Avon Protection Regulatory News (AVON)

11 May 2006 07:01

Avon Rubber PLC11 May 2006 11 May 2006 Avon Rubber p.l.c. IFRS Restatements Avon Rubber p.l.c. will be reporting its financial results in accordance withInternational Financial Reporting Standards (IFRS), as adopted by the EuropeanUnion, for accounting periods beginning on or after 1 October 2005. This statement summarises and explains the unaudited, consolidated IFRS resultsof Avon Rubber p.l.c. for the half year ended 31 March 2005 and full year endedSeptember 2005 as converted from UK Generally Accepted Accounting Principles("UK GAAP"), published in May 2005 and December 2005 respectively. Full detailscan be found on our website at http://www.avon-rubber.com/corporate/reports/ifrs.pdf. Avon Rubber p.l.c. will publish its 2006 Interim Report and Annual Report andAccounts in accordance with IFRS. Overview of impact • No impact on cashflow or revenue recognition. • Reported losses after tax and basic loss per share increased compared to UK GAAP for the year ended 30 September 2005. • Net assets reduced due to the impact of the revaluation of the Group's UK properties under IFRS 1. • Positive impact on net assets resulting from the capitalisation of development costs under IAS 38. Half year ended Year ended 31 March 2005 30 September 2005 IFRS UK GAAP IFRS UK GAAP £'000 £'000 £'000 £'000________________________________________________________________________________Total operating profit before Goodwill and exceptional items 2,333 3,050 6,183 7,524 Total operating profit/(loss)* 401 772 (1,975) (1,325) (Loss)/profit before tax (160) 209 (3,364) (2,825) Loss per share (4.6)p (1.5)p (19.1)p (14.1)p Equity Shareholders funds 58,335 66,987 46,934 55,578 *UK GAAP numbers include a share of the operating profit of the joint venture. Explanation Half year Year Note ended 31 ended 30 March September 2005 2005Reconciliation of total operating profit/(loss) £'000 £'000________________________________________________________________________________As per UK GAAP 772 (1,325)2005 development costs now capitalised 4 277 643Amortisation and impairment of development costs and other intangibles 4 (323) (1,244)Goodwill amortisation 1 348 802Share options 2 (802) (1,002)Reduced depreciation on revalued assets 3 131 262Share of profits of joint venture (2) (111)________________________________________________________________________________As per IFRS 401 (1,975)________________________________________________________________________________ Reconciliation of equity shareholders fundsAs per UK GAAP 66,987 55,578Development costs and other intangibles 4 2,179 1,625Goodwill amortisation 1 348 8022005 dividend proposed not yet paid 5 1,003 1,315Revaluation of fixed assets 3 (11,780) (11,649)Deferred tax adjustment 9 (402) (737)________________________________________________________________________________As per IFRS 58,335 46,934________________________________________________________________________________ Basis of preparation The unaudited financial information included in this statement has been preparedon the basis of the recognition and measurement requirements of IFRS and IAS inissue that either are adopted by the EU and will be effective (or available forearly adoption) at 30 September 2006 or are expected to be adopted and effective(or available for early adoption) at 30 September 2006, the Group's first annualreporting date at which it is required to use accounting standards adopted bythe EU. Based on these recognition and measurement requirements, management hasmade assumptions about the accounting policies expected to be applied when thefirst annual financial statements are prepared in accordance with accountingstandards adopted by the EU for the year ending 30 September 2006. At this stage in the development of IFRS, matters such as the interpretation andapplication surrounding it are continuing to evolve. In addition, IFRS currentlyin issue and endorsed by the EU are subject to interpretation by IFRIC(International Financial Reporting Interpretations Committee) and furtherStandards may be issued by the IASB (International Accounting Standards Board)that will be endorsed by September 2006. Accordingly, the accounting policies for 2006 will only finally be determinedwhen the annual financial statements are prepared for the year ending 30September 2006. These uncertainties could result in the need to change the basisof accounting or presentation of certain financial information from thatpresented in this document. The financial information included within this document is unaudited and doesnot comprise statutory accounts within the meaning of Section 240 of theCompanies Act 