Released: 18/06/2009
Part 2 : For preceding part double click [nRn1R0852U]
capitalise borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that
asset. The previous version of IAS 23 allowed an option as to whether this
expenditure was capitalised or directly expensed. The group will apply IAS 23
(Amendment) from 1 October 2009 but does not expect this amendment to have a
major impact on the group.
IAS 1 (Revised) Presentation of Financial Statements - The main objective of the
amendment to IAS 1 was to aggregate information in the financial statements on
the basis of shared characteristics. The amendment also introduces a "Statement
of Comprehensive Income". The amendment is effective for annual periods
beginning on or after 1 January 2009, and will result in a revised layout of
some aspects of the group's financial statements when adopted from its effective
date. The group will apply IAS 1 (Revised) from 1 October 2009. It is likely
that both the income statement and statement of comprehensive income will be
presented as performance statements.
IFRS 2 'Vesting conditions and cancellations - Amendment to IFRS 2 Share-based
Payment', (effective for annual periods beginning on or after 1 January 2009).
The amendment addresses two matters. It clarifies that vesting conditions are
service conditions and performance conditions only. Other features of a
share-based payment are not vesting conditions. It also specifies that all
cancellations, whether by the entity or by other parties, should receive the
same accounting treatment. The group will apply IFRS 2 (Amendment) from 1
October 2009, and is currently considering the likely impact.
IAS 32 (Amendment) and IAS 1 (Amendment) 'Puttable financial instruments and
obligations arising on liquidation', (effective for annual periods beginning on
or after 1 January 2009). The amendments require some puttable financial
instruments and some financial instruments that impose on the entity an
obligation to deliver to another party a pro rata share of net assets of the
entity only on liquidation to be classified as equity. The group will apply the
IAS 32 and IAS 1 (Amendment) from 1 October 2009, but it is not likely to have
an impact on the group's accounts.
3 Basis of preparation - continued
IFRS 3 (Revised), "Business combinations", (effective for annual periods
beginning on or after 1 July 2009). The standard continues to apply the
acquisition method to business combinations, with some significant changes.
These changes include a requirement that all payments to purchase a business are
to be recorded at fair value at the acquisition date, with some contingent
payments subsequently re-measured through income. Goodwill may be calculated
based on the parent's share of net assets or it may include goodwill related to
non - controlling interests. All transactions costs will be expensed. The group
will apply IFRS 3 (Revised) prospectively to all business combinations from 1
October 2009.
IAS 27 (Revised), 'Consolidated and separate financial statements', (effective
for annual periods beginning on or after 1 July 2009). IAS 27 (Revised) requires
the effect of all transactions with non-controlling interests to be recorded in
equity if there is no change in control. They will no longer result in goodwill
or gains and losses. The standard also specifies the accounting when control is
lost. Any remaining interest in the entity is re-measured to fair value and a
gain or loss is recognised in profit or loss. The group will apply IAS 27
(Revised) prospectively to transactions with non-controlling interests from 1
October 2009.
IFRIC 15 'Agreements for construction of real estates' (effective from 1 January
2009). The interpretation clarifies whether IAS 18, "Revenue" or IAS 11,
"Construction contracts" should be applied to particular transactions. It is
likely to result in IAS 18 being applied to a wider range of transactions. IFRIC
15 is not relevant to the group's operations as all revenue transactions are
accounted for under IAS 18 and not IAS 11.
IFRIC 17 'Distributions of Non - cash assets to owners' (effective for annual
periods beginning on / after 1 July 2009). This interpretation applies to
transactions in which an entity distributes assets (other than cash) as
dividends to its owners acting in their capacity as owners. The IFRIC addresses
when an entity should recognise a dividend payable and how an entity should
measure the dividend payable. The group will apply IFRIC 17 from its effective
date. This is currently not relevant to the group's operations.
IFRIC 18, 'Transfers of Assets from Customers' (effective for transfers of
assets from customers received on or after 1 July 2009). The interpretation is
still subject to EU endorsement. This interpretation applies to agreements in
which an entity receives from a customer an item of property, plant and
equipment (or an amount of cash which must be used to construct or acquire an
item of property, plant and equipment) that the entity must use either to
connect the customer to a network or to provide the customer with ongoing access
to a supply of goods or services, or do both. IFRIC 18 is currently not relevant
to the group's activities.
