Accounting Policies

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board and IFRIC interpretations. The financial statements are prepared in compliance with the provisions of the Companies (Jersey) Law 1991.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value.

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Basis of consolidation

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Contingent consideration is recognised if, and only if, the Group has a present obligation, the economic outflow is more likely than not and a reliable estimate is determinable. Subsequent adjustments to the contingent consideration affect the recorded goodwill.

The minority interest is measured as the proportionate share of the acquiree’s identifiable net assets.

Where an additional share of a subsidiary is purchased, the Group uses the entity concept method to account for the additional interest. The difference between the cost of the additional interest and the carrying value of the minority interest’s share of net assets on the date of acquisition is reflected in equity as a transaction between owners and does not affect previously recognised goodwill.

Under the equity method, the income statement reflects the share of the results of operations of the associates. Where there has been a change recognised directly in the associates’ equity, the Group recognises its share of any changes.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables that form part of the net investment in the associate, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Under the equity method, the income statement reflects the share of the results of operations of the joint ventures. Where there has been a change recognised directly in the joint ventures’ equity, the Group recognises its share of any changes.

When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables that form part of the net investment in the joint venture, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint venture.

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Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as follows:

The Group has adopted a number of new, revised and amended IAS, IFRS and IFRIC interpretations as of 1 January 2009. Adoption of the following new and revised standards has affected the presentation and disclosure in the financial statements of the Group, but has had no effect on the amounts reported:

• IAS 1 - Presentation of Financial statements (revised)
• IAS 36 - Impairment of Assets (part of Improvements to IFRSs – (May 2008))
• IFRS 7 - Financial Instruments: Disclosures (amendment)
• IFRS 8 - Operating Segments
• IFRS 8 - Operating Segments (amendment)

The principal effects of these changes are as follows:

IAS 1 – Presentation of Financial Statements (revised)
The Group adopted this revised standard on 1 January 2009. The revision separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income to be presented either as a single statement, or as two linked statements. The Group has elected to present two statements.

IAS 36 - Impairment of Assets
When discounted cash flows are used to estimate ‘fair value less costs to sell’, additional disclosure is required about the discount rate, consistent with disclosures required when discounted cash flows are used to estimate ‘value in use’. For those cash-generating units where the Group is required to compute the recoverable amount, fair value less costs to sell is used on an earnings multiples approach. Where the fair value less costs to sell test does not demonstrate that the recoverable amount is in excess of the carrying amount, the cash-generating unit is tested under value in use. This improvement does not have any impact on the presentation of the financial statements in the current year. Additional disclosures will be included in the future where applicable.

IFRS 7 – Financial Instruments: Disclosures
As of 1 January 2009, the Group adopted this amendment which requires increased disclosures about fair value measurements and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three-level fair value hierarchy, by class, for all financial instruments recognised at fair value. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement and liquidity risk disclosures are presented in Note 21. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in the amendment.

IFRS 8 – Operating Segments
The Group adopted IFRS 8 as of 1 January 2009. This new standard requires disclosure of information about the Group’s operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this Standard did not have any effect on the financial position or performance of the Group. The Group determined that the four operating and reportable segments are Events, Data, Services and Online, Print – Magazines and Targeting, Distribution and Monitoring. Additional disclosures about each of these segments are shown in Note 3.

IFRS 8 – Operating Segments (amendment)
The Group has adopted early the amendment to IFRS 8 as of 1 January 2009. The amendment was issued as part of the Annual Improvements to IFRSs 2009. It removes the requirement to present segment asset information if it is not regularly provided to the chief operating decision maker. Adoption of this amendment did not have any effect on the financial position or performance of the Group; disclosure of segment assets is not given in the financial statements. Further details are given in Note 3.

The standards and interpretations adopted in these financial statements which have had no effect on the amounts reported, presentation or disclosure are:

• IAS 23 - Borrowing costs (revised)
• IAS 27 - Consolidated and Separate Financial Statements (amendment)
• IAS 32 - Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation (amendments)
• IFRS 2 - Share-based Payment – Vesting Conditions and Cancellations (amendment)
• IFRIC 9 - Re-assessment of embedded derivatives (amendment)
• IFRIC 15 - Agreements for Construction of Real Estate
• IFRIC 16 - Hedges of Net Investment in a Foreign Operation
• Improvements to IFRSs – (May 2008)

Those standards listed above which have resulted in a change in accounting policy are:

IAS 23 – Borrowing costs (revised)
The revised IAS 23 requires capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. The Group’s previous policy was to expense borrowing costs as they were incurred. In accordance with the transitional provisions of the revised IAS 23, the Group has adopted the standard on a prospective basis. It applies to borrowing costs arising on qualifying assets where the commencement date for capitalisation is on or after 1 January 2009. It did not have an impact on the financial position or performance of the Group in 2009.

