Turnover represents the total value of income (excluding sales taxes) earned in respect of products delivered and services rendered to customers, royalties and contributions receivable in support of programmes and the value of long-term contract work completed. Turnover relates to ordinary activities and is stated after trade discounts.

Income from licences where the underlying intellectual property is secure and on which the Group will not incur future costs is recognised on signing of the contract with the licensee. Where the Group will incur future maintenance and support costs and all components of the contract do not operate independently the full contract value is recognised rateably over the period of the contract. Where the components do operate independently and fair values can be allocated to the individual components each component is treated as if it were a separate contract. Any invoices raised or cash received in advance of recognition of the income is included within deferred income, in trade and other payables. As detailed in note 2.4 income on long-term contracts is recognised based on the value of work completed under the contract. Hence, the turnover in respect of long-term contracts represents the cost appropriate to the stage of completion of each contract plus attributable profits, less amounts recognised in previous years where relevant. The unbilled element of this turnover is included in trade and other receivables as “receivable from long-term contracts”. All other income is recognised on delivery of the product or service or once all risks and rewards have passed to the customer.

The current income tax is based on the taxable profit for the year together with adjustments, where necessary, in respect of prior years. Taxable profit differs from profits as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition, other than in a business combination, of other assets and liabilities that affect neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and amended to the extent that it is probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated using tax rates that have been enacted or substantially enacted at the balance sheet date and are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income tax levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

All property, plant and equipment is shown at cost less depreciation and impairment. Freehold land is not depreciated. Cost includes expenditure that is directly related to the acquisition of the assets.

Depreciation is calculated using the straight line method to allocate the costs of each asset to its residual value over its estimated useful life, as follows:

The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date. An asset’s carrying value is written down immediately to its recoverable amount if the carrying value is greater than its estimated recoverable amount.

Where the outcome of a long-term contract can be estimated reliably, and it is probable that the contract will be profitable, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. This is normally measured based on the value of work completed as a proportion of the total value of work to be provided. Variations in contract work, claims and incentive payments are included to the extent that it is probable that they will result in revenue and they are capable of being reliably measured.

Where the outcome of a long-term contract cannot be estimated reliably contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle the obligation.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date and are discounted to present value where the effect is material.

Provision is made for the future costs arising from the closure and decontamination of certain experimental facilities and the management and final disposal of wastes where these activities are a Group responsibility. The full liability is recognised when operations commence and the facility becomes contaminated.

The Group uses derivative financial instruments to hedge its exposure to risk from foreign exchange and interest rate fluctuations. The Group does not hold or issue derivative financial instruments for speculative or trading purposes.

To achieve hedge accounting, the Group is required to designate these financial instruments against specific assets, liabilities, income and expenses. All such instruments are recognised initially at fair value and subsequently measured at the new fair value as at the balance sheet date and the effectiveness of each hedge tested against defined criteria. Changes in the fair value of the financial instruments are recognised either in the income statement for the period or, in the case of a cash flow hedge, directly in equity and subsequently recognised in the income statement for the period when the underlying transaction is realised. For financial instruments designated as fair value hedges, changes in the fair value of the hedged item and the derivative instrument are recognised in the income statement for the period.

Gains and losses on financial instruments, both realised and unrealised, that do not qualify for hedge accounting are included in the income statement for the period. All financial instruments are recognised as either financial assets or financial liabilities. The Group currently has no derivatives that are designated and qualify as cash flow hedges.

The Company’s warrant instruments were issued as part of the re-financing of the Group in July 2005. The value of the equity element of the compound debt/equity instrument was calculated as the difference between the actual cash proceeds and the fair value of the debt element. This value was nil. The cash proceeds will be recognised in the period in which the warrants are exercised. The fair value of the warrants is disclosed in the relevant note of these financial statements (see note 21).