Carclo Regulatory News (CAR)

4 Oct 2005 07:00

Carclo plc04 October 2005 For immediate release 4 October 2005 Carclo plc Restatement of financial information for the year ended 31 March 2005 under International Financial Reporting Standards Introduction For all accounting periods up to and including the year ended 31 March 2005Carclo plc ('Carclo') has prepared its financial statements under UK GenerallyAccepted Accounting Principles ('UK GAAP'). For accounting periods from 1 April2005, the group is required to prepare its consolidated financial statements inaccordance with International Financial Reporting Standards ('IFRS') as endorsedby the European Union ('EU'). Carclo's first results under this basis will be its interim results for the sixmonths ended 30 September 2005. The group's first annual report under IFRS willbe for the year ended 31 March 2006. As comparative figures are provided, theeffective date for transition to IFRS is 1 April 2004. Impact of IFRS Restatement The impact of IFRS restatement on Carclo's financial statements for the yearended 31 March 2005 is summarised below: • Profit from operations of £4.1million compared to £2.5million. Increase largely due to the reversal of SSAP 24 pension charges, net of IAS 19 pension costs, and write-back of goodwill amortisation • Profit before tax of £3.7million compared to £1.7million • Basic earnings per share of 7.3p compared to 3.9p • UK GAAP net assets of £48.2million reduced to £19.9million under IFRS, substantially due to the removal of the SSAP 24 pension prepayment and the inclusion of the IAS 19 accounting deficit relating to the group pension schemes • Cash inflows remaining unchanged at £1.4million This summary provides an analysis of the effects of the change from UK GAAP toIFRS on Carclo's financial statements, including: • Summary of the basis of preparation of the IFRS information • Summary of the impact of IFRS adoption on Carclo • Summary of the significant changes in accounting policies • Accounting policies revised under IFRS (Appendix 1) • Restated primary statements for the 6 months ended 30 September 2004 and the year ended 31 March 2005 (Appendix 2) • Reconciliations of profit and equity for those periods (Appendix 3) • Special Purpose Review Report of KPMG Audit plc to Carclo plc (Appendix 4) - Ends - Enquiries: Carclo plc 01924 268040Ian Williamson, Chief ExecutiveRobert Brooksbank, Finance Director Weber Shandwick Square Mile 020 7067 0700Richard HewsSusanne Walker Notes to editors • Carclo plc is a global supplier of technical plastic products. It is a public company whose shares are quoted on the London Stock Exchange. • 64% of sales, on a pro forma basis, are derived from the supply of fine tolerance, injection moulded plastic components, which are used in medical, telecom and electronics products. This business, Carclo Technical Plastics, operates internationally in a fast growing and dynamic market underpinned by rapid technological development. • 36% of sales, on a pro forma basis, are derived from the supply of Precision Products to the automotive and aerospace industries. • Carclo's strategy is to grow rapidly in low cost manufacturing regions and to develop new technologies and products to underpin future growth. Basis of preparation of IFRS information This financial information has been prepared in accordance with IFRS publishedby 31 March 2005 as endorsed by the EU, with the exception of the amendment toIAS 19, and applying to periods beginning on or after 1 January 2005. The grouphas adopted early the amendment to IAS 19 (Employee Benefits) published inDecember 2004. These amendments, if endorsed by the EU, will be effective foraccounting periods commencing on or after 1 January 2006, with earlier adoptionencouraged by the International Accounting Standards Board ('IASB'). A summary of the group's IFRS accounting policies is detailed in Appendix 1. The adopted IFRS that will be effective (or available for early adoption) in thefinancial statements for the year ending 31 March 2006 are still subject tochange and to additional interpretations and therefore cannot be determined withcertainty. Accordingly, the accounting policies for that period will bedetermined finally only when the financial statements are prepared for the yearending 31 March 2006. The preliminary IFRS financial information set out on pages 14 to 23 does notconstitute the group's statutory accounts for the year ended 31 March 2005.Those accounts which were prepared under UK GAAP, have been reported on by thegroup's then auditors (Ernst & Young LLP); their report was unqualified and didnot contain statements under section 237(2) or (3) of the Companies Act 1985.The accounts for the year ended 31 March 2005 have been delivered to theregistrar of companies. Transitional arrangements The rules for first time adoption of IFRS are set out in IFRS 1 'First TimeAdoption of International Financial Reporting Standards'. In general a companyis required to define its IFRS accounting policies and apply theseretrospectively to determine its opening balance sheet under IFRS. The standardallows a number of exceptions to this general principle to assist companies asthey transition to reporting under IFRS. Where the group has taken advantage ofthese exemptions they are noted within the accounting policies section. No adjustments have been made for any changes in estimates made at the time ofapproval of the UK GAAP financial statements on which the preliminary IFRSfinancial statements are based, as required by IFRS 1. The financial information for the year ended 31 March 2005, as prepared on theabove basis, has been reviewed by KPMG Audit Plc. Their Special Purpose ReviewReport to Carclo is set out in Appendix 4. The half year information isunaudited. Subject to EU endorsement of IAS 19 (revised) and no further changes from theIASB or changes in the interpretation of those standards, this information isexpected to form the basis for comparatives when reporting financial results for2006, and for subsequent reporting periods. Summary of the impact of IFRS adoption on Carclo Based on the accounting policies detailed in Appendix 1, the impact of thetransition on the key performance indicators is as follows: 31 March 2005 30 September 2004 UK GAAP IFRS UK GAAP IFRS £'000 £'000 £'000 £'000Underlying operating profit* 4,574 5,112 1,647 1,866Operating profit 2,494 4,074 785 1,525Profit before tax 1,681 3,681 1,248 2,192Basic earnings per share 3.9p 7.3p 2.4p 4.0pDiluted earnings per share 3.9p 7.3p 2.4p 4.0pNet assets 48,231 19,930 47,805 23,294*before goodwill amortisation and exceptional charges in order to demonstratethe progress of the group. The detailed reconciliations of the movements for the Income Statement andBalance Sheet are given in Appendix 3. The changes in policies that have the most significant effects on the restatednumbers for the year ended 31 March 2005, are: • The cessation of goodwill amortisation • The recognition of the pension scheme deficit on the Balance Sheet • The recognition of deferred tax assets