RNS Number:5713Q
Horizon Technology Group PLC
30 August 2005
Horizon Technology Group plc
Dublin: HOR.I London: HOR.L ADR: HZNTY
Adoption of International Financial Reporting Standards
Restatement of 2004 Financial Information
30 August 2005
Horizon Technology Group plc (Horizon/the Group) has adopted International
Financial Reporting Standards (IFRS) as its primary accounting basis for all
reporting periods beginning on or after 1 January 2005 as required for all EU
listed companies. Up to and including 31 December 2004, Horizon prepared its
consolidated financial statements in accordance with Irish GAAP, which are
consistent with UK GAAP. The purpose of this document is to provide information
on the impact of the adoption of IFRS on the financial statements previously
prepared under Irish GAAP at the date of transition, 1 January 2004, and for the
year ended 31 December 2004.
The impact on the audited 2004 key financial data is summarised as follows:
Financial Highlights IFRS Irish GAAP Change Change
Euro'000 Euro 000 Euro 000 %
Turnover 281,175 281,175 0 0%
Operating profit 8,527 7,035 1,492 21%
Profit after tax 5,736 4,251 1,485 35%
Diluted earnings per share (cent) 7.97 5.90 2.07 35%
Diluted earnings per share adjusted
(cent) * 8.43 8.67 (0.24) (3%)
Net assets at 31 December 2004 20,157 19,227 930 5%
* Diluted earnings per share adjusted for amortisation of goodwill and unwinding
of discount factor.
Horizon's Chief Financial Officer, Cathal O'Caoimh, commenting on the transition
said:
"The adoption of International Financial Reporting Standards (IFRS) has a
relatively minor impact on the Group's 2004 results. Operating profit and profit
after tax, are increased by Euro1.5m due primarily to the cessation of goodwill
amortisation. Diluted adjusted EPS is reduced by 0.24 cent or 3% while net
assets are increased by Euro0.9m or 5%. Most importantly, the changes have zero
impact on the Group's underlying capital strength and operating cash flows.
IFRS will not have a material impact on diluted adjusted EPS expectations for
2005. On an on-going basis, diluted adjusted EPS calculated under IFRS will be
approximately 3-4% lower than that calculated under Irish GAAP."
About Horizon
Horizon Technology Group plc is a leading technical integrator and distributor
of information technology products in the UK and Ireland. For more information
about Horizon Technology Group plc, visit http://www.bmc.com/www.horizon.ie
Further information
Enquiries to Mark Kenny or Jonathan Neilan of K Capital Source at +353 1 631
5500 or horizon@kcapitalsource.com
Basis of preparation
General
The restatement of financial information has been prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European
Commission, which comprise standards and interpretations approved by the
International Accounting Standards Board (IASB), the Standing Interpretations
Committee (SIC) and the International Financial Reporting Interpretations
Committee (IFRIC). The rules for first time adoption of IFRS as set out in IFRS
1 'First-time Adoption of International Financial Reporting Standards' have been
followed by the Group.
Qualifications to be taken into account
The financial information contained herein represents our current best estimates
and may be affected by changes to IFRS standards, interpretations thereof and
the emergence of best practice. For these reasons it is possible that the
information presented in this document may be subject to change prior to its
finalisation in the 2005 Annual Report.
Audit Opinion
The Group's auditors, Ernst & Young, Chartered Accountants, have audited the
restatement of the Group's Consolidated Income Statement and Consolidated
Balance Sheet for the full year ended 31 December 2004 and the Transition
Consolidated Balance Sheet dated 1 January 2004. The Independent Auditor's
Report is set out on pages 16 and 17. The financial information in respect of
the six months ended 30 June 2004 contained in Appendix 1 and Appendix 2 on
pages 18 and 19 is unaudited.
Principal exemptions availed of on transition to IFRS
In accordance with IFRS 1, which establishes the framework for transition to
IFRS by a first-time adopter, the Group has elected, in common with the majority
of listed companies, to avail of a number of specified exemptions from the
general principal of retrospective restatement as follows:
(a) Business combinations prior to 1 January 2004 have not been restated to
comply with IFRS 3 'Business Combinations'. Accordingly, goodwill as at the
transition date is carried forward at its net book value and is subject to
annual impairment testing in accordance with IAS 36 'Impairment of Assets'. As
required under IFRS 1, goodwill was assessed for impairment as at the transition
date and no impairment resulted from this exercise.
