CPS.L Regulatory News (CPS)

24 Jan 2006 07:01

CPL Resources PLC24 January 2006 CPL RESOURCES PLC Restatement of June 2005 Results under International Financial Reporting Standards 20 January 2006 1. Summary of impact on key financial information The following table summarises the impact of the transition to IFRS on theGroup's key consolidated financial information for the year ended 30 June 2005. Irish GAAP IFRS •'000 •'000Revenue 105,265 105,265Profit before tax 5,444 5,782 *Basic earnings per share (EPS) 13.0 cent 13.9 centAdjusted EPS ** 13.9 cent 13.9 centFully diluted EPS 12.8 cent 13.8 cent * The reason for the change in the profit before tax is the reversal of goodwill amortisation. ** Adjusted EPS takes into account the reversal of goodwill amortisation. 2. Overview The council of the European Union announced in June 2002 that listed groups mustadopt EU endorsed International Financial Reporting Standards (IFRS) in theirconsolidated financial statements for periods commencing on or after 1 January2005. However, as CPL Resources Plc (the Group) is listed on the IrishEnterprise Exchange, IFRS implementation is not mandatory for the Group until 1January 2008 but the Group has opted for early adoption. Accordingly, the Groupwill publish its 30 June 2006 consolidated financial statements in accordancewith EU endorsed IFRS. The Group's date of transition to IFRS is 1 July 2004.The Group's interim financial information for the six months ended 31 December2005 will be prepared in accordance with the recognition and measurementprinciples of IFRS. The results shown in this document for the six month periodended 31 December 2004, and the year ended 30 June 2005 have been restated toreflect the recognition and measurement principles of IFRS on a consistentbasis. This document outlines the impact of the transition to IFRS and the key changesarising for the Group. It also provides a detailed reconciliation of the Group'sfinancial information as previously reported under Irish GAAP and as restated inaccordance with the recognition and measurement principles of IFRS expected tobe applied in the full year consolidated financial statements to 30 June 2006. The restated interim financial information for the six months ended 31 December2004 is unaudited. The restatement of the preliminary financial information forthe year ended 30 June 2005 has been audited by the Group's auditors, KPMG,Chartered Accountants. Their audit opinion in this regard is set out in Appendix 5. This document deals with the transition to IFRS under the following sections: • Basis of preparation of financial statements under IFRS • Principal exemptions availed of on transition to IFRS • Review of main changes arising on transition to IFRS The impact of the transition to IFRS on reported performance, financial positionand other key financial information previously reported under Irish GAAP is setout in the attached appendices. 3. Basis of preparation of financial statements under IFRS This preliminary financial information comprising the consolidated preliminaryIFRS balance sheet of the Company and its subsidiaries at 1 July 2004, 31December 2004 and 30 June 2005, the consolidated preliminary IFRS incomestatements for the year ended 30 June 2005 and the six month period ended 31December 2004, has been prepared on the basis of the recognition and measurementrequirements of IFRSs in issue that either are adopted by the EU and effective(or available for early adoption) at 30 June 2006 or are expected to be adoptedand effective (or available for early adoption) at 30 June 2006, the Group'sfirst annual reporting date at which it will 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 end 30 June 2006. The accounting standards adopted by the EU that will be effective (or availablefor early adoption) in the annual financial statements for the year ending 30June 2006 are still subject to change and to additional interpretations andtherefore cannot be determined with certainty. Accordingly, the accountingpolicies will only be finally determined when the annual financial statementsare prepared for the year ended 30 June 2006. The provisional group accountingpolicies used in the preparation of this document are set on in Appendix 4. Details of the exemptions availed of on transition to IFRS are set out inSection 4. No adjustments have been made for any changes in estimates made atthe time of approval of the 2005 consolidated financial statements. 