IFRS Restatement
Hargreaves Services PLC
14 February 2008
For immediate release 14 February 2008
Hargreaves Services plc
Restatement of financial information under International Financial Reporting
Standards
Introduction
Hargreaves Services Plc ('the Group') has historically prepared its consolidated
financial statements under UK Generally Accepted Accounting Practice ('UK
GAAP'). The AIM rules require the adoption of Adopted IFRS as adopted by the
EU ('Adopted IFRS')(1).
Adopted IFRS will apply for the first time in the Group's financial statements
for the year ending 31 May 2008. Accordingly the financial results for the 6
months ended 30 November 2007 will be prepared and reported under Adopted IFRS.
As the Group publishes comparative information in its Annual Report and Interim
Statement the date of transition to Adopted IFRS is 1 June 2006.
To explain how the Group's reported performance and financial position are
affected by this change, information previously published under UK GAAP is
restated under Adopted IFRS in the attached appendices as follows:
• Appendix 1 - Adopted IFRS accounting policies;
• Appendix 2 - Financial information on an Adopted IFRS basis for the 6
months ended 30 November 2006 and the year ended 31 May 2007 and
the transition balance sheet at 1 June 2006;
• Appendix 3 - Reconciliations of consolidated income statement, consolidated
balance sheet and consolidated statement of cash flows for the year ended
31 May 2007 with explanations of the adjustments made;
• Appendix 4 - Reconciliations of consolidated income statement, consolidated
balance sheet and consolidated statement of cash flows for the 6 months
ended 30 November 2006, with explanations of the adjustments made;
• Appendix 5 - Reconciliation of transition consolidated balance sheet at 1
June 2006, with explanations of adjustments made.
This unaudited financial information has been prepared on the basis of Adopted
IFRSs expected to be applicable at 31 May 2008. These are subject to ongoing
review and endorsement by the EU or possible amendment by interpretive guidance
from the IASB and are therefore still subject to change. We will update our
restated information for any such changes when they occur.
The adoption of IFRS has an impact on the presentation of the Group's accounts
but does not change the underlying business performance. There are no changes
to the business model, strategy or risk management processes.
Basis of preparation
The unaudited financial information has been prepared in accordance with the
recognition and measurement requirements of adopted IFRS. The accounting
policies expected to be applied in the adopted IFRSs financial statements for
the year ending 31 May 2008 are set out in Appendix 1.
The auditors have issued unqualified opinions on the Group's UK GAAP financial
statements for the years ended 31 May 2006 and 31 May 2007.
Both the transition balance sheet as at 1 June 2006 and the financial
information for the year ended 31 May 2007, as prepared on the above basis, will
be audited as part of the audit of the financial statements for the year ending
31 May 2008. Subject to that audit, EU endorsement of outstanding standards and
no further changes from the IASB, this information is expected to form the basis
for comparatives when reporting financial results for 2008, and for subsequent
reporting periods.
Overview of impact
For the year ended 31 May 2007 the net increase in total recognised income and
expense attributable to equity holders of the Group as a result of the
conversion to Adopted IFRS was £240,000. The details of these adjustments are
given in Appendices 2 and 3.
Based on the accounting policies detailed in Appendix 1, the effect on key
reported results is as follows:
6 months ended Year ended
30 November 2006 31 May 2007
IFRS UK GAAP IFRS UK GAAP
Unaudited Unaudited Unudited Audited
£000 £000 £000 £000
Operating profit 3,898 3,903 9,891 9,947
Profit for the period attributable
to equity holders of the company 2,901 2,508 6,414 5,636
Net assets 27,056 27,697 41,034 41,828
Basic EPS 12.25p 10.59p 26.32p 23.12p
The main areas where Adopted IFRS has impacted on the results are as follows:
• Goodwill arising from acquisitions is no longer amortised, increasing
reported profits and net assets.
• Foreign currency forward and swap contracts and interest rate swaps are
included in the financial statements at fair value with changes being
recognised in the profit and loss account.
• The fair value of the customer contracts at the date of acquisition of
Norec Ltd is capitalised and amortised over the period in which it is
delivered, reducing reported profits.
Full details of the adjustments required are given in Appendix 3.
IFRS 1 exemptions
IFRS 1 First Time Adoption of International Financial Reporting Standards,
permits those companies adopting IFRS for the first time to take certain
exemptions from the full requirements of IFRS in the transition period. The
Group has utilised the following key exemptions:
(a) Share based payments: The Group has elected to apply IFRS 2 Share based
payments only to share based payment transactions granted after 7 November
2002 that had not vested prior to the transition date.
(b) Business combinations: The Group has chosen not to restate business
combinations prior to the transition date.
(c) Property, Plant and Equipment: The Group has opted to continue to measure
property, plant and equipment at historical cost less accumulated
depreciation, in the transition consolidated balance sheet.
Appendix 1
IFRS Accounting Policies
This section provides a summary of the Group's accounting policies under adopted
IFRS for the year ending 31 May 2008. Where policies have changed under adopted
IFRS as compared to UK GAAP this is indicated by *.
Basis of preparation
The preliminary IFRS financial information set out on pages 9 to 21 does not
constitute the company's statutory accounts for the year ended 31 May 2007.