(b) Cumulative translation differences on foreign operations are deemed to be
zero at 1 January 2004. Any gains and losses recognised in the Consolidated
Income Statement on subsequent disposals of foreign operations will therefore
exclude translation differences arising prior to the transition date.
(c) IFRS 2 'Share-based Payment', has not been applied in respect of share
options granted before 7 November 2002. The expense reported in the 2004
Consolidated Income Statements is thus based on share options issued in December
2002, March 2003 and June 2004.
None of the other exemptions contained in IFRS 1 are considered to have a
material impact on the financial statements.
Principal changes on transition to IFRS
The standards, which result in significant changes for the Group on transition
to IFRS, are summarised on pages 5 and 6. The accounting policies which will
apply under IFRS are set out in detail on pages 13 to 16 and a detailed analysis
of each of these changes on the Group's 2004 full year and interim Consolidated
Income Statements and Consolidated Balance Sheets is shown on pages 7 to 11 and
19 to 20.
(1) Share Based Payment (IFRS 2)
The fair value of share based payments is expensed to the Consolidated Income
Statement on a straight-line basis over the vesting period of the options. In
accordance with the exemption allowed on transition to IFRS, the fair value
calculations have been applied in respect of share options granted after 7
November 2002 that had not vested as at 1 January 2004. An expense of Euro126,000
has been recognised in the Consolidated Income Statement in respect of the year
ended 31 December 2004.
The fair value of the share options has been arrived at using the
Black-Scholes-Merton formula. The following are the inputs used in determining
the fair value of the share options:
- The exercise price; the market price as at the grant date.
- Future share price volatility; the annualised standard deviation of the continuously compounded
rate of return on Horizon shares over the expected term of the option based on monthly share
price observations. In determining future volatility, historical volatility of Horizon's shares
and those of peer companies are employed as a guide and is assessed over a period commensurate
with the expected term of the option.
- The risk-free interest rate; the rate applicable to and available on (as at the grant date)
zero coupon euro denominated Government bonds with a remaining term equal to the expected term
of the options being valued.
- Expected dividend payments or yield.
(2) Business Combinations (IFRS 3)
The Group has availed of the exemption under IFRS 1 and has not restated
business combinations prior to the transition date.
Under Irish GAAP, the Group capitalised and amortised goodwill and intangible
assets over the period of their expected useful lives. Under IFRS, the Group
will no longer amortise goodwill, but will instead test it for impairment at
least on an annual basis. Cessation of goodwill amortisation results in a credit
in the Consolidated Income Statement for year ended 31 December 2004 of
Euro1,669,000 and a similar increase in net assets in the Consolidated Balance
Sheet at that date.
3) Intangible Assets (IAS 38)
Under Irish GAAP, operating and application software was capitalised with
computer hardware within tangible fixed assets. IAS 38 'Intangible Assets',
requires capitalisation of computer software development costs as an intangible
asset, where the entity will generate future economic benefit from the asset,
which will flow to the entity and the cost of the asset can be measured
reliably.
Computer software development as at 1 January 2004 and 31 December 2004 with a
net book value of Euro835,000 and Euro667,000 respectively, has been transferred from
tangible fixed assets to intangible assets in the Consolidated Balance Sheets at
these dates. The impact on the Consolidated Income Statement in 2004 is the
reclassification of the related depreciation charge of Euro317,000 as recognised
under Irish GAAP to intangible asset amortisation under IFRS.
(4) Presentation of Financial Statements (IAS 1)
Under Irish GAAP rental income from sublet properties was offset against rental
costs within other operating charges. However, IAS 1 'Presentation of Financial
Statements' only allows the offset of income and expenses in very limited
circumstances. Accordingly, to comply with IAS 1, Euro1,297,000 of rental income
has been reclassified from other operating charges to gross rental income within
the Consolidated Income Statement with a zero net impact on operating profit.
Similarly, under Irish GAAP rebates due from suppliers were offset against
amounts owing to these suppliers. To comply with the offsetting rules of IAS 1,
Euro2,873,000 of supplier rebates has been reclassified from trade and other
payables to trade and other receivables within the Consolidated Balance Sheet at
the transition date, while the reclassification of supplier rebates at 31
December 2004 amounted to Euro2,087,000.