IFRS 1 (Revised), 'First-time Adoption of International Financial Reporting
Standards', (effective from 1 January 2009). The current IFRS 1 has been amended
many times to accommodate first time adoption requirements of new and amended
IFRSs, resulting in a more complex and less clear standard. This revised version
retains the substance of the original standard but with a changed structure. The
revised IFRS 1 is not applicable to the group as it has already adopted IFRS,
however it would be applicable to other entities in the group should they
transition to IFRS at a future date.
Amendments to IFRS 1 'First-time adoption of IFRS' and IAS 27 'Consolidated and
separate financial statements - cost of an investment in a subsidiary, jointly
controlled entity or associate', (effective for annual periods beginning on or
after 1 January 2009). First-time adopters are permitted to use a deemed cost of
either fair value or the carrying amount under previous accounting practice to
measure the initial cost of investments in subsidiaries, jointly controlled
entities and associates in their separate financial statements. The amendment
also removed the definition of the cost method from IAS 27 and replaced it with
a requirement to present dividends - as income in the separate financial
statements of the investor. The group will apply these amendments from 1 October
2009 but they are currently not applicable to the group.
Improvements to IFRS, (most of the amendments effective for annual periods
beginning on or after 1 January 2009). The improvements to IFRS represent a
number of 'non-urgent' amendments to IFRSs that involve accounting changes for
presentation, recognition and measurement, and terminology or editorial changes
with minimal effect of accounting. The Group will apply these improvements from
their relative effective dates and is currently assessing the impact on the
Group's financial statements.
4 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, rarely equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year together with critical judgements in respect of the
financial year are outlined below:
(a) Going concern
The group has prepared the financial information on a going concern basis.
Further details are described in note 1 supporting the basis.
(b) Estimated impairment of goodwill
The group tests at least annually whether goodwill has suffered any impairment,
in accordance with the accounting policy stated in note 5. The recoverable
amounts of cash-generating units have been determined based on value-in-use
calculations, and these calculations require the use of estimates. Estimating a
"value-in-use" amount requires sufficient judgement to make an estimate of the
expected future cash flows from the cash generating unit and also to choose a
suitable discount rate in order to calculate the present value of those cash
flows.
(c) Capitalisation of development costs
Costs incurred on development projects are recognised as intangible assets when
the criteria in the development expenditure accounting policy in note 5 are
achieved. A degree of judgement is involved in assessing the achievement of the
criteria.
(d) Establishing useful lives for amortisation purposes of properly, plant
and equipment and intangible assets
The group has intangible assets (other than goodwill) of E46.6 million and
property, plant and equipment of E36.8 million as at 31 March 2009. The
amortisation charges and depreciation charges are dependent on the estimated
lives allocated to each type of intangible asset.
The directors regularly review these asset lives and change them as necessary to
reflect current thinking on remaining lives and the expected pattern of
consumption of the future economic benefits embodied in the asset. Changes in
asset lives can have a significant impact on depreciation and amortisation
charges for the period.
Details of the useful lives of the various classes of property, plant and
machinery and intangible assets are included in note 5.
(e) Fair value of business combinations
Goodwill only arises in business combinations. The amount of goodwill initially
recognised is the excess of the cost of an acquisition over the fair value of
the Group's share of the net identifiable assets of the acquired
subsidiary/associate at the date of acquisition.
The determination of the fair value of the assets and liabilities is based, to a
considerable extent, on management's judgement and estimates.
Allocation of the purchase price affects the results of the Group as finite
lived intangible assets are amortised, whereas indefinite lived intangible
assets, including goodwill, are not amortised and could result in differing
amortisation charges based on the allocation to indefinite lived and finite
lived intangible assets.
On acquisition, the identifiable intangible assets may include customer bases
and brands. The fair value of these assets is determined by discounting
estimated future net cash flows generated by the asset, assuming no active
market for the assets exist. The use of different assumptions for the
expectations of future cash flows and the discount rate would change the
valuation of the intangible assets, and consequently the level of recognised
goodwill.
(f) Cardpoint as acquirer
The acquisition of the entire share capital of Cardpoint and alphyra by Payzone
plc has been accounted for as a reverse acquisition of the combined Payzone and
alphyra group by Cardpoint plc. The determination of the acquirer in this
transaction is seen as a critical judgement as any change in this judgement can
have a significant impact on the accounting for the business combination.
Management gave detailed consideration to the terms, conditions, facts and
circumstances surrounding the transaction together with the guidance in IFRS 3
in relation to identifying the acquirer in a business combination. Ultimately
Cardpoint plc was seen as the acquirer as it was judged to control alphyra due
to its:
* power to govern the financial and operating policies of alphyra;
* power to appoint or remove the majority of the members of the board of
directors or equivalent governing body of the other entity; and
* power to cast the majority of votes at meetings of the board of directors.