4. Principal exemptions availed of on transition to IFRS IFRS 1, "First-time adoption of International Financial Reporting Standards",sets out the procedure that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements. TheGroup is required to establish its IFRS accounting policies for the year ended30 June 2006 and, in general, apply these retrospectively to determine the IFRSopening balance sheet at the transition date of 1 July 2004. The standardpermits a number of specified exemptions from the general principle ofretrospective restatement and the Group has elected, in common with most otherlisted companies, to avail of a number of these exemptions as follows: (i) Business combinations The Group has chosen not to restate business combinations that occurred prior tothe transition date of 1 July 2004. As a result, goodwill at the transition dateis carried forward at its net book value and, together with goodwill arising onbusiness combinations after the transition date, is subject to annual impairmenttesting in accordance with IAS 36 "Impairment of Assets". As required by IFRS 1,goodwill was assessed for impairment as at the transition date and no impairmentcharges resulted from this exercise. (ii) Share-based payment The Group has availed of the transitional arrangements, which permit therecognition and measurement principles of IFRS 2, "Share based Payment" to beapplied only to options granted after 7 November 2002. (iii) Financial instruments The group is applying IAS 32, "Financial Instruments; Presentation andDisclosure" and IAS 39, "Financial Instruments: Recognition and Measurement"from 1 July 2005. Consequently, financial instruments are recognised inaccordance with Irish GAAP in the 2005 (interim and full year) financialinformation. However, there will be no material impact on the financialreporting of the Group on adoption of these standards. 5. Review of main changes arising on transition to IFRS The most significant changes arising from the transition to IFRS from Irish GAAPare described in the following paragraphs. The impact of these changes on theGroup's 2005 full year and interim income statements and balance sheets is setout in Appendix 3 and is based on the provisional group accounting policies asset out in Appendix 4. (i) IFRS 3 "Business Combinations" Under Irish GAAP, goodwill recognised on acquisitions made after 1997 wasamortised over its useful life of 20 years. Under IFRS 3, goodwill is no longeramortised but instead is subject to annual impairment testing. At 1 July 2004,the transition date, the Group held a net goodwill asset of €5.5 million whichis carried forward at its net book value and, together with goodwill arising onbusiness combinations subsequent to the transition date, is subject to annualimpairment testing in accordance with IAS 36, "Impairment of Assets". As aresult, the 2005 charge of €338,000 under Irish GAAP for goodwill amortisationis not charged under IFRS and results in an increase in pre-tax profit. Under Irish GAAP, the Group previously reversed the goodwill amortisation chargeto determine adjusted earnings per share. This change, therefore, moreappropriately aligns the accounting treatment of goodwill with the Group'spresentation of the underlying earnings performance of the business. At 30 June 2005, impairment reviews were performed on goodwill and no impairmentcharges resulted from this exercise. (ii) Dividend recognition Under IAS 10, "Events after the balance sheet date", proposed dividends are notrecognised. Consequently, the proposed dividends of €221,000 and €368,000provided in the balance sheets at 1 July 2004 and 30 June 2005 respectively, asoriginally prepared under Irish GAAP, have been reversed in the IFRS balancesheets. These are purely timing differences as both of these dividends weresubsequently paid. (iii) IAS 38 "Intangible assets" Under Irish GAAP, computer software was previously capitalised as a tangiblefixed asset. Under IAS 38, computer software that is not an integral part of anitem of computer hardware is capitalised as an intangible asset. The net bookvalue of computer software at 1 July 2004 (€93,000), 31 December 2004 (€113,000)and 30 June 2005 (€167,000) has been reclassified from property, plant andequipment to intangible assets in the balance sheet. There is no impact on theincome statement. Appendix 1 Restated income statements IFRS IFRS Irish GAAP Half Year ended Year ended Year ended 31 December 2004 30 June 2005 30 June 2005 (Unaudited) (Audited) (Audited) •'000 •'000 •'000 Group revenue 49,619 105,265 105,265Cost of sales (40,326) (85,193) (85,193) Gross profit 9,293 20,072 20,072Administrative expenses (6,127) (12,845) (13,183)Distribution expenses (621) (1,528) (1,528) Operating profit 2,545 5,699 5,361 Financial income 33 108 108Financial expenses (5) (25) (25) Profit before tax 2,573 5,782 5,444Income tax (359) (666) (666) Profit for the financial period 2,214 5,116 4,778 Basic earnings per share 6.0 cent 13.9 cent 13.0 cent Fully diluted earnings per share 6.0 cent 13.8 cent 12.8 cent Appendix 2 Restated balance sheets IFRS IFRS IFRS 1 July 2004 31 December 2004 30 June 2005 •'000 •'000 •'000AssetsNon-current assetsGoodwill 5,527 5,527 5,622Intangible assets 93 113 167Property, plant andequipment 877 866 811Total non-current assets 6,497 6,506 6,600 Current assetsTrade and other receivables 11,789 13,086 13,372Cash