Impact of IFRS

Vp PLC 18 November 2005 Press Release 7 November 2005 Vp plc ('Vp' or 'the Group') The Impact of International Financial Reporting Standards ('IFRS') Introduction The European Union ('EU') has approved the application of International Financial Reporting Standards for listed companies for periods beginning on or after 1 January 2005. For Vp the financial statements for the year ended 31 March 2006 will be the first to be prepared in accordance with IFRS adopted for use in the EU. The adoption of IFRS requires the restatement of the comparative results for the year ended 31 March 2005 and the associated interim period. This announcement sets out the effect of this restatement and explains the main differences between UK GAAP and IFRS as applicable to Vp. Basis of Preparation The financial information presented in this statement has been prepared by applying all IFRS and International Accounting Standards ('IAS') that are expected to be applicable to the Group's reporting for the year ended 31 March 2006. The standards are still subject to ongoing review and possible amendment. In addition, some of them are still subject to endorsement by the EU, in particular the Group has adopted the amendment to IAS19 which allows actuarial gains and losses to be reflected in the Statement of Recognised Income and Expense. This amendment has not yet been endorsed by the EU. It is therefore possible that further standards, amendments, interpretations and/or changes in practical application of IFRS could affect the year ended 31 March 2006 and the associated comparative figures. Vp will continue to monitor these changes and if appropriate amend its accounting policies. The UK GAAP figures presented in this announcement relating to the 31 March 2004 balance sheet and for the year ended 31 March 2005 are not the company's statutory accounts. 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 unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. Accounting Policies Vp's accounting policies have been applied consistently to all years presented and are in line with those applied in the last annual financial statements for the year ended 31 March 2005, with the exception of the following changes to the accounting policies which have been adopted in order to comply with IFRS. Goodwill Goodwill represents the excess of the fair value of the purchase price over the fair value of the net assets acquired as part of a business combination. Goodwill is assumed to have an indefinite useful economic life and under IFRS 3, 'Business Combinations', is not amortised, but is reviewed annually for impairment and carried in the balance sheet at cost less any accumulated impairment losses. The Group has applied the exemption under IFRS 1 that allows goodwill in respect of acquisitions made prior to 1 April 2004 to remain at deemed cost as stated under UK GAAP, that is net of amortisation to that date. Dividends In accordance with IAS 10, 'Events after the Balance Sheet Date', dividends declared after the balance sheet date are not accrued at that balance sheet date because the liability does not represent an obligation as defined by IAS 37, ' Provisions, Contingent Liabilities and Contingent Assets'. Each dividend will therefore be recognised in the period in which it is approved rather than in the period to which it relates. Share Based Payments IFRS 2, 'Share-based Payments', requires that the fair value of share options be charged to the Income Statement based upon their fair value at the date of grant. The charge is recognised evenly over the vesting period of the options. The fair values are calculated using an appropriate option pricing model. The Group's Approved, Unapproved and Save as you Earn (SAYE) schemes have been valued using the Black-Scholes model and the Income Statement charge is adjusted to reflect the expected number of options that will vest based on expected levels of performance and the expected number of employees leaving the Group. The fair values of the Group's Long Term Incentive Plan (LTIP) and Share Matching options are calculated using a discounted grant price model again adjusted for expected performance and employees leaving the Group. The Group has chosen to adopt the exemption whereby IFRS 2 is only applied to options granted after 7 November 2002. Financial Instruments The Group's only financial instrument is an interest rate swap. Under IAS 39, ' Financial Instruments: Recognition and Measurement' this is accounted for in the balance sheet at fair value and any movement in fair value is taken to the Income Statement, unless the transaction is designated as part of a hedging relationship in which case any changes to that fair value are accounted for in equity and then released to the Income Statement to match the settlement of interest under the swap. Employee Benefits Under IAS 19, 'Employee Benefits' the Group's pension deficits are recorded as balance sheet liabilities and the actuarial gains and losses associated