1985. The statutory accounts for the year ended 30 September 2005have been filed with the Registrar of Companies. The format of the incomestatement is for illustrative purposes only and is not the format that will beused in the financial statements for the year ended 30 September 2006. IFRS 1 exemptions IFRS 1 First-time adoption of International Financial Reporting Standards setsout the procedures the Group must follow when it adopts IFRS for the first timeas the basis for preparing the consolidated financial statements. The Group isrequired to determine its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS as at 1October 2004. The standard allows a number of exceptions to this generalprinciple to assist groups in their transition to reporting under IFRS. The Group will take the following exemptions: Business combinations: business combinations prior to 1 October 2004 will not berestated. This includes the exemption not to apply IAS 21 The Effects of Changesin Foreign Exchange Rates to goodwill arising from these business combinations.As a result goodwill arising from acquisitions that occurred prior to thetransition date will remain as stated under UK GAAP. IFRS 3 BusinessCombinations will be applied prospectively from 1 October 2004. Freehold property - Fair value as deemed cost: under the options availablewithin IFRS 1 the Group has chosen to measure certain of its freehold propertieson a fair value basis and adopt this valuation as deemed cost as at the date oftransition, 1 October 2004. The valuation was undertaken by DTZ Debenham TieLeung Limited, Chartered Surveyors. Share-based payments: the Group has applied IFRS 2 Share-based Paymentretrospectively to equity-settled awards made after 7 November 2002 that had notvested at 1 January 2005. Financial instruments: the Group has chosen to take advantage of the one yearexemption of financial instruments standards - IAS 32 Financial Instruments:Disclosure and Presentation and IAS 39 Financial Instruments: Recognition andMeasurement. As a result, the IFRS restated figures for the year to 30 September2005 continue to account for financial instruments in accordance with UK GAAP.The Group has adopted these standards prospectively from 30 September 2005.There is not expected to be a significant impact as a result of adopting thesestandards. Cumulative translation differences: IAS 21 The Effects of Changes in ForeignExchange Rates requires annual translation differences arising on the openingnet assets and net profit or loss of each foreign subsidiary to be treated as aseparate component of shareholders' equity, and the cumulative net surplus /deficit for each subsidiary carried forward and added to / subtracted from anygains / losses on the future disposal of that subsidiary. The Group has takenthe option to set these cumulative gains / losses at zero as at the date oftransition to IFRS. Any gains and losses recognised in the income statement onsubsequent disposals of foreign operations will therefore include only thosetranslation differences arising after 1 October 2004, the IFRS transition date. Explanation of key IFRS adjustments 1. Under UK GAAP, goodwill on businesses acquired by the Group on or after 3 October 1998 is capitalised and amortised on a straight line basis over its useful economic life. Under IFRS, from 1 October 2004 onwards, goodwill will no longer be amortised, but will instead be subject to annual impairment reviews. All goodwill was tested for impairment at the transition date with no adjustment necessary on transition from UK GAAP to IFRS. Where goodwill is deductible for tax purposes in the relevant jurisdiction, a temporary difference arises and consequently a related deferred tax liability has been recognised under IFRS. 2. Under UK GAAP, Avon Rubber p.l.c. recognises as an expense the intrinsic value at the date of the award, of options granted under the Performance Share Plan 2002 accrued over the vesting period to the extent that they are projected to vest. No expense is recognised for Sharesave option schemes for which UK GAAP recognises an exemption. Under IFRS the cost of all share-based payments, based on the fair values of the options or shares at the date of grant and calculated using an appropriate model, is recognised over the vesting period of the award. The Group has used the Black-Scholes model to value equity instruments. Under IFRS 2, a deferred tax asset is calculated in respect of future anticipated tax relief under Schedule 23 FA 2003. Due to the deferred tax position of the group, this deferred tax asset has not been recognised in the IFRS accounts. 