Significant accounting policies for the year ended 31 December 2008

Basis of accounting

These financial statements have been prepared on a going concern basis as discussed in the business review, under the historic cost convention except as modified by the revaluation of pension assets and liabilities and share-based payments and are in accordance with the Companies Act 1985 and applicable United Kingdom accounting standards. The financial statements are presented in pounds sterling, which is the Company’s functional currency, and unless otherwise stated have been rounded to the nearest £0.1m.

Under Financial Reporting Standard (‘FRS’) 1 ‘Cash Flow Statements’, the Company is exempt from the requirement to prepare a cash flow statement on the basis that its consolidated financial statements, which include the Company and present a consolidated statement of cash flows, are publicly available.

Under FRS 8 ‘Related Party Disclosures’, the Company is exempt from the requirement to disclose related party transactions with entities within the Group where the Company’s interest is greater than 90%.

The Company’s accounting policies have been applied on a consistent basis throughout the year. Certain comparatives have been reclassified to conform with the current year’s presentation. In the 2007 comparative balance sheet, amounts of £40.9m previously shown as cash at bank and in hand are now classified as £122.4m and £81.5m as cash at bank and in hand and bank overdraft respectively and amounts of £10.2m previously shown as accruals and deferred income are now classified as provisions.

Significant estimates and judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are recognised in the period in which revised and in any future periods affected.

The estimates and judgments concerning the future at 31 December 2008 and that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are as follows:

(a) Taxation

Judgments are required in establishing the Company’s liability to pay taxes where tax positions are uncertain. Details of deferred tax assets and liabilities are set out in note 6.

(b) Accounting for the Company’s defined benefit plan

The directors engage an independent and qualified actuary to calculate the Company’s liability in respect of the defined benefit plan. In order to arrive at this valuation, certain assumptions in respect of discount rates, salary escalations, expected return on the plan’s assets and future pension increases have been made. Assumptions regarding future mortality are based on published statistics and mortality tables. As the actual rates of increase and mortality may differ from those assumed, the actual pension liability may differ from that recognised in these financial statements. Assumptions used and full details of the Company’s liability are set out in full in note 7.

(c) Share-based payments

Recognition and measurement of share-based payments requires estimation of the fair value of awards at the date of grant and for cash-settled awards, re-measurement at each reporting date. Judgment is also exercised when estimating the number of awards that will ultimately vest. Both of these judgments have a significant impact on the amounts recognised in the profit or loss and in the balance sheet. To assist in determining each award’s fair value, the directors engage a qualified and independent valuation expert. Estimation of the number of awards that will ultimately vest is based on historic vesting trends for similar awards, taking into consideration specific features of the awards and the current intrinsic value of those awards.

Fixed asset investments

Investments held as fixed assets are stated at cost less provision for any impairment in value.

Fixed assets and depreciation

No depreciation is provided on freehold land. On other assets, depreciation is provided at rates calculated to write off the cost or valuation of fixed assets over their estimated useful lives as follows:

Taxation

The tax expense represents the current tax and deferred tax charges. Tax is recognised in the profit and loss account except to the extent that it relates to items recognised directly in equity.

(a) Current tax

Current tax is the Company’s expected tax liability on taxable profit for the year using tax rates enacted, or substantively enacted at the reporting date and any adjustments to tax payable in respect of previous years. Taxable profit differs from that reported in the profit and loss account because it is adjusted for items of income or expense that are assessable or deductible in other years and is adjusted for items that are never assessable or deductible.

(b) Deferred tax

Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and laws. Timing differences arise from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that there will be future taxable profits against which to recover carried forward future tax losses and from which the reversal of underlying timing differences can be deducted. Deferred tax assets and liabilities are not discounted.

Retirement benefit schemes

The Company has two retirement benefit plans.

(a) Defined contribution plan

A defined contribution plan is a post-retirement benefit plan under which the Company pays fixed contributions to a separate entity and has no legal or constructive obligation to pay further amounts. The Company recognises payments to defined contribution pension plans as an employee expense in the profit and loss account as and when they are due.

(b) Defined benefit plan

A defined benefit plan is a post-retirement plan other than a defined contribution plan. The Company’s net liability is recognised in the balance sheet and is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods and discounting this to its present value. Any unrecognised past service costs and the fair value of the plan’s assets are deducted.

The calculation is performed by a qualified actuary on an annual basis using the projected unit credit method. The cost of the plan is charged to the profit and loss account based on actuarial assumptions at the beginning of the financial year. Where the calculation results in a benefit to the Company, the asset recognised is limited to the net of the total
unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

When the benefits of the plan are improved, the portion of increased benefit relating to past service by employees is recognised in the profit and loss account on a straight-line basis over the average period until the benefits become vested. Where the benefits vest immediately, the expense is recognised in the profit and loss account immediately.

Actuarial gains and losses are recognised in full in the combined statement of movements in reserves and shareholders’ funds in the period in which they occur. Net pension obligations are included in the balance sheet at the present value of the plan liabilities, less the fair value of the plan assets and any related deferred tax asset.

Provisions

Provisions are recognised when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount of the obligation can be estimated reliably.

Share-based payments

The Company has applied the requirements of FRS 20 ‘Share-Based Payment’. In accordance with the transitional provisions, FRS 20 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005.

The Company grants equity-settled and cash-settled share-based awards to certain employees. Equity-settled sharebased payments are measured at fair value at the date of grant and are recognised as an employee expense, with a corresponding increase in equity, over the period from date of grant to the date on which the employees become
unconditionally entitled to the options.

Cash-settled share-based payments are measured at fair value at each balance sheet date and recognised as an expense, with a corresponding increase in liabilities, over the period from date of grant to the date on which the employees become unconditionally entitled to the payment. Any changes in the fair value of the liability are recognised as an employee expense or income in the profit and loss account. Fair value is measured by use of a modified Black-Scholes model.

None of these awards when granted were subject to a share price related performance condition.

Related National Insurance Contributions are accrued on the basis of the intrinsic value of outstanding share-based payments and are re-measured at each reporting date.

Leased assets

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Finance income and expense

Finance income comprises bank and other interest. Interest income is recognised in the profit and loss account using the effective interest rate method. Finance expense comprises interest on bank overdrafts.

Borrowing costs are recognised in the profit and loss account on an effective interest method in the period in which they are incurred.

Financial guarantees

The Company provides certain guarantees in respect of the indebtedness of its subsidiary undertakings and in respect of bonds and claims under contracting and other arrangements which include joint arrangements and joint ventures entered into in the ordinary course of business.

The Company considers such agreements to be indemnity arrangements and as such, accounts for them as contingent liabilities unless it becomes probable that the Company will be required to make a payment under the guarantee.

Dividends

The Company has adopted FRS 21 ‘Events after the Balance Sheet Date’ and accordingly only recognises a liability once there is an obligation to pay. As a result a dividend will only be recognised once the shareholders approve it.