IFRS 2004 Results Statement
UK Coal PLC
20 July 2005
20th July 2005
UK COAL PLC
Restatement of financial information for 2004 under International Accounting
Standards and International Financial Reporting Standards
UK COAL PLC (UK COAL), the UK's largest producer of coal, today presents its
restated audited results and financial position for the year ended 31 December
2004, and its restated financial information for the 6 months ended 30 June
2004, in accordance with International Accounting Standards and International
Financial Reporting Standards (collectively referred to as 'IFRS'). From 2005
all companies listed on a recognised stock exchange in the EU are required to
prepare their financial statements under IFRS. This change applies to accounting
periods beginning on or after 1 January 2005 and UK COAL is therefore required
to prepare its financial statements for its year ending 31 December 2005 under
IFRS. This announcement is intended to assist investors and other interested
parties in understanding the impact of IFRS on UK COAL's consolidated financial
statements. Under the transition rules to IFRS, companies are also required to
restate comparative financial information under IFRS. The date of transition for
UK COAL is 1 January 2004, being the start date of the earliest period of
comparative information.
UK COAL's underlying business is unaffected by IFRS, however, there are a number
of changes that impact the consolidated income statement and consolidated
balance sheet which are summarised below.
Overview of financial impact
The following table shows the impact on the consolidated results for the year
ended 31 December 2004 and the financial position at that date:
UK GAAP IFRS Difference
£000 £000 £000
Loss before tax (51,630) (33,531) 18,099
Basic loss per share (35.3)p (23.0)p 12.3p
Net assets 170,634 56,789 (113,845)
Improvement in loss before tax
As a result of the implementation of IFRS, the loss before tax has been reduced
by £18.1 million in 2004. Of this £10.8 million was due to the goodwill
impairment which was previously charged on the acquisition of Crouch Mining in
2004. This is now recognised in 2003 as a requirement under the provisions of
IFRS 3 'Business combinations' which requires full retrospective accounting for
acquisitions in the year of the transaction.
A further reduction of £9.2 million on the loss before tax is reflected on
recalculation of the profit on disposal of Gloucester Coal and Lionheart's
heating services business in 2004. The charge initially made to the consolidated
profit and loss account in respect of goodwill previously written off on the
original acquisition was reversed when the gain was calculated under the
provisions of IFRS 1. This does not require goodwill previously written off to
equity to be recycled to the consolidated income statement.
The above two adjustments did not affect net assets as they were in respect of
either timing of recognition between accounting periods or reclassification of a
charge from the consolidated income statement to reserves.
Reduction in net assets
As a result of the implementation of IFRS, net assets were reduced by £113.8
million. This arises mainly from the recognition of the defined benefit pension
scheme obligations under IAS 19, 'Employee Benefits'. In total this amounted to
£117.8 million and is in line with the deficit disclosed in note 29 of the 2004
financial statements which was calculated in accordance with the UK Accounting
Standard FRS 17 'Retirement Benefits'. Both standards require the deficit on
defined benefit pension schemes to be reflected on the balance sheet and in the
case of UK COAL the adjustments are identical. In total the charge to the income
statement under IAS 19 was £0.2 million lower than under the predecessor
standard SSAP 24.
As permitted, UK COAL has elected to adopt IAS 39 'Financial Instruments:
Recognition and Measurement' with effect from 1 January 2005. Evaluation of this
standard continues, but at the present time, no material adjustments are
expected to arise from the adoption of this standard in the year ending 31
December 2005.
The complete list of changes on adoption of IFRS for 2004 is:
--------------------------------------------------------------------------------
Impact on 2004 consolidated income statement STD £000
--------------------------------------------------------------------------------
Reduction in depreciation charge on certain freehold
properties arising from a requirement to revise residual
values to reflect current prices IAS 16 328
Decrease in defined benefit pension scheme cost IAS 19 192
Increase in charge made for concessionary fuel IAS 19 (1,687)
Increase in holiday pay accrual IAS 19 (60)
Change in the basis of recognising share based awards to
employees IFRS 2 211
Adjustments to the gain on sale of subsidiaries for
foreign exchange movements IAS 21 (854)
Adjustment to the gain on sale of subsidiaries for
goodwill IFRS 1 9,164
Elimination of goodwill impairment charge made in 2004.