IFRS 2 – Share-based Payment – Vesting Conditions and Cancellations (amendment)
This amendment specifies that only service and performance conditions are vesting conditions. It also prescribes that all cancellations should result in an acceleration of the vesting period. The Group has adopted the revised standard on 1 January 2009; it did not have an impact on the financial position or performance of the Group.

IFRIC 16 – Hedges of Net Investment in a Foreign Operation
The interpretation provides guidance to be applied prospectively on the accounting for a hedge of a net investment. It provides guidance on identifying foreign currency risks that qualify for hedge accounting in a net investment hedge; which entity in the Group can hold the hedging instruments used in the hedge of a net investment; and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and hedging instrument, to be recycled on disposal of the net investment. The Group has adopted IFRIC 16 on 1 January 2009, it did not have any impact on the financial position or performance of the Group.

Improvements to IFRSs – (May 2008)
In May 2008, the IASB issued a collection of amendments to its standards, primarily to remove inconsistencies and to clarify wording. Most of the improvements are effective from 1 January 2009 and there are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group.

• IAS 1 Presentation of Financial Statements: assets and liabilities classified as held for trading in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’ are not always required to be presented as current in the statement of financial position. The Group has assessed whether this would result in any reclassifications of financial instruments between current and non-current in the statement of financial position and determined that it would not.
• IAS 16 Property, Plant and Equipment: replaces the term ‘net selling price’ with ‘fair value less costs to sell’. The Group has applied this improvement, although it did not result in any changes to the financial position or performance of the Group.
• IAS 23 Borrowing costs: the definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing costs’ into one – the interest expense calculated in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’. The Group has amended its accounting policy accordingly which did not result in a change to the financial position or performance of the Group.
• IAS 38 Advertising and promotional activities: the improvements clarify that an entity is permitted to recognise a prepayment asset for advertising or promotional expenditure only up to the point at which the entity has the right to access the goods purchase or services received. Mail order catalogues have been specifically identified as a form of advertising and promotional activities. Clarification of this standard has not resulted in any changes to the financial position or performance of the Group.

Other amendments resulting from Improvements to IFRSs did not have any impact on the accounting policies, financial position or performance of the Group.

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Foreign currencies

Transactions in foreign currencies are initially recorded in the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange prevailing at the balance sheet date. All differences are taken to the income statement, except where hedge accounting is applied and for differences on monetary assets and liabilities that form part of the Group’s net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss.

The assets and liabilities of foreign operations are translated into sterling at the rate of exchange prevailing at the balance sheet date. Income and expenses are translated at the prevailing monthly exchange rate throughout the year. The resulting exchange differences are taken directly to a separate component of equity, which was set to zero on first time adoption of IFRS. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

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Revenue

Revenue is recognised when it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services, net of trade discounts, VAT, other sales related taxes, and after eliminating sales within the Group. Revenue is recognised as follows:

For sales of services, revenue is recognised in the accounting period in which the services are rendered by reference to stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.

For sales of goods, revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably.

Events: Revenue is recognised upon event completion. Advance deposits are recorded as deferred income on the balance sheet.

Data, Services and Online:

• Directories: Linage and advertising revenue is recognised on delivery of the directory and copy sales revenue is recognised on the sale of the directory.
• Data/services: Revenue from data subscriptions is recognised over the life of the subscription. Revenue from data projects for immediate delivery is recognised on delivery of the data. Revenue from data projects is recognised on a percentage completion basis over the life of the project.
• Online: Revenue is recognised at the point of delivery or fulfilment for single/discrete services and over the life of subscriptions for subscription services.

Print - Magazines: Advertising revenue is recognised on publication. Revenue from subscriptions is recognised over the life of the subscription.

