REGISTERED NUMBER: 07820729 (England and Wales)

Group Strategic Report, Report of the Directors and

Audited Consolidated Financial Statements for the Year Ended 31 December 2024

for

Powtoon Limited

Page

Company Information

1

Group Strategic Report

2

Report of the Directors

4

Report of the Independent Auditors

6

Consolidated Income Statement

10

Consolidated Other Comprehensive Income

11

Consolidated Balance Sheet

12

Company Balance Sheet

13

Consolidated Statement of Changes in Equity

14

Company Statement of Changes in Equity

15

Consolidated Cash Flow Statement

16

Notes to the Consolidated Cash Flow Statement

17

Notes to the Consolidated Financial Statements

18

DIRECTORS:

I Spitalnik

D Gonen

SECRETARY:

Ms D Beth

REGISTERED OFFICE:

C/O Parker Cavendish, Suite 301

Stanmore Business and Innovation Centre

Howard Road

Stanmore

Middlesex

HA7 1FW

REGISTERED NUMBER:

07820729 (England and Wales)

SENIOR STATUTORY AUDITOR:

Gordon Levy BA, FCA

AUDITORS:

Gordon Levy Limited

Statutory Auditors

Suite 5, 4th floor

3 Universal Square

Devonshire Street North

Manchester

M12 6JH

The directors present their strategic report of the company and the group for the year ended 31 December 2024.

FAIR REVIEW OF THE BUSINESS

Powtoon, Ltd. provides cloud-based, do-it-yourself animated presentation tools to business and education sectors.

Powtoon's greater vision is to bring a visual communication platform to enterprises to increase engagement, customer response, and results within everyday communications. Powtoon develops solutions across different layers of an organisation's business, whether c-suite, marketing, training, HR, IT, or customer support teams.

The company was founded in 2012 in London, United Kingdom, with an R&D centre located in Tel Aviv, Israel. We earn revenue primarily through a SaaS business model, selling subscriptions to our cloud-based software on an annual or monthly basis. We employ a "freemium" pricing strategy, offering free membership and access to our video and presentation tools alongside paid subscription plans for advanced video capabilities.

The Powtoon Enterprise solution inherently includes security and availability features, as well as team management tools to manage licences, members, and branding in an effort to enhance team sharing and collaboration. Users of the Powtoon for Business solution also have access to a dedicated customer success and support team to help them make the most of the platform and ensure that incidents are resolved timely.

Financial Performance

The Group generated turnover of £12.5m (2023: £13.6m). Gross profit was £10.5m (2023: £10.7m), reflecting stable margins despite competitive market conditions. Operating profit for the year was £437,772 (2023: £657,981).

The balance sheet remains robust with net assets of £5.2m (2023: £4.2m). Cash balances are healthy, ensuring the Group is well positioned to continue investing in its platform and customer proposition.

Business Environment and Challenges

2024 was a challenging year. The weak economy continued to impact our clients and prospects, leading to longer sales cycles, increased budget scrutiny, budget cuts, and workforce reductions. Generative AI presented both opportunities and challenges-on one hand, enabling us to enhance our product and accelerate video creation, whilst on the other, intensifying competition in the self-serve market.

Strategy

We continued our transition toward becoming a B2B enterprise-focused company. To accelerate progress, we aim to allocate 90% of our resources to the Enterprise segment, leaving only 10% for Self Serve. Our product roadmap is largely shaped by our Enterprise strategy, but platform enhancements, in most cases, also benefit our Self-Serve customers

KEY RISKS

1. Macro-economic environment

Rising costs may impact Powtoon's operation costs. Our cash flow may be insufficient to fund the capital investments we need to make to grow our business. We may need to raise funding through issuing new equity and may also raise additional funds through additional borrowings. To obtain such funding, we may need to collateralise assets and agree to certain financial covenants.