Those accounts, which were prepared under UK GAAP, have been reported on by the
company's auditors and delivered to the Registrar of Companies. The report of
the auditors was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 237
(2) or (3) of the Companies Act 1985.
The financial information is presented in pounds sterling, rounded to the
nearest thousand, and is prepared on the historical cost basis with some
exemptions, as detailed in the accounting policies set out below.
These accounting polices have been prepared on the basis of the recognition and
measurement requirements of adopted IFRSs as at 30 November 2007 that are
anticipated to be effective (or available for early adoption) at 31 May 2008,
the Group's first annual reporting date at which it is required to use adopted
IFRSs. Based on these adopted IFRSs, the directors have applied the accounting
policies as set out below, which they expect to apply when the first annual IFRS
financial statements are prepared for the year ending 31 May 2008.
However, the adopted IFRSs that will be effective (or available for early
adoption) in the annual financial statements for the year ending 31 May 2008 are
still subject to change and to additional interpretations and therefore cannot
be determined with certainty. Accordingly, the accounting policies for that
annual period will be determined finally only when the annual financial
statements are prepared for the year ending 31 May 2008.
The preparation of this financial information resulted in changes to the
accounting policies as compared with the most recent annual financial statements
prepared under previous GAAP. The accounting polices set out below have been
applied consistently throughout the Group to all periods presented in this
financial information.
The preparation of financial information in conformity with adopted IFRSs
requires management to make judgements, estimates and assumptions that effect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of revision and future periods if the revision affects both current and future
periods.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists where the
Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The financial statements of subsidiaries are included in the consolidated
financial information from the date control commences until the date that
control ceases.
Intra-group balances and transactions, and any unrealised gains and losses or
income and expenses arising from intra-group transactions, are eliminated when
preparing the consolidated financial information.
Basis of consolidation (continued)
Associates and jointly controlled entities
Associates are those entities in which the Group has significant influence, but
not control, over the financial and operating policies. Significant influence is
presumed to exist when the Group holds between 20 and 50 percent of the voting
power of another entity.
A jointly controlled entity is an entity over whose activities the Group has
joint control, established by contractual agreements and requiring unanimous
consent for strategic, financial and operating decisions. The consolidated
accounts include the Group's share of the total recognised income and expense of
jointly controlled entities and associates on an equity accounted basis. The
results of jointly controlled entities and associates are included in the
consolidated accounts from the date that joint control or significant influence
respectively, commences until the date that it ceases.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. Foreign
exchange differences arising on translation are recognised in the income
statement.
The balance sheet assets and liabilities of foreign subsidiaries are translated
into sterling at the exchange rate at the balance sheet date, and the income
statement is translated at the average rate. Gains and losses are then taken to
a separate reserve.
Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity (i.e. forming
part of shareholders' funds) only to the extent that they meet the following two
conditions:
(a) they include no contractual obligations upon the group to
deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially
unfavourable to the group; and
(b) where the instrument will or may be settled in the company's
own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the company's own equity instruments
or is a derivative that will be settled by the company's exchanging a fixed
amount of cash or other financial assets for a fixed number of its own equity
instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified takes
the legal form of the company's own shares, the amounts presented in these
financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Where a financial instrument that contains both equity and financial liability
components exists these components are separated and accounted for individually
under the above policy. The finance cost on the financial liability component
is correspondingly higher over the life of the instrument.
Finance payments associated with financial liabilities are dealt with as part of
finance expenses. Finance payments associated with financial instruments that
are classified in equity are dividends and are recorded directly in equity.
Financial instruments
Derivative financial instruments* - Appendix 3(b)
The Group uses interest rate swaps to help manage its interest rate risk, and
forward foreign currency contracts to manage its exchange rate risk. The Group
also uses derivative sale and purchase contracts to mitigate the risk of
fluctuating coal prices and exchange rate risk.
All derivative financial instruments are recognised initially at fair value and
subsequently re-measured to fair value at each reporting date and changes
therein are accounted for as described below.
Changes in the fair value of the derivative hedging instrument designated as a
cash flow hedge are recognised directly in equity to the extent that the hedge
is effective. To the extent that the hedge is ineffective, changes in fair value
are recognised in profit and loss.
Derivatives designated as hedging instruments are accounted for in line with the
nature of the hedging arrangement. Derivatives are intended to be highly
effective in mitigating the above risks, and hedge accounting is adopted where
the required hedge documentation is in place and the relevant test criteria are
met.
Changes in the fair value of any derivative instruments that do not qualify for
hedge accounting are recognised immediately in the income statement as part of
financing costs.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and impairment losses. Where parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate items of
property, plant and equipment.
Mine development costs at Maltby Colliery are capitalised and depreciated over
the working life of the area of the mine to which the costs are attributable.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and
equipment. Land is not depreciated. Depreciation rates are as follows:
Mineral Reserves 12.5% p.a.
Freehold Buildings 2% to 4% p.a.
Leasehold improvements 15% p.a.
Motor vehicles and plant 10% to 20% p.a.
Furniture and equipment 25% p.a.
