Transition to IFRS
Hunting PLC
01 September 2005
1 September 2005
HUNTING PLC
Transition to
International Financial Reporting Standards 2005
Introduction
Hunting PLC has adopted International Financial Reporting Standards ('IFRS')
with effect from 1 January 2004. This announcement accompanies the 2005 interim
announcement and provides the transitional financial information together with
the principal accounting policies adopted under IFRS applied from 1 January
2004.
In compliance with IFRS, the reconciliations of the income statement, balance
sheet and cash flow statements from previously published UK GAAP to the restated
IFRS financial statements are contained in this announcement for the six months
ended 30 June 2004 and the year ended 31 December 2004 including the balance
sheet at 1 January 2004. The exemption permitting the deferral of the
introduction of IAS 32 and IAS 39, the International Accounting Standards on
Financial Instruments, until 1 January 2005 has been utilised. Other key
exemptions and exceptions permitted under IFRS 1 First-time adoption of
International Financial Reporting Standards and applied by Hunting PLC are also
set out in this announcement. A reconciliation between the IFRS balance sheet
excluding IAS 32 and IAS 39 at 31 December 2004 and the IFRS balance sheet
including IAS 32 and IAS 39 at 1 January 2005 is included within this
announcement.
The key changes to the financial statements arising from the transition to IFRS
are:
• Under IFRS, accounting for pensions and employee benefits results in a
lower credit to the income statement than under UK GAAP (SSAP 24).
• Goodwill under IFRS is not amortised and consequently the £2.7m charge
for the year ended 31 December 2004 under UK GAAP is reversed.
• Under IFRS, share option costs for the year ended 31 December 2004 of
£0.3m are charged to income compared to £nil under UK GAAP.
• The provision for deferred tax increases under IFRS as provisions are
required on the revaluation surpluses and unremitted overseas earnings.
The impact of the change to IFRS on key ratios for the year ended 31 December
2004 are:
IFRS UK GAAP
Basic earnings per share (restated) 7.9p 5.9p
Basic EPS before exceptional items (restated) 13.1p 11.9p
Profit before tax £16.5m £15.4m
Shareholders' funds £108.2m £114.2m
Dennis Clark 1 September 2005
Finance Director
Understanding The Change
Summary of Key Changes
IFRS has no impact on corporate strategy, operating decisions, or the underlying
value of the business.
The significant accounting changes for the Group are:
1) Recognising the full net pension surplus and retirement benefit items on
the balance sheet. Under IFRS, the methodology for determining the net
surplus of scheme assets and liabilities is different to UK GAAP (SSAP 24).
At 31 December 2004, this has resulted in a £2.5m reduction in net assets.
2) Cessation of goodwill amortisation. For the year ended 31 December 2004,
this has resulted in a £2.5m increase in net assets and profit after tax.
3) Dividends payable and receivable are now recognised in the period in which
they are approved. At 31 December 2004, this has increased net assets by
£3.0m.
4) Under IFRS, in respect of revalued property, plant and equipment,
depreciation in excess of the historic cost basis is transferred from the
revaluation reserve to retained earnings. No transfer was made under UK GAAP.
5) Deferred tax assets and liabilities are no longer offset. Deferred tax is
recognised on all temporary differences, including the revaluation of
non-monetary assets. At 31 December 2004, deferred tax assets and
liabilities have increased by £11.2m and £20.0m respectively.
6) Under UK GAAP, goodwill written off to reserves prior to 1998 was reinstated
and included in determining the profit or loss on disposal of a business.
Under IFRS, this goodwill is not reinstated. Under UK GAAP, for the year
ended 31 December 2004, £1.0m of goodwill previously written off to
reserves was included in the loss on disposal, which under IFRS, is not
reinstated and therefore gives rise to a £1.0m increase in profit in 2004.
7) Under IFRS, a foreign currency translation reserve is required to be
separately measured and includes foreign currency translation differences
arising on the translation of overseas equity investments. Under the
transitional rules, the Company has opted to start the foreign currency
translation reserve at the transition date.
At 1 January 2005, the adoption of IAS 32 and IAS 39 gives rise to the following
significant changes:
8) The recognition of derivative assets and liabilities on the balance sheet at
fair values. Derivative assets of £2.6m and derivative liabilities of £2.4m
have been recognised under IFRS.
9) Bank overdrafts and bank deposits are recognised at gross values and now
include accrued interest. At 1 January 2005, the effect is to increase cash
and cash equivalents by £59.0m, increase bank borrowings by £59.8m, decrease
trade and other receivables by £0.1m and decrease trade and other payables
by £1.0m.
Please note that the standards currently in issue are subject to interpretations
issued from time to time by the International Financial Reporting
Interpretations Committee (IFRIC). Further standards may be issued by the IASB
that may require adoption for financial years beginning on or after 1 January
2005. Due to a number of new and revised Standards included within the body of
Standards that comprise IFRS, there is not yet significant established practice
on which to draw in forming decisions regarding the interpretation and
application of the Standards. Accordingly, practice is continuing to evolve. At
this preliminary stage, therefore, the full financial effect of reporting under
IFRS as it will be applied and reported on in the Company's first IFRS financial
statements for the year ended 31 December 2005 may be subject to change. The
IFRS results are unaudited.