relating to that deficit and of deferred tax liabilities in respect of asset revaluations • The inclusion of the charge to the Income Statement based on the fair value of existing share option schemes. • The recognition of dividends as a deduction from equity only once declared or paid • The equity accounting of joint venture interests Significant changes in accounting policies and impact on the financialstatements for the year ended 31 March 2005 The following narrative covers the year to 31 March 2005 illustrating the natureof the changes and providing an analysis of their magnitude. The appendices givefull and detailed reconciliations for the six months to 30 September 2004 andthe year ended 31 March 2005. Glossary of terms This narrative includes the following terms: Transition date 1 April 2004 being the effective date of transition to IFRS.IAS 19 Current Service Cost The increase in the present value of the defined benefit obligation resulting from employee service in the current period.IAS 19 Interest Cost The increase during a period in the present value of a defined benefit obligation, which arises because the benefits are one period closer to settlement.Actuarial Gains and Losses These comprise the effects of differences between the previous actuarial assumptions and what has actually occurred and the effects of actuarial assumption changes. IFRS 3 - Business Combinations IFRS 3 requires that goodwill be capitalised at cost and then be subject to anannual impairment review. The amortisation of goodwill as provided under UK GAAPis prohibited. The goodwill carried by Carclo relates to the acquisitions of Technical Plasticsbusinesses. Carclo has taken the option provided by IFRS 1 to apply IFRS 3 BusinessCombinations prospectively from the transition date, rather than restate earlierbusiness combinations. Goodwill has therefore been frozen at UK GAAP net bookvalue on 1 April 2004, and amortisation has ceased from this date. Goodwillarising prior to 31 March 1998 and previously written off to reserves has notbeen reinstated. The operating profit impact for 2004/2005 is the elimination of the amortisationcharge resulting in a credit of £1.0million with a corresponding increase in netassets. There is no associated tax impact. Goodwill has been reviewed and subjected to impairment testing at 31 March 2004and 31 March 2005 and it has been concluded that there was no impairment inthose periods hence there is no attendant charge to the income statement. IAS 21 The Effects Of Changes In Foreign Exchange Rates requires goodwill to beretranslated annually. The effect of this at 31 March 2004 has been to decreasegoodwill by £1.4million with an increase of £0.3million from this point over theyear to 31 March 2005. IAS 19 - Employee Benefits The application of SSAP 24 to the group's defined benefit pension schemes hashistorically resulted in a balance sheet prepayment, which amounted to£13.1million at 31 March 2004. This prepayment is eliminated and the IAS 19pension deficit recognised on the balance sheet. IAS 19 applies stricter andmore prudent assumptions in calculating the pension scheme assets andliabilities. For Carclo this has given rise to a £21.6million deficit at 31March 2004 (gross of deferred tax asset), which had risen to £26.6million by 31March 2005. The basis for this calculation is comparing the pension fund assets(measured at fair value) and liabilities (measured on an actuarial basis andthen discounted to the present value). A deferred tax asset in respect of the IAS 19 deficit is recognised at theprevailing rate, and at 31 March 2004 this was £6.5million, increasing to£8.0million by 31 March 2005. The effect of this on the income statement is to replace the previous SSAP 24charge with a net IAS 19 charge comprising the current service cost, theinterest on scheme liabilities and the expected return on pension fund assets.The application of this has resulted in an overall net credit to the incomestatement of £1.0million for the year ended 31 March 2005 gross of thecorresponding reduction in the deferred tax asset of £0.3million for the sameperiod. Additionally there will be a further charge or credit in respect of theunrealised actuarial movement arising from the actuarial revaluation of fundassets and liabilities at the end of each year. The group policy is to recogniseactuarial gains and losses in full as they arise in the statement of recognisedincome and expense as allowed by the December 2004 amendment to IAS 19. The total effect on the balance sheet is the recognition of a liability of£26.6million at 31 March 2005 and a deferred tax asset of £8.0million at thesame date. IAS 12 - Income Taxes IAS 12 requires that full provision be made for temporary differences betweenthe carrying amount and tax bases of assets and liabilities subject to certainexceptions. In addition deferred tax assets and liabilities must be disclosedseparately on the Balance Sheet. A deferred tax asset of £8.0million was created as a result of the adoption ofIAS 19 as discussed above. The deferred tax asset relating to decelerated capital allowances that waspreviously offset against deferred tax liabilities has been reclassified with anincrease in deferred tax assets of £1.9million at 31 March 2005 and an identicalincrease in deferred tax liabilities. Provision has been made for deferred tax liabilities relating to temporarydifferences between the carrying amount and tax bases of assets, the effect at31 March 2005 being to recognise an increased liability of £0.4million. Thisrelates to £0.2million in relation to potentially taxable gains being rolledover into replacement assets and £0.2million in respect of the tax that wouldarise if the group's revalued properties were sold for their revalued amounts. IAS 39 - Financial instruments: Recognition and Measurement IAS 39 addresses the accounting for financial instruments. The group has chosen to retrospectively apply this standard in full. The majority of the group's hedging transactions relate to that of hedging theexchange risk relating to overseas subsidiaries. The group has prepared thenecessary documentation to maintain and test the effectiveness of these hedges.As a result adopting hedge accounting under IAS 39 in respect of the overseassubsidiaries has had no effect on net assets or operating profit as at 31 March2005. The group also uses financial instruments to mitigate the exchange risk ofindividual foreign currency transactions. These have been recognised in thebalance sheet but do not have any effect on net assets or operating profit as at31 March 2005. A review was performed throughout the group to determine the existence of anyembedded derivatives. These are items within loan instruments, commercialcontracts and/or leases that contain implicit or explicit terms causing some ofthe cash flows in the contract to behave in the same way as those of stand alonederivatives. Under IAS 39 the derivative element must be accounted forseparately from the main contract. There was no evidence of any such embeddedderivatives existing within