(g) Determination of special items
Significant judgement is exercised in making such an assessment.
(h) Determination of functional currency
The group is headquartered in Ireland and has significant operations in the UK
and Europe and accordingly principally operates in two different currencies.
Reflecting its economic operating environment the group has determined that the
Euro is Payzone plc's functional currency for the preparation of the
consolidated financial statements. However, the functional currency of the
accounting acquirer Cardpoint plc is sterling. The group's presentation currency
is Euro.
5 Accounting policies
The principal accounting policies applied in the preparation of this financial
information are set out below. These policies have been applied consistently to
all periods presented, unless stated otherwise.
Basis of consolidation
Payzone Plc is the legal parent and acts as a holding company. In respect of the
business combination effected last year, Cardpoint plc is the accounting
acquirer. The group accounts consolidate the accounts of Payzone plc and
entities controlled directly and indirectly by Payzone plc (its subsidiaries)
drawn up to September each year. Control is achieved where the group has the
power to govern the financial and operating policies of an entity in which it
invests, so as to obtain benefits from its activities. This usually accompanies
a shareholding of more than one half of the voting rights.
The results of subsidiaries acquired or sold are consolidated for the periods
from or to the date on which control passed.
(a) Subsidiaries
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquired
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition are recognised at their fair value 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. Intercompany
transactions, balances and unrealised gains on transactions between group
companies are eliminated; unrealised losses are also eliminated unless cost
cannot be recovered and are also considered to be an indicator of impairment of
the transferred asset.
In cases of business combinations involving entities under common control, the
assets and liabilities of the acquired subsidiaries are initially included in
the consolidated financial statements at their book values at the date of
acquisition, applying "merger accounting" principles to the transaction.
(b) Associates
Associates are all entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of the
voting rights. Investments in associates are accounted for by the equity method
of accounting and are initially recognised at cost, including any goodwill
attributable to the interest acquired.
The Group's share of its associates' post-acquisition profits or losses is
recognised in the income statement, and its share of post-acquisition movements
in reserves is recognised in reserves. The cumulative post acquisition movements
are adjusted against the carrying amount of the investment.
When the Group's share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured receivables, the Group does not
recognise further losses, unless it has incurred obligations or made payments on
behalf of the associates.
Unrealised gains on transactions between the Group and its associates are
eliminated to the extent of the Group's interest in the associates. Unrealised
losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of the associates have
been changed where necessary to ensure consistency with the accounting policies
adopted by the Group.
(c) Transactions with minority interests
The Group applies a policy of treating transactions with minority interests as
transactions with parties external to the Group. Disposals to minority interests
result in gains and losses for the Group that are recorded in the income
statement. Purchases from minority interests result in goodwill, being the
difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary.
Property, plant and equipment
Property, plant and equipment are stated at historical cost being, expenditure
directly attributable to the acquisition of the asset, less accumulated
depreciation.
Subsequent costs are included in the asset's carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the group and the cost of the
item can be measured reliably. The carrying amount of the replaced part is
derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred.
The charge for depreciation is calculated to write down the cost of property,
plant and equipment to their estimated residual values by equal annual
installments over their expected useful lives, which are as follows:
Terminals and ATMs 15% - 20%
Fixtures and fittings and equipment rates between 15% and 33.3%
Computer equipment rates between 20% and 33.3%
Property and leasehold renovations 12.5%
Motor vehicles rates between 20% and 33.3%
Leased assets over the unexpired term of the lease or estimated useful
life, if shorter
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
The assets' carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated recoverable
amount.
Gains and losses on disposals are determined by comparing the proceeds with the
carrying amount and are recognised in the income statement.
Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount or their fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amount will be recovered principally through a sale transaction rather
than through continuing use. This condition is regarded as met only when the
sale is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the
plan to sell and the sale should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Investment in subsidiaries
Investments in subsidiaries held by the company are carried at cost less
impairment.
5 Accounting policies - continued
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired
subsidiary/associate at the date of acquisition. Goodwill on acquisitions of
associates is included in "investments in associates" and is tested for
impairment as part of the overall balance. Separately recognised goodwill is
tested annually for impairment and carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the
disposed of entity.
Goodwill is allocated to cash generating units for the purpose of impairment
testing. The allocation is made to those cash generating units or groups of cash
generating units that are expected to benefit from the business combination in
which the goodwill arose.