and cash equivalents 6,689 7,497 11,661Total current assets 18,478 20,583 25,033 Total assets 24,975 27,089 31,633 EquityIssued capital 3,677 3,677 3,688Share premium 1,656 1,656 1,671Capital conversionreserve fund 57 57 57Merger reserve (3,357) (3,357) (3,357)Retained earnings 13,451 15,444 18,051Total equity 15,484 17,477 20,110 LiabilitiesNon-current liabilitiesFinancial liabilities 309 311 300Provisions 250 178 111Total non-currentliabilities 559 489 411 Current liabilitiesFinancial liabilities 1,051 16 16Trade and other payables 7,612 8,927 10,892Corporation tax payable 155 58 85Provisions 114 122 119Total current liabilities 8,932 9,123 11,112 Total liabilities 9,491 9,612 11,523 Total equityandliabilities 24,975 27,089 31,633 Appendix 3 Reconciliations of Irish GAAP to IFRS 3.1 Consolidated income statement for the year ended 30 June 2005 (audited) Original Reversal Restated under Irish GAAP of goodwill under IFRS 30 June 2005 amortisation 30 June 2005 •'000 •'000 •'000 Group revenue 105,265 - 105,265Cost of sales (85,193) - (85,193) Gross profit 20,072 - 20,072Administrative expenses (13,183) 338 (12,845)Distribution expenses (1,528) - (1,528) Operating profit 5,361 338 5,699 Financial income 108 - 108Financial expenses (25) - (25) Profit before tax 5,444 338 5,782Income tax expense (666) - (666) Profit for the financial year 4,778 338 5,116 Attributable to Equity holders of the parent 4,778 5,116 Basic earnings per share 13.0 13.9 Adjusted earnings pershare 13.9 13.9 Fully diluted earnings pershare 12.8 13.8 2. Consolidated balance sheet as at 30 June 2005 (audited) Original Dividends Reversal Software Restated under Irish Proposed of goodwill Reclassified under IFRS GAAP •'000 amortisation •'000 30 June 30 June 2005 •'000 2005 •'000 •'000AssetsNon-current assetsGoodwill 5,284 338 5,622Intangible assets - - - 167 167Property, plant andequipment 978 - - (167) 811Total non-currentassets 6,262 - 338 - 6,600 Current assetsTrade and otherreceivables 13,372 - - - 13,372Cash and cashequivalents 11,661 - - - 11,661Total current assets 25,033 - - - 25,033 Total assets 31,295 - 338 - 31,633 EquityIssued capital 3,688 - - - 3,688Share premium 1,671 - - - 1,671Capital conversionreserve fund 57 - - - 57Merger reserve (3,357) - - - (3,357)Retained earnings 17,345 368 338 - 18,051Total equity 19,404 368 338 - 20,110 LiabilitiesNon-current liabilitiesFinancial liabilities 300 - - - 300Provisions 111 - - - 111Total non-currentliabilities 411 - - - 411 Current liabilitiesFinancial liabilities 16 - - - 16Trade and other payables 11,260 - - - 10,892Corporationtax payable 85 - - - 85Provisions 119 (368) - - 119Total currentliabilities 11,480 (368) - - 11,112 Total liabilities 11,891 (368) - - 11,523 Total equity andliabilities 31,295 - 338 - 31,633 3. Consolidated IFRS transition balance sheet as at 1 July 2004 (audited) Original Dividends Software Restated under Irish GAAP Proposed Reclassified under IFRS 1 July 2004 •'000 •'000 1 July 2004 •'000 •'000AssetsNon-current assetsGoodwill 5,527 - - 5,527Intangible assets - - 93 93Property, plant and equipment 970 - (93) 877Total non-currentassets 6,497 - - 6,497 Current assetsTrade and other receivables 11,789 - - 11,789Cash and cash equivalents 6,689 - - 6,689Total current assets 18,478 - - 18,478 Total assets 24,975 - - 24,975 EquityIssued capital 3,677 - - 3,677Share premium 1,656 - - 1,656Capital conversionreserve fund 57 - - 57Merger reserve (3,357) - - (3,357)Retained earnings 13,230 221 - 13,451Total equity 15,263 221 - 15,484 LiabilitiesNon-current liabilitiesFinancial liabilities 309 - - 309Provisions 250 - - 250Total non-currentliabilities 559 - - 559 Current liabilitiesFinancial liabilities 1,051 - - 1,051Trade and other payables 7,833 (221) - 7,612Corporation tax payable 155 - - 155Provisions 114 - - 114Total current liabilities 9,153 (221) - 8,932 Total liabilities 9,712 (221) - 9,491 Total equity and liabilities 24,975 - - 24,975 Appendix 4 Provisional Group Accounting Policies under IFRS Basis of preparation of financial statements under IFRS This preliminary financial information comprising the consolidated preliminaryIFRS balance sheets of the Company and its subsidiaries at 1 July 2004, 31December 2004 and 30 June 2005, the consolidated preliminary IFRS incomestatements for the year ended 30 June 2005 and the six month period ended 31December 2004, has been prepared on the basis of the recognition and measurementrequirements of IFRS's in issue that either are adopted by the EU and effective(or available for early adoption) at 30 June 2006 or are expected to be adoptedand effective (or available for early adoption) at 30 June 2006, the Group'sfirst annual reporting date at which it will 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 ended 30 June 2006. These accountingpolicies are set out below. The accounting standards adopted by the EU that will be effective (or availablefor early adoption) in