Targeting, Distribution and Monitoring: Revenue from news releases is recognised on message delivery. Revenue from subscriptions is recognised over the life of the subscription.

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Interest and other income

1. (a) Interest income
   Income Income is recognised as the interest accrues using the effective interest rate method; that is, the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.
    
2. (b) Dividend income
   Dividend income is recognised when the right to receive the payment is established.
    
3. (c) Rental Income
   Rental income arising from operating leases is recognised on a straight-line basis over the lease terms on ongoing leases.
    

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Borrowing costs

From 1 January 2009, borrowing costs (as calculated under the effective interest method) directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to prepare for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are recognised as an expense when incurred. This policy applies to borrowing costs arising on qualifying assets where the commencement date for capitalisation is on or after 1 January 2009. Borrowing costs arising on qualifying assets where the commencement date for capitalisation is prior to 1 January 2009 have been expensed when incurred.

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Property, plant and equipment

Property, plant and equipment is stated at cost less any depreciation and any impairment losses. Depreciation is provided on all items except freehold land. Depreciation rates are calculated so that assets are written down to residual value in equal annual instalments over their expected useful lives, which are as follows:

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

The residual values, useful lives and methods of depreciation of the assets are reviewed, and adjusted if appropriate, at each financial year end.

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Goodwill and intangible assets

1. (a) Goodwill
   Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination including directly related professional fees over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. As at the acquisition date, any goodwill acquired is allocated to the relevant cash-generating unit (‘CGU’).
   
   Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. The impairment review requires management to undertake certain judgements, including estimating the recoverable value of the CGU to which the goodwill relates, based on either fair value less costs to sell or the value in use, in order to reach a conclusion on whether it deems the goodwill to be recoverable. Estimating the fair value less costs to sell is based on the best information available, and refers to the amount at which the CGU could be sold in a current transaction between willing parties. The valuation methods are based on an earnings multiple approach. The earnings multiple approach uses transaction multiples, obtained from comparable businesses in the professional media sector. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects management’s estimate of return on capital employed required in each CGU which is subject to a value in use calculation. Management is assisted by the work of external advisors in calculating the fair value less costs to sell and value in use of its CGUs. Further details are given in Note 12.
   
   Any impairment is recognised immediately in the income statement and is not subsequently reversed. Where goodwill forms part of a CGU and part of the CGU is disposed of, the goodwill associated with the disposal is included in the net assets attributed to the disposal when determining the gain or loss on disposal.
    
2. (b) Intangible assets
   Website development costs relating to the application and infrastructure development, graphical design and content development stages incurred with third parties are recognised as assets and measured at cost. All other internally generated intangible assets, including internally generated software, are recognised as an expense in the year in which the expenditure is incurred.
   
   Intangible assets acquired in a business combination are measured at fair value at the date of acquisition.
   
   Following initial recognition, intangible assets are measured at cost or fair value at the date of acquisition less any amortisation and any impairment losses.
   
   Intangible assets are amortised over their useful lives as follows:
   
   

   	Useful Lives	Method
   Brands	10 years	Straight line
   Software	5-6 years	Straight line
   Customer contracts and relationships	1-10 years	Straight line
   Subscription lists	2-5 years	Straight line
   Trademarks	10 years	Straight line
   Databases	2-10 years	Straight line
   Website development costs	3 years	Straight line

   
   Useful lives are also examined on an annual basis and adjustments, where applicable are made on a prospective basis.
   
   The Group does not have any intangible assets with indefinite lives.

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Impairment of assets

Property, plant and equipment and intangible assets 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 value in use. For purposes of assessing impairment, assets that do not individually generate cash flows are assessed as part of the cash-generating unit to which they belong. Cash-generating units are the lowest levels for which there are cash flows that are largely independent of the cash flows from other assets or groups of assets. Further details are given in Note 12.

Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired.

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Inventories

Inventories and work in progress are valued on the first in first out basis at the lower of cost and net realisable value. Cost comprises materials and directly attributable production costs. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

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Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.

The Group does not have any finance leases. The Group is also not involved in any arrangements which fall within the scope of IFRIC 4 ‘Determining Whether an Arrangement Contains a Lease.’

(a) Group as a lessee
Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

(b) Group as a lessor
Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.