Consolidated Income Statement
Six months ended 30 June 2004 Year ended 31 December 2004
Effect of Effect of
Notes UK transition UK transition
GAAP to IFRS IFRS GAAP to IFRS IFRS
£m £m £m £m £m £m
Revenue 7,8 580.6 (41.1) 539.5 1,255.1 (95.7) 1,159.4
Cost of sales 8 (538.4) 40.4 (498.0) (1,161.5) 94.8 (1,066.7)
----------------------------------------------------------------
Gross profit 42.2 (0.7) 41.5 93.6 (0.9) 92.7
Other operating income 7 - 1.5 1.5 - 2.9 2.9
Operating expenses* 7 (29.5) (1.6) (31.1) (66.7) (3.1) (69.8)
Share of profit in
associates - - - 0.1 (0.1) -
Profit from operations
before exceptional items 12.7 (0.8) 11.9 27.0 (1.2) 25.8
Exceptional items 7 - - - (6.0) 1.0 (5.0)
----------------------------------------------------------------
Profit from operations 12.7 (0.8) 11.9 21.0 (0.2) 20.8
Net finance costs 1,7 (2.6) 0.9 (1.7) (5.6) 1.2 (4.4)
Share of profits in associates - - - - 0.1 0.1
----------------------------------------------------------------
Profit before tax 10.1 0.1 10.2 15.4 1.1 16.5
Taxation 6 (4.0) 0.6 (3.4) (6.3) 1.2 (5.1)
----------------------------------------------------------------
Profit for the period 6.1 0.7 6.8 9.1 2.3 11.4
----------------------------------------------------------------
Attributed to:
Equity holders of the parent 6.0 6.7 8.6 10.9
Minority interests 0.1 0.1 0.5 0.5
------- ------------------ -------
Profit for the period 6.1 6.8 9.1 11.4
------- ------------------ -------
Basic earnings per share
(restated) 3.7p 4.4p 5.9p 7.9p
Diluted earnings per share
(restated) 3.6p 4.3p 5.7p 7.7p
*Under UK GAAP and IFRS, operating expenses include a £3.8m exceptional charge
for onerous leases in the year ended 31 December 2004.
Consolidated Balance Sheet
At 30 June 2004 At 31 December 2004
Effect of Effect of
Notes UK transition UK transition
GAAP to IFRS IFRS GAAP to IFRS IFRS
£m £m £m £m £m £m
ASSETS
Non-current assets
Property, plant and
equipment 9 152.6 (2.2) 150.4 158.1 (2.3) 155.8
Goodwill 2 46.2 1.3 47.5 44.8 2.7 47.5
Intangible assets 9 - 3.0 3.0 - 3.1 3.1
Interests in associates 8.8 - 8.8 8.7 - 8.7
Investments 5.7 (0.2) 5.5 3.8 (0.2) 3.6
Retirement benefit
assets 1 23.7 (0.1) 23.6 25.8 (2.0) 23.8
Receivables and other
assets 1.4 1.7 3.1 3.4 (0.1) 3.3
Deferred tax assets 5,6 - 4.7 4.7 - 11.2 11.2
-------------------------------------------------------
238.4 8.2 246.6 244.6 12.4 257.0
-------------------------------------------------------
Current assets
Inventories 82.0 0.3 82.3 75.7 0.8 76.5
Trade and other
receivables 140.6 (1.8) 138.8 140.5 (0.1) 140.4
Investments 1.3 (1.3) - - - -
Cash and cash
equivalents 7.3 1.3 8.6 15.1 - 15.1
-------------------------------------------------------
231.2 (1.5) 229.7 231.3 0.7 232.0
-------------------------------------------------------
LIABILITIES
Current liabilities
Trade and other
payables 4 144.1 (2.8) 141.3 156.8 (4.0) 152.8
Current tax liabilities 4.5 (0.3) 4.2 1.5 (0.4) 1.1
Borrowings 7.5 - 7.5 16.4 - 16.4
Provisions - - - - 0.6 0.6
-------------------------------------------------------
156.1 (3.1) 153.0 174.7 (3.8) 170.9
-------------------------------------------------------
Net current assets 75.1 1.6 76.7 56.6 4.5 61.1
-------------------------------------------------------
Non-current liabilities
Borrowings 100.0 - 100.0 129.3 - 129.3
Deferred tax
liabilities 5,6 35.9 13.9 49.8 39.5 20.0 59.5
Retirement benefit
obligations 10 - 1.5 1.5 - 1.9 1.9
Other payables 2.8 (1.1) 1.7 3.0 (1.1) 1.9
Provisions 12.3 2.4 14.7 11.5 2.1 13.6
-------------------------------------------------------
151.0 16.7 167.7 183.3 22.9 206.2
-------------------------------------------------------
Net assets 162.5 (6.9) 155.6 117.9 (6.0) 111.9
=======================================================
Shareholders' funds
Share capital 73.2 - 73.2 25.3 - 25.3
Share premium 41.5 - 41.5 41.5 - 41.5
Treasury shares (0.1) - (0.1) - - -
Revaluation reserve 5 15.9 (7.3) 8.6 16.6 (7.8) 8.8
Other reserves 3,9 - 12.1 12.1 - 13.6 13.6
Retained earnings 3,5 28.7 (11.7) 17.0 30.8 (11.8) 19.0
-------------------------------------------------------
159.2 (6.9) 152.3 114.2 (6.0) 108.2
Minority interests 3.3 - 3.3 3.7 - 3.7
-------------------------------------------------------
Total equity 162.5 (6.9) 155.6 117.9 (6.0) 111.9
=======================================================
Consolidated Balance Sheet at 1 January 2004
(Date of transition to IFRS)
Effect of
Notes UK transition
GAAP to IFRS IFRS
£m £m £m
ASSETS
Non-current assets
Property, plant and equipment 9 160.5 0.9 161.4
Goodwill 2 49.1 (3.3) 45.8
Intangible assets 9 - 3.3 3.3
Interests in associates and joint ventures 13.0 (0.1) 12.9
Investments 5.6 - 5.6
Retirement benefit assets 1 21.7 (3.4) 18.3
Receivables and other assets 1.4 (0.1) 1.3
Deferred tax assets 5,6 - 5.8 5.8
----------------------------
251.3 3.1 254.4
----------------------------
Current assets
Inventories 93.2 0.2 93.4
Trade and other receivables 129.5 (0.5) 129.0