Fixtures and Fittings 15% p.a.
Intangible assets and goodwill* - Appendix 3(a)
Subject to the transitional relief in IFRS 1, all business combinations are
accounted for by applying the purchase method. Goodwill arises from the
acquisition of businesses and represents the difference between the cost of the
acquisition and the fair value of the identifiable assets, liabilities and
contingent liabilities acquired. Identifiable intangibles are those which can
be sold separately or which arise from legal rights regardless of whether those
rights are separable.
Goodwill arising on acquisitions that have occurred since 1 June 2006 is
capitalised and subject to impairment review, both annually and when there are
indications the carrying value may not be recoverable. Negative goodwill
arising on an acquisition is recognised immediately in profit or loss.
Goodwill arising on acquisitions prior to 1 June 2006 was capitalised and
amortised under UK GAAP. This goodwill is carried at the UK GAAP carrying value
at the date of transition to adopted IFRS and is subject to impairment reviews
as described above.
Intangible assets and goodwill* - Appendix 3(a)(continued)
Other intangible assets that are acquired by the Group, which have finite useful
economic lives, are measured at cost less accumulated amortisation and
accumulated impairment losses. Amortisation is recognised in profit and loss on
a straight-line basis over the estimated useful lives of intangible assets from
the date that they are available for use.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
based on the weighted average method and includes expenditure incurred in
acquiring the inventories and bringing them to their existing location and
condition.
At Maltby Colliery, the cost of preparing proceeding coal faces is held on the
balance sheet within work in progress and is charged on a tonnage-extracted
basis over the estimated production life of the relevant face.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. A provision
for impairment of trade receivables is established where there is objective
evidence that the Group will not be able to collect all amounts due according to
the agreed terms of the receivables concerned.
Cash and cash equivalents*
Cash and cash equivalents comprise cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group's
cash management are included as a component of cash and cash equivalents for the
purpose only of the statement of cash flows.
Trade and other payables
Trade and other payables are non-interest bearing and are recognised at fair
value.
Impairment* - Appendix 3(a)
The carrying amounts of the Group's assets other than inventories and deferred
tax assets, are reviewed at each balance sheet date to determine whether there
is any indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash-generating
units and then to reduce the carrying amount of the other assets in the unit on
a pro rata basis. A cash generating unit is the smallest identifiable group of
assets that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.
Reversals of impairment
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed when there is an
indication that the impairment loss may no longer exist and there has been a
change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined, net
of depreciation or amortisation, if no impairment loss had been recognised.
Employee benefits
Defined benefit pension plans
Following the acquisition of The Monckton Coke & Chemical Co Ltd on 17 June 2005
and Maltby Colliery on 26 February 2007, the Group operates two concessionary
fuel retirement benefit schemes.
In addition following the acquisition of Maltby Colliery, the Group is a member
of two pension schemes providing benefits based on final pensionable pay. The
assets of the scheme are held separately from those of the Group.
The retirement benefit scheme liabilities are measured using the
projected unit method. The concessionary fuel retirement benefit schemes
are unfunded retirement benefits and as such there are no assets in the schemes.
The retirement benefit deficits are recognised in full, the movement in the
scheme deficits is split between operating charges, finance items and in the
statement of total recognised income and expense, actuarial gains and losses.
Pension scheme assets are measured using market values. Pension scheme
liabilities are measured using a projected unit method and discounted at the
current rate of return on a high quality corporate bond of equivalent term and
currency to the liability. The pension scheme surplus (to the extent that it is
recoverable) or deficit is recognised in full. The movement in the scheme
surplus/deficit is split between operating charges, finance items and in the
statement of total recognised income and expenses, actuarial gains and losses.
Defined contribution pension plans
The group operates a group personal pension scheme. The assets of the scheme
are held separately from those of the group in an independently administered
fund. The amount charged against profits represents the contributions payable
to the scheme in respect of the financial period.
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
Share-based payment transactions
The Group operates a share option scheme for certain employees. The fair value
of options granted is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at grant date and spread over
the period during which the employees become unconditionally entitled to the
options. The fair value of the options granted is measured using an option
valuation model, taking into account the terms and conditions upon which the
options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options that vest except where forfeiture is
due only to share prices not achieving the threshold for vesting.
Revenue
Revenue is measured at the fair value of consideration received or receivable,
excluding value added tax, for goods and services supplied to external
customers. It includes the Group's share of revenue from work carried out under
jointly controlled operations. Sales of goods and services are recognised when
they are delivered and title has passed.
Leases
Leases of property, plant and equipment where the group has substantially all
the risks and rewards of ownership are classified as finance leases. Finance
leases are capitalised at the lease's inception at the lower of the fair value
of the leased asset and the present value of the minimum lease payments. The
corresponding rental obligations, net of finance charges, are included in other
payables. Each lease payment is allocated between the liability and finance
charges so as to achieve a constant rate of interest costs charged to the income
statement on the outstanding balance. The property, plant and equipment
acquired under finance leases are depreciated over the shorter of the asset's
useful life and the lease term.
Leases (continued)
Leases where the lessor retains a significant portion of the risks and rewards
of ownership are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the lease.