(b) Trademarks, licences and brands
Acquired trademarks, licences and brands are shown at historical cost.
Trademarks and licenses have a finite useful life and are carried at cost less
accumulated amortisation. Amortisation is calculated using the straight line
method to allocate the cost of trademarks and brands over their estimated useful
lives (6 years).
(c) Computer software
Acquired computer software licences are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are
amortised over their estimated useful lives (three to five years).
Costs associated maintaining computer software programmes and software are
recognised as an expense as incurred. Costs that are directly associated with
the development of identifiable and unique software products controlled by the
group, and that will probably generate economic benefits exceeding costs beyond
one year, are recognised as intangible assets. Costs include employee costs
incurred as a result of developing software and an appropriate portion of the
relevant overheads.
An intangible asset arising from development (or from the development phase of
an internal project) shall be recognised if, and only if, an entity can
demonstrate all of the following:
(i) The technical feasibility of completing the intangible asset so that it will
be available for use or sale.
(ii) An intention to complete the intangible asset and use or sell it.
(iii) An ability to use or sell the intangible asset.
(iv) How the intangible asset will generate probable future economic benefits.
(v) The availability of adequate technical, financial and other resources to
complete the development and to use or sell the intangible asset.
(vi) Its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
Other development expenditure which does not meet these criteria are recognised
as an expense as incurred.
Computer software development costs recognised as assets are amortised over
their estimated useful lives (not exceeding 6 years).
(d) Customer-related intangible assets
Customer-related intangible assets recognised as part of a business combination
are initially recognised at fair value and are subsequently carried at original
cost less accumulated amortisation.
Acquired customer- and merchant-related intangible assets are amortised on a
straight line basis over their estimated useful lives (not exceeding 6 years).
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not
subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash flows (cash generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed for possible
reversal of the impairment at each reporting date.
Derivative financial instruments and hedge activities
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their fair value.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. The group designates certain derivatives as either:
(a) Hedges of the fair value of recognised assets or liabilities or a firm
commitment (fair value hedge);(b) Hedges of a particular risk associated with
a recognised asset or liability or a highly probable forecast transaction
(cash flow hedge); or
(c) Hedges of a net investment in a foreign operation (net investment
hedge).
The group documents at the inception of the transaction, the relationship
between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedging transactions. The group
also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset
or liability when the remaining maturity of the hedged item is more than 12
months and as a current asset or liability when the remaining maturity of the
hedged item is less than 12 months. Trading derivatives are classified as a
current asset or liability.
The group has only a cash flow hedge in place which is accounted for as
follows:
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement.
Amounts accumulated in equity are recycled in the income statement in the
periods when the hedged item affects profit or loss (for example, when the
forecast interest payment that is hedged takes place). The gain or loss relating
to the effective portion of interest rate swaps hedging variable rate borrowings
is recognised in the income statement within 'finance costs'. However, when the
forecast transaction that is hedged results in the recognition of a
non-financial asset (for example, inventory or property, plant and equipment)
the gains and losses previously deferred in equity are transferred from equity
and included in the initial measurement of the cost of the asset. The deferred
amounts are ultimately recognised in cost of sales in case of inventory or in
depreciation in the case of property, plant and equipment.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined on a first-in first-out (FIFO) basis. Cost in the case of goods for
resale, is defined as the aggregate cost of acquiring such inventories from
third parties. Net realisable value is based on normal selling price, less
further costs expected to be incurred to disposal.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the group will not be able to collect all
amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency in payments
(more than 30 days overdue) are considered indicators that the trade receivable
is impaired. The amount of the provision is the difference between the asset's
carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of the loss is
recognised in the income statement within administrative expenses. When a trade
receivable is uncollectible, it is written off against the allowance account for
trade receivables. Subsequent recoveries of amounts previously written off are
credited against administrative expenses in the income statement.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities of
three months or less. Bank overdrafts are shown within current liabilities on
the balance sheet. For the purpose of the cash flow statement, cash and cash
equivalents comprise cash at bank and in hand and short-term deposits maturing
within 3 months which are subject to insignificant risk of changes in value;
less bank overdrafts.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost: any difference
between the proceeds (net of transaction cost) and the redemption value is
recognised in the income statement over the period of the borrowings using the
effective interest rate.
Borrowings are classified as current liabilities unless the group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Borrowing costs directly attributable to the acquisition, construction or
production of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale. Investment income earned on
the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the income statement in the period
in which they are incurred.
