SSY.L Regulatory News (SSY)

14 Sep 2007 17:03

SciSys PLC14 September 2007 SciSys plc IFRS Re-Statement Introduction As a UK registered company quoted on the Alternative Investment Market (AIM),SciSys plc is required to present its financial statements under InternationalFinancial Reporting Standards as adopted by the EU (adopted IFRSs) foraccounting periods commencing on or after 1 January 2007. Previously theCompany has applied United Kingdom generally accepted accounting principles (UKGAAP). The first financial result under IFRS will be the 2007 interim report. This document explains the impact of the adoption of IFRS on the consolidatedresults of the Company and its subsidiaries (together referred to as the Group),and quantifies the impact on 2006 financial information, including the 1 January2006 balance sheet, previously prepared under UK GAAP. Summary of IFRS impact The impact on the profit for the year ended 31 December 2006 is detailed in thetable below. Year ended 31 December 2006 £000 UK GAAP 2,107 IFRS adjustments:Amortisation of goodwill 2,287Deferred tax on goodwill amortisation (87)Deferred tax on share-based payments (57)Gain on financial instruments 106Employee benefits - holiday pay (273)Deferred tax on employee benefits - holiday pay 82 2,058 IFRS 4,165 The impact on total equity (and net assets) at 31 December 2006 and 1 January2006 is shown in the table below. 31 December 2006 1 January 2006 £000 £000UK GAAP 13,149 56,551 IFRS adjustments:Deferred tax on share-based payments - 132Financial instruments 7 (9)Employee benefits - holiday pay (132) (207)Deferred tax on employee benefits - holiday pay 40 62 (85) (22) IFRS 13,064 56,529 Detailed reconciliation information for the relevant 2006 primary statements isprovided later in this document. The introduction of IFRS has no impact on theunderlying cash flows of the business. Consolidated Income Statements, prepared under IFRS (unaudited) Year ended 31 December 2006 £000Revenue 25,402 Operating costs (25,000) Operating profit 402 Finance costs (1)Finance income 131 Profit before tax 532 Income tax expense 95 Profit for the period for continuing operations 627 Profit from discontinued operations 3,538Profit for the period 4,165 All profit for the period is attributable to equity holders of the parent Consolidated Balance Sheets, prepared under IFRS (unaudited) 31 December 2006 1 January 2006 £000 £000ASSETSNon-current assetsProperty, plant and equipment 1,435 13,202Goodwill - 39,858Investments 279 -Deferred income tax assets 171 524 Total non-current assets 1,885 53,584 Current assetsTrade and other receivables 8,231 20,741Prepayments 879 3,442Income tax 375 -Cash and cash equivalents 5,934 10,097 Total current assets 15,419 34,280 TOTAL ASSETS 17,304 87,864 EQUITY AND LIABILITIES Equity attributable to equity holders of the parentIssued capital 6,414 6,352Share premium - 43,008Retained earnings 6,569 7,086Translation Reserve (2) -Other Reserves 83 83 TOTAL EQUITY 13,064 56,529 Non-current liabilitiesFinancial liabilities - 1,206 Total non-current liabilities - 1,206 Current liabilitiesTrade and other payables 3,936 9,967Income tax payable - 839Deferred income 304 19,323 Total current liabilities 4,240 30,129 TOTAL LIABILITIES 4,240 31,335 TOTAL EQUITY AND LIABILITIES 17,304 87,864 Explanatory notes on the impact of IFRS The notes below explain the impact that the adoption of IFRS has had on theGroup's consolidated results, which is summarised above. These notes alsosupport the detailed UK GAAP to IFRS reconciliations which follow. In additionto the adjustments below, details of the Group's IFRS 1 elections are summarisedin the Principal Accounting Policies section of this document. 1) IFRS 3 - Business combinations; IAS 36 -Impairment of assets; IAS 38- Intangible assets The Group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place prior to 1 January 2006. As a result, in theopening balance sheet, positive goodwill arising from previous businesscombinations (£39,858,000) remains as stated under UK GAAP at 1 January 2006. The adoption of IFRS 3 and IAS 36 has resulted in the Group ceasing annualgoodwill amortisation from 1 January 2006. As a result, the UK GAAPamortisation charge of £2,287,000 has been reversed in arriving at the Group's2006 IFRS profit for the year. All the goodwill and amortisation relates to theCODA business demerged from the Group in September 2006. 2) IAS 19 - Employee benefits IAS 19 requires the Group to recognise in full liabilities in relation toemployee benefits. As at 1 January 2006, the Group has recognised additionalliabilities of £207,000 (continuing operations: £113,000, discontinuedoperations: £94,000) for holiday pay. The corresponding provision as at 31December 2006 is £132,000 and consequently there is a reduction in the Group'sprofit for the year for continuing operations of £19,000. The charge to profitfor discontinued operations is £254,000, which results in a total charge for theyear to £273,000. 