(5) Employee Benefits (IAS 19)
IAS 19 'Employee Benefits' requires the cost of providing employees with both
short-term and long-term benefits to be accrued. The impact on the Consolidated
Income Statement for year ended 31 December 2004 of providing for the cost of
annual leave owing to employees together with the cost of sabbatical leave
offered to long service employees is Euro64,000. In addition, a provision of
Euro683,000 (net of tax) has been included in the Consolidated Balance Sheet as at
31 December 2004 representing the cumulative cost of providing these benefits.
Consolidated Income Statement for year ended 31 December 2004 - Restated under
IFRS
Restated
under
IFRS
Audited
2004
Euro'000
Revenue 281,175
Cost of sales 248,506
Gross profit 32,669
Staff costs (14,606)
Other operating charges (9,815)
Gross rental income 1,297
Depreciation (692)
Amortisation of intangibles (326)
Operating profit 8,527
Finance costs (1,346)
Profit before taxation 7,181
Income tax expense (1,445)
Profit on ordinary activities after taxation attributable to ordinary
shareholders 5,736
Earnings per share (cent)
- Basic 8.16
- Diluted 7.97
- Diluted adjusted* 8.43
* Adjusted for unwinding of discount factor
Consolidated Balance Sheet as at 31 December 2004 - Restated under IFRS
Restated
under
IFRS
Audited
2004
Euro'000
ASSETS
Non-current assets
Property, plant and equipment 2,834
Intangible assets 10,716
Deferred income tax assets 410
Total non-current assets 13,960
Current assets
Inventories 17,135
Trade and other receivables 41,758
Cash and cash equivalents 9,571
Total current assets 68,464
Total assets 82,424
EQUITY
Capital and reserves attributable to the Company's equity holders
Equity share capital 5,161
Share premium account 71,453
Other reserves 181
Retained losses (41,091)
Cost of shares in the company held in an ESOP (15,547)
Total equity 20,157
LIABILITIES
Non-current liabilities
Trade and other payables 239
Provisions 2,629
Total non-current liabilities 2,868
Current liabilities
Trade and other payables 42,452
Current income tax liabilities 1,756
Borrowings 14,059
Provisions 1,132
Total current liabilities 59,399
Total liabilities 62,267
Total equity and liabilities 82,424
Reconciliation of impact of IFRS on the Consolidated Income Statement for the
year ended 31 December 2004
Impact of transition to IFRS
Presentation
of Financial
Under Share Business Statements Intangible Employee Other Restated
Irish Based Combinations IAS 1 Assets Benefits Euro'000 under
GAAP Payment IFRS 3 Euro'000 IAS 38 IAS 19 IFRS
Euro'000 IFRS 2 Euro'000 Euro'000 Euro'000 Euro'000
Euro'000
TURNOVER 281,175 - - - - - - 281,175
Cost of goods
sold (248,506) - - - - - - (248,506)
GROSS PROFIT 32,669 - - - - - - 32,669
Staff costs (14,416) (126) - - - (64) - (14,606)
Other
operating
charges (8,572) - - (1,297) - - 54 (9,815)
Gross rental
income - - - 1,297 - - - 1,297
Depreciation (977) - - - 317 - (32) (692)
Amortisation
of intangibles (1,669) - 1,669 - (317) - (9) (326)
OPERATING
PROFIT 7,035 (126) 1,669 - - (64) 13 8,527
Interest
charge (1,014) - - - - - (7) (1,021)
Unwinding of
discount
factor (325) - - - - - - (325)
PROFIT ON
ORDINARY
ACTIVITIES
BEFORE
TAXATION 5,696 (126) 1,669 - - (64) 6 7,181
Taxation on
profit on
ordinary
activities (1,445) - - - - - - (1,445)
PROFIT FOR THE
YEAR
ATTRIBUTABLE
TO ORDINARY