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Financial instruments

Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. Financial liabilities within the scope of IAS 39 are classified as either financial liabilities at fair value through profit and loss (derivative financial liabilities) or financial liabilities at amortised cost (borrowings and trade and other payables).

When financial instruments are recognised initially, they are measured at fair value, and in the case of investments not at fair value through profit or loss, after taking account of directly attributable transaction costs.

(a) Trade and other receivables
Trade receivables, which generally have 30–90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no expectation of recovery. For more details refer to Note 18.

(b) Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, deposits and short term deposits with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts which are shown within borrowings.

(c) Trade and other payables
Trade and other payables are recognised at original cost.

(d) Borrowings
All loans and borrowings are initially recognised at fair value, being the fair value of the consideration received net of issue costs associated with the borrowings.

After initial recognition, loans and borrowings are subsequently measured at amortised cost, and any difference between the proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

(e) Other investments
The Group classifies its investments at initial recognition as available-for-sale financial assets. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Listed and unlisted investments are stated at fair value except in respect of unquoted equity investments where there is no active market and where the fair value cannot be reliably measured, in which case they are measured at cost less any impairment. Gains and losses on remeasurement to fair value are included in equity until the investment is disposed of or deemed to be impaired when they are transferred to profit or loss.

(f) Derivative financial instruments and hedging activities
Derivative financial instruments are measured at fair value at each balance sheet date. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market rates of interest.

For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecast transaction; or as a hedge of net investment in foreign operations.

Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges of forecast transactions are recognised directly in equity. Amounts deferred in this way are recognised in the income statement in the same period in which the hedged firm commitments or forecast transactions are recognised in the income statement. See Note 21 for more details on the Group’s cash flow hedges.

In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised in the income statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognised in the income statement.

Net investment hedges take the form of foreign currency borrowings and forward currency contracts. All foreign exchange gains or losses arising on translation of net investments are recorded in the consolidated statement of comprehensive income and included in cumulative translation differences. Borrowings and forward currency contracts used as hedging instruments in a net investment hedge are revalued at closing exchange rates. The resulting gains or losses are taken to the consolidated statement of comprehensive income to the extent that they are effective, with any ineffectiveness recognised in the income statement. See Note 21 for more details on the Group’s net investment hedges.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gains or losses on the hedging instrument recognised in equity are retained until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the period.

Changes in the fair value of the derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise.

(g) Equity instruments
Equity instruments issued by the Company are recorded at the fair value of the proceeds received net of direct issue costs.

Where any Group company purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of the Company until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of the Company.

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Derecognition of financial assets and liabilities

Financial assets

A financial asset is derecognised where:

• the rights to receive cash flows from the asset have expired; or
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
• the Group has transferred its right to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its right to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to pay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled of similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as derecognition of the original liability and recognition of a new liability, and the difference between the carrying amounts of the original liability and the fair value of the new liability is recognised in the income statement.

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Tax

The income tax expense represents both the current tax payable, based on profits for the year, and deferred tax. Income tax is recognised in the income statement or statement of comprehensive income except when it relates to items charged or credited directly to equity, in which case the income tax is also charged or credited to equity.

The calculation of the Group’s total tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of certain of these items may give rise to material profit and loss and/or cash flow variances.

The Group is a multi-national Group with tax matters in many geographical locations. This inherently leads to complexity to the Group’s tax structure and requires estimation and judgement. The timing of resolution of issues is not always within the control of the Group and issues can, and often do, take many years to resolve. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result, there can be substantial differences between the tax charge in the income statement and tax payments.

The Group has an accrual for tax liabilities which is measured at the directors’ estimate of tax that may become payable. These tax accruals are estimates and the actual amounts and timing of future cash flows are dependent on future events. Any difference between expectations and the actual future liability will be accounted for in the period such determination is made. For more details refer to Note 9.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is calculated using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised.

Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

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Pensions

The Group sponsors a number of defined benefit schemes and defined contribution schemes.

For the defined contribution schemes, the contributions payable to the scheme in respect of employee service rendered during the accounting period are recognised as an expense in that period.

For the defined benefit pension schemes, the liability for the benefits earned by employees in return for service rendered in the current and prior periods is determined using the projected unit credit method as determined annually by independent qualified actuaries. This is based upon a number of financial assumptions, the determination of which is significant to the balance sheet valuation. These are set out and discussed in Note 24.

