Notes on Scope, Definitions and Data SourcesNotes on Scope, Definitions and Data Sources6. For many diversified groups, the R&D <strong>investment</strong> 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 <strong>companies</strong> disclose additionally their R&D<strong>investment</strong> 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. <strong>The</strong> impact of thisis that some statistics for these <strong>companies</strong>, e.g. R&D as a % ofsales, are possibly understated for the divisions that are activein R&D.7. <strong>The</strong> focus of the Scoreboards on R&D <strong>investment</strong> as reported incompany accounts means that the results are independent of thelocation of the R&D activity. <strong>The</strong> <strong>UK</strong> Scoreboard indicates theoverall level of R&D funded <strong>by</strong> <strong>UK</strong> <strong>companies</strong>, not all of which iscarried out in the <strong>UK</strong> since most multinational <strong>companies</strong> need <strong>top</strong>lace some R&D in each of their major market areas. This approachenables inputs such as R&D and Capex <strong>investment</strong> to be related tooutputs such as sales, value added, profitability, productivity ratiosand market capitalisation. <strong>The</strong> information in the Scoreboard differstherefore from other information such as the Business EnterpriseR&D (BERD) data generated <strong>by</strong> the <strong>UK</strong> Office for National Statistics(ONS). <strong>The</strong> ONS data focus on R&D activity within the boundariesof the <strong>UK</strong>, independent of the source of funding and exclude R&Dcarried out <strong>by</strong> <strong>UK</strong> <strong>companies</strong> in other countries.8. Previous years’ R&D <strong>investment</strong> is taken from the appropriateyear’s annual report and accounts. R&D <strong>investment</strong> 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 <strong>companies</strong>.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 <strong>by</strong> 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. <strong>The</strong> R&D <strong>investment</strong> included in the Scoreboards, being thatdisclosed in the annual report and accounts, is subject to theaccounting definitions of R&D. In the <strong>UK</strong>, the definition is containedin Statement of Standard Accounting Practice (SSAP) 13“Accounting for research and development”. For global <strong>companies</strong>,the definition is governed <strong>by</strong> International Accounting Standard(IAS) 38 “Intangible assets”. Both of these definitions are based onthe OECD “Frascati” manual. <strong>The</strong> R&D <strong>investment</strong> disclosed insome global <strong>companies</strong>’ 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&D<strong>investment</strong> figures in comparison with the <strong>UK</strong>. Both US and <strong>UK</strong>practice 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 insurance<strong>companies</strong>, 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” – <strong>The</strong> current year R&D <strong>investment</strong> plus additionsto tangible fixed assets.6. “Employees” – the consolidated average employees total, or yearend employees if average not stated.250 <strong>The</strong> <strong>2006</strong> R&D Scoreboard<strong>The</strong> <strong>2006</strong> 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 <strong>by</strong> destination – analysed between:(i)Europe (where <strong>companies</strong> have defined their market breadth regionas “EMEA” it has been included in “Europe”); (ii) North America(where <strong>companies</strong> 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 <strong>UK</strong> sterling exchange rates ruling at 31 December 2005. Thisapplies also to the historical comparative data. <strong>The</strong> 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. <strong>The</strong> market capitalisation figures in the Scoreboards are the grossmarket capitalisation of each company as at 4 August <strong>2006</strong>. <strong>The</strong>percentage 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 – <strong>UK</strong> company which has a <strong>UK</strong> parent whoseaccounts could not be obtained. Nationally owned <strong>companies</strong>appear in the Scoreboard with an asterisk appended to their name(eg Britannia Soft Drinks*).Sources<strong>The</strong> database from which the Scoreboards are drawn is owned andmaintained <strong>by</strong> Company Reporting Ltd. <strong>The</strong> database consists ofinformation from the audited annual reports and accounts of <strong>UK</strong> andglobal <strong>companies</strong>. <strong>The</strong> <strong>UK</strong> <strong>companies</strong> are those which are identified<strong>by</strong> Company Reporting as having an R&D activity and which respondto a request for their annual accounts; there are no known omissions.<strong>The</strong> database contains many times more <strong>companies</strong> than are listed inthe Scoreboard to ensure that the <strong>top</strong> <strong>800</strong> or <strong>1250</strong> <strong>companies</strong> <strong>by</strong> R&D<strong>investment</strong> can be identified reliably in each case.<strong>The</strong> market capitalisation data for <strong>UK</strong> <strong>companies</strong> has been extractedfrom the Financial Times London Share Service as at 4 August <strong>2006</strong>.Financial Times London Share Service and Reuters have provided themarket capitalisation data for global <strong>companies</strong>. <strong>The</strong>se reflect themarket capitalisation of each company at the close of trading on 4August <strong>2006</strong>. Listing status (i.e. the <strong>companies</strong> in FTSE 100, FTSE 250,FT <strong>Global</strong> 500 etc) is taken as of 1 September <strong>2006</strong>.In the case of the <strong>UK</strong> Scoreboard, the Company Reporting database issupplemented <strong>by</strong> a feed service from Experian to assist in identifyingpotential new entrants to the ranking from amongst unlisted<strong>companies</strong>.In the case of the <strong>Global</strong> Scoreboard, the Company Reportingdatabase is supplemented <strong>by</strong> a feed service from Standard & Poor’sCompustat <strong>Global</strong> Vantage database to identify potential new entrantsto the ranking. <strong>The</strong> Amadeus database has also been used andrecognised international stock exchanges are monitored also forpotential new entrants.<strong>The</strong> set of US patent data included for some 270 <strong>companies</strong> has beenprovided <strong>by</strong> Innovaro and has been obtained <strong>by</strong> interrogating the USPatent Office database.Limitations<strong>The</strong>re are some limitations inherent in the approach used in preparingthe Scoreboards.<strong>The</strong> main limitation is the reliance on disclosure of R&D <strong>investment</strong> inpublished annual reports and accounts. In the <strong>UK</strong>, separate work <strong>by</strong>Company Reporting finds that a significant minority of <strong>companies</strong> withevidence of R&D activities disclose no figures for R&D <strong>investment</strong>. Insome cases, the R&D <strong>investment</strong> is not material enough to warrant252 <strong>The</strong> <strong>2006</strong> R&D Scoreboard<strong>The</strong> <strong>2006</strong> R&D Scoreboard 253