2. Service interruptions

Whilst we aim to provide 100% uptime in any given month there is a risk of not achieving this, due to technical errors (bugs), human error (by employees and contractors), interruptions experienced by key vendors (such as cloud-based service or payment providers), higher than anticipated traffic and/or cyber attacks. This could result in lost business, increased user and subscriber support tickets, and increased subscriber churn (lost renewals).

FUTURE DEVELOPMENTS STRATEGY GOING FORWARD

With increasing competition in our space, we need to stand out in 2025. To address this we are concentrating on three key initiatives:

1. Brand: We retained a brand agency to craft our unique market voice: 'Powtoon - Make Anything Interesting™'.

2. Arena: We are developing our Powtoon Arena platform, expanding into video management, interactivity, courses, and analytics-differentiating us from direct competitors. We've begun deploying the first version with a design partner.

3. AI Aggregation: We are investing in an ambitious suite of AI-driven tools designed to propel our brand forward, drive innovation, enhance our value proposition, and strengthen monetisation opportunities.

Enterprise B2B: We plan to focus on the Pharma and Financial services verticals as well as on outreach to C-level executives. We are investing more in expanding our footprint with large clients, via account plans, prospecting, as well as by selling AI credit packages and professional services. We plan to grow the sales team and hire a head of sales.

Self Serve B2C: In 2025 we plan to focus on improving user acquisition, leveraging our revised brand, improve users onboarding and optimise pricing and packaging. Our goal in 2025 is to stay flat on Self Serve and ensure that growth in our Enterprise business translates to overall company growth.

ON BEHALF OF THE BOARD:

I Spitalnik - Director

29 September 2025

The directors present their report with the financial statements of the company and the group for the year ended 31 December 2024.

DIVIDENDS

There were no dividends distributed in the year ended 31 December 2024 (2023: nil).

DIRECTORS

The directors who served during the year and to the date of this report were:

I. Spitalnik

D. Gonen

D. Nathan (resigned 11 January 2024)

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Group Strategic Report, the Report of the Directors and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the group and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

-	select suitable accounting policies and then apply them consistently;

-	make judgements and accounting estimates that are reasonable and prudent;

-	prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's and the group's transactions and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS

So far as the directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the group's auditors are unaware, and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the group's auditors are aware of that information.

AUDITORS

The auditors, Gordon Levy Limited, are deemed to be reappointed under section 487(2) of the Companies Act 2006.

ON BEHALF OF THE BOARD:

I Spitalnik - Director

29 September 2025

Opinion

We have audited the financial statements of Powtoon Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2024 which comprise the Consolidated Income Statement, Consolidated Other Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity, Consolidated Cash Flow Statement and Notes to the Consolidated Cash Flow Statement, Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

-	give a true and fair view of the state of the group's and of the parent company affairs as at 31 December 2024 and of the group's profit for the year then ended;

-	have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

-	have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and the parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

-	the information given in the Group Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-	the Group Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Group Strategic Report or the Report of the Directors.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

-	adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

-	the parent company financial statements are not in agreement with the accounting records and returns; or

-	certain disclosures of directors' remuneration specified by law are not made; or

-	we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the Statement of Directors' Responsibilities set out on page four, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a Report of the Auditors that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.

Based on our understanding of the group and parent company and its industry, we considered that non-compliance with the following laws and regulations might have a material effect on the financial statements: employment regulation, health and safety regulation, anti-money laundering regulation.

To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of material misstatement in respect to non-compliance, our procedures included, but were not limited to:

- Inquiring of management and, where appropriate, those charged with governance, as to whether the company is in compliance with laws and regulations, and discussing their policies and procedures regarding compliance with laws and regulations;

- Inspecting correspondence, if any, with relevant licensing or regulatory authorities;

- Communicating identified laws and regulations to the engagement team and remaining alert to any indications of non-compliance throughout our audit; and

- Considering the risk of acts by the company which were contrary to applicable laws and regulations,including fraud.

We also considered those laws and regulations that have a direct effect on the preparation of the financial statements, such as tax legislation, pension legislation, the Companies Act 2006. In addition, we evaluated the directors' and management's incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of management override of controls, and determined that the principal risks related to posting manual journal entries to manipulate financial performance, management bias through judgements and assumptions in significant accounting estimates, revenue recognition (which we pinpointed to the cut-off assertion), and significant one-off or unusual transactions.

