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

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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
Notes on Scope, Definitions and Data SourcesNotes on Scope, Definitions and Data Sources7. “Sales outside region” – Sales to a destination outside thecompany’s home region of Europe, North America or Rest of theWorld.8. “Market Breadth” – Sales by destination – analysed between:(i)Europe (where companies have defined their market breadth regionas “EMEA” it has been included in “Europe”); (ii) North America(where companies have defined their market breadth region as“Americas” it has been included in “North America”); and (iii) Restof the World9. Exchange rates – All foreign currency amounts have been translatedat the UK sterling exchange rates ruling at 31 December 2005. Thisapplies also to the historical comparative data. The principal ratesused are:Australia: $2.34 Canada: $2.01China: 13.85 YuanCroatia: 10.73 KunaDenmark: 10.86 Danish Kronor Euro: 1.45Hong Kong: $13.31Hungary: 367 ForintIndia: 77.27 Indian Rupee Israel: 7.9 ShekelJapan: 203 YenNorway: 11.63 Norwegian KronerRussia: 49.34 RoubleSlovakia: 55.07 KorunaSingapore: $2.85South Africa: 10.89 RandSouth Korea: 1735 Won Sweden: 13.66 Swedish KronorSwitzerland: 2.26 Swiss Franc Taiwan: $56.38Turkey: 2.32 Lira USA: $ 1.7210. The market capitalisation figures in the Scoreboards are the grossmarket capitalisation of each company as at 4 August 2006. Thepercentage change in market capitalisation is calculated frommarket capitalisation on 12 August 2005.11. In the data tables, n/l stands for ‘not listed’, n/m stands for ‘notmeaningful’ (applied to certain ratios) and n/a stands for ‘notavailable from accounts’.12. Nationally owned – UK company which has a UK parent whoseaccounts could not be obtained. Nationally owned companiesappear in the Scoreboard with an asterisk appended to their name(eg Britannia Soft Drinks*).SourcesThe database from which the Scoreboards are drawn is owned andmaintained by Company Reporting Ltd. The database consists ofinformation from the audited annual reports and accounts of UK andglobal companies. The UK companies are those which are identifiedby Company Reporting as having an R&D activity and which respondto a request for their annual accounts; there are no known omissions.The database contains many times more companies than are listed inthe Scoreboard to ensure that the top 800 or 1250 companies by R&Dinvestment can be identified reliably in each case.The market capitalisation data for UK companies has been extractedfrom the Financial Times London Share Service as at 4 August 2006.Financial Times London Share Service and Reuters have provided themarket capitalisation data for global companies. These reflect themarket capitalisation of each company at the close of trading on 4August 2006. Listing status (i.e. the companies in FTSE 100, FTSE 250,FT Global 500 etc) is taken as of 1 September 2006.In the case of the UK Scoreboard, the Company Reporting database issupplemented by a feed service from Experian to assist in identifyingpotential new entrants to the ranking from amongst unlistedcompanies.In the case of the Global Scoreboard, the Company Reportingdatabase is supplemented by a feed service from Standard & Poor’sCompustat Global Vantage database to identify potential new entrantsto the ranking. The Amadeus database has also been used andrecognised international stock exchanges are monitored also forpotential new entrants.The set of US patent data included for some 270 companies has beenprovided by Innovaro and has been obtained by interrogating the USPatent Office database.LimitationsThere are some limitations inherent in the approach used in preparingthe Scoreboards.The main limitation is the reliance on disclosure of R&D investment inpublished annual reports and accounts. In the UK, separate work byCompany Reporting finds that a significant minority of companies withevidence of R&D activities disclose no figures for R&D investment. Insome cases, the R&D investment is not material enough to warrant252 The 2006 R&D ScoreboardThe 2006 R&D Scoreboard 253
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The R&D Scoreboard ExplainedDefinit
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Ranking of the top 800 UK companies
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Index for ranking the top 800 UK co
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Ranking of the top 1250 global comp
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2006 The top 800 UK & 1250 Global companies by R&D investment

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