3) IAS 21 - The effects of changes in foreign exchange rates From 1 January 2006, foreign exchange differences arising from the translationof foreign operations are recorded in a separate reserve. As stated at thebeginning of this document, the Group has elected, under the provisions of IFRS1, to set the historic translation differences on foreign subsidiaries to zero.A £2,000 foreign exchange loss has been recorded in the Translation Reserve at31 December 2006. 4) IAS 32 'Financial Instruments - Disclosure and Presentation' and IAS39 'Financial Instruments Recognition and Measurement' The changes on adoption of these standards relate to accounting for derivativefinancial instruments. The Group uses forward exchange deals, cylinder options and currency swaps toreduce or eliminate exposure to foreign exchange risk. Under UK GAAP the fairvalue of these derivatives has not been recognised, and the underlyingreceivables and loans have been recorded at the spot rate prevailing at thebalance sheet rate. Under IFRS, derivative financial instruments are recognised at their fair value. The underlying receivables and loans are recorded at the spot rate prevailingat the balance sheet date. A fair value loss of £9,000 (continuing operations: £3,000, discontinuedoperations: £6,000) is recognised at 1 January 2006. At 31 December 2006 thefair value gain is £7,000, reflecting an increase in the Group's profit fromcontinuing operations of £10,000. The gain on financial instruments fromdiscontinued operations is £96,000, resulting in a total gain for the year of£106,000. 5) IAS 12 'Income Taxes' A deferred tax asset of £62,000 (continuing operations: £34,000, discontinuedoperations: £28,000) is recognised at 1 January 2006 in relation to the accrualin respect of holiday pay. This reduced to £40,000 at the 31 December 2006. Theimpact on the income statement for 2006 is a deferred tax credit of £6k forcontinuing operations. For discontinued operations, the credit is £76,000,which results in a total credit for the year of £82,000. A deferred tax liability is recognised for differences between the tax writtendown value of goodwill against which tax relief is allowed and the value of suchgoodwill recorded in the consolidated balance sheet. Of the goodwill writtenback under IFRS of £2,287,000, which all relates to discontinued operations, theelement allowable for tax relief results in a deferred tax charge to the incomestatement for 2006 of £87,000. Under IFRS a deferred tax asset may arise to reflect tax deductions which maybecome available as a result of the future exercise of share options outstandingat each balance sheet date. A deferred tax asset of £132,000 (continuingoperations: £86,000, discontinued operations: £46,000) was recognised at 1January 2006. During 2006, the majority of the share options were waived inexchange for ExSOPs. ExSOPs outstanding at 31 December 2006 will not attract afuture tax deduction available to the company. As a result, no deferred taxasset can be recognised in respect of ExSOPs. The movement of the deferred taxasset during the year results in a £57,000 charge (continuing operations:£11,000, discontinued operations: £46,000) to the 2006 income statement. Thebalance of £75,000 in respect of continuing operations is charged to equity. 6) Impact of IFRS adjustments on the net assets of the CODA business atthe demerger date The balance sheet as at 1 January 2006 shows the position of the CODASciSysgroup prior to the demerger of the CODA business on 26 September 2006.Movements in opening balances relating to the demerged business are reflected inthe Income Statement up to the date of the demerger. The net assets of thediscontinued operations at the date of demerger are reflected in the dividend inspecie distribution which is a component of the reserves movement in the period. The balance sheet as at 31 December 2006 comprises only the assets,liabilities and shareholders equity of the continuing SciSys Group operations. The impact of the IFRS adjustments on the net assets of discontinued operationsis analysed below: Note Recognition in Credit/(charge) to Net assets at opening balance the income statement demerger sheet as at 1 for the year to 31 represented by January 2006 December 2006 dividend in specie £000 £000 £000UK GAAP 42,770 IFRS adjustments:Amortisation of goodwill 1 - 2,287 2,287Deferred tax on goodwill amortisation 5 - (87) (87)Deferred tax on share-based payments 5 46 (46) -Gain on financial instruments 4 (6) 96 90Employee benefits - holiday pay 2 (94) (254) (348)Deferred tax on employee benefits - 5 28 76 104holiday pay (26) 2,072 2,046 IFRS 44,816 Reconciliation of consolidated income statement UK GAAP Goodwill Deferred tax Deferred Derivative Deferred Employee IFRS Income Profit & amortisation on goodwill tax on financial tax on benefits - Statement