Intangible fixed assets
Intangible fixed assets are measured at cost less accumulated amortisation and impairment losses.
Where costs associated with large IT projects on the development of software for internal use are incurred with a view to developing new and improved systems, these are capitalised.
Amortisation is based on the straight-line method over the expected useful lives of the assets, as follows:
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Completed IT development projects are amortised over the useful life. Booked IT development assets are amortised over 3-5 years.
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Acquired patents, licences and know-how are amortised over their useful lives. Patents are amortised over their useful lives, normally identical to the patent period, and licences are amortised over the agreement period. Booked patents, licences and know-how are amortised over 7-20 years.
Some assets are amortised over a shorter period.
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Borrowing costs in respect of construction of major assets are expensed in the financial year in which they are incurred.
Depreciation is based on the straight-line method over the expected useful lives of the assets, as follows:
The assets’ residual values and useful lives are reviewed on an annual basis, and adjusted if necessary at each balance sheet date.
Gains and losses on the sale or disposal of assets are recognised in the income statement under the same items as the associated depreciation charges.
Impairment of assets
Property, plant and equipment and intangible fixed assets are reviewed for impairment losses when there is an indication that the assets have diminished in value beyond the level
of normal depreciation. Goodwill and other intangible fixed assets with indefinite useful life are also subject to impairment testing each year, and when there is an indication that the assets have become impaired.
An impairment loss resulting from an asset having diminished in value beyond the level of normal depreciation is recognised at the amount by which the book value exceeds its recoverable amount.
Inventories
Inventories are measured at cost determined on a first-in first-out basis or net realisable value where this is lower.
The cost of Work in progress and Finished goods comprises direct production costs such as raw materials and consumables, energy and labour directly attributable to production, and indirect production costs such as employee costs and maintenance and depreciation of plant, etc.
If the expected sale price less any completion costs and costs to execute sales (net realisable value) of inventories is lower than the carrying amount, the inventories are written down to net realisable value.
Receivables
Trade receivables are measured at amortised cost or at net realisable value, if lower, equivalent to nominal value less allowances for doubtful trade receivables.
Financial assets
Securities recognised under current assets are measured at fair value at the balance sheet date. Unrealised fair value adjustments are recognised directly in Shareholders’ equity. Value adjustments are transferred from Shareholders’ equity to the income statement when the securities are realised or written down, and recognised under financial items.
Dividend
The dividend proposed for the financial year is shown under Retained earnings in the Statement of shareholders’ equity.
Treasury shares
The cost price and proceeds from the sale of treasury shares are recognised directly in Shareholders’ equity. Among other things, the company’s holding of treasury shares is used to hedge employees’ exercise of granted share options.
Provisions
Provisions are recognised where a legal or constructive obligation has been incurred, as a result of past events, and it is probable it will lead to an outflow of financial resources. Provisions are measured at the present value of the expected expenditure required to settle the obligation.
Liabilities
Liabilities are recognised at cost and subsequently adjusted to amortised cost, unless specified otherwise.
Pension obligations and other long-term employee benefits
Costs relating to defined contribution plans are recognised in the income statement in the financial year to which they relate.
Costs and liabilities relating to defined benefit plans are stated using the projected unit credit method. Liabilities for the major plans are calculated annually by an external actuary. Actuarial gains and losses are recognised in the income statement over the employees’ expected average remaining working life if these differences exceed 10% of either the present value of the liability or the fair value of the plan assets in the previous year, whichever is the higher.
Pension assets can only be recognised to the extent that the Group is able to achieve future financial benefits in the form of refunds from the pension plan or a reduction in future benefits.
Costs relating to other long-term employee benefits are accrued over the employees’ expected average remaining working life.
Statement of cash flows and financial resources
The Statement of cash flows and financial resources for the Group, which is compiled using the indirect method, shows cash flows from operating, investing and financing activities, and the Group’s cash and cash equivalents at the beginning and end of the year.
Cash flow from operating activities comprises net profit adjusted for non-cash expenses, paid financial items, corporation tax paid and change in working capital.
Cash flow from investing activities comprises payments relating to the acquisition and sale of companies and minority shares, intangible fixed assets and property, plant and equipment.
Cash flow from financing activities comprises proceeds from borrowings, repayment of principal on interest-bearing borrowings, payment of dividends, proceeds from share issues, and the purchase and sale of treasury shares and other securities.
Cash and cash equivalents comprises cash at bank and in hand less current bank loans due on demand. Financial resources comprises cash and cash equivalents plus undrawn committed credit facilities expiring in more than 1 year.