with this liability are to be recognised in the Statement of Recognised Income and Expense as they arise. All actuarial gains and losses at 1 April 2004, the date of transition to IFRS, were recognised. Actuarial gains and losses occur when the actual returns on scheme assets differ from those initially expected by the actuary. Taxation The charge for taxation is based on the results for the year and takes into account full provision for deferred taxation due to temporary timing differences between the carrying value of an asset or liability and its tax base. Explanation of IFRS Adjustments Goodwill Under UK GAAP goodwill was amortised over its expected useful life of twenty years. Under IFRS, goodwill is assumed to have an indefinite useful life, but is reviewed for impairment on an annual basis and any such impairment is charged to the Income Statement. At the date of transition the Group has applied the exemption under IFRS1 not to reinstate goodwill to original cost and has carried forward the book value of goodwill relating to acquisitions prior to 1 April 2004 totalling £7,136k . The impact on the Income Statement for the year ending 31 March 2005 is that goodwill amortisation of £429k that was previously charged under UK GAAP has been reversed such that no charge has been provided and hence net assets at 31 March 2005 have increased by this amount. In addition the 31 March 2004 balance sheet has also been adjusted to reflect goodwill of £298k, recorded in the year ended 31 March 2005, which related to prior year acquisitions for which fair values had previously been provisionally estimated. This has no impact on net assets as it is purely a balance sheet reclassification. As at the 31 March 2005 there was no indication of impairment of any of the remaining goodwill. Dividends Under IFRS dividends are now charged in the period in which they are approved rather than the period to which they relate, therefore the final dividend for the year ended 31 March 2004 of £1,452k has been reversed in the opening balance sheet and reflected in equity in the half year ended 30 September 2004. Similarly the interim dividend of £761k for 30 September 2004 has been reversed from the half year balance sheet and reflected in equity in the year ended 31 March 2005 and the final dividend of £1,740k accrued for 31 March 2005 has been reversed in the IFRS balance sheet and will be reflected in the half year ending 30 September 2005. Share Based Payments Under UK GAAP the cost of options was based on the cost of shares held by the employee trust, whereas under the IFRS the fair values per share are calculated for options granted since 7 November 2002 on the basis stated above and charged to the Income Statement over their respective vesting periods. The additional charge arising from adoption of IFRS 2 on the Group's Income Statement was £18k for the half year ended 30 September 2004 and £23k in total for the year ended 31 March 2005. Financial Instruments The Group's only derivative instrument is an interest rate swap held for hedging purposes in order to reduce the risk of exposure to changes in interest rates. The movements in fair value have been taken to the Income Statement. As at 31 March 2004 a liability of £49k has been recognised reducing net assets to reflect the fair value of this instrument at that date. For the year ended 31 March 2005, the fair value improved by £40k due to an increase in interest rates at that date and this has been credited to the Income Statement for the period. The Group has not applied the exemption under IAS39 which would have allowed application of the standard to be deferred until 1 April 2005. Employee Benefits Under UK GAAP pension costs were accounted for against the operating profit by spreading the cost of providing the benefits, including actuarial gains and losses, over the estimated average remaining service lives of employees within the pension schemes in accordance with SSAP24. IAS 19, 'Employee Benefits', requires that the Group's pension deficits be recorded as balance sheet liabilities and that all actuarial gains and losses are recognised, under the amendment to IAS 19, in the Statement of Recognised Income and Expense as they arise. The deficit on the balance sheet for 31 March 2004, under IAS 19, reduced net assets by £2,391k with a deferred tax asset of £778k being accounted for within deferred tax liabilities. The impact of IAS 19 for the year ended 31 March 2005 is to reduce the pension charge in the Income Statement by £231k. The deficit recognised in the balance sheet at 31 March 2005 increased by £1,322k to £3,916k. The Statement of Recognised Income and Expense reflects £1,310k of this adjustment, the balance being reflected through the Income Statement. Deferred Tax Deferred Tax, under UK GAAP, was provided for on the basis of timing differences between accounting profit and taxable profit. IAS 12, 'Income Taxes' requires that deferred tax is to be based on temporary differences between