Loss amortisation share instruments employee holiday pay Account based benefits - payments holiday pay £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 For the year ended31 December 2006 Revenue 25,402 - - - - - - 25,402 Operating costs (24,981) - - - - - (19) (25,000) Operating profit 421 - - - - - (19) 402 Finance costs (1) - - - - - - (1)Finance income 121 - - - 10 - - 131 Profit before tax 541 - - - 10 - (19) 532 Income tax expense 100 - - (11) - 6 - 95 Profit for theperiod forcontinuingoperations 641 - - (11) 10 6 (19) 627 Profit fromdiscontinuedoperations 1,466 2,287 (87) (46) 96 76 (254) 3,538 Profit for the 2,107 2,287 (87) (57) 106 82 (273) 4,165period All profit for the year is attributable to equity holders of the parent Reconciliation of consolidated balance sheets As at 31 December 2006 UK GAAP Deferred tax Derivative Deferred Employee IAS 21 IFRS on share financial tax on benefits - Balance based instruments employee holiday pay Translation Balance Sheet payments benefits - reserve Sheet holiday pay £'000 £'000 £'000 £'000 £'000 £'000 £'000ASSETS Non-current assetsProperty, plant and equipment 1,435 - - - - - 1,435Investments 279 - - - - - 279Deferred income tax assets 131 - - 40 - - 171Total non-current assets 1,845 40 1,885 Current assetsTrade and other receivables 8,203 - 28 - - - 8,231Prepayments 879 - - - - - 879Income tax 375 - - - - - 375Cash and cash equivalents 5,934 - - - - - 5,934Total current assets 15,391 - 28 - - - 15,419 TOTAL ASSETS 17,236 - 28 40 - - 17,304 EQUITY AND LIABILITIES Equity attributable to equityholders of the parentIssued capital 6,414 - - - - - 6,414Retained earnings 6,652 - 7 40 (132) 2 6,569Translation Reserve - - - - - (2) (2)Other reserves 83 - - - - - 83TOTAL EQUITY 13,149 - 7 40 (132) - 13,064 Current liabilitiesTrade and other payables 3,783 - 21 - 132 - 3,936Deferred income 304 - - - - - 304Total current liabilities 4,087 - 21 - 132 - 4,240 TOTAL LIABILITIES 4,087 - 21 - 132 - 4,240 TOTAL EQUITY AND LIABILITIES 17,236 - 28 40 - - 17,304 Reconciliation of consolidated balance sheets As at 1 January 2006 UK GAAP Deferred tax Derivative Deferred tax Employee IFRS on share financial on employee benefits - Balance based instruments benefits - holiday pay Balance Sheet payments holiday pay Sheet £'000 £'000 £'000 £'000 £'000 £'000ASSETS Non-current assetsProperty, plant and equipment 13,202 - - - - 13,202Goodwill 39,858 - - - - 39,858Deferred income tax assets 330 132 - 62 - 524Total non-current assets 53,390 132 - 62 - 53,584 Current assetsTrade and other receivables 20,678 - 63 - - 20,741Prepayments 3,442 - - - - 3,442Cash and cash equivalents 10,097 - - - - 10,097Total current assets 34,217 - 63 - - 34,280 TOTAL ASSETS 87,607 132 63 62 - 87,864 EQUITY AND LIABILITIES Equity attributable to equityholders of the parentIssued capital 6,352 - - - - 6,352Share premium 43,008 - - - - 43,008Retained earnings 7,108 132 (9) 62 (207) 7,086Other reserves 83 - - - - 83TOTAL EQUITY 56,551 132 (9) 62 (207) 56,529 Non-current liabilitiesFinancial liabilities 1,206 - - - - 1,206Total non-current liabilities 1,206 - - - - 1,206 Current liabilitiesTrade and other payables 9,688 - 72 - 207 9,967Income tax payable 839 - - - - 839Deferred income 19,323 - - - - 19,323Total current liabilities 29,850 - 72 - 207 30,129 TOTAL LIABILITIES 31,056 - 72 - 207 31,335 TOTAL EQUITY AND LIABILITIES 87,607 132 63 62 - 87,864 Principal Accounting Policies Statement of compliance In common with other companies listed on the Alternative Investment Market,SciSys plc is required to adopt International Financial Reporting Standards asadopted by the EU (adopted IFRSs) for its first consolidated financialstatements for periods beginning on or after 1 January 2007. For SciSys plc,the interim report for the six month period ended 30 June 2007 will be the firstreport under IFRS. The consolidated financial statements are drawn up in accordance with thoseInternational Financial Reporting Standards (IFRS) and International FinancialReporting Interpretation Committee (IFRIC) interpretations adopted by theInternational Accounting Standards Board (IASB) and the EU and therefore complywith Article 4 of the EU IAS Regulation applied in accordance with theprovisions of the Companies Act 1985. IFRS 1 'First-time Adoption of International Financial Reporting Standards' The Group has adopted IFRS 1 'First-time Adoption of International FinancialReporting Standards' and has applied the following optional IFRS 1 exemptions: IFRS 3 - Business combinations Business combinations prior to 1 January 2006 have not been restated to complywith IFRS 3. IAS 21 - The effects of changes in foreign exchange rates Under IAS 21, exchange differences arising on the re-translation of foreignoperations are taken directly to a separate component of equity. The Group haselected, under the provisions of IFRS 1, to set the historic translationdifferences on foreign