the annual financial statements for the year ending 30June 2006 are still subject to change and to additional interpretations andtherefore cannot be determined with certainty. Accordingly, the accountingpolicies for 2006 will only be finally determined when the annual financialstatements are prepared for the year ending 30 June 2006. Details of the exemptions availed of on transition to IFRS are set out inSection 4. No adjustments have been made for any changes in estimates made atthe time of approval of the 2005 consolidated financial statements. Statement of compliance The consolidated financial information of the Group has been prepared inaccordance with the recognition and measurement principles of InternationalFinancial Reporting Standards (IFRS), including interpretations issued by theInternational Accounting Standards Board ("IASB") and its committees andendorsed by the European Commission. The Group's first consolidated financialstatements prepared in accordance with IFRS will be for the year ended 30 June2006. The restated 2005 preliminary financial information is subject to the issuanceby the IASB of additional interpretations prior to 30 June 2006, which couldhave a retrospective effect. As a result, it is possible that further changesmay be required to the 2005 financial information prior to its inclusion ascomparatives in the 2006 financial statements. The preparation of financial information in conformity with IFRSs requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period or in the period ofthe revision and future periods if the revision affects both current and futureperiods. The accounting policies set out below have been applied consistently to allperiods presented in these consolidated financial statements and in preparing anopening preliminary IFRS balance sheet at 1 July 2004, for the purposes of thetransition to IFRS. Basis of consolidation The restated consolidated financial information comprises the financialstatements of CPL Resources plc and its subsidiaries. Subsidiaries areconsolidated from the date on which control is transferred to the Group andcease to be consolidated from the date on which control is transferred out ofthe Group. Control exists when the company has the power, directly orindirectly, to govern the financial and operating policies of an entity so as toobtain economic benefits from its activities. Financial information ofsubsidiaries is prepared for the same reporting year as the parent company andwhere necessary, adjustments are made to the results of subsidiaries to bringtheir accounting policies into line with those used by the Group. All inter-company balances and transactions, including unrealised profitsarising from inter-group transactions, have been eliminated in full. Unrealisedlosses are eliminated in the same manner as unrealised gains, except to theextent that they provide evidence of impairment. Revenue recognition Revenue represents the fair value of amounts receivable for services provided inthe normal course of business, net of trade discounts and Value Added Tax.Revenue in respect of permanent placements is recognised when the candidatecommences employment. Revenue in respect of the group's contractors andtemporary employees is recognised when the related hours have been worked. Foreign currency translation Transactions in foreign currencies are recorded at the rate ruling at the dateof the transactions. The resulting monetary assets and liabilities aretranslated at the balance sheet rate and the exchange differences are dealt within the income statement. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulateddepreciation. Depreciation is provided on all property, plant & equipment exceptfor land which is not depreciated. Depreciation is provided on a straight linebasis at rates calculated to write off the cost less estimated residual value ofeach asset over its expected useful life as follows: Years Buildings 50Equipment 3 - 8Fixtures & fittings 10Motor vehicles 3 The residual value of assets, if not insignificant, and the useful life ofassets is reassessed annually. Gains and losses on disposals are determined by comparing the proceeds receivedwith the carrying amount and are included in operating profit. Business combinations The purchase method of accounting is employed in accounting for the acquisitionof subsidiaries by the Group. The Group has availed of the exemption under IFRS1, "First-time Adoption of International Financial Reporting Standards", wherebybusiness combinations prior to the transition date of 1 July 2004 are notrestated. IFRS 3, "Business Combinations", has been applied with effect from thetransition date of 1 July 2004 and goodwill amortisation ceased from that date. The cost of a business combination is measured as the aggregate of the fairvalue of assets given, liabilities incurred or assumed and equity instrumentsissued in exchange for control together with