the carrying value of an asset or liability and its tax base. The effect of IFRS on the deferred tax liability is to reduce the liability at 31 March 2004 by £300k, with a corresponding increase in equity which is split between retained earnings and the revaluation reserve. The decrease related to deferred tax assets on pensions and share options of £1,000k less liabilities on asset revaluations and rolled over capital gains together with the reversal of the SSAP24 deferred tax asset which in total were £700k. During the year ended 31 March 2005 the deferred tax liability under IFRS reduced by £951k of which £317k was credited to the Income Statement and the balance was credited to equity. Cash Flow Since IFRS do not affect the underlying figures, purely the presentation of the information, this announcement does not contain any restated cash flow statements. Presentation All the UK GAAP figures stated below have been reformatted in accordance with the presentation under IFRS. Consolidated Income Statement For the year ended 31 March 2005 IFRS adjustments Employee Financial Share Based Goodwill Benefits Instruments Payments Deferred Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Revenue 90,044 90,044 Cost of sales (61,958) (61,958) Gross profit 28,086 0 0 0 0 0 28,086 Administration expenses (18,383) 429 231 (23) (17,746) Operating profit before 9,703 429 231 0 (23) 0 10,340 financing costs Net finance expenses (348) 40 (308) Profit before tax 9,355 429 231 40 (23) 0 10,032 Income tax expense (2,831) 7 (2,824) Profit for the year 6,524 429 231 40 (23) 7 7,208 attributable to equity holders of the parent Earnings per share Basic 15.04p 16.62p Diluted 14.56p 16.09p Consolidated Income Statement For the half year ended 30 September 2004 IFRS adjustments Employee Financial Share Based Goodwill Benefits Instruments Payments Deferred Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Revenue 45,601 45,601 Cost of sales (31,486) (31,486) Gross profit 14,115 0 0 0 0 0 14,115 Administration expenses (9,217) 211 (18) (9,024) Operating profit before 4,898 211 0 0 (18) 0 5,091 financing costs Net finance expenses (188) 32 (156) Profit before tax 4,710 211 0 32 (18) 0 4,935 Income tax expense (1,460) 43 (1,417) Profit for the period 3,250 211 0 32 (18) 43 3,518 attributable to equity holders of the parent Earnings per share Basic 7.52p 8.14p Diluted 7.26p 7.86p Consolidated Statement of Recognised Income and Expense For the year ended 31 March 2005 IFRS adjustments Employee Share Based Financial Goodwill Benefits Payments Instruments Deferred Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Actuarial losses on (1,310) (1,310) defined benefit pension schemes Tax on items taken 393 393 directly to equity Foreign exchange 4 4 translation difference Net income recognised 4 (1,310) 393 (913) direct to equity Profit for the year 6,524 429 231 (23) 40 7 7,208 Total recognised 6,528 429 (1,079) (23) 40 400 6,295 income and expense for the year Statement of Changes in Equity For the year ended 31 March 2005 IFRS adjustments Employee Share Based Financial Dividends Goodwill Benefits Payments Instruments Deferred Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 £000 Total recognised 6,528 429 (1,079) (23) 40 400 6,295 income and expense for the year Tax movements to 241 241 equity Share option 253 23 276 charge in the year and gains/losses on share options and disposal of shares Net movement in 153 153 shares held by Vp Employee Trust at cost Dividends to (2,502) 288 (2,214) shareholders 4,432 288 429 (1,079) 40 641 4,751 As at 1 April 2004 51,803 1,452 (2,391) (49) 300 51,115 As at 31 March 56,235 1,740 429 (3,470) (9) 941 55,866 2005 Consolidated Statement of Recognised Income and Expense For the half year ended 30 September 2004 IFRS adjustments Employee Share Based Financial Goodwill Benefits Payments Instruments Deferred Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Foreign exchange 5 5 translation difference Net income recognised 5 5 direct to equity Profit for the period 3,250 211 (18) 32 43 3,518 Total recognised income 3,255 211 (18) 32 43 3,523 and expense for the period Statement of Changes in Equity For the half year ended 30 September 2004 IFRS adjustments Employee Share Based Financial Deferred Dividends Goodwill Benefits Payments Instruments Tax IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 £000 Total recognised 3,255 211 (18) 32 43 3,523 income and expense for the period Tax movement to 171 171 equity Share option charge 139 18 157 in the year and gains /losses on share options and disposal of shares Net movement in (53) (53) shares held by Vp Employee Trust at cost Dividends to (761) (691) (1,452) shareholders 2,580 (691) 211 0 32 214 2,346 As at 1 April 2004 51,803 1,452 (2,391) (49) 300 51,115 As at 30 September 54,383 761 211 (2,391) (17) 514 53,461 2004 Consolidated Balance Sheet As at 31 March 2004 IFRS adjustments Employee Financial Goodwill Benefits Deferred Tax Dividends Instruments IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Non-current assets Property, plant and 49,911 (354) 49,557 equipment Intangible assets 7,136 298 7,434 57,047 (56) 56,991 Current assets Inventories 2,018 2,018 Trade and other 21,694 78 21,772 receivables Cash and cash 1,087 1,087 equivalents 24,799 78 24,877 Current liabilities Interest bearing (469) (469) loans and borrowings Income tax payable (1,641) (1,641) Trade and other (15,274) (22) 1,452 (49) (13,893) payables Net current assets 7,415 56 1,452 (49) 8,874 Total assets less 64,462 0 1,452 (49) 65,865 current liabilities Non-current liabilities Interest bearing (8,110) (8,110) loans and borrowings Employee benefits (203) (2,391) (2,594) Deferred tax (4,319) 300 (4,019) liability Net assets 51,830 0 (2,391) 300 1,452 (49) 51,142 Equity Issued capital 2,309 2,309 Share premium 16,192 16,192 Revaluation reserve 599 (180) 419 Retained earnings 32,703 (2,391) 480 1,452 (49) 32,195 Total equity 51,803 (2,391) 300 1,452 (49) 51,115 attributable to equity holders of the parent Minority interest 27 27 Total equity 51,830 (2,391) 300 1,452 (49) 51,142 Consolidated Balance Sheet As at 30 September 2004 IFRS adjustments Employee Financial Goodwill Benfits Deferred Tax Dividends Instruments IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Non-current assets Property, plant and 48,073 (172) 47,901 equipment Intangible assets 7,052 382 7,434 55,125 210 55,335 Current assets Inventories 2,098 2,098 Trade and other 23,131 23,131 receivables Cash and cash 4,794 4,794 equivalents 30,023 30,023 Current liabilities Interest-bearing (238) (238) loans and borrowings Income tax payable (1,925) (1,925) Trade and other (16,328) 1 761 (17) (15,583) payables Net current assets 11,532 1 761 (17) 12,277 Total assets less 66,657 211 761 (17) 67,612 current liabilities Non current liabilities Interest-bearing (8,000) (8,000) loans and borrowings Employee benefits (203) (2,391) (2,594) Deferred tax (4,044) 514 (3,530) liability Net assets 54,410 211 (2,391) 514 761 (17) 53,488 Equity Issued capital 2,309 2,309 Share premium 16,192 16,192 Revaluation reserve 599 (180) 419 Retained earnings 35,283 211 (2,391) 694 761 (17) 34,541 Total equity 54,383 211 (2,391) 514 761 (17) 53,461 attributable to equity holders of the parent Minority interest 27 27 Total equity 54,410 211 (2,391) 514 761 (17) 53,488 Consolidated Balance Sheet As at 31 March 2005 IFRS adjustments Employee Financial Goodwill Benefits Deferred Tax Dividends Instruments IFRS UK GAAP (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) £000 £000 £000 £000 £000 £000 £000 Non current assets Property, plant and 48,676 48,676 equipment Intangible assets 7,039 429 7,468 55,715 429 56,144 Current assets Inventories 2,136 2,136 Trade and other 22,069 22,069 receivables Cash and cash 5,755 5,755 equivalents 29,960 29,960 Current liabilities Interest-bearing (159) (159) loans and borrowings Income tax payable (1,628) (1,628) Trade and other (15,138) 1,740 (9) (13,407) payables Net current assets 13,035 1,740 (9) 14,766 Total assets less 68,750 429 1,740 (9) 70,910 current liabilities Non current liabilities Interest-bearing (8,033) (8,033) loans and borrowings Employee benefits (446) (3,470) (3,916) Deferred tax (4,009) 941 (3,068) liability Net assets 56,262 429 (3,470) 941 1,740 (9) 55,893 Equity Issued capital 2,309 2,309 Share premium 16,192 16,192 Revaluation reserve 430 (129) 301 Retained earnings 37,304 429 (3,470) 1,070 1,740 (9) 37,064 Total equity 56,235 429 (3,470) 941 1,740 (9) 55,866 attributable to equity holders of the parent Minority interest 27 27 Total equity 56,262 429 (3,470) 941 1,740 (9) 55,893 - Ends - For further information please contact: Vp plc Mike Holt, Group Finance Director Tel: +44 (0) 1423 533 445 mike.holt@vpplc.com www.vpplc.com Abchurch Henry Harrison-Topham Tel: +44 (0) 20 7398 7700 henry.ht@abchurch-group.com www.abchurch-group.com Notes to Editors: The principal activity of the Group is equipment rental and associated services almost entirely conducted within the UK. Vp plc listed on the London Stock Exchange in 1973. For the year ended 31 March 2005, Group turnover was £90.0 million. The Group is now focused on six businesses: TPA TPA is a leading supplier of portable roadway systems, bridging, fencing and barriers primarily to the UK market, but also in Ireland and mainland Europe. For further information, please visit www.tpa-ltd.co.uk Hire Station Tools and specialist products for industry, construction and home owners. Torrent Trackside Infrastructure equipment and services for the railway renewals and maintenance industry. Groundforce Excavation support systems and specialist products for the water, civil engineering and construction industries. UK Forks Rough terrain material handling equipment for industry, residential and general construction. Airpac Oilfield Services Equipment and service providers to the international oil and gas exploration and development markets. 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