Net financing costs
Net financing costs comprise interest payable and interest receivable on funds
invested together with changes in the fair values of interest rate swaps and
foreign currency forward contracts through the profit and loss and the expected
returns on plan assets and interest on the pension scheme liability.
Interest income and interest payable is recognised in the income statement as it
accrues, using the effective interest method.
Income tax* - Appendix 3(e)
Income tax on the profit or loss for the period comprises both current and
deferred tax. Income tax is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case it
is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance
sheet date.
The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a business
combination, and differences relating to investments in subsidiaries to the
extent that they will probably not reverse in the foreseeable future.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the
expected, risk adjusted, future cash flows at a pre-tax risk-free rate.
Appendix 2
Consolidated Income Statement
6 months ended Year ended
30 November 2006 31 May 2007
Unaudited Unaudited
£000 £000
Revenue 102,684 240,105
Cost of sales (92,936) (213,164)
Gross profit 9,748 26,941
Other (expense)/income (16) 25
Administrative expenses (5,834) (17,075)
Operating profit 3,898 9,891
Finance income 618 324
Finance expenses (574) (920)
Share of profit of joint ventures 205 270
Share of profit of associates - 56
Profit before income tax 4,147 9,621
Income tax (1,253) (3,134)
Profit for the period 2,894 6,487
Attributable to:
Equity holders of the company 2,901 6,414
Minority Interest (7) 73
Profit for the period 2,894 6,487
Basic earnings per share 12.25p 26.32p
Diluted earning per share 12.21p 26.16p
Appendix 2
Consolidated Balance Sheet
1 June 30 November 31 May
2006 2006 2007
Unaudited Unaudited Unaudited
£000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 21,146 24,209 63,178
Intangible assets 5,422 11,531 12,630
Investments in joint ventures 897 1,110 881
Investments in associates - - 58
Other investments, including derivates 127 159 220
Other receivables 500 500 500
Deferred tax assets - - 502
Total non-current assets 28,092 37,509 77,969
Current assets
Inventories 15,055 15,208 35,027
Other investments, including derivates - - -
Trade and other receivables 21,167 32,291 38,406
Cash and cash equivalents 15,022 3,788 11,779
Total current assets 51,244 51,287 85,212
Total assets 79,336 88,796 163,181
LIABILITIES
Non-current liabilities
Loans and borrowings (19,521) (18,582) (38,477)
Other non-current liabilities (2,000) - -
Derivative financial instruments - - (631)
Deferred tax liabilities (1,448) (1,618) -
Retirement benefit obligations (469) (469) (9,411)
Provisions (2,671) (2,671) (10,327)
Total non-current liabilities (26,109) (23,340) (58,846)
Current liabilities
Trade and other payables (23,439) (30,822) (49,505)
Current income tax liabilities (1,550) (2,099) (1,851)
Borrowings (1,915) (4,956) (11,740)
Derivative financial instruments (1,059) (523) (205)
Total current liabilities (27,963) (38,400) (63,301)
Total liabilities (54,072) (61,740) (122,147)
Net assets 25,264 27,056 41,034
EQUITY
Capital and reserves attributable to
equity holders
Issued capital 2,368 2,368 2,627
Share premium 19,082 19,082 29,177
Other reserves 29 29 29
Translation reserve - - (4)
Merger reserve - - 1,022
Hedging reserve - - (538)
Capital redemption reserve 1,530 1,530 1,530
Retained earnings 2,255 4,054 7,041
25,264 27,063 40,884
Minority interest in equity - (7) 150
25,264 27,056 41,034
Appendix 2
Consolidated Statement of Cash Flows
6 months ended Year ended
30 November 2006 31 May 2007
Unaudited Unaudited
£000 £000
Cash flows from operating activities
Profit for the period 2,894 6,487
Adjustments for:
Depreciation 1,758 5,030
Amortisation of intangible assets 228 685
Negative goodwill on acquisition - (84)
Share of profit of joint ventures (205) (270)
Share of profit of associates - (56)
Gain on sale of property, plant and equipment 16 (25)
Equity-settled share-based payment transactions 90 268
Net finance (income)/expense (44) 596
Income tax expense 1,253 3,134
5,990 15,765
Change in inventories (153) (13,254)
Change in trade and other receivables (3,553) (4,914)
Change in trade and other payables 3,713 10,691
Change in provisions and employee benefits - 117
Cash from operating activities 5,997 8,405
Interest paid (571) (1,971)
Income tax paid (982) (2,245)
Net cash inflow from operating activities 4,444 4,189
Cash flows from investing activities
Interest received 50 324
Proceeds from sale of property, plant and equipment 241 794
Acquisition of property, plant and equipment (3,014) (8,661)
Acquisition of subsidiary, net of cash acquired (7,710) (33,693)
Acquisition of other investments - 75
Net cash outflow from investing activities (10,433) (41,161)
Cash flows from financing activities
Proceeds from issue of shares - 10,332
Proceeds of borrowings - 15,000
Repayments of borrowings (3,006) (1,164)
Repayment of finance lease liabilities (848) (1,947)
Proceeds from invoice discounting facility (207) 3,656
Dividends paid (1,184) (1,972)
Net cash (outflow)/inflow from financing activities (5,245) 23,905
Net decrease in cash and cash equivalents (11,234) (13,067)
Cash and cash equivalents at the start of the period/year 15,022 15,022
Cash and cash equivalents at the end of the period/year 3,788 1,955
Appendix 2
Consolidated Statement of Recognised Income and Expense
6 months ended Year ended
30 November 2006 31 May 2007
Unaudited Unaudited
£000 £000
Foreign currency translation differences for foreign - (4)
operations
Effective portion of changes in fair value of cash flow - (769)
hedges
Defined benefit plan actuarial gains - 108
Income tax on income and expense recognised directly in - 199
equity
Income and expense recognised directly in equity - (466)
Profit for the period 2,894 6,487
Total recognised income and expense for the period 2,894 6,021
Attributable to:
Equity holders of the company 2,901 5,948
Minority interest (7) 73
Total recognised income and expense for the period 2,894 6,021
Total recognised income and expense attributable to equity holders of the Group
for the year ended 31 May 2007 is £5,948,000 compared to £5,708,000 under UK
GAAP, a difference of £240,000. This difference has resulted from an increase of
£778,000 on the profit for the year and an additional expense of £538,000 on the
income and expense recognised directly in equity.
