Regulatory Announcements

*Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.

 

 

1. Introduction

 

These interim consolidated financial statements are for the 26 weeks ended 30 June 2007.  They were approved by the Board on 3 September 2007 and are unaudited.  The Group Accounts for the year to 30 December 2006, prepared in accordance with IFRS, which carried an unqualified Auditors' Report, have been filed with the Registrar of Companies.

The Group has not applied IAS 34 "Interim financial reporting", which is not mandatory for UK groups, in the preparation of these interim financial statements.

 

A summary of the more significant accounting policies is set out below.  These have been consistently applied to all periods presented.

 

 

The consolidated accounts incorporate the accounts of the Company and its subsidiaries, joint ventures and associates from the effective date of acquisition or to the date of deemed disposal.

 

 

 

Distribution - revenue is recognised on the weekly invoiced value of goods sold, excluding value added tax.

 

Aviation - cargo revenue is recognised at the point of departure for exports and at the point that the goods are ready for dispatch for imports. Other ramp, passenger and aviation-related services income is recognised in accordance with when the service was performed. Revenue excludes value added and sales taxes, charges collected on behalf of customers and intercompany transactions.

 

 

Property, plant and equipment are stated at cost, including acquisition expenses, less accumulated depreciation.  Depreciation is provided on a straight line basis at the following rates:

 

Freehold and long leasehold properties	- over 50 years
Short leasehold properties	- over the remaining lease term
Plant and equipment	- over the estimated life of the asset

 

 

 

Inventories, being goods for resale and consumables, are stated at the lower of purchase cost and net realisable value.

 

 

The operating and financing costs of pensions are charged to the income statement in the period in which they arise and are recognised separately.  The cost of past service benefit enhancements, settlements and curtailments are also recognised in the period in which they arise.  The difference between actual and expected returns on assets during the year, including changes in actuarial assumptions, are recognised in the statement of recognised income and expense.

 

Pension costs are assessed in accordance with the advice of qualified actuaries.

 

With regard to defined contribution schemes, the income statement charge represents contributions made.

 

 

Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period.

 

Deferred tax is provided in full, using the liability method, on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.  Deferred tax arising from the initial recognition 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, is not recognised.  Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences.  Deferred tax assets represent tax recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits.

 

Deferred tax is determined using the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.  Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.  A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

 

Current and deferred tax is recognised in the income statement except if it relates to an item recognised directly in equity, in which case it is recognised directly in equity.

 

 

 

Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiary, associate or joint venture at the date of acquisition.  Goodwill acquired is recognised as an asset and reviewed for impairment at least annually by assessing the recoverable amount of each cash- generating unit to which the goodwill relates.  When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.  Any impairment is recognised immediately in the income statement.

 

Goodwill arising on the acquisition of joint ventures and associates is included within the carrying value of the investment.

 

Goodwill arising on acquisitions before 26 December 2004 (the date of transition to IFRS) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.

 

 

The fair value attributed to contracts at the point of acquisition is determined by discounting the expected future cash flows to be generated from that asset at the risk-adjusted weighted average cost of capital for the Group.  This amount is included in intangible assets as "contracts" and amortised over the estimated useful life on a straight-line basis.  Separate values are not attributed to internally-generated customer relationships.

 

Contract amortisation is business-stream dependent.  At Distribution, contracts capitalised are not amortised due to the very long-term nature of the business in the UK.  These contracts are, however, tested annually for impairment using similar criteria to the goodwill test.  At Aviation, contracts are amortised on a straight-line basis over ten years as this period is the minimum time-frame management considers when assessing businesses for acquisition.

 

 

Development expenditure incurred on individual projects is carried forward only if all the criteria set out in IAS 38 "Intangible assets" are met.  Following the initial recognition of development expenditure, the cost is amortised over the project's estimated useful life, usually three years.

 

 

Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred.  Costs that are directly attributable with the production of identifiable and unique software products controlled by the Group, and that are expected to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets.  Direct costs include the costs of software development employees.  Costs are amortised over their estimated useful lives.

 

 

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.  All other leases are classified as operating leases.

 

Assets acquired under finance leases are capitalised in the balance sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease.  The corresponding liability to the lessor is recorded in the balance sheet as a finance lease obligation.  The lease payments are apportioned between finance charges (charged to the income statement) and a reduction of the lease obligations.

 

Rental payments under operating leases are charged to the income statement on a straight line basis over applicable lease periods.

 

 

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.  Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

 

 

Foreign currency assets and liabilities of the Group are translated at the rates of exchange ruling at the balance sheet date.  The trading results of overseas subsidiaries, joint ventures and associates are translated at the average exchange rate ruling during the year, with the exchange difference between average rates and the rates ruling at the balance sheet date being taken to reserves.

 

Any differences arising on the translation of the opening net investment, including goodwill, in overseas subsidiaries, joint ventures and associates, and of applicable foreign currency loans, are dealt with as adjustments to reserves.  All other exchange differences are dealt with in the income statement.

 

The Group uses forward contracts and cross-currency swaps as derivatives to hedge the risk arising from the retranslation of foreign currency denominated items.

 

The Group has derivatives which are designated as hedges of overseas net investments in foreign entities (net investment hedges) and derivatives which are designated as hedges of the exchange risk arising from the retranslation of highly probable forecast revenue denominated in non-local currency of some of our overseas operations (cash flow hedges).

 

In all cases the derivative contracts entered into by the Group have been highly effective during the reporting period, and are expected to continue to be highly effective until they expire. As a result all derivatives have been recorded using hedge accounting, which is explained below.

 

All derivatives are initially recorded on the balance sheet at fair value either on transition from UK GAAP at 1 January 2005 or on the date they are entered into if that is a later date. All derivatives are subsequently measured at fair value, which is calculated as the present value of all future cash flows from the derivative discounted at prevailing market rates.

 

Changes in the fair value of the effective portion of Net Investment Hedges are recorded in equity, and are only recycled to the income statement on disposal of the overseas net investment.

 

Changes in the fair value of the effective portion of cash flow hedges are recorded in equity until such time as the forecast transaction occurs, at which time they are recycled to the income statement. If however, the occurrence of the transaction results in a non-financial asset or liability, then amounts recycled from equity would be included in the cost of the non-financial asset or liability. If the forecast transaction remains probable but ceases to be highly probable then, from that point, changes in fair value would be recorded in the income statement within finance costs. Similarly, if the forecast transaction ceases to be probable then the entire fair value recorded in equity and future changes in fair value would be posted to the income statement within finance costs.

 

Any ineffective portion of movements in the fair value of hedging instruments is recognised in the income statement within finance costs.

 

 

The Group makes estimates and assumptions concerning the future.  These estimates will, by definition, seldom equal the related actual results.  The Board has considered the critical accounting estimates and assumptions used in the Accounts and concluded the main area of significant risk which may cause a material adjustment to the carrying amount of assets and liabilities within the next financial year is in respect of the assumptions used to calculate pension benefits.  The assumptions include corporate bond yields, investment return, price and salary inflation and mortality assumptions.  Full details of assumptions used to calculate the pension assets and liabilities are found in Note 4 to the Annual Report.

 

 

 

Exceptional items are those one-off and/or material items which the Group considers should be highlighted due to their scope and nature.

 

 

Final ordinary dividends are recognised as liabilities in the accounts in the period in which the dividends are approved by the Company's shareholders.