any directly attributable expenses.Deferred consideration arising on business combinations is determined throughdiscounting the amounts payable to their present value. The discount element isreflected as an interest charge in the income statement over the life of thedeferred payment. In the case of a business combination, the assets andliabilities are measured at their provisional fair values at the date ofacquisition. Adjustments to provisional values allocated to assets andliabilities are made within 12 months of the acquisition date and reflected as arestatement of the acquisition balance sheet. Goodwill on acquisitions is initially measured at cost being the excess of thecost of the business combination over the acquirer's interest in the net fairvalue of the identifiable assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulatedimpairment losses. Goodwill relating to acquisitions from 1 July 2004 andgoodwill carried in the balance sheet at 1 July 2004 is not amortised. Goodwillis tested for impairment annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. Goodwill arising on acquisitions prior to the date of transition toInternational Financial Reporting Standards has been retained at the previousIrish GAAP amount being its deemed cost and is tested annually for impairment. As at the acquisition date, any goodwill acquired is allocated to each of thecash-generating units acquired. Where goodwill forms part of a cash-generating unit and part of the operationwithin that unit is disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determiningthe gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured on the basis of the relative values of the operationdisposed of and the proportion of the cash-generating unit retained. Intangible assets other than goodwill Intangible assets acquired separately are capitalised at cost and intangibleassets acquired in the course of a business combination are capitalised at fairvalue being their deemed cost as at the date of acquisition. Subsequent toinitial recognition, intangible assets which have a finite life are carried atcost less any applicable accumulated amortisation and any accumulated impairmentlosses. Where amortisation is charged on assets with finite lives, this expenseis taken to the income statement. The amortisation of intangible assets iscalculated to write-off the book value of intangible assets over their usefullives on a straight-line basis. Impairment reviews and testing The carrying amounts of the Group's assets with the exception of deferred taxassets (which are recognised based on recoverability), are reviewed to determinewhether there is any indication of impairment when an event or transactionindicates that there may be, except for goodwill and long life intangibles whichare reviewed annually. If any such indication exists, an impairment test iscarried out and the asset is written down to its recoverable amount. The recoverable amount of an asset is the greater of its estimated net sellingprice and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risksspecific to the asset. For an asset that does not generate largely independentcash inflows, the recoverable amount is determined for the cash-generating unitto which the asset belongs. Goodwill and intangible assets with an indefinite useful life are tested forimpairment at each balance sheet date. Impairment losses are recognised in theincome statement. Impairment losses recognised in respect of cash-generatingunits are allocated first to reduce the carrying amount of any goodwillallocated to cash-generating units and then, to reduce the carrying amount ofthe other assets in the units on a pro rata basis. An impairment loss, otherthan in the case of goodwill, is reversed if there has been a change in theestimates used to determine the recoverable amount. An impairment loss isreversed only to the extent that the asset's carrying amount does not exceed thecarrying amount that would have been determined, net of depreciation oramortisation, if no impairment loss had been recognised. Leases Where the Group has entered into lease arrangements on land and buildings thelease payments are allocated between land and buildings and each is assessedseparately to determine whether it is a finance or operating lease. Finance leases, which transfer to the Group substantially all the risks andbenefits of ownership of the leased asset, are capitalised at the inception ofthe lease at the fair value of the leased asset or if lower, the present valueof the minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between the finance charges and reduction of the lease obligation soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to the income statement as part offinance costs. Capitalised leased assets are depreciated over the shorter of theestimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits ofownership of the assets are classified as operating leases. Operating leasepayments are recognised as an expense in the income statement on a straight linebasis over the lease term. Trade and other receivables Trade receivables, which generally have 30 to 60 day terms, are recognised andcarried at cost less an allowance for any incurred losses. An estimate ofincurred losses is made when collection of the full amount is no longerprobable. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in handand short term deposits with an original maturity of three months or less. Bankoverdrafts that are repayable on demand and form part of the Group's cashmanagement are included as a component of cash and cash equivalents for thepurpose of the statement of cashflows. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits would be required to settle the obligation.If the effect of the time value of money is material, provisions are determinedby discounting the expected future cash flows at a pre-tax rate that reflectsthe time value of money and, where appropriate, the risks specific to theliability. Where discounting is used, the increase in the provision due to thepassage of time is recognised as a borrowing cost. Pensions and other post-employment benefits Pension contributions to defined contribution pension schemes are charged to theincome statement in the period to which they relate. Financing income and expenses Financing expenses comprise interest payable on borrowings calculated using theeffective interest rate method. Finance income comprises interest received oncash deposits. Income tax Income tax for the year comprises current and deferred tax. Taxation isrecognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case the related tax is recognised inequity. Current tax is the expected tax payable on the taxable income for the year,using tax rates and laws that have been enacted or substantially enacted at thebalance sheet date, and any adjustment to tax payable in respect of previousyears. 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.Deferred tax is provided for any differences that exist between the tax base andthe carrying value of intangible assets arising from business combinations. Theamount of deferred tax provided is based on the expected manner of realisationor settlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantively enacted at the balance sheet date. If the deferred taxarises from initial recognition of an asset or liability in a transaction otherthan a business combination that at the time of the transaction does not affectaccounting or taxable profit or loss, it is not recognised. Deferred tax isprovided on temporary differences arising on investments in subsidiaries, exceptwhere the timing of the reversal of the temporary difference is controlled bythe Group and it is probable that the temporary difference will not reverse inthe foreseeable future. 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 berecovered. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Financial instruments The group is applying IAS 32 "Financial Instruments: Presentation andDisclosure" and IAS 39 "Financial Instruments: Recognition and Measurement" from1 July 2005. Consequently financial instruments are recognised in accordancewith Irish GAAP in the 2005 (interim and full year) financial information. Interest bearing borrowings Interest bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition, interestbearing borrowings are stated at amortised cost with any difference betweenoriginal carrying value and redemption value being recognised in the incomestatement over the life of the borrowings using an effective interest ratemethodology. Appendix 5 INDEPENDENT AUDITORS' REPORT TO THE DIRECTORS OF CPL RESOURCES PLC ON ITSCONSOLIDATED PRELIMINARY INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')FINANCIAL INFORMATION In accordance with the terms of our engagement letter, we have audited theaccompanying consolidated preliminary IFRS balance sheet of the Company and itssubsidiaries ('the Group') as at 30 June 2005, the related consolidatedpreliminary IFRS income statement for the year ended 30 June 2005 and relatedbasis of preparation, accounting policies and other notes as set out on pages 6to 16 ('the preliminary IFRS financial information'). Included with the preliminary IFRS financial information set out on pages 6 and7 are the consolidated preliminary balance sheet as at 31 December 2004 and therelated consolidated preliminary income statement for the six-month period thenended ('the preliminary IFRS interim financial information'). We have notaudited this preliminary IFRS interim financial information and therefore it isnot covered by this opinion. Respective responsibilities of directors and auditors The directors of the Company have accepted responsibility for the preparation ofthe preliminary IFRS financial information which has been prepared as part ofthe Group's conversion to