the group. IFRS 2 - Share-based Payment In accordance with IFRS 2, Carclo has recognised a charge for the Executive andDiscretionary Share Option Schemes in respect of options granted after 7November 2002. The fair value of the share options granted in respect of theseschemes has been calculated using the binomial option-pricing model. The chargeis spread over the vesting period and is adjusted to reflect the actual andexpected level of vesting. The operating profit impact for 2005 is a charge of £49,000. Employee costs relating to share options are expensed and their accountingcarrying value is therefore nil at the end of a reporting period. An estimate ofthe tax base at the end of the period is determined by multiplying an option'sintrinsic value (the difference between the market value of the related shareand the exercise price at the reporting date) by the vesting period that haslapsed. The deductible temporary difference results in the recognition of adeferred tax asset. The deferred tax asset at 31 March 2005 is £26,000. The excess of the total expected tax benefit over the cumulative share-basedpayment expense at the current corporation tax rate of £6,000 is recognised inequity with the balance of £20,000 recognised in the income statement. IAS 10 - Events After the Balance Sheet Date Under IAS 10 only dividends declared before the Balance Sheet date can bereflected in the accounts. As a result of this the final dividend payable in respect of the financial yearended 31 March 2005 cannot be recognised, as it was not declared before thebalance sheet date. The impact therefore, is to increase the net assets of theopening balance sheet by £0.4million and as at 31 March 2005 by the same amount. IAS 31 - Accounting For Joint Ventures Under UK GAAP, gross equity accounting was applied in relation to the group'sjoint venture Conductive Inkjet Technology Limited ("CIT") and as a result thegroup's share of that joint venture's gross assets and liabilities wasrecognised. IAS 31 at present allows both proportional consolidation and equity accounting.The group has opted to use the equity accounting method, whereby the investmentis recorded at cost and the carrying amount is increased or decreased torecognise the group's share of the profit or loss. The impact of this within Carclo's income statement has been to remove thelosses previously charged against income under UK GAAP by £148,000 in respect ofCIT in the periods up to 31 March 2005, as this amount is now required to beoffset against the carrying value of the investment. IAS 1 - Presentation Of Financial Statements IAS 1 details the method of presentation of financial statements prepared underIFRS. The changes from the traditional UK GAAP requirements are not significantand are discussed in the above explanations of the effects of IFRS where theyapply to those particular standards. Under UK GAAP Carclo disclosed both operating and non-operating exceptionalitems. IAS 1 does not use the word exceptional, requiring instead the disclosureof items that are unusual in size, nature and incidence either on the face ofthe income statement or within the notes. To assist the reader and for the purposes of consistency, Carclo will continueto disclose separately items such as reorganisation costs and profits or lossesfrom the sales of property on the face of the published income statement. IAS 14 - Segmental Reporting Historically Carclo has reported two segments, Technical Plastics and SpecialistWire. Following 31 March 2005 the group disposed of ECC Card Clothing whichcomprised the significant proportion of the Specialist Wire business. As a result of this, and the requirements of IAS 14 the group has performed are-evaluation of its segments to ensure that they reflect the group's risk andreturn profiles in the long term. The primary reporting segment for the group is considered to be businesssegments rather than geographic segments. This is because the nature of thegroup's products, its customers and its suppliers better reflect the key risksthat impact the group. For the purposes of this statement the group is reporting three segments.Technical Plastics comprises the group's precision trade moulding businesses andPrecision Products comprises the group's system and system manufacturingbusinesses. In addition, Card Clothing is separately disclosed to assist the reader. Conclusion The most significant effect on the accounts is that of IAS 19 Employee Benefits,which reduced net assets by £24.3million at 1 April 2004 and by £28.4million at31 March 2005 due to the removal of the SSAP 24 pension prepayment and theinclusion of the IAS 19 accounting deficit on the pension schemes together withrelated adjustments to deferred tax. IAS 19 has also affected the incomestatement reducing the pension charge by £0.7million net of deferred tax. Theaccounts have been impacted by the reversal of the goodwill charge under IFRS 3,leading to an increase in income and net assets of £1.0million. The remainingitems do not at this point in time have a significant effect on the incomestatement or balance sheet. Appendix 1 Appendix 1 provides a summary of Carclo's new accounting policies under IFRS. Accounting PoliciesThe consolidated financial information has been prepared in accordance withInternational Financial Reporting Standards as endorsed by the European Union,with the exception of the amendment to IAS 19, which the group anticipates willbe endorsed by the EU by the year-end, and applying to periods beginning on orafter 1 January 2005. A summary of the more important group accounting policiesis set out below. a) Basis of accountingThe financial statements are prepared on the historical cost basis except thatderivative financial instruments are stated at their fair value. Certain items of property, plant and equipment that had been revalued to fairvalue on or prior to 1April 2004, the date of transition to IFRS, are measuredon the basis of deemed cost, being the revalued amount at the date of thatrevaluation. Non-current assets and disposal groups held for sale are stated at the lower ofcarrying amount and fair value less costs to sell. b) Changes in accounting policyOn 1 April 2005 the group adopted IFRS. These accounts have been prepared on aconsistent basis under applicable IFRS and the effects of this transitionreported in accordance with IFRS 1 (First-time Adoption of IFRS). c) Basis of consolidationThe group's financial statements consolidate the financial statements of theCompany and its subsidiary undertakings. The results of any subsidiaries sold oracquired are included in the group income statement up to, or from, the datecontrol passes. Intra-group sales and profits are eliminated fully onconsolidation. On acquisition of a subsidiary, all of the subsidiaries separable, identifiableassets and liabilities existing at the date of acquisition are recorded at theirfair values reflecting their condition at that date. d) Joint venturesJoint ventures are those entities over whose activities the group has jointcontrol, established by contractual