5 Accounting policies - continued
Convertible Preference shares are classified as financial liabilities when the
group may be required to deliver cash or another financial asset in the event of
the occurrence or non-occurrence of uncertain future events that are beyond the
control of both the group and the preference shareholder, such as a change in
control.
Provisions
A provision is a liability of an uncertain timing or amount. A provision is
recognised when the group has a present obligation as a result of a past event,
it is probable that an outflow of resources will be required to settle the
obligation and a reliable estimate of the obligation can be made.
A provision for onerous contracts is recognised when the expected benefits to be
derived by the Group from a contract are lower than the unavoidable costs of
meeting its obligations under the contract (onerous contracts). A provision for
onerous contracts is recognised when, for example, the group has entered a
binding lease for rental of premises that is no longer used by the group or a
binding agreement with a customer which is loss-making and therefore a provision
is recognised for the unavoidable costs associated with that contract (i.e.
lower of costs of fulfilling the contract and the costs of terminating the
contract).
Provisions for restructuring costs and legal claims are recognised when: the
group has a present legal or constructive obligation as a result of past events;
it is probable that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated. Restructuring provisions
comprise lease termination penalties and employee termination payments.
Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow
will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an
outflow with respect to any one item included in the same class of obligations
may be small.
Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation discounted to their present value using a
pre-tax rate that reflects current market assessments of the time value of money
and the risks specific to the obligation. The increase in the provision due to
passage of time is recognised as interest expense.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new ordinary shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
Where any group company purchases the Company's equity share capital (treasury
shares), 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 or reissued. Where such
shares are subsequently 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.
Foreign currency
(a) Functional and presentation currency
Items included in the financial statements of each of the group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). Payzone plc's functional currency
is Euro. Cardpoint plc's functional currency is Sterling. The presentation
currency for these financial statements is Euro.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
(c) Group companies
The results and financial position of all the group entities that have a
functional currency different from the presentation currency are translated into
the presentation currency as follows:
* Assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet;
* Income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the rate on the dates of the
transactions); and
* All resulting exchange differences are recognised as a separate component of
equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to equity. When
a foreign operation is partly disposed of or sold, exchange differences that
were recorded in equity are recognised in the income statement as part of the
gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Current and deferred income tax
The current income tax charge is calculated on the basis of the tax laws enacted
or substantively enacted at the balance sheet date in the countries where the
company's subsidiaries and associates operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation and
establishes provisions where appropriate on the basis of amounts expected to be
paid to the tax authorities.
Deferred income tax is recognised 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,
deferred income tax is not accounted for if it arises from 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. Deferred income tax is determined using tax rates (and laws) that have
been enacted or substantially enacted by the balance sheet date and are expected
to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, 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.
5 Accounting policies - continued
Leases
Assets held under finance leases, which confer rights and obligations similar to
those attached to owned assets, are capitalised as property, plant and equipment
or intangible assets and are depreciated over the shorter of the lease terms and
their useful lives. The capital elements of future lease obligations are
recorded as liabilities, while the interest elements are charged to the income
statement over the period of the leases to produce a constant rate of charge on
the remaining balance of liability.
All other leases are operating leases. Rentals under operating leases are
charged on a straight-line basis over the lease term, even if the payments are
not made on such a basis. Benefits received and receivable as an incentive to
sign an operating lease are similarly spread on a straight line basis over the
lease term, except where the period to the review date on which the rent is
first expected to be adjusted to the prevailing market rate is shorter than the
full lease term, in which case the shorter period is used.
Rentals received for terminals from retail agents under operating leases are
credited to income on a straight line basis over the lease term.
Employee benefits
(a) Pension obligations
The pension entitlements of employees arise under defined contribution plans.
Contributions to the group's defined contribution pension plans are charged to
the income statement as incurred.
(b) Bonus plans
The group recognises a liability and an expense where contractually obliged or
where there is a past practice that has created a constructive obligation of
making bonus payments.
(c) Share based compensation
The group operates an equity-settled, share-based compensation plan. The fair
value of the employee services received in exchange for the grant of the options
is recognised as an expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions (for example,
profitability and sales growth targets). Non-market vesting conditions are
included in assumptions about the number of options that are expected to become
exercisable. At each balance sheet date, the entity revises its estimates of the
number of options that are expected to become exercisable. It recognises the
impact of the revision of original estimates, if any, in the income statement,
with a corresponding adjustment to equity. The group accounts for the
cancellation or settlement of a share based payment award as an acceleration of
vesting, and recognises immediately the amount that otherwise would have been
recognised for services received over the remainder of the vesting period.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
(d) Termination benefits
Termination benefits are payable when employment is terminated by the group
before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The group recognises termination
benefits when it is demonstrably committed to either: terminating the employment
of current employees according to a detailed formal plan without possibility of
withdrawal; or providing termination benefits as a result of an offer made to
encourage voluntary redundancy. Benefits falling due more than 12 months after
the balance sheet date are discounted to their present value.
