Accounting Policies (Company Financial Statements)
Basis of preparation
The financial statements of the Company have been prepared under the historical cost convention and in accordance with applicable UK accounting standards. A summary of the more important accounting policies of the Company, which the Directors consider to be the most appropriate, is set out below together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
The financial year ended 1 February 2009 was a 52 week period (financial year ended 3 February 2008: 53 week period).
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the contracted rate or the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the income statement.
Retirement benefits
Employees of the Company are able to participate in the Premier Farnell UK Pension Scheme, comprising both a defined benefit and a defined contribution plan. The assets of the plan are held separately from those of the Company in an independently administered fund.
Defined benefit plan
The Company is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as permitted by FRS 17, accounts for the plan as if it were a defined contribution plan. The Consolidated Financial Statements include full disclosures of the UK defined benefit plan in accordance with IAS 19 which is similar to FRS 17 (note 27).
Defined contribution plan
Payments to the defined contribution plan are charged as an expense as they fall due.
Deferred taxation
Full provision is made, on an undiscounted basis, for deferred taxation resulting from timing differences between the profits computed for taxation purposes and profits stated in the accounts to the extent that there is an obligation to pay more tax in the future as a result of the reversal of those timing differences. Deferred tax assets are recognised to the extent that they are expected to be recoverable.
Financial instruments
Under FRS 25, the Company’s cumulative, convertible, redeemable preference shares are required to be split into debt and equity components with the preference dividend being reclassified as a finance cost. The fair value of the debt element is established on issue of the shares, based on the discounted cashflows of the instrument to the date of maturity and is then increased each year on an amortised cost basis through the income statement in order to arrive at the redemption amount payable on maturity of the shares. On purchase and cancellation of preference shares by the Company, a gain or loss is recognised in the income statement based on the difference between the book value and fair value of the financial liability element of the instrument at the date of purchase. The difference between the book value and fair value of the equity element of the instrument is recognised as a movement in retained earnings. In addition, a transfer is made to non-distributable reserves from retained earnings in order to maintain the legal nominal value of share capital. The accounting for the Company’s preference shares in accordance with FRS 25 is identical to that under IAS 32, further details for which are given in note 15 to the Consolidated Financial Statements.
The Company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from financing and investment activities. In accordance with its treasury policy, the Company does not have or issue speculative derivative arrangements. All transactions in financial instruments are matched to an underlying business requirement. Derivative financial instruments are recognised at fair value. At period ends, the gain or loss on re-measurement to fair value is recognised in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resulting gain or loss will depend upon the nature of the item being hedged (see accounting policy on hedging).
The fair value of forward currency contracts has been determined based upon market forward exchange rates at the balance sheet date. The fair value of short-term deposits, loans and overdrafts with maturities of less than one year are assumed to approximate to their book values.
The fair value of the Company’s US dollar Guaranteed Senior Notes has been estimated using quoted market prices for similar instruments.
The fair value of the Company’s preference shares is based on the quoted market price.
Hedging
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or liability, the associated gains or losses that were recognised directly in equity are reclassified into profit or loss in the same period(s) during which the interest income/expense is recognised. For other cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period(s) as which the hedged forecast transaction affects profit or loss. The gain or loss on any ineffective part of the hedge is immediately recognised in the income statement.
Hedge of net investment in foreign operations
The gain or loss on the translation of a net investment in a foreign operation and the instrument used to hedge this are recognised directly in the income statement.
Share-based payments
The accounting for share-based payments is similar to IFRS 2, full details of which are given in the Accounting Policies and note 20 to the Consolidated Financial Statements.
The cost for share-based incentives, in respect of shares in the Company, granted to employees of group companies other than Premier Farnell plc, is treated as an increase in investments with the corresponding credit direct to reserves.
Ordinary share capital
Ordinary share capital is classified as equity and dividends are recognised as a liability in the period in which they are approved.
Cash flow
The Company has taken advantage of the exemption from disclosing a cash flow statement under Financial Reporting Standard 1 (revised).
Shares in subsidiary undertakings
Shares in subsidiary undertakings are initially stated at cost. Provision is made where, in the opinion of the Directors, a permanent diminution in value has occurred.