This is now charged directly to reserves in the
transition balance sheet IFRS 3 10,805
--------------------------------------------------------------------------------
Reduction in consolidated loss before tax 18,099
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Impact on 2004 consolidated balance sheet
--------------------------------------------------------------------------------
Reduction in depreciation charge on certain freehold
properties arising from a requirement to revise residual
values to reflect current prices IAS 16 328
Recognition on the balance sheet of defined benefit
pension scheme net assets and liabilities IAS 19 (117,830)
Decrease in provision for concessionary fuel reserve IAS 19 2,256
Provision created for holiday pay IAS 19 (82)
Removal of the proposed final dividend as a liability at
the year end IAS 10 1,483
--------------------------------------------------------------------------------
Reduction in consolidated net assets (113,845)
--------------------------------------------------------------------------------
Changes in accounting policies
A full set of UK COAL's accounting policies as modified by IFRS is set out in
the document 'Restatement of financial information' published at the same time
as this press release. A copy of the 'Restatement of financial information' will
be sent to all shareholder with the Interim Report 2005 and is also available by
contacting Investor Relations, UK COAL PLC, Harworth Park, Blyth Road, Harworth,
Doncaster, DN11 8DB or from the UK COAL web site (www.ukcoal.com). Significant
changes in policy together with associated transitional arrangements and a
description of the reasons for adjustments to balances are summarised below:
IAS 16 - 'Property, plant and equipment'
UK COAL had previously accounted for tangible fixed assets under FRS 15. In
compliance with this standard, assumed disposal values at the end of the life of
the assets (residual values) have been based on prices prevailing at the date of
acquisition. IAS 16 requires residual values to be reviewed annually and
adjusted using prices current at the balance sheet date. Having conducted
reviews of all categories of property, plant and equipment, certain freehold
properties had residual values in excess of their net book values at the date of
transition. These properties have not been revalued upwards, however the
depreciation has been adjusted to nil in 2004 to reflect higher current values.
As a result of this standard, the depreciation charge in the consolidated income
statement has been reduced by £328,000 in 2004. UK COAL will continue to
depreciate its freehold properties, however taking account of current market
values and the written down value of its properties, this is likely to result in
a zero charge.
On the adoption of IFRS, IFRS 1 allows property, plant and equipment to be
measured at fair value on transition. As allowed under IFRS 1, UK COAL has not
revalued its property, plant and equipment which remain measured at historical
cost, less accumulated depreciation, in the IFRS consolidated balance sheet.
IAS 19 - 'Employee benefits'
Defined benefit pension schemes
Under UK GAAP, UK COAL has adopted the principles of SSAP 24, 'Accounting for
Pension Costs' under which post retirement benefit surpluses and deficits have
been spread over the expected average remaining service lives of relevant
current employees. This results in a prepayment or accrual in the financial
statements which does not necessarily reflect the surplus or deficit in the
schemes. IAS 19 requires immediate recognition of the surplus or deficit in the
pension scheme on the consolidated balance sheet.
Using IAS 19 valuation principles UK COAL's pension schemes record a deficit of
£113.2 million at 31 December 2004 which has been recorded in the consolidated
balance sheet. Actuarial gains and losses in the year have been taken through
the consolidated statement of recognised income and expense ('SoRIE'). The UK
GAAP consolidated balance sheet included prepaid contributions of £4.6 million
that had been recognised under SSAP 24 as an asset. This has been eliminated in
the consolidated balance sheet at 31 December 2004 giving a total reduction in
net assets of £117.8 million as a result of the implementation of this standard.
In recognising the deficit, UK COAL has included the full cumulative actuarial
gains and losses through reserves on transition. The alternative 'corridor
approach' allowed under IFRS 1 which under certain circumstances recognises a
portion of actuarial gains and losses in the consolidated income statement over
a period of time has not been adopted.
IAS 19 gives rise to a charge to the consolidated income statement consisting of
the regular pension cost and an interest charge on any pension deficit, both
recorded in cost of sales. This resulted in a regular pension cost of £11.2
million and interest charge of £2.1 million. Under SSAP 24 the pension cost was
£16.9 million of contributions less £3.4 million of reduced charges relating to
the prepayment of pension contributions made in the year. The charge to the
income statement under IFRS is therefore £0.2 million lower.
Under IFRS, differences between the actual outcome in the pension scheme in the
year and the outcome based on actuarial assumptions made at the start of the
year are taken to reserves through the SoRIE. During 2004 a charge of £14.0
million was recognised in the SoRIE and this related predominantly to assumed
improved life expectancy of members.
IFRS and UK GAAP allow a deferred tax asset to be recognised on the pension
deficit. UK COAL has not recognised a credit due to large tax losses brought
forward from prior years reducing the certainty over future taxable profits
against which the asset would be released.
The International Accounting Standards Board (IASB) issued an amendment to IAS
19 'Employee Benefits' in December 2004. In preparing the IFRS information in
this release, the directors have assumed that this revised standard will be
endorsed by the EU and adopted in UK COAL's 2005 financial statements.
Concessionary fuel reserve
UK COAL makes full provision for the obligation to provide fuel benefits to
certain former employees. This is a provision which falls under IAS 19. Under
SSAP 24, the previous standard, the excess provision which had arisen due to
changes in actuarial assumptions of £2.3 million was being amortised over the
remaining service lives of the employees. IAS 19 requires this surplus provision
to be written off to reserves on transition. As a result, there is a £2.3
million reduction in the provision for concessionary fuel at 31 December 2004.