5 Accounting policies - continued
Revenue
Revenue comprises the fair value of consideration receivable in respect of
services and prepaid credits for cellular phones, utilities sold to third
parties and ATM transactions exclusive of value added tax. Revenue of the group
is earned from prepaid cellular top-up and prepaid utilities sold to third
parties, installation and maintenance services, electronic payment services,
debit and credit card processing and ATM transactions. Revenue is recognised in
the period earned by rendering of services or sale of products.
Revenue from prepaid credits for cellular top up and utilities is recognised on
a gross basis where the group acts as a principal in relation to these
transactions, due to the fact that the group bears the majority of risk,
principally inventory risk, in relation to such transactions.
Where such inventory risk is not borne by the group only commission earned is
recorded as revenue. However, in cases where the credit risk is maintained by
the group the receivable and corresponding liability are recognised.
Revenue in respect of maintenance contracts is deferred and recognised ratably
over the period of the contract.
Annual service charges consist of subscriber billings for service not yet
rendered. These are deferred and taken into income as earned. The maximum period
for which subscribers are billed in advance is generally one year.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and returns that are different from those segments operating in
other economic environments. Arising from the group's internal organisational
structure and its system of internal financial reporting, segmentation by
geographical location (geography) is regarded as being the predominant source
and nature of the risks and returns facing the group and is thus the primary
basis for segmentation under IAS 14 "Segment Reporting". Business segmentation
is the secondary segment reporting format.
Deferred revenues
Deferred revenue comprises service and maintenance charges billed in advance of
provision of services.
Cost of sales
Cost of sales includes agents' commission, the cost of mobile top-ups where
Payzone acts as principal in their purchase and sale, consumables,
communications, maintenance, depreciation and external processing charges levied
by banks. Other costs are allocated to administrative costs.
Finance income
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount.
Finance costs
Finance costs comprise interest on borrowings, interest component of finance
leases, bank charges and amortised debt transaction costs.
Interest payable on borrowings and the interest expense component of finance
lease payments is calculated using the effective interest rate method.
5 Accounting policies - continued
Special items
Special items are material non-recurring items that derive from events or
transactions that fall within the ordinary activities of the group and which
individually or, if of a similar type, in aggregate, are separately disclosed by
virtue of their size or incidence. Such items include non-current assets
impairment, restructuring costs, gains/losses on business disposals and
closures, costs incurred as a result of business combinations effected that do
not qualify for recognition as assets, share option charges arising from the
acceleration of vesting periods as a result of business combinations, borrowing
costs incurred as a result of a business combination that do not qualify to be
treated as a reduction of the liability.
Judgement is used by the group in assessing the particular items which should be
disclosed in the income statement and related notes as special items.
6 Administrative expenses - special items
6 month 6 month Year
period ended period ended ended
31 March 31 March 30 September
2009 2008 2008
E'000 E'000 E'000
Goodwill impairment (a) 76,531 143,081 149,173
Restructuring (b) 2,050 8,478 19,873
(Profit)/loss on disposal of subsidiaries (c) (3,665) - 3,646
Increase in bad debt provision (d) 2,700 - -
(Profit) on disposal of financial asset (e) (1,859) - -
Share option charge (f) - 2,108 2,015
Legal action with former directors (g) - - 4,092
75,757 153,667 178,799
(a) Goodwill impairment
The Group tests for impairment annually and also if there is an indication that
assets might be impaired. The Group identified the difficult trading conditions
and the weakening of sterling against the Euro as indicator of impairment and
performed an impairment review across all Cash Generating Units (CGUs).
More to follow, for following part double-click [nRn3R0852U] .
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capitalise borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that
asset. The previous version of IAS 23 allowed an option as to whether this
expenditure was capitalised or directly expensed. The group will apply IAS 23
(Amendment) from 1 October 2009 but does not expect this amendment to have a
major impact on the group.
IAS 1 (Revised) Presentation of Financial Statements - The main objective of the
amendment to IAS 1 was to aggregate information in the financial statements on
the basis of shared characteristics. The amendment also introduces a "Statement
of Comprehensive Income". The amendment is effective for annual periods
beginning on or after 1 January 2009, and will result in a revised layout of
some aspects of the group's financial statements when adopted from its effective
date. The group will apply IAS 1 (Revised) from 1 October 2009. It is likely
that both the income statement and statement of comprehensive income will be
presented as performance statements.