subsidiaries to zero. IFRS 2 - Share based payment The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested on or before 1 January2005. This is in line with the treatment adopted in accordance with FRS 20 inthe 2006 financial statements under UK GAAP. More details are provided in the section of this document headed Explanatorynotes on the impact of IFRS. The following standards have been adopted by the EU but are not yet effective: IFRIC 11, IFRS 2: Group and Treasury Share Transactions, is effective for annualperiods beginning on or after 1 March 2007 and will be applied by the Group from1 January 2008. The interpretation requires that a share-based paymentinvolving an entity's own equity instruments in which the entity chooses or isrequired to buy its own equity instruments (treasury shares) to settle theshare-based payment obligation is accounted for as an equity-settled share basedpayment under IFRS 2. The following standard is not yet effective and has not yet been adopted by theEU and therefore has not been adopted early by the Group: IFRS 8, Operating Segments, is effective for annual periods beginning on orafter 1 January 2009 and the Group plans to apply it from 1 January 2009. Thestandard requires the presentation of segmental information based on internalreports used by the Group's Board in order to allocate resources and makedecisions about operating matters. The Group does not believe the adoption of these standards or interpretationswill have a significant effect on the consolidated results or financial positionof the Group. The Company has elected to prepare its parent Company financial statements inaccordance with UK Accounting Standards. Basis of preparation The consolidated financial statements have been prepared on a historical costbasis, subject to the items referred to in the derivative financial instrumentsand share-based payments notes below. The consolidated financial statements arepresented in pounds sterling and all values are rounded to the nearest thousand(£000) except when otherwise indicated. The preparation of financial statements in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. Consolidation The consolidated financial statements comprise the financial statements of theCompany and its subsidiaries made up to 31 December each year. The financialstatements of subsidiaries are prepared for the same reporting year as theCompany, and adjustments are made where necessary to align accounting policiesacross the Group. All intra-group balances, transactions, income and expenses are eliminated onconsolidation. Subsidiaries are consolidated from the date on which control is transferred tothe Group and cease to be consolidated from the date on which control istransferred out of the Group. The SciSys No1 Trust is consolidated into the results of the Group to the extentthat the underlying assets are held on behalf of employees of the Group.Underlying assets held on behalf of employees of the CODA Group are consolidatedinto the results of that group. Revenue Policy relating to continuing SciSys operations: Revenue from consultancy and other professional services rendered on a fixedprice project is recognised, as the services are performed, by reference to thedegree of completion of the project. The degree of completion is measured byreference to own labour costs incurred by the balance sheet date as a percentageof the total estimated own labour costs to completion for each project.Provision is made for all foreseeable losses as soon as they are identified. Revenue from projects billed on a time and materials basis is recognised in linewith performance of the services. Revenue from the sale of third party products is recognised upon transfer to thecustomer of the significant risks and rewards of ownership and when: • It is probable that the economic benefits associated with the transaction will flow; • The amount of revenue can be measured reliably; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably.. In practice, this is typically on delivery of the third party product to thecustomer. All revenues are stated net of discounts, VAT and other sales related taxes. Policies relating to discontinued CODA operations: Revenue represents amounts receivable for goods supplied and services providedto third-parties net of VAT and other sales related taxes. Revenue forconsultancy and other professional services is recognised as the services areperformed. Revenue for maintenance contracts is recognised equally over theperiod to which the maintenance relates. Revenue for software licences isrecognised when the product to which the revenue relates is used by the clientto process live data in any location, typically at the end of an implementationproject. Revenues are not recognised unless their receipt can be predicted witha high level of certainty. Deferred income comprises: • The element of maintenance revenues invoiced