IAS 19 requires the charge in the consolidated income statement for 2004 to
reflect the current service cost and an interest charge (both recorded in cost
of sales) on the provision to the extent it is not funded by matching assets.
The charge of £1.9 million under IFRS represents a regular service cost of £0.6
million and interest costs of £1.3 million. The SSAP 24 charge comprised £0.5
million of fuel benefits paid in the year offset by a £0.3 million amortisation
of the surplus provision. The charge for concessionary fuel is therefore £1.7
million higher under IFRS.
The surplus provision on the concessionary fuel reserve of £2.3 million
previously amortised under SSAP 24 is reflected in the SoRIE.
A deferred tax asset has not been recognised on the concessionary fuel reserve
at either transition or at 31 December 2004 for the reasons as detailed under
defined benefit pension schemes.
Holiday pay accrual
UK COAL has previously made provision for untaken holidays for all weekly paid
staff. IAS 19 requires provision for all employee benefits where a commitment
exists to provide untaken holiday entitlement at the balance sheet date.
An additional charge of £0.1 million is included in the consolidated income
statement in 2004 and an accrual of £0.1 million is included at the year end.
IFRS 2 - 'Share-based payments'
UK COAL operates a number of share-based incentive schemes. Under UK GAAP the
profit and loss charge was based on the intrinsic value of the awards, that is,
the difference between the exercise price and the market price at the date of
grant of the awards. The charge was spread over the period for which any
performance criteria were specified in making the awards based on the expected
achievement of those criteria.
Under IFRS, an expense is recognised for all awards under share-based incentive
schemes, based on the fair value of the award at the date of grant, calculated
using a valuation model. The fair value of the awards under the long term
incentive plans and the bonus share matching plan has been calculated using an
industry accepted simulation model which is regarded as a reliable basis for
valuing employee options.
The charge is spread over the vesting periods, adjusted to reflect expected
levels of lapses and expected achievement of vesting conditions. The charge has
reduced by £0.2 million in the period due to the adoption of a longer vesting
period.
IAS 21 - 'The effects of changes in foreign exchange rates'
IAS 21 requires foreign exchange differences to be written off in the
consolidated income statement on the disposal of a subsidiary. On the disposal
of Gloucester Coal, cumulative exchange differences of £0.9 million were written
off to reserves as required under UK GAAP. There is no impact on net assets.
IFRS 1 - 'First time adoption of International Financial Reporting Standards'
Under UK GAAP, UK COAL was permitted, on the acquisition of Gloucester Coal, to
write off goodwill directly to reserves. On the subsequent disposal UK GAAP
required the goodwill to be reinstated to the profit and loss account thus
reducing the recorded profit on disposal. IFRS 1 does not adopt this approach
requiring previously written off goodwill to remain in reserves. As a result the
profit recorded on disposal of Gloucester Coal and Lionheart's heating services
business has been increased by £9.2 million. Net assets have not been affected.
IFRS 3 - 'Business combinations'
Under UK GAAP, UK COAL recognised, in 2004, an impairment to goodwill on the
acquisition of Crouch Mining following a review of the fair value of assets
acquired. Crouch Mining was acquired in 2003. Under IFRS 3 adjustments to fair
values are recognised as if the initial accounting had been completed at the
acquisition date and prior years' figures are, if necessary, restated. As a
result, a charge of £10.8 million has been made in the 2003 accounting period
reducing the loss for 2004 by the same amount. Net assets have not been
affected.
IAS 10 - 'Events after the balance sheet date'
UK COAL has, in accordance with common accounting practice, previously accrued
dividends ahead of declaration at the AGM. IAS 10 does not follow this principle
and as a result the accrual for the dividend at the year end has been removed.
As a result net assets have increased by £1.5 million.
IAS 40 - 'Investment properties'
The accounts of UK COAL did not require reclassifications of investment
properties or adjustments to the values of properties as a result of complying
with IAS 40.
In the future, UK COAL will account for new investment properties under IAS 40
and revaluation gains and losses will be reflected in the consolidated income
statement rather than reserves as required by SSAP 19. In 2004, UK COAL had one
investment property which recorded no gains or losses.
IAS 12 - 'Income Taxes'
The adoption of IFRS requires no adjustments for UK COAL in respect of current
or deferred tax. UK COAL made a loss in 2004 and the availability of tax losses
brought forward gives rise to a deferred tax asset. As was the case under UK
GAAP, it is not considered appropriate to recognise this asset in the financial
statements as at 31 December 2004 other than to the extent to which it cancels a
deferred tax liability.
For further information, please contact:
UK COAL PLC Christopher Mawe Tel: 01302 751 751
Gavin Anderson & Company Ken Cronin Tel: 020 7554 1400
Michael Turner
This information is provided by RNS
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