Appendix 3
Reconciliation of Consolidated Income Statement - Unaudited
for the year ended 31 May 2007
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & 39 Intangibles Reclassification
(a) (b) (c) (d)
£000 £000 £000 £000 £000 £000
Revenue 240,105 - - - - 240,105
Cost of sales (213,164) - - - - (213,164)
Gross profit 26,941 - - - - 26,941
Other income : group 25 - - - - 25
Other income : joint ventures 30 - - - (30) -
Administrative expenses (17,049) 659 - (685) - (17,075)
Operating profit 9,947 659 - (685) (30) 9,891
Finance income 358 - - - (34) 324
Finance expenses : group (2,068) - 1,148 - - (920)
Finance expenses : joint (99) - - - 99 -
ventures
Share of profit of joint 413 - - - (143) 270
ventures
Share of profit of associates 76 - - - (20) 56
Profit before income tax 8,627 659 1,148 (685) (128) 9,621
Income tax expense (2,918) - (344) - 128 (3,134)
Profit for the period 5,709 659 804 (685) - 6,487
Profit for the period
attributable to equity holders
of the Company 5,636 659 804 (685) - 6,414
Profit for the period
attributable to minority
interest 73 - - - - 73
Appendix 3
Reconciliation of Consolidated Balance Sheet - Unaudited
at 31 May 2007
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & 39 Intangibles Reclassification
(a) (b) (c) (e)
£000 £000 £000 £000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 63,178 - - - - 63,178
Intangible assets 12,979 336 - (685) - 12,630
Investments in joint ventures 881 - - - - 881
Investments in associates 58 - - - - 58
Other investments, including 20 - 200 - - 220
derivates
Other receivables 500 - - - - 500
Deferred tax assets - - 191 - 311 502
Total non-current assets 77,616 336 391 (685) 311 77,969
Current assets
Inventories 35,027 - - - - 35,027
Trade and other receivables 38,406 - - - - 38,406
Cash and cash equivalents 11,779 - - - - 11,779
Total current assets 85,212 - - - - 85,212
Total assets 162,828 336 391 (685) 311 163,181
LIABILITIES
Non-current liabilities
Loans and borrowings (38,477) - - - - (38,477)
Other non-current liabilities - - - - - -
Derivative financial instruments - - (631) - - (631)
Deferred tax liabilities - - - - - -
Retirement benefit obligations (6,588) - - - (2,823) (9,411)
Provisions (12,839) - - - 2,512 (10,327)
Total non-current liabilities (57,904) - (631) - (311) (58,846)
Current liabilities
Trade and other payables (51,356) - - - 1,851 (49,505)
Current income tax liabilities - - - - (1,851) (1,851)
Borrowings (11,740) - - - - (11,740)
Derivative financial instruments - - (205) - - (205)
Total current liabilities (63,096) - (205) - - (63,301)
Total liabilities (121,000) - (836) - (311) (122,147)
Net assets/(liabilities) 41,828 336 (445) (685) - 41,034
EQUITY
Capital and reserves attributable
to equity holders of the company
Issued capital 2,627 - - - - 2,627
Share premium 29,177 - - - - 29,177
Other reserves 29 - - - - 29
Translation reserve - - - - (4) (4)
Merger reserve 1,022 - - - - 1,022
Hedging reserve - - (538) - - (538)
Capital redemption reserve 1,530 - - - - 1,530
Retained earnings 7,293 336 93 (685) 4 7,041
41,678 336 (445) (685) - 40,884
Minority interest in equity 150 - - - - 150
41,828 336 (445) (685) - 41,034
Appendix 3
Reconciliation of Consolidated Statement of Cash Flows - Unaudited
for the year ended 31 May 2007
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & 39 Intangibles Reclass
(a) (b) (c) (d)
£000 £000 £000 £000 £000 £000
Cash flows from operating activities
Profit for the period 5,709 659 804 (685) 6,487
Adjustments for:
Depreciation 5,030 - - - - 5,030
Amortisation of intangible assets - - - 685 685
Impairment losses on goodwill - - - - - -
Amortisation of goodwill/Negative goodwill on
acquisition
575 (659) - - - (84)
Share of profit of joint ventures (413) - - - 143 (270)
Share of profit of associates (76) - - - 20 (56)
Gain on sale of property, plant and equipment (55) - - - 30 (25)
Equity-settled share-based payment transactions 268 - - - - 268
Net finance expense 1,809 - (1,148) - (65) 596
Income tax expense 2,918 - 344 - (128) 3,134
15,765 - - - - 15,765
Change in inventories (13,254) - - - - (13,254)
Change in trade and other receivables (4,914) - - - - (4,914)
Change in trade and other payables 10,691 - - - - 10,691