IFRS. As part of its conversion to IFRS, the Group has prepared the preliminary IFRSfinancial information for the year ended 30 June 2005 to establish the financialposition and results of operations of the Group necessary to provide thecomparative financial information expected to be included in the Group's firstcomplete set of IFRS consolidated financial statements as at 30 June 2006. Thepreliminary IFRS financial information does not include comparative financialinformation for the prior period. As explained in the basis of preparation noteon page 11, this preliminary IFRS financial information has been prepared on thebasis of the recognition and measurement criteria of IFRSs in issue that eitherare endorsed by the EU and effective (or available for early adoption) at 30June 2006. As explained in the basis of preparation note on page 11, there is, however, apossibility that the directors may determine that some changes to these policiesare necessary when preparing the full annual financial statements for the firsttime in accordance with those IFRSs endorsed for use by the European Union. Thisis because, as disclosed in the basis of preparation note, changes may arisefrom further interpretations issued between now and the year end date which mayresult in the directors revising the accounting policies applied. The directorshave applied IFRS in accordance with IFRS 1 First-time Adoption of InternationalFinancial Reporting Standards and have taken advantage of certain exemptionsavailable in that standard. As explained in the basis of preparation note on page 11, no adjustments havebeen made for any changes in estimates made at the time of approval of the 30June 2005 consolidated financial statements under Irish generally acceptedaccounting principles on which the preliminary IFRS financial information isbased. Our responsibilities, as independent auditors, are established in Ireland by theAuditing Practices Board, our profession's ethical guidance and the terms of ourengagement. Under the terms of engagement, we are required to report to you our opinion asto whether the preliminary IFRS financial information has been properlyprepared, in all material respects, in accordance with the respective accountingpolicy notes to the preliminary IFRS financial information. We also report toyou if, in our opinion, we have not received all the information andexplanations we require for our audit. We read the other information accompanying the preliminary IFRS financialinformation and consider whether it is consistent with the preliminary IFRSfinancial information. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thepreliminary IFRS financial information. Our report has been prepared for the Company solely in connection with theCompany's conversion to IFRS. Our report was designed to meet the agreedrequirements of the Company determined by the Company's needs at the time. Ourreport should not therefore be regarded as suitable to be used or relied on byany party wishing to acquire rights against us other than the Company for anypurpose or in any context. Any party other than the Company who chooses to relyon our report (or any part of it) will do so at its own risk. To the fullestextent permitted by law, KPMG will accept no responsibility or liability inrespect of our report to any other party. Basis of audit opinion We conducted our audit having regard to Auditing Standards issued by theAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the preliminary IFRSfinancial information. It also includes an assessment of the significantestimates and judgements made by the directors in the preparation of thepreliminary IFRS financial information, and of whether the accounting policiesare appropriate to the Group's circumstances, consistently applied andadequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the preliminary IFRSfinancial information has been prepared in accordance with the basis ofpreparation note on page 11 and is free from material misstatement, whethercaused by fraud or other irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation of information in thepreliminary IFRS financial information. Opinion In our opinion, the accompanying preliminary IFRS financial information on pages6 to 16 has been prepared, in all material respects, in accordance with thebasis of preparation and accounting policy notes which describe how IFRS havebeen applied under IFRS 1 First-time Adoption of International FinancialReporting Standards and the assumptions made by the directors of the Companyabout the standards and interpretations expected to be effective, and thepolicies expected to be adopted, when they prepare the first complete set ofconsolidated IFRS financial statements of the Group for the year ended 30 June2006. 20 January 2006 KPMGChartered AccountantsRegistered Auditors This information is provided by RNS The company news service from the London Stock Exchange