SHAREHOLDERS 4,251 (126) 1,669 - - (64) 6 5,736
Earnings per
share (cent)
- Basic 6.05 8.16
- Diluted 5.90 7.97
- Diluted
adjusted * 8.67 8.43
* Adjusted for amortisation of goodwill and unwinding of discount factor
Reconciliation of impact of IFRS on the Consolidated Balance Sheet as at 1
January 2004
Impact of transition to IFRS
Presentation
of Financial
Under Share Business Statements Intangible Employee Other Restated
Irish Based Combinations IAS 1 Assets Benefits Euro'000 under
GAAP Payment IFRS 3 Euro'000 IAS 38 IAS 19 IFRS
Euro'000 IFRS 2 Euro'000 Euro'000 Euro'000 Euro'000
Euro'000
FIXED
ASSETS
Intangible
assets 8,174 - - - 835 - - 9,009
Tangible
assets 3,843 - - - (835) - 77 3,085
12,017 - - - - - 77 12,094
CURRENT
ASSETS
Stocks 16,130 - - - - - - 16,130
Debtors 40,685 - - 2,873 - 98 - 43,656
Cash at bank
and in hand 11,251 - - - - - - 11,251
68,066 - - 2,873 - 98 - 71,037
CREDITORS:
amounts
falling due
within one
year (59,532) - - (2,873) - (547) (125) (63,077)
NET CURRENT
ASSETS 8,534 - - - - (449) (125) 7,960
TOTAL ASSETS
LESS CURRENT
LIABILITIES 20,551 - - - - (449) (48) 20,054
CREDITORS:
amounts
falling due
after more
than one year (62) - - - - (170) - (232)
PROVISIONS
FOR
LIABILITIES (5,906) - - - - - - (5,906)
AND CHARGES
14,583 - - - - (619) (48) 13,916
CAPITAL AND
RESERVES
Called up
share capital 5,023 - - - - - - 5,023
Shares to be
issued after
year end 1,167 - - - - - - 1,167
Share 69,788 - - - - - - 69,788
premium
Profit and
loss account (45,848) (55) - - - (619) (48) (46,570)
Cost of share
based - 55 - - - - - 55
payments
Cost of
shares
of the
company (15,547) - - - - - - (15,547)
held in an
ESOP
Shareholders'
funds (all
equity
interests) 14,583 - - - - (619) (48) 13,916
Reconciliation of impact of IFRS on the Consolidated Balance Sheet as at 31
December 2004
Impact of transition to IFRS
Presentation
of Financial
Under Share Business Statements Intangible Employee Other Restated
Irish Based Combinations IAS 1 Assets Benefits Euro'000 under
GAAP Payment IFRS 3 Euro'000 IAS 38 IAS 19 IFRS
Euro'000 IFRS 2 Euro'000 Euro'000 Euro'000 Euro'000
Euro'000
FIXED
ASSETS
Intangible
assets 8,280 - 1,669 - 667 - 100 10,716
Tangible
assets 3,475 - - - (667) - 26 2,834
11,755 - 1,669 - - - 126 13,550
CURRENT
ASSETS
Stocks 17,135 - - - - - - 17,135
Debtors 39,983 - - 2,087 - 98 - 42,168
Cash at bank
and in hand 9,571 - - - - - - 9,571
66,689 - - 2,087 - 98 - 68,874
CREDITORS:
amounts
falling due
within one
year (55,452) - - (2,087) - (546) (182) (58,267)
NET CURRENT
ASSETS 11,237 - - - - (448) (182) 10,607
TOTAL ASSETS
LESS CURRENT
LIABILITIES 22,992 - 1,669 - - (448) (56) 24,157
CREDITORS:
amounts
falling due
after more
than one year (4) - - - - (235) - (239)
PROVISIONS
FOR
LIABILITIES (3,761) - - - - - - (3,761)
AND CHARGES
19,227 - 1,669 - - (683) (56) 20,157
CAPITAL AND
RESERVES
Called up
share capital 5,161 - - - - - - 5,161
Share 71,453 - - - - - - 71,453
premium
Profit and
loss account (41,840) (181) 1,669 - - (683) (56) (41,091)
Cost of share
based - 181 - - - - - 181
payments
Cost of
shares
of the
company (15,547) - - - - - - (15,547)
held in an
ESOP
Shareholders'
funds (all
equity
interests) 19,227 - 1,669 - - (683) (56) 20,157
* Reconciliation of the significant differences between presentation under Irish
GAAP and presentation under IFRS is shown on page 12.