Our audit procedures in relation to fraud included but were not limited to:

- Making enquiries of the directors and management on whether they had knowledge of any actual,suspected or alleged fraud;

- Gaining an understanding of the internal controls established to mitigate risks related to fraud;

- Discussing amongst the engagement team the risks of fraud; and

- Addressing the risks of fraud through management override of controls by performing journal entry testing.There are inherent limitations in the audit procedures described above and the primary responsibility for the prevention and detection of irregularities including fraud tests with management.

As with any audit, there remained a risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our Report of the Auditors.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Gordon Levy BA, FCA (Senior Statutory Auditor)

for and on behalf of Gordon Levy Limited

Statutory Auditors

Suite 5, 4th floor

3 Universal Square

Devonshire Street North

Manchester

M12 6JH

29 September 2025

TURNOVER

3

12,466,352

13,633,884

Cost of sales

(2,007,238

)

(2,942,034

)

GROSS PROFIT

10,459,114

10,691,850

Administrative expenses

(10,061,648

)

(10,041,664

)

OPERATING PROFIT

5

397,466

650,186

Interest receivable and similar income

40,306

7,795

PROFIT BEFORE TAXATION

437,772

657,981

Tax on profit

6

571,890

(116,777

)

PROFIT FOR THE FINANCIAL YEAR

1,009,662

541,204

Profit attributable to:

Owners of the parent

1,009,662

541,204

PROFIT FOR THE YEAR

1,009,662

541,204

OTHER COMPREHENSIVE INCOME

Revaluation reserves

26,454

(106,330

)

Other reserves

13,961

18,416

Income tax relating to components of other comprehensive income

-

-

OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF INCOME TAX

40,415

(87,914

)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

1,050,077

453,290

Total comprehensive income attributable to:

Owners of the parent

1,050,077

453,290

FIXED ASSETS

Intangible assets

9

6,354,508

6,599,511

Tangible assets

10

177,907

177,837

Investments

11

-

-

6,532,415

6,777,348

CURRENT ASSETS

Debtors

12

2,155,067

1,987,657

Cash at bank and in hand

4,261,085

4,112,665

6,416,152

6,100,322

CREDITORS

Amounts falling due within one year

13

7,751,204

8,731,101

NET CURRENT LIABILITIES

(1,335,052

)

(2,630,779

)

TOTAL ASSETS LESS CURRENT LIABILITIES

5,197,363

4,146,569

CAPITAL AND RESERVES

Called up share capital

15

1,134

1,134

Share premium

16

495,866

495,149

Revaluation reserve

16

(55,748

)

(82,202

)

Other reserves

16

75,587

61,626

Retained earnings

16

4,680,524

3,670,862

SHAREHOLDERS' FUNDS

5,197,363

4,146,569

The financial statements were approved by the Board of Directors and authorised for issue on 29 September 2025 and were signed on its behalf by:

I Spitalnik - Director

FIXED ASSETS

Intangible assets

9

6,354,508

6,599,511

Tangible assets

10

7,915

8,588

Investments

11

765

765

6,363,188

6,608,864

CURRENT ASSETS

Debtors

12

1,731,856

1,293,449

Cash at bank

2,435,868

2,267,336

4,167,724

3,560,785

CREDITORS

Amounts falling due within one year

13

8,108,491

8,355,197

NET CURRENT LIABILITIES

(3,940,767

)

(4,794,412

)

TOTAL ASSETS LESS CURRENT LIABILITIES

2,422,421

1,814,452

CAPITAL AND RESERVES

Called up share capital

15

1,134

1,134

Share premium

16

495,866

495,149

Retained earnings

16

1,925,421

1,318,169

SHAREHOLDERS' FUNDS

2,422,421

1,814,452

Company's profit for the financial year

607,252

212,799

The financial statements were approved by the Board of Directors and authorised for issue on 29 September 2025 and were signed on its behalf by:

