E2V.L Regulatory News (E2V)

1 Nov 2005 07:00

e2v technologies PLC01 November 2005 e2v technologies plc e2v technologies plc, is a leading developer and manufacturer of high-technologyelectronic components and sub-systems to the medical & science, aerospace &defence, and commercial & industrial sectors. Introduction For the accounting periods up to 31st March 2005, e2v technologies has preparedits consolidated financial statements under UK Generally Accepted AccountingPractice (UK GAAP). From 1st April 2005, the Group will prepare its consolidatedfinancial statements in accordance with International Financial ReportingStandards (IFRS) and International Accounting Standards (IAS). The firstpublished results under IFRS will be for the six months ended 30th September2005. This announcement explains how the Group's previously reported UK GAAP financialperformance and position are affected by the change from UK GAAP to IFRS. The main features of the re-statement are: • No impact on Turnover or cash flows • Adjusted operating profit (before Initial Public Offering costs and amortisation of intangible items) for the year to 31st March 2005 increases by £26,000. • Re-phasing of adjusted profit between the first and second half due to the full recognition of holiday pay accruals. First half profits increased by £276,000. • Goodwill is no longer amortised but subject to an annual impairment review, increasing the 2005 reported profit before tax by £1,227,000. • Net assets at 31st March 2005 increase by £3.8m primarily due to the elimination of goodwill amortisation, and the final dividend for the year of £2.1m In summary the impact on the reported results of applying IFRS are as follows: 6 months ended Year ended 30 September 2004 31 March 2005 UK GAAP IFRS UK GAAP IFRS £m £m £m £mTurnover 47.2 47.2 100.5 100.5Operating profit before Initial Public Offeringcosts and amortisation of intangibles 3.9 4.2 12.4 12.4Operating profit before taxation and interest 1.4 2.3 9.2 10.5(Loss) / profit on ordinary activities after (1.9) (1.1) 2.2 3.4taxation Earnings per share - basic 4.59p 6.93pAdjusted earnings per share - basic 1 11.07p 13.4p Shareholders equity 32.6 34.1 34.4 38.2 1 Adjusted earnings per share. The adjusted earnings are calculated by addingback to the profit for the year the Initial Public Offering costs, and theinterest costs that arose as a result of the Initial Public Offering, net of thetaxation impact of these items. Enquiries: e2v technologies plc +44 (0)1245 493493 Keith Attwood, CEOMike Hannant, Finance Director Gavin Anderson & Company +44 (0)20 7554 1400Charlotte Stone / Fergus Wylie Notes to Editors e2v technologies delivers the radio frequency and sensing technology thatenables some of the world's most innovative medical and science, aerospace anddefence, and industrial and commercial systems. For the year ended 31 March2005, e2v achieved sales of £100.5m. e2v is a leading developer and manufacturerof high-technology electronic components and subsystems, which it supplies intoniche markets. e2v has offices in UK, USA, Germany, France, Canada and China with a network ofagents and distributors covering other key territories. Further information one2v technologies plc is available from its website, www.e2v.com e2v technologies plc Restated financial information under International Financial Reporting Standards CONTENTS INTRODUCTION AND IMPACT SUMMARY 2 BASIS OF PREPARATION 3 EXPLANATORY NOTES 4-5 RECONCILIATION OF CONSOLIDATED INCOME STATEMENTSYEAR TO 31 MARCH 2005 6 HALF YEAR TO 30 SEPTEMBER 2004 7 RECONCILIATION OF CONSOLIDATED BALANCE SHEETS 31 MARCH 2005 8 30 SEPTEMBER 2004 9 31 MARCH 2004 10 PRINCIPAL ACCOUNTING POLICIES 11-15 AUDITORS' REPORT 16 INTRODUCTION With effect from the year ended 31 March 2006, e2v technologies plc will prepareits consolidated financial statements under International Financial ReportingStandards (IFRS). The comparative information for the year to 31 March 2005,originally presented under UK Generally Accepted Accounting Practice (UK GAAP),will be restated in accordance with IFRS. As part of the transition, e2vtechnologies plc is presenting its audited results for the year ended 31 March2005, restated under IFRS. In order to understand the impact of transition, thisdocument provides a reconciliation between the key financial statements asprepared under UK GAAP and IFRS. SUMMARY OF IFRS IMPACT The impact on the profit for the year ended 31 March 2005 and the half-yearended 30 September 2004 is summarised in the table below. Half year to Year to 30 September 2004 31 March 2005 £'000 £'000 Profit before taxation - UK GAAP (2,615) 4,306 Amortisation of goodwill 616 1,227Share based payment charge 2 (77)Capitalised development expenditure 72 85Employee benefits 202 18 ----------------------------------------Profit before taxation - IFRS (1,723) 5,559 ---------------------------------------- Taxation - UK GAAP 731 (2,058) Amortisation of goodwill (37) (75)Share based payment charge 2 43Capitalise development expenditure (22) (26)Employee benefits (61) (6)Timing differences previously (30) (45)permanent ---------------------------------------- Taxation - IFRS 583 (2,167) ---------------------------------------- Profit for the year - UK GAAP (1,884) 2,248 ----------------------------------------Profit for the year - IFRS (1,140) 3,392 ---------------------------------------- The impact on total equity (and net assets) at 31 March 2005, 30 September 2004and 31 March 2004 is summarised in the table below. 