Current tax assets 5.8 0.4 6.2
Investments 0.4 (0.4) -
Cash and cash equivalents 15.3 0.5 15.8
----------------------------
244.2 0.2 244.4
----------------------------
LIABILITIES
Current liabilities
Trade and other payables 4 138.3 (3.7) 134.6
Borrowings 8.7 (0.1) 8.6
----------------------------
147.0 (3.8) 143.2
----------------------------
Net current assets 97.2 4.0 101.2
----------------------------
Non-current liabilities
Borrowings 133.6 - 133.6
Deferred tax liabilities 5,6 34.4 14.7 49.1
Retirement benefit obligations 1 - 1.3 1.3
Other payables 2.9 (0.9) 2.0
Provisions 12.8 2.4 15.2
----------------------------
183.7 17.5 201.2
----------------------------
Net assets 164.8 (10.4) 154.4
============================
Shareholders' funds
Share capital 73.2 - 73.2
Share premium 41.5 - 41.5
Treasury shares (0.1) - (0.1)
Revaluation reserve 5 17.8 (7.8) 10.0
Other reserves 3,9 - 12.3 12.3
Retained earnings 3,5 29.2 (14.9) 14.3
----------------------------
161.6 (10.4) 151.2
Minority interests 3.2 - 3.2
----------------------------
Total equity 164.8 (10.4) 154.4
============================
Consolidated Cash Flow Statement
Six months ended 30 June 2004 Year ended 31 December 2004
Effect of Effect of
UK transition UK transition
GAAP to IFRS IFRS GAAP to IFRS IFRS
£m £m £m £m £m £m
Operating activities
Profit from
operations 12.7 (0.8) 11.9 27.0 (1.2) 25.8
Depreciation of
property, plant
and equipment 9.3 (0.4) 8.9 18.6 (0.5) 18.1
Amortisation of
goodwill 1.4 (1.4) - 2.7 (2.7) -
Amortisation of
intangibles - 0.3 0.3 - 0.6 0.6
Impairment of
goodwill - - - 0.8 - 0.8
(Profit) on disposal
of investments - - - (0.4) - (0.4)
(Profit) on disposal
of property, plant
and equipment - - - (0.9) - (0.9)
Share of (profit) in
associates - - - (0.1) 0.1 -
(Increase) in
inventories (15.7) (0.1) (15.8) (8.3) (1.7) (10.0)
(Increase) in
receivables (16.1) 1.8 (14.3) (17.0) 2.8 (14.2)
Increase in
payables 12.0 - 12.0 20.2 (1.0) 19.2
Taxation received 8.6 - 8.6 6.6 - 6.6
Other non cash
flow items (0.8) - (0.8) - 0.4 0.4
------------------------------------------------------------
Net cash inflow
from operating
activities 11.4 (0.6) 10.8 49.2 (3.2) 46.0
------------------------------------------------------------
Investing activities
Dividends received
from associates 3.5 - 3.5 3.5 - 3.5
Purchase of
subsidiary and
businesses (0.5) - (0.5) (1.5) - (1.5)
Purchase of minority
interest in
subsidiary (0.4) - (0.4) (0.1) - (0.1)
Purchase of
associates and
joint ventures (0.2) - (0.2) (0.2) - (0.2)
Proceeds from
disposal of
investments - - - 2.4 - 2.4
Proceeds from
disposal of
subsidiary 22.9 - 22.9 19.9 - 19.9
Proceeds from
disposal of
property, plant
and equipment 5.0 - 5.0 6.0 - 6.0
Purchase of
property, plant
and equipment (11.5) 0.6 (10.9) (22.1) 0.2 (21.9)
Purchase of
intangible
assets - (0.1) (0.1) - (0.4) (0.4)
------------------------------------------------------------
Net cash inflow
from investing
activities 18.8 0.5 19.3 7.9 (0.2) 7.7
------------------------------------------------------------
Consolidated Cash Flow Statement
(continued)
Six months ended 30 June 2004 Year ended 31 December 2004
Effect of Effect of
UK transition UK transition
GAAP to IFRS IFRS GAAP to IFRS IFRS
£m £m £m £m £m £m
Financing
activities
Interest
received 1.1 - 1.1 3.1 - 3.1
Interest paid (4.0) - (4.0) (8.7) - (8.7)
Equity dividends
paid (2.4) 0.1 (2.3) (3.8) - (3.8)
Preference
dividends paid (2.0) - (2.0) (2.4) - (2.4)
Cancellation and
repayment of
preference share
capital - - - (47.9) - (47.9)
Increase in
borrowings (32.1) 32.1 - 1.6 (1.6) -
Proceeds from
borrowings - - - - 92.9 92.9
Repayment of
borrowings - (32.1) (32.1) - (87.9) (87.9)
Capital element
of finance
leases (0.2) - (0.2) (0.3) - (0.3)
Movement in
short term
deposits (0.9) 0.9 - 0.4 (0.4) -
------------------------------------------------------------
Net cash
(outflow) from
financing
activities (40.5) 1.0 (39.5) (58.0) 3.0 (55.0)
------------------------------------------------------------
Net (decrease)
in cash, cash
equivalents and
bank overdrafts (10.3) 0.9 (9.4) (0.9) (0.4) (1.3)
--------------------- -------------------
Cash, cash
equivalents and
bank overdrafts
at beginning of
period 12.4 12.4
Effect of
foreign exchange
rate changes (0.4) (0.2)
------ ------
Cash, cash
equivalents and
bank overdrafts
at end of period 2.6 10.9
------ ------
UK GAAP required cash flows to be presented under seven different headings
whereas IAS 7 Cash Flow Statements requires cash flows to be presented under
three headings: cash flows from operating, investing and financing activities.
Consequently there are a number of re-classifications. Under IAS 7, foreign
exchange differences on cash and cash equivalents are presented on the face of
the cash flow statement. There are no other material differences between the
cash flow statement presented under IFRS and the cash flow statement presented
under UK GAAP.