I Spitalnik - Director

Called up

share

Retained

Share

capital

earnings

premium

£

£

£

Balance at 1 January 2023

1,133

3,129,658

493,560

Changes in equity

Issue of share capital

1

-

1,589

Total comprehensive income

-

541,204

-

Balance at 31 December 2023

1,134

3,670,862

495,149

Changes in equity

Total comprehensive income

-

1,009,662

-

Paid-in capital

-

-

717

Balance at 31 December 2024

1,134

4,680,524

495,866

Revaluation

Other

Total

reserve

reserves

equity

£

£

£

Balance at 1 January 2023

24,128

43,210

3,691,689

Changes in equity

Issue of share capital

-

-

1,590

Total comprehensive income

(106,330

)

18,416

453,290

Balance at 31 December 2023

(82,202

)

61,626

4,146,569

Changes in equity

Total comprehensive income

26,454

13,961

1,050,077

Paid-in capital

-

-

717

Balance at 31 December 2024

(55,748

)

75,587

5,197,363

Called up

share

Retained

Share

Total

capital

earnings

premium

equity

£

£

£

£

Balance at 1 January 2023

1,133

1,105,370

493,560

1,600,063

Changes in equity

Issue of share capital

1

-

1,589

1,590

Total comprehensive income

-

212,799

-

212,799

Balance at 31 December 2023

1,134

1,318,169

495,149

1,814,452

Changes in equity

Total comprehensive income

-

607,252

-

607,252

Paid-in capital

-

-

717

717

Balance at 31 December 2024

1,134

1,925,421

495,866

2,422,421

Cash flows from operating activities

Cash generated from operations

1

2,087,689

2,856,744

Taxation

495,475

(160,354

)

Net cash from operating activities

2,583,164

2,696,390

Cash flows from investing activities

Purchase of intangible fixed assets

(2,413,690

)

(2,399,426

)

Purchase of tangible fixed assets

(61,360

)

(56,659

)

Interest received

40,306

7,795

Net cash from investing activities

(2,434,744

)

(2,448,290

)

Cash flows from financing activities

Share issue

-

1

Premium share issue

-

1,589

Net cash from financing activities

-

1,590

Increase in cash and cash equivalents

148,420

249,690

Cash and cash equivalents at beginning of year

2

4,112,665

3,862,975

Cash and cash equivalents at end of year

2

4,261,085

4,112,665

1.	RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS

31.12.24

31.12.23

£

£

Profit before taxation

437,772

657,981

Depreciation charges

2,718,334

2,679,384

Share options expense

13,961

-

Exchange rate differences

214

-

Revaluations

26,454

(87,914

)

Finance income

(40,306

)

(7,795

)

3,156,429

3,241,656

Increase in trade and other debtors

(96,900

)

(562,095

)

(Decrease)/increase in trade and other creditors

(971,840

)

177,183

Cash generated from operations

2,087,689

2,856,744

2.	CASH AND CASH EQUIVALENTS

The amounts disclosed on the Cash Flow Statement in respect of cash and cash equivalents are in respect of these Balance Sheet amounts:

Year ended 31 December 2024

31.12.24

1.1.24

£

£

Cash and cash equivalents

4,261,085

4,112,665

Year ended 31 December 2023

31.12.23

1.1.23

£

£

Cash and cash equivalents

4,112,665

3,862,975

3.	ANALYSIS OF CHANGES IN NET FUNDS

At 1.1.24

Cash flow

At 31.12.24

£

£

£

Net cash

Cash at bank and in hand

4,112,665

148,420

4,261,085

4,112,665

148,420

4,261,085

Total

4,112,665

148,420

4,261,085

1.	STATUTORY INFORMATION

Powtoon Limited is a private company, limited by shares , registered in England and Wales. The company's registered number and registered office address can be found on the General Information page.

2.	ACCOUNTING POLICIES

Basis of preparing the financial statements

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and the Companies Act 2006. The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies.