agreement. The group's share of profits andlosses from its joint ventures are accounted for on an equity basis and includedin the consolidated income statement. The group's share of its investments'assets and liabilities is accounted for on an equity accounted basis in theconsolidated balance sheet. e) GoodwillGoodwill arising on consolidation represents the excess of the fair value of theconsideration given over the fair value of the separable identifiable net assetsacquired. Goodwill arising on acquisition of subsidiaries, joint ventures andbusinesses is capitalised as an asset. In accordance with IFRS 1 and IFRS 3, goodwill has been frozen at its net bookvalue as at 1 April 2004 and will not be amortised. Instead, it will be subjectto an annual impairment review, with any impairment losses being recognisedimmediately in the income statement. Any goodwill arising on the acquisition of an overseas subsidiary isretranslated at the balance sheet date. Goodwill arising prior to 31 March 1998 and previously written off to reserveshas not been reinstated. f) Intangible assetsIntangible assets that are acquired by the group are stated at cost lessaccumulated amortisation (see below) and impairment losses (see accountingpolicy x). Expenditure on research activities, undertaken with the prospect of gaining newscientific or technical knowledge and understanding, is recognised in the incomestatement as an expense as incurred. Expenditure on development activities, whereby research findings are applied toa plan or design for the production of new or substantially improved productsand processes, is capitalised if the product or process is technically andcommercially feasible and the group has sufficient resources to completedevelopment. The expenditure capitalised includes the cost of materials, directlabour and an appropriate proportion of overheads. Other development expenditureis recognised in the income statement as an expense as incurred. Capitaliseddevelopment expenditure is stated at cost less accumulated amortisation (seebelow) and impairment losses (see accounting policy x). Expenditure on internally generated goodwill and brands is recognised in theincome statement as an expense as incurred. Subsequent expenditure on capitalised intangible assets is capitalised only whenit increases the future economic benefits embodied in the specific asset towhich it relates. All other expenditure is expensed as incurred. g) AmortisationIntangible assets, other than goodwill, are amortised from the date they areavailable for use. Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives of intangible assets unless such lives areindefinite. h) Property, plant and equipmentThe company has taken the option provided by IFRS 1 to use its previous UK GAAPvaluation as 'deemed cost' Depreciation on property, plant and equipment is provided using the straightline method to write off the cost or valuation less estimated residual value,using the following depreciation rates: Freehold buildings 2.5% - 5%Plant and equipment 8.33% - 33.33% No depreciation is provided on freehold land. i) LeasesLeases where the group assumes substantially all the risks and rewards ofownership are classified as finance leases. Assets financed by means of afinance lease are treated as if they had been purchased outright and thecorresponding liability to the leasing company is included as an obligationunder finance leases. Depreciation on such assets is charged to the incomestatement in accordance with the accounting policy above, over the shorter ofthe lease term and the asset life. Minimum lease payments are apportioned between the finance charge and thereduction of the outstanding liability. The finance charge is allocated to eachperiod so as to produce a constant periodic rate of interest on the remainingbalance of the liability. The interest element of payments to leasing companiesis charged to the income statement. Amounts payable under operating leases are charged to net operating expenses ona straight line basis over the lease term. j) InventoriesInventories are stated at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. The costof other inventories is based on the first-in first-out principle and includesexpenditure incurred in acquiring the inventories and bringing them to theirexisting location and condition. In the case of manufactured inventories andwork in progress, cost includes an appropriate share of overheads based onnormal operating capacity. k) Revenue recognitionRevenue from the sale of goods is recognised in the income statement when thesignificant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognised in the income statement inproportion to the stage of completion of the transaction at the balance sheetdate. The stage of completion is assessed by reference to review of workcompleted. No revenue is recognised if there are significant uncertainties regardingrecovery of the consideration due, associated costs or the possible return ofgoods, or if there is continuing managerial involvement with goods. l) Foreign currency transactionsTransactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated tosterling at the foreign exchange rate ruling at that date. Foreign exchangedifferences arising on translation are recognised in the income statement.Non-monetary assets and liabilities that are measured in terms of historicalcost in a foreign currency are translated using the exchange rate at the date ofthe transaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated to sterling at foreignexchange rates ruling at the dates the fair value was determined. m) Financial statements of foreign operationsThe assets and liabilities of foreign operations, including goodwill and fairvalue adjustments arising on consolidation, are translated to sterling atforeign exchange rates ruling at the balance sheet date. The revenues andexpenses of foreign operations are translated to sterling at rates approximatingto the foreign exchange rates ruling at the dates of the transactions. Foreignexchange differences arising on retranslation are recognised directly in aseparate component of equity. n) Net investment in foreign operationsExchange differences arising from the translation of the net investment inforeign operations, and of related hedges are taken to translation reserve. Theyare released into the income statement upon disposal. o) DividendsDividends are recorded in the group's financial statements in the period inwhich they are declared. p) Net operating expensesNet operating expenses represent administration costs incurred by the business,which are written off to the income statement as incurred. q) Net financing costsNet financing costs comprise interest payable on borrowings calculated using theeffective interest rate method, interest receivable on funds invested, dividendincome, finance charges as they relate to pensions and gains and losses onhedging instruments that are recognised in the income statement (see accountingpolicy u). Interest income is recognised in the income statement as it accrues, using