Reconciliation of presentation under Irish GAAP to presentation under IFRS
Under Irish Under IFRS
GAAP Euro'000
Euro'000
Debtors 42,168
Non-current assets - Deferred income tax asset 410
Current assets - Trade and other receivables 41,758
42,168 42,168
Provisions for liabilities and charges 3,761
Non current liabilities - Provisions 2,629
Current liabilities - Provisions 1,132
3,761 3,761
Group Accounting Policies under IFRS
The significant accounting policies adopted by the Group are as follows:
Statement of compliance
The restatement of financial information has been prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by the European
Commission, which comprise standards and interpretations approved by the
International Accounting Standards Board (IASB), the Standing Interpretations
Committee (SIC) and the International Financial Reporting Interpretations
Committee (IFRIC).
Please refer to page 4 of this document for details of the qualifications to be
taken into account and the principal exemptions availed of on transition to IFRS
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries all of which present financial statements up to
31 December.
Foreign currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in euro, which is the functional currency of the Group.
The Balance Sheets of overseas subsidiary undertakings are translated at the
rate of exchange ruling at the year-end date. The subsidiary Income Statements
are translated at the average rate for the year. The exchange differences
arising on the retranslation of opening net assets are taken direct to equity.
Long-term loans and deferred intercompany balances financing foreign
subsidiaries are treated as part of the parent company's net investment in the
foreign enterprise. The exchange differences arising on such loans and
inter-company balances are dealt with through equity.
Revenue
Revenue represents the value of sales to third party customers net of discounts,
allowances, volume and promotional rebates, other payments to customers and
excludes VAT.
In general, revenue is recognised to the extent that it is subject to reliable
measurement, that it is probable that economic benefit will flow to the Group
and that the significant risks and rewards of ownership have passed to the
buyer.
Revenue from professional services and consulting arrangements are recognised
when the services are provided or where the arrangement represents a long-term
contract, the revenue is recognised on a percentage of completion basis.
Maintenance revenue is apportioned over the term of the related maintenance
contract and is recognised as revenue over the period in which the Group has an
obligation to provide services to the customer. Where the Group offsets its
obligations through the purchase of services from a vendor, the gross revenue
from such sales are recognised in full at the time of the purchase of the
services contract.
Segmental analysis
The Group's primary format for segmental reporting is business segments and the
secondary format is geographical segments. The risks and returns of the Group's
operations are primarily determined by the different products that the Group
produces rather than the geographical location of the Group's operations. The
Group has two business segments, the Enterprise Solutions Division and the
Distribution and Channel Services Division. Corporate activities, such as the
cost of corporate stewardship, are reported along with the elimination of
inter-group activities under the heading "Unallocated and Group Eliminations".
Segment assets and liabilities consist of property, plant and equipment,
goodwill and intangible assets and other assets and liabilities that can be
reasonably allocated to the reported segment. Unallocated segment assets and
liabilities mainly include current and deferred income tax balances together
with financial assets and liabilities.
The Group's geographical segments are determined by geographical location and
similarity of economic environments.
Share based payment
For equity settled share based payment transactions (i.e. the issuance of share
options) the Group measures the services received and the corresponding increase
in equity at fair value at the measurement date (which is the grant date) using
a recognised valuation methodology for the pricing of financial instruments
(i.e. the Black Scholes Merton model). Given that the share options granted do
not vest until the completion of a specified period of service and are subject
to the realisation of performance conditions, the fair value is determined on
the basis that the services to be rendered by employees as consideration for the
granting of the share options will be received over the vesting period, which is
assessed as the grant date.
The share options issued by the company are not subject to market-based vesting
conditions as defined in IFRS 2. Non-market vesting conditions are not taken
into account when estimating the fair value of share options as at the grant
date; such conditions are taken into account through adjusting the number of
equity instruments included in the measurement of the transaction amount so that
ultimately, the amount recognised equates to the number of equity instruments
that actually vest. The expense in the Consolidated Income Statement in relation
to share options represents the product of the total number of options
anticipated to vest and the fair value of these options; this amount is
allocated to accounting periods on a straight-line basis over the vesting
period. Given that the performance criteria underlying the Group's share options
are non-market in nature, the cumulative charge to the income statement is
reversed only where the performance condition is not met or where an employee in
receipt of share options relinquishes service prior to completion of the
expected vesting period.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
Discounting
The amortisation or unwinding of the discount factor applied in establishing the
net present value of provisions and any adjustments arising through changes in
discount rates are included as separate items within the Consolidated Income
Statement.