IFRS 2 'Vesting conditions and cancellations - Amendment to IFRS 2 Share-based
Payment', (effective for annual periods beginning on or after 1 January 2009).
The amendment addresses two matters. It clarifies that vesting conditions are
service conditions and performance conditions only. Other features of a
share-based payment are not vesting conditions. It also specifies that all
cancellations, whether by the entity or by other parties, should receive the
same accounting treatment. The group will apply IFRS 2 (Amendment) from 1
October 2009, and is currently considering the likely impact.
IAS 32 (Amendment) and IAS 1 (Amendment) 'Puttable financial instruments and
obligations arising on liquidation', (effective for annual periods beginning on
or after 1 January 2009). The amendments require some puttable financial
instruments and some financial instruments that impose on the entity an
obligation to deliver to another party a pro rata share of net assets of the
entity only on liquidation to be classified as equity. The group will apply the
IAS 32 and IAS 1 (Amendment) from 1 October 2009, but it is not likely to have
an impact on the group's accounts.
3 Basis of preparation - continued
IFRS 3 (Revised), "Business combinations", (effective for annual periods
beginning on or after 1 July 2009). The standard continues to apply the
acquisition method to business combinations, with some significant changes.
These changes include a requirement that all payments to purchase a business are
to be recorded at fair value at the acquisition date, with some contingent
payments subsequently re-measured through income. Goodwill may be calculated
based on the parent's share of net assets or it may include goodwill related to
non - controlling interests. All transactions costs will be expensed. The group
will apply IFRS 3 (Revised) prospectively to all business combinations from 1
October 2009.
IAS 27 (Revised), 'Consolidated and separate financial statements', (effective
for annual periods beginning on or after 1 July 2009). IAS 27 (Revised) requires
the effect of all transactions with non-controlling interests to be recorded in
equity if there is no change in control. They will no longer result in goodwill
or gains and losses. The standard also specifies the accounting when control is
lost. Any remaining interest in the entity is re-measured to fair value and a
gain or loss is recognised in profit or loss. The group will apply IAS 27
(Revised) prospectively to transactions with non-controlling interests from 1
October 2009.
IFRIC 15 'Agreements for construction of real estates' (effective from 1 January
2009). The interpretation clarifies whether IAS 18, "Revenue" or IAS 11,
"Construction contracts" should be applied to particular transactions. It is
likely to result in IAS 18 being applied to a wider range of transactions. IFRIC
15 is not relevant to the group's operations as all revenue transactions are
accounted for under IAS 18 and not IAS 11.
IFRIC 17 'Distributions of Non - cash assets to owners' (effective for annual
periods beginning on / after 1 July 2009). This interpretation applies to
transactions in which an entity distributes assets (other than cash) as
dividends to its owners acting in their capacity as owners. The IFRIC addresses
when an entity should recognise a dividend payable and how an entity should
measure the dividend payable. The group will apply IFRIC 17 from its effective
date. This is currently not relevant to the group's operations.
IFRIC 18, 'Transfers of Assets from Customers' (effective for transfers of
assets from customers received on or after 1 July 2009). The interpretation is
still subject to EU endorsement. This interpretation applies to agreements in
which an entity receives from a customer an item of property, plant and
equipment (or an amount of cash which must be used to construct or acquire an
item of property, plant and equipment) that the entity must use either to
connect the customer to a network or to provide the customer with ongoing access
to a supply of goods or services, or do both. IFRIC 18 is currently not relevant
to the group's activities.
IFRS 1 (Revised), 'First-time Adoption of International Financial Reporting
Standards', (effective from 1 January 2009). The current IFRS 1 has been amended
many times to accommodate first time adoption requirements of new and amended
IFRSs, resulting in a more complex and less clear standard. This revised version
retains the substance of the original standard but with a changed structure. The
revised IFRS 1 is not applicable to the group as it has already adopted IFRS,
however it would be applicable to other entities in the group should they
transition to IFRS at a future date.
