Annual Report and Accounts 2006 - Optos

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Notes to the Consolidated Financial Statements For the year ended 30 September 2006 1 AUTHORISATION OF FINANCIAL STATEMENTS & STATEMENTS OF COMPLIANCE The consolidated financial statements of Optos plc for the year ended 30 September 2006 were approved and authorised for issue by the Directors on 18 December 2006. Optos plc is a limited company incorporated in Scotland and is listed on the London Stock Exchange. The consolidated financial statements of Optos plc have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and applied in accordance with the provisions of the Companies Act 1985. These are the first annual financial statements of the Group prepared in accordance with IFRS, and IFRS 1 has been applied. 2 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to the years presented, unless otherwise stated. a) Basis of Preparation In June 2002, the European Union (“EU”) adopted Regulations which require that the consolidated accounts of listed companies in the EU should, from 2005, be presented in accordance with EU-adopted International Financial Reporting Standards and International Accounting Standards (“IAS”). For the year ended 30 September 2006, Optos plc (“the Group”) has adopted IFRS for the first time. The financial statements have been prepared in accordance with the accounting policies based on International Financial Reporting Standards (“IFRS”) and IFRIC interpretations endorsed by the European Union (“EU”) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments. The 2005 comparative information has, as permitted by the exemption in IFRS 1, not been prepared in accordance with IAS 32, ‘Financial Instruments: Disclosure and Presentation’, and IAS 39, ‘Financial Instruments: Recognition and Measurement’. Instead, IAS 32 and IAS 39 have been implemented with effect from 1 October 2005. The Group’s consolidated financial statements were prepared in accordance with UK GAAP until 30 September 2005. UK GAAP differs in some areas from IFRS. In preparing the Group’s 2006 consolidated financial statements, management has amended certain accounting, valuation and consolidation methods applied in the UK GAAP financial statements to comply with IFRS. The comparative figures in respect of 2005 have been restated to reflect these adjustments. Reconciliations and descriptions of the effect of the transition from UK GAAP to IFRS are provided in Note 23. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand ($’000), except when otherwise indicated. b) Basis of consolidation The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. c) Foreign currency translation The consolidated financial statements are presented in US dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss, with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currency of the foreign operations Optos Canada Inc. and Optos Gmbh, is the Canadian dollar and Euro respectively. As at the reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of Optos plc (the US dollar) at the rate of exchange ruling at the balance sheet date and, their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. The Company’s share capital and share premium account are denominated in £ sterling and are translated at the historical rates of exchange. Optos has elected to deem the cumulative differences on the retranslation into sterling of the Group’s net investment in foreign operations to be $nil as at 1 October 2004. As a result, in the event of the subsequent disposal of a foreign operation, any gain or loss on disposal will only include cumulative translation differences arising on or after 1 October 2004. 40 Optos plc Annual Report & Accounts 2006
Notes to the Consolidated Financial Statements continued d) Property, plant and equipment Property, plant and equipment is stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual values based on prices prevailing at the balance sheet date of each asset evenly over its expected useful, life as follows: Leasehold improvements P200 equipment Other plant & equipment 10 years 5 years 3 to 10 years P200 equipment refers to retinal examination equipment located at healthcare professional sites and being used on a pay-per-examination basis, and significant component parts and major spares. P200 equipment is depreciated upon activation at the relevant healthcare professional site. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. The assets’ residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end. e) Leases Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value or, if lower, at the present value of the minimum lease payments or, in respect of P200 equipment, at the cost of manufacture. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Upon placement of P200 equipment at a healthcare professional site, the Group enters into a financing agreement with third-party providers of vendor finance involving the sale of P200 equipment, with legal title being transferred back at the end of the period. As the significant risks and rewards of ownership are retained by the Group, the proceeds received from the third-party providers of vendor finance are recorded as fixed-rate obligations which are repayable by instalments and are secured over the related P200 assets. f) Intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment loss. Internally generated intangible assets, excluding capitalised development costs, are not capitalised, and expenditure is charged against profits in the year in which the expenditure is incurred. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Following the initial recognition of the development expenditure, the cost model is applied, requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised over the period of expected future revenues from the related project. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indication of impairment arises during the reporting year. Computer software Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Amortisation is provided on a straight-line basis so as to charge the cost of the software to the income statement over its expected useful life, which is in the range three to five years. g) Impairment of assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication of impairment exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s, or cash-generating unit’s, fair value less costs to sell, and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset. Optos plc Annual Report & Accounts 2006 41
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Page 3 and 4: Highlights Year ended Year ended
Page 5 and 6: 2004 > Germany - commercial launch
Page 7 and 8: 3.4m optomap® Retinal Exams in 200
Page 9 and 10: Image of a healthy eye taken by the
Page 11 and 12: $3.3 million to $4.3 million. Losse
Page 13 and 14: “When Ann came to see me, we carr
Page 15 and 16: Operational and Financial Review co
Page 17 and 18: “He is very lucky - if the melano
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Page 21 and 22: Patrick Robin David Paul (60) Non-E
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Page 27 and 28: Directors’ Remuneration Report IN
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Page 39 and 40: Consolidated Balance Sheet As at 30
Page 41: Consolidated Cash Flow Statement Fo
Page 45 and 46: Notes to the Consolidated Financial
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Page 69 and 70: Notes to the Company Financial Stat
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Annual Report and Accounts 2006 - Optos

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