Pensions and other long-term employee benefits
The Group operates defined contribution pension schemes. Contributions are
charged to the Consolidated Income Statement as they become payable in
accordance with the rules of the scheme.
The cost of providing long service employees with sabbatical leave is recognised
in the Consolidated Balance Sheet as a liability and is calculated as the
present value of the defined benefit obligation at the balance sheet date.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated
depreciation and any impairment losses. Cost comprises purchase price and
directly attributable costs. Depreciation on property, plant and equipment is
calculated by charging equal annual instalments to the Consolidated Income
Statement so as to provide for their cost over the period of their expected
useful lives as follows:
Freehold land & buildings 50 years
Leasehold improvements 35 years (or lease term if less)
Plant and equipment 3 to 10 years depending on type of asset
Motor vehicles 5 years
The residual values and useful lives of property, plant and equipment are
reviewed, and adjusted if appropriate, at each balance sheet date.
Goodwill
Goodwill represents the difference between the cost of businesses acquired and
the aggregate of the fair values of their identifiable net assets at the date of
acquisition. This goodwill is tested for impairment annually and is carried at
cost less accumulated impairment losses, where identified. At the date of
acquisition, goodwill is allocated to one or more cash generating units for the
purpose of impairment testing. Gains and losses on the disposal of a business
include the carrying amount of goodwill relating to the business sold.
Intangible assets
Intangible assets separately acquired include computer software development
costs where the entity will generate future economic benefit from the asset,
which will flow to the entity and the cost of the asset can be measured
reliably. These intangible assets are stated at cost less accumulated
amortisation and any impairment losses. Cost comprises purchase price and other
directly attributable costs. These intangible assets are amortised over the
period of their expected useful lives in equal annual instalments.
Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not
subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and its value in use. For the purposes
of assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash-generating units).
Inventory
Inventory is valued on a weighted average cost basis, at the lower of cost and
estimated net realisable value. Cost includes all expenditure incurred in the
normal course of business in bringing the products to their present location and
condition. Net realisable value is the estimated selling price of stock on hand
less all further costs to completion and all costs expected to be incurred in
marketing, distribution and selling.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term
deposits with an original maturity of three months or less. Short term
borrowings and bank overdrafts are recorded at amortised cost.
Leases
Assets held under finance leases, which are leases where substantially all of
the risks and rewards of ownership of the asset have been transferred to the
Group are capitalised in the Consolidated Balance Sheet and are depreciated over
their useful lives with any impairment being recognised in accumulated
depreciation. The asset is recorded at an amount equal to the lower of its fair
value and the present value of the minimum lease payments at the inception of
the finance lease. The capital elements of future obligations under leases are
included in liabilities in the Consolidated Balance Sheet and analysed between
current and non-current amounts. The interest element of the rental obligations
are charged to the Consolidated Income Statement over the periods of the leases
and represent a constant proportion of the balance of capital repayments
outstanding.
Leases where the lessor retains substantially all the risks and rewards of
ownership are classified as operating leases. Operating lease rentals are
charged to the Consolidated Income Statement on a straight line basis over the
lease term.
Taxation (current and deferred)
Current tax represents the expected tax payable (or recoverable) on the taxable
profit for the year using tax rates enacted or substantively enacted at the
balance sheet date and taking into account any adjustment stemming from prior
years.
Deferred taxes are calculated based on the basis of the balance sheet liability
method on all temporary differences at the balance sheet date, which is defined
as the difference between the tax bases of assets and liabilities and their
carrying amount in the Consolidated Balance Sheet. Deferred tax asset and
liabilities are not subject to discounting and are measured at the tax rates
that are anticipated to apply on the period in which the asset is realised or
the liability is settled.
Deferred tax assets are recognised to the extent that it is probable that they
will be utilised.