Change in provisions and employee benefits 117 - - - - 117
Cash from operating activities 8,405 - - - - 8,405
Interest paid (1,971) - - - - (1,971)
Income tax paid (2,245) - - - - (2,245)
Net cash inflow from operating activities 4,189 - - - - 4,189
Cash flows from investing activities
Interest received 324 - - - - 324
Proceeds from sale of property, plant and 794 - - - - 794
equipment
Acquisition of property, plant and equipment (8,661) - - - - (8,661)
Acquisition of subsidiary net of cash acquired (33,693) - - - - (33,693)
Acquisition of other investments 75 - - - - 75
Net cash outflow from investing activities (41,161) - - - - (41,161)
Cash flows from financing activities
Proceeds from the issue of share capital 10,332 - - - - 10,332
Proceeds from borrowings 15,000 - - - - 15,000
Repayment of borrowings (1,164) - - - - (1,164)
Repayment of finance lease liabilities (1,947) - - - - (1,947)
Proceeds from invoice discounting facility 3,656 - - - - 3,656
Dividends paid (1,972) - - - - (1,972)
Net cash inflow from financing activities 23,905 - - - - 23,905
Net decrease in cash and cash equivalents (13,067) - - - - (13,067)
Cash and cash equivalents at the start of the 15,022 - - - - 15,022
period
Cash and cash equivalents at the end of the 1,955 - - - - 1,955
period
(a) & (c) IFRS 3 - Business Combinations
Under UK GAAP, the Group amortised the cost of goodwill arising on acquisition
of subsidiaries over its useful life. Under IFRS 3, goodwill on acquisition is
no longer amortised, but is held at it's acquired prior to the transition date
to IFRS carrying value at the transition date, or acquisition date, as
appropriate, and is then subject to impairment review at each reporting date.
The Group has restated the value of goodwill in its balance sheet to that at the
transition date (1 June 2006) and has carried out an impairment review as at 1
June 2006 and 31 May 2007. The impact has been to decrease profit by £5,000 in
the six months ended 30 November 2006 and decrease profit by £26,000 in the year
ended 31 May 2007, which includes a reversal of goodwill amortisation of
£659,000 and an intangible asset amortisation charge of £685,000 (with a
corresponding decrease in the carrying value of goodwill).
The group has accounted for acquisitions that have occurred since 1 June 2006 in
accordance with IFRS 3 'Business Combinations'. Under IFRS 3, intangible assets
purchased as part of a business combination may meet the criteria set out in
IFRS 3 for categorisation as an intangible asset other than goodwill and are
then amortised over their useful economic life.
Norec Ltd
On 1 September 2006 the Group acquired the entire issued share capital of Norec.
Under UK GAAP the fair value of the consideration was £7,397,000 and the fair
value of the net assets acquired was £1,061,000, which gave rise to £6,336,000
goodwill on acquisition.
The group has recognised an intangible asset under IFRS 3 for the customer
contracts acquired. This has been fair valued at £5,707,000 at the date of
acquisition by the group. This is being amortised over the period in which the
contracts are expected to expire, which is 75 months leaving a carrying amount
of £5,022,000 at 31 May 2007.
Hargreaves Bulk Liquid Transport Ltd
On 22 January 2007 the Group acquired the remaining 50% issued share capital of
Hargreaves Bulk Liquid Transport Ltd (previously a 50% joint venture). Under UK
GAAP the fair value of the consideration was £1,809,000 and the fair value of
the net assets acquired was £280,000, which gave rise to £1,529,000 goodwill on
acquisition.
The group has recognised no intangible assets under IFRS 3, as there are no
material separately identifiable intangible assets such as key customer
contracts, brand names, non-compete agreements etc.
(b) IAS 32 and 39 Financial Instruments
Under UK GAAP, the fair values of foreign exchange contracts, interest rate
swaps and other derivative financial instruments, were not required to be
recorded in the financial statements. Under IFRS, IAS 39 requires foreign
exchange contracts and interest rate swaps to be recorded in the balance sheet
at their fair value and movements in the fair value between balance sheet dates
are included in the income statement.