Consolidated Income Statement - IFRS Adjustments
For the Six Months ended 30 June 2004
Employee Share Deferred Total
Benefits Goodwill options tax Re- adjust-
IAS 19 IFRS 3 IFRS 2 IAS 12 allocations Other ments
Note 1 Note 2 Note 3 Note 6 Note 7 Note 8
£m £m £m £m £m £m £m
Revenue - - - - (0.6) (40.5) (41.1)
Cost of (0.1) - - - (0.1) 40.6 40.4
sales
--------------------------------------------------------------------------
Gross (0.1) - - - (0.7) 0.1 (0.7)
profit
Other
operating
income - - - - 1.5 - 1.5
Operating
expenses (1.8) 1.4 (0.2) - (0.8) (0.2) (1.6)
--------------------------------------------------------------------------
Profit
from (1.9) 1.4 (0.2) - - (0.1) (0.8)
operations
Net finance
costs 0.9 - - - - - 0.9
--------------------------------------------------------------------------
Profit before
tax (1.0) 1.4 (0.2) - - (0.1) 0.1
Taxation 0.3 (0.1) - 0.3 - 0.1 0.6
--------------------------------------------------------------------------
Profit for
the period (0.7) 1.3 (0.2) 0.3 - - 0.7
--------------------------------------------------------------------------
Consolidated Income Statement - IFRS Adjustments
For the Year ended 31 December 2004
Employee Share Deferred Total
Benefits Goodwill options tax Re- adjust-
IAS 19 IFRS 3 IFRS 2 IAS 12 allocations Other ments
Note 1 Note 2 Note 3 Note 6 Note 7 Note 8
£m £m £m £m £m £m £m
Revenue - - - - (0.7) (95.0) (95.7)
Cost of
sales (0.2) - - - (0.1) 95.1 94.8
--------------------------------------------------------------------------
Gross profit (0.2) - - - (0.8) 0.1 (0.9)
Other
operating
income - - - - 2.9 - 2.9
Operating
expenses (3.9) 2.7 (0.3) - (1.8) 0.2 (3.1)
Share of
profits in
associates - - - - (0.1) - (0.1)
Profit from
operations
before
exceptional
items (4.1) 2.7 (0.3) - 0.2 0.3 (1.2)
Exceptional
items - 1.0 - - - - 1.0
--------------------------------------------------------------------------
Profit from
operations (4.1) 3.7 (0.3) - 0.2 0.3 (0.2)
Net finance
costs 1.7 - - - (0.4) (0.1) 1.2
Share of
profits in
associates - - - - 0.1 - 0.1
--------------------------------------------------------------------------
Profit before
tax (2.4) 3.7 (0.3) - (0.1) 0.2 1.1
Taxation 0.7 (0.2) 0.1 0.7 0.1 (0.2) 1.2
--------------------------------------------------------------------------
Profit for
the year (1.7) 3.5 (0.2) 0.7 - - 2.3
--------------------------------------------------------------------------
Consolidated Balance Sheet - IFRS Adjustments
At 30 June 2004
Revaluation
Employee reserve Deferred Re- Total
Benefits Goodwill Dividends IAS 12, tax allocations adjust-
IAS 19 IFRS 3 IFRS 2 IAS 16 IAS 12s and other ments
Note 1 Note 2 Note 4 Note 5 Note 6 Note 9
£m £m £m £m £m £m £m
ASSETS
Non-current
assets
Property,
plant and
equipment - - - - - (2.2) (2.2)
Goodwill - 1.4 - - - (0.1) 1.3
Intangible
assets - - - - - 3.0 3.0
Interests in
associates - - - - - - -
Investments - - - - - (0.2) (0.2)
Retirement
benefit assets (0.1) - - - - - (0.1)
Receivables
and other
assets (0.6) - - - - 2.3 1.7
Deferred tax
assets - - - - 4.7 - 4.7
--------------------------------------------------------------------------
(0.7) 1.4 - - 4.7 2.8 8.2
--------------------------------------------------------------------------
Current
assets
Inventories - - - - - 0.3 0.3
Trade and
other
receivables - - - - - (1.8) (1.8)
Investments - - - - - (1.3) (1.3)
Cash and cash
equivalents - - - - - 1.3 1.3
--------------------------------------------------------------------------
- - - - - (1.5) (1.5)
--------------------------------------------------------------------------
LIABILITIES
Current
liabilities
Trade and
other payables (1.3) - (1.5) - - - (2.8)
Current tax
liabilities - - - - (0.3) - (0.3)
Borrowings - - - - - - -
Provisions - - - - - - -
--------------------------------------------------------------------------
(1.3) - (1.5) - (0.3) - (3.1)
--------------------------------------------------------------------------
Net current
assets 1.3 - 1.5 - 0.3 (1.5) 1.6
--------------------------------------------------------------------------
Non-current
liabilities
Borrowings - - - - - - -
Deferred tax
liabilities (0.1) 0.1 - 4.7 9.2 - 13.9
Retirement
benefit
obligations 1.5 - - - - - 1.5
Other payables 0.9 - - - - (2.0) (1.1)
Provisions (0.9) - - - - 3.3 2.4
--------------------------------------------------------------------------
1.4 0.1 - 4.7 9.2 1.3 16.7
--------------------------------------------------------------------------
Net assets (0.8) 1.3 1.5 (4.7) (4.2) - (6.9)
--------------------------------------------------------------------------
Shareholders'
funds
Share capital - - - - - - -
Share premium - - - - - - -
Treasury shares - - - - - - -
Revaluation
reserve - - - (7.2) - (0.1) (7.3)
Other reserves 15.8 - - - - (3.7) 12.1
Retained earnings (16.6) 1.3 1.5 2.5 (4.2) 3.8 (11.7)
--------------------------------------------------------------------------
(0.8) 1.3 1.5 (4.7) (4.2) - (6.9)
Minority interests - - - - - - -
--------------------------------------------------------------------------
Total equity (0.8) 1.3 1.5 (4.7) (4.2) - (6.9)
--------------------------------------------------------------------------
Consolidated Balance Sheet - IFRS Adjustments
At 31 December 2004
Revaluation
Employee reserve Deferred Re- Total
Benefits Goodwill Dividends IAS 12, tax allocations adjust-
IAS 19 IFRS 3 IFRS 2 IAS 16 IAS 12s and other ments
Note 1 Note 2 Note 4 Note 5 Note 6 Note 9
£m £m £m £m £m £m £m
ASSETS
Non-current
assets
Property,
plant and
equipment - - - - - (2.3) (2.3)
Goodwill - 2.7 - - - - 2.7
Intangible
assets - - - - - 3.1 3.1
Interests in
associates - - - - - - -
Investments - - - - - (0.2) (0.2)
Retirement
benefit assets (2.0) - - - - - (2.0)