for which the period of maintenance extends beyond the year end (typically maintenance is invoiced annually up front); • Amounts received for software licences for which the recognition criterion has not been met; • Amounts billed for consultancy work ahead of the work being carried out (pre-billed consultancy). Leases Leases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Operating leaserentals are recognised as an expense in the income statement on a straight-linebasis over the lease term. Benefits received and receivable as an incentive toenter into an operating lease are also spread on a straight-line basis over thelease term. Foreign currency translation The functional and presentation currency of the Group is pounds sterling (£).Transactions in foreign currencies are initially recorded at the foreignexchange rate prevailing on the dates of the transactions. Monetary assets andliabilities denominated in foreign currencies at the balance sheet date aretranslated to sterling at the rate of exchange ruling at that date. Alldifferences are recognised in the consolidated income statement. Assets and liabilities of foreign subsidiaries, including goodwill and fairvalue adjustments arising on consolidation, are translated into sterling at therate of exchange ruling at the balance sheet date. Revenues and expenses aretranslated at the weighted average exchange rate for the year. The exchangedifferences arising on the retranslation of the opening net investment insubsidiaries, and from the translation of the results of those subsidiaries ataverage rate, are taken directly to a separate component of equity. The Group has taken advantage of the exemption available under IFRS 1 to deemthe cumulative translation differences for all investments in foreign operationsto be zero at 1 January 2006, the date of transition to adopted IFRS. Exchangedifferences arising after 1 January 2006 from the translation of the netinvestment in foreign operations, and of related hedges, are taken to atranslation reserve. They are released into the income statement upon disposal. Pensions The Group operates a defined contribution group personal pension plan, theassets of which are held separately from those of the Group in independentlyadministered funds. The amount charged against profits represents thecontributions payable to the schemes in respect of the accounting period. Taxation Tax on profits or losses for the year comprises current and deferred tax and isrecognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognised in equity. The tax currently payable is based upon the taxable profit for the year andcalculated using tax rates which have been enacted or substantially enacted bythe balance sheet date. Deferred tax is calculated at the tax rates which areexpected to apply to the period when the asset is realised or the liability issettled. Deferred tax is provided, using the balance sheet liability method, providingfor temporary differences at the balance sheet date between the tax bases ofassets and liabilities and their carrying amounts for financial reportingpurposes. Deferred tax liabilities are generally recognised for all taxable temporarydifferences and deferred tax assets are recognised to the extent that it isprobable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are notrecognised if the temporary difference arises from the initial recognition ofgoodwill or the initial recognition (other than in a business combination) of anasset or liability in a transaction which affects neither the accounting nortaxable profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries unless the timing of the reversal of thetemporary differences can be controlled by the Group and it is probable that thetemporary differences will not reverse in the foreseeable future. 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 profit will be available to allow all or part of the deferred tax assetto be utilised. Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and anyimpairment in value. Depreciation is calculated on a straight-line basis overthe estimated useful life of the asset as follows: Freehold land Not depreciatedLeasehold improvements Lower of the lease term or 50 yearsShort leasehold buildings Over the lease termPlant & machinery 10 - 20 yearsOffice equipment 6 yearsMotor vehicles 5 yearsComputer equipment 2 - 3 years Product development expenditure Research and development costs associated with the development of softwareproducts or enhancements and their related intellectual property rights areexpensed as incurred until all of the following criteria can be demonstrated, inwhich case it is capitalised as an intangible asset: • The technical feasibility of completing the tangible asset so that it will be available for use or sale; • An intention to complete the intangible asset and use or sell it; • Ability to use or sell the intangible asset; • How