theeffective interest method. Dividend income is recognised in the income statementon the date the entity's right to receive payments is established. The interestexpense component of finance lease payments is recognised in the incomestatement using the effective interest rate method. r) Cash and cash equivalentsCash and cash equivalents comprises cash balances and call deposits. Bankoverdrafts that are repayable on demand and form an integral part of the group'scash management are included as a component of cash and cash equivalents for thepurpose of the statement of cash flows. s) TaxationIncome tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in equity, in which case it isrecognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: goodwill not deductiblefor tax purposes, the initial recognition of assets or liabilities that affectneither accounting nor taxable profit, and differences relating to investmentsin subsidiaries to the extent that they will probably not reverse in theforeseeable future. The amount of deferred tax provided is based on the expectedmanner of realisation or settlement of the carrying amount of assets andliabilities, using tax rates enacted or substantively enacted at the balancesheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longer probable thatthe related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. t) Retirement benefit costsThe group operates a defined benefit pension scheme, and also makes paymentsinto defined contribution schemes for employees. The liability in respect of the defined benefit plan is the present value of thedefined benefit obligation at the balance sheet date, less the fair value of theplan assets, together with adjustments for actuarial gains/losses. In accordance with IFRS 1, the group has recognised the pension liability infull as at 1 April 2004. Actuarial gains and losses that arise subsequent to 1 April 2004 are recognisedin full with the movement recognised in the Statement of Recognised Income andExpense. Payments to the defined contribution schemes are accounted for on an accrualsbasis. Once the payments have been made the group has no further obligation. u) Financial instrumentsThe group uses derivative financial instruments to hedge its exposure to foreignexchange rate risks arising from operational activities. In accordance with itstreasury policy, the group does not hold or issue derivative financialinstruments for trading purposes. However, derivatives that do not qualify forhedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at cost. Subsequent toinitial recognition, derivative financial instruments are stated at fair value.The gain or loss on remeasurement to fair value is recognised immediately in theincome statement. However, where derivatives qualify for hedge accounting,recognition of any resultant gain or loss depends on the nature of the itembeing hedged. v) Hedge of net investment in foreign operationsThe portion of the gain or loss on an instrument used to hedge a net investmentin a foreign operation that is determined to be an effective hedge is recogniseddirectly in equity. The ineffective portion is recognised immediately in theincome statement. w) Share-based paymentCharges for employee services received in exchange for share-based payment havebeen made for all schemes granted after 7 November 2002 in accordance with IFRS2. The fair value of such options has been calculated using a binomialoption-pricing model, based upon publicly available market data at the point ofgrant. x) ImpairmentThe carrying amounts of the group's assets, other than inventories (seeaccounting policy j) and deferred tax assets (see accounting policy s), arereviewed at each balance sheet date to determine whether there is any indicationof impairment. If any such indication exists, the asset's recoverable amount isestimated. For goodwill, assets that have an indefinite useful life and intangible assetsthat are not yet available for use, the recoverable amount is estimated at eachbalance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to cash-generatingunits (group of units) and then, to reduce the carrying amount of the otherassets in the unit (group of units) on a pro rata basis. Goodwill and indefinite-lifed intangible assets were tested for impairment at 1April 2004, the date of transition to IFRS, even though no indication ofimpairment existed. Appendix 2 CONSOLIDATED INCOME STATEMENT Six months to Year to 30 September 2004 31 March 2005 (restated) (restated) £'000 £'000 Revenue 54,315 107,674 ---------- --------- Underlying operating profit 1,866 5,112 Rationalisation (341) (1,038) ---------- ---------Profit from operations 1,525 4,074 Loss on termination of operations (249) (763) Profit on sale of properties 1,457 1,462 ---------- ---------Profit before finance costs 2,733 4,773 Finance costs - net (541) (1,092) ---------- ---------Profit before tax 2,192 3,681 Tax income/(expense) (171) 45 ---------- ---------Profit after tax 2,021 3,726 ---------- --------- Earnings per share Basic 4.0p 7.3pDiluted 4.0p 7.3p Analysis of Turnover and Operating Profit Turnover Technical Plastics 30,232 58,640Precision Products 15,894 33,155Card Clothing 8,189 15,879 ---------- --------- 54,315 107,674 ========== =========Underlying Operating Profit Technical Plastics 865 2,280Precision Products 1,285 3,492Card Clothing 142 246Central (426) (906) ---------- --------- 1,866 5,112 ========== ========= CONSOLIDATED BALANCE SHEET 30 September 2004 31 March 2005 (restated) (restated) £'000 £'000 ASSETS Non-current assetsIntangible assets 15,399 15,365Investments 10 10Property, plant and equipment 36,249 36,250Deferred tax assets 7,298 9,945 ---------- ---------- 58,956 61,570 Current assetsInventories 13,836 13,685Trade and other receivables 22,741 22,193Cash and cash equivalents 7,443 9,938 ---------- ---------- 44,020 45,816 ---------- ----------Total assets 102,976 107,386 ---------- ---------- LIABILITIES Non-current liabilitiesInterest bearing loans 31,043 30,350Forward currency swaps - -Deferred tax liabilities 2,815 3,547Retirement benefit obligation 19,905 26,559Other liabilities - - ---------- ---------- 53,763 60,456 Current liabilitiesTrade and other payables 19,554 19,639Current tax liabilities 1,962 1,702Dividends payable - 204Forward currency swaps (4) 13Interest bearing loans 4,407 5,442 ---------- ---------- 25,919 27,000 ---------- ----------Total liabilities 79,682 87,456 ---------- ---------- ---------- ----------Net assets 23,294 19,930 ========== ========== SHAREHOLDERS EQUITY Ordinary share capital issued 2,594 2,594Share premium 41,772 41,772Other reserve 1,146 1,265Translation reserve 725 746Retained earnings (22,943) (26,447) ---------- ----------Total shareholders' equity 23,294 19,930 ========== ========== CONSOLIDATED CASH FLOW STATEMENT Six months to Year to 30 September 2004 31 March 2005 (restated) (restated) £'000 £'000 Cash flows from operating activities Profit before interest and taxation 2,733 4,773 Adjustments for:Amortisation of own shares 29 38Pension fund contributions in