Receivables
and other
assets (0.6) - - - - 0.5 (0.1)
Deferred tax
assets - - - - 11.2 - 11.2
--------------------------------------------------------------------------
(2.6) 2.7 - - 11.2 1.1 12.4
--------------------------------------------------------------------------
Current assets
Inventories - - - - - 0.8 0.8
Trade and
other receivables - - - - - (0.1) (0.1)
Investments - - - - - - -
Cash and cash - - - - - - -
equivalents
--------------------------------------------------------------------------
- - - - - 0.7 0.7
--------------------------------------------------------------------------
LIABILITIES
Current liabilities
Trade and
other payables (1.4) - (3.0) - - 0.4 (4.0)
Current tax
liabilities - - - - (0.4) - (0.4)
Borrowings - - - - - - -
Provisions - - - - - 0.6 0.6
--------------------------------------------------------------------------
(1.4) - (3.0) - (0.4) 1.0 (3.8)
--------------------------------------------------------------------------
Net current
assets 1.4 - 3.0 - 0.4 (0.3) 4.5
--------------------------------------------------------------------------
Non-current
liabilities
Borrowings - - - - - - -
Deferred tax
liabilities (0.6) 0.2 - 4.4 16.2 (0.2) 20.0
Retirement
benefit
obligations 1.9 - - - - - 1.9
Other payables - - - - - (1.1) (1.1)
Provisions - - - - - 2.1 2.1
--------------------------------------------------------------------------
1.3 0.2 - 4.4 16.2 0.8 22.9
--------------------------------------------------------------------------
Net assets (2.5) 2.5 3.0 (4.4) (4.6) - (6.0)
--------------------------------------------------------------------------
Shareholders'
funds
Share - - - - - - -
capital
Share - - - - - - -
premium
Treasury - - - - - - -
shares
Revaluation
reserve - - - (7.8) - - (7.8)
Other reserves 15.8 - - - - (2.2) 13.6
Retained
earnings (18.3) 2.5 3.0 3.4 (4.6) 2.2 (11.8)
--------------------------------------------------------------------------
(2.5) 2.5 3.0 (4.4) (4.6) - (6.0)
Minority - - - - - - -
--------------------------------------------------------------------------
Total equity (2.5) 2.5 3.0 (4.4) (4.6) - (6.0)
--------------------------------------------------------------------------
Consolidated Balance Sheet - IFRS Adjustments
At 1 January 2004
Employee Share Deferred Total
Benefits options tax Re- adjust-
IAS 19 IFRS 2 IAS 12 allocations Other ments
Note 1 Note 3 Note 6 Note 7 Note 8
£m £m £m £m £m £m
ASSETS
Non-current
assets
Property, plant and
equipment - - - - 0.9 0.9
Goodwill - - - - (3.3) (3.3)
Intangible assets - - - - 3.3 3.3
Interests in
associates and
joint ventures - - - - (0.1) (0.1)
Investments - - - - - -
Retirement benefit
assets (3.4) - - - - (3.4)
Receivables and
other assets - - - - (0.1) (0.1)
Deferred tax assets - - 1.4 4.6 (0.2) 5.8
---------------------------------------------------------------
(3.4) - 1.4 4.6 0.5 3.1
---------------------------------------------------------------
Current assets
Inventories - - - - 0.2 0.2
Trade and other
receivables - - - - (0.5) (0.5)
Current tax assets - - - - 0.4 0.4
Investments - - - - (0.4) (0.4)
Cash and cash
equivalents - - - - 0.5 0.5
---------------------------------------------------------------
- - - - 0.2 0.2
---------------------------------------------------------------
LIABILITIES
Current liabilities
Trade and other
payables (1.3) (2.4) - - - (3.7)
Borrowings - - - - (0.1) (0.1)
---------------------------------------------------------------
(1.3) (2.4) - - (0.1) (3.8)
---------------------------------------------------------------
Net current assets 1.3 2.4 - - 0.3 4.0
---------------------------------------------------------------
Non-current liabilities
Borrowings - - - - - -
Deferred tax
liabilities (1.0) (0.3) 6.5 9.5 - 14.7
Retirement benefit
obligations 1.3 - - - - 1.3
Other payables (1.0) - - - 0.1 (0.9)
Provisions 1.1 - - - 1.3 2.4
---------------------------------------------------------------
0.4 (0.3) 6.5 9.5 1.4 17.5
---------------------------------------------------------------
Net assets (2.5) 2.7 (5.1) (4.9) (0.6) (10.4)
---------------------------------------------------------------
Shareholders' funds
Share capital - - - - - -
Share premium - - - - - -
Treasury shares - - - - - -
Revaluation reserve - - (7.7) - (0.1) (7.8)
Other reserves 12.8 - - - (0.5) 12.3
Retained earnings (15.3) 2.7 2.6 (4.9) - (14.9)
---------------------------------------------------------------
(2.5) 2.7 (5.1) (4.9) (0.6) (10.4)
Minority interests - - - - - -
---------------------------------------------------------------
Total equity (2.5) 2.7 (5.1) (4.9) (0.6) (10.4)
---------------------------------------------------------------
Notes to the IFRS Adjustments
KEY INCOME STATEMENT AND BALANCE SHEET ADJUSTMENTS:
1. Employee benefits
Under UK GAAP, the Group accounted for pension costs in accordance with SSAP 24
and provided disclosures as required by FRS 17. The expected cost of defined
benefit pensions was charged against operating profit and actuarial gains and
losses were spread evenly over the remaining service lives of current employees
as a credit or charge to the operating profit
In accordance with IAS 19 Employee Benefits, the expected cost of defined
benefit pensions is charged against operating profit whilst the net return from
scheme assets and liabilities is recognised within net finance costs in the
income statement. Under the 16 December 2004 amendment to IAS 19, which has not
yet been endorsed by the EU, the Group has adopted the option of recognising all
actuarial gains and losses immediately, directly in reserves. In the year ended
31 December 2004, an actuarial gain of £3.5m has been recognised in the
statement of recognized income and expense.