Amendments to IFRS 1 'First-time adoption of IFRS' and IAS 27 'Consolidated and
separate financial statements - cost of an investment in a subsidiary, jointly
controlled entity or associate', (effective for annual periods beginning on or
after 1 January 2009). First-time adopters are permitted to use a deemed cost of
either fair value or the carrying amount under previous accounting practice to
measure the initial cost of investments in subsidiaries, jointly controlled
entities and associates in their separate financial statements. The amendment
also removed the definition of the cost method from IAS 27 and replaced it with
a requirement to present dividends - as income in the separate financial
statements of the investor. The group will apply these amendments from 1 October
2009 but they are currently not applicable to the group.
Improvements to IFRS, (most of the amendments effective for annual periods
beginning on or after 1 January 2009). The improvements to IFRS represent a
number of 'non-urgent' amendments to IFRSs that involve accounting changes for
presentation, recognition and measurement, and terminology or editorial changes
with minimal effect of accounting. The Group will apply these improvements from
their relative effective dates and is currently assessing the impact on the
Group's financial statements.
4 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, rarely equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year together with critical judgements in respect of the
financial year are outlined below:
(a) Going concern
The group has prepared the financial information on a going concern basis.
Further details are described in note 1 supporting the basis.
(b) Estimated impairment of goodwill
The group tests at least annually whether goodwill has suffered any impairment,
in accordance with the accounting policy stated in note 5. The recoverable
amounts of cash-generating units have been determined based on value-in-use
calculations, and these calculations require the use of estimates. Estimating a
"value-in-use" amount requires sufficient judgement to make an estimate of the
expected future cash flows from the cash generating unit and also to choose a
suitable discount rate in order to calculate the present value of those cash
flows.
(c) Capitalisation of development costs
Costs incurred on development projects are recognised as intangible assets when
the criteria in the development expenditure accounting policy in note 5 are
achieved. A degree of judgement is involved in assessing the achievement of the
criteria.
(d) Establishing useful lives for amortisation purposes of properly, plant
and equipment and intangible assets
The group has intangible assets (other than goodwill) of E46.6 million and
property, plant and equipment of E36.8 million as at 31 March 2009. The
amortisation charges and depreciation charges are dependent on the estimated
lives allocated to each type of intangible asset.
The directors regularly review these asset lives and change them as necessary to
reflect current thinking on remaining lives and the expected pattern of
consumption of the future economic benefits embodied in the asset. Changes in
asset lives can have a significant impact on depreciation and amortisation
charges for the period.
Details of the useful lives of the various classes of property, plant and
machinery and intangible assets are included in note 5.
(e) Fair value of business combinations
Goodwill only arises in business combinations. The amount of goodwill initially
recognised is the excess of the cost of an acquisition over the fair value of
the Group's share of the net identifiable assets of the acquired
subsidiary/associate at the date of acquisition.
The determination of the fair value of the assets and liabilities is based, to a
considerable extent, on management's judgement and estimates.
Allocation of the purchase price affects the results of the Group as finite
lived intangible assets are amortised, whereas indefinite lived intangible
assets, including goodwill, are not amortised and could result in differing
amortisation charges based on the allocation to indefinite lived and finite
lived intangible assets.
On acquisition, the identifiable intangible assets may include customer bases
and brands. The fair value of these assets is determined by discounting
estimated future net cash flows generated by the asset, assuming no active
market for the assets exist. The use of different assumptions for the
expectations of future cash flows and the discount rate would change the
valuation of the intangible assets, and consequently the level of recognised
goodwill.
(f) Cardpoint as acquirer
The acquisition of the entire share capital of Cardpoint and alphyra by Payzone
plc has been accounted for as a reverse acquisition of the combined Payzone and
alphyra group by Cardpoint plc. The determination of the acquirer in this
transaction is seen as a critical judgement as any change in this judgement can
have a significant impact on the accounting for the business combination.
Management gave detailed consideration to the terms, conditions, facts and
circumstances surrounding the transaction together with the guidance in IFRS 3
in relation to identifying the acquirer in a business combination. Ultimately
Cardpoint plc was seen as the acquirer as it was judged to control alphyra due
to its:
* power to govern the financial and operating policies of alphyra;
* power to appoint or remove the majority of the members of the board of
directors or equivalent governing body of the other entity; and
* power to cast the majority of votes at meetings of the board of directors.
(g) Determination of special items
Significant judgement is exercised in making such an assessment.
(h) Determination of functional currency
The group is headquartered in Ireland and has significant operations in the UK
and Europe and accordingly principally operates in two different currencies.
Reflecting its economic operating environment the group has determined that the
Euro is Payzone plc's functional currency for the preparation of the
consolidated financial statements. However, the functional currency of the
accounting acquirer Cardpoint plc is sterling. The group's presentation currency
is Euro.
5 Accounting policies