1. General information
Intermediate Capital Group PLC is a company incorporated in the United Kingdom under the Companies Act with Companies registration number 2234775. The address of the registered office is on page 123. The nature of the Group’s operations and its principal activities are set out in the Directors’ report on page 66.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
International Financial Reporting
Standards (IAS/IFRS) Accounting periods commencing after IFRS 7
(Amendment) Financial Instruments: Disclosure 1 January 2011 IAS 27
(Amendment) Consolidated and Separate Financial Statements (2008) 1 July 2010 IAS 34
(Amendment ) Interim Financial Reporting 1 January 2011 IFRS 9 Financial Instruments:
Clarification and measurement
1 January 2013
IFRS 2
(Amendment) Group cash settled share based payments 1 January 2010 IAS 1
(Amendment) Presentation of Financial Statements 1 January 2011 The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group, except for the treatment of certain financial assets when IFRS 9 comes into effect. The impact of this cannot be estimated at this time.
2. Significant accounting policies
(a) Basis of accounting(i) General information – The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical cost basis as modified to include the fair valuation of certain financial instruments.
(ii) Going concern – The Financial review on pages 32 to 37 describes the financial position of the Group; its cash flows, liquidity position and borrowing facilities together with its objectives, factors likely to affect its future development and policies and processes for managing its capital. The Group’s financial risk management objectives and its exposure to credit risk and liquidity risk are described in the Principal risks and uncertainties section on pages 38 to 41 and details of its financial instruments and hedging activities are described in note 27. Having reviewed the Group’s budget and business plan and, taking into account reasonable downside sensitivity, the Directors believe that the Group has adequate financial resources to
continue in operational existence for the foreseeable future despite the current uncertain economic climate and accordingly they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
(iii) Adoption of new and revised standards – In the current financial year, the Group has adopted the following, new and revised Standards and Interpretations, which have affected the amounts reported in the financial statements.
International Accounting Standard 1 (revised 2007)
“Presentation of Financial Statements” requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each year presented.
International Financial Reporting Standard 8 “Operating Segments” has been adopted with effect from 1 April 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive Officer to allocate resources and assess performance of segments.
The predecessor standard IAS 14 “Segmental Reporting” required the Group to identify business and geographical segments using a risk and reward approach, with the Group’s internal financial reporting to key management personnel, serving only as a starting point for the identification of such segments. Following the adoption of IFRS 8, the identification of the Group’s reportable segments has not changed, however the allocation of income and expenses is presented differently as explained in note 4. This has had no impact on the Group’s previously reported net cash flows, financial position or total comprehensive income. Accordingly, a comparative consolidated statement of financial position at 31 March 2008 has not been reported.
Amendments to IFRS 7 “Financial Instruments: Disclosures” expands the disclosures in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs offered in these amendments.
The principal accounting policies are set out below:
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
(c) Investment in subsidiaries
Investments in subsidiaries are recorded in the Company statement of financial position at cost less provision for impairments.
AccountsAccount
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2. Significant accounting policies continued
(d) Investment in associatesAn associate is an entity over which the Group has significant influence but not control, through participation in the financial and operating policy decisions. The results, assets and liabilities of associates are incorporated in the financial statements using the equity method of accounting. A presumption of significant influence is made when the Group holds 20 per cent or more of the voting rights of an investee. IAS 28 Investment in Associates excludes from its scope certain investments of a greater than 20 per cent holding held by Venture Capital organisations. The Group therefore designates such investments, upon initial recognition, as fair value through the profit and loss and measures them at fair value.
(e) Interest income and expense
Interest income and expense on financial assets and liabilities held at amortised cost are measured using the effective interest rate method, which allocates the interest income or interest expense over the relevant period. The Effective Interest Rate (“EIR”) is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument. The expected life of an instrument is estimated by the relevant Investment Executive using knowledge gained from the close monitoring of the investment and their presence on the Board.
(f) Fee income and expense
Fees and commissions are recognised on an accruals basis when the service has been provided and include fund management fees. Fees integral to the loan yield, including underwriting and agency fees, are included within interest income as part of the effective interest rate calculation. Fees payable on the arrangement of balance sheet funding are included within interest expense as part of the effective interest rate calculation.
Other fees are expensed as incurred.
(g) Dividend income
Dividend income from investments is recognised in the income statement when the shareholders’ rights to receive payment have been established.
(h) Share based payments
The Group has applied the requirements of IFRS 2 Share Based Payment.
The Group issues equity-settled share options to certain employees. These are measured at fair value at the date of grant using a Black Scholes option pricing model. The fair value is expensed on a straight line basis over the vesting period, based on an estimate of the number of shares that will ultimately vest, with a corresponding adjustment to reserves for share based payments. Details regarding the determination of the fair value of equity-settled share options are set out in note 22.
(i) Pension costs
Pension liabilities are provided for by payments to insurance companies or to individuals for employees’ private pension plans. The amount charged to the income statement represents a percentage of the current payroll cost paid to defined
contribution schemes.
(j) Value added tax
Irrecoverable VAT is written off on items of expenditure relating to the income statement. VAT on tangible fixed assets is capitalised and written off over a similar period to the asset to which it relates.
(k) Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which they operate. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds Sterling which is the presentation currency for the consolidated financial statements. The assets and liabilities of the Group’s foreign operations are translated using the exchange rates prevailing on the balance sheet date. The income and expense items are translated using the exchange rates at the date of the transactions. Exchange differences are recognised in other comprehensive income and accumulated in equity.
Foreign currency monetary transactions are translated into pounds Sterling using the exchange rates prevailing at the dates of the transactions. At each balance sheet date, foreign currency monetary assets and liabilities are translated at the rates prevailing on the balance sheet date. Exchange differences on the translation of monetary items are recognised in the income statement for the year. Non monetary items carried at fair value that are denominated in foreign currencies are translated at the rate prevailing at that date when fair value was determined. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts. The treasury policies of the Group are described in more detail in note 27.
(l) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.