2. Goodwill
Goodwill is not amortised under IFRS 3 Business Combinations, but is subject to
an annual impairment review.
Under UK GAAP, goodwill written off to reserves prior to 1998 was reinstated and
included in determining the profit or loss on disposal of a business. The
Company has applied the exemption within IFRS 1 First-time adoption of
International Financial Reporting Standards not to restate its business
combinations prior to the transition date. Consequently, under IFRS, goodwill
written off to reserves is not reinstated. For the year ended 31 December 2004,
£1.0m of goodwill previously written off to reserves has not been reinstated.
3. Share options
UK GAAP required that there was no charge to the income statement for share
options where the exercise price was equal to the market price at the grant
date. In accordance with IFRS 2 Share-based Payments, all share-based payments,
including share option costs are recognised as an expense over the vesting
period. This has resulted in a £0.1m transfer from retained earnings to other
reserves at 1 January 2004.
At 30 June 2004 the charge to the income statement was £0.2m, with a charge of
£0.3m for the full year.
In accordance with the IFRS transitional provisions, IFRS 2 has been applied to
grants of equity instruments issued after 7 November 2002 that had not vested as
of 1 January 2005. No charge is recognised in respect of grants to which IFRS 2
do not apply.
4. Dividends
IFRS requires dividends to be recognised within equity in the period in which
they are approved. Under UK GAAP, dividends were recognised within the income
statement in the period in which they were declared.
5. Revaluation reserve
A transfer has been made from the revaluation reserve to retained earnings
amounting to the difference between the depreciation charged on property, plant
and equipment on a revaluation basis and an historical cost basis.
In accordance with UK GAAP, no provision was made for deferred taxation on the
revaluation reserve. For IFRS, deferred taxation is provided on the revaluation
gains. The revaluation reserve includes the related deferred taxation.
Notes to the IFRS Adjustments
(continued)
6. Deferred taxation
UK GAAP required deferred taxation to be recognised on timing differences
whereas IFRS requires that deferred taxation is provided on all temporary
differences including the revaluation of non-monetary assets and on unremitted
overseas earnings to the extent that a tax charge is foreseeable.
Under UK GAAP, deferred tax assets and liabilities were shown on a net basis.
IFRS requires separate disclosure of deferred tax assets and liabilities.
7. Income statement reallocations
For UK GAAP, royalty, sub-lease and commission income were included in operating
expenses or revenue, as appropriate. Under IFRS, these are included in other
operating income.
UK GAAP requires the share of operating profits in associates to be included in
total profits from operations, whereas under IFRS the share of profits after tax
in associates is included in the Group's profit before tax.
8. Other
Under IAS 18, revenue is not recognised for barter transactions that involve the
exchange of goods or services which are of a similar nature and value. These
transactions were recognised as revenue under UK GAAP. The impact for the six
months ended 30 June 2004 is a reduction in sales and cost of sales of £42.5m
(year ended 31 December 2004: £89.9m). These reductions have no impact on
profits.
Other differences comprise a number of adjustments that are not individually
significant.
9. Balance sheet reallocations and other
The Company has taken advantage of the exemption in IFRS 1, whereby the
cumulative translation differences for all foreign operations that existed at
the date of transition to IFRS are deemed to be zero. The cumulative translation
differences from 1 January 2004 are recorded as a separate component of equity.
Under UK GAAP, capitalised computer software was included within property, plant
and equipment. In accordance with IFRS, capitalised computer software not
integral to plant and equipment, is classified as an intangible asset. The net
book value of computer software reclassified as intangible assets was £3.3m at 1
January 2004, £3.0m at 30 June 2004 and £3.1m at 31 December 2004.
Other differences comprise a number of adjustments that are not individually
significant.
Consolidated Balance Sheet - Adoption of IAS 32 and IAS 39
At 1 January 2005
IFRS Gross up IFRS
31 December Derivatives borrowings Other 1 January
2004 Note i Note ii Note iii 2005
£m £m £m £m £m
ASSETS
Non-current assets
Property, plant
and equipment 155.8 - - - 155.8
Goodwill 47.5 - - - 47.5
Intangible assets 3.1 - - - 3.1
Interests in
associates 8.7 - - - 8.7
Investments 3.6 - - - 3.6
Retirement
benefit assets 23.8 - - - 23.8
Receivables and
other assets 3.3 - - - 3.3
Deferred tax
assets 11.2 0.4 - - 11.6
------------------------------------------------------------
257.0 0.4 - - 257.4
------------------------------------------------------------
Current assets
Inventories 76.5 - - - 76.5
Trade and other
receivables 140.4 2.6 (0.2) - 142.8
Cash and cash
equivalents 15.1 - 59.0 - 74.1
------------------------------------------------------------
232.0 2.6 58.8 - 293.4
------------------------------------------------------------
LIABILITIES
Current
liabilities
Trade and other
payables 152.8 2.4 (1.0) - 154.2
Current tax
liabilities 1.1 - - - 1.1
Borrowings 16.4 - 59.3 - 75.7
Provisions 0.6 - - - 0.6
------------------------------------------------------------
170.9 2.4 58.3 - 231.6
------------------------------------------------------------
Net current assets 61.1 0.2 0.5 - 61.8
------------------------------------------------------------
Non-current liabilities
Borrowings 129.3 - 0.5 - 129.8
Deferred tax
liabilities 59.5 0.6 - - 60.1
Retirement benefit
obligations 1.9 - - - 1.9
Other payables 1.9 - - - 1.9
Provisions 13.6 - - - 13.6
------------------------------------------------------------
206.2 0.6 0.5 - 207.3
------------------------------------------------------------
Net assets 111.9 - - - 111.9
------------------------------------------------------------
Shareholders' funds
Share capital 25.3 - - - 25.3
Share premium 41.5 - - - 41.5
Revaluation reserve 8.8 - - - 8.8
Other reserves 13.6 0.3 - 0.2 14.1
Retained earnings 19.0 (0.3) - (0.2) 18.5
------------------------------------------------------------
108.2 - - - 108.2
Minority interests 3.7 - - - 3.7
------------------------------------------------------------
Total equity 111.9 - - - 111.9
------------------------------------------------------------
Adoption of IAS 32 and IAS 39 - notes
At 1 January 2005
(i) Derivatives
Under IAS 32 and IAS 39, all derivatives are recognised at fair value, with
changes in the value recognised in the income statement immediately unless cash
flow hedge accounting is adopted.