The value of the Group's foreign exchange contracts and interest rate swap at
balance sheet dates and the impact on the consolidated income statement are set
out below:
Fair value Deferred tax Net impact
£000 £000 £000
Value at 1 June 2006 (1,015) 304 (711)
Movement in value in 6 months to 30 November 2006 568 (170) 398
Value at 30 November 2006 (447) 134 (313)
Movement in value in 6 months to 31 May 2007 580 (174) 406
Value at 31 May 2007 133 (40) 93
The Group has entered into a derivative contract for the sale and purchase of
coking coal. This contract bases the sale price to a specific major Group
customer on the API international coal index, and also contracts to purchase the
coke from a third party, thus effectively hedging the group's risk to both
exchange rate fluctuations and coal price fluctuations in the market.
The fair value is the estimated amount that the Group would have to pay to
terminate the purchase contract at the balance sheet date, taking account of
current API index prices, foreign currency exchange rates and the current credit
worthiness of swap counterparties.
Under IAS39 the group are able to hedge account for this arrangement, as it is
able to prove the effective relationship between the hedging instrument and the
hedged item. Hedge accounting permits any movement in the fair value of the
hedge to be recognised in reserves rather than in the income statement. The
movement is disclosed in the statement of recognised income and expense.
Fair value Deferred tax Net impact
£000 £000 £000
Value at 31 May 2007 (769) 231 (538)
(d) Reclassifications
Under UK GAAP, the Group's share of operating profits and taxation from joint
ventures was shown separately in the income statement. IAS 31 requires the
Group's share of its joint ventures profit to be shown net of tax on a single
line in the income statement. This is a reclassification adjustment in the
consolidated income statement only and no adjustment is required to the
consolidated balance sheet.
Deferred tax liabilities previously included in provisions in the consolidated
balance sheet have been reclassified and disclosed separately on the face of the
consolidated balance sheet as a deferred tax liability.
Income tax liabilities previously included in trade and other payables has been
reclassified and shown separately on the face of the consolidated balance sheet
as a current tax payable.
Under UK GAAP, the Group's pension scheme liability was shown in the balance
sheet net of the related deferred tax asset. IAS19 requires the Group's pension
scheme liability to be shown gross in the balance sheet and the associated
deferred tax asset has been reclassified to deferred tax liabilities.
Appendix 4
Reconciliation of Consolidated Income Statement - Unaudited
for the six months ended 30 November 2006
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 Intangibles Reclassification
& 39
(a) (c) (d)
(b)
£000 £000 £000 £000 £000 £000
Revenue 102,684 - - - - 102,684
Cost of sales (92,936) - - - - (92,936)
Gross profit 9,748 - - - - 9,748
Other income (16) - - - - (16)
Administrative
expenses (5,829) 223 - (228) - (5,834)
Operating profit 3,903 223 - (228) - 3,898
Finance income 50 - 568 - - 618
Finance expenses :
group (574) - - - - (574)
Finance expenses :
joint ventures (33) - - - 33 -
Share of profit of
joint ventures 326 - - - (121) 205
Profit before
income tax 3,672 223 568 (228) (88) 4,147
Income tax
expense (1,171) - (170) - 88 (1,253)
Profit for the
period 2,501 223 398 (228) - 2,894
Profit for the
period
attributable to
equity holders of
the Company 2,508 223 398 (228) - 2,901
Loss for the period
attributable to
minority interest (7) - - - - (7)
(a), (b), (c), (d) - see Appendix 3 for comments
Appendix 4
Reconciliation of Consolidated Balance Sheet - Unaudited
at 30 November 2006
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & 39 Intangibles Reclass
(a) (b) (c) (d)
£000 £000 £000 £000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 24,209 - - - - 24,209
Intangible assets 11,859 (100) - (228) - 11,531
Investments in joint ventures 1,110 - - - - 1,110
Investments in associates - - - - - -
Other investments, including 83 - 76 - - 159
derivates
Other receivables 500 - - - - 500
Total non-current assets 37,761 (100) 76 (228) - 37,509
Current assets
Inventories 15,208 - - - - 15,208
Other investments, including - - - - - -
derivates
Trade and other receivables 32,291 - - - - 32,291
Cash and cash equivalents 3,788 - - - - 3,788
Total current assets 51,287 - - - - 51,287
Total assets 89,048 (100) 76 (228) - 88,796
LIABILITIES
Non-current liabilities
Loans and borrowings (18,582) - - - - (18,582)
Deferred tax liabilities - - 134 - (1,752) (1,618)
Retirement benefit obligations (328) - - - (141) (469)
Provisions (4,564) - - - 1,893 (2,671)
Total non-current liabilities (23,474) - - - - (23,340)
Current liabilities
Trade and other payables (32,921) - - - 2,099 (30,822)
Current income tax liabilities - - - - (2,099) (2,099)
Borrowings (4,956) - - - - (4,956)
Derivative financial instruments - - (523) - - (523)