the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; • An ability to measure reliably the expenditure attributable to the intangible asset during its development. No development expenditure has been capitalised to date. Goodwill Goodwill on consolidation represents the excess of the cost of acquisition overthe Group's interest in the fair value of the identifiable assets, liabilitiesand contingent liabilities acquired at the date of acquisition. Followinginitial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill already carried in the balance sheet at the date oftransition to IFRS, 1 January 2006, has not been amortised after this date andis stated at deemed cost, being the UK GAAP carrying value at transition.Goodwill is reviewed for impairment, annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Impairment charges are deducted form the carrying value and recognisedimmediately in the Income Statement. For the purpose of impairment testing,goodwill is allocated to each of the Group's cash generating units expected tobenefit from the synergies of the combination. An impairment loss recognisedfor goodwill is not reversed in a subsequent period. Impairment of non-current assets At each reporting date, the Group assesses whether there is any indication thatan asset may be impaired. If such an indication exists, the Group makes a formalestimate of the recoverable amount. Where the carrying amount of an assetexceeds its recoverable amount the asset is considered impaired and is writtendown to its recoverable amount. The recoverable amount is the higher of anasset's fair value less disposal costs and its value in use. It is determinedfor an individual asset, unless the asset does not generate cash inflows thatare largely independent of those from other assets or groups of assets. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the amount of goodwill allocated to the applicablecash-generating units and then to reduce the carry amount of the other assets ona pro-rata basis. A cash-generating unit is the smallest identifiable group ofassets that generates cash inflows that are largely independent of the cashinflows from other assets or groups of assets. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of animpairment loss is recognised as income immediately. Financial instruments Trade and other receivables Trade and other receivables are stated at their fair value on initialrecognition and subsequently at amortised cost i.e. less any impairment losses. Trade and other payables Trade and other payables are stated at fair value at initial recognition andsubsequently at amortised cost. Investments Investments represent shares in CODA plc which are held by the consolidatedSciSys No. 1 Employees' Share Trust. These resulted from previous holdings inCODASciSys plc prior to the demerger in respect of the Executive Share OwnershipPlan. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in handand short-term deposits with an original maturity of three months or less. Derivative financial instruments Derivatives are used by the Group to reduce or eliminate exposure to foreignexchange risk. Instruments used include forward exchange deals, cylinderoptions and currency swaps. The Group does not use derivative financialinstruments for speculative purposes. Changes in the fair value of derivative financial instruments are recognised inthe income statement as they arise. Provisions Provisions are recognised when the Group has a present obligation as a result ofa past event, it is probable that the Group will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation.Provisions are measured at the directors' best estimate of the expenditurerequired to settle the obligation at the balance sheet date and are discountedto present value if the effect of the time value of money is material. Employee benefits The Group makes provision for employees' holiday pay. The expected cost andassociated liability is measured as the additional amount the Group expects topay as a result of the unused entitlement that has accumulated at the balancesheet date. Share-based payment transactions Employees (including executive directors) of the Group receive remuneration inthe form of share-based payment transactions, whereby employees render servicesin exchange for shares or rights over shares ('equity-settled transactions'). The fair values of the share option schemes in operation have been assessedusing Black-Scholes and similar models, as are appropriate to each scheme at thedate of grant. The fair values of the schemes are expensed evenly over theperiod between grant and vesting. Charges for share-based payments have beenrecognised only for issues that were made after 7 November 2002 which had notvested by 1 January 2005, as permitted under the transitional provisions of IFRS2. This information is provided by RNS The company news service from the London Stock Exchange