The following is charged to operating profit:

• the increase in the present value of pension scheme liabilities arising from employee service in the current period;
• the increase in the present value of pension scheme liabilities as a result of benefit improvements over the period during which such improvements vest; and
• gains and losses arising on settlements/curtailments.

A credit in respect of the expected return on the schemes' assets and a charge in respect of the increase during the period in the present value of the schemes' liabilities because the benefits are one period closer to settlement are shown in the income statement as ‘financing income – pension schemes’.

Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside profit or loss and presented in the consolidated statement of comprehensive income.

Defined benefit pension surpluses are recognised where scheme rules indicate that such surpluses are recoverable by the Group in the form of either an unconditional right to refund if the scheme were to be wound up or reductions in future contributions. Surpluses are expected to be recoverable under all of the UK defined benefit pension schemes. The minimum funding requirement of the UK defined benefit schemes is included in the assessment of whether an IAS 19 surplus is expected to emerge. Future tax payable on surplus refunds is shown as an irrecoverable surplus.

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Share capital

Ordinary shares
Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

B shares
The Group’s existing B shares of 8²³/₄₄p each are classified as equity.

Treasury shares
Where any Group company purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

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Share-based payments

Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’).

Equity-settled transactions
The Group has applied the requirements of IFRS 2 ‘Share-based Payment’ to all grants of equity instruments made after 7 November 2002 that were unvested at 1 January 2005.

The cost of equity-settled transactions with employees is measured by reference to the fair value at the grant date of the equity instruments granted. The fair value is determined by an external advisor using the Black Scholes or Monte Carlo methods as appropriate.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the periods in which the vesting conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition or a non-vesting condition, be treated as vesting as described below. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.

No expense or increase in equity is recognised for awards that do not ultimately vest. Awards where vesting is conditional upon a market or non-vesting condition are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions (ie. vesting conditions) are satisfied.

Where an equity-settled award is cancelled, it is treated as if vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of the entity or the employees are not met.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share.

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Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, expected future cash flows are discounted using a current pre-tax rate that reflects, as appropriate, the risks specific to the liability.

Provisions are estimates and the actual cost and timing of future cash flows are dependent on future events. Management reassesses the amounts of these provisions at each balance sheet date in order to ensure that they are measured at the current best estimate of the expenditure required to settle the obligation at the balance sheet date. Any difference between the amounts previously recognised and the current estimates is recognised immediately in the consolidated income statement. Further details are given in Note 23.

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Significant accounting judgements, estimates and assumptions

The preparation of the Group’s consolidated financial statements in conformity with IFRS requires the use of certain judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. Management continually evaluate these judgements, estimates and assumptions based on available information and experience.

The areas involving a higher degree of judgement or complexity in order to apply the Group’s accounting policies are:

• Business segments – see Note 3
• Deferred tax assets – see Note 9
• Intangible assets – see Note 13
• Retirement benefit obligations – see Note 24

The areas requiring management estimates are:

• Current tax liabilities – see Note 9
• Impairment of goodwill – see Note 12
• Provisions – see Note 23

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Trade and other receivables

Trade receivables, which generally have 30–90 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no expectation of recovery. For more details refer to Note 18.

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Convertible bond

The convertible bond is split into two components: a debt component and a component representing the embedded derivatives in the bond. The debt component represents the Group’s liability for future interest coupon payments and the redemption amount. The embedded derivatives represent the value of the option that bondholders have to convert into ordinary shares of the Company. As the debt is denominated in US dollars and the ordinary shares are denominated in UK sterling, the embedded derivative is a liability rather than an equity instrument.

The debt component of the convertible bond is measured at amortised cost and therefore increases as the present value of the interest coupon payments and redemption amount increases, with a corresponding charge to finance cost – other than interest. The debt component decreases by the cash interest coupon payments made. The embedded derivatives are measured at fair value at each balance sheet date, and the change in the fair value is recognised in the income statement. The remaining convertible bond was either repurchased and cancelled or converted to ordinary shares during 2006. No convertible bond remains outstanding.

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Borrowings

All loans and borrowings are initially recognised at fair value, being the fair value of the consideration received net of issue costs associated with the borrowings. After initial recognition, loans and borrowings are subsequently measured at amortised cost, and any difference between the proceeds and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

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