excess of service costs (244) (587)Depreciation charge 2,881 4,632Profit on disposal of property (1,457) (1,462)Profit on other plant and equipment (36) (142)Cash flows on rationalisation charged in prior year (1,103) (878)Share based payment charge 25 49 -------- -------Operating profit before working capital charges 2,828 6,423 Changes in working capital (excluding the effects of acquisition and disposal of subsidiaries)Decrease/(Increase) in inventories 50 (69)Decrease in trade and other receivables 849 2,074Decrease in trade and other payables (2,189) (2,125) -------- -------Cash generated from operations 1,538 6,303 Interest paid (809) (1,603)Tax paid 429 541 -------- -------Net cash from operating activities 1,158 5,241 Cash flows from investing activities:Purchases of property, plant and equipment (2,078) (4,012)Proceeds from sale of property, plant and equipment 2,180 2,212Purchase of share in joint venture - (95)Loan to joint venture (399) (921)Interest received 77 193 -------- -------Net cash used in investing activities (220) (2,623) Cash flows from financing activitiesRepayments of borrowings (293) (487)Finance lease principal payments (43) (96)Dividends paid to group shareholders (613) (613) -------- -------Net cash used in financing activities (949) (1,196) -------- -------Net (decrease)/increase in cash and cash equivalents (11) 1,422 Cash and cash equivalents at beginning of period 3,579 3,579 Effect of foreign exchange rate changes 71 13 -------- -------Cash and cash equivalents at end of period 3,639 5,014 ======== ======= Cash and cash equivalents comprise Cash at bank and in hand 7,443 9,938Bank overdrafts (3,804) (4,924) -------- ------- 3,639 5,014 ======== ======= CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months to Year to 30 September 2004 31 March 2005 (restated) (restated) £'000 £'000 Net gain on hedge of net investment in foreign subsidiaries 376 410 Foreign exchange translation differences 349 336 Actuarial losses on defined benefit schemes - (6,900) Amortisation and disposal of own shares 35 (75) Taxation on items taken directly to equity - 2,076 --------- --------Net income/(expense) recognised directly in equity 760 (4,153) Profit for the period 2,021 3,726 --------- --------Total recognised income/(expense) for the period 2,781 (427) ========= ======== CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Six months to Year to 30 September 2004 31 March 2005 (restated) (restated) £'000 £'000 At 1 April 2004 20,903 20,903 Exchange differences 725 746 Actuarial movement on retirement benefit obligations - (6,900) Deferred tax on actuarial movement on retirement benefit obligations - 2,070 Share based payments 25 49 Deferred tax on share based payments taken directly to equity - 6 -------- ---------Total movement recognised directly in shareholders' equity 750 (4,029) Profit attributable to ordinary shareholders 2,021 3,726 Purchase of shares in joint venture - (95) Amortisation of own shares 29 38 Ordinary dividends on equity shares (409) (613) -------- ---------At end of period 23,294 19,930 ======== ========= Appendix 3RECONCILIATION OF PROFIT SIX MONTHS TO 30 SEPTEMBER 2004 IFRS 3 IAS 19 Effect of Previously reported IFRS 2 Share- Business Employee Joint Transition to Restated under UK GAAP based Payment Combinations Benefits Venture IFRS under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 Underlying operating profit 1,647 (25) - 244 - 219 1,866 Goodwill (521) - 521 - - 521 - Rationalisation (341) - - - - - (341) --------- --------- --------- --------- --------- --------- ---------Profit from operations 785 (25) 521 244 - 740 1,525 Loss on termination of operations (249) - - - - - (249) Profit on sale of properties 1,457 - - - - - 1,457 --------- --------- --------- --------- --------- --------- ---------Profit before finance costs 1,993 (25) 521 244 - 740 2,733 Finance costs - net (745) - - 196 8 204 (541) --------- --------- --------- --------- --------- --------- ---------Profit before tax 1,248 (25) 521 440 8 944 2,192 Tax (40) 1 - (132) - (131) (171) --------- --------- --------- --------- --------- --------- ---------Profit from ordinary activities after tax 1,208 (24) 521 308 8 813 2,021 ========= ========= ========= ========= ========= ========= ========= RECONCILIATION OF PROFIT TWELVE MONTHS TO 31 MARCH 2005 IFRS 3 IAS 19 Effect of Previously reported IFRS 2 Share- Business Employee Joint Transition to Restated under UK GAAP based Payment Combinations Benefits Venture IFRS under IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 Underlying operating profit 4,574 (49) - 587 - 538 5,112 Goodwill (1,042) - 1,042 - - 1,042 - Rationalisation (1,038) - - - - - (1,038) --------- --------- --------- --------- --------- --------- ---------Profit from operations 2,494 (49) 1,042 587 - 1,580 4,074 Loss on termination of operations (763) - - - - - (763) Profit on sale of properties 1,462 - - - - - 1,462 --------- --------- --------- --------- --------- --------- ---------Profit before finance costs 3,193 (49) 1,042 587 - 1,580 4,773 Finance costs - net (1,512) - - 392 28 420 (1,092) --------- --------- --------- --------- --------- --------- ---------Profit before tax 1,681 (49) 1,042 979 28 2,000 3,681 Tax 319 20 - (294) - (274) 45 --------- --------- --------- --------- --------- --------- ---------Profit from ordinary activities after tax 2,000 (29) 1,042 685 28 1,726 3,726 ========= ========= ========= ========= ========= ========= ========= RECONCILIATION OF EQUITY AS AT 1 APRIL 2004 IAS 21 IAS 10 Effects of Events Previously Changes After IAS 31 reported IFRS 2 in IAS 39 the Accounting Effect under IAS 19 Share Foreign Financial Balance For IFRS 3 IAS 12 of Transi Restated UK Employee -based Exchange Instr Sheet Joint Business Income Reclassi -sition under GAAP Benefits Payment Rates -uments Date Ventures Combinations Taxes -fication to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ASSETSNon-current assets Intangible assets 15,939 - - (1,367) - - - - - 480 (887) 15,052 Investments 10 - - - - - - - - - - 10 Property,plant andequipment 37,716 - - - - - - - - (480) (480) 37,236 Deferredtax assets - 6,480 - - - - - - 1,325 - 7,805 7,805 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 53,665 6,480 - (1,367) - - - - 1,325 - 6,438 60,103Currentassets Inventories13,596 - - - - - - - - - - 13,596 Trade andotherreceivables24,546 - - - - - - - - - - 24,546 Cash and cashequivalents 7,693 - - - - - - - - - - 7,693 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 45,835 - - - - - - - - - - 45,835 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total assets 99,500 6,480 - (1,367) - - - - 1,325 - 6,438 105,938 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ LIABILITIESNon-currentliabilities Interest bearing loans andliabilities 31,086 - - - - - - - - - - 31,086 Deferred taxliabilities 5,522 (3,916) - - - - - - 1,725 - (2,191) 3,331 Retirementbenefitobligation(13,052) 34,651 - - - - - - - - 34,651 21,599 Net investmentin jointventure 120 - - - - - (120) - - - (120) - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 