The portion of the cash flow hedge which is effective is recognised directly in
the hedging reserve included in other reserves. The gain or loss is released to
the income statement when the underlying transaction impacts the income
statement.
Deferred taxation is provided on derivative gains and losses held in the hedging
reserve. The hedging reserve includes the related deferred taxation.
(ii) Gross up borrowings
Under UK GAAP, cash and bank overdrafts which are subject to a common legal
right of set-off are shown net. Under IAS 32, these are required to be shown
gross. The Company is required to include accrued interest within bank balances
and borrowings, whilst under UK GAAP, accrued interest was included in accruals.
(iii) Other
Other differences comprise a number of adjustments that are not individually
significant.
Principal Accounting Policies
The principal accounting policies of the Group under IFRS are set out below.
These have been applied with effect from 1 January 2004.
Basis of Accounting
The financial statements have been prepared under the historical cost convention
as modified by the revaluation of certain property, plant and equipment,
available for sale investments, financial assets and financial liabilities held
for trading.
The interim report has been prepared in accordance with IAS 34 Interim Financial
Reporting and IFRS 1 First-time adoption of International Financial Reporting
Standards, as it is part of the period covered by the Group's first IFRS
financial statements for the year ended 31 December 2005. Those interim
financial statements have been prepared in accordance with those IFRS standards
and IFRIC interpretations which are effective, or have been adopted early, as at
1 September 2005. The IFRS standards and IFRIC interpretations that will be
applicable at 31 December 2005, including those that will be applicable on an
optional basis, are not known with certainty at the time of preparing those
interim financial statements.
Consolidation
(a) Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the
financial and operating policies.
The Group accounts include the financial statements of the Company and its
subsidiaries, together with its share of associates. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date control ceases.
(b) Associates
An associate is an entity in which the Group has an effective interest of not
less than 20% and over which it has the ability to exercise significant
influence and that is not a subsidiary.
The Group's share of after tax results of associates is included separately in
the income statement.
Goodwill
On the acquisition of a business, fair values are attributed to the net assets
acquired. Goodwill arises where the fair value of the consideration given
exceeds the fair value of the net assets acquired.
Goodwill is recognised as an asset and is reviewed for impairment at least
annually. Impairments are recognised immediately in the income statement.
Goodwill is allocated to cash generating units for the purpose of impairment
testing.
On the disposal of a business, goodwill relating to that business remaining on
the balance sheet is included in the determination of the profit or loss on
disposal.
Goodwill written off to reserves prior to 1998 has not been reinstated and will
not be included in determining any subsequent profit or loss on disposal.
Revenue
Revenue represents the invoiced amount, excluding sales related taxes, of goods
sold and services provided and is recognised when title passes to the customer
or when the service has been rendered.
Revenue on long term contracts is recognised by reference to the value of the
work done during the period.
Revenue is not recognised for barter transactions that involve the exchange of
goods or services which are of a similar nature and value.
Principal Accounting Policies
(continued)
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost or valuation and depreciated to
their expected residual values on a straight line basis over their estimated
useful lives, at the following rates:
Freehold property 2% - 10%
Leasehold land and buildings life of lease
Oil and gas exploration and equipment unit of production
Pipelines, tanks and associated equipment 4% - 20%
Plant and equipment 6% - 331/3%
Freehold property and long leasehold land and buildings and terminals are
revalued with sufficient regularity, at least every five years, such that the
carrying amount does not differ materially from the fair value at the balance
sheet date.
Computer software integral to an item of machinery is capitalised as part of the
hardware.
Property, plant and equipment are impaired if their recoverable amount falls
below their carrying value. Impairment losses are charged to the income
statement immediately unless they arise on previously revalued assets, in which
case they are recognised in the statement of recognised income and expense up to
the amount of the revaluation and thereafter in the income statement.
Intangible Assets
Intangible assets are stated at cost. Intangible assets that have an indefinite
useful life are not amortised but are reviewed annually for impairment. Those
assets that have a finite life are amortised in accordance with the pattern of
expected future economic benefits, or when this cannot be reliably estimated, by
using the straight-line method. General computer software is capitalised as an
intangible asset.
Foreign Currencies
Assets and liabilities of overseas subsidiaries and associates are translated
into Sterling at the market rates ruling at the balance sheet date. Trading
results are translated at the average rates for the period. Exchange differences
arising on the consolidation of the net assets of overseas subsidiaries and on
foreign currency borrowings used to finance overseas net equity investments are
dealt with through the foreign currency translation reserve, whilst those
arising from trading transactions are dealt with in the income statement.
On disposal of a business, the cumulative exchange differences previously
recognised in the foreign currency translation reserve relating to that business
are transferred to the income statement as part of the gain or loss on disposal.
The Company has taken advantage of the exemption in IFRS 1 First-time adoption
of International Financial Reporting Standards, whereby the cumulative
translation differences for all foreign operations that existed at the date of
transition to IFRS are deemed to be zero.
Deferred Taxation
Full provision is made for deferred taxation on all taxable temporary
differences. Deferred tax assets and liabilities are recognised separately on
the balance sheet. Deferred tax assets are recognised only to the extent that
they are expected to be recoverable.