Total current liabilities (37,877) - (523) - - (38,400)
Total liabilities (61,351) - (389) - - (61,740)
Net assets/(liabilities) 27,697 (100) (313) (228) - 27,056
EQUITY
Capital and reserves attributable to
equity holders of the company
Issued capital 2,368 - - - - 2,368
Share premium 19,082 - - - - 19,082
Other reserves 29 - - - - 29
Translation reserve - - - - - -
Merger reserve - - - - - -
Capital redemption reserve 1,530 - - - - 1,530
Retained earnings 4,695 (100) (313) (228) - 4,054
27,704 (100) (313) (228) - 27,063
Minority interest in equity (7) - - - - (7)
27,697 (100) (313) (228) - 27,056
(a), (b), (c), (d) - see Appendix 3 for
comments
Appendix 4
Reconciliation of Consolidated Statement of Cash Flows - Unaudited
for the six months ended 30 November 2006
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & 39 Intangibles Reclass
(a) (b) (c) (d)
£000 £000 £000 £000 £000 £000
Cash flows from operating activities
Profit for the period 2,501 223 398 (228) - 2,894
Adjustments for:
Depreciation 1,758 - - - - 1,758
Amortisation of goodwill 223 (223) - - - -
Amortisation of intangibles - 228 - 228
Share of profit of joint ventures (326) - - - 121 (205)
Share of profit of associates - - - - - -
Gain on sale of property, plant and equipment 16 - - - - 16
Equity-settled share-based payment 90 - - - - 90
transactions
Net finance expense 557 - (568) - (33) (44)
Income tax expense 1,171 - 170 - (88) 1,253
5,990 - - - - 5,990
Change in inventories (153) - - - - (153)
Change in trade and other receivables (3,553) - - - - (3,553)
Change in trade and other payables 3,713 - - - - 3,713
Cash from operating activities 5,997 - - - - 5,997
Interest paid (571) - - - - (571)
Income tax paid (982) - - - - (982)
Net cash inflow from operating activities 4,444 - - - - 4,444
Cash flows from investing activities
Interest received 50 - - - - 50
Proceeds from sale of property, plant and 241 - - - - 241
equipment
Acquisition of property, plant and equipment (3,014) - - - - (3,014)
Acquisition of subsidiary, net of cash (7,710) - - - - (7,710)
acquired
Net cash outflow from investing activities (10,433) - - - - (10,433)
Cash flows from financing activities
Repayments of borrowings (3,006) - - - - (3,006)
Payment of finance lease liabilities (848) - - - - (848)
Invoice discounting activities (207) - - - - (207)
Dividends paid (1,184) - - - - (1,184)
Net cash outflow from financing activities (5,245) - - - - (5,245)
Net decrease in cash and cash equivalents (11,234) - - - - (11,234)
Cash and cash equivalents at the start of the 15,022 - - - - 15,022
period
Cash and cash equivalents at the end of the 3,788 - - - - 3,788
period
Appendix 5
Reconciliation of Consolidated Balance Sheet - Unaudited
at 1 June 2006
UK GAAP IFRS adjustments IFRS
Goodwill IAS 32 & Intangibles Reclassification
39
(a) (b) (c) (d)
£000 £000 £000 £000 £000 £000
ASSETS
Non-current assets
Property, plant and equipment 21,146 - - - - 21,146
Intangible assets 5,745 (323) - - - 5,422
Investments in joint ventures 897 - - - - 897
Investments in associates - - - - - -
Other investments, including derivates 83 - 44 - - 127
Other receivables 500 - - - - 500
Total non-current assets 28,371 (323) 44 - - 28,092
Current assets
Inventories 15,055 - - - - 15,055
Trade and other receivables 21,167 - - - - 21,167
Cash and cash equivalents 15,022 - - - - 15,022
Total current assets/(liabilities) 51,244 - - - - 51,244
Total assets 79,615 (323) 44 - - 79,336
LIABILITIES
Non-current liabilities
Loans and borrowings (19,521) - - - - (19,521)
Other non-current liabilities (2,000) - - - - (2,000)
Deferred tax liabilities - - 304 - (1,752) (1,448)
Retirement benefit obligations (328) - - - (141) (469)
Provisions (4,564) - - - 1,893 (2,671)
Total non-current liabilities (26,413) - 304 - - (26,109)
Current liabilities
Trade and other payables (24,989) - - - 1,550 (23,439)
Current income tax liabilities - - - - (1,550) (1,550)
Borrowings (1,915) - - - - (1,915)
Derivative financial instruments - - (1,059) - - (1,059)
Total current liabilities (26,904) - (1,059) - - (27,963)
Total liabilities (53,317) - (755) - - (54,072)
Net assets 26,298 (323) (711) - - 25,264
EQUITY
Capital and reserves attributable to
equity holders of the company
Issued capital 2,368 - - - - 2,368
Share premium 19,082 - - - - 19,082
Other reserves 29 - - - - 29
Translation reserve - - - - - -
Merger reserve - - - - - -
Capital redemption reserve 1,530 - - - - 1,530
Retained earnings 3,289 (323) (711) - - 2,255
26,298 (323) (711) - - 25,264
Minority interest in equity - - - - - -
26,298 (323) (711) - - 25,264
(a), (b), (c), (d) - see Appendix 3 for comments
--------------------------
(1) References to IFRS throughout this document refer to the application of
International Financial Reporting Standards as adopted by the EU ('Adopted IFRS
'), including International Accounting Standards ('IAS') and interpretations
issued by the International Accounting Standards Board ('IASB') and its
committees, and as interpreted by any regulatory bodies applicable to the Group.
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