Provisions
A provision is recognised on a discounted basis when the Group has a present
obligation (either legal or constructive) as a result of a past event, it is
probable that a transfer of economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are not recognised in respect of future operating losses.
Capital instruments
Shares issued in the company are included in shareholders' funds. Where
consideration for an acquisition is to be settled by the issue of shares at a
future date, the fair value of the shares to be issued is included in
shareholders' funds. Other instruments are classified as liabilities if they
contain an obligation to transfer economic benefits and otherwise are included
in shareholders' funds. The finance cost recognised in the Consolidated Income
Statement in respect of capital instruments other than equity shares is
allocated over the term of the instrument.
Financial instruments
The Group enters into transactions in the normal course of its business using a
variety of financial instruments; borrowing, cash and liquid resources and
derivatives.
At the inception of a hedging transaction entailing the use of derivatives, the
Group documents the relationship between the hedged item and the hedging
instrument together with its risk management objective and the strategy
underlying the proposed transaction. The Group also documents its assessment,
both at the inception of the hedging relationship and subsequently on an ongoing
basis, of the effectiveness of the hedge in offsetting movements in the fair
value or cash flows of the hedged items.
Derivative financial instruments are initially recognised at cost and thereafter
stated at fair value. Where derivatives do not fulfil the criteria for hedge
accounting, they are classified as held-for-trading and changes in fair value
are reported in the Consolidated Income Statement. The fair value of forward
exchange contracts is calculated by reference to current forward exchange rates
for contracts with similar maturity profiles and equates to the quoted market
price at the balance sheet date (being the present value of the quoted forward
price.)
INDEPENDENT AUDITORS' REPORT TO THE DIRECTORS OF HORIZON TECHNOLOGY GROUP PLC
ON THE PRELIMINARY IFRS CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2004
We have audited the accompanying preliminary International Financial Reporting
Standards ("IFRS") financial statements of the Group for the year ended 31
December 2004 which comprise the opening IFRS Consolidated Balance Sheet as at 1
January 2004, the Consolidated Income Statement for the year ended 31 December
2004 and the Consolidated Balance Sheet as at 31 December 2004 together with the
related accounting policies.
This report is made solely to the Directors in accordance with our engagement
letter dated 2 May 2005. Our audit work has been undertaken so that we might
state to the Company those matters we are required to state to them in an
auditors' report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility or liability to anyone other than
the Directors for our audit work, for this report, or for the opinions we have
formed.
Respective Responsibilities of Company's directors and Ernst & Young, Chartered
Accountants
These preliminary IFRS financial statements are the responsibility of the
Company's directors and have been prepared as part of the Group's conversion to
IFRS. They have been prepared in accordance with the basis set out in the basis
of preparation on page 4, which describes how IFRS have been applied under IFRS
1, including the assumptions management has made about the standards and
interpretations expected to be effective, and the policies expected to be
adopted, when management prepares its first complete set of IFRS financial
statements as at 31 December 2005.
Our responsibility is to express an independent opinion on the preliminary IFRS
financial statements based on our audit. We read the other information
accompanying the preliminary IFRS financial statements and consider whether it
is consistent with the preliminary IFRS financial statements. This other
information comprises the description of significant changes in accounting
polices on pages 13 to 16. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies with the
preliminary opening balance sheet. Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. Those Standards require that we plan and perform the
audit to obtain reasonable assurance about whether the preliminary IFRS
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the preliminary IFRS financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the preliminary IFRS financial
statements. We believe that our audit provides a reasonable basis for our
opinion.
Emphasis of matter
Without qualifying our opinion, we draw attention to the fact that the basis of
preparation on page 4, explains why there is a possibility that the preliminary
IFRS financial statements may require adjustment before constituting the final
IFRS financial statements. Moreover, we draw attention to the fact that, under
IFRS only a complete set of financial statements with comparative financial
information and explanatory notes can provide a fair presentation of the Group's
financial position, results of operations and cash flows in accordance with
IFRS.
We also draw your attention to the fact that we have not audited the
Consolidated Income Statement and Consolidated Balance Sheet for the half year
ended 30 June 2004.