Deferred taxation is recognised in the income statement unless it relates to
taxable transactions taken directly to equity, in which case the deferred tax is
also recognised in equity. The deferred tax is released to the income statement
at the same time as the taxable transaction is recognised in the income
statement.
Deferred taxation on unremitted overseas earnings is provided for to the extent
a tax charge is foreseeable.
Principal Accounting Policies
(continued)
Inventories and Construction Contracts
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the first-in-first-out method and net realisable value is the
estimated selling price less costs of disposal in the ordinary course of
business. Construction contracts are stated at the lower of cost and estimated
net realisable value less payments received and receivable on account. Cost
includes production overheads and a proportion of administrative overheads in
addition to direct labour and material costs.
Employee Benefits
Payments to defined contribution retirement schemes are charged to the income
statement as they fall due.
For defined benefit retirement schemes, the expected cost of providing benefits
is determined using the Projected Unit Credit Method, with qualified independent
actuarial valuations being carried out at each balance sheet date. Actuarial
gains and losses are recognised in full in the period in which they occur, in
the statement of recognised income and expense.
Past service cost is recognised immediately to the extent that the benefits are
already vested and otherwise amortised on a straight line basis over the average
period until the benefits become vested.
As permitted by IFRS 1, all cumulative actuarial gains and losses have been
recognised in reserves at the transition date.
The expected cost of post-employment benefit obligations are spread evenly over
the period of service of the employees.
Share-based Payments
In accordance with the IFRS transitional provisions, IFRS 2 Share-based Payments
has been applied from 1 January 2004 to grants of equity instruments issued
after 7 November 2002 that had not vested by 1 January 2005. The derived cost of
these instruments is spread evenly over the vesting period.
Leases
A finance lease is a lease that transfers substantially all the risks and
rewards of ownership of an asset. Assets acquired under finance leases are
recorded in the balance sheet as property, plant and equipment at their fair
value and depreciated over the shorter of their estimated useful lives and their
lease terms. All other leases are operating leases, and the rental of these is
charged to the income statement as incurred over the life of the lease.
Operating lease income is recognised in the income statement as it is earned.
Research and Development
Research costs and development costs ineligible for capitalisation are written
off as incurred.
Principal Accounting Policies Adopted with IAS 32 and IAS 39
The following are the key accounting policies adopted in the preparation of the
balance sheet at 1 January 2005, to reflect the adoption of IAS 32 and IAS 39:
Financial Assets
The Group classifies its financial assets into the following categories:
financial assets at fair value through profit or loss, loans and receivables,
and available for sale financial assets. Management determines the
classification of its investments at initial recognition and re-evaluates this
designation at every reporting date. Financial assets cease to be recognized
when the right to receive cash flows has expired or has been transferred and the
Group has transferred substantially all the risks and rewards of ownership
(a) Financial assets at fair value through profit or loss
Gains and losses arising from changes in the fair value are included in the
income statement in the period in which they arise.
(b) Loans and receivables
Loans and receivables are carried at amortised cost.
(c) Available for sale financial assets
Investments are initially recognised at fair value plus transaction costs.
Unrealised gains and losses arising from changes in the fair value are
recognised in equity. Realised gains and losses including accumulated fair value
adjustments are included in the income statement.
Financial Liabilities
The Group classifies all of its financial liabilities at amortised cost other
than long term loans subject to fair value hedges. Long term loans which have
been designated as part of a fair value hedging relationship are adjusted by the
fair value of the hedging instrument to the extent that it meets the hedge
accounting criteria.
Derivatives and Financial Instruments
Derivatives are initially recognised at fair value and are subsequently
re-measured at their fair value at each balance sheet date. Recognition of the
resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and if it is, the nature of the item being hedged.
Changes in the fair value of derivatives that do not qualify for hedge
accounting are recognised immediately in the income statement.
The Group designates derivatives that qualify for hedge accounting as either:
(a) Fair value hedge
Hedges of the fair value of recognised assets or liabilities are fair value
hedges. Changes in the fair values of these derivatives are recorded in the
income statement, together with changes in the fair values of the hedged items
that are attributable to the hedged risk.
(b) Cash flow hedge
Hedges of highly probable forecast transactions are cash flow hedges. The
effective portion of changes in the fair value of these derivatives are
recognised in equity. The gain or loss relating to the ineffective portion is
recognized immediately in the income statement. Amounts accumulated in equity
are dealt with in the income statement at the same time as the gains or losses
on the hedged items. When a forecast transaction is no longer expected to occur,
the cumulative gains or losses that were reported in equity are immediately
transferred to the income statement.
(c) Net investment hedge in foreign operations
Gains or losses on the hedging instrument relating to the effective portion of
the hedge are recognised in equity; gains or losses relating to the ineffective
portion are recognised immediately in the income statement. Gains and losses
accumulated in equity are released to the income statement when the foreign
operation is sold.
The fair value of forward foreign exchange contracts and commodity based
derivatives which are traded in active markets is based on quoted market prices
at the balance sheet date. The fair value of other financial instruments that
are not traded in an active market is determined by using valuation techniques,
predominantly discounted cash flows.
Key Exemptions and Exceptions
In adopting IFRS, the principal exemptions and exceptions applied by the
Company, as set out within IFRS 1 are as follows:
1. Business combinations - the Company has elected not to restate business
combinations prior to 1 January 2004.
2. Fair value or revaluation as deemed cost - the Company has elected not
to fair value its property, plant and equipment at 1 January 2004.
3. Employee benefits - the Company has elected to recognise all cumulative
actuarial gains and losses on its defined benefit pension schemes as
at 1 January 2004.
4. Foreign currency translation differences - the Company has elected to
commence the foreign currency translation reserve at 1 January 2004.
5. Share based payments - the Company has elected to apply the exemption
whereby IFRS 2 only applies to share options granted after 7 November
2002 but that have not vested by 1 January 2005.
6. Restatement of comparatives for IAS 32 and IAS 39 - the Company has elected
to adopt IAS 32 and IAS 39 with effect from 1 January 2005. Comparative
information for 2004 has not been restated.
This information is provided by RNS
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