23,676 30,735 - - - - (120) - 1,725 - 32,340 56,016 Currentliabilities Tradeand other payables 22,836 - - - (20) - - - - - (20) 22,816 Currenttax liabilities 1,369 - - - - - - - - - - 1,369 Dividends payable 613 - - - - (409) - - - - (409) 204 Forwardcurrency swaps - - - - 20 - - - - - 20 20 Interest bearingloans and liabilities 4,610 - - - - - - - - - - 4,610 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 29,428 - - - - (409) - - - - (409) 29,019 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalliabilities53,104 30,735 - - - (409) (120) - 1,725 - 31,931 85,035 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Net assets46,396 (24,255) - (1,367) - 409 120 - (400) - (25,493) 20,903 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== SHAREHOLDERS EQUITY Ordinaryshare capital issued 2,594 - - - - - - - - - - 2,594 Share premium 41,772 - - - - - - - - - - 41,772 Revaluationreserve 852 - - - - - - - - (852) (852) - Other reserve 1,330 - - - - - - - - (178) (178) 1,152 ESOP reserve (1,030) - - - - - - - - 1,030 1,030 - Translation reserve - - - - - - - - - - - - Retained earnings 878 (24,255) - (1,367) - 409 120 - (400) - (25,493)(24,615) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalshareholders'equity 46,396 (24,255) - (1,367) - 409 120 - (400) - (25,493) 20,903 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== RECONCILIATION OF EQUITY AS AT 30 SEPTEMBER 2004 IAS 21 IAS 10 Effects of Events Previously Changes After IAS 31 reported IFRS 2 IAS 39 in the Accounting Effect under IAS 19 Share Financial Foreign Balance IFRS 3 For IAS 12 of Transi Restated UK Employee -based Instr Exchange Sheet Business Joint Income Reclassi -sition under GAAP Benefits Payment -uments Rates Date Combinations Ventures Taxes -fication to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ASSETSNon-current assets Intangibleassets 15,418 - - - (1,018) - 521 - - 478 (19) 15,399 Investments 10 - - - - - - - - - - 10 Property,plant andequipment 36,727 - - - - - - - - (478) (478) 36,249 Deferred taxassets - 5,972 1 - - - - - 1,325 - 7,298 7,298 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 52,155 5,972 1 - (1,018) - 521 - 1,325 - 6,801 58,956 Current assetsInventories13,836 - - - - - - - - - - 13,836 Trade andotherreceivables22,741 - - - - - - - - - - 22,741 Cash and cashequivalents 7,443 - - - - - - - - - - 7,443 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 44,020 - - - - - - - - - - 44,020 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total assets 96,175 5,972 1 - (1,018) - 521 - 1,325 - 6,801 102,976 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ LIABILITIESNon-currentliabilities Interestbearing loansand liabilities31,043 - - - - - - - - - - 31,043 Forward currency swaps - - - - - - - - - - - - Deferred taxliabilities 5,382 (4,292) - - - - - - 1,725 - (2,567) 2,815 Retirementbenefitobligation(14,306) 34,211 - - - - - - - - 34,211 19,905 Net investmentin jointventure 128 - - - - - - (128) - - (128) - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 22,247 29,919 - - - - - (128) 1,725 - 31,516 53,763 Currentliabilities Trade andother payables 19,550 - - 4 - - - - - - 4 19,554 Current taxliabilities 1,962 - - - - - - - - - - 1,962 Dividends payable 204 - - - - (204) - - - - (204) - Forwardcurrency swaps - - - (4) - - - - - - (4) (4) Interestbearing loansandliabilities 4,407 - - - - - - - - - - 4,407 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 26,123 - - - - (204) - - - - (204) 25,919 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalliabilities48,370 29,919 - - - (204) - (128) 1,725 - 31,312 79,682 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Net assets 47,805 (23,947) 1 - (1,018) 204 521 128 (400) - (24,511) 23,294 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== SHAREHOLDERS EQUITY Ordinary sharecapital issued 2,594 - - - - - - - - - - 2,594 Share premium 41,772 - - - - - - - - - - 41,772 Revaluationreserve 846 - - - - - - - - (846) (846) - Other reserve 1,330 - - - - - - - - (184) (184) 1,146 ESOP reserve (1,030) - - - - - - - - 1,030 1,030 - Translationreserve - - - - 725 - - - - - 725 725 Retainedearnings 2,293 (23,947) 1 - (1,743) 204 521 128 (400) - (25,236)(22,943) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalshareholders'equity 47,805 (23,947) 1 - (1,018) 204 521 128 (400) - (24,511) 23,294 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== RECONCILIATION OF EQUITY AS AT 31 MARCH 2005 IAS 21 IAS 10 Effects of Events Previously Changes After IAS 31 reported IFRS 2 IAS 39 in the Accounting Effect under IAS 19 Share Financial Foreign Balance IFRS 3 For IAS 12 of Transi Restated UK Employee -based Instr Exchange Sheet Business Joint Income Reclassi -sition under GAAP Benefits Payment -uments Rates Date Combinations Ventures Taxes -fication to IFRS IFRS £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ASSETSNon-current assets Intangibleassets 14,897 - - - (1,031) - 1,042 - - 457 468 15,365 Investments 10 - - - - - - - - - - 10 Property,plant andequipment 36,707 - - - - - - - - (457) (457) 36,250 Deferred taxassets - 7,968 26 - - - - - 1,951 - 9,945 9,945 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 51,614 7,968 26 - (1,031) - 1,042 - 1,951 - 9,956 61,570 Current assets Inventories13,685 - - - - - - - - - - 13,685 Trade andotherreceivables22,193 - - - - - - - - - - 22,193 Cash and cashequivalents 9,938 - - - - - - - - - - 9,938 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 45,816 - - - - - - - - - - 45,816 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Total assets 97,430 7,968 26 - (1,031) - 1,042 - 1,951 - 9,956 107,386 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ LIABILITIESNon-current liabilities Interestbearing loansandliabilities30,350 - - - - - - - - - - 30,350 Forward currency swaps - - - - - - - - - - - - Deferred taxliabilities 5,400 (4,204) - - - - - - 2,351 - (1,853) 3,547 Retirementbenefitobligation(14,013) 40,572 - - - - - - - - 40,572 26,559 Net investmentin jointventure 53 - - - - - - (53) - - (53) - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 21,790 36,368 - - - - - (53) 2,351 - 38,666 60,456 Currentliabilities Trade andother payables 19,652 - - (13) - - - - - - (13) 19,639 Current taxliabilities 1,702 - - - - - - - - - - 1,702 Dividendspayable 613 - - - - (409) - - - - (409) 204 Forwardcurrency swaps - - - 13 - - - - - - 13 13 Interestbearing loansandliabilities 5,442 - - - - - - - - - - 5,442 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 27,409 - - - - (409) - - - - (409) 27,000 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalliabilities49,199 36,368 - - - (409) - (53) 2,351 - 38,257 87,456 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Net assets 48,231 (28,400) 26 - (1,031) 409 1,042 53 (400) - (28,301) 19,930 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== SHAREHOLDERS EQUITY Ordinary sharecapital issued 2,594 - - - - - - - - - - 2,594 Share premium 41,772 - - - - - - - - - - 41,772 Revaluationreserve 840 - - - - - - - - (840) (840) - Other reserve 1,330 - - - - - - - - (65) (65) 