The financial statements are presented in GBP as that is the functional currency of the entities.

Significant judgements and estimates

Basis of consolidation. The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 31 December 2024. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal.

Significant judgements and estimates. The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported. These estimates and judgements are continually reviewed and are based on experience and other factors including expectations of future events that are believed to be reasonable under the circumstances.

In preparing these financial statements the directors have made the following judgements:

- Determine whether there are indicators of impairment of the group’s intangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of that unit.

- Determine the expected useful life of each class of intangible asset. This has been determined using both judgement and in comparison to similar assets held by other companies operating in the same or similar industries. Amortisation policies are reviewed annually to ensure their accuracy.

- Determine the fair value of the employee share options issued. This has been estimated using the Black Scholes model. The fair value of the options is re-calculated yearly to make sure that the share based payments cost included in administrative expenses is a reliable estimate.

- Determine the tax relief claim in relation to relevant R&D projects. This has been assessed via a review of underlying records to determine what expenses constitute qualifying expenditure. Qualifying expenditure was then subject to HMRC tax credit calculations.

The were no other key sources of estimation and uncertainty.

Turnover

The turnover and profit before taxation are attributable to the one principal activity of the group.

Turnover is the amount derived from the provision of services and stated after trade discounts, other sales taxes and net of VAT. Revenue is recognised on a straight line basis based on the service provision period.

Intangible assets

Intangible assets are initially measured at cost. After initial recognition, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.

Development costs are being amortised evenly over their estimated useful life of 6 years.

Computer software is being amortised at 33.33% straight line on cost.

Tangible fixed assets

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Long leasehold

-

10% straight line

Fixtures and fittings

-

33% straight line

Computer equipment

-

33% straight line

Financial instruments

Classification. All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If an arrangement constitutes a finance transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Recognition and measurement. Debt instruments which meet the following conditions are subsequently measured at amortised cost using the effective interest method:

(a) The contractual return to the holder is (i) a fixed amount; (ii) a positive fixed rate or a positive variable rate; or (iii) a combination of a positive or a negative fixed rate and a positive variable rate.

(b) The contract may provide for repayments of the principal or the return to the holder (but not both) to be linked to a single relevant observable index of general price inflation of the currency in which the debt instrument is denominated, provided such links are not leveraged.

(c) The contract may provide for a determinable variation of the return to the holder during the life of the instrument, provided that (i) the new rate satisfies condition (a) and the variation is not contingent on future events other than (1) a change of a contractual variable rate; (2) to protect the holder against credit deterioration of the issuer; (3) changes in levies applied by a central bank or arising from changes in relevant taxation or law; or (ii) the new rate is a market rate of interest and satisfies condition (a).

(d) There is no contractual provision that could, by its terms, result in the holder losing the principal amount or any interest attributable to the current period or prior periods.

(e) Contractual provisions that permit the issuer to prepay a debt instrument or permit the holder to put it back to the issuer before maturity are not contingent on future events, other than to protect the holder against the credit deterioration of the issuer or a change in control of the issuer, or to protect the holder or issuer against changes in levies applied by a central bank or arising from changes in relevant taxation or law.

(f) Contractual provisions may permit the extension of the term of the debt instrument, provided that the return to the holder and any other contractual provisions applicable during the extended term satisfy the conditions of paragraphs (a) to (c).

Debt instruments that are classified as payable or receivable within one year on initial recognition and which meet the above conditions are measured at the undiscounted amount of the cash or other consideration expected to be paid or received, net of impairment. With the exception of some hedging instruments, other debt instruments not meeting these conditions are measured at fair value through profit or loss.

Commitments to make and receive loans which meet the conditions mentioned above are

measured at cost (which may be nil) less impairment.

Taxation

Taxation for the year comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current or deferred taxation assets and liabilities are not discounted.

Current tax is recognised at the amount of tax payable using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date.

Timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in financial statements. Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the year end and that are expected to apply to the reversal of the timing difference.