cost less any provision for impairment. Impairment At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). The recoverable amount is the higher of fair value less selling costs and valuein use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset for which the estimates of future cash flows have not been adjusted. An impairment loss is recognised whenever the carrying amount of an assetexceeds its recoverable amount. Impairment losses are recognised in the incomestatement. Impairment losses recognised in respect of cash-generating units areallocated first to reduce the carrying amount of any goodwill allocated to cashgenerating units and then to reduce the carrying amount of other assets in theunit on a pro rata basis. Inventories Inventories comprise goods for resale and finished goods and are valued at thelower of cost or net realisable value. Net realisable value represents theestimated selling price less all estimated costs of completion and costs to beincurred in marketing, selling and distribution. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the period. The Group'sliability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date. Taxable profit differs fromnet profit as reported in the income statement because it excludes items ofincome or expense that are taxable or deductible in other years and it furtherexcludes items that are never taxable or deductible. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Financial instruments and hedge accounting Financial assets and liabilities are recognised in the Group's balance sheetwhen the Group becomes a party to the contractual provision of the instrument. Trade receivables are non-interest bearing and are stated at their nominal valueless the amount of any appropriate provision for irrecoverable amounts. Tradepayables are non-interest bearing and are stated at their nominal value. The Group uses derivative financial instruments to hedge its exposure to foreignexchange and interest rate risks arising from operational, financing andinvestment activities. In accordance with its treasury policy, the Group doesnot hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are stated at fair value. Any gain or loss onremeasurement to fair value is recognised immediately in the income statement.However, where derivatives qualify for hedge accounting, recognition ofresultant gain or loss depends on the nature of the items being hedged. The fair value of the interest swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. Changes in the fair value of derivative financial instruments that aredesignated and effective as hedges of future cash flows are recognised directlyin equity, and the ineffective portion is recognised immediately in the incomestatement. If the cash flow hedge of a firm commitment or forecasted transactionresults in the recognition of an asset or liability, then, at the time the assetor liability is recognised, the associated gains or losses on the derivativethat had previously been recognised in equity are included in the initialmeasurement of the asset or liability. For hedges that do not result inrecognition of an asset or a liability, amounts deferred in equity arerecognised in the income statement in the same period in which the hedged itemaffects net profit or loss. Changes in the fair value of derivative financial instruments that do notqualify for hedge accounting are recognised in the income statement as theyarise. Hedge accounting for cash flow hedges is discontinued when the hedginginstrument expires or is sold, terminated, or exercised, or no longer qualifiesfor hedge accounting. At that time, any cumulative gain or loss on the hedginginstrument recognised in equity is retained in equity until the forecastedtransaction occurs. If a hedged transaction is no longer expected to occur, thenet cumulative gain or loss recognised in equity is transferred to net profit orloss for the period. Bank loans and issue costs Bank loans are stated at the amount of proceeds after deduction of issue costs,which are amortised over the period of the loan. Finance charges, includingpremiums payable on settlement or redemption and direct issue costs, areaccounted for in the income statement on an accrual basis and are added to thecarrying amount of the instrument to the extent that they are not settled in theperiod in which they arise. Foreign currencies Transactions in foreign currencies other than UK Sterling are recorded at therate prevailing at the date of the transaction or at the contracted rate if thetransaction is covered by a forward exchange contract. At each balance sheetdate, monetary assets and liabilities denominated in foreign currencies areretranslated at the rate of exchange prevailing at the balance sheet date or, ifappropriate, at the forward contract rate and any variances are reflected in theincome statement. The accounts of overseas subsidiary undertakings are translated into UK Sterlingat the rate of exchange ruling at the balance sheet date. The exchangedifference arising on the retranslation of opening net assets is recogniseddirectly in equity. All other translation differences are taken to the incomestatement with the exception of differences in equity on foreign currencyborrowings to the extent that they are used to finance or provide a hedgeagainst Group equity investments in foreign enterprises, which are recogniseddirectly in equity, together with the exchange difference on the net investmentin these enterprises. The results of overseas subsidiary undertakings and joint ventures aretranslated into UK Sterling using average exchange rates for the financialperiod and variances compared with the exchange rate at the balance sheet dateare recognised directly in equity. The Company maintains certain borrowings in the same currency as the functionalcurrency of its overseas subsidiary undertaking, as a hedge against the netassets of the subsidiary. These borrowings are translated into UK Sterling usingthe exchange rate prevailing at the balance sheet date. Any variances arerecognised directly in equity. Goodwill and fair value adjustments, arising on acquisition of a foreign entity,are treated as assets and liabilities of the foreign entity. They aredenominated in the functional currency of the foreign entity and translated atthe exchange rate prevailing at the balance sheet date, with any variancesreflected directly in equity. All foreign exchange differences reflected directly in equity are shown in thecurrency translation reserve component of equity. Leasing and hire purchase commitments As Lessee: Assets held under finance leases and hire purchase contracts are capitalised inthe balance sheet at their fair value or, if lower, the present value of thefuture minimum lease payments, and are depreciated over their useful economiclives using Group policies. The capital elements of future obligations underfinance leases and hire purchase contracts are included as liabilities in thebalance sheet. The interest elements of the rental obligations are charged tothe income statement over the periods of the leases and hire purchase contractsso as to produce a constant rate of return on the outstanding balance. Rentals payable under operating leases are charged to the income statement on astraight-line basis over the lease term. As Lessor: Motor vehicles and equipment leased to certain customers under operating leasesare included within property, plant and equipment. Income from such leases istaken to the income statement evenly over the period of the operating leaseagreement. Retirement benefit costs The Group operates defined contribution type arrangements. Contributions inrespect of these arrangements are charged to the income statement in the periodthey fall due. Pension contributions in respect of one of these arrangements areheld in trustee administered funds, independently of the Group's finances. Theother arrangements are group personal pension plans. Employee share schemes and share based payments The Group has applied the requirements of IFRS 2 (Share-based Payment). Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 30April 2005. The Group issues equity-settled and cash-settled share-based payments to certainemployees. Equity-settled employee schemes, including employee share options and deferredannual bonuses, provide employees with the option to acquire shares of theCompany. Employee share options and deferred annual bonuses are generallysubject to performance or service conditions. The fair value of equity-settled share-based payments is measured at the date ofgrant and charged to the income statement over the period during whichperformance or service conditions are required to be met, or immediately whereno performance or service criteria exist. The fair value of equity-settledshare-based payments granted is measured using the Black-Scholes model. Theamount recognised as an expense is adjusted to reflect the actual number ofemployee share options that vest, except where forfeiture is only due to marketbased performance criteria not being met. For cash-settled share-based payments a liability equal to the portion of thegoods or services received is recognised at the current fair value determined ateach balance sheet date. The Group also operates a Share Incentive Plan (SIP) under which employees eachhave the option to purchase up to £1,500 of shares annually and receive anequivalent number of free shares. The Group recognises the free shares as anexpense evenly throughout the period over which the employees must remain in theemploy of the Group in order to receive the free shares. Dividends Dividends on ordinary shares are recognised as a liability in the period inwhich they are either paid or formally approved, whichever is earlier. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, where appropriate, the risks specific to theliability. For further information, please contact: Northgate plc 01325 467558Steve Smith, Chief ExecutiveGerard Murray, Finance Director Hogarth Partnership Limited 020 7357 9477Andrew JaquesBarnaby Fry This information is provided by RNS The company news service from the London Stock Exchange