Realising Value Guinness Peat Group plc

FinancialHighlights SummaryChairman’sStatementCoats BusinessReviewGovernanceFinancialStatementsCoats FinancialInformationNotes to Financial Statements1. Principal Accounting PoliciesThe following are the principal accounting policies adopted inpreparing the financial statements.GROUPCRITICAL ACCOUNTING POLICIESThe principal accounting policies adopted by the Group are setout in this note to the financial statements. Certain of theGroup’s accounting policies inherently rely on subjectiveassumptions and judgements, such that it is possible over timethe actual results could differ from the estimates based on theassumptions and judgements used by the Group. Due to the sizeof the amounts involved, changes in the assumptions relating tothe following policies could potentially have a significant impacton the result for the period and/or the carrying values of assetsand liabilities in the consolidated financial statements:Pension and other employee benefit obligationsThe retirement benefit obligations recognised in thestatement of financial position in respect of defined employeebenefits are the present values of the defined benefitobligations at the year end less the fair value of anyassociated assets. Key assumptions involved in thedetermination of the present values of the defined benefitobligations include discount rates, beneficiary mortality andbenefits in payment inflation rates. Changes in any or all ofthese assumptions could materially change the employeebenefit obligations recognised in the statement of financialposition.A sensitivity analysis relating to the Group’s major definedbenefit pension arrangements is included in note 9.Carrying value of brandsThe carrying value of brands is dependent on the calculation ofdiscounted cash flows arising from the cash-generating unitsto which those assets relate. Changes in either the discountrates applied or the estimated cash flows could materiallychange the carrying values of these intangible assets.Carrying value of fixed asset investments, associatedundertakings and joint venturesFixed asset investments are carried at fair value, andtemporary fluctuations in value are dealt with through theunrealised gains reserve. Where a reduction in value of aparticular fixed asset investment is deemed to be permanent,the write-down is dealt with as an impairment through theincome statement.Associated undertakings and joint ventures are carried at costplus the Group’s share of post-acquisition changes in theassociated undertakings’ and joint ventures’ net assets. To theextent that the fair value of any particular associatedundertaking or joint venture is less than its book value, anyshortfall deemed to be permanent is written down as animpairment through the income statement.The fixed asset investments, associated undertakings andjoint ventures of the Parent Group have been classified at31 December 2012 as held for sale.A) ACCOUNTING CONVENTION AND FORMATThe consolidated financial statements have been prepared inaccordance with International Financial Reporting Standards(“IFRS”) as adopted by the European Union, which comprisestandards and interpretations approved by the InternationalAccounting Standards Board (“IASB”) and InternationalAccounting Standards and Standing Interpretations Committeeinterpretations approved by the predecessor InternationalAccounting Standards Committee that have been subsequentlyauthorised by the IASB and remain in effect.The accounting policies set out below have been appliedconsistently to all periods presented in these consolidatedfinancial statements.B) BASIS OF PREPARATIONSubsidiariesThe principal subsidiaries are listed in note 16. Subsidiaries areconsolidated from the date on which control over the operatingand financial decisions is obtained and cease to be consolidatedfrom the date on which control is transferred out of the Group,or the subsidiary meets the criteria to be classified as held forsale. Control exists when the Company has the power, directly orindirectly, to govern the financial and operating policies of anentity so as to obtain economic benefits from its activities. Theexistence and effect of potential voting rights that are currentlyexercisable or convertible are considered in determining theexistence or otherwise of control. Where necessary, adjustmentsare made to the financial statements of subsidiaries to align theiraccounting policies with those used by the Group.Where subsidiaries are not 100% owned by the Group, the shareattributable to outside shareholders is reflected in non-controllinginterests. Non-controlling interests are identified separately fromthe Group’s equity, and may initially be measured at either fairvalue or at the non-controlling interests’ share of the fair value ofthe subsidiary’s identifiable net assets. The choice ofmeasurement is made on an acquisition-by-acquisition basis.Changes in the Group’s interests in subsidiaries, that do not resultin a loss of control, are accounted for as equity transactions.Where control is lost, a gain or loss on disposal is recognisedthrough the income statement, calculated as the differencebetween the fair value of consideration received (plus the fairvalue of any retained interest) and the Group’s previous share ofthe former subsidiary’s net assets. Amounts previously recognisedin other comprehensive income in relation to that subsidiary arereclassified and recognised through the income statement as partof the gain or loss on disposal.These financial statements incorporate the consolidated results ofCoats Group Limited (“CGL”) as adjusted to account for the Coatscapital incentive plan (“CIP”), on a basis consistent with thatrequired to be adopted by GPG, and for the inclusion in thestatement of financial position both at 31 December 2011 and2012 of $6 million (£4 million) of intangible assets held at theGPG level but which are associated with its acquisition of Coats.CIC Australia Ltd (“CIC”) and the investment operations of theParent Group have been reclassified as discontinued operations(see note 34). The assets and liabilities of CIC and the ParentGroup’s investment activities at 31 December 2012 are accountedfor in accordance with the policy applying to disposal groups. Noopening statement of financial position has been presented forthe prior year in these financial statements as it is unchangedfrom that previously reported.ANNUAL REPORT 201245