31 March 2004 30 September 2004 31 March 2005 £'000 £'000 £'000 Total equity - UK GAAP 7,064 32,636 34,438Intangible assets- Amortisation of goodwill - 579 1,152- Capitalised development expenditure 619 668 678Share based payment charge - 52 121Employee benefits (787) (646) (769)Proposed dividend - 347 2,143Foreign exchange (29) 43Taxation 487 457 436 ------------------------------------------------Total equity - IFRS 7,383 34,064 38,242 ------------------------------------------------ More detailed reconciliation information for the above primary statements isprovided later in this document. THE INTRODUCTION OF IFRS HAS NO IMPACT ON THE UNDERLYING CASH FLOWS OF THEBUSINESS. BASIS OF PREPARATION Statement of Compliance These extracts of the financial statements of e2v technologies plc have beenprepared, for the first time, in accordance with International FinancialReporting Standards (IFRS) and are covered by IFRS 1 'First Time Adoption ofIFRS'. They have been prepared in accordance with those IFRS standards issuedand effective as at the time of preparing these statements, and have beenapplied retrospectively except where certain conditions apply. As listed companies are adopting IFRS for the first time, there is limitedestablished practice upon which to draw in matters of interpretation andapplication. Furthermore, it is possible that new standards, revisions toexisting standards and new interpretations may be issued which affect the Group.Consequently, it is not possible at this stage to definitively quantify theimpact of the adoption of IFRS, and therefore the comparative information in the2006 interim and annual reports may differ from that presented in this report. 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: IFRS3 'Business Combinations' Business combinations prior to 1 April 2004 have not been restated to complywith IFRS 3. As a result, the carrying amount of goodwill recognised as an assetunder UK GAAP was brought forward unadjusted as the cost of goodwill recognisedunder IFRS as at 1 April 2004. IAS 21'the effects of changes in foreign exchange rates' Under IAS 21, exchange differences arising on the retranslation of investmentsin foreign operations are taken directly to a separate component of equity. TheGroup has elected, under the provisions of IFRS 1, to set the historictranslation differences on foreign subsidiaries to zero. As a result, in theevent of a subsequent disposal, any gain or loss on disposal will only includecumulative translation differences arising on or after 1 April 2004. IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39'Financial Instruments: Recognition and Measurement' The Group has taken advantage of the transitional provisions of IAS 32 and IAS39 and has not adopted these two standards early. They will be adopted from 1April 2005. The comparative information for the year to 31 March 2005 has notbeen restated from UK GAAP to IFRS. The most material changes on adoption willbe due to the accounting for foreign currency forward contracts. 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. These notes also support the detailed UK GAAP toIFRS reconciliations on pages 7 to 11. In addition to the adjustments below,details of the Group's IFRS 1 elections have been summarised on page 4. IFRS 2 - Share based paymentsIFRS 2 requires an expense to be recognised where the Group receives goods orservices as consideration for equity instruments. The impact on the Group is theexpensing of employees' and directors' share options and other share basedincentives by using an option-pricing model. In particular, the exemptionpreviously available under UITF 17 in respect of the Group's SAYE scheme is nolonger available under IFRS 2. There is no charge under IFRS 2 in respect of preIPO options. As, noted in the table below, the effect of the revised policy has been todecrease profit before tax for the year ended 31 March 2005 by £76.8K, andincrease half-year profit before tax by £2.1K. A corresponding deferred taxmovement has also been accounted for, part of which has been accounted for inequity. Half year to Year to 30 September 2004 31 March 2005 £'000 £'000 Reversal of UITF 17 charge 9.4 65.5IFRS 3 charge (7.3) (142.3) ------------------------------------------------Net impact on profit before tax 2.1 (76.8) ------------------------------------------------Deferred tax asset - taken to profit and loss 2.2 42.7Deferred tax asset - taken to equity 49.8 77.8 ------------------------------------------------Total deferred tax asset 52.0 120.5 ------------------------------------------------Impact on profit after tax 4.3 (34.1) ------------------------------------------------IFRS 3 - Business combinationsThe group has elected not to apply IFRS 3 retrospectively to businesscombinations that took place prior to 1 April 2004. As a result, in the openingbalance sheet, positive goodwill arising from previous business combinationsremains at £11.5m as previously stated under UK GAAP at 31 March 2004. The transitional provisions of IFRS 3 have required the Group to carry forwardthe UK GAAP net book value of positive goodwill as deemed cost under IFRS. IFRS3 requires that goodwill is not amortised. Instead it is subject to an annualimpairment review. Goodwill amortisation charged under UK GAAP in the year to 31March 2005 amounted to £1,227.4K and is reversed in the income statement underthis standard. The corresponding reversal at 30 September 2004 amounted to£616.2K. The Group has recognised a deferred tax charge in respect of goodwillamortisation on which a corporate tax deduction has been claimed. IAS 10 - Events after the balance sheet dateIn accordance with IAS 10, dividends declared after the balance sheet date arenot recognised as a liability in the financial statements as there is no presentobligation at the balance sheet date as defined by IAS 37 - provisions,contingent liabilities and contingent assets. Accordingly, the final dividendfor the year to 31 March 2005 of £2,143K previously recognised under UK GAAP hasbeen de-recognised in the balance sheet at 31 March 2005. The interim dividendpreviously accounted for in the