Opinion
In our opinion, the preliminary IFRS financial statements for the year ended 31
December 2004 have been prepared, in all material respects, in accordance with
the basis set out in the basis of preparation note on page 4, which describes
how IFRS have been applied under IFRS 1, including the assumptions management
has made about the standards and interpretations expected to be effective, and
the policies expected to be adopted, when management prepares its first complete
set of IFRS financial statements as at 31 December 2005.
Ernst & Young
Chartered Accountants
Dublin
26 August 2005
Appendix 1
Reconciliation of impact of IFRS on the Consolidated Income Statement for the
six months ended 30 June 2004 - Unaudited
Impact of transition to IFRS
Presentation
of Financial
Under Share Business Statements Intangible Employee Other Restated
Irish Based Combinations IAS 1 Assets Benefits Euro'000 under
GAAP Payment IFRS 3 Euro'000 IAS 38 IAS 19 IFRS
Euro'000 IFRS 2 Euro'000 Euro'000 Euro'000 Euro'000
Euro'000
TURNOVER 150,800 - - - - - - 150,800
Cost of (134,437) - - - - - - (134,437)
sales
GROSS PROFIT 16,363 - - - - - 16,363
Staff costs (7,201) (41) - - - (161) - (7,403)
Other
operating
charges (4,497) - - (480) - - 22 (4,955)
Gross rental
income - - - 480 - - - 480
Depreciation (516) - - - 157 - (16) (375)
Amortisation
of intangibles (823) - 823 - (157) - - (157)
OPERATING
PROFIT 3,326 (41) 823 - - (161) 6 3,953
Net interest
charge (431) - - - - - (3) (434)
Unwinding of
discount
factor (162) - - - - - - (162)
PROFIT ON
ORDINARY
ACTIVITIES
BEFORE
TAXATION 2,733 (41) 823 - - (161) 3 3,357
Taxation on
profit on
ordinary
activities (626) - - - - 33 - (593)
PROFIT FOR THE
YEAR
ATTRIBUTABLE
TO ORDINARY
SHAREHOLDERS 2,107 (41) 823 - - (128) 3 2,764
Earnings per
share (cent)
- Basic 3.00 3.93
- Diluted 2.93 3.85
- Diluted
adjusted * 4.29 4.07
* Adjusted for amortisation of goodwill and unwinding of discount factor
Reconciliation of impact of IFRS on the Consolidated Balance Sheet as at 30 June
2004 - Unaudited
Impact of transition to IFRS
Presentation
of Financial
Under Share Business Statements Intangible Employee Other Restated
Irish Based Combinations IAS 1 Assets Benefits Euro'000 under
GAAP Payment IFRS 3 Euro'000 IAS 38 IAS 19 IFRS
Euro'000 IFRS 2 Euro'000 Euro'000 Euro'000 Euro'000
Euro'000
FIXED
ASSETS
Intangible
assets 8,894 - 823 - 737 - - 10,454
Tangible
assets 3,714 - - - (737) - 41 3,018
12,608 - 823 - - - 41 13,472
CURRENT
ASSETS
Stocks 18,538 - - - - - - 18,538
Debtors 53,268 - - 5,170 - 130 - 58,568
Cash at bank
and in hand 11,876 - - - - - - 11,876
83,682 - - 5,170 - 130 - 88,982
CREDITORS:
amounts
falling due
within one
year (74,349) - - (5,170) - (661) (87) (80,267)
NET CURRENT
ASSETS 9,333 - - - - (531) (87) 8,715
TOTAL ASSETS
LESS CURRENT
LIABILITIES 21,941 - 823 - - (531) (46) 22,187
CREDITORS:
amounts
falling due
after more
than one year (24) - - - - (217) - (241)
PROVISIONS
FOR
LIABILITIES (4,666) - - - - - - (4,666)
AND CHARGES
17,251 - 823 - - (748) (46) 17,280
CAPITAL AND
RESERVES
Called up
share capital 5,023 - - - - - - 5,023
Shares to be
issued after
period end 1,834 - - - - - - 1,834
Share 69,788 - - - - - - 69,788
premium
Profit and
loss account (43,847) (96) 823 - - (748) (46) (43,914)
Cost of share
based - 96 - 96
payments
Cost of
shares
of the
company (15,547) - - - - - - (15,547)
held in an
ESOP
Shareholders'
funds (all
equity
interests) 17,251 - 823 - - (748) (46) 17,280
END
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