Glaxo cushions 3% fall

Glaxo Wellcome has capitalised its computer software costs, a move that has helped the leading British group cushion falling profits by #70m.

The pharmaceutical giant announced its 1998 preliminary results, showing pre-tax profits of #2.67bn, 1% less than the previous year.

But it admitted that the dip would have been greater had it not taken a decision to change its accounting policy for computer software expenditure.

Finance director John Coombe said that without the change, pre-tax profits would have been only #2.60bn, representing a 3% fall from 1997.

He explained: ‘The reason for the change is an increase in the focus on purchasing integrated software packages.’

Explaining that Glaxo had moved from in-house development to external purchase of computer software over the year, he said it had incurred significant costs in a limited period of time which would provide assets lasting several years.

These include a new human resources and payroll system, and the replacement of entire financial systems in a number of its operating companies.

Some #70m of computer software costs have been deferred as a result of the move. These will be depreciated over the next five years.

Coombe strongly defended the decision, emphasising it was in line with UK accounting standards.

Officials at the Accounting Standards Board said the decision fell within accepted practice under SSAP 13, which gives companies the option to capitalise development costs.

Pro-forma accounts showing the position without the change were included at the back of the group’s preliminary results announcement.

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