1,265 ESOP reserve (905) - - - - - - - - 905 905 - Translationreserve - - - - 746 - - - - - 746 746 Retainedearnings 2,600 (28,400) 26 - (1,777) 409 1,042 53 (400) - (29,047)(26,447) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Totalshareholders'equity 48,231 (28,400) 26 - (1,031) 409 1,042 53 (400) - (28,301) 19,930 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Appendix 4 Special Purpose Review Report of KPMG Audit Plc to Carclo plc ("the Company") onInternational Financial Reporting Standards ("IFRS") adjustments included withinits Preliminary IFRS Financial Statements In accordance with the terms of our engagement letter dated 3 October 2005, wehave reviewed the IFRS adjustments included within the accompanying consolidatedpreliminary IFRS balance sheet of the Company as at 31 March 2005, and therelated consolidated statements of income, changes in equity and cash flows forthe year then ended and the related accounting policy notes ("the preliminaryIFRS financial statements") set out on in Appendix 1 and Appendix 2. Respective responsibilities of directors and KPMG Audit Plc The directors of the Company have accepted responsibility for the preparation ofthe preliminary IFRS financial statements which have been prepared as part ofthe Company's conversion to IFRS. Our responsibilities under the terms of engagement are to report to you ourreview conclusion as to whether we are aware of any material modifications thatshould be made to the IFRS adjustments which have been prepared, in all materialrespects, in accordance with the basis of preparation and accounting policiesnote to the preliminary IFRS financial statements. We were not the auditors of the Company for the financial year ended 31 March2005 and therefore have not audited the financial statements for that year thenended, which were prepared under UK GAAP and form the basis for the preparationof the preliminary IFRS financial statements. As a result, we have not performedan audit of the preliminary IFRS financial statements and do not express anaudit opinion on such information. We read the other information accompanying the preliminary IFRS financialstatements and consider whether it is consistent with the preliminary IFRSfinancial statements. We consider the implications for our review conclusion ifwe become aware of any apparent misstatements or material inconsistencies withthe preliminary IFRS financial statements. Our report has been prepared for the Company solely in connection with theCompany's conversion to IFRS. Our report was designed to meet the agreed requirements of the Companydetermined by the Company's needs at the time. Our report should not thereforebe regarded as suitable to be used or relied on by any party wishing to acquirerights against us other than the Company for any purpose or in any context. Anyparty other than the Company who chooses to rely on our report (or any part ofit) will do so at its own risk. To the fullest extent permitted by law, KPMGAudit Plc will accept no responsibility or liability in respect of our report toany other party. Basis of review conclusion We conducted our review having regard to the International Standard on ReviewEngagements 2400 issued by the International Federation of Accountants. ThatStandard requires that we plan and perform the review to obtain moderateassurance as to whether the IFRS adjustments are free of material misstatement.A review is substantially less in scope than an audit performed in accordancewith Auditing Standards and therefore provides a lower level of assurance thanan audit. We do not express an audit opinion on the preliminary IFRS interimfinancial statements or on the IFRS adjustments. In carrying out our review we performed the following procedures: •We considered the differences between the proposed IFRS accounting policies set out in Appendix 1, which the directors have applied in preparing the preliminary IFRS financial statements and those UK GAAP accounting policies that the directors had previously adopted in preparing the Company's UK GAAP consolidated financial statements of the Company for the year ended 31 March 2005. •We reviewed the IFRS adjustments that the directors have made within the preliminary IFRS financial statements considering the changes made from UK GAAP to IFRS accounting policies. •Based upon our knowledge of the Company, we considered whether or not there are any additional IFRS adjustments that should have been recorded. •As we have not previously audited the UK GAAP amounts in respect of the balance sheet of the Company either at 31 March 2004 nor 2005, in order to be able to give the review conclusion below we have also carried out testing in order to meet the requirements of the Statement of Auditing Standards 450 Opening balances and comparatives, in so far as they relate to the IFRS adjustments. Emphasis of matters Without qualifying our review conclusion, we draw your attention to thefollowing matters: •The basis of preparation note to the preliminary IFRS financial statements explains why the accompanying preliminary IFRS financial statements may require adjustment before its inclusion as comparative information in the IFRS financial statements for the year ending 31 March 2006 when the Company prepares its first IFRS consolidated financial statements. •As described in the basis of preparation to the preliminary IFRS financial statements, as part of its conversion to IFRS, the Company has prepared the preliminary IFRS financial statements for the year ended 31 March 2005 to establish the financial position, results of operations and cash flows of the Company necessary to provide the comparative financial statements expected to be included in the Company's first complete set of IFRS financial statements for the year ending 31 March 2006. The preliminary IFRS financial statements do not themselves include comparative financial information for the prior period. •As explained in the basis of preparation note, in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, no adjustments have been made for any changes in estimates made at the time of approval of the previous UK GAAP financial statements of the Company for the year ended 31 March 2005 on which the preliminary IFRS financial statements are based. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the IFRS adjustments included within the preliminary IFRSfinancial statements as presented for the year ended 31 March 2005 which hasbeen prepared, in all material respects, in accordance with the basis set out inthe accounting policy note, which describes how IFRS have been applied underIFRS 1, including the assumptions made by the directors of the Company about thestandards and interpretations expected to be effective, and the policiesexpected to be adopted, when they prepare the first complete set of consolidatedIFRS financial statements of the Company for the year ending 31 March 2006. KPMG Audit PlcChartered accountants4 October 2005 This information is provided by RNS The company news service from the London Stock Exchange