2006 The top 800 UK & 1250 Global companies by R&D investment

Notes on Scope, Definitions and Data SourcesNotes on Scope, Definitions and Data Sources6. For many diversified groups, the R&D investment disclosed in theiraccounts arises from only part of their activities, whereas sales,operating profit and market capitalisation are in respect of all theiractivities. Unless all such companies disclose additionally their R&Dinvestment with the other information in segmental analyses, it isnot possible to relate the R&D more closely to the results of theindividual activities with which it is associated. The impact of thisis that some statistics for these companies, e.g. R&D as a % ofsales, are possibly understated for the divisions that are activein R&D.7. The focus of the Scoreboards on R&D investment as reported incompany accounts means that the results are independent of thelocation of the R&D activity. The UK Scoreboard indicates theoverall level of R&D funded by UK companies, not all of which iscarried out in the UK since most multinational companies need toplace some R&D in each of their major market areas. This approachenables inputs such as R&D and Capex investment to be related tooutputs such as sales, value added, profitability, productivity ratiosand market capitalisation. The information in the Scoreboard differstherefore from other information such as the Business EnterpriseR&D (BERD) data generated by the UK Office for National Statistics(ONS). The ONS data focus on R&D activity within the boundariesof the UK, independent of the source of funding and exclude R&Dcarried out by UK companies in other countries.8. Previous years’ R&D investment is taken from the appropriateyear’s annual report and accounts. R&D investment for previousyears does not take into account restated figures. Where asignificant event, such as a merger or acquisition has taken place,comparative figures from the latest accounts are taken to give amore accurate reflection of company performance. In the case ofacquisitions and mergers earlier year figures are taken in respectof the larger of the two constituent companies.9. Where a company has reported under IFRS and disclosed an R&Dfigure for the first time, comparative figures are taken to give anR&D figure for the previous year and a 1year growth rate. Where acompany previously reported under its domestic GAAP and hasdisclosed under IFRS for the first time in the current year, andwhere there is a material difference in R&D between the two years,comparative figures have been entered to more accurately reflectthe R&D spend for each year. Where there exists an informationdiscontinuity between the current year and previous yearcomparative figure for R&D disclosure, a “n/a” has been entered forthe previous year R&D.10. Companies with the same R&D spend to two decimal places areranked alphabetically in the ranking by R&D spend. If there is morethan one company with the same R&D spend to two decimal placesin the last ranked position, the actual R&D spend of the companyis used to determine which company to include in the Scoreboard.Definitions1. The R&D investment included in the Scoreboards, being thatdisclosed in the annual report and accounts, is subject to theaccounting definitions of R&D. In the UK, the definition is containedin Statement of Standard Accounting Practice (SSAP) 13“Accounting for research and development”. For global companies,the definition is governed by International Accounting Standard(IAS) 38 “Intangible assets”. Both of these definitions are based onthe OECD “Frascati” manual. The R&D investment disclosed insome global companies’ accounts follows the US practice ofincluding engineering costs relating to product improvement.Where these engineering costs have been disclosed separately,they have been excluded from the Scoreboard. However, theincidence of non-disclosure is uncertain and the impact of thispractice is a possible overstatement of some overseas R&Dinvestment figures in comparison with the UK. Both US and UKpractice exclude technical service from the definition of R&D.2. “Sales” – for banks, sales are defined as the “Total (operating)income” line from the profit & loss account. For insurancecompanies, sales are defined as “Gross premiums written” + anybanking income.3. “Operating profit (or loss)” – profit (or loss) before taxation, lessany Government grants, plus net interest paid (or minus netinterest received), less gains (or plus losses) arising from thesale/disposal of businesses or fixed assets. Grants can be asignificant proportion of operating profit in some sectors such asthe transport sector.4. “4yr Growth” – Current year R&D minus previous 4 year averageover the previous 4 year average. “4yr Growth” is still calculatedif a company has one fewer years of data (e.g. current and threeprevious years).5. “R&D + Capex” – The current year R&D investment plus additionsto tangible fixed assets.6. “Employees” – the consolidated average employees total, or yearend employees if average not stated.250 The 2006 R&D ScoreboardThe 2006 R&D Scoreboard 251