3. Under the options available under IFRS 1 the company has chosen to measure its United Kingdom freehold properties on a fair value basis and adopt this valuation as deemed cost as at the date of transition, 1 October 2004. This valuation was undertaken by DTZ Debenham Tie Leung Limited. This has also resulted in a lower depreciation charge. The change in valuation has led to an increase in the deferred tax asset, both in 2004 and 2005. Due to the deferred tax position of the group, this increased asset has been recognised in part in 2004, but the entry reversed in the 2005 profit and loss account so that no further deferred tax asset is recognised in the 2005 balance sheet. 4. Under IAS 38 "Intangible Assets", the company is required to capitalise the cost of developments which meet certain recognition criteria, including the technical feasibility of, and probable future economic benefit arising from, the project. This expenditure is then amortised over the anticipated future life of the economic benefits arising and is subject to ongoing impairment reviews. Whereas SSAP13 permits an entity either to recognise development expenditure that meets the conditions for recognition as an asset or to write it off to the profit and loss account, IAS 38 does not permit a choice. If the development expenditure meets the recognition criteria it must be capitalised. As the development costs have historically been treated as a deductible, current year expense for tax purposes in the relevant jurisdictions, a temporary difference arises and a deferred tax liability is created under IFRS. 5. Under UK GAAP dividends relating to an accounting period but declared after the balance sheet date were recognised as a liability even if the approval of that dividend took place after the balance sheet date. Under IFRS, proposed dividends do not meet the definition of a liability until such time as they have been declared, and in the case of the final dividend, approved by shareholders at the Annual General Meeting. 6. Under UK GAAP the company had already adopted FRS 17 "Retirement Benefits". Under FRS 17, scheme assets are measured using market values while liabilities are measured using the projected unit method. The operating and financing costs of defined benefit pension schemes are recognised in the profit and loss account as operating costs and finance costs respectively. Variations from expected costs arising from the experience of the plans to changes in actuarial assumptions are recognised immediately in the Statement of Total Recognised Gains and Losses. The change to IAS 19 "Employee Benefits" does not give rise to any significant change in the basis of accounting for pensions, as Avon Rubber p.l.c. will adopt the option allowed under IAS 19 to take actuarial gains and losses immediately and directly to equity through the Statement of Recognised Income and Expense. Changes are largely confined to presentation, in that retirement benefit scheme surpluses and deficits must be aggregated separately on the face of the balance sheet and shown gross, rather than net, of deferred taxation. 7. Under IFRS 3, the UK GAAP goodwill arising on the ISI acquisition has been analysed into further intangible assets, namely patents and distribution network. Under IAS 12, no initial recognition exemption is available in respect of these intangible assets as they arise as a result of a business combination. Deferred tax is therefore provided on these intangible assets. Goodwill is then adjusted by the amount of deferred tax so that the total acquisition cost remains unchanged, and there is therefore no impact on the 2005 profit and loss account. 8. Under UK GAAP computer software costs were capitalised and included within tangible assets. Under IAS 38 computer software costs are now classified as intangible assets. 9. Other than the adjustments to deferred taxation arising from the IFRS adjustments described in paragraphs 1 - 7 above, there are no significant adjustments to either current or deferred tax resulting from the change from UK GAAP to IAS 12. < ends > Contact Information: Avon Rubber p.l.c. 01225 896831Terry Stead, Chief Executive As from 1pmPeter Slabbert, Finance Director Weber Shandwick Square MileRichard Hews / Rachel Taylor / Stephanie Badjonat 020 7067 0700 NOTES TO EDITORS: Avon Rubber p.l.c. is an international polymer engineeringgroup adding value through material, manufacturing and industry sectorexpertise. The Group is currently capitalised at approximately £58 million. Avon is a significant supplier to the world's automotive, engineering, dairy anddefence markets - manufacturing high performance elastomer products. This information is provided by RNS The company news service from the London Stock Exchange