half year to 30 September 2004 has also beenaccounted for in this manner. IAS 12 - Income TaxesWhere applicable, a deferred tax asset or liability has been accounted for wherea non-tax IFRS adjustment has resulted in a difference between the carryingamount of an asset or liability and its tax base. In addition, some temporarydifferences previously accounted for as permanent timing differences, and hencenot recognised, under UK GAAP have been recognised under IFRS. These relateprimarily to the tax treatment of non deductible bad debt and stock provisions. IAS 19 - Employee benefitsIAS 19 requires the Group to recognise in full liabilities in relation toemployee benefits. As at 1 April 2004, the group has recognised an additional£1,125K of liabilities for holiday pay. The corresponding adjustment at 31 March2005 is £1,106.5K and, as a result, there is an increase in the pre tax profitfor the year of £18.5K. This adjustment introduces seasonality into the Group'sresult because the accrued holiday entitlement of employees is typically higherat 31 March than it is at 30 September. The reduction in the provision requiredat 30 September 2004 resulted in a pre tax credit to the half-year incomestatement of £202.4K. IAS 21 - Effects of changes in foreign exchange ratesWith effect from 1 April 2004, foreign currency translation differences arisingon the retranslation of the opening reserves and results of foreign subsidiaryundertakings are taken to a separate translation reserve. As stated on page 3,the Group has elected, under the provisions if IFRS 1, to set the historictranslation differences on foreign subsidiaries to zero. IAS 38 - Intangible assetsComputer software that is not an integral part of the related hardware isclassified as an intangible asset under IAS 38, whereas such assets wereclassified as tangible assets under UK GAAP. At 1 April 2004 £2,432.7K ofsoftware has been reclassified from tangible to intangible assets. Thecorresponding adjustments at 30 September 2004 and 31 March 2005 were £2,095.6Kand £4,341.4K accordingly. Under UK GAAP, the Group wrote off development costs in the period in which theywere incurred. Under IAS 38, all research and most development costs willcontinue to be written off in the period in which they are incurred. However,certain expenditure on internal product development meets all the criteria ofIAS 38 and has therefore been capitalised. Development costs capitalised areamortised on a straight-line basis over their useful economic lives. At 1 April2004, the net book value of capitalised development costs was £883.9K. In theyear to 31 March 2005 a further £1,000.4K of development expenditure has beencapitalised and £915.2K amortisation has been charged. The corresponding amountsfor the half-year to 30 September 2004 are £434.5K and £363.3K respectively. Adeferred tax liability has been accounted for in respect of the amount ofdevelopment expenditure held in the balance sheet. Additional changes from 1 April 2005 IAS 32 and 39 - Financial instruments: recognition, measurement and disclosureAs noted on page 4, the Group has taken advantage of the transitional provisionsof IAS 32 and IAS 39 and has not adopted these two standards early. They will beadopted from 1 April 2005. The comparative information for the year to 31 March2005 has not been restated from UK GAAP to IFRS. The most material change on adoption of these standards will be due to theaccounting for forward currency contracts. The group uses forward currencycontracts to hedge material risks associated with movements in foreign exchangerates. Under UK GAAP, the Group has monetary assets translated at forwardcontract rates. From 1 April 2005 monetary assets and liabilities will betranslated at the period end spot rate. Foreign currency forward contracts willbe recognised in the balance sheet at their fair value. Changes in the marketvalue of forward contracts will be reflected directly in equity to the extentthat they relate to hedged transactions that are deemed to be effective.Otherwise, changes in market value will be reflected in the Income statement. RECONCILIATION OF CONSOLIDATED INCOME STATEMENTFor the period ended 31 March 2005 UK GAAP IAS38 IFRS2 IAS19 IAS12 IFRS £000 Intangible Share based Employee Income £000 assets payments benefits tax REVENUE 100,547 100,547Cost of sales (65,892) (65,892) ------------------------------------------------------------------------GROSS PROFIT 34,655 34,655 Research and development (5,280) 85 (5,195)Distribution costs (9,357) (9,357)------------------------------------------------------------------------------------------------------------------------Amortisation of intangible assets (1,237) 1,227 (10)Initial Public Offering costs (1,901) (1,901)Other administrative expenses (7,633) (77) 18 (7,692)------------------------------------------------------------------------------------------------------------------------Administrative expenses (10,771) 1,227 (77) 18 (9,603) ------------------------------------------------------------------------PROFIT FROM CONTINUING OPERATIONS BEFORE 9,247 1,312 (77) 18 10,500TAX AND FINANCE COSTS Finance costs (5,095) (5,095)Finance income 154 154 ------------------------------------------------------------------------ PROFIT BEFORE TAXATION 4,306 1,312 (77) 18 - 5,559Income tax expense (2,058) (101) 43 (6) (45) (2,167) ------------------------------------------------------------------------PROFIT FOR THE YEAR FROM CONTINUINGOPERATIONS ATTRIBUTABLE TO EQUITY HOLDERSOF THE PARENT 2,248 1,211 (34) 12 (45) 3,392 ------------------------------------------------------------------------ RECONCILIATION OF CONSOLIDATED INCOME STATEMENTFor the period ended 30 September 2004 UK GAAP IAS38 IFRS2 IAS19 IAS12 IFRS £000 Intangible Share based Employee Income £000 assets payments benefits tax REVENUE 47,227 47,227Cost of sales (32,104) (32,104) -------------------------------------------------------------------------- GROSS PROFIT 15,123 15,123 Research and development (2,774) 72 (2,702)Distribution costs (4,730) (4,730)------------------------------------------------------------------------------------------------------------------------Amortisation of intangible assets (621) 616 (5)Initial Public Offering costs (1,901) (1,901)Other administrative expenses (3,703) 2 202 (3,499) --------------------------------------------------------------------------Administrative expenses (6,225) 616 2 202 (5,405) -------------------------------------------------------------------------- PROFIT FROM CONTINUING OPERATIONS BEFORE 1,394 688 2 202 2,286TAX AND FINANCE COSTS Finance costs (4,124) (4,124)Finance income 115 115 -------------------------------------------------------------------------- PROFIT BEFORE TAXATION (2,615) 688 2 202 (1,723)Income tax expense 731 (59) 2 (61) (30) 583 PROFIT FOR THE YEAR FROM CONTINUINGOPERATIONS ATTRIBUTABLE TO EQUITY HOLDERSOF THE PARENT (1,884) 629 4 141 (30) (1,140) -------------------------------------------------------------------------- RECONCILIATION OF CONSOLIDATED BALANCE SHEET 31 March 2005 IAS38 IFRS2 IAS19 IAS21 IAS12 UK GAAP Intangible Share based IAS10 Employee Foreign Income IFRS £000 assets payments Dividends benefits exchange tax £000 ASSETSNon-current assetsProperty, 23,879 (4,341) 19,538plant and equipmentIntangible assets 10,273 6,537 16,810Deferred income - 3 413 416tax assets -------------------------------------------------------------------------------------------------- 34,152 2,196 - - 3 - 413 36,764 --------------------------------------------------------------------------------------------------Current assets Inventories 19,053 19,053Trade and other 25,049 25,049receivablesPrepayments 1,444 1,444Cash at bank and in 4,069 4,069hand -------------------------------------------------------------------------------------------------- 49,615 49,615 --------------------------------------------------------------------------------------------------Non-current assetsclassified as heldfor sale -------------------------------------------------------------------------------------------------- TOTAL ASSETS 83,767 2,196 - - 3 43 413 86,379 -------------------------------------------------------------------------------------------------- EQUITY AND LIABILITIESEquity attributableto equity holders ofthe parentIssued capital 2,796 2,796Share premium 27,301 27,301accountCapital redemption 274 274reserveTranslation reserve - (101) (101)Investment in own (10) (10)shares Retained earnings 4,077 1,830 121 2,143 (769) 144 436 7,982 --------------------------------------------------------------------------------------------------TOTAL EQUITY 34,438 1,830 121 2,143 (769) 43 436 38,242 -------------------------------------------------------------------------------------------------- Non-current liabilitiesInterest bearing 19,693 19,693loans and borrowingsProvisions - -Deferred income tax 622 366 (121) (334) (43) (23) 467liabilities -------------------------------------------------------------------------------------------------- 20,315 366 (121) - (334) (43) (23) 20,160 --------------------------------------------------------------------------------------------------Current liabilities Trade and other 14,526 1,106 15,632payablesDeferred income 2,106 2,106Interest bearing 6,158 6,158loans andborrowingsIncome tax payable 502 502Dividend 2,143 (2,143) -payableProvisions 3,579 3,579 --------------------------------------------------------------------------------------------------TOTAL LIABILITIES 49,329 366 (121) (2,143) 772 (43) (23) 48,137 --------------------------------------------------------------------------------------------------TOTAL EQUITY 83,767 2,196 - - 3 - 413 86,379AND LIABILITIES -------------------------------------------------------------------------------------------------- IAS38 IFRS2 IAS19 IAS21 IAS12 UK GAAP Intangible Share based IAS10 Employee Foreign Income IFRS 30 September 2004 £000 assets payments Dividends benefits exchange tax £000ASSETSNon-current assetsProperty, plant 22,252 (2,096) 20,156and equipmentIntangible assets 10,889 3,667 14,556Deferred income tax - 457 457assets -------------------------------------------------------------------------------------------------- 33,141 1,571 - - - - 457 35,169 --------------------------------------------------------------------------------------------------Current assetsInventories 22,056 22,056Trade and 21,972 21,972other receivablesPrepayments 2,353 2,353Cash at bank 4,581 4,581and in hand -------------------------------------------------------------------------------------------------- 50,962 - - - - - - 50,962 --------------------------------------------------------------------------------------------------Non-current assetsclassified as held forsale --------------------------------------------------------------------------------------------------TOTAL ASSETS 84,103 1,571 - - - - 457 86,131 -------------------------------------------------------------------------------------------------- EQUITY AND LIABILITIESEquityattributable to equityholders of the parentIssued capital 2,796 2,796Share premium 27,301 27,301accountCapital redemption 274 274reserveTranslation reserve - 69 69Investment in own (10) (10)sharesRetained earnings 2,275 1,247 52 347 (646) (98) 457 3,634 --------------------------------------------------------------------------------------------------TOTAL EQUITY 32,636 1,247 52 347 (646) (29) 457 34,064 -------------------------------------------------------------------------------------------------- Non-current liabilitiesInterest bearing 22,146 22,146loans and borrowingsProvisions - -Deferred income tax 425 324 (52) (277) 29 449liabilities -------------------------------------------------------------------------------------------------- 22,571 324 (52) - (277) 29 - 22,595 --------------------------------------------------------------------------------------------------Current liabilitiesTrade and other 15,702 923 16,625payablesDeferred income 3,254 3,254Interest bearing 5,408 5,408loans andborrowingsIncome tax payable - -Dividend payable 347 (347) -Provisions 4,185 4,185 --------------------------------------------------------------------------------------------------TOTAL LIABILITIES 51,467 324 (52) (347) 646 29 - 52,067 --------------------------------------------------------------------------------------------------TOTAL EQUITY 84,103 1,571 - - - - 457 86,131AND LIABILITIES -------------------------------------------------------------------------------------------------- IAS38 IFRS2 IAS19 IAS21 IAS12 UK GAAP Intangible Share based IAS10 Employee Foreign Income IFRS 31 March 2004 £000 assets payments Dividends benefits exchange tax £000ASSETSNon-current assetsProperty, 21,920 (2,433) 19,487plant and equipmentIntangible assets 11,509 3,317 14,826Deferred income tax - - 488 488assets -------------------------------------------------------------------------------------------------- 33,429 884 - - - - 488 34,801 --------------------------------------------------------------------------------------------------Current assetsInventories 21,657 21,657Trade and 22,700 22,700other receivablesPrepayments 2,613 2,613Cash at bank 4,475 4,475and in hand -------------------------------------------------------------------------------------------------- 51,445 51,445Non-current assets -classified as held for sale --------------------------------------------------------------------------------------------------TOTAL ASSETS 84,874 884 - - - - 488 86,246 --------------------------------------------------------------------------------------------------EQUITY AND LIABILITIESEquity attributableto equity holders ofthe parentIssued capital 278 278Share premium 2,376 2,376accountCapital redemption - -reserveInvestment in own - -sharesRetained earnings 4,410 619 (787) 487 4,729 --------------------------------------------------------------------------------------------------TOTAL EQUITY 7,064 619 - - (787) - 487 7,383 --------------------------------------------------------------------------------------------------Non-current liabilitiesInterest bearing 47,195 47,195loans and borrowingsProvisions - -Deferred 425 265 (338) 1 353income tax liabilities -------------------------------------------------------------------------------------------------- 47,620 265 - - (338) - 1 47,548 --------------------------------------------------------------------------------------------------Current liabilitiesTrade and 20,308 1,125 21,433other payablesDeferred income 3,448 3,448Interest bearing 1,587 1,587loans and borrowingsIncome tax 209 209payableDividend payable - -Provisions 4,638 4,638 --------------------------------------------------------------------------------------------------TOTAL LIABILITIES 77,810 265 - - 787 - 1 78,863 --------------------------------------------------------------------------------------------------TOTAL EQUITY 84,874 884 - - - - 488 86,246AND LIABILITIES -------------------------------------------------------------------------------------------------- statement of accounting policiesat 31 March 2005 Basis of preparationThe consolidated financial statements are prepared under on a historical costbasis, except for derivative financial instruments that have been measured atfair value. The consolidated financial statements are presented in sterling andall values are rounded to the nearest thousand (£'000) except where otherwiseindicated. Basis of consolidationThe consolidated financial statements incorporate the financial statements ofe2v Technologies plc and entities controlled by the company (its subsidiaryundertakings) drawn up to 31 March each year. Control is achieved where theCompany has the power to govern the financial and operating policies of aninvestee entity so as to obtain benefits from its activities. All intercompany balances and transactions, including unrealised profits arisingfrom intra-group transactions, have been eliminated in full. 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 results of subsidiaries acquired or disposedof during the year are included in the consolidated income statement from thedate of acquisition or up to the date of disposal, as appropriate. On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at fair value. Any excess of the cost of acquisitionover the fair values of the identifiable net assets acquired is recognised asgoodwill. Any deficiency of the cost of acquisition below the fair values of theidentifiable net assets is credited to the profit and loss in the period ofacquisition. Non-current assets held for saleNon-current assets (and disposal groups) classified as held for sale aremeasured at the lower of carrying amount and fair value less costs to sell.Non-current assets and disposal groups are classified as held for sale if theircarrying amount will be recovered through a sale transaction rather than throughcontinuing use. This condition is regarded as met only when the sale is highlyprobable and the asset or disposal group is available for immediate sale in itspresent condition. Management must be committed to the sale, which should beexpected to qualify for recognition as a completed sale within one year from thedate of classification. Property, plant and equipmentFreehold buildings, plant and equipment held for use in the production or supplyof goods or services, or for administrative purposes are stated at cost lessaccumulated depreciation and any impairment in value. Freehold land is not depreciated and is held at historical cost. Depreciation is provided so as to write off the cost of assets on a straightlines basis over the estimated useful life, as follows:Freehold buildings 25 to 50 yearsPlant and Machinery 3 to 10 yearsOffice equipment, fixtures and fittings 3 to 10 years The carrying values of plant and equipment are reviewed for impairment whenevents or changes in circumstances indicate the carrying value may not berecoverable. If any such indication exists and where the carrying value exceedsthe estimated recoverable amount, the assets or cash-generating units arewritten down to their recoverable amount. The recoverable amount is the greaterof the fair value less costs to sell and value in use. An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected to arise from continued use of theasset. Any gain or loss on derecognition of the asset (calculated as thedifference between the net disposal proceeds and the carrying amount of theitem) is included in the income statement in the year the item is derecognised. GoodwillGoodwill represents the excess of the cost of the acquisition over the Group'sinterest in the fair value of the identifiable assets, liabilities andcontingent liabilities of the subsidiary or business assets. Goodwill isrecognised as an asset and reviewed for impairment at least annually. Anyimpairment is recognised immediately in profit or loss and is not subsequentlyreversed. Goodwill arising on acquisitions before the date of transition to IFRSs has beenretained at the previous UK GAAP amounts subject to being tested for impairmentat that date. Goodwill written off to reserves under UK GAAP prior to 31 March2004 has not been reinstated and will not be included in determining anysubsequent profit or loss on disposal. Intangible assetsIntangible assets acquired separately are capitalised at cost and, from abusiness acquisition, are capitalised at fair value at the date of acquisition.Following initial recognition, the cost model is applied to the class ofintangible assets. The useful life of these intangible assets is assessed to beeither finite or indefinite. Where amortisation is charged on assets with finitelives, this expense is taken to the income statement through the following lineitems: Computer Software 'cost of sales' and 'administrative expenses'Research and Development 'research and development'Patents 'administrative expenses' Intangible assets, excluding development costs and software, created within thebusiness are not capitalised and expenditure is charged against profits in theyear in which the expenditure is incurred. Intangible assets are tested for impairment annually either individually or atthe cash generating unit level. Useful lives are also examined on an annualbasis and adjustments, where applicable are made on a prospective basis. Computer software purchased (or internally generated) for use that is integralto the hardware (because without that software the equipment cannot operate) istreated as part of the hardware and capitalised as property, plant andequipment. Other software programs are treated as intangible assets. Amortisation is provided so as to write off the cost of intangible assets on astraight lines basis over the estimated useful life, as follows: Patents 10 yearsSoftware 2 to 7 years Research and developmentResearch costs are expensed as incurred. Development expenditure incurred on anindividual project is carried forward when its future recoverability canreasonably be regarded as assured. For new products, this is deemed to occurwhen the productionisation review has been completed. At this stage thetechnical feasibility and future economic benefits of the product are confirmed.Such expenditure is capitalised and amortised on a straight-line basis over theperiod of expected future sales from the related project. All expenditure ofexisting product development is capitalised unless there are specific indicatorsthat it does not meet the criteria. The carrying value of development costs is reviewed for impairment annually whenthe asset is not yet in use, or more frequently when an indicator of impairmentarises during the reporting year indicating that the carrying value may not berecoverable. Where no internally-generated asset can be recognised, development expenditureis recognised as an expense in the period in which it is incurred. Leasing commitmentsRentals payable under operating leases are charged in the profit and lossaccount on a straight line basis over the lease term. Benefits received andreceivable as an incentive to enter into an operating lease are also spread on astraight-line basis over the lease term. Borrowing costsBorrowing costs, including the amortisation of costs incurred in connection withthe arrangement of borrowings, are recognised as an expense in the period inwhich they are incurred. InventoriesInventories are stated at the lower of cost and net realisable value.Costs incurred in bringing each product to its present location and conditionare accounted for as follows for both the current year and previous year: Raw materials: Purchase cost on a first-in, first-out basis; Work in progress and finished goods: Cost of direct materials and labour and a proportion of manufacturing overheads based on a normal operating capacity. Net realisable value is estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Provision is made for obsolete, slow moving or defective items whereappropriate. Any net increase in provision for the period as a whole isrecognised as an expense in the period. Any net reversal of provision for theperiod as a whole is recognised as a reduction ProvisionsProvisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. The effectof the time value of money is not material and therefore the provisions are notdiscounted. Government grantsGovernment grants are recognised at their fair value where there is a reasonableassurance that the grant will be received and all attaching conditions will becomplied with. When the grant relates to an expense item, it is recognised asincome over the period necessary to match the grant on a systematic basis to thecosts that it is intended to compensate. Where the grant relates to an asset,the fair value is deducted in arriving at the carrying value of the asset and isrecognised as income over the life of the depreciable asset by way of a reduceddepreciation charge. Long-term contractsWhere the outcome of a construction contract (known as a long term contract ine2v technologies) can be estimated reliably, revenue and costs are recognised byreference to the stage of completion of the contract activity at the balancesheet date. This is normally measured by the proportion that contract costsincurred for work performed to date bear to the estimated total contract costs,except where this would not be representative of the stage of completion.Variations in contract work, claims and incentive payments are included to theextent that they have been agreed with the customer. Where the outcome of a long term contract cannot be estimated reliably, contractrevenue is recognised to the extent of contract costs incurred that it isprobable will be recoverable. When it is probable that total contract costs will exceed total contractrevenue, the expected loss is recognised as an expense immediately. TaxationCurrent tax, including UK corporation tax and foreign tax, is provided atamounts expected to be paid (or recovered) using the tax rate and laws that havebeen enacted or substantively enacted by the balance sheet date. Deferred taxationDeferred tax is recognised in respect of all taxable temporary differencesbetween the tax base and the accounting base of items in the balance sheet ofthe Group. Deferred tax is measured on an undiscounted basis at the tax ratesthat are expected to apply in the periods in which timing differences reverse,based on tax rates and laws enacted or substantively enacted at the balancesheet date. Provision is made for deferred tax that would arise on remittance of theretained earnings of overseas subsidiaries only to the extent that, at thebalance sheet date, such distributions are considered probable. Deferred tax assets are recognised only to the extent that the directorsconsider that it is more likely than not that there will be suitable taxableprofits from which the future reversal of the underlying timing differences canbe deducted. Foreign currenciesTransactions in currencies other than pounds sterling are recorded at the rateof exchange ruling at the date of the transaction. At each balance sheet date,monetary assets and liabilities denominated in foreign currencies areretranslated at the rate of exchange ruling at the balance sheet date.Non-monetary assets and liabilities measured at historical cost are translatedat the rate of exchange ruling at the date of the transaction. All gains andlosses arising on retranslation are taken to the profit and loss account. In order to hedge its exposure to certain foreign currency exchange risks, theGroup enters into forward contracts. Details of the Group's accounting policiesin respect of such derivative financial instruments are given below. On consolidation, the assets and liabilities of overseas subsidiary undertakingsare translated at the rate of exchange ruling at the balance sheet date. Incomeand expense items are translated at the average rate for the year. The exchangedifference arising on the retranslation of opening net assets is taken directlyto the Group's translation reserve, as well as the difference between theaverage and closing rate effect on the profit and loss for the year. Suchtranslation differences are only recognised as income or expense in the periodin which the operation is disposed of. Translation differences on permanentinter-company loans with the same characteristics as equity, are taken directlyto the Group's translation reserve. Derivative instrumentsThe Group uses forward foreign currency contracts to hedge its exposure toforeign exchange rates. The Group also uses interest rate swaps to hedgeinterest rate exposures. The Group does not hold or use derivative financialinstruments for trading purposes. Derivative financial instruments are purchased to hedge the variability in cashflows from highly probable forecasted transactions caused by changes in exchangerates. Up until 31 March 2005, the value of such instruments was recognised atthe same time as the transactions being hedged occurred. From 1 April 2005, suchinstruments are carried in the balance sheet at fair value with any gain or lossbeing recognised in equity. At the point the hedged transaction occurs, thevalue carried within equity is reversed and recognised in the income statement.Any ineffective portion of any gain or loss arising on such instruments isrecognised immediately in the income statement. Up until 31 March 2005, the Group accounted for any interest differentials byaccruing the net interest payable. Interest rate swaps were not revalued to fairvalue or shown on the Group balance sheet at the year-end. From 1 April 2005,the market value of these instruments is carried in the balance sheet with anygain or loss being recognised in equity to the extent that the hedge is deemedto be effective. At the point the hedged transaction occurs, any valued carriedwithin equity is reversed and recognised in the income statement. Anyineffective portion of any gain or loss arising on revaluation of suchinstruments is recognised immediately in the income statement. Pension scheme arrangementsPayments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. Payments made to state-managed retirement schemes aredealt with as payments to defined contribution schemes where the group'sobligations under the schemes are equivalent to those arising in a definedcontribution retirement benefit scheme. Share-based payment transactionsEmployees (including directors) of the Group receive remuneration in the form ofshare-based payment transactions, whereby employees render services in exchangefor rights over shares ('equity-settled transactions'). The cost of equity settled transactions with employees is measured by referenceto the fair value at the date at which they are granted. The fair value isdetermined by an external valuer using a stochastic model. In valuingequity-settled transactions, no account is taken of any performance conditions,other than conditions linked to the price of the shares of e2v Technologies plc('market conditions'). The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performanceconditions are fulfilled, ending on the date on which the relevant employeesbecome fully entitled to the award ('vesting date'). The cumulative expenserecognised for equity-settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired and thenumber of awards that, in the opinion of the directors of the Group at thatdate, based on the best available estimate of the number of equity instrumentsthat will ultimately vest. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expenseis recognised as if the terms had not been modified. In addition, an expense isrecognised for any increase in the value of the transaction as a result of themodification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any expense not yet recognised for the award isrecognised immediately. However, if a new award is substituted for the cancelledaward, and designated as a replacement award on the date that it is granted, thecancelled and new awards are treated as if they were a modification of theoriginal award, as described in the previous paragraph.The dilutive effect of outstanding options is reflected as additional sharedilution in the computation of earnings per share. The Group has an employee share incentive plan and an Employee Benefit Trust forthe granting of non-transferable options to executives and senior employees.Shares in the Group held by the Employee Benefit Trust are treated as treasuryshares and presented in the balance sheet as a deduction from equity. We have audited the accompanying preliminary International Financial ReportingStandards ("IFRS") financial statements of the company for the year ended 31March 2005 which comprise the opening IFRS Balance Sheet as at 1 April 2004, theProfit and Loss Account and the Statement of Changes in Equity for the yearended 31 March 2005 and the Balance Sheet as at 31 March 2005, together with therelated accounting policies note set out on pages 11 to 15. This report is made solely to the directors in accordance with our engagementletter dated 5th October 2005. Our audit work has been undertaken so that we might state to the directors 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 company for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors These preliminary IFRS financial statements are the responsibility of theCompany's directors and have been prepared as part of the Company's conversionto IFRS. They have been prepared in accordance with the basis set out on page 4,which describes how IFRS have been applied under IFRS 1, including theassumptions management has made about the standards and interpretations expectedto be effective, and the policies expected to be adopted, when managementprepares its first complete set of IFRS financial statements as at 31 March2006. Our responsibility is to express an independent opinion on the preliminary IFRSfinancial statements based on our audit. We read the other informationaccompanying the preliminary IFRS financial statements and consider whether itis consistent with the preliminary IFRS financial statements. This otherinformation comprises the explanatory notes on the impact of IFRS on pages 4 to5, and the reconciliation from UK GAAP to IFRS on pages 6 to 10. We consider theimplications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the preliminary IFRS financial statements. Ourresponsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standardsissued by the Auditing Practices Board. Those Standards require that we plan andperform the audit to obtain reasonable assurance about whether the preliminaryIFRS financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe preliminary IFRS financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall presentation of the preliminary IFRS financialstatements. We believe that our audit provides a reasonable basis for ouropinion. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that the basis ofpreparation on page 4 explains why there is a possibility that the preliminaryIFRS financial statements may require adjustment before constituting the finalIFRS financial statements. Moreover, we draw attention to the fact that, underIFRSs only a complete set of financial statements with comparative financialinformation and explanatory notes can provide a fair presentation of theCompany's financial position, results of operations and cash flows in accordancewith IFRSs. Opinion In our opinion, the preliminary IFRS financial statements for the year ended 31March 2005 have been prepared, in all material respects, in accordance with thebasis set out on page 3, which describes how IFRS have been applied under IFRS1, including the assumptions management has made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when management prepares its first complete set of IFRS financialstatements as at 31March 2006. Ernst & YoungDate 